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Queens Walk Inv Ltd (RECI)

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Wednesday 28 November, 2007

Queens Walk Inv Ltd

Financial Results

Queen's Walk Investment Limited
28 November 2007

28 November 2007



                        Queen's Walk Investment Limited



                           Financial Results for the

                        Quarter Ended 30 September 2007

                        and Interim Report and Accounts





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

  • Operating income for the quarter of €9.7 million, equating to operating
    income per share of €0.24 compared to €12.3 million or €0.30 per share in
    the previous quarter.
  • Earnings in the quarter of -€0.6 million or -€0.01 per share compared to
    -€3.2 million or -€0.08 per share in the previous quarter.
  • Distributable income in the quarter of €7.6 million or €0.19 per share
    compared to €8.8 million or €0.22 per share as at 30 June 2007.
  • Net asset value of €6.90 per share as at 30 September 2007 versus €7.01
    per share as at 30 June 2007. Following the completion of the tender offer,
    approved on 8 October 2007, the NAV per share was €7.07.
  • The Board of Directors has declared an interim dividend of €0.15 per share
    for the quarter.
  • Fair value write-downs of the Company's investment portfolio in the
    quarter totalled €8 million or approximately 2.2% of the 30 June 2007 gross
    asset value.  These write-downs resulted principally from continued
    deterioration in the US sub-prime market and wider market discount rates
    applied to the Company's three CDO residual positions.
  • As at 30 September 2007, the fair value of the Company's investments
    exposed, directly or indirectly, to the US sub-prime market accounted for
    €7.5 million or 2.3% of the Company's gross asset value.
  • The weighted average yield of the Company's investment portfolio as at 30
    September 2007 was 13.1% in local currency terms compared to 13.3% as at 30
    June 2007.
  • The Company's net leverage has increased from 3.0% as at 30 June 2007 to
    8.6% as at 30 September 2007.
  • On 15 October 2007, the Company completed a tender offer pursuant to which
    approximately €25 million was returned to shareholders.
  • As of 15 November 2007, 5,701,637 ordinary shares have been purchased for
    cancellation since 30 June 2007.



Financial Highlights


                                                              Total                                           Total

                            Revenue      Fair value   Quarter ended         Revenue      Fair value   Quarter ended
                                          gains and   30 September                        gains and
                                             losses            2007                          losses   30 June  2007
Operating Income          9,672,694               -       9,672,694      12,307,088               -      12,307,088
Gains and losses on                     (8,094,060)     (8,094,060)
fair value through
profit or loss                                                    -                     (11,527,045)    (11,527,045)
financial instruments
                          9,672,694     (8,094,060)       1,578,634      12,307,088     (11,527,045)        780,043

Operating Expenses      (1,404,332)               -     (1,404,332)     (2,668,568)               -      (2,668,568)
Finance Costs             (741,929)               -       (741,929)     (1,336,435)               -      (1,336,435)
Net profit / (loss)       7,526,433     (8,094,060)       (567,627)       8,302,085    (11,527,045)      (3,224,960)
Distributable                                             7,577,972                                       8,765,290
income1,2
Distributable income                                          €0.19                                           €0.22
per share

Total Assets                                           €326,577,355                                    €360,911,412
Total Liabilities                                       €53,258,112                                     €76,075,800
Equity Capital                                         €273,319,243                                    €284,835,612
NAV per share                                                 €6.90                                           €7.01



1.  Net profit from investments before deduction of net fair value losses
through profit or loss. For the quarter ended 30 June 2007, the distributable
income includes €463,205 of f/x gains and losses. For the quarter ended 30
September 2007, the distributable income includes €51,540 of f/x gains and
losses.

2. Refer to Note 3 of the quarterly report for the quarter ended 30 September
2007 for further details on the Company's distribution policy.



Second Quarter Dividend



The Board of Directors has declared an interim dividend for the quarter ended 30
September 2007 of €0.15 per share payable on 8 January 2008 to shareholders of
record on 14 December 2007.



Conference Call



A conference call to review the Company's financial results for the quarter
ended 30 September 2007 will take place at 2:00 P.M. London time on 28 November
2007.  The conference call can be accessed by dialing +44 (0)20 7138 0837 ten
minutes prior to the scheduled start of the call.  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 it's 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 it's 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'. 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 and should not be relied upon. 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).



Portfolio Review



As at 30 September 2007, the Company's portfolio of UK mortgage, European
mortgage and SME residual investments comprised 80.3% of the Company's
gross-asset value.  The Company's investments are exposed to the US sub-prime
market through, firstly, a single mortgage-backed residual position and
secondly, through two ABS CDOs collateralised by asset pools containing US
sub-prime mortgage-backed bonds.  These three bonds accounted for 2.3% of the
Company's gross asset value.  A CDO, backed by US leveraged loans, accounted for
1.4% of the Company's gross asset value.   Cash balances accounted for 16.0% of
the Company's gross asset value.



The cash generative capability of the portfolio remains strong with €24.6
million of cash proceeds being received in the quarter ended 30 September 2007
compared to €22.3 million received in the previous quarter. While the current
market volatility may have a negative impact on the fair value of the Company's
portfolio in future periods, the cash generative capability of the Company's
assets will not be affected by changes in market discount rates.



The Company's net leverage has increased to 8.6%(1) as at 30 September 2007 from
3.0% as at 30 June 2007. As at 31 October 2007, the Company had €22.2 million of
cash on the balance sheet and has drawn €45 million against its 4 year term
financing facility.










Investment Portfolio



UK Mortgage Investments (33.3% of GAV)



No significant changes to the pricing assumptions of the Company's UK
mortgage-backed residual investments were made in the quarter.  The prepayment
data received in the quarter has been consistent with the Company's prepayment
assumptions. After giving effect to cash flows received in the quarter and
associated principal amortisations, there has been no material change to the
fair value of these investments as at 30 September 2007.



An extended dislocation in the UK mortgage market, if it were to occur, should,
in the aggregate, be neutral in terms of its impact on the valuation of the
Company's UK mortgage residual investments. Following a reduction in the
availability of mortgage credit, the rate of mortgage prepayments would be
expected to slow, extending the duration of the residuals, and thereby
increasing their value. However, the gain in the residual values would be
expected to be offset by an increase in arrears and defaults. The reduction in
residual values due to weaker credit should be limited because of the house
price appreciation that has occurred since the residuals were originated. For
example, the Company has three residual investments in its UK mortgage portfolio
with exposure to mortgages originated in the first half of 2006.  The average
LTV of these three residuals has reduced from 79% to 66% as a result of house
price appreciation(2).



To hedge against a substantial fall in UK house prices, the Company has
purchased €28 million notional of out of the money put options referencing the
Halifax house price index on 31 October 2007.





European Mortgage Investments (31.1% of GAV)



With respect to the European mortgage-backed residual portfolio, the
fundamentals underlying the performance of these investments remain sound.
After giving effect to cash flows received in the quarter and associated
principal amortisations, there has been no material change to the fair value of
these investments as at 30 September 2007.



In the past quarter, we began to observe increased borrower prepayment behaviour
associated with the Company's European mortgage portfolios. This increase in
prepayment rates has been in line with expectations. The default and recovery
experience in these investments has also been in line with expectations.





SME Investments (15.9% of GAV)



The Company's portfolio of SMEs residual investments is performing in line with
or better than expectations.  After giving effect to cash flows received in the
quarter and associated principal amortisations, there has been no material
change to the fair value of these investments as at 30 September 2007.



The observed default rates for the Company's SME portfolios remain in line with
expectations.  Furthermore, the expected default rates for the Company's SME
portfolios, based on the most recent credit scores for the underlying companies,
are also in line with or better than original pricing assumptions.



CDO Investments (2.8% of GAV)



The Company holds residual positions in three CDOs, two of which are exposed to
US mortgage assets.



As a result of the continued deterioration in the US ABS markets, the credit
performance of Cheyne ABS Investments I PLC ('ABS Investments I') has weakened.
Since inception, seven of the bonds in the portfolio have been upgraded and one
bond is on a positive rating watch with Moody's. However, at present, four bonds
in the portfolio are on negative ratings watch. Depending on the extent of the
weakness in the US housing market, bonds in the ABS Investments I portfolio may
experience downgrades.  The fair value assigned to ABS Investments I as at 30
September 2007, assumes interest deferral and downgrades of bonds in the
portfolio.



