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Queens Walk Inv Ltd (RECI)

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Monday 13 November, 2006

Queens Walk Inv Ltd

Interim Results

Queen's Walk Investment Limited
13 November 2006




                                                                13 November 2006





                        Queen's Walk Investment Limited


                       Financial Results for the Quarter

                     and Six Months ended 30 September 2006


Queen's Walk Investment Limited is a Guernsey-incorporated investment company
listed on the London Stock Exchange. The Company's investment objective is to
preserve capital and to provide stable returns to shareholders in the form of
quarterly dividends. To achieve this, Queen's Walk invests primarily in a
diversified portfolio of subordinated tranches of asset backed securities,
including the unrated 'equity' or 'first loss' residual income position
typically retained by the banks or other financial institutions which have
originated the loan assets that collateralise a securitisation transaction. The
Company makes such investments where its investment manager, Cheyne Capital
Management Limited, considers the coupon or cashflows from the investment to be
attractive relative to the credit exposure of the underlying asset collateral.
For more information regarding Queen's Walk, please visit www.queenswalkinv.com
or call Andrea Bonafe: +44 207 031 7480.



Half Year Highlights

   •Queen's Walk continues to exceed the targets set at the time of its IPO
    in December 2005 and continues to deliver on its strategic objectives
   •The Company has generated distributable net profit of €10.6 million and
    earnings per ordinary share of €0.26 for the second quarter and
    distributable net profit of €21.2 million and earnings per ordinary share of
    €0.52 for the six months ended 30 September 2006
   •An interim quarterly dividend of €0.26 per share has been declared,
    resulting in a cumulative interim dividend of €0.52 for the financial year
    to date
   •Given the continued strong performance of its investment portfolio, the
    Company has increased its target dividend for the quarter ended 31 December
    to not less than €0.27 per share
   •The Company has increased its aggregate target dividend for its first
    full financial year from the €1.00 announced at the time of its IPO to a
    target of not less than €1.07 per share
   •The Company's diversified investment portfolio totals €531.0 million,
    with net indebtedness of €126.1 million, representing approximately 23.7% of
    the investment portfolio
   •The Company believes there is a strong asset pipeline to support future
    growth
   •Cheyne Capital continues to evaluate attractive investment opportunities in 
    residential mortgage-backed transactions as well as reviewing an increased 
    pipeline of investments backed by small-and-medium enterprise (SME) loans 



Financial Highlights



   +--------------------+------------+------------+------------+------------+
   |                    |Q2 - Quarter|Q1 - Quarter|Six months  |Period from |
   |                    |ended 30    |ended 30    |ended 30    |6 September |
   |                    |September   |June 2006   |September   |2005 to 31  |
   |                    |2006        |            |2006        |March 2006  |
   |                    |            |            |            |            |
   +--------------------+------------+------------+------------+------------+
   |Operating income    | €15,674,473| €14,992,921| €30,667,394| €12,480,487|
   +--------------------+------------+------------+------------+------------+
   |Operating expenses  | (3,349,855)| (2,813,090)| (6,162,945)| (2,455,408)|
   +--------------------+------------+------------+------------+------------+
   |Finance costs       | (1,772,011)| (1,182,461)| (2,954,472)|   (260,052)|
   +--------------------+------------+------------+------------+------------+
   |Net profit          |  10,552,607|  10,997,370|  21,549,977|   9,765,027|
   +--------------------+------------+------------+------------+------------+
   |Distributable net   |  10,583,319|  10,599,894|  21,183,213|   9,765,027|
   |profit              |            |            |            |            |
   +--------------------+------------+------------+------------+------------+
   |Earnings per share  |        0.26|        0.27|        0.53|        0.24|
   +--------------------+------------+------------+------------+------------+
   |Distributable       |        0.26|        0.26|        0.52|        0.24|
   |earnings per share  |            |            |            |            |
   +--------------------+------------+------------+------------+------------+
   |                                                                        |
   +--------------------+------------+------------+------------+------------+
   |Total assets        | 520,550,381| 531,153,613| 520,550,381| 493,842,561|
   +--------------------+------------+------------+------------+------------+
   |Equity capital      | 403,355,430| 403,364,220| 403,355,430| 402,069,116|
   +--------------------+------------+------------+------------+------------+
   |Total liabilities   | 117,194,951| 127,789,393| 117,194,951|  91,773,445|
   |(incl. financing)   |            |            |            |            |
   +--------------------+------------+------------+------------+------------+



Extracts from the unaudited quarterly accounts of the Company for the quarter
ended 30 June 2006 and the unaudited interim accounts of the Company for the six
months ended 30 September 2006 accompany this statement. The Company Summary
from the unaudited interim accounts for the six months ended 30 September 2006
is set out below.


Second Quarter Dividend


The Board of Directors has declared an interim quarterly dividend for the period
ended 30 September 2006 of €0.26 payable on 18 December 2006 to shareholders of
record on 24 November 2006.


Conference Call


A conference call to review the Company's financial results for the quarter and
six months ended 30 September 2006 will take place at 2:00 P.M. London time (9:
00 A.M. New York time) on 14 November 2006. All interested parties are welcome
to participate on the live call.  You can access the conference call by dialing
+1 718 354 1361 (from within the U.S.) or +44 (0) 20 7138 0819 (from outside of
the U.S.) ten minutes prior to the scheduled start of the call; please reference
Queen's Walk Investment Limited Financial Results.


A webcast of the conference call will be available to the public on a
listen-only basis at www.queenswalkinv.com.  Please allow extra time prior to
the call to visit the site and download the necessary software required to
listen to the internet broadcast. A replay of the webcast will be available for
three months following the call.


A replay of the conference call will be available until midnight UK time on 20th
November 2006. The replay can be accessed at +44 (0) 20 7806 1970 or +1 718 354
1112. The passcode for the replay is 6459732#.


Company Performance


The Company continued to perform strongly in the six-month period ended 30
September 2006, with total revenues having reached €30.7 million. While 
operating and finance expenses of the Company were increased in the second 
quarter (in line with the larger portfolio held over an entire quarter), 
distributable net profit remained in line with the previous quarter, resulting 
in earnings per share of €0.26 consistent with the previous quarter.  Net profit 
for the second quarter of €10.6 million was relatively unchanged from the first
quarter after taking into account a mark-to-market gain on certain bond
positions that was recognised in the first quarter. These bonds were sold
(realising a gain of €366,764) as part of a portfolio rebalancing exercise that
was undertaken in the second quarter to reduce refinancing risk and to further
optimise the yield on the Company's investment portfolio.


The Company's investment portfolio (including amounts receivable under total
return swap agreements but excluding cash) totalled €531.0 million as at 30
September 2006, compared to €530.7 million as at 30 June 2006 and approximately
€496 million as at 31 March 2006. While bond positions were sold in the second
quarter, three new residual income positions with an aggregate value of €67.7
million were added to the Company's investment portfolio in the second quarter.
These acquisitions were effected by having the Company's subsidiary, Trebuchet
Finance Limited, enter into total return swap agreements with Citigroup
Financial Products Inc. ('Citigroup') that reference the relevant assets. The
acquisition of these assets was partly funded through portfolio principal
receipts, the proceeds of sale of bond positions and, in the case of two of the
assets, financing provided by Citigroup.


The Company uses leverage to finance its investment portfolio where it believes
this will enhance returns to shareholders, subject to the leverage limits
contained in the Company's investment policy. The Company's leverage as at 30
September 2006 (including repurchase agreements and the leverage effected
through two of the total return swap agreements, net of cash) totalled €126.1
million, or 23.7% of the investment portfolio (compared to €115.8 million
(22.8%) at the end of the first quarter and €88.9 million (17.9%) as at 31 March
2006).


Portfolio Overview


The Company's investment portfolio as at 30 September 2006 is comprised of 25
investments in total. While the portfolio remains well diversified both
geographically and by asset class, it continues to be backed predominantly by
residential mortgages - the largest European asset class. As at 30 September
2006, the portfolio was comprised of: 86% RMBS (80% as at 31 March 2006); 4%
Small-and-Medium Enterprise (SME) (9%); and 15% diversified ABS (10%). The
geographic breakdown of the portfolio as at 30 September 2006 relative to the
portfolio as at 31 March 2006 is set out in the charts that follow.



