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BH Global Limited - Annual Financial Report

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London, March 22

BH Global LimitedAnnual Report and Audited Financial Statements 2017

LEI: 549300BIIO4DTKEMXV14(Classified Regulated Information, under DTR 6 Annex 1 section 1.1)31 December 2017

CHAIRMAN’S STATEMENT

Dear Shareholder,

Albeit at a more modest pace than had been experienced a year earlier, 2017 was a further year of growth in the Net Asset Value (“NAV”) per share for BH Global Limited’s (the “Company” or “BH Global”) two share classes. The US Dollar is the Company’s functional currency and the NAV per share of the US Dollar class appreciated by 2.59% and that of the much larger Sterling class by 1.75%.

Once again many equity markets enjoyed significant appreciation taking, in many cases, valuations to new heights. However, as I have written in previous Statements, the Company is intended to have low correlation to bond and equity markets with limited downside risk and thus act as a diversifier in the construction of portfolios. In terms of volatility and correlation it has once again performed just such a function with further, albeit modest, positive annual NAV per share growth as has been achieved in eight out of the nine calendar years since its first full year in 2009 together with low volatility of 3.7%.

Since 1 September 2014 the Company has invested all of its assets, save for working cash balances, in Brevan Howard Multi-Strategy Master Fund Limited (“BHMS”). At 31 December 2017 BHMS had net assets of US$843 million and BH Global’s investment of US$431 million represented approximately 51.1% of BHMS. In recent years the Company’s holding in BHMS has grown significantly as a percentage of that fund’s assets. Nevertheless, both Manager and Board consider that the liquidity profile of the assets held by BHMS is consistent with the redemption notice periods granted to BH Global and therefore the present position, whereby BH Global holds approximately 50% of BHMS, is not a cause for concern.

As a percentage of assets, the allocation to the Direct Investment Portfolio (“DIP”) grew to 63.0% at 31 December 2017 and comprised nine separate allocations. For the year the DIP appreciated by 3.86% (adjusted for fees). All but one of the traders within the DIP also have an allocation in Brevan Howard’s core fund, the Brevan Howard Master Fund, in which BH Global retains a significant holding through BHMS amounting to 21.3% of the Company’s assets.

NAV enhancement and share buy backs

Regular buy backs continued throughout the year in order to seek to moderate the discount to NAV at which the shares traded, whilst enhancing NAV per share. During the year 2,771,968 Sterling class shares were bought back at a weighted average discount of 10.41% and a cost of £36.467 million together with 350,991 US Dollar class shares at a weighted average discount of 9.59% and a cost of $4.493 million. These buy-backs added 18 pence (1.22%) and 15 cents (1.02%) respectively to NAV per share.

When authorising buy backs, and subsequent to the changes made to the Company’s management agreement with effect from 1 April 2017, the directors were always mindful that any reduction in the number of shares in either class beyond the Annual Buy Back Allowance for 2017 (as announced on 12 April 2017) would trigger the requirement to pay the Manager a fee of 2% of the repurchase price of the shares bought back. During 2017 12.34% of the Sterling shares and 8.38% of the US Dollar shares outstanding at the 2016 year end were bought back triggering payments to the Manager totalling £433,742 and $42,524. In every case buy backs were always enhancing to NAV per share.

On 1 January 2018 the “clock was reset” and the Company became entitled to buy back up to an aggregate number equal to 5% of the shares of each class in issue as at 31 December 2017 being 150,222 US Dollar shares and 1,017,344 Sterling shares before the 2% additional fee is triggered. As at the date of this Statement, during 2018 the Company had bought back no US Dollar shares and 472,389 Sterling shares.

Discount Management

Both in my Statement last year, and again in the interim report for the six months to 30 June 2017, I referred to the Board’s considerable frustration with the discount to NAV at which the Company’s shares were then trading. At 31 December 2016 the discount on the Sterling shares had been 8.92% which had widened at 30 June 2017 to 11.06%. During the second half of the year the discount narrowed significantly and at the Company’s year-end on 31 December stood at 6.44%. Since the year-end the average daily discount has been around 7% and is currently at around the 6% level.

In recent Statements I have indicated that if there were not a substantial reduction in the discount by the end of 2017 then the Board would consider further options to enhance shareholder value. At the time that I signed off my Statement for the year to 31 December 2016 at the end of March 2017 the Sterling discount was close to 9%. At 30 June 2017 it was over 11% and I consider the reduction to 6.44% at 31 December 2017 to be a significantly material move in the right direction.

Discontinuation Threshold and Capital Redemption

As already announced on 18 January 2018, the average discount at which shares traded over the year was less than the 10% discount threshold, at or above which a class closure vote in either class of share would have been triggered.

The Board has considered whether it would be appropriate to offer a partial return of capital of all or part of the 2017 NAV per share growth. It has concluded that the quantum would not be material enough to justify such a redemption offer.

The Future for the Company

Toward the end of 2017 the Board asked the Company’s brokers, JPMorgan Cazenove and Canaccord Genuity, to contact major shareholders and canvas their views. The majority of the views as reported to the Board was that shareholders wished the Company to continue in its present form so as to provide a low risk, minimally correlated, diversifier when constructing portfolios in the face of elevated valuations of many equity markets. Nevertheless, those views are predicated on acceptable and regular NAV per share growth and continuing downward pressure on the overall costs of managing the assets. Shareholders will recall that the reduction in the core management fee from 2% to 1% which took effect on 1 April 2017 has bought about an annual saving of approximately $4.5 million based on the current size of the Company.

As I have written before, the key to success for the Company as a listed entity will be NAV per share performance. It is very much to be hoped that the trading environment for the Manager will enable the delivery of robust growth in 2018. The Board will continuously monitor performance, discounts and feed-back from shareholders. On the basis of the current position, absent a change of view of major shareholders, the Board expects the Company to continue in its present form.

The Board

John Hallam and Nick Moss have served as directors of the Company since its IPO in May 2008 with John serving as chair of the Audit Committee. Although both remain robustly independent the Board acknowledges the need to refresh the membership at the appropriate juncture once directors have served more than nine years.

John has indicated that he is content to stand down as a director on 30 September 2018 as a part of this refreshment process and the Board respects his decision. I would like to record his outstanding contribution both as a director and as chair of the Audit Committee. The Company has been fortunate to recruit Sally-Ann (Susie) Farnon to join the Board as prospective chair of the Audit Committee. Susie was formerly head of KPMG’s Channel Island audit practice and served for nine years as a Commissioner on the Guernsey Financial Services Commission. She is an extremely experienced director of listed alternative asset companies and is a director of a further five listed public companies. I have discussed with Susie her time availability and capacity to focus on the affairs of BH Global. Other than her family interests, Susie has no business responsibilities beyond her non-executive directorships and she is not the chair of any of the boards on which she serves. I am fully satisfied that she has the time and capacity to serve as a director of BH Global and am very pleased that she has agreed to join the Board. Susie was appointed a director on 13 March 2018.

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Relationship with the Manager

The directors continue to pursue active dialogue with the Manager both at quarterly Board meetings and also in between those formal meetings. The portfolio manager of BHMS, Magnus Olsson, reports at each Board meeting. I and other directors have regular contact with a number of people at the Manager who support the administration and promotion of the Company.

The relationship with the Manager is robust and, despite the reduction in the net assets of the Company, the Manager has assured the Board that the continuing management of the Company’s assets, and its London Main Market listing, are both of key importance. Shareholders will recall that as part of the changes to the Management Agreement announced in April 2017, the Board agreed that, in the event of the NAV of the Company falling below $300 million at the end of any calendar quarter, the Board would bring forward a special resolution proposing the liquidation of the Company. As at the date of this Statement the NAV of the Company is approximately $453 million.

Conclusion

The future of the Company will be determined by its performance and the views of its shareholders. With the discount to NAV now closer to 5% than the nearly 10% of a year ago (and indeed in excess of 10% for periods in 2017) the Board considers that sufficient progress in respect of reduction in the discount has been made to justify continuing support for the Company. However, continued growth of NAV per share, preferably at greater pace than 2017, and a modest discount are prerequisites for stability. Should either falter then the Board will, as previously indicated, consider options in the best interests of shareholders.

Yours sincerely,

Sir Michael BunburyChairman

22 March 2018

GLOSSARY OF ACRONYMS

Detailed below are the underlying funds and their acronyms used within this report:

UNAUDITED SUPPLEMENTAL FINANCIAL STATEMENTS

In order to provide shareholders with further information regarding the net asset value of each class of shares, coupled with greater transparency as to the income, gains and expenses incurred and the changes in net assets of the two classes, the results have been presented in the tables. These tables show the allocation of all transactions in the currency of the respective share class.

It should be noted that these tables have not been subject to audit by KPMG Channel Islands Limited.

UNAUDITED SUPPLEMENTAL STATEMENT OF ASSETS AND LIABILITIES

As at 31 December 2017

UNAUDITED SUPPLEMENTAL STATEMENT OF OPERATIONSFor the year ended 31 December 2017

\* The Company total for foreign exchange (losses)/gains contains the results of translating the Sterling class into US Dollars.

The trades carried out in the various underlying portfolios have structures of varying complexity and inherent leverage. This can result in situations where, at an individual trade level, interest income or expense is offset by losses or gains on other investments to achieve a net return. However accounting conventions require that all these elements are disclosed gross which can result in separate reporting of what would otherwise be off-setting interest income and expenses, realised gains and losses or unrealised gains and losses.

UNAUDITED SUPPLEMENTAL STATEMENT OF CHANGES IN NET ASSETSFor the year ended 31 December 2017

MANAGER’S REPORT

Brevan Howard Capital Management LP (“BHCM”) is the Manager of BH Global Limited (“BHG” or the “Company”). BHG invests all its assets (net of short-term working capital) in Brevan Howard Multi-Strategy Master Fund Limited (“BHMS” or the “Fund”) a company also managed by BHCM.

Performance Summary

The NAV per share of the USD shares appreciated by 2.59% in 2017, while the NAV per share of the GBP shares appreciated by 1.75% in 2017.

The month-by-month NAV performance of the USD and GBP currency classes of BHG since it commenced operations in 2008 is set out below:

Source: BHG NAV and NAV per Share data is provided by BHG’s administrator, Northern Trust International Fund Administration Services (Guernsey) Limited (“Northern Trust”). BHG NAV per Share % Monthly Change calculations are made by BHCM.

BHG NAV data is unaudited and net of all investment management fees and all other fees and expenses payable by BHG. NAV performance is provided for information purposes only. Shares in BHG do not necessarily trade at a price equal to the prevailing NAV per Share. 

* Performance is calculated from a base NAV per Share of 10 in each currency. The opening NAV in May 2008 was 9.9 (after deduction of the IPO costs borne by BHG).

PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS

Underlying allocation review

The Investment Committee (“IC”) made the decision to keep the Fund’s allocation to the DIP and the underlying funds relatively stable over the period. The allocations to the DIP and BHDGST were marginally increased whereas the allocations to BHAMF and BHMF were reduced accordingly. At the end of December 2017, the allocation to the DIP stood at approximately 63%. The Fund’s performance has benefitted significantly from the increased allocation to the DIP since early 2016. The DIP, which included macro, credit and emerging market trading, has been the key positive driver to the Fund’s returns. 

The IC will continue to take advantage of the flexibility within the Fund’s mandate in order to seek high risk adjusted returns and keep a healthy diversification across strategies, asset classes and traders.

