GLIF.L Regulatory News (GLIF)

26 Sep 2007 14:41

T2 Income Fund Limited26 September 2007 T2 Income Fund Limited Consolidated Interim Financial Statements For the six month period ended 30 June 2007 CHAIRMAN'S STATEMENT Attached please find the Accounts of T2 Income Fund Limited (the "Company") forthe six-month period ended 30 June 2007. I am pleased to report that, as of 30 June 2007, the Company had invested assetsof approximately £103.2 million. The investments in the portfolio, on a weightedaverage basis, bear an interest rate of 9.3%, which is approximately 400 basispoints over LIBOR. The Company is fully invested and is leveraging its assets to make newinvestments. In 2006 the Company, through its subsidiary T2 Income Fund CLO ILtd., established a credit facility of up to the equivalent of approximately£100 million (US$200 million) with Merrill Lynch Capital Corporation. Withthis credit facility, the Company was able to accelerate its rate of deployingcapital. During the first and second quarters of 2007 the Company madeapproximately £73.5 million of new investments. As of 30 June 2007, the Companyhad drawn £80.0 million under the facility. On 19 July 2007, T2 Income Fund CLO I Ltd. completed the sale of the equivalentof approximately £125 million (US$250 million) of long-term notes to refinancethe credit facility that had been established with Merrill Lynch. The Notes havea twelve year term and a weighted average interest rate of LIBOR plus 75 basispoints. The net proceeds of the Notes (after repayment of the Merrill Lynchcredit facility) will be used to make new investments. Following the very severe declines across global credit markets recently, andwith the significant widening of credit spreads throughout our transactionpipeline, T2 Advisers, LLC (the "Adviser") believes that the current creditenvironment represents a very strong opportunity to invest the Company'scapital. The Adviser notes that those expanded spreads have not, thus far, beenaccompanied by any apparent diminishment in credit quality across those marketsin which we invest. At the same time, continued volatility in those markets(especially in terms of secondary market values) represents an additionalchallenge that the Adviser is considering as it continues to build theportfolio. Following our Shareholders' vote in favour of the proposal, on 15 June 2007approval was received from the Royal Court of Guernsey to reduce the issuedshare premium of the Company by an amount of £0.95 per share, and that theaggregate of such reduction be credited as a distributable reserve. On 25 June 2007, 5,000,000 Ordinary Shares of no par value were issued at£1.0175 per Share resulting in gross proceeds of approximately £5.1 million. Netproceeds of this placing were used to make new investments. During the period 1July through 31 August, the Company deployed approximately £15.8 million ofadditional capital for new investments. On 16 August 2007 the Directors declared a dividend of 2.5p per share in respectof the second quarter of 2007. This brings the total dividends paid from theperiod of inception in August 2005 through September 2007 to 9.5p per share. The Company's dividend history is: DividendMonth paid Per share For period ended July 2006 1.0p 30 June 2006October 2006 1.5p 30 September 2006February 2007 2.0p 31 December 2006May 2007 2.5p 31 March 2007September 2007 2.5p 30 June 2007Total 9.5p William TozierChairman For more information: Patrick Conroy Philip SecrettT2 Income Fund Limited Nominated Adviser+1 203 983-5282 Grant Thornton Corporate Finance +44 (0) 207 383 5100 CONSOLIDATED INCOME STATEMENT Unaudited Unaudited Audited Period to Period to Year to 30 June 2007 30 June 2006 31 December 2006 Notes GBP GBP GBP RevenueInterest income 2 4,204,278 1,146,407 2,950,030Other income 2 23,391 - 36,814 Investment Income(Loss)/gain on financial assets and 5liabilities at fair value throughprofit or loss- Realised (694,334) (99,505) (248,633)- Unrealised 84,813 (490,597) (1,835,169)Gain/(loss) on foreign currencytransactions- Realised 118,084 9,131 295,151- Unrealised 279,470 (1,529) 129,740 Total Income 4,015,702 563,907 1,327,933 ExpensesManagement fees 4 916,137 372,750 298,751Administration and secretarial fees 4 20,000 19,835 40,000Custodian fees 4 7,439 7,437 15,000Legal and professional fees 19,543 9,477 25,455Directors' remuneration 4 32,500 32,500 65,000Directors' and officers' insurance 22,393 20,952 43,485Audit fees 20,704 17,325 39,001Finance costs 4 1,483,978 - 104,215Other expenses 145,217 98,849 200,502 Total Expenses 2,667,911 579,125 831,409 Profit/(loss) for the period 1,347,791 (15,218) 496,524 Basic earnings per share 13 0.0353 (0.0004) 0.0131Diluted earnings per share 13 0.0318 (0.0004) 0.0118 The accompanying notes form an integral part of these financial statements. CONSOLIDATED BALANCE SHEET Unaudited Unaudited Audited 30 June 2007 30 June 2006 31 December 2006 Notes GBP GBP GBPASSETSNon-current assets Financial assets at fair value through 5 103,164,736 14,511,480 53,978,368the profit or loss accountNote receivable 6 500,000 - 500,000 103,664,736 14,511,480 54,478,368Current assets Trade and other receivables 6 1,274,639 