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Interim Results
Eurocastle Investment Limited
19 August 2004

                                 Eurocastle Investment Limited

                                 Interim Results half year 2004

Half Year Highlights

   •IPO completed in June 2004, raising net proceeds of approximately €75

   •Net profit of €3.8 million, or €0.32 per share, despite having a
    significant amount of uninvested cash during the six month period

   •On track to pay quarterly dividends at annualized dividend rate of €1.20 per

   •Total assets increased by €579 million to €639 million

   •Diversified securities portfolio with average investment grade rating of

   •Completed our first term financing with €400 million of non-recourse debt

Selected Financial Data                             Unaudited    8 August 2003
(amounts in €'000, except share data and         Half Year to    (Date of
supplemental data)                                               Formation) to
                                                 30 June 2004    31 December
---------------------------                     -------------     --------------
Operating Data
Net profit / (loss)                                     3,786              (98)
Earnings per share                                       0.32            (0.01)
Weighted average number of shares outstanding,     11,955,615       11,857,670

Balance Sheet Data
Available for sale securities (includes cash          
to be invested)                                       506,355                -
  Real estate backed securities                       284,498                -
  Other asset backed securities                       161,185                -
  Restricted cash                                      60,672                -
Securities portfolio contract                          51,542           57,611
Cash and cash equivalents                              76,285            1,690
Total Assets                                          638,529           59,617
Debt Obligations                                      439,717                -
Shareholders' equity                                  196,433           58,929

Supplemental Total Real Estate and Other ABS Securities Data as of June 30, 2004

Weighted average asset yield                                             4.096%
Weighted average liability cost                                          2.676%
Weighted average net spread                                              1.420%
Weighted average credit rating                                            BBB+
Weighted average asset credit spread                                      1.97%
Percentage investment grade                                                 95%
Number of securities                                                        48

Chairman's Statement

Half Year Review

Eurocastle Investment Limited (LSE: ECT) reported that net profit for first half
of 2004 was €3.78 million or €0.32 per share. As of 30 June 2004, the total book
value of the Company's stockholders' equity was €196.4 million or €10.64 per

Eurocastle successfully completed its initial public offering on 29 June 2004
with a net capital raise of approximately €75 million, despite difficult equity
markets in Europe. Eurocastle's core business strategy is to invest in a diverse
portfolio of moderately credit sensitive European real estate securities and
real estate related assets and other European asset backed securities that we
finance in a manner designed to match the terms of our assets and liabilities.

Eurocastle will seek to deliver stable dividends and attractive risk adjusted
returns to stockholders through prudent asset selection and the use of
innovative financing structures, which reduce interest rate, refinancing and
currency risks. In the first half of the year, Eurocastle purchased
approximately €450 million of securities and issued its first term financing.

Since the IPO, we have acquired approximately €340 million of securities.
Significant investment opportunities exist in the growing European ABS markets,
which continue to fuel the deployment of our capital.

European ABS Market

Eurocastle was formed in August 2003 to capitalise on growth in the European
asset backed securities market. The European ABS market has grown rapidly, with
compounded annual growth in new issuance of 28 per cent. since 1996, and new
issuance reaching US$197 billion in 2003. A key characteristic
of the market over time has been the low volatility in spreads and ratings
relative to other European financial markets. European real estate backed
securities (CMBS and RMBS) represent by far the largest component of the
European ABS market, accounting for 73 per cent. of all new ABS issuance in 2004
to date.

Investment Portfolio

As of 30 June 2004, Eurocastle's total securities portfolio of €506 million
included €284 million of mortgage backed securities, €161 million of other asset
backed securities and €61 million of restricted cash held within Eurocastle CDO
I pending investment in additional real estate and other asset backed securities
during the ramp-up period.. The securities portfolio is well diversified with 48
issues; 96% are floating-rate securities with an average life of 3.7 years. The
portfolio is geographically diversified with 30% in UK, 20% in Italy 13% in
Germany and 9% in France. The average credit quality of the securities portfolio
was BBB+, 95% of the securities were rated investment grade and the average
investment size was €8 million. . The weighted average credit spread was 1.97%
as of 30 June 2004. The weighted average credit spread represents the yield
premium on our securities over EURIBOR. The Company continually monitors the
credit and return profile of its securities portfolio and will opportunistically
buy and sell securities as part of its asset management discipline. Eurocastle's
financing structures are designed to offer flexibility to enable us to
successfully manage the credit and yield profile of our portfolio.

