Tetragon Financial Group Limited: 2013 Annual Report

LONDON, February 27, 2014 /PRNewswire/ --

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TABLE OF CONTENTS

Letter to Shareholders..........................................................1

Key Metrics

Return on Equity ...............................................................4

Earnings per Share .............................................................5

NAV per Share ..................................................................6

Distributions ..................................................................7

Cash Flows and Uses of Cash

Cash Flows and Uses of Cash.....................................................9

Share Repurchases ..............................................................9

TFG's Business Segments

TFG Structure Overview .........................................................11

Investment Portfolio

Investment Portfolio Overview ..................................................12

Portfolio Composition and Outlook ..............................................12

Corporate Loans ................................................................14

U.S. CLO 1.0 ...................................................................14

U.S. CLO 2.0 ...................................................................15

European CLOs ..................................................................15

Direct Loans ...................................................................16

Equities........................................................................16

Credit & Convertible Bonds......................................................17

Real Estate.....................................................................17

Financing Sources, Hedging Activity and Other Matters ..........................17

TFG Asset Management

Overview .......................................................................18

Update on Key Metrics in 2013 ..................................................18

Asset Management Businesses.....................................................19

LCM.............................................................................20

GreenOak Real Estate ...........................................................21

Polygon ........................................................................22

Third-Party Fee Income .........................................................24

2013 Financial Review

Financial Highlights ...........................................................26

Statement of Operations 2011-2013 ..............................................27

Statement of Operations by Business Segment ....................................28

Balance Sheet ..................................................................29

Statement of Cash Flows ........................................................30

Net Economic Income to U.S. GAAP Reconciliation ................................31

Appendices

Appendix I: Directors' Statements...............................................33

Appendix II: Fair Value Determination of TFG's CLO Equity Investments ..........34

Appendix III: CLO Market Commentary ............................................37

Appendix IV: Additional CLO Portfolio Statistics ...............................39

Appendix V: Share Reconciliation and Shareholdings .............................43

Appendix VI: Additional Corporate Information...................................44

Appendix VII: Other Legal Matters ..............................................48

Appendix VIII: Risk Factors.....................................................49

Board of Directors .............................................................55

Shareholder Information.........................................................55

Endnotes........................................................................56

Tetragon Financial Group Limited 2013 Audited Financial Statements

Tetragon Financial Group Master Fund Limited 2013 Audited Consolidated Financial Statements

TFG SHAREHOLDER LETTER

DEAR SHAREHOLDERS,

We are pleased to report that Tetragon Financial Group Limited ("TFG" or the "company") achieved positive operating and financial performance in 2013, with net income of $247.4 million and a return on equity ("RoE") for the year of 15.3%, just above our over-the-cycle target of 10-15% per annum.(1)

Dividends declared with respect to the year were 56.5 cents per share, up 20.2% on 2012.

TFG's financial investments, comprising U.S. broadly syndicated loan CLOs (both U.S. CLO 1.0 and U.S. CLO 2.0 transactions)(2), U.S. middle market CLOs, European CLOs, corporate loans, event-driven European equities, global mining equities, convertible bonds, distressed credit and equities and real estate (across Japan, the United Kingdom and the United States), all performed well during the year. Particularly strong performance came from European CLOs and event-driven European equities.

TFG's asset management business segment ("TFG Asset Management") also had a good year, contributing $27.5 million to the company's EBITDA.

During 2013, TFG made $335.4 million of gross additional investments across the majority of the above asset classes, further diversifying the investment portfolio which we believe is important in the long term, given the uncertainties and fluctuations in financial markets.

GOALS

We have written previously about why we believe TFG's structure provides for better risk-adjusted returns for its investors, compared to traditional banking models and other asset management vehicles. The 2013 results, we think, are supportive of our belief and therefore we intend to focus on the same goals for 2014.

Below, we compare the company's goals for 2013 as expressed a year ago in the 2012 Annual Report with the actual outcomes:

1. To deliver 10-15% RoE per annum to shareholders.(3)

The company exceeded its RoE target with annualised RoE of 15.3%.

2. To manage more of TFG's assets on the TFG Asset Management <b>platform.

The amount of TFG's capital that was paying fees to external managers as of the end of 2013 was 53.4%, down from 63.2% at the end of 2012.(4)

3. To grow client AUM and fee income.

TFG Asset Management's assets under management ("AUM") at 31 December 2013 was $9.2 billion, 19.5% higher than the 2012 year-end total of $7.7 billion.(5) Fee income grew by 102.5% year-on-year, although 2012 only reflected a partial year of the enlarged TFG Asset Management business.

4. To add further asset management businesses to the TFG Asset Management platform.

As mentioned in our Q3 report, TFG added a distressed opportunity business in 2013, which is currently building its portfolio and team.

OUTLOOK

Notwithstanding the challenging combination of circumstances surrounding global financial markets (deflationary fears, inflationary fears, near-zero interest rates and quantitative easing to name a few), we remain cautiously positive about the outlook for 2014 with respect to both the company's existing investment portfolio and potential new investments. Many of TFG's investments (and our asset managers' strategies) are designed to take on specific risks as opposed to being exposed to the general movements of markets. CLO equity, for example, is highly sensitive to defaults and recovery rates, amongst other things. Event-driven equities are highly dependent on corporate activity and the specific idiosyncratic risks associated with each corporate restructuring. Real estate is obviously dependent on the real estate cycle in any given region. We believe that increased diversification, whilst not making TFG immune to a downturn, should make it less susceptible to any single risk, which may prove valuable over the long term.

As we have said before, with LIBOR at record lows, our ex ante expected returns on each investment, and therefore our expected RoE for the company, are likely to be at the low end of our long-term target range of 10-15%.

Of particular focus in 2014 will be managing the de-leveraging of our U.S. CLO 1.0 portfolio and new opportunities in real estate. The growth of GreenOak Real Estate, LP's ("GreenOak") business means they are looking at an increasing number of potential transactions, which we think bodes very well for GreenOak and its investors, but also increases the opportunities TFG sees for co-investment.

We hope for and expect continued growth in TFG Asset Management's businesses: GreenOak, LCM(i) and Polygon(ii). The underlying funds are each focused on specific opportunities, are capacity constrained to focus on returns and are constructed with investor liquidity matched to their underlying asset liquidity. In 2014, each of these businesses will continue to seek to raise assets and see investors put their trust in these individual managers alongside TFG's capital.

We were pleased with the success of TFG's first Investor and Analyst Day held in September 2013. As a result, we expect to repeat this event later this year.

Finally, we feel that it is worth mentioning that TFG's directors, along with principals and employees of TFG's investment manager and TFG Asset Management, are collectively significantly invested alongside the company's shareholders. At the end of 2013, this group of people held interests in approximately 10.8% of the shares (including those held in escrow)(6), further aligning them with shareholders and the long-term value of the company and its shares.(iii)

With regards,

The Board of Directors

27 February 2014

(i) LCM Asset Management LLC, hereinafter referred to in this report as "LCM."

(ii) Polygon Global Partners LP and Polygon Global Partners LLP, hereinafter referred to in this report as "Polygon."

(iii) Please refer to page Appendix V on page 43 for further details.

KEY METRICS

TFG continued to benefit from the ongoing successful performance of its CLO portfolio while diversifying into other strongly-performing asset classes and continuing to build the TFG Asset Management business.

RETURN ON EQUITY

- The company targets a long-term RoE in the range of 10-15% per annum net to shareholders.(7)

- 2013's RoE of 15.3% reflected a continuation of above-target returns for TFG, primarily driven by the ongoing strength of the U.S. CLO portfolio, supplemented by the steady recovery of the European CLO portfolio, and supported by strong performance in other elements of the investment portfolio and a good year for TFG Asset Management. Please refer to page 26 in the Financial Review section for details on the calculation of the RoE figure.

     Figure 1     Annual Return on Equity                                 RoE                        2007  11.4%                        2008  -3.7%                        2009 -27.6%                        2010  47.7%                        2011  36.1%                        2012  20.8%                        2013  15.3%                     Average  14.3% 

The Investment Manager(8) continues to focus on three important metrics when assessing how value is being created for, and delivered to, shareholders:

- Earnings per share - a reflection of the operating performance of TFG.

- Net Asset Value ("NAV") per share - reflecting how value is being built within the business.

- Distributions - reflecting how value has been returned to shareholders.

Each of these measures is set out in more detail on the following pages.

EARNINGS PER SHARE

- TFG ended the year strongly, generating Adjusted EPS of $1.13 during Q4 2013 to give a full year Adjusted EPS of $2.52 (2012: $2.70). Please refer to page 26 in the Financial Review section for details on how this figure is calculated.

- Adjusted EPS continued to be primarily driven by the strength of TFG's U.S. CLO portfolio, helped by the continuation of benign credit conditions in the United States, which supported a recalibration of certain modelling assumptions (which are covered later in this report). European CLOs also recovered strongly in 2013, especially during the fourth quarter.

     Figure 2     Adjusted EPS Comparison 2011 - 2013 (USD)                2011          $3.46               2012          $2.70               2013          $2.52

- That said, the level of EPS generated in 2013 by the CLO portfolio was 21.6% lower than in 2012, as its performance continued to move towards more normalised levels. The decline was partially compensated for by a growth in other income, including gains on investments in other aspects of the investment portfolio and GreenOak, which together added $0.40 of Adjusted EPS.

- At the end of 2013, both the forward default curves and discount rates used in modelling the fair value of the CLO portfolio were recalibrated, in response to changes in observable data, which added approximately $0.52 of EPS after fees (please see Appendix II for further details).

- The TFG Asset Management business segment made a positive contribution to TFG's performance, generating $0.21 per share of net income in 2013, an increase of 75.0% year-on-year.

     Figure 3      TETRAGON FINANCIAL GROUP     TFG Earnings per Share Analysis (2011-2013)                                                           2013          2012          2011     Investment portfolio segment     CLOs                                                $2.86$3.65$4.76     Equities                                            $0.30$0.01             -     Credit and Convertible Bonds                        $0.04             -             -     Direct Loans                                        $0.03$0.07$0.03     Real Estate                                         $0.03             -             -     Other Income                                        $0.01$0.01             -     Hedging FX and Derivatives                          $0.10        ($0.06)       ($0.04)     Expenses                                           ($0.97)       ($1.07)       ($1.37)     Net EPS investment portfolio                        $2.40$2.61$3.38      Asset Management Segment - TFG AM                   $0.21$0.12$0.11      Corporate Income taxes                             ($0.09)       ($0.03)       ($0.03)      Net Economic Income EPS                             $2.52$2.70$3.46     Weighted Average Shares (millions)(i)                98.0         113.3         118.4      (i) The time-weighted average daily U.S. GAAP Shares outstanding during the applicable     year. 

