CIFU.L Regulatory News (CIFU)

RNS Announcement

Carador Income Fund PLC

30 April 2015

FOR IMMEDIATE RELEASE

ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014

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

A copy of the Company's Annual Report and Audited Financial Statements for the year ended 31 December 2014 are set out below, will be posted to the shareholders of the Company and will shortly be available on the Company's website, www.carador.co.uk.

CARADOR: INVESTMENT OBJECTIVE

Carador Income Fund PLC | Annual report and audited financial statements for the year ended 31 December 2014

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 Carador Income Fund Plc for the financial year ended31 December 2014.

In 2014, there was a marked resurgence in market volatility driven by both technical and fundamental factors. On the technical side, steady inflows into high yield and leveraged loan funds over the past few years gave way to meaningful outflows, particularly in the second half of 20141. On the fundamental side, geopolitical flare ups, speculation regarding rate increases, a slowdown in global growth, and the 50% drop in the price of oil led to a spike in volatility. As a result, risk assets and sub-investment grade corporate credit markets in particular experienced considerable price volatility with the Credit Suisse Indices for both leveraged loans and high yield bonds delivering just 2.1% and 1.9%, respectively2. It is against this backdrop that I am pleased to report that the Company delivered a 6.3% total shareholder return in 2014. This was a solid performance in absolute terms and good in relative terms, outperforming the Credit Suisse Leveraged Loan Index by 4.2% and the Credit Suisse High Yield Bond Index by 4.4%3.

US$ Share Class Quarterly Performance Based on Declared Dividends4

Cash Flow and Dividends

The Company continued to deliver strong cash flows in 2014 as GSO / Blackstone Debt Funds Management LLC (the "Investment Manager") continued to rotate the Company's portfolio out of those CLOs issued pre-financial crisis ("CLO 1.0") into more recent post-financial crisis vintages ("CLO 2.0") in both the primary and secondary market. As announced to the market in October 2013, the Company has moved to a stable dividend policy targeting US$0.10 per share paid out in equal quarterly instalments. Despite the considerable reinvestment activity within theportfolio and the long payment dates associated with primary investments, we were pleased to be able to deliver that target in 2014 with 1.1x net cashflow coverage of the dividend.

The Board reiterated the US$0.10 per share dividend target for 2015 in January this year. The Investment Manager believes the dividend cashflow coverage should increase in 2015 as the more recent primary Income Note investments purchased in 2014 commence distributions. 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 $0.10 dividend per share is forecast to be less than 85% of the Company's net income, the Board will seek to increase the Q4 2015 dividend commensurately.

1 Credit Suisse, 31 December 2014.

2 Credit Suisse Leveraged Loan Index / Credit Suisse High Yield Index.

3 The indices referenced may be materially different from that of the composition of Carador. In particular, Carador does not have direct exposure to leveraged loans, but rather its exposure comes through its ownership of CLO securities. In addition, these indices employ different investment guidelines and criteria than Carador; as a result, Carador's exposure to leveraged loans is expected to differ significantly from the securities or other assets that comprise the indices. The performance of these indices has not been selected to represent an appropriate benchmark to compare to the performance of Carador, but rather is disclosed to allow for comparison of the performance of Carador to that of well known, relevant indices. A summary of the investment guidelines of these indices is available upon request.

4 Carador monthly reports.

Dividend Policy

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 year. The Directors aim to make consistent, quarterly dividend payments, and may use any retained net income to assist in implementing this policy.

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

Material Events

The Directors' report includes a summary of the dividends announced in 2014.

On 14 March 2014, the Company announced that, following the receipt of independent legal advice, the Board confirmed that it conducts the Company's affairs, and intends to continue to conduct its affairs, such that the Company's shares should be classified as "excluded securities" under the rules of the UK Financial Conduct Authority ("FCA") on the promotion of non-mainstream pooled investments which came into effect on 1 January 2014 (the "NMPI Rules").

On 29 April 2014, the Company released its Annual Financial Report and Accounts for the twelve months ended31 December 2013.

The Company held its annual general meeting ("AGM") in Dublin on 24 June 2014. The AGM considered and approved the ordinary business set out in the notice to shareholders, namely, to receive and consider the annual reports and accounts of the Company, to re-appoint KPMG as auditors to the Company, to authorise the directors to fix the remuneration of the auditors and to re-appoint Werner Schwanberg, Adrian Waters, Fergus Sheridan and Ed D'Alelio as directors of the Company. It also considered and approved the special business set out in the notice to shareholders, namely, to authorise the Board to allot and issue up to 54,325,335 shares (or, if lower, such number of shares as represent 10% of the shares in issue at the date of the AGM), and to do so without having previously offered such shares to shareholders on a pre-emptive basis.

On 22 October 2014, the Directors approved an increase in the cap on Directors remuneration by 10% to €314,049 with effect from 1 January 2015.

On 19 December 2013, the Company agreed a bilateral senior secured committed 364 day short term revolving credit facility (the "Initial Facility") with State Street Bank and Trust which expired on 18 December 2014. On 19 November 2014, the Company renewed this facility (the "Renewed Facility", and together with the Initial Facility, the "Facility"). The Renewed Facility will expire on 17 December 2015. The Facility limit is determined as the lower of: (a) US$50 million (this is reduced to US$30 million for the Renewed Facility), (b) 10% of the NAV, (c) 20% of the adjusted NAV, and (d) the maximum amount of financial indebtedness that the Borrower is permitted to incur as determined in accordance with: (i) its constitutional documents, (ii) any resolution of the members, (iii) its investment policy, and (iv) any law, rule or regulation applicable to the Borrower.