Cheyne High Grade CDO, Ltd ('High Grade CDO') is a CDO backed by AAA to A-rated
ABS bonds and ABS Investments I is a CDO backed by the mezzanine tranches of US
ABS CDOs (including US RMBS CDOs). As at 30 September 2007, the credit
performance of High Grade CDO had been positive, with three rating upgrades and
no negative credit actions on the bonds contained in its portfolio.  Previously,
the asset manager of High Grade CDO had identified two bonds in the collateral
pool with potential credit issues. In the quarter ended 30 September 2007, these
bonds were sold and replaced with two bonds with an improved credit profile.





The market values of the two ABS CDO residuals have been adversely affected by
the recent volatility in the ABS markets.  In the quarter ended 30 September
2007, the fair value write-downs as a result of wider market discount rates and
changes in expected future cash flows reduced the fair value of these two assets
by 40.6%.



Cheyne CLO Investments I Ltd ('CLO Investments I') is backed by AA- to BBB-
rated US CLO bonds.  The performance of this collateral has exceeded original
pricing assumptions and two of the bonds in the portfolio have been upgraded
from BBB to A and AA, respectively.  There have been no downgrades or negative
watch warnings on any of the bonds in the portfolio.  The market discount rate
for the asset increased again in the quarter, resulting in fair value
write-downs reducing the fair value of the asset by approximately 20%. However,
the cash generative ability of this residual investment remains positive and is
in line with expectations.





US Mortgage Investment (0.9% of GAV)





The Company retains exposure to one US mortgage-backed residual investment.
Following revisions to the pricing assumptions in the quarter ended 30 June
2007, actual credit losses have been slightly better than forecast. However, the
lifetime cumulative loss assumption for the asset was unchanged in the quarter.
In addition, the market discount rate increased again in the quarter.



In the quarter ended 30 September 2007, the fair value write-downs as a result
of wider market discount rates and changes in expected future cash flows reduced
the fair value of this asset by 24.1%.





Portfolio Valuation



In accordance with the Company's valuation procedures, the fair value of the
Company's investments has been evaluated on the basis of performance, observable
market data and the Investment Manager's expectations regarding future trends.
After giving effect to the fair value write-downs taken in the quarter, the NAV
of the Company has decreased to €6.90 per share as at 30 September 2007 from
€7.01 per share as at 30 June 2007 (a decrease of 1.6%).



On 8 October 2007, the Company received approval from shareholders to proceed
with the repurchase of shares through the tender offer. Following the tender
offer, the NAV of the Company was €7.07 per share(3).


The table below summarises the changes in fair values of the Company's
investment portfolio by asset class:


Asset Class            30 June 2007    30 September      Fair Value     % Change to        Cashflows       Cashflows
                      Fair Value1,2            2007    Change Since    30 June 2007  Received in the Received in the
                              (€mn)  Fair Value2 (€ 30 June 2007 (€      Fair Value    Quarter Ended   Quarter Ended
                                                mn)             mn)                  30 June 2007 (€    30 September
                                                                                                 mn)      2007 (€mn)
UK Mortgages                  123.7           108.8           -14.9          -12.0%                             16.6
                                                                                                12.8
Euro Mortgages                103.7           101.4            -2.3           -2.2%                              3.4
                                                                                                 4.7
SME                            52.3            51.9            -0.4           -0.8%                              3.2
                                                                                                 3.1
CDO                            13.5             9.1            -4.4          -32.6%                              0.9
                                                                                                 1.1
US Mortgages                    4.2             2.9            -1.3          -30.5%                              0.5
                                                                                                 0.6
Cash and Other Cash            54.8            52.3            -2.5           -4.7%
Equivalents
TOTAL3                        352.2           326.4           -25.8           -7.3%             22.3            24.6




1.        Fair values as at 30 June 2007 are expressed using 30 September 2007 
f/x rates.

2.        The fair value figures for 30 June 2007 and 30 September 2007 include
accrued income and, in the case of the UK mortgage residuals, the value of the
interest rate swaps.

3.     The values for each column may not sum to the total due to rounding
differences.

Fair value changes since 30 June 2007 include principal amortisations of the
residuals as a result of cash flows received in the quarter. There have been no
material fair value write-downs of the UK mortgage, European mortgage or SME
portfolios. The valuations of the US and ABS CDO portfolios continue to be
affected by increases in market discount rates, and in the case of the three
residuals with exposure to the US sub-prime mortgage market, deteriorations in
the cash flow expectations which resulted in material fair value write-downs in
the quarter.




Portfolio Breakdowns



A breakdown of the Company's investment portfolio by jurisdiction (by reference
to underlying asset originator) is set out below. Percentages for each asset
class are in relation to the gross asset value of the Company's investment
portfolio.




Queen's Walk Portfolio Breakdown by Jurisdiction as at 30 June 2007 (1)


UK                                   42.3%
US                                   1.5%
CDO                                  4.7%
Germany                              12.4%
Holland                              4.9%
Italy                                8.4%
Portugal                             25.8%
Total (€mn)                          303.0

(1) Expressed using f/x rates as at 30 June 2007


Queen's Walk Portfolio Breakdown by Jurisdiction as at 30 September 2007


UK                                   39.7%
US                                   1.1%
Italy                                9.3%
Holland                              5.3%
Germany                              13.7%
Portugal                             27.6%
CDO                                  3.3%
Total (€mn)                          274.2







A breakdown of the Company's investment portfolio by asset type (by reference to
underlying asset collateral) is set out below. Percentages for each asset class
are in relation to the gross asset value of the Company's investment portfolio.






Queen's Walk Portfolio Breakdown by Jurisdiction as at 30 June 2007 (1)


Near Prime                           20.6%
Sub Prime                            21.0%
CDO                                  4.7%
SME                                  17.3%
Prime                                36.4%
Total (€mn)                          303.0

(1) Expressed using f/x rates as at 30 June 2007




Queen's Walk Portfolio Breakdown by Jurisdiction as at 30 September 2007


Near Prime                           19.7%
Sub Prime                            19.2%
CDO                                  3.3%
SME                                  18.9%
Prime                                38.8%
Total (€mn)                          274.2





Share Repurchases



On 8 October 2007, shareholders approved the Company's tender offer and on 15
October 2007, the Company repurchased for cancellation 4,504,500 shares at a
price of €5.55 per share.



As of 30 September 2007, the Company had purchased 991,354 shares through its
buy back programme at an average price of €5.04 per share. Through the period
from 1 October 2007 until 15 November 2007, the Company has purchased 205,783
shares at an average of €5.38 per share. Though the share buybacks have been
accretive to NAV, the number of shares which the Company has been able to
repurchase has been constrained by applicable limits on the number of shares
that can be purchased on any particular day and by the price at which the
Company can repurchase shares.



While the share price trades at a material discount to NAV, the Company believes
it is in the best interests of shareholders to continue with the share
buy-backs.





Strategy and Market Outlook



The volatility in the ABS markets has continued in the quarter. The magnitude of
the credit deterioration in the US sub-prime mortgage and US ABS CDO markets has
increased substantially since 30 June 2007. What began as a dislocation in the
US sub-prime mortgage market has now had a much broader impact on the credit
markets.



In both the European and US asset-backed markets, there is likely to be a
long-term structural shift in the availability of credit to fund asset backed
lending. These changes will continue to develop over the coming months, with the
specific outcome difficult to predict at this stage. What is emerging appears to
be a re-pricing of senior or AAA rated risk and a substantial withdrawal of
mezzanine capital. We expect these changes to offer, in due course, the Company
significant investment opportunities.  However, with continued volatility in the
ABS markets, the Company will refrain from purchasing new assets in the near
term.



At present, the discount to the NAV at which the share price is trading, is an
opportunity for the Company to buyback shares and add value for existing
shareholders.  The Company intends to tender for €15 million of its issued share
capital.  Details of the tender offer will be sent to shareholders shortly.



