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CQS RIG Finance Fund LTD (RIG)

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Monday 28 January, 2008

CQS RIG Finance Fund LTD

Annual Report and Accounts

                         CQS RIG FINANCE FUND LIMITED                          

                         AUDITED FINANCIAL STATEMENTS                          

                     FOR THE PERIOD FROM INCORPORATION ON                      

                     8 NOVEMBER 2006 TO 30 SEPTEMBER 2007                      

Chairman's Statement


I am delighted to present the Company's first Annual Report and I would like to
welcome all of our shareholders to the company, especially those who
participated in CQS Rig Finance Fund from inception.

Launch of the Company

The Company's ordinary shares were admitted to trading on AIM on 18 December
2006, and listed on the Channel Islands Stock Exchange on the same date. The
Company invests primarily in debt instruments issued to finance the
construction, modification and/or refurbishment of rigs and other
infrastructure and/or equipment used for the offshore exploration and
production of oil and natural gas.

The Company's investment objective is to provide shareholders with an
attractive total return, primarily through income, with scope for capital
appreciation. The Company targets, in the absence of unforeseen circumstances,
an annualised gross dividend yield of 8 per cent per annum of the Net Asset
Value of the Company at the start of each financial year.

Investment Performance

The Company's Investment Adviser is CQS Investment Management Limited
("CQSIML"). CQSIML replaced CQS (UK) LLP as Investment Adviser effective 1 July
2007, as contemplated in the Company's Admission Document issued in December
2006. The Investment Adviser is part of CQS, a global alternative asset
manager, founded in 1999, managing a portfolio of market-neutral, absolute
return funds, multi-asset directional portfolios, loan portfolios and listed

Performance for the period under review has been very satisfactory. A number of
milestones have been met or surpassed and the Company has met its investment
targets. The Investment Adviser was able to acquire qualifying investments for
the Company such that the target gearing of 100% was achieved earlier than
expected, as announced on 13 March 2007. It is also pleasing to report that as
at 28 September 2007, the Company's shares have produced a net return to
investors of 6.39% since inception, representing an annualised net return of
8.28%.The Company's Net Asset Value rose to 99 pence at that date and the
Company's shares closed at 1021 pence, representing a 3.03% premium to Net
Asset Value.


The Company has met its target for dividend distributions. Total dividends paid
during the period to 30 September 2007 were 4.17 pence per share. The first
interim dividend in respect of the period ending 31 March 2007, of 2.22 pence
for each ordinary share, was announced on 18 May 2007 and paid on 11 June 2007.
The second interim dividend in respect of the period ending 30 June 2007, of
1.95 pence for each ordinary share, was announced on 17 August 2007 and paid on
10 September 2007. The third dividend in respect of the period ending 30
September 2007, of 1.95 pence for each ordinary share was announced on 5
November 2007, and was paid on 17 December 2007.

Additional Capital Raising

As announced on 1 October 2007, the Board decided to expand the Company through
a placing of C shares at 100 pence per share. The Board's decision was based on
the continuing attractive investment opportunities in the "offshore oil and gas
exploration infrastructure sector" and demand from both existing shareholders
and potential new investors. I am pleased to be able to report that the Company
raised £49 million net of set up costs.

Annual General Meeting

While the first accounts will be for the period to 30 September, due to Company
law requirements, we will be holding the first Annual General Meeting at the
offices of Kleinwort Benson (Channel Islands) Fund Services Limited on 12
February 2008.


With the continuing high oil price, the increasing demand for liquefied natural
gas and commensurate robust forecasts for increasing capital expenditure by
major oil and gas companies, the outlook for the Company appears to be
extremely encouraging. The current and projected business environment for the
sector, should provide a continuing portfolio of attractive investment
opportunities. The sector continues to be strong, demonstrating its robustness
in the recent market disruptions.

I am extremely pleased with the Company's performance thus far and I look
forward to reporting further positive progress in the future.

Michael Salter


On behalf of the Board

CQS Rig Finance Fund Limited

1Source: Bloomberg

Investment Manager's Report

Energy Markets

The strength of oil prices during the period to 30 September 2007 provided a
positive backdrop for the Company. Energy prices ended sharply higher, with WTI
crude oil prices having rallied from $61 at the end of December 2006, to reach
over $80 by the end of September 2007. The strength of the oil price reflected
persistent geopolitical tensions and a continued supply/demand imbalance due to
robust demand from the US, China, and India. Of particular relevance to the
Company is that worldwide exploration and production capital expenditure growth
forecasts for 2007 have increased from an estimated $292 billion at the end of
2006 (a 9% rise over 2006), to $308 billion (a 13% rise over 2006) at the end
of June 2007, suggesting a continued positive outlook for offshore oil and gas
infrastructure demand.