210,352 610,946Cash and cash equivalents 7 16,473,978 22,279,321 4,929,513 17,748,617 22,489,673 5,540,459 Total assets 121,413,353 37,001,153 60,018,827 EQUITYCapital and reserves attributable to the Company's equity holders Share premium 9 5,619,040 36,694,149 36,694,149Other reserve 36,119,167 9,167 14,167Foreign exchange reserve (128,131) - 35,421Retained earnings (613,729) 186,738 (251,520) Total equity 40,996,347 36,890,054 36,492,217 LIABILITIES Non-current liabilitiesWarehouse facility 8 79,979,911 - 22,374,308 Current liabilitiesTrade and other payables 8 437,095 111,099 1,152,302 Total liabilities 80,417,006 111,099 23,526,610 Total equity and liabilities 121,413,353 37,001,153 60,018,827 Net Asset Value per Share £0.95 £0.97 £0.96 The accompanying notes form an integral part of these financial statements. STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Share Share Other Foreign Retained Total Capital Premium Reserve Exchange Earnings Equity Reserve GBP GBP GBP GBP GBP GBP Balance at 31 December 2005 - 36,694,149 4,167 - 201,956 36,900,272 Loss for the period - - - - (15,218) (15,218)Foreign exchange on - - - - -consolidation - Total income & expense for - - - (15,218) (15,218)the period - Amortisation of fair value - - 5,000 - 5,000of options - Balance at 30 June 2006 - 36,694,149 9,167 - 186,738 36,890,054 Profit for the period - - - - 511,742 511,742Foreign exchange on - - - - 35,421consolidation 35,421 Total income & expense for - - - 511,742 547,163the period 35,421 Amortisation of fair value - - 5,000 - 5,000of options -Dividends paid - - - - (950,000) (950,000) Balance at 31 December 2006 - 36,694,149 14,167 35,421 (251,520) 36,492,217 Net proceeds from share - 5,024,891 - - - 5,024,891issueTransfer to distributable - (36,100,000) 36,100,000 - - -reserve Profit for the period - - - - 1,347,791 1,347,791Foreign exchange on - - - - (163,552)consolidation (163,552) Total income & expense for - - - 1,347,791 1,184,239the period (163,552) Amortisation of fair value - - 5,000 - 5,000of options -Dividends paid - - - (1,710,000) (1,710,000) - Balance at 30 June 2007 - 5,619,040 36,119,167 (128,131) (613,729) 40,996,347 The accompanying notes form an integral part of these financial statements. STATEMENT OF CASHFLOWS Unaudited Unaudited Audited Period to Period to Year to 30 June 2007 30 June 2006 31 December 2006 Notes GBP GBP GBPCashflows from operating activitiesCash generated from/(used in) 10 2,295,502 449,819 (2,014,562)operations Net cash inflow/(outflow) from 2,295,502 449,819operating activities (2,014,562) Cashflows from investing activitiesPurchase of investments (73,531,037) (16,098,318) (59,465,371)Sale of investments 21,698,514 2,233,527 8,307,610Principal received 160,992 - 983,235 Net cash outflow from investing (51,671,531) (13,864,791) (50,174,526)activities Cashflows from financing activitiesNet proceeds from issue of shares 5,024,891 - -Warehouse facility 57,605,603 - 22,374,308Dividends paid (1,710,000) - (950,000) Net cash inflow from financing 60,920,494 - 21,424,308activities Net increase/(decrease) in cash and 11,544,465 (13,414,972) (30,764,780)cash equivalents Cash and cash equivalents at beginning 4,929,513 35,694,293 35,694,293of period/year Cash and cash equivalents at end of 16,473,978 22,279,321 4,929,513period/year The accompanying notes form an integral part of these financial statements. NOTES TO THE FINANCIAL STATEMENTS 1. GENERAL INFORMATION T2 Income Fund Limited (the "Company") was incorporated and domiciled inGuernsey, Channel Islands, as a company limited by shares on 9 June 2005. Theaddress of the registered office is Regency Court, Glategny Esplanade, St PeterPort, Guernsey, Channel Islands, GY1 3NQ. A new Cayman Islands registered subsidiary company, T2 Income Fund CLO I Ltd.(the "CLO"), was created on 11 October 2006. Through its ownership of 100% ofthe preferred shares of the CLO the Directors consider the CLO to be a whollyowned subsidiary and the operating results are consolidated in these financialstatements. The consolidated financial statements are referred to in thesefinancial statements as the Group. The Group is comprised of the "Company" andthe "CLO". 2. ACCOUNTING POLICIES (a) Basis of preparation The interim financial information as at and for the six month periods ended 30June 2007 and 30 June 2006 is unaudited and does not constitute statutoryaccounts for the purposes of the Companies (Guernsey) Law, 1994. The figuresfor the year ended 31 December 2006 have been extracted from the statutoryaccounts. The auditors' report on those financial statements was unmodified. The consolidated financial statements of the Group have been prepared inaccordance with International Financial Reporting Standards ("IFRS") as adoptedby the European Union and all applicable requirements of Guernsey Company Law.The financial statements have been prepared under the historical cost conventionas modified by the revaluation of investments at fair value through the IncomeStatement. (b) Basis of consolidation The consolidated financial statements comprise the financial statements of T2Income Fund Limited and its subsidiary T2 Income Fund CLO I