acencia debt strategies limited annual report and audited ......2010/03/15 · real estate...

AcenciA Debt Strategies LimitedAnnual Report and Audited Financial Statements 2009

Table of Contents1 Summary Information3 Chairman’s Statement6 Sub-Manager’s Report10 Investment Portfolio12 Board of Directors13 Directors’ Report21 Independent Auditor’s Report23 Income Statement24 Statement of Changes in Shareholders’ Equity25 Balance Sheet26 Cash Flow Statement27 Notes to the Financial Statements46 Notice of Annual General Meeting48 Form of Proxy50 Management and Administration

Principal ActivityAcenciA Debt Strategies Limited (“the Company” or “AcenciA”) is an authorised closed-endedinvestment scheme domiciled in Guernsey. The Company is listed and traded on the LondonStock Exchange.

Investment Objective and PolicyThe Company’s investment objective is to produce annual returns in excess of 3-month SterlingLIBOR plus 5 per cent over a rolling 3-year period, with annual standard deviation of under5 per cent.

The Company’s investment policy is to invest in an actively managed portfolio of predominantlydebt-oriented hedge funds.

Asset Allocation by Hedge Fund StrategyThe estimated allocation to underlying hedge fund strategies as at 31 December 2009 was asfollows:*

Strategy mix over time

Analysis of Significant InvestmentsThe ten largest direct holdings of the Company as at 31 December 2009 are set out in the firsttable overleaf. Of these, the first four are fund of fund vehicles managed by SandalwoodSecurities, Inc., the Company’s Investment Adviser. The top ten holdings on a look-through basis(i.e. showing the effective exposure to underlying single manager hedge funds, ignoring the fundof fund vehicles) are set out in the second table overleaf.

* Estimate by Saltus Partners LLP based on interviews with a sample of underlying managers.

0%

10%

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60%

70%

80%

90%

100%

Dec-05 Dec-06 Dec-07 Dec-08 Dec-09

Other *

Real Estate

Convertible Bonds

Private Deals

Equity

Senior Bank Debt

High Yield

Distressed

Summary Information

AcenciA Debt Strategies Limited Annual Report and Audited Financial Statements 2009 1

The Company’s top 10 Direct Holdings% of

Market Value PortfolioName of Investment Strategy £ Value**

Funds of Funds Managed by SandalwoodSandalwood Double S Fund of funds 21,900,580 18.56%

Sandalwood Debt A Limited Partnership Fund of funds 21,694,033 18.39%

Bodleian Partners Class A Limited Partnership Fund of funds 20,350,418 17.25%

Sandalwood Liquidating SPV, Debt A Fund of funds 3,839,485 3.25%

Sub Total 67,784,516 57.45%Single Manager FundsCenterbridge Credit Partners Distressed securities 10,111,452 8.57%

Marathon Special Opportunities Fund Multi-strategy credit 7,223,354 6.12%

Elliott International Limited Multi-strategy credit 7,151,292 6.06%

Cerberus Partners, L.P. Distressed securities 4,786,720 4.06%

GSO Liquidity Overseas Partners, L.P. Multi-strategy credit 4,301,696 3.65%

Marathon Structured Finance Multi-strategy credit 2,758,474 2.34%

Sub Total 36,332,988 30.80%Total 104,117,504 88.25%

The Company’s top 10 Holdings on a Look-through Basis% of

Market Value PortfolioName of Investment* Strategy £ Value**

Cerberus SPV, LLC Distressed securities 17,258,559 14.63%

Centerbridge Credit Partners Distressed securities 12,351,064 10.47%

Elliott International Limited Multi-strategy credit 12,223,043 10.36%


Redwood Offshore Fund Multi-strategy credit 6,608,405 5.60%




King Street Capital Distressed securities 3,328,227 2.82%

Appaloosa Distressed securities 2,916,215 2.47%

76,874,147 65.16%

* In several cases the exposure to these funds is made up of a combination of an indirect investment in thedomestic funds and a direct investment in the overseas sister fund, which has similar but not identicalportfolio composition.

** Rounded to 2 decimal places.

Further analysis of the Company’s investment portfolio is set out on page 10.

2 AcenciA Debt Strategies Limited Annual Report and Audited Financial Statements 2009

Summary Information

I present below my report to shareholders in respect of the financial year ended31 December 2009.

Performance ReviewThe Company enjoyed a strong performance during 2009. The net asset value per shareincreased by 22.9% to 90.65p and the share price increased 59.6% as a result of the discount tonet asset value at which the ordinary shares trade narrowing from 40.0% to 22.0%.

Over the same period, the HFR Distressed Securities Index returned -5.6%, US high yield bondsreturned 57.5% and US equities returned 23.5% (source: HFRI, Merrill Lynch, S&P 500).

Investment Review2009 marked the strong recovery of AcenciA after the unprecedented turmoil experienced in thelast four months of 2008. Just as 2008 was heavily impacted by mark-to-market factors arisingfrom lack of liquidity rather than actual realised losses, so prices began to rebound as a degreeof liquidity began to return to credit markets during 2009. The performance of the Company,summarised quarter by quarter in the table below, also benefited from the flight of capital fromthe hedge fund arena, reducing competition and driving prices down and returns up, as well as arecord number of defaulting loans and bonds.

Q1 Q2 Q3 Q4

Net asset performance 0.9% 8.7% 7.8% 4.0%

The Sub-Manager’s report reviews the investment performance in greater detail as well as theoutlook. Suffice it to say here that 2009 was a record year in the 13 year history of theSandalwood Debt Fund and the trading conditions for our underlying managers remains highlyfavourable over the medium term.

RestructuringDespite the Company’s strong net asset performance, the shares of the Company continue totrade at a significant discount which is a matter of considerable concern. In March 2009shareholders supported a package of measures proposed by the Board to address the discount,including authorising the directors to hold a wind-up vote in August 2011, enabling a conversionoffer into an open-ended sister fund, further share buybacks and a tender offer.

A conversion offer was subsequently made in April 2009 and this resulted in shareholders owning25,937,034 shares converting their holdings into equivalent ones in AcenciA Fundamental Credit.Further buybacks were also instigated and all shares acquired as well as those already held inTreasury, together amounting to some 4,785,802 shares, were cancelled.

A third element of the discount management package was the Board’s commitment to making a£30m tender offer. The timing of the tender has been contingent on the Company havingsufficient available resources. Significant redemptions were placed for 31 December 2009 andfollowing receipt of the proceeds during the first two months of 2010, I am pleased that theCompany has separately announced the detailed terms of a tender offer. It is being conductedby means of a reverse auction, subject to a minimum discount to net asset value of 5%, andprovides both those shareholders who wish to realise some or all of their holdings with asignificant ability to do so whilst it should also prove accretive for those who remain asshareholders.

Chairman’s Statement


The Board has also decided to apply for the Company’s listing status to be changed from alisting under Chapter 14 (secondary listing of companies) into the newly created category ofpremium listing (investment company) under Chapter 15 of the Listing Rules. The Company’slisting status under Chapter 14 is an historic legacy from originally having been listed in Dublin.The Board believe that it is now appropriate for the Company to adopt the more rigorousstandards required under Chapter 15 and believe that this will help to attract additional investorinterest in the Company, make it eligible for inclusion in the FTSE indices and improve theliquidity of trading in the Company’s shares.

Board StructureOne of the consequences of becoming a Chapter 15 Company is that the majority of the Boardmust be independent of the investment manager. Although he always acted in an entirelyindependent fashion, Mr Rupert Dorey is deemed under the Listing Rules to be non-independentby virtue of the fact that he also acts as a non-executive director of another company managedby the investment manager. For this reason the Board regretfully accepted Mr Dorey’sresignation as a Director of AcenciA with effect from 1 March 2010. I would like to pay personalthanks to Rupert for his significant contribution to the Board since the Company came to marketin 2005, especially during some difficult times in 2008. He has never been anything other thanhighly impartial and objective and it is a shame that we have had to lose his counsel to complywith the current listing rules. The alternative would have been to inflate the size of the Boardwhich we felt would be neither efficient nor cost effective. Following his resignation the Boardnow comprises four directors, including myself, three of whom are independent.

DividendWhen the Company initially floated, it had a dividend policy to pay an annual dividendequivalent to two thirds of total returns, subject to a cap of 3.5% of the year end Net AssetValue. As a result of changes enacted in the Finance Act 2008, with Shareholder approval theDirectors decided to cease paying dividends and instead, at their discretion, to offer annualcapital distributions capped at a value equal to 5% of the Company’s net asset value toShareholders who elect to have their Shares so redeemed, since under current United Kingdomtaxation law and practice, a capital distribution is a capital gains tax event which for UnitedKingdom tax purposes will be taxed at 18%, which is lower than the higher rate of income taxand both basic and higher rate taxpaying individuals may be able to utilise their capital gainstax annual exemption.

However, the Company has recently been advised that if it redeemed shares in this fashion itmay no longer be classified as a closed-ended investment company. Since this might jeopardisethe Company’s listing and might potentially give rise to any gains made by Shareholders beingsubject to income tax, the Directors do not believe it would be in Shareholders’ interest andhave therefore decided not to offer the redemption facility at the current time.



In view of these changes to the taxation regime and the potential regulatory consequences ofoffering a redemption facility in lieu of dividend, having consulted with a number of theCompany’s shareholders the Board has decided that the Company will no longer pay a dividendand instead focus on capital appreciation.

I would like to thank our shareholders, once again, for their continuing support.

J Le Pelley, Chairman

Date: 15 March 2010



For the year ended 31 December 2009, the total shareholder return was 59.6 per cent,comprising entirely the increase in the share price to 70.75p. No dividend was paid during theyear. During the same period the NAV increased from 73.74p to 90.65p. The average share pricediscount to NAV for the period was 30.5 per cent.

Chart 1 below represents the monthly change in NAV over the period.

Chart 1. Monthly performance for AcenciA’s NAV 1 January to December 2009

Chart 2 shows the shares’ trading price and NAV, as well as the discount to NAV, over the courseof the year.

Chart 2. 2009 daily share price performance

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Sub-Manager’s Report


Investment ReviewAfter a very difficult 2008 that saw high yield indices lose 32% of their value between June andNovember, high yield bonds and leveraged loans rallied at an unprecedented pace starting inDecember 2008, and throughout 2009 as investors began by investing in high-quality names andlater reached for yield in lower-grade issues, resulting in significant overall demand for credit.In early 2009, many managers targeted senior secured bank loans of companies with shortermaturities, light covenants, or other catalysts that were priced in the 50’s and 60’s. As the yearprogressed, managers shifted their portfolio to unsecured debt, both high yield and investmentgrade. In the latter part of the year, long credit exposure was reduced in favour of classicdistressed and other event driven investments. In December, primary market loan issuancetapered off, but bond issuance for loan takeouts remained active. The return of leveragedbuyouts (LBOs) was marked by the Apollo-led $2.4 billion deal for Cedar Fair.

Return drivers for AcenciAThe vast majority of managers are multi-strategy debt, giving them the flexibility to reallocateon a dynamic basis to the best opportunities across the debt markets.

Chart 3 describes the sub-strategies within the credit arena employed by our managers on alook-through basis.

Chart 3: Strategy mix over time

* Estimate by Saltus Partners LLP based on interviews with a sample of underlying managers.

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60%

70%

80%

90%

100%

Dec-05 Dec-06 Dec-07 Dec-08 Dec-09

Other *

Real Estate

Convertible Bonds

Private Deals

Equity

Senior Bank Debt

High Yield

Distressed



Chart 4 shows AcenciA’s exposure by investment type.

Chart 4: Exposure by Investment Type*

* Data relates to 31 December 2009

Redemptions and liquidity profileRedemption requests which have been submitted, which have not been gated as at the date ofthis report and are outstanding are as follows:

Trade date (before or up to) £m*

31 December 2009 1.28

31 March 2010 3.47

30 June 2010 4.69

30 September 2010 2.22

31 December 2010 (or later) 11.16

22.82

* Based on current valuations where appropriate and converted from US Dollars at an exchange rate of £1: US$1.6148.

-2.9%All Other

Arbitrage

Private Equity

Public Equity

Credit Default Swaps

ABS/MBS

Distressed

Corporate Bonds

Bank Loans

2.5%

8.5%

9.4%

-3.1%

-10.9%

-0.4%6.5%

11.4%

37.8%

9.9%

-20.0% -10.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0%

-0.7%

7.2%

Gross longGross short



The general liquidity profile of AcenciA’s holdings as at 31 December 2009 is shown in chart 5:

Chart 5: Liquidity profile*

* Liquidity analysis does not take into account initial lock-ups, gates or redemption suspensions. It alsoexcludes uncalled commitments.

