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THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION If you are in any doubt as to the action you

should take, you are recommended to seek immediately your own personal financial advice from your independent financial adviser, stockbroker, bank manager, solicitor, accountant, fund manager or other appropriately qualified adviser authorised under the Financial Services and Markets Act 2000, as amended (the FSMA) if you are in the United Kingdom or, if not, from another appropriately authorised independent adviser. A copy of this Prospectus, which comprises a prospectus relating to Queens Walk Investment Limited (the Company) prepared in accordance with the Listing Rules and the Prospectus Rules made under Section 73A of the FSMA, has been delivered to the Financial Services Authority (FSA) in accordance with Rule 3.2 of the Prospectus Rules. The Company has been declared to be an Authorised Closed-ended investment scheme by the Guernsey Financial Services Commission under Section 8 of The Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended. Neither the States of Guernsey Policy Council nor the Guernsey Financial Services Commission take any responsibility for the soundness of the Company or for the correctness of any statements made or opinions expressed with regard to it. Applications will be made to the UK Listing Authority for 13,322,328 New Ordinary Shares and up to 49,958,731 Preference Shares to be admitted to the Official List of the UK Listing Authority and to the London Stock Exchange plc (London Stock Exchange) for 13,322,328 New Ordinary Shares and up to 49,958,731 Preference Shares to be admitted to trading on the London Stock Exchanges main market for listed securities. The application for admission to the Official List in respect of the New Ordinary Shares is an application for a premium listing and the application in respect of the Preference Shares is an application for a standard listing. It is expected that admission of the New Ordinary Shares to the Official List will become effective and that dealings in the New Ordinary Shares on the London Stock Exchanges main market will commence at 8.00 a.m. (London time) on 16 September 2010. It is expected that admission of the Preference Shares to the Official List will become effective and that dealings in the Preference Shares on the London Stock Exchanges main market will commence at 8.00 a.m. (London time) on 17 September 2010. The issue of the New Ordinary Shares and the Preference Shares and their admission to trading on the London Stock Exchanges main market and to the Official List is conditional upon the Ordinary Shareholders voting in favour of the Required Resolutions at the Extraordinary General Meeting. If you sell or have sold or otherwise transferred your Existing Ordinary Shares please send this Prospectus, together with the Application Form (having completed box 8 on the Application Form) as soon as possible to the purchaser or transferee or to the bank, stockbroker or other agent through whom or by whom the sale or transfer was effected, for delivery to the purchaser or transferee. The distribution of this Prospectus and any accompanying documents in jurisdictions other than the United Kingdom, including the United States, Australia, Canada, Japan and South Africa, may be restricted by law. Persons into whose possession these documents, the Open Offer Entitlements, the New Ordinary Shares or the Preference Shares come must inform themselves about and observe all restrictions applicable to them. Any failure to comply with these restrictions may constitute a violation of the securities laws of such jurisdictions. This Prospectus and the Application Form may not be distributed, forwarded, transmitted or otherwise made available, and their contents may not be disclosed, to any US Person or in, into or from the United States or any other Excluded Territory. US Persons and persons within the United States or any other Excluded Territory who obtain a copy of this Prospectus or the Application Form are required to disregard it. Each of the Directors, whose names appear on page 44 of this Prospectus, and the Company itself accept responsibility for the information contained in this Prospectus. The Directors and the Company declare that, having taken all reasonable care to ensure that such is the case, the information contained in this Prospectus is, to the best of their and its knowledge, in accordance with the facts and contains no omission likely to affect its import. Investment in the Company involves significant risks and special considerations. Prospective investors should read this entire document and, in particular, the section entitled Risk Factors on pages 9 to 34 of this Prospectus. The definitions used in this Prospectus are set out on pages 144 to 151.

AIII 6.1 LR13.1.9(h)

LR13.3.1(6)

AIII 1.1 AIII 1.2 AI 1.1, 1.2

AI 5.1.1, 5.1.2, 5.1.3

Queens Walk Investment Limited


(an authorised closed-ended investment scheme limited by shares and incorporated under the laws of Guernsey with registered number 43634)

Prospectus Placing and Open Offer of 13,322,328 New Ordinary Shares at 2.00 per New Ordinary Share Bonus Issue of up to 49,958,731 Preference Shares Investment Manager
AIII 5.1.2

Cheyne Capital Management (UK) LLP


Sponsor, Financial Adviser and Bookrunner

Liberum Capital Limited


The Open Offer Entitlements, the New Ordinary Shares and the Preference Shares have not been and will not be registered under the US Securities Act of 1933, as amended (the US Securities Act), or under any securities laws of any state or other jurisdiction of the United States or under the securities laws of Australia, Canada, Japan or South Africa. The Open Offer Entitlements, the New Ordinary Shares and the Preference Shares may not be offered, sold, resold, taken up, exercised, renounced, transferred delivered or distributed, directly or indirectly, into or within the United States or to, or for the account or benefit of, US Persons (as defined in Regulation S under the US Securities Act, US Persons). The Open Offer Entitlements, the New Ordinary Shares and the Preference Shares are being offered and sold only outside the United States to non-US Persons in offshore transactions in accordance with and in reliance on the exemption from the registration requirements of the US Securities Act provided by Regulation S thereunder. There will be no public offer of the Open Offer Entitlements, the New Ordinary Shares or the Preference Shares in the United States. The Company has not been and will not be registered under the US Investment Company Act of 1940, as amended (the US Investment Company Act) and, as such, investors will not be entitled to the benefits of the US Investment Company Act. No offer, purchase, sale, exercise or transfer of the Open Offer Entitlements, the New Ordinary Shares or the Preference Shares may be made except under circumstances which will not result in the Company being required to register as an investment company under the US Investment Company Act. This Prospectus does not constitute or form part of an offer to sell or issue, or a solicitation of an offer to purchase or subscribe for, the Open Offer Entitlements, the New Ordinary Shares or the Preference Shares to, or for the account or benefit of, US Persons or persons within the United States or any other Excluded Territory. US Persons and persons within the United States or any other Excluded Territory may not take up the Open Offer Entitlements, subscribe for or purchase the New Ordinary Shares or receive the Preference Shares offered hereby. All Overseas Shareholders and any person (including, without limitation, a custodian, nominee or trustee) who has a contractual or legal obligation to forward this Prospectus or any accompanying documents, if and when received, to a jurisdiction outside the United Kingdom should read the section titled Overseas Shareholders in Part IV or Part VI (as appropriate) of this Prospectus. Liberum Capital Limited (Liberum Capital), which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting as financial adviser, bookrunner, sponsor and broker for the Company in connection with the Placing and Open Offer (and financial adviser for the Company in connection with the Bonus Issue) and for no one else and will not regard any other person (whether or not a recipient of this document) as a client in relation to the Placing and Open Offer and the Bonus Issue and will not be responsible to anyone other than the Company for providing the protections afforded to its clients, nor for providing any advice in connection with the Placing and Open Offer, the Bonus Issue, the contents of this document or any other matter referred to herein. Nothing in this paragraph shall serve to exclude or limit any responsibilities which Liberum may have under FSMA or the regulatory regime established thereunder. Liberum takes no responsibility for any part of the contents of this document pursuant to sections 79(3) or 90 of FSMA and does not accept any responsibility for, or authorise, any part of the contents of this document under rule 5.5 of the Prospectus Rules of the FSA. 17 August 2010

CONTENTS
Page

SUMMARY RISK FACTORS IMPORTANT INFORMATION EXPECTED TIMETABLE OF PRINCIPAL EVENTS INDICATIVE STATISTICS CORPORATE INFORMATION PART I PART II PART III PART IV PART V PART VI PART VII THE COMPANYS BUSINESS THE ABS MARKET MANAGEMENT OF THE COMPANY TERMS AND CONDITIONS OF THE OPEN OFFER TERMS AND CONDITIONS OF THE PREFERENCE SHARES BONUS ISSUE ARRANGEMENTS TAX CONSIDERATIONS

3 9 35 41 43 44 46 65 68 79 103 105 111 115 117 144

PART VIII FINANCIAL INFORMATION PART IX ADDITIONAL INFORMATION

DEFINITIONS AND GLOSSARY

SUMMARY
THIS SUMMARY SHOULD BE READ AS AN INTRODUCTION TO THE FULL TEXT OF THIS PROSPECTUS AND ANY DECISION TO INVEST IN THE NEW ORDINARY SHARES SHOULD BE BASED ON CONSIDERATION OF THE FULL TEXT OF THIS PROSPECTUS AS A WHOLE. Where a claim relating to the information contained in this Prospectus is brought before a court, a plaintiff investor may, under the national legislation of an EEA state, have to bear the costs of translating this Prospectus before the legal proceedings are initiated. Civil liability attaches to the Company and its Directors, who are responsible for this summary, including any translation of this summary, but only if the summary is misleading, inaccurate or inconsistent when read together with the other parts of this Prospectus. The Company The Company is a non-cellular closed-ended investment company limited by shares incorporated in Guernsey in 2005. The Placing and Open Offer Conditional on the Required Resolutions being approved by Ordinary Shareholders at the EGM and Open Offer Admission occurring, 13,322,328 New Ordinary Shares are being issued pursuant to the Placing and Open Offer. Qualifying Open Offer Shareholders are being given the opportunity to apply to subscribe for New Ordinary Shares in the proportion to their existing holdings at the Offer Price (payable in full on application) on the following basis: 1 New Ordinary Share at 2.00 per New Ordinary Share for every 2 Existing Ordinary Shares registered in the name of Qualifying Open Offer Shareholders at the Open Offer Record Date and so in proportion for any other number of Existing Ordinary Shares then registered. Valid applications by Qualifying Open Offer Shareholders will be satisfied in full up to the amount of their individual Open Offer Entitlement. The Placees have agreed to subscribe for all the New Ordinary Shares at the Offer Price subject to Open Offer Admission and the passing of the Required Resolutions at the Extraordinary General Meeting, subject to clawback in respect of valid applications by Qualifying Open Offer Shareholders at the Offer Price under the Open Offer. Not all holders of Existing Ordinary Shares will be Qualifying Open Offer Shareholders. Shareholders of the Company who are located or resident in, or who are citizens of, or who have a registered address in an Excluded Territory or are US Persons (regardless of the number of Existing Ordinary Shares that they hold) will not qualify to participate in the Open Offer.

The Bonus Issue The Preference Shares, which will be denominated in Sterling, will be issued free of subscription cost to Qualifying Bonus Issue Shareholders. The Bonus Issue is conditional on the Required Resolutions being passed and Bonus Issue Admission becoming effective by not later than 8.00 a.m. on 17 September 2010. Qualifying Bonus Issue Shareholders will, subject to the conditions of the Bonus Issue, be issued Preference Shares on the basis of 1.25 Preference Shares for every 1 Ordinary Share held as at the Bonus Issue Record Date. Due to restrictions under the securities laws of the Excluded Territories, Restricted Shareholders will not qualify to participate in the Bonus Issue and will not be eligible to receive certificated Preference Shares or have their securities account in CREST credited with entitlements to Preference Shares.
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The Preference Shares Subject to applicable law and regulation, the Preference Shares confer the right to a preferential cumulative Preference Dividend (which is an amount in Sterling equal to 8 per cent. per annum of the Preference Share Notional Value) payable quarterly on each Payment Date. On a return of capital on liquidation or otherwise of the Company (other than by way of a repurchase or redemption of Shares in accordance with the provisions of the Articles and the Companies Law) the assets of the Company available for distribution among the Shareholders shall be applied first to the Preference Shareholders in proportion to their holdings for an amount equal to the Repayment Amount in respect of each Preference Share.

Proposed change to the Companys investment policy and the fund raising Having managed the Investment Portfolio through the credit crisis of 2008 and 2009, the Company, on the advice of the Investment Manager, believes that there is an opportunity for it to benefit from investment in the European real estate debt market. Accordingly, the Company is proposing, subject to the consent of Ordinary Shareholders at the Extraordinary General meeting, to: change its investment policy with the result that the Companys primary focus for new investments will be Real Estate Debt Investments; and undertake a Placing and Open Offer of New Ordinary Shares to raise gross proceeds of 26,644,656 million to invest in accordance with the proposed investment policy.

The Company also proposes, subject to the approval of the Required Resolutions, to make a Bonus Issue to Ordinary Shareholders of fixed income Preference Shares. The Placing and Open Offer and the Bonus Issue are conditional on the approval of the following resolutions at the Extraordinary General Meeting: the special resolution to amend the Articles to accommodate the Preference Share rights, approve the Placing and Open Offer and the Bonus Issue and approve each modification, variation or abrogation of the rights of Ordinary Shares; the ordinary resolution to amend the Companys investment policy; and the ordinary resolution to approve the Offer Price of the New Ordinary Shares being 2.00 which is a discount of more than 10 per cent. to the middle market price of the Ordinary Shares on 13 August 2010,

such resolutions being the Required Resolutions. The Board believes that the proposed change to the investment policy of the Company, the Placing and Open Offer and the Bonus Issue will result in a number of benefits for the Company. The Directors, on the advice of the Investment Manager, believe that Real Estate Debt Investments offer attractive returns relative to the risk of such investments. Further, the Company is mindful of the need to balance its best interests to raise capital against the interests of Ordinary Shareholders. The Board believes that the structure of the Placing and Open Offer balances appropriately the interests of Existing Ordinary Shareholders with new investors in that it offers Existing Ordinary Shareholders the opportunity to not suffer, or limit the, dilution that will occur upon the issue of New Ordinary Shares.

Investment objective The Board believes that it is now in the best interests of Ordinary Shareholders as a whole for the Companys investment policy to be amended.

The Companys proposed investment policy will permit the Company to invest primarily in Real Estate Debt Investments. As at the date of this Prospectus, the Investment Portfolio includes a number of Residual Income Positions and as a result, in order to avoid inadvertent breaches of the proposed investment policy, the proposed investment policy will, if adopted, require at least 70 per cent. of the NAV of the Company to be invested in Real Estate Debt Investments and Residual Income Positions. However, if the proposed investment policy is adopted at the EGM, the Company does not currently intend to actively increase existing Residual Income Positions or invest in other Residual Income Positions with the current intention that eventually Real Estate Debt Investments will form a majority of the Investment Portfolio. Background to the further business proposed at the EGM In addition to the Required Resolutions proposed at the EGM to implement the change to the Companys investment policy and the fund raising, the Company is: proposing to amend the Management Fee payable to the Investment Manager, conditional upon and with effect from Bonus Issue Admission; proposing to amend the name of the Company from Queens Walk Investment Limited to Real Estate Credit Investments Limited; taking the opportunity to make a number of amendments to its Memorandum and Articles to reflect current legal and regulatory requirements and market practice; proposing a resolution which would allow the Company, at the discretion of the Directors, to buy back Preference Shares, if issued, subject to certain limitations; and proposing a resolution which would disapply the pre-emption rights contained in the Revised Articles in respect of 2,664,466 Ordinary Shares, such disapplication to have effect until the Companys annual general meeting in 2011 (unless previously renewed, varied or revoked by the Company in general meeting).

In the event that any one of the Required Resolutions is not passed by the required majority of Shareholders attending and voting at the EGM (whether in person or by proxy), the Placing and Open Offer and the Bonus Issue will not take place.

Investment Portfolio and performance As at 31 March 2010 (the latest practicable date prior to the publication of this Prospectus), the Companys Investment Portfolio was valued at 92.5 million and the Company had a Net Asset Value per Ordinary Share of 3.73 (source: audited accounts for the year ended 31 March 2010). The Companys Investment Portfolio generated interest income of 16.1 million for the 12 month period ended 31 March 2010 compared to interest income of 21.7 million for the 12 month period ended 31 March 2009 (source: audited accounts for the years ended 31 March 2010 and 31 March 2009, respectively). Since 31 March 2010, the Companys Investment Portfolio has generated interest income of 4.1 million for the period to 30 June 2010 (source: management accounts, unaudited). The Company generated total gross cash flows of 20.9 million in the quarter ended 31 March 2010, of which 6.3 million came from the Investment Portfolio, 5.4 million was received from the sale of a AAA bond portfolio and a further 9.2 million was received from the sale of the Magellan 2 portfolio (source: audited accounts for the year ended 31 March 2010). The cash balance as at 31 March 2010 was 15.7m. Since 31 March 2010, the Company has recorded total gross cash flows for the period to 30 June 2010 (the latest practicable date prior to the publication of this Prospectus) of 17.2 million of which 6.7 million came from the Investment Portfolio and a further 10.5 million was received from the sale of the Gate 06-1 and Gate 05-2 SME portfolios and one ABS Bond (source: management accounts, unaudited).

Financing strategy As at the date of this Prospectus, the Company and the Group has no structural indebtedness or external borrowings of any type. The Company does not currently intend to incur indebtedness prior to completion of the investment of the net cash proceeds of the Placing and Open Offer.

Dividend policy If the Required Resolutions are approved, following completion of the Bonus Issue of Preference Shares, the Company currently intends that available income is first used to pay any Preference Dividend that is due and payable and then, if the Directors in their sole discretion so resolve, to pay dividends to Ordinary Shareholders. It is expected that the dividend payable to Ordinary Shareholders, following payment of any Preference Dividend, will be substantially reduced as compared to the dividends that have been previously paid in respect of the Ordinary Shares. However, the Directors do currently intend that the Company continues to pay a dividend to Ordinary Shareholders when it is able and appropriate to do so. The Company further intends, subject to the performance of the Investment Portfolio, that the amount of dividends paid, if any, to Ordinary Shareholders following the change to the dividend policy should be adjusted from time to time in line with any increase or decrease in interest income from the Investment Portfolio, subject to applicable law and regulation. There is no assurance that the Company will declare or pay dividends on Ordinary Shares or the Preference Dividend and, if dividends are paid, there is no assurance with respect to the amount and timing of such dividend.

The Investment Manager The Companys investments are managed by Cheyne Capital Management (UK) LLP, a London-based investment management company. Under the current terms of the Investment Management Agreement, the Investment Manager is entitled to receive from the Company an annual Management Fee of 1.75 per cent. of the Net Asset Value of the Company other than to the extent that such value is comprised of any investment where the underlying asset portfolio is managed by the Investment Manager. The Investment Management Agreement Side Letter will, conditional upon the approval of Ordinary Shareholders at the EGM and Bonus Issue Admission occurring, amend the calculation of the Management Fee set out above so that the Management Fee payable will be equal to 1.75 per cent. per annum of the Adjusted NAV of the Company other than to the extent that such value is comprised of any investment where the underlying asset portfolio is managed by the Investment Manager. The Adjusted NAV will be equal to the prevailing NAV calculated in accordance with the Companys accounting policies increased by an amount equal to the number of Preference Shares in issue (excluding Preference Shares held in treasury) multiplied by the Preference Share Notional Value. The calculation of the Incentive Fee payable to the Investment Manager from time to time will not be amended pursuant to the Investment Management Agreement Side Letter.

Principal Risk Factors Investment in the New Ordinary Shares and the Preference Shares is subject to many risks including: Risks relating to the Company and its investment strategy the Company will be reliant on the skill and judgement of the staff of the Investment Manager in valuing and determining an appropriate purchase price for its investments and determining the value of certain investments thereafter, in particular Residual Income Positions; the Companys operating history and the Investment Managers track record are not indicative of the Companys or the Investment Managers future performance; the ability of the Company to effectively implement its investment policy and achieve its desired investment returns may be limited by its ability to source appropriate investments in which to invest;

Risks relating to ABS, Real Estate Debt Investments and Residual Income Positions on liquidation of the Companys assets on any given day, the reported NAV may not match the cash value received on such assets; investments in the Investment Portfolio may be exposed to losses resulting from the default and foreclosure of secured loans; many of the Companys investments in Residual Income Positions are illiquid, other assets in the Investment Portfolio may be illiquid in the future and such illiquidity may adversely affect the Companys ability to raise cash or vary its Investment Portfolio in a timely fashion; the Companys income will be derived from payments from its investments and defaults on investments will harm the Companys performance; the Company is subject to concentration risk in its Investments Portfolio, in particular in relation to the real estate sector;

Risks relating to Real Estate Debt Investments the Company will be exposed through its investment in Real Estate Debt Investments to various risks associated with RMBS and residential mortgage loans; the Company will be exposed through its investment in Real Estate Debt Investments to various risks associated with CMBS and commercial mortgage loans;

Risks relating to the Investment Manager there can be no assurance that the Directors of the Company will be able to find a replacement manager if the Investment Manager resigns; the departure or resignation of some or all of the Investment Management Team could prevent the Company from achieving its investment objective;

Risks relating to the Shares the price of the Companys Shares may fluctuate significantly; the Company may issue additional securities that dilute existing holders of Shares or that have rights or privileges that are more favourable than the rights and privileges of holders of Shares and, if the Revised Articles are adopted at the EGM, the Company intends to seek renewal of the dis-application of pre-emption rights on an ongoing basis;

Risks relating to Ordinary Shares approval of the Required Resolutions by Ordinary Shareholders may result in the issue of Preference Shares that will entitle their holders to a preferential cumulative dividend to be paid in preference to any distribution to Ordinary Shareholders and to a preferred right to repayment of the Repayment Amount; the value of the Companys Investment Portfolio attributable to the Ordinary Shares will depend on the assets in the Companys portfolio being sufficient to meet the Repayment Amount of the Preference Shares; Ordinary Shareholders may not receive distributions;

Risks relating to Preference Shares the existence of a liquid market in the Preference Shares cannot be guaranteed; the Companys ability to pay dividends and the Repayment Amount to holders of Preference Shares is not guaranteed;

Risks relating to the Placing and Open Offer and the Bonus Issue Ordinary Shareholders will experience dilution in their ownership of, and voting interest in, the Company to the extent to which they do not subscribe in full for their Open Offer Entitlement; and Shareholders outside the United Kingdom may not be able to acquire New Ordinary Shares and may not be able to participate in the Bonus Issue.

RISK FACTORS
An investment in the Shares carries a number of risks including the risk that the entire imnvestment may be lost. In addition to all other information set out in this Prospectus, the following specific factors should be considered when deciding whether to make an investment in the Shares. The risks set out below are those which are considered to be the material risks relating to an investment in the New Ordinary Shares and participation in the Bonus Issue known to the Directors as at the date of this Prospectus. No assurance can be given that Shareholders will realise profit on, or recover the value of, their investment in the Shares. It should be rememebered that the price of securities and the income from them can go down as well as up. The Shares are only suitable for potential investors who understand the potential risk of capital loss and that there may be limited liquidity in the underlying investments of the Company, for whom an investment in the Shares would be of a long-term nature and constitutes part of a diversified investment portfolio and who understand and are willing to assume the risks involved in investing in the Shares. Additional risks and uncertainties of which the Company is presently unaware or that the Company currently believes are immaterial may also adversely impact its business, financial condition, results of operations or the value of the Shares. Potential investors in the Shares should review this Prospectus carefully and in its entirety and consult with their professional advisers prior to making an application to subscribe for Shares. Defined terms used in the risk factors below have the meanings set out under the section headed Definitions and Glossary on pages 144 to 151 of this Prospectus. Risks relating to the Company and its investment strategy The Company will be reliant on the skill and judgement of the staff of the Investment Manager in valuing and determining an appropriate purchase price for its investments and determining the value of certain investments thereafter, in particular Residual Income Positions. Any determinations of value that differ materially from the value the Company realises on maturity of the investments or upon their disposal will likely have a negative impact on the Company and its share price The Companys Residual Income Positions are and may continue to be illiquid and there will be no readily available market for sale of those investments or by reference to which they can be valued. The valuation of Residual Income Positions is highly subjective. There is no commonly agreed-upon methodology to value Residual Income Positions and, in light of the subjective nature of the assessment of Residual Income Positions, it is generally not possible to obtain bid or offer prices from market makers for the assets or fairness or similar opinions in respect of such pricing. Accordingly, the Company will be dependent on the Investment Managers assessment of an appropriate on-going valuation of all Residual Income Positions and certain other investments. The valuation determined by the Investment Manager in respect of a Residual Income Position will be based on the returns (internal rate of return or discount rates for such asset as well as the expected cash flow returns) that the Investment Manager expects the investment to generate, utilising a financial pricing model that reflects numerous variables including, among other things, the Investment Managers assessment of the nature of the investment and the relevant collateral, security position, risk profile, historical default rates, and the originator and servicer of the position. Each of these factors involves subjective judgements and forward-looking determinations by the Investment Manager. In the event that the Investment Manager misvalues an investment (for whatever reason), the actual returns on the investment may be less than anticipated at the time of valuation. Further, in light of the illiquidity of the investment, it may be difficult for the Company to dispose of the investment at a price similar to the valuation. Since the Investment Managers valuations will be based on assumptions and estimates, not all of which can be confirmed, whether readily or at all, the Investment Managers, and therefore the Companys, determinations of fair value of Residual Income Positions may differ materially from the values that might have been used if a ready market for those investments existed. Even if offer or bid prices were available for the Companys investments, such quotations may not reflect the value that the Company would actually be able to realise.
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AIII 2 AI 4

The ABS bonds (being the assets in the Company Portfolio that are not Residual Income Positions) and Real Estate Debt Investments are currently valued using available market prices. Should there be an increase in illiquidity in the applicable market, this may have an impact upon the valuation of the bonds and consequentially adversely affect the Companys NAV and/or Share price. Where any such illiquidity means that there is no available market price or that, in the view of the Investment Manager and the Company, an available market price is not reflective of the true value of an asset, the Investment Manager may choose to adopt an alternative valuation methodology in respect of ABS bonds and Real Estate Debt Investments held. Alternative valuation methodologies may include the use of a financial model to calculate an appropriate valuation. If this were to occur, the risks relating to the valuation of Residual Income Positions set out above would also apply to the valuation of ABS bonds and Real Estate Debt Investments. The Net Asset Value and the value of the Shares could be adversely affected if the Investment Managers determinations regarding the fair value of the Companys investments are materially higher than the values that the Company ultimately realises to maturity of the investments or upon their disposal. Moreover, the Management Fee payable to the Investment Manager is based on the determinations made by the Investment Manager of the value of the Companys investments. The NAV could be adversely affected if the values of investments that the Company records are materially higher than the values that are ultimately realised upon the disposal or realisation of investments and changes in values attributed to investments from period to period may result in volatility in the NAV and results of operations that the Company reports from time to time. The Company makes no assurance and gives no guarantee that the investment values that the Company records from time to time will ultimately be realised. In relation to the valuation of the Companys illiquid investments, the Companys Auditors have noted an emphasis of matter in the auditors report and financial statements for the Company. The Auditors have noted that: (i) the fair value estimates included in the financial statements are subject to considerable uncertainty; (ii) different assumptions will impact the measurement of the investments which may have an effect on the financial statements; and (iii) it is not possible to quantify the potential effects of the resolution of this uncertainty. There is a material risk that on sale of the Companys assets, the Company may not be able to achieve the book value ascribed to such investment in the Companys financial statements. If the book value is not achieved on a number of investments, or a single significant investment, the ability of the Company to return value to Shareholders may be diminished significantly. The Companys operating history and the Investment Managers track record are not indicative of the Companys or the Investment Managers future performance The Companys operating history and the track record of the Investment Manager are not indicative of the Companys or the Investment Managers future performance. No guarantee is made in relation to the performance of the Company, the Ordinary Shares or the Preference Shares. Past performance may not be an accurate predictor of future performance or returns, nor is there any guarantee that future market conditions will allow for similar performance. An investment in the Company is subject to the risk that the Company will not achieve its investment objectives or the expected return from the investments and that the value of the Shares could decline substantially. The ability of the Company to effectively implement its investment policy and achieve its desired investment returns may be limited by its ability to source appropriate investments in which to invest The ability of the Company to implement its investment policy effectively and achieve its desired investment returns may be limited by its ability to source appropriate investments in which to invest the net proceeds of the Placing and Open Offer and reinvest capital returned on its existing investments. The Company has not yet identified the investments that it will make using the net proceeds of the Placing and the Open Offer. There can be no assurance that suitable investment opportunities will materialise, prove attractive or be sufficient in quantity or size to permit the Company to invest any cash raised in the Placing Open Offer in a timely matter, or at all. Until such time as the Investment Manager is able to identify, invest in and monitor a suitable number of investments and implement the various aspects of the Companys investment strategy, its funds may not be fully invested. Also, the majority of the Companys investments amortise or are repaid over time,
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such that their weighted average lives generally range from six months to 15 years, giving rise to re-investment risk. There can be no assurance that, upon receiving the full or partial repayment of a given investment, the Company will be able to make a further investment with an expected rate of return equal to that of the investment repaid. If the expected rate of return of the new investment is less than that of the investment repaid, this may reduce the value of the Shares and net income and, consequently, could have an adverse impact on the Companys ability to pay dividends (including the Preference Dividends). Achieving growth is largely a function of the Investment Managers ability to provide competent, attentive and efficient services under the Investment Management Agreement and the Companys ability to reinvest capital and obtain additional capital on acceptable terms. In order for the Company to grow, the Investment Manager may be required to hire, train, supervise and manage new employees. However, the Company can offer no assurance that any of those employees will contribute to the work that the Investment Manager carries out on the Companys behalf. Any failure to manage the Companys future growth or to effectively implement the Companys investment strategy could have a material adverse effect on the Companys business, financial condition and results of operations. The Company may face increased competition in sourcing and making investments The Company may become subject to increased competition in sourcing and making investments. In particular, competition in respect of Real Estate Debt Investments (which will be the Companys primary investment focus in the event that Shareholders approve the change to the investment policy) may increase. Some of the Companys competitors may have greater financial, technical and marketing resources and the Company may not be able to compete successfully for investments. In addition, potential competitors of the Company may have higher risk tolerances or different risk assessments or access to different sources of funding, which could allow them to consider a wider variety of investments and establish more relationships than the Company. Furthermore, competition for investments may lead to the price of such investments increasing which may further limit the Companys ability to generate its desired returns. The Company may loose investment opportunities in the future if it does not match investment prices, structures and terms offered by competitors. Alternatively, the Company may experience decreased rates of return and increased risks of loss if it matches investment prices, structures and terms offered by competitors. The Company can offer no assurance that competitive pressures will not have a material adverse effect on its profitability, Net Asset Value and/or Share price. Economic recessions and downturns and adverse market conditions may impair the profitability of the Company and the value of its investments, the income available for distribution to investors and may prevent the Company from increasing its investment base The Company and its portfolio of investments are materially affected by conditions in the global financial markets and economic conditions throughout the world, including rising interest rates, unemployment, inflation, business and consumer confidence, availability of credit, currency exchange rates and controls, changes in laws, trade flows, terrorism and political uncertainty. These factors are outside the Companys control and may affect the level and volatility of prices, the amount of distributions received from its investments and the liquidity and the value of investments. The Company may be unable to or may choose not to manage its exposure to these conditions and any efforts to manage its exposure may or may not be effective. Market conditions over the last three years have significantly deteriorated as compared to prior periods. Global financial markets have experienced considerable declines in the valuations of securities, an acute contraction in the availability of credit and the failure of a number of leading financial institutions, leading to a significantly diminished availability of credit and an increase in the cost of financing. The Company expects that the lack of credit and declines in valuations of equity and debt securities, should they persist, may place additional negative pressure on the Companys operating results moving forward. In addition, the global financial crisis brought about an increase in unemployment and a significant decline in the value of real estate, factors that the Company is exposed to. If conditions further deteriorate, the Companys business may continue to be negatively affected. The Company is unable to predict when the economic and market conditions may become more favourable. Even if such conditions do improve broadly and significantly over the long-term, adverse conditions in particular sectors may cause the Companys performance to suffer further or limit the Companys opportunities to
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AI 9.2.3

realise value from its investments (in particular, if the investments were made prior to the deterioration of the credit markets) or result in decreased revenues, financial losses, credit rating downgrades, difficulty in obtaining access to financing and increased funding costs. In addition, while difficult market conditions may increase opportunities to make certain distressed asset investments, such conditions also increase the risk of default with respect to debt investments. Such defaults would adversely affect the profitability, Net Asset Value and/or Share price of the Company. Furthermore, during periods of adverse economic conditions, the Company may have difficulty accessing financial markets, which could make it more difficult or impossible for the Company to obtain funding for additional investments and harm its profitability, Net Asset Value and/or Share price. Deteriorating conditions in the global financial markets, and actions by governments to address them, have created a great deal of uncertainty for the real estate and finance industries, which may adversely affect the Companys investments, access to financing, competitive landscape and overall performance Since the onset of the current financial crisis in the second half of 2007, the US and global economies and capital markets worldwide have been adversely affected by exceptional market turbulence, a lack of liquidity, rising mortgage default rates and substantial asset declines and write-downs. These deteriorating conditions have led to the failures of multiple global financial institutions and other businesses and, in turn, to a series of initiatives and market interventions by governments in the US, the UK and Europe (where a substantial portion of the Companys investments are or were held) seeking to resolve the financial crisis and minimise its repercussions to the wider economy. In the US, where the crisis is thought to have originated, the federal government enacted in October 2008 the Emergency Economic Stabilization Act of 2008, authorising the US Department of Treasury to purchase up to US$700 billion of mortgage-backed and other securities through the Troubled Asset Relief Program, or TARP, for the purpose of stabilising the financial markets. On 23 March 2009, the US Department of Treasury announced that it would implement an initiative under the TARP to promote purchases by private investors of legacy, or so-called toxic, real estate loans held directly on the books of banks and securities backed by loan portfolios. Elsewhere, governments have responded to the financial crisis by making capital infusions, and in some case taking controlling stakes, in financial institutions, such as Bradford & Bingley and the Royal Bank of Scotland in the UK, LandsBanki in Iceland and Fortis in the Netherlands and Belgium, and guaranteeing bank deposits and debts. In addition, both in the US and outside the US, the financial crisis has led to substantial consolidation in the financial services industry, at times through combinations brokered or fostered by governments. The scale and extent of these government interventions and initiatives are unprecedented in recent times, and it remains unclear what impact they will have on global financial markets, the European, US and world economies and, ultimately, the asset management sector, of which the Company is a part. These initiatives are subject to change, may be implemented in unanticipated ways and, given the discretion they afford, their effects are difficult to predict. It is not known whether the Company, its underlying investments or its competitors will be able to avail themselves of these initiatives, directly, indirectly, or at all. There can be no assurance that conditions in the global financial markets, or actions by governments to alleviate these conditions, will not worsen and/or further adversely affect the value of the Companys investments, access to financing and overall performance. Investors and Shareholders should note that regulatory proposals surrounding the ABS market are still being worked on in one or more jurisdictions providing an uncertain backdrop for investors who are willing to engage in that market. Changes in laws or regulations may adversely affect the Companys business and results of operations The Company is subject to laws and regulations enacted by national, regional and local governments. In particular, the Company is required to comply with certain on-going notification requirements that are applicable to a Guernsey authorised closed-ended collective investment scheme, including the Authorised Closed-end Investment Scheme Rules 2008 and other laws and regulations supervised by
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the GFSC. Additional laws may apply to the vehicles in which the Company makes investments. Those laws and regulations and their interpretation and application may also change from time to time and those changes could have a material adverse effect on the Companys business, investments and results of operations. The Company may experience fluctuations in its quarterly operating results The Company may experience fluctuations in its operating results from quarter to quarter due to a number of factors, including changes in the values of investments, which in turn could be due to changes in the amount of distributions, dividends or interest paid in respect of investments, changes in operating expenses, variations in and the timing of the recognition of realised and unrealised gains or losses, the degree to which the Company encounters competition and general economic and market conditions. Such variability may lead to volatility in the trading price of the Shares and cause the Companys results for a particular period not to be indicative of the Companys performance in a future period. Defaults on investments or underlying assets may have a negative impact on the value of the Investment Portfolio and cash flows received While the Companys valuations take into account expected levels of default rates and the expected loss given a default (severity rate), the Companys investments and the assets that collateralise them may be subject to higher losses through a combination of higher default or severity rates. Default and severity rates are influenced by changes in interest rates and a variety of economic, geographic and other factors beyond the Companys control and consequently cannot be predicted with certainty. The level and timing of defaults made by borrowers in respect of the loans that collateralise certain of the Companys investments may have an adverse impact on the income earned by the Company from those investments. To the extent that actual defaults on any assets in an underlying asset portfolio exceed the level of defaults factored into the purchase price of the relevant investment by the Investment Manager, the value of the anticipated return from the investment will be reduced. The more deeply subordinated the tranche of securities in which the Company invests, such as Residual Income Positions, the greater the risk of loss. While the Investment Manager takes into account estimated levels of default and severity rates when determining the prices it pays for investments and the values at which those investments are carried in its books, defaults and severity in excess of expectations will have a negative impact on the value of the Companys investments, will reduce the cash flows that the Company receives from its investments and could adversely impact the Companys ability to pay dividends (including the Preference Dividend), the Net Asset Value and/or the Share Price. The Company may be exposed to counterparty risk The Company may enter into financing transactions (including, transactions in over the counter markets) and hold investments (including synthetic securities) which would expose the Company to the credit risk of its counterparties and their ability to satisfy the terms of such contracts. Credit risk is the risk that an issuer or counterparty to a transaction entered into by the Company will be unable or unwilling to meet a commitment that it has entered into with the Company. In the event of a bankruptcy or insolvency of such a counterparty, the Company could experience delays in liquidating its position and significant losses, including the loss of that part of the Companys portfolio financed through such a transaction, declines in the value of its investment during the period in which the Company seeks to enforce its rights, inability to realise any gains on its investment during such period and fees and expenses incurred in enforcing its rights. The Company is subject to the risk that sponsors of ABS in which it invests, including sovereign governments and government entities, banks and non-bank financial companies, may default on their obligations under such instruments and that certain events may occur which have an immediate and significant adverse effect on the value of such investments. There can be no assurance that a sponsor of a transaction in which the Company invests will not default or that an event which has an immediate and significant adverse effect on the value of such instruments will not occur, and that the Company will not sustain a loss on the investment as a result.

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In addition, with respect to synthetic or pass-through securities, the Company will not usually have a contractual relationship with the underlying issuer of the underlying obligation. Therefore the Company will generally have no right to enforce directly compliance by the actual issuer with the terms of the underlying obligation nor any rights of set-off against the actual issuer, nor have any voting rights with respect to the underlying obligation. The Company will not directly benefit from the collateral supporting the underlying obligation and will not have the benefit of the remedies that would normally be available to a holder of such underlying obligation. In the event of the insolvency of the counterparty to such synthetic or pass-through security, the Company will be treated as a general creditor of such counterparty, and will not have any claim with respect to the underlying obligation. The Company is subject to market risk The Companys exposure to market risk is comprised mainly of movements in the market value of its investments, and to the extent that the Company incurs indebtedness in the future, changes in interest rates that either increase its cost of borrowing or, in the event the Company makes any fixed interest investments in future, may decrease its income. The value of an ABS (including a Real Estate Debt Investment) will fluctuate as a result of changes in market prices, whether caused by factors specific to an individual investment, its issuer or factors affecting all instruments traded in the market over which the Company will have no control. As the majority of the Companys financial instruments are carried at fair value with fair value changes recognised in the consolidated income statement, all changes in market conditions will directly affect the value of the Investment Portfolio. Further the fair value of the Companys investments will fluctuate as a result of change in the discount rate applied to the net present value of the Residual Income Positions in the Investment Portfolio. The Company is subject to interest rate risk Interest rate risk is the risk that the fair value and future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Interest rate risk will apply to the various types of asset in the Investment Portfolio in different ways. Residual Income Positions are exposed to interest rate risk as changes in interest rates may have an effect on the prepayments and defaults of the underlying loans of the securitisations. The direct interest rate risk on a Residual Income Position is minimal as they are the equity positions in securitisation transactions. Due to the nature of the securitisations, the liabilities are matched to the underlying collateral and in the significant majority of instances, the margin on the liabilities are fixed. The cash flows from the Residual Income Positions are not directly affected by changes in market interest rates because the investments have no notional fixed rate element. However, the underlying loans in a securitisation vehicle may be subject to interest rate exposure. Changes in interest rates can affect the Companys net interest income, which is the difference between the interest income earned on interest-earning investments and the interest expense incurred on interest-bearing liabilities. In calculating the price to be paid for a bond, for example for most MBS that the Company will invest in, the Investment Manager will, among other considerations, use an estimate of the changes in LIBOR over the life of the investment to establish possible cash flows. If the actual LIBOR is lower from time to time than the estimate made prior to investment, the yield on the bond will fall and not match the expectations that the Investment Manager had on acquisition. Bonds will also be exposed interest rate risk through changes in interest rates potentially having an affect on prepayments and defaults of the underlying loans of the securitisations. The due diligence process that the Investment Manager undertakes in connection with the Companys investments may not reveal all facts that may be relevant in connection with an investment Before the Company makes any investment, the Investment Manager conducts due diligence that it deems reasonable and appropriate based on the facts and circumstances applicable to each investment. The objective of the due diligence process is to identify attractive investment opportunities based on the facts and circumstances surrounding an investment. When conducting due diligence and making an assessment regarding an investment, the Investment Manager will be required to rely on resources available to it, including information provided by the originator of the investment. Accordingly, there
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can be no assurance that the due diligence investigation that the Investment Manager carries out with respect to any investment opportunity will reveal or highlight all relevant facts that may be necessary or helpful in evaluating such investment opportunity. Moreover, there can be no assurance that such an investigation will result in an investment being successful. There may be circumstances in which the Company is required to dispose of an asset from the Investment Portfolio to comply with its investment policy The current investment policy of the Company requires that at least 70 per cent. of the Companys NAV will consist of Primary Target Investments and the proposed investment policy of the Company requires that at least 70 per cent. of the Companys NAV will consist of Residual Income Positions and Real Estate Debt Investments. There may be circumstances in which the Company is required to dispose of an asset in order to comply with the investment policy and the price achieved on such a sale may not be as favourable as the price that would be achieved on the sale of an asset in the ordinary course of business. If this were the case, there may be an adverse impact on the Companys NAV and/or the Share price and/or ability to pay dividends. The Company may be subject to liability following the disposal of investments While the Company intends to hold the majority of its investments to maturity, the Company may dispose of investments in some circumstances and may be required to give representations and warranties about those investments and to pay damages to the extent that any such representations or warranties turn out to be inaccurate. The Company may become involved in disputes or litigation concerning such representations and warranties and may be required to make payments to third parties as a result of such disputes or litigation. If the Company does not have cash available to conduct such litigation or make such payments it may be required to borrow funds. Any such payments and borrowings to finance those payments could have an adverse impact on the Companys ability to pay dividends. In addition, if the Company is unable to borrow funds to make such payments, it may be forced to sell investments to obtain funds. There can be no assurance that any such sales could be affected on satisfactory terms. The value, price and/or income from investments may be affected by currency movements or macro fluctuations and hedging transactions to reduce such exposure may limit gains or result in losses The Companys accounts will be denominated in Euro while investments are likely to be made and realised in Euro, Sterling, US Dollars and other currencies. Changes in rates of exchange may have an adverse effect on the value, price or income of the investments. A change in foreign currency exchange rates may adversely impact returns on the Companys non-Euro-denominated investments. The Companys principal non-Euro currency exposure is expected to be the pound Sterling, but this may change from time to time. The Company may use derivative transactions to reduce its exposure to interest rate and currency fluctuations. As at the date of this Prospectus, the Company uses Euro:Sterling hedge options to hedge its currency exposures. Further, the Company has in the past hedged against a fall in house prices and entered into a macro-hedge against the SME market in Europe. A hedge position or other derivative transaction may not be effective in eliminating all of the risks inherent in any particular position and there can be no guarantee that suitable instruments for hedging will be available at times when the Company wishes to use them. Further, the Company is under no obligation to enter into hedging arrangements in respect of currency, interest rate or other macro fluctuations that may affect the Investment Portfolio or one or more classes of Shares and Shareholders and investors should have no expectation that any such hedges will be entered into by the Company from time to time. The Company may realise losses on a hedge position that could adversely impact the Companys ability to pay dividends and may result in poorer overall performance than if such hedging transactions had not been executed. The Company will also be exposed to the credit risk of the relevant counterparty with respect to relevant payments under derivative instruments. Failure by a counterparty to make payments due under a derivative instrument will reduce the Companys income and, consequently, could have an adverse impact on the Companys ability to pay dividends or have an adverse impact on the NAV and/or Share price. The Companys counterparty risk has increased as credit and liquidity have become constrained in global financial markets.
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Preference Shares may introduce the risk of currency fluctuations The Preference Shares are denominated in Sterling and the Preference Dividend and the Repayment Amount are due payable by the Company in Sterling. The Company conducts its business in Euro and hence the Company will be exposed to currency fluctuations between Sterling and Euro that may affect its ability to pay the Preference Dividend or the Repayment Amount. The Company may not choose to or may not be able to secure foreign exchange hedging on economic terms to cover all of these exposures. Furthermore, any foreign exchange hedging that the Company does engage in cannot be relied upon to mitigate either fully or partly exchange rate risk. Exchange rate fluctuations between Sterling and Euro could have a detrimental impact on the Companys financial position. The Company may become subject to currency fluctuations on translating revenues and costs from non Euro currencies into Euro The Company is subject to and may in the future become increasingly subject to currency fluctuations on translating revenues and costs from non-Euro currencies into Euros which, given the anticipated growth of this business, could have a material adverse effect on the Companys business, prospects, financial results and/or financial condition. Movements in the exchange rate may be influenced by factors such as trade imbalances, levels of short-term interest rates, differences in relative values of similar assets in different currencies, long-term opportunities for investment and capital appreciation and political developments. Borrowings could adversely affect the Companys Net Asset Value and the level of the Companys dividends While the Company will not have any leverage at the time of Open Offer Admission, it may in the future borrow to fund the acquisition of additional investments and, where appropriate, may utilise leverage in order to enhance returns to Shareholders, subject to the leverage restrictions set out in its investment policy from time to time. These borrowings may be secured against some or all of the Companys assets. The application of leverage to an investment magnifies the adverse impact caused by defaults in the underlying investment portfolio. Also, since the Companys investments may be subordinated to more senior claims on the underlying assets, any borrowings by the Company would be incremental to the leverage already inherent in those investments. Therefore, in the event of a default in the assets underlying investments in the Companys portfolio, the level of losses suffered by the Company would be proportionately higher as a function of the aggregate leverage implicit in each of the Companys investments and a relatively small increase in the rate of defaults could have a materially detrimental effect on returns to Shareholders. The Companys earnings will be generated from the difference between income received and interest expense plus certain gains arising from the sale of assets. The Companys return on investments and cash available for distribution to Shareholders would be reduced to the extent that its interest expense increases relative to income, such as in the event of a general rise in interest rates, or in the event of losses arising from the sale of assets. Interest rates are highly sensitive to factors beyond the Companys control, including, among other things, governmental monetary and tax policies and domestic and international economic and political conditions. The structure and specific provisions of any financing arrangements could give rise to additional risks To the extent that the Company enters into any financing arrangements in the future, such arrangements may contain provisions that expose it to further risk of loss. Such provisions could be financial covenants that could, among other things, require the Company to maintain certain financial ratios. If the Company were to breach the financial covenants contained in any loan, repurchase agreement or other financing agreement, the Company might be required to repay such borrowings immediately in whole or in part, together with any attendant costs and the Company might be forced to sell some of its assets to fund such costs. The Company might also be required to reduce or suspend payment of its dividends.

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Changes in the debt financing markets may negatively impact the ability of the Company to obtain financing and may increase the cost of such financing if it is obtained Since the onset of the current financial crisis in the second half of 2007, the markets for debt financing have contracted significantly. Large commercial banks, which have traditionally provided such financing, are currently demanding higher rates, more restrictive covenants (e.g. lower interest coverage ratios and lower debt coverage ratios) and generally more onerous terms in order to provide such financing, and in some cases are not providing financing at all for acquisitions which would have been more readily financed in recent past years. In the event that the Company, in the long-term, is unable to obtain committed debt financing for potential acquisitions or can only obtain debt at high costs, this may prevent the Company from completing otherwise profitable investments or may lower the profit that the Company would otherwise have achieved from such transactions, either of which could lead to a decrease in the Companys profitability, Net Asset Value and/or Share price. Risks relating to ABS, Real Estate Debt Investments and Residual Income Positions On liquidation of the Companys assets on any given day, the reported NAV may not match the cash value received on such assets Where the Company is required or deems it necessary to liquidate some or all of its assets on any given day, the cash value received on such assets may not match the reported NAV or portion of the reported NAV (in the case that not all of the Companys assets are liquidated) attributable to such assets. Liquidation of the Companys assets will be subject to a number of factors, including the availability of purchasers of the Companys assets, liquidity and market conditions and, as such, the actual cash value of some or all of the Companys assets may differ from the latest reported NAV (or portion of the reported NAV (in the case that not all of the Companys assets are liquidated)). Many of the Companys investments in Residual Income Positions will be illiquid, other assets in the Investment Portfolio may be illiquid in the future and such illiquidity may adversely affect the Companys ability to raise cash or vary its Investment Portfolio in a timely fashion The market for Residual Income Positions is illiquid. Accordingly, a substantial proportion of the Investment Portfolio is currently invested in illiquid assets. In addition, investments that the Company may purchase in privately negotiated (also called over the counter or OTC) transactions may not be registered under relevant securities laws or otherwise may not be freely tradable, resulting in restrictions on their transfer, sale, pledge or other disposition except in a transaction that is exempt from the registration requirements of, or is otherwise in accordance with, those laws. As a result of this illiquidity, the Companys ability to raise cash or vary its Investment Portfolio in a timely fashion and to receive a fair price in response to changes in economic and other conditions may be limited. Furthermore, where the Company acquires investments for which there is not a readily available market, the Companys ability to deal in any such investment or obtain reliable information about the value of such investment or risks to which such investment is exposed may be limited. The Companys investments will include subordinated securities, which can be particularly susceptible to losses The Company may invest in and/or have economic exposure to limited recourse securities that are subordinated in right of payment and ranked junior to other securities that are secured by or represent ownership in the same pool of assets. Generally, in relation to such investments, holders of the issuers more senior securities will be entitled to payments in priority to the Company. Some of the Companys investments may also have structural features that divert payments of interest and/or principal to more senior classes of securities secured by or representing ownership in the same pool of assets when the delinquency or loss experience of the pool exceeds certain levels. This may lead to interruptions in the income stream that the Company anticipates receiving from its Investment Portfolio, which may lead to the Company having less income to distribute to Preference Shareholders and Ordinary Shareholders.