Outlook

As I look forward to the coming year, there are undoubtedly significant macro-events that may lead to further global credit market volatility: military conflict in Ukraine; uncertainty surrounding Greece's position within the Euro; and increased pressure on oil and gas companies resulting from sustained low oil prices. There will doubtless also be other, as yet unforeseen events, which may add price volatility to the Company's investment portfolio. Notwithstanding potential market price volatility, the Investment Manager believes the Company's portfolio is now well positioned to generate attractive cashflows this year and this outlook has allowed the Board to reiterate recently our target annual dividend of $0.10 per share.

Werner Schwanberg

Chairman

23 April 2015

INVESTMENT MANAGER'S REVIEW

For the twelve month period ended 31 December 2014

We are pleased to present our review of 2014 and our outlook for 2015. The Company has delivered a 2014 total NAV return to shareholders of 6.3%. Some highlights include:

• Declared dividend income of US$0.10 per share equivalent to a historic dividend yield of 11.2% based on the 31 December 2014 share price1;

• Strong relative performance, outperforming the Credit Suisse Leveraged Loan Index by 4.2% and the Credit Suisse High Yield Bond Index by 4.4%2;

• A very active year of portfolio investment with over US$317 million invested in new opportunities and US$222 million sold as the portfolio transitioned out of lower yielding pre-financial crisis CLOs3;

• A repositioning of the Company for medium-term cashflow generation such that at the year end the portfolio included 49.1% in CLO 2.0 Income Notes with reinvestment periods running to 2017 and 2018; and

• The renewal of the Company's short term liquidity facility for US$30m to allow the Company to continue to operate efficiently in the primary and secondary CLO markets.

Bank Loan Market Overview

The U.S. Leveraged Loan market ended 2014 with US$527 billion of total new issuance of which US$379 billion was specifically institutional tranches. The volume was down on the 2013 numbers of US$605 billion and US$455 billion, respectively, which in part was due to the decline in refinancing activity. Despite the decline in primary volume, the clearing spreads of primary U.S. institutional loans widened out over the year reaching 458bp and 581bp for BB and B rated corporates, respectively. As the table below illustrates, the institutional loan clearing levels for December 2014 are at the widest levels seen since mid-2012.

In general, we believe a widening in loan spreads should have a positive impact on the cashflows the Income Notes in the portfolio will generate over the medium term as loan managers are able to increase the weighted average portfolio spreads whilst benefiting from the fixed spread of the liabilities.

U.S. Leveraged Loan Primary BB/B Rated All-In Institutional Spread 2012 to 20144

All-In Spread Institutional includes upfront fees amortised over 3 years.

We have commented previously on the increasing influence of US bank loan mutual funds and ETFs in the price movements of bank loans. In 2013, loan mutual fund inflows totalled US$62.8 billion and this had a material impact in driving loan prices higher. However, in 2014 retail investors did an "about-face" with bank loan mutual funds seeing $19.68 billion of net outflows during the year4. As noted below, continued CLO demand did help offset retail outflows. However, this demand was not enough to support bank loan pricing. Average loan prices dropped almost 2.5% throughout 2014, falling from 98.29 on 31 December 2013 to 95.92 on 31 December 20145.

Throughout 2014 we have been pleased to see a strengthening US economic recovery with the resultant overall low level of defaults. A total of 28 companies representing US$70.2 billion in high yield bonds and leveraged loans defaulted during the year, which marked the second highest year on record. However, it is important to note that 77% of this amount is composed of just two borrowers. Excluding these issuers, total 2014 defaults were US$16.0 billion, the lowest total volume since 20074.

1 Source Bloomberg, 31 December 2014 share price $0.8963.

2 The indices referenced may be materially different from that of the composition of Carador. In particular, Carador does not have direct exposure to leveraged loans, but rather its exposure comes through its ownership of CLO securities. In addition, these indices employ different investment guidelines and criteria than Carador; as a result, Carador's exposure to leveraged loans is expected to differ significantly from the securities or other assets that comprise the indices. The performance of these indices has not been selected to represent an appropriate benchmark to compare to the performance of Carador, but rather is disclosed to allow for comparison of the performance of Carador to that of well known, relevant indices. A summary of the investment guidelines of these indices is available upon request.

3 GSO Capital Partners International LLP.

4 S&P LCD Leverage Lending Review - 4Q14.

5 S&P/LSTA Leveraged Loan Index.

CLO Market Overview

The U.S. CLO market had a very strong year of issuance in 2014 with US$124 billion of new deals coming to market, up from US$81 billion in 2013 and the highest on record for the market. The European market also continued its recovery from the financial crisis and continues to adapt to new regulations. In 2014, there were €17 billion of new European CLOs issued, up on the €7.6 billion in 2013. In aggregate, the net result is that the outstanding U.S. principal CLO balance has been growing relatively consistently since early 2013 from US$274 billion in January of that year to US$371 billion as at the end of December 2014, whereas the aggregate European CLO balance has been in marginal decline over the same period from €75 billion to €67 billion1.

Average U.S. CLO liability costs remained relatively stable over 2014 with average AAA par margins starting the year at U.S. Libor +150bp and ending December at U.S. Libor +152bp having fallen to a low in June of U.S. Libor +146bp1. However, the average masks a relatively wide range of pricings across different loan managers. We believe that in general, in any given month in 2014, AAA discount margins varied by manager by between 15bp and 25bp as the market increasingly differentiated between what it perceived as strong and weak managers and/or portfolio profiles. In total, 106 different managers brought CLOs to market in 2014 with the largest managers bringing 5 deals each2.

Portfolio Update

The Carador portfolio has undergone significant change in 2014 with over $317 million of new investments made as older investments either matured or were sold. The investments made have been consistent with our strategy of rotating into newer, post-financial crisis CLOs which benefit from longer reinvestment periods and more flexible refinancing provisions.

