TWENTYFOUR SELECT MONTHLY INCOME FUND LIMITED
TWENTYFOUR SELECT MONTHLY INCOME FUND LIMITED
REPORT AND AUDITED FINANCIAL STATEMENTS
For the year ended 30 September 2015
The Directors of TwentyFour Select Monthly Income Fund Limited announce the
results for the year ended 30 September 2015. The Report will shortly be
available via the Company's Portfolio Manager's website www.twentyfouram.com
and will shortly be available for inspection online at www.morningstar.co.uk/uk
/NSM
SUMMARY INFORMATION
The Company
TwentyFour Select Monthly Income Fund Limited (the "Company") was incorporated
with limited liability in Guernsey, as a closed-ended investment company on 12
February 2014. The Company's shares were listed with a Premium Listing on the
Official List of the UK Listing Authority and admitted to trading on the Main
Market of the London Stock Exchange on 10 March 2014.
Investment Objective and Investment Policy
The Company's investment objective is to generate attractive risk adjusted
returns, principally through income distributions.
The Company's investment policy is to invest in a diversified portfolio of
credit securities.
The portfolio may be comprised of any category of credit security, including,
without prejudice to the generality of the foregoing, bank capital, corporate
bonds, high yield bonds, leveraged loans, payment-in kind notes and asset
backed securities. The portfolio will include securities of a less liquid
nature. The portfolio will be dynamically managed by TwentyFour Asset
Management LLP (the "Portfolio Manager") and, in particular, will not be
subject to any geographical restrictions.
The Company maintains a portfolio diversified by issuer; the portfolio
comprises at least 50 Credit Securities. No more than 5% of the portfolio value
will be invested in any single Credit Security or issuer of Credit Securities,
tested at the time of making or adding to an investment in the relevant Credit
Security. Uninvested cash, surplus capital or assets may be invested on a
temporary basis in:
* Cash or cash equivalents, money market instruments, bonds, commercial paper
or other debt obligations with banks or other counterparties having a
''single A'' or higher credit rating as determined by any internationally
recognised rating agency which, may or may not be registered in the EU; and
* Any ''government and public securities'' as defined for the purposes of the
Financial Conduct Authority (the "FCA") Rules.
Efficient portfolio management techniques are employed by the Company, such as
currency hedging, interest rate hedging and the use of derivatives to manage
key risks such as interest rate sensitivity and to mitigate market volatility.
The Company's currency hedging policy will only be used for efficient portfolio
management and not to attempt to enhance investment returns.
The Company will not employ gearing or derivatives for investment purposes. The
Company may use borrowing for short-term liquidity purposes, which could be
achieved through a loan facility or other types of collateralised borrowing
instruments including repurchase transactions and stock lending. The Articles
restrict the borrowings of the Company to 10% of the Company's Net Asset Value
("NAV") at the time of drawdown.
The Company has a target net total return on the original issue price of
between 8 and 10% per annum. This comprises a target dividend payment of 6p and
a target capital return of 2p-4p both based on the original issue amount of
100p. There is no guarantee that this can or will be achieved.
Shareholder Information
Phoenix Fund Services (UK) Limited ("Phoenix") is responsible for calculating
the NAV per share of the Company. Phoenix delegate this responsibility to
Northern Trust International Fund Administration Services (Guernsey) Limited
(the "Administrator") however Phoenix still performs an oversight function. The
unaudited NAV per Ordinary Share will be calculated as at the close of business
on every Wednesday that is also a business day and the last business day of
every month and will be announced by a Regulatory Information Service the
following business day.
Financial Highlights
Year ended For the period
30.09.15 from 12.02.14
(date of
incorporation)
to 30.09.14
Total Net Assets £134,560,344 £123,194,466
Net Asset Value per share 92.59p* 98.41p
Share price at 30 September 2015 96.63p 102.75p
Premium to Net Asset Value 4.36% 4.41%
Dividends declared in respect of the profit 6.53p 3.07p
for the year
*Including dividends, the NAV per share total return was 0.7%, for further
detail refers to the Chair's Statement on page 5.
As at 14 January 2016, the premium had moved to 3.0%. The estimated NAV per
share and share price stood at 89.81p and 92.50p respectively.
Ongoing Charges
Ongoing charges for the year ended 30 September 2015 have been calculated in
accordance with the Association of Investment Companies (the "AIC") recommended
methodology. The ongoing charges for the year ended 30 September 2015 were
1.19% (30 September 2014: 1.16%).
CHAIR'S STATEMENT
for the year ended 30 September 2015
The market environment that prevailed in the 12 months to 30 September 2015 was
difficult. Spreads on the European High Yield sector widened by over 1.5%,
giving a total market return of just over 0.2% and a negative price performance
of almost 5%. Given this backdrop the Company's portfolio also struggled in
price terms, although a consistent level of income was generated. The NAV per
share fell by 5.9% during the year. Total dividends for the year were 6.53p,
ahead of the 6p target, which created a NAV per share total return of 0.7%.
The Company's shares continued to trade at a premium to NAV and approximately
20 million new shares were issued during the twelve months, with no shares
having to be redeemed under the quarterly realisation mechanism.
The investment portfolio continues to meet an acceptable level of diversity and
yield. The focus continues to be on Euro denominated credit (swapped back to
Sterling) as the Portfolio Manager anticipates that European Central Bank (ECB)
support through quantitative easing and low interest rates is likely to tighten
spreads on high yield bonds, which should in turn outperform government bonds
where rates are unlikely to go lower.
While bond prices are currently depressed and there are further potential
negative global headwinds to navigate in 2016, the Portfolio Manager is
confident that, over the medium to long term, the negative price performance
will be reversed. The Portfolio Manager expects low interest rates and low
default rates to remain over the medium term. Volatility is however expected to
increase, as US interest rates rise and geopolitical risks remain high. The
Portfolio Manager anticipates that these periods of enhanced volatility will
represent opportunities to source suitable new investments. Additionally the
uncertainty surrounding the position of the UK in Europe is likely to be a risk
but also a source of opportunity.
The Board will continue to work closely with TwentyFour Asset Management LLP on
monitoring developments in the fixed income market and ensuring that the
Company's portfolio is appropriately positioned to maximise Shareholder returns
over the long term.
Claire Whittet
Chair
14 January 2016
PORTFOLIO MANAGER'S REPORT
for the year ended 30 September 2015
The Company increased the capital issuance over the 12-month period by
approximately £20m, averaging just under £1,700,000 per month. This included a
one-off £10m tap issue at the end of January 2015 as a result of investor
demand and favourable opportunities to invest the proceeds in the market.
The Company is an unconstrained fixed income vehicle, able to take advantage of
any illiquidity premium associated with 'off-the-run' bonds and aged legacy
issues. These portfolio components primarily consist of Asset Backed Securities
(ABS), Bank Capital and High Yield corporate bonds, which remain unchanged from
the initial marketing information and initial allocation of the Company at the
end of the ramp-up period. There are no constraints in terms of geographical
diversity but the asset allocation bias of the Company remains European.
Given the nature of the products being sourced for the Company (less-liquid
assets with relatively robust credit-metrics) the Portfolio Manager needs a
degree of secondary market activity in order to dis-lodge the positions from
investors; periods of low market activity are not conducive for this.
The early part of this 12-month period did see some pick up in volatility
premium, with US equities undergoing a 10% fall followed by a quick recovery.
The Bank of Japan took the market by surprise with a significant increase in
its domestic Quantitative Easing (QE) programme, swiftly followed by the ECB
who announced its own asset purchase programme which was initially focused on
bank covered bonds and ABS. However, adding to investor concerns was the
continued decline in commodity prices (particularly crude oil) and a spike in
geopolitical risks as Russia and the Ukraine squabbled over separatist rights
in the border region. In Europe, sentiment was weakened yet again by Greece as
a surprise election in Greece brought in the anti-austerity Syriza party, who
won on a promise of anti-austerity measures in complete defiance of the
European Union (EU) leadership; thereby rekindling the talk of a fracture in
the Eurozone harmony and membership. In the credit markets, the ECB released
their Asset Quality Review tests for the EU domiciled banks, which showed
growing resilience of the banks due to improved capital buffers. The end of
2014 brought about a spate of skittish market behavior with traditional
correlations breaking down as US equities hit all-time highs, commodities were
sold off and US Treasury yields rallied. This was primarily due to expectations
that the first Fed Funds rate hike would be pushed back into mid-2015. The
start of 2015 was no less dramatic as the Swiss National Bank shocked markets
by announcing it was to abandon the CHF1.20 floor against the EURO which
resulted in an immediate 30% appreciation of the Swiss Franc. Then, to help
settle markets, Mario Draghi surpassed all expectations by announcing an
expansion in the ECB purchase programme to €60bn per month (until September
2016 at the earliest) to include Euro area sovereign bonds and Euro agencies;
resulting in an obvious impact on government bonds across the Eurozone
(exception being Greece with their new Syriza government).
As feared, the Greek government pledged that they were no longer going to
adhere to the terms of the EU/IMF bailout and would endeavour to renegotiate
them. Naturally the Eurozone finance ministers rejected this and a classic
stand-off resulted which didn't help market sentiment. Counter-balancing this
was the ECB's announcement of outright QE that helped stock indices rally to
new highs and government bond yields fall to new lows. In Germany the 30 year
Bunds dipped below 1% yield and over 50% of the Euro sovereign bond market
moved to negative yields, which was clearly untenable in the long run. Across
the other side of the Atlantic the US Fed continued with its measured rhetoric
but omitted 'patience' from its Federal Open Markets Committee (FOMC) minutes
and focus began to shift towards the strength of the USD against its basket of
traded currencies, with many market participants suggesting that this USD
rally, together with relatively benign economic data, would force the Fed to
push back any rate rise into late 2015. The uncertainty became embedded in the
market forcing many investors to the side-lines.
Market activity continued to be muted throughout the summer months with
investors retreating to cash as Greece flirted precariously close to
non-payment of an ECB loan and Euro exit, which in turn led to increased
rhetoric regarding contagion across the wider Eurozone region and dealers
pulled bids back as a consequence. With the Greek impasse only being resolved
on 20 July 2015 deadline day (of an ECB loan repayment), market activity had
little time to recover being so close to the traditional summer break with a
very limited time opportunity to launch new bond deals.
Through late July and August 2015 attention began to focus on China and the
growing expectations of a slowdown in growth. As a result commodity prices
depreciated further, which fuelled the concerns about deflationary pressures
elsewhere. This also had the knock-on effect of lowering the likelihood of the
FOMC hiking Fed Funds in September 2015 (which indeed were kept on hold).
Concerns of a Chinese slowdown were then amplified by the announcement that the
Chinese authorities had ordered the state run fund to initiate domestic equity
buying whilst suspending large investors from selling hundreds of stocks, to
try and stabilise the market. This ultimately had the opposite effect as
investors interpreted the actions as being a panic policy and confirming the
view that growth outlook was weak as some pessimists had claimed. A reduction
in the Chinese reserve requirement by the People's Bank of China swiftly
followed which weakened the currency and slowed the extent of the sell-off, but
conditions across all markets remain cautious with volumes remaining poor.
Equity markets sold off sharply and there was obvious contagion in fixed income
assets (albeit not as bad as feared) with credit bid-offer spreads widening and
trading volumes deteriorating substantially - hence the ability to source cheap
assets remained a frustrating challenge. The Jackson Hole Symposium, held at
the end of the summer shed little light on the Fed's stance and the FOMC on 17
September 2015 left rates unchanged coupled with a rather dovish comment which
left the market in a continued state of flux.
In summary, the credit markets have been hampered by acute market uncertainty
which has severely impaired trading activity. Since the summer there has been
an improvement in primary market activity in the High Yield (HY) and financial
sectors, which has created opportunities in the instruments we follow.
In terms of the current portfolio themes, the Portfolio Manager continues to
have high conviction on Euro convergence and remain confident that European
credit will outperform the USA or emerging markets (EM) regions as the ECB
purchase programme continues to support the local regional market. The current
portfolio is likely to be affected by the medium term swings in sentiment,
driving the mark-to-market levels, but credit conditions for the underlying
components remains supportive. In terms of cash flow and income generation the
Company looks set to perform as expected and hence the Portfolio Manager has no
significant concerns about meeting the minimum dividend performance as
determined in the prospectus.
TwentyFour Asset Management LLP
14 January 2016
TOP TWENTY HOLDINGS
As at 30 September 2015
Nominal/ Credit Security Fair Value Percentage of
*
Shares Sector £ Net Asset
Value
NWIDE 10 1/4 06/29/49 39,000 Banks 5,012,126 3.72
COVBS 6 3/8 12/29/49 4,240,000 Banks 4,030,979 3.00
SOCGEN 7 ? 12/29/49 5,870,000 Banks 3,875,227 2.88
BACR 7 7/8 12/29/49 3,500,000 Banks 3,522,505 2.62
HPARK 1X E 4,600,000 Asset Backed 3,122,194 2.32
Security
NEWLOK 8 07/01/23 3,200,000 High Yield 2,991,000 2.22
ABBEY 10 ? 12/31/49 2,000,000 Banks 2,968,648 2.21
LVFRSC 6 1/2 05/22/43 2,750,000 Insurance 2,733,913 2.03
CGMSE 2015-2X E 4,000,000 Asset Backed 2,690,349 2.00
Security
ACAFP 7 1/2 04/49 2,700,000 Banks 2,674,280 1.99
AVOCA 11X F 4,000,000 Asset Backed 2,608,698 1.94
Security
BUTSAS 7 3/8 09/15/19 3,500,000 High Yield 2,611,179 1.94
JUBIL 2014-12X F 3,950,000 Asset Backed 2,586,322 1.92
Security
BLIR 7 3/8 12/29/49 3,400,000 Banks 2,525,939 1.88
ARGID 8 3/8 06/15/19 3,258,691 High Yield 2,503,455 1.86
GALAGB 11.5 06/01/19 2,300,000 High Yield 2,456,166 1.83
AARB 7 5/8 11/29/49 3,400,000 Banks 2,463,311 1.83
TMFG 9 7/8 12/01/19 3,100,000 High Yield 2,438,980 1.81
VOYCAR 11 02/01/19 2,250,000 High Yield 2,365,313 1.76
AQUIL 2006-1X E 3,500,000 Asset Backed 2,346,144 1.74
Security
* Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date. For further information refer to note 2(e).
The full portfolio listing can be obtained from the Administrator on request.
BOARD MEMBERS
Biographical details of the Directors are as follows:
Claire Whittet - (Chair) (age 60)
Ms Whittet is a resident of Guernsey and has over 38 years' experience in the
banking industry and since 2003 has been a Director and, more recently,
Managing Director and Co-Head of Rothschild Bank International Ltd and a
Director of Rothschild Bank (CI) Ltd. Ms Whittet is also a non-executive
director of a number of listed funds. Ms Whittet began her career at the Bank
of Scotland where she was for 19 years in a variety of personal and corporate
finance roles. Subsequently, Ms Whittet joined Bank of Bermuda and was Global
Head of Private Client Credit before taking up her current position at
Rothschild.
Ms Whittet holds an MA from Edinburgh University, is a member of the Chartered
Institute of Bankers in Scotland, a member of the Chartered Insurance
Institute, a Chartered Banker, a member of the Institute of Directors and holds
the Institute of Directors Diploma in Company Direction. Ms Whittet was
appointed to the Board on 12 February 2014.
Christopher F. L. Legge - (Non-executive Director) (age 60)
Mr Legge is a Guernsey resident and worked for Ernst & Young in Guernsey from
1983 to 2003. Having joined the firm as an audit manager in 1983, he was
appointed a partner in 1986 and managing partner in 1998. From 1990 to 1998, he
was head of Audit and Accountancy and was responsible for the audits of a
number of banking, insurance, investment fund, property fund and other
financial services clients. He also had responsibility for the firm's training,
quality control and compliance functions. He was appointed managing partner for
the Channel Islands region in 2000 and merged the business with Ernst & Young
LLP in the United Kingdom. He retired from Ernst & Young in 2003.
Mr Legge currently holds a number of non-executive directorships in the
financial services sector including BH Macro Limited (FTSE 250) where he is
Senior Independent Director. He also chairs the Audit Committees of several UK
listed companies. He is an FCA and holds a BA (Hons) in Economics from the
University of Manchester. Mr Legge was appointed to the Board on 12 February
2014.
Thomas H. Emch - (Non-executive Director) (age 72)
Mr Emch is an independent Board member and consultant. He graduated from the
University of Zurich (lic.oec.publ.) and IMD (PED) in Lausanne. During his
professional career he successively was European Treasurer of Litton
International, SVP of Banque Paribas Suisse, EVP of Lombard Odier & Co. and CEO
of Royal Bank of Canada (Suisse), a position he held for 11 years until his
retirement in 1999. Throughout his banking career, he served on the Boards of
numerous companies and professional associations in Switzerland and abroad. Mr
Emch was appointed to the Board on 12 February 2014.
