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CQS RIG Finance Fund LTD (RIG)

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Friday 29 June, 2007

CQS RIG Finance Fund LTD

Half-yearly Report


                         CQS RIG FINANCE FUND LIMITED                          

                    INTERIM REPORT AND FINANCIAL STATEMENTS                    

                                  (UNAUDITED)                                  

        FOR THE PERIOD FROM INCEPTION 8 NOVEMBER 2006 TO 31 MARCH 2007         




CQS RIG FINANCE FUND LIMITED

Investment Adviser's Report


The CQS Rig Finance Fund Limited ("Company") produced a book net asset return
of 3.51% from inception on 8 November 20061 to 31 March 2007.

After a sell-off in the oil price at the beginning of the quarter, oil markets
rallied through to March. Crude oil prices traded in a $52-$67 per barrel range
due to continuing robust demand from the US, China and India and the ongoing
stand-off between Iran and the international community.

Despite the downturn in crude oil prices in January, oil and gas company
capital expenditure on exploration and production in 2007 is expected to rise
by 9% to a level of $292 billion2. Shipyard capacity remains tight for the
building and refurbishment of jack-up and semi-submersible drilling rigs as
well as ancillary equipment, and is anticipated to remain so for the
foreseeable future.

During January, the Company generated returns from a general tightening of
credit spreads across the portfolio of secured bonds resulting in primarily
unrealised capital gains. The portfolio also benefited from positive carry on
its positions. In February, world financial markets experienced increased
levels of volatility and a certain degree of re-pricing of risk. While the
prices of bonds held by the Company did experience some softening, this was
muted and considerably less than mainstream European high yield bonds.

We have been able to take advantage of the continued strong new issuance
calendar in the first quarter of 2007, augmented with selective secondary
market trading, to acquire further qualifying investments such that the target
gearing of 100% has been achieved earlier than originally anticipated.
Additionally, we are pleased with the risk diversification that has been
achieved, away from drilling rigs, to a more balanced portfolio including
production, well intervention and supply vessels. We believe that we are
successfully structuring the portfolio as the industry progresses from
early-stage drilling to the later stages of the offshore oil and gas services
investment cycle.

Despite the sell-off in equity markets in the later part of the quarter that
has adversely affected the share prices of many energy companies, offshore oil
and natural gas infrastructure spending by both international and national
companies remains strong and the fundamentals for investing in a portfolio of
secured debt instruments issued to finance the construction, modification or
refurbishment of offshore oil or natural gas exploration and production assets
remain robust.

CQS (UK) LLP

26 June 2007

1 The inception date relates to the date of formation of the Company and does
  not correspond to the date for the Company's Admission to Trading.

2 Source Lehman Brothers.



CQS RIG FINANCE FUND LIMITED

Unaudited Income Statement

For the period from 8 November 2006 to 31 March 2007


                                                 Notes           Period from    
                                                                                
                                                          8 November 2006 to    
                                                                                
                                                               31 March 2007    
                                                                                
                                                                         GBP    
                                                                                
Operating income                                   3               2,677,175    
                                                                                
Operating expenses                                                              
                                                                                
Other operating expenses                           4               (451,118)    
                                                                                
Finance costs                                      5               (516,228)    
                                                                                
Total operating expenses                                           (967,346)    
                                                                                
Net profit                                                         1,709,829    
                                                                                
Earnings per Ordinary Share                        6                            
                                                                                
Basic & Diluted                                                        3.42p    
                                                                                

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.



CQS RIG FINANCE FUND LIMITED

Unaudited Statement of Changes in Shareholders' Equity

For the period from 8 November 2006 to 31 March 2007


                        Share        Share      Other    Accumulated      Total
                                   Premium                   Profits           
                      Capital                 Reserve                          
                                                                               
                 Notes    GBP          GBP        GBP            GBP        GBP
                                                                               
Balance at                  -            -           -          -           -  
                                                                               
8 November 2006                                                                
                                                                               
Net profit for              -            -           -  1,709,829   1,709,829  
the period                                                                     
                                                                               
Total recognised            -            -           -  1,709,829   1,709,829  
income and expense                                                             
                                                                               
Issuance of        10       -   50,000,000           -          -  50,000,000  
Ordinary Shares                                                                
                                                                               
Costs related to   10       -  (1,275,325)           -          - (1,275,325)  
issuance of                                                                    
Ordinary Shares                                                                
                                                                               
Transfer to other  10       - (48,724,675)  48,724,675          -           -  
reserve                                                                        
                                                                               
Balance at 31 March         -            -  48,724,675  1,709,829  50,434,504  
2007                                                                           