+-------------------------------------------------+
|Queen's Walk Portfolio by Jurisdiction as at 30  |
|September 2006                                   |
+------------------------+------------------------+
|UK                      |51%                     |
+------------------------+------------------------+
|US                      |13%                     |
+------------------------+------------------------+
|Italy                   |6%                      |
+------------------------+------------------------+
|Holland                 |2%                      |
+------------------------+------------------------+
|Germany                 |3%                      |
+------------------------+------------------------+
|Portugal                |15%                     |
+------------------------+------------------------+
|Diversified ABS         |10%                     |
+------------------------+------------------------+




+-------------------------------------------------+
|Queen's Walk Portfolio by Jurisdiction as at 31  |
|March 2006                                       |
+------------------------+------------------------+
|UK                      |35%                     |
+------------------------+------------------------+
|US                      |18%                     |
+------------------------+------------------------+
|Italy                   |6%                      |
+------------------------+------------------------+
|Holland                 |10%                     |
+------------------------+------------------------+
|Germany                 |3%                      |
+------------------------+------------------------+
|Portugal                |17%                     |
+------------------------+------------------------+
|Diversified ABS         |11%                     |
+------------------------+------------------------+



A summary of the Company's ten largest investments as at 30 September 2006,
which account for 55.7% of the total portfolio by gross asset value, is set out
in the following table.

+---------+----------+---------+------------+----------------+-------------+
|Issuer   |Asset Type|% of ABS |Description |Description of  |Servicer /   |
|         |          |Portfolio|of          |Underlying      |Administrator|
|         |          |         |Investment  |Assets          |             |
+---------+----------+---------+------------+----------------+-------------+
|         |UK RMBS   |8.87%    |Series      |Approximately   |Mortgages Plc|
|         |          |         |2006-1      |5,900           |             |
|Newgate  |          |         |Detachable  |first-ranking   |             |
|Funding  |          |         |Coupons, MER|near prime and  |             |
|plc      |          |         |Payment     |non-conforming  |             |
|         |          |         |Receivables |residential     |             |
|         |          |         |and Residual|mortgages       |             |
|         |          |         |Payment     |                |             |
|         |          |         |Receivables |                |             |
+---------+----------+---------+------------+----------------+-------------+
|Eurosail |UK RMBS   |6.64%    |Residual    |Approximately   |Capstone     |
|2006-1   |          |         |Certificates|9,800           |Mortgage     |
|plc      |          |         |            |first-ranking   |Services     |
|         |          |         |            |prime,          |Limited      |
|         |          |         |            |non-conforming  |             |
|         |          |         |            |and buy-to-let  |             |
|         |          |         |            |residential     |             |
|         |          |         |            |mortgages       |             |
+---------+----------+---------+------------+----------------+-------------+
|RMAC     |UK RMBS   |6.13%    |Mortgage    |Approximately   |Homeloan     |
|2004-NSP4|          |         |Early       |8,100           |Management   |
|plc      |          |         |Redemption  |first-ranking   |Limited      |
|         |          |         |Certificates|prime, near     |             |
|         |          |         |and Residual|prime and       |             |
|         |          |         |Certificates|non-conforming  |             |
|         |          |         |            |residential     |             |
|         |          |         |            |mortgages       |             |
+---------+----------+---------+------------+----------------+-------------+
|Southern |UK RMBS   |5.58%    |Class DTc   |Approximately   |Capstone     |
|Pacific  |          |         |Notes, Class|4,500 first     |Mortgage     |
|Financing|          |         |F Notes and |ranking,        |Services     |
|06-A plc |          |         |Residual    |near-prime      |Limited      |
|         |          |         |Certificates|residential     |             |
|         |          |         |            |mortgages       |             |
+---------+----------+---------+------------+----------------+-------------+
|Sestante |Italian   |5.55%    |Class D and |Approximately   |Meliorbanca  |
|Finance  |RMBS      |         |Class E     |3,500           |S.p.A.       |
|S.R.L.   |          |         |Notes       |first-ranking   |             |
|         |          |         |            |prime           |             |
|         |          |         |            |residential     |             |
|         |          |         |            |mortgages       |             |
+---------+----------+---------+------------+----------------+-------------+
|RMAC 2005|UK RMBS   |5.08%    |Mortgage    |Approximately   |Homeloan     |
|NS3 plc  |          |         |Early       |6,500           |Management   |
|         |          |         |Redemption  |first-ranking   |Limited      |
|         |          |         |Certificates|prime, near     |             |
|         |          |         |and Residual|prime and       |             |
|         |          |         |Certificates|non-conforming  |             |
|         |          |         |            |residential     |             |
|         |          |         |            |mortgages       |             |
+---------+----------+---------+------------+----------------+-------------+
|RMAC 2005|UK RMBS   |4.99%    |Mortgage    |Approximately   |Homeloan     |
|NSP2 plc |          |         |Early       |11,000          |Management   |
|         |          |         |Redemption  |first-ranking   |Limited      |
|         |          |         |Certificates|prime, near     |             |
|         |          |         |and Residual|prime and       |             |
|         |          |         |Certificates|non-conforming  |             |
|         |          |         |            |residential     |             |
|         |          |         |            |mortgages       |             |
+---------+----------+---------+------------+----------------+-------------+
|RMAC     |UK RMBS   |4.54%    |Mortgage    |Approximately   |Homeloan     |
|2005-NS1 |          |         |Early       |7,800           |Management   |
|plc      |          |         |Redemption  |first-ranking   |Limited      |
|         |          |         |Certificates|prime, near     |             |
|         |          |         |and Residual|prime and       |             |
|         |          |         |Certificates|non-conforming  |             |
|         |          |         |            |residential     |             |
|         |          |         |            |mortgages       |             |
+---------+----------+---------+------------+----------------+-------------+
|Southern |UK RMBS   |4.45%    |Subordinated|Approximately   |Southern     |
|Pacific  |          |         |Loan        |3,000 first     |Pacific      |
|Financing|          |         |Agreement   |ranking         |Mortgage     |
|05-B plc |          |         |            |near-prime      |Limited and  |
|         |          |         |            |residential     |Homeloan     |
|         |          |         |            |mortgages       |Management   |
|         |          |         |            |                |Limited      |
+---------+----------+---------+------------+----------------+-------------+
|Magellan |Portuguese|3.91%    |Class D     |Approximately   |Banco        |
|Mortgages|RMBS      |         |Notes and   |23,000 first    |Comercial    |
|No. 1 plc|          |         |Subordinated|ranking,        |Portugues SA |
|         |          |         |Loan        |fully-amortising|             |
|         |          |         |Facility    |residential     |             |
|         |          |         |Agreement   |mortgages       |             |
+---------+----------+---------+------------+----------------+-------------+


Outlook


The Company's investment manager, Cheyne Capital, continues to evaluate
attractive investment opportunities in the both the UK and continental Europe.
In addition to the significant pipeline of residential mortgage-backed
investment opportunities brought by the continued growth of the global
securitisation market, the regulatory capital changes brought by Basel II have
motivated many banks to securitise their portfolios of SME loans. The investment
manager sees significant potential opportunity for further investment in this
asset class, particularly in the short and medium term. Where the underlying SME
loan portfolios are sufficiently diverse and granular (in terms of the number of
underlying borrowers), the Company views this asset class as providing a good
compliment to its consumer finance-backed investments and, consequently, as
potentially providing significant benefit to shareholders in terms of portfolio
diversification as well as investment returns.





Dividend Policy


While the Company does not provide profit forecasts, it has provided guidance to
shareholders since the time of its IPO on target dividends for specific
financial periods. While these target dividends were not profit forecasts, a
change in the application of certain disclosure requirements relevant to the
Company and other investment companies since the time of the Company's IPO has
required the Company to alter its stated dividend policy in order to be able to
continue to provide this guidance to shareholders


As the Company believes that the provision of target dividends is important and
meaningful information for shareholders, the Company confirms that it remains
its intention to continue to announce, from time to time, target dividends for
its then current financial period (or periods). While the Company maintains its
objective of providing shareholders with stable returns in the form of quarterly
dividends, its dividend policy is no longer necessarily to distribute
substantially all of its distributable net income. The Company may in future
retain a portion of its distributable net income as a reserve for payment in
subsequent periods. This change in the Company's stated dividend policy is no
reflection on the Company's outlook for future performance and has been effected
solely for the purpose of being able to continue to provide shareholders with
information regarding target dividends.


Due to the strong performance of the Company since its IPO and as a result of 
this change to the Company's dividend policy, the Company is now able to 
announce a target dividend of not less than €0.27 per share for the quarter 
ended 31 December 2006 and an increase in its aggregate target dividend for the 
financial year ending 31 March 2007 from the €1.00 target announced at the time 
of its IPO to an aggregate target dividend amount of not less than €1.07.


Any target dividends that the Company may announce from time to time should not
be regarded as providing any guidance regarding the level of the Company's
distributable net income for any period.