Ian Martin - (Non-executive Director) (age 52)
Ian Martin has over 30 years' experience in finance gathered in a variety of
multi asset investment focused roles in the UK, Hong Kong, Switzerland and
Uruguay. More recently he was the CIO and Head of Asset Management and Research
at Lloyds Bank in Geneva and then Head of Bespoke Portfolio Management and
Advisory for key clients in UBP Bank in Geneva. Previous roles have included
senior roles in equity derivatives and trading as well as CIO and Managing
Director of a Fund of Hedge fund company in the UK. Currently he is also a
Director of Avenue Capital Credit Opportunities Limited and Bedlam Family
Office. Mr Martin was appointed to the Board on 15 July 2014.DISCLOSURE OF DIRECTORSHIPS IN PUBLIC COMPANIES LISTED ON RECOGNISED STOCK
EXCHANGES
The following summarises the Directors' directorships in other public listed
companies:
Company Name Stock Exchange
Claire Whittet (Chair)
BH Macro Limited London, Bermuda and
Dubai
International Public Partnerships London
Limited
Riverstone Energy Limited London
Christopher
Legge
Ashmore Global Opportunities Limited London
Baring Vostock Investments PCC Channel Island
Limited
BH Macro Limited London, Bermuda and
Dubai
John Laing Environmental Assets Group Limited London
Schroder Global Real Estate Securities Limited London
Sherborne Investors (Guernsey) B London
Limited
Third Point Offshore Investors London
Limited
DIRECTORS' REPORT
The Directors present their Annual Report and Audited Financial Statements for
the year ended 30 September 2015.
Business Review
The Company
TwentyFour Select Monthly Income Fund Limited (the "Company") was incorporated
with limited liability in Guernsey, as a closed-ended investment company on 12
February 2014. The Company's Shares were listed with a Premium Listing on the
Official List of the UK Listing Authority and admitted to trading on the Main
Market of the London Stock Exchange on 10 March 2014.
Investment Objective and Policy
The investment objective and policy is set out in the Summary Information.
Discount/Premium to Net Asset Value
The Board monitors and manages the level of the share price discount/premium to
NAV. In managing this, the Company operates a share buyback facility whereby it
may purchase, subject to various terms as set out in its Articles and in
accordance with The Companies (Guernsey) Law, 2008, up to 14.99% of the
Company's Ordinary Redeemable Shares in issue immediately following Admission
for trading in the London Stock Exchange.
The Company also offers investors a Quarterly Tender, contingent on certain
factors, to provide Shareholders with a quarterly opportunity to submit
Ordinary Shares for placing or repurchase by the Company at a price
representing a discount of no more than 2% to the then prevailing NAV. For
additional information refer to note 16.
Shareholder Information
Shareholder information is set out in the Summary Information.
Going Concern
The Directors believe that, having considered the Company's investment
objective (see Summary Information), financial risk management (see note 16 to
the Financial Statements) and in view of its holding in cash and cash
equivalents, the liquidity of investments and the income deriving from those
investments, the Company has adequate financial resources and suitable
management arrangements in place to continue as a going concern for at least
twelve months from the date of approval of the financial statements.
Long Term Viability Statement
In accordance with the AIC Code, the Directors have assessed the prospects of
the Company over a longer period than the 12 months minimum required by the
'Going Concern' provision. The Board consider that three years is an
appropriate period to assess the viability of the Company.
The Board's assessment of the Company over the three year period has been made
with reference to the Company's current position and prospects, the Company's
strategy, and the Board's risk appetite having considered each of the Company's
principal risks and uncertainties summarised below. The Board has also
considered the Company's cash flows and income flows, its likely ability to pay
dividends and the portfolio analysis, including but not limited to liquidity
analysis, foreign exchange analysis, credit analysis and valuation analysis.
The analysis has taken the form of stress tests on the Company as well as cash
flow modelling based on a range of different market scenarios. All of the
foregoing have been considered against the background of the Company's dividend
target.
Key assumptions considered by the Board in relation to the viability of the
Company are as follows:
Continuation of the Company
The continuation vote requirements are set out in note 16.
Dividend Target
The ongoing viability of the Company and the validity of the going concern
basis depend on the Company meeting its dividend target annually during the
three-year period. In the event that the Company does not meet the dividend
target annually during the three-year period as disclosed in note 19, the
Directors will convene a general meeting in accordance with the continuation
vote requirements set out in note 16.
Quarterly Tenders
The Company has incorporated into its structure a mechanism for a quarterly
tender to narrow the risk of Ordinary Shares trading at a discount to NAV. It
is anticipated that the Company will tender on a quarterly basis for up to 20%
of the Ordinary Shares in issue as at the relevant Quarter Record Date, subject
to an aggregate limit of 50% of the Ordinary Shares in issue in any twelve
month period ending on the relevant Quarter Record Date. In the event that
tender applications, on any tender submission deadline, exceed the 50% limit,
the Directors will convene a General Meeting in accordance with the
Continuation Vote requirements set out in Note 16. The quarterly tenders will
be at the discretion of the Board. Ordinary Shares trading at a discount to NAV
over a long period of time may impact the viability of the Company.
The Board having considered the analysis above, have a reasonable expectation
that the Company will be able to continue in operation and meet its liabilities
as they fall due over the three year period to 14 January 2019.
Results
The results for the year are set out in the Statement of Comprehensive Income.
The Directors paid income distributions of £9,184,405 for the year ended 30
September 2015, a breakdown of which can be found in note 19. The 30 September
2015 distribution which was declared on 8 October 2015 was paid on 30 October
2015.
Distributions made with respect to any income period comprise (a) the total
income of the portfolio for the period, and (b) an additional amount paid out
of capital to reflect any additional income in the course of any share
subscriptions that took place during the period. Including additional income in
this way ensures that the income yield of the shares is not diluted as a
consequence of the issue of new shares during an income period and (c) any
income on the foreign exchange contracts caused by the libor differentials
between each foreign exchange currency pair.
Key Performance Indicators (KPIs)
At each Board meeting, the Directors consider a number of performance measures
to assess the Company's success in achieving its objectives. Below are the main
KPIs which have been identified by the Board for determining the progress of
the Company:
* Net Asset Value
* Share Price
* Discount/Premium
* Ongoing Charges
* Monthly Dividends
A record of these measures is disclosed in the Summary Information.
Portfolio Manager
The portfolio management fee is payable to the Portfolio Manager, TwentyFour
Asset Management LLP, monthly in arrears at a rate of 0.75% per annum of the
lower of NAV, which is calculated weekly on each valuation day and on the last
business day of each month, or market capitalisation of each class of share.
For additional information refer to note 14.
The Board considers that the interests of Shareholders, as a whole, are best
served by the ongoing appointment of the Portfolio Manager to achieve the
Company's investment objectives.
During the year the Board visited the Portfolio Manager to gain an increased
understanding of their systems and valuation methodologies and to meet them in
their working environment and at the same time took the opportunity to meet
with the Alternative Investment Fund Manager. Such visits are to be an on-going
occurrence and the Board meets with the Portfolio Manager on other occasions.
Alternative Investment Fund Manager ("AIFM")
Alternative investment fund management services are provided by Phoenix Fund
Services (UK) Limited ("Phoenix") whose appointment became effective on 22 July
2014. The AIFM fee is payable quarterly in arrears at a rate of 0.07% of the
Net Asset Value of the Company below £50 million, 0.05% on Net Assets between £
50 million and £100 million and 0.03% on Net Assets in excess of £100 million.
For additional information refer to note 15.
Custodian and Depositary
On 1 May 2014, the Custody Agreement was terminated with the Northern Trust
(Guernsey) Limited and Northern Trust (Guernsey) Limited was appointed
Depositary. The terms of the Depositary agreement dated 17 February 2014 (and
effective 1 May 2014), allow Northern Trust (Guernsey) Limited to receive
professional fees for services rendered. The Depositary agreement includes
custodian duties. For additional information refer to note 15.
Directors
The Directors of the Company during the year and at the date of this Report are
set out on the Corporate Information section.
Directors' and Other Interests
The Directors of the Company held the following Ordinary Shares beneficially:
Number of Shares
30.09.15 30.09.14
Claire Whittet 25,000 10,000
Christopher Legge 50,000 25,000
Thomas Emch 25,000 25,000
Ian Martin 25,000 -
Corporate Governance
The Board is committed to high standards of corporate governance and has
implemented a framework for corporate governance which it considers to be
appropriate for an investment company in order to comply with the principles of
the UK Corporate Governance Code (the "UK Code"). The Company is also required
to comply with the Code of Corporate Governance (the "GFSC Code") issued by the
Guernsey Financial Services Commission.
The Financial Reporting Council (the "FRC") issued a revised Code in 2014, for
reporting periods beginning on or after 1 October 2014. The AIC updated the AIC
Code of Corporate Governance (the "AIC Code") (including the Guernsey edition)
and its Guide to Corporate Governance (the "AIC Guide") to reflect the relevant
changes to the FRC document in February 2015. The Board has adopted the revised
code.
The UK Listing Authority requires all UK premium listing companies to disclose
how they have complied with the provisions of the UK Code. This Corporate
Governance Statement, together with the Going Concern Statement, Viability
Statement and the Statement of Directors' Responsibilities, indicates how the
Company has complied with the principles of good governance of the UK Code and
its requirements on Internal Control.
The Company is a member of the Association of Investment Companies (the "AIC")
and by complying with the AIC Code is deemed to comply with both the UK Code
and the GFSC Code.
The Board has considered the principles and recommendations of the AIC Code, by
reference to the guidance notes provided by the AIC Guide, and consider that
reporting against these will provide better information to shareholders. To
ensure ongoing compliance with these principles the Board reviews a report from
the Corporate Secretary at each quarterly meeting, identifying how the Company
is in compliance and identifying any changes that might be necessary.
The AIC Code and the AIC Guide are available on the AIC's website,
www.theaic.co.uk. The UK Code is available in the Financial Reporting Council's
website, www.frc.org.uk.
Throughout the year ended 30 September 2015, the Company has complied with the
recommendations of the AIC Code and thus the relevant provisions of the UK
Code, except as set out below.
The UK Code includes provisions relating to:
* the role of the Chief Executive
* Executive Directors' remuneration
* the need for an internal audit function
* the whistle blowing policy
* Senior Independent Director
* Remuneration Committee
* Nomination Committee
For the reasons set out in the AIC Guide, and as explained in the UK Code, the
Board considers these provisions are not relevant to the position of the
Company as it is an externally managed investment company. The Company has
therefore not reported further in respect of these provisions. The Directors
are all non-executive and the Company does not have employees, hence no Chief
Executive or whistle-blowing policy is required for the Company. The key
service-providers all have whistleblowing policies in place. The Board is
satisfied that any relevant issues can be properly considered by the Board.
Details of compliance with the AIC Code are noted below. There have been no
other instances of non-compliance, other than those noted above.
Role, Composition and Independence of the Board
The Board is the Company's governing body and has overall responsibility for
maximising the Company's success by directing and supervising the affairs of
the business and meeting the appropriate interests of shareholders and relevant
stakeholders, while enhancing the value of the Company and also ensuring
protection of investors. A summary of the Board's responsibilities is as
follows:
* statutory obligations and public disclosure;
* strategic matters and financial reporting;
* risk assessment and management including reporting compliance,
governance,monitoring and control; and
* other matters having a material effect on the Company.
The Board's responsibilities for the Annual Report and Audited Financial
Statements are set out in the Statement of Directors' Responsibilities.
The Board currently consists of four non-executive Directors, all of whom are
considered to be independent of the Portfolio Manager and as prescribed by the
Listing Rules.
The Board does not consider it appropriate to appoint a Senior Independent
Director because they are all deemed to be independent by the Company. The
Board considers it has the appropriate balance of diverse skills and
experience, independence and knowledge of the Company and the wider sector, to
enable it to discharge its duties and responsibilities effectively and that no
individual or group of individuals dominates decision making. The Chair is
responsible for leadership of the Board and ensuring its effectiveness.
Chair
The Chair is Claire Whittet. The Chair of the Board must be independent for the
purposes of Chapter 15 of the Listing Rules. Claire Whittet is considered
independent because she:
* has no current or historical employment with the Portfolio Manager; and
* has no current directorships in any other investment funds managed by the
Portfolio Manager.
Biographies for all the Directors can be found on the Board Members section.
The Board needs to ensure that the Annual Report and Audited Financial
Statements, taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Company's position and
performance, business model and strategy. In seeking to achieve this, the
Directors have set out the Company's investment objective and policy and have
explained how the Board and its delegated Committees operate and how the
Directors review the risk environment within which the Company operates and set
appropriate risk controls. Furthermore, throughout the Annual Report and
Audited Financial Statements the Board has sought to provide further
information to enable shareholders to have a fair, balanced and understandable
view.
The Board has contractually delegated responsibility for the management of its
investment portfolio, the arrangement of custodial and depositary services and
the provision of accounting and company secretarial services.
The Board is responsible for the appointment and monitoring of all service
providers to the Company.
The Directors are kept fully informed of investment and financial controls and
other matters by all services providers that are relevant to the business of
the Company and should be brought to the attention of the Directors.
The Company has adopted a policy that the composition of the Board of
Directors, which is required by the Company's Articles to comprise of at least
two persons, is at all times such that a majority of the Directors are
independent of the Portfolio Manager and any company in the same group as the
Portfolio Manager; the Chair of the Board of Directors is free from any
conflicts of interest and is independent of the Portfolio Manager and of any
company in the same group as the Portfolio Manager; and that no more than one
director, partner, employee or professional adviser to the Portfolio Manager or
any company in the same group as the Portfolio Manager may be a Director of the
Company at any one time.
The Board has a breadth of experience relevant to the Company and the Directors
believe that any changes to the Board's composition can be managed without
undue disruption. With any new director appointment to the Board, consideration
will be given as to whether an induction process is appropriate.
The Board has also given careful consideration to the recommendations of the
Davies Report. The Board has reviewed its composition and believes that the
current appointments provide an appropriate range of skills, experience and
diversity. In order to maintain its diversity, the Board is committed to
continuing its implementation of the recommendations of the Davies Report as
part of its succession planning over future years.
Directors' Attendance at Meetings
The Board holds quarterly Board meetings, to discuss general management,
structure, finance, corporate governance, marketing, risk management,
compliance, asset allocation and gearing, contracts and performance. The
quarterly Board meetings are the principal source of regular information for
the Board enabling it to determine policy and to monitor performance,
compliance and controls but these meetings are also supplemented by
communication and discussions throughout the year.
A representative of the Portfolio Manager, AIFM, Administrator, Custodian and
Depositary and Corporate Broker attends each Board meeting either in person or
by telephone thus enabling the Board to fully discuss and review the Company's
operation and performance. Each Director has direct access to the Portfolio
Manager and Company Secretary and may, at the expense of the Company, seek
independent professional advice on any matter.
Both appointment and removal of these parties is to be agreed by the Board as a
whole.
The Audit Committee meets at least twice a year, Management Engagement
Committee meets at least once a year, a dividend meeting is held monthly and
there are additional meetings covering the Quarterly Tender as and when
necessary. In addition, ad hoc meetings of the Board to review specific items
between the regular scheduled quarterly meetings can be arranged. Between
formal meetings there is regular contact with the Portfolio Manager, AIFM,
Administrator, Custodian and Depositary and the Corporate Broker.
Attendance at the Board, Audit and Management Engagement Committee meetings
during the year was as follows:
Board Meetings Audit Committee Management Ad hoc Committee
Meetings Engagement Meetings
Committee
Meetings
Held Attended Held Attended Held Attended Held Attended
Claire Whittet 5 5 3 3 1 1 13 12
Christopher 5 5 3 3 1 1 13 12
Legge
Thomas Emch 5 5 3 3 1 1 13 12
Ian Martin 5 5 3 3 1 1 13 11
At the Board meetings the Directors review the management of the Company's
assets and liabilities and all other significant matters so as to ensure that
the Directors maintain overall control and supervision of the Company's
affairs.
Election of Directors
The election of Directors is set out in the Directors' Remuneration Report.
Board Performance and Training
The Directors consider how the Board functions as a whole taking balance of
skills, experience and length of service into consideration and also reviews
the individual performance of its members on an annual basis.
To enable this evaluation to take place, the Company Secretary will circulate a
detailed questionnaire plus a separate questionnaire for the evaluation of the
Chairman. The questionnaires, once completed, are returned to the Company
Secretary who collates responses, prepares a summary and discusses the Board
evaluation with the Chairman prior to circulation to the remaining Board
members. The performance of the Chairman is evaluated by the other Directors.
On occasions, the Board may seek to employ an independent third party to
conduct a review of the Board. This evaluation took place on the 14 July 2015.
These evaluations consider the balance of skills, experience, independence and
knowledge of the Board, its diversity and how the Board works together as a
unit as well as other factors relevant to its effectiveness.
