Shenkman Credit Fund plc

Transcription

1 An open ended umbrella investment company with variable capital and segregated liability between funds established in Ireland as an undertaking for collective investment in transferable securities pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011, as amended, and the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Undertaking for Collective Investment in Transferable Securities) Regulations 2015, as amended Registered number Annual Report and Audited Financial Statements For the financial year ended 30 June 2017

2 Annual report and audited financial statements Contents Page Directors and Other Information 2-3 Directors Report 4-7 Statement of Directors Responsibilities 8 Report from the Depositary to the Shareholders 9 Independent Auditor s Report Investment Manager s Report Statement of Financial Position Statement of Comprehensive Income Statement of Changes in Net Attributable to Holders of Redeemable Participating Shares Statement of Cashflows Notes to the Financial Statements Schedule of Investments Unaudited Schedule of Portfolio Changes Appendix: Unaudited Total Expense Ratios 131 Unaudited Fund Performance Data Unaudited UCITS V Remuneration Policy 134 1

3 Directors and other information Directors Company Secretary Mark R. Shenkman (American) Teddy Otto (German/Irish Resident)* Yvonne Connolly (Irish)* Frank X. Whitley (American) Kevin Molony (Irish)*^ Carne Global Financial Services Limited 2 nd Floor, Block E Iveagh Court Harcourt Road Dublin 2 Ireland D02 YT22 Registered Number Registered Office Investment Manager and Promoter Depositary 2 nd Floor, Block E Iveagh Court Harcourt Road Dublin 2 Ireland D02 YT22 Shenkman Capital Management, Inc. 461 Fifth Avenue, 22 nd Floor New York, NY United States of America BNY Mellon Trust Company (Ireland) Limited One Dockland Central Guild Street IFSC Dublin 1 Ireland D01 E4X0 Administrator, Registrar and Transfer Agent BNY Mellon Fund Services (Ireland) Designated Activity Company One Dockland Central Guild Street IFSC Dublin 1 Ireland D01 E4X0 Legal Advisers US and UK Law Irish Law Shearman & Sterling LLP Arthur Cox 599 Lexington Avenue Ten Earlsfort Terrace New York, NY Dublin 2 United States of America Ireland D02 CK83 2

4 Directors and other information (continued) Independent Auditors Grant Thornton Chartered Accountants City Quay Dublin 2 Ireland D02 NY19 * Independent Directors ^ Appointed on 24 August 2016 All Directors are non-executive 3

5 Directors Report For the financial year ended 30 June 2017 The Directors present their annual report and audited financial statements for the financial year ended 30 June Date of Incorporation Shenkman Credit Fund plc (the Company ), an open-ended umbrella investment company with variable capital and segregated liability between its Sub-Funds, was incorporated in Ireland on 15 June 2011 under registration number The Company has been authorised as an Undertaking for Collective Investment in Transferable Securities ( UCITS ) by the Central Bank of Ireland, and is organised as an investment company with variable capital pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 2011, as amended (the "UCITS Regulations"), and the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) (Undertaking for Collective Investment in Transferable Securities) Regulations 2015, as amended (the Central Bank UCITS Regulations ). The Company is an umbrella fund and, as of the date of this report, four Sub-Funds have been launched. Shenkman High Income Fund was launched on 1 July 2011, Shenkman Short Duration High Income Fund was launched on 25 August 2011, Shenkman Global Convertible Bond Fund was launched on 21 May 2015 and Shenkman Global High Yield Bond Fund was launched on 16 December Principal Activities and Review of Business The Company s principal activity is the collective investment of capital raised from the public in transferable securities. The Company is an umbrella type collective investment vehicle. As at 30 June 2017 the following are the active share classes for each launched Sub-Fund: Sub-Fund Name Base Currency Share Classes Shenkman High Share Class A USD Accumulating Income Fund Share Class A USD Income Distributing EUR Share Class A EUR Hedged Accumulating GBP Share Class A GBP Hedged Accumulating GBP Share Class A GBP Hedged Income Distributing NOK Share Class A NOK Hedged Accumulating Shenkman Short Share Class A USD Accumulating Duration High Income Fund Share Class A USD Income Distributing CHF Share Class A CHF Hedged Income Distributing EUR Share Class A EUR Hedged Accumulating GBP Share Class A GBP Hedged Income Distributing Share Class B USD Accumulating Share Class B USD Income Distributing Shenkman Global Share Class A USD Accumulating Convertible Bond Fund GBP Share Class A GBP Hedged Accumulating 4

