BH Credit Catalysts Limited MONTHLY SHAREHOLDER REPORT: JULY 2014 YOUR ATTENTION IS DRAWN TO THE DISCLAIMER AT THE END OF THIS DOCUMENT BH Credit Overview Catalysts Limited BH Credit Catalysts Limited ("BHCC") is a closed-ended investment company, registered and incorporated in Guernsey on 19 October 2010 (Registration Manager: Number: 52520). Brevan Howard BHCC invests all of its assets (net of short-term working capital) in the Capital ordinary shares of Brevan Howard Credit Catalysts Master Fund Limited (the Management LP "Fund").The investment manager of the Fund is DW Investment Management, LP ("BHCM") ("DWIM"). Administrator: BHCC was admitted to the Official List of the UK Listing Authority and to trading on the Main Market of the London Stock Exchange on 14 December 2010. Northern Trust International Fund Administration Total Assets Services (Guernsey) $240mm1 Limited ("Northern 1. As at 31 July 2014 by BHCC's administrator, Northern Trust. Trust") Corporate Brokers: J.P. Morgan Cazenove Dexion Capital Plc Listing: London Stock Exchange(Premium Listing) Summary Information BH Credit Catalysts Limited NAV per Share (as at 31 July 2014) Share NAV (USD NAV per Class mm) Share USD Shares 55.7 $14.00 GBP Shares 184.0 £14.06 BH Credit Catalysts Limited NAV per Share % Monthly Change USD Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD 2011 1.78 1.55 0.91 2.14 -0.03 -2.16 0.50 -0.37 -0.96 -0.50 -1.49 -0.50 0.81 2012 0.64 1.15 2.36 1.51 1.17 -0.10 1.38 1.39 1.65 0.80 0.73 1.26 14.83 2013 1.73 0.24 1.19 1.07 1.74 -0.52 0.16 1.07 1.18 1.68 1.70 1.52 13.50 2014 1.07 1.43 0.49 1.51 0.85 1.47 0.58 7.63 GBP Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD 2011 1.74 1.54 0.95 2.08 0.05 -2.16 0.51 -0.33 -0.93 -0.50 -1.49 -0.47 0.89 2012 0.64 1.15 2.40 1.50 1.22 -0.06 1.40 1.36 1.62 0.81 0.75 1.26 14.95 2013 1.76 0.27 1.20 1.05 1.81 -0.52 0.18 1.06 1.13 1.71 1.68 1.54 13.62 2014 1.08 1.43 0.53 1.51 0.88 1.48 0.63 7.78 Source: Fund data is provided by the administrator of the Fund, International Fund Services (Ireland) Limited. BHCC NAV and NAV per Share data is provided by BHCC's administrator, Northern Trust. BHCC NAV per Share % Monthly Change is calculated by BHCM. BHCC NAV data is unaudited and net of all investment management fees (2% annual management fee and 20% performance fee) and all other fees and expenses payable by BHCC. NAV performance is provided for information purposes only. Shares in BHCC do not necessarily trade at a price equal to the prevailing NAV per Share. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS ASC 820 Asset Valuation Categorisation* Brevan Howard Credit Catalysts Master Fund Limited Unaudited Estimates as at 31 July 2014 % of Gross Market Value* Level 1 54 Level 2 42 Level 3 4 Source: BHCM * These estimates are unaudited and have been calculated by BHCM using the same methodology as that used in the most recent audited financial statements of the Fund. These estimates are subject to change. Level 1: This represents the level of assets in the portfolio which are priced using unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 2: This represents the level of assets in the portfolio which are priced using either (i) quoted prices that are identical or similar in markets that are not active or (ii) model-derived valuations for which all significant inputs are observable, either directly or indirectly in active markets. Level 3: This represents the level of assets in the portfolio which are priced or valued using inputs that are both significant to the fair value measurement and are not observable directly or indirectly in an active market. Performance The information in this section has been provided to BHCC by DWIM. Review for the Fund The NAV per share of BHCC USD Shares appreciated by 0.58% (net of fees and expenses) in July. Company specific investments as a whole detracted from returns on the month, but these losses were more than offset by gains in the Fund's collateralised positions. In July, price declines across equity and credit markets made for a difficult backdrop for many of the Fund's company specific investments. In many ways, July felt like a reversal of June: distressed and corporate structured holdings posted small losses, while the performing long/short strategy saw low level declines across a number of positions and was the largest detractor by strategy for the month. In particular, those positions structured with a long credit leg and a short equity leg posted mark-to-market losses as credit, particularly HY, underperformed equity markets in July. The largest detractor in the corporate strategy was the Fund's position in US homebuilder Beazer Homes. The Fund had gains in Beazer last year, but has lost money so far this year, as Beazer, along with other homebuilders have lost sales due to particularly bad weather in the first quarter of 2014. In July, Beazer announced operating results that disappointed the market in key areas such as balance sheet efficiency and the pace at which the