GLIF.L Regulatory News (GLIF)

Greenwich Loan Income Fund Limited

Full Year Results 2010

28 March 2011

Greenwich Loan Income Fund Limited ("GLIF" or the "Company"), a close-ended Guernsey exempt investment company, investing in debt securities of companies across multiple sectors, today announces its audited results for the twelve months ended 31 December 2010. The Company's portfolio consists of corporate loans, almost all of which are held within the Company's collateralized loan obligation subsidiary, T2 CLO I Ltd, ("the CLO").

Financial highlights

·; Invested assets with a fair value of £161.5m (2009: £153.3m) and cash of £36.7m at 31 December 2010 (2009: £24.3m), of which £157.1m of the investments and £30.4m of cash are within the CLO structure.

·; Net asset value at 31 December 2010 of 79p per share (2009:70p).

·; Net profit, including the combination of net unrealized gains on investments and liabilities, for the period of £11.1m (2009: £2.0m).

·; Basic earnings per share of 12.7p (2009: 3.9p).

·; Dividends declared of 4.0p per share for the 12 month period to 31 December 2010 (2009: 2.0p).

·; Total shareholder return of 25.5% for the year.

·; Full interest payments made to the Company from the CLO, resulting in four quarters of dividend payments.

Outlook and strategy

·; Acquisition of Asset Management Investment Company (AMIC), completed in January and the Company continues to pursue opportunities to strengthen GLIF beyond its current assets and build the long-term prospects for dividend and capital growth.

·; Additional listing of the Company on the Channel Islands Stock Exchange (CISX) in February, providing GLIF with its first listing on a Recognised Stock Exchange and enabling investors to hold their investment in ISAs or PEPs.

·; Clarity on the longer-term investment parameters for the Company set out and agreed by shareholders in the amended investment policy.

·; The investment manager expects the senior secured loan market to continue to offer attractive investment opportunities and performance through 2011.

·; In February, profit realised on the Class B and Class D notes of the CLO purchased by the Company in June 2009.

Commenting, Geoffrey Miller, Chairman of GLIF, said:

"I'm pleased to announce another solid set of full year results from the Company, highlighted by steady NAV accretion and a consistent dividend. While this year has been one of continued progress for GLIF, it has also been one of significant and fundamental change.

"The first acquisition in the Company's history and the additional CISX listing has reestablished GLIF as a mainstream vehicle and forms part of our strategy to provide shareholders with enhanced long-term income and capital growth prospects. As the improving pricing environment in the loan market continues, we are well positioned to benefit from further opportunities and look forward to 2011 with renewed confidence."

For further information, please contact:

Geoffrey Miller

Greenwich Loan Income Fund Limited

+353 1 4433 466

Patrick Conroy

Greenwich Loan Income Fund Limited

+1 203 983 5282

Philip Secrett

Nominated Adviser

Grant Thornton Corporate Finance

+44 207 383 5100

Jos Trusted

Singer Capital Markets Limited

+44 (0) 20 3205 7622

Ed Gascoigne Pees

Financial Dynamics

+44 (0) 207 269 7132

CHAIRMAN'S STATEMENT

I am pleased to report the results of Greenwich Loan Income Fund Limited ("GLIF" or the "Company") for the year ended 31 December 2010. After the turbulence of the previous year, 2010 was a year of more measured progress on the surface, but significant and fundamental change beneath, which should give the Company a platform to optimise returns from an exciting asset class in the future.

Whilst 2009 could be characterised as a year of transition for the Company, towards a more mainstream investment company, 2010 was a year in which the Company reestablished itself as a mainstream vehicle with a strategy to develop long term value for shareholders. For the first time in the Company's history we agreed the acquisition of another investment company, Asset Management Investment Company plc ("AMIC") and we remain alert to other opportunities to enhance both capital and income.