For further information please contact:

Investor Relations:
Caroline Villiers +44 (0) 20 7153 1521

Cheyne Capital:
Andrea Bonafe +44 (0) 20 7031 7480



About the Company:


Queen's Walk Investment Limited is a Guernsey-incorporated investment company
listed on the London Stock Exchange. The Company's investment objective is to
preserve capital and to provide stable returns to shareholders in the form of
quarterly dividends. To achieve this, Queen's Walk invests primarily in a
diversified portfolio of subordinated tranches of asset backed securities,
including the unrated 'equity' or 'first loss' residual income position
typically retained by the banks or other financial institutions which have
originated the loan assets that collateralise a securitisation transaction. The
Company makes such investments where its investment manager, Cheyne Capital
Management Limited, considers the coupon or cashflows from the investment to be
attractive relative to the credit exposure of the underlying asset collateral.
The Company believes that its investment focus provides equity investors with
exposure to a relatively new investment opportunity in this asset class.


The content of this announcement includes statements that are, or may be deemed
to be, 'forward-looking statements'. These forward-looking statements can be
identified by the use of forward-looking terminology, including the terms
'believes', 'estimates', 'anticipates', 'expects', 'intends', 'may', 'will' or
'should'. They include the statement regarding the target aggregate dividend. By
their nature, forward-looking statements involve risks and uncertainties and
readers are cautioned that any such forward-looking statements are not
guarantees of future performance. The Company's actual results and performance
may differ materially from the impression created by the forward-looking
statements. The Company undertakes no obligation to publicly update or revise
forward-looking statements, except as may be required by applicable law and
regulation (including the Listing Rules).


Any target dividends are based on certain assumptions as to future events which
may not prove to be realised. Due to the uncertainty surrounding these future
events, the targets are not intended to be and should not be regarded as profits
or earnings forecasts. There can be no assurance that these targets will be
achieved or that the Company will be able to pay dividends at the target levels
or at all. The payment of any target dividends is subject to the Company
generating sufficient profits or having sufficient retained earnings and there
can be no assurance that this will be the case. The Company may revise its
dividend policy from time to time.



The following extract from the quarterly accounts of the Company for the quarter
ended 30 September 2006 are unaudited.

Unaudited Consolidated Income Statement

For the quarter ended 30 September 2006

                              Note   Quarter ended Quarter ended Period from 6
                                     30 September  30 June 2006  September
                                     2006                       2005 to 31
                                                                 March 2006 *
                                     Euro          Euro          Euro

Operating income                     15,674,473    14,992,921    12,480,487

Operating expenses
Other operating expenses             (3,349,855)   (2,813,090)   (2,455,408)
Finance costs                        (1,772,011)   (1,182,461)     (260,052)
Total operating expenses             (5,121,866)   (3,995,551)   (2,715,460)

Net profit                           10,552,607    10,997,370     9,765,027

Distributable profits        2       10,583,319    10,599,894     9,765,027
Non-distributable profits    2         (30,712)       397,476             -
                                     10,552,607    10,997,370     9,765,027

Earnings per Ordinary Share
Basic                                Euro 0.26     Euro 0.27     Euro 0.24
Diluted                              Euro 0.26     Euro 0.27     Euro 0.24

Distributable earnings per Ordinary
Share

Basic                                Euro 0.26     Euro 0.26     Euro 0.24
Diluted                              Euro 0.26     Euro 0.26     Euro 0.24

Weighted average Ordinary Shares     Number        Number        Number
outstanding
Basic                                40,620,756    40,620,756    40,620,756
Diluted                              40,721,759    40,852,819    41,053,527


All items in the above statement are derived from continuing operations.


All income is attributable to the Ordinary Shareholders of the Company.


* The Company commenced its operations on 8 December 2005.



Unaudited Consolidated Statement of Changes in Shareholders' Equity

For the quarter ended 30 September 2006

              Share    Share      Other   Capital  Accumulated        Total
            Capital  Premium    Reserve   Reserve      Profits
                      
               Euro     Euro       Euro      Euro         Euro         Euro

Balance at 
inception        -        -         -         -            -            -

Net profit 
for the          -        -         -         -          9,765,027    9,765,027
period

Issuance of 
Ordinary         -   406,207,540    -         -            -        406,207,540
Shares

Share 
options 
issued           -        -          -     7,672,500       -          7,672,500

Costs 
related to       -   (21,575,951)    -         -           -       (21,575,951)
issuance 
of Ordinary
Shares

Cancellation 
of share         -  (384,631,589) 384,631,589   -            -            -
premium

Balance at 
31 March         -        -       384,631,589 7,672,500   9,765,027  402,069,116
2006

Net profit 
for the          -        -           -         -         10,997,370  10,997,370
quarter

Over accrual 
of costs         -        -          46,715     -             -           46,715
related to 
issuance of
Ordinary Shares                                                              

Distributions 
to the           -        -           -         -       (9,748,981)  (9,748,981)
Ordinary 
Shareholders
of the Company

Balance at 
30 June 2006     -         -     384,678,304  7,672,500  11,013,416  403,364,220

Net profit 
for the          -         -           -         -       10,552,607   10,552,607
quarter

Costs related 
to               -         -           -         -            -             -
issuance of 
Ordinary
Shares                                                                       

Distributions 
to the           -         -           -         -     (10,561,397) (10,561,397)
Ordinary 
Shareholders
of the Company

Balance at 
30 September     -          -    384,678,304  7,672,500  11,004,626  403,355,430
2006







Unaudited Consolidated Balance Sheet

As at 30 September 2006

                                  30 September  30 June 2006   31 March 2006
                                          2006
                                          Euro          Euro            Euro
Non-current assets
Investments at fair value 
through profit or                  449,585,317   501,439,102     487,890,499
loss

Current assets
Cash and cash equivalents           13,557,006    20,735,431               -
Other assets                        57,408,058     8,979,080       5,952,062
                                    70,965,064    29,714,511       5,952,062

Total assets                       520,550,381   531,153,613     493,842,561

Equity and liabilities

Equity
Share capital                               -             -               -
Share premium account                       -             -               -
Other reserve                      384,678,304   384,678,304     384,631,589
Capital reserve in respect of 
share options                        7,672,500     7,672,500       7,672,500
Accumulated profits                 11,004,626    11,013,416       9,765,027
                                   403,355,430   403,364,220     402,069,116
Current liabilities
Distribution payable                         -     9,748,981               -
Repurchase agreements              113,724,744   115,783,806      88,880,531
Other liabilities                    3,470,207     2,256,606       2,892,914
Total liabilities                  117,194,951   127,789,393      91,773,445

Total equity and liabilities       520,550,381   531,153,613     493,842,561





1. General information

Queen's Walk Investment Limited (the 'Company') was registered on 6 September
2005 with registered number 43634 and is domiciled in Guernsey, Channel Islands.
The Company commenced its operations on 8 December 2005. The Company is a
closed-ended investment company with limited liability formed under The
Companies (Guernsey) Law, 1994 and its Ordinary Shares are listed on the London
Stock Exchange. The registered office of the Company is Dorey Court, Admiral
Park, St Peter Port, Guernsey, GY1 3BG, Channel Islands. 'Group' is defined as
the Company and its subsidiary. At 30 September 2006, the Company's only
subsidiary was Trebuchet Finance Limited.


The Company's investment objective is to preserve capital and provide stable
returns to Shareholders in the form of quarterly dividends. It seeks to achieve
this by investing primarily in a diversified portfolio of tranches of
asset-backed securities ('ABS') where the Investment Manager considers that the
coupon or cash flows on the tranche are attractive relative to the underlying
credit. These are and will be, in most cases, below investment grade or unrated
and do or will, in many cases, represent the residual income positions typically
retained by the originator of a securitisation transaction as the 'equity' or
'first loss' position.


The Group's investment management activities are managed by its Investment
Manager, Cheyne Capital Management Limited (the 'Investment Manager'), an
investment management firm authorised and regulated by the Financial Services
Authority. The Company has entered into an Investment Management Agreement (the
'Investment Management Agreement') under which the Investment Manager manages
its day-to-day investment operations, subject to the supervision of the
Company's Board of Directors. The Company has no direct employees. For its
services, the Investment Manager receives a monthly management fee (which
includes a reimbursement of expenses) and a quarterly performance-related fee.
The Company has no ownership interest in the Investment Manager. The Company is
administered by Kleinwort Benson (Channel Islands) Fund Services Limited (the
'Administrator').


2. Distributable and non-distributable profits

Non-distributable profits relate to gains from investments which under the
United Kingdom Listing Rules are prohibited from being distributed to investors.
All other income is classed as distributable income. Distributable profits
represent the net of this distributable income less operating expenses.