6 Directors Report (continued) For the financial year ended 30 June 2017 Sub-Fund Name Base Currency Share Classes Shenkman Global Share Class A USD Accumulating High Yield Bond Fund GBP Share Class A GBP Hedged Income Distributing NOK Share Class A NOK Hedged Accumulating SEK Share Class A SEK Hedged Accumulating Details of the overview of the year are set out in the Investment Manager s Report on pages 12 and 13. Risks and Uncertainties A Risk Management Policy Statement has been agreed with the Investment Manager and this sets out the rules and limits that are to be applied to investments. The risk management and compliance teams within the Investment Manager monitor and report on the operation of these procedures. An analysis of the financial risk management objectives and policies of the Company and how these are managed are set out in Note 8 to the financial statements. Significant Events During the Financial Year Please refer to Note 15 of the financial statements for details on significant events during the financial year. Subsequent Events Please refer to Note 16 of the financial statements for details on subsequent events after the financial year ending 30 June Results The financial position and results for the financial year are set out on pages A detailed review of the market performances and the management policy of each of the Sub- Funds are included in the Investment Manager s Report on pages 12 and 13. Directors The names of the persons who were Directors at any time during the financial year are set out on page 2. All Directors served throughout the financial year unless otherwise stated. Directors Interests The Directors and Secretary (including family interests) do not have any direct shareholdings in the Company as at 30 June Mark Shenkman is a Director and the President and controlling shareholder of Shenkman Capital Management, Inc., which is a shareholder of Shenkman Short Duration High Income Fund. The remaining Directors did not directly or indirectly hold any shares in the Company during or as at the end of the financial year. Apart from as noted above, there are no contracts or arrangements of any significance in relation to the business of the Company in which Directors had any beneficial interest at any time during the financial year. 5

7 Directors Report (continued) For the financial year ended 30 June 2017 Dividends Dividends paid or declared during the financial year ended 30 June 2017 are shown in Note 3(c). Corporate Governance Code The Directors have adopted all corporate governance practices and procedures in the voluntary Corporate Governance Code for Collective Investment Schemes and Management Companies as published by Irish Funds (the IF Corporate Governance Code ). The Independent Director of the Company, Kevin Molony, is identified as the Independent Director of the Company for the purpose of paragraph 4.1 of the IF Corporate Governance Code for the Fund Management Industry. The Company appointed Kevin Molony as a replacement Independent Director to the Board of Directors on 24 August Kevin Molony replaced Oskar P. Lewnowski who ceased to be a director on 11 March Accounting Records To ensure that adequate accounting records are kept in accordance with the Companies Act, 2014, as amended, the Directors of the Company have employed a service organisation, BNY Mellon Fund Services (Ireland) Designated Activity Company (the Administrator ). The accounting records are located at the offices of the Administrator at Guild House, Guild Street, IFSC, Dublin 1. Statement of Directors Compliance The Directors acknowledge that they are responsible for securing the Company s compliance with the relevant obligations as set out in Section 225 of the Companies Act, The Directors confirm that: A compliance policy has been drawn up that sets out policies that, in the Director s opinion, are appropriate to the Company, respecting compliance by the Company with its relevant obligations; Appropriate arrangements or structures are in place that are, in the Director s opinion, designed to secure material compliance with the Company s relevant obligations; and During the financial year, the arrangements or structures referred to above have been reviewed. Establishment of an Audit Committee The Company has elected not to establish an audit committee as per Section 167(2)(b) of the Companies Act, 2014, as amended, given the following reasons: (a) the nature, scale and complexity of the Company's business range of services and activities undertaken in the course of that business; (b) the financial controls already adopted by the Company, as per the Central Bank's requirements, in respect of internal controls, internal audit and risk management (each of which are documented in the Company's UCITS Business Plan); (c) the resources available to the Company and the resources and expertise of the various third parties engaged to support the Company and carry out certain functions on its behalf; and (d) the procedures in place for the review, approval and circulation of the audited financial accounts and statements which are appropriate for a self-managed investment company such as the Company, pursuant to the UCITS Regulations. 6

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13 Investment Manager s Report In the second half of 2016, high yield continued its upward trajectory that had begun in mid- February. In the weeks leading up to Election Day, however, the high yield market retreated as nervousness over the prospect of a Donald Trump presidency climbed. High yield resumed its ascent following Trump s election as the anticipation of a more business and regulatoryfriendly environment and additional infrastructure spending drove equities and lower-rated debt securities higher. Crude oil stabilised following OPEC s announcement that it would curtail crude production, and the Dow Jones Industrial Average approached the milestone 20,000 barrier. The BofA Merrill Lynch U.S. High Yield Index (H0A0) gained 1.88% in the fourth quarter and rose 17.49% for the year, its highest return since 2009, with ten out of the twelve months showing positive performance. As had been the case for most of 2016, risk-on sentiment persisted in the final quarter of the year as triple-c rated credits surged 5.94%, meaningfully outpacing single-b and double-b gains of 2.11% and 0.68%, respectively. With access to both debt and equity capital markets readily available, default rates declined to 3.32% as just nine companies missed interest payments in the fourth quarter. Interestingly, the percentage of the high yield market trading at a distressed spread of greater than 1,000bps narrowed to just 6.48%, down significantly from its peak of 31.07% in mid-february. New issuance was relatively consistent for most of the fourth quarter, but the primary market ground to a halt in the final two weeks, as is typical heading into the holidays. $51.9B was priced during the quarter, significantly lower than the $78B average quarterly issuance in the first three quarters of Of the issuers, 91.9% of the volume was single-b or double-b rated, refinancing represented 64.8% of issuance, and energy companies were the most active industry, accounting for 33.5%. Although there were modest mutual fund outflows of $2B for the fourth quarter, strong equity markets and increased optimism as the period progressed led investors to deploy capital to high yield mutual funds, with the $3.75B that came in during the week of 14 December representing the fourth largest weekly inflow in high yield market history. High yield generated a coupon-plus return in the first half of 2017 as solid corporate earnings, rising equity markets, and accelerating global growth overshadowed a more hawkish Federal Reserve, plunging crude oil prices, and elevated political risks both in Washington D.C. and around the world. The H0A0 Index returned 4.91% as the period saw gains in five out of the first six months of the year. Triple-C rated credits significantly outperformed the broad market with a gain of 6.95%, while single-b and double-b had similar returns at 4.48% and 4.65%, respectively. While there were intermittent periods of market weakness, such as during the dismissal of FBI Director James Comey, when opposition to the Republican s healthcare plan permeated news headlines, and when fears emerged that the Federal Reserve could be more aggressive in its rate tightening approach, high yield proved buoyant as investors viewed these sell-offs as a temporary phenomenon and buying opportunity. Since the end of 2016, H0A0 prices edged higher by $1.73 to $101.33, leaving the June 2017 yield-to-worst and spread at 5.68% and 391bps, respectively, both approximately 50bps tighter than at the end of December Default rates decreased by 207bps to 1.50% as 14 companies missed interest payments during the year-to-date period. More importantly, corporate access to both debt and equity capital markets has enabled issuers to improve their balance sheets. As a result, the percentage of the high yield market trading at a distressed spread of greater than 1,000bps declined to just 3.71%, down from 6.85% on 31 December 2016 and considerably below the peak of 31.07% in February This dynamic, coupled with a manageable debt maturity wall over the next few years and easier year-over-year comparisons versus the commodity bankruptcy wave that occurred last spring, portends that default rates could stay benign for at least the next several quarters. 12