OutlookWhile positive market momentum may well continue into 2010, as high yield spreads at thebeginning of January of 657 bps remained above their historical average, we expect returns overthe coming years to be driven by managers’ skills in the following areas of opportunity:

- continued restructurings and bankruptcies as macroeconomic conditions presentchallenges for weaker companies forced to raise additional debt, negatively impactingprices of their current debt;

- the significant rally in investment grade and high yield bonds indicates expandedopportunities for both long and short credit picking as the market increasinglydistinguishes between good and bad credits; and

- banks remain net sellers of non-performing assets as they continue to reduce borrowings.

All of the above should be considered in the context of the unparalleled damage which has beendone to the machinery of leverage creation in late 2008, the very large volume of outstandingloans and bonds made on borrower-friendly terms and high leverage multiples during the run-upto 2008 which will need to be refinanced in the medium term, and the enormous supply ofdefaulted companies embarking on liquidations and restructurings. The combined effect of thesesupply factors together with a dramatically reduced buyer universe is likely to lead to aboveaverage returns generated by the industry over the coming several years. At the same time, wedo not expect the high correlations between distressed debt and other risk assets which wewitnessed in 2008 and 2009 to persist over the same period, given the event-driven nature andrelatively short duration of the trades with which the industry is likely to be busy over comingmonths and years.

Saltus Partners LLP

Date: 12 March 2010

12.2%

15.2%

20.9%

22.7%

4.2%

24.8% Quarterly

Semi-annual

Annual

Biennial

Less frequent

Liquidating



At 31 December 2009 the Company’s investment portfolio comprised the following principal holdings:

% ofMarket Value Portfolio

Name of Investment Strategy £ Value

Sandalwood Double S Fund of funds 21,900,580 18.56%

Sandalwood Debt A Limited Partnership Fund of funds 21,694,033 18.39%

Bodleian Partners Class A Limited Partnership Fund of funds 20,350,418 17.25%



Elliott International Fund Multi-strategy credit 7,151,292 6.06%



Sandalwood Liquidating SPV, Debt A Fund of funds 3,839,485 3.25%


Camulos Special Situations Multi-strategy credit 2,686,677 2.28%

York Credit Opportunity Fund Multi-strategy credit 1,737,866 1.47%


Marathon Overseas Fund Multi-strategy credit 1,453,487 1.23%

Sub Total 111,598,692 94.59%Other (individually less than 1% of portfolio value) 6,398,815 5.41%

Total 117,997,507 100.00%

Investment Portfolio


At 31 December 2009 the Company’s investment portfolio on a look-through basis comprised thefollowing principal holdings:

% ofMarket Value Portfolio

Name of Investment Strategy £ Value

Cerberus SPV, LLC Distressed securities 17,258,559 14.63%


Elliott International Fund Multi-strategy credit 12,223,043 10.36%




Cerberus Partners, L.P. Multi-strategy debt 4,786,720 4.06%


King Street Capital Distressed securities 3,328,227 2.82%

Appaloosa Distressed securities 2,916,215 2.47%

Camulos Special Situations Multi-strategy credit 2,686,677 2.28%

Sandalwood Special Credit Opportunities Fund of funds 2,550,810 2.16%

Third Point Event Driven 2,002,374 1.70%

Brigade Multi-strategy credit 1,543,017 1.31%

Scoggin Credit Opportunities Fund Distressed securities 1,843,748 1.56%

Marathon Real Estate Opportunities Multi-strategy credit 1,748,258 1.48%

York Credit Opportunity Fund Multi-strategy credit 1,737,866 1.47%

Canyon VRF Multi-strategy credit 1,631,134 1.38%

Anchorage Capital Partners, LP Multi-strategy credit 1,470,855 1.25%

Marathon Overseas Fund Multi-strategy credit 1,453,487 1.23%

Gabriel Capital, LP Distressed securities 1,368,546 1.16%

Thoroughbred Distressed securities 1,284,111 1.09%

AGSF Designated Investments Distressed securities 1,219,161 1.03%

Sub Total 99,414,191 84.26%Other (individually less than 1% of portfolio value) 18,583,316 15.74%

Total 117,997,507 100.00%

Investment Portfolio


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

Jim Le Pelley* (Chairman), born 1949, was called to the Bar in England in 1971 and Guernsey in1972 and was a partner of Le Pelley & Tostevin from 1972 until 1999, becoming senior partner in1977. He is Chairman of UK Select Trust Limited, where he has been a director since 1983. Hewas formerly a non-executive director of International Energy Group Limited (1982 to 2005) andBristol & West International Limited. He has served on the Board of the Company since itsflotation in November 2005.

Richard Battey* (Chairman of the Audit Committee), born 1952, is a non-executive director of anumber of closed-ended investment funds. He is a Chartered Accountant having qualified withBaker Sutton & Co. in London in 1977. Mr Battey was formerly Chief Financial Officer of CanArgoEnergy Corporation from May 2005 to July 2006. Prior to that role he spent 27 years with theSchroder Group. Mr Battey was a director of Schroders (C.I.) Limited in Guernsey from April1994 to December 2004 where he served as Finance Director and Chief Operating Officer. Hewas a director of a number of Schroder Group companies involved in banking, investmentmanagement, insurance, trusts and private equity, retiring from his last Schroder Groupcompany directorship in December 2008. Mr Battey is currently a non-executive director of thefollowing investment companies: Better Capital Limited, Henderson Global Property CompaniesLimited, Juridica Investments Limited, Princess Private Equity Holdings Limited, Prospect JapanFund Limited, Falcon Investment Property SPC and Northwood Capital European Fund Limited.

Jon Macintosh+, born 1968, was a Managing Director of Lehman Brothers from 2003 to 2004where he was co-head of the European Mezzanine Group within the private Equity Division,responsible for investing in subordinated debt instruments in European leveraged buy-outtransactions. From 1997 to 2003, he worked for Deutsche Bank where he was a ManagingDirector of DB Capital Partners and a director of Morgan Grenfell Private Equity Limited,responsible for the origination and execution of European leveraged buy-out transactions. From1991 to 1995 he worked for Schroders plc in the investment management division (1991 to 1993)and the equity capital markets division (1993 to 1995). He is a director of Saltus (ChannelIslands) Limited, Saltus Partners Limited and a partner of Saltus Partners LLP (2004 to present).He is also a director of Guernsey Portfolios PCC Limited (October 2006 to present). He hasserved on the Board of the Company since its flotation in November 2005.

William Scott*, born 1960, was from 2003 to 2004 Senior Vice President with the Financial RiskManagement Group (“FRM”), a leading specialist manager of funds of hedge funds. From 1989 to2002 he worked at Rea Brothers (subsequently Close Brothers) in investment management andlatterly private banking, specialising in fixed income portfolio management. He holds a numberof other non-executive directorships including PSource Structured Debt Limited, The Flight andPartners Recovery Fund Limited, SPL Guernsey ICC Limited, Uranium Limited, the SandbourneFund, Uttrup Investment Management Fund PCC Limited (the Cresco Fund) and various fundsmanaged by FRM. With over 20 years’ experience of the investment funds industry, he acts as aconsultant to offshore investment organisations. He has served on the Board of the Companysince its flotation in November 2005.

* Independent Non-Executive Directors.+ Representative of the Manager and Sub-Manager.


Board of Directors

The Directors of AcenciA Debt Strategies Limited (“the Company”) are pleased to submit theirAnnual Report and the Audited Financial Statements for the year ended 31 December 2009.

The CompanyThe Company was incorporated as a company with limited liability in Guernsey on 13 October 2005and is an authorised closed-ended investment scheme domiciled in Guernsey. The Ordinary Shareshave a Chapter 14 listing on the London Stock Exchange.

Principal Activity and Investment ObjectiveThe Company’s primary investment objective is to provide annual returns in excess of 3-monthLIBOR plus 5 per cent over a rolling 3 year period, and annual standard deviation of under5 per cent. The Company’s principal activity is to invest in an actively managed portfolio ofpredominantly debt-oriented hedge funds.

A review of the business and prospects is contained in detail in the Sub-Manager’s Report.

Results and DistributionsThe results for the year are shown in the Income Statement on page 23.

No dividend has been declared for the year ended 31 December 2009 (2008: nil).

Independent AuditorsA resolution to re-appoint BDO Limited as auditors will be proposed at the next Annual GeneralMeeting.

Manager and Investment AdviserThe Directors are responsible for the determination of the Company’s investment policy andhave overall responsibility for the Company’s activities. The Company has, however, enteredinto an Investment Management Agreement with Saltus (Channel Islands) Limited under whichSaltus (Channel Islands) Limited has been appointed with overall responsibility for themanagement of the Company’s portfolio and the provision of various other management servicesto the Company, subject to the overriding supervision of the Directors.

The Manager, Saltus (Channel Islands) Limited, and Sub-Manager, Saltus Partners LLP, haveappointed Sandalwood Securities, Inc. to act as the Investment Adviser in relation to theinvestment of the Company’s portfolio, pursuant to the Investment Advisory Agreement.

The Directors have reviewed the performance and terms of appointment of the Manager, theSub-Manager and the Investment Adviser and consider that it is in the best interests of allshareholders for the Company to continue with their appointment on their existing terms ofappointment. A summary of these terms, including the management fee, performance fee andnotice of termination period, is set out in note 10 of the Financial Statements.

Authorised and Issued Share CapitalThe Company has the power to issue an unlimited number of shares of no par value which maybe issued as Redeemable Shares or C Shares or otherwise and which may be denominated inSterling, Euro, US Dollars or any other currency.

The Company acquired some of its own Shares to be held as treasury shares during the year asfollows:

Number ofDate Shares Acquired Price per Share

20 October 2009 100,000 65.000p

23 October 2009 140,000 65.350p

30 October 2009 258,818 65.730p

12 November 2009 217,605 66.940p

The 4,085,802 treasury shares held were all cancelled by the year end.

Directors’ Report


The Company also acquired and cancelled the following Shares during the year:

Number of Date Shares Cancelled Price per Share

17 November 2009 650,000 71.240p

30 November 2009 20,000 68.750p

18 December 2009 10,000 68.750p

21 December 2009 20,000 68.750p

Buy Back of Shares and Authority to Buy Back SharesBy way of an ordinary resolution passed by a written resolution dated 2 November 2005 theCompany took authority, in accordance with Clause 5 of the Companies (Purchase of OwnShares) (Treasury Shares) Ordinance 2006 (the “Ordinance”), to make market purchases of fullypaid Shares, provided that the maximum number of Shares authorised to be purchased shall be14.99 per cent of the issued Share Capital of the Company issued pursuant to the Initial PublicOffering (“IPO”). The Companies (Purchase of Own Shares) Ordinance 1998 was repealed on1 July 2008 and its provisions were replaced by the Companies (Guernsey) Law, 2008. Theminimum price which may be paid for a Share pursuant to such authority is one penny and themaximum price which may be paid for a Share is an amount equal to the higher of 105 per centof the average of the middle market quotations for a Share taken from the Official List for thefive business days immediately preceding the date on which the Share is purchased or the higherof the price of the last independent trade and the highest current independent bid at the timeof purchase.

By way of a special resolution at an Extraordinary General Meeting held on 18 March 2009,shareholders approved the renewed authority that the Company be authorised to purchase itsown Shares. Such authority will expire at the Annual General Meeting of the Company in 2010unless such authority is varied, revoked or renewed prior to such date by a special resolution ofthe Company in general meeting. The Board intends to seek a renewal of such authority at theAnnual General Meeting of the Company in 2010, notice of which is attached to the FinancialStatements.

Further Issues of SharesThe Company’s Articles of Association provide the Directors with wide powers to issue furtherShares (of one or more currency classes and whether as C Shares or Redeemable Shares) on anon-pre-emptive basis and without seeking further Shareholder approval.

DirectorsThe Directors, all of whom are non-executive, are listed on page 50.

None of the Directors has a service contract with the Company and no such contracts areproposed. The basic fee paid to each independent non-executive director for the year ended31 December 2009 was £17,500 (2008: £17,500), except for the Chairman who received £30,000(2008:£30,000) and Mr R Battey who receives an additional £5,000 per annum for beingChairman of the Audit Committee. Mr J Macintosh waived his fee as a Director as described innote 24.

At the Balance Sheet date the Directors’ shareholdings in the Company were as follows:

Name No of Shares Percentage

J Le Pelley (Chairman) 448,740 0.24%

R Battey - -

R Dorey 300,000 0.16%

J Macintosh 215,010 0.11%

W Scott 5,173 -


Directors’ Report

Substantial ShareholdingsThe Company has been notified of the following shareholdings in excess of 3% of the issuedShare Capital as at 5 March 2010:

- HSBC Holdings Plc - 17,255,715 Shares representing 9.03%

- Newton Investment Management Limited - 10,829,787 Shares representing 4.99%

- Thornhill Investment Management Limited - 8,849,759 Shares representing 4.63%

- Baring Asset Management Limited - 9,807,091 Shares representing 4.51%

- JO Hambro Investment Management Limited - 7,656,343 Shares representing 4.03%

- Rensburg Sheppards Investment Management Ltd - 7,008,550 Shares representing 3.67%

Related PartiesDetails of transactions with related parties are disclosed in note 24 to these FinancialStatements.

