CDO Carador Eur

in the fair value. 
The results and financial position of any subsidiary whose functional currency 
is not the same functional currency of the Company are translated into the 
Company's presentation currency using the following procedures: 
(a) assets and liabilities are translated at the closing rate at the date of the 
statement of financial position; 
(b) income and expenses are translated at average exchange rates during the 
period; and 
(c) all resulting exchange differences are taken directly to a separate 
component of net assets attributed to participating shareholders. On disposal of 
the foreign subsidiary, the deferred cumulative amount is recognised in the 
statement of comprehensive income. 
 
 
 
NOTES TO THE FINANCIAL STATEMENTS (continued) 
 
For the year ended 31 December 2009 
 
2.             SIGNIFICANT ACCOUNTING POLICIES (continued) 
 
2n. 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, transfer or registration tax is payable in Ireland on the issue, 
redemption or transfer of shares in the Company. Distributions and interest on 
securities issued in countries other than 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 Ireland and the 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 8 years 
beginning from the date of acquisition of those shares. Certain exemptions can 
apply. To the extent that Shareholders have appropriate tax declarations in 
place with the Company there may be no requirement to deduct tax. 
 
The Group's subsidiary, Gale Force 4 is a Cayman Island CLO. Under existing 
Cayman Island law the payments of principal and distributions will not be 
subject to taxation in the Cayman Islands and no withholding tax will be 
required on such payments to any noteholder and gains derived from the sale of 
notes will not be subject to Cayman Islands income or corporation tax. It is 
exempt from all forms of taxation in the Cayman Islands, including income, 
capital gains and withholding taxes. 
 
2o. Distributions 
Distributions to holders of redeemable participating shares are recorded in the 
statement of comprehensive income when they are declared to the members. 
Distributions are based on net income received during the period less expenses 
and do not include realised and unrealised capital gains and losses on 
investments. Distributions are recognised in the statement of comprehensive 
income as finance costs. 
 
2p. Loans and Receivables 
 
Loans and receivables are non-derivative financial assets with fixed or 
determinable payments that are not quoted in an active market.  The Company 
includes in this category amounts relating to cash collateral on securities 
borrowed and other short-term receivables. 
 
2q. Significant accounting judgments and estimates 
 
(i) Fair value of financial instruments 
The Company's CDO assets are not actively traded and given the illiquidity in 
current market conditions, market quotations may not be available or may not 
necessarily represent the realisation value of at the statement of financial 
position date. 
 
When the fair value of financial assets and financial liabilities recorded in 
the statement of financial position cannot be derived from active market 
quotations, they are determined using valuation techniques including the use of 
discounted cash flow models. The inputs to these models are taken from 
observable markets where possible but where this in not feasible, a degree of 
judgment is required in establishing fair values. The judgments include 
considerations 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. 
The key assumptions applied are base discount rate 36.69% (31 December 2008: 
36.69%), default rate (long term annual rate of 2% (31 December 2008: 2%) and 
severity loss 30% (31 December 2008: 30%). The most significant of these is the 
base discount rate which is adjusted to reflect the credit risk of the 
respective financial instruments. Adjustments are made, among others, in respect 
of the overcollaterisation cushion, the weighted average rating factor and 
weighted average spread. 
 
NOTES TO THE FINANCIAL STATEMENTS (continued) 
 
For the year ended 31 December 2009 
 
3.             FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS 
 
As described in the accounting policies note, the Group and Company have 
financial assets and financial liabilities designated at fair value through 
profit or loss and derivative financial instruments held for trading. The 
following table shows financial instruments recognised at fair value, analysed 
between those whose fair value is based on: 
 
o  quoted prices (unadjusted) in active markets for identical assets or 
liabilities (Level 1); 
o  inputs other that quoted prices included in Level 1 that are observable for 
the asset or liability, either directly (as prices) or indirectly (derived from 
prices) (Level 2); 
o inputs for the asset or liability that are not based on observable market data 
(unobservable inputs) (Level 3). 
                Company 
 
+----------------------------+----------+--------------+-------------+------------------+-------------------+ 
|                            |          |                                                  31 December 2009 | 
+----------------------------+----------+-------------------------------------------------------------------+ 
|                            |          |        Level |       Level |            Level |             Total | 
|                            |          |            1 |           2 |                3 |                   | 
+----------------------------+----------+--------------+-------------+------------------+-------------------+ 
|                            |          |              |             |                  |                   | 
+----------------------------+----------+--------------+-------------+------------------+-------------------+ 
| Financial assets at fair   |          |              |             |                  |                   | 
| value through profit or    |          |              |             |                  |                   | 
| loss                       |          |              |             |                  |                   | 
+----------------------------+----------+--------------+-------------+------------------+-------------------+ 
| Financial assets held for  |          |              |             |                  |                   | 
| trading                    |          |              |             |                  |                   | 
+----------------------------+----------+--------------+-------------+------------------+-------------------+ 
|                            |          |              |             |                  |                   | 
+----------------------------+----------+--------------+-------------+------------------+-------------------+ 
| Derivative financial       |          |              |             |                  |                   | 
| assets                     |          |              |             |                  |                   | 
+----------------------------+----------+--------------+-------------+------------------+-------------------+ 
| Forward currency contracts |          |     399,699  |             |                  |          399,699  | 
|                            |          |              |           - |                - |                   | 
+----------------------------+----------+--------------+-------------+------------------+-------------------+ 
|                            |          |              |             |                  |                   | 
+----------------------------+----------+--------------+-------------+------------------+-------------------+ 
| Financial assets           |          |              |             |                  |                   | 
| designated at fair value   |          |              |             |                  |                   | 
| through profit or loss     |          |              |             |                  |                   | 
+----------------------------+----------+--------------+-------------+------------------+-------------------+ 
|                            |          |              |             |                  |                   | 
+----------------------------+----------+--------------+-------------+------------------+-------------------+ 
| Collateralised debt        |          |              |  9,253,585  |      31,155,053  |       40,408,638  | 
| obligations                |          |            - |             |                  |                   | 
+----------------------------+----------+--------------+-------------+------------------+-------------------+ 
| Equities                   |          |              |             |         271,140  |          271,140  | 
|                            |          |            - |           - |                  |                   | 

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