On appointment to the Board, the Directors were offered relevant training and
induction. Training is an on-going matter as is discussion on the overall
strategy of the Company and the Board has met with the Portfolio Manager at
their offices and elsewhere during the year to discuss these matters. Such
meetings will be an on-going occurrence.
Retirement by Rotation
Under the terms of their appointment, each Director is required to retire by
rotation and be subject to re-election at least every three years. The
Directors are also required to seek re-election if they have already served for
more than nine years. The Company may terminate the appointment of a Director
immediately on serving written notice and no compensation is payable upon
termination of office as a director of the Company becoming effective. All
Directors have agreed to stand for re-election annually.
Board Committees and their Activities
Terms of Reference
All Terms of Reference of the Board's Committees are available from the
Administrator upon request.
Management Engagement Committee
The Board has established a Management Engagement Committee with formal duties
and responsibilities. The Management Engagement Committee commits to meeting at
least once a year and comprises the entire Board with Thomas Emch appointed as
Chair. These duties and responsibilities include the regular review of the
performance of and contractual arrangements with the Portfolio Manager and
other service providers and the preparation of the Committee's annual opinion
as to the Portfolio Manager's services. The first Management Engagement
Committee meeting was held on 14 July 2015.
The Management Engagement Committee carried out its first review of the
performance and capabilities of the Portfolio Manager at its first meeting and
the Board recommended the continued appointment of TwentyFour Asset Management
LLP as Portfolio Manager as it is in the interest of shareholders.
Audit Committee
An Audit Committee has been established consisting of all Directors with
Christopher Legge appointed as Chair. The terms of reference of the Audit
Committee provide that the committee shall be responsible, amongst other
things, for reviewing the Interim and Annual Financial Statements, considering
the appointment and independence of external auditors, discussing with the
external auditors the scope of the audit and reviewing the Company's compliance
with the AIC Code.
Further details on the Audit Committee can be found in the Audit Committee
Report.
Nomination Committee
There is no separate Nomination Committee. The Board as a whole fulfils the
function of a Nomination Committee. Any proposal for a new Director will be
discussed and approved by all members of the Board.
Remuneration Committee
In view of its non-executive and independent nature, the Board considers that
it is not appropriate for there to be a separate Remuneration Committee as
anticipated or recommended by the AIC Code. The Board as a whole fulfils the
functions of the Remuneration Committee, although the Board has included a
separate Remuneration Report of these Financial Statements.
Foreign Account Tax Compliance Act
For purposes of the US Foreign Account Tax Compliance Act, the Company
registered with the US Internal Revenue Service ("IRS") as a Guernsey reporting
Foreign Financial Institution ("FFI") on 30 June 2014, received a Global
Intermediary Identification Number, and can be found on the IRS FFI list under
the link http://apps.irs.gov/app/fatcaFfiList/flu.jsf. The responsible officer
is Helen Howell, Deputy Chief Operating Officer at Twenty Four Asset Management
LLP.
The Company is subject to Guernsey regulations and guidance based on reciprocal
information sharing inter-governmental agreements which Guernsey has entered
into with the United Kingdom and the United States of America. The Board will
take the necessary actions to ensure that the Company is compliant with
Guernsey regulations and guidance in this regard.
Strategy
The strategy for the Company is to capture the illiquidity premium that is
associated with 'off the run' bond issues in the secondary markets. As part of
the general search for high conviction, relative value securities the Portfolio
Manager continually came across interesting investment opportunities but too
often these bonds did not offer sufficient liquidity to use in the typical
daily mark-to-market UCITs funds, however they are suitable for closed ended
vehicles. By remaining highly selective and without conceding on underlying
credit quality, the strategy expects to generate a minimum monthly distribution
of 0.5p per share, with all excess income being distributed to investors at the
year-end of the Company.
Internal Controls
The Board is ultimately responsible for establishing and maintaining the
Company's system of internal financial and operating control and for
maintaining and reviewing its effectiveness. The Company's risk matrix
continues to be the core element of the Company's risk management process in
establishing the Company's system of internal financial and reporting control.
The risk matrix is prepared and maintained by the Board which initially
identifies the risks facing the Company and then collectively assesses the
likelihood of each risk, the impact of those risks and the strength of the
controls operating over each risk. The system of internal financial and
operating control is designed to manage rather than to eliminate the risk of
failure to achieve business objectives and by their nature can only provide
reasonable and not absolute assurance against misstatement and loss. These
controls aim to ensure that assets of the Company are safeguarded, proper
accounting records are maintained and the financial information for publication
is reliable. The Board confirms that there is an ongoing process for
identifying, evaluating and managing the significant risks faced by the
Company.
This process has been in place for the year under review and up to the date of
approval of this Annual Report and Audited Financial Statements and is reviewed
by the Board and is in accordance with the AIC Code.
The AIC Code requires Directors to conduct at least annually a review of the
Company's system of internal financial and operating control, covering all
controls, including financial, operational, compliance and risk management. The
Board has evaluated the systems of internal controls of the Company. In
particular, it has prepared a process for identifying and evaluating the
significant risks affecting the Company and the policies by which these risks
are managed. The Board also considers whether the appointment of an internal
auditor is required and has determined that there is no requirement for a
direct internal audit function.
The Board has delegated the day to day responsibilities for the management of
the Company's investment portfolio, the provision of depositary services and
administration, registrar and corporate secretarial functions including the
independent calculation of the Company's NAV and the production of the Annual
Report and Financial Statements which are independently audited.
Formal contractual agreements have been put in place between the Company and
providers of these services. Even though the Board has delegated responsibility
for these functions, it retains accountability for these functions and is
responsible for the systems of internal control. At each quarterly Board
meeting, compliance reports are provided by the Administrator, Company
Secretary, Portfolio Manager, AIFM and Depositary. The Board also receives
confirmation from the Administrator of its accreditation under its Service
Organisation Controls 1 report.
The Company's risk exposure and the effectiveness of its risk management and
internal control systems are reviewed by the Audit Committee at its quarterly
meetings and annually by the Board. The Board believes that the Company has
adequate and effective systems in place to identify, mitigate and manage the
risks to which it is exposed. Principal Risks and Uncertainties are set out
below.
Principal Risks and Uncertainties
The Board is responsible for the Company's system of internal financial and
reporting controls and for reviewing its effectiveness. The Board is satisfied
that by using the Company's risk matrix as its core element in establishing the
Company's system, internal financial and reporting controls while monitoring
the investment limits and restrictions set out in the Company's investment
objective and policy, that the Board has carried out a robust assessment of the
principal risks and uncertainties facing the Company.
The principal risks which have been identified and the steps which are taken by
the Board to mitigate them are as follows:
Market Risk
The underlying investments comprised in the Portfolio are subject to market
risk. The Company is therefore at risk that market events may affect
performance and in particular may affect the value of the Company's investments
which are valued on a marked to market basis. Market risk is risk associated
with changes in market prices, including spreads, economic uncertainty and
changes in regulation. While the Company, through its investments in Credit
Securities, intends to hold a diversified Portfolio of assets, any of these
factors including specific market events, such as the global financial crisis
and levels of sovereign debt, may have a material impact which could be
materially detrimental to the performance of the Company's investments. Under
extreme market conditions the portfolio may not benefit from diversification.
For additional information refer to note 16.
Liquidity Risk
Investments made by the Company may be relatively illiquid and this may limit
the ability of the Company to realise its investments and in turn pay dividends
to Shareholders or buy back Ordinary Shares under the Quarterly Tenders or in
the market. Substantially all of the assets of the Company are invested in
Credit Securities. There may be no active market in the Company's interests in
Credit Securities and the Company may be required to provide liquidity to fund
Tender Requests or repay borrowings. The Company does not have redemption
rights in relation to any of its investments. As a consequence, the value of
the Company's investments may be materially adversely affected. For additional
information refer to note 16.
Credit risk
The Company may not achieve the Dividend Target and investors may not get back
the full value of their investment because it will invest in Credit Securities
issued by companies, trusts or other investment vehicles which, compared to
bonds issued or guaranteed by governments, are generally exposed to greater
risk of default in the repayment of the capital provided to the issuer or
interest payments due to the Company. The amount of credit risk is indicated by
the issuer's credit rating which is assigned by one or more internationally
recognised rating agencies. This does not amount to a guarantee of the issuer's
creditworthiness but generally provides a good indicator of the likelihood of
default. Securities which have a lower credit rating are generally considered
to have a higher credit risk and a greater possibility of default than more
highly rated securities. There is a risk that an internationally recognised
rating agency may assign incorrect or inappropriate credit ratings to issuers.
Issuers often issue securities which are ranked in order of seniority which, in
the event of default, would be reflected in the priority in which investors
might be paid back.
The level of defaults in the Portfolio and the losses suffered on such defaults
may increase in the event of adverse financial or credit market conditions.
In the event of a default of a Credit Security, the Company's right to recover
will depend on the ability of the Company to exercise any rights that it has
against the borrower under the insolvency legislation of the jurisdiction in
which the borrower is incorporated. As a creditor, the Company's level of
protection and rights of enforcement may therefore vary significantly from one
country to another, may change over time and may be subject to rights and
protections which the relevant borrower or its other creditors might be
entitled to exercise. Refer to Investment Objective and Policy for information
regarding investment restrictions currently in place in order to manage credit
risk. For additional information refer to note 16.
Foreign currency risk
The Company is exposed to foreign currency risk through its investments
denominated in currencies other than Sterling. The Company's share capital is
denominated in Sterling and its expenses are incurred in Sterling. The
Company's financial statements are maintained and presented in Sterling.
Approximately 85% of the foreign currency investments at year end are in Euros.
Amongst other factors affecting the foreign exchange markets, events in the
Eurozone may have an impact upon the value of the Euro which in turn will
impact the value of the Company's Euro denominated investments. The Company
manages its exposure to currency movements by using spot and forward foreign
exchange contracts, which are rolled forward periodically. For additional
information refer to note 16.
Operational Risks
The Company is exposed to the risk arising from any failures of systems and
controls in the operations of the Portfolio Manager, Administrator, AIFM and
the Custodian and Depositary amongst others. The Board and its Audit Committee
regularly review reports from the Portfolio Manager, the AIFM, Administrator
and Custodian and Depositary on their internal controls. The Administrator will
report to the Portfolio Manager any valuation issues which will be brought to
the Board for final approval as required.
Accounting, Legal and Regulatory Risks
The Company is exposed to the risk that it may fail to maintain accurate
accounting records, fail to comply with requirements of its Admission document
and fail to meet listing obligations. The accounting records prepared by the
Administrator are reviewed by the Portfolio Manager. The Portfolio Manager,
Administrator, AIFM, Custodian and Depositary and Corporate Broker provide
regular updates to the Board on compliance with the Admission document and
changes in regulation. Changes in legal or regulatory environment can have a
major impact of some classes of debt. The Portfolio Manager monitors this and
takes appropriate action.
Income Recognition Risk
The Board considers income recognition to be a principal risk and uncertainty
of the Company. The Portfolio Manager estimates the remaining life of the
security, which has an impact on the effective interest rate of the Credit
Securities which in turn impacts the calculation of interest income. The Board
asked the Audit Committee to consider this risk with work undertaken by the
Audit Committee as discussed on the Audit Committee Report. As a result of the
work undertaken by the Audit Committee, the Board is satisfied that income is
appropriately stated in all material aspects in the Financial Statements.
Reinvestment Risk
A by-product of quantitative easing resulted in lower yields across all fixed
income products and tightening credit spreads. This could pose a challenge for
the Portfolio Manager when it comes to reinvest any monies that result from
portfolio asset redemptions and amortisations. The Portfolio Manager has
recognised this potential challenge and performed ongoing cashflow analysis on
the current portfolio; encouragingly the redemptions and expected amortisations
over the coming 12 months are minimal and pose no significant impact. Trying to
predict market conditions years ahead is notoriously difficult, however the
Portfolio Manager recognises there may be a requirement to be more
opportunistic in terms of timing for new investments i.e. aim to reinvest when
the market is most volatile and also to remain vigilant to requests for
issuance of new shares. For further information refer to note 16.
Cyber security risks
The Company is exposed to the risk arising from a successful cyber-attack
through its service providers. The Company's service providers provide regular
updates to the Board on any cyber security issues and how they are mitigating
this risk. The Board is satisfied that the Company's service providers have the
relevant controls in place to mitigate this risk.
Shareholder Engagement
The Board welcomes shareholders' views and places great importance on
communication with its shareholders. Shareholders wishing to meet with the
Chair and other Board members should contact the Company's Administrator.
The Portfolio Manager and Listing Sponsor maintain a regular dialogue with
institutional shareholders, the feedback from which is reported to the Board.
The Company's Annual General Meeting ("AGM") provides a forum for shareholders
to meet and discuss issues of the Company and shareholders with the opportunity
to vote on the resolutions as specified in the Notice of AGM. The Notice of the
AGM and the results are released to the London Stock Exchange in the form of an
announcement.
Shareholders with holdings of more than 3.0% of the Shares of the Company are
set out below.
In addition, the Company maintains a website which contains comprehensive
information, including links to regulatory announcements, share price
information, financial reports, investment objective and investor contacts.
Significant Shareholdings
Shareholders with holdings of more than 3.0% of the Shares of the Company at 6
January 2016 were as follows:
Number of Percentage of
shares issued share
capital
NorTrust Nominees Limited 20,720,616 13.92%
State Street Nominees Limited 20,244,350 13.60%
The Bank Of New York Nominees 13,037,605 8.76%
Platform Securities Nominees 12,276,177 8.25%
Pershing Nominees Limited 12,118,626 8.14%
Vidacos Nominees Limited 8,244,471 5.54%
Ferlim Nominees Limited 8,179,650 5.50%
Aurora Nominees Limited 5,479,247 3.68%
Halb Nominees Limited 5,315,380 3.57%
W B Nominees Limited 5,224,266 3.51%
Rock Nominees Limited 4,721,038 3.17%
Those invested directly or indirectly in 3.0% or more of the issued share
capital of the Company will have the same voting rights as other holders of the
Shares.
Disclosure of Information to Auditors
The Directors who held office at the date of approval of these Financial
Statements confirm that, so far as they are each aware, there is no relevant
audit information of which the Company's auditor is unaware; and each Director
has taken all the steps that they ought to have taken as a Director to make
themselves aware of any relevant audit information and to establish that the
Company's auditor is aware of that information.
Independent Auditors
A resolution for the reappointment of PricewaterhouseCoopers CI LLP will be
proposed at the forthcoming AGM.
Signed on behalf of the Board of Directors on 14 January 2016 by:
Claire Whittet Christopher
Legge
Chair Director
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the Audited
Financial Statements in accordance with applicable Guernsey law and
regulations.
Guernsey Company law requires the Directors to prepare Financial Statements for
each financial year. Under that law they have elected to prepare the Financial
Statements in accordance with International Financial Reporting Standards
("IFRS") and applicable law.
The Financial Statements are required by law to give a true and fair view of
the state of affairs of the Company and of the profit or loss of the Company
for that period.
In preparing these Financial Statements, the Directors are required to:
* select suitable accounting policies and then apply them consistently;
* make judgements and estimates that are reasonable and prudent;
* state whether applicable accounting standards have been followed, subject
to any material departures disclosed and explained in the Financial
Statements; and
* prepare the Financial Statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors confirm that they have complied with these requirements in
preparing the Financial Statements.
The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and to enable them to ensure that the Financial Statements have been
properly prepared in accordance with The Companies (Guernsey) Law, 2008. They
have general responsibility for taking such steps as are reasonably open to
them to safeguard the assets of the Company and to prevent and detect fraud and
other irregularities. They also have the responsibility for the maintenance and
the integrity of the Company's website.
The Directors are responsible for the oversight of the maintenance and
integrity of the corporate and financial information in relation to the Company
website; the work carried out by the auditors does not involve consideration of
these matters and, accordingly, the auditors accept no responsibility for any
changes that may have occurred to the financial statements since they were
initially presented on the website.
Legislation in Guernsey governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
The Directors confirm that to the best of their knowledge
a. The Financial Statements have been prepared in accordance with IFRS and
give a true and fair view of the assets, liabilities, financial position
and profit of the Company as at and for the year ended 30 September 2015.
a. The Annual Report includes information detailed in the Chair's Statement,
Portfolio Manager's Report, Directors' Report, Directors' Remuneration
Report, Audit Committee Report, Alternative Investment Fund Manager's
Report and Depositary Statement provides a fair review of the information
required by:
i. DTR 4.1.8 and DTR 4.1.9 of the Disclosure and Transparency Rules, being a
fair review of the Company business and a description of the principal
risks and uncertainties facing the Company; and
i. DTR 4.1.11 of the Disclosure and Transparency Rules, being an indication of
important events that have occurred since the end of the financial year and
the likely future development of the Company.
In the opinion of the Board, the Financial Statements taken as a whole, are
fair, balanced and understandable and provide the information necessary to
assess the Company's position and performance, business model and strategy.
