Fair Oaks Income Limited
Annual Report 2023

Plain-text annual report

FAIR OAKS INCOME LIMITED ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023  Contents Company Overview Highlights Summary Information Strategic Review Chairman’s Statement Investment Adviser’s Report Strategic Report Governance Board of Directors Disclosure of Directorships in Public Companies Listed on Recognised Stock Exchanges Directors’ Report Corporate Governance Statement of Directors’ Responsibilities Directors’ Remuneration Report Report of the Audit Committee Management Engagement Committee Report Financial Statements Independent Auditor’s Report Statement of Comprehensive Income Statement of Changes in Shareholders’ Equity Statement of Financial Position Statement of Cash Flows Notes to the Financial Statements Additional Information Portfolio Statement (unaudited) Management and Administration Appendix – Alternative Performance Measures used in the Annual Report (unaudited) 1 2 4 6 16 22 23 24 29 35 36 37 40 41 46 47 48 49 50 80 82 83  COMPANY OVERVIEW Highlights • • • • • 1 2 3 4 ¹ Fair Oaks Income Limited’s (the “Company”) Net Asset Value (“NAV”) return per 2021 Share was 12.98% (31 December 2022: -0.90%) for the year ended 31 December 2023 on a total return basis (with dividends reinvested). The NAV return per Realisation Share was 13.82% (31 December 2022: 0.5%) for the year ended 31 December 2023 on the same basis. ¹ the Company’s total As at 31 December 2023, market capitalisation was US$238.6 million, comprising US$210.1 million of 2021 Shares and US$28.4 million of Realisation Shares.² The Company’s 2021 shares closed at a last-price of US$0.5500 on 31 December 2023 (31 December 2022: US$0.4900). The 2021 Shares traded at an average discount to NAV of 11.71% during the year ended 31 December 2023 (31 December 2022: Discount 10.15%). The Company’s Realisation shares closed at a last- price of US$0.5700 on 31 December 2023 (31 December 2022: US$0.5650). The Realisation Shares traded at an average discount to NAV of 4.29% during the year ended 31 December 2023 (31 December 2022: Premium 1.30%). The Company declared dividends of 8.00 US cents per 2021 Share and Realisation Share in the year ended 31 December 2023 (31 December 2022: 9.50 US cents per 2021 Share and Realisation Share). Financial Highlights 2021 Shares Net Assets Net Asset Value per share Share last-price at year end Discount to Net Asset Value Ongoing charges figure (2021 Shares only)³ Ongoing charges figure (look through basis)⁴ 31 December 2023 31 December 2022 US$215,416,244 US$230,390,880 US$0.5638 US$0.5721 US$0.5500 US$0.4900 (2.45%) (14.35%) 0.45% 1.37% 0.34% 1.38% Realisation Shares Net Assets Net Asset Value per share Share last-price at year end Discount to Net Asset Value Ongoing charges figure (Realisation Shares only)³ Ongoing charges figure (look through basis) ⁴ 31 December 2023 31 December 2022 US$28,523,929 US$0.5715 US$31,954,409 US$0.5749 US$0.5700 US$0.5650 (0.26%) (1.73%) 0.41% 1.32% 0.35% 1.34% See “Appendix” on pages 83 to 86. Market capitalisation calculated based on the closing 2021 Share price and Realisation Share price at 31 December 2023. Total ongoing charges, calculated in accordance with the AIC guidance, is at the Company level only for the period divided by the average NAV for the year. Charges of the underlying Master Funds are not included. See “Appendix” on pages 83 to 86. Total ongoing charges, calculated in accordance with the AIC guidance, including the Company and the underlying funds divided by the average NAV for the year. See “Appendix” on pages 83 to 86. 1 .  COMPANY OVERVIEW Summary Information Principal Activity the The Company was registered in Guernsey under Companies (Guernsey) Law, 2008 on 7 March 2014. The Company’s registration number is 58123 and it is regulated by the Guernsey Financial Services Commission as a registered closed-ended collective investment scheme under The Registered Collective Investment Scheme Rules and Guidance 2021. The Company began trading on the Specialist Fund Segment (“SFS”) of the London Stock Exchange on 12 June 2014. Reorganisation On 19 April 2021, the Company announced the result of its reorganisation proposal, being that 62,562,883 2017 Shares had been elected for re-designation as Realisation Shares (the “Realisation Shares”), representing 13.4% of the 2017 Shares in issue, and 405,815,477 2017 Shares were re-designated as 2021 Shares (the “2021 Shares”), representing the balance of 86.6% of the 2017 Shares in issue (including 650,000 shares held in Treasury). The Company makes its investments through FOIF II LP (the “Master Fund II”) and FOMC III LP (the “Master Fund III”), in both of which the Company is a limited partner (the “Master Fund II” and the “Master Fund III” together the “Master Funds”). The Master Fund II was registered in Guernsey on 24 February 2017 and the Master Fund III was registered in Guernsey on 10 March 2021 under The Limited Partnerships (Guernsey) Law, 1995. The purpose of the reorganisation was to allow those Shareholders who wished to extend the life of in the Company beyond the planned end date of the Master Fund II, to be able to do so by having their 2017 Shares re- designated as 2021 Shares, with such 2021 Shares investing in the new Master Fund III, which has a planned end date of 12 June 2028 and an investment objective and policy substantially similar to that of the Master Fund II. investment their On 5 July 2023 and 20 December 2023, the Company returned US$1,155,020 and US$2,099,990 by way of a compulsory partial redemptions of Realisation Shares, which amounted to 1,997,560 and 3,674,523 Realisation Shares (31 December 2022: US$3,999,990 compulsory partial redemption amounted to 6,984,442 shares). During the year ended 31 December 2023 the Company bought back 20,699,431 2021 shares for US$10,468,165 (31 December 2022: 2,455,977 shares for US$1,196,717). At 31 December 2023, the Company has 49,906,358 (31 December 2022: 55,578,441) Realisation Shares and 382,010,069 (31 December 2022: 402,709,500) 2021 Shares in issue. The Realisation Shares invest solely into the Master Fund II and the 2021 Shares invest solely into the Master Fund III. At 31 December 2023, the Company had direct holdings of 9.59% (31 December 2022: 9.59%) in the Master Fund II and 95.43% holding in Master Fund III (31 December 2022: 95.32%), which in turn had a holding of 62.21% in the Master Fund II (31 December 2022: 62.21%). Together, the Company held a direct and indirect holding of 68.96% in the Master Fund II (31 December 2022: 68.89%). The Master Funds At 31 December 2023, the Master Fund II had six limited partners (31 December 2022: six limited partners), including Fair Oaks Founder II LP, a related entity. At 31 December 2023, the Master Fund III had three limited partners (31 December 2022: three limited partners), including Fair Oaks Founder VI LP. The General Partner of the Master Fund II and Master Fund III is Fair Oaks Income Fund (GP) Limited (the “General Partner” or “GP”). Cycad and Wollemi The Master Fund II and Master Fund III is also invested into Cycad Investments LP (“Cycad”). Cycad is a Limited Partnership registered in the United States of America on 2 June 2017. Aligned with the Company’s investment policy, Cycad also invests into Collateralised Loan Obligations (“CLOs”). On 9 March 2021, a Guernsey limited partnership was established called Wollemi Investments I LP (“Wollemi”) also investing in CLOs. At 31 December 2023, the Master Fund II holds 89.43% (31 December 2022: 100%) and Master Fund III holds 10.57% (31 December 2022: 0%) of the commitment capital of Wollemi. Founder Partners Fair Oaks Founder II LP, a Guernsey limited partnership, has been established to act as the Founder Limited Partner of Master Fund II. Fair Oaks Founder VI LP, a Guernsey limited partnership, has been established to act as the Founder Limited Partner of Master Fund III. Investment Objective and Policy The investment objective of the Company is to generate through attractive, income distributions. risk-adjusted principally returns, The investment policy of the Company is to invest (either directly and/or indirectly through the Master Fund II and/or Master Fund III) in US, UK and European Collateralised Loan Obligations vehicles and structures which provide exposure to portfolios consisting primarily of US and European floating-rate senior secured loans and which may include non-recourse financing. (“CLOs”) or other 2 .  COMPANY OVERVIEW Summary Information Investment Objective and Policy (continued) The Company implements its investment policy by: 1. 2. with respect to those assets of the Company attributable to the Realisation Shares: investing in Master Fund II; and with respect to those assets of the Company attributable to the 2021 Shares and any future C Shares: investing in Master Fund III. If at any time the Company holds any uninvested cash, the Company may also invest on a temporary basis in the following Qualifying Short Term Investments: •   •   •   •   •   •   cash or cash equivalents; government or public securities (as defined in the Financial Conduct Authority (“FCA”) Rules); money market instruments; bonds; commercial paper; or other debt obligations with banks or other counterparties having a single A rating or (if a fund) investing with no leverage in assets rated at least single A, according to at least one internationally recognised rating agency selected by the Board of Directors (the “Board”) (which may or may not be registered in the EU). The aggregate amount deposited or invested by the Company with any single bank or other non-government counterparty (including their associates) shall not exceed 20% of the Net Asset Value (“NAV”) in aggregate, and also of the NAV of each share class, at the time of investment. The Company cannot make any other investments without shareholder consent to a change of investment policy by ordinary resolution at a general meeting of the Company. types of 3 .  STRATEGIC REVIEW Chairman's Statement The independent Board of the Company is pleased to present its Annual Report and Financial Statements for the financial period ended 31 December 2023. The Company’s 2021 Share NAV and share price generated a total return (with dividends reinvested) of +12.98% and +30.94% respectively in 2023. The Company’s 2021 Shares closed at a last-price of 55.00 US cents as of 31 December 2023, representing a discount to NAV of -2.45%. The Company’s Realisation Share NAV and share price generated a total return (with dividends reinvested) of +13.82% and +16.09% respectively. The Company’s Realisation Shares closed at a last-price of 57.0 US cents as of 31 December 2023, representing a discount to NAV of -0.26%. Figure 1.1 – Total return: 2021 Shares NAV and share price in 2023 The total return for the JP Morgan US leveraged loan index in 2023 was +13.17%¹. total return was +13.77%² while the JP Morgan US CLO B rated index returned +26.77%³. In the same period, the JP Morgan US high yield Table 1.2 – Total returns in 2023¹¯³ Company's 2021 NAV Company's 2021 Share price J.P. Morgan US Leveraged Loan index J.P. Morgan US High Yield index J.P. Morgan Post-Crisis CLOIE B rated index FY 2023 total return +12.98% +30.94% +13.17% +13.77% +26.77% Cash flow and dividends The CLOs in which the Master Funds holds control CLO equity investments have experienced an annualised default rate since inception of 0.31%⁴ and had CCC and below exposure of 5.58%⁵ as at 31 December 2023 both well below the market’s average of 1.79%⁶ and 7.09%⁷ , respectively. As a result of the strong fundamental performance of the portfolio, all CLO equity and debt investments made their scheduled distributions in 2023. 1. J.P. Morgan. Leveraged Loan Index Summary Market Index Value. Data as at 31 December 2023. 2. J.P. Morgan. Domestic HY Summary Market Index Value. Data as at 31 December 2023. 3. J.P. Morgan. CLO B Post-Crisis Unhedged (USD) Cumulative Total Return. Data as at 31 December 2023. 4. Fair Oaks Capital Limited ("Fair Oaks Capital") data. Annualised default rate of the control CLO equity positions since inception. Data as at 31 December 2023. 5. Intex. CCC+, CCC and CCC- rated assets (S&P). Based on loan facility rating from S&P. Data as at 31 December 2023. 6. Average based on PitchBook LCD’s US Leveraged Loan Index lagging 12-month loan default rate based on principal amount, since Jun-14. Data as at 31 December 2023. 7. Pitchbook LCD. Data as at 31 December 23. 4 .  STRATEGIC REVIEW Chairman's Statement Cash flow and dividends (continued) The Company paid 8.0 US cents in dividends per 2021 share in respect to the year ending December 2023. The dividends are well- covered by the distributions received by the Master Funds. The dividend yield for the 2021 Shares was 14.5% as of the end of December, based on the closing share price.⁸ Figure 1.3 – Cumulative dividends per share since inception (US cents per 2021 Share) The quality of the Master Funds’ portfolio and the robustness of the CLO structure are evidenced by its resilience. As an example, the expected gross returns for the Master Funds (based on current NAV) under stress scenarios based on the 2000 and 2008 periods are 8.1% and 8.7% respectively⁹ (noting that defaults around 2000 were concentrated in telecom and technology sector so diversified CLOs would have suffered lower default rates). These scenarios apply actual historical defaults, recovery rates, CCC balances/prices, prepayment rates, interest rates and reinvestment assumptions for each period. Share buyback programme The Board continued through the financial period to implement the Company’s share buyback programme in the 2021 Shares, repurchasing US$20.7 million 2021 Shares equivalent to 5.1% of the issue shares at the start of the year. The 2021 Shares ended the financial year trading at a 2.0% discount to NAV and have continued to trade relatively close to NAV since the year-end. Subject to the prevailing price relative to NAV and the granting of the necessary shareholder authorities which will be sought at the forthcoming AGM, the Board intends on an ongoing basis to buy back and/or issue 2021 Shares with the objective of being accretive to 2021 Shareholder returns and also positively influencing the discount/premium to NAV and the trading liquidity of the 2021 Shares. Material Events On 27 September 2023, the Company was pleased to announce the appointment of Richard Burwood as a non-executive Director of the Company. The Company went on to state that one of the original Directors of the Company, Professor Claudio Albanese, intended to retire from the Board by the end of 2023 and, in order to ensure an orderly transfer of responsibilities, Mr Burwood has been appointed as chairman of the Board ahead of Professor Albanese's retirement. Further to the announcement made on 27 September 2023, and in line with the Board’s succession plan, the Company announced that Professor Albanese had resigned as a Non-Executive Director of the Company effective close of business on 31 December 2023. Richard Burwood Chairman 18 April 2024 8. Dividend yield is calculated using the most recent dividend annualised and Fair Oaks Income Fund 2021 share price as at 31 December 2023. 9. Fair Oaks Capital analysis based on FAIR portfolio. Analysis based on Intex. Additional details and modelling assumptions available on request. Data as at 31 December 2023. 5 .  STRATEGIC REVIEW Investment Adviser’s Report Portfolio Review As at 31 December 2023, the Master Funds held 19 CLO equity positions and 13 CLO mezzanine investments offering exposure to 1,430 loan issuers¹ and 20 CLO managers. Control CLO equity positions represented 84.0% of the portfolio’s market value.² Figure 2.1 – Portfolio composition of the Master Funds³ Figure 2.2 – Historical rating breakdown (excl. cash)⁴ While no new CLO Equity and Mezzanine investments were completed in 2023, the Master Funds have committed to the opening of a CLO warehouse investing in European broadly syndicated loans. Additionally, the Master Funds sold one mezzanine position during 2023, which was initially purchased opportunistically during 2020, achieving an IRR of 14%. Figure 2.3 – Currency breakdown (excl. cash)⁴ 1. As at 31 December 2023. Based on the underlying loans in CLOs held by the Master Funds. 2. As at 31 December 2023. Percentage by market value of control CLO equity positions. 3. Fair Oaks Capital as at 31 December 2023. Breakdown by market value of the CLO investments held by the Master Funds which includes its share in Wollemi Investments I LP (“Wollemi LP”). 4. Fair Oaks Capitals’ data on Original CLO ratings at month-end. NAV weighted. Historical breakdown excludes cash. Fair Oaks Income Fund monthly reports, RNS statements, trustee reports; as at 31 December 2023. 6 .  STRATEGIC REVIEW Investment Adviser’s Report Portfolio Review (continued) The active management of the portfolio was instrumental to allow the Master Funds to de-risk while taking advantage of tactical market opportunities in 2016 and 2020, which generated efficient risk-adjusted and asymmetric returns. ESG considerations also impacted the Company’s asset allocation. All control CLO equity investments (including reset and refinancings) completed since July 2019 have included ESG exclusion criteria in the CLO’s documentation. CLO investments subject to ESG investment criteria represented 76.8% of all CLO equity investments in the portfolio as of the end of 2023.⁵ Figure 2.4 – CLO equity investments subject to ESG investment restrictions⁵ Figure 2.5 – CLO manager diversification of the Master Funds ⁶ Figure 2.6 – Collateral geographical (top five) and currency breakdown⁷ 5. The proportion of the Company’s investments which include ESG-focused investment criteria is being reported as per the Company’s investments with ESG-focused investment criteria as defined by Fair Oaks Capital. 6. Based on market value of the CLO investments, as at 31 December 2023. The number of investments is shown in parentheses after each manager name. 7. Intex as at 31 December 2023. Based on loan par value weighted by the Master Funds’ proportional ownership of CLO Notes. 7 .  STRATEGIC REVIEW Investment Adviser’s Report Portfolio Review (continued) Figure 2.7 - Industry diversification by Moody’s (top 10)⁸ Figure 2.8 - Rating breakdown⁹ In Fair Oaks Capitals’ opinion, the focus on originating and controlling CLO subordinated note investments has resulted in superior fundamental performance. Lower fees in primary investments also allowed the construction of more conservative portfolios with no need to “stretch for yield”. As a result, the Master Funds have benefited from below-average exposure to sectors such as retail or energy. Figure 2.9 compares the annualised equity distributions received by the Master Fund II with the US market median. While there is some variability in distributions from quarter to quarter due to differing payment periods, equity distributions in October 2022 and January 2023 were impacted by the mismatch between one-month and three-month LIBOR, as borrowers opted to benchmark loans to the shorter rate while CLO liabilities remained based on three-month LIBOR. Figure 2.9 – Annualized Equity Distributions (over par)¹⁰ 8. Intex as at 31 December 2023. Based on Moody’s sectors and loan par value weighted by the Master Funds’ proportional ownership of CLO Notes. 9. Intex as at 31 December 2023. Based on S&P’s deal ratings and loan par value weighted by the Master Funds’ proportional ownership of CLO Notes. Due to rounding errors, the percentages may not sum to 100%. 10. Intex, Barclays as at 31 October 2023. Based on annualised quarterly distributions (as a percentage of par) of US equity notes directly held by the Master Funds. 8 .  STRATEGIC REVIEW Investment Adviser’s Report Portfolio Review (continued) Figure 2.10 – Overcollateralisation test headroom¹¹ Looking at the sustainability of these cashflows, the OC test headroom, which determines whether distributions may be temporarily diverted from the CLO Equity, remains covered, reducing the potential for any future cash-flow diversion. As was expected for certain US investments which have now exited their reinvestment periods, this headroom has declined in 2023. The average CLO equity test value is 4% above its threshold. Assuming 70 percent recovery in case of default, it would require in excess of 12% cumulative defaults to generate the par loss required to erode 4% headroom, before considering the positive effect of any cash-flow diversion.¹¹ US Loan Market Update The trailing 12-month loan default rate rose to 1.53% in the US (from 0.72% in December 2022). The US distress ratio (loans trading indicator of the direction of future defaults) decreased from 9.59% in December 2022 to 6.36% in below US$80c, a potential December 2023.¹² According to Pitchbook LCD’s December 2023 quarterly survey of market participants, the expectation is that the US loan default rate, at the end of 2024, will be between 2.5% and 3.0% in the US. Forecasts from rating agencies and bank research range from 3.0% to 5.0%.¹³ Figure 2.11 – US loan default rate¹² The average bid price of the LSTA US leveraged loan index was US$96.21c at the end of 2023, compared to US$92.44c at the end of 2022. 11. Intex as at 31 January 2024. 12. PitchBook LCD as at 31 December 2023. LSTA US leveraged loan index. Distress ratio by issuer count and default rate by principal amount. 13. PitchBook LCD as at 15 December 2023. LCD’s Quarterly Leverage Finance Survey. 2024 forecasts from Year-end 2023 reports: JP Morgan, Barclays, Morgan Stanley, BNP Paribas, Bank of America, Deutsche Bank, S&P and Fitch. 9 .  STRATEGIC REVIEW Investment Adviser’s Report US Loan Market Update (continued) Figure 2.12 - US loan price distribution¹⁴ Figure 2.13 –Average bid price of US leveraged loans, BB and B rated loans¹⁴ There were net outflows of $17.3bn from Prime loan funds in 2023, compared to $13.5bn of outflows in 2022. Figure 2.14 – Flows into loan funds by year¹⁵ 14. Pitchbook LCD as at 31 December 2023. LSTA US Leveraged Loan Index. 15. PitchBook LCD as at 31 December 2023. 10 .  STRATEGIC REVIEW Investment Adviser’s Report US Loan Market Update (continued) At the start of 2023, loans maturing within the next two years represented a recent historical high of 5.9%, a proportion not seen since year-end 2012. Despite tightening credit conditions, loan maturities were successfully pushed out through ‘amend and extend’ transactions and alternative sources of capital – contributing to the lower-than-expected default rate at the end of 2023. The notional of US loans maturing in 2024-2025 has fallen from $273bn as of year-end 2022 to $93bn as of year-end 2023 (Figure 2.15). Private credit has competed for large refinancing transactions in the broadly syndicated loan market as a consequence of large capital inflows into the asset class. We believe this willingness to underwrite loans which were challenging to refinance in the broadly syndicated loan market has had a beneficial effect by creating a positive quality bias in the loan market. Figure 2.15 – Maturity wall of the US loan market of performing loans ($billion)¹⁶ European Loan Market Update The trailing 12-month loan default rate increased to 1.62% in Europe (from 0.42% in December 2022). The European distress ratio (loans trading below €80c, a potential indicator of the direction of future defaults) decreased from 9.91% in December 2022 to 4.32% in December 2023.¹⁷ European loan default rate forecasts from rating agencies and bank research for 2024 range from 2.5% to 4.0%. ¹⁸ Figure 2.16 – European loan default rate¹⁷ 16. PitchBook LCD as at 31 December 2023. LSTA US LLI maturity breakdown. 17. PitchBook LCD as at 31 December 2023. European leveraged loan index. Distress ratio by issuer count and default rate by principal amount. 18. 2024 forecasts from Year End 2023 reports: JP Morgan, Barclays, Bank of America, Deutsche Bank, S&P, Fitch and Moody’s. 11 .  STRATEGIC REVIEW Investment Adviser’s Report European Loan Market Update (continued) The average bid price of the Morningstar European Leveraged Loan Index was €96.02c at the end of 2023, compared to €91.34c at the end of 2022. Figure 2.17 – ELLI distress ratio¹⁹ Figure 2.18 - Average bid price of European leveraged loans, BB and B rated loans²⁰ In Europe, the notional of European loans maturing in 2024-2025 has fallen from €61bn as of year-end 2022 to €13bn as of year- end 2023 (Figure 2.19). The proportion of loans due in the next two years is lower than that at the start of 2023 (4.7% vs 8.2%) largely due to a similar dynamic observed in the US, as the loan market addresses near-term maturities through ‘amend and extend’ transactions and alternative sources of capital. Figure 2.19 – Maturity wall of the European loan market of performing loans (€bn)²¹ 19. PitchBook LCD as at 31 December 2023. European leveraged loan index. Distress ratio by issuer count and default rate by principal amount. 20. Pitchbook LCD as at 31 December 2023. Morningstar European Leveraged Loan Index. 21. PitchBook LCD as at 31 December 2023. Morningstar European Leveraged Loan Index. Distribution by year of maturity. 12 .  STRATEGIC REVIEW Investment Adviser’s Report US CLO Market Update US primary CLO new issuance was $116bn in 2023, compared to $129bn in 2022. 2023 refinancings and resets totalled $5bn (14 deals) and $20bn (43 deals), compared to $5bn (12 deals) and $20bn (35 deals) in 2022. Forecasts for CLO new issuance in 2024 are $110-115bn and forecasts for refi/reset volume are $40-50bn.²² Figure 2.20 – US CLO new issue volume²³ Figure 2.21 – US CLO AAA primary spreads (bps)²⁴ European CLO Market Update The European CLO market saw new issuance of €27bn in 2023, which is the same level of issuance as in 2022. 2023 refinancings and resets totalled €0bn and €2bn (5 deals), compared to €2bn (5 deals) and €5bn (11 deals) in 2022.²⁵ Forecasts for European CLO new issuance in 2024 are in the range of €25-30bn and forecasts for 2024 refi/resets are €8-10bn.²⁶ 22. PitchBook LCD as at 31 December 2023. 2024 forecasts from year-end 2023 reports: JP Morgan, BNP Paribas, Barclays, Citi. 23. PitchBook LCD as at 31 December 2023. CLO databank. 24. JP Morgan as at 31 December 2023. US CLO AAA primary spreads 25. Pitchbook LCD. CLO Global Databank. Data as at 31 December 2023. 26. 2024 forecasts from YE-23 reports: JP Morgan, Barclays, Citi, BNP Paribas, Bank of America. 13 .  STRATEGIC REVIEW Investment Adviser’s Report European CLO Market Update (continued) Figure 2.22 – EUR CLO new issue volume²⁷ Figure 2.23 - EUR AAA primary spreads (bps)²⁸ CLO issuance in Europe was unexpectedly high given the unattractive CLO arbitrage during much of 2022 and 2023. This can be attributed to existing managers using previously raised captive equity funds to support CLO issuance and a high number of new managers entering the market. The tightening of liabilities over 2023 has created a more constructive outlook for CLO issuance in 2024 as CLO equity returns look more attractive. Given the relative value and operational simplicity of CLOs, we believe that investor interest in CLO debt will continue to support demand. Whereas CLO notes can be settled on a T+2 basis using Clearstream or DTC, loan settlements are challenging and can be subject to long delays. Outlook We believe that the Company and the Master Funds are well positioned to generate attractive risk-adjusted returns in 2024: • • Stable and attractive dividend yield: current dividend yield of 14.5%.²⁹ Interest rate expectations: Fed and ECB rate cuts may support investor demand for risk assets, potentially supporting CLO liabilities. The potential for lower CLO financing rates will support new CLO equity investments and the optimisation of the capital structure of existing CLO equity investments. Existing, high-quality portfolio: all CLO equity and debt investments made their scheduled distributions in 2023. Strong sourcing ability: the Master Funds benefits from strong, long-term relationships with CLO managers, including preferential access to Fair Oaks Capital-managed CLOs. Structural advantages: supported by a rigorous valuation policy and fixed life of the Master Funds. • • • 27. Pitchbook LCD. CLO Global Databank. Data as at 30 June 2023. 28. JP Morgan as at 31 December 2023. European CLO AAA primary spreads. 29. As at 31 December 2023. 14 .  STRATEGIC REVIEW Investment Adviser’s Report Outlook (continued) We continue to believe that the high-quality portfolio of primarily first-lien, senior secured loans with attractive term, non-mark-to- market financing represents one of the most attractive risk-adjusted opportunities available to investors in the current market environment. Fair Oaks Capital Limited 18 April 2024 15 .  