CIFR.L Regulatory News (CIFR)

RNS Announcement

Carador Income Fund plc

30 April 2018

FOR IMMEDIATE RELEASE

ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017

NOT FOR RELEASE, DISTRIBUTION OR PUBLICATION DIRECTLY, OR INDIRECTLY, TO U.S. PERSONS OR INTO OR IN THE UNITED STATES, AUSTRALIA, CANADA OR JAPAN.

A copy of the Company's Annual Report and Audited Financial Statements for the year ended 31 December 2017 as set out below, will be posted to the shareholders of the Company and will shortly be available on the Company's website http://www.carador.co.uk

CHAIRMAN'S REPORT

Dear Shareholders

I am pleased to present the Annual Report and Accounts for the Company for the financial year ended 31 December 2017.

2017 ended on a strong economic note, with U.S. real GDP increasing 2.3% compared to 1.5% in 2016. Macroeconomic data in December was broadly positive and labour trends continued to suggest full employment - nonfarm payrolls rose, the labour force participation rate remained stable, and jobless claims were at their lowest level in almost 45 years1. Despite increased trade and geopolitical tensions, and significant policy uncertainty with respect to U.S. tax reform and the federal budget, markets continued their streak of low volatility through the end of 2017.

Our outlook across most sectors remains positive and is supported by both top- and bottom-line growth among our portfolio companies amid an environment of synchronized global expansion and elevated consumer optimism2.

Loans, as represented by the S&P/LSTA Leveraged Loan Index, returned 4.12% in 2017, a relatively muted performance primarily driven by spread compression despite the benefit of rising LIBOR. Strong demand for loans continued to support heavy refinancing and repricing activity, which pressured loan spreads, capped price performance, and subdued returns throughout the year. Meanwhile, high yield bonds, as represented by the Barclays US High Yield Index, returned 7.50% in 2017, a relatively strong performance amongst fixed income assets that benefited from solid fundamentals, limited macro stresses, and a less-than-anticipated increase in rates. This performance compares to full-year returns for investment grade assets, as represented by the Bloomberg Barclays Corporate Index, of 6.42% and full-year returns for the S&P 500 of 21.83%. While 2017 was predominantly a "coupon-clipping" year for loan investors, we believe that spread compression should stabilize in 2018. Additionally, new issue supply from increased M&A and LBO activity, along with potential market volatility, could provide periodic attractive buying opportunities.

Performance

During 2017, the U.S. Dollar Class generated a total Net Asset Value ("NAV") return of 9.53%3 including distributions. The U.S. Dollar Class started the year with a NAV per share of US$0.7763 and ended December at US$0.7504, a 3.34% decline in the NAV per share, although as noted below, the U.S. Dollar Class also paid a total of $0.0900 per share in dividends over the period3.

The U.S. Dollar Class Shares closed 2017 at US$0.6988, a 6.88% discount to the NAV at 31 December 2017. The annualised historic dividend yield based on the last declared dividends was 12.88%4.

The Repurchase Pool Class Shares generated a total NAV return of 1.12%3 from 31 October 2017 to 31 December 2017. It is not the intention of the Directors to declare a dividend in respect of the Repurchase Pool Class Shares. The Repurchase Pool Class Shares ended the year with a NAV per share of US$0.74690 and a share price of US$0.7250.

The return on the Repurchase Pool Class is for 2 months from 1 November 2017 to 31 December 2017. The return on the U.S. Dollar Class is for 12 months to 31 December 2017. However, the Repurchase Pool Class Shareholders have also profited from the return of the U.S. Dollar Share Class for the first 10 months of the year from 1 January 2017 to 31 October 2017.

Dividends

The Company declared total dividends of $0.0900 per U.S. Dollar Share for 2017, in line with the target annual dividend previously announced in the Dividend Strategy and Outlook for the year.

In February 2018, the Directors declared that it was the Board's objective to provide shareholders with regular dividends at levels that were sustainable and, to that date, the Company had paid a fixed dividend. Over recent months, asset spread compression had resulted in a negative impact on CLO equity distributions across the market and within Carador's portfolio. As a result, expected income in the short and medium term does not support the existing annual dividend of 9c per share.

Dividends (continued)

In seeking to provide stable dividends to U.S. Dollar Share investors at rates that reflect net income actually generated, the Company intends to move to a floating dividend such that, in any financial quarter, the dividends paid will be equal to the cash income the Company has received net of reasonable expenses while retaining an element of cashflow receipts on CLO Income Notes as principal for reinvestment. Cash income will comprise cash received by the Company attributable to the CLO investments in the Company's portfolio and the income, if any, arising from cash held by the Company pending investment or distribution.

The dividend in respect of Q1 2018 will be declared in late April 2018 and is expected to be between 1.45-1.65c based on current income expectations. This change in dividend policy was made in order to better align the Company's dividend distributions with its current level of cash flows. The Directors believe that the revised pro forma dividend remains very competitive when viewed against the market place in general.

The Board and the Investment Manager believe that, over the longer term, the cash flows and IRRs of the Company's investments can be improved through portfolio rotation and the use of refinancing and resetting liabilities, both of which have helped to offset asset spread tightening; however, historically this improvement has lagged the underlying asset refinancing. In addition, the Company's Investment Manager believes that spreads may widen over the medium to longer term which should result in an increase in the Company's income generation and future level of dividend payable.

Since the Company also seeks to maintain its status as an "excluded security" under the Non-Mainstream Pooled Investment ("NMPI") rules, the Board is committed to distributing at least 85% of its net income each financial year. The Company also maintains the right to distribute in excess of 85% of its net income at its own discretion.

Annual declared dividends per US$ share and Net Cashflow Coverage of Net Income

Material Events

On 27 April 2017, the Company released its audited Annual Report and Accounts for the full year 2016.

On 2 May 2017, the Company announced that the Directors intended to use the discretion provided to them in the Articles to put forward to shareholders proposals to approve a redemption opportunity for up to 100 per cent. of the shares in issue (the "Redemption Proposals") for any shareholders who may wish to exit their holding in the Company (in whole or in part).

At the Annual General Meeting (the "AGM") of the Company held on 31 July 2017, the shareholders approved the following ordinary and special resolutions:

Ordinary Resolutions

1. Receive and consider the reports of the Board and of the auditor of the Company, KPMG, and the accounts for the year ended 31 December 2016.

2. To review the Company's affairs.

3. Re-appointment of KPMG as auditors of the Company.

4. Authorisation of the Directors to fix the remuneration of the auditors of the Company.

5. Re-election of Mr Edward D'Alelio as a director of the Company.

6. Re-election of Mr Werner Schwanberg as a director of the Company.

7. Re-election of Mr Fergus Sheridan as a director of the Company.

8. Re-election of Mr Adrian Waters as a director of the Company.

9. Approval of the repurchase opportunity, as summarised in the circular accompanying the Notice of the Annual General Meeting.

10. Authorisation of the Directors to allot up to 300 million shares of the Company.

11. Authorisation of the Directors to allot a 10% of shares in addition or as an alternative to item 10 above.

Special Resolutions

12. Authorisation of the Directors to allot the shares referred to in items 10 and 11 above, without having previously to offer such shares to shareholders on a pre-emptive basis.

13. Adopt the constitution of the Company in the form presented to the annual general meeting to the exclusion of the existing constitution of the Company.

On 31 August 2017, the Company announced its Unaudited Interim Results for the period ended 30 June 2017.

On 11 October 2017, the Company entered into an amended and restated investment management agreement. The update was to include details of the performance fees payable to the Investment Manager in respect of the Repurchase Pool Class Shares.

On 12 October 2017, the Company announced the publication of a Prospectus that contained details of an offer to each holder of U.S. Dollar Shares in the Company to convert some or all of their U.S. Dollar Shares into Repurchase Pool Class Shares (the "Repurchase Opportunity") and of a 12 month Placement Programme of U.S. Dollar Shares and/or C Shares. The Placement Programme closes on 10 October 2018 and no C Shares have yet been issued.

On 31 October 2017, the Company announced the results of the Repurchase Opportunity. The Company received valid elections from and on behalf of shareholders for 144,451,569 U.S. Dollar Shares of no par value, representing 26.6 per cent. of the issued U.S. Dollar Shares of the Company, to re-designate such U.S. Dollar Shares into Repurchase Pool Class Shares of no par value. The Repurchase Pool was created by allocating a pro rata amount of the assets and liabilities of the Company attributable to the U.S. Dollar Shares being converted as at the Conversion Date.

On 22 November 2017, the Company announced that the 144,451,569 Repurchase Pool Class Shares arising on conversion of the equivalent number of U.S. Dollar Shares were admitted to trading to the Specialist Fund Segment of the Main Market of the London Stock Exchange.

Outlook5

The Board believes that the Company's portfolio is well positioned to take advantage of investment opportunities. As at the end of December 2017, the Company's portfolio investments comprised 11.5% Mezzanine Notes, 88.0% Income Notes, and a cash and cash equivalents balance of 0.6%6, all as a percentage of NAV. The Board believes that the Company's current portfolio is well placed to benefit from varying credit cycles and environments given the active approach and the duration of reinvestment period of its Income Notes.

U.S. credit strategists forecast stable returns for loans and high yield bonds with most predicting in the range of 3-5% and 4-6%, respectively, for the coming year. Expectations for rising interest rates, coupled with current relative yields, reinforce the attractiveness of loans relative to other longer-duration fixed income assets. Given there is currently greater predictability around defaults than the path of inflation and interest rates, we continue to favour high yield over investment grade as the latter will likely continue to be constrained by low spreads/yields and duration risk in 2018.

Werner SchwanbergChairman

27 April 2018

1 Source: Reuters, as of 18 January 2018.

2 Sources: U.S. Tax Reform and Implications for the High Yield Market, J.P. Morgan; S&P Capital IQ, as of 20 December 2017.

3 Past performance is not necessarily indicative of future results, and there can be no assurance that Carador will achieve comparable results, will meet its target returns, achieve its investment objectives, or be able to implement its investment strategy. All returns are net of an accrued performance fee because the NAV and distributions to the end of the year for the U.S. $ Shares were in excess of their respective thresholds. Dividends are assumed to be reinvested in security of NAV.

4 The 12 month Dividend Yield is based on last four quarterly dividends declared. Share price data is as at 31 December 2017.

5 The information here relates to the portfolio of the U.S. Dollar Class Shares.

6 Reflects trade date cash balance not settled cash balance.

INVESTMENT MANAGER'S REVIEW

For the twelve month period ended 31 December 2017

We are pleased to present our review of 2017 and our outlook for 2018 related to the U.S. Dollar Shares.

Some highlights include:

• aggregate declared dividend of US$0.0900 per share, in line with the target set by the Board in January 2017;

• NAV total return of 9.53% over the year, including dividends paid, outperforming the Credit Suisse Leveraged Loan Index and the Credit Suisse High Yield Bond Index by 5.28% and 2.50% respectively;

• historic dividend yield of 12.88% (share price as at 31 December 2017)7;

• the Company traded over $180 million notional in 2017, rotating out of Mezzanine positions and trading Income Notes and Mezzanine positions with credit risk given the strength in the market;

• continued actively adding value through refinancing and pursuing resets where economical, extending duration on Income Notes; and

• majority of the Income Notes coming out of reinvestment in 2017 have been optionally redeemed or are likely to be reset in the near term.

We are pleased to present our review of 2017 and our outlook for 2018 related to the Repurchase Pool Shares. Some highlights include:

• the Company liquidated four positions from the Repurchase Pool, which were sold, on average, at a premium to the prior month end valuations.

• continue to realise the assets comprising the Repurchase Pool within six to twelve months of the Conversion Date. It's possible this may take significantly longer in the case of certain assets or in less favourable market conditions. Accordingly, investors should be prepared for a scenario in which a proportion of the assets attributable to the Repurchase Pool may not be capable of realisation for an indefinite period that may be significantly longer than twelve months. Any change to the anticipated timing for realisation will be notified by the Company through a Regulatory Information Service.

Bank Loan Market Overview

In 2017, larger loans with tranche sizes greater than $1 billion underperformed smaller loans. The largest loans in the market generally saw the greatest amount of refinancing and repricing activity due to the liquidity in those issues. Lower-quality loans (rated CCC/split CCC and default) outperformed the higher-quality segment of the market (rated split BBB/BB) during 2017. The lower-quality loan segment is mainly composed of second-lien loans and less liquid or middle market loans, which benefited from an increasing risk appetite and less repricing and refinancing activity. This translated into outperformance in the strong market environment. However, the relative performance of different quality segments for high yield bonds differed from that of loans. The lowest-quality segment of the high yield bond market performed more weakly than the higher-quality segments in 2017, as distressed/defaulted assets within the energy and retail sectors meaningfully detracted from performance.

Despite gross institutional loan issuance of $974 billion, net new loan supply in 2017 totalled only $189 billion, with refinancings and repricings accounting for 73% of 2017 gross issuance. Similarly, refinancing accounted for 63% of the $328 billion of high yield bond new deal volume in 2017, with net new high yield bond issuance totalling only $55 billion for the year. High yield M&A deal volume lagged in 2017 by 36% year-over-year, as equity valuations remained elevated and companies were cautious to engage in significant deals amid U.S. policy uncertainty. This further contributed to the year's supply-demand imbalance and to the underperformance of the loan asset class. Loan mutual fund flows remained high in 2017, with $13.5 billion in total net inflows. Total 2017 CLO new issuance was $118.1 billion, excluding refinancings and resets, and CLOs continue to represent over half of the institutional investor base for the loan primary market. Conversely, retail demand for high yield bonds was stymied in 2017 due to rate pressures, volatility in stocks and oil, and certain sector-specific issues. High yield mutual funds experienced an outflow of $17.5 billion during the year.

Default activity in the credit markets registered the lowest annual total since 2013, with $34.1 billion in combined default volume across loans and high yield bonds ($17.5 billion in loans and $16.7 billion in high yield bonds, respectively). The par-weighted U.S. loan default rate for 2017 was 1.84%, a 35bp increase above the default rate at the end of 2016 but notably below the 10-year historical average default rate of 2.96%. The par-weighted U.S. high yield bonds default rate for 2017 was 1.27%, excluding distressed exchanges, a decrease of 230bp since the end of 2016 and well below the 20-year historical average of 3.07%. In 2017, the energy sector accounted for the largest number of defaults, including distressed exchanges, as well as the largest total default volume, while the retail sector accounted for the second-largest number of defaults and the third-largest total default volume.

7 The 12 month Dividend Yield is based on last four quarterly dividends declared

Bank Loan Market Overview (continued)

Despite a modest uptick in defaults in 4Q, we expect loan and high yield default rates to remain low throughout 2018 with analyst estimates ranging between 1.2-2.5% for loans and 2.0-3.0% for high yield.

CLO Market Overview

CLO issuance in 2017 was very strong globally. In the U.S., CLO new issuance recorded the second highest level in 2017 at $118.1 billion through 212 CLOs, well ahead of the 2016 issuance of $72.3 billion through 156 CLOs. European CLO new issuance, which totalled €20.9 billion through 51 CLOs, reached a post-crisis high in 2017 and significantly surpassed 2016's issuance of €16.8 billion through 41 CLOs.

In addition to new issuance, 2017 saw record volume of CLO refinancing and reset activity. €24.8 billion of European CLOs and $167.0 billion of U.S. CLOs were refinanced or reset throughout 2017, allowing CLO managers to offset the asset spread compression by lowering the CLO's liability cost. For comparison, total refinancing and reset volume in 2016 was €1.1 billion in Europe and $39.5 billion in the U.S.

Demand for CLO issuance was fuelled by the improved CLO arbitrage despite loan spread compression, and broader institutional demand for both U.S. and European CLOs was further bolstered by strong returns across all tranches driven by healthy underlying portfolios. CLOs continue to represent over half of the loan primary market institutional investor base. Projections for 2018 CLO issuance consensus is $100 billion in the U.S and €15-20 billion in Europe, further projecting heightened demand for loans.

Credit fundamentals of the CLO portfolios remain strong with asset spread tightening the main focus. As of year-end 2017, Weighted Average Spread ("WAS") tests in both European and U.S. CLOs fell by 50bp and 30bp, respectively, since the end of 2016. Exposure to CCC-rated and distressed assets remain low due to the continued low default environment in the loan market. Weighted Average Rating Factor ("WARF") test results remain generally flat, providing CLO investors additional comfort on collateral quality.

Portfolio Update  

(The information below relates to the portfolio of the U.S. Dollar Shares).