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Although holders of ABS generally have the benefit of first ranking security (or other priority rights) over any collateral, control of the timing and manner of the disposal of such collateral upon a default typically will devolve to the servicer and special servicer appointed in the transaction. There can be no assurance that the proceeds of any such sale of collateral will be adequate to repay in full the Companys investments. The Companys income will be derived from payments from its investments and default on investments will harm the Companys performance The Company will invest in mezzanine or subordinated tranches of ABS. In the case of ABS, the issuer of the securities relies upon the receipt of payments from underlying obligors in order to make the interest payments. A wide range of factors could adversely affect the ability of the issuers of the securities (or underlying borrowers in the case of Real Estate Debt Investments) to make interest or other payments. These factors include adverse changes in the financial condition of the issuers of the securities, the underlying obligors, or the industries or regions in which they operate; the issuers or obligors exposure to counterparty risks; systemic risk in the financial system and settlement; changes in law and taxation; a downturn in general economic conditions; higher interest rates; unemployment; changes in governmental regulations or other policies and natural disasters, terrorism, social unrest and civil disturbances. The ability of a commercial borrower to repay a mortgage loan may be affected by many factors, such as the success of tenant businesses, property management decisions, changes in laws that increase operating expense or limit rents that may be charged, the occurrence of any uninsured casualty at the property, declines in regional or local real estate values or occupancy rates, increases in interest rates, real estate tax rates and other operating expenses, increases in unemployment, increases in leverage as a percentage of property values and increases in the percentage of income that borrowers must use to service their mortgages. Investments in the Investment Portfolio may be exposed to losses resulting from default and foreclosure of secured loans To the extent that actual defaults in the underlying loans of a particular investment held in the portfolio exceed the level of defaults factored into the purchase price of that investment, the value of the anticipated return from the investment may be reduced which may have a material adverse effect of the Net Asset Value and the Share price. The more deeply subordinated the tranche of securities in which the Company invests or is exposed to, such as Residual Income Positions, the greater the risk of loss. While the Investment Manager on behalf of the Company estimates levels of default when determining the prices it pays for investments and the values at which those investments are carried in its books, any defaults in excess of expectations may have a negative impact on the value of such investments. Certain loans held by investments in the Investment Portfolio will be secured. While secured loans will generally be over-collateralised, the Company may be exposed to losses resulting from default and foreclosure. Therefore, the value of the underlying collateral, the creditworthiness of the borrower and the priority of the lien may each be of importance. The Company cannot guarantee the adequacy of the protection of the Companys interests, including the validity or enforceability of the loan and the maintenance of the anticipated priority and perfection of the applicable security interests. Furthermore, the Company cannot assure that claims may not be asserted that might interfere with enforcement of the rights of the investment held within the Investment Portfolio. In the event of a foreclosure, the investment within the Investment Portfolio may assume direct ownership of the underlying asset. The liquidation proceeds upon sale of such asset may not satisfy the entire outstanding balance of principal and interest on the relevant loan, resulting in a loss to the investment within the Company portfolio. Any costs or delays involved in the effectuation of a foreclosure of the loan or a liquidation of the underlying property will further reduce the proceeds and thus increase the loss. The Company is subject to concentration risk in its Investment Portfolio, in particular in relation to the real estate sector While the Company will invest in accordance with its prevailing investment policy and will also regularly monitor the concentration of its portfolio and its exposure to any given servicer of underlying assets, concentration in any one industry, region or country or with respect to any given servicer may arise from time to time. For example, at any given time, certain geographic areas or sectors may provide more
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attractive investment opportunities than others and, as a result, the Companys investment portfolio may be concentrated in those countries or regions or specific sectors in those countries or regions or with respect to particular servicers. In particular, the Company is and will be exposed to a concentration risk to the real estate sector. The risk that payments on the Companys investments could be adversely affected by defaults on debt obligations or the general deterioration of underlying portfolios of assets is likely to be increased to the extent that the Investment Portfolio is concentrated in such a way as a result of downturns relating generally to such industry, region, country or servicer. To the extent there is a downturn in any such industries, markets or other jurisdictions, or in any other area where the Companys portfolio may have concentration, this could reduce the amount of payments the Company receives on its investments and, consequently, could have an adverse impact on the Companys ability to pay dividends to holders of Preference Shares and Ordinary Shares and the value of the Investment Portfolio. The Companys investments are subject to prepayments, increasing re-investment risk The Companys valuations of the Investment Portfolio take into account expected levels of prepayment of the loans that collateralise the securitisation transactions in which the Company has purchased the positions. The Investment Manager reviews the prepayment assumptions each quarter and will update as required. These assumptions are considered by review of the underlying loan performance information. The Companys investments and the assets that collateralise them may prepay more quickly than expected and have an impact on the value of the Investment Portfolio. Prepayment rates are influenced by changes in interest rates and a variety of economic, geographic and other factors beyond the Companys control and consequently cannot be predicted with certainty. In addition, for a securitisation originator there is often a strong incentive to refinance well-performing portfolios once the senior tranches amortise, and an originator will typically have the right to redeem outstanding bonds once 90 per cent. of the original principal amount outstanding has been repaid in a clean-up call. The yield to maturity of the investments will depend on, inter alia, the amount and timing of payments of principal on the mortgage loans and the price paid for the investments. Such yield may be adversely affected by a higher or lower than anticipated rate of prepayments on the mortgages. Prepayments on the mortgage loans may result from refinancings, voluntary sales of properties by borrowers, as a result of enforcement proceedings under the relevant mortgage loans. The rate of prepayment of the mortgage loans cannot be predicted and is influenced by a wide variety of economic, social and other factors, including prevailing mortgage market interest rates, the availability of alternative financing, local and regional economic conditions and, with respect to residential mortgage loans, homeowner mobility. Therefore, no assurance can be given as to the level of prepayments that the relevant investment will experience. Early prepayments may also give rise to increased re-investment risk with respect to certain investments, as the Company may realise excess cash earlier than expected. If the Company is unable to reinvest such cash in a new investment with an expected rate of return at least equal to that of the investment repaid, this may reduce the Companys net income and, consequently, could have an adverse impact on the Companys ability to pay dividends. The Company may invest in assets with no or limited performance or operating history The Company may invest in assets with no or limited investment history or performance record upon which the Investment Manager and the Company will be able to evaluate their likely performance. The Companys investments in entities with no or limited operating history are subject to all of the risks and uncertainties associated with a new business, including the risk that such entities will not achieve target returns. Consequently, the Companys profitability, Net Asset Value and Share price could be adversely affected. The Company will be exposed to underlying borrower fraud through the debt securities held in its Investment Portfolio Investing in debt securities involves the possibility of the Companys investments being subject to potential losses arising from material misrepresentation or omission on the part of borrowers whose loans are held within the relevant investments. Such inaccuracy or incompleteness may adversely affect the valuation of the collateral underlying the debt securities that are held within the Company portfolio or may adversely affect the ability of the relevant investment to perfect or effectuate a lien on the collateral securing the loan. The vehicles in which the Company invests will rely upon the accuracy and completeness of representations made by the underlying borrowers to the extent reasonable, but cannot
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guarantee such accuracy or completeness. In addition, the quality of the Companys investments in CMBS and RMBS are subject to the accuracy of representations made by the underlying borrowers. Accordingly, the Company is subject to the risk that the systems used by the originators of CMBS and RMBS to control for such accuracy are defective. The performance of many of the Companys investments may depend to a significant extent upon the performance of the servicers of the underlying asset portfolio The Company will not control the portfolios of assets underlying the ABS in which it invests and will rely on the servicers of the ABS to administer and review the portfolios. Particularly in the case of Residual Income Positions, the actions of the servicer, including its ability to identify and report on issues affecting the portfolio on a timely basis, may affect the Companys return on its investments, in some cases significantly. In addition, concentration of a significant number of the Companys investments with one servicer could affect the Company adversely in the event that the servicer fails to fulfil its function effectively or at all. In the event of fraud by any entity in which the Company invests or by other parties involved with the entity, such as servicers or cash managers, the Company may suffer a partial or total loss of the amounts invested in that entity. Changes in the tax treatment of investments and special purpose vehicles and unanticipated income and/or withholding taxes may affect anticipated cash flows The Company uses SPVs to acquire some investments. The Companys income will be derived from payments of interest and principal repayment on these securities. The Company intends that each such SPV will be structured so that it is substantially exempt from or neutral to income taxes in its jurisdiction of incorporation and that each SPV should conduct its affairs so as not to be subject to, or to be subject to minimal, income tax in the jurisdictions in which it operates. Further, the Company intends that the securities held by such SPVs generally will not be subject to withholding taxes on distributions made by, or on realisations of, the assets. In some cases, certain procedural formalities may need to be completed before payments in respect of such assets can be made free of withholding tax. The completion of such formalities may depend on the agreement of taxation authorities, the timing of which cannot be guaranteed. Tax laws, however, may change or be subject to differing interpretations, possibly with retroactive effect, so that the tax consequences of a particular investment or structure may change after the investment has been made or the structure has been established with the result that investments held by SPVs may be subject to withholding tax or SPVs may need to be unwound or restructured, in each case resulting in the Companys returns being reduced. The Company and the SPVs will be subject to such risk both in the jurisdiction of their respective incorporation and in each jurisdiction of their respective operations. Moreover, the underlying issuers of ABS could become subject to net income tax in jurisdictions in which they operate. The imposition of any such net income tax would reduce the cash received by the Company, and could therefore materially impair the Companys ability to pay dividends on the Shares. Accounting guidelines governing the consolidation of special purpose entities are subject to varying interpretations regarding the requirement to consolidate such special purpose entities where a company holds residual income positions in those entities, but does not have control over them as determined following the guidance contained in Standing Interpretations Committee Interpretation 12 Consolidation Special Purchase Entities. On the basis of its adopted accounting policy on consolidation, the Company does not expect to consolidate special purpose entities in which it holds residual income positions where control is not otherwise indicated. If a change in the interpretation of such guidelines were to require the Company to consolidate the assets and liabilities of such special purpose entities, the financial statements of the Company would appear materially different as a result of such consolidation. However, such a change should not have any substantive effect on the financial position or the results of the Company itself. Investments will be subject to differing laws regarding creditors rights and enforceability of security The Companys investments and the collateral underlying those investments may be subject to various laws for the protection of creditors in the jurisdictions of incorporation of the issuers or borrowers and, if different, the jurisdictions from which they conduct business and in which they hold assets (such as
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AIII 4.11

the jurisdiction of the underlying obligors in respect of the securitised assets), which may adversely affect an issuers or borrowers ability to make payment in full or on a timely basis. These insolvency considerations will differ depending on the country in which an obligor or its assets are located and may differ depending on the legal status of the obligor. Additionally, the Company, as a creditor, may experience less favourable treatment under different insolvency regimes than apply in the UK or the United States, including where it seeks to enforce any security it may hold as a creditor. Risks relating to Real Estate Debt Investments The value of the security of the MBS may decline which may result in losses for the Company if that security is required to be enforced The security for an MBS, that is either an RMBS or a CMBS, will likely consist of, inter alia, the securitisation vehicles interest in the underlying mortgage loans. The value of the security may be affected by, among other things, a decline in property values. No assurance can be given that values of the properties have remained or will remain at the level at which they were at on the dates of origination of the related securities. If the residential or commercial property market in the United Kingdom or Europe should experience an overall decline in property values, such a decline could in certain circumstances result in the value of the security created by the mortgage loans being significantly reduced and, ultimately, may result in losses to the Company if that security is required to be enforced. The Company will be exposed through its investment in Real Estate Debt Investments to various risks associated with mortgage loans that underlie RMBS The RMBS the Company invests in are subject to all of the risks of the underlying mortgage loans. Residential mortgage loans are secured by single-family residential property and are subject to risks of delinquency and foreclosure, and and risks of loss. The ability of a borrower to repay a loan secured by a residential property is dependent, amongst other factors, upon the income or assets of the borrower. A number of factors, including a general economic downturn, higher unemployment, depreciation of housing prices, acts of God, terrorism, social unrest and civil disturbances, may impair borrowers abilities to repay their loans. Loss of earnings, illness, divorce and other similar factors may lead to an increase in delinquencies and bankruptcy filings by mortgage borrowers, which may lead to a reduction in payments by such borrowers on their mortgage loans and thereby impact the amount of interest paid on and ultimate repayment of the investments. The underlying mortgage loans may include interest only and part and part loans. There is no scheduled amortisation of the interest only loans or that part of a loan which is interest only. Consequently, upon the maturity of an interest only loan or a part and part loan, the relevant borrower will be required to make a bullet payment that will represent the entirety of the principal amount then outstanding. The ability of such a Borrower to repay an interest only loan or a part and part loan at maturity frequently depends on such Borrowers ability to refinance the property or obtain funds from another source, such as pension policies, personal equity plans or endowment policies. The ability of the borrower to refinance the Property will be affected by a number of factors, including the value of the property, the borrowers equity in the property, the financial condition of the borrower, tax laws and general economic conditions at the time. Because of the greater risk regarding refinancing, a significant downturn in the property markets, or the economy in general, could lead to a greater increase in defaults or repayment of principal of interest only loans, and to a lesser extent, of part and part loans, than on repayment Loans. This higher risk associated with the higher defaults or repayment of interest only and part and part loans increases the risk of a failure to pay interest or loss of principal in the Companys RMBS investments. The underlying mortgage loans may include loans secured by non-owner occupied properties. The borrowers ability to service payment obligations in respect of a loan secured on such a property is likely to depend on the borrowers ability to lease the properties on appropriate terms. This dependency on leasing income increases the likelihood, during difficult market conditions, that the rate of delinquencies and losses on loans secured by such non-owner occupied properties will be higher than

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for loans secured on the primary residence of a borrower. This higher risk associated with greater defaults or losses of loans secured by non-owner occupied properties increases the risk of a failure to pay interest or loss of principal in the Companys RMBS investments. The underlying mortgage loans may contain mortgage loans to borrowers who (a) may have an adverse credit history; (b) are self-employed or self-certifying; and/or (c) are otherwise considered by bank and building society lenders to be non-conforming borrowers (collectively Non-Conforming Borrowers). Mortgage loans made to Non-Conforming Borrowers are generally likely to experience higher rates of delinquency, write-offs, enforcement and bankruptcy than have historically been experienced by mortgage loans made to standard borrowers and therefore carry a higher degree of risk. This higher risk associated with greater defaults or losses of loans secured by non-owner occupied properties increases the risk of a failure to pay interest or loss of principal in the Companys RMBS investments. Should any of the risks referred to above occur in relation to investments held by the Company, there may be a material adverse effect on the Companys profitability, Net Asset Value and/or Share price. The Company will be exposed through its investment in Real Estate Debt Investments to various risks associated with CMBS and commercial mortgage loans The Investment Portfolio will include exposure to CMBS and commercial mortgage loans. CMBS are, generally, securities backed by obligations (including certificates of participation in obligations) that are principally secured by mortgages on real property or interests therein having a multifamily or commercial use, such as regional shopping malls, other retail space, office buildings, industrial or warehouse properties, hotels and nursing homes. The value of the commercial mortgage loans and the underlying commercial mortgage-backed securities held in the Investment Portfolio will be influenced by the rate of delinquencies and defaults experienced on the relevant commercial mortgage loans and by the severity of loss incurred as a result of such defaults. Factors influencing delinquencies, defaults and loss severity include (a) economic and real estate market conditions by industry sectors (for example, multifamily or retail office); (b) the terms and structure of the mortgage loans; (c) the amount of leverage and (d) any specific limits to legal and financial recourse upon a default under the terms of the mortgage loan. Special risks are presented by loans to hospitals, nursing homes, hospitality properties and certain other property types. Commercial property values and net operating income are subject to volatility, which may result in net operating income becoming insufficient to cover debt service on the related mortgage loan. Furthermore, the net operating income from and value of any commercial property is subject to various risks, including changes in general or local economic conditions and/or specific industry segments; the solvency of the related tenants; declines in real estate values; declines in rental or occupancy rates; increases in interest rates, real estate tax rates and other operating expenses; changes in governmental rules, regulations and fiscal policies; acts of God; terrorist threats and attacks and social unrest and civil disturbances. Commercial mortgage loans are generally viewed as exposing a lender to a greater risk of loss through delinquency and foreclosure than lending on the security of single family residences. The ability of a borrower to repay a loan secured by income-producing property typically is dependent primarily upon the successful operation and operating income of such property (namely, the ability of tenants to make lease payments, the ability of a property to attract and retain tenants, and the ability of the owner to maintain the property, minimise operating expenses, and comply with applicable zoning and other laws) rather than upon the existence of independent income or assets of the borrower. Most commercial mortgage loans provide recourse only to specific assets, such as the property and not against the borrowers other assets or personal guarantees. Commercial mortgage loans that will be acquired by the investments held by the Company generally do not fully amortise, which can necessitate a sale of the property or refinancing of the remaining balloon amount at or prior to maturity of the mortgage loan. Accordingly, investors in commercial mortgage loans and commercial mortgage-backed securities bear the risk that the borrower will be unable to refinance or otherwise repay the mortgage at maturity, thereby increasing the likelihood of a default on the borrowers obligation. In certain circumstances, the creditors may also become liable upon taking title to an asset for environmental or structural damage existing at the property.

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Should any of the risks referred to above occur in relation to investments held by the Company, there may be a material adverse effect on the Companys profitability, Net Asset Value and/or Share price and/or dividend policy. The Company may be exposed through its investment in Real Estate Debt Investments to various risks associated with the foreclosure of commercial mortgage loans The servicer or special servicer of a MBS held by the Company may find it necessary or desirable to foreclose on mortgage loans held by it. The foreclosure process is often lengthy and expensive. Borrowers may resist mortgage foreclosure actions by asserting numerous claims, counterclaims and defences against the portfolio investment, including, without limitation, lender liability claims and defences, even when such assertions may have no basis in fact, in an effort to prolong foreclosure actions and force lenders into a modification of the loans or a favourable buy-out of the borrowers positions. Foreclosure actions can take several years or more to litigate. At any time prior to or during the foreclosure proceedings the borrower may file for bankruptcy, which would have the effect of staying the foreclosure actions and further delaying the foreclosure process. In the event of the bankruptcy of a mortgage loan borrower, the mortgage loan to such borrower will be deemed to be secured only to the extent of the value of the underlying collateral at the time of bankruptcy (as determined by the bankruptcy court), and the lien securing the mortgage loan will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent the lien is unenforceable. Foreclosure litigation tends to create a negative public image of the mortgaged property and may result in disrupting the ongoing leasing, management and operation of the property. In addition, the portfolio investment (and therefore, indirectly, the Company) will bear a risk of loss of principal to the extent of any deficiency between the value of the collateral and the principal and accrued interest of the mortgage loan. The ability to foreclose on an investment held by the Company (directly or indirectly) may be affected by changes to the legal or statutory foreclosure procedures applicable in each of the jusrisdicitons in which the Companys investments are held. Risks relating to the Investment Manager The Companys performance is heavily reliant on the Investment Manager and its investment professionals The Company and the Group do not currently have any employees or own any facilities, and each depends on the Investment Manager for the day-to-day management and operation of the Companys business. The Companys ability to achieve its investment objectives depends on its ability to grow its investment base, which depends, in turn, on the Investment Managers ability to identify, invest in and monitor a suitable number of investments and implement the various aspects of its investment strategy. Achieving growth on a cost-effective basis is largely a function of the Investment Managers structuring of the investments process, its ability to provide competent, attentive and efficient services under the Investment Management Agreement and the Companys ability to reinvest its capital and to obtain additional capital on acceptable terms. The Investment Managers investment professionals have substantial responsibilities under the Investment Management Agreement. Any failure to manage the future growth of the Company or to effectively implement the Companys investment strategy could have a material adverse effect on the Companys profitability, Net Asset Value and/or Share price. The Company further believes that its success and the success of certain of the investments in which the Company invests will depend upon the experience of the Investment Manager and its continued involvement in the Companys business, in particular the success of the Investment Managers investment process described in this Prospectus. The Investment Manager has the right to resign its appointment and terminate the Investment Management Agreement in accordance with the notice provisions described in the section headed Termination of the Investment Management Agreement in Part III of this Prospectus. If the Investment Manager were to cease to provide services under the Investment Management Agreement or to cease to provide investment management, operational and financial advisory services to the Company for any reason, the Company is subject to the risk that no suitable replacement will be found and would likely experience difficulty in making new investments,

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the Companys business and prospects would be materially harmed and the value of the Companys existing investments, the Shares and the Companys results of operations and financial condition would be likely to suffer materially. There can be no assurance that the Directors of the Company will be able to find a replacement manager if the Investment Manager resigns Under the terms of the Investment Management Agreement, the Investment Manager may terminate its appointment at any time by giving not less than three months notice (provided that such termination shall not take affect until the earlier of (i) the date on which the Company has appointed a replacement investment manager and (ii) the date falling six months after the date on which the Investment Manager gave such notice. The Directors would, in these circumstances, have to find a replacement manager to the Company and there can be no assurance that such a replacement will be found. The Investment Manager is authorised and regulated by the FSA. If the Investment Manager fails to comply with legal and regulatory requirements, the Company and its Share price may be adversely affected The provision of investment management services is regulated in the United Kingdom, and the Investment Manager is authorised and subject to regulation and supervision by the FSA (which has the authority to review and investigate the conduct of the Investment Manager and its employees). Changes to statutes, regulations or regulatory policies (including changes in interpretation or implementation thereof), or any failure by the Investment Manager or its employees to comply with such laws, regulations or policies could adversely impact the Investment Manager, and thereby could adversely affect the Company and its Share price. Although the Investment Manager has implemented systems and controls requiring employees to comply with these laws, regulations and policies, there can be no assurance that all employees will abide by these and, if any were to fail to do so, that such failure would not have an adverse effect on the Company. The departure or reassignment of some or all of the Investment Management Team could prevent the Company from achieving its investment objective The Company depends on the diligence, skill and business contacts of the Investment Managers investment professionals and the information and deal flow they generate during the normal course of their activities. The Companys future success depends on the continued service of these individuals, who are not obligated to remain employed with the Investment Manager. The Investment Manager has experienced departures of key investment professionals in the past and may do so in the future, and the Company cannot predict the impact that any such departures will have on the Companys ability to achieve its investment objectives. The departure of any of the members of the Investment Committee, the Investment Management Team or a significant number of its other investment professionals for any reason, or the failure to appoint qualified or effective successors in the event of such departures, could have a material adverse effect on the Companys ability to achieve its investment objective. The Investment Management Agreement does not require the Investment Manager to maintain the employment of any of its investment professionals. In addition, a transfer of control over the Investment Managers business could result in the departure or reassignment of some or all of the Investment Managers investment professionals that are involved in the Companys business. The Investment Managers compensation structure may encourage the Investment Manager to invest in high risk investments In addition to its Management Fee, the Investment Manager is entitled under the Investment Management Agreement to receive an Incentive Fee based upon the Companys consolidated net income (each fee as described in the section headed Investment Managers Fees and Expenses in Part III of this Prospectus). In evaluating investments and other management strategies, the opportunity to earn an Incentive Fee based on net income may lead the Investment Manager to place undue emphasis on the maximisation of net income at the expense of other criteria, such as preservation of capital, in order to achieve a higher Incentive Fee. Investments with higher yield potential are generally riskier or more speculative.

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The compensation of the Investment Managers personnel contains significant performance related elements, and poor performance by the Company or other of the Investment Managers funds may make it difficult for the Investment Manager to retain staff In common with most investment managers, the compensation of the Investment Managers personnel contains significant performance related elements which are funded by management and performance related fees payable to the Investment Manager by its funds in respect of strong performance. Poor performance by any of the Investment Managers funds, including the Company, may reduce the amount available to pay performance related compensation to the Investment Managers personnel, which may result in those persons obtaining other employment. In that case, poor performance of the funds may be further compounded by Investment Manager staff departures. In addition, as the performance related compensation of the Investment Managers personnel will depend on the performance of more than one fund and not just the Company, poor performance of one fund could adversely impact another, better performing, fund if it led to the departure of Investment Manager personnel. The Investment Manager has broad discretion to manage the investments of the Company and will thus exercise substantial influence over the business of the Company The Investment Manager has, subject to compliance with the investment policy of the Company, substantial discretion in the management of the Companys investments, including the timing and the terms of the exit from investments. While the Board will review the Investment Managers compliance with the investment policy and may direct the Investment Manager to take certain actions in connection with the Companys investments, the Board is not expected to review or approve all individual investment decisions. The Investment Managers investment strategies, used to achieve the Companys investment objectives and policy, may not be successful under all or any market conditions No assurance can be given that the strategies used, or to be used, by the Investment Manager to achieve the Companys investment objectives and policy will be successful under all or any market conditions. The strategies currently employed by the Investment Manager may be modified and altered from time to time, so it is possible that the strategies used by the Investment Manager to achieve the Companys investment objective and policy in the future may be different from those presently expected to be used. The Investment Managers other client relationships may give rise to conflicts of interest In addition to the Company, the Investment Manager and the Investment Management Team will manage other investment vehicles, which may lead to conflicts of interest. For example, certain investments appropriate for the Company may also be appropriate for one or more other investment vehicles managed by the Investment Manager and/or the Investment Management Team. Therefore, there may be situations where the Investment Manager or the Investment Management Team may decide to allocate a particular investment to another investment vehicle rather than to the Company. Where the Company and one or more other investment vehicles are managed by the Investment Manager and the Investment Manager becomes aware of an investment opportunity that is applicable to both or all of them, the allocation of that investment between the relevant funds (including the Company) will be done on a pro rata basis, subject to adjustment in certain circumstances as described under the heading in Part III of this Prospectus. Also, the compensation structures of other investment vehicles managed by the Investment Manager differ from that provided under the Investment Management Agreement with the Company, and such differences could incentivise the Investment Manager to allocate certain opportunities to these other investment vehicles. Additionally, the fact that the Investment Manager and its officers and employees manage other vehicles and engage in other business activities may reduce the time the Investment Management Team spends managing the Companys investments. This could adversely affect the Companys ability to achieve its investment objectives, which could have a material adverse effect on the Companys profitability, Net Asset Value and/or Share price. The Investment Management Teams decision to spend time on other activities besides the management of the Companys investments could be influenced by a variety of factors, including the compensation structures of other investment vehicles as compared to that of the Company and the performance of the various vehicles.

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The Investment Manager may receive a Management Fee and/or an Incentive Fee in respect of periods when the Company is unable to pay a dividend The Companys ability to pay dividends may be restricted as a matter of applicable law or regulation, including to the extent that dividends are not covered by income received in the relevant period from underlying investments. Accordingly, there may be periods in respect of which the Investment Manager is paid an Incentive Fee but the Preference Dividend or a dividend on the Ordinary Shares cannot be paid, for example, where, as a result of losses or expenses, there are no profits available for distribution in the period. The liability of the Investment Manager and the Investment Managers Associates is limited under the Companys arrangements with them, and the Company has agreed to indemnify the Investment Manager and the Investment Managers Associates against claims that they may face in connection with such arrangements, which may lead them to assume greater risks when making investment-related decisions than they otherwise would if investments were being made solely for their own account Under the Investment Management Agreement, the Investment Manager has not assumed any responsibility other than to render the services described in the Investment Management Agreement in good faith and will not be responsible for any action that the Company takes in following or declining to follow its advice or recommendations. The Investment Management Agreement limits the liability of the Investment Manager and its Associates (including its directors, officers and employees) to the Company to circumstances in which the Investment Manager or its Associates have been negligent, in wilful default of their obligations or fraudulent. Accordingly, the rights of the Company to recover against the Investment Manager as a result of its default may be limited and any such recovery by the Company against the Investment Manager may be significantly lower than the loss that the Company has suffered. The Company has agreed to indemnify the Investment Manager and the Investment Managers Associates to the fullest extent permitted by law from and against any losses, damages, claims, costs, charges, liabilities, demands or expenses incurred by an indemnified person in respect of acts or omissions in connection with the Investment Managers duties under the Investment Management Agreement except in the case of negligence, wilful default or fraud on the part of such party. These protections may result in the Investment Manager and its Associates tolerating greater risks when making investment-related decisions than otherwise would be the case, including when determining whether to use leverage in connection with investments. The indemnification arrangements to which such persons are a party may also give rise to legal claims for indemnification that are adverse to the Company and/or Shareholders. The Investment Management Agreement is subject to a long notice period The Investment Managers appointment pursuant to the Investment Management Agreement is intended to be long term. The Company may terminate the Investment Management Agreement by giving the Investment Manager not less than 24 months prior notice in writing. The Company will not of its own initiative be able to terminate the Investment Management Agreement at shorter notice than described above unless the Investment Manager has committed certain cause events, as described in more detail in the section headed Termination of the Investment Management Agreement in Part III of this Prospectus or it makes a payment in lieu of the Management Fees and the Incentive Fees that the Investment Manager would have earned. Negative investment performance would not of itself constitute an event allowing the Investment Management Agreement to be terminated on short notice. The Investment Manager has also been appointed as the Investing Funds discretionary investment manager and decisions taken by the Investment Manager in that capacity may not be in the best interests of the Company The Investing Fund, which holds 15,773,804 Ordinary Shares representing 59.2 per cent. of the Existing Ordinary Shares in the Company, is also managed by the Investment Manager. The investment policies and objectives of such fund may differ from those of the Company and investment management decisions taken by the Investment Manager in relation to the Investing Fund may not always be in the best interests of the Company. The Investing Fund, through the votes it is able to exercise at general meetings of the Company, is capable of exercising a significant degree of influence over the outcome of certain matters to be considered by the Companys Shareholders.
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The AIFM Directive, if implemented, may impair the ability of the Investment Manager to manage the investments of the Company which may materially adversely affect the Companys ability to implement its investment strategy and achieve its investment objective On 30 April 2009 the European Commission published a draft AIFM Directive which is currently due to be implemented in 2012. In its current form, the draft AIFM Directive seeks to regulate alternative investment fund managers (in this paragraph, AIFM) based in the EU and prohibits such managers from managing any alternative investment fund (in this paragraph, AIF) or marketing shares in such funds to EU investors unless authorisation is granted to the AIFM. Under the draft, in order to obtain such authorisation, and be able to manage the AIF, an AIFM would need to comply with various obligations in relation to the AIF which may create significant additional compliance costs that may be passed to investors in the AIF. Furthermore, as currently drafted, the marketing of shares or units in an AIF to EU investors would not be permitted if the AIFM were not authorised and, in the case of an AIF (such as the Company) domiciled outside the EU, the AIFs host country were not to meet certain conditions (although the current draft of the AIFM Directive envisages that the restrictions on marketing the shares or units of an AIF domiciled in a non-EU state would not come into force until three years after implementation of the AIFM Directive, during which period it is likely, although not guaranteed, that EU AIFM will be able to market the shares of third country AIF under existing domestic private placement rules). From the Companys perspective, if implemented as currently drafted, the AIFM Directive would require the Investment Manager to seek the authorisation to manage the Company. If the Investment Manager were to fail to, or be unable to, obtain such authorisation, it may be unable to continue to manage the Company or its ability to manage the Company may be impaired. The AIFM Directive may change considerably before it is adopted and the Board will continue to monitor the position and react appropriately which may include putting proposals to Shareholders to redomicile the Company. However, any regulatory changes arising from implementation of the AIFM Directive (or otherwise) that impair the ability of the Investment Manager to manage the investments of the Company, or limit the Companys ability to market future issuances of its Shares, may materially adversely affect the Companys ability to carry out its investment strategy and achieve its investment objective. Risks relating to the Shares The price of the Companys Shares may fluctuate significantly The market price of the Shares may fluctuate significantly and Shareholders may not be able to resell their Shares at or above the price at which they purchased them. Factors that may cause the price of the Shares to vary may include the following: changes in the Companys financial performance and prospects or in the financial performance and prospects of companies engaged in businesses that are similar to the Companys business; changes in the underlying values of the investments that the Company makes, particularly when the Company announces its quarterly results; the termination of the Investment Management Agreement or the departure of some or all of the Investment Managers investment professionals; changes in laws or regulations, or new interpretations or applications of laws and regulations, that are applicable to the Companys business; sales of Shares by Shareholders; general economic trends and other external factors, including those resulting from war, incidents of terrorism or responses to such events; changes to the Companys dividend policy; poor performance of the Investment Managers affiliated products and the potential negative publicity associated therewith; and
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speculation in the press or investment community regarding the Companys business or investments or factors or events that may directly or indirectly affect the Companys business or investments.

Securities markets in general have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. Any broad market fluctuations may adversely affect the trading price of the Shares. Furthermore, investors should be aware that a liquid secondary market in the Shares cannot be assured. The Company may issue additional securities that dilute existing holders of Shares or that have rights and privileges that are more favourable than the rights and privileges of holders of the Shares and, if the Revised Articles are adopted at the EGM, the Company intends to seek renewal of the disapplication of pre-emption rights on an ongoing basis Subject to the Companies Law and all other legal and regulatory requirements, the Company may issue additional Ordinary Shares and, subject to the Revised Articles being approved by Shareholders at the EGM, additional Preference Shares. Any additional issuances by the Company, or the possibility of such issue, may cause the market price of the relevant Shares to decline. Subject to all legal requirements, future issuances may consist of Shares or of securities having preferential rights and preferences. The Companies Law and the Articles in force as at the date of this Prospectus contain no pre-emption rights. However, as required by the Listing Rules, the Revised Articles do contain pre-emption rights. The pre-emption rights contained in the Revised Articles will not apply to the Preference Shares. If the Revised Articles are approved by Shareholders at the EGM, a further resolution will be proposed at the EGM to dis-apply the pre-emption rights contained in the Revised Articles in respect of 2,664,466 Ordinary Shares until the end of the Companys annual general meeting in 2011. The Directors intend to seek renewal of the authority to allot Ordinary Shares on a non-pre-emptive basis at each subsequent annual general meeting. Therefore, it may not be possible for existing Shareholders to participate in future issues of Shares, which may dilute the existing Shareholders interests in the Company. Borrowings and increases in operating and other expenses could limit the Companys ability to pay dividends to holders of Preference Shares and/or Ordinary Shares The Companys ability to pay dividends to holders of Preference Shares and/or Ordinary Shares will be adversely impacted by any increase in costs associated with its borrowings and operating expenses. There is no guarantee that holders of Preference Shares and/or Ordinary Shares will receive dividends in the future. The payment of dividends in respect of the Ordinary Shares in the past should not be taken as implying that dividends will be paid in respect thereof in the future. The Groups operating and other expenses could increase without a corresponding increase in distributions from investments. Factors which could increase operating and other expenses may include the following: increases in the rate of inflation and currency fluctuation; increases in the costs of services provided by third party providers; increases in taxes and other statutory charges; changes in laws, regulations or government or local authority policies (including those relating to health and safety and environmental compliance) which increase the costs of compliance with such laws, regulations or policies; unforeseen increases in the costs of maintaining the portfolio of investments; and unforeseen capital expenditure which may arise.

Such increases could have a material adverse effect on the Companys financial position, capital resources and ability to make any distributions to holders of Preference Shares and/or Ordinary Shares.

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Any borrowings undertaken by the Group in the future could also give rise to increased costs. As a result, the Companys cash available for distribution to holders of the Preference Shares or Ordinary Shares may be reduced to the extent that changes in economic conditions, increases in interest rates and/or levels of amortisation imposed by its lenders cause the Groups cost of borrowing to increase relative to the income that can be derived from its portfolio of investments. The Companys future potential ability to pay dividends to holders of Preference Shares and Ordinary Shares depends on the availability of net cash income within the Group and the ability of the Company to receive net cash income or intra-Group loan payments from SPVs or subsidiaries in the Group The Company currently holds some of its investments indirectly through Trebuchet Finance Limited (a SPV) and may in the future hold assets through related SPVs or subsidiaries. It therefore does not directly receive net cash income generated from all the investments owned by the Group and is reliant on the payment of net cash income or intra-Group loan payments from the related SPVs and/or subsidiaries. The ability of the related SPV and/or subsidiary to make upstream cash payments or loans to other Group members is generally subject to applicable laws, the SPVs and/or subsidiarys organisational documents, the terms of financing arrangements, accounting treatment or other factors. Applicable laws require the related SPVs and/or subsidiaries to, among other things, comply with restrictions on the amounts distributed by way of dividend and capital and reserve maintenance principles, or require them to obtain shareholder approval. Applicable laws may also restrict the making of any distribution, loan or other payment or the timing thereof. There is no assurance that the Group will be able to comply with any laws or requirements regulating upstream cash distributions, loans, or payments directly or indirectly to the Company. If the Group is unable to comply with these laws or requirements, net cash income may be reduced, which would materially adversely affect the Companys ability to pay dividends to holders of Preference Shares and Ordinary Shares, and which in turn could affect the trading price of the Preference Shares and the Ordinary Shares. Restrictions on the payment of dividends may negatively affect the value of an investment in the Company Investors should note that payment of any further dividend and any future dividend increases in respect of the Ordinary Shares will be proposed or, as the case may be, decided by the Board after taking into account many factors, including the Companys and the Groups ability to buy and sell investments, operating results, financial condition, current and anticipated cash needs, the successful management of the Groups existing investments, the distributions by investments, interest costs, legal and regulatory restrictions and such other factors as the Directors may deem relevant from time to time. The Companys ability to pay dividends to holders of Preference Shares and Ordinary Shares may be restricted as a matter of applicable law or regulation or other factors, including to the extent that the Board is unable to certify that the Company will satisfy the solvency test contained in the Companies Law immediately after payment of the dividend. There is no guarantee that the Companys existing or, if adopted, proposed dividend policy (see the section headed Dividends and Dividend Policy in Part I of this Prospectus for further details on the existing and proposed dividend policies) will be maintained, that any dividends will be paid at all or that dividend growth will be achieved. Any failure to pay dividends or achieve dividend growth could have a material adverse effect on the market price of the Ordinary Shares and the Preference Shares and the value of an investment in the Company. The Company may require the sale or transfer, or procure the disposal of interests in, Shares held by certain Shareholders The Articles contain provisions which in certain circumstances entitle or require the Directors to serve a transfer notice upon a Shareholder obliging that Shareholder to transfer his Shares to an eligible transferee. Such circumstances arise if, in summary, the Directors have reason to believe that the transferee is a person to whom a transfer of Shares would or could be in breach of the laws or requirements of any jurisdiction or governmental authority or in circumstances (whether directly or indirectly affecting such person, and whether taken alone or in conjunction with other persons, connected or not, or any other circumstances appearing to the Directors to be relevant) which might result in the Company incurring a liability to taxation or suffering a pecuniary, fiscal, administrative or regulatory disadvantage.
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If the transfer notice is not complied with to the satisfaction of the Directors, the Company is entitled to sell or transfer (and/or procure the disposal of interests in) the Shares held by the relevant Shareholder on behalf of the holder. The net proceeds of sale will belong to the Company which will become indebted to the former Shareholder for an amount equal to the net proceeds. There is no assurance as to the price which may be achieved for the Shares in any such sale and the provisions of the Articles summarised in this paragraph may operate to the detriment of certain Shareholders. A fuller description of the provisions of the Articles summarised in this paragraph is set out in paragraph 4 of Part IX of this Prospectus. The Company is not, and does not intend to become, registered in the United States as an investment company under the US Investment Company Act and related rules The Company has not, does not intend to, and may be unable to, become registered in the United States as an investment company under the US Investment Company Act. The US Investment Company Act provides certain protections to US investors and imposes certain restrictions on companies that are registered as investment companies. As the Company is not so registered, and does not intend to register, none of these protections or restrictions is or will be applicable to the Company. In addition, to avoid being required to register as an investment company under the US Investment Company Act and to avoid violating that Act, the Company has implemented restrictions on the ownership and transfer of the Shares which may materially affect certain Shareholders ability to transfer the Shares. Risks relating to Ordinary Shares Approval of the Required Resolutions by Ordinary Shareholders may result in the issue of Preference Shares that will entitle their holders to a preferential cumulative dividend to be paid in preference to any distribution to Ordinary Shareholders and to a preferential right to repayment of the Repayment Amount The Preference Shares have the right to receive the Preference Dividend and a preferential right to the repayment of the Repayment Amount on their designated redemption date. Therefore, any payment of dividend to holders of Ordinary Shares is subject to the entitlement of holders of Preference Shares to the Preference Dividend being satisfied and holders of Preference Shares benefit from a preferential right to the reimbursement of the Repayment Amount. The Companys ability to pay dividends to holders of Ordinary Shares will be adversely impacted by the issue of the Preference Shares. There is no guarantee that dividends will be paid on the Ordinary Shares. The value of the Companys Investment Portfolio attributable to the Ordinary Shares will depend on the assets in the Companys portfolio being sufficient to meet the Repayment Amount of the Preference Shares If the Required Resolutions are approved, the Companys capital structure will be such that the underlying value of assets in the Companys portfolio of investments attributable to the Ordinary Shares will be leveraged by the performance of the assets in the Companys portfolio relative to the Repayment Amount attributable to the Preference Shares, which rank in priority to Ordinary Shares in respect of repayment of the Repayment Amount per Preference Share. Accordingly, a positive Net Asset Value for the Ordinary Shareholders will be dependent upon the assets in the Investment Portfolio being sufficient to meet those prior entitlements, in addition to any entitlement for the repayment of capital in connection with any debt financing which may be in place from time to time. Potential Ordinary Shareholders should understand they may receive an amount less than the price paid for their Ordinary Shares, or even no payment at all. Ordinary Shareholders may not receive distributions There is no assurance Ordinary Shareholders will receive distributions. The Ordinary Shareholders, subject to the Board exercising its discretion to pay a dividend and all other applicable legal and regulatory requirements and restrictions, may receive the income of the Company after payment of the Preference Dividend payable from time to time, fees, expenses and taxes. Any distributions in respect of the Ordinary Shares are subject to a number of considerations and restrictions that will include the following: the Company passing the solvency test contained in the Companies Law; prevailing market conditions;

LR13.3.1 (9)(c)

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any other legal or regulatory constraints; the Directors exercising their sole discretion to purchase Shares; and the Company electing to use income to make further investments rather than pay all or some of the excess income to Ordinary Shareholders as a dividend.

Investors are reminded that if the Required Resolutions are adopted and the Board changes the dividend policy as set out in Part I of this Prospectus (noting that the change in dividend policy is not subject to the approval of Shareholders and will be amended if the Directors, in their sole and absolute discretion, choose to do so) achieving income on the Ordinary Shares will no longer be a primary objective and, therefore, the Directors do not expect revenue profits or revenue reserves to be significant and such revenue profits or revenue reserves may be used for reinvestment in assets in the Investment Portfolio. Any change in the tax treatment of dividends paid to, income received by or capital returned to the Company may reduce the dividends or other distributions paid to the holders of the Ordinary Shares. Any change in the tax treatment of distributions made to, or dividends paid to, the holders of Ordinary Shares may have adverse taxation consequences for such holders. The existence of a liquid market in the Ordinary Shares cannot be guaranteed Neither the admission of the Existing Ordinary Shares to the Official List and to trading on the London Stock Exchanges market for listed securities, nor the proposed Open Offer Admission of the New Ordinary Shares should be taken as implying that there is or will be a liquid market for the Ordinary Shares. The Ordinary Shares currently, have in the past, and could in the future, trade at a discount to Net Asset Value The Ordinary Shares have periodically traded at a discount to Net Asset Value and any class of Shares issued from time to time could do so in the future for a variety of reasons, including due to market conditions or the extent investors undervalue the Investment Managers investment management activities. The Company is not obligated to make cash distributions to the Shareholders and it may reinvest the cash it receives. Therefore, in order to realise upon their investment, investors may need to sell their Ordinary Shares for cash. Accordingly, in the event that a holder of Ordinary Shares requires immediate liquidity, or otherwise seeks to realise the value of its investment in the Company, through a sale of Ordinary Shares, the amount received by the Shareholder upon such sale may be less than the underlying Net Asset Value of the Ordinary Shares sold. Further, there is no guarantee that a liquid market in the Ordinary Shares will exist at the time of any such sale which would likely further reduce the amount received by the Shareholders. Risks relating to Preference Shares The existence of a liquid market in the Preference Shares cannot be guaranteed and the Preference Shares could trade at a discount to the Preference Share Notional Value There can be no guarantee that a liquid market in the Preference Shares will develop or that the Preference Shares will trade at prices close to their underlying redemption capital entitlement. The Preference Shares could trade at a discount to the Preference Share Notional Value. Accordingly, Preference Shareholders may be unable to realise their investment at their underlying redemption capital entitlement or at all. The Bonus Issue is the initial offering of the Preference Shares and no public market for the Preference Shares currently exists. The Company has applied for Bonus Issue Admission and it is expected that Bonus Issue Admission will become effective and that dealings in the Preference Shares will commence on 17 September 2010. Any delay in the commencement of trading in the Preference Shares on the London Stock Exchange would decrease the liquidity of the market for the Preference Shares, making trading in the Preference Shares more difficult for Shareholders. In addition it is not possible to predict the extent to which an active market for the Preference Shares will develop or be sustained after the Preference Shares are listed on the London Stock Exchange. There may be a limited number of holders of Preference Shares. Limited numbers and/or holders of Preference
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Shares may mean that there is limited liquidity in such Preference Shares which may affect (i) an investors ability to realise some or all of his investment and/or (ii) the price at which such investor can effect such realisation and/or (iii) the price at which Preference Shares trade in the secondary market. The Company cannot predict the effects on the price of the Preference Shares if a liquid and active trading market for those Preference Shares does not develop. In addition, if such a market does not develop, relatively small sales may have a significant negative impact on the price of the Preference Shares, and sales of a significant number of those Preference Shares may be difficult to execute at a stable price. The Companys ability to pay dividends to holders of Preference Shares is not guaranteed The ability of the Company to pay the Preference Dividend to holders of Preference Shares is not guaranteed and is dependent upon the Board being able to certify that the Company will satisfy the solvency test contained in the Companies Law immediately after payment of the Preference Dividend. If the Company fails to pay all or any part of a Preference Dividend, the Company will pay a further sum to each of the Preference Shareholders on the amount of any Preference Dividend not paid within 14 days of the relevant Payment Date at the rate of 8 per cent. per annum calculated on a daily basis from (but excluding) the Payment Date to (but excluding) the date payment of such amount of the Preference Dividend is made, such further sum to be payable on the date of such payment. The application for admission to the Official List of the UK Listing Authority in respect of the Preference Shares is an application for a standard listing and not a premium listing As the Preference Shares will not be equity shares for the purposes of the Listing Rules, the Preference Shares are not eligible for a listing on the premium segment of the Official List of the UK Listing Authority. Provided that Bonus Issue Admission occurs, a number of Listing Rules that are applicable to the Ordinary Shares will not apply in respect of the Preference Shares including, without limitation, certain rules relating to significant transactions, related party transactions, the Company dealing in the Preference Shares and the contents of circulars sent to Preference Shareholders. In addition, the pre-emption rights contained in the Revised Articles will not, if the Revised Articles are approved at the EGM, apply to Preference Shares. The Investing Fund may seek to dispose of its holding of Preference Shares on or shortly following Bonus Issue Admission. The Investing Fund may seek to dispose of all or part of its holding of Preference Shares on or shortly following Bonus Issue Admission. The Investing Fund has agreed that, subject to Liberum Capital procuring purchasers for at least 25 per cent. of the Preference Shares issued to the Investing Fund pursuant to the Bonus Issue, where it does seek to dispose of all or part of its holding of Preference Shares, it will effect such disposal through Liberum Capital. Whilst the Investing Fund has given an undertaking to trade the balance of its holding of Preference Shares through Liberum Capital in an orderly fashion for a period of six months from Bonus Issue Admission, there can be no guarantee that such an orderly marketing arrangement will be successful or that the aim of preventing significant volatility or reduction in the price of the Preference Shares, which could occur on release of a large volume of Preference Shares for sale in the market, will be achieved. Risks relating to the Placing and Open Offer and Bonus Issue The Companys Share price may fluctuate due to the Placing and Open Offer and the Bonus Issue The Companys Share price is generally subject to fluctuation and, in addition, the market price of the New Ordinary Shares and/or the Existing Ordinary Shares could be subject to significant fluctuations due to a change in sentiment in the market specifically regarding the Placing and Open Offer, an issue of Ordinary Shares at a discount to the prevailing NAV per Ordinary Share and the Bonus Issue. Such risks will depend in part on the markets response to the Placing and Open Offer and the Bonus Issue.

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Ordinary Shareholders will experience dilution in their ownership of, and voting interest in, the Company to the extent that they do not subscribe in full for their Open Offer Entitlement If a Qualifying Open Offer Shareholder does not subscribe in full for his entitlement under the Open Offer, his proportionate ownership and voting interests in the Company will be reduced and the percentage that his Shares will represent of the total share capital of the Company will be reduced accordingly. Ordinary Shareholders in the Excluded Territories or who are US Persons will not be able to participate in the Placing and Open Offer. In addition, the Bonus Issue Record Date is after the date on which the New Ordinary Shares will be issued. As each Ordinary Shareholders entitlement to Preference Shares will be based on the Ordinary Shares held following the Placing and Open Offer, a Qualifying Open Offer Shareholder who does not subscribe for the maximum number of New Ordinary Shares available or sells Ordinary Shares prior to the Bonus Issue Record Date will receive fewer Preference Shares pursuant to the Bonus Issue. Shareholders outside the United Kingdom may not be able to acquire New Ordinary Shares and may not be able to participate in the Bonus Issue Securities laws of certain jurisdictions (such as the Excluded Territories which include the United States) may restrict the Companys ability to allow participation by Shareholders in the Placing and Open Offer and the Bonus Issue. In particular, holders of Ordinary Shares who are US Persons or are located in the United States will not be able to participate in the Open Offer and the Bonus Issue. The Open Offer Entitlements, the New Ordinary Shares and the Preference Shares have not been and will not be registered under the US Securities Act and the Company has not been and will not be registered under the US Investment Company Act. Securities laws of certain other jurisdictions may restrict the Companys ability to allow participation by Shareholders in such jurisdictions in any future issue of shares carried out by the Company. Risks relating to Taxation An adverse change in the Companys tax status or applicable tax legislation could harm the Companys financial condition or prospects Any change in the Companys tax status or in taxation legislation or practice in Guernsey or any other tax jurisdiction affecting the Company could affect the value of the investments held by the Company or affect the Companys ability to achieve its investment objective or alter the post-tax returns to Shareholders. Any such change could adversely affect the net amount of any dividends payable to Preference Shareholders and/or Ordinary Shareholders. In addition, if the Company were treated as having a permanent establishment, or as otherwise being engaged in a trade or business, in any country in which it invests, income attributable to or effectively connected with such permanent establishment or trade or business may be subject to tax on a net basis. Statements in this Prospectus concerning the taxation of Shareholders are based upon current tax law and published practice in the jurisdictions covered, which law and practice is, in principle, subject to change that could be adverse to Shareholders. The advice that the Directors have received in relation to the new definition of an offshore fund for the purposes of the new UK offshore fund rules introduced by the Finance Act 2009 with effect from 1 December 2009 is based in part upon certain general discussions and correspondence between the Companys advisers and HMRC in relation to the interpretation of the new definition. As a result, the Directors may apply for Reporting Fund status in respect of the Preference Shares in order to retain the most advantageous UK tax treatment for UK resident Preference Shareholders. Changes in the Companys non-UK tax residence status would adversely affect the Company In order to maintain its non-UK tax resident status, the Company is required to be controlled and managed outside the United Kingdom. In order to maintain its non-UK tax resident status, each member of the Group and the Company is required to be controlled and managed outside the United Kingdom. The composition of each Group companys board, the place of residence of the boards individual members and the location(s) in which the board makes decisions will all be important in determining
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AI 9.2.3

and maintaining the non-UK tax resident status of that company. Although each company is established outside the UK and a majority of the board of directors of each member of the Group live outside the United Kingdom, continued attention must be given to ensure that major decisions are not made in the United Kingdom or the relevant company may lose its non-UK tax resident status. As such, management errors could potentially lead to a company being considered a UK tax resident, which would negatively affect its financial and operating results. There is a risk that amounts paid or received under intra-group arrangements in the past and/or the future could be deemed for tax purposes to be lower or higher, as the case may be, or fail to be disregarded for the purposes of calculating tax which may increase the Groups taxable income or decrease the amount of relief available to the Group with a consequential negative effect on its financial and operating results.

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IMPORTANT INFORMATION
The attention of existing and potential investors is drawn to the Risk Factors set out on pages 9 to 34 of this Prospectus. Investment in the Company will involve certain risks and special considerations. Existing and potential investors should be able and willing to withstand the loss of their entire investment. The investments of the Company are subject to normal market fluctuations and the risks inherent in all investments and there can be no assurance that an investment will retain its value or that appreciation will occur. The price of the Ordinary Shares and Preference Shares and the income from Preference Shares and Ordinary Shares can go down as well as up and Shareholders may not realise the value of their initial investment. General This Prospectus has been produced for the purpose of the Placing and Open Offer and the Bonus Issue and seeking admission to listing on the Official List of the UK Listing Authority and admission to trading of the New Ordinary Shares and the Preference Shares on the London Stock Exchanges main market for listed securities. In making an investment decision regarding the New Ordinary Shares offered pursuant to the Placing and Open Offer (and the resulting Preference Shares issued pursuant to the Bonus Issue), investors must rely on their own examination of the Company, including the merits and risks involved in an investment in the New Ordinary Shares (and the resulting receipt of the Preference Shares). The Placing and Open Offer and the Bonus Issue are being made solely on the basis of this Prospectus. The New Ordinary Shares and the Preference Shares are only suitable for existing and potential investors who understand the potential risk of capital loss and that there may be limited liquidity in the underlying investments of the Company, for whom an investment in the New Ordinary Shares and Preference Shares would be of a long-term nature and constitutes part of a diversified investment portfolio and who understand and are willing to assume the risks involved in investing in the Company. In connection with the Placing and Open Offer and/or the Bonus Issue, Liberum Capital and any of its Affiliates acting as an investor for its or their own account(s) may receive New Ordinary Shares and/or Preference Shares and, in that capacity, may retain, purchase, offer to sell or otherwise deal for its or their own account(s) in the New Ordinary Shares and/or the Preference Shares, any other securities of the Company or other related investments in connection with the Placing and Open Offer or the Bonus Issue or otherwise. Accordingly, references in this Prospectus to the New Ordinary Shares and the Preference Shares being offered, received, acquired or otherwise dealt with should read as including any offer to sell, or receipt, acquisition or dealing by Liberum Capital and any of its Affiliates acting as an investor for its or their own account(s). Liberum Capital does not intend to disclose the extent of any such investment or transaction otherwise than in accordance with any legal or regulatory obligation to do so. No broker, dealer or other person has been authorised by the Company, its Directors, the Investment Manager or Liberum Capital to issue any advertisement or to give any information or to make any representations in connection with the Placing and Open Offer or the Bonus Issue, other than those contained in this Prospectus and, if issued, given or made, such advertisement, information or representations must not be relied upon as having been authorised by the Company, its Directors, the Investment Manager or Liberum Capital. Existing and potential investors should not treat the contents of this Prospectus as advice relating to legal, taxation, investment or any other matters. Existing and potential investors should inform themselves as to: (a) the legal requirements within their own countries for the purchase, receipt, holding, transfer, redemption or other disposal of New Ordinary Shares and/or Preference Shares and/or Existing Ordinary Shares, (b) any foreign exchange restrictions applicable to the purchase, receipt, holding, transfer, redemption or other disposal of New Ordinary Shares and/or Preference Shares and/or Existing Ordinary Shares that they might encounter, and (c) the income and other tax consequences that may apply in their own countries as a result of the purchase, receipt, holding, transfer, redemption or other
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disposal of New Ordinary Shares and/or Preference Shares and/or Existing Ordinary Shares. Existing and potential investors must rely upon their own representatives, including their own legal advisers and accountants, as to legal, tax, investment or any other related matters concerning the Company and an investment therein. Statements made in this Prospectus are based on the law and practice currently in force in Guernsey, England and Wales and the United States and are subject to changes therein. Prospective investors should assume that the information appearing in this Prospectus is accurate only as of the date on the front cover of this Prospectus, regardless of the time of delivery of the Prospectus or of any offer or sale of the New Ordinary Shares and/or Preference Shares. The business, financial condition and prospects of the Company could have changed since that date. The Company expressly disclaims any duty to update this Prospectus save where required by the Authorised Closed-ended Investment Scheme Rules 2008, the Prospectus Rules, Listing Rules or Disclosure and Transparency Rules of the FSA. This Prospectus should be read in its entirety before making any investment in the Company. All prospective Shareholders are entitled to the benefit of, are bound by and are deemed to have notice of, the provisions of the Memorandum and Articles of Incorporation of the Company. Restrictions on Sales This Prospectus does not constitute, and may not be used for the purposes of, an offer or an invitation to subscribe for any New Ordinary Shares and/or Preference Shares by any person in any jurisdiction: (i) in which such offer or invitation is not authorised; or (ii) in which the person making such offer or invitation is not qualified to do so; or (iii) to any person to whom it is unlawful to make such offer or invitation. The distribution of this Prospectus and the offering of the New Ordinary Shares and Preference Shares in certain jurisdictions may be restricted. Accordingly, persons outside the United Kingdom into whose possession this Prospectus comes are required by the Company and Liberum Capital to inform themselves about and to observe any restrictions as to the offer or sale of New Offer Shares and Preference Shares and the distribution of this Prospectus under the laws and regulations of any territory in connection with any applications for New Ordinary Shares and/or Preference Shares in the Company, including obtaining any requisite governmental or other consent and observing any other formality prescribed in such territory. No action has been taken or will be taken in any jurisdiction by the Company, Liberum Capital, the Investment Manager or the Administrator that would permit a public offering of the New Ordinary Shares or Preference Shares in any jurisdiction where action for that purpose is required, nor has any such action been taken with respect to the possession or distribution of this Prospectus other than in any jurisdiction where action for that purpose is required. This Prospectus does not constitute or form part of an offer or invitation to sell or issue, or a solicitation of an offer to purchase or subscribe for, the Open Offer Entitlements, the New Ordinary Shares or the Preference Shares to any person to whom or in any jurisdiction in which such an offer, invitation or solicitation is unlawful, including the Excluded Territories. US Persons and persons within the United States or any other Excluded Territory may not take up the Open Offer Entitlements or subscribe for or purchase the New Ordinary Shares or receive the Preference Shares offered hereby. US Persons and persons within the United States or any other Excluded Territory who obtain a copy of this Prospectus or the Application Form are required to disregard it. No offer, purchase, sale, exercise or transfer of Open Offer Entitlements, New Ordinary Shares or Preference Shares may be made except under circumstances which will not result in the Company being required to register as an investment company under the US Investment Company Act or potentially being in violation of the US Investment Company Act or the rules and regulations promulgated thereunder. The Shares are subject to the restrictions on transfer described herein. In addition, until the expiration of 40 days after the later of the commencement of the Placing and the Open Offer, an offer, sale or transfer of the Shares within the United States by any dealer may violate the registration requirements of the US Securities Act.