NAV PER SHARE

Pro Fo<b>rma Fully Diluted NAV per Share ended the year at $16.36, up 11.7% on the year.

- Total NAV increased to $1,803.2 million by the end of 2013, which equated to Pro Forma Fully Diluted NAV per share of $16.36. Please refer to page 26 in the Financial Review section for details on how this figure is calculated.

- In early 2014, TFG announced a tender offer for up to $50.0 million of its non-voting shares, which is expected to be accretive to the Pro Forma Fully Diluted NAV per share.

[Figure 4]

DISTRIBUTIONS

Dividends per Share ("DPS"): TFG declared dividends for 2013 totalling $0.565 per share, a 20.2% increase on 2012.

- TFG continues to pursue a progressive dividend policy with a target payout ratio of 30-50% of normalised earnings, recognising the long-term target RoE of 10-15%. The Q4 2013 dividend of $0.15 per share brings the cumulative DPS since TFG's IPO to $2.825 per share. Please see "Dividends and other Distributions" in Appendix VI of this Annual Report.

- Of the $53.9 million (2012: $50.3 million) of dividends paid in 2013, approximately 8.0% of shareholders elected to take shares rather than cash pursuant to the company's optional stock dividend program.(9) In addition, holders of escrow shares also receive dividends on such shares in the form of TFG stock in lieu of cash dividends.

     Figure 5     12-month Rolling DPS Comparison 2011 - 2013 (USD)            2011 $0.395           2012 $0.470           2013 $0.565

CASH FLOW AND USES OF CASH

2013 was another strong year for TFG from a cash generation perspective, with the CLO portfolio generating $95.3 million in Q4 2013, bringing the 2013 total to $456.8 million (2012: $459.6 million). As described in more detail in the Investment Portfolio section, the main source of these strong cash flows was the U.S. CLO portfolio, with the year-on-year decline primarily due to the amortisation of U.S. CLO 1.0 transactions and tightening loan spreads on the underlying collateral held by both U.S. CLO 1.0 and U.S. CLO 2.0 deals.

With the new issue market for U.S. CLOs reaching post-crisis highs, TFG invested $69.5 million into the equity tranches of four new CLO issues, managed by LCM as well as by third-party managers. TFG continued to diversify its investment portfolio beyond CLOs, with allocations of capital totalling $195.9 million into equities, credit and convertibles, both through various Polygon-managed hedge fund vehicles and directly. TFG also invested $43.5 million (2012: $23.5 million) of cash into real estate opportunities managed by GreenOak during the year.

As TFG deployed additional cash into a more diverse set of asset classes, the size of the direct loan portfolio was reduced, which generated a net $80.2 million of cash inflows.

Finally, as described in the Distributions section, TFG used approximately $49.5 million to pay cash dividends during 2013 (2012: $38.3 million) and $16.1 million to repurchase its shares during the same period.

At 2013 year-end, TFG's investible cash balance was $218.8 million or approximately 12.1% of net assets.

SHARE REPURCHASES

Share repurchases: During 2013, TFG used $16.1 million of cash to repurchase shares at a discount to NAV.

- Life-to-date through the end of 2013, TFG's share repurchase program resulted in the repurchase of approximately 36.2 million shares at an aggregate cost of $273.6 million (including the 2012 tender offer, the results of which TFG announced on 7 December 2012).

- Prior to the expiration of the regular share repurchase program on 30 April 2013, TFG bought back approximately 1.45 million shares in 2013 for a total value of $16.1 million.

- In early 2014, TFG announced its intention to repurchase TFG non-voting shares up to a maximum value of $50.0 million in a tender offer managed by Deutsche Bank AG, London branch. Further details are available at http://www.tetragoninv.com.

     Figure 6     Cumulative TFG Share Repurchases ($MM)      Inception-2011      $81.9               2012     $257.5               2013     $273.6

TFG'S BUSINESS SEGMENTS

INVESTMENT PORTFOLIO & TFG ASSET MANAGEMENT

TFG STRUCTURE OVERVIEW

TFG owns (1) an investment portfolio of $1.8 billion of financial assets and (2) TFG Asset Management, a global alternative asset management business with $9.2 billion of client assets under management. Investors may find the below chart useful to better understand the company's structure.

[Figure 7]

INVESTMENT PORTFOLIO OVERVIEW

The assets and asset classes in TFG's portfolio are selected with the aim of achieving superior and sustainable returns. TFG chooses its managers, where applicable, and creates structures for its investments to further this goal. TFG also strives, where possible, to own some or all of the asset managers in order to generate fee income in addition to the asset level returns.

In order to help achieve sustainable returns, TFG looks to diversify its risks within the investment portfolio, taking into account the duration of each investment, correlations across strategies and asset classes, expected cash flows and other relevant factors.

In 2013, TFG continued to expand the size and breadth of its investment portfolio by investing in U.S. corporate loans (accessed through the equity tranches of new issue U.S. CLOs managed by LCM and third-party managers), real estate (via GreenOak-managed vehicles), as well as credit, convertible bonds and equities (both directly and through investments in Polygon-managed hedge funds).

As of the end of 2013, U.S. corporate loans accessed through CLO equity were the largest asset class within TFG's investment portfolio, although the size of this segment declined year-on-year as a result of the continued amortisation of the U.S. CLO 1.0 portfolio and capital allocations into other asset classes. Overall, the U.S. and European CLO portfolios registered strong performance in 2013, with European CLOs benefitting from notable gains in credit quality and structural strength. TFG's real estate, equity, credit and convertible bond investments also performed well during the year, and the company expects to continue to add to TFG's exposure to these asset classes in the coming year.

PORTFOLIO COMPOSITION AND OUTLOOK

The following chart shows the composition of net assets by asset class at the end of 2013 and 2012.

[Figure 8]

INVESTMENT PORTFOLIO

TFG's net assets, which totalled $1,803.2 million at the end of 2013, consisted mainly of:

•    Corporate loans, both directly and indirectly owned through CLO investments;

•    Equity, credit, and convertible bonds, primarily owned through Polygon fund investments;

•    Real estate (GreenOak); and

•    Cash.

The following tables summarize certain performance metrics for various asset classes in TFG's investment portfolio.

     Figure 9a                                   December 2013 Net Assets            LTM Performance     Asset Type                          (in $MM)      U.S. CLO 1.0(i)                        $738.1                      18.7%(ii)     U.S. CLO 2.0(i)                        $198.1                      11.3%(ii)     U.S. Direct Loans                       $34.0                       4.1%     European CLOs                          $184.3                      72.8%      (i) The asset class called "U.S. Pre-Crisis CLO" in previous reports is now     termed "U.S. CLO 1.0" and refers to U.S. CLOs issued before or during 2008;     similarly, "U.S. Post-Crisis CLO" is now called "U.S. CLO 2.0" and refers to     U.S. CLOs issued after 2008. TFG owns $1.75 million notional in a CLO debt     tranche. Such investment is excluded from these performance metrics.     (ii) For CLOs and direct loans, calculated as the total return. The total     return is calculated as the sum of the aggregate ending period fair values and     aggregate cash flows received during the year, divided by the aggregate     beginning period fair values for all such investments. LTM performance for     U.S. CLO 2.0 transactions is weighted by the beginning-of-period fair values     or cost if the investment was made less than 12 months before the current     quarter-end. U.S. CLO 2.0 equity investments, which were made during the year     and therefore lack a full year of performance, are annualised. The LTM     performance for European CLOs excludes the impact of any changes in the     EUR-USD exchange rate on TFG's fair values and cash flows received for such     investments. 

     Figure 9b                                       December 2013              LTM Return on                                       Net Assets               Time-Weighted Avg.     Asset Type                         (in $MM)              Capital Invested (ii)      Equities (i)                          $221.7                    23.8%     Credit and Convertible Bonds           $84.2                    12.8%      (i) Assets characterized as "Equities" consist of the fair value of     investments in Polygon-managed equity funds as well as the net assets     of, or capital committed to, equity assets (as applicable) held     directly on the balance sheet.     (ii) Returns presented reflect the cumulative annualised performance     for each asset type over the 12 months ending 31 December 2013     against the time-weighted average capital invested. Returns for     directly-held equities are calculated on the basis of     investment-to-date performance over the 12-month period and the     time-weighted average required amount of margin posted with all     relevant counterparties over the analysis period. Time-weighted     average capital invested in each asset type is calculated for each     investment through 31 December 2013, based on the actual number of     days and assuming a 365-day year. TFG invests in Polygon-managed     funds on a preferred fee-basis. 

CORPORATE LOANS

TFG's exposure to the corporate loan asset class (whether held indirectly via CLO equity investments or directly) totalled $1,154.5 million at the end of Q4 2013 ($1,104.4 million at the end of Q3 2013) and remained diversified, with 72.1% in U.S. broadly-syndicated senior secured loans, 11.9% in U.S. middle-market senior secured loans and 16.0% in European senior secured loans.(10)

TFG's CLO equity investments, which comprise the majority of its exposure to corporate loan assets, represented indirect exposure to approximately $16.4 billion in par value of leveraged loans.

When reporting on TFG's corporate loan exposures, we find it useful to further segment such investments into the following classes:

- U.S. CLO 1.0

- U.S. CLO 2.0

- European CLOs

- Direct U.S. Loans

U.S. CLO 1.0

As of the end of 2013, TFG held 52 U.S. CLO 1.0 equity investments and one investment in the debt tranche of a U.S. CLO 1.0 deal.(11) U.S. CLO 1.0 equity investments had total fair value of $738.1 million as of 31 December 2013, compared with $914.8 million at the end of 2012. As of the end of 2013, all U.S. CLO 1.0 holdings were passing their junior-most O/C tests.(12)

During 2013, the performance of the U.S. CLO 1.0 portfolio was characterised by a continuation of the key themes highlighted in earlier reports, namely: a benign credit environment; post-reinvestment period structural de-leveraging of an increasing share of the portfolio; excess interest margin pressure from declining loan spreads; and challenging reinvestment conditions given tighter weighted average life and maturity constraints, among other factors.