Unaudited Consolidated Income Statement

For the quarter ended 30 September 2007


                                                           Total                                       Total
                             Revenue          Fair       Quarter       Revenue           Fair        Quarter
                  Note        return         value         ended        return          value          ended
                                             gains            30                        gains  30 June  2007
                                               and     September                          and
                                            losses          2007                       losses
                                Euro          Euro          Euro          Euro           Euro           Euro
                                                                                                            
Operating                  9,672,694             -     9,672,694    12,307,088              -     12,307,088
income
                                                                                                            
Gains and                          -   (8,094,060)   (8,094,060)             -   (11,527,045)   (11,527,045)
losses on fair
value through
profit or loss
financial
instruments
                           9,672,694   (8,094,060)     1,578,634    12,307,088   (11,527,045)        780,043
                                                                                                            
Operating            5   (1,404,332)             -   (1,404,332)   (2,668,568)              -    (2,668,568)
expenses
                                                                                                            
Finance costs        6     (741,929)             -     (741,929)   (1,336,435)              -    (1,336,435)
                                                                                                            
Net loss                   7,526,433   (8,094,060)     (567,627)     8,302,085   (11,527,045)    (3,224,960)
                                                                                                            
Loss per                                                                                                    
Ordinary Share
Basic                                               Euro (0.014)                                Euro (0.079)
Diluted                                             Euro (0.014)                                Euro (0.079)
                                                                                                            
Weighted                                                  Number                                      Number
average
Ordinary
Shares
outstanding
Basic                                                 40,132,525                                  40,620,756
Diluted                                               40,132,525                                  40,620,756




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



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






Unaudited Consolidated Statement of Changes in Shareholders' Equity

For the quarter ended 30 September 2007




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

Balance at 1 April 2007                   -            -     384,678,304   7,672,500     (98,197,119)  294,153,685

Net loss for the quarter                  -            -               -           -      (3,224,960)  (3,224,960)

Transfers from distributable              -            -    (12,186,226)           -       12,186,226            -
reserves to accumulated profits

Distribution to the Ordinary              -            -               -           -      (6,093,113)  (6,093,113)
Shareholders of the Company

Balance at 30 June 2007                   -            -     372,492,078   7,672,500     (95,328,966)  284,835,612

Net loss for the quarter                  -            -               -           -        (567,627)    (567,627)

Redemption of ordinary shares             -            -     (5,004,332)           -                -  (5,004,332)

Transfers from distributable              -            -   (109,813,774)           -      109,813,774            -
reserves to accumulated profits

Distribution to the Ordinary              -            -               -           -      (5,944,410)  (5,944,410)
Shareholders of the Company

Balance at 30 September 2007              -            -     257,673,972   7,672,500        7,972,771  273,319,243













                                                                                   30 September            30 June 
                                                                                           2007               2007
                                                                                           Euro               Euro
Non-current assets
Investments at fair value through profit or loss                                    269,274,302        297,198,144

Current assets
Cash and cash equivalents                                                            52,250,434         56,685,553
Derivative financial assets - unrealised gain on forward exchange
contracts                                                                               140,883            317,548
                                                                                        
Derivative financial assets - unrealised gain on interest rate swap                                      
agreements                                                                            1,517,985          1,874,062
Other assets                                                                          3,393,751          4,836,105
                                                                                     57,303,053         63,713,268

Total assets                                                                        326,577,355        360,911,412

Equity and liabilities

Equity
Share capital                                                                                 -                  -
Share premium account                                                                         -                  -
Other reserve                                                                       257,673,972        372,492,078
Capital reserve in respect of share options                                           7,672,500          7,672,500
Accumulated profits/(losses)                                                          7,972,771       (95,328,966)
                                                                                    273,319,243        284,835,612
Current liabilities
Repurchase agreements                                                                         -         65,682,339
Distribution payable                                                                  5,944,410          6,093,113
Derivative financial liabilities - unrealised loss on forward                           546,476                  -
exchange contracts
Other liabilities                                                                     1,767,226          4,300,348
Total liabilities                                                                     8,258,112         76,075,800

Non-current liabilities
Loans                                                                                45,000,000                  -

Total liabilities                                                                    53,258,112         76,075,800

Total equity and liabilities                                                        326,577,355        360,911,412







1.     General information

Queen's Walk Investment Limited (the 'Company') was registered on 6 September
2005 with registered number 43634 and is domiciled in Guernsey, Channel Islands.
The Company commenced its operations on 8 December 2005.  The Company is a
closed-ended investment company with limited liability formed under The
Companies (Guernsey) Law, 1994 and its Ordinary Shares are listed on the London
Stock Exchange.  The registered office of the Company is Dorey Court, Admiral
Park, St Peter Port, Guernsey, GY1 3BG, Channel Islands. 'Group' is defined as
the Company and its subsidiary. At 30 September 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 Limited (the 'Investment Manager'), an
investment management firm authorised and regulated by the Financial Services
Authority. The Company has entered into an Investment Management Agreement (the
'Investment Management Agreement') under which the Investment Manager manages
its day-to-day investment operations, subject to the supervision of the
Company's Board of Directors. The Company has no direct employees. For its
services, the Investment Manager receives a monthly management fee (which
includes a reimbursement of expenses) and a quarterly performance-related fee.
The Company has no ownership interest in the Investment Manager. The Company is
administered by Kleinwort Benson (Channel Islands) Fund Services Limited (the '
Administrator').  Investors Fund Services (Ireland) Limited (A State Street
Company) provide certain administration services to the Company in its capacity
as sub-administrator.



2.     Significant accounting policies

Basis of preparation

The quarterly report has been prepared using accounting policies consistent with
International Financial Reporting Standards ('IFRS').  The same accounting
policies, presentation and methods of computation are followed in this report as
applied in the Company's latest annual audited financial statements dated 31
March 2007.



The quarterly report of the Group is prepared 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 by reference to market information, which includes but
is not limited to broker marks, prices on comparable assets and a pricing model
that incorporates 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 and note 3 - Critical accounting judgements and key sources of estimation
uncertainty for further information regarding assumptions and critical
judgements.



This quarterly report is 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.




2.     Significant accounting policies (continued)

Basis of consolidation

Subsidiaries are entities controlled by the Company. Subsidiaries are included
in the consolidated quarterly report from the date that control commences until
the date that control ceases. At 30 September 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 accounts are therefore included in the
consolidated quarterly report of the Group.  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.






2.     Significant accounting policies (continued)

Derivative financial instruments (continued)

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 by reference to
market information which includes but is not limited to broker marks, prices on
comparable assets and 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.




2.     Significant accounting policies (continued)

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.






2.     Significant accounting policies (continued)

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

Critical accounting judgements in applying the Group's accounting policies

In the process of applying the Groups accounting polices (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 Company invests primarily in a diversified portfolio of residual income
positions, being the subordinated tranches of asset-backed securities ('ABS').
ABS 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 Company 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.  Where there is a carry value
reduction driven by lower cashflow expectations, interest income will be reduced
as it reflects the reduced cashflow expectations.




3.     Critical accounting judgements and key sources of estimation uncertainty
(continued)

Valuation of investments

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 market information,
which includes but is not limited to broker marks, prices on comparative assets
and 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.



4.     Distributable and non-distributable profits

Under The Companies (Guernsey) Law, 1994 (the 'Companies Law'), dividends can be
paid from profits available for the purpose. Following the Company's IPO, 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.






5.     Operating expenses
                                                                             Quarter ended           Quarter ended
                                                                         30 September 2007            30 June 2007
                                                                                      Euro                    Euro
Investment management, custodian and administration fees
Investment management and incentive fee                                          1,159,218               1,211,317
Custodian and administration fee                                                   185,365                 110,573
                                                                                 1,344,583               1,321,890
Other operating expenses
Audit fees                                                                          42,849                  42,383
Directors' fees payable to Directors of Queen's Walk Investment
Limited                                                                             55,935                  64,065
Directors' fees payable to Directors of Trebuchet Finance Limited                    7,182                   6,673
Legal fees                                                                         132,747                  70,568
Pricing expenses                                                                 (283,377)                 462,616
Other expenses                                                                     104,413                 700,373
                                                                                    59,749               1,346,678

Total operating expenses                                                         1,404,332               2,668,568



The Company has no employees.



