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Queens Walk Inv Ltd (RECI)

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Monday 25 June, 2007

Queens Walk Inv Ltd

Final Results

Queen's Walk Investment Limited
25 June 2007





25 June 2007

                        Queen's Walk Investment Limited

                          Preliminary Results for the
                       Financial Year Ended 31 March 2007


Queen's Walk Investment Limited ('Queen's Walk') is a Guernsey-incorporated
investment company listed on the London Stock Exchange. 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
positions 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 (UK) LLP ('Cheyne Capital'), considers the coupon or cash flows 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 Caroline Villiers: +44 20 7153 1521.


Highlights

   •Net loss for the year of €67.7 million, principally as a result of fair
    value adjustments made to investments in 2007. This equates to a loss per
    share of €1.67.
   •Net asset value decreased to €7.24 as at 31 March 2007 from €9.90 as at
    31 December 2006.
   •The Company's investments generated net operating income in the fourth
    quarter in the amount of €9.6 million or €0.24 per share.
   •The board of directors has declared an interim dividend of €0.15 per
    share for the fourth quarter, resulting in a cumulative interim dividend of
    €0.90 for the year ended 31 March 2007.
   •Fair value write-downs in the fourth quarter totalled €108.4 million.
    These write-downs resulted principally from significant developments
    affecting the UK and US mortgage markets.
   •Since 31 December 2006, the Company has sold three US investments and
    four UK investments for aggregate sale proceeds of approximately €116
    million. As the 31 March 2007 fair values of the assets sold were determined
    on the basis of their sale prices, these sales have not reduced the
    Company's NAV post year end and are fully reflected in the €7.24 NAV figure.
   •Proceeds from asset sales have been applied to reduce indebtedness or to
    increase available cash. The Company's leverage has been reduced to
    approximately 6.6% as at 31 May 2007 (compared to 25.9% as at 31 March 2007,
    28.5% as at 31 December 2006 and 17.9% as at 31 March 2006.
   •The weighted average yield of the Company's investment portfolio as at 31
    March 2007 (after giving effect to all asset sales) was 13.4% in local
    currency terms (13.6% as at 31 December 2006).
   •The Company has sufficient cash and financing capacity to enable it to
    buy back shares up to 9.99% of its existing share capital upon receipt of
    the requisite approval from shareholders that such purchases can be made
    without requiring an offer to be made for the Company's shares by Cheyne ABS
    Opportunities Fund LP and parties deemed by the City Code on Takeover and
    Mergers to be acting in concert with it. The Company is sending a circular
    to shareholders shortly calling for an extraordinary general meeting of
    shareholders.



Financial Highlights

  +-------------+------------+-----------+-----------+-----------+-----------+
  |             |Q4 - Quarter|Q3 -       |Q2 -       |Q1 -       |Period from|
  |             |ended 31    |Quarter    |Quarter    |Quarter    |6 September|
  |             |March 2007  |ended 31   |ended 30   |ended 30   |2005 to 31 |
  |             |(€)         |December   |September  |June 2006  |March 2006 |
  |             |            |2006 (€)   |2006 (€)   |(€)        |(€)        |
  |             |            |           |           |           |           |
  +-------------+------------+-----------+-----------+-----------+-----------+
  |Operating    |(93,563,917)| 14,484,653| 15,674,473| 14,992,921| 12,480,487|
  |(loss)/income|           *|           |           |           |           |
  +-------------+------------+-----------+-----------+-----------+-----------+
  |Operating    | (2,700,658)|(2,658,532)|(3,349,855)|(2,813,090)|(2,455,408)|
  |expenses     |            |           |           |           |           |
  +-------------+------------+-----------+-----------+-----------+-----------+
  |Finance costs| (2,541,463)|(2,317,658)|(1,772,011)|(1,182,461)|  (260,052)|
  +-------------+------------+-----------+-----------+-----------+-----------+
  |Net (loss)/  |(98,806,038)|  9,508,463| 10,552,607| 10,997,370|  9,765,027|
  |income       |            |           |           |           |           |
  +-------------+------------+-----------+-----------+-----------+-----------+
  |Distributable| 9,596,406**|  9,508,463| 10,583,319| 10,599,894|  9,765,027|
  |income       |            |           |           |           |           |
  +-------------+------------+-----------+-----------+-----------+-----------+
  |(Loss)/      |      (2.43)|       0.23|       0.26|       0.27|       0.24|
  |earnings per |            |           |           |           |           |
  |share        |            |           |           |           |           |
  +-------------+------------+-----------+-----------+-----------+-----------+
  |Distributable|        0.24|       0.23|       0.26|       0.26|       0.24|
  |earnings per |            |           |           |           |           |
  |share        |            |           |           |           |           |
  +-------------+------------+-----------+-----------+-----------+-----------+
  |             |            |           |           |           |           |
  +-------------+------------+-----------+-----------+-----------+-----------+
  |Total assets | 427,104,698|534,777,898|520,550,381|531,153,613|493,842,561|
  +-------------+------------+-----------+-----------+-----------+-----------+
  |Total        | 132,951,013|132,475,401|117,194,951|127,789,393| 91,773,445|
  |liabilities  |            |           |           |           |           |
  |(incl.       |            |           |           |           |           |
  |financing)   |            |           |           |           |           |
  +-------------+------------+-----------+-----------+-----------+-----------+
  |Equity       | 294,153,685|402,302,497|403,355,430|403,364,220|402,069,116|
  |capital      |            |           |           |           |           |
  +-------------+------------+-----------+-----------+-----------+-----------+
  |NAV per share|        7.24|       9.90|       9.93|       9.93|       9.90|
  +-------------+------------+-----------+-----------+-----------+-----------+


*After net fair value losses on fair value through profit or loss financial
instruments in the amount of €108,402,444.

**Net operating income from investments before deduction of net fair value
losses through profit or loss financial instruments ((€98,806,038) +
€108,402,444 = €9,596,406).


Fourth Quarter Dividend

The Board of Directors has declared an interim dividend for the quarter ended 31
March 2007 of €0.15 payable on 31 July 2007 to shareholders of record on 6 July
2007.


Conference Call

A conference call to review the Company's financial results for the year ended 
31 March 2007 will take place at 10:30 A.M. London time today.  The conference 
call can be accessed by dialing +44 (0)20 7138 0835 ten minutes prior to the 
scheduled start of the call; please reference Queen's Walk Investment Limited 
Financial Results.

A results presentation will be available on the Queen's Walk website 
(www.queenswalkinv.com).

A webcast of the conference call will also be available 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.


For further information please contact:

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


About the Company:

Queen's Walk Investment Limited is a Guernsey-incorporated investment company
listed on the London Stock Exchange. 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 positions
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 (UK) LLP, considers the coupon or cash flows 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', 'considers',
'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).

The financial information set out in this announcement does not constitute the
Company's statutory accounts for the year ended 31 March 2007. The financial
information for the year ended 31 March 2007 is derived from the financial
statements to be delivered to the UK Listing Authority.

An extract from the audited annual report and accounts of the Company for the
year ended 31 March 2007 is set out below.

This preliminary announcement was approved by the Board of Directors on 25 June
2007.



Chairman's Statement

The results for Queen's Walk Investment Limited (the 'Company') for the twelve
months ended 31 March 2007, its first full year as a public company, reflect a
period of exceptional turbulence in many of the asset-backed securities ('ABS')
markets in which the Company has invested, primarily during the fourth quarter
of the financial year.

The Company incurred a net loss of Euro 67.7 million for the year, principally
as a result of the adjustments to fair value made to a number of its investments
in 2007. The loss per share was Euro 1.67 and the net asset value ('NAV') fell
to Euro 7.24 per share as at 31 March 2007 from Euro 9.90 as at both 31 December
2006 and 31 March 2006.

Notwithstanding the net loss for the year, the directors are mindful of the
Company's objective of providing shareholders with stable returns in the form of
quarterly dividends. Although the losses arising from the adjustments to fair
value have been recognised in the income statement, the Company is nonetheless
able to pay a dividend for the fourth quarter. To the extent that the dividend
is covered by income from the Company's investments, the Company is able to pay
a dividend from the distributable reserves created upon cancellation of the
Company's share premium account at the time of the Company's IPO.

As a consequence, the Board has declared an interim dividend of Euro 0.15 in
respect of the fourth quarter. This dividend will be payable on 31 July 2007 to
shareholders of record on 6 July 2007.

Following interim dividends amounting to Euro 0.75 per share that have been
declared and paid in respect of the first three quarters of the financial year,
the total dividend for the year of Euro 0.90 regrettably falls short of the Euro
1.00 dividend target announced at the time of the Company's IPO. The directors
remain committed, however, to seeing that the Company continues to pay, as far
as is possible, quarterly dividends at a level that takes future periods into
account but which represents a significant proportion of the Company's
distributable income.


Investment Portfolio

Although the difficulties in the US sub-prime loan mortgage market in recent
months have attracted the greatest public attention, the UK and certain of the
Continental European mortgage markets have also seen developments (albeit
largely different from those in the US) that have affected the value of the
Company's investments in those markets.

The report of the Company's Investment Manager, Cheyne Capital Management (UK)
LLP ('Cheyne Capital'), details the performance of the Company's assets and
analyses the factors in the markets underlying this performance. A number of
investments have been sold (predominantly since the year end), including three
of the four US sub-prime mortgage positions. The exposure to the UK mortgage
market, where a deteriorating trend in prepayment rates by borrowers became
apparent, has also been materially reduced.

These asset sales, together with the cash flows from the continuing investment
portfolio, have caused the Company's leverage to fall from 25.9% of the
Company's total investment portfolio as at 31 March 2007 (17.9% as at 31 March
2006) to approximately 6.6% as at 31 May 2007.

The fall in fair value of the US and the UK assets contributed most of the loss
reported for the year, although a small amount was accounted for by the
Company's holding of collateralised debt obligations ('CDOs') backed by ABS.
While there has been no adverse impact on the cash generative capability of
these assets (as noted in the Investment Manager's Report), they have suffered a
downward valuation based on the higher discount rates being applied to ABS CDO
assets generally in the current market.

With regard to the balance of the Company's investment portfolio, regulatory
changes affecting mortgage prepayment charges in both Portugal and Italy have
depressed valuations in the Company's portfolio of residual investments backed
by prime mortgage loans in those countries. However, the credit performance of
the Company's Portuguese and Italian residual positions has, in the aggregate,
exceeded original pricing expectations. Notwithstanding the regulatory changes,
the aggregate fair value of these positions is in line with their original cost.
The Company's portfolio of residuals backed by small-and-medium enterprise
('SME') loans, which was accumulated over the course of the year as part of the
Company's diversification policy, has performed satisfactorily.


Outlook

The Company's investment policy has, from the outset, been to aim for a high
degree of risk diversification, for instance through the 'granularity' of the
many individual loans underlying each ABS investment, the geographical spread of
the different positions and the inclusion in the Company's investment portfolio
of ABS investments backed by assets other than residential mortgages. While this
was not enough to prevent the disappointing performance that resulted from the
virtually simultaneous and significant market events that affected the Company's
three core markets, the experience of recent months has reinforced the
importance of diversification. In seeking to deliver significant and stable cash
returns to investors, the Company will seek to achieve further diversification
in its investments while seeking high risk-adjusted returns.

The asset sales over the past two months have significantly reduced the
Company's borrowings. This reduction enables the Company to apply future cash
flows generated by the Company's investment portfolio in ways that will optimise
value for shareholders.

