CIFR.L Regulatory News (CIFR)

RNS Announcement

Carador Income Fund plc

30 August 2018

FOR IMMEDIATE RELEASE

INTERIM REPORT AND UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 30 JUNE 2018

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

A copy of the Company's Interim Report and Unaudited Condensed Interim Financial Statements for the financial period ended 30 June 2018 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

CARADOR INCOME FUND PLC: INVESTMENT OBJECTIVE

The investment objective of Carador Income Fund PLC (the "Company" or "Carador") 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 that are not rated, are used to fund the purchase of the underlying assets.

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 U.S Dollar 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 (the "LSE"). The Company's Repurchase Pool Class Shares are admitted to trading on the Specialist Fund Segment of the main market of the LSE.

CHAIRMAN'S REPORT

Dear Shareholders,

I am pleased to present the Interim Report including unaudited condensed interim financial statements for the Company for the six months ended 30 June 2018.

The first half of 2018 has been nothing if not eventful, ranging from U.S. trade tensions with its major trading partners, Europe and China, to inconclusive Italian elections and Brexit negotiations continuing to muddle on with no clear breakthrough appearing. There were also significant moves in monetary policy during the first six months of 2018. In the first quarter of 2018, investors were left to digest the destabilising potential of an elevated US inflation and the possibility that the Federal Reserve ("Fed") may need to become more proactive in raising interest rates in order to keep upward price pressures under control, which it did in March and June with a 25bp rise in each, to push the funds rate target to 2.0%. Neither action led to a repeat of the "taper tantrum" experienced in 2015; however, 10-year US Treasury yields did reach a seven-year high in mid-May before pulling back. The leading indicators in the U.S. argued for continued growth in the second quarter of 2018. The Purchasing Manager's Index, the NFIB Small Business Optimism Index, and the University of Michigan Consumer Confidence survey all hit new highs or accelerated. The business cycle showed strength, as the S&P 500® continued its march northwards amid strong revenue growth and benefits from tax cuts. It was trade policies that provided a sharp contrast to the fundamental growth story reflected in the macro data. A century of falling global tariff rates was reversed in the second quarter as countries turned inward.

Despite some softness in the U.S. loan markets in June, below investment grade loans outperformed all other major fixed income asset classes in 2018 year-to-date, with U.S. loans returning 2.38% and U.S. high yield returning 0.20%.[1]

Performance

During the six-month period ended 30 June 2018, the Company generated a total Net Asset Value ("NAV") return of 0.72% including distributions. The Company started the year with a NAV per share of US$0.7504 and ended the first half at US$0.7190, a 4.18% decline in the NAV per share, although as noted below, the Company also paid a total of $0.0371 per share in dividends over the period.[2]

The Company's US Dollar shares closed the first half of 2018 at US$0.6725, a 6.47% discount to the NAV at 30 June 2018. The annualised historic dividend yield based on the last declared dividends was 11.63%.[3]

The Repurchase Pool Class Shares generated a total NAV return of 0.84% during the first half of 2018. 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 period with a NAV per share of US$0.7532 and a share price of US$0.7250.

Dividends

The Company declared total dividends of $0.0332 per U.S. Dollar share for the first half of 2018.

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. In seeking to provide stable dividends to U.S. Dollar Share investors at rates that reflect net income actually generated, the Company moved 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. 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 Board and GSO / Blackstone Debt Funds Management LLC (the "Investment Manager") believe that, over the longer term, the cash flows and internal rates of return ("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 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.

The Company made the following dividend announcements in respect of Q4 2017 and the six months to 30 June 2018:

· On 22 January 2018, the Board declared a dividend of US$0.0225 per U.S. Dollar share in respect of the period from 1 October 2017 to 31 December 2017. The dividend was paid on 7 February 2018.

· On 23 April 2018, the Board declared a dividend of US$0.0146 per U.S. Dollar share in respect of the period from 1 January 2018 to 31 March 2018. The dividend was paid on 9 May 2018.

· On 20 July 2018, the Board declared a dividend of US$0.0186 per U.S. Dollar share in respect of the period from 1 April 2018 to 30 June 2018. The dividend was paid on 8 August 2018.

Quarterly declared dividends per U.S.Dollar Share and Net Cashflow Coverage of Net Income

Material Events

On 22 January 2018, the Company announced the first Partial Compulsory Redemption of Repurchase Pool Shares, which would see 9,372,003 of Repurchase Pool Shares redeemed at a rate of US$0.7469 per Repurchase Pool Share (approximately 6.488% of the issued Repurchase Pool Shares) on 31 January 2018.

On 21 February 2018, the Company announced the second Partial Compulsory Redemption of Repurchase Pool Shares, which would see 52,847,139 of Repurchase Pool Shares redeemed at a rate of US$0.7569 per Repurchase Pool Share (approximately 39.123% of the outstanding Repurchase Pool Shares) on 1 March 2018. After this redemption, 56.927% of the issued Repurchase Pool Shares remained outstanding.

On 21 March 2018, the Company announced the third Partial Compulsory Redemption of Repurchase Pool Shares, which would see 13,149,243 of Repurchase Pool Shares redeemed at a rate of US$0.7605 per Repurchase Pool Share (approximately 15.99% of the outstanding Repurchase Pool Shares) on 29 March 2018. After this redemption, 47.824% of the issued Repurchase Pool Shares remained outstanding.

On 30 April 2018, the Company released its audited Annual Report and Accounts for the full year 2017.

On 22 May 2018, the Company announced the fourth Partial Compulsory Redemption of Repurchase Pool Shares, which would see 5,930,416 of Repurchase Pool Shares redeemed at a rate of US$0.7588 per Repurchase Pool Share (approximately 8.584% of the outstanding Repurchase Pool Shares) on 31 May 2018. After this redemption, 43.719% of the issued Repurchase Pool Shares remained outstanding.

