Fair Oaks Inc21 Regulatory News (FAIR)

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, TO US PERSONS OR INTO ANY MEMBER STATE OF THE EUROPEAN ECONOMIC AREA (OTHER THAN THE UNITED KINGDOM), THE UNITED STATES, CANADA, AUSTRALIA, THE REPUBLIC OF SOUTH AFRICA OR JAPAN OR ANY OTHER JURISDICTION IN WHICH THE SAME WOULD BE UNLWAFUL.

9 March 2017

Fair Oaks Income Fund Limited (the "Company")

(Incorporated in Guernsey under The Companies (Guernsey) Law, 2008, as amended, with registered number 58123 and registered as a Registered Closed-ended Collective Investment Scheme with the Guernsey Financial Services Commission)

Publication of a Prospectus and Circular

On 10 January 2017, the Company announced that it intended to implement proposals which included Shareholders being offered an option (but not an obligation) to extend the duration of their investment and also a further equity raise.

Further to that announcement, the Board is pleased to announce the publication today of a prospectus (the "Prospectus") and circular (the "Circular") in relation to the Reorganisation Proposal, Share Issue Proposal and Name Change Proposal. Capitalised terms used herein shall, unless otherwise defined, bear the same meaning as in the Circular.

Further details in relation to these and other proposals can be found in the Prospectus and the Circular, which are available on the Company's website at http://www.fairoaksincomefund.

Prospectus

The Prospectus has been approved by the UK Listing Authority and will shortly be made available for inspection at The National Storage Mechanism at www.morningstar.co.uk/uk/NSM.

In relation to the proposals, Professor Claudio Albanese, Chairman, commented:

"Fair Oaks Income has benefited of an independent, nimble and resourceful Investment Adviser able to source attractive new investments and to take advantage of the dislocation in the CLO debt market in early 2016. The target fixed life of the fund, the back-ended fee structure and the focus on performance versus AUM based fees, have ensured a strong alignment of interest with shareholders. The Board was pleased to see that, because of these reasons, the fund traded, on average, at a premium to NAV since inception.

Shareholders are now offered, amongst other things, the option to reinvest future principal receipts from the Master Fund into a new fund, Master Fund II (FOMC II LP). The new fund is characterised by a fixed investment period and fixed life.

The investment opportunity leverages on Fair Oaks' in-depth fundamental research. The Investment Adviser has a long track record and experience in monitoring the underlying portfolio and in structuring and negotiating investments. Independence from any CLO manager assures investors that interests are well aligned. In addition to strong corporate fundamentals, a benign default environment for bank loans and the low price point for CLO liabilities have the potential to generate very attractive risk-adjusted returns for our shareholders."

Enquiries

Reorganisation Proposal:

Overview

The purpose of the Reorganisation Proposal is to allow those Shareholders who wish to extend the life of their investment in the Company beyond the planned end date of the existing Master Fund, FOIF LP, to be able to do so by having their Ordinary Shares re-designated as 2017 Shares, with assets attributable to such 2017 Shares being effectively invested in and having exposure to a new Master Fund II, FOMC II LP, which will have a planned end date in June 2024 and an investment objective and policy substantially similar to that of the Master Fund.

Those Shareholders who do not wish to extend the life of their investment will need to make an Election to have their existing Ordinary Shares re-designated as 2014 Shares, which will continue to participate solely in the Master Fund. Further information regarding the Election and the Reorganisation Proposal is set out in the Circular.

The Investment Adviser, Fair Oaks Capital Limited, believes that there are ongoing investment opportunities available in the CLO market and therefore the 2017 Shares represent an attractive option for Shareholders. If the Proposals are implemented, the Shares will have the following features:

Key features of the Shares

2017 Shares

· The 2017 Shares are designed to enable Shareholders to extend the life of their investment in the Company. As the 2017 Shares will be substantively invested through Master Fund II, the 2017 Shares will have an expected life to the planned end date of Master Fund II, being 12 June 2024 (Master Fund II has an investment period to 12 June 2019, subject to two potential one-year extensions at the discretion of the General Partner).

· Initially Master Fund II's portfolio will comprise solely its interest in the Master Fund. However, the 2017 Shares are expected over time to benefit from the further diversification and scale within the Master Fund II portfolio provided by newly originated investments made at the time of the deployment of any proceeds of the Issue and the Placing Programme and also the reinvestment of principal amounts distributed by the Master Fund. The Investment Adviser believes that there are ongoing investment opportunities available in the CLO market and therefore that the 2017 Shares represent an attractive option for Shareholders.

· In respect of the 2017 Shares, the investment objective of the Company will be to generate attractive, risk-adjusted returns, principally through income distributions. On the basis of market conditions as at the date of this announcement, the Company will target a net total return on the Initial Issue Price of between 12 and 14 per cent. per annum over the planned life of Master Fund II (this is a target only and not a profit forecast. There can be no assurance that this target will be met or that the Company will make any distributions at all. This target return should not be taken as an indication of the Company's expected or actual current or future results).

