Downing Strategic Micro Cap Investment Trust : Circular and Notice of General Meeting

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. IT CONTAINS PROPOSALS RELATING TO DOWNING STRATEGIC MICRO-CAP INVESTMENT TRUST PLC (THE "COMPANY") ON WHICH YOU ARE BEING ASKED TO VOTE. If you are in any doubt about the contents of this document or the action you should take, you are recommended to immediately seek your own independent financial advice from your stockbroker, bank manager, solicitor, accountant or other appropriately qualified independent financial adviser, 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.

If you sell or transfer, or have sold, transferred or otherwise disposed of, all your Ordinary Shares in the Company, please send this document, but not the accompanying personalised Form of Proxy, as soon as possible to the purchaser or transferee, or to the stockbroker, bank or other agent through whom the sale, transfer or disposal was effected, for onward transmission to the purchaser or transferee, except that such documents should not be forwarded, distributed or transmitted in or into any jurisdiction under any circumstances where to do so might constitute a violation of the relevant securities laws and regulations in such jurisdiction. If you have sold, transferred or otherwise disposed of only part of your holding of Ordinary Shares in the Company, you should retain this document and the accompanying personalised Form of Proxy and contact immediately the stockbroker, bank or other agent through whom you made the sale, transfer or disposal.

DOWNING STRATEGIC MICRO-CAP INVESTMENT TRUST PLC

(Incorporated and registered in England and Wales under the Companies Act 2006 with registered number 10626295)

Recommended Proposal for the adoption of a B Share Scheme

to allow for the return of capital to Shareholders

and

Notice of General Meeting

Shareholders should read the whole of this document. Shareholders' attention is drawn, in particular, to the risk factors set out in Part 4 (Risks Associated with the Proposal) of this document and to the letter from the Chair of the Company that is set out in Part 1 (Letter from the Chair) of this document which contains the unanimous recommendation from the Directors that Shareholders vote in favour of the Resolutions to be proposed at the General Meeting.

Capitalised terms used throughout this document shall have the meanings ascribed to them in the section titled Definitions of this document, unless the context otherwise requires.

The contents of this document should not be construed as legal, financial or tax advice. Each Shareholder should consult their own legal, financial or tax adviser (as appropriate).

Notice of a general meeting of the Company to be held at the offices of Dickson Minto, Dashwood House, 69 Old Broad Street, London EC2M 1QS at 2.00 p.m. on 3 April 2024 (the "General Meeting") is set out at the end of this document. Details of the action you are recommended to take are set out on page 8 of this document.

Whether or not you intend to be present at the General Meeting, you are requested to complete, sign and return the Form of Proxy for use in connection with the General Meeting which accompanies this document. To be valid the Form of Proxy must be completed and signed in accordance with the instructions printed thereon and delivered to the Company's registrar, Computershare Investor Services PLC (the "Registrar"), at The Pavilions, Bridgwater Road, Bristol BS99 6ZY as soon as possible and, in any event, so as to arrive not later than 2.00 p.m. on 28 March 2024 (or, in the case of any adjournment of the General Meeting, not later 48 hours (excluding non-Business Days) before the time fixed for the holding of the adjourned meeting). Alternatively, you may submit your proxy electronically by using the following link and the details provided on the Form of Proxy: www.investorcentre.co.uk/eproxy. Proxies submitted electronically must be transmitted so as to be received by the Registrar by no later than 2.00 p.m. on 28 March 2024 (or, in the case of any adjournment of the General Meeting, not later than 48 hours (excluding non-Business Days) before the time fixed for the holding of the adjourned meeting).

If you hold Ordinary Shares in CREST you may also appoint a proxy by completing and transmitting a CREST Proxy Instruction to the Registrar (CREST participant ID 3RA50) in accordance with the procedures set out in the CREST Manual. Alternatively, you may give proxy instructions by logging onto www.euroclear.com and following the instructions. Proxies sent electronically through CREST must be sent as soon as possible and, in any event, so as to be received not later than 2.00 p.m. on 28 March 2024 (or, in the case of any adjournment of the General Meeting, not later than 48 hours (excluding non-Business Days) before the time fixed for the holding of the adjourned meeting).