On 15 June 2018, the Board of Directors of the Company announced that it had engaged its financial advisers to commence a strategic review of the Company in order to consider future prospects and opportunities.

On 29 June 2018, as part of an internal reallocation of responsibilities within the Blackstone group, The Blackstone Group International Partners LLP ("BGIP") was appointed in place of GSO Capital Partners International LLP as investment advisor of the Company. BGIP shall act in an advisory capacity only and has no discretionary powers in respect of any of the assets of Carador.

At the Annual General Meeting (the "AGM") of the Company held on 4 July 2018, shareholders approved the following ordinary and special resolutions:

Ordinary Resolutions

1. That the reports of the Board of Directors of the Company and of the auditor of the Company, KPMG, and the accounts for the year ended 31 December 2017 be and are hereby received and that the Company's affairs were reviewed.

2. That KPMG be re-appointed as auditors of the Company.

3. That the Directors be and are hereby authorised to fix the remuneration of the auditors of the Company.

4. That Mr Edward D'Alelio be re-elected as a Director of the Company.

5. That Mr Werner Schwanberg be re-elected as a Director of the Company.

6. That Mr Fergus Sheridan be re-elected as a Director of the Company.

7. That Mr Adrian Waters be re-elected as a Director of the Company.

8. That Mr Nicholas Moss be re-elected as a Director of the Company.

9. That the Board be authorised to allot and issue up to 39,880,178 U.S. Dollar Shares (or, if lower, such number of Shares as represent 10 per cent. of the U.S. Dollar Shares in issue at the date of the AGM), such authority to expire at the conclusion of the next AGM of the Company unless previously renewed, varied or revoked by the Company in general meeting.

Special Resolution

 10. That the Board be authorised to allot and issue up to 39,880,178 U.S. Dollar Shares (or, if lower, such number of Shares as represent 10 per cent. of the U.S. Dollar Shares in issue at the date of the AGM) without having previously to offer such Shares to Shareholders on a pre-emptive basis, such authority to expire at the conclusion of the next annual general meeting of the Company unless previously renewed, varied or revoked by the Company in general meeting.

Outlook

The Board believes that the Company's portfolio is well positioned after the first half of 2018 to take advantage of investment opportunities.

As at the end of June 2018, the Company's portfolio investments comprised 5.7% Mezzanine Notes, 90.2% Income Notes, and a cash and cash equivalents balance of 4.1%[4], 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.

As central banks begin to unwind their quantitative easing programmes and as the low rate environment appears to draw to a close, we believe CLOs continue to provide investors a unique opportunity to obtain yield in a low-yielding world while at the same time position them to take advantage of inevitable rate rises in the future. Fundamentals, outside of commodity-exposed issuers and retail, remain strong and defaults outside of the aforementioned sectors should remain below long-term averages.

Werner SchwanbergChairman

30 August 2018

INVESTMENT MANAGER'S REVIEW

For the six month period ended 30 June 2018

Related to the U.S. Dollar Shares, some highlights of the first half of 2018 include: 

· Aggregate declared dividend of US$0.0332 per share for the period (first half of 2018).

· NAV total return of 0.72% over the period, including dividends paid.

· Historic dividend yield of 11.63% (share price as at 30 June 2018) [5].

· The Company traded over $112 million notional in the first half of 2018, rotating out of shorter dated Income Notes with limited upside into longer dated positions or positions with potential refinance or reset opportunity.

· Continued actively adding value through refinancing and pursuing resets where The Investment Manager believed economical, extending duration on Income Notes.

· Of the 4.64% of Income Notes out of reinvestment in 2017 and 2018, the majority have been optionally redeemed or are likely to be reset/re-issued in the near term.

Related to the Repurchase Pool Shares, some highlights include: 

· The Company traded $65 million notional 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

Performance across rating quality during the first half of 2018 was led by lower-quality loans in the U.S. In the US, the Lower Tier of the Credit Suisse Leveraged Loan Index ("CS US Loan Index") gained 5.35% while Middle Tier loans and Upper Tier loans returned 2.40% and 1.73%, respectively.

From a technical standpoint, the supply-demand dynamic mismatch of 2017 in the U.S. continued again in 2018. However, as the second quarter came to a close, a reversal somewhat occurred. Taking into account repayments, the net supply entering the loan market in May and June combined reached almost $52 billion - the highest consecutive-month sum since S&P Leveraged Commentary & Data ("LCD")began compiling this data 18 months ago. The overall loan market, as measured by the CS US Loan Index, has grown by $75 billion year-to-date to $1.13 trillion.

Gross institutional US loan issuance totalled $271.5 billion year-to-date through June 2018, which is down from 2017's $296.9 billion first-half tally. M&A was the main driver of new issuance, accounting for 52% of loan volume in the U.S.

The par-weighted U.S. loan last twelve months ("LTM") default rate for the period ended June 2018 was 2.1%, which was flat versus December 2017. The par-weighted US high yield LTM default rate increased to 1.9% at the end of June 2018, up from 1.3% in December.[6]

CLO Market Overview

The low volatility environment and spread compression in loan markets in the first quarter spurred on CLO issuance, while the repeal of the US risk retention requirements resulted in increased reset/refinancing activity. CLO issuance for 2018 has been robust with US issuance reaching $69.1 billion, compared to last year's $52.5 billion. If 2018's pace continues throughout the second half of 2018, we could see one of the largest issuance years on record.

Despite AAA spreads widening in the second quarter to L+107bp, the market continued to see demand with 27 new U.S. CLOs issued in June alone. Outside of new issue, we have seen ample activity in refi/reset transactions with $83.9 billion in the U.S. Interestingly, the level of refinancings dropped significantly in the U.S. with the lion's share (80%) of activity in the market coming from resets, which extend the reinvestment period of the CLOs.