company has opened newly developed communities. While we were disappointed with Beazer's second quarter reported results, we retain our conviction in the prospects for progress at the company going forward. The Fund's mortgage- and asset-backed positions bucked the broader July trend of price declines in risk assets. Although broad-based indices of higher dollar price MBS/ABS fell in July in line with the broader markets, the more credit sensitive, special situation positions that the Fund holds in the residential and commercial mortgages were more resilient. Hedges also contributed to the Fund's performance across collateralised strategies. In terms of market news, as broadly expected, Trustees of MBS where JP Morgan had proposed settling "put back" litigation received expert opinions generally supporting the appropriateness of JP Morgan's proposed settlement amounts, making it that much more likely that Trustees may accept JP Morgan's settlement offer for the majority of RMBS trusts in question. Also in July, BlackRock auctioned a large legacy portfolio of residential mortgage-backed securities from a vehicle that had reached the end of its investment period. The auction provided a welcome source of bonds to the market, where new supply has been somewhat lacking in recent months. Investment The information in this section has been provided to BHCC by DWIM. Manager's Market Review and Outlook For most asset classes, the start of July was fairly benign, continuing the steady upward trend in prices established during the second quarter. However, better than expected second quarter US GDP results (second quarter GDP annualisedgrowth was 4% in contrast to market expectations of 3%; first quarter GDP was also revised upward from -2.9% to -2.1%) changed the tone into month end, as the market became concerned that monetary conditions might tighten sooner than previously expected. Interest rates moved upward briefly (10 year US Treasuries went from sub 2.5% yields to as high as 2.6% intraday), but most of the negative impact was felt in risk assets as equities fell nearly 1.5% and high yield credit widened nearly 20bp on the last day of the month. In credit markets, the asset class that fell the most in July was high yield corporate bonds. Ignoring the interest rate component of high yield bonds, spreads widened from 303bp on 30 June to 344bp by 31 July. The catalyst appeared to be retail selling, with outflows from high yield mutual funds and ETFs of nearly 4% of AUM. Many in the financial press have looked to link the back-up in high yield spreads with concerns regarding market liquidity. While we believe it is important for all credit investors to have a healthy concern regarding liquidity, we are somewhat wary of jumping on the "liquidity collapse" bandwagon. We found the market response to a nearly 4% outflow from high yield mutual funds and ETFs to be fairly robust. In past periods of similarly large outflows, prices have generally fallen more than was the case in July (approximately 3% on average compared to the approximately 1% drop in July), indicating demand from institutional channels for high yield assets. Volumes also held up over the month, with institutional high yield trade volume tracking approximately on par with volume traded year to date. Price action in other segments of credit markets was more subdued: investment grade spreads (CDX Investment Grade) moved from L+59bp to L+64bp, while (high yield) bank loan prices dropped by only 0.25% to 98.9%. Headline indices related to the mortgage- and asset-backed sectors weakened somewhat in July, broadly in line with risk assets - the Bank of America/Merrill Lynch ABS/CMBS bond index fell 32bp on the month (versus Bank of America/Merrill Lynch BBB bond index which lost 53bp). US housing data was mixed for the month, as existing home sales held up well relative to market expectations, while Case-Shiller and CoreLogic house price levels showed slight declines month-over-month on a seasonally adjusted basis, and new home sales - the area of greatest weakness year to date - continued their sluggish trend. In broad commercial real estate markets, July saw an uptick in the issuance of new commercial mortgage-backed securities. 2014 had been running behind 2013 in terms of total CMBS new issuance, but following the pickup in June and July, 2014 is now slightly ahead of 2013, leading some to question the market's ability to fully absorb this recent increase in issuance, as well as new issues expected to come to market before year end. Enquiries Northern Trust International Fund Administration Services (Guernsey) Limited Harry Rouillard +44 (0) 1481 74 5315 Important Legal Information and Disclaimer BH Credit Catalysts Limited ("BHCC") is a feeder fund investing in Brevan Howard Credit Catalysts Master Fund Limited (the "Fund"). Brevan Howard Capital Management LP ("BHCM") and DW Investment Management, LP ("DWIM") have supplied certain information herein regarding BHCC's and the Fund's performance and