By order of the Board,
Claire
Whittet
Christopher Legge
Chair
Director
14 January 2016
DIRECTORS' REMUNERATION REPORT
The Directors' remuneration report has been prepared in accordance with the UK
Code as issued by the UK Listing Authority. An ordinary resolution for the
approval of the annual remuneration report was put to the shareholders at the
AGM held on 14 July 2015.
Remuneration policy
The Company's policy in regard to Directors' remuneration is to ensure that the
Company maintains a competitive fee structure in order to recruit, retain and
motivate non-executive Directors of excellent quality in the overall interests
of shareholders.
The Directors do not consider it necessary for the Company to establish a
separate Remuneration Committee. All of the matters recommended by the UK Code
that would be delegated to such a committee are considered by the Board as a
whole.
It is the responsibility of the Board as a whole to determine and approve the
Directors' remuneration, following a recommendation from the Chair who will
have given the matter proper consideration, having regard to the level of fees
payable to non-executive Directors in the industry generally, the role that
individual Directors fulfil in respect of Board and Committee responsibilities
and the time committed to the Company's affairs. The Chair's remuneration is
decided separately and is approved by the Board as a whole.
No element of the Directors' remuneration is performance related, nor does any
Director have any entitlement to pensions, share options or any long term
incentive plans from the Company.
Remuneration
The Directors of the Company are remunerated for their services at such a rate
as the Directors determine provided that the aggregate amount of such fees does
not exceed £150,000 per annum.
Directors are remunerated in the form of fees, payable quarterly in arrears, to
the Director personally. No Directors have been paid additional remuneration by
the Company outside their normal Director's fees and expenses.
In the year ended 30 September 2015 the Directors received the following annual
remuneration in the form of Director's fees:
Claire Whittet (Chair of the Board) £30,000
Christopher Legge (Audit Committee £27,500
Chairman)
Thomas Emch £25,000
Ian Martin £25,000
Total £107,500
With effect from 1 October 2015, the Directors' fees increased by £5,000 each.
The remuneration policy set out above is the one applied for the year ended 30
September 2015 and is not expected to change in the foreseeable future.
Appropriate Directors' and Officers' liability insurance cover is maintained by
the Company on behalf of the Directors.
The Directors were appointed as non-executive Directors by letters issued in
February and July 2014. Each Director's appointment letter provides that, upon
the termination of his/her appointment, that he/she must resign in writing and
all records remain the property of the Company. The Directors' appointments can
be terminated in accordance with the Articles and without compensation.
There is no notice period specified in the Articles for the removal of
Directors. The Articles provide that the office of Director shall be terminated
by, among other things: (a) written resignation; (b) unauthorised absences from
board meetings for six months or more; (c) unanimous written request of the
other Directors; and (d) an ordinary resolution of the Company.
Under the terms of their appointment, each Director is required to retire by
rotation and be subject to re-election at least every three years but have
opted for annual re-election. The Directors are required to seek re-election if
they have already served for more than nine years. The Company may terminate
the appointment of a Director immediately on serving written notice and no
compensation is payable upon termination of office as a director of the Company
becoming effective.
The amounts payable to Directors shown in note 14 are for services as
non-executive Directors.
No Director has a service contract with the Company, nor are any such contracts
proposed.
Signed on behalf of the Board of Directors on 14 January 2016 by:
Claire Whittet
Christopher Legge
Chair
Director
AUDIT COMMITTEE REPORT
On the following, we present the Audit Committee's Report, setting out the
responsibilities of the Audit Committee and its key activities for the year
ended 30 September 2015.
The Audit Committee has scrutinised the appropriateness of the Company's system
of risk management and internal financial and operating controls, the
robustness and integrity of the Company's financial reporting, along with the
external audit process. The Audit Committee has devoted time to ensuring that
controls and processes have been properly established, documented and
implemented.
During the course of the year, the information that the Audit Committee has
received has been timely and clear and has enabled the Committee to discharge
its duties effectively.
The Audit Committee is supportive of the latest UK Code recommendations and
other corporate governance organisations such as the AIC, and believes that the
revised AIC Code allows the Audit Committee to further strengthen its role as a
key independent oversight Committee.
Role and responsibilities
The primary function of the Audit Committee is to assist the Board in
fulfilling its oversight responsibilities. This includes reviewing the
financial reports and other financial information and any significant financial
judgement contained therein, before publication.
In addition, the Audit Committee reviews the systems of internal financial and
operating controls on a continuing basis that the Administrator, Portfolio
Manager, AIFM, and Custodian and Depositary and the Board have established with
respect to finance, accounting, risk management, compliance, fraud and audit.
The Audit Committee also reviews the accounting and financial reporting
processes, along with reviewing the roles, independence and effectiveness of
the external auditor. The AIC Code requires the Audit Committee to annually
consider the need for internal audit function.
The ultimate responsibility for reviewing and approving the Annual Report and
other Financial Statements remain with the Board.
The Audit Committee's full terms of reference can be obtained by contacting the
Company's Administrator.
Risk management and internal control
The Board, as a whole, including the Audit Committee members, consider the
nature and extent of the Company's risk management framework and the risk
profile that is acceptable in order to achieve the Company's strategic
objectives. As a result, it is considered that the Board has fulfilled its
obligations under the AIC Code.
The Audit Committee continues to be responsible for reviewing the adequacy and
effectiveness of the Company's on-going risk management systems and processes.
Its system of internal controls, along with its design and operating
effectiveness, is subject to review by the Audit Committee through reports
received from the Portfolio Manager, AIFM and Custodian and Depositary, along
with those from the Administrator and external auditor.
Fraud, Bribery and Corruption
The Board has relied on the overarching requirement placed on the service
providers under the relevant agreements to comply with applicable law,
including anti-bribery laws. A review of the service provider policies took
place at the Management Engagement Committee Meeting on 14 July 2015. The Board
receives confirmation from all service providers that there has been no fraud,
bribery or corruption.
Financial reporting and significant financial issues
The Audit Committee assesses whether suitable accounting policies have been
adopted and whether the Portfolio Manager has made appropriate estimates and
judgements. The Audit Committee reviews accounting papers prepared by the
Portfolio Manager and Administrator which provides details on the main
financial reporting judgements.
The Audit Committee also reviews reports by the external auditors which
highlight any issues with respect to the work undertaken on the audit.
The significant issues considered during the year by the Audit Committee in
relation to the Financial Statements and how they were addressed are detailed
below:
(i) Valuation of investments:
The Company's investments had a fair value of £128,802,069 as at 30 September
2015 (30 September 2014: £117,308,598) and represent a substantial portion of
net assets of the Company. As such this is the largest factor in relation to
the consideration of the Financial Statements. These investments are valued in
accordance with the Accounting Policies set out in note 2 and note 3 to the
Financial Statements. The Audit Committee considered the valuation of the
investments held by the Company as at 30 September 2015 to be reasonable from
information provided by the Portfolio Manager, AIFM, Administrator, Custodian
and Depositary on their processes for the valuation of these investments.
(ii) Income Recognition:
The Audit Committee considered the calculation of income from investments
recorded in the Financial Statements as at 30 September 2015. As disclosed in
note 3(ii)(b) of the Notes to the Financial Statements, the estimated life of
Credit Securities is determined by the Portfolio Manager, impacting the
effective interest rate of the Credit Securities which in turn impacts the
calculation of income from investments. The Audit Committee reviewed the
Portfolio Manager's process for determining the expected life of the Company's
investments and found it to be reasonable based on the explanations provided
and information obtained from the Portfolio Manager. The Audit Committee was
therefore satisfied that income was appropriately stated in all material
aspects in the Financial Statements.
Following a review of the presentations and reports from the Portfolio Manager
and Administrator and consulting where necessary with the external auditor, the
Audit Committee is satisfied that the Financial Statements appropriately
address the critical judgements and key estimates (both in respect to the
amounts reported and the disclosures). The Audit Committee is also satisfied
that the significant assumptions used for determining the value of assets and
liabilities have been appropriately scrutinised, challenged and are
sufficiently robust.
The Company's reporting currency is Sterling while a significant proportion of
the investments owned are denominated in foreign currencies. The Company
operates a hedging strategy designed to mitigate the impact of foreign currency
rate changes on the performance of the fund. The Audit Committee has used
information from the Administrator and Portfolio Manager to satisfy itself
concerning the effectiveness of the hedging process, as well as to confirm that
realised and unrealised foreign currency gains and losses have been correctly
recorded.
At the request of the Audit Committee, the Administrator confirmed that it was
not aware of any material misstatements including matters relating to Financial
Statement presentation. At the Audit Committee meeting to review the Annual
Report and Audited Financial Statements, the Audit Committee received and
reviewed a report on the audit from the external auditors. On the basis of its
review of this report, the Audit Committee is satisfied that the external
auditor has fulfilled its responsibilities with diligence and professional
scepticism. The Audit Committee advised the Board that these Annual Financial
Statements, taken as a whole, are fair, balanced and understandable.
The Audit Committee is satisfied that the judgements made by the Portfolio
Manager and Administrator are reasonable, and that appropriate disclosures have
been included in the Financial Statements.
External auditors
The Audit Committee has responsibility for making a recommendation on the
appointment, re-appointment and removal of the external auditors.
PricewaterhouseCoopers CI LLP ("PwC") were appointed as the first auditors of
the Company. During the year the Audit Committee received and reviewed audit
plans and reports from the external auditors. It is standard practice for the
external auditors to meet privately with the Audit Committee without the
Portfolio Manager and other service providers being present at each Audit
Committee meeting.
To assess the effectiveness of the external audit process, the auditors were
asked to articulate the steps that they have taken to ensure objectivity and
independence, including where the auditor provides non-audit services. The
Audit Committee monitors the auditors' performance, behaviour and effectiveness
during the exercise of their duties, which informs the decision to recommend
reappointment on an annual basis.
The Company generally does not utilise external auditors for internal audit
purposes, secondments or valuation advice. Services which are in the nature of
audit, such as tax compliance, private letter rulings, accounting advice and
disclosure advice are normally permitted but will be pre-approved by the Audit
Committee.
The following table summarises the remuneration paid to PwC and to other PwC
member firms for audit and non-audit services during the year ended 30
September 2015 and for the period ended 30 September 2014.
Year ended For the period
30.09.15 from 12.02.14
(date of
incorporation)
to 30.09.14
PricewaterhouseCoopers CI LLP £ £
- Annual 45,700 45,000
audit
- Interim 22,500 N/A
review
- Listing & Financial Reporting - 45,000
Procedures
- Tax consulting and compliance 3,000 3,000
services
For any questions on the activities of the Audit Committee not addressed in the
foregoing, a member of the Audit Committee remains available to attend each AGM
to respond to such questions.
The Audit Committee Report was approved by the Audit Committee on 14 January
2016 and signed on behalf by:
Christopher Legge
Chairman, Audit Committee
ALTERNATIVE INVESTMENT MANAGER'S REPORT
Phoenix Fund Services (UK) Limited acts as the Alternative Investment Fund
Manager ("AIFM") of TwentyFour Select Monthly Income Fund Limited ("the
Company") providing portfolio management and risk management services to the
Company.
The AIFM has delegated the following of its alternative investment fund
management functions:
* It has delegated the portfolio management function for listed investments
to TwentyFour Asset Management LLP.
* It has delegated the portfolio management function for unlisted investments
to TwentyFour Asset Management LLP.
The AIFM is required by the Alternative Investment Fund Managers Directive
2011, 61/EU (the "AIFM Directive") and all applicable rules and regulations
implementing the AIFM Directive in the UK (the "AIFM" Rules):
* to make the annual report available to investors and to ensure that the
annual report is prepared in accordance with applicable accounting
standards, the Company's articles of incorporation and the AIFM Rules and
that the annual report is audited in accordance with International
Standards on Auditing;
* be responsible for the proper valuation of the Company's assets, the
calculation of the Company's net asset value and the publication of the
Company's net asset value;
* to make available to the Company's shareholders, a description of all fees,
charges and expenses and the amounts thereof, which have been directly or
indirectly borne by them,
* ensure that the Company's shareholders have the ability to redeem their
share in the capital of the Company in a manner consistent with the
principle of fair treatment of investors under the AIFM Rules and in
accordance with the Company's redemption policy and its obligations.
The AIFM is required to ensure that the annual report contains a report that
shall include a fair and balanced review of the activities and performance of
the Company, containing also a description of the principal risks and
investment or economic uncertainties that the Company might face.
AIFM Remuneration
Under the Alternative Investment Fund Managers Directive, acting as the AIFM,
Phoenix Fund Services (UK) Ltd is required to disclose how those whose actions
have a material impact on the Company are remunerated.
Due to the nature of the activities conducted by Phoenix Fund Services (UK)
Ltd, it has deemed itself as a lower risk firm in accordance with SYSC 19B and
the Remuneration Code. The only employees at Phoenix Fund Services (UK) Ltd
permitted to have a material impact on the risk profile of the AIF are the
Board and the Head of Risk and Compliance.
The delegated investment manager is subject to regulatory requirements on
remuneration that TwentyFour Asset Management LLP view as being equal to those
detailed in the Alternative Investment Fund Managers Directive, which include
the Capital Requirements Directive or Markets in Financial Instruments
Directive. The discretion of TwentyFour Asset Management LLP is strictly
controlled within certain pre-defined parameters as determined in the
prospectus of each Alternative Investment Fund.
September 15 Number of Total Fixed remuneration
Beneficiaries remuneration paid
Total remuneration paid 54 £119,038 £119,038
by the AIFM during the
year
Remuneration paid to 5 £22,617 £22,617
employees of the AIFM
who have a material
impact on the risk
profile of the AIF
In so far as the AIFM is aware:
* there is no relevant audit information of which the Company's auditors or
the Company's board of directors are unaware; and
* the AIFM has taken all steps that it ought to have taken to make itself
aware of any relevant audit information and to establish that the auditors
are aware of that information.
We hereby certify that this report is made on behalf of the AIFM, Phoenix Fund
Services (UK) Limited.
R.W. Leedham
D.W. Munting
Directors
Phoenix Fund Services (UK) Limited
14 January 2016
DEPOSITARY STATEMENT
for the year ended 30 September 2015
Report of the Depositary to the Shareholders
Northern Trust (Guernsey) Limited has been appointed as Depositary to
TwentyFour Select Monthly Income Fund Limited (the "Company") in accordance
with the requirements of Article 36 and Articles 21(7), (8) and (9) of the
Directive 2011/61/EU of the European Parliament and of the Council of 8 June
2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC
and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 (the
"AIFM Directive").
We have enquired into the conduct of Phoenix Fund Services (UK) Limited (the
"AIFM") and the Company for the year ended 30 September 2015, in our capacity
as Depositary to the Company.
This report including the review provided below has been prepared for and
solely for the Shareholders in the Company. We do not, in giving this report,
accept or assume responsibility for any other purpose or to any other person to
whom this report is shown.
Our obligations as Depositary are stipulated in the relevant provisions of the
AIFM Directive and the relevant sections of Commission Delegated Regulation
(EU) No 231/2013 (collectively the "AIFMD legislation") and The Authorised
Closed Ended Investment Scheme Rules 2008.
Amongst these obligations is the requirement to enquire into the conduct of the
AIFM and the Company and their delegates in each annual accounting period.
Our report shall state whether, in our view, the Company has been managed in
that period in accordance with the AIFMD legislation. It is the overall
responsibility of the AIFM and the Company to comply with these provisions. If
the AIFM, the Company or their delegates have not so complied, we as the
Depositary will state why this is the case and outline the steps which we have
taken to rectify the situation.
The Depositary and its affiliates is or may be involved in other financial and
professional activities which may on occasion cause a conflict of interest with
its roles with respect to the Company. The Depositary will take reasonable care
to ensure that the performance of its duties will not be impaired by any such
involvement and that any conflicts which may arise will be resolved fairly and
any transactions between the Depositary and its affiliates and the Company
shall be carried out as if effected on normal commercial terms negotiated at
arm's length and in the best interests of Shareholders.
Basis of Depositary Review
The Depositary conducts such reviews as it, in its reasonable discretion,
considers necessary in order to comply with its obligations and to ensure that,
in all material respects, the Company has been managed (i) in accordance with
the limitations imposed on its investment and borrowing powers by the
provisions of its constitutional documentation and the appropriate regulations
and (ii) otherwise in accordance with the constitutional documentation and the
appropriate regulations. Such reviews vary based on the type of Fund, the
assets in which a Fund invests and the processes used, or experts required, in
order to value such assets.
Review
In our view, the Company has been managed during the period, in all material
respects:
(i) in accordance with the limitations imposed on the investment and borrowing
powers of the
Company by the constitutional document; and by the AIFMD legislation; and
(ii) otherwise in accordance with the provisions of the constitutional
document; and the AIFMD
legislation.