Performance

The GLIF share price rose 10.4% from 26.5p to 29.25p during the year and the Company paid 4p in dividends, giving a total shareholder return of 25.5% for the year. This compares to a total shareholder return of 120.0% in 2009. Since the changes to the Board in the middle of 2009 the total shareholder return has been 226.2%. The S & P LSTA All Loans Index, which the Company's managers believe to be the most relevant index for against which to judge the performance, produced a 10.1% total return in 2010, 51.6% in 2009 and 26.3% since the changes to the Board. The market value return of the S & P LSTA All Loans Index for 2010 was 7.2%.

Just as importantly from a long-term shareholders' perspective, the extreme volatility of the preceding period has abated, without prospects for accretion of value for shareholders on a long term basis being diminished. A consistent and growing dividend has been paid for the last seven quarters. Shareholders who subscribed at launch and increased their holding through the share issue in 2009 are still some way from breaking even and this is something of which the Board is very aware and continues to focus on addressing.

AMIC acquisition

It was to this end that the Board has continually reviewed opportunities for acquisitions during the year. As I have made clear in previous statements, there are many opportunities within the debt markets, but we will not pursue any transaction that does not have the potential to be accretive to capital and income of GLIF without materially increasing the risk profile of the business.

With this in mind, AMIC the Board of GLIF identified AMIC as a potentially attractive acquisition and we approached the company at the beginning of June of 2010, to seek a recommendation for a deal which we felt was in the best interests of both sets of shareholders. We achieved a broad outline agreement at the end of October and the deal was formally announced in December and completed at the end of January 2011.

The AMIC transaction brings with it two debt instruments, that will complement the existing GLIF loan portfolio, and one high yielding equity position that ensures the transaction will be accretive in revenue terms. All of the investee businesses are financially sound, with a strong position in their respective fields.

Equally important in the process of the AMIC transaction, in terms of building GLIF for the long term, were the listing of the Company on the Channel Islands Stock Exchange ("CISX") and the amendment of the investment policy of the Company.

CISX listing

The listing on the CISX gives GLIF for the first time a listing on a Recognised Investment Exchange, and this allows our stock, for the first time, to be held by UK individuals in their ISA's. As an investment company that is seeking to provide a good and sustainable level of income, the ability for individuals to hold the shares in a tax efficient manner is vitally important.

Amended investment policy

The amendment to the investment policy provided an opportunity for the Company to set out longer-term parameters for its investments, to ensure that shareholders understood exactly what sort of exposure would be provided by GLIF in the future.

First and foremost was a commitment to the loan market. With the focus returning globally to rising interest rates, the loans market offers one of the few asset classes within the high yield arena to have the potential to perform well. When the name of the Company was changed in 2009 "Loan" was added to the name to indicate that this Company would continue to focus on the loan market, the amended investment policy reinforces this commitment.

Secondly, the amended policy discusses both direct and indirect investment in the loans market. We currently hold some loans directly, but the majority of our exposure is through T2 CLO I Ltd. This vehicle, consolidated in our balance sheet as we own 100% of the residual economics of the vehicle, gives us the economics of exposure to a portfolio of loans, leveraged through a very cheap debt facility of just 75 basis points over LIBOR until 2019. However, as the last three years have shown, such structures will trade at different values to the underlying loans at different points in the cycle. At some points it may be preferable to hold a structure, at certain points it may be better to hold loans directly. At all times we will retain exposure to the loan market but we want to ensure our investment managers have maximum flexibility to optimise that exposure as they see fit.

Thirdly the Company will continue to see US investment at the core of its investment process. There are opportunities elsewhere in the world and we may well seek to exploit these opportunities, but the US will remain a core part of our portfolio, as it is by far the largest and most liquid loan market in the world.

Finally the Company has put clear limits on the amount of non-loan assets that can be held without seeking shareholder approval. As companies emerge from the crisis, loans have been restructured and we now hold equity and warrants within GLIF as well as loans. Similarly, any transactions we look at are likely to come with assets other than loans. Whilst we do not ever want to see the focus of the Company drift from loans, we equally want to ensure that any opportunity to add value through an acquisition is not stymied by the requirement to hold nothing but loans. Indeed, it may be the "box-ticking" requirements of others that will allow us to acquire other assets at attractive prices in the future.

