The key characteristics of BYP have been discussed in more detail in our inaugural letter for Q (click here).

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1 Dear Investors, We started Banyan Yield Plus service ( BYP ) on August 01, 2013 with the objective of capital protection by investing in publicly-traded fixed income securities while maximizing the returns by investing in special situations. The investments are selected to maintain a balance of safety, yield, and liquidity. The key characteristics of BYP have been discussed in more detail in our inaugural letter for Q (click here). In the following sections, we discuss BYP s performance, bond market, portfolio allocation and our investment thesis on special situations that we closed in the June quarter. PERFORMANCE April 1, 2014 June 30, 2014 BYP* Arbitrage Funds (Average) #^ Fixed Maturity Plan (Average) # CRISIL Composite Bond Fund Absolute Return - Pre Tax 5.7% 2.1% 3.6% 3.8% August 1, June 30, 2014 Absolute Return - Pre Tax 18.9% 8.6% 9.8% 9.1% Annualised Return - Pre Tax 20.6% 9.4% 10.6% 9.9% Annualised Return - After Tax 15.5% 9.4% 10.6% 9.9% *BYP is a client account of Banyan Capital Advisors since August 1, 2013 and returns are net of fees and expenses from thereon. #Source: ^Assuming the Arbitrage Fund is held for over a Assuming a corresponding debt mutual fund is held for a year and taxed at 20% with an indexation benefit. Your individual statement may differ from the return shown above primarily due to the timing of investments. Each portfolio is ramped up over a period to attain allocations similar to BYP. The timing issue depends on the market conditions and on our view on allocating capital to the positions at opportune valuation levels. The performance in Q was 5.7% (annualized return of 22.6%) and we outperformed both of the benchmarks CRISIL Composite Bond Fund Index and an average fixed maturity plan (FMP) due to significant gains in the special situations. Based on your feedback, we added a new category Arbitrage Funds to compare our performance from the June quarter onwards. BYP posted superb return in comparison to the average post-tax return of Arbitrage Funds (assuming it is held for a year so that an investor can get long-term capital gain tax treatment). BYP is also superior to an Arbitrage Fund on the 1

2 liquidity criteria because there is no one-year holding period constraint whereas to get a favorable long-term tax benefit, one has to hold the Arbitrage Fund for over a year. REVIEW OF THE BOND MARKET The short term commercial paper rates went down by 35 bps from 9.60% in the March quarter to 9.25% at the end of the June quarter. Similarly, the spread between AAA corporate bonds and government bonds for 5-year maturity went down from 64 bps in the last quarter to 46 bps. The 10-year bond yields started the quarter at 8.80% and went up to a high of 9.10% in the first week of April followed by a down move to as low as 8.50% in the first week of June on the back of a decisive NDA victory in the general elections and positive Reserve Bank of India ( RBI ) policy. However, the yield went up again to end the quarter at 8.73% because of oil price worries due to the Iraq crisis and prospects of a bad monsoon due to the El Nino effect. In the last monetary policy review on 3 rd June, RBI maintained status quo on all policy interest rates and statutory requirements. It re-iterated its commitment to bring down inflation to 8% by Jan-15 and 6% by Jan-16. Here is what RBI said: If the economy stays on this course, further policy tightening will not be warranted. While on the other hand, if disinflation, adjusting for base effects, is faster than currently anticipated, it will provide headroom for an easing of the policy stance. The statement indicates that the RBI is not willing to increase the repo rate in the current conditions and thus, removed the fears of potential rate hikes. RBI also reduced the SLR level (of the banking system) to ensure the financing need of the government are not severely impinged and the banks are able to lend more to the productive sectors of the economy. Debt market is worried about the impact of the Iraq crisis on crude prices, El Nino effect on the primary article prices and government bonds issuance program to bridge the fiscal deficit. These factors may cause volatility in the near term that may not allow RBI to cut interest rates in the coming months. The corporate bond portfolio of BYP benefited due to a reduction in yield as well as the spread in the last quarter. While we understand the near-term concerns will create volatility, we are not unduly focused on it because we expect to hold our bond positions till maturity. TAXATION OF DEBT MUTUAL FUNDS The recent budget announcement has significantly reduced the attractiveness of both debt mutual funds and FMPs. As per the proposed new rules, the period for long-term capital gain taxation for such vehicles has been increased from one year to three years and the tax rate is now at 20% (with indexation benefit) as opposed to an additional option of 10% (without indexation) earlier. For BYP investors, it does not change anything because majority of the interest income from our bond positions is already taxed at the marginal tax rate (30% for the highest tax bracket investor) 2