2014 Shares

· The 2014 Shares are designed to enable Shareholders to maintain the life of their investment in the Company. As the 2014 Shares will be substantively invested through the Master Fund, the 2014 Shares will have an expected life to the planned end date of the Master Fund, being June 2019 (this may be extended for up to two additional consecutive one-year periods at the discretion of the General Partner).

· The composition of the Master Fund's portfolio will be unchanged by the implementation of the Proposals. However, over time the Master Fund's portfolio will become less diversified as its investments are realised.

· In respect of the 2014 Shares, the investment objective of the Company is to generate attractive, risk-adjusted returns, principally through income distributions. On the basis of market conditions as at the date of this document, the Company will target a net total return on the Initial Issue Price of between 12 and 14 per cent. per annum over the planned life of the Master Fund (this is a target only and not a profit forecast. There can be no assurance that this target will be met or that the Company will make any distributions at all. This target return should not be taken as an indication of the Company's expected or actual current or future results).

· Based on the results of Shareholder consultations received to date, it is expected that the 2014 Share class will represent a relatively small proportion of the Company's share capital and therefore the 2014 Shares are currently expected to benefit from lower levels of secondary market liquidity than the 2017 Shares. The 2014 Shares may also have a greater concentration of ownership than the 2017 Shares.

Secondary Market Placing

To the extent that Shareholders wish to consider realising their investment in the Company, rather than holding either 2014 Shares or 2017 Shares, then the Company has engaged its corporate broker, Numis Securities Limited ("Numis"), to seek to generate secondary market demand from Shareholders or new investors willing to hold 2017 Shares. Numis can only execute bargains with ''Qualified Investors'' as defined in section 86(7) of the Financial Services and Markets Act 2000 (as amended) ("FSMA"). There can be no assurance as to the extent or price of any demand that can be generated under this mechanism.

Contribution Agreement

The Company has entered into the Contribution Agreement with the Master Fund (acting by the General Partner), Master Fund II (acting by the General Partner) and the General Partner. Under the Contribution Agreement, upon the Effective Date, the Company will transfer to Master Fund II such portion of the Company's limited partnership interests in the Master Fund (as at the Effective Date) which is attributable to those Ordinary Shares which are to be re-designated as 2017 Shares at the Effective Date pursuant to the Reorganisation Proposal (the ''Transferred FOIF Interest''). In consideration for such transfer, the Company will receive a limited partnership interest in Master Fund II which reflects an equivalent value to the Transferred FOIF Interest which Master Fund II receives from the Company. The Contribution Agreement is conditional upon the Admission of the re-designated 2017 Shares.

Distributions

The Master Fund will continue in accordance with the Partnership Agreement to distribute both its net income and all net principal realised from CLO securities. In respect of the limited partnership interests in the Master Fund which will be held by the Company on behalf of the 2014 Shares, it is intended that the Master Fund's income distributions will be used by the Company to pay monthly dividends on the 2014 Shares. It is intended that all future repayment of principal received by the Company with respect to the Master Fund's underlying investments during the remainder of its life will be used by the Company to make ad hoc returns of capital by way of a compulsory partial redemption of 2014 Shares. In respect of the limited partnership interests in the Master Fund which will be held by Master Fund II, it is intended that the Master Fund's income distributions will be used by Master Fund II to make income distributions to the Company, which in turn the Company intends to use to pay monthly dividends on the 2017 Shares. It is intended that all future repayment of principal received by Master Fund II with respect to the Master Fund's underlying investments during the remainder of its life will be used by Master Fund II during its investment period to make new portfolio investments (Master Fund II has an investment period to 12 June 2019, subject to two potential one-year extensions at the discretion of the General Partner).

Duration of the Company

Currently, under the Articles, on or before 31 May 2019, being around the planned end date of the Master Fund, the Company shall propose to Shareholders the Continuation Resolution. If such a Continuation Resolution was passed by Shareholders, a further Continuation Resolution would be required to be proposed every two years thereafter. If the Continuation Resolution was not passed, the Board would be required to draw up proposals for the voluntary liquidation of the Company. As part of the Reorganisation Proposal, a resolution is sought at the EGM which would amend the Articles such that the Continuation Resolution would instead be required to be proposed on or before 12 June 2024, being the planned end date of Master Fund II and the time intervals for proposing further Continuation Resolutions would be every two years thereafter.