During the year, the Company has continued to benefit from active trading and management. The Company traded over $180 million notional in 2017, rotating out of well-bid Mezzanine positions and trading Income Notes and Mezzanine positions with credit risk given the strength in the market. This active approach has produced a portfolio where 67% of Income Notes have a reinvestment period end date of 2020 or later. The table below highlights the transition of the reinvestment periods of the portfolio's Income Note transition over the period as a percentage of NAV:

Portfolio Update (continued)

The Investment Manager has continued to focus on top performing managers. The below table lists the top ten managers by exposure of the Income Notes*:

\* This forms an integral part of the financial statements.

The Company has taken advantage of the strong liability CLO market on deals approaching or passed the end of non-call period, which can be either refinanced or reset. The Investment Manager has completed seven resets during 2017, as it believes that resets are supportive of long-term, sustainable income generation for Income Note holders. Actively trying to reset the CLOs of Income Note positions at attractive levels and extending their duration, where possible, has typically lead to increases in valuation and yields for Income Notes, benefitting the overall Company NAV. The Investment Manager expects to continue actively effecting reset transactions on the Company's Income Note positions as those CLOs exit their non-call periods.

Please see summary of reset activity below:

In a tightening market, refinancing CLO liabilities has been a good way to offset collateral spread tightening. Refinancing a deal is, in general, slightly easier to implement than reset and generally controlled by the majority equity holder. The Investment Manager has benefited from the lower CLO liability costs via eight refinancings as detailed below:

Portfolio Update (continued)

As of 31 December 2017, the Company had 3.40% exposure to CCC assets and 0.41% of defaulted assets on a look through basis through investments across its 51 CLOs managed by 13 Investment Managers.

As at 31 December 2017, the Company's top five investment exposures were*:

\* This forms an integral part of the financial statements. 

The Investment Manager believes that the combination of strong CLO managers, lower liability costs and longer duration provide economical and robust financing for loans in varying credit cycles.

For the Repurchase Pool Share Class, the Investment Manager was able to realise four positions in December 2017 at a premium to the November month end valuations.

Outlook

In 2018, we believe that a great deal of value will be predicated on inflation trends, term premiums and the continuation of a low default environment. We remain encouraged by the benefits of recent U.S. tax reform as it is expected that for 75% of high yield issuers the lower corporate tax rate and the ability to depreciate additional capex will outweigh companies' inability to fully deduct interest expense. Accordingly, analysts expect that the fundamentals of the majority of double-B and single-B rated U.S. issuers could improve, while highly levered CCC-rated issuers may face headwinds given the reduction in interest deductibility. The confluence of these events is likely to create greater performance and pricing dispersion resulting in opportunities to outperform through careful credit selection.

The Board and the Investment Manager believe that, over the longer term, the cash flows and IRRs of the Company's investments can be improved through portfolio rotation and the use of refinancing and resetting liabilities, both of which have helped to offset asset spread tightening. In addition, we believe that spreads may widen over the medium to longer term which should result in an increase in the Company's income generation and overall portfolio performance.

Risk Management

The Company's portfolio of CLO investments is managed to minimise default risk and potential loss through credit analysis performed by the Investment Manager's experienced credit research team. Achieving diversification is part of the Company's investment objective. Each investment is assessed with a view to providing diversification in terms of underlying assets, issuer, sector, and maturity profile.

The Company invests in a minimum of 20 separate transactions with a maximum exposure per investment, at the time of investment, of 20% of the Net Asset Value. The Company also limits its exposure to transactions managed by the same portfolio manager to 15% of the Net Asset Value, at the time of investment. If the portfolio manager is the Investment Manager or an affiliate, this limit is increased to 60% of the Net Asset Value at the time of investment.

The Company may invest in assets which are denominated in Euro and Sterling, as well as U.S. Dollars. However, the Base Currency of the Company is the U.S. Dollar. The Company therefore may have an exposure to changes in the exchange rate between the U.S. Dollar and the Euro/Sterling which, if unhedged, has the potential to have a significant effect on returns. The Directors believe that it is in the best interests of shareholders for the Company to engage in currency hedging solely to reduce the risk of currency fluctuations and the volatility of returns which may result from such currency exposure. This may involve hedging, at the level of the Company, the Euro/Sterling assets to U.S. Dollars. As at 31 December 2017, the Company had no non-U.S. Dollar portfolio exposure.

The Company only uses currency and other hedging techniques for the purposes of efficient portfolio management in accordance with the requirements of the Central Bank of Ireland (the "Central Bank"). The Company has no intention of using the currency hedging facility for the purposes of currency speculation for its own account.

Please also refer to note 11 for a fuller description of the risk involved in an investment in the Company.

Leverage

The leverage of the Company on a gross exposure basis (the "gross method") is calculated as set out in Article 7 of Commission Delegated Regulation (EU) No. 231/2013 (the "Level 2 Regulation") by taking the sum of the absolute values of all positions of the Company, including borrowings and derivatives, without taking account of netting or hedging arrangements, and is expressed as a percentage of the net asset value ("NAV") of the Company. The leverage of the Company on a commitment basis (the "commitment method") is calculated as set out in Article 8 of the Level 2 Regulation by taking the sum of the absolute values of all positions of the Company, including borrowings and derivatives, but taking account of certain types of hedging and netting arrangements and expressing it as a percentage of the NAV of the Company.

The Company may not employ a level of leverage in excess of 40% of its NAV using the commitment method, and 80% of its NAV using the gross method. In this regard, leverage has a particular meaning and is defined as any method by which the Investment Manager increases the exposure of a company, whether through borrowing of cash or securities, or leverage embedded in derivative positions or by any other means. Derivatives positions entered into for currency hedging purposes that are closed, but yet unsettled, at the financial reporting date are not considered to increase the exposure of the Company or to be positions of the Company as of that date. Accordingly, the calculation under the gross method has been interpreted to include open derivative positions only. There has been no change during the year in the maximum amount of leverage which the Company may employ or to any right of reuse of collateral or any guarantee granted under leveraging arrangements. As at year end, the leverage used by the Company was 31.77% of the NAV under the gross method and 31.77% of the NAV under the commitment method.

Remuneration - Procedures and Practices

The Investment Manager is not subject to the requirements in the AIFMD that would require it, among other things, to implement and apply a remuneration policy that is compliant with Article 13 of the AIFMD (including Annex II) or the ESMA Guidelines on sound remuneration policies under the AIFMD (the "Guidelines") (but is required in those jurisdictions where the Company has been notified under Article 42 of the AIFMD to comply with Section XIII of the Guidelines for these purposes).

The Investment Manager is subject to the remuneration policies and practices (the "Policies") of The Blackstone Group L.P. ("Blackstone"). The staff included in the aggregate figures disclosed below are rewarded in line with the Policies.

Blackstone uses financial measures as a basis for compensation decisions across its businesses. Relevant senior management of Blackstone ("Senior Management") make operating decisions and assess the performance of each of Blackstone's business segments based on financial and operating metrics. Such Senior Management would include the global heads of the businesses as well as the CEO and the COO of Blackstone. The Senior Management ensure that compensation decisions are consistently taken across Blackstone, with consideration for the overall risk profile and appetite of Blackstone.

The Policies reflect Blackstone's ethos of good governance and encapsulates the following principal objectives:

· Remuneration is comprised of fixed and variable elements, as described below, with a level of total reward that is competitive with Blackstone's peers; and

· Variable performance-driven compensation must be closely aligned with the principles of Blackstone, supportive of Blackstone's strategy and must not incentivise inappropriate risk taking.

Blackstone's remuneration policy applies to staff globally. While Senior Management is involved in determining and implementing the Policies, no individual is involved in setting his or her own remuneration. Blackstone assesses various risk factors which it is exposed to when considering and implementing remuneration for staff and considers whether any potential award would give rise to a conflict of interest.

Mechanisms are in place to ensure that remuneration does not reward failure, whether on the early termination of a contract or otherwise. Where awards of carried interest and incentive payments are made, these are inherently risk-adjusted given that they are directly tied to the performance of investments or portfolios.

Remuneration - Procedures and Practices (continued)

Blackstone operates an annual total compensation process dependant on individual and business performance, taking into account financial and non-financial criteria. This includes the performance of Blackstone as a whole, performance of each business unit within Blackstone - which would include regional businesses - as well as the individual's performance. The individual's performance is evaluated through an annual comprehensive performance management process known as the "360". The "360" performance process provides an evaluation of an individual's performance based on feedback from peers, managers and subordinates and assesses individuals quantitatively and qualitatively on a wide range of criteria including skills, values, collaboration and leadership. An individual's performance is also compared to agreed objectives and contribution to business strategy. The results of the performance evaluation process are used to produce total compensation recommendations for each individual which are subject to the review and approval by the Senior Management. An individual's compensation is designed to align employee incentives with the interests of Blackstone's clients, shareholders and business strategy. Total compensation payable to an individual, including determination of awards, is based on an assessment of a sustainable and risk adjusted performance of the business and applicable business risks from time to time. Bonus deferral awards are a deferred component of year-end discretionary bonus awards, if awarded. These awards are intended to encourage retention, align the recipient to the performance of Blackstone globally and incentivise long-term financial performance. Special equity awards are a retention tool/long term incentive plan for select individuals who demonstrate exceptional performance, and are subject to a vesting schedule weighted to encourage retention. Carried interest and incentive payment participation is generally reserved for investment professionals who may significantly influence the performance of investments made by the funds managed by Blackstone.

The Investment Manager classifies members of the Investment Manager's Investment Committee, Senior Managing Directors, Heads of Control Functions and Portfolio Managers (in each case, only those with responsibility for the oversight and / or investment activity of the Company) whose professional activities have a material impact on the risk profile of the Company.

The Investment Manager has adopted a methodology for the purposes of determining, or allocating, the remuneration paid that can be reasonably attributed to the services provided by the Investment Manager to the Company.

The disclosure below reflects the proportion of the total remuneration of the staff of the Investment Manager attributable to the Company only. For these purposes, the total remuneration attributable to the activities of the Investment Manager has been allocated to each fund under management in proportion to the time spent on each applicable fund, hence the figures included below are an approximation only. While the Investment Manager believes that the information and the sources used are reliable for the purposes of this Annual Report, it should be specifically noted that the remuneration information presented herein attributable to the Company during the reporting period is not representative of information compiled by the Investment Manager for its own internal management purposes, has not been audited, and has not been prepared on the basis of a set of compensation policies and procedures that would be required were the Investment Manager otherwise subject to Article 13 of the AIFMD.

Remuneration - Amount of Remuneration Paid

The remuneration paid by the Investment Manager to its staff in respect of the financial year ending on 31 December 2017 (as attributable to the Company in accordance with the methodology described above) is as follows:

 Quantitative Remuneration Disclosure

GSO / Blackstone Debt Funds Management LLC

27 April 2018

1 The beneficiary numbers in this table comprise Investment Committee members, Senior Managing Directors, Heads of Control Functions and Portfolio Managers with responsibility for the oversight and/or investment activity of the Company.

2 "Senior management" includes certain Senior Managing Directors as well as persons discharging the following functions within the Investment Manager: the Head of Finance, the Head of Legal & Compliance, the Head of Operations and the Head of Portfolio Risk & Compliance.

3 This category of staff does not include the senior management referred to in footnote 2 above. It includes such staff that are deemed to perform investment functions that have a material impact on the risk profile of the Company.

4 The term 'carried interest' refers to performance fees

 DIRECTORS' REPORT

PRINCIPAL ACTIVITIES

The Company was incorporated on 20 February 2006 as a closed-ended limited liability investment company under the laws of Ireland and is authorised by the Central Bank. The Company continues to be registered and domiciled in Ireland and the Company's shares are premium listed on the Official List of the UK Listing Authority and admitted to trading on the Main Market of the London Stock Exchange. During the year, the Company converted 144,451,569 U.S. Dollar Shares into Repurchase Pool Class Shares. On 22 November 2017, the Repurchase Pool Class Shares were admitted to trading on the Specialist Fund Segment of the Main Market of the London Stock Exchange. In the prospectus dated 11 October 2017, the Company set out details of a 12 month Placement Programme under which new shares may be issued, as either U.S. Dollar Class Shares or C Class Shares, with aggregate gross placing proceeds of up to US$300 million.

INVESTMENT OBJECTIVE

The Company's investment objective is to produce attractive and stable returns with low volatility compared to equity markets, by investing in a diversified portfolio of Senior Notes ("Senior Notes") of collateralised loan obligations ("CLOs"), collateralised by senior secured bank loans and equity ("Equity") and mezzanine tranches ("Mezzanine") of CLOs. CLOs are debt securities backed by a diversified pool of underlying assets. The CLO uses the cash flows from this portfolio of assets to back the issuance of multiple classes of rated debt securities which, together with the Income Notes, are used to fund the purchase of the underlying assets.

INVESTMENT POLICY

The Company invests in cash flow CLO transactions, managed by portfolio managers with proven track records. It seeks to achieve diversification across asset class, geography, manager, and maturity profile. Each CLO investment is collateralised by a diverse pool of fixed income assets, which may include:

· senior secured bank loans;

· investment grade loans;

· project finance debt;

· asset-backed securities or other asset-backed obligations;

· mortgage-backed securities; and/or

· debt securities issued by other CLOs.

The Company may also invest in other collective investment schemes for the purposes of gaining exposure to the types of CLO transactions described above, or otherwise to pursue the investment objective and policy of the Company. The Company seeks to have minimal exposure to CLOs where the underlying assets comprise of unsecured corporate bonds (investment grade or otherwise). The Company will limit investment in synthetic CLO transactions, at the time of investment, to 25% of the NAV. It is intended that the Company's investments comprise of Equity and Mezzanine tranches in actively managed portfolios, with a variety of portfolio managers. The Company may also invest in senior tranches of leveraged loan CLOs where attractive opportunities can be identified. Such opportunities may include investments in senior tranches of CLOs in respect of which the collateral consists of fee streams due to portfolio managers from underlying leverage loan CLOs. The Company may invest in new issue CLO transactions in the primary market, and transactions in the secondary market where attractive opportunities can be identified.

The Company's portfolio of CLO investments is actively managed to minimise default risk and potential loss through comprehensive credit analysis performed by the experienced credit research team in the Investment Manager, and use of the Investment Manager's proprietary risk management systems. Achieving efficient diversity is central to the Company's investment objective. Each investment is assessed with a view to providing diversification in terms of underlying assets, issuer, sector, geography and maturity profile.

The Company invests in a minimum of 20 separate transactions, with a maximum exposure per investment, at the time of investment, of 20% of the NAV. The Company also limits its exposure to transactions managed by the same portfolio manager to 15% of the NAV, at the time of investment. However, if the portfolio manager is the Investment Manager or an affiliate of the Investment Manager, this limit is increased to 60% of the NAV, at the time of investment. The Investment Manager analyses all transactions at the underlying portfolio level, identifying any concentration in terms of issuer, sector, geography and maturity profile.

INVESTMENT POLICY (continued)

The Investment Manager's analysis also takes into consideration the correlation among different underlying securities to avoid concentrations of risk.

There is no restriction as to the geographical composition of the underlying portfolios, but it is currently significantly weighted towards the United States.

The functional currency of the Company is US Dollar as the Directors have determined that this reflects the Company's primary economic environment. The presentational currency of the Company is also US Dollar. Investments acquired for the Company's portfolio are currently all denominated in US Dollar.

The investment objective of the Company may not be altered without the prior written approval of all shareholders or a special resolution of shareholders in a general meeting.

Any material change to the investment policy of the Company may only be made with the prior approval, by special resolution, of shareholders.

Investment restrictions

In accordance with the requirements of the UK Listing Authority and the Central Bank, the Company has adopted the following additional investment restrictions:

· distributable income will be principally derived from investment activity;

· the Company will not conduct a trading activity;

· a maximum of 20% of the value of the NAV of the Company may be invested in the securities of any one issuer (related companies within a group of companies shall be deemed to be one issuer);

· a maximum of 15% of the NAV of the Company may be invested in other listed investment companies;

· the Company will not take legal or management control of the issuers of the underlying investments, nor shall the Company acquire any shares carrying voting rights which would enable it to exercise significant influence over the management of an issuing body;

· no more than 20% of the NAV of the Company may be kept on cash deposit with any one institution;

· the Company may not invest more than 20% of its NAV in other collective investment schemes, of which no more than 20% of its NAV may be invested in other open-ended collective investment schemes; no more than 10% of its NAV may be invested in closed-ended collective investment schemes; no more than 10% of its NAV may be invested in fund of funds; and no more than 10% of its NAV may be invested in unregulated collective investment schemes. No issue or purchase commission may be charged to the Company where investments are made in collective investment schemes managed by the Investment Manager or by an associated or related company of the Investment Manager, and where the Investment Manager receives a commission by virtue of an investment in a collective investment scheme, this commission must be paid into the Company;

· for the purposes of the above limits, related entities (where 50% or more of the voting rights or paid up capital of one entity are held or owned directly or indirectly by another entity) are regarded as a single issuer;

· the Company shall not invest in real estate or directly in physical commodities;

· dividends will not be paid unless they are covered by net income received from, and/or net realised and unrealised capital gains deriving from, the Company's investments;

· the Company may borrow up to 25% of its NAV from time to time for short term or temporary liquidity purposes, and may grant collateral to secure borrowings. The Company may not have any long-term or structural borrowings;

· the Company may hedge corporate credit risk through the use of short sales, credit default swaps, options and other methods where the underlying assets relate to single issuers for the broader indices and may thereby be leveraged up to a total limit of 10% of its NAV; and

· the Company may not acquire more than 20% of any class of security issued by any single issuer. This restriction does not apply to debt securities.

