CIFU.L Regulatory News (CIFU)

RNS Announcement

Carador Income Fund plc

22 April 2016

FOR IMMEDIATE RELEASE

ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2015

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

A copy of the Company's Annual Report and Audited Financial Statements for the year ended 31 December 2015 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: 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 of collateralised loan obligations ("CLOs"), collateralised by senior secured bank loans and equity and mezzanine tranches of CLOs.

The Company's shares have a listing on the premium segment of the Official List of the UK Listing Authority and are admitted to trading on the Main Market of the London Stock Exchange ("LSE").

CHAIRMAN'S REPORT

Performance

I am pleased to present the Annual Report and Accounts for the Company for the financial year ended 31 December 2015.

Returns across dollar-denominated asset classes were subpar in 2015 as macroeconomic factors caused investors to take a cautious approach in managing their portfolios. The high yield and loan markets produced negative annual returns for the first time since the beginning of the financial crisis. The Credit Suisse High Yield Index lost 4.93% in 2015, the fourth-worst year in its 30-year history. The Credit Suisse Leveraged Loan Index ("CS LLI") fared better but still fell 0.38%, representing only the second negative annual return in its 24-year history. Investment grade bonds performed roughly in line with the overall US bond market with the Barclays Aggregate gaining 0.55% and US investment grade corporate bonds losing 0.68%. The sell-off in the loan and high yield markets led to a decline in CLO valuations. Post crisis BB and B CLO tranches lost 5.77% and 10.86%, respectively, and the average price of post crisis CLO equity tranches plunged 34% during 2015.1

During the first half of 2015, the Company had a positive performance with a NAV return of 4.58%.2 However, increased volatility in credit markets due to a potential "Grexit" from the Eurozone, uncertainty about the Chinese equity market, the timing for the Fed rate hike and continued weakness in the economy driven by the oil and gas sector, impacted the Company's performance in the second half of the year.

Technicals also played an important role in 2015. The three largest types of loan buyers (CLOs, mutual funds and distressed hedge funds) stepped back during the financial year, which resulted in decreased demand. Institutional demand was the only source that grew in 2015, which typically focuses on high-quality companies. The institutional inflows were not enough to offset the decline in demand from other investors but were enough to stabilise high-quality loan valuations.

During the 12-month period, the Company generated a total NAV return of -9.71% including distributions.2

The Company's shares closed 2015 at US$0.7400, a 2.34% premium to the NAV at 31 December 2015. The annualised dividend yield based on the last declared dividends was 13.51%.2

US$ Share Class Quarterly Performance Based on Declared Dividends.2

[1] Sources: Credit Suisse, Barclays, JP Morgan, as of 31 December 2015.

2 Carador monthly reports.

Cash Flow and Dividends

The Company continued to generate strong cash flows during the financial year and the net income generated by the Company exceeded the target annual dividend of $0.1000 per share for 2015. Dividend cash flow coverage has increased in 2015 due to the commencement of distributions from primary Income Note purchases in 2014. 

The Company declared dividends representing approximately 92.5% of the net income for the year. A surplus US$4.4 million of undistributed net income has been retained for the financial year.

The Directors have announced a dividend target of $0.0900 per share for 2016 on the basis of market conditions and the construction of the Company's portfolio. The reduction in the anticipated dividend for the year was driven primarily by a reduction in the portfolio's allocation to Income Notes during 2015 in favour of an increase in the allocation to cash in order to offer some downside protection to the Company's net asset value ("NAV"). The Directors also announced that should there be a reversion of the weighting between Mezzanine Notes and Income Notes during the year, as anticipated by GSO / Blackstone Debt Funds Management LLC (the "Investment Manager"), then the historic target annual dividend of $0.1000 per U.S. Dollar share may be achievable. The Investment Manager believes that its rigorous investment process will allow it to identify investment opportunities to deploy the cash balance in this challenging market.

The Company also seeks to maintain its status as an 'excluded security' under the Non-Mainstream Pooled Investment ('NMPI') rules and the Board is therefore committed to distributing at least 85% of its net income each financial year. If the target $0.0900 dividend per share is forecast to be less than 85% of the Company's net income, the Board will seek to increase the Q4 2016 dividend commensurately.

Annual Declared Dividends per US$ Share and Net Cashflow Coverage of Net Income

Material Events

The Director's report includes a summary of the dividends announced in 2015.

On 30 January 2015, the Company's Investment Manager, (together with its affiliates, 'GSO Blackstone'), appointed J. Richard ('Dik') Blewitt as the Company's new portfolio adviser following the resignation of Mark Moffat from GSO Blackstone.

On 30 April 2015, the Company released its Annual Financial Report and Accounts for the twelve months ended 31 December 2014.

At the annual general meeting ("the AGM") of the Company held on 25 June 2015, shareholders approved the following ordinary and special resolutions:

Ordinary Resolutions

1. Receipt and consideration of the directors' report and the financial statements of the Company for the year ended 31 December 2014 and the report of the auditors thereon.

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

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

4. Re-election of Nicholas Moss as a Director of the Company.

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

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

7. Re-election of Adrian Waters as a Director of the Company.

8. Re-election of Fergus Sheridan as a Director of the Company.

Special Resolutions

9. Authorisation of the Board to allot and issue up to 54,325,334 shares (or, if lower, such number of shares as represent 10% of the shares in issue at the date of the AGM), 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.

10. Authorisation of the Board to allot and issue up to 54,325,334 shares (or, if lower, such number of shares as represent 10% of the 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.

On 27 August 2015, the Company announced its unaudited interim results for the period ended 30 June 2015.

Outlook

Volatility is expected to continue in 2016 as many factors influencing the market remain unresolved. At this time, the Investment Manager does not anticipate a recession but macro risks have clearly risen. Softening fundamental and technical trends can translate into attractive investment opportunities, which the Company can take advantage of to strengthen its portfolio with CLOs invested in higher spread, higher rated new issue loans as well as secondary loans offered at discounted prices. Given this backdrop, the Investment Manager believes the Company's portfolio should comfortably generate net cash flows to cover the target dividend of $0.0900 per share. The Board, along with the Investment Manager, also believes that the historic target annual dividend of $0.1000 per share may be achievable subject to a revision of the weighting between Mezzanine Notes and Income Notes during the year.

Werner SchwanbergChairman

21 April 2016

INVESTMENT MANAGER'S REVIEW

For the twelve month period ended 31 December 2015

We are pleased to present our review of 2015 and our outlook for 2016. Some key points include:

· declared dividend income of $0.1000 per share equivalent to a historic dividend yield of 13.51% based on the 31 December 2015 share price;3

· 2015 produced negative returns across the leveraged finance market, with loans experiencing their second year ever of negative returns. The Credit Suisse Leveraged Loan Index ("CS LLI") and the Credit Suisse Distressed Loan Index (facilities priced under $90) returned -0.38% and -25.91%, respectively for the year;

· the Company delivered a 2015 total NAV return to shareholders of -9.7%. The Investment Manager believes that the NAV decline is due to mark-to-market volatility and that it will not result in permanent losses in the portfolio;

· the Company reduced its allocation to Income Notes during the year in favour of an increase in cash in order to offer some downside NAV protection. The Investment Manager believes that its rigorous investment process will allow it to identify investment opportunities to deploy the cash balance in this challenging market; and

· the Company renewed its short term liquidity facility for US$30 million with improved terms to allow the Company to continue to operate efficiently. (See note 12 for additional details).