As announced on 6 March 2007, the directors intend to seek the approval of
shareholders (and, given the significant shareholding in the Company by
investors connected with the Investment Manager, that of the Takeover Panel) for
the Company to buy back shares. The process of obtaining these approvals was
delayed by, inter alia, the impact of the turbulent markets on the valuation of
the Company's investments. The Company is sending a circular to shareholders
shortly calling for an extraordinary general meeting of shareholders.

The directors will continue to assess how the cash flow from the Company's
continuing investments can be used to the best advantage of all shareholders,
whether through share buy backs or other forms of capital return or, if the
comparative returns justify it, for reinvestment in new assets. For as long as
the Company's share price is at a material discount to net asset value, the
directors would expect to use surplus cash for share buybacks.

Despite the disappointing results for the period and the difficult market
conditions behind them, the directors continue to believe that a broadly
diversified portfolio of ABS and other investments can provide investors with
attractive returns. We will work with the Investment Manager to deliver this
outcome.


Board

Stuart Fiertz has resigned from the board in order to be able to assume overall
responsibility at the Investment Manager in relation to the Company and the
implementation of the investment strategy outlined above. While we will miss his
contribution in his capacity as a director, we welcome that he will now be
leading the team at the Investment Manager drawing on the full range of
expertise and specialisations within the firm.


Annual General Meeting

The Company's Annual General Meeting will be held at the registered offices of
the Company on 3 September 2007. The notice of the Annual General Meeting is set
out at the end of the annual report and a form of proxy accompanies the annual
report.


Tom Chandos, Chairman
25 June 2007



Investment Manager's Report

Overview

After four quarters of good performance since its IPO, the Company faced a
challenging set of circumstances in the quarter ended 31 March 2007. Significant
market events affected the Company's investments backed by UK and US mortgages,
and regulatory changes affected the Company's Continental European
mortgage-backed investments. Apart from the highly-publicised events in the US
sub-prime mortgage market, the Company's UK investments have been affected by a
change in the prepayment behaviour of UK mortgage borrowers. Recent regulatory
changes in both Portugal and Italy have affected the level of prepayment charges
that banks can charge to borrowers who prepay their mortgages, and these changes
have also had an adverse (albeit lesser) impact on the Company's investments
backed by mortgages in those countries.

The aggregate value of the Company's UK, US and European mortgage-backed
investments accounted for approximately 86% of the Company's investment
portfolio by gross asset value ('GAV') at 31 December 2006. While Cheyne
Capital, as part of its investment strategy, had sought to diversify the
Company's investment portfolio in terms of both asset type and geography in
order to minimise the impact of any single event in a particular market, the
almost simultaneous occurrence of three significant events in the Company's
three core markets, and the full extent of their impact on the Company's
investments, was unexpected.

These events contributed to increased price volatility and decreased liquidity.
In the case of the well-publicised events affecting the US sub-prime mortgage
market, they led to a significant deterioration in value and a market re-pricing
of US sub-prime mortgage-backed investments. Although the Company's investment
portfolio was not insulated from these market events, Cheyne Capital had made
portfolio management decisions in previous quarters that to some extent
mitigated their ultimate impact. We chose to stop purchasing US residuals in
February 2006, thereby reducing the Company's exposure to 2006 vintage assets
and the Company's relative exposure to the US market.

Following the challenges of the past quarter, we believe that participants in
the mortgage residual market have taken a more conservative view in pricing the
risk of residual assets. The Company is well positioned to take advantage of
this re-pricing of the residual market going forward.


Investment Portfolio

US investments - Impacted by increased loss assumptions

The sudden and rapid deterioration of the US sub-prime mortgage market
highlighted the substantial deficiencies in underwriting standards in 2006 and
the extent to which credit losses in the 2006 vintage mortgage portfolios are
likely to be much higher than market participants had originally expected. The
Company purchased its last US mortgage residual in February 2006 and was thus
not materially exposed to loans originated throughout 2006. The 2006 vintage,
however, cannot be viewed in isolation, as the impact of the deterioration in
the US sub-prime mortgage market has been much broader. There has been a
material reduction in the availability of credit for sub-prime mortgages as the
weaker capitalised originators have exited the market and underwriting
guidelines have tightened among the remaining mortgage lenders. This reduction
in the availability of credit has contributed to weaker housing market
fundamentals. As a result of changes in underlying market conditions, Cheyne
Capital increased the loss assumptions associated with the Company's US mortgage
residuals. Given the resulting change to the risk/reward profile of the majority
of these assets and the risk of further value deterioration, we decided to sell
all but one of the Company's US investments.


UK investments - Impacted by changes in borrower prepayment behaviour

With respect to the UK mortgage residual portfolio, the Company has previously
noted the changes that Cheyne Capital has observed in borrower prepayment
behaviour. Borrowers are increasingly waiting until the end of their mortgage
discount (or 'teaser') period to refinance their mortgage loans. While this
trend is likely to have been driven by a number of factors, we believe that key
drivers include the increased competition in the non-conforming mortgage market
(which has increased mortgage choice for sub-prime borrowers) as well as the
changing interest rate environment.

Each of the Company's UK mortgage residual exposures includes cash flows from
early repayment charges typically charged to borrowers who prepay their mortgage
loans in the discount period, in addition to the excess spread earned in the
securitisation transaction (being the income from the underlying mortgage
portfolio after servicing of the debt issued as part of the securitisation).
Where there is a general increase in prepayment rates over the life of a
securitisation transaction, the increased cash flows received from early
repayment charges act as a hedge against the overall reduction in the excess
spread cash flows (which have been reduced because mortgages have been repaid
and no longer form part of the mortgage pool).

Where the increase in prepayment rates occurs soon after (rather than during)
the discount or 'teaser' period, however, this has two adverse impacts on the
value of the investment. In addition to receiving fewer early repayment charges,
the absolute level of excess spread on the portfolio will have been reduced.
Consequently, with borrowers prepaying their mortgages at a higher rate after
the end of the teaser period, the duration of the excess spread cash flows has
been reduced relative to Cheyne Capital's original pricing assumptions, with no
increase in early repayment charges to mitigate these reduced cash flows. This
change to the timing of borrower prepayments and the magnitude of the repayments
following the end of the teaser period are the principal causes of the fair
value adjustments that the Company has made in respect of its UK investments.
The change in prepayment behaviour does not appear to be confined to a single
originator or loan type and has had an impact on all of the Company's UK
residual positions.

In addition, the rise in UK interest rates over the last nine months may have an
impact on the level of defaults in the Company's portfolio. While many of the
underlying loans that collateralise the Company's UK investments are well
seasoned (i.e., over two years old) and benefit from increased equity in the
underlying properties as a result of higher UK house prices, an increase in
interest rates will have a negative impact on the affordability of the mortgage
loans for some borrowers. Cheyne Capital has increased the assumed default rates
and cumulative loss levels for the UK mortgage residuals and this increase is
also reflected in the asset valuations as of 31 March 2007.


Continental European Investments - Impacted by regulatory changes to prepayment
charges

With respect to the Continental European mortgage residual portfolio (the
'Continental MBS Portfolio'), the introduction of legislation that caps early
repayment charges in both Portugal and Italy has had an impact on the value of
the Company's assets. Portugal passed legislation in April 2007 limiting the
prepayment charges that banks can charge to mortgage borrowers to 50 basis
points. Italy has passed similar legislation and, in May 2007, the Italian
banking and consumer associations reached an agreement (mandated by legislation)
similarly capping prepayment charges on existing mortgages at 50 basis points.
The Company holds five investments backed by Portuguese mortgages and one
investment backed by Italian mortgages. While we have increased prepayment
assumptions where necessary in light of these developments, it is important to
note that the Company receives early repayment charge cash flows from only three
of its investments. The relevant investments are quite seasoned and expected
cash flows from early repayment charges are a relatively small component of
overall value.

The Continental MBS Portfolio is now quite seasoned. Strong house price growth
in Italy, and to a lesser extent in Portugal, has resulted in low initial
loan-to-value ('LTV') portfolios having even lower LTVs today. This is a
positive factor for both default and recovery rates and, to date, recoveries of
liquidated mortgages in the portfolio have exceeded expectations.

Notwithstanding the negative impact of reducing early repayment charge cash
flows and increasing prepayment assumptions where appropriate, the aggregate
fair value of the Company's Portuguese and Italian asset portfolio remains in
line with original cost. The negative impact of the regulatory changes has been
offset by the continuing credit outperformance of the majority of the assets
relative to our initial pricing assumptions and by the tightening of yields in
the sector relative to the wider yields at which these now seasoned assets were
purchased.

Apart from the Company's mortgage residual portfolio, 5.9% of the portfolio as
at 31 March 2007 was invested in three CDO residual positions managed by Cheyne
Capital (12% as at 31 March 2006) and 12.6% of the portfolio was invested in SME
residual positions (12.0% as at 31 March 2006). This asset diversification has
benefited the Company in the past quarter, as the cash flow generative
capability of these assets has not been affected by the changes in the US, UK or
European mortgage markets.

The CDO investments comprise one CLO-squared transaction (a CDO transaction
comprised of underlying collateralised loan obligation (or 'CLO') exposures),
with underlying exposure to US leveraged loans, and two ABS CDOs. Consistent
with many ABS CDO investments, the Company's ABS CDO residual investments are
exposed to the US sub-prime market. While the ABS CDO sector has suffered
generally from increased price volatility and illiquidity as a result of this
exposure, the Company's ABS CDO investments can be distinguished by reference to
two important factors. Both of the Company's ABS CDO investments are performing
in line with expectations and there have been no downgrades to any of the CDO
assets that collateralise these investments (although there have been several
upgrades). There is also a high degree of seasoning of the underlying ABS CDO
assets in both investments and therefore a relatively small exposure to the 2006
vintage sub-prime transactions that have been the focus of recent concern. While
this limited exposure has resulted in the cash generative capability of the
Company's ABS CDO investments having been relatively unaffected by the turmoil
in the US sub-prime market, the market discount rate for ABS CDO assets has
increased and, consequently, the fair value of the Company's ABS CDO investments
is lower than their amortised value.

The Company's portfolio of SME residuals is performing in line with, or better
than, expectations. Unlike mortgage residuals, the Company's SME residual
positions carry limited prepayment risk, as the transactions are generally
revolving (with underlying assets replaced as they are repaid, subject to rating
agency qualification criteria).

While the Company's SME assets are exposed to potential losses in the underlying
portfolios and to the timing of those losses, the track record of the banks that
have originated the SME transactions in which the Company has invested is strong
and these banks have an alignment of interest with the Company, typically
through shared residual investment or exposure to the underlying credits outside
the securitisation.


Portfolio Valuation and Asset Sales

Portfolio Valuation

In accordance with the Company's valuation procedures, we reviewed the fair
value of the Company's investments in light of their performance, observable
market data and our expectations regarding future trends. Cash flows received in
respect of each investment were allocated between income and principal on the
basis of their carrying values and booking yields, resulting in amortised
carrying values for the Company's residual income positions as at 31 March 2007.
The differences between these amortised carrying values and the fair values of
the assets as at 31 March 2007 have been recorded as fair value adjustments in
the Company's income statement.

Following the valuation adjustments made to the Company's portfolio, the NAV of
the Company has decreased to Euro 7.24 per share from Euro 9.90 per share as at
31 December 2006 (a decrease of 26.8%). The valuation adjustments made in
respect of the Company's assets reflect Cheyne Capital's revised credit,
prepayment and discount rate assumptions. These assumptions have also been
assessed in light of actual sale prices obtained in asset sales that took place
both during and after the quarter ended 31 March 2007. Assets sold since 31
March 2007 have been valued as at 31 March 2007 on the basis of the sale prices
at which they were actually sold (adjusted to take account of income accrued for
the quarter ended 31 March 2007 and cash flows received during that quarter).
The Company's asset sales are described in further detail in the next section.