Ltd. Intercompanytransactions, balances and unrealised gains on transactions between groupcompanies are eliminated. (c) Foreign currency translation (i) Functional and presentation currency The Financial Statements of the Group are presented in the currency of theprimary economic environment in which the entity operates (its functionalcurrency). The Directors have considered the primary economic currency of theCompany and considered the currency in which the original finance was raised,distributions made, and ultimately what currency would be returned on a break upbasis. The Directors have also considered the currency to which the underlyinginvestments are exposed. On balance, the Directors believe Sterling bestrepresents the functional currency of the Company and US Dollars the functionalcurrency of the subsidiary. Therefore the books and records are maintained inSterling and US Dollars respectively and for the purpose of the financialstatements the results and financial position of the Group are presented inSterling, which is the presentation currency of the Group. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency usingthe exchange rates prevailing at the dates of the transactions. Foreign exchangegains and losses resulting from the settlement of such transactions and from thetranslation at period-end exchange rates of monetary assets and liabilitiesdenominated in foreign currencies are recognised in the income statement. Translation differences on non-monetary items are reported as part of the fairvalue gain or loss reported in the Income Statement. (iii) Subsidiary company The results and financial position of the subsidiary entity that has afunctional currency different to the presentation currency is translated intothe presentation currency as follows: 1. assets and liabilities of the balance sheet presented are translated at the closing rate at the date of the balance sheet; 2. income and expenses for the income statement are translated at average exchange rates for the period (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 as a separate component of shareholders' equity. (d) Revenue recognition Revenue is recognised as follows: Interest income - recognised on an accruals basis as this relates to bankinterest income and coupon interest. Other income - relates to closing fees which are recognised when they fall due. Dividend income - dividend income is recognised when the right to receivepayment 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 upexpenses which were offset against share premium) are charged through the incomestatement. (f) Taxation The Company is exempt from Guernsey taxation under the Income Tax (ExemptBodies) (Guernsey) Ordinance, 1989. A fixed annual fee of £600 is payable to theStates of Guernsey in respect of this exemption. (g) Share issue expenses Share issue expenses of an equity transaction are accounted for as a deductionfrom equity (net of any income tax benefit) to the extent they are incrementalcosts directly attributable to the equity transaction that otherwise would havebeen avoided. (h) Dividends Dividend distributions to the Group's shareholders are recognised in the Group'sfinancial 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 at call withbanks, other short term highly liquid investments and bank overdrafts. (j) Trade and other receivables Receivables are recognised initially at fair value plus transaction costs thatare directly attributable to their acquisition or origination. They aresubsequently measured at amortised cost. (k) Trade and other payables Payables are recognised initially at fair value and subsequently stated atamortised cost. (l) Investments Financial assets and liabilities at fair value through profit or loss Purchases and sales of all investments are recognised on trade date - the dateon which the Group acquires or disposes of the economic benefits of the asset.All investments are initially recognised at fair value, and transaction costsfor all financial assets and financial liabilities carried at fair value throughprofit or loss are expensed as incurred. Investments are derecognised when therights to receive cash flows from the investments have expired or the Group hastransferred substantially all risks and rewards of ownership. The fair value of financial instruments traded in active markets is based onquoted market prices at the balance sheet date. The quoted market price usedfor financial assets held by the Group is the current bid price. The fair valueof financial instruments that are not traded in an active market is determinedby using valuation techniques. Valuation techniques used include the use ofcomparable recent arm's length transactions. For broadly syndicated loans, T2 receives market quotes from agent banks on aquarterly basis. This information is reviewed by T2 management and used toprice the portfolio companies. For bi-lateral loans, an independent third party performs portfolio companyevaluations. As part of this independent third party's due diligence theyreview the following: - Audited and/or unaudited historical financial information including the most recent fiscal year. - Financial information