Portfolio Update

During the first half of the year, the Company has continued active trading and management. The Company traded over $112 million notional in the first half of 2018, rotating out of shorter dated Income Notes with limited upside into longer dated positions or positions with potential refinance or reset opportunity.

This active approach has produced a portfolio where 74% of Income Notes have a reinvestment period end date of 2021 or later. The table below highlights the transition of the reinvestment periods of the portfolio's Income Note transition over the period as a percentageof NAV: 

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: 

The Company has taken advantage of the strong liability CLO market to proactively approach deals near or passed the end of their non-call period, that can be either refinanced or reset. The Investment Manager has completed three resets year to date through June, 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 led to increases in valuation and yields for Income Notes, benefitting the overall Company NAV. The Investment Manager expects to continue actively trying to 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 also benefited from the lower CLO liability costs via two refinancings as detailed below: 

As of 30 June 2018, the Company had exposure to 4.53% of CCC assets and 0.52% of defaulted assets on a look through basis through investments across its 49 CLOs managed by 15 investment managers.

As at 30 June 2018, the Company's top five investment exposures were: 

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 32 positions year to date through June 2018 at a premium, on average, to the prior month end valuations

Outlook

As with much of 2017, we see the technical backdrop influencing markets much more than anything fundamental. Outside of any credit idiosyncratic risk, we continue to believe that this supply-demand dynamic will drive market returns. As we saw towards the end of the period, large primary deals coming to market created weakness in loan secondary prices as market participants rotated out of existing positions in the secondary market to fund primary allocations. With more large deals expected to come to market in the second half of the year, we believe a more balanced market could be seen in the second half of the year. If, however, we continue to see strong institutional inflows into managed accounts and appetite for CLO liability investors remains robust, it may be possible to see spreads begin to tighten once again.

As the era of "cheap money" draws to a close and we enter a rising rate environment, we believe senior secured loans are well positioned, providing investors with yield and relative performance stability. High yield bonds should also continue to benefit from negative interest rates but provide yields similar to senior loans with more risks, in our view.

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. However, if the portfolio manager is an affiliate of the Investment Manager, 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/GBP 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 30 June 2018, the Company had no non-U.S. Dollar 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. 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.

Events Since Financial Period End

Please refer to note 19 "Subsequent Events" for details of the important events occurring after the reporting date.

GSO / Blackstone Debt Funds Management LLC

30 August 2018

STATEMENT OF DIRECTORS' RESPONSIBILITIES AND INTERIM MANAGEMENT REPORT

RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE INTERIM FINANCIAL REPORT

The Directors are responsible for preparing this interim management report in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union (the "EU"), the Transparency (Directive 2004/109/EC) (Amendment) Regulations 2017 (the "Transparency Directive") and the Transparency Rules of the Central Bank of Ireland (the "Central Bank").

In preparing the interim financial information, the Directors are required to:

- prepare and present the interim financial information in accordance with IAS 34 Interim Financial Reporting as adopted by the EU, the Transparency Directive and the Transparency Rules of the Central Bank.

- ensure the interim financial information has adequate disclosures;

- select and apply appropriate accounting policies; and

- make accounting estimates that are reasonable in the circumstances.

The Directors are responsible for designing, implementing and maintaining such internal controls as they determine is necessary to enable the preparation of the interim financial information that is free from material misstatement whether due to fraud or error.

We confirm that to the best of our knowledge:

(1) the unaudited condensed set of financial statements in the half-yearly financial report of Carador Income Fund PLC (the "Company") for the six months ended 30 June 2018 (the "interim financial information") which comprises the unaudited condensed interim statement of financial position, the unaudited condensed interim statement of comprehensive income, the unaudited condensed interim statement of changes in equity, the unaudited condensed interim statement of cash flows and the related explanatory notes, have been presented and prepared in accordance with IAS 34, Interim Financial Reporting, as adopted by the EU.

(2) The interim financial information presented, as required by the Transparency Directive, includes:

a. an indication of important events that have occurred during the first 6 months of the financial year, and their impact on the condensed set of the financial statements;

b. a description of the principal risks and uncertainties for the remaining 6 months of the financial year;

c. related parties' transactions that have taken place in the first 6 months of the current financial year and that have materially affected the financial position or the performance of the enterprise during that period; and

d. any changes in the related parties' transactions described in the last annual report that could have a material effect on the financial position or performance of the enterprise in the first 6 months of the current financial year.

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 collateralised loan obligations ("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 unaudited condensed interim 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.

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 mean 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.

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

The Directors anticipate that the principal risks and uncertainties will remain as outlined above and in note 11 for the remaining six months of the current financial year.

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.

Werner Schwanberg

Fergus Sheridan

Adrian Waters

Edward D'Alelio

Nicholas Moss

30 August 2018

INDEPENDENT REVIEW REPORT TO CARADOR INCOME FUND PLC

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 which comprises the unaudited condensed interim statement of financial position, unaudited condensed interim statement of comprehensive income, unaudited condensed interim statement of changes in equity, unaudited condensed interim statement of cash flows and the related explanatory notes. Our review was conducted having regard to the Financial Reporting Council's ("FRCs") International Standard on Review Engagements ("ISRE") (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity'.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly report for the six months ended 30 June 2018 is not prepared, in all material respects, in accordance with IAS 34 'Interim Financial Reporting' as adopted by the EU, the Transparency (Directive 2004/109/EC) (Amendment) Regulations 2017 ("Transparency Directive") and the Transparency Rules of the Central Bank of Ireland.