                        QUEEN'S WALK INVESTMENT LIMITED


                          INTERIM REPORT AND ACCOUNTS


                                  (UNAUDITED)


                     FOR THE PERIOD ENDED 30 SEPTEMBER 2006



Company Summary


Company Performance


The Company continued to perform strongly in the six-month period ended 30
September 2006, with total revenues having reached €30.7 million. While 
operating and finance expenses of the Company were increased in the second 
quarter (in line with the larger portfolio held over an entire quarter), 
distributable net profit remained in line with the previous quarter, resulting 
in earnings per share of €0.26 consistent with the previous quarter.   Net 
profit for the second quarter of €10.6 million was relatively unchanged from the 
first quarter after taking into account a mark-to-market gain on certain bond
positions that was recognised in the first quarter. These bonds were sold
(realising a gain of €366,764) as part of a portfolio rebalancing exercise that
was undertaken in the second quarter to reduce refinancing risk and to further
optimise the yield on the Company's investment portfolio.


The Company's investment portfolio (including amounts receivable under total
return swap agreements but excluding cash) totalled €531.0 million as at 30
September 2006, compared to €530.7 million as at 30 June 2006 and approximately
€496 million as at 31 March 2006. While bond positions were sold in the second
quarter, three new residual income positions with an aggregate value of €67.7
million were added to the Company's investment portfolio in the second quarter.
These acquisitions were effected by having the Company's subsidiary, Trebuchet
Finance Limited, enter into total return swap agreements with Citigroup
Financial Products Inc. ('Citigroup') that reference the relevant assets. The
acquisition of these assets was partly funded through portfolio principal
receipts, the proceeds of sale of bond positions and, in the case of two of the
assets, financing provided by Citigroup.


The Company uses leverage to finance its investment portfolio where it believes
this will enhance returns to shareholders, subject to the leverage limits
contained in the Company's investment policy. The Company's leverage as at 30
September 2006 (including repurchase agreements and the leverage effected
through two of the total return swap agreements, net of cash) totalled €126.1
million, or 23.7% of the investment portfolio (compared to €115.8 million
(22.8%) at the end of the first quarter and €88.9 million (17.9%) as at 31 March
2006).


Portfolio Overview


The Company's investment portfolio as at 30 September 2006 is comprised of 25
investments in total. While the portfolio remains well diversified both
geographically and by asset class, it continues to be backed predominantly by
residential mortgages - the largest European asset class. As at 30 September
2006, the portfolio was comprised of: 86% RMBS (80% as at 31 March 2006); 4%
Small-and-Medium Enterprise (SME) (9%); and 15% diversified ABS (10%). The
geographic breakdown of the portfolio as at 30 September 2006 relative to the
portfolio as at 31 March 2006 is set out in the charts that follow.




+-------------------------------------------------+
|Queen's Walk Portfolio by Jurisdiction as at 30  |
|September 2006                                   |
+------------------------+------------------------+
|UK                      |51%                     |
+------------------------+------------------------+
|US                      |13%                     |
+------------------------+------------------------+
|Italy                   |6%                      |
+------------------------+------------------------+
|Holland                 |2%                      |
+------------------------+------------------------+
|Germany                 |3%                      |
+------------------------+------------------------+
|Portugal                |15%                     |
+------------------------+------------------------+
|Diversified ABS         |10%                     |
+------------------------+------------------------+




+-------------------------------------------------+
|Queen's Walk Portfolio by Jurisdiction as at 31  |
|March 2006                                       |
+------------------------+------------------------+
|UK                      |35%                     |
+------------------------+------------------------+
|US                      |18%                     |
+------------------------+------------------------+
|Italy                   |6%                      |
+------------------------+------------------------+
|Holland                 |10%                     |
+------------------------+------------------------+
|Germany                 |3%                      |
+------------------------+------------------------+
|Portugal                |17%                     |
+------------------------+------------------------+
|Diversified ABS         |11%                     |
+------------------------+------------------------+




A summary of the Company's ten largest investments as at 30 September 2006,
which account for 55.7% of the total portfolio by gross asset value, is set out
in the following table.



+---------+----------+---------+------------+----------------+-------------+
|Issuer   |Asset Type|% of ABS |Description |Description of  |Servicer /   |
|         |          |Portfolio|of          |Underlying      |Administrator|
|         |          |         |Investment  |Assets          |             |
+---------+----------+---------+------------+----------------+-------------+
|         |UK RMBS   |8.87%    |Series      |Approximately   |Mortgages Plc|
|         |          |         |2006-1      |5,900           |             |
|Newgate  |          |         |Detachable  |first-ranking   |             |
|Funding  |          |         |Coupons, MER|near prime and  |             |
|plc      |          |         |Payment     |non-conforming  |             |
|         |          |         |Receivables |residential     |             |
|         |          |         |and Residual|mortgages       |             |
|         |          |         |Payment     |                |             |
|         |          |         |Receivables |                |             |
+---------+----------+---------+------------+----------------+-------------+
|Eurosail |UK RMBS   |6.64%    |Residual    |Approximately   |Capstone     |
|2006-1   |          |         |Certificates|9,800           |Mortgage     |
|plc      |          |         |            |first-ranking   |Services     |
|         |          |         |            |prime,          |Limited      |
|         |          |         |            |non-conforming  |             |
|         |          |         |            |and buy-to-let  |             |
|         |          |         |            |residential     |             |
|         |          |         |            |mortgages       |             |
+---------+----------+---------+------------+----------------+-------------+
|RMAC     |UK RMBS   |6.13%    |Mortgage    |Approximately   |Homeloan     |
|2004-NSP4|          |         |Early       |8,100           |Management   |
|plc      |          |         |Redemption  |first-ranking   |Limited      |
|         |          |         |Certificates|prime, near     |             |
|         |          |         |and Residual|prime and       |             |
|         |          |         |Certificates|non-conforming  |             |
|         |          |         |            |residential     |             |
|         |          |         |            |mortgages       |             |
+---------+----------+---------+------------+----------------+-------------+
|Southern |UK RMBS   |5.58%    |Class DTc   |Approximately   |Capstone     |
|Pacific  |          |         |Notes, Class|4,500 first     |Mortgage     |
|Financing|          |         |F Notes and |ranking,        |Services     |
|06-A plc |          |         |Residual    |near-prime      |Limited      |
|         |          |         |Certificates|residential     |             |
|         |          |         |            |mortgages       |             |
+---------+----------+---------+------------+----------------+-------------+
|Sestante |Italian   |5.55%    |Class D and |Approximately   |Meliorbanca  |
|Finance  |RMBS      |         |Class E     |3,500           |S.p.A.       |
|S.R.L.   |          |         |Notes       |first-ranking   |             |
|         |          |         |            |prime           |             |
|         |          |         |            |residential     |             |
|         |          |         |            |mortgages       |             |
+---------+----------+---------+------------+----------------+-------------+
|RMAC 2005|UK RMBS   |5.08%    |Mortgage    |Approximately   |Homeloan     |
|NS3 plc  |          |         |Early       |6,500           |Management   |
|         |          |         |Redemption  |first-ranking   |Limited      |
|         |          |         |Certificates|prime, near     |             |
|         |          |         |and Residual|prime and       |             |
|         |          |         |Certificates|non-conforming  |             |
|         |          |         |            |residential     |             |
|         |          |         |            |mortgages       |             |
+---------+----------+---------+------------+----------------+-------------+
|RMAC 2005|UK RMBS   |4.99%    |Mortgage    |Approximately   |Homeloan     |
|NSP2 plc |          |         |Early       |11,000          |Management   |
|         |          |         |Redemption  |first-ranking   |Limited      |
|         |          |         |Certificates|prime, near     |             |
|         |          |         |and Residual|prime and       |             |
|         |          |         |Certificates|non-conforming  |             |
|         |          |         |            |residential     |             |
|         |          |         |            |mortgages       |             |
+---------+----------+---------+------------+----------------+-------------+
|RMAC     |UK RMBS   |4.54%    |Mortgage    |Approximately   |Homeloan     |
|2005-NS1 |          |         |Early       |7,800           |Management   |
|plc      |          |         |Redemption  |first-ranking   |Limited      |
|         |          |         |Certificates|prime, near     |             |
|         |          |         |and Residual|prime and       |             |
|         |          |         |Certificates|non-conforming  |             |
|         |          |         |            |residential     |             |
|         |          |         |            |mortgages       |             |
+---------+----------+---------+------------+----------------+-------------+
|Southern |UK RMBS   |4.45%    |Subordinated|Approximately   |Southern     |
|Pacific  |          |         |Loan        |3,000 first     |Pacific      |
|Financing|          |         |Agreement   |ranking         |Mortgage     |
|05-B plc |          |         |            |near-prime      |Limited and  |
|         |          |         |            |residential     |Homeloan     |
|         |          |         |            |mortgages       |Management   |
|         |          |         |            |                |Limited      |
+---------+----------+---------+------------+----------------+-------------+
|Magellan |Portuguese|3.91%    |Class D     |Approximately   |Banco        |
|Mortgages|RMBS      |         |Notes and   |23,000 first    |Comercial    |
|No. 1 plc|          |         |Subordinated|ranking,        |Portugues SA |
|         |          |         |Loan        |fully-amortising|             |
|         |          |         |Facility    |residential     |             |
|         |          |         |Agreement   |mortgages       |             |
+---------+----------+---------+------------+----------------+-------------+



Outlook


The Company's investment manager, Cheyne Capital, continues to evaluate
attractive investment opportunities in the both the UK and continental Europe.
In addition to the significant pipeline of residential mortgage-backed
investment opportunities brought by the continued growth of the global
securitisation market, the regulatory capital changes brought by Basel II have
motivated many banks to securitise their portfolios of SME loans. The investment
manager sees significant potential opportunity for further investment in this
asset class, particularly in the short and medium term. Where the underlying SME
loan portfolios are sufficiently diverse and granular (in terms of the number of
underlying borrowers), the Company views this asset class as providing a good
compliment to its consumer finance-backed investments and, consequently, as
potentially providing significant benefit to shareholders in terms of portfolio
diversification as well as investment returns.