Performance Review

During 2017, the NAV per share of the USD and GBP shares appreciated by 2.59% and 1.75% respectively. The returns were accompanied by a low volatility of 3.7%. 2017 proved to be a relatively lacklustre year for many macro managers, with declining volatility across most asset classes. The NAV performance of BHG was in line with the US Dollar HFRI Macro Total Index which returned 2.21% over the period.

The DIP was the main positive contributor to the Fund’s performance. The DIP is the area of the portfolio which allows the IC of the Manager to allocate directly to trading books and funds which are managed by an individual portfolio manager. For the period the DIP was up 5.1% (on a gross performance basis). The bulk of the profits arose in credit trading and in interest rate trading. Some of the gains were offset by losses in FX and to a small extent in equity indices. In credit, long exposure to mortgage backed securities (“MBS”) generated gains on the back of a relatively strong US housing market. The Fund’s non-agency residential mortgage-backed security (“RMBS”) and legacy commercial mortgage-backed security (“CMBS”) positions continued to perform well; the former were increasingly in demand from outright long money managers as “safe yield” assets, while underlying loan performance and refinancing activity in the latter beat market expectations. Additional gains arose in agency trading, selected asset backed securities (“ABS”) and in emerging market credit.

In ABS, most of the gains were generated from long exposures to securities structured around student loans and originated pre the financial crisis. The Fund had acquired these bonds at very low prices but with meaningful optionality. Most of the Fund’s position was sold at attractive levels during the summer.

The DIP’s interest rate gains arose predominately from relative value trading within European sovereign bond markets during the first quarter. Trading in some of the smaller markets including South Africa, Czech Republic and Turkey generated additional small gains. A part of the gains was offset by losses in USD rates from keeping a bias towards higher USD rates during the first half of the year.

In FX the losses in the DIP arose mainly from entering the year with a long USD exposure against a basket of currencies including the EUR, which strengthened. FX positioning changed over the year and the earlier losses were significantly reduced from reversing the long USD exposure to an overall short exposure during most of the remainder of the year.

A long exposure to the S&P Equity Index at the start of the year generated losses. Losses were reduced from tactical trading with a long bias throughout the rest of the year.

The returns of the underlying fund allocations were mixed. BHAMF and BHDGST contributed positively whereas BHMF was a detractor.

With regard to the performance attribution when looking through all the Fund’s allocations, equity indices and credit trading generated gains, FX trading generated losses and trading within interest rates was overall flat. Commodity trading was a small part of the Fund during the year. It was a modest detractor with most of the losses coming from long exposure to oil during the first half of the year.

Systematic trading had a positive year. The bulk of the gains arose from a long exposure to equity indices. A part of the gains were offset by losses in other asset classes where trend reversals or range bound markets created a challenging environment. BHDGST (Class Z USD shares) appreciated by 7.92% in 2017. This compares favourably to the SG Trend Index (+2.20%).

In measuring the attribution of the underlying portfolios, the Manager employs a number of metrics including the two set out in the below tables. All positions, regardless of which trading book holds them, are allocated to an asset class and the attribution per asset class is summarised in the first table below. The second table summarises the attribution, but by reference to the overall strategy classification of each trading book. It should be noted that, as the second table indicates, there are some strategy groups which at 31 December 2017 had been allocated no trading books.

Quarterly and annual contribution (%) to the performance of BHG USD Shares (net of fees and expenses) by asset class*

*Data as at 29 December 2017

Quarterly figures are calculated by BHCM based on performance data for each period provided by BHG’s administrator, Northern Trust. Figures rounded to two decimal places.

PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTSMethodology and Definition of Contribution to Performance:Attribution by asset class is produced at the instrument level, with adjustments made based on risk estimates.The above asset classes are categorised as follows:“Rates”: interest rates markets“FX”: FX forwards and options“Commodity”: commodity futures and options“Credit”: corporate and asset-backed indices, bonds and CDS“Equity”: equity markets including indices and other derivatives“Discount Management”: buyback activity for discount management purposes 

Quarterly and annual contribution (%) to the performance of BHG USD Shares (net of fees and expenses) by strategy group*

*Data as at 29 December 2017

Quarterly figures are calculated by BHCM based on performance data for each period provided by BHG’s administrator, Northern Trust. Figures rounded to two decimal places.PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTSMethodology and Definition of Contribution to Performance:Strategy Group Attribution is approximate and has been derived by allocating each underlying trader book to a single category. In cases where a trader book has activity in more than one category, the most relevant category has been selected.The above strategies are categorised as follows:“Macro”: multi-asset global markets, mainly directional (for BHG, the majority of risk in this category is in rates)“Systematic”: rules-based futures trading“Rates”: developed interest rates markets“FX”: global FX forwards and options“Equity”: global equity markets including indices and other derivatives“Credit”: corporate and asset-backed indices, bonds and CDS“EMG”: global emerging markets“Commodity”: liquid commodity futures and options“Discount Management”: buyback activity for discount management purposes 

Commentary and Outlook

The global expansion accelerated and broadened in 2017, leaving behind lingering worries about downside risks. At the same time, inflation remained calm in most major economies, except the UK which experienced a sharp increase on the heels of the Brexit-related fall in Sterling. The combination of strong growth and generally modest inflation led to a continuation of monetary policy trends, with the US and Canada gradually removing policy accommodation, the Euro area tapering asset purchases, and Japan maintaining a high level of accommodation. Political risks that loomed large at the start of 2017, such as the upcoming elections in France, Germany, Netherlands and possibly Italy, were favourably resolved with little disruption. This favourable backdrop buoyed financial markets, leading to record highs in many global equity markets, relatively low interest rates, and tight credit spreads.

As we enter the ninth year of the expansion in 2018, the ageing business cycle would typically be displaying late-cycle dynamics of slower growth and rising inflation. However, this cycle is defying that pattern. Economic activity appears to be accelerating further above trend in most economies and inflation pressures are only beginning to emerge. Despite the age of the business cycle, the data suggest that this cycle is behaving more mid-cycle or even early-cycle in certain sectors like manufacturing. Underpinning this dynamic are the early signs that business investment and productivity are picking up from the doldrums. If those trends continue, they could have far reaching consequences, including continued support for risk assets, higher equilibrium interest rates, and an end to secular stagnation. Tax reform in the US is a further tailwind promoting growth and investment in an economy that is already operating above its potential. If these favourable trends persist, there will be pressure on central banks to provide less accommodation going forward. Policy makers will face a tricky balancing act between strong growth and easy financial conditions, on the one hand, and inflation that generally remains below target, on the other hand.

We look forward to exploiting any opportunities that these factors may create.

Brevan Howard wishes to thank shareholders once again for their continued support.

Brevan Howard Capital Management, LP,acting by its sole general partner,Brevan Howard Capital Management Limited

22 March 2018

DIRECTORS’ REPORT

The Directors submit their Report together with the Company’s Audited Statement of Assets and Liabilities, Audited Statement of Operations, Audited Statement of Changes in Net Assets, Audited Statement of Cash Flows, and the related notes (together, the “Financial Statements”) for the year ended 31 December 2017. The Directors’ Report together with the Audited Financial Statements give a true and fair view of the financial position of the Company. They have been prepared properly, in conformity with United States Generally Accepted Accounting Principles (“US GAAP”) and are in accordance with any relevant enactment for the time being in force, and are in agreement with the accounting records.

The Company

The Company is a limited liability closed-ended investment company which was incorporated in Guernsey on 25 February 2008.

It was admitted to the Official List of the London Stock Exchange on 29 May 2008 when it raised approximately US$1 billion and where it currently has a Premium Listing.

The Company’s US Dollar Share Class had Secondary Listings on the Bermuda Stock Exchange and on NASDAQ Dubai until 30 September 2017 and 31 December 2017 respectively.

The Company can offer multiple classes of ordinary shares, which differ in terms of currency of issue with ordinary shares denominated in US Dollar and Sterling currently being in issue.

Investment Policy

The Company’s investment objective is to seek to generate consistent long-term capital appreciation through an investment policy of investing all of its assets (net of funds required for its short-term working capital requirements) in Brevan Howard Multi-Strategy Master Fund Limited (“BHMS” or the “Master Fund”).

The Company is organised as a feeder fund and invests substantially all of its investable assets in the ordinary US Dollar and Sterling denominated Class G shares issued by BHMS, and, as such, the Company is directly and materially affected by the performance and actions of BHMS.

BHMS spreads investment risk by providing exposure to a range of strategies, asset classes and geographies.

BHMS has flexibility to invest in a wide range of instruments including, but not limited to, debt securities and obligations (which may be below investment grade), bank loans, listed and unlisted equities, other collective investment schemes or vehicles (which may be open-ended or closed-ended, listed or unlisted, regulated or unregulated and may employ leverage (each an “Investment Fund”)), currencies, commodities, futures, options, warrants, swaps and other derivative instruments. Derivative instruments may be exchange-traded or OTC.

BHMS may engage in short sales. BHMS may retain amounts in cash or cash equivalents (including money market funds) pending reinvestment, for use as collateral or if this is considered appropriate to the investment objective.

Subject to the investment restrictions and investment approach disclosed in any prospectus for BHMS that may be published from time to time and subsequent BHMS Directors’ resolutions, BHMS employs an investment process which empowers the Manager to allocate assets both to Investment Funds and directly to the investment managers of BHMS from time to time on an opportunistic basis.

Contractual relationship with the Manager

The Company’s relationship with its Manager is defined in the Management Agreement. Further revisions were made during the course of 2017 affecting fee levels and buy backs and these are set out in detail in note 4.

Results and Dividends

The results for the year are set out in the Audited Statement of Operations. The Directors do not recommend the payment of a dividend.

Share Capital

The number of shares in issue at the year end and the changes during the year are disclosed in the note 5 to the Audited Financial Statements.

International Tax Reporting

For the purposes of the US Foreign Account Tax Compliance Act, the Company registered with the US Internal Revenue Services (“IRS”) as a Guernsey reporting Foreign Financial Institution (“FFI”), received a Global Intermediary Identification Number (U2S6ID.99999.SL.831), and can be found on the IRS FFI list.

The Common Reporting Standard (“CRS”) is a global standard for the automatic exchange of financial account information developed by the Organisation for Economic Co-operation and Development (“OECD”), which has been adopted by Guernsey and which came into effect on 1 January 2016. The Board has taken the necessary action to ensure that the Company is compliant with Guernsey regulations and guidance in this regard.

Discount Management Programme

In consultation with the broker and other advisors, the Directors review the share price in relation to NAV on a regular basis and take such action as they consider to be in the best interests of shareholders. For additional information refer to note 8 of the Financial Statements. Shareholders with any queries in relation to the above should contact the Administrator in the first instance, whose contact details can be found on the Company’s website, www.bhglobal.com/contacts.

Viability Statement

The investment objective of the Company, as outlined earlier, is currently implemented through a policy of investing all of its assets (net of funds required for its short-term working capital requirements) in the ordinary US Dollar and Sterling denominated Class G shares issued by BHMS. 

The Company’s investment performance depends upon the performance of BHMS and the Manager as manager of BHMS. The Directors, in assessing the viability of the Company, pay particular attention to the risks facing BHMS. The Manager operates a risk management framework which is intended to identify, measure, monitor, report and where appropriate, mitigate key risks identified by it or its affiliates in respect of BHMS.

The Company’s assets exceed its liabilities by a considerable margin. Further, the majority of the Company’s most significant liabilities, being the fees owing to the Manager and to the Company’s administrator, fluctuate by reference to the Company’s investment performance and net asset value.