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For the attention of Shareholders and investors in the European Economic Area In relation to each member state of the European Economic Area that has implemented the Prospectus Directive (each, a Relevant Member State), with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the Relevant Implementation Date), an offer of New Ordinary Shares and/or Preference Shares described in this Prospectus may not be made to the public in that Relevant Member State prior to the publication of a prospectus in relation to the New Ordinary Shares and/or Preference Shares that has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that, with effect from and including the Relevant Implementation Date, an offer of securities may be offered to the public in that Relevant Member State at any time: to any legal entity that is authorised or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities; or to any legal entity that has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than 43,000,000 and (3) an annual net turnover of more than 50,000,000, as shown in its last annual or consolidated accounts; or in any other circumstances that do not require the publication of a prospectus pursuant to Article 3 of the Prospectus Directive.

For purposes of this provision, the expression an offer to the public in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an investor to decide to purchase or subscribe the securities, as the expression may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State, and the expression Prospectus Directive means Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 and includes any relevant implementing measure in each Relevant Member State. This Prospectus may not be used for, or in connection with, and does not constitute, any offer of any New Ordinary Shares or Preference Shares or an invitation to purchase or subscribe for New Ordinary Shares or Preference Shares in any Relevant Member State or jurisdiction in which such offer or invitation will be lawful. For the attention of US Persons and persons within the United States The Open Offer Entitlements, the New Ordinary Shares and the Preference Shares have not been and will not be registered under the US Securities Act, or under any securities laws of any state or other jurisdiction of the United States. The Open Offer Entitlements, the New Ordinary Shares and the Preference Shares may not be offered, sold, resold, taken up, exercised, renounced, transferred, delivered or distributed, directly or indirectly, into or within the United States or to, or for the account or benefit of, US Persons. The Open Offer Entitlements, the New Ordinary Shares and the Preference Shares are being offered and sold only outside the United States to non-US Persons in offshore transactions in accordance with and in reliance on the exemption from the registration requirements of the US Securities Act provided by Regulation S thereunder. There will be no public offer of the Open Offer Entitlements, the New Ordinary Shares or the Preference Shares in the United States. US Persons and persons within the United States or any other Excluded Territory may not take up the Open Offer Entitlements, subscribe for or purchase the New Ordinary Shares, or receive the Preference Shares offered hereby. The Company has not been and will not be registered under the US Investment Company Act and, as such, investors will not be entitled to the benefits of the US Investment Company Act. The Open Offer Entitlements, the New Ordinary Shares and the Preference Shares have not been approved or disapproved by the US Securities and Exchange Commission, any state securities commission in the United States or any other regulatory authority in the United States, nor have any of

37

the foregoing authorities passed upon or endorsed the merits of the Placing, the Open Offer or the Bonus Issue or the accuracy or adequacy of this Prospectus. Any representation to the contrary is a criminal offence in the United States. For the attention of Shareholders and investors in Portugal This Prospectus is private and confidential and is for the use solely of the person to whom such materials are addressed. No action has been taken, or is intended to be taken, that would cause this distribution to be qualified under Portuguese Securities Code as a public offer of securities. Accordingly, neither this Prospectus nor any other information related to it shall be made available to the public, advertised in any public manner in Portugal or to Portuguese residents or used for solicitation purposes to undetermined investors in Portugal. This Prospectus is being made available for information purposes and on a personal and confidential basis exclusively to Portuguese qualified investors, within the meaning of the Portuguese Securities Code, and to less than 100 determined Portuguese non-qualified investors. For the attention of Shareholders and investors in Switzerland The New Ordinary Shares and Preference Shares may not be publicly offered, distributed or re-distributed on a professional basis in or from Switzerland and neither this Prospectus nor any other solicitation for investments in the New Ordinary Shares or Preference Shares may be communicated or distributed in Switzerland in any way that could constitute a public offering within the meaning of Articles 652a of the Swiss Code of Obligations. This Prospectus may not be copied, reproduced, distributed or passed on to others without the Companys prior written consent. This Prospectus is not a prospectus within the meaning of Article 652a of the Swiss Code of Obligations or a listing prospectus according to Article 32 et seq. of the Listing Rules of the SWX Swiss Exchange and may not comply with the information standards required thereunder. The Company will not apply for a listing of the Shares on any Swiss stock exchange and this Prospectus may not comply with the information required under the relevant listing rules. In addition, it cannot be excluded that the Company qualifies as a foreign collective investment scheme pursuant to Article 119 of the Swiss Federal Act on Collective Investment Schemes (CISA). The New Ordinary Shares and the Preference Shares will not be licensed for public distribution in and from Switzerland. Therefore, the New Ordinary Shares and the Preference Shares may only be offered and sold to so-called qualified investors in accordance with the private placement exemptions set forth by the law (in particular, Article 10 para. 3 CISA and Article 6 of the implementing ordinance to the CISA). The Company has not been licensed and is not subject to the supervision of the Swiss Federal Banking Commission (SFBC). Therefore, investors in the New Ordinary Shares and the Preference Shares do not benefit from the specific investor protection provided by CISA and the supervision of the SFBC. For the attention of investors in Israel The Placing and Open Offer and the Bonus Issue is intended solely for investors listed in the First Supplement of the Israeli Securities Law, 1968 to whom an offer of securities may be made without the publication of a prospectus in accordance with the Israeli Securities Law, 1968. A prospectus has not been prepared or filed, and will not be prepared or filed with the Israeli Securities Authority in connection with this offering. Subject to any applicable law, the New Ordinary Shares and Preference Shares offered in this offering may not be offered or sold in the State of Israel to more than thirty-five offerees, in the aggregate, who are not listed in the First Supplement of the Israeli Securities Law, 1968. Forward-Looking Statements This Prospectus includes statements that are, or may be deemed to be, forward-looking statements. In some cases, these forward-looking statements may be identified by the use of forward-looking terminology, including the terms believes, estimates, anticipates, expects, intends, may, will or should or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this Prospectus and include statements regarding the intentions, beliefs or current expectations of the Company concerning, amongst other things, the investment objectives and
38

investment policy, financing strategies, investment performance, results of operations, financial condition, prospects, and dividend policy of the Company and the markets in which it, and its portfolio of investments invest and, where applicable, issue securities. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance. The Companys actual investment performance, results of operations, financial condition, dividend policy and the development of its financing strategies may differ materially from the impression created by the forward looking statements contained in this Prospectus. In addition, even if the investment performance, results of operations and financial condition of the Company, and the development of its financing strategies, are consistent with the forward-looking statements contained in this Prospectus, those results or developments may not be indicative of results or developments in subsequent periods. Important factors that could cause these differences include, but are not limited to: the risk factors in the section titled Risk Factors in this Prospectus; changes in economic conditions generally and the Companys ability to achieve its investment objectives and returns on equity for investors; changes in the Companys business strategy and the audited financial history of the Company not being indicative of its future performance; the Companys ability to invest the cash on its balance sheet and the proceeds of the Open Offer in suitable investments on a timely basis; changes in interest rates and/or credit spreads, as well as the success of the Companys investment strategy in relation to such changes and the management of the uninvested proceeds of the Open Offer; significant changes in the market value of the Investment Portfolio from time to time; impairments in the value of the Companys investments; the availability and cost of capital for future investments; competition within the industries in which the Company seeks to invest; the departure of key members employed by the Investment Manager; approval of the Required Resolutions; the termination of, or failure of the Investment Manager to perform its obligations under the Investment Management Agreement with the Company; changes in laws or regulations, including tax laws, or new interpretations or applications of laws and regulations, that are applicable to the Companys business or companies in which the Company makes investments; and general economic trends and other external factors, including those resulting from war, incidents of terrorism or responses to such events.

Given these uncertainties, existing and prospective investors are cautioned not to place any undue reliance on such forward-looking statements. These forward-looking statements speak only as at the date of this Prospectus. Although the Company and the Investment Manager undertake no obligation to revise or update any forward-looking statements contained herein (save where required by the Prospectus Rules, Listing Rules or Disclosure and Transparency Rules of the FSA), whether as a result of new information, future events, conditions or circumstances, any change in the Companys or the Investment Managers expectations with regard thereto or otherwise, holders of Ordinary Shares and Preference Shares are advised to consult any communications made directly to them by the Company and/or any additional disclosures through announcements that the Company may make through a RIS.

39

No Incorporation of Website The contents of the Companys and the Investment Managers website do not form part of this Prospectus. Presentation of Information In this Prospectus: All references to the Company are to Queens Walk Investment Limited (together, where relevant, with its subsidiaries and subsidiary undertakings). All references to the Investment Manager or Cheyne Capital are to Cheyne Capital Management (UK) LLP. All references to historical financial data are in accordance with International Financial Reporting Standards (IFRS). All references to Euro or are to the lawful single currency of member states of the European Communities that adopt or have adopted the Euro as their currency in accordance with the legislation of the European Union relating to European Monetary Union. All references to GBP, Sterling or pound Sterling are to the lawful currency of the United Kingdom. All references to $, US$ or US Dollars are to the lawful currency of the United States. Service of Process and Enforcement of Civil Liabilities The Company is incorporated under Guernsey law. Service of process upon Directors and officers of the Company, all of whom reside outside the United States, may be difficult to effect within the United States. Furthermore, since most directly owned assets of the Company are outside the United States, any judgment obtained in the United States against the Company may not be enforceable in practice within the United States. There is doubt as to the enforceability outside the United States, in original actions or in actions for enforcement of judgments of US courts, of civil liabilities predicated upon US federal securities laws. In addition, awards of punitive damages in actions brought in the United States or elsewhere may be unenforceable in Guernsey or the United Kingdom. References to Defined Terms and Incorporation of Terms Certain terms used in this Prospectus, including capitalised terms and certain technical and other terms are explained in the section entitled Definitions and Glossary.

40

EXPECTED TIMETABLE OF PRINCIPAL EVENTS


2010

Open Offer Record Date Publication of Prospectus and Circular and despatch of Application Forms Existing Ordinary Shares marked ex by the London Stock Exchange Open Offer Entitlements credited to the stock accounts of Qualifying CREST Open Offer Shareholders Recommended latest time and date for requesting withdrawal of Open Offer Entitlements from CREST (i.e. if Open Offer Entitlements are in CREST and the Qualifying CREST Open Offer Shareholder wishes to convert them into certificated form) Recommended latest time for depositing an Application Form with the CREST Courier and Sorting Service (i.e. where a Qualifying Open Offer Shareholder wishes to hold the Open Offer Entitlement set out in an Application Form as Open Offer Entitlements in CREST) Latest time and date for splitting Application Forms (to satisfy bona fide market claims only) Latest time and date for acceptance, payment in full and submission of Application Forms (in respect of Qualifying Certificated Open Offer Shareholders) and USE Instructions (in respect of Qualifying CREST Open Offer Shareholders) to the Receiving Agent Open Offer Entitlements held in CREST expected to be disabled Latest time and date for receipt of the Form of Proxy for the Extraordinary General Meeting (or receipt of the appropriate CREST message, in the case of CREST members) Extraordinary General Meeting1 Announcement of results of the Open Offer Admission of the New Ordinary Shares issued pursuant to the Placing and Open Offer to the Official List and commencement of dealings on the London Stock Exchange New Ordinary Shares in uncertificated form expected to be credited to accounts in CREST Bonus Issue Record Date for the calculation of the maximum number of Preference Shares to be issued to Qualifying Bonus Issue Shareholders pursuant to the Bonus Issue Ordinary Shares marked ex by the London Stock Exchange

close of business on 13 August 17 August (expected to be) 17 August 18 August 4.30 p.m. on 3 September

3.00 p.m. on 6 September

3.00 p.m. on 7 September 11.00 a.m. on 9 September


AIII 5.1.3 AIII 5.2.3(g)

11.00 a.m. on 9 September 11.00 a.m. on 13 September 11.00 a.m. on 15 September 15 September 16 September
AIII 5.1.9 AIII 4.7

8.00 a.m. on 16 September 5.00 p.m. on 16 September (expected to be) 17 September

The quorum for the Extraordinary General Meeting is two Shareholders of the Company present in person or by proxy. In the event that the Extraordinary General Meeting is not quorate, the Board will reconvene the Extraordinary General Meeting on 22 September 2010.

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2010

Admission of the Preference Shares issued pursuant to the Bonus Issue to the Official List and commencement of dealings on the London Stock Exchange Preference Shares in uncertificated form expected to be credited to accounts in CREST Announcement of the number of Preference Shares to be issued pursuant to the Bonus Issue Despatch of definitive share certificates for the New Ordinary Shares in certificated form Despatch of definitive share certificates for the Preference Shares in certificated form General Notes: (a)

17 September

LR 13.3.1(9)(a)

17 September 17 September by 23 September by 23 September

The actions specified in the expected timetable of principal events above are subject to certain restrictions relating to certain Shareholders and the Excluded Territories, details of which are set out in Parts IV and VI (as applicable) of this Prospectus. The times and dates set out in the expected timetable of principal events above and mentioned throughout this Prospectus may be adjusted by the Company, in which event details of the new times and dates will be notified to the UK Listing Authority, and an announcement will be made on an RIS. References to times in this Prospectus are to London times unless otherwise stated. If you have any queries on the procedure for acceptance and payment, you should contact the Receiving Agent. The Receiving Agent cannot provide advice on the merits of the proposals or give any financial, legal or tax advice.

(b)

(c) (d)

If you have any queries on the procedure for acceptance and payment in relation to the Application Form, you should contact the Receiving Agent on 0871 664 0321, if you are calling from inside the UK, or +4420 8639 3399, if calling from outside the UK, between 9.00 a.m. and 5.00 p.m. Monday to Friday (excluding public holidays). Calls to the 0871 664 0321 number are charged at 10 pence per minute from a BT landline. Other network providers costs may vary. Calls to the helpline from outside the UK will be charged at applicable international rates. Different charges may apply to calls made from mobile telephones and calls may be recorded and monitored randomly for security and training purposes.

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INDICATIVE STATISTICS
Offer Price per New Ordinary Share NAV per New Ordinary Share as at 31 March 2010 Expected NAV per New Ordinary Share following Placing and Open Offer(1) Initial Adjusted NAV per New Ordinary Share following Bonus Issue(2) Maximum total number of Ordinary Shares in issue post Open Offer Admission Estimated net proceeds receivable by the Company pursuant to the Placing and Open Offer(3) Maximum total number of Preference Shares in issue post Bonus Issue Admission Preference Share Notional Value ISIN for Ordinary Shares ISIN for Preference Shares
(1) (2) (3)

2.00 3.73 3.11 1.59 39,966,985 24,880,656 49,958,731 1.00 GB00B0HW5366 GG00B4ZRT175

AIII 4.4 AIII 5.3.1

AIII 4.1

The expected NAV per New Ordinary Share following the Placing and Open Offer will take into account the expected net proceeds receivable by the Company and the Enlarged Issued Ordinary Share Capital following the Placing and Open Offer. The Adjusted NAV will be equal to the Expected NAV per New Ordinary Share following the Placing and Open Offer decreased by an amount equal to the Aggregate Preference Share Notional Value. The estimated net proceeds receivable by the Company are stated after deduction of the estimated commissions, fees and expenses of the Placing and Open Offer and Bonus Issue payable by the Company, which are expected to be approximately 1,764,000.

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CORPORATE INFORMATION
Directors Tom Chandos (Chairman) Talmai Morgan Christopher Spencer Graham Harrison John Hawkins Dorey Court Admiral Park St. Peter Port Guernsey GY1 3BG Telephone Number: +44 1481 727111 Kleinwort Benson (Channel Islands) Fund Services Limited Dorey Court Admiral Park St. Peter Port Guernsey GY1 3BG Cheyne Capital Management (UK) LLP Stornoway House 13 Cleveland Row London SW1A 1DH Telephone Number: +44 20 7031 7450 Liberum Capital Limited Ropemaker Place Level 12 25 Ropemaker Street London EC2Y 9LY Herbert Smith LLP Exchange House Primrose Street London EC2A 2HS Carey Olsen Carey House Les Banques St. Peter Port Guernsey GY1 4BZ Berwin Leighton Paisner LLP Adelaide House London Bridge London EC4R 9HA Deloitte LLP Guernsey Branch Regency Court Glategny Esplanade St Peter Port Guernsey GY1 3HW Capita Registrars (Guernsey) Limited Longue Hougue House St. Sampson Guernsey GY2 4JN
44
AIII 5.4.2 AXV 4.1 AIII 10.1 AI 14.1

Registered Office of the Company

Administrator and Secretary of the Company

Investment Manager

Sponsor, Financial Adviser and Bookrunner

AIII 5.4.1

Legal Adviser to the Company as to English and US Law

Legal Advisers to the Company as to Guernsey Law

Legal Adviser to the Sponsor, Financial Adviser and Bookrunner

Auditors and reporting accountants

Registrar

UK Transfer Agent

Capita Registrars The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Capita Registrars Corporate Actions The Registry 34 Beckenham Road Beckenham Kent BR3 4TU State Street Custodial Services (Ireland) Limited 78 Sir John Rogersons Quay Dublin 2 Ireland
AXV 5.1

Receiving Agent

Custodian

45

PART I THE COMPANYS BUSINESS

LR13.3.1(3)

Introduction The Company is a non-cellular closed-ended investment company limited by shares incorporated in Guernsey in 2005 and has been declared an authorised closed-ended investment scheme by the Guernsey Financial Services Commission. The Companys investments are managed by Cheyne Capital Management (UK) LLP (Cheyne Capital or the Investment Manager), a London-based investment management company authorised and regulated by the Financial Services Authority. Further information relating to the management of the Company and Cheyne Capital is set out in Part III of this Prospectus. The Placing and Open Offer and the Bonus Issue are conditional on the Required Resolutions being passed at the Extraordinary General Meeting. A separate Circular is being sent to Ordinary Shareholders with this Prospectus setting out details of the Extraordinary General Meeting and the resolutions to be proposed (including the Required Resolutions). Details of the Placing and Open Offer and the Bonus Issue Placing and Open Offer Conditional on the Required Resolutions being approved by Ordinary Shareholders at the EGM and Open Offer Admission occurring, up to 13,322,328 New Ordinary Shares are being issued pursuant to the Placing and Open Offer. Qualifying Open Offer Shareholders are being given the opportunity to apply to subscribe for New Ordinary Shares in proportion to their existing holdings at the Offer Price (payable in full on application) on the following basis: 1 New Ordinary Share at 2.00 per New Ordinary Share for every 2 Existing Ordinary Shares registered in the name of Qualifying Open Offer Shareholders at the Open Offer Record Date and so in proportion for any other number of Existing Ordinary Shares then registered. Fractions representing New Ordinary Shares which would otherwise have arisen will not be allotted to Qualifying Open Offer Shareholders, but will be aggregated and subscribed for under the Placing for the benefit of the Company. The New Ordinary Shares will rank equally with Existing Ordinary Shares following their issue. Valid applications by Qualifying Open Offer Shareholders will be satisfied in full up to the amount of their individual Open Offer Entitlement. Qualifying Open Offer Shareholders should be aware that the Open Offer is not a rights issue. As such, Qualifying Certificated Open Offer Shareholders should note that their Application Form is not a negotiable document and cannot be traded. Qualifying CREST Open Offer Shareholders should note that, although their Open Offer Entitlement will be credited to their CREST accounts, the Open Offer Entitlements will not be tradable or listed. The Placees have agreed to subscribe for all the New Ordinary Shares at the Offer Price subject to Open Offer Admission and the passing of the Required Resolutions at the Extraordinary General Meeting, subject to clawback in order to satisfy all valid applications by Qualifying Open Offer Shareholders under the Open Offer. Not all holders of Existing Ordinary Shares will be Qualifying Open Offer Shareholders. Shareholders of the Company who are located or resident in, or who are citizens of, or who have a registered address in an Excluded Territory or are US Persons (regardless of the number of Existing Ordinary Shares that they hold) will not qualify to participate in the Open Offer. The attention of Overseas Shareholders is drawn to paragraph 6 of Part IV of this Prospectus. Full terms and conditions of the Open Offer are set out in Part IV of this Prospectus and (for Qualifying Certificated Open Offer Shareholders only) the Application Form.
46
AIII 5.2.3(b) AIII 6.3 AIII 4.6

AIII 5.2.1

On the assumption that 13,322,328 New Ordinary Shares are issued pursuant to the Placing and Open Offer, the initial gross proceeds of the Placing and Open Offer will be 26,644,656, the expenses payable by the Company will be approximately 1,764,000 (based on the Prevailing Exchange Rates as at 16 August 2010) and the net proceeds of the Placing and Open Offer will be approximately 24,880,656. Bonus Issue The Preference Shares, which will be denominated in Sterling, will be issued free of subscription cost to Qualifying Bonus Issue Shareholders. The Bonus Issue is conditional on the Required Resolutions being passed and Bonus Issue Admission becoming effective by not later than 8.00 a.m. on 17 September 2010. Qualifying Bonus Issue Shareholders will, subject to the conditions detailed in Part VI of this Prospectus, be issued Preference Shares on the basis of 1.25 Preference Shares for every 1 Ordinary Share held as at the Bonus Issue Record Date. Subject to applicable law and regulation, the Preference Shares confer the right to a preferential cumulative Preference Dividend (which is an amount in Sterling equal to 8 per cent. per annum of the Preference Share Notional Value) payable quarterly on each Payment Date. Due to restrictions under the securities laws of the Excluded Territories, Restricted Shareholders will not qualify to participate in the Bonus Issue and will not be eligible to receive certificated Preference Shares or have their securities account in CREST credited with entitlements to Preference Shares. The Investing Fund may seek to dispose of all or part of its holding of Preference Shares immediately following the Bonus Issue. For further information, please refer to the paragraph 10 of Part IX of this Prospectus headed Orderly marketing arrangements. Further details of the rights attaching to Preference Shares are set out in Part V of this Prospectus. Full terms and conditions of the Bonus Issue are set out in Part VI of this Prospectus. Background to the proposed change to the Companys investment policy and the fund raising Since its inception in 2005 the Company has invested primarily in a diversified portfolio of subordinated tranches of asset-backed securitisations. These subordinated tranches of ABS will, in most cases, be below investment grade or unrated and will, in many cases, represent the residual income typically retained by the originator of a securitisation transaction as the equity or first loss position (Residual Income Positions). During the course of 2007, the asset-backed securities market experienced rapid and significant deterioration as part of the global credit crisis. As a result, the Companys assets with exposure to underlying real estate in the United Kingdom and the United States suffered heavy losses, although losses incurred by the Company were mitigated by the Investment Managers active management of the Investment Portfolio throughout the course of 2007. During the calendar year 2007, the Company sold approximately 75 per cent. and 40 per cent. (by number of investments) of its Residual Income Positions exposed to the mortgage market in the United States and the United Kingdom, respectively, and replaced the Companys repo financing facility with term facilities that had no mark-to-market test. Since December 2005, the Company has returned in excess of 70 million to Ordinary Shareholders through buybacks and tenders of Ordinary Shares and has paid 2.45 per Ordinary Share in aggregate dividends. The Company focused on improving financial stability through 2008 and 2009 and has now fully repaid its 45 million debt facility, while continuing to pay a dividend on Ordinary Shares. The Company currently intends to continue to sell down and/or amortise its portfolio of Residual Income Positions. Having managed the Investment Portfolio through the downturn, the Company, on the advice of the Investment Manager, believes that there is an opportunity for it to benefit from investment in the European real estate debt market. Subject to approval of the Required Resolutions, the Company intends to focus future investments on real estate debt including residential mortgage backed securities (RMBS) and commercial mortgage backed securities (CMBS).
47

Accordingly, the Company is proposing, subject to the consent of Ordinary Shareholders at the Extraordinary General Meeting, to: undertake a Placing and Open Offer of New Ordinary Shares to raise gross proceeds of 26,644,656 million to invest in accordance with the proposed investment policy; and change its investment policy with the result that the Companys primary focus for new investments will be Real Estate Debt Investments (as more fully detailed on pages 55 to 56 of this Prospectus).

The Company also proposes, subject to Ordinary Shareholder consent, to make a bonus issue to Ordinary Shareholders of fixed income Preference Shares pro rata to their holdings of Ordinary Shares at the close of the first day of trading of the New Ordinary Shares on a 1.25:1 basis (the Bonus Issue). Subject to applicable law and regulation, the Preference Shares will confer the right to a preferential cumulative Preference Dividend equal to 8 per cent. per annum of the Preference Share Notional Value of 1.00, payable quarterly on each Payment Date. The Company currently intends that in the event Preference Shares are issued pursuant to the Bonus Issue, the Companys dividend policy will be amended so that available income is first used to pay any Preference Dividend that is due and payable and then, if the Directors in their sole discretion so resolve, to pay dividends to Ordinary Shareholders. It is expected that any future dividends payable to Ordinary Shareholders, following payment of any Preference Dividend, will be substantially reduced as compared to the dividends that have been previously paid in respect of the Ordinary Shares. However, the Directors do currently intend that the Company continues to pay a dividend to Ordinary Shareholders when it is able and appropriate to do so. Further details are set out under the heading Dividend Policy in this Part I. The Placing and Open Offer and the Bonus Issue are conditional on the approval of the following resolutions at the Extraordinary General Meeting: the special resolution to amend the Articles to accommodate the Preference Share rights, approve the Placing and Open Offer and the Bonus Issue and approve each modification, variation or abrogation of the rights of Ordinary Shares (resolution 2 in the Notice of the Extraordinary General Meeting); the ordinary resolution to amend the Companys investment policy as described below (resolution 6 in the Notice of the Extraordinary General Meeting); and the ordinary resolution to approve the Offer Price of the New Ordinary Shares being 2.00 which is a discount of more than 10 per cent. to the middle market price of the Ordinary Shares on 13 August 2010 (resolution 7 in the Notice of Extraordinary General Meeting),

such resolutions being the Required Resolutions. In the event that any one of the Required Resolutions is not passed by the required majority of Shareholders attending and voting at the EGM (whether in person or by proxy), the Placing and Open Offer and the Bonus Issue will not take place. Shareholders should note that the Placing and Open Offer and the Bonus Issue are not conditional on the resolutions proposed at the EGM making certain amendments to the Articles (other than the insertion of the rights of the Preference Shares), approving the amendment to the Management Fee payable to the Investment Manager, granting authority to the Directors to buy back Preference Shares or disapplying the pre-emption rights, which are referred to below, being approved. Background to the further business to be proposed at the EGM In addition to the Required Resolutions proposed at the EGM to implement the change to the Companys investment policy and the fund raising, the Company is: proposing to amend the Management Fee payable to the Investment Manager, conditional upon and with effect from Bonus Issue Admission occurring (further details of which are set out below);
48

proposing to amend the name of the Company from Queens Walk Investment Limited to Real Estate Credit Investments Limited; taking the opportunity to make a number of amendments to its Memorandum and Articles to reflect current legal and regulatory requirements and market practice. These changes include the addition of pre-emption rights in respect of offers of Ordinary Shares and equity shares (which will not include the Preference Shares) of any other class then in issue which are required in order for the Company to maintain its premium listing status on the Official List of the UK Listing Authority. The Required Resolution that allows for the insertion of the Preference Share rights into the Articles is proposed as a separate resolution from the resolution making general updates to the Memorandum and Articles and adding pre-emption rights; proposing a resolution which would allow the Company, at the discretion of the Directors, to buy back Preference Shares, if issued, subject to certain limitations; and proposing a resolution which would disapply the pre-emption rights contained in the Revised Articles in respect of 2,664,466 Ordinary Shares, such disapplication to have effect until the Companys annual general meeting in 2011 (unless previously renewed, varied or revoked by the Company in general meeting).

Details of the amendments to the Investment Management Agreement The Company, Trebuchet and the Investment Manager have entered into the Investment Management Agreement Side Letter pursuant to which, and conditional upon approval by Ordinary Shareholders at the EGM and on Bonus Issue Admission occurring, the following amendments will be made to the Investment Management Agreement: adjustments to the Management Fee payable to the Investment Manager; agreement that at least 70 per cent. of the Companys Net Asset Value will comprise Residual Income Positions and Real Estate Debt Investments as opposed to Primary Target Investments in accordance with the proposed investment policy; and amendments to the Investment Managers conflicts policy that applies to its management of the Investment Portfolio, as further described in Part III of this Prospectus under the heading Conflicts.

The Management Fee currently payable to the Investment Manager is an annual fee equal to 1.75 per cent. of the Net Asset Value. If Preference Shares are issued, the obligation on the Company to pay the Preference Share Notional Value on a winding up of the Company or the redemption of the Preference Shares in accordance with their terms will be classified as a liability for the purposes of calculating the NAV . The Directors believe that the Bonus Issue of itself should not lead to a reduction of the Management Fee that would be payable to the Investment Manager and, as such, have proposed the following amendment. If approved by the Ordinary Shareholders, the Management Fee payable will, with effect from Bonus Issue Admission, be equal to 1.75 per cent. per annum of the Adjusted NAV . No Management Fee will be payable to the Investment Manager in respect of investments in asset portfolios already managed by the Investment Manager. The Adjusted NAV will be equal to the prevailing NAV calculated in accordance with the Companys accounting policies increased by an amount equal to the Aggregate Preference Share Notional Value. The Incentive Fee calculation will not be amended pursuant to the Investment Management Agreement Side Letter. Benefits of the Proposals The Board believes that the proposed change to the investment policy of the Company, the Placing and Open Offer and the Bonus Issue will result in a number of benefits for the Company. Given the volatile market conditions since 2007, the Company has taken steps to improve its financial stability and the Directors, on the advice of the Investment Manager, now believe that there is an opportunity for the Company to invest in Real Estate Debt Investments. The Company intends to utilise the net proceeds of the Placing and Open Offer primarily in RMBS and CMBS investments with
49

underlying assets in the United Kingdom and Western Europe. The Directors, on the advice of the Investment Manager, believe that this asset class offers attractive returns relative to the risk of such investments. In addition, the Directors believe, on the advice of the Investment Manager, that the Real Estate Debt Investments, and in particular the MBS, offer better liquidity and price transparency than the Residual Income Positions. This is consistent with the Companys actions in its financial year ended 31 March 2010 in which it focused on growing its Real Estate Debt Investments portfolio and selling Residual Income Positions. Assuming that: immediately following Open Offer Admission (i) the net proceeds of the Placing and Open Offer are approximately 24.9 million; (ii) such net proceeds are immediately invested in Real Estate Debt Investments; and (iii) the valuation of the Residual Income Positions is unchanged from the announced NAV on 31 March 2010 and the valuation of the Real Estate Debt Investments is unchanged from 30 June 2010, Real Estate Debt Investments would account for approximately 42.5 per cent. of the Investment Portfolio by NAV as compared to approximately 14.4 per cent. of the Investment Portfolio by NAV as at 31 March 2010 (source: Annual Report, management accounts, unaudited). This calculation is for illustrative purposes only. In particular, Shareholders and investors should be aware that the Company will not be able to invest all of the net proceeds of the Placing and Open Offer immediately following Open Offer Admission. The Company is mindful of the need to balance its best interests to raise capital against the interests of Ordinary Shareholders. The Board believes that the structure of the Placing and Open Offer balances appropriately the interests of Existing Ordinary Shareholders with new investors in that it offers Existing Ordinary Shareholders the opportunity not to suffer, or to limit, the dilution which will occur upon the issue of New Ordinary Shares. The Board believes that the issue of New Ordinary Shares pursuant to the Placing and Open Offer at an Offer Price of 2.00 per New Ordinary Share and the Bonus Issue of Preference Shares with a Preference Dividend equal to 8 per cent. per annum of the Preference Share Notional Value represents an attractive investment opportunity to both Existing Ordinary Shareholders and new investors. In particular, the Board believes that there is the potential for capital appreciation in the Investment Portfolio as the Companys financial position is stabilised and the Investment Portfolio is restructured, that the right to the Preference Dividend will appeal to certain investors and that there will be renewed appeal to investors as a result of the Companys revised capital structure. The Directors further believe that the Placing and Open Offer will allow the Company to broaden its Shareholder base which should improve liquidity in the market for its Ordinary Shares. The Investing Fund, which holds 15,773,804 Ordinary Shares representing 59.2 per cent. of the Existing Ordinary Shares in the Company, has agreed in writing not to take up its Open Offer Entitlement. Assuming that 13,322,328 New Ordinary Shares are issued pursuant to the Placing and Open Offer, the Investing Fund will hold 39.47 per cent. of the Ordinary Shares in issue immediately following Open Offer Admission. Shareholder approvals required to implement the proposals As noted above, the Placing and Open Offer and the Bonus Issue are conditional on the Required Resolutions being approved by Ordinary Shareholders at the EGM. The Companies Law requires that any amendment to the Memorandum and Articles be approved by a special resolution of Shareholders (that is 75 per cent. of the Shareholders present and voting, whether in person or by proxy). The Companies Law further requires that Shareholder consent must be obtained for a Company to buy back shares. In addition, the Listing Rules impose an obligation to receive Shareholder consent prior to the Company undertaking certain actions, including: a material change to the Companys investment policy, which requires approval by way of an ordinary resolution of Shareholders; and a related party transaction, which must be conditional on Shareholder approval by way of an ordinary resolution. Since Cheyne Capital is a related party of the Company for the purposes of the Listing Rules, Shareholder approval of the Investment Management Agreement Side Letter is required before it can become unconditional.
50

The Investing Fund currently holds 15,773,804 Ordinary Shares representing 59.2 per cent. of the Existing Ordinary Shares in the Company. Cheyne Capital has taken all reasonable steps to ensure that the Investing Fund will not vote on the resolution approving the amendments to the Investment Management Agreement to be proposed at the EGM. The Listing Rules also require (in summary) that, in the absence of shareholders approving the terms of an offer, if the Company makes an open offer or offer for subscription of Ordinary Shares, the price of such offer must not be at a discount of more than 10 per cent. to the middle market price of the Ordinary Shares at the time of announcing the terms of the offer. As the Offer Price is at a discount of more than 10 per cent. to the middle market price of the Ordinary Shares on 13 August 2010, a further Shareholder resolution is required at the EGM. Use of Proceeds of the Placing and Open Offer The Company intends to use the net proceeds of the Placing and Open Offer primarily to invest in European Real Estate Debt Investments with particular focus on: (i) RMBS; and (ii) CMBS in accordance with the proposed investment policy of the Company as set out below under the heading Investment Policy in this Part I. The Directors believe, having been so advised by the Investment Manager, that the primary advantage of raising capital pursuant to the Placing and Open Offer will be the opportunity for further investment in the European real estate debt markets, where the Investment Manager believes there is currently significant price dislocation. To the extent that suitable RMBS and CMBS investments are not available (which the Directors do not expect to be the case), the net proceeds of the Placing and Open Offer may also be invested in other assets that fall within the proposed investment policy to the extent that the Investment Manager identifies investment opportunities that it believes offer attractive returns to the Company. Pending investment of the net proceeds of the Placing and Open Offer in RMBS and CMBS and other investments in accordance with the Companys investment policy, the Company may invest the net proceeds in short-term money market funds. The Company does not intend to apply leverage to these temporary investments. Company total assets immediately following Open Offer Admission and Bonus Issue Admission Assuming all 13,322,328 New Ordinary Shares are subscribed for pursuant to the Placing and Open Offer, total assets of the Company will have increased by 24,880,656 immediately following Open Offer Admission. It is expected that the Placing and Open Offer will have a positive impact on the Companys earnings. Assuming that 49,958,731 Preference Shares are issued pursuant to the Bonus Issue, total assets of the Company will not be changed immediately following the Bonus Issue. It is expected that the Bonus Issue will have a negative impact on the Companys earnings, because of the Preferred Dividend. Company Overview The Companys current investment objective is to preserve capital and provide stable returns to Ordinary Shareholders in the form of quarterly dividends. If the Required Resolutions are approved by Ordinary Shareholders at the Extraordinary General Meeting, the Companys investment objective will be to provide Ordinary Shareholders with a levered exposure to a diversified and amortising portfolio of Residual Income Positions and a growing portfolio of Real Estate Debt Investments and to provide Preference Shareholders with stable returns in the form of quarterly dividends. As at 13 August 2010 (the latest practicable date prior to the publication of this Prospectus), the Company had cash deposits of 6,401,659, and had no debt outstanding. The Company has been established with an unlimited life.
AI 5.1.3

AIII 3.4

AI 20.2

AXV 1.1

51

The Company currently holds some of its investments indirectly through Trebuchet Finance Limited (a SPV) and may in the future hold assets through SPVs or subsidiaries. The Companys interest in the investments held by Trebuchet is through unsecured participation notes issued by Trebuchet. Trebuchet is also a party to the Investment Management Agreement pursuant to which the Investment Manager manages the assets held by Trebuchet in accordance with the Companys investment policy. Further information regarding Trebuchet is set out in paragraph 11.6 of Part IX. Investment Policy The Board believes that it is now in the best interests of Ordinary Shareholders as a whole for the Companys investment policy to be amended. Pursuant to the prevailing investment policy, the Company had sought to invest primarily in a diversified portfolio of subordinated tranches of ABS. These subordinated tranches of ABS are, in most cases, Residual Income Positions. The Companys proposed investment policy will permit the Company to invest primarily in Real Estate Debt Investments (as such term is defined below). As at the date of this Prospectus, the Investment Portfolio includes a number of Residual Income Positions and, as a result, in order to avoid inadvertent breaches of the proposed investment policy, the proposed investment policy will, if adopted, require at least 70 per cent. of the NAV of the Company to be invested in Real Estate Debt Investments and Residual Income Positions. However, if the proposed investment policy is adopted at the EGM, the Company does not currently intend actively to increase existing Residual Income Positions or invest in other Residual Income Positions with the current intention that eventually Real Estate Debt Investments will form a majority of the Investment Portfolio. Both the current investment policy of the Company and the proposed investment policy of the Company are set out below. The amendment to the Companys investment policy is subject to Shareholder approval, by ordinary resolution, at the Extraordinary General Meeting Current Investment Policy In order to achieve its investment objective, the Group invests primarily in a diversified portfolio of subordinated tranches of ABS where the Investment Manager considers that the coupon or cash flows on the subordinated tranche are attractive relative to the underlying credit. These subordinated tranches of ABS will, in most cases, be below investment grade or unrated and will, in many cases, represent the residual income typically retained by the originator of a securitisation transaction as the equity or first loss position. The Residual Income Position in a securitisation represents the cash flows, if any, that remain at the bottom of the payment waterfall after all other debt and transaction costs in respect of a securitisation, including payments on the more senior tranches of ABS, have been met. These positions are typically retained by the originator of the assets underlying the securitisation. The value of residual income positions is significantly influenced by the particular characteristics of the residual income position. Valuation takes considerable time, expertise, and a detailed knowledge of the underlying assets. Value also depends on the view taken of the underlying collateral and on the view taken by an investor on its required return, which are both subjective judgements. Unlike a more conventional debt instrument and the more senior tranches of ABS, the pay-out profile of a residual income position will not generally include a contractually established schedule of fixed payments divided between interest and principal. Instead, the pay-outs will generally vary over time, and the periodic cash flows associated with a residual income position may include a significant element of principal repayment as well as interest payments. The Group intends to reinvest the principal repayment portion of such cash flows in new investments when it has the ability to do so. Residual income positions also expose the holder to the risk that any default or loss on the assets in the securitised portfolio may reduce the cash flows available to be paid to the holder as interest or a return of principal.

AXV 1.1

52

Where appropriate, the Group may utilise leverage for the purpose of financing its portfolio and enhancing returns to Shareholders. The Group intends to reduce exposure to interest rate and currency fluctuations through the use of currency and interest rate hedging arrangements for the purposes of efficient portfolio management. The Group seeks to create a geographically diverse portfolio of investments primarily backed by a broad range of financial assets. It will regularly monitor the extent to which the investment portfolio is concentrated in any particular country or region, asset class, industry or sector, or originator or servicer, along with any relevant risks associated with such country, region, asset class, industry, originator or servicer and the Investment Manager will rebalance the investment portfolio as and when it deems it appropriate to do so. The Groups investment policy contemplates investment primarily in subordinated tranches of ABS where the underlying portfolios of assets contain a number of exposures that are sufficiently diverse or, in the Investment Managers terminology, granular to ensure that the Group is not unduly exposed to any single obligor. The Investment Manager believes, and the Directors agree, that such granularity further enhances stability in the performance of such investments. The Groups primary target investments (the Primary Target Investments) will be interests in and/or exposures to ABS that have subordinated claims to cash flows generated by portfolios of consumer or commercial financial assets including, without limitation, residential mortgages, credit card receivables, auto loans, student loans, commercial real estate loans and leases and may include ABS backed by pools of small and medium-enterprise loans that the Investment Manager determines are sufficiently granular but will not include certain collateralised debt obligations (or CDOs) that are backed by other corporate loans or by corporate bonds. Primary Target Investments typically will have the following key characteristics. Investments will be backed by assets located primarily in the UK, continental Europe and/or the United States, investments will have prospective returns at or above the level targeted by the Investment Manager at the time of purchase. Such target returns will be adjusted by the Investment Manager from time to time to reflect changing market conditions. The prospective returns on investments targeted by the Investment Manager will typically be 10 per cent. per annum or higher, the portfolio will have a varied duration profile with the duration of individual investments generally ranging from six months to 10 years, investments will represent non-investment grade risk and may constitute residual income positions, (i) acquired in the secondary market; (ii) structured by a third party to the Investment Managers specification in a primary market transaction; or (iii) arising out of transactions where the Investment Manager works directly with asset originators and investments will be held to maturity (or earlier redemption/repayment by the issuer/borrower) rather than traded prior to maturity. While the Group will have the flexibility to invest in assets that do not have all of the characteristics listed above, such as, inter alia, direct real estate investments and mezzanine loans, the Group has adopted a policy, which is set out in the Investment Management Agreement which requires that at least 70 per cent. of its Net Asset Value will comprise Primary Target Investments, measured at the time of and after giving effect to each proposed new or additional investment or at the time of any disposal by reference to the latest then available Net Asset Value. If upon such a measurement the Investment Manager determines that less than 70 per cent. of the portfolio comprises Primary Target Investments, the Investment Manager has agreed with the Group to take such action, including the sale of assets, as would be necessary to correct this imbalance prior to acquiring any further assets which do not qualify as Primary Target Investments. The Investment Manager will monitor adherence to this investment policy. The structure of the Groups investments and, in particular, residual income positions, may take many different forms including, without limitation, securities, subordinated bonds, subordinated loans, mortgage early redemption certificates, preference shares, deferred purchase price, or the right to receive certain cash reserves. The Board of Directors has adopted general guidelines for investments and borrowings to the effect that except in the case of cash deposits awaiting investment, no more than 20 per cent. of the Gross Assets of the Group will be lent to or invested in any one Group or group at the time the investment or loan is made, no more than 20 percent of the Groups Gross Assets will be invested directly in real estate assets, no more than 10 per cent. of the Gross Assets of the Group will be invested in other listed investment companies (including listed investment trusts), except where the investment companies themselves have stated investment policies to invest no more than 15 per cent. of their Gross Assets in other listed investment companies (including listed investment trusts), no more than 15 per cent. of the Gross Assets
53

of the Group will be invested in other listed investment companies (including listed investment trusts), regardless of their investment policies and the Group will not take legal control, or seek to take legal control, or be actively involved in the management of, any companies or businesses in which it invests, except for (i) any SPVs it may establish and (ii) pursuant to the exercise of rights as a consequence of the Group taking steps to preserve or enforce its security in relation to a particular investment. The Group will not, to a significant extent, be a dealer in investments and neither the Group nor any member of its Group will conduct a trading activity which is significant in the context of the Group as a whole. The Group will not co-invest with the Investment Manager, any of its Affiliates or other funds managed by the Investment Manager (other than Group Affiliates) unless (i) the co-investment is otherwise in accordance with the Groups investment guidelines and (ii) the terms of such co-investment are at least as favourable to the Group as to the Investment Manager or such Affiliate or other managed fund (as applicable) making such co investment. Shareholders will be informed in the annual report and accounts of the Group of the actions taken by the Investment Manager in the event of any breach of the above investment restrictions which the Directors consider to have been material during the year in question. In accordance with the requirements of the Financial Services Authority the Group will alter its investment policy only with the approval of its Shareholders by ordinary resolution and distributable income is expected to be derived from investment and neither the Group nor any of its consolidated SPVs will conduct any trading activity which is significant in the context of the Group as a whole. At any given time, certain geographic areas, asset types or industry sectors may provide more attractive investment opportunities than others and, as a result, the Groups investment portfolio may be concentrated in those geographic areas, asset types or industry sectors. Other than as described above, there are no restrictions regarding the concentration of the Groups investment portfolio. However, the Investment Manager will regularly monitor concentration in the Groups investment portfolio, together with any relevant risks associated with the geographic areas, asset types and industry sectors in question, and will take steps to adjust the balance of the investment portfolio when it deems it appropriate to do so. The Group expects that the UK, continental Europe, and the United States will be the largest regional exposures, and as noted above, the Groups Primary Target Investments will be backed by collateral located primarily in the UK, continental Europe, and the United States. Within the limits of its investment policy, the Group may utilise leverage for the sole purpose of financing its portfolio and enhancing returns to Shareholders. The Group has adopted a policy, which is set out in the Investment Management Agreement, which requires that (except for temporary warehouse finance arrangements or temporary borrowings to finance short-term cash requirements) leverage as a percentage of that part of the Groups total portfolio that comprises Primary Target Investments (measured on a gross asset basis) will not exceed 30 per cent. (of which no single Primary Target Investment (measured on a gross asset basis) may be more than 50 per cent. funded with leverage) and leverage as a percentage of that part of the Groups total portfolio that comprises assets that are not Primary Target Investments (measured on a gross asset basis) will not exceed 95 per cent. The magnification of the adverse impact of defaults in investments and their underlying assets and increased interest expense on borrowings could adversely affect the Groups Net Asset Value and the level of its dividends. Breach of financing arrangements such as cross-default provisions and financial covenants could give rise to additional loss. Borrowings could adversely affect the Groups Net Asset Value and the level of the Groups dividends. The Group may borrow to fund the acquisition of additional investments and, where appropriate, may utilise leverage in order to enhance returns to Shareholders. These borrowings may be secured against some or all of the Groups assets. The application of leverage to an investment magnifies the adverse impact caused by defaults in the underlying investment portfolio. Also, since the Groups investments are typically subordinated to more senior claims on the underlying assets, any borrowings by the Group would be incremental to the leverage already inherent in those investments. Therefore, in the event of a default in the assets underlying investments in the Groups portfolio, the level of losses suffered by the Group would be proportionately higher as a function of the aggregate leverage implicit in each of the Groups investments and a relatively small increase in the rate of defaults could have a materially detrimental effect on returns to Shareholders. The Groups earnings will be generated from the difference between income received and interest expense plus certain gains or losses arising from the sale of assets.
AXV 1.2

54

Proposed Investment Policy Asset Allocation In order to achieve its investment objective, the Company will invest primarily in debt secured by commercial or residential properties in Western Europe and the United Kingdom (Real Estate Debt Investments). The Real Estate Debt Investments may take different forms but will likely be: (i) securitised tranches of secured real estate related debt securities, for example, RMBS and CMBS, together MBS; and (ii) secured real estate loans, debentures or any other form of debt instrument. The Company will generally invest, either directly, through SPVs or subsidiaries, in new Real Estate Debt Investments on a buy-to-hold basis based on an analysis of the credit worthiness of the underlying assets in the applicable investment. Therefore, the total return from any given investment will be driven by actual performance of the underlying real estate loans rather than by market prices. However, the Company will actively manage the Investment Portfolio, and may from time to time dispose of an investment prior to its maturity if the Company so decides for reasons including, but not limited to, the price offered being sufficiently attractive, the credit view of the underlying assets changing or superior alternative investments being available. The Companys investments in Real Estate Debt Investments will have some or all of the following key characteristics: investments will be backed, directly or indirectly, by real-estate primarily located in Western Europe and the UK; investments will have a varied weighted average life profile, with the weighted average life of the individual investments generally ranging from six months to 15 years; investments in securities will be rated by one of Fitch, Moodys, Standard and Poors or another recognised rating agency; and/or investments in loans must be secured by one or more commercial or residential properties and loans may not exceed 85 per cent. LTV at the time of the investment.

AXV 1.1

For the purposes of the paragraph above, Western Europe shall mean Andorra; Austria; Belgium; Denmark; Finland; France; Germany; Gibraltar; Guernsey; Iceland; Ireland, Isle of Man; Italy; Jersey; Liechtenstein; Luxembourg; Monaco; the Netherlands; Norway; Portugal; San Marino; Spain; Sweden; and Switzerland. As at 17 August 2010 the Investment Portfolio also includes Residual Income Positions. The Company does not currently intend actively to increase existing Residual Income Positions within the Investment Portfolio or to invest in other Residual Income Positions. While the Company will have the flexibility to invest in assets that do not have some or all of the characteristics listed above, such as, inter alia, direct real estate investments, it has adopted a policy which requires that at least 70 per cent. of its Net Asset Value will comprise Real Estate Debt Investments and Residual Income Positions, measured at the time of, and after giving effect to, each proposed new or additional investment or at the time of any disposal by reference to the latest then available Net Asset Value. If upon such a measurement the Investment Manager determines that less than 70 per cent. of the Investment Portfolio comprises Real Estate Debt Investments and Residual Income Positions, the Investment Manager has agreed with the Company to take such action, including the sale of assets, as would be necessary to correct this imbalance prior to acquiring any further assets which do not qualify as Real Estate Debt Investments or Residual Income Positions. The Company will not take make investments via derivatives unless the Company has fully collateralised the derivative position or cannot be exposed to margin calls. However, the Company intends to (but shall not be obliged to) reduce exposure to interest rate and currency fluctuations through the use of currency and interest rate hedging arrangements for the purposes of efficient portfolio management. From time to time, the Company may also enter into derivative transactions to hedge the value of the Investment Portfolio.

55

Risk Diversification At any given time, certain geographic areas, asset types or industry sectors may provide more attractive investment opportunities than others and, as a result, the Companys Investment Portfolio may be concentrated in those geographic areas, asset types or industry sectors. Other than as described above, there are no restrictions regarding the concentration of the Companys Investment Portfolio. However, the Company will seek to create a diversified portfolio of investments. It will regularly monitor the extent to which the Investment Portfolio is concentrated in any particular country, region or servicer and the Investment Manager will re-balance the Investment Portfolio as and when it deems it necessary to do so. The Board of Directors has adopted general guidelines for investments and borrowings to the effect that, except in the case of cash deposits awaiting investment, no more than 20 per cent. of the Gross Assets of the Group will be lent to or invested in any one group at the time the investment or loan is made, no more than 20 per cent. of the Gross Assets of the Group will be invested in direct real estate investments, no more than 10 per cent. of the Gross Assets of the Group will be invested in other listed investment companies (including listed investment trusts), except where the investment companies themselves have stated investment policies to invest no more than 15 per cent. of their Gross Assets in other listed investment companies (including listed investment trusts), no more than 15 per cent. of the Gross Assets of the Group will be invested in other listed investment companies (including listed investment trusts), regardless of their investment policies and the Group will not take legal control, or seek to take legal control, or be actively involved in the management of, any companies or businesses in which it invests, except for (i) any SPVs it may establish and (ii) pursuant to the exercise of rights as a consequence of the Group taking steps to preserve or enforce its security in relation to a particular investment. The Company will not, to a significant extent, be a dealer in investments and neither the Company nor any member of its Group will conduct a trading activity which is significant in the context of the Group as a whole. Leverage The proposed issue of Preference Shares will represent a form of structural leverage. Holders of Preference Shares will be entitled to receive a preferred income return and, on a winding up of the Company, to receive a preferred return of capital ahead of the holders of Ordinary Shares. To this extent, the rights of Ordinary Shareholders to income and capital are geared by the presence of the Preference Shares. Assuming the Revised Articles are adopted by the Ordinary Shareholders at the EGM, any further issue of Preference Shares by the Company would require approval of the Ordinary Shareholders by special resolution. Other than a working capital facility limited to a maximum quantum equivalent to 10 per cent. of the Net Asset Value, the Company shall not, without the prior approval of the Ordinary Shareholders by ordinary resolution passed at a separate general meeting of the Ordinary Shareholders, agree to enter into any credit facility pursuant to which leverage is utilised by the Company. Hedging The Companys policy will be to hedge currency risk on a case by case basis and also, where the Investment Manager considers it appropriate, on a portfolio basis. The Company may bear a level of currency risk that could otherwise be hedged where it considers that bearing such risks is advisable. Shareholders should not expect that all currency risks that arise from time to time will be hedged. As at the date of this Prospectus, the Company uses Euro:Sterling options to hedge its currency exposure. The Company may, but shall not be obliged to, enter into hedging arrangements in respect of interest rate fluctuations and certain macro risks that may affect the value of the Investment Portfolio. In many cases it is not possible to hedge against an adverse change in relation to variables that may affect the value of the Residual Income Positions or other parts of the Investment Portfolio. Notwithstanding the above, in 2007 the Company purchased a hedge against a fall in UK house prices by purchasing a put option on the Halifax House Price Index. In 2009, the Company entered into a macro-hedge against the SME market in Europe by purchasing a put option on the MDAX index. Save where the Company enters into swap arrangements to gain exposure to an underlying cash asset or assets, or to comply with asset transfer restrictions or similar legal restrictions which prevent the Company from owning a target investment directly, derivative transactions will only be used for the purpose of efficient portfolio management. The Company will not enter into derivative transactions for speculative purposes.
56
AXV 1.2

A substantial portion of the Companys underlying investments will be denominated in Euro and Sterling. The Company may not hedge this exposure. Cautionary Note Regarding Historical Company Performance The Companys historical results and Share price history may not be indicative of the future results. In particular, the future results of the Investment Portfolio may differ significantly from its historical results. Investment Portfolio and Performance (Unaudited analysis) Overview and historical performance The original investment strategy of the Company was set out in the prospectus dated 8 December 2005 issued by the Company and stated that the Companys focus was on investments backed by subordinated, unrated tranches of securitisations located primarily in the UK, continental Europe and the United States. Since the market downturn in 2007, the Company has looked to exit from its UK and US Residual Income Positions, re-direct the geographic focus of the Investment Portfolio and return cash to Shareholders. During the course of 2007, the real estate market experienced rapid and significant falls due to sharp declines in residential housing markets, liquidity and investor sentiment. As a result, the UK and US components of the Companys Investment Portfolio suffered heavy losses, although the losses were mitigated by the Investment Managers active management of the Investment Portfolio throughout the course of 2007. During the calendar year 2007, the Company sold approximately 75 per cent. and 40 per cent. (by number of investments) of its US and UK Residual Income Positions respectively. Through 2008 and 2009, the Company focused on improving financial stability, and has repaid in full its 45 million of debt since November 2008, while continuing to pay a dividend on Ordinary Shares. As at 31 March 2010 (the latest practicable date prior to the publication of this Prospectus), the Companys Investment Portfolio was valued at 92.5 million (including an interest accrual of 0.9 million) and the Company had a Net Asset Value per Ordinary Share of 3.73 (source: audited accounts for the year ended 31 March 2010). This compares with 31 March 2009, where the Companys Investment Portfolio was valued at 109.6 million (including an interest accrual of 1.3 million) and the Company had a NAV per Ordinary Share of 3.96 (source: audited accounts for the year ended 31 March 2009). Over the financial year ending 31 March 2010, the Company has paid dividends of 0.32 per Ordinary Share. The Ordinary Share price as at close of business on 31 Mar 2008, 31 March 2009 and 31 March 2010 was 4.15, 1.175 and 2.415, respectively. The Ordinary Share price as at close of business on 16 August 2010, being the last practicable date prior to the publication of the Prospectus, was 2.42 (source: Bloomberg). Since 13 December 2005 the Company has paid in aggregate 2.45 per Ordinary Share in dividends and returned in excess of 70 million to Shareholders through buybacks and tenders of Ordinary Shares. The Companys Investment Portfolio generated interest income of 16.1 million for the 12 month period ended 31 March 2010 compared to interest income of 21.7 million for the 12 month period ended 31 March 2009 (source: audited accounts for the years ended 31 March 2010 and 31 March 2009, respectively). Since 31 March 2010, the Companys Investment Portfolio has generated interest income of 4.1 million for the period to 30 June 2010 (the latest practicable date prior to the publication of this Prospectus) (source: management accounts, unaudited). The Company generated total cash flows of 20.9 million in the quarter ended 31 March 2010, of which 6.3 million came from the Investment Portfolio, 5.4 million was received from the sale of a AAA bond portfolio and a further 9.2 million was received from the sale of the Magellan 2 portfolio (source: audited accounts for the year ended 31 March 2010). The cash balance as at 31 March 2010 was 15.7m. Since 31 March 2010, the Company has recorded total cash flows for the period to 30 June 2010 (the latest practicable date prior to the publication of this Prospectus) of 17.2 million of which 6.7 million came from the Investment Portfolio and a further 10.5m was received from the sale of the sale of the Gate 06-1 and Gate 05-2 SME portfolios and one ABS bond (source: management accounts, unaudited).
57
AI 20.4.3 AXV 8.3 AI 20.4.3 AXV 8.2

AI 20.4.3

As at 31 March 2010, the Investment Portfolio consisted of 19 Residual Income Positions and 24 ABS bonds (the ABS bonds being rated tranches of ABS that are not Residual Income Positions). As at 30 June 2010, the Investment Portfolio consisted of 17 Residual Income Positions and 46 ABS bonds. A breakdown of the Companys Investment Portfolio as at 30 June 2010 by jurisdiction (by reference to the underlying asset jurisdiction, except for SME Residual Income Position investments where the jurisdiction of the originator is used) and asset type (by reference to underlying asset collateral) is set out below. Percentages for each asset class are in relation to the value of the Residual Income Positions as at 31 March 2010 and the value of the ABS bonds as at 30 June 2010 (sources: audited accounts for the year ended 31 March 2010 and Management accounts, unaudited, respectively) excluding cash and hedges. Jurisdiction as at 30 June 2010*
France 3.0% Holland 11.6% Switzerland 0.1% Germany 16.8%
ABS Bonds 28.7%

Asset Type as at 30 June 2010*


SME Residual Income Positions 19.9%

Italy 9.4%
Sub Prime Residual Income Positions 5.5%

UK 25.0%

Portugal 34.0%

Near Prime Residual Income Positions 1.7%

Prime Residual Income Positions 44.2%

* (i) (ii) (iii) (iv)

Charts are based on the following information: Residual Income Positions and ABS bonds in the Investment Portfolio as at 30 June 2010 (source: management accounts, unaudited); fair value of the Residual Income Positions as at 31 March 2010 (source: audited accounts for the year ended 31 March 2010); fair value of the ABS bonds as at 30 June 2010 (source: management accounts, unaudited); and excludes cash and hedges.