3 and the special situations are typically taxed at 15% as we sell the shares in the market. Therefore, the blended highest tax rate has been approximately 25% in the last 11 months and likely to be around it for a BYP investor in the highest tax bracket. The mutual funds association is, obviously, against the new rules and we will monitor if they are successful in overturning the aforementioned changes. Assuming the new rules stay, FMPs will no longer enjoy the tax benefit it did in the earlier regime and will become a significantly inferior option to compare BYP with and we may discontinue it as a benchmark. We will keep you posted as the dust settles and the tax notification becomes official. PORTFOLIO ALLOCATION As of June 30, 2014, we have allocated 59% across five fixed income securities, 40% in special situations and the remainder in cash and a liquid fund. The variation in the allocation for the last three quarters is shown in the chart below: 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 18% 4% 10% 1% 37% 29% 40% 21% 59% 61% 61% 59% Sep-13 Dec-13 Mar-14 Jun-14 Fixed Income Securities Cash and Equivalent Special Situations Most of the fixed income securities are issued by AA rated companies in the financial sector with a maturity range of two to four years. We have also invested in a tax-free bond of a AAA-rated government company with a tenure of 20 years that met our standards of safety, liquidity and potential return parameters. 3

4 SPECIAL SITUATIONS We closed eleven positions in the last quarter out of which five were initiated in the June quarter while remaining positions were initiated in the previous three quarters. The results of the closed positions are in the table below followed by a commentary on a few of them that contributed significantly to the quarter s performance: Special Situations Company Type Start Date Average No. of Days Absolute Return % IRR % Company L Tender Offer / M&A 05 Aug % 78.3% Company M Delisting 16 Dec % 16.9% Company N Tender Offer / Buyback 28 Jan % 40.2% Company O Exit Offer 20 Feb % 29.5% Company P Tender Offer / M&A 07 Mar % 81.4% Company Q Delisting 07 Mar % 70.1% Company R* Exit Offer 11 Apr NA NA Company S Special Dividend 17 Apr % 225.9% Company T Tender Offer / Promoter 21 Apr % 62.7% Company U* Tender Offer / M&A 15 Apr NA NA Company V Tender Offer / M&A 30 Apr % 79.8% * These positions were squared off prematurely to invest in more lucrative opportunities. Company L was a major success in the last quarter. We were expecting an open offer by at least one of the two bidders who had acquired significant stakes in the company. Here is what we wrote in the last letter regarding Company L: We continue to hold a special situation where two potential acquirers have openly expressed interest in the target company (the Target ). We are not surprised with the status quo maintained in the last quarter. Recently, we spoke with the management of one of the acquirers who showed its strong inclination to buy the Target because of the strong, quantifiable synergies. We believe the deal is bound to happen but the timeline is an uncertainty. We have already made an annualized return of 66% as on March 31, 2014 closing price but we believe there will be more upside from the bidding war between the two potential acquirers. We are patiently waiting for more clarity in the current (June) quarter. One of the acquirers (Acquirer1) finally announced the open offer at a price near to the then current market price but the stock went above the offer price on an expectation of a competing offer by the other acquirer (Acquirer2). The Acquirer2 along with the current promoter did announce a competing offer at a price 9% above the Acquirer1 s offer price. The stock price 4