Bank Loan Market Overview

Loan technicals were challenged during 2015 as supply exceeded CLO generation and retail fund flows. Volume declined 30% from 2014 and totalled US$326 billion, though 2015 was still the fourth largest annual volume on record. M&A activity dominated new issuance, accounting for 49% of the pipeline. Weak technical conditions weighed on loan prices and the average price of the CS LLI fell $4.85 during 2015, reaching levels not seen since 2011. By the end of the year, new issue clearing spreads widened from mid-year lows, reaching 489bp and 545bp for BB and B rated loans, respectively. The most notable move was in higher rated loans; BB new issue spreads widened 133bp since June as investors began to rotate into higher quality loans.4

One of the biggest questions in 2016 will be the potential for a turn in the credit cycle for speculative-grade investors. As funding costs rise for low-quality companies, the potential for increasing defaults escalates. Defaults have been low and are expected to remain low outside of select sectors. Excluding commodities, loan defaults are expected to be 1.5% for loans, below their long-term average of 3.3%.5

CLO Market Overview

2015 was another strong year for CLO issuance. The US market saw the second highest issuance on record as CLO managers issued 188 transactions totalling US$97.9 billion, versus 2014 issuance of 235 transactions totalling US$124.1 billion. The number of CLO managers issuing deals fell in 2015 as CLO equity investors became increasingly focused on risk-retention compliant vehicles, and placing of CLO equity was challenged given the sell-off in the secondary CLO market.4

Europe experienced its second highest year of issuance since the crisis with 33 transactions pricing for €13.6 billion versus 2014's 35 CLOs totalling €14.5 billion. The slight year-over-year decline can be attributed to the regulatory headlines, including the leaked drafts of a European Commission risk retention proposal. Once the final proposal was released and digested by investors, the primary CLO market slowly normalised.

US CLO liability costs generally widened during the second half of 2015 with average primary AAA spreads reaching LIBOR+165bp by year-end. This level represents the widest AAA spreads since the beginning of 2011.6 The bifurcation in the loan and CLO market persisted throughout 2015 resulting in the ability of "top tier" managers to achieve significantly better pricing on CLO liabilities than non-top-tier managers.

In the secondary market, CLO equity valuations declined significantly with the average CLO post-crisis equity price falling 34% in 2015.5 Discount Margins ("DMs") widened across the capital structure, as seen in the post-crisis CLO portion of the JP Morgan Collateralized Loan Obligation Index. BBs and Bs saw the largest movements as BB DMs increased 227bp and B DMs widened 286bp versus year-end 2014. As at 31 December 2015, DMs for U.S. post-crisis BBs and Bs were 915bps and 1,117bp versus 688bp and 832bp, respectively, as at 31 December 2014.

3 Source Bloomberg, 31 December 2015 share price $0.74.

4 S&P/LCD.

5 JP Morgan Leveraged Loan Market Monitor and CLOIE Monitor, 4 January 2016.

6 Wells Fargo, The CLO Salmagundi: 2015 - U.S. Year in Review, 7 January 2016.

CLO Market Overview (continued)

Strategists anticipate CLO issuance to decline in 2016 and generally forecast US$60-70 billion of issuance in the US, excluding refinancing transactions, given US risk retention rule implementation and a general risk-off sentiment. However, given the further acceleration in volatility seen so far in 2016, Bank of America reduced their full-year forecast to US$45 billion. European CLO issuance in 2016 is projected to be stronger than 2015 with a target of €15 billion, benefitting from a benign credit environment supported by an accommodative ECB policy.7 The involvement of Asian investors in some of 2015's European deals also raises hopes for a more meaningful broadening of the investor base in 2016.

Portfolio Update

The Company ended the year with a total of 58 investments across 49 CLOs managed by 20 investment managers. This represents a look-through exposure to approximately 1,100 individual corporates. The exposure is, however, concentrated in a smaller number of larger issuers, as the table below illustrate, with 342 of those companies accounting for 75% of the Company's portfolio.

Look-Through Loan Exposure

The Investment Manager has continued to actively manage the portfolio. During the first half of 2015, the Company sold US$80.8 million notional in CLO 1.0 equities capitalizing on the underlying loan technical and market's low prepayment rate.

The Company also initiated a call, together with other investors, in Callidus Debt Partners CLO Fund V, a CLO 1.0 equity managed by GSO / Blackstone. The Investment Manager's estimated generated IRR is approximately 30% over the life of the investment.

The Company added US$99.0 million notional in CLO 2.0 equities during the financial year and continues to rotate out of lower yielding pre-crisis debt into longer dated CLO income notes at a measured pace.

In accordance with the Company's pricing policy, the Company determines the value of the CLOs using independent, unadjusted indicative broker quotes. At 31 December 2015, CLOs with a fair value of US$244,336,199 were transferred from level 2 to level 3. The change in the classification level is a result of decreased liquidity in the market and wider spreads, which are consequently reflected in a broader spectrum of indicative broker quotes.

As of 31 December 2015, the portfolio breakdown by CLO 1.0, CLO 2.0, Income Notes and Mezzanine Notes was as follows:

With US risk retention rules taking effect in December 2016, portfolio manager differentiation has continued to be one key aspect in our portfolio allocation. We have seen an increasing proportion of US risk-retention compliant deals with about 27% of the CLOs priced during 2015 intending to comply with the regulation.8 In some cases, non-compliant transactions needed to include concessions such as shared fees with equity investors or reduced management fees in the case that the CLO is unable to complete a refinancing.

At the financial year end, the Company's largest exposures to loan managers were as follows:

7 Bank of America Merrill Lynch, CLO Weekly 12 November 2015, 29 January 2016 and 12 February 2016.

8 S&P/LCD.

Look-Through Loan Exposure (continued)

The Company's top ten look through exposure to corporate borrowers is detailed in the table below:9 

31 December 2015

31 December 2014

The Company's financial assets exposed to credit risk were concentrated, in order of exposure, in the following industries: 9

9 This table forms an integral part of the audited financial statements.

Look-Through Loan Exposure (continued)

The Investment Manager implements a rigorous investment process, which we believe will continue to produce opportunities in this challenging environment.

Outlook

Loan valuations have receded to four-year lows after the market experienced back-to-back losses in Q3 and Q4. Despite the cheapening of prices, we continue to believe the market is in the middle of the correction as overhanging factors such as weakening emerging market growth and an enduring commodity sell off are unlikely to be resolved during the next quarter or two. In our view, distressed and commodity-related loans are most at risk of further weakness. Conversely, we believe high quality loans represent attractive relative value and we expect this segment of the loan market to continue to produce stable, respectable returns in the current low-yield, high-volatility environment. The split BBB/BB segment of the loan market was one of the few areas in the USD-denominated loan universe to close 2015 in positive territory.

CLO equity should benefit from both widening loan asset spreads and par building opportunities available through depressed loan valuations, resulting in increased cash flows. Additionally, we expect that CLO managers will rotate into higher quality loans, improving the credit quality of the underlying CLO portfolios. Perceived liquidity issues, increased rating downgrades, and continued pressure on commodities may add to the market's volatility while at the same time provide interesting investment opportunities.

Given depressed CLO equity NAVs, the market will likely begin to focus on expected cash flows as the primary driver of value. The commodity exposure remains low in the loan market, including in the Company's underlying assets. Active portfolio management will continue to be important, and the Company benefits from GSO / Blackstone's experienced team to actively manage the portfolio and monitor all of its positions, including their underlying assets.

The Investment Manager believes that a downturn in credit will impact CLOs differently this cycle versus 2008. Due to the prevalence of covenant lite loan issuance, we expect defaults will not accelerate materially over the near term. Instead, we view CCC downgrades as a greater near term concern for CLOs which are required to apply market value haircuts to overcollateralization tests for exposures in excess of limits (usually 7.5%). CCC levels in CLO portfolios have increased, primarily as a result of downgrades in commodities-related sectors. Despite totalling just 5.7% of all post-crisis CLOs outstanding, the commodities sector currently accounts for 29.5% of all CCC1 or lower holdings. 10

The Company had a Caa/CCC bucket of 4.6% and the Company's default rate was 40bps as at 31 December 2015.

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 credit research team. Achieving diversity 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 NAV. The Company also limits its exposure to transactions managed by the same portfolio manager to 15% of the NAV, at the time of investment. However, if the portfolio manager is an affiliate of the Investment Manager, this limit is increased to 60% of the NAV, 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/GBP assets to U.S. Dollars. As at the year end 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 of Ireland (the "Central Bank"). The Company has no intention of using the currency hedging facility for the purposes of currency speculation for its own account.

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

GSO / Blackstone Debt Funds Management LLC

21 April 2016

10 Bank of America Merrill Lynch, CLO Weekly 12 November 2015, 29 January 2016 and 12 February 2016.

DIRECTORS' REPORT

PRINCIPAL ACTIVITIES

The Company was incorporated on 20 February 2006 as a closed-ended limited liability investment company under the laws of Ireland and is authorised by the Central Bank of Ireland ("Central Bank"). The Company continues to be registered and domiciled in Ireland and the Company's shares are premium listed on the Official List of the UK Listing Authority and admitted to trading on the Main Market of the London Stock Exchange.