Investment Activity

The investment pipeline remained strong with approximately €125 billion of CMBS
and RMBS new issuance in the first half of 2004, representing a 30% increase
over the first half of 2003. Credit spreads have continued to tighten in the
investment grade credit market. BBB spreads are 50 to 75 basis points tighter
than a year ago for established investment bank sponsored CMBS programmes while
BB are relatively stable.

In the first half of 2004, we purchased approximately €450 million in face 
amount of real estate securities and other asset backed securities with an
average credit rating of BBB+. In addition, the Company has acquired exposure to
€151 million in face amount of real estate securities and other asset backed 
securities through a securities portfolio contract with a major investment bank.

Since 30 June 2004, we have purchased approximately €340 million of
investments and continue to have a strong pipeline of investments and expect to
be fully invested by year end.

Financing Activity

On 8 June 2004, we completed a €400 million non-recourse debt offering issued by
Eurocastle CDO I and Eurocastle CDO I plc (the 'CDO'). The issue consists of
€372 million face amount of investment grade senior and mezzanine bonds and €28
million face amount of non-investment grade mezzanine and subordinated bonds.
The Company retained €21 million face amount of the investment grade mezzanine
bonds as well as all of the non-investment grade bonds. As at 30th June, the CDO
has an expected weighted average life of 4 years.

To date, Eurocastle has acquired approximately 97% of the collateral that
ultimately will secure the CDO. Upon completion, the Company expects the total
collateral value to be approximately €400 million. The collateral currently
consists of 45% commercial mortgage backed securities (CMBS), 9% residential
mortgage backed securities (RMBS) and 46% other asset backed securities. The
completed portfolio is expected to have a weighted average credit rating of BBB
and an expected weighted average life of 4 years.

This financing reflects Eurocastle's core business strategy of investing in
asset-backed securities and financing these investments to term with
match-funded debt structures.

Our Manager

Eurocastle is externally managed by Fortress Investment Group LLC with a London
based team dedicated to Eurocastle. Fortress is a global alternative investment
and asset management firm with approximately US$8 billion of equity capital
currently under management. Fortress was founded in 1998, and currently employs,
together with its affiliates, over 200 people. Fortress is headquartered in New
York and its affiliates have offices in London, Rome, Frankfurt and Geneva.

In the United States, Fortress manages Newcastle Investment Corp. (NYSE symbol:
NCT), a publicly traded real estate investment and finance company, which
invests in US real estate securities and other real estate assets using a
similar investment and financing strategy to those of the Company. As at 30th
June 2004, Newcastle had a market capitalization of over US$1 billion.

Dividend policy

We intend to pay quarterly dividends to shareholders. Our aim is to pay out all 
or substantially all of Eurocastle's earnings in the form of dividends to
shareholders (excluding surpluses from the sale or realisation of investments
held directly by the Company). The aggregate dividend for the 12 month period
following the Company's initial public offering on 29th June 2004 is currently
anticipated to be €1.20 per share.

Conference Call

Management will conduct a conference call on 19 August 2004 to review the 
company's financial results for the period ended 30 June 2004. The conference 
call is scheduled for 4:00 P.M. London time (11:00 A.M. New York time). 
All interested parties are welcome to participate on the live call. You can  
access the conference call by dialling US (800) 288-9626 or International (612) 
288-0329 ten minutes prior to the scheduled start of the call; please reference 
'Eurocastle First Half 2004 Interim Report Call.'

For those who are not available to listen to the live call, a replay will be 
available until Monday September 27, 2004 by dialling US (800) 475-6701 or 
International (320) 365-3844; please reference access code '743363.'


We are pleased with our performance during the first year of operations. We
believe in the strength of our business plan and our ability to provide stable
dividends and transparency to our shareholders. With a solid investment
pipeline, we are well-positioned to achieve long-term growth and look forward to
our future as a public company.

Thank you for your continued commitment and support.

Wesley R. Edens
Chairman and Chief Executive Officer



We have been instructed by the company to review the financial information for
the six months ended 30 June 2004 which comprises Consolidated Income
Statements, Consolidated Balance Sheets, Consolidated Statements of Cash Flows,
Consolidated Statements of Changes in Equity and the related notes 1 to 14. We
have read the other information contained in the interim report and considered
whether it contains any apparent misstatements or material inconsistencies with
the financial information.