Any change in the above investment restrictions shall be subject to the prior approval of the Central Bank.

INVESTMENT POLICY (continued)

The above limits apply at the time of the purchase of the investment. If these limits are exceeded for reasons beyond the control of the Company, the Company shall adopt as a priority for its sales transactions the remedying of the position taking account of the interests of the shareholders. In the event of any breach of these investment restrictions, the Board of Directors (the "Board") will as soon as practicable make an announcement on a Regulatory Information Service provider and subsequently write to shareholders, if appropriate.

REVIEW OF DEVELOPMENT OF THE BUSINESS AND FUTURE DEVELOPMENTS

A detailed review of the business and future developments of the Company is included in the Investment Manager's report.

RESULTS FOR THE FINANCIAL YEAR AND STATE OF AFFAIRS

The financial position and results for the financial year are set out in the statement of financial position and in the statement of comprehensive income. The profit for the financial year attributable to participating equity shareholders amounted to US$36,411,229 (31 December 2016: US$79,153,810).

The Company made the following announcements on dividends to the U.S Dollar Class relating to the year ended 31 December 2017:

· On 19 January 2017, the Board declared a dividend of US$0.0275 per US Dollar share, of the U.S. Dollar Share Class, in respect of the financial period from 1 October 2016 to 31 December 2016. The dividend was paid on 1 February 2017 to shareholders on the share register as at the close of business on 27 January 2017. The amount paid in respect of this dividend was US$14,939,467. 

· On 20 April 2017, the Board declared a dividend of US$0.0225 per U.S. Dollar Class Share in respect of the financial period from 1 January 2017 to 31 March 2017. The dividend was paid on 3 May 2017 to shareholders on the share register as at the close of business on 28 April 2017. The amount paid in respect of this dividend was US$12,223,200.

· On 20 July 2017, the Board declared a dividend of US$0.0225 per U.S. Dollar Class Share in respect of the financial period from 1 April 2017 to 30 June 2017. The dividend was paid on 2 August 2017 to shareholders on the share register as at the close of business on 27 July 2017. The amount paid in respect of this dividend was US$12,223,200.

· On 19 October 2017, the Board declared a dividend of US$0.0225 per U.S. Dollar Class Share in respect of the financial period from 1 July 2017 to 30 September 2017. The dividend was paid on 1 November 2017 to shareholders on the share register as at the close of business on 27 October 2017. The amount paid in respect of this dividend was US$12,223,201.

No dividends were declared in respect of the Repurchase Pool Class Share Class. Details of the Repurchase Pool Class Shares are set out in note 7.

On 12 October 2017, the Company announced the publication of a Prospectus, which contains details of an offer to each holder of U.S. Dollar Shares ("U.S. Dollar Shares") in the Company to convert some or all of their U.S. Dollar Shares into Repurchase Pool Class Shares, as defined below, (the "Repurchase Opportunity") and of a 12-month Placement Programme of U.S. Dollar Shares and/or C Shares. Under the Placement Programme, new Shares may be issued, as either U.S. Dollar Shares or C Shares, with aggregate gross placing proceeds of up to U.S.$300 million. Whilst there was no immediate intention to issue New Shares, Shareholders' approval for the issue of New Shares was sought at the AGM in order to enable the Directors to respond promptly to investor demand and conduct future fund raises in a cost efficient manner without needing to convene an additional extraordinary general meeting.

On 31 October 2017, the Company announced the results of the Repurchase Opportunity: 144,451,569 U.S. Dollar Shares of no par value, representing 26.6 per cent. of the issued U.S. Dollar Shares of the Company as of 30 October 2017, were re-designated into U.S. Dollar denominated shares of no par value on a one-to-one basis ("Repurchase Pool Class Shares"). Further detail is set out in the note 7 of these financial statements.

The Company's U.S. Dollar Shares have a listing on the Premium Segment of the Official List of the UK Listing Authority and are admitted to trading on the main market of the London Stock Exchange ("LSE"). The Company's Repurchase Pool Class Shares are admitted to trading on the Specialist Fund Segment of the main market of the LSE.

Please see note 17 for other important events during the financial year.

 TRANSACTIONS INVOLVING DIRECTORS

Please refer to note 5 and note 10 for details of transactions involving Directors.

MATERIAL CHANGES DURING THE YEAR

Please refer to note 17 "Other Events During the Financial Year" for details of the important events occurring during the financial year. 

EVENTS SINCE FINANCIAL YEAR END

Please refer to note 18 "Subsequent Events" for details of the important events occurring after the reporting date.

DIRECTORS

The names of the persons who were Directors at any time during the financial year are set out in the section entitled "Management and Administration". As at 31 December 2017, all five Directors are non-executive, each of whom, apart from Ed D'Alelio, are independent of the Investment Manager. No Director has a service contract with the Company. The Directors have each entered into a letter of engagement with the Company setting out the terms of their appointment, copies of which are available for review by the shareholders.

DIRECTORS' AND COMPANY SECRETARY'S INTERESTS

Neither the Directors (including family interests) nor the company secretary, State Street Fund Services (Ireland) Limited (the "Company Secretary"), have any shareholdings in the Company as at 31 December 2017.

MANAGEMENT ARRANGEMENTS

The Investment Manager acts as Investment Manager of the Company pursuant to the terms of the amended and restated investment management agreement dated 11 October 2017 between GSO/Blackstone Debt Funds Management LLC and the Company. The update was to include details of the performance fees payable to the Investment Manager in respect of the Repurchase Pool Class Shares.

The management fees and other fees payable to the Investment Manager are disclosed in note 5. After due consideration of the investment experience, resources and reputation of the Investment Manager as a whole, it is the opinion of the Directors that the continuing appointment of the Investment Manager on the terms agreed is in the interest of shareholders as a whole. The Investment Management Agreement may be terminated on six-months' notice by either party and may also be terminated by either party with immediate effect on the occurrence of certain events, including: (i) if an order has been made or an effective resolution passed for liquidation of the other party; (ii) if a receiver or similar officer has been appointed in respect of the other party or its assets or the other party becomes subject to an administration order; (iii) if the other party enters into an arrangement with its creditors, or any of them or the other party is or is deemed to be unable to pay its debts; (iv) if the other party ceases or threatens to cease to carry on its business or threatens to make any material alteration to the nature of its business as carried out on the date of the investment management agreement; or (v) if the other party commits a material breach of its obligations under the investment management agreement and such breach (if capable of being remedied) is not remedied within 28 days of receiving notice of the breach. The duration of the Investment Manager's appointment has not been fixed.

ACCOUNTING RECORDS

The Directors are responsible for ensuring that adequate accounting records, as outlined in Sections 281 to 285 of the Companies Act 2014, are kept by the Company. To achieve this, the Directors have employed a service organisation, State Street Fund Services (Ireland) Limited (the "Administrator"). The accounting records are maintained at the Company's registered office at 78 Sir John Rogerson's Quay, Dublin 2, Ireland.

PRINCIPAL RISKS, UNCERTAINTIES, RISK MANAGEMENT OBJECTIVES AND POLICIES

The Company's investment objective is to produce attractive and stable returns with a low volatility compared to equity markets, by investing in a diversified portfolio of Senior Notes of CLOs, collateralised by senior secured bank loans and Equity and Mezzanine tranches of CLOs. Investment in the Company carries with it a degree of risk including, but not limited to, business risks and the risks associated with financial instruments, referred to in note 11 of these financial statements and the Investment Manager's review. The primary business risk is the risk that the Company may not achieve its investment objective. Meeting that objective is a target but the existence of such an objective should not be considered as an assurance or guarantee that it can or will be met.

PRINCIPAL RISKS, UNCERTAINTIES, RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

A summary of the primary risks relating to the Company are:

· In calculating its NAV, the Company may be required to rely on estimates of the value of securities in which the Company invests which are unaudited or subject to little verification or other due diligence.

· There are risks related to CLO securities, including leveraged credit risk, the potential for interruption and deferral of cash flow, asset/liability mismatch risk, currency risk, volatility risk, liquidity risk, reinvestment risk and risks associated with collateral.

· The success of the Company is significantly dependent on the expertise of the Investment Manager and the Investment Manager's ability to source CLOs which are suitable to be held in the Company's portfolio.

· There can be no assurance that the Investment Manager will be able to accurately predict the future course of price movements and performance of securities.

· Restrictions on withdrawal of capital means that shareholders must be prepared to bear the risks of owning an interest in the shares for an extended period of time.

· The market price of the shares can fluctuate and there is no guarantee that the market prices of shares will reflect fully their underlying NAV.

The past performance of the Company is not necessarily indicative of, and cannot be relied upon as a guide to, the future performance of the Company.

COMPANY CORPORATE GOVERNANCE

Introduction

The Company is subject to and complies with Irish statute including the Companies Act 2014, with the Listing Rules of the UK Listing Authority, and with the voluntary Corporate Governance Code for Collective Investments Schemes and Management Companies issued by the Irish Funds Industry Association in December 2011 (the "Irish Code").

The Listing Rules of the UK Listing Authority requires the Company to apply the main principles of the UK Corporate Governance Code (the "UK Code") published by the Financial Reporting Council (the "FRC") in September 2014, and the Board is required to report to shareholders on how it has done so.*

The Irish Code is a voluntary code that was issued by the Irish Funds Industry Association in December 2011 and was adopted by the Company in 2012. The Irish Code provides a framework for the organisation and operation of funds to ensure that funds operate efficiently and in the interests of shareholders.**

The Board considers that the Company has complied with the main provisions contained in the Irish Code and the UK Code, (except as outlined in the sections entitled "Compliance with the UK Code" and "Compliance with the Irish Code") and throughout this accounting period, and that it complies with corporate governance requirements in Ireland. The paragraphs below describe how the relevant principles of corporate governance are applied by Carador.

In the opinion of the Directors, the Annual Report and the Audited Financial Statements are fair, balanced and understandable and provide the information necessary for the shareholders to assess the Company's performance, business model and strategy.

The Board

The Board currently consists of five non-executive Directors, each of whom, apart from Ed D'Alelio, is independent of the Investment Manager. Werner Schwanberg is the Chairman of the Board (the "Chairman"). The Board accepts collective responsibility for the decisions of the Board. The Board had four scheduled board meetings during the financial year ended 31 December 2017 (see the table below) and between these formal meetings, there was regular contact between the Board, the Investment Manager, the Company Secretary and the Company's brokers. The Directors are kept fully informed of investment and financial controls and other matters that are relevant to the business of the Company and should be brought to the attention of the Directors.

The Directors, where necessary in the furtherance of their duties, have access to independent professional advice at the expense of the Company.

The attendance record of Directors at the meetings for the financial year ended 31 December 2017 is set out below:

The Board has a breadth of experience relevant to the Company and the Directors believe that any changes to the Board's composition can be managed without undue disruption. With any new Director appointment to the Board, consideration will be given as to whether an induction process is appropriate and upon any such appointment the new Director would be available to meet shareholders upon request. There is a robust process in place for ensuring the Board has the right information at the right time and in the right format to enable the Directors to make informed decisions. The Chairman sets the Board agenda, assisted by the Company Secretary. An annual board timetable is prepared by the Company Secretary to map out the flow of key report/items submitted to the Board and to ensure that sufficient time is allocated for discussions and material issues.

* The UK Code can be found at: https://www.frc.org.uk/Our-Work/Codes-Standards/Corporate-governance/UK-Corporate-Governance-Code.aspx.

**A copy of the Irish Code can be found at: http://www.irishfunds.ie/media-centre/news-archive/67-corporate-

governance-code-and-faqs/faqs.

The Board (continued)

Directors may request any agenda items to be added that they consider appropriate for Board discussion. Additionally, each Director is required to inform the Board of any potential or actual conflicts of interest prior to Board discussion.

Questions arising at any meeting shall be determined by a majority of votes. In case of an equality of votes, the Chairman shall have a second or casting vote. A Director may, and the Company Secretary on the requisition of a Director shall, at any time summon a meeting of the Directors. The quorum necessary for the transaction of business of the Directors may be fixed by the Directors, and unless so fixed at any other number shall be two.

The primary focus at Board meetings is a review of the overall business of the Company including investment policy, investment performance, risks affecting the Company (investment and other) and other matters (including, but not limited to, administration, corporate governance and compliance, marketing/investor relations, peer group information and industry issues). The Board evaluates Board composition and considers the tenure of each Director on an annual basis and believes that the mix of skills (including investment and accounting skills), experience, ages and length of service are appropriate to the requirements of the Company. The Board conducts an annual performance evaluation of the Board, its committees and individual Directors. The evaluation of the Board considers, among other things, the balance of experience, skills, independence, knowledge and time commitments of the Board and how it works together as a unit. The Chairman leads a discussion among the Board through the use of a questionnaire, and the feedback from each Board member to the questions posed by the questionnaire are recorded in meeting minutes. In addition to this annual performance review of the Board, a formal review of the performance of the Board, the individual Directors and the Chairman is carried out every three financial years.

Directors' duties and responsibilities

The duties and responsibilities of the Directors cover the following areas:

· statutory obligations and public disclosure;

· strategic matters and financial reporting;

· oversight of management and personnel matters;

· risk assessment and management, including reporting, monitoring, governance and control; and

· other matters having a material effect on the Company.

Nomination/remuneration committees

The nominations committee was established during 2017 and is requested and authorised by the Board to lead the process for considering and selecting suitable candidates for appointment as Directors of the Company and make recommendations thereon to the Board, and also to review any matters relating to nominations for appointment as directors as may otherwise be requested by the Board from time to time. There was one nomination committee meeting held in the financial year ended 31 December 2017. 

A remuneration committee was established on 6 April 2011. The Board has adopted a documented terms of reference in respect of the remuneration committee evidencing all delegated authorities given to its members. The Chairman of the remuneration committee is Edward D'Alelio. Nicholas Moss and Fergus Sheridan are the other members of the committee.

The functions of the remuneration committee are as follows:

1. responsibility for the preparation of recommendations to the Board regarding the remuneration of the members of the Board;

2. provide support and advice to the Board on determining an overall remuneration policy of the Company that is consistent with the objectives, values and interests of the Company and reflects comparable compensation levels of the peer universe for the Company;

3. oversee and review the implementation of the remuneration policy of the Company; and

4. perform any other activities as the Board deems necessary or appropriate.

Pricing committee

The Company's pricing policy was approved at the board meeting on 27 August 2013. This policy and its associated process replaced the previously defined process, which was undertaken by the pricing committee. The current process is implemented by the Investment Manager, which reports to the Pricing Liaison Director and the Administrator on a monthly basis. Edward D'Alelio was appointed as Pricing Liaison Director at a board meeting on 24 April 2013.

Audit committee

The Audit committee comprised of Adrian Waters, Fergus Sheridan and Nicholas Moss for the financial year ended 31 December 2017. The Audit committee examines, amongst other things, the effectiveness of the internal systems, the annual report and financial statements and interim report of the Company, and aims to identify significant risks facing the Company. It also oversees the remuneration and engagement of KPMG (the "Auditor"), as well as the Auditor's independence and any non-audit services provided by them. Please see the Audit Committee's report for further details in relation to its role and responsibilities.

Internal controls

The Board is ultimately responsible for the system of internal controls for the Company, identifying significant risks facing the Company and oversight of the system of controls to mitigate them. The Board confirms that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Company. The Audit committee assists the Board in discharging these responsibilities.