The completion and return of a Form of Proxy (or electronic appointment of a proxy) will not prevent Shareholders from attending and voting at the General Meeting, or any adjournment thereof, in person, should they wish to do so.

No application will be made to the Financial Conduct Authority or to the London Stock Exchange for any of the B Shares to be admitted to the Official List or to trading on the London Stock Exchange's main market for listed securities, nor will any of the B Shares be listed or admitted to trading on any other securities or investment exchange.

The availability of the B Share Scheme and a Return of Capital to Shareholders who are not resident in the United Kingdom may be affected by the laws of the relevant jurisdiction in which they are located. Persons who are not resident in the United Kingdom should read the paragraph headed "Overseas Shareholders" set out in Part 2 of this document and should inform themselves about, and observe, any applicable legal or regulatory requirements.

The B Shares will not be registered under the US Securities Act or with any state or other jurisdiction of the United States, and none of the B Shares may be reoffered, resold, pledged or otherwise transferred in or into the United States or to any US persons except pursuant to a transaction that has been registered under the US Securities Act and with the relevant state and other jurisdictions or a transaction that is exempt from, or otherwise not subject to, the securities laws of such jurisdictions.

Neither the B Shares nor this document have been approved, disapproved or otherwise recommended by any US federal or state securities commission or other regulatory authority or any non-US securities commission or regulatory authority, nor have such authorities passed upon or endorsed the merits of the B Share Scheme or a Return of Capital or confirmed the accuracy or determined the adequacy of this document. Any representation to the contrary is a criminal offence in the United States.

This document does not constitute an offer or invitation to participate in the B Share Scheme or a Return of Capital in or from any jurisdiction in or from which, or to or from whom, it is unlawful to make such an offer or invitation to participate under applicable securities laws or otherwise.

No person has been authorised to give any information or make any representation other than those contained in this document and, if given or made, such information or representation must not be relied on as having been so authorised. The delivery of this document shall not, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date of this document or that the information in it is correct at any subsequent time.

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	CONTENTS
		Page
EXPECTED TIMETABLE OF EVENTS	4
PART 1 LETTER FROM THE CHAIR	5
PART 2	DETAILS OF THE B SHARE SCHEME	10
PART 3	RIGHTS AND RESTRICTIONS ATTACHED TO B SHARES	13
PART 4	RISKS ASSOCIATED WITH THE PROPOSAL	16
PART 5	UNITED KINGDOM TAXATION	18
DEFINITIONS	21
NOTICE OF GENERAL MEETING OF DOWNING STRATEGIC MICRO-CAP INVESTMENT
TRUST PLC	24

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EXPECTED TIMETABLE OF EVENTS

Latest time for receipt of Forms of Proxy and electronic		2024
2.00 p.m. on 28 March
appointments of proxies in respect of the General Meeting
General Meeting	2.00 p.m. on 3 April
Record Date in respect of the first Return of Capital	6.00 p.m. on 3	April
Issue and allotment of B Shares in respect of the first Return of Capital	4	April
Redemption Date in respect of the first Return of Capital	4	April
Payment date in respect of the first Return of Capital: (i) cheques
or electronic payment posted to certificated Shareholders; and	by 9	April
(ii) uncertificated holders credited with funds through CREST

Notes

1. All references to time in this document are to London time, unless otherwise stated.

2. The times and dates set out in the expected timetable above and mentioned throughout this document may be adjusted by the Company, in which event details of the new times and/or dates will be notified, as required, to the FCA and the London Stock Exchange and, where appropriate, to Shareholders and an announcement will be made through a Regulatory Information Service.