6.     Finance costs
                                                                              Quarter ended          Quarter ended
                                                                          30 September 2007           30 June 2007
                                                                                       Euro                   Euro
Finance costs arises from:

Interest expense on loan                                                            557,279                      -
      Repurchase agreements                                                         184,650              1,336,435
      Total finance costs                                                           741,929              1,336,435





                        QUEEN'S WALK INVESTMENT LIMITED



                          INTERIM REPORT AND ACCOUNTS



                                  (UNAUDITED)



                     FOR THE PERIOD ENDED 30 SEPTEMBER 2007








Directors and Advisers



Directors and Advisers (continued)





Directors

Tom Chandos (Chairman)

Stuart Fiertz (resigned on 22 June 2007)

Graham Harrison

John Hawkins

Talmai Morgan

Christopher Spencer



Registered Office

Dorey Court

Admiral Park

St. Peter Port

Guernsey GY1 3BG



Administrator and Secretary of the Company

Kleinwort Benson (Channel Islands) Fund Services Limited

Dorey Court

Admiral Park

St. Peter Port

Guernsey GY1 3BG



Investment Manager

Cheyne Capital Management (UK) LLP

Stornoway House

13 Cleveland Row

London SW1A 1DH



Corporate Brokers

Citigroup Global Markets Limited

Citigroup Centre

Canada Square

Canary Wharf

London E14 5LB



Goldman Sachs International

Peterborough Court

133 Fleet Street

London EC4A 2BB








Auditors

Deloitte & Touche LLP

Regency Court

Glategny Esplanade

St. Peter Port

Guernsey GY1 3HW



Registrar

Capita IRG (CI) Limited

2nd Floor

No. 1 Le Truchot

St. Peter Port

Guernsey GY1 4AE



UK Transfer Agent

Capita Registrars

The Registry

34 Beckenham Road

Beckenham

Kent BR3 4TU



Custodian

Investors Trust & Custodial Services (Ireland) Limited

Block D

Iveagh Court

Harcourt Road

Dublin 2

Ireland



Sub-Administrator

Investors Fund Services (Ireland) Limited

Block D

Iveagh Court

Harcourt Road

Dublin 2

Ireland




Chairman's Statement





Following an extraordinarily turbulent time in the credit markets, Queen's Walk
is reporting an operating income of €9.7 million (€0.24 per share) for the
quarter ended 30 September 2007. Earnings were -€0.6 million (-€0.01 per share)
compared to -€3.2 million (-€0.08 per share) for the quarter ended 30 June 2007.
Distributable income was €7.6 million (€0.19 per share), compared to €8.8
million (€0.22 per share) for the quarter ended 30 June 2007.



As a result the board has decided to declare an interim dividend of €0.15 per
share for the quarter, the same level as for the previous quarter.



NAV was €6.90 per share as at 30 September 2007, a fall of less than 2% of the
NAV as at 30 June 2007.



The tender offer launched in September closed shortly after the end of the
quarter, returning €25 million of capital to shareholders through purchases at a
strike price of €5.55. The effect of this was an increase in the NAV as at 8
October 2007, on a pro-forma basis to €7.07 per share.



Conditions in the credit markets have further deteriorated since 30 September
2007, but the Company's assets are continuing to generate cash at a satisfactory
rate. Given the current discount in the share price to NAV and the cash
generative nature of the assets, the Company intends to continue with the
re-purchase of its shares.  In addition, to the share buyback programme, the
Company plans to conduct a further tender offer to purchase €15 million of the
Company's ordinary shares.  Details of the tender offer will be mailed to
shareholders shortly.





Tom Chandos, Chairman

26 November 2007








Investment Manager's Report (continued)



Highlights

  • Operating income for the quarter of €9.7 million, equating to operating
    income per share of €0.24 compared to €12.3 million or €0.30 per share in
    the previous quarter.
  • Earnings in the quarter of -€0.6 million or -€0.01 per share compared to
    -€3.2 million or -€0.08 per share in the previous quarter.
  • Distributable income in the quarter of €7.6 million or €0.19 per share
    compared to €8.8 million or €0.22 per share as at 30 June 2007.
  • Net asset value of €6.90 per share as at 30 September 2007 versus €7.01
    per share as at 30 June 2007. Following the completion of the tender offer,
    approved on 8 October 2007, the NAV per share was €7.07.
  • The Board of Directors has declared an interim dividend of €0.15 per share
    for the quarter.
  • Fair value write-downs of the Company's investment portfolio in the
    quarter totalled €8 million or approximately 2.2% of the 30 June 2007 gross
    asset value.  These write-downs resulted principally from continued
    deterioration in the US sub-prime market and wider market discount rates
    applied to the Company's three CDO residual positions.
  • As at 30 September 2007, the fair value of the Company's investments
    exposed, directly or indirectly, to the US sub-prime market accounted for
    €7.5 million or 2.3% of the Company's gross asset value.
  • The weighted average yield of the Company's investment portfolio as at 30
    September 2007 was 13.1% in local currency terms compared to 13.3% as at 30
    June 2007.
  • The Company's net leverage has increased from 3.0% as at 30 June 2007 to
    8.6% as at 30 September 2007.
  • On 15 October 2007, the Company completed a tender offer pursuant to which
    approximately €25 million was returned to shareholders.
  • As of 15 November 2007, 5,701,637 ordinary shares have been purchased for
    cancellation since 30 June 2007.



Portfolio Review



As at 30 September 2007, the Company's portfolio of UK mortgage, European
mortgage and SME residual investments comprised 80.3% of the Company's
gross-asset value.  The Company's investments are exposed to the US sub-prime
market through, firstly, a single mortgage-backed residual position and
secondly, through two ABS CDOs collateralised by asset pools containing US
sub-prime mortgage-backed bonds.  These three bonds accounted for 2.3% of the
Company's gross asset value.  A CDO, backed by US leveraged loans, accounted for
1.4% of the Company's gross asset value.   Cash balances accounted for 16.0% of
the Company's gross asset value.



The cash generative capability of the portfolio remains strong with €24.6
million of cash proceeds being received in the quarter ended 30 September 2007
compared to €22.3 million received in the previous quarter. While the current
market volatility may have a negative impact on the fair value of the Company's
portfolio in future periods, the cash generative capability of the Company's
assets will not be affected by changes in market discount rates.



The Company's net leverage has increased to 8.6%(4) as at 30 September 2007 from
3.0% as at 30 June 2007. As at 31 October 2007, the Company had €22.2 million of
cash on the balance sheet and has drawn €45 million against its financing
facility.




Investment Portfolio



UK Mortgage Investments (33.3% of GAV)



No significant changes to the pricing assumptions of the Company's UK
mortgage-backed residual investments were made in the quarter.  The prepayment
data received in the quarter has been consistent with the Company's prepayment
assumptions. After giving effect to cash flows received in the quarter and
associated principal amortisations, there has been no material change to the
fair value of these investments as at 30 September 2007.



An extended dislocation in the UK mortgage market, if it were to occur, should,
in the aggregate, be neutral in terms of its impact on the valuation of the
Company's UK mortgage residual investments. Following a reduction in the
availability of mortgage credit, the rate of mortgage prepayments would be
expected to slow, extending the duration of the residuals, and thereby
increasing their value. However, the gain in the residual values would be
expected to be offset by an increase in arrears and defaults. The reduction in
residual values due to weaker credit should be limited because of the house
price appreciation that has occurred since the residuals were originated. For
example, the Company has three residual investments in its UK mortgage portfolio
with exposure to mortgages originated in the first half of 2006.  The average
LTV of these three residuals has reduced from 79% to 66% as a result of house
price appreciation(5).



To hedge against a substantial fall in UK house prices, the Company has
purchased €28 million of out of the money put options referencing the Halifax
house price index on 31 October 2007.





European Mortgage Investments (31.1% of GAV)



With respect to the European mortgage-backed residual portfolio, the
fundamentals underlying the performance of these investments remain sound.
After giving effect to cash flows received in the quarter and associated
principal amortisations, there has been no material change to the fair value of
these investments as at 30 September 2007.



In the past quarter, we began to observe increased borrower prepayment behaviour
associated with the Company's European mortgage portfolios. This increase in
prepayment rates has been in line with expectations. The default and recovery
experience in these investments has also been in line with expectations.





SME Investments (15.9% of GAV)



The Company's portfolio of SMEs residual investments is performing in line with
or better than expectations.  After giving effect to cash flows received in the
quarter and associated principal amortisations, there has been no material
change to the fair value of these investments as at 30 September 2007.



The observed default rates for the Company's SME portfolios remain in line with
expectations.  Furthermore, the expected default rates for the Company's SME
portfolios, based on the most recent credit scores for the underlying companies,
are also in line with or better than original pricing assumptions.