Future strategy

Thus far I have discussed the acquisition of assets, but equally important in the long term will be to recycle assets through sale. The loan market has seen a remarkable resurgence over the past year, but remains in a state of flux. If we see opportunities to dispose of any of our assets for better value exposure elsewhere we will not hesitate to do so, but always ensuring that our portfolio as a whole remains within the amended investment policy.

There appear many opportunities within the loan market currently, and the recovery in prices and volumes allows GLIF for the first time since I became Chairman to focus fully on optimising investor returns and not partly on maintaining cash flow within the Company.

Investor relations

I am aware that GLIF has not always been the easiest of vehicles to understand and that exacerbated the slump in the Company's share price in early 2009. Since becoming Chairman I have sought to give a greater level of explanation.

Last year we added two additional figures to our NAV announcements, to give greater clarity to the underlying value of the Company.

The value based upon assets at market value and liabilities at par was 45.4p per share as at 31 December 2010, compared to 14.8p as at 31 December 2009. This value is theoretical, since the assets within the CLO are required to remain invested, but it gives a figure based on the full extent of the Company's liabilities, rather than the market value of those liabilities, which is the IFRS basis for the NAV. The dramatic recovery reflects the gearing of returns offered by the CLO and the recovery in the US loan market

The value based upon CLO assets as calculated for interest diversion purposes, remaining assets at market, and liabilities at par was 52.8p per share as at 31 December 2010, compared to 48.5p as at 31 December 2009. This number is an indication of the underlying value within the CLO, with again the non-CLO assets at their market values. As this number is based on the performance of the loans and the companies rather than the market value it is a less volatile number than the market-based value.

In addition to striving to improve financial disclosure, the Company will continue to engage with the market and investors on as regular basis as is practical to further the understanding of the strengths of GLIF, the nature of its investments and its structure and the dynamics of the loan market.

Financials

As of 31 December 2010, the Company and its subsidiary CLO I (the "Group") had invested assets with a fair value of approximately £161.55 million, and cash of £36.67 million (including £30.45 million required to be retained within the CLO structure, available for new investment opportunities). The portfolio is comprised of variable rate investments and, on a weighted average basis, carried a spread of approximately 420 basis points over LIBOR. The Group's Net Asset Value per Share ("NAV") as of 31 December 2010 was 79p (31 December 2009: 70p). For the year ended 31 December 2010 the Group recorded a profit, including net unrealised gains on investments and liabilities, of approximately £11.05 million (31 December 2009: £2.04 million). Basic earnings per share for the period were approximately 12.66p (31 December 2009: 3.92p), and the total dividends per share in respect of the year 2010 were 4.0p (31 December 2009: 2.0p).

As we have previously described to shareholders, under International Financial Reporting Standards (IFRS), the consolidated results of operations for the Company include the impact of carrying its investments and its liabilities at fair value. Shareholders should be aware that the Company's realisation of the full NAV is unlikely. It should also be noted that because both the investment portfolio and the CLO loan notes are denominated in US dollars, the weakening of the USD versus the GBP over the course of the year has created unrealised Foreign Exchange ("FX") losses on the investment portfolio, and unrealised FX gains on the CLO loan notes. The net result of all these fair value and FX related changes are reflected in the consolidated financial results.

Prospects

We expect the loan market in 2011 to continue to offer attractive investment opportunities and performance. In addition, there are many opportunities that are presenting themselves currently to strengthen GLIF beyond its current assets and we will continue to evaluate each with a view to building long term prospects, both for the dividend and the capital of the business.

Geoff Miller

Chairman

23 March 2011

CONSOLIDATED AND COMPANY INCOME STATEMENTS

All of the profit for the current and prior years relates to the equity holders of the parent.