INVESTMENT OBJECTIVE

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

INVESTMENT POLICY

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

· senior secured bank loans;

· investment grade loans;

· project finance debt;

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

· mortgage-backed securities; and/or

· debt securities issued by other CLOs.

The Company may also invest in other collective investment schemes for the purposes of gaining exposure to the types of CLO transactions described above, or otherwise to pursue the investment objective and policy of the Company.

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

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

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

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

INVESTMENT POLICY (continued)

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

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

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

Investment restrictions

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

· distributable income will be principally derived from investment activity;

· the Company will not conduct any trading activity;

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

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

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

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

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

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

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

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

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

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

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

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

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

REVIEW OF DEVELOPMENT OF THE BUSINESS AND FUTURE DEVELOPMENTS

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

RESULTS FOR THE FINANCIAL YEAR AND STATE OF AFFAIRS

The financial position and results for the financial year are set out in the statement of financial position and in the statement of comprehensive income.

The loss for the financial year attributable to participating equity shareholders amounted to US$41,409,323 (31 December 2014: profit of US$30,851,218).

The valuation of the Company's assets has been affected by the volatility and dislocation of the broader markets. The Board believes that the Company is well positioned to take advantage of this market dislocation.

The Company made the following announcements on dividends in respect of 2015:

· On 22 January 2015, the Board declared a dividend of US$0.0250 for the period 1 October 2014 to 31 December 2014. The dividend was paid on 4 February 2015 to shareholders on the share register as at close of business on 30 January 2015. The amount paid in respect of this dividend was US$13,581,333.

· On 23 April 2015, the Board declared a dividend of US$0.0250 for the period 1 January 2015 to 31 March 2015. The dividend was paid on 6 May 2015 to shareholders on the share register as at close of business on 30 April 2015. The amount paid in respect of this dividend was US$13,581,334.

· On 21 July 2015, the Board declared a dividend of US$0.0250 for the period 1 April 2015 to 30 June 2015. The dividend was paid on 6 August 2015 to shareholders on the share register as at close of business on 31 July 2015. The amount paid in respect of this dividend was US$13,581,334.

· On 21 October 2015, the Board declared a dividend of US$0.0250 for the period 1 July 2015 to 30 September 2015. The dividend was paid on 4 November 2015 to shareholders on the share register as at close of business on 30 October 2015. The amount paid in respect of this dividend was US$13,581,334.

· On 22 January 2016, the Board declared a dividend of US$0.0250 for the period 1 October 2015 to 31 December 2015. The dividend was paid on 10 February 2016 to shareholders on the share register as at close of business on 5 February 2016. The amount paid in respect of this dividend was US$13,581,333.

Please see note 18 for other important events during the financial year.

TRANSACTIONS INVOLVING DIRECTORS

Please refer to note 4 and note 9 for details of transactions involving Directors.

EVENTS SINCE FINANCIAL YEAR END

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

DIRECTORS

The names of the persons who were Directors at any time during the financial year are set out in the section entitled "Management and Administration". As at 31 December 2015, all five Directors are non-executive, each of whom, apart from Ed D'Alelio, are independent of the Investment Manager. No Director has a service contract with the Company. The Directors have each entered into a letter of engagement with the Company setting out the terms of their appointment, copies of which are available for review by the shareholders.

DIRECTORS' AND COMPANY SECRETARY'S INTERESTS

Neither the Directors (including family interests) nor the company secretary, State Street Fund Services (Ireland) Limited (the "Company Secretary"), have any shareholdings in the Company as at 31 December 2015.

MANAGEMENT ARRANGEMENTS

The Investment Manager acts as investment manager of the Company pursuant to the terms of the deed of novation dated 10 July 2013 and effective as of 14 July 2013 between the Company, GSO Capital Partners International LLP ("GSO CPI") and the Investment Manager, which novated the amended and restated investment management agreement dated 9 August 2011 between GSO CPI and the Company, (the "Investment Management Agreement").

MANAGEMENT ARRANGEMENTS (continued)

The management fees and other fees payable to the Investment Manager are disclosed in note 4. After due consideration of the investment experience, resources and reputation of the Investment Manager as a whole, it is the opinion of the Directors that the continuing appointment of the Investment Manager on the terms agreed is in the interest of shareholders as a whole. The Investment Management Agreement may be terminated on six-months' notice by either party and may also be terminated by either party with immediate effect on the occurrence of certain events, including: (i) if an order has been made or an effective resolution passed for liquidation of the other party; (ii) if a receiver or similar officer has been appointed in respect of the other party or its assets or the other party becomes subject to an administration order; (iii) if the other party enters into an arrangement with its creditors, or any of them or the other party is or is deemed to be unable to pay its debts; (iv) if the other party ceases or threatens to cease to carry on its business or threatens to make any material alteration to the nature of its business as carried out on the date of the investment management agreement; or (v) if the other party commits a material breach of its obligations under the investment management agreement and such breach (if capable of being remedied) is not remedied within 28 days of receiving notice of the breach. The duration of the Investment Manager's appointment has not been fixed.

ACCOUNTING RECORDS

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

PRINCIPAL RISKS, UNCERTAINTIES, RISK MANAGEMENT OBJECTIVES AND POLICIES

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

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

· 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.

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

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

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

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

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

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

COMPANY CORPORATE GOVERNANCE

Introduction

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

The Listing Rules of the UK Listing Authority requires the Company to apply the main principles of the UK Corporate Governance Code (the "UK Code") published by the Financial Reporting Council (the "FRC") in September 2014, and the Board is required to report to shareholders on how it has done so. The UK Code can be found at: http://www.frc.org.uk/CORPORATE /ukcgcode.cfm.

The Irish Code is a voluntary code that was issued by the Irish Funds Industry Association in December 2011 and was adopted by the Company in 2012.

The Irish Code provides a framework for the organisation and operation of funds to ensure that funds operate efficiently and in the interests of shareholders. A copy of the Irish Code can be found at: http://www.irishfunds.ie/media-centre/news-archive/67-corporate-governance-code-and-faqs/faqs.

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

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

The Board

The Board currently consists of five non-executive Directors, each of whom, apart from Ed D'Alelio, is independent of the Investment Manager. Werner Schwanberg is the Chairman of the Board (the "Chairman"). The Board accepts collective responsibility for the decisions of the Board. The Board had 4 scheduled board meetings during the financial year ended 31 December 2015 (see the table below) and between these formal meetings, there was regular contact between the Board, the Investment Manager, the Company Secretary and the Company's brokers. The Directors are kept fully informed of investment and financial controls and other matters that are relevant to the business of the Company and should be brought to the attention of the Directors.

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

The attendance record of Directors at the meetings for the financial year ended 31 December 2015 is set out below:

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

The Board (continued)

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

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

Directors' duties and responsibilities

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

· statutory obligations and public disclosure;

· strategic matters and financial reporting;

· oversight of management and personnel matters;

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

· other matters having a material effect on the Company.

Nomination/remuneration committees

There was no nomination committee in the financial year ended 31 December 2015, as it is not considered appropriate at the present time. A remuneration committee was established on 6 April 2011. The Board has adopted a documented terms of reference in respect of the remuneration committee evidencing all delegated authorities given to its members. The Chairman of the remuneration committee is Edward D'Alelio. Nicholas Moss and Fergus Sheridan are the other members of the committee.

The functions of the remuneration committee are as follows:

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

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

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

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

Pricing committee

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

Audit committee

The Audit Committee comprised of Adrian Waters, Fergus Sheridan and Nicholas Moss for the financial year ended 31 December 2015. The Audit committee examines, amongst other things, the effectiveness of the internal systems, the annual report and financial statements and interim report of the Company, and aims to identify significant risks facing the Company. It also oversees the remuneration and engagement of KPMG (the "Auditor"), as well as the Auditor's independence and any non-audit services provided by them. Please see the Audit Committee's report for further details in relation to its role and responsibilities.