STRATEGIC REVIEW Strategic Report Risks and uncertainties The Board of Directors is responsible for and has in place a rigorous risk management framework and risk matrix to identify, assess, mitigate, manage, review and monitor those risks. This is all reviewed at least quarterly by the board and on a much more frequent basis by the Investment Adviser. The Directors have carried out a robust assessment of the principal, secondary and emerging risk areas relevant to the performance of the Company including those that would threaten its business model, future performance, solvency and liquidity. The principal risks are detailed below. Throughout the year, due regard has been paid to emerging risks, although during the period changes to the identified risks can be characterised as being more of an evolving nature than new and previously unidentified risks. After considering the risks associated with relevant uncertainties created by emerging risks (including the impact on markets and supply chains of geopolitical risks such as the current crisis in Middle East and, and continuing macro-economic factors and inflation), the Board believes that the Company and the Master Funds are well placed to manage its business risks successfully. The Board is in regular communication with the Investment Adviser who continues to closely monitor the performance of the respective investments of the Master Funds and update the Company on current and emerging risks. In respect of the Company’s system of internal controls and reviewing its effectiveness, the Directors: • • are satisfied that they have carried out a robust assessment of the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity; and have reviewed the effectiveness of the risk management and internal control systems including material financial, operational and compliance controls (including those relating to the financial reporting process) and no significant failings or weaknesses were identified. The Risk Committee reviews the Company’s overall risks at least four times a year and monitors the risk control activity designed to mitigate these risks. Principal and emerging risks The principal and emerging risks associated with the Company include: Risk/Description Investment and financial risk - Market risk - Increased Market risk is the risk of changes in market prices affecting the Company’s income and/or the value of its investments. This is impacted by a variety of factors including macro-economic conditions, increased default rates, higher interest rate spreads, exchange rates, inflation and general market pricing of similar CLO investments which will all effect the Company and its Net Asset Value. The Company’s exposures to market risk mainly comes from movements in the fair value of its investments in the Master Funds and on a look-through basis to the underlying CLO investments. Control / Mitigation This risk cannot be mitigated in full but the impact can be reduced by diversification of the underlying CLO portfolio. The Company’s objective of market risk management is to manage and control market risk exposures within acceptable parameters while optimising the return on investments. The Company’s market risk is monitored closely and managed and mitigated as far as possible by the Investment Adviser through active portfolio management and the maintenance of a diversified investment portfolio. the Company at the investment The Risk Committee formally monitors times a year, performance of including when the Investment Adviser reports on the performance of the Company’s portfolio at the Board meetings. The investment guidelines and restrictions, as detailed in the prospectus of the Company, ensures adequate diversification of the Master Funds’ underlying investments. least four 16 .  STRATEGIC REVIEW Strategic Report Principal and emerging risks (continued) Risk/Description (continued) Investment and financial risk - Credit risk - Increased Credit risk arises principally from debt securities held. The risk is that underlying CLO investments or financial assets held by the Company default, leading to investment losses, a reduction in in the cash flows receivable by the Master Funds and a fall Company’s NAV. For the Company this is impacted by a variety of factors including deterioration in underlying credit ratings and credit ratings of counterparties and the secondary market for CLO investments maybe less liquid. The Company considers and aggregates all elements of credit risk exposure, such as individual obligation default risk, country risk and sector risk. Financial risk – Counterparty risk – Increased Counterparty risk can arise through the Company’s exposure to particular counterparties for executing transactions and the risk that the counterparties will not meet their contractual obligations. Control / Mitigation (continued) The Company’s policy on credit risk mirrors that of the Master Funds’, which is to minimise its exposure to counterparties with risk of default by dealing only with perceived higher counterparties that meet in the the credit standards set out Company’s prospectus, and by taking collateral. The high rates of global inflation seen in 2023 have increased the cost of raw materials and labour for many companies. While most companies have demonstrated a strong ability to pass costs on to their customers, continued high rates of inflation increase the risk of a drop in profit margins and cash flow and an increase in the risk of default. Simultaneously, the sharp increase in USD and Euro interest rates seen in 2023 has increased the interest cost for borrowers of the loans held by CLOs. This is likely to contribute to an increase in financial distress at borrowers and a resulting increase in the loan default rate. While the valuation and the projected returns of CLO investments always assume some loan defaults, a prolonged period of elevated defaults could have a significant negative impact on the cash flows received from and the valuations of CLO investments held by the Master Funds. The Investment Adviser carries out extensive due diligence on the Master Funds’ underlying CLO investments and monitors credit ratings performance regularly. Credit risk is mitigated as far as possible by the Investment Adviser through active portfolio management and the maintenance of a diversified investment portfolio. The Investment Adviser seeks to achieve this diversification of the portfolio for this risk in terms of underlying assets, industry concentration, geography and maturity profile, please see the Investment Adviser’s Report and the Note 5 of the Financial Statements for further details of this diversification. Counterparty exposures are monitored by the Investment Adviser and movements reported regularly to the Board. The Company’s cash management policy ensures cash and cash equivalents are only to be placed with designated institutions in the Company’s that meet prospectus. the aggregate amount deposited or invested by the Company with any single bank or other non- government counterparty (including their associates) shall not exceed 20% of the NAV in aggregate, and also of the NAV of each Share class, at the time of investment. the credit standards set out In addition, 17 .  STRATEGIC REVIEW Strategic Report Principal and emerging risks (continued) Risk/Description (continued) Financial risk – Liquidity risk – Stable Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Master Funds’ CLO investments are not publicly traded or freely marketable, and there may be limited or no secondary market liquidity, as a result the realisation of assets to create liquidity in a timely manner maybe difficult. Operational risk – Stable The Administrator is in the process of integration into the Apex the Board are aware that administrative, Group and as such, procedural and system changes are ongoing, potentially increasing exposure to operational errors. Compliance and regulatory risk – Stable Compliance and regulatory risk can arise where processes and followed correctly or where incorrect procedures are not judgement causes the Company to be unable to meet its objectives or obligations, exposing the Company to the risk of loss, sanction or action by Shareholders, counterparties or regulators. Political and economic risk – Increased Geopolitical events may have an adverse effect on the Company and its operations. The invasion of Ukraine by Russia in February 2022 and recent escalations of conflict in the Middle East has been an emerging risk which has caused increased volatility in global financial markets and increased expectations of supply chain disruption and cost inflation for oil, gas, metals, grains, vegetable oils and other raw materials. Control / Mitigation (continued) The Administrator and Investment Adviser review the Company’s income and cash flow forecasts on a monthly or ad the hoc basis as required to ensure, as far as possible, Company will always have sufficient its liquidity to meet liabilities when due. The Board reviews cash flow forecasts quarterly and ad hoc as required for buy-backs and distributions. Solvency tests are required prior to the Company making any distributions. The Board is ultimately responsible for all operational facets of performance including cash management, asset management, regulatory and listing obligations. The Company has no employees and so enters into a series of contracts/legal agreements with a series of service providers to ensure that both operational performance and regulatory obligations are met. The Board performs ongoing internal monitoring of operational processes and controls and receives regular reports from the administrators of the Company and other service providers, along with a report from the Auditors. Additional scrutiny has been undertaken on the Administrator's processes and staffing. The Company is required to comply with the Prospectus Rules, the Disclosure Guidance and Transparency Rules and the Market Abuse Directive (as implemented in the UK through Financial Services and Markets Authority). Any failure to comply could lead to criminal or civil proceedings. The Investment Adviser and Administrator monitor compliance with regulatory requirements and the Administrator presents a report at quarterly Board meetings. The Risk Committee monitors geopolitical risks on an ongoing basis with emerging advice independent developments likely to affect the Company. received on The Investment Adviser will continue to monitor the economic impacts of the conflict in the Middle East. As detailed further in the Investment Adviser’s Report, while loan and CLO valuations may be impacted by increased risk premiums across financial markets, it is not currently expected the CLOs in which the Master Funds invest increase in credit losses as a result of the invasion and its effect on the global economy. to experience a significant 18 .  STRATEGIC REVIEW Strategic Report Principal and emerging risks (continued) Risk/Description (continued) Environmental, Social and Governance (ESG) risk – Stable future ESG the Company to identify potential Failure of requirements could lead to the Company’s shares being less attractive to investors. Failure to engage with stakeholders and actions arising from activist shareholders. Control / Mitigation (continued) The Investment Adviser has been a signatory to the UN Principles for Responsible Investment (“UN PRI”) since July 2016 and is committed to applying the UN PRI to all stages of its investment criteria. All CLO equity investments completed by the Master Funds since 2019 have included ESG-related investment criteria that prohibit investment in certain industry sectors which are considered to be environmentally or socially harmful. The Board, the Investment Adviser and all other service providers continue to monitor developments in the ESG regulatory and reporting requirements and is committed to increasing awareness in credit markets. The Board, Investment Adviser and Joint Brokers are engaging in regular dialogue with the shareholders in order to understand their views or concerns and to better understand their investment goals. Going Concern The Directors have assessed the financial position of the Company as at 31 December 2023 and the factors that may impact its performance (including the potential impact on markets and supply chains of geo-political risks such as the current crisis in Middle East, the continuing macro-economic factors and rising rates of inflation) in the forthcoming year. Russia/Ukraine crisis The Master Funds’ CLO investments do not hold any securities in the Russia/Ukraine region and as such the performance or creditworthiness of the underlying CLOs have not been significantly impacted. Commodity prices due to the invasion of Ukraine (mainly oil/gas, metals and wheat) have impacted some of the companies to which the CLOs have exposure but many companies were already subject to input price inflation before the Ukraine invasion and it is not expected that the additional cost inflation will significantly impact the performance of the CLOs. The Directors with the Company’s Investment Adviser, continue to closely monitor the situation and the resulting disruption to supply chains, particularly with regard to energy prices. Middle East crisis The current conflict in the Middle East region is unlikely to impact the performance or creditworthiness of the underlying CLOs. The impact of further escalations in the area are continuously monitored by the board, especially the possible impact on oil prices and supply chain disruptions. The Investment Adviser continues to carefully monitor the performance of the Master Funds’ investments, working closely with the Directors on current and emerging risks to the Company. Following due consideration and after a review of the Company’s holdings in cash and cash equivalents, investments and a consideration of the income deriving from, and the viability of, the investment in the Master Funds the Directors believe that it is appropriate to adopt the going concern basis in preparing the Financial Statements, as the Company has adequate financial resources to meet its liabilities as they fall due. 19 .  STRATEGIC REVIEW Strategic Report Viability Statement The Directors have conducted a robust assessment of the viability of the Company over a three-year period from the date of signing this report to April 2027, taking account of the Company’s current position and the potential impact of the principal and emerging risks documented above. In making this statement, the Directors have considered the resilience of the Company, taking into account its current position, the principal risks facing the Company in severe but plausible scenarios and the effectiveness of any mitigating actions. This assessment has considered the potential impacts of these risks on the business model, future performance, solvency and liquidity over the period. The Directors have determined that the three-year period to April 2027 is an appropriate period over which to provide its viability statement as this is a reasonable period over which risks relating to the asset class should be considered. At 31 December 2023, the Company is primarily invested into the Master Fund III. The Master Fund III has a planned end date of 12 June 2028. The Company is also invested into the Master Fund II which has a planned end date of June 2026. In making their three-year assessment, various factors were taken into consideration by the Directors, which included the Company’s NAV, net income, capital repayments and resulting cash flows and dividend cover over the period. These metrics were subjected to stress tests which, in light of the ongoing uncertainty in economies and markets caused by the Ukraine/Russia, conflict in the middle east crisis, continuing macro-economic factors and rising rates of inflation, involved flexing a number of main assumptions underlying the forecast and default rates significantly higher than the five-year average. Where appropriate, this analysis was carried out to impact of the Company’s principal risks actually occurring, primarily, severe changes to macro-economic evaluate the potential conditions, increased defaults, deterioration in underlying credit ratings and downgrading or illiquidity of non-investment grade loans. Based on this assessment, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period to April 2027. Management Arrangements Investment Adviser The Directors are responsible for the determination of the Company’s investment policy and have overall responsibility for the Company’s activities. The Company has, however, entered into an Investment Advisory Agreement with the Investment Adviser under which the Investment Adviser has been appointed to provide investment advisory services, which include analysing the progress of all assets and investments of the Company and advising the Company on liquidity and working capital retention issues, subject to the overriding supervision of the Directors. The Directors consider that the interests of shareholders, as a whole, are best served by the continued appointment of the Investment Adviser to achieve the Company’s investment objectives. A summary of these terms, including the investment advisory fee and notice of termination period, is set out in note 8 of the Financial Statements. Custody Arrangements The Company’s underlying assets in Master Fund II are held in custody by BNP Paribas Securities Services S.C.A., Guernsey Branch, (“BNP”) pursuant to an agreement dated 9 March 2017 and the Company’s underlying assets in Master Fund III are held in custody by U.S. Bank Global Corporate Trust Services, UK Branch (“US Bank”) (together the “Custodians”), pursuant to an agreement dated 26 March 2021. The Company’s underlying assets in the Master Fund II and the Master Fund III are registered in the name of the respective Custodian in each case within a separate account designation and may not be appropriated by the Custodian for its own account. 20 .  STRATEGIC REVIEW Strategic Report Management Arrangements (continued) Custody Arrangements (continued) The Board conducts an annual review of the custody arrangements as part of its general internal control review. The Board also monitors the credit rating of the Custodians, to ensure the financial stability of the Custodians are being maintained to acceptable levels. As at 31 December 2023, the credit rating of BNP was A2 as rated by Moody’s (31 December 2022: Aa3) and A+ by Standard & Poor’s (31 December 2022: A+) and the credit rating of US Bank was A2 (31 December 2022: A1) as rated by Moody’s and A+ (31 December 2022: AA-) by Standard & Poor’s. Administrator Administration and Company Secretarial services are provided to the Company by Sanne Fund Services (Guernsey) Limited (the “Administrator”). The Administrator also provides these services to Master Fund II, Master Fund III, Wollemi, Cycad and the General Partner to these funds. Other services which the Administrator provides the Company include assisting with the AIFMD, Common Reporting Standard and FATCA reporting. A summary of the terms, including fees, is set out in note 8 of the Financial Statements. 21 . Innovation at Investec Bank (Channel Fionnuala Carvill (Chair of the Risk Committee) is a Non- Executive Director of Islands) Limited, Princess Private Equity Holding Limited and The Chartered Institute for Securities & Investment Future Foundation. Previous executive positions held include Managing Director of Kleinwort Benson (Channel Islands) Investment Management Limited, Director of Kleinwort Benson (Channel Islands) Limited, Commission Secretary and Head of the Guernsey Financial Services Commission, and Director of Rothschild Bank (CI) Limited. She is a former board member of The Chartered Institute for Securities & Investment, a Liveryman of International the Worshipful Company of Bankers, and was granted Freedom of the City of London in 2007. Fionnuala holds a Master’s degree in Corporate Governance (Distinction), is a Chartered Fellow of The Chartered Institute for Securities & Investment; a Fellow of the London Institute of Banking & Finance (Chartered Institute of Bankers); a member of the Institute of Directors; a Fellow of The Chartered Governance Institute and a Chartered Governance Professional. In addition, she sits on the board of several charities, holding roles from fundraising and capacity building to governance and impact assessment. Fionnuala is a Guernsey resident. GOVERNANCE Board of Directors The Directors of executive and independent, are listed as follows: the Company, all of whom are non- Richard Burwood (Chairman of the Board and Chairman of the Management Engagement Committee appointed 27 September 2023). Mr Burwood is a resident of Guernsey with over 30 years’ experience in banking and investment management. During 18 years with Citibank London, Mr Burwood spent 11 years as a fixed income portfolio manager spanning both banks/finance investments and Asset Backed Securities. Mr Burwood moved to Guernsey in 2010, initially working as a portfolio manager for EFG Financial Products, managing the treasury department’s ALCO Fixed Income portfolio. From 2011 to 2013, Mr Burwood worked as the Business and Investment Manager for Man Investments, Guernsey. In 2013 Mr Burwood joined the board of TwentyFour Income Fund Ltd., a company specialising in asset-backed securities, and in 2014 he joined the board of RoundShield Fund, a Guernsey private equity fund, focused on European small to mid-cap opportunities. In August 2015, he became a Board Member of SME Credit Realisation Fund Limited, which provides investors access to a diversified pool of SME loans originated through Funding Circle’s marketplaces in the UK, US and Europe. Mr Burwood also serves on the boards of Habrok, a hedge fund specialising in Indian equities, and EFG International Finance, a structured note issuance company based in Guernsey. Richard is a Guernsey resident. various Jonathan (Jon) Bridel (Chairman of the Audit Committee and, with effect from 9 December 2022, Chairman of the Nomination and Remuneration Committee) is currently a non-executive chairman or director of listed investment funds. He is currently a director of DP Aircraft 1 Limited. He was until 2011 Managing Director of Royal Bank of Canada’s investment businesses in Guernsey and Jersey. This role had a strong focus on corporate governance, oversight, regulatory and technical matters and risk management. After qualifying as a Chartered Accountant in 1987, Jon worked with Price Waterhouse Corporate Finance in London and subsequently served in a number of senior management positions in Australia and Guernsey in corporate and offshore banking and specialised in credit. He was also chief financial officer of two private multi-national businesses, one of which raised private equity. He holds qualifications from the Institute of Chartered Accountants in England and Wales where he is a Fellow, the Chartered Institute of Marketing and the Australian Institute of Company Directors. He graduated with an MBA from Durham University in 1988. Jon is a chartered marketer and a member of the Chartered Institute of Marketing, a chartered director and fellow of the Institute of Directors and is a chartered fellow of the Chartered Institute for Securities and Investment. Jon is a Guernsey resident. 22 .  GOVERNANCE 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 Richard Burwood (Appointed 27 September 2023) None Jon Bridel DP Aircraft 1 Limited London Stock Exchange – Main Market (Specialist Fund Segment) Fionnuala Carvill Princess Private Equity Holding Limited London Stock Exchange – Main Market 23 .  GOVERNANCE Directors' Report The Directors of the Company are pleased to submit their Annual Report and the Audited Financial Statements (the “Financial Statements”) for the year ended 31 December 2023. In the opinion of the Directors, the Annual Report and Audited Financial Statements are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s performance, business model and strategy. The Company The Company was incorporated and registered in Guernsey on 7 March 2014 under the Companies (Guernsey) Law, 2008. The Company’s registration number is 58123 and it is regulated by the Guernsey Financial Services Commission (“GFSC”) as a registered closed-ended collective investment scheme. The Company’s ordinary shares were listed on the Specialist Fund Segment (“SFS”) of the London Stock Exchange (“LSE”) on 12 June 2014. Results and Dividends The results for the year are shown in the Statement of Comprehensive Income on page 46. The Board declared dividends of US$35,667,058 during 2023 (2022: US$44,301,785) followed by an additional dividend declaration of US$8,651,028 declared on 22 February 2024 in relation to the year ended 31 December 2023 (dividends declared in relation to the year ended 31 December 2022: US$7,952,233). Further details of dividends declared or paid are detailed in note 4. The Board paid or declared dividends to shareholders representing an amount in aggregate at least equal to the gross income from investments, which are received from the Master Fund II and the Master Fund III in the relevant financial period attributable to the Company’s investment in the Master Fund II and the Master Fund III, and Qualifying Short Term Investments less expenses of the Company. Independent Auditor KPMG Channel Islands Limited were appointed on 12 May 2014 and continued to serve as Auditor during the financial year. A resolution to re-appoint KPMG Channel Islands Limited as Auditor will be put to the forthcoming Annual General Meeting (“AGM”). Directors and Directors’ Interests The Directors, all of whom are independent and non-executive, are listed on page 22. None of the Directors has a service contract with the Company and no such contracts are proposed. Each independent non- executive Director is entitled to a basic fee of £45,000 (31 December 2022: £45,000) each per annum. The Nomination and Remuneration committee recommended an increase of £3,000 in the fee of the Audit Chair and was approved by the board in January 2024. The Directors had the following interests in the Company at 31 December 2023 and 31 December 2022, held either directly or beneficially: Name 31 December 2023 31 December 2022 No. of 2021 Shares Percentage No. of 2021 Shares Percentage Richard Burwood (Chairman, appointed 27 September 2023) Jon Bridel ¹ Fionnuala Carvill Claudio Albanese (Former Chairman, resigned 31 December 2023) - 40,000 - 9,697 - 0.01% - 0.00% N/A 40,000 - 9,697 N/A 0.01% - 0.00% 1. All shares held by a person closely associated to Jon Bridel. 24 .  GOVERNANCE Directors' Report Substantial Shareholdings As at 31 March 2024, being the date of the latest shareholder analysis prior to the publication of these Financial Statements, the following 2021 Shareholders had holdings in excess of 5% of the issued 2021 Share Capital: Name No. of 2021 Shares Percentage of 2021 Shares Vidacos Nominees account #25 Nortrust Nominees account #1 CGWL Nominees account #1 71,972,811 33,831,145 19,682,106 18.84% 8.86% 5.15% There were no significant shareholder changes in the period from 31 March 2024 and the date of signing this report. Related Parties Details of transactions with related parties are disclosed in note 8 to these Financial Statements. Regulatory Requirements Since being admitted to the SFS on 12 June 2014, the Company has complied with the Prospectus Rules, the Disclosure Guidance and Transparency Rules and the Market Abuse Directive (as implemented in the UK through Financial Services and Markets Authority). Foreign Account Tax Compliance Act The Foreign Account Tax Compliance Act (“FATCA”) became effective on 1 January 2013. The legislation is aimed at determining the ownership of US assets in foreign accounts and improving US tax compliance with respect to those assets. On 13 December 2013, the States of Guernsey entered into an intergovernmental agreement (“IGA”) with US Treasury, in order to facilitate the requirements under FATCA. The Company registered with the Internal Revenue Service (“IRS”) on 21 November 2014 as a Foreign Financial Institution (“FFI”). Common Reporting Standard The Common Reporting Standard (“CRS”), formerly the Standard for Automatic Exchange of Financial Account Information, became effective on 1 January 2016. CRS is an information standard for the automatic exchange of information developed by the Organisation for Economic Co-operation and Development (“OECD”). CRS is a measure to counter tax evasion and it builds upon other information sharing legislation, such as FATCA, the UK-Guernsey IGA for the Automatic Exchange of Information and the European Union Savings Directive, and has superseded the UK-Guernsey Intergovernmental Agreement for the Automatic Exchange of Information with effect from 1 January 2016. Reporting under CRS in Guernsey is completed on an annual basis. Alternative Investment Fund Managers Directive (“AIFMD”) The Company is categorised as a non-EU Alternative Investment Fund (as defined in the AIFMD) (“AIF”) and the Board of the Company is a non-EU Alternative Investment Fund Manager (“AIFM”) (as defined in the AIFMD) for the purposes of the AIFMD and as such neither it nor the Investment Adviser will be required to seek authorisation under the AIFMD. However, following national transposition of the AIFMD in a given EU member state, the marketing of ordinary shares in AIFs (as defined in the AIFMD) that are established outside the EU (such as the Company) to investors in that EU member state will be prohibited unless certain conditions are met. Certain of these conditions are outside the Company’s control as they are dependent on the regulators of the relevant third country and the relevant EU member state entering into regulatory co-operation agreements with one another. The Directors have appointed the Risk Committee to manage the relevant disclosures to be made to investors and the necessary regulators. On 18 February 2015, the FCA confirmed that the Company was eligible to be marketed via the FCA’s National Private Placement Regime and the Company complied with Article 22 and 23 of the AIFMD for the year ended 31 December 2023. In January 2017, the Company was authorised to market in Sweden, Finland and Luxembourg. As the Board of the Company is the AIFM, the details of the Company’s remuneration policy for the Directors is outlined on page 36 and accords with the principles established by AIFMD. 