for the most current period available. - Financial forecast prepared by the Portfolio Company. - Most current capitalisation table. Financial assets and liabilities at fair value through profit or loss(continued) - T2 Investment Committee Memorandum prepared prior to the date of investment. - Documents relating to business operations, financial performance and corporate planning. - Public filings by the Portfolio Companies. In assessing the fair value of each investment, a third party valuation firmreviews the following: - Recent financial performance including cash flow and profitability on anactual basis compared to plan. - Funding history of the company, the implied valuation from the most recentfunding and anticipated future funding transactions. - Company's capital structure. - Recent business events disclosed by the Company. - Potential requirement for additional funding. Gains and losses arising from changes in the fair value of the financial assetsat fair value through profit or loss are included in the income statement in theperiod in which they arise. (m) Critical accounting estimates and judgements in applying accounting policies The Group makes estimates and assumptions that affect the reported amounts ofassets and liabilities within the next financial year. Estimates arecontinually evaluated and based on historical experience and other factors,including expectations of future events that are believed to be reasonable underthe circumstances. The Group also makes assumptions on the classification offinancial assets. Unlisted Debt Securities The Group can invest in financial instruments which are not quoted in activemarkets. Fair values are determined by using valuation techniques. Wherevaluation techniques, such as the Market Capitalization Approach, are used todetermine fair values they are carried out by an independant valuation firmspecifically engaged by the Group to carry out the valuations. Changes inassumptions could affect the reported fair value of financial instruments. (n) New standards New standards and interpretations have been published that are mandatory for theGroup's accounting periods beginning on or after 1 January 2007 or later periodsand which the Group has not early adopted: The Group has not early adopted the new standard IFRS 8 (Operating Segments),therefore no additional disclosures have been made. (o) Share based payments Share options are valued in accordance with IFRS2 on an estimate of the fairvalue of the services received. 3. FINANCIAL RISK MANAGEMENT (1) Financial risk factors The Group is exposed to interest rate risk, credit risk, liquidity risk andcurrency risk arising from the financial instruments it holds. The riskmanagement policies employed by the Group to manage these risks are discussedbelow. The primary objectives of the financial risk management function are toestablish risk limits, and then ensure that exposure to risks stays within theselimits. The operational and legal risk management functions are intended toensure proper functioning of internal policies and procedures to minimiseoperational and legal risks. (a) Interest rate risk Interest rate risk is the risk that the value of financial instruments willfluctuate due to changes in market interest rates. The exposure arises on thedifference between the rate of interest the Group is required to pay on borrowedfunds and the rate of interest which it receives on the debt securities in whichit invests. The Group is exposed to risks associated with the effects of fluctuations in theprevailing levels of market interest rates on its financial position and cashflows. The Group's cash balances, debt instruments and warehouse facility areopen to interest rate risk. The Group may, but is not required to, hedge against interest rate fluctuationsby using standard hedging instruments such as futures, options and forwardcontracts. (b) Credit risk Credit risk arises when a failure by counterparties to discharge theirobligations could reduce the amount of future cash inflows from financial assetson hand at the balance sheet date. The Group invests primarily in senior debt,senior subordinated debt and junior subordinated debt. The maximum investmentsize, at the time of the investment, will generally be limited to 15% of theGroup's Gross Assets. However, the Group may make larger investments and it mayseek to syndicate or sell down a portion of any such investment, after it hasbeen acquired. The Group has established a credit rating system. The purpose of the ratingsystem is to monitor the credit quality of T2's investment portfolio on both anindividual and portfolio basis and the future on-going monitoring required. (c) Liquidity risk Liquidity risk is the risk that arises when the maturity of assets andliabilities does not match. As the Group's investments will not generally be inpublicly traded securities, they are likely to be subject to legal and otherrestrictions on resale or otherwise be less liquid than publicly tradedsecurities. The illiquidity of the Group's investments may make it difficult forthem to be sold quickly if the need arises. Since the Group intends to invest indebt securities with a term of up to seven years, and hold investments in debtsecurities and related equity securities until maturity of the debt, the Groupdoes not expect realisation events to occur in the near term. (d) Currency risk Currency risk is the risk that the value of financial instruments will fluctuatedue to changes in foreign exchange rates. The Group does make substantialinvestments in currencies other than Sterling (primarily in US Dollars). To theextent that it does, the Group will be exposed to a potentially adverse currencyrisk. Changes in the rate of exchange may affect the value of the Group'sinvestments, and the level of income that it receives from those investments.The Group has entered into currency hedging transactions to minimise this risk(see note 14). 