Directors’ ResponsibilitiesThe Directors are responsible for preparing the Financial Statements in accordance withInternational Financial Reporting Standards (“IFRS”) and the Companies (Guernsey) Law, 2008for each financial period which give a true and fair view of the state of affairs of the Companyand its profit or loss for that period. International Accounting Standard 1 requires that financialstatements present fairly for each financial period the Company’s financial position, financialperformance and cash flows. This requires the faithful representation of the effects oftransactions, other events and conditions in accordance with the definitions and recognitioncriteria for assets, liabilities, income and expenses set out in the International AccountingStandards Board’s “Framework for the preparation and presentation of financial statements”. Invirtually all circumstances a fair presentation will be achieved by compliance with all applicableInternational Financial Reporting Standards.

In preparing Financial Statements the Directors are required to:

- Ensure that the Financial Statements comply with the Memorandum and Articles ofAssociation and International Financial Reporting Standards, as published by theInternational Accounting Standards Board;

- Select suitable accounting policies and apply them consistently;

- Present information including accounting policies, in a manner that provides relevant,reliable, comparable and understandable information;

- Make judgements and estimates that are reasonable and prudent; and

- Prepare the Financial Statements on the going concern basis, unless it is inappropriate topresume that the Company will continue in business.

The Directors confirm that they have complied with these requirements in preparing theFinancial Statements.

Each of the Directors, whose names and functions are listed below, confirms to the best of eachperson’s knowledge and belief:

- The Financial Statements, prepared in accordance with the International Financial ReportingStandards (IFRS) and in accordance with the requirements of the London Stock Exchange(LSE), give a true and fair view of the assets, liabilities, financial position and profit of theCompany; and

- The Sub-Manager’s report includes a fair review of the development and performance of thebusiness and the position of the Company together with a description of the principal risksand uncertainties they face.

Directors’ Report



The Directors are also responsible for the keeping of proper accounting records which disclosewith reasonable accuracy at any time, the financial position of the Company and to enable themto ensure that the Financial Statements comply with the Companies (Guernsey) Law, 2008 andthe Listing Rules of the London Stock Exchange. They are also responsible for the system ofinternal controls, safeguarding the assets of the Company and hence for taking reasonable stepsfor the prevention and detection of fraud and other irregularities.

The Directors are also responsible for the maintenance and integrity of the corporate andfinancial information included on the Company’s website. Legislation in the United Kingdom andGuernsey governing the preparation and dissemination of financial statements may differ fromlegislation in other jurisdictions.

So far as the Directors are aware, there is no relevant audit information of which the Company’sauditor is unaware, having taken all the steps the Directors ought to have taken to makethemselves aware of any relevant audit information and to establish that the Company’s auditoris aware of that information.

Corporate GovernanceAcenciA Debt Strategies Limited is an authorised closed-ended investment scheme domiciled inGuernsey. The Company is exempt from the requirements of the Combined Code as issued bythe UK Listing Authority.

However, the Board of AcenciA Debt Strategies Limited has considered the principles andrecommendations of the AIC Code of Corporate Governance (“AIC Code”) by reference to theAIC Corporate Governance Guide for Investment Companies (“AIC Guide”). The AIC Code, asexplained by the AIC Guide, addresses all the principles set out in Section 1 of the CombinedCode, as well as setting out additional principles and recommendations on issues that are ofspecific relevance to the Company.

The Board considers that reporting against the principles and recommendations of the AIC Code,and by reference to the AIC Guide (which incorporates the Combined Code), will provide betterinformation to shareholders.

The Company has complied with the recommendations of the AIC Code and the relevantprovisions of Section 1 of the Combined Code, except as set out below.

(i) In respect of Section 1 of the Combined Code we do not comply in relation to the followingprovisions:

- the role of chief executive,

- executive directors’ remuneration, and

- the need for an internal audit function.

For the reasons set out in the AIC Guide, and in the preamble to the Combined Code, the Boardconsiders these provisions are not relevant to the position of the Company, being an externallymanaged investment company. The Company has therefore not reported further in respect ofthese provisions.

(ii) In respect of the AIC Code we do not comply in relation to the provision that a majority of theBoard should be independent as defined by the AIC, in as much as one of the directors is adirector of the Manager and a partner in the Sub-Manager and another was formerly also adirector of another company managed by the Manager. A full explanation of this is givenbelow in the section entitled “The Board”.

The Company also complies with the corporate governance guidelines issued by the GuernseyFinancial Services Commission on 10 December 2004, whose underlying principles are similar tothose of the Combined Code.

Directors’ Report

The BoardAs at 31 December 2009 the Board of Directors comprised five non-executive Directors as set outbelow. The Company has no executive Directors nor any employees.

Mr J Le Pelley is the Chairman.

Mr R Battey is the Chairman of the Audit Committee.

Mr J Macintosh is a non-independent director by virtue of being a Partner in the Sub-Managerand a Director of the Manager.

Mr R Dorey and Mr W Scott are deemed under the AIC Code not to be independent because theyalso serve as non-executive directors of another company managed by the Manager, SaltusEuropean Debt Strategies Limited. However, the Board considers that all its Directors exercisetheir judgement in an independent manner and that Mr R Dorey and Mr W Scott provideeffective and impartial scrutiny of the performance of the Manager, Sub-Manager and theCompany’s advisers and are independent of the Manager and Sub-Manager notwithstanding theirinvolvement with Saltus European Debt Strategies Limited. Furthermore the Board consider bothMr R Dorey and Mr W Scott have considerable relevant knowledge of the markets in which theCompany’s underlying managers invest which is invaluable to the Board’s effective oversight.

However, in line with the Company’s intention to transfer its equity listing from a listing underChapter 14 (secondary listing of companies) into the newly created category of premium listing(investment company) under Chapter 15 of the Listing Rules which require, inter alia, the Board ofDirectors to be able to act independently as defined by those Rules, on 1 March 2010 Mr R Doreyresigned from the Board of the Company and Mr W Scott resigned from the board of SaltusEuropean Debt Strategies. Consequently as at 12 March 2010, being the latest practicable datebefore the printing of these accounts, the Board comprised four directors of whom three aredeemed independent under the Listing Rules.

Under the AIC Code Mr W Scott is still not regarded as independent because of his historicinvolvement with Saltus European Debt Strategies, however, the Board consider that thealternative to inflate the size of the Board would be neither efficient nor cost effective.

Under the Company’s Articles of Association it is required that all non-executive Directors areappointed for a fixed term lasting no more than three years after an individual Director’selection or re-election by shareholders at a general meeting. Any Director who was elected orlast re-elected at or before the Annual General Meeting held in the third year before thecurrent year shall retire by rotation. Therefore, up to one-third of the number of Directors inoffice shall retire by rotation at each annual general meeting. In the event that their number isnot a multiple of three, the number nearest to but not exceeding one-third shall retire fromoffice. In addition, any director who is also a director or Partner of the Manager or theSub-Manager, will be subject to annual re-election. Consequently the directors who retire byrotation and offer themselves for re-election at the Annual General Meeting of the Company areMr W Scott and Mr J Macintosh.

Although no formal training in Corporate Governance is given to Directors, the Directors arekept up to date on Corporate Governance issues through bulletins and training materialsprovided from time to time by the Company Secretary and the AIC.

The Board receives monthly reports and meets at least quarterly to review the overall businessof the Company and to consider matters specifically reserved for its review. At these meetingsthe Board monitors the investment performance of the Company. The Directors also review theCompany’s activities every quarter to ensure that it adheres to the Company’s investment policyor, if appropriate, to make any changes to these policies. Additional ad hoc reports are receivedas required and Directors have access at all times to the advice and services of the CompanySecretary, who is responsible for ensuring that the Board procedures are followed and thatapplicable rules and regulations are complied with.

Directors’ Report


The Board monitors the level of the share price premium and discount to determine what actionis desirable (if any) to reduce it.

A procedure has been adopted for the Directors, in the furtherance of their duties, to takeindependent professional advice at the expense of the Company.

Directors’ Performance EvaluationThe Board has established an informal system for the evaluation of its own performance andthat of the Company’s individual Directors. It considers this to be appropriate having regard tothe non-executive role of the Directors and the significant outsourcing of services by theCompany to external providers.

The Directors undertake, on an annual basis, a verbal assessment of the effectiveness of theBoard particularly in relation to its oversight and monitoring of the performance of theInvestment Manager and other key service providers. The Board also evaluates the effectivenessof any of the Directors who are proposed for the re-election at each Annual General Meeting ofthe Company. The Directors absented themselves from those parts of the meeting that dealtrespectively with their performance and their re-election and, in the case of Mr J Macintosh, theperformance of the Investment Manager. The Board are pleased to confirm that each of theDirectors put forward for re-election continue to perform effectively and demonstratecommitment for their roles.

Directors’ RemunerationNo director has a service contract with the Company and details of the Directors’ fees areshown on page 14.

Relations with Shareholders

The Company reports to shareholders twice a year by way of the Interim Report and the AnnualReport and Financial Statements. In addition, net asset values are published monthly and theManager publishes monthly fact sheets and quarterly news letters and portfolio transparencyreports on its website www.saltus.co.uk.

The Board receives quarterly reports on the shareholder profile of the Company and regularcontact with major shareholders is undertaken by the Company’s corporate brokers and theexecutives of the Manager. Any issues raised by major shareholders are reported to the Board ona regular basis.

The Chairman and individual Directors are willing to meet major shareholders to discuss anyparticular items of concern regarding the performance of the Company. The Chairman, Directorsand Manager are also available to answer any questions which may be raised by any shareholderat the Company’s Annual General Meeting.

Audit CommitteeThe Audit Committee was originally appointed in December 2006 and comprises all Boardmembers, with the exception of Mr J Macintosh, and has agreed to meet at least twice a year.Mr R Battey is Chairman of the Audit Committee.

The key objectives of the Audit Committee include a review of the Company’s FinancialStatements to ensure they are prepared to a high standard and comply with all relevant legislationand guidelines, where appropriate, and to maintain an effective relationship with the externalauditors. With respect to the external auditor, the Committee’s role will include the assessment oftheir independence, review of auditor’s engagement, remuneration and any non-audit servicesprovided by the auditors.

Other responsibilities of the Committee include the review of the Company’s internal controls,interim and annual reports.


Directors’ Report

Directors’ AttendanceThe table below shows the attendance at Board and Audit Committee meetings during the year:

Board Audit Committee

J Le Pelley 5 2

R Battey 7 2

R Dorey 6 2

J Macintosh 5 -

W Scott 5 1

Going ConcernThe Directors are satisfied the Company is able to continue its business operation in theforeseeable future and have adopted the going concern basis in preparing the FinancialStatements.

The Investment Adviser makes its best endeavours to provide monthly redemptions in Sandalwoodfunds to procure liquidity for the Company, and to waive any lock-in, redemption or penaltypayments which Sandalwood vehicles may have. The Company also has the ability to borrow inthe short term from Bank Julius Baer & Co Limited to ensure settlements. The InvestmentManager regularly monitors the Company’s liquidity position, and the Board of Directors reviewsit on a quarterly basis. Refer to note 5 for further details relating to liquidity risk.

Internal Control ReviewThe Board of Directors is responsible for having in place a system of internal controls relating tothe Company and for reviewing the effectiveness of those systems. The review of internalcontrols is an ongoing process for identifying and evaluating the risks faced by the Company,and which are designed to manage risks rather than eliminate the risk of failure to achieve theCompany’s objectives.

It is the responsibility of the Board to undertake risk assessment and review of the internalcontrols in the context of the Company’s objectives that covers business strategy, operational,compliance and financial risks facing the Company.

The Board of Directors considers the arrangements for the provision of Investment Managementand other services to the Company on an on-going basis and a formal review is conductedannually. As part of this review the Board considered the quality and continuity of the personnelassigned to handle the Company’s affairs, the Investment process and the results achieved todate.

Annual General MeetingThe notice for the Annual General Meeting of the Company, which is to be held on 13 April 2010 at10.30am, is set out at the end of this document. Enclosed with this document is a Form of Proxy foruse at the meeting.

Ordinary BusinessThe ordinary business of the meeting includes resolutions to adopt the Financial Statements ofthe Company for the year ended 31 December 2009, to re-elect certain directors who areretiring by rotation, to approve the appointment of the auditors, BDO Limited, as auditors of theCompany and to authorise the directors to fix their remuneration.

Special BusinessThe special business of the meeting comprises a special resolution authorising the Company topurchase its own shares in the market (up to a maximum of 14.99 per cent of the issued sharecapital of the Company) to be held either in treasury by the Company or subject to cancellationat a minimum price of one pence per share and a maximum price per share equal to the higherof (a) 105 per cent. of the average of the middle market quotations for a share as derived fromthe London Stock Exchange Daily Official List for the five business days immediately before thedate of purchase and (b) the higher of the price of the last independent trade and the highest

Directors’ Report


current independent bid at the time of purchase. If approved, the authority to purchase Shareswill continue until the Annual General Meeting in 2011. The Board intends to seek a renewal ofsuch authority at subsequent annual general meetings.