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




CQS RIG FINANCE FUND LIMITED

Unaudited Balance Sheet

As at 31 March 2007

                                                        Notes     31 March 2007   
                                                                               
                                                                            GBP
                                                                               
Assets                                                                         
                                                                               
Non-current assets                                                             
                                                                               
Investments at fair value through profit or loss                    103,007,782
                                                                               
Current assets                                                                 
                                                                               
Derivative financial assets - unrealised gain on                        257,832
forward exchange contracts                                                     
                                                                               
Interest receivable                                                   1,847,121
                                                                               
                                                                      2,104,953
                                                                               
Total assets                                                        105,112,735
                                                                               
Equity and liabilities                                                         
                                                                               
Equity                                                                         
                                                                               
Share capital                                             9                   -          
                                                                               
Share premium account                                     10                  -          
                                                                               
Other reserve                                             10         48,724,675
                                                                               
Accumulated profits                                                   1,709,829
                                                                               
                                                                     50,434,504
                                                                               
Current liabilities                                                            
                                                                               
Overdraft and cash equivalents                            7          50,505,432
                                                                               
Payable for securities purchased                                      3,764,392
                                                                               
Other liabilities                                         8             408,407
                                                                               
Total liabilities                                                    54,678,231
                                                                               
Total equity and liabilities                                        105,112,735
                                                                               

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

These financial statements were approved by the Board of Directors on 26 June
2007.

Signed on behalf of the Board of Directors by:

Director Director

Jonathan Gamble Trevor Ash


CQS RIG FINANCE FUND LIMITED

Unaudited Cash Flow Statement

For the period from 8 November 2006 to 31 March 2007


                                                     Notes          Period from
                                                                               
                                                             8 November 2006 to
                                                                               
                                                                  31 March 2007
                                                                               
                                                                            GBP
                                                                               
Net cash outflow from operating activities           11            (99,556,782)
                                                                               
Financing activities                                                           
                                                                               
Proceeds from issuance of Ordinary Shares            10              50,000,000
                                                                               
Costs related to issuance of Ordinary Shares         10             (1,275,325)
                                                                               
Cash flows from financing activities                                 48,724,675
                                                                               
Net decrease in cash                                               (50,832,107)
                                                                               
Reconciliation of net cash flow to movement in net                             
cash                                                                           
                                                                               
Net decrease in cash and cash equivalents                          (50,832,107)
                                                                               
Effect of exchange rate fluctuations on cash and                        326,675
cash equivalents                                                               
                                                                               
Cash and cash equivalents at 8 November 2006                                  -
                                                                               
Cash and cash equivalents at end of period                         (50,505,432)

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



CQS RIG FINANCE FUND LIMITED

Notes to the unaudited financial statements for the period from 8 November 2006
to 31 March 2007

1. General information

CQS Rig Finance Fund Limited (the "Company") was registered on 8 November 2006
with registered number 45805 and is domiciled and incorporated in Guernsey,
Channel Islands. The Company is a closed-ended investment company with limited
liability formed under The Companies (Guernsey) Law, 1994 (the "Companies Law")
and its Ordinary Shares are traded on AIM and listed on CISX.

The Company's investment objective is to provide Shareholders with an
attractive total return, primarily through income, with scope for capital
appreciation. The Company will target, in the absence of unforeseen
circumstances, an annualised gross dividend yield of 8 per cent. of the Net
Asset Value at the start of each financial year (or in the case of the first
financial, the Net Asset Value upon admission).

The Investment Adviser will seek to achieve the investment objective of the
Company by sourcing and trading a portfolio of secured debt instruments using
fundamental credit and industry analysis to identify instruments with an
attractive risk-adjusted yield. Such debt instruments are expected to be
primarily issued to finance the construction, modification and/or refurbishment
of rigs and other infrastructure and/or equipment used for the exploration of
oil and natural gas.

The Company will seek, on a global basis, to capture on its investments
attractive risk-adjusted yields and potential capital appreciation arising from
possible corporate activity, including but not limited to, refinancing and
industry consolidation. Returns are expected to be enhanced through gearing the
portfolio by up to 100 per cent although gearing up to 150 per cent is
permitted.

The Company has no direct employees. For its services, the Investment Manager
receives a monthly management fee and a performance-related fee. The Company
has no ownership interest in the Investment Manager. The Company is
administered by Kleinwort Benson (Channel Islands) Fund Services Limited (the
"Administrator").

At the date of authorisation of these financial statements, the following
Standards, were in issue but not yet mandatory. The Directors have opted for
early adoption of these Standards and accordingly, these have been applied to
these financial statements.

