CIFU.L Regulatory News (CIFU)

RNS Announcement

Carador Income Fund PLC

26 August 2014

FOR IMMEDIATE RELEASE

INTERIM REPORT INCLUDING UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS 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 interim report including unaudited condensed interim financial statements 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

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

I am pleased to present the Interim Report including the unaudited condensed interim financial statements for Carador Income Fund plc for the six months ended 30 June 2014.

The first half of 2014 has been a period of continuation of the portfolio transition process that started following the Extraordinary General Meeting (the "EGM") held in Dublin on 26 June 2013. Since the EGM, GSO / Blackstone Debt Funds Management LLC (the "Investment Manager") has been implementing a process of portfolio rotation, reducing exposure to pre-financial crisis CLO Income Notes, which are rapidly deleveraging and subject to Net Asset Value ("NAV") volatility, and adding post-financial crisis deals. The Investment Manager believes this rotation will provide more sustainable income generation and a more stable NAV profile going forward.

PERFORMANCE

Over the first half of 2014 the Company generated a total NAV return of 3.67% including distributions. The Company started the year with a NAV per US Dollar share of US$0.9466 and ended the first half at US$0.9265, a -2.12% decline in the NAV per share, although as noted below the Company also paid a total of US$0.0540 per share in dividends over the period.

The Company's shares closed the first half at US$0.8975, a 3.13% discount to the NAV as at 30 June 2014, having traded at a small average discount over the period of -0.42%1. The annualized historic dividend yield on the US Dollar shares, based on the last declared divided, was 12.59%.

CASH FLOW AND DIVIDENDS

In October 2013 the Board provided a target for 2014 annual dividends of approximately US$0.1000 per US Dollar share to be distributed evenly in four quarterly payments. On this basis, the Company made the following announcements in respect of Q4 2013 and the first half of 2014 dividends:

· 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.

· On 23 April 2014, the Board declared a dividend of US$0.0250 per US Dollar share in respect of the period from 1 January 2014 to 31 March 2014. This dividend was paid on 8 May 2014.

· On 21 July 2014, the Board declared a dividend of US$0.0250 per US Dollar share in respect of the period from 1 April 2014 to 30 June 2014. This dividend was paid on 6 August 2014.

QUARTERLY DECLARED DIVIDENDS PER US$ SHARE

http://www.rns-pdf.londonstockexchange.com/rns/0428Q_-2014-8-26.pdf

NET CASHFLOW COVERAGE OF DIVIDENDS

http://www.rns-pdf.londonstockexchange.com/rns/0428Q_1-2014-8-26.pdf

MATERIAL EVENTS

With effect from 1 Jan 2014, the rules of the UK Financial Conduct Authority ("FCA") on the promotion of non-mainstream pooled investments came into effect (the "NMPI Rules"). 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 NMPI Rules.

On 29 April 2014, the Company released its audited Annual Report and Accounts for the full year 2013.

On 19 May 2014, the Company released its Interim Management Statement for the period 1 January 2014 to 19 May 2014.

At the Annual General Meeting ("the AGM") of the Company held on 24 June 2014, shareholders approved the following ordinary and special resolutions:

1 Source: Bloomberg

Ordinary business

1. Receipt and consideration of the annual reports and accounts of the Company

2. Re-appointment of auditors of the Company

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

4. Re-election of Werner Schwanberg as a Director

5. Re-election of Adrian Waters as a Director

6. Re-election of Fergus Sheridan as a Director

7. Re-election of Ed D'Alelio as a Director

Special business

8. Authorisation of the Board to allot and issue up to 54,325,335 shares (or, if lower, such number of shares as to represent 10 per cent of the shares in issue at the date of the AGM), such authority to expire at the conclusion of the next annual general meeting of the Company unless previously renewed, varied or revoked by the Company in general meeting.

9. Authorisation of the Board to allot and issue up to 54,325,335 shares (or, if lower, such number of shares as represent 10 per cent. of the shares in issue at the date of the AGM) without having previously to offer such shares to shareholders on a pre-emptive basis, such authority to expire at the conclusion of the next annual general meeting of the Company unless previously renewed, varied or revoked by the Company in general meeting.

OUTLOOK

While continuing with the transition in its portfolio, the Company has been able to achieve an overall positive performance.

The Company's portfolio is, as at 30 June 2014, well positioned with 65.9% of the NAV invested in Income Notes of which 63.3% are post financial crisis deals.

The Board believes that this portfolio allocation supports the current target dividend while providing a more stable NAV base.

Werner Schwanberg

Chairman

21 August 2014

INVESTMENT MANAGER'S REVIEW

FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2014

The Chairman's review provides a concise summary of how the Company has performed in the first half of 2014. In the overview below we look at the main drivers of that performance: the U.S. bank loan market; the U.S. CLO market; and the Carador portfolio. We then look at the outlook for 2014 and beyond.