          INDEPENDENT REVIEW REPORT TO QUEEN'S WALK INVESTMENT LIMITED


Introduction


We have been instructed by the company to review the financial information for
the six months ended 30 September 2006 which comprises the consolidated income
statement, the consolidated balance sheet, the consolidated statement of changes
in equity, the consolidated cash flow statement and related notes 1 to 17. We
have read the other information contained in the interim report and considered
whether it contains any apparent misstatements or material inconsistencies with
the financial information.


This report is made solely to the company in accordance with Bulletin 1999/4
issued by the Auditing Practices Board. Our work has been undertaken so that we
might state to the company those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than
the company, for our review work, for this report, or for the conclusions we
have formed.


Directors' responsibilities


The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures are consistent with
those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.


Review work performed


We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with International Standards on Auditing (UK and
Ireland) and therefore provides a lower level of assurance than an audit.
Accordingly, we do not express an audit opinion on the financial information.


Review conclusion


On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 September 2006.



Deloitte & Touche




Unaudited Consolidated Income Statement

For the period from 1 April 2006 to 30 September 2006

                                        Note     Period from        Period from

                                             1 April 2006 to   6 September 2005
                                                               to 31 March 2006
                                                30 September
                                                        2006
                                                        Euro               Euro

Operating income                         3        30,667,394         12,480,487

Operating expenses
Other operating expenses                 4       (6,162,945)        (2,455,408)
Finance costs                            5       (2,954,472)          (260,052)
Total operating expenses                         (9,117,417)        (2,715,460)

Net profit                                        21,549,977          9,765,027

Distributable profits                    6        21,183,213          9,765,027
Non-distributable profits                6           366,764                  -
                                                  21,549,977          9,765,027
Earnings per Ordinary Share              8
Basic                                              Euro 0.53          Euro 0.24
Diluted                                            Euro 0.53          Euro 0.24

Weighted average Ordinary Shares         8            Number             Number
outstanding
Basic                                             40,620,756         40,620,756
Diluted                                           40,721,759         41,063,527


All items in the above statement are derived from continuing operations.


All income is attributable to the Ordinary Shareholders of the Company.


The accompanying notes form an integral part of the financial statements.



Unaudited Consolidated Statement of Changes in Shareholders' Equity

For the period from 1 April 2006 to 30 September 2006

                 Share    Share     Other    Capital      Accumulated      Total
                 Capital  Premium  Reserve   Reserve          Profits
                        
           Note    Euro    Euro      Euro     Euro              Euro        Euro
Net profit 
for the             -       -         -        -           9,765,027   9,765,027
period 
since
incorporation

Total recognised 
income              -       -         -        -            9,765,027  9,765,027
and expense

Issuance 
of        14,15     -  406,207,540    -        -                -    406,207,540
Ordinary 
Shares

Share 
options   14,17     -       -         -       7,672,500         -      7,672,500
issued

Costs 
related      15     -  (21,575,951)   -        -                -   (21,575,951)
to issuance 
of
Ordinary 
Shares

Cancellation 
of           15     - (384,631,589) 384,631,589-                -            -
share 
premium

Balance at 
31 March 
2006                -       -       384,631,589 7,672,500 9,765,027  402,069,116

Net profit 
for                 -       -           -       -         21,549,977  21,549,977
the period

Total recognised 
income              -       -           -       -         21,549,977  21,549,977
and expense

Overaccrual 
of                  -       -         46,715    -               -         46,715
costs related to
issuance of
Ordinary Shares

Distribution 
to            7     -       -            -      -      (20,310,378) (20,310,378)
the Ordinary
Shareholders of
the Company

Balance at 
30 September        -       -      384,678,304 7,672,500 11,004,626 403,355,430
2006


The accompanying notes form an integral part of the financial statements.



Unaudited Consolidated Balance Sheet

As at 30 September 2006

                                     Note  30 September        31 March
                                                   2006            2006
                                                   Euro            Euro
Non-current assets
Investments at fair value 
through profit or loss                10    449,585,317     487,890,499

Current assets
Cash and cash equivalents                    13,557,006               -
Derivative financial assets - 
total return swap                     11     41,755,253               -
agreements
Derivative financial assets - 
unrealised gain on                    11      1,156,997         680,569
forward exchange contracts
                                                            
Other assets                          11     14,495,808       5,271,493
                                             70,965,064       5,952,062

Total assets                                520,550,381     493,842,561

Equity and liabilities

Equity
Share capital                         14              -               -
Share premium account                 15              -               -
Other reserve                               384,678,304     384,631,589
Capital reserve in respect of share options   7,672,500       7,672,500
Accumulated profits                          11,004,626       9,765,027
                                            403,355,430     402,069,116
Current liabilities
Overdraft and repurchase agreements   12    113,724,744      88,880,531
Other liabilities                     13      3,470,207       2,892,914
Total liabilities                           117,194,951      91,773,445

Total equity and liabilities                520,550,381     493,842,561



The accompanying notes form an integral part of the financial statements.


These financial statements were approved by the Board of Directors on 13
November 2006.


Signed on behalf of the Board of Directors by:


Christopher Spencer                         Talmai Morgan
Director                                    Director




Unaudited Consolidated Cash Flow Statement

For the period from 1 April 2006 to 30 September 2006

                                   Note         Period from      Period from 6
                                                1 April 2006 to  September 2005
                                                30 September     to 31 March 
                                                2006             2006
                                                                                  

                                                
                                                        Euro             Euro
Net cash inflow/(outflow) 
from operating                        16          47,720,124       (406,156,829)
activities

Financing activities
Proceeds from issuance of 
Ordinary Shares                                           -          406,207,540
Costs related to issuance of Ordinary                     -         (13,903,451)
Shares
Dividends paid to shareholders         7         (20,310,378)                  -
Cash flows from financing activities             (20,310,378)        392,304,089

Net increase/(decrease) in cash                    27,409,746       (13,852,740)

Reconciliation of net cash flow to movement
in net cash
Net increase/(decrease) in cash and cash           27,409,746       (13,852,740)
equivalents
Cash and cash equivalents at 31 March 2006        (13,852,740)                 -
Effect of exchange rate fluctuations on                     -                  -
cash and cash

equivalents
Cash and cash equivalents at end of period         13,557,006       (13,852,740)





The accompanying notes form an integral part of the financial statements.



Notes to the Unaudited Financial Statements for the period from 1 April to 30
September 2006


1. General information

Queen's Walk Investment Limited (the 'Company') was registered on 6 September
2005 with registered number 43634 and is domiciled in Guernsey, Channel Islands.
The Company commenced its operations on 8 December 2005. The Company is a
closed-ended investment company with limited liability formed under The
Companies (Guernsey) Law, 1994 and its Ordinary Shares are listed on the London
Stock Exchange. The registered office of the Company is Dorey Court, Admiral
Park, St Peter Port, Guernsey, GY1 3BG, Channel Islands. 'Group' is defined as
the Company and its subsidiary. At 30 September 2006, the Company's only
subsidiary was Trebuchet Finance Limited.


The Company's investment objective is to preserve capital and provide stable
returns to Shareholders in the form of quarterly dividends. It seeks to achieve
this by investing primarily in a diversified portfolio of tranches of
asset-backed securities ('ABS') where the Investment Manager considers that the
coupon or cash flows on the tranche are attractive relative to the underlying
credit. These are and will be, in most cases, below investment grade or unrated
and do or will, in many cases, represent the residual income positions typically
retained by the originator of a securitisation transaction as the 'equity' or
'first loss' position.