Material uncertainty related to going concern

We draw attention to note 2 to the unaudited condensed interim financial statements which indicates that the Directors have determined to offer to the Company's shareholders the opportunity to vote on an wind up of the Company as well as a rollover of their holding into Blackstone / GSO Loan Financing Limited. As explained in note 2, this constitutes a material uncertainty that may cast significant doubt on the Company's ability to continue as a going concern. Our conclusion is not modified in respect of this matter.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Transparency Directive and the Transparency Rules of the Central Bank of Ireland. As disclosed in note 2, the annual financial statements of the Company are prepared in accordance with International Financial Reporting Standards as adopted by the EU. The Directors are responsible for ensuring that the condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.

Our responsibility

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

Scope of review 

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

We read the other information contained in the half-yearly financial report to identify material inconsistencies with the information in the condensed set of financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the review. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

The purpose of our review work and to whom we owe our responsibilities

This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Transparency Directive and the Transparency Rules of the Central Bank of Ireland. Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.

KPMG

Chartered Accountants

1 Harbourmaster Place

IFSC

Dublin 1

Ireland

30 August 2018

UNAUDITED CONDENSED INTERIM STATEMENT OF FINANCIAL POSITION As at 30 June 2018

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

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

UNAUDITED CONDENSED INTERIM STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 30 June 2018

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

UNAUDITED CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY For the six months ended 30 June 2018

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

UNAUDITED CONDENSED INTERIM STATEMENT OF CASH FLOWS

For the six months ended 30 June 2018

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

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

NOTES TO THE UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTSFor the six months ended 30 June 2018

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, pursuant to Part 24 of the Companies Act 2014. The Company's 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 ended 31 December 2017, the Company converted 144,451,569 U.S. Dollar Shares on a one to one basis into U.S. Dollar denominated repurchase pool class shares of no par value ("Repurchase Pool Class Shares"). Repurchase Pool Class 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 30 June 2018, there were 398,801,780 U.S. Dollar Class Shares in issue and 63,152,770 Repurchase Pool Class Shares in issue. The Company may issue one or more additional classes of shares on prior notice to, and clearance by, the Central Bank.

On 28 August 2018, the Board announced that, following the strategic review, the Board has determined to offer shareholders the opportunity to vote on an orderly wind up of the Company alongside a rollover opportunity for those who wish to retain an investment in the CLO asset class (the "Rollover"). See note 19 for further details.

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 CLOs collateralised by senior secured bank loans and equity and mezzanine tranches of CLOs.

2 SIGNIFICANT ACCOUNTING POLICIES

2A STATEMENT OF COMPLIANCE

These unaudited condensed interim financial statements for the six months ended 30 June 2018, have been prepared in accordance with IAS 34 'Interim Financial Reporting' as endorsed by the EU. The unaudited condensed interim financial statements do not contain all of the information and disclosures required in the full annual financial statements and should be read in conjunction with the financial statements for the financial year ended 31 December 2017, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board ("IASB") as adopted by the EU and also in accordance with Irish Company Law. The audited statutory financial statements for the financial year ended 31 December 2017, together with the independent auditor's report thereon, have been filed with the Central Bank and are also available on the Company's website. The auditor's report on those financial statements was unqualified.The accounting policies applied by the Company in these unaudited condensed interim financial statements are the same as those applied in the financial statements for the financial year ended 31 December 2017, as described in those annual financial statements, unless otherwise stated below.

These unaudited condensed interim financial statements for the six months ended 30 June 2018 have been reviewed by the auditors having regard to International Standard on Review Engagements ("ISRE") (UK and Ireland) 2410, whose report is set on page 11.

The Company has adopted IFRS 9 "Financial Instruments" and IFRS 15 "Revenue from Contracts with Customers" with a date of initial application of 1 January 2018. The adoption of IFRS 9 has been applied retrospectively and did not result in a change to the classification or measurement of financial instruments, in either the current or prior period. Similarly, IFRS 15 did not have any material impact on the Company.

IFRS 9 largely retains the existing requirements in IAS 39 for the classification and measurement of financial liabilities. However, it eliminates the previous IAS 39 categories for financial assets of held to maturity, loans and receivables and available for sale. The impact of IFRS 9 on the classification and measurement of financial assets is set out below.

2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2A STATEMENT OF COMPLIANCE (CONTINUED)

Under IFRS 9, on initial recognition, a financial asset is classified as measured at: amortised cost; fair value through other comprehensive income - debt investments; fair value through other comprehensive income - equity investments; or fair value through profit or loss.

The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. Derivatives embedded in contracts where the host is a financial asset in the scope of the standard are never separated. Instead, the hybrid financial instrument as a whole is assessed for classification.

A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at fair value through profit or loss:

- it is held within a business model whose objective is to hold assets to collect contractual cash flows; and

- its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

A debt investment is measured at fair value through other comprehensive income if it meets both of the following conditions and is not designated as at fair value through profit or loss:

- it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and

- its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

On initial recognition of an equity investment that is not held for trading, the Company may irrevocably elect to present subsequent changes in the investment's fair value in other comprehensive income. This election is made on an investment-by-investment basis.

All financial assets not classified as measured at amortised cost or fair value through other comprehensive income as described above are measured at fair value through profit or loss. This includes all derivative financial assets. On initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at fair value through other comprehensive income as at fair value through profit or loss, if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

A financial asset (unless it is a trade receivable without a significant financing component that is initially measured at the transaction price), is initially measured at fair value plus, for an item not at fair value through profit or loss, transaction costs that are directly attributable to its acquisition.

The following accounting policies apply to the subsequent measurement of financial assets.

Financial assets at fair value through profit or loss

These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognised in profit or loss.

Financial assets at amortised cost

These assets are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss.