25 .  GOVERNANCE Directors' Report Non-Mainstream Pooled Investments The Company’s ordinary shares are considered as “excluded securities” for the purposes of the FCA Rules regarding the definition and promotion of non-mainstream pooled investments (“NMPI”) because the returns to investors holding the Company’s ordinary shares are, and are expected to continue to be, predominantly based on the returns from ordinary shares and debentures held indirectly by the Company. The Board therefore believes that independent financial advisers can recommend the Company’s ordinary shares to retail investors, although financial advisers should seek their own advice on this issue. Reporting Fund Regime The Company was accepted into the UK Reporting Fund regime with effect from 7 March 2014. Under this regime, which effectively replaced the UK Distributor Status regime, an offshore investment fund operates by reference to whether it opts into the reporting regime (“Reporting Funds”) or not (“Non-reporting Funds”). A UK investor who disposes of an interest in a Reporting Fund should be subject to tax on any gains realised as capital gains rather than income. Such investors will also be subject to income tax on the distributions received from the offshore fund and their share of the excess of the offshore fund’s reported income over the distributions made (i.e. they will be subject to income tax on their share of the offshore fund’s income regardless of whether this is distributed or not). Shareholders should seek their own professional advice as to the tax consequences of the UK Reporting Fund regime. Anti-bribery and Corruption The Board acknowledge that the Company’s international operations may give rise to possible claims of bribery and corruption. In consideration of The Bribery Act 2010, enacted in the UK, at the date of this report the Board had conducted an assessment of the perceived risks to the Company arising from bribery and corruption to identify aspects of business which may be improved to mitigate such risks. The Board has adopted a zero tolerance policy towards bribery and has reiterated its commitment to carry out business fairly, honestly and openly. Criminal Finances Act The Board of the Company has a zero tolerance commitment to preventing persons associated with it from engaging in criminal facilitation of tax evasion. The Board has satisfied itself in relation to its key service providers that they have reasonable provisions in place to prevent the criminal facilitation of tax evasion by their own associated persons and will not work with service providers who do not demonstrate the same zero tolerance commitment to preventing persons associated with it from engaging in criminal facilitation of tax evasion. UK Modern Slavery Act The Board acknowledges the requirement to provide information about human rights in accordance with the UK Modern Slavery Act. The Board conducts the business of the Company ethically and with integrity, and has a zero tolerance policy towards modern slavery in all its forms. As the Company has no employees, all its Directors are non-executive and all its functions are outsourced, there are no further disclosures to be made in respect of employees and human rights. Employee Engagement & Business Relationships The Company conducts its core activities through third-party service providers and does not have any employees. The Board recognises the benefits of encouraging strong business relationships with its key service providers and seeks to ensure each is committed to the performance of their respective duties to a high standard and, where practicable, that each provider is motivated to adding value within their sphere of activity. Details on the Board’s approach to service provider engagement and performance review are contained in the Management Engagement Committee Report. Whistleblowing The Board has considered the AIC Code recommendations in respect of arrangements by which staff of the Investment Adviser, Custodian or Administrator may, in confidence, raise concerns within their respective organisations about possible improprieties in matters of financial reporting or other matters. It has concluded that adequate arrangements are in place for the proportionate and independent for appropriate follow-up action to be taken within their organisation. investigation of such matters and, where necessary, 26 .  GOVERNANCE Directors' Report Environmental and Social Policy Over the course of the last decade, renewable energy has grown materially as governments and investors started to realise the need for sustainable energy sources. In 2023, countries worldwide continued to pursue decarbonisation plans and the renewable growth trend is expected to continue going forward as more countries join the Paris Climate Accord which aims to achieve the goal of net- zero carbon emissions by 2050. The Company is a closed-ended investment company which has no employees or offices and therefore its own direct environmental impact is minimal. The Company operates by outsourcing significant parts of its operations to reputable professional companies, who are required to comply with all relevant laws and regulations and take account of social, environmental, ethical and human rights factors, where appropriate. The Board notes that the underlying entities which the CLOs are invested in will have a social and environmental impact over which it has limited control. Europe, however, has seen the emergence of CLOs subject to Environmental, Social and Corporate Governance (“ESG”) investment criteria. The inclusion of ESG language in CLOs has become more prevalent and is likely to develop from sector- based negative screening towards ESG scoring. The Master Funds have been at the forefront of these developments and, as of the end of December 2023, 76.8% of all CLO equity investments in the Master Funds’ portfolio included ESG investment restrictions. These restrictions exclude any underlying collateral debt obligation whose primary business activity is, amongst others, oil, gas or thermal coal extraction, upstream palm oil production, trade in weapons or firearms, hazardous chemicals, pesticides and wastes, ozone-depleting substances, endangered or protected wildlife or wildlife products, tobacco and predatory lending. The Company has no direct greenhouse gas emissions to report from its operations, nor does it have responsibility for any other emissions-producing sources, including those within its underlying CLOs portfolio. In carrying out its investment activities and in relationship with suppliers, the Company aims to conduct itself responsibly, ethically and fairly. In addition, the Investment Adviser has been a signatory to the UN Principles for Responsible Investment (“UN PRI”) since July 2016 and is committed to applying the UN PRI to all stages of its investment criteria and to increasing awareness in credit markets. EU Sustainable Finance Disclosure Regulation - Article 6 - Sustainability Risk A sustainability risk is an environmental, social or governance event or condition that, if it occurs, could cause an actual or potential material negative impact on the value of an investment. The Investment Adviser integrates sustainability risks into its investment decisions in two ways. Firstly, its analysis of the managers of the CLOs in which the Company/Master Funds invest considers any sustainability risks at the manager level that could impact either the effective management of the CLO or the secondary market value of the CLO securities. Secondly, the Investment Adviser considers sustainability risks at the level of the borrowers of the loans in the CLOs’ portfolios. The realisation of sustainability risks at these borrowers could increase the probability of borrowers defaulting on loans held by the CLOs and a consequent erosion of the CLOs’ collateral pools. The Investment Adviser has determined that sustainability risks, while relevant to the Company’s and Master Funds’ portfolio, present a very limited risk to the value of its investments. The manager-related sustainability risks are mitigated by the tight controls enforced on CLO managers by the CLO indenture and trustee, the manager replacement provisions in the indenture and the fact that CLO investors are ultimately protected by their security over the CLO collateral. The sustainability risks related to the borrowers of loans in the CLO portfolios are mitigated by the diversification of the CLO portfolios and by the analysis undertaken on the loan borrowers by equity investors, lenders and rating agencies. 27 .  GOVERNANCE Directors' ReportEnvironmental and Social Policy (continued)EU Sustainable Finance Disclosure Regulation - Article 6 - Sustainability Risk (continued)Jon Bridel18 April 2024“Sustainabilityfactors”areenvironmental,socialandemployeematters,respectforhumanrights,anti-corruptionandanti-briberymatters.DuetoacurrentlackofdetailedrelevantinformationavailablefromtheborrowersofloansinCLOportfolios,theInvestmentAdviserdoesnotconsidertheadverseimpactsofinvestmentdecisionsonsustainabilityfactors.Theinvestmentsunderlyingthisfinancial product do not take into account the EU criteria for environmentally sustainable economic activities.By order of the BoardDirector28 . GOVERNANCE Corporate Governance Compliance The Board has taken note of the Code of Corporate Governance issued by the Guernsey Financial Services Commission (“Guernsey Code”). The Guernsey Code provides a governance framework for GFSC licensed entities, authorised and registered collective investment schemes. Companies reporting in compliance with the UK Corporate Governance Code (the “UK Code”) or the Association of Investment Companies Code of Corporate Governance (“AIC Code”), which was last published in February 2019, are deemed to satisfy the provisions of the Guernsey Code. The UK Code is available on the Financial Reporting Council website, www.frc.org.uk. As a Guernsey incorporated company and under the SFS Rules for companies, it is not a requirement for the Company to comply with the UK Code. However, the Directors place a high degree of importance on ensuring that high standards of corporate governance are maintained and have considered the principles and recommendations of the AIC Code. The AIC Code addresses all the principles and provisions set out in the UK Code as well as setting out additional provisions on issues that are of specific relevance to the Company. The Board considers that reporting against the principles and provisions of the AIC Code will provide more relevant information to shareholders. The AIC code is available on the AIC website, www.theaic.co.uk. For the year ended 31 December 2023, the Company complied substantially with the relevant provisions of the AIC Code and it is the intention of the Board that the Company will comply with those provisions throughout the year ending 31 December 2024, with the exception of the provisions listed below: • The appointment of a Senior Independent Director: Given the size and composition of the Board it is not felt necessary to separate the roles of Chairman and Senior Independent Director. The Board considers that all the independent Directors have different qualities and areas of expertise on which they may lead where issues arise and to whom concerns can be conveyed. • • Internal audit function: The Board has reviewed the need for an internal audit function and due to the size of the Company and the delegation of day-to-day operations to regulated service providers, an internal audit function is not considered necessary. The Directors will continue to monitor the systems of internal controls in place in order to provide assurance that they operate as intended. The appointment of Executive Directors: Due to the broad range of experience of the Board and given the nature of the Company’s activity and that the majority of Directors are deemed to be independent under the AIC Code, it is not considered necessary to appoint executive Directors. In January 2024, the Financial Reporting Council published the 2024 UK Corporate Governance Code (“the 2024 Code”) that will apply to financial years beginning on or after 1 January 2025. The 2024 Code is applicable to companies with a premium listing on the London Stock Exchange, regardless of where they are incorporated. To comply with elements of the UK Listing Rules these companies must apply the Principles of the 2024 Code and comply with or explain against the Provisions. As the Board considers the principles and recommendations of the AIC Code, it will carefully need to consider the implications of the above changes on the AIC Code, if any. Composition and Independence of Directors The Board are mindful of the length of service of the Directors, some of whom have been in place since the inception of the Company in 2014. The Company devised a succession plan where Professor Claudio Albanese retired in December 2023 and Jon Bridel is expected to retire in December 2024 with plans underway to appoint a new director. Within the recruitment process, further consideration will be given to industry best practice and recognised guidance including, but not limited to, the requirements on listed companies arising from the Hampton Alexander review and the Parker Review. The succession planning will continue to be kept under review to ensure an orderly transfer of knowledge and responsibilities as the Directors continue to look to refresh the Board with these new appointments in the coming few years. On 27 September 2023, the Board were pleased to announce the appointment of Richard Burwood as a non-executive Director of the Company and Chairman of the Board. In order to align with the Board's succession plan as announced in the Company's Annual Report of 2022, and to ensure an orderly transfer of responsibilities, Mr Burwood was appointed as Chairman of the Board ahead of Dr Claudio Albanese’s retirement on 31 December 2023, during which time Dr Albanese remained on the board as a non-executive Director. 29 .  GOVERNANCE Corporate Governance Composition and Independence of Directors (continued) Mr Jon Bridel informed the board that he will be available for re-election at the next Annual General Meeting (“AGM”) and will be serving on the board until 31 December 2024 when he is expected to retire. This will provide sufficient time to ensure an orderly handover to the new Audit Committee Chairman and the new board member. Mr Bridel has served on the board since its inception in 2014 and has provided effective independent judgment on issues of strategy, performance, resources and conduct. In the opinion of the Board, Mr Bridel remains independent and focused on ensuring an effective succession plan working with his successor. Appointment process: The Directors appointment process involves identifying gaps and needs in the Board’s composition and then reviewing the skill set of potential candidates with a few to making an appointment that fills the identified gaps and needs. Following this process, the board formally appointed Richard Burwood in 2023. The board engaged OSA recruitment company, an independent search consultancy with no connection to the Company or its Directors to assist with the above appointment. As at 31 December 2023, the Board of Directors comprised three non-executive and independent Directors as set out below. The Company has no executive Directors or any employees. The biographies of the Board are disclosed on page 22. Richard Burwood is the Chairman of the Board and the Management Engagement Committee. Jon Bridel is the Chairman of the Audit Committee and the Nomination and Remuneration Committee. Fionnuala Carvill is the Chair of the Risk Committee. In considering the independence of the Chairman, the Board has taken note of the provisions of the AIC Code relating to independence and has determined that Richard Burwood is an Independent Director. As Chairman, Mr Burwood is responsible for the leadership of the Board and ensuring effectiveness in all aspects of its role. Under the terms of their appointment, all non-executive Directors are subject to re-election annually at the AGM. At the Annual General Meeting of the Company, due to take place on 5 June 2024, shareholders will be ask to elect and re-elect all the Directors of the Company. At the Company’s last Annual General Meeting, which was held on 8 June 2023, a substantial number of votes were cast against certain resolutions. These resolutions related to the election and re-election of the Directors and the shareholder authority for the disapplication of pre-emption rights in respect of a total of up to approximately 20 percent. of the existing 2021 Shares in issue. The Directors consulted with the relevant shareholder in order to understand their reasons for voting in this way. Directly and via its Investment Adviser, the Board have gained an understanding of the reasons that impacted the exercising of these votes, and they are committed to ongoing engagement with all relevant shareholders in respect of these matters, and to conduct a broader shareholder engagement during 2024. Although no formal training is given to Directors by the Company, the Directors are kept up to date on various matters such as Corporate Governance issues through bulletins and training materials provided from time to time by the Company Secretary, the AIC and other professional firms bodies. The Board receives quarterly reports from the Company's advisers and meets at least quarterly to review the overall business of the Company and to consider matters specifically reserved for its disposal. At these meetings the Board monitors the investment performance of the Company. The Directors also review the Company’s activities every quarter to ensure that it adheres to the Company’s investment policy. Additional ad hoc reports are received as required and Directors have access at all times to the advice and services of the Company Secretary, who is responsible for ensuring that the Board procedures are followed and that applicable rules and regulations are complied with. The Board monitors the level of the share price premium or discount to determine what action is desirable (if any). On 20 September 2022 the Board announced that it had resolved to enhance the Company’s aggregate distributions to holders of the 2021 Shares, with the objective of being meaningfully accretive to 2021 Shareholders and positively influencing the discount to NAV and trading liquidity of the 2021 Shares. The Board and relevant personnel of the Investment Adviser acknowledge and adhere to the Market Abuse Regulation which was implemented on 3 July 2016. 30 .  GOVERNANCE Corporate Governance Board Diversity At 31 December 2023, the Board of Directors of the Company comprises two male directors and one female director. The Board is committed to diversity and is supportive of increased gender and ethnic diversity. As referred to above, during 2022, Fionnuala Carvill was appointed as the Company’s first female Director. Going forward the Board will ensure there is an equal balance of gender in candidates for final interviews and, as mentioned above, the Company will also consider industry best practice and recognised guidance including the requirements on listed companies arising from the Hampton Alexander review and the Parker Review. The Nomination and Remuneration Committee regularly reviews the structure, size and composition of the Board, taking into account the challenges and opportunities facing the Company. The Board is also committed to appointing the most appropriate available candidates taking into account the skills and attributes of both existing members and potential new recruits and thereby the balance of skills, experience and approach of the Board as a whole which will lead to optimal Board effectiveness. In considering future candidates, appointments will be based on merit as a primary consideration, with the aim of bringing an appropriate range of the specific skills, experience, independence, and knowledge needed to ensure a rounded Board and the diversity benefits each candidate can bring to the overall Board composition. As at 31 December 2023, the Company did not meet the targets specified in the Listing Rules 9.8.6R(9)(a)(i) with the Board comprising 40 percent women as currently only one woman serves on the board. All board appointments are based on merit and objective criteria, taking into account the benefits of diversity. It is however the Board's intention to meet the target specified in Listing Rule 9.8.6R(9)(a)(i) as the Board is refreshed over time and is also considered in the succession plan. The Company is externally managed and does not have executive functions, specifically it does not have a CEO or CFO. The Company considers the role of Chairs of the permanent sub-committees, being Audit Committee, Risk Committee and Management Engagement Committee, to be senior positions and of these senior roles one is performed by a woman. Directors’ Performance Evaluation The Board has established an informal system for the evaluation of its own performance and that of the Company’s individual Directors. It considers this to be appropriate having regard to the non-executive role of the Directors and the significant outsourcing of services by the Company to external providers. The Directors undertake, on an annual basis by means of an internal questionnaire, an assessment of the effectiveness of the Board, particularly in relation to its oversight and monitoring of the performance of the Investment Adviser and other key service providers. The evaluations consider the balance of skills, experience, independence and knowledge of the Company. The Board also evaluates the effectiveness of each of the Directors. The Company Secretary collates the results of the questionnaires and the consolidated results are reviewed by the Board as a whole. In respect of the AGM, which will be held on 5 June 2024, the Board is of the view that each Director seeking re-election should be re- elected given their extensive knowledge of international financial markets, funds and risk management. This experience is evidenced within the biographies of the Board as disclosed on page 22. Collectively, the blend of skillsets demonstrates the importance of the contribution of each Director and why they should each be re-elected at the forthcoming AGM. The Chairman also has responsibility for assessing the individual Board members’ training and development requirements. Directors’ Remuneration With effect from 27 August 2015, it is the responsibility of the Nomination and Remuneration Committee to determine and approve the Directors’ remuneration, 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 Chairman’s remuneration is decided separately and is approved by the Board as a whole. No Director has a service contract with the Company and details of the Directors’ remuneration can be found in the Directors’ Remuneration Report on page 36. Directors’ and Officers’ Liability Insurance The Company maintains Directors’ and Officers’ liability insurance on behalf of the Directors in relation to the performance of their duties as Directors. 31 .  GOVERNANCE Corporate Governance Relations with Shareholders The Company reports to shareholders twice a year by way of the Interim Report and Unaudited Condensed Financial Statements and the Annual Report and Audited Financial Statements. In addition, NAVs are published monthly and the Investment Adviser publishes monthly reports to shareholders on its website www.fairoaksincome.com. The Board receives quarterly reports on the shareholder profile of the Company and regular contact with major shareholders is undertaken by the Company’s corporate brokers and the executives of the Investment Adviser. Any issues raised by major shareholders are reported to the Board on a regular basis. The Chairman and individual Directors are willing to meet major shareholders to discuss any particular items of concern regarding the performance of the Company. Members of the Board, including the Chairman and the Audit Committee Chairman, and the Investment Adviser are also available to answer any questions which may be raised by any shareholder at the Company’s Annual General Meeting. Stakeholders and Section 172 Whilst directly applicable to UK domiciled companies, the intention of the AIC Code is that matters set out in section 172 of the Companies Act, 2006 (“s172 of the Company’s other key stakeholders as part of its discussions and decision making process. As an investment company, the Company does not have any employees and conducts its core activities through third-party service providers. Each provider has an established track record and, through regulatory oversight and control, are required to have in place suitable policies to ensure they maintain high standards of business conduct, treat customers fairly, and employ corporate governance best practice. the Companies Act”) are reported. The Board considers the view of The Board’s commitment to maintaining the high-standards of corporate governance recommended in the AIC Code, combined with the directors’ duties incorporated into the Companies (Guernsey) Law, 2008, the constitutive documents, the Disclosure Guidance and Transparency Rules, and Market Abuse Regulation, ensures that shareholders are provided with frequent and comprehensive information concerning the Company and its activities. Whilst the primary duty of the Directors is owed to the Company as a whole, the Board considers as part of its decision making process the interests of all stakeholders. Particular consideration being given to the continued alignment between the activities of the Company and those that contribute to delivering the Board’s strategy, which include the Investment Manager and Administrator. The Board respects and welcomes the views of all stakeholders. Any queries or areas of concern regarding the Company’s operations can be raised with the Secretary. Directors’ Meetings and Attendance The following table shows the attendance at Board and Committee meetings during the year. There were four formal Board meetings, four Risk Committee meetings and two Nomination & Remuneration Committee meetings. No three Audit Committee meetings, Management Engagement Committee meetings were held during the year. 32 .  