For and on behalf of
Northern Trust (Guernsey) Limited
14 January 2016
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS OF TWENTYFOUR SELECT MONTHLY INCOME FUND LIMITED
Report on the Financial Statements
We have audited the accompanying financial statements of TwentyFour Select
Monthly Income Fund Limited (the "Company") which comprise the Statement of
Financial Position as of 30 September 2015 and the Statement of Comprehensive
Income, the Statement of Changes in Equity and the Statement of Cash Flows for
the year then ended and a summary of significant accounting policies and other
explanatory information.
Directors' Responsibility for the Financial Statements
The Directors are responsible for the preparation of financial statements that
give a true and fair view in accordance with International Financial Reporting
Standards and with the requirements of Guernsey law. The Directors are also
responsible for such internal control as they determine is necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit in accordance with International Standards
on Auditing. Those Standards require that we comply with ethical requirements
and plan and perform the audit to obtain reasonable assurance whether the
financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the
amounts and disclosures in the financial statements. The procedures selected
depend on the auditors' judgement, including the assessment of the risks of
material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control
relevant to the entity's preparation and fair presentation of the financial
statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity's internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by the Directors, as well as
evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements give a true and fair view of the
financial position of the Company as of 30 September 2015, and of its financial
performance and its cash flows for the year then ended in accordance with
International Financial Reporting Standards and have been properly prepared in
accordance with the requirements of The Companies (Guernsey) Law, 2008.
Report on other Legal and Regulatory Requirements
We read the other information contained in the Annual Report and consider the
implications for our report if we become aware of any apparent misstatements or
material inconsistencies with the financial statements. The other information
is as per the table of contents.
In our opinion the information given in the Directors' Report is consistent
with the financial statements.
This report, including the opinion, has been prepared for, and only for, the
Company's members as a body in accordance with Section 262 of The Companies
(Guernsey) Law, 2008 and for no other purpose. We do not, in giving this
opinion, accept or assume responsibility for any other purpose or to any other
person to whom this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters which we are
required to review under the Listing Rules:
* the Directors' statement in relation to going concern. As noted in the
Directors' statement, the Directors have concluded that it is appropriate
to adopt the going concern basis in preparing the financial statements. The
going concern basis presumes that the Company has adequate resources to
remain in operation, and that the Directors intend it to do so, for at
least one year from the date the financial statements were signed. As part
of our audit we have concluded that the Directors' use of the going concern
basis is appropriate. However, because not all future events or conditions
can be predicted, these statements are not a guarantee as to the Company's
ability to continue as a going concern;
* the Directors' statement that they have carried out a robust assessment of
the principal risks facing the Company and the directors' statement in
relation to the longer-term viability of the Company. Our review was
substantially less in scope than an audit and only consisted of making
inquiries and considering the Directors' process supporting their
statements; checking that the statements are in alignment with the relevant
provisions of the UK Corporate Governance Code; and considering whether the
statements are consistent with the knowledge acquired by us in the course
of performing our audit;
* the part of the Corporate Governance Statement relating to the Company's
compliance with the ten further provisions of the UK Corporate Governance
Code specified for our review; and
* certain elements of the report to shareholders by the Board on Directors'
remuneration.
Evelyn Brady
For and on behalf of PricewaterhouseCoopers CI LLP
Chartered Accountants and Recognised Auditor
Guernsey, Channel Islands
14 January 2016
PUBLICATION OF REPORT AND AUDITED FINANCIAL STATEMENTS
a. The maintenance and integrity of the Company's website is the
responsibility of the Directors; the work carried out by the auditors does
not involve consideration of these matters and, accordingly, the auditors
accept no responsibility for any changes that may have occurred to the
financial statements since they were initially presented on the website.
a. Legislation in Guernsey governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 September 2015
Year ended For the period
30.09.15 from 12.02.14
(date of
incorporation)
to 30.09.14
Notes £ £
Income
Interest income 9,711,733 4,008,515
Net foreign currency gains 8 3,544,710 3,470,419
Net loss on financial assets
at fair value through profit 9 (9,914,061) (5,449,310)
or loss
Total income 3,342,382 2,029,624
Expenses
Portfolio management fee 14 (998,154) (468,360)
Directors' fees 14 (112,842) (46,223)
Administration fees 15 (101,544) (52,314)
AIFM management fee 15 (76,175) (7,119)
Audit fee (45,700) (45,000)
Custody fees 15 (15,953) (7,152)
Broker fees (50,000) (25,000)
Depositary fees 15 (23,183) (8,244)
Other expenses (164,751) (81,172)
Total expenses (1,588,302) (740,584)
Total comprehensive income for the year/ 1,754,080 1,289,040
period
Earnings per Ordinary Share -
Basic & Diluted 4 0.013 0.012
All items in the above statement derive from continuing operations.
The notes form an integral part of the Financial Statements.
STATEMENT OF FINANCIAL POSITION
as at 30 September 2015
30.09.15 30.09.2014
Assets Notes £ £
Current assets
Investments 9 128,802,069 117,308,598
Derivative assets 16 480,209 1,582,673
Other receivables 10 4,028,231 2,265,533
Cash and cash equivalents 4,532,345 4,912,175
Total current assets 137,842,854 126,068,979
Liabilities
Current liabilities
Amounts due to broker 1,889,571 2,543,473
Other payables 11 245,140 253,043
Derivative liabilities 16 1,147,799 77,997
Total current liabilities 3,282,510 2,874,513
Total net assets 134,560,344 123,194,466
Equity
Share capital account 12 142,609,447 123,434,794
Other reserves (8,049,103) (240,328)
Total equity 134,560,344 123,194,466
Ordinary Shares in issue 12 145,335,881 125,185,881
Net Asset Value per Ordinary Share 6 92.59 98.41
The Financial Statements were approved by the Board of Directors on 14 January
2016 and signed on its behalf by:
Claire
Whittet
Christopher Legge
Chair
Director
The notes form an integral part of the Financial Statements.
STATEMENT OF CHANGES IN EQUITY
for the year ended 30 September 2015
Share Other
Capital
Account Reserves Total
£ £ £
Balance at 01 October 2014 123,434,794 (240,328) 123,194,466
Issue of shares 16,075,985 - 16,075,985
Share issue costs (339,085) - (339,085)
Shares issued for repurchase 13,451,019 - 13,451,019
Purchase of own shares to hold in (13,451,019) (13,451,019)
treasury
Reissue of treasury shares 3,551,432 - 3,551,432
Income equalisation on new issues (113,679) 113,679 -
Distributions paid - (9,676,534) (9,676,534)
Total comprehensive income for the - 1,754,080 1,754,080
year
Balance at 30 September 2015 142,609,447 (8,049,103) 134,560,344
Share Other
Capital
Account Reserves Total
£ £ £
Balance at 12 February 2014 - - -
Issue of shares 125,946,801 - 125,946,801
Share issue costs (2,248,587) - (2,248,587)
Income equalisation on new issues (263,420) 263,420 -
Distributions paid - (1,792,788) (1,792,788)
Total comprehensive income for the - 1,289,040 1,289,040
period
Balance at 30 September 2014 123,434,794 (240,328) 123,194,466
The notes form an integral part of the Financial Statements.
STATEMENT OF CASH FLOWS
for the year ended 30 September 2015
For the period
from 12.02.14
Note Year ended (date of
30.09.15 incorporation)
to 30.09.14
£ £
Cash flows used in operating activities
Total comprehensive income for the year/ 1,754,080 1,289,040
period
Adjustments for:
Net loss on investments 9 9,914,061 5,449,310
Amortisation adjustment under effective (639,168) (217,124)
interest rate method
Increase in receivables (529,278) (2,265,533)
(Decrease)/increase in payables (7,903) 253,043
Unrealised loss/(gain) on derivatives 2,172,266 (1,504,676)
Purchase of investments (89,423,264) (143,836,560)
Sale of investments 66,767,578 23,839,249
Net cash used in operating activities (9,991,628) (116,993,251)
Cash flows from financing activities
Proceeds from issue of ordinary shares 16,075,985 125,946,801
Proceeds from re-issuance of treasury 3,551,432 -
shares
Share issue costs (339,085) (2,248,587)
Dividend distribution (9,676,534) (1,792,788)
Net cash inflow from financing activities 9,611,798 121,905,426
(Decrease)/increase in cash and cash (379,830) 4,912,175
equivalents
Cash and cash equivalents at beginning of 4,912,175 -
year/period
Cash and cash equivalents at end of year/ 4,532,345 4,912,175
period
The notes form an integral part of the Financial Statements.
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 30 September 2015
1. General Information
TwentyFour Select Monthly Income Fund Limited (the "Company") was incorporated
with limited liability in Guernsey, as a closed-ended investment company on 12
February 2014. The Company's Shares were listed with a Premium Listing on the
Official List of the UK Listing Authority and admitted to trading on the Main
Market of the London Stock Exchange on 10 March 2014.
The investment objective and policy is set out in the Summary Information.
The Portfolio Manager of the Company is TwentyFour Asset Management.
2. Principal Accounting Policies
a) Basis of preparation and Statement of compliance
The Financial Statements have been prepared in accordance with IFRS as issued
by the International Accounting Standards Board ("IASB") and are in compliance
with the Companies (Guernsey) Law, 2008.
b) Changes in presentation
The comparable period that has been used to show the Statement of Financial
Positions equity and the Statement of Changes in Equity has been amended to
reflect income equalisation on new shares. This is a change in presentation and
not a restatement.
c) Presentation of information
The Financial Statements have been prepared on a going concern basis under the
historical cost convention adjusted to take account of the revaluation of the
Company's financial assets and liabilities at fair value through profit or
loss.
d) Standards, amendments and interpretations issued but not yet effective
At the reporting date of these Financial Statements, the following standards,
interpretations and amendments, which have not been applied in these Financial
Statements, were in issue but not yet effective:
- IFRS 9 Financial Instruments (Effective 1 January 2018)
- IFRS 15 Revenue from Contracts with Customers (Effective 1 January 2018)
- IFRS 7 Financial Instruments: Disclosures (Effective 1 January 2016)
- IAS 1 Disclosure Initiative (Effective 1 January 2016)
The Directors anticipate that the adoption of these standards effective in a
future period will not have a material impact on the financial statements of
the Company, other than IFRS 9. The Company is currently evaluating the
potential effect of this standard.
IFRS 9 'Financial Instruments' does not currently have a mandatory effective
date and amends IAS 39. IFRS 9 specifies how an entity should classify and
measure financial assets, including some hybrid contracts. They require all
financial assets to be classified on the basis of the entity's business model
for managing the financial assets and the contractual cash flow characteristics
of the financial asset; this classification includes financial assets initially
measured at fair value plus, in the case of a financial asset not at fair value
through profit or loss, particular transaction costs; subsequently measured at
amortised costs or fair value. These requirements improve and simplify the
approach for classification and measurement of financial assets compared with
the requirements of IAS 39. They apply a consistent approach to classifying
financial assets and replace the numerous categories of financial assets in IAS
39, each of which had its own classification criteria.
d) Standards, amendments and interpretations issued but not yet effective
They also result in one impairment method, replacing the numerous impairment
methods in IAS 39 that arise from the different classification.
e) Financial assets at fair value through profit or loss
Classification
The Company classifies its investments in credit securities and derivatives as
financial assets at fair value through profit or loss.
This category has two sub-categories: financial assets or financial liabilities
held for trading; and those designated at fair value through profit or loss at
inception.
i. Financial assets and liabilities held for trading:
A financial asset or financial liability is classified as held for trading if
it is acquired or incurred principally for the purpose of selling or
repurchasing in the near term or if on initial recognition is part of a
portfolio of identifiable financial investments that are managed together and
for which there is evidence of a recent actual pattern of short-term profit
taking. Derivatives are categorised as held for trading. The Company does not
classify any derivatives as hedges in a designated hedging relationship and
therefore does not apply hedge accounting.
i. Financial assets and financial liabilities designated at fair value through
profit or loss:
Financial assets and financial liabilities designated at fair value through
profit or loss at inception are financial instruments that are not classified
as held for trading but are managed, and their performance is evaluated on a
fair value basis in accordance with the Company's documented investment
strategy.
The Company's policy requires the Portfolio Manager and the Board of Directors
to evaluate the information about these financial assets and liabilities on a
fair value basis together with other related financial information.
Recognition, derecognition and measurement
Regular purchases and sales of investments are recognised on the trade date -
the date on which the Company commits to purchase or sell the investment.
Financial assets and financial liabilities at fair value through profit or loss
are initially recognised at fair value. Transaction costs are expensed as
incurred in the Statement of Comprehensive Income. Financial assets are
derecognised when the rights to receive cash flows from the investments have
expired or the Company has transferred substantially all risks and rewards of
ownership.
The Company may invest in any category of credit security, including, without
prejudice to the generality of the foregoing, bank capital, corporate bonds,
high yield bonds, leveraged loans, payment-in-kind notes and asset backed
securities.
The Company records any principal repayments as they arise and realises a gain
or loss in the net gains on financial assets at fair value through profit or
loss in the Statement of Comprehensive Income in the period in which they
occur.
The interest income arising on these Credit Securities is recognised on a
time-proportionate basis using the effective interest rate method and shown
within income in the Statement of Comprehensive Income.
Fair value estimation
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date. Investments in Credit Securities are fair valued in
accordance with either i) or ii) below and the change in fair value, if any, is
recorded as net gains/(losses) on financial assets/(liabilities) at fair value
through profit or loss in the Statement of Comprehensive Income.
i. Credit Securities traded or dealt on an active market or exchange
Credit Securities that are traded or dealt on an active market or exchange are
valued by reference to their quoted mid-market price as at the close of trading
on the reporting date as the Directors deem the mid-market price to be a
reasonable approximation of an exit price.
i. Credit Securities not traded or dealt on an active market or exchange
Credit Securities which are not traded or dealt on active markets or exchanges
are valued by reference to their mid-price, as at the close of business on the
reporting date as determined by an independent price vendor. If a price cannot
be obtained from an independent price vendor, or where the Portfolio Manager
determines that the provided price is not an accurate representation of the
fair value of the Credit Security, the Portfolio Manager will source mid-price
quotes at the close of business on the reporting date from independent third
party brokers/dealers for the relevant security. If no mid-price is available
then a bid-price will be used.
In cases where no third party price is available (either from an independent
price vendor or independent third party brokers/dealers), or where the
Portfolio Manager determines that the provided price is not an accurate
representation of the fair value of the Credit Security, the Portfolio Manager
will determine the valuation based on the Portfolio Manager's valuation policy.
This may include the use of a comparable arm's length transaction, reference to
other securities that are substantially the same, discounted cash flow analysis
and other valuation techniques commonly used by market participants making the
maximum use of market inputs and relying as little as possible on
entity-specific inputs.
Over-the-counter derivative contracts such as Interest Rate Swaps are valued on
a weekly basis. This may be done using reference to data supplied from an
independent data source or an alternative vendor as deemed suitable by the
Directors. Where data from an independent data source is not available, the
valuation may be done by using the counterparty's valuation provided that the
valuation is approved or verified by a party who is approved for the purpose by
the Directors and who is independent of the counterparty.
Forward foreign currency contracts
Forward foreign currency contracts are derivative contracts and as such are
recognised at fair value on the date on which they are entered into and
subsequently measured at their fair value. Fair value is determined by rates in
active currency markets. All forward foreign currency contracts are carried as
assets when fair value is positive and as liabilities when fair value is
negative. Gains and losses on forward currency contracts are recognised as part
of net foreign currency gains in the Statement of Comprehensive Income.
Interest rate swaps
Interest rate swaps are derivative contracts and as such are recognised at fair
value on the date on which they are entered into and subsequently measured at
their fair value. Fair value is determined by rates provided by brokers. All
interest rate swaps are carried as assets when fair value is positive and as
liabilities when fair value is negative. Gains and losses on interest rate
swaps are recognised as part of net gains and losses on financial assets at
fair value through profit or loss in the Statement of Comprehensive Income.
Impairment
Financial assets that are stated at cost or amortised cost are reviewed at each
reporting date to determine whether there is objective evidence of impairment.
If any such indication exists, an impairment loss is recognised in the
Statement of Comprehensive Income as the difference between the asset's
carrying amount and the present value of estimated future cash flows discounted
at the financial asset's effective interest rate.
f) Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the
Statement of Financial Position when there is a legally enforceable right to
offset the recognised amounts and there is an intention to settle on a net
basis or realise the asset and settle the liability simultaneously. Derivatives
are not settled on a net basis and therefore derivative assets and liabilities
are shown gross.
g) Amounts due from and due to brokers
Amounts due from and to brokers represent receivables for securities sold and
payables for securities purchased that have been contracted for but not yet
settled or delivered on the statement of financial position date respectively.
These amounts are recognised initially at fair value and subsequently measured
at amortised cost using the effective interest rate method.
h) Income
Interest income is recognised on a time-proportionate basis using the effective
interest rate method. Discounts received or premiums paid in connection with
the acquisition of Credit Securities are amortised into interest income using
the effective interest rate method over the expected life of the related
security.