We believe the acquisition of 'control' stakes in certain CLOs represents an opportunity for the Company, although we have been equally happy to make smaller opportunistic investments in both the primary and secondary markets where we see attractive risk adjusted returns. A simple majority of the CLO Income Notes generally carries sufficient voting rights to be a control stake. Typically the control stake grants the holder an option to refinance the CLO Senior and Mezzanine Notes following the no-call period and/or redeem the CLO Senior and Mezzanine Notes in their entirety to wind-up the CLO. As at the year end the Company owned control stakes in 7 CLOs of which 6 are in CLO 2.0 transactions. We believe the option embedded in a control stake has the potential to provide the Company with valuable upside to take advantage of any spread tightening in CLO liabilities and provide a second level of liquidity, namely a liquidation of the loan portfolio, if the secondary Income Note market proves an unattractive exit from an investment.

As at 31 December 2014, the portfolio breakdown by CLO 1.0 and CLO 2.0, Income Notes and Mezzanine Notes, was as follows3:

In general, we have continued to invest with loan managers who we believe have sufficient depth of resources to maintain a deep and broad investment team. We believe depth of resources, both in terms of finance and personnel, will be increasingly important following the implementation of U.S. securitisation retention requirements in late 2016. Whilst managers' responses to the regulations is still evolving, we maintain a regular dialogue with managers to ensure their business models remain robust and well resourced.

We also believe that, when investing in Income Notes, the larger manager groups often attract a lower cost of CLO finance for the CLO Senior and Mezzanine Notes issued by the CLOs they manage.

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

1 Thomson Reuters LPC, January 2015.

2 GSO Capital Partners International LLP.

3 All of the CLO 2.0 Mezzanine and Income notes are still within the non-call period.

The Company's top ten look through to corporate borrowers is detailed in the table below1:

The Company's financial assets exposed to credit risk were concentrated, in order of exposure, in the following industries1

1 Forms an integral part of the audited financial statements.

Outlook

With the recent revision of U.S. Q3 GDP to 5%, as well as the increase in US real GDP based on the "advance" estimate, and the likelihood that lower energy costs will lead to further gains in consumer spending and corporate profits (at least outside of the energy sector), the Federal Reserve's resolve to begin raising interest rates by mid-2015 seems to be strengthened. Furthermore, it appears as though the US economy has further "decoupled" from the rest of the world, as many economists have pointed out. While many concerns regarding the US economy remain, particularly around structural employment issues and wage growth, there are signs that further improvements are coming. We look forward to continuing improvements broadly in the U.S. and some recovery of energy prices. Over the course of the year as market participants begin to focus in on the nearer-term reality of Fed action on rates, we would expect returns on loans to improve, driven by positive flows back to the asset class and away from core fixed income.

With this economic backdrop, we believe the U.S. remains in a benign default environment, excluding the oil and gas sector, and this should continue to benefit CLO Income Note cashflows. In particular, the widening in loan spreads seen in late 2014 should provide a benefit to the weighted average spread of the loan portfolios underlying our CLOs. We remain focused on our oil and gas exposure, 3.6% on a look through basis as at the year end. Whilst we do not believe the exposure represents a material issue for the portfolio's cashflows, a sustained low oil price beyond late 2015 will lead to a material increase in defaults in the sector.

As at the year end, the Company was fully invested but we believe 2015 will continue to provide attractive relative value opportunities for us to take advantage of as we seek to increase NAV and maintain net income.

Risk Management

The Company's portfolio of CLO investments is managed to minimise default risk and potential loss through credit analysis performed by the Investment Manager's experienced credit research team. Achieving 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 Net Asset Value. The Company also limits its exposure to transactions managed by the same portfolio manager to 15% of the Net Asset Value, at the time of investment. However, if the portfolio manager is an affiliate of the Investment Manager, this limit is increased to 60% of the Net Asset Value, at the time of investment.

The Company may invest in assets which are denominated in Euro and Sterling as well as U.S. Dollars: however the Base Currency of the Company is the U.S. Dollar. The Company therefore may have an exposure to changes in the exchange rate between the U.S. Dollar and the Euro/GBP which, if unhedged, has the potential to have a significant effect on returns. The Directors believe that it is in the best interests of Shareholders for the Company to engage in currency hedging solely to reduce the risk of currency fluctuations and the volatility of returns which may result from such currency exposure. This may involve hedging, at the level of the Company, the Euro/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 ("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

23 April 2015

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") pursuant to Part XIII of the Companies Act 1990. 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 loans 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 Net Asset Value. The Company also limits its exposure to transactions managed by the same portfolio manager to 15% of the Net Asset Value, at the time of investment. However, if the portfolio manager is an affiliate of the Investment Manager, this limit is increased to 60% of the Net Asset Value, at the time of investment. The 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.

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 Net Asset Value 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 Net Asset Value 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 Net Asset Value of the Company may be kept on cash deposit with any one institution;

· the Company may not invest more than 20% of its Net Asset Value in other collective investment schemes, of which no more than 20% of its Net Asset Value may be invested in other open-ended collective investment schemes; no more than 10% of its Net Asset Value may be invested in closed-ended collective investment schemes; no more than 10% of its Net Asset Value may be invested in fund of funds; and no more than 10% of its Net Asset Value 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 Net Asset Value 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 Net Asset Value; 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 YEAR AND STATE OF AFFAIRS

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

As explained in notes to the financial statements, in 2013, the Company adopted IFRS 10 "Consolidated Financial Statements" and its related amendment for parent undertakings that qualify as Investment Entities. This resulted in all investments in other entities being shown at fair value through profit or loss, including any considered for financial reporting purposes as subsidiaries both in 2014 and in the 2013 comparatives.