This process has been in place for the financial year under review and up to the date of approval of this annual report and financial statements and is reviewed by the Board and accords with the Irish Code and the UK Code. The Board has reviewed the effectiveness of the system of internal controls. In particular, it has reviewed and updated the process for identifying and evaluating the significant risks affecting the Company and the policies by which these risks are managed. The principal financial instrument risks are described on pages 63 to 67. The Board has also identified the following additional risks and uncertainties:

Delegated activities

As there is delegation of daily operational activity, described below, the Company has no direct internal audit function. The Board receives regular reporting from the service providers to the Company and conducts an annual review of the service providers. The internal control systems seek to keep the Company within its risk appetite.

The Board has delegated the responsibility for (i) management of the Company's investment portfolio, (ii) provision of custody services and (iii) administration, registrar and corporate secretarial functions of the Company including independent calculation of the NAV and production of the independently audited annual report and financial statements. Whilst the Board delegates responsibility, it retains accountability for the functions it delegates and is responsible for the systems of internal control. Formal contractual agreements have been put in place between the Company and providers of these services. Compliance reports are provided on a quarterly basis by the Administrator.

Corporate responsibility

The Company's business is concerned with investment. It considers the ongoing concerns of its shareholders by open and regular dialogue with and through the appointed Investment Manager and the Company's brokers.

The Company does not have any employees.

Going concern statement

In accordance with provision C.1.3 of the UK Code, after making enquiries and given the nature of the Company and its investments, the Directors are satisfied that it is appropriate to continue to adopt the going concern basis in preparing the financial statements and, after due consideration, the Directors are satisfied that the Company has the resources to continue in business for a period of 12 months from the date of approval of the financial statements (27 April 2018). The going concern statement should be read in conjunction with the Company's viability statement.

Viability statement

In accordance with provision C.2.2 of the UK Code, at least annually, the Board conducts a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency and liquidity. The Directors have considered each of the Company's principal risks and uncertainties detailed on page 15, in particular the risk arising from the possible application of the retention requirements under AIFMD and the impact of such changes that could materially affect the ability of the Company to pursue its investment objective and policy. The Directors also considered the Company's policy for monitoring, managing and mitigating its exposure to these risks. This assessment involved an evaluation of the potential impact on the Company of these risks occurring. Where appropriate, the Company's financials were subject to a scenario analysis in order to analyse the effect on the Company's cash flows and other key financial metrics.

While provision C.2.2 of the UK Code requires Directors to assess the prospects of the Company over a period significantly longer than twelve months, exceptions are permitted in rare circumstances. The Board conducted this review for a period covering the next twelve months taking into account the uncertainty surrounding the revisions to the retention requirements under AIFMD.

The Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next 12 months. This is based on the assessment of the principal risks facing the Company and the scenario analysis based assessment of the Company's prospects. Further, the Company's only liabilities are expenses paid to service providers and the Repurchase Pool Class Shares. The key liabilities are linked to NAV and thus fluctuate as the NAV of the Company increases and decreases, subject to a minimum in certain cases. This results in the Company being able to comfortably cover the liabilities as they fall due.

Relations with shareholders

The Investment Manager and the Company's brokers maintain a regular dialogue with shareholders, the feedback from which is reported to the Board. In addition, Board members are available to respond to shareholders' questions at the Annual General Meeting and on an ad hoc basis if necessary.

In each financial year, the Company shall hold a general meeting of the Company as its Annual General Meeting in Ireland. At least twenty-one days' notice (excluding the day of mailing and the day of the meeting) shall be given in respect of each general meeting of the Company. The notice shall specify the venue and time of the meeting, the business to be transacted at the meeting and that a proxy may attend and vote on behalf of any shareholder. The requirements for quorum and majorities at all general meetings are set out in the articles of association of the Company (the "Articles of Association"). An ordinary resolution is a resolution passed by a simple majority of the votes cast and a special resolution is a resolution passed by a majority of 75% or more of the votes cast.

The Articles of Association provide that matters may be determined at a meeting of shareholders on a show of hands unless a poll is requested by five shareholders or shareholders holding 10% or more of the shares or unless the Chairman of the meeting requests a poll. Subject to disenfranchisement by law in the event of noncompliance with any notice requiring disclosure of the beneficial ownership of shares, the Articles of Association provide that each share gives the holder one vote in relation to any matters relating to the Company which are submitted to shareholders for a vote by poll, and each shareholder present at a meeting has one vote in relation to any matters relating to the Company which are submitted to shareholders for a vote by show of hands. If there are multiple share classes in existence, all shares of each class have equal voting rights, except that in matters affecting only a particular class, only shares of that class shall be entitled to vote.

The Board monitors the trading activity and shareholder profile on a regular basis. Shareholder sentiment is also ascertained by the careful monitoring of the discount/premium at which the shares trade in the market against the Net Asset Value per share when compared to the discounts/premiums experienced by the Company's peer group.

The Company reports formally to shareholders twice each financial year and a proxy voting card is sent to shareholders with the annual report and financial statements. Additionally, the Investment Manager's monthly reports are available to shareholders through the Company's website. The Regulatory News Service of the London Stock Exchange assist in keeping shareholders informed.

Relations with shareholders (continued)

Computershare Investor Services (Ireland) Limited (the "Registrar") monitors the voting of shareholders, and proxy voting is taken into consideration when votes are cast at the annual general meeting. Shareholders may contact the Directors via the Company Secretary.

Compliance with the UK Code

Throughout the financial year ended 31 December 2017, the Company has complied with the UK Code, with the following exceptions:

A4.1 - The Board has considered whether a Senior Independent Director should be appointed. In light of the fact that all Directors are non-executive and given the size and complexity of the Company, the Board has determined that this appointment is not necessary.

As outlined above, the Board considers that the appointment of a Senior Independent Director is not necessary given the size and complexity of the Company. However, in accordance with the Irish Code, the Board carries out an appraisal of the performance of the overall Board and of each Director (including the Chairman) on an annual basis, with a formal documented evaluation of the overall Board and of each Director (including the Chairman) taking place every three financial years. The Board considers that this appraisal process is appropriate for the Company.

B.1 - This provision is not fully complied with as it calls for a balance of executive and non-executive Directors and the Company only has non-executive Directors. However, the Directors have a broad range of experience and given the nature of the Company's activity and outsourcing of executive functions and that the majority of Directors are deemed to be independent under the UK Code, it is not considered necessary to appoint executive Directors.

B1.1 - While several Directors have served on the Board for more than nine years from the date of their first election, the Board considers these Directors to be independent because none of such Directors:

· Have been an employee of the Company or Group within the last five years;

· Have had within the last three years, a material business relationship with the Company either directly, or as a partner, shareholder, Director or senior employee of a body that has such a relationship with the Company;

· Received or receives additional remuneration from the Company apart from a Director's fee, participates in the Company's share option or a performance related pay scheme, or is a member of the Company's pension scheme;

· Have close family ties with any of the Company's advisers, Directors or senior employees;

· Hold cross-directorships or have significant links with other Directors through involvement in other companies or bodies; or

· Represent a significant shareholder.

Further, the Board considers such Directors to discharge their director duties in an independent manner.

B2.3 - This provision is complied with save that, all of the Directors are appointed pursuant to letters of appointment for a term which expires when the Director is (i) removed or vacates office; (ii) resigns, or (iii) terminates his appointment. A Director's appointment may be terminated in accordance with the Company's Articles of Association without compensation.

B2.4 - Whilst the Company does not have a formal diversity policy in place, diversity, including gender diversity, is considered by the Company in the evaluation of the Board and its performance, and will be taken into account in making any future Board appointments.

C3.6 - Since the Company does not have any employees, the Company does not have an internal audit function. The Audit Committee annually considers whether an internal audit function is needed and makes a recommendation to the Board. The Board considers that an internal audit function is not necessary, given the size and complexity of the Company, and the use of an external auditor.

E.1 - Since the Company does not have any employees, it is the management team of the Investment Manager who has most regular contact with shareholders on behalf of the Board. Comments received from such shareholders are fed back to the Board both from the Investment Manager and the Company's brokers. All Directors are available to attend the Annual General Meeting, and are available to communicate with shareholders.

Compliance with the Irish Code

The Company adopted the Irish Code with effect from 31 December 2012, and has complied with the Irish Code with the following exception:

Paragraph 4.2 - This provision is not fully complied with as it recommends that at least one Director be an employee, partner or director of the promoter or Investment Manager. However, the Directors have a broad range of experience and it is considered that there is a good balance of skills and expertise on the Board. In addition, the Directors are satisfied with the support and reporting provided by the Investment Manager on an ongoing basis such that it is not considered necessary to have a representative of the Investment Manager on the Board.

Additional corporate governance disclosures under Irish Company Law

The Board is ultimately responsible for overseeing the establishment and maintenance of adequate internal control and risk management systems of the Company in relation to the financial reporting process. As the Company has no employees and all Directors serve in a non-executive capacity, all functions including the preparation of the financial statements have been outsourced. The Company has appointed State Street Fund Services (Ireland) Limited as its administrator consistent with the regulatory framework applicable to investment fund companies. The Administrator has functional responsibility for the preparation of the interim and annual financial statements and the maintenance of the accounting records. On appointing the Administrator, the Board noted that it was regulated by the Central Bank and, in the Board's opinion, had significant experience as an administrator. The Board also noted the independence of the Administrator from the Company's Investment Manager.

Subject to the supervision of the Board, the appointment of the Administrator is intended to manage rather than eliminate the risk of failure to achieve the Company's financial reporting objectives and can only provide reasonable and not absolute assurance against material misstatement or loss.

The Board and Audit Committee evaluates and discusses significant accounting and reporting issues as the need arises. The Board and Audit Committee review the financial statements prior to their approval, though it should be noted that such review does not include verification of information in the financial statements to source documents. The annual financial statements are subject to an independent audit.

Internal control and risk management systems in relation to financial reporting

The Administrator prepares the Company's financial statements and uses various internal controls and checklists to ensure the financial statements include complete and appropriate disclosures required under IFRS as adopted by the European Union and relevant legislation.

During the financial period of these financial statements, the Board was responsible for the review and approval of the annual financial statements as set out in the Statement of Directors' Responsibilities. The Board and the Audit Committee evaluate and discuss significant accounting and reporting issues as the need arises.

Capital structure

As at 23 April 2018, so far as the Directors are aware, no person other than those listed below was interested, directly or indirectly, in 5% or more of the issued share capital of the Company.

U.S. Dollar Share Class:

Repurchase Pool Share Class:

Only holders of U.S. Dollar Class Shares participate in dividends.

With regard to the appointment and replacement of Directors, the Company is governed by its Articles of Association, the Companies Act 2014, and the Listing Rules of the UK Listing Authority as applicable to investment funds. The Articles of Association themselves may be amended by special resolution of the shareholders.

Powers of the Directors

The Directors are responsible for managing the business affairs of the Company in accordance with the Articles of Association. The Directors may delegate certain functions to the Administrator and other parties, subject to the supervision and direction by the Directors. The Directors have delegated the day-to-day administration of the Company to the Administrator and the investment management function to the Investment Manager.

The Articles of Association provide that the Directors may exercise all the powers of the Company to borrow money, to mortgage or charge its undertaking, property or any part thereof and may delegate these powers to the Investment Manager. However, the amount and circumstances in which the Company may borrow are limited by the limitations set out in the Prospectus.

The Directors may at any time, and from time to time, temporarily suspend the calculation of the NAV and the issue and conversion of shares during:

· any period when any of the principal markets or stock exchanges on which a substantial part of the investments are quoted is closed, otherwise than for ordinary holidays, or during which dealings thereon are restricted or suspended;

· any period when, as a result of political, economic, military or monetary events or any circumstances outside the control, responsibility and power of the Directors, disposal or valuation of a substantial part of the investments is not reasonably practicable without this being seriously detrimental to the interests of the shareholders or if, in the opinion of the Directors, the Net Asset Value cannot be fairly calculated; and

· any breakdown in the means of communication normally employed in determining the value of the investments or when for any reason the current prices on any market of a substantial part of the investments cannot be promptly and accurately ascertained.

Powers of the Directors (continued)

Any suspension of the calculation of the NAV of the U.S. Dollar Share Class or of the Repurchase Pool Class Shares shall be notified immediately to the Central Bank. All reasonable steps will be taken to bring the period of suspension to an end as soon as possible. Where such a suspension of the NAV is likely to continue for a period exceeding ten business days, it will be notified by the Company by announcement through a Regulatory Information Service. The Directors may decline to accept any application for the issue of shares and may cease to offer shares in the Company for allotment or subscription for a definite period or otherwise.

RESPONSIBILITY STATEMENT

The Directors are responsible for preparing the Directors' Report and the Company's audited financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS") and these have been applied in accordance with the provisions of the Companies Act 2014.

Section 289 of the Companies Act 2014 provides that the Directors shall not approve the financial statements unless they are satisfied that they give a true and fair view of the Company's assets, liabilities and financial position as at the end of the financial year and of the profit or loss of the Company for that financial year.

In preparing the financial statements, the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgements and estimates that are reasonable and prudent;

· state whether the financial statements comply with IFRS as adopted by the European Union and as applied in accordance with the Companies Act 2014;

· assess the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and

· use the going concern basis of accounting unless they either intend to liquidate the Company or cease operations, or have no realistic alternative but to do so.

Under applicable law and the requirements of the Irish Code and the Listing Rules issued by the UK Listing Authority, the Directors are also responsible for preparing a Directors' report and reports relating to Directors' remuneration and corporate governance that comply with that law and those rules. In particular, in accordance with the Transparency (Directive 2004/109/EC) Regulations 2007, as amended (the "Transparency Regulations"), the Directors are required to include in their report a fair review of the business and a description of the principal risks and uncertainties facing the Company and a responsibility statement relating to these and other matters, included below.

The Directors are responsible for keeping adequate accounting records which correctly record and explain the transactions of the Company, and which disclose with reasonable accuracy at any time the assets, liabilities, financial position and profit or loss of the Company, and which enable them to ensure that the financial statements of the Company are prepared in accordance with IFRS as adopted by the EU, and comply with the Companies Act 2014, and enable the financial statements to be audited. They are responsible for such internal controls as they determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for safeguarding the assets of the Company, and hense for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are also responsible for preparing a Directors' report that complies with the requirements of the Companies Act 2014.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website www.carador.co.uk. Legislation in the Republic of Ireland concerning the preparation and dissemination of financial statement may differ from legislation in other jurisdictions.

RESPONSIBILITY STATEMENT (continued)

Responsibility Statement, as required by the Transparency Regulations and UK Corporate Governance Code

Each of the Directors, whose names and functions are listed on page 16 of this Annual Report, confirm that, to the best of that Director's knowledge and belief:

· the financial statements, prepared in accordance with IFRS as adopted by the EU, and applied in accordance with the provisions of the Companies Act 2014, give a true and fair view of the assets, liabilities, financial position of the Company as at 31 December 2017, and its profit or loss for the financial year then ended;

· the Directors' report contained in the Annual Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties it faces; and

· the Annual Report and financial statements, taken as a whole, provides the information necessary to assess the Company's performance, business model and strategy and is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

CONNECTED PARTY TRANSACTIONS

The Central Bank of Ireland Non-UCITS Notices, NU 2.10 - 'Dealings by promoter, manager, partner, trustee, investment adviser and group companies' states in paragraph one that any transaction carried out with a collective investment scheme by a promoter, manager, partner, trustee, investment adviser and/or associated or group companies of these ("connected parties") must be carried out as if negotiated at arm's length. Transactions must be in the best interests of the shareholders.

The Directors are satisfied that there are arrangements in place, to ensure that the obligations set out in paragraph one of NU 2.10 are applied to all transactions with connected parties; and the Directors are satisfied that transactions with connected parties entered into during the period complied with the obligations set out in paragraph one of NU 2.10.