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

CONSOLIDATED AND COMPANY STATEMENTS OF COMPREHENSIVE INCOME

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

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

The financial statements were approved by the Board of Directors on 25 March 2011 and were signed on its behalf by:

Director: Patrick Firth

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

COMPANY STATEMENT OF FINANCIAL POSITION

The financial statements were approved by the Board of Directors on 25 March 2011 and were signed on its behalf by:

Director: Patrick Firth

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

CONSOLIDATED AND COMPANY STATEMENTS OF CHANGES IN SHAREHOLDER EQUITY

*During the year the Company made four dividend payments.

**During the prior year the Company made two dividend payments.

***Distributable reserves

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

CONSOLIDATED AND COMPANY STATEMENTS OF CASH FLOWS

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

NOTES TO THE FINANCIAL STATEMENTS

1. GENERAL INFORMATION

Greenwich Loan Income Fund Limited (the "Company") was incorporated and domiciled in Guernsey, Channel Islands, as a company limited by shares and with limited liability on 9 June 2005. The address of the registered office is P.O. Box 296, Sarnia House, Le Truchot, St Peter Port, Guernsey, GY1 4NA.

On 26 October 2009, the Company received approval from the Guernsey authorities to change its name from T2 Income Fund Limited to Greenwich Loan Income Fund Limited.

A Cayman Islands registered subsidiary company, T2 Income Fund CLO I Ltd. ("T2 CLO" or the "CLO"), was created on 11 October 2006. The CLO is a wholly owned subsidiary of the Company and the operating results are consolidated in these financial statements. The Group is comprised of the "Company" and the "CLO".

The Company is an investment company, and its investment policies and strategies are managed by an outside investment manager, T2 Advisers, LLC ("T2 Advisers" or the "Investment Manager"), a registered investment adviser in the United States, under the terms of an investment manager agreement. T2 Advisers is also the collateral manager for T2 CLO.

On 31 January 2011, the Company acquired a second wholly owned subsidiary, Asset Management Investment Company plc ("AMIC"). Subsequent to this transaction AMIC changed its name to Asset Management Investment Company Limited.

Investing Policy

The Group's investment policy is detailed on pages 4 and 5.

2. ACCOUNTING POLICIES

(a) Basis of preparation

The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the European Union, and all applicable requirements of the Guernsey Company Law, 2008. The financial statements have been prepared under the historical cost convention, apart from the inclusion of non-current asset investments, foreign currency derivatives and non-current liabilities at fair value through profit or loss. The principal accounting policies of the Group have remained unchanged from the previous year and are set out below.

(b) Basis of consolidation

The consolidated financial statements comprise the financial statements of Greenwich Loan Income Fund Limited and its subsidiary, T2 Income Fund CLO I Ltd. Subsidaries are all entities for which the Company has greater than 50 per cent of the ownership of the residual economic interest. The Company obtains and exercises control of its subsidiary through ownership of the income notes of the entity. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated in full on consolidation.

The Company carries its investment in the CLO subsidiary at fair value through profit or loss. This is based upon the fair value of the assets and liabilities held by the CLO, which the Directors consider to be indicative of fair value for financial reporting purposes; however, the disparity between the Company's NAV per share, as determined under IFRS, and share price is acknowledged by the Directors and in their opinion it is reflective of significant dislocations in the global credit markets as well as practical limitations on the Company's ability to realise the discount reflected in the fair value of the CLO loan notes, as well as disparity between valuations of portfolio investments and the likely sales price of such investments.

(c) Foreign currency translation

(i) Functional and presentation currency

The financial statements of the Company are presented in the currency of the primary economic environment in which the entity operates (its functional currency). The Directors have considered the primary economic currency of the Company and considered the currency in which the original finance was raised, distributions made, and ultimately what currency would be returned if the Company was wound up. The Directors have also considered the currency to which the underlying investments are exposed. On balance, the Directors believe Sterling best represents the functional currency of the Company and US Dollars the functional currency of the subsidiary. Therefore the books and records are maintained in Sterling and US Dollars respectively and for the purpose of the consolidated financial statements the results and financial position of the Group are presented in Sterling, which is the presentation currency of the Group.