The profit for the year attributable to participating equity shareholders amounted to US$30,851,218 (31 December 2013: US$21,104,243).

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 opportunity.

The Company made the following announcements on dividends in respect of 2014:

· On 22 January 2014, the Board declared a dividend of US$0.0290 per US Dollar share in respect of the period from 1 October 2013 to 31 December 2013. This dividend was paid on 5 February 2014 to shareholders on the register as at the close of business on 31 January 2014. The amount paid in respect of this dividend was US$15,754,347.

· On 23 April 2014, the Board declared a dividend of US$0.0250 for the period 1 January 2014 to 31 March 2014. The dividend was paid on 8 May 2014 to shareholders on the share register as at close of business on 2 May 2014. The amount paid in respect of this dividend was US$13,581,334.

· On 21 July 2014, the Board declared a dividend of US$0.0250 for the period 1 April 2014 to 30 June 2014. The dividend was paid on 6 August 2014 to shareholders on the share register as at close of business on 1 August 2014. The amount paid in respect of this dividend was US$13,581,334.

· On 21 October 2014, the Board declared a dividend of US$0.0250 for the period 1 July 2014 to 30 September 2014. The dividend was paid on 5 November 2014 to shareholders on the share register as at close of business on 31 October 2014. The amount paid in respect of this dividend was US$13,581,333.

· 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.

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

TRANSACTIONS INVOLVING DIRECTORS

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

EVENTS SINCE YEAR END

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

DIRECTORS

The names of the persons who were Directors at any time during the year are set out in the section entitled "Management and Administration". As at 31 December 2014, 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 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 2014.

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"). The management fees and fees payable 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.

BOOKS OF ACCOUNT

The Directors are responsible for ensuring that proper books of account, as outlined in Section 202 of the Companies Act, 1990, are kept by the Company. To achieve this, the Directors have employed a service organisation, State Street Fund Services (Ireland) Limited (the "Administrator"). The books of account 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 Net Asset Value, 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 accurately to 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 Net Asset Value.

COMPANY CORPORATE GOVERNANCE

Introduction

The Company is subject to and complies with Irish statute comprising the Companies Acts 1963 to 2013, 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 June 2010, and a new edition which was published in September 2012 and applies to reporting period beginning on or after 1 October 2012. This updated edition is applicable to the Company for the year under review, and the Board are 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.

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 has been appointed as 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 year ended 31 December 2014 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 year ended 31 December 2014 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. The Board considers agenda items laid out in the notice and agenda which are formally circulated to the Board in advance of the meeting as part of the board papers, and therefore Directors may request any agenda items to be added that they consider appropriate for Board discussion. Additionally, each Director is required to inform the Board of any potential or actual conflicts of interest prior to Board discussion.

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

The primary focus at Board meetings is a review of investment performance and associated matters such as asset allocation, as well as marketing/investor relations, risk management, general administration, corporate governance and compliance, 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. As such, the evaluation of the Directors is led by the Chairman. 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 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 year ended 31 December 2014, as it is not considered appropriate at the present time. A remuneration committee was established on 6 April 2011 at the behest of the Chairman of the Board. 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

A memorandum regarding the Company's pricing policy was approved at the board meeting of 27 August 2013. This policy replaced the pricing committee but retains the same defined process which the Investment Manager implements and 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 for the year ended 31 December 2014 consisted of Fergus Sheridan, Nicholas Moss and Adrian Waters. 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 and for the preparation of the financial statements and identifying significant risks facing the Company. 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 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.

As there is delegation of daily operational activity, described below, the Company has no direct internal audit function. The internal control systems are designed to meet the Company's particular needs and the risks to which it is exposed. Accordingly, the internal control systems are designed to manage rather than eliminate the risk of failure to achieve business objectives and by their nature can only provide reasonable and not absolute assurance against misstatement and loss.

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

Corporate responsibility

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

The Company does not have any employees.

Going concern

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 consider that the Company is able to continue in the foreseeable future.

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 will be available to respond to shareholders' questions at the annual general meeting.

All general meetings of the Company shall be held in Ireland. In each year the Company shall hold a general meeting of the Company as its annual general meeting. 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 in number or by value, or unless the Chairman of the meeting requests a poll. Subject to disenfranchisement by law in the event of non-compliance 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 other share classes in existence (other than the US Dollar share class), 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 a year and a proxy voting card is sent to shareholders with the annual report and financial statements. Additionally, the interim management statements and the current information provided to shareholders on an ongoing basis through the Company's website, the Investment Manager's monthly report and 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 year ended 31 December 2014, 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 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. 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 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 Directors are deemed to be independent from the Investment Manager, it is not considered necessary to have executive Directors appointed.

B2.1 - There was no nomination committee in the year ended 31 December 2014 since the Board understands that market practice does not require a fund of this nature to have a nomination committee. 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, in accordance with market practice, 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 - Since the Company does not have any employees and does not presently have a nomination committee (in accordance with market practice for a fund of this nature), the Company does not yet have a formal diversity policy in place. Diversity, including gender diversity, is however considered by the Company in the evaluation of the Board and its performance.

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:

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 books and 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 reviews 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 evaluates and discusses significant accounting and reporting issues as the need arises.

Capital structure

As at 31 December 2014, 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 Acts, 1963 to 2013, and the Listing Rules of the UK Listing Authority as applicable to investment funds. The Articles of Association themselves may be amended by special resolution of the shareholders.

Powers of the Directors

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

The Articles of Association provide that the Directors may exercise all the powers of the Company to borrow money, to mortgage or charge its undertaking, property or any part thereof and may delegate these powers to the Investment Manager. However, the amount and circumstances in which the Company may borrow are limited by the 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 Net Asset Value and the issue and conversion of shares in certain instances more particularly described in the Prospectus.

RESPONSIBILITY STATEMENT

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

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the financial statements in accordance with International Financial Reporting Standards ("IFRSs"), as adopted by the EU.

The financial statements are required by law and IFRSs as adopted by the EU to present fairly the financial position and performance of the Company. The Companies Acts, 1963 to 2013 provide in relation to such financial statements that references in the relevant parts of these Acts to financial statements giving a true and fair view, are references to their achieving of a fair presentation.

As explained in note 2C Basis of Preparation, the Company financial statements are identical to each other when prepared in accordance with the requirements of IFRSs as adopted by the EU, applicable to the Company as an investment entity.

In preparing these 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 that the financial statements comply with IFRSs as adopted by the EU as applied in accordance with the Companies Acts 1963 to 2013; 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 proper books of account that disclose with reasonable accuracy at any time the financial position of the Company, and enable them to ensure that its financial statements are prepared in accordance with applicable IFRSs as adopted by the EU and comply with the Companies Acts 1963 to 2013, and in the case of the Financial Statements, Article 4 of the IAS Regulations. They are also responsible for safeguarding the assets of the Company. They have general responsibility for taking such steps as are reasonably open to them to prevent and detect fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the Company's website www.carador.co.uk. Legislation in Ireland concerning the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Responsibility Statement, in accordance with the Transparency Regulations

Each of the Directors confirm that, to the best of that Director's knowledge and belief:

· the financial statements, prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities and financial positions of the Company as at 31 December 2014, and its profits for the 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.

CONNECTED PARY 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"). Carador is an AIF for the purposes of AIFMD and the Investment Manager is designated as the AIFM of Carador. As a non-EU AIFM, the Investment Manager is subject to certain provisions of AIFMD, but is not yet subject to the retention requirement. The Central Bank has indicated that a non-EU AIFM may avail of a transitional period to 22 July 2015 before it must comply in full with AIFMD. The Central Bank will keep the extent of this transition under review with a view to extending the transitional period to align with the coming into effect of Article 37 of AIFMD (i.e. the provision which allows non-EU AlFMs to become authorised under AIFMD), unless there are strong reasons not to do so in light of intervening experience in relation to the regulation of AlFs which have non-EU AlFMs. If and when applicable, the retention requirement could operate as a material restriction on the investment activities of Carador. In particular, if CLOs then held by Carador 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 Carador and/or its relationships with service providers, and (ii) restrictions on the investment activities the Investment Manager or Carador may engage in.

AUDITORS

The auditors, KPMG, have signified their willingness to continue in office in accordance with Section 160(2) of the Companies Act, 1963.

On behalf of the Board of Directors:

Werner Schwanberg Adrian Waters

23 April 2015

AUDIT COMMITTEE REPORT

Dear Shareholder,

I am pleased to report to you on the activities of the Audit Committee for the year ended 31 December 2014.

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 2012 which relate to financial years commencing on or after 1 October 2012.

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; and

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

In regard to the above responsibilities, I confirm, on behalf of the Audit Committee, that, to the best of our knowledge and belief, we have fulfilled our 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 Audit Committee ("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 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 their role as a member of the Audit 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 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

· we 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 2014, having previously discussed the Unaudited Interim Report with the outsourced service providers and KPMG. We compared the results with management accounts and budgets, focusing on key areas of judgements; and

· we reviewed, prior to making any recommendations to the Board, the Annual Report and Audited Financial Statements ("Annual Report") for the year ended 31 December 2014. In undertaking this review, we 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.

As requested by the Board, we also reviewed the Annual Report and were able to confirm to the Board that, in our view, the Annual Report, taken as a whole, was fair, balanced and understandable and provided the information necessary for shareholders to assess the Company's performance, business model and strategy.

SIGNIFICANT ACCOUNTING MATTERS

During the 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. Following discussion, we 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 year on 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 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 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 year end, the Company has one subsidiary for financial reporting purposes, Voya CLO II Ltd ("Voya") (formerly known as ING Investment Management CLO II Ltd), 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 2014 Annual Report and the year end audit, the Committee considered the effect of any key new reporting requirements impacting the Company. During the year, the Committee received communications from the outsourced service providers and from KPMG on other accounting matters including tax, audit fees, anti-money laundering procedures, 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 2015, we met with KPMG who presented their Audit Strategy and Plan for the year; we agreed the audit plan for the 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 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 year end audit following a competitive tender process during 2010. The lead audit partner is rotated every five 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.

The Committee has agreed the types of permitted and non-permitted non-audit services and those which require explicit prior approval. During the year the value of non-audit services provided by KPMG amounted to US$9,288 plus VAT (2013: US$16,933 plus VAT). Whilst non-audit services as a proportion of audit services amount to approximately 5.2% (2013: 7.7%), the overall quantum of non-audit services is not considered to be material.

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

COMMITTEE EFFECTIVENESS

The effectiveness of the Committee is reviewed on the 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

23 April 2015

STATEMENT OF CUSTODIAN'S RESPONSIBILITIES

and Custodian's report to the shareholders

We have enquired into the conduct of the Company for the year ended 31 December 2014, 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 its investment and borrowing powers by the provisions of the constitutional documentation and the appropriate regulations; and

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

OPINION

In our opinion, the Company has been managed during the 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 XIII of the Companies Act, 1990; and

(ii) otherwise in accordance with the provisions of the Memorandum and Articles of Association and Part XIII of the Companies Act, 1990.

State Street Custodial Services (Ireland) Limited

78 Sir John Rogerson's Quay

Dublin 2

Ireland

23 April 2015

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 ("financial statements") of Carador Income Fund PLC (the "Company") for the year ended 31 December 2014, 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. Our audit was conducted in accordance with International Standards on Auditing ("ISAs") (UK and Ireland). The financial reporting framework that has been applied in their preparation is Irish law and International Financial Reporting Standards ("IFRSs") as adopted by the ("EU").

In our opinion, the financial statements:

· give a true and fair view, in accordance with IFRSs as adopted by the EU, of the state of the Company's affairs as at 31 December 2014 and of the Company's profit for the year then ended; and

· have been properly prepared in accordance with the requirements of the Companies Acts 1963 to 2013 and, as regards the Group financial statements, Article 4 of the IAS Regulation.

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 individual risks.

In arriving at our audit opinion above on the financial statements, the most significant 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 (US$486m)

Please refer to the Report of the Audit Committee on page 17, the accounting policy on page 28 and notes 3, 8 and 11 to the financial statements.

The Risk

The Company invested 99.5% (2013: 99.8%) of its net assets as at 31 December 2014 into Collateralised Loan Obligations ("CLOs"). As described in the Report of the Audit Committee on page 17, 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. There was no internal valuation techniques used at 31 December 2014.

Our Response

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

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 and the Company's investment valuation policies adopted and fair value disclosures in note 3 and note 11 to the financial statements for compliance with IFRSs as adopted by the EU.

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$14.7 million. This has been determined using a benchmark of the Company's net assets (of which it represents 3%) as at 31 December 2014 which we determined, in our professional judgment, to be one of the principal benchmarks within the financial statements relevant to the Shareholders of the Company in assessing financial performance.

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

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

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

Under ISAs (UK and Ireland), we are required to report to you if, based on the knowledge we acquired during our audit, we have identified other 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 material inconsistencies between the knowledge we acquired during our audit and the Directors' statement that they consider that the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Company's performance, business model and strategy; or

· the report of the Audit Committee does not appropriately address matters communicated by us 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 15, in relation to going concern; and

· the part of the corporate governance statement relating to the Company's compliance with the ten provisions of the UK Corporate Governance Code specified for our review.

In addition, the Companies Acts 1963 to 2013 require us to report to you if, in our opinion, the disclosures of Directors' remuneration and transactions specified by law are not made.

5 Our conclusions on other matters on which we are required to report by the Companies Acts 1963 to 2013 are set out below

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

The statement of financial position is in agreement with the books of account and, in our opinion, proper books of account have been kept by the Company.

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.

BASIS OF OUR REPORT, RESPONSIBILITIES AND RESTRICTIONS ON USE

As explained more fully in the Directors' Responsibilities Statement set out on page 15, 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 financial statements in accordance with applicable law and ISAs (UK and 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 and 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 and 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.

Our report is made solely to the Company's Shareholders, as a body, in accordance with section 193 of the Companies Act 1990. 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.

Colm Clifford

for and on behalf of

KPMG

Chartered Accountants, Statutory Audit Firm

1 Harbourmaster Place

IFSC

Dublin1

Ireland

23 April 2015

STATEMENT OF FINANCIAL POSITION

For the year ended 31 December 2014

* Balances include investment in subsidiary, please refer to note 8 for further detail.

These financial statements were authorised and approved for issue by the Directors on 23 April 2015 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 year ended 31 December 2014

These financial statements were authorised and approved for issue by the Directors on 23 April 2015 and signed on their behalf by:

Werner Schwanberg Adrian Waters

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

STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2014

STATEMENT OF CASH FLOWS

For the year ended 31 December 2014

* Balances include investment in subsidiary, please see note 8 for further detail.

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

FINANCIAL STATEMENTS

For the year ended 31 December 2014

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 Acts, 1963 to 2013. It was incorporated on 20 February 2006 under registration number 415764. The Company is authorised by the Central Bank pursuant to Part XIII of the Companies Act, 1990. 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 2014, 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 ("IFRSs") 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.

Amendments to IAS 32, " Offsetting financial assets and financial liabilities" is effective for annual periods beginning on or after 1 January 2014 and interim periods within those annual periods. The amendments clarify the offsetting criteria in IAS 32 by explaining when an entity currently has a legally enforceable right to set off and when gross settlement is considered to be equivalent to net settlement. The amendments did 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, 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 is therefore only required to prepare separate financial statements under IFRSs as adopted by the EU. For the purpose of complying with Irish Company Law's group financial statement requirement, such financial statements are identical to those separate statements, as the Company is permitted by IFRSs (as adopted by the EU) to include its subsidiary at fair value through profit or loss.

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 yield basis.

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

Net gain/(loss) on financial assets at fair value through profit or loss consists of coupons and interest received and both realised and unrealised gains and losses on financial assets at fair value through profit or loss, calculated as described in note 2iii. 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. As the Company's investment in its subsidiary, as defined under IFRS 10, is not held for trading, it is presented on an aggregate basis in the financial statements with the "designated at fair value" financial assets, as all are managed together on a fair value basis.

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 statement of financial position date. Changes in the fair value of the forward currency contracts are recorded in "Net gain/(loss) 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 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 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.

(iii) Subsequent measurement

After initial measurement, the Company measures financial instruments classified at fair value through profit or loss at their fair values. Changes in fair value are recorded within "Net gain on financial assets at fair value through profit or loss" and "Net gain/(loss) 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. In accordance with IFRS 13, if a bid/ask price is obtained in an active market, the standard requires valuation to be based on a price within the bid ask spread that is most representative of fair value and allows the use of mid-market pricing or other conventions that are used by market participants as a practical expedient for fair value measurement within a bid ask spread;

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. Where the fair value cannot be determined by reference to observable market quotes or broker quotes, the entity estimates fair value through the use of a discounted cash flow model (valuation technique). There are a number of assumptions applied in determining the fair values of the financial assets and liabilities whose fair value is estimated through the use of the discounted cash flow model, including certain non-observable inputs in some instances.