Some highlights of the first half of 2014 include:

· Aggregate declared dividend income of US$0.050 per share, in line with the target provided by the Board in October 2013.

· Historic dividend yield is 12.59% based on the 30 June 2014 share price1.

· Total NAV return of 3.67% including dividends paid.

· The portfolio has been actively traded during the period. The Company added 23 investments to the portfolio for a total market value of US$244.7m and sold 26 investments for a total market value of US$136.6m.

· The Company made significant progress on the portfolio rotation from pre-financial crisis CLOs to post financial crisis deals. As at 30 June 2014, the portfolio NAV consists of 65.4% of Income Notes of which 63.3% are in post financial crisis deals2.

· The Company ended the first half of the year with a portfolio look through exposure to over 1,300 different companies3.

1 Source: Bloomberg, 30 June 2014 share price US$0.8975

2 Total assets exceed 100% as they include drawings under the Company's liquidity facility.

3 Source Intex

BANK LOAN MARKET OVERVIEW

The first half of 2014 ended with total new US loan issuance of US$322.0 billion versus US$352.9 billion a year ago, mainly due to the slowdown in repricing and refinancing activity4.

U.S. PRIMARY LEVERAGED LOAN VOLUME4

http://www.rns-pdf.londonstockexchange.com/rns/0428Q_2-2014-8-26.pdf

During the period, the S&P/LSTA Leveraged Loan Index returned 2.6% with the average bid price of loans standing at 99.01 by the end of the half year. Some of the strongest performing loans in the Index have been the riskier names with CCC loans up 7.3% since the beginning of the year, with an average bid price of 97.7 on that sub-sector of the index.

Towards the end of the half year the market saw the first outflows of retail money from the U.S. loan market, a trend that has increased since the end of the half. After seven successive quarters of growth the AUM of retail loan funds in the U.S. declined by US$2.6 billion to US$176 billion between April 1 and May 315.

We therefore believe that the U.S. loan market is now offering little capital upside even at the riskier end of the spectrum. However, downside also seems limited given both the robust cashflow coverage of debt and the long dated maturities6. Whilst the debt multiples of primary U.S. loans have increased with the First Lien Debt/EBITDA ratio standing at 3.8x over the first half of the year versus the full year 2013 and 2012 at 3.6x and 3.4x, respectively, the cashflow coverage of the debt has also increased with EBITDA/Cash Interest cover at 4.5x for the period versus 4.1x and 3.8x for the full year in 2013 and 2012 respectively7.

U.S. LOANS DEBT AND CASHFLOW COVERAGE RATIOS6

http://www.rns-pdf.londonstockexchange.com/rns/0428Q_3-2014-8-26.pdf

In Europe, the leveraged loan volume increased to €44.9 billion in the first half of the year, a 21% increase over the same period one year ago, with second-lien and cov-lite facilities having the biggest growth for the period. In particular, second-lien issuance has now reached €765 million, although this only represents 3% of the total institutional volume it compares with no volume at all between 2009 and 2013.

In terms of covenant lite issuance in Europe, over 35% of all new institutional loan volume in Europe did not carry any maintenance covenants in H1 2014, the vast majority being represented by cross-border deals. Whilst this is a notable increase in Europe the trend remains very much one driven by U.S. loan investor demand. Looking at the two indices, S&P estimate that the cov-lite share of the S&P/LSTA Index in the U.S. and the ELLI in Europe are 55% and 14%, respectively, so whilst Europe remains low relative to the U.S. it is nevertheless an increase on the 6% at the end of 20138.

U.S. AND EUROPEAN LOAN INDICES SHARE OF COV-LITE ON ALL OUTSTANDING LOANS7

http://www.rns-pdf.londonstockexchange.com/rns/0428Q_4-2014-8-26.pdf

CLO MARKET OVERVIEW

As the chart below illustrates U.S. CLO primary volumes got off to a slow start in the first half of 2014 due to uncertainty surrounding the implementation of the Volker Rule and how it would impact bank investors. Notwithstanding the slow start the first half ended with a total primary market volume of US$60.6 billion. Looking forward the market looks set to exceed US$100 billion of new issuance over the year with a continued strong pipeline for Q3 and Q4.

Whilst new CLO creation has been significant, as noted above, the U.S. retail market saw their first net outflows in two years in Q2 2014, with US$8.1 billion leaving the market although retail flows remained net positive for the year to date at just over US$1.0 billion. However, the drop in demand has helped push loan spreads wider towards the end of Q2 and, at least for now, brought an end to loan repricings.