CDO Investments (2.8% of GAV)



The Company holds residual positions in three CDOs, two of which are exposed to
US mortgage assets.



As a result of the continued deterioration in the US ABS markets, the credit
performance of Cheyne ABS Investments I PLC ('ABS Investments I') has weakened.
Since inception, seven of the bonds in the portfolio have been upgraded and one
bond is on a positive rating watch with Moody's.  However, at present, four
bonds in the portfolio are on negative ratings watch. Depending on the extent of
the weakness in the US housing market, bonds in the ABS Investments I portfolio
may experience downgrades.  The fair value assigned to ABS Investments I as at
30 September 2007, assumes interest deferral and downgrades of bonds in the
portfolio.



Cheyne High Grade CDO, Ltd ('High Grade CDO') is a CDO backed by AAA to A-rated
ABS bonds and ABS Investments I is a CDO backed by the mezzanine tranches of US
ABS CDOs (including US RMBS CDOs). As at 30 September 2007, the credit
performance of High Grade CDO had been positive, with three rating upgrades and
no negative credit actions on the bonds contained in its portfolio.  Previously,
the asset manager of High Grade CDO had identified two bonds in the collateral
pool with potential credit issues. In the quarter ended 30 September 2007, these
bonds were sold and replaced with two bonds with an improved credit profile.



The market values of the two ABS CDO residuals have been adversely affected by
the recent volatility in the ABS markets.  In the quarter ended 30 September
2007, the fair value write-downs as a result of wider market discount rates and
changes in expected future cash flows reduced the fair value of these two assets
by 40.6%.



Cheyne CLO Investments I Ltd ('CLO Investments I') is backed by AA- to BBB-
rated US CLO bonds.  The performance of this collateral has exceeded original
pricing assumptions and two of the bonds in the portfolio have been upgraded
from BBB to A and AA, respectively.  There have been no downgrades or negative
watch warnings on any of the bonds in the portfolio.  The market discount rate
for the asset increased again in the quarter, resulting in fair value
write-downs reducing the fair value of the asset by approximately 20%. However,
the cash generative ability of this residual investment remains positive and is
in line with expectations.





US Mortgage Investment (0.9% of GAV)





The Company retains exposure to one US mortgage-backed residual investment.
Following revisions to the pricing assumptions in the quarter ended 30 June
2007, actual credit losses have been slightly better than forecast. However, the
lifetime cumulative loss assumption for the asset was unchanged in the quarter.
In addition, the market discount rate increased again in the quarter.



In the quarter ended 30 September 2007, the fair value write-downs as a result
of wider market discount rates and changes in expected future cash flows reduced
the fair value of this asset by 24.1%.






Portfolio Valuation



In accordance with the Company's valuation procedures, the fair value of the
Company's investments has been evaluated on the basis of performance, observable
market data and the Investment Manager's expectations regarding future trends.
After giving effect to the fair value write-downs taken in the quarter, the NAV
of the Company has decreased to €6.90 per share as at 30 September 2007 from
€7.01 per share as at 30 June 2007 (a decrease of 1.6%).



On 8 October 2007, the Company received approval from shareholders to proceed
with the repurchase of shares through the tender offer. Following the tender
offer, the NAV of the Company was €7.07 per share6.



The table below summarises the changes in fair values of the Company's
investment portfolio by asset class:


Asset Class            30 June 2007    30 September      Fair Value     % Change to        Cashflows       Cashflows
                      Fair Value1,2            2007    Change Since    30 June 2007  Received in the Received in the
                              (€mn)  Fair Value2 (€ 30 June 2007 (€      Fair Value    Quarter Ended   Quarter Ended
                                                mn)             mn)                  30 June 2007 (€    30 September
                                                                                                 mn)      2007 (€mn)
UK Mortgages                  123.7           108.8           -14.9          -12.0%                             16.6
                                                                                                12.8
Euro Mortgages                103.7           101.4            -2.3           -2.2%                              3.4
                                                                                                 4.7
SME                            52.3            51.9            -0.4           -0.8%                              3.2
                                                                                                 3.1
CDO                            13.5             9.1            -4.4          -32.6%                              0.9
                                                                                                 1.1
US Mortgages                    4.2             2.9            -1.3          -30.5%                              0.5
                                                                                                 0.6
Cash and Other Cash            54.8            52.3            -2.5           -4.7%
Equivalents
TOTAL3                        352.2           326.4           -25.8           -7.3%             22.3            24.6




3.       Fair values as at 30 June 2007 are expressed using 30 September 2007 
f/x rates.

4.       The fair value figures for 30 June 2007 and 30 September 2007 include
accrued income and, in the case of the UK mortgage residuals, the value of the
interest rate swaps.

3.   The values for each column may not sum to the total due to rounding
differences.

Fair value changes since 30 June 2007 include principal amortisations of the
residuals as a result of cash flows received in the quarter. There have been no
material fair value write-downs of the UK mortgage, European mortgage or SME
portfolios. The valuations of the US and ABS CDO portfolios continue to be
affected by increases in market discount rates, and in the case of the three
residuals with exposure to the US sub-prime mortgage market, deteriorations in
the cash flow expectations which resulted in material fair value write-downs in
the quarter.











6 Given the materiality of the tender offer, a pro-forma NAV is shown as at 8
October 2007. The pro-forma NAV is computed using the 30 September 2007 fair
values and by reducing the cash balance by €24,999,975 and the number of
outstanding shares by 4,504,500.

Portfolio Breakdowns



A breakdown of the Company's investment portfolio by jurisdiction (by reference
to underlying asset originator) is set out below. Percentages for each asset
class are in relation to the gross asset value of the Company's investment
portfolio.




Queen's Walk Portfolio Breakdown by Jurisdiction as at 30 June 2007 (1)


UK                                   42.3%
US                                   1.5%
CDO                                  4.7%
Germany                              12.4%
Holland                              4.9%
Italy                                8.4%
Portugal                             25.8%
Total (€mn)                          303.0

(1) Expressed using f/x rates as at 30 June 2007


Queen's Walk Portfolio Breakdown by Jurisdiction as at 30 September 2007


UK                                   39.7%
US                                   1.1%
Italy                                9.3%
Holland                              5.3%
Germany                              13.7%
Portugal                             27.6%
CDO                                  3.3%
Total (€mn)                          274.2





A breakdown of the Company's investment portfolio by asset type (by reference to
underlying asset collateral) is set out below. Percentages for each asset class
are in relation to the gross asset value of the Company's investment portfolio.




Queen's Walk Portfolio Breakdown by Jurisdiction as at 30 June 2007 (1)


Near Prime                           20.6%
Sub Prime                            21.0%
CDO                                  4.7%
SME                                  17.3%
Prime                                36.4%
Total (€mn)                          303.0

(1) Expressed using f/x rates as at 30 June 2007




Queen's Walk Portfolio Breakdown by Jurisdiction as at 30 September 2007


Near Prime                           19.7%
Sub Prime                            19.2%
CDO                                  3.3%
SME                                  18.9%
Prime                                38.8%
Total (€mn)                          274.2

Share Repurchases



On 8 October 2007, shareholders approved the Company's tender offer and on 15
October 2007, the Company repurchased for cancellation 4,504,500 shares at a
price of €5.55 per share.



As of 30 September 2007, the Company had purchased 991,354 shares through its
buy back programme at an average price of €5.04 per share. Through the period
from 1 October 2007 until 15 November 2007, the Company has purchased 205,783
shares at an average of €5.38 per share. Though the share buybacks have been
accretive to NAV, the number of shares which the Company has been able to
repurchase has been constrained by applicable limits on the number of shares
that can be purchased on any particular day and by the price at which the
Company can repurchase shares.



While the share price trades at a material discount to NAV, the Company believes
it is in the best interests of shareholders to continue with the share
buy-backs.



Related party transactions



Related party transactions are disclosed in note 19 to the condensed set of
financial statements.



Strategy and Market Outlook



The volatility in the ABS markets has continued in the quarter. The magnitude of
the credit deterioration in the US sub-prime mortgage and US ABS CDO markets has
increased substantially since 30 June 2007. What began as a dislocation in the
US sub-prime mortgage market has now had a much broader impact on the credit
markets.