GOVERNANCE Corporate Governance Directors’ Meetings and Attendance (continued) Name Number of meetings held Richard Burwood (Chair of the Board and Management Engagement Committee)¹ Jon Bridel (Chair of the Audit Committee and the Nomination & Remuneration Committee) Fionnuala Carvill (Chair of the Risk Committee) Professor Claudio Albanese (Former Chair of the Board and Management Engagement Committee)² Board Audit Committee Risk Committee Management Engagement Committee³ Nomination & Remuneration Committee 4 2 4 4 4 3 1 3 3 N/A 4 2 4 4 4 1 1 1 1 1 2 1 2 2 2 The Chairman is responsible for ensuring the Directors receive complete information in a timely manner concerning all matters which require consideration by the Board. Through the Board’s ongoing programme of shareholder engagement and the reports produced by each key service provider, the Directors are satisfied that sufficient information is provided so as to ensure the matters set out in s172 of the Companies Act are taken into consideration as part of the Board’s decision-making process. Board Committees Audit Committee During the year ended 31 December 2023, the Audit Committee has comprised of Jon Bridel, Fionnuala Carvill and Richard Burwood, and meets at least three times a year. Richard Burwood became a member of the Audit Committee during the board meeting held on 8 December 2023. Jon Bridel is Chairman of the Audit Committee. The key objectives of the Audit Committee include a review of the Financial Statements to ensure they are prepared to a high standard and comply with all relevant legislation and guidelines, where appropriate, and to maintain an effective relationship with the Auditor. With respect to the Auditor, the Audit Committee’s role will include the assessment of their independence, review of the Auditor’s engagement letter, remuneration, performance and any non-audit services provided by the Auditor. For the principal duties and report of the Audit Committee please refer to the Report of the Audit Committee on page 37. Risk Committee The Risk Committee meets at least four times a year. It comprises the entire Board and was chaired by Fionnuala Carvill. The principal function of the Risk Committee is to identify, assess, monitor and, where possible, oversee the management of risks to which the Company’s investments are exposed, principally to enable the Company to achieve its target investment objective of a total return of 12% to 14% per annum over the planned life of the Company, with regular reporting to the Board. As the Company is an internally managed non-EU AIFM for the purposes of AIFMD, the Directors have appointed the Risk Committee to manage the additional risks faced by the Company as well as the relevant disclosures to be made to investors and the necessary regulators. On 18 February 2015, the FCA confirmed that the Company was eligible to be marketed via the FCA’s National Private Placement Regime and the Company complied with Articles 22 and 23 of the AIFMD for the year ended 31 December 2023. In January 2017, the Company was authorised to market in Sweden, Finland and Luxembourg. Management Engagement Committee The Management Engagement Committee (“MEC”) meets at least once a year. MEC met in December 2023 and the meeting was then adjourned to January 2024. It comprises the entire Board and is chaired by Richard Burwood. The MEC is responsible for the regular review of the terms of the Investment Advisory Agreement and the performance of the Administrator and the Investment Adviser and also the Company’s other service providers. For the principal duties of the MEC, please refer to the Management Engagement Committee Report on page 40. 1. Appointed to the Board and Chairman on 27 September 2023. 2. Resigned from the Board on 31 December 2023 3. ‘Management Engagement Committee ("MEC") met in December 2023 and was then adjourned to January 2024 33 .  GOVERNANCE Corporate Governance Nomination and Remuneration Committee The Nomination and Remuneration Committee meets at least once a year. It comprises the entire Board and was chaired by Jon Bridel. The Nomination and Remuneration Committee is responsible for reviewing the structure, size and composition of the Board, to consider the succession planning for directors, reviewing the leadership needs of the organisation, identifying candidates for appointment to the Board, agreeing a framework for Director remuneration, ensuring management of the Company are appropriately incentivised to enhance performance and reviewing the appropriateness of the remuneration policy on an ongoing basis. In order to identify appropriate candidates for appointment to the Board, the Nomination and Remuneration Committee will appoint an independent consultant for the purposes of identifying suitable candidates for the purposes of succession planning. Internal Control Review and Risk Management System The Board of Directors is responsible for putting in place a system of internal controls relevant to the Company and for reviewing the effectiveness of those systems. The review of internal controls is an ongoing process for identifying and evaluating the risks faced by the Company, and which are designed to manage risks rather than eliminate the risk of failure to achieve the Company’s objectives. It is the responsibility of the Board to undertake risk assessment and review of the internal controls in the context of the Company’s objectives that cover business strategy, operational, compliance and financial risks facing the Company. These internal controls are implemented by the Company’s three main service providers: the Investment Adviser, the Administrator and the Custodian. The Board receives periodic updates from these main service providers at the quarterly Board meetings of the Company. The Board is satisfied that each service provider has effective controls in place to control the risks associated with the services that they are contracted to provide to the Company and are therefore satisfied with the internal controls of the Company. The Board of Directors considers the arrangements for the provision of Investment Advisory, Administration and Custody services to the Company on an ongoing basis and a formal review is conducted annually. As part of this review the Board considered the quality of the personnel assigned to handle the Company’s affairs, the investment process and the results achieved to date. 34 .  GOVERNANCE Statement of Directors' ResponsibilitiesTheDirectorsareresponsibleforpreparingtheDirectors’ReportandFinancialStatementsinaccordancewithInternationalFinancialReportingStandards(“IFRS”)asissuedbytheInternationalAccountingStandardsBoard(“IASB”)andtheCompanies(Guernsey)Law,2008whichgiveatrueandfairviewofthestateofaffairsoftheCompanyanditsprofitorlossforthatperiod.InpreparingtheFinancialStatementstheDirectorsarerequiredto:•selectsuitableaccountingpoliciesandapplythemconsistently;•makejudgementsandestimatesthatarereasonableandprudent;•statewhetherapplicableaccountingstandardshavebeenfollowed,subjecttoanymaterialdeparturesdisclosedandexplainedintheFinancialStatements;•assesstheCompany’sabilitytocontinueasagoingconcern,disclosing,asapplicable,mattersrelatedtogoingconcern;and•usethegoingconcernbasisofaccountingunlesstheyeitherintendtoliquidatetheCompanyortoceaseoperations,orhavenorealisticalternativebuttodoso.TheDirectorsarealsoresponsibleforthekeepingofproperaccountingrecordswhichdisclosewithreasonableaccuracyatanytimethefinancialpositionoftheCompanyandtoenablethemtoensurethattheFinancialStatementscomplywiththeCompanies(Guernsey)Law,2008andtheListingRulesoftheSFSoftheLondonStockExchange.Theyarealsoresponsibleforthesystemofinternalcontrols,safeguardingtheassetsoftheCompanyandhencefortakingreasonablestepsforthepreventionanddetectionoffraudandotherirregularities.TheDirectorsconfirmthattheyhavecompliedwiththeserequirementsinpreparingtheFinancialStatements.TheDirectorsarealsoresponsibleforthemaintenanceandintegrityofthecorporateandfinancialinformationincludedontheCompany’swebsite.LegislationintheUnitedKingdomandGuernseygoverningthepreparationanddisseminationoffinancialstatementsmaydifferfromlegislationinotherjurisdictions.SofarastheDirectorsareaware,thereisnorelevantauditinformationofwhichtheCompany’sauditorisunaware,havingtakenallthestepstheDirectorsoughttohavetakentomakethemselvesawareofanyrelevantauditinformationandtoestablishthattheCompany’sauditorisawareofthatinformation.ResponsibilityStatementEachoftheDirectors,whoarelistedonpage22,confirmstothebestoftheirknowledgeandbelief:•theFinancialStatements,preparedinaccordancewithIFRSasissuedbytheIASB,giveatrueandfairviewoftheassets,liabilities,financialpositionandprofitoftheCompany,asrequiredbyDTR4.1.12R;•theManagementReport(comprisingtheChairman’sStatement,theInvestmentAdviser’sReport,theDirectors’Report,theStrategicReportandotherCommitteeReports)includesafairreviewofthedevelopmentandperformanceofthebusinessduringtheyear,andthepositionoftheCompanyattheendoftheyear,togetherwithadescriptionoftheprincipalrisksanduncertaintiesthattheCompanyfaces,asrequiredbyDTR4.1.8RandDTR4.1.9R;and•theAnnualReport,comprisingtheFinancialStatements,StrategicReviewandGovernancereport,takenasawhole,isfair,balancedandunderstandable.SignedonbehalfoftheBoardby:JonBridelDirector18April202435 . GOVERNANCE Directors' Remuneration Report The Company’s policy in regard to Directors’ remuneration is to ensure that remuneration is competitive, aligned with shareholder interests, relatively simple and transparent, and compatible with the aim of attracting, recruiting and retaining suitably qualified and experienced directors. 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. The Company’s Articles limit the fees payable to Directors in aggregate to US$400,000 per annum. The Directors have received the following remuneration during the year in the form of Directors’ fees: Richard Burwood (Chair of the Board and Management Engagement Committee)¹ Jon Bridel (Chair of the Audit Committee and the Nomination & Remuneration Committee) Fionnuala Carvill (Chair of the Risk Committee) Nigel Ward (former Chair of the Risk Committee and the Nomination & Remuneration Committee)³ Professor Claudio Albanese (Former Chair of the Board and Management Engagement Committee)⁴ Total Per Annum £ 45,000 45,000 45,000 45,000 45,000 For the year from 1 January 2023 to 31 December 2023 Actual For the year from 1 January 2022 to 31 December 2022 Actual £ 11,835 45,000 45,000 N/A 45,052 £ N/A 45,000 24,781 42,164 45,000 146,887 156,945 For the year ended 31 December 2023, each Director is entitled to a fee of £45,000 per annum (31 December 2022: £45,000 per annum). The remuneration policy set out above is the one applied for the years ended 31 December 2023 and 31 December 2022. Directors’ and Officers’ liability insurance cover is maintained by the Company on behalf of the Directors. respective appointments. Each Director’s The Directors were appointed as non-executive Directors by letters issued on their appointment letter provides that, upon the termination of their appointment, they must resign in writing. The Directors’ appointments can be terminated in accordance with the Articles and without compensation. The notice period for the removal of Directors is three months as specified in the Director’s appointment letter. 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; or (d) an ordinary resolution of the Company. The amounts payable to Directors as at 31 December 2023 and 31 December 2022, shown in note 8 to the Financial Statements, related to services as non-executive Directors. No Director has a service contract with the Company, nor are any such contracts proposed. Jon Bridel Director 18 April 2024 1. Appointed to the Board and as Chair of the board and Management and Engagement Committee on 27 September 2023. 2. Appointed to the Board and as Chair of the Risk Committee on 14 June 2022. 3. Resigned from the Board on 8 December 2022. 4. Resigned from the Board on 31 December 2023. 36 .  GOVERNANCE Report of the Audit Committee The Company has established an Audit Committee with formally delegated duties and responsibilities within written terms of reference (which are available from the Company’s website). Chairman and Membership The Audit Committee is chaired by Jon Bridel, a Chartered Accountant. He and the other members who served during the year Fionnuala Carvill and Richard Burwood, are all independent Directors. Only independent Directors serve on the Audit Committee and members of the Audit Committee have no links with the Company’s Auditor and are independent of the Investment Adviser. The membership of the Audit Committee and its terms of reference are kept under review. The relevant qualifications and experience of each member of the Audit Committee is detailed on page 22 of these Financial Statements. The Audit Committee’s intention is to meet at least three times a year in any full year and it meets the Auditor during those meetings. Duties The Audit Committee’s main role and responsibilities are to provide advice to the Board on whether the Annual Report and Audited Financial Statements, taken as a whole, are fair, balanced and understandable and alongside the Interim Report and Unaudited Condensed Financial Statements provide the information necessary for shareholders to assess the Company’s performance, business model and strategy. The Audit Committee gives full consideration and recommendation to the Board for the approval of the contents of the Interim and Annual Financial Statements of the Company, which includes reviewing the Auditor’s report. The other principal duties include to consider the appointment of the Auditor, to discuss and agree with the Auditor the nature and scope of the audit, to keep under review the scope, results and effectiveness of the audit and the independence and objectivity of the Auditor, to review the Auditor’s letter of engagement, the Auditor’s planning report for the financial year and management letter and to analyse the key procedures adopted by the Company’s service providers. The Audit Committee is responsible for monitoring the financial reporting process and the effectiveness of the Company’s internal control and risk management systems as they relate to the financial reporting process. The Audit Committee also focuses particularly on compliance with legal requirements, accounting standards and the relevant Listing Rules and ensuring that an effective system of internal financial and non-financial controls is maintained. The Audit Committee also reviews, considers and, if thought appropriate, recommends for the purposes of the Company’s Financial Statements valuations prepared by the Investment Adviser. These valuations are the most critical element in the Company’s Financial Statements and the Audit Committee questions them carefully. Financial Reporting and Significant Risk The Audit Committee has an active involvement and oversight in the preparation of both the Interim Report and Unaudited Condensed Financial Statements and the Annual Report and Audited Financial Statements and in doing so is responsible for the identification and monitoring of the principal risks associated with the preparation of the Financial Statements. After discussion with the Investment Adviser and KPMG Channel Islands Limited (“KPMG”), the Audit Committee determined that the key risk of material misstatement of the Company’s Financial Statements related to the valuation of investments. • Valuation of Master Fund III – The Company’s investment in the Master Fund III had a fair value of US$192,468,189 as at 31 December 2023 and represents substantially all the net assets of the Company and as such is the biggest factor in relation to the accuracy of the Financial Statements. This investment is valued in accordance with the Accounting Policies set out in note 2 to the Financial Statements. The Financial Statements of the Master Fund III for the year ended 31 December 2023 were audited by KPMG who issued an unmodified audit opinion dated 18 April 2024. The Audit Committee has reviewed the Audited Financial Statements of the Master Fund III and the accounting policies and determined the Company’s fair value of the investment in the Master Fund III as at 31 December 2023 to be reasonable. 37 .  GOVERNANCE Report of the Audit Committee Financial Reporting and Significant Risk (continued) • Valuation of Master Fund II – The Company’s direct investment in the Master Fund II had a fair value of US$27,998,151 as at 31 December 2023 and represents a substantial portion of the net assets of the Company. This investment is valued in accordance with the Accounting Policies set out in note 2 to the Financial Statements. The Financial Statements of the Master Fund II for the year ended 31 December 2023 were audited by KPMG who issued an unmodified audit opinion dated 18 April 2024. The Audit Committee has reviewed the Audited Financial Statements of the Master Fund II and the accounting policies and determined the Company’s fair value of the investment in the Master Fund II as at 31 December 2023 to be reasonable. Financial Reporting and Audit The Audit Committee reviews the Company’s accounting policies applied in the preparation of its Annual Financial Statements together with the relevant critical judgements, estimates and assumptions and, upon taking the appropriate advice from the Auditor, determined that these were in compliance with IFRS, as issued by the IASB and were reasonable. The Audit Committee reviewed the materiality levels applied by the Auditor to the Financial Statements as a whole and was satisfied that materiality levels were appropriate. The Auditor reports to the Audit Committee all material corrected and uncorrected differences. The Auditor explained the results of their audit and that on the basis of their audit work, there were no uncorrected differences proposed that were material in the context of the Financial Statements as a whole. The Audit Committee also reviews the Company’s financial reports as a whole to ensure that such reports appropriately describe the Company’s activities and to ensure that all statements contained in such reports are consistent with the Company’s financial results and projections. Accordingly, the Audit Committee was able to advise the Board that the Annual Report and Audited Financial Statements are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s performance, business model and strategy. External Auditor The Audit Committee has responsibility for making a recommendation on the appointment, re-appointment and removal of the Auditor. KPMG was appointed as the first Auditor of the Company in 2014. During the year, the Audit Committee received and reviewed the audit plan and strategy from KPMG. It is standard practice for the Auditor to meet privately with the Audit Committee without the Investment Adviser being present at each Audit Committee meeting. The board has undertaken a review of KPMG as auditors and do not feel it necessary to put the audit out to tender at this stage To assess the effectiveness of the Auditor, the Audit Committee will review: • • • • The Auditor’s fulfilment of the agreed audit plan and variations from it; The Auditor’s assessment of its objectivity and independence as auditor of the Company; The Audit Committee Report from the Auditor highlighting the major issues that arose during the course of the audit; and Feedback from the Investment Adviser and Administrator evaluating the performance of the audit team. Where non-audit services are to be provided to the Company by the Auditor, full consideration of the financial and other implications on the independence of the auditor arising from any such engagement will be considered before proceeding. All non-audit services are pre-approved by the Audit Committee after it is satisfied that relevant safeguards are in place to protect the auditors’ objectivity and independence. To fulfil its responsibility regarding the independence of the Auditors, the Audit Committee considered: • • a report from the Auditor describing its arrangements to identify, report and manage any conflicts of interest; and the extent of non-audit services provided by the Auditor. During the year ended 31 December 2023, KPMG provided non-audit and audit services as listed on page 39. KPMG confirmed that the non-audit services provided during the year had not impacted their independence and outlined the reasons for this. These non- audit services complied with permissible services under the Financial Reporting Council (“FRC”) Revised Ethical Standard 2019. The Audit Committee was satisfied that these non-audit services had no bearing on the independence of the Auditor in the prior year. 38 .  GOVERNANCE Report of the Audit CommitteeExternal Auditor (continued)For the year ended 31 December 2023For the year ended 31 December 2022US$US$KPMG Channel Islands Limited– Annual Audit of the Company and related entities *308,142 272,625 – Interim review56,686 50,144 Other KPMG International member firms– Agreed upon procedures – Fair Oaks CLOs- 19,139 Internal ControlsJon BridelAudit Committee Chairman* Increase in audit fees are due to inflationary increases and the effect of foreign exchangeInaccordancewiththeguidancepublishedinthe‘TurnbullReport’bytheFRC,theAuditCommitteehasreviewedtheCompany’sinternalcontrolprocedures.TheseinternalcontrolsareimplementedbytheInvestmentAdviserandtheAdministrator.TheAuditCommitteehasperformedreviewsoftheinternalfinancialcontrolsystemsandriskmanagementsystemsduringtheyear.TheAuditCommittee is satisfied with the internal financial control systems of the Company.On behalf of the Audit Committee18 April 2024AstheCompany’sinvestmentobjectiveistoinvestallofitsassetsintotheMasterFunds,theAuditCommittee,afterconsultationwiththeInvestmentAdviserandAuditor,considersthekeyriskofmisstatementinitsFinancialStatementstobethevaluationofitsinvestmentsintheMasterFunds,butisalsomindfuloftheriskoftheoverrideofcontrolsbyitstwomainserviceproviders:theInvestment Adviser and the Administrator.TheInvestmentAdviserandtheAdministratortogethermaintainasystemofinternalcontrolonwhichtheyreporttotheBoard.TheBoardhasreviewedtheneedforaninternalauditfunctionandhasdecidedthatthesystemsandproceduresemployedbytheInvestmentAdviserandAdministratorprovidesufficientassurancethatasoundsystemofriskmanagementandinternalcontrol,whichsafeguardsshareholders’investmentandtheCompany’sassets,ismaintained.AninternalauditfunctionspecifictotheCompany is therefore considered unnecessary.TheAuditCommitteeisresponsibleforreviewingandmonitoringtheeffectivenessoftheinternalfinancialcontrolsystemsandriskmanagementsystemsonwhichtheCompanyisreliant.Thesesystemsaredesignedtoensureproperaccountingrecordsaremaintained,thatthefinancialinformationonwhichthebusinessdecisionsaremadeandwhichisissuedforpublicationisreliable,andthattheassetsoftheCompanyaresafeguarded.Suchasystemofinternalfinancialcontrolscanonlyprovidereasonableandnot absolute assurance against misstatement or loss.ThefollowingtablesummarisestheremunerationpayabletoKPMGandtootherKPMGInternationalmemberfirmsforauditandnon-auditservicesduringtheyearended31December2023and31December2022,translatedintothepresentationcurrencyattheexchange rate prevailing at 31 December 2023 and 31 December 2022, respectively.Inaddition,KPMGdirectorsaresubjecttoperiodicrotationofassignmentsonauditclientsunderapplicablelaws,regulationsandindependencerules.TheirrotationpoliciescomplywiththeFRCRevisedEthicalStandard2019whichstatesthattheengagementdirectorshouldberotatedafterservinginthiscapacityfortherelevantperiodnolongerthanfiveyears.Thisrotationpolicyiscontinuallymonitored,StevenStormonthwasfirstappointedastheauditengagementdirectorfortheyearended31December2019audit.39 . GOVERNANCE Management Engagement Committee ReportChairman and MembershipKey ObjectivesResponsibilities• • • • • • MEC MeetingsMain Activities during the yearContinued Appointment of the Investment Adviser and other Service ProvidersRichard BurwoodManagement Engagement Committee Chairman18 April 2024OnlymembersoftheMECandtheCompanySecretaryhavetherighttoattendMECmeetings.However,representativesoftheGeneralPartner, Investment Adviser and other service providers may be invited by the MEC to attend meetings as and when appropriate.To annually review the performance, relationships and contractual terms of all service providers (including the Investment Adviser);reviewingthetermsoftheInvestmentAdvisoryAgreementfromtimetotimetoensurethatthetermsthereofconformwithmarketandindustrypracticeandremaininthebestinterestsofShareholdersandmakingrecommendationstotheBoardonanyvariationtotheterms of the Investment Advisory Agreement which it considers necessary or desirable;recommendingtotheBoardwhetherthecontinuingappointmentoftheAdviserisinthebestinterestsoftheCompanyandShareholders, and the reasons for this recommendation;monitoring compliance by providers of other services to the Company with the terms of their respective agreements from time to time;reviewing and considering the appointment and remuneration of providers of services to the Company; andconsidering any points of conflict which may arise between the providers of services to the Company.TheCompanyhasestablishedaManagementEngagementCommittee(“MEC”)withformallydelegateddutiesandresponsibilitieswithinthe written terms of reference (which are available from the Company’s website www.fairoaksincome.com).TheMECmeetsatleastonceayear.ItcomprisestheentireBoardandischairedbyRichardBurwoodwhotookoverchairmanshipfromClaudioAlbanesewhoretiredon31December2023.MrBurwoodandtheothermembers,FionnualaCarvillandJonBridel,areallindependentDirectors.OnlyindependentDirectorsserveontheMECandmembersoftheMEChavenolinkswiththeInvestmentAdviseroranyotherserviceprovider.TheMECisresponsiblefortheregularreviewofthetermsoftheInvestmentAdvisoryAgreementandtheperformanceoftheAdministratorandtheInvestmentAdviserandalsotheCompany’sotherserviceproviders.Themembershipof the MEC and its terms of reference are kept under review.To review performance of all service providers (including the Investment Adviser).TheMECmetinDecember2023andthemeetingwasthenadjournedtoJanuary2024.TheMECreviewedtheperformance,relationshipsandcontractualtermsofallserviceprovidersatanadjournmentoftheDecembermeeting.Furthermore,theMECreviewedtheapproachestoGDPR,CriminalJusticeAct,Anti-bribery,cybersecurity,ESG,discriminationanddiversity&equality,amongstothermatters, by its service providers.TheBoardcontinuallyevaluatestheInvestmentAdviserandotherserviceproviders,itreviewsinvestmentperformanceateachBoardmeetingandaformalreviewofallserviceprovidersisconductedannuallybytheMEC.Theannualthird-partyserviceproviderreviewprocessincludestwo-wayfeedback,whichprovidestheBoardwithanopportunitytounderstandtheviews,experiencesandanysignificantissuesencounteredbyserviceprovidersduringtheyear.AspartoftheBoard’sannualperformanceevaluation,feedbackisreceived on the quality of service and the effectiveness of the working relationships with each of the Company’s key service providers.40 . Independent Auditor's Report to the Members of Fair Oaks Income Limited Our opinion is unmodified We have audited the financial statements of Fair Oaks Income Limited (the “Company”), which comprise the statement of financial position as at 31 December 2023, the statements of comprehensive income, changes in shareholders’ equity and cash flows for the year then ended, and notes, comprising material accounting policies and other explanatory information. In our opinion, the accompanying financial statements: • • • give a true and fair view of the financial position of the Company as at 31 December 2023, and of the Company’s financial performance and cash flows for the year then ended; are prepared in accordance with International Financial Reporting Standards; and comply with the Companies (Guernsey) Law, 2008. Basis for Opinion in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our We conducted our audit responsibilities are described below. We have fulfilled our ethical responsibilities under, and are independent of the Company in accordance with, UK ethical requirements including the FRC Ethical Standard as required by the Crown Dependencies' Audit Rules and Guidance. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Key Audit Matters: our assessment of the risks of material misstatement Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our In arriving at our audit opinion above, the key audit matter opinion thereon, and we do not provide a separate opinion on these matters. was as follows (unchanged from 2022): The risk Our response Financial assets at fair value through profit or loss (“Investments”) US$220.47 million; (2022 US$234.98 million) Refer to pages 37 to 39 (Report of the Audit Committee), note 2 (Principal Accounting Policies), note 3 (Use of Judgements and Estimates) and note 6 (Financial Assets at Fair Value Through Profit or Loss) Valuation of investments: Our audit procedures included: Basis: Control evaluation: The Company holds investments in FOIF II LP (“Master Fund II”) and FOMC III LP (“Master Fund III”) (together the “Master fair Funds”) which are designated at value and profit represents 90.3% of the Company’s net assets. through loss or value of The fair the Company’s investment in the Master Funds reflects the Company’s proportionate share of the Master Funds’ net asset value. Master Fund III’s net asset value reflects its proportionate share of Master Fund II’s and Wollemi Investments I LP’s (“Wollemi”) net asset value and its own portfolio investment comprising Loan Collateralised Mezzanine Obligation positions (“CLO’s”). Master Fund II’s net asset value incorporates the fair value of its own investment portfolio which comprises: Mezzanine and Equity CLO’s and a proportionate share of the net asset value of Wollemi. assessed We implementation of valuation of the Company’s Investments. the the control over design and the Evaluation of the Valuation Agent: of With the assistance of our KPMG valuation specialist we: • assessed the objectivity, capability and competence the Valuation Agent engaged by the Master Funds and Wollemi to provide Price Quotes; and • assessed the methodology applied by the Valuation Agent in developing fair value Price Quotes. Valuation procedures, including use of KPMG valuation specialist: • For the investments valued using the proportionate share of net asset value we: — assessed whether the net asset values were representative of their fair values; 41 .  