This report is made solely to the company in accordance with guidance contained
in Bulleting 1999/4 'Review of interim financial information' issued by the
Auditing Practices Board. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the company, for our work,
for this report, or for the conclusions we have formed.

Directors' responsibilities

The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The directors are
responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to interim figures should be consistent with
those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.

Review work performed

We conducted our review in accordance with guidance contained in Bulletin 1994/4
'Review of interim financial information' issued by the Auditing Practices Board
for use in the United Kingdom. A review consists principally of making enquiries
of group management and applying analytical procedures to the financial
information and underlying financial data, and based thereon, assessing whether
the accounting policies and presentation have been consistently applied, unless
otherwise disclosed. A review excludes audit procedures such as tests of
controls and verification of assets, liabilities and transactions. It is
substantially less in scope than an audit performed in accordance with United
Kingdom Auditing Standards and therefore provides a lower level of assurance
than an audit. Accordingly we do not express an audit opinion on the financial

Review conclusion

On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2004.

Ernst & Young LLP


18 August 2004


For the six months ended 30 June 2004

                                        Notes       Unaudited    8 August 2003
                                                  Halfyear to    (Date of
                                                                 Formation) to
                                                 30 June 2004    31 December
                                                        €'000            €'000
----------------------                   ------  --------------   --------------
Operating income
  Interest income                                       2,763               50
  Unrealised gain on securities           2,8           4,056              611
  portfolio contract
  Loss on foreign currency translation                    (50)               -
----------------------                   ------  --------------   --------------
Total operating income                                  6,769              661
----------------------                   ------  --------------   --------------

Operating expenses
  Interest expense                                      1,808                -
  Other operating expenses                  3           1,175              759
----------------------                   ------  --------------   --------------
Total operating expenses                                2,983              759
----------------------                   ------  --------------   --------------
----------------------                   ------  --------------   --------------
Net profit (loss)                                       3,786              (98)
======================                   ======  ==============   ==============

Earnings per ordinary share
(adjusted for share consolidation)
  Basic                                    10            0.32            (0.01)
  Diluted                                  10            0.32            (0.01)

Weighted average ordinary shares
(adjusted for share consolidation)
  Basic                                    11      11,930,263       11,857,670
  Diluted                                  11      11,955,615       11,857,670
======================                   ======  ==============   ==============

See notes to consolidated financial statements below


At 30 June 2004

                                        Notes       Unaudited    8 August 2003
                                                  Halfyear to           (Date of
                                                                 Formation) to
                                                 30 June 2004        31 December
                                                        €'000            €'000
----------------------                   ------  --------------   --------------
  Cash and cash equivalents                            76,285            1,690
  Restricted cash                           2           1,381                -
  Securities portfolio contract           2,8          51,542           57,611
  Asset backed securities, available for  2,4         506,355                -
  Derivative assets                         8              37                -
  Other assets                              5           2,929              316
----------------------                   ------  --------------   --------------

  Total assets                                        638,529           59,617
======================                   ======  ==============   ==============

Equity and Liabilities

Capital and Reserves

  Issued capital, no par value,            11         193,354           59,027
  unlimited number of shares authorised,
  18,463,670 shares issued and
  outstanding at 30 June 2004
  (11,857,670 at 31 December 2003,
  adjusted for share consolidation)
  Net unrealised loss on available for      4            (609)               -
  sales securities
  Accumulated profit (loss)                             3,688              (98)
----------------------                   ------  --------------   --------------
Total equity                                          196,433           58,929
----------------------                   ------  --------------   --------------

Minority Interests                                          2                -


  CDO bonds payable                         9         347,693                -
  Repurchase agreements                     6          92,024                -
  Trade and other payables                  7           2,377              688
----------------------                   ------  --------------   --------------
Total liabilities                                     442,094              688
----------------------                   ------  --------------   --------------
Total equity and liabilities                          638,529           59,617
======================                   ======  ==============   ==============

The financial statements were approved by the board of directors on 18 August

See notes to consolidated financial statements below


For the six months ended 30 June 2004

                                            Unaudited                    8 August 2003
                                          Halfyear to                           (Date of
                                                                         Formation) to
                                         30 June 2004                        31 December
                                                €'000                            €'000
 ----------------------  --------------  --------------  --------------   --------------
Cash Flows From
Operating Activities
Net profit (loss)                               3,786                              (98)
Adjustments for:
Unrealised gain on                             (4,056)                            (611)
securities portfolio
Unrealised gain on                                (37)                               -
foreign currency
Loss on foreign                                    89
currency translation
Accretion and                                    (171)                               -
Shares granted to                                  72                                -
Net change in operating
assets and
  Increase in restricted                         (1,381)
  Increase in other                              (2,616)                            (113)
  Increase in trade and                           1,690                              688
  other payables           
----------------------   --------------  --------------  --------------   --------------
Net cash flows used in                         (2,624)                            (134)
operating activities     
----------------------   --------------  --------------  --------------   --------------