The effective interest rate method is a method of calculating the amortised
cost of a financial asset or financial liability and of allocating the interest
income or interest expense over the relevant period. The effective interest
rate is the rate that exactly discounts estimated future cash payments or
receipts throughout the expected life of the financial instrument, or, when
appropriate, a shorter period, to the net carrying amount of the financial
asset or financial liability.
When calculating the effective interest rate, the Portfolio Manager estimates
cash flows considering the expected life of the financial instrument, including
future credit losses and deferred interest payments. The calculation includes
all fees and points paid or received between parties to the contract that are
an integral part of the effective interest rate and all other premiums or
discounts.
i) Cash and cash equivalents
Cash and cash equivalents comprises cash in hand and deposits held at call with
banks and other short-term investments in an active market with original
maturities of three months or less and bank overdrafts. Bank overdrafts are
included in current liabilities in the Statement of Financial Position.
j) Share capital
Ordinary Shares are classified as equity. Incremental costs directly
attributable to the issue of Ordinary Shares are shown in equity as a
deduction, net of tax, from the proceeds and disclosed in the Statement of
Changes in Equity.
Repurchased Tendered Shares are treated as a distribution of capital and
deducted from the Share Capital account.
k) Foreign currency translation
Functional and presentation currency
Items included in the financial statements are measured using Sterling, the
currency of the primary economic environment in which the Company operates (the
"functional currency"). The Financial Statements are presented in Sterling,
which is the Company's presentation currency.
Transactions and balances
Foreign currency transactions are translated into the functional currency using
the exchange rates prevailing at the dates of the transactions. Foreign
currency assets and liabilities are translated into the functional currency
using the exchange rate prevailing at the statement of financial position date.
Foreign exchange gains and losses relating to the financial assets and
liabilities carried at fair value through profit or loss are presented in the
Statement of Comprehensive Income.
l) Transaction costs
Transaction costs on financial assets at fair value through profit or loss
include fees and commissions paid to agents, advisers, brokers and dealers.
Transaction costs, when incurred, are immediately recognised in the Statement
of Comprehensive Income.
m) Segment reporting
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker. The chief operating
decision-maker, who is responsible for allocating resources and assessing
performance of the operating segments, has been identified as the Board. The
Directors are of the opinion that the Company is engaged in a single segment of
business, being investments in Credit Securities. The Directors manage the
business in this way. For additional information refer to note 18.
n) Expenses
All expenses are included in the Statement of Comprehensive Income on an
accruals basis and are recognised through profit or loss in the Statement of
Comprehensive Income.
o) Other receivables
Other receivables are amounts due in the ordinary course of business. If
collection is expected in one year or less, they are classified as current
assets. If not, they are presented as non-current assets. Other receivables are
recognised initially at fair value and subsequently measured at amortised cost
using the effective interest rate method, less provision for impairment.
p) Other payables
Other payables are obligations to pay for services that have been acquired in
the ordinary course of business. Other payables are classified as current
liabilities if payment is due within one year or less. If not, they are
presented as non-current liabilities. Other payables are recognised initially
at fair value and subsequently measured at amortised cost using the effective
interest rate method.
q) Dividend distributions
Dividend distributions to the Company's shareholders are recognised as
liabilities in the Company's financial statements and disclosed in the
Statement of Changes in Equity in the period in which the dividends are
approved by the Board.
r) Income equalization on new issues
In order to ensure there are no dilutive effects on earnings per share for
current shareholders when issuing new shares, a transfer is made between share
capital and income to reflect that amount of income included in the purchase
price of the new shares.
s) Treasury Shares
The Company has the right to issue and purchase up to 14.99% of the total
number of its own shares, as disclosed in note 12.
Shares held in Treasury are excluded from calculations when determining
Earnings per Ordinary Share or Net Asset Value per Ordinary Share as detailed
in notes 4 and 6.
3. Significant accounting judgements, estimates and assumptions
The preparation of the Company's Financial Statements requires
management to make judgements, estimates and assumptions that affect the
reported amounts of revenues, expenses, assets and liabilities and the
accompanying disclosures. Uncertainty about these assumptions and estimates
could result in outcomes that require a material adjustment to the carrying
amount of assets or liabilities affected in future periods.
(i) Judgements
In the process of applying the Company's accounting policies, management has
made the following judgements, which have the most significant effect on the
amounts recognised in the Financial Statements:
Functional currency
As disclosed in note 2(k), the Company's functional currency is Sterling.
Sterling is the currency in which the Company measures its performance and
reports its results, as well as the currency in which it receives subscriptions
from its investors. Dividends are also paid to its investors in Sterling. The
Directors believe that Sterling best represents the functional currency.
(ii) Estimates and assumptions
The key assumptions concerning the future and other key sources of
estimation uncertainty at the reporting date, that have a significant risk of
causing a material adjustment to the carrying amounts of assets and liabilities
within the next financial year, are described below. The Company based its
assumptions and estimates on parameters available when the Financial Statements
were prepared. Existing circumstances and assumptions about future
developments, however, may change due to market changes or circumstances
arising which are beyond the control of the Company. Such changes are reflected
in the assumptions when they occur.
(a) Fair value of securities not quoted in active markets
The Company carries its investments in Credit Securities at fair value,
with changes in value being recognised in the Statement of Comprehensive
Income. In cases where prices of Credit Securities are not quoted in an active
market, the Portfolio Manager will obtain prices determined at the close of
business on the reporting date from an independent price vendor. The Portfolio
Manager exercises its judgement on the quality of the independent price vendor
and information provided. If a price cannot be obtained from an independent
price vendor or where the Portfolio Manager determines that the provided price
is not an accurate representation of the fair value of the Credit Security, the
Portfolio Manager will source prices from independent third party brokers or
dealers for the relevant security, which may be indicative rather than
tradable. Where no third party price is available, or where the Portfolio
Manager determines that the third party quote is not an accurate representation
of the fair value, the Portfolio Manager will determine the valuation based on
the Portfolio Manager's valuation policy. This may include the use of a
comparable arm's length transaction, reference to other securities that are
substantially the same, discounted cash flow analysis and other valuation
techniques commonly used by market participants making the maximum use of
market inputs and relying as little as possible on entity-specific inputs.
(b) Estimated life of Credit Securities
In determining the estimated life of the Credit Securities held by the Company,
the Portfolio Manager estimates the remaining life of the security with respect
to expected prepayment rates, default rates and loss rates together with other
information available in the market underlying the security. The estimated life
of the Credit Securities as determined by the Portfolio Manager, impacts the
effective interest rate of the Credit Securities which in turn impacts the
calculation of income as discussed in note 2(h).
(c) Determination of observable inputs
In note 17, Fair Value Measurement, when determining the levels of
investments within the fair value hierarchy, the determination of what
constitutes 'observable' requires significant judgement by the Company. The
Company considers observable data to be market data that is readily available,
regularly distributed or updated, reliable and verifiable, not proprietary, and
provided by independent sources that are actively involved in the relevant
market.
4. Earnings per Ordinary Share - Basic & Diluted
The earnings per Ordinary Share - Basic and Diluted has been calculated based
on the weighted average number of Ordinary Shares of 138,712,320 (30 September
2014: 111,058,808) and a net gain for the year of £1,754,080 (30 September
2014: £1,289,040).
5. Income on equalisation of new issues
In order to ensure there were no dilutive effects on earnings per share
for current shareholders when issuing new shares, earnings have been calculated
in respect of the accrued income at the time of purchase and a transfer has
been made from share capital to income to reflect this. The transfer for the
year amounted to £113,679 (30 September 2014: £263,420).
6. Net Asset Value per Ordinary Share
The net asset value of each Share of 92.59p (30 September 2014: £98.41p) is
determined by dividing the net assets of the Company attributed to the Shares
of £134,560,344 (30 September 2014: £123,194,466) by the number of Shares in
issue at 30 September 2015 of 145,335,881 (30 September 2014: 125,185,881).
7. Taxation
The Company has been granted Exempt Status under the terms of The Income Tax
(Exempt Bodies) (Guernsey) Ordinance, 1989 to income tax in Guernsey. Its
liability for Guernsey taxation is limited to an annual fee of £1,200 (30
September 2014: £600).
8. Net foreign currency gains
Year ended For the period
30.09.15 from 12.02.14
(date of
incorporation)
to 30.09.14
£ £
Movement in net unrealised (loss)/gain on forward (2,172,265) 1,504,676
currency contracts and spot currency contracts
Realised gain on forward currency contracts 5,657,181 2,824,471
Realised currency loss (17,758) (821,357)
Unrealised income exchange gain/(loss) 77,552 (37,371)
3,544,710 3,470,419
9. Investments
Year ended For the period
30.09.15 from 12.02.14
(date of
incorporation)
to 30.09.14
£ £
Financial assets at fair value through profit and loss:
Unlisted Investments:
Opening book cost 122,539,767 -
Purchases at cost 88,769,362 146,380,033
Proceeds on sale/principal repayment (68,000,998) (23,839,249)
Amortisation adjustment under effective interest rate 639,168 217,124
method
Realised loss on sale/principal repayment (4,307,317) (218,141)
Closing book cost 139,639,982 122,539,767
Unrealised loss on investments (10,837,913) (5,231,169)
Fair value 128,802,069 117,308,598
Realised loss on sales/principal repayment (4,307,317) (218,141)
Increase in unrealised loss (5,606,744) (5,231,169)
Net loss on financial assets at fair value through profit or (9,914,061) (5,449,310)
loss
The Company does not experience any seasonality or cyclicality in its investing
activities.
10. Other receivables
30.09.15 30.09.14
£ £
Amounts due from brokers 1,233,420 -
Interest income receivable and accrued income 2,672,409 2,163,269
Prepaid expenses 15,175 8,889
Dividends receivable 107,227 93,375
4,028,231 2,265,533
11. Other payables
30.09.15 30.09.14
£ £
Portfolio Management fees payable 92,094 80,887
Directors' fee payable 26,875 20,625
Administration fee payable 26,050 23,813
AIFM management fee payable 18,369 7,119
Audit fee payable 45,700 45,000
Broker fee payable - 25,000
General expenses payable 32,838 45,211
Depositary fee payable 2,260 3,460
Custody fee payable 954 1,928
245,140 253,043
12. Share Capital
Authorised Share Capital
The Directors may issue an unlimited number of Ordinary Shares at no par value
and an unlimited number of Ordinary Shares with a par value.
Issued Share Capital
30.09.15 30.09.14
£ £
Ordinary Shares
Share Capital at the beginning of the year 123,434,794 -
/period
Issue of shares 29,527,004 125,946,801
Share issue costs (339,085) (2,248,587)
Purchase of own shares into (13,451,019) -
treasury
Re-issuance of treasury shares 3,551,432 -
Income equalisation on new issues (113,679) (263,420)
Total Share Capital at the end of the year 142,609,447 123,434,794
/period
30.09.15 30.09.14
£ £
Treasury Shares
Share Capital at the beginning of the year/ - -
period
Purchased 13,451,019 -
shares
Sold shares (3,551,432) -
Total Share Capital at the end of the year/ 9,899,587 -
period
Reconciliation of number of Shares
30.09.15 30.09.14
Shares Shares
Ordinary Shares
Shares at the beginning of the year/ 125,185,881 -
period
Issue of shares 30,723,887 125,185,881
Purchase of own shares to hold in (14,173,887) -
treasury
Reissue of treasury shares 3,600,000 -
Total Shares in issue at the end of the year/ 145,335,881 125,185,881
period
The Ordinary Shares carry the following rights:
a. the Ordinary Shares carry the right to receive all income of the Company
attributable to the Ordinary Shares.
a. the Shareholders present in person or by proxy or present by a duly
authoriserepresentative at a general meeting has, on a show of hands, one
vote and, on a poll, one vote for each Share held.
Reconciliation of number of Treasury Shares
30.09.15 30.09.14
Shares Shares
Treasury Shares
Shares at the beginning of the year/period - -
Purchased shares 14,173,887 -
Sold shares (3,600,000) -
Total Shares in issue at the end of the year 10,573,887 -
/period
The Company has the right to issue and purchase up to 14.99% of the total
number of its own shares at £0.01 each, to be classed as Treasury Shares and
may cancel those Shares or hold any such Shares as Treasury Shares, provided
that the number of Shares held as Treasury Shares shall not at any time exceed
10% of the total number of Shares of that class in issue at that time or such
amount as provided in the Companies Law.
On 13 February 2015 the Company purchased 14,173,887 Ordinary Shares of £0.01
at a price of 94.90p to be held in treasury. The total amount paid to purchase
these shares was £13,451,019 and has been deducted from the shareholders'
equity. The Company has the right to re-issue these shares at a later date. All
shares issued were fully paid. During the year 3,600,000 treasury shares were
re-issued for a total consideration of £3,551,432.
Shares held in Treasury are excluded from calculations when determining
Earnings per Ordinary Share or Net Asset Value per Ordinary Share as detailed
in notes 4 and 6.
13. Analysis of Financial Assets and Liabilities by Measurement Basis
Financial
Assets at fair
value through Loans and
profit and loss receivables Total
£ £ £
30 September 2015
Financial Assets as per Statement of Financial
Position
Investments at fair value through profit or loss:
-Bonds 94,262,743 - 94,262,743
-Asset backed 35,378,946 - 35,378,946
securities
-Interest rate (839,620) - (839,620)
swaps
Derivative assets (see note 480,209 - 480,209
16)
Cash and cash - 4,532,345 4,532,345
equivalents
Other receivables - 4,028,231 4,028,231
129,282,278 8,560,576 137,842,854
Financial
Liabilities at Other
fair
value through financial
profit and loss liabilities Total
£ £ £
30 September 2015
Financial Liabilities as per Statement of Financial
Position
Amounts due to - 1,889,571 1,889,571
brokers
Other payables - 245,140 245,140
Derivative liabilities (see note 1,147,799 - 1,147,799
16)
1,147,799 2,134,711 3,282,510
Financial
Assets at fair
value through Loans and
profit and loss receivables Total
£ £ £
30 September 2014
Financial Assets as per Statement of Financial
Position
Investments at fair value through profit or loss:
-Preferred stock 2,895,000 - 2,895,000
-Bonds 80,408,167 - 80,408,167
-Asset backed 34,258,005 - 34,258,005
securities
-Interest rate (252,574) - (252,574)
swaps
Derivative assets (see note 1,582,673 - 1,582,673
16)
Cash and cash - 4,912,175 4,912,175
equivalents
Other receivables - 2,265,533 2,265,533
118,891,271 7,177,708 126,068,979
Financial
Liabilities at Other
fair
value through financial
profit and loss liabilities Total
£ £ £
30 September 2014
Financial Liabilities as per Statement of Financial
Position
Amounts due to - 2,543,473 2,543,473
brokers
Other payables - 253,043 253,043
Derivative liabilities (see note 77,997 - 77,997
16)
77,997 2,796,516 2,874,513
14. Related Parties
a) Directors' Remuneration & Expenses
The Directors of the Company are remunerated for their services at such a rate
as the Directors determine. The aggregate fees of the Directors will not exceed
£150,000.
The annual Directors' fees comprise £30,000 payable to Ms Whittet, the Chair, £
27,500 to Mr Legge as Chair of the Audit Committee and £25,000 each to Mr Emch
and Mr Martin. During the year, Directors' fees of £112,842 (30 September 2014:
£46,223) were charged to the Company, of which £26,875 (30 September 2014: £
20,625) remained payable at the end of the year. Previously unrecognised
Director fees of Ian Martin amounting to £5,342 was recognised as an expense
for the year ended 30 September 2015. Directors' expenses for the year were £
15,639 (30 September 2014: £3,975).
b) Shares held by related parties
The Directors of the Company held the following shares beneficially:
Number of Shares
30.09.15 30.09.14
Claire Whittet 25,000 10,000
Christopher Legge 50,000 25,000
Thomas Emch 25,000 25,000
Ian Martin 25,000 -
Directors are entitled to receive a dividend on any shares held by them during
the year. Dividends declared by the Company are set out in note 19.
As at 30 September 2015, the Portfolio Manager held no Shares (30 September
2014: 400,000 Shares), which is 0% (30 September 2014: 0.32%) of the Issued
Share Capital. Due to changes in the firm's capital approach in connection with
the majority purchase by Vontobel Group AG, the Portfolio Manager sold its
holding in the Company in March 2015. Partners and employees of the Portfolio
Manager increased their holdings during the year, and held 883,227 (30
September 2014: 548,336), which is 0.61% (30 September 2014: 0.44%) of the
Issued Share Capital.
c) Portfolio Manager
The portfolio management fee is payable to the Portfolio Manager, TwentyFour
Asset Management LLP, monthly in arrears at a rate of 0.75% per annum of the
lower of NAV, which is calculated weekly on each valuation day, or market
capitalisation of each class of shares. Total investment management fees for
the year amounted to £998,154 (30 September 2014: £468,360) of which £92,094
(30 September 2014: £80,887) is payable at year end. The Portfolio Management
Agreement dated 17 February 2014 remains in force until determined by the
Company or the Portfolio Manager giving the other party not less than twelve
months' notice in writing. Under certain circumstances, the Company or the
Portfolio Manager is entitled to immediately terminate the agreement in
writing.