The Directors have determined that in order for the financial statements to give a true and fair view it is necessary to fair value all financial assets through profit or loss as permitted by IFRS 9, since all financial assets are managed on a fair value basis and hence the portfolio is neither held to collect contractual cash flows nor held both to collect contractual cash flows and to sell financial assets. Therefore financial asset classification remains consistent with the policies adopted under IAS 39 in the most recent annual audited financial statements.

Impairment of financial assets

IFRS 9 replaces the 'incurred loss' model in IAS 39 with an 'expected credit loss' ("ECL") model. The new impairment model applies to financial assets measured at amortised cost, contract assets and debt investments at fair value through other comprehensive income, but not to investments in equity instruments. Under IFRS 9, credit losses are recognised earlier than under IAS 39.

The financial assets at amortised cost consist of cash and cash equivalents and receivables.

2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2A STATEMENT OF COMPLIANCE (CONTINUED)

The impact of IFRS 9 on the classification and measurement of financial liabilities is set out below:

The amounts payable to Repurchase Pool Class Shareholders are classified as financial liabilities at fair value through profit or loss. IFRS 9 contains an option to designate irrevocably on initial recognition a financial liability as measured at fair value through profit or loss, when doing so results in more relevant information because the designation eliminates or significantly reduces an accounting mismatch. The predominant risk for this liability is asset risk, rather than its own credit risk. Due to the short timeframe between the payments made to the Repurchase Pool Class Shareholders after the relevant assets within the repurchase pool have been sold, the Directors have assessed that the credit risk on this liability is minimal. As such, the movement in the fair value of the amounts attributable to the Repurchase Pool Class Shares are all reflected within the unaudited condensed interim statement of comprehensive income. There are therefore no gains and losses being accounted for through other comprehensive income.

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

New standards adopted during the financial period ended 30 June 2018 that impacted the Company's financial statements are detailed below.

IFRS 9 "Financial Instruments", see note 2A above for details of how the adoption of the standard has impacted the financial statements.

IFRS 15 "Revenue from Contracts with Customers" was issued in May 2014 and became effective for periods beginning on or after 1 January 2018. It establishes the principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer. The standard did not have any material impact on the Company's financial position, performance nor it is expected to have any material impact on the disclosures in the financial statements.

2C NEW STANDARDS AND INTERPRETATIONS APPLICABLE TO FUTURE REPORTING PERIODS

New standards, amendments and interpretations issued but not effective in 2018 and not early adopted

The Company has considered all the upcoming IASB's standards including those not yet endorsed by the EU and does not deem any to be relevant to the Company.

2D BASIS OF PREPARATION

The Company's unaudited condensed interim 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 unaudited condensed interim financial statements is also US Dollar.

The unaudited condensed interim financial statements comprise the Company's unaudited condensed interim statement of financial position, unaudited condensed interim statement of comprehensive income, unaudited condensed interim statement of changes in equity and unaudited condensed interim statement of cash flows together with the related notes.

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 Directors have concluded that the circumstances detailed in notes 1 and 19, represent a material uncertainty that casts significant doubt upon the Company's ability to continue as a going concern and that, therefore the Company may be unable to continue realising its assets and discharging its liabilities in the normal course of business. Nevertheless, after making enquiries and considering these uncertainties, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future.

2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2D BASIS OF PREPARATION (CONTINUED)

For these reasons, they continue to adopt the going concern basis in preparing the unaudited condensed interim financial statements.

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.

2E KEY JUDGEMENTS AND ESTIMATES

The preparation of the unaudited condensed interim 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 unaudited condensed interim 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 30 June 2018 and 31 December 2017. See note 3 for details of the NAV attributable to Repurchase Pool Class Shares and U.S. Dollar Class Shares.

Judgements

Application of IFRS 10 and 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 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.

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 30 June 2018 and 31 December 2017 (30 June 2017: one segment). In October 2017, 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.

The value of trading between the operating segments during the financial period amounted to US$12,071,076 (30 June 2017: Nil).

3 SEGMENTAL REPORTING (CONTINUED)

The below tables detail the revenue, profit and net assets split between the operating segments at 30 June 2018, 30 June 2017 and 31 December 2017.

3 SEGMENTAL REPORTING (CONTINUED)

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.

4 CASH AND CASH EQUIVALENTS

Cash and cash equivalents balances are held with the Custodian.

5 FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

As described in the accounting policies note, the Company has financial assets and financial liabilities 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 unaudited condensed interim statement of financial position. All fair value measurements below are recurring.

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.

5 FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED)

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 unaudited condensed 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 period ended 30 June 2018 and the financial year ended 31 December 2017, 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.

Due to the number of Level 3 positions held in the Repurchase Pool Class, amounts payable to Repurchase Pool Class Shareholders are classified 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 period (2017: no transfers). Where transfers between levels arise, they are deemed to occur at the end of the reporting period.

At 30 June 2018, CLOs with a fair value of US$56,240,617 were classified as Level 3 (U.S. Dollar Share Class US$47,917,796 and Repurchase Pool Share Class US$8,322,821) (31 December 2017: Company US$91,088,972). The classification of the Level 3 assets reflects the dispersion in the indicative broker quotes for some Income Note positions during the financial period. At 30 June 2018, certain CLOs with a fair value of US$35,997,779 (U.S. Dollar Share Class US$32,813,313 and Repurchase Pool Share Class US$3,184,466) were transferred from Level 2 to Level 3 (31 December 2017: Company US$74,355,559). 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 CLOs, 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 30 June 2018:

Change in unrealised gains or losses (net loss) for the financial period included in profit or loss for the CLO within Level 3 of the fair value hierarchy amounted to US$1,420,659 (U.S. Dollar Share Class (US$450,247) and Repurchase Pool Share Class US$1,870,906) (31 December 2017: Company US$1,353,435). These gains and losses are included in the net gain on financial assets at fair value through profit or loss of the unaudited condensed interim 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 2017:

5 FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED)

Transfers between Level 1, 2 and 3 (continued)

The table below sets out information about significant unobservable inputs used at 30 June 2018 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 2017 in measuring financial instruments categorised as Level 3 in fair value hierarchy:

For the amounts payable to Repurchase Pool Shareholders which are classified as level 3, the significant unobservable input used is the unadjusted NAV of the Company's Repurchase Pool Class that are based on Level 3.