Cash Flows From
Investing Activities
Securities portfolio                          (59,000)                         (57,000)
contract deposit
Repayment of securities                        69,125                                -
portfolio contract
Purchase of available                        (507,529)                               -
for sale securities
Repayment of security                             568                                -
----------------------    --------------  --------------  --------------   --------------
Net cash flows used in                       (496,836)                         (57,000)
----------------------   --------------  --------------  --------------   --------------

Cash Flows From
Financing Activities
Proceeds from issuance                        138,488                           59,288
of ordinary shares
Costs related to                               (4,233)                            (261)
issuance of ordinary

Proceeds from issuance                        351,000                               -
of bonds
Costs related to                               (3,342)
issuance of bonds
Borrowings under                               94,261                               -
repurchase agreement
Repayments under                               (2,119)                               -
repurchase agreement
Payment of deferred                                 -                             (203)
financing costs          
----------------------   --------------  --------------  --------------   --------------
Net cash flows from                           574,055                           58,824
financing activities     
----------------------   --------------  --------------  --------------   --------------

Net Increase in Cash                           74,595                            1,690
and Cash Equivalents
Cash and Cash                                   1,690                                -
Equivalents, Beginning
of Period
Cash and Cash                                  76,285                            1,690
Equivalents, End of      
----------------------    --------------  --------------  --------------   --------------

See notes to consolidated financial statements below


                 -----------Issued Capital---------
                   Ordinary Shares            Amount               Net Unrealised           Accumulated    Total Equity
                     (adjusted for             €'000               Gains (Losses)         Profit (Loss)         €'000
                             share                                      €'000                  €'000
---------------     ----------------          --------                --------               ---------        -------- 

At 8 August                 -                    -                         -                     -                -   
Date of

Issuance of           11,857,670              59,288                          -                     -           59,288 

Costs related to               -                (261)                         -                     -            (261) 
issuance of

Net loss                       -                   -                          -                    (98)           (98) 
---------------     ----------------          --------                --------               ---------        -------- 

At 31 December        11,857,670              59,027                          -                   (98)          58,929 
---------------     ----------------          --------                --------               ---------        -------- 

Second capital                 -              59,288                          -                     -           59,288
call on existing

Issuance of            6,600,000              79,200                          -                     -           79,200 
ordinary shares
on IPO

Costs related to              -              (4,233)                          -                     -           (4,233)
issuance of
ordinary shares
on IPO
Issuance of                6,000                  72                          -                      -             72 
ordinary shares
to Directors

Net unrealised                -                    -                       (609)                    -            (609)
loss on
available for

Net profit                     -                   -                          -                 3,786            3,786
---------------     ----------------          --------                 --------               ---------        -------- 

At 30 June            18,463,670             193,354                       (609)                3,688          196,433
================    ================          ========                 ========               =========       ========= 

See notes to consolidated financial statements below


(amounts in tables in thousands)


Eurocastle Investment Limited (the 'Company') was incorporated in Guernsey,
Channel Islands on 8 August 2003 and commenced it operations on 21 October 2003.
The principal activities of the Company include investing in, financing and
management of European securities and other asset backed securities. The
directors consider the Company to operate in a single business segment and one
geographical segment, being Europe.

The Company is externally managed by its manager, Fortress Investment Group LLC
(the 'Manager'). The Company has entered into a management agreement (the
'Management Agreement') under which the Manager advises the Company on various
aspects of its business and manages its day-to-day operations, subject to the
supervision of the Company's board of directors. The Company has no direct
employees. For its services, the Manager receives an annual management fee
(which includes a reimbursement for expenses) and incentive compensation, as
defined in the Management Agreement. The Company has no ownership interest in
the Manager.

In October 2003, the Company issued 118,576,700 ordinary shares through a
private offering to qualified investors at a price of € 1 each. Pursuant to a
written resolution of the Company dated 18 June 2004, the shareholders resolved
to receive one share in exchange for every ten shares previously held by them.
Immediately following this resolution, the Manager and its employees held
1,356,870 ordinary shares. In June 2004 the Company issued 6,600,000 ordinary
shares in its initial public offering at a price of €12.00 per share, for net
proceeds of €74.97 million.


