Methodology for the retention preserving real capital

1. Retention

The amount to be retained pursuant to Article 8(4) in respect of a financial year is the amount necessary so that the capital of the Reserve at the end of that year, measured at fair value, is not lower in real terms than its capital at the end of the preceding financial year, after account is taken of: (a) inflation, measured by the harmonised index of consumer prices for the Union published by the Commission (Eurostat); (b) unrealised changes in the fair value of the Reserve's holdings, to the extent recognised under point 3.

2. Distributable amount

The distributable amount for a financial year is the realised income of the Reserve for that year, comprising dividends, interest, proceeds of disposals in excess of carrying value and other realised returns, less the retention under point 1 and less the administrative costs of the Reserve. Where the retention under point 1 equals or exceeds realised income, the distributable amount is zero; the shortfall is carried forward and retained from the realised income of subsequent years before any distribution.

3. Smoothing

For the purposes of point 1, changes in fair value are recognised evenly over five financial years from the year in which they arise. The distributable amount for a financial year does not exceed the greater of: (a) 125 % of the average of the distributable amounts for the three preceding financial years; and (b) 2 % of the capital of the Reserve at the end of that year.

4. Exclusions

For the purposes of point 2, realised income excludes amounts obtained by borrowing and the proceeds of disposals of holdings effected for the purpose of funding a distribution.