The table below summarises the reduction in the value of the Company's portfolio
by asset class:

Asset Class 31         31 March    31 March  Fair Value  % Change to % Change
            December   2007        2007 Fair Adjustment  31 March    relative to
            2006 Book  Amortised   Value     (Euro)      2007        31 March
            Value      Book Value  (Euro)                Amortised   2007 Total
            (Euro)     (Euro) 1                          Book Value  Portfolio
                                                                     Amortised
                                                                     Book

                                                                     Value 2
UK3              302.2       289.5    214.94       -74.6      -25.8%      -13.1%
US                65.1        61.2      32.2       -29.0      -47.4%       -5.1%
Continental      105.8       104.6     105.2         0.7        0.6%        0.1%
MBS
SME               52.5        51.5      51.4        -0.1       -0.1%        0.0%
ABS CDO           29.4        29.2      23.8        -5.4      -18.5%       -0.9%
Cash and          15.7        34.9      34.9         0.0                    0.0%
Other
Assets                                                          0.0%
Total            570.9       571.0   462.5 5    -108.4 6      -19.0%      -19.0%


1 Amortised Book Value as at 31 March 2007 reflects carrying value of the assets
as at 31 December 2006 after taking into account income accrued for the quarter
ended 31 March 2007 and cash flows received during that quarter

2 Percentage figures reflect fair value change for each asset class relative to
the aggregate 31 March 2007 Amortised Book Value of the Company's entire
investment portfolio.

3 Inclusive of proceeds from the sale of Southern Pacific Financing 06-A plc.
This asset was sold on 30 March 2007 but has been included in this total fair
value calculation as at 31 March 2007 in order to provide a complete summary of
fair value changes on the UK portfolio as a whole (including both realised and
unrealised losses).

4 Inclusive of assets held synthetically pursuant to total return swap
agreements. See Note 10 to the financial statements.

5 The total asset amount reflected on the consolidated balance sheet (€427.1
million) is net of indebtedness effected through total return swap agreements
(€35.4 million). (See note 10 to the financial statements.)

6 This figure reflects adjustments to fair value made in the fourth quarter. Net
unrealised losses on investments at fair value through profit or loss for the
year ended 31 March 2007 totalled €112.3 million (see note 4 to the financial
statements).


Asset Sales

As noted above, we determined that certain assets were no longer attractive from
a risk/reward perspective in light of market events. We also viewed certain
assets as having significant potential for further deterioration. Furthermore,
our analysis and review of originator concentrations prompted us to reduce the
Company's exposure to certain individual originators. Finally, in light of the
increased illiquidity of residuals brought about by market events, we determined
that it would be prudent to sell assets in order to reduce the Company's
leverage. The proceeds of all asset sales have been used to repay indebtedness
or to increase cash available to the Company. Further details of these sales are
set out below.

The Company's exposure to US mortgage residuals was reduced because of our
concerns regarding the state of the US sub-prime market and the housing market
in general. As stated above, while the market initially expressed concerns
regarding the underwriting quality of 2006 vintage mortgage loans, the impact on
the broader market was far wider, with concerns subsequently having spread to
other vintages and to the credit quality of US sub-prime mortgage assets
generally. Subsequent to 31 March 2007, the Company sold three of its four US
residual positions.

Since 31 March 2007, the Company has also sold three UK residual positions in
addition to one UK residual position, Southern Pacific Financing 06-A plc, which
was sold on 30 March 2007. (The sale of half of the Company's investment in RMAC
2004-NSP4 plc announced on 3 April 2007, which was subject to contract, was not
completed.) A complete list of assets sold by the Company since 31 March 2007 is
set out below.

   Investment Sold                      Description of Underlying Assets

   US Positions

   Argent Securities Trust 2006-W1      Approximately 10,400 sub-prime
                                        mortgage loans, primarily
                                        first-ranking
   First Franklin Mortgage Loan Trust   Approximately 3,400 sub-prime
                                        mortgage loans, primarily
                                        first-ranking
   Morgan Stanley ABS Capital I Inc     Approximately 4,100 sub-prime
   Trust 2005-HE5                       mortgage loans, primarily
                                        first-ranking
   UK Positions

   RMAC 2005 NSP2 plc                   Approximately 6,300 sub-prime
                                        mortgage loans/3,700 prime mortgage
                                        loans
   RMAC 2005-NS1 plc                    Approximately 7,800 sub-prime
                                        mortgage loans
   Southern Pacific Financing 05-B plc  Approximately 3,000 near-prime
                                        mortgage loans


The aggregate proceeds from the sale of the US investments (all of which took
place after 31 March 2007) totalled Euro 22.8 million, reflecting a 53.0%
reduction in gross asset value relative to the adjusted book value of these
investments as at 31 December 2006. As the fair value of these investments as at
31 March 2007 was determined on the basis of the prices at which these assets
were sold, these sales have not reduced the net asset value of the Company post
year end. While the investments were sold at a significant loss relative to 31
December 2006 carrying values, they were sold for prices that exceeded the fair
values that Cheyne Capital had assigned to them as at 31 March 2007. The
aggregate sale price reflected a premium of 13.3% above the Euro 20.1 million
aggregate model value that Cheyne Capital had assigned to these investments as
at 31 March 2007.

The aggregate proceeds from the sale of the UK investments (inclusive of the
sale of Southern Pacific Financing 06-A plc) totalled Euro 93.2 million,
reflecting a 24.3% reduction in gross asset value relative to the adjusted book
value of these investments as at 31 December 2006. Similar to the sale of US
investments, the fair value of these investments as at 31 March 2007 was also
determined on the basis of the prices at which the assets were sold and,
consequently, these sales have not reduced the net asset value of the Company
post year end. These investments were also sold for prices that exceeded the
fair values that Cheyne Capital had assigned to them as at 31 March 2007. The
aggregate sale price reflected a premium of 4.4% above the Euro 89.3 million
aggregate model value that Cheyne Capital had assigned to these investments as
at 31 March 2007.


Portfolio Yield

The weighted average yield of the Company's investment portfolio in local
currency terms after giving effect to all asset sales (including those which
took place after 31 March 2007) is 13.4%. This weighted average yield has been
calculated on the basis of the original effective interest rate booked for each
asset, with all changes to underlying cash flow assumptions having been
reflected in the amortised cost value of each asset.* While the Company has
reported the weighted average portfolio yield in prior quarters on the basis of
effective yields for each asset as they were adjusted to reflect changes in
cashflow assumptions, the Company believes that a calculation based on original
effective interest rates enables it to provide more meaningful comparative
information. The equivalent weighted average yield of the Company's investment
portfolio as at 31 December 2006 was 13.6%.

*Where the Company adjusts expected cash flow projections to take account of any
change in underlying assumptions, such adjustments are recognised in the income
statement by reflecting changes in a revised amortised cost value of the
investment and applying the original effective interest rate to the revised
amortised cost value for the purposes of calculating income. The Company takes
account of underlying changes in cash flows in its income recognition as soon as
adverse factors are identified. (See notes 2, 3 and 14 to the financial
statements.)


Portfolio Breakdowns

A summary of the Company's ten largest investment positions as at 31 March 2007,
which account for 57.1% of the total portfolio by gross asset value, is set out
in the following table.

Investment                              Description of Underlying Assets
Investments individually
accounting for 7 to 9% of
total investment portfolio

RMAC 2005-NSP2 plc*                     Approximately 6,300 sub-prime/3,700 
                                        prime UK mortgage loans.

Newgate Funding plc                     Approximately 5,900 near prime and
                                        non-conforming UK mortgage loans

Investments individually
accounting for 5 to 7% of
total investment portfolio

Eurosail 2006-1 plc                     Approximately 9,800 prime, 
                                        non-conforming and buy-to-let (UK) 
                                        mortgage loans

Sestante Finance S.R.L.                 Approximately 3,500 prime Italian 
                                        mortgage loans

RMAC 2004-NSP4 plc                      Approximately 8,100 prime, 
                                        non-conforming and buy-to-let mortgage 
                                        loans

Investments individually
accounting for less than 5%
of total investment
portfolio

Magellan Mortgages No. 2 plc            Approximately 23,000 prime Portuguese
                                        mortgage loans

Lusitano Mortgages No. 1 plc            Approximately 23,900 prime Portuguese
                                        mortgage loans

Magellan Mortgages No. 1 plc            Approximately 23,000 prime Portuguese
                                        mortgage loans

Southern Pacific Financing              Approximately 3,000 near-prime UK 
05-B plc*                               mortgage loans

Eirles Three Limited                    Approximately 1,400 SME loans
(Tranche 227B)

* Asset sold after 31 March 2007.


A breakdown of the Company's investment portfolio by jurisdiction (by reference
to underlying asset originator) is set out below.

Adjusted 31 March 2007*

UK             41%
Portugal       25%
Italy           8%
Germany        11%
CDO             7%
Holland         5%
US              3%

*Adjusted to reflect asset sales post year end and asset
paydowns between 31 March 2007 and 31 May 2007.


31 March 2007

UK             47%
Portugal       20%
Italy           6%
Germany         9%
CDO             6%
Holland         4%
US              8%


31 December 2006

UK             54%
Portugal       14%
Italy           5%
Germany         7%
CDO             5%   
Holland         3%
US             12%


31 March 2006

UK             35%
Portugal       17%
Italy           6%
Germany         3%
CDO            11%
Holland        10%
US             18%


A breakdown of the Company's investment portfolio by asset type (by reference to
underlying asset collateral) is set out below.


Adjusted 31 March 2007*

Prime          35%
SME            16%
CDO             7%
SubPrime       23%
NearPrime       9%

*Adjusted to reflect asset sales post year end and asset
paydowns between 31 March 2007 and 31 May 2007.


31 March 2007

Prime          30%
SME            13%
CDO             6%
SubPrime       31%
NearPrime      20%


31 December 2006

Prime          24%
SME             9%
CDO             5%
SubPrime       38%
NearPrime      24%


31 March 2006

Prime          25%
SME             9%
CDO            11%
SubPrime       34%
NearPrime      21%


Financing

The Company's leverage as at 31 March 2007 was 25.9% (17.9% as at 31 March
2006). Inclusive of proceeds from the asset sales that have taken place since 31
March 2007, the Company's cash balance has increased to approximately Euro 53.7
million and leverage has been reduced to approximately 6.6% as at 31 May 2007.
While financing is currently provided through uncommitted repo facilities, the
Company is in the process of negotiating longer-term financing of its investment
portfolio. While longer-term facilities will increase the Company's financing
costs, we believe that the increased costs of a long-term committed facility are
justified and that such facilities will enable the Company to reduce refinancing
risk.


Strategy and Market Outlook

Cheyne Capital remains committed to creating a diversified portfolio of
asset-backed residuals. While the Company's investment portfolio was largely
comprised of mortgage-backed residuals at the time of its IPO, the portfolio has
since been diversified into additional asset classes such as SMEs.

In the UK, we expect that the flow of mortgage-backed residuals will continue
unabated as more non-conforming mortgage originators enter the market. We
believe that the increased competition in the mortgage market that will result,
and the evolution of the UK mortgage market generally, will produce new UK
residual positions that will be markedly different from the positions now owned
by the Company in terms of both credit and pricing. We will seek to purchase
these assets for the Company only where the credit and prepayment risks of the
position are accurately reflected in pricing.