RETENTION REQUIREMENTS UNDER AIFMD AND EU SECURITISATION REGULATION

Under Article 17 of AIFMD, alternative investment fund managers ("AIFM") may only assume exposure to securitisations as defined therein on behalf of one or more alternative investment funds ("AlFs") if the originator, sponsor or original lender of the securitisation has explicitly disclosed to the AIFM that it retains, on an ongoing basis, a material net economic interest in the securitisation, which shall not be less than 5% (the "retention requirement"). The Company is an AIF for the purposes of AIFMD and the Investment Manager is designated as the AIFM of the Company. The Central Bank has noted that, in accordance with Article 67(1)(b) of AIFMD, ESMA was required to issue advice to the European Commission on the application of the AIFMD passport, and related obligations such as the retention requirements, to non-EU AIFMs. If that advice is positive, the European Commission must adopt a delegated act specifying the date when the non-EU AIFM passport will be "turned on". The latest advice issued by ESMA was published on 19 July 2016, although it is not clear if or when the European Commission will adopt the delegated act envisaged under AIFMD. The Central Bank has noted that, as of the date of these financial statements, this process is underway and the outcome is not yet known and, accordingly, professional investor funds such as the Company can continue to be managed by non-EU AIFMs under the existing transitional arrangements until the European Commission has reached a decision. The Central Bank has stated that, at that time, this position will be revisited and, if necessary, revised to align it with the European Commission's decision and any transitional arrangements provided. Separately, on 17 January 2018, the EU Securitisation Regulation (EU) 2017/2402 (the "Securitisation Regulation") entered into force, and will apply from 1 January 2019. The Securitisation Regulation amends Article 17 of AIFMD and also contains provisions potentially bringing into scope non-EU AIFMs marketing and/or managing AIFs in the EU. Accordingly, it may be the case that the transitional arrangements applicable to non-EU AIFMs (whereby they were not subject to the retention requirements) will expire as early as January 2019. If and when applicable, the retention requirement could operate as a material restriction on the investment activities of the Company. In particular, if CLOs then held by the Company do not meet with the retention requirement, corrective action may need to be taken to ensure compliance with AIFMD and the Securitisation Regulation including disposal of the CLOs, thereby incurring additional costs and selling at a price less than would otherwise have been the case if the CLOs had been held for the desired length of time. In addition, the universe of CLOs which adhere to the retention requirement may be limited and restrict the ability of the Company to pursue its investment objective and policy.

These and other restrictions and/or conditions imposed by AIFMD and the Securitisation Regulation may result in (i) the restructuring of the Company and/or its relationships with service providers, and (ii) restrictions on the investment activities the Investment Manager or the Company may engage in.

AUDITORS

So far as the Directors are aware, there is no relevant audit information of which the Company's auditors are unaware and the Directors have taken all the steps that should have been taken as Directors in order to make themselves aware of any relevant audit information and to establish that the Company's auditors are aware of that information.

The auditors, KPMG, have confirmed their willingness to continue in office in accordance with Section 383(2) of the Companies Act 2014.

On behalf of the Board of Directors:

Fergus Sheridan Adrian Waters

27 April 2018

AUDIT COMMITTEE REPORT 

Dear Shareholders,

I am pleased to report to you on the activities of the Audit Committee for the financial year ended 31 December 2017.

ROLE OF THE AUDIT COMMITTEE

The Board has established a terms of reference in respect of the composition of the Audit Committee, its role, responsibilities, authority and evidence of the delegated authorities given to its members (the "Terms of Reference"). The Company applies the revised UK Code as introduced by the FRC in September 2014 which relate to financial years commencing on or after 1 October 2014.

The Audit Committee's main roles and responsibilities include, but are not limited to, the following:

· monitoring the financial reporting process of the Company, the integrity of the financial statements and any formal announcements relating to the Company's financial performance;

· assessing any significant financial reporting judgements;

· reviewing and monitoring the effectiveness of the Company's risk management and internal control arrangements;

· monitoring the statutory audit of the annual accounts of the Company and its effectiveness;

· reviewing the external auditor's performance, independence and objectivity;

· making recommendations to the Board in relation to the appointment, re-appointment and/or removal of the external auditor, the approval of the external auditor's remuneration and the terms of the engagement;

· implementing policies surrounding the engagement of the external auditor to supply non-audit services (where appropriate);

· contributing to a climate of discipline and control which is aimed at reducing the opportunity for fraud;

· reporting to the Board on how it has discharged its responsibilities; and

· developing the long term viability statement.

In regard to the above responsibilities, I confirm, on behalf of the Audit Committee (the "Committee"), that, to the best of our knowledge and belief, the Committee fulfilled its responsibilities in line with our Terms of Reference and in accordance with the UK Code.

DELEGATION OF DUTIES

The Company has no employees as all functions, including preparation of the financial statements, have been outsourced to various service providers. The daily operational activities have been outsourced to GSO / Blackstone Debt Funds Management LLC (the "Investment Manager"), the Administrator, State Street Custodial Services (Ireland) Limited (the "Depositary"), the Registrar and Company Secretary (together, the "outsourced service providers").

MEMBERSHIP OF THE COMMITTEE

The Committee was established on 17 April 2007 and consists of Nicholas Moss, Fergus Sheridan and myself, Adrian Waters, as chairman.

All the members of the Committee are independent non-executive directors and the Committee has concluded that its membership meets the requirements of C.3.1 of the UK Code. Each Committee member is expected to be financially literate and to have knowledge of the following key areas:

1. financial reporting principles and accounting standards;

2. the regulatory framework within which the Company operates;

3. the Company's internal control and risk management environment; and

4. factors impacting the Company's Financial Statements.

As a Committee, we meet at least three times a financial year. Personnel from the Company's outsourced service providers along with representatives of the Company's external auditor, KPMG, attend the Committee meetings when appropriate.

In his role as a member of the Committee, each member is available to discuss any particular matter with his fellow Board members and, in addition, the Committee has the opportunity to meet with KPMG without the presence of outsourced service providers. In order to ensure that all Directors are kept up to date and informed of the Committee's work, I provide a verbal report to the Board at Board meetings on key matters discussed at the Committee meetings. In addition, the minutes of all Committee meetings are available to the Board.

AUDIT COMMITTEE REPORT (continued)

HOW THE AUDIT COMMITTEE HAS DISCHARGED ITS RESPONSIBILITIES

In the financial year under review, the Audit Committee has met three times, attendance at which is set out in the Directors report. The Committee meetings focused on the following key areas:

Monitoring the integrity of the financial statements including significant judgements

· The Committee reviewed the appropriateness of the Company's accounting principles and policies, and monitored changes to, and compliance with, accounting standards on an ongoing basis;

· Prior to recommending their publication to the Board, the Committee reviewed the Unaudited Condensed Interim Consolidated Financial Statements ("Unaudited Interim Report") for the six month period ended 30 June 2017, having previously discussed the Unaudited Interim Report with the outsourced service providers and KPMG. The Committee compared the results with management accounts and budgets, focusing on key areas of judgements; and

· The Committee reviewed, prior to making any recommendations to the Board, the Annual Report and Audited Financial Statements ("Annual Report") for the financial year ended 31 December 2017. In undertaking this review, the Committee discussed with outsourced service providers and KPMG the critical accounting policies and judgements that have been applied.

KPMG reported to the Committee on any misstatements that they had found during the course of their work and confirmed that under ISAs (Ireland), no material misstatements were identified.

The Committee considered the requirements of the UK Code, in line with best practice reporting. The Committee specifically reviewed the annual report and financial statements to conclude whether the financial reporting is fair, balanced, understandable, comprehensive and consistent with (i) prior year reporting; and (ii) how the Board assesses the performance of the Company's business during the financial year, as required for companies with a Premium Listing under the UK Corporate Governance Code. As part of this review, the Committee considered if the annual report and financial statements provided the information necessary to shareholders to assess the Company's performance, strategy and business model and reviewed the description of the Company's key performance indicators.

The Committee presented its conclusions to the Board and the Board concluded that it considered the annual report and financial statements, taken as a whole, to be fair, balanced and understandable and provides the information necessary for the shareholders to assess the Company's performance, business model and strategy.

SIGNIFICANT ACCOUNTING MATTERS

During the financial year, the Committee considered key accounting issues, matters and judgements regarding the Company's financial statements and disclosures including those relating to:

Valuation of Financial Assets at Fair Value through Profit or Loss

Valuation of financial assets is considered a significant matter and is monitored by the Investment Manager, the Administrator, the Depositary, the Committee and the Board of Directors. The Committee receives and reviews reports on the processes for the valuation of assets on a regular basis. The Committee may propose or recommend changes based on their review of the reports for their consideration, including the adequacy of the relevant disclosures in the financial statements. The Committee discussed the valuation process and methodology with the Investment Manager in August 2017 as part of the review of the Interim Report. The Investment Manager carries out a monthly valuation and provides a detailed valuation report to the Company. The Committee met with the external auditor at the time at which the Committee reviewed and agreed the external auditor's audit plan in January 2018 and, in particular, discussed the audit approach on the valuation. Following discussion, the Committee were satisfied that the judgements made and methodologies applied were objective and appropriate and that the appropriate accounting treatment has been adopted. KPMG report to the Committee on their assessment of the Company's valuation methodologies and procedures applied financial year on financial year, as well as the consideration if the valuation of assets is fairly stated. Please see further details outlined in notes 2, 4 and 11 to the financial statements.

AUDIT COMMITTEE REPORT (continued)

Assessment of Consolidation Requirements

For the Unaudited Interim Report and the Annual Report, relevant discussions and analysis was undertaken on behalf of the Committee by the Investment Manager in relation to the Company's holdings in subordinated tranches of CLOs and the definition of control under IFRS 10. The Committee discussed the assessment of the consolidation requirements with the Investment Manager in August 2017 as part of the review of the Interim Report. The Investment Manager carries out this assessment semi-annually and reports to the Company. The Committee met with the external auditor at the time at which the Committee reviewed and agreed the external auditor's audit plan in January 2018 and, in particular, discussed the audit approach on the assessment of the consolidation requirements.

The Committee critically reviewed, evaluated and agreed, having consulted with the Investment Manager, that the Company meets the definition of an Investment Entity and availed of the Investment Entity Amendment under IFRS 10. Furthermore, analysis was performed on behalf of the Committee by the Investment Manager to establish the existence of any subsidiaries at financial year end under IFRS 10. Following discussion with KPMG, and the deliberations of the Committee, we were satisfied that the financial statements deal appropriately with each of the areas of judgement and applicable IFRS 10 and IFRS 12 requirements. Based on this assessment, the Board has concluded that at financial year end, the Company has three subsidiaries for financial reporting purposes, Keuka Park CLO Ltd 2013-1A, Pinnacle Park CLO Ltd 2014-1A and Sheridan Square CLO Ltd in accordance with IFRS 10. Please see further details outlined in notes 2 and 9 to the financial statements.

Assessment of Risks and Uncertainties

The risks associated with the Company's financial instruments, as disclosed in the financial statements, particularly in note 11, represent a key accounting disclosure. The Committee critically reviews, on the basis of input from the outsourced service providers, the process of ongoing identification and measurement of these risks disclosures.

Other Matters

Prior to preparation of the 2017 Annual Report and the financial year end audit, the Committee considered the effect of any key new reporting requirements impacting the Company. During the financial year, the Committee received communications from the outsourced service providers and from KPMG on other accounting matters including tax, audit fees, anti-money laundering procedures, as well as a representation letter and Unaudited Interim Report.

RISK MANAGEMENT AND INTERNAL CONTROLS

The Board as a whole is responsible for the Company's system of internal control; however, the Committee assists the Board in meeting its obligations in this regard. The daily operational activities of the Company were delegated to the outsourced service providers and, as a result, the Company has no direct internal audit function and instead places reliance on the external and internal audit controls applicable to the outsourced service providers as regulated entities. However, the Committee receives confirmations from the outsourced service providers that no material issues have arisen in respect of the system of internal controls and risk management operated within the Company's outsourced service providers. The Committee confirms that this is an ongoing process in order to manage the significant risks faced by the Company. We deem that, to date, there are no significant issues in this area which need to be brought to your attention.

EXTERNAL AUDIT

It is the responsibility of the Committee to monitor the performance, independence, objectivity and re-appointment of KPMG. In January 2018, the Committee met with KPMG who presented their Audit Strategy and Plan for the financial year; the Committee agreed the audit plan for the financial year, highlighting the key financial statement and audit risks, to seek to ensure that the audit was appropriately focused.

KPMG attends our Committee meetings throughout the financial year, as appropriate, which allows the opportunity to discuss any matters the auditor may wish to raise without the Investment Manager or other outsourced service providers being present. KPMG provides feedback at each Committee meeting on topics such as the key accounting matters, mandatory communications and the control environment.

KPMG was formally appointed as the Company's auditor for the 2010 financial year end audit following a competitive tender process during 2010. The lead audit partner is rotated every five financial years to ensure continued independence and objectivity.

The Committee continues to be satisfied with the performance of KPMG. We have therefore recommended to the Board that KPMG, in accordance with agreed terms of engagement and remuneration, should continue as the Company's auditor at the forthcoming Annual General Meeting.

AUDIT COMMITTEE REPORT (continued)

EXTERNAL AUDIT (continued)

In advance of the commencement of the annual audit, the Committee reviewed a statement provided by KPMG confirming their independence within the meaning of the regulations and professional standards. In addition, in order to satisfy itself as to KPMG's independence, the Committee undertook a review of the auditor compensation and the balance between audit and non-audit fees.

It is also the responsibility of the Committee to approve the guidelines for using the external auditors for non-audit work, and to annually assess the work done to ensure that the independence of the external auditors is maintained and to ensure appropriate disclosures of these services are included in the annual report. The Committee is the first point of call for discussion with the auditor when required. Annually, the Committee reviews the schedule of audit and non-audit fees of the auditor with particular regard to the auditors' independence and objectivity. The Committee has agreed the types of permitted and non-permitted non-audit services and those which require explicit pre-approval. During the financial year, the value of non-audit services provided by KPMG amounted to US$121,955 plus VAT (2016: US$33,170 plus VAT). Whilst non-audit services as a proportion of audit services amount to approximately 72.84% (2016: 20.45%), the overall quantum of non-audit services is not considered to be material. Please refer to note 5 for more details.

On 17 June 2016, new EU rules, Statutory Instrument No.312 of 2016, on statutory audit became applicable. The new rules establish a list of non-audit services that cannot be provided by the statutory auditor and imposes limitations on the fees charged for non-audit services. In addition to the review for ensuring compliance with the new EU rules, the Audit Committee performs an assessment of any threats to independence and the safeguards in place to mitigate such threats before providing approval for the provision of any non-audit services. The audit committee is satisfied with the charge for non audit services during the financial year in proportion to audit fees.

COMMITTEE EFFECTIVENESS

The effectiveness of the Committee is reviewed on an annual basis by both the Board and the Committee itself. Following such reviews, I am pleased to advise that the Committee is considered to continue to operate effectively and efficiently.

A member of the Committee will be available to shareholders at the forthcoming Annual General Meeting of the Company to answer any questions relating to the role of the Committee.

Yours sincerely

Adrian Waters

On behalf of the Audit Committee

27 April 2018

STATEMENT OF DEPOSITARY'S RESPONSIBILITIES AND DEPOSITARY'S REPORT TO THE SHAREHOLDERS

We have enquired into the conduct of the Company as the authorised Alternative Investment Manager (the "AIFM") in respect of the Company, the authorised Alternative Investment Fund ("AIF"), and into the conduct of the AIF itself as an investment company, for the financial year ended 31 December 2017 in our capacity as depositary to the AIF.

This report including the opinion has been prepared for and solely for the shareholders in the AIF, in accordance with the Central Bank's AIF Rulebook and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown.

RESPONSIBILITIES OF THE DEPOSITARY

Our duties and responsibilities are outlined in Regulation 22(7)(8)&(9) of European Union (Alternative Investment Fund Managers Directive) Regulations 2013 as amended (the "Regulations") and the AIF Rulebook. One of those duties is to enquire into the conduct of the AIFM and the investment company in each annual accounting period and report thereon to the shareholders.

Our report shall state whether, in our opinion, the AIF has been managed in that period in accordance with the provisions of the AIF's constitutional documentation and the AIF Rulebook. It is the overall responsibility of the AIFM and the investment company to comply with these provisions. If the AIFM or the investment company has not so complied, we as Depositary must state why this is the case and outline the steps which we have taken to rectify the situation.

BASIS OF DEPOSITARY OPINION

The Depositary conducts such reviews as it, in its reasonable opinion, considers necessary in order to comply with its duties as outlined in Regulation 22(7)(8)&(9) of the Regulations, and to ensure that, in all material respects, the AIF has been managed:

(i) in accordance with the limitations imposed on its investment and borrowing powers by the provisions of its constitutional documentation and the appropriate regulations; and

(ii) otherwise in accordance with the AIF's constitutional documentation and the appropriate regulations. 

OPINION

In our opinion, the AIF has been managed during the financial year, in all material respects:

(i) in accordance with the limitations imposed on the investment and borrowing powers of the authorised AIF by the constitutional document and by the Central Bank under the powers granted to the Central Bank by the investment fund legislation; and

(ii) otherwise in accordance with the provisions of the constitutional document and the investment fund legislation.