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

2. Significant accounting policies

Statement of compliance

The financial statements of the Company 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 Company are prepared on a 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 designated as fair value
through profit or loss upon initial recognition.

2. Significant accounting policies (continued)

Basis of preparation (continued)

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

Financial Assets

Financial assets are classified as at fair value through profit or loss and are
stated at fair value, with any resultant gain or loss being recognised in the
income statement. A financial asset is classified at fair value if it is held
for trading or is designated as such upon initial recognition. Where these
investments are interest-bearing, interest calculated using the effective
interest method is recognised in the income statement.

Financial assets classified as at fair value through profit or loss are
recognised/derecognised by the Company on the date it commits to purchase/sell
the investments in regular way trades. Financial assets held for trading
include derivatives including forwards and currency futures. These assets are
assets classified as at fair value through profit or loss. Transaction costs
incurred in the purchase or sale of securities are expensed immediately.

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 Company 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.

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.

Forward exchange contracts

Fair value of forward exchange contracts is their quoted market price at the
balance sheet date being the present value of the quoted forward price. 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 quoted bid prices or
bid prices provided by a third party broker. If quoted bid prices are
unavailable, the fair value of the financial asset is estimated using pricing
models incorporating discounted cash flow techniques. These pricing models
apply assumptions regarding asset-specific factors and economic conditions
generally, including delinquency rates, prepayment rates, default rates,
maturity profiles, interest rates and other factors that may be relevant to
each financial asset. Where such pricing models are used, inputs are based on
market related measures at the balance sheet date. No such models were used in
deriving fair value of financial assets within these interim accounts.

Derecognition of a financial asset

A financial asset or liability is derecognised when the contract that gives
rise to it is settled, sold, cancelled or expires.

2. Significant accounting policies (continued)

Foreign currency transactions

Transactions in foreign currencies are translated at the foreign exchange rate
ruling at the date of the transaction from the transaction currency to the
functional currency. Monetary assets and liabilities denominated in foreign
currencies at the balance sheet date are translated to GBP 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 GBP at foreign exchange rates ruling at the dates
the fair value was determined.

Provisions

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

Transaction expenses

The preliminary expenses of the Company directly attributable to its initial
public offering are charged to equity.

Interest income

Interest income is accrued based on the outstanding principal amount of the
Company's financial assets and their contractual terms. Premiums and discounts
associated with the purchase of financial assets are amortised or accreted into
interest income over the projected lives of the investments using the effective
interest method as defined under International Accounting Standard 39.

Taxation

The Company is a tax-exempt Guernsey limited company. Accordingly, no provision
for income taxes is made.

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.

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.

2.1 Changes in accounting policies

The Company has early adopted the following IFRS interpretations. Adoption of
these standards and interpretations did not have any effect on the financial
position of the company. They did however give rise to additional disclosures.

● IFRS 7 Financial Instruments: Disclosures

● IAS 1 Amendment-Presentation of Financial Statements

The principle effects of these changes are as follows:

IFRS 7 Financial Instruments: Disclosures

The Company has elected to early adopt IFRS 7, which requires disclosures that
enables users to evaluate the significance of the Company's financial
instruments and the nature and extent of the risks arising from those financial
instruments. The new disclosures are included throughout the financial
statements.

IAS 1 Presentation of Financial Statements

The amendment requires the Company to make new disclosures to enable users of
the financial statements to evaluate the Company's objectives, policies and
processes for managing capital. These new disclosures are shown in Note 13. The
Company has elected to early adopt this amendment to IAS 1.

3. Operating Income

                                                                    Period from
                                                                               
                                                             8 November 2006 to
                                                                               
                                                                  31 March 2007
                                                                               
                                                                            GBP
                                                                               
Interest income from investments at fair value through                2,312,710
profit or loss                                                                 
                                                                               
Net realised foreign exchange (losses)/gains                        (1,053,724)
                                                                               
Net realised gains on investments at fair value through                  92,652
profit or loss                                                                 
                                                                               
Net unrealised gains on investments at fair value through             1,042,523
profit or loss                                                                 
                                                                               
Net unrealised gain on forward contracts                                257,832
                                                                               
Net unrealised foreign exchange gains                                    25,182
                                                                               
Total operating income                                                2,677,175

4. Other operating expenses

                                                                    Period from
                                                                               
                                                             8 November 2006 to
                                                                               
                                                                  31 March 2007
                                                                               
                                                                            GBP
                                                                               
Investment management and administration fees                                  
                                                                               
Investment management and performance fee (Note 12)                     367,160
                                                                               
Administration fee (Note 12)                                             33,795
                                                                               
                                                                        400,955
                                                                               
Other operating expenses                                                       
                                                                               
Audit and accounting fees                                                 5,643
                                                                               
Directors' fees                                                          28,558
                                                                               
Other expenses                                                           15,962
                                                                               
                                                                         50,163
                                                                               
Total other operating expenses                                          451,118

5. Finance costs

Finance costs arise from overdraft facilities held by the company. These costs
are recognised in the income statement.