You will find enclosed with this document a Form of Proxy for use at the Annual GeneralMeeting. Whether or not you propose to attend the Annual General Meeting in person, you arerequested to complete and sign the Form of Proxy in accordance with the instructions printedthereon and return it to Capita Registrars, PXS, 34 Beckenham Road, Beckenham, Kent BR3 4TUor by fax to +44 (0) 208 639 2180, as soon as possible but, in any event, so as to arrive no laterthan 10.30am on 11 April 2010.

The completion and return of a Form of Proxy will not preclude you from attending the AnnualGeneral Meeting and voting in person if you wish to do so.

Director Director

Date: 15 March 2010


Directors’ Report

We have audited the Financial Statements of AcenciA Debt Strategies Limited (the “FinancialStatements”) for the year ended 31 December 2009 which comprise the Income Statement, theStatement of Changes in Shareholders’ Equity, the Balance Sheet, the Cash Flow Statement andthe related notes 1 to 24. These Financial Statements have been prepared on the basis of theaccounting policies set out therein.

This report is made solely to the Company’s members, as a body, in accordance with section 262of the Companies (Guernsey) Law, 2008. Our audit work has been undertaken so that we mightstate to the Company’s members those matters we are required to state to them in an auditors’report and for no other purpose. To the fullest extent permitted by law, we do not accept orassume 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.

Respective Responsibilities of the Directors and the AuditorsAs described in the Directors’ Report, the Company’s Directors are responsible for thepreparation of the Annual Report and the Financial Statements in accordance with InternationalFinancial Reporting Standards, applicable Guernsey law and the Listing Rules of the LondonStock Exchange and for being satisfied that they give a true and fair view.

Our responsibility is to audit the Financial Statements in accordance with relevant legal andregulatory requirements and International Standards on Auditing (UK and Ireland).

We report to you our opinion as to whether the Financial Statements give a true and fair view inaccordance with the relevant financial reporting framework and are properly prepared inaccordance with the Companies (Guernsey) Law, 2008. We also report to you if, in our opinion,the Directors’ Report is not consistent with the Financial Statements, if the Company has notkept proper accounting records, or if we have not received all the information and explanationswe require for our audit, or if information specified by law is not disclosed.

We read the other information contained in the Annual Report and consider whether it isconsistent with the Financial Statements. This information comprises the Summary Information,Chairman’s Statement, Sub-Manager’s Report, Board of Directors and the Directors’ Report. Weconsider the implications for our report if we become aware of any apparent misstatements ormaterial inconsistencies with the Financial Statements. Our responsibilities do not extend to anyother information.

Basis of Audit OpinionWe conducted our audit in accordance with International Standards on Auditing (UK and Ireland)issued by the Auditing Practices Board. An audit includes examination, on a test basis, ofevidence relevant to the amounts and disclosures in the Financial Statements. It also includes anassessment of the significant estimates and judgements made by the Directors in thepreparation of the Financial Statements and of whether the accounting policies are appropriateto the Company’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations whichwe considered necessary in order to provide us with sufficient evidence to give reasonableassurance that the Financial Statements are free from material misstatement, whether causedby fraud or other irregularity or error. In forming our opinion we also evaluated the overalladequacy of the presentation of information in the Financial Statements.

Independent Auditors Report to the Members ofAcenciA Debt Strategies Limited


OpinionIn our opinion the Financial Statements:

- give a true and fair view, in accordance with International Financial ReportingStandards, of the state of the Company’s affairs as at 31 December 2009 and of itsprofit for the year then ended; and

- have been properly prepared in accordance with the Companies (Guernsey) Law, 2008.

BDO LimitedChartered Accountants

Place du Pre, Rue du Pre, St Peter Port, Guernsey

Date: 15 March 2010


Independent Auditors Report to the Members ofAcenciA Debt Strategies Limited


2009 2008Notes £ £

Net gains/(losses) on fair value through profit or loss investments 13 12,417,983 (8,853,330)

Other gains and losses 7 21,154,604 (66,782,112)

33,572,587 (75,635,442)

IncomeOther operating income 8 768,231 1,942,420

Expenses 10

Management and performance fees (58,994) 472,661

Other expenses (965,674) (891,543)

(1,024,668) (418,882)

Net (expenses)/income (256,437) 1,523,538

Finance costs 9 (377,580) (846,172)

Profit/(loss) for the financial year 32,938,570 (74,958,076)Other comprehensive income - -

Total comprehensive income 32,938,570 (74,958,076)

Basic and Diluted Earnings/(Loss) per Share 12 16.34p (34.28)pWeighted Average Number of Shares outstanding 12 201,567,647 218,662,424

All items in the above statement derive from continuing operations.All income is attributable to the Ordinary Shares of the Company.The accompanying notes on pages 27 to 45 form an integral part of the Financial Statements.

Income StatementFor the year ended 31 December 2009

Distributable AccumulatedNotes Share Premium Reserve Profits/(losses) Total

£ £ £ £

At 1 January 2008 43,999,792 188,882,998 13,477,422 246,360,212Loss for the financial year - - (74,958,076) (74,958,076)

Total recognised income and expense for the year - - (74,958,076) (74,958,076)Ordinary Shares acquired for Treasury 18 (b) - (4,642,220) - (4,642,220)

Cost of Ordinary Shares sold from Treasury 18 (b) - 1,468,331 - 1,468,331

Gain on Ordinary Shares sold from Treasury 18 (a) 130,255 - - 130,255

Dividend paid - - (8,587,800) (8,587,800)

Scrip dividend 18 (a) 322,478 - - 322,478

At 31 December 2008 44,452,525 185,709,109 (70,068,454) 160,093,180Total comprehensive income for the year - - 32,938,570 32,938,570Ordinary Shares acquired for Treasury 18 (b) - (472,276) - (472,276)

Ordinary Shares redeemed during the year 18 (a) (20,041,546) - - (20,041,546)

Ordinary Shares cancelled during the year 18 (a) (497,435) - - (497,435)

At 31 December 2009 23,913,544 185,236,833 (37,129,884) 172,020,493

The accompanying notes on pages 27 to 45 form an integral part of the Financial Statements.


Statement of Changes in Shareholders’ EquityFor the year ended 31 December 2009

2009 2008Notes £ £

Non-current assetsInvestments at fair value through profit or loss 13 117,997,507 232,264,586

Current assetsPrepayments 56,843 173,869

Other receivables 240,455 585,800

Due from broker 13 40,579,061 -

Forward currency deals awaiting settlement 23 - 759,265

Cash and cash equivalents 14 19,109,296 -

Total current assets 59,985,655 1,518,934

Current liabilitiesForward currency deals awaiting settlement 23 5,526,030 19,141,875

Accrued expenses 16 416,014 551,976

Other payables 20,625 411,664

Bank debt 14 - 53,584,825

Total liabilities 5,962,669 73,690,340

Net current assets/(liabilities) 54,022,986 (72,171,406)

Net assets 172,020,493 160,093,180

Equity attributable to equity holdersShare capital 17 - -

Share premium 18(a) 23,913,544 44,452,525

Other distributable reserve 18(b) 185,236,833 185,709,109

Accumulated losses (37,129,884) (70,068,454)

Total shareholder’s equity 172,020,493 160,093,180

Net asset value per Share 19 90.65p 73.74p

The Financial Statements on pages 23 to 45 were approved by the Board of Directors and authorised for issue on 15 March 2010.They were signed on its behalf by:-

Director Director



Balance SheetAt 31 December 2009

2009 2008Notes £ £

Cash flows from operating activitiesProfit/(loss) for the year 32,938,570 (74,958,076)

Decrease in prepayments and other receivables 462,371 58,290

Decrease in accrued expenses and other payables (135,962) (1,543,965)

33,264,979 (76,443,751)

Purchase of investments 13 & 20 (42,131,446) (38,424,145)

Sales of investments 13 & 20 127,825,783 46,684,990

118,959,316 (68,182,906)

Adjustment for:

Realised losses/(gains) on investments 13 1,984,447 (619,913)

Movement in unrealised (gains)/losses on investments 13 (14,402,430) 9,473,243

Movement in unrealised (gains)/losses on forward foreign exchange contracts 7 & 23 (12,856,580) 16,039,138

Net cash inflow/(outflow) from operating activities 93,684,753 (43,290,438)

Cash flows from financing activities

Redemptions of Shares 18 (20,041,546) -

Buy back of Shares 18 (472,276) (4,642,220)

Cancellation of Shares 18 (476,810) -

Sale of Treasury Shares - 1,598,586

Dividends paid 4 - (8,265,322)

Net cash outflow from financing activities (20,990,632) (11,308,956)

Net increase/(decrease) in cash and cash equivalents 72,694,121 (54,599,394)Cash and cash equivalents at beginning of year (53,584,825) 1,014,569Cash and cash equivalents at end of year 14 & 20 19,109,296 (53,584,825)



Cash Flow StatementFor the year ended 31 December 2009

1. General InformationThe Company was incorporated as a company with limited liability in Guernsey on 13 October2005 and is an authorised closed-ended investment scheme domiciled in Guernsey. The OrdinaryShares have a Chapter 14 listing on the London Stock Exchange.

These Financial Statements have been prepared for the year ended 31 December 2009. Thecomparative period is for the year ended 31 December 2008.

The Company invests in a portfolio consisting primarily of debt-oriented hedge funds. TheCompany’s investment strategy is to provide annual returns in excess of 3-month LIBOR plus 5%over a rolling 3 year period, and annual standard deviation of under 5%.

2. Significant Accounting PoliciesBasis of AccountingThe Financial Statements have been prepared in accordance with International FinancialReporting Standards (“IFRS”) as endorsed by the European Union, which comprise standards andinterpretations approved by the International Accounting Standards Board (“IASB”) andInternational Accounting Standards (“IAS”) and Standing Interpretations approved by theInternational Accounting Standards Committee (“IASC”) that remain in effect, together withapplicable legal and regulatory requirements of Guernsey Law and the Listing Rules of theLondon Stock Exchange.

Changes in accounting policy and disclosuresThe accounting policies adopted are consistent with those of the previous financial year exceptas follows:

The Company has adopted all the required new standards and interpretations in issue andeffective for the current period.

The principal effects of these changes are as follows:

- IFRS 8 – Operating SegmentsThis standard requires disclosure of information about the Company’s operating segmentsand replaced the IAS 14 requirement to determine primary (business) and secondary(geographical) reporting segments. For management purposes, the Company is organisedinto one business unit. The Company determined that this operating segment was the sameas the business segment previously identified under IAS 14 Segment Reporting.

- IFRS 7 - Financial Instruments: Disclosures - amendments enhancing disclosures about fairvalue and liquidity riskThis standard requires certain disclosures which require the classification of financial assetsand financial liabilities measured at fair value using a fair value hierarchy that reflects thesignificance of the inputs used in making the fair value measurement.

The adoption of these standards has not had a material impact on the Financial Statements ofthe Company.

Standards and Interpretations in issue but not yet effectiveAt the date of authorisation of these Financial Statements, the following Standards andinterpretations, which have not been applied in these Financial Statements but will be relevantin future periods, were in issue but not yet effective.

IFRS 1 – First time Adoption of International Financial Reporting Standards – Amendmentsresulting in improved structure – for accounting periods commencing on or after 1 July 2009.

IFRS 9 – Financial Instruments – Classification and Measurement – for accounting periodsbeginning on or after 1 January 2013.

IAS 1 – Presentation of Financial Statements – Amendments resulting from improvements toIFRS – for accounting periods commencing after 1 July 2009.


Notes to the Financial StatementsFor the year ended 31 December 2009


2. Significant Accounting Policies (continued)Standards and Interpretations in issue but not yet effective (continued)IAS 7 – Statement of Cash Flows – Amendments resulting from April 2009 AnnualImprovements – for accounting periods beginning on or after 1 January 2010.

IAS 39 – Financial Instruments: Recognition and Measurement – Amendments for eligible hedgeditems – for accounting periods commencing on or after 1 July 2009.

The directors are currently considering the impact of these changes on the financial statementsof future periods.

The directors believe that other pronouncements, which are in issue but not yet operative oradopted by the Company, will not have a material impact on the Financial Statements of theCompany.

The directors believe that the annual report contains all of the information required to enableShareholders and potential investors to make an informed appraisal of the investment activitiesand profits and losses of the Company for the year to which it relates and does not omit anymanner or development of significance.

Accounting ConventionThe Financial Statements have been prepared under the historical cost or amortised cost basis,modified by the revaluation of certain financial instruments. The principal accounting policiesadopted are set out below. The preparation of financial statements in conformity withInternational Financial Reporting Standards requires the Company to make estimates andassumptions that affect the reported amounts of assets and liabilities at the date of theFinancial Statements and the reported amounts of revenues and expenses during the reportingperiod. Actual results could differ from those estimates.