Despite changes to legislation that have affected prepayment charges in Portugal
and Italy, we expect the pricing of European prime mortgage residuals to remain
aggressive. We do not expect to add positions in this sector in the near future.
We will also remain cautious towards the US mortgage residual market until
pricing more appropriately reflects the risk of the underlying loan collateral.

Within the ABS CDO sector, transactions have undergone a fundamental re-pricing
in light of the concerns regarding US sub-prime mortgages and, in particular,
those containing material exposure to 2006 vintage transactions. This has left
the market with a technical oversupply of a broad range of CDO equity positions,
including transactions beyond the mortgage sector. While this may create an
attractive investment opportunity in time, these positions are currently subject
to a high degree of price volatility. We will consider making selective
investments in this sector once the market has stabilised. As origination
volumes in European CDOs are expected to increase, these assets may also provide
an opportunity for further diversification of the Company's investment
portfolio.

The Company's SME residual positions have performed in line with or better than
our pricing cases and we continue to favour this asset class. We will look
increasingly at sourcing these residuals by dealing directly with originators.

We are very disappointed with the results for the financial year. While the
Company faced an unprecedented and extraordinary combination of market events in
the final quarter, the securitisation market remains robust and we believe that
the Company's strategy of investing primarily in ABS residual positions remains
viable. We will look to further diversify the Company's residual portfolio by
adding new asset classes. We will also look to enhance the investment portfolio
by adding new ABS and other investments offering attractive returns.


Cheyne Capital Management (UK) LLP
25 June 2007
Directors' Report



The Directors present their annual report and the audited consolidated financial
statements for the year ended 31 March 2007.

Queen's Walk Investment Limited (the 'Company') was registered on 6 September
2005 with registered number 43634 and is domiciled in Guernsey, Channel Islands,
and 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, Trebuchet Finance Limited.


Principal activity and business review

The principal activity of the Group during the year was that of an investment
company. The Group is expecting to continue its activities in the coming year. A
review of the year is provided in the Investment Manager's Report.


Results and dividends

The results for the year and the Group's financial position at the end of the
year, are shown on pages 24 to 26. Dividends totalling Euro 40,214,548 were paid
/declared during the year, included in this amount is the third interim dividend
of Euro 9,342,774, which was paid on 9 April 2007. A fourth interim dividend for
the year ended 31 March 2007 of (Euro 0.x) per share was declared by the
Directors on 25 June 2007 and has not been included as a liability in these
financial statements.

While these accounts reflect a net loss after realised losses and fair value
adjustments, the Directors have declared a fourth interim dividend in seeking to
fulfil the Company's objective of providing shareholders with stable returns in
the form of quarterly dividends and in accordance with the Company's dividend
policy. The dividend declared is covered by income received from underlying
investments and the Company has sufficient reserves (in the form of the Other
Reserve) from which the dividend may be paid. (See note 7 to the financial
statements for further information.)


Directors

The Directors of the Company who served during the year were:

Tom Chandos (Chairman)
Stuart Fiertz
Graham Harrison
John Hawkins
Talmai Morgan
Christopher Spencer

The Directors' interests in the share capital of the Company at 31 March 2007
(some of which are held directly or by entities in which the Directors may have
a beneficial interest) were:
                                                    Number of Ordinary Shares
Tom Chandos (Chairman)                              19,000
Stuart Fiertz                                       200,000
Talmai Morgan                                       1,000
Christopher Spencer                                 1,000
Graham Harrison                                     1,000
John Hawkins                                        1,000


Substantial interests in share capital

As at 30 May 2007 the following holdings representing more than 3 per cent of
the Company's issued share capital had been reported:

                                                 Number of Ordinary  Percentage 
                                                       Shares           held
Cheyne ABS Opportunities Fund LP                     17,900,756           44.07%
WestLB AG                                             2,700,000            6.65%
Goldman Sachs Securities (Nominees) Limited           2,275,700            5.60%
State Street Nominees Limited (re account OM02)       2,009,852            4.95%
State Street Nominees Limited (re account WJC2)       1,495,500            3.68%


The Investment Manager

The Directors have reviewed the performance of the Investment Manager and are
satisfied that the continued appointment of the Investment Manager on the terms
agreed is in the best interests of the shareholders and the Company.


Auditors

Following the transfer of their business to Deloitte & Touche LLP with effect on
1 October 2006, Deloitte & Touche resigned as auditors on 5 March 2007 and the
Directors resolved to appoint their successors Deloitte & Touche LLP as auditors
with effect from that date. A resolution for the reappointment of Deloitte &
Touche LLP as auditors will be proposed at the forthcoming Annual General
Meeting.


Listing Requirements

On 13 December 2005 the Company's Ordinary Shares were admitted to the Official
List of The London Stock Exchange.


Authorised and Issued Share Capital

There has been no movement in the authorised and issued share capital during the
year.


On behalf of the Board on 25 June 2007

Christopher Spencer 
Director

Talmai Morgan
Director 


Corporate Governance Statement

The Directors are committed to ensuring that high standards of corporate
governance are maintained and have made it Company policy to comply with best
practice on corporate governance, insofar as the Directors believe it is
relevant and appropriate to the Company, and notwithstanding the fact that the
Company is not obliged to and has availed itself of the exemption not to comply
with the 'Combined Code' (i.e. the Code of Best Practice published by the
Committee on the Financial Aspects of Corporate Governance) as it is a Guernsey
registered company.

However the Company complies with the corporate governance guidelines issued by
the Guernsey Financial Services Commission on 10 December 2004, whose underlying
principles are similar to those of the Combined Code. In addition, the
Directors, in accordance with best practice, comply with the Combined Code
provisions as far as possible.


Going Concern

The Directors believe it is appropriate to adopt the going concern basis in
preparing the financial statements as, after due consideration, the Directors
consider that the Company has adequate resources to continue in operational
existence for the foreseeable future.


Board effectiveness

For the purposes of assessing compliance with the Combined Code, the Board
considers all of the Directors, other than Mr Fiertz, as independent of the
Investment Manager and free from any business or other relationship that could
materially interfere with the exercise of their independent judgement.

In accordance with the Combined Code, the Board has established an Audit
Committee and a Nomination Committee, in each case with formally delegated
duties and responsibilities within written terms of reference. The Board has not
established a remuneration committee as the Company has no executive directors
or employees.

The Audit Committee is chaired by Mr Spencer and its other members are Mr Morgan
and Mr Hawkins. Only independent Directors serve on the Audit Committee and
members of the Audit Committee have no links with the Company's external
auditors and are independent of the Investment Manager. The terms of reference
state that the Audit Committee will meet not less than twice a year and will
meet the external auditors at least once a year, without the non-independent
director present.

The Audit Committee is responsible for overseeing the Company's relationship
with the external auditors, including making recommendations to the Board on the
appointment of the external auditors and their remuneration. The Audit Committee
is required to consider the nature, scope and results of the auditors' work and
reviews, and develop and implement policy on the supply of any non-audit
services that are to be provided by the external auditors. It receives and
reviews reports from the Investment Manager and the Company's external auditors
relating to the Company's annual report and accounts. The Audit Committee
focuses particularly on compliance with legal requirements, accounting standards
and the Listing Rules and ensuring that an effective system of internal
financial and non-financial controls is maintained. The Company does not have an
internal audit function but due to internal control processes put in place by
the Administrator, Sub-Administrator, Custodian and Investment Manager, the
Board has decided to place reliance on their systems and internal control
procedures.

The Nomination Committee is chaired by Mr Chandos and its other members are Mr
Morgan and Mr Spencer. The members of the nomination committee are and will be
independent Directors. The terms of reference state that the Nomination
Committee will meet not less than once a year, will have responsibility for
considering the size, structure and composition of the Board, and retirements
and appointments of additional and replacement Directors and that the Nomination
Committee will make appropriate recommendations to the Board.

The following table shows the number of meetings held by the Board and each
committee for the year ended 31 March 2007 as well as the number of attendances
at each meeting.

                              Number of meetings     Number of attendances
Board of Directors
Tom Chandos                           4                        4
Stuart Fiertz                         4                        4
Talmai Morgan                         4                        3
Christopher Spencer                   4                        3
Graham Harrison                       4                        4
John Hawkins                          4                        4

                              Number of meetings     Number of attendances
Audit Committee
Talmai Morgan                         2                        2
Christopher Spencer                   2                        2
John Hawkins                          2                        2


Given the relatively short operating history of the Company, there were no
Nomination Committee meetings held during the year.

The holders of the position of the Chairman of the committees referred to above
will be reviewed on an annual basis. The membership of these committees and
their terms of reference will be kept under review. The performance of the
Chairman of the Board will be assessed by another of the independent Directors
through discussions with the other Directors.

The Company has appointed M:Communications as public relations consultant and
Citigroup and Goldman Sachs as corporate brokers. From these parties and the
Investment Manager, the Board expects to be informed of the views of the
Company's major shareholders.


Internal Controls

The Directors acknowledge that they are responsible for establishing and
maintaining the Company's system of internal control and reviewing its
effectiveness. The Directors review not just internal controls but all controls
including operations, compliance and risk management. The key procedures
established to provide internal control are:

Investment management is provided by Cheyne Capital Management (UK) LLP. The
Board is responsible for setting the overall investment policy and monitors the
actions of the Investment Manager at regular Board meetings. Administration and
company secretarial services are provided by Kleinwort Benson (Channel Islands)
Fund Services Limited. The Sub-Administrator to which certain functions are
delegated is Investors Fund Services (Ireland) Limited. Custody of assets is
undertaken by Investors Trust & Custodial Services (Ireland) Limited. Regular
compliance reports are received by the Board.

The Directors of the Company clearly define the duties and responsibilities of
their agents and advisers, whose appointments are made by the Board after due
consideration. The Board monitors the ongoing performance of such agents and
advisers. Each of the above agents and advisers maintain their own systems of
internal control on which they report to the Board. The systems are designed to
ensure effectiveness and efficient operation, internal control and compliance
with laws and regulations. In establishing the systems of internal control,
regard is paid to the materiality of relevant risks, the likelihood of costs
being incurred and costs of control. It follows, therefore, that the systems of
internal control can only provide reasonable but not absolute assurance against
the risk of material misstatement or loss.


Directors' Remuneration Report

This report describes how the Board has applied the Principles of Good
Governance relating to Directors' remuneration. A resolution to approve the
report will be proposed at the Annual General Meeting of the Company at which
the financial statements will be presented for approval.

Each of the Directors has signed a letter of appointment with the Company
setting out the terms of their appointment. The Chairman will receive an annual
fee of Euro 120,000 and each of Mr Morgan, Mr Spencer, Mr Harrison and Mr
Hawkins will receive an annual fee of Euro 30,000, in each case payable
quarterly in equal instalments in arrears. Mr Fiertz will not receive a fee for
the performance of his duties as a member of the Board.

The Company has not established a Remuneration Committee as the Company does not
have any executive Directors or employees. The total amounts for the Directors'
remuneration for the year were as follows:

                            Year ended      Period from
                             31 March       6 September
                                2007        2005 to 31
                                             March 2006
                                                
                             Euro             Euro
Tom Chandos                  120,000          67,824
Graham Harrison              30,000           16,957
John Hawkins                 30,000           16,957
Talmai Morgan                30,000           16,957
Christopher Spencer          30,000           16,957
Total Directors'             240,000          135,652
emoluments

During the year, Talmai Morgan and Graham Harrison each received Euro 12,500 in
their capacity as directors of Trebuchet Finance Limited.