14 Investment Manager s Report (continued) New issuance for the first half of 2017 totalled $175.3 billion, approximately 13% higher than last year s first half volume, a period when the high yield market slumped due to deterioration in the commodity markets and the primary market was effectively closed for all but a limited amount of issuers. Refinancing continues to represent approximately 65% of the use of proceeds while quality was generally excellent, as demonstrated by the fact that 89.5% of the volume was from single-b, split B, or double-b rated issuers. Lastly, high yield mutual funds registered an outflow of $9.5 billion. The Shenkman High Income Fund and Shenkman Short Duration High Income Fund have performed largely in-line with expectations. Both Funds will typically lag the broader market in periods where lower-quality credits rally indiscriminately. The Shenkman High Income Fund (Share Class A USD Accumulating) produced a net return of 9.80% for the year ending 30 June 2017, while the H0A0 returned 12.75%. The Fund remained well-diversified with holdings in 281 issuers across 36 industries as of 30 June Key portfolio metrics include a 5.34% Yield-to-Worst, an average credit rating of B+/B2, and a high quality profile with a C.Scope Score of The Shenkman Short Duration High Income Fund (Share Class A USD Accumulating) produced a net return of 4.84% for the year ending 30 June 2017, while the BofA Merrill Lynch 0-2 Year Duration BB-B U.S. High Yield Constrained Index (H42C) returned 5.33%. The Fund ended June 2017 with a current yield of 5.73%, Duration-to-Worst of 1.02 years, C.Scope Score of 82.75, and is invested across 143 issuers and 35 industries. The Shenkman Global Convertible Bond Fund (Share Class A USD Accumulating) produced a net return of 9.80% for the year ending 30 June 2017, while the BofA Merrill Lynch Global 300 Convertible Index (VG00) returned 14.76%. The Fund included 118 issuers across 40 industries at the end of June 2017 with an average C.Scope Score of The Shenkman Global High Yield Bond Fund (Share Class A USD Accumulating) launched on 19 December 2016 and for the year ending 30 June 2017 produced a net return of 4.38%, while the BofA Merrill Lynch Developed Markets High Yield Constrained Index (HYDC) returned 5.02%. At the end of June 2017, the Fund was invested in 293 issuers across 38 industries. The current yield is 5.6%, Duration-to-Worst is 3.31 years, and the average C.Scope score is References to benchmarks are for illustrative purposes only. There is no guarantee that any of the Sub- Funds will outperform the relevant benchmark. Shenkman Capital Management, Inc. July

15 Statement of Financial Position As at 30 June 2017 Shenkman Shenkman Shenkman Shenkman Short Duration Global Global High High Income High Income Convertible Yield Bond Fund Fund Bond Fund Fund* Total 0 30 June June June June June 2017 Notes Financial at Fair Value through Profit or Loss 3, 7 965,626, ,647, ,166,920 94,579,683 2,140,020,997 Bond Interest and Other Income Receivable 14,492,509 12,781, ,629 1,329,224 29,237,003 Cash and Cash Equivalents 6 16,545,132 26,963,738 6,762,971 2,774,448 53,046,289 Receivable on Subscriptions 104, , ,191 Receivable on Sale of Investments 8,071,747 6,766, , ,204 16,587,995 Reimbursement Receivable From Investment Manager 8,636 7,252 15,888 Other Receivables 66,474 72, ,766 81, ,867 Total 1,004,907, ,232, ,668,974 99,699,294 2,239,508,230 Liabilities Financial Liabilities at Fair Value through Profit or Loss 3, 7 7, , , ,494 Administration Fees 9 140, ,371 21,192 14, ,272 Management Fees 9 527, ,565 89,656 49,912 1,097,649 Depositary Fees 9 62,445 53,419 24,868 32, ,093 Payable on Purchase of Investments 8,401,829 8,792,950 3,092,090 3,189,060 23,475,929 Payable on Redemptions 6,651,091 20,123,326 26,774,417 Other Expenses Payable 470, ,757 13,336 2, ,518 Total Liabilities 16,261,507 29,849,388 3,775,228 3,603,249 53,489,372 Net Attributable to Holders of Redeemable Participating Shares ,645, ,383, ,893,746 96,096,045 2,186,018,858 * Shenkman Global High Yield Bond Fund was launched on 16 December 2016 following an in specie transfer from Shenkman High Income Fund. The value of assets transferred to the Shenkman Global High Yield Bond Fund was 48,848,