In both the European and US asset-backed markets, there is likely to be a
long-term structural shift in the availability of credit to fund asset backed
lending. These changes will continue to develop over the coming months, with the
specific outcome difficult to predict at this stage. What is emerging appears to
be a re-pricing of senior or AAA rated risk and a substantial withdrawal of
mezzanine capital. We expect these changes to offer, in due course, the Company
significant investment opportunities.  However, with continued volatility in the
ABS markets, the Company will refrain from purchasing new assets in the near
term.



At present, the discount to the NAV at which the share price is trading, is an
opportunity for the Company to buyback shares and add value for existing
shareholders.  The Company intends to tender for €15 million of its issued share
capital.  Details of the tender offer will be sent to shareholders shortly.






Directors' Responsibility Statement



We confirm to the best of our knowledge:



a)      the interim accounts have been prepared in accordance with IAS 34;

b)      the interim management report (contained in the Chairman's Statement and
Investment Manager's report) includes a fair review of the information required
by DTR 4.2.7R (indication of important events during the first six months and
description of principal risks and uncertainties for the remaining six months of
the year); and

c)      the interim management report include a fair review of the information
required by DTR 4.2.8R (disclosure of related party transactions and changes
therein).



By order of the Board









Talmai Morgan                                      Christopher Spencer
Director                                           Director

26 November 2007                                   26 November 2007


Independent review report to Queen's Walk Investment Limited



We have been engaged by the company to review the condensed set of financial
statements of Queen's Walk Investment Limited (the 'Company') in the half-yearly
financial report for the six months ended 30 September 2007 which comprises the
consolidated income statement, the consolidated balance sheet, the consolidated
statement of changes in equity, the consolidated cash flow statement and related
notes 1 to 20. We have read the other information contained in the half-yearly
financial report and considered whether it contains any apparent misstatements
or material inconsistencies with the information in the condensed set of
financial statements.



This report is made solely to the company in accordance with International
Standard on Review Engagements 2410 issued by the Auditing Practices Board.  Our
work has been undertaken so that we might state to the company those matters we
are required to state to them in an independent review report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company, for our review work, for this
report, or for the conclusions we have formed.



Directors' responsibilities



The half-yearly financial report is the responsibility of, and has been approved
by, the directors.  The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure and Transparency Rules of the
United Kingdoms' Financial Services Authority.



As disclosed in note 2, the annual financial statements of the group are
prepared in accordance with IFRS.  The condensed set of financial statements
included in this half-yearly financial report has been prepared in accordance
with International Accounting Standard 34, 'Interim Financial Reporting'.



Our responsibility



Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.



Scope of Review



We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly, we
do not express an audit opinion.



Conclusion



Based on our review, nothing has come to our attention that causes us to believe
that the accompanying interim financial information is not prepared, in all
material respects, in accordance with International Accounting Standard 34 and
the Disclosure and Transparency Rules of the United Kingdom's Financial Services
Authority.



Emphasis of matter - Fair value of investments



Without qualifying our review conclusion we draw your attention to notes 2 and 3
to the interim accounts which describe the policy adopted by the Directors for
fair valuing the Group's investments. In accordance with this policy and the
requirements of International Accounting Standard 39 'Financial Instruments:
Recognition and Measurement', the Directors have estimated the fair value of the
investments at €269,274,302 at 30 September 2007.




Emphasis of matter - Fair value of investments (continued)



As described in notes 2 and 3 of the condensed set of financial statements, the
market for sub-ordinated asset-backed securities, including residual interest
positions is illiquid and there has been considerable volatility which has
effects on the fair value of the investments. As a result of this the fair value
estimates included in the interim accounts are subject to considerable
uncertainty. Different assumptions will impact the measurement of the
investments which may have an effect on the interim accounts. It is not possible
to quantify the potential effects of the resolution of this uncertainty



Deloitte & Touche LLP

Chartered Accountants

Guernsey, Channel Islands

26 November 2007



Notes: A review does not provide assurance on the maintenance and integrity of
the website, including controls used to achieve this, and in particular on
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 the United Kingdom and Guernsey governing the preparation and
dissemination of financial information differs from legislation in other
jurisdictions.






Unaudited Condensed Consolidated Income Statement

For the period from 1 April 2007 to 30 September 2007

                                                                             Total           Total
                                Revenue return  Fair value gains   Period ended 30    Period ended
                          Note                        and losses    September 2007    30 September
                                                                                              2006
                                          Euro              Euro              Euro            Euro
                                                                                                  
Operating income             4      21,979,782                 -        21,979,782      33,247,197
                                                                                                  
Gains and losses on          4               -      (19,621,105)      (19,621,105)     (2,579,803)
fair value through                                                                
profit or loss                               
financial instruments
                                    21,979,782      (19,621,105)         2,358,677      30,667,394
                                                                                                  
Operating expenses           5     (4,072,900)                 -       (4,072,900)     (6,162,945)
                                                                                                  
Finance costs                6     (2,078,364)                 -       (2,078,364)     (2,954,472)
                                                                                                  
Net (loss)/profit                   15,828,518      (19,621,105)       (3,792,587)      21,549,977
                                                                                                  
(Loss)/Earnings per          8                                                                    
Ordinary Share
Basic                                                                  Euro (0.09)       Euro 0.53
Diluted                                                                Euro (0.09)       Euro 0.53
                                                                                                  
Weighted average             8                                                                    
Ordinary Shares                                                             Number          Number
outstanding
Basic                                                                   40,376,640      40,620,756
Diluted                                                                 40,376,640      40,721,759







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



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



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






Unaudited Condensed Consolidated Statement of Changes in Shareholders' Equity

For the period from 1 April 2007 to 30 September 2007


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

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

Net loss for the period                  -               -               -           -      (3,792,587)   (3,792,587)
Total recognised income and              -               -               -           -      (3,792,587)   (3,792,587)
expense

Repurchase of Ordinary   16              -               -     (5,004,332)           -                -   (5,004,332)
Shares

Transfer from other      17              -               -   (122,000,000)           -      122,000,000             -
reserve to accumulated
profits

Distribution to the      7               -               -               -           -     (12,037,523)  (12,037,523)
Ordinary Shareholders
of the Company

Balance at 30 September 2007             -               -     257,673,972   7,672,500        7,972,771   273,319,243



The accompanying notes form an integral part of the financial statements


Unaudited Condensed Consolidated Statement of Changes in Shareholders' Equity
(continued)

For the period from 1 April 2006 to 30 September 2006


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

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

Net profit for the                       -               -               -           -       21,549,977    21,549,977
period
Total recognised income and              -               -               -           -       21,549,977    21,549,977
expense

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

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

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




Unaudited Condensed Consolidated Balance Sheet

As at 30 September 2007
                                                                        Note       30 September           31 March  
                                                                                           2007               2007
                                                                                           Euro               Euro
Non-current assets
Investments at fair value through profit or loss                         10         269,274,302        366,743,454

Current assets
Cash and cash equivalents                                                            52,250,434         22,026,122
Derivative financial assets - unrealised gain on forward exchange        12
contracts                                                                               140,883              5,330
Derivative financial assets - unrealised gain on interest rate swap      12           1,517,985          2,174,398
agreements
Other assets                                                             11           3,393,751         36,155,394
                                                                                     57,303,053         60,361,244

Total assets                                                                        326,577,355        427,104,698

Equity and liabilities

Equity
Share capital                                                            16                   -                  -
Share premium account                                                    17                   -                  -
Other reserve                                                            17         257,673,972        384,678,304
Capital reserve in respect of share options                              19           7,672,500          7,672,500
Accumulated profits/(losses)                                                          7,972,771       (98,197,119)
                                                                                    273,319,243        294,153,685
Current liabilities
Repurchase agreements                                                    14                   -        119,773,090
Distribution payable                                                     7            5,944,410          9,342,774
Derivative financial liabilities - unrealised loss on forward            12             546,476            505,439
exchange contracts
Other liabilities                                                        15           1,767,226          3,329,710
Total liabilities                                                                     8,258,112        132,951,013

Non-current liabilities
Loans                                                                    13          45,000,000                  -

Total liabilities                                                                    53,258,112        132,951,013

Total equity and liabilities                                                        326,577,355        427,104,698




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



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



Signed on behalf of the Board of Directors by:






Director                                                            Director


Unaudited Condensed Consolidated Cash Flow Statement

For the period ended 30 September 2007


                                                                  Note         Period ended 30     Period ended 30
                                                                                September 2007      September 2006
                                                                                          Euro                Euro
Net cash inflow from operating activities                          18              125,403,584           9,023,171

Financing activities
     Repurchase of ordinary shares                                 16              (5,004,332)                   -
     (Repayment of)/borrowings under repurchase agreements                       (119,773,090)          38,696,953
     Proceeds from loans                                           13               45,000,000                   -
     Dividends paid to shareholders                                               (15,435,887)        (20,310,378)
Cash flows from financing activities                                              (95,213,309)          18,386,575

Net increase in cash                                                                30,190,275          27,409,746

Reconciliation of net cash flow to movement in net cash
     Net increase in cash and cash equivalents                                      30,190,275          27,409,746
     Cash and cash equivalents at start of period                                   22,026,122        (13,852,740)
     Effect of exchange rate fluctuations on cash and cash                              34,037                   -
     equivalents
Cash and cash equivalents at end of period                                          52,250,434          13,557,006











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 30 September 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.