(ii) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Consolidated Statement of Comprehensive Income.

Non-monetary items measured at historical cost are translated using the exchange rates at the date of the transaction (not retranslated). Non-monetary items measured at fair value are translated using the exchange rates at the date when fair value was determined.

Translation differences on non-monetary items are reported as part of the fair value gain or loss reported in the Consolidated Statement of Comprehensive Income.

(iii) Subsidiary company

The results and financial position of the subsidiary entity that has a functional currency different to the presentation currency is translated into the presentation currency as follows:

1. assets and liabilities of the Consolidated Statement of Financial Position presented are translated at the closing rate at the date of the year end;

2. income and expenses for the Consolidated Income Statement are translated at average exchange rates for the year (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

3. all resulting exchange differences are recognised in other comprehensive income and accumulated as a separate component of equity.

(d) Revenue recognition

Revenue is recognised as follows:

Other income - relates to bank interest received. Bank interest is recognised on an accruals basis.

Dividend income - dividend income is recognised when the right to receive payment is established.

(e) Expenditure

All expenses are accounted for on an accruals basis. The management fees, administration fees, finance costs and all other expenses (excluding set up expenses which were offset against share premium) are charged through the Consolidated Statement of Comprehensive Income.

(f) Taxation

The Company is exempt from Guernsey taxation under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989. A fixed annual fee of £600 is payable to the States of Guernsey in respect of this exemption.

(g) Share issue expenses

Share issue expenses of an equity transaction are accounted for as a deduction from equity (net of any income tax benefit) to the extent they are incremental costs directly attributable to the equity transaction that otherwise would have been avoided.

(h) Dividends

Dividend distributions to the Group's shareholders are recognised in the Group's financial statements in the period in which the dividends are paid.

(i) Cash and cash equivalents

Cash and cash equivalents includes cash in hand, deposits held on call with banks, bank overdrafts and other short term highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.

(j) Trade and other receivables

Receivables are recognised initially at fair value plus transaction costs that are directly attributable to their acquisition or origination. They are subsequently measured at amortised cost using the effective interest rate method less impairment.

(k) Trade and other payables

Payables are recognised initially at fair value and subsequently stated at amortised cost using the effective interest rate method.

(l) Investments and loan notes

(i) Financial assets and liabilities at fair value through profit or loss

Purchases and sales of all investments are recognised on trade date - the date on which the Group acquires or disposes of the economic benefits of the asset. All investments are initially recognised at fair value, and transaction costs for all financial assets and financial liabilities carried at fair value through profit or loss are expensed as incurred. Investments are derecognised when the rights to receive cash flows from the investments have expired or the Group has transferred substantially all risks and rewards of ownership.

The CLO loan notes were designated at fair value through profit or loss because the purpose of issuing the CLO loan notes was to be able to make investments in syndicated loans which were based upon the same or similar variable interest rates, and the fair value designation avoided an accounting mismatch between the sources of financing for the purchase of investments and the investments themselves. The Directors recognise that the magnitude of fair value movement of the CLO loan notes has been substantially greater than the movement of the investments, due to variations in the different markets in which these instruments are traded.

Unquoted equity security investments, at fair value through profit or loss, are valued in accordance with the International Private Equity and Venture Capital valuation guidelines or any other valuation model and techniques which can provide a reasonable estimate of fair value of the investment involved.

The fair value of financial instruments traded in active markets is based on quoted market prices at the year end date. The quoted market price used for financial assets held by the Group is the current bid price. The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. Valuation techniques used include the use of comparable recent arm's length transactions.