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 year ended 31 December 2014, 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 statement of financial position date. Foreign currency exchange differences relating to investments at fair value through profit or loss and derivatives are included in "Net gain on financial assets at fair value through profit or loss" and "Net gain/(loss)on derivative financial instruments and 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 gain/(loss) on derivative financial instruments and 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 year, using tax rates enacted or substantially enacted at the reporting date, and any adjustment to tax payable in respect of previous periods.

2L DISTRIBUTIONS

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

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.

The fair values of financial assets that are traded in active markets are based on quoted market prices or broker price quotations. For all other financial instruments (if any), the Company determines fair values using other valuation techniques, including discounted cash flow models. The inputs to these models are taken from observable markets where possible but where this is not feasible, a degree of judgement is required in establishing fair values.

For the year ended 31 December 2014, there were no internal valuation techniques used as the fair value of the financial assets was derived from inputs that were observable either directly (as prices) or indirectly (derived from broker price quotations). For the purposes of the fair value hierarchy, the Directors consider that the use of average broker price quotations is a valuation technique which uses inputs that do not require significant adjustment based on unobservable inputs; hence the Directors have included these securities in Level 2.

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 investment in Voya CLO II Ltd ("Voya") (formerly known as ING Investment Management CLO II Ltd) meets 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 2014 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 its financial assets as being at fair value through profit or loss.

IAS 24, "Related Party Disclosures" amendments adds an entity to the definition of key management personnel when that entity or any member of a group of which it is a party provides key management personnel services to the reporting entity or to the parent of the reporting entity and is effective for annual periods on or after 1 July 2014. Amounts incurred by the Company for the provision of key management personnel services by a separate management entity shall be disclosed. The amendment is not expected to have any impact on the Company's financial position or performance.

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).

For the years ended 31 December 2014 and 31 December 2013, all financial instruments were classified as level 2 within the fair value hierarchy.

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, IFRS13 requires the Company 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 years ended 31 December 2014 and 31 December 2013, 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, Level 2 and Level 3 during the year (2013: no transfers). Transfers between levels are deemed to occur at the end of the year.

4 OPERATING EXPENSES

INVESTMENT MANAGER

The Investment Manager of Carador is entitled to receive a 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 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 new security).

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 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.

Up to 31 December 2013, the "Hurdle Rate" was 12-month US Dollar Libor as at the last business day of the relevant accounting reference period. From 1 January 2014, Performance Fee Hurdle Rate was increased to 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.

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 years ended 31 December 2014 and 31 December 2013 and the amounts due at 31 December 2014 and 31 December 2013 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 Directors 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 2014 and 31 December 2013 are detailed in the table below.

There were no Directors' fees or Directors' out of pocket expenses outstanding as at 31 December 2014 and 31 December 2013.

AUDIT FEES

The Company incurred the following audit, assurance and tax fees during the year of which US$145,206 (31 December 2013: US$159,372) was outstanding at the 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 years ended 31 December 2014 and 31 December 2013 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 the 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 2014, the issued share capital consisted of 543,253,359 US Dollar shares (31 December 2013: 543,253,359) and the subscriber shares referred to below.

Voting rights

The Company has issued two subscriber shares of €1 each. These shares do not participate in the profits of the Company. Holders of 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.

ISSUED PARTICIPATING SHARE

The share capital consisted of 543,253,359 shares as at 31 December 2014 and 31 December 2013. There were no shares issued and no shares converted during the year ended 31 December 2014 or 31 December 2013.

PARTICIPATING EQUITY

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 year 2022 and in every tenth year thereafter, the Directors will propose a special resolution to the effect that the Company continue for a further ten years. If the continuation vote is not passed, the Directors are required to formulate proposals to be put to shareholders to wind-up, reorganise or reconstruct the Company.

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 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 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 year.

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

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.

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.

Involvement with unconsolidated structured entities

The Company has concluded that CLOs in which it invests, but that it does not consolidate, 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 undertaking

As at 31 December 2014, the Company had one unconsolidated structured entity subsidiary undertaking as defined under IFRS 10, Voya. To meet the definition of a subsidiary under the single control model of IFRS 10, the investor has to control the investee. 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, the relevant activities are the investment decisions which are made by its asset manager. Power over its relevant activities is attributed to the Company through a call option it has, as the holder of the majority of the preference shares of Voya. The impact of this call option is that it gives the Company the ability to direct or stop the early calling of the Voya deal, and hence, decision making power on the life of the deal, and therefore the ability to control the variability of returns.

The Company is also considered to have contingent power, due to the fact that it may remove Voya's asset manager 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 risks and rewards. The main linkage noted is from the call option which would 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 under IFRS 10 due to the lack of control, as outlined above.

Investment entity status

To continue to apply the amendment to IFRS 10 and to be exempt from preparing 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.

INTERESTS IN STRUCTURED ENTITIES

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

Below is a summary of the Company's holdings in non subsidiary unconsolidated structured entities as at 31 December 2013:

The Company has a percentage range of 0.3% - 14.2% notional holding out of the entire outstanding notional balances of the structured entities as at 31 December 2013.

During the year ended 31 December 2013, 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 in non-subsidiary unconsolidated structured entities (above), plus the total fair value holding of its unconsolidated structured entity subsidiary 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 2013:

The Company has an 11.3% notional holding out of the entire outstanding notional balance of its subsidiary, Voya, as at 31 December 2013.