The Portfolio Manager is also entitled to a commission of 0.175% of the
aggregate gross offering proceeds plus any applicable VAT in relation to any
issue of new Shares, following admission, in consideration of marketing
services that it provides to the Company. During the year, the Portfolio
Manager received £34,348 (30 September 2014: £40,605) in commission.
On 30 April 2015, the Portfolio Manager entered into a strategic partnership
with Vontobel Asset Management ("Vontobel"), the multi-boutique asset manager
and subsidiary of the Vontobel Group. Vontobel acquired a 60 percent stake in
TwentyFour Asset Management LLP. The strategic partnership has had no impact on
the Portfolio Manager's activities and fees.
The transaction strengthens Vontobel's presence in the UK market, extends its
fixed income product offering and underlines its commitment to broaden its
asset management business through targeted investments.
Portfolio Manager's Partners continue to manage Portfolio Manager's day-to-day
operations, retaining full authority over fund investment decisions. The
established Portfolio Manager brand remains in place. Portfolio Manager's
Partners and key employees retains a 40% stake in the business and remains
fully committed to Portfolio Manager. To further strengthen alignment, the
Partners have agreed to reinvest a significant share of their consideration
into existing Portfolio Manager or Vontobel investment funds. In line with
Vontobel's multi-boutique structure, both firms' investment platforms will
operate independently of each other to ensure a continuation of their strong
performance record. The 40% stake held by the Partners will be acquired by
Vontobel over the longer-term.
15. Material Agreements
a) Alternative Investment Fund Manager
The Company's AIFM is Phoenix Fund Services (UK) Limited. In consideration for
the services provided by the AIFM under the AIFM Agreement the AIFM is entitled
to receive from the Company a minimum fee of £20,000 per annum and fees payable
quarterly in arrears at a rate of 0.07% of the Net Asset Value of the Company
below £50 million, 0.05% on Net Assets between £50 million and £100 million and
0.03% on Net Assets in excess of £100 million. During the year, AIFM fees of £
76,175 (30 September 2014: £7,119) were charged to the Company, of which £
18,369 (30 September 2014: £7,119) remained payable at the end of the year.
b) Administrator and Secretary
Administration fees are payable to Northern Trust International Fund
Administration Services (Guernsey) Limited monthly in arrears at a rate of
0.06% of the Net Asset Value of the Company below £100 million, 0.05% on Net
Assets between £100 million and £200 million and 0.04% on Net Assets in excess
of £200 million as at the last business day of the month subject to a minimum £
50,000 in the first year of admission and £75,000 for each year thereafter. In
addition, an annual fee of £25,000 will be charged for corporate governance and
company secretarial services. During the year, administration and secretarial
fees of £101,544 (30 September 2014: £52,314) were charged to
the Company, of which £26,050 (30 September 2014: £23,813) remained payable at
the end of the year.
c) Placing Agent
For its services as the Company's placing agent pursuant to a placing agreement
dated 17 February 2014 in connection with the initial public
offering ("IPO") of shares in March 2014, Numis Securites Limited (the "Placing
Agent") was entitled to receive a fee of 2% of the gross proceeds of the IPO.
The placing agent received a fee of £1,930,360 under this agreement.
The Placing Agent is also entitled to receive commission of 1% on all tap
issues. During the year the Placing Agent received £196,274 (30 September 2014:
£232,110) in commission.
d) Depositary
Depositary's fees are payable to Northern Trust (Guernsey) Limited monthly in
arrears at a rate of 0.0175% of the Net Asset Value of the Company below £100
million, 0.0150% on Net Assets between £100 million and £200 million and
0.0125% on Net Assets in excess of £200 million as at the last business day of
the month subject to a minimum £15,000 in the first year of admission and £
25,000 for each year thereafter. During the year, depositary fees of £23,183
(30 September 2014: £8,244) were charged to the Company, of which £2,260
(30 September 2014: £3,460) remained payable at the end of the year.
The Depositary is also entitled to a Global Custody fee of a minimum of £8,500
per annum plus transaction fees. Total Global Custody fees and charges for the
year amounted to £15,953 (30 September 2014: £7,152) of which £954 (30
September 2014: £1,928) is due and payable at the end of the year.
16. Financial Risk Management
The Company's objective in managing risk is the creation and protection of
shareholder value. Risk is inherent in the Company's activities, but it is
managed through an ongoing process of identification, measurement and
monitoring.
The Company's financial instruments include investments designated at fair
value through profit or loss and cash and cash equivalents. The main risks
arising from the Company's financial instruments are market price risk,
interest rate risk, credit risk, liquidity risk and currency risk. The
techniques and instruments utilised for the purposes of efficient portfolio
management are those which are reasonably believed by the Board to be
economically appropriate to the efficient management of the Company.
Market risk
Market risk embodies the potential for both losses and gains and includes
currency risk, interest rate risk and price risk. The Company's strategy on the
management of market risk is driven by the Company's investment objective. The
Company's investment objective is to generate attractive risk adjusted returns
principally through investment in Credit Securities.
(i) Price risk
The underlying investments comprised in the portfolio are subject to price
risk. The Company is therefore at risk that market events may affect
performance and in particular may affect the value of the Company's investments
which are valued on a mark to market and mark to model basis. Price risk is
risk associated with changes in market prices or rates, including interest
rates, availability of credit, inflation rates, economic uncertainty, changes
in laws, national and international political circumstances. The Company's
policy is to manage price risk by holding a diversified portfolio of assets,
through its investments in Credit Securities.
The Company's policy also stipulates that at purchase no more than 5% of the
Portfolio value can be exposed to any single Credit Security or issuer of
Credit Securities.
The price of a Credit Security can be affected by a number of factors,
including: (i) changes in the market's perception of the underlying assets
backing the security; (ii) economic and political factors such as interest
rates and levels of unemployment and taxation which can have an impact on the
arrears, foreclosures and losses incurred with respect to the pool of assets
backing the security; (iii) changes in the market's perception of the adequacy
of credit support built into the security's structure to protect against losses
caused by arrears and foreclosures; (iv) changes in the perceived
creditworthiness of the originator of the security or any other third parties
to the transaction; (v) the speed at which mortgages or loans within the pool
are repaid by the underlying borrowers (whether voluntary or due to arrears or
foreclosures).
(ii) Reinvestment risk
Reinvestment risk is the risk that future coupons from a bond will not be
reinvested at the prevailing interest rate when the bond was initially
purchased.
A key determinant of a bond's yield is the price at which it is purchased and,
therefore, when the market price of bonds generally increases, the yield of
bonds purchased generally decreases. As such, the overall yield of the
portfolio, and therefore the level of dividends payable to Shareholders, would
fall to the extent that the market prices of Credit Securities generally rise
and the proceeds of Credit Securities held by the Company that mature or are
sold are not able to be reinvested in Credit Securities with a yield comparable
to that of the portfolio as a whole.
Price sensitivity analysis
The following details the Company's sensitivity to movement in market prices.
The analysis is based on a 5% increase or decrease in market prices. This
represents management's best estimate of a reasonable possible shift in market
prices, having regard to historical volatility.
At 30 September 2015, if the market prices had been 5% higher with all other
variables held constant, the increase in the net assets attributable to equity
Shareholders would have been £6,440,103 (30 September 2014: £5,865,430). The
total comprehensive income for the year would have also increased by £87,704
(30 September 2014: £64,452). An equal change in the opposite direction would
have decreased the net assets attributable to equity Shareholders and total
comprehensive income respectively.
Actual trading results may differ from the above sensitivity analysis and those
differences may be material.
Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates
will affect the fair value of financial assets at fair value through profit or
loss.
The tables below summarise the Company's exposure to interest rate risk:
Floating Fixed rate Non-interest Total
rate bearing
As at 30 September 2015 £ £ £ £
Financial assets at fair 45,203,982 83,598,087 - 128,802,069
value through profit or
loss
Receivables - - 4,028,231 4,028,231
Cash and cash 4,532,345 - - 4,532,345
equivalents
Derivative assets - - 480,209 480,209
Derivative - - (1,147,799)
liabilities (1,147,799)
Amounts due to broker - - (1,889,571)
(1,889,571)
Other payables - - (245,140) (245,140)
Net current assets 49,736,327 83,598,087 1,225,930 134,560,344
Floating Fixed rate Non-interest Total
rate bearing
As at 30 September 2014 £ £ £ £
Financial assets at fair 37,960,377 76,453,221 2,895,000 117,308,598
value through profit or
loss
Receivables 599,396 1,563,873 102,264 2,265,533
Cash and cash 4,912,175 - - 4,912,175
equivalents
Derivative assets - - 1,582,673 1,582,673
Derivative - - (77,997) (77,997)
liabilities
Amounts due to broker - - (2,543,473)
(2,543,473)
Other payables - - (253,043) (253,043)
Net current assets 43,471,948 78,017,094 1,705,424 123,194,466
The Company holds fixed rate and floating rate financial instruments which,
based on current portfolio duration, have low exposure to fair value interest
rate risk as, when the short-term interest rates increase, the interest rate on
a floating rate note will increase. The maximum time to re-fix interest rates
is six months and therefore the Company has minimal interest rate risk. The
value of Credit securities may be affected by interest rate movements. Interest
receivable on bank deposits or payable on bank overdraft positions will be
affected by fluctuations in interest rates, however the underlying cash
positions will not be affected.
The Company's continuing position in relation to interest rate risk is
monitored on a weekly basis by the Portfolio Manager as part of its review of
the weekly Net Asset Value calculations prepared by the Company's
Administrator.
Credit risk
Credit risk refers to the risk that a counterparty will default on its
contractual obligations resulting in financial loss to the Company. The Company
has a credit policy in place and the exposure to credit risk is monitored on an
on-going basis.
The main concentration of credit risk to which the Company is exposed arises
from the Company's investments in Credit Securities. The Company is also
exposed to counterparty credit risk on forwards, cash and cash equivalents,
amounts due from brokers and other receivable balances.
The Company's policy to manage this risk is by maintaining a portfolio
diversified by issuer and invests in Credit Securities with at least one
investment grade rating from an internationally recognised credit agency. The
Company also manages this credit risk by investing no more than 5% of the
portfolio value in any single Credit Security or issuer of Credit Securities.
Portfolio of debt securities by ratings category assigned by Standard
and Poor's:
BBB- 2.12%
BB+ 8.99%
BB 2.22%
BB- 2.25%
B+ 9.99%
B 13.10%
B- 18.55%
BE 2.10%
B-E 0.82%
CCC+ 17.61%
CCC 0.74%
CC 0.96%
PB- 1.15%
NR 17.68%
MULT 1.72%
100.00%
To further understand credit risk, the Portfolio Manager undertakes extensive
due diligence procedures on investments in Credit Securities and monitors the
on-going investment in these securities.
The Company manages its counterparty exposure in respect of cash and cash
equivalents and forwards by investing with counterparties with a "single A" or
higher credit rating. The majority of cash is currently placed with The
Northern Trust Company. The Company is subject to credit risk to the extent
that this institution may be unable to return this cash. The Northern Trust
Company is a wholly owned subsidiary of The Northern Trust Corporation. The
Northern Trust Corporation is publicly traded and a constituent of S&P 500. The
Northern Trust Corporation has a credit rating of A+ from Standard & Poor's and
A2 from Moody's.
The Company's maximum credit exposure is limited to the carrying amount of
financial assets recognised as at the statement of financial position date, as
summarised below:
30.09.15 30.09.14
£ £
Investments 128,802,069 117,308,598
Cash and cash equivalents 4,532,345 4,912,175
Derivative 480,209 1,582,673
assets
Other 4,028,231 2,265,533
receivables
137,842,854 126,068,979
Investments in Credit Securities that are not backed by mortgages present
certain risks that are not presented by mortgage-backed securities ("MBS").
Primarily, these securities may not have the benefit of the same security
interest in the related collateral. Therefore, there is a possibility that
recoveries on defaulted collateral may not, in some cases, be available to
support payments on these securities. The risk of investing in these types of
Credit Securities is ultimately dependent upon payment of the underlying debt
by the debtor.
Liquidity risk
Liquidity risk is the risk that the Company may not be able to generate
sufficient cash resources to settle its obligations in full as they fall due or
can only do so on terms that are materially disadvantageous.
Investments made by the Company in Credit Securities may be relatively illiquid
and this may limit the ability of the Company to realise its investments.
Investments in Credit Securities may also have no active market and the Company
also has no redemption rights in respect of these investments. The Company has
the ability to borrow to ensure sufficient cash flows.
The Portfolio Manager considers expected cash flows from financial assets in
assessing and managing liquidity risk, in particular its cash resources and
trade receivables. Cash flows from trade and other receivables are all
contractually due within twelve months.
The Portfolio Manager shall maintain a liquidity management policy to monitor
the liquidity risk of the Company.
Shareholders have no right to have their shares redeemed or repurchased by the
Company, except as detailed under the Capital Risk Management (Quarterly
Tenders) section of this note. Shareholders wishing to release their investment
in the Company are therefore required to dispose of their shares on the market.
Therefore under normal market conditions there is a low risk that the Company
will not be able to fund redemption requests.
The table below analyses the Company's liabilities into relevant maturity
groupings based on the maturities at the statement of financial position date.
The amounts in the table are the undiscounted net cash flows on the financial
liabilities:
As at 30 September 2015
Up to 1 1-6 months 6-12 Total
month months
£ £ £ £
Financial
liabilities
Amounts due to brokers (1,889,571) - - (1,889,571)
Derivative liabilities (1,147,799) - - (1,147,799)
Other payables (199,440) (45,700) - (245,140)
Total (3,236,810) (45,700) - (3,282,510)
As at 30 September 2014
Up to 1 1-6 months 6-12 Total
month months
£ £ £ £
Financial
liabilities
Amounts due to brokers (2,543,473) - - (2,543,473)
Derivative liabilities (77,997) - - (77,997)
Other payables (208,043) (45,000) - (253,043)
Total (2,829,513) (45,000) - (2,874,513)
Foreign currency risk
Foreign currency risk is the risk that the value of a financial instrument will
fluctuate due to changes in foreign exchange rates. The Company invests
predominantly in non-Sterling assets while its Shares are denominated in
Sterling, its expenses are incurred in Sterling and its presentational currency
is Sterling. Therefore the Statement of Financial Position may be significantly
affected by movements in the exchange rate between foreign currencies and
Sterling. The Company manages the exposure to currency movements by using spot
and forward foreign exchange contracts, rolling forward on a periodic basis.
At year end, the Company had sixteen (30 September 2014: six) open forward
currency contracts and five (30 September 2014: Nil) open spot currency
contracts.
Open forward currency contracts
Outstanding Mark to Unrealised
contracts market gains/
equivalent (losses)
Contract
values
30.09.15 30.09.15 30.09.15 30.09.15
Currency £ £ £
Sixteen Sterling forward foreign currency
contracts
totalling:
2 CHF forward foreign currency (8,550,000) (5,790,367) (5,779,563) 10,804
contract
3 EUR forward foreign currency (89,400,000) (66,323,609) (65,914,740) 408,869
contract
2 USD forward foreign currency 4,400,000 2,876,274 2,904,770 28,496
contract
448,169
4 EUR forward foreign currency (96,400,000) (70,494,957) (71,038,466) (543,509)
contract
2 SEK forward foreign currency (17,750,000) (1,376,568) (1,397,625) (21,057)
contract
2 USD forward foreign currency (31,000,000) (20,265,914) (20,466,453) (200,539)
contract
1 CHF forward foreign currency (200,000) (132,901) (135,128) (2,227)
contract
(767,332)
Outstanding Mark to Unrealised
contracts market gains/
equivalent (losses)
Contract
values
30.09.14 30.09.14 30.09.14 30.09.14
Currency £ £ £
Six Sterling forward foreign
currency
contracts
totalling:
3 EUR forward foreign currency 77,656,651 62,070,951 60,514,258 1,556,693
contract
1 CHF forward foreign currency 1,900,000 1,241,074 1,226,632 14,442
contract
1 SEK forward foreign currency 10,060,000 872,412 860,874 11,538
contract
1,582,673
1 USD forward foreign currency 8,429,402 5,121,735 5,199,732 (77,997)
contract
(77,997)
Open spot currency contracts
Outstanding Mark to Unrealised
contracts market gains/
equivalent (losses)
Contract
values
30.09.15 30.09.15 30.09.15 30.09.15
Currency £ £ £
Five Sterling spot
currency
contracts
totalling:
1 EUR spot currency (1,800,000) (1,328,850) (1,326,457) 2,393
contract
1 SEK spot currency 8,800,000 687,022 692,679 5,657
contract
1 USD spot currency 13,300,000 8,756,337 8,780,327 23,990
contract
32,040
1 EUR spot currency 93,800,000 69,496,420 69,123,125 (373,295)
contract
1 CHF spot currency 4,400,000 2,980,020 2,972,848 (7,172)
contract
(380,467)
As at 30 September 2015 and 2014 the Company held the following assets and
liabilities denominated in currencies other than Pounds Sterling:
30.09.15 30.09.14
£ £
Investments 77,667,796 65,827,923
Cash and cash equivalents 2,253,255 669,801
Other 2,852,506 1,297,879
receivables
Less: Open forward currency contracts (161,827,206) (67,801,496)
Less: Open spot currency contracts 80,242,525 -
1,188,876 (5,893)
The table below summarises the sensitivity of the Company's assets and
liabilities to changes in foreign exchange movements between Euro and Sterling
as at 30 September 2015 and 2014. The analysis is based on the assumption that
the relevant foreign exchange rate increased/decreased by the percentage
disclosed in the table, with all other variables held constant. This represents
management's best estimate of a reasonable possible shift in the foreign
exchange rates, having regard to historical volatility of those rates.