Basis of Preparation

The consolidated financial statements of the Company have been prepared in
accordance with International Financial Reporting Standards (IFRS), which
comprise standards and interpretations approved by the International Accounting
Standards Board (IASB), and International Accounting Standards and Standing
Interpretations Committee interpretations approved by IASB's predecessor, the
International Accounting Standards Committee, that remain in effect. The
financial statements are prepared in accordance with IAS 34 'Interim Financial
Statements'. In preparing interim financial statements, the same accounting
principles and methods of computation are applied as in the financial statements
as at 31 December 2003 and for the period then ended. The consolidated financial
statements are presented in euros, the functional currency of the Company,
because the Company conducts its business predominantly in euros.

The Company commenced operations on 21 October 2003. As the Company's existence
is shorter than one year, comparative periods for the consolidated statement of
income, cash flows and statement of changes in equity are shown for the period 8
August to 31 December 2003.

The consolidated financial statements have been prepared on a historical cost
basis, except for the measurement at fair value of financial instruments held
for trading or available-for-sale purposes.

Basis of Consolidation

The consolidated financial statements comprise the financial statements of
Eurocastle Investment Limited and its subsidiaries drawn up to 30 June 2004.

Subsidiaries are consolidated from the date on which control is transferred to
the Company and cease to be consolidated from the date on which control is
transferred out of the Company.

At 30 June 2004, the Company's subsidiaries consisted of its investment in
Eurocastle Funding Limited ('EFL'), a limited company incorporated in Ireland,
Eurocastle CDO I PLC ('CDO I'), Eurocastle CDO II PLC ('CDO II') and Eurocastle
CDO III PLC ('CDO III'), all limited companies incorporated in Ireland. The
ordinary share capital of EFL held by outside parties has no associated voting
rights. The Company retains control over EFL as the sole beneficial holder of
secured notes issued by EFL. The Company consolidates CDO I as it retains the
residual risks of ownership.

Cash and Cash Equivalents

Cash and cash equivalents comprise cash at banks and in hand and short-term
deposits with an original maturity of three months or less.

Securities Portfolio Contract

The securities portfolio contract described in Note 8 qualifies as a derivative
financial instrument held for trading purposes under IASB rules. Derivative
financial instruments held for trading purposes are carried at fair value, which
includes valuation allowances for instruments for which liquid markets do not
exist. Changes in the fair value of derivative financial instruments held for
trading purposes are recorded as unrealized gains or losses in the income
statement. During the six months ended 30 June 2004, a net unrealized gain of
approximately €4.06 million (8 August to 31 December 2003 €0.61 million) was
recorded on the securities portfolio contract. The determination of the fair
value of the securities portfolio contract is based on dealer price quotations.

Available For Sale Securities

All investments in available-for-sale securities are initially recognized at
cost, being the fair value of the consideration given and including acquisition
charges associated with the investment.

After initial recognition, investments which are classified as
available-for-sale are measured at fair value. The fair value of these
securities is estimated by obtaining counterparty quotations. Gains or losses on
available-for-sale investments are recognized as a separate component of equity
until the investment is sold, collected or otherwise disposed of, or until the
investment is determined to be impaired, at which time the cumulative gain or
loss previously reported in equity is included in income.

Securities available-for-sale which are owned directly by the consolidated
special purpose vehicles are shown separately in Note 4 (as 'CDO securities,
available-for-sale') from those securities owned directly by the Company.

Deferred Financing Costs

Deferred financing costs represent costs associated with the issuance of

Interest-Bearing Loans and Borrowings

All loans and borrowings, including the Company's repurchase agreements, are
initially recognized at cost, being the fair value of the consideration received
net of issue costs associated with the borrowing.

After initial recognition, interest-bearing loans and borrowings are
subsequently measured at amortized cost using the effective interest rate
method. Amortized cost is calculated by taking into account any issue costs, and
any discount or premium on settlement.

Minority Interests

Minority interests represent interests held by outside parties in the Company's
consolidated subsidiaries.


Revenue is recognized to the extent that it is probable that the economic
benefits will flow to the Company and the revenue can be reliably measured.
Interest income is recognized as the interest accrues (based on the effective
yield of the asset).