Share Issue Proposal:

The Company has published a Prospectus relating to the Issue of up to 200 million C Shares at USD 1 per C Share and a Placing Programme of 2017 Shares and/or C Shares up to a further aggregate issue value of USD 250 million (excluding the proceeds from the First Placing and Offer for Subscription). Any net proceeds from the C Shares issued pursuant to the Issue, as well as C Shares and/or 2017 Shares issued pursuant to the Placing Programme, will be used to invest in commitments in Master Fund II. At the level of the Company, the assets representing the net proceeds of the Issue and any other C Share issue will be accounted for and managed as a separate pool of assets of the Company, distinct from the assets attributable to the 2017 Shares until their date of conversion into 2017 Shares and distinct from the assets attributable to the 2014 Shares. Both the 2017 Share class and C Share class pools will however participate in Master Fund II limited partnership interests and therefore be exposed to the same (single) Master Fund II portfolio.

Name Change Proposal:

It is proposed to change the name of the Company to ''Fair Oaks Income Limited''. Under the Law, the change of the Company's name requires the approval of Shareholders by special resolution. Therefore, Shareholder approval by way of a special resolution is being sought at the Extraordinary General Meeting for the proposed change to the Company's name (through the proposing of Resolution 4 at the Extraordinary General Meeting). Existing share certificates will remain valid after the change of name and the Company does not intend to issue replacement certificates. The change of Company name is being proposed to broaden the Company's appeal to investors beyond those accustomed to investing in funds, but for the avoidance of doubt will not affect the Company's categorisation as a non-EU AIF.

Further details in relation to these and other proposals can be found in the Prospectus and the Circular.

Extraordinary General Meeting (which also constitutes a class meeting of Ordinary Shares)

Certain considerations and risks relating to the Proposals

The implementation of the Proposals carries with it certain considerations and risks for Shareholders as described below:

i. Shareholders will need to consider the tax consequences of the re-designation of their Ordinary Shares based on their particular circumstances.

ii. For those Shareholders wishing for their Ordinary Shares to be re-designated as 2017 Shares, please note there are risks in participating in an investment in the 2017 Shares and Master Fund II. Shareholders are advised to carefully consider the risk factors set out in the ''Risk Factors'' section of the Prospectus, in particular, those paragraphs relating to Master Fund II and to 2017 Shares issued pursuant to the Placing Programme.

iii. Holders of 2017 Shares will, from the Effective Date, continue to be exposed to the assets and liabilities of the Master Fund (indirectly through the Company's participation in Master Fund II, which will in turn hold a proportion of the interests in the Master Fund).

iv. For those Shareholders wishing for their Ordinary Shares to be re-designated as 2014 Shares, please note there are risks in participating in an investment in the 2014 Shares and the Master Fund. Shareholders are advised to carefully consider the risk factors set out in the ''Risk Factors'' section of the Prospectus, in particular, those paragraphs relating to the Company and the Company's investment in the Master Fund. Additionally, Shareholders should be aware of the following considerations and risks in respect of the 2014 Shares:

· The 2014 Shares have an expected life to the planned end date of the Master Fund, being June 2019, but this duration may be extended for up to two additional consecutive one-year periods at the discretion of the General Partner.

· The composition of the Master Fund's portfolio will be unchanged by the implementation of the Proposals. However, over time the Master Fund's portfolio will become less diversified as its investments are realised.

· It is expected that the 2014 Share class will represent a relatively small proportion of the Company's share capital and therefore the 2014 Shares are currently expected to benefit from lower levels of secondary market liquidity than the 2017 Shares.

· The 2014 Shares may also have a greater concentration of ownership than the 2017 Shares.

v. All Shareholders (irrespective of whether they wish to remain solely invested in the Master Fund or to participate in Master Fund II) should carefully consider the risk factors set out in the ''Risk Factors'' section of the Prospectus.

Shareholders who are in any doubt as to the contents of this document or as to the action to be taken should immediately seek their own personal financial advice from their independent professional adviser authorised under the FSMA.

Overseas Shareholders

Overseas laws and regulations may prevent Overseas Shareholders in certain jurisdictions outside the United Kingdom from being offered the opportunity to: (i) have their Ordinary Shares re-designated as 2017 Shares so in order to participate in the newly created Master Fund II; or (ii) make an Election, without compliance by the Company with certain filing, reporting, registration or other requirements. It is the responsibility of each Overseas Shareholder to satisfy himself that either (a) his Ordinary Shares may be re-designated as 2017 Shares or (b) he may make an Election, and that in doing so, he has complied with all relevant overseas filing, exchange control and other requirements and paid all taxes and fees which may be payable. The opportunity for Ordinary Shares to be re-designated as 2017 Shares and the opportunity for making an Election are not being made in or into, or to Overseas Shareholders including for the avoidance of doubt those resident in, the United States, Canada, the Republic of South Africa, Australia or Japan or where the making of the above-mentioned opportunities would be prohibited by local law or regulation or require compliance by the Company with any filing, reporting, registration or other requirement. Instead, the Ordinary Shares held by an Overseas Shareholder will by default (and without needing to make an Election) be re-designated as 2014 Shares, i.e. their Ordinary Shares will continue to remain effectively invested solely in the existing Master Fund and will not participate in the newly created Master Fund II. Notwithstanding any other provision of this document, the Company reserves the right to permit any Overseas Shareholder to participate in the opportunity to either have their Ordinary Shares re-designated as 2017 Shares or make an Election if the Directors, in their sole discretion, are satisfied at any time prior to 27 March 2017 that the transaction in question is exempt from, or not subject to, the legislation or regulations giving rise to the restrictions in question.