Independent Auditor's Report to the Members of Fair Oaks Income Limited Key Audit Matters: our assessment of the risks of material misstatement (continued) The risk Our response pre-CLO position Wollemi is also invested principally into a portfolio of Equity CLO positions and a Warehoused (the “Warehouse”). The fair value of 68% of the CLO’s held by the Master Funds and Wollemi and the Warehouse are determined using (“Price Quotes”) indicative obtained from the independent third party valuation provider (the “Valuation Agent”) or other third party market sources. 32% of the fair value of CLO’s held by the Master Funds and Wollemi are internally determined generated models. prices using Risk: valuation The the Company’s of Investments is considered a significant area of our audit, given that it represents the majority of the Company. in that valuation is the use of significant estimates and judgements in determining the fair value the underlying CLOs the of Warehouse. the net assets of Inherent and and agreed statements — recalculated the proportionate share of the net asset values; — agreed the fair value to a net asset value statement received from that fund’s administrator; — obtained the coterminous audited financial the audited net asset value to the net asset value statement; and — considered the basis of preparation of the audited financial statements, together with accounting policies applied and whether the audit opinion was unmodified. • We independently obtained the Valuation Agent’s pricing reports and agreed the Price Quotes provided by the Valuation Agent to those used in the Valuation of the CLOs held by the Master Funds and Wollemi. • For 100% of the CLO positions held by the Master Funds and Wollemi, with the support of our KPMG valuation specialist, we determined independent reference prices either by obtaining external pricing sources where available, or through the fundamental cash flow modelling use of sourcing key inputs and assumptions used, such as default rates, prepayment rates and recovery rates from observable market data and agreed the outcome to the prices used in the valuation of these CLOs. • For the Warehouse held by Wollemi, with the support of our KPMG valuation specialist, we determined independent reference underlying for warehouse loan and bond positions and recalculated the value attributable to Wollemi. prices the Assessing disclosures: also considered the Company’s We disclosures in relation to use of estimates and judgements in determining the fair value the Company’s Investment valuation policies (Note 2) and fair value disclosures (Note 6) for compliance with IFRS. Investments (Note 3), of 42 .  Independent Auditor's Report to the Members of Fair Oaks Income Limited Our application of materiality and an overview of the scope of our audit Materiality for the financial statements as a whole was set at $5.2 million, determined with reference to a benchmark of net assets of $244 million of which it represents approximately 2% (2022: 2%). In line with our audit methodology, our procedures on individual account balances and disclosures were performed to a lower threshold, performance materiality, so as to reduce to an acceptable level the risk that individually immaterial misstatements in individual account balances add up to a material amount across the financial statements as a whole. Performance materiality for the Company was set at 75% (2022: 75%) of materiality for the financial statements as a whole, which equates to $3.9 million. We applied this percentage in our determination of performance materiality because we did not identify any factors indicating an elevated level of risk. We reported to the Audit Committee any corrected or uncorrected identified misstatements exceeding $260,000, in addition to other identified misstatements that warranted reporting on qualitative grounds. Our audit of the Company was undertaken to the materiality level specified above, which has informed our identification of significant risks of material misstatement and the associated audit procedures performed in those areas as detailed above. Going concern The directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Company or to cease its operations, and as they have concluded that the Company's financial position means that this is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over its ability to continue as a going concern for at least a year from the date of approval of the financial statements (the “going concern period"). In our evaluation of the directors' conclusions, we considered the inherent risks to the Company's business model and analysed how those risks might affect the Company's financial resources or ability to continue operations over the going concern period. The risks that we considered most likely to affect the Company's financial resources or ability to continue operations over this period were: • • Availability of capital to meet operating costs and other financial commitments; and The recoverability of financial assets subject to credit risk. We considered whether these risks could plausibly affect the liquidity in the going concern period by comparing severe, but plausible downside scenarios that could arise from these risks individually and collectively against the level of available financial resources indicated by the Company’s financial forecasts. We considered whether the going concern disclosure in note 2 to the financial statements gives a full and accurate description of the directors' assessment of going concern. Our conclusions based on this work: • • • we consider that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate; we have not identified, and concur with the directors' assessment that there is not, a material uncertainty related to events or conditions that, individually or collectively, may cast significant doubt on the Company's ability to continue as a going concern for the going concern period; and we found the going concern disclosure in the notes to the financial statements to be acceptable. However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the above conclusions are not a guarantee that the Company will continue in operation. 43 .  Independent Auditor's Report to the Members of Fair Oaks Income Limited Fraud and breaches of laws and regulations – ability to detect Identifying and responding to risks of material misstatement due to fraud To identify risks of material misstatement due to fraud (“fraud risks”) we assessed events or conditions that could indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud. Our risk assessment procedures included: • • • enquiring of management as to the Company’s policies and procedures to prevent and detect fraud as well as enquiring whether management have knowledge of any actual, suspected or alleged fraud; reading minutes of meetings of those charged with governance; and using analytical procedures to identify any unusual or unexpected relationships. As required by auditing standards, we perform procedures to address the risk of management override of controls, in particular the risk that management may be in a position to make inappropriate accounting entries. On this audit we do not believe there is a fraud risk related to revenue recognition because the Company’s revenue streams are simple in nature with respect to accounting policy choice, and are easily verifiable to external data sources or agreements with little or no requirement for estimation from management. We did not identify any additional fraud risks. We performed procedures including • • Identifying journal entries and other adjustments to test based on risk criteria and comparing any identified entries to supporting documentation; and incorporating an element of unpredictability in our audit procedures. Identifying and responding to risks of material misstatement due to non-compliance with laws and regulations We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our sector experience and through discussion with management (as required by auditing standards), and from inspection of the Company’s regulatory and legal correspondence, if any, and discussed with management the policies and procedures regarding compliance with laws and regulations. As the Company is regulated, our assessment of risks involved gaining an understanding of the control environment including the entity’s procedures for complying with regulatory requirements. The Company is subject to laws and regulations that directly affect the financial statements including financial reporting legislation and taxation legislation and we assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items. The Company is subject to other laws and regulations where the consequences of non-compliance could have a material effect on amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation or impacts on the Company’s ability to operate. We identified financial services regulation as being the area most likely to have such an effect, recognising the regulated nature of the Company’s activities and its legal form. Auditing standards limit the required audit procedures to identify non- compliance with these laws and regulations to enquiry of management and inspection of regulatory and legal correspondence, if any. Therefore if a breach of operational regulations is not disclosed to us or evident from relevant correspondence, an audit will not detect that breach. Context of the ability of the audit to detect fraud or breaches of law or regulation Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it. In addition, as with any audit, there remains a higher risk of non-detection of fraud, as this may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. Our audit procedures are designed to detect material misstatement. We are not responsible for preventing non-compliance or fraud and cannot be expected to detect non-compliance with all laws and regulations. 44 .  Independent Auditor's Report to the Members of Fair Oaks Income Limited Other information The directors are responsible for the other information. The other information comprises the information included in the annual report but does not include the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. We have nothing to report on other matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies (Guernsey) Law, 2008 requires us to report to you if, in our opinion: • • • the Company has not kept proper accounting records; or the financial statements are not in agreement with the accounting records; or we have not received all the information and explanations, which to the best of our knowledge and belief are necessary for the purpose of our audit. Respective responsibilities Directors’ responsibilities As explained more fully in their statement set out on page 35, the directors are responsible for: the preparation of the financial statements including being satisfied that they give a true and fair view; 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; assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities. The purpose of this report and restrictions on its use by persons other than the Company’s members, as a body This report is made solely to the Company’s members, as a body, in accordance with section 262 of the Companies (Guernsey) Law, 2008. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed. Steven Stormonth For and on behalf of KPMG Channel Islands Limited Chartered Accountants and Recognised Auditors Guernsey 18 April 2024 45 .  FINANCIAL STATEMENTS Statement of Comprehensive Income For the year ended 31 December 2023 Revenue Net gains on financial assets at fair value through profit or loss Interest income Net foreign exchange gains / (losses) Total revenue Expenses Investment advisory fees Directors' fees and expenses Legal and professional fees Audit and interim review fees Registrar fees Listing fees Administration fees Broker fees Other expenses Total operating expenses 1 January 2023 to 1 January 2022 to 31 December 2023 31 December 2022 US$ US$ Note 6 7 8 8 8 30,987,658 1,117,468 28,708 133,228 235,886 (54,217) 32,133,834 314,897 211,438 218,274 29,969 161,709 67,704 12,768 123,061 147,995 175,799 139,855 209,522 19,008 176,904 73,481 17,656 127,533 136,122 102,081 1,148,717 1,002,162 Profit / (loss) and total comprehensive income / (loss) for the year 30,985,117 (687,265) Basic and diluted earnings / (losses) per 2021 Share Basic and diluted earnings / (losses) per Realisation Share 11 11 0.0685 0.0769 (0.0016) (0.0005) All items in the above statement are derived from continuing operations. The accompanying notes on pages 50 to 79 form an integral part of the Financial Statements. 46 .  FINANCIAL STATEMENTS Statement of Changes in Shareholders' Equity For the year ended 31 December 2023 Note Share capital (Realisation Shares) Share capital (2021 Shares) Retained earnings (Realisation Shares) Retained earnings (2021 Shares) Total Equity At 1 January 2023 Total comprehensive income: Profit for the year Total comprehensive profit for the year Transactions with Shareholders: Dividends declared during the year Realisation Share redemptions paid during the year Share buy-backs Total transactions with Shareholders At 31 December 2023 4 10 10 US$ US$ US$ US$ US$ 55,251,707 383,148,853 (23,297,298) (152,757,973) 262,345,289 - - - - - - 4,190,991 4,190,991 26,794,126 26,794,126 30,985,117 30,985,117 (4,366,461) (31,300,597) (35,667,058) - (3,255,010) (10,468,165) - (3,255,010) (10,468,165) 51,996,697 372,680,688 - - (4,366,461) (23,472,768) - - (31,300,597) (157,264,444) (3,255,010) (10,468,165) (49,390,233) 243,940,173 Note Share capital (Realisation Shares) US$ Share capital (2021 Shares) US$ Retained earnings (Realisation Shares) US$ Retained earnings (2021 Shares) Total Equity US$ US$ At 1 January 2022 Total comprehensive loss: Loss for the year Total comprehensive loss for the year Transactions with Shareholders: Dividends declared during the year Realisation Share redemptions paid during the year Share buy-backs Total transactions with Shareholders At 31 December 2022 4 10 10 59,251,697 384,339,570 (17,464,727) (113,601,494) 312,525,046 - - - - - - (28,714) (28,714) (658,551) (658,551) (687,265) (687,265) (5,803,857) (38,497,928) (44,301,785) - (3,999,990) (1,190,717) - (3,999,990) (1,190,717) 55,251,707 383,148,853 - - (5,803,857) (23,297,298) - - (38,497,928) (152,757,973) (3,999,990) (1,190,717) (49,492,492) 262,345,289 The accompanying notes on pages 50 to 79 form an integral part of the Financial Statements. 47 .  FINANCIAL STATEMENTS Statement of Financial Position At 31 December 202331 December 202331 December 2022NoteUS$US$AssetsCash and cash equivalents25,170,09327,838,142Other receivables and prepayments12593,446117,989Financial assets at fair value through profit or loss6220,466,340234,984,455Total assets246,229,879262,940,586LiabilitiesTrade and other payables132,289,706112,545Distributions received in advance-482,752Total liabilities2,289,706595,297Net assets243,940,173262,345,289EquityRetained earnings(180,737,212)(176,055,271)Share capital10424,677,385438,400,560Total equity243,940,173262,345,289Net Assets attributable to 2021 Shareholders215,416,244230,390,880Number of 2021 Shares10382,071,610402,709,500Net asset value per 2021 Share0.56380.5721Net Assets attributable to Realisation Shareholders28,523,92931,954,409Number of Realisation Shares1049,906,35855,578,441Net asset value per Realisation Share0.57150.5749Jon BridelRichard BurwoodDirectorChairmanThe accompanying notes on pages 50 to 79 form an integral part of the Financial Statements.TheFinancialStatementsonpages46to79wereapprovedandauthorisedforissuebytheBoardofDirectorson18April 2024 and signed on its behalf by:48 . FINANCIAL STATEMENTS Statement of Cash Flows For the year ended 31 December 2023 Cash flows from operating activities Profit / (loss) for the year Adjustments for: Net gains on financial assets at fair value through profit or loss Net foreign exchange (gains) / losses Increase in receivables and prepayments Increase in trade and other payables Income distributions received from Master Fund II Income distributions received from Master Fund III Capital distributions received from Master Fund II Purchases during the year Net cash flow from operating activities Cash flows from financing activities Realisation Share redemptions paid Share buy-backs Dividends paid during the period Net cash flow used in in financing activities 1 January 2023 to 1 January 2022 to 31 December 2023 31 December 2022 US$ US$ Note 6 6 6 10 10 4 30,985,117 (687,265) (30,987,658) (28,708) (31,249) (23,023) 43,175 6,860,431 42,037,951 370,269 (4,698,064) 44,559,490 (1,155,020) (10,434,169) (35,667,058) (47,256,247) (133,228) 54,217 (766,276) (20,362) 5,199 7,560,302 48,658,678 20,653,039 - 76,090,580 (3,999,990) (1,190,717) (44,301,785) (49,492,492) Net (decrease) / increase in cash and cash equivalents (2,696,757) 26,598,088 Cash and cash equivalents at beginning of year 27,838,142 1,294,271 Effect of foreign exchange rate changes during the year 28,708 (54,217) Cash and cash equivalents at end of year 25,170,093 27,838,142 The accompanying notes on pages 50 to 79 form an integral part of the Financial Statements. 49 .  FINANCIAL STATEMENTS Notes to the Financial Statements For the year ended 31 December 2023 1. GENERAL INFORMATION Fair Oaks Income Limited (the “Company”) was registered in Guernsey under the Companies (Guernsey) Law, 2008 on 7 March 2014. The Company’s registration number is 58123 and it is regulated by the Guernsey Financial Services Commission as a registered closed-ended collective investment scheme under The Registered Collective Investment Scheme Rules and Guidance 2021. The Company began trading on the Specialist Fund Segment (“SFS”) of the London Stock Exchange on 12 June 2014. Reorganisation On 19 April 2021, the Company announced the result of its reorganisation proposal, being that 62,562,883 2017 Shares had been elected for re-designation as Realisation Shares (the “Realisation Shares”), representing 13.4% of the 2017 Shares in issue, and 405,815,477 2017 Shares were re-designated as 2021 Shares (the “2021 Shares”), representing the balance of 86.6% of the 2017 Shares in issue (including 650,000 shares held in Treasury). The Company makes its investments through FOIF II LP (the “Master Fund II”) and FOMC III LP (the “Master Fund III”), in both of which the Company is a limited partner (the “Master Fund II” and the “Master Fund III” together the “Master Funds”). The Master Fund II was registered in Guernsey on 24 February 2017 and the Master Fund III was registered in Guernsey on 10 March 2021 under The Limited Partnerships (Guernsey) Law, 1995. The purpose of the reorganisation was to allow those Shareholders who wished to extend the life of their investment in the Company beyond the planned end date of the Master Fund II, being 21 June 2026, and to be able to do so by having their 2017 Shares re-designated as 2021 Shares. These 2021 Shares investing in the new Master Fund III, which has a planned end date of 12 June 2028 and an investment objective and policy substantially similar to that of Master Fund II. At 31 December 2023, the Company has 49,906,358 Realisation Shares (31 December 2022: 55,578,441 Realisation Shares) and 382,071,610 2021 Shares (31 December 2022: 402,709,500 2021 Shares) in issue. During the period ended 31 December 2023 the Company bought back 20,637,890 2021 shares for US$10,468,165 and redeemed 5,672,083 Realisation Shares for US$3,255,010. The Realisation Shares invest solely into the Master Fund II and the 2021 Shares invest solely into the Master Fund III. At 31 December 2023, the Company had direct holdings of 9.59% (31 December 2022: 9.59%) in the Master Fund II and 95.43% (31 December 2022: 95.32%) holding in Master Fund III, which in turn had a holding of 62.21% (31 December 2022: 62.21%) in the Master Fund II. Together, the Company held a direct and indirect holding of 68.96% (31 December 2022: 68.89%) in the Master Fund II. The Master Funds At 31 December 2023, the Master Fund II had six limited partners (31 December 2022: six limited partners), including Fair Oaks Founder II LP, a related entity. At 31 December 2023, the Master Fund III had three limited partners (31 December 2022: three limited partners), including Fair Oaks Founder VI LP. The General Partner of the Master Fund II and Master Fund III is Fair Oaks Income Fund (GP) Limited (the “General Partner” or “GP”). Cycad and Wollemi The Master Fund II is also invested into Cycad Investments LP (“Cycad”). Cycad is a Limited Partnership registered in the United States of America on 2 June 2017. Aligned with the Company’s investment policy, Cycad also invests into Collateral Loan Obligations (“CLOs”). On 9 March 2021, a new Guernsey limited partnership was established called Wollemi Investments I LP (“Wollemi”) also investing in CLOs. At 31 December 2023, the Master Fund II held 89.43% (31 December 2022: 100.00%) and Master Fund III held 10.57% (31 December 2022: 0.00%) of the commitment capital of Wollemi. Founder Partners Fair Oaks Founder II LP, a Guernsey limited partnership, has been established to act as the Founder Limited Partner of Master Fund II. Fair Oaks Founder VI LP, a Guernsey limited partnership, has been established to act as the Founder Limited Partner of Master Fund III. General Partner The General Partner of the Master Fund II, Master Fund III, Cycad and Wollemi is Fair Oaks Income Fund (GP) Limited (the “General Partner” or “GP”). The Master Funds’ invest in portfolios consisting primarily of CLOs. The Company may also invest in Qualifying Short Term Investments if at any time the Company holds any uninvested cash. With effect from 15 May 2014, Fair Oaks Capital Limited (the “Investment Adviser”) was appointed as the Investment Adviser. 50 .  FINANCIAL STATEMENTS Notes to the Financial Statements For the year ended 31 December 2023 2. PRINCIPAL ACCOUNTING POLICIES Statement of Compliance The Financial Statements, which give a true and fair view, have been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”) and are in compliance with the Companies (Guernsey) Law, 2008 and the Prospectus Rules, the Disclosure Guidance and Transparency Rules and the Market Abuse Directive (as implemented in the UK through the Financial Services and Markets Authority). Basis of Preparation The Company’s Financial Statements have been prepared on a historical cost convention, except for financial assets measured at fair value through profit or loss. The preparation of Financial Statements in conformity with IFRS requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates and judgements are discussed in note 3. The principal accounting policies adopted are set out below. The Directors believe that the Annual Report and Financial Statements contain all of the information required to enable shareholders and potential investors to make an informed appraisal of the investment activities and profit or loss of the Company for the period to which it relates and does not omit any matter or development of significance. As explained below, the Company qualifies as an investment entity and is therefore not permitted to prepare consolidated Financial Statements under IFRS. Going Concern The Directors have assessed the financial position of the Company as at 31 December 2023 and the factors that may impact its performance (including the potential impact on markets and supply chains of geo-political risks such as the current crisis in Ukraine and the Middle East, continuing macro-economic factors and inflation) in the forthcoming year. Russia/Ukraine crisis The Master Funds’ CLO investments do not hold any securities in the Russia/Ukraine region and as such the performance or creditworthiness of the underlying CLOs have not been significantly impacted. Commodity prices due to the invasion of Ukraine (mainly oil/gas, metals and wheat) have impacted some of the companies to which the CLOs have loans but many companies were already subject to input price inflation before the Ukraine invasion and it is not expected that the additional cost inflation will significantly impacted the performance of the CLOs. The Directors with the Company’s Investment Adviser, continue to closely monitor the situation and the resulting disruption to supply chains, particularly with regard to energy prices. Middle East crisis The current conflict in the Middle East region is unlikely to impact the performance or creditworthiness of the underlying CLOs. The impact of further escalations in the area are continuously monitored by the board, especially the possible impact on oil prices and supply chain disruptions. The Investment Adviser continues to carefully monitor the performance of the Master Funds’ investments, working closely with the Directors on current and emerging risks to the Company. Following due consideration and after a review of the Company’s holdings in cash and cash equivalents, investments and a consideration of the income deriving from, and the viability of, the investments in the Master Funds, the Directors believe that it is appropriate to adopt the going concern basis in preparing the Financial Statements, as the Company has adequate financial resources to meet its liabilities as they fall due for at least the 12 month period from the date of the approval of the Financial Statements. 51 .  FINANCIAL STATEMENTS Notes to the Financial Statements For the year ended 31 December 2023 2. PRINCIPAL ACCOUNTING POLICIES (continued) New Accounting Standards and interpretations adopted in the reporting period The following standards and interpretations have been applied where relevant in these Financial Statements: • • IFRS 17 Insurance Contracts. Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 Making Materiality Judgements: Disclosure of Accounting Policies. Amendments to IAS 8 Accounting Policies: Definition of Accounting Estimates. Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction. Amendment to IAS 12 Income Taxes: International Tax Reform – Pillar Two Model Rules. • • • The adoption of these standards has not had a material impact on these Financial Statements of the Company. New Accounting Standards and interpretations applicable to future reporting periods At the date of approval of these Financial Statements, the following standards and interpretations, which have not been applied in these Financial Statements, were in issue but not yet effective: • Amendments to IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non-Current , effective for periods commencing on or after 1 January 2024. Amendments to IFRS 16 Leases: Liability in a Sale and Leaseback , effective for periods commencing on or after 1 January 2024. Amendments to IAS 1 Presentation of Financial Statements: Non-current Liabilities with Covenants , effective for periods commencing on or after 1 January 2024. Amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures: Supplier Finance Arrangements , effective for periods commencing on or after 1 January 2024. Amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates: Lack of Exchangeability , effective for periods commencing on or after 1 January 2025. • • • • These standards, amendments or interpretations are not expected to have a material impact on the entity in the current or future reporting periods or on foreseeable future transactions. Interest income Interest income comprises interest income from cash and cash equivalents. Interest income is recognised on a time- proportionate basis using the effective interest method. Net gains on Financial Assets at Fair Value through Profit or Loss Net gains on financial assets at fair value through profit or loss includes all realised and unrealised fair value changes, foreign exchange gains/(losses) and income and capital distributions received. Net realised (losses)/gains from financial assets at fair value through profit or loss are calculated using the average cost method. Expenses Expenses of the Company are charged through profit or loss in the Statement of Comprehensive Income on an accruals basis. 2021 Shares, Realisation Shares and C Shares The 2021 shares, Realisation shares and C shares (when in issue) of the Company are classified as equity based on the substance of the contractual arrangements and in accordance with the definition of equity instruments under IAS 32. The proceeds from the issue of participating shares are recognised in the Statement of Changes in Shareholders’ Equity, net of incremental issuance costs. 52 .  