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PART 1

LETTER FROM THE CHAIR

DOWNING STRATEGIC MICRO-CAP INVESTMENT TRUST PLC

(Incorporated and registered in England and Wales under the Companies Act 2006 with registered number 10626295)

Directors:	Registered Office:
Hugh Aldous (Chair)	The Office Suite, Den House
Linda Bell	Den Promenade
William Dawkins	Teignmouth TQ14 8SY
Robert Legget
Dear Shareholder	8 March 2024

Recommended Proposal for the adoption of a B Share Scheme to allow for the return of

capital to Shareholders and Notice of General Meeting

Introduction

At a general meeting of the Company held on 28 February 2024, Shareholders approved a change to the investment objective and policy of the Company. Pursuant to this change, the Company is now managed with the intention of realising its portfolio in a prudent manner consistent with the principles of good investment management and with a view to returning 100 per cent. of Shareholders' capital in cash, to Shareholders in an orderly manner.

After careful consideration, the Board believes that one of the fairest and most efficient ways of returning substantial amounts of cash to Shareholders is by means of a bonus issue of redeemable B Shares which would then be immediately redeemed by the Company in consideration for a cash payment equal to the amount treated as paid up on the issue of the B Shares. Adoption of the B Share Scheme is conditional on the approval of Shareholders at the General Meeting to be held on 3 April 2024, notice of which is set out at the end of this document. If Shareholders pass the required Resolutions at the General Meeting, the B Share Scheme will be able to be implemented, and cash returned to Shareholders, without any further action being required by Shareholders.

If the Resolutions are passed at the General Meeting, the Board currently intends that as a minimum approximately £10 million in aggregate (representing approximately 21.5 pence per Ordinary Share) will be available to be returned to Shareholders by way of an initial Return of Capital under the B Share Scheme in early April 2024. This is equal to 33 per cent. of the Company's Net Asset Value as at 6 March 2024. The Board further believes that it will still be able to return approximately a further £5.2 million (representing 17 per cent. of the Company's Net Asset Value as at 6 March 2024) by the end of June 2024 making a total return by then of over 50 per cent. of Shareholders' current capital.

The quantum and timing of any further Return(s) of Capital to Shareholders under the B Share Scheme (if any) will be at the discretion of the Board and will be dependent on the realisation of the Company's investments and its liabilities, general working capital requirements and the amount and nature (from a tax perspective) of its distributable reserves from time to time. The Company's Investment Manager is currently ahead of expectations across the portfolio with liquidity having been achieved without detriment to the listed valuations.

The purpose of this document is to provide Shareholders with further details of the proposed B Share Scheme and to give notice of the General Meeting at which the Resolutions required to adopt and implement the B Share Scheme will be proposed.

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B Share Scheme

Advantages of returning cash via B Shares

The advantages of returning capital via the B Share Scheme rather than via a tender offer are as follows.

(a) It reduces costs for the Company, as it is currently anticipated that additional circulars will not need to be prepared to give effect to any future Returns of Capital as is the case with tender offers. In the event the Resolutions are passed at the General Meeting details of any Return of Capital would be notified to Shareholders through a Regulatory Information Service and, subject to any change in existing United Kingdom tax law (and in contrast to a tender offer where stamp duty at the rate of 0.5 per cent. of the tender price is payable), no stamp duty would be payable on a Return of Capital.

(b) Subject to the Resolutions being passed at the General Meeting, Shareholders should not be required to take any further action to give effect to the first Return of Capital or any further Returns of Capital. In the light of the capital returns under the B Share Scheme being mandatory and applicable to all Shareholders on a pro rata basis, all Shareholders are treated equally and no further action would be required from any Shareholders in order for them to be able to participate in the B Share Scheme, including the first Return of Capital.

(c) There is greater certainty for the Company regarding the rate of Returns of Capital to Shareholders (unlike tender offers).

However, for some Shareholders, there may be some disadvantages in returning capital via the B Share Scheme, relating to the timing, mandatory nature of the scheme and the way they structure their shareholding in the Company. One consequence of this straightforward process is that Shareholders will receive their cash payment in accordance with the structure within which they hold their Shares when the B Shares are issued.

How will cash be returned via the B Shares?