The following table shows a reconciliation from the opening balances to the closing balances as at 30 June 2018:

5 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 30 June 2018 in measuring the liability categorised as Level 3 in the fair value hierarchy:

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 30 June 2018 and 31 December 2017 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.

6 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 management fee is calculated on the net assets less the market value of investments managed by the Investment Manager, if such investments are or have 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 financial period ended 30 June 2018 for the U.S. Dollar Class Shares amounted to US$1,670,654 (30 June 2017: US$2,508,973) and US$330,346 for the Repurchase Pool Class Shares (30 June 2017: US$Nil).

6 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 period 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 was established to track the performance fee payable to the Investment Manager in respect of the Repurchase Pool Class Shares. The performance fee is calculated subject to the below conditions:

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 "Custodian"). The performance fees charged for the financial period ended 30 June 2018 amounted to US$Nil for the U.S. Dollar Class Shares (30 June 2017: US$Nil) and US$Nil for the Repurchase Pool Class Shares (30 June 2017: US$Nil).

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

ADMINISTRATOR AND CUSTODIAN

The Administrator and Custodian 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 periods ended 30 June 2018 and 30 June 2017 are reflected in the unaudited condensed statement of comprehensive income and the amounts due at 30 June 2018 and 31 December 2017 are disclosed below for information purposes. Administrator and Custodian fees are charged on the same basis on both the U.S. Dollar Share Class and the Repurchase Pool Class.

6 OPERATING EXPENSES (CONTINUED)

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 unaudited condensed interim financial statements. Operating expenses are disclosed separately in the unaudited condensed statement of comprehensive income. Directors' fees and other expenses are charged on the same basis on both the U.S. Dollar Share Class and the Repurchase Pool Class.

Accruals excluding audit, Directors and other professional fee accruals as at 30 June 2018 and 31 December 2017 are detailed in the table below:

The remaining balance of the expense accrual consists of auditors' fees of US$83,412 (31 December 2017: US$250,206) and other professional fees of US$137,884 (31 December 2017: US$133,512).

During the financial period ended 30 June 2018, Directors' fees amounted to US$177,767 (30 June 2017: US$177,767) plus out of pocket expenses of US$17,227 (30 June 2017: US$17,227), of which US$Nil (31 December 2017: US$Nil) remained payable at the financial period end.

7 PARTICIPATING SHARES

At 30 June 2018, 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 30 June 2018, there were 398,801,780 U.S. Dollar Class Shares (31 December 2017: 398,801,780) in issue.

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 30 June 2018, there were 63,152,770 Repurchase Pool Class Shares (31 December 2017: 144,451,569) in issue. At 30 June 2018, amounts payable to the Repurchase Pool Class Shareholders were US$47,567,309 (31 December 2017: US$107,889,914).

7 PARTICIPATING SHARES (CONTINUED)

REPURCHASE POOL CLASS SHARES (CONTINUED)

At the discretion of the Directors, and as cash becomes available upon the realisation of assets, capital will be returned on a pro rata basis in US Dollars to the existing Repurchase Pool Shareholders, by the Company making a compulsory repurchase of Repurchase Pool Class Shares. Repayments of capital to the Repurchase Pool Shareholders during the financial period ended 30 June 2018 amounted to US$61,499,945 (financial period ended 30 June 2017: US$Nil).

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 461,954,552 shares as at 30 June 2018 and 543,253,351 shares as at 31 December 2017. At 30 June 2018, the total share capital comprises of 63,152,770 Repurchase Pool Class Shares and 398,801,780 U.S. Dollar Class Shares (31 December 2017: 144,451,569 Repurchase Pool Class Shares and 398,801,780 U.S. Dollar Class Shares) in addition to the two subscriber shares. The total share capital decreased by 81,298,799 shares during the financial period ended 30 June 2018. There was no change in the total share capital during the financial period ended 30 June 2017 or financial year ended 31 December 2017.

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.

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 6.

7 PARTICIPATING SHARES (CONTINUED)

CAPITAL MANAGEMENT (CONTINUED)

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 approved by shareholders, and shareholders representing 26.6% of the issued U.S Dollar Class Shares elected to avail of the repurchase opportunity. 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.

At the conversion date of 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 US 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.

Subsidiary undertakings

At 30 June 2018, the Company had two (31 December 2017: three) subsidiary undertakings for financial reporting purposes that are also structured entities. They are Keuka Park CLO Ltd 2013-1A SUB and Sheridan Square CLO Ltd (31 December 2017: Keuka Park CLO Ltd 2013-1A, Pinnacle Park CLO Ltd 2014A and Sheridan Square CLO Ltd). Pinnacle Park CLO Ltd 2014A which was held at 31 December 2017 was called during the financial period. 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 over the activities of the CLO, 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 two 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 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.

9 INTERESTS IN OTHER ENTITIES (CONTINUED)

INTERESTS IN UNCONSOLIDATED STRUCTURED ENTITIES (CONTINUED)

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 30 June 2018:

The Company has a percentage range of 0.02% - 27.40% notional holding out of the entire outstanding notional balances of the structured entities as at 30 June 2018.

During the financial period ended 30 June 2018, 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 unaudited condensed interim statement of financial position.