The Financial Statements are presented in Sterling because that is the currency of the primaryeconomic environment in which the Company operates and the currency in which capital israised. The functional currency of the Company is also considered to be Sterling.

InvestmentsThe Directors value all investments in funds at the net asset value of that fund as at therelevant valuation date as determined in accordance with the terms of the funds and as notifiedto the Company by the relevant fund manager or the relevant administrator. The valuation dateof each fund may not always be coterminous with the valuation date of the Company and insuch cases the valuation of the fund at the last valuation date is used.

The net asset values reported by the relevant fund managers and/or fund administrators andused by the Directors as at 31 December 2009 may be unaudited as at that date and may differfrom the amounts which would have been realised from a redemption of the investment in therelevant fund as at 31 December 2009.

Investments are recognised and derecognised on the trade date where a purchase or sale isunder a contract whose terms require delivery within the timeframe established by the marketconcerned, and are initially measured at fair value.

Investments are classified as fair value through profit or loss. As the Company’s business isinvesting in financial assets with a view to profiting from their total return in the form ofinterest, dividends or increases in fair value, listed equities and fixed income securities aredesignated as fair value through profit or loss on initial recognition. The Company manages andevaluates the performance of these investments on a fair value basis in accordance with itsinvestment strategy, and information about the Company is provided internally on this basis tothe Company’s key management personnel.



2. Significant Accounting Policies (continued)Investments (continued)Financial assets designated as at fair value through profit or loss are measured at subsequentreporting dates at fair value, which is either the bid price or the last traded price, depending onthe convention of the exchange on which the investment is quoted. Investments in units of unittrusts or shares in Open Ended Investment Companies (“OEICs”) are valued at the closing pricereleased by the relevant investment manager.

Gains and losses arising from changes in the fair value of investments classified as fair valuethrough profit or loss are recognised in the Income Statement.

Foreign ExchangeForeign currency assets and liabilities are translated into sterling at the rate of exchange rulingat the balance sheet date (31 December 2009: £1: US$1.6148; 31 December 2008: £1:US$1.4575). Transactions in foreign currencies are translated at the rate of exchange ruling onthe transaction date. Differences thus arising are dealt with in the Income Statement.

Forward Currency ContractsA forward currency contract obligates the Company to receive or deliver a fixed quantity offoreign currency at a specified price on an agreed future date. These contracts are accountedfor when any contract becomes binding and are valued in the Balance Sheet at the period endpresent value of the quoted forward price. Realised and unrealised gains and losses are includedin the Income Statement.

IncomeDividend income from investments is recognised when the Shareholders’ rights to receivepayment has been established, normally the ex-dividend date.

Interest income is accrued on a time basis, by reference to the principal outstanding and at theeffective interest rate applicable, which is the rate that exactly discounts estimated future cashreceipts through the expected life of the financial asset to the asset’s net carrying amount.

ExpensesAll expenses are accounted for on an accruals basis and are presented as revenue items exceptfor expenses that are incidental to the disposal of an investment which are deducted from thedisposal proceeds.

Finance costsFinance costs are accounted for on an accruals basis and relate to bank interest resulting fromthe Company drawing down on the facility with Bank Julius Baer & Co Limited. All finance costsare expensed through the Income Statement as incurred.

Financial InstrumentsFinancial assets and financial liabilities are recognised on the Company’s Balance Sheet whenthe Company becomes a party to the contractual provisions of the instrument. The Companyshall offset financial assets and financial liabilities if the Company has a legally enforceableright to set off the recognised amounts and interests and intends to settle on a net basis.

Fair Value Measurement HierarchyIFRS 7 requires certain disclosures which require the classification of financial assets andfinancial liabilities measured at fair value using a fair value hierarchy that reflects thesignificance of the inputs used in making the fair value measurement (see note 5). The fairvalue hierarchy has the following levels:

- quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);

- inputs other than quoted prices included within Level 1 that are observable for the asset orliability, either directly (i.e. as prices) or indirectly (i.e. derived from prices) (Level 2); and

- inputs for the asset or liability that are not based on observable market data (unobservableinputs) (Level 3).



2. Significant Accounting Policies (continued)Fair Value Measurement Hierarchy (continued)The level in the fair value hierarchy within which the financial asset or financial liability iscategorised is determined on the basis of the lowest level input that is significant to the fairvalue measurement. Financial assets and financial liabilities are classified in their entirety intoonly one of the three levels.

Other ReceivablesOther receivables do not carry any interest and are short-term in nature and are accordingly statedat their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts.

Cash and Cash EquivalentsCash includes amounts held in interest bearing overnight accounts and debt balances. Cash andcash equivalents comprise bank balances and cash held by the Company including short-termbank deposits with an original maturity of three months or less. The carrying value of theseassets approximates their fair value.

Financial Liabilities and EquityFinancial liabilities and equity are classified according to the substance of the contractualarrangements entered into. An equity instrument is any contract that evidences a residualinterest in the assets of the Company after deducting all of its liabilities. Financial liabilities andequity are recorded as the proceeds received, net of issue costs.

Other Accruals and PayablesOther accruals and payables are not interest-bearing and are stated at their nominal value.

Derivative Financial InstrumentsThe Company’s activities expose it primarily to the financial risks of changes in foreign exchangerates. The Company uses forward foreign exchange contracts to hedge these exposures. TheCompany does not use derivative financial instruments for speculative purposes.

The use of financial derivatives is governed by the Company’s policies approved by the Board ofDirectors, which provide written principles on the use of financial derivatives. The Companydoes not use hedge accounting and all gains or losses on forward foreign exchange contracts aretaken to the Income Statement.

Interest-bearing Loans and BorrowingsInterest-bearing borrowings are recognised initially at fair value less attributable transactioncosts. Subsequent to initial recognition, interest bearing borrowings are stated at amortised costwith any difference between cost and redemption value being recognised in the IncomeStatement over the period of the borrowings on an effective interest basis.

Operating SegmentsThe Directors are of the opinion that the Company is engaged in a single segment of business ofinvesting in predominantly debt-oriented hedge funds.

3. Critical Accounting JudgementsIn the application of the Company’s accounting policies, which are described in note 2 to theFinancial Statements, management is required to make judgements, estimates and assumptionsabout the carrying amount of assets and liabilities that are not readily apparent from theirsources. The estimates and associated assumptions are based on historical experience and otherfactors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an on-going basis. Revisions toaccounting estimates are recognised in the period in which the estimate was revised if therevision affects only that period or in the period of the revision and future periods if therevision affects both current and future periods.



3. Critical Accounting Judgements (continued)Critical judgements in applying accounting policiesThe most critical judgement, apart from those involving estimates (see below), thatmanagement has made in the process of applying the Company’s accounting policies and thathave the most significant effect on the amounts recognised in the Financial Statements is inrespect of functional currency.

Functional currency and presentation currencyThe Board of Directors considers Sterling the currency that most faithfully represents theeconomic environment in which the Company operates. Sterling is the currency in which theCompany measures its performance and reports its results, as well as the currency in whichcapital is raised.

Key sources of estimation uncertaintyThe following are the key assumptions and other key sources of estimation uncertainty at theBalance Sheet date, that have a significant risk of causing a material adjustment to the carryingamounts of assets and liabilities within the next financial year.

Fair value of investments at fair value through profit or lossAs disclosed in notes 2 and 5, the Company invests in debt oriented hedge funds. Theinvestments are valued at the net asset value of that fund as at the relevant valuation date inaccordance with the terms of the funds and as notified by the relevant fund manager /administrator. However the valuation date may be non-coterminous with the valuation date ofthe Company and hence in such cases the latest valuation is used.

The values used in the financial statements may be unaudited as at that date and hence maydiffer from the amount which may have been realised on redemption of the investment at thebalance sheet date.

4. DividendsNo dividend has been declared for the year ended 31 December 2009 (2008: nil).

5. Financial Risk Management and Financial InstrumentsStrategy in using financial instrumentsThe Company’s activities expose it to a variety of financial risks: market risk (including currencyrisk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk andliquidity risk. The Company’s overall risk management programme focuses on theunpredictability of financial markets and seeks to minimise potential adverse effects on theCompany’s financial performance.

Significant accounting policiesDetails of the significant accounting policies and methods adopted, including the criteria forrecognition, the basis of measurement and the basis on which income and expenses arerecognised in respect of each class of financial asset, financial liability and equity instrumentare disclosed in note 2 to the Financial Statements.



5. Financial Risk Management and Financial Instruments (continued)Categories of financial instruments

Carrying value Carrying value2009 2008

£ £

Financial assetsFair value through profit or loss (FVTPL)

- Designated as FVTPL (level 2) 117,997,507 232,264,586

Held for trading

- Derivative instruments (level 2) - 759,265

Loans and receivables 59,985,655 759,669

Total assets 177,983,162 233,783,520Financial liabilitiesHeld for trading

- Derivative instruments (level 2) 5,526,030 19,141,875

Amortised cost 436,639 54,548,465

Total liabilities 5,962,669 73,690,340

Loans and receivables presented above represents cash and cash equivalents, balances due frombrokers and other receivables as detailed in the Balance Sheet.

Financial liabilities measured at amortised cost presented above represent balances due tobrokers, bank debt and other payables and accrued expenses as detailed in the Balance Sheet.

Derivative instruments above represent forward foreign exchange contracts to hedge exposureto changes in foreign exchange rates.

Capital Risk ManagementThe Company’s principal activity and primary investment objective is to produce annual returnsin excess of 3-month Sterling LIBOR plus 5% over a rolling 3-year period, with annual standarddeviation of under 5%. The Company’s investment policy is to invest in an actively managedportfolio of predominantly debt-oriented hedge funds.

The capital structure of the Company consists of debt, which includes the borrowings disclosedin note 22, cash and cash equivalents and equity attributable to equity holders, comprisingissued capital, share premium and distributable reserve and retained earnings as disclosed innotes 17 and 18. The Company does not have any externally imposed capital requirements.

The Company manages its capital to endeavour to ensure that its objective is met. It does thisby investing available cash and drawing down on its bank facility whilst maintaining sufficientliquidity to meet on-going expenses.

The Manager ensures that on investment not more than 15% of the Company’s total assets areinvested in any one underlying individual hedge fund and not more than 20% of the Company’stotal assets are invested in aggregate in funds managed by any single underlying hedge fundmanager, in each case at the point of investment. These limitations do not apply to fund ofhedge fund vehicles managed or advised by the Investment Adviser.

The Investment Adviser makes its best endeavours to provide monthly redemptions inSandalwood funds to procure liquidity for the Company, and to waive any lock-in, redemption orpenalty payments which Sandalwood vehicles may have. To the extent that the InvestmentAdviser can only redeem by means of making early redemption penalty payments, thesepayments are netted off from the proceeds raised by the redemption.


5. Financial Risk Management and Financial Instruments (continued)Capital Risk Management (continued)All securities investments present a risk of loss of capital. The Investment Manager moderatesthis risk through a careful selection of securities and other financial instruments within specifiedlimits. The Company’s overall market positions are monitored on a daily basis by the Company’sInvestment Manager and are reviewed on a quarterly basis by the Board of Directors.

The Company’s investments are susceptible to market price risk arising from uncertainties aboutfuture prices of the instruments.

The Company’s market price risk is managed through diversification of the investment portfolioratio exposures. Refer to the Sub-Manager’s Report for this information.

At 31 December 2009, the Company’s financial instruments are affected by the following risks inactual market prices, interest rates, credit exposure, liquidity and foreign currency movements.Interest rate and foreign currency movements are covered separately within this note.

Market price riskThe Company invests in a portfolio consisting primarily of debt-oriented hedge funds, which areheld to obtain long term gains. The market prices of the underlying hedge funds are affected bythe managers of the underlying funds correctly assessing the future price movements of thesecurities held. If the underlying hedge fund prices at 31 December 2009 had increased by 5%,net of all performance fees, with all other variables held constant, this would have increasednet assets attributable to holders of Shares in the Company by approximately £5.96 million(2008: £11.61 million). Conversely, if the underlying hedge fund prices had decreased by 5%, netof all performance fees, this would have decreased net assets attributable to holders of Sharesin the Company by approximately £5.96 million (2008: £11.61 million).

Interest rate riskThe majority of the Company’s financial assets and liabilities are non-interest bearing. As aresult, the Company is not subject to significant amounts of risk due to fluctuations in theprevailing levels of market interest rates. Any excess of cash or cash equivalents are invested atshort-term interest rates.

The Company’s interest-bearing financial assets and liabilities expose it to risks associated withthe effects of fluctuations in the prevailing levels of market interest rates on its financialposition and cash flows.