16 Statement of Financial Position As at 30 June 2017 (continued) Shenkman Shenkman Shenkman Shenkman Short Duration Global Global High High Income High Income Convertible Yield Bond Fund Fund Bond Fund Fund* 30 June June June June 2017 Share Class A USD Accumulating NAV per Share for dealing purposes 13 $1, $1, $1, $1, Number of Shares , , ,084 7,071 Share Class A USD Income Distributing NAV per Share for dealing purposes 13 $ $ Number of Shares 11 30,737 92,564 Share Class A CHF Hedged Income Distributing NAV per Share for dealing purposes 13 CHF Number of Shares Share Class A EUR Hedged Accumulating NAV per Share for dealing purposes Number of Shares ,612 49,763 15

17 Statement of Financial Position As at 30 June 2017 (continued) Shenkman Shenkman Shenkman Shenkman Short Duration Global Global High High Income High Income Convertible Yield Bond Fund Fund Bond Fund Fund* 30 June June June June 2017 Share Class A GBP Hedged Accumulating NAV per Share for dealing purposes Number of Shares 11 46,869 8,066 Share Class A GBP Hedged Income Distributing NAV per Share for dealing purposes Number of Shares 11 46, ,764 Share Class A NOK Hedged Accumulating NAV per Share for dealing purposes 13 kr6, kr9, Number of Shares ,047 49,001 Share Class A SEK Hedged Accumulating NAV per Share for dealing purposes 13 SEK8, Number of Shares 11 2,481 16

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19 Statement of Financial Position As at 30 June 2016 Shenkman Shenkman Shenkman Short Duration Global High Income High Income Convertible Fund Fund Bond Fund Total 0 30 June June June June 2016 Notes Financial at Fair Value through Profit or Loss 3, 7 1,214,214,792 1,116,466,084 90,973,242 2,421,654,118 Bond Interest and Other Income Receivable 17,836,995 15,095, ,514 33,232,799 Cash and Cash Equivalents 6 5,137,050 66,749,251 2,726,850 74,613,151 Receivable on Subscriptions 33,461 33,461 Receivable on Sale of Investments 6,095,611 2,220,112 8,315,723 Reimbursement Receivable From Investment Manager 12,827 12,827 Other Receivables 989 5,343 38,474 44,806 Total 1,243,318,898 1,198,315,968 96,272,019 2,537,906,885 Liabilities Financial Liabilities at Fair Value through Profit or Loss 3, , ,916 Administration Fees 9 73,028 91,899 12, ,363 Management Fees 9 677, ,790 42,705 1,246,597 Depositary Fees 9 42,545 53,037 18, ,452 Payable on Purchase of Investments 8,140,387 29,313,111 2,694,747 40,148,245 Payable on Redemptions 8,963 1,842,634 1,851,597 Other Expenses Payable 412, ,327 10, ,091 Total Liabilities 9,354,509 32,072,798 2,910,954 44,338,261 Net Attributable to Holders of Redeemable Participating Shares 13 1,233,964,389 1,166,243,170 93,361,065 2,493,568,624 18

20 Statement of Financial Position As at 30 June 2016 (continued) Shenkman Shenkman Shenkman Short Duration Global High Income High Income Convertible Fund Fund Bond Fund 30 June June June 2016 Share Class A USD Accumulating NAV per Share for dealing purposes 13 $1, $1, $ Number of Shares , ,252 90,052 Share Class A USD Income Distributing NAV per Share for dealing purposes 13 $ $ Number of Shares 11 26,544 86,172 Share Class A CHF Hedged Accumulating NAV per Share for dealing purposes 13 CHF Number of Shares Share Class A CHF Hedged Income Distributing NAV per Share for dealing purposes 13 CHF Number of Shares Share Class A EUR Hedged Accumulating NAV per Share for dealing purposes Number of Shares ,938 12,477 Share Class A EUR Hedged Income Distributing NAV per Share for dealing purposes Number of Shares 11 4,990 19

21 Statement of Financial Position As at 30 June 2016 (continued) Share Class A GBP Hedged Accumulating * Shenkman Shenkman Shenkman Short Duration Global High Income High Income Convertible 30 June 2016 Fund Fund Bond Fund 30 June June 2016 NAV per Share for dealing purposes Number of Shares ,957 8,066 Share Class A GBP Hedged Income Distributing NAV per Share for dealing purposes Number of Shares 11 46,891 2,510 Share Class A NOK Hedged Accumulating NAV per Share for dealing purposes 13 kr6, Number of Shares ,980 Share Class B USD Accumulating NAV per Share for dealing purposes 13 $1, Number of Shares 11 51,617 Share Class B USD Income Distributing NAV per Share for dealing purposes 13 $ Number of Shares * Share Class A GBP Hedged Accumulating launched on 4 March The accompanying notes form an integral part of the financial statements. 20

22 Statement of Comprehensive Income For the financial year ended 30 June 2017 Shenkman Shenkman Shenkman Shenkman Short Duration Global Global High High Income High Income Convertible Yield Bond Fund Fund Bond Fund Fund* Total 30 June June June June June 2017 Notes Income Net Gain on Financial and Liabilities at Fair Value through Profit or Loss 4 43,386,676 5,235,390 8,063,607 4,842,495 61,528,168 Bank Interest 7,771 7,771 Bond Interest 3 68,350,351 52,544,776 5,196,404 2,422, ,514,440 Dilution Levy 11 1,102, ,624 41,116 1,540,973 Other Income 3 250, ,534 36,953 12, ,412 Net Investment Income 111,987,786 59,130,933 13,694,588 7,326, ,139,764 Expenses Management Fees 9 7,591,878 6,182, , ,182 15,013,983 Directors' Fees 9 26,844 25,221 2, ,552 Administration Fees 9 459, ,370 64,806 16, ,300 Depositary Fees 9 247, ,689 95,121 32, ,540 Audit Fees 9 21,290 20,129 2, ,306 Legal Fees 105,943 99,615 9,013 3, ,056 Other Charges 312, ,215 31,771 7, ,021 Total Operating Expenses 8,766,291 7,232,498 1,141, ,983 17,505,758 Expenses reimbursed by Investment Manager 9 (7,252) (7,252) Net Operating Expenses 8,766,291 7,232,498 1,141, ,731 17,498,506 Taxation and Finance Costs Distribution 3 3,623,028 3,884, ,667 7,879,148 Total Taxation and Finance Costs 3,623,028 3,884, ,667 7,879,148 Increase in Net attributable to holders of Redeemable Participating Shares from Operations 99,598,467 48,013,982 12,552,602 6,597, ,762,110 There were no gains or losses other than those presented in the Statement of Comprehensive Income. All recognised gains and losses arose solely from continuing operations. * Shenkman Global High Yield Bond Fund was launched on 16 December The accompanying notes form an integral part of the financial statements. 21

23 Statement of Comprehensive Income For the financial year ended 30 June 2016 Shenkman Shenkman Shenkman Short Duration Global High Income High Income Convertible Fund Fund Bond Fund Total 30 June June June June 2016 Notes Income Net Loss on Financial and Liabilities at Fair Value through Profit or Loss 4 (132,377,921) (45,071,899) (2,901,284) (180,351,104) Bank Interest 8,678 9,069 17,747 Bond Interest 3 74,546,763 50,146,725 1,806, ,500,313 Dilution Levy , , ,913 Other Income 3 147, ,406 5, ,651 Net Investment (Expense)/Income (57,675,284) 5,830,079 (917,275) (52,762,480) Expenses Management Fees 9 8,224,307 6,058, ,260 14,580,371 Directors' Fees 9 29,082 23, ,319 Administration Fees 9 420, ,512 73, ,202 Depositary Fees 9 231, , , ,191 Audit Fees 9 31,137 29,483 4,621 65,241 Legal Fees 93,496 79,497 40, ,958 Other Charges 273, ,903 7, ,855 Total Operating Expenses 9,303,591 6,903, ,819 16,753,137 Expenses reimbursed by Investment Manager 9 (156,534) (156,534) Net Operating Expenses 9,303,591 6,903, ,285 16,596,603 Taxation and Finance Costs Distribution 3 3,991,374 2,580,304 6,571,678 Total Taxation and Finance Costs 3,991,374 2,580,304 6,571,678 Decrease in Net attributable to holders of Redeemable Participating Shares from Operations (70,970,249) (3,653,952) (1,306,560) (75,930,761) There were no gains or losses other than those presented in the Statement of Comprehensive Income. All recognised gains and losses arose solely from continuing operations. The accompanying notes form an integral part of the financial statements. 22

24 Statement of Changes in Net Attributable to Holders of Redeemable Participating Shares For the financial year ended 30 June 2017 Shenkman Shenkman Shenkman Shenkman Short Duration Global Global High High Income High Income Convertible Yield Bond Fund Fund Bond Fund Fund* Total** 30 June June June June June 2017 Net Attributable to Holders of Redeemable Participating Shares at the beginning of the year 1,233,964,389 1,166,243,170 93,361,065 2,493,568,624 Increase in net assets attributable to holders of Redeemable Participating Shares from operations 99,598,467 48,013,982 12,552,602 6,597, ,762,110 Shares subscribed 102,797, ,351,541 60,980,079 89,498, ,628,279 Shares redeemed (447,714,985) (492,225,170) (939,940,155) (Decrease)/Increase in net assets from capital transactions (344,917,312) (279,873,629) 60,980,079 89,498,986 (474,311,876) (Decrease)/Increase in net assets attributable to holders of Redeemable Participating Shares during the year (245,318,845) (231,859,647) 73,532,681 96,096,045 (307,549,766) Net Attributable to Holders of Redeemable Participating Shares at the end of the year 988,645, ,383, ,893,746 96,096,045 2,186,018,858 * Shenkman Global High Yield Bond Fund was launched on 16 December 2016 following an in specie transfer from Shenkman High Income Fund. The value of assets transferred to the Shenkman Global High Yield Bond Fund was 48,848,588. ** The Company Total column reflects the gross proceeds from redeemable participating shares issued and gross cost of redeemable participating shares redeemed from the inspecie transfer. The accompanying notes form an integral part of the financial statements. 23