TFG's U.S. CLO 1.0 investments produced cash flows of $347.5 million in 2013, down from $415.6 million in 2012, reflecting the impact of the structural amortisation and excess interest margin compression trends noted above.

With defaults expected to remain low in the near-term, we believe that the wind-down path of TFG's U.S. CLO 1.0 transactions will remain an important driver of their future performance. In addition, we believe that the trading behaviour of TFG's CLO managers with respect to finding attractive reinvestment opportunities (if permitted) and managing the timing and liquidation value of all portfolio asset sales will become an increasingly important factor in U.S. CLO 1.0 returns. We believe that the historically low cost of U.S. CLO 1.0 liabilities may serve as a cushion against potential further declines in underlying asset spreads, allowing them to continue to generate cash flows for longer than other vintages. We expect to continue to evaluate the benefits of early optional redemptions and reinvestment opportunities against expected de-leveraging cash flows.

U.S. CLO 2.0

As of the end of 2013, TFG held 11 equity investments in U.S. CLO 2.0 deals with a total fair value of $198.1 million, up from $174.0 million in eight equity investments at the end of 2012. This increase in fair value was primarily the result of investments in the equity tranches of two third-party managed and two LCM-managed new issue CLOs (all majority positions with the exception of a minority investment in one LCM-managed CLO), totalling $69.5 million.

In addition, one U.S. CLO 2.0 was "called" pursuant to an optional redemption during Q3 2013, resulting in a net increase of three U.S. CLO 2.0 holdings at the end of 2013 vs. 2012.

TFG's U.S. CLO 2.0 deals performed in line with expectations during 2013, benefitting from low credit losses but subject to the negative impact of continued loan spread tightening and rapid repayments within the U.S. institutional leveraged loan market. All U.S. CLO 2.0 investments in the portfolio remained in compliance with their O/C tests as of the end of 2013.(13) During 2013, TFG's U.S. CLO 2.0 investments produced cash flows of $68.8 million, up from $19.9 million in 2012.

This increase in cash collections primarily reflects the seasoning of the portfolio, with more transactions reaching their first payment dates, as well as the one-time impact of the early redemption of a U.S. CLO 2.0 transaction in Q3 2013.

We expect that TFG's U.S. CLO 2.0 investments will continue to remain sensitive to incremental loan spread tightening (given their relatively high cost of funds compared to U.S. CLO 1.0 investments) as well as to any acceleration in underlying loan defaults and credit losses. Whilst these transactions tend to be less exposed to the highly-leveraged, pre-crisis LBO transactions than earlier vintages, they remain at risk for a broad-based cyclical pick-up in leveraged loan defaults given their longer duration, lower level of excess spread cushion and shorter reinvestment periods as compared with U.S. CLO 1.0 deals. As a result of these factors, we expect that TFG's early call or refinancing options are likely to be more valuable for this segment of the portfolio and will look to utilise these tools when appropriate in order to seek to optimise the return profile of TFG's investments.

EUROPEAN CLOs

At the end of 2013, TFG held equity investments in 10 European CLOs with a total fair value of $184.3 million, up from $125.6 million as of the end of 2012. The increase in fair value was primarily driven by: (1) credit quality and overcollateralization test improvements of these transactions, which allowed for greater distributions to their equity tranches, which was reflected in certain changes in discount rate and modelling assumptions described later in this Annual Report; and (2) the purchase of a secondary add-on investment in the equity tranche of a European CLO.

TFG's European CLO investments generated cash flows of €30.5 million in 2013, up from €18.7 million in 2012. This increase was due primarily to the aforementioned gains in CLO O/C coverage tests and credit quality. As of the end of 2013, 100% of TFG's European CLO investments were passing their junior-most O/C tests, compared with 65% of all of such investments passing their junior-most O/C tests when weighted by fair value and 60% when weighted by number of deals as of the end of 2012.(14)

Despite the progress made to date, we continue to monitor TFG's European CLOs closely and anticipate that their performance may remain volatile given their tight structural collateral quality test cushions and high obligor concentrations, among other factors.

We are cautiously optimistic that European economies will continue to improve, albeit with unequal gains achieved across the various Euro-zone jurisdictions, and therefore remain constructive on our European CLOs. We believe that certain of our CLO managers are also encouraged by the prospect of continued macro-economic recovery in Europe and expect that this environment will be one in which fundamental credit-selection skills may add significant value to CLO performance.

The following graph shows the evolution of TFG's CLO equity investment IRRs over the past three years.

[Figure 10]

DIRECT LOANS

As of the end of 2013, TFG held U.S. direct loan investments with a total fair value of $34.0 million ($33.9 million in par amount), down from $114.1 million in fair value ($114.3 million in par amount) at the end of 2012. As mentioned in earlier reports, TFG significantly reduced its directly-held loan exposure in early 2013, as we believed that the spread compression experienced by U.S. leveraged loans during the year reduced the relative attractiveness of their returns when held on an unleveraged basis.

During 2013, the direct loan portfolio generated $0.5 million of net realised and unrealised gains and earned $2.4 million of interest income and discount premium. The fundamental credit metrics of this portfolio remained stable during the year and there continued to be no defaults. We continue to find bank loans an attractive asset class, but currently prefer to own these assets on a leveraged basis through our CLO investments.

EQUITIES

As of the end of 2013, TFG held $221.7 million of investments (at fair value) in equities via Polygon-managed funds and directly-owned equity assets, up from $46.4 million at the end of 2012, reflecting additional investments made during the year as well as their performance.(15) These investments seek to capture the idiosyncratic risk surrounding specific corporate events and are structured to be broadly hedged to equity indices. As of 31 December 2013, TFG's equity investments were primarily focused on: European event-driven equity (a portfolio of liquid M&A transactions, mid-cap dislocation trades with potential re-rating catalysts and trades accessed via equity issues or other ECM events); and a long-short strategy focused on global mining companies where mispricings are sought through fundamental research.

During 2013, TFG's investments in equities (including both fund and directly held investments) returned an annualised 23.8% to TFG on a time-weighted average capital basis.(16)

We continue to believe that TFG may benefit from owning equities directly, in addition to investing indirectly via Polygon-managed funds. Therefore, we expect that TFG will continue to look to allocate additional capital into appropriate direct equity investment opportunities.

CREDIT AND CONVERTIBLE BONDS

As of the end of 2013, TFG held $84.2 million of investments (at fair value) in Polygon-managed credit and convertible bond funds, up from $10.1 million at the end of 2012, reflecting investments made during the year and their performance.

The convertible bond fund primarily comprises convertible securities in Europe and North America, which aim to capitalize on a favourable competitive landscape and a differentiated approach to investing in the asset class. The resulting portfolio has had consistent, low volatility returns and low correlation to other funds and indices. TFG also made an initial investment into the new distressed opportunities strategy, which launched in September 2013.

During 2013, TFG's investments in credit and convertible bonds generated an annualised return on time-weighted average capital of 12.8%.(17)

REAL ESTATE

As of the end of 2013, TFG held $60.8 million of investments (at fair value) in GreenOak-managed real estate funds and vehicles, compared to $25.7 million at the end of 2012. Such investments include numerous commercial and residential properties across Japan, the United States and Europe.

During the year, TFG received distributions of approximately $11.5 million from various GreenOak-managed funds.

Though the pace of investment into real estate has been measured, we expect to continue to fund capital commitments into GreenOak projects throughout 2014.

FINANCING SOURCES, HEDGING ACTIVITY AND OTHER MATTERS

As of the end of 2013, TFG had no outstanding debt and the net cash on its balance sheet stood at $245.9 million, compared to $175.9 million at the end of 2012.

TFG had no direct credit hedges in place at the end of 2013, but employed certain foreign exchange rate and "tail risk" interest rate hedges to seek to mitigate its exposure to Euro-USD foreign exchange risk and a potential significant increase in U.S. inflation and/or nominal interest rates, respectively. We review our hedging strategy on an ongoing basis as we seek to address identified risks to the extent practicable and in a cost-effective manner.

TFG ASSET MANAGEMENT

OVERVIEW

TFG Asset Management comprises the fee income-generating business segment of TFG: management and performance fees from internal and external asset managers.

All of TFG Asset Management's businesses (LCM, the GreenOak joint venture, and Polygon) performed well in 2013, with all raising AUM from new and existing clients. TFG continues its commitment to invest in and grow the asset management business as a key way to achieve the best returns on the company's investments.

UPDATE ON KEY METRICS IN 2</b>013

     Figure 11      TETRAGON FINANCIAL GROUP     TFG Asset Management Statement of Operations 2012-2013                                                                    2013        2012(ii)                                                                    $MM         $MM      Fee income(i)                                                 74.3         36.7     Interest income                                                0.3          0.2     Total income                                                  74.6         36.9     Operating, employee and administrative expenses(i)           (47.1)       (20.1)     Noncontrolling interest                                          -         (1.7)     Net income - "EBITDA equivalent"                              27.5         15.1     Unrealised gain on asset management stake                      6.2          2.4     Performance fee allocation to TFM                             (6.7)        (2.3)     Amortisation expense on management contracts                  (6.8)        (1.2)     Net economic income before taxes(iii)                         20.2         14.0 

     Figure 12      Summary of TFG Asset Management AUM ($BN)     Business                           31 December 2013 31 December 2012      LCM                                            $4.2$4.3     GreenOak(i)                                    $3.6$2.3     Polygon(ii)                                    $1.4$1.1     Total                                          $9.2$7.7

     Figure 13      LCM Assets Under Management History ($BN)     Q4 2010                   $2.9     Q1 2011                   $2.9     Q2 2011                   $3.5     Q3 2011                   $3.4     Q4 2011                   $3.4     Q1 2012                   $3.7     Q2 2012                   $4.1     Q3 2012                   $3.9     Q4 2012                   $4.3     Q1 2013                   $4.5     Q2 2013                   $4.3     Q3 2013                   $4.3     Q4 2013                   $4.2

     Figure 14      GreenOak Assets Under Management History ($BN)(i)      Q4 2011                  $0.6     Q1 2012                  $1.7     Q2 2012                       Q3 2012                  $1.9     Q4 2012                  $2.3     Q1 2013                  $3.0     Q2 2013                  $3.2     Q3 2013                  $3.6     Q4 2013                  $3.6

     Figure 15      Summary of Polygon Funds Assets Under Management ($MM)                                                                          Annualised Net     Fund                               31 December         2013 Net           LTD                                           2013           Performance      Performance      European Event-Driven Equity (i)        $397            21.5%           14.9%     Convertibles (ii)                       $310             9.2%           20.7%     Mining Equities (iii)                    $67             0.1%            2.6%     Private Equity Vehicle (iv)             $483             2.5%            6.6%     Distressed Opportunities (v)             $62             4.0%           12.6%     Other Equity (vi)                        $18            28.8%           16.7%     Polygon Funds' Total AUM              $1,338

     Figure 16(i)      Polygon Hedge Funds Assets Under Management History ($ MM)     (European Event-Driven Equity, Convertibles, Mining Equities, Distressed     Opportunities)                Mar-11             $265               Jun-11             $367               Sep-11             $372               Dec-11             $401               Mar-12             $444               Jun-12             $443               Sep-12             $440               Dec-12             $514               Mar-13             $590               Jun-13             $608               Sep-13             $670               Dec-13             $837      (i) All values are as calculated by the applicable fund administrators for value     date 31 December 2013. 