The Group's investment management activities are managed by its Investment
Manager, Cheyne Capital Management Limited (the 'Investment Manager'), an
investment management firm authorised and regulated by the Financial Services
Authority. The Company has entered into an Investment Management Agreement (the
'Investment Management Agreement') under which the Investment Manager manages
its day-to-day investment operations, subject to the supervision of the
Company's Board of Directors. The Company has no direct employees. For its
services, the Investment Manager receives a monthly management fee (which
includes a reimbursement of expenses) and a quarterly performance-related fee.
The Company has no ownership interest in the Investment Manager. The Company is
administered by Kleinwort Benson (Channel Islands) Fund Services Limited (the
'Administrator').


At the date of authorisation of these financial statements, the following
Standard, which has not been applied in these financial statements, was in issue
but not yet effective:


IFRS 7 Financial Instruments: Disclosures; and the related amendment to IAS 1 on
capital disclosures.


The Directors anticipate that the adoption of the above Standard in future
periods will not have a material impact on the financial statements of the
Company and Group except for additional disclosures on capital and financial
instruments when the Standard comes into force for periods commencing on or
after 1 January 2007.


The comparative period figures disclosed relate to the period from incorporation
(6 September 2005) to 31 March 2006.



2. Significant accounting policies

Statement of compliance

The financial statements of the Group have been prepared in accordance with
International Financial Reporting Standards ('IFRS'), which comprise standards
and interpretations approved by the International Accounting Standards Board
('the IASB'), and International Accounting Standards and Standing
Interpretations Committee interpretations approved by the International
Accounting Standards Committee ('IASC') that remain in effect, together with
applicable legal and regulatory requirements of Guernsey Law and the Listing
Rules of the UK Listing Authority.


Basis of preparation

The Financial Statements of the Group are prepared under International Financial
Reporting Standards on the historical cost or amortised cost basis except that
the following assets and liabilities are stated at their fair value: derivative
financial instruments, financial instruments held for trading and financial
instruments classified as fair value through profit or loss.


The principal accounting policies are set out below. The preparation of
financial statements in conformity with IFRS requires the Group to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. These financial statements are presented in Euros because
that is the currency of the primary economic environment in which the Group
operates. The functional currency of the Group is also considered to be Euros.


Basis of consolidation

Subsidiaries are entities controlled by the Company. The financial statements of
subsidiaries are included in the consolidated financial statements from the date
that control commences until the date that control ceases.


In accordance with the Standing Interpretations Committee Interpretation 12
'Consolidation-Special Purpose Entities' ('SIC 12'), the Company consolidates
only entities over which control is indicated by activities, decision making,
benefits and residual risks of ownership. Where the Company does consolidate a
special purpose entity ('SPE'), the interest in the notes not held by the
Company will be shown as a liability in the balance sheet. Any income or
expenses attributable to these note holders will be shown as an expense in the
income statement. In accordance with SIC 12 the Company does not consolidate an
SPE in which it holds less than a substantial interest in the residual income
position. Where it holds more than a substantial interest, it does not
consolidate the SPE where the residual income position represents only a small
part of the gross assets of the SPE and the Company was neither involved in the
establishment of the SPE or the origination of the assets owned by the SPE, on
the basis that the Company is not exposed to the majority of the risks and
benefits of the assets owned by the SPE, provided control is not otherwise
indicated by the Company's activities, decision making, benefits and residual
risks or ownership.


Investments

Financial assets are classified as at fair value through profit or loss and are
stated at fair value, with any resultant gain or loss being recognised in the
income statement. Where these investments are interest-bearing, interest
calculated using the effective interest method is recognised in the income
statement.


Financial assets classified as at fair value through profit or loss are
recognised/derecognised by the Group on the date it commits to purchase/sell the
investments in regular way trades.


Non-tradeable loans provided by the Group to third parties are accounted for at
amortised cost.


Cash and cash equivalents

Cash and cash equivalents includes amounts held in interest bearing accounts and
overdraft facilities.



Derivative financial instruments

Derivative financial instruments used by the Group to hedge its exposure to
foreign exchange and interest rate risks arising from operational, financing and
investment activities that do not qualify for hedge accounting are accounted for
as trading instruments. The Group may also enter into credit default or total
return swap arrangements where the underlying asset or assets would otherwise be
within the Group's investment policy in order to obtain substantially the same
economic exposure to the returns and risks associated with holding such
underlying asset or assets.


Derivative financial instruments (including embedded derivatives) are recognised
initially at fair value. Subsequent to initial recognition, derivative financial
instruments are stated at fair value. The gain or loss on remeasurement to fair
value is recognised immediately in the income statement. However, where
derivatives qualify for hedge accounting, recognition of any resultant gain or
loss depends on the nature of the item being hedged.


Forward exchange contracts

Fair value of forward exchange contracts is their quoted market price at the
balance sheet date, being the present value of the quoted forward price.


Fair value

All financial assets carried at fair value are initially recognised at fair
value and subsequently re-measured at fair value based on quoted bid prices
where such bids are available from a third party in a liquid market. If quoted
bid prices are unavailable, the fair value of the financial asset is estimated
using pricing models incorporating discounted cash flow techniques. These
pricing models apply assumptions regarding asset-specific factors and economic
conditions generally, including delinquency rates, prepayment rates, default
rates, maturity profiles, interest rates and other factors that may be relevant
to each financial asset. Where such pricing models are used, inputs are based on
market related measures at the balance sheet date.


Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported within
assets and liabilities when there is a legally enforceable right to set off the
recognised amounts and there is an intention to settle on a net basis, or
realise the asset and settle the liability simultaneously.


Repurchase agreements

The Company may finance the acquisition of some of its investments through the
use of repurchase agreements. Repurchase agreements are treated as
collateralised financing transactions and are carried at their contractual
amounts, including accrued interest, as specified in the respective agreements.
Accrued interest is recorded as a separate line item on the balance sheet.


Derecognition of a financial asset

A transfer of a financial asset is accounted for as a derecognition only if
substantially all of the asset's risks and rewards of ownership are transferred
or control is transferred in the event that not substantially all of the asset's
risks and rewards of ownership are transferred. However, if substantially all of
the risks and rewards are retained, the asset is not derecognised. Control is
transferred if the transferee has the practical ability to sell the asset
unilaterally without needing to impose additional restrictions on the transfer.


Interest-bearing loans and borrowings

Interest-bearing borrowings are recognised initially at fair value less
attributable transaction costs. Subsequent to initial recognition,
interest-bearing borrowings are stated at amortised cost with any difference
between cost and redemption value being recognised in the income statement over
the period of the borrowings on an effective interest basis.


Financing costs associated with the issuance of financings are deferred and
amortised over the term of the financings using the effective interest rate
method, in line with market practice.



Foreign currency transactions

Transactions in foreign currencies are translated at the foreign exchange rate
ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies at the balance sheet date are translated to
Euro at the foreign exchange rate ruling at that date. Foreign exchange
differences arising on translation are recognised in the income statement.
Non-monetary assets and liabilities that are measured in terms of historical
cost in a foreign currency are translated using the exchange rate at the date of
transaction. Non-monetary assets and liabilities denominated in foreign
currencies that are stated at fair value are translated to Euro at foreign
exchange rates ruling at the dates the fair value was determined.


Provisions

A provision is recognised in the balance sheet when the Group has a present
legal or constructive obligation as a result of a past event, and it is probable
that an outflow of economic benefits will be required to settle the obligation,
and the obligation can be reliably measured. If the effect is material,
provisions are determined by discounting the expected future cash flows at a
pre-tax rate that reflects current market assessments of the time value of money
and, where appropriate, the risks specific to the liability.


Transaction expenses

The preliminary expenses of the Company directly attributable to its initial
public offering and any costs associated with the establishment of the Company
are charged to the share premium or other reserve account.


Share options granted to the Investment Manager are treated as a transaction
expense on the basis that they are granted by the Company as a fee for the
Investment Manager's work in raising capital for the Company. The fair value of
such options is charged to the share premium account. The share premium account
is credited with the fair value of such options at the time that such options
are vested.


Interest income

Interest income is accrued based on the outstanding principal amount of the
Company's financial assets and their contractual terms. Premiums and discounts
associated with the purchase of financial assets are amortised or accreted into
interest income over the projected lives of the investments using the effective
interest method as defined under International Accounting Standard 39. The
Company's policy for estimating prepayment speeds for calculating the effective
yield is to evaluate historical performance, market consensus indicators and
current market conditions. Where the Company adjusts its effective yield
calculation to take account of any change in underlying assumptions, such
adjustments are recognised in the income statement.