Investment Performance and the Portfolio

During the first quarter of 2007, the Company took advantage of the strong new
issuance calendar, augmented with selective secondary market trading, to
acquire further qualifying investments such that the target gearing of 100% was
achieved earlier than originally anticipated. The Company also benefited from
the general tightening of credit spreads across the portfolio of secured bonds.
However, credit spreads widened in the second quarter, and in July and August,
world financial markets experienced increased levels of volatility following
widespread contagion in reaction to the US sub prime and ABS troubles. These
market dislocations resulted in mark downs of bonds by market makers as some
investors sought to sell positions to raise liquidity. While this impacted the
Company's performance during the third quarter, we believe the volatility of
these bonds was generally more muted than that seen in the wider European high
yield and leveraged loan markets; this was in part due to the strength of the
oil and gas services sector and to the bonds' non-structured character and
strong security/covenant packages. As such, returns were generally uncorrelated
to the wider credit markets.

Another feature of the oil services sector during the second and third quarters
was growing corporate activity; a notable example was the merger announced
between Transocean Inc. and GlobalSantaFe Corp. The Company benefited from both
corporate activity and the improving cash flows in the oil services sector and
generated returns from the selective sale of bonds that had appreciated to
target levels, as well as a positive credit event due to the acquisition of a
company in whose bonds the Company was invested. This acquisition triggered a
change of control clause resulting in the redemption of bonds held in the
Company at a premium to par value. More recently, we took advantage of price
movements to switch some of the Company's holdings into what we perceived to be
attractively priced positions.

During the course of the year, the Company's portfolio has diversified away
from pure drilling rigs and into seismic vessels, floating production units and
sub-sea infrastructure - consistent with our belief that the portfolio should
seek to capture the progression of the offshore oil and gas services investment


We believe strong oil prices will further underpin energy companies' capital
expenditure on infrastructure, services and related equipment. Both the
availability of appropriately skilled personnel and shipyard and related
industrial capacity for jack-up and semi-submersible drilling rigs continue to
remain tight in the current environment. We feel that the future outlook for
energy commodity prices suggests a healthy environment for oil and gas
infrastructure investment and that the fundamentals supporting the Company
remain robust.

CQS Cayman Limited Partnership

Income Statement

                                                  Notes             Period from
                                                             8 November 2006 to
                                                              30 September 2007
Operating income                                    3                 5,670,122
Operating expenses                                                             
Other operating expenses                            4                 (847,201)
Finance costs                                                       (1,960,641)
Total operating expenses                                            (2,807,842)
Net profit                                                            2,862,280
Earnings per Ordinary Share                         5                          
Basic & Diluted                                                           5.72p

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 (available on the company website) form an integral part
of the financial statements.

Statement of Changes in Shareholders' Equity

                              Share        Share      Other Accumulated       Total
                            Capital      Premium    Reserve     Profits            
                       Notes    GBP          GBP        GBP         GBP         GBP
Balance at 8 November             -            -          -           -           -
Net profit for the                -            -          -   2,862,280   2,862,280
                                  -            -          -   2,862,280   2,862,280
Total recognised income and                                                        
Issuance of Ordinary    11        -   50,000,000          -           -  50,000,000
Costs related to        11        -  (1,275,325)          -           - (1,275,325)
issuance of Ordinary                                                               
Transfer to other       11        - (48,724,675) 48,724,675           -           -
Dividends paid to       15        -            -            (2,085,000) (2,085,000)
Balance at 30 September 2007      -            - 48,724,675     777,280  49,501,955

The accompanying notes (available on the company website) form an integral part
of the financial statements.

Balance Sheet

                                                        Notes      30 September
Non-current assets                                                             
Investments at fair value through profit or loss          6         104,367,052
Current assets                                                                 
Derivative financial assets - unrealised gain on          7             971,825
forward exchange contracts                                                     
Total assets                                                        105,338,877
Equity and liabilities                                                         
Share capital                                             10                  -
Share premium account                                     11                  -
Other reserve                                             11         48,724,675
Accumulated profits                                                     777,280
Current liabilities                                                            
Interest-bearing borrowings                               8          53,751,884
Payable for securities purchased                                      1,586,660
Other liabilities and payables                            9             498,378
Total liabilities                                                    55,836,922
Total equity and liabilities                                        105,338,877

The accompanying notes (available on the company website) form an integral part
of the financial statements.

Cash Flow Statement

                                                    Notes           Period from
                                                             8 November 2006 to
                                                              30 September 2007
Net cash outflow from operating activities            12           (98,682,451)
Financing activities                                                           
Proceeds from issuance of Ordinary Shares             11             50,000,000
Costs related to issuance of Ordinary Shares          11            (1,275,325)
Interest expense paid                                               (1,709,108)
Increase in interest bearing borrowings               8              53,751,884
Dividends paid to Shareholders                        15            (2,085,000)
Cash flows from financing activities                                 98,682,451
Net increase in cash and cash equivalents                                     -
Reconciliation of net cash flow to movement in net                             
Net increase in cash and cash equivalents                                     -
Effect of exchange rate fluctuations on cash and                              -
cash equivalents                                                               
Cash and cash equivalents at 8 November 2006                                  -
Cash and cash equivalents at end of period                                    -

The accompanying notes (available on the company website) form an integral part
of the financial statements.


Ann Spelman

Kleinwort Benson (Channel Islands) Fund Services Limited

Telephone (01481) 727111

NOMAD and Broker

Arbuthnot Securities Limited

Alastair Moreton

Telephone 020 7012 2138

Source: Bloomberg

Source: Lehman Brothers



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