FINANCIAL STATEMENTS Notes to the Financial Statements For the year ended 31 December 2023 2. PRINCIPAL ACCOUNTING POLICIES (continued) Financial Instruments Financial assets – classification The Company classifies its financial assets and financial liabilities into categories in accordance with IFRS 9. On initial recognition, the Company classifies financial assets as measured at amortised cost or at fair value through profit or loss (“FVTPL”). A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL: • • it is held within a business model whose objective is to hold assets to collect contractual cash flows; and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest (“SPPI”). All other financial assets of the Company are measured at FVTPL. In making an assessment of the objective of the business model in which a financial asset is held, the Company considers all of the relevant information about how the business is managed. The Company has determined that it has two business models. • • Held-to-collect business model: this includes cash and cash equivalents, prepayments and distributions receivable. These financial assets are held to collect contractual cash flow. Other business model: managed and their performance is evaluated, on a fair value basis, with frequent sales taking place. this includes investments in the Master Funds and derivatives. These financial assets are The Investment entities exception to consolidation (“Investment entities exception”) in IFRS 10 ‘Consolidated Financial Statements’ (“IFRS 10”) requires subsidiaries of an investment entity to be accounted for at fair value through profit or loss in accordance with IFRS 9 ‘Financial Instruments’ (“IFRS 9”). Cash comprises current deposits with banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash, are subject to an insignificant risk of changes in value, and are held for the purpose of meeting short-term cash commitments rather than for investments or other purposes. A non-derivative financial asset with fixed or determinable payments could be classified as a loan and receivable unless it was quoted in an active market or was an asset for which the holder may not recover substantially all of its initial investment, other than because of credit deterioration. Financial liabilities – Classification, subsequent measurement and gains and losses Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognised in profit or loss. Other financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognised in profit or loss. Any gain or loss on derecognition is also recognised in profit or loss. Financial liabilities at amortised cost: This includes trade and other payables and distributions received in advance. Financial Assets and Liabilities - recognition, measurement and gains and losses Recognition and initial measurement Financial assets and financial liabilities are measured initially at fair value, being the transaction price, including transaction costs for items that will subsequently be measured at amortised cost, on the trade date. Transaction costs on financial assets at fair value through profit or loss are expensed immediately. 53 .  FINANCIAL STATEMENTS Notes to the Financial Statements For the year ended 31 December 2023 2. PRINCIPAL ACCOUNTING POLICIES (continued) Subsequent measurement After initial measurement, the Company measures financial instruments classified at fair value through profit or loss at their fair values. Changes in fair value are recognised in “Net gains on financial assets at fair value through profit or loss” in the Statement of Comprehensive Income. Derecognition A financial asset is derecognised when the contractual rights to the cash flows from the financial asset expire or it transfers the financial asset and the transfer qualifies for derecognition in accordance with IFRS 9. A financial liability is derecognised when the obligation specified in the contract is discharged, cancelled or expires. Investments in the Master Fund III and the Master Fund II The Board of Directors (the “Board”) has determined that the Company has all the elements of control as prescribed by IFRS 10 in relation to the Master Fund III, and then indirectly the Master Fund II, as the Company is the main limited partner in the Master Fund III and indirectly (via its investment in the Master Fund III) is the main limited partner in the Master Fund II, is exposed and has rights to the returns of the Master Fund III (and indirectly in the Master Fund II) and has the ability either directly, or through the Investment Adviser, to affect the amount of its returns from the Master Fund III (and indirectly in the Master Fund II). The Investment entities exemption requires that an investment entity that has determined that it is a parent under IFRS 10 shall not consolidate certain of its subsidiaries; instead it is required to measure its investment in these subsidiaries at fair value through profit or loss in accordance with IFRS 9. The criteria which defines an investment entity are as follows: • • • An entity has obtained funds from one or more investors for the purpose of providing those investors with investment management services; An entity has committed to its investors that its business purpose is to invest funds solely for the returns from capital appreciation, investment income or both; and An entity measures and evaluates the performance of substantially all of its investments on a fair value basis. The Company provides investment management services and has a number of investors who pool their funds to gain access to these services and investment opportunities that they might not have had access to individually. The Company, being listed on the SFS of the London Stock Exchange, obtains funding from a diverse group of external shareholders. Consideration is also given to the time frame of an investment. An investment entity should not hold its investments indefinitely but should have an exit strategy for their realisation. As both the Master Fund III’s and Master Fund II’s investments have documented maturity/redemption dates or will be sold if other investments with better risk/reward profile are identified, the Board of Directors consider that this demonstrates a clear exit strategy. The Master Fund III and Master Fund II measure and evaluate the performance of substantially all of their investments on a fair value basis. The fair value method is used to represent the Company’s performance in its communication to the market, including investor presentations. In addition, the Company reports fair value information internally to the Board of Directors, who use fair value as a significant measurement attribute to evaluate the performance of its investments and to make investment decisions for mature investments. The Company has determined that the fair value of the Master Fund III is the Master Fund III’s Net Asset Value (“NAV”), and incorporated into the Master Fund III’s NAV is the Master Fund II NAV. The Company also determined that the fair value of the Master Fund II is the Master Fund II’s NAV. The Company, via its investments in the Master Funds, is also invested into Wollemi and Cycad. The Company has determined that the fair value of the Wollemi is the Wollemi’s Net Asset Value (“NAV”), and incorporated into the Wollemi’s NAV is the Cycad NAV. 54 .  FINANCIAL STATEMENTS Notes to the Financial Statements For the year ended 31 December 2023 2. PRINCIPAL ACCOUNTING POLICIES (continued) Investments in the Master Fund III and the Master Fund II (continued) The Company has concluded that the Master Fund III, and then indirectly the Master Fund II, for which the Company’s commitment is detailed further in Note 14, meet the definition of unconsolidated subsidiaries under IFRS 12 ‘Disclosure of Interests in Other Entities’ (“IFRS 12”) and have made the necessary disclosures in notes 5 and 6 of these Financial Statements. Foreign Currency Functional and presentation currency The Board of Directors has determined that the functional currency of the Company is US Dollar. In doing so, they have considered the following factors: that US Dollar is the currency of the primary economic environment of the Company, the currency in which the original finance was raised and distributions will be made, the currency that would be returned if the Company was wound up, and the currency to which the majority of the underlying investments are exposed. The Financial Statements of the Company are presented in US Dollars, which has been selected as the presentation currency of the Company. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Statement of Comprehensive Income. Non-monetary items measured at historical cost are translated using the exchange rates at the date of the transaction (not retranslated). Non-monetary items measured at fair value are translated using the exchange rates at the reporting date when fair value was determined. Dividends Dividends payable to the holders of 2021 Shares and Realisation Shares are recorded through the Statement of Changes in Shareholders’ Equity when they are declared to the respective shareholders. The payment of any dividend by the Company is subject to the satisfaction of a solvency test as required by the Companies (Guernsey) Law, 2008. Segmental Reporting The Board has considered the requirements of IFRS 8 – “Operating Segments”. The Company has entered into an Investment Advisory Agreement with the Investment Adviser under which the Investment Adviser is responsible for the management of the Company’s investment portfolio, subject to the overall supervision of the Board of Directors. Subject to its terms and conditions, the Investment Advisory Agreement requires the Investment Adviser to manage the Company’s investment portfolio in accordance with the Company’s investment guidelines as in effect from time to time, including the authority to purchase and sell securities and other investments and to carry out other actions as appropriate to give effect thereto. However, the Board retains full responsibility to ensure that the Investment Adviser adheres to its mandate. Moreover, the Board is fully responsible for the appointment and/or removal of the Investment Adviser. Accordingly, the Board is deemed to be the “Chief Operating Decision Maker” of the Company. In the Board of Directors’ opinion, the Company is engaged in a single segment of business, being investments into the Master Fund II and the Master Fund III, which are Guernsey registered limited partnerships. Segment information is measured on the same basis as that used in the preparation of the Company’s Financial Statements. The Company receives no revenues from external customers, nor holds any non-current assets, in any geographical area other than Guernsey. 55 .  FINANCIAL STATEMENTS Notes to the Financial Statements For the year ended 31 December 2023 3. USE OF JUDGEMENTS AND ESTIMATES The preparation of Financial Statements in accordance with IFRS requires the Board of Directors to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets, liabilities, income and expenses, disclosure of contingent assets and liabilities at the date of the Financial Statements and income and expenses during the year. The estimates and associated assumptions are based on various factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The principal estimates and judgements made by the Board are as follows: Judgements Investment Entity In accordance with the Investment Entities exemption contained in IFRS 10, the Board has determined that the Company satisfies the criteria to be regarded as an investment entity and as a result measures its investments in the Master Fund III and Master Fund II at fair value. This determination involves a degree of judgement (see note 2). Estimates Fair Value The Company records its investments in the Master Fund III and the Master Fund II at fair value. Fair value is determined as the Company’s share of the NAV of the investment. This share is net of any notional carried interest due to Fair Oaks Founder VI LP (the “Founder Partner VI”), the Founder Partner of Master Fund III and Fair Oaks Founder II LP (the “Founder Partner II”), the Founder Partner of Master Fund II. The Investment Adviser has reviewed the NAV of the investment and determined that no adjustments regarding liquidity discounts were required. 4. DIVIDENDS The Company’s policy is to declare dividends to 2021 and Realisation shareholders as follows: 2021 Shares The Board intends to pay quarterly dividends to holders of 2021 Shares representing an amount in aggregate at least equal to the gross income received by the Company from investments in the relevant financial year that are attributable to the 2021 Shares’ interest in Master Fund III and qualifying short term investments, less a proportionate share of the expenses of the Company. Realisation Shares The Company intends to pay dividends to holders of Realisation Shares representing an amount in aggregate at least equal to the gross income from investments received by the Company in the relevant financial period attributable to the Realisation Shares’ interest in Master Fund II and qualifying short term Investments, less expenses of the Company. The Company declared the following dividends per 2021 Share during the year ended 31 December 2023: Period to 31 December 2022 31 March 2023 30 June 2023 30 September 2023 Payment date 31 March 2023 30 June 2023 21 September 2023 15 December 2023 Net dividend Dividend rate payable per 2021 Share (US$) (cents) 7,999,885 2.0 7,841,901 2.0 7,767,875 2.0 2.0 7,690,936 8.0 31,300,597 Record date 3 March 2023 2 June 2023 25 August 2023 17 November 2023 Ex-dividend date 2 March 2023 1 June 2023 24 August 2023 16 November 2023 56 .  FINANCIAL STATEMENTS Notes to the Financial Statements For the year ended 31 December 2023 4. DIVIDENDS (continued) The Company declared the following dividends per Realisation Share during the year ended 31 December 2023: Period to 31 December 2022 31 March 2023 30 June 2023 30 September 2023 Payment date 31 March 2023 30 June 2023 21 September 2023 15 December 2023 Dividend rate per Realisation Share (cents) 2.0 2.0 2.0 2.0 8.0 Net dividend payable (US$) 1,111,656 1,111,569 1,071,618 1,071,618 4,366,461 Record date 3 March 2023 2 June 2023 25 August 2023 17 November 2023 Ex-dividend date 2 March 2023 1 June 2023 24 August 2023 16 November 2023 The Company declared the following dividends per 2021 Share during the year ended 31 December 2022: Period to 31 December 2021 31 March 2022 30 June 2022 30 September 2022 Payment date 18 March 2022 25 July 2022 15 September 2022 9 December 2022 Dividend rate per 2021 Share (cents) 2.5 2.5 2.5 2.0 9.5 Net dividend payable (US$) 10,059,716 10,103,277 10,112,955 8,221,980 38,497,928 Record date 18 February 2022 24 June 2022 19 August 2022 11 November 2022 Ex-dividend date 17 February 2022 23 June 2022 18 August 2022 10 November 2022 The Company declared the following dividends per Realisation Share during the year ended 31 December 2022: Period to 31 December 2021 31 March 2022 30 June 2022 30 September 2022 Payment date 18 March 2022 25 July 2022 15 September 2022 9 December 2022 Dividend rate per Realisation Share (cents) 2.5 2.5 2.5 2.0 9.5 Net dividend payable (US$) 1,564,070 1,564,221 1,563,990 1,111,576 5,803,857 Record date 18 February 2022 24 June 2022 19 August 2022 11 November 2022 Ex-dividend date 17 February 2022 23 June 2022 18 August 2022 10 November 2022 At 31 December 2023, the Company’s retained earnings include unrealised losses of US$192,233,945 (31 December 2022: US$173,388,035) (see note 6). Gross income from investments excludes these unrealised losses which are capital in nature. The default currency payment for dividends is US Dollars. However, shareholders can elect to receive their dividends in British Pounds Sterling (“Sterling”) by registering under the Company’s Dividend Currency Election. The rate per 2021 Share and Realisation Share to be used to pay shareholders who elected to receive their dividend in Sterling will be announced on the London Stock Exchange each month prior to the payment date. Under Guernsey law, companies can pay dividends in excess of accounting profit provided they satisfy the solvency test prescribed by the Companies (Guernsey) Law, 2008. The solvency test considers whether a company is able to pay its debts when they fall due, and whether the value of a company’s assets is greater than its liabilities. The Company passed the solvency test for each dividend paid. Total dividends payable as at 31 December 2023 were US$nil (31 December 2022: US$nil). 57 .  FINANCIAL STATEMENTS Notes to the Financial Statements For the year ended 31 December 2023 5. FINANCIAL RISK MANAGEMENT The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Company’s risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies are reviewed regularly to reflect changes in market conditions and the Company’s activities. Below is a non-exhaustive summary of the risks that the Company is exposed to as a result of its use of financial instruments: Market Risk Market risk is the risk of changes in market prices, such as foreign exchange rates, interest rates and equity prices, affecting the Company’s income and/or the value of its holdings in financial instruments. The Company’s exposure to market risk comes mainly from movements in the value of its investments in the Master Funds and on a look-through basis to the underlying loans in each CLO. Changes in credit spreads may further affect the Company’s net equity or net income directly through their impact on unrealised gains or losses on investments within the Master Funds and on a look-through basis to the underlying loans in each CLO. The objective of market risk management is to manage and control market risk exposures within acceptable parameters while optimising the return on investments. The Company’s strategy for the management of market risk mirrors the strategy of the Master Funds, driven by their investment objective to generate attractive, risk-adjusted returns, principally through income distributions, by seeking exposure to US and European CLOs or other vehicles and structures which provide exposure to portfolios consisting primarily of US and European floating rate senior secured loans and which may include non- recourse financing. The Company’s market risk is managed on a daily basis by the Investment Adviser in accordance with policies and procedures in place. The Company intends to mitigate market risk generally by not making investments that would cause it to have exposure to a single corporate issuer exceeding 5% of the Master Funds’ aggregate gross assets at the time of investment. Special Purpose Vehicles such as CLOs are not considered corporate issuers. The Company’s market positions are monitored on a quarterly basis by the Board of Directors. Interest Rate Risk The Company is exposed to interest rate risk through the investments held by the Master Funds and on a look-through basis to the underlying assets in the CLOs. Interest receivable by the Company 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. A majority of the Company’s financial assets comprise investments into the Master Fund II and the Master Fund III, which invest in income notes: Equity Subordinated and Mezzanine tranches of cash flow CLOs. The Master Fund II’s exposure, and the Master Fund III’s exposure through its direct CLO investments and via its investment in the Master Fund II, to interest rate risk is significantly mitigated by the fact that the majority of the underlying loans in each CLO bear interest at floating Euribor/ Term SOFR-based rates. Interest rate benchmark reform A fundamental reform of major interest rate benchmarks has been taking place globally. The reform aimed to replace some interbank offered rates (IBORs) with alternative nearly risk-free rates (referred to as “IBOR reform”). The Master Funds exposure to IBOR reform was through its investment in USD CLOs which held loans referenced to USD LIBOR with one- month and three- month settings and have rated liabilities referenced to USD LIBOR with three-month settings. These settings ceased to be provided after 30 June 2023 as announced by the Financial Conduct Authority (“FCA”) and the alternative reference rate for US dollar LIBOR is the Secured Overnight Financing Rate (“SOFR”). All USD CLO's had SOFR reference rates at year end. 58 .  FINANCIAL STATEMENTS Notes to the Financial Statements For the year ended 31 December 2023 5. FINANCIAL RISK MANAGEMENT (continued) Market Risk (continued) Interest Rate Risk (continued) The following table shows the portfolio profile of the master funds at 31 December 2023 and 31 December 2022: 31 December 2023 31 December 2022 Master Fund III¹ US$ Master Fund II² US$ Master Fund III¹ US$ Master Fund II² US$ Investments with exposure to a floating interest rate Financial assets at fair value through profit or loss 185,709,674 27,512,041 192,392,616 29,816,827 185,709,674 27,512,041 192,392,616 29,816,827 The following table shows the Board of Directors’ best estimate of the Company’s share of the sensitivity of the portfolio of the Master Funds to stressed changes in interest rates, with all other variables held constant. The table assumes parallel shifts in the respective forward yield curves. Possible reasonable change in rate 31 December 2023 effect on net assets and profit or loss US$ Possible reasonable change in rate 31 December 2022 effect on net assets and profit or loss US$ -1% 1% (706,011) 706,115 -1% 1% (980,929) 983,637 Currency risk The Company is exposed to very limited currency risk, as the majority of its assets and liabilities are denominated in US Dollars. The Company is exposed indirectly to currency risk through its investments into the Master Funds. The Master Funds’ portfolios are denominated in US Dollar and Euro. Accordingly, the value of such assets may be affected, favourably or unfavourably, by fluctuations in currency rates which, if unhedged, could have the potential to have a significant effect on returns. To reduce the impact of currency fluctuations and the volatility of returns which may result from currency exposure, the Investment Adviser hedges any significant currency exposure of the assets of the Master Funds. 1 Shows the Company’s proportionate direct share in the Master Fund III at 95.43% (31 December 2022: 95.32%) through 2021 Shares investment only on a whole look-through portfolio basis. 2 Shows the Company’s proportionate direct share in the Master Fund II at 9.59% (31 December 2022: 9.59%) through Realisation Shares investment only on a whole look-through portfolio basis. 59 .  FINANCIAL STATEMENTS Notes to the Financial Statements For the year ended 31 December 2023 5. FINANCIAL RISK MANAGEMENT (continued) Market Risk (continued) Currency risk (continued) The Company’s share of the Master Funds’ total net foreign currency exposure at the year end was as follows: EUR Exposure Cash and cash equivalents Other receivables Trade and other payables Derivatives at fair value through profit or loss Financial assets at fair value through profit and loss 31 December 2023 31 December 2022 Master Fund III¹ US$ Master Fund II² US$ Master Fund III¹ US$ Master Fund II² US$ 49,899 - - 7,131 - - 31,424 3,349,510 (8,170) 5,082 541,683 (1,321) (74,537,298) (12,044,451) (72,206,685) (11,677,270) 87,889,988 11,872,110 77,033,839 12,247,884 Net EUR Exposure 13,402,589 (165,210) 8,199,918 1,116,058 GBP Exposure Cash and cash equivalents Trade and other payables Net GBP Exposure 31 December 2023 31 December 2022 Master Fund III¹ US$ Master Fund II² US$ Master Fund III¹ US$ Master Fund II² US$ 676,139 (154,302) 521,837 109,256 (10,601) 98,655 8,232 (152,270) (144,038) - (17,252) (17,252) NET EXPOSURE 13,924,426 (66,555) 8,055,880 1,098,806 EUR / US Dollar GBP / US Dollar EUR / US Dollar GBP / US Dollar Possible change in exchange rate +/-10% +/-10% Possible change in exchange rate +/-20% +/-30% 31 December 2023 net exposure US$ 13,237,379 620,492 31 December 2022 net exposure US$ 9,315,975 (161,291) 31 December 2023 effect on net assets and profit or loss US$ (-/+) 1,323,738 (-/+) 62,049 31 December 2022 effect on net assets and profit or loss US$ (-/+) 1,863,195 (-/+) 48,387 The sensitivity rate of 10% (31 December 2022: 20%) is regarded as reasonable due to the actual volatility over the last year of US Dollar against Euro. The sensitivity rate of 10% (31 December 2022: 30%) is regarded as reasonable due to the actual volatility over the last year of US Dollar against Sterling. 1. Shows the Company’s 2021 Shares proportionate share in the Master Fund III at 95.43% (31 December 2022: 95.32%). 2. Shows the Company’s proportionate direct share in the Master Fund II at 9.59% through Realisation Shares investment only. 60 .  FINANCIAL STATEMENTS Notes to the Financial Statements For the year ended 31 December 2023 5. FINANCIAL RISK MANAGEMENT (continued) Market Risk (continued) Other price risks There is a risk that the fair value of future cash flows, on a look-through basis to the underlying CLOs, will fluctuate due to changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market. The Board of Directors does not believe that the returns on investments are correlated to any specific index or other price variable. If the value of the Company’s investment in the Master Fund III were to increase or decrease by 25% (31 December 2022: 25%), the impact on the NAV of the Company would be +/- US$48,117,048 (31 December 2022: US$50,909,485). If the value of the Company’s investment in the Master Fund II were to increase or decrease by 25% (31 December 2022: 10%), the impact on the NAV of the Company would be +/- US$6,737,592 (31 December 2022: US$7,836,629). At 31 December 2023, the sensitivity rate of 25% (31 December 2022: 25%) is regarded as reasonable due to the actual market price volatility experienced on the Master Funds’ CLO investments during the year. Credit and Counterparty Risk Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company, the Master Fund III, Master Fund II or a vehicle in which the Master Fund III or Master Fund II invests, resulting in a financial loss to the Company. Credit risk arises principally from debt securities held, and also from derivative financial assets and cash and cash equivalents. For risk management reporting purposes, the Company considers and aggregates all elements of credit risk exposure (such as individual obligation default risk, country risk and sector risk). The Company’s policy on credit risk mirrors that of the Master Fund III and the Master Fund II, which is to minimise its exposure to counterparties with perceived higher risk of default by dealing only with counterparties that meet the credit standards set out in the Company’s prospectus, and by taking collateral. The table below analyses the Company’s maximum exposure to credit risk in relation to the components of the Statement of Financial Position. Cash and cash equivalents Other Receivables (excluding prepayments) Financial assets at fair value through profit or loss 31 December 2023 US$ 31 December 2022 US$ 25,170,093 572,922 220,466,340 246,209,355 27,838,142 94,520 234,984,455 262,917,117 At 31 December 2023, there were no financial assets past due or impaired (31 December 2022: none). At 31 December 2023, the cash and cash equivalents and other assets of the Company, excluding its investments into the Master Fund III and Master Fund II, and substantially all of the assets of the Master Fund II are held by BNP Paribas Securities Services S.C.A. (the “Custodian”). The cash and substantially all of the assets of the Master Fund III are held by U.S. Bank Global Corporate Trust Services, UK Branch (the “US Bank”). Bankruptcy or insolvency of the Custodian or US Bank may cause the Company’s rights with respect to securities held by the Custodian or US Bank to be delayed or limited. This risk is managed by monitoring the credit quality and financial positions of the Custodian or US Bank. The long-term rating of the Custodian as at 31 December 2023 was A2 as rated by Moody’s (31 December 2022: Aa3) and A+ by Standard & Poor’s (31 December 2022: A+). The long-term rating of US Bank as at 31 December 2023 was A2 (31 December 2022: A1) as rated by Moody’s and A+ (31 December 2022: AA-) by Standard & Poor’s. 61 .  