For broadly syndicated loans the Company receives market quotes from agent banks on a quarterly basis. In addition, because of the generally limited trading activity in the syndicated loan market in those instances where there has been a significant change in the credit profile of a portfolio company, the Investment Manager prepares an analysis of the portfolio companies' recent and projected financial performance as well as other relevant business developments. In those instances where the Investment Manager believes additional analysis is necessary, for example due to a significant change in the market quote without related transaction volume, an outside valuation firm will provide a valuation estimate based upon their proprietary methodologies and techniques. Factors considered in these independent valuation analyses include discounted cash flows, comparable company and comparable transaction analysis, and credit spread analysis based upon the independent valuation firms' view of the implied credit rating of the investment and the corresponding required spread in the marketplace. The Board considers all the information presented to it, including indicative bids, internal analysis, and independent valuations, in order to reach, in good faith, their fair value determination.

For bi-lateral loans, an independent third party performs portfolio company evaluations. As at 31 December 2010 and 31 December 2009, there were no bi-lateral loans in the Group's portfolio.

The fair value of the CLO loan notes is determined primarily by reference to a market value report provided by the independent broker-dealer which makes the market in the CLO notes. Due to the very limited trading activity in this security, and the significant dislocations which have occurred in the credit markets generally and in the CLO markets in particular, the Directors consider the market value report to be the best indicator of fair value for the notes. The market value report reflects the proprietary analysis of the broker-dealer, specifically considering the cash flows projections of the T2 CLO subsidiary, the credit quality of the investments included in the CLO, and the credit spread required by the marketplace for CLO notes with these particular characteristics. The Directors also consider any trading activity in the CLO notes, if any, as well as other indicators of value based upon discussions between the Investment Manager and the few holders of the notes. The Directors believe that the mid-market value report is the best reflection of fair value of the notes, consistent with the requirements of IFRS, and is consistent with the other factors which have been taken into consideration.

Gains and losses arising from changes in the fair value of the financial assets and liabilities at fair value through profit or loss are included in the Consolidated and Company Statements of Comprehensive Income in the period in which they arise.

Net income from financial instruments at fair value through profit or loss

Net income from financial instruments at fair value through profit or loss relates to financial assets and liabilities designated at fair value through profit or loss, and includes all realised and unrealised fair value changes, interest (using the effective interest rate method), dividends, finance costs and foreign exchange differences.

Total finance costs for period were GBP1,716,936 (31 December 2009: GBP2,711,017). These finance costs are for interest due to the loan note holders. Fair value of long-term notes outstanding at 31 December 2010 were GBP129,207,450 (31 December 2009: GBP117,354,993).

(ii) Derivative Financial Instruments

Derivatives are categorised as financial assets or liabilities held for trading and valued at fair value through profit or loss. There were no derivatives held by the Group as at 31 December 2010 (31 December 2009: none).

(iii) Subsidiary

Investment in subsidiary is initially recorded at cost. The Company carries its investment in the CLO subsidiary at fair value through profit or loss. This is based upon the fair value of the assets and liabilities held by the CLO, which the Directors consider to be indicative of fair value for financial reporting purposes. Through its ownership of the residual economic interest of T2 Income Fund CLO I Ltd the Directors consider the CLO to be a wholly owned subsidiary and the operating results are consolidated in these financial statements.

(m) Critical accounting estimates and judgements in applying accounting policies

The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The actual results may differ from the judgements, estimates and assumptions made by management, and will seldom equal the estimated results. The Group also makes assumptions on the classification of financial assets.

Investments and loan notes designated as financial assets and liabilities at fair value

The Group invests in broadly syndicated loans that have limited trading activity. The CLO loan notes in issue also trade infrequently. The fair value of such instruments is determined by using valuation techniques. Details of the assumptions used are given in the notes regarding financial assets and liabilities.

Unlisted Debt Securities and Unlisted Equity Securities

The Group can invest in financial instruments which are not quoted in active markets and may receive such financial instruments as distributions on certain investments. Fair values are determined by using valuation techniques. Where valuation techniques, such as the Market Capitalisation Approach, are used to determine fair values they are carried out by an independent valuation firm specifically engaged by the Group to carry out the valuations. Changes in assumptions could affect the reported fair value of financial instruments. See Note 6 for carrying amount at the year end.