Internal controls

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

This process has been in place for the financial year under review and up to the date of approval of this annual report and financial statements and is reviewed by the Board and accords with the Irish Code and the UK Code. The Board has reviewed the effectiveness of the system of internal controls. In particular, it has reviewed and updated the process for identifying and evaluating the significant risks affecting the Company and the policies by which these risks are managed. The principal financial instrument risks are described in note 11. The Board has also identified the following additional risks and uncertainties:

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

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

Corporate responsibility

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

The Company does not have any employees.

Going concern statement

In accordance with provision C.1.3 of the UK Code, after making enquiries and given the nature of the Company and its investments, the Directors are satisfied that it is appropriate to continue to adopt the going concern basis in preparing the financial statements and, after due consideration, the Directors are satisfied that the Company has the resources to continue in business for a period of 12 months from the date of approval of the financial statements (30 April 2017), and furthermore are not aware of any material uncertainties that may cast significant doubt upon the Company's ability to continue as a going concern.

The going concern statement should be read in conjunction with the Company's viability statement.

Viability statement

In accordance with provision C.2.2 of the UK Code, at least annually, the Board conducts a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency and liquidity. The Directors have considered each of the Company's principal risks and uncertainties detailed on pages 14 to 16, in particular the risk arising from the possible application of the retention requirements under AIFMD and the impact of changes that could materially affect the ability of the Company to pursue its investment objective and policy. The Directors also considered the Company's policy for monitoring, managing and mitigating its exposure to these risks.

This assessment involved an evaluation of the potential impact on the Company of these risks occurring. Where appropriate, the Company's financials were subject to a scenario analysis in order to analyse the effect on the Company's cash flows and other key financial metrics.

Viability statement (continued)

While provision C.2.2 of the UK Code requires Directors to assess the prospects of the Company over a period significantly longer than twelve months, exceptions are permitted in rare circumstances. The Board conducted this review for a period covering the next 15 months to 31 July 2017, because in addition to the uncertainty surrounding the retention requirement under AIFMD:

· shareholders may be offered a repurchase opportunity, at the Directors' discretion, for up to 100% of their holdings should the Company's shares trade at an average discount to NAV in excess of 5% over the 12 month period prior to 30 April 2017 (the "discount-trigger"); and

· even if the discount-trigger is not met, the Directors may, at their discretion, propose an ordinary resolution at the 2017 Annual General Meeting for a repurchase opportunity on substantially the same terms.

If elections for repurchase are made for more than 75% of the shares, the Directors shall consider whether a winding-up resolution should instead be put to shareholders.

These factors, which are beyond the control of the Company, make it difficult to project the viability of the Company beyond a 15 month period with any reasonable clarity.

While there is significant uncertainty surrounding the potential repurchase opportunity and the retention requirement under AIFMD, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the 15 month period of their assessment. This is based on the assessment of the principal risks facing the Company and the scenario analysis based assessment of the Company's prospects. Further, the Company's only liabilities are expenses paid to service providers. The key liabilities are linked to NAV and thus fluctuate as the NAV of the Company increases and decreases, subject to a minimum in certain cases. This results in the Company being able to comfortably cover the liabilities as they fall due.

Relations with shareholders

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

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

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

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

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

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

Compliance with the UK Code

Throughout the financial year ended 31 December 2015, the Company has complied with the UK Code, with the following exceptions:

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

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

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

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

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

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

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

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

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

· Represent a significant shareholder.

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

B2.1 - There was no Nomination Committee in the financial year ended 31 December 2015 since the Board understands that market practice does not require a fund of this nature to have a nomination committee, and given the composition of the Board. The ordinary functions of a nomination committee will be performed by the Board as a whole.

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

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

C.3.6 - Since the Company does not have any employees, the Company does not have an internal audit function. The Audit Committee annually considers whether an internal audit function is needed and makes a recommendation to the Board. The Board considers that an internal audit function is not necessary, given the size and complexity of the Company, and the use of an external auditor.

E.1 - This provision is not strictly complied with as it is the management team of the Investment Manager who has most regular contact with shareholders on behalf of the Board. Any comments received from such shareholders are fed back to the Board both from the Investment Manager and the Company's brokers. All Directors are available to attend the Annual General Meeting, and are available to communicate with shareholders.

Compliance with the Irish Code

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

Compliance with the Irish Code (continued)

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

Additional corporate governance disclosures under Irish Company Law

The Board is ultimately responsible for overseeing the establishment and maintenance of adequate internal control and risk management systems of the Company in relation to the financial reporting process. As the Company has no employees and all Directors serve in a non-executive capacity, all functions including the preparation of the financial statements have been outsourced. The Company has appointed State Street Fund Services (Ireland) Limited as its administrator consistent with the regulatory framework applicable to investment fund companies. The Administrator has functional responsibility for the preparation of the interim and annual financial statements and the maintenance of the accounting records. On appointing the Administrator, the Board noted that it was regulated by the Central Bank and, in the Board's opinion, had significant experience as an administrator. The Board also noted the independence of the Administrator from the Company's Investment Manager. Subject to the supervision of the Board, the appointment of the Administrator is intended to manage rather than eliminate the risk of failure to achieve the Company's financial reporting objectives and can only provide reasonable and not absolute assurance against material misstatement or loss.

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

Internal control and risk management systems in relation to financial reporting

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

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

Capital structure

As at 31 December 2015, so far as the Directors are aware, no person other than those listed below was interested, directly or indirectly, in 5% or more of the issued share capital of the US Dollar share class in the Company:

None of the above shareholders have shareholder rights different to those of other shareholders.

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

Powers of the Directors

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

Powers of the Directors (continued)

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

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

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

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

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

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

RESPONSIBILITY STATEMENT

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

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

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

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

· select suitable accounting policies and then apply them consistently;

· make judgements and estimates that are reasonable and prudent;

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

· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

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

The Directors are responsible for keeping adequate accounting records which correctly record and explain the transactions of the Company, and which disclose with reasonable accuracy at any time the assets, liabilities, financial position and profit or loss of the Company, and which enable them to ensure that the financial statements of the Company are prepared in accordance with IFRS as adopted by the EU, and comply with the Companies Act 2014, and enable the financial statements to be audited. They are also responsible for safeguarding the assets of the Company, and, hence, for taking reasonable steps for the prevention and detection of fraud and other irregularities.

RESPONSIBILITY STATEMENT (continued)

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

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

Each of the Directors, whose names and functions are listed on page 12 of this Annual Report, confirm that, to the best of that Director's knowledge and belief:

· the financial statements, prepared in accordance with IFRS as adopted by the EU, and in accordance with the provisions of the Companies Act 2014, give a true and fair view of the assets, liabilities, financial position of the Company as at 31 December 2015, and its profit or loss for the financial year then ended;

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

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

CONNECTED PARTY TRANSACTIONS

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

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

RETENTION REQUIREMENTS UNDER AIFMD

Under Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 ("AIFMD"), alternative investment fund managers ("AIFM") may only assume exposure to securitisations as defined therein on behalf of one or more alternative investment funds ("AlFs") if the originator, sponsor or original lender of the securitisation has explicitly disclosed to the AIFM that it retains, on an ongoing basis, a material net economic interest in the securitisation, which shall not be less than 5% (the "retention requirement"). The Company is an AIF for the purposes of AIFMD and the Investment Manager is designated as the AIFM of the Company. In accordance with Article 67(1)(b) of the AIFMD, the European Securities and Markets Authority was required to issue advice to the European Commission on, inter alia, the application of the AIFMD passport to non-EU AIFMs such as the Investment Manager by 22 July 2015. If that advice is positive, the European Commission must adopt a delegated act specifying the date when the non-EU AIFM passport will be 'turned on'. On 19 January 2016, ESMA published a letter dated 17 December 2015 which it received from the European Commission. In its letter, the Commission agrees with the country-by-country approach adopted by ESMA and invites ESMA to complete its assessment of the USA, Hong Kong and Singapore by 30 June 2016. This process is underway and the outcome is not yet known. The Central Bank has indicated that professional investor funds such as the Company can continue to be managed by non-EU AIFMs under the existing transitional arrangements until the European Commission has reached a decision. At that time this position will be revisited by the Central Bank and, if necessary, revised to align it with that decision and any transitional arrangements provided. If and when applicable, the retention requirement could operate as a material restriction on the investment activities of the Company. In particular, if CLOs then held by the Company do not meet with the retention requirement, corrective action may need to be taken to ensure compliance with AIFMD including disposal of the CLOs, thereby incurring additional costs and selling at a price less than would otherwise have been the case if the CLOs had been held for the desired length of time. In addition, the universe of CLOs which adhere to the retention requirement may be limited and restrict the ability of the Company to pursue its investment objective and policy. These and other restrictions and/or conditions imposed by AIFMD may result in (i) the restructuring of the Company and/or its relationships with service providers, and (ii) restrictions on the investment activities the Investment Manager or the Company may engage in.