25 Statement of Changes in Net Attributable to Holders of Redeemable Participating Shares For the financial year ended 30 June 2016 Shenkman Shenkman Shenkman Short Duration Global High Income High Income Convertible Fund Fund Bond Fund Total 30 June June June June 2016 Net Attributable to Holders of Redeemable Participating Shares at the beginning of the year 1,334,905,741 1,083,831,700 24,521,356 2,443,258,797 Decrease in net assets attributable to holders of Redeemable Participating Shares from operations (70,970,249) (3,653,952) (1,306,560) (75,930,761) Shares subscribed 287,815, ,989,650 70,165, ,970,564 Shares redeemed (317,786,713) (51,924,228) (19,035) (369,729,976) (Decrease)/Increase in net assets from capital transactions (29,971,103) 86,065,422 70,146, ,240,588 (Decrease)/Increase in net assets attributable to holders of Redeemable Participating Shares during the year (100,941,352) 82,411,470 68,839,709 50,309,827 Net Attributable to Holders of Redeemable Participating Shares at the end of the year 1,233,964,389 1,166,243,170 93,361,065 2,493,568,624 The accompanying notes form an integral part of the financial statements. 24

26 25 Shenkman Credit Fund plc Statement of Cash Flow For the financial year ended 30 June 2017 Increase in Net Attributable to Holders of Shenkman Shenkman Shenkman Shenkman Short Duration Global Global High High Income High Income Convertible Yield Bond 30 June 2017 Fund Fund Bond Fund Fund* Total 30 June June June June 2017 Redeemable Participating Shares from Operations 99,598,467 48,013,982 12,552,602 6,597, ,762,110 Adjustments to reconcile net increase in net assets attributable to holders of redeemable shares from operations to cash provided by operating activities (99,598,467) (48,013,982) (12,552,602) (6,597,059) Less: Interest income (68,350,351) (52,544,776) (5,196,404) (2,430,680) (128,522,211) Operating gain/(loss) before working capital changes 31,248,116 (4,530,794) 7,356,198 4,166,379 38,239,899 Changes in operating assets and liabilities Net decrease/(increase) in investments in financial assets and financial liabilities 201,809, ,818,121 (70,791,482) (47,478,107) 282,357,699 Net decrease/(increase) in other receivables 713,882 (4,520,577) 832,844 (1,585,747) (4,559,598) Net increase/(decrease) in other creditors and accrued expenses 257,042 (20,504,102) 462,078 3,288,695 (16,496,287) Cash inflow/(outflow) from operating activities 202,780, ,793,442 (69,496,560) (45,775,159) 261,301,814 Interest income 68,350,351 52,544,776 5,196,404 2,430, ,522,211 Net cash inflow/(outflow) from operating activities 302,378, ,807,424 (56,943,958) (39,178,100) 428,063,924 Cash flows from financing activities Shares subscribed 102,797, ,351,541 60,980,079 42,122, ,252,274 Shares redeemed (400,338,980) (492,225,170) (892,564,150) Net increase in subscriptions receivable (71,297) (170,433) (241,730) Net increase in redemptions payable 6,642,128 18,280,692 24,922,820 Net cash (outflow)/inflow from financing activities (290,970,476) (261,592,937) 60,980,079 41,952,548 (449,630,786) Net increase/(decrease) in cash and cash equivalents 11,408,082 (39,785,513) 4,036,121 2,774,448 (21,566,862) Cash and cash equivalents at the beginning of the year 5,137,050 66,749,251 2,726,850 74,613,151 Cash and cash equivalents at the end of the year 16,545,132 26,963,738 6,762,971 2,774,448 53,046,289 Supplementary information on cash flows from operating activities Interest received 72,124,415 64,754,385 1,545,111 1,223, ,647,659 Dividends paid 3,623,028 3,884, ,667 7,879,148 In-specie transactions between Sub-Funds of the Company (47,376,005) 47,376,005 * Shenkman Global High Yield Bond Fund was launched on 16 December The accompanying notes form an integral part of the financial statements.

27 Statement of Cash Flow For the financial year ended 30 June 2016 Shenkman Shenkman Shenkman Short Duration Global High Income High Income Convertible Fund Fund Bond Fund Total 30 June June June June 2016 Decrease in Net Attributable to Holders of Redeemable Participating Shares from Operations (70,970,249) (3,653,952) (1,306,560) (75,930,761) Adjustments to reconcile net decrease in net assets attributable to holders of redeemable shares from operations to cash provided by operating activities 70,970,249 3,653,952 1,306,560 Less: Interest income (74,555,441) (50,155,794) (1,806,825) (126,518,060) Operating loss before working capital changes (145,525,690) (53,809,746) (3,113,385) (202,448,821) Changes in operating assets and liabilities Net decrease/(increase) in investments in financial assets and financial liabilities 62,168,167 (101,972,483) (66,553,642) (106,357,958) Net (increase)/decrease in other receivables (1,837,605) 531,473 (2,232,727) (3,538,859) Net (decrease)/increase in other creditors and accrued expenses (1,919,575) 25,275,146 2,518,161 25,873,732 Cash inflow/(outflow) from operating activities 58,410,987 (76,165,864) (66,268,208) (84,023,085) Interest income 74,555,441 50,155,794 1,806, ,518,060 Net cash outflow from operating activities (12,559,262) (79,819,816) (67,574,768) (159,953,846) Cash flows from financing activities Shares subscribed 287,815, ,989,650 70,165, ,970,564 Shares redeemed (317,786,713) (51,924,228) (19,035) (369,729,976) Net decrease in subscriptions receivable 1,241, ,728 1,460,318 Net increase in redemptions payable 8, , ,749 Net cash (outflow)/inflow from financing activities (28,720,550) 86,719,936 70,146, ,145,655 Net (decrease)/increase in cash and cash equivalents (41,279,812) 6,900,120 2,571,501 (31,808,191) Cash and cash equivalents at the beginning of the year 46,416,862 59,849, , ,421,342 Cash and cash equivalents at the end of the year 5,137,050 66,749,251 2,726,850 74,613,151 Supplementary information on cash flows from operating activities Interest received 78,709,811 65,852, , ,970,177 Dividends paid 3,991,374 2,580,304 6,571,678 The accompanying notes form an integral part of the financial statements. 26