30.09.15 30.09.14
£ £
Impact on Statement of Comprehensive Income
and Equity in response to a:
- 5% increase in EUR/GBP (41,367) (4,241)
- 5% decrease in EUR/GBP 115,958 8,493
Impact on Statement of Changes in Equity in
response to a:
- 5% increase in EUR/GBP (41,367) (4,241)
- 5% decrease in EUR/GBP 115,958 8,493
Capital risk management
The Company manages its capital to ensure that it is able to continue as a
going concern while following the Company's stated investment policy. The
capital structure of the Company consists of Shareholders' equity, which
comprises share capital and other reserves. To maintain or adjust the capital
structure, the Company may return capital to Shareholders or issue new Shares.
There are no regulatory requirements to return capital to Shareholders.
(i) Quarterly Tenders
With the objective of minimising the risk of the Ordinary Shares trading at a
discount to NAV and to assist in the narrowing of any discount at which the
Ordinary Shares may trade from time to time, the Company has incorporated into
its structure a mechanism (a ''Quarterly Tender''), contingent on certain
factors as described below, which can be exercised at the discretion of the
Directors, to provide Shareholders with a quarterly opportunity to submit
Ordinary Shares for placing or repurchase by the Company at a price
representing a discount of no more than 2% to the then prevailing NAV.
Upon confirmation of the number of Tender Requests made in respect of each
Quarter Record Date, the Company intends first, through its corporate broker
acting on a reasonable endeavours basis, to seek to satisfy Tender Requests by
placing the Tendered Shares with investors in the secondary market.
Second, subject to the Tender Restrictions, the Company intends to repurchase
for cancellation any Tendered Shares not placed in the secondary market.
It is anticipated that the Company will tender on a quarterly basis for up to
20% of the Ordinary Shares in issue as at the relevant Quarter Record Date,
subject to an aggregate limit of 50% of the Ordinary Shares in issue in any
twelve month period ending on the relevant Quarter Record Date.
(ii)Share buybacks
The Company has been granted the authority to make market purchases of up to a
maximum of 14.99% of the aggregate number of Ordinary Redeemable Shares in
issue immediately following Admission at a price not exceeding the higher of
(i) 5% above the average of the mid-market values of the Ordinary Redeemable
Shares for the 5 business days before the purchase is made or, (ii) the higher
of the price of the last independent trade and the highest current investment
bid for the Ordinary Redeemable Shares.
In deciding whether to make any such purchases the Directors will have regard
to what they believe to be in the best interests of Shareholders as a whole, to
the applicable legal requirements and any other requirements in its Articles.
The making and timing of any buybacks will be at the absolute discretion of the
Board and not at the option of the Shareholders, and is expressly subject to
the Company having sufficient surplus cash resources available (excluding
borrowed moneys).
The Listing Rules prohibit the Company from conducting any share buybacks
during close periods immediately preceding the publication of annual and
interim results.
(iii) Continuation votes
In the event that:
(i) the Dividend Target is not met as disclosed in note 19; or
(ii) on any Tender Submission Deadline, applications for the Company to
repurchase 50% or more of the Company's issued Ordinary Shares, calculated as
at the relevant Quarter Record Date, are received by the Company,
A General Meeting will be convened at which the Directors will propose an
Ordinary Resolution that the Company should continue as an investment company.
If any such Ordinary Resolution is not passed, the Directors shall draw up
proposals for the voluntary liquidation, unitisation, reorganisation or
reconstruction of the Company for submission to the members of the Company at a
General Meeting to be convened by the Directors for a date not more than 6
months after the date of the meeting at which such Ordinary Resolution was not
passed.
17. Fair Value Measurement
All assets and liabilities are carried at fair value or at carrying value which
equates to fair value.
IFRS 13 requires the Company to classify fair value measurements using a fair
value hierarchy that reflects the significance of the inputs used in making the
measurements. The fair value hierarchy has the following levels:
(i) Quoted prices (unadjusted) in active markets for identical assets or
liabilities (level 1).
(ii) Inputs other than quoted prices included within level 1 that are
observable for the asset or liability, either directly (that is, as prices) or
indirectly (that is, derived from prices including interest rates, yield
curves, volatilities, prepayment speeds, credit risks and default rates) or
other market corroborated inputs (level 2).
(iii) Inputs for the asset or liability that are not based on observable market
data (that is, unobservable inputs) (level 3).
The following table analyses within the fair value hierarchy the Company's
financial assets and liabilities (by class) measured at fair value as at 30
September 2015 and 2014.
Level 1 Level 2 Level 3 Total
£ £ £ £
Assets
Financial assets at fair value
through profit and loss:
-Preferred stock - - - -
-Bonds - 2,452,088 91,810,655 94,262,743
-Interest rate swaps - - (839,620) (839,620)
-Asset backed securities - 4,024,690 31,354,256 35,378,946
Derivative assets - 480,209 - 480,209
Total assets as at 30 September - 6,956,987 122,325,291 129,282,278
2015
Liabilities
Derivative liabilities - 1,147,799 - 1,147,799
Total liabilities as at 30
September 2015 - 1,147,799 - 1,147,799
Level 1 Level 2 Level 3 Total
£ £ £ £
Assets
Financial assets at fair value
through profit and loss:
-Preferred stock - - 2,895,000 2,895,000
-Bonds - 3,727,025 76,681,142 80,408,167
-Interest rate swaps - - (252,574) (252,574)
-Asset backed securities - 13,814,087 20,443,918 34,258,005
Derivative assets - 1,582,673 - 1,582,673
Total assets as at 30 September - 19,123,785 99,767,486 118,891,271
2014
Liabilities
Derivative liabilities - 77,997 - 77,997
Total liabilities as at 30
September 2014 - 77,997 - 77,997
Credit Securities which have a value based on quoted market prices in active
markets are classified in level 1. At the end of the year/period, no Credit
Securities held by the Company are classified as level 1.
Credit Securities which are not traded or dealt on organised markets or
exchanges are classified in level 2. The prices of these Credit Securities are
obtained from an independent price vendor or where the Portfolio Manager
determines that the price is not an accurate representation of the fair value
of the Credit Security, the Portfolio Manager may source prices from third
party broker or dealer quotes and if the price represents a firm tradable
price, the Credit Security is classified in level 2.
Credit Securities where no third party verifiable price is available are
classified in level 3. The valuation of these Credit Securities will be
determined based on the Portfolio Manager's valuation policy, which may include
the use of a comparable arm's length transaction, reference to other securities
that are substantially the same, discounted cash flow analysis and other
valuation techniques. Where the Portfolio Manager sources prices from a third
party broker or dealer quotes and these prices are indicative rather than
tradable, the Credit Security is classified in level 3. Due to the inputs into
the valuation of the Credit Securities classified in level 3 not being
available or visible to the Company, no sensitivity on inputs can be performed.
There were no transfers between level 1 and 2 during the year/period, however
transfers between level 2 and 3 occurred based on the Portfolio Manager's
ability to obtain a firm tradable price as detailed above.
There were no changes in valuation techniques during the year.
The following table presents the movement in level 3 instruments for the year
ended 30 September 2015 by class of financial instrument.
Preferred Bonds Interest Asset Total
Stock Rate backed
Swaps securities
£ £ £ £ £
Opening balance 2,895,000 76,681,142 (252,574) 20,443,918 99,767,486
Net purchases 18,279,930 7,892,798 26,172,728
Investment (2,895,000) 2,895,000 - - -
reclassification
Net realised gain - (2,455,922) - (728,036) (3,184,358)
loss for the year
included in the
Statement of
Comprehensive
Income for level 3
Investments
Net unrealised gain - (990,085) (587,046) (2,032,042) (3,609,173)
/(loss) for the
year included in
the Statement of
Comprehensive
Income for level 3
Investments held at
30 September 2015
Transfer into Level - 2,545,025 - 8,637,135 11,182,160
3
Transfer out of - (5,144,434) - (2,859,518) (8,003,952)
Level 3
Closing balance - 91,810,656 (839,620) 31,354,255 122,325,291
The following table presents the movement in level 3 instruments for the period
ended 30 September 2014 by class of financial instrument.
Preferred Bonds Interest Asset Total
Stock Rate backed
Swaps securities
£ £ £ £ £
Opening balance - - - - -
Net purchases 2,733,339 78,583,997 - 21,970,582 103,287,918
Net unrealised gain 161,661 (1,902,855) (252,274) (1,526,664) (3,520,432)
/(loss) for the
period included in
the Statement of
Comprehensive
Income for level 3
Investments held at
30 September 2014
Closing balance 2,895,000 76,681,142 (252,274) 20,443,918 99,767,486
There were no transfers between levels during the period ended
30 September 2014.
The following table analyses within the fair value hierarchy the Company's
assets and liabilities not measured at fair value at 30 September 2015 but for
which fair value is disclosed.
Level 1 Level 2 Level 3 Total
£ £ £ £
Assets
Cash and cash 4,532,345 - - 4,532,345
equivalents
Other receivables - 4,028,231 - 4,028,231
Total 4,532,345 4,028,231 - 8,560,576
Liabilities
Amounts due to brokers - 1,889,571 - 1,889,571
Other payables - 245,140 - 245,140
Total - 2,134,711 - 2,134,711
The following table analyses within the fair value hierarchy the Company's
assets and liabilities not measured at fair value at 30 September 2014 but for
which fair value is disclosed.
Level 1 Level 2 Level 3 Total
£ £ £ £
Assets
Cash and cash 4,912,175 - - 4,912,175
equivalents
Other receivables - 2,265,533 - 2,265,533
Total 4,912,175 2,265,533 - 7,177,708
Liabilities
Amounts due to brokers - 2,543,473 - 2,543,473
Other payables - 253,043 - 253,043
Total - 2,796,516 - 2,796,516
The assets and liabilities included in the above tables are carried at
amortised cost; their carrying values are a reasonable approximation of fair
value.
Cash and cash equivalents include deposits held with banks.
Amounts due to brokers and other payables represent the contractual amounts and
obligations due by the Company for settlement of trades and expenses.
18. Segmental Reporting
The Board is responsible for reviewing the Company's entire
portfolio and considers the business to have a single operating segment. The
Board's asset allocation decisions are based on a single, integrated investment
strategy, and the Company's performance is evaluated on an overall basis.
The Company invests in a diversified portfolio of Credit
Securities. The fair value of the major financial instruments held by the
Company and the equivalent percentages of the total value of the Company are
reported in the Top Twenty Holdings.
Revenue earned is reported separately on the face of the Statement
of Comprehensive Income as investment income being interest income received
from Credit Securities.
19. Dividend Policy
The Board intends to distribute an amount at least equal to the
value of the Company's net income arising each financial year to the holders of
Ordinary Shares. However, there is no guarantee that the dividend target of 6.0
pence per Ordinary Share for each financial year will be met or that the
Company will make any distributions at all.
Distributions made with respect to any income period comprise (a) the accrued
income of the portfolio for the period (for these purposes, the Company's
income will include the interest payable by the Credit Securities in the
Portfolio and amortisation of any discount or premium to par at which a Credit
Security is purchased over its remaining expected life), and (b) an additional
amount to reflect any income purchased in the course of any share subscriptions
that took place during the period. Including purchased income in this way
ensures that the income yield of the shares is not diluted as a consequence of
the issue of new shares during an income period and (c) any income on the
foreign exchange contracts caused by the libor differentials between each
foreign exchange currency pair.
The Board expects that dividends will constitute the principal element of the
return to the holders of Ordinary Shares.
The Company declared the following dividends in respect of the profit for the
year ended 30 September 2015:
Period to Dividend Net dividend Ex-dividend date Record date Pay date
rate per paid
Share -Income
(pence) (£)
31 October 2014 0.50 648,179 13 November 2014 14 November 28 November
2014 2014
30 November 2014 0.50 650,679 18 December 2014 19 December 31 December
2014 2014
31 December 2014 0.50 658,679 15 January 2015 16 January 2015 30 January 2015
31 January 2015 0.50 708,679 19 February 2015 20 February 27 February
2015 2015
28 February 2015 0.50 708,679 19 March 2015 20 March 2015 31 March 2015
31 March 2015 0.50 713,681 16 April 2015 17 April 2015 30 April 2015
30 April 2015 0.50 719,929 21 May 2015 22 May 2015 29 May 2015
31 May 2015 0.50 719,929 18 June 2015 19 June 2015 30 June 2015
30 June 2015 0.50 719,929 16 July 2015 17 July 2015 31 July 2015
31 July 2015 0.50 719,929 20 August 2015 21 August 2015 28 August 2015
31 August 2015 0.50 723,679 17 September 18 September 30 September
2015 2015 2015
30 September 1.03 1,492,434 15 October 2015 16 October 2015 30 October 2015
2015
Under Guernsey law, companies can pay dividends in excess of accounting profit
provided they satisfy the solvency test prescribed by The Companies (Guernsey)
Law, 2008. The solvency test considers whether a company is able to pay its
debts when they fall due, and whether the value of a company's assets is
greater than its liabilities. The Board confirms that the Company passed the
solvency test for each dividend paid.
20. Ultimate Controlling Party
In the opinion of the Directors on the basis of shareholdings advised to
them, the Company has no ultimate controlling party.
21. Subsequent Events
These Financial Statements were approved for issuance by the Board on 14
January 2016. Subsequent events have been evaluated until this date.
Subsequent to the year end and up to the date of the Annual Report and Audited
Financial Statements, the Company issued the following shares:
In October 2015, 3,500,000 treasury shares were re-issued for a total
consideration of £3,326,380.
As at the date of the Annual Report and Audited Financial Statements the
Company had 148,835,881 shares in use of which 7,073,887 were held in treasury.
On 8 October 2015, the Company declared a dividend of 1.03p per share.
On 12 November 2015, the Company declared a dividend of 0.05p per share.
On 10 December 2015, the Company declared a dividend of 0.05p per share.
On 14 January 2016, the Company declared a dividend of 0.05p per share.
CORPORATE INFORMATION
Directors Receiving Agent
Claire Whittet (Chair) Computershare Investor Services PLC
Christopher Legge The Pavillions
Thomas Emch Bridgewater Road
Ian Martin Bristol, BS13 8AE
Registered Office UK Legal Advisers to the Company
PO Box 255 Eversheds LLP
Trafalgar Court One Wood Street
Les Banques London, EC2V 7WS
St Peter Port
Guernsey, GY1 3QL
Portfolio Manager Guernsey Legal Advisers to the
Company
TwentyFour Asset Management LLP Carey Olsen
24 Cornhill Carey House
London, EC3V 3ND Les Banques
St Peter Port
Guernsey, GY1 4BZ
Alternative Investment Fund Manager Independent Auditor
Phoenix Fund Services (UK) Limited PricewaterhouseCoopers CI LLP
Springfield Lodge PO Box 321
Colchester Road Royal Bank Place
Chelmsford, CM2 5PW 1 Glategny Esplanade
St Peter Port
Guernsey, GY1 4ND
Custodian, Principal Banker and Registrar
Depositary
Northern Trust (Guernsey) Limited Computershare Investor Services
PO Box 71 (Guernsey) Limited
Trafalgar Court 3rd Floor
Les Banques NatWest House
St Peter Port Le Truchot
Guernsey, GY1 3DA St Peter Port
Guernsey, GY1 1WD
Administrator and Company Secretary Broker and Financial Adviser
Northern Trust International Fund Numis Securities Limited
Administration The London Stock Exchange Building
Services (Guernsey) Limited
PO Box 255 10 Paternoster Square
Trafalgar Court London, EC4M 7LT
Les Banques
St Peter Port
Guernsey, GY1 3QL
TWENTYFOUR SEL ORD 1P : SELECT MONTHLY INCOME FUND - Annual Financial Report
January 15, 2016 at 05:59 pm IST
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