Because the Group's portfolio investments are generally not traded in active markets, fair value determinations are based upon additional information, including internal analysis and projections as well as independent valuation work performed by outside firms, beyond the indicative quotes which are generally also available for portfolio investments. These other analyses rely upon observable data including comparable transactions, interest rates and credit spreads.

The Group's liabilities likewise are not traded in active markets, and the independent analysis which provides the basis for the fair value determination is based, in part, upon observable market data including interest rates and credit spreads. The fair value change in the Group's liabilities may differ substantially from the change in the investment portfolio, even though both are related to interest rates generally, because the assumptions relative to the value of CLO liabilities specifically include the assumptions about credit quality of the individual component companies of the CLO investment portfolio, the anticipated cash flow from those investments, and the resulting possibility of covenant defaults which could dramatically effect the sustainability of the CLO structure and therefore the fair value of the loan notes.

(n) New standards

New standards and interpretations have been published that are mandatory for the Group's accounting periods after 1 February 2010 or later periods and which the Group has not early adopted:

- IFRS 9 Financial Instruments (effective 1 January 2013)

- IAS 24 (Revised 2009) Related Party Disclosures (effective 1 January 2011)

- Improvements to IFRSs 2010 (various effective dates)

- IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments (effective 1July 2010)

- Prepayments of a Minimum Funding Requirement - Amendments to IFRIC 14 (effective 1 January 2011)

- Amendment to IAS 32 Classification of Rights Issues (effective 1 February 2010)

As of 31 December 2010, the following standards and interpretations are in issue but not yet adopted by the EU:

- IFRS 9 Financial Instruments (effective 1 January 2013)

- Prepayments of a Minimum Funding Requirement - Amendments to IFRIC 14 (effective 1 January 2011)

- IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments (effective 1 July 2010)

- IAS 24 (Revised 2009) Related Party Disclosures (effective 1 January 2011)

- IFRS 7 Financial Instruments: Disclosures (effective 1 July 2011)

The Directors are currently evaluating the significance of the impact that the adoption of these standards and interpretations in future periods will have on the financial statements of the Group.

(o) Share based payments

Share options are valued in accordance with IFRS2. In accordance with IFRS2, share options issued are measured using the fair value of the options at the grant date or an estimate of the fair value of the services received. See note 11 for details. No additional share options were issued during the year.

3. FINANCIAL RISK MANAGEMENT

Financial risk factors

The Group is exposed to a variety of financial risks: market risk (including price risk, fair value interest rate risk, cash flow interest rate risk and currency risk), credit risk and liquidity risk. The risk management policies employed by the Group to manage these risks are discussed below. The primary objectives of the financial risk management function are to establish risk limits, and then ensure that exposure to risks stays within these limits. The operational and legal risk management functions are intended to ensure proper functioning of internal policies and procedures to minimise operational and legal risks.

Significant accounting policies

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 2 to the financial statements.

Categories of financial instruments

With the exception of its investment in subsidiary, the same measurement categories are applied to the balances held by the Company.

Capital Risk Management

The Group's capital is represented by the net assets attributable to shareholders and the objective when managing capital is to enable the Group to continue as a going concern in order to provide a consistent appropriate risk-adjusted return to shareholders, and to maintain a strong capital base to support the continued development of its investment activities. The Group manages its capital to ensure that its objective is met. It does this by investing available cash whilst maintaining sufficient liquidity to meet on-going expenses and dividend payments. The Group considers its capital to include share capital, distributable reserves, retained earnings, and debt. The Group is not subject to regulatory or industry specific limitations on its capital, other than the legal requirements for Guernsey incorporated entities. The Group considers the amount and composition of its capital in proportion to risk. Adjustments to the capital structure will be taken in response to economic conditions, the cost of debt, the ability to raise share capital, and other opportunities and factors which the Board may consider. At 31 December 2010 the Group had total equity of GBP69,151,755 (31 December 2009: GBP61,247,753).