The Directors confirm that their assessment of the principal risks facing the Company was robust and that they have assessed the viability of the Company over the period to 31 December 2020. The viability statement covers a period of three years, which the Directors consider sufficient given the inherent uncertainty of the investment world and the strategy period. In selecting this period, the Directors considered the environment within which the Company operates, its liabilities, the performance of the Master Fund and the risks associated with the Company.

The continuation of the Company in its present form is, inter alia, dependent on the Management Agreement with the Manager remaining in place. The Directors note that the Management Agreement with the Manager is terminable on one year’s notice by either party. The Directors know of no current reason why either the Company or the Manager might serve notice of termination of the Management Agreement during the three year period covered by this viability statement. To ensure that the Company maintains a constructive and informed relationship with the Manager, the Directors meet regularly with the Manager to review BHMS's performance, and through the Management Engagement Committee, they review the nature of the Company’s relationship with the Manager.

Besides the possible termination of the Management Agreement, at the Company level, the main risks to the Company’s continuation would be a) the Company’s shares trading at a significant and/or persistent discount to NAV, or b) the Company’s NAV falling below US$300 million.

The Company’s discount management programme is described within note 8 including details as to when class closure resolutions would have to be put to shareholders. The Company actively undertakes discount management actions, including share buybacks, so that as far as possible the share prices properly reflect the Company’s underlying performance; such actions seek to mitigate the risk of a class closure resolution being triggered.

As a part of the agreement to reduce the management fee, it was agreed that should the Company’s NAV fall below US$300 million on certain dates, the Board will convene a general meeting at which a special resolution proposing the liquidation of the Company would be put forward. Further details are provided in note 4. It is the Board’s current view that it is unlikely that such a scenario will arise as a consequence solely of its discount management programme.

After having considered the above risks based on the assumption that they are managed or mitigated in the ways noted above, and having reviewed the budgeted ongoing expenses, the Directors have a reasonable expectation that the Company would be able to continue in operation and meet its liabilities as they fall due over the three year period of their assessment.

Going Concern

After making enquiries and given the nature of the Company and its investment, the Directors are satisfied that it is appropriate to continue to adopt the going concern basis in preparing these Financial Statements and, after due consideration, the Directors consider that the Company is able to continue for the foreseeable future and at least twelve months from the date of this report. In reaching this conclusion the Board is mindful of the nature and liquidity of the assets that underlie its investment in BHMS, the terms under which it may redeem its investment in BHMS and utilise the borrowing facilities available to it and has concluded that moderate adverse investment performance would not have a material impact on the Company’s ability to meet its liabilities as they fall due.

Signed on behalf of the Board by:

Sir Michael BunburyChairman

John HallamDirector

22 March 2018

CORPORATE GOVERNANCE STATEMENT

Corporate Governance

To comply with the UK Listing Regime, the Company must comply with the requirements of the UK Corporate Governance Code. The Company is also required to comply with the Code of Corporate Governance issued by the Guernsey Financial Services Commission.

The Company is a member of the Association of Investment Companies (the “AIC”) and by complying with the AIC Code of Corporate Governance (“AIC Code”) is deemed to comply with both the UK and Guernsey Codes of Corporate Governance.

The Board has considered the principles and recommendations of the AIC Code, by reference to the guidance notes provided by the AIC Guide, and considers that reporting against these will provide appropriate information to shareholders. To ensure ongoing compliance with these principles the Board reviews a report from the Corporate Secretary, at each quarterly meeting, identifying how the Company is in compliance and identifying any changes that might be necessary.

The Company has complied with the recommendations of the AIC Code throughout the accounting period and thus the relevant provisions of the UK Corporate Governance Code, except as set out below.

The UK Corporate Governance Code includes provisions relating to:

- the role of the chief executive;

- the executive Directors’ remuneration;

- the annual assessment of the need for an internal audit function;

- the remuneration committee;

- the whistle blowing policy; and

- the Directors’ independence.

For the reasons set out in the AIC Guide, and as explained in the UK Corporate Governance Code, the Board considers these provisions are not relevant to the position of the Company as it is an externally managed investment company. The Company has therefore not reported further in respect of these provisions. The Directors are all non-executive and the Company does not have employees, hence no whistle blowing policy is required. The key service providers all have whistle blowing policies in place. The Board as a whole fulfils the function of a Remuneration Committee. Details of compliance are noted below. There have been no instances of non-compliance, other than those noted above.

The Company has adopted a policy that the composition of the Board of Directors, which is required by the Company’s Articles to comprise of at least two persons, is at all times such that a majority of the Directors are independent of the Manager and any company in the same group as the Manager; the Chairman of the Board of Directors is free from any conflicts of interest and is independent of the Manager and of any company in the same group as the Manager; and that no more than one director, partner, employee or professional adviser to the Manager or any company in the same group as the Manager may be a Director of the Company at any one time.

Under provision B.1.1. of the UK Corporate Governance Code, having considered the directorship of Julia Chapman in DG Macro Fund Limited (formerly London Select Fund Limited), whose Alternative Investment Fund Manager is one in which Brevan Howard has an economic interest, the Board has determined that she remains independent.

As noted below, Messrs Moss and Hallam have served on the Board since the Company was formed in 2008 but, for the reasons noted it is considered that they remain independent and that their continued service is in the best interests of shareholders.

Risk Management

The Company’s risk exposure and the effectiveness of its risk management and internal control systems are reviewed by the Audit Committee at its quarterly meetings and annually by the Board. The Board believes that the Company has adequate and effective systems in place to identify, mitigate and manage the risks to which it is exposed.

The Board

The Board, which currently consists solely of independent non-executive Directors, meets at least four times a year and between these formal meetings there is regular contact with both the Manager and the Administrator. Clear terms of reference outline the full schedule of matters reserved for the Board’s decision and that of its committees. The Directors are kept fully informed of investment and financial controls, and other matters that are relevant to the business of the Company and which should be brought to the attention of the Directors. The Directors also have access to the Administrator, and where necessary, in the furtherance of their duties, to independent professional advice at the expense of the Company. In addition to these scheduled meetings, 15 ad-hoc meetings were held in 2017, to deal with matters that were of a fundamentally administrative nature, the majority being to deal with conversions between share classes. These meetings were attended by those Directors available at the time.

On 26 June 2017, at the Annual General Meeting of the Company, shareholders re-elected all Directors of the Company. Section 21.3 of the Company’s Articles requires all Directors at the date of the notice convening the annual general meeting, shall retire from office and may offer themselves for re-election. Mr Morgan did not offer himself for re-election at the 2017 Annual General Meeting.

The Board of Directors has overall responsibility for safeguarding the Company’s assets, for the determination of the investment policy of the Company, for reviewing the performance of the Manager and the other service providers and for the Company’s activities. The Directors are listed on the Board Members section below.

The Board needs to ensure that information presented is fair, balanced and understandable, and provide information necessary for the shareholders to assess the Company’s performance, business model and strategy. In achieving this, the Directors have explained the Company’s investment objective and policy, how the Board operates through its structure of reserved powers of the Board, its delegated Committees and how the Directors consider and explain the risk environment within which the Company operates. Further, through the Annual Report and ancillary documents the Board has sought to provide information to enable shareholders to have a fair, balanced and understandable view.

Board Evaluation and Succession Planning

The AIC Code requires external evaluation of Board performance every three years. During 2016, the Board commissioned an external evaluation of its performance by Board Alpha. The report of the evaluation confirmed that the Company applies a high standard of corporate governance. The report indicated that there were no significant issues to raise; some helpful procedural suggestions were offered which the Board has implemented. The Board conducted self-appraisal during 2017.

The Board has chosen not to adopt a definitive policy with quantitative targets for board diversity. However, gender, knowledge, skills, experience, residency and governance credentials are all considered by the Nominations Committee when recommending appointments to the Board and in formulating succession plans.

The Board, Audit Committee, Management Engagement Committee and Nominations Committee undertake an evaluation of their own performance and that of individual Directors on an annual basis. In order to review their effectiveness, the Board and its Committees carry out a process of formal self-appraisal. The Board and Committees consider how they function as a whole and also review the individual performance of its members.

This process is conducted by the respective Chairman reviewing each members’ performance, contribution and commitment to the Company. John Hallam, as Senior Independent Director, takes the lead in reviewing the performance of the Chairman. Each Board member undertakes ongoing training and maintenance of continuing professional development requirements.

The Board considers it has a breadth of experience relevant to the Company, and the Directors believe that any changes to the Board’s composition can be managed without undue disruption. An induction programme has been put in place for all Director appointments.

Board and Committee Meetings

The table below sets out the number of Board, Audit, Management Engagement and Nominations Committee scheduled meetings held during the year ended 31 December 2017 and, where appropriate, the number of such meetings attended by each Director.

Attendance at scheduled Board and Committee meetings:

* in attendance

1 Talmai Morgan retired from the board on 26 June 2017.

Directors’ Independence

The Company has five non-executive Directors, all of whom are independent of the Manager.

Under the AIC Code the board must consider whether directors continue to be independent of the Company if they have served for over nine years. Mr Hallam and Mr Moss were appointed to the Board in February 2008. The Board takes the view that their independence is not compromised by the length of tenure on the Board and considers their experience to significantly add to the Board’s strength

At a Board meeting held on 13 March 2018, and as a part of the ongoing process of board refreshment, Sally-Ann Farnon was appointed to the board. In due course she will assume the chairmanship of the Audit Committee and John Hallam will resign from the Board.

Directors’ Interests

The current Directors had the following interests in the Company, held either directly or beneficially:

1 Julia Chapman was appointed to the board on 16 January 2017.

2 Sally-Ann Farnon was appointed to the board on 13 March 2018.

The Company has adopted a Code of Directors’ dealings in securities.

Further Directors’ interests in other public companies are disclosed in the Board Members’ report.

Directors’ Indemnity

Directors’ and officers’ liability insurance cover is in place in respect of the Directors. The Directors entered into indemnity agreements with the Company which provide for, subject to the provisions of the Companies (Guernsey) Law, 2008, an indemnity for Directors in respect of costs which they may incur relating to the defence of proceedings brought against them arising out of their positions as Directors, in which they are acquitted or judgement is given in their favour by the Court. The agreement does not provide for any indemnification for liability which attaches to the Directors in connection with any negligence, unfavourable judgements, breach of duty or trust in relation to the Company.

Committees of the Board

The Board has established Audit, Management Engagement and Nominations Committees and approved their terms of reference, copies of which can be obtained from the Administrator.

Audit Committee

The Audit Committee is chaired by John Hallam, and its other members are Graham Harrison, Nicholas Moss and Julia Chapman. The Committee meets formally at least twice a year and each meeting is attended by the external auditor and Administrator.

Appointment to the Audit Committee is for a period up to three years which may be extended for two further three year periods provided that the majority of the Audit Committee remain independent of the Manager. John Hallam and Nicholas Moss have served 10 years on the Audit Committee and have had their tenure extended for a further year whilst suitable replacements are appointed. At the date of this report, Graham Harrison will be in the second year of his third term of three years.

The table above, sets out the number of Audit Committee Meetings held during the year ended 31 December 2017 and the number of such meetings attended by each Committee member.

A report of the Audit Committee detailing its responsibilities and its key activities is presented in the Audit Committee Report.

Management Engagement Committee

The Board has established a Management Engagement Committee with formal duties and responsibilities. The function of the Management Engagement Committee is to ensure that the Company’s Management Agreement is competitive and reasonable for the Shareholders, along with the Company’s agreements with all other third party service providers (other than the external auditors).

The Management Engagement Committee meets formally at least once a year and comprises all Directors of the Board, with Nicholas Moss being appointed as chairman.