Subject to the Resolutions being passed at the General Meeting, the B Share Scheme will provide the Company with a mechanism to return cash to Shareholders at such time or times as the Board may, at its absolute discretion, determine. B Shares would be issued to Shareholders (at no cost to Shareholders) pro rata to their holdings of Ordinary Shares at the time of issue of the B Shares and, shortly thereafter, redeemed and cancelled in accordance with their terms for an amount not exceeding the amount treated as paid up on the issue of the B Shares. The Company will not allot any fractions of B Shares and entitlements will be rounded down to the nearest whole B Share.

Following the redemption and cancellation of the B Shares, the redemption proceeds would be sent to Shareholders, either through CREST to uncertificated Shareholders or via cheque or electronic payment (if there is an electronic payment mandate on file) to certificated Shareholders. Each issue and redemption of B Shares would be announced via a Regulatory Information Service.

Further details of the B Share Scheme are set out in Part 2 of this document. Proposed Initial Return of Capital

Subject to the passing of the Resolutions at the General Meeting, the Board intends to return, in aggregate, approximately £10 million to Shareholders via an initial issue and redemption of B Shares. B Shares of £1.00 each will be paid up from the Company's reserves and issued to all Shareholders by way of a bonus issue pro rata to their holdings of Ordinary Shares, currently expected to be on the basis of one B Share for every five Ordinary Shares held at the Record Date of 6.00 p.m. on 3 April 2024. The B Shares will be issued on 4 April 2024 and immediately redeemed at £1.00 per B Share. The Redemption Date in respect of this Return of Capital will be 4 April 2024. It is expected that the proceeds from the redemption of the B Shares, which is equivalent to approximately 21.5 pence per Ordinary Share (based on the issued ordinary share capital of the Company as at the Latest Practicable Date), will be sent to Shareholders through CREST (in respect of uncertificated Shareholders) or via cheque or electronic payment (in respect of certificated Shareholders) by 9 April 2024. The proposed initial Return of Capital represents approximately 33 per cent. of the Company's Net Asset Value as at 6 March 2024, being the latest published unaudited Net Asset Value prior to the publication of this document.

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Taxation of the B Share Scheme

The structure of a B Share Scheme should result in UK individual tax payers receiving their cash proceeds on the redemption of the B Shares as capital. Based on current United Kingdom tax law, it is expected that each redemption of B Shares should be treated as a disposal by the Shareholder of their Ordinary Shares for United Kingdom tax purposes. This may, subject to the Shareholder's individual circumstances and any available exemption or relief, give rise to a chargeable gain (or allowable loss) for the purposes of United Kingdom taxation of capital gains.

Each redemption of B Shares will be treated as the receipt of an income distribution for corporate Shareholders for United Kingdom tax purposes.

For further information regarding UK taxation on redemptions of B Shares please see Part 5 of this document.

Further information on the B Shares

No share certificates will be issued in relation to the B Shares and no CREST accounts will be credited with any such shares.

No application will be made to the Financial Conduct Authority or to the London Stock Exchange for any of the B Shares to be admitted to the Official List or to trading on the London Stock Exchange's main market for listed securities, nor will any of the B Shares be listed or admitted to trading on any other securities or investment exchange.

The B Shares will be non-transferable,non-equity shares and will have limited rights. The rights and restrictions attached to the B Shares are set out more fully in Part 3 of this document.

Change to the Investment Manager's fee

As detailed in a shareholder circular published on 2 February 2024, the Board has agreed a new fee structure with the Company's Investment Manager so as to align the Investment Manager's interests with those of Shareholders in connection with the managed wind-down of the Company's portfolio.

Following Shareholder feedback received at the general meeting of the Company held on 28 February 2024, the Board and the Investment Manager have agreed that the change to the Investment Manager's fee structure shall apply from 1 January 2024.

General Meeting

The Proposal is subject to Shareholder approval. A notice convening the General Meeting that is to be held at the offices of Dickson Minto, Dashwood House, 69 Old Broad Street, London EC2M 1QS on 3 April 2024 at 2.00 p.m. is set out at the end of this document.

Resolution 1 is proposed as a special resolution and Resolutions 2 and 3 as ordinary resolutions. Together they seek approval for the adoption and implementation of the proposed B Share Scheme. Resolution 1 relates to the adoption of New Articles of Association that set out the rights and restrictions attached to the B Shares as described in Part 3 of this document.