AUDITORS

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

On behalf of the Board of Directors:

Werner Schwanberg Adrian Waters

21 April 2016

AUDIT COMMITTEE REPORT 

Dear Shareholder,

I am pleased to report to you on the activities of the Audit Committee for the financial year ended 31 December 2015.

ROLE OF THE AUDIT COMMITTEE

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

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

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

· assessing any significant financial reporting judgements;

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

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

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

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

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

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

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

· developing the long term viability statement.

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

DELEGATION OF DUTIES

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

MEMBERSHIP OF THE COMMITTEE

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

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

1. financial reporting principles and accounting standards;

2. the regulatory framework within which the Company operates;

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

4. factors impacting the Company's Financial Statements.

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

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

HOW THE AUDIT COMMITTEE HAS DISCHARGED ITS RESPONSIBILITIES

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

Monitoring the integrity of the financial statements including significant judgements

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

· Prior to recommending their publication to the Board, we reviewed the Unaudited Condensed Interim Consolidated Financial Statements ("Unaudited Interim Report") for the six month period ended 30 June 2015, having previously discussed the Unaudited Interim Report with the outsourced service providers and KPMG. The Committee compared the results with management accounts and budgets, focusing on key areas of judgements; and

· The Committee reviewed, prior to making any recommendations to the Board, the Annual Report and Audited Financial Statements ("Annual Report") for the financial year ended 31 December 2015. In undertaking this review, the Committee discussed with outsourced service providers and KPMG the critical accounting policies and judgements that have been applied.

KPMG reported to the Committee on any misstatements that they had found during the course of their work and confirmed that under ISA (UK and Ireland), no material amounts remained unadjusted.

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

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

SIGNIFICANT ACCOUNTING MATTERS

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

Valuation of Financial Assets at Fair Value through Profit or Loss

Valuation of financial assets is considered a significant matter and is monitored by the Investment Manager, the Administrator, the Custodian, the Committee and the Board of Directors. The Committee receives and reviews reports on the processes for the valuation of assets on a regular basis. The Committee may propose or recommend changes based on their review of the reports for their consideration, including the adequacy of the relevant disclosures in the financial statements. The Committee discussed the valuation process and methodology with the Investment Manager in August 2015 as part of the review of the Interim Report. The Investment Manager carries out a valuation monthly and provides a detailed valuation report to the Company. The Committee met with the external auditor at the time at which the Committee reviewed and agreed the external auditor's audit plan in January 2016 and, in particular, discussed the audit approach on the valuation. Following discussion, the Committee were satisfied that the judgements made and methodologies applied were prudent and appropriate and that the correct accounting treatment has been adopted. KPMG report to the Committee on their assessment of the Company's valuation methodologies and procedures applied financial year on financial year. For the Annual Report, KPMG have confirmed to us that they consider that the valuation of assets is fairly stated. Please see further details outlined in notes 2, 3 and 11 to the financial statements.

Assessment of Consolidation Requirements

For the Unaudited Interim Report and the Annual Report, relevant discussions and analysis was undertaken on behalf of the Committee by the Investment Manager in relation to the Company's holdings in subordinated tranches of CLOs and the definition of control under IFRS 10. The Committee discussed the assessment of the consolidation requirements with the Investment Manager in August 2015 as part of the review of the Interim Report. The Investment Manager carries out this assessment semi-annually and reports to the Company. The Committee met with the external auditor at the time at which the Committee reviewed and agreed the external auditor's audit plan in January 2016 and, in particular, discussed the audit approach on the assessment of the consolidation requirements.

Assessment of Consolidation Requirements (continued)

The Committee critically reviewed, evaluated and agreed, having consulted with the Investment Manager, that the Company meets the definition of an Investment Entity and could avail of the Investment Entity Amendment under IFRS 10 if it so required. Furthermore, analysis was performed on behalf of the Committee by the Investment Manager to establish the existence of any subsidiaries at financial year end under IFRS 10. Following discussion with KPMG, and the deliberations of the Committee, we were satisfied that the financial statements deal appropriately with each of the areas of judgement and applicable IFRS 10 and IFRS 12 requirements. Based on this assessment, the Board has concluded that at financial year end, the Company has four subsidiaries for financial reporting purposes, Voya CLO II Ltd ("Voya"), Sheridan Square CLO Ltd, Babson CLO Ltd 2013-IX and Keuka Park CLO Ltd 2013-1A in accordance with IFRS 10. Please see further details outlined in notes 2 and 8 to the financial statements.

Assessment of Risks and Uncertainties

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

Other Matters

Prior to preparation of the 2015 Annual Report and the financial year end audit, the Committee considered the effect of any key new reporting requirements impacting the Company. During the financial year, the Committee received communications from the outsourced service providers and from KPMG on other accounting matters including tax, audit fees and anti-money laundering procedures, as well as a representation letter and Unaudited Interim Report.

RISK MANAGEMENT AND INTERNAL CONTROLS

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

EXTERNAL AUDIT

It is the responsibility of the Committee to monitor the performance, independence, objectivity and re-appointment of KPMG. In January 2016, the Committee met with KPMG who presented their Audit Strategy and Plan for the financial year; the Committee agreed the audit plan for the financial year, highlighting the key financial statement and audit risks, to seek to ensure that the audit was appropriately focused.

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

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

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

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

EXTERNAL AUDIT (continued)

It is also the responsibility of the Committee to approve the guidelines for using the external auditors for non-audit work, and to annually assess the work done to ensure that the independence of the external auditors is maintained and to ensure appropriate disclosures of these services are included in the annual report. Annually, the Committee reviews the schedule of audit and non-audit fees of the auditor with particular regard to the auditors' independence and objectivity. The Committee has agreed the types of permitted and non-permitted non-audit services and those which require explicit prior approval. During the financial year, the value of non-audit services provided by KPMG amounted to US$33,170 plus VAT (2014: US$9,288 plus VAT). Whilst non-audit services as a proportion of audit services amount to approximately 16.90% (2014: 5.2%), the overall quantum of non-audit services is not considered to be material. Please refer to note 4 for more details.

The audit committee is satisfied with the charge for non-audit services during the financial year in proportion to audit fees.

COMMITTEE EFFECTIVENESS

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

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

Yours sincerely

Adrian Waters

On behalf of the Audit Committee

21 April 2016

STATEMENT OF CUSTODIAN'S RESPONSIBILITIES 

and Custodian's report to the shareholders

We have enquired into the conduct of the Company for the financial year ended 31 December 2015, in our capacity as Custodian to the Company.

This report including the opinion has been prepared for and solely for the shareholders in the Company, in accordance with the Central Bank of Ireland's (the "Central Bank") Non-UCITS Notice 7 ("Non-UCITS Notice 7"), and for no other purpose.

We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown.

RESPONSIBILITIES OF THE CUSTODIAN

Our duties and responsibilities are outlined in the Non-UCITS Notice 7. One of those duties is to enquire into the conduct of the Company in each annual accounting period and report thereon to the shareholders.

Our report shall state whether, in our opinion, the Company has been managed in that period in accordance with the provisions of the Company's Memorandum and Articles of Association and the Non-UCITS Notices. It is the overall responsibility of the Company to comply with these provisions. If the Company has not so complied, we as Custodian must state why this is the case and outline the steps which we have taken to rectify the situation.

BASIS OF CUSTODIAN OPINION

The Custodian conducts such reviews as it, in its reasonable opinion, considers necessary in order to comply with its duties as outlined in Non-UCITS Notice 7 and to ensure that, in all material respects, the Company has been managed:

(i) in accordance with the limitations imposed on the investment and borrowing powers of the Company by the provisions of its memorandum and articles of association and by the Central Bank under the powers granted to the Central Bank by the Companies Act 2014; and

(ii) otherwise in accordance with the Company's memorandum and articles of association and the Companies Act 2014.