U.S. MONTHLY CLO ISSUANCE 2012 TO 2014 YTD

http://www.rns-pdf.londonstockexchange.com/rns/0428Q_5-2014-8-26.pdf

4 Source: S&P Capital IQ LCD, LCD Quarterly Review, Second Quarter 2014

5 Source: LCD News 2Q Loan Investor Market

6 Source: S&P Capital IQ LCD, 1 July 2014

7 Source: S&P Capital IQ LCD, Leverage Lending Review 2Q14

8 Source: S&P Capital IQ LCD, 2 July 2014

Despite this significant primary volume it is however notable that the total amount of CLOs outstanding has only recently passed the Q4 2008 peak of US$322 billion given the rapid run off of CLO 1.0 transactions. The chart below illustrates net CLO supply based on run-off of CLO 1.0 and new CLO 2.0 issuance. Wells Fargo estimates that approximately US$127 billion of CLO 1.0 remains outstanding although we believe that the majority of that is now outside its reinvestment period and therefore no longer a demand driver in the loan market.

NET U.S. CLO SUPPLY 2010 TO H1 20149

http://www.rns-pdf.londonstockexchange.com/rns/0428Q_6-2014-8-26.pdf

This continued high volume of new issuance combined with a limited AAA investor base for U.S. CLOs has continued to keep primary levels for AAA stubbornly high in the range of U.S. Libor plus 140bp to 155bp over the last six months for managers with a regular issuance programme and a good track record. The combination of loan spread tightening and relatively expensive liabilities has, in many cases, required loan managers and/or CLO arrangers to discount fees and or provide rebates to deliver the returns demanded by CLO Income Note investors.

PORTFOLIO UPDATE

The Portfolio has made good progress in the transition from CLO 1.0 to CLO 2.0. This is most relevant for the Income Note component of the portfolio where pre financial crisis CLO 1.0 deals have experienced relatively high prepayment rates following the end of their reinvestment periods. In general this rapid amortisation has been accompanied by negative mark to market valuation movements of such Income Notes as valuations increasingly reflect the call risk of the CLO by reducing the valuation to the look through liquidation value of the Income Notes plus one or two distributions.

As the tables below illustrate the Portfolio NAV comprised 65.4% of Income Notes at the half year end of which 63.3% are in CLO 2.0 deals and 38.3% are in control stakes which grant the Company the ability to call or refinance the CLO following the expiry of the relevant no call period.

Carador Portfolio By Tranche

* Negative cash balance reflects trade date cash balance not settled cash balance

The Company has made active use of the strategic liquidity facility put in place at the end of 2013 to facilitate the portfolio rotation out of CLO 1.0 into CLO 2.0 and thereby limit the drag caused by large cash holdings.

OUTLOOK

As the chart below illustrates the Portfolio average annualised Income Note cashflow has dropped down from a high of approximately 35% in late 2012 to the current level of approximately 20% as loan spreads have tightened over the last 18 months. We expect the cashflow level to normalise at or around the level of high teens low twenties for the forseeable future.

AVERAGE ANNUALISED CARADOR INCOME NOTE CASHFLOW

http://www.rns-pdf.londonstockexchange.com/rns/0428Q_7-2014-8-26.pdf

The Portfolio remains actively managed with over US$381m of bonds traded over the first half of the year. We continue to focus portfolio construction around downside protection with an emphasis on managers we believe select the most credit resilient loan portfolios and where possible benefiting from attractive liability pricing and/or manager fee rebates to provide robust economics in downside scenarios.

We believe the significant new investments in CLO 2.0 Income Notes will contribute to increased Portfolio cashflow over the next 12 months providing additional dividend cashflow coverage.

9 Wells Fargo, H2 2014 CLO Market Outlook

RISK MANAGEMENT

The Company's portfolio of CLO investments is managed to minimize 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, geography and maturity profile.

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

The Company may invest in assets which are denominated in Euro and GBP as well as U.S. Dollar. However the functional 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, which may result from such currency exposure. This may involve hedging, at the level of the Company, of the Euro/GBP assets to U.S. Dollars.

As at 30 June 2014, the Company had one asset which was not denominated in U.S. Dollar. This asset had a value of €15.5 million that was hedged through a currency contract for the same amount.

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

IMPORTANT EVENTS AFTER THE PERIOD END

Please refer to note 19 for important events after the period end.

GSO / Blackstone Debt Funds Management LLC

21 August 2014

STATEMENT OF DIRECTORS' RESPONSIBILITIES AND INTERIM MANAGEMENT REPORT

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

Each of the Directors, whose names and functions are listed in the management and administration section on page 34 of the interim report confirm that, to the best of each person's knowledge and belief:

(a) the unaudited condensed interim financial statements comprising the condensed statements of financial position, condensed statements of comprehensive income, condensed statement of changes in equity and condensed statement of cash flows and the related explanatory notes have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.

(b) the interim management report, specifically the Investment Manager's report, note 9, note 10 and note 17, includes a fair review of the information required by:

(i) Regulation 8(2) of the Transparency (Directive 2004/109/EC) Regulations 2007, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed interim financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(ii) Regulation 8(3) of the Transparency (Directive 2004/109/ EC) Regulations 2007, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

PRINCIPAL RISKS, UNCERTAINTIES, RISK MANAGEMENT, OBJECTIVES AND POLICIES

The Company's investment objective is to produce attractive and stable returns with a low volatility compared to equity markets, by investing in a diversified portfolio of senior notes of collateralised loan obligations ("CLOs") collateralised by senior secured bank loans and equity and mezzanine tranches of CLOs. Investment in the Company carries with it a degree of risk including, but not limited to, business risks and the risks associated with financial instruments, referred to in note 10 of these interim financial statements and the Investment Manager's review on pages 4 to 6. The primary business risk is the risk that the Company may not achieve its investment objective. Meeting that objective is a target but the existence of such an objective should not be considered as an assurance or guarantee that it can or will be met.

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

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

· In calculating its NAV, the Company may, if broker quotes are not available, 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 mean that shareholders must be prepared to bear the risks of owning an interest in the shares for an extended period of time.

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

Please also refer to note 10 for a fuller description of the risks involved in an investment in the Company.

The Directors expect the risks outlined above and in note 10 to be reflective of the six-month period ending 31 December 2014.

Werner Schwanberg

Fergus Sheridan

Adrian Waters

Edward D'Alelio

Nicholas Moss

21 August 2014

INDEPENDENT REVIEW REPORT TO CARADOR INCOME FUND PLC

Introduction

We have been engaged by Carador Income Fund PLC ("the Company") to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2014 which comprises the condensed statement of financial position, condensed statement of comprehensive income, condensed statement of changes in equity and condensed statement of cash flow and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Transparency (Directive 2004/109/EC) Regulations 2007 ("the TD Regulations") and the Transparency Rules of the Central Bank of Ireland. Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved for circulation to shareholders by the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the TD Regulations and the Transparency Rules of the Central Bank of Ireland.

As disclosed in note 2, the annual financial statements of the Company are prepared in accordance with IFRSs as adopted by the EU. The Directors are responsible for ensuring that the condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.

Our responsibility

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

Scope of review

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

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly report for the six months ended 30 June 2014 are not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU, the TD Regulations and the Transparency Rules of the Central Bank of Ireland.

Colm Clifford

For and on behalf of KPMG

KPMG

Chartered Accountants, Statutory Audit Firm

1 Harbourmaster Place

IFSC

Dublin 1

Ireland

21 August 2014

UNAUDITED CONDENSED INTERIM STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2014

* Balances include investment in subsidiary, please refer to note 2A and note 8 for further detail.

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

UNAUDITED CONDENSED INTERIM STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE 2014

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

UNAUDITED CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE 2014

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

UNAUDITED CONDENSED INTERIM STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 30 JUNE 2014

* Balances include investment in subsidiary, please see note 2A and note 8 for further detail.

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

NOTES TO THE UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 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 of the Republic of Ireland. 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 the 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 30 June 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

These unaudited condensed interim financial statements for the six months ended 30 June 2014, have been prepared in accordance with IAS 34 (Interim Financial Reporting) as endorsed by the EU. The unaudited condensed interim financial statements do not contain all of the information and disclosures required in the full annual financial statements and should be read in conjunction with the financial statements for the year ended 31 December 2013, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board ("IASB") and adopted by the EU and also in accordance with Irish Company Law. The accounting policies applied by the Company in these unaudited condensed interim financial statements are the same as those applied in the financial statements for the year ended 31 December 2013, as described in those annual financial statements except for the below changes in accounting policies. The financial information presented herein does not amount to statutory financial statements that are required by Section 7 of the Companies (Amendment) Act, 1986 to be annexed to the annual return of Carador.

The financial statements for the year ended 31 December 2013, together with the independent auditor's report thereon, have been filed with the Irish Registrar of Companies following the Company's annual general meeting on 24 June 2014 and are also available on the Company's website. The auditor's report on those financial statements was unqualified.

The following accounting standards were adopted during the year ended 31 December 2013:

IFRS 10 "Consolidated Financial Statements" and the related Amendment applicable to Investment Entities (the "IE Amendment")

The financial statements for the Interim Report including condensed interim consolidated financial statements for the six month period to 30 June 2013 were prepared on a consolidated basis, with the determination of what entities qualified as subsidiaries being made in accordance with both IAS 27 "Consolidated and Separate Financial Statements" and SIC Interpretation 12 "Consolidation - Special Purpose Entities" ("SIC 12"). These standards resulted in the consolidation, for financial reporting purposes, on the basis of having the majority of the residual risks and rewards of one special purpose entity ("SPE") subsidiary, Voya CLO II Ltd ("Voya") (formerly known as ING Investment Management CLO II Ltd) with effect from 30 August 2012, the date of acquisition. In the 30 June 2013 Interim, Carador also consolidated, for financial reporting purposes, an additional SPE subsidiary, Gale Force 4 CLO Ltd ("Gale 4") from 12 March 2013, the date of acquisition of a further investment in the income notes issued by that entity.

In November 2013, the EU endorsed the IE Amendment to IFRS 10 and allowed for its early application. This Amendment requires that an entity that has determined that it is a parent under IFRS 10 shall not consolidate certain of its subsidiaries; instead it is required to measure its investment in these subsidiaries at fair value through profit or loss in accordance with IAS 39 "Financial Instruments: Recognition and Measurement". For the financial statements prepared for the year ended 31 December 2013, the Company decided to early adopt this amendment, which also required early application of the related standards, being IFRS 10, 11 and 12.

In applying these new requirements, Carador concluded that as at 31 December 2013 and 30 June 2014:

§ It is a parent under IFRS 10, as Voya (but not Gale 4 - see below) qualifies as a subsidiary under that standard.

§ Carador meets the definition of an 'investment entity' under the IE Amendment and therefore is no longer permitted under that revision to prepare consolidated financial statements. Instead, in accordance with the IE Amendment, it prepares individual financial statements only, with its investment in Voya measured at fair value through profit or loss.

§ As Gale 4 no longer qualifies as a subsidiary under the new standard (see note 8), it is considered to be a simple investment that is now directly in scope of IAS 39 and therefore is measured at fair value through profit or loss as part of the general portfolio of investments.

Therefore the unaudited condensed interim financial statements and the related comparatives are for the individual Company only, with line by line consolidated financial statements being no longer required.

Reclassification of certain line items

In the prior interim period the Company's individual statement of cash flows separately presented, in the non-cash adjustments section, their respective unrealised fair value movements. Consistent with the principles of the IE Amendment that all investments (including a subsidiary) may be viewed as part of the overall asset portfolio being managed on a fair value basis, the Company has now amalgamated these items for presentation purposes. The reclassifications relating to the prior interim period are set out in the table below:

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

Except where indicated below, 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.

FOREIGN EXCHANGE RATES

The period end exchange rate for EUR was US$1.36915 (31 December 2013: US$1.37795, 30 June 2013: US$1.29985). The average rate for the period for EUR was US$1.37137 (year ended 31 December 2013: US$1.33018, period ended 30 June 2013: US$ 1.31052).

The period end exchange rate for GBP was US$1.70985 (31 December 2013: US$1.65625, 30 June 2013: US$ 1.51670). The average rate for the period for GBP was US$1.67703 (year ended 31 December 2013: US$1.56628, period ended 30 June 2013: US$ 1.53518).

2C BASIS OF PREPARATION

The company's unaudited condensed interim financial statements have been prepared on a historical cost basis, except for financial instruments classified at fair value through profit or loss that have been measured at fair value.

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

As explained above in note 2A, the Company qualifies as an investment entity and is therefore only required to prepare individual financial statements under IFRS as adopted by the EU.

KEY JUDGEMENTS AND ESTIMATES

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

When the fair value of financial assets and financial liabilities recorded in the unaudited condensed interim statement of financial position cannot be derived from active market quotations or other observable inputs, they are determined using valuation techniques including the use of broker prices and discounted cash flow models. The inputs to these models are taken from observable sources where possible but where this is not feasible, a degree of judgement is required in establishing fair values. The judgements include consideration of liquidity and model inputs such as credit risk, correlation and volatility. Changes in assumptions relating to these factors could affect the reported fair value of financial instruments. The models are calibrated regularly and tested for validity using prices from any observable current market transactions in the same instrument or based on observable market data. During the period ended 30 June 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 purpose 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 the securities in Level 2.

The Company's management has made an assessment of the Company's ability to continue as a going concern and is satisfied that the Company has the resources to continue in business for the foreseeable future. Furthermore, the management is not aware of any material uncertainties that may cast significant doubt upon the Company's ability to continue as a going concern. Therefore, the unaudited condensed interim financial statements continue to be prepared on the going concern basis.

3 FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

As described in the accounting policies note, the Company has financial assets and financial liabilities at fair value through profit or loss and derivative financial instruments 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 period ended 30 June 2014 and the year ended 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 cannot 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 unaudited condensed interim 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 period ended 30 June 2014 and the year ended 31 December 2013 cash and cash equivalents, other receivable, 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 period (2013: no transfers).

4 FEES

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.

The Performance Fee Hurdle Rate is the greater of 12 month US Dollar Libor or 4%.

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

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

The calculation of the performance fee is verified by State Street Custodial Services (Ireland) Limited (the "Custodian").

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

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 periods ended 30 June 2014 and 30 June 2013 and the amounts due at 30 June 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. During the period ended 30 June 2014, the Company paid Directors' fees of US$169,365, plus out-of-pocket expenses of US$16,980 (30 June 2013: US$179,572), of which Nil (31 December 2013: Nil) was outstanding at the period end.

During the period ended 30 June 2014, the Company incurred other operating expenses of US$885,635 (30 June 2013: US$706,003) of which US$475,642 (31 December 2013: US$334,250) was outstanding at period end.

The balance of the expense accrual consists of audit fees and an under accrual for Directors fees brought forward from the year ended 31 December 2013.

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 30 June 2014 and 31 December 2013, the issued share capital consisted of 543,253,359 US Dollar shares 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

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.

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 CLOs' activities are restricted by its Prospectus; and

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

Subsidiary undertaking

At 30 June 2014 and 31 December 2013, the Company had one 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.

Gale 4, which was considered a subsidiary under SIC 12 for the 2013 Interim, no longer qualifies as a subsidiary under the single control model of IFRS 10. Carador does not have control over this CLO, as it has been determined that it has insufficient power over the relevant activities of the entity. Therefore, Gale 4 is treated as a simple investment and is measured at fair value through profit or loss as part of the general portfolio of investments.

The other investments of the Company are not considered to be subsidiaries under IFRS 10 due to the lack of control, as outlined above.

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 period. GSO / Blackstone Debt Funds Management LLC acts as Investment Manager to the Company (the "Investment Manager"). Investment management fees earned by GSO / Blackstone Debt Funds Management LLC amounted to US$3,379,172 (30 June 2013: US$3,760,802), of which US$2,778,213 (31 December 2013: US$1,140,011) was outstanding at the period end. Performance fees of US$546,804 (30 June 2013: US$452,526) were also earned by the Investment Manager, of which US$546,483 (31 December 2013: US$1,090,124) was outstanding at the period end.

TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL

The Directors of the Company and the Investment Manager are the key management personnel as they are the persons who have the authority and responsibility for planning, directing and controlling the activities of the Company for the period ended 30 June 2014.

During the period ended 30 June 2014, the Company incurred Directors' fees for services as Directors and out-of-pocket expenses of US$175,315 (30 June 2013: US$179,572), of which US$Nil (30 June 2013: US$Nil) was outstanding at the period end. The listing of the members of the Board of Directors is shown on page 34.

No Director, nor the Company Secretary, had any beneficial interest in the shares of the Company during the period ended 30 June 2014 or year ended 31 December 2013.

TRANSACTIONS WITH OTHER RELATED PARTIES

At 30 June 2014, current employees of and accounts managed or advised by the Investment Manager and its affiliates hold 6,602,490 US Dollar shares (31 December 2013: 12,524,424 US Dollar shares) which represents approximately 1.22 % (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 30 June 2014, 39.27% (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 30 June 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 2A and note 8.

The Company received US$2,441,466 in coupon payments from Voya for the period ended 30 June 2014 (30 June 2013: US$2,332,827).

During the period ended 30 June 2014, the Company did not make any purchases of investments in the subsidiary holding (31 December 2013: US$13,100,188). There were no sales of investments in the subsidiary during period ended 30 June 2014 or the year ended 31 December 2013.

The value of the subsidiary holding at 30 June 2014 was US$38,535,408 (31 December 2013: US$37,996,881).

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.

10 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. The Investment Manager also carries out ongoing monitoring of risks. As a result, there are separate bodies for managing and monitoring 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 risks type 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 30 June 2014 and 31 December 2013 is disclosed below in note 10 (A)(iii) and 10 (B).

(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 30 June 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.

(ii) Currency risk

Investments acquired for the Company's portfolio are denominated in US Dollars and Euro. Accordingly, the value of such investments 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 with the use of derivative financial instruments.

(ii) Currency risk

The total net exposure to foreign currencies at the unaudited condensed interim statement of financial position date was as follows:

(iii) Other price risks

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

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

If the value of investments was to increase or decrease by 1%, the impact on the NAV of the Company would be +/- US$5,505,205 (2013: +/- US$5,366,123).

(B) CREDIT RISK

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

The table below analyses the Company's maximum credit exposure to credit risk for the components of the unaudited condensed interim statement of financial position.

The cash and substantially all of the assets of the Company are held by the Custodian. Bankruptcy or insolvency of the Custodian may cause the Company's rights with respect to securities held by the Custodian to be delayed or limited. The Company monitors its risk by monitoring the credit quality and financial positions of the Custodian. State Street Corporation is the parent company of the Custodian, State Street Custodial Services (Ireland) Limited and the long-term rating of State Street Corporation as at 30 June 2014 was A1 (Source: Moody's) (31 December 2013: A1). The derivative financial instruments are transacted with State Street Bank London whose parent Company is also State Street Corporation.

The Investment Manager assesses the credit risk of the CLOs on a look-through basis to the underlying loans in each CLO. The Investment Manager seeks to provide diversification in terms of underlying assets, issuer section, geography and maturity profile. The graph overleaf shows the concentration of credit risk by industry for the CLO investments on a look-through basis as at 30 June 2014.

The table below summarises the Company's portfolio concentrations as of 30 June 2014 and 31 December 2013:

The below table summarises the portfolio by asset class and ratings of the portfolio as of 30 June 2014 and 31 December 2013:

For the purposes of the asset class breakdown above, the Senior CLO investments were originally rated AAA/AA CLO notes, Mezzanine CLO investments were originally rated A/BBB/BB and Income Notes were non-rated ("NR").

The Company's portfolio is partly invested in the income notes tranches of cash flow collateralised loan obligations which are subject to potential non-payment and are by definition, non-rated securities. The Company assesses the quality of non-rated assets based on a fundamental analysis of the underlying loans in the respective portfolios and the effect of the liabilities and terms and conditions determined in the relevant CLO document in the expected cash flow allocation to the non-rated tranche.

With the exception of investments in senior and mezzanine CLO notes, the Company will typically be in a first loss or subordinated position with respect to realised losses on the collateral of each CLO investment. The leveraged nature of the income notes and the mezzanine notes, in particular, magnifies the adverse impact of collateral defaults.

PORTFOLIO TOP 10 LOOK-THROUGH EXPOSURES BY INDIVIDUAL ISSUERS*

The Company may be adversely impacted by an increase in its credit exposure related to investing and other activities. The Company is exposed to the potential for credit-related losses that can occur as a result of an individual, counterparty or issuer being unable or unwilling to honour its contractual obligations. These credit exposures exist within financing relationships, commitments, derivatives and other transactions. These exposures may arise, for example, from a decline in the financial condition of a counterparty, from entering into swap or other derivative contracts under which counterparties have obligations to make payments to us, from a decrease in the value of securities of third parties that the Company holds as collateral, or from extending credit through guarantees or other arrangements. As the Company's credit exposure increases, it could have an adverse effect on the Company's business and profitability if material unexpected credit losses occur.

The top 10 exposures on a look-through basis for the CLO investments are disclosed below on the 30 June 2014:

* Forms part of the unaudited condensed interim financial statements

The Company also quantifies the exposure to the credit risk of all CLO investments based on the country of registration (not necessarily asset class exposure).

The top 10 exposures on a look-through basis for the CLO investments are disclosed below on the 30 June 2013:

Netting of Derivative Financial Instruments

State Street Bank London are the counterparty to the forward foreign currency exchange contracts. There is no master netting agreement in place with State Street Bank London or no collateral held. Therefore, all amounts are presented gross in the unaudited condensed interim statement of financial position.

(C) LIQUIDITY RISK

Liquidity risk is defined as the risk that the Company may not be able to settle or meet its obligations on time or at a reasonable price.

The Company does not have any long-term or structural borrowings. The Company's unleveraged capital structure reflects the long-term investment strategy and matches the illiquidity of the underlying investments.

On 19 December 2013, the Company entered into a revolving credit Facility with State Street Bank and Trust Company. The facility will be available for general corporate purposes and will not be utilised to leverage the investment portfolio.

The Company is closed ended. At the EGM on 26 June 2013, a resolution was passed 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.

Given the Company's permanent capital structure as a closed-ended fund, it is not exposed to redemption risk. However, the Company's financial instruments include investments in collateralised debt obligations and derivative contracts (if any) traded over-the-counter which are not traded in an organised public market and which may be illiquid.

All other liabilities of the Company are due within one year.

As at 30 June 2014, working capital liquidity risk was reduced by the availability of the credit facility referred to above. This credit facility is available if needed to meet liabilities (of an amount up to US$50 million) when they fall due. See note 11 for more details.

11 CREDIT FACILITY

On 19 December 2013, the Company agreed a bilateral senior secured committed 364 day short term revolving credit facility (the "Facility") with State Street Bank and Trust. The Facility will expire on 18 December 2014. The Facility limit is determined as the lowest of: (a) US$50 million, (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.

The Facility will be available for general corporate purposes and will not be utilised to leverage the investment portfolio. Borrowings under the Facility will be restricted to a maximum period of 180 days. The Facility will be governed by a conservative structure whereby the maximum Loan-to-Value ("LTV") will be 10% of total NAV and maximum 20% of the adjusted NAV (unrated notes to be excluded). The NAV of the Company must at all times be at least US$250m. The Facility is secured by a first priority security interest in all of the Carador portfolio investments (including cash agreements).

The following fees apply to the Facility: An upfront fee of 10bps, a commitment fee of 30bps on the unused portion of the Facility and an interest rate of LIBOR plus 200bps.

The Company made the following draw downs on the Facility during the period ended 30 June 2014:

During the period, the Company was charged a commitment fee of US$65,242 of which US$31,860 remained unpaid at 30 June 2014, and an interest charge of US$70,140 of which US$39,745 remained unpaid at 30 June 2014. Additionally, the Company paid in full US$50,000 of an upfront fee during the year ended 31 December 2013, which will be amortised over 2014. These fees are included in operating expenses in the unaudited condensed interim statement of comprehensive income.

12 STOCKLENDING

The Company did not enter into any stocklending transactions during the year (2013: Nil).

13 EARNINGS PER SHARE

The Earnings Per Share ("EPS") is calculated by dividing the profit/(loss) for the year attributable to the participating shareholders by the weighted average number of shares outstanding in the year.

PERIOD ENDED 30 JUNE 2014 AND 30 JUNE 2013

For the period ended 30 June 2014 and the period ended 30 June 2013, there are no potential ordinary shares in existence, hence no diluted EPS is shown.

14 SEGMENTAL REPORTING

As required by IFRS 8, Operating Segments, the information provided to the Board of Directors and Investment Manager, who are the Chief Operating Decision Makers, can be classified into one segment for the period ended 30 June 2014 and 30 June 2013. The only share class in issue during the period ended 30 June 2014 and 30 June 2013 is the US Dollar Class.

For the periods ended 30 June 2014 and 30 June 2014, the Company's primary exposure was to North America related assets

15 TAXATION

Under current law and Irish practice the Company qualifies as an investment undertaking under Section 739B of the Taxes Consolidation Act 1997 and is not therefore chargeable to Irish tax on its relevant income or relevant gains. No stamp duty, transfer or registration tax is payable in the Republic of Ireland on the issue, redemption or transfer of shares in the Company. Distributions and interest on securities issued in countries other than the Republic of Ireland may be subject to taxes including withholding taxes imposed by such countries. The Company may not be able to benefit from a reduction in the rate of withholding tax by virtue of the double taxation agreement in operation between the Republic of Ireland and other countries. The Company may not therefore be able to reclaim withholding tax suffered by it in particular countries.

To the extent that a chargeable event arises in respect of a shareholder, the Company may be required to deduct tax in connection with that chargeable event and pay the tax to the Irish Revenue Commissioners. A chargeable event can include payments to shareholders, appropriation, cancellation, redemption, repurchase or transfer of shares, or a deemed disposal of shares every eight years beginning from the date of acquisition of those shares. Certain exemptions can apply. In the absence of an appropriate declaration or written confirmation from the Revenue Commissioners which confirms that no such declaration is required, the Company will be liable for Irish tax on the occurrence of a chargeable event.

16 DISTRIBUTIONS

The Board declared the following distributions during the period:

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.

17 EXPLANATORY NOTE ON SIGNIFICANT MOVEMENTS DURING THE PERIOD

Financial assets at fair value through profit or loss (including investment in subsidiaries) had a fair value of US$550,520,521 at 30 June 2014 (31 December 2013 US$536,612,325). The fair value of the Company's financial assets at fair value through profit or loss is more or less in line with the December 2013 year end numbers, with a slight increase of 2.59%. The investments held increased since December 2013 due to the outstanding liabilities as at 30 June 2014. More detail is included in the Chairman's report and Investment Manager's review on performance.

Cash and cash equivalents amounted to US$11,049,561 at 30 June 2014 (31 December 2013: 763,739). There was an increase in cash and cash equivalents held in comparison to 31 December 2013 due to trading activity.

The unrealised gain on financial derivative instruments held at 30 June 2014 was US$57,161 (31 December 2013: US$Nil). The Company entered into forward foreign exchange currency contracts during the period. No such contracts were held during the year ended 31 December 2013.

Payable for investments purchased amounted to US$54,477,515 at 30 June 2014 (31 December 2013: US$20,675,857). The increase in the payable is due to large purchases of two CLO holdings during the month of June 2014.

Net gain on financial assets at fair value through profit or loss for the period ended 30 June 2014 amounted to US$23,517,714 (period ended 30 June 2013: US$15,206,722). The increase reflects the change in the market conditions as explained in the Chairman's report and Investment Manager's review.

18 OTHER EVENTS DURING THE PERIOD

There were no other significant events during the period which are not disclosed elsewhere which would require revision of the figures or disclosures in the unaudited condensed interim financial statements.

19 SUBSEQUENT EVENTS

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.

There were no other significant events since the period end which are not disclosed elsewhere which would require revision of the figures or disclosures in the financial statements.

20 APPROVAL OF THE FINANCIAL STATEMENTS

The unaudited condensed interim financial statements were approved and authorised for issue by the Directors on 21 August 2014.

SCHEDULE OF INVESTMENTS

AS AT 30 JUNE 2014

* The counterparty to the forward foreign exchange currency contract is State Street Bank London

MANAGEMENT AND ADMINISTRATION

* All Directors of Carador Income Fund PLC are Non-Executive Directors

** Independent Directors.