Other Equi<b>ties: This strategy focuses on opportunities derived from equity capital markets ("ECM") activity such as IPOs. The fund returned 28.8% net performance in 2013, benefitting from an increase in the types of transactions in which the fund invests, with global ECM activity at its highest level since 2010, and global IPO volumes up 40% compared to 2012.(22)

Assets under management for the strategy were $17.7 million at 31 December 2013.

Private Equity: Polygon's portfolio of private and less-liquid public assets which are being sold down in a closed-ended investment vehicle had AUM of approximately $483.0 million at 31 December 2013. The fund has returned $355.0 million of cash to its partners since inception in March 2011, including $90.0 million in 2013. Performance for the year was 2.5%. TFG has not invested directly in this product; however, it is the beneficiary of certain contracted management fee income.

THIRD-PARTY FEE INCOME

In addition to the fee income generated by the three asset management businesses, TFG also currently receives asset management fee income derived from a number of one-off and long-term fee sharing arrangements with third-parties.

2013 FINANCIAL REVIEW

FINANCIAL REVIEW

In this section we present consolidated financial data incorporating TFG and its 100% subsidiary, Tetragon Financial Group Master Fund Limited (the "Master Fund"), and provide comparative data for 2012 and 2011.

FINANCIAL HIGHLIGHTS

     Figure 17      TETRAGON FINANCIAL GROUP     Financial Highlights 2011-2013                                                      2013      2012      2011      U.S. GAAP net income ($MM)                     $224.3$357.2$410.4     Net economic income ($MM)                      $247.4$306.2$410.4     U.S. GAAP EPS                                   $2.29$3.15$3.46     Adjusted EPS                                    $2.52$2.70$3.46     Return on equity                                 15.3%     20.8%     36.1%     Net assets ($MM)                             $1,803.2$1,621.4$1,474.4     U.S. GAAP number of shares outstanding (MM)      98.9      98.8     116.0     U.S. GAAP NAV per share                        $18.23$16.41$12.71     Pro Forma number of shares outstanding (MM)     110.2     110.6     116.0     Pro Forma fully diluted NAV per share          $16.36$14.65$12.71     DPS                                            $0.565$0.470$0.395

The following metrics may be helpful in understanding the progress and performance of the company:

- Return on Equity (15.3%): Net Economic Income ($247.4 million) divided by Net Assets at the start of the year ($1,621.4 million).

- Net Economic Income (+$247.4 million): adds back to the U.S. GAAP net income (+$224.3 million) the imputed 2013 share based employee compensation (+$23.1 million), which is generated on an ongoing basis resulting from the Polygon transaction.

- Pro Forma Fully Diluted Shares (110.2 million): adjusts the U.S. GAAP shares outstanding (98.9 million) for the impact of escrow shares used as consideration in the Polygon transaction and associated stock dividends (the "Escrow Shares") (+11.3 million) and for the potential impact of options issued to TFG's investment manager at the time of TFG's IPO (0.0 million).

- Adjusted EPS ($2.52): calculated as Net Economic Income ($247.4 million) divided by weighted-average U.S. GAAP shares outstanding (98.0 million).

- Pro Forma Fully Diluted NAV per Share ($16.36): calculated as Net Assets ($1,803.2 million) divided by Pro Forma Fully Diluted shares (110.2 million).(23)

STATEMENT OF OPERATIONS

     Figure 18      TETRAGON FINANCIAL GROUP     Annual Statement of Operations 2011-2013                                                                   2013     2012    2011                                                                   $MM      $MM     $MM      Interest income                                              204.8   235.6   209.1     Fee income                                                    74.3    36.7    23.1     Other income - cost recovery                                  21.1     6.8       -     Dividend income                                                0.1       -       -     Investment income                                            300.3   279.1   232.2      Management and performance fees                              (90.0) (109.8) (144.0)     Other operating and administrative expenses                  (84.8)  (42.6)  (26.4)      Total operating expenses                                    (174.8) (152.4) (170.4)      Net investment income                                        125.5   126.7    61.8     Net change in unrealised appreciation in investments         105.1   186.3   358.6     Realised gain on investments                                  16.0     5.3     0.9     Realised and unrealised gains/(losses) from hedging and fx     9.6    (6.8)   (5.1)      Net realised and unrealised gains from investments and fx    130.7   184.8   354.4      Net economic income before tax and noncontrolling interest   256.2   311.5   416.2     Income tax                                                    (8.8)   (3.6)   (3.8)     Noncontrolling interest                                          -    (1.7)   (2.0)     Net Economic Income                                          247.4   306.2   410.4 

Performance Fee

A performance fee of $32.9 million was accrued in Q4 2013 in accordance with TFG's investment management agreement. Year to date, the Investment Manager has earned performance fees of $64.9 million. The hurdle rate for the Q1 2014 incentive fee has been reset at 2.890708% (Q4 2013: 2.893708%) as per the process outlined in TFG's 2013 audited financial statements and in accordance with TFG's investment management agreement. Please see TFG's website, http://www.tetragoninv.com, and the 2013 TFG audited financial statements for more details on the calculation of this fee.

     Figure 19      TETRAGON FINANCIAL GROUP     Statement of Operations by Segment 2013                                                           Investment                                                            Portfolio   TFG AM  Total                                                                  $MM      $MM    $MM      Interest income                                            204.5      0.3   204.8     Fee income                                                     -     74.3    74.3     Other income - cost recovery                                   -     21.1    21.1     Dividend income                                              0.1      0.0     0.1     Investment and management fee income                       204.6     95.7   300.3      Management and performance fees                            (83.3)    (6.7)  (90.0)     Other operating and administrative expenses                 (9.8)   (75.0)  (84.8)      Total operating expenses                                   (93.1)   (81.7) (174.8)      Net change in unrealised appreciation in investments        98.9      6.2   105.1     Realised gain on investments                                16.0        -    16.0     Realised and unrealised gains from hedging and fx            9.6        -     9.6      Net realised and unrealised gains from investments and fx  124.5      6.2   130.7      Net economic income before tax                             236.0     20.2   256.2 

     Figure 20      TETRAGON FINANCIAL GROUP     Balance Sheet as at 31 December 2013 and 31 December 2012                                                                2013               2012                                                                $MM                $MM      Assets     Investments, at fair value                               1,533.0          1,440.4     Management contracts                                        36.5             43.4     Cash and cash equivalents                                  245.9            175.9     Amounts due from brokers                                    42.0             13.1     Derivative financial assets                                 15.2              7.6     Property, plant and equipment                                0.3                -     Deferred tax asset and income tax receivable                 8.3                -     Other receivables                                           26.5             15.8     Total assets                                             1,907.7          1,696.2     Liabilities     Other payables and accrued expenses                         79.8             61.7     Amounts payable on share options                            10.7              6.6     Deferred tax liability and income tax payable               10.7              4.3     Derivative financial liabilities                             3.3              2.2     Total liabilities                                          104.5             74.8     Net assets                                               1,803.2          1,621.4 

STATEMENT OF CASH FLOWS

     Figure 21      TETRAGON FINANCIAL GROUP     Statement of Cash Flows Through 2011-2013                                                         2013     2012     2011                                                          $MM      $MM      $MM     Operating Activities     Operating cash flows after incentive fees and     before movements in working capital                  375.6   368.2   251.3     Purchase of fixed assets                              (0.4)      -       -     Change in payables / receivables                       2.7    13.0     2.6      Cash flows from operating activities                 377.9   381.2   253.9      Investment Activities     Proceeds on sales of investments     - Net proceeds from swap resets                        5.5       -       -     - Proceeds sale of bank loans and maturity and     prepayment of investments                            102.6    84.6   122.3     - Proceeds on realisation of real estate     investments                                           11.5     2.3       -     - Proceeds sale of derivatives - swaptions             2.6     2.0       -     - Proceeds sale of CLOs                                  -     0.2       -     Purchase of investments     - Purchase of CLOs                                   (73.1) (113.2)  (63.0)     - Purchase of bank loans                             (22.4)  (90.1) (131.8)     - Purchase of real estate investments                (43.5)  (23.5)   (2.4)     - Purchase of interest rate swaptions                    -    (8.3)  (17.8)     - Investments in asset managers                       (0.5)   (2.7)   (2.4)     - Investments in equities                           (125.9)  (45.0)      -     - Investments in credit and convertible bonds        (70.0)  (10.0)      -      Cash flows from operating and investing activities   164.7   177.5   158.8      Amounts due from broker                              (28.9)    2.7   (11.6)     Net purchase of shares                               (11.7) (164.1)  (28.0)     Dividends paid to shareholders                       (53.9)  (50.3)  (45.1)     Distributions paid to noncontrolling interest            -    (1.8)   (3.2)      Cash flows from financing activities                 (94.5) (213.5)  (87.9)      Net increase in cash and cash equivalents             70.2   (36.0)   70.9     Cash and cash equivalents at beginning of period     175.9   211.5   140.6     Effect of exchange rate fluctuations on cash and     cash equivalents                                      (0.2)    0.4       -      Cash and cash equivalents at end of period           245.9   175.9   211.5 

NET ECONOMIC INCOME TO U.S.GAAP RECONCILIATION

     Figure 22      Net Economic Income to U.S. GAAP Reconciliation                                                           31 Dec                                                            2013                                                             $MM      Net economic income                                   247.4     Share based employee compensation                     -23.1     U.S. GAAP net income                                  224.3 

TFG is primarily reporting earnings through a non-GAAP measurement called Net Economic Income.