Expected timetable

Notes:

(1) References to time above and in the Prospectus generally are to London times unless otherwise specified.

(2) All times and dates in the expected timetable and in the Prospectus may be adjusted by the Company. Any changes to the timetable will be notified by RIS.

(3) The Placing Programme may close at an earlier date on which the authority to issue Shares pursuant to the Placing Programme is fully utilised.

Fair Oaks Income Fund Limited

Fair Oaks Income Fund Limited is a registered closed-ended investment company incorporated in Guernsey. The Company was admitted to trading on the Specialist Fund Market of the London Stock Exchange (now the Specialist Fund Segment of the Main Market of the London Stock Exchange) on 12 June 2014.

The investment policy of the Company is to seek exposure to US and European CLOs or other vehicles and structures which provide exposure to portfolios consisting primarily of US and European floating-rate senior secured loans and which may include non-recourse financing. The Company will implement its investment policy by remaining invested in FOIF LP and making new investments in FOMC II LP.

Dealing codes

Important Information

This announcement which has been prepared by, and is the sole responsibility of, the Directors of the Company, has been approved for the purposes of section 21 of the FSMA by Fair Oaks Capital Limited, which is authorised and regulated by the Financial Conduct Authority.

This announcement is an advertisement and does not constitute a prospectus relating to the Company and does not constitute, or form part of, any offer or invitation to sell or issue, or any solicitation of any offer to subscribe for, any shares in the Company in any jurisdiction nor shall it, or any part of it, or the fact of its distribution, form the basis of, or be relied on in connection with or act as any inducement to enter into, any contract therefor.

Recipients of this announcement who are considering subscribing for 2017 Shares and / or C Shares are reminded that any such subscription must be made only on the basis of the information contained in the Prospectus which may be different from the information contained in this announcement. The subscription for 2017 Shares and / or C Shares is subject to specific legal or regulatory restrictions in certain jurisdictions. Persons distributing this announcement must satisfy themselves that it is lawful to do so. The Company assumes no responsibility in the event that there is a violation by any person of such restrictions.

Numis, which is authorised and regulated by the Financial Conduct Authority, is acting only for the Company in connection with the matters described in this announcement and is not acting for or advising any other person, or treating any other person as its client, in relation thereto and will not be responsible for providing the regulatory protection afforded to clients of Numis or advice to any other person in relation to the matters contained herein. Neither Numis nor any of their respective directors, officers, employees, advisers or agents accepts any responsibility or liability whatsoever for this announcement, its contents or otherwise in connection with it or any other information relating to the Company, whether written, oral or in a visual or electronic format.

The Company is not and will not be registered under the US Investment Company Act of 1940, as amended. The shares of the Company have not been, nor will they be, registered under the US Securities Act of 1933, as amended (the "Securities Act") or with any securities regulatory authority of any state or other jurisdiction of the United States or under the applicable securities laws of Australia, Canada, Japan, the Republic of South Africa or any other jurisdiction that is a member state of the European Economic Area (other than the United Kingdom). Subject to certain exceptions, the Company's shares may not be offered or sold in the United States, Australia, Canada, Japan, the Republic of South Africa or any other jurisdiction that is a member state of the European Economic Area (other than the United Kingdom) or to or for the account or benefit of any national, resident or citizen of any member state of the European Economic Area (other than the United Kingdom), Australia, Canada, Japan, the Republic of South Africa or any person located in the United States.

This announcement includes "forward-looking statements". All statements other than statements of historical facts included in this announcement, including, without limitation, those regarding the Company's financial position, business strategy and plans are forward-looking statements. Forward-looking statements are subject to risks and uncertainties and accordingly the Company's actual future financial results and operational performance may differ materially from the results and performance expressed in, or implied by, the statements. These forward-looking statements speak only as at the date of this announcement. The Company expressly disclaims any obligation or undertaking to update or revise any forward-looking statements contained herein to reflect actual results or any change in the assumptions, conditions or circumstances on which any such statements are based unless required to do so by the FSMA, the Financial Services Act 2012, the Prospectus Rules of the Financial Conduct Authority or other applicable laws, regulations or rules.