Annual Report • Oct 7, 2022
Annual Report
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NCYF (Newcity High Yield Fund Limited) CQS NEW CITY HIGH YIELD FUND LIMITED ANNUAL REPORT & FINANCIAL ST A TEMENTS 30 JUNE 2022 CQS NEW CITY HIGH YIELD FUND LIMITED ANNUAL REPORT 30 JUNE 2022 Purpose and Strategy The purpose of the Company is to pr ovide Shar eholders with a high dividend yield and the potential for c apital gr owth by investing pr edominantly in high yielding fixed inter est securities. T o achieve this, the str ategy of the Company is to foll ow the investment policy outlined on page 13 of this r eport and to utilise the benefits of being a closed-ended inves tment vehicl e. Dividends Declar ed in Respect of Each Financial Y ear 3.5 3.6 3.7 3.8 3.9 4.0 4.1 4.2 4.3 4.4 4.5 4.6 2021/22 2020/21 2019/20 2018/19 2017/18 2016/17 2015/16 2014/15 2013/14 2012/13 2011/12 2010/11 Dividend per ordinary shar e (pence) Sour ce: Bloomber g Net Asset V alue T otal Return and Share Pric e T otal Return Index r estat ed to 100 fr om 30 June 2010 Sour ce: BNP Paribas Securities Servic es S.C.A., Jersey Branch Bloomber g and Morningstar 80 100 120 140 160 180 200 220 240 260 Net asset value total r eturn (dividends r einvested) Shar e price t otal r eturn (dividends r einves ted) June 2022 June 2021 June 2020 June 2019 June 2018 June 2017 June 2016 June 2015 June 2014 June 2013 June 2012 June 2011 June 2010 T otal r eturn index 1 ANNUAL REPORT 30 JUNE 2022 CQS NEW CITY HIGH YIELD FUND LIMITED CQS New City High Yield F und Ltd Contents Financial Highlights 2 Financial Highlights Strategic Report 3 Statement fr om the Chair 5 Investment Manager’ s Review 6 Classification of Investment P ortfolio 7 Investment Portf olio 9 T en Larges t Holdings 10 Principal Risks and Uncertainties and Risk Mitigation 12 Stakeholders – Section 172 Statement and Principal Decisions 13 Strategic Review Dir ectors ’ Reports and Governanc e Reports 16 Statement of Director s’ Responsibilities in respect of the Annual Report and Financial St atements 17 Board of Dir ectors and Investment Manager 20 Directors ’ Report 22 The Board and Committees 24 Statement of Compliance with the AIC Code 25 ESG statement of the Company 28 Report of the Audit and Risk Committee 30 Directors ’ Remuneration Report Independent Auditor’ s Report 31 Independent Auditor’ s Report to the members of C QS New City High Yield Fund Limited Financial Statements 36 Statement of Compr ehensive Income 37 Statement of Financial Position 38 Statement of Changes in Equity 39 Cash Flow Statement 40 Notes to the Financial Statements Supplement al Information and Annual General Meeting 55 Glossary of T erms and Definitions 56 Alternative Performanc e Measur es 59 Explanation of Annual General Meeting resolutions 60 Notice of Annual General Meeting 62 Report of the Investment Manager r elating to Matters under the Alternative Inves tment Fund Managers ’ Directive (unaudited) 63 Corporate Inf ormation 2 CQS NEW CITY HIGH YIELD FUND LIMITED ANNUAL REPORT 30 JUNE 2022 Strategic Report Financial Highlights Financial Highlights NAV and share price total return ** Year to 30 June 2022 Year to 30 June 2021 Net asset value * (NAV) 2.04% 21.38% Ordinary share price 1.21% 26.31% Capital Values 30 June 2022 30 June 2021 % change Total assets less current liabilities (with the exception of the bank loan facility) £268.0m £267.2m 0.30% NAV per ordinary share * 49.30p 52.62p (6.31%) Share price (bid) 1 51.20p 54.80p (6.57%) Revenue and Dividends 30 June 2022 30 June 2021 % change Revenue earnings per ordinary share ** 4.16p 4.18p (0.48%) Annual dividends per ordinary share ** 4.48p 4.47p 0.22% Dividend cover ** 0.93x 0.94x (1.06%) Revenue reserve per ordinary share (after recognition of annual dividends) ** 3.26p 3.78p Dividend yield ** 8.75% 8.16% Premium ** 3.86% 4.14% Gearing ** 12.35% 9.21% Ongoing charges ratio ** 1.19% 1.25% Dividend History Rate xd date Record date Payment date First interim 2022 1.00p 28 October 2021 29 October 2021 30 November 2021 Second interim 2022 1.00p 27 January 2022 28 January 2022 25 February 2022 Third interim 2022 1.00p 28 April 2022 29 April 2022 27 May 2022 Fourth interim 2022 1.48p 28 July 2022 29 July 2022 26 August 2022 Annual dividend per ordinary share 4.48p First interim 2021 1.00p 22 October 2020 23 October 2020 30 November 2020 Second interim 2021 1.00p 28 January 2021 29 January 2021 26 February 2021 Third interim 2021 1.00p 29 April 2021 30 April 2021 28 May 2021 Fourth interim 2021 1.47p 29 July 2021 30 July 2021 31 August 2021 Annual dividend per ordinary share 4.47p 1 Sourc e: Bloomber g * The definition of the terms used can be f ound in the glossary on page 55. ** A description of the Alternative Perf ormance Measur es used above and inf ormation on how they ar e calculat ed can be found on pages 56 to 58. 3 ANNUAL REPORT 30 JUNE 2022 CQS NEW CITY HIGH YIELD FUND LIMITED Statement fr om the Chair Strategic Report Statement fr om the Chair Highlights • Net asset value t otal r eturn of 2.04% • Or dinary share pric e total r eturn of 1.21% • Dividend yield of 8.75%, based on dividends at an annualised rate of 4.48 pence and a shar e price of 51.20 pence as at 30 June 2022 • Or dinary share pric e trading at a pr emium of 3.86% as at 30 June 2022 • £17.2m of equity raised during the year to 30 June 2022 Investment and Shar e Price Perf ormance When I last wr ote to Shar eholders in February of this y ear , I r eported on steady pr ogress f or the Company in terms of NAV and shar e price but noted ther e wer e worrying signs of incr easing inflation and to mitigate this effect, c entral banks had begun to incr ease inter est rates. The second half of the Company’ s financial year has indeed been much mor e difficult as the terribl e invasion of Ukraine by Russia has unf olded. Markets have been r attled by this situation and the rising ener gy costs which foll owed. Howev er , the full year performanc e numbers show that the net asset value of the Company managed a small positiv e total r eturn of 2.04% and 1.21% from the t otal shar e price r eturn. The pr emium stood at 3.86% as at 30 June 2022, close t o the pre vious year-end figur e of 4.14%. The economic and geopolitical back drop to your Company’ s financial year , particularl y the second half, has been ex ceptionally difficult. The ongoing COVID-19 pandemic is still c ausing issues acr oss the world, notably with suppl y chains, to which rising inflation and interes t rates and the geopolitical ev ents in the Ukraine have been added. In terms of dir ect impact, the Company experienced a 3.1% portf olio los s foll owing the write-down of Raven Pr operty Group Ltd and Raven Rus sia 12% 09-31/12/2059, investments c onnected to Russia. Y our Investment Manager , Ian (“F ranco”) F rancis, has many years of experienc e working in volatil e markets utilising his underl ying philosophy and st ock selection t o construct a diver se portfolio and this has been put to good use in the curr ent environment. In my opinion, y our Company’ s po rtfolio r esults this year against this back drop of negativ e news ar e commendabl e and come on the back of the net asset v alue total r eturn of over 21% last y ear . The Investment Manager’ s review on page 5 pr ovides mor e details. Earnings and Dividends The Company’ s rev enue earnings per or dinary share wer e 4.16 pence for the financial year , 0.5% lower than the 4.18 penc e earned last year . Earnings wer e impacted by the passing of c oupons from Rav en Property , as detail ed above. In my r eport last year , I noted that the Boar d was monitoring the potential r eduction in investment opportunities availabl e to the Company because of declining yields. This tr end looks to be r eversing bec ause of r ecent rises in inter est rates fr om central Governments which means that the Inves tment Manager is finding a gr eater range of suitabl e securities to invest in. This bodes w ell for futur e earnings. The Company declar ed three int erim dividends of 1.00 pence in r espect of the period and one interim dividend of 1.48 pence sinc e the year end. The aggr egate payment of 4.48 pence per or dinary share r epresents a 0.22% incr ease on the 4.47 pence paid last year . The Boar d rec ognises the importance of the r elatively high dividend to Shar eholders and as flagged in pr evious r eports, decided to utilise 0.32 pence per or dinary shar e of our 3.78 pence per or dinary shar e re venue r eserves to co ver the shortfall of earnings. The Boar d also decided to increase this year’ s dividend, albeit marginall y , to maintain the Company’ s recor d of annual incr eases which has been unbrok en since 2007. Looking forwar d, the Board expects t o pay similar dividends in the curr ent financial year to last, pos sibly drawing modes tly on our r eserves but anticipating some incr ease in earnings per ordinary shar e. As I wrot e in last year’ s report, the Boar d believes that this policy is supported by our Shar eholders whom we consult r egularly and we envisage continuing in this way in the near futur e, utilising one of the advantages of being a cl osed-ended fund. Gearing In December 2021, the Company r eplaced its existing l oan facility with Scotiabank with a two year £45m f acility at a current all-in rate of 1.45% plus a daily non-cumulativ e RFR rate with the same bank. Of this facility , £33m was drawn down at 30 June 2022 and the Company had an effective gearing r ate of 12.35%. As I have shar ed in previous r eports, the Board belie ves that a modest but meaningful amount of gearing (another notabl e advantage of closed-ended funds c ompar ed to open-ended) is desirabl e and expects to maint ain appro ximately this le vel of gearing during the next financial year . Shar e Issuance F or most of the year to 30 June 2022, the market attached a pr emium rating to your Company’ s shares, allo wing us to issue new shar es in a gradual manner and onl y when your Investment Manager was confident he could inv est the additional funds fav ourably . £17.2m was raised fr om new and exis ting Shareholder s during the re view period, with 31.6m or dinary shares is sued fr om the block listing f acility . As well as a modest incr ease in net asset value fr om any issue of shar es, the Boar d believes that ov er time existing Shar eholders will benefit fr om lower ongoing char ges and greater liquidity in the Company’ s shar es, all other things being equal. Envir onmental, Social and Governanc e (“ESG”) Statement The Boar d’ s intention is to invest r esponsibly and to consider the Company’ s broader impact on society and the envir onment. We believ e the integration of ESG f actors in the inves tment proc ess is consis tent with delivering sustainabl e attractive r eturns for Shar eholders through deeper , more informed inv estment decisions. The Boar d has re viewed and agr eed the ESG approach adopt ed by the Company and a summary of this is set out on pages 25 to 27. 4 CQS NEW CITY HIGH YIELD FUND LIMITED ANNUAL REPORT 30 JUNE 2022 Strategic Report Statement fr om the Chair Statement fr om the Chair Notice of Annual Gener al Meeting The notice of the Annual General Meeting t o be held at 11.00 a.m. at IFC1, The Esplanade, St. Helier , Jersey , JE1 4BP on 1 December 2022, including the pr oposed resolutions, c an be found on page 59. The Boar d considers that the pas sing of the resolutions t o be proposed at the Annual General Meeting is in the best inter ests of the Company and its Shar eholders as a whole and is most likel y to pr omote the succes s of the Company for the benefit of the Shareholder s as a whole. The Boar d unanimously r ecommends that all Shareholder s vote in favour of these r esolutions. Outlook The envir onment is particularly uncert ain at present and unlik ely to become l ess so in the immediate futur e. We c an be pretty sur e we will see further inter est rate rises but ho w this translates into the inflation trajectory and impact on ec onomic growth is not cl ear . However , I believe that your Company’ s portfolio has the attributes to w eather the current storm. I have writt en befor e that the short remaining life of th e majority of our fixed inter est investments gives us some pr otection from rising yields and I expect that the rigor ous credit anal ysis carried out by the team of your Inves tment Manager on the bond issuers r educes our default risk. Finall y , the portfolio is well div ersified including some exposur e to currencies other than st erling and small but signific ant holdings in equities. All these factor s add up to a r obust portfolio and overall, I belie ve we ar e in good shape to continue delivering attractive r eturns to our shar eholders. Caroline Hit ch Chair 15 September 2022 5 ANNUAL REPORT 30 JUNE 2022 CQS NEW CITY HIGH YIELD FUND LIMITED Investment Manager’ s Review Strategic Report Inves tment Manager’ s Revie w Intr oduction After a quiet six-month period to the end of December 2021, the sec ond half of our financial year has seen major political and ec onomic upheavals. As the r estrictions from the lates t COVID-19 Omicr on variant began to r ecede, markets began to f ocus more on inflation concerns and what c entral Governments could do to r ein in rampant inflation le vels. Then came the dr eadful Russian invasion of Ukraine in F ebruary 2022 which brought the spectr e of an all-out war to Europe and caused commodities pric es, particularly in ener gy , to increase substantiall y and exacerbat e the worries over inflation. Equity and Bond markets in the firs t six months of 2022 have fall en sharply as investor s have become c oncerned about inflation and the potential f or economic r ecessions. The Company’ s portfolio has been affect ed by a Russia connect ed investment of which further details ar e provided below; ne vertheles s, the diverse natur e of our portfolio holdings has meant that the overall net as set value total return f or the 12 months to 30 June 2022 is a positive one at a modest 2.04%. Market and ec onomic re view The first half of our financial year saw ec onomists and market commentator s begin to r ealise that the spectr e of inflation was more permanent than they had pr eviousl y thought. At the end of June 2021, the UK CPI r eading was an annual increase of 2.4%; by the end of December 2021 this had r eached 5.4% and at our year-end in June 2022 consumer inflation was a massiv e 9.1%. A similar pattern emer ged in the US and Europe. Up until the s tart of December 2021 equity stock mark ets seemed to shrug off worries over inflation and COVID-19 r estrictions and were generall y positive with major indices at near all-time highs in many markets. Mark ets started t o come off their highs late in 2021 and fell sharpl y in January 2022 as economies stall ed as supply chains wer e under pres sure fr om rising inflation and ongoing COVID-19 r estrictions. As we started F ebruary , concerns w ere r aised about the devel oping mobilisation of a considerabl e Russian for ce on the bor der of Ukraine. Despite warnings fr om western go vernments, on 24 February 2022 we saw the terribl e full-on attack on various ar eas of Ukraine, fr om which point western sanctions hav e been massivel y incr eased. The continuing Russian invasion of Ukr aine has increased the pr essur es on supply chains and inflated prices f or oil, gas, and many har d and soft commodities. The net eff ect is the slowing of ec onomic growth and post-pandemic r ecov ery globall y . Government lar gesse is c onstrained as the concert ed stimulus to pr otect economies during the early COVID-19 era is lar gely at an end. Generall y , the major tool availabl e to central banks t o curb inflation is inter est rates and we hav e started to see a wave of inter est rate rises ar ound the world. Markets have f allen sharply in 2022 as inves tors worry about inflation and slowing gr owth with the spectre of “s tagflation” becoming appar ent. In the UK, the FTSE All-Shar e Index fell by 6.6% o ver the six months to the end of June 2022 as the high weighting to commodity s tocks help mitigate the fall wher eas the Euro Sto xx 600 fell by 16% and the S&P 500 fell by 20.6% ov er the same period. High yield bond markets wer e also weak falling by ar ound 14%. Portf olio Review W e have continued to maint ain a diversified portf olio acros s a range of sectors and during the year w e have incr eased the proportion of the portfolio held in non-st erling currencies t o help prot ect against sterling weaknes s. The Company’ s portfolio was negativel y affected by the Ukraine c onflict as we held investments in a Guernse y domiciled c ompany called Rav en Pr operty Group which has dir ect exposur e to Russia. Its main busines s is operating war ehouses for W estern companies in St. Pet ersbur g and Moscow . At the end of January , we had 2.9% of the Company’ s portfolio in the Raven Pr operty 12% pr efer ence shares and 0.2% in its or dinary shar es. Foll owing the invasion, Raven suspended its shar es and advised it was unlikel y to be able to continue maint aining normal operations. It has since been delis ted fr om the stock ex change, coupon payments on the pr efer ence shares have c eased and the price of both securities has been written down to zer o in the Company’ s portfolio. W e ar e monitoring the position and will wait to see what happens to Raven Pr operty when hopefully the situation s tabilises. Thr ee of the new holdings in the top ten ov er the year ar e positions that we have held f or some time and have made their way into the top ten mor e rec ently , namely REA Finance, St onegate Pub Gr oup and Diversified Ener gy . There ar e two other new holdings in the top ten; Mangr ove Lux co 7.775% 2025 which is a holding company f or a German heat ex change manufactur er and Hawk Debtco 10.5% 2024 which is a financing company f or an Aberdeen based ener gy services firm. The r evenue acc ount has seen earnings per or dinary share of 4.16p come in bel ow our total dividend of 4.48p f or the year . In past years we have been abl e to put significant sums into the r evenue r eserves and we have again modestl y utilised these this year to ensure that this dividend is paid to shar eholders. In my r egular discussions with shar eholders the r evenue and dividends ar e topics of crucial importance and the ability of any portf olio company to pay its c oupon or expected dividend is one of the major indic ators we f ollow . Outlook The backgr ound for the short to medium term is har dly a positive one. Ther e is the prospect of s tagflation in the UK, incr easing inter est rates, double digit inflation, incr easing unrest fr om major unions in the UK pr omising an autumn and winter of discontent. W e have a new prime Minister in the UK and she has an oner ous task ahead of her in trying to change exis ting policies in order t o tackle the c ost-of-living crisis. Ther e are also a hos t of external f actors out of the contr ol of the UK government such as the ongoing war in Ukraine and c ontinuing lock downs in China. F or the Company , whilst all the above put s tr esses and strains on the markets, we hav e a diverse portf olio acros s sectors and curr encies and imperfect mark ets should cr eate opportunities for prudent inves tment. W e have seen these types of market bef ore and will continue to w ork har d for you. Ian “Fr anco” F rancis New City Investment Manager s 15 September 2022 6 CQS NEW CITY HIGH YIELD FUND LIMITED ANNUAL REPORT 30 JUNE 2022 Strategic Report Classification of Inv estment Portfolio Classification of Inv estment Portf olio As at 30 June By Currency 2022 Total investments % 2021 Total investments % Sterling 62 68 US Dollar 23 22 Euro 12 9 Swedish Krona 2 – Norwegian Krone 1 1 Total investments 100 100 By Asset Class 2022 Total investments % 2021 Total investments % Bonds 81 84 Equity shares 19 15 Convertible Bonds – 1 Total investments 100 100 Classification of Inv estment Portf olio by Sector As at 30 June 2022 Total investments % 2021 Total investments % Financials 36.9 45.0 Energy 21.8 16.5 Industrials 10.8 10.4 Consumer Discretionary 10.1 6.0 Consumer Staples 9.0 8.2 Information Technology 4.9 2.9 Real Estate 4.3 6.9 Materials 2.2 4.1 Total Investments 100.0 100.0 7 ANNUAL REPORT 30 JUNE 2022 CQS NEW CITY HIGH YIELD FUND LIMITED Investment Portf olio Strategic Report Inves tment Portfolio As at 30 June 2022 Company Sector Valuation £’000 Total Investments % Galaxy Finco Ltd 9.25% 31/07/2027 Financials 12,774 4.9 Shawbrook Group 31/12/2059 FRN Financials 12,409 4.7 Virgin Money FRN PERP Financials 12,188 4.6 Aggregated Micro 8% 17/10/2036 Energy 10,900 4.1 Co-Operative Fin 25/04/2029 FRN Financials 8,616 3.3 REA Finance 8.75% 31/08/2025 Consumer Staples 8,592 3.3 Stonegate Pub 8.25% 31/07/2025 Consumer Discretionary 8,308 3.2 Mangrove Luxco Ltd 7.775% 19-09/10/2025 Financials 7,637 2.9 Hawk Debtco Ltd 10.5% 22/12/2024 Industrials 7,507 2.8 Diversified Energy Co Plc Energy 7,490 2.8 Top ten investments 96,421 36.6 Albion Financing 8.75% 21-15/04/2027 Industrials 7,221 2.7 Boparan Finance 7.625% 30/11/2025 Consumer Staples 7,192 2.7 Arrow Bidco LLC 9.5% 15/03/2024 Consumer Discretionary 6,858 2.6 American Tanker 7.75% 02/07/2025 Energy 6,489 2.5 Euronav NV Energy 6,026 2.3 Garfunkelux Hold 7.75% 20-01/11/2025 Financials 5,708 2.2 VPC Specialty Lending Invest Financials 5,004 1.9 Just Group Plc 31/12/2059 FRN Financials 4,583 1.7 Inspired Enterta 7.875% 21-01/06/2026 Information Technology 4,537 1.7 Azerion Holdings 7.25% 28/04/2024 Information Technology 4,344 1.7 Top twenty investments 154,383 58.6 M&G Plc Financials 4,281 1.7 REA Holdings Plc PREF Consumer Staples 4,215 1.6 Ithaca Energy N 9% 21-15/07/2026 Energy 4,208 1.6 Matalan Finance 9.5% 18-31/01/2024 Consumer Discretionary 3,845 1.5 Enquest Plc 7% 15/10/2023 Energy 3,689 1.4 Shamaran 12% 05/07/2023 Energy 3,550 1.3 Phoenix Group Holdings Plc Financials 3,542 1.3 Euronav Lux 6.25% 21-14/09/2026 Energy 3,508 1.3 Barclays Plc 29/12/2049 FRN Financials 3,481 1.3 Deutsche Bank AG 30/05/2049 FRN Financials 3,370 1.3 Top thirty investments 192,072 72.9 Stonegrate Pub 8% 20-13/07/2025 Consumer Discretionary 3,311 1.2 TVL Finance 9% 20-15/01/2025 Consumer Discretionary 3,228 1.2 Welltec A/S 9.5% 01/12/2022 Energy 3,200 1.2 Bombardier Inc 7.5% 15/03/2025 Industrials 3,175 1.2 Channel Island Property Fund Real Estate 3,060 1.2 Coburn Resources 12% 20/03/2026 Materials 3,041 1.2 RM Secured Direct Lending Plc Financials 2,864 1.1 Siccar Point Energy 9% 04/03/2026 Energy 2,783 1.1 Petrotal Corp 12% 16/02/2024 Energy 2,774 1.0 First Quantum 7.5% 01/04/2025 Materials 2,640 1.0 Top forty investments 222,148 84.3 Summer BC Holdco 9.25% 19-31/10/2027 Industrials 2,377 0.9 HDL Debenture 10.375% 93-31/07/2023 Real Estate 2,270 0.9 Tufton Oceanic Assets Ltd Financials 2,261 0.9 Doric Nimrod Air Three Ltd Industrials 2,177 0.8 Oaknorth Bank 01/06/2028 FRN Financials 2,020 0.8 Lloyds Banking 29/12/2049 FRN Financials 1,948 0.7 8 CQS NEW CITY HIGH YIELD FUND LIMITED ANNUAL REPORT 30 JUNE 2022 Strategic Report Investment Portf olio Company Sector Valuation £’000 Total Investments % AEW UK REIT Plc Real Estate 1,929 0.7 Gaming Innovation 11/06/2024 FRN Information Technology 1,893 0.7 Independent Oil 20/09/2024 FRN Energy 1,752 0.7 Lloyds Banking 29/12/2049 FRN Financials 1,746 0.7 Top fifty investments 242,521 92.1 NewRiver REIT plc Real Estate 1,642 0.6 Greenfood AB 21-04/11/2025 FRN Consumer Staples 1,639 0.6 Kent Global Plc 10% 28/06/2026 Energy 1,440 0.5 Palace Capital Plc Real Estate 1,260 0.5 Navig Topco Holding 12% 03/05/2023 Industrials 1,254 0.5 Regional REIT Ltd Real Estate 1,072 0.4 Nor5ke Viking 21-03/05/2024 FRN Information Technology 1,037 0.4 House Of HR 7.5% 15/01/2027 Industrials 1,002 0.4 Harbour Energy Plc Energy 868 0.3 Navigator Holdings 8% 10/09/2025 Energy 818 0.3 Top sixty investments 254,553 96.6 REA Holdings Plc 7.5% 30/06/2026 Consumer Staples 764 0.3 Casino Guichard 31/01/2049 FRN Consumer Staples 757 0.3 REA Trading 9.5% 21-30/06/2024 Consumer Discretionary 650 0.3 Shamaran 12% 21-30/07/2025 Energy 631 0.3 Croma Security Solutions Group Information Technology 625 0.2 Marex Group 22-30/12/2170 FRN Financials 619 0.2 Hoist Finance AB 31/12/2060 FRN Financials 573 0.2 West Bromwich BS 11% 18-12/04/2038 Financials 524 0.2 Cabonline GR 22-19/04/2026 FRN Information Technology 482 0.2 R.E.A. Holdings Plc CW 15/07/2025 Consumer Staples 453 0.2 Top seventy investments 260,631 99.0 Other investments (36) 2,762 1.0 Total investments 263,393 100.0 Notes: CV – Convertibl e Bond FRN – Floating Rate Not e PERP – Perpetual PREF – Pref erence Shar es REIT – Real Estate Inv estment T rust 9 ANNUAL REPORT 30 JUNE 2022 CQS NEW CITY HIGH YIELD FUND LIMITED T en Largest Holdings Strategic Report T en Lar gest Holdings Valuation 30 June 2021 £’000 Purchases £’000 Sales £’000 Revaluation gain/(loss) £’000 Valuation 30 June 2022 £’000 Galaxy Finco Ltd 9.25% 31/07/2027 12,133 1,905 – (1,264) 12,774 A specialist provider of warranties for consumer electric products. Shawbrook Group 7.875% FRN PERP 10,793 2,074 – (458) 12,409 A British multinational banking and financial services company. Virgin Money FRN PERP – 12,895 – (707) 12,188 A British banking company concentrating on UK Retail and SME regional banking services. Aggregated Micro 8% 17/10/2036 8,838 2,281 – (219) 10,900 A British company using small scale, established technologies to convert wood and waste into energy in the form of heat and electricity. Co-Operative Finance 25/04/2029 FRN 8,466 1,058 – (908) 8,616 A retail and commercial bank in the United Kingdom. REA Finance 8.75% 15-31/08/2025 6,318 1,881 – 393 8,592 Cultivator of oil palms in the Indonesian province of East Kalimantan and producer of crude palm oil and palm products from fruit harvested from oil palms. Stonegate Pub 8.25% 20-31/07/2025 6,271 3,208 – (1,171) 8,308 Operator of various formats ranging from high-street pubs and traditional country inns to local community pubs, student pubs, and late-night bars and venues in the United Kingdom. Mangrove Luxco 7.775% 19-09/10/2025 – 8,142 – (505) 7,637 Holding company for a German heat exchange manufacturer. Hawk Debtco Ltd 10.5% 20-22/12/2024 3,494 3,539 – 474 7,507 A financing company for an Aberdeen-based energy services firm. Diversified Energy Co Plc 3,205 3,861 – 424 7,490 Energy Company focusing on US natural gas. 59,518 40,844 – (3,941) 96,421 10 CQS NEW CITY HIGH YIELD FUND LIMITED ANNUAL REPORT 30 JUNE 2022 Strategic Report Principal Risks and Uncertainties and Risk Mitigation Principal Risks and Unc ertainties and Risk Mitigation Risks ar e inherent in the inv estment pr ocess, but it is import ant that their nature and magnitude ar e understood so that risks can be identified and either avoided or contr olled. The Boar d has established a detail ed framework to manage the ke y risks that the business is expo sed to, with associated policies and pr ocesses devised t o mitigate or control those risks. Principal risks and mitigations ar e discussed r egularly at Boar d and Audit Committee meetings. At the meeting held in June 2022 the Board discussed risk appetite and c onsidered whether principal risks w ere incr easing, decreasing or st atic during the course of the y ear including any ongoing impact of COVID-19 and the conflict in Ukr aine. The Board also c onsider ed any new or emerging risks. The principal risks and mitigating factor s faced by the Company ar e set out below . Risk Description Controls Dividend and earnings risk The earnings that underpin the amount of dividends declar ed and future dividend gr owth are gener ated by the Company’ s underlying portfolio. One or mor e of the follo wing factors c ould adversely aff ect the Company’ s earnings and, thereby , its ability to declare a dividend: • The persistenc e of lower int eres t rates. • A contraction of av ailable inves tment opportunities suitabl e for the Company , given its investment objective and its policy . • The persistenc e of adverse mark et conditions or government interv ention during a macro-ec onomic crisis r esulting in cuts to dividend income. • Adverse changes to the tax tr eatments applicable to the Company’ s stream of inv estment and dividend income. Although the COVID-19 crisis has abated, at l east for no w, ther e is still heightened economic unc ertainty that could impact the value of our Company’ s earnings. The Boar d has engaged with CQS (UK) LLP, the Investment Manager , to manage the Company’ s portfolio and ther efore depends upon the Investment Manager to c onstruct an appr opriate portfolio that will pr oduce income allo wing the Company to meet its dividend tar get. The Boar d monitors the impl ementation of the investment strategy , re viewing the performanc e of the Investment Ma na ge r on an ongoing basis and r eceiving a formal pr esentation fr om the Investment Manager on a quarterl y basis. The Boar d rec eives and r eviews detail ed income for ecasts pr epared by the Inv estment Manager and Administrat or at each Board meeting and when the quart erly dividends ar e declared. The Company holds r evenue r eserves, as at 30 June 2022, of £15,595,000, which could be used for the maint enance of the Company’ s dividend target in adv erse market c onditions. Market risk leading to a l oss of share v alue The Company’ s assets consist principall y of listed fixed inter est securities and equities. Its gr eatest risks are consequentl y market r elated, with exposur e to movements in the prices of the Company’ s investments and the l oss that the Company might suffer thr ough holding investments in the f ace of negative mark et movements. A downturn in capital mark ets could lead to a l oss in value of the Company’ s shares, er oding the premium and causing the shar es to trade at a discount. This risk is heightened by the impact of Br exit and ongoing COVID-19, supply chain is sues, rising costs particularl y energy costs, the conflict in Ukraine and Rus sian sanctions. The Boar d relies upon the r esearch capabilities of the Investment Manager and the peopl e it employs that can use their expertise t o build a portfolio, utilising diversific ation, to mitigate market risk t o the extent possibl e. The Boar d monitors the impl ementation of the investment strategy and r eviews the performanc e of the Investment Manager on an ongoing basis and r eceives a f ormal pr esentation fr om the Investment Manager on a quarterl y basis. At this time, the Boar d re views the performanc e of the Company’ s investments, including both r ealised and unr ealised gains and losses. The Company has generall y traded at a pr emium to NA V . Any r eduction in the premium or mov e to a discount is discus sed with the Investment Manager and Br okers, with a view to taking action if c onsidered appr opriate. The Investment Manager and Br oker hold r egular shareholder meetings thr ough which investor sentiment c an be gauged. Key person risk Performanc e of the Company may be negativel y affected by a change in the fund management team within the Investment Manager . Whilst the l ead fund manager is responsibl e for day to day portfolio management, an Inves tment Committee at the Investment Manager also decides k ey stock sel ection. The Boar d monitors and r eviews the perf ormance of the Investment Manager on an ongoing basis and r eceives a formal pr esentation from the Inv estment Manager on a quarterly basis. The Management Engagement Committee of the Company formall y r eviews the performanc e of the Investment Manager annually . 11 ANNUAL REPORT 30 JUNE 2022 CQS NEW CITY HIGH YIELD FUND LIMITED Principal Risks and Uncertainties and Risk Mitigation Strategic Report Risk Description Controls Gearing risk A fall in the value of the underl ying investments could adversel y affect the Company’ s le vel of gearing and exacerbat e the decline in value. It could also r esult in a br each of loan co venants. Gearing le vels and complianc e with loan co venants ar e monitor ed by the Administrator and the Inv estment Manager on a monthly basis. The Boar d re views compliance with the gearing l evels and loan c ovenant complianc e at r egular Board meetings. The Boar d sets the gearing limits. Gearing will not exc eed 25% of Shar eholders ’ funds at the time of borrowing. Geopolitical risk The Russian invasion of Ukr aine has negatively impact ed supply chains and incr eased prices, criticall y in energy and food, and inflation is incr easing across Eur ope. Ongoing tension caused by the c onflict has heightened market unc ertainty and incr eased investment risk. The Investment Manager has r eviewed the portfolio to understand the susc eptibility of investments to mark et disruption and the r esults of this re view has been discussed with the Boar d. The robustnes s of corporate business models during this period of heightened uncertainty is c onsidered both in r elation to the current portfolio and as part of inves tment decision-making. Operational risk The Company r elies upon the services pr ovided by thir d parties and is reliant on the contr ol systems of the Investment Manager and the Company’ s other service pr oviders. F ailures at these thir d parties could adversel y impact the security and/or maintenance of, int er alia, the Company’ s assets, dealing and settl ement pr ocedur es, and accounting r ecor ds depend on the effective oper ation of these systems. The operating effectiv eness of thir d party service provider s is r egularly tes ted and monitor ed and r eported on at each Boar d meeting. The Audit and Risk Committee r eceives an ISAE 3402 r eport (report on the description of c ontr ols pla ce d in operation, their design and oper ating effectivenes s) on Fund Administration. The Investment Manager deliv ers a risk based internal audit plan which cov ers differ ent areas of its operations that ar e subject to internal audit, including fr ont, middle and infrastructur e audits. Any areas of conc ern r elev ant to the Company are discus sed with the Audit and Risk Committee when it meets. Regulatory risk The br each of existing r egulatory rules, or failing t o adopt changes in r egulatory rules in a timel y manner , which could l ead to a suspension of the Company’ s stock ex change listing or financial penalties. The Company Secr etary monitors the Company’ s compliance with the Lis ting Rules of the United Kingdom (UK) Listing Authority and the Company’ s Compliance Officer with the r egulatory rules applicabl e to Jersey funds. Compliance with the Listing Rul es is reviewed and the Boar d rec eives a quarterl y r eport from the Company’ s Compliance Officer . The Administrator is r egulated by the Jersey Financial Services Commission. Incr ease in risk for the year ended 30 June 2022 in c omparison to pr evious year . Risk r emains static fr om pr evious r eporting period. Decr ease in risk for the year ended 30 June 2022 in c omparison to pr evious year . Emer ging risks During Boar d discussions on principal risks and uncertainties, the Boar d consider ed any risks that wer e not an immediate thr eat but cou ld ari se in t he l onge r ter m and hav e sig nific ant impac t on t he ab ility of the Company to continue t o meet its objectives. Ar eas discussed include longer t erm imp act s o f cli mat e c han ge on th e C omp an y’ s portfolio and returns, Geopolitic al risk due to the conflict in Ukraine and any p rolonged e cono mic impact of COVID-19 on differ ent sectors of the ec onomy . The Boar d reg ularl y discus ses these with the Inve stment Manager , and rec eives feedback based on the Investment Manager’ s r esearch, and discus sions with Shareholders and Br okers. The Investment Manager’ s ESG policy was r eviewed and critiqued during the ye ar , and th e Boar d will con tinu e to a sse ss t hese e mer ging ri sks o n a regular basis and continue to monitor and asses s the requir ements of impending mandatory regulations f or TCFD and EU SFDR. 12 CQS NEW CITY HIGH YIELD FUND LIMITED ANNUAL REPORT 30 JUNE 2022 Strategic Report Stakeholder s – Section 172 Statement and Principal Decisions Stakeholder s – Section 172 Statement and Principal Decisions Thr ough adopting the AIC Code, the Board acknowl edges its duty to comply with section 172 of the UK Companies Act 2006 t o act in a way th at pr omotes the succes s of the Company for the benefit of its members as a wh ole , h av i ng re ga rd to ( am o ng st o t he r t hi ng s ): a) consequences of any decision in the l ong-term; b) the inter ests of the Company’ s employ ees; c) need to fos ter business r elationships with suppliers, customers and others; d) impact on community and envir onment; e) maintaining r eputation; and f) act fairl y as between members of the Company . Information on how the Boar d has engaged with its stakeholders and pr omoted the succes s of the Company , thr ough the decisions it has taken during the year , whilst having regar d to the above, is outlined bel ow . The Company has no employees. Stakeholder How the Board engages Shareholders Shareholders provide the capital to allow the Company to be in existence and to pursue its purpose and strategy. Accordingly, Shareholder support is essential to the continued survival and success of the Company. The Board recognises that it is important to maintain appropriate contact with major Shareholders to understand their issues and concerns. The Board engages with its Shareholders by: 1) Publishing daily NA V announcements 2) Publishing monthly fact sheets 3) Publishing half yearly and annual r eports and accounts 4) Making themselves av ailable to meet major Shar eholders as reques ted 5) Obtaining Shareholder f eedback rec eived via the Inves tment Manager and Corporate Br oker 6) Making themselves av ailable to ques tions from Shar eholders at the Annual General Meeting Service providers As a Company with no employees the Board is reliant on third party service providers to help the Company operate in a compliant and efficient manner. The Board engages with its service providers by: 1) Receiving detailed writt en and verbal r eports at board meetings 2) Regular communication with r epresent atives via tel ephone and email to discuss ad hoc matter s 3) Undertaking an annual revie w via the Management Engagement Committee The wider community and the environment As a responsible corporate citizen the Company recognises that its operations have an environmental footprint and impact on wider society. The Board fully supports the growing importance placed on ESG factors when asking the Company’s Investment Manager to deliver against the Company’s objectives. The Board has requested that the Investment Manager take into account the broader social, ethical and environmental issues of companies within the Company’s portfol io, acknowledging that companies failing to manage these issues adequately run a long term risk to the sustaina bility of their businesses. The Investment Manager has stated that they view ESG factors as a key driver of f inan cin g co sts, valuations and performance, while also being capable of acting as a lever to shape and influen ce the w orld for generations to come. The integration and assessment of ESG factors is a crucial part of this commitment, and a key factor in the Investment Manager’s decision-making. Through embedding ESG into its inv estmen t proce ss the Investment Manager seeks to enhance its ability to identify value, investment opportunities and, critically, to generate the best possible returns for its stakeholders. The Investment Manager is a signatory to the United Nations PRI, fully supporting all Principles for Responsible Investment. Principal decision Review of dividend policy: The Boar d rec ognises the importance Shar eholders place on the Company’ s dividend policy and is cognisant of the need to ensur e the viability of the dividend. It was agr eed it was in the best inter ests of the Company and Shar eholders to marginall y increase the dividend for the y ear under re view . 13 ANNUAL REPORT 30 JUNE 2022 CQS NEW CITY HIGH YIELD FUND LIMITED Strategic Review Strategic Report Strategic Re view Intr oduction This r eview is part of a Strategic Report being pr esented by the Company and is designed to pr ovide information primaril y about the Company’ s business and r esults for the year ended 30 June 2022. It should be r ead in conjunction with the Stat ement from the Chair on pages 3 t o 4 and the Investment Manager’ s Review on page 5, which give a detail ed r eview of the investment activities f or the year and look to the futur e. Principal Activity and Status The Company is a closed-ended inves tment company and was incorporat ed with limited liability in Jersey under the Companies (Jersey) Law 1991 on 17 January 2007, with r egister ed number 95691. In addition, the Company constitut es and is regulat ed as a collectiv e investment fund under the Coll ective Investment Funds (Jer sey) Law 1988 (“the Law”). The Company’ s ordinary shar es are listed on the Official Lis t of the UK Listing Authority and admitted to tr ading on the Main Market of the London Stock Exchange. Purpose and Strategy The Company’ s purpose is stated on the inside fr ont cov er of this report. Investment P olicy The Company invests pr edominantly in fixed inc ome securities, including, but not limited to, pr eferenc e shar es, loan stocks, c orporate bonds (convertibl e and/or redeemabl e) and government stocks. The Company also invests in equities and other inc ome yielding securities. Exposur e to higher yielding securities may also be obtained by investing in other closed-ended inves tment companies and open-ended coll ective investment schemes. Ther e are no defined limits on securities and ac cor dingly the Company may invest up to 100% of t otal assets in any particular type of security . Ther e are no defined limits on c ountries, size or sectors, ther efore the Company may invest in c ompanies regar dless of c ountry , size or sector and, accor dingly , the Company’ s portfolio is cons tructed without r efer ence to the composition of any stock mark et index or benchmark. The Company may , but is not obliged to, inves t in derivatives, financial instruments, money mark et instruments and curr encies for the purpose of efficient portfolio management. The Company may acquir e securities that ar e unlisted or unquoted at the time of inv estment but which ar e about to be convertibl e, at the option of the Company , into securities which ar e listed or traded on a st ock ex change. The Company may continue to hold securities that c ease to be listed or tr aded if the Investment Manager c onsiders this appr opriate. The Boar d has established a maximum inves tment limit in this regar d of 10% (cal culated at the time of any r ele vant investment) of the Company’ s total as sets. In addition, the Company may invest up to 10% (cal culated at the time of any r elev ant investment) of its total as sets in other securities that ar e neither listed nor traded at the time of inves tment. The Company will not invest mor e than 10% (calculated at the time of any r elev ant investment) of its total as sets in other collective inv estment undertakings (open-ended or closed-ended). The Company may not invest mor e than 7.5% of its total investments in the same investee c ompany and that this be limited to no mor e than 3 investee c ompanies with a maximum investment limit of 5% ther eafter . In addition, ther e is a maximum investment limit wher eby , at the time of investment, the Company may not inves t mor e than 5% of its total investments in any one security . The Company uses gearing and the Boar d has set a current limit that gearing will not ex ceed 25% of Shar eholders’ funds at the time of borr owing. This limit is re viewed fr om time to time by the Boar d. The Investment Manager e xpects that the Company’ s assets will normally be full y invested. However , during periods in which changes in economic cir cumstances, market c onditions or other factor s so warrant, the Company may r educe its exposur e to securities and incr ease its positions in cash, money mark et instruments and derivative instruments in or der to seek prot ection from s tock market falls or volatility . Investment Appr oach Investments ar e typically made in securities which the Inves tment Manager has identified as undervalued by the mark et and which it believes will generat e above aver age income r eturns relative to their risk, ther eby also generating the scope f or capital appr eciation. In particular , the Investment Manager seeks to generate capit al gro wth by expl oiting the opportunities present ed by the fluctuating yield base of the market and fr om redemptions, conv ersions, r econstructions and take-o vers. Perf ormance Measur ement and Key Performanc e Indicators (KPIs) The Boar d uses a number of performance measur es to monitor and asses s the Company’ s success in meeting its objectives and t o measure its pr ogres s and performanc e. The key perf ormance indicat ors ar e as foll ows: • Dividend Yield and Dividend Cover It is intended that the Company will pay four quarterl y dividends each year and acc or dingly the Boar d reviews the Company’ s dividend yield and dividend cov er on a quarterly basis. F or the year ended 30 June 2022, the Company’ s dividend yield was 8.75% (30 June 2021: 8.16%) based upon a share pric e of 51.20 pence (bid price) as at 30 June 2022 (30June 2021: 54.80 pence) and its dividend cov er was 0.93x (30June 2021: 0.94x). • Revenue Earnings and Dividends per ordinary shar e The Company has opted to f ollow the AIC’ s Statement of Re c om me nd ed Practice: Financial Stat ements of Investment T rusts and Ventur e Capital T rusts (the “ AIC SORP”) and, in accor dance with the pr ovisions of the AIC SORP, distinguishes its pr ofits derived fr om re venue and capital it ems. The Company declar es and pays its dividend out of only the r evenue profits of the Company . The re venue earnings, whether generated this year or in pr evious year s and held in re venue r eserves, r epresent the total availabl e funds that the Directors ar e able to mak e a dividend payment fr om. The Board r eviews r evenue for ecasts on a quarterly basis in or der to determine the quarterl y dividend. In r espect of the current financial y ear , the Company declar ed dividends of 4.48 pence per or dinary share out of r evenue earnings per or dinary share of 4.16 penc e per or dinary share. 14 CQS NEW CITY HIGH YIELD FUND LIMITED ANNUAL REPORT 30 JUNE 2022 Strategic Report Strategic Review • Ongoing Charges The ongoing charges ratio r epresents the Company’ s management f ee and all other operating expenses incurr ed by the Company expr essed as a perc entage of the average Shar eholders ’ funds ove r t h e ye a r . Th e Board r egularly re views the ongoing char ges an d m oni to rs a ll C om pa ny expenses. The ongoing charges ratio for the year ended 30June 2022 was 1.19% (2021: 1.25%). The Boar d measures the Company’ s performance by r eviewing the KPIs against their expect ations of performance fr om their knowledge of the industry sector . These KPIs fall within the definition of ‘ Alternative Perf ormance Measur es ’ (APMs) under guidance issued by the Eur opean Securities and Markets Authority . Additional information explaining how these ar e calculat ed is set out in the Alternative Perf ormance Measur es section on pages 56 to 58. Going Concern The Company does not have a fixed winding-up dat e and, theref ore, unles s Shar eholders vote to wind-up the Company , Shareholder s will only be abl e to realise their inves tment through the sec ondary market. At each Annual General Meeting of the Company , Shareholders ar e given the opportunity to vot e on an ordinary r esolution to continue the Company as an investment c ompany . If any such resolution is not passed, the Boar d will put forward pr oposals at an extraor dinary general meeting to liquidate or otherwise r econstruct or r eor ganise the Company . Given the performanc e of the Company , input fr om the Company’ s major Shareholders and its br oker , the Board consider s it likel y that Shar eholders will vote in f avour of continuation at the forthc oming Annual General Meeting. The Company’ s existing loan f acility as detailed on page 46 is due to expir e on 17 December 2023 after which it is anticipated the Company will take out a ne w facility on compar able terms. Aft er making enquiries of the Investment Manager , and having consider ed the Company’ s investment objective, natur e of the investment portfolio, loan f acility , expenditur e projections and impact that the Russia- Ukraine conflict has on the Company , the Direct ors consider that the Company has adequate r esour ces to continue in oper ational exist ence for the f oreseeabl e future. F or this reason the Dir ectors continue to adopt the going concern basis in pr eparing the Financial Statements, notwithstanding that the Company is subject to an annual c ontinuation vote as described abov e. Viability Statement In accor dance with the pr ovisions of the AIC Code, the Dir ectors have asses sed the viability of the Company over a period longer than the 12 months r equired by the ‘Going Conc ern’ pr ovision. The Boar d conducted this viability r eview for a period of thr ee years. The Boar d continues to c onsider that this period r eflects the l ong term objectives of the Company , being a Company with no fixed lif e, whilst taking into account the impact of unc ertainties in the markets. Whilst the Dir ectors do not e xpect there t o be any significant changes to the curr ent principal and emer ging risks facing the Company , certain risks hav e increased due t o the Russia-Ukraine c onflict and global rise in inflation. Despite these incr eased risks, the Director s believe that the Company has sufficient c ontrols in plac e to mitigate those risks. Furthermor e, the Director s do not envi sage any chang e in strategy which w ould pre vent the Company from ope ratin g over th e thr ee year period. This is based on the assumption that ther e are no significant changes in mark et conditions or the tax and r egulatory envir onment that could not r easonably hav e been for eseen. The Boar d also considers the annual c ontinuation vote should not be a f actor to af fec t t he th ree year period given the str ong demand seen for the Company’ s shares. In making this statement the Boar d: (i) consider ed the continuation vote to be pr oposed at the Annual General Meeting which the Boar d considers will be v oted in favour of by Shar eholders; and (ii) carried out a r obust asses sment of the principal and emerging risks f acing the Company . These risks and their mitigations are set out on pages 10 to 11. The principal risks identified as most r elevant to the as sessment of the viability of the Company wer e those relating t o potential under- performanc e of the portfolio and its effect on the ability t o pay dividends. When asses sing these risks the Direct ors have consider ed the risks and uncertainties f acing the Company in sever e but r easonable sc enarios, taking into acc ount the contr ols in place and mitigating actions that could be tak en. When considering the risk of under-perf ormance, a series of str ess tests was carried out including in particular the eff ects of any substantial futur e falls in investment value on the ability t o re-pay and r e-negotiate borr owings, potential br eaches of loan c ovenants and the maintenance of dividend payments. The Boar d consider ed the Company’ s portfolio and concluded that the diverse natur e of investments held contributes to the s tability and liquidity along with fl exibility to be able to r eact positively to mark et and political for ces beyond the Boar d’ s contr ol. The Boar d also consider ed the impact of potential r egulatory changes and the contr ol environment of significant thir d party provider s, including the Investment Manager . The Scotiabank l oan facility is due to e xpire on 17 December 2023. It is anticipated a new f acility on comparabl e terms will be negotiated pri o r to this date. Based on the Company’ s proc esses for monit oring re venue and costs, with the use of fr equent re venue for ecasts, and the Investment Manager’ s compliance with the inves tment objective and policies, the Dir ectors have c oncluded that there is a r easonable expect ation that the Company will be able t o continue in operation and meet its liabilities as they fall due f or a period of three years fr om the date of appr oval of this Report. Social, Community , Human Rights, Emplo yee Responsibilities and Envir onmental Policy The Dir ectors r ecognise that their firs t duty is to act in the best financial inter ests of the Company’ s Shareholder s and to achieve good financial r eturns against acc eptable l evels of risk, in accor dance with the objectives of the Company . In asking the Company’ s Investment Manager to deliver against these objectiv es, they have also r equested that the Investment Manager tak e into account the br oader social, ethical and envir onmental issues of companies within the Company’ s portfolio, acknowledging that c ompanies failing to manage these issues adequately run a l ong term risk to the sustainability of their businesses. 15 ANNUAL REPORT 30 JUNE 2022 CQS NEW CITY HIGH YIELD FUND LIMITED Strategic Review Strategic Report Gr eenhouse Gas Emissions The Boar d rec ognises its impact on the envir onment, including gr eenhouse gas emissions, thr ough the underlying portf olio companies which it invests in. The Boar d requested that ESG f actors be incorporat ed into the Company’ s investment strat egy and further details on ESG can be f ound on pages 25 to 27. Modern slavery The Company would not fall int o the scope of the UK Modern Slavery Act 2015 (as the Company does not have any turnov er derived fr om goods and services) if it was incorpor ated in the UK. F urthermore, as a closed-ended inves tment company , the Company has a non-comple x structur e, no emplo yees and its supply chain is c onsidered t o be low risk given that suppliers ar e typically pr ofessional advisers based in either the Channel Islands or the UK. Based on these factor s, the Boar d determined that it is not necessary f or the Company to make a slavery and human trafficking st atement. By Or der of the Board Caroline Hit ch Chair 15 September 2022 16 CQS NEW CITY HIGH YIELD FUND LIMITED ANNUAL REPORT 30 JUNE 2022 Director s’ Report and Governanc e Reports Statement of Dir ectors ’ Responsibilities in respect of the Annual Report and Financial Stat ements Statement of Dir ectors ’ Responsibilities in r espect of the Annual Report and Financial Statements The Dir ectors ar e r esponsible f or preparing the Annual Report and Financial Statements in ac cor dance with applicabl e law and regulations. Company law r equires the Dir ectors to pr epar e financial statements for each financial year . Under that law they have el ected to prepar e the Financial Statements in acc ordance with International Financial Reporting Standar ds as adopted by the Eur opean Union (EU) and applicabl e law . Under company law the Dir ectors must not appr ove the Financial Statements unl ess they ar e satisfied that they give a true and fair view of the state of aff airs of the Company and of its profit or l oss for that period. In pr eparing these Financial Statements, the Dir ectors ar e r equired t o: • select suitabl e acc ounting policies and then apply them consist ently; • make judgements and estimat es that are r easonable, r elevant and r eliable; • state whether applic able ac counting standar ds have been foll owed, subject to any material departur es disclosed and explained in the Financial Stat ements; • asses s the Company’ s ability to continue as a going concern, disclosing, as applic able, matter s relating t o going concern; and • use the going concern basis of ac counting unless the y either intend to liquidate the Company or to cease operations, or hav e no r ealisti c alternative but to do so. The Dir ectors ar e r esponsible f or keeping adequate ac counting r ecords that ar e sufficient to show and explain the Company’ s transactions and disclose with r easonable accuracy at any time the financial position of the Company and enable them t o ensure that the Financial St atements compl y with Companies (Jersey) Law, 1991. They ar e responsibl e for such internal contr ol as they determine is neces sary to enable the pr eparation of financial statements that ar e free fr om material misst atement, whether due to fraud or err or , and have general r esponsibility for taking such st eps as are r easonably open to them to safeguar d the assets of the Company and to pr event and detect fr aud and other irr egularities. The Dir ectors ar e r esponsible f or the maintenance and integrity of the corporat e and financial information included on the Company’ s website. The Financial Statements ar e published on the www.ncim.c o.uk website, which is a website maint ained by the Company’ s Investment Manager . Legislation in Jersey governing the pr eparation and dissemination of Financial Stat ements may differ fr om legislation in other jurisdictions. Responsibility statement of the Dir ectors in respect of the annual financial report W e confirm that to the best of our kno wledge: • the Financial Statements, pr epared in acc ordanc e with the International Financial Reporting Standar ds (IFRS) as adopted by the EU, give a true and fair and balanc ed view of the assets, liabilities, financial position and pr ofit or loss of the Company; and • the Strategic Report and Dir ectors ’ r eport include a fair r eview of the devel opment and performanc e of the business and the position of the Company , together with a description of the principal risks and uncertainties that the Company f aces. W e consider the Annual Report and Financial Statements, t aken as a whol e, is fair , balanced and unders tandable and pr ovides the information nec essary for Shar eholders to asses s the Company’ s position and performanc e, business model and strat egy . On behalf of the Boar d Caroline Hitch Chair 15 September 2022 17 ANNUAL REPORT 30 JUNE 2022 CQS NEW CITY HIGH YIELD FUND LIMITED Board of Dir ectors and Investment Manager Dir ectors’ Report and Gov ernance Reports Boar d of Dir ectors and Inv estment Manager Car oline Hitch Independent Non-Executiv e Chair Appointed: Mar ch 2018 Skills: Car oline has extensive fund management skills including specialist fixed inc ome portfolios. She has a deep understanding of inv estment risk and risk management both as it applies to individual assets and to over all portfolio c onstruction. She devel oped her skills of investment trust boar d governance thr ough many years of managing r egulated funds, r eporting to their boar ds and then becoming a boar d member (and now chair) herself . Experience: Car oline joined the board after working in the financial services industry sinc e the early 1980s, mostl y with the HSBC group. Her e xperience includes Head of W ealth Portfolio Management at HSBC Global As set Management (UK) Ltd. with investment r esponsibility for their flagship multi asset r etail funds. Prior r oles included specialisation in institutional fixed inc ome portfolio management. She has worked in London, Jer sey , Monaco and Hong Kong. Committee membership: Audit and Risk Committee; Management Engagement Committee; Nomination Committee; Remuneration Committee Remuneration: £42,500 per annum Public company dir ectorships: Schr oder Asian T otal Return Investment Company pl c abr dn Equity Income T rust plc Shared Dir ectorships with any other Fund Dir ectors: None Duncan Baxter Senior Independent Non-Executiv e Director and Chair of the Management Engagement Committee Appointed: July 2015 Skills: Duncan has a br oad knowledge of the finance sector gained fr om holding senior leader ship positions acr oss a number of International Banks and T rust companies. Having also work ed on investment company boar ds, some of which in the position of Chair , Duncan has had exposur e to equity raises, discount management. Experience: Duncan is a r etired senior bank er with over 25 year s ’ experience of international banking, latterly as Managing Dir ector of Swiss Bank Corporation/UBS in Jersey . Since leaving Swis s Bank/UBS in the late 1990s, Duncan has undertak en a number of consultancy pr ojects for international banks, trust and investment management c ompanies, plus acted on a number of investment c ompany boar ds. He has experience of s tewar dship and investment in sev eral investment c ompanies over twenty years and in addition as a non-e xecutive dir ector of a number of operating public companies. Duncan is a Jerse y resident. Committee membership: Audit & Risk Committee; Management Engagement Committee; Nomination Committee; Remuneration Committee Remuneration: £30,000 per annum Public company dir ectorships: None Shared Dir ectorships with any other Fund Dir ectors: None W endy Dorman Independent Non-Executiv e Director and Chair of the Audit and Risk Committ ee Appointed: Mar ch 2016 Skills: W endy is a Charter ed Account ant with skills in tax, audit and commer cial mainly focused on the investment fund sector . Her extensiv e experience chairing audit committees of pu blic l ist ed ent ities gives her the r equisite l eadership skills in addition to those of accounting and go vernance. Experience: W endy began her career in audit and assuranc e befor e specialising in taxation. She has 25 years ’ experience in tax within the financial servic es industry . W endy’ s car eer encompassed time in practice and in indus try , based initially in London and later in Jersey . She retir ed as partner in charge of the PwC Channel Islands tax prac tice in June 2015 . W endy served as Pr esident of the Jersey Society of Charter ed and Certified Account ants from 2008 t o 2010 and as Chair of the Jersey branch of the Institute of Dir ectors from 2014 t o 2016. W endy is a Jersey r esident. Committee membership: Audit and Risk Committee; Management Engagement Committee; Nomination Committee; Remuneration Committee Remuneration: £36,500 per annum Public company dir ectorships: 3i Infrastructur e plc Jersey El ectricity Plc Shared Dir ectorships with any other Fund Dir ectors: None 18 CQS NEW CITY HIGH YIELD FUND LIMITED ANNUAL REPORT 30 JUNE 2022 Director s’ Report and Governanc e Reports Boar d of Direct ors and Investment Manager John Newlands Independent Non-Executiv e Director and Chair of the Remuner ation Committee Appointed: October 2017 Skills: John’ s 20-plus years car eer as an investment company anal yst, with a particular focus upon the UK wealth management sector , gives the Board an important insight into the inves tment requir ements and pr ocesses of the types of inv estor , whether private or institutional, mos t likel y to consider the Company for inclusion in their portf olios. He is also skilled in the as sessment of potential peer gr oup funds, both in terms of r elative performanc e and other quantitative data and in the incr easing focus upon governanc e and stewar dship matters as pre- r equisites for inves tment. Experience: John joined the Boar d shortly after working in the managed funds sector since the mi d- 1990s, the last ten year s being spent as Head of Investment Companies Resear ch at Brewin Dolphin Limited. He was a member of the Association of Investment Companies Statis tics ’ Committee fr om 2000 to 2017 and is a member of the Citywir e Investment T rust Awar ds Panel. He has an MBA fr om Edinbur gh University Business School and is a Chart ered El ectrical Engineer dating to his prior car eer as a Weapon Engineer Officer in the UK Ro yal Navy . John is a member of the Investment Committee of Durham Cathedral. He has written f our books about financial history , the most rec ent charting the history of Dunedin Inc ome Growth Inv estment T rust. Committee membership: Audit and Risk Committee; Management Engagement Committee; Nomination Committee; Remuneration Committee Remuneration: £30,000 per annum Public company dir ectorships: TOC Pr operty Backed Lending T rust plc, Gabelli Mer ger Plus T rust plc Shared Dir ectorships with any other Fund Dir ectors: None Ian Cadby Independent Non-Executiv e Director and Chair of the Nomination Committ ee Appointed: January 2017 Skills: Ian is a Charter ed F ellow of the Charter ed Institute f or Securities & Investment. His ext ensive governanc e experience on public and priv ate company boar ds as well as a long car eer as a regulated per son (CF3, CF2 and CF1 contr olled functions) in the asset management industry gives him a br oad and rel evant skill set for the Boar d. Experience: Ian has ov er 30 years ’ experience within the financial services industry in London, Hong Kong and Jersey with a str ong car eer emphasis on equity and equity derivative trading, risk management, corporat e governance and boar d strategy . Ian is a Jersey r esident. Committee membership: Audit and Risk Committee; Management Engagement Committee; Nomination Committee; Remuneration Committee Remuneration: £30,000 per annum Public company dir ectorships: abr dn Asian Income F und Limited Shared Dir ectorships with any other Fund Dir ectors: None 19 ANNUAL REPORT 30 JUNE 2022 CQS NEW CITY HIGH YIELD FUND LIMITED Board of Dir ectors and Investment Manager Dir ectors’ Report and Gov ernance Reports Investment Manager The Company appointed New City Inves tment Managers (“NCIM”) as its Investment Manager with eff ect from launch. On 1 October 2007, NCIM joined the CQS Gr oup, a global diver sified asset manager running multiple s trategies with, as at 30 June 2022, US$17.7 billion assets under management (including mandates with discr etionary management, sub-investment discr etionary management, investment advice, collat eral management and intermediation). In 2014, NCIM’ s rights and obligations under the Investment Management Agr eement between the Company and NCIM wer e then transferr ed to CQS Cayman Limited Partnership (“CQS”). Consequentl y , CQS became the Company’ s Investment Manager but, with the agr eement of the Board, del egated that function to CQS (UK) LLP T rading Limited as NCIM. With effect fr om 18 September 2019 the Company ent ered int o a new Investment Management Agr eement to appoint CQS (UK) LLP as its Investment Manager . The pre vious Investment Management Agr eement with CQS was terminated. Ian Fr ancis has day to day r esponsibility for managing the Company’ s portfolio and is supported by the CQS t eam. He joined the NCIM team in 2007. He has over 40 y ears ’ investment experience, primaril y in the fixed inter est and conv ertible spher es, and his car eer has included Collins Stewart, Wes t LB Panmur e, James Capel and Hoar e Govett. Alternative Inves tment F und Managers Dir ective (“ AIFMD”) The Company has appointed CQS (UK) LLP, a subsidiary of CQS, as the Company’ s alternative investment fund manager (“ AIFM”). The AIFM has r eceived its appr oval from the F CA to act as AIFM of the Company , your Company is ther efor e fully compliant. An additional r equirement of the AIFMD is for the Company to appoint a deposit ary , which will oversee the cus tody and cash arrangements and other AIFMD r equired depositary r esponsibilities. The Boar d has appointed BNP Paribas Securities Services S.C.A. Jerse y Branch to act as the Company’ s depositary . As part of the pr ocess the Inv estment Management Agr eement has been updated and builds in the r egulatory r equir ements arising as a r esult of the appointment of the AIFM. Further AIFMD discl osures ar e shown on page 62. 20 CQS NEW CITY HIGH YIELD FUND LIMITED ANNUAL REPORT 30 JUNE 2022 Director s’ Report and Governanc e Reports Dir ectors ’ Report Dir ectors ’ Report The Dir ectors pr esent their report and the audited Financial Statements for the year ended 30 June 2022. Results and Dividends Details of the Company’ s results and dividends ar e shown on page 2 of this r eport. Dividend Policy Subject to market c onditions and the Company’ s performance, financial position and financial outlook, it is the Dir ectors ’ intention to pay an attractive l evel of dividend income to Shar eholders on a quarterly basis. The Company intends to continue t o pay all dividends as interim dividends. A r esolution to appr ove this dividend policy will be pr oposed at the Annual General Meeting. Bank F acilities The Company has a short term unsecur ed loan f acility with Scotiabank Eur ope Plc (“Sc otiabank”). As at the year end the unsecur ed loan facility had a limit of £45 million of which £33 million was drawn do wn. The Company’ s existing loan f acility is due to expir e on 17 December 2023 after which it is anticipated the Company will tak e out a new facility on c omparable t erms. Shar e Capital As at 1 July 2021, ther e were 445,051,858 or dinary shares in is sue. The Company issued a further 31,600,000 or dinary shares in the year to 30 June 2022. Full details of these transactions ar e shown in note 13 on page 47 of this r eport. F ollowing these all otments ther e are now 476,651,858 or dinary shares in issue as at 30 June 2022. A further 4,350,000 shares have been issued since the y ear end. Acquisition of own shar es At the 2021 AGM, held on 2 December 2021, the Dir ectors wer e granted authority to r epur chase 65,401,649 ordinary shar es (being equal to 14.99% of the aggr egate number of or dinary shares in is sue at the date of the AGM) for c ancellation, or to be held as tr easury shares. This authority , which has not been used, will expir e at the upcoming AGM. The Dir ectors intend to seek annual r enewal of this authority from Shar eholders. Dir ectors ’ shar eholdings The Dir ectors who held office at the y ear end and their inter ests in the or dinary shares of the Company wer e as follo ws: At 30 June 2022 At 30 June 2021 D A H Baxter 195,127 195,127 I Cadby 25,000 25,000 W Dorman 112,000 112,000 C Hitch * 170,000 170,000 J Newlands 10,000 10,000 * inclusive of 40,000 shar es held by Ms Hitch’ s mother On 2 December 2021, W endy Dorman transferr ed 48,000 shares fr om a joint br oker acc ount held with her husband, into a private self-managed pension company , of which she is the sole beneficial owner . Ther e were no other changes in the or dinary share holdings of the Dir ectors between 1 Jul y 2022 and 15 September 2022. Substantial Inter ests in Shar e Capital As at 30 June 2022, the Company had been notified in accor dance with Chapter 5 of the UK Listing Authority’ s Disclosur e Guidance and T ransparency Rul es (which covers the acquisition and disposal of major shar eholdings and voting rights), of the foll owing Shar eholders that had an inter est of gr eater than 5% in the Company’ s issued shar e capital. Shareholder Number of voting rights notified to the Company on 11 September 2019 Percentage of total voting rights as per notification (%) Brewin Dolphin Limited 42,104,109 9.92% Between 1 July 2022 and 15 September 2022, the Company r eceived no further notifications. As at 30 June 2022, the per centage of tot al voting rights was 8.83%, being the number of voting rights notified to the Company on 11 September 2019 divided by 476,651,858, the total number of or dinary shares of the Company as at 30 June 2022. Investment Management As part of its strategy f or achieving its objectives, the Board has delegat ed the management of the investment portfolio t o CQS (UK) LLP with Ian Fr ancis as the lead fund manager . Further det ails are pr ovided on note 23 to the Financial Stat ements. At each Boar d meeting, the Board r eceives a pr esentation fr om the Investment Manager which includes a r eview of investment perf ormance, portfolio activity and mark et outlook. The st ock selection emphasis adopted by the Investment Manager is on each holding’ s unique characteristics r ather than any benchmark weightings. Appointment of the Investment Manager The Boar d considers the arrangements f or the provision of inves tment management and other services to the Company on an ongoing basis and a formal r eview is conducted annuall y by the Management Engagement Committee. As part of the annual r eview the Management Engagement Committee consider s the continuity of the team, the investment pr ocess and the r esults achieved to dat e. The Boar d believes that the continuing appointment of CQS as AIFM and Investment Manager as set out on page 43 is in the interests of Shar eholders as a whole. Administration Servic es BNP Paribas Securities Services S.C.A., Jer sey Branch (“BNPP”) wer e appointed as the Company Secr etary and Administrat or on 28 November 2019, in place of R&H F und Services (Jersey) Limited and Maitland Administration Servic es (Scotland) Limited; and appointed as the Company’ s custodian, bank ers and depositary in place of HSBC Bank PL C (“HSBC”). 21 ANNUAL REPORT 30 JUNE 2022 CQS NEW CITY HIGH YIELD FUND LIMITED Direct ors ’ Report Dir ectors’ Report and Gov ernance Reports Independent Auditor KPMG LLP was appointed as auditor to the Company in 2007. F ollowing a tender pr ocess in 2016, KPMG LLP was subsequentl y reappointed and r emained in office until 17 June 2019. F ollowing the r esignation of KPMG LLP on 17 June 2019, KPMG Channel Islands Limited was appointed as the Company’ s auditor effective 17 June 2019. A r esolution to r e-appoint KPMG Channel Islands Limited as the Company’ s auditor will be proposed at the Company’ s 2022 Annual General Meeting. Delegation of Responsibilities and Matt ers Reserved for the Boar d The Boar d has delegated the e xer cise of voting rights attaching to the Company’ s investments to the Inves tment Manager . All other matters ar e reserv ed for the appr oval of the Board. The Boar d has a schedule of matter s reserv ed to it for decision and the r equirement f or Board appr oval on these matter s is communicated dir ectly to the Inv estment Manager . Such matters include strategy , borr owings, treasury and dividend policy . Full and timel y information is pr ovided to the Boar d to enable the Dir ectors to function eff ectivel y and to dischar ge their r esponsibilities. The Board also r eviews the Financial Statements, perf ormance and r evenue budgets. Exer cise of V oting Power s The Investment Manager , in the absence of explicit ins truction from the Boar d, is empower ed to ex ercise discr etion in the use of the Company’ s voting rights in r espect of investee c ompanies. The underlying aim of ex ercising such v oting rights is to pr otect the r eturn from an inv estment. Disclosur es requir ed under LR 9.8.4R The Financial Conduct Authority’ s Listing Rule 9.8.4R r equires that the Company includes certain inf ormation r elating to arrangements made between a contr olling shareholder and the Company , waivers of Dir ectors ’ fees, and long-term inc entive schemes in f orc e. The Direct ors confirm that ther e are no disclosur es to be made in this regar d. Events after r eporting date The Boar d has evaluated material subsequent e vents for the Company and their effect on the annual financial r eport for the period from 1 July 2022 thr ough to 15 September 2022. A list of these events is disclosed in note 24. Disclosur e of Information to the Auditor The Dir ectors confirm that, so f ar as each of them is awar e, there is no r elev ant audit information of which the Company’ s auditor is unawar e and the Dir ectors have tak en all the steps that they might have tak en as Dir ectors in or der to make themsel ves awar e of any rel evant audit information and to es tablish that the Company’ s auditor is aware of that information. Statement Regar ding Annual Report and Financial Statements F ollowing a detail ed review of the Annual Report and Financial Statements by the Audit and Risk Committee, the Dir ectors consider that taken as a whol e it is fair , balanced and unders tandable and pr ovides the information nec essary for Shar eholders to asses s the Company’ s performance, busines s model and strategy . In reaching this conclusion, the Dir ectors have assumed that the r eader of the Annual Report and Financial Statements would have a r easonable l evel of knowledge of the inv estment industry in general and inv estment companies in particular . By Or der of the Board Car oline Hitch Chair 15 September 2022 22 CQS NEW CITY HIGH YIELD FUND LIMITED ANNUAL REPORT 30 JUNE 2022 Director s’ Report and Governanc e Reports The Boar d and Committees The Boar d and Committees V alues and Culture The Boar d conducts itself with the cor e values of integrity , transpar ency , accept ance of chall enge and account ability . It achieves this thr ough a collaborativ e culture and a sense of shar ed endeavour . The Boar d is focused on meeting objectives f or investors and all other stak eholders of the Company in a sustainabl e and r esponsible way . The Boar d The Boar d currentl y consists of a non-ex ecutive Chair and four non- ex ecutive Dir ectors. The Boar d considers all of the Direct ors as independent of the Investment Manager and fr ee from any busines s or other r elationship that could materiall y interfer e with the exer cise of their independent judgement. The dates on which Dir ectors wer e appointed are c ontained within their biographies shown on pages 17 to 18. In ac cor dance with the AIC Code all Dir ectors submit themsel ves for r e-election on an annual basis. New Dir ectors r eceive an induction fr om the Company Secret ary on joining the Boar d, and all Direct ors r eceive other r elevant tr aining as necessary . Director s ’ and Officers ’ liability insurance c over is maintained by the Company on behalf of the Dir ectors. Ther e is no notice period and no pr ovision for c ompensation upon early termination of appointment. The Company has no ex ecutive Dir ectors or empl oyees. A management agr eement between the Company and its Investment Manager sets out the matters ov er which the Investment Manager has authority and the limits beyond which Boar d approv al must be sought. All other matters, including str ategy , investment and dividend policies, gearing and corporat e governance pr ocedur es, are r eserved for the appr oval of the Boar d. Duncan Baxter is the Company’ s Senior Independent Dir ector . He is availabl e to Shar eholders if they have c oncerns wher e contact through the normal channels of the Chair or the Investment Manager is inappr opriate. All committee terms of r efer ence, the schedul e of matters r eserved for the Boar d, the rol es and responsibilities of the Chair and the r oles and r esponsibilities of the Senior Independent Direct or are av ailable on the Company’ s website. Nomination Committee The Nomination Committee, which is chair ed by Ian Cadby , operates within clearl y defined terms of ref erenc e, comprises the full Boar d and is convened f or the purpose of considering the appointment of additional Dir ectors as and when consider ed appropriate. In c onsidering appointments to the Boar d, the Nomination Committee tak es into account the ongoing r equirements of the Company and the need to have a balance of skills and e xperience within the Boar d. Boar d Evaluation During the year the Dir ectors c ompleted a web-based Boar d evaluation questionnair e which cov ered the Boar d’ s composition and skills, strategy setting, w orkings, oversight of risk and perf ormance, and its stak eholder management. The Board sc ored highly in all ar eas although noted that despite being 40% f emale, including the Chair , there is potential to impr ove other areas of div ersity . Both the Nomination Committee and the Boar d r ecognise the importance of div ersity and will consider this in r espect of any new appointments. Diversity and inclusion As noted above the Boar d believes in the benefits of having a diverse range of skills and backgr ounds, and the need to have a balance of experience, independenc e, diversity (including gender), and knowledge of the Company on its Boar d of Direct ors. T enure The tenur e policy which has been adopted by the Boar d pr ovides that (other than in ex ceptional cir cumstanc es) no Direct or will serve on the Boar d for longer than nine y ears fr om the date of their first appointment. Succ ession planning A key duty of the Nomination Committ ee is to ensur e plans are in plac e for or derly succes sion to the Board. The Boar d has adopted a formal succes sion plan scheduled to allow f or an orderly r efreshment of the boar d, with the intention that no dir ector serves longer than nine y ears. Dir ector Attendance Dir ectors have attended Boar d and Committee meetings during the year ended 30 June 2022 as foll ows: Quarterly Board meetings Ad Hoc Board meetings 1 Audit and Risk Committee meetings Management Engagement Committee meetings Nomination Committee meetings Remuneration Committee meetings Committee – Loan Renewal C Hitch (Chair) 4/4 4/4 3/3 1/1 2/2 1/1 N/A * D A H Baxter 4/4 3/4 3/3 1/1 2/2 1/1 N/A * W Dorman 4/4 3/4 3/3 1/1 2/2 1/1 1/1 I Cadby 4/4 4/4 3/3 1/1 2/2 1/1 1/1 J E Newlands 4/4 4/4 3/3 1/1 2/2 1/1 1/1 * Committee consis ting of any two direct ors. 1 Ad hoc boar d meetings are oft en called a short notic e and only r equire the attendanc e of Jersey based dir ectors, where pos sible the UK based dir ectors attend via tel ephone but do not count towar ds the quorum. 23 ANNUAL REPORT 30 JUNE 2022 CQS NEW CITY HIGH YIELD FUND LIMITED The Board and Committ ees Directors ’ Report and Governance Reports Management Engagement Committee The Management Engagement Committee, which is chair ed by Duncan Baxter , operates within clearl y defined terms of refer ence, comprises the full Boar d, and re views the appr opriateness of the Inves tment Manager’ s continuing appointment together with the terms and conditions ther eof, and to review the t erms and quality of service r eceived fr om other service pro viders. The Boar d ensures the Company adher es to independent requir ements in all agr eements and service contr acts. Remuneration Committee The Remuneration Committee determines and agr ees with the Boar d the policy for the r emuneration of all Director s. It is chaired by John Newlands. Audit and Risk Committee The composition and r ole of the audit and risk committee is described on page 28. Relations with Shar eholders The Dir ectors place a gr eat deal of importance on communic ation with Shar eholders. The Annual Report and Financial Statements ar e widely distributed to other parties who hav e an inter est in the Company’ s performanc e. Shareholder s and investor s may obtain up to date information on the Company thr ough the Investment Manager’ s website. The Company r esponds to letters fr om Shareholders on a wide range of issues. A r egular dialogue is maintained with the Company’ s institutional Shar eholders. The Company Secr etary is availabl e to answer general Shar eholder queries at any time throughout the y ear . By Or der of the Board Car oline Hitch Chair 15 September 2022 24 CQS NEW CITY HIGH YIELD FUND LIMITED ANNUAL REPORT 30 JUNE 2022 Director s’ Report and Governanc e Reports Statement of Complianc e with the AIC Code Statement of Complianc e with the AIC Code Intr oduction The Company has a pr emium listing on the London Stock Ex change and is theref ore r equired t o r eport on how the principles of the UK Corpor ate Governanc e Code (the “UK Code”) have been applied. Being an investment c ompany , a number of the pr ovisions of the UK Code ar e not applicable as the Company has no ex ecutive dir ectors or internal oper ations. The Boar d has c onsidered the principl es and pr ovisions of the AIC Code. The AIC Cod e ad dresses a ll th e pr inc iples a nd p rovision s se t out in t he U K Code, as well as setting out additional pr ovisions on issues that ar e of specifi c rele vance to the Compan y . The Boar d considers that r eporting against the principles and pr ovisions of t he A IC Co de provi de s m ore relevant in for mat io n to stake hol de rs. Th e AIC Code is availabl e on the AIC website www .theaic.co.uk . The Company has complied with all the principl es and pr ovisions of the AIC Code during the year ended 30 June 2022. Set out below is wher e stakeholders c an find further information within the Annual Report about how the Company has c omplied with the various Principles and Pr ovisions of the AIC Code. Section page 1. Board Leadership and Purpose Purpose 13 Strategy 13 Values and culture 22 Shareholder Engagement 12 Stakeholder Engagement 12 2. Division of Responsibilities Director Independence 22 Board meetings 22 Relationship with Investment Manager 23 Management Engagement Committee 23 3. Composition, Succession and Evaluation Nomination Committee 22 Director re-election 22 Use of an external search agency 1 n/a Board evaluation 22 4. Audit, Risk and Internal Control Audit Committee 28 Emerging and principal risks 10-11 Risk management and internal control systems 29 Going concern statement 14 Viability statement 14 5. Remuneration Directors’ Remuneration Report 30 1 The Company did not appoint any new Dir ectors during the year . 25 ANNUAL REPORT 30 JUNE 2022 CQS NEW CITY HIGH YIELD FUND LIMITED ESG statement of the Company Dir ectors’ Report and Go vernance Reports ESG stat ement of the Company CQS New City High Yield F und Limited (“the Company”) is a Jersey domicil ed and UK LSE listed investment c ompany whose objective to pr ovide investor s with a high gr oss dividend yield and the potential f or capital gr owth by mainly inv esting in high yielding fixed int eres t securities. The Company has appointed CQS (UK) LLP (“CQS”) as its inv estme nt manag er . The Bo ar d of Dir ectors con firms th at ESG fact ors ar e integral to the e xecution of the Company’ s investment strategy . The Board’ s intention is to invest r esponsib ly and to consider the Company’ s br oader impact on society and the envir onment. The Boar d believes the in te g rat i on o f E S G fa c to rs in t he i nv est m en t pro cess i s consistent with delivering sustainabl e attractive returns for Shareholder s thr ough deeper , more inf ormed investment decisions. The Boar d has r evie wed an d ag r eed th e ES G ap pr oach ado pt ed b y CQS and a s umm ary of this, shown in r ed, is set out below . C QS Responsible Inv estment Policy inc orporating our ESG Statement CQS is committed t o operating in a r esponsible manner embedding str ong and clear gov ernance, and conducting our busines s in a sustainabl e way . In our rol e as an investment manager , we view ESG factors as k ey drivers influencing financing costs, risk as sessment valuations and performanc e, while also acting as a l ever to shape and influence the world f or generations to come. The asses sment, integration and engagement of ESG fact ors is a crucial part of the Responsibl e Investment commitment acr oss the CQS inves tment platf orm, both in public and priva tely held co mpanies, and a k ey fact or in our decision-making. By embedding Responsible Inves tment into our investment pr ocess we enhanc e our ability to identify value, inv estment opportunity , risk and, critically , to generate the best pos sible r eturns and outcomes f or our clients. Our E SG process sp ec if ical ly loo ks a t E SG fac tors t hroug h i nte gra tio n in our sector r esear ch proc ess, including modelling and internal r atings wi th ESG methodologies applied to both public and priv ate debt. Met hod ol ogi es incl ude ana l ysi ng t he r ela tiv e i mpor ta nc e an d r isk pos ed by any identified ESG issue. Resear ch notes are s tor ed in acces sible f orm and availabl e for use acr oss the Fr ont Office. Discussion and debate is enc ouraged during the ESG internal anal ysis, both within the CQS Research t eam and with Portfolio Manager s. This is foll owed by an evaluation. P ortfolio Managers ar e requir ed to consider (to an appr opriate degree having r egard to their inves tment strategy) ESG risks as part of their investment decision making. This includes, but is not limited t o: • Envir onmental: C lim ate C han ge , Wate r S tress, B iod ive rsi ty an d Land Use, T oxic Emis sions and W aste and Envir onment Opportunities a nd other r elev ant sustainability risks or opportunities • Social: Labour management , Health and Safety , Privacy and Data Security , Stakeholder Opposition and Social Opportunities, Div ersity and r elev ant sustainability risks. • Governanc e: Corporate Governance and C orporate Behaviou r including Ethics, Corruption, Instability , Diversity and Remuneration Please see bel ow a diagram depicting our five-stage pr ocess: Five-Stage ESG Inv estment Pr ocess Environment al, Social and Governance (ESG) P olicy applies to all strategies acr oss the CQS platform 1 2 3 4 5 Incorporate Evaluate Decide Engage Monitor Incorporation of thir d- party ESG metrics and data into CQS’ syst ems Evaluation of ESG factor s in our sector r esearch pr ocess includes modelling, analysis, internal ratings and deplo yment into our fr ont office systems. W e demonstrate t o companies whom we r esearch that CQS is serious about ESG Portfolio Manages consider r esearch analysis as part of investment decision making Changing corporat e behaviour towar ds identified ESG risks and issues may invol ve pr oxy voting, influence or contr ol positions, and ultimately making a decision to not trade, change exposur e or exit a position altogether Periodic r esear ch r e-assessments A watching brief acr oss news wir es for dev eloping ESG considerations W eekly pr oprietary fund-le vel ESG risk r eporting for our portfolio management and r esearch t eams 26 CQS NEW CITY HIGH YIELD FUND LIMITED ANNUAL REPORT 30 JUNE 2022 Director s’ Report and Governanc e Reports ESG statement of the Company Standar ds and Codes CQS is a signatory and/or supporter to the f ollowing: • United Nations: Principl es for Responsibl e Investment (“UN PRI”) • T ask F or ce on Climate-Related Financial Discl osures (“TCFD”) • CDP (“CDP”, formerl y Carbon Disclosur e Project) • Standar ds Boar d for Alternativ e Investments (“SBAI”, f ormerly HFSB) • Climate Action 100+ • UK Stewar dship Code Specific Statement fr om the CQS Inves tment Managers with r egard to the Company It i s o u r re sp o n si b il i ty t o a n aly s e a n d m o n it or i nv es te e co mp a ni e s’ financial and non-financial (ESG) performance eff ectively . ESG integration is as an im por ta nt c on sid er at ion wh en ana ly sin g in v es tm en t opp ort un it ie s and w e are c ommitted to ev ol ving our approach in support of our ESG principl es. W e foll ow the CQS firm-wide five-st age ESG investment integration pr ocess but ar e also guided by the following principals which hav e been agr eed with the Board of the Company . • to engag e directly in dialogue with companies to understand their ESG appr oach, their ambition and disclosur e, and to table questions or concerns; • to use internal and thir d party data and ratings pro viders; • wher e possibl e, to vote at Shar eholder meetings; and • only as a las t resort, e xclude c ompanies fr om our investment universe. At the time of writing, 29% (2021: 30%) of the Company’ s portfolio is co ver ed by MSCI for their ESG rating servic e. MSCI have a minimum 65% thr eshold befor e we are abl e to pr ovide a meaningful MSCI ESG rating f or the portfolio. W e monitor this closel y and engage to try and further incr ease the perc entage of the portfolio c overed. It is not unusual for portf olios in the cr edit universe to hav e a low l evel of ESG ratings and CQS (UK) LLP have been monitoring alt ernative measur ements. One metric we have been evaluating is “W eighted average c arbon intensity” or “WACI” which is a measur e of the portfolio’ s exposur e to carbon-intensive companies, e xpressed in t onnes of CO2 per million USD of re venue. It foll ows the MSCI methodology t aking the carbon intensity of a c ompany where av ailable and wher e carbon intensity is not availabl e for a given company , a proxy estimate based on comp arative d ata from MSCI is used. For pr oxy estimates, we appl y a waterfall appr oach which requires a minimum of 10 issuers within the pr oxy estimate gr oup. If ther e are not 10 is suers in the pro xy estimate gr oup, it changes to a broa der cat egory gr oup to incr ease the number of co mparabl e issuer s and continues mo ving to a br oader group until a minimum gr oup size of 10 issuers is obtained or ‘ se cto r’ level i s reach ed . T he o rder is sub-industry first, then industry , then industry gr oup, then finally sector . The WAC I meas ur e f or th e por tfo lio is curr entl y 31 9 (2 021 : 23 8) c ompar ed t o the broader cr edit universe which is 274 (2021: 250). W e will continue to moni tor thi s a nd oth er met rics as they become av ailable. Company Specific Example: In the ne xt section, we highlight one of our recent engageme nts that we have had with a portfolio company to give you a flavour of how active engagement c an cr eate positive outc omes. 27 ANNUAL REPORT 30 JUNE 2022 CQS NEW CITY HIGH YIELD FUND LIMITED ESG statement of the Company Dir ectors’ Report and Go vernance Reports Portf olio Example A Global Copper Company MSCI ESG Rating BBB The investment manager believ es that copper is the pr eferred met al of the green ec onomy . The Fund has an inves tment in a company that owns and operates a gl obal portfolio of copper as sets. T ogether with CQS’s ESG t eam the investment manager identified a number of is sues that they addr essed with company management o ver a number of meetings. The details of the engagement ar e set out below and we believe that the implement ation of proposed changes will all ow the company to impro ve its MSCI ESG rating and attract ne w shareholder s. Identified Issues Engagement Objectives E, S or G Progress A Coal Fired Power Plant as the main source of power at a new major operation. Better understand management’s decision-making process during planning of construction. E The company provided additional disclosure that gave context to acquisition of the asset, decisions made by prior ownership, and suitability of other power sources at the time of construction. The Company has now outlined plans to convert half the power to renewables by 2025 and fully convert to a mixture of natural gas and renewables by 2030. The conversion is expected to be funded by cash flow. All future brownfield projects will be 100% powered by renewable energy. While environmental measures such as emissions, energy usage, and water stress are tracked annually, there are no set targets to reduce them from current or historical levels. Requesting the company set TCFD- aligned emissions targets, as well as energy usage, and water stress which are standardized to output to allow for growing production volumes. E In January 2022, the Company formally published absolute emissions reduction targets of 30% reduction by 2025 and 50% by 2030. Their plans for all future brownfield projects to use renewable energy, as well as initiatives within mining operations such as trolley assist to reduce fuel usage, will help them to achieve this. They now send their head of ESG to investor conferences, another sign that they are taking this very seriously. Company does not incorporate ESG objectives into incentive based compensation for management. Using the targets mentioned in point (2) as a first step in incorporating ESG goals into incentive compensation. G Now decarbonisation targets have been set, a next step is to incorporate these targets into executive remuneration. Structure has been highlighted by MSCI as needing additional independence. Conduct additional diligence of the board concerns with MSCI, and if needed suggesting the company consider adding board seats for independent directors and consideration of term limits. G Conversations with MSCI led us to believe that Board concerns were formulaic regarding age and tenor, and did not warrant a request to the company to change board composition. We have the company to MSCI’s standards, so they can better consider future board decisions. 28 CQS NEW CITY HIGH YIELD FUND LIMITED ANNUAL REPORT 30 JUNE 2022 Director s’ Report and Governanc e Reports Report of the Audit and Risk Committee Report of the Audit and Risk Committee Composition of the Audit and Risk Committee The Audit and Risk Committee is chair ed by W endy Dorman and comprises the full Boar d. The Audit and Risk Committee members have r ecent and r elevant financial e xperience. The terms of r eferenc e of the Audit and Risk Committee ar e r eviewed and r e-assessed for their adequacy on an annual basis. The AIC Code of Corporate Gov ernance r equires Audit committees who include the Chair of the Boar d as a member of the Committee to explain why this is f elt to be appr opriate. The Chair , Caroline Hitch, is a member of the Committee. Car oline was consider ed independent of the Company on her appointment to the Boar d in Mar ch 2018 and the Committee ar e satisfied that she r emains independent and objective. Her membership of the Committee is deemed appr opriate given the size and natur e of the Company . The Audit and Risk Committee does not believe it c ompromises the int egrity of the Committee or the Boar d. Role of the Audit & Risk Committ ee A summary of the Committee’ s main audit re view functions is shown below: • to r eview and monitor the int ernal contr ol systems and risk management systems on which the Company is r eliant; • to consider annuall y whether there is a need for the Company t o have its own internal audit function; • to monitor the integrity of the half-y early and annual Financial Statements of the Company by r eviewing, and challenging wher e necessary , the actions and judgements of the Investment Manager , the Company Secretary and the Administr ator; • to advise the Boar d on whether the annual r eport and accounts, taken as a whol e, is fair , balanced and unders tandable, and pr ovides the information nec essary for Shar eholders to asses s the Company’ s strategy , business model, position and performanc e; • to meet with the ext ernal Auditor , KPMG Channel Islands Limited (“KPMG”) to r eview their pr oposed audit programme of work and their findings. The Boar d shall also use this as an opportunity to asses s the effectivenes s of the audit proc ess; • to make r ecommendations in r elation to the appointment of the external Audit or and to appr ove the r emuneration and terms of engagement of the external Audit or; • to monitor and r eview annuall y the external Auditor’ s indepen dence , objectivity , effectiv eness, r esour ces and qualification; and • to consider and appr ove all non-audit services. No non-audit services ar e pre-appr oved. Annual Report and Financial Statements The Boar d is responsibl e for preparing the Annual Report and Financial Statements. The Audit and Risk Committee advises the Boar d on the form and c ontent of the Annual Report and Financial Statements, any issues which may arise and any specific ar eas which requir e judgement. The Company has adopted and r eports against the AIC Code published in F ebruary 2019. The Audit and Risk Committee over saw the work performed by the Company Secr etary in ensuring that the Company is in compliance with the principl es and pr ovisions of the AIC Code, which is r eported on in the Statement of Compliance with the AIC Code of Corporate Gov ernance section on page 24. The valuation of investments was a k ey area of f ocus given their significance t o the Financial Statements as a whol e. Foll owing discussion with the Inves tment Manager , the Audit and Risk Committee gained comf ort over the valuation as included in the Annual Report and Financial Statements. The Committee r eviewed and c onsidered the Annual Report and Accounts t o be fair , balanced and understandabl e and recommended the Boar d’ s approval. Auditor As part of its r eview of the scope and r esults of the audit, during the year the Audit and Risk Committee c onsidered and appr oved KPMG Channel Islands Limited’ s (“KPMG”) plan for the audit of the Financial Statements f or the year ended 30 June 2022. At the conclusion of the audit, KPMG did not highlight any is sues to the Audit and Risk Committee which would cause it t o qualify its audit report. KPMG issued an unmodified audit r eport which is included on pages 31 to 35. As part of the r eview of auditor independence and eff ectiveness, KPMG has confirmed that it is independent of the Company and has complied with r elev ant auditing standar ds. In evaluating KPMG, the Audit and Risk Committee has tak en into consideration the s tanding, skills and experience of the firm and the audit t eam. The Audit and Risk Committee, fr om direct observ ation and enquiry of the Investment Manager and the Administrator , r emains satisfied that KPMG continues to pr ovide effective independent chall enge in carrying out its responsibilities. No non-audit services w ere pr ovided to the Company by KPMG during the year . F ollowing pr ofessional guidelines, the audit engagement partner r otates after a maximum of five y ears. The curr ent audit engagement partner is James Le Bailly and it is his sec ond year as audit engagement partner for the Company . KPMG LLP were auditor s of the Company since the firs t year end 30 June 2008. In the inter ests of good governance, the Audit and Risk Committee carried out a tender pr ocess in 2016 and KPMG LLP wer e succes sfully r e-appointed. KPMG LLP subsequently r esigned as the Company’ s auditors on 17 June 2019 and was r eplaced, with effect fr om 17 June 2019, by KPMG Channel Islands Limited. The Company also r eceives r egular reporting on internal c ontrols (as detail ed below). Significant risks r elated to the Financial Statements The main ar ea of accounting risk c onsidered by the Committ ee during the year in r elation to the Company’ s Financial Statements was the valuation of investments held by the Company . The valuation of investments is undert aken in acc ordance with the accounting policies as set out in note 1. Details of the fair v alue hierar chy ar e set out in note 22. In or der to addr ess this risk, the Company has appointed an Inves tment Manager and Custodian with cl early defined c ontracts and any br eaches of these, or any law or regulation which the Company is r equired t o comply with, ar e reported t o the Board. The portf olio holdings and their pricing is r eviewed on a dail y basis and verified by the Investment Manager . A full portfolio is pr epared for each Boar d meeting, including a detailed movement of the top 60 holdings, which is activ ely c ommented on and discussed by the Dir ectors. 29 ANNUAL REPORT 30 JUNE 2022 CQS NEW CITY HIGH YIELD FUND LIMITED Report of the Audit and Risk Committee Director s’ Report and Governanc e Reports Internal Contr ols The Committee, on behalf of the Boar d, is responsible f or the Company’ s system of internal c ontr ol and for r eviewing its effectiveness. Ther e is an ongoing pr ocess f or identifying, evaluating and managing the significant risks f aced by the Company . This pr ocess has been in plac e for the year under r eview and up to the date of appr oval of this Annual Report and is r egularly r eviewed by the Board and ac cor ds with FRC Guidance. The significant risks fac ed by the Company are as foll ows: • financial; • operational; and • compliance. The key c omponents designed to provide eff ective internal c ontrol ar e outlined below: • the Administrator t ogether with the Investment Manager pr epare for ecasts and management accounts which all ow the Board to asses s the Company’ s activities and review its perf ormance; • the Boar d and Investment Manager have agr eed clearly defined investment criteria, specified l evels of authority and exposur e limits. Reports on these issues, including perf ormance statis tics and investment valuations, ar e regularl y submitted to the Board and ther e are meetings with the Inv estment Manager as appr opriate; • as a matter of cour se the Investment Manager’ s compliance department continuall y re views the Investment Manager’ s ope ra tio ns and reports t o the Board on an annual basis and by ex ception; • written agr eements ar e in place which specificall y define the rol e s and responsibilities of the Inv estment Manager , Company Secr etary , Administrator and other thir d party service pr oviders; • the Boar d has consider ed the need for an internal audit function but, because of the complianc e and internal contr ol systems in place at the Inves tment Manager , the Company Secr etary and the Administrator , has decided to place r eliance on the Investment Manager’ s, the Company Secretary’ s and the Administrator’ s systems and internal audit pr ocedur es. The Dir ectors have r eviewed BNP Paribas Securities Services ’ ISAE 3402 r eport for the period fr om 1 April 2021 t o 31 March 2022 (r eport on the description of contr ols placed in operation, their design and operating effectiv eness) on F und Administration and ar e pleased to note that no significant is sues wer e identified. The Administrator has confirmed ther e has been no change to their internal contr ols as described in the afor ementioned report for the period 1 April 2022 thr ough 30 June 2022, which would materially affect the Company’ s internal contr ol environment. In November 2021, the Boar d held a strategy and due diligence meeting at the offices of the Inves tment Manager . This pr ovided an opportunity to discuss the portf olio and strategy in depth, as w ell as focussing on ESG matters, particularl y climate change and sustainability , and risk and compliance. W e met various members of the Inves tment Manager team including General Counsel, The Risk Manager , Head of Infrastructur e Controls and Head of Information T echnology . Details of the r esearch and inv estment pr ocess w ere discus sed, as well as ESG policies and pr ocedur es. During the year , the Committee carried out an annual asses sment of internal contr ols for the year ended 30 June 2022 by c onsidering documentation fr om the Investment Manager , the Company Secret ary and Administrator , including the internal audit and complianc e functions. The r esults of the assessment wer e then reported t o the Board. Internal contr ol systems ar e designed to meet the Company’ s particular needs and the risks to which it is exposed. Ac cor dingly , the internal contr ol systems ar e designed to manage rather than eliminate the risk of failur e to achieve business objectiv es and by their nature can onl y pro vide reasonabl e and not absolute assurance agains t misst atement and los s. During the year , the Committee monitored the eff ectiveness of the internal contr ol framework in place at k ey thir d party service pr oviders. The Committee asses sed the contr ol environment as sufficiently r obust to mitigate any ongoing impact of COVID-19 on the Company , together with heightened risks arising fr om Russian sanctions and cyber security . The principal and emer ging risks affecting the Company , a description of those risk and contr ols mitigating those risks are disclosed on pages 10 to 11. W endy Dorman Chair of the Audit and Risk Committee 15 September 2022 30 CQS NEW CITY HIGH YIELD FUND LIMITED ANNUAL REPORT 30 JUNE 2022 Director s’ Report and Governanc e Reports Dir ectors ’ Remuneration Report Dir ectors ’ Remuneration Report Remuneration Committee The Remuneration Committee, which is chair ed by John Newlands, operates within cl early defined t erms of ref er ence. The Committee comprises the full Boar d. The r emuneration of the Dir ectors has been set in or der to attract individuals of a calibr e appropriate to the futur e development of the Company . The Company’ s policy on Directors ’ r emuneration, together with details of the r emuneration of each Dir ector , is shown below . Policy on Dir ectors’ Remuneration The Company’ s Articles of Association limit the aggr egate fees payabl e to the Boar d of Dir ectors to a tot al of £250,000 per annum. Subject to this overall limit, it is the Company’ s policy that the remuneration of non-ex ecutive Dir ectors should r eflect the experience of the Boar d as a whole, be f air and comparabl e to that of other rel evant inv estment companies that ar e similar in size and have similar investment objectives and structur es. Furthermor e, the le vel of r emuneration should be sufficient to attract and r etain the Director s needed to oversee pr operly the Company and to r eflect the specific cir cumstanc es of the Company , the duties and r esponsibilities of the Direct ors and the value and amount of time committ ed to the Company’ s affairs. It is intended that this policy will continue f or the year ending 30 June 2023 and subsequent years. On 3 June 2021, the Board appr oved an incr eased le vel of r emuneration for the Dir ectors with effect fr om 1 July 2021 as foll ows: Chair £42,500 (2021: £40,000) Audit Chair £36,500 (2021: £34,000) Other £30,000 (2021: £27,500) No element of the Dir ectors ’ remuneration is perf ormance r elated. No Dir ector past or pr esent has any entitlement t o pensions and the Company has not awar ded any share options or l ong-term performance incentives t o any of the Direct ors. It is the Boar d’ s policy that Directors do not hav e service contr acts, but new Dir ectors ar e provided with a l etter of appointment. Dir ectors ’ Emoluments The Dir ectors who served in the year r eceived the f ollowing f ees: 2022 £ 2021 £ C Hitch (Chair) 42,500 40,000 D A H Baxter 30,000 27,500 I Cadby 30,000 27,500 W Dorman (Audit and Risk Committee Chair) 36,500 34,000 J E Newlands 30,000 27,500 Totals 169,000 156,500 The amounts paid by the Company to the Dir ectors wer e for services as non-ex ecutive Dir ectors. V oting at Annual General Meeting An or dinary resolution f or the approval of this Dir ectors ’ Remuneration Report will be put to an advisory shar eholder vote at the f orthcoming Annual General Meeting. Appr oval The Dir ectors ’ Remuneration Report on page 30 was approved by the Boar d of Direct ors and signed on its behalf on 15 September 2022. On behalf of the Boar d Caroline Hit ch Chair 15 September 2022 31 ANNUAL REPORT 30 JUNE 2022 CQS NEW CITY HIGH YIELD FUND LIMITED Independent Auditor’ s Report to the members of CQS New City High Yield Fund Limit ed Independent Auditor’ s Report Our opinion is unmodified W e have audited the financial st atements of CQS New City High Yield Fund Limit ed (the “Company”), which comprise the stat ement of financial position as at 30 June 2022, the statements of c ompr ehensive income, changes in equity and the cash fl ow statement for the y ear then ended, and notes, comprising signific ant accounting policies and other explanatory inf ormation. In our opinion, the accompanying financial s tatements: • give a true and fair vie w of the financial position of the Company as at 30 June 2022, and of the Company’ s financial performance and cash fl ows for the year then ended; • ar e prepar ed in accor dance with International Financial Reporting Standar ds as adopted by the EU; and • have been pr operly pr epared in ac cor dance with the Companies (Jersey) Law, 1991. Basis for opinion W e conducted our audit in ac cor dance with International St andards on Auditing (UK) (“ISAs (UK)”) and applicabl e law . Our responsibilities ar e described below . W e have fulfill ed our ethical r esponsibilities under , and ar e independent of the Company in accor dance with, UK ethical r equirements including the FRC Ethic al Standar d as requir ed by the Cr own Dependencies ’ Audit Rules and Guidance. W e believe that the audit evidence we hav e obtained is a sufficient and appr opriate basis for our opinion. Independent auditor ’ s report to the Members of CQS New City High Y ield Fund Limited 32 CQS NEW CITY HIGH YIELD FUND LIMITED ANNUAL REPORT 30 JUNE 2022 Independent Auditor’ s Report Independent Auditor’ s Report to the members of CQS New City High Yield F und Limited Key audit matters: our as sessment of the risks of material misstat ement Key audit matters ar e those matters that, in our pr ofessional judgment, w ere of mos t significance in the audit of the financial s tatements and include the most significant as sessed risks of material mis statement (whether or not due to fr aud) identified by us, including those which had the great est effect on: the ov erall audit strat egy; the allocation of r esourc es in the audit; and directing the eff orts of the engagement team. These matters w ere addr essed in the conte xt of our audit of the financial statements as a whole, and in f orming our opinion ther eon, and we do not pro vide a separate opinion on these matters. In arriving at our audit opinion abov e, the key audit matt er was as follo ws (unchanged from 2021): The risk Our response V aluation of investments £263m; (2021: £257m) Refer to page 28 (Report of the Audit and Risk Committee), note 1(a) and 1(b) (accounting policy), note 9 (financial assets designated at fair v alue thr ough profit or l oss) and notes 16 (financial instruments) and 22 (fair value hierar chy). Basis: The Company’ s portfolio of investments mak es up 97.1% of the Company’ s total assets (by value). 92.2% of the investments c omprise investments wher e the fair values ar e readil y availabl e from a number of independent pricing sour ces (such as stock ex changes or multiple br okers) and ther efor e we do not consider these inves tments to be at a high risk of misst atement. The fair value of the Company’ s remaining investments holdings of £20.5m, which r epresent 7.8% of the investments, ar e not readil y available fr om a number of independent pricing sourc es and ar e valued by the Company using valuation techniques taking into ac count, wher e appropriate, latest dealing pric es, brok er statements, and other r elev ant factor s or information. Risk: The valuation of the Company’ s investments is a significant ar ea of our audit, given that it repr esents a significant portion of the total as sets of the Company . The valuation risk of the investments also r elates to those investments wher e the fair values ar e not r eadily availabl e from a number of independent pricing sour ces given the estimation and judgements that may be invol ved in the determination of their fair values. Our audit pr ocedur es included: Internal Contr ols: W e assessed the design and impl ementation of contr ols over the valuation of investments wher e the fair values ar e not readil y availabl e from a number of independent pricing sour ces given the estimation and judgements that may be invol ved in the determination of their fair values. Use of KPMG Specialists: W e engaged our valuation specialist to: - Independentl y price inves tments to a thir d party pricing sour ce and compar e the price to that used by the Company , wher e prices ar e readily availabl e; and - Derive independent valuations for the r emaining investments (wher e fair value not r eadily availabl e from a number of independent pricing sour ces) by using a model-based valuation (lik e discounted c ash flow model) to c alculate a pric e and compar ed it to the price used by the Company . Assessing discl osures: W e also consider ed the Company’s discl osures (see note 1 – critical ac counting estimates and judgements) in r elation to the use of estimates and judgements r egarding the v aluation of investments and the Company’ s investment valuation policies adopted in note 16 and fair v alue disclosur es in note 22 for compliance with IFRS as adopt ed by the EU. Our application of materiality and an overvie w of the scope of our audit Materiality for the financial s tatements as a whol e was set at £2,790,000, determined with r efer ence to a benchmark of total as sets of £271,197,000, of which it r epresents appr oximatel y 1.0% (2021: 1.0%). In line with our audit methodology , our proc edures on individual account balanc es and disclosures wer e performed to a l ower thr eshold, performanc e materiality , so as to r educe to an accept able l evel the risk that individually immaterial mis statements in individual account balances add up to a material amount acr oss the financial stat ements as a whole. P erformance mat eriality for the Company was set at 75% (2021: 75%) of materiality for the financial s tatements as a whol e, which equates to £2,092,000. W e applied this percent age in our determination of performanc e materiality because we did not identify any factor s indicating an el evated l evel of risk. W e r eported to the Audit Committee any corr ected or uncorr ected identified misst atements ex ceeding £139,000, in addition to other identified misst atements that warranted r eporting on qualitative gr ounds. In addition, we applied a low er materiality of £1,680,000, to the investment inc ome balance (£22.4m) for which w e believe misst atements of a les ser amount than materiality for the financial statements as a whol e could be reasonabl y expected to influence the Company’ s members ’ asses sment of the financial performance of the Company . Our audit of the Company was undertaken t o the materiality le vel specified above, which has inf ormed our identification of significant risks of material miss tatement and the associat ed audit proc edures performed in those ar eas as detailed above. 33 ANNUAL REPORT 30 JUNE 2022 CQS NEW CITY HIGH YIELD FUND LIMITED Independent Auditor’ s Report to the members of CQS New City High Yield Fund Limit ed Independent Auditor’ s Report Going conc ern The dir ectors have pr epared the financial stat ements on the going concern basis as the y do not intend to liquidate the Company or to cease its operations, and as the y have concluded that the Company’ s financial position means that this is r ealistic. They have also c oncluded that ther e are no mat erial uncertainties that could hav e cast signific ant doubt over its ability to c ontinue as a going concern f or at least a year fr om the date of appr oval of the financial st atements (the “going concern period”). In our evaluation of the dir ectors ’ conclusions, we c onsidered the inher ent risks to the Company’ s business model and analysed how those risks might affect the Company’ s financial r esourc es or ability to continue operations o ver the going conc ern period. The risks that we consider ed most likely t o affect the Company’ s financial resour ces or ability to continue oper ations over this period wer e: • Availability of c apital to meet operating c osts and other financial commitments; • The outcome of the upc oming continuation vote at the f orthcoming Annual General Meeting of the Company; • The ability to succ essfull y refinanc e or r epay debt which is due to matur e by end of 2023; and • The ability of the Company to compl y with debt covenants. W e consider ed whether these risks could plausibly affect the liquidity in the going concern period by c omparing severe, but plausibl e downside scenarios that c ould arise from these risks individuall y and coll ectively agains t the le vel of availabl e financial resour ces indicated by the Company’ s financial for ecasts. W e also consider ed the risk that the outcome of the continuation vote could aff ect the Company over the going conc ern period, by considering outcomes of pr evious votes held by the Company , reviewing corr espondence from the br okers that they have no c oncerns regar ding the outcome of the c ontinuation vote, and considering k ey financial metrics including discount/pr emium of the Company’ s share pric e against its r eported net asset v alue per share, o ver the past 12 months. W e consider ed whether the going concern disclosur e in note 1(a) to the financial statements giv es a full and accurate description of the dir ectors ’ assessment of going conc ern. Our conclusions based on this work: • we consider that the dir ectors ’ use of the going conc ern basis of accounting in the pr eparation of the financial statements is appr opriate; • we have not identified, and concur with the dir ectors ’ assessment that ther e is not, a material uncertainty r elated to events or conditions that, individuall y or coll ectively , may cast significant doubt on the the Company’ s ability to continue as a going conc ern for the going c oncern period; and • we have nothing material to add or dr aw attention to in r elation to the dir ectors ’ statement in the notes to the financial s tatements on the use of the going concern basis of ac counting with no material uncertainties that may c ast significant doubt ov er the Company’ s use of that basis for the going c oncern period, and that stat ement is materially c onsistent with the financial statements and our audit knowledge. However , as we cannot pr edict all future events or conditions and as subsequent events may r esult in outcomes that ar e inconsistent with judgements that wer e reasonabl e at the time they were made, the above c onclusions are not a guar antee that the Company will continue in operation. F raud and br eaches of laws and regulations – ability to detect Identifying and responding t o risks of material misstatement due to fraud T o identify risks of material miss tatement due to fraud (“fr aud risks”) we asses sed events or c onditions that could indicate an inc entive or pr essur e to commit fr aud or pro vide an opportunity to commit fraud. Our risk asses sment proc edures included: • enquiring of management as to the Company’ s policies and pr ocedur es to pr event and detect fr aud as well as enquiring whether management have knowl edge of any actual, suspected or all eged fraud; • r eading minutes of meetings of those char ged with governance; and • using analytic al proc edur es to identify any unusual or unexpected r elationships. As r equired by auditing s tandar ds, we perform pr ocedures t o addres s the risk of management override of c ontrols, in particular the risk that management may be in a position to make inappr opriate accounting entries. On this audit we do not believe ther e is a fraud risk relat ed to r evenue r ecognition because the Company’ s rev enue str eams are simple in natur e with respect to ac counting policy choice, and ar e easily v erifiable to e xternal data sour ces or agreements with littl e or no r equirement f or estimation from management. W e did not identify any additional fraud risks. W e performed pr ocedures including • Identifying journal entries and other adjustments to tes t based on risk criteria and comparing any identified entries to supporting documentation; and • incorporating an el ement of unpredictability in our audit pr ocedures. Identifying and responding t o risks of material misstatement due to non-complianc e with laws and regulations W e identified ar eas of laws and regulations that c ould r easonably be expected t o have a material effect on the financial s tatements fr om our sector experienc e and through discus sion with management (as r equired by auditing s tandar ds), and from inspection of the Company’ s r egulatory and legal c orr espondence, if any , and discussed with management the policies and pr ocedur es r egarding c ompliance with laws and r egulations. As the Company is regulat ed, our assessment of risks invol ved gaining an understanding of the contr ol environment including the entity’ s proc edures f or compl ying with r egulatory r equirements. The Company is subject to laws and r egulations that dir ectly aff ect the financial statements including financial r eporting legislation and taxation l egislation and we assessed the e xtent of complianc e with these laws and r egulations as part of our proc edures on the r elated financial statement it ems. The Company is subject to other laws and r egulations wher e the consequences of non-c ompliance could have a material eff ect on amounts or disclosur es in the financial statements, for ins tance thr ough the imposition of fines or litigation or impacts on the Company’ s ability to operate. W e identified financial services regulation 34 CQS NEW CITY HIGH YIELD FUND LIMITED ANNUAL REPORT 30 JUNE 2022 Independent Auditor’ s Report Independent Auditor’ s Report to the members of CQS New City High Yield F und Limited as being the ar ea most likel y to have such an effect, r ecognising the r egulated natur e of the Company’ s activities and its legal form. Auditing standar ds limit the requir ed audit pr ocedur es to identify non- compliance with these laws and regulations t o enquiry of management and inspection of r egulatory and legal c orr espondence, if any . Ther efor e if a breach of operational r egulations is not disclosed to us or evident fr om r elev ant corr espondence, an audit will not detect that br each. Context of the ability of the audit to detect fraud or br eaches of law or regulation Owing to the inher ent limitations of an audit, ther e is an unavoidabl e risk that we may not have detect ed some material misst atements in the financial statements, e ven though we have pr operly planned and performed our audit in ac cor dance with auditing st andards. F or exampl e, the further r emoved non-complianc e with laws and r egulations is from the e vents and transactions r eflected in the financial statements, the l ess likel y the inherentl y limited proc edures r equired by auditing s tandar ds would identify it. In addition, as with any audit, ther e remains a higher risk of non- detection of fraud, as this may invol ve collusion, f orgery , intentional omissions, misr epresentations, or the ov erride of internal contr ols. Our audit pr ocedur es ar e designed to detect material mis statement. W e ar e not responsibl e for pre venting non-complianc e or fraud and cannot be expect ed to detect non-complianc e with all laws and r egulations. Other information The dir ectors ar e r esponsible f or the other information. The other information c omprises the information included in the annual r eport but does not include the financial statements and our audit or’ s report ther eon. Our opinion on the financial statements does not c over the other information and we do not e xpr ess an audit opinion or any form of assuranc e conclusion ther eon. In connection with our audit of the financial st atements, our r esponsibility is to r ead the other information and, in doing so, consider whether the other information is materiall y inconsistent with the financial statements or our knowl edge obtained in the audit, or otherwise appears to be materiall y misstated. If, based on the work we have performed, w e conclude that ther e is a material miss tatement of this other information, we ar e requir ed to report that f act. W e have nothing to r eport in this r egard. Disclosur es of emerging and principal risks and longer term viability W e ar e requir ed to perform pr ocedur es to identify whether there is a material inconsis tency between the dir ectors ’ disclosur es in r espect of emer ging and principal risks and the viability statement, and the financial statements and our audit knowl edge. we have nothing material to add or draw att ention to in r elation to: • the dir ectors ’ confirmation within the Viability Statement (page 14) that they have c arried out a robus t assessment of the emer ging and principal risks facing the Company , including those that would thr eaten its business model, futur e performance, sol vency or liquidity; • the emer ging and principal risks disclosur es describing these risks and explaining how they ar e being managed or mitigated; • the dir ectors ’ explanation in the Viability Statement (page 14) as to how they have as sessed the pr ospects of the Company , over what period they have done so and why they c onsider that period to be appr opriate, and their statement as t o whether they have a r easonable e xpectation that the Company will be able t o continue in operation and meet its liabilities as they f all due over the period of their asses sment, including any relat ed disclosur es drawing attention to any neces sary qualifications or assumptions. W e ar e also requir ed to re view the Viability Statement, set out on page 14 under the Listing Rules. Based on the abo ve pr ocedur es, we have concluded that the abo ve disclosur es are materiall y consistent with the financial statements and our audit knowl edge. Corporate gov ernance discl osures W e ar e requir ed to perform pr ocedur es to identify whether there is a material inconsis tency between the dir ectors ’ corporate gov ernance disclosur es and the financial statements and our audit knowl edge. Based on those pr ocedur es, we have concluded that each of the foll owing is materiall y consistent with the financial s tatements and our audit knowl edge: • the dir ectors ’ statement that they c onsider that the annual report and financial statements t aken as a whol e is fair , balanced and understandabl e, and provides the inf ormation necessary f or shar eholders to asses s the Company’ s position and performance, business model and str ategy; • the section of the annual r eport describing the work of the Audit Committee, including the significant is sues that the audit committee consider ed in relation to the financial st atements, and how these issues wer e addressed; and • the section of the annual r eport that describes the re view of the effectivenes s of the Company’s risk management and int ernal contr ol systems. W e ar e requir ed to re view the part of Corporate Gov ernance Statement r elating to the Company’ s compliance with the pr ovisions of the UK Corporate Gov ernance Code specified by the Listing Rul es for our r eview . We hav e nothing to r eport in this respect. W e have nothing to report on other matt ers on which we ar e requir ed to report by ex ception W e have nothing to r eport in respect of the foll owing matters where the Companies (Jersey) Law 1991 r equires us to r eport to you if, in our opinion: • adequate acc ounting rec ords have not been k ept by the Company; or • the Company’ s financial statements ar e not in agr eement with the accounting r ecor ds; or • we have not r eceived all the information and e xplanations we requir e for our audit. Respective r esponsibilities Dir ectors ’ r esponsibilities As explained mor e fully in their statement set out on page 16, the dir ectors ar e r esponsible f or: the prepar ation of the financial statements including being satisfied that the y give a true and fair view; such internal contr ol as they determine is neces sary to enable the 35 ANNUAL REPORT 30 JUNE 2022 CQS NEW CITY HIGH YIELD FUND LIMITED Independent Auditor’ s Report to the members of CQS New City High Yield Fund Limit ed Independent Auditor’ s Report pr eparation of financial statements that ar e free fr om material misst atement, whether due to fraud or err or; assessing the Company’ s ability to continue as a going c oncern, discl osing, as applicable, matters r elated to going concern; and using the going c oncern basis of accounting unl ess they either intend to liquidate the Company or t o cease operations, or hav e no realis tic alternative but to do so. Auditor’ s r esponsibilities Our objectives ar e to obtain r easonable assuranc e about whether the financial statements as a whol e are fr ee fr om material misst atement, whether due to fraud or err or , and to issue our opinion in an auditor’ s r eport. Reasonable as surance is a high l evel of as surance, but does not guarantee that an audit c onducted in accor dance with ISAs (UK) will always detect a mat erial misstat ement when it exists. Misst atements can arise fr om fraud or error and ar e considered material if, individually or in aggr egate, they could r easonably be expected t o influence the economic decisions of users t aken on the basis of the financial statements. A fuller description of our r esponsibilities is provided on the FRC’ s website at www .frc.or g.uk/auditorsr esponsibilities . The purpose of this report and r estrictions on its use by persons other than the Company’ s members as a body This r eport is made solel y to the Company’ s members, as a body , in accor dance with Article 113A of the Companies (Jer sey) Law 1991. Our audit work has been undertak en so that we might state to the Company’ s members those matters we ar e requir ed to stat e to them in an auditor’ s report and f or no other purpose. T o the fullest extent permitted by law, we do not acc ept or assume r esponsibility to anyone other than the Company and the Company’ s members, as a body , for our audit work, for this r eport, or for the opinions we have f ormed. James Le Baill y F or and on behalf of KPMG Channel Islands Limited Charter ed Account ants and Recognized Auditors Jersey 15 September 2022 36 CQS NEW CITY HIGH YIELD FUND LIMITED ANNUAL REPORT 30 JUNE 2022 Financial Statements Statement of Compr ehensive Income Statement of Compr ehensive Inc ome F or the year ended 30 June 2022 Year ended 30 June 2022 Year ended 30 June 2021 Notes Revenue £’000 Capital £’000 Total £’000 Revenue £’000 Capital £’000 Total £’000 Net capital gains/(losses) (Losses)/gains on financial assets designated at fair value 9 – (14,459) (14,459) – 23,913 23,913 Foreign exchange gain/(loss) * – 61 61 – (36) (36) Revenue Investment income 2 22,362 – 22,362 21,151 – 21,151 Total Income 22,362 (14,398) 7,964 21,151 23,877 45,028 Expenses Investment management fee 3 (1,595) (531) (2,126) (1,456) (485) (1,941) Other expenses 4 (772) (75) (847) (800) (14) (814) Total expenses (2,367) (606) (2,973) (2,256) (499) (2,755) Profit/(loss) before finance costs and taxation 19,995 (15,004) 4,991 18,895 23,378 42,273 Finance income/(costs) Interest income 1 – 1 – – – Interest expense 5 (456) (152) (608) (326) (107) (433) Profit/(loss) before taxation 19,540 (15,156) 4,384 18,569 23,271 41,840 Irrecoverable withholding tax 6 (377) – (377) (267) – (267) Profit/(loss) after taxation and total comprehensive income/(loss) 19,163 (15,156) 4,007 18,302 23,271 41,573 Basic and diluted earnings/(losses) per ordinary share (pence) 8 4.16 (3.29) 0.87 4.18 5.32 9.50 * Excludes f oreign e xchange gains and losses on financial as sets designated thr ough pr ofit and loss which ar e presented within (l osses)/gains on financial assets designated at f air value. The total column of this s tatement r epresents the Company’ s Statement of Compr ehensive Income, pr epared in ac cor dance with IFRS as adopted by the EU (r efer to note 1). The suppl ementary rev enue return and c apital r eturn columns ar e both prepar ed under guidance published by the Association of Inves tment Companies. Ther e is no other compr ehensive income as all inc ome is r ecor ded in the Statement of Compr ehensive Income above. All r evenue and capit al items in the above st atement ar e derived fr om continuing operations. No operations wer e acquired or discontinued in the y ear . The accompanying not es on pages 40 to 54 ar e an integral part of these Financial Statements. 36 Financial Statements Statement of Compr ehensive Income 37 ANNUAL REPORT 30 JUNE 2022 CQS NEW CITY HIGH YIELD FUND LIMITED Statement of Financial Position Financial Statements Statement of Financial P osition As at 30 June 2022 Notes As at 30 June 2022 £’000 As at 30 June 2021 £’000 Non-current assets Financial assets designated at fair value through profit or loss 9 263,393 257,467 Current assets Debtors and other receivables 10 3,819 3,585 Cash and cash equivalents 3,985 11,427 7,804 15,012 Total assets 271,197 272,479 Non-current liabilities Bank loan 11 (33,000) – Current liabilities Bank loan 11 – (33,000) Creditors and other payables 12 (3,211) (5,301) Total liabilities (36,211) (38,301) Net asset value 234,986 234,178 Stated capital and reserves Stated capital account 13 220,649 203,416 Special distributable reserve 50,385 50,385 Capital reserve (51,610) (36,454) Revenue reserve 15,562 16,831 Equity Shareholders’ funds 234,986 234,178 Net asset value per ordinary share (pence) 15 49.30p 52.62p The Financial Statements on pages 36 to 54 were appr oved by the Boar d of Direct ors and authorised for is sue on 15 September 2022 and were signed on its behalf by: Caroline Hit ch Chair 15 September 2022 The accompanying not es on pages 40 to 54 ar e an integral part of these Financial Statements. 38 CQS NEW CITY HIGH YIELD FUND LIMITED ANNUAL REPORT 30 JUNE 2022 Financial Statements Statement of Changes in Equity Statement of Changes in Equity F or the year ended 30 June 2022 Notes Stated capital account * £’000 Special distributable reserve ‡ £’000 Capital reserve * £’000 Revenue reserve † £’000 Total £’000 At 1 July 2021 203,416 50,385 (36,454) 16,831 234,178 Total comprehensive income for the year: Profit/(loss) for the year – – (15,156) 19,163 4,007 Transactions with owners recognised directly in equity: Dividends paid 7 – – – (20,432) (20,432) Net proceeds from issue of shares 13 17,233 – – – 17,233 At 30 June 2022 220,649 50,385 (51,610) 15,562 234,986 F or the year ended 30 June 2021 Notes Stated capital account * £’000 Special distributable reserve ‡ £’000 Capital reserve * £’000 Revenue reserve † £’000 Total £’000 At 1 July 2020 197,037 50,385 (59,725) 17,982 205,679 Total comprehensive income for the year: Profit for the year – – 23,271 18,302 41,573 Transactions with owners recognised directly in equity: Dividends paid 7 – – – (19,453) (19,453) Net proceeds from issue of shares 13 6,379 – – – 6,379 At 30 June 2021 203,416 50,385 (36,454) 16,831 234,178 * F ollowing a change in Jerse y Company Law effective 27 June 2008, dividends can be paid out of any capital acc ount of the Company subject to certain sol vency r estrictions. However , it is the Company’ s policy to account f or r evenue items and pay dividends, drawing wher e necessary fr om a separate r evenue reserv e. ‡ The balance on the special distribut able r eserve of £50,385,000 (2021: £50,385,000) is treated as dis tributable pr ofits available to be used f or all purposes permitted by Jersey Company Law including the buying back of or dinary shares, the payment of dividends and the payment of pr eliminary expenses. † The balance on the r evenue reserv e of £15,562,000 (2021: £16,831,000) is available f or paying dividends. The accompanying not es on pages 40 to 54 ar e an integral part of these Financial Statements. 39 ANNUAL REPORT 30 JUNE 2022 CQS NEW CITY HIGH YIELD FUND LIMITED Cash Flow Stat ement Financial Statements Cash Fl ow Statement F or the year ended 30 June 2022 Notes Year ended 30 June 2022 £’000 Year ended 30 June 2021 £’000 Operating activities Profit before finance income/(cost) and taxation 1 4,991 42,273 Adjustments to reconcile profit before tax to net cash flows: Realised (gains)/losses on financial assets designated at fair value through profit or loss 9 (3,631) 11,575 Unrealised losses/(gains) on financial assets designated at fair value through profit or loss 9 18,090 (35,489) Effective interest adjustment 9 (154) (232) Foreign exchange (gain)/loss (61) 36 Purchase of financial assets designated at fair value through profit or loss 2 (110,433) (70,415) Proceeds from sale of financial assets designated at fair value through profit or loss 3 85,833 73,280 Changes in working capital (Increase)/decrease in other receivables (508) 51 Increase/(decrease) in other payables 2,266 (422) Irrecoverable withholding tax paid (377) (267) Net cash (used in)/generated from operating activities (3,984) 20,390 Financing activities Dividends paid 7 (20,432) (19,453) Drawdown of bank loan 11 – 2,000 Finance costs (595) (431) Proceeds from issuance of ordinary shares 4 13 17,508 6,104 Net cash used in financing activities (3,519) (11,780) (Decrease)/increase in cash and cash equivalents (7,503) 8,610 Cash and cash equivalents at the start of the year 11,427 2,853 Exchange gain/(loss) 61 (36) Cash and cash equivalents at the end of the year 3,985 11,427 1 Included within pr ofit befor e finance income/(cost) and t axation is dividend income of £3,684,000 (30 June 2021: £2,934,000) and interes t income of £18,678,000 (30 June 2021: £18,217,000). 2 Amounts due to br okers as at 30 June 2022 relating to pur chases of financial assets designated at f air value thr ough profit amount ed to £613,000 (30 June 2021: £4,980,000). 3 Amounts due fr om brok ers as at 30 June 2022 r elating to sales of financial as sets designated at fair value thr ough pr ofit amounted to £nil (30 June 2021: £nil). 4 Amounts due on new shar e issuance not y et rec eived as at 30 June 2022 amounted to £nil (30 June 2021: £275,000). The accompanying not es on pages 40 to 54 ar e an integral part of these Financial Statements. 40 CQS NEW CITY HIGH YIELD FUND LIMITED ANNUAL REPORT 30 JUNE 2022 Financial Statements Notes to the Financial Statements Notes to the Financial Statements 1 Acc ounting Policies (a) Basis of acc ounting These Financial Statements have been pr epared in ac cor dance with International Financial Reporting Standar ds (“IFRS”) as adopted by the European Union and in accor dance with the guidance set out in the Stat ement of Recommended Practic e (“SORP”): Financial Statements of Investment T rust Companies and Ventur e Capital T rusts issued by the AIC in November 2014 and updated mos t rec ently in April 2021 with c onsequential amendments. Notwithstanding that CQS New City High Yield F und Limited (the “Company”) is not an investment trust c ompany , given the purpose of the Company and certain similar char acteristics, the Company has chosen to f ollow the guidanc e set out in the SORP where it is c onsistent with the r equirements of IFRS. The functional and r eporting currency of the Company is pound s terling because that is the primary economic envir onment in which the Company operates. The notes and Financial St atements ar e present ed in pound sterling and ar e r ounded to the near est thousand ex cept wher e otherwise indicated. The Financial Statements have been pr epared on the hist orical cos t basis, exc ept that investments ar e stated at fair v alue and categorised as financial assets at f air value thr ough profit or l oss. Going conc ern At each Annual General Meeting of the Company , Shareholders ar e given the opportunity to vote on an or dinary resolution to continue the Company as an investment c ompany . If any such resolution is not pas sed, the Board will put f orward pr oposals at an extraor dinary general meeting to liquidate or otherwise r econstruct or r eorganise the Company . Given the performance of the Company , input from the Company’ s major Shar eholders and its br oker , the Board c onsiders it likel y that Shar eholders will vote in f avour of continuation at the f orthcoming Annual General Meeting. The Company’ s existing loan f acility as detailed on page 46 has been r enewed for an amount of up t o £45 million and is due to matur e on 17 December 2023 after which it is anticipated the Company will tak e out a new facility on comparabl e terms. After making enquiries of the Investment Manager , and having consider ed the Company’ s investment objective, natur e of the investment portfolio, loan f acility , expenditure pr ojections, impact of COVID-19 and the impact of the Russia-Ukraine c onflict on the Company , the Dir ectors consider that the Company has adequate r esour ces to continue in oper ational exist ence for the f or eseeable futur e. For this r eason the Directors c ontinue to adopt the going conc ern basis in pr eparing the Financial Statements, notwithstanding that the Company is subject t o an annual continuation vote as described abo ve. Acc ounting Devel opments Standar ds and amendments to exis ting standar ds effective in curr ent year: Inter est Rate Benchmark Reform – Phase 2 These amendments addr ess issues that might aff ect financial r eporting as a result of the r eform of an inter est rate benchmark, including the effects of changes to c ontractual cash fl ows or hedging r elationships arising from the r eplacement of an inter est rate benchmark with an alternative benchmark rat e. The amendments pro vide practical r elief from cert ain requir ements in IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 r elating to changes in the basis for determining c ontractual cash fl ows of financial assets, financial liabilities and l ease liabilities; and hedge accounting (no impact). Change in basis for determining cash flo ws The amendments r equire an entity t o account f or a change in the basis for determining the c ontractual cash fl ows of a financial asset or financial liability that is r equired by int eres t rate benchmark r eform by updating the effective inter est rate of the financial asset or financial liability . At the beginning of the period, the Company had an unsecur ed loan facility with Sc otiabank Europe Plc that had a limit of £35 million of which £ 33 million was drawn down at an inter est rate of 1.35% + LIBOR. Pursuant t o a Seventh Amendment Agr eement with effective date 17 December 2021, the loan f acility was increased t o a committed limit of £45 million (with an option to incr ease by a further £5 million) of which £33 million was stil l drawn down as at the year end. The int eres t rate was changed to 1.45% plus a c ompounded ref erence rat e. As from 17 September 2021, the Company had r eplaced LIBOR by SONIA for the c alculation of inter est on the loan f acility . The Company held floating rat e investments securities which wer e subject to the IBOR ref orm during the period given that their inter est rates r efer enced LIBOR. All of those positions have replac ed LIBOR by SONIA as fr om 1 July 2021, for the determination of the int eres t amounts due to the Company . Standar ds and amendments becoming eff ective in futur e periods: A number of amendments and interpr etations to e xisting standar ds have been issued, but ar e not yet effectiv e, that are not r elevant t o the Company’ s operations. The Direct ors believe that the applic ation of these amendments and interpr etations will not impact the Company’ s Financial Statements when they bec ome effective. 41 ANNUAL REPORT 30 JUNE 2022 CQS NEW CITY HIGH YIELD FUND LIMITED Notes to the Financial Statements Financial Statements Critical acc ounting estimates and judgements The pr eparation of the Financial Statements nec essarily r equires the e xer cise of judgement both in application of accounting policies which ar e set out below and in the sel ection of assumptions used in the calculation of es timates. These estimates and judgements ar e review ed on an ongoing basis and ar e continually e valuated based on hist orical experienc e and other factors. Ho wever , actual results may diff er fr om these estimates. The valuation of financial assets inv ol ves estimation and judgements. The major part of the Company’ s financial assets is its financial assets held at fair value thr ough profit or l oss which is valued by r efer ence to list ed and quoted bid prices, howe ver some of these financial assets ar e thinly traded. Such financial assets ar e best valued by r efer ence to current mark et price quotes pr ovided by independent br okers. The Dir ectors may overlay such pric es with situation specific adjustments including (a) taking a second independent opinion on a specific investment, or (ii) r educing the value to a net pr esent value, to refl ect the likely time to be t aken to r ealise a stock which the Company is activel y looking to sell. The outturn is r eflected in the v aluations of investments as set out in note 22 to the Financial St atements. Financial assets which ar e not listed or where tr ading in the securities of an investee c ompany is suspended are v alued at the Boar d’ s estimate of fair value in ac cor dance with International Private Equity and V enture Capital (IPEV) v aluation guidance. Unquoted financial assets ar e valued by the Dir ectors on the basis of all the information av ailable to them at the time of v aluation. This includes a r eview of the financial and trading information of the inves tee company , covenant c ompliance, ability to pay the inter est due and cash held. F or convertible bonds this also includes consideration of their disc ounted cash fl ows and underlying equity v alue based on information pr ovided by the Investment Manager . In r espect of two of the Company’ s investments in particular , Raven Property Gr oup Ltd and Raven Russia 12% 09-31/12/2059, the Investment Manager marked the positions to a f air value of nil as at 30 June 2022, following the Rus sian/Ukraine conflict. Rav en suspended its shares during the year and advised it was unlik ely to be abl e to continue maintaining normal operations. It has sinc e been delisted fr om the stock exchange, coupon payments on the pr eferenc e shar es have ceased and the price of both securities has been writt en down to zer o in the Company’ s portfolio. Ther e were no other signific ant accounting es timates or significant judgements in the curr ent or previous y ear . A summary of the principal accounting policies which hav e been applied to all periods pr esented in these Financial Statements is set out bel ow . (b) Financial assets Financial assets which comprise equity shar es, convertibl e bonds and fixed inc ome securities, are clas sified as held at fair value thr ough profit or los s as the Company’ s business model is not to hold these financial assets f or the sole purposes of c ollecting c ontractual cash fl ows. In making this asses sment, the Direct ors have given r egard to the inves tment strategy of the Company , the fact that the perf ormance of the portfolio is evaluated on a f air value basis and the fact that the Investment Manager is r emunerated on a perc entage of total assets. Pur chases or sales of financial as sets are r ecognised/der ecognised on the date the Company trades the inv estments. On initial r ecognition investments ar e measured at f air value and classified as f air value thr ough profit or l oss with any subsequent gain or loss, including any gain or los s arising from a change in e xchange r ates, r ecognised in the Statement of Compr ehensive Income. Financial assets held at f air value thr ough profit or l oss are v alued in accor dance with the policies described in the critical acc ounting estimates and judgements section above. Financial assets also include the Company’ s cash and cash equiv alents (c omprising of cash held in curr ent accounts and o ver draft balances) and debtors and other r eceivables which ar e held at amortised cost using effectiv e inter est rate, l ess any impairment. (c) Financial liabilities Financial liabilities include amounts due to br okers, bank l oan, interest on bank l oan and other creditors which ar e held at amortised cost using the effective int eres t rate method. Financial liabilities ar e recognised initiall y at fair value, net of transaction cos ts incurred and ar e subsequently carried at amortised cos t using the effective int eres t rate method. Financial liabilities ar e derecognised when the obligation specified in the c ontract is dischar ged, cancell ed or expir es. (d) Income Dividends r eceivabl e on equity shar es (including pref erence shar es) are r ecognised as inc ome on the date that the r elated investments ar e marked ex-dividend. Dividends r eceivable on equity shar es where no e x-dividend date is quoted ar e r ecognised as income when the Company’ s right to r eceive payment is est ablished. Dividends fr om overseas c ompanies are sho wn gros s of any non-r ecover able withholding tax es which are disclosed separ ately in the St atement of Compr ehensive Income. Fixed r eturns on non-equity shares and debt securities (including pr eferenc e shares) ar e rec ognised on a time apportioned basis so as to r eflect the effective int eres t rate on those instruments. Other r eturns on non-equity shares ar e recognised when the right t o the return is es tablished. Wher e the Company has elected t o rec eive its dividends in the form of additional shar es rather than cash, an amount equal to the cash dividend is r ecognised as income. Any e xces s in the value of the shares r eceived over the amount of the cash dividend is r ecognised in the capital r eserve. 42 CQS NEW CITY HIGH YIELD FUND LIMITED ANNUAL REPORT 30 JUNE 2022 Financial Statements Notes to the Financial Statements (e) Expenses, including finance char ges All expenses ar e accounted f or on an accruals basis. Expenses ar e charged thr ough the re venue account e xcept as foll ows: – expenses which ar e incidental to the acquisition of an investment ar e char ged to the capital ac count; – expenses which ar e incidental to the disposal of an investment char ged to the capital ac count; – the Company charges 25% of inves tment management fees and inter est costs to c apital, in line with the Boar d’ s expected long term r eturn in the form of capit al gains and income r espectively fr om the investment portf olio of the Company . For further details r efer to notes 3 and 5; and – expenses incurr ed in connection with the maintenance or enhanc ement of the value of the investments or f or the long term benefit of the Company ar e charged t o capital. (f) F or eign curr encies T ransactions denominated in for eign currencies ar e r ecor ded in the functional curr ency at actual exchange r ates at the date of the transaction. Monetary assets and liabilities denominat ed in for eign curr encies at the period end are r eported in sterling at the rates of e xchange pre vailing at the period end. Exchange gains and l osses on inves tments held at fair value thr ough profit or l oss ar e included in ‘Gains or los ses on investments held at fair value thr ough profit or l oss ’. Exchange gains and los ses on other balances ar e disclosed separatel y in the Statement of Compr ehensive Income. (g) Reserves (a) Capital r eserve. Foll owing a change in Jersey Company law effective 27 June 2008, dividends can be paid out of any capital acc ount of the Company subject to certain sol vency r estrictions. It is the Company’ s policy however to ac count for r evenue items and pay dividends thr ough a separate r evenue reserv e. The foll owing ar e accounted f or in the capital reserv e: – gains and los ses on the r ealisation of investments; – r ealised and unr ealised exchange diff erences of a capit al nature; – expenses and financ e costs char ged in accor dance with the policies abov e; and – incr eases and decr eases in the valuation of investments held at the period end. (b) Special distributabl e reserve. This r eserve is treated as dis tributable pr ofits available to be used f or all purposes permitted by Jersey company law including the buying back of or dinary shares, the payment of dividends (see not e 7) and the payment of preliminary e xpenses. (c) Revenue r eserve. The net pr ofit/(los s) and total compr ehensive income/(los s) arising in the r evenue column of the St atement of Compr ehensive Income is added to or deducted fr om this reserv e and is available f or paying dividends. (h) Shar e capital Ordinary shar es The Company’ s ordinary shar es are classified as equity based on the subs tance of the c ontractual arrangements and in acc or dance with the definition of equity instruments under IAS 32. The pr oceeds from the is sue of or dinary shares ar e rec ognised in the Statement of Changes in Equity , net of issue cos ts. T reasury shar es When the Company pur chases its ordinary shar es to be held in treasury , the amount of the consideration paid, which includes dir ectly attributabl e costs is r ecognised as a deduction fr om the stated capit al account. When these shar es are sold subsequentl y , the amount r eceived is r ecognised as an incr ease in equity , and the resulting surplus or deficit on the tr ansaction is transferr ed to or from the s tated capit al account. (i) Segmental information The Company , holds a wide variety of diff erent inv estments in a wide range of issues l ocating in differ ent geographies and operating in diff erent sectors. Howe ver , resour ces are all ocated and the busines s is managed by the chief operating decision-makers, the dir ectors, on an aggr egated basis. Strategic and financial management decisions ar e determined centrall y by the Direct ors and, on this basis, the Company operates as a single inv estment management business and no segmental r eporting is provided. 2 Income 2022 £’000 2021 £’000 Income from investments * Dividend income 3,684 2,934 Interest on fixed income securities † 18,678 18,217 Total income 22,362 21,151 * All investment inc ome arises on financial assets valued at f air value thr ough pr ofit or loss. † Fixed inc ome securities include fixed and fl oating rate securities, conv ertible securities and pr eferenc e shar es. 43 ANNUAL REPORT 30 JUNE 2022 CQS NEW CITY HIGH YIELD FUND LIMITED Notes to the Financial Statements Financial Statements 3 Investment management f ee 2022 Revenue £’000 2022 Capital £’000 2022 Total £’000 2021 Revenue £’000 2021 Capital £’000 2021 Total £’000 Investment management fee 1,595 531 2,126 1,456 485 1,941 The Company’ s investment manager is CQS (UK) LLP (“CQS”). As per the Investment Management Agr eement dated 18 September 2019, the management fee is char ged at a rate of 0.80% per annum on the Company’ s total assets (being tot al assets les s current liabilities (other than bank borr owings and ignoring any taxation which is or may be payabl e by the Company)) up to £200 million, 0.70% per annum of total as sets in ex cess of £200 million and up t o and including £300 million and 0.60% per annum ther eafter . The management fee is paid monthly in arr ears. The contract between the Company and CQS (UK) LLP may be t erminated by either party giving not les s than 12 months’ notic e of termination. During the year ended 30 June 2022, inves tment management fees of £2,126,000 wer e incurred (year ended 30 June 2021: £1,941,000), of which £173,000 was payabl e at the period end (year ended 30 June 2021: £168,000). Investment management f ees have been allocated 75% to r evenue and 25% to capital. 4 Other Expenses 2022 Revenue £’000 2022 Capital £’000 2022 Total £’000 2021 Revenue £’000 2021 Capital £’000 2021 Total £’000 Secretarial and administration fees 207 – 207 202 – 202 Directors’ fees 169 – 169 157 – 157 Auditors’ remuneration for: – audit services 48 – 48 40 – 40 Broker fees 30 – 30 30 – 30 Printing 8 – 8 20 – 20 Bank and custody charges 110 – 110 84 – 84 Registrars’ fees 37 – 37 34 – 34 Depositary fees 45 – 45 45 – 45 Legal and professional fees 40 – 40 43 – 43 Other 78 75 153 145 14 159 772 75 847 800 14 814 Direct ors’ f ees On 3 June 2021, the Board appr oved an increased l evel of r emuneration for the Dir ectors from £156,500 (Chair: £40,000; Audit Chair: £34,000 and other dir ectors: £27,500) to £169,000 with annual eff ect from 1 Jul y 2021 as follows: Chair £42,500 Audit Chair £36,500 Other £30,000 Dir ectors ’ fees of £7,500 wer e accrued as at 30 June 2022. Further det ails are pr ovided in the Dir ectors ’ Remuneration Report on page 30. No pension contributions wer e payable in r espect of any of the Directors and the Company does not hav e any employ ees. Non-audit fees paid to the auditor Ther e were no non-audit f ees paid to the auditor during the year ended 30 June 2022 (year ended 30 June 2021: £nil). 44 CQS NEW CITY HIGH YIELD FUND LIMITED ANNUAL REPORT 30 JUNE 2022 Financial Statements Notes to the Financial Statements 5 Inter est expense 2022 Revenue £’000 2022 Capital £’000 2022 Total £’000 2021 Revenue £’000 2021 Capital £’000 2021 Total £’000 Interest expense 456 152 608 326 107 433 Inter est expense and similar char ges have been allocat ed 25% to capital and 75% to r evenue as explained in note 1(e). 6 T axation The taxation char ge for the year is c omprised of: 2022 Revenue £’000 2022 Capital £’000 2022 Total £’000 2021 Revenue £’000 2021 Capital £’000 2021 Total £’000 Irrecoverable withholding tax suffered 377 – 377 267 – 267 The taxation on pr ofit differs fr om the theoretic al expense that would appl y on the Company’ s profit bef ore t axation using the applicable t ax rate in Jersey of 0% (2021: 0%) as f ollows: 2022 £’000 2021 £’000 Profit on ordinary activities before taxation 4,384 41,840 Theoretical tax expense at 0% (2021: 0%) – – Effects of: Foreign withholding tax 377 267 Current year revenue tax charge 377 267 7 Dividends 2022 £’000 2021 £’000 Amounts recognised as distributions to equity holders in the year: Dividends in respect of the year ended 30 June 2021 – Fourth interim dividend of 1.47p (2020: 1.46p) per ordinary share 6,557 6,319 Dividends in respect of the year ended 30 June 2022 – First interim dividend of 1.00p (2021: 1.00p) per ordinary share 4,552 4,359 – Second interim dividend of 1.00p (2021: 1.00p) per ordinary share 4,636 4,383 – Third interim dividend of 1.00p (2021: 1.00p) per ordinary share 4,687 4,392 20,432 19,453 A fourth interim dividend in r espect of the year ended 30 June 2022 of 1.48p per or dinary share was paid on 26 August 2022 to Shar eholders on the r egister on 29 Jul y 2022, having an ex-dividend date of 28 Jul y 2022. In accor dance with IFRS, dividends paid to the Company’ s Shareholder s ar e rec ognised when they become pay able on the ex-dividend dat e, consequentl y the fourth interim dividend has not been included as a liability in these Financial Stat ements and will be rec ognised in the period in which it becomes payabl e. 45 ANNUAL REPORT 30 JUNE 2022 CQS NEW CITY HIGH YIELD FUND LIMITED Notes to the Financial Statements Financial Statements 8 Basic and diluted earnings per Or dinary Shar e 2022 Revenue pence 2022 Capital pence 2022 Total pence 2021 Revenue pence 2021 Capital pence 2021 Total pence Basic and diluted earnings/(loss) per ordinary share 4.16p (3.29p) 0.87p 4.18p 5.32p 9.50p The r evenue earnings per or dinary share is based on the net pr ofit after taxation of £19,163,000 (year ended 30 June 2021: £18,302,000) and the capital r eturn per ordinary shar e is based on a net capital loss of £15,156,000 (y ear ended 30 June 2021: net capital gain of £23,271,000). Both the r evenue and capit al earnings per ordinary shar e is based on a weighted average of 460,845,694 (year ended 30 June 2021: 437,519,666) ordinary shar es in issue thr oughout the year . T otal earnings per or dinary shar e refl ects both revenue earnings and c apital r eturns per or dinary share. The Company has not is sued any instruments that could pot entially dilute basic earnings per or dinary share in the futur e. Therefor e, the Company’ s basic earnings per or dinary shar e is equivalent t o its diluted earnings per or dinary share. Ther e have been no transactions invol ving the Company’ s ordinary shar es between 1 Jul y 2022 and 15 September 2022 other than those disclosed in note 24, which wer e issued at a premium to the 30 June 2022 NA V . 9 Financial assets designated at f air value thr ough pr ofit or loss All financial assets ar e valued at fair value thr ough profit or los s. Gains or los ses arising from changes in the f air value of investments ar e included in the Statement of Compr ehensive Income. 2022 £’000 2021 £’000 Equity shares 49,687 39,090 Fixed income securities * 213,706 218,377 263,393 257,467 * Fixed inc ome securities include fixed and fl oating rate securities, conv ertible securities and pr eferenc e shar es. 2022 £’000 2021 £’000 Opening valuation 257,467 230,741 Purchases at cost 106,064 80,009 Sales proceeds (85,833) (77,428) Realised gains/(losses) on sales 3,631 (11,575) Effective interest adjustment 154 232 Unrealised (losses)/gains (18,090) 35,488 Closing valuation 263,393 257,467 Losses on investments 2022 £’000 2021 £’000 Realised gains/(losses) 1 3,631 (11,575) Unrealised (losses)/gains 2 (18,090) 35,488 Gains/(losses) on investments (14,459) 23,913 1 Realised gains/(los ses) on financial assets designated at f air value thr ough profit or l oss is made up of gains of £5,680,000 (2021: 2,755,000) and los ses of £2,049,000 (2021: 14,330,000). 2 Unr ealised (losses)/gains on financial as sets designated at fair v alue through pr ofit or loss is made up of gains of £14,225,000 (2021: 47,622,000) and los ses of £32,315,000 (2021: 12,133,000). 46 CQS NEW CITY HIGH YIELD FUND LIMITED ANNUAL REPORT 30 JUNE 2022 Financial Statements Notes to the Financial Statements 10 Debtors and Other Rec eivabl es 2022 £’000 2021 £’000 Amounts due on new share issuance – 275 Accrued income 3,807 3,302 Prepayments and other debtors 12 8 3,819 3,585 11 Bank Loan 2022 £’000 2021 £’000 Bank loan facility – opening balance 33,000 31,000 Drawdowns – 2,000 Bank loan facility – closing balance 33,000 33,000 The Company had a short term unsecur ed loan f acility of £35 million with Scotiabank Eur ope Plc (“Scotiabank”) at the start of the y ear . On 17 December 2021, the Company enter ed into a Seventh Amendment Agr eement with Scotiabank on the f ollowing terms: • the committed l oan facility has been incr eased to £45 million; • the Agr eement contains an option to incr ease the facility by a further £5 million – no commitment f ees are pay able on the £5 million until this option is ex ercised. • the tenor of the facility w ould be 2 years fr om the r enewal date; • the inter est on the loan w ould be a margin of 1.45% p.a plus a dail y non-cumulative compounded RFR rate. • the commitment fees would be 0.375% p.a on the dail y Availabl e Commitment if the utilised Commitment ex ceeds 50 per cent of the Commitment and 0.425% on the daily A vailabl e Commitment if the utilised Commitment is les s than or equal to 50 per cent of the Commitment. As at 30 June 2022, an amount of £33 million (30 June 2021: £33 million) was drawn down fr om the facility . The foll owing ar e the covenants f or the facility held as at 30 June 2022: • the borr ower shall not permit the adjusted as set cover age to be les s than 4 to 1 • the borr ower shall not permit the net asset value t o be les s than £95,000,000 at any time • the borr ower shall maintain an additional adjusted as set cov erage of at leas t 1.5 to 1 at all times F or the year ended 30 June 2022 and up until the date of this r eport, the Company has complied with all covenants of the l oan facility . The bank loan f acility is a financial liability held at amortised cost. 12 Cr editors and Other Pay ables 2022 £’000 2021 £’000 Amounts due to brokers 613 4,980 Interest on bank loan facility 28 16 Other creditors * 2,570 305 3,211 5,301 * Included in other cr editors is an amount of £2,196,000 which r elates to an overpayment of dividend by one of the Company’ s equity investments, Aggr egated Micr o 8PCT 16-171036. The ex cess dividend was paid back to Aggr egated Micro 8PC T 16-171036 on 5 July 2022. 