Taxation

The Company is a tax-exempt Guernsey limited company. Accordingly, no provision
for income taxes is made. Trebuchet Finance Limited is a 'qualifying company'
within the meaning of section 110 of the Irish Taxes Consolidation Act 1997 and
accordingly its taxable profits are subject to tax at a rate of 25 per cent.
Payments under the Participation Note are paid gross to the Company and the
income portion of such payments is deductible by Trebuchet Finance Limited.
Consequently, Trebuchet Finance Limited has a minimal amount of taxable income.
The activities of Trebuchet Finance Limited are exempt for Value Added Tax (VAT)
purposes under the VAT Act of 1972.


Other receivables

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


Financial liabilities and equity

Financial liabilities and equity are classified according to the substance of
the contractual arrangements entered into. An equity instrument is any contract
that evidences a residual interest in the assets of the Company after deducting
all of its liabilities. Financial liabilities and equity are recorded at the
proceeds received, net of issue costs.


Other accruals and payables

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


3. Operating Income
                                                Period from        Period from 6
                                            1 April 2006 to       September 2005
                                          30 September 2006     to 31 March 2006

                                                 
                                                       Euro                 Euro

Interest income from cash and cash                   147,289              78,188
equivalents
Interest income from investments in
asset-backed securities
                                                  32,063,787          13,299,260
Interest income from commercial paper                240,196             485,169
Interest income from swap agreements                 795,925              36,923
Net realised foreign exchange (losses)/gains      2,731,702)           3,710,904
Net realised gains on investments                    366,764                   -
Net realised gains on swap agreements                 78,052                   -
Net unrealised foreign exchange losses             (292,917)         (5,129,957)
Total operating income                            30,667,394          12,480,487


4. Other operating expenses
                                                 Period from       Period from 6
                                             1 April 2006 to      September 2005
                                           30 September 2006    to 31 March 2006

                                  
                                                        Euro                Euro
Investment management, custodian and
administration fees
Investment management and incentive fee

(Note 17)                                          4,734,552           1,814,524
Administration fee (Note 17)                         180,210              97,785
Custodian fee (Note 17)                               55,399              29,356
                                                   4,970,161           1,941,665
Other operating expenses
Audit and accounting fees                            329,771              54,467
Directors' fees payable to Directors of
Queen's Walk Investment Limited
                                                     120,000             135,652
Directors' fees payable to Directors of
Trebuchet Finance Limited
                                                      25,000               8,500
Legal fees                                           123,294             189,210
Other expenses                                       594,719             125,914
                                                   1,192,784             513,743

Total other operating expenses                     6,162,945           2,455,408


The Company has no employees.



5. Finance costs
                                                Period from       Period from 6
                                            1 April 2006 to       September 2005
                                          30 September 2006     to 31 March 2006

                                                
                                                        Euro                Euro
Finance costs arises from:
Overdraft                                                  -               2,713
Total return swap agreements                         224,748                   -
Repurchase agreements                              2,729,724             257,339
Total finance costs                                2,954,472             260,052



6. Distributable and non-distributable profits

Non-distributable profits relate to gains from investments which under the
United Kingdom Listing Rules are prohibited from being distributed to investors.
All other income is classed as distributable income. Distributable profits
represent the net of this distributable income less operating expenses.

                                                 Period from       Period from 6
                                             1 April 2006 to      September 2005
                                           30 September 2006    to 31 March 2006

                                                
                                                        Euro                Euro
Distributable earnings
Distributable profits                             21,183,213           9,765,027
Distribution made for quarter end June 2006     (10,561,397)                   -
                                                  10,621,816           9,765,027

Distributable earnings per Ordinary Share
Basic                                              Euro 0.26           Euro 0.24
Diluted                                            Euro 0.26           Euro 0.24



7. Dividends


                                                 Period from       Period from 6
                                             1 April 2006 to      September 2005
                                           30 September 2006    to 31 March 2006

                                                        Euro                Euro
Interim dividend for the period ended 31           9,748,981                   -
March 2006
Interim dividend for the quarter ended 30         10,561,397                   -
June 2006
Interim amounts recognised as distributions
to equity holders in the period
                                                  20,310,378                   -



Proposed interim dividend for the quarter ended 30 September 2006 of Euro 0.26
per share, total proposed distribution of Euro 10,561,397 (period ended 31 March
2006 Euro 0.24 per share, total distribution Euro 9,748,981).



8. Earnings per share

                                                 Period from       Period from 6
                                             1 April 2006 to      September 2005
                                           30 September 2006    to 31 March 2006


                                                        Euro                Euro
The calculation of the basic and diluted
earnings per share is based on the following
data:
Earnings for the purposes of basic earnings
per share being net profit attributable to
equity holders                                    21,549,977           9,765,027

Weighted average number of Ordinary Shares        40,620,756          40,620,756
for the purposes of basic earnings per share
                                                    

Effect of dilutive potential Ordinary Shares:
Share options                                        101,003             442,771
Weighted average number of Ordinary Shares        40,721,759          41,063,527
for the purposes of diluted earnings per
share                                                  


9. Subsidiary

Trebuchet Finance Limited was incorporated in Ireland on 19 May 2005 and,
pursuant to the Articles of Association of Trebuchet Finance Limited, the
Company has the right to appoint a majority of the Board of Directors of
Trebuchet Finance Limited. Two of the Directors of the Company have been
appointed directors of Trebuchet Finance Limited. To ensure that the Company
will be able to maintain a majority of the Board of directors of Trebuchet
Finance Limited in the future, the Company has been allotted a single share in
Trebuchet Finance Limited carrying the right to appoint a majority of the Board
of directors. Trebuchet Finance Limited was established for the sole purpose of
acquiring and holding interests in certain assets.


10. Investments

Investments are classified as at fair value through profit or loss and are
stated at fair value, with any resultant gain or loss being recognised in the
income statement. Amortised cost as derived by the models represents fair value
at the date of this report. Where these investments are interest-bearing,
interest calculated using the effective interest method is recognised in the
income statement. The following is a summary of the Group's investments at fair
value through profit or loss at 30 September 2006 and 31 March 2006:

                                            30 September       31 March 2006
                                                    2006
Asset-backed securities                             Euro                Euro

Opening amortised cost                       487,890,499                   -
Purchases                                     38,187,842         512,741,882
Sales proceeds                              (45,547,861)                   -
Realised gain                                    366,764                   -
Principal paydown received                  (31,239,686)        (18,936,309)
Unrealised foreign exchange losses(1)           (72,241)         (5,915,074)
Closing amortised cost                       449,585,317         487,890,499


(1)The Group's policy is to hedge foreign exchange exposure resulting from
non-Euro denominated investments by both entering into foreign exchange hedging
arrangements and, where investments are financed, by entering into financing
arrangements that are denominated in the same currencies.


11. Other assets

                                             30 September       31 March 2006
                                                     2006
                                                     Euro                Euro

Interest receivable                             4,204,782           4,777,493
Amounts receivable on securities sold           9,606,914                   -
Margin amounts held with brokers                        -             494,000
Prepayments                                       684,112                   -
                                               14,495,808           5,271,493


The Directors consider that the carrying amount of other assets approximates
their fair value.


The following foreign exchange forward contracts were unsettled at 30 September
2006:

Maturity Date           Amount Bought      Amount Sold    Unrealised Gain/(Loss)
                                                                           Euro    

                                                                                 

29 December 2006     Euro 179,506,136  GBP 121,400,000                 1,156,997
                                         
29 December 2006     Euro 112,034,949  USD 143,100,000                 (408,630)
                                         
                                                                         748,367


On 9 August 2006, the Company's subsidiary, Trebuchet Finance Limited
('Trebuchet'), entered into three total return swap transactions with Citigroup
Financial Products Inc. ('Citigroup').  All of the transactions provide
Trebuchet with economic ownership of the reference assets and two of the
transactions effect leverage.  The transactions are summarised in the following
table.


                   Reference Asset     % of Reference   Reference      Servicer/
                   Notional Amount     Asset Purchase  Asset Type  Administrator
Reference Asset                       Price Posted as                   
                                           Collateral
RMAC 2005-NS4 Plc    GBP 8,970,000               100%     UK RMBS       Homeloan
Residual                                                              Management
Certificates and                                                         Limited
Mortgage Early
Redemption
Certificates
RMAC 2005-NS3 Plc   GBP 17,565,000                50%     UK RMBS       Homeloan
Residual                                                              Management
Certificates and                                                         Limited
Mortgage Early
Redemption
Certificates
RMAC 2005-NSP2      GBP 17,665,000                50%     UK RMBS       Homeloan
Plc Residual                                                          Management
Certificates and                                                         Limited
Mortgage Early
Redemption
Certificates


The fair value of the amounts receivable on the total return swap transactions
at the period end was Euro 41,755,253.