In the above chart, Prime indicates that the underlying pool of loans comprises mortgages made to borrowers with good credit records and whose incomes were verified at the time of the origination. Owing to the valuation process for Residual Income Positions, the latest available portfolio analysis for these investments is as at 31 March 2010. In respect of the ABS bond portfolio, the latest available portfolio analysis is at 30 June 2010. Of the 17 Residual Income Positions held in the Investment Portfolio as at 30 June 2010, 3 have zero value. These investments include two CDO Residual Income Positions held in Cheyne CLO Investments I Limited and a US sub-prime Residual Income Position held in the RASC Series 2006-KS2 Trust. Details of the remaining 14 Residual Income Positions held in the Investment Portfolio as at 30 June 2010 are set out below. Since 30 June 2010, there has been no material change to the Investment Portfolio. Investment Portfolio Residual Income Positions European mortgages (as at 31 March 2010) The Companys European mortgage Residual Income Positions generated cash flows in the quarter ended 31 March 2010 of 1.8 million while cash flows in the year ended 31 March 2010 totalled 9.7 million (source: audited accounts for the year ended 31 March 2010). Further, the Companys European mortgage Residual Income Positions have generated total cash flows of 2.9 million in the quarter ended 30 June 2010 (source: management accounts, unaudited).

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The Company believes that a lower Euribor rate has had a positive effect on the Portuguese mortgage portfolio, with fewer mortgage borrowers falling into arrears than in previous quarters. These lower arrears levels translated into lower defaults in the portfolio for the quarter. The Companys exposure to the Portuguese market has fallen to 34.0 per cent. of the value of the Investment Portfolio as at 30 June 2010 (as shown and calculated in the pie chart above) from 36.0 per cent. as at 31 March 2010 following the sale of the Magellan 2 mortgage portfolio on 26 February 2010 (source: management accounts, unaudited). The Company has closely followed developments regarding fiscal deficits in Southern Europe and the widening credit spreads. The Company believes that the wider government bond spreads should have no direct impact on its mortgage portfolios because the majority of mortgage loans are indexed to short term Euribor rates and that the key risk to asset value remains an increase in unemployment and consequent mortgage defaults as a result of government austerity measures. The Company wrote down the Sestante Italian mortgage portfolio in the quarter ended 31 March 2010 as a result of an anticipated delay in expected cash flows which comprises a single bullet payment at the end of the transaction. The Company believes that mortgage holders are finding it harder to refinance, the result being that the Investment Portfolios mortgage refinancing rate fell, and that lower mortgage refinancing rates are likely to persist for a prolonged period which, as a consequence, has delayed the expected repayment date by approximately two years. As at 30 June 2010, the Companys European mortgage Residual Income Position Portfolio consisted of the following: Lusitano Mortgages No. 1 plc, Lusitano Mortgages No. 2 plc, Lusitano Mortgages No. 3 plc, Magellan Mortgages No. 1 plc and Sestante Finance S.R.L. Investment Portfolio Residual Income Positions small and medium enterprise (SME) investments (as at 31 March 2010) The Companys SME Residual Income Position portfolio generated cash flows in the quarter ended 31 March 2010 totalled 1.7 million while cash flows in the year ended 31 March 2010 totalled 7.4 million (source: audited accounts for the year ended 31 March 2010). Further, the Companys SME Residual Income Positions have generated total cash flows of 1.8 million in the quarter ended 30 June 2010 (source: management accounts, unaudited). However, default rates remain volatile. The average default rate for the SME portfolio fell to 0.66 per cent. in the quarter ended 31 March 2010, from 1.84 per cent. in the previous quarter (source: management accounts, unaudited). The Company investment in Gate 05-2 recorded the greatest fall in default rates, to 1.48 per cent. from 5.71 per cent. in the prior quarter. The Company recorded write-downs against the Gate 05-2 and Gate 06-1 SME portfolios after observing an unusually low recovery rate for four defaulted loans. The Company continues to analyse these loans and has taken the precautionary measure of lowering the recovery rate across both these portfolios. On 27 May 2010, the Company sold the Gate 06-1 SME portfolio at a level that was accretive to the prevailing NAV . On 9 June 2010, the Company sold the Gate 05-2 SME portfolio at a level that was accretive to NAV . As at 30 June 2010, the Companys SME Residual Income Position Portfolio consisted of the following: Eirles Three 236B (SMART 06-1) and Amstel Corporate Loan Offering BV 2006-1 F. Investment Portfolio Residual Income Positions UK mortgages (as at 31 March 2010) The Companys UK mortgage Residual Income Positions generated cash flows of 1.6 million in the quarter ended 31 March 2010 while cash flows in the year ended 31 March 2010 totalled 3.9 million (Source: audited accounts for the year ended 31 March 2010). Further, the Companys UK mortgage Residual Income Positions have generated total cash flows of 0.9 million in the quarter ended 30 June 2010 (source: management accounts, unaudited). The Company has recently increased the valuation of its RMAC assets, however, the Company remains conservative in its forecasts of defaults for the element of the Investment Portfolio consisting of UK mortgage Residual Income Positions. The Company continues to work with mortgage originators to identify loans that do not satisfy representations and warranties provided at the time of the securitisation.
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As at 30 June 2010, the Companys UK mortgage Residual Income Position Portfolio consisted of the following: Alba 2005-1 plc, Alba 2006-1 plc, Eurosail 2006-1 plc, Newgate 2006-1 plc, RMAC 2004NSP4 plc, RMAC 2005-NS3 plc and RMAC 2005-NS4 plc. Investment Portfolio ABS bonds (as at 30 June 2010) Over 95 per cent. of the ABS bond portfolio consists of MBS. The element of the Investment Portfolio consisting of ABS bond investments recorded cash flows of 0.2 million in the quarter ended 31 March 2010 while cash flows in the year ended 31 March 2010 totalled 1.7 million (source: audited accounts for the year ended 31 March 2010). Further, the ABS bond investments generated total cash flows of 0.2 million in the quarter ended 30 June 2010 (source: management accounts, unaudited). Appetite for high quality AAA-rated ABS bonds increased substantially in the early weeks of 2010. To take advantage of the price rally, on 22 January 2010, the Company sold for 3.4 million nominal value its holding in AAA RMBS bonds. The average sale price was 92.4 cents versus an average purchase price of 74.2 cents, giving an annualised return on those investments of 28.2 per cent. During the quarter ended 31 March 2010, the Company invested 6.5 million in purchasing ABS bonds which accounted for 15.3 per cent. by Net Asset Value of the Investment Portfolio at the end of that quarter. Between 31 March 2010 and 30 June 2010 the Company invested a further 11.6 million purchasing ABS bonds (source management accounts, unaudited). As at 30 June 2010, the ABS Bond portfolio consisted of 46 bonds at a cost of 25.8 million and a nominal value of 45.9 million (source: management accounts, unaudited). The following tables detail the ABS bonds held by the Company as at 30 June 2010. Percentage of ABS Bond Portfolio by Cost Price (as at 30 June 2010)
Rating by Vintage1 2004 2005 2006 2007 Total

AAA AA A BBB BB and Below Total


1.

4.5% 0.4% 4.6% 0.0% 0.0% 9.5%

5.2% 2.4% 4.8% 6.3% 1.4% 20.1%

6.6% 14.0% 11.7% 5.7% 9.5% 47.4%

7.8% 1.8% 6.4% 4.5% 2.5% 23.0%

24.1% 18.6% 27.6% 16.4% 13.4% 100.0%

Vintage reflects the issue date of the bond. Rating at time of purchase.

(Source: management accounts, unaudited)

Percentage of ABS Bond Portfolio by Cost Price (as at 30 June 2010)


Rating1 by Type UK Prime RMBS UK Buy To Let RMBS UK NonConforming RMBS Euro Prime RMBS UK CMBS Euro CMBS SME Total

AAA AA A BBB BB and Below Total


1.

0.0% 0.0% 0.9% 3.1% 0.0% 4.0%

0.0% 10.1% 1.0% 0.0% 0.0% 11.1%

12.9% 1.8% 9.7% 1.0% 1.7% 27.1%

0.0% 0.4% 0.0% 0.0% 0.0% 0.4%

6.4% 0.0% 8.4% 5.3% 2.3% 22.4%

4.8% 6.3% 7.6% 4.3% 9.4% 32.3%

0.0% 0.0% 0.0% 2.8% 0.0% 2.8%

24.1% 18.6% 27.6% 16.4% 13.4% 100.0%

Rating at time of purchase

(Source: management accounts, unaudited)

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Top 10 holdings in the Investment Portfolio as at 30 June 2010


Investment Investment Type Subtype

Investments individually accounting for 8 per cent. or more of Investment Portfolio (based on the NAV as at 31 March 2010) Magellan Mortgages No. 1 plc Amstel Corporate Loan Offering BV 2006-1 F Eirles Three 236B Sestante Finance S.R.L. RMBS SME SME RMBS Prime SME SME Prime

Investments individually accounting for between 5 per cent. and 7 per cent. of Investment Portfolio (based on the NAV as at 31 March 2010) RMAC 2004 NSP4 plc Lusitano Mortgages No. 1 plc Lusitano Mortgages No. 3 plc RMBS RMBS RMBS Sub-prime Prime Prime

Investments individually accounting for less than 5 per cent. of Investment Portfolio (based on NAV as at 31 March 2010) Lusitano Mortgages No. 2 plc RMAC 2005 NS4 plc RMAC 2005 NS3 plc RMBS RMBS RMBS Prime Sub-prime Sub-prime

Investment Portfolio Valuation as at 31 March 2010 In accordance with the Companys valuation procedures, the fair value of the Companys investments is calculated on the basis of observable market data, market discount rates and the Investment Managers expectations regarding future trends. Given the re-structurings at many investment banks, there is a lack of reliable independent broker marks for the Residual Income Portfolio. Therefore, the Company elected to use a model-based approach to value its Residual Income Positions. An external valuation agent has reviewed the underlying pricing assumptions for the valuation of the Residual Income Positions as at 31 March 2010. The Company currently applies a discount margin of between 15 per cent. and 20 per cent. depending on the class of assets being valued. These discount rates are applied to the loss-adjusted cash flows. The Company received broker marks for all of its ABS bonds. The valuation of Residual Income Positions held in the Investment Portfolio are the valuations for such investments as at 31 March 2010. Updated valuations for these Residual Income Positions as at 30 June 2010 are not available currently and will not be announced publicly until September, in accordance with the Companys standard policy for the valuation of such investments. Financing Strategy As at the date of this Prospectus, the Company and the Group has no structural indebtedness or external borrowings of any type. The Company does not currently intend to incur indebtedness prior to completion of the investment of the net cash proceeds of the Placing and Open Offer. The Company will not use unfunded derivatives to obtain leverage on investments. Dividends and Dividend Policy Existing dividend policy for Ordinary Shares The Company currently intends to pay out a majority of its net income (but excluding any realised or unrealised surpluses from the sale, realisation or revaluation of investments held directly by the Company) to Ordinary Shareholders in the form of quarterly dividends, subject to having distributable profits available for this purpose and any Financial Services Authority or other legal limitations.
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Since the initial public offering of Ordinary Shares in December 2005, the Company has sought to provide investors with a steady dividend and has paid or declared dividends equal to 2.45 per Ordinary Share. In the 2010 fiscal year, the Company paid or declared dividends of 0.32 per Ordinary Share or 8.5 million in aggregate. The dividend policy has been supported by the high level of cash cover from the Investment Portfolio. In the 2010 fiscal year, the gross cash flows from the Investment Portfolio and the hedging portfolio entered into by the Company totalled 26.3 million. In the 2009 and 2008 fiscal years, the Company paid or declared dividends of 0.39 and 0.60 per Ordinary Share, respectively, or 12.8 and 21.9 million in aggregate, respectively. At its discretion the Company may pay a dividend to Ordinary Shareholders. The expected level of dividend payouts may be materially less than the current payout on the Ordinary Shares. Revised dividend policy for Ordinary Shares If the Required Resolutions are approved, following completion of the Bonus Issue of Preference Shares, the Company currently intends that available income is first used to pay any Preference Dividend that is due and payable and then, if the Directors in their sole discretion so resolve, to pay dividends to Ordinary Shareholders. It is expected that any future dividends payable to Ordinary Shareholders, following payment of any Preference Dividend, will be substantially reduced as compared to the dividends that have been previously paid in respect of the Ordinary Shares. However, the Directors do currently intend that the Company continues to pay a dividend to Ordinary Shareholders when it is able and appropriate to do so. The Company further intends, subject to the performance of the Investment Portfolio, that the amount of dividends paid, if any, to Ordinary Shareholders following the change to the dividend policy should be adjusted from time to time in line with any increase or decrease in interest income from the Investment Portfolio, subject to applicable law and regulation. Assuming 49,958,731 Preference Shares are issued pursuant to the Bonus Issue, the maximum aggregate Preference Dividend that will be payable pursuant to the terms of the Preference Shares in any financial year will be approximately 3,996,698.48 million or 4,862,383.37, (based on exchange rates as at 16 August 2010) (source: Bloomberg). Subject to the payment of the Preference Dividend to the holders of the Preference Shares and the applicable requirements and restrictions contained in the Companies Law, the Company may consider making interim dividend payments to Ordinary Shareholders, having regard to the net income remaining after the payment of the Preference Dividends, potential reinvestment of cash or other uses of income at a level the Directors deem appropriate, in their sole discretion, from time to time. There is no fixed date on which it is expected that dividends will be paid to Ordinary Shareholders and Ordinary Shareholders should not expect to receive regular interim dividends. There is no assurance that the Company will declare or pay dividends on Ordinary Shares or Preference Shares and, if dividends are paid, there is no assurance with respect to the amount and timing of any such dividend. Purchase of Own Shares The Company has authority to make market purchases of fully paid Ordinary Shares, for example, where the Directors believe such purchases will enhance Shareholder total returns by returning capital surpluses that may not be returned pursuant to applicable law and regulation in the form of dividends or where the Investment Manager has been unable to source sufficient appropriate investments, either at all or in a timely manner. The Company has authority to make market purchases of up to 14.99 per cent. of the issued Ordinary Shares and renewal of this authority will be sought from Shareholders at the 2010 annual general meeting of the Company, and each subsequent annual general meeting, or earlier in a general meeting if the Directors so resolve. The Company will also seek authority from Shareholders at the Extraordinary General Meeting to make market purchases of up to 14.99 per cent. of the Preference Shares in issue immediately following Bonus Issue Admission. The Company will seek renewal of this authority at the 2011 annual general meeting of the Company, and each subsequent annual general meeting, or earlier in a general meeting if the Directors so resolve.
62

AI 20.7.1

Purchases of any Shares will be made within guidelines established from time to time by the Board. The timing of any purchases will be decided by the Board in light of prevailing market conditions. Purchases of Ordinary Shares will only be made through the market for cash at prices below their prevailing Net Asset Value per Share. Such purchases of Shares will only be made in accordance with the terms of the authority granted to the Company by Shareholders and the rules of the UK Listing Authority in force from time to time or any successor laws, rules or regulations. The rules of the UK Listing Authority currently provide that the maximum price to be paid shall be limited to an amount which must not exceed the higher of (a) 105 per cent. of the average of the market values of the Ordinary Shares for the 5 Business Days before the purchase is made, and (b) the higher of the price of the last independent trade and the highest current independent bid price. Purchases of Preference Shares (which for the avoidance of doubt includes tender offers and purchases of Preference Shares through the market) will only be made through the market for cash. If the Revised Articles are adopted pursuant to the applicable resolution, the Company will have the ability to hold Shares that have been purchased by it in treasury. Assuming that the Revised Articles are approved by Shareholders at the EGM, Shares which are purchased may be cancelled or held in treasury provided that the number of Ordinary Shares or Preference Shares held as treasury shares may not at any time exceed 10 per cent. of the total number of issued Ordinary Shares or Preference Shares (as applicable) at that time and any repurchased Shares in excess of such amount will be cancelled. In the last 12 months, the Company purchased no Ordinary Shares. Financial Information The Companys audited accounts are made up for the period to 31 March in each year. An unaudited interim report in respect of the first six months of each subsequent accounting period, i.e. to 30 September, is also published. In addition, the Company releases interim management statements as required by the Disclosure and Transparency Rules. The Companys first full accounting period was in respect of the period ending 31 March 2007. The Company prepared, and will continue to prepare, its annual report and accounts in accordance with International Financial Reporting Standards. The Net Asset Value of the Company is calculated and published quarterly, including as at the relevant dates of the announcement of its interim and annual results, and will be published in its annual report and accounts sent to Shareholders. In accordance with the Companys valuation procedures, the fair value of the Companys investments is calculated on the basis of observable market data, market discount rates and the Investment Managers expectations regarding future trends. MBS are valued using market prices. The Company takes the average of two marks to determine the value of the bonds. For each Residual Income Position, the Investment Manager has a developed a cash flow model that takes into account the key variables that will affect the valuation of these assets, including but not limited to, default rates, recovery rates, arrears rates, and pre-payment rates. On each valuation date (which are quarterly or when there is a material change to the underlying pricing assumptions), the Investment Manager reviews information, including but not limited to, loan by loan information on the status of each loan, market conditions related to the investment, the financial and operational condition of the related parties in the securitisation and general macro conditions. An external valuation agent also reviews the underlying pricing assumptions of the model each time there is an adjustment to the assumptions. Where applicable, currency conversions used to calculate the Net Asset Value will be based on the relevant exchange rate published by Bloomberg as at the close of business on the date of the relevant Net Asset Value. The calculation of the Net Asset Value will only be suspended in circumstances where the underlying data necessary to value the investments of the Company cannot be readily, or without due expenditure, obtained. Details of any suspension in making such calculations will be announced through an RIS.
AXV 6.1

63

Capital Structure Introduction As at 31 March 2010 (the latest practicable date prior to the publication of this Prospectus) the issued share capital of the Company consisted of 26,644,657 Ordinary Shares with an aggregate Net Asset Value of 99,329,841 (source: audited accounts for the year ended 31 March 2010). On the assumption that the Required Resolutions are approved and that the Placing and Open Offer is subscribed for in full, immediately following Open Offer Admission the issued share capital of the Company will consist of 39,966,985 Ordinary Shares. This should not be taken as an indication of the actual number of New Ordinary Shares that will be issued pursuant to the Placing and Open Offer. Applications will be made to the UK Listing Authority for the New Ordinary Shares to be admitted to the Official List and to the London Stock Exchange for such New Ordinary Shares to be admitted to trading on the main market for listed securities. The application for admission to the Official List in respect of the New Ordinary Shares is an application for a premium listing. On the assumption that the Required Resolutions are approved and that the Placing and Open Offer is subscribed for in full, immediately following Bonus Issue Admission, the issued share capital of the Company will consist of 39,966,985 Ordinary Shares and 49,958,731 Preference Shares. Applications will be made to the UK Listing Authority for the Preference Shares to be admitted to the Official List and to the London Stock Exchange to be admitted to trading on the main market for listed securities. The application for admission to the Official List in respect of the Preference Shares is an application for a standard listing. Ordinary Shares The Companys Ordinary Shares are quoted in, and have their Net Asset Value reported in, Euros. On a winding-up, Ordinary Shareholders will be entitled to the net assets of the Company: (i) after any creditors have been paid; and (ii) subject to the Required Resolutions being passed, the Repayment Amount of the Preference Shares having been met. Distribution of revenue reserves (if any) on a winding-up is likely to be made by way of distribution immediately prior to the commencement of the winding-up. Ordinary Shares carry the right to vote at general meetings of the Company. In addition, each class of Ordinary Shares in issue from time to time carries the right to vote as a class on certain proposals which would be likely to materially affect their position, including any proposed change in the Companys investment policy. Ordinary Shares have no par value. All distributions payable to the Ordinary Shareholders (including on redemption of such Ordinary Shares) will be paid in Euros. Preference Shares Details of the rights attached to Preference Shares are set out in Part V of this Prospectus.

AXV 6.2

64

PART II THE MBS MARKET


The information sourced from third parties in this Part II has been accurately reproduced and as far as the Company is aware and is able to ascertain from information published by the stated sources, no facts have been omitted which would render the information inaccurate or misleading. Background Information Relating to Mortgage Backed Securities (MBS) MBS MBS are a form of asset backed security (ABS) securities that are typically secured by a discrete pool of financial assets, typically residential or commercial mortgage loans. The cash flow from the assets is used to service interest and repay principal on the securities. In a basic securitisation structure, an entity (the originator), which is often a financial institution, originates or otherwise acquires a portfolio of financial assets, such as mortgage loans, either directly or through an Affiliate. It sells the assets to a bankruptcy remote SPV incorporated specifically for the purpose of acquiring the assets and issuing securities that are secured or backed by those assets. The pool of assets is managed by a servicer, which may be the same entity as the originator. The servicer performs a variety of roles, including, among other things, collecting payments on the underlying financial assets (for example, residential mortgage loans) and structuring work-outs of non-performing assets (for example, defaulted or delinquent residential mortgage loans). The MBS structure is intended, amongst other things, to transfer credit risk on the assets from the originator to the MBS investors while at the same time insulating the MBS investors from the corporate credit risk of the originator. The SPV services payments of interest and repayments of principal on the MBS primarily from the cash flows generated by the financial assets contained in the underlying portfolio but may also have recourse to other sources of funds which are incorporated into the securitisation structure in order to ensure full and timely payment. These features, typically referred to as liquidity enhancement or credit enhancement, depending on the particular aspects of the portfolio they are intended to address, include liquidity facilities, cash reserves, letters of credit, over collateralisation (that is, the degree by which the principal amount of a given financial asset portfolio exceeds the principal amount of the liabilities secured by that portfolio), subordinated loans and guarantees. MBS transactions typically include interest rate hedges to protect the transaction from increases in interest rates. Common Types of MBS CMBS and RMBS While there are a number of types of MBS, CMBS and RMBS continue to represent the bulk of outstanding issuance in the European ABS markets. CMBS are securities secured by or evidencing ownership interests in a single mortgage loan secured by one or more commercial properties or a pool of mortgage loans secured by commercial properties. These securities may be senior, junior, investment grade or non-investment grade. The yield on CMBS will depend, in part, on the timely payment of interest and repayment of principal due on the underlying mortgage loans, and defaults by the borrowers on such loans may ultimately result in deficiencies and defaults on the CMBS. In the event of a default, the trustee for the benefit of the holders of the CMBS will typically have recourse only to the underlying pool of mortgage loans and, if a loan is in default, to the mortgaged property securing such mortgage loan. After the trustee or other parties appointed under the securities has exercised all of the rights of a lender under a defaulted mortgage loan and the related mortgaged property has been liquidated, typically no further remedy will be available. The credit quality of CMBS depends primarily on the credit quality of the underlying mortgage loans. Among the factors likely to determine the credit quality of a mortgage loan are: (i) the principal amount of the mortgage loan relative to the value of the related mortgaged property and in particular at the maturity of the mortgage loan; (ii) the creditworthiness of tenants occupying the mortgaged properties (upon which the borrower generally relies for funds to repay the mortgage loans); (iii) the purpose of
AI 23.2 AIII 10.4

65

the mortgage loan (for example, refinancing or new purchase); (iv) the mortgage loan terms (for example, amortisation, balloon payment amounts, reserves, prepayment terms, duration); and (v) the geographic location of the mortgaged property securing the mortgage loan. RMBS are securities secured by or evidencing ownership interests in pools of mortgage loans secured by residential properties. Similar to CMBS, the yield on RMBS will depend, in part, on the timely payment of interest and principal due on the underlying mortgage loans by the borrowers. Defaults by such borrowers may ultimately result in deficiencies and defaults on the RMBS. The credit quality of the underlying residual mortgage loans is a function of factors such as: (i) the principal amount of the mortgage loans relative to the value of the related mortgaged properties; (ii) the creditworthiness of the borrowers; (iii) the purpose of the mortgage loans (for example, refinancing, new purchase or investment); (iv) the mortgage loan terms (for example, prepayment and amortisation); and (v) the geographic location of the properties securing the mortgage loans. Typical MBS Capital Structure The capital structure of a typical securitisation involves the issue by the SPV of multiple tranches of debt securities. The various tranches have different rankings as to entitlement to payment of interest and principal both before and after any enforcement of the security underlying the debt obligations. Each junior tranche provides credit enhancement to the tranches which rank senior to it, since the holders of the senior tranches are generally entitled to payment before payments are made to the holders of the junior tranches. For example, in a securitisation that issues debt securities in the form of A notes, B notes and C notes in declining order of seniority, the B notes and C notes provide credit enhancement to the A notes, and the C notes provide credit enhancement to the B notes. In the event of a default on any of the financial assets backing the transaction, any shortfall is absorbed first by any additional credit enhancement in the transaction (such as overcollateralisation or a cash reserve, subordinated loan, residual certificate or any other residual income position in the structure) and then by the most junior tranche of the debt securities issued (in the example above, the C notes) to the extent of the credit enhancement provided by that tranche, and then by the next most senior tranche or tranches until the shortfall has been absorbed in its entirety. Generally, the most subordinated tranche of securities is therefore the most sensitive to delinquencies and credit losses in relation to the underlying assets, and the most senior tranche is the least sensitive to them. Residual income which is available at the bottom of the payment waterfall of a typical MBS structure after the other debt and transaction costs have been met has, historically, often been retained by the originator. Should a default or decrease in expected payments under a particular securitisation structure occur, the deficiency will first affect the residual income position (which is also often referred to as the equity or first loss position) which will be the first to have its payments decreased by the deficiency. ABS through the credit crisis The European asset backed securities market was on a stable, expanding path prior to the events of 2007. ABS issuance volumes grew every year from 2000 up to and including 2006 (source: ESF Securitisation Data Report 2010 Q1) as the number and size of issuers multiplied to take advantage of securitisation as a source of funding and risk transfer. Buyers consisted of a range of players such as asset backed commercial paper (ABCP) issuers, SIVs and money managers for safer class A tranches, CDOs and hedge funds who invested in riskier junior bonds at higher yields. The Company believes that the buying community invested mainly due to improved return profiles compared to similarly rated products and contributed to the sectors continued growth and compression of risk spreads. Credit concerns in the MBS market started to appear first in the US towards the end of 2006, when mortgage borrowers with prior credit problems on highly leveraged products encountered refinancing problems. Due to bad credit histories and high loan balances relative to property values, borrowers were unable to repay their mortgages and were forced to default. The Directors understand that this affected the performance of ABS securitisations that owned the rights to receive these mortgage cash flows and cast doubt on the credibility of ABS credit ratings. As money market funds grew more concerned about the safeness of MBS investments, they halted purchases of bonds and notes issued by ABCP issuers and

66

SIV bonds and notes. Due to the short term liability profile of a majority of ABS funding vehicles, such as ABCP conduit vehicles and SIVs, they were quickly drawn into a funding crisis and became forced sellers of MBS paper to repay their liabilities. The UK was drawn into similar problems around September 2007. European ABS investors, nervous about the funding crisis seen in the US, refused to provide refinancing to Northern Rock, a UK mortgage lender heavily reliant on short term financing from the wholesale money market for funding of its mortgage loans. Northern Rocks inability to find investors for its securitisation programme and wholesale funding programmes led to a well publicised bank run and an eventual government led rescue via nationalisation by the end of the year. By the beginning of 2008, negative dynamics in the securitisation funding markets had started a negative feedback loop on most real economies around the world. Mortgage borrowers lack of refinancing options drove up payment delinquencies and had a negative effect on house prices. This caused banks to increase provisions for their lending book and a continued underperformance of MBS transactions. Rating agencies started to downgrade MBS paper based on worse than expected performance, which, coupled with pro-cyclical accounting treatments, increased banks capital charges for ABS holdings. At the same time, investors became increasingly worried as they saw MBS prices plummet as more and more forced sellers emerged, causing demand to dry up almost entirely. The increased strain on banks balance sheet triggered an interbank funding crisis throughout 2008 culminating in Lehman Brothers becoming bankrupt in September 2008. Central banks, governments and financial regulators have sought to act in concert to contain the damage done to the real economy through a variety of measures including monetary, fiscal, regulatory and accounting responses. The intent is to ensure that a repetition of the funding crisis is avoided in future, while most authorities remain focussed on keeping securitisation alive as a funding option for banks in the future. Regulatory proposals surrounding the ABS market are still being worked on providing an uncertain backdrop for investors who are willing to engage in the market. MBS market prices have recovered over the course of 2009 and 2010 helped by banks taking speculative long positions with a view of turning products over to end buyers eventually. However, risk spreads still remain highly elevated relative to markets prior to the funding crisis. End buyers appear to remain scarce as a combination of factors serves to depress demand, including regulatory uncertainty and a perceived complexity and unpredictability of the product. Market Opportunities The Directors, on the advice of the Investment Manager, believe that the continued supply demand imbalance in MBS markets has moved debt prices past their fair value and that sellers tend to be highly geared asset managers, assets repossessed from repo facilities and bank portfolios. The Investment Manager believes, and the Directors agree, that these selling pressures are likely to remain in place as bonds face rating downgrades and banks are looking to deleverage balance sheets for some time to come. On the other hand, a number of traditional buyers of European real estate debt, including SIVs and other highly geared funds, no longer exist as they were forced into closure during the tumultuous events of prior years. Shaken by the markets high volatility, banks proprietary trading desks have curtailed their ability to hold bonds, while bank treasuries may soon no longer be able to use MBS as eligible liquid assets. It is the opinion of the Investment Manager that new entrants to the market are deterred by a lack of understanding of the fundamental credit and structural features of the asset class. The asset backed investor base turned out to be more homogenous and shallower than many had expected as most investors relied on the same operating model of short-term leverage, short-term capital and high volume, thereby creating an illusion of liquidity. The Investment Manager sees an attractive proposition in participating in the current MBS market dynamic. As a survivor of the funding crisis, it can draw on a wealth of experience to benefit selectively from indiscriminate selling offering attractive returns.

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PART III MANAGEMENT OF THE COMPANY


Management of the Company The Board of Directors is responsible for the determination of the Companys investment objective and policy as specified in this Prospectus and has overall responsibility for its activities. The Directors, all of whom are non-executive, are as follows: Tom Chandos (Chairman) (UK resident). Viscount Chandos, age 56, is chairman of the real estate investment company Invista European Real Estate Trust SICAV and sits on the board of a number of other publicly traded and private companies. He has a background in investment banking and venture capital. He is a Trustee of the Esmee Fairbairn Foundation and a member of its investment committee. He is a Labour member of the House of Lords. Talmai Morgan (Guernsey resident). Mr Morgan qualified as a barrister in the United Kingdom in 1976. He moved to Guernsey in 1988 where he worked for Barings as general counsel and then for the Bank of Bermuda as managing director of Bermuda Trust (Guernsey) Limited. From January 1999 to June 2004, Mr. Morgan was director of Fiduciary Services and Enforcement at the Guernsey Financial Services Commission (Guernseys financial regulatory agency) where he was responsible for the design and subsequent implementation of Guernseys law relating to the regulation of fiduciaries, administration businesses and company directors. Mr. Morgan was also involved in working groups of the Financial Action Task Force and the Offshore Group of Banking Supervisors. From July 2004 to May 2005, Mr. Morgan served as chief executive of Guernsey Finance, which is the official body for the promotion of the Guernsey finance industry. Mr. Morgan is now the chairman or a non-executive director of a number of investment-companies including companies listed on the LSE. He holds an M.A. in economics and law from the University of Cambridge. Christopher Spencer (Guernsey resident). Mr Spencer qualified as a chartered accountant in London in 1975. Following two years in Bermuda he moved to Guernsey. Mr. Spencer, who specialised in audit and fiduciary work, was Managing Partner/Director of Pannell Kerr Forster (Guernsey) Limited from 1990 until his retirement in May 2000. Mr. Spencer sits on the AIC Offshore Committee and is a past President of the Guernsey Society of Chartered and Certified Accountants, and a past Chairman of the Guernsey Branch of the Institute of Directors. Mr. Spencer sits on the Board of Directors of J.P.Morgan Private Equity Limited, IRP Property Investments Limited, Tamar European Industrial Fund Limited, Dexion Trading Limited, Henderson Far East Income Limited, Ruffer Investment Company Limited and Low Carbon Accelerator Limited, each of which is listed on the London Stock Exchange. Mr. Spencer also sits on the Board of Directors of Thames River Hillside Apex Fund SPC, Thames River Longstore Limited, and Nevsky Fund limited, each of which is listed on the Irish Stock Exchange. Graham Harrison (Guernsey resident). Mr Harrison is co-founder and managing director of Asset Risk Consultants Limited (ARC), an investment consulting practice based in Guernsey. After obtaining a Masters in Economics from the London School of Economics, he began his career working in structured finance for Midland Montagu in London and then as a project economist for the Caribbean Development Bank in Barbados. In 1993, he moved back to Guernsey to help develop investment-related business for the Bachmann Group and in 2002 he led a management buy-out which saw ARC become an independent business wholly owned by management. A Chartered Fellow of the Chartered Institute for Securities and Investment, he is also currently a non-executive director of a number of investment and asset management companies. John Hawkins (Guernsey resident). Mr Hawkins retired from the Bank of Bermuda, after 25 years with the Group, as Executive Vice President and a Member of the Executive Committee with responsibility for private clients and investments. He spent many years in Asia, based in Hong Kong, and had responsibility for the Asia Pacific region and for the overall development of the Banks presence there. During his time in Hong Kong Mr Hawkins represented the Bank of Bermuda on a number of industry and government related committees. He had previously been based both in London and Bermuda. His
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responsibilities have been of an international nature and following the amalgamation of the Bank of Bermuda with HSBC Group in February 2004, he was appointed to the board of a subsidiary company of the HSBC Group (resigned 21 May 2008). He also sits on the board of a number of public and private companies including funds and hedge funds. Mr Hawkins is a Fellow of the Institute of Chartered Accountants in England and Wales. All Directors are independent of the Investment Manager. The Chairman receives an annual fee of 120,000 and each of Mr Morgan, Mr Spencer, Mr Harrison and Mr Hawkins will receive an annual fee of 30,000, in each case payable quarterly in equal instalments in arrear. In addition to these fees, the Company will reimburse all reasonable travel, and other incidental expenses incurred by the Directors in the performance of their duties. During the year, Talmai Morgan and Graham Harrison each received 12,500 in their capacity as directors of Trebuchet Finance Limited. Corporate Governance The Company will comply with any corporate governance obligations that apply to Guernsey incorporated companies from time to time. Currently there are no such obligations. In early 2010, the GFSC undertook a public consultation in respect of a proposed code of corporate governance that may apply to Guernsey companies such as the Company. It is expected that the proposed Guernsey code will come into effect later in 2010. The Company is a member of the Association of Investment Companies. As from 1 April 2010, the Listing Rules now require that the Company include a statement in its annual report and accounts of how it has applied the main principles set out in section 1 of The UK Code on Corporate Governance (the Code), in a manner that would enable Shareholders to evaluate how the principles have been applied. Further, such report and accounts will also need to include a statement as to whether the Company has: (i) complied throughout the accounting period with all relevant provisions set out in section 1 of the Code; or (ii) not complied throughout the accounting period with all relevant provisions set out in section 1 of the Code and if so, setting out those provisions it has not complied with; in the case of provisions whose requirements are of a continuing nature, the period within which, if any, it did not comply with some or all of those provisions; and the Companys reasons for noncompliance. As at the date of this document the Company complies with the Code. For the purposes of assessing compliance with the Code, the Board considers all of the Directors as independent of the Investment Manager and free from any business or other relationship that could materially interfere with the exercise of their independent judgement. In accordance with the Code, the Board has established an audit committee and a nomination committee, in each case with formally delegated duties and responsibilities within written terms of reference. The Board has not established a remuneration committee as the Company does not and currently intends not to have any executive directors or employees. The audit committee is chaired by Mr Spencer, and its other members will are Mr Morgan, Mr Harrison and Mr Hawkins. Only independent Directors serve on the committee and members of the committee have no links with the Companys external auditors and are independent of the Investment Manager. The audit committee will meet not less than twice a year and will meet the external auditors at least once a year. The audit committee is responsible for overseeing the Groups relationship with the external auditors, including making recommendations to the Board on the appointment of the external auditors and their remuneration. The committee is required to consider the nature, scope and results of the auditors work and reviews, and develop and implement policy on the supply of any non-audit services that are to be provided by the external auditors. It receives and reviews reports from the Investment Manager and the Groups external auditors relating to the Groups annual report and accounts. The committee focuses particularly on compliance with legal requirements, accounting standards and the Listing Rules and
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AI 16.3 AI 16.3 AI 15.1

AI 16.4

ensuring that an effective system of internal financial and non-financial controls is maintained. The ultimate responsibility for reviewing and approving the annual report and accounts will remain with the Board. The Group does not have an internal audit function but due to internal control processes put in place by the Administrator, Sub-Administrator, Custodian and Investment Manager, the Board has decided to place reliance on their systems and internal control procedures. The nomination committee is chaired by Mr Chandos, and its other members will be Mr Morgan, Mr Harrison, Mr Hawkins and Mr Spencer. The members of the committee are and will be independent Directors. The terms of reference state that the committee will meet not less than once a year, will have responsibility for considering the size, structure and composition of the Board, and retirements and appointments of additional and replacement Directors and will make appropriate recommendations to the Board. While no formal committee has been appointed to consider the continuation of engagement of the relevant service providers, the whole Board reviews their performance. The holders of the position of the chairman of the committees referred to above is reviewed on an annual basis. The membership of these committees and their terms of reference will be kept under review. The performance of the chairman of the Board will be assessed by another of the independent Directors through discussions with the other Directors (other than the Chairman). In addition, the Company complies with the Model Code published in the Listing Rules as required by the Listing Rules. The Model Code will apply to the Directors and relevant employees of the Investment Manager. Management of Company Assets As discussed more fully under the heading The Investment Managers Fees and Expenses below and in paragraph 7 of Part IX, the Company has entered into the Investment Management Agreement with the Investment Manager and Trebuchet under which the Investment Manager is responsible for the management of the Companys assets, subject to the overall supervision of the Directors. The Investment Manager Cheyne Capital is a limited liability partnership registered in England and Wales on 8 August 2006 and is authorised and regulated in the conduct of investment business in the United Kingdom by the FSA. Cheyne Capital Management Limited is the corporate member and predecessor in interest of the Investment Manager and commenced business in 2000. The Cheyne Capital group, which includes the Investment Manager, is a diversified alternative investment management firm specialising in creditbased investments across the risk spectrum, including high-grade, asset-backed, convertible bonds and sub- investment grade strategies. As of 30 June 2010, Cheyne Capital managed net assets of approximately US$4.5 billion with approximately 150 staff and members in offices in London, Bermuda, New York and Switzerland. The Cheyne Capital group was founded by Jonathan Lourie (Chief Executive Officer) and Stuart Fiertz (President and Director of Research) in 1999 following ten years previously working together at Morgan Stanley in London. Chris Goekjian joined Cheyne Capital in April 2009 as Chief Investment Officer. As at the date of this Prospectus, the Investment Management Team manages a number of funds and investment vehicles within Cheyne Capital. The Investment Management Team The Investment Management Team currently consists of two portfolio managers, two business managers and four credit analysts, with over 30 years of combined market experience in the asset backed securities market. The Investment Management Team covers the entire ABS capital structure, permitting informed assessment of relative value and access to transactions and allowing the Investment Manager to consider for debt at all levels of the ABS capital structure. Its members have extensive experience in the
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AXV 4.1 AI 16.3

AXV 4.1

structuring, execution and management of term securitisation transactions involving many types of assets, including portfolios comprised of traditional asset classes such as commercial and residential mortgages, and consumer finance assets such as credit card receivables and other loans. This experience includes asset portfolios across multiple jurisdictions, focused primarily on Europe and the United Kingdom. The team has particular expertise in commercial and residential mortgage-backed securities and loans. The Investment Managers Resources The Company does not maintain an office or employ personnel. Instead it relies on the facilities and resources of the Investment Manager to conduct its day to day operations. The Company will have access to all of Cheyne Capitals infrastructure (operational and risk management systems) and resources as well as a team of professionals responsible for the day-to-day operations of the Company. The Company also believes that the reputation of the Investment Manager and its close working relationships with several market participants will afford it broad access to investment opportunities. The key principals of Cheyne Capitals real estate debt team that will be involved with the day-to-day provision of investment management services to the Company are currently Messrs Shamez Alibhai, Ravi Stickney, Richard Lang, Daniel Schuldes, Nicolas Vocos and Yasmin Jiang. Their biographies, together with the biographies of other key members of the Investment Management Team, are set out below. Shamez Alibhai joined Cheyne in 2006 and is a partner and Portfolio Manager. He covers ABS strategies including managing a 500 million portfolio of mezzanine and first loss securities ranging from residential mortgages to SME loans in the UK and Europe. Prior to that, he worked at Credit Suisse, responsible for the mortgage loan trading platform, structured and executed mortgage, consumer NPL and SME transactions, where he traded approximately 1bn of residential mortgage loans. Prior to that, he was a Senior Structurer at Barclays where he developed risk transfer transactions to sell deeply subordinated risk to investors. Mr Alibhai has Masters Degrees from Yale University and McGill University. Ravi Stickney joined Cheyne in 2008 and is a partner and Portfolio Manager. He is responsible for managing a portfolio of 500 million in direct commercial real estate mezzanine loans and CMBS spread across the UK and Europe. Previously he was on ING Banks proprietary investments desk, with sole responsibility for managing a 400 million long/short portfolio of predominantly subordinate interests in Europeane commercial real estate loans and CMBS. Prior to that, he was at Lehman Brothers, structuring and executing UK and European CMBS/RMBS and commercial real estate B loans and mezzanine loans. He acted as sole operating advisor to the restructuring and eventual sale of the first distressed UK CMBS deal. He continues to play an active role in the direction of various distressed European real estate loans. He began his career on the UK commercial real estate desk at Ernst & Young. Mr Stickney serves on the Executive Committee of the Commercial Mortgage Securities Association in Europe. Richard Lang joined Cheyne in 2007 and is a partner. He previously worked at Barclays Capital, and prior to that was at Deutsche Bank where he was responsible for the controlling of the European Securitised Products Group and Commercial Mortgage Backed Securities businesses. Before that he worked in control roles within the fixed income areas of RBS and Paine Webber. Mr Lang qualified as a chartered accountant in 1999 after obtaining a BA (Hons) in History, and is a member of the ICAEW and CFA UK, having obtained the IMC in 2008. Daniel Schuldes joined Cheyne in 2008 from Credit Suisse where he was Associate in the Asset Finance Capital Markets. Mr Schuldes earned a Masters in Phil Economics from Cambridge University after completing his BSc in Mathematics at London School of Economics. Nicolas Vocos joined Cheyne in 2009 from Deutsche Bank London, where he modelled, arranged and executed asset backed and corporate structured credit products. Mr Vocos earned a BSc in Economics from the University of Cordoba in Argentina and two Masters of Finance degrees from Torcuato Di Tella University in Argentina and London Business School.

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Yasmin Jiang joined Cheyne in 2010 from Manford Read Estate where she was an Associate working in financial modelling, acquisition due diligence and asset management. Ms Jiang earned a Bsc in Property Management & Valuation from the University of Glamorgan, is currently completing a PHD in Real Estate Investments at the University of Glamorgan and is a member of the RICS, Faculty of Valuation. The Investment Managers Investment Process The following describes the Investment Managers current investment process. This process has developed since the initial public offering of Ordinary Shares in 2005 to reflect the change in the relevant markets in which the Company invests and the investment strategy followed by the Investment Manager. Asset sourcing The Investment Manager sources investment opportunities through a variety of channels, including the Investment Managers network of direct relationships with several major commercial and investment banks, in their capacity both as principals and intermediaries and as issuers. The Directors believe that the Investment Manager has a competitive advantage in its ability to source investments through these channels. The Investment Managers network of relationships with several commercial and investment banks provides it with a broad exposure to financial institutions wishing to sell positions that they already hold. Members of the Investment Management Team have been involved in European ABS since 2000 and were one of the earliest market participants to re-enter the Euro ABS market in late 2008. As a result, the Investment Manager has strong relationships with key players including banks, loan servicers and special servicers who provide access to information flows. The Investment Management Team are members of S&Ps Global Investor Council, which allows a better insight into rating agency activities. Deal underwriting: asset, loan and bond level analysis The Investment Manager performs credit focussed analysis of the underlying real estate assets each potential investment considered, paired with proprietary cash flow models for each bond. The Investment Manager reviews the underlying properties, the loan documentation and the cash flow structure of the investments. At the property level, an assessment of the stressed case value of the underlying real estate collateral in a particular investment is performed. For commercial properties this analysis will consider stressed yields, vacancies, defaults and repossession values. For residential properties, this will focus on expected falls in house prices. At the loan level, an understanding of the key terms and covenants is sought via a thorough review of the offering prospectus and related documents. In relation to MBS, an understanding of the key terms of the securitisation structure is reviewed, including triggers that switch cash flows and, where appropriate, decision tree modelling of outcomes in default and enforcement. All investments are also supported by cash flow models produced by the Investment Manager. The potential investment is reviewed by an analyst and a credit memo is prepared which will include the underwriting assumptions related to an investment. This is then reviewed by an investment committee of the portfolio managers, and the risk and pricing is agreed. The Investment Manager uses its knowledge of all the participants and its relationships with them to get the best price and information to source trades. Ongoing monitoring The Investment Manager will also review the Investment Portfolio on a daily basis, and will if necessary re-balance the portfolio in the event there is a breach of the Companys investment policy or as and when it deems necessary to do so. On a daily basis the Investment Portfolio is also reviewed and monitored by the risk management team at the Investment Manager. The risk management team at Cheyne Capital monitors compliance with the investment policy of the Company, ensures the Investment Portfolio does not violate Investment Managers internal risk guidelines, and reviews the pricing models utilised in connection with the Investment Portfolio from time to time. Any violations of the Companys investment policy and the Investment Managers internal risk guidelines will be reported to the Investment Managers CIO office.
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The Investment Manager undertakes periodic performance monitoring of all the assets, focusing on underlying asset and loan performance on an ongoing basis, with no reliance on rating agencies. In the majority of cases, the terms of Companys investment in Residual Income Positions have allowed the Investment Manager access to the pool tapes of the particular securitisation (which include details of the mortgages underlying the securitisation together with payment records) together with in-depth modelling tools. The Investment Manager has used its access to such materials, together with its residual investor experience, to analyse the mortgage market. The Investment Manager uses an independent loan-by-loan analysis platform that is kept up to date with in-house mortgage specific technology. It maintains full control of data input and storage, which is necessary to understand and adjust for the idiosyncrasies in the UK mortgage market. It can run its analysis on any sub-groups of mortgages through a proprietary loan-level mortgage tool. Data is collected for distressed sale situations most likely to be found in securitisations, but ignored by aggregate indices. As noted above, with respect to the Real Estate Debt Investments, the Investment Manager will, as part of the underwriting process, create a credit memo that includes the underwriting assumptions related to an investment. Over the life of an investment, the key underwriting assumptions are monitored and in the event of a material change, the Investment Manager may elect to reduce or alternatively increase the Companys exposure to the investment. In addition, the Investment Manager monitors the market price of each investment and may from time to time elect to reduce or alternatively increase the exposure to an investment position. In the event of a significant deterioration in the performance of an investments underlying portfolio, the Investment Manager will increase its surveillance and monitoring of the relevant underlying portfolio and its originator/servicer. Depending on the reasons for, and magnitude of, the underperformance, as well as the transaction structure, the Investment Manager may do some or all of the following to the extent available to it: if applicable, engage a third party surveillance specialist in order to obtain detailed information regarding the nature and extent of such underperformance. In some cases, such an engagement will in and of itself improve asset performance by identifying procedural weaknesses of the servicer; if applicable, engage with the special servicer to assist the servicer with asset workouts, particularly in circumstances where the relevant servicer may lack expertise in working out distressed loans or disposing of foreclosed property; if applicable, in cases where the Investment Manager forms the view that the performance of the servicer cannot be improved by any of the foregoing measures, in cooperation with other investors and stakeholders, take steps to have the originator, SPV trustee or similar parties replace the servicer. There is no guarantee that such steps will be successful; if applicable, exercise a call option, if any, and sell collateral assets; and/or sell the investment.