47 ANNUAL REPORT 30 JUNE 2022 CQS NEW CITY HIGH YIELD FUND LIMITED Notes to the Financial Statements Financial Statements 13 Stated Capital Ac count Authorised The authorised shar e capital of the Company is r epresented by an unlimited number of or dinary shares of no par value. Allotted, call ed up and fully-paid Number of ordinary shares Amount received £’000 Share Issue Costs £’000 Share capital £’000 Total as at 1 July 2021 445,051,858 203,416 1,000,000 ordinary shares of no par value allotted on 1 July 2021 at 55.30p 1,000,000 553 (4) 549 2,100,000 ordinary shares of no par value allotted on 4 August 2021 at 54.80p 2,100,000 1,151 (9) 1,142 500,000 ordinary shares of no par value allotted on 10 August 2021 at 54.80p 500,000 274 (2) 272 500,000 ordinary shares of no par value allotted on 13 August 2021 at 54.40p 500,000 272 (2) 270 500,000 ordinary shares of no par value allotted on 19 August 2021 at 54.40p 500,000 272 (2) 270 5,500,000 ordinary shares of no par value allotted on 9 September 2021 at 54.90p 5,500,000 3,020 (23) 2,997 1,000,000 ordinary shares of no par value allotted on 1 November 2021 at 55.50p 1,000,000 555 (4) 551 500,000 ordinary shares of no par value allotted on 2 November 2021 at 55.50p 500,000 278 (3) 275 500,000 ordinary shares of no par value allotted on 6 December 2021 at 55.50p 500,000 278 (2) 276 600,000 ordinary shares of no par value allotted on 15 December 2021 at 56.00p 600,000 336 (3) 333 1,750,000 ordinary shares of no par value allotted on 23 December 2021 at 55.90p 1,750,000 978 (7) 971 1,400,000 ordinary shares of no par value allotted on 24 December 2021 at 55.90p 1,400,000 783 (6) 777 2,750,000 ordinary shares of no par value allotted on 29 December 2021 at 55.90p 2,750,000 1,537 (11) 1,526 1,100,000 ordinary shares of no par value allotted on 1 February 2022 at 55.50p 1,100,000 611 (6) 605 900,000 ordinary shares of no par value allotted on 11 February 2022 at 55.30p 900,000 498 (4) 494 850,000 ordinary shares of no par value allotted on 21 February 2022 at 55.60p 850,000 473 (3) 470 650,000 ordinary shares of no par value allotted on 22 February 2022 at 55.40p 650,000 360 (3) 357 650,000 ordinary shares of no par value allotted on 23 February 2022 at 55.40p 650,000 360 (3) 357 500,000 ordinary shares of no par value allotted on 15 March 2022 at 53.40p 500,000 267 (2) 265 400,000 ordinary shares of no par value allotted on 24 March 2022 at 53.60p 400,000 214 (2) 212 2,250,000 ordinary shares of no par value allotted on 4 May 2022 at 54.70p 2,250,000 1,231 (8) 1,223 500,000 ordinary shares of no par value allotted on 16 May 2022 at 53.80p 500,000 269 (2) 267 500,000 ordinary shares of no par value allotted on 27 May 2022 at 53.90p 500,000 267 (2) 265 1,000,000 ordinary shares of no par value allotted on 31 May 2022 at 53.80p 1,000,000 538 (4) 534 600,000 ordinary shares of no par value allotted on 6 June 2022 at 53.80p 600,000 323 (2) 321 600,000 ordinary shares of no par value allotted on 15 June 2022 at 54.00p 600,000 324 (2) 322 1,500,000 ordinary shares of no par value allotted on 21 June 2022 at 53.60p 1,500,000 804 (5) 799 1,000,000 ordinary shares of no par value allotted on 22 June 2022 at 53.80p 1,000,000 537 (4) 533 Total as at 30 June 2022 476,651,858 17,363 (130) 220,649 The balance of shar es left in T reasury at the year-end was nil (2021: nil shar es). On 13 Jul y 2022, a block listing f acility for 45,600,000 new shares was appr oved by the UK Listing Authority . This facility is used for the purposes of satisfying market demand. Since 30 June 2022, a further 4,350,000 or dinary shares have been is sued for consider ation of £2,273,000. Because the criteria in paragr aphs 16c and 16d of IAS 32 Financial Instruments: Pr esentation have been met, the stated c apital of the Company is classified as equity ev en though there is an annual c ontinuation vote. Or dinary shares is sued ar e accounted f or based on the associated trade date. 14 Reserves The capital of the Company is managed in ac cor dance with its inves tment policy , in pursuit of its investment objectiv e, which is detailed on page 13. On 24 May 2007, the Royal Court of the Island of Jer sey confirmed that the amount st anding to the cr edit of the Company’ s stated capital ac count be r educed by 75% and was used to cr eate the special distributable r eserve in the Company’ s accounts. This r eserve is tr eated as distributabl e pr ofits available t o be used for all purposes permitted by Jerse y company law including the buying back of or dinary shares, the payment of dividends and the payment of pr eliminary expenses. Capital management policies and pr ocedur es The Boar d defines capital as financial r esources availabl e to the Company . The Company’ s capital as at 30 June 2022 c omprises its stated capit al, special distributabl e r eserve, capital r eserve and re venue r eserve at a total of £234,986,000 (2021: £234,178,000). 48 CQS NEW CITY HIGH YIELD FUND LIMITED ANNUAL REPORT 30 JUNE 2022 Financial Statements Notes to the Financial Statements The Company’ s capital management objectives ar e: – to ensur e that the Company will be able to c ontinue as a going concern; and – to maximise the capital r eturn to its equity Shareholders thr ough an appropriate balanc e of equity capital and debt. The Boar d normally seeks to limit gearing to 25% of Shar eholders ’ funds at any given time. The Board monitor s and re views the br oad structur e of the Company’ s capital on an ongoing basis. This r eview includes the natur e and planned level of gearing, which tak es account of the Inv estment Manager’ s views on the market, and the ext ent to which r evenue in ex cess of that which is r equired t o be distributed should be r etained. The Company has no externall y imposed capital requir ements. The capital of the Company is managed in ac cor dance with its inves tment policy detailed in the Str ategic Review on page 13. 15 Net Asset V alue per Ordinary Shar e The net asset value per or dinary share and the net as set value attributabl e to the or dinary shares at the year-end cal culated in acc ordanc e with their entitlements in the Articl es of Association were as f ollows: 2022 2021 Net Asset Value (£'000) 234,986 234,178 Net Asset per ordinary share (pence) 49.30p 52.62p NA V per ordinary shar e has been calculat ed based on the share c apital in issue as at year end. The issued shar e capital as at 30 June 2022 comprised of 476,651,858 or dinary shares (30 June 2021: 445,051,858). 16 Financial Instruments The Company’ s financial instruments comprise its investment portf olio, cash balances, bank loan and debtor s and credit ors that arise dir ectly fr om its operations. As an investment c ompany , the Company holds a portfolio of financial assets and financial liabilities in pursuit of its inves tment objective. The Company uses fl exibl e borrowings f or short term purposes, and to seek to enhance the r eturns to Shareholders, when c onsidered appr opriate by the Investment Manager . Financial assets designated at f air value through pr ofit or loss (see note 9) ar e held at fair value. F or listed securities trading activel y , fair value is consider ed to be equivalent to the mos t available r ecent bid price. Wher e listed securities are not tr ading actively , independent brok er quotes are r efer enced to estimate fair v alue. F or unlisted securities, fair v alue is determined by the Boar d using valuation techniques based on unobservabl e inputs, mainly using br oker quotes. The fair v alue of other rec eivables, cash and cash equiv alents and other pay ables is r epresented by their carrying value in the Stat ement of Financial Position shown on page 37. These are short term financial as sets and liabilities whose carrying value appr oximate f air value. The main risks that the Company fac es arising from its financial ins truments are: (i) market price risk, being the risk that the f air value or futur e cash fl ows of a financial instrument will fluctuate because of changes in mark et prices and comprises curr ency risk, interes t rate risk and other pric e risk; (ii) inter est rate risk, being the risk that the futur e cash flows of a financial ins trument will fluctuate because of changes in market int eres t rates; (iii) f or eign currency risk, being the risk that the v alue of investment holdings, inves tment purchases, inv estment sales and inc ome will fluctuate because of mov ements in currency e xchange rat es; (iv) credit risk, being the risk that a counterparty t o a financial instrument will fail t o discharge an obligation or c ommitment that it has enter ed into with the Company; and (v) liquidity risk, being the risk that the bank may demand repayment of the l oan and/or that the Company may not be able to liquidat e quickly its investments. The Company held the foll owing categories of financial ins truments as at 30 June 2022 all of which are held at amortised c ost, other than financial assets designated at f air value thr ough profit or los s, which are held at f air value. The Director s are of the opinion that f or the financial instruments held at amortised cost, the c arrying value appr oximates their f air value. 49 ANNUAL REPORT 30 JUNE 2022 CQS NEW CITY HIGH YIELD FUND LIMITED Notes to the Financial Statements Financial Statements 2022 £’000 2021 £’000 Financial assets Financial assets designated at fair value through profit or loss 263,393 257,467 Cash and cash equivalents 3,985 11,427 Amounts due on new share issuance – 275 Accrued income 3,807 3,302 Financial liabilities Amount due to brokers 613 4,980 Bank loan 33,000 33,000 Interest on bank loan facility 28 16 Other creditors 2,570 305 17 Market Pric e Risk Market pric e risk (including other price risk) arises mainl y from unc ertainty about futur e prices of financial instruments held. It r epresents the potential los s the Company might suffer thr ough holding market positions in the fac e of price movements. T o mitigate the risk the Boar d’ s investment str ategy is to sel ect investments f or their fundamental value. Stock sel ection is therefor e based on disciplined accounting, market a nd sector analysis, with the emphasis on l ong term investments. An appr opriate spr ead of investments is held in the portf olio in order t o reduc e both the statistic al risk and the risk arising fr om factors specific t o a country or sector . The Investment Manager activel y monitors mark et prices thr oughout the year and r eports to the Boar d, which meets regularl y in order to c onsider investment strat egy . Investment and portf olio performance ar e discussed in the Investment Manager’ s Review and further information on the investment portf olio is set out on pages 7 to 8. These pages do not form part of the audit ed Financial Statements. If the investment portf olio valuation fell 7.5% at 30 June 2022, the impact on the pr ofit or loss and the net as set value would have been negative £19.8 million (2021: a fall of 7.5% would hav e impacted the pr ofit or loss and the net as set value by negative £19.4 million). Due to the eff ect of gearing, the impact on the net asset value per or dinary share would hav e been a decrease of 8.4% (2021: decr ease of 8.3%). If the investment portfolio valuation r ose by the same amount, the effect would have been equal and opposite. The c alculations ar e based on the portfolio valuation at the Statement of Financial Position dat e and is not repr esentative of the period as a whole, and may not be r eflective of futur e market conditions. The Dir ectors believe 7.5% is a r elev ant perc entage based on average mark et volatility in recent y ears. 18 Inter est Rate Risk The Company’ s financial assets and liabilities, with the ex ception of cash and c ash equivalents (see bel ow), that are subject to inter est rate risk ar e detailed bel ow. 2022 £’000 2022 Weighted average interest rate (%) 2022 Weighted average period for which the rate is fixed (years) 2021 £’000 2021 Weighted average interest rate (%) 2021 Weighted average period for which the rate is fixed (years) Financial assets: Fixed rate instruments & convertible securities 158,941 7.12 4.31 130,814 7.10 4.31 Floating rate notes 54,531 4.08 n/a 78,591 5.97 n/a Preference shares 234 11.90 n/a 8,972 11.89 n/a Financial liabilities: Bank Loan 33,000 2.64 n/a 33,000 1.43 n/a 50 CQS NEW CITY HIGH YIELD FUND LIMITED ANNUAL REPORT 30 JUNE 2022 Financial Statements Notes to the Financial Statements Financial assets Fixed, fl oating rate and pr eferenc e shar e yields, and their prices, ar e determined by market per ception as to the appr opriate l evel of yields given the economic back ground. Ke y determinants include economic gr owth prospects, inflation, the Go vernment’ s fiscal position, short term inter est rates and international mark et comparisons. The Investment Manager tak es all these factors int o account when making any inv estment decisions as well as considering the financial st anding of the potential invest ee company . Inter est rates on fix ed income instruments ar e fixed at the time of pur chase, as the fixed c oupon payments are kno wn, as are the final r edemption pr oceeds. Consequentially , if a fixed inc ome instrument is held until its r edemption date, the total r eturn achieved is unalter ed from its pur chase date. Howev er , over the lif e of a fixed inc ome instrument the market pric e at any given time will depend on the market envir onment at that time. Ther efor e, a fixed income instrument sold bef ore its r edemption date is likel y to have a differ ent price to its pur chase level and a pr ofit or loss may be incurr ed. Inter est rates on fl oating rate instruments vary thr oughout the life of the instrument based on mo vements in the applicabl e underlying base rate. Consequentially , the total r eturn achieved on these positions changes thr oughout the life of position. In addition, over the lif e of the financial instrument, the market pric e of such instruments will depend on the market envir onment at that time. Theref ore, a floating r ate instrument sold befor e its redemption date is lik ely to hav e a differ ent price to its purchase l evel and a pr ofit or loss may be incurr ed. Cash and cash equival ents When the Company r etains cash balances the y ar e held in floating rate deposit accounts. As at 30 June 2022, c ash and cash equival ents included cash amount of £4,088,000 held in sterling (2021: £10,335,000) and an immat erial amount of cash over draft of £103,000 in a range of other curr encies (2021: positive cash balanc e of £1,092,000). The benchmark rate which determines the inter est payments r eceived on st erling inter est bearing cash balances is the UK bank base r ate, which was 1.25% at 30 June 2022 (2021: 0.10%). Financial liabilities The Company has borr owed in sterling at a v ariable rat e of inter est based on the UK bank base rate. If the bank base r ate incr eased by 1.00%, the impact on the net assets would have been a l oss of £330,000 (2021: £330,000). If the bank base rate had decr eased by 1.00%, the impact on the pr ofit or loss w ould have been equal and opposite. The cal culations are based on borr owings as at the r espective Statement of Financial Position dates and ar e not r epresent ative of the year as a whol e. The Dir ectors believe 1.00% is r elev ant based on observed inter est rate adjus tments in r ecent years. At year end, the Company held bank loans of £33 million fr om Scotiabank, details of which ar e contained in note 11 on page 46. 19 F or eign Curr ency Risk The Company invests in o verseas securities and may hold f oreign curr ency cash balances which give rise to curr ency risks. It is not the Company’ s policy to hedge this risk on a continuing basis but it may do so fr om time to time. F oreign curr ency exposur e at 30 June 2022 was as foll ows: 2022 Investments £’000 2022 Cash £’000 2022 Accrued Income £’000 2022 Total £’000 2021 Investments £’000 2021 Cash £’000 2021 Accrued Income £’000 2021 Total £’000 Euro 31,977 (22) 237 32,192 22,083 817 202 23,102 Australian dollar 191 – – 191 587 2 – 589 US dollar 61,126 (315) 1,418 63,229 56,403 238 1,310 57,951 Norwegian krone 1,064 – 15 1,079 1,454 16 34 1,504 Canadian dollar 314 191 – 505 686 18 4 708 Swedish Krona 4,015 43 38 4,096 1,110 0 5 1,115 99,687 (103) 1,708 101,292 82,323 1,091 1,555 84,969 If the value of sterling had w eakened against each of the curr encies in the portfolio by 5% (2021: 5%), the impact on the pr ofit or loss and the net asset value would hav e been positive £5.3 million (2021: positive £4.4 million). If the value of sterling had s trengthened by the same amount the impact on the pr ofit or loss and the net as set value would have been negativ e £4.8 million (2021: negative £3.9 million). The cal culations are based on the portf olio valuation and accrued income balances at the balanc e sheet date and ar e not r epresent ative of the period as a whole and may not be r eflective of futur e market conditions. The Dir ectors believe 5% is r elev ant based on the average mark et volatility in ex change rates in r ecent years. 51 ANNUAL REPORT 30 JUNE 2022 CQS NEW CITY HIGH YIELD FUND LIMITED Notes to the Financial Statements Financial Statements 20 Cr edit Risk Cr edit risk is the risk that a counterparty to a financial ins trument will fail to dischar ge an obligation or commitment that it has enter ed into with the Company . The Investment Manager has in place a monit oring proc edur e in respect of c ounterparty risk which is r eviewed on an ongoing basis. The carrying amounts of financial assets bes t repr esents the maximum risk exposur e at the balance sheet date. At the r eporting date, the Company’ s financial assets exposed to cr edit risk amounted to the foll owing: 2022 £’000 2021 £’000 Fixed income securities * 213,706 218,377 Cash and cash equivalents 3,985 11,427 Amounts due on new share issuance – 275 Accrued income 3,807 3,302 221,498 233,381 * Fixed inc ome securities include fixed and fl oating rate securities, conv ertible securities and pr eferenc e shar es. Cr edit risk on fixed income securities and c onvertible bonds instruments is c onsidered t o be part of market price. The cr edit ratings for the fix ed income securities held by the Company as at 30 June have been lis ted below: Rating of fixed income securities 2022 % 2021 % BB- 5.3 4.0 B+ 4.0 2.7 B 4.0 6.7 B- 1.3 2.7 CC 1.3 – CCC 2.7 4.0 CCC+ 6.7 4.0 CCC- 1.3 1.3 Not rated 73.4 74.6 100.0 100.0 Sour ce: 2022: S&P, 2021: S&P The per centage abov e repr esents the value of fixed income securities of £213,706,000 (2021: £218,377,000) included in the St atement of Financial Position which ar e exposed to cr edit and counterparty risk by cr edit rating. Cr edit risk arising on transactions with br okers r elates to transactions awaiting settl ement. Risk relating t o unsettled transactions is c onsider ed to be small due to the short settl ement period invol ved and the acceptabl e credit quality of the br okers used. The Boar d monitors the quality of service pr ovided by the brok ers used to further mitigate this risk. The Company’ s cash and most of the assets ar e held by BNP Paribas Securities Services S.C.A. The Company holds a r esidual cash balance with HSBC of £11,000 (2021: £11,000). The rating agency Moody’ s assigns a rating of A1 to HSBC and A2 t o BNPP . Should the cr edit quality or the financial position of BNPP or HSBC deteriorate significantl y the Investment Manager will move the cash holdings to another bank. Ther e were no c ontingencies or guarantees outstanding at the balance sheet date. 52 CQS NEW CITY HIGH YIELD FUND LIMITED ANNUAL REPORT 30 JUNE 2022 Financial Statements Notes to the Financial Statements 21 Liquidity Risk Market liquidity risk The Company’ s financial instruments include investments which ar e not traded in an organised public mark et and which generally may be illiquid. As a r esult, the Company may not be able to liquidat e these investments within a short time frame. The Company’ s listed securities ar e consider ed to be r eadily r ealisable. F unding liquidity risk The foll owing ar e the remaining c ontractual maturities of financial liabilities at the r eporting date. The amounts are gr oss and undiscounted and include contractual int eres t payments. 30 June 2022 Contractual cash flows Carrying amount £000 0-1 year £000 1-2 years £000 Bank loan 33,000 (318) (33,318) Creditors and other payables 3,211 (3,211) – 36,211 (6,388) (36,177) 30 June 2021 Contractual cash flows Carrying amount £000 0-1 year £000 1-2 years £000 Bank loan 33,000 (33,172) Creditors and other payables 5,301 (5,301) – 38,501 (38,473) – The tabl e above illustrat es the contractual undisc ounted cash fl ows r elating to the financial liabilities of the Company . As disclosed in Note 11, the Company has av ailed of a secur ed bank loan facility of £45 million with Sc otiabank, out of which, £33 million has been drawn-down and is outst anding as at 30 June 2022. In addition to this, the Company maintains sufficient cash and r eadily r ealisable securities t o pay accounts pay able, ac crued expenses and any r epayment on its bank facility . The inter est payments on the bank loan in the t able abov e r eflect mark et forwar d interest r ates availabl e at the reporting dat e and these amounts may change as market inter est rates change. The Company’ s liquidity risk is managed on an ongoing basis by the Investment Manager in acc ordanc e with policies and pr ocedur es in place as described in the Dir ectors ’ Report. The Company’ s overall liquidity risks ar e monitored on a quart erly basis by the Boar d. 22 F air V alue Hierarchy International Financial Reporting Standar d (“IFRS”) 13 Fair V alue Measurement r equir es an analysis of inves tments valued at fair v alue based on the r eliability and significance of inf ormation used to measur e their fair value. The l evel is determined by the lo west (that is the l east r eliable or independently observ able) l evel of input that is significant t o the fair value measur ement for the individual investment in its entir ety as follows: • Level 1 – inves tments quoted in an active mark et; • Level 2 – inves tments whose fair value is based dir ectly on observabl e curr ent market prices or indir ectly being derived fr om market prices; • Level 3 – inves tments whose fair value is det ermined using a valuation technique based on assumptions that ar e not supported by observable curr ent market prices or based on observ able mark et data. T ransfers in and out of the l evels ar e deemed to have occurr ed at the start of the reporting period. Investments valued using s tock market activ e prices ar e disclosed as Lev el 1 and this is the case for the quot ed equity investments that the Company holds. Securities in Level 2 ar e priced using evaluated pric es from a thir d party vendor , together with a price c omparison made to evaluat ed secondary and tertiary thir d party sourc es, including brok er quotes and benchmarks. As a result, these inves tments are discl osed as Level 2 - r ecognising that the fair v alues of these investments ar e not as visible as quoted investments and their higher inher ent pricing risk. 53 ANNUAL REPORT 30 JUNE 2022 CQS NEW CITY HIGH YIELD FUND LIMITED Notes to the Financial Statements Financial Statements Investments included as Lev el 3 ar e priced by the investment manager using a v aluation technique r eviewed by the Boar d taking into account, wher e appropriat e, latest dealing prices, br oker statements, v aluation information and other r elevant f actors. Financial assets at fair value Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000 Fixed income securities * 234 209,627 3,845 213,706 Equity shares 45,195 4,038 454 49,687 As at 30 June 2022 45,429 213,665 4,299 263,393 Financial assets at fair value Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000 Fixed income securities * 8,972 208,783 622 218,377 Equity shares 33,578 5,498 14 39,090 As at 30 June 2021 42,550 214,281 636 257,467 * Fixed inc ome securities include fixed and fl oating rate securities, conv ertible securities and pr eferenc e shar es. T ransfer s between le vel 1 and le vel 2: SQN Secur ed Income F und Plc £353,000 (2021: £1,283,000) and Cr oma Security Solutions Gro £625,000 (2021: £700,000) wer e transferr ed out of le vel 1 to l evel 2 because the y wer e not traded on active markets. If the market value of the Le vel 3 investments f ell by 5% (2021: 5%), the impact on the profit or los s and the net asset value would hav e been negative £0.21 million (2021: negative £0.03 million). If the value of the Le vel 3 investments r ose by the same amount, the effect would have been equal and opposite. IFRS 13 requir es disclosur e, by class of financial instrument, if the eff ect of changing one or mor e input to r easonably pos sible alternativ e assumptions would r esult in a significant change to the fair value measur ement. The information used in determination of the f air value of Level 3 investments is chosen with r efer ence to the specific underl ying circums tances and position of the inves tee company . On that basis the Board believes that the impact of changing one or mor e of the inputs to reasonabl y possibl e alternative as sumptions would not change the fair value significantl y . The following sho ws a rec onciliation fr om the beginning to the end of the year for f air value measurements in Lev el 3 of the fair value hierar chy . Level 3 Financial Assets 2022 £’000 2021 £’000 Opening valuation 636 8,864 Additions 374 – Sales (88) (942) Unrealised (losses)/gains (9,954) 9,973 Realised gains/(losses) 198 (10,436) Transfers out of Level 3 (623) (7,775) Transfers into Level 3 13,756 952 Closing valuation 4,299 636 T ransfer s in and out of lev el 3: Raven Russia 12% 09-31/12/2059 £nil (2021: £8,757,000) and Rav en Property Gr oup Ltd £nil (2021: £455,000) were tr ansferr ed out of level 1 to le vel 3 because they wer e delisted during the year . Matalan Finance 9.5% 18-31/01/2024 £3,845,000 (2021: £4,543,000) was tr ansferr ed out of le vel 2 to l evel 3 because of the signific ant impact of unobservabl e inputs in determining its fair value as at the y ear end. Brighthouse Fin 9% 18-15/05/2023 £nil (2021: £nil) was transf erred out of l evel 2 to le vel 3 because it has been c ategorized as default/zer o value PIK. REA Holdings plc 7.5% 30/06/2022 £764,000 (2021: £622,000) and Or o Negro Drilli 7.5% 24/01/2023 £41,000 (2021: £nil) wer e transferr ed out of le vel 3 to l evel 2 since the y have been priced thr ough brok er quotes. 54 CQS NEW CITY HIGH YIELD FUND LIMITED ANNUAL REPORT 30 JUNE 2022 Financial Statements Notes to the Financial Statements Quantitative inf ormation of significant unobservabl e inputs – Level 3 The foll owing tabl es summarise the significant unobservabl e inputs the Company used to value its significant inv estments categorised within Level 3 as at 30 June 2022 and 30 June 2021: 30 June 2022 Description Fair value as at 30 June 2022 £000 Valuation technique Significant Unobservable inputs Range/input Weighted Average Matalan Finance 9.5% 18-31/01/2024 3,845 Vendor Pricing Unadjusted Broker Quote 1 N/A R.E.A Holdings Plc CW 15/07/2025 454 Black Scholes model Volatility 57.1 N/A Total 4,299 30 June 2021 Description Fair value as at 30 June 2021 £000 Valuation technique Significant Unobservable inputs Range/input Weighted Average REA Holdings Plc 7.5% 30/06/2022 622 Vendor Pricing Unadjusted Broker Quote 1 N/A R.E.A Holdings Plc CW 15/07/2025 14 Black Scholes model Volatility 57.1 N/A Total 636 The r emaining 22 investments (2021: 20) classified as Le vel 3 have not been included in the abov e analysis as they hav e fair value of nil as at 30 June 2022 and 30 June 2021. 23 T ransaction with the Investment Manager and Related Parties All transactions with r elated parties ar e carried out at an arm’ s length basis. Ther e are no tr ansactions with the Board other than aggr egated remuner ation for services as Dir ectors as disclosed in the Dir ectors ’ Remuneration Report on page 30 and as set out in note 4 to the Financial Stat ements. The beneficial inter ests of the Dir ectors in the shar es of the Company a re disclosed on page 20. Ther e are no outstanding balanc es to the Directors at the y ear end. Details of the fee arr angement with the Investment Manager ar e disclosed in note 3. 