State Street Custodial Services (Ireland) Limited

78 Sir John Rogerson's Quay

Dublin 2

Ireland

27 April 2018

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF CARADOR INCOME FUND PLC

Opinions and conclusions arising from our audit

1 Our opinion on the financial statements is unmodified

We have audited the financial statements of Carador Income Fund PLC ("the Company") for the year ended 31 December 2017 which comprise the statement of financial position, the statement of comprehensive income, the statement of changes in equity, the statement of cash flows and the related notes, including the accounting policies in note 2. The financial reporting framework that has been applied in their preparation is Irish Law and International Financial Reporting Standards (IFRS) as adopted by the European Union.

In our opinion, the financial statements: 

· give a true and fair view of the assets, liabilities and financial position of the Company as at 31 December 2017 and of its profit for the year then ended;

· have been properly prepared in accordance with IFRS as adopted by the EU; and

· have been properly prepared in accordance with the requirements of the Companies Act 2014.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (Ireland) ("ISAs (Ireland)") and applicable law. Our responsibilities under those standards are further described in the Auditor's Responsibilities section of our report. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Our audit opinion is consistent with our report to the Audit Committee.

We were formally appointed as the Company's auditor for the 2010 financial year end audit following a competitive tender process during 2010. The period of total uninterrupted engagement is the 8 years ended 31 December 2017. We have fulfilled our ethical responsibilities under, and we remained independent of the Company in accordance with, ethical requirements applicable in Ireland, including the Ethical Standard issued by the Irish Auditing and Accounting Supervisory Authority (IAASA) as applied to listed public interest entities. No non-audit services prohibited by that standard were provided.

2 Key audit matters: our assessment of risks of material misstatement

Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

In arriving at our audit opinion above, we determine that there was one key audit matter as follows (unchanged from 2016):

Valuation of financial assets at fair value through profit or loss of US$394m (2016: US$406m)

Refer to page 28 (Audit Committee Report), page 42 (accounting policy) and notes 4, 9 and 11 to the financial statements.

The key audit matter

The Company had 96.2% (2016: 95.7%) of its total assets as at 31 December 2017 invested into Collateralised Loan Obligations ('CLOs"). As described in the Report of the Audit Committee on page 28, the valuation of the Company's investments in these CLOs, given that they represent the majority of the Company's total assets, is a significant area of our audit. The valuation of this asset class is based on prevailing market information (broker price approach) at the valuation date. There is a risk that the prices in respect of these investments held by the Company may not be reflective of fair value.

How the matter was addressed in our audit

Our audit procedures in respect of the valuation of the Company's investments in the CLOs included, but were not limited to:

· updating our understanding of the valuation methodologies and valuation processes established by the Directors; and testing the design and implementation of the relevant controls therein, obtaining the broker quotations as used by the Investment Manager and recalculating the valuation of the investments using the broker price approach; and with the assistance of a KPMG valuation specialist, assessing whether the valuation of the Company's investments was within an acceptable range of fair values and consideration of the Company's purchases and sales of investments pre and post financial year end for evidence of bias in the valuation of investments held at year end.

· with the involvement of a KPMG valuation specialist, our substantive testing included the determination of an independent fair value for 100% of the mezzanine note investments. For the income note investments, we performed individual securities valuation testing through cash flow analysis on a sample of income note investments held as at year end, along with the performance of a market review analysis.

· we also considered the adequacy of the Company's disclosures (see note 2O) in relation to: the use of judgments and estimates in determining the fair value of investments; the Company's investment valuation policies adopted; and fair value disclosures in note 4 and note 11 to the financial statements for compliance with IFRS as adopted by the EU.

We found the valuation of all the Company's investments to be within an acceptable range.

3 Our application of materiality and an overview of the scope of our audit

The materiality for the financial statements as a whole was set at US$2.99 million (2016: US$4.2 million). This has been determined using a benchmark of the Company's net assets (of which it represents 1% (2016: 1%) as at 31 December 2017 which we determined, in our professional judgment, to be one of the principal benchmarks within the financial statements relevant to the shareholders of the Company in assessing financial performance, and this is also a generally accepted auditing benchmark used for companies in this industry.

We report to the Audit Committee all corrected and uncorrected misstatements we identified through our audit with a value in excess of US$0.15 million (2016: US$0.2 million), in addition to other audit misstatements below that threshold that we believe warranted reporting on qualitative grounds.

Our assessment of materiality has informed our identification of significant risks of material misstatement and the associated audit procedures performed in the area detailed above. Those procedures have been designed to provide reasonable assurance that the financial statements, taken as a whole, are free from material misstatements.

Other than certain valuation work noted above, the audit procedures have been undertaken and performed by the audit team based in Dublin.

4 We have nothing to report on going concern

We are required to report to you if:

· we have anything material to add or draw attention to in relation to the Directors' statement in note 2 to the financial statements on the use of the going concern basis of accounting with no material uncertainties that may cast significant doubt over the Company's use of that basis for a period of at least twelve months from the date of approval of the financial statements; or

· the related statement under the Listing Rules set out on page 21 is materially inconsistent with our audit knowledge.

We have nothing to report in these respects.

5 We have nothing to report on the other information in the annual report

The Directors are responsible for the other information presented in the annual report together with the financial statements. The other information comprises the information included in the Chairman's Report, Investment Manager's Review, the Directors' Report, the Audit Committee Report and the Statement of Depositary's Responsibilities and Depositary's Report to the Shareholders. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work, we have not identified material misstatements in the other information.

Based solely on our work on the other information:

· we have not identified material misstatements in the Directors' Report;

· in our opinion, the information given in the Directors' Report is consistent with the financial statements; and

· in our opinion, the Directors' report has been prepared in accordance with the Companies Act 2014.

Disclosures of principal risks and longer-term viability

Based on the knowledge we acquired during our financial statements audit, we have nothing material to add or draw attention to in relation to:

· the Principal Risks disclosures describing these risks and explaining how they are being managed and mitigated;

· the Directors' confirmation within the Viability Statement on page 21 that they have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency and liquidity; and

· the Directors' explanation in the Viability Statement of how they have assessed the prospects of the Company, over what period they have done so and why they considered that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.

Other corporate governance disclosures

We are required to address the following items and report to you in the following circumstances:

· Fair, balanced and understandable: if we have identified material inconsistencies between the knowledge we acquired during our financial statements audit and the Directors' statement that they consider that the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy;

· Report of the Audit Committee: if the section of the annual report describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee; and

· Statement of compliance with UK Corporate Governance Code: if the Directors' statement does not properly disclose a departure from provisions of the UK Corporate Governance Code specified by the Listing Rules for our review.

We have nothing to report in these respects.

Other corporate governance disclosures (continued)

In addition, as required by the Companies Act 2014, we report, in relation to information given in the Corporate Governance Statement on pages 16 to 23, that:

· based on the work undertaken for our audit, in our opinion, the description of the main features of internal control and risk management systems in relation to the financial reporting process, and information relating to voting rights and other matters required by the European Communities (Takeover Bids (Directive 2004/EC) Regulations 2016 and specified for our consideration, is consistent with the financial statements and has been prepared in accordance with the Act; and

· based on our knowledge and understanding of the Company and its environment obtained in the course of our audit, we have not identified any material misstatements in that information. 

We also report that, based on work undertaken for our audit, the other information required by the Act is contained in the Corporate Governance Statement.

6 Our opinions on other matters prescribed the Companies Act 2014 are unmodified

We have obtained all the information and explanations which we consider necessary for the purpose of our audit.

In our opinion, the accounting records of the Company were sufficient to permit the financial statements to be readily and properly audited and the Company's statement of financial position and the profit and loss account is in agreement with the accounting records.

7 We have nothing to report on other matters on which we are required to report by exception

The Companies Act 2014 requires us to report to you if, in our opinion, the disclosures of Directors' remuneration and transactions required by Sections 305 to 312 of the Act are not made.

The Listing Rules of the UK Listing Authority require us to review:

· the Directors' statement, set out on page 21, in relation to going concern and longer-term viability;

· the part of the Corporate Governance Statement on pages 16-23 relating to the Company's compliance with the provisions of the UK Corporate Governance Code and the Irish Corporate Governance Annex specified for our review; and

· certain elements of disclosures in the report to shareholders by the Board of Directors' Remuneration Committee.

8 Respective responsibilities

Directors' responsibilities

As explained more fully in their statement set out on page 25, the Directors are responsible for: the preparation of the financial statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue our opinion in an auditor's report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (Ireland) will always detect a material misstatement when it exists. Misstatements can arise from fraud, other irregularities or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. The risk of not detecting a material misstatement resulting from fraud or other irregularities is higher than for one resulting from error, as they may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control and may involve any area of law and regulation not just those directly affecting the financial statements.

8 Respective responsibilities (continued)

Auditor's responsibilities (continued)

A fuller description of our responsibilities is provided on IAASA's website at https://www.iaasa.ie/getmedia/b2389013-1cf6-458b-9b8f-a98202dc9c3a/Description_of_auditors_responsiblities_for_audit.pdf 

9 The purpose of our audit work and to whom we owe our responsibilities

Our report is made solely to the Company's members, as a body, in accordance with Section 391 of the Companies Act 2014. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members, as a body, for our audit work, for our report, or for the opinions we have formed.

Vincent Reilly

for and on behalf of

KPMG

Chartered Accountants, Statutory Audit Firm

1 Harbourmaster Place

IFSC

Dublin1 Ireland

27 April 2018

STATEMENT OF FINANCIAL POSITIONAs at 31 December 2017

* Balances include investment in unconsolidated subsidiaries. Please refer to note 9 for further detail.

These financial statements were authorised and approved for issue by the Directors on 27 April 2018 and signed on their behalf by:

Fergus Sheridan Adrian Waters

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

STATEMENT OF COMPREHENSIVE INCOME

For the financial year ended 31 December 2017 

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

STATEMENT OF CHANGES IN EQUITYFor the financial year ended 31 December 2017

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

STATEMENT OF CASH FLOWS

For the financial year ended 31 December 2017

* Balances include investment in unconsolidated subsidiaries. Please see note 9 for further detail.

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

NOTES TO THE FINANCIAL STATEMENTSFor the financial year ended 31 December 2017

1 GENERAL

Carador Income Fund PLC is a closed-ended limited liability investment company domiciled and incorporated under the laws of the Republic of Ireland with variable capital pursuant to the Irish Companies Act 2014. It was incorporated on 20 February 2006 under registration number 415764. The Company is authorised by the Central Bank of Ireland ("Central Bank"), pursuant to Part 24 of the Companies Act 2014. The main equity-classified U.S. Dollar Shares are admitted to the Official List of the UK Listing Authority with a premium listing and are admitted to trading on the Main Market of the London Stock Exchange.

During the year, the Company converted 144,451,569 U.S. Dollar Shares into Repurchase Pool Class Shares. Repurchase Pool Shares are classified as a liability in accordance with the requirements of IAS 32. On 22 November 2017, the Repurchase Pool Class Shares were admitted to trading on the Specialist Fund Segment of the Main Market of the London Stock Exchange. The assets attributable to the Repurchase Pool Class Shares will be realised over time and the proceeds (net of fees, expenses and other liabilities) will be paid out to the Repurchase Pool Class Shareholders by way of the compulsory repurchase, in tranches, of the Repurchase Pool Class Shares.

At 31 December 2017, shares in issue were U.S. Dollar Class Shares and Repurchase Pool Class Shares. The Company may issue one or more additional classes of shares on prior notice to, and clearance by, the Central Bank.

The Company's investment objective is to produce attractive and stable returns, with low volatility compared to equity markets, by investing in a diversified portfolio of senior notes of collateralised loan obligations ("CLOs") collateralised by senior secured bank loans and equity and mezzanine tranches of CLOs.

2 SIGNIFICANT ACCOUNTING POLICIES

2A STATEMENT OF COMPLIANCE

The Company's financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") as adopted by the European Union and also in accordance with Irish Company Law.

2B ADOPTION OF NEW ACCOUNTING STANDARDS AND AMENDMENTS, INCLUDING ACCOUNTING POLICY CHANGES

The Company has consistently applied the accounting requirements to all periods presented in these financial statements. 

The amendments for IAS 7 Statement of Cash Flows as issued by the IASB in 2016 are effective for annual periods beginning on or after 1 January 2017 and relate to the additional disclosure of changes in liabilities arising from financing activities as presented on the cash flow statement. These amendments have been incorporated in these financial statements where applicable.

2C BASIS OF PREPARATION

The Company's financial statements have been prepared on a historical cost basis, except for financial instruments measured at fair value through profit or loss.

The functional currency of the Company is US Dollar (US$), as the Directors have determined that this reflects the Company's primary economic environment. The presentation currency of the financial statements is also US Dollar.

The financial statements comprise the Company's statement of financial position, statement of comprehensive income, statement of changes in equity and statement of cash flows together with the related notes. These notes also incorporate financial instrument related disclosures which are required by IFRS 7 that are contained in the Annual Report in the section entitled "Investment Manager's review".

The Company qualifies as an investment entity and, therefore, the Company does not consolidate subsidiaries but accounts for them at fair value through profit or loss.

The Company's management has made an assessment of the Company's ability to continue as a going concern and is satisfied that the Company has the resources to continue for the foreseeable future.

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

2C BASIS OF PREPARATION (continued)

Further, the Company's liabilities are expenses paid to service providers and the NAV of the Repurchase Pool Class Shares which is classified as a liability, as opposed to equity, in accordance with IAS32. The liabilities are linked to the NAV of each Share Class and thus fluctuate as the NAV of each Share Class increases and decreases, subject to a minimum in certain cases. This results in the Company being able to comfortably cover the liabilities as they fall due.

The Directors are not aware of any material uncertainties which may cast significant doubt upon the Company's ability to continue as a going concern, and that the Directors have a reasonable expectation that the Company will continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis in preparing the annual financial statements.

2D INTEREST INCOME AND INTEREST EXPENSE ON CASH AND CASH EQUIVALENTS

Income receivable on cash and cash equivalents is recognised separately through profit or loss in the statement of comprehensive income, on an effective interest rate basis.

2E PARTICIPATING SHARES

The participating share capital of the Company comprises of U.S. Dollar Class Shares and Repurchase Pool Class Shares. The U.S. Dollar Class Shares of the Company are classified as equity based on the substance of the contractual arrangements and in accordance with the definition of equity instruments under IAS 32. The proceeds from the issue of U.S. Dollar Class Shares are recognised in the statement of changes in equity, net of the incremental issuance costs. Repurchase Pool Class Shares are classified as a financial liability based on the substance of the contractual arrangement in accordance with IAS 32, and are stated at fair value which approximates carrying value on the reporting date.

2F FEES AND CHARGES

Expenses are charged through profit or loss in the statement of comprehensive income on an accruals basis.

2G CASH AND CASH EQUIVALENTS

Cash comprises current deposits with banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash, are subject to an insignificant risk of changes in value, and are held for the purpose of meeting short-term cash commitments rather than for investments or other purposes.

2H NET GAIN ON FINANCIAL ASSETS/LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

Net gain on financial assets/liabilities at fair value through profit or loss consists of coupons received and realised and unrealised gains and losses on financial assets at fair value through profit or loss, calculated as described in note 2I(iii). For the purposes of the statement of cash flows, the coupon income is considered an operating activity.

Amounts attributable to Repurchase Pool Class Shares are reflected at their fair value which approximates carrying value.

2I FINANCIAL INSTRUMENTS

(i) Classification

The Company classifies its financial assets and financial liabilities into categories in accordance with IAS 39 Financial Instruments: Recognition and Measurement.

The category of financial assets and financial liabilities at fair value through profit or loss comprises:

Financial assets at fair value through profit or loss other than those held for trading

Financial assets classified in this category are designated by management on initial recognition as part of a group of financial assets which are managed and their performance evaluated on a fair value basis, in accordance with a documented investment strategy. The term "financial assets designated at fair value through profit or loss" includes investments in collateralised loan obligations. IFRS 10's Investment Entity Amendment also requires subsidiaries to be accounted for at fair value through profit or loss in accordance with IAS 39.

Financial liabilities at fair value through profit or loss other than those held for trading

Financial liabilities classified in this category are designated by the management on initial recognition as part of a group of financial liabilities which are managed and their performance evaluated on a fair value basis, in accordance with a documented investment strategy. This category includes amounts payable to Repurchase Pool Class shareholders which are classified as liabilities in accordance with IAS 32. The movement in the fair value of the amounts attributable to the Repurchase Pool Class Shares are reflected within the Statement of Comprehensive Income as 'Fair value movement on Repurchase Pool Class Shares' within the Finance Costs section.

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

2I FINANCIAL INSTRUMENTS (continued)

(i) Classification (continued)

Financial liabilities at fair value through profit or loss other than those held for trading (continued)

Further details on the Repurchase Pool Class are provided in notes 7 and 18.