Valuation The Company values each asset in the Investment Portfolio on a fair value basis. In accordance with the Companys valuation procedures, the fair value of the Companys investments is calculated on the basis of observable market data, market discount rates and the Investment Managers expectations regarding future trends. Given the re-structurings at many investment banks, there is a lack of reliable independent broker marks for the Residual Income Positions. The Company has elected to value its Residual Income Positions using cash flow models, in the absence of a market bid. The Company has cash flow models for each of the Companys Residual Income Positions. Pricing assumptions, including market discount rates, prepayment rates, default rates and credit losses are revised periodically to take into account changes in actual performance and macro conditions. The present value of each of the Residual Income Positions is calculated using a discount rate applied to the expected cash flow. For each of the Companys Residual
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Income Positions, except for the two CDO assets, the Company employs an external validation agent to evaluate the Companys investments and establish a range of valuations based on the degree of liquidity, credit rating, the security type and consistency amongst pricing sources. ABS bonds are valued using market prices. Currently, the Company takes the average of at least two marks to determine the value of the bonds. Exit: loan repayment or opportunistic secondary sale The Investment Manager will monitor its holdings and the market and consider all appropriate exit strategies for the assets contained in the Investment Portfolio. The Investment Manager constantly monitors the market to sell at a premium as spreads compress. Investment Managers Fees and Expenses Management Fee Under the current terms of the Investment Management Agreement (the Investment Management Agreement) between the Company, the Investment Manager and Trebuchet, the Investment Manager is entitled to receive from the Company an annual management fee of 1.75 per cent. of the Net Asset Value of the Company (the Management Fee), other than to the extent that such value is comprised of any investment where the underlying asset portfolio is managed by the Investment Manager (as is the case with Cheyne High Grade ABS CDO Ltd and Cheyne CLO Investments I Limited), calculated and payable monthly in arrear. The Investment Management Agreement Side Letter will, conditional upon the approval of Ordinary Shareholders at the EGM and Bonus Issue Admission occurring, amend the calculation of the Management Fee set out above so that the Management Fee payable will, with effect from Bonus Issue Admission, be equal to 1.75 per cent. per annum of the Adjusted NAV of the Company other than to the extent that such value is comprised of any investment where the underlying asset portfolio is managed by the Investment Manager. The Adjusted NAV will be equal to the prevailing NAV calculated in accordance with the Companys accounting policies increased by an amount equal to the number of Preference Shares in issue (excluding Preference Shares held in treasury) multiplied by the Preference Share Notional Value. Incentive Compensation Under the terms of the Investment Management Agreement, the Investment Manager is entitled to receive an incentive compensation fee (the Incentive Fee) in respect of each incentive period that will be paid quarterly in arrear. An incentive period will comprise each successive quarter. The Incentive Fee for each incentive period will be an amount equivalent to 25 per cent., of the amount by which A exceeds (B x C) where: A = The Companys consolidated net income taking into account any realised or unrealised losses (but only to the extent they have not been deducted in a prior incentive period) and excluding any gains from the revaluation of investments, as shown in the Companys latest consolidated management accounts for the relevant quarter, before payment of any Incentive Fee; B = An amount equal to a simple interest rate equal to two per cent., per quarter, subject to the reset mechanic described below (the Hurdle Rate); and C = The weighted average number of Shares outstanding during the relevant quarter multiplied by the weighted average offer price of such Shares. For the purposes of calculating the Incentive Fee, the Hurdle Rate was reset on each of 1 April 2009 and 1 April 2010, and will be reset on each 1 April thereafter, to equal the greater of (i) a simple interest rate equal to two per cent., per quarter, or (ii) one quarter of the sum of the then-prevailing yield per annum on ten-year German Bunds and 300 basis points. While the Company will not pay a Management Fee in respect of that portion of its Investment Portfolio that is comprised of investments where the
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Investment Manager receives fees for its management of the underlying asset portfolio, the income from such investments will be included in the consolidated net income of the Company for the purpose of calculating the Incentive Fee. Where there is a difference between the Companys consolidated net income for the relevant incentive period as shown in the Companys quarterly management accounts compared to the Companys audited annual accounts, the consolidated net income for the relevant incentive period as reflected in the audited accounts shall prevail. Any excess Incentive Fee paid or any additional Incentive Fee due in respect of any incentive period attributable to any such difference will be repaid by or paid to the Investment Manager, as the case may be. Expenses The Company will also pay or reimburse the Investment Manager in respect of all expenses and costs reasonably incurred by it in performance of its duties under the Investment Management Agreement. These expenses include, but are not limited to, issuance and transaction costs incidental to the acquisition, disposition and financing of investments, legal and auditing fees and expenses, the compensation and expenses of the Directors, the costs associated with the establishment and maintenance of any credit facilities and other indebtedness of the Company (including commitment fees, legal fees, closing costs, etc.), all fees and expenses incurred in relation to the incorporation and initial organisation of the Company and the SPVs, expenses associated with other securities offerings of the Company, costs of legal, accounting, due diligence, tax, auditing, administrative and other similar services rendered for the Company by the Investment Manager or by the Investment Managers employees (provided that, in the latter case, such costs are no greater than those which would be payable to outside professionals or consultants engaged to perform such services pursuant to agreements negotiated on an arms length basis), the costs of printing and mailing circulars and reports to the Companys Shareholders, costs incurred by employees of the Investment Manager for travel on the Companys behalf, costs associated with any computer software or hardware that is used by the Company, costs to obtain liability insurance to indemnify the Directors and officers of the Company and the Investment Manager and the compensation and expenses of the Companys transfer agent, custodian, registrar and administrator. Subject thereto, the Investment Manager will be responsible for its own overhead expenses in connection with the performance of its duties under the Investment Management Agreement, including compensation of its employees and rent for office space occupied by it. Also, to the extent that the Investment Manager incurs expenses related to activities involving other investment vehicles managed by the Investment Manager in addition to the Company, the Investment Manager will assign only an appropriate and equitable portion of those expenses to the Company. Termination of the Investment Management Agreement The Company may terminate the Investment Management Agreement at any time by giving the Investment Manager not less than 24 months prior notice in writing. In lieu of providing 24 months notice, the Company may pay a termination fee equal to the Management Fees and the Incentive Fees that the Investment Manager would have earned if the Investment Management Agreement had not been terminated prior to the end of the 24 month notice period (calculated based on the fees earned by the Investment Manager during the 12 month period preceding termination). The Company may terminate the Investment Management Agreement for cause by giving the Investment Manager not less than 60 days prior notice in writing, if the Investment Manager commits any material breach with respect to its obligations under the Investment Management Agreement and fails (in the case of a breach capable of rectification) to make good such breach within 30 days of receipt of written notice from the Company requiring it to do so. Such termination may not take effect until the Company has appointed a replacement investment manager. The Company may terminate the Investment Management Agreement by giving notice to the Investment Manager, effective immediately, if the Investment Manager is dissolved or unable to pay its debts or commits any act of bankruptcy or if a receiver is appointed over all or a substantial portion of its assets or ceases to hold any licence, permission, authorisation or consent necessary for the performance of its duties under the Investment Management Agreement.

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The Investment Manager may resign its appointment at any time by giving the Company not less than three months prior notice in writing, provided that such termination shall not take effect until the earlier of (i) the date on which the Company has appointed a replacement investment manager; and (ii) the date falling six months after the date on which the Investment Manager gave such notice. The Investment Manager may resign its appointment by giving the Company not less than 60 days prior notice in writing if the Company commits any material breach with respect of its obligations under this Agreement and fails to make good any breach within 30 days of receipt of written notice from the Investment Manager requiring it to do so. The Investment Manager may resign its appointment by giving notice in writing to the Company, effective immediately, if the Company is dissolved or is unable to pay its debts or commits any act of bankruptcy or if a receiver is appointed over all or a substantial portion of its assets. Investment Manager Options On 8 December 2005, the Company paid a fee to the Investment Manager in recognition of the work performed by it in connection with the initial capital raising by the Company in December 2005 in the form of a grant to the order of the Investment Manager of options (the Investment Manager Options) representing the right to acquire 2,250,000 Ordinary Shares, being 10 per cent. of the number of Ordinary Shares offered to investors in the 2005 capital raising (excluding the Exchange Shares and the Ordinary Shares issued to the Directors), at an exercise price per share of 10 per Ordinary Share. The Investment Manager Options are fully vested and immediately exercisable and will remain exercisable until 13 December 2015. As at 16 August 2010 (the latest practicable date prior to the publication of this Prospectus), no Investment Manager Options have been exercised. The Board resolved on 12 August 2010 that no further Investment Manager Options would be issued by the Company. Conflicts The Investment Manager and its officers and employees will provide services to the Company and any affiliated SPV on a non-exclusive basis. They may also be involved in other financial, investment or professional activities. The Investment Management Agreement generally does not limit or restrict the Investment Managers ability to engage in any business or manage any other vehicle that invests generally in ABS. The current terms of the Investment Management Agreement prohibits the Investment Manager and any entity controlled by or under common control with the Investment Manager from raising or sponsoring any new investment fund, company or investment vehicle (private or public) whose investment policies, guidelines or plan targets as its primary investment category investments in Primary Target Investments, it being understood that no such fund, company or investment vehicle shall be prohibited from investing in Primary Target Investments. As of the date of this Prospectus, the Investment Manager does not sponsor any vehicle which targets as its primary target investment category investments in Primary Target Investments. The terms of the existing Investment Management Agreement further provide that the Investment Manager will initially consider any Primary Target Investment opportunities for the Company. If the Investment Manager determines, in its sole discretion, that an investment is suitable in its entirety for the Company taking into account any factors that the Investment Manager deems appropriate (for example, size, underlying collateral type and location, servicer, price and/or available financing), the Investment Manager will seek to acquire the investment for the Company. If the Investment Manager determines, in its sole discretion, that an investment (in whole or in part) is not suitable for the Company (taking into account any of the aforementioned factors), the Investment Manager will seek to acquire for the Company that part, if any, of the investment which is suitable for the Company, and the Investment Manager may seek to allocate all or the part of such opportunity that is not deemed suitable for the Company to other funds managed by it in its discretion.

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In the event that Ordinary Shareholders approve the Investment Management Agreement Side Letter, the conflicts provisions in the Investment Management Agreement summarised in the two paragraphs above shall cease to have effect. In their place, the Investment Management Agreement Side Letter will provide that the Investment Manager will allocate Real Estate Debt Investments, Residual Income Positions and other investment opportunities that fall within the Companys investment policy between the Company and its other clients on the following basis. When it is determined that it would be appropriate for the Company and one or more other investment vehicles managed by the Investment Manager (including investment vehicles managed by the Investment Management Team) to participate in the same investment opportunity, the Investment Manager will seek to allocate participation levels in the opportunity on a pro rata basis (based on the latest available asset value approved by the relevant administrator or commitment amount, as applicable, of the relevant investment vehicles). The pro rata allocation will be subject to an adjustment, applied by Investment Manager in its reasonable discretion that takes into account, amongst other things, any restrictions on making such an investment arising from each relevant vehicles investment policy or eligibility criteria, their relative amounts of capital available for new investments, their risk and return profile, the relative exposure to market trends and the size, liquidity, financiability and the anticipated term of the proposed investment. The Investment Manager shall make such adjustments in a manner that it considers is fair and reasonable to all clients and does not give material unfair preference to any single client or group of clients. The Company may buy or borrow investments from or sell or lend (including by way of repurchase agreements) investments to other entities managed or controlled by the Investment Manager, and may borrow funds from or lend funds to other entities managed or controlled by the Investment Manager, but any such transactions will be entered into only on an arms length basis in accordance with Part 3 of the Authorised Closed-ended Investment Scheme Rules 2008 and subject, where required under the Listing Rules, to independent Shareholder approval and/or delivery of a fairness opinion. The Investment Manager may on occasion represent both the buyer and the seller of the security in a specific transaction. In such a case, the Investment Manager will obtain an independent valuation for the security to be traded to facilitate fair pricing of the transaction. The Investment Manager will execute the purchase transaction on behalf of the client at the sellers price and will charge no fee for this transaction. The Company and/or any affiliated SPV may enter into transactions with the Investment Manager and its officers and employees, provided that such transactions are conducted and entered into on an arms length basis in accordance with the Authorised Closed-ended Investment Scheme Rules 2008 and approved by the independent members of the Board, and where required under the Listing Rules, are subject to independent Shareholder approval and/or delivery of a fairness opinion. The Investment Manager may work with third parties in seeking to source securitisation transactions where the Real Estate Debt Investment or other applicable investment in the new SPV established for the purpose of the transaction is suitable for the Company. The Investment Manager may receive fees from the originating bank or financial institution, any arranging banks or other parties advising on such securitisation transactions or from the relevant SPV itself in each case in respect of structuring advice in relation to the relevant SPV without having to account to the Company for such fees. Except where the Investment Manager is manager of the relevant asset or issuer, the Company and/or Trebuchet (or any similar funding or asset holding vehicle) may acquire such assets without Shareholder approval (but subject to the prior approval of the independent members of the Board of Directors having been obtained). Where the Investment Manager is manager of the relevant asset or issuer, the acquisition of such assets will be the subject of independent Shareholder approval and/or delivery of a fairness opinion where required by the Listing Rules. As noted under the heading Investment Managers Fees and ExpensesManagement Fee above, no Management Fee will be payable in respect of the Companys investment in any SPV where the underlying asset portfolio is managed by the Investment Manager. Income from such investments, however, will be included in the consolidated net income of the Company for the purpose of calculating the Incentive Fee payable to the Investment Manager by the Company.

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The Administrator The Company has entered into an administration agreement with Kleinwort Benson (Channel Islands) Fund Services Limited (the Administrator) (the Administration Agreement), under which the Administrator provides administrative and company secretarial services for the Company. A summary of the Administration Agreement is set out in paragraph 7 of Part IX of this Prospectus. The Administrator is a subsidiary of Kleinwort Benson Channel Islands Limited, whose ultimate parent company is RHJ International SA, and provides investment advice to investment companies and unit trusts domiciled principally in Guernsey, Ireland, Luxembourg, Bermuda, the Cayman Islands and the United Kingdom. The Administrator has entered into a sub-administration agreement with the Company and State Street Fund Services (Ireland) Limited (the Sub-Administrator) (the Sub-Administration Agreement) pursuant to which it has delegated the provision of fund administration and fund accounting services to the Sub-Administrator. A summary of the Sub-Administration Agreement is set out in paragraph 7 of Part IX of this Prospectus. In return for the provision of these services, the Sub-Administrator is entitled to receive an annual fee, which is payable by the Administrator from the fees paid to the Administrator under the Administration Agreement, such fee to be agreed in writing from time to time between the Administrator, the Company and the Sub-Administrator. The Sub-Administrator was incorporated as a private limited company in Ireland on 23 March 1992 and is ultimately owned by State Street Corporation. The authorised share capital of the Sub-Administrator is 5,000,000 with an issued and paid up share capital of 350,000. State Street Corporation is a leading world-wide specialist in providing sophisticated global investors with investment servicing and investment management. State Street Corporation is headquartered in Boston, Massachusetts, USA and trades on the New York Stock Exchange under the system STT. The Sub-Administrator, as part of its duties, produces a set of management accounts on a monthly basis for the Board of Directors. The management accounts will include the Companys Net Asset Value calculated in accordance with the Companys accounting policies. The Custodian The Company has entered into a custody agreement with State Street Custodial Services (Ireland) Limited (the Custodian) (the Custody Agreement) pursuant to which the Custodian will provide custodial services to the Company in return for a fee agreed in writing from time to time between the Custodian and the Company. A summary of the Custodian Agreement is set out in paragraph 7 of Part IX of this Prospectus. The Custodian is authorised and regulated by the Irish Financial Services Regulatory Authority. The assets of the Company will be held by the Custodian or by one or more nominees, agents or sub-custodians or may be deposited with or held in any securities depository, settlement system, clearing house, dematerialised book entry system or similar system and/or in a recognised system or clearing agency. The Custodians telephone number is +353 1776 3674. The Custodian has the same ownership structure as the Sub-Administrator, as described above.
AXV 3.4

AXV 5.1

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PART IV TERMS AND CONDITIONS OF THE OPEN OFFER


The New Ordinary Shares are only suitable for existing and potential investors who understand the potential risk of capital loss associated with an investment in the Company and that there may be limited liquidity in the underlying investments of the Company and the New Ordinary Shares, for whom an investment in the New Ordinary Shares is part of a diversified investment programme and who fully understand and are willing to assume the risks involved in such an investment programme. 1. Introduction Conditional on the Required Resolutions being approved by Ordinary Shareholders at the EGM and Open Offer Admission occurring, 13,322,328 New Ordinary Shares are being issued pursuant to the Placing and Open Offer. Upon completion of the Placing and Open Offer, the New Ordinary Shares will represent approximately 50 per cent. of the existing issued share capital of the Company and 33 per cent. of the Enlarged Issued Ordinary Share Capital on an undiluted basis, assuming that no Investment Manager Options are exercised. This Prospectus (and, for Qualifying Certificated Open Offer Shareholders only, the Application Form) contains the formal terms and conditions of the Open Offer. Your attention is drawn to paragraph 4 of this Part IV which gives details of the procedure for application and payment for the New Ordinary Shares. The attention of Overseas Shareholders is drawn to paragraph 6 of this Part IV below. Qualifying Open Offer Shareholders who apply for New Ordinary Shares will receive dividends on any New Ordinary Shares issued to them in the same manner as they receive their dividend on their Existing Ordinary Shares in accordance with the Companys dividend policy from time to time. The Placees have agreed to subscribe for all the New Ordinary Shares at the Offer Price subject to Open Offer Admission and the passing of the Required Resolutions at the Extraordinary General Meeting, subject to clawback in respect of valid applications by Qualifying Certificated Open Offer Shareholders and Qualifying CREST Open Offer Shareholders at the Offer Price under the Open Offer. The Open Offer is being made to Qualifying Open Offer Shareholders, being holders of Existing Ordinary Shares as set out on the Register on the Open Offer Record Date. The Open Offer is an opportunity for Qualifying Open Offer Shareholders to apply for, in aggregate, 13,322,328 New Ordinary Shares on a pro rata basis by reference to their holding of Existing Ordinary Shares as at the Open Offer Record Date at the Offer Price in accordance with the terms of the Open Offer. Each such applicant will be entitled to apply for New Ordinary Shares in the proportions detailed below. Any Ordinary Shareholder who has sold or transferred all or part of their registered holding(s) of Existing Ordinary Shares prior to the close of business on 13 August 2010 is advised to consult their stockbroker, bank or other agent through or to whom the sale or transfer was effected as soon as possible since the invitation to apply for New Ordinary Shares under the Open Offer may be a benefit which may be claimed from them by the purchasers or transferees under the rules of the London Stock Exchange. 2. The Open Offer Subject to the terms and conditions set out below (and, in the case of Qualifying Certificated Open Offer Shareholders, in the Application Form), Qualifying Open Offer Shareholders are being given the opportunity to apply to subscribe for New Ordinary Shares in the proportion to their existing holdings at the Offer Price (payable in full on application) on the following basis: 1 New Ordinary Share at 2.00 per New Ordinary Share for every 2 Existing Ordinary Shares
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AIII 5.1.1

LR13.3.1 (9)(b)

AIII 5.2.3(b) AIII 6.3

AIII 5.1.6

registered in the name of Qualifying Open Offer Shareholders at the Open Offer Record Date and so in proportion for any other number of Existing Ordinary Shares then registered. Entitlements of Qualifying Open Offer Shareholders will be rounded down to the nearest whole number of New Ordinary Shares. Fractions representing New Ordinary Shares which would otherwise have arisen will not be allotted to Qualifying Open Offer Shareholders, but will be aggregated and subscribed for under the Placing for the benefit of the Company. Valid applications by Qualifying Open Offer Shareholders will be satisfied in full up to the amount of their individual Open Offer Entitlements. No application in excess of a Qualifying Open Offer Shareholders pro rata entitlement will be met under the Open Offer and any Qualifying Open Offer Shareholder so applying will be deemed to have applied for the maximum entitlement as specified on the Application Form in the case of a Qualifying Certificated Open Offer Shareholder or standing to the credit of the CREST stock account in the case of a Qualifying CREST Open Offer Shareholder or as otherwise notified to him (and any monies received in excess of the amount due will be returned to the Qualifying Open Offer Shareholder, without interest, at the risk of the Qualifying Open Offer Shareholder). Qualifying Open Offer Shareholders may apply for less than their maximum entitlement should they wish to do so. Any New Ordinary Shares comprising Open Offer Entitlements not applied for by Qualifying Open Offer Shareholders will be placed with the Placees. If you are a Qualifying Certificated Open Offer Shareholder, the Application Form shows the number of Existing Ordinary Shares registered in your name on the Open Offer Record Date (in Box 4) and also show the maximum number of New Ordinary Shares for which you are entitled to apply pursuant to your Open Offer Entitlement (in Box 5 of the Application Form). Qualifying CREST Open Offer Shareholders will have Open Offer Entitlements credited to their stock accounts in CREST and should refer to paragraph 4.2 of this Part IV and also to the CREST Manual for further information on the relevant CREST procedures. Qualifying Open Offer Shareholders will have a basic pro rata entitlement to apply for Open Offer Shares which, in the case of Qualifying Certificated Open Offer Shareholders is equal to the number of Open Offer Entitlements shown in Box 5 on each of the Application Form, or, in the case of Qualifying CREST Open Offer Shareholders, is equal to the number of Open Offer Entitlements that will be credited to their stock account in CREST on 18 August 2010. Following the issue of the New Ordinary Shares to be allotted pursuant to the Placing and Open Offer, Qualifying Open Offer Shareholders who do not take up any of their Open Offer Entitlements will suffer a dilution of approximately 2.50 per cent. to their interests in the Company on an undiluted basis, assuming that no Investment Manager Options are exercised, and will suffer a dilution of approximately 2.37 per cent. to their interests in the Company on a fully diluted basis. Not all holders of Existing Ordinary Shares will be Qualifying Open Offer Shareholders. Shareholders of the Company who are located or resident in, or who are citizens of, or who have a registered address in an Excluded Territory or are US Persons (regardless of the number of Existing Ordinary Shares that they hold) will not qualify to participate in the Open Offer. The attention of Overseas Shareholders is drawn to paragraph 6 of this Part IV . Qualifying Open Offer Shareholders should be aware that the Open Offer is not a rights issue. As such, Qualifying Certificated Open Offer Shareholders should note that their Application Form is not a negotiable document and cannot be traded. Qualifying CREST Open Offer Shareholders should note that, although their Open Offer Entitlement will be credited to their CREST accounts, the Open Offer Entitlements will not be tradable or listed and applications in respect of the Open Offer may only be made by the Qualifying CREST Open Offer Shareholders originally entitled or by a person entitled by virtue of a bona fide market claim. New Ordinary Shares which are not taken up under the Open Offer will not be sold in the market for the benefit of those who do not apply under the Open Offer and Qualifying Open Offer Shareholders who do not apply to take up Open Offer Shares will have no rights under the Open Offer. Any New Ordinary Shares which are not applied for in respect of the Open Offer will be issued to the Placees, with the proceeds retained for the benefit of the Company.
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AIII 5.1.10 AIII 9.2 LR13.3.1 (9)(f) AIII 5.1.6

AIII 5.1.5

The Existing Ordinary Shares are already admitted to CREST. No further application for admission to CREST is accordingly required for the New Ordinary Shares. All such New Ordinary Shares, when issued and fully paid, may be held and transferred by means of CREST. Application will be made for the Open Offer Entitlements to be admitted to CREST. The conditions for such admission having already been met, the Open Offer Entitlements are expected to be admitted to CREST with effect from 8.00 a.m. on 16 September 2010. The results of the Open Offer are expected to be announced on or around 15 September 2010 through a RIS announcement. The New Ordinary Shares will be issued credited as fully paid and will rank pari passu in all respects with the Existing Ordinary Shares. The New Ordinary Shares are not being made available in whole or in part to the public except under the terms of the Open Offer. 3. Conditions and further terms of the Placing and Open Offer The Placing and Open Offer is conditional on, amongst other things, the passing of the Required Resolutions at the Extraordinary General Meeting, Admission of the New Ordinary Shares becoming effective by not later than 8.00 a.m. on 16 September 2010 (or such later time and date as the Company and Liberum Capital may agree) and the Placing and Open Offer Agreement not being terminated prior to such time. Accordingly, if any condition is not satisfied, the Placing and Open Offer will not proceed and any applications made by Qualifying Open Offer Shareholders will be rejected. In such circumstances, application monies will be returned (at the applicants sole risk), without payment of interest, as soon as practicable thereafter. No temporary documents of title will be issued. Definitive certificates in respect of New Ordinary Shares subscribed for under the Open Offer are expected to be posted to each Qualifying Certificated Open Offer Shareholder by 23 September 2010. Pending receipt of the certificates, transfers of New Ordinary Shares will be certified against the Register. In respect of Qualifying CREST Open Offer Shareholders, the New Ordinary Shares are expected to be credited to stock accounts maintained in CREST on 16 September 2010. Applications will be made for the New Ordinary Shares to be admitted to the Official List and to trading on the London Stock Exchanges main market for listed securities. The application for admission to the Official List in respect of the New Ordinary Shares is an application for a premium listing. Admission is expected to occur on 16 September 2010, when dealings in the New Ordinary Shares on the London Stock Exchange are expected to begin. If for any reason it becomes necessary to adjust the expected timetable as set out in this Prospectus, the Company will notify the UK Listing Authority and make an appropriate announcement on a RIS giving details of the revised dates. 4. Procedure for application and payment The action to be taken by you in respect of the Open Offer depends on whether, at the relevant time, you have an Application Form in respect of your Open Offer Entitlements or you have Open Offer Entitlements credited to your CREST stock account in respect of such entitlement. Qualifying Certificated Open Offer Shareholders will be allotted their New Ordinary Shares in certificated form. Qualifying CREST Open Offer Shareholders will be allotted their New Ordinary Shares in CREST. It will be possible for Qualifying Certificated Open Offer Shareholders to deposit Open Offer Entitlements into CREST and for Qualifying CREST Open Offer Shareholders to withdraw Open Offer Entitlements from CREST but only to satisfy a bona fide market claim. Further information on deposit and withdrawal from CREST is set out in paragraph 4.2(f) of this Part IV.
AIII 5.1.3 LR13.3.1 (9)(d) LR13.3.1 (9)(e) AIII 5.2.4

AIII 5.1.1. AIII 5.2.3(g) AIII 5.1.4

AIII 5.2.3(g)

LR13.3.1 (9)(g)

81

CREST sponsored members should refer to their CREST sponsor, as only their CREST sponsor will be able to take the necessary action specified below to apply under the Open Offer in respect of the Open Offer Entitlements of such members held in CREST. CREST members who wish to apply under the Open Offer in respect of their Open Offer Entitlements in CREST should refer to the CREST Manual for further information on the CREST procedures referred to below. Qualifying Open Offer Shareholders who do not want to apply for the New Ordinary Shares under the Open Offer should take no action and should not complete or return the Application Form or take any action in CREST. If you are a Qualifying Open Offer Shareholder and have any queries about the Open Offer or on the procedure for acceptance and payment you should call the Shareholder helpline on 0871 664 0321 from within the UK or on + 44 20 8639 3399 if calling from outside the UK. Calls to the 0871 664 0321 number cost 10 pence per minute from a BT landline. Other network providers costs may vary. Lines are open 9.00 a.m. to 5.00 p.m. (London time) Monday to Friday (except UK public holidays). Calls to the helpline from outside the UK will be charged at the applicable international rate. Different charges may apply to calls from mobile telephones and calls may be recorded and randomly monitored for security and training purposes. The helpline cannot provide advice on the merits of the Open Offer nor give any financial, legal or tax advice. If you are a Qualifying CREST Open Offer Shareholder and you have any questions regarding the CREST procedures, please telephone the CREST Service Desk on 0871 384 2903 (+44 121 415 0250 if you are calling from outside the United Kingdom). The CREST Service Desk is available from 9.00 a.m. to 5.00 p.m. Monday to Friday (excluding public holidays). Please note that calls may be monitored or recorded. For legal reasons, the Shareholder helpline or CREST Service Desk will only be able to provide you with information contained in this Prospectus (other than information relating to the Companys Register and CREST processes respectively) and as such will be unable to give advice on the merits of the Open Offer or to provide financial advice. Shareholder helpline staff can explain the options available to you, which forms you need to fill in and how to fill them in correctly. 4.1 If you have an Application Form showing your Open Offer Entitlements in respect of your entitlement under the Open Offer (a) General Subject to what is provided in paragraph 6 of this Part IV Terms and Conditions of the Open Offer in relation to Overseas Shareholders, Qualifying Certificated Open Offer Shareholders will receive an Application Form for the New Ordinary Shares. The Application Form shows the number of Existing Ordinary Shares registered in their name on the Open Offer Record Date in Box 4 of the Application Form. It also shows the number of New Ordinary Shares for which they are entitled to apply under the Open Offer, as shown by the total number of New Ordinary Shares comprising their Open Offer Entitlement set out in Box 5 of the Application Form. Entitlements to New Ordinary Shares are rounded down to the nearest whole number and fractional Open Offer Entitlements have therefore also been rounded down. Fractional Open Offer Entitlements will be aggregated and the resulting New Ordinary Shares will not be allotted to Qualifying Open Offer Shareholders, but will be subscribed for under the Placing for the benefit of the Company. Qualifying Certificated Open Offer Shareholders may apply for less than their maximum entitlement should they wish to do so. Qualifying Certificated Open Offer Shareholders may also hold such Application Form by virtue of a bona fide market claim (see paragraph 4.1(b) below). Each Qualifying Certificated Open Offer Shareholder who wishes to take up Open Offer Entitlements will be required, prior to receiving any New Ordinary Shares, to make the representations, warranties, agreements and acknowledgements set out in paragraph 6 of this Part IV and as included in the Application Form. Certificates representing New

82

Ordinary Shares will not be delivered to any person unless and until the Company and the Receiving Agent have received a duly signed Application Form including such representations, warranties, agreements and acknowledgements. The instructions and other terms set out in the Application Form constitute part of the terms of the Open Offer to Qualifying Certificated Open Offer Shareholders. (b) Bona fide market claims Applications to acquire New Ordinary Shares may only be made on the Application Form and may only be made by the Qualifying Certificated Open Offer Shareholder named in it or by a person entitled by virtue of a bona fide market claim in relation to a purchase of Existing Ordinary Shares through the market prior to 8.00 a.m. on 17 August 2010, the date upon which the Existing Ordinary Shares are expected to be marked ex for the purpose of the entitlement to participate in the Open Offer by the London Stock Exchange. Application Forms may not be assigned, transferred or split, except to satisfy bona fide market claims up to 3.00 p.m. on 7 September 2010. The Application Form is not a negotiable document and cannot be traded. A Shareholder who has sold or otherwise transferred all or part of his holding of Existing Ordinary Shares prior to the date upon which the Existing Ordinary Shares were marked ex for the purpose of the entitlement to participate in the Open Offer, should consult his broker or other professional adviser as soon as possible, as the invitation to acquire New Ordinary Shares under the Open Offer may be a benefit which may be claimed by the transferee. Shareholders who have sold all of their registered holdings prior to 5.00 p.m. on 13 August 2010 should complete Box 8 on the Application Form and immediately send the form to the stockbroker, bank or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee, or directly to the purchaser or transferee, if known. Subject to certain exceptions, the Application Form should not, however, be forwarded to or transmitted in or into any Excluded Territory. If the market claim is to be settled outside CREST, the beneficiary of the claim should follow the procedures set out in the accompanying Application Form. If the market claim is to be settled in CREST, the beneficiary of the claim should follow the procedures set out in paragraph 4.2(b) below. Qualifying Certificated Open Offer Shareholders who have sold or otherwise transferred part only of their Existing Ordinary Shares shown on Box 4 of their Application Forms prior to 3.00 p.m. on 7 September 2010 should complete Box 8 of the Application Forms and immediately deliver the Application Form, together with a letter stating the number of Application Forms required, the total number of Existing Ordinary Shares to be included in each Application Form (the aggregate of which must equal the number shown in Box 4 of the Application Form) and the total number of Open Offer Entitlements to be included in each Application Form (the aggregate of which must equal the number shown in Box 5 of the corresponding Application Form), to the stockbroker, bank or other agent through whom the sale or transfer was effected or return it by post to Capita Registrars, Corporate Actions, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU so as to be received by 11.00 a.m on 9 September 2010. Capita Registrars will then create new Application Forms, mark the Application Forms Declaration of sale or transfer duly made and send them by post to the person submitting the original Application Form. (c) Application procedures Qualifying Certificated Open Offer Shareholders wishing to apply to acquire New Ordinary Shares (whether in respect of all or part of their Open Offer Entitlement) should complete the Application Form in accordance with the instructions printed on it. Completed Application Forms should be posted in the accompanying pre-paid envelope (in the UK only) or returned by post or by hand (during normal office hours only) to the Capita Registrars, Corporate Actions, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU (who will act as Receiving Agent in relation to the Open Offer) so as to be
83
AIII 5.1.8

received by no later than 11.00 a.m. on 9 September 2010, after which time, subject to the limited exceptions set out below, Application Forms will not be valid. Applications delivered by hand will not be checked upon delivery and no receipt will be provided. Qualifying Certificated Open Offer Shareholders should note that applications, once made, will, subject to the very limited withdrawal rights set out in this Prospectus, be irrevocable and receipt thereof will not be acknowledged. If an Application Form is being sent by firstclass post in the UK, Qualifying Certificated Open Offer Shareholders are recommended to allow at least four working days for delivery. Completed Application Forms should be returned with a cheque or bankers draft drawn in Euros on a bank or building society in the UK which is either a member of the Cheque and Credit Clearing Company Limited or the CHAPS Clearing Company Limited or a member of either of the committees of the Scottish or Belfast Clearing Houses or which has arranged for its cheques and bankers drafts to be cleared through facilities provided by any of those companies or committees. Such cheques or bankers drafts must bear the appropriate sort code in the top right-hand corner and must be for the full amount payable on application. Cheques should be drawn on a personal account in respect of which the Qualifying Certificated Open Offer Shareholder has sole or joint title to the funds and should be made payable to Capita Registrars Limited re: Queens Walk Investment Limited Open Offer and crossed A/C Payee Only. Third-party cheques (other than building society cheques or bankers drafts where the building society or bank has confirmed that the relevant Qualifying Certificated Open Offer Shareholder has title to the underlying funds by inserting the applicant name on the back of the bankers draft or the building society cheque and adding their stamp) will not be accepted. Payments via CHAPS, BACS or electronic transfer will also not be accepted. All documents and cheques sent through the post to and from the Qualifying Certificated Open Shareholder will be sent at their own risk and any cheques not received by Capita Registrars will need to be re-issued and re-sent by the Qualifying Certificated Open Offer Shareholder. Cheques and bankers drafts will be presented for payment on receipt and it is a term of the Open Offer that cheques and bankers drafts will be honoured on first presentation. The Company may elect to treat as valid or invalid any applications made by Qualifying Certificated Open Offer Shareholders in respect of which cheques are not so honoured. Should such cheques or bankers drafts not be so honoured, the Company may undertake any action to recover the value of the application and any costs associated with such recovery (including the forfeiture and sale of any New Ordinary Shares allotted pursuant to such an application). If cheques or bankers drafts are presented for payment before the conditions of the Placing and Open Offer are fulfilled, the application monies will be kept in a separate bank account until all the conditions are met. No interest will be paid on such payments. If the Placing and Open Offer does not become unconditional, no New Ordinary Shares will be issued and all monies will be returned (at the applicants sole risk), without payment of interest, to applicants as soon as practicable following the lapse of the Placing and Open Offer. The Company may in its sole discretion, but shall not be obliged to, treat an Application Form as valid and binding on the person by whom or on whose behalf it is lodged, even if not completed in accordance with the relevant instructions or not accompanied by a valid power of attorney where required, or if it otherwise does not strictly comply with the terms and conditions of the Open Offer. The Company further reserves the right (but shall not be obliged) to accept either: (i) (ii) Application Forms received after 11.00 a.m. on 9 September 2010; or applications in respect of which remittances are received before 11.00 a.m. on 9 September 2010 from authorised persons (as defined in FSMA) specifying the New Ordinary Shares applied for and undertaking to lodge an Application Form in due course but, in any event, within two Business Days.
84

Multiple applications will not be accepted. All documents and remittances sent by post by or to an applicant (or as the applicant may direct) will be sent at the applicants own risk. If New Ordinary Shares have already been allotted to a Qualifying Certificated Open Offer Shareholder and such Qualifying Certificated Open Offer Shareholders cheque or bankers draft is not honoured upon first presentation or such Qualifying Certificated Open Offer Shareholders application is subsequently otherwise deemed to be invalid, the Company shall be authorised (in its absolute discretion as to manner, timing and terms) to make arrangements for the sale of such New Ordinary Shares on behalf of such Qualifying Certificated Open Offer Shareholder and to hold the proceeds of sale (net of the Companys reasonable estimate of any loss that it has suffered as a result of the acceptance being treated as invalid (including VAT) including any stamp duty or SDRT payable on the transfer of such New Ordinary Shares) and of all amounts payable by such Qualifying Certificated Open Offer Shareholders pursuant to the provisions herein in respect of the subscription of such New Ordinary Shares, on behalf of such Qualifying Certificated Open Offer Shareholders. None of Capita Registrars, or the Company, nor any other person, shall be responsible for, or have any liability for, any loss, expense or damage suffered by such Qualifying Certificated Open Offer Shareholder as a result. (d) Effect of application By completing and delivering an Application Form, amongst other things, the applicant: (i) represents and warrants to the Company that he has the right, power and authority, and has taken all action necessary, to make the application under the Open Offer and to execute, deliver and exercise his rights, and perform his obligations under any contracts resulting therefrom and that he is not a person otherwise prevented by legal or regulatory restrictions from applying for New Ordinary Shares or acting on behalf of any such person on a non-discretionary basis; agrees with the Company that all applications under the Open Offer and contracts resulting therefrom shall be governed by, and construed in accordance with, the laws of England;

AIII 5.2.3(h)

(ii)

(iii) confirms to the Company that in making the application he is not relying on any information or representation in relation to the Company other than that contained in this Prospectus, and the applicant accordingly agrees that no person responsible solely or jointly for this Prospectus or any part thereof, or involved in the preparation thereof, shall have any liability for any such information or representation not so contained and further agrees that, having had the opportunity to read this Prospectus, he will be deemed to have had notice of all the information in relation to the Company contained in this Prospectus (including information incorporated by reference); (iv) confirms to the Company that no person has been authorised to give any information or to make any representation concerning the Company or its subsidiaries or the New Ordinary Shares (other than as contained in this Prospectus) and, if given or made, any such other information or representation should not be relied upon as having been authorised by the Company; represents and warrants to the Company that he is the Qualifying Certificated Open Offer Shareholder originally entitled to the Open Offer Entitlements or that he has received such Open Offer Entitlements by virtue of a bona fide market claim; represents and warrants to the Company that if he has received some or all of his Open Offer Entitlements from a person other than the Company, he is entitled to apply under the Open Offer in relation to such Open Offer Entitlements by virtue of a bona fide market claim;

(v)

(vi)

85

(vii) requests that the New Ordinary Shares, to which he will become entitled, be issued to him on the terms set out in this Prospectus and the Application Form, subject to the terms of the Revised Articles; (viii) represents and warrants to the Company that he is not, nor is he applying on behalf of any person, a citizen or resident, or which is a corporation, partnership or other entity created or organised in or under any laws, of any Excluded Territory or any jurisdiction in which the application for New Ordinary Shares is prevented by law and he is not applying with a view to re-offering, re-selling, transferring or delivering any of the New Ordinary Shares which are the subject of his application in any Excluded Territory or to, or for the benefit of, a person who is a citizen or resident, or which is a corporation, partnership or other entity created or organised in or under any laws, of any Excluded Territory or any jurisdiction in which the application for New Ordinary Shares is prevented by law, nor acting on behalf of any such person on a non-discretionary basis nor is he a person otherwise prevented by legal or regulatory restrictions from applying for New Ordinary Shares under the Open Offer nor acting on behalf of any such person on a non-discretionary basis (except where proof satisfactory to the Company, in its sole and absolute discretion, has been provided to the Company that he is able to accept the invitation by the Company free of any requirement which the Company, in its sole and absolute discretion, regards as unduly burdensome); (ix) represents and warrants to the Company that (1) it is not a US Person, is not located within the United States and is not acquiring the Open Offer Entitlements or the New Ordinary Shares for the account or benefit of a US Person; (2) it is acquiring the Open Offer Entitlements or the New Ordinary Shares in an offshore transaction meeting the requirements of Regulation S; (3) it is acquiring the Open Offer Entitlements or the New Ordinary Shares for its own account or for one or more investment accounts for which it is acting as a fiduciary or agent, in each case for investment only, and not with a view to or for sale or other transfer in connection with any distribution of the New Ordinary Shares in any manner that would violate the US Securities Act, the US Investment Company Act or any other applicable securities laws; (4) it understands and acknowledges that the Open Offer Entitlements and the New Ordinary Shares have not been and will not be registered under the US Securities Act or with any securities regulatory authority of any state or other jurisdiction of the United States and may not be offered, sold, resold, taken up, exercised, renounced, transferred, delivered or distributed, directly or indirectly, into or within the United States or to, or for the account or benefit of, US Persons; and (5) it understands and acknowledges that the Company has not registered and will not register as an investment company under the US Investment Company Act; represents and warrants to the Company that no portion of the assets used to purchase, and no portion of the assets used to hold, the New Ordinary Shares or any beneficial interest therein constitutes or will constitute the assets of (1) an employee benefit plan as defined in Section 3(3) of ERISA that is subject to Title I of ERISA; (2) a plan as defined in Section 4975 of the US Tax Code, including an individual retirement account or other arrangement that is subject to Section 4975 of the US Tax Code; or (3) an entity which is deemed to hold the assets of any of the foregoing types of plans, accounts or arrangements that is subject to Title I of ERISA or Section 4975 of the US Tax Code. In addition, if an investor is a governmental, church, non-US or other employee benefit plan that is subject to any federal, state, local or non-US law that is substantially similar to the provisions of Title I of ERISA or Section 4975 of the US Tax Code, its purchase, holding, and disposition of the Shares must not constitute or result in a non-exempt violation of any such substantially similar law;
AIII 4.8

(x)

86

(xi)

understands and acknowledges that the Company reserves the right to make inquiries of any holder of the New Ordinary Shares or interests therein at any time as to such persons status under the federal US securities laws and to require any such person that has not satisfied the Company that the holding by such person will not violate or require registration under the US securities laws to transfer such New Ordinary Shares or interests in accordance with the Articles;

(xii) represents and warrants to the Company that (1) it has received (outside the United States), carefully read and understands the Prospectus, and (2) it has not, directly or indirectly, distributed, forwarded, transferred or otherwise transmitted the Prospectus (or any part thereof) or any other presentation or offering materials concerning the Shares to or within the United States or to any US Person, nor will it do any of the foregoing; (xiii) represents and warrants to the Company that (1) at the time the New Ordinary Shares are acquired, it is not an affiliate of the Company or a person acting on behalf of such an affiliate, and (ii) it is not acquiring the New Ordinary Shares for the account or benefit of an affiliate of the Company or of a person acting on behalf of such an affiliate; (xiv) understands and acknowledges that if any New Ordinary Shares are issued in certificated form, then such certificates evidencing ownership will contain a legend substantially to the following effect unless otherwise determined by the Company in accordance with applicable law: QUEENS WALK INVESTMENT LIMITED (THE COMPANY) HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE US INVESTMENT COMPANY ACT OF 1940, AS AMENDED (THE US INVESTMENT COMPANY ACT). IN ADDITION, THE SECURITIES OF THE COMPANY REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE US SECURITIES ACT OF 1933, AS AMENDED (THE US SECURITIES ACT), OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES. ACCORDINGLY, THIS SECURITY MAY NOT BE OFFERED, SOLD, RESOLD, TRANSFERRED, DELIVERED OR DISTRIBUTED, DIRECTLY OR INDIRECTLY, INTO OR WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, US PERSONS (AS DEFINED IN REGULATION S UNDER THE US SECURITIES ACT); (xv) represents and warrants to the Company that if in the future it decides to offer, sell, transfer, assign or otherwise dispose of the New Ordinary Shares, it will do so only (1) in an offshore transaction complying with the provisions of Regulation S under the US Securities Act to a person outside the United States and not known by the transferor to be a US Person, by pre-arrangement or otherwise, or (2) to the Company or a subsidiary thereof. It understands and acknowledges that any sale, transfer, assignment, pledge or other disposal made other than in compliance with the above stated restrictions will be subject to the compulsory transfer provisions as provided in the Articles; (xvi) represents and warrants to the Company that, if it is acquiring any Shares as a fiduciary or agent for one or more accounts, it has sole investment discretion with respect to each such account and full power and authority to make such foregoing representations, warranties, acknowledgements and agreements on behalf of each such account; and (xvii) understands and acknowledges that the Company, Liberum Capital, their directors, officers, agents, employees, advisers and others will rely upon the truth and accuracy of the foregoing representations, warranties, acknowledgments and agreements. If any of the representations, warranties, acknowledgments or agreements made by it are no longer accurate or have not been complied with, it will immediately notify the Company.
87

All enquiries in connection with the procedure for application and completion of the Application Forms should be addressed to the Receiving Agent at Capita Registrars, Corporate Actions, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU or by telephone on 0871 664 0321 from within the UK or on + 44 20 8639 3399 if calling from outside the UK. Calls to the 0871 664 0321 number cost 10 pence per minute from a BT landline. Other network providers costs may vary. Lines are open 9.00 a.m. to 5.00 p.m. (London time) Monday to Friday (except UK public holidays). Calls to the helpline from outside the UK will be charged at the applicable international rate. Different charges may apply to calls from mobile telephones and calls may be recorded and randomly monitored for security and training purposes. The helpline cannot provide advice on the merits of the Open Offer nor give any financial, legal or tax advice. Qualifying Certificated Open Offer Shareholders who do not want to apply for the New Ordinary Shares under the Open Offer should take no action and should not complete or return the Application Form. 4.2 If you have Open Offer Entitlements credited to your stock account in CREST in respect of your entitlement under the Open Offer (a) General Subject to what is provided in paragraph 6 of this Part IV in relation to certain Overseas Shareholders, each Qualifying CREST Open Offer Shareholder will receive a credit to his stock account in CREST of his Open Offer Entitlements equal to the maximum number of New Ordinary Shares for which he is entitled to apply to acquire under the Open Offer. Entitlements to New Ordinary Shares will be rounded down to the nearest whole number. Fractional Open Offer Entitlements will be aggregated and the resulting New Ordinary Shares will be sold to the Placees for the benefit of the Company. Qualifying CREST Open Offer Shareholders may apply for less than their maximum entitlement should they wish to do so. The CREST stock account to be credited will be an account under the participant ID and member account ID that apply to the Existing Ordinary Shares held on the Open Offer Record Date by the Qualifying CREST Open Offer Shareholder in respect of which the Open Offer Entitlements have been allocated. If for any reason the Open Offer Entitlements cannot be admitted to CREST by, or the stock accounts of Qualifying CREST Open Offer Shareholders cannot be credited by, 4.30 p.m. on 18 August 2010, or such later time and/or date as the Company may decide, a form of application will be sent to each Qualifying CREST Open Offer Shareholder in substitution for the Open Offer Entitlements which should have been credited to his stock account in CREST. In these circumstances the expected timetable as set out in this Prospectus will be adjusted as appropriate. A Qualifying CREST Open Offer Shareholder who wishes to apply to acquire some or all of their entitlements to New Ordinary Shares should refer to the CREST Manual for further information on the CREST procedures referred to below. Should a Qualifying CREST Open Offer Shareholder need advice with regard to these procedures, please contact Capita Registrars on 0871 664 0321 from within the UK or on + 44 20 8639 3399 if calling from outside the UK. Calls to the 0871 664 0321 number cost 10 pence per minute from a BT landline. Other network providers costs may vary. Lines open 9.00 a.m. to 5.00 p.m. (London time) Monday to Friday (except UK public holidays). Calls to the helpline from outside the UK will be charged at the applicable international rate. Different charges may apply to calls from mobile telephones and calls may be recorded and randomly monitored for security and training purposes. The helpline cannot provide advice on the merits of the Open Offer nor give any financial, legal or tax advice. If you are a CREST sponsored member you should consult your CREST sponsor if you wish to apply for New Ordinary Shares as only your CREST sponsor will be able to take the necessary action to make this application in CREST.
88

(b)

Bona fide market claims The Open Offer Entitlements will constitute a separate security for the purposes of CREST. Although Open Offer Entitlements will be admitted to CREST and be enabled for settlement, applications in respect of Open Offer Entitlements may only be made by the Qualifying CREST Open Offer Shareholders originally entitled or by a person entitled by virtue of a bona fide market claim transaction. Transactions identified by the CREST Claims Processing Unit as cum the Open Offer Entitlement will generate an appropriate market claim transaction and the relevant Open Offer Entitlement(s) will thereafter be transferred accordingly. USE instructions A Qualifying CREST Open Offer Shareholder who is a CREST member and who wants to apply for New Ordinary Shares in respect of all or some of their Open Offer Entitlements in CREST must send (or, if they are CREST sponsored members, procure that their CREST sponsor sends) an Unmatched Stock Event (USE) Instruction to Euroclear which, on its settlement, will have the following effect: (i) the crediting of a stock account of Capita Registrars under the participant ID and member account ID specified below, with a number of Open Offer Entitlements corresponding to the number of New Ordinary Shares applied for; and the creation of a CREST payment, in accordance with the CREST payment arrangements in favour of the payment bank of Capita Registrars in respect of the amount specified in the USE Instruction which must be the full amount payable on application for the number of New Ordinary Shares referred to in (i) above.
AIII 5.1.8

(c)

(ii)

(d)

Content of USE Instruction in respect of Open Offer Entitlements for New Ordinary Shares The USE Instruction must be properly authenticated in accordance with Euroclears specifications and must contain, in addition to the other information that is required for settlement in CREST, the following details: (i) (ii) the number of New Ordinary Shares for which application is being made (and hence the number of the Open Offer Entitlement(s) being delivered to Capita Registrars); the ISIN of the Open Offer Entitlement for New Ordinary Shares. This is GG00B4THTL39;

(iii) the CREST participant ID of the accepting CREST member; (iv) (v) (vi) the CREST member account ID of the accepting CREST member from which the Open Offer Entitlements are to be debited; the participant ID of the Receiving Agent in its capacity as a CREST receiving agent. This is 9RA01; the member account ID of the Receiving Agent in its capacity as a CREST receiving agent. This is 27149QUE;

(vii) the amount payable by means of a CREST payment on settlement of the USE Instruction. This must be the full amount payable on application for the number of New Ordinary Shares referred to in (i) above; (viii) the intended settlement date. This must be on or before 11.00 a.m. on 9 September; and (ix) the Corporate Action Number for the Open Offer. This will be available by viewing the relevant corporate action details in CREST.

In order for an application under the Open Offer to be valid, the USE Instruction must comply with the requirements as to authentication and contents set out above and must settle on or before 11.00 a.m. on 9 September.
89

In order to assist prompt settlement of the USE Instruction, CREST members (or their sponsors, where applicable) may consider adding the following non-mandatory fields to the USE Instruction: (i) (ii) a contact name and telephone number (in the free format shared note field); and a priority of at least 80.
AIII 5.1.5

In the event that the Placing and Open Offer does not become unconditional by 8.00 a.m. on 16 September 2010 or such later time and date as the Company and Liberum Capital may agree (and notified to Shareholders), the Placing and Open Offer will lapse, the Open Offer Entitlements admitted to CREST will be disabled and Capita Registrars will refund the amount paid by a Qualifying CREST Open Offer Shareholder by way of a CREST payment, without interest, as soon as practicable thereafter. The interest earned on such monies will be retained for the benefit of the Company. (e) Deposit of Open Offer Entitlements into, and withdrawal from, CREST A Qualifying Certificated Open Offer Shareholders entitlement under the Open Offer as shown by the number of Open Offer Entitlements in his Application Form may be converted into Open Offer Entitlements that are deposited into CREST (either into the account of the Qualifying Certificated Open Offer Shareholder named in the Application Form or into the name of a person entitled by virtue of a bona fide market claim). Similarly, Open Offer Entitlements held in CREST may be withdrawn from CREST so that the entitlement under the Open Offer is reflected in an Application Form. Normal CREST procedures (including timings) apply in relation to any such deposit or withdrawal, subject (in the case of a deposit into CREST) as set out in the Application Form. If you are the registered holder(s) of the Existing Ordinary Shares set out in Box 4 of the Application Form, Box 11 which is entitled CREST Deposit Form should be completed and then the Application Form deposited with the CREST Courier and Sorting Service. In addition, the normal CREST stock deposit procedures will need to be carried out, except that (a) it will not be necessary to complete and lodge a separate CREST transfer form (as prescribed under the Stock Transfer Act 1963) with the CREST Courier and Sorting Service and (b) only the total number of Open Offer Entitlements shown in Box 5 of the Application Form may be deposited into CREST. If you are entitled to the Open Offer Entitlements shown in Box 5 of the Application by virtue of a bona fide market claim, the declaration in Box 8 of the Application Form must have been completed or (in the case of an Application Form which may have been split) marked Declaration of sale duly made, and then the CREST Deposit Form in Box 11 must be completed and deposited with the CREST Courier and Sorting Service in accordance with the instructions above. A holder of more than one Application Form who wishes to deposit the Open Offer Entitlements shown on those Application Forms into CREST must complete Box 11 of each Application Form. A holder of an Application Form who is proposing to deposit the entitlement set out in such form into CREST is recommended to ensure that the deposit procedures are implemented in sufficient time to enable the person holding or acquiring the Open Offer Entitlements following their deposit into CREST to take all necessary steps in connection with taking up the entitlement prior to 11.00 a.m. on 9 September 2010. In particular, having regard to normal processing times in CREST and on the part of the Receiving Agent, the recommended latest time for depositing an Application Form with the CREST Courier and Sorting Service, where the person entitled wishes to convert the entitlement under the Open Offer set out in such Application Form into Open Offer Entitlements in CREST, is 3.00 p.m. on 6 September 2010 and the recommended latest time for receipt by Euroclear of a dematerialised instruction requesting withdrawal of Open Offer Entitlements from CREST is 4.30 p.m. on 3 September 2010 in either case so as to
90

enable the person acquiring or (as appropriate) holding the Open Offer Entitlements following the conversion or withdrawal (whether as shown in an Application Form or held in CREST) to take all necessary steps in connection with applying in respect of the Open Offer Entitlements, as the case may be, prior to 11.00 a.m. on 9 September 2010. Delivery of an Application Form with the CREST deposit form duly completed whether in respect of a deposit into the account of the Qualifying Certificated Open Offer Shareholder named in the Application Form or into the name of another person, shall constitute a representation and warranty (in addition to and not limiting any other representation or warranty) to the Company and the Receiving Agent by the relevant CREST member(s) that it/they is/are not in breach of any of the representations, warranties, acknowledgements and confirmations on page 2 of the Application Form or the provisions of the notes under the paragraph headed Instructions for depositing entitlements under the Open Offer into CREST on page 3 of the Application Form, and a declaration to the Company and the Receiving Agent from the relevant CREST member(s) that, subject to certain exceptions, in the Companys sole and absolute discretion, it/they is/are not in or citizen(s) or resident(s) of any Excluded Territory or any jurisdiction in which the application for New Ordinary Shares is prevented by law, and, where such deposit is made by a beneficiary of a market claim, a representation and warranty that the relevant CREST member(s) is/are entitled to apply under the Open Offer by virtue of a bona fide market claim. (f) Validity of application A USE Instruction complying with the requirements as to authentication and contents set out above which settles by no later than 11.00 a.m. on 9 September 2010 will constitute a valid application under the Open Offer. CREST procedures and timings Qualifying CREST Open Offer Shareholders and (where applicable) their CREST sponsors should note that Euroclear does not make available special procedures in CREST for any particular corporate action. Normal system timings and limitations will therefore apply in relation to the input of a USE Instruction and its settlement in connection with the Open Offer. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST sponsored member, to procure that his CREST sponsor takes) such action as shall be necessary to ensure that a valid application is made as stated above by 11.00 a.m. on 9 September 2010. In this connection CREST members and (where applicable) their CREST sponsors are referred in particular to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. Incorrect or incomplete applications If a USE Instruction includes a CREST payment for an incorrect sum, the Company, through the Receiving Agent, reserves the right: (i) (ii) to reject the application in full and refund the payment to the CREST member in question (without interest); in the case that an insufficient sum is paid, to treat the application as a valid application for such lesser whole number of New Ordinary Shares as would be able to be applied for with that payment at the Offer Price, refunding any unutilised sum to the CREST member in question (without interest); and
AIII 5.1.5

(g)

(h)

(iii) in the case that an excess sum is paid, to treat the application as a valid application for all the New Ordinary Shares referred to in the USE Instruction, refunding any unutilised sum to the CREST member in question (without interest).