The Committee also reviews annually the performance of the Manager with a view to determining whether to recommend to the Board that the Manager’s mandate be renewed, subject to the specific notice period requirement of the agreement. The other third party service providers are also reviewed on an annual basis.

The principal contents of the Manager’s contract and notice period are contained in note 4 to the Financial Statements.

The Manager has wide experience in managing and administering investment companies and has access to extensive investment management resources. At its meeting of 5 December 2017, the Management Engagement Committee concluded that the continued appointment of the Manager on the terms agreed would be in the best interests of the Company’s shareholders as a whole. At the date of this report the Board continues to be of the same opinion.

Nominations Committee

The Nominations Committee comprises all Directors of the Board, with the Chairman being appointed as Chairman of the Nominations Committee. For new appointments to the Board, nominations are sought from the Directors and from other relevant parties and candidates are then interviewed by the Nominations Committee. In the event that a replacement for the Chairman is being sought it would normally be expected that the Senior Independent Director would chair the Committee.

The other duties of the Committee include:

1. To review the structure, size and composition (including the skills, knowledge, experience and diversity) of the Board;

2. To consider succession planning;

3. To consider the performance of individual Directors and determine whether to recommend to the Board that they be put forward for re-election; and

4. To consider the ongoing terms of appointment of each Director.

At its meeting of 19 September 2017, the Nominations Committee concluded that the continued appointment of the Board would be in the best interests of the Company’s shareholders as a whole. At the date of this report the Board continues to be of the same opinion.

Remuneration Committee

In view of its non-executive and independent nature, the Board considers that it is not appropriate for there to be a separate Remuneration Committee as anticipated by the AIC Code. The Board as a whole fulfils the functions of the Remuneration Committee, although the Board has included a separate Remuneration Report of these Financial Statements. The consideration of the Chairman’s remuneration is led by the Senior Independent Director without the Chairman being present.

Internal Controls

The Board is ultimately responsible for establishing and maintaining the Company’s system of internal control and for maintaining and reviewing its effectiveness. To achieve this a process has been established which seeks to:

- Review the risks faced by the Company and the controls in place to address those risks;

- Identify and report changes in the risk environment;

- Identify and report changes in the operational controls;

- Identify and report on the effectiveness of controls and errors arising; and

- Ensure no override of controls by its service providers, the Manager and the Administrator.

The Company’s risk matrix continues to be used as the basis for analysing the Company’s system of internal control. The risk matrix is prepared and maintained by the Audit Committee which initially identifies the risks facing the Company and then collectively assesses the likelihood of each risk, the impact of those risks and the strength of the controls operating over each risk. The Company’s system of internal control is designed to manage rather than to eliminate the risk of failure to achieve business objectives and by their nature can only provide reasonable and not absolute assurance against misstatement and loss.

These controls aim to ensure that assets of the Company are safeguarded, proper accounting records are maintained and the financial information for publication is reliable. The Board confirms that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Company.

The AIC Code requires the Board to conduct, at least annually, a review of the Company’s system of internal control, covering all controls, including financial, operational, compliance and risk management. The Board has evaluated the systems of internal controls of the Company. In particular, it has prepared a process for identifying and evaluating the significant risks affecting the Company and the policies by which these risks are managed.

The Board has delegated the investment management of the Company, the administration, corporate secretarial and registrar functions including the independent calculation of the Company’s NAV and the production of the Annual Report and Financial Statements, which are independently audited. Whilst the Board delegates these functions, it remains responsible for the functions it delegates and for the systems of internal control. Formal contractual agreements have been put in place between the Company and providers of these services. On an ongoing basis, Board reports are provided at each quarterly Board meeting from the Manager, Administrator and Company Secretary and Registrar. A representative from the Manager is asked to attend these meetings.

The Board has reviewed the need for an internal audit function and has decided that the systems and procedures employed by the Manager, Administrator and the Company Secretary and Registrar, including their own internal review processes, and the work carried out by the Company’s external auditors, provide sufficient assurance that a sound system of internal control, which safeguards the Company’s assets, is maintained. An internal audit function specific to the Company is therefore considered unnecessary.

A report is tabled and discussed at each quarterly Audit Committee meeting, and reviewed once a year by the Board, setting out the Company’s risk exposure and the effectiveness of its risk management and internal control systems. The Board believes that the Company has adequate and effective systems in place to identify, mitigate and manage the risks to which it is exposed.

Further reports are received from the Administrator in respect of compliance, London Stock Exchange continuing obligations and other matters. These reports were reviewed by the Board. No material adverse findings were identified in these reports.

Corporate Social Responsibility

Anti-Bribery and Corruption Policy

The Board has adopted a formal Anti-bribery and Corruption Policy. The policy applies to the Company and to each of its Directors. Furthermore, the policy is shared with each of the Company’s main service providers.

UK Criminal Finances Act 2017

In respect of the UK Criminal Finances Act 2017 which has introduced a new Corporate Criminal Offence of ‘failing to take reasonable steps to prevent the facilitation of tax evasion’, the Board confirms that it is committed to zero tolerance towards the criminal facilitation of tax evasion.

The Board also keeps under review developments involving other social and environmental issues, such as Modern Slavery and General Data Protection Regulation (“GDPR”), and will report on those to the extent they are considered relevant to the Company’s operations.

Principal Risks and Uncertainties

The Board is responsible for the Company’s system of internal controls and for reviewing its effectiveness. The Board is satisfied, by using the Company’s risk matrix in establishing the Company’s system of internal controls, while monitoring the Company’s investment objective and policy, that the Board has carried out a robust assessment of the principal risks and uncertainties facing the Company. The principal risks and uncertainties which have been identified and the steps which are taken by the Board to mitigate them are as follows:

- Investment Risks: The Company is exposed to the risk that its portfolio fails to perform in line with the Company’s objectives if it is inappropriately invested or markets move adversely. The Board reviews reports from the Manager, which has discretion over portfolio allocation, at each quarterly Board meeting, paying particular attention to this allocation and to the performance and volatility of underlying investments;

- Operational Risks: The Company is exposed to the risks arising from any failure of systems and controls in the operations of the Manager or the Administrator. The Board receives reports annually from the Manager and Administrator on their internal controls;

- Accounting, Legal and Regulatory Risks: The Company is exposed to risk if it fails to comply with the regulations of the UK Listing Authority, Guernsey Financial Services Commission, or if it fails to maintain accurate accounting records. The accounting records prepared by the Administrator are reviewed by the Manager. The Administrator provides the Board with regular reports on changes in regulations and accounting requirements;

- Financial Market Risks: The financial risks faced by the Company, include market, and credit risk. These risks and the controls in place to mitigate them are reviewed at each quarterly Board meeting; and

- Liquidity Risks: While the Company retains sufficient working capital to ensure that it can meet its normal running costs, this is a relatively modest amount. It is therefore dependent on its continued access to funding from third parties and the timely receipt of the proceeds from redemption requests made to BHMS for all other purposes. The Board monitors the liquidity needs of the Company and takes such action as is appropriate.

The Board seeks to mitigate and manage these risks through continual review, policy-setting and enforcement of contractual obligations and will update the risk assessment matrix to reflect any changes to the control environment.

Relations with Shareholders

The Board welcomes shareholders’ views and places great importance on communication with its shareholders. The Chairman has conducted and continues to conduct meetings with a number of major shareholders in order to receive their view on the Company. The Board also receives regular reports on the views of its shareholders from its brokers, JP Morgan Cazenove and Canaccord Genuity, marketing consultants, Kepler Partners LLP and from the Manager. In addition, the Chairman and other Directors are available to shareholders if requested and the Annual General Meeting of the Company provides a forum for shareholders to meet and discuss issues with the Directors of the Company.

The Company provides weekly unaudited estimates of the NAVs, month-end unaudited NAVs and a monthly newsletter. These are published via RNS and are also available on the Company’s website, www.bhglobal.com. Risk reports are also available on the Company’s website.

In addition to the Company’s brokers, the Manager maintains regular dialogue with institutional shareholders, the feedback from whom is reported to the Board.

Significant ShareholdersAs at 31 December 2017, the following registered shareholders had significant shareholdings in the Company:

Ongoing charges

Ongoing charges for the year ended 31 December 2017 and 31 December 2016 have been prepared in accordance with the AIC’s recommended methodology. Note this was not the methodology used when producing the Key Information Document (“KID”).

The Ongoing Charges figures include the ongoing charges of BHMS.

BHMS investments are not subject to management fees, operational services fees or performance fees but do bear normal administrative expenses.

The following table presents the Ongoing Charges and the Company’s performance fees for each share class:

31.12.17

Further information regarding expenses is provided in the KID for each share class which is available on the Company’s website.

Signed on behalf of the Board by:

Sir Michael BunburyChairman

John HallamDirector

22 March 2018

AUDIT COMMITTEE REPORT

Dear Shareholder,

We present the Audit Committee’s Report for 2017, setting out the responsibilities of the Audit Committee and its key activities in 2017. As in previous years, the Audit Committee has reviewed the Company’s financial reporting, the independence and effectiveness of the Independent Auditor and the internal control and risk management systems of the Company’s service providers. In order to assist the Audit Committee in discharging these responsibilities, regular reports are received and reviewed from the Manager, Administrator and Independent Auditor. Following the review of the independence, objectivity and effectiveness of the Company’s Independent Auditor, the Audit Committee has recommended to the Board that KPMG Channel Islands Limited be reappointed as Independent Auditor, which the Board will submit to the Company’s Members for approval.

As noted earlier Sally-Ann Farnon has now joined the Board and will take over from me as Chairman of the Audit Committee in due course.

A member of the Audit Committee will be available at each Annual General Meeting to respond to any shareholder questions on the activities of the Audit Committee.

John Hallam

Chairman, Audit Committee

Responsibilities

The Audit Committee reviews and recommends to the Board, the Financial Statements of the Company and is the forum through which the Independent Auditor reports to the Board of Directors. The Independent Auditor and the Audit Committee are able to meet together, without representatives of either the Administrator or Manager being present, if either consider this to be necessary.

The role of the Audit Committee includes:

- monitoring the integrity of the published financial statements of the Company;

- reviewing and reporting to the Board on the significant issues and judgements made in the preparation of the Company’s published financial statements, (having regard to matters communicated by the Independent Auditor) and other financial information;

- monitoring and reviewing the quality and effectiveness of the Independent Auditor and their independence;

- considering and making recommendations to the Board on the appointment, reappointment, replacement and remuneration to the Company’s Independent Auditor;

- reviewing the Company’s procedures for prevention, detection and reporting of fraud, bribery and corruption; and

- monitoring and reviewing the internal control and risk management systems of the service providers.

The Audit Committee’s full terms of reference can be obtained by contacting the Administrator.

Key activities of the Audit Committee:

The following sections discuss the activities of the Audit Committee during the year:

Financial Reporting:

The Audit Committee’s review of the annual financial statements focused on what it believes to be the only significant issue:

The Company’s investment in BHMS had a fair value of US$430,643,187 as at 31 December 2017 and represents the majority of the net assets of the Company and as such is the biggest factor in relation to the accuracy of the Financial Statements. The valuation of the investment is determined in accordance with the accounting policy in note 3 to the Financial Statements. The Financial Statements of BHMS for the year ended 31 December 2017 were audited by KPMG Cayman Islands who issued an unqualified audit opinion dated 21 March 2018. The Audit Committee considered the Financial Statements of BHMS and its accounting policies in determining that the fair value of the investment in BHMS at 31 December 2017 is reasonable.