Statement of Directors' Responsibilities

The Directors are responsible for preparing financial statements for each
financial year which give a true and fair view of the state of affairs of the
Group as at the end of the financial reporting period and of the profit and loss
of the Group for that period in accordance with International Financial
Reporting Standards and which are in accordance with applicable laws. In
preparing those financial statements, the Directors are required to:

   • select suitable accounting policies and then apply them consistently;
   • make judgements and estimates that are reasonable and prudent;
   • state whether applicable accounting standards have been followed; and
   • prepare the financial statements on the going concern basis unless it is
    inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and to enable them to ensure that the financial statements have been
properly prepared in accordance with The Companies (Guernsey) Law, 1994. They
are also responsible for safeguarding the assets of the Company and hence for
taking reasonable steps for the prevention and detection of fraud and other
irregularities.


Independent auditors' report to the members of Queen's Walk Investment Limited

We have audited the consolidated financial statements of Queens' Walk Investment
Limited (the 'financial statements') for the year ended 31 March 2007 which
comprise the Consolidated Income Statement, Consolidated Statement of Changes in
Shareholders' Equity, Consolidated Balance Sheet, Consolidated Cash Flow
Statement and related notes 1 to 20. These financial statements have been
prepared under the accounting policies set out therein.

This report is made solely to the Company's members, as a body, in accordance
with Section 64 of The Companies (Guernsey) Law, 1994. Our audit work has been
undertaken so that we might state to the Company's members those matters we are
required to state to them in an Auditors' Report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company's members as a body, for our
audit work, for this report, or for the opinions we have formed.


Respective responsibilities of Directors and Auditors

The Directors' responsibilities for preparing the annual report and the
financial statements in accordance with International Financial Reporting
Standards and applicable Guernsey law are set out in the statement of Directors'
Responsibilities.

Our responsibility is to audit the financial statements in accordance with
relevant Guernsey legal and regulatory requirements and International Standards
on Auditing (UK and Ireland).

We report to you our opinion as to whether the financial statements give a true
and fair view in accordance with the International Financial Reporting Standards
and whether the financial statements have been properly prepared in accordance
with The Companies (Guernsey) Law, 1994. We also report to you if, in our
opinion, the Directors' report is not consistent with the financial statements,
if the Company has not kept proper accounting records, or if we have not
received all the information and explanations we require for our audit.

We read the other information accompanying the financial statements and consider
whether it is consistent with those statements. The other information comprises
only the Chairman's Statement, Investment Manager's Report, Directors' Report,
the Corporate Governance Statement and the Directors' Remuneration Report. We
consider the implications for our report if we become aware of any apparent
misstatements or material inconsistencies with the financial statements. Our
responsibilities do not extend to any other information.


Basis of audit opinion

We conducted our audit in accordance with International Standards on Auditing
(UK and Ireland) issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of the
significant estimates and judgements made by the Directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate
to the Group's circumstances, consistently applied and adequately disclosed. We
are not required to review any Corporate Governance disclosures required by The
Listing Rules of the Financial Services Authority as the Company has availed
itself of an exemption, as an overseas company, from the requirement to publish
a statement of compliance with The Combined Code.

We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.


Opinion

In our opinion the financial statements give a true and fair view in accordance
with International Financial Reporting Standards of the state of the Group's
affairs as at 31 March 2007 and of the Group's loss for year ended 31 March 2007
and have been properly prepared in accordance with The Companies (Guernsey) Law,
1994.


Deloitte & Touche LLP
Chartered Accountants
Guernsey, Channel Islands
Date: 25 June 2007


Neither an audit nor a review provides assurance on the maintenance and
integrity of the website, including controls used to achieve this, and in
particular whether any changes may have occurred to the financial information
since first published. These matters are the responsibility of the Directors but
no control procedures can provide absolute assurance in this area.

Legislation in Guernsey governing the preparation and dissemination of financial
information differs from legislation in other jurisdictions.



Consolidated Income Statement
For the year ended 31 March 2007

                                                                           Total
                                                             Total   Period from
                               Revenue    Fair value Year ended 31   6 September
                                return     gains and    March 2007    2005 to 31
                    Note                     losses*                  March 2006
                                                              Euro          Euro

Interest income      4      66,955,077             -    66,955,077    13,862,617

Gains and losses     4                                
on fair value
through profit or
loss financial
instruments*                         - (115,366,947) (115,366,947)   (1,382,130)
                            66,955,077 (115,366,947)  (48,411,870)    12,480,487

Operating expenses   5    (11,522,135)             -  (11,522,135)   (2,455,408)

Finance costs        6     (7,813,593)             -   (7,813,593)     (260,052)

Net (loss)/profit           47,619,349 (115,366,947)  (67,747,598)     9,765,027

(Loss)/earnings
per Ordinary Share
                     8
Basic                                                  Euro (1.67)     Euro 0.24
Diluted                                                Euro (1.67)     Euro 0.24

Weighted average
Ordinary Shares
outstanding

                     8                                      Number        Number
Basic                                                   40,620,756    40,620,756
Diluted                                                 40,620,756    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.

* See note 7 to the financial statements.


Consolidated Statement of Changes in Shareholders' Equity
For the year ended 31 March 2007

               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        16,17  -   406,207,540           -         -            -  406,207,540
Ordinary
Shares

Share 
options   16,19  -             -           - 7,672,500            -    7,672,500
issued

Costs 
related    17    -  (21,575,951)           -         -            - (21,575,951)
to issuance of
Ordinary
Shares

Cancellation 17  - (384,631,589) 384,631,589         -            -            -
of share
premium

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

Net loss for the -             -           -         - (67,747,598) (67,747,598)
year
Total recognised 
income           -             -           -         - (67,747,598) (67,747,598)
and expense

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

Distribution 
to          7    -             -           -         - (40,214,548) (40,214,548)
the Ordinary
Shareholders of
the Company

Balance at 31 
March            -             - 384,678,304 7,672,500 (98,197,119)  294,153,685
2007


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



Consolidated Balance Sheet
As at 31 March 2007

                                              Note      31 March        31 March
                                                            2007            2006
                                                            Euro            Euro
Non-current assets
Investments at fair value through 
profit or loss                                 10    366,743,454     487,890,499

Current assets
Cash and cash equivalents                      18     22,026,122               -
Derivative financial assets 
- unrealised gain on                           12          5,330         680,569
forward exchange contracts
                                                                
Derivative financial assets 
- unrealised gain on                           12      2,174,398               -
interest rate swap agreements
Other assets                                   11     36,155,394       5,271,493
                                                      60,361,244       5,952,062

Total assets                                         427,104,698     493,842,561

Equity and liabilities

Equity
Share capital                                  16              -               -
Share premium account                          17              -               -
Other reserve                                  17    384,678,304     384,631,589
Capital reserve in respect of share options            7,672,500       7,672,500
Accumulated (losses)/profits                        (98,197,119)       9,765,027
                                                     294,153,685     402,069,116
Current liabilities
Overdraft and repurchase agreements            13    119,773,090      88,880,531
Distribution payable                           7       9,342,774               -
Derivative financial liabilities - unrealised  12        505,439               -
loss on forward exchange contracts
Other liabilities                              15      3,329,710       2,892,914
Total liabilities                                    132,951,013      91,773,445

Total equity and liabilities                         427,104,698     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 25 June
2007.

Signed on behalf of the Board of Directors by:


Christopher Spencer 
Director

Talmai Morgan
Director 



Consolidated Cash Flow Statement
For the year ended 31 March 2007

                                     Note       Year ended 31      Period from 6
                                                   March 2007     September 2005
                                                                to 31 March 2006
                                                                 (restated - see
                                                                         Note 1)
                                                         Euro               Euro
Net cash inflow/(outflow) from 
operating                              18          21,941,079      (302,177,060)
activities

Financing activities
Proceeds from issuance of Ordinary Shares                   -        227,199,980
Overaccrual/(costs) related to issuance of             46,715       (13,903,451)
Ordinary
Shares
Net borrowings under repurchase agreements         44,745,299         75,027,791
Dividends paid to shareholders         7         (30,871,774)                  -
Cash flows from financing activities               13,920,240        288,324,320

Net increase/(decrease) in cash                    35,861,319       (13,852,740)

Reconciliation of net cash flow to movement
in net cash
Net increase/(decrease) in cash and cash           35,861,319       (13,852,740)
equivalents
Cash and cash equivalents at start of year/      (13,852,740)                  -
period
Effect of exchange rate fluctuations on                17,543                  -
cash and cash
equivalents
Cash and cash equivalents at end of year/          22,026,122       (13,852,740)
period



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

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 31 March 2007, 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 (UK) LLP (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'). Investors Fund Services (Ireland) Limited provide certain
administration services to the Company in its capacity as sub-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 Directors believe that other pronouncements which are in issue but not yet
operative or adopted by the Company will not have a material impact on the
financial statements of the Company.

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

The comparative period cash flow statement has been restated to exclude the
investments that were acquired in an equity settled transaction as disclosed in
the Initial ABS Portfolio section of note 19. This restatement in the
Consolidated Cash Flow Statement and in note 18 reduces the proceeds from
issuance of Ordinary Shares and the purchase of investments and swap agreements
by Euro 179,007,560. The comparative cash flow statement has also been restated
to reclassify the net borrowings under repurchase agreements of Euro 75,027,791
from net cash inflow/(outflow) from operating activities to cash flows from
financing activities.


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 or designated as fair value through profit or loss.

The majority of the Company's investments are financial instruments that are
classified as fair value through profit or loss. Where bid prices are not
available from a third party in a liquid market, the fair value of the financial
instrument 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, assumptions are reviewed and updated on the basis of actual
performance data as it is received and on the basis of market conditions as at
the balance sheet date. See notes 2 - Fair Value and Interest Income, note 3 -
Critical accounting judgements and key sources of estimation uncertainty and
note 14 - Residual Interest Risk for further information regarding assumptions
and critical judgements.

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 (note 9). The financial
statements of subsidiaries are included in the consolidated financial statements
from the date that control commences until the date that control ceases. At 31
March 2007, the Group is made up of the Company and its only subsidiary,
Trebuchet Finance Limited.

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. 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.

Trebuchet Finance Limited, the Company's only subsidiary, is an SPE over which
the Company exercises control and its financial statements are therefore
included in the consolidated financial statements of the Company. The Company
does not consolidate any of the SPEs in which it holds a residual income
position as it is not exposed to the majority of the risks and benefits of the
assets owned by the relevant SPEs and does not control any of them.


Investments

Investments in residual interests are recognised initially at their acquisition
cost (being fair value at acquisition date) as debt securities. Thereafter they
are re-measured at fair value and are designated as fair value through profit or
loss investments in accordance with the Amendment to International Accounting
Standard 39 ('IAS 39') Financial Instruments: Recognition and Measurement-The
Fair Value Option, as the Company is an investment company whose business is
investing in financial assets with a view to profiting from their total return
in the form of interest and changes in fair value.

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.


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 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.

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. The
change in value is recorded in net gains/(losses) in the income statement.
Realised gains and losses are recognised on the maturity of a contract, or when
a contract is closed out and they are transferred to realised gains or losses in
the income statement.

The fair value of interest rate swaps is the estimated amount that the Group
would receive or pay to terminate the swap at the balance sheet date, taking
into account current interest rates and the current creditworthiness of the swap
counterparties.