6. Earnings per ordinary share

                                                                    Period from
                                                                               
                                                             8 November 2006 to
                                                                               
                                                                  31 March 2007
                                                                               
                                                                            GBP
                                                                               
The calculation of the basic and diluted earnings                              
per share is based on the following data:                                      
                                                                               
Earnings for the purposes of basic earnings per                       1,709,829
share being net profit attributable to equity                                  
holders                                                                        
                                                                               
Weighted average number of Ordinary Shares for the                   50,000,000
purposes of basic earnings per share                                           
                                                                               
Effect of dilutive potential Ordinary Shares:                                 -
                                                                               
Weighted average number of Ordinary Shares for the                   50,000,000
purposes of diluted earnings per share                                         

7. Overdraft and cash equivalents

                                                                  31 March 2007
                                                                               
                                                                            GBP
                                                                               
Cash equivalents                                                        114,809
                                                                               
Overdrafts                                                         (50,620,241)
                                                                               
Net overdraft                                                      (50,505,432)

The Company borrows money from the Prime Broker by way of overdrafts. The
Company's investments are held with the Prime Broker and are used as security
for these overdrafts.

8. Other liabilities

                                                                  31 March 2007
                                                                               
                                                                            GBP               
                                                                               
Due to related parties - Investment Manager (Note                       367,160
12)                                                                            
                                                                               
Accrued expenses                                                         41,247
                                                                               
                                                                        408,407

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

Terms and conditions of the above other liabilities:

  * For terms and conditions relating to related parties, refer to Note 12.
   
  * Accrued expenses are non-interest bearing and have an average term of 3
    months.
   
9. Share capital

Authorised share capital                             31 March 2007     31 March
                                                                           2007
                                                                               
                                                         Number of          GBP
                                                          Ordinary             
                                                            Shares             
                                                                               
Ordinary shares of no par value each                     Unlimited -           

Issued and fully paid                                                          
                                                                               
                                                         Number of          GBP
                                                          Ordinary             
                                                            Shares             
                                                                               
Balance at start of period                                       -            -
                                                                               
Issuance of Ordinary Shares with no par value at                 2            -
date of incorporation                                                          
                                                                               
Issue of new Ordinary Shares with no par value          49,999,998            -
during the period                                                              
                                                                               
Balance at 31 March 2007                                50,000,000            -

Upon incorporation 2 Ordinary Shares of no par value were issued at a price of
GBP 1 per share. On 8 November 2006 the Company issued 49,999,998 Ordinary
Shares for subscription in its Initial Public Offering at an Offer Price of GBP
1 per share.

10. Share premium account

                                                                   31 March 2007
                                                                                
                                                                             GBP
                                                                                
Balance at start of period                                                     -
                                                                                
Premium arising from issuance of Ordinary Shares                      50,000,000
                                                                                
Expenses of issuance of Ordinary Shares                              (1,275,325)
                                                                                
Transfer to other reserve                                           (48,724,675)
                                                                                
Balance at end of period                                            -           

The Ordinary Shares of the Company have no par value. As such, the proceeds of
the Initial Public Offering represent the premium on the issue of the Ordinary
Shares. In accordance with the accounting policies of the Company and as
allowed by IFRS the costs of the Initial Public Offering have been written off
against equity. The issue costs associated with the Initial Public Offering
amounted to GBP 1,275,325.

The Company has passed a special resolution cancelling the amount standing to
the credit of its share premium account immediately following admission to AIM.
In accordance with 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.

11. Notes to cash flow statement

                                                                     Period from
                                                                                
                                                              8 November 2006 to
                                                                                
                                                                   31 March 2007
                                                                                
                                                                             GBP
                                                                                
Net profit                                                             1,709,829
                                                                                
Adjustments for:                                                                
                                                                                
Realised gains on sale of investments                                   (92,652)     
                                                                                
Net unrealised gain on forward contracts                               (257,832)    
                                                                                
Unrealised gain on investments                                       (1,042,523)  
                                                                                
Unrealised gains on foreign currency bank                              (326,675)    
balances                                                                        
                                                                                
                                                                     (1,719,682)  
                                                                                
Purchases of investments                                           (110,936,210)
                                                                                
Sales proceeds                                                        12,827,995   
                                                                                
                                                                    (98,108,215) 
                                                                                
Increase in receivables                                              (1,847,121)  
                                                                                
Increase in payables                                                     408,407      
                                                                                
                                                                     (1,438,714)  
                                                                                
Net cash outflow from operating activities                          (99,556,782) 

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

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

12. Material agreements and related parties

Investment Manager

The Company is a party to an Investment Management Agreement with the
Investment Manager, dated 8 November, 2006, pursuant to which the Company 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 Performance Fee
(see Notes 4 and 12).

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 1.5 per
cent of the net asset value of the Company. Management fee for the period was
GBP212,028 (of which GBP212,028 was outstanding at 31 March 2007).

Performance Fee

The performance fee in respect of each performance period will be an amount
equal to 20 per cent of the amount, if any, by which the total return for such
performance period exceeds the performance hurdle. For the avoidance of doubt,
the performance fee arrangements are subject to a minimum of zero and will not
result in any repayment of performance fees in respect of previous performance
periods. Performance fee for the period was GBP155,132 (of which GBP155,132 was
outstanding at 31 March 2007).

12. Material agreements and related parties (continued)
   
For these purposes:

Performance period means (i) the period beginning on the date of Admission and
ending on 30 September 2007 and (ii) each subsequent period corresponding to
each accounting period of the Company.

Total return means in respect of each performance period the excess, if any,
of:

 i. the Company's net asset value of the last day of such performance period
    plus the aggregate of any capital return and/or dividends payable in
    respect of such performance period, over
   
ii. the Company's net asset value on the first day of such performance period.
   
Administration Fee

Under the terms of the Administration Agreement, the Administrator is entitled
to receive from the Company an administration fee of 0.095 per cent of the net
asset value of the Company with a minimum of US$14,200 per month. In addition,
the Administrator is entitled to an annual company secretarial fee on a time
charge basis with a minimum of US$50,400 per annum.

Prime Broker and Custodian Fee

The prime broker and custodian will receive such fees as may be agreed with the
Company from time to time, reflecting normal commercial rates which may be
based upon a combination of transaction charges and interest costs.

13. Financial Risk Management objectives and policies
   
The Company's objective is to provide shareholders with an attractive total
return, primarily through income distributed as dividends, with the scope for
capital appreciation. The Company seeks to achieve its objective through
investing in a portfolio of securities on a leveraged basis complemented with
appropriate hedges.

The Company's principal financial instruments, other than derivatives, comprise
secured fixed and floating rate debt leveraged using collateralised lending
facilities provided by the Company's Prime Broker. The Company has various
liabilities in addition to the financing cost of the collateralised lending
facilities, including trade payables and expense payables that arise directly
from its operations.

The Company also enters into derivative transactions, primarily exchange-traded
options on interest rate futures and over-the-counter forward currency
contracts to manage the interest rate and currency risks arising from the
Company's operations.

The principal risks to which the Company will be exposed are market risks
including interest rate risk, currency risk and mark-to-market credit risk,
liquidity risk and counterparty credit risk. In certain instances, as described
more fully below, the Company will enter into derivative transactions in order
to seek to mitigate particular types of risk.

Market Risk

The Company's exposure to market risk is comprised mainly of movements in the
market value of its investments and, to the extent that the Company incurs
indebtedness, changes in interest rates that change its cost of borrowings.

13. Financial Risk Management objectives and policies (continued)
   
Interest Rate Risk

The Company invests in both fixed rate and floating rate corporate debt
securities and finances its investment portfolio using the Company's equity
capital in combination with short-term collateralised borrowings from its Prime
Broker. The Company is exposed to movements in the price of its investments as
a result of changes in the absolute level and the shape of interest rate yield
curves. Increases (or decreases) in interest rates will typically cause a fall
(or rise) in the value of fixed rate debt investments while causing a small
impact on the value of floating rate investments. The sensitivity of each bond
to changes in interest rates is in part a function of the maturity of the bond,
its coupons and any embedded options. Changes in interest rates may also impact
the fundamental creditworthiness of individual issuers and this may in turn
impact the credit spread that is applied in valuing corporate bonds (see Credit
Risk - Mark-to-Market below).

The following table sets out the carrying amount, by maturity of the Company's
financial instruments that are exposed to interest rate risk.

                            Less than                                          
As at 31 March    On demand  3 Months   3 to 12    1 to 5   >5 years    Total  
2007                                    months      years                      
                                                                               
                   GBP 000   GBP 000    GBP 000    GBP 000   GBP 000   GBP 000 
                                                                               
Fixed rate debt       -         -          -         38,985    10,124    49,109
                                                                               
Floating rate         -         -          -         32,787    21,102    53,889
notes                                                                          
                                                                               
Overdrafts -          -         -      (50,505)       -         -      (50,505)
floating                                                                       

Foreign Currency Risk

The Company's accounts are denominated in UK Pound Sterling ("GBP") while
investments are made and realized in other currencies, currently Norwegian
Krone ("NOK") and US Dollars ("USD"). Changes in the 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 Company's
non-GBP denominated investments. The Company's principal non-GBP currency
exposures are expected to remain the USD and NOK, but this may change from time
to time.

The Company's current exposure to a five percent positive or negative shift in
all exchange rates against GBP is less than GBP 30,000 in absolute terms, but
this may change from time to time and is not subject to explicit limits.

Credit Risk (Mark-to-Market)

The Company is subject to credit risk with respect to its investments.

The Company is exposed to movements in the price of its investments as a result
of changes in the absolute level and the shape of issuer credit spread curves.
Increases (or decreases) in credit spreads will typically cause a fall (or
rise) in the value of corporate debt investments. The sensitivity of each bond
to changes in credit spreads is in part a function of the maturity of the bond,
its coupons and any embedded options.

The credit spreads of individual bonds and issuers change frequently as the
market re-prices the fundamental creditworthiness of individual issuers under
prevailing or anticipated economic, political and commercial conditions. These
assessments may also lead to relative re-pricing of different parts of issuers
capital structures, re-assessment of individual issuers probability of default
or undergoing a corporate event together with the markets changing expectation
of loss given default.

13. Financial Risk Management objectives and policies (continued)
   
Credit Risk (Mark-to-Market) (continued)

The Company is also exposed to the risk of losses resulting from credit events
impacting individual issuers including, but not limited to corporate
restructuring and default. In these circumstances, the Company may be exposed
to a material loss that will in part be driven by the market price of recovery
for each part of the defaulting issuer's capital structure or the final
recovery value achieved in the event that the Company continues to hold the
security until repaid in full or in part following insolvency proceedings. The
maximum loss that the Company may suffer from an individual issuer default or
credit restructuring is the fair value of all investments in such issuer. A
full schedule of investments is included within these interim financial
statements.

The Company is able to invest in debt securities that have not been rated by
credit rating agencies and all current investments are unrated. The Company
anticipates that all of its future investments will continue to be made in
unrated securities. Unrated investments are speculative and may exhibit higher
default rates than typically occur in rated investments. The volatility of
credit spreads of unrated debt may be significantly higher than that of rated
debt markets.

As at the date of these interim financial statements, there are no assets that
are past due or impaired.

Market Risk Management

The Investment Adviser analyses the price behaviour of its fixed income
investments in debt securities and any derivative hedges to assess their
relationship with changes in interest rate yield curves, using both
quantitative models and a subjective assessment of each instruments sensitivity
to changes in absolute levels of interest rates and the shape of individual
currency yield curves.

The Investment Adviser may use interest rate derivatives, including options on
interest rate futures, to seek to manage the risk of movements in interest
rates that the Investment Manager believes may adversely affect the Company's
Net Asset Value.

The Company's policy is to seek to mitigate currency risk by financing assets
in the same underlying currency as the asset itself and seek to hedge any
residual currency risk resulting from profits or losses made on investments or
hedges denominated in a currency other than GBP on a case by case basis. The
Company may also seek to hedge currency risk on a portfolio basis where the
Investment Adviser considers it to be appropriate. The Company may bear a level
of currency risk that could otherwise be hedged where the Investment Adviser
considers that bearing such risks is in the interests of the Company.

The Investment Adviser seeks to mitigate the impact of adverse movements in
credit spreads on the prices of its investments by using its fundamental credit
analysis experience to select a portfolio of credits that it believes will
exhibit a low correlation to credit spread indices and in particular to a
general widening in credit spreads. The portfolio of investments is also
selected to seek to achieve a high recovery level in the event of a default by
any individual issuer. The Investment Adviser seeks to monitor the credit
quality of its investments together with relevant economic, political and
commercial factors to identify adverse changes in the fundamentals impacting
individual investments and will attempt to reduce the Company's exposure to any
such credits prior to material prolonged impairment in their value. The
Investment Adviser seeks to minimise credit risk further, through
diversification achieved across issuers, geographic location of ship yards
responsible for the construction contracts and across the different types of
construction projects on which the bonds are secured.

13. Financial Risk Management objectives and policies (continued)
   
Market Risk Assessment

The Investment Adviser uses a number of quantitative techniques to assess the
impact of market risks including credit events, changes in interest rates,
credit spreads and recovery values on the Company's investment portfolio and
any hedges. The Investment Adviser uses mathematical models to assist in the
quantifying of the sensitivity of the Company's portfolio of investments and
any hedges to market movements, both at a security and portfolio level. These
quantitative techniques are collectively used as decision support metrics by
the Investment Adviser and assist in the subjective assessment and management
of the Company's portfolio risk.