Income Tax

The Company is a Guernsey, Channel Islands limited company. No provision for
income taxes has been made. The company's subsidiaries, EFL, CDO I, CDO II and
CDO III are Irish registered companies and are structured to qualify as
securitization companies under section 110 of the Taxes Consolidation Act 1997.
It is envisaged that these companies will generate minimal net income for Irish
income tax purposes and no provision for income taxes has been made for these

Foreign Currency Translation

Transactions in foreign currencies are recorded at the rate ruling at the date
of the transactions. Monetary assets and liabilities denominated in foreign
currencies are remeasured at the rate of exchange ruling at the balance sheet
date. All differences are taken to the income statement. Non-monetary assets and
liabilities denominated in foreign currencies, if any, are retranslated at the
historical exchange rate and all differences are recognized in equity.

Forward Exchange Contracts

The Company has entered into forward exchange contracts in connection with its
foreign currency denominated investments. These contracts, which do not qualify
for special hedge accounting under IAS 39, are initially recorded at cost, being
the fair value of the consideration given. Subsequently, these contracts are
measured and carried at fair value with the resulting gain or loss recorded in
current earnings.


                                              Unaudited          8 August 2003
                                            Halfyear to          (Date of
                                                                 Formation) to
                                           30 June 2004            31 December
                                                  €'000                  €'000
---------------------------                 -------------         --------------

Professional fees                                   397                    484
Management fees                                     641                    257
Other                                               137                     18
---------------------------                 -------------         --------------
                                                  1,175                    759
===========================                 =============         ==============


The following is a summary of the Company's available-for-sale securities at 30
June 2004 which have been marked to fair value through equity pursuant to IAS
39. Unrealized losses that are considered other than temporary are recognized
currently in income. There were no such losses incurred from incorporation to 30
June 2004.

CDO Securities   Current   Unamortised   Amortised     Gains  Losses    Carrying  S&P      Coupon     Yield     Weighted
available for      Face      premium)      cost                            Value                                 Average
sale                        / discount                                                                          Maturity

                  €'000       €'000       €'000       €'000    €'000    €'000 
CMBS            165,548        (110)       165,658       367     (33)     165,992  BBB+     4.029%    4.036%       4.01
RMBS             32,250         (96)        32,346        28      (4)      32,370  BBB      3.946%    3.866%       3.64
CLO              52,500      (1,082)        53,582       132     (22)      53,692  BBB+     5.162%    4.148%       4.41
NPL              48,000       2,369         45,631       184     (72)      45,743  BBB+     4.005%    5.414%       3.10
WBS              12,000           0         12,000         0       0       12,000  BBB      3.554%    3.520%       5.00
OTHER ABS        33,885         205         33,679         0     (20)      33,659  A-       3.247%    3.534%       4.46
               *344,183       1,286        342,896       711    (151)    343,456  BBB+      4.097%    4.162%       3.99

Other Securities available for sale

CMBS            87,477         180       87,297          60     (1,221)    86,136  A-       3.157%    3.598%        2.28
NPL              5,000         174        4,826         (26)         0      4,800  A        3.413%    4.795%        2.29
WBS             11,183         (89)      11,273          18          0     11,291  BB       5.713%    5.624%        5.40
               103,660         265      103,396          52    (1,221)    102,227  BBB+     3.445%    3.875%        2.62


CMBS         253,025          70        252,955        427     (1,254)   252,128  BBB+      3.727%    3.885%        3.41
RMBS          32,250         (96)        32,346         28         (4)    32,370  BBB       3.946%    3.866%        3.64
CLO           52,500      (1,082)        53,582        132        (22)    53,692  BBB+      5.162%    4.148%        4.41
NPL           53,000       2,543         50,457        158        (72)    50,543  BBB+      3.949%    5.355%        3.02
WBS           23,183         (89)        23,273         18         0      23,291  BBB-      4.595%    4.535%        5.19
Other ABS     33,885         205         33,679          0        (20)    33,659  A-        3.247%    3.534%        4.46
             447,843       1,551        446,292        763     (1,372)   445,683 BBB+      3.946%     4.096%       3.67 


* Carrying value excludes restricted cash of €60.7 million included in CDO
Securities pending its investment in additional CDO securities during the
ramp-up period.