The Independent Auditor reported to the Committee that no material misstatements were found in the course of their work. Furthermore, the Manager and Administrator confirmed to the Committee that they were not aware of any material misstatements including matters relating to financial statement presentation. The Audit Committee confirms that it is satisfied that the Independent Auditor has fulfilled its responsibilities with diligence and professional scepticism. At the request of the Board, the Audit Committee considered whether the 2017 Annual Report and Audited Financial Statements, taken as a whole, are fair, balanced and understandable and whether they provided the necessary information for shareholders to assess the Company’s performance, business model and strategy. The Audit Committee are satisfied that the Annual Report and Audited Financial Statements, taken as a whole, are fair, balanced and understandable, and provide the necessary information for the shareholders to assess the Company’s performance.

Following a review of the presentations and reports from the Administrator and consulting where necessary with the Independent Auditor, the Audit Committee is satisfied that the financial statements appropriately address any critical judgements and key estimates (both in respect to the amounts reported and the disclosures). The Audit Committee is also satisfied that the significant assumptions used for determining the value of assets and liabilities have been appropriately scrutinised, challenged and are sufficiently robust.

Risk Management:

The Audit Committee continued to consider the process for managing the risk faced by the Company and its service providers. Risk management procedures for the Company, as detailed in the Company’s risk assessment matrix, were reviewed and approved by the Audit Committee.

Corporate Social Responsibility

The Audit Committee, in conjunction with the Management Engagement Committee, continued to monitor and review the procedures of the Company to combat fraud, bribery and corruption. Confirmation is received from all major service providers that they are not aware of any instances of fraud, bribery or corruption.

The Independent Auditor:

Independence, objectivity and fees:

The independence and objectivity of the Independent Auditor is regularly reviewed by the Audit Committee which also reviews the terms under which the Independent Auditor is appointed to perform non-audit services. The Audit Committee has established pre-approval policies and procedures for the engagement of the Independent Auditor to provide audit, assurance and tax services.

These are that the Independent Auditor may not provide a service which:

- places them in a position to audit their own work;

- creates a mutuality of interest;

- results in the Independent Auditor developing close relationships with service providers of the Company;

- results in the Independent Auditor functioning as a manager or employee of the Company; or

- puts the Independent Auditor in the role of advocate of the Company.

As a general rule, the Audit Committee does not utilise the Independent Auditor for internal audit purposes, secondment or valuation advice. Services such as tax compliance, tax restructuring, quarterly reviews and disclosure advice are normally permitted but must be pre-approved by the Audit Committee where fees are likely to be in excess of £25,000.

The Audit Committee considered reports from the Independent Auditor on their procedures to identify and mitigate any threats to independence and concluded that the procedures were sufficient to identify any threats to independence. The Audit Committee together with the Chairman and the Administrator completed a questionnaire covering areas such as quality of audit team, business understanding, audit approach and management. The results of the questionnaire indicated that the Independent Auditor performed effectively during the period.

The following table summarises the remuneration paid to KPMG Channel Islands Limited for audit and non-audit services provided to the Company during the years ended 31 December 2017 and 31 December 2016:

In line with the policies and procedures above, the Audit Committee does not consider that the provision of these non-audit services, which comprised the Auditor’s interim review, to be a threat to the objectivity and independence of the Independent Auditor. The Audit Committee has also considered the overall level of services provided by KPMG member firms to the wider Brevan Howard organisation and does not consider these to pose a threat to the Independent Auditor’s independence.

KPMG Channel Islands Limited has been the Company’s Independent Auditor from the date of the initial listing on the London Stock Exchange. The external audit was most recently tendered for the years commencing after 31 December 2015. As reported in the Annual Report for the year ended 31 December 2015, KPMG Channel Islands Limited was re-appointed as auditor following the completion of the tender process and currently it is anticipated that the audit will be tendered within the next eight years.

The Audit Committee has examined the scope and results of the external audit, its cost effectiveness and the independence and objectivity of the Independent Auditor, with particular regard to non-audit fees, and considers KPMG Channel Islands Limited, as Independent Auditor, to be independent of the Company.

Performance and Effectiveness:

During the year, when considering the effectiveness of the Independent Auditor, the Audit Committee has taken into account the following factors:-

- The audit plan presented to them;

- The audit findings report including variations from the original plan;

- Changes in audit personnel;

- The Independent Auditor’s own internal procedures to identify threats to independence; and

- Feedback from both the Manager and Administrator.

The Audit Committee reviewed the audit plan and the audit findings report of the Independent Auditor and concluded that a) the audit plan sufficiently identified audit risks; b) that the audit findings report indicated that the audit risks were sufficiently addressed; and c) there were no significant variations from the audit plan.

Reappointment:

Consequent to the review discussed above, the Audit Committee has recommended to the Board that a resolution be put to the 2018 AGM for the reappointment of KPMG Channel Islands Limited as Independent Auditor. The Board has accepted this recommendation.

Internal Control and Risk Management Systems

As the Company’s investment objective is to invest substantially all of its assets in BHMS, the Audit Committee, after consultation with the Manager and Independent Auditor, considers the key risk of material misstatement in its financial statements to be the valuation of its investment in BHMS, but are also mindful of the risk of the override of controls by its service providers, the Manager and Administrator.

The Audit Committee reviews and examines externally prepared assessments of the control environment in place at the Manager and the Administrator, with each providing a Service Organisation Report (“SOC1”) on an ongoing basis. No significant failings or weaknesses were identified in these reports by the Audit Committee.

The Audit Committee annually reviews the need for an internal audit function. The Committee is of the view that the systems, procedures and internal audit functions in operation at both the Manager and Administrator provide sufficient assurance that a sound system of internal control is being maintained. An internal audit function, specific to the Company, is therefore considered unnecessary.

The Audit Committee Report was approved by the Board on 22 March 2018 and signed on its behalf by:

John Hallam

Chairman, Audit Committee

STATEMENT OF DIRECTORS’ RESPONSIBILITY IN RESPECT OF THE ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS

The Directors are responsible for preparing the Annual Report and financial statements in accordance with applicable law and regulations. 

Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with accounting principles generally accepted in the United States of America and applicable law.

Under Company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of its profit or loss for that period. In preparing these financial statements, the Directors are required to: 

- select suitable accounting policies and then apply them consistently;

- make judgements and estimates that are reasonable, relevant and reliable;

- state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the Financial Statements;

- assess the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and

- use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies (Guernsey) Law, 2008. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities. 

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Responsibility statement of the Directors in respect of the annual financial report 

We confirm that to the best of our knowledge:

- so far as each of the Directors is aware, there is no relevant audit information of which the Company’s Independent Auditor is unaware, and each has taken all the steps they ought to have taken as a Director to make themselves aware of any relevant information and to establish that the Company’s Independent Auditor is aware of that information;

- the Financial Statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and 

- the Chairman’s Statement, Director’s report and Manager’s report includes a fair review of the development and performance of the business and the position of the issuer, together with a description of the principal risks and uncertainties that they face.

We consider the annual report and audited financial statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy. 

Signed on behalf of the Board by:

Sir Michael BunburyChairman

John HallamDirector

22 March 2018

DIRECTORS’ REMUNERATION REPORTAs at 31 December 2017

Introduction

An ordinary resolution for the approval of this Directors’ Remuneration Report will be put to the shareholders at the forthcoming Annual General Meeting to be held in 2018.

Remuneration Policy

All Directors are non-executive and a Remuneration Committee has not been established. The Board as a whole considers matters relating to the Directors’ remuneration. An external assessment of Directors’ remuneration has not been undertaken.

The Company’s policy is that the fees payable to the Directors should reflect the time spent by the Directors on the Company’s affairs and the responsibilities borne by the Directors and be sufficient to attract, retain and motivate Directors of a quality required to run the Company successfully. The Chairman of the Board is paid a higher fee in recognition of his additional responsibilities, as are the Chairmen of the Audit Committee and Management Engagement Committee. The policy is to review fee rates periodically, although such a review will not necessarily result in any changes to the rates, and account is taken of fees paid to Directors of comparable companies.

There are no long term incentive schemes provided by the Company and no performance fees are paid to Directors.

No Director has a service contract with the Company but each of the Directors is appointed by a letter of appointment which sets out the main terms of their appointment. The Directors were appointed to the Board for an initial term of three years and Section 21.3 of the Company’s Articles requires, as does the AIC Code, that all of the Directors to retire at each Annual General Meeting. At the Annual General Meeting of the Company, on 26 June 2017, Mr Morgan did not offer himself for re-election and shareholders re-elected all other Directors of the Company. Director appointments can also be terminated in accordance with the Articles. Should shareholders vote against a Director standing for re-election, the Director affected will not be entitled to any compensation. There are no set notice periods and a Director may resign by notice in writing to the Board at any time.

Directors are remunerated in the form of fees, payable quarterly in arrears.

Directors’ Fees

The Company’s Articles limit the fees payable to Directors in aggregate to £500,000 per annum.

With effect from 1 July 2017, director’s fees paid to each Director increased to £40,000, with additional fees of £3,000 payable to both the Senior Independent Director, and the Chairman of the Management Engagement Committee and an additional £10,000 payable to the Chairman of the Audit Committee.

The fees payable by the Company in respect of each of the Directors who served during the year, and during 2016, were as follows:

1 Talmai Morgan retired from the board on 26 June 2017.2 Julia Chapman was appointed to the board on 16 January 2017.3 Sally-Ann Farnon was appointed to the board on 13 March 2018. 

Signed on behalf of the Board by:

Sir Michael BunburyChairman

John HallamDirector

22 March 2018

BOARD MEMBERS

The Directors of the Company, all of whom are non-executive, are listed below:

Sir Michael Bunbury (Chairman), age 71

Sir Michael Bunbury is Chairman and non-executive Director of the Company. He is an experienced Director of listed and private investment, property and financial services companies. He is currently the Chairman of HarbourVest Global Private Equity Limited, a Director of Invesco Perpetual Select Trust plc, former chairman of JP Morgan Claverhouse Investment Trust plc, and a former Director of Foreign & Colonial Investment Trust plc. Sir Michael began his career in 1968 at Buckmaster & Moore, before joining Smith & Williamson, Investment Managers and Chartered Accountants, in 1974 as a Partner. He later served as Director and chairman and retired as a consultant to the firm in 2017. Sir Michael was appointed to the Board in 2013.

John Hallam, (Senior Independent Director), age 68

John Hallam is resident in Guernsey, is a Fellow of the Institute of Chartered Accountants in England and Wales and qualified as an accountant in 1971. He is a former partner of PricewaterhouseCoopers having retired in 1999 after 27 years with the firm both in Guernsey and in other countries. He is Chairman of NB Distressed Debt Investment Fund Limited as well as being a Director of a number of financial services companies, some of which are listed on the London Stock Exchange. He served for many years as a member of the Guernsey Financial Services Commission (Guernsey’s financial regulatory agency) from which he retired in 2006 having been its Chairman for the previous three years. Mr Hallam was appointed to the Board in 2008.

Julia Chapman, age 52

Julia Chapman is a solicitor qualified in England & Wales and in Jersey with over 25 years’ experience in the investment fund and capital markets sector. After working at Simmons & Simmons in London, she moved to Jersey and became a partner of Mourant du Feu & Jeune (now Mourant Ozannes) in 1999. She was then appointed general counsel to Mourant International Finance Administration (the firm’s fund administration division). Following its acquisition by State Street in April 2010, Mrs Chapman was appointed European Senior Counsel for State Street’s alternative investment business. In July 2012, Mrs Chapman left State Street to focus on the independent provision of directorship and governance services to a small number of investment fund vehicles (including GCP Infrastructure Investments Limited and Henderson Far East Income Limited). Mrs Chapman was appointed to the Board on 16 January 2017.