Total return swap agreements and credit default swap agreements are fair valued
on the date of valuation based upon the underlying market value of the reference
asset using the approach explained under fair value. The change in value is
recorded in net gains/(losses) in the income statement. Realised gains and
losses are recognised on the maturity of a contract, or when a contract is
closed out and they are transferred to realised gains or losses in the income
statement.


Fair value

All financial assets carried at fair value are initially recognised at fair
value and subsequently re-measured at fair value based on bid prices where such
bids are available from a third party in a liquid market. If 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.

With regard to residual income positions, historical performance and observable
market data is analysed to determine the average level of these factors and
their volatility over time. These assumptions are typically derived by reference
to the historical delinquencies, defaults, recoveries and prepayments actually
realised by the originator of the underlying assets and any empirical data
available that may be available in respect of any of these factors for the
particular asset class.

The carrying value of a residual income position at any given measurement date
after the Group's initial acquisition of the asset reflects repayments of
principal in accordance with the effective interest method. This revised
carrying value (adjusted to account for the accrual of interest and principal
paydowns) is subject to further adjustment on the basis of market conditions and
other factors that are likely to affect the fair value of the asset. Where
actual performance data regarding defaults, delinquencies and prepayments
received in respect of a given asset is markedly different from the default,
delinquency and prepayment assumptions incorporated in the pricing model for the
asset, the assumptions are revised to reflect this data and the pricing model is
updated accordingly. In addition to the actual performance data observed in
respect of a particular asset, market factors are also taken into account within
the model. Dealer marks (where available) and any other available indicators are
assessed to determine whether or not the market is attributing higher or lower
default, delinquency or prepayment expectations to similar assets in determining
whether or not the assumptions incorporated in the pricing model remain
reasonable. Where the fair value of the investment is written down due to
changes in assumptions and expected cash flows, the change in the fair value is
taken to the income statement following the reassessment of the cash flows
discounted at the current market rate estimated for the investment.


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 Group 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.


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 fair value of the Group's financial
assets and their contractual terms. Interest income is accrued over the
projected lives of the investments using the effective interest method as
defined under International Accounting Standard 39. Where the Group adjusts its
expected cash flow projections to take account of any change in underlying
assumptions, such adjustments are recognised in the income statement by
reflecting changes in a revised amortised cost value of the investment and
applying the original effective interest rate to this revised amortised cost
value for the purposes of calculating future income.


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.


Business and geographical segments

The Directors are of the opinion that the Company is engaged in a single segment
of business of investing in debt securities and operates solely from Guernsey
and therefore no segmental reporting is provided.


3. Critical accounting judgements and key sources of estimation uncertainty

In the process of applying the Group's accounting policies (described in note 2
above), the Company has determined that the following judgements and estimates
have the most significant effect on the amounts recognised in the financial
statements:

Income recognition

The Group invests primarily in a diversified portfolio of residual income
positions, being the subordinated tranches of asset-backed securities ('ABS').
ABS are securities that are typically backed by consumer finance receivables
(such as mortgage loans) and commercial loans and receivables (including
commercial mortgage loans and loans to small-and-medium sized enterprises).
Residual income positions are typically unrated or rated below investment grade
and are often referred to as the 'equity' or 'first loss' position of a
securitisation transaction.

Unlike a more conventional debt instrument and the more senior tranches of ABS
(which generally hold the rights to fixed levels of income), the cash flow
profile of a residual income position does not generally include a contractually
established schedule of fixed payments divided between interest and principal.
Instead, the cash flows generally vary over time, and the periodic cash flows
associated with a residual income position may include a significant element of
principal repayment as well as income payments.

Where the cash payments generated by residual income positions do not typically
follow the pattern of a standard cash-pay debt instrument (in that there is not
a constant level of income in each period followed by a repayment of the
principal amount at maturity), a given cash payment received in respect of a
residual income position can generally be considered to represent a combination
of the return on the investment and the repayment of some of the capital
initially invested. As a result, the stream of expected cash flows associated
with a particular residual income position may have an uneven payout profile, in
that the cash payment expected in one period (and the proportion of that payment
that represents principal repayment versus interest income) may vary
significantly from the cash payments expected in other periods.

The Group follows a policy of accounting for such investments at fair value
through profit or loss and has elected to recognise income on an effective
interest rate ('EIR') method in accordance with paragraph 30 of IAS 18
'Revenue'.

Interest income is recorded based on the original EIR calculated on acquisition
for each individual residual income position. The Group takes account of
underlying changes in cash flows in its income recognition as soon as adverse
factors are identified. Any such changes will impact the level of income
recognised in each period.

Further disclosures of key assumptions and key sources of estimation uncertainty
are set out in note 2 to the accounts under the heading 'Fair Value' and note 14
under the headings 'Residual Interest Risk' and 'Liquidity Risk'.


Valuation of investments

As described in note 14 to the accounts, the market for subordinated
asset-backed securities, including residual income positions is illiquid and
regular traded prices are generally not available for such investments. There is
no active secondary market in residual income positions and, further, there is
no industry standard agreed methodology to value residual income positions.

In accordance with the Company's accounting policies, fair value of financial
assets is based on quoted bid prices where such bids are available from a third
party in a liquid market. Where quoted bid prices are unavailable, the fair
value of the financial asset is estimated by reference to a pricing model that
incorporates discounted cash flow techniques as required by IAS 39.

The assumptions upon which the pricing models are based are described in note 2
(Fair Value) to the accounts. Any change to assumptions surrounding the pricing
models may result in different fair values being attributed to the investments.

The fair value of the Group's investments is set out in note 10 and a further
description of the risks associated with the Group's investments is provided in
note 14. Given the number of individual investments and the number of individual
parameters that making up each pricing model, the Group believes that it would
be impractical to disclose the effects of changes to each assumption in respect
of each individual investment and this would not provide meaningful additional
disclosure. A summary of the impact of changes to assumptions by reference to
asset category is provided in note 14.



4. Interest income and gains and losses on fair value through profit or loss
financial instruments
                                               Year ended 31       Period from 6
                                                  March 2007      September 2005
                                                                to 31 March 2006
                                                        Euro                Euro

Interest income from cash and cash                   261,275              78,188
equivalents
Interest income from investments at fair
value through profit or loss
                                                  66,693,531          13,299,260
Interest income from commercial paper                    271             485,169
Interest income                                   66,955,077          13,862,617

Net realised (losses)/gains from swap            (1,459,293)              36,923
agreements
Net realised foreign exchange gains                1,972,104           3,710,904
Net realised losses on investments at fair       (3,673,475)                   -
value through profit or loss
Net realised (losses)/gains on investments at    (3,160,664)           3,747,827
fair value through profit or loss, swaps and
foreign currency

Net unrealised gains on interest rate swap         2,174,398                   -
agreements (note 12)
Net unrealised losses on investments at fair   (112,310,937)         (5,915,074)
value through profit or loss
Net unrealised (losses)/gains on foreign         (2,069,744)             785,117
exchange
Net unrealised losses on investments at fair   (112,206,283)         (5,129,957)
value through profit or loss, swaps and
foreign currency

Gains and losses on fair value through profit  (115,366,947)         (1,382,180)
or loss instruments


5. Operating expenses
                                               Year ended 31       Period from 6
                                                  March 2007      September 2005
                                                                to 31 March 2006
                                                        Euro                Euro
Investment management, custodian and
administration fees
Investment management and incentive fee
(note 19)                                          8,347,360           1,814,524
Administration fee (note 19)                         308,605              97,785
Custodian fee (note 19)                              109,237              29,356
                                                   8,765,202           1,941,665
Other operating expenses
Audit fees                                           130,751              54,467
Non-audit fees                                       466,163                   -
Directors' fees payable to Directors of
Queen's Walk Investment Limited                      240,000             135,652
Directors' fees payable to Directors of
Trebuchet Finance Limited                             32,527               8,500
Legal fees                                           917,709             189,210
Fees relating to corporate advisory services*        248,955                   -
Validation expenses                                  506,020             111,601
Other expenses                                       214,808              14,313
                                                   2,756,933             513,743

Total operating expenses                          11,522,135           2,455,408

The Company has no employees.
* These fees were payable to Deloitte & Touche LLP.


6. Finance costs
                                               Year ended 31       Period from 6
                                                  March 2007      September 2005
                                                                to 31 March 2006
                                                        Euro                Euro
Finance costs arises from:
Overdraft                                                  -               2,713
Total return swap agreements (note 10)             1,293,615                   -
Repurchase agreements                              6,519,978             257,339
Total finance costs                                7,813,593             260,052


7. Dividends

                                               Year ended 31       Period from 6
                                                  March 2007      September 2005
                                                                to 31 March 2006
                                                        Euro                Euro
Interim dividend for the period ended 31           9,748,981                   -
March 2006
First interim dividend for the year ended 31      10,561,397                   -
March 2007
Second interim dividend for the year ended 31     10,561,396                   -
March 2007
Third interim dividend for the year ended 31       9,342,774                   -
March 2007
Amounts recognised as distributions to equity
holders in the year                               40,214,548                   -
                                                       

The third interim dividend for the year ended 31 March 2007 of Euro 9,342,774
was paid on 9 April 2007.

A fourth interim dividend for the year ended 31 March 2007 of 0.15 per share was
declared by the Directors on 25 June 2007 and has not been included as a
liability in these financial statements.

Under The Companies (Guernsey) Law, 1994 (the 'Companies Law'), dividends can be
paid from profits available for the purpose. Following the Company's IPO, and as
described in note 17, the Company passed a special resolution and obtained Royal
Court approval for the cancellation of the amount standing to the credit of its
share premium account. The Other Reserve created on cancellation (amounting to
Euro 384,678,304) is available as distributable profits for all purposes
permitted by the Companies Law including the payment of dividends and buy-back
of shares. Under the UKLA Listing Rules, any dividend must be covered by income
received from underlying investments.

The Company's objective is to provide shareholders with stable returns in the
form of quarterly dividends. The Company's dividend policy is to make dividend
distributions from its distributable net income subject to retaining a portion
of such income as a reserve for payment in subsequent periods.


While these accounts reflect a net loss after realised losses and fair value
adjustments, the dividend declared is covered by income received from underlying
investments as required by the Listing Rules (as reflected in the Consolidated
Income Statement) and the Company has sufficient reserves (in the form of the
Other Reserve) from which the dividend can be paid.



8. (Loss)/earnings per share
                                               Year ended 31       Period from 6
                                                  March 2007      September 2005
                                                                to 31 March 2006
                                                        Euro                Euro
The calculation of the basic and diluted
earnings per share is based on the following
data:
(Loss)/earnings for the purposes of basic
earnings per share being net profit
attributable to equity holders                  (67,747,598)           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                                              -             442,771
Weighted average number of Ordinary Shares                                 
for the purposes of diluted earnings per
share                                             40,620,756          41,063,527


There is no dilution as at 31 March 2007, as the share price was below the
option price on that date.