OPINION

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

(i) in accordance with the limitations imposed on the investment and borrowing powers of the Company by the Memorandum and Articles of Association and by the Central Bank under the powers granted to it by Part 24 of the Companies Act 2014; and

(ii) otherwise in accordance with the provisions of the Memorandum and Articles of Association and Part 24 of the Companies Act 2014.

State Street Custodial Services (Ireland) Limited

78 Sir John Rogerson's Quay

Dublin 2

Ireland

21 April 2016

INDEPENDENT AUDITOR'S REPORT

to the Shareholders of Carador Income Fund PLC

Opinions and conclusions arising from our audit

1 Our opinion on the financial statements is unmodified

We have audited the financial statements of Carador Income Fund PLC (the "Company") for the year ended 31 December 2015, which comprise the statement of financial position, the statement of comprehensive income, the statement of changes in equity, the statement of cash flows and notes, comprising a summary of significant accounting policies and other explanatory information. The financial reporting framework that has been applied in their preparation is Irish law and International Financial Reporting Standards ("IFRS") as adopted by the European Union. Our audit was conducted in accordance with International Standards on Auditing (ISAs) (UK & Ireland).

In our opinion: 

· the financial statements give a true and fair view of the assets, liabilities and financial position of the Company as at 31 December 2015 and of its loss for the year then ended;

· the financial statements have been properly prepared in accordance with IFRS as adopted by the European Union; and

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

2 Our assessment of risks of material misstatement

The risks of material misstatement detailed in this section of this report are those risks that we have deemed, in our professional judgment, to have had the greatest effect on: the overall audit strategy; the allocation of resources in our audit; and directing the efforts of the engagement team. Our audit procedures relating to these risks were designed in the context of our audit of the financial statements as a whole. Our opinion on the financial statements is not modified with respect to any of these risks, and we do not express an opinion on these risks individually.

In arriving at our audit opinion above on the financial statements, the risk of material misstatement that had the greatest effect on our audit was as follows:

Valuation of financial assets at fair value through profit or loss of US$380m (2014: US$486m)

Please refer to the Report of the Audit Committee on page 23, the accounting policy on page 37 and notes 3, 8 and 11 to the financial statements.

The risk

The Company had 96.7% (2014: 99.5%) of its net assets as at 31 December 2015 invested into Collateralised Loan Obligations ("CLOs"). As described in the Report of the Audit Committee on page 24, the valuation of the Company's investments in these CLOs, given that they represent the majority of the Company's net assets, is a significant area of our audit. The valuation of this asset class is based on prevailing market information (broker price approach) at the valuation date.

Our response

Our audit procedures in respect of the valuation of the Company's investments in the CLOs included, but were not limited to: updating our understanding and assessment of the design and implementation of the valuation methodologies and valuation processes established by the Directors; obtaining the broker quotations as used by the Investment Manager and recalculating the valuation of the investments using the broker price approach; with the assistance of KPMG's valuation specialist, assessing whether the valuation of the Company's investments was within an acceptable range and consideration of post year end valuation of the Company's investments along with purchases and sales pre and post financial year end for evidence of management bias.

With the involvement of KPMG's valuation specialist, for the assessment of whether the valuation of the Company's investments was within an acceptable range, our substantive testing included the determination of an independent reference price for 100% of the mezzanine tranche investments. For the equity tranche securities, we performed individual securities valuation testing through fundamental cash flow analysis on a sample of equity tranche investments held as at year end, along with the performance of a market review analysis.

2 Our assessment of risks of material misstatement (continued)

We also considered the adequacy of the Company's disclosures (see note 2N) in relation to: the use of judgments and estimates in determining the fair value of investments; the Company's investment valuation policies adopted; and fair value disclosures in note 3 and note 11 to the financial statements for compliance with IFRS as adopted by the EU.

We confirmed that there were no matters identified during our audit work in relation to valuation of financial assets through profit or loss that we wanted to bring to the attention of the Audit Committee.

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

The materiality for the financial statements as a whole was set at US$3.9m (2014: US$14.7m). This has been calculated using a benchmark of the Company's net assets (of which it represents 1% (2014: 3%)) as at 31 December 2015, which we have determined, in our professional judgement, to be one of the principal benchmarks within the financial statements relevant to the Shareholders of the Company in assessing the financial performance of the Company.

We reported to the Audit Committee all corrected and uncorrected misstatements we identified through our audit with a value in excess of US$0.2m (2014: US$0.7m), in addition to other audit misstatements below that threshold that we believe warranted reporting on qualitative grounds.

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

4 We have nothing to report on the disclosures of principal risks

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

· the Directors' statement on page 16, concerning the principal risks, their management, and, based on that, the Directors' assessment and expectations of the Company continuing in operation over the next 15 months to 31 July 2017; or

· the disclosures in note 2 of the financial statements concerning the use of the going concern basis of accounting.

5 We have nothing to report in respect of the matters on which we are required to report by exception

ISAs (UK & Ireland) require that we report to you if, based on the knowledge we acquired during our audit, we have identified information in the Annual Report that contains a material inconsistency with either that knowledge or the financial statements, a material misstatement of fact, or that is otherwise misleading.

In particular, we are required to report to you if:

· we have identified any inconsistencies between the knowledge we acquired during our audit and the Directors' statement that they consider the Annual Report is fair, balanced and understandable and provides information necessary for shareholders to assess the Company's performance, business model and strategy; or

· the Report of the Audit Committee does not appropriately disclose those matters that we communicated to the Audit Committee.

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

· the Statement of Directors' Responsibilities, set out on page 20, in relation to going concern;

· the part of the Corporate Governance Statement on pages 12 to 21 relating to the Company's compliance with the provisions of the UK Corporate Governance Code specified for our review; and

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

In addition, the Companies Act requires us to report to you if, in our opinion, the disclosures of Directors' remuneration and transactions specified by law are not made.

6 Our conclusions on other matters on which we are required to report by the Companies Act 2014 are set out below

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

In our opinion, the accounting records of the Company were sufficient to permit the financial statements to be readily and properly audited and the financial statements are in agreement with the accounting records.

In our opinion, the information given in the Directors' Report is consistent with the financial statements and the description in the Corporate Governance Statement of the main features of the internal control and risk management systems in relation to the process for preparing the financial statements is consistent with the financial statements.

In addition, we report, in relation to information given in the Corporate Governance Statement on pages 12 to 21, that:

· based on knowledge and understanding of the Company and its environment obtained in the course of our audit, no material misstatements in the information identified above have come to our attention; and

· based on the work undertaken in the course of our audit, in our opinion:

- the description of the main features of the internal control and risk management systems in relation to the process for preparing the financial statements, and information relating to voting rights and other matters required by the European Communities (Takeover Bids (Directive 2004/25/EC) Regulations 2006 and specified by the Companies Act 2014 for our consideration, are consistent with the financial statements and have been prepared in accordance with the Companies Act 2014; and

- the Corporate Governance Statement contains the information required by the Companies Act 2014.

Basis of our report, responsibilities and restrictions on use

As explained more fully in the Statement of Directors' Responsibilities set out on page 20, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the Company's financial statements in accordance with applicable law and International Standards on Auditing (ISAs) (UK & Ireland). Those standards require us to comply with the Financial Reporting Council's Ethical Standards for Auditors.

An audit undertaken in accordance with ISAs (UK & Ireland) involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements.

In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited 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 audit. If we become aware of any apparent material misstatements or inconsistencies, we consider the implications for our report.

Whilst an audit conducted in accordance with ISAs (UK & Ireland) is designed to provide reasonable assurance of identifying material misstatements or omissions, it is not guaranteed to do so. Rather, the auditor plans the audit to determine the extent of testing needed to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements does not exceed materiality for the financial statements as a whole. This testing requires us to conduct significant audit work on a broad range of assets, liabilities, income and expense as well as devoting significant time of the most experienced members of the audit team, in particular the engagement partner responsible for the audit, to subjective areas of the accounting and reporting.