Financial assets at amortised cost

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, and they are carried at amortised cost. The Company includes in this category cash and cash equivalents and other receivables. The amortised cost of a financial asset is the amount at which the instrument is measured at initial recognition (its fair value) adjusted for initial direct costs, minus principal repayments, plus or minus the cumulative amortisation, using an effective interest rate method, of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment. The Company includes in this category expenses payable and amounts payable for investments purchased.

(ii) Recognition and initial measurement

Financial assets and financial liabilities are measured initially at fair value, being the transaction price, including transaction costs for items that will subsequently be measured at amortised cost, on the trade date, which is the date on which the Company becomes a party to the contractual provisions of the instrument. Transaction costs on financial assets at fair value through profit or loss are expensed immediately.

(iii) Subsequent measurement

After initial measurement, the Company measures financial instruments classified at fair value through profit or loss at their fair values. Changes in fair value are recorded within "Net gain on financial assets at fair value through profit or loss" in the statement of comprehensive income.

The following sources have been used to obtain the fair value for the financial assets and liabilities of the Company:

Level 1. Where quoted prices in an active market are available for the financial assets and liabilities, these are used to determine fair value of the respective financial instrument.

Level 2. Where the market for a financial instrument is not an active market, the fair value on subsequent measurement is obtained through broker price quotations or through the use of pricing services. Regarding the broker price quotation valuation technique, the fair value is derived through an average of at least two or more broker quotes with outliers (if any) removed prior to calculation, and also including in this average calculation binding offer and actual trade prices (if any). This valuation technique uses observable inputs that require no significant adjustment based on unobservable inputs, therefore resulting in Level 2 classification; and

Level 3. This category includes all instruments for which the broker price quotation valuation technique (as described above) includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument's valuation.

All other financial instruments not at fair value are measured on an amortised cost basis.

(iv) Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the statement of financial position where there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the assets and settle the liability simultaneously. For the financial year ended 31 December 2017, there were no financial assets or liabilities subject to enforceable, master netting arrangements or similar agreements which would require disclosure.

(v) Derecognition

The Company derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire or it transfers the financial asset and the transfer qualifies for derecognition in accordance with IAS 39. The Company derecognises a financial liability when the obligation specified in the contract is discharged, cancelled or expires.

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

2J FOREIGN CURRENCY

Transactions in foreign currencies are translated at the foreign currency exchange rate to the functional currency at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated to US Dollar at the foreign currency closing exchange rate ruling at the reporting date. Foreign currency exchange differences relating to investments at fair value through profit or loss are included in "Net gain on financial assets at fair value through profit or loss" in the statement of comprehensive income. All other foreign currency exchange differences relating to monetary items, including cash, are presented in "Net gain/(loss) on foreign exchange" in the statement of comprehensive income.

2K TAXATION

Income tax expense is recognised through profit or loss in the statement of comprehensive income except to the extent that it relates to items recognised directly in equity or in other comprehensive income.

Current tax is the expected tax payable or receivable on the taxable income or loss for the financial year, using tax rates enacted or substantially enacted at the reporting date, and any adjustment to tax payable in respect of previous periods.

Under current law and Irish practice, the Company qualifies as an investment undertaking under Section 739B of the Taxes Consolidation Act 1997 and is not therefore chargeable to Irish tax on its relevant income or relevant gains. See note 15 for further details.

2L DISTRIBUTIONS

Distributions to the shareholders of U.S. Dollar Class are recorded through the statement of changes in equity when they are declared to shareholders. Shareholders of the Repurchase Pool Class are not entitled to any dividend distributions.

2M OPERATING SEGMENTS

An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the Company's chief operating decision makers and for which discrete financial information is available. The chief operating decision-makers for the Company are the Investment Manager and the Directors. In considering the segments of the Company, the Company has considered the information reviewed by the Company's Chief Operating Decision-

Makers and determined that there are two operating segments in existence as at 31 December 2017 (31 December 2016: one), the U.S. Dollar Class Shares and the Repurchase Pool Class Shares. Further details are set out under Segmental Reporting in note 3.

2N REPURCHASE POOL CLASS SHARES

On 31 October 2017, the Company converted 144,451,569 U.S. Dollar Class Shares on a one to one basis to Repurchase Pool Class Shares of no par value. The value of the Repurchase Pool Class Shares at the date of conversion is accounted for in the statement of changes in equity within Transfer to liabilities for amounts payable to Repurchase Pool Class Shareholders. The return on the Repurchase Pool Class Shares for the period from conversion to 31 December 2017 is accounted for in the statement of comprehensive income within Fair value movement on Repurchase Pool Class Shares. The liability relating to the Repurchase Pool Class Shares at 31 December 2017 is included in Amounts payable to Repurchase Pool Class Shareholders within the statement of financial position.

2O SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates

Estimates and underlying assumptions are required on an ongoing basis. Revisions to estimates are recognised prospectively.

In accordance with IFRS 13, the Company applies the definition of fair value, being the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Company has access at that date. The fair value of a liability reflects its non-performance risk.

When the fair value of financial assets and financial liabilities recorded in the statement of financial position cannot be derived from active market quotations, they are determined using valuation techniques including the use of broker prices. See note 4 for further details of the fair value hierarchy levels at 31 December 2017 and 31 December 2016. See note 3 for detail of the NAV attributable to Repurchase Pool Class Shares and U.S. Dollar Class Shares.

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

2O SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES (continued)

Judgements

Application of IFRS 10, its related IE Amendment and IFRS 12

The Directors are satisfied that the Company meets the definition of an investment entity, and has also concluded that its investments in Keuka Park CLO Ltd 2013-1A, Pinnacle Park CLO Ltd 2014-1A and Sheridan Square CLO Ltd meet the definition of subsidiary structured entities in accordance with IFRS 10, with the remaining CLOs in which the Company invests meeting the definition of non-controlled structured entities in accordance with IFRS 12. These conclusions are further detailed in note 9 Interest in Other Entities.

2P NEW STANDARDS AND INTERPRETATIONS APPLICABLE TO FUTURE REPORTING PERIODS

New standards, amendments and interpretations issued but not effective in 2017 and not early adopted.

The Company has considered all the upcoming International Accounting Standards Board's ("IASB's") standards including those not yet endorsed by the EU. The below standards are those deemed to have relevance to the Company and will be adopted from their EU effective dates.

IFRS 9 "Financial instruments", effective for annual periods beginning on or after 1 January 2018 will be applied next year. It specifies how an entity should classify and measure financial assets and liabilities, including some hybrid contracts. The standard improves and simplifies the approach for classification and measurement of financial assets compared with the requirements of IAS 39. Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged. The standard applies a consistent approach to classifying financial assets and replaces the numerous categories of financial assets in IAS 39, each of which had its own classification criteria. The standard is not expected to have a significant impact on the Company's financial position or performance, as it is expected that the Company will continue to classify all of its financial assets as being at fair value through profit or loss.

3 SEGMENTAL REPORTING

As required by IFRS 8, Operating Segments, the information provided to the Board of Directors and Investment Manager, who are the Chief Operating Decision Makers, can be classified into two segments as at 31 December 2017 and one segment as at 31 December 2016. The Directors elected to propose a repurchase opportunity whereby eligible shareholders may elect to have their shares converted into Repurchase Pool Class Shares. Repurchase Pool Class Shares are shares in the Company which participate in a separate pool of assets and liabilities within the Company created for the purposes of the repurchase opportunity.

On 31 October 2017, it was announced that shareholders had voted for 144,451,569 U.S. Dollar Class Shares (26.6% of issued U.S. Dollar Class Shares) to be redesignated into Repurchase Pool Class Shares. On 22 November 2017, 144,451,569 Repurchase Pool Class Shares were admitted to trading on the Specialist Fund Segment of the Main Market of the London Stock Exchange (see note 7 for further details).

As a result of the shareholder's movement as at 31 October 2017, the Company has a new business model which started on that day and did not exist before.

The return on the Repurchase Pool Class is for 2 months from 1 November 2017 to 31 December 2017. The return on the U.S. Dollar Class is for 12 months to 31 December 2017. However, the Repurchase Pool Class Shareholders have also profited from the return of the U.S. Dollar Share Class for the first 10 months of the year from 1 January 2017 to 31 October 2017.

Major Customers

The Company regards the holders of both classes of shares as customers, because it relies on their funding for continuing operations and meeting its objectives. The Company's shareholding structure is not exposed to a significant shareholder concentration. A breakdown of shares held by employees of the Investment Manager can be found in note 10. The Company's largest shareholder as at 23 April 2018 is outlined on page 24.

4 FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

As described in the accounting policies note, the Company has financial assets designated at fair value through profit or loss. The financial instruments recognised at fair value are analysed between those whose fair value is based on:

· Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

· Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted market prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques in which all significant inputs are directly or indirectly observable from market data.

· Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The table below analyses financial instruments measured at fair value at the reporting date by the level in the fair value hierarchy into which the fair value measurement is categorised. The amounts are based on the values recognised in the statement of financial position. All fair value measurements below are recurring.

 4 FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (continued)

The Company determines the fair value for the CLOs using independent, unadjusted indicative broker quotes. A broker quote is not generally a binding offer. The categorisation of the CLOs is dependent on whether or not the broker quotes reflect actual current market transactions, or if they are indicative prices based on the broker's valuation models, depending on the significance and observability of the inputs to the model.

The Investment Manager can challenge the marks that come from the independent brokers if they appear off-market or unrepresentative but has no discretion to disregard a mark if a broker dealer does not adjust it after a challenge.

For CLOs that have been categorised as Level 2, fair value has been determined using independent broker quotes based on observable inputs. If valuation cannot be verified as being based significantly on observable inputs, then the investments would fall into Level 3.

The Company considers observable data to be that market data that is readily available, regularly distributed or updated, reliable, not proprietary, and provided by independent sources that are actively involved in the relevant market.

For each class of assets and liabilities not measured at fair value in the statement of financial position but for which fair value is disclosed, the Company is required to disclose the level within the fair value hierarchy which the fair value measurement would be categorised and a description of the valuation technique and inputs used in the technique.

For the financial years ended 31 December 2017 and 31 December 2016, cash and cash equivalents, receivable for investments sold, other receivables and expenses payable, whose carrying amounts approximate fair value, were classified as Level 2 within the fair value hierarchy.

Amounts payable to shareholders of the Repurchase Pool Class Shares are classified as a liability and are disclosed as Level 3 within the fair value hierarchy.

Transfers between Level 1, 2 and 3

There were no transfers between Level 1 and Level 2 during the financial year (2016: no transfers). Where transfers between levels arise, they are deemed to occur at the end of the reporting period.

At 31 December 2017, collateralised loan obligations with a fair value of US$91,088,972 were classified as Level 3. The classification of the Level 3 assets reflects the dispersion in the indicative broker quotes for some Income Note positions during the financial year. At 31 December 2017, certain CLOs with a fair value of US$74,355,559 were transferred from Level 2 to Level 3 (31 December 2016: US$10,224,358). The change in the classification level was a result of decreased liquidity for some Income Note positions in the market and wider spreads reflected by a higher spectrum of indicative broker quotes, which were factors that indicated that the broker quotes were not based on observable prices.

For Level 3 collateralised loan obligations, the factors taken into consideration include the spread differential within the different broker quotes received as well as other market information, such as trades, portfolio composition and other market considerations.

The following table shows a reconciliation from the opening balances to the closing balances for fair value measurements in Level 3 of the fair value hierarchy as at 31 December 2017:

4 FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (continued)

Transfers between Level 1, 2 and 3 (continued)

Change in unrealised gains or losses (net gain) for the financial year included in profit or loss for the collateralised loan obligations within Level 3 of the fair value hierarchy amounted to US$1,353,435 (31 December 2016: US$5,509,157). These gains and losses are included in the net gain/(loss) on financial assets at fair value through profit or loss of the Statement of Comprehensive Income.

The following table shows a reconciliation from the opening balances to the closing balances for fair value measurements in Level 3 of the fair value hierarchy as at 31 December 2016:

The table below sets out information about significant unobservable inputs used at 31 December 2017 in measuring financial instruments categorised as Level 3 in the fair value hierarchy:

The table below sets out information about significant unobservable inputs used at 31 December 2016 in measuring financial instruments categorised as Level 3 in fair value hierarchy.

* The lower range is due to Income Notes which include sub-fee notes.

For the Amounts payable to Repurchase Pool Shareholders which is classified as level 3, the significant unobservable input used is the unadjusted NAV of the Company's Repurchase Pool Class.

4 FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (continued)

Transfers between Level 1, 2 and 3 (continued)

The following table shows a reconciliation from the opening balances to the closing balances as at 31 December 2017.

The table below sets out information about significant unobservable inputs used at 31 December 2017 in measuring the liability categorised as Level 3 in the fair value hierarchy:

The above analysis also gives an approximation of the sensitivity of the different asset classes to market risk as at 31 December 2017 and 31 December 2016 that seems reasonable considering the current market environment and the nature of the Company's assets' main underlying risks. This sensitivity analysis presents an approximation of the potential effects of events that could have been reasonably expected to occur as at the reporting date.

Additional AIFMD disclosure for financial statements going forward

The net gain on financial assets at fair value through profit or loss includes both the realised and unrealised gains/losses on financial assets. Whilst a breakdown of the realised and unrealised gains/losses on financial assets at fair value through profit or loss is not currently available for the financial year ending 31 December 2017, such breakdown will be disclosed in the annual financial statements for the financial year ending 31 December 2018 in accordance with AIFMD and all financial statements thereafter. The breakdown for the financial year ending 31 December 2017 will be made available after the date of publication of these financial statements on request from the Company Secretary. 

5 OPERATING EXPENSES

INVESTMENT MANAGER

The Investment Manager is entitled to receive a base management fee from the Company of 1.5% per annum of the NAV of the Company, calculated and payable monthly in arrears. The base management fee will be reduced to take into account any fees received by the Investment Manager or any of its associates or affiliates, as a result of managing any CLO or collective investment scheme that the Company invests in, if such investment is or has been made in the primary market (i.e. the market in which investors have the first opportunity to buy a newly issued security). Please see note 10 for details of deals managed by the Investment Manager or its affiliates and whether they were sourced in the primary or secondary market. The Investment Manager fees for the year ended 31 December 2017 for the U.S. Dollar Class Shares amounted to US$4,727,324 (31 December 2016: US$5,107,521) and US$209,032 for the Repurchase Pool Class Shares (31 December 2017: US$Nil).

5 OPERATING EXPENSES (continued)

U.S. Dollar Class Shares

The Investment Manager is entitled to a performance fee in respect of the U.S. Dollar Class Shares equivalent to 13% of the amount by which the value of the financial year end NAV per U.S. Dollar Class Share plus dividends per U.S. Dollar Class Share paid in the period exceeds the value of the NAV per U.S. Dollar Class Share, as increased by the performance fee hurdle rate (as defined below) plus 2%, as at the end of the previous completed accounting reference period in respect of which a performance fee was paid.

The performance fee hurdle rate is the greater of the 12 month US Dollar LIBOR or 4%.

If a U.S. Dollar Class Share performance fee was not paid in respect of the previous accounting reference period, U.S. Dollar Libor shall be the annualised annually compounded US Dollar London Inter-Bank Offered Rate for 12-month deposits in respect of all previous relevant accounting periods since such U.S. Dollar Share performance fee was last paid.

Repurchase Pool Class Shares

The Investment Manager is entitled to a performance fee in respect of the Repurchase Pool Class Shares equivalent to 13% of the amount by which the Net Asset Value per Repurchase Pool Class Share as at (i) the end of the relevant accounting period; or (ii) the relevant Repurchase Date, as applicable, plus dividends per Share (if any) paid in the period exceeds the value of the Net Asset Value per Repurchase Pool Class Share (or per U.S. Dollar Class Share, as applicable) as at the end of the most recent previous completed accounting period in respect of which a performance fee was paid (including, for the avoidance of doubt, all previous periods since the U.S. Dollar Class Share performance fee was last paid in respect of the U.S. Dollar Class Shares which have converted into Repurchase Pool Class Shares), as increased by the Repurchase Pool Hurdle Rate (as defined below), plus 2%.

A separate account will be established to track the performance fee payable to the Investment Manager in respect of the Repurchase Pool Class Shares.

1. As at each Repurchase Date, this account will be credited or debited to reflect the amount of over-or-under-performance of the Repurchase Pool Class Shares repurchased as of that date, multiplied by the performance fee rate referred to above.