5. Financial Risk Management and Financial Instruments (continued)Interest rate risk (continued)The table below summarises the Company’s exposure to interest rate risks:

Non interestFloating rate bearing

Financial Assets Financial Assets Total2009 2009 2009

2009 £ £ £

AssetsInvestments at fair value through profit or loss - 117,997,507 117,997,507

Other receivables and prepayments - 297,298 297,298

Due from broker - 40,579,061 40,579,061

Cash and cash equivalents 19,109,296 - 19,109,296

Total assets 19,109,296 158,873,866 177,983,162

Floating rate Non interestFinancial bearing Financial

Liabilities Liabilities Total2009 2009 2009

£ £ £

LiabilitiesForward currency deals awaiting settlement - 5,526,030 5,526,030

Accrued expenses - 416,014 416,014

Other payables - 20,625 20,625

Total liabilities - 5,962,669 5,962,669Total interest sensitivity gap 19,109,296 152,911,197 172,020,493

Non interestFloating rate bearing

Financial Assets Financial Assets Total2008 2008 2008

2008 £ £ £

AssetsInvestments at fair value through profit or loss - 232,264,586 232,264,586

Other receivables and prepayments - 759,669 759,669

Forward currency deals awaiting settlement - 759,265 759,265

Total assets - 233,783,520 233,783,520

Floating rate Non interestFinancial bearing Financial

Liabilities Liabilities Total2008 2008 2008

£ £ £

LiabilitiesForward currency deals awaiting settlement - 19,141,875 19,141,875

Accrued expenses - 551,976 551,976

Other payables - 411,664 411,664

Bank debt 53,584,825 - 53,584,825

Total liabilities 53,584,825 20,105,515 73,690,340Total interest sensitivity gap (53,584,825) 213,678,005 160,093,180



5. Financial Risk Management and Financial Instruments (continued)Interest rate risk (continued)At 31 December 2009, should interest rates have lowered by 25 basis points with all othervariables remaining constant, the increase in net assets attributable to holders of Shares for theyear would amount to approximately £40,479 (2008: increase of £56,931). If interest rates hadrisen by 25 basis points, the decrease in net assets attributable to holders of Shares wouldamount to £40,479 (2008: decrease of £57,212).

The Investment Manager monitors the Company’s overall interest sensitivity on a regular basisby reference to prevailing interest rates and the level of the Company’s cash balances or debt.

Credit riskThe Company takes on exposure to credit risk, which is the risk that a counterparty will beunable to pay amounts in full when due. Impairment provisions are provided for losses that havebeen incurred by the balance sheet date, if any.

Assets held by the Company which potentially expose it to credit risk primarily comprisereceivables in respect of redeemed investments in underlying hedge funds and cash balances.

The following table shows assets subject to credit risk:

2009 2008£ £

Investments at fair value through profit or loss 117,997,507 232,264,586

Cash and cash equivalents 19,109,296 -

Interest and other receivables and payables 40,798,891 174,136

Total 177,905,694 232,438,722

Amounts in the above table are based on the carrying value of all accounts.

The Sub-Manager’s Report includes a chart of the manager’s strategies at a fund level, whichgives information regarding the concentration of risk for the Company. The Investment Portfolioalso includes details of the Company’s principal investment holdings, including Sandalwoodmanaged funds.

The Investment Manager monitors the Company’s credit position on a monthly basis, and theBoard of Directors reviews it on a quarterly basis. The Investment Adviser also assesses the riskassociated with investments by performing financial analysis on the issuing companies as part ofits normal scrutiny of prospective investments, which includes an assessment of the principalservice providers to the hedge funds including administrator, auditors and prime brokers.Receivables for redeemed investments in underlying hedge funds are typically received withintwo months of the redemption date though may be subject to gating, liquidation or suspensionprovisions imposed by the underlying fund manager.

The bank facility is with Bank Julius Baer Ltd (“the Bank”). Bankruptcy or insolvency of the Bankmay cause the Company’s rights with respect to the facility to be delayed or limited. TheCompany monitors its risk by monitoring the credit rating of the Bank, which is currently Aa3.

The Company may enter into forward foreign exchange contracts. Transactions in forwardforeign exchange contracts are not regulated by any regulatory authority nor are theyguaranteed by an exchange or clearing house. The Company will be subject to the risk of theinability or refusal of its counterparties to perform with respect to such contracts. Any suchdefault would eliminate any potential profit and compel the Company to cover its commitmentsfor re-sale or repurchase, if any, at the then current market price. Note 23 details theoutstanding commitments in respect of forward foreign exchange contracts at the year end.

Credit risk on liquid funds and derivative financial instruments is limited because thecounterparties are banks with high credit ratings assigned by international credit rating agencies.The Investment Manager assesses the risk associated with investments by performing financialanalysis on the issuing companies as part of its normal scrutiny of prospective investments.



5. Financial Risk Management and Financial Instruments (continued)Credit risk (continued)The carrying amount of financial assets recorded in the financial statements best represents theCompany’s maximum exposure to credit risk.

Liquidity riskThe Company takes on exposure to liquidity risk, which is the risk that the Company willencounter in realising assets or otherwise raising funds to meet financial commitments.

Some of the Company’s investments may comprise securities which are traded in recognisedfinancial markets. The Company may also invest in securities which may lack an establishedsecondary trading market or are otherwise considered illiquid. Liquidity of a security relates tothe ability to easily dispose of the security and the price to be obtained and does not generallyrelate to the credit risk or likelihood of receipt of cash at maturity.

The Investment Adviser makes its best endeavours to provide monthly redemptions inSandalwood funds to procure liquidity for the Company, and to waive any lock-in, redemption orpenalty payments which Sandalwood vehicles may have.

The Company has the facility to borrow in the short term to ensure settlement. No borrowingswere utilised at 31 December 2009 (2008: £53,584,825).

The Investment Manager regularly monitors the Company’s liquidity position and the Board ofDirectors reviews it on a quarterly basis.

The table below analyses the Company’s financial assets and liabilities into relevant maturitygroups based on the remaining period at the Balance Sheet date to the contractual maturitydate. The amounts in the table are the contractual undiscounted cash flows. Balances duewithin 12 months equal their carrying balances, as the impact of discounting is not significant.

No statedLess than 1 month 1-3 months 4-12 months maturity

2009 £ £ £ £

AssetsInvestments at fair value through profit or loss - - - 117,997,507

Other receivables and prepayments 13,268 242,816 41,214 -

Due from broker 39,150,327 86,910 1,341,824 -

Cash and cash equivalents 19,109,296 - - -

Total financial assets 58,272,891 329,726 1,383,038 117,997,507LiabilitiesAccrued expenses 66,258 296,375 40,560 12,821

Other payables 20,625 - - -

Forward currency deals awaiting settlement - 5,526,030 - -

Total financial liabilities 86,883 5,822,405 40,560 12,821Total liquidity gap 58,186,008 (5,492,679) 1,342,478 117,984,686

5. Financial Risk Management And Financial Instruments (continued)Liquidity risk (continued)

No statedLess than 1 month 1-3 months 4-12 months maturity

2008 £ £ £ £

AssetsInvestments at fair value through profit or loss - - - 232,264,586

Other receivables and prepayments - 591,691 167,978 -

Forward currency deals awaiting settlement - 759,265 - -

Total financial assets - 1,350,956 167,978 232,264,586LiabilitiesAccrued expenses 47,485 447,214 44,457 12,820

Other payables 411,664 - - -

Bank debt 53,584,825 - - -

Forward currency deals awaiting settlement - 19,141,875 - -

Total financial liabilities 54,043,974 19,589,089 44,457 12,820Total liquidity gap (54,043,974) (18,238,133) 123,521 232,251,766

The Company’s investments in funds are shown as having no stated maturity dates becauseredemptions had not been placed for 31 December 2009. These investments are typicallysubject to initial lock-up periods of different lengths and varying redemption frequency andredemption notice periods. They may also be liable to redemption gating, suspension or thecreation of side-pockets for illiquid assets at the discretion of the underlying fund manager. Aliquidity chart in respect of these investments is given in the Sub-Manager’s Report.

Currency riskThe majority of the net assets of the Company are denominated in US dollar rather thanSterling, its functional currency, with the effect that the Balance Sheet and Income Statementcan be significantly affected by currency movements. The table below summarises theCompany’s exposure to currency risks.

Forward Other NetCash Investments contracts Liabilities Net Exposure

2009 £ £ £ £ £

US Dollar 58,093 117,997,507 (148,667,060) 40,579,061 9,967,601

58,093 117,997,507 (148,667,060) 40,579,061 9,967,601

Forward Other NetCash Investments contracts Liabilities Net Exposure

2008 £ £ £ £ £

US Dollar (13,373,817) 216,624,352 (202,720,967) (411,664) 117,904

(13,373,817) 216,624,352 (202,720,967) (411,664) 117,904

The Company’s investment portfolio comprises predominantly US dollar denominatedinvestments. The Company engages in currency hedging in an attempt to reduce the impact onthe Company of currency fluctuations and the volatility of returns which may result from suchcurrency exposure. The Company seeks to obtain foreign exchange lines from institutions whichare rated A1 or above by Standard & Poor’s or an equivalent rating agency.

The Company hedges the majority of its currency exposure back to Sterling through the use ofrolling forward foreign exchange contracts. This policy, which is an integral aspect of theCompany’s investment strategy, eliminated volatility that would otherwise have occurred as aresult of fluctuations in the Sterling/US dollar exchange rate over the period. Details of openforward foreign exchange contracts are detailed in note 23.





5. Financial Risk Management and Financial Instruments (continued)Currency risk (continued)At 31 December 2009, had the exchange rate between Sterling increased or decreased comparedto US Dollar by 5% with all other variables held constant, the increase or decrease respectivelyin net assets attributable to holders of Shares would amount to approximately £0.43 million(2008: £0.39 million).

The Investment Manager monitors the Company’s currency position on a daily basis, and theBoard of Directors reviews it on a quarterly basis.

Fair value of financial instrumentsThe fair value of financial assets and financial liabilities are determined as follows:

- Foreign currency forward contracts are measured using quoted forward exchange rates andyield curves derived from quoted interest rates matching maturities of the contracts.

- The fair value of non-derivative financial assets and financial liabilities are determined asset out in note 2.

The carrying amounts of financial assets and financial liabilities recorded at amortised cost inthe financial statements approximate their fair values.

6. Segment InformationOperating segments are reported in a manner consistent with the internal reporting provided tothe chief operating decision maker. The chief operating decision maker, who is responsible forallocating resources and assessing performance of the operating segments, has been identifiedas the Board of Directors of the Company.

For management purposes, the Company is organised in to one main operating segment, whichfocuses on long term growth from investments. All of the Company’s activities are interrelated,and each activity is dependent on the others. Accordingly, all significant operating decisions arebased upon analysis of the Company as one segment. The financial results from this segment areequivalent to the financial statements of the Company as a whole.

In terms of the funds in which the Company invests, these are predominantly incorporated inthe United States. The underlying investments in the funds however, may be in other countries.

2009 2008£ £

Net profit/(loss)United States 32,938,570 (74,958,076)

2009 2008£ £

Total assetsUnited States 177,983,162 233,783,520

7. Other Gains and Losses2009 2008

£ £

Held for trading: Derivative financial instruments:

Net realised foreign exchange gains/(losses) on forward foreign exchange contracts and currency transactions 3,011,232 (45,127,311)

Net movement in unrealised foreign exchange gains/(losses) on forward foreign exchange contracts (note 23) 12,856,580 (16,039,138)

Other:

Net gain/(loss) on currency translations 5,286,792 (5,615,663)

21,154,604 (66,782,112)

8. Other Operating Income2009 2008

£ £

Other operating income arising on financial assets not at fair value through profit or loss:

Bank interest 40,764 1,656

Investment income 727,467 1,940,764

768,231 1,942,420

9. Finance Costs2009 2008

£ £

Finance costs arising on financial liabilities not at fair value through profit or loss:

Bank debt interest 377,580 846,172

The bank interest resulted from the Company’s debt facility with Bank Julius Baer & Co Limitedto fund the purchase of investments in the short term.

10. Expenses2009 2008

£ £

Management fees 1,634,580 2,165,918

Performance fees - (15,039)

Sandalwood management fee rebate (1,575,586) (2,623,540)

58,994 (472,661)Other expenses:

Legal fees 210,029 13,793

Accounting, secretarial and administration fees 157,252 206,925

Loan commission fees 149,232 152,500

Directors’ remuneration 87,500 87,500

Custodian fees 81,766 108,404

Auditors’ remuneration for audit services 22,874 24,998

Other expenses 257,021 297,423

965,674 891,543Total expenses 1,024,668 418,882

The Sandalwood Securities, Inc. (“Sandalwood”) management fee rebate is the management feelevied by Sandalwood in relation to the net asset value of Sandalwood funds invested in byAcenciA. This management fee is treated as a reduction to the AcenciA management fee so asto avoid duplication in fees paid to Sandalwood. The management fee charged by Sandalwood inrelation to its funds is 1.5% of the net asset value of each fund.

The Company has no employees. The Directors are the only key management personnel of theCompany. Their remuneration disclosed above is all in respect of short-term employee benefits.