During the year ended 31 December 2013, the Company made purchases of investments in the subsidiary holding amounting to US$13,100,188 (year ended 31 December 2012: US$14,358,699). There were no sales of investments in the subsidiary during the year ended 31 December 2013.

For the year ended 31 December 2013, 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 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

In accordance with IAS 24 "Related Party Disclosures", the following note summarises related parties and related party transactions during the 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$6,851,537 (31 December 2013: US$7,392,351), of which US$1,180,894 (31 December 2013: US$1,140,011) was outstanding at the year end. Performance fees of US$91,494 (31 December 2013: US$1,090,445) were also earned by the Investment Manager, of which US$91,173 (31 December 2013: US$1,090,124) was outstanding at the 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 year ended 31 December 2014.

During the year ended 31 December 2014, the Company incurred Directors' fees for services as Directors and out-of-pocket expenses of US$370,361 (31 December 2013: US$351,078), of which US$Nil (31 December 2013: US$Nil) was outstanding at the year end.

No Director, nor the Company Secretary, had any beneficial interest in the shares of the Company during the year ended 31 December 2014 or 31 December 2013.

The following Directors' fees were incurred during the year:

* The above amount excludes out-of-pocket expenses for the Directors of US$39,947 (31 December 2013: US$7,910).

** Claudio Albanese resigned as a Director of the Company on 10 April 2013.

TRANSACTIONS WITH OTHER RELATED PARTIES

At 31 December 2014, current employees and accounts managed or advised by the Investment Manager and its affiliates hold 271,957 US Dollar shares (31 December 2013: 12,524,424 US Dollar shares) which represents approximately 0.05% (31 December 2013: 2.31%) 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 2014, 32.69% (31 December 2013: 46.65%) of the Company's underlying investments are managed in this way and these are listed below:

TRANSACTION WITH SUBSIDIARY

As at 31 December 2014, the Company had one subsidiary for financial reporting purposes, Voya, a special purpose vehicle incorporated in the Cayman Islands which is considered a related party. In accordance with IFRS 10, Voya is an unconsolidated subsidiary and the Company's investment in this special purpose vehicle is detailed in note 8.

The Company received US$4,361,168 in coupon payments from Voya for the year ended 31 December 2014 (31 December 2013: US$5,171,549).

During the 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)

The value of the subsidiary holding at 31 December 2014 was US$14,478,333 (31 December 2013: US$37,996,881).

10 DERIVATIVE FINANCIAL INSTRUMENTS

Investments acquired for the Company's portfolio are all denominated in US Dollars at 31 December 2014. The Company may also invest in underlying assets which are denominated in currencies other than the US Dollar (e.g. the Euro). Accordingly, the value of such assets may be affected, favourably or unfavourably, by fluctuations in currency rates and which, if unhedged, could have the potential to have a significant effect on returns. To reduce the impact on the Company of currency fluctuations and the volatility of returns which may result from currency exposure, the Investment Manager may hedge the currency exposure of the assets of the Company against any Euro/US Dollar exchange rate fluctuations (subject to the availability of appropriate foreign exchange and credit lines) for the purposes of efficient portfolio management.

During the year, the Company had an exposure to changes in the exchange rate between the US dollar and the Euro which, if unhedged, had the potential to have significant effect on returns. The Company engaged consistently in currency hedging solely to reduce the risk of currency fluctuations and the volatility of returns which may result from such currency exposure. This involved hedging the Euro assets to US Dollar.

All of the Company's shares in issue are denominated in US Dollar, hence at the year end the, Company is exposed to very limited currency risk. As a result, the Company had no currency hedges in place at the year ended 31 December 2014 and 31 December 2013, but may do so in the future.

11 RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS

INTRODUCTION

Risk is inherent in the Company's activities but it is managed through a process of ongoing identification, measurement and monitoring, subject to risks limits and other controls. The process of risk management is critical to the Company's continuing profitability. The Company is exposed to market risk (which includes interest rate risk, currency risk and other price risk), liquidity and credit risk arising from the financial instruments it holds. Given the Company's permanent capital structure as a closed-ended fund, it is not exposed to redemption risk relating to its own shares in issue. However, its financial assets include investments in collateralised loan obligations which are not traded in an organised public market and which may be illiquid.

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

RISK MANAGEMENT STRUCTURE

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

RISK MEASUREMENT AND REPORTING SYSTEM

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

Monitoring and controlling risks is primarily performed based on limits established by the Board. These limits reflect the business strategy and market environment of the Company as well as the level of risk that the Company is willing to accept. In addition, the Company monitors and measures the overall risk-bearing capacity in relation to the aggregate risk exposure across risk types and activities.

RISK MITIGATION

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

EXCESSIVE RISK CONCENTRATION

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

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

Carador's investment guidelines specify, among others, that the Company must invest in a minimum of 20 separate investments with a maximum exposure per investment, at the time of investment, of 20% of the NAV of the Company. The Company also limits its exposure to transactions managed by the same portfolio manager to 15% of the NAV, at the time of investment. However, if the portfolio manager is an affiliate of the Investment Manager, this limit is increased to 60% of the NAV at the time of investment.

The concentration risk at 31 December 2014 and 31 December 2013 is disclosed below in note 11 (A)(iii), 11 (B) and in the Investment Manager's Review on pages 4 and 5.

(A) MARKET RISK

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices and includes interest rate risk, currency risk and other price risks. The Company may use derivative instruments to hedge the investment portfolio against currency risk.

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

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

(i) Interest rate risk

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

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

The following table shows the portfolio profile at 31 December 2014 and 31 December 2013:

The following table shows the Directors' best estimate of the sensitivity of the portfolio to stressed changes in interest rates, with all other variables held constant. The table assumes parallel shifts in the respective forward yield curves.