                                                Unaudited            31 December
                                             30 June 2004
                                                    €'000                €'000
---------------------------                   -------------        -------------

Interest receivable                                 2,876                    -
Deferred financing costs                                -                  203
Prepaid insurance                                      47                  111
Other assets                                            6                    2
---------------------------                   -------------        -------------
                                                    2,929                  316
===========================                   =============        =============

Deferred financing costs represent costs associated with the issuance of a
collateralized debt obligation. These costs have been offset against the
proceeds of the issuance.


In February 2004, the Company entered into a master repurchase agreement with
certain major investment banks to finance the purchase of available-for-sale
securities. The terms of the repurchase agreements provide for interest to be
calculated with reference to floating rate benchmarks (i.e. Euribor or Sterling
Libor) which resets or rolls monthly or quarterly, with the corresponding
security coupon payment dates, plus an applicable spread. The Company's carrying
amount and weighted average financing cost of these repurchase agreements was
approximately €92 million and 2.312%, respectively at 30 June 2004.


                                                Unaudited            31 December
                                             30 June 2004
                                                    €'000                €'000
---------------------------                   -------------        -------------

Interest payable                                    1,098                    -
Due to affiliates                                     160                  381
Accrued expenses                                    1,119                  307
---------------------------                   -------------        -------------
                                                    2,377                  688
===========================                   =============        =============


In November 2003, the Company entered into a securities portfolio contract with
a major investment bank (the 'Bank') whereby the Bank would purchase European
commercial mortgage backed and other asset backed securities, targeted to
aggregate approximately €500 million, subject to the Company's right, but not
the obligation, to purchase such securities from the Bank. The Company has paid
a deposit to the Bank. The fair value of the contract is calculated as the value
of the securities purchased by the Bank, adjusted for the cost of funding the
purchase of securities and any other applicable costs. The fair value of the
contract as at 30 June 2004 and 31 December 2003 was approximately €51.54
million and €57.6 1 million respectively. The unrealized gains on the securities
portfolio contract at 30 June 2004 and 31 December 2003 was approximately €4.06
million and €0.61 million respectively.

The Company is exposed to market risk on the underlying securities as, should
the intended securitization of such assets not be consummated, the Company would
be required to either purchase the securities or pay the loss realized on the
disposal up to the amount of any deposits made by the Company under the
contract, less any interest earned on the deposits.

In connection with the Company's purchase of its available-for-sale securities,
the Company has entered into forward foreign currency exchange contracts. IAS 39
requires the Company to record any unrealized gain or loss on these contracts in
current earnings. At 30 June 2004, the net unrealized gain on these contracts
was approximately €37 thousand. The fair value of these contracts, which has
been recorded in derivative liabilities on the balance sheet, has been
calculated based on information obtained from an independent market data source.

9.       CDO Bonds Payable

The following table presents certain information regarding Eurocastle's debt
obligations of Eurocastle CDO I as of 30 June 2004 (euros in thousands):

                          Current Face     Carrying      Weighted      Weighted
                                Amount       Amount       Average       Average
                                                          Cost of      Maturity
                                                        Financing     (in years)
Class      Rating                                                             
 ---------  ---------        ---------    ---------     ---------     ---------
Class A      AAA             338,000      334,816         2.755%         6.87
Class B       AA              13,000       12,877         3.207%         9.43
---------  ---------         ---------    ---------     ---------     ---------
                             351,000      347,693         2.771%         6.96
=========  =========         =========    =========     =========     =========


Basic earnings per share is calculated by dividing net profit (loss) available
to ordinary shareholders by the weighted average number of shares of ordinary
stock outstanding during the period.

Diluted earnings per share is calculated by dividing net profit (loss) available
to ordinary shareholders by the weighted average number of ordinary shares
outstanding plus the additional dilutive effect of ordinary share equivalents
during the period.

The Company's ordinary share equivalents outstanding during the period were the
stock options issued under its share option plan.

There have been no other transactions involving ordinary shares or potential
ordinary shares since the reporting date and before the completion of the
financial statements.


The Company was registered in Guernsey on 8 August 2003 under the provisions of
the Companies (Guernsey) Law, 1994 (as amended). On 21 October 2003, the Company
issued 118,576,700 shares at €1.00 each. Pursuant to a written resolution of the
Company dated 18 June 2004 the Shareholders resolved to receive one share for
every ten shares previously held by them. In June 2004, through its initial
public offering, the Company received subscriptions for and issued 6,600,000
ordinary shares at a price of €12 each. As a result, the Company's total gross
capital was approximately €197.85 million. Under the Company's Articles of
Association, the Directors have the authority to effect the issuance of
additional ordinary shares or to create new classes of shares as they deem

The following is a reconciliation of the weighted average number of ordinary
shares outstanding on a diluted basis.