No amounts were paid to the auditors during the period in respect of non-audit services.

Management and Performance feesThe Company is responsible for the fees of the Manager in accordance with the ManagementAgreement between the Company and the Manager dated 2 November 2005.

For the services performed under the Management Agreement, the Company pays the Manager amanagement fee equal to 1% per annum of total assets.

The Manager compensates the Investment Adviser and the Sub-Manager for their services to theCompany under the terms of the Investment Advisory Agreement and Sub-Management Agreement.





10. Expenses (continued)Management and Performance fees (continued)In addition to the management fee, subject to satisfaction of the High Water Mark Provision andthe Performance Hurdle Provision, the Manager will be entitled to a performance fee equivalentto 10% of the amount by which the value of the Net Asset Value per share at the end of eachAccounting Period exceeds the value of the Net Asset Value per share at the end of the previousAccounting Period. Under the High Water Mark Provision, the Net Asset Value per share at theend of each Accounting Period must be greater than the value of the Net Asset Value per shareat the end of any previous Accounting Period after taking account of any dividend paid. Underthe Performance Hurdle Provision the Net Assets must have increased by at least 3% during therelevant Accounting Period after taking account of any dividend paid. The current High WaterMark for the Company is 107.98p per share.

The Investment Management Agreement may be terminated by either party giving the other notless than six months’ written notice. The Sub-Management Agreement will terminate at thesame time as the Investment Management Agreement terminates or otherwise on either partygiving twelve months’ written notice.

The Investment Advisory Agreement may not be terminated prior to the expiry of the initialperiod, which currently runs until 31 December 2010. Thereafter it may be terminated on sixmonths’ written notice. In the event that the Investment Advisory Agreement is terminated, theInvestment Adviser will remain entitled to a pro rata share of its fees to the extent that and forso long as the Company’s assets remain invested in funds which were recommended by theInvestment Adviser, including any funds managed or advised by the Investment Adviser.

Administration feesIn respect of the services provided under the Administration Agreement dated 1 October 2007,the Company pays Butterfield Fulcrum Group (Guernsey) Limited (“BFG”), a fee which shall notexceed 0.085% per annum of the net asset value of the Company, subject to a minimum annualpayment of £10,000. In addition, BFG is entitled to receive fees for any extraordinary dutiesperformed to be charged on a time spent basis. The Administration Agreement is terminable byeither side on three months’ notice.

Custodian feesThe Company is responsible for the fees of the Custodian (Bank Julius Baer & Co Limited) inaccordance with the Custodian Agreement made between the Company and the Custodian dated2 November 2005.

In respect of services provided under the Custodian Agreement, the Company pays the Custodiana quarterly fee at the rate of 0.05% of the Net Asset Value of the Company per annum subjectto a minimum fee of £3,325 per quarter. The Custodian Agreement is terminable by either sideon three months’ notice. The Custodian does not have any decision-making discretion relating tothe investment of the assets of the fund.

11. Tax StatusThe Company is exempt from Guernsey income tax under the Income Tax (Exempt Bodies)(Guernsey) Ordinance 1989 and is charged an annual exemption fee of £600.

12. Basic and Diluted Earnings/(Loss) Per ShareBasic and diluted earnings/(loss) per Share are calculated by dividing net income available bythe weighted average number of Shares outstanding during the year.

2009 2008Number of Number of

Shares Shares

Weighted average number of Shares 201,567,647 218,662,424

The weighted average number of Shares as at 31 December 2009 is based on the number ofShares in issue during the period under review, as detailed in note 17.

13. Investments2009 2008

£ £

Fair value through profit or loss investmentsOpening fair value as at beginning of year 232,264,586 248,967,097

Purchases at cost 41,719,782 38,835,809

Sales - proceeds (168,404,844) (46,684,990)

- realised (losses)/gains on sales (1,984,447) 619,913

Movement in unrealised gains/(losses) on investments for the year 14,402,430 (9,473,243)

12,417,983 (8,853,330)

Closing fair value at end of year 117,997,507 232,264,586

Closing cost 100,609,729 229,279,238

Unrealised gains on investments 17,387,778 2,985,348

Closing fair value at end of year 117,997,507 232,264,586

Further information and analysis of the investments is included in the Summary Information andSub-Manager’s Report.

As at 31 December 2009 £nil (2008: £411,664) of investment purchases were unsettled, and£40,579,061 (2008: £nil) of investment sales proceeds were receivable.

14. Cash and Cash Equivalents2009 2008

£ £

Opening cash and cash equivalents (53,584,825) 1,014,569

Net movement in the year 72,694,121 (54,599,394)

Closing cash and cash equivalents 19,109,296 (53,584,825)Cash at bank 19,109,296 -

Debt - (53,584,825)

19,109,296 (53,584,825)

Cash and cash equivalents comprise bank balances, bank debt (refer to note 22) and cash heldby the Company including short-term bank deposits with an original maturity of three months orless. The carrying value of these assets approximates to their fair value.

15. Current Assets and LiabilitiesThe Directors consider that the carrying amount of other receivables and other payablesapproximates to their fair value.

16. Accrued Expenses2009 2008

£ £

Management fees 290,542 441,381

Accounting, secretarial and administration fees 24,696 12,284

Directors’ remuneration 22,055 21,875

Printing costs 21,787 24,459

Auditors’ remuneration 18,773 19,998

Sundry expenses 18,654 18,653

Trustee fee 14,527 7,226

Registrar fee 4,980 6,100

416,014 551,976




17. Share CapitalAuthorised CapitalThe Company has the power to issue an unlimited number of Shares of no par value which maybe issued as Redeemable Shares or C Shares or otherwise and which may be denominated inSterling, Euros, US Dollars or any other currency. The Redeemable Shares are redeemable at theoption of the Company, not shareholders.

Issued Capital

Treasury Shares Total

31 December 2009At 1 January 2009 3,369,379 217,117,013 220,486,392

Shares redeemed during the year - (25,937,034) (25,937,034)

Shares transferred to Treasury during the year 716,423 (716,423) -

Shares cancelled during the year (4,085,802) (700,000) (4,785,802)

Shares of no par value at 31 December 2009 - 189,763,556 189,763,556

31 December 2008At 1 January 2008 - 220,200,000 220,200,000

Shares issued during the year - 286,392 286,392

Shares sold from Treasury during the year (1,480,174) 1,480,174 -

Shares transferred to Treasury during the year 4,849,553 (4,849,553) -

Shares of no par value at 31 December 2008 3,369,379 217,117,013 220,486,392

The Company’s Articles of Association provide the Directors with wide powers to issue furtherShares (of one or more currency classes and whether as C Shares or Shares) on anon-pre-emptive basis and without seeking further Shareholder approval. Neither the Shares orC Shares have any right to fixed income.

The Company acquired some of its own Shares to be held as treasury shares during the yearas follows:

Number ofDate Shares Acquired Price per Share

20 October 2009 100,000 65.000p

23 October 2009 140,000 65.350p

30 October 2009 258,818 65.730p

12 November 2009 217,605 66.940p

The Company also acquired and cancelled the following Shares during the year:

Number ofDate Shares Cancelled Price per Share

17 November 2009 650,000 71.240p

30 November 2009 20,000 68.750p

18 December 2009 10,000 68.750p

21 December 2009 20,000 68.750p

The 4,085,802 treasury shares held were all cancelled by the year end.


17. Share Capital (continued)Buy Back of Shares and Authority to Buy Back SharesBy way of an ordinary resolution passed by a written resolution dated 2 November 2005 theCompany took authority, in accordance with Clause 5 of The Companies (Purchase of OwnShares) Ordinance 1998 (the “Ordinance”), to make market purchases of fully paid OrdinaryShares, provided that the maximum number of Shares authorised to be purchased shall be14.99% of the issued Share Capital of the Company issued pursuant to the Initial Public Offering(“IPO”). The minimum price which may be paid for a Share pursuant to such authority is onepenny and the maximum price which may be paid for a Share is an amount equal to the higherof 105% of the average of the middle market quotations for a Share taken from the Official Listfor the five business days immediately preceding the date on which the Share is purchased orthe higher of the price of the last independent trade and the highest current independent bid atthe time of purchase.

By way of a special resolution at an Extraordinary General Meeting held on 18 March 2009,shareholders approved the renewed authority that the Company be authorised to purchase itsown shares. Such authority will expire at the Annual General Meeting of the Company in 2010unless such authority is varied, revoked or renewed prior to such date by a special resolution ofthe Company in general meeting.

18. Reservesa) Share Premium Account

2009 2008£ £

Share Premium Account as at beginning of year 44,452,525 43,999,792

Shares redeemed during the year (20,041,546) -

Shares cancelled during the year (497,435) -

Gain on Shares sold from Treasury - 130,255

Scrip dividend - 322,478

Share Premium Account as at end of year 23,913,544 44,452,525

As at 31 December 2009 £20,625 (2008: £nil) of Share transactions were unsettled.

b) Distributable Reserve2009 2008

£ £

Distributable Reserve as at beginning of year 185,709,109 188,882,998

Ordinary Shares acquired for Treasury (472,276) (4,642,220)

Cost of Shares sold from Treasury - 1,468,331

Distributable Reserve as at end of year 185,236,833 185,709,109

19. Net Asset Value Per ShareThe net asset value per Share of £0.9065 (31 December 2008: £0.7374) is based on the netassets at the year end of £172,020,493 (31 December 2008: £160,093,180) and on 189,763,556(31 December 2008: 217,117,013) Shares, being the number of Shares in issue at the year end.

20. Notes to the Cash Flow StatementPurchases and sales of investments are considered to be operating activities of the Company,given its purpose, rather than investing activities. The cash flows arising from these activitiesare shown in the Cash Flow Statement.

Cash and cash equivalents (which are presented separately on the face of the Balance Sheet)comprise cash at bank and bank debt.




21. Reconciliation of Accounting NAV and Published NAV Per ShareNet Asset Value NAV per share

31 December 2009 £ £

Published Net Asset Value 172,093,561 0.9069

Adjustments to expense accruals 18,655 0.0001

Adjustment to investments (91,723) (0.0005)

Net Asset Value 172,020,493 0.9065

31 December 2008

Published Net Asset Value 160,113,108 0.7375

Adjustments to expense accruals (19,928) (0.0001)

Net Asset Value 160,093,180 0.7374

22. Bank FacilitiesThe Company has a multi-purpose multi-currency revolving overdraft and foreign exchange creditfacility with Bank Julius Baer & Co Limited (the “Bank”) which was entered into on 11 March2010. The Bank has agreed to provide the Company with a loan facility in the aggregate principalamount of up to the lower of £25,000,000 or 10% of the market value of the Company’s assetsdeposited with the Custodian, extendable to 15% in relation to foreign exchange exposure. Thisfacility is secured by a charge over all of the Company’s underlying assets and is in accordancewith the conditions of the Security Interest Agreement dated 2 November 2005 between theCompany, the Bank and the Custodian. The interest rate chargeable is the Bank’s floatinglending rate plus a margin of 1.75% per annum payable quarterly in arrears.

The facility is terminable at any time by the Bank on 120 days notice.

Prior to 11 March 2010 the facility amount was £50,000,000 or 20% of the Company’s monthlynet asset value. The facility was available throughout the period until 11 March 2010. At31 December 2009 the Company had drawn down £nil (31 December 2008: £53,584,825) onthis facility.

Refer to note 5 for further details relating to liquidity risk.

23. Commitments and Contingent LiabilitiesAt the balance sheet date the following commitments in respect of forward foreign exchangecontracts existed with the Custodian:

As at 31 December 2009:Unrealised Profit/(Loss)

Maturity Date Contract amount Buy Sell £

19 February 2010 USD (240,000,000) GBP USD (5,526,030)

(5,526,030)

(Forward rate for 19 February 2010 £1: US$1.6144).

As at 31 December 2008:Unrealised Profit/(Loss)

Maturity Date Contract amount Buy Sell £

17 February 2009 USD 52,900,000 USD GBP 759,265

17 February 2009 USD (348,000,000) GBP USD (19,141,875)

(18,382,610)

(Forward rate for 17 February 2009: £1: US$1.4557).

The movement in the unrealised gain/loss on the forward foreign exchange contracts is a gain of£12,856,580 as at 31 December 2009 (31 December 2008: loss of £16,039,138).

The Company has a total commitment of US$10,000,000 regarding its investment in Cerberus,with US$1,750,000 of this outstanding as at 31 December 2009.

The Company has no contingent liabilities at the balance sheet date.


24. Related Party TransactionsSaltus (Channel Islands) Limited (the “Manager”), Saltus Partners LLP (the “Sub-Manager”),Sandalwood Securities, Inc. (the “Investment Adviser”) and the Directors are regarded as relatedparties. The only related party transactions are described below:

The fees and expenses payable to the Manager are explained in Note 10. The management andperformance fee balances due at the end of the year were £290,542 (31 December 2008: £441,381)and £nil (31 December 2008: £nil) respectively.