5 went above the Acquirer2 s offer price in anticipation of a higher offer price from Acquirer1. Our investment thesis played out and we decided to close the position with an internal rate of return ( IRR ) of 78%. Acquirer1 has been silent since the competing offer was made but we believe that there should be a revision in its offer price because of the potential synergies between the target and Acquirer1. This has created another opportunity to enhance our return. Therefore, we have taken a much reduced position during the quarter with an intention to increase it as the events unfold. We will update you in the next quarterly letter. We invested in an exit offer (after a successful delisting price discovery) by the management of Company O. There was no capital risk in this case as all the shares would be accepted by the company at a price 4% above our purchase price but the time of the closing of the offer was uncertain due to exchange approvals. The exit offers attract higher capital gains tax (of 30%) but our analysis suggested high-teens IRR on an after-tax basis. The exit offer was announced as per our expected timeline and we tendered the shares to make a pre-tax and post-tax IRR of 29.5% and 19.5%, respectively. Typically, we avoid tendering the shares to reduce the tax burden but this is one of the rare situations where it made sense to pay higher taxes. We also invested in a delisting offer of Company Q where the indicative price was 5% below the then prevailing price. As per SEBI s white paper on delisting cases, the companies paid atleast 25% more than the floor price in 65% of the successful delisting cases. Therefore, we expected the stock price to go up before the close of bidding process on expectations of a higher delisting price for the process to be successful. Our deep understanding of the promoter s track record (as we own one of its listed companies in BIP) was critical in our decision to invest in Company Q. However, we sold it before the bidding process was completed (to reduce our risk) and made a 9% return in 62 days (an IRR of 70%). We closed the position in a voluntary tender offer of Company T by its parent company. We invested in this situation with an expectation of positive price movement after SEBI s approval but the stock went up earlier than expected because of the overall market sentiment after the new government came in power. We decided not to wait for the approval and closed the position with an absolute return of 3.6% (an IRR of 62%) to invest the capital in other special situations. CLOSING REMARKS Since March 2012, we have evaluated 197 special situations but invested in only 37 opportunities and our median return is 3.7% with an annualized return of 40% in these special situations. As discussed in the last letter, March quarter was an aberration with most of the special situations yielding lower than our median return. We were not unduly bothered by it because we 5

6 always evaluate each situation on capital preservation parameter first. We stuck to our discipline and our patience was rewarded in the June quarter as most of the investments yielded above median return with Company L being a huge contributor to the performance. As always, please send in your comments, questions and suggestions. We thank you for your support and confidence in Banyan Capital! With warm regards, V.P. Rajesh Rajat Budhiraja This letter has been prepared for informational purposes only and accordingly should not be used for any other purpose or be copied or distributed to anyone without the prior written consent of Banyan Capital Advisors Private Limited, India. Any reproduction of this information in whole or in part is strictly prohibited. References to specific investments or strategies are for illustrative purposes only and are not intended to and should not be relied upon as recommendations to purchase or sell particular investments or engage in particular strategies. Opinions are based on current market conditions and are subject to change without notice. Certain information contained herein was obtained from outside sources which we believe to be reliable but we do not make any representation or guarantee regarding its reliability, accuracy or completeness of this material. Past performance is no guarantee of future results. This letter does not constitute an offer to sell, or a solicitation of an offer to buy the limited partnership interests, portfolio management services, or securities of any fund described herein. No such offer or solicitation will be made prior to the delivery of a confidential offering memorandum or a PMS Agreement and other materials (such as Disclosure Document) relating to the matters described herein. Before making an investment decision with respect to the such interests or securities, potential investors are advised to read carefully the Disclosure Document, PMS Agreement, confidential offering memorandum, the limited partnership agreement, if any, and the related subscription documents and to consult with their tax, legal and financial advisors. 6