Basis of our report, responsibilities and restrictions on use (continued)

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

Vincent Reilly

for and on behalf of KPMG

Chartered Accountants, Statutory Audit Firm

1 Harbourmaster Place

IFSC

Dublin 1

Ireland

21 April 2016

STATEMENT OF FINANCIAL POSITIONAs at 31 December 2015

* Balances include investment in unconsolidated subsidiaries. Please refer to note 8 for further detail.

These financial statements were authorised and approved for issue by the Directors on 21 April 2016 and signed on their behalf by:

Werner Schwanberg Adrian Waters

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

STATEMENT OF COMPREHENSIVE INCOME

For the financial year ended 31 December 2015 

STATEMENT OF CHANGES IN EQUITYFor the financial year ended 31 December 2015

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

STATEMENT OF CASH FLOWS

For the financial year ended 31 December 2015

* Balances include investment in unconsolidated subsidiaries. Please see note 8 for further detail.

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

NOTES TO THE FINANCIAL STATEMENTSFor the financial year ended 31 December 2015

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. It is admitted to the Official List of the UK Listing Authority with a premium listing and is admitted to trading on the Main Market of the London Stock Exchange.

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

At 31 December 2015, all shares in issue were US Dollar shares. The Company may issue one or more additional classes of shares on prior notice to and clearance by the Central Bank.

2 SIGNIFICANT ACCOUNTING POLICIES

2A STATEMENT OF COMPLIANCE

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

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

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

Annual Improvements to IFRS 2011-2013 Cycle: this is effective for annual periods beginning on or after 1 January 2015. This does not have any impact on the Company's financial position or performance.

There were no other new requirements that impacted the Company's financial statements.

2C BASIS OF PREPARATION

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

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

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

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

The Company's management has made an assessment of the Company's ability to continue as a going concern and is satisfied that the Company has the resources to continue for the foreseeable future. Furthermore, the management is not aware of any material uncertainties that may cast significant doubt upon the Company's ability to continue as a going concern. The Board has included a detailed assessment of the Company's ability to continue as a going concern in the Going concern statement and Viability statement on pages 16 and 17. Therefore, these financial statements are prepared on the going concern basis.

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

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

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

2E PARTICIPATING EQUITY SHARES

The shares of the Company are classified as equity based on the substance of the contractual arrangements and in accordance with the definition of equity instruments under IAS 32.

The proceeds from the issue of participating shares are recognised in the statement of changes in equity, net of the incremental issuance costs.

2F FEES AND CHARGES

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

2G CASH AND CASH EQUIVALENTS

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

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

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

2I FINANCIAL INSTRUMENTS

(i) Classification

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

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

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

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

Financial instruments held for trading

Derivatives are categorised as held for trading, as the Company does not designate any derivatives as hedges, for hedge accounting purposes as described under IAS 39. Derivatives include forward currency contracts. The fair value of forward currency contracts is calculated taking into account the difference between the contracted rate and the current forward rate that would close out the contract on the reporting date. Changes in the fair value of the forward currency contracts are recorded in "Net (loss)/gain on derivative financial instruments and foreign exchange" in the statement of comprehensive income.

Financial assets at amortised cost

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

Financial liabilities at amortised cost

The Company includes in this category expenses payable and amounts payable for investments purchased.

(ii) Recognition and initial measurement

Financial assets and financial liabilities are measured initially at fair value, being the transaction price, including transaction costs for items that will subsequently be measured at amortised cost, on the trade date. Transaction costs on financial assets at fair value through profit or loss are expensed immediately.

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

(iii) Subsequent measurement

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

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

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

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

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

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

(iv) Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the statement of financial position where there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the assets and settle the liability simultaneously. For the financial year ended 31 December 2015, there were no financial assets or liabilities subject to enforceable, master netting arrangements or similar agreements which would require disclosure.

(v) Derecognition

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

2J FOREIGN CURRENCY

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

2K TAXATION

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

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

Under current law and Irish practice, the Company qualifies as an investment undertaking under Section 739B of the Taxes Consolidation Act 1997 and is not therefore chargeable to Irish tax on its relevant income or relevant gains. See note 16 for further details.

2L DISTRIBUTIONS

Distributions to the holders of participating shares are recorded through the statement of changes in equity when they are declared to shareholders.

2 SIGNIFICANT ACCOUNTING POLICIES (continued)

2M OPERATING SEGMENTS

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

2N SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

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

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

Fair value

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

When the fair value of financial assets and financial liabilities recorded in the statement of financial position cannot be derived from active market quotations, they are determined using valuation techniques including the use of broker prices.

See note 3 for further details of the fair value hierarchy levels at 31 December 2015 and 31 December 2014.

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

The Directors are satisfied that the Company meets the definition of an investment entity, and has also concluded that its investments in Voya CLO II Ltd ("Voya"), Sheridan Square CLO Ltd, Babson CLO Ltd 2013-IX and Keuka Park CLO Ltd 2013-1A meet the definition of a subsidiary in accordance with IFRS 10, with the remaining CLOs in which the Company invests meeting the definition of structured entities in accordance with IFRS 12. These conclusions are further detailed in note 8 Interest in Other Entities.

2O NEW STANDARDS AND INTERPRETATIONS APPLICABLE TO FUTURE REPORTING PERIODS

New standards, amendments and interpretations issued but not effective in 2015 and not early adopted.

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

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

Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and lAS 28). These amendments, clarify that an investment entity may provide investment-related services to third parties - even if those activities are substantial to the entity - as long as the entity continues to meet the definition of an investment entity. The amendments are effective for annual period beginning on or after 1 January 2016. The Company is satisfied that it meets both the required criteria and typical characteristics of an investment entity. The relevant disclosures are included in note 8. The Company does not expect that the adoption of these new amendments to have a significant impact on its financial statements.

3 FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

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

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

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

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

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

The Company determines the fair value for the collateralised loan obligations using independent, unadjusted indicative broker quotes. A broker quote is not generally a binding offer. The categorisation of the collateralised loan obligations is dependent if 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.

For collateralised loan obligations that have been categorised as Level 2, fair value has been determined using independent broker quotes based on observable inputs. If it could not be verified that the valuation is based significantly on observable inputs, then the investments would fall into Level 3.

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

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

For the financial years ended 31 December 2015 and 31 December 2014, cash and cash equivalents, other receivables, expenses payable and payable for investments purchased whose carrying amounts approximate to fair value, were classified as Level 2 within the fair value hierarchy.

Transfers between Level 1, 2 and 3

There were no transfers between Level 1 and Level 2 during the financial year (2014: no transfers).

At 31 December 2015, collateralised loan obligations with a fair value of US$244,336,199 were transferred from Level 2 to Level 3. The change in the classification level is a result of decreased liquidity in the market and wider spreads that are consequently reflected in a broader spectrum of indicative broker quotes, which are factors that indicate that the broker quotes are not based on observable prices.

Where transfers between levels arise, they are deemed to occur at the end of the reporting period.

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

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:

The table below sets out information about significant unobservable inputs used at 31 December 2015 in measuring financial instruments categorised as Level 3 in the fair value hierarchy.

The above analysis gives an approximation of the sensitivity of the different asset classes to market risk as at 31 December 2015, 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.

4 OPERATING EXPENSES

INVESTMENT MANAGER

The Investment Manager is entitled to receive a base management fee from the Company of 1.5% per annum of the NAV of the Company, calculated and payable monthly in arrears. The base management fee will be reduced to take into account any fees received by the Investment Manager or any of its associates or affiliates as a result of managing any collective investment scheme that the Company invests in or as a result of managing any CLO or collective investment scheme that the Company invests in, if such investment is or has been made in the primary market (i.e. the market in which investors have the first opportunity to buy a newly issued security). Please see note 9 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 is entitled to a performance fee in respect of the US Dollar shares equivalent to 13% of the amount by which the value of the financial year end NAV per US Dollar share plus dividends per US Dollar share paid in the period exceeds the value of the NAV per US Dollar share, as increased by the performance fee hurdle rate (as defined below) plus 2%, as at the end of the most recent previous completed accounting reference period or, if greater, the NAV per US Dollar share 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 12 month US Dollar LIBOR or 4%.

If a US Dollar share performance fee was not paid in respect of the previous accounting reference period, US 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 US Dollar share performance fee was last paid.

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

4 OPERATING EXPENSES (continued)

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 years ended 31 December 2015 and 31 December 2014 and the amounts due at 31 December 2015 and 31 December 2014 are disclosed below for information purposes.