28 Notes to the financial statements 1. Establishment and Organisation Shenkman Credit Fund plc (the Company ) is an open-ended umbrella investment Company with segregated liability between Sub-Funds and variable capital incorporated in Ireland as a public limited company on 15 June 2011 under registration number As of 30 June 2017, the Company had four active Sub-Funds (each a Sub-Fund and together the Sub-Funds ): - Shenkman High Income Fund, - Shenkman Short Duration High Income Fund, - Shenkman Global Convertible Bond Fund, - Shenkman Global High Yield Bond Fund. The Shenkman High Income Fund was launched on 1 July 2011, the Shenkman Short Duration High Income Fund was launched on 25 August 2011, the Shenkman Global Convertible Bond Fund was launched on 21 May 2015, and the Shenkman Global High Yield Bond Fund was launched on 16 December The Company had no employees for the financial year ended 30 June 2017 and for the financial year ended 30 June The investment objective of the Shenkman High Income Fund is to seek to achieve maximum total return (i.e., both enhancing current income and achieving capital appreciation) by investing primarily in fixed income, high yield securities (i.e., Below Investment Grade Securities), predominantly issued by U.S. issuers that are denominated in U.S. Dollars. The investment objective of the Shenkman Short Duration High Income Fund is to seek to achieve high current income. The Sub-Fund seeks to achieve its objective by investing a majority (i.e., more than 50 per cent) of its Net Asset Value in a portfolio of fixed income and high yield securities (i.e., Below Investment Grade Securities). While the Sub-Fund will have an overall targeted Duration of three years or less, it may purchase and hold securities of any Duration and of any quality, rated or unrated. The investment objective of the Shenkman Global Convertible Bond Fund is to seek to maximise total returns on a risk-adjusted basis (i.e., enhance current income and achieve capital appreciation) by investing primarily in transferable securities and Liquid Financial. The transferable secirities and Liquid Financial in which the Sub-Fund may invest generally must be listed, traded or dealt in on a Regulated Market provided that up to 10 percent of the Net Value of the Sub-Fund may be invested in transferable securities and Liquid Financial that are not so listed, traded or dealt. The investment objective of the Shenkman Global High Yield Bond Fund is to seek to maximise total returns on a risk-adjusted basis (i.e., enhance current income and achieve capital appreciation) by investing primarily (i.e., at least 70 per cent of its Net Asset Value) in high yield bond securities that are issued by companies worldwide. 2. Basis of Preparation (a) Basis of accounting The financial statements as at 30 June 2017 are prepared in accordance with International Financial Reporting Standards ( IFRS ) as adopted by the European Union, the provisions of the UCITS Regulations and the Central Bank UCITS Regulations and in accordance with the requirements of the Companies Act, 2014, as amended. The accounting policies set out below have, unless otherwise stated, been applied consistently by the Company. 27

29 Notes to the financial statements (continued) 2. Basis of Preparation (continued) (b) Basis of measurement These financial statements have been prepared on an historical cost basis except for financial instruments at fair value through profit or loss, which are measured at fair value. (c) Functional and presentation currency Items included in the Company s financial statements are measured using the currency of the primary economic environment in which it operates (the functional currency ). This is the United States Dollar ( ), reflecting the fact that substantially all of the Company s capital and investments are denominated in. The Company has also adopted the as its presentation currency. (d) Use of estimates and judgements The preparation of the financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amount of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the financial year in which the estimates are revised and in any future years affected. Judgements made by the Directors in the application of IFRS that have significant effects on the financial statements are displayed where applicable, in the relevant notes to the financial statements. (e) New standards and interpretations There are no new standards, interpretations or amendments to existing standards that are effective for the first time for the financial year beginning 1 July 2016 that have had a material impact on the Company. (f) Standards, amendments and interpretations that are not yet effective IFRS 9, Financial instruments This standard on classification and measurement of financial assets and financial liabilities will replace IAS 39, Financial instruments: Recognition and measurement. IFRS 9 has two measurement categories: amortised cost and fair value. All equity instruments are measured at fair value. A debt instrument is measured at amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest. For liabilities, the standard retains most of the IAS 39 requirements. These include amortised-cost accounting for most financial liabilities, with bifurcation of embedded derivatives. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. IFRS 9 further introduces new requirements for hedge accounting that align hedge accounting more closely with risk management. The mandatory effective date of IFRS 9 is 1 January Based on an initial assessment, the standard is not expected to have a material impact on the Company. 28