There were no direct transactions with the Investment Adviser during the year.

Mr J Macintosh is a director of the Manager and a partner in the Sub-Manager and as such he haswaived his right to remuneration as a director of the Company.

The basic fee paid to each independent non-executive director for the year ended 31 December2009 was £17,500 (2008: £17,500), except for the Chairman who received £30,000 (2008: £30,000)and Mr R Battey who receives an additional £5,000 per annum for being Chairman of theAudit Committee.

At an extraordinary general meeting of the Company on 18 March 2009 shareholders approved aresolution to enable the conversion of ordinary shares into shares of AcenciA Fundamental Credit,a cell of Guernsey Portfolios PCC Limited, which is an open ended sister fund of AcenciA to whichthe Manager, the Sub-Manager and the Investment Adviser act in the same roles. Mr J Macintoshis a director of Guernsey Portfolios PCC Limited. A conversion offer was subsequently made toqualifying shareholders on 23 April 2009 which resulted in 25,937,034 ordinary shares in theCompany (see note 17) with a net asset value of £20,041,546 (see note 18) being redeemed witheffect from 1 May 2009 and converted into an equivalent number of shares in AcenciAFundamental Credit.




NOTICE IS HEREBY GIVEN that the Annual General Meeting of ACENCIA DEBT STRATEGIESLIMITED (the “Company”) will be held at its registered office, 2nd Floor, Regency Court,Glategny Esplanade, St Peter Port, Guernsey, GY1 3NQ on Tuesday 13 April 2010 at 10.30 am,to consider and, if thought fit, pass the following resolutions.

Ordinary business:To consider and if thought fit, pass resolutions 1 — 4 as ordinary resolutions.

1. To receive and adopt the directors’ report and financial statements for the period ended31 December 2009.

2. To re-elect William Scott as a director.

3. To re-elect Jon Macintosh as a director.

4. To re-appoint BDO Limited (formerly BDO Novus Limited) as Auditors to the Company andto authorise the Directors to fix the Auditors’ remuneration.

Special business:

To consider and if though fit, pass resolution 5 as a special resolution.

5. THAT the Company be authorised in accordance with the Companies (Guernsey) Law 2008as amended, to make market purchases (as defined in that Law) of its own sharesprovided that:

(a) the maximum number of shares authorised to be purchased is 28,445,557;

(b) The minimum price which may be paid for a share is one penny;

(c) The maximum price which may be paid for a share is an amount equal to the higherof (a) 105 percent. of the average of the middle market quotations for a share asderived from the London Stock Exchange Daily Official list for the five business daysimmediately preceding the day on which that share is purchased and (b) the higherof the price of the last independent trade and the highest current independent bidat the time of purchase;

(d) Such authority shall expire at the Annual General Meeting of the Company in 2011,unless such authority is varied, revoked or renewed prior to such date by an ordinaryresolution of the Company in general meeting; and

(e) The Company may make a contract to purchase shares under such authority prior toits expiry which will or may be executed wholly or partly after its expiration and theCompany may make a purchase of shares pursuant to such contract.

By Order of the Board

15 March 2010

Registered Office2nd FloorRegency CourtGlategny EsplanadeSt Peter PortGuernsey GY1 3NQ

1. Shareholders entitled to attend and vote at the meeting may appoint one or more proxies (who need not beshareholders) to attend and vote on their behalf.

2. To have the right to attend and vote at the meeting you must hold shares in the Company and your name must beentered on the share register of the Company in accordance with note 4 below.

3. To be valid, Forms of Proxy (and the power of attorney or other authority, if any, under which it is signed or anotarially certified copy thereof) must be received by Capita Registrars, PXS, The Registry, 34 Beckenham Road, KentBR3 4TU as soon as possible, but, in any event, so as to arrive no later than 10.30 am on 11 April 2010. A Form of Proxyaccompanies this notice. Completion and return of a Form of Proxy will not preclude members from attending andvoting at the meeting should they wish to do so.

ACENCIA DEBT STRATEGIES LIMITED(Incorporated in Guernsey with Registered No. 43787)Notice of Annual General Meeting of Shareholders

4. The time by which a person must be entered on the register of members in order to have the right to attend or vote atthe meeting is 6.00 pm on 11 April 2010. If the meeting is adjourned, the time by which a person must be entered onthe register of members in order to have the right to attend or vote at the adjourned meeting is 48 hours before thedate fixed for the adjourned meeting. Changes to entries on the register of members after such times shall bedisregarded in determining the rights of any person to attend or vote at the meeting.

5. If the Chairman, as a result of any proxy appointments, is given discretion as to how the votes, the subject of thoseproxies, are cast and the voting rights in respect of those discretionary proxies, when added to the interests in theCompany’s securities already held by the Chairman, result in the Chairman holding such number of voting rights that hehas a notifiable interest under the Disclosure and Transparency Rules, the Chairman will make the necessarynotifications to the Company and the Financial Services Authority. As a result, any person holding 5 per cent. or moreof the voting rights in the Company, who grants the Chairman a discretionary proxy in respect of some or all of thevoting rights, and so would otherwise have a notification obligation under the Disclosure and Transparency Rules, neednot make a separate notification to the Company and the Financial Services Authority.

6. To appoint a proxy or to give or amend an instruction to a previously appointed proxy via the CREST system, the CRESTmessage must be received by the Issuer’s agent RA10 by 10.30 am on 13 April 2010. For this purpose, the time ofreceipt will be taken to be the time (as determined by the timestamp applied to the message by the CRESTApplications Host) from which the issuer’s agent is able to retrieve the message. After this time any change ofinstructions to a proxy appointed through CREST should be communicated to the proxy by other means. CREST PersonalMembers or other CREST sponsored members, and those CREST Members who have appointed voting service provider(s)should contact their CREST sponsor or voting service provider(s) for assistance with appointing proxies via CREST. Forfurther information on CREST procedures, limitations and system timings please refer to the CREST Manual. We maytreat as invalid a proxy appointment sent by CREST in the circumstances set out in Regulation 35(5) (a) of theUncertificated Securities Regulations 2001. In any case your proxy form must be received by Capita Registrars no laterthan 10.30 am on 11 April 2010.

7. As at 5 March, the latest practicable date prior to publication of this document, the Company had 189,763,556 sharesin issue with a total of 189,763,556 voting rights.

ACENCIA DEBT STRATEGIES LIMITED(Incorporated in Guernsey with Registered No. 43787)Notice of Annual General Meeting of Shareholders



Form of Proxy for use by shareholders at the Annual General Meeting of the Company to be heldat 2nd Floor, Regency Court, Glategny Esplanade, St Peter Port, Guernsey at 10.30 am on13 April 2010, to consider and, if thought fit, pass the following ordinary resolutions.

As a shareholder of the Company you have the right to attend, speak at and vote at the AnnualGeneral Meeting (the “Meeting”). If you cannot, or do not want to attend the Meeting, but stillwant to vote, you can appoint someone to attend the Meeting and vote on your behalf. Thatperson is known as a “proxy”.

You can use this Form of Proxy to appoint the Chairman of the Meeting, or someone else, asyour proxy. Your proxy does not need to be a shareholder of the Company.

I/We (name in full) .................................................................. (in BLOCK CAPITALS) of

........................................................................................................................

being (a) shareholder(s) of the Company entitled to attend and vote at meetings, herebyappoint the Chairman of the Meeting or ...................................................... (see Note 1)as my/our proxy to attend and, on a poll, to vote for me/us on my/our behalf at the AnnualGeneral Meeting of the Company to be held on 13 April 2010, and at any adjournment thereof.

VOTE ATRESOLUTION FOR AGAINST WITHHELD DISCRETION

Ordinary Business

1. Adoption of financial statements.

2. To re-elect William Scott as a director.

3. To re-elect Jon Macintosh as a director.

4. To re-appoint BDO Limited as Auditors to theCompany and to authorise the Directors to fixthe Auditors’ remuneration.

Special Business

5. To authorise the Company to make marketpurchases of its own shares.

Please indicate with an “X” in the appropriate box opposite the resolutions how you wish yourvotes to be cast (see Note 4).

Signature (s) ........................................................................... (See Note 6)

Date ........................................................................... 2010

✂

Form of ProxyAcenciA Debt Strategies Limited (the “Company”)

Notes1. If you wish to appoint as a proxy a person other than the Chairman of the Meeting (who need not be a

shareholder), please delete the words “the Chairman of the Meeting” and insert the name of the otherperson. All alterations made to this Form of Proxy must be initialled by the signatory.

2. The completion and return of this Form of Proxy will not prevent you from attending in person and votingat the Meeting should you subsequently decide to do so.

3. A shareholder may appoint more than one proxy to attend. When two or more valid but differinginstruments of proxy are delivered in respect of the same share for use at the same meeting and inrespect of the same matter, the one which is lastly delivered (regardless of its date or of the date of itsexecution) shall be treated as replacing and revoking the other or others as regards that share. If theCompany is unable to determine which instrument was lastly delivered, none of them shall be treated asvalid in respect of that share.

4. If you wish your proxy to cast all of your votes for or against a resolution you should insert an “X” in theappropriate box. If you wish your proxy to cast only certain votes for and certain votes against, insert therelevant number of shares in the appropriate box. In the absence of instructions your proxy may vote orabstain from voting as he or she thinks fit on the specified resolutions and, unless instructed otherwise,may also vote or abstain from voting as he or she thinks fit on any other business (including on a motion toamend a resolution, to propose a new resolution or to adjourn the Meeting) which may properly comebefore the Meeting.

5. The “Vote Withheld” option is provided to enable you to instruct your proxy to abstain from voting on aparticular resolution. A “Vote Withheld” is not a vote in law and will not be counted in the calculation ofthe proportion of the votes “For” or “Against” a resolution. The “At Discretion” option is provided toenable you to give discretion to your proxy to vote or abstain from voting on a particular resolution as heor she thinks fit.

6. This Form of Proxy must be signed by the shareholder or his/her attorney. Where the shareholder is acorporation, the signature must be under seal or signed by a duly authorised representative. In the caseof joint shareholders, any one shareholder may sign this Form of Proxy. The vote of the senior jointshareholder (whether in person or by proxy) will be taken to the exclusion of all others, seniority beingdetermined by the order in which the names stand in the register of members in respect of the jointshareholding.

7. To be valid, this Form of Proxy (together with any power of attorney or other authority under which it issigned or a copy of such authority certified notarially or in some other way approved by the Board ofDirectors) must be deposited at the offices of Capita Registrars, PXS, The Registry, 34 Beckenham Road,Beckenham, Kent BR3 4TU as soon as possible but, in any event, so as to arrive not less than 48 hoursbefore the time appointed for holding the Meeting.

8. Any shareholder holding 5% or more of the voting rights in the Company should refer to the notes to thenotice of Annual General Meeting before completing this Form of Proxy.

9. Shares held in uncertificated form (ie. in CREST) may be voted through the CREST Proxy Voting Servicesin accordance with the procedures set out in the CREST manual.


Form of ProxyAcenciA Debt Strategies Limited (the “Company”)


DirectorsJ Le Pelley (Chairman)*R Battey*R Dorey* (resigned 1 March 2010)J Macintosh +W Scott*

* Independent Non-Executive Directors+ Representative of the Manager and Sub-Manager

Registered Office and Directors’ Address2nd FloorRegency CourtGlategny EsplanadeSt Peter PortGuernsey GY1 3NQ

ManagerSaltus (Channel Islands) Limited2nd FloorRegency CourtGlategny EsplanadeSt Peter PortGuernsey GY1 3NQ

Sub-ManagerSaltus Partners LLP18 Dering StreetLondon W1S 1AQ

Investment AdviserSandalwood Securities, Inc.101 Eisenhower ParkwayRoselandNJ 07068USA

CustodianBank Julius Baer & Co Limited(Guernsey Branch)PO Box 87Lefebvre CourtLefebvre StreetSt Peter PortGuernsey GY1 4BS

Independent AuditorsBDO LimitedPO Box 180Place du PreRue du PreSt Peter PortGuernsey GY1 3LL

Administrator and SecretaryButterfield Fulcrum Group (Guernsey) Limited2nd FloorRegency CourtGlategny EsplanadeSt Peter PortGuernsey GY1 3NQ

RegistrarCapita IRG Registrars (Guernsey) Limited2nd Floor1 Le TruchotSt Peter PortGuernsey GY1 4AE

Legal Advisers in GuernseyCarey OlsenCarey HouseLes BanquesSt Peter PortGuernsey GY1 4BZ

Legal Advisers in United KingdomMacfarlanes LLP20 Cursitor StreetLondon EC4A 1LT

Financial Adviser/Corporate BrokerJ.P. Morgan Cazenove20 MoorgateLondon EC2R 6DA

Placing AgentKepler Partners LLPHeathcoat House20 Savile RowLondon W1S 3PR

Management and Administration

www.saltus.co.uk

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