91

(i)

Effect of valid application A Qualifying CREST Open Offer Shareholder who makes or is treated as making a valid application in accordance with the above procedures thereby: (i) represents and warrants that he has the right, power and authority, and has taken all action necessary, to make the application under the Open Offer and to execute, deliver and exercise his rights, and perform his obligations, under any contracts resulting therefrom and that he is not a person otherwise prevented by legal or regulatory restrictions from applying for New Ordinary Shares or acting on behalf of any such person on a non-discretionary basis; agrees to pay the amount payable on application in accordance with the above procedures by means of a CREST payment in accordance with the CREST payment arrangements (it being acknowledged that the payment to Capita Registrars payment bank in accordance with the CREST payment arrangements shall, to the extent of the payment, discharge in full the obligation of the CREST member to pay to the Company the amount payable on application);

(ii)

(iii) agrees that all applications under the Open Offer and contracts resulting therefrom shall be governed by, and construed in accordance with, the laws of England; (iv) confirms that in making the application he is not relying on any information or representation in relation to the Company other than that contained in this Prospectus, and the applicant accordingly agrees that no person responsible solely or jointly for this Prospectus or any part thereof, or involved in the preparation thereof, shall have any liability for any such information or representation not so contained and further agrees that, having had the opportunity to read this Prospectus, he will be deemed to have had notice of all the information in relation to the Company contained in this Prospectus (including information incorporated by reference); confirms that no person has been authorised to give any information or to make any representation concerning the Company or its subsidiaries or the New Ordinary Shares (other than as contained in this Prospectus) and, if given or made, any such other information or representation should not be relied upon as having been authorised by the Company; represents and warrants that he is the Qualifying CREST Open Offer Shareholder originally entitled to the Open Offer Entitlements or that he has received such Open Offer Entitlements by virtue of a bona fide market claim;

(v)

(vi)

(vii) represents and warrants that if he has received some or all of his Open Offer Entitlements from a person other than the Company, he is entitled to apply under the Open Offer in relation to such Open Offer Entitlements by virtue of a bona fide market claim; (viii) requests that the New Ordinary Shares to which he will become entitled be issued to him on the terms set out in this Prospectus, subject to the Revised Articles; (ix) represents and warrants to the Company that he is not, nor is he applying on behalf of any person, a citizen or resident, or which is a corporation, partnership or other entity created or organised in or under any laws, of any Excluded Territory or any jurisdiction in which the application for New Ordinary Shares is prevented by law and he is not applying with a view to re-offering, re-selling, transferring or delivering any of the New Ordinary Shares which are the subject of his application in any Excluded Territory or to, or for the benefit of, a person who is a citizen or resident, or which is a corporation, partnership or other entity created or organised in or under any laws, of any Excluded Territory or any jurisdiction in which the application for New Ordinary Shares is prevented by law, nor acting on behalf of any such person on a non-discretionary basis nor is he a person otherwise prevented by legal or
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regulatory restrictions from applying for New Ordinary Shares under the Open Offer nor acting on behalf of any such person on a non-discretionary basis (except where proof satisfactory to the Company, in its sole and absolute discretion, has been provided to the Company that he is able to accept the invitation by the Company free of any requirement which the Company, in its sole and absolute discretion, regards as unduly burdensome); (x) represents and warrants to the Company that (1) it is not a US Person, is not located within the United States and is not acquiring the Open Offer Entitlements or the New Ordinary Shares for the account or benefit of a US Person; (2) it is acquiring the Open Offer Entitlements or the New Ordinary Shares in an offshore transaction meeting the requirements of Regulation S; (3) it is acquiring the Open Offer Entitlements or the New Ordinary Shares for its own account or for one or more investment accounts for which it is acting as a fiduciary or agent, in each case for investment only, and not with a view to or for sale or other transfer in connection with any distribution of the Shares in any manner that would violate the US Securities Act, the US Investment Company Act or any other applicable securities laws; (4) it understands and acknowledges that the Open Offer Entitlements and the New Ordinary Shares have not been and will not be registered under the US Securities Act or with any securities regulatory authority of any state or other jurisdiction of the United States and may not be offered, sold, resold, taken up, exercised, renounced, transferred, delivered or distributed, directly or indirectly, into or within the United States or to, or for the account or benefit of, US Persons; and (5) it understands and acknowledges that the Company has not registered and will not register as an investment company under the US Investment Company Act; represents and warrants to the Company that no portion of the assets used to purchase, and no portion of the assets used to hold, the New Ordinary Shares or any beneficial interest therein constitutes or will constitute the assets of (1) an employee benefit plan as defined in Section 3(3) of ERISA that is subject to Title I of ERISA; (2) a plan as defined in Section 4975 of the US Tax Code, including an individual retirement account or other arrangement that is subject to Section 4975 of the US Tax Code; or (3) an entity which is deemed to hold the assets of any of the foregoing types of plans, accounts or arrangements that is subject to Title I of ERISA or Section 4975 of the US Tax Code. In addition, if an investor is a governmental, church, nonUS or other employee benefit plan that is subject to any federal, state, local or nonUS law that is substantially similar to the provisions of Title I of ERISA or Section 4975 of the US Tax Code, its purchase, holding, and disposition of the Shares must not constitute or result in a non-exempt violation of any such substantially similar law;
AIII 4.8

(xi)

(xii) understands and acknowledges that the Company reserves the right to make inquiries of any holder of the New Ordinary Shares or interests therein at any time as to such persons status under the federal US securities laws and to require any such person that has not satisfied the Company that the holding by such person will not violate or require registration under the US securities laws to transfer such Placing Shares or interests in accordance with the Articles; (xiii) represents and warrants to the Company that (1) it has received (outside the United States), carefully read and understands the Prospectus, and (2) it has not, directly or indirectly, distributed, forwarded, transferred or otherwise transmitted the Prospectus (or any part thereof) or any other presentation or offering materials concerning the Shares to or within the United States or to any US Person, nor will it do any of the foregoing; (xiv) represents and warrants to the Company that (1) at the time the New Ordinary Shares are acquired, it is not an affiliate of the Company or a person acting on behalf of such an affiliate, and (2) it is not acquiring the New Ordinary Shares for the account or benefit of an affiliate of the Company or of a person acting on behalf of such an affiliate;
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(xv) represents and warrants to the Company that if in the future it decides to offer, sell, transfer, assign or otherwise dispose of the New Ordinary Shares, it will do so only (1) in an offshore transaction complying with the provisions of Regulation S under the US Securities Act to a person outside the United States and not known by the transferor to be a US Person, by pre-arrangement or otherwise, or (2) to the Company or a subsidiary thereof. It understands and acknowledges that any sale, transfer, assignment, pledge or other disposal made other than in compliance with the above stated restrictions will be subject to the compulsory transfer provisions as provided in the Articles (xvi) represents and warrants to the Company that, if it is acquiring any Shares as a fiduciary or agent for one or more accounts, it has sole investment discretion with respect to each such account and full power and authority to make such foregoing representations, warranties, acknowledgements and agreements on behalf of each such account; and (xvii) understands and acknowledges that the Company, Liberum Capital, their directors, officers, agents, employees, advisers and others will rely upon the truth and accuracy of the foregoing representations, warranties, acknowledgments and agreements. If any of the representations, warranties, acknowledgments or agreements made by it are no longer accurate or have not been complied with, it will immediately notify the Company. (j) Companys discretion as to the rejection and validity of applications The Company may in its sole discretion: (i) treat as valid (and binding on the CREST member concerned) an application which does not comply in all respects with the requirements as to validity set out or referred to in this Part IV Terms and Conditions of the Open Offer; accept an alternative properly authenticated dematerialised instruction from a CREST member or (where applicable) a CREST sponsor as constituting a valid application in substitution for or in addition to a USE Instruction and subject to such further terms and conditions as the Company may determine;

(ii)

(iii) treat a properly authenticated dematerialised instruction (in this sub-paragraph the first instruction) as not constituting a valid application if, at the time at which the Receiving Agent receives a properly authenticated dematerialised instruction giving details of the first instruction or thereafter, either the Company, the Receiving Agent or the Registrar has received actual notice from Euroclear of any of the matters specified in Regulation 35(5)(a) of the CREST Regulations in relation to the first instruction. These matters include notice that any information contained in the first instruction was incorrect or notice of lack of authority to send the first instruction; and (iv) accept an alternative instruction or notification from a CREST member or CREST sponsored member or (where applicable) a CREST sponsor, or extend the time for settlement of a USE Instruction or any alternative instruction or notification, in the event that, for reasons or due to circumstances outside the control of any CREST member or CREST sponsored member or (where applicable) CREST sponsor, the CREST member or CREST sponsored member is unable validly to apply for New Ordinary Shares by means of the above procedures. In normal circumstances, this discretion is only likely to be exercised in the event of any interruption, failure or breakdown of CREST (or any part of CREST) or on the part of the facilities and/or systems operated by Capita Registrars in connection with CREST.

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(k)

Lapse of the Open Offer In the event that the Placing and Open Offer does not become unconditional by 8.00 a.m. on 16 September 2010 or such later time and date as the Company and Liberum Capital may agree, the Placing and Open Offer will lapse, the Open Offer Entitlements admitted to CREST will be disabled and Capita Registrars will refund the amount paid by a Qualifying CREST Open Offer Shareholder by way of a CREST payment, without interest, as soon as practicable thereafter. The interest earned on such monies, if any, will be retained for the benefit of the Company.

AIII 5.1.5

5. 5.1

Money laundering regulations UK Money Laundering Regulations Pursuant to the UK Money Laundering Regulations 2007 and the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law, 1999 (as amended) and regulations made thereunder, Capita Registrars may be required to check the identity of persons who subscribe for New Ordinary Shares. Capita Registrars may therefore undertake electronic searches for the purposes of verifying the identity of the person by whom or on whose behalf an Application Form is lodged with payment. To do so Capita Registrars may verify the details against the applicants identity, but also may request further proof of identity. Capita Registrars reserves the right to withhold any entitlement (including any refund cheque) until verification of the applicants identity is completed to its satisfaction. If an Application Form is submitted by a UK regulated broker or intermediary acting as agent and which is itself subject to the UK Money Laundering Regulations 2007, any verification of identity requirements are the responsibility of such broker or intermediary and not of the Receiving Agent. In such case, the lodging agents stamp should be inserted on the Application Form. The person (the acceptor) who, by lodging the Application Form with payment and in accordance with the other terms as described above, accepts the Open Offer in respect of such number of New Ordinary Shares as is referred to in it (the relevant New Ordinary Shares) will be deemed to agree to provide the Receiving Agent with such information and other evidence as the Receiving Agent may require to satisfy the verification of identity requirements. If the verification of identity requirements apply, failure to provide the necessary evidence of identity within a reasonable time may result in delays in the despatch of share certificates or in crediting CREST accounts. If following a request for verification of identity the Receiving Agent has not received evidence satisfactory to it, the Company may treat the relevant application as invalid, in which event the monies payable on acceptance of the Open Offer will be returned (at the acceptors risk) without interest to the account of the bank or building society on which the relevant cheque or bankers draft was drawn. The verification of identity requirements will not usually apply if: 5.4.1 the acceptor is an organisation required to comply with the Third Money Laundering Directive (the Council Directive on the prevention of the use of the financial system for the purpose of money laundering and terrorist activity no. 2005/60/EC); 5.4.2 the acceptor (not being an acceptor who delivers his acceptance in person) makes payment by way of a cheque drawn on an account in the name of such acceptor; or 5.4.3 the aggregate subscription price for the relevant New Ordinary Shares is less than 15,000.

5.2

5.3

5.4

5.5

In other cases, the verification of identity requirements may apply. Satisfaction of these requirements may be facilitated in the following ways: 5.5.1 if payment is made by bank or building society cheque (not being a cheque drawn on an account of the acceptor) or bankers draft, by the building society or bank endorsing on the cheque or draft the acceptors full name and the number of an account held in the acceptors name at such bank or building society, such endorsement being validated by a stamp and an authorised signature; and

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5.5.2 if an Application Form is lodged with payment by an agent which is an organisation of the kind referred to in paragraph 5.5.1 above or which is subject to anti-money laundering regulations in a country which is a member of the Financial Action Task Force (the non-European Union members of which are Argentina, Australia, Brazil, Canada, China, Gibraltar, the Gulf-Co-operation Council, Hong Kong, Iceland, Japan, Korea, Mexico, New Zealand, Norway, Russian Federation, Singapore, South Africa, Switzerland, Turkey and the United States), the agent should provide written confirmation that it has that status with the Application Form and written assurance that it has obtained and recorded evidence of the identity of the person for whom it acts and that it will on demand make such evidence available to the Receiving Agents and/or any relevant regulatory or investigatory authority. 5.6 5.7 In order to confirm the acceptability of any written assurance referred to in paragraph 5.5.2 above, or in any other case, the acceptor should contact the Receiving Agents. If the Application Form is in respect of New Ordinary Shares with an aggregate subscription price of 15,000 or more and is/are lodged by hand by the acceptor in person, or if the Application Form in respect of New Ordinary Shares is lodged by hand by the acceptor and the accompanying payment is not the acceptors own cheque, he should ensure that he has with him evidence of identity bearing his photograph (for example, his original passport) and separate evidence of his address (such as an original utility bill).

Open Offer Entitlements in CREST 5.8 If you hold your Open Offer Entitlements in CREST and apply for New Ordinary Shares in respect of all or some of your Open Offer Entitlement as agent for one or more persons and you are not a UK or EU regulated person or institution (e.g. a UK financial institution), then, irrespective of the value of the application, Capita Registrars is obliged to take reasonable measures to establish the identity of the person or persons on whose behalf you are making the application. You must therefore contact Capita Registrars before sending any USE or other instruction so that appropriate measures may be taken. 5.9 Submission of a USE Instruction which on its settlement constitutes a valid application as described above constitutes a warranty and undertaking by the applicant to provide promptly to Capita Registrars such information as may be specified by Capita Registrars as being required for the purposes of the UK money laundering regulations. Pending the provision of evidence satisfactory to Capita Registrars as to identity, Capita Registrars may in its absolute discretion take, or omit to take, such action as it may determine to prevent or delay issue of the New Ordinary Shares concerned. If satisfactory evidence of identity has not been provided within a reasonable time, then the application for the New Ordinary Shares represented by the USE Instruction will not be valid, without prejudice to the right of the Company to undertake proceedings to recover monies in respect of the loss suffered by it as a result of failure to provide satisfactory evidence.

6. Overseas Shareholders The comments set out in this paragraph 6 are intended as a general guide only and any Overseas Shareholders who are in any doubt as to their position should consult their professional advisers without delay. 6.1 General The distribution of this Prospectus and the making of the Open Offer to persons who have registered addresses in, or who are resident or ordinarily resident in, or citizens of, or which are corporations, partnerships or other entities created or organised under the laws of countries other than the United Kingdom or to persons who are nominees of or custodians, trustees or guardians for residents in or citizens of, countries other than the United Kingdom may be affected by the laws or regulatory requirements of the relevant jurisdictions. Those persons should consult their professional advisers as to whether they require any governmental or other consent or need to observe any applicable legal requirement or other formalities to enable them to apply for New Ordinary Shares under the Open Offer.
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AIII 4.8

No action has been or will be taken by the Company to permit a public offering or distribution of this Prospectus (or any other offering or publicity materials or Application Form relating to the New Ordinary Shares) in any jurisdiction where action for that purpose may be required, other than in the United Kingdom. Receipt of this Prospectus and/or Application Form and/or credits of Open Offer Entitlements to a stock account in CREST will not constitute an invitation or offer of securities for subscription, sale or purchase in those jurisdictions in which it would be illegal to make such an invitation or offer and, in those circumstances, this Prospectus and/or the Application Form and/or credits of Open Offer Entitlements to a stock amount in CREST must be treated as sent for information only and should not be copied or redistributed. The Application Form will not be sent to, and Open Offer Entitlements will not be credited to stock accounts in CREST of, persons with registered addresses in any Excluded Territory or their agent or intermediary, except where the Company is satisfied, in its sole and absolute discretion, that such action would not result in the contravention of any registration or other legal requirement in any jurisdiction. No person receiving a copy of this Prospectus and/or the Application Form and/or a credit of Open Offer Entitlements to a stock account in CREST in any territory other than the United Kingdom may treat the same as constituting an invitation or offer to him or her, nor should he or she in any event use any such Application Form(s) and/or credit of Open Offer Entitlements to a stock account in CREST unless, in the relevant territory, such an invitation or offer could lawfully be made to him or her and such Application Form and/or credit of Open Offer Entitlements to a stock account in CREST could lawfully be used, and any transaction resulting from such use could be effected, without contravention of any registration or other legal or regulatory requirements. In circumstances where an invitation or offer would contravene any registration or other legal or regulatory requirements, this Prospectus and/or the Application Form and/or credits of Open Offer Entitlements to a stock account in CREST must be treated as sent for information only and should not be copied or redistributed. It is the responsibility of any person (including, without limitation, custodians, agents, nominees and trustees) outside the United Kingdom wishing to apply for New Ordinary Shares under the Open Offer to satisfy himself or herself as to the full observance of the applicable laws of any relevant territory in connection therewith, including obtaining any governmental or other consents that may be required, observing any other formalities required to be observed in such territory and paying any issue, transfer or other taxes due in such territory. None of the Company nor any of their respective representatives makes any representation to any offeree or purchaser of the New Ordinary Shares regarding the legality of such an investment in the New Ordinary Shares by such offeree or purchaser under the laws applicable to such offeree or purchaser. Persons (including, without limitation, custodians, agents, nominees and trustees) receiving a copy of this Prospectus and/or the Application Form and/or a credit of Open Offer Entitlements to a stock account in CREST, in connection with the Open Offer or otherwise, should not distribute or send any of those documents nor transfer Open Offer Entitlements in or into any jurisdiction where to do so would or might contravene local securities laws or regulations. If a copy of this Prospectus and/or the Application Form and/or a credit of Open Offer Entitlements to a stock account in CREST is received by any person in any such territory, or by his or her custodian, agent, nominee or trustee, he or she must not seek to apply for New Ordinary Shares unless the Company, in its sole and absolute discretion, is satisfied that such action would not violate applicable legal or regulatory requirements. Any person (including, without limitation, custodians, agents, nominees and trustees) who does forward a copy of this Prospectus and/or the Application Form and/or transfers Open Offer Entitlements into any such territory, whether pursuant to a contractual or legal obligation or otherwise, should draw the attention of the recipient to the contents of this Part IV and specifically the contents of this section 6.

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Any person (including, without limitation, custodians, agents, nominees and trustees) outside the United Kingdom wishing to apply for New Ordinary Shares must satisfy himself or herself as to the full observance of the applicable laws of any relevant territory, including obtaining any requisite governmental or other consents, observing any other requisite formalities and paying any issue, transfer or other taxes due in such territories. The Company reserves the right to treat as invalid any application or purported application for New Ordinary Shares that appears to the Company or its agents to have been executed, effected or dispatched from an Excluded Territory or in a manner that may involve a breach of the laws or regulations of any jurisdiction or if the Company or its agents believe that the same may violate applicable legal or regulatory requirements or if it provides an address for delivery of the certificates of New Ordinary Shares or in the case of a credit of Open Offer Entitlements to a stock account in CREST, to a CREST member whose registered address would be in an Excluded Territory, or any other jurisdiction outside the United Kingdom in which it would be unlawful to deliver such share certificates or make such a credit. Notwithstanding any other provision of this Prospectus or the Application Form, the Company reserves the right to permit any person to apply for New Ordinary Shares if the Company, in its sole and absolute discretion, is satisfied that the transaction in question is exempt from, or not subject to, the legislation or regulations giving rise to the restrictions in question. Overseas Shareholders who wish, and are permitted, to apply for New Ordinary Shares should note that payment must be made in Euro denominated cheques or bankers drafts. 6.2 Excluded Territories Due to restrictions under the securities laws of the Excluded Territories, and subject to certain limited exceptions, Restricted Shareholders will not qualify to participate in the Open Offer and will not be sent the Application Form nor will their stock accounts in CREST be credited with Open Offer Entitlements. The New Ordinary Shares have not been and will not be registered under the relevant laws of any Excluded Territory or any state, province or territory thereof and may not be offered, sold, resold, delivered or distributed, directly or indirectly, in or into any Excluded Territory or to, or for the account or benefit of, any person with a registered address in, or who is resident or ordinarily resident in, or a citizen of, any Excluded Territory except pursuant to an applicable exemption. No offer of New Ordinary Shares is being made by virtue of this Prospectus or the Application Form into any Excluded Territory or to any Restricted Shareholders. 6.3 Restrictions relating to US Persons and persons within the United States or any other Excluded Territory The Open Offer Entitlements and the New Ordinary Shares have not been and will not be registered under the US Securities Act, or under any securities laws of any state or other jurisdiction of the United States. The Open Offer Entitlements and the New Ordinary Shares may not be offered, sold, resold, taken up, exercised, renounced, transferred, delivered or distributed, directly or indirectly, into or within the United States or to, or for the account or benefit of, US Persons. The Open Offer Entitlements and the New Ordinary Shares are being offered and sold only outside the United States to non-US Persons in offshore transactions in accordance with and in reliance on the exemption from the registration requirements of the US Securities Act provided by Regulation S thereunder. There will be no public offer of the Open Offer Entitlements or the New Ordinary Shares in the United States. The Company has not been and will not be registered under the US Investment Company Act and, as such, investors will not be entitled to the benefits of the US Investment Company Act. This Prospectus does not constitute or form part of an offer to sell or issue, or a solicitation of an offer to purchase or subscribe for, Open Offer Entitlements or New Ordinary Shares to any person to whom or in any jurisdiction in which such an offer, invitation or solicitation is unlawful, including the Excluded Territories. US Persons and persons within the United States or any other
98

Excluded Territory may not take up Open Offer Entitlements or subscribe for or purchase New Ordinary Shares. US Persons and persons within the United States or any other Excluded Territory who obtain a copy of this Prospectus and/or an Application Form and/or credits of Open Offer Entitlements to a stock account in CREST are required to disregard it. 6.4 Other overseas territories Application Forms will be sent to Qualifying Certificated Open Offer Shareholders, and Open Offer Entitlements will be credited to the stock account in CREST of Qualifying CREST Open Offer Shareholders in jurisdictions other than the Excluded Territories. Qualifying Certificated Open Offer Shareholders and Qualifying CREST Open Offer Shareholders in jurisdictions other than the Excluded Territories may, subject to the laws of their relevant jurisdiction, take up New Ordinary Shares under the Open Offer in accordance with the instructions set out in this Prospectus and the Application Form. Qualifying Certificated Open Offer Shareholders or Qualifying CREST Open Offer Shareholders who have registered addresses in, or who are resident or ordinarily resident in, or citizens of, countries other than the United Kingdom should consult appropriate professional advisers as to whether they require any governmental or other consents or need to observe any further formalities to enable them to participate in the Open Offer. 6.5 Representations and warranties relating to Overseas Shareholders (a) Qualifying Certificated Open Offer Shareholders Any person completing and returning an Application Form or requesting registration of the New Ordinary Shares comprised therein (i) makes all the representations and warranties set out in paragraph 4.1(d) of this Part IV and (ii) represents and warrants to the Company and/or Capita Registrars that, except where proof has been provided to the Company and the Company, in its sole and absolute discretion, is satisfied that such persons use of the Application Form will not result in the contravention of any applicable legal requirements in any jurisdiction: (A) such person is not requesting registration of the relevant New Ordinary Shares from within any Excluded Territory; (B) such person is not in any territory in which it is unlawful to make or accept an offer to acquire New Ordinary Shares in respect of the Open Offer or to use the Application Form in any manner in which such person has used or will use it; (C) such person is not acting on a non-discretionary basis for a person located within any Excluded Territory or any territory referred to in (B) above at the time the instruction to accept was given; and (D) such person is not acquiring New Ordinary Shares with a view to the offer, sale, resale, transfer, delivery or distribution, directly or indirectly, of any such New Ordinary Shares into any of the above territories. The Company and/or the Receiving Agent may treat as invalid any acceptance or purported acceptance of the allotment of New Ordinary Shares comprised in an Application Form if it: (i) appears to the Company or its agents to have been executed, effected or dispatched from an Excluded Territory or in a manner that may involve a breach of the laws or regulations of any jurisdiction or if the Company or its agents believe that the same may violate applicable legal or regulatory requirements; or (ii) provides an address in an Excluded Territory for delivery of the share certificates of New Ordinary Shares (or any other jurisdiction outside the United Kingdom in which it would be unlawful to deliver such share certificates); or (iii) purports to exclude the warranty required by this sub-paragraph (a). (b) Qualifying CREST Open Offer Shareholders A CREST member or CREST sponsored member who makes a valid acceptance in accordance with the procedures set out in this Part IV (i) makes all the representations and warranties set out in paragraph 4.2(i) of Part IV of this Prospectus and (ii) represents and warrants to the Company that, except where proof has been provided to the Company and the Company, in its sole and absolute discretion, is satisfied that such persons acceptance will not result in the contravention of any applicable legal requirement in any jurisdiction: (A) he or she is not within any Excluded Territory; (B) he or she is not in any territory in which it is unlawful to make or accept an offer to acquire New Ordinary Shares; (C) he or
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she is not, subject to certain exceptions, acting on a non-discretionary basis for a person located within any Excluded Territory or any territory referred to in (B) above at the time the instruction to accept was given; and (D) he or she is not acquiring any New Ordinary Shares with a view to the offer, sale, resale, transfer, delivery or distribution, directly or indirectly, of any such New Ordinary Shares into any of the above territories. 6.6 Waiver The provisions of this paragraph 6 and of any other terms of the Open Offer relating to Overseas Shareholders may be waived, varied or modified as regards specific Shareholders or on a general basis by the Company in their absolute discretion (but subject to the terms of the Placing and Open Offer Agreement). Subject to this, the provisions of this paragraph 6 supersede any terms of the Open Offer inconsistent herewith. References in this paragraph 6 to Shareholders shall include references to the person or persons executing an Application Form and, in the event of more than one person executing an Application Form the provisions of this paragraph 6 shall apply to them jointly and to each of them.

7. Withdrawal rights Qualifying Open Offer Shareholders wishing to exercise or direct the exercise of statutory withdrawal rights pursuant to section 87Q(4) of FSMA after the issue by the Company of a Supplement to the Prospectus must do so by lodging a written notice of withdrawal within two Business Days commencing on the Business Day after the date on which the Supplement to the Prospectus is published. The withdrawal notice must include the full name and address of the person wishing to exercise statutory withdrawal rights and, if such person is a CREST member, the participant ID and the member account ID of such CREST member. The notice of withdrawal must be deposited by post or by hand (during normal business hours only) with Capita Registrars, Corporate Actions, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU (please call the Receiving Agent on 0871 664 0321 from within the UK or on + 44 20 8639 3399 if calling from outside the UK) or emailed to Capita Registrars at the following address: withdraw@capitaregistrars.com (Subject: Queens Walk Investment Limited). Calls to the 0871 664 0321 number cost 10 pence per minute from a BT landline. Other network providers costs may vary. Lines are open 9.00 a.m. to 5.00 p.m. (London time) Monday to Friday (except UK public holidays). Calls to the helpline from outside the UK will be charged at the applicable international rate. Different charges may apply to calls from mobile telephones and calls may be recorded and randomly monitored for security and training purposes. The helpline cannot provide advice on the merits of the Proposals nor give any financial, legal or tax advice. The Company will not permit the exercise of withdrawal rights after payment by the relevant person for the New Ordinary Shares in full and the allotment of such New Ordinary Shares to such person becoming unconditional save to the extent required by statute. In such event, such persons are advised to seek independent legal advice. 8. Admission, settlement and dealings The result of the Open Offer is expected to be announced on 15 September 2010 through a RIS and on the Companys website. Applications will be made to the UK Listing Authority for the New Ordinary Shares to be admitted to the Official List and to trading on the London Stock Exchanges main market for listed securities. It is expected that Open Offer Admission will become effective and that the listing of the New Ordinary Shares will commence at 8.00 a.m. on 16 September 2010. The Existing Ordinary Shares are already admitted to CREST. No further application for admission to CREST is accordingly required for the New Ordinary Shares. All such shares, when issued and fully paid, may be held and transferred by means of CREST. Open Offer Entitlements held in CREST are expected to be disabled in all respects after 11.00 a.m. on 9 September 2010 (the latest date for applications under the Open Offer). If the conditions to the Open Offer described above are satisfied, New Ordinary Shares will be issued to those persons who submitted a valid application for New Ordinary Shares by utilising the CREST application procedures and whose applications have been accepted by the Company. On 16 September 2010, the Registrar will instruct
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AIII 5.1.7

Euroclear to credit the appropriate stock accounts of such persons with such persons entitlements to New Ordinary Shares with effect from Open Offer Admission (expected to be 16 September 2010). The stock accounts to be credited will be accounts under the same CREST participant IDs and CREST member account IDs in respect of which the USE Instruction was given. Notwithstanding any other provision of this Prospectus, the Company reserves the right to send Qualifying CREST Open Offer Shareholders a form of application instead of crediting the relevant stock account with Open Offer Entitlements, and to allot and/or issue any New Ordinary Shares in certificated form. In normal circumstances, this right is only likely to be exercised in the event of any interruption, failure or breakdown of CREST (or of any part of CREST) or on the part of the facilities and/or systems operated by Capita Registrars in connection with CREST. For Qualifying Certificated Open Offer Shareholders who have applied by using the Application Form, certificates in respect of the New Ordinary Shares validly applied for are expected to be dispatched by post by 23 September 2010. No temporary documents of title will be issued in respect of shares held in certificated form and, pending the issue of definitive certificates, transfers will be certified against the share register of the Company. All documents or remittances sent by or to applicants, or as they may direct, will be sent through the post at their own risk. For more information as to the procedure for application, Qualifying Certificated Open Offer Shareholders are referred to paragraph 4.1 above and their Application Form. 9. Times and dates The Company shall, in agreement with Liberum Capital and after consultation with its financial and legal advisers, be entitled to amend or extend the latest date for acceptance under the Open Offer and all related dates set out in this Prospectus (subject to the long-stop date being Admission taking place no later than 1 October 2010 as set out in the Placing and Open Offer Agreement) and in such circumstances shall notify the UK Listing Authority, and make an announcement on a RIS but Qualifying Open Offer Shareholders may not receive any further written communication in addition to such announcement. If a Supplement to the Prospectus is issued by the Company two or fewer Business Days prior to the latest time and date for acceptance and payment in full under the Open Offer specified in this Prospectus, the latest date for acceptance under the Open Offer shall be extended to the date that is three Business Days after the date of issue of the Supplement to the Prospectus (and the dates and times of principal events due to take place following such date shall be extended accordingly). 10. Governing law and jurisdiction The terms and conditions of the Placing and Open Offer and any non-contractual obligations arising out of or in relation to the Placing and Open Offer as set out in this Prospectus, the Application Form and any non-contractual obligation related thereto shall be governed by, and construed in accordance with, English law. The courts of England and Wales are to have exclusive jurisdiction to settle any dispute which may arise out of or in connection with the Placing and Open Offer, this Prospectus and the Application Form (including any dispute relating to any non-contractual obligations arising out of or in connection with them). By taking up their Open Offer Entitlement in accordance with the instructions set out in this Prospectus and, where applicable, the Application Form, Qualifying Certificated Open Offer Shareholders and Qualifying CREST Open Offer Shareholders irrevocably submit to the jurisdiction of the courts of England and Wales and waive any objection to proceedings in any such court on the ground of venue or on the ground that proceedings have been brought in an inconvenient forum. 11. Taxation Certain statements regarding Guernsey and United Kingdom taxation in respect of the New Ordinary Shares and Preference Shares are set out in Part VII of this Prospectus. Shareholders who are in any doubt as to their tax position in relation to taking up their entitlements under the Open Offer, Placing and/or Bonus Issue or who are subject to tax in any jurisdiction other than Guernsey or the United Kingdom should immediately consult a suitable professional tax adviser.
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12. Further information Your attention is drawn to the further information set out in this Prospectus and also, in the case of Qualifying Certificated Open Offer Shareholders and other Shareholders to whom the Company has sent an Application Form, to the terms, conditions and other information printed on the accompanying Application Form.

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PART V TERMS AND CONDITIONS OF THE PREFERENCE SHARES


The following summary of the rights attaching to the Preference Shares will be included in the Revised Articles, subject to the approval by Ordinary Shareholders at the EGM of the relevant Required Resolution. Rights as to income The holders of Preference Shares shall be entitled to be paid a fixed cumulative preferential dividend at the rate of eight pence per Preference Share per annum (the Preference Dividend). The Preference Dividend shall be payable in priority to any payment to the holders of any other Shares of the Company. The Preference Dividend shall accrue from day to day and shall be payable quarterly in arrear in equal amounts on 31 March, 30 June, 30 September and 31 December (or where the relevant payment date is not a Business Day, the first Business Day after such date) in each year (each a Payment Date) in respect of the calendar quarter ending on those days. Notwithstanding any other Payment Date which may arise before such date, the first dividend payment shall be made on 31 December 2010 in respect of the period commencing on and including the date of Bonus Issue Admission and ending on and including that date. Payments of dividends thereafter shall be made as and when the next Payment Date arises. The Company shall pay a further sum to each of the Preference Shareholders on the amount of any Preference Dividend not paid within 14 days of the relevant Payment Date at the rate of 8 per cent. per annum calculated on a daily basis from (but excluding) the Payment Date to (but excluding) the date payment of such amount of the Preference Dividend is made, such further sum to be payable on the date of such payment. Where the Company is unable to pay any part of the Preference Dividend for any legal or regulatory reason with the result that it is unable to pay in full on any Payment Date any Preference Dividend or further sum payable to the Preference Shareholders, the following provisions shall apply: (a) on that Payment Date the Company shall pay to such holders on account of the Preference Dividend and any further sum payable to the Preference Shareholders the maximum sum (if any) which can then, consistently with applicable law and regulation, be paid by the Company; and on every succeeding Payment Date the Company shall pay to such holders on account of the balance of the Preference Dividend for the time being remaining outstanding and any further sum in respect thereof (so far as not already paid), and until such amounts are paid in full, the maximum sum (if any) which on each such succeeding Payment Date respectively can, consistently with applicable law and regulation, be paid by the Company, such sum to be applied first in the payment of any such further sum payable pursuant to the preceding paragraph.

AIII 4.5

AI 21.2.3

(b)

Rights as to capital On a return of capital on liquidation or otherwise (other than by way of repurchase or redemption of Shares in accordance with the Articles and the Companies Law) the assets of the Company available for distribution among the Shareholders shall be applied first in repaying to the Preference Shareholders the sum of 1.00 per Preference Share (the Preference Share Notional Value) together with a sum equal to any arrears and accruals of the Preference Dividend and any further sum payable in respect of the Preference Dividend in each case calculated down to the date of the return of capital and to be payable whether or not such dividend or further sum has been declared or earned (the Repayment Amount). Secondly, the balance of such assets shall belong to and be distributed among the Ordinary Shareholders in proportion to the number of Ordinary Shares held by them.

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Rights as to redemption The Preference Shares shall be issued as redeemable shares within the meaning of the Companies Law. The Preference Shares shall be redeemed by the Company in the following circumstances, in accordance with the terms of, and subject to the conditions set out in, applicable law and regulation including the Companies Law and the Revised Articles: (a) (b) at any time, by way of the purchase of any such Preference Shares by the Company through the facilities of the London Stock Exchange; or upon a change of control of the Company (defined as the acquisition by a single person or persons acting in concert of more than 50 per cent. of the voting rights attached to the Ordinary Shares), but only if a majority of Preference Shareholders attending and voting at a special class meeting of Preference Shareholders (which shall be convened within 60 days of the change of control) so resolve by way of an ordinary resolution, at a price equal to the Repayment Amount; or if more than 75 per cent. of the Preference Shares have been redeemed before the expiration of the seven year period referred to under paragraph (d) below, by way of a mandatory redemption programme launched by the Company at its sole discretion, at a price equal to the higher of (i) the Repayment Amount, or (ii) the average mid-market closing price over the five Business Days prior to the announcement of the launch of such programme; or if not redeemed earlier pursuant to paragraphs (a), (b) or (c) above, on a date that is seven years after their issue at the Repayment Amount.

(c)

(d)

Redeemed Preference Shares shall be cancelled or held in treasury (subject to all applicable legal and regulatory restrictions).
AI 21.2.5

Rights as to voting Subject to the paragraph below, the Preference Shares shall not entitle the holders thereof to vote upon any resolution at any general meeting of the Company but the Preference Shareholders shall be entitled to receive notice of and to attend and speak at any general meeting of the Company. If at any time: (a) (b) the payment of the Preference Dividend on any of the Preference Shares or any part thereof is more than 12 months in arrear; or the redemption of any of the Preference Shares is more than one month overdue;

then in relation to any general meeting held at any time whilst either of the events specified in paragraphs (a) or (b) above remain applicable (or any adjournment thereof) Preference Shareholders shall be entitled to attend and vote at general meetings of the Company in the same way as Ordinary Shareholders. Other rights Further details of the rights attaching to the Preference Shares can be found in the paragraph 4 of Part IX of this Prospectus.

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PART VI BONUS ISSUE ARRANGEMENTS


Persons to whom Preference Shares are issued pursuant to the Bonus Issue and any potential investors in Preference Shares should make themselves aware of the potential risk of capital loss associated with an investment in the Company and that there may be limited liquidity in the underlying investments of the Company, for whom an investment in the Preference Shares is part of a diversified investment programme and who fully understand and are willing to assume the risks involved in such an investment programme. 1. Introduction The Preference Shares will be issued free of subscription cost to Qualifying Bonus Issue Shareholders. Qualifying Bonus Issue Shareholders will, subject to the conditions detailed below, be issued Preference Shares on the basis of 1.25 Preference Shares for every 1 Ordinary Share held as at the Bonus Issue Record Date. Preference Shares issued pursuant to the Bonus Issue will be rounded down to the nearest whole number. Any fractions arising on the issue of the Preference Shares will be disregarded. The application for admission to the Official List in respect of the Preference Shares is an application for a standard listing. The Bonus Issue is conditional on the Required Resolutions being passed and Bonus Issue Admission becoming effective by not later than 8.00 a.m. on 17 September 2010. In the event that there are any significant changes affecting any of the matters described in this Prospectus or where any significant new matters have arisen after the publication of this Prospectus and prior to Bonus Issue Admission, the Company will publish a Supplement to the Prospectus. The Supplement to the Prospectus will give details of the significant change(s) or the significant new matter(s). The issue, offer and sale of the Preference Shares to persons with a registered address in, or who are citizens, residents or nationals of, a jurisdiction other than the United Kingdom may be affected by the laws of the relevant jurisdiction. Those persons should consult their professional advisers as to whether they require any governmental or other consent or need to observe any other formalities to enable them to receive Preference Shares. It is the responsibility of all persons outside the United Kingdom receiving this Prospectus or Preference Shares or wishing to transfer Preference Shares to satisfy themselves as to full observance of the laws of the relevant jurisdiction, including obtaining all necessary governmental or other consents which may be required, observing all other requisite formalities needing to be observed and paying any issue, transfer or other taxes due in such territory. The attention of Overseas Shareholders and any person (including, without limitation, a custodian, nominee or trustee) who has a contractual or other legal obligation to forward this Prospectus or any accompanying document, if and when received, to a jurisdiction other than the United Kingdom is drawn to the section titled Overseas Shareholders in paragraph 5 of this Part VI. In particular, subject to the provisions set out in Overseas Shareholders in paragraph 5 of this Part VI, this Prospectus and any accompanying document will not be made available to Restricted Shareholders and they will not receive Preference Shares. The Investing Fund may seek to dispose of all or part of its holding of Preference Shares on or shortly following Bonus Issue Admission. Please refer to paragraph 10 of Part IX for further details. 2. CREST The Preference Shares will be issued in registered form. The Preference Shares will be eligible for settlement through CREST with effect from Bonus Issue Admission. Preference Shares allocated will be transferred to placees through the CREST system unless otherwise stated. Member firms will be requested to give their CREST settlement details to the Company.

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The Company will arrange for Euroclear to be instructed to credit the appropriate Euroclear accounts of the subscribers concerned or their nominees with their respective entitlements to Preference Shares. The names of subscribers or their nominees that invest through their Euroclear accounts will be entered directly on to the Register. 3. Dealings The Company will apply for admission of the Preference Shares to the Official List and for trading of the Preference Shares on the London Stock Exchanges main market for listed securities under the symbol QWIP. It is expected that the basis of allocation under the Bonus Issue will be announced on 17 September 2010 through a RIS. It is expected that issue of the Preference Shares will take place on 17 September 2010 and that dealings in such Preference Shares will commence on 17 September 2010. Dealings in Preference Shares in advance of the crediting of the relevant stock account shall be at the risk of the person concerned. The ISIN number and SEDOL code for the Preference Shares are GG00B4ZRT175 and B4ZRT17 respectively. 4. Transfer of Preference Shares The transfer of Preference Shares outside the CREST system should be arranged directly through the Registrar. If a Shareholder or transferee requests Preference Shares to be issued in certificated form and is holding such Shares outside CREST, a Share certificate will be despatched either to them or their nominated agent (at their own risk) within 21 days of completion of the registration process or transfer, as the case may be, of the Share. Shareholders holding definitive certificates may elect at a later date to hold their Shares through CREST or in uncertificated form provided they surrender their definitive certificates. The Company has not been and will not be registered under the US Investment Company Act. In addition, the Preference Shares have not been and will not be registered under the US Securities Act or under any securities laws of any state or other jurisdiction of the United States. The Preference Shares may not be offered, sold, resold, taken up, exercised, renounced, transferred, delivered or distributed, directly or indirectly, into or within the United States or to, or for the account or benefit of, US Persons. 5. Overseas Shareholders The comments set out in this Part VI are intended as a general guide only and any Qualifying Bonus Issue Shareholder who is in doubt as to his position should consult his own independent professional adviser without delay. 5.1 General Set out below are restrictions applicable to Shareholders who have registered addresses outside the United Kingdom, who are citizens, residents or nationals of countries other than the United Kingdom, or who are persons (including, without limitation, custodians, nominees and trustees) who have a contractual or other legal obligation to forward this Prospectus or any accompanying document to a jurisdiction outside the United Kingdom or who hold Ordinary Shares for the account or benefit of any such person. No action has been taken or will be taken by the Company or Liberum Capital to permit a public offering or distribution of this Prospectus or any accompanying documents (including the Application Form) in any jurisdiction where action for that purpose may be required other than in the United Kingdom. Certificated Preference Shares have not been and will not be sent to, and entitlements to Preference Shares have not been and will not be credited to CREST accounts of, Restricted Shareholders, or to their agents or intermediaries.
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AIII 4.8

US Persons and persons within the United States who are Shareholders will not be eligible to participate in the Bonus Issue. The Preference Shares may not be accepted, acquired or transferred, and may not be subscribed or purchased by, or for the account or benefit of, US Persons or persons within the United States. Receipt of this Prospectus and/or certificated Preference Shares or the crediting of Preference Shares to a securities account in CREST will not constitute or form part of an offer in or into an Excluded Territory or to, or for the account or benefit of, any US Person. In those circumstances, this Prospectus and/or a certificated Preference Share or the crediting of entitlements to Preference Shares must be treated as sent for information only and should not be copied or redistributed. No person who receives a copy of this Prospectus and/or a certificated Preference Share or a credit of entitlements to Preference Shares to a securities account in CREST in any territory other than the United Kingdom may treat the same as constituting an invitation or offer to him, nor should he in any event trade in certificated Preference Share or deal with Preference Shares in CREST unless, in the relevant territory, such an invitation or offer could lawfully be made to him and the Preference Shares could lawfully be traded or dealt with without contravention of any unfulfilled registration or other legal or regulatory requirements. Accordingly, persons (including, without limitation, custodians, nominees and trustees) receiving a copy of this Prospectus and/or a certificated Preference Share or whose securities accounts in CREST are credited with entitlements to Preference Shares, in connection with the Bonus Issue or otherwise, should not distribute or send the same in or into, or transfer Preference Shares in or into any Excluded Territory or to, or for the account or benefit of, any US Person. If a certificated Preference Share or credit of an entitlement to a Preference Share in CREST is received by any person in any Excluded Territory or any US Person (or by their custodian, nominee or trustee), he must not seek to use Preference Shares, or transfer any Preference Shares (nor may his custodian, nominee or trustee do so on his behalf). Subject to the restrictions set out herein, any person (including, without limitation, nominees, agents and trustees) outside the United Kingdom wishing to receive Preference Shares in connection with the Bonus Issue (or to do so on behalf of someone else) must satisfy himself as to full observance of the applicable laws of any relevant territory including obtaining any requisite governmental or other consents, observing any other requisite formalities and paying any issue, transfer or other taxes due in such territories. The Company reserves the right, in its sole and absolute discretion, to treat as invalid any acceptance or purported acceptance of the Preference Shares that appears to the Company: (i) to have been executed, effected or dispatched from any Excluded Territory or by a US Person, unless the Company is satisfied that such action would not result in the contravention of any registration or other legal requirement in any jurisdiction; to provide an address for delivery of certificates in relation to the Preference Shares in any Excluded Territory or any other jurisdiction in which it would be unlawful to deliver such certificates, unless the Company is satisfied that such action would not result in the contravention of any registration or other legal requirement in any jurisdiction; to involve a potential breach or violation of the securities laws of any jurisdiction; that may be inconsistent with the procedures, terms and conditions set out in this Prospectus; or that purports to exclude or modify any of the representations, warranties, agreements and acknowledgments described under the heading Overseas Shareholders in this Part VI.

(ii)

(iii) (iv) (v)

Notwithstanding any other provision of this Prospectus, the Company reserves the right to permit any Qualifying Bonus Issue Shareholder to take up his rights if the Company in its sole and absolute discretion is satisfied that the transaction in question is exempt from or not subject to the legislation or regulations giving rise to the restrictions in question. If the Company is so satisfied,
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the Company will arrange for the relevant Qualifying Bonus Issue Shareholder to be sent certificated Preference Shares or arrange for entitlements to Preference Shares to be credited to the relevant securities accounts in CREST. The provisions of this Part VI will apply generally to Restricted Shareholders who do not or are unable to receive Preference Shares allotted to them. Accordingly, any allotment to a Restricted Shareholder who does not validly accept the Preference Shares in accordance with this Part VI will be deemed to have been declined and will lapse. 5.2 Excluded Territories Due to restrictions under the securities laws of the Excluded Territories, Restricted Shareholders will not qualify to participate in the Bonus Issue and will not be eligible to receive certificated Preference Shares or have their securities account in CREST credited with entitlements to Preference Shares. The Preference Shares issued pursuant to the Bonus Issue have not been and will not be registered under the relevant laws of any Excluded Territory or any state, province or territory thereof and may not be offered, sold, resold, delivered or distributed, directly or indirectly, in or into any Excluded Territory or to, or for the account or benefit of, any Restricted Shareholders. No offer of Preference Shares is being made by virtue of this Prospectus into any Excluded Territory or any Restricted Shareholder. 5.3 Restrictions relating to persons within the United States and US Persons The Preference Shares have not been and will not be registered under the US Securities Act, or under any securities laws of any state or other jurisdiction of the United States. The Preference Shares may not be offered, sold, resold, taken up, exercised, renounced, transferred, delivered or distributed, directly or indirectly, into or within the United States or to, or for the account or benefit of, US Persons. There will be no public offer of the Preference Shares in the United States. US Persons and persons within the United States will not be eligible to receive the Preference Shares described herein. The Company has not been and will not be registered under the US Investment Company Act and, as such, investors will not be entitled to the benefits of the US Investment Company Act. This Prospectus does not constitute or form part of an offer or invitation to sell or issue, or a solicitation of an offer to purchase or subscribe for, Preference Shares to any person to whom or in any jurisdiction in which such an offer, invitation or solicitation is unlawful, including the Excluded Territories. US Persons and persons within the United States or any other Excluded Territory who obtain a copy of this Prospectus are required to disregard it. Pursuant to the Articles in effect on the date of this Prospectus, the Directors may refuse to register a transfer of Shares or require the sale or transfer of Shares if they have reason to believe that the transferee is a person to whom a transfer of Shares would or could be in breach of the laws or requirements of any jurisdiction or governmental authority or in circumstances (whether directly or indirectly affecting such person, and whether taken alone or in conjunction with other persons, connected or not, or any other circumstances appearing to the Directors to be relevant) which might result in the Company incurring a liability to taxation or suffering a pecuniary, fiscal, administrative or regulatory disadvantage. The Directors will not however exercise this discretion if to do so would prevent dealings in Shares from taking place on an open and proper basis on the London Stock Exchange. 5.4 Representations given by Qualifying Bonus Issue Shareholders Each person to whom the Preference Shares are distributed, offered or sold will be deemed, and each subsequent investor in the Preference Shares will be deemed by its purchase of the Preference Shares, to have represented and agreed as follows (terms used in this paragraph have the same meaning as in Regulation S): (i) it is not a US Person, is not located within the United States and is not acquiring the Preference Shares for the account or benefit of a US Person;
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(ii) (iii)

it is acquiring the Preference Shares in an offshore transaction meeting the requirements of Regulation S under the US Securities Act; it is acquiring the Preference Shares for its own account or for one or more investment accounts for which it is acting as a fiduciary or agent, in each case for investment only, and not with a view to or for sale or other transfer in connection with any distribution of the Preference Shares in any manner that would violate the US Securities Act, the US Investment Company Act or any other applicable securities laws; it understands and acknowledges that the Preference Shares have not been and will not be registered under the US Securities Act or with any securities regulatory authority of any state or other jurisdiction of the United States and may not be offered, sold, resold, taken up, exercised, renounced, transferred, delivered or distributed, directly or indirectly, into or within the United States or to, or for the account or benefit of, US Persons; it understands and acknowledges that the Company has not registered and will not register as an investment company under the US Investment Company Act; no portion of the assets used to purchase, and no portion of the assets used to hold the Preference Shares or any beneficial interest therein constitutes or will constitute the assets of (1) an employee benefit plan as defined in Section 3(3) of ERISA that is subject to Title I of ERISA; (2) a plan as defined in Section 4975 of the US Tax Code, including an individual retirement account or other arrangement that is subject to Section 4975 of the US Tax Code; or (3) an entity which is deemed to hold the assets of any of the foregoing types of plans, accounts or arrangements that is subject to Title I of ERISA or Section 4975 of the US Tax Code. In addition, if an investor is a governmental, church, non-US or other employee benefit plan that is subject to any federal, state, local or non-US law that is substantially similar to the provisions of Title I of ERISA or Section 4975 of the US Tax Code, its purchase, holding, and disposition of the Shares must not constitute or result in a non-exempt violation of any such substantially similar law;

(iv)

(v) (vi)

(vii) it understands and acknowledges that the Company reserves the right to make inquiries of any holder of the Preference Shares or interests therein at any time as to such persons status under the federal US securities laws and to require any such person that has not satisfied the Company that the holding by such person will not violate or require registration under the US securities laws to transfer such Preference Shares or interests in accordance with the Articles; (viii) it represents and warrants to the Company that (1) it has received (outside the United States), carefully read and understands the Prospectus, and (2) it has not, directly or indirectly, distributed, forwarded, transferred or otherwise transmitted the Prospectus (or any part thereof) or any other presentation or offering materials concerning the Preference Shares to or within the United States or to any US Person, nor will it do any of the foregoing; (ix) it represents and warrants to the Company that (1) at the time the Preference Shares are acquired, it is not an affiliate of the Company or a person acting on behalf of such an affiliate, and (ii) it is not acquiring the Preference Shares for the account or benefit of an affiliate of the Company or of a person acting on behalf of such an affiliate; it understands and acknowledges that if any Preference Shares are issued in certificated form, then such certificates evidencing ownership will contain a legend substantially to the following effect unless otherwise determined by the Company in accordance with applicable law: QUEENS WALK INVESTMENT LIMITED (THE COMPANY) HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE US INVESTMENT COMPANY ACT OF 1940, AS AMENDED (THE US INVESTMENT COMPANY ACT). IN ADDITION, THE SECURITIES OF THE COMPANY REPRESENTED BY THIS CERTIFICATE
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(x)

HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE US SECURITIES ACT OF 1933, AS AMENDED (THE US SECURITIES ACT), OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES. ACCORDINGLY, THIS SECURITY MAY NOT BE OFFERED, SOLD, RESOLD, TRANSFERRED, DELIVERED OR DISTRIBUTED, DIRECTLY OR INDIRECTLY, INTO OR WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, US PERSONS (AS DEFINED IN REGULATION S UNDER THE US SECURITIES ACT); (xi) if in the future it decides to offer, sell, transfer, assign or otherwise dispose of the Preference Shares, it will do so only (1) in an offshore transaction complying with the provisions of Regulation S under the US Securities Act to a person outside the United States and not known by the transferor to be a US Person, by pre-arrangement or otherwise, or (2) to the Company or a subsidiary thereof. It understands and acknowledges that any sale, transfer, assignment, pledge or other disposal made other than in compliance with the above stated restrictions will be subject to the compulsory transfer provisions as provided in the Articles;

(xii) it is not acquiring any Preference Shares from within any Excluded Territory and its acceptance of such Preference Shares will not result in the contravention of any applicable legal requirement in any jurisdiction; (xiii) it does not have a registered address in, and is not a citizen, resident or national of, any jurisdiction in which it is unlawful to make or accept an offer of the Preference Shares and it is not acting on a non discretionary basis for any such person; (xiv) the Company, Liberum Capital, their directors, officers, affiliates, agents, employees, advisers and others will rely upon the truth and accuracy of the foregoing representations, warranties, acknowledgements and agreements. If any of the representations, warranties, acknowledgements or agreements made by it are no longer accurate or have not been complied with, it will immediately notify the Company, and if it is acquiring any Preference Shares as a fiduciary or agent for one or more accounts, it has sole investment discretion with respect to each such account and it has full power and authority to make such foregoing representations and agreements on behalf of each such account. 5.5 Waiver The provisions of this section Overseas Shareholders and of any other terms of the Bonus Issue relating to Overseas Shareholders may be waived, varied or modified as regards specific Shareholders or on a general basis by the Company and Liberum Capital in their absolute discretion (but subject to the terms of the Placing and Open Offer Agreement). Subject to this, the provisions of this section Overseas Shareholders supersede any terms of the Bonus Issue inconsistent herewith.

6. Money laundering Pursuant to anti-money laundering laws and regulations with which the Company must comply in the UK and/or Guernsey, the Company and its agents, the Registrar, the Investment Manager and/or Liberum Capital may require evidence in connection with the issue of Preference Shares to Qualifying Bonus Issue Shareholders, including further identification of Qualifying Bonus Issue Shareholders, before any Preference Shares are issued. The Company, the Investment Manager, the Registrar and/or Liberum Capital reserve the right to request such information as is necessary to verify the identity of an investor and (if any) the underlying beneficial owner of Preference Shares issued by the Company. In the event of delay or failure by the Qualifying Bonus Issue Shareholder to produce any information required for verification purposes, the Directors, in consultation with Liberum Capital and the Investment Manager, may refuse to issue Preference Shares to such Qualifying Bonus Issue Shareholder, or refuse the transfer of Preference Shares issued by the Company held by any such Qualifying Bonus Issue Shareholder.