30 Notes to the financial statements (continued) 2. Basis of Preparation (continued) (f) Standards, amendments and interpretations that are not yet effective (continued) On 29 January 2016, The International Accounting Standards Board (IASB) published amendments to IAS 7 'Statement of Cash Flows'. The amendments are intended to clarify IAS 7 to improve information provided to users of financial statements about an entity's financing activities. They are effective for annual periods beginning on or after 1 January Based on initial assessment, the amendments are not expected to have a material impact on the Company. 3. Significant Accounting Policies (a) Financial instruments (i) Classification The Company classifies its investments into the financial assets at fair value through profit or loss category. The category of financial assets and liabilities at fair value through profit or loss comprises financial instruments held-for-trading and financial instruments designated at fair value through profit or loss upon initial recognition. Financial instruments held-for-trading are those that the Company principally holds for the purpose of short-term profit taking. These include investments in bonds, loan notes and forward foreign currency contracts. Financial assets that are categorised as loans and receivables include cash at banks, balances due from brokers and account receivables, none of which are quoted on an active market. Financial liabilities that are not at fair value through profit or loss include balances due to brokers, accounts payable and financial liabilities arising on redeemable shares. (ii) Recognition The Company recognises financial assets and financial liabilities held-for-trading on the date it commits to purchase or sell short the instruments. From this date any gains and losses arising from changes in fair value of the assets or liabilities are recognised. (iii) Initial Measurement Financial instruments categorised at fair value through profit or loss are measured initially at fair value, with transaction costs for such instruments being recognised directly in the Statement of Comprehensive Income. (iv) Subsequent Measurement After initial measurement, the Company measures financial instruments which are classified as at fair value through profit or loss, at their fair values. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. All financial instruments in the portfolios are valued at bid price. (v) Derecognition The Company derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire or the Company transfers the financial asset and the transfer qualifies for derecognition in accordance with IAS 39 Financial Instruments: Recognition and Measurement. The Company derecognises a financial liability when the obligation specified in the contract is discharged, cancelled or expired. 29

31 Notes to the financial statements (continued) 3. Significant Accounting Policies (continued) (a) Financial instruments (continued) (vi) Transfers between the levels of the fair value hierarchy Transfers between levels of the fair value hierarchy are deemed to have occurred at the end of the reporting year. (b) Fair value Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm s length transaction on the measurement date. When available, the Company measures the fair value of an instrument using quoted prices in an active market for that instrument. A market is regarded as active if quoted prices are readily and regularly available and represent actual and regularly occurring market transactions on an arm s length basis. These instruments are included within level 1 of the fair value hierarchy. Financial instruments, other than those listed and actively traded on an official stock exchange, are valued by independent pricing services based on pricing models. The models also take into consideration data received from active market makers and broker-dealers, yield curves, and the spread over comparable bond issues. The spreads change daily in response to market conditions and are generally obtained from the new issue market and broker dealer sources. Shenkman Global Convertible Bond Fund holds convertible bonds. The investment value of a convertible security is influenced by changes in interest rates, with investment value declining as interest rates increase and increasing as interest rates decline. The conversion value of a convertible security is determined by the market price of the underlying common stock. To the extent that these inputs are observable, the values of these bonds are categorised within level 2 of the fair value hierarchy, as well as corporate bonds and loan notes. The fair values of forward foreign currency contracts are calculated by reference to current exchange rates for contracts with similar maturity and risk profiles. To the extent that these are observable, the values of those forward foreign currency contracts are classified within level 2 of the fair value hierarchy. The determination of fair value for financial assets and liabilities for which there is no observable market price requires valuation techniques. IFRS 7 Financial Instruments Disclosures, establishes a fair value hierarchy for inputs used in measuring fair value that maximises the use of observable inputs and minimises the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company management s assumptions, made in good faith, about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value hierarchy is categorised into three levels based on the inputs as follows: Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities; Level 2 - Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly (as prices) or indirectly (derived from prices); and Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement. 30

32 Notes to the financial statements (continued) 3. Significant Accounting Policies (continued) (b) Fair value (continued) Inputs are used in applying the various valuation techniques and broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. Inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics, and other factors. A financial instrument s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes observable requires significant judgement by the Company. The Company considers observable data to be market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. The categorisation of a financial instrument within the hierarchy is based upon the pricing transparency of the instrument and does not necessarily correspond to the Company s perceived risk of that instrument. Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Company s assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. The Company uses prices and inputs that are current as of the measurement date, including periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many securities. This condition could cause a security to be reclassified to a lower level within the fair value hierarchy. The below tables present information about the Company s assets and liabilities measured at fair value on a recurring basis as of 30 June 2017 and 30 June 2016: Shenkman High Income Fund Quoted prices in active Balance at markets 30 June 2017 (Level 1) Significant other Significant observable unobservable inputs inputs (Level 2) (Level 3) Financial assets at fair value through profit or loss Bonds 932,490, ,490,974 Loan Notes 30,249,993 30,249,993 Forward Foreign Currency Contracts 2,885,464 2,885, ,626, ,626,431 Financial liabilities at fair value through profit or loss Forward Foreign Currency Contracts (7,854) (7,854) (7,854) (7,854) 31