The reconciliation on the table above shows the adjustment required to get from this measure of earnings to U.S. GAAP net income.

For the year ended 31 December 2013, the only adjusting line item is share-based employee compensation of $23.1 million.

Under ASC 805, TFG is recognizing the value of the shares given in consideration for the Polygon Transaction as employee compensation over the period in which they are vesting. This mechanic and future vesting schedule are described in more detail in the Master Fund audited financial statements for the year ended 31 December 2013.

APPENDICES

APPENDIX I

DIRECTORS' STATEMENTS

The Directors of TFG confirm that (i) this Annual Report constitutes the TFG management review for the year ended 31 December 2013 and contains a fair review of that period and (ii) the 2013 audited financial statements accompanying this Annual Report for TFG have been prepared in accordance with applicable laws and in conformity with U.S. generally accepted accounting principles.

APPENDIX II

FAIR VALUE DETERMINATION OF TFG'S CLO EQUITY INVESTMENTS

In accordance with the valuation policies set forth on TFG's website, the values of TFG's CLO equity investments are determined using a third-party cash flow modelling tool. The model contains certain assumption inputs that are reviewed and adjusted as appropriate to factor in how historic, current and potential market developments (examined through, for example, forward-looking observable data) might potentially impact the performance of TFG's CLO equity investments. Since this involves modelling, among other things, forward projections over multiple years, this is not an exercise in recalibrating future assumptions to the latest quarter's historical data.

Subject to the foregoing, when determining the U.S. GAAP-compliant fair value of TFG's portfolio, the company seeks to derive a value at which market participants could transact in an orderly market and also seeks to benchmark the model inputs and resulting outputs to observable market data when available and appropriate.

Forward-looking CLO Equity Cash Flow Modelling Assumptions Recalibrated at the end of 2013

The Investment Manager reviews and, when appropriate, adjusts in consultation with TFG's audit committee the CLO equity investment portfolio's modelling assumptions as described above. At the end of 2013, certain key assumptions relating to defaults were recalibrated. Those relating to recoveries, prepayments and reinvestment prices were unchanged from the previous quarter.

U.S. CLOs-Default Assumptions Recalibrated

For the U.S. deals, near-term default assumptions were unchanged but medium-term default multiples were reduced to base case to reflect, among other things, the effective resolution of the so-called "maturity wall" issue as well as the perceived return to a more normalised credit cycle after the financial crisis. These changes, which are detailed in the table below, result in base case default assumptions being applied for all future periods. This had a positive impact on the undiscounted future projected cash flows of the U.S. deals.

     Figure 23      U.S. CLOs                                            Current     Variable           Year                Assumptions      Prior Assumptions     CADR                                            1.0x                                            WARF-implied     1.0x WARF-implied                                            default rate     default rate                        2013-2014           (2.2%)           (2.2%)                                             1.0x             1.25x                                            WARF-implied     WARF-implied                                            default rate     default rate                        2015-2017           (2.2%)           (2.7%)                                             1.0x                                            WARF-implied     1.0x WARF-implied                                            default rate     default rate                        Thereafter          (2.2%)           (2.2%)     Recovery Rate                        Until deal maturity   73%               73%     Prepayment Rate                                            20.0% p.a. on    20.0% p.a. on                                            loans; 0.0% on   loans; 0.0% on                        Until deal maturity    bonds            bonds      Reinvestment Price                        Until deal maturity    100%              100% 

European CLOs-Default Assumptions Recalibrated

For the European deals, elevated default multiples were previously maintained in the near and medium term. In light of some positive developments, such as more optimistic default projections by rating agencies and the perception of progress towards a more normalised credit cycle in Europe, the medium term multiple was reduced to base case and the very near term multiple to 1.25x base case. This had a positive impact on the undiscounted future projected cash flows of the European deals.

     Figure 24      European CLOs                                                                Prior     Variable           Year                Current Assumptions Assumptions     CADR                                                                1.5x                                                                WARF-implied                                            1.25x WARF-implied  default rate                        2013-2014           default rate (2.6%) (3.1%)                                                                 1.25x                                                                WARF-implied                                            1.0x WARF-implied   default rate                        2015-2017           default rate (2.1%) (2.6%)                                                                 1.0x                                                                WARF-implied                                            1.0x WARF-implied   default rate                        Thereafter          default rate (2.1%) (2.1%)      Recovery Rate                        Until deal maturity      68%             68%     Prepayment Rate                                            20.0% p.a. on       20.0% p.a. on                                            loans; 0.0% on      loans; 0.0% on                        Until deal maturity     bonds              bonds     Reinvestment Price                        Until deal maturity     100%            100% 

These key average assumption variables include the modelling assumptions disclosed as a weighted average (by U.S. dollar amount) of the individual deal assumptions, aggregated by geography (i.e. U.S. and European). Such weighted averages may change from month to month due to movements in the amortised costs of the deals, even without changes to the underlying assumptions. Each individual deal's assumptions may differ from this geographical average and vary across the portfolio.

The reinvestment price, assumptions about reinvestment spread and reinvestment life are also input into the model to generate an effective spread over LIBOR. Newer-vintage CLOs may have a higher weighted-average reinvestment spread over LIBOR or shorter reinvestment life assumptions than older deals. Across the entire CLO portfolio, the reinvestment price assumption of 100% for U.S. deals and European deals with their respective assumed weighted-average reinvestment spreads, generates an effective spread over LIBOR of approximately 289 bps on broadly syndicated U.S. loans, 272 bps on European loans, and 328 bps on middle market loans.

Application of Discount Rate to Projected CLO Equity Cash Flows

U.S. CLO 1.0 Equity- discount rates reduced from 15% to 13%

In determining the applicable rates to use to discount projected cash flows, an analysis of observable risk premium data is undertaken. As had been noted over a number of prior quarters, observable risk premia such as BB and BBB CLO tranche spreads have been reducing with BB spreads on U.S. deals, for example, edging down to 5.3% in December 2013.(24)

Since the end of Q1 2013, BB and BBB spreads on U.S. deals have both reduced by approximately 1.0%(25) and have exhibited a relatively low level of volatility at these lower levels. Accordingly, TFG's discount rates on U.S. CLO 1.0 equity deals have been reduced to 13% from 15%, also reflecting compression of equity discount rates over mezzanine tranches as well as other observable factors. The future movement of mezzanine tranche spreads as well as the likely range of spreads of equity discount rates over such spreads, among other factors, will continue to be monitored in coming quarters.

European CLO Equity- discount rates reduced from 20% to 17%

European BB-rated tranche yields have also continued to follow a downward trajectory, reaching approximately 7.5% in December 2013.(26) This is now just over 2% higher than the U.S. equivalent (see above), and notwithstanding the potential higher risks connected with the ongoing Eurozone issues, is reflective of certain other observable data (such as improving deal performance) and anecdotal evidence pointing to a reduction in the differential between discount rates in the two geographies. Consequently, the discount rate applied to European deal projected cash flows has been reduced to 17% from 20%. As a result, the differential between the discount rates used on U.S. pre-crisis deals and European deals has fallen from 4% to 3%. The observable range of European risk premia over the U.S. equivalent, among other factors, will continue to be monitored in coming quarters.

Historically, we have characterized the difference arising where fair value is lower than the amortised cost for the portfolio, which can occur when the discount rates used to discount future cash flows when determining fair value are higher than the modelled IRRs, as the "ALR Fair Value Adjustment" or "ALR". For European deals at the end of Q4 2013, the ALR stood at $38.9 million, compared to $51.0 million at the end of Q3 2013. As explained in prior releases, the ALR is now zero for U.S. deals.

U.S. CLO 2.0 Equity- discounted using deal IRR

The applicable discount rate for newer vintage deals is determined with reference to each deal's specific IRR, which, in the absence of other observable data points, is deemed to be the most appropriate indication of the current risk premium on these structures. At the end of Q4 2013, the weighted-average discount rate (and IRR) on these deals was 11.6%. Such deals represented approximately 17.7% of the CLO equity portfolio by fair value (up from 16.9% at the end of Q3 2013). We will continue to monitor observable data on these newer vintage transactions to determine whether the IRR remains the appropriate discount rate.

APPENDIX III

CLO MARKET COMMENTARY

- U.S. leveraged loan defaults pick-up vs. 2012 but decline in Europe: The U.S. lagged 12-month loan default rate stood at 2.11% by principal amount at the end of Q4 2013, down from 2.41% in Q3 2013, but up from 1.27% at the end of 2012.(27) In Europe, the lagged 12-month default rate for the S&P European Leveraged Loan Index ("ELLI") ended 2013 at 2.9% by principal amount,(28) down substantially from 6.6% at the end of 2012 and the lowest level since June 2011.(29)

TFG's lagging 12-month loan default rate decreased to 1.5% at the end of Q4 2013, down from 18% at the end of Q3 2013, but up slightly from 1.4% at the end of 2012.(30) The graph below summarizes the three-year history of TFG and U.S. market-wide loan default rates.