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PART VII TAX CONSIDERATIONS


1. General The comments below are of a general and non-exhaustive nature based on the Directors understanding of the current revenue law and published practice in Guernsey and the UK, which is subject to change possibly with retrospective effect. The following summary does not therefore constitute legal or tax advice and applies only to persons holding Shares as an investment. An investment in the Company involves a number of complex tax considerations. Changes in tax legislation in any of the countries in which the Company will have investments or in Guernsey (or in any other country in which a subsidiary of the Company through which investments are made, is located), or changes in tax treaties negotiated by those countries, could adversely affect the returns from the Company to investors. Prospective investors should consult their professional advisers on the potential tax consequences of subscribing for, purchasing, holding, converting or selling Shares under the laws of their country and/or state of citizenship, domicile or residence. 2. Guernsey Taxation The Company The Company has applied and has been granted exempt status for Guernsey tax purposes. In return for the payment of a fee, currently 600, an authorised closed-ended investment scheme, such as the Company, is able to apply annually for exempt status for Guernsey tax purposes. If exempt status is granted, the Company will not be considered resident in Guernsey for Guernsey income tax purposes. A company that has exempt status for Guernsey tax purposes is exempt from tax in Guernsey on both bank deposit interest and any income that does not have its source in Guernsey. It is not anticipated that any income other than bank interest will arise in Guernsey and therefore the Company is not expected to incur any additional liability to Guernsey tax. In response to the review carried out by the European Union Code of Conduct Group, the State of Guernsey abolished exempt status for the majority of companies with effect from January 2008 and has introduced a zero rate of tax for companies carrying on all but a few specified types of activity. However, because investment funds including closed-ended investment companies, such as the Company, were not one of the regimes in Guernsey that were classified by the European Union Code of Conduct Group as being harmful, investment funds including closed-ended investment companies continue to be able to apply for exempt status for Guernsey tax purposes after 31 December 2007. Therefore, the Company will be entitled, and intends to continue applying, for tax exempt status in Guernsey. In keeping with its ongoing commitment to meeting international standards, the State of Guernsey is currently undertaking a review of its tax regime with the expectation of implementing any required revisions to the regime in the period between 2012 and 2015. At this point in time, the key features of any revised regime have yet to be determined. It is currently not anticipated that there will be any change to the current exemption for investment funds and as such the Company is expected to be able to remain tax exempt. Guernsey currently does not levy taxes upon capital inheritances, capital gains, gifts, sales or turnover, nor are there any estate duties, save for an ad valorem fee for the grant of probate or letters of administration. No stamp duty is chargeable in Guernsey on the issue, transfer, or redemption of shares. Shareholders Shareholders will receive dividends without deduction of Guernsey income tax. Any Shareholders who are resident for tax purposes in Guernsey, Alderney or Herm will incur Guernsey income tax on any dividends paid on Ordinary Shares owned by them but will suffer no deduction of tax by the Company
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AIII 4.11

from any such dividends payable by the Company where the Company is granted exempt status. The Company is required to provide details of distributions made to Shareholders resident in the Islands of Guernsey, Alderney and Herm to the Administrator of Income Tax in Guernsey. Guernsey has introduced measures that are the same as the EU Savings Tax Directive. However, paying agents located in Guernsey are not required to operate the measures on payments made by closed ended investment companies. 3. United Kingdom Taxation The Company It is intended that the Company will be managed and controlled in such a way that it should not be resident in the United Kingdom for United Kingdom tax purposes. Accordingly, and provided that the Company does not carry on a trade in the United Kingdom (whether or not through a branch, agency or permanent establishment situated there), the Company will not be subject to United Kingdom income tax or corporation tax other than on certain types of United Kingdom sourced income. Shareholders UK Offshore Fund Rules Ordinary Shares The Directors have been advised that the Ordinary Shares should not constitute an offshore fund for the purposes of United Kingdom taxation and that the legislation introduced by Finance Act 2009 with effect from 1 December 2009, contained in Part 8 of the Taxation (International and Other Provisions) Act 2010 (TIOPA 2010) (the offshore fund rules), should not apply. Accordingly, Ordinary Shareholders (other than those holding Ordinary Shares as dealing stock, who are subject to separate rules) who are resident or ordinarily resident in the United Kingdom, or who carry on business in the United Kingdom through a branch, agency or permanent establishment with which their investment in the Company is connected, may, depending on their circumstances, be liable to United Kingdom tax on chargeable gains realised on the disposal of their Ordinary Shares (which will include a redemption and on final liquidation of the Company). UK Offshore Fund Rules Preference Shares The Directors have been advised, based upon general discussion with HM Revenue & Customs, that the Preference Shares are likely to be considered by HM Revenue & Customs as an offshore fund for the purposes of the offshore fund rules. If HM Revenue & Customs were to take such a view, then unless the Company applies for, and is granted, Reporting Fund status in respect of the Preference Share class pursuant to regulations made under section 354 of TIOPA 2010, any profit on disposal (including a redemption) of Preference Shares by Preference Shareholders who are resident or ordinarily resident in the United Kingdom, or who carry on business in the United Kingdom through a branch, agency or permanent establishment with which their investment in the Company is connected, would be taxed as an offshore income gain for UK tax purposes, and would be subject to prevailing UK income tax or corporation tax rates, as appropriate. The Directors may seek approval of the Preference Share class as a Reporting Fund for UK tax purposes. If such approval were to be granted by HM Revenue & Customs, a disposal (including a redemption) of Preference Shares by a United Kingdom resident or ordinarily resident Shareholder or a Shareholder who carries on a trade in the United Kingdom through a branch, agency or permanent establishment with which their investment in the Company is connected may give rise to a chargeable gain or an allowable loss for the purposes of UK taxation on chargeable gains, depending on the Shareholders circumstances and subject to any available exemption or relief. United Kingdom resident Preference Shareholders will, if the Preference Share class is approved as a Reporting Fund, be charged to income tax or corporation tax (as appropriate) on all reportable income attributable to the Preference Shares, regardless of whether such income is actually distributed by way of a cash dividend, in accordance with applicable United Kingdom regulations.

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Open Offer and Bonus Issue The Open Offer and Bonus Issue will be treated, for the purposes of UK taxation of chargeable gains, as a reorganisation of share capital, with the result that the New Ordinary Shares acquired under the Open Offer and the Preference Shares acquired under the Bonus Issue will be deemed, on acquisition, to be part of a single asset comprised of the New Ordinary Shares, the Preference Shares and the Existing Ordinary Shares from which the Open Offer Entitlement and entitlement to Preference Shares were derived. The tax base cost of that single asset will be the aggregate of the original tax base cost of the Existing Ordinary Shares and the consideration given for the New Ordinary Shares and Preference Shares. For the purposes of calculating chargeable gains or allowable losses on any future disposals of New Ordinary Shares, Preference Shares and Existing Ordinary Shares the aggregate tax base cost of that single asset requires to be apportioned between the holdings of New Ordinary Shares, Preference Shares and Existing Ordinary Shares by reference to the respective market values of the Shares on the first day on which those market values are quoted on the London Stock Exchange. Tax on Chargeable Gains Capital gains tax at the rate of 18 per cent. (for basic rate taxpayers) and 28 per cent. (for higher and additional rate taxpayers) would apply to any gain realised on a disposal (including a redemption) of Ordinary Shares or Preference Shares (if the Preference Share class is either (i) not considered by HM Revenue & Customs to constitute an offshore fund, or (ii) approved as a Reporting Fund) by an individual Shareholder who is resident or ordinarily resident in the United Kingdom for taxation purposes. Shareholders who are bodies corporate resident in the United Kingdom for taxation purposes will, upon disposal of Ordinary Shares or Preference Shares (if the Preference Share class is either (i) not considered by HM Revenue & Customs to constitute an offshore fund, or (ii) approved as a Reporting Fund), benefit from indexation allowance which, in general terms, increases the chargeable gains tax base cost of an asset in accordance with the rise in the retail prices index. Dividends Individual Ordinary Shareholders and individual Preference Shareholders (provided that the Preference Share class does not constitute an offshore fund for UK tax purposes) resident in the United Kingdom for tax purposes will be liable to UK income tax in respect of dividend or other income distributions of the Company. An individual Ordinary Shareholder or Preference Shareholder (provided the Preference Shares do not constitute an offshore fund) resident in the UK for tax purposes and in receipt of a dividend from the Company will, provided they own less than 10 per cent. of the Company, be entitled to claim a non-repayable dividend tax credit equal to one-ninth of the dividend received. The effect of the dividend tax credit would be to extinguish any further income tax liability for eligible basic rate taxpayers (who currently pay tax at the dividend ordinary rate of 10 per cent.). The effect for current eligible higher rate taxpayers (who pay tax at the current dividend upper rate of 32.5 per cent.) would be to reduce their effective tax rate to 25 per cent. of the cash dividend received. The effect of the dividend tax credit for current eligible additional rate taxpayers (United Kingdom resident individuals with income in excess of 150,000), who pay tax at the current dividend additional rate of 42.5 per cent. would be to reduce their effective tax rate to 36.11 per cent. Shareholders who are bodies corporate resident in the United Kingdom for tax purposes may be able to rely on legislation introduced by Finance Act 2009 with effect from 1 July 2009, which exempts certain classes of dividends from the charge to corporation tax. Preference Shareholders resident in the United Kingdom for tax purposes may, if the Preference Shares class is considered by HM Revenue & Customs to be an offshore fund, be taxed as receiving an amount of interest upon receipt of dividends or other income distributions from the Company, unless less than 60 per cent. of the underlying assets of the Preference Share class (by market value) constitute investments falling within section 494 of the Corporation Tax Act 2009. In such case the UK tax treatment described above for individual and corporate Preference Shareholders resident in the UK for tax purposes would not apply.

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Stamp duty and Stamp Duty Reserve Tax (SDRT) No UK stamp duty or SDRT will arise on the issue of Shares Generally, no United Kingdom stamp duty or SDRT is payable on a transfer of or agreement to transfer Shares provided nothing is done in relation to such transfer, or agreement to transfer, in the United Kingdom and the Shares are not registered in a register kept in the United Kingdom by or on behalf of the Company. ISAs Investors are recommended to consult their professional tax and or investment advisers in relation to the eligibility of the Shares for a stocks and shares ISA. Ordinary Shares allotted under the Placing are not eligible for direct transfer into an ISA. Ordinary Shares acquired pursuant to the Open Offer or in the secondary market and Preference Shares aquired pursuant to the Bonus Issue may be eligible for inclusion in a stocks and shares ISA, although the account manager should be asked to confirm ISA eligibility in all cases. The annual ISA investment allowance is 10,200 for the tax year 2010-2011. Up to half of that allowance can be invested as cash with one provider. The remainder of the 10,200 can be invested in a stocks and shares ISA with either the same or another provider. Other United Kingdom Tax Considerations United Kingdom resident companies having an interest in the Company, such that 25 per cent. or more of the Companys profits for an accounting period could be apportioned to them, may be liable to United Kingdom corporation tax in respect of their share of the Companys undistributed profits, if any, in accordance with the provisions of Chapter IV of Part XVII of the Taxes Act relating to controlled foreign companies. These provisions only apply if the Company is controlled by United Kingdom residents. Investors should be aware that the controlled foreign companies regime is the subject of an ongoing consultation. Although the scope of any reform cannot be accurately predicted, it is now expected that final legislation to introduce changes to the regime will be introduced by Finance Bill 2012. Individuals ordinarily resident in the United Kingdom should note that Chapter 2 of Part 13 of the Income Tax Act 2007, which contains provisions for preventing avoidance of income tax by transactions resulting in the transfer of assets to a person (including a company) abroad, which result in income becoming payable to a person abroad, may render them liable to taxation in respect of any undistributed income and profits of the Company. The attention of Shareholders resident or ordinarily resident in the United Kingdom is drawn to the provisions of section 13 of the Taxation of Chargeable Gains Act 1992 under which, in certain circumstances, a portion of capital gains made by the Company can be attributed to a Shareholder who is resident or ordinarily resident in the United Kingdom and, if an individual, domiciled in the United Kingdom, and who holds, alone or together with associated persons, more than 10 per cent. of the Shares.

114

PART VIII FINANCIAL INFORMATION


1. 1.1 Statutory accounts for the financial years ended 31 March 2008, 31 March 2009 and 31 March 2010 Statutory accounts for the Company and the Group prepared in accordance with International Financial Reporting Standards for the financial years ended 31 March 2008, 31 March 2009 and 31 March 2010, in respect of which the Companys auditors, Deloitte LLP, Chartered Accountants, of Regency Court, Glategny Esplanade, Guernsey GY1 3HW, made unqualified reports, have been delivered to the Guernsey Financial Services Commission. In relation to the valuation of the Companys illiquid investments, the Companys Auditors have noted an emphasis of matter in the auditors report and financial statements of the Company for the financial year ended 31 March 2010. The auditors have noted that: (i) the fair value estimates included in the financial statements are subject to considerable uncertainty; (ii) different assumptions will impact the measurement of investments which may have an effect on the financial statements; and (iii) it is not possible to quantity the potential effects of the resolution of this uncertainty. Published annual reports and accounts for the financial years ended 31 March 2008, 31 March 2009 and 31 March 2010 Historical financial information The consolidated published annual reports and audited accounts of the Group for the financial years ended 31 March 2008, 31 March 2009 and 31 March 2010 (which have been incorporated in this Prospectus by reference) included, on the pages specified in the table below, the following information:
Year ended 31 March 2008 Year ended 31 March 2009 Year ended 31 March 2010

AI 9.1 AI 20.1 AXV 8.1 AI 20.3 AI 20.5.1

AI 20.4.1

1.2

2. 2.1

Consolidated Statement of Comprehensive Income Consolidated Statement of Changes in Equity Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Significant Accounting Policies Independent Auditors Report 2.2

24 25 26 27 28 to 55 29 to 32 22 to 23

23 24 25 26 27 to 55 27 to 31 21 to 22

23 24 25 26 27 to 58 27 to 31 21 to 22
AI 3.1

Selected financial information The key audited figures that summarise the financial condition of the Group in respect of the financial years ended 31 March 2008, 31 March 2009 and 31 March 2010, which have been extracted without material adjustment from the historical financial information referred to in paragraph 2.1 of this Part VIII (unless otherwise indicated in the notes below the following table), are set out in the following table:
As at 31 March 2008 As at 31 March 2009 As at 31 March 2010

Interest Income Gains and Losses on Fair Value Through Profit and Loss Financial Instruments Operating Expenses Finance Costs Net Profit/(Loss) Total Assets Total Liabilities
115

39,057,501 (50,246,378) (7,406,746) (3,500,463) (22,096,086) 243,291,581 46,147,162

21,669,409 (74,873,145) (4,462,662) (2,197,946) (59,864,344) 138,026,937 32,441, 846

16,125,956 (9,608,632) (3,700,373) (545,909) 2,271,042 111,336,170 12,006,329

2.3

Operating and financial review The published annual reports and audited accounts of the Company for the financial period from 1 April 2009 to 31 March 2010 (which have been incorporated in this Prospectus by reference) included, on the pages specified in the table below, descriptions of the Companys financial condition (in both capital and revenue terms), changes in its financial condition and details of the Companys portfolio of investments for each of those periods. Annual report and accounts for the financial period 1 April 2009 to 31 March 2010
Page No(s)

AI 9.1, 9.2.1

Chairmans statement Investment Managers Report 2.4

3 to 4 5 to 9

Availability of annual report and audited accounts for inspection Copies of the published annual reports and audited accounts of the Company for the financial period since its incorporation on 28 April 2005 to 30 June 2006 and for the financial years ended 30 June 2007 and 30 June 2008 are available for inspection at the addresses set out in paragraph 13 of Part IX of this Prospectus. Related party transactions The Company has entered into the following related party transactions (as defined in International Accounting Standard 24) in the period since 1 April 2007 to the date of this Prospectus: 2.5.1 The Company and Trebuchet are parties to the Investment Management Agreement pursuant to which the Company and Trebuchet has appointed the Investment Manager to manage their respective assets on a day to day basis in accordance with their respective investment objectives and policies, subject to the overall supervision and direction of their respective boards of directors. The Group pays the Investment Manager the Management Fee and the Incentive Fee. 2.5.2 As at 31 March 2008, the Group held investments with a total value of 4,479,375 in the following entities which are managed by the Investment Manager: Cheyne ABS Investments I plc, Cheyne High Grade ABS CDO Limited and Cheyne CLO Investments I Limited. The investment in Cheyne ABS Investments I plc was disposed of by the Company on 17 July 2008 and the investments in Cheyne High Grade ABS CDO Limited and Cheyne CLO Investments I Limited had their value written down to zero by the Company on 30 June 2008 and 31 March 2009, respectively. 2.5.3 Options were granted by the Group on 8 December 2005 to Cheyne Global Services Limited in recognition of work performed by the Investment Manager in raising capital for the Group. These represent the right to acquire 2,250,000 Ordinary Shares at an exercise price per Ordinary Share equal to 10 per Ordinary Share. The Investment Manager Options are fully vested and immediately exercisable and will remain exercisable until 13 December 2015. As at 31 March 2010, the Investment Manager Options were out of the money as the Share price on 31 March 2010 was below the exercise price of 10 per Ordinary Share. 2.5.4 The Investing Fund, a company that is also controlled by the Investment Manager, has a controlling interest in the Company.
AI 18.3 AI 19

2.5

116

PART IX ADDITIONAL INFORMATION


1. The Company The Company was incorporated and registered in Guernsey on 6 September 2005 under the provisions of the Companies Law, as a non-cellular company limited by shares with the name Queens Walk Investment Limited and with registered number 43634. The Company is domiciled in Guernsey and operates under the Companies Law and the ordinances and regulations made thereunder. The Company is regulated by the Guernsey Financial Services Commission. The Companys registered office is at Dorey Court Admiral Park St. Peter Port Guernsey GY1 3BG and its telephone number at its registered office is +44 (0) 1481 727 111. The Company has been declared by the GFSC to be an Authorised Closed-ended investment scheme authorised under Section 8 of The Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended and, as such, the Company is authorised and regulated by the Guernsey Financial Services Commission. Neither the States of Guernsey Policy Council nor the Guernsey Financial Services Commission take any responsibility for the financial soundness of the Company or for the correctness of any statements made or opinions expressed with regard to it. As a company admitted to the Official List, the Company is not a regulated fund but is subject to the Listing Rules of the FSA applicable to closed-end investment companies. 2. Significant change statement There has been no significant change in the financial or trading position of the Company or its Group since 31 March 2010 (being the end of the last financial year of the Company for which audited financial information has been published). There has been no material adverse change in the prospects of the Company or the Group since 31 March 2010, being the date to which audited financial statements have last been published. 3. Share Capital The Company was incorporated with power to issue an unlimited number of shares of no par value. Upon incorporation of the Company, two Ordinary Shares of no par value were issued. On 13 December 2005 the Company issued 22,500,000 Ordinary Shares pursuant to its initial public offering at an offer price of 10 per share. In addition, the Company simultaneously issued 17,900,754 Ordinary Shares to the Investing Fund (along with transferring the two Ordinary Shares issued on incorporation) in exchange for the Initial ABS Portfolio and 120,000 Ordinary Shares were also issued to the Directors of the Company at that time. The share capital of the Company currently consists of Ordinary Shares of no par value. The fully paid issued share capital of the Company as at 16 August 2010 (the latest practicable date prior to the publication of this Prospectus) was as follows:
No. of Shares Nominal Value
AI 21.1.1

AI 5.1.4 AIII 4.2

AXV 1.3

AI 20.9

Ordinary Shares

26,644,657

Nil
AI 21.1.7

The Company does not hold any Ordinary Shares in treasury as at the date of this Prospectus.

117

Since 1 April 2007, there have been the following changes to the Companys share capital:
Date of Purchase of Ordinary Shares Number of Ordinary Shares Purchased Price Paid per Ordinary Share Issue Share Capital

18/07/2007 19/07/2007 20/07/2007 23/07/2007 24/07/2007 25/07/2007 26/07/2007 27/07/2007 30/07/2007 31/07/2007 01/08/2007 02/08/2007 03/08/2007 06/08/2007 07/08/2007 08/08/2007 09/08/2007 10/08/2007 13/08/2007 14/08/2007 15/08/2007 16/08/2007 17/08/2007 20/08/2007 21/08/2007 22/08/2007 23/08/2007 24/08/2007 28/08/2007 29/08/2007 30/08/2007 31/08/2007 02/10/2007 03/10/2007 10/10/2007 11/10/2007 12/10/2007 15/10/2007 16/10/2007 17/10/2007 18/10/2007 19/10/2007 22/10/2007 23/10/2007 24/10/2007 25/10/2007 26/10/2007 29/10/2007 30/10/2007 31/10/2007 01/11/2007 02/11/2007

20,000 8,125 30,000 31,000 15,000 31,000 33,000 34,000 10,000 36,415 34,197 35,740 34,751 30,000 40,000 40,262 25,164 40,100 42,000 41,000 34,700 33,600 33,400 33,300 33,100 33,600 32,100 31,800 30,000 29,000 28,000 27,000 17,000 10,000 10,000 17,200 14,000 14,000 2,357 11,000 11,500 11,528 3,946 4,953 5,000 10,351 9,508 8,461 8,643 8,724 5,500 6,000
118

5.925 5.920 5.863 5.690 5.625 5.455 5.352 5.100 4.850 4.866 4.880 4.919 4.985 5.092 5.130 5.150 5.146 5.063 5.100 4.910 4.790 4.790 4.790 4.750 4.800 4.800 4.800 4.800 4.800 4.800 4.750 4.750 5.262 5.250 5.550 5.515 5.500 5.457 5.420 5.478 5.448 5.425 5.400 5.450 5.450 5.550 5.550 5.500 5.440 5.400 5.255 5.200

40,600,756 40,592,631 40,562,631 40,531,631 40,516,631 40,485,631 40,452,631 40,418,631 40,408,631 40,372,216 40,338,019 40,302,279 40,267,528 40,237,528 40,197,528 40,157,266 40,132,102 40,092,002 40,050,002 40,009,002 39,974,302 39,940,702 39,907,302 39,874,002 39,840,902 39,807,302 39,775,202 39,743,402 39,713,402 39,684,402 39,656,402 39,629,402 39,612,402 39,602,402 39,592,402 39,575,202 39,561,202 35,042,702 35,040,345 35,029,345 35,017,845 35,006,317 35,002,371 34,997,418 34,992,418 34,982,067 34,972,559 34,964,098 34,955,455 34,946,731 34,941,231 34,935,231

Date of Purchase of Ordinary Shares

Number of Ordinary Shares Purchased

Price Paid per Ordinary Share

Issue Share Capital

05/11/2007 09/11/2007 12/11/2007 13/11/2007 14/11/2007 15/11/2007 16/11/2007 19/11/2007 20/11/2007 21/11/2007 22/11/2007 23/11/2007 26/11/2007 04/12/2007 21/12/2007 09/01/2008 16/01/2008 23/01/2008 25/01/2008 28/01/2008 30/01/2008 31/01/2008 05/02/2008 06/02/2008 08/02/2008 11/02/2008 12/02/2008 13/02/2008 14/02/2008 15/02/2008 18/02/2008 19/02/2008 20/02/2008 21/02/2008 22/02/2008 25/02/2008 26/02/2008 27/02/2008 28/02/2008 29/02/2008 03/03/2008 04/03/2008 05/03/2008 06/03/2008 07/03/2008 10/03/2008 11/03/2008 12/03/2008 13/03/2008 14/03/2008 17/03/2008 18/03/2008 19/03/2008 25/03/2008

6,600 6,600 2,912 2,500 7,200 7,100 5,700 6,186 5,214 2,500 25,000 8,000 50,000 30,000 25,000 25,000 30,000 25,000 30,000 35,000 30,000 30,000 30,000 30,000 30,000 40,000 30,000 50,000 45,000 50,000 40,000 40,000 40,000 40,000 40,000 40,000 49,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 26,000 40,000 35,900 35,000 20,000 25,000 22,750 4,000 15,000 8,000
119

4.991 4.705 4.400 4.380 4.369 4.400 4.270 4.270 4.750 5.500 5.675 5.600 5.675 5.500 5.550 5.550 5.525 5.475 5.440 5.325 5.315 5.290 5.225 5.190 5.140 5.100 5.100 4.950 4.900 4.900 4.850 4.850 4.850 4.850 4.850 4.750 4.4887 4.3700 4.2500 4.2500 4.2450 4.2000 4.1500 4.1600 4.1000 4.0000 3.9000 4.0000 3.9400 3.9000 4.4000 4.6000 4.7100 4.7500

34,928,631 34,922,031 34,919,119 34,916,619 34,909,419 34,902,319 34,896,619 34,890,433 34,885,219 34,882,719 34,857,719 34,849,719 32,021,948 31,991,948 31,966,948 31,941,948 31,911,948 31,886,948 31,856,948 31,821,948 31,791,948 31,761,948 31,731,948 31,701,948 31,671,948 31,631,948 31,601,948 31,551,948 31,506,948 31,456,948 31,416,948 31,376,948 31,336,948 31,296,948 31,256,948 31,216,948 31,167,948 31,127,948 31,087,948 31,047,948 31,007,948 30,967,948 30,927,948 30,887,948 30,861,948 30,821,948 30,786,048 30,751,048 30,731,048 30,706,048 30,683,298 30,679,298 30,664,298 30,656,298

Date of Purchase of Ordinary Shares

Number of Ordinary Shares Purchased

Price Paid per Ordinary Share

Issue Share Capital

26/03/2008 11/04/2008 16/04/2008 17/04/2008 21/04/2008 24/04/2008 28/04/2008 02/05/2008 06/05/2008 09/05/2008 21/05/2008 22/05/2008 27/05/2008 03/06/2008 04/06/2008 16/06/2008 17/06/2008 18/06/2008 01/07/2008 02/07/2008 04/07/2008 07/07/2008 09/07/2008 10/07/2008 18/08/2008 19/08/2008 20/08/2008 21/08/2008 22/08/2008 26/08/2008 27/08/2008 29/08/2008 01/09/2008 02/09/2008 03/09/2008 04/09/2008 05/09/2008 08/09/2008 09/09/2008 10/09/2008 11/09/2008 12/09/2008 15/09/2008 16/09/2008 18/09/2008 25/09/2008 29/09/2008 30/09/2008 01/10/2008 22/12/2008

15,000 5,000 25,000 25,000 25,000 5,000 9,000 140,000 16,950 2,450 50,000 50,000 50,000 10,000 10,000 10,000 10,000 10,000 10,000 15,000 10,000 10,000 10,000 10,000 15,000 10,000 15,000 15,000 15,000 20,000 20,000 20,000 13,500 20,000 15,000 10,000 7,260 15,000 15,000 12,500 5,000 10,000 10,000 5,000 50,000 75,000 30,000 46,000 5,000 4,000

4.7333 4.7500 4.8700 4.7500 4.7500 4.6500 4.6500 4.7500 4.7000 4.6075 4.6075 4.7500 4.7500 4.5000 4.5000 4.4000 4.4000 4.4000 4.3500 4.5500 4.5000 4.4750 4.4750 4.4700 4.4700 4.4500 3.7500 3.6000 3.6200 3.6100 3.6000 3.6200 3.7907 3.8100 3.8000 3.8000 3.8000 3.8000 3.8000 3.7800 3.4000 3.4800 3.3500 3.2500 0.3800 0.4500 0.6350 0.6450 0.6475 0.6900

30,641,298 30,636,298 30,611,298 30,586,298 30,561,298 30,556,298 30,547,298 30,407,298 30,390,348 30,387,898 30,337,898 30,287,898 30,237,898 30,227,898 30,217,898 30,207,898 30,197,898 30,187,898 30,177,898 27,162,917 27,152,917 27,142,917 27,132,917 27,122,917 27,107,917 27,097,917 27,082,917 27,067,917 27,052,917 27,032,917 27,012,917 26,992,917 26,979,417 26,959,417 26,944,417 26,934,417 26,927,157 26,912,157 26,897,157 26,884,657 26,879,657 26,869,657 26,859,657 26,854,657 26,804,657 26,729,657 26,699,657 26,653,657 26,648,657 26,644,657

120

Assuming that the Required Resolutions are approved at the Extraordinary General Meeting and the Placing and Open Offer is fully subscribed the issued share capital of the Company (all of which will be fully paid up) immediately following the Placing and Open Offer and Bonus Issue will be as follows:
No. of Shares Nominal Value

Ordinary Shares Preference Shares

39,966,985 49,958,731

Nil Nil

For further information on the rights attaching to the Shares, please refer to paragraph 4 of this Part IX below. As at the date of this Prospectus no securities convertible or exchangeable into Shares or warrants have been issued by the Company or agreed to be issued. In recognition of the work performed by the Investment Manager in raising capital for the Group, the Group granted to Cheyne Global Services Limited on 8 December 2005 options representing the right to acquire 2,250,000 Ordinary Shares at an exercise price per share equal to 10. As at the 16 August 2010 (the latest practicable date prior to the publication of this Prospectus), Investment Manager Options representing the right to acquire 2,250,000 Ordinary Shares at an exercise price per share equal to 10 remain outstanding. The Investment Manager Options are fully vested and immediately exercisable and will remain exercisable until 13 December 2015. Save as disclosed in this Prospectus, no commissions, discounts, brokerages or other special terms have been granted by the Company in connection with the issue or sale of any such capital and no borrowing or contingent liabilities have been incurred. The Shares will be issued in registered form and will be capable of being held in certificated or uncertificated form, provided however, that the Company may specify in any prospectus, or otherwise, published in connection with any increase in the Companys share capital, that US Persons participating in such capital increase (if applicable) be issued shares in certificated form. Temporary documents of title will not be issued. It is expected that, subject to the passing of the Required Resolutions at the EGM, the New Ordinary Shares will be allotted pursuant to a resolution of the Board to be passed on or around 15 September 2010 conditional upon Open Offer Admission and that the Preference Shares will be allotted pursuant to a resolution of the Board to be passed on or around 17 September 2010 conditional upon Bonus Issue Admission. There are no provisions of Guernsey law which confer rights of pre-emption in respect of the allotment of any class of Shares. However, in order to comply with the requirements of the Listing Rules, the Revised Articles contain pre-emption rights that will apply in respect of equity securities (as such term is defined in the Revised Articles, which, for the avoidance of doubt, does not include Preference Shares). A further resolution is being proposed at the EGM to dis-apply the pre-emption rights contained in the Revised Articles in respect of 2,664,466 Ordinary Shares until the Companys annual general meeting to be held in 2011. The Directors intend to request authority to allot Shares on a non-pre-emptive basis is reviewed at each subsequent annual general meeting of the Company. 4. Memorandum and Articles of Incorporation The Companys principal objects, which are contained in its Memorandum of Incorporation, include the carrying on of the business of an investment company. The objects of the Company are set out in full in clause 3 of the Memorandum, which is available for inspection at the address specified in paragraph 12 below. If the Revised Memorandum is adopted at the EGM then the Companys objects will be unlimited as permitted by the Companies Law. The following is a summary of the Articles which also contain information on the proposed amendments to the Articles that will be made upon Shareholders validly resolving in favour of the Required Resolutions at the Extraordinary General Meeting. Prospective investors should read in full
121
AIII 4.3 AI 21.1.4

AI 21.1.6

AIII 4.6

AIII 5.1.10 AIII 5.3.3

AI 21.2.1

the Articles and the terms of the Revised Articles and not just rely on the summary provided below. Copies of the Articles and of the Revised Articles are available for inspection at the place specified in paragraph 13 of this Part IX. Variation of Class Rights and Alteration of Capital Subject to the provisions of Guernsey law, all or any of the special rights for the time being attached to any class of shares for the time being issued may (unless otherwise provided by the terms of issue of the shares of that class or the Articles) from time to time (and notwithstanding that the Company may or may be about to be in liquidation) be varied or abrogated in such manner (if any) as may be provided by such rights or, in the absence of any such provision, either with the consent in writing of the holders of not less than three-quarters of the capital committed or agreed to be committed in respect of the issued shares of the class or with the sanction of an extraordinary resolution passed at a separate general meeting of the holders of shares of the class duly convened and held as provided in the Articles, but so that the quorum at such meeting (other than an adjourned meeting) shall be two persons holding or representing by proxy at least one third of the capital committed or agreed to be committed in respect of the issued shares of the class in question. The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not (unless otherwise expressly provided by the terms of issue of the shares of that class) be deemed to be varied by the creation or issue of further shares ranking pari passu therewith. Issue of Shares As at the date of the Prospectus and subject to the provisions of the Articles, the unissued Ordinary Shares shall be at the disposal of the Board which may allot, grant options over (including, without limitation, by way of granting phantom stock, stock appreciation rights or other similar rights) or otherwise dispose of them to such persons on such terms and conditions and at such times as the Board determines but so that the amount payable on application on each share shall be fixed by the Board. Shares do not carry any rights of pre-emption under the existing Articles. If the Revised Articles are approved by Ordinary Shareholders, the following pre-emption rights will apply: The Company shall not allot equity securities to a person on any terms unless: (a) it has made an offer to each person who holds ordinary shares in the Company to allot to him, on the same or more favourable terms, a proportion of those securities that is as nearly as practicable equal to the proportion in number held by him of the ordinary share capital of the Company; and the period during which any such offer may be accepted has expired or the Company has received notice of the acceptance or refusal of every offer so made.
AI 21.2.4

(b)

(the Restriction) For this purpose equity securities means: (a) ordinary shares in the Company (ordinary shares, for this purpose only, being shares other than shares that as respects dividends and capital carry a right to participate only up to a specified amount in a distribution); or rights to subscribe for, or to convert securities into, ordinary shares in the Company.

(b)

References to the allotment of equity securities include: (a) (b) the grant of a right to subscribe for, or to convert any securities into, ordinary shares in the Company; and the sale of ordinary shares in the Company that immediately before the sale are held by the Company as treasury shares.

122

Equity securities that the Company has offered to allot to a holder of ordinary shares may be allotted to him, or anyone in whose favour he has renounced his right to their allotment, without contravening the Restriction and if the Restriction applies in relation to the grant of such right, it will not apply in relation to the allotment of shares in pursuance of that right. Shares held by the Company as treasury shares shall be disregarded for the purposes of the Restriction, so that the Company is not treated as a person who holds ordinary shares; and the treasury shares are not treated as forming part of the share capital of the Company. Any offer required to be made by the Company pursuant to the provisions set out above should be made by a notice and such offer must state a period during which such offer may be accepted and such offer shall not be withdrawn before the end of that period. Such period must be a period of at least 14 days beginning on the date on which such offer is deemed to be delivered or received (as the case may be) pursuant to the Revised Articles. The Restriction shall not apply in relation to the allotment of bonus shares, nor to a particular allotment of equity securities if these are, or are to be, wholly or partly paid otherwise than in cash. The Company may by Special Resolution resolve that the Restriction shall be excluded or that such Article shall apply with such modifications as may be specified in the resolution: (a) (b) (c) generally in relation to the allotment by the Company of equity securities; in relation to allotments of a particular description; or in relation to a specified allotment of equity securities;

and any such resolution must: (d) (e) state the maximum number of equity securities in respect of which the Restriction is excluded or modified; and specify the date on which such exclusion or modifications will expire, which must be not more than five years from the date on which the resolution is passed.

Any resolution passed pursuant to the paragraph above may: (a) (b) be renewed or further renewed by Special Resolution of the Company for a further period not exceeding five years; and be revoked or varied at any time by Special Resolution of the Company.

Notwithstanding that any such resolution referred to in the paragraphs above has expired, the Directors may allot equity securities in pursuance of an offer or agreement previously made by the Company if the resolution enabled the Company to make an offer or agreement that would or might require equity securities to be allotted after it expired. In respect of the pre-emption rights, in relation to an offer to allot equity securities a reference (however expressed) to the holder of equity securities of any description is to whoever was the holder of equity securities of that description at the close of business on a date to be specified in the offer and the specified date must fall within the period of 28 days immediately before the date of the offer. Classes of Shares As at the date of the Prospectus, the rights attaching to the Shares are as follows: (a) Voting Rights Subject to any special rights or restrictions which may be attached to any class of share on a show of hands, every holder of shares who (being an individual) is present in person or by a proxy shall have one vote and, on a poll, every holder present in person or by a proxy shall have one vote for every share held.
AIII 4.5 AI 21.2.3

123

If the Revised Articles and the relevant Required Resolution inserting the rights of Preference Shares are approved by Ordinary Shareholders, Preference Shareholders will only have the right to vote at general meetings of the Company in the circumstances summarised under the heading Rights as to Voting in Part V of this Prospectus. (b) Dividends Subject to the Companies Law, and as hereinafter set out, the Directors of the Company may from time to time declare dividends on Ordinary Shares based on the net income of the Company to be paid to Ordinary Shareholders according to their respective rights and interests in the net income available for distribution, but no dividend will be declared in excess of the amount recommended by the Directors. The Directors have the right to recommend the payment of dividends in respect of the Company at their discretion, provided that dividends will be payable only to the extent that they are justified by the position of the Company and any surplus derived from the sale or realisation of an investment held directly by the Company shall not be available for dividends. In the event that the Revised Articles are approved by Ordinary Shareholders, the article summarised in the preceding sentence shall be replaced with an article which states that no dividend shall be paid otherwise than in accordance with the Companies Law. All unclaimed dividends may be invested or otherwise made use of by the Directors for the benefit of the Company until claimed. No dividend shall bear interest against the Company. Any dividend unclaimed after a period of 12 years from the date of declaration thereof will be forfeited and will revert to the Company and the payment by the Directors of any unclaimed dividend or other sum payable on or in respect of an Ordinary Share into a separate account will not constitute the Company a trustee in respect thereof. If the Revised Articles and the relevant Required Resolution inserting the rights of Preference Shares are approved by Ordinary Shareholders, Preference Shareholders will have the right to income as summarised under the heading Right to Income in Part V of this Prospectus. After payment of the Preference Dividend and any further sum payable to the Preference Shareholders any additional sums shall be available for distribution to the Ordinary Shareholders. All dividends declared in respect of the Ordinary Shares shall be distributed among the Ordinary Shareholders in proportion to the amount paid up on the Ordinary Shares held by them. (c) Redemption The Ordinary Shares do not carry a right to redemption by Ordinary Shareholders. If the Revised Articles and the relevant Required Resolution inserting the rights of Preference Shares are approved by Ordinary Shareholders, the Preference Shares will have the right of redemption summarised under the heading Rights to Redemption in Part V of this Prospectus. Transfer and Compulsory Transfer of Shares As at the date of this Prospectus, subject to any restrictions on transfers described below: (a) Any Shareholder may transfer all or any of his uncertificated shares by means of a relevant system authorised by the Board in such manner provided for, and subject as provided, in any regulations issued for this purpose under the Laws or such as may otherwise from time to time be adopted by the Board on behalf of the Company and the rules of any relevant system and accordingly no provision of the Articles shall apply in respect of an uncertificated share to the extent that it requires or contemplates the effecting of a transfer by an instrument in writing or the production of a certificate for the shares to be transferred. Any Shareholder may transfer all or any of his certificated shares by an instrument of transfer in any usual form, or in any other form which the Board may approve, signed by or on behalf of the transferor and, unless the share is fully paid, by or on behalf of the transferee.
AIII 4.8 AI 10.4

(b)

124

(c)

The Directors shall not be bound to register more than four persons as joint holders of any Share. In addition, the Articles allow the Directors to refuse to consent to a transfer by a Shareholder (a Defaulting Shareholder) who, having been requested to do so by the Directors, fails to provide certain information regarding the interests of other persons in the Shares held by the Defaulting Shareholder.

The Articles entitle the Directors to require the transfer of Shares by a Defaulting Shareholder. The Directors may refuse to register a transfer of Shares or require the sale or transfer of Shares if they have reason to believe that the transferee is a person to whom a transfer of Shares would or could be in breach of the laws or requirements of any jurisdiction or governmental authority or in circumstances (whether directly or indirectly affecting such person, and whether taken alone or in conjunction with other persons, connected or not, or any other circumstances appearing to the Directors to be relevant) which might result in the Company incurring a liability to taxation or suffering a pecuniary, fiscal, administrative or regulatory disadvantage. The Directors will not however exercise this discretion if to do so would prevent dealings in Shares from taking place on an open and proper basis on the London Stock Exchange. Directors (a) Unless otherwise determined by the Board, the number of Directors shall be not less than two nor more than ten. (b) The Directors shall not be required to hold any qualification shares. At the first annual general meeting and at each annual general meeting thereafter: (1) any Director who was elected or last re-elected a Director at or before the annual general meeting held in the third calendar year before the current year shall retire by rotation; and (2) such further Directors (if any) shall retire by rotation as would bring the number retiring by rotation up to one-third of the number of Directors in office at the date of the notice of the meeting (or, if their number is not a multiple of three, the number nearest to but not greater than one-third). The Directors (other than alternate Directors) shall be entitled to receive by way of fees for their services as Directors such sum as the Board may from time to time determine provided that the amount paid to any Director by way of fees shall not exceed 160,000 in any financial year, or such higher amount as may be determined from time to time by ordinary resolution of the Company. Any fees payable pursuant to the Articles shall be distinct from and shall not include any salary, remuneration for any executive office or other amounts payable to a Director pursuant to any other provisions of the Articles and shall accrue from day to day. The Directors shall be entitled to be repaid all reasonable travelling, hotel and other expenses properly incurred by them in or about the performance of their duties as Directors, including expenses incurred in attending meetings of the Board or any committee of the Board or general meetings or separate meetings of the holders of any class of shares or of debentures of the Company. If by arrangement with the Board, any Director shall perform or render any special duties or services outside his ordinary duties as a Director, he may be paid such reasonable additional remuneration as the Board may determine. A Director who to his knowledge is in any way directly or indirectly interested in a contract or arrangement or proposed contract or arrangement with the Company shall disclose the nature of his interest at a meeting of the Board. If the Revised Articles are approved by Ordinary Shareholders, the article summarised in the preceding sentence shall be replaced with an article which states that a Director who to his knowledge is in any way directly or indirectly interested in a contract or arrangement or a proposed contract or arrangement with the Company shall immediately after becoming aware of the fact that he is so interested disclose the nature and monetary value or, if that value is not quantifiable, the extent of his interest at a meeting of the Board. A Director may not vote (or be counted in the quorum) in respect of any resolution of the Directors or committee of the Directors concerning a contract, arrangement, transaction or proposal to which the Company is or is to be a party and in which he has an interest which (together with any interest of any person connected with him) is, to his knowledge, a material
125
AI 21.2.8

AI 21.2.2

(c)

(d)

(e)

interest (otherwise than by virtue of his interest in shares or debentures or other securities of or otherwise in or through the Company). This is subject to certain exceptions including (i) where the contract, arrangements, transaction or proposal concerns general employee privileges or benefits or insurance policies for the benefit of Directors or (ii) in circumstances where a Director acts in a personal capacity in the giving of a guarantee, security or indemnity for the benefit of the Company or any of its subsidiaries. (f) Any Director may act by himself or his firm in a professional capacity for the Company, other than as auditor, and he or his firm shall be entitled to remuneration for professional services as if he were not a Director. Any Director may continue to be or become a director, managing director, manager or other officer, employee or member of any company promoted by the Company, in which the Company may be interested or with which the Company has entered into any transaction, arrangement or agreement, and any such Director shall not be accountable to the Company for any remuneration or other benefits received by him as a director, managing director, manager or other officer or member of any such company. The Directors shall not be subject to a mandatory retirement age.
AI 10.4

(g)

(h)

Borrowing Powers The Directors may exercise all the powers of the Company to borrow money and hypothecate, mortgage, charge or pledge the assets, property and undertaking of the Company or any part thereof and to issue debentures and other securities whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party. The Articles do not include any limitations on the Companys power to borrow. Disclosures of Beneficial Interests in Shares (a) The Directors may serve notice on any Shareholder requiring that Shareholder to disclose to the Company the identity of any person (other than the Shareholder) who has an interest in the Shares held by the Shareholder and the nature of such interest. Any such notice shall require any information in response to such notice to be given within such reasonable time as the Directors may determine. (b) If any Shareholder is in default in supplying to the Company the information required by the Company within the prescribed period (which is 28 days after service of the notice or 14 days if the shares concerned represent 0.25 per cent., or more in nominal value of the issued shares of the relevant class), the Directors in their absolute discretion may serve a direction notice on the Shareholder. The direction notice may direct that in respect of the shares in respect of which the default has occurred (the Default Shares) and any other shares held by such Shareholder, such Shareholder shall not be entitled to vote in general meetings or class meetings. Where the Default Shares represent at least 0.25 per cent., of the Shares for the time being in issue, the direction notice may additionally direct that dividends on such Default Shares will be retained by the Company (without interest), and that no transfer of Default Shares (other than a transfer approved under the Articles) shall be registered until the default is rectified.

AI 21.2.7

Winding Up The Company may be voluntarily wound up at any time by special resolution. On a winding up, the surplus assets remaining after payment of all creditors, including the repayment of bank borrowings, shall be divided pari passu amongst Shareholders pro rata, according to the rights attached to the Shares. Untraceable Shareholders The Company shall be entitled to sell at the best price reasonably obtainable the shares of a Shareholder or any shares to which a person is entitled by transmission on death or bankruptcy if and provided that: (a) for a period of 12 years no cheque or warrant sent by the Company through the post in a pre-paid letter addressed to the Shareholder or to the person so entitled to the share at his address in the Register of Members or otherwise the last known address given by the Shareholder or the person
126

entitled by transmission to which cheques and warrants are to be sent has been cashed and no communication has been received by the Company from the Shareholder or the person so entitled provided that in any such period of 12 years the Company has paid at least three dividends whether interim or final; (b) the Company has at the expiration of the said period of 12 years by advertisement in a newspaper circulating in the area in which the address referred to in sub-paragraph (i) above is located given notice of its intention to sell such shares; the Company has not during the period of three months after the date of the advertisement and prior to the exercise of the power of sale received any communication from the Shareholder or person so entitled; and if any part of the share capital of the Company is quoted on any stock exchange the Company has given notice in writing to the quotations department of such stock exchange of its intention to sell such shares.
AI 14.1

(c)

(d)

5. Directors No Director has: (i) (ii) any convictions in relation to fraudulent offences for at least the previous five years; been bankrupt or been a director of any company or has been a member of the administrative, management or supervisory body of a company or a senior manager of a company, at the time of any receivership or compulsory or creditors voluntary liquidation for at least the previous five years; or

(iii) been subject to any official public incrimination of him and/or sanctions by any statutory or regulatory authority (including designated professional bodies) nor has he been disqualified by a court from acting as a director of a company or from acting as a member of the administrative, management or supervisory bodies of an issuer or from acting in the management or conduct of the affairs of any issuer, for at least the previous five years. Each of the Directors were appointed on 6 September 2005. There are no outstanding loans granted by the Company to Directors, nor are there any guarantees provided by the Company for the benefit of any Director. No Director has any conflicts of interests between any duties the Director owes to the Company and any private interests and/or other duties. There are no lock-up provisions regarding the disposal by any of the Directors of any Shares currently in force. No Director has had any interest, direct or indirect, in any transaction which is or was unusual in its nature or conditions or significant to the business of the Company and which was affected by the Company since its incorporation. Over the five years preceding the date of this Prospectus, the Directors hold or have held the following directorships (apart from their directorships of the Company) or memberships of administrative, management or supervisory bodies and/or partnerships:
Name Current directorships/partnerships Previous directorships/partnerships
AI 14.1 AI 14.2 AI 16.1

Tom Chandos

Curzon Artificial Eye Limited Easter Holdings Limited Invista European Real Estate Trust SICAF Moonpig.com Limited New Ink Media Limited Northbridge Management Limited

Charities Investment Management Limited Cine UK Limited GFH Strategy Limited GNE Group Limited Steamroller Restaurants Limited The Television Corporation Limited

127

Name

Current directorships/partnerships

Previous directorships/partnerships

Northbridge UK Limited Northbridge Ventures Limited Queens Walk Investment Limited (Guernsey) RSMB Television Research Limited Sand Aire Limited Scopetime Limited Splash Media Limited The Social Market Foundation Zone Limited Talmai Morgan AnaCap Atlantic Co-Investment GP Limited AnaCap Derby Co-Investment GP Limited AnaCap FP Debt Opportunities GP Limited AnaCap FP GP Limited AnaCap FP GP II Limited Altius Associates GP Limited Altius Select Europe (GP) Limited BH Global Limited BH Macro Limited EuroDekania Limited Glebe Central Cross Limited Glebe London Limited Goldman Sachs Dynamic Opportunities Limited Mont Hubert Limited NB Distressed Debt Investment Fund Limited NB Private Equity Partners Limited NB PEP Holdings Limited NB PEP Investments Limited NB PEP Investments LP Limited Queens Walk Investment Limited Sherborne Investors (Guernsey) A Limited Signet Global Fixed Income Strategies Limited Star Asia Finance, Limited TCR1 Limited TCR2 Limited The Emotional Assets Fund 1 Limited Third Point Offshore Independent Voting Company Limited Therium Holdings Limited Trebuchet Finance Limited

The 21st Century Learning Initiative Tusker Direct Limited Udex Holdings Limited

Bourse Trust Company Limited Brix Global Investment Limited Close European Accelerated Fund Limited European Investments (Guersney) Limited European Investment Holdings (Guernsey) Mayven International Limited Mayven UK PLC Peak Asia Properties Limited Psource Asian Recovery Limited Prodesse Investment Limited

128

Name

Current directorships/partnerships

Previous directorships/partnerships

AI 14.1

Christopher Spencer

Alpha Bank Jersey Limited Alpha Asset Finance CI Ltd J.P. Morgan Private Equity Limited Carib Golf Limited Dexion Trading Limited Generali International Limited Generali Worldwide Insurance Company Ltd. Generali Portfolio Management (CI) Limited BSI Generali UK Limited Grenfell PAI Guernsey Limited Henderson Far East Income Limited IRP Property Investments Limited IRP Holdings Limited KAAN Limited Kenmore European Industrial Fund Ltd KEIF Luxembourg SARL KEIF Luxembourg Scandi SARL Low Carbon Accelerator Limited Opportunity Investment Co. Limited RIL Insurance Limited Ruffer Investment Company Limited Rutley Russia Property Fund Limited Safedataco.com Limited Sitex Insurance PCC Limited Spencer Holdings Limited Tacus Fund Limited Thames River Hillside Apex Fund SPC Hillside Apex Fund Limited Thames River Hillside Apex Fund II Limited Thames River Kingsway Fund Limited Kingsway Fund Limited Thames River Legion Fund Limited Nevsky Fund Limited Thames River Longstone Limited Thames River Property Growth & Income Fund Ltd Arcograph Ltd Arcograph (Jersey) Limited Asset Risk Consultants Ltd Asset Risk Consultants (Jersey) Ltd BH Global Limited Close Enhanced Commodities Fund II Limited

Advanta Holdings Thames River Scimitar Fund Limited Guernsey Post Limited SDH Insurance Company (PCC) Ltd Gartmore Alternative Strategies PCC Limited States of Guernsey Transport Board Michelangelo Insurance Co. Limited Gartmore Capital Strategy Fund Limited United Service Technologies Limited Thames River Topaz Fund Limited Thames River Garret Fund Limited Gartmore SICAV Drummonds Insurance PCC Ltd St Johns Ambulance and Rescue Guernsey Gambling Control Commission Cowry Global Financials Fund Limited Advance Focus Fund Limited Thames River Tybourne Fund Limtied Henderson Far East Income (Malta) Limited Thames River EDO PSolve Alternatives PCC Ltd Thames River Kingsway Plus Fund Limited Thames River Argentum Fund Limited Thames River ZeCo Fund Limited Thames River Origin Fund Limited Thames River 2X Currency Alpha Fund Limited Rutley East African Property Limited Advance Focus Fund Limited Ashcourt Sterling Bond Fund Limited FundFact Ltd Hamilton Capital Limited Liontrust Absolute Return Fund Limited

Graham Harrison

129

Name

Current directorships/partnerships

Previous directorships/partnerships

AI 14.1

De Putron Fund Management (Guernsey) Ltd Ermitage Opportunities Fund Ermitage Thematic Fund SICAV HAL Limited Hamilton Group Holdings Limited IPT Holdings Limited ISIS Property Trust Limited Liontrust Alternative Funds PCC Limited Liontrust Credit Fund Liontrust Credit Master Fund Liontrust Guernsey Fund Ltd Liontrust Global Investment Services Limited Liontrust International (Guernsey) Ltd Liontrust International Funds (Luxembourg) SICAV Marguerite Limited QPM Limited Queens Walk Investment Limited Segregated Account Services Limited The Stuff Your Rucksack Foundation Trebuchet Finance Limited Zenith International Bond Funds Limited Zenith International Growth Limited Zenith International MultiManager Funds Limited Zenith International Reserves Funds John Hawkins Advance Developing Markets Fund Limited Australian Property Management (Bermuda) Limited Consolidated Custodians International Limited Dexion Equity Alternative Limited Global Property Management (Bermuda) Limited HSBC Corporate Money Funds Limited HSBC Fund of Funds Limited HSBC Managed Portfolios Limited HSBC Specialist Funds Limited HSBC Investment Solutions PLC*

Liontrust International (Cayman) Limited Integrated Research Limited Syndicate Asset Management (CI) Limited The Professional Investor Fund PCC Limited Footballs For Fun Limited

Cedar Partners (Asia) Limited Cedar Partners (Cayman) Limited Classics Fund Limited CPCL (Holdings) Limited Global MENA Financial Assets Limited Financial Assets MENA W.L.L. Financial Assets Bahrain W.L.L. GSC Credit Limited HSBC Global Cash Funds Limited (amalgamated with HSBC Corporate Money Funds Limited) HSBC Investment Management (International) Limited

130

Name

Current directorships/partnerships

Previous directorships/partnerships

AI 14.1

Low Carbon Accelerator Limited Morant Wright Japan Income Trust Limited M W Japan Fund Limited Prana Limited P D Star Fund Limited Queens Walk Investment Limited Raffles Asia Investment Company Limited SR Global General Partner Limited SR General Partner (Cayman) Limited SR Global (Delaware) LLC SR Phoenicia (Delaware) LLC SR Vista (Delaware) LLC SR Global (Mauritius) Limited SR Global Fund Inc. SR Services Limited SR Phoenicia Inc SR Phoenicia (Mauritius) Limited SR Vista Inc SR Vista (Mauritius) Limited SRH General Partner Limited SRH Eclipse Inc. The Greater China Fund, Inc. The Prospect Japan Fund Limited

Momentum All Weather Absolute Performance Ltd M W Nippon Fund Limited New Star Absolute Return Fund PCC Limited New Star UK Gemini Hedge Fund Limited New Star Leveraged European Hedge Fund Limited New Star Leveraged Managed Hedge Fund Limited SR Investments (L) Limited SR Japan Inc

6. Directors and Other Interests The interests of Directors in the Ordinary Shares of the Company as at the date of this Prospectus are as follows:
Name Shares

AIII 3.3

AI 17.2

Tom Chandos Talmai Morgan Christopher Spencer Graham Harrison John Hawkins

19,000 1,0003 1,0004 1,0005 1,000


2

Except as set out above, none of the Directors, nor any persons connected with the Directors, have an interest in Shares or options of the Company. The Directors will be Qualifying Open Offer Shareholders in respect of the above holdings of Ordinary Shares. The total emoluments receivable by the Directors and paid by the Company in respect of the accounting year of the Company ended 31 March 2010 was 240,000. The Chairman was paid annual remuneration of 120,000 and the other Directors were paid annual remuneration of 30,000 each for the financial year ended 31 March 2010. Save for Tom Chandos, all of the Directors will be paid an additional payment of 5,000 each in relation to the Placing and Open Offer and Bonus Issue.
2 3 4 5 These Shares are held by Smith F Williamson Nominees Limited for Botts & Company Retirement Benefit Scheme on behalf of Mr Chandos. These Shares are held by Forest Nominees Limited for Mr Morgan. These shares are held by Schroder Nominees (Guernsey) Limited for Mr Spencer. These Shares are held by Forest Nominees for Asset Risk Consultants Limited Retirement and Annuity Trust Scheme on behalf of Mr Harrison.
AI 15.1

AI 16.2 AI 15.2

131

Each of the Directors has signed a letter of appointment with the Company setting out the terms of their appointment. There are no service contracts in existence between the Company and any of the Directors, nor are any proposed. No amount has been set aside or accrued by the Company to provide pension, retirements or other similar benefits. Save as disclosed below, as at the date of this Prospectus, the Directors are not aware of any persons who can, or immediately following the Placing and Open Offer and Bonus Issue could, directly or indirectly, jointly or severally, own the Company or exercise control over the Company.
Number of Ordinary Shares Percentage of Issued Share Capital Post Placing and Open Offer6
AI 18.3 AIII 3.3

AI 18.1

Name

Concert Party

16,433,584

41.12%

The Directors are not aware of any arrangements, the operations of which may at a subsequent date result in a change of control of the Company. As at 16 August 2010 (the latest practicable date prior to the publication of this Prospectus), save in respect of those Shareholders noted below, insofar as is known to the Company, the following persons are, directly or indirectly, interested in 5 per cent. or more of the issued share capital of the Company:
No. of Ordinary Shares Percentage of Ordinary Shares in issue

Ordinary Shareholder

Cheyne ABS Opportunities Fund LP

15,773,804

59.2
AI18.1 AI 18.2

None of the Companys Ordinary Shareholders has voting rights attached to the Ordinary Shares they hold which are different to the voting rights attached to the other Ordinary Shares in the Company. 7. Material Contracts The following contracts (not being contracts entered into in the ordinary course of business) are contracts which have been entered into by the Company in the two years immediately preceding the date of this Prospectus, and which are or may be material or are contracts entered into by the Company which contain any provisions under which the Company has any obligation or entitlement which is or may be material to the Company at the date of this Prospectus: 7.1 Investment Management Agreement The Company is party to the Investment Management Agreement, as amended, with the Investment Manager and Trebuchet, dated 8 December 2005, pursuant to which the Company has appointed the Investment Manager to manage the assets of the Company and Trebuchet on a dayto-day basis in accordance with, inter alia, the investment objective and policy of the Company, subject to the overall supervision and direction of their respective boards of directors. The Investment Management Agreement provides that if the Investment Manager acts as investment manager of, or investment adviser to, a subsidiary or SPV, the Investment Manager will be required to procure, to the extent that it is able to do so, that the investments of the relevant subsidiary or SPV are made such that the Companys Investment Portfolio shall, overall, be in accordance with the investment restrictions applicable to the Company. The Investment Manager, its associates and their directors, members, managers, officers, agents, delegates and employees shall not be liable for any error of judgement or any loss suffered by the Company or any subsidiary or any SPV incorporated as a funding or asset holding vehicle for the Company, or the Shareholders, directors, partners of the Company or any subsidiary or any SPV in connection with the services provided under the Investment Management Agreement unless such loss was caused by negligence, wilful default or fraud on the part of the Investment Manager, its associates or their directors, members, managers, officers, agents, delegates or employees. The Investment Management Agreement provides that the Investment Manager will not be liable for any default of any custodian, counterparty or other entity which holds money, investments or other
6 Assumes no exercise of the Investment Manager Options and such Shareholders do not subscribe for additional Shares in the Placing and Open Offer.