30 June 2007Assets USD EUR GBP Total Financial assets at fair value through p&l 100,466,773 2,697,963 - 103,164,736accountCash and cash equivalents 9,950,638 - 6,523,340 16,473,978Trade and other receivables 1,328,408 (63,411) 509,642 1,774,639Total assets 111,745,819 2,634,552 7,032,982 121,413,353LiabilitiesTrade and other payables 80,324,626 - 92,380 80,417,006Total Equity 31,421,193 2,634,552 6,940,602 40,996,347 30 June 2006 Assets USD EUR GBP TotalFinancial assets at fair value through p&l 14,511,480 - - 14,511,480accountCash and cash equivalents 123,269 692,185 21,463,867 22,279,321Trade and other receivables 198,193 - 12,159 210,352Total assets 14,832,942 692,185 21,476,026 37,001,153LiabilitiesTrade and other payables - - 111,099 111,099Total Equity 14,832,942 692,185 21,364,927 36,890,054 31 December 2006 Assets USD EUR GBP TotalFinancial assets at fair value through p&l 49,060,856 4,917,512 - 53,978,368accountCash and cash equivalents 2,826,963 130,412 1,972,138 4,929,513Trade and other receivables 574,186 35,675 501,085 1,110,946Total assets 52,462,005 5,083,599 2,473,223 60,018,827LiabilitiesTrade and other payables 23,270,769 - 255,841 23,526,610Total Equity 29,191,236 5,083,599 2,217,382 36,492,217 (e) Market risk The Group's exposure to market risk is based upon changes in the fair value ofthe Group's investments (see Note 2(l)). The investment portfolio is managedwithin parameters disclosed in the Group's offering memorandum. (2) Fair value estimation The fair values of the Group's short-term trade receivables and payablesapproximate their carrying amounts at the balance sheet date. 4. FUND EXPENSES Management fee The Investment Manager, T2 Advisers, LLC, is entitled to receive an annual feepayable quarterly in advance. For the period from the Company's admission totrading on AIM until the quarter end following six months from the date ofadmission, the management fee was calculated based on 2% of the initial value ofthe Company's gross assets upon admission. Thereafter, the management fee iscalculated based on 2% of the average value of the Company's gross assets at themost recently completed calender quarter and the projected gross assets as ofthe end of the current calendar quarter. Total fees charged for the period ended 30 June 2007 amounted to GBP916,137,(June 2006:GBP372,750). The total amount due and payable at the period endamounted to GBP(1,756) (December 2006:GBP57,207). Administration and secretarial fees The Administrator and Secretary, Butterfield Fund Services (Guernsey) Limited,is entitled to an annual fee for its services as administrator and secretary, of0.075% of the Net Asset Value of the Group, calculated on the last business dayof each quarter and payable quarterly in arrears. The fee is subject to aminimum of GBP40,000 per annum. They are also due a fixed accounting fee ofGBP10,000 per annum plus a fixed fee of GBP5,000 for their registrar services. Total Administration and secretarial fees (excluding accounting and registrarfees) charged for the period ended 30 June 2007 amounted to GBP20,000 (June2006:GBP19,835). The total amount due and payable at the period end amounted toGBP20,000 (December 2006:GBP20,000). Custodian fees The Custodian, Butterfield Bank (Guernsey) Limited is entitled to custody feesof 0.02% of the Net Asset Value of the Group subject to a minimum of GBP15,000per annum. The fee is payable quarterly in arrears. Total fees charged for the period ended 30 June 2007 amounted to GBP7,439 (June2006:GBP7,437). The total amount due and payable at the period end amounted toGBP5,588 (December 2006:GBP3,780). Directors remuneration The current level of fees for the Chairman of the Board of Directors of theGroup is GBP25,000 per annum, and GBP20,000 each for non-executive directors. Total fees charged to the Group for the period ended 30 June 2007 amounted toGBP32,500 (June 2006:GBP32,500). The total amount due and payable at the periodend amounted to GBP16,250 (December 2006:GBP16,250). Finance costs Total finance costs for the period ended 30 June 2007 were GBP1,483,978 (June2006:GBPnil). These finance costs are for interest paid to Merrill Lynch forthe Warehouse facility. The liability of the warehouse facility as of 30 June2007 was GBP79,979,911 (December 2006:GBP22,374,308). 5. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS Unaudited Unaudited Audited Period to Period to Year to 30 June 2007 30 June 2006 31 December 2006 GBP GBP GBP Listed debt securities 29,399,740 - 8,127,281Unlisted debt securities 73,764,996 14,511,480 45,851,087 103,164,736 14,511,480 53,978,368(Loss)/Gains recognised in relation tofinancial assets at fair value through profitor loss- realised (694,334) (99,505) (248,633)- unrealised (1) (1,790,829) (490,597) (1,835,169) (2,485,163) (590,102) (2,083,802) Unaudited Unaudited Audited Period to Period to Year to 30 June 2007 30 June 2006 31 December 2006 GBP GBP GBPOpening value of financial assets 55,780,153 5,854,260 5,854,260Purchases 73,531,037 11,447,467 59,465,371Sales (21,698,514) (2,233,527) (8,307,610)Realised loss on sale of investments (694,334) (99,505) (248,633)Capital repayments (160,992) - (983,235)Cost of investments at period/year end 106,757,350 14,968,695 55,780,153Unrealised (loss)/gain at period/year end (2) (3,592,614) (457,215) (1,801,785)Closing value at period/year end 103,164,736 14,511,480 53,978,368 (1) For the period to 30 June 2007 the Group had an unrealised gain on financialassets and liabilities at fair value through profit or loss of GBP84,813. Thisis comprised of an unrealised loss on financial assets of GBP1,790,829 and anunrealised gain on liabilities of GBP1,875,642. (2) The Group hedges the risk of loss on investments from changes in foreignexchange rates through the use of forward exchange contracts, as well as theoffsetting gain from current liabilities held in the same foreign currencies. 6. TRADE AND OTHER RECEIVABLES Unaudited Unaudited Audited Period to Period to Year to 30 June 2007 30 June 2006 31 December 2006 GBP GBP GBP Accrued bank interest 41,355 7,354 6,138Loan interest receivable 513,343 194,141 444,417Prepaid expenses 9,642 8,857 28,106Unrealised gain on forward exchange contracts 710,299 - 132,285 1,274,639 210,352 610,946Non current assetsNote receivable 500,000 - 500,000 The GBP500,000 note receivable relates to a promissory note due for payment in2009 from T2 Advisers, LLC, the Company's Investment Manager. This note, whichis subject to certain conditions, was signed on 5 December 2006 and is subjectto interest of 8% per annum, compounded annually. The promissory note isrecognised in the financial statements as the Directors, having reviewed theconditions pertaining to the promissory note, deem that receipt of payment isvirtually certain. The change in unrealised gain on forward exchange contracts of GBP578,014 from31 December 2006 to 30 June 2007 is a component of the gain/(loss) on foreigncurrency transactions - unrealised of GBP279,470 on the consolidated incomestatement. The unrealised gain on forward exchange contracts is partiallyoffset by an unrealised loss of GBP298,544 on foreign cash balances. 7. CASH AND CASH EQUIVALENTS Unaudited Unaudited Audited Period to Period to Year to 30 June 2007 30 June 2006 31 December 2006 GBP GBP GBP Call account 16,473,978 1,010,695 4,929,513Fixed deposit - 20,453,172 -Foreign currency accounts - 815,454 - 16,473,978 22,279,321 4,929,513 For the purposes of the Cash Flow Statement, the above items represent the yearend cash and cash equivalents. Cash and cash equivalents include an unrealisedloss on foreign cash balances of GBP298,544 in the period to 30 June 2007. 8. TRADE AND OTHER PAYABLES Unaudited Unaudited Audited Period to Period to Year to 30 June 2007 30 June 2006 31 December 2006 GBP GBP GBPCurrent liabilitiesDue to RBC - - 896,461Management fees (1,756) 6,829 57,207Administrator's fees 20,000 10,315 20,000Custodian's fees 5,588 7,437 3,780Audit fees 15,429 19,825 28,500Directors' fees 16,250 16,250 16,250Finance cost 344,715 - 86,788Other accruals 36,869 50,443 43,316 437,095 111,099 1,152,302Non current liabilitiesWarehouse facility 79,979,911 - 22,374,308 On 21 November 2006 T2 Income Fund CLO I Ltd. entered into a credit andwarehouse agreement (the "Agreement") by and among Merrill Lynch Capital Corp.,T2 Income Fund CLO I Ltd. (as the Issuer), T2 Advisers, LLC (as the CollateralManager) and T2 Income Fund Limited. The facility amount is US$200,000,000. Merrill Lynch provides funding of 80% of the par value of loans assigned to T2Income Fund CLO I Ltd. Interest due to Merrill Lynch is calculated daily on thetotal funded amount at 1 month LIBOR plus 50 basis points. Under the terms of the Agreement, the Issuer pledged to Merrill Lynch, assecurity for obligations of the Issuer and the Collateral Manager to MerrillLynch, and grants to Merrill Lynch a first priority continuing security interestin, lien on and right of sell-off against all of the Issuer's assets includingthe Issuer's right, title and interest in the loans assigned. Such grants weremade to Merrill Lynch to secure the payment of all amounts due to Merrill Lynchand compliance by the Issuer with the provision of the Agreement. 9. SHARE CAPITAL The Company has the power to issue an unlimited number of ordinary shares of nopar value. On incorporation two Ordinary Shares were issued at 100p each to the subscribersto the Memorandum of Association of the Company. On Admission to the AIM on 5August 2005 the Company repurchased these Ordinary Shares. On Admission to the AIM on 5 August 2005 the Company allotted 38,000,000 fullypaid Ordinary Shares. During the period 5,000,000 Ordinary Shares of no par value were issued at101.75p per Share. Ordinary shares are classified as equity. Incremental costs directlyattributable to the issue of new shares are shown in equity as a deduction fromthe proceeds, net of tax. On 15 June 2007 Court approval was received to reduce the issued share premiumof the Company by an amount of £0.95 per share and that the aggregate of suchreduction be credited as a distributable reserve. The Investment manager, T2 Advisers, LLC, has been granted options to purchase4,222,222 Ordinary Shares at the Placing Price, as reduced by dividends paid pershare, subject to the Company achieving certain performance criteria as follows: The Investment manager options will vest and become exercisable in respect of 50per cent immediately on conclusion of the first three month period during whichthe Company pays dividends on the Shares in an aggregate amount during thatthree month period equal to or exceeding 8 per cent of the Initial Offer Priceon an annualised basis (the hurdle rate). The remaining 50 per cent will vestand become exercisable immediately on conclusion of the twelve month periodfollowing the date specified above. On 23 February 2007 the hurdle rate was met. Accordingly on 31 March 2007 theoptions on 2,111,111 of these Ordinary shares became vested. The remainingoptions for 2,111,111 Ordinary shares are scheduled to vest on 31 March 2008. The Investment Manager has been granted options to purchase 555,555 OrdinaryShares at 101.75p per Share, based upon the 5,000,000 Ordinary Shares issued inJune 2007, in accordance with the terms of the Investment Manager Agreement. In accordance with IFRS2, the value of the options was based upon an estimate ofthe fair value of the services received. The Company believes that the fairvalue can be determined by a comparison to a performance-based incentive feeprogram, which arrangements are common practice in the industry, because theoption program was similarly intended to compensate the Investment manager forachieving superior returns. The fair value estimate was based, in good faith,upon the present value of a hypothetical performance-based incentive fee.Assuming a fee of 20% of the excess return above an 8% hurdle rate over aten-year period; the fair value of the options was determined to be £100,000.For the period 30 June 2007 the Company charged £5,000 (June 2006: £5,000) toexpenses representing the amortisation of the fair value of the options. The calculation of fair value is sensitive to a number of assumptions, includingthe average interest rate on investments, the pace of investment activity, theamount and cost of leverage, if any, and expenses. It should be noted that theactual value of the options may ultimately be substantially greater or less thanthe fair value calculated. If actual financial performance is significantlybetter than the assumptions used in the calculation of fair value, the optionscould be worth several million pounds; to the extent that the performancecriteria is not achieved, the options would expire worthless. Share Capital Shares in GBP issue Ordinary sharesShares in issue as at 30 June 2006 and 31 December 38,000,000 -2006Issued during the period 5,000,000 -Shares in issue as at 30 June 2007 43,000,000 - Six months to Six months to Year to 30 June 2007 30 June 2006 31 December 2006 Share Premium GBP GBP GBPBalance at start period/year 36,694,149 36,694,149 36,694,149Issued during period/year 5,087,500 - -Issue costs (62,609) - -Transfer to distributable reserves (36,100,000) - -Balance at end period/year 5,619,040 36,694,149 36,694,149 10. CASH GENERATED FROM OPERATIONS Unaudited Unaudited Audited Period to Period to Year to 30 June 2007 30 June 2006 31 December 2006 GBP GBP GBP Profit/(loss) for the period/year 1,347,791 (15,218) 496,524Adjustments for:Realised/Unrealised loss arising on adjustment 2,485,163 590,102to fair value of investments 2,083,802Amortisation of fair value of options 5,000 5,000 10,000Foreign exchange on consolidation (163,552) - 35,421Changes in working capital:Trade and other receivables (663,693) (169,912) (1,070,506)Trade and other payables (715,207) 39,847 (3,569,803)Cash inflow/(outflow) from operations 2,295,502 449,819 (2,014,562) 11. CONSOLIDATED SUBSIDIARY UNDERTAKING Through its 100% ownership of preferred shares in T2 Income Fund CLO I Ltd., theDirectors consider the following entity as a wholly owned subsidiary of theCompany and its results and financial position are included within theconsolidated results of the Company. Date of Country of Nature of Percentage Incorporation incorporation holding holding T2 Income Fund CLO I Ltd. 11 October 2006 Cayman Islands Direct 100% 12. RELATED PARTY TRANSACTIONS Saul Rosenthal is a member of BDC Partners which owns T2 Advisers, LLC. Saul Rosenthal and Patrick Conroy are officers of T2 Advisers, LLC. Patrick Firth is a director of the Administrator, Butterfield Fund Services(Guernsey) Limited. The following transactions were carried out with related parties: Unaudited Unaudited Audited Period to Period to Year to 30 June 2007 30 June 2006 31 December 2006 GBP GBP GBPAmounts incurred during the year to relatedparties Fees due to P Conroy as Chief Financial Officer 25,000 25,000 50,000to the Company Fees due to the Investment Manager, T2 916,137 372,750 798,751Advisers, LLC Fees due from the Investment Manager, T2 - - (500,000)Advisers, LLC Expense reimbursement due to BDC Partners, LLC 62,541 16,509 28,912 Amounts due to related partiesFees due to P Conroy as Chief Financial Officer 4,167 4,167 4,167to the Company Fees due to the Investment Manager, T2 (1,756) 6,829 57,207Advisers, LLC Amounts due from related partiesFees due from the Investment Manager, T2 500,000 - 500,000Advisers, LLC The Investment manager has been granted options giving it the right to acquire4,222,222 Ordinary Shares at the Placing Price (GBP1.00) as reduced by dividendspaid per share, subject to the Company achieving certain performance criteria,refer note 9. The Investment Manager has also been granted options giving it the right toacquire 555,555 Ordinary Shares at the price of GBP1.0175 per Share, based uponthe 5,000,000 Ordinary Shares issued in June 2007, in accordance with the termsof the Investment Manager Agreement. Directors shareholdings in Company Saul Rosenthal has a beneficial interest in 1,319,445 ordinary shares (2006:1,055,556) in the Company as at 30 June 2007. 1,194,445 shares relate to shareoption plan (ref note 9) and 125,000 shares relate to a purchase of sharesduring the period. This is equal to a beneficial interest of 2.8% based on theShare Capital as at that date when diluted by the number of Ordinary Sharessubject to the option. 13. EARNINGS PER SHARE Earnings per share has been calculated by dividing the profit attributable toordinary shareholders GBP1,347,791 (June 2006:GBP(15,218) December 2006:GBP496,524) by the weighted average number of ordinary shares outstanding duringthe period 38,138,121 (June 2006 and December 2006:38,000,000). Fully dilutedprofit per share has been calculated by dividing the profit attributable toordinary share holders of GBP1,347,791 (June 2006: GBP(15,218) December 2006:GBP496,524), by the weighted average number of ordinary shares outstandingduring the period adjusted for the effects of all dilutive potential ordinaryshares 42,375,690 (June 2006 and December 2006:42,222,222). 14. COMMITMENTS At the balance sheet date the following commitments in respect of forwardforeign exchange contracts existed: UnrealisedContract amount - GBP Buy Sell (loss)/profit 7,785,920 EUR GBP (38,173)186,918 EUR GBP 1,433186,918 EUR GBP 1,433(5,168,000) EUR GBP (41,870)(112,311) EUR GBP (1,020)(111,804) EUR GBP (513)27,632,791 USD GBP 728,302709,543 USD GBP 12,020709,543 USD GBP 12,0204,511,504 USD GBP 27,422700,525 USD GBP 3,0011,002,707 USD GBP 6,244 710,299 15. POST BALANCE SHEET EVENTS On 16 August 2007 a dividend of GBP 1,075,000 (2.5p per share), relating to theperiod 1 April 2007 to 30 June 2007, was announced with a payment date of 24September 2007. On 19 July 2007 the Company's subsidiary, T2 Income Fund CLO I Ltd., completedthe sale of approximately GBP 125 million of long-term notes ('Notes') torefinance the credit facility that had been established with Merrill Lynch. Thenet proceeds of the Notes (after repayment of the Merrill Lynch credit facility)will be used to make new investments. Since the period end on 30 June 2007 the Group has made a number of newinvestment purchases, these are detailed below: 24-7-2007 $9,000,000 SelectRemedy25-7-2007 $4,500,000 Nuvox3-8-2007 $5,000,000 Connor Steel14-8-2007 $1,000,000 SkillSoft15-8-2007 $2,000,000 Wimar Landco20-8-2007 $3,000,000 Wimar Landco21-8-2007 $1,000,000 Wimar Landco21-8-2007 $4,000,000 CPM Holdings24-8-2007 $2,000,000 Atlantic Inertial Systems6-9-2007 $2,000,000 InfoNxx19-9-2007 $5,000,000 Inverness Medical20-9-2007 £3,000,000 Atlantic Inertial Systems Paydown13-7-2007 $4,987,500 Paetec Portfolio Statement of the Group As at 30 June 2007 Fair Value % of net assets GBP Attachmate Corp 4,472,871 10.91%Cavalier Telephone Inc 6,000,835 14.64%CBA 3,331,374 8.13%Corel Primary Corp 5,915,391 14.43%DTN 2,484,929 6.06%Express Energy 4,484,055 10.94%Ford 4,478,435 10.92%INFONXX Inc 2,478,701 6.05%Infor Global Solutions Inc 2,980,941 7.27%Investools 4,484,082 10.94%Krispy Kreme 3,105,493 7.58%Merrill Communications LLC 4,528,922 11.05%Metrologic instruments Inc 3,000,584 7.32%MR Default 1,003,911 2.45%Nova 2,697,963 6.58%NPC Inc 3,968,007 9.68%Navisite 2,005,381 4.89%Nuvox 502,591 1.23%One Communications Corp 2,509,840 6.12%Paetec 2,488,034 6.07%Peacock Engineering 1,494,694 3.65%Pegasus 5,466,843 13.33%Prodigy Health Group Inc 3,975,867 9.70%Proquest 4,461,689 10.88%Realogy 5,918,988 14.44%Sirsi Corp 894,574 2.18%Skillsoft 2,497,384 6.09%Stratus Technologies Inc 3,117,059 7.60%TVC 1,997,906 4.87%Tribune 2,422,650 5.91%Workflow Management Inc 1,991,853 4.86%X-rite Inc 2,002,889 4.88% Total financial assets at fair value through profit or loss 103,164,736 251.65% Cash balances 16,473,978 40.18% Other net liabilities (78,642,367) -191.83% Net Assets 40,996,347 100.00% This information is provided by RNS The company news service from the London Stock Exchange