The Investment Adviser uses Value at Risk analysis ("VaR"), a technique widely
used by financial institutions to quantify, assess and report market risk. VaR
may be defined as a statistical framework that supports the quantifying of
market risk within a portfolio of tradable assets at a specified confidence
interval over a defined holding period. VaR seeks to simulate potential losses
that may impact a portfolio as a result of the interactive behaviour of all
material market prices, spreads, volatilities and rates based on the
historically observed relationships between these markets.

The Investment Adviser uses the RiskMetricsTM Group RiskManager ASP service to
calculate the VaR of the Company's portfolio on a daily basis and has applied
parameters to the model to calculate the predicted worst-case portfolio loss
resulting from market moves at a 99% confidence interval over a ten business
day holding period.

RiskMetricsTM VaR estimates market risk in the portfolio with respect to
changes in credit spreads, interest rates and currencies amongst other
parameters. The RiskMetricsTM model supports a number of different statistical
approaches to quantifying market risk and the Investment Adviser has elected to
use a historical simulation of market movements over a two year period, rolling
one month forward each month.

Not all risks to which the portfolio may be exposed are intended to be captured
by VaR and, in particular, the framework does not seek to capture liquidity
risk, counterparty credit risk or extreme credit events such as an issuer
default. The Investment Adviser complements its RiskMetricsTM VaR analysis with
a number of additional metrics including scenario analysis, risk sensitivity
analysis, liability modelling and stress testing, to provide a comprehensive
assessment of portfolio risk. VaR does not provide any information regarding
the size of losses that may be sustained in the 1% of modelled instances that
can be expected to exceed the VaR.

                                                    VaR        
                                                               
                                              (GBP Millions)   
                                                               
First Lien Secured Debt (inc hedges)               1.61        
                                                               
Second Lien Secured Debt (inc hedges)              0.56        
                                                               
Portfolio diversification across                     0         
seniorities                                                    
                                                               
Total                                              2.17        

                                                    VaR        
                                                               
                                              (GBP Millions)   
                                                               
Fixed Rate Debt (inc hedges)                       1.05        
                                                               
Floating Rate Debt (inc hedges)                    1.12        
                                                               
Portfolio diversification across coupon              0         
types                                                          
                                                               
Total                                              2.17        

13. Financial Risk Management objectives and policies (continued)
   
Credit Risk (Counterparty)

The Company is exposed to the risk of loss in the event of the default of
market counterparties with whom it purchases and sells investments and
derivative contracts.

The Company is also exposed to the risk of loss in the event of the default of
market counterparties with whom it has entered into derivative contracts and
foreign currency forward contracts for the purposes of hedging portfolio
exposures.

The Company is exposed to the risk of loss in the event of the default of its
Prime Broker, as the custodian of the Company's assets, as these investments
are held by the Prime Broker as collateral to secure any indebtedness that the
Company may incur. In the event of default of its Prime Broker, the Company
would be at risk of losing up to 100% of its net assets, depending on the final
recovery value achieved by unsecured trade creditors.

Counterparty Credit Risk Assessment and Management

The Investment Adviser seeks to execute all purchase and sale transactions of
investments on a Delivery versus Payment ("DVP") settlement basis through
central clearing counterparties with a Standard & Poor's credit rating in
excess of A-. The use of DVP settlement protocols reduces the risk of loss to
the Company to adverse price movements between the trade date and settlement
date of a transaction. This settlement price risk is materially lower than the
risk associated with either the cash or security leg of a transaction failing
as a result of a counterparty default.

The Investment Adviser seeks to execute the majority of its interest rate
hedging strategies using exchange traded derivatives settled and margined
through a central clearing counterparty with a Standard & Poor's credit rating
in excess of A-.

The Investment Adviser seeks to execute all over the counter derivative
contracts and foreign currency contracts with market counterparties with a
Standard & Poor's credit rating in excess of A- and will seek to transact such
contracts with the Prime Broker, where commercially appropriate, to consolidate
a material proportion of its counterparty risks.

The Investment Adviser operates a policy of borrowing funds on a collateralised
basis only from the Prime Broker, which has a Standard & Poor's credit rating
in excess of A-, to reduce the probability of the Company suffering losses
resulting from the Prime Broker's default.