[Figure 25]

- U.S. and European primary loan issuance volumes surge in 2013: Institutional U.S. loan issuance reached a record of $455.0 billion in 2013, up from $295.0 billion in 2012, and exceeding the previous high of $387.0 billion in 2007, fuelled by strong investor demand from both institutional and retail investors.(31) New issue volume was dominated by opportunistic refinancing and recapitalization activity, with M&A-driven or LBO financings representing a smaller share of new issue volumes.(32) European leveraged loan issuance also rose in 2013, reaching a five-year high of €67.4 billion in 2013, up 136.0% from 2012.(33) European M&A-related loan issuance totalled €27.5 billion in 2013, up 81.0% from 2012.(34)

- U.S. loan refinancing activity reaches new highs: U.S. institutional leveraged loan issuers executed $212.6 billion of refinancings in 2013, up from $133.4 billion in 2012.(35) In addition, issuers re-priced $280.0 billion of institutional loans in 2013 (approximately 42.0% of the universe) by 115 bps on average, a significant increase from the prior record of $140.2 billion of re-pricings executed in 2007.(36)

- "Maturity wall" erosion continues: During 2013, U.S. and European leveraged loan borrowers continued to address near-term maturities. In the U.S., the amount of S&P/LSTA Leveraged Loan Index loans maturing prior to 2016 declined to $17.1 billion or 2.6% of the Index as of the end of 2013, down from $67.0 billion or 12.5% at the end of 2012.(37) European borrowers also took advantage of strong market conditions to reduce their maturities primarily via repayments and high yield take-outs, with the share of S&P European Leveraged Loan Index ("ELLI") institutional loans maturing in 2015 declining by approximately 67.0% to €12.0 billion and those due through the end of 2016 falling by 56.0% to €28.0 billion.(38)

- U.S. and European loan repayments pick-up: The U.S. S&P/LSTA Leveraged Loan Index repayment rate rose to 9.1% in Q4 2013, up from 4.5% in Q3 2013 and bringing the 2013 total to approximately 45.0%, up from 38.0% in 2012.(39) Repayments within the S&P European Leveraged Loan Index ("ELLI") rose to 29.0% during 2013, up from approximately 15.0% in 2012.(40)

- 2013 loan returns positive in both the U.S. and Europe: The U.S. S&P/LSTA Leveraged Loan Index returned 5.29% during 2013, with the market-value component representing 0.33% of the total return and majority of performance reflecting coupon income.(41) Total returns on the S&P European Leveraged Loan Index ("ELLI") stood at 9.09% in 2013 (excluding currency effects), outperforming the U.S. market and reflecting strong European loan market conditions.(42)

- U.S. and European junior O/C ratios improve year-over-year: During 2013, median junior O/C ratios of both U.S. and European CLOs improved from their 2012 year-end levels. According to Morgan Stanley, the median junior O/C test cushion for U.S. CLOs was 5.10% at the end of 2013(43) vs. 4.63% at the end of 2012.(44) The median junior O/C test cushion for European CLOs rose to 0.84% at the end of 2013(45) up from 0.26% at the end of 2012.(46)

- Global arbitrage CLO issuance reaches post-crisis high: U.S. arbitrage cash flow CLO issuance rose to $81.8 billion in 2013, up from $54.3 billion in 2012.(47) The European arbitrage cash flow CLO market also re-opened following a multi-year post-crisis hiatus, with new issue volumes totalling $9.6 billion in 2013, up from a base of $0.0 in 2012.(48) Market participants anticipate that 2014 U.S. arbitrage cash flow CLO issuance will fall in the $65-$75 billion range while European issuance will total €8-€10 billion, with challenging arbitrage conditions and continued regulatory uncertainty persisting as the key expected headwinds for these markets.(49)

- Secondary CLO spreads tighten year-over-year: Average generic secondary CLO 1.0 spreads tightened during 2013 vs. 2012 for both U.S. and European CLOs, with the greatest appreciation occurring in Europe and within mezzanine tranches.(50) Debt spreads of U.S. CLO 2.0 structures tightened vs. the beginning of the year, with the notable exception of senior, AAA-rated liabilities which widened by approximately 10 bps during 2013, ending the year at an average of approximately 150 bps.(51)

APPENDIX IV

ADDITIONAL CLO PORTFOLIO STATISTICS

- CLO Portfolio Credit Quality: The weighted-average WARF across all of TFG's CLO equity investments stood at approximately 2,542 as of the end of 2013. Each of these foregoing statistics represents a weighted-average summary (weighted by initial cost) of all of our deals. Each individual deal's metrics will differ from these averages and vary across the portfolio.

     Figure 26      ALL CLOs                     Q4 2013 Q3 2013 Q2 2013 Q1 2013 Q4 2012 Q3 2012      Caa1/CCC+ or Below Obligors:    5.4%    4.9%    5.0%    5.1%    6.0%    6.4%     WARF:                         2,542   2,553   2,568   2,541   2,599   2,605      U.S. CLOs                    Q4 2013 Q3 2013 Q2 2013 Q1 2013 Q4 2012 Q3 2012     Caa1/CCC+ or Below Obligors:    3.8%    3.9%    4.1%    4.0%    4.5%    4.9%     WARF:                         2,513   2,534   2,550   2,510   2,524   2,528      EUR CLOs                     Q4 2013 Q3 2013 Q2 2013 Q1 2013 Q4 2012 Q3 2012     Caa1/CCC+ or Below Obligors:   11.8%    9.1%    8.7%    9.7%   11.7%   12.2%     WARF:                         2,658   2,631   2,642   2,670   2,896   2,903      (table cont.)       ALL CLOs                     Q2 2012 Q1 2012 Q4 2011 Q3 2011 Q2 2011 Q1 2011      Caa1/CCC+ or Below Obligors:    5.7%    6.2%    7.0%    7.0%    7.2%    7.6%     WARF:                         2,578   2,588   2,624   2,614   2,642   2,664      U.S. CLOs                    Q2 2012 Q1 2012 Q4 2011 Q3 2011 Q2 2011 Q1 2011     Caa1/CCC+ or Below Obligors:    4.2%    4.8%    5.5%    5.5%    5.8%    6.5%     WARF:                         2,491   2,504   2,533   2,522   2,542   2,591      EUR CLOs                     Q2 2012 Q1 2012 Q4 2011 Q3 2011 Q2 2011 Q1 2011     Caa1/CCC+ or Below Obligors:   11.6%   11.1%   12.3%   12.0%   12.3%   11.4%     WARF:                         2,910   2,900   2,948   2,941   2,997   2,914 

CLO EQUITY PORTFOLIO DETAILS AS OF 31 DECEMBER 2013

     Figure 27                                        Original Deal             End of Wtd Avg    Original                                      Invest.                                     Cost of                                      Cost     Closing Year of  Reinv  Spread     Funds                                      ($MM     Transaction(i)    Deal Type      USD)(ii) Date    Maturity Period (bps)(iii) (bps)(iv)     Transaction 1     EUR CLO        37.5        2007     2024   2014 381        55     Transaction 2     EUR CLO        29.7        2006     2023   2013 418        52     Transaction 3     EUR CLO        22.2        2006     2022   2012 419        58     Transaction 4     EUR CLO        33.0        2007     2023   2013 422        48     Transaction 5     EUR CLO        36.9        2007     2022   2014 427        60     Transaction 6     EUR CLO        33.3        2006     2022   2012 394        51     Transaction 7     EUR CLO        38.5        2007     2023   2013 412        46     Transaction 8     EUR CLO        26.9        2005     2021   2011 422        53     Transaction 9     EUR CLO        41.3        2007     2023   2013 436        50     Transaction 10    EUR CLO        27.0        2006     2022   2012 388        50     Transaction 86    EUR CLO         3.6        2006     2022   2012 388        50     EUR CLO Subtotal:               329.9                             412        52      Transaction 11    US CLO         20.5        2006     2018   2012 305        45     Transaction 12    US CLO         22.8        2006     2019   2013 338        46     Transaction 13    US CLO         15.2        2006     2018   2012 330        47     Transaction 14    US CLO         26.0        2007     2021   2014 344        49     Transaction 15    US CLO         28.1        2007     2021   2014 419        52     Transaction 16    US CLO         23.5        2006     2020   2013 393        46     Transaction 17    US CLO         26.0        2007     2021   2014 334        40     Transaction 18    US CLO         16.7        2005     2017   2011 304        45     Transaction 19    US CLO          1.2        2005     2017   2011 304        45     Transaction 20    US CLO         26.6        2006     2020   2012 410        52     Transaction 21    US CLO         20.7        2006     2020   2012 397        53     Transaction 22    US CLO         37.4        2007     2021   2014 416        53     Transaction 23    US CLO         19.9        2007     2021   2013 321        66     Transaction 24    US CLO         16.9        2006     2018   2012 415        46     Transaction 25    US CLO         20.9        2006     2018   2013 403        46     Transaction 26    US CLO         27.9        2007     2019   2013 427        43     Transaction 27    US CLO         23.9        2007     2021   2014 548        51     Transaction 28    US CLO          7.6        2007     2021   2014 548        51     Transaction 29    US CLO         19.1        2005     2018   2011 370        66     Transaction 30    US CLO         12.4        2006     2018   2012 432        67     Transaction 31    US CLO          9.5        2005     2017   2012 309        52     Transaction 32    US CLO         24.0        2007     2021   2014 315        59     Transaction 33    US CLO         16.2        2006     2020   2012 364        56     Transaction 34    US CLO         22.2        2006     2020   2012 361        50     Transaction 35    US CLO         23.6        2006     2018   2012 455        52     Transaction 36    US CLO         28.4        2007     2021   2013 413        46     Transaction 37    US CLO          9.3        2005     2017   2011 289        50     Transaction 38    US CLO         23.7        2007     2021   2013 327        42     Transaction 39    US CLO          7.8        2005     2017   2011 441        70     Transaction 40    US CLO         13.0        2006     2020   2011 372        39     Transaction 41    US CLO         22.5        2006     2020   2013 377        48     Transaction 42    US CLO         22.4        2007     2021   2014 376        47     Transaction 44    US CLO         22.3        2006     2018   2012 311        54     Transaction 45    US CLO         23.0        2006     2018   2012 292        46     Transaction 46    US CLO         21.3        2007     2019   2013 296        51     Transaction 47    US CLO         28.3        2006     2021   2013 338        47     Transaction 48    US CLO         23.0        2006     2019   2013 325        46     Transaction 49    US CLO         12.6        2005     2017   2011 351        40     Transaction 50    US CLO         12.3        2006     2018   2012 340        40     Transaction 51    US CLO         18.0        2007     2020   2013 353        53     Transaction 54    US CLO          0.5        2005     2017   2012 336        56     Transaction 55    US CLO          0.3        2005     2017   2011 336        39     Transaction 56    US CLO         23.0        2007     2019   2014 345        42     Transaction 57    US CLO          0.6        2007     2019   2014 345        42     Transaction 58    US CLO         21.8        2007     2019   2014 350        49     Transaction 59    US CLO          0.4        2007     2019   2014 350        49     Transaction 61    US CLO         29.1        2007     2021   2014 340        45     Transaction 62    US CLO         25.3        2007     2020   2013 327        42     Transaction 63    US CLO         27.3        2007     2021   2013 367        53     Transaction 64    US CLO         15.4        2007     2021   2013 400        38     Transaction 65    US CLO         26.9        2006     2021   2013 377        47     Transaction 66    US CLO         21.3        2006     2020   2013 309        49     Transaction 67    US CLO         27.3        2007     2022   2014 331        46     Transaction 68    US CLO         19.3        2006     2020   2013 356        48     Transaction 69    US CLO         28.2        2007     2019   2013 351        44     Transaction 70    US CLO         24.6        2006     2020   2013 294        52     Transaction 71    US CLO          1.7        2006     2018   2012 340        40     Transaction 72    US CLO          4.8        2007     2019   2014 345        42     Transaction 73    US CLO          1.9        2007     2019   2014 345        42     Transaction 74    US CLO          5.5        2007     2019   2014 350        49     Transaction 75    US CLO         32.7        2011     2022   2014 388       168     Transaction 76    US CLO          1.9        2006     2018   2012 292        46     Transaction 77    US CLO         14.5        2011     2023   2016 399       212     Transaction 78    US CLO         22.9        2012     2023   2015 492       217     Transaction 79    US CLO         19.4        2012     2022   2015 402       215     Transaction 80    US CLO         22.7        2012     2022   2016 405       185     Transaction 81    US CLO         21.7        2012     2024   2016 449       216     Transaction 82    US CLO         25.4        2012     2022   2016 409       206     Transaction 83    US CLO         20.8        2013     2025   2017 480       193     Transaction 84    US CLO         24.6        2013     2023   2017 404       183     Transaction 85    US CLO          1.0        2013     2025   2017 400       170     Transaction 87    US CLO         23.0        2013     2026   2018 362       199     US CLO Subtotal:              1,332.3                             373        74      Total CLO Portfolio:          1,662.2                             381        70 

CLO EQUITY PORTFOLIO DETAILS (CONTINUED) AS OF 31 DECEMBER 2013

     Figure 27 (continued)                                          Jr-Most                    Current  Current Jr- O/C        Annualized            ITD Cash                    Cost of                                               Received                    Funds    Most O/C    Cushion at (Loss) Gain           as                                                    of                    % of     Transaction(i) (bps)(v) Cushion(vi) Close(vii) Cushion(viii) IRR(ix) Cost(x)     Transaction 1        57  0.92%            3.86%       (0.45%)    1.4%    29.6%     Transaction 2        60  0.90%            3.60%       (0.38%)   10.5%    96.1%     Transaction 3        81  3.66%            5.14%       (0.19%)   12.4%   121.4%     Transaction 4        49  5.93%            5.76%        0.02%    15.9%   124.0%     Transaction 5        59  1.55%            5.74%       (0.65%)   10.6%    87.6%     Transaction 6        60  0.16%            4.70%       (0.59%)    5.8%    49.7%     Transaction 7        49  2.29%            3.64%       (0.20%)    6.6%    31.9%     Transaction 8        75  4.21%            4.98%       (0.09%)    9.3%   102.8%     Transaction 9        49  1.17%            6.27%       (0.76%)    7.6%    62.9%     Transaction 10       67  3.65%            4.54%       (0.12%)    4.2%    36.6%     Transaction 86       67  3.65%            3.11%        0.07%    22.6%     0.0%     EUR CLO     Subtotal:            59  2.31%            4.82%       (0.36%)            70.4%      Transaction 11       52  7.97%            4.55%        0.47%    20.5%   182.0%     Transaction 12       54  8.95%            4.45%        0.63%    20.3%   179.9%     Transaction 13       50  5.29%            4.82%        0.06%    21.3%   196.9%     Transaction 14       50  2.88%            5.63%       (0.40%)   18.9%   175.7%     Transaction 15       48  3.60%            4.21%       (0.09%)   29.4%   222.7%     Transaction 16       46  3.56%            4.44%       (0.12%)   21.3%   196.1%     Transaction 17       40  4.60%            4.24%        0.05%    23.8%   189.4%     Transaction 18       54 11.36%            4.77%        0.81%    19.9%   192.3%     Transaction 19       54 11.36%            4.77%        0.81%    23.7%   186.6%     Transaction 20       70  5.89%            5.28%        0.08%    22.1%   195.2%     Transaction 21       73  6.18%            4.76%        0.19%    18.4%   174.4%     Transaction 22       53  2.71%            5.00%       (0.34%)   21.4%   175.9%     Transaction 23      100  6.26%            4.98%        0.19%    19.9%   173.6%     Transaction 24       50  5.73%            4.17%        0.21%    18.3%   166.2%     Transaction 25       49  7.52%            4.13%        0.48%    22.8%   188.2%     Transaction 26       49  2.13%            4.05%       (0.28%)   19.6%   170.0%     Transaction 27       51 10.90%            6.11%        0.69%    32.7%   241.1%     Transaction 28       51 10.90%            6.11%        0.69%    43.9%   168.3%     Transaction 29      287 37.13%            4.82%        3.93%    17.9%   172.1%     Transaction 30      108  5.94%            5.16%        0.10%    18.8%   169.9%     Transaction 31       94  9.10%            5.02%        0.48%    16.0%   187.5%     Transaction 32       59  4.11%            5.57%       (0.23%)   21.3%   173.7%     Transaction 33      133  8.45%            6.99%        0.19%    13.8%   157.1%     Transaction 34       64  5.96%            6.66%       (0.10%)   18.8%   180.6%     Transaction 35      147 14.85%            5.00%        1.31%    18.7%   173.6%     Transaction 36       63  3.01%            5.18%       (0.32%)   19.5%   163.6%     Transaction 37      163 25.25%            4.34%        2.53%    14.6%   165.1%     Transaction 38       45  5.36%            5.07%        0.04%    27.6%   216.4%     Transaction 39      466 83.46%            3.15%        9.80%     9.3%    89.9%     Transaction 40       56    N/A              N/A          N/A    21.2%   183.5%     Transaction 41       49  4.25%            4.71%       (0.06%)   22.2%   186.5%     Transaction 42       48  5.08%            3.92%        0.17%    22.3%   181.3%     Transaction 44      156 10.53%            4.16%        0.83%     9.4%   125.2%     Transaction 45       78  3.92%            4.46%       (0.08%)    8.1%   114.2%     Transaction 46       76  3.70%            4.33%       (0.10%)    7.2%   103.5%     Transaction 47       43  2.89%            4.34%       (0.20%)   22.0%   189.3%     Transaction 48       58  3.30%            5.71%       (0.34%)   15.2%   149.0%     Transaction 49       62  7.16%            3.94%        0.40%    11.6%   126.6%     Transaction 50       55  6.41%            4.25%        0.29%    12.8%   130.3%     Transaction 51       57  5.05%            4.47%        0.09%    21.4%   180.4%     Transaction 54      166 26.02%            3.69%        2.57%    54.7%   934.4%     Transaction 55       98 26.49%            3.59%        2.72%    58.2%   888.1%     Transaction 56       42  4.57%            4.53%        0.01%    22.8%   185.6%     Transaction 57       42  4.57%            4.53%        0.01%    48.7%  1046.4%     Transaction 58       49  3.57%            4.04%       (0.07%)   25.2%   194.5%     Transaction 59       49  3.57%            4.04%       (0.07%)   52.8%  1461.1%     Transaction 61       45  2.76%            4.04%       (0.19%)   17.7%   147.5%     Transaction 62       44  4.45%            5.20%       -0.11%    22.3%   192.0%     Transaction 63       55  2.38%            4.78%       (0.37%)   19.7%   172.5%     Transaction 64       45    N/A              N/A          N/A    23.0%   188.6%     Transaction 65       59  5.30%            4.96%        0.05%    14.8%   138.0%     Transaction 66       49  3.45%            4.05%       (0.08%)   22.6%   195.2%     Transaction 67       45  4.19%            4.38%       (0.03%)   21.0%   175.3%     Transaction 68       48  5.89%            4.41%        0.21%    27.6%   234.4%     Transaction 69       45  7.24%            5.61%        0.24%    26.7%   219.9%     Transaction 70       53  4.99%            6.21%       (0.17%)   19.3%   170.5%     Transaction 71       55  6.41%            4.25%        0.29%    24.2%    97.1%     Transaction 72       42  4.57%            4.53%        0.01%    20.5%    87.6%     Transaction 73       42  4.57%            4.53%        0.01%    20.5%    87.6%     Transaction 74       49  3.57%            4.04%       (0.07%)   23.0%    92.7%     Transaction 75      168  4.55%            4.05%        0.20%    12.1%    52.7%     Transaction 76       78  3.92%            2.43%        0.21%    31.9%   107.4%     Transaction 77      213  5.71%            5.04%        0.33%    13.4%    34.8%     Transaction 78      217  5.62%            4.00%        0.83%    16.1%    49.4%     Transaction 79      215  4.20%            4.00%        0.11%     7.3%    34.3%     Transaction 80      185  4.21%            4.17%        0.02%    11.2%    32.5%     Transaction 81      217  4.68%            4.00%        0.53%     8.8%    22.0%     Transaction 82      207  4.13%            4.00%        0.11%     8.4%    21.7%     Transaction 83      193  6.35%            6.17%        0.21%    13.5%    13.2%     Transaction 84      184  4.12%            4.02%        0.13%    16.0%    22.9%     Transaction 85      170  5.08%            5.01%        0.15%     8.5%     6.0%     Transaction 87      199  4.00%            4.00%       (0.01%)   10.0%     0.0%     US CLO     Subtotal:            90  6.23%            4.56%        0.51%            151.9%      Total CLO     Portfolio:           84  5.45%            4.61%        0.34%            135.7% 

Notes

(i) Transactions are investments made on a particular investment date. Multiple transactions may be associated with the same tranche of the same CLO deal.

(ii) The USD investment cost reflects a USD-EUR exchange rate fixed at a single historical rate to avoid the impact of skewed weightings and FX volatility over time. As such, the investment costs of European CLOs as shown in this table may not be comparable to the investments costs as shown in TFG's financial statements.

(iii) Par weighted-average spread over LIBOR or EURIBOR (as appropriate) of the underlying loan assets in each CLO's portfolio.

(iv) Notional weighted-average spread over LIBOR or EURIBOR (as appropriate) of the debt tranches issued by each CLO, as of the closing date of each transaction.

(v) Notional weighted-average spread over LIBOR or EURIBOR (as appropriate) of the debt tranches issued by each CLO, as of the most recent trustee report date.