9 INTERESTS IN OTHER ENTITIES (CONTINUED)

INTERESTS IN UNCONSOLIDATED STRUCTURED ENTITIES (CONTINUED)

Interests in unconsolidated structured entity subsidiaries as at 30 June 2018:

The Company has a percentage range of 58.48% - 63.37% notional holding out of the entire outstanding notional balance of its subsidiaries (Keuka Park CLO 2013-1A, Sheridan Square CLO Ltd) as at 30 June 2018.

Details of the subsidiaries held at 30 June 2018 are set out above.

For the financial period ended 30 June 2018, 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 31, agrees to the financial assets at fair value through profit or loss in the unaudited condensed interim statement of financial position.

*** This refers to the number of investments that the Company has in its 2 unconsolidated structured entity subsidiaries across 2 tranches as explained in note 10 .

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 unaudited condensed interim 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 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 33, agrees to the financial assets at fair value through profit or loss in the unaudited condensed interim statement of financial position.

*** This refers to the number of investments that the Company has in its 3 unconsolidated structured entity subsidiaries across 3 tranches as explained in note 10.

10 RELATED PARTY TRANSACTIONS AND KEY MANAGEMENT PERSONNEL

TRANSACTIONS WITH ENTITIES WITH SIGNIFICANT INFLUENCE

The following note summarises related parties and related party transactions during the financial period. GSO / Blackstone Debt Funds Management LLC acts as Investment Manager to the Company (the "Investment Manager"). Investment management fees earned by the Investment Manager amounted to US$2,001,000 (30 June 2017: US$2,508,973), of which US$640,086 (31 December 2017: US$789,628) was outstanding at the financial period end. Performance fees earned by the Investment Manager amounted to US$Nil (30 June 2017: US$Nil), of which US$nil (31 December 2017: US$541,426) was outstanding at the financial period end.

TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL

The Directors of the Company and the Investment Manager are the key management personnel as they are the persons who have the authority and responsibility for planning, directing and controlling the activities of the Company for the financial period ended 30 June 2018.

During the financial period ended 30 June 2018, the Company incurred Directors' fees for services as Directors and out-of-pocket expenses of US$194,994 (30 June 2017: US$194,994), of which US$Nil (31 December 2017: US$Nil) was outstanding at the financial period end.

No Director, nor the Company Secretary, had any beneficial interest in the shares of the Company during the financial period ended 30 June 2018 or financial year ended 31 December 2017. The Company is domiciled in Ireland where shareholdings held by the non-executive Directors would not be considered the industry norm.

TRANSACTIONS WITH OTHER RELATED PARTIES

At 30 June 2018, current employees and accounts managed or advised by the Investment Manager and its affiliates within the credit-focused business unit of The Blackstone Group L.P. hold 375,000 U.S. Dollar Class Shares (31 December 2017: 200,000 U.S. Dollar Class Shares) which represents approximately 0.08% (31 December 2017: 0.04%) of the issued shares of the Company.

The Company may invest in other entities and transactions that are managed directly or indirectly by the Investment Manager or any of its affiliates and as at 30 June 2018, 27.05% (31 December 2017: 33.80%) of the Company's underlying investments are managed in this way and these are listed below:

CLO INVESTMENTS MANAGED BY GSO / BLACKSTONE AND AFFILIATES 30 JUNE 2018

10 RELATED PARTY TRANSACTIONS AND KEY MANAGEMENT PERSONNEL (CONTINUED)

CLO INVESTMENTS MANAGED BY GSO / BLACKSTONE AND AFFILIATES 31 DECEMBER 2017

* Partial in primary.

TRANSACTION WITH SUBSIDIARIES

As at 30 June 2018, the Company had two subsidiaries for financial reporting purposes: Sheridan Square CLO Ltd and Keuka Park CLO Ltd 2013-1A, all of which are special purpose vehicles incorporated in the Cayman Islands and are therefore related parties. The subsidiaries are unconsolidated subsidiaries and the Company's investment in these vehicles is detailed in note 2C and note 9, which comprise of two equity tranches held in the two subsidiaries.

The Company received US$992,800 in coupon payments from the subsidiaries for the financial period ended 30 June 2018 (30 June 2017: US$16,423,585). Total losses on subsidiary holdings for the financial period amounted to US$1,071,167.

Pinnacle Park CLO Ltd 2014A was called during the financial period ended 30 June 2018.

The value of the subsidiary holdings at 30 June 2018 was US$2,074,071 (31 December 2017: US$13,863,989).

11 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS

INTRODUCTION

Risk is inherent in the Company's activities but it is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. The process of risk management is critical to the Company's continuing profitability. The Company is exposed to market risk (which includes interest rate risk, currency risk and other price risk), liquidity and credit risk arising from the financial instruments it holds. Given the Company's permanent capital structure as a closed-ended fund, it is not exposed to redemption risk relating to its own shares in issue. However, see note 7 on capital management for additional information on potential redemption opportunities.

As disclosed in note 7, such a redemption opportunity was put to shareholders during the financial year ended 31 December 2017. It was accepted by 26.6% of the shareholders, consequently Repurchase Pool Class Shares were established and 26.6% of the Company's portfolio was transferred to the Repurchase Pool. With the exception of liquidity risk, the risks associated with the Repurchase Pool Class Shares are not materially different from the U.S. Dollar Shares. Liquidity risk of the Company will be higher in respect of the Repurchase Pool Class Shares, as the underlying assets are in the process of being actively sold in order to return cash to these Shareholders. However this risk is well managed, as such distributions are carried out at Directors' discretion.

11 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (CONTINUED)

The Company's financial assets include investments in CLOs which are not traded in an organised public market and which may be illiquid, and thus impact the repurchase opportunity.

The Investment Manager considers the risk and concentrations on a look-through basis level for the CLOs.