The Investment Adviser monitors the credit rating of all exchanges, all central
clearing counterparties and its Prime Broker together with the market
assessment of their creditworthiness, as expressed by each entities' credit
spread, where publicly quoted, to ensure compliance with policy.

Liquidity Risk

The market for debt instruments used to finance the construction, modification
and/or refurbishment of offshore oil and natural gas exploration and production
infrastructure, and auxiliary services, is illiquid. Accordingly, many of the
Company's investments are illiquid. As a result of this illiquidity, the
Company'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 Company acquires investments for which there is not a
readily available market, the Company'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.

13. Financial Risk Management objectives and policies (continued)
   
Liquidity Risk (continued)

The Company uses leverage in the form of borrowings from the Prime Broker on a
collateralised basis, using its portfolio of investments as security to assist
in achieving its objectives. The Company is exposed to the risk that leverage
may increase the impact of any adverse market price moves on the value of its
investments, and any associated hedges, and may need to dispose of investments
to maintain compliance with the Prime Brokers pre-agreed collateral
requirements under certain market conditions. The disposal of investments in
these circumstances may limit the Company's ability to achieve a fair price on
disposal of these assets.

13. Financial Risk Management objectives and policies (continued)
   
Liquidity Risk (continued)

The table below summarises the maturity profile of the Company's financial
assets and liabilities at 31 March 2007 based on contractual undiscounted
terms.

                          Less than                                           
                                                                              
As at 31 March On demand   3 Months   3 to 12     1 to 5   >5 years    Total  
2007                                   months     years                       
                                                                              
                GBP 000    GBP 000    GBP 000    GBP 000    GBP 000   GBP 000 
                                                                              
Investments at     -          -          -        71,772    31,236    103,008 
fair value                                                                    
                                                                              
Forward            -         258         -          -          -        258   
exchange                                                                      
contracts                                                                     
                                                                              
Interest           -        1,847        -          -          -       1,847  
receivable                                                                    
                                                                              
Overdraft          -                  (50,505)      -          -     (50,505) 
                                                                              
Trade payables     -       (3,744)       -          -          -      (3,744) 
                                                                              
Other              -        (429)        -          -          -       (429)  
liabilities                                                                   
                                                                              
                   -       (2,068)    (50,505)    71,772    31,236    50,435  

13. Financial Risk Management objectives and policies (continued)
   
Liquidity Risk Assessment and Management

The Investment Adviser seeks to monitor the liquidity of the Company's
investments qualitatively in the course of its day-to-day business, advising on
the trading of bonds and derivative hedge contracts with market counterparties.
The Investment Adviser seeks to understand the liquidity of the instruments in
which it invests though relative changes in the bid and ask prices quoted by
market counterparties and an assessment of the market depth provided by those
counterparties that make a two-way market in the Company's existing and
prospective investments.

The Investment Adviser seeks to manage the concentration of the Company's
exposure to individual bonds taking account of individual outstanding issue
sizes, total issuer debt outstanding and the aggregate exposure to any given
issuer, amongst other factors.

The Investment Adviser monitors the Company's financial resources to assess its
ability to maintain an appropriately leveraged portfolio in the event of
general market distress and/or a reduction in liquidity offered by market
counterparties to support trading of the Company's portfolio. The Investment
Adviser's assessment of the Company's financial resources in stressed market
conditions includes the impact of estimated adverse changes in the market value
of the Company's investments and any portfolio hedges, together with a widening
in the bid and ask price quotes used in the Prime Broker's collateral margin
process supporting any indebtedness of the Company.

The Investment Adviser seeks to monitor the leverage of the Company based both
on its assessment of risk within the portfolio of investments and against the
permitted gearing constraints described in the Company's Admission Document.

The Company has negotiated committed financing terms with its Prime Broker, as
described in the Company's Admission Document, to assist in maintaining
appropriate portfolio leverage in all reasonable market conditions and to
reduce the probability of needing to prematurely liquidate some, or all, of the
portfolio in the event of adverse market moves.

14. Dividend policy and proposed dividends

The Company's policy is to pay quarterly dividends to Shareholders. The Company
will target gross dividends of equivalent to an annualised 8 per cent. of the
Net Asset Value at the start of each financial year (or in the case of the
first financial, the Net Asset Value upon admission). The first dividend of £
1,110,000 was proposed by the Directors on 3 May 2007 in relation to the period
ended 31 March 2007 in the amount of 2.22p per share. This was paid on 11 June
2007 and has not been included as a liability in these financial statements.

Enquiries:

Ann Spelman

Kleinwort Benson (Channel Islands) Fund Services Limited

Telephone (01481) 727111

NOMAD and Broker

Arbuthnot Securities Limited

Alastair Moreton

Telephone 020 7012 2138