Graham Harrison, age 52

Graham Harrison is a Guernsey resident and a Chartered Fellow of the Chartered Institute for Securities and Investment. Mr Harrison is co-founder and Group Managing Director of Asset Risk Consultants (“ARC”). After obtaining a post graduate degree from the London School of Economics, Mr Harrison worked for HSBC in its corporate finance division where he specialised in financial engineering. Following a secondment with the Caribbean Development Bank he moved to Guernsey to work for the Bachmann Group with a brief to develop asset management and investment consultancy services. In 2002 he led the management buy-out of ARC, taking the company independent. Mr Harrison is a Director of a number of investment vehicles two of which are listed. Mr Harrison was appointed to the Board in 2010.

Nicholas Moss, age 58

Nicholas Moss is a Guernsey resident and a Fellow of the Institute of Chartered Accountants in England & Wales. After leaving N M Rothschild in 2005 where he was a managing director in their international private wealth division he co- founded the Virtus Trust Group, an international fiduciary and investment services business headquartered in Guernsey with operations in several countries including the US, UK, New Zealand and the Cayman Islands. In 2017 he led the sale of Virtus to Equiom group, a well-established, international professional services provider offering a range of innovative and effective business solutions. Mr Moss is a highly experienced ?duciary and investment practitioner, advising family of?ces and private clients in many jurisdictions. He regularly assists clients in the establishment and ongoing monitoring of complex multi-manager client investment portfolios as well as advising on other assets such as real estate, art collections and other collectables. He holds a number of non-executive Board appointments including the London premium segment listed Carador Income Fund PLC as well as FTSE 250 listed Syncona Limited and several real estate, specialist asset and investment funds. Mr Moss was appointed to the Board in 2008.

Sally-Ann Farnon, age 57

Sally-Ann (“Susie”) Farnon is a Guernsey resident and is a fellow of the Institute of Chartered Accountants in England and Wales, having qualified as an accountant in 1983. Mrs Farnon is a non-executive Director of a number of property and investment companies. Mrs Farnon was a Banking and Finance Partner with KPMG Channel Islands from 1990 until 2001 and head of Audit KPMG Channel Islands from 1999. She has served as President of the Guernsey Society of Chartered and Certified Accountants and as a member of The States of Guernsey Audit Commission and Vice-Chairman of the GFSC. Mrs Farnon was appointed to the Board in 2018.

The following summarises the Directors’ directorships in other public companies:

Certain Directors hold additional directorships in companies that are listed on various exchanges but are not actively traded. Details of these may be obtained from the Company Secretary.

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BH GLOBAL LIMITED

Our opinion is unmodified

We have audited the financial statements of BH Global Limited (the “Company”), which comprise the Audited Statement of Assets and Liabilities as at 31 December 2017, the Audited Statements of Operations, Changes in Net Assets and Cash Flows for the year then ended, and notes, comprising significant accounting policies and other explanatory information.

In our opinion, the accompanying financial statements:

- give a true and fair view of the financial position of the Company as at 31 December 2017, and of the Company’s financial performance and the Company’s cash flows for the year then ended;

- are prepared in conformity with United States Generally Accepted Accounting Principles; and

- comply with the Companies (Guernsey) Law, 2008.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities are described below. We have fulfilled our ethical responsibilities under, and are independent of the Company in accordance with, UK ethical requirements including FRC Ethical Standards as applied to listed entities. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion.

Key Audit Matters: our assessment of the risks of material misstatement

Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In arriving at our audit opinion above, the key audit matter was as follows (unchanged from 2016):

Our application of materiality and an overview of the scope of our audit

Materiality for the financial statements as a whole was set at $13,268,000, determined with reference to a benchmark of Net Assets of $442,291,000, of which it represents approximately 3% (2016: 3%).

We reported to the Audit Committee any corrected or uncorrected identified misstatements exceeding $663,000, in addition to other identified misstatements that warranted reporting on qualitative grounds.

Our audit of the Company was undertaken to the materiality level specified above, which has informed our identification of significant risks of material misstatement and the associated audit procedures performed in those areas as detailed above.

We have nothing to report on going concern

We are required to report to you if we have anything material to add or draw attention to in relation to the directors’ statement in note 3 to the financial statements on the use of the going concern basis of accounting with no material uncertainties that may cast significant doubt over the Company’s use of that basis for a period of at least twelve months from the date of approval of the financial statements. We have nothing to report in this respect. 

We have nothing to report on the other information in the Annual Report

The directors are responsible for the other information presented in the Annual Report together with the financial statements. Our opinion on the financial statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work we have not identified material misstatements in the other information.

Disclosures of principal risks and longer-term viability

Based on the knowledge we acquired during our financial statements audit, we have nothing material to add or draw attention to in relation to:

• the directors’ confirmation within the Viability Statement that they have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity;

• the Principal Risks disclosures describing these risks and explaining how they are being managed or mitigated;

• the directors’ explanation in the Viability Statement as to how they have assessed the prospects of the Company, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions;

Corporate governance disclosures

We are required to report to you if:

• we have identified material inconsistencies between the knowledge we acquired during our financial statements audit and the directors’ statement that they consider that the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy; or 

• the section of the annual report describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee.

We are required to report to you if the Corporate Governance Statement does not properly disclose a departure from the eleven provisions of the 2016 UK Corporate Governance Code specified by the Listing Rules for our review. 

We have nothing to report to you in these respects.

We have nothing to report on other matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies (Guernsey) Law, 2008 requires us to report to you if, in our opinion:

• the Company has not kept proper accounting records; or

• the financial statements are not in agreement with the accounting records; or

• we have not received all the information and explanations, which to the best of our knowledge and belief are necessary for the purpose of our audit.

Respective responsibilities

Directors’ responsibilities 

As explained more fully in their statement set out on the Statement of Directors’ Responsibility, the Directors are responsible for: the preparation of the financial statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. 

Auditor’s responsibilities 

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. 

A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities. 

The purpose of this report and restrictions on its use by persons other than the Company’s members as a body

This report is made solely to the Company’s members, as a body, in accordance with section 262 of the Companies (Guernsey) Law, 2008. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.Barry T. RyanFor and on behalf of KPMG Channel Islands LimitedChartered Accountants and Recognised AuditorsGlategny CourtGlategny EsplanadeSt Peter PortGuernseyGY1 1WR 

22 March 2018

AUDITED STATEMENT OF ASSETS AND LIABILITIESAs at 31 December 2017

See accompanying notes to the Financial Statements.

Signed on behalf of the Board by:

Sir Michael BunburyChairman

John HallamDirector22 March 2018

AUDITED STATEMENT OF OPERATIONSFor the year ended 31 December 2017

See accompanying notes to the Financial Statements.

AUDITED STATEMENT OF CHANGES IN NET ASSETSFor the year ended 31 December 2017

See accompanying notes to the Financial Statements.

AUDITED STATEMENT OF CASH FLOWSFor the year ended 31 December 2017

See accompanying notes to the Financial Statements.

NOTES TO THE AUDITED FINANCIAL STATEMENTSFor the year ended 31 December 2017

1. The Company

BH Global Limited (the “Company”) is a limited liability closed-ended investment company incorporated in Guernsey on 25 February 2008 for an unlimited period, with registration number 48555.

The Company has a Premium Listing on the London Stock Exchange and until 30 September 2017 and 31 December 2017, had Secondary Listings on the Bermuda Stock Exchange and on NASDAQ Dubai respectively.

The Company can offer multiple classes of ordinary shares, which differ in terms of currency of issue with ordinary shares denominated in US Dollar and Sterling currently being in issue.

2. Organisation

The Company’s investment objective is to seek to generate consistent long-term capital appreciation through an investment policy of investing all of its assets (net of funds required for its short-term working capital requirements) in Brevan Howard Multi-Strategy Master Fund Limited (“BHMS” or the “Master Fund”).

The Company is organised as a feeder fund and invests substantially all of its investable assets in the ordinary US Dollar and Sterling denominated Class G shares issued by BHMS, and, as such, the Company is directly and materially affected by the performance and actions of BHMS.

As such the Financial Statements of the Company should be read in conjunction with the Annual Audited Financial Statements of BHMS, which can be found on the Company’s website, www.bhglobal.com.

BHMS is an open-ended investment company incorporated with limited liability in the Cayman Islands on 21 January 2008.

BHMS’s underlying investments in funds at 31 December 2017 and the percentage that BHMS’s investment represented of the underlying fund’s Net Asset Value (“NAV”) are as follows:

*Investment is made through the DIP.

BHMS has flexibility to invest in a wide range of instruments including, but not limited to, debt securities and obligations (which may be below investment grade), bank loans, listed and unlisted equities, other collective investment schemes or vehicles (which may be open-ended or closed-ended, listed or unlisted, regulated or unregulated and may employ leverage (each an “Investment Fund”)), currencies, commodities, futures, options, warrants, swaps and other derivative instruments. Derivative instruments may be exchange traded or OTC. BHMS may engage in short sales. BHMS may retain amounts in cash or cash equivalents (including money market funds) pending reinvestment, for use as collateral or if this is considered appropriate to the investment objective.

Subject to the investment restrictions and investment approach disclosed in any prospectus for BHMS that may be published from time to time and subsequent BHMS Directors’ resolutions, BHMS employs an investment process which empowers the Manager to allocate assets to both Investment Funds and directly to the investment managers of BHMS from time to time on an opportunistic basis.

At the date of these Financial Statements, there were two other feeder funds in operation in addition to the Company that invest all of their assets (net of working capital) in BHMS.

Off-balance sheet, market and credit risks of BHMS’s investments and activities are discussed in the notes to the Annual Audited Financial Statements of BHMS. The Company’s investment in BHMS exposes it to various types of risk, which are associated with the financial instruments and markets in which the Brevan Howard funds invest. Market risk represents the potential loss in value of financial instruments caused by movements in market factors including, but not limited to, market liquidity, investor sentiment and foreign exchange rates.

The Manager

Brevan Howard Capital Management LP (the “Manager”) is the manager of the Company. The Manager is a Jersey limited partnership, the sole general partner of which is Brevan Howard Capital Management Limited, a Jersey limited company (the “General Partner”). The General Partner is regulated in the conduct of fund services business by the Jersey Financial Services Commission pursuant to the Financial Services (Jersey) Law, 1998 and the Orders made thereunder and is the Alternative Investment Fund Manager (“AIFM”) of the Company for the purposes of the European Union Alternative Investment Fund Manager Directive (“AIFMD”).

The Manager also manages BHMS.

3. Significant Accounting Policies

The Annual Audited Financial Statements, which give a true and fair view, are prepared in conformity with United States Generally Accepted Accounting Principles and comply with the Companies (Guernsey) Law, 2008. The functional and reporting currency of the Company is US Dollars.

The Company is an Investment Entity which has applied the provisions of Accounting Standards Codification (“ASC”) 946.

Going concern

After making enquiries and given the nature of the Company and its investment, the Directors are satisfied that it is appropriate to continue to adopt the going concern basis in preparing these Financial Statements and, after due consideration, the Directors consider that the Company is able to continue for the foreseeable future and at least twelve months from the date of this report. In reaching this conclusion the Board is mindful of the nature of the assets that underlie its investment in BHMS, including BHMS’s liquidity and has concluded that moderate adverse investment performance will not have a material impact on the Company’s ability to meet its liabilities as they fall due.