As detailed in note 2B, the Company's management have made an assessment of the impact of IFRS 9 "Financial Instruments" and it was determined that the standard does not have a significant impact on the Company's financial position or performance, as it continues to classify its financial instruments as being at fair value through profit or loss. Amounts payable to repurchase pool shareholders are also designated at fair value through profit or loss. Cash, receivables and expenses payable will continue to be classified at amortised cost. Therefore, there is no change to classifications or measurement when compared to prior periods.

RISK MANAGEMENT STRUCTURE

The Board of Directors is ultimately responsible for identifying and controlling risks but relies on its delegated service providers, (the Investment Manager, Depositary, Administrator and Registrar), to carry out ongoing management and monitoring of risks.

RISK MEASUREMENT AND REPORTING SYSTEM

The Company's risks are measured using a method which reflects both the expected loss likely to arise in normal circumstances and unexpected losses, which are an estimate of the ultimate actual loss based on models. The models make use of the probabilities derived from historical experience, adjusted to reflect the economic environment.

Monitoring and controlling risks is primarily performed based on limits established by the Board.

These limits reflect the business strategy and market environment of the Company as well as the level of risk that the Company is willing to accept. In addition, the Company monitors and measures the overall risk-bearing capacity in relation to the aggregate risk exposure across risk types and activities.

RISK MITIGATION

The Company has investment guidelines that set out its overall business strategies, its tolerance for risk and its general risk management philosophy and has established processes to monitor and control economic hedging transactions in a timely and accurate manner. The Company may use derivatives and other instruments only in connection with its risk management activities, but not for trading purposes.

EXCESSIVE RISK CONCENTRATION

Concentration arises when a number of counterparties are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentration indicates the relative sensitivity of the Company's performance to developments affecting a particular issuer, manager, asset class or geographical location.

In order to avoid excessive concentration of risk, the Company's policies and procedures include specific guidelines to focus on maintaining a diversified portfolio. Identified concentration of credit risks are controlled and managed accordingly.

The Company's investment guidelines specify, among others, that the Company must invest in a minimum of 20 separate investments with a maximum exposure per investment, at the time of investment, of 20% of the NAV of the Company. 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 concentration risk at 30 June 2018 and 31 December 2017 is disclosed below in note 11 (A)(iii) and 11 (B).

11 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (CONTINUED)

(A) MARKET RISK

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices and includes interest rate risk, currency risk and other price risks. The Company may use derivative instruments to hedge the investment portfolio against currency risk. The Company did not enter into any derivative instruments during the period ended 30 June 2018 or year ended 31 December 2017.

The Company's investments are in CLO vehicles. The CLO vehicles typically have no significant assets other than the loans as collateral. Accordingly, payments on the CLO securities are payable solely from the cash flows from the collateral, net of all management fees and other expenses. Payments to the Company as a holder of Income Notes and/or Mezzanine Notes of CLO vehicles are met only after payments due on the Senior Notes (and, where appropriate, the Mezzanine Notes) have been made in full.

The risks associated with the Repurchase Pool Class Shares are not materially different from the U.S. Dollar Shares and are not separately disclosed.

The following table shows the securities held by the Company which are most susceptible to market risk arising from uncertainties about interest rates, foreign currency fluctuation and future prices of the instruments.

The Company is exposed to interest rate risk on CLO held by the Company and on a look-through basis to the underlying assets in the CLOs.

The majority of the Company's financial assets are Income Notes and Mezzanine tranches of cash flow CLOs. The Company's investments have exposure to interest rate risk but this is limited to floating LIBOR-based exposure on the underlying assets in the CLOs.

(i) Interest rate risk

The following table shows the portfolio profile at 30 June 2018 and 31 December 2017:

The following table shows the Directors' best estimate of the sensitivity of the portfolio to stressed changes in interest rates, with all other variables held constant. The table assumes parallel shifts in the respective forward yield curves. This risk is proportionally shared between the two share classes.

11 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (CONTINUED)

(A) MARKET RISK (CONTINUED)

(ii) Currency risk

Investments acquired for the Company's portfolio are denominated in US Dollars. However, the Company may also invest in underlying assets which are denominated in currencies other than US Dollar (e.g., Euro). Accordingly, the value of such investments may be affected, favourably or unfavourably predominately, by fluctuations in currency rates and which, if unhedged, could have the potential to have a significant effect on returns. To reduce the impact on the Company of currency fluctuations and the volatility of returns which may result from currency exposure, the Investment Manager may hedge the currency exposure of the assets of the Company with the use of derivative financial instruments.

The Company is exposed to limited currency risk, as the vast majority of the Company's assets and liabilities are currently denominated in US Dollars. As a result, the Company did not have any foreign exchange forward contracts at the financial period ended 30 June 2018 (December 2017: US$Nil).

The total net exposure to foreign currencies at the reporting date was as follows:

(iii) Other price risks

The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market. The Directors do not believe that the returns on investments are correlated to any specific index or other price variable.

11 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS (CONTINUED)

(A) MARKET RISK (CONTINUED)

(iii) Other price risks (continued)

The table below analyses the Company's concentration of other price risk by subsector in the secured loan asset class and by geographical area.

If the value of investments was to increase or decrease by 1%, the impact on the NAV of the Company would be +/- US$3,193,641 (Repurchase Pool Class US$448,393 and US Dollar Class US$2,745,248) (2017: +/- US$3,93,832).

(B) CREDIT RISK

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. It is the Company's policy to enter into financial instruments with a range of reputable counterparties. Therefore, the Company has a diversified portfolio to reduce credit risk.

The table below analyses the Company's maximum exposure to credit risk for the components of the unaudited condensed interim statement of financial position. The split between the US Dollar Class and the Repurchase Pool Class is disclosed in note 3.