2. At the end of the relevant accounting period, an amount reflecting the over-or-underperformance of the Repurchase Pool Class Shares in issue as at that date, multiplied by the performance fee rate referred to above, will be credited to or debited from this account.

3. If the aggregate amount resulting from 1 and 2 above is a credit balance, this amount will be payable to the Investment Manager.

4. If the aggregate amount resulting from 1 and 2 above is a debit balance, no performance fee will be payable to the Investment Manager and the balance of this account shall be reset to zero for the next accounting period.

Where all remaining Repurchase Pool Class Shares are repurchased on a date prior to the end of an accounting period, such Repurchase Date shall be deemed to be the end of the accounting period for purposes of the above calculations.

The performance fee is accrued on a monthly basis and is paid annually within 14 days of receipt of the calculation by the Company from State Street Fund Services (Ireland) Limited (the "Administrator").

The calculation of the performance fee is verified by State Street Custodial Services (Ireland) Limited (the "Depositary"). The performance fees charged for the year ended 31 December 2017 amounted to US$660,768 for the U.S. Dollar Class Shares (31 December 2016: US$Nil) and (US$119,020) for the Repurchase Pool Class Shares.

The Company also reimburses the Investment Manager for all out-of-pocket expenses reasonably incurred in the performance of its duties.

ADMINISTRATOR AND DEPOSITARY

The Administrator and Depositary shall be entitled to receive aggregate fees of up to 0.10% per annum of the NAV of the Company for the provision, respectively, of administration, accounting, trustee and custodial services to the Company, subject to a minimum monthly fee of US$10,000. The overall charge for the above-mentioned fees for the Company for the financial years ended 31 December 2017 and 31 December 2016 are reflected in the Statement of Comprehensive Income and the amounts due at 31 December 2017 and 31 December 2016 are disclosed below for information purposes.

DIRECTORS' FEES AND OTHER EXPENSES

The Company's Directors are entitled to a fee in remuneration for their services as Directors at a rate to be determined from time to time by the remuneration committee of the Company and disclosed in the financial statements.

5 OPERATING EXPENSES (continued)

Operating expenses are disclosed separately in the Statement of Comprehensive Income.

Accruals excluding audit, Directors and other professional fee accruals as at 31 December 2017 and 31 December 2016 are detailed in the table below:

The remaining balance of the expense accrual consists of auditors' fees of US$250,206 (31 December 2016: US$188,336) inclusive of VAT and other professional fees of US$133,512 (31 December 2016: US$146,352).

During the financial year ended 31 December 2017, Directors' fees amounted to US$334,459 (31 December 2016: US$324,040) plus out of pocket expenses of US$33,196 (31 December 2016: US$20,209), of which US$Nil (31 December 2016: US$Nil) remained payable at the financial year end.

AUDITORS FEES

The Company incurred the following audit, assurance and tax fees (including expenses) during the financial year of which US$143,515 (31 December 2016: US$139,045) was outstanding at the financial year end.

* The above amounts were paid to the statutory auditor for work undertaken by them in relation to the review of the interim financial statements and the Financial Position and Prospects Procedures (FPPP) review.

** The above amounts incurred for the financial years ended 31 December 2017 and 31 December 2016 are before the inclusion of VAT.

*** Tax advisory fees are included in other operating expenses in the Statement of Comprehensive Income.

6 CASH AND CASH EQUIVALENTS

Cash and cash equivalents balances are held with State Street Custodial Services Ireland Limited and also consist of an investment in Blackrock Money Market Fund which is a short-term, highly liquid investment amounting to US$Nil (31 December 2016: US$16,024,377).

7 PARTICIPATING SHARES

At 31 December 2017, the issued share capital of the Company comprises of the U.S. Dollar Class Shares and Repurchase Pool Class Shares. A Placement Programme is currently in place allowing for the issuance of U.S. Dollar Class Shares and/or C Shares. Further details on the Company share capital is set out below.

U.S. DOLLAR CLASS SHARES

The authorised share capital of the Company shall not be less than the currency equivalent of €2 represented by two subscriber shares and the maximum issued share capital shall not be more than the currency equivalent of €500 billion divided into an unspecified number of non-redeemable shares.

On 31 October 2017, the Company converted 144,451,569 U.S. Dollar Class Shares on a one to one basis to Repurchase Pool Class Shares of no par value, the details of which are set out below. As at 31 December 2017, there were 398,801,780 U.S. Dollar Class Shares (31 December 2016: 543,253,349) in issue.

7 PARTICIPATING SHARES (continued)

REPURCHASE POOL CLASS SHARES

The Company's Articles of Association contain certain provisions regarding share Repurchase arrangements which may be offered to shareholders. Repurchase Pool Class Shares are shares in the Company which participate in a separate pool of assets and liabilities within the Company created for the purposes of a repurchase opportunity.

The Directors elected to propose a repurchase opportunity for approval by ordinary resolution by the shareholders and further to the vote taken at the AGM held on 31 July 2017 and approval of the repurchase opportunity, shareholders representing 26.6% of the issued U.S. Dollar Class Shares elected to avail of the repurchase opportunity.

Consequently, on 31 October 2017, the Company converted 144,451,569 U.S. Dollar Class Shares on a one to one basis to Repurchase Pool Class Shares of no par value. On 22 November 2017, the Repurchase Pool Class Shares were admitted to trading on the Specialist Fund Segment of the Main Market of the London Stock Exchange. As at 31 December 2017, there were 144,451,569 Repurchase Pool Class Shares (31 December 2016: Nil) in issue. Cash payments will be made on a pro rata basis in US Dollars to the exiting shareholders holding the Repurchase Pool Class Shares, at the discretion of the Directors, as assets within the Repurchase Pool are realised. As cash becomes available to distribute upon the realisation of assets, capital will be returned to the exiting shareholders on a pro rata basis, by the Company making a compulsory repurchase of Repurchase Pool Class Shares.

C SHARES

At the AGM held on 31 July 2017, the shareholders also approved a 12 month Placement Programme to allow for the raising of additional capital to be issued as either U.S. Dollar or C Shares. Under the Placement Programme C Shares will be made available for subscription at US$1 per C shares. The gross placing proceeds of the Placement Programme may be up to US$300 million. Further details of the Placement Programme are set out in the Prospectus.

The C Shares will convert to U.S. Dollar Class Shares (ranking pari passu) on the basis of the conversion ratios which will be calculated once 90 percent of the assets attributable to the relevant C share class (or such lower percentage as the Directors may determine in their absolute discretion) have been invested or committed to be invested, which the Directors anticipate will occur within three months of the issuance of the relevant C Shares. The Placement Programme closes on 10 October 2018 and no C Shares have yet been issued.

VOTING RIGHTS

The Company has issued two subscriber shares of €1 each. These shares do not participate in the profits of the Company. Holders of U.S. Dollar Class Shares and Repurchase Pool Class Shares participate in the profits of their respective share class and hold voting rights, with shareholders having one vote in respect of each whole share held.

ISSUED PARTICIPATING SHARES

The total share capital consisted of 543,253,349 shares as at 31 December 2017 and 31 December 2016. At 31 December 2017, the total share capital comprises of 144,451,569 Repurchase Pool Class Shares and 398,801,780 U.S. Dollar Class Shares (2016: 543,253,349 U.S. Dollar Class Shares) in addition to the two subscriber shares. The total share capital did not increase during the financial year ended 31 December 2017 or 31 December 2016.

CAPITAL MANAGEMENT

The Company is closed-ended. At the EGM on 26 June 2013, a resolution was passed which provides that at the annual general meeting to be held in the financial year 2022 and in every tenth financial year thereafter, the Directors will propose a special resolution to the effect that the Company continue for a further ten financial years. If the continuation vote is not passed, the Directors are required to formulate proposals to be put to shareholders to wind-up, reorganize or reconstruct the Company.

7 PARTICIPATING SHARES (continued)

CAPITAL MANAGEMENT (continued)

The Company's objectives for managing capital are:

· to invest the capital in investments meeting the description, risk exposure and expected return indicated in its Prospectus;

· to achieve consistent returns while safeguarding capital by investing in CLOs backed by corporate loans or holding cash;

· to maintain sufficient liquidity to meet the expenses of the Company and to meet distribution commitments; and

· to maintain sufficient size to make the operation of the Company cost-efficient.

Further details on Repurchase Pool Class Shares are set out above and in notes 3 and 5.

The Directors will distribute all or part of the net income of the U.S. Dollar Class Share Class (after reasonable expenses and retaining an element of cash flow receipts on Income Notes of CLOs) from the underlying investments as quarterly dividends in January, April, July and October of each financial year. No distributions are made in relation to the Repurchase Pool Class Shares. In seeking to provide stable dividends at rates that reflect net income actually generated, the Directors announced on 21 February 2018 that the Company intends to move to a floating dividend such that, in any financial quarter, the dividends paid will be equal to the cash income the Company has received, net of reasonable expenses, while retaining an element of cashflow receipts on CLO Income Notes as principal for reinvestment.

The Articles of Association of the Company contain certain provisions regarding share repurchase arrangements which may, in certain circumstances (including a discount trigger) be offered to shareholders. On 2 May 2017, the Company announced that the discount trigger mechanism as set out in the Articles of Association was unlikely to be met at the end of April 2017. Notwithstanding this, the Directors used their discretion as provided in the Articles of Association to propose that the shareholders approve by ordinary resolution a repurchase opportunity. As noted above, this proposal was accepted by 26.6% of shareholders. The Articles provide that, after 2017, the Directors will, every five years, consider at their discretion whether or not to offer redemption opportunities to shareholders on the same basis.

The Directors have determined that they would like to consider whether or not to offer shareholders potential redemption opportunities on a more frequent basis. Accordingly, whilst the discount trigger realisation mechanism described above will occur every five years, the Directors intend to consider every two and a half years whether to put an ordinary resolution to shareholders to approve a redemption opportunity for up to 100 per cent of the shares in issue, subject to any necessary changes to the Articles being approved. Any such redemption opportunities would be made available at the Directors' discretion and would be implemented through the creation of a Repurchase Pool.

7 PARTICIPATING SHARES (continued)

CAPITAL MANAGEMENT (continued)

At 31 October 2017, the NAV of the Company was allocated on a pro rata basis to the U.S. Dollar Class Shares and the Repurchase Pool Class Shares upon the conversion of U.S. Dollar Class Shares to Repurchase Pool Class Shares. Repurchase Pool Class Shares have no entitlement to dividends.

8 SOFT COMMISSIONS

There are no agreements for the provision of any services by means of soft commission.

9 INTERESTS IN OTHER ENTITIES

INTERESTS IN UNCONSOLIDATED STRUCTURED ENTITIES

IFRS 12 defines a structured entity as an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to the administrative tasks only and the relevant activities are directed by means of contractual agreements.

A structured entity often has some of the following features or attributes:

(a) restricted activities;

(b) a narrow and well defined objective;

(c) insufficient equity to permit the structured entity to finance its activities without subordinated financial support; and

(d) financing in the form of multiple contractually linked instruments that create concentrations of credit or other risks.

Involvement with unconsolidated structured entities

The Company has concluded that CLOs in which it invests, that are not subsidiaries for financial reporting purposes, meet the definition of structured entities because:

· the voting rights in the CLOs are not the dominant rights in deciding who controls them, as they relate to administrative tasks only;

· each CLO's activities are restricted by its Prospectus; and

· the CLOs have narrow and well-defined objectives to provide investment opportunities to investors.

9 INTERESTS IN OTHER ENTITIES (continued)

INTERESTS IN UNCONSOLIDATED STRUCTURED ENTITIES (continued)

Subsidiary undertakings

At 31 December 2017, the Company had three (31 December 2016: four) subsidiary undertakings for financial reporting purposes that are also structured entities. They are Keuka Park CLO Ltd 2013-1A, Pinnacle Park CLO Ltd 2014-1A and Sheridan Square CLO Ltd (31 December 2016: Keuka Park CLO Ltd 2013-1A, Neuberger Berman CLO XVII Ltd 2014-17X, Pinnacle Park CLO Ltd 2014-1A and Sheridan Square CLO Ltd). Neuberger Berman CLO Ltd 2014-17X was reset during the period and the non call period has been extended to April 2019. To meet the definition of a subsidiary under the single control model of IFRS 10, the investor has to control the investee within the meaning of IFRS10.

Control involves power, exposure to variability of returns and a linkage between the two:

(i) The investor has existing rights that give it the ability to direct the relevant activities that significantly affect the investee's returns;

(ii) The investor has exposure or rights to variable returns from its involvement with the investee; and

(iii) The investor has the ability to use its power over the investee to affect the amount of the investor's returns.

In the case of the subsidiary undertakings listed above (the "entities"), the relevant activities of each are the investment decisions which are made by their asset managers acting as their agents. Power over the entities' relevant activities is attributed to the Company through a call option it has, as the holder of the majority of the preference shares of each of these entities. The impact of these call options is that it gives the Company the ability to direct or stop the early termination of each of the subsidiary deals, and hence, decision making power on the life of the deals, and therefore the ability to control the variability of returns.

The Company is also considered to have contingent power over the three entities, due to the fact that it may remove any of the subsidiaries' asset managers in certain contingent circumstances as the Company is the majority holder of the preference shares. It can therefore be considered that the Company has contingent power which may impact the variability of returns in the future.

To determine control, there has to be a linkage between power and the exposure to the variable returns. The main linkage arises from the call options which allow the Company to control the continual payments of returns, and it is therefore an indication of linkage between power and variability in returns.

The other investments of the Company are not considered to be subsidiaries due to the lack of control held by the Company. For the avoidance of doubt, the Company is subject to an investment restriction as set out in the Directors' report in the section entitled "Investment Restrictions" which states that the Company will not take legal or management control of the issuers of the underlying investments, nor shall the Company acquire any shares carrying voting rights which would enable it to exercise significant influence over the management of an issuing body. The "control" referred to above for financial reporting purposes does not equate to "legal or management control" or the acquisition of shares which would enable the Company to exercise "significant influence over the management of an issuing body" within the meaning of the investment restriction.

Investment entity status

To continue to avail of the exemption in IFRS 10 from the requirement to prepare consolidated financial statements, the Company must meet the definition of an investment entity. The Company is satisfied that it meets both the required criteria and typical characteristics of an investment entity.

9 INTERESTS IN OTHER ENTITIES (continued)

INTERESTS IN UNCONSOLIDATED STRUCTURED ENTITIES (continued)

Below is a summary of the Company's holdings in non-subsidiary unconsolidated structured entities as at 31 December 2017:

The Company has a percentage range of 0.03% - 27.40% notional holding out of the entire outstanding notional balances of the structured entities as at 31 December 2017.

During the financial year ended 31 December 2017, the Company did not provide financial support to the unconsolidated structured entities and has no intention of providing financial or other support. The assessment was done for the Company as a whole.

* The investments are non-recourse securities with no contingent liabilities, where the Company's maximum loss is capped at the current carrying value.

** The Company's total fair value holding of its unconsolidated structured entity subsidiaries set out on the next page, plus the total fair value holding in non-subsidiary unconsolidated structured entities, as above, agrees to the financial assets at fair value through profit or loss in the statement of financial position.

9 INTERESTS IN OTHER ENTITIES (continued)

INTERESTS IN UNCONSOLIDATED STRUCTURED ENTITIES (continued)

Interests in unconsolidated structured entity subsidiaries as at 31 December 2017:

The Company has a percentage range of 4.90% - 63.37% notional holding out of the entire outstanding notional balance of its subsidiaries as at 31 December 2017.

During the financial year ended 31 December 2017, Keuka Park CLO Ltd 2013-1A and Sheridan Square CLO Ltd were called and Neuberger Berman CLO Ltd 2014-17X was reset. Details of the subsidiaries held at 31 December 2017 and 31 December 2016 are set out above.

For the financial year ended 31 December 2017, the Company did not provide financial support to its unconsolidated structured entity subsidiaries and has no intention of providing financial or other support. The assessment was done for the Company as a whole.

* The investments are non-recourse securities with no contingent liabilities, where the Company's maximum loss is capped at the current carrying value.

** The Company's total fair value holding of its unconsolidated structured entity subsidiaries (above), plus the total fair value holding in non-subsidiary unconsolidated structured entities, as set out on page 57, agrees to the financial assets at fair value through profit or loss in the statement of financial position.

*** This refers to the number of investments that the Company has in its 3 unconsolidated structured entity subsidiaries across 5 tranches.

9 INTERESTS IN OTHER ENTITIES (continued)

INTERESTS IN UNCONSOLIDATED STRUCTURED ENTITIES (continued)

Below is a summary of the Company's holdings in non-subsidiary unconsolidated structured entities as at 31 December 2016: