Annual Financial Report

TWENTYFOUR SELECT MONTHLY INCOME FUND LIMITED REPORT AND AUDITED FINANCIAL STATEMENTS For the period from 12 February 2014 (date of incorporation) to 30 September 2014 The Directors of TwentyFour Select Monthly Income Fund Limited announce the results for the period from 12 February (date of incorporation) 2014 to 30 September 2014. 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.hemscott.com/nsm.do. 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-inkind 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 per cent 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 will 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. There is no guarantee that this can or will be achieved. Shareholder Information Northern Trust International Fund Administration Services (Guernsey) Limited (the "Administrator") is responsible for calculating the NAV per share of the Company. 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 30.09.14 Total Net Assets Â£123,194,466 Net Asset Value per share 98.41p Share price at 30 September 2014 102.75p Premium to Net Asset Value 4.41% Dividends paid in period 3.07p As at 15 January 2015, the premium had moved to 3.67%. The estimated NAV per share and share price stood at 93.81p and 97.25p respectively. Ongoing Charges Ongoing charges for the period ended 30 September 2014 have been calculated in accordance with the Association of Investment Companies (the "AIC")recommended methodology. The ongoing charges for the period ended 30 September 2014 were 1.16%. CHAIR'S STATEMENT for the period from 12 February 2014 (date of incorporation) to 30 September 2014 The IPO of the Company in March raised slightly in excess of Â£100 million, in line with the amount which the Portfolio Manager thought was feasible to deploy in the market in an efficient manner over a three-month ramp-up period. The Board were very pleased to have successfully raised such a significant amount of interest from a diverse shareholder base for a Fixed Income product, given the underlying low yield environment. The investment of the initial portfolio was completed slightly ahead of the Portfolio Manager's target of 3 months, with the expected level of diversity and target yield, to achieve the pre-determined gross monthly dividend of 0.5p per share. Given the ongoing but incremental investment opportunities, the Company accessed these opportunities through the ongoing issuance of shares made possible under the placing programme established in the Company's prospectus dated 18 February 2014. The Board has delegated implementation of the placing programme subject to pre-determined parameters and on the proviso that the cash holding in the Company is less than 5% of the Net Asset Value. As at 30 September 2014 the Company has issued an additional Â£23.2m of shares in response to investor appetite. However, the underlying market conditions have driven the decision on whether or not to accept new investments and since the launch of the Company the Portfolio Manager has, on occasion, advised against issuing additional shares due to a lack of suitable investment opportunities. The Company's shares traded at a premium during the accounting period. The Company's issued share capital as at 30 September 2014 consisted of 125,185,881 Ordinary Shares. Our performance expectations continue to be positive with central bank support likely to remain a medium term theme before markets begin to return to normality. Interest rates are likely to remain artificially low for a prolonged period which in turn will help to keep corporate default rates low. Volatility is however expected to increase, as geopolitical risks remain high and as market expectations of US rate rises slowly increase. However, the Portfolio Manager views these periods of enhanced volatility as an opportunity to source suitable investments. Bearing in mind the yield widening noted in the Bank ofAmerica Merrill Lynch Euro High Yield Index (at the end of March 2014 it was 3.7%, falling to a low of 3.44% in mid-May; also, over the same period the Sterling Index yield widened from 4.8% in mid-May to 6.2% in mid-October and is currently at 5.75%) and the time period in which this happened, the Company suffered in line with the general market as prices were marked down, and at the end of the period the NAV was below the 100 issue, at 98.41. The general risk-off sentiment that has prevailed over the last 6 months accompanied by very poor liquidity and a reluctance by trading desks to position bonds, has also resulted in the bid-offer spread widening, with a negative impact on mark-to-market prices. On a more positive note, whilst the NAV of the fund has suffered, the managers have added very attractive risk-reward bonds from new monies raised, leaving the fund well positioned for market conditions. The Company's policy is to pay out a fixed 0.5p per share dividend on a monthly basis from July 2014, with any excess income paid out in the month following the Company's financial period end, which from next year will be a 12 month period; the annualised dividend for the period since inception to 30 September is ahead of target at 5.56%. The Company declared dividendsfor the period ended 30th September 2014 of 3.07p per share. Currently the fund is generating yield in excess of 6% net of fees and the Portfolio Manager continues to source suitable investments to meet the minimum yield requirements. However, going forward the Portfolio Manager expects the anticipated European Central Bankquantitative easing programme to tighten spreads and reduce yields across fixed income products. To meet this challenge, the Portfolio Manager recognisesit may have to be opportunistic around the timing of new investments and take advantage of periods of market stress and volatility in order to meet the minimum yield target without diluting the underlying credit quality of the portfolio. Claire Whittet 15 January 2015 PORTFOLIO MANAGER'S REPORT for the period from 12 February 2014 (date of incorporation) to 30 September 2014 Investment Review The Company launched with slightly in excess of Â£100 million in capital in March 2014, the proceeds of which were invested in line with the expected 3 month ramp-up period indicated to investors during the pre-launch marketing. Since the Company launch there have been further capital issuance, in accordance with the Company's prospectus which allows ongoing placement if the Portfolio Manageris able to source suitable assets for the Company. As at the end of September 2014 the equity issued since the IPO was Â£23.2 million (total market capitalisation toÂ£128,628,493). The Company is intended to be an unconstrained fixed income vehicle, able to take advantage of any illiquidity premium associated with seasoned off-the-run bonds and legacy issues. That said, the underlying portfolio components are broadly in line with the preferred sectors that were highlighted during the marketing period; namely Asset Backed Securities, Bank Capital and High Yield corporate bonds. There are no constraints in terms of geographical diversity but the asset allocation bias of the Company is European and to date there has been no migration from this. The Company launched during a period that coincided with unprecedented Central Bank intervention which created an extremely strong market appetite for credit, resulting in spreads testing recent historic tight levels. As a result, the Portfolio Manager faced a greater challenge than anticipated in sourcing suitable credits at opportunistic spreads, given the Company'starget is to pay a gross monthly dividend of 0.5p. Consequently, since the launch of the Company the Portfolio Manager has, on a number of occasions, advised against investor requests for additional share issuance, due to a lack of suitable investment opportunity. Towards the end of June 2014, and just four months after the launch of the Company, market sentiment underwent an abrupt change. An overhang of tight new issues, concerns about the commencement of rising US base rates, the impending AQR/bank stress-test results and increasing geo-political risks combined to send prices across all risk assets into decline just ahead of the Bank's quarter-end reporting date which had a dramatic adverse effect on available market liquidity. This period of market stress acted as a negative drag on markets over the summer period, particularly in the higher beta sectors of High Yield and Bank capital. As a result the Company's NAV remained close to par, although on a positive note the ability to source suitable credits at attractive spreads has been greatly enhanced. The recovery across the established economies remains fragile and the sluggish growth across the majority of emerging nations remains disappointing. In addition, the Eurozone continues to be challenged with high levels of unemployment, low inflation and a high burden of indebtness. The recovery process is therefore expected to be slow with continued Central Bank intervention. The Company's portfolio has been selected with a bias towards this slow incremental recovery. In addition the European Central Bank seems increasingly likely to invoke further economic stimulus and a rate increase is likely to be further away compared to the US or to the UK, again supporting credit spread performance. In September the market was rocked by the resignation of Pimco's Bill Gross, which sparked short term selling, but seemed unlikely to have a longer term impact. Given the uncertain backdrop, and the fluctuation in the market technicals, the performance of the Company has been positive since its launch and the opportunity for enhanced returns has improved for the near-term future. The Company's policy is to hedge currency risk and total exposure per foreign currency is calculated and hedged as a whole. Any movement in currency rates are monitored on a daily basis and at each valuation point; the Portfolio Manager operates a strict currency exposure threshold of +/-0.50% and adjusts the currency hedge as necessary. The hedging policy is only used for efficient portfolio management and not as an attempt to enhance investment returns. If we exclude the unrealised position of the open contracts as at 30 September 2014, the Net Foreign Currency Gains for the period reported in the Statement of Comprehensive Income is largely offset by unrealised currency losses on investments. The Portfolio Manager believes that the current macro backdrop is highly likely to result in continued Central Bank intervention and support and this in turn is expected to result in further tightening of credit spreads. As such one of the key challenges going forward is the re-investment risk in order to maintain the minimum dividend, without a deterioration in asset quality. Fortunately, a combination of reduced market liquidity and heightened uncertainty continues to result in spikes of volatility. The Portfolio Manager recognises the need to use these periods of heightened volatility to source assets and increase the running yield of the Company; but recognise this may become more challenging over the medium term and this may result in agreeing less new issuance of Company shares. Since the Company was launched yields have cheapened quite significantly, meaning bonds maturing now can be reinvested at better yields than previously achieved. As an example, the yield on the Bank of America Merrill Lynch Euro High Yield Index at the end of March 2014 was 3.7%, falling to a low of 3.44% in mid-May, the period in which the initial funds were invested. As a contrast, the yield on this index reached a high of 4.67% in mid-October and is currently at 4.2% meaning the Portfolio Manager has been able to reinvest any maturing bonds at much improved yields. The overall mark-to-market yield on the Company is now 7.82%, in comparison to a purchase yield of 7.3% achieved in May last year. With geopolitical, Eurozone, oil and UK and US rate-rising risks currently to the fore, it is unlikely that yields could rally to the extent that reinvestment risk becomes a major factor, in the medium term at least. The spread duration on the Company is currently at 3.8 years, providing security against short term maturities. Overall, the managers do not have any concerns around finding bonds that meet the dividend hurdle and also do not expect reinvestment risks to pose any threat to this in the medium term. TwentyFour Asset Management LLP 15 January 2015 TOP TWENTY HOLDINGS As at 30 September 2014 Percentage of Net Nominal/ Credit Security Fair Value * Asset Shares Sector Â£ Value NWIDE 10 1/4 06/29/49 29,000 Banks 3,588,565 2.91 HASTNS 8 10/21/20 3,050,000 Insurance 3,210,125 2.61 ABBEY 10 3/8 2,000,000 Banks 2,895,000 2.35 AVOCA 11X F 4,000,000 Asset Backed Security 2,859,518 2.32 HPARK 1X E 3,900,000 Asset Backed Security 2,820,952 2.29 LVFRSC 6 1/2 05/22/43 2,750,000 Insurance 2,817,939 2.29 JUBIL 2014-12X F 3,950,000 Asset Backed Security 2,793,250 2.27 SPAUL 3X F 3,700,000 Asset Backed Security 2,666,917 2.16 MTNLN 6 7/8 06/01/19 2,700,000 High Yield 2,625,210 2.13 VOYCAR 11 02/01/19 2,250,000 High Yield 2,469,375 2.00 AQUIL 2006-1X E 3,500,000 Asset Backed Security 2,466,250 2.00 ACAFP 7 1/2 04/29/49 2,500,000 Banks 2,465,625 2.00 UCGIM 8.5925 12/29/49 2,120,000 Banks 2,319,386 1.88 ARGID 8 3/8 06/15/19 3,000,000 High Yield 2,314,315 1.88 TVNPW 11 01/15/21 2,500,000 High Yield 2,305,549 1.87 BACR 7 06/15/49 2,362,000 Banks 2,279,330 1.85 VIRGMN 7 7/8 07/29/49 2,200,000 Banks 2,260,465 1.83 LLOYDS 7 5/8 12/29/49 2,180,000 Banks 2,182,507 1.77 TMFG 9 7/8 12/01/19 2,600,000 High Yield 2,147,560 1.74 BUTSAS 7 3/8 09/15/19 3,000,000 High Yield 2,144,833 1.74 * 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 please refer to note 2. BOARD MEMBERS Biographical details of the Directors are as follows: Claire Whittet - (Chair) (age 59) Ms Whittet is a resident of Guernsey and has over 35 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 59) 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 71) 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 51) Ian Martin has over 30 years experience in finance gathered in a variety of multi asset investment focussed 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 ofAvenue Capital Credit Opportunities Limited. 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 companies: Company Name Stock Exchange Claire Whittet (Chair) BH Macro Limited London, Bermuda and Dubai International Public Partnerships Limited London Christopher Legge Ashmore Global Opportunities Limited London Baring Vostock Investments PCC Limited Channel Island BH Macro Limited London, Bermuda and Dubai John Laing Environmental Assets Group Limited London Sherborne Investors (Guernsey) B Limited London Third Point Offshore Investors Limited London Schroder Global Real Estate Securities Limited London Ian Martin Avenue Capital Credit Opportunities Limited London DIRECTORS' REPORT The Directors present their first Report and Audited Financial Statements (the "Financial Statements") for the period from 12 February 2014 (date of incorporation) to 30 September 2014. 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. On 10 March 2014, through a placing of 91,130,181 Ordinary Shares and applications for 11,605,700 Ordinary Shares by way of an Offer for Subscription, the Company raised Â£102.7million. During the period from June to September 2014, the Company raised an additional Â£23,210,920 through the issue of ÂÂÂ22,450,000 Ordinary Shares at a weighted premium to NAV of 3.17%. Investment Objective and 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 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 per cent. 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 or 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 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. Discount/Premium to Net Asset Value The Board monitors and manages the level of the share price discount/premium to Net Asset Value ("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 per cent. to the then prevailing NAV. For additional information refer to note 15. Shareholder Information The Administrator is responsible for calculating the NAV per Share of the Company. 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. Going Concern The Directors believe that it is appropriate to adopt the going concern basis in preparing the Financial Statements in view of its holding in cash and cash equivalents and the liquidity of investments and the income deriving from those investments, meaning the Company has adequate financial resources to meet its liabilities as they fall due. The Company also achieved its dividend target of 1.5 pence per Ordinary Share for the period ended 30 September 2014. Results The results for the period are set out in the Statement of Comprehensive Income. The Directors paid income distributions of Â£3,777,348 for the period ended 30 September 2014, a breakdown of which can be found in note 18.The 30 September 2014 distribution which was declared on 9 October 2014 was paid on 31 October 2014. 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. PortfolioManager 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 13. The Board consider 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. On 1 October 2014 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 ("AIFM"). Such visits are to be an on-going occurrence. Alternative Investment Fund Manager Alternative investment fund management services are provided by Phoenix Fund Services (UK) Limited ("Phoenix")whose appointmentbecame 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 Â£50 million, 0.05% on Net Assets between Â£50 million and Â£100 million and 0.03% on Net Assets in excess of Â£100 million.For additional information refer to note 14. Custodian and Depositary Northern Trust (Guernsey) Limited has been appointed as Custodian of such assets as are deposited with it pursuant to the Custody Agreement dated 17 February 2014. On 1 May 2014, the Custody Agreement was terminated 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. For additional information refer to note 14. Directors The Directors of the Company during the period and at the date of this Report are set outabove. Directors' and Other Interests As at 30 September 2014, Directors of the Company held the following Ordinary Shares beneficially: Number of Shares Claire Whittet 10,000 Christopher Legge 25,000 Thomas Emch 25,000 Ian Martin - Corporate Governance To comply with the UK Listing Regime, the Company must comply with the requirements of the UK Corporate Governance Code. The Company is also required to comply with the Code of Corporate Governance issued by the Guernsey Financial Services Commission. The Company is a member of the AIC and by complying with the AIC Code of Corporate Governance ("AIC Code") is deemed to comply with both the UK and Guernsey Codes of Corporate Governance. The Board has considered the principles and recommendations of the AIC Code, by reference to the guidance notes provided by the AIC ("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 Company has complied with the recommendations of the AIC Code throughout the accounting period and thus the relevant provisions of the UK Corporate Governance Code, except as set out below. The UK Corporate Governance 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 - the role of the Senior Independent Director For the reasons set out in the AIC Guide, and as explained in the UK Corporate Governance 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 whistle-blowing policy is required for the Company. The key service-providers all have whistleblowing policies in place. Details of compliance with the AIC Code are noted in the succeeding pages. There have been no instances of non-compliance, other than those noted above. 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 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. Strategy The strategy for the Select Monthly Income Fund is to capture the illiquidity premium that is associated with `off the run' bond issues in the secondary trading 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, but 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. Composition and Independence of the Board The Board currently consists of four non-executive Directors, all of whom are independent of the Portfolio Manager. The Chair of the Board is Claire Whittet. Biographies for all the Directors can be found below. In considering the independence of the Chair, the Board has taken note of the provisions of the AIC Code relating to independence and has determined that Ms Whittet is an Independent Director. The Company has no employees and therefore there is no requirement for a chief executive. The Board is responsible for the appointment and monitoring of all service providers to the Company. The Board holds quarterly Board meetings and the Audit Committee meets at least twice a year and a dividend meeting is held monthly. 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 and the Corporate Broker. The Directors are kept fully informed of investment and financial controls and other matters that are relevant to the business of the Companyand should be brought to the attention of the Directors. The Directors also have access to the Company Secretary and, where necessary in the furtherance of their duties, to independent professional advice at the expense of the Company. Attendance at the Board, Audit and Management Engagement Committee meetings during the period ended 30 September 2014 was as follows: Management Board Audit Committee Engagement Ad hoc Committee Meetings Meetings Committee Meetings Meetings Held Attended Held Attended Held Attended Held Attended Claire Whittet 2 2 1 1 0 0 7 6 Christopher Legge 2 2 1 1 0 0 7 6 Thomas Emch 2 2 1 1 0 0 7 5 Ian Martin* 1 1 1 1 0 0 3 2 *Ian Martin was appointed to the Board on 15 July 2014 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. 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 on "Women on Boards". 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. Board Performance and Training The Board is fully aware that it must undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual Directors. At the end of the financial period under consideration, the fund has been in existence for less than a year and the Board will be undertaking such evaluations in the current financial period once the company has been operating for 12 months. These evaluations will 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 fund and the Board has met with the Portfolio Manager at their offices subsequent to the financial period end 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. Management Engagement Committee The Board has established a Management Engagement Committee with formal duties andresponsibilities. The Management Engagement Committee commits to meeting at least once a yearand comprises the entire Board with Thomas Emch appointed as Chair. These duties andresponsibilities include the regular review of the performance of and contractual arrangements with the Portfolio Manager and other service providers. The first Management Engagement Committee meetingis being held on 14 July 2015 and the Committee intends to carry out its first review of the performance and capabilities of the Portfolio Manager at this meeting to confirm whether or not the continued appointment of TwentyFour Asset Management LLP as Portfolio Manager is in the interest of shareholders. Nomination Committee The Board as a whole fulfils the function of a Nomination Committee. Whilst the independent Directors take the lead in the appointment of new Directors and any proposal for a new Director will be discussed and approved by all members of the Board.There is no separate Nomination Committee. 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. 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 by the AIC Code. The Audit Committee make all representations to the Board regarding Directors' remuneration. The Board as a whole fulfils the functions of the Remuneration Committee, although the Board has included a separate Remuneration Report in these Financial Statements. Inter-Governmental Agreements The States of Guernsey signed an intergovernmental agreement with the UK ("UK-Guernsey IGA") on 22 October 2013, under which mandatory disclosure requirements will be required in respect of shareholders who have a UK connection. The UK-Guernsey IGA has been ratified by Guernsey's States of Deliberation and the relevant legislation introduced. The impacts of the UK-Guernsey IGA on the Company and the Company's reporting responsibilities pursuant to the UK-Guernsey IGA are not currently in final form. The Board is monitoring implementation of the UK-Guernsey IGA with the assistance of its professional advisers. 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. 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. Internal Controls The Board is ultimately responsible for the Company's system of internal financial and operating control and for reviewing its effectiveness. 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 period under review and up to the date of approval of this Report and Audited Financial Statements and is reviewed by the Board and accords 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 internal control systems are designed to meet the Company's particular needs and the risks to which it is exposed. Accordingly, the internal control systems are designed to manage rather than 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. 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 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 SOC 1 report. 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 Boardalso monitors the investment limits and restrictions set out in the Company's investment objective and policy. The principal risks which have been identified and the steps which are taken by the Board to mitigate them are as follows: Limited Operating History The Company is a recently established investment company and this Report and Audited Financial Statements presents the performance of the Company and its investments for the period since incorporation to 30 September 2014. Market Risk The underlying investments comprised in the Portfolio are subject to market risk. The Company istherefore 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 be materially detrimental to the performance of the Company's investments. Under extreme market conditions the portfolio may not benefit from diversification. Liquidity Risk Investments made by the Company may be relatively illiquid and this may limit the ability of the Company to realise its investmentsand 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. 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 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 strong 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 theevent of adverse financial or credit market conditions. In the event of a default under an Credit Security, the Company's right to recover under the Credit Security 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. 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 90% of the foreign currency investments at the period 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. 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 Depositary amongst others. The Board and its Audit Committee regularly review reports from the Portfolio Manager, the AIFMand the Administrator on their internal controls. Accounting, Legal and Regulatory Risks The Company is exposed to the risk that it may fail to maintain accurate accounting records or fail to comply with requirements of its Admission document. The accounting records prepared by the Administrator are reviewed by the Portfolio Manager. The Portfolio Manager, Administrator, AIFM, Depositary and 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 in 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 The Portfolio Manager strongly expects the European Central Bank will initiate a quantitative easing programme in the first half of 2015, in an attempt to fix the transmission mechanism and regain control of price stability in the Eurozone. A by-product of quantitative easing is likely to result in lower yields across all fixed income products and tightening credit spreads. This could pose a challenge for the Portfolio Manager when they come 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 coming12 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. Relations with Shareholders The Portfolio Managerand Listing Sponsor maintain a regular dialogue with institutional shareholders, the feedback from which is reported to the Board. In addition, Board members will be available to respond to shareholders' questions at the Annual General Meeting ("AGM"). Significant Shareholdings Shareholders with holdings of more than 3.0% of the Shares of the Company at 30 September 2014 were as follows: Percentage of issued share Number of shares capital Northern trust Nominees Limited 12,775,200 10.20% State Street Nominees Limited 11,416,000 9.12% Vidacos Nominees Limited 9,605,475 7.67% Pershing Nominees Limited 7,113,791 5.68% BNY Mellon Nominees Limited 6,462,500 5.16% Vidacos Nominees Limited <2303> 5,479,247 4.38% BNY Mellon Nominees Limited 4,950,000 3.95% 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 Annual General Meeting. Signed on behalf of the Board of Directors on 15 January 2015 by: Claire Whittet Christopher Legge STATEMENT OF DIRECTORS' RESPONSIBILITIES The Directors are responsible for preparing the 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 ofthe Company's website. The maintenance and integrity of the TwentyFour Asset Management website in relation to the Company is the responsibility ofits Directors; the work carried out by the auditors does not involve consideration of these mattersand, accordingly, the auditors accept no responsibility for any changes that may have occurred tothe financial statements since they were initially presented on the website. Legislation in Guernsey governing the preparation and dissemination of financial statements maydiffer 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 International Financial Reporting Standards ("IFRS") and give a true and fair view of the assets, liabilities, financial position and profit of the Company as at and for the period ended 30 September 2014. (b) TheReportincludes information detailed in the Chair's Report, Portfolio Manager'sReport, Directors' Report, Directors' Remuneration Report, Audit Committee Report, Alternative Investment Fund Manager's Report and Depositary Statementprovides 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 (ii) 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. 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 above. In the opinion of the Board, the Financial Statements taken as a whole, are fair, balanced andunderstandable and provide the information necessary to assess the Company's performance,business model and strategy. By order of the Board Claire Whittet Christopher Legge 15 January 2015 DIRECTORS' REMUNERATION REPORT The Directors' remuneration report has been prepared in accordance with the UK Corporate Governance Code (the "Code") as issued by the UK Listing Authority. An ordinary resolution for the approval of the annual remuneration report will be put to the shareholders at the AGM to be held in 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 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 Â£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 outside their normal Directors' fees and expenses. The Directors are currently subject to the following annual remuneration in the form of Director's fees: Claire Whittet (Chairman of the Board) Â£30,000 Christopher Legge (Audit Committee Chairman) Â£27,500 Thomas Emch Â£25,000 Ian Martin Â£25,000 Total Â£107,500 The remuneration policy set out above is the one applied for the period ended 30 September 2014 and is not expected to change in the foreseeable future. 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 July2014. 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 isrequired to retire by rotation and be subject to re-election at least every three years but have opted for annual re-election. The Directorsare 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 andno compensation is payable upon termination of office as a Director of the Company becomingeffective. The amounts payable to Directors shown in note 13are 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 15 January 2015 by: Claire Whittet Christopher Legge AUDIT COMMITTEE REPORT On the following pages, we present the Audit Committee's Report, setting out the responsibilities of the Audit Committee and its key activities for the period from 12 February 2014to 30 September 2014. The Audit Committee has scrutinised the appropriateness of the Company's system of riskmanagement and internal financial and operating controls, the robustness and integrity of the Company's financialreporting, along with the external audit process. The Audit Committee has devoted time to ensuring thatcontrols and processes have been properly established, documented and implemented. During the course of the period, 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 Corporate Governance Coderecommendations. We support the aims of the Code and the best practice recommendations ofother corporate governance organisations such as the Association of Investment Companies ("AIC"),and believe that the revised Code allows the Audit Committee to further strengthen its role as akey 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 before publication. In addition, the Audit Committee reviews the systems of internal financial and operatingcontrols on a continuing basis that the Administrator, Portfolio Manager, AIFMand 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 ultimate responsibility for reviewing and approving the Report and other Financial Statementsremain 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 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 and AIFM, 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 will take place at the next Management Engagement Committee Meeting, scheduled for 14 July 2015. 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 provide details on the main financial reporting judgements and the corresponding effect on the valuation of investments. The Audit Committee Chairman met separately with the external auditors to discuss the suitability of the Portfolio Manager's valuation policy andthe 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 period by the Audit Committee in relation to theFinancial Statements and how they were addressed are detailed below: (i) Valuation of investments: The Company's investments had a fair value of Â£117,308,598 as at 30 September 2014 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 to the Financial Statements. The Audit Committee considered the valuation of the investments held by the Company as at 30 September 2014 to be reasonable from information provided by the Portfolio Manager, Custodian and Administrator on their processes for the valuation of these investments. The Audit Committee reviews for reasonableness the effects of any judgements and also reviews the objectivity of the sources of evidence for price adjustments. The Audit Committee have attended the offices of the Portfolio Manager and had in-depth discussions with the Portfolio Manager regarding its valuation policy and in particular where estimates and judgements have been used when no third party price is available. The Audit Committee also met with the AIFM and had in-depth discussions on the responsibilities of the AIFM in regard to the valuation of the Company. (ii) Income Recognition: The Audit Committee considered the calculation of income from investments recorded in the Financial Statements as at 30 September 2014. As disclosed in note 3(ii)(c) 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 inturn 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 andfound it to be reasonable based on the explanations provided and information obtained from thePortfolio Manager. The Audit Committee was therefore satisfied that income is appropriately stated inall material aspects in the Financial Statements. At the request of the Audit Committee, the Administrator confirmed that it was not aware of anymaterial misstatements including matters relating to Financial Statement presentation. At theAudit Committee meeting to review the Report and Audited Financial Statements, the Audit Committee received and reviewed a report on the audit from the external auditors. On the basis ofits review of this report, the Audit Committee is satisfied that the external auditor has fulfilled itsresponsibilities with diligence and professional scepticism. The Audit Committee advised the Board that the Report and Financial Statements, taken as a whole, are fair, balanced and understandable. 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 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 period 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 providersbeing 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. As a general rule, the Company 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 period ended 30 September 2014. For the period from 12.02.14 (date of incorporation) to 30.09.14 PricewaterhouseCoopers CI LLP Â£ - Annual audit 45,000 - Interim review N/A - Listing & Financial Reporting Procedures 45,000 - Tax consulting and compliance services 3,000 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 15 January 2015 and signed on behalf by: Christopher Legge ALTERNATIVE INVESTMENT MANAGER'S REPORT Phoenix Fund Services (UK) Ltd 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 - 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. 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 15 January 2015 DEPOSITARY STATEMENT for the period from 12 February 2014 (date of incorporation) to 30 September 2014 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"). 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"). 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.We have therefore enquired into the conduct of Phoenix Fund Services (UK) Limited (the "AIFM") for the period ended 30 September 2014, in our capacity as Depositary to the Company. 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 to comply with these provisions. If the AIFM 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. 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 Company, the assets in which a Company 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 15 January 2015 INDEPENDENT AUDITORS' REPORT TO THE MEMBERS 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 2014 and the Statement of Comprehensive Income, the Statement of Changes in Equity and the Statement of Cash Flows for the period then ended anda 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 2014, and of its financial performance and its cash flows for the period 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' statementin relation to going concern; - the part of the Corporate Governance Statement relating to the Company's compliance with the 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 15 January 2015 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. b) Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. STATEMENT OF COMPREHENSIVE INCOME for the period from 12 February 2014 (date of incorporation) to 30 September 2014 For the period from 12.02.14 (date of incorporation) to 30.09.14 Note Â£ Income Interest income 4,008,515 Net foreign currency gains 7 3,470,419 Net loss on financial assets at fair value through profit or loss 8 (5,449,310) Total income 2,029,624 Portfolio management fee 13 (468,360) Directors' fees 13 (46,223) Administration fees 14 (52,314) AIFM management fee 14 (7,119) Audit fee (45,000) Custody fees 14 (7,152) Broker fees (25,000) Depositary fees 14 (8,244) Other expenses (81,172) Total expenses (740,584) Total comprehensive income for the period 1,289,040 Earnings per Ordinary Share - Basic & Diluted 4 0.012 All items in the above statement derive from continuing operations. There are no comparative figures as this is the Company's first financial period of operation. The notes form an integral part of the Financial Statements. STATEMENT OF FINANCIAL POSITION as at 30 September 2014 30.09.2014 Assets Note Â£ Current assets Investments 8 117,308,598 Derivative assets 15 1,582,673 Other receivables 9 2,265,533 Cash and cash equivalents 4,912,175 Total current assets 126,068,979 Liabilities Current liabilities Amounts due to broker 2,543,473 Other payables 10 253,043 Derivative liabilities 15 77,997 Total current liabilities 2,874,513 Net current assets 123,194,466 Equity Share capital account 11 123,698,214 Other reserves (503,748) Total equity 123,194,466 Ordinary Shares in issue 11 125,185,881 Net Asset Value per Ordinary Share 5 98.41 There are no comparative figures as this is the Company's first financial period of operation. The Financial Statements were approved by the Board of Directors on 15 January 2015 and signed on its behalf by: Claire Whittet Christopher Legge The notes form an integral part of the Financial Statements. STATEMENT OF CHANGES IN EQUITY for the period from 12 February 2014 (date of incorporation) to 30 September 2014 Share Capital Other Account Reserves Total Â£ Â£ Â£ Balances at 12 February 2014 - - - Issue of shares 125,946,801 - 125,946,801 Share issue costs (2,248,587) - (2,248,587) Distributions paid - (1,792,788) (1,792,788) Total comprehensive income for the period - 1,289,040 1,289,040 Balance at 30 September 2014 123,698,214 (503,748) 123,194,466 There are no comparative figures as this is the Company's first financial period of operation. The notes form an integral part of the Financial Statements. STATEMENT OF CASH FLOWS for the period from 12 February 2014 (date of incorporation) to 30 September 2014 For the period from 12.02.14 (date of incorporation) to 30.09.14 Notes Â£ Cash flows used in operating activities Total comprehensive income for the period 1,289,040 Adjustments for: Net loss on investments 8 5,449,310 Adjustment for amortisation of investment cost (217,124) Increase in receivables (2,265,533) Increase in payables 253,043 Unrealised gains on derivatives (1,504,676) Purchase of investments (143,836,560) Sale of investments 23,839,249 Net cash used in operating activities (116,993,251) Cash flows from financing activities Proceeds from issue of Ordinary Shares 125,946,801 Share issue costs (2,248,587) Dividend distribution (1,792,788) Net cash inflow from financing activities 121,905,426 Increase in cash and cash equivalents 4,912,175 Cash and cash equivalents at beginning of period - Cash and cash equivalents at end of period 4,912,175 There are no comparative figures as this is the Company's first financial period of operation. The notes form an integral part of the Financial Statements. NOTES TO THE FINANCIAL STATEMENTS for the period from 12 February 2014 (date of incorporation) to 30 September 2014 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 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 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 per cent. 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 or surplus capital or assets may be invested on a temporary basis in: (i) 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 (ii) Any ``government and public securities'' as defined for the purposes of the FCA Rules. For the avoidance of doubt, reinvestments will make the portfolio, in aggregate, no less compliant with one or both of (i) and (ii), above. Uninvested cash or cash surplus capital or assets may be invested on a temporary basis in cash equivalents, money market instruments, bonds, commercial paper or other debt obligations with banks or other counterparties having a credit rating of A or higher as determined by any internationally recognised rating agency. The Company may also invest in any government and public securities as defined for the purposes of the FCA rules. 2. Principal Accounting Policies a) Statement of compliance TheFinancial Statements for the period from 12 February 2014 to 30 September 2014 have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and are in compliance with The Companies (Guernsey) Law, 2008. b) 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. c) 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) There are no standards, interpretations or amendments to existing standards that are effective forthe first time for thefinancial year beginning 1 January 2014 that would be expected to have a material impact on the Company. The Directors anticipate that the adoption of the other standards and interpretations effective in a future period will not have a material impact on the financial statements of the Company, other than IFRS 9. IFRS 9, `Financial Instruments' effective for annual periods beginning on or after 1 January 2018, requires that the effects of changes in credit risk of liabilities designated as at fair value through profit or loss are presented in other comprehensive income unless such treatment would create or enlarge an accounting mismatch in profit or loss, in which case all gains or losses on that liability are presented in profit or loss. Other requirements of IFRS 9 relating to classification and measurement of financial liabilities are unchanged from IAS 39. The requirements of IFRS 9 relating to derecognition are unchanged from IAS 39. d) 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. (ii) 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 methodand 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 CreditSecurities 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. ii) 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. 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. e) 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 as at 30 September 2014 are shown gross. f) 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. g) 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 lifeof 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. h) 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. i) 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. j) 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. k) 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. l) 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 17. m) 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. n) 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. o) 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. p) 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. 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(j), 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 an 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(g). (c) Determination of observable inputs In note 16, 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. Earningsper Ordinary Share - Basic & Diluted The earnings per OrdinaryShare - Basic and Diluted has been calculated based on the weighted average number of Ordinary Shares of 111,058,808 and a net gain of Â£1,289,040. In order to ensure there were no dilutive elements,earnings have been calculated in respect of accrued income at the time of purchase. 5. Net Asset Value per Ordinary Share The net asset value of each Share of Â£0.98 is determined by dividing the net assets of the Company attributed to the Shares of Â£123,194,466 by the number of Shares in issue at 30 September 2014 of 125,185,881. 6. 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 Â£600. 7. Net foreign currency gains For the period from 12.02.14 (date of incorporation) to 30.09.14 Â£ Net unrealised gain on forward currency contracts 1,504,676 Realised gain on forward currency contracts 2,824,471 Realised currency loss (821,357) Unrealised income exchange loss (37,371) 3,470,419 8. Investments For the period from 12.02.14 (date of incorporation) to 30.09.14 Financial assets at fair value through profit and loss: Â£ Unlisted Investments: Opening book cost - Purchases at cost 146,380,033 Proceeds on sale/principal repayment (23,839,249) Amortisation of discount on purchase 217,124 Realised loss on sale/principal repayment (218,141) Closing book cost 122,539,767 Unrealised loss on investments (5,231,169) Fair value 117,308,598 Realised loss on sales/principal repayment (218,141) Increase in unrealised loss (5,231,169) Net loss on financial assets at fair value through (5,449,310) profit or loss 9. Other receivables 30.09.14 Â£ Interest income receivable 2,163,269 Prepaid expenses 8,889 Dividends receivable 93,375 2,265,533 10. Other payables 30.09.14 Â£ Portfolio Management fees payable 80,887 Directors' fee payable 20,625 Administration fee payable 23,813 AIFM Management fee payable 7,119 Audit fee payable 45,000 Broker fee payable 25,000 General expenses payable 45,211 Depositary fee payable 3,460 Custody fee payable 1,928 253,043 11. Share Capital Authorised Share Capital The Directors may issue an unlimitednumber of Ordinary Shares at no par value and an unlimited number of Ordinary Shares with a par value. Issued Share Capital 30.09.14 Ordinary Shares Â£ Share Capital at the beginning of the period - Issue of Shares 125,946,801 Share issue costs (2,248,587) Total Share Capital at the end of the period 123,698,214 Reconciliation of number of Shares 30.09.14 Ordinary Shares Shares Shares at the beginning of the period - Issue of Shares 125,185,881 Total Shares in issue at the end of the period 125,185,881 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. b) the Shareholders present in person or by proxy or present by a duly authorised representative at a general meeting has, on a show of hands, one vote and, on a poll, one vote for each Share held. 12. Analysis of Financial Assets and Liabilities by Measurement Basis Financial Assets at fair value through Loans and profit and loss receivables Total Â£ Â£ Â£ 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 securities 34,258,005 - 34,258,005 -Interest rate swaps (252,574) - (252,574) Unrealised gains on derivative assets 1,582,673 - 1,582,673 Cash and cash equivalents - 4,912,175 4,912,175 Other receivables - 2,265,533 2,265,533 118,891,271 7,177,708 126,068,979 Financial Liabilities at fair Other value through financial profit and loss liabilities Total Â£ Â£ Â£ Financial Liabilities as per Statement of Financial Position Amounts due to brokers - 2,543,473 2,543,473 Other payables - 253,043 253,043 Unrealised loss on derivative liabilities 77,997 - 77,997 77,997 2,796,516 2,874,513 13. 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 Â£150,000. The annual Directors' fees comprise Â£30,000 payable to Ms Whittet, the Chair, Â£27,500 to Mr Legge as Chair of the Audit Committee and Â£25,000 to Mr Emch and Mr Martin. During the period ended 30 September 2014, Directors' fees of Â£46,223 were charged to the Company, of which Â£20,625 remained payable at the end of the period.Directors' expenses for the period were Â£3,975. b) Shares held by related parties As at 30 September 2014, Directors of the Company held the following shares beneficially:- Claire Whittet 10,000 Christopher Legge 25,000 Thomas Emch 25,000 As at 30 September 2014, the Portfolio Manager held 400,000 Shares, which is 0.32% of the Issued Share Capital, and partners and employees of the Portfolio Manager held548,336, which is 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 period amounted to Â£468,360 of which Â£80,887 is payable at the period 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 are 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 period the Portfolio Manager received Â£40,605 in commission. 14. Material Agreements a) Alternative Investment Fund Manager The Company's Alternative Investment Fund Manager (the "AIFM") is Phoenix Fund Services (UK) Limited. Inconsideration for the services provided by the AIFM under the AIFM Agreement the AIFM is entitled to receive from the Company a minimum fee of Â£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 Â£50 million, 0.05% on Net Assets between Â£50 million and Â£100 million and 0.03% on Net Assets in excess of Â£100 million. During the period ended 30 September 2014, AIFM fees of Â£7,119 were charged to the Company, of which Â£7,119 remained payable at the end of the period. 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 Â£100 million, 0.05% on Net Assets between Â£100 million and Â£200 million and 0.04% on Net Assets in excess of Â£200 million as at the last business day of the month subject to a minimum Â£50,000 in the first year of admission and Â£75,000 for each year thereafter. In addition, an annual fee of Â£25,000 will be charged for corporate governance and company secretarial services. During the period ended 30 September 2014, administration and secretarial feesof Â£52,314 were charged to the Company, of which Â£23,813 remained payable at the end of the period. 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 Â£1,930,360 under this agreement. The Placing Agent is also entitled to receive commission of 1% on all tap issues. During the period the Placing Agent received Â£232,110 in commission. d) Depositary Depositary's fees are payable toNorthern Trust (Guernsey) Limited monthly in arrears at a rate of 0.0175% of the Net Asset Value of the Company below Â£100 million, 0.0150% on Net Assets between Â£100 million and Â£200 million and 0.0125% on Net Assets in excess of Â£200 million as at the last business day of the month subject to a minimum Â£15,000 in the first year of admission and Â£25,000 for each year thereafter.During the period ended 30 September 2014, depositary feesof Â£8,244 were charged to the Company, of which Â£3,460 remained payable at the end of the period. The Depositary is also entitled to a Global Custody fee of a minimum of Â£8,500 per annum plus transaction fees. Total Global Custody fees and charges for the period amounted to Â£7,152 of which Â£1,928 is due and payable at the period end. 15. 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 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 CreditSecurity 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 2014, 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 Â£5,865,430. The total comprehensive income for the period would have also increased by Â£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 table below summarises the Company's exposure to interest rate risk: Floating Fixed Non-interest rate rate bearing Total As at 30 September 2014 Â£ Â£ Â£ Â£ Financial assets at fair value through profit or loss 37,960,377 76,453,221 2,895,000 117,308,598 Receivables 599,396 1,563,873 102,264 2,265,533 Cash and cash equivalents 4,912,175 - - 4,912,175 Derivative assets - - 1,582,673 1,582,673 Derivative liabilities - - (77,997) (77,997) 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 holdsfixed rate and floating rate financial instrumentswhich, 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 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: 30.09.14 BBB- 2.40% BB+ 1.97% BB 2.61% BB- 2.52% B+ 4.60% B 14.92% B- 20.41% CCC+ 19.08% CCC 3.61% CCC- 1.25% NR 26.63% 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 thesesecurities. 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: 30.09.2014 Â£ Investments 117,308,598 Cash and cash equivalents 4,912,175 Unrealised gains on derivative assets 1,582,673 Other receivables 2,265,533 126,068,979 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 infull 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 Managershall 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 underthe Capital Risk Management (Quarterly Tenders) sectionof 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: Up to 1 month 1-6 months 6-12 months Total Â£ Â£ Â£ Â£ Financial liabilities Amounts due to brokers (2,543,473) - - (2,543,473) Unrealised loss on derivative assets (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 Companyinvests 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 the period end, the Company had six open forward currency contracts which settled on 6 October 2014. Mark to Outstanding market Unrealised Contract values contracts equivalent gains/(losses) 30.09.2014 30.09.2014 30.09.2014 30.09.2014 Currency Â£ Â£ Â£ Six Sterling forward foreign currency contracts totalling: 3 EUR forward foreign currency contract 77,656,651 62,070,951 60,514,258 1,556,693 1 CHF forward foreign currency contract 1,900,000 1,241,074 1,226,632 14,442 1 SEK forward foreign currency contract 10,060,000 872,412 860,874 11,538 1,582,673 1 USD forward foreign currency contract 8,429,402 5,121,735 5,199,732 (77,997) (77,997) As at 30 September 2014 the Company held the following assets and liabilities denominated in currencies other than Pounds Sterling: 30.09.2014 Assets: Â£ Investments 65,827,923 Cash and cash equivalents 669,801 Other receivables 1,297,879 Less: Open forward currency contracts (67,801,496) (5,893) The table below summarises the sensitivity of the Company's assets and liabilities to changes in foreign exchange movements between Euroand Sterling as at 30 September 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. 30.09.2014 Â£ Impact on Statement of Comprehensive Income and Equity in response to a: - 5% increase 1,552,453 - 5% decrease (1,565,185) Impact on Statement on Equity in response to a: - 5% increase 1,552,453 - 5% decrease (1,565,185) 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 per centto the then prevailing NAV. Upon confirmation of the number of Tender Requests made in respect of each Quarter RecordDate, the Company intends first, through its corporate broker acting on a reasonableendeavoursbasis, to seek to satisfy Tender Requests by placing the Tendered Shares with investors in thesecondary market. Second, subject to the Tender Restrictions, the Company intends to repurchasefor 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 per cent of the Ordinary Shares in issue as at the relevant Quarter Record Date, subject to an aggregate limit of 50 per cent 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 per cent. 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 the Company does not meet the dividend target in any financial reporting period as disclosed in Note 18, the Directors will convene a general meeting of the Company where the Directors will propose a resolution that the Company should continue as an Investment Company. 16. Fair Value Measurement All assets and liabilities are carried at fair value or at carrying value which equates to fair value. IFRS 13requires 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 for the periodended 30 September 2014. Level 1 Level 2 Level 3 Total Â£ Â£ Â£ Â£ 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 2014 - 19,123,785 99,767,486 118,891,271 Level 1 Level 2 Level 3 Total Â£ Â£ Â£ Â£ 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 periodend, 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 Securityis 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 Securityis classified in level 3. The following table presents the movement in level 3 instruments for the period ended 30September 2014 by class of financial instrument. Asset Preferred Interest backed Stock Bonds Rate Swaps securities Total Â£ Â£ Â£ Â£ Â£ Opening balance - - - - - Purchases 2,733,339 78,583,997 - 21,970,582 103,287,918 Net unrealised gain/(loss) for the period included in the Statement of Comprehensive Income for level 3 Investments held at 30 September 2014 161,661 (1,902,855) (252,574) (1,526,664) (3,520,432) Closing balance 2,895,000 76,681,142 (252,574) 20,443,918 99,767,486 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. Assets Level 1 Level 2 Level 3 Total Â£ Â£ Â£ Â£ Cash and cash equivalents 4,912,175 - - 4,912,175 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 table are carried at amortised cost; their carrying values are a reasonable approximation of fair value. Cash and cash equivalents include cash in hand and 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. 17. Segmental Reporting The Board is responsible for reviewing the Company's entire portfolio and considers the business to have a single operatingsegment. 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. 18. 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 the period ended 30 September 2015 and for each Reporting Period thereafter 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. 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 for the period from 12 February 2014 to 30 September 2014: Net Dividend dividend rate per paid Share -Income Period to (pence) (Â£) Ex-dividend date Record date Pay date 30 June 2014 0.5 568,929 16 July 2014 18 July 2014 31 July 2014 31 July 2014 0.5 600,429 13 August 2014 15 August 2014 29 August 2014 17 September 19 September 30 September 31 August 2014 0.5 623,430 2014 2014 2014 30 September 2014 1.57 1,984,561 16 October 2014 17 October 2014 31 October 2014 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. 19. Ultimate Controlling Party In the opinion of the Directors on the basis of shareholdings advised to them, the Company has no ultimate controlling party. 20. Subsequent Events These Financial Statements were approved for issuance by the Board on 15 January 2015. Subsequent events have been evaluated until this date. On 3 October 2014, 750,000 new Ordinary Redeemable Shares were issued at 101.25 pence per share. On 9 October 2014, the Company declared a dividend of 1.57p per share. On 24 October 2014, 1,700,000 new Ordinary Redeemable Shares were issued at 98.12 pence per share. On 28 October 2014, 1,500,000 new Ordinary Redeemable Shares were issued at 98.12 pence per share. On 29 October 2014, 500,000 new Ordinary Redeemable Shares were issued at 98.12 pence per share. On 31 October 2014, the Company paid a dividend as detailed above. On 19 November 2014, 500,000 new Ordinary Redeemable Shares were issued at 98.51 pence per share. On 19 December 2014, 500,000 new Ordinary Redeemable Shares were issued at 96.23 pence per share. On 07 January 2015, 500,000 new Ordinary Redeemable Shares were issued at 96.75 pence per share. On 8 January 2015, the Company declared a dividend of 0.05p per share. On 12 January 2015, 600,000 new Ordinary Redeemable Shares were issued at 96.62 pence per share. CORPORATE INFORMATION Directors Claire Whittet (Chair) (appointed 12 February 2014) Christopher Legge (appointed 12 February 2014) Thomas Emch (appointed 12 February 2014) Ian Martin (appointed 15 July 2014) 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 and Depositary Registrar Northern Trust (Guernsey) Limited Computershare Investor Services (Guernsey) Limited PO Box 71 3rd Floor Trafalgar Court NatWest House Les Banques Le Truchot St Peter Port St Peter Port Guernsey, GY1 3DA Guernsey, GY1 1WD Administrator and Company Secretary Sponsor, Broker and Financial Adviser Northern Trust International Fund Numis Securities Limited Administration The London Stock Exchange Building Services (Guernsey) Limited 10 Paternoster Square PO Box 255 London, EC4M 7LT Trafalgar Court Les Banques St Peter Port Guernsey, GY1 3QL

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