12. Overdraft and repurchase agreements
                                                30 September       31 March 2006
                                                        2006
                                                        Euro                Euro

Net overdraft and cash equivalents                         -          13,852,740
Repurchase agreements                            113,724,744          75,027,791
                                                 113,724,744          88,880,531


Asset-backed securities totalling Euro 113,474,656 have been granted as security
in relation to the repurchase agreements. The weighted average interest rates on
the repurchase agreements as at 30 September 2006 were 3.49% (Euro), 5.86% (GBP)
and 6.33% (USD). The repurchase agreements outstanding at 30 September 2006
matured between 4 October 2006 and 31 October 2006 and have been rolled.


13. Other liabilities
                                                   30 September         31 March
                                                           2006             2006
                                                           Euro             Euro

Interest payable                                        282,570          196,634
Due to related parties - Investment Manager (Note     1,316,500        1,814,524
17)
Derivative financial liabilities - unrealised loss
on forward exchange contracts
                                                        408,630                -
Accrued expenses                                      1,462,507          881,756
                                                      3,470,207        2,892,914


Other liabilities principally comprise amounts outstanding in respect of
interest payable and ongoing costs. The Directors consider the carrying amount
of other liabilities approximates to their fair value.


14. Share capital

Authorised share capital
                                                      30 September  30 September
                                                              2006          2006
                                                         Number of          Euro
                                                   Ordinary Shares
Ordinary shares of no par value each                     Unlimited             -

Issued and fully paid
                                                         Number of          Euro
                                                   Ordinary Shares
Balance at start of period                              40,620,756             -
Issue of new Ordinary Shares with no par value during            -             -
the period
Balance at 30 September 2006                            40,620,756             -



Authorised share capital
                                                     31 March 2006 31 March 2006
                                                         Number of          Euro
                                                   Ordinary Shares
Ordinary shares of no par value each                     Unlimited             -

Issued and fully paid
                                                         Number of          Euro
                                                   Ordinary Shares
Balance at date of incorporation                                 2             -
Issue of new Ordinary Shares with no par value during   40,620,754             -
the period
Balance at 31 March 2006                                40,620,756             -


Upon incorporation 2 Ordinary Shares of no par value were issued. On 13 December
2005 the Company issued 22,500,000 Ordinary Shares for subscription in its
Initial Public Offering at an Offer Price of Euro 10 per share. In addition, the
Company simultaneously issued 17,900,754 Ordinary Shares to Cheyne ABS
Opportunities Fund LP (along with transferring the two Ordinary Shares issued on
incorporation) in exchange for a portfolio of investments and 220,000 Ordinary
Shares were also issued to the Directors.


In recognition of the work performed by the Investment Manager in raising
capital for the Company, the Company granted to Cheyne Global Services Limited
on 8 December 2005 options representing the right to acquire 2,250,000 Shares,
being 10 per cent of the number of Offer Shares (that is, excluding the Shares
issued to Cheyne ABS Opportunities Fund LP and the Shares issued to the
Directors), at an exercise price per share equal to the Offer Price.


15. Share premium account
                                                  30 September     31 March 2006
                                                          2006
                                                          Euro              Euro

Balance at start of period                                   -                 -
Premium arising from issue of Ordinary Shares                -       406,207,540
Expenses of issue of Ordinary Shares                         -      (13,903,451)
Share options granted on issue of Ordinary                   -       (7,672,500)
Shares
Cancellation of share premium transferred to                 -     (384,631,589)
other reserve
Balance at end of period                                     -                 -


The Ordinary Shares of the Company have no par value. As such, the proceeds of
the Initial Public Offering represent the premium on the issue of the Ordinary
Shares. In accordance with the accounting policies of the Company and as allowed
by The Companies (Guernsey) Law, 1994, the costs of the Initial Public Offering
have been written off against the share premium/other reserve account. The issue
costs associated with the Initial Public Offering amounted to Euro 13,856,736
and share options with a value of Euro 7,672,500 (Notes 14 and 17).


The Company has passed a special resolution cancelling the amount standing to
the credit of its share premium account immediately following admission to the
London Stock Exchange. In accordance with The Companies (Guernsey) Law, 1994 (as
amended) (the 'Companies Law'), the Directors applied to the Royal Court in
Guernsey for an order confirming such cancellation of the share premium account
following admission. The Other reserve created on cancellation is available as
distributable profits to be used for all purposes permitted by the Companies
Law, including the buy back of Ordinary Shares and the payment of dividends.



16. Notes to cashflow statement
                                                 Period from       Period from 6
                                             1 April 2006 to      September 2005
                                                30 September         to 31 March
                                                        2006                2006         
                                                     
                                                            
                                                        Euro                Euro

Net profit                                        21,549,977           9,765,027
Adjustments for:
Realised gains on sale of investments              (366,764)                   -
Unrealised foreign exchange losses                    72,241           5,915,074
Unrealised gains on derivatives foreign             (67,798)           (680,569)
exchange losses
                                                  21,187,656          14,999,532

Purchases of investments and swap agreements    (79,943,095)       (512,741,882)
Sales proceeds                                    35,940,947                   -
Principal paydown received                        31,239,686          18,936,309
                                                (12,762,462)       (493,805,573)

Net borrowings under repurchase agreements        38,696,953          75,027,791

Decrease/(increase) in receivables                   382,599         (5,271,493)
Increase in payables                                 215,378           2,892,914
                                                     597,977         (2,378,579)

Net cash inflow/(outflow) from operating          47,720,124       (406,156,829)
activities


Purchases and sales of investments are considered to be operating activities of
the Group, given its purpose, rather than investing activities.

Cash and cash equivalents includes amounts held in interest bearing accounts and
overdraft facilities.


17. Material agreements and related parties

Investment Manager

The Company and Trebuchet Finance Limited are parties to an Investment
Management Agreement with the Investment Manager, dated 8 December 2005,
pursuant to which each of the Company and Trebuchet Finance Limited 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 Company pays the Investment Manager a Management Fee and Incentive Fee (see
Notes 4 and 13).


Management Fee

Under the 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 (as is the case with Cheyne ABS Investments I
plc, Cheyne Finance plc, Cheyne High Grade ABS CDO Ltd and Cheyne CLO
Investments I Limited). The management fee is calculated and payable monthly in
arrears.


Incentive Fee

Under the terms of the Investment Management Agreement, the Investment Manager
is entitled to receive an incentive compensation fee in respect of each
incentive period that is paid quarterly in arrears. An incentive period will
comprise each successive quarter, except the first such period was the period
from admission to the London Stock Exchange to 31 March 2006.



The Incentive Fee for each incentive period is an amount equivalent to 25 per
cent of the amount by which A exceeds (B x C) where:

A  The Company's 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 Company's 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 will be reset
on 1 April 2009, and 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 portfolio that is comprised of investments where the
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.


Administration Fee

Under the terms of the Administration Agreement, the Administrator is entitled
to receive from the Company an administration fee of 0.125 per cent of the gross
asset value of the Company up to Euro 80,000,000 and 0.0325 per cent of the
gross asset value of the Company greater than Euro 80,000,000.


Investments in other entities managed by the Investment Manager

As at 30 September 2006, the Company held investments with a total value of Euro
50,362,887 in the following entities, which are managed by the Investment
Manager: Cheyne Finance Plc; Cheyne ABS Investments I PLC; Cheyne High Grade ABS
CDO Ltd; and Cheyne CLO Investments I Limited.


Custodian Fee

Under the terms of the Custodian Agreement, the Custodian is entitled to receive
from the Company a custodian fee of 0.03 per cent of the gross asset value of
the Company up to Euro 80,000,000 and 0.02 per cent of the gross asset value of
the Company greater than Euro 80,000,000, plus additional fees in relation to
transaction fees, statutory reporting, corporate secretarial fees and other out
of pocket expenses.


Investment Manager Options

In recognition of the work performed by the Investment Manager in raising
capital for the Company, the Company granted to Cheyne Global Services Limited
on 8 December 2005 options representing the right to acquire 2,250,000 Shares,
being 10 per cent of the number of Offer Shares (that is, excluding the Shares
issued to Cheyne ABS Opportunities Fund LP and the Shares issued to the
Directors), at an exercise price per share equal to the Offer Price. The
Investment Manager Options are fully vested and immediately exercisable on the
date of admission to the London Stock Exchange and will remain exercisable until
the 10th anniversary of that date. The Company may grant further Investment
Manager Options in connection with any future offering of Shares. Such options,
if any, will represent the right to acquire Shares equal to not more than 10 per
cent of the number of Shares being offered in respect of that future offering
and will have an exercise price equal to the offer price for that offering. The
aggregate fair value of the options granted at the time of the Initial Public
Offering using a Black-Scholes valuation model was Euro 7,672,500 (reflecting a
valuation of Euro 3.41 per option). This amount has been treated as a cost of
the Initial Public Offering.







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