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

The following is a summary of the Group's investments at fair value through
profit or loss:

                                               31 March 2007       31 March 2006
                                                        Euro                Euro

Asset-backed securities                          349,042,564         487,890,499
Total return swap agreements                      17,700,890                   -
                                                 366,743,454         487,890,499

                                               31 March 2007       31 March 2006
Asset-backed securities                                 Euro                Euro

Opening cost                                     493,805,573                   -
Purchases                                         89,062,259         512,741,882
Sales proceeds                                  (88,060,953)                   -
Realised loss                                    (3,673,475)                   -
Principal paydowns                              (60,318,527)        (18,936,309)
Closing cost                                     430,814,877         493,805,573
Unrealised losses                               (81,772,313)         (5,915,074)
Asset-backed securities at fair value            349,042,564         487,890,499



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') at a cost of Euro 54,154,588.  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               50%  UK Residual       Homeloan
Residual                                                  Mortgage    Management
Certificates and                                            Backed       Limited
Mortgage Early                                          Securities
Redemption
Certificates
RMAC 2005-NS3 Plc   GBP 17,565,000               50%  UK Residual       Homeloan
Residual                                                  Mortgage    Management
Certificates and                                            Backed       Limited
Mortgage Early                                          Securities
Redemption
Certificates
RMAC 2005-NSP2      GBP 35,330,000              100%  UK Residual       Homeloan
Plc Residual                                              Mortgage    Management
Certificates and                                            Backed       Limited
Mortgage Early                                          Securities
Redemption
Certificates


The fair value of the total return swap agreements at the year end was Euro
17,700,890 (gross asset value of Euro 53,093,615 net of indebtedness in the
amount of Euro 35,392,725).

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. Unrealised foreign
exchange losses are offset to the extent of net realised foreign exchange gains
(as disclosed in note 4) and unrealised gains on foreign exchange contracts (as
disclosed in note 12). The currency profile of the Group's net asset positions
as at 31 March 2007 is set out in note 14.


11. Other assets

                                               31 March 2007       31 March 2006
                                                        Euro                Euro

Interest receivable                               10,687,357           4,777,493
Amounts receivable on securities sold             25,468,037                   -
Margin amounts held with brokers                           -             494,000
                                                  36,155,394           5,271,493


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


12. Derivative contracts

The following foreign exchange forward contracts were unsettled at 31 March
2007:

Maturity Date                   Amount Bought     Amount Sold    Unrealised Gain
                                                                         /(Loss)
                                                                            Euro
29 June 2007                    GBP 1,700,000     Euro 2,490,039           5,330

29 June 2007                    Euro 172,345,570  GBP 117,600,000      (275,249)
                                          
29 June 2007                    Euro 86,320,191   USD 115,600,000      (230,190)
                                                                       (505,439)


The following foreign exchange forward contracts were unsettled at 31 March
2006:

Maturity Date     Amount Bought       Amount Sold                Unrealised Gain
                                                                            Euro

30 June 2006      Euro 151,895,106    GBP106,000,000                     594,860
30 June 2006      Euro 123,390,779    USD150,000,000                      85,709
                                          
                                                                         680,569


On 1 December 2006, the Group entered into balance-guaranteed interest rate swap
agreements with Lehman Brothers International (Europe) in respect of the cash
flows associated with fixed rate mortgage loans contained in five transactions
in which the Group holds a residual income position. The notional amount of each
swap agreement is adjusted on a quarterly basis in accordance with the balance
of fixed rate mortgage loans outstanding in the relevant transaction. The terms
of the interest rate swap agreements, each of which was effective from the
September 2006 interest payment date for each respective transaction, are set
out in the table below. The aggregate fair value of these swap agreements as at
31 March 2007 was Euro 2,174,398.



Termination     Reference Transaction        Initial                  Unrealised
Date                                         Notional                Gain/(Loss)
                                           Amount (GBP)                     Euro

12 March 2008   RMAC 2005-NS1                81,999,602                        -
12 March 2010   RMAC 2005-NSP2              372,598,197                (353,622)
12 June 2008    RMAC 2005-NS3               186,615,582                  262,270
12 June 2008    RMAC 2005-NS4               107,028,288                  244,588
1 December 2008 Newgate 2006-1              411,409,139                2,021,162
                                                                       2,174,398



13. Overdraft and repurchase agreements
                                               31 March 2007       31 March 2006
                                                        Euro                Euro

Net overdraft and cash equivalents                         -          13,852,740
Repurchase agreements                            119,773,090          75,027,791
                                                 119,773,090          88,880,531


Asset-backed securities totalling Euro 257,625,755 (2006: Euro 75,204,791) have
been granted as security in relation to the repurchase agreements. The weighted
average interest rates on the repurchase agreements as at 31 March 2007 were:
Euro: 4.51% (2006: 2.91%); GBP: 6.43% (2006: 5.43%); and USD: 6.32% (2006:
5.67%). The repurchase agreements outstanding at 31 March 2007 matured between
10 April 2007 and 18 April 2007.


14. Financial instruments

The principal risks to which the Group are exposed are market risk, interest
rate risk, liquidity risk, currency risk, credit risk, prepayment and
re-investment risk and residual interest risk. In certain instances as described
more fully below, the Group will enter into derivative transactions in order to
mitigate particular types of risk. Save where the Group enters into swap
arrangements to gain exposure to an underlying cash asset or assets, or to
comply with asset transfer restrictions or similar legal restrictions which
prevent the Group from owning a target investment directly, derivative
transactions will only be used for the purpose of efficient portfolio
management.


Market risk

The Group's exposure to market risk is comprised mainly of movements in the
value of its investments and changes in interest rates that either increase its
cost of borrowing or, in the event the Group makes any fixed interest
investments (which are not Primary Target Investments) in the future, may
decrease its interest income.


Interest rate risk

Changes in interest rates can affect the Group's net interest income, which is
the difference between the interest income earned on interest-earning
investments and the interest expense incurred on interest-bearing liabilities.
Changes in the level of interest rates also can affect, among other things, the
Group's ability to acquire loans and investments, the value of its investments
and the Group's ability to realise gains from the settlement of such assets.

The Group may enter into hedging transactions for the purposes of efficient
portfolio management, where appropriate, to protect its borrowings from interest
rate fluctuations. These instruments are used to hedge as much of the interest
rate risk as the Investment Manager determines is in the best interests of the
Group, given the cost of such hedges. The Group may bear a level of interest
rate risk that could otherwise be hedged when the Investment Manager believes,
based on all relevant facts, that bearing such risks is advisable.


Interest rate profile

The interest rate profile at 31 March 2007 was as follows:
                                   Euro          Euro         Euro
                                   Fixed      Floating Non-interest     Weighted
                                                            bearing Average Rate

Investments at fair value              -   366,743,454            -       13.58%
through profit or loss
Derivative financial assets            -     2,174,398            -        7.36%

- interest rate swap
agreements (receive)
- interest rate swap         (2,174,398)             -            -        7.27%
agreements (pay)
Cash and cash equivalents              -    22,026,122            -        2.73%
Repurchase agreements                  - (119,773,090)            -        6.35%

The interest rate profile at 31 March 2006 was as follows:
                                    Euro         Euro         Euro
                                    Fixed     Floating Non-interest     Weighted
                                                            bearing Average Rate

Investments at fair value               -  487,890,499            -       13.64%
through profit or loss
Overdraft                               - (13,852,740)            -        5.68%
Repurchase agreements                   - (75,027,791)            -        4.24%

Although investments in residual income positions have been treated as floating
rate investments in the above table, income on these investments is based on the
effective interest rate (see note 2).

Given the subordinated nature of residual income positions and the fact that
many of them do not carry a fixed or stated coupon, the Group calculates the
weighted average rate of the portfolio on the basis of the fair value of each
investment multiplied by its effective interest rate (see note 2).


Maturity profile

The maturity profile at 31 March 2007 was as follows:
                                        Within one   One to five    Over five
                                              year         years        years
                              Total       Floating      Floating     Floating
                               Euro           Euro          Euro         Euro

Investments at fair     366,743,454     54,125,553    12,381,829  300,236,072
value through profit
or loss
Derivative financial      2,174,398              -     2,174,398            -
assets - interest
rate swap agreements
Cash and cash            22,026,122     22,026,122             -            -
equivalents
Repurchase            (119,773,090)  (119,773,090)             -            -
agreements
                        271,170,884   (43,621,415)    14,556,227  300,236,072



Maturity profile

The maturity profile at 31 March 2006 was as follows:
                                          Within one  One to five   Over five
                                                year        years       years
                                  Total     Floating     Floating    Floating
                                   Euro         Euro         Euro        Euro

Investments at fair value   487,890,499            -   75,273,771 412,616,728
through profit or loss
Overdraft and cash         (13,852,740) (13,852,740)            -           -
equivalents
Repurchase agreements      (75,027,791) (75,027,791)            -           -
                            399,009,968 (88,880,531)   75,273,771 412,616,728


The maturity dates for residual income positions have been determined on the
basis of the maturity dates stated in the offering documents for the relevant
transactions.


Liquidity risk

The market for subordinated asset-backed securities, including residual income
positions, is illiquid. Accordingly, many of the Group's investments are
illiquid. In addition, investments that the Group purchases in privately
negotiated (also called 'over the counter' or 'OTC') transactions may not be
registered under relevant securities laws or otherwise may not be freely
tradable, resulting in restrictions on their transfer, sale, pledge or other
disposition except in a transaction that is exempt from the registration
requirements of, or is otherwise in accordance with, those laws. As a result of
this illiquidity, the Group's ability to vary its portfolio in a timely fashion
and to receive a fair price in response to changes in economic and other
conditions may be limited.

Furthermore, where the Group acquires investments for which there is not a
readily available market, the Group's ability to deal in any such investment or
obtain reliable information about the value of such investment or risks to which
such investment is exposed may be limited.

The Group enters into repurchase agreements, as disclosed in note 13, and
asset-backed securities are granted as security in relation to these agreements.
In the event the Group is unable to refinance repurchase agreements as they
mature, the Group may have to sell some of its assets to repay these amounts.


Currency risk

The Group's accounts are denominated in Euro while investments are made and
realised in both Euro and other currencies. Changes in rates of exchange may
have an adverse effect on the value, price or income of the investments. A
change in foreign currency exchange rates may adversely impact returns on the
Group's non-Euro-denominated investments. The Group's principal non-Euro
currency exposures are to US dollars and pounds sterling, but this may change
from time to time.

The Group's policy is to hedge currency risk on a case by case basis. The Group
may bear a level of currency risk that could otherwise be hedged where it
considers that bearing such risks is advisable.


Currency profile

The currency profile at 31 March 2007 was as follows:
                                Total          Euro           GBP           USD
                            (in Euro)     (in Euro)     (in Euro)     (in Euro)

Investments at fair       366,743,454   156,662,792   153,999,469    56,081,193
value through profit or
loss
Derivative financial        2,174,398             -     2,174,398             -
assets - interest rate
swap agreements
Other assets               36,155,394     2,299,148    33,014,846       841,400
Foreign exchange            (500,109)   256,175,723 (170,125,450)  (86,550,382)
forward contracts
Cash and cash              22,026,122    10,788,712     9,419,899     1,817,511
equivalents
Repurchase agreements   (119,773,090)   (4,500,000) (106,071,009)   (9,202,081)
Distribution payable      (9,342,774)   (9,342,774)             -             -
Other liabilities         (3,329,710)   (2,973,530)     (316,917)      (39,263)
                          294,153,685   409,110,071  (77,904,764)  (37,051,622)


In the period from 10 April 2007 to 19 April 2007, the following additional
foreign exchange forward contracts were entered into:

Maturity Date                                      Amount Bought     Amount Sold

29 June 2007                                      GBP 51,460,000 Euro 75,482,052
29 June 2007                                      USD 49,700,000 Euro 36,874,234


The currency profile at 31 March 2006 was as follows:
                                 Total         Euro           GBP           USD
                             (in Euro)    (in Euro)     (in Euro)     (in Euro)

Investments at fair        487,890,499  171,020,403   175,227,971   141,642,125
value through profit or
loss
Other assets                 5,271,493    2,383,604     1,321,964     1,565,925
Foreign exchange forward       680,569  275,285,885 (151,300,247) (123,305,069)
contracts
Overdraft and cash        (13,852,740)    2,792,510  (17,196,168)       550,918
equivalents
Repurchase agreements     (75,027,791) (37,800,000)  (13,723,244)  (23,504,547)
Other liabilities          (2,892,914)  (2,779,965)       (4,784)     (108,165)
                           402,069,116  410,902,437   (5,674,508)   (3,158,813)


Credit risk

The Group is subject to credit risk with respect to its investments. The Group
seeks to mitigate credit risk by actively monitoring its portfolio of
investments and the underlying credit quality of its holdings. The Group seeks
to minimise credit risk further by ensuring its investment portfolio is
diversified by asset type, geography, industry and issuer or borrower. The Group
does not generally intend to undertake any credit hedging activities other than
from time to time entering into transactions to hedge its credit exposure in
relation to individual investments.