Resolution 2 (which is conditional on Resolution 1 being passed) authorises the Directors to capitalise from time to time any sums standing to the credit of any reserve of the Company (including, in particular, the Company's special reserve) and to apply such sums for the purposes of paying up in full up to 100,000,000 B Shares to be allotted and issued to Shareholders pro rata to their holdings of Ordinary Shares at the Record Date in respect of the relevant issue of B Shares.

Resolution 3 (which is conditional on Resolutions 1 and 2 being passed) authorises the Directors to allot and issue B Shares from time to time up to an aggregate nominal amount of £100,000,000 on a pro rata basis to the holders of Ordinary Shares by way of one or more bonus issues. If approved, this authority to allot and issue B Shares will expire at 11.59 p.m. on 3 April 2029 (being the fifth anniversary of the date when Resolution 3 is expected to be passed).

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All Shareholders are entitled to vote at the General Meeting. Each Resolution will be voted on by way of a poll. In accordance with the Articles, all Shareholders entitled to vote and who are present in person or by proxy at the General Meeting shall upon a poll have one vote in respect of every Ordinary Share held.

Shareholders are strongly encouraged to appoint the Chairman of the General Meeting as their proxy to vote on their behalf at the General Meeting. This should ensure that your votes are registered.

A copy of the New Articles and the Articles marked to show the changes will be available during normal business hours (Saturdays, Sundays and public holidays excepted) at the Company's registered office from the date of this document up to and including close of business on 3 April 2024 and at the venue of the General Meeting for at least 15 minutes prior to the start of the meeting and up until the close of the meeting. A copy of the New Articles will also be available for review on the Company's website at https://www.downingstrategic.co.uk/ and submitted to the National Storage Mechanism which is available for inspection at https://data.fca.org.uk/a/nsm/nationalstoragemechanism.

Action to be taken

All Shareholders are encouraged to vote in favour of the Resolutions to be proposed at the General Meeting and, if the Ordinary Shares are not held directly, to arrange for their nominee to vote on their behalf.

A Form of Proxy for use in connection with the General Meeting is enclosed with this document. Whether or not you intend to attend the General Meeting in person, you are requested to appoint a proxy electronically via the Registrar's online proxy voting service at www.investorcentre.co.uk/eproxy (see Note 4 to the Notice of General Meeting for instructions) or by completing, signing and returning the enclosed Form of Proxy, in each case as soon as possible but, in any event, so as to be received by the Registrar by not later than 2.00 p.m. on 28 March 2024 (or, if the General Meeting is adjourned, 48 hours (excluding non-Business Days) prior to the adjourned General Meeting). Completed Forms of Proxy should be returned by post to the Registrar, Computershare Investor Services PLC, at The Pavilions, Bridgwater Road, Bristol BS99 6ZY. If an electronic proxy appointment or Form of Proxy, as the case may be, is not received by the aforementioned date and time it will be invalid.

If you hold Ordinary Shares in CREST, you may appoint a proxy by completing and transmitting a CREST Proxy Instruction to the Registrar (CREST Participant ID 3RA50) so that it is received by not later than 2.00 p.m. on 28 March 2024 (or, if the General Meeting is adjourned, 48 hours (excluding non-Business Days) prior to the adjourned General Meeting). The time of receipt will be taken to be the time from which the Company's Registrar is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. If a CREST Proxy Instruction is not received by the aforementioned date and time it will be invalid.

Appointing a proxy online, completing, signing and returning a hard copy Form of Proxy or completing and transmitting a CREST Proxy Instruction will not preclude Shareholders from attending and voting at the General Meeting in person, should they so wish.

In accordance with current best practice and to ensure voting accurately reflects the views of Shareholders, it will be proposed at the General Meeting that voting on each Resolution will be conducted by way of a poll vote rather than by a show of hands and the relevant procedures will be explained at the General Meeting.

If you are in any doubt as to the action you should take, you are recommended to seek your own financial and/or legal advice immediately from your stockbroker, bank manager, solicitor, accountant or other independent financial adviser authorised under FSMA if you are resident in the United Kingdom or, if not, from another appropriately authorised independent financial adviser.