2.    Significant accounting policies

Basis of preparation

The interim accounts have been prepared using accounting policies consistent
with International Financial Reporting Standards ('IFRS') and in accordance with
IAS 34 'Interim Financial Reporting'. The same accounting policies, presentation
and methods of computation are followed in these interim accounts as applied in
the Company's latest annual audited financial statements dated 31 March 2007.



The Financial Statements of the Group are prepared 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 by reference to market information, which includes but
is not limited to broker marks, prices on comparable assets and a pricing model
that incorporates 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 and note 3 - Critical accounting judgements and key sources of estimation
uncertainty 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.


2.    Significant accounting policies (continued)

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 30
September 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.


2.    Significant accounting policies (continued)

Derivative financial instruments (continued)

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 by reference to
market information which includes but is not limited to broker marks, prices on
comparable assets and 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.




2.    Significant accounting policies (continued)

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.




2.    Significant accounting policies (continued)

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.  Where there is a carry value
reduction driven by lower cashflow expectations, interest income will be reduced
as it reflects the reduced cashflow expectations.


3. Critical accounting judgements and key sources of estimation uncertainty
(continued)

Valuation of investments

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 market information,
which includes but is not limited to broker marks, prices on comparative assets
and a pricing model, that incorporates discounted cash flow techniques as
required by IAS 39.  However broker marks may not be indicative of the price
that those brokers would typically buy and sell the investments.



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.  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.



4.    Operating income and gains and losses on fair value through profit or loss
financial instruments
                                                                              Period ended 30       Period ended 30
                                                                               September 2007        September 2006
                                                                                         Euro                  Euro

     Interest income from cash and cash equivalents                                   479,326               147,289
Interest income from investments at fair value through profit or loss              20,262,753            32,063,787
     Interest income from commercial paper                                                  -               240,196
     Interest income from swap agreements                                           1,237,703               795,925
Interest income                                                                    21,979,782            33,247,197

     Net realised gains from swap agreements                                                -                78,052
Net realised foreign exchange gains/(losses)                                        4,843,070           (2,731,702)
Net realised (losses)/gains on investments in asset-backed securities            (32,199,740)               366,764
Realised loss on total return swap agreements                                    (36,056,244)                     -
Net realised losses on investments at fair value through profit or               (63,412,914)           (2,286,886)
loss, swaps and foreign currency

Net movement in unrealised losses on interest rate swap agreements                  (656,413)                     -
(note 12)
Net movement in unrealised gains on total return swap agreements                   36,453,698                     -
Net movement in unrealised gains on investments at fair value through               7,198,458                     -
profit or loss
Net movement in unrealised gains on foreign exchange bank balances                     34,037                     -
Net movement in unrealised gains/(losses) on foreign exchange                         762,029             (292,917)
Net movement in unrealised gains/(losses) on investments at fair value             43,791,809             (292,917)
through profit or loss, swaps and foreign currency
Losses on fair value through profit or loss instruments                          (19,621,105)           (2,579,803)


5.    Operating expenses
                                                                         Period ended 30         Period ended 30
                                                                          September 2007          September 2006
                                                                                    Euro                    Euro
Investment management, custodian and administration fees
Investment management (note 19)                                                2,370,535               3,099,819
Incentive fee (note 19)                                                                -               1,634,733
Administration fee (note 19)                                                     288,987                 180,210
Custodian fee (note 19)                                                            6,951                  55,399
                                                                               2,666,473               4,970,161
Other operating expenses
Audit fees                                                                        85,232                  81,103
Non-audit fees                                                                         -                 248,668
Directors' fees payable to Directors of Queen's Walk                             120,000                 120,000
Investment Limited
Directors' fees payable to Directors of Trebuchet Finance                         13,855                  25,000
Limited
Legal fees                                                                       203,315                 123,294
Pricing expenses                                                                 179,239                       -
Loan facility structuring fee                                                    150,000                       -
Margin Commission                                                                388,816                       -
Other expenses                                                                   265,970                 594,719
                                                                               1,406,427               1,192,784

Total operating expenses                                                       4,072,900               6,162,945



The Company has no employees.



6.    Finance costs
                                                                         Period ended 30         Period ended 30
                                                                          September 2007          September 2006
                                                                                    Euro                    Euro
Finance costs arises from:
Total return swap agreements (note 10)                                                 -                 224,748
     Interest on loan facility                                                   557,279                       -
     Repurchase agreements                                                     1,521,085               2,729,724
     Total finance costs                                                       2,078,364               2,954,472



7.    Dividends
                                                                         Period ended 30         Period ended 30
                                                                          September 2007          September 2006
                                                                                    Euro                    Euro
Interim dividend for the period ended 31 March 2006                                    -               9,748,981
First interim dividend for the year ended 31 March 2007                                -              10,561,397
Fourth interim dividend for the year ended 31 March 2007                       6,093,113                       -
First interim dividend for the year ended 31 March 2008                        5,944,410                       -
Amounts recognised as distributions to equity holders in the
period                                                                        12,037,523              20,310,378
                                                                              




7.    Dividends (continued)

A fourth interim dividend for the year ended 31 March 2007 of Euro 6,093,113 was
paid on 31 July 2007.

A first interim dividend for the year ended 31 March 2008 of Euro 5,944,410 was
paid on 5 October 2007.



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.



The Directors have declared a second interim dividend for the year ended 31
March 2008 of Euro 0.15 per share on 26 November 2007.



8.    (Loss)/Earnings per share
                                                                         Period ended 30         Period ended 30
                                                                          September 2007          September 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                        (3,792,587)              21,549,977
Weighted average number of Ordinary Shares for the purposes of                40,376,640              40,620,756
basic earnings per share


Effect of dilutive potential Ordinary Shares:
     Share options                                                                     -                 101,003
Weighted average number of Ordinary Shares for the purposes of                40,376,640              40,721,759
diluted earnings per share




There is no dilution as at 30 September 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:
                                                                            30 September                31 March
                                                                                    2007                    2007
                                                                                    Euro                    Euro

Asset-backed securities (see note 13)                                        269,274,302             349,042,564
Total return swap agreements                                                           -              17,700,890
                                                                             269,274,302             366,743,454


                                                                            30 September                31 March
                                                                                    2007                    2007
Asset-backed securities                                                             Euro                    Euro

Opening cost                                                                 430,814,877             493,805,573
Purchases                                                                     21,118,567              89,062,259
Sales proceeds                                                              (51,946,007)            (88,060,953)
Realised loss                                                               (32,199,740)             (3,673,475)
Principal paydowns                                                          (23,939,540)            (60,318,527)
Closing cost                                                                 343,848,157             430,814,877
Unrealised losses                                                           (74,573,855)            (81,772,313)
Asset-backed securities at fair value                                        269,274,302             349,042,564


                                                                            30 September                31 March
                                                                                    2007                    2007
Total Return Swap agreements                                                        Euro                    Euro

Opening cost                                                                  89,547,313                       -
Purchases                                                                              -              91,716,543
Sales proceeds                                                              (53,491,069)                       -
Realised loss                                                               (36,056,244)                       -
Principal paydowns                                                                     -             (2,169,230)
Closing cost                                                                           -              89,547,313
Financing                                                                              -            (35,392,725)
Unrealised losses                                                                      -            (36,453,698)
Total Return Swap agreements at fair value                                             -              17,700,890



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).