The Group's hedging transactions using derivative instruments and any credit
default or total return swap arrangements entered into by the Group or any of
its funding vehicles may involve certain additional risks, including
counterparty credit risk. The Group enters into derivative arrangements with
counterparties that are major financial institutions with investment grade
credit ratings and with which the Investment Manager is familiar. As a result,
the Group does not anticipate that any such counterparties will fail to meet
their obligations.


Prepayment and re-investment risk

While the Group's valuations take into account expected levels of prepayment,
the Group's investments and the assets that collateralise them may be prepaid
more quickly than expected. Prepayment rates are influenced by changes in
interest rates and a variety of economic, geographic and other factors beyond
the Group's control and consequently cannot be predicted with certainty. The
level and timing of prepayments made by borrowers in respect of the mortgage
loans that collateralise certain of the Group's investments may have an adverse
impact on the income earned by the Group from those investments. Early
prepayments may also give rise to increased re-investment risk with respect to
certain investments, as the Group may realise excess cash earlier than expected.
If the Group is unable to reinvest such cash in a new investment with an
expected rate of return at least equal to that of the investment repaid, this
may reduce the Group's net income and, consequently, could have an adverse
impact on the Group's ability to pay dividends.


Residual interest risk

The majority of the Group's investments consists of interests in and/or economic
exposures to limited recourse securities that are subordinated in right of
payment and ranked junior to other securities that are secured by or represent
ownership in the same pool of assets. In the event of default by an issuer in
relation to such investments, holders of the issuer's more senior securities are
entitled to payments in priority to the Group. Some of the Group's investments
also have structural features that divert payments of interest and/or principal
to more senior classes of securities secured by or representing ownership in the
same pool of assets when the delinquency or loss experience of the pool exceeds
certain levels. This may lead to interruptions in the income stream that the
Group anticipates receiving from its investment portfolio, which may lead to the
Group having less income to distribute to Shareholders.

The Group does not control the portfolios of assets underlying the ABS in which
it invests and relies on the servicers of the ABS to administer and review the
portfolios. Particularly in the case of residual income positions, the actions
of the servicer, including its ability to identify and report on issues
affecting the portfolio on a timely basis, may affect the Group's return on its
investments, in some cases significantly. In addition, concentration of a
significant number of the Group's investments with one servicer could affect the
Group adversely in the event that the servicer fails to fulfil its function
effectively or at all. In the event of fraud by any entity in which the Group
invests or by other parties involved with the entity, such as servicers or cash
managers, the Group may suffer a partial or total loss of the amounts invested
in that entity.

Although holders of asset-backed securities generally have the benefit of first
ranking security (or other priority rights) over any collateral, control of the
timing and manner of the disposal of such collateral upon a default typically
will devolve to the holders of the senior class of securities outstanding. There
can be no assurance that the proceeds of any such sale of collateral are
adequate to repay in full the Group's investments.


Effect of Changes in Assumptions on Fair Value of Investments

During the year, the Group revised assumptions in the pricing model for each of
the residual income positions in the Group's investment portfolio. With respect
to UK investments, prepayment and default rate assumptions were revised.
Prepayment rate assumptions have been adjusted to reflect lower prepayments by
borrowers during the period in which their mortgage loans carry a discounted
interest rate and higher prepayments after those mortgage loans revert to their
full margin. Default rate assumptions have also been increased in anticipation
of higher interest rates in the UK. By reference to carrying values as at 31
December 2006, after taking into account income accrued for the quarter ended 31
March 2007 and cash flows received in that quarter, the impact of these changes
reduced the fair value of the Group's UK investment portfolio by approximately
Euro 74.6 million (or 25.8%).

With respect to US investments, prepayment curves and cumulative loss
assumptions were revised to reflect an observed slowdown in prepayments and the
market's expectation of higher cumulative loss rates. By reference to carrying
values as at 31 December 2006, after taking into account income accrued for the
quarter ended 31 March 2007 and cash flows received in that quarter, the impact
of these changes reduced the fair value of the Group's US investment portfolio
by approximately Euro 29.0 million (or 47.4%). Three of the Group's four US
investments were sold after 31 March 2007. (See note 20).

Pricing models for the Group's European mortgage-backed investments were
adjusted to reflect both an anticipated increase in prepayment rates and reduced
income from early repayment charges following the introduction of legislation in
Portugal and Italy that limits the amount that banks can charge to borrowers who
repay their mortgage loans. The Group also adjusted default and recovery rates
on certain of the investments to better reflect historical experience. By
reference to carrying values as at 31 December 2006, after taking into account
income accrued for the quarter ended 31 March 2007 and cash flows received in
that quarter, the impact of these changes increased the fair value of the
Group's European mortgage-backed investment portfolio by approximately Euro 0.7
million (0.6%).

With respect to the balance of the Group's investment portfolio, there have been
no significant changes to the pricing or performance assumptions contained in
the pricing models for the Group's ABS CDO investments. The fair value of these
investments, however, reflects the application of higher discount rates given
the increased market discount rates being attributed by the market to this
investment sector as a whole. The application of these higher discount rate
resulted in a fair value reduction of approximately Euro 5.4 million (or 18.5%)
relative to adjusted 31 December 2006 carrying values, after taking into account
income accrued for the quarter ended 31 March 2007 and cash flows received in
that quarter.

As the Group's SME investments performed in line with, or better than,
expectations, no significant changes were made to the assumptions contained in
the pricing models for these investments.


15. Other liabilities
                                                  31 March 2007         31 March
                                                                            2006
                                                           Euro             Euro

Interest payable                                        357,873          196,634
Due to related parties - Investment Manager (note       968,826        1,814,524
19)
Accrued expenses                                      2,003,011          881,756
                                                      3,329,710        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.


16. Share capital

Authorised share capital
                                                     31 March 2007 31 March 2007
                                                         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 and end of year                        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.


17. Share premium account
                                                      31 March     31 March 2006
                                                          2007
                                                          Euro              Euro

Balance at start of year/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 year/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 expensed against the share premium account. The issue costs associated
with the Initial Public Offering amounted to Euro 13,856,736 (as adjusted for an
overaccrual of Euro 46,715) and share options with a value of Euro 7,672,500
(notes 16 and 19).

The Company 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.


18. Notes to cash flow statement
                                                 Year ended 31     Period from 6
                                                    March 2007    September 2005
                                                                     to 31 March
                                                                            2006
                                                                 (restated - see
                                                                         Note 1)
                                                          Euro              Euro

Net (loss)/profit                                 (67,747,598)         9,765,027
Adjustments for:
Net realised losses on investments at fair value     3,673,475                 -
through profit or loss
Unrealised losses on investments at fair value     112,310,937         5,915,074
through profit or loss
Unrealised gains on interest rate swap agreements  (2,174,398)                 -
Unrealised gains on foreign currency bank balances    (17,543)                 -
Unrealised losses/(gains) on foreign exchange        1,180,678         (680,569)
forward contracts
                                                    47,225,551        14,999,532

Purchases of asset-backed securities              (89,062,259)     (333,734,322)
Sales proceeds from asset-backed securities         62,592,916                 -
Principal paydowns                                  60,318,527        18,936,309
Purchases of total return swap agreements         (54,154,588)                 -
                                                  (20,305,404)     (314,798,013)

Increase in receivables                            (5,415,864)       (5,271,493)
Increase in payables                                   436,796         2,892,914
                                                   (4,979,068)       (2,378,579)

Net cash inflow/(outflow) from operating activities 21,941,079     (302,177,060)


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.

Non cash transactions: In the prior period the Company issued Ordinary Shares
for the purchase of the Initial Portfolio as disclosed in note 19.


19. Material agreements and related party transactions

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 5 and 15). During the year ended 31 March 2007, the Management Fee
totalled Euro 6,251,190 (2006: Euro 1,814,524), of which Euro 968,826 (2006:
Euro 1,814,524) was outstanding at the year end and the Incentive Fee totalled
Euro 2,096,170 (2006: Euro Nil), none of which was payable at the year end.


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 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 are 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. Investors Fund
Services (Ireland) Limited, the sub-administrator, is paid by the Administrator.


Investments in other entities managed by the Investment Manager

As at 31 March 2007, the Company held investments with a total value of Euro
23,846,289 (2006: Euro 51,081,598) in the following entities, which are managed
by the Investment Manager: 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 (Euro 10).
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. As at 31 March 2007, these
options were out of the money as the share price was below the Offer Price of
Euro 10.


Initial ABS Portfolio

On 23 November 2005, the Company entered into an agreement with Cheyne ABS
Opportunities Fund LP (which was amended and restated on 7 December 2005) to
acquire a portfolio of investments, for an aggregate price of £62,235,000, Euro
90,212,000 and US$90,793,000 (which was Euro 259,007,560) (together with
interest of 13.1 per cent per annum from 7 November 2005 until the date of
admission to the London Stock Exchange). The consideration for the purchase was
settled by the delivery of 17,900,754 Ordinary Shares by the Company and the
payment of the balance in cash out of the net proceeds from the offer of
Ordinary Shares by the Company.


20. Subsequent Events

A list of investments sold by the Company in the ordinary course of business
after 31 March 2007 is set out below. As the fair values of these investments as
at 31 March 2007 were based on their sale prices (as market values were deemed
to reflect fair value), these sales have not reduced the net asset value of the
Company post year end.


Investment Sold                    Description of Underlying Assets

US Positions

Argent Securities Trust 2006-W1    Approximately 10,400 sub-prime mortgage 
                                   loans, primarily first-ranking

First Franklin Mortgage Loan Trust Approximately 3,400 sub-prime mortgage loans,
                                   primarily first-ranking

Morgan Stanley ABS Capital I Inc.  Approximately 4,100 sub-prime mortgage loans,
Trust 2005-HE5                     primarily first-ranking


UK Positions

RMAC 2005 NSP2 plc                 Approximately 6,300 sub-prime mortgage loans/
                                   3,700 prime mortgage loans

RMAC 2005-NS1 plc                  Approximately 7,800 sub-prime mortgage loans

Southern Pacific Financing 05-B    Approximately 3,000 near-prime mortgage
plc                                loans


The aggregate proceeds from the sale of the US investments totalled Euro 22.8
million, reflecting a 53.0% reduction in gross asset value relative to the
adjusted book value of these investments as at 31 December 2006.

The aggregate proceeds from the sale of the UK investments totalled Euro 67.8
million, reflecting a 28.6% reduction in gross asset value relative to the
adjusted book value of these investments as at 31 December 2006.



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