The following are significant accounting policies adopted by the Company:

Valuation of investments

The Company records its investment in the Class G shares of BHMS as the Company’s proportionate share of BHMS’s net assets which approximates fair value. At 31 December 2017, the Company’s US Dollar and Sterling capital account represents 5.06% and 46.05% respectively of BHMS’s capital. The net asset value of BHMS is used as a measure of fair value as this is the price at which the Company may redeem its investment.

Fair value measurement

ASC Topic 820 defines fair value as the price that the Company would receive upon selling a security in an orderly transaction to an independent buyer in the principal or most advantageous market of the security.

ASC 820 establishes a three-level hierarchy to maximise the use of observable market data and minimise the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, for example, the risk inherent in a particular valuation technique used to measure fair value including such a pricing model and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable.

Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity.

Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

Level 1 – Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 securities. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of judgement.

Level 2 – Valuations based on quoted prices in markets that are not active and for which all significant inputs are observable, either directly or indirectly.

Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

Inputs are used in applying the various valuation techniques and broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. Inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics, and other factors.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgement by the Company’s Directors (the “Board”). After consultation with the Administrator and Manager, the Board considers observable data to be that market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.

The categorisation of a financial instrument within the hierarchy is based upon the pricing transparency of the instrument and does not necessarily correspond to the Board’s perceived risk of that instrument.

Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Board’s own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date.

The Board uses prices and inputs that are current as of the measurement date, including periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many securities. This condition could cause a security to be reclassified to a lower level within the fair value hierarchy.

The valuation and classification of securities held by BHMS is discussed in the notes to its Financial Statements which are available on the Company’s website, www.bhglobal.com. The Company’s investment in BHMS is classified as a Level 2 investment.

Income and expenses

The Company records monthly its proportionate share of BHMS’s income, expenses and realised and unrealised gains and losses. In addition, the Company accrues its own income and expenses.

Use of estimates

The preparation of Financial Statements in conformity with United States Generally Accepted Accounting Principles requires the Board to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of those Financial Statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.

Foreign exchange

Investment securities and other assets and liabilities of the Sterling share class are translated into US Dollars, the Company’s reporting currency, using exchange rates at the reporting date. Transactions reported in the Audited Statement of Operations are translated into US Dollar amounts at the date of such transactions. The share capital and other capital reserve accounts are translated at the historic rate ruling at the date of the transaction. Exchange differences arising on translation are included in the Audited Statement of Operations. This foreign exchange adjustment has no effect on the value of net assets allocated to the individual share classes.

Cash and bank balances

Cash and bank balances comprise cash on hand and demand deposits.

Treasury shares

Where the Company purchases its own share capital, the consideration paid, which includes any directly attributable costs, is recognised as a deduction from equity Shareholders’ funds through the Share capital account. When such shares are subsequently sold or reissued to the market, any consideration received, net of any directly attributable incremental transaction costs, is recognised as an increase in equity Shareholders’ funds through the Share capital account. Where the Company cancels treasury shares, no further adjustment is required to the share capital account of the Company at the time of cancellation. Shares held in Treasury are excluded from calculations when determining NAV per share as detailed in note 7 and in the Financial Highlights in note 10.

Allocation of results of BHMS

Net realised and unrealised gains/losses of BHMS are allocated to the Company’s share classes based upon the percentage ownership of the equivalent BHMS class.

Loan notes payable

Loans are classified in the Audited Statement of Assets and Liabilities as Loan notes payable and are accounted for at amortised cost using the effective interest method.

Under a Note Purchase Agreement (note 9), the Company is obliged to pay back the total outstanding amount and any relevant fees and expenses, reimbursements and indemnities by the stated maturity date, unless the Note is previously terminated. Interest shall accrue daily on each Note at the applicable rate. The Company’s obligations under the Agreement are secured by charges over a portion of its shares in BHMS. The purpose of the Note Purchase Agreement is to permit the Company to draw funds to finance the acquisition of the Company’s own shares and for other working capital purposes.

4. Management, Performance, and Administration Agreements

Management fee

The Company has entered into a management agreement with the Manager to manage the Company’s investment portfolio.

In the period from 1 January 2016 to 2 October 2016, in line with the management agreement, the Manager received a management fee of 1/12 of 2% (or a pro rata proportion thereof) per month of the NAV of each share class (before deduction of that month’s management fee and before making any deduction for any accrued performance fee) calculated as at the last business day in each month and payable monthly in arrears.

With effect from 3 October 2016, the Manager does not charge the Company a management fee in respect of any increase in the NAV of each class of shares of the Company. The Management Fee is calculated on the basis of the lower of the NAV of the relevant share class and the Base NAV, as defined in the Amended and Restated Management Agreement dated 4 July 2017, of that share class (adjusted for certain changes in shares in issue).

With effect from 1 April 2017 the management fee was reduced from 2% to 1% per annum.

The Company may repurchase or redeem shares of either class in each calendar year, including pursuant to the class closure and annual partial capital return provisions contained in the Company’s articles of incorporation (the “Articles”), in respect of the 2018 calendar year and all subsequent years, up to an aggregate number equal to 5% of the shares of that class in issue as at 31 December in the prior calendar year (the “Annual Buy Back Allowance”) without making any payment to the Manager.

In the event that, in any calendar year, the aggregate number of shares repurchased or redeemed by the Company exceeds the Annual Buy Back Allowance for that class, the Company will be required to pay the Manager an amount equal to 2% of the repurchase price of any share that is repurchased or redeemed by the Company in excess of the Annual Buy Back Allowance, including pursuant to the class closure and annual partial capital return provisions contained in the Articles.

The Board has agreed with the Manager that if, on the last business day in March, June, September or December of any year, the net asset value of the Company were to be below US$300 million (on the basis of the prevailing US Dollar/Sterling exchange rate), the Board would convene a general meeting of the Company’s shareholders at which a special resolution proposing the liquidation of the Company would be put forward. Were the resolution to be passed, the Company would be liquidated and an amount equal to 2% of the Company’s net asset value (subject to a deduction in respect of any amount of the Annual Buy Back Allowance for the relevant calendar year that remains unused) would be paid to the Manager in addition to any other fees due to the Manager up to the date of termination of the management agreement.

In respect of the period from 1 April 2017 to 31 December 2017, (having taken into account shares that had been repurchased by the Company between 1 January 2017 and 31 March 2017), the Annual Buy Back Allowance for the Company’s Sterling share class was 806,164 Sterling shares and for the US Dollar share class was 152,630 US Dollar shares.

Between 1 April 2017 and 31 December 2017, the Company repurchased 2,435,052 Sterling shares and 318,988 US Dollar shares, thereby exceeding both the Sterling and US Dollar Annual Buy Back Allowance.

During the year ended 31 December 2017, US$603,629 was charged by the Manager due to the Annual Buy Back Allowance being exceeded, of which US$nil remained payable at year end. The expense has been included in Management fees in the Audited Statement of Operations.

There are no fees charged by the Manager at the level of BHMS or any of its underlying funds.

In respect of the year ended 31 December 2017, the Manager charged the Company a total of US$6,196,942 (31 December 2016: US$9,746,589) under the terms of the management agreement. At 31 December 2017, US$376,556 (31 December 2016: US$733,634) of the fee remained outstanding.

Performance fee

The Manager is entitled to an annual performance fee for each share class accrued monthly in arrears. The performance fee is equal to 20% of the appreciation in the NAV per share (adjusted for any increases or decreases in NAV arising from issues (including the sale or re-issue of Shares held in treasury), repurchases or redemptions of Shares and calculated before deduction of the performance fee in respect of the relevant period) which is above the performance fee Base NAV per share of that class multiplied by the number of shares of such class at the end of the relevant period.

The performance fee Base NAV per share is the greater of (a) the NAV per share of the relevant class as at 31 December 2016 and (b) the highest NAV per share of the relevant class of shares achieved as at the final BHMS NAV calculation date as at the end of any calculation period after the calculation period ending on 31 December 2016.

The Manager is not entitled to any performance fee in respect of any increase in NAV (whether in respect of a class of shares as a whole or on a per share basis) arising to the remaining shares of the relevant class from any repurchase, redemption or cancellation of any share, provided that any performance fee due to the Manager shall not be reduced below zero.

Any accrued performance fee in respect of shares which are converted into another share class prior to the date on which the performance fee would otherwise have become payable in respect of those Shares will crystallise and become payable on the date of such conversion. The performance fee is accrued on an on-going basis and is reflected in the Company’s published NAV.

On the business day preceding the last business day of each period in respect of which a performance fee is payable, the Company shall pay an estimated performance fee to the Manager in respect of that period. The estimated fee shall be the performance fee payable to the Manager in respect of that period as estimated by the Company’s administrator on the basis of the estimated NAV of each class of Shares as at the close of business on the second Friday of December in each year. The difference between the estimated fee paid in respect of any period and the actual performance fee payable in respect of that period shall be paid to the Manager within 5 business days of the publication of the final NAV of each class of Shares as at the end of the period, provided that if the difference is a negative amount then it shall be repaid by the Manager to the Company at such time.

During the year ended 31 December 2017, US$807,374 (31 December 2016: US$3,937,849) was charged as performance fees of which, US$830,823 (31 December 2016: US$3,607,909) remained payable at year end. The total performance fee charged during the year includes fees crystallised upon conversion and upon buyback of shares at points when the NAV per share of the shares exceeded their performance fee Base NAV per share (being £14.33 (Sterling shares) and US$14.19 (US dollar shares)).

Of the total crystallised performance fee charged for the year, US$30,550 (31 December 2016: US$1,440) related to share conversions and US$134,584 (31 December 2016: US$nil) related to the buyback of shares.

In establishing the parameters for the execution of buybacks, account is taken of the impact of any performance fees that would become payable so as to ensure that such buy backs are still accretive to net asset value.

The Management Agreement can be terminated by either the Company or the Manager on the giving of 12 months’ written notice to the other party, or alternatively the Company may terminate the Management Agreement on 90 days’ notice by payment to the Manager of an amount equal to the aggregate of the Management Fee during such twelve month period. The Company may terminate the management agreement forthwith by notice in the event of specified acts of default by the Manager without payment of compensation.

Were the Management Agreement to be terminated by the Company, the management fee would revert to 2% of the prevailing net asset value in respect of the notice period, or in respect of any payment in lieu of notice.

Administration fee

The Company has appointed Northern Trust International Fund Administration Services (Guernsey) Limited as Administrator and Corporate Secretary. The Administrator is paid fees based on the NAV of the Company, payable monthly in arrears. The fee is at a rate of 0.03% of the first US$1 billion of net assets of the Company and then 0.01% per annum thereafter, subject to a minimum fee of £115,000 per annum. In addition to the NAV based fee the Administrator is also entitled to an annual fee of £21,000 (2016: £36,000) for certain additional administration services. The Administrator is entitled to be reimbursed out-of-pocket expenses incurred in the course of carrying out its duties as Administrator.

During the year ended 31 December 2017, US$178,329 (31 December 2016: US$196,286) was earned by the Administrator as administration fees. At 31 December 2017, US$40,784 (31 December 2016: US$30,165) of the fee remained outstanding.

5. Share Capital

Issued and authorised share capital

The Company's Articles permit the issuance of an unlimited number of ordinary shares with no par value which may be divided into at least two classes denominated in US Dollars and Sterling. The treasury shares have arisen as a result of the discount management programme as described in note 8.