11.  Other assets
                                                                        30 September 2007           31 March 2007
                                                                                     Euro                    Euro

Interest receivable                                                             3,393,751              10,687,357
Amounts receivable on securities sold                                                   -              25,468,037
                                                                                3,393,751              36,155,394



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 30 September
2007:


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

31 December 2007                                        Euro 21,061,709      USD 29,800,000              140,883

31 December 2007                                       Euro 116,933,307      GBP 82,300,000            (546,476)



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)



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 swaps hedge against interest rate risk on fixed rate mortgage loans. 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. Three balance-guaranteed interest rate swaps remain
unsettled as at 30 September 2007. The aggregate fair value of these swap
agreements as at 30 September 2007 was Euro 1,517,985 (31 March 2007 was Euro
2,174,398).



The following balance-guaranteed interest rate swaps were unsettled at 30
September 2007:


Termination Date      Reference Transaction             Initial Notional                         Unrealised Gain

                                                          Amount (GBP)                                      Euro
12 June 2008          RMAC 2005-NS3                             4,064,632                                 38,575
12 June 2008          RMAC 2005-NS4                            13,843,310                                114,850
1 December 2008       Newgate 2006-1                          275,208,993                              1,364,560
                                                                                                       1,517,985




12.  Derivative contracts (continued)

The following balance-guaranteed interest rate swaps were unsettled at 31 March
2007:


Termination Date      Reference Transaction             Initial Notional                        Unrealised 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.  Loans

On 17 July 2007, the Group drew down Euro 45,000,000 on its four year Euro
135,000,000 loan facility arranged and placed by Deutsche Bank AG, London. The
assets of Queen's Walk Investment Limited are provided as security against the
loan. Proceeds from the loan facility were used to repay the Company's
short-term repurchase agreements.



It is expected that the Company shall repay all outstanding loans in full and
pay all other unpaid sums 12 months following the end of the reinvestment
period, which is the fourth anniversary of the closing date or the date on which
Investment Manager resigns.



The fair value of the loan may be lower than the book value given that, at the
present time, lenders are reluctant to provide financing for the type of assets
held by the Group at the interest rate currently paid by the Group. However it
is not practical or possible to measure the fair value of the loan due to the
current market conditions.



14.  Repurchase agreements
                                                                        30 September 2007           31 March 2007
                                                                                     Euro                    Euro

Repurchase agreements                                                                   -             119,773,090
                                                                                        -             119,773,090



Asset-backed securities totalling Euro nil (31 March 2007: Euro 257,625,755)
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%; GBP: 6.43%; and USD: 6.32%. The repurchase agreements
outstanding at 31 March 2007 matured between 10 April 2007 and 18 April 2007.



15.  Other liabilities
                                                                           30 September 2007        31 March 2007
                                                                                        Euro                 Euro

Interest payable                                                                     129,263              357,873
Due to related parties - Investment Manager (note 19)                              1,174,297              968,826
Accrued expenses                                                                     463,666            2,003,011
                                                                                   1,767,226            3,329,710



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


Ordinary shares of no par value each                                             Authorised share capital
                                                                               30 September        31 March 2007
                                                                                       2007
                                                                                    Number               Number
Balance at of start and end of period/year                                        Unlimited            Unlimited


Ordinary shares of no par value each                                               Issued and fully paid
                                                                               30 September        31 March 2007
                                                                                       2007
                                                                                    Number               Number
Balance at of start period/year                                                  40,620,756           40,620,756
Repurchase of Ordinary Shares                                                     (991,354)                    -
Balance at end of period/year                                                    39,629,402           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.



During the period 18 July 2007 to 31 August 2007 the Company repurchased 991,354
of its existing Ordinary Shares out of reserves, at an average price of Euro
5.04. Once purchased, these Ordinary Shares were cancelled and are not available
for re-issue. The purpose of this share buy back is to reduce the capital of the
Company. Another share repurchase agreement was entered into on 28 September
2007.



Under Guernsey law a capital redemption reserve is created for the redemption of
these Ordinary Shares. As the nominal value of these Ordinary Shares is Euro
nil, the amount to be transferred to this reserve is Euro nil.




17.  Share premium account and other reserve



Share Premium account
                                                                           30 September 2007        31 March 2007
                                                                                        Euro                 Euro

Balance at start of period/year                                                            -                    -
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 Shares                                          -          (7,672,500)
Cancellation of share premium transferred to other reserve                                 -        (384,631,589)
Balance at end of period/year                                                              -                    -



Other Reserve
                                                                           30 September 2007        31 March 2007
                                                                                        Euro                 Euro

Balance at start of period/year                                                  384,678,304          384,631,589
Overaccrual of costs related to issuance of Ordinary Shares                                -               46,715
Repurchase of Ordinary Shares (note 16)                                          (5,004,332)                    -
Transfers from distributable reserves to accumulated profits                   (122,000,0000
Balance at end of period/year                                                    257,673,972          384,678,304



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 transfer to the accumulated profit/loss reserve has been made by the
Directors to satisfy the requirements of the Companies (Guernsey) Law, 1994,
that the Group has sufficient distributable reserve available for the payment of
its dividends.



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
                                                                            Period ended 30          Period ended
                                                                             September 2007     30 September 2006
                                                                                       Euro                  Euro
Net (loss)/profit                                                               (3,792,587)            21,549,977
Adjustments for:
Net realised losses/(gains) on sale of asset backed securities                   32,199,740             (366,764)
Net realised losses on total return swap agreements                              36,056,244                     -
Movement in unrealised gains on asset backed securities                         (7,198,458)                     -
Movement in unrealised gains on total return swap agreements                   (36,453,698)                     -
Movement in unrealised losses on interest rate swap agreements                      656,413                     -
Movement in unrealised gains on foreign currency bank balances                     (34,037)                72,241
Movement in unrealised gains on foreign exchange forward contracts                 (94,516)              (67,798)
                                                                                 21,339,101            21,187,656

Purchases of asset-backed securities                                           (21,118,567)          (38,187,842)
Sales proceeds from asset-backed securities                                      77,414,044            35,940,947
Principal paydowns                                                               23,939,540            31,239,686
Net sales on total return swap agreements                                        18,098,345                     -
Purchases of total return swap agreements                                                 -          (41,755,253)
                                                                                 98,333,362          (12,762,462)

Decrease in receivables                                                           7,293,606               382,599
(Decrease)/increase in payables                                                 (1,562,484)               215,378
                                                                                  5,731,122               597,977
Net cash inflow from operating activities                                       125,403,584             9,023,171



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.



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 period ended 30 September 2007, the Management Fee
totalled Euro 2,370,535 (2006: Euro 3,099,819) of which Euro 1,174,297 (2006:
Euro 968,826) is payable at period end. The Incentive Fee totalled Euro nil
(2006: Euro 1,634,733).



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.


19.  Material agreements and related party transactions (continued)



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 ' 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 30 September 2007, the Company held investments with a total value of Euro
12,833,331 (31 March 2007: Euro 23,846,289) 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.


19.  Material agreements and related party transactions (continued)



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 30 September 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



The Company, through a Tender Offer, returned Euro 24,999,975 in cash through a
purchase of 4,504,500 of its existing Ordinary Shares. Those Ordinary Shares
were cancelled and will not be available for re-issue. The shareholders approved
the Tender Offer at an EGM held on 8 October 2007.



Through the period from 1 October 2007 until 15 November 2007, the Company has
purchased an additional 205,783 shares at an average price of Euro 5.38 per
share.



On 31 October 2007, the Company purchased Euro 28 million of out of the money
put options on the Halifax house price index.



--------------------------


(1) Net of cash proceeds required to settle the tender offer and pay the 30 June
2007 dividend.


(2) House price appreciation is calculated by applying the house price change as
provided in the Nationwide or Halifax House Price Indices, to each loan in the
portfolio based on its regional classification and date of completion of the
mortgage loan.


(3) Given the materiality of the tender offer, a pro-forma NAV is shown as at 8
October 2007. The pro-forma NAV is computed using the 30 September 2007 fair
values and by reducing the cash balance by €24,999,975 and the number of
outstanding shares by 4,504,500.




(4) Net of cash proceeds required to settle the tender offer and pay the 30 June
2007 dividend.


(5) House price appreciation is calculated by applying the house price change as
provided in the Nationwide or Halifax House Price Indices, to each loan in the
portfolio based on its regional classification and date of completion of the
mortgage loan.


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