AI 22

132

documents of title on behalf of the Company or with or through whom transactions are conducted for the Company. Nothing in the Investment Management Agreement excludes any liability of the Investment Manager under the FSMA or the rules of the Financial Services Authority. The Investment Manager or any holding company of the Investment Manager or any subsidiary of such holding company or of the Investment Manager (each an Interested Party) may receive commissions which it may negotiate in relation to any sale or purchase of investments effected by it for the account of the Company or any SPV and the Interested Party shall be entitled to retain for its own benefit any profit or benefit derived therefrom provided that the amount of such commission is not in excess of rates commonly receivable by securities dealers in transactions of the kind contemplated. The Company has agreed to indemnify the Investment Manager, its Associates and their directors, members, managers, officers, agents, delegates and employees with respect to all expenses, losses, damages, liabilities, demands, costs, charges and claims arising from acts or omissions of such party except in the case of negligence, wilful default or fraud on the part of such party. The Investment Manager has agreed to indemnify the Company, to the extent lawful, against all expenses, losses, damages, liabilities, demands, costs, charges and claims incurred by it as a result of negligence, wilful default or fraud of the Investment Manager and its members, managers, officers, directors, agents and employees. The Company may terminate the Investment Management Agreement at any time by giving the Investment Manager not less than 24 months prior notice in writing. In lieu of providing 24 months notice, the Company may pay a termination fee equal to the Management Fees and the Incentive Fees that the Investment Manager would have earned if the Investment Management Agreement had not been terminated prior to the end of the 24 month notice period (calculated based on the fees earned by the Investment Manager during the 12 month period preceding termination). The Company may terminate the Investment Management Agreement for cause by giving the Investment Manager not less than 60 days prior notice in writing, if the Investment Manager commits any material breach with respect to its obligations under the Investment Management Agreement and fails (in the case of a breach capable of rectification) to make good such breach within 30 days of receipt of written notice from the Company requiring it to do so. Such termination shall not take effect until the Company has appointed a replacement investment manager. The Company may terminate the Investment Management Agreement by giving notice to the Investment Manager, effective forthwith, if the Investment Manager is dissolved or unable to pay its debts or commits any act of bankruptcy or if a receiver is appointed over all or a substantial portion of its assets or ceases to hold any licence, permission, authorisation or consent necessary for the performance of its duties under the Investment Management Agreement. The Investment Manager may resign its appointment at any time by giving the Company not less than three months prior notice in writing, provided that such termination shall not take effect until the earlier of (i) the date on which the Company has appointed a replacement investment manager and (ii) the date falling six months after the date on which the Investment Manager gave such notice. The Investment Manager may resign its appointment by giving the Company not less than 60 days prior notice in writing if the Company commits any material breach with respect to its obligations under this Agreement and fails to make good any breach within 30 days of receipt of written notice from the Investment Manager requiring it to do so. The Investment Manager may resign its appointment by giving notice in writing to the Company, effective forthwith, if the Company is dissolved or is unable to pay its debts or commits any act of bankruptcy or if a receiver is appointed over all or a substantial portion of its assets. The Company will pay to the Investment Manager a Management Fee, an Incentive Fee and certain expenses as described in Part III of this Prospectus.
133
AXV 3.1

The Investment Manager may at any time delegate certain duties under the Investment Management Agreement to any Associate of the Investment Manager. The Investment Managers liability to the Company for all matters so delegated shall not be affected thereby and the Investment Manager shall remain liable in respect of losses to the Company resulting from the acts or omissions of any such delegate, provided that any losses are caused by the negligence, wilful default or fraud on the part of the Investment Manager, its Associates, or its or their directors, members, managers, officers, agents, delegates or employees. The Investment Manager and any entity controlled by or under common control with it, currently do not sponsor and shall not raise or sponsor any new investment fund, company or investment vehicle (private or public) which targets as its primary investment category investments in Primary Target Investments, it being understood that no such fund, company or investment vehicle shall be prohibited from investing in Primary Target Investments. The Investment Manager Agreement was originally executed by the Company, Cheyne Capital Management Limited (CCML) and Trebuchet. Pursuant to an agreement dated 29 December 2006, CCML transferred by way of novation the benefit and burden of its rights and obligations under the Investment Management Agreement to the Investment Manager with the consent of the Company and Trebuchet in connection with the Investment Managers conversion into a limited liability partnership structure. Conditional upon the approval of Ordinary Shareholders at the EGM and Bonus Issue Admission occurring, the Investment Management Agreement will be amended pursuant to the Investment Management Agreement Side Letter dated 17 August 2010. The Investment Management Agreement Side Letter provides that the Management Fee payable will, with effect from Bonus Issue Admission, be equal to 1.75 per cent. per annum of the Adjusted NAV of the Company other than to the extent that such value is comprised of any investment where the underlying asset portfolio is managed by the Investment Manager. The Adjusted NAV will be equal to the prevailing NAV calculated in accordance with the Companys accounting policies increased by an amount equal to the number of Preference Shares in issue (excluding Preference Shares held in treasury) multiplied by the Preference Share Notional Value. In addition, the Investment Management Agreement Side Letter requires that at least 70 per cent. of the Companys Net Asset Value will comprise Residual Income Positions and Real Estate Debt as opposed to Primary Target Investments in accordance with the proposed investment policy and amends the conflicts arrangements pursuant to which the Investment Manager is subject as described in Part III of this Prospectus under the heading Conflicts. The Investment Management Agreement is governed by English law. 7.2 Administration Agreement The Company is party to an Administration Agreement with Kleinwort Benson (Channel Islands) Fund Services Limited dated 8 December 2005, pursuant to which the Administrator provides for the day-to-day administration of the Company, including maintenance of accounts and provision of a company secretary. For the provision of services under the Administration Agreement, the Administrator is entitled to receive fees which will be agreed in writing from time to time between the Company and the Administrator. The Administrator is currently entitled to receive from the Group an administration fee of 0.125 per cent. of the gross asset value of the Group up to 80,000,000 and 0.0325 per cent. of the gross asset value of the Group greater than 80,000,000. In addition to the fees payable, the Company will reimburse the Administrator for all reasonable expenses incurred by the Administrator in connection with the performance of its services under the Administration Agreement. The Administration Agreement had an initial term of three years, since which the agreement automatically renews for successive two-year terms unless 90 days notice of non-renewal is delivered by the Company or six months notice by the Administrator, in either case to take effect before expiry of the relevant term. The Administration Agreement may be terminated
134
AXV 3.1

AXV 3.1

immediately by the Administrator if the Company ceases to hold any applicable regulatory licences or consents in Guernsey. The Administration Agreement may be terminated immediately by the Company if the Administrator ceases to be qualified to act pursuant to any applicable law, including the Protection of Investors (Bailiwick of Guernsey) Law, 1987 or the Administrator becomes or is deemed to become resident for tax purposes to carry on business elsewhere than in Guernsey and the Company has not approved such tax residency. The Administration Agreement may be terminated immediately by either party on the occurrence of certain specified events or if the other party is materially in breach of the Administration Agreement and fails (in the case of a breach capable of being remedied) to remedy such breach within 30 days of receipt of a written notice from the other requiring it to do so. The Administrator will not be liable for any loss or damage suffered by the Company or any other person in connection with the Administration Agreement, unless such loss or damage arises directly or indirectly from some act of negligence, recklessness, bad faith, wilful default, fraud or failure to comply with its obligations under the Administration Agreement. The Company has indemnified the Administrator against all actions, proceedings, claims and demands (including various costs and expenses directly incidental thereto), which may be brought or made against the Administrator in respect of any loss or damage sustained or suffered in connection with the performance of its duties save to the extent that such loss or damage arises directly or indirectly from some act of negligence, recklessness, bad faith, wilful default, fraud or failure to comply with its obligations under the Administration Agreement. The Administration Agreement is governed by English law. 7.3 Sub-Administration Agreement The Company is party to a Sub-Administration Agreement with the Administrator and the Sub-Administrator, dated 8 December 2005 (as amended), pursuant to which the Sub-Administrator provides certain administration services to the Company, including the preparation and maintenance of such books, records and accounts as necessary. The Sub-Administrator is be entitled to receive a fee from the Administrator for these services which is to be paid out of the Administrators own fee and which will be agreed in writing from time to time between the Company and the Administrator and the Sub-Administrator. The Administrator will remain liable to the Company for the activities of the Sub-Administrator. The Sub-Administration Agreement had an initial term of three years, since which the agreement automatically renews for successive two-year terms unless 90 days notice of non-renewal is delivered by the Company or six months notice by the Administrator or Sub-Administrator, in either case to take effect before expiry of the relevant term. The Sub-Administration Agreement may be terminated immediately by the Administrator or the Sub-Administrator if the Company ceases to hold any applicable regulatory licences or consent in Guernsey. The Sub-Administration Agreement may be terminated immediately by the Company if the Sub-Administrator is no longer permitted to perform its obligations under any applicable law or regulation. The Sub-Administration Agreement may be terminated immediately by any party on the occurrence of certain specified events or if any other party is materially in breach of the Sub-Administration Agreement and fails (in the case of a breach capable of being remedied) to remedy such breach within 30 days of receipt of a written notice from either of the parties not in breach requiring it to do so. The Sub-Administrator will not be liable to the Administrator for any loss or damage directly or indirectly suffered or incurred by the Company or the Administrator or any other person in connection with the Sub-Administration Agreement, unless such loss or damage arises directly or indirectly from some act of negligence, recklessness, bad faith, wilful default, failure to comply with its obligations under the Sub-Administration Agreement or fraud on the part of the Sub-Administrator or any person to whom it may delegate or sub-contract its duties (to the extent permitted to do so under the Sub-Administration Agreement) in performance of its duties. The Administrator has indemnified the Sub-Administrator against all actions, proceedings, claims and demands (including various costs and expenses directly incidental thereto) which may be brought
135

or made against the Sub-Administrator in respect of any loss or damage sustained or suffered in connection with the performance of its duties save to the extent that such loss or damage arises directly or indirectly from some act of negligence, recklessness, bad faith, wilful default, failure to comply with its obligations under the Sub-Administration Agreement or fraud on the part of the Sub-Administrator. The Sub-Administration Agreement was amended by way of a novation agreement dated 9 June 2010 whereby Investors Fund Services (Ireland) Limited novated its rights and obligations pursuant to the Sub-Administration Agreement to the Sub-Administrator. The Sub-Administration Agreement is governed by English law. 7.4 Registrar Agreement The Company is party to a registrar agreement with Capita Registrars (Guernsey) Limited (the Registrar) dated 8 December 2005 (the Registrar Agreement), pursuant to which the Registrar provides registration services to the Company which entail, among other things, the Registrar having responsibility for the transfer of shares, maintenance of the share register and acting as transfer and paying agent. For provision of the registrar services, the Registrar is entitled to receive a basic fee based on the number of Shareholder accounts subject to an annual minimum charge of 7,500. In addition to this basic fee, the Registrar is entitled to receive additional fees for specific actions. The Registrar has appointed Capita Registrars (the UK Transfer Agent) to provide transfer agent services to the Company, for which it will receive a fee payable by the Registrar. The Registrar will remain liable to the Company for the activities of the UK Transfer Agent. The Registrar Agreement can be terminated on 90 days notice given by the Company or six months notice given by the Registrar. The Registrar Agreement may be terminated immediately by the Company if the Registrar is no longer permitted or qualified to perform its obligations under any applicable law or regulation or the Registrar becomes or is deemed to become resident for tax purposes to carry on business elsewhere than in Guernsey and the Company has not approved such tax residency. The Registrar Agreement may be terminated immediately by either party on the occurrence of certain specified events or if the other party is materially in breach of the Registrar Agreement and fails (in the case of a breach capable of being remedied) to remedy such breach within 30 days of receipt of a written notice from the other requiring it to do so. Except in the case of the fraud of the Registrar or its delegates, sub-contractors, agents, officers or employees, the aggregate liability of the Registrar and its agents, delegates, sub-contractors, officers or employees arising out of or in connection with the Registrar Agreement is limited to the lesser of 1,000,000 or an amount equal to ten times the total annual fee payable to the Registrar and the Registrar or its delegates, sub-contractors, agents, officers or employees shall not be liable to the Company in connection with the Registrar Agreement for indirect or consequential loss or damage, loss of profit, revenue, actual or anticipated savings or goodwill, in all cases (whether caused by negligence or otherwise). The Company has indemnified the Registrar and its agents, officers and employees against all and any liabilities which may be suffered or incurred by the Registrar and its agents, officers and employees in connection with the performance of its duties under the Registrar Agreement save to the extent that such liabilities may be due to the negligence, recklessness, bad faith, wilful default, failure to comply with its obligations under the Registrar Agreement or fraud of the Registrar or its agents, officers or employees. The Registrar Agreement is governed by English law. 7.5 Custody Agreement The Company is party to a Custody Agreement with State Street Custodial Services (Ireland) Limited dated 8 December 2005 (as amended), pursuant to which the Custodian is responsible for providing custodial services which include being global custodian of all the investments and property of the Company, the safekeeping and registration of property for the Company and the settlement of all transactions relating to the property. The Custodian is a company incorporated
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AXV 5.1 AXV 3.1

in Ireland under the Companies Acts 1963 to 2003 on 6 September 1994 under registered number 221775. The address of the registered office of the Custodian is set out in the section titled Corporate Information. For the provision of services under the Custody Agreement, the Custodian is entitled to receive a fee which will be agreed in writing from time to time between the Company and the Custodian. The Custodian is currently entitled to receive from the Group a custodian fee of 0.03 per cent. of the gross asset value of the Group up to 80,000,000 and 0.02 per cent. of the gross asset value of the Group greater than 80,000,000, plus additional fees in relation to transaction fees, statutory reporting, corporate secretarial fees and other out of pocket expenses. In addition to this fee, the Company will reimburse the Custodian for reasonable out of pocket expenses incurred for the benefit of the Company. The Custody Agreement has an initial term of three years, since which the agreement automatically renews for successive two-year terms unless 90 days notice of non-renewal is delivered by the Company or six months notice by the Custodian, in either case to take effect before expiry of the relevant term. The Company may terminate the Custody Agreement at any time if the Custodian is no longer permitted or qualified to perform its obligations pursuant to any applicable law or regulation. The Custody Agreement may be terminated immediately by either party on the occurrence of certain specified events or if the other party is materially in breach of the Custody Agreement and fails (in the case of a breach capable of being remedied) to remedy such breach within 30 days of receipt of a written notice from the other requiring it to do so. The Custodian will not be liable for any loss, damage or expense directly or indirectly suffered or incurred by the Company or any other person in connection with the Custodians performance of its duties, unless such loss or damage arises directly or indirectly from some act of negligence, recklessness, bad faith, wilful default, failure to comply with the obligations under the Custody Agreement or fraud of the Custodian in the performance or non-performance of the Custodians duties. The Company has indemnified the Custodian against any and all actions, proceedings, claims and demands (including various costs and expenses directly incidental thereto) which may be brought or made against the Custodian in respect of any loss or damage sustained or suffered by it in connection with the performance of its duties pursuant to any applicable law or regulation. The Custodian Agreement was amended by way of a novation agreement dated 9 June 2010 whereby Investors Trust & Custodial Services (Ireland) Limited novated its rights and obligations pursuant to the Custody Agreement to the Custodian. The Custody Agreement is governed by English law. 7.6 Relationship Agreement The Investing Fund currently holds 15,773,804 Ordinary Shares representing 59.2 per cent. of the Existing Ordinary Shares in the Company (excluding any exercise of the Investment Manager Options). The Company is party to a relationship agreement with the Investing Fund dated 8 December 2005 (the Relationship Agreement) which regulates the ongoing relationship between the parties. The Relationship Agreement will continue for so long as the Investing Fund and its associates and persons acting in concert with it control directly or indirectly an interest representing at least 10 per cent. of the issued Ordinary Share capital of the Company. Pursuant to the Relationship Agreement and subject to applicable legal and regulatory requirements: (i) the Investing Fund will exercise its rights and will procure (insofar as it is able) that any associate exercises its shareholder rights so as to ensure that the Company is capable at all times of carrying on its business and making decisions independently of the Investing Fund and its associates and that the agreement is otherwise implemented in full; (ii) the Investing Fund will use all reasonable endeavours to procure that no action is taken by it or any of its associates to prejudice the listing of the Shares on the Official List of the London Stock Exchange; (iii) the Investing Fund has agreed that the Company shall operate and make decisions for the benefit of Shareholders as a whole; (iv) the Investing Fund has agreed and undertaken and shall, in respect
137
AXV 3.1

of any of its associates, use its reasonable endeavours to procure, that, inter alia, agreements transactions and relationships between any member of the group and the Investing Fund and/or any associates of the Investing Fund will be conducted at arms length and on a normal commercial basis; (v) the membership of the Board will at all times be in compliance with the applicable Listing Rules for investment companies; and (vi) the parties will and will procure, so far as they are able, that its associates (in the case of the Investing Fund) or members of its group (in the case of the Company) shall not enter into, novate, vary or abrogate any material agreement, arrangement or transaction between, among others, any member of the group and the Investing Fund or any associate unless approved by a resolution of the Board. If the Investing Fund proposes to dispose of any of its Shares at any time, it has undertaken to provide the Company with as much prior notice as is reasonably practicable of the proposed disposal and carry out such prior consultations with the Company during such notice period as is reasonably practicable in the circumstances. The notification and consultation provisions do not apply to a proposed disposal, that taken together with other disposals in the preceding 90 day period, does not reduce the holding of the Investing Fund by more than 5 per cent., of the Companys issued share capital. The Relationship Agreement also provides for the provision of reasonable assistance by the Investing Fund in meeting applicable legal and regulatory requirements in connection with the issue by the Company of any further shares fully-paid ranking pari passu with the Shares. The Relationship Agreement also provides for the Company to provide reasonable assistance to the Investing Fund on the same basis in connection with placings or offers of Shares by either of them. 7.7 Investment Manager Options A summary of the Investment Manager Options granted by the Company on 8 December 2005 is set out in Part III of this Prospectus. Trade Mark Licence The Investment Manager and the Company have entered into a Trade Mark Licence dated 8 December 2005 pursuant to which the Investment Manager has granted to the Company a non-exclusive royalty-free licence to use the names Queens Walk and Queens Walk Investment Limited in connection with the Companys business. The Trade Mark Licence terminates if the Investment Manager ceases to be the Companys investment manager. The Trade Mark Licence is governed by English law. Placing and Open Offer Agreement The Placing and Open Offer Agreement dated 17 August 2010 between Liberum Capital, the Company and the Investment Manager whereby the Company has agreed, subject to certain conditions that are typical for an agreement of this nature, the last condition being Open Offer Admission, to issue the New Ordinary Shares to be issued pursuant to the Placing and Open Offer at the Offer Price. Liberum Capital has agreed, subject to certain conditions that are typical for an agreement of this nature, the last condition being Open Offer Admission, to use reasonable endeavours to procure subscribers for the New Ordinary Shares to be issued under the Placing at the Offer Price. In consideration for the provision of their services under the Placing and Open Offer Agreement, the Company will pay to Liberum Capital, the following: (a) if Liberum Capital procures either one or two New Investors that subscribe for New Ordinary Shares pursuant to the Placing and Open Offer, a commission of 2.5 per cent. of the aggregate value of the New Ordinary Shares issued pursuant to the Placing and Open Offer; (b) if Liberum Capital procures either three or four New Investors that subscribe for New Ordinary Shares pursuant to the Issue, a commission of 3.0 per cent. of the aggregate value of the New Ordinary Shares issued pursuant to the Placing and Open Offer; or (c) if Liberum Capital procures five or more New Investors that subscribe for New Ordinary Shares pursuant to the Placing and Open Offer, a commission of 3.25 per cent. of the aggregate value of the New Ordinary Shares issued pursuant to the Placing and Open Offer.
138
AIII 5.1.4 AIII 5.4.3, 5.4.4

7.8

7.9

For the purposes of (a) to (c) above New Investor means an investor who (i) subscribes for not less than 250,000 New Ordinary Shares pursuant to the Issue, (ii) retains a shareholding of not less than 250,000 Ordinary Shares in the Company for a period of four weeks post closing of the Placing and Open Offer, and (iii) is not an existing Shareholder of the Company. Liberum Capital will be paid a commission of not less than 2.5 per cent. of the aggregate value of the New Ordinary Shares issued pursuant to the Placing and Open Offer and Liberum Capital will not be considered a New Investor. In addition, conditional on the New Ordinary Shares allotted pursuant to the Placing and Open Offer being admitted to the Official List and to trading on the main market of the London Stock Exchange, the Company will pay to Liberum Capital a corporate finance advisory fee of 100,000. The fees described above exclude any commissions payable to placees required to be paid to secure their placing commitments, such placing commissions to be payable by the Company upon Open Offer Admission. The aggregate value of the placing commissions will not equate to more than 1.25 per cent. of the aggregate value of the New Ordinary Shares to be issued pursuant to the Placing and Open Offer. The obligations of the Company to issue New Ordinary Shares and the obligations of Liberum Capital to use reasonable endeavours to procure subscribers for the New Ordinary Shares to be issued under the Placing, are subject to conditions, including, amongst others, Open Offer Admission occurring by not later than 0800 hours on 16 September 2010 or such later time and/or date as Liberum Capital may agree with the Company and the Placing and Open Offer Agreement not having been terminated. Liberum Capital may terminate the Placing and Open Offer Agreement in certain circumstances that are typical for an agreement of this nature prior to Open Offer Admission. These circumstances include the breach by the Company or the Investment Manager of the warranties given pursuant to the Placing and Open Offer Agreement, the occurrence of certain material adverse changes in the condition (financial or trading) of the Company, and certain adverse changes in financial, political or economic conditions. The Company has agreed to pay by way of reimbursement to Liberum Capital, any stamp duty or stamp duty reserve tax arising on the issue of the New Ordinary Shares by them under the Placing and Open Offer and the Company has agreed to pay or cause to be paid (together with any related value added tax) certain costs, charges, fees and expenses of, or in connection with, or incidental to, amongst others, the Placing, Open Offer and Open Offer Admission or the other arrangements contemplated by the Placing and Open Offer Agreement. The Company and the Investment Manager have given certain representations, warranties, undertakings and indemnities to Liberum Capital. The Company has undertaken to Liberum Capital in the Placing and Open Offer Agreement that it will not, during the period beginning at the date of the Placing and Open Offer Agreement and ending six months after the date of Open Offer Admission, without the prior written consent of Liberum Capital, offer, issue, lend, sell or contract to sell, grant options in respect of or otherwise dispose of, directly or indirectly any New Ordinary Shares, Preference Shares or any securities convertible into, or exchangeable for, or enter into any transaction with the same economic effect as, or agree to do any of the foregoing (other than the New Ordinary and Preference Shares issued pursuant to the Placing and Open Offer and the Bonus Issue). The Placing and Open Offer Agreement is governed by English law. 8. Investment Restrictions The Company will only invest in accordance with its investment policy as described in Part I of this Prospectus. In order to comply with the requirements of the UK Listing Authority and other regulatory bodies the Company undertakes to comply with the following restrictions for so long as they are requirements of the UK Listing Authority or other regulatory bodies:

AI 10.4 AXV 2.1

139

not more than 10 per cent., in aggregate, of the value of the total assets in the Companys portfolio of assets may be invested in other listed investment companies (including listed investment trusts) except that this restriction shall not apply to investments in investment companies or investment trusts which themselves have stated investment policies to invest no more than 15 per cent. of their total assets in other listed investment companies (including listed investment trusts); it will not conduct a trading activity which is significant in the context of its Group as a whole; and the Company will, at all times, invest and manage its assets in a way which is consistent with its object of spreading investment risk and in accordance with the published investment policy set out on pages 52 to 55 of this Prospectus.

In the event of any breach of investment restrictions applicable to the Company, Shareholders will be informed of the actions to be taken by the Investment Manager by an announcement issued through a RIS or a notice sent to Shareholders at their registered address. The Company will comply with the investment restrictions as set out above for so long as they remain requirements of the UK Listing Authority. If the Resolution proposing the proposed investment policy is approved at the EGM, the Directors do not currently intend to propose any further material changes to the Companys investment policy, save in the case of exceptional or unforeseen circumstances. As required by the Listing Rules, any material change to the investment policy of the Company will only be made with the approval of Shareholders. 9. The City Code on Takeovers and Mergers The City Code has not, and does not seek to have, the force of law. It has, however, been acknowledged by both the UK government and other UK regulatory authorities that those who seek to take advantage of the securities markets in the UK should conduct themselves in matters relating to takeovers in accordance with best business standards and so according to the City Code. The City Code is issued and administered by the Panel. It applies to all takeover and merger transactions, however effected, where the offeree company is, inter alia, a listed or unlisted public company resident in the UK or the Channel Islands and to certain categories of private limited companies. Under Rule 9 of the City Code, any person who acquires shares which, when taken together with shares already held or acquired by persons acting in concert with that person, carry 30 per cent., or more of the voting rights of a company to which the City Code applies, or any person who, together with persons acting in concert with that person, holds not less than 30 per cent., but not more than 50 per cent., of the voting rights of such a company and acquires additional shares is normally required by the Panel to make a general offer to shareholders of that company to acquire their shares. An offer under Rule 9 must be in cash and at the highest price paid within the preceding 12 months for any shares in the company by the person required to make the offer or any persons acting in concert with him. The following persons are regarded by the Panel as acting in concert and constituting a concert party: the Investment Manager, the directors of the Investment Manager, together with their close relatives and any trusts through whom they act, the Investing Fund, certain directors of the Investing Fund, any other funds that are under the discretionary management of the Investment Manager to the extent of that discretionary management, certain portfolio managers of such funds, and the members of the Investment Management Team (the Concert Party). The members of the Concert Party are deemed to be acting in concert for the purposes of the City Code. Investors should note that as at 16 August 2010 (the latest practicable date prior to the publication of this Prospectus), the Concert Party was interested, in aggregate, in 16,433,584 Ordinary Shares, representing 59.2 per cent., of the Ordinary Shares in issue as at that date. Investors should also note that if the Investment Manager Options were fully exercised the Concert Party would be interested, in aggregate, in 18,683,584 Ordinary Shares, representing 70.12 per cent., of the Ordinary Shares in issue.

AI 18.4 AIII 4.9

140

Assuming that 13,322,328 Ordinary Shares are issued pursuant to the Placing and Open Offer, immediately following Open Offer Admission, the Concert Party will control 30 per cent. or more but less than 50 per cent., of the voting rights in the Company. The Concert Party will not be able to acquire further Ordinary Shares without incurring an obligation under Rule 9 to make a general offer to Shareholders unless such acquisition arises from the exercise of the Investment Manager Options. The Panel has agreed to waive the obligation to make a general offer that would otherwise have arisen on such exercise. As noted in Part I of this Prospectus, the Investing Fund has agreed not to participate in the Placing and Open Offer and, as a result, will not receive New Ordinary Shares. On a reduction or dilution of the interest of the Concert Party in Shares to not less than 30 per cent., of the voting rights in the Company, its members may acquire further Ordinary Shares in limited circumstances including as part of a share subscription approved by an independent vote at a Shareholders meeting and, in the case of acquisitions of Ordinary Shares, not exceeding 1 per cent., of the voting rights in the Company in any 12 month period where the percentage shareholding of the relevant member of the Concert Party or the Concert Party itself does not thereby exceed the highest percentage holding of such member or the Concert Party in the previous 12 month period.
AnnIII 7.3

10. Orderly marketing arrangements Subject to Liberum procuring purchases for at least 25 per cent. of the Preference Shares issued to the Investing Fund pursuant to the Bonus Issue, the Investing Fund has undertaken to the Company and Liberum Capital that for a period of six months following Bonus Issue Admission, it will seek only to trade its holding of Preference Shares through Liberum Capital in an orderly fashion. 11. General 11.1 In the 12 months immediately preceding the date of this document there has been no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Company is aware) since the Companys incorporation which may have, or have had in the recent past significant effects on the Companys and/or the Groups financial position or profitability. 11.2 The Company is of the opinion that the Group has sufficient working capital for its present requirements, that is, for 12 months from the date of this Prospectus. 11.3 The expenses of the Company attributable to the Placing and Open Offer and the Bonus Issue are those which are necessary to implement the Placing and Open Offer and the Bonus Issue. These expenses will be met by the Company and will be paid on or about Open Offer Admission save as described below. Such expenses will be written off in the first year following Bonus Issue Admission and will include registration, listing and admission fees, corporate finance fees, printing, advertising and distribution costs, legal fees and other applicable expenses. The Companys expenses in connection with the Placing and Open Offer and the Bonus Issue are estimated to amount to 1,764,000. 11.4 The Investment Manager may be a promoter of the Company and will or may receive Management Fees and other payments from the Company as described in Part III of this Prospectus. Save as disclosed in this paragraph, no amount or benefit has been paid or given to the Investment Manager by the Company and none is intended to be paid or given. 11.5 Deloitte & Touche, a member of the Institute of Chartered Accountants in England and Wales, have been the only auditors of the Company since its incorporation. 11.6 Trebuchet was incorporated in Ireland on 19 May 2005. Pursuant to the articles of association of Trebuchet, the Company has the right to appoint a majority of the board of directors of Trebuchet. Talmai Morgan and Graham Harrison, who are directors of the Company, have been appointed directors of Trebuchet. To ensure that the Company will be able to maintain a majority of the board of directors of Trebuchet in the future, the Company has been allotted a single share in Trebuchet carrying the right to appoint a majority of the board of directors. Trebuchet was established for the sole purpose of acquiring and holding interests in certain assets, including certain assets in the Initial ABS Portfolio. The Company has acquired an economic exposure to such investments through the
141
AI 2.1

AI 20.8

AIII 3.1

AIII 8.1

AI 7.1, 7.2, 25.1

acquisition of an unsecured participation note (the Participation Note) issued by Trebuchet. The Investment Manager manages the investments of Trebuchet pursuant to the terms of the Investment Management Agreement. This ensures that the Companys investments are managed in accordance with the investment objective and policy of the Company. Trebuchet is a qualifying company within the meaning of section 110 of the Irish Taxes Consolidation Act 1997 and accordingly its taxable profits will be subject to tax at a rate of 25 per cent. Payments under the Participation Note can be paid gross to the Company and the income portion of such payments will be deductible by Trebuchet. Consequently, it is anticipated that Trebuchet will have a minimal amount of taxable income. The activities of Trebuchet are exempt for Value Added Tax (VAT) purposes under the VAT Act of 1972. 11.7 The Company does not have and does not expect that it will have, nor has it had since its incorporation, any employees and it neither owns nor occupies any premises. 11.8 The Company anticipates that its typical investors will be institutional and other sophisticated or professional investors who wish to invest in a predominantly income-producing investment who are capable themselves of evaluating the merits and risks of the investment and who have sufficient resources both to invest in potentially illiquid securities and to be able to bear any losses (which may equal the whole amount invested) that may result from the investment. 11.9 The annual report and accounts of the Company will be made for the 12 month period ending 31 March in each year. Copies of the annual audited financial statements will be sent to each Shareholder. It is expected that this will be within 120 days of the end of the relevant accounting period. In addition, copies of the annual audited financial statements and the semi-annual unaudited interim reports will be made available for inspection at and may be obtained upon request from the registered office of the Company shortly thereafter. These financial statements and reports will contain information as to the Companys Net Asset Value as at their dates. 11.10 It is intended that the annual general meeting of the Company will normally be held in September of each year. The annual general meeting of the Company will be held in Guernsey or such other place as may be determined by the Board of Directors. Notices convening the general meeting in each year will be sent to Shareholders (or the applicable class of Shareholders if relevant) at their registered addresses or given by advertisement not later than 21 days before the date fixed for the meeting. Other general meetings may be convened from time to time by the Directors by sending notices to Shareholders at their registered addresses or by Shareholders requisitioning such meetings in accordance with Guernsey law, and may be held in Guernsey or elsewhere. 11.11 The Companys Existing Ordinary Shares are listed on the Official List of the UK Listing Authority and admitted to trading on the main market of the London Stock Exchange. No application is being made for the Shares to be listed or dealt in on any stock exchange or investment exchange other than to the Official List of the UK Listing Authority and to trading on the main market of the London Stock Exchange. Neither the Shares nor any securities of the same class as the Shares are already admitted to trading on any regulated market or equivalent market. 11.12 No securities have been sold or are available in whole or in part to the public in connection with the Offer. 11.13 The business address of each of the Directors is the registered office of the Company. 11.14 Liberum Capital has given and not withdrawn its written consent to the issue of this Prospectus with references to its name in the form and context in which such references appear. 11.15 The Investment Manager has given and not withdrawn its written consent to the issue of this Prospectus with references to its name in the form and context in which such references appear.
AI 21.2.5 AXV 1.4

AIII 6.2

142

12. Capitalisation and Indebtedness The following tables show the Companys unaudited gross indebtedness as at 30 June 2010 (the latest practicable date prior to the posting of this Prospectus):
Total current debt As at 30 June 2010

AIII 3.2

Guaranteed Secured Unguaranteed/unsecured


Total non-current debt

Nil Nil Nil


As at 30 June 2010

Guaranteed Secured Unguaranteed/unsecured As at the date of this document, the Company had no indirect or contingent indebtedness. As at the date of this document, the Company had nil net indebtedness.

Nil Nil Nil

The following table shows the capitalisation of the Company as at 31 March 2010. The information below has been extracted without material adjustment from the audited report and financial statements of the Company for the year to 31 March 2010.
Shareholders equity As at 31 March 2010 ()

Share capital Legal reserve Other reserves Total

Nil Nil 99,329,841 99,329,841

There has been no material change to the capitalisation of the Company since 31 March 2010. 13. Documents available for Inspection Copies of the following documents are available for inspection at the offices of Herbert Smith LLP, Exchange House, Primrose Street, London EC2A 2HS and at the registered office of the Company during usual business hours on any weekday (Saturdays, Sundays and public holidays excepted) from the date of this Prospectus until Bonus Issue Admission: the Memorandum and Articles of Incorporation of the Company; the Revised Memorandum and Articles of Incorporation of the Company; the audited report and accounts for the financial years to 31 March 2008, 31 March 2009 and 31 March 2010; the Circular; and this Prospectus.

AI 24

In addition, copies of this Prospectus are available, for inspection only, from the Document Viewing Facility, UK Listing Authority, The Financial Services Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS. Further copies of this Prospectus may be obtained, free of charge, from the registered office of the Company and from Cheyne Capital Management (UK) LLP, Stornoway House, 13 Cleveland Row, London SW1A 1DH. 17 August 2010

143

DEFINITIONS AND GLOSSARY


The following definitions apply throughout this Prospectus unless the context requires otherwise: ABS asset-backed securities which are debt securities which have their interest and principal repayments sourced principally from a generic group of income producing assets the Net Asset Value of the Company calculated in accordance with the Companys accounting policies increased by an amount equal to the Aggregate Preference Share Notional Value the administration agreement between the Company and the Administrator dated 8 December 2005 Kleinwort Benson (Channel Islands) Fund Services Limited an affiliate of, or person affiliated with, a specified person; a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the person specified the Preference Share Notional Value multiplied by the number of Preference Shares in issue (excluding Preference Shares held in treasury) the European Commissions proposed Directive on Alternative Investment Fund Managers the personalised application forms relating to the Open Offer being sent to Qualifying Certificated Open Offer Shareholders together with this Prospectus, in respect of the New Ordinary Shares the Articles of Incorporation of the Company in force from time to time shall have the same meaning as given in the FSAs rules the board of directors of the Company the issue of Preference Shares, free of subscription cost to Qualifying Bonus Issue Shareholders on the basis of 1.25 Preference Shares for every 1 Ordinary Shares held as at the Bonus Issue Record Date admission of the Preference Shares issued pursuant to the Bonus Issue to the Official List and to trading on the London Stock Exchanges main market for listed securities and such admissions becoming effective the record date for qualification for the Bonus Issue, being 5.00 p.m. on 16 September 2010 any day (other than a Saturday or a Sunday) on which commercial banks are open for general business in London and Guernsey a trading name of Capita Registrars Limited collateralised debt obligation which is a debt obligation issued in multiple classes secured by an underlying portfolio of investments Cheyne Capital Management (UK) LLP

Adjusted NAV

Administration Agreement Administrator Affiliate

Aggregate Preference Share Notional Value AIFM Directive Application Forms and each an Application Form Articles or Articles of Incorporation Associate Board of Directors or Directors or Board Bonus Issue

Bonus Issue Admission

Bonus Issue Record Date Business Day Capita Registrars CDO Cheyne Capital

144

Circular City Code CMBS

the circular issued by the Company dated 17 August 2010 in connection with the Extraordinary General Meeting The City Code on Takeovers and Mergers commercial mortgage-backed securities, being interests in or obligations secured by a commercial mortgage loan or a pool of commercial mortgage loans The Companies (Guernsey) Law, 2008 (as amended) Queens Walk Investment Limited and, where relevant, its subsidiaries and subsidiary undertakings the group of Shareholders and certain funds and persons deemed by the Panel to be acting in concert for the purposes of the City Code more particularly described in the City Code from time to time, further details of which are set out in paragraph 9 of Part IX of this Prospectus the relevant system as defined in the CREST Regulations in respect of which Euroclear is operator (as defined in the CREST Regulations) in accordance with which securities may be held in uncertificated form the CREST Courier and Sorting Service established by Euroclear to facilitate, among other things, the deposit and withdrawal of securities the rules governing the operation of CREST, consisting of the CREST Reference Manual, CREST International Manual, CREST Central Counterparty Service Manual, CREST Rules, Registrars Service Standards, Settlement Discipline Rules, CCSS Operations Manual, Daily Timetable, CREST Application Procedure and CREST Glossary of Terms (all as defined in the CREST Glossary of Terms promulgated by Euroclear on 15 July 1996 and as amended since) a person who has been admitted to Euroclear as a system member (as defined in the CREST Regulations) a person who is, in relation to CREST, a system-participant (as defined in the CREST Regulations) the Uncertificated Securities Regulations 2001 (SI 2001 No. 2001/3755), as amended CREST participant admitted to CREST as a CREST sponsor CREST member admitted to CREST as a sponsored member State Street Custodial Services (Ireland) Limited the custody agreement between the Company and the Custodian dated 8 December 2005 (as amended) Shares in the capital of the Company in respect of which the Company has requested disclosure of the identity of any person (other than the Shareholder) who has an interest in such Shares and the nature of such interest and the requested information has not been supplied to the Company within the prescribed period in accordance with the Companys Articles a Shareholder who, having been requested to do so by the Directors, fails to provide certain information regarding the interests of other persons in the Shares held by that Shareholder
145

Companies Law Company Concert Party

CREST

CREST Courier and Sorting Service CREST Manual

CREST member CREST participant CREST Regulations CREST Sponsor CREST sponsored member Custodian Custody Agreement Default Shares

Defaulting Shareholder

Disclosure and Transparency Rules Enlarged Issued Ordinary Share Capital ERISA Euro or or EUR

the disclosure and transparency rules made by the FSA under Part VI of the FSMA the Ordinary Shares of the Company which are expected to be in issue following the completion of the Placing and Open Offer, comprising Existing Ordinary Shares and New Ordinary Shares the US Employee Retirement Income Security Act of 1974, as amended from time to time, and the applicable regulations thereunder the lawful single currency of member states of the European Communities that adopt or have adopted the Euro as their currency in accordance with the legislation of the European Union relating to European Monetary Union Euroclear UK & Ireland Limited, the operator of CREST shares issued or transferred to the Investing Fund in exchange for the Initial ABS Portfolio the United States, Canada, Australia, Japan and South Africa and any other jurisdiction where the extension or availability of the Placing and Open Offer would breach any applicable law the Ordinary Shares in issue as at the date of this Prospectus the extraordinary general meeting of the Company due to be held on 15 September 2010 at which Shareholders will validly vote upon, amongst other business, the Required Resolutions in accordance with Guernsey law the Financial Services Authority acting in its capacity as the competent listing authority for the purposes of Part 6 of the FSMA means the form of proxy issued to Shareholders entitled to attend and vote at the EGM Financial Services and Markets Act 2000, as amended the lawful currency of the United Kingdom the Guernsey Financial Services Commission the Company and its subsidiary, Trebuchet Finance Limited, and any other consolidated subsidiaries of the Company from time to time the sum of all investments held in the Investment Portfolio, cash and cash equivalents and net other assets/(liabilities), including minority interests an amount equal to a simple interest rate equal to 2 per cent. per quarter subject to the reset mechanism as set out on pages 74 and 75 of this Prospectus International Financial Reporting Standards the incentive fee payable by the Company to the Investment Manager in accordance with the terms of the Investment Management Agreement a portfolio of investments acquired prior to its initial public offering of Ordinary Shares on 23 November 2005 from, amongst other sellers, the Investing Fund

Euroclear Exchange Shares Excluded Territories and each an Excluded Territory Existing Ordinary Shares Extraordinary General Meeting or EGM

Financial Services Authority or FSA Form of Proxy FSMA GBP or pound Sterling GFSC Group Gross Assets

Hurdle Rate

IFRS Incentive Fee Initial ABS Portfolio

146

Investing Fund

Cheyne ABS Opportunities Fund LP, acting by its general partner, Cheyne ABS Opportunities General Partner Inc, and (as the context requires) such general partner itself, which is an open-ended investment fund managed by the Investment Manager from whom the Company acquired the Initial ABS Portfolio Messrs Shamez Alibhai and Ravi Stickney the investment management agreement, as amended from time to time, initially between the Company, Trebuchet and the Investment Manager dated 8 December 2005, and to which other special purpose vehicles may, if so required, become party in the future pursuant to a Deed of Adherence the side letter between the Company, Trebuchet and the Investment Manager dated 17 August 2010 summarised in paragraph 7 of Part IX of this Prospectus the investment management team of Cheyne Capital led by the Investment Committee Cheyne Capital Management (UK) LLP, a limited liability partnership incorporated in England (registered number OC321484). The address of the registered office of the Investment Manager is set out in the section titled Corporate Information

Investment Committee Investment Management Agreement

Investment Management Agreement Side Letter Investment Management Team Investment Manager

Investment Manager Options the Investment Manager options described under the heading Investment Manager Options in Part III of this Prospectus Investment Portfolio at any time, the ABS, MBS, RMBS, CMBS, Residual Income Positions or other investments, rights to investments, instruments and securities in which the Companys assets are invested Liberum Capital Limited the listing rules made by the Financial Services Authority for the purposes of Part VI of the FSMA London Stock Exchange plc loan to value the management fee payable by the Company to the Investment Manager in accordance with the terms of the Investment Management Agreement mortgage backed securities the Memorandum of Incorporation of the Company in force from time to time at any time, the net asset value of the Company in total or the net asset value per Ordinary Share (as the context requires), calculated in accordance with the Companys accounting policies Ordinary Shares issued pursuant to the Placing and Open Offer the notice contained in the Circular convening the EGM dated 17 August 2010

Liberum Capital Listing Rules London Stock Exchange LTV Management Fee

MBS Memorandum or Memorandum of Incorporation Net Asset Value or NAV

New Ordinary Shares Notice of Extraordinary General Meeting

147

Offer Price Official List Open Offer

the price at which New Ordinary Shares are being offered pursuant to the Placing and Open Offer, being 2.00 Official List of the UK Listing Authority the invitation by the Company to certain Qualifying Open Offer Shareholders to apply for New Ordinary Shares on the terms and subject to the conditions set out in this Prospectus admission of the New Ordinary Shares issued pursuant to the Placing and Open Offer to the Official List and to trading on the London Stock Exchanges Main Market for listed securities and such admissions becoming effective the pro rata entitlements to subscribe for New Ordinary Shares allocated to Qualifying Open Offer Shareholders pursuant to the Open Offer the record date for qualification for the Open Offer, being 5.00 p.m. on 13 August 2010 holders of Ordinary Shares the shares of no par value in the capital of the Company holders of Existing Ordinary Shares and/or New Ordinary Shares with a registered address in, or who are citizens, residents or nationals of, or are located or incorporated in jurisdictions outside of the United Kingdom the UK Panel on Takeovers and Mergers, which operates the City Code 31 March, 30 June, 30 September and 31 December in each year from 31 December 2010 to 31 December 2017 inclusive and the date of final repayment of the Preference Shares those investors participating in the Placing the placing of the New Ordinary Shares with the Placees subject to clawback under the Open Offer the Placing and Open Offer Agreement between the Company, the Investment Manager and Liberum Capital dated 17 August 2010 an amount in Sterling equal to 8 per cent. per annum of the Preference Share Notional Value holders of Preference Shares 1.00 redeemable shares of no par value each in the capital of the Company designated as Preference Shares in respect of any conversion of Sterling into Euro or of Euro into Sterling, as the case may be, on any relevant date, the prevailing spot rate of exchange chosen by the Directors in good faith for the purposes of such conversion investments with the key characteristics described on page 53 of this Prospectus

Open Offer Admission

Open Offer Entitlements

Open Offer Record Date Ordinary Shareholders Ordinary Shares Overseas Shareholders

Panel Payment Date

Placees Placing Placing and Open Offer Agreement Preference Dividend Preference Shareholders Preference Share Notional Value Preference Shares Prevailing Exchange Rates

Primary Target Investments

148

Prospectus Directive Prospectus Rules Qualifying Bonus Issue Shareholders

Directive 2003/71/EC and any relevant implementing measure in each Relevant Member State the prospectus rules made by the Financial Services Authority for the purposes of Part VI of the FSMA holders of Ordinary Shares as set out in the Register on the Bonus Issue Record Date with the exclusion of (i) holders of Ordinary Shares with a registered address in, or who are citizens, residents or nationals of, or are located or incorporated in any Excluded Territory and (ii) US Persons Qualifying Open Offer Shareholders holding Ordinary Shares in certificated form Qualifying Open Offer Shareholders holding Ordinary Shares in uncertificated form holders of Ordinary Shares as set out in the register of members of the Company on the Open Offer Record Date with the exclusion of (i) holders of Ordinary Shares with a registered address in, or who are citizens, residents or nationals of, or are located or incorporated in any Excluded Territory and (ii) US Persons

Qualifying Certificated Open Offer Shareholders Qualifying CREST Open Offer Shareholders Qualifying Open Offer Shareholders

Real Estate Debt Investments debt secured, directly or indirectly, by commercial or residential properties within Western Europe or the United Kingdom having some or all of the characteristics set out on page 55 of this Prospectus Receiving Agent Register Registrar Registrar Agreement Regulation S Relationship Agreement Relevant Implementation Date Relevant Member State Repayment Amount Required Resolutions Capita Registrars the register of members of the Company Capita Registrars (Guernsey) Limited the registrar agreement between the Company and the Registrar dated 8 December 2005 Regulation S under the US Securities Act the relationship agreement between the Company and the Investing Fund dated 8 December 2005 the date on which the Prospectus Directive is implemented in a Relevant Member State any Member State of the European Economic Area which has implemented the Prospectus Directive an amount equal to (i) the Preference Share Notional Value increased by (ii) any accrued but unpaid Preference Dividend means the special resolution proposed at the EGM to amend the Articles by accommodating the Preference Share rights and make certain other consequential amendments to the Articles, approve the Placing and Open Offer and the Bonus Issue and approve each modification, variation or abrogation of the rights attached to Ordinary Shares; and the ordinary resolutions proposed at the EGM to: (i) amend the Companys investment policy in the manner described in Part I of this Prospectus, and (ii) approve the issue of New Ordinary Shares at the Offer Price which is a discount of more than 10 per cent. to the middle market price of the Existing Ordinary Shares at the time of announcing the terms of the Placing and Open Offer
149

Residual Income Positions

assets currently held in the Investment Portfolio which are subordinated tranches of ABS that are, in most cases, unrated and, in many cases, represent the residual income typically retained by the originator of a securitisation transaction as the equity or first loss position Ordinary Shareholders as at the Open Offer Record Date and the Bonus Issue Record Date (as applicable) with a registered address in, or who are citizens, residents or nationals of or are located or incorporated in any Excluded Territory or are US Persons the proposed restated Articles upon which Shareholders will be asked to vote on the adoption thereof at the Extraordinary General Meeting the proposed restated Memorandum upon which Shareholders will be asked to vote on the adoption thereof at the Extraordinary General Meeting a regulatory information service, being one of the service providers listed in Schedule 12 of the Listing Rules residential mortgage-backed securities, being interests in or obligations secured by pools of residential mortgage loans the holders of Shares the Ordinary Shares and/or Preference Shares (as appropriate) Small or medium enterprise special purpose vehicle State Street Fund Services (Ireland) Limited the sub-administration agreement between the Company and the Sub-Administrator dated 8 December 2005 (as amended) a supplement to the Prospectus produced in accordance with rule 3.4 of the Prospectus Rules Income and Corporation Taxes Act 1988 Trebuchet Finance Limited, a special purpose vehicle incorporated in Ireland on 19 May 2005 with registered number 402419 the FSA in its capacity as the competent authority for listing in the United Kingdom pursuant to Part IV of the FSMA Capita Registrars the lawful currency of the United States of America the United Kingdom of Great Britain and Northern Ireland the United States of America, its territories and possessions, any State of the United States, and the District of Columbia Unmatched Stock Event the US Investment Company Act of 1940, as amended US person within the meaning given to it in Regulation S under the US Securities Act

Restricted Shareholders

Revised Articles Revised Memorandum

RIS RMBS Shareholders Shares SME SPV Sub-Administrator Sub-Administration Agreement Supplement to the Prospectus Taxes Act Trebuchet UK Listing Authority UK Transfer Agent $ or US$ or US Dollars United Kingdom or UK United States or US USE US Investment Company Act US Person

150

US Securities Act US Tax Code Western Europe

the US Securities Act of 1933, as amended the US Internal Revenue Code of 1986, as amended means Andorra; Austria; Belgium; Denmark; Finland; France; Germany; Gibraltar; Guernsey; Iceland; Ireland, Isle of Man; Italy; Jersey; Liechtenstein; Luxembourg; Monaco; the Netherlands; Norway; Portugal; San Marino; Spain; Sweden; and Switzerland

151

Millnet Financial

(8623-01)