In respect of each class of shares a separate class account has been established in the books of the Company. An amount equal to the aggregate proceeds of issue of each share class has been credited to the relevant class account. Any increase or decrease in the NAVs of each of the share classes in the Master Fund as calculated by BHMS are allocated to the relevant class account in the Company. Each class account is allocated those costs, pre-paid expenses, losses, dividends, profits, gains and income which the Directors determine in their sole discretion relate to a particular class.

Voting rights

Ordinary shares carry the right to vote at general meetings of the Company and to receive any dividends, attributable to the ordinary shares as a class, declared by the Company and, in a winding-up will be entitled to receive, by way of capital, any surplus assets of the Company attributable to the ordinary shares as a class in proportion to their holdings remaining after settlement of any outstanding liabilities of the Company.

As prescribed in the Company’s Articles, the different classes of ordinary shares have different values attributable to their votes. The attributed values have been calculated on the basis of the Weighted Voting Calculation (as described in the Articles) which takes into account the prevailing exchange rates on the date of initial issue of ordinary shares. Currently, on a vote, a single US Dollar ordinary share has one vote and a single Sterling ordinary share has 1.97950 votes.

Treasury shares do not have any voting rights.

Repurchase of ordinary shares

The Directors have been granted authority to purchase in the market up to 542,305 US Dollar shares, and 3,323,063 Sterling shares respectively and they intend to seek annual renewal of this authority from shareholders which was last granted on 26 June 2017. The Directors may, at their discretion, utilise this share repurchase authority to address any imbalance between the supply of and demand for shares.

Under the Company’s Articles, the Directors are required to convene a shareholders’ meeting to consider the redemption of a class of shares in certain circumstances. See note 8 for further details.

Further issue of shares

As approved by the shareholders at the Annual General Meeting held on 26 June 2017 (the “AGM”), the Directors have the power to issue further shares on a non pre-emptive basis for cash in respect of 361,778 US Dollar shares, and 2,216,853 Sterling shares respectively.

This power expires on the date falling fifteen months after the date of the AGM or the conclusion of the next Annual General Meeting of the Company, whichever is the earlier.

Distributions

BHMS has not previously paid dividends to its investors. Therefore, the Directors of the Company do not expect to declare any dividends. This does not prevent the Directors of the Company from declaring a dividend at any time in the future if the Directors consider payment of a dividend to be appropriate in the circumstances. If the Directors declare a dividend, such dividend will be paid on a per class basis.

The Company operates in such a manner that its shares are not categorised as non-mainstream pooled investments. This may mean that the Company pays dividends in respect of any income that it receives or is deemed to receive for UK tax purposes so that it would qualify as an investment trust if it were UK tax-resident.

However, the Company will first apply any such income in payment of its management and performance fees.

Treasury shares are not entitled to distributions.

Annual redemption offer

Each calendar year the Directors may, in their absolute discretion, determine that the Company should make an offer to redeem such number of shares of the Company in issue as they may determine provided that the maximum amount distributed does not exceed 100% of the increase in the NAV of the Company in the prior calendar year.

The Directors shall, in their absolute discretion, determine the particular class or classes of shares in respect of which an Annual Redemption Offer will be made, the timetable for that Annual Redemption Offer and the price at which the shares of each relevant class will be redeemed.

Whether a return of capital is made in any particular year and, if so, the amount of the return, may depend, among other things, on prevailing market conditions, the ability of the Company to liquidate its investments to fund the capital return, the success of prior capital returns and applicable legal, regulatory and tax considerations.

Share conversion scheme

The Company has implemented a Share Conversion Scheme which provides shareholders with the ability to convert some or all of their ordinary shares in the Company of one class into ordinary shares of the other class on the last business day of every month. Each conversion will be based on the NAV (note 7) of the share classes to be converted.

6. Taxation

Overview

The Company is exempt from taxation in Guernsey under the Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989. Accordingly, no provision for Guernsey income taxes is included in these Financial Statements.

Uncertain tax positions

The Company recognises the tax benefits of uncertain tax positions only where the position is more-likely-than-not (i.e. greater than 50-percent) to be sustained assuming examination by a tax authority based on the technical merits of the position. In evaluating whether a tax position has met the recognition threshold, the Company must presume that the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognise in the Company’s Financial Statements. Income tax and related interest and penalties would be recognised by the Company as a tax expense in the Statement of Operations if the tax positions were deemed to not meet the more-likely-than-not threshold.

The Company analyses all open tax years for all major tax jurisdictions. Open tax years are those that are open for examination by taxing authorities, as defined by the Statute of Limitations in each jurisdiction.

The Company identifies its major tax jurisdictions as the Cayman Islands and foreign jurisdictions where the Company makes significant investments. The Company has no examinations by tax authorities in progress.

The Board received advice in respect of the Company’s tax positions, and is advised that no liability for unrecognised tax benefits should be recorded related to uncertain tax positions. Further, the Board is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognised tax benefits will significantly change in the next twelve months.

7. Publication and Calculation of Net Asset Value

The NAV of the Company is equal to the value of its total assets less its total liabilities. The NAV per share of each class will be calculated by dividing the NAV of the relevant share class by the number of shares of the relevant class in issue on that day.

The Company publishes the NAV per share for each class of shares as calculated by the Administrator based in part on information provided by BHMS, monthly in arrears, as at each month end.

The Company also publishes an estimate of the NAV per share for each class of shares as calculated by the Administrator based in part on information provided by BHMS, weekly in arrears.

8. Discount Management Programme

The Company’s discount management programme includes the ability to make market purchases of shares and the obligation to propose class closure resolutions if, in any fixed discount management period (1 January to 31 December each year), the average daily closing market price of the relevant class of shares during such period is 10% or more below the average NAV per share of the relevant class taken over the 12 monthly NAV Determination Dates (generally the last business day of each month) in that fixed discount management period, as described more fully in the Company’s principal documents, which are available from the Administrator on request.

In the event a class closure resolution is passed, Shareholders in a class have the following options available to them:

a) to redeem all or some of their shares at NAV per share less the costs and expenses of the Class Closure vote and other outstanding costs and expenses of the Company, attributable to the relevant class (including any redemption fees); or

b) subject to certain limitations, to convert all or some of their shares into shares of another class; or

c) subject to the class continuing and remaining viable, to remain in the class.

The Annual Redemption Offer described in note 5 which enables a partial return of capital is also part of the discount management programme.

The discount management measures are and will be funded by partial redemptions of the Company’s investment in BHMS.

During the year to 31 December 2017, the Company recorded an average discount to NAV of 9.20% and 9.60% for US Dollar shares and Sterling shares respectively (year to 31 December 2016: 8.30% and 8.88 % for US Dollar shares, and Sterling shares respectively).

9. Note Purchase Agreement

The Company is party to a Note Purchase Agreement with JP Morgan Chase Bank, pursuant to which the Company may obtain financing of up to US$5 million and £15 million, if required, to finance (inter alia) share buybacks pending receipt of the proceeds of redemption from its underlying investments. As at 31 December 2017 and 2016, there were no amounts outstanding under the Note Purchase Agreement, neither was any interest payable. As disclosed in note 12, on 18 February 2018 the sterling financing available under the Note Purchase Agreement was increased from £15 million to £30 million.

10. Financial Highlights

The following tables include selected data for a single ordinary share of each of the ordinary share classes in issue at the year end and other performance information derived from the Financial Statements.

The per share amounts and ratios which are shown reflect the income and expenses of the Company for each class of ordinary share.

Total return reflects the net return for an investment made at the beginning of the year and is calculated as the change in the NAV per ordinary share during the year ended 31 December 2017. An individual shareholder’s return may vary from these returns based on their timing of purchases and sales of Shares.

Total return reflects the net return for an investment made at the beginning of the year and is calculated as the change in the NAV per ordinary share during the year ended 31 December 2016. An individual shareholder’s return may vary from these returns based on the timing of their purchases and sales of Shares.

1 The net investment gain figure shown above does not include net realised and unrealised gains and losses on investments allocated from BHMS.

2 Included in other capital items are the discounts and premiums on conversions between share classes during the year, share buybacks and partial capital returns, as compared to the NAV per share at the beginning of the year.

3 Company expenses are as disclosed in the Audited Statement of Operations, excluding performance fees and foreign exchange gains and losses on aggregation.

4 Master Fund expenses are the allocated operating expenses of BHMS.

11. Related Party Transactions

Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over that party in making financial or operational decisions.

The payments to and receipts from the Master Fund are disclosed in the cash flow statement.

Management and performance fees are disclosed in note 4.

Directors’ fees are disclosed in the Directors’ Remuneration Report.

Directors’ interests are disclosed in the Corporate Governance Statement.

12. Subsequent Events

Management has evaluated subsequent events up to 22 March 2018, which is the date that the Financial Statements were available to be issued.

On 18 February 2018 the sterling financing available under the Note Purchase Agreement with JP Morgan Chase Bank was increased from £15 million to £30 million.

Subsequent to the year end and up to the date of this report, the Company purchased the following shares of the Company to be held as treasury shares:

In addition to the buyback of the above shares, 490,000 Sterling Treasury shares were also cancelled.

Following the purchase and cancellation of shares, the Company has 2,957,806 US Dollar, and 19,908,697 Sterling ordinary shares in issue.

On 13 March 2018, Sally-Ann Farnon was appointed as a Director of the Company subject to completion of all statutory and regulatory requirements.

No other subsequent events have occurred.

HISTORICAL PERFORMANCE SUMMARY

As at 31 December 2017

AFFIRMATION OF THE COMMODITY POOL OPERATOR31 December 2017

To the best of my knowledge and belief, the information detailed in this Annual Report and these Audited Financial Statements is accurate and complete:

Name: Jonathan Wrigley

Title: Group Head of Finance and Authorised Signatory

Brevan Howard Capital Management Limited as general partner of Brevan Howard Capital Management LP, the manager and commodity pool operator of BH Global Limited

22 March 2018

MANAGEMENT AND ADMINISTRATION

DirectorsSir Michael Bunbury (Chairman)(appointed 1 January 2013)John Hallam (Senior Independent Director)(appointed 28 February 2008)Julia Chapman(appointed on 16 January 2017)Graham Harrison(appointed 17 March 2010)Talmai Morgan(retired 26 June 2017)Nicholas Moss(appointed 28 February 2008)Sally-Ann Farnon(appointed 13 March 2018) 

(All Directors are non-executive and are independent for the purpose of LR15.2.12-A)Registered OfficePO Box 255Trafalgar CourtLes BanquesSt Peter PortGuernseyGY1 3QLManagerBrevan Howard Capital Management LP6th Floor37 EsplanadeSt HelierJerseyJE2 3QAAdministrator and Corporate SecretaryNorthern Trust International FundAdministration Services (Guernsey) LimitedPO Box 255Trafalgar CourtLes BanquesSt Peter PortGuernseyGY1 3QLFor the latest informationwww.bhglobal.comIndependent AuditorKPMG Channel Islands LimitedGlategny CourtGlategny EsplanadeSt Peter PortGuernseyGY1 1 WRRegistrar and CREST Service ProviderComputershare Investor Services1st FloorTudor HouseLe BordageGuernseyGY1 1DBLegal Advisors (Guernsey Law)Carey OlsenCarey HouseLes BanquesSt. Peter PortGuernseyGY1 4BZLegal Advisors (UK Law)Hogan Lovells International LLPAtlantic HouseHolborn ViaductLondon EC1A 2FGCorporate BrokersJPMorgan Cazenove25 Bank StreetCanary WharfLondonE14 5JPCanaccord Genuity Limited88 Wood StreetLondonEC2V 7QR