DIRECTORS' FEES AND OTHER EXPENSES

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

Operating expenses are disclosed separately in the Statement of Comprehensive Income. Accruals excluding audit accruals as at 31 December 2015 and 31 December 2014 are detailed in the table below.

The remaining balance of the expense accrual consists of auditors' fees of US$171,456 (inclusive of VAT), Directors' fees and other professional fees of US$68,655.

During the financial year ended 31 December 2015, Directors' fees amounted to US$309,431 (31 December 2014: US$330,414) plus out of pocket expenses of US$20,209 (31 December 2014: US$39,947), of which US$Nil (31 December 2014: US$Nil) remained payable at the financial year end.

AUDITORS FEES

The Company incurred the following audit, assurance and tax fees (including expenses) during the financial year of which US$139,395 (31 December 2014: US$145,206) was outstanding at the financial year end.

* The above amounts were paid to the statutory auditor for work undertaken by them in relation to the review of the interim financial statements.

** The above amounts incurred for the financial years ended 31 December 2015 and 31 December 2014 are before the inclusion of VAT.

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

5 CASH AND CASH EQUIVALENTS

Cash and cash equivalents balances are held with State Street Bank and Trust Company.

6 PARTICIPATING SHARES

US DOLLAR 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. As at 31 December 2015, the issued share capital consisted of 543,253,359 US Dollar shares (31 December 2014: 543,253,359) and the subscriber shares referred to below.

Voting rights

Holders of US Dollar shares participate in the profits of the Company and have voting rights with shareholders having one vote in respect of each whole share held.

6 PARTICIPATING SHARES (continued)

ISSUED PARTICIPATING SHARE

The share capital consisted of 543,253,359 shares as at 31 December 2015 and 31 December 2014. There were no shares issued and no shares converted during the financial year ended 31 December 2015 or 31 December 2014.

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.

The Directors will distribute all or part of the Company's net income (after reasonable expenses and retaining an element of cash flow receipts on Income Notes of CLOs) received from the underlying investments as quarterly dividends in January, April, July and October each financial year. The Directors aim to make consistent, quarterly dividend payments, and may use any retained net income to assist in implementing this policy.

At the EGM on 26 June 2013, a further resolution was passed to replace the 2017 continuation vote with a redemption opportunity, at the Directors' discretion, for investors in 2017 (and every five financial years thereafter) if the shares have traded at an average discount to NAV in excess of 5% over the 12-month period prior to 30 April in the relevant financial year (the "discount-trigger"). Even if the discount-trigger is not met, the Directors may, at their discretion, propose an ordinary resolution at the 2017 Annual General Meeting for a repurchase opportunity on substantially the same terms.

The Company has no externally imposed capital requirements, except for the initial subscriber share capital.

7 SOFT COMMISSIONS

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

8 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.

8 INTERESTS IN OTHER ENTITIES (continued)

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 31 December 2015, the Company had four (31 December 2014: one) subsidiary undertakings for financial reporting purposes that are also structured entities. They are Voya Investment Management CLO II Ltd, Sheridan Square CLO Ltd, Babson CLO Ltd 2013-IX and Keuka Park CLO Ltd 2013-1A (31 December 2014: Voya Investment Management CLO II Ltd). The investment in Keuka Park CLO Ltd was purchased during the financial year. The number of share holdings in Sheridan Square CLO Ltd and Babson CLO Ltd 2013-IX did not change during the financial year but the non call period on both of these investments expired, resulting in the Company achieving power, as described below, over these investments. 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 Voya Investment Management CLO II Ltd, Sheridan Square CLO Ltd, Babson CLO Ltd 2013-IX and Keuka Park CLO Ltd 2013-1A (the "entities"), the relevant activities of each are the investment decisions which are made by their asset managers. Power over the entities' relevant activities is attributed to the Company through a call option it has, as the holder of the majority of the preference shares of each of these entities. The impact of these call options is that it gives the Company the ability to direct or stop the early termination of each of the subsidiary deals, and hence, decision making power on the life of the deals, and therefore the ability to control the variability of returns.

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

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

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

Investment entity status

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

8 INTERESTS IN OTHER ENTITIES (continued)

INTERESTS IN STRUCTURED ENTITIES

Below is a summary of the Company's holdings in non subsidiary unconsolidated structured entities as at 31 December 2015:

The Company has a percentage range of 0.2% - 46% notional holding out of the entire outstanding notional balances of the structured entities as at 31 December 2015.

During the financial year ended 31 December 2015, the Company did not provide financial support to the unconsolidated structured entities and has no intention of providing financial or other support.

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

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

Interests in unconsolidated structured entity subsidiaries as at 31 December 2015:

The Company has a percentage range of 1.6% - 7.9% notional holding out of the entire outstanding notional balance of its subsidiaries as at 31 December 2015.

During the financial year ended 31 December 2015, the Company purchased Keuka Park CLO Limited 2013-1A at a cost of US$18,446,500 (31 December 2014: US$ Nil). The Company made no sales of investments in the subsidiary holdings (31 December 2014: US$23,258,400). As already explained above under the heading "Subsidiary undertakings", the number of subsidiaries grew from 1 to 4 during the year due to the expiration of the relevant non call periods.

For the financial year ended 31 December 2015, the Company did not provide financial support to its unconsolidated structured entity subsidiaries and has no intention of providing financial or other support.

* 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 45, agrees to the financial assets at fair value through profit or loss in the statement of financial position.

**\* This refers to the number of investments on a tranche level that the Company has on its 4 unconsolidated structured entity subsidiaries.

Below is a summary of the Company's holdings in non subsidiary unconsolidated structured entities as at 31 December 2014:

The Company has a percentage range of 0.2% - 46% notional holding out of the entire outstanding notional balances of the structured entities as at 31 December 2014.

During the financial year ended 31 December 2014, the Company did not provide financial support to the unconsolidated structured entities and has no intention of providing financial or other support.

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

Interests in unconsolidated structured entity subsidiary (Voya) as at 31 December 2014:

The Company has a 5.86% notional holding out of the entire outstanding notional balance of its subsidiary, Voya, as at 31 December 2014.

During the financial year ended 31 December 2014, the Company did not make any purchases of investments in the subsidiary holding (31 December 2013: US$13,100,188). The Company made sales of investments in the subsidiary holding amounting to US$23,258,400 (31 December 2013: US$ Nil).

For the financial year ended 31 December 2014, the Company did not provide financial support to its unconsolidated structured entity subsidiary and has no intention of providing financial or other support.

* 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 subsidiary (above), plus the total fair value holding in non-subsidiary unconsolidated structured entities, as set out on page 47, agrees to the financial assets at fair value through profit or loss in the statement of financial position.

9 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 year. 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$6,342,328 (31 December 2014: US$6,851,537), of which US$936,299 (31 December 2014: US$1,180,894) was outstanding at the financial year end. Performance fees of US$Nil (31 December 2014: US$91,494) were also earned by the Investment Manager, of which US$Nil (31 December 2014: US$91,173) was outstanding at the financial year 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 year ended 31 December 2015.

During the financial year ended 31 December 2015, the Company incurred Directors' fees for services as Directors and out-of-pocket expenses of US$329,640 (31 December 2014: US$370,361), of which US$Nil (31 December 2014: US$Nil) was outstanding at the financial year end.

No Director, nor the Company Secretary, had any beneficial interest in the shares of the Company during the financial year ended 31 December 2015 or 31 December 2014.

The following Directors' fees were incurred during the financial year:

* The above amount excludes out-of-pocket expenses for the Directors of US$20,209 (31 December 2014: US$39,947).

TRANSACTIONS WITH OTHER RELATED PARTIES

At 31 December 2015, 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 2,271,934 US Dollar shares (31 December 2014: 271,957 US Dollar shares) which represents approximately 0.42% (31 December 2014: 0.05%) 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 31 December 2015, 33.32% (31 December 2014: 32.69%) of the Company's underlying investments are managed in this way and these are listed below:

9 RELATED PARTY TRANSACTIONS AND KEY MANAGEMENT PERSONNEL (continued)

CLO INVESTMENTS MANAGED BY GSO/BLACKSTONE AND AFFILIATES 2015