FINANCIAL STATEMENTS Notes to the Financial Statements For the year ended 31 December 2023 5. FINANCIAL RISK MANAGEMENT (continued) Credit and Counterparty Risk (continued) Credit risk is assessed from time to time by the Investment Adviser on a look-through basis to the underlying loans in each CLO. The Investment Adviser seeks to manage this risk by providing diversification in terms of underlying assets, issuer section, geography and maturity profile. The Master Funds concentration of credit risk by industry for the CLO investments, on a look-through basis, as at 31 December 2023 and 31 December 2022 are summarised in the table below. The Company’s credit risk is monitored on a quarterly basis by the Board of Directors. The Master Funds have diversified their exposure to industry sectors. The top 10 are as follows: Industry ¹ Healthcare & Pharmaceuticals High Tech Industries Services: Business Banking, Finance, Insurance & Real Estate Telecommunications Services: Consumer Construction & Building Chemicals, Plastics & Rubber Beverage, Food & Tobacco Hotel, Gaming & Leisure 31 December 2023 % 31 December 2022 % 12.3 13.0 9.2 8.9 8.9 9.1 7.0 6.9 5.5 5.7 5.0 5.0 4.7 5.0 4.6 4.2 4.4 4.6 3.8 3.9 66.3 65.4 The Master Funds’ exposure to credit risk relating to the underlying CLO investments based on the country of registration (not necessarily asset class exposure) as at 31 December 2023 and 31 December 2022 is summarised below. The Master Funds’ exposure to credit risk, also summarised below, relates to its directly held CLO investments as well as Wollemi held CLO investments based on the country of exposure of the CLO investments and the Limited Partnerships as at 31 December 2023 and 31 December 2022. United States of America Europe Financial assets at fair value through profit or loss 31 December 2023 31 December 2022 Master Fund III² US$ Master Fund II³ US$ Master Fund III² US$ Master Fund II³ US$ 105,173,410 84,854,252 16,594,561 11,448,838 119,040,026 75,347,811 18,966,419 11,975,194 190,027,662 28,043,399 194,387,837 30,941,613 1. Shows the Company’s exposure in the underlying CLO investments through its investments in the Master Funds. Source: CLO trustee reports. Based on the Master Funds’ exposure and weighted by CLO size and Master Funds’ equity ownership percentage. 2. Shows the Company’s 2021 Shares proportionate share in the Master Fund III at 95.43% (31 December 2022: 95.32%) on a whole look through basis. 3. Shows the Company’s proportionate direct share in the Master Fund II at 9.59% through Realisation Shares investment only on a whole look-through basis. 62 .  FINANCIAL STATEMENTS Notes to the Financial Statements For the year ended 31 December 2023 5. FINANCIAL RISK MANAGEMENT (continued) Credit and Counterparty Risk (continued) The geographical breakdown of the underlying CLO investments is as follows: Country United States of America France United Kingdom Netherlands Germany Spain Switzerland Luxembourg Canada Italy Other Total 31 December 2023 Master Funds¹ % 31 December 2022 Master Funds¹ % 65.7 68.9 8.7 7.8 6.2 6.2 4.1 3.8 3.3 3.4 2.3 1.7 1.6 1.0 1.5 1.8 1.3 1.3 1.2 1.0 4.1 3.1 100 100 The table below summarises the Master Funds’ underlying portfolio concentrations as of 31 December 2023 and 31 December 2022: 31 December 2023 Master Funds 31 December 2022 Master Funds Maximum portfolio holdings of a single asset % of total portfolio Average portfolio holdings % of total portfolio 8.63% 7.11% 2.32% 2.11% The tables below summarises the Master Funds’ portfolio by asset class and portfolio ratings as at 31 December 2023 and 31 December 2022: By asset class Equity Subordinated CLO notes Mezzanine CLO notes Limited Partnerships Financial assets at fair value through profit or loss 31 December 2023 31 December 2022 Master Fund III² US$ Master Fund II³ US$ Master Fund III² US$ Master Fund II³ US$ 156,452,272 30,497,949 3,077,441 23,344,681 4,280,957 417,761 159,324,401 30,863,000 4,200,436 25,765,897 4,496,423 679,293 190,027,662 28,043,399 194,387,837 30,941,613 1. Shows the Company’s exposure in the underlying CLO investments through its investments in the Master Funds. 2. Shows the Company’s 2021 Shares proportionate share in the Master Fund III at 95.43% (31 December 2022: 95.32%) on a whole look through basis. 3. Shows the Company’s proportionate direct share in the Master Fund II at 9.59% through Realisation Shares investment only on a whole look-through basis. 63 .  FINANCIAL STATEMENTS Notes to the Financial Statements For the year ended 31 December 2023 5. FINANCIAL RISK MANAGEMENT (continued) Credit and Counterparty Risk (continued) The breakdown of the underlying CLO investments by rating is as follows: B B- B+ BB- BB CCC+ BB+ CCC BBB- CC CCC- NA Other Total 31 December 2023 Master Funds¹ % 31 December 2022 Master Funds¹ % 30.4 23.7 17.3 9.9 7.0 4.5 2.4 1.5 1.1 0.6 0.3 0.8 0.5 100 34.4 25.6 15.4 8.7 6.8 3.8 3.1 1.0 0.5 0.0 0.3 0.4 0.0 100 Activities undertaken by the Company, Master Fund III and Master Fund II may give rise to settlement risk. Settlement risk is the risk of loss due to the failure of a counterparty to honour its obligations to deliver cash, securities or other assets as contractually agreed. For the majority of transactions, settlement risk is mitigated by conducting settlements through a broker to ensure that a trade is settled only when both parties have fulfilled their contractual settlement obligations. Settlement limits form part of the credit approval and limit monitoring processes. Liquidity Risk Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s policy and the Investment Adviser’s approach to managing liquidity is to ensure, as far as possible, that the Company will always have sufficient liquidity to meet its liabilities when due, under both normal and stress conditions, including estimated redemptions of shares, without incurring unacceptable losses or risking damage to the Company’s reputation. The Company’s liquidity risk is managed on a daily basis by the Investment Adviser on a look-through basis to the underlying loans in each CLO. The Investment Adviser monitors and considers the Company’s and the Master Funds cash balances, projected expenses and projected income from investments when making any new investment recommendations. Given the Company’s permanent capital structure as a closed-ended fund, it is not exposed to redemption risk. However, the Company’s financial investments in CLOs, and may include over-the-counter derivative contracts, which are not traded in an organised public market and which may be illiquid. instruments include indirect The Company’s overall liquidity risk is monitored on a quarterly basis by the Board of Directors. Shareholders have no right of redemption and must rely, in part, on the existence of a liquid market in order to realise their investment. All liabilities of the Company are due within one financial year. 1. Shows the Master Funds’ exposure in the underlying CLO investments via the Company’s Master Fund III share through the 2021 Shares and direct share through the Realisation Shares. 64 .  FINANCIAL STATEMENTS Notes to the Financial Statements For the year ended 31 December 2023 5. FINANCIAL RISK MANAGEMENT (continued) Operational Risk Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the processes, technology and infrastructure supporting the Company’s activities relating to financial instruments, either internally or on the part of service providers, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of investment management behaviour. Operational risk is managed so as to balance the limiting of financial losses and damage to its reputation with achieving its investment objective of generating returns to investors. The primary responsibility for the development and implementation of controls over operational risk rests with the Board of Directors. This responsibility is supported by the development of overall standards for the management of operational risk, which encompasses the controls and processes at the service providers and the establishment of service levels with the service providers. The Board of Directors’ assessment of the adequacy of the controls and processes in place at the service providers with respect to operational risk is carried out via regular discussions with the service providers and a review of the service providers’ Service Organisation Controls (“SOC”) 1 reports on internal controls, if available. Substantially all of the assets of the Company and Master Fund II are held by BNP Paribas Securities Services S.C.A., Guernsey Branch, in its capacity as the Custodian. Master Fund III assets are held in custody by U.S. Bank Global Corporate Trust Services, UK Branch (together the “Custodians”). The bankruptcy or insolvency of the Custodians may cause the Company’s rights with respect to the securities held by the Custodians to be limited. The Investment Adviser monitors the credit ratings and capital adequacy of the Custodians on a quarterly basis, and reviews the findings documented in the SOC 1 report on the internal controls annually. Capital Management The Board of Director’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of is represented by the 2021 Shares and Realisation Shares. Capital is managed in accordance with the investment policy, in pursuit of its investment objectives. the Company. The Company’s capital 6. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS 1 January 2023 to 31 December 2023 Realisation Shares US$ 2021 Shares US$ Total Company US$ Cost of financial assets at fair value through profit or loss at the start of the year Capital distributions received from Master Fund III / Master Fund II Drawdowns paid to Master Fund III / Master Fund II Cost of financial assets at fair value through profit or loss at the end of the year Net unrealised losses on financial assets at the end of the year Financial assets at fair value through profit or loss at the end of the period Movement in net unrealised loss during the year Income distributions declared by Master Fund II Income distributions declared by Master Fund III Net gains on financial assets at fair value through profit or loss 353,769,725 54,602,765 408,372,490 - (370,269) (370,269) 4,698,064 - 4,698,064 358,467,789 54,232,496 412,700,285 (165,999,600) (26,234,345) (192,233,945) 192,468,189 27,998,151 220,466,340 (15,867,814) - 42,552,686 (2,978,096) 7,280,882 - (18,845,910) 7,280,882 42,552,686 26,684,872 4,302,786 30,987,658 65 .  FINANCIAL STATEMENTS Notes to the Financial Statements For the year ended 31 December 2023 6. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED) 1 January 2022 to 31 December 2022 Realisation Shares 2021 Shares Total Company Cost of financial assets at fair value through profit or loss at the start of the year Capital distributions received from Master Fund III / Master Fund II Cost of financial assets at fair value through profit or loss at the end of the year Net unrealised losses on financial assets at the end of the year Financial assets at fair value through profit or loss at the end of the period Movement in net unrealised loss during the year Income distributions declared by Master Fund II Income distributions declared by Master Fund III Net losses on financial assets at fair value through profit or loss US$ US$ US$ 371,719,138 57,306,391 429,025,529 (17,949,413) (2,703,626) (20,653,039) 353,769,725 54,602,765 408,372,490 (150,131,786) (23,256,249) (173,388,035) 203,637,939 31,346,516 234,984,455 (48,296,982) - 48,354,429 (7,764,727) 7,840,508 - (56,061,709) 7,840,508 48,354,429 57,447 75,781 133,228 As at 31 December 2023, the Company had a 95.43% holding of the limited partnership interests in the Master Fund III on behalf of the 2021 Shares, which in turn had a holding of 62.21% in the Master Fund II and 10.57% in Wollemi (31 December 2022: 0%). The Company also retained a direct holding of 9.59% in the Master Fund II on behalf of the Realisation Shares. Look-through financial information: Master Funds’ Financial Position The following tables reconcile the Company’s proportionate share of the Master Fund III’s and Master Fund II’s financial assets at fair value through profit or loss to the Company’s financial assets at fair value through profit or loss: Financial assets at fair value through profit or loss Add: Other net current assets Master Fund III¹ US$ 189,698,427 2,769,762 31 December 2023 Master Fund II² US$ 28,053,512 (55,361) Total Company US$ 217,751,939 2,714,401 Total financial assets at fair value through profit or loss 192,468,189 27,998,151 220,466,340 Financial assets at fair value through profit or loss Add: Other net current assets Master Fund III¹ US$ 196,833,730 6,804,209 31 December 2022 Master Fund II² US$ 30,535,043 811,473 Total Company US$ 227,368,773 7,615,682 Total financial assets at fair value through profit or loss 203,637,939 31,346,516 234,984,455 1 Shows the Company’s proportionate direct share in the Master Fund III at 95.43% (31 December 2022: 95.32%) through 2021 Shares investment only. 2 Shows the Company’s proportionate direct share in the Master Fund II at 9.59% (31 December 2022: 9.59%) through Realisation Shares investment only. 66 .  FINANCIAL STATEMENTS Notes to the Financial Statements For the year ended 31 December 2023 6. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED) Look-through financial information: Master Funds’ profit or loss movements The Company’s proportionate share of the unrealised losses on investments in the year comprises the following movements within the underlying investments: Net unrealised losses on investments at the beginning of the year Investment income Income distributions declared by Master Fund II Unrealised losses on financial assets at fair value through profit or loss Net loss on derivative financial instruments and foreign exchange Other income Expenses Income distributions declared during the year Net unrealised losses on investments at the end of the year Net unrealised losses on investments at the beginning of the year Investment income Income distributions declared by Master Fund II Unrealised losses on financial assets at fair value through profit or loss Net gains on derivative financial instruments and foreign exchange Other income Expenses Income distributions declared during the year Net unrealised losses on investments at the end of the year 1 January 2023 to 31 December 2023 Master Fund III¹ US$ Master Fund II² US$ Total Company US$ (150,131,786) (23,256,249) (173,388,035) 366,665 45,125,393 3,291,631 - 3,658,296 45,125,393 (18,455,519) 1,386,003 (17,069,516) (30,137) (208,153) (238,290) 5,736 (283,659) (42,596,293) 77,939 (271,879) (7,253,637) 83,675 (555,538) (49,849,930) (165,999,600) (26,234,345) (192,233,945) 1 January 2022 to 31 December 2022 Master Fund III¹ US$ Master Fund II² US$ Total Company US$ (101,834,804) (15,491,522) (117,326,326) - 43,210,172 8,596,828 - 8,596,828 43,210,172 (42,452,889) (9,173,928) (51,626,817) 5,218 922,785 928,003 5,183 (253,432) (48,811,234) 70,713 (340,617) (7,840,508) 75,896 (594,049) (56,651,742) (150,131,786) (23,256,249) (173,388,035) 1 Shows the Company’s proportionate direct share in the Master Fund III at 95.43% (31 December 2022: 95.32%) through 2021 Shares investment only. 2 Shows the Company’s proportionate direct share in the Master Fund II at 9.59% (31 December 2022: 9.59%) through Realisation Shares investment only. 67 .  FINANCIAL STATEMENTS Notes to the Financial Statements For the year ended 31 December 2023 6. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED) IFRS 13 requires that a fair value hierarchy be established that prioritises the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under IFRS 13 are set as follows: • Level 1: inputs that are quoted market prices (unadjusted) in active markets for identical instruments; • Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted for identical or similar instruments in markets that are considered less than active; or other valuation techniques in which all significant inputs are directly or indirectly observable from market data. • Level 3: Inputs that are unobservable. This category includes all instruments for which the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments but for which significant unobservable adjustments or assumptions are required to reflect differences between the instruments. The level in the fair value hierarchy within which the fair value measurement is categorised is determined on the basis of the lowest level input that is significant to the fair value measurement. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement requires judgement, considering factors specific to the asset or liability. The determination of what constitutes ‘observable’ requires significant judgement. Observable data is considered to be that market data that is readily available, regularly distributed or updated, reliable, not proprietary, and provided by independent sources that are actively involved in the relevant market. The following table analyses within the fair value hierarchy the Company’s financial assets (by class, excluding cash and cash equivalents, prepayments, distribution receivable, dividends payable and other payables) measured at fair value: Assets: Financial assets at fair value through profit or loss Total 31 December 2023 Level 1 US$ Level 2 US$ Level 3 US$ Total US$ - - - - 220,466,340 220,466,340 220,466,340 220,466,340 31 December 2022 Level 1 US$ Level 2 US$ Level 3 US$ Total US$ Assets: Financial assets at fair value through profit or loss Total - - - - 234,984,455 234,984,455 234,984,455 234,984,455 The investments in the Master Fund III and Master Fund II, which are fair valued at each reporting date, have been classified within Level 3 as they are not traded and contain unobservable inputs. 68 .  FINANCIAL STATEMENTS Notes to the Financial Statements For the year ended 31 December 2023 6. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED) The following table presents the movement in Level 3 instruments: Opening Balance Return of capital from Master Funds Drawdown paid to Master Funds Movement in net unrealised loss during the year Closing Balance 1 January 2023 to 31 December 2023 US$ 1 January 2022 to 31 December 2022 US$ 234,984,455 (370,269) 4,698,064 (18,845,910) 220,466,340 311,699,203 (20,653,039) - (56,061,709) 234,984,455 Transfers between Level 1, 2 and 3 There have been no transfers between levels during the period ended 31 December 2023 or for the year ended 31 December 2022. Transfers between levels of the fair value hierarchy are recognised as at the end of the reporting period during which the change has occurred. Look-through financial information: Master Fund III and Master Fund II fair value hierarchy information On a look-through basis, the following table analyses within the fair value hierarchy the Company’s proportionate share of the Master Fund III’s and the Master Fund II’s financial assets and derivatives (by class, excluding cash and cash equivalents, other receivables and prepayments, distribution payable, carried interest payable and trade and other payables) measured at fair value: Master Fund III¹ Financial assets at fair value through profit or loss Total Master Fund III¹ Financial assets at fair value through profit or loss Total Master Fund II² Financial assets at fair value through profit or loss Derivatives at fair value through profit or loss Total 31 December 2023 Level 1 US$ Level 2 US$ Level 3 US$ Total US$ - - 3,446,225 3,446,225 186,252,202 186,252,202 189,698,427 189,698,427 31 December 2022 Level 1 US$ Level 2 US$ Level 3 US$ Total US$ - - 3,059,201 3,059,201 193,774,529 193,774,529 196,833,730 196,833,730 Level 1 US$ Level 2 US$ Level 3 US$ 31 December 2023 Total US$ - - - 612,985 27,440,527 28,053,512 (346,858) 266,127 - 27,440,527 (346,858) 27,706,654 1 Shows the Company’s proportionate direct share in the Master Fund III at 95.43% (31 December 2022: 95.32%) through 2021 Shares investment only. 2 Shows the Company’s proportionate direct share in the Master Fund II at 9.59% (31 December 2022: 9.59%) through Realisation Shares investment only. 69 .  FINANCIAL STATEMENTS Notes to the Financial Statements For the year ended 31 December 2023 6. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED) 31 December 2022 Level 1 US$ Level 2 US$ Level 3 US$ Total US$ Master Fund II² Financial assets at fair value through profit or loss Derivatives at fair value through profit or loss Total - - - 471,980 30,063,063 30,535,043 (535,493) (63,513) - 30,063,063 (535,493) 29,999,550 The following table summarises the valuation methodologies used for the Company’s investments categorised in Level 3 as at 31 December 2023: Security Master Fund III¹ Master Fund II² Fair Value US$ methodology Unobservable inputs Ranges Valuation 192,468,189 27,998,151 220,466,340 NAV NAV Zero % discount Zero % discount N/A N/A The following table summarises the valuation methodologies used for the Company’s investments categorised in Level 3 as at 31 December 2022: Security Master Fund III¹ Master Fund II² Fair Value US$ methodology Unobservable inputs Ranges Valuation 203,637,939 31,346,516 234,984,455 NAV NAV Zero % discount Zero % discount N/A N/A 1 Shows the Company’s proportionate direct share in the Master Fund III at 95.43% (31 December 2022: 95.32%) through 2021 Shares investment only. 2 Shows the Company’s proportionate direct share in the Master Fund II at 9.59% (31 December 2022: 9.59%) through Realisation Shares investment only. 70 .  FINANCIAL STATEMENTS Notes to the Financial Statements For the year ended 31 December 2023 6. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED) Look-through financial information: Master Funds’ Level 3 information The Master Funds have engaged an independent third party to provide valuations for its CLO investments. The following table summarises, in the Company’s opinion, the valuation methodologies used by the independent third party to value the Master Funds' investments categorised in Level 3 as at 31 December 2023: Fair Value US$ Unobservable inputs Ranges Average Asset Class Master Fund III ¹ Limited Partnerships Master Fund II 173,265,587 Zero % discount Wollemi 12,986,615 186,252,202 Zero % discount N/A N/A N/A N/A Sensitivity to changes in significant unobservable inputs 25% increase/decrease will have a fair value impact of +/- US$43,316,397 25% increase/decrease will have a fair value impact of +/- US$3,246,654 Fair Value US$ Unobservable inputs Ranges Average Sensitivity to changes in significant unobservable inputs 16,181,402 Prices provided by a third party agent US$0.100- US$0.8967 US$0.4718 214,869 Prices provided by a third party agent EUR0.8092- EUR0.8092 EUR0.8092 25% increase/decrease will have a fair value impact of +/- US$4,045,351 25% increase/decrease will have a fair value impact of +/- US$53,717 Asset Class Master Fund II ² CLOs United States of America Europe Limited Partnerships Wollemi 11,044,256 Zero % discount N/A N/A 10% increase/decrease will have a fair value impact of +/- US$1,104,426 27,440,527 1 Shows the Company’s proportionate direct share in the Master Fund III at 95.43% (31 December 2022: 95.32%) through 2021 Shares investment only. 2 Shows the Company’s proportionate direct share in the Master Fund II at 9.59% (31 December 2022: 9.59%) through Realisation Shares investment only. 71 .  FINANCIAL STATEMENTS Notes to the Financial Statements For the year ended 31 December 2023 6. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED) The Master Fund II has engaged an independent third party to provide valuations for their CLO investments. The following table summarises, in the Company’s opinion, the valuation methodologies used by the independent third party to value the Master Fund II’s investments categorised in Level 3 as at 31 December 2022: Fair Value US$ Unobservable inputs Ranges Average 193,774,529 193,774,529 Zero % discount N/A N/A Fair Value US$ Unobservable inputs Ranges Average 18,287,159 327,287 Prices provided by a third party agent US$0.0001 - US$0.9866 US$0.9866 Asset Class Master Fund III ¹ Limited Partnerships Master Fund II Asset Class Master Fund II ² CLOs United States of America Europe Limited Partnerships Wollemi 11,448,617 Zero % discount N/A N/A 30,063,063 1 Shows the Company’s proportionate direct share in the Master Fund III at 95.43% (31 December 2022: 95.32%) through 2021 Shares investment only. 2 Shows the Company’s proportionate direct share in the Master Fund II at 9.59% (31 December 2022: 9.59%) through Realisation Shares investment only. Sensitivity to changes in significant unobservable inputs 25% increase/decrease will have a fair value impact of +/- US$48,443,632 Sensitivity to changes in significant unobservable inputs 25% increase/decrease will have a fair value impact of +/- US$4,571,790 25% increase/decrease will have a fair value impact of +/- US$81,822 25% increase/decrease will have a fair value impact of +/- US$2,862,154 72 .  FINANCIAL STATEMENTS Notes to the Financial Statements For the year ended 31 December 2023 7. INTEREST INCOME Interest income on financial assets carried at amortised cost: Cash and cash equivalents 8. RELATED PARTIES AND OTHER KEY CONTACTS For the year ended 31 December 2023 For the year ended 31 December 2022 US$ US$ 1,117,468 1,117,468 235,886 235,886 Transactions with Investment Adviser and Investment Portfolio Investor Investment Adviser Fair Oaks Capital Limited (the “Investment Adviser”) is entitled to receive an investment advisory fee from the Company of 1% per annum of the NAV of the Company, in accordance with the Amended and Restated Investment Advisory Agreement dated 9 March 2017 (the “Investment Advisory Agreement”). The investment advisory fee is calculated and payable on the last business day of each month or on the date of termination of the Investment Advisory agreement. The base investment advisory fee will be reduced to take into account any fees received by the Investment Adviser incurred by the Company in respect of its investments in the Master Fund III and Master Fund II (taking into account any rebates of such management fees to the Company) in respect of the same relevant period. The net investment advisory fee during the period is as follows: Company investment advisory fee Less: Master fund II rebate Less: Master fund III rebate Net investment advisory fee For the year ended 31 December 2023 US$ 1,832,652 (1,490,896) (130,318) 211,438 For the year ended 31 December 2022 US$ 2,282,988 (2,046,813) (96,320) 139,855 In circumstances where, as at the date the Net Asset Value per share of the 2021 Shares with respect to the last calendar month of a calendar quarter (the “Quarter End 2021 NAV”) is published, the price of the 2021 Shares, adjusted for any dividends declared if required, traded at close in the secondary market below their then-prevailing Quarter End 2021 NAV, the Investment Adviser agrees to reinvest and/or procure the reinvestment by an Associate of it of: (a) 25 percent of the fees which it shall receive with respect to that quarter from the Company pursuant to the agreement which is attributable to the Net Asset Value of the 2021 Shares and (b) 25 percent of the management fee which the General Partner shall receive with respect to that quarter from Master Fund II and Master Fund III which is attributable to the Net Asset Value of the 2021 Shares by, in each case, using its best endeavours to purchase or procure the purchase of 2021 Shares in the Company in the secondary market. The obligation to purchase or procure the purchase of such 2021 Shares shall be fulfilled by the Investment Adviser by no later than one month after the end of such calendar quarter. The Investment Adviser will have no obligation to reinvest and/ or procure the reinvestment of fees it receives with respect to a calendar quarter in circumstances where: (i) the 2021 Shares did not trade at close in the secondary market at a discount to their then-prevailing Quarter End 2021 NAV; or (ii) where the 2021 Shares did trade at close in the secondary market at a discount to their then-prevailing Quarter End 2021 NAV and it is unable to purchase or procure the purchase of 2021 Shares in the secondary market at a discount to their then- prevailing Quarter End 2021 NAV despite having used its best endeavours to do so; or (iii) the Master Fund III Commitment Period has already expired, and, in each case, the Investment Adviser shall retain all fees it receives for such quarter. 73 .  FINANCIAL STATEMENTS Notes to the Financial Statements For the year ended 31 December 2023 8. RELATED PARTIES AND OTHER KEY CONTACTS (CONTINUED) Transactions with Investment Adviser and Investment Portfolio Investor (continued) Investment Adviser (continued) In circumstances where, as at the date of the Net Asset Value per share of the Realisation Shares with respect to the last calendar month of a calendar quarter (the “Quarter End Realisation NAV”) is published, the price of the Realisation Shares, adjusted for any dividends declared if required, traded at close in the secondary market below their then-prevailing Quarter End Realisation NAV, the Investment Adviser agrees to reinvest and/or procure the reinvestment by an Associate of it of: (a) 25 percent of the fees which is received with respect to that quarter from the Company pursuant to the agreement which is attributable to the Net Asset Value of the Realisation Shares and (b) 25 percent of the Master Fund II Management Fee which the General Partner shall receive in respect to that quarter from Master Fund II which is attributable to the Net Asset Value of the Realisation Shares by, in each case, using its best endeavours to purchase or procure the purchase of Realisation Shares in the secondary market. The obligation to purchase or procure the purchase of Realisation Shares shall be fulfilled by the Investment Adviser by no later than one month after the end of such calendar quarter. The Investment Adviser will have no obligation to reinvest and/or procure the reinvestment of fees it receives with respect to a calendar quarter in circumstances where either: (i) the Realisation Shares did not trade at close in the secondary market at a discount to their then-prevailing Quarter End Realisation NAV; or (ii) where the Realisation Shares did trade at close in the secondary market at a discount to their then-prevailing Quarter End Realisation NAV and it is unable to purchase or procure the purchase of Realisation Shares in the secondary market at a discount to their then-prevailing Quarter End Realisation NAV despite having used its best endeavours to do so and, in either case, the Investment Adviser shall retain all fees it receives for such quarter. The Investment Advisory Agreement can be terminated by either party giving not less than 6 months written notice. Fair Oaks CLOs At 31 December 2023, Wollemi's investments in FOAKS 1 CLO, FOAKS 2 CLO, FOAKS 3 CLO, FOAKS 4 CLO Limited and FOLF V are valued at €20,783,972, €24,035,934, €23,901,852, €30,126,945 and €13,000,000 respectively. At 31 December 2022, Wollemi had investments in FOAKS 1 CLO, FOAKS 2 CLO, FOAKS 3 CLO and FOAKS 4 CLO Limited valued at €23,023,572, €28,316,443, €25,494,629 and €32,102,608 respectively. The Investment Adviser to the Company also acts as collateral manager to the Fair Oaks CLOs. Founder Partners The Master Fund III and Master Fund II also pay the Founder Partner VI and Founder Partner II a carried interest equal to 15 percent of cash available to be distributed (after payment of expenses and management fees) after Limited Partners have received a Preferred Return. The threshold calculation of the Preferred Return will be based solely on distributions and not on NAV calculations so the Master Fund III and Master Fund II will not pay any carried interest until their investors have realised the amounts drawn down for investments and met their Preferred Returns. At 31 December 2023, US$Nil (31 December 2022: US$Nil) carried interest was due at Master Fund II level in respect of the Company’s limited partnership interests. 74 .  FINANCIAL STATEMENTS Notes to the Financial Statements For the year ended 31 December 2023 8. RELATED PARTIES AND OTHER KEY CONTACTS (CONTINUED) Other Material Contracts Administrator Sanne Fund Services (Guernsey) Limited, (the “Administrator”) is entitled to receive a time-based fee quarterly in arrears for all Company Secretarial services. The Administrator is also entitled to an annual fee of US$36,599 (31 December 2022: US$33,888), payable quarterly in arrears for Administration and Accounting services. The Administrator is also entitled to an annual fee of £629 (31 December 2022: £582) in relation to FATCA reporting and acting as Responsible Officer. Master Funds The Company paid audit fees to KPMG on behalf of the Master Funds. At 31 December 2023 US$120,488 (31 December 2022: US$ 94,520) was receivable from the Master Funds (note 12). Custodian BNP Paribas Securities Services S.C.A., Guernsey Branch (the “Custodian”) waived all fees on the basis that all assets are invested into the Master Fund II. Directors’ Fees The Company’s Board of Directors are entitled to a fee in remuneration for their services as Directors at a rate payable of £45,000 each per annum (31 December 2022: £45,000). The overall charge for the above-mentioned fees for the Company and the amounts due are as follows: CHARGE FOR THE PERIOD Investment adviser fee Administration fee Directors’ fees and expenses OUTSTANDING FEES Investment adviser fee Administration fee Shares held by related parties For the year ended 31 December 2023 US$ For the year ended 31 December 2022 US$ 211,438 123,061 218,274 18,633 37,942 139,855 127,533 209,522 16,939 21,779 The shareholdings of the Directors’ in the Company were as follows: 31 December 2023 31 December 2022 No. of 2021 Shares Percentage No. of 2021 Shares Percentage Name Jon Bridel* Claudio Albanese (Resigned 31 December 2023) 40,000 9,697 0.01% 0.00% 40,000 9,697 0.01% 0.00% *A person closely associated with Jon Bridel is the registered holder of these shares. As at 31 December 2023, the Investment Adviser, the General Partner and principals of the Investment Adviser and General Partner held an aggregate of 5,331,980 2021 Shares (31 December 2022: 4,548,868 2021 Shares) and 92,086 Realisation Shares (31 December 2022: 30,599 Realisation Shares), which is 0.91% (31 December 2022: 1.13%%) of the issued 2021 Share capital and 0.20% (31 December 2022: 0.06%) of the issued Realisation Share capital respectively. 75 .  FINANCIAL STATEMENTS Notes to the Financial Statements For the year ended 31 December 2023 9. TAX STATUS The Company is exempt from Guernsey income tax and is charged an annual exemption fee of £1,200 under The Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989. 10. SHARE CAPITAL The Company’s 2021 Shares and Realisation Shares are classified as equity. Incremental costs directly attributable to the issue of shares are recognised as a deduction in equity and are charged to the share capital account, including the initial set up costs. During April 2021, of the 468,378,360 original 2017 Shares in issue, 62,562,883 2017 Shares were re-designated as Realisation Shares and 405,815,477 2017 Shares (including 650,000 shares held in Treasury) were re-designated as 2021 Shares. On 22 April 2021, 405,815,477 2021 Shares and 62,562,883 Realisation Shares were admitted to trading on the Specialist Fund Segment of the Main Market of the London Stock Exchange. On 25 August 2022, the Company announced that it will return US$4,000,000 (equivalent to 6.3936 US cents per share) on 12 September 2022 (the “Redemption Date”) by way of a compulsory partial redemption of Realisation Shares (the “First Redemption”). The First Redemption was effected at 57.27 cents per share, being the NAV per Realisation Share as at 29 July 2022 of 59.77 cents per share less the dividend for the period to 30 June 2022 of 2.50 cents per share. The First Redemption was effected pro rata to holdings of Realisation Shares on the register at the close of business on the Redemption Record Date, being 12 September 2022. At the time of the announcement, the Company had 62,562,883 Realisation Shares in issue of which none are held in treasury. On this basis 11.16 percent. of each registered shareholding was redeemed on the Redemption Date. All shares that were redeemed were cancelled with effect from the Redemption Record Date. On 21 June 2023, the Company announced that it will return US$1,155,020 (equivalent to 2.078 US cents per share) on 5 July 2023 (the “Redemption Date”) by way of a compulsory partial redemption of Realisation Shares (the “Second Redemption”). The Second Redemption was effected pro rata to holdings of Realisation Shares on the register at the close of business on the Redemption Record Date, being 5 July 2023. At the time of the announcement, the Company had 55,578,441 Realisation Shares in issue of which none are held in treasury. On this basis 3.59 percent. of each registered shareholding was redeemed on the Redemption Date. All shares that were redeemed were cancelled with effect from the Redemption Record Date. On 7 December 2023, the Company announced that it will return US$2,099,990 on 20 December 2023 (the “Redemption Date”) by way of a compulsory partial redemption of Realisation Shares (the “Third Redemption”). The Third Redemption was effected at 57.15 cents per share, being the NAV per Realisation Share as at 31 October 2023 of 59.15 cents per share less the dividend for the period to 30 September 2023 of 2.00 cents per share. The Third Redemption was effected pro rata to holdings of Realisation Shares on the register at the close of business on the Redemption Record Date, being 20 December 2023. At the time of the announcement, the Company had 62,562,883 Realisation Shares in issue of which none are held in treasury. On this basis 6.86 percent. of each registered shareholding was redeemed on the Redemption Date. All shares that were redeemed were cancelled with effect from the Redemption Record Date. Following the Distribution Policy announcement on 20 September 2022 and the general authority granted by shareholders of the Company on 14 June 2022 to make market purchases of its own Ordinary Shares, the Company went on to repurchase 20,699,431 2021 Shares during the period to 31 December 2023 (31 December 2022 2,455,977 2021 Shares), to be held in treasury, at average cost of US$0.5057 (31 December 2022 US$0.4848) per Share. At 31 December 2023, the Company held 23,805,408 (31 December 2022 3,105,977) Ordinary Shares in treasury. 76 .  FINANCIAL STATEMENTS Notes to the Financial Statements For the year ended 31 December 2023 10. SHARE CAPITAL (CONTINUED) The authorised share capital of the Company is represented by an unlimited number of ordinary shares of nil par value and have the following rights: (a) Dividends: Shareholders of a particular class or tranche are entitled to receive, and participate in, any dividends or other distributions relating to the assets attributable to the relevant class or tranche which are resolved to be distributed in respect of any accounting period or other period, provided that no calls or other sums due by them to the Company are outstanding. (b) Winding Up: On a winding up, the shareholders of a particular class or tranche shall be entitled to the surplus assets attributable to that class or tranche remaining after payment of all the creditors of the Company. (c) Voting: Subject to any rights or restrictions attached to any class or tranche of shares, at a general meeting of the Company, on a show of hands, every holder of voting shares present in person or by proxy and entitled to vote shall have one vote, and on a poll every holder of voting shares present in person or by proxy shall have one vote for each share held by him, but this entitlement shall be subject to the conditions with respect to any special voting powers or restrictions for the time being attached to any class or tranche of shares which may be subject to special conditions. Refer to the Memorandum and Articles of Incorporation for further details. (d) Buyback: The Company may acquire its own shares (including any redeemable shares). Any shares so acquired by the Company may be cancelled or held as treasury shares provided that the number of shares of any class held as treasury shares must not at any time exceed ten per cent. (or such other percentage as may be prescribed from time to time by the States of Guernsey Committee for Economic Development) of the total number of issued shares of that class. Any shares acquired in excess of this limit shall be treated as cancelled. Issued share capital 2021 Shares Share capital at the beginning of the year Share buy-backs Share capital at the end of the year Issued share capital Realisation Shares Shares 31 December 2023 US$ Shares 31 December 2022 US$ 402,709,500 (20,699,431) 382,010,069 383,148,853 (10,468,165) 372,680,688 405,165,477 (2,455,977) 402,709,500 384,339,570 (1,190,717) 383,148,853 Share capital at the beginning of the year Realisation Share redemptions paid during the year Share capital at the end of the year Shares 55,578,441 31 December 2023 US$ 55,251,707 Shares 62,562,883 31 December 2022 US$ 59,251,697 (5,672,083) 49,906,358 (3,255,010) 51,996,697 (6,984,442) 55,578,441 (3,999,990) 55,251,707 The total number of 2021 Shares in issue, as at 31 December 2023 was 405,815,477 (31 December 2022: 405,815,477 shares), of which 23,805,408 2021 Shares were held in treasury (31 December 2022: 3,105,977 shares), and the total number of 2021 shares in issue excluding treasury shares were 382,010,069 (31 December 2022: 402,709,500 shares). The total number of Realisation Shares in issue, as at 31 December 2023 was 49,906,358 (31 December 2022: 55,578,441), of which no shares were held in treasury (31 December 2022: none). At 31 December 2023, the Company has 431,916,427 (31 December 2022: 458,287,941) Shares (excluding treasury shares). 77 .  FINANCIAL STATEMENTS Notes to the Financial Statements For the year ended 31 December 2023 11. EARNINGS PER SHARE For the year ended 31 December 2023 2021 Shares Realisation Shares US$ US$ Weighted average number of shares Profit/(loss) for the year Basic and diluted earnings/(loss) per share 391,034,588 26,794,126 0.0685 54,488,077 4,190,991 0.0769 2021 Shares US$ 404,951,213 (658,551) (0.0016) For the year ended 31 December 2022 Realisation Shares US$ 60,457,983 (28,714) (0.0005) For the year ended 31 December 2023, profits for the year have been allocated 86.47% to 2021 Shares and 13.53% to Realisation Shares (31 December 2022 95.82% to 2021 Shares and 4.18% Realisation Shares). The weighted average number of shares as at 31 December 2023 and 31 December 2022 is based on the number of 2021 Shares and Realisation Shares in issue during the period under review as detailed in note 10. 12. OTHER RECEIVABLES AND PREPAYMENTS Receivable from related parties (note 8) Income distribution receivable Prepayments 13. TRADE AND OTHER PAYABLES Investment advisory fees payable Audit fees payable Registrar's fees payable Sundry expenses payable Administration fees payable FOIL Realisation - share redemption - service fee payable FOIL 2021 - share buyback payable FOIL Realisation - share redemption accrual 31 December 2023 US$ 120,488 452,434 20,524 31 December 2022 US$ 94,520 - 23,469 593,446 117,989 31 December 2023 US$ 18,633 45,795 33,144 13,555 37,942 6,651 33,997 2,099,990 31 December 2022 US$ 16,939 28,281 - 45,546 21,779 - - - 2,289,707 112,545 78 .  FINANCIAL STATEMENTS Notes to the Financial Statements For the year ended 31 December 2023 14. CONTINGENT LIABILITIES AND COMMITMENTS The Company entered into a Subscription Agreement with Master Fund III and agreed to become a Limited Partner and made a commitment to Master Fund III of an initial amount of US$264,000,000 that was further increased as at 31 December 2023 by US$25,500,000 (31 December 2022: total commitment of US$264,000,000) of which US$268,573,683 (31 December 2022: US$263,875,619) had been called. The Company entered into a Subscription Agreement with Master Fund II and agreed to become a Limited Partner and made a commitment to Master Fund II of US$452,346,532 (31 December 2022: US$452,346,532) of which US$432,982,362 (31 December 2022: US$432,982,362) had been called. With effect the Company’s 2021 Shares commitment to Master Fund II is on an indirect basis through the Master Fund III. The Master Fund II commitment period ended on 12 June 2021. from 22 April 2021, At 31 December 2023 and 31 December 2022, the Company had no other outstanding commitments. 15. SUBSEQUENT EVENTS On 1 February 2024, the Company announced that following the announcement of the NAV as at 31 December 2023, Fair Oaks Income Fund (GP) had purchased 35,000 2021 Shares in the secondary market. On 22 February 2024, the Company declared an interim dividend of 2.00 US cents per 2021 Share and 2.00 US cents per Realisation Share in respect of the quarter ended 31 December 2023. The ex-dividend date was 29 February 2024 and the dividend was paid on 2 April 2024. On 29 February 2024, the Company announced that it had issued 848,660 2021 Shares from treasury. The 2021 Shares was issued at a price of U$0.5775 per share. Pursuant to the general authority granted by shareholders of the Company on 14 June 2022 to make market purchases of its own Ordinary Shares, the Company went on to repurchase 531,113 2021 Shares in the post year end period, to be held in treasury, at average cost of US$0.5473 per Share. There were no other significant events since the year end which would require revision of the figures or disclosures in the Financial Statements. 79 .  ADDITIONAL INFORMATION Portfolio Statement (unaudited) At 31 December 2023 Security AIMCO 2017-A SUB ALLEG 2017-2X SUB ALLEG 2021-1X SUB ARES 2015-35R AWPT 2017-6X SUB FOAKS 1X M FOAKS 1X SUB FOAKS 1X Z FOAKS 2X M FOAKS 2X SUB FOAKS 2X Z FOAKS 3X M FOAKS 3X SUB FOAKS 3X Z FOAKS 4X M FOAKS 4X SUB FOAKS 4X Z FOLF V HLM 13X-2018 SUB MARNR 2017-4 SUB POST 2018-1X SUB ROCKT 2021-2X SUB SHACK 2018-12 SUB Signal Peak CLO 1, Ltd. Signal Peak CLO 2, LLC WELF 2018-1X SUB WELF 2021-2X SUB CLO Equity Instrument Par Value Master Funds¹ Valuation Subordinated Notes Subordinated Notes Subordinated Notes Subordinated Notes Subordinated Notes Subordinated Fee Notes Subordinated Notes Subordinated Fee Notes Subordinated Fee Notes Subordinated Notes Subordinated Fee Notes Subordinated Fee Notes Subordinated Notes Subordinated Fee Notes Subordinated Fee Notes Subordinated Notes Subordinated Fee Notes CLO Warehouse Subordinated Notes Subordinated Notes Subordinated Notes Subordinated Notes Subordinated Notes Subordinated Notes Subordinated Notes Subordinated Notes Subordinated Notes US$18,673,554 US$27,496,601 US$18,752,165 US$17,928,818 US$20,721,577 €717,551 €20,091,425 €615,044 €717,551 €33,724,893 €615,044 €717,551 €25,114,282 €615,044 €717,551 €20,091,425 €615,044 €9,328,162 US$17,894,340 US$25,203,938 US$27,088,031 US$16,894,463 US$20,687,098 US$4,538,036 US$4,691,003 US$19,911,332 US$19,997,528 53.00% 28.00% 66.00% 26.00% 10.00% 0.00% 70.14% 133.58% 0.00% 48.35% 152.84% 16.00% 63.65% 170.86% 0.00% 83.60% 207.96% 100.00% 26.00% 32.00% 40.00% 72.00% 37.00% 45.00% 13.50% 20.00% 54.00% 1Shows the Company’s 2021 Shares proportionate share, via the Master Fund III, in the Master Fund II at 59.36% (31 December 2022: 59.30%) and the Company’s direct holding in the Master Fund II at 9.59%. 2021 Shares and Realisation Shares proportionate share together at 68.96% (31 December 2022: 68.89%). Also includes Master Fund III's direct investments, Master Fund II’s 89.43% share in Wollemi and its 13.38% interest in Cycad. 80 .  ADDITIONAL INFORMATION Portfolio Statement (unaudited) At 31 December 2023 Security APID 2018-18A F DRSLF 2017-49A F DRSLF 2017-53A F EGLXY 2018-6X F FOAKS 2X ER FOAKS 4X F HARVT 11X FR HLM 13X-2018 F MDPK 2016-20A FR OAKCL 2021-2A E OCT39 2018-3A F OHECP 2015-4X FR SYMP 2018-19A F CLO Mezzanine Instrument Par Value Master Funds¹ Class F Notes Class F Notes Class F Notes Class F Notes Class F Notes Class F Notes Class F Notes Class F Notes Class F Notes Class E Notes Class F Notes Class F Notes Class F Notes US$2,758,280 US$3,172,022 US$3,447,850 €2,930,672 €1,431,404 €3,659,510 €1,723,925 US$3,956,408 US$2,758,280 US$1,908,539 US$6,206,129 €1,750,818 US$3,792,635 Valuation 84.83% 82.15% 80.78% 84.42% 93.99% 96.78% 80.92% 86.36% 89.67% 102.52% 85.36% 85.99% 67.04% 1Shows the Company’s 2021 Shares proportionate share, via the Master Fund III, in the Master Fund II at 59.36% (31 December 2022: 59.30%) and the Company’s direct holding in the Master Fund II at 9.59%. 2021 Shares and Realisation Shares proportionate share together at 68.96% (31 December 2022: 68.89%). Also includes Master Fund III's direct investments, Master Fund II’s 89.43% share in Wollemi and its 13.38% interest in Cycad. 81 .  ADDITIONAL INFORMATION Management and Administration Directors Richard Burwood (Independent non-executive Chairman) (appointed 27 September 2023) Jon Bridel (Independent non-executive Director) Fionnuala Carvill (Independent non-executive Director) Claudio Albanese (Former Independent non-executive Chairman) (resigned 31 December 2023) Administrator and Secretary Sanne Fund Services (Guernsey) Limited 1 Royal Plaza Royal Avenue St Peter Port Guernsey GY1 2HL Registrar Link Market Services (Guernsey) Limited Mont Crevelt House Bulwer Avenue St Sampson Guernsey GY2 4LH Legal Advisers in United Kingdom Stephenson Harwood LLP 1 Finsbury Circus London EC2M 7SH Independent Auditor KPMG Channel Islands Limited Glategny Court Glategny Esplanade St Peter Port Guernsey GY1 1WR Registered Office and Business Address 1 Royal Plaza Royal Avenue St Peter Port Guernsey GY1 2HL Investment Adviser Fair Oaks Capital Limited 1 Old Queen Street London SW1H 9JA Legal Advisers in Guernsey Carey Olsen (Guernsey) LLP Carey House Les Banques St Peter Port Guernsey GY1 4BZ Custodian and Principal Bankers BNP Paribas Securities Services S.C.A. BNP Paribas House St Julian’s Avenue St Peter Port Guernsey GY1 1WA Joint Bookrunners, Joint Brokers and Joint Financial Advisers Deutsche Numis Securities Limited 10 Paternoster Square London EC4M 7LT Liberum Capital Limited Ropemaker Place, Level 12 Ropemaker Street London EC2Y 9LY 82 .  ADDITIONAL INFORMATION Appendix (unaudited) Alternative Performance Measures used in the Annual Report • Total NAV return Total NAV return is a calculation showing how the NAV per share has performed over a period of time, taking into account dividends paid to shareholders. It is calculated on the assumption that dividends are reinvested, on an accumulative basis from inception of the Company, at the prevailing NAV on the last day of the month that the shares first trade ex-dividend. The performance is evaluated on an original shareholding of 1,000 shares on inception of the Company (12 June 2014). This provides a useful measure to allow shareholders to compare performances between investment funds where the dividend paid may differ. 2021 Shares Opening NAV per 2021 share Opening accumulated number of 2021 Shares* Opening NAV valuation of shares Dividends paid during the period Dividends converted to shares** Closing NAV per 2021 share Closing accumulated number of 2021 Shares* (d = a + c) Closing NAV valuation of shares NAV valuation of shares return (f = e – b) Total NAV return (g = (f / b) x 100) Realisation Shares Opening NAV per Realisation Share Opening accumulated number of Realisation shares* Opening NAV valuation of shares Dividends paid during the period Dividends converted to shares** Closing NAV per Realisation share Closing accumulated number of Realisation Shares* Closing NAV valuation of shares NAV valuation of shares return (f = e – b) Total NAV return (g = (f / b) x 100) *with dividends reinvested since inception (12 June 2014). **converted to 2021 Shares at the prevailing month end NAV ex-dividend for all dividends paid during the period. For the year ended 31 December 2023 For the year ended 31 December 2022 US$0.5721 2,854.5 shares US$1,633.1 US$0.0800 418.1 shares US$0.6682 2,444.4 shares US$1,633.4 US$0.0950 385.4 shares US$0.5638 US$0.5721 3,272.6 shares 2,854.5 shares US$1,845.1 US$1,633.1 US$212.0782 (US$14.4) 12.98% (0.90%) For the year ended 31 December 2023 For the year ended 31 December 2022 US$0.5747 2,855.3 shares US$1,641.0 US$0.0800 412.9 shares US$0.5715 3,268.3 shares US$1,868.0 US$227.0 US$0.6679 2,444.7 shares US$1,632.8 US$0.0950 410.6 shares US$0.5747 2,885.3 shares US$1,641.0 US$8.2000 13.82% 0.50% (a) (b) (c) (d) (e) (f) (g) (a) (b) (c) (d) (e) (f) (g) 83 .  ADDITIONAL INFORMATION Appendix (unaudited) Alternative Performance Measures used in the Annual Report • Total share price return Total share price return is a calculation showing how the share price per share has performed over a period of time, taking into account dividends paid to shareholders. It is calculated on the assumption that dividends are reinvested, on an accumulative basis from inception of the Company, at the prevailing share price on the last day of the month that the shares first trade ex-dividend. The performance is evaluated on a original shareholding of 1,000 shares on inception of the Company (12 June 2014). This provides a useful measure to allow shareholders to compare performances between investment funds where the dividend paid may differ. 2021 Shares Opening share price per 2021 share Opening accumulated number of 2021 Shares* Opening shares price valuation of shares Dividends paid during the period Dividends converted to shares** Closing share price per 2021 share Closing accumulated number of 2021 Shares* (d = a + Closing NAV valuation of shares NAV valuation of shares return (f = e – b) Total NAV return (g = (f / b) x 100) Realisation Shares Opening share price per Realisation share Opening accumulated number of Realisation Shares* Opening NAV valuation of shares Dividends paid during the period Dividends converted to shares** Closing share price per Realisation share Closing accumulated number of Realisation share* Closing share price valuation of shares NAV valuation of shares return (f = e – b) Total share price return (g = (f / b) x 100) *with dividends reinvested since inception (12 June 2014). **converted to 2021 Shares at the prevailing month end NAV ex-dividend for all dividends paid during the period. For the year ended 31 December 2023 For the year ended 31 December 2022 US$0.4900 2,876.6 shares US$1,409.6 US$0.0800 479.0 shares US$0.5500 3,355.6 shares US$1,845.6 US$436.0 US$0.6225 2,422.0 shares US$1,507.7 US$0.0950 454.6 shares US$0.4900 2,876.6 shares US$1,409.6 US$(98.1) 30.94% (6.50%) For the year ended 31 December 2023 For the year ended 31 December 2022 US$0.5650 2,810.0 shares US$1,587.7 US$0.0800 423.8 shares US$0.5700 3,233.8 shares US$1,843.2 US$255.5 US$0.7000 2,409.6 shares US$1,686.7 US$0.0950 392.9 shares US$0.5650 2,810.0 shares US$1,587.7 US$(99.1) 16.10% (5.90%) (a) (b) (c) (d) (e) (f) (g) (a) (b) (c) (d) (e) (f) (g) 84 .  ADDITIONAL INFORMATION Appendix (unaudited) Alternative Performance Measures used in the Annual Report • 2021 and Realisation Share (discount)/premium to NAV 2021 and Realisation Share (discount)/premium to NAV is the amount by which the 2021 and Realisation Share price is lower/ higher than the NAV per 2021 and Realisation Share, expressed as a percentage of the NAV per 2021 and Realisation Share, and provides a measure of the Company’s share price relative to the NAV. • Ongoing charges ratio (“OCR”) The ongoing charges ratio of an investment company is the annual percentage reduction in shareholder returns as a result of recurring operational expenditure. Ongoing charges are classified as those expenses which are likely to recur in the foreseeable future, and which relate to the operation of the company, excluding investment transaction costs, gains or losses on investments and performance fees. In accordance with the AIC guidance, the proportionate charges for the period are also incorporated from investments in other funds. As such charges for: 1. 2. 2021 Shares – from the Master Fund III a weighted average percentage for the year of 99.33% (31 December 2022: 99.25%), the Master Fund II at a weighted average percentage for the year of 59.37% (31 December 2022: 61.75%), Wollemi at a weighted average percentage for the year of 63.18% (31 December 2022: 61.75%), and Cycad Investments LP at a weighted average percentage for the period of 9.45% (31 December 2022: 9.24%) are included. Realisation Shares – from the Master Fund II a weighted average percentage for the year of 9.59% (31 December 2022: 9.59%), Wollemi at a weighted average percentage for the year of 8.58% (31 December 2022: 9.59%) and Cycad Investments LP at a weighted average percentage for the year of 1.28% (31 December 2022: 1.44%) are included. Performance fees or carried interest from the underlying funds are not included. The OCR is calculated as the total ongoing charges for a period divided by the average net asset value over that year. 2021 Shares For the year ended 31 December 2023 Total expenses Non-recurring expenses Total ongoing expenses Average NAV Ongoing charges ratio (using AIC methodology) Master Funds¹ US$ 2,088,550 - 2,088,550 Company US$ 1,016,006 - 1,016,006 227,421,772 0.45% Total US$ 3,104,555 - 3,104,555 227,421,772 1.37% Realisation Shares For the year ended 31 December 2023 Total expenses Non-recurring expenses Total ongoing expenses Average NAV Company US$ 132,711 - 132,711 31,997,670 Master Funds¹ US$ 288,497 - 288,497 Ongoing charges ratio (using AIC methodology) 0.41% 1 "Master Funds” includes FOMC III LP, FOIF II LP, Wollemi Fund and Cycad Investments LP. Total US$ 421,208 - 421,208 31,997,670 1.32% 85 .  ADDITIONAL INFORMATION Appendix (unaudited) Alternative Performance Measures used in the Annual Report Ongoing charges ratio (“OCR”) continued 2021 Shares Total expenses Non-recurring expenses Total ongoing expenses Average NAV Ongoing charges ratio (using AIC methodology) For the year ended 31 December 2022 Company US$ Master Funds¹ US$ Total US$ 868,300 (16,469) 851,831 248,414,527 0.34% 2,579,797 (3,710) 2,576,087 3,448,097 (20,179) 3,427,918 248,414,527 1.38% Realisation Shares For the year ended 31 December 2022 Total expenses Non-recurring expenses Total ongoing expenses Average NAV Ongoing charges ratio (using AIC methodology) 1 "Master Funds” includes FOMC III LP, FOIF II LP, Wollemi Fund and Cycad Investments LP. Company US$ Master Funds¹ US$ 133,862 (2,539) 131,323 37,050,194 0.35% 364,345 (576) 363,769 Total US$ 498,207 (3,115) 495,092 37,050,194 1.34% 86 . 

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