outlook. The material relating to BHCC and the Fund included in this report is provided for information purposes only, does not constitute an invitation or offer to subscribe for or purchase shares in BHCC or the Fund and is not intended to constitute "marketing" of either BHCC or the Fund as such term is understood for the purposes of the Alternative Investment Fund Managers Directive as it has been implemented in states of the European Economic Area. This material is not intended to provide a sufficient basis on which to make an investment decision. Information and opinions presented in this material relating to BHCC and the Fund have been obtained or derived from sources believed to be reliable, but none of BHCC, the Fund, BHCM or DWIM make any representation as to their accuracy or completeness. Any estimates may be subject to error and significant fluctuation, especially during periods of high market volatility or disruption. Any estimates should be taken as indicative values only and no reliance should be placed on them. Estimated results, performance or achievements may materially differ from any actual results, performance or achievements. Except as required by applicable law, BHCC, the Fund, BHCM and DWIM expressly disclaim any obligations to update or revise such estimates to reflect any change in expectations, new information, subsequent events or otherwise. Tax treatment depends on the individual circumstances of each investor in BHCC and may be subject to change in the future. Returns may increase or decrease as a result of currency fluctuations. You should note that, if you invest in BHCC, your capital will be at risk and you may therefore lose some or all of any amount that you choose to invest. This material is not intended to constitute, and should not be construed as, investment advice. All investments are subject to risk. You are advised to seek expert legal, financial, tax and other professional advice before making any investment decisions. THE VALUE OF INVESTMENTS CAN GO DOWN AS WELL AS UP. YOU MAY NOT GET BACK THE AMOUNT ORIGINALLY INVESTED AND YOU MAY LOSE ALL OF YOUR INVESTMENT. PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE RESULTS. Risk Factors Acquiring shares in BHCC may expose an investor to a significant risk of losing all of the amount invested. Any person who is in any doubt about investing in BHCC (and therefore gaining exposure to the Fund) should consult an authorised person specialising in advising on such investments. Any person acquiring shares in BHCC must be able to bear the risks involved. These include the following: - The Fund is speculative and involves substantial risk. - The Fund will be leveraged and will engage in speculative investment practices that may increase the risk of investment loss. The Fund may invest in illiquid securities. - Past results of the Fund's investment manager are not necessarily indicative of future performance of the Fund, and the Fund's performance may be volatile. - An investor could lose all or a substantial amount of his or her investment. - The Fund's investment manager has total investment and trading authority over the Fund, and the Fund is dependent upon the services of the investment manager. The use of a single advisor could mean lack of diversification and, consequently, higher risk. - Investments in the Fund are subject to restrictions on withdrawal or redemption and should be considered illiquid. There is no secondary market for investors' interests in the Fund and none is expected to develop. - The investment manager's incentive compensation, fees and expenses may offset the Fund's trading and investment profits. - The Fund is not required to provide periodic pricing or valuation information to investors with respect to individual investments. - The Fund is not subject to the same regulatory requirements as mutual funds. - A portion of the trades executed for the Fund may take place on foreign markets. - The Fund and its investment manager are subject to conflicts of interest. - The Fund is dependent on the services of certain key personnel, and, were certain or all of them to become unavailable, the Fund may prematurely terminate. - The Fund's managers will receive performance-based compensation. Such compensation may give such managers an incentive to make riskier investments than they otherwise would. - The Fund may make investments in securities of issuers in emerging markets. Investment in emerging markets involve particular risks, such as less strict market regulation, increased likelihood of severe inflation, unstable currencies, war, expropriation of property, limitations on foreign investments, increased market volatility, less favourable or unstable tax provisions, illiquid markets and social and political upheaval. The above summary risk factors do not purport to be a complete description of the relevant risks of an investment in shares of BHCC or the Fund and therefore reference should be made to publicly available documents and information.