24 Subsequent Events The Boar d has evaluated subsequent ev ents for the Company thr ough to 15 September 2022, the date the Financial Statements wer e availabl e to be issued, and has concluded that the mat erial events list ed below do not r equire adjustment of the Financial Stat ements. Shar e Issues F ollowing the year end the Company undert ook further issues of shar es issuing, in total, an additional 4,350,000 or dinary shares of no par v alue for tot al consideration of £2,273,000. As at the date of this r eport, the total number of or dinary shares by the Company was 481,001,858. Dividend declaration The fourth interim dividend of 1.48 penc e per or dinary share was announc ed on 21 Jul y 2022 and paid on 26 August 2022 to Shar eholders on the r egister on 29 Jul y 2022, having an ex-dividend date of 28 Jul y 2022. Block lis ting facility On 13 Jul y 2022, a block listing f acility for 45,600,000 new shares was appr oved by the UK Listing Authority . This facility is used for the purposes of satisfying market demand. 55 ANNUAL REPORT 30 JUNE 2022 CQS NEW CITY HIGH YIELD FUND LIMITED Glos sary of T erms and Definitions Supplemental Information and Annual General Meeting Suppl emental Information and Annual Gener al Meeting Glos sary of T erms and Definitions AIC Code Association of Investment Companies Code of Corporate Governance published in February 2019. Alternative Performance Measures (“APMs”) Alternative performance measures are numerical measures of the Company’s current, historical or future performance, financial position or cash flows, other than financial measures defined or specified in the applicable financial framework. The Company’s applicable financial framework includes IFRS and the AIC SORP. Company CQS New City High Yield Fund Limited ESG Environmental, Social and Governance. FCA Financial Conduct Authority. FRN Floating Rate Note. ISAE International Standard for Assurance Engagements. Net Asset Value or NAV and NAV per ordinary share The value of total assets less total liabilities. Liabilities for this purpose include current and long–term liabilities. To calculate the net asset value per ordinary share, the net asset value divided by the number of shares in issue. PIK Payment in kind. Reference rate (RFR) The SONIA (Sterling Overnight Index Average) reference rate displayed in the relevant screen of any authorised distributor of that reference rate. SME Small and medium–sized enterprises. United Nations PRI United Nations Principles for Responsible Investment 56 CQS NEW CITY HIGH YIELD FUND LIMITED ANNUAL REPORT 30 JUNE 2022 Supplemental Inf ormation and Annual General Meeting Alternative Perf ormance Measur es In accor dance with Eur opean Securities and Markets Authority (“ESMA ”) Guidelines on APMs the Board has c onsidered what APMs ar e included in the Annual Financial Report and Financial Statements which r equire further clarification. The Company uses the foll owing APMs (as described below) t o present a measur e of profitability which is aligned with the r equirements of our investor s and potential invest ors, to draw out meaningful data ar ound rev enues and earnings, and to pr ovide additional information not r equired for discl osure under ac counting standar ds: • Net Asset V alue total return • Or dinary share pric e total r eturn • Revenue earnings per or dinary share • Annual dividends per or dinary share • Dividend cov er • Revenue r eserve per ordinary shar e • Dividend yield • Pr emium • Gearing • Ongoing char ges ratio All APMs r elate to past perf ormance. The foll owing tables detail the methodol ogy of the Company’ s APMs. NA V and or dinary shar e price total r eturn The r eturn to Shar eholders is cal culated on a per or dinary share basis by adding dividends paid and declar ed in the period to the incr ease or decrease in the shar e price (bid) or net asset v alue. The dividends are as sumed to have been r einvested in the form of or dinary shares or net assets. 2022 Annual dividend per ordinary share NAV Share price (bid) 30 June 2021 4.47p 52.62 54.80 30 June 2022 4.48p 49.30 51.20 Capital return (6.31%) (6.57%) Effect of dividend reinvestment 8.35% 7.78% Total return 2.04% 1.21% 2021 Annual dividend per ordinary share NAV Share price (bid) 30 June 2020 4.46p 47.52 47.40 30 June 2021 4.47p 52.62 54.80 Capital return 10.73% 15.61% Effect of dividend reinvestment 10.65% 10.70% Total return 21.38% 26.31% Revenue earnings per or dinary share Revenue earnings (which includes dividends paid out during the year) divided by the w eighted average number of or dinary shares in issue during the financial year . 2022 2021 Revenue earnings a £19,164,000 £18,302,000 Weighted average number of ordinary shares in issue b 460,845,694 437,519,666 Revenue earnings per ordinary share (a/b) * 100 4.16p 4.18p Alternative P erformanc e Measur es 57 ANNUAL REPORT 30 JUNE 2022 CQS NEW CITY HIGH YIELD FUND LIMITED Alternative Perf ormance Measur es Supplemental Information and Annual Gener al Meeting Annual dividend per or dinary shar e The total amount of dividends declar ed for every issued or dinary share o ver the Company’ s financial year . Dividend History Rate xd date Record date Payment date First interim 2022 1.00p 28 October 2021 29 October 2021 30 November 2021 Second interim 2022 1.00p 27 January 2022 28 January 2022 25 February 2022 Third interim 2022 1.00p 28 April 2022 29 April 2022 27 May 2022 Fourth interim 2022 1.48p 28 July 2022 29 July 2022 26 August 2022 Annual dividend per ordinary share 4.48p First interim 2021 1.00p 22 October 2020 23 October 2020 30 November 2020 Second interim 2021 1.00p 28 January 2021 29 January 2021 26 February 2021 Third interim 2021 1.00p 29 April 2021 30 April 2021 28 May 2021 Fourth interim 2021 1.47p 29 July 2021 30 July 2021 31 August 2021 Annual dividend per ordinary share 4.47p Dividend co ver Earnings per or dinary share divided by the annual dividend per or dinary share e xpres sed as a ratio. 2022 2021 Earnings per ordinary share a 4.16p 4.18p Annual dividend per ordinary share b 4.48p 4.47p Dividend cover a/b 0.93x 0.94x Revenue r eserves per or dinary shar e Revenue r eserve (which includes dividends paid out during the year) divided by the number of or dinary shares at the balanc e sheet date. 2022 2021 Revenue reserve a £15,562,000 £16,830,543 Ordinary shares in issue b 476,651,858 445,051,858 Revenue reserves per ordinary share (a/b) * 100 3.26p 3.78p Dividend yield The annual dividend per or dinary share e xpr essed as a per centage of the shar e price (bid price). 2022 2021 Annual dividend per ordinary share a 4.48p 4.47p Share price (bid price) b 51.20p 54.80p Dividend yield a/b 8.75% 8.16% 58 CQS NEW CITY HIGH YIELD FUND LIMITED ANNUAL REPORT 30 JUNE 2022 Supplemental Inf ormation and Annual General Meeting Alternative Perf ormance Measur es Pr emium The amount by which the market pric e per ordinary shar e of an investment company is higher or l ower than the net asset v alue per ordinary shar e. The discount or pr emium is expr essed as a perc entage of the net asset value per or dinary share. 2022 2021 Share price (bid price) a 51.20p 54.80p NAV per ordinary share b 49.30p 52.62p Premium (a-b)/b 3.86% 4.14% Gearing The le vel of borr owing that the Company has undertaken. Repr esented by total assets (being t otal assets l ess curr ent liabilities (excluding borr owings)) les s all cash, expr essed as a per centage of Shar eholders’ funds (being the Net As set Value of the Company) minus 100. 2022 £’000 2021 £’000 Total assets 271,197 272,479 Current liabilities (excluding borrowings) (3,211) (5,301) Cash and cash equivalents (3,985) (11,427) Total a 264,001 255,751 Net Asset Value b 234,980 234,178 Gearing ((a/b)-1) * 100 12.35% 9.21% Ongoing char ges ratio A measur e of all operating costs incurr ed in the reporting period, c alculated as a per centage of average net as sets in that year . Operating costs ex clude costs suff ered within underl ying investee funds, costs of buying and selling inv estments, inter est costs, taxation and the c osts of buying back or issuing or dinary shares. 2022 £ 2021 £ Average NAV a 239,974,073 214,507,033 Operating expenses per Statement of Comprehensive Income 2,972,763 2,754,644 Ineligible expenses (124,839) (64,535) Operating expenses b 2,847,924 2,690,109 Ongoing charges figure (calculated using the AIC methodology) b/a 1.19% 1.25% 59 ANNUAL REPORT 30 JUNE 2022 CQS NEW CITY HIGH YIELD FUND LIMITED Explanation of Annual General Meeting r esolutions Supplemental Information and Annual Gener al Meeting Explanation of Annual General Meeting r esolutions Resolution 1: Annual Financial Statements and Dir ectors’ and Auditor’ s Reports The Dir ectors ar e r equired t o lay befor e the AGM copies of the Company’ s most rec ent Annual Financial Statements and the Dir ectors ’ Report and Auditor’ s Report in respect of the financial y ear . Shar eholders will be given an opportunity at the meeting to ask ques tions on these items befor e being invited to r eceive them. Resolution 2: Remuneration Report As a Jersey domicil ed Company , the Directors ar e not requir ed to present the Company’ s r emuneration policy to shar eholders at the AGM. In line with best practic e, however , the Direct ors pr esent the Board’ s remuneration r eport as contained in the Company’ s Annual Financial Statements to shar eholders for appr oval. Resolution 3: Dividend Policy T o appr ove the Company’ s dividend policy as detailed on page 20. Resolutions 4 to 8: Re-el ection, and appointment of Dir ectors In accor dance with the r ecommendations of the AIC Code of Corporate Go vernance (the “ AIC Code”), all Director s submit themsel ves for annual r e-election at the AGM. Resolution 9: Re-appointment and r emuneration of the Auditor Shar eholders ar e reques ted to appr ove the reappointment of the Company’ s Auditor , KPMG Channel Islands Limited, each year and ar e asked to give Dir ectors the authority to det ermine the Auditor’ s remuneration. KPMG Channel Islands Limit ed has expr essed its willingness to continue as Auditor of the Company . Resolution 10:Continuation V ote In accor dance with the Articles of As sociation this r esolution proposes t o continue the Company as an investment c ompany . In the event that the r esolution is not passed the Boar d would put forwar d further proposals at an e xtraor dinary general meeting to liquidate or r econstruct the Company . Resolution 11: Dir ectors ’ Authority to Allot Shar es Under the Articles the Dir ectors ar e requir ed to seek a disapplication of pr e-emption rights fr om shareholder s befor e issuing new shares on a non pr e-emptive basis. In or der to continue with its pr ogramme of new share is sues, your Boar d is ther efor e also proposing that the annual disapplication of pr eemption rights authority is given to the Director s so that they may continue to is sue shares as and when appr opriate is r enewed. Acc ordingl y , Resolution 11 proposes a r enewal of the disapplication of the pr e-emption rights in respect of 10% of the or dinary shares in issue, set to e xpir e on the earlier of eighteen months fr om the date of the r esolution or at the conclusion of the Annual General Meeting to be held in 2023. New or dinary shares will not be is sued at a price less than the pr evailing net asset v alue per ordinary shar e, after taking into acc ount any costs incurr ed by the Company in connection with such issue. Any is sues of new or dinary shares will be c arried out in accor dance with the Listing Rul es. Resolution 12: Dir ectors ’ Authority to Buy Back Shar es The curr ent authority of the Company to make pur chases of up to appro ximately 14.99% of its is sued capital expir es at the end of the Annual General Meeting and Resolution 12 seeks r enewal of such authority until the next Annual Gener al Meeting (or the expiry of fifteen months fr om the date of the passing of the r esolution, if earlier). The maximum and minimum prices to be paid for shar es are set out in Resolution 12. This power will be ex ercised only if, in the opinion of the Dir ectors, a r epurchase w ould result in an incr ease in net asset value per or dinary share and would be in the best inter ests of shareholder s as a whole. Any shar es purchased under this authority will either be held in tr easury or cancell ed. 60 CQS NEW CITY HIGH YIELD FUND LIMITED ANNUAL REPORT 30 JUNE 2022 Supplemental Inf ormation and Annual General Meeting Notice of Annual General Meeting Notic e of Annual General Meeting Notice is her eby given that the fifteenth Annual General Meeting of CQS New City High Yield F und Limited will be held at 11.00 a.m. at IFC1, The Esplanade, St. Helier , Jersey , JE1 4BP on 1 Dec ember 2022 for the f ollowing purposes: T o consider and, if thought fit, pass r esolutions 1 to 10 as or dinary r esolutions and resolutions 11 and 12 as special r esolutions: Or dinary Business 1. T o rec eive the Annual Financial Statements of the Company and the reports of the Dir ectors and Auditor for the y ear ended 30 June 2022. 2. T o appro ve the Dir ectors ’ Remuneration Report for the year ended 30 June 2022. 3. T o appro ve the Company’ s Dividend Policy . 4. That Caroline Hit ch be re-el ected as a Director of the Company . 5. That Duncan Baxter be r e-elect ed as a Direct or of the Company . 6. That Wendy Dorman be r e-elected as a Dir ector of the Company . 7. That John Newlands be re-el ected as a Director of the Company . 8. That Ian Cadby be re-el ected as a Director of the Company . 9. T o re-appoint KPMG Channel Islands Limit ed as Independent Auditor and that the Dir ectors be authorised to det ermine their r emuneration. 10. That, pursuant to Articl e 164 of the Company’ s Articles of Association, the Company shall continue as an inves tment Company until the conclusion of the next Annual Gener al Meeting of the Company . Special Business 11. That, the Company be authorised to issue equity securities f or cash, including by way of a sale of or dinary shares held by the Company as tr easury shares, in such amount as r epresents up to 10% of the Company’ s issued shar e capital as at the date of the pas sing of this r esolution, pro vided that such authorisation shall expir e (unles s and to the ext ent pre viously r evoked, varied or r enewed by the Company in general meeting by Or dinary Resolution) at the earlier of the conclusion of the annual general meeting of the Company t o be held in 2022 or eighteen months fr om the date of this r esolution but so that this power shall enabl e the Company to make off ers or agr eements befor e such expiry which would or might requir e equity securities to be issued aft er such expiry and the dir ectors of the Company may issue equity securities in pursuanc e of any such offer or agr eement as if such expiry had not occurr ed. 12. That, pursuant to Articl e 57 of the Companies (Jersey) Law 1991, the Company be generall y and unconditionally authorised t o make one or mor e market pur chases of ordinary shar es of no par value in the capital of the Company (or dinary shares) pr ovided that: (i) the maximum aggregat e number of ordinary shar es authorised to be pur chased shall be equal to 14.99% of the total is sued share c apital of the Company on the date at which the r esolution is passed; (ii) the minimum price which may be paid for an or dinary share is 1p; (iii) the maximum pric e which may be paid for an or dinary share is an amount equal to the higher of: (a) 105% of the aver age of the middle mark et quotations for an or dinary share as deriv ed from the Dail y Official List of the London Stock Exchange f or the five business days immediately pr eceding the day on which the or dinary shar e is purchased; and (b) the higher of (1) the price of the last independent tr ade in or dinary shares and (2) the highes t current independent bid for or dinary shares on the London Stock Ex change’ s Main Market; (iv) any ordinary shar es to be pur chased may be cancell ed or held as tr easury shares in ac cor dance with the Companies (Jersey) Law, 1991, pr ovided that the Company shall not hold as tr easury shares mor e than 10% of the aggregate number of or dinary shares in is sue at any one time; (v) this authority expires at the c onclusion of the next Annual General Meeting of the Company after the pas sing of this r esolution or fifteen months fr om the date of the passing of this r esolution, whichever is earlier; (vi) the Company may make a contract to pur chase ordinary shar es under this authority befor e the expiry of the authority which will or may be ex ecuted wholly or partl y after the expiry of the authority , and may make a pur chase of ordinary shar es in pursuance of any such c ontract; and (vii) the Dir ectors pr ovide a stat ement of sol vency in acc ordanc e with Articles 55 and 57 of the Companies (Jer sey) Law, 1991. The Company r equests that any shar eholders wishing to attend the Annual General Meeting to advise the Company Secr etary by email or in writing as detail ed in note 3 below . By Order of the Boar d BNP Paribas Securities Services Company Secr etary 15 September 2022 61 ANNUAL REPORT 30 JUNE 2022 CQS NEW CITY HIGH YIELD FUND LIMITED Notice of Annual General Meeting Supplemental Information and Annual General Meeting Notes: 1. Information about this meeting is availabl e from the Company’ s website; www .ncim.co.uk 2. As a member who is entitled to attend and vote at this meeting y ou ar e entitled to appoint one or mor e pro xies to ex ercise all or any o f your rights to attend, speak and v ote on your behalf . Such a pro xy need not also be a member of the Company . Y ou may appoint mor e than one pr oxy pr ovided each pro xy is appointed to ex er cise rights attached to diff erent shar es. Y ou may not appoint more than one pr oxy to e xer cise the rights attached to any one share. 3. Any shareholder wishing t o attend the Annual General Meeting can advise the company of their int ention to do so by writing to the Compnay Secr etary at BNP Paribas, IFC 1, The Esplanade, St Helier , Jersey , JE1 4BP or by email at jersey .bp2s.ncyf.c osec@ bnpparibas.com , any attendanc e at the meeting is subject to the loc al COVID-19 r estrictions in place. 4. A form of pr oxy is encl osed for use at the meeting. T o be valid, the pr oxy car d and any power of attorney or other authority , if any , under which it is signed, or a certified copy ther eof must be lodged with the Company’ s registr ar , Computershar e Investor Services (Jersey) Limited, c/o The P avilions, Bridgewater Road, Bristol BS99 6ZY at leas t 48 hours befor e the meeting. 5. Completion of the pr oxy car d will not pr event a shar eholder from attending the meeting and voting in person. 6. Pursuant to Article 40 of the Companies (Unc ertificated Securities) (Jersey) Or der 1999, the Company has specified that only those shar eholders r egister ed on the register of member s of the Company as at 6.00 pm on 28 November 2022, or in the e vent that the meeting is adjourned, on the r egister of members 48 hours befor e the time of the meeting, shall be entitled to attend and vot e at the meeting in r espect of the number of shares r egister ed in their name at that r elev ant time. Changes to entries on the r egister of members after 6.00 pm on 28 November 2022, or in the event that the meeting is adjourned to a later time, on the r egister of members 48 hours bef ore the time of any adjourned meeting, shall be disr egarded in det ermining the rights of any person to attend and vote at the meeting. Electr onic receipt of pr oxies 7. T o appoint one or more pr oxies or give an instruction t o a pro xy (whether pr eviously appoint ed or otherwise) via the CREST system, CREST messages must be r eceived by the Company’ s agent (ID number 3RA50) no later than the 30 No vember 2022 at 11am. F or this purpose, the time of r eceipt will be tak en to be the time (as determined by the timestamp gener ated by the CREST system) fr om which the issuer’ s agent is able to r etrieve the message. The Company may tr eat as invalid a pr oxy appointment sent by CREST in the cir cumstances set out in Regulation 35(5)(a) of the Uncertificat ed Securities Regulations 2001 or the rel evant pr ovisions of the Companies (Uncertificat ed Securities) (Jersey) Or der 1999. Instructions on how to vot e through CREST c an be found on the websit e www .eur oclear .com 62 CQS NEW CITY HIGH YIELD FUND LIMITED ANNUAL REPORT 30 JUNE 2022 Supplemental Inf ormation and Annual General Meeting Report of the Investment Manager Report of the Inves tment Manager r elating to Matter s under the Alternative Inv estment F und Managers ’ Dir ective (unaudited) Risk management systems The Company’ s Annual Report and Pre-inv estment Discl osure Document sets out the r isk s to w hic h the Com pan y is expos ed. T he U K In vestm ent Mana ger emp loys ri sk m anag eme nt d isci pli nes whic h m onito r th e Company’ s portfolio and to quantify and manage the as sociated market and other risks. A permanent independent department has been established by the UK Inves tment Manager to perform the risk m ana gem ent fu nct ion . The ri sk man age men t a nd per f orm anc e ana lys is team (“RMP A ”) is led by the Chief Risk Officer and is functionall y and hierarchicall y separate from the operating units of the portfolio manager s of the Company . RMP A is a dedicated contr ol function over the oper ating units of the Investment Manager and is not invol ved in the performance activities of the Company . RMP A has designed, documented and impl emented effective risk management policies, pr ocesses and pr ocedures in or der to identify , quantify , analyse, monit or , r eport on and manage all material risks rel evant to the Company’ s investment strategy . The systems include third party vendor applications such as T radar , Sungard F ront Ar ena and MSCI Risk Metrics, compl emented with a number of pr oprietary applications. Material changes to information r equired t o be made availabl e to investor s of the Company No material changes. Assets of the Company subject to special arrangements arising fr om their illiquid nature Ther e are no as sets of the Company which ar e subject to special arrangements arising fr om their illiquid natur e. Remuneration The AIFM has adopted a r emuneration policy which meets the r equir ements of the Directiv e and has been in place for the curr ent financial year of the Company . The variable r emuneration period of the AIFM ended on 31 December 2021. The r emunerati on pr ocess is over seen by the r emuner ation c ommittee (c omprised predominatel y of independent non-executiv e parties). An internal working gr oup encompassing senior management is r esponsible for g at h er i ng relev an t i n fo rm a ti o n ( bo t h q ua n ti ta t iv e a nd qu a li t at i ve ) to evaluate the perf ormance (both short and long term) of individuals, teams and the AIFM as a whol e, against external market benchmarks and t o utilise this to devel op proposals for fix ed and variable r emuneration for all s taff . The remuneration c ommittee r eceives these pr oposals and the supporting information and is r esponsible for independentl y r eviewing and scrutinising the pr oposals and evidence pr ovided in line with the AIFM’ s stated objectives and dev eloping its final r ecommendations for delivery to the go verning body of the AIFM and other entities associated with the AIFM. The variabl e remuner ation of all staff in e xces s of a thr eshold, which includes those individuals categorised as r emuneration code staff (“c ode staff”), is subject to the foll owing: • deferr ed payment of up to 50% of the variable r emuneration for a period of 3 years, • deferr ed remuneration is link ed to funds managed by the AIFM, • the br eaching of certain co venants may l ead to forf eiture of def erred r emuneration, and • a c la w- ba ck provi si o n o f d efe rred remu ne rat io n i n cer tai n circumstanc es including futur e performanc e issues by the individuals. The below inf ormation pr ovides the total r emuneration paid by the AIFM (and any delegates) f or the year ending, December 31, 2021 This has been pr esented in line with the information availabl e to the Company . There is no all ocation made by the AIFM to each AIF and as such the disclosur e r eflects the r emuneration paid to individuals who are partl y or fully invol ved in the AIF, as well as staff of any delegat e to which the firm has delegat ed portfolio management and/or risk management r esponsibilities in r elation to the AIF . Of the total AIFM r emuneration paid of $92.9m for the year ending December 31, 2021 t o 248 individuals (full time equivalent), $34.5m has been paid as fixed r emuneration determined based upon the FCA guidanc e with the r emainder being paid as variable r emuneration. The AIFM has asses sed the members of staff whom it determines t o be code staff in line with AIFMD as r eflected in S YSC 19b.3.4R. Senior management and staff engaged in the c ontrol functions ar e identified based upon their rol es and r esponsibilities within the AIFM and the delegat es. With respect t o investment pr ofessionals, in determining whether such staff ar e code staff, due c onsideration is tak en of the all oc ate d ca pit al an d tr adin g lim its that appl y to t he fu nds m ana ged a nd whether the individuals report into and seek consent for investment decisions from others who ar e themselves c ode staff . There ar e 16.6 individuals (full time equivalent) who meet this definition and these individuals have coll ectively been c ompensated $45.1m. Not all individuals ar e directl y remunerated by the AIFM due t o the structur e of the AIFM entity , however in the inter ests of meeting the underl ying r equirement of this discl osure all staff inv olv ed have been asses sed as if dir ectly r emunerated by the AIFM. 63 ANNUAL REPORT 30 JUNE 2022 CQS NEW CITY HIGH YIELD FUND LIMITED Report of the Investment Manager Supplemental Inf ormation and Annual General Meeting This page is intentionall y left blank 64 CQS NEW CITY HIGH YIELD FUND LIMITED ANNUAL REPORT 30 JUNE 2022 Supplemental Inf ormation and Annual General Meeting Report of the Investment Manager This page is intentionall y left blank 65 ANNUAL REPORT 30 JUNE 2022 CQS NEW CITY HIGH YIELD FUND LIMITED Corporate Inf ormation Supplemental Information and Annual General Meeting Corporate Inf ormation Register ed Number 95691 Register ed Office CQS New City High Yield F und Limited IFC1 The Esplanade St Helier Jersey JE1 4BP Dir ectors Caroline Hit ch (Chair) Duncan A H Baxter Ian Cadby W endy Dorman John E Newlands Investment Manager CQS (UK) LLP 1 Strand London WC2N 5HR AIFM CQS (UK) LLP 1 Strand London WC2N 5HR Company Secr etary and Administrator Custodian Banker s and Depositary BNP Paribas Securities Services S.C.A. Jer sey Branch IFC1 The Esplanade St Helier Jersey JE1 4BP Registrar s Computershar e Investor Servic es (Jersey) Limited 13 Castl e Street St. Helier , Jersey JE1 1ES Channel Islands Financial Adviser and Corporate Br oker Singer Capital Markets 1 Bartholomew Lane London EC2N 2AX Independent Auditor KPMG Channel Islands Limited 37 Esplanade St Helier Jersey JE4 8WQ Jersey Legal Advisor s Ogier Ogier House, The Esplanade St. Helier Jersey , JE4 9WG Channel Islands UK Legal Advisors Dentons LLP One Fleet Plac e, London EC4M 7WS W ebsite www.ncim.co.uk ISIN JE 00B1LZS514 Shar eholder Information Net Asset V alue/Share Price The net asset value of the Company’ s ordinary shar es may be obtained by contacting CQS on 0207 201 6900 or by email at [email protected] or alt ernatively by visiting the Company’ s web site at www .ncim.co.uk . CQS NEW CITY HIGH YIELD FUND LIMITED
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