The Group monitors the ratio of debt to other capital which, based upon shareholder approval, is limited to 5 to 1. Since the debt of the Group is currently contained within its CLO subsidiary, its debt is collateralized by investments held in the CLO portfolio. The portfolio is subject to various financial and other covenant tests which may result in required paydowns of its debt from time to time; in the absence of such required paydowns, the debt matures in 2019.

The Group has sought to achieve an attractive risk adjusted return by investing in debt securities, consisting primarily of senior debt across multiple industries. The Group intends to invest primarily in companies with attractive fundamental characteristics including experienced management, a significant financial or strategic sponsor or partner, a strong competitive position and positive cash flow.

The Investment Manager ensures that not more than 15% of the Group's gross assets are invested in any one investment. Consistent with shareholder approval obtained in December 2006, the Group may apply leverage up to 500%, or five times, the net asset value of the Group. Leverage is the ability to incur indebtedness for the purpose of making investments. The Group has incurred net indebtedness (approximately US$246.9 million; GBP152.9 million at cost, US$201.7 million; GBP129.2 million at fair value as at the year end) through its CLO subsidiary in the form of long-term notes.

Concentration Risk

While the Investment Manager will attempt to spread the Group's assets among a number of investments in accordance with the investment policies adopted by the Group, at times the Group may hold a relatively small number of investments each representing a relatively large portion of the Group's net assets. Losses incurred in such investments could have a materially adverse effect on the Group's overall financial condition. Whilst the Group's portfolio is diversified in terms of the companies in which it invests, the investment portfolio of the Group may be subject to more rapid change in value than would be the case if the Group were required to maintain a wide diversification among types of securities, countries and industry groups. Please refer to the Portfolio of the Group that follows the Notes to the consolidated financial statements.

(a) Market risk

The Group's exposure to market risk is comprised mainly of movements in the Group's investments. The investment portfolio is managed within parameters disclosed in the Group's offering memorandum. All investments present a risk of loss of capital.

At 31 December 2010, the Group's market risk is affected by three main components: changes in actual market prices, interest rate and foreign currency movements. Interest rates and foreign currency movements are covered at (b) and (c) below.

The following details the Group's sensitivity to a 5% increase and decrease in the market prices, with 5% being the sensitivity rate used when reporting price risk to key management and represents management's assessment of the possible change in market price.

If market prices had increased by 5% with all other variables held constant, this would have increased net assets attributable to holders of equity shares by approximately GBP1,616,894 (31 December 2009: GBP1,795,100), due to the increase in the fair value of financial assets at fair value through profit or loss by GBP8,077,267 (31 December 2009: GBP7,662,850) offset by the increase in the fair value of the financial liabilities at fair value through profit or loss by GBP6,460,373 (31 December 2009: GBP5,867,750). Conversely, if market prices had decreased by 5%, this would have decreased net assets attributable to holders of equity shares by approximately GBP1,616,894 (31 December 2009: GBP1,795,100), due to the decrease in the fair value of financial assets at fair value through profit or loss by GBP8,077,267 (31 December 2009: GBP7,662,850) offset by the decrease in the fair value of the financial liabilities at fair value through profit or loss by GBP6,460,373 (31 December 2009: GBP5,867,750).

(b) Interest rate risk

Interest rate risk is the risk that the value of financial instruments will fluctuate due to changes in market interest rates. The Group has exposure to interest rate risk because it has borrowed to fund investments. The exposure arises on the difference between the rate of interest the Group is required to pay on borrowed funds and the rate of interest which it receives on the debt securities in which it invests. Interest rate risk is comprised of two elements: spread risk and rate risk.

The Group is exposed to risks associated with the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. The Group's cash balances, debt instruments and loan notes are open to interest rate risk.

The Group may, but is not required to, hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts.

The table below summarises the Group's exposure to interest rate risk.