                                                    Unaudited    8 August 2003
                                                 30 June 2004      (Date of
                                                                 Formation) to
                                                                   31 December
------------------------------                      ----------     -------------

Weighted average number of ordinary shares,        11,930,263       11,857,670
outstanding basic
Dilutive effect of ordinary share options              25,352                -
------------------------------                       ----------    -------------
Weighted average number of ordinary shares         11,955,615       11,857,670
outstanding, diluted                                 
==============================                       ==========    =============


The Company entered into the Management Agreement with the Manager in August
2003, which provides for an initial term of ten years with automatic three year
extensions, subject to certain termination rights. The Management Agreement may
be terminated by the Company by payment of a termination fee, as defined in the
Management Agreement, equal to the amount of management fees earned by the
Manager during the twelve consecutive calendar months immediately preceding the
termination, upon the vote of a majority of the holders of the outstanding
ordinary shares. Pursuant to the Management Agreement, the Manager, under the
supervision of the Company's board of directors, will formulate investment
strategies, arrange for the acquisition of assets, arrange for financing,
monitor the performance of the Company's assets and provide certain advisory,
administrative and managerial services in connection with the operations of the
Company. For performing these services, the Company will pay the Manager an
annual fee of 1.5% of the gross equity of the Company, as defined in the
Management Agreement.

The Management Agreement provides that the Company will reimburse the Manager
for various expenses incurred by the Manager or its officers, employees and
agents on the Company's behalf, including the cost of legal, accounting, tax,
auditing, administrative and other similar services rendered for the Company by
providers retained by the Manager or, if provided by the Manager's employees, in
amounts which are no greater than those which would be payable to outside
professionals or consultants engaged to perform such services pursuant to
agreements negotiated on an arms-length basis.

To provide an incentive for the Manager to enhance the value of the Company's
ordinary stock, the Manager is entitled to receive incentive compensation on a
cumulative, but not compounding, basis in an amount equal to the product of (A)
25% of the euro amount by which (1) funds from operations ('FFO') of the Company
before the incentive compensation per ordinary share, exceeds (2) an amount
equal to (a) the weighted average of the price per ordinary share in any
offerings by the Company (adjusted for any prior capital dividends or
distributions) multiplied by (b) a simple interest rate of eight percent (8%)
per annum multiplied by (B) the weighted average number of ordinary shares
outstanding during such period.

FFO is used to compute the Company's incentive compensation to the Manager. FFO,
for these purposes, represents net income (computed in accordance with
International Financial Reporting Standards), plus depreciation and amortization
on real estate property (and excluding accumulated depreciation and amortization
from the computation of gain or loss on sold real estate property), after
adjustments for unconsolidated partnerships and joint ventures (calculated to
reflect FFO on the same basis).

At 30 June 2004 and 31 December 2003, management fees and expense reimbursements
of approximately €0.2 million and €0.4 million respectively, were due to the


In December 2003, the Company (with the approval of the board of directors and
pursuant to the confidential information memorandum dated August 2003) adopted a
nonqualified share option plan (the 'the Company Option Plan') for officers,
directors, employees, consultants and advisors, including the Manager. In
December 2003, for the purpose of compensating the Manager for its successful
efforts in raising capital for the Company, the Manager was granted options
representing the right to acquire 1,185,767 ordinary shares at an exercise price
of €10 per share (number of shares and exercise price adjusted for share
consolidation). In June 2004 following the IPO, the Manager was granted an
additional 660,000 options at an exercise price of € 12 per share. The Manager
options represent an amount equal to 10% of the ordinary shares issued by the
Company. The options granted to the Manager were fully vested on the date of
grant and expire ten years from the date of issuance.


In July 2004, through its newly created subsidiaries, the Company exercised its
option to purchase the securities under the securities portfolio contract for an
aggregate purchase price of approximately €77.5 million. The Company financed
the purchase price through a revolving credit facility arrangement with a major
investment bank, whereby the securities purchased, along with any additional
securities to be acquired, will be financed and held in a custody account by the
bank. The Company intends to use this credit facility as a means of accumulating
securities intended to be used in future securitization transactions ('CDO II'
and 'CDO III'). Although, the Company currently anticipates completing CDO II
and CDO III in the near term, there is no assurance that CDO II and CDO III will
be consummated or on what terms they will be consummated.