Recommendation

The Board considers that the Proposal as set out in this document and the Resolutions to be proposed at the General Meeting are in the best interests of the Company and its Shareholders as a whole. Accordingly, the Board unanimously recommends that Shareholders vote in favour of the Resolutions to be proposed at the General Meeting.

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The Directors intend to vote in favour, or procure votes in favour, of the Resolutions at the General Meeting in respect of their own beneficial holdings of Ordinary Shares, which in aggregate amount to 242,495 Ordinary Shares (representing approximately 0.5 per cent. of the issued Ordinary Share capital (excluding Ordinary Shares held in treasury) of the Company as at the Latest Practicable Date).

Yours faithfully

Hugh Aldous

Chair

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PART 2

DETAILS OF THE B SHARE SCHEME

1. CONDITIONS TO THE IMPLEMENTATION OF THE B SHARE SCHEME

The adoption and implementation of the B Share Scheme requires, and is conditional upon, Shareholder approval of the Resolutions at the General Meeting. The Notice of General Meeting is set out at the end of this document and a summary explanation of the Resolutions to be proposed at the General Meeting is set out in paragraph 8 below. The action to be taken by Shareholders is set out on page 8 of this document.

If the Resolutions are not passed by the requisite majorities of Shareholders then the Company will be unable to return surplus cash from time to time to Shareholders by way of the B Share Scheme, although cash may still be returned in other ways.

2. RETURNS OF CAPITAL TO SHAREHOLDERS

A Return of Capital will involve the allotment and issue of B Shares to Shareholders and the redemption of the B Shares by the Company.

It is the intention of the Board that, subject to the passing of the Resolutions at the General Meeting, an initial Return of Capital pursuant to the B Share Scheme will be completed in early April 2024. The Record Date in respect of this Return of Capital will be 6.00 p.m. on 3 April 2024, the Redemption Date will be 4 April 2024 and the Redemption Price will be £1 per B Share.

The quantum and the timing of any further Return(s) of Capital will be at the discretion of the Board. However, the Board believes, in consultation with the Investment Manager, that within the first six months of 2024 up to, or exceeding, 50 per cent. of the Company's Net Asset Value could be returned to Shareholders in cash (assuming current bids for certain of the Company's investments complete by then). Details of any further Return of Capital, including the relevant Record Date, Redemption Price and Redemption Date, will be announced through a Regulatory Information Service.

The adoption of a B Share Scheme will not limit the ability of the Company to return cash to Shareholders by using other mechanisms and, if the B Share Scheme is adopted, the Board will continue to review its tax effectiveness and cost efficiency over time. Further details of the Board's intention to implement the B Share Scheme and make an initial Return of Capital to Shareholders are set out below.

The Board's Proposal to adopt a B Share Scheme at this point in time should not be taken as any indication as to the frequency or quantum of any future returns of cash to Shareholders.

3. ALLOTMENT AND ISSUE OF AND RIGHTS ATTACHING TO THE B SHARES

For the purposes of making an issue of B Shares, it is proposed that the Directors be authorised to capitalise from time to time amounts standing to the credit of the Company's reserves available for the purpose of making a bonus issue of shares in accordance with the Act and article 139 of the New Articles of Association. These aggregate capitalised amounts will be used from time to time to pay up in full, B Shares with a nominal value of £1.00 each on the basis that the aggregate nominal value of the B Shares so issued on each such occasion will not exceed the aggregate sum or sums capitalised on each such occasion for the purposes of such B Share issue. The aggregate maximum number of B Shares that may be issued by the Company over time under the B Share Scheme will not exceed £100,000,000 and the aggregate nominal value of all B Shares issued will not exceed £100,000,000.

Under the New Articles of Association, the Directors may, provided they obtain the relevant authority of Shareholders which is being sought at the General Meeting, capitalise any sum standing to the credit of any reserve of the Company (including, in particular, the Company's special reserve) for the purposes of paying up, allotting and issuing B Shares to Shareholders.

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