(vi) The current junior-most O/C cushion is the excess (or deficit) of the junior-most O/C test ratio over the test requirement, as of the latest trustee report available as of the report date.

(vii) The junior-most O/C cushion at close is the excess (or deficit) of the junior-most O/C test ratio over the test requirement that was expected on each deal's closing date. Please note that two of TFG's investments are so called "par structures" which do not include a junior O/C test. They have been marked by an "N/A" in the relevant junior-most O/C test columns.

(viii) Calculated by annualising the change from the expected closing date junior-most O/C cushion to the current junior-most O/C cushion.

(ix) Calculated from TFG's investment date. Includes both historical cash flows received to-date and prospective cash flows expected to be received, based on TFG's base case modelling assumptions.

(x) Inception to report date cash flow received on each transaction as a percentage of its original cost.

CLO EQUITY PORTFOLIO DETAILS (CONTINUED) AS OF 31 DECEMBER 2013

[Figure 28]

APPENDIX V

SHARE RECONCILIATION AND SHAREHOLDINGS

U.S. GAAP TO FULLY DILUTED SHARES RECONCILIATION

     Figure 29     U.S. GAAP to Fully Diluted Shares Reconciliation                                                           31 Dec 2013                                                          Shares (MM)      Legal Shares Issued and Outstanding                       134.77     Less: Shares Held In Subsidiary                            16.60     Less: Shares Held In Treasury                               7.95     Less: Escrow Shares(52.i)                                  11.28      U.S. GAAP Shares Outstanding                               98.94     Add: Manager (IPO) Share Options(52.ii)                     0.01     Add: Escrow Shares(52.i)                                   11.28      Pro Forma Fully Diluted Shares                            110.23 

SHAREHOLDINGS

Persons affiliated with TFG maintain significant interests in TFG shares. For example, as of 31 December 2013, the following persons own (directly or indirectly) interests in shares in TFG in the amounts set forth below:

     Shareholdings      Mr. Reade Griffith*   7,094,407     Mr. Paddy Dear*       2,471,667     Mr. David Wishnow       346,262     Mr. Jeff Herlyn         273,652     Mr. Michael Rosenberg   118,628     Mr. Rupert Dorey         92,311 

* The amounts set forth above in regards to Messrs. Griffith and Dear include their interests with respect to the Escrow Shares(52.i).

In addition to the foregoing, as of 31 December 2013, certain employees of subsidiaries of TFG and other affiliated persons own in the aggregate approximately 4.1 million shares, including interests with respect to the Escrow Shares(52.i).

APPENDIX VI

ADDITIONAL CORPORATE INFORMATION

DESCRIPTION OF BUSINESS

TFG (company number 43321) is a Guernsey company traded on NYSE Euronext in Amsterdam under the ticker symbol "TFG" that aims to provide stable returns to investors across various credit, equity, interest rate and real estate cycles. The company maintains two key business segments: an investment portfolio and an asset-management platform. Both business segments cover a broad range of assets including bank loans, real estate, equities, credit and convertible bonds. TFG currently invests primarily through long-term funding vehicles, such as collateralized loan obligations.

TFG's asset-management platform ("TFG Asset Management") currently consists of Polygon Global Partners ("Polygon"), LCM Asset Management LLC ("LCM") and GreenOak Real Estate L.P. ("GreenOak"). TFG Asset Management L.P. is registered as an investment adviser under the U.S. Investment Advisers Act of 1940 and one of its investment management entities, Polygon Global Partners LLP, is authorised and regulated by the United Kingdom Financial Services Authority. The company is seeking to realise the benefits of building and integrating existing and potentially new asset management businesses into the platform. In turn, the company will continue to advance this effort throughout 2014, including by evaluating other asset managers.

TFG is registered in the public register of the Netherlands Authority for the Financial Markets ("AFM") under section 1:107 of the Netherlands Financial Markets Supervision Act ("FMSA") as a collective investment scheme from a designated country.

TFG's investment objective is to generate distributable income and capital appreciation. To achieve this objective, Tetragon Financial Management LP (the "Investment Manager") seeks to identify opportunities, assets and asset classes it believes to be attractive and asset managers it believes to be superior based on their track record and expertise. It also seeks to use the market experience of the Investment Manager to negotiate favourable transactions and terms for its investments in asset classes and in asset managers. As part of this current investment strategy, the Investment Manager may employ hedging strategies and leverage in seeking to provide attractive returns while managing risk.

INVESTMENT MANAGEMENT

Tetragon Financial Management LP has been appointed the investment manager of TFG and the Master Fund pursuant to an investment management agreement dated 26 April 2007 (the "Investment Management Agreement"). The management and control of the Investment Manager is vested in its general partner, Tetragon Financial Management GP LLC (the "General Partner"), which is responsible for all actions of the Investment Manager. The General Partner is directly or indirectly controlled by Reade Griffith, Alexander Jackson and Paddy Dear, who also control TFG's voting shareholder. As the General Partner is responsible for all actions of the Investment Manager, any references to the Investment Manager in this Annual Report or in any of our disclosure shall be deemed to include a reference to the General Partner to the extent applicable. Mr. Griffith acts as the authorized representative of the General Partner and the Investment Manager.

The Investment Manager is registered as an investment adviser under the U.S. Investment Advisers Act of 1940.

The investment committee of the Investment Manager (the "Investment Committee") currently consists of Jeffrey Herlyn, Michael Rosenberg, David Wishnow, Reade Griffith and Paddy Dear and is responsible for the investment management of the portfolio and the business. The Investment Committee currently sets forth the investment strategy and approves each significant investment by the Master Fund.

The risk committee of the Investment Manager (the "Risk Committee") has the same composition as the Investment Committee. The Risk Committee is currently responsible for the risk management of the portfolio and the business and performs active and regular oversight and risk monitoring.

Polygon Global Partners LLP and Polygon Global Partners LP (together, the "Service Providers") provide the Investment Manager with certain services in relation to the company pursuant to a Services Agreement dated 30 April 2012. The Service Providers have been indirect subsidiaries of TFG since 28 October 2012, when TFG acquired TFG Asset Management L.P. (f/k/a Polygon Management L.P.) and certain of its affiliates. The Service Providers also provide operating, infrastructure and administrative services to LCM and GreenOak and to various Polygon managers pursuant to applicable services agreements. Polygon Global Partners LLP is authorised and regulated by the United Kingdom Financial Services Authority.

In recognition of the work performed by the Investment Manager in successfully arranging the global offering and the associated raising of new capital for the company, TFG granted to the Investment Manager options (the "Investment Management Options") to purchase 12,545,330 of TFG's Non-Voting Shares (before the application of potential anti-dilution) at an exercise price per share equal to the IPO offer price (U.S. $10). The Investment Management Options are fully vested and immediately exercisable on the date of admission to NYSE Euronext in Amsterdam and will remain exercisable until the 10th anniversary of that date (i.e., 26 April 2017).

For more information on TFG's investment manager, including a summary of key terms of the Investment Management Agreement, please refer to TFG's website at http://www.tetragoninv.com.

CLO BUY-AND-HOLD STRATEGY

The emphasis of the Investment Manager's current CLO investment strategy for the company has been on the selection and structuring of investment positions that are then intended to be held for returns based on cash flows and other revenues to provide a stable stream of income for the company. The Investment Manager believes, for example, that its buy-and-hold strategy has allowed the company to take a long-term view on the expected cash flows from a CLO or other securitization vehicle. Market developments, however, have and may continue to, impact the fair value of a securitization vehicle and/or its underlying assets.

The company believes the Investment Manager's asset liability management and its strategy of taking majority (or substantial) positions in its CLO investments has made a CLO buy-and-hold strategy more attractive, as the Investment Manager may in certain cases influence the performance of a CLO investment through, among other things, the support of amendments to the CLO structure or the collateral management agreement.

State Street (Guernsey) Limited serves as the company's independent administrator and values the investments of the Master Fund on an ongoing basis. The NAV per Share is expected to fluctuate over time with the performance of TFG's investments. The NAV of TFG and the Master Fund and the NAV per Share are determined as at the close of business on the last business day of each fiscal quarter for purposes of calculating incentive fees. As TFG makes all of its investments through the Master Fund, TFG's NAV will equal the NAV of the Master Fund before any TFG specific liabilities, such as incentive fees. The company's valuation policies are set forth on the company's website at http://www.tetragoninv.com. The information on the "Valuation" page of the website supersedes any other disclosure by the company with respect to such information. Subject to the foregoing, additional information with respect to TFG's or the Master Fund's valuation policies may be found in each company's annual audited financial statements accompanying this Annual Report.

CERTAIN CORPORATE AND LISTING BACKGROUND

Shares of TFG (the "Shares") are publicly traded solely on NYSE Euronext in Amsterdam under the ticker symbol "TFG". The Shares do not carry any voting rights other than limited voting rights in respect of variation of their class rights. The voting shares of TFG are owned by Polygon Credit Holdings II Limited, which is a non-U.S. affiliate of the Investment Manager. Polygon Credit Holdings II Limited is controlled by Reade Griffith, Alexander Jackson and Paddy Dear. The voting shares are not entitled to receive dividends.

The current exchange listing, corporate structure and governance and investment management arrangements of TFG were established to help foster the achievement of the company's investment objective. In particular, at the time of its initial public offering and in consultation with the company's underwriters and its legal and financial advisors, the Investment Manager concluded that NYSE Euronext in Amsterdam is favourably suited to facilitate the company's pursuit of its investment objective and to address relevant legal, regulatory, liquidity and other commercial considerations. Similarly, TFG's corporate structure and governance were designed to seek to position the company to best serve its investment objective as well as to address a variety of relevant considerations, including applicable legal requirements. For example, the TFG corporate structure and governance combined with the Investment Manager's actions in addressing financing risk helped the company effectively execute a buy-and-hold strategy that yielded positive results for the company's investment performance. The expansion of TFG's asset management platform may help facilitate a potential listing in the United States over the longer term, which TFG continues to explore. U.S. markets tend to offer better research coverage, liquidity and valuations.

The company has sought to continue to return value to its shareholders, including through dividends and share repurchases.

Dividends:

TFG continues to pursue a progressive dividend policy with a target payout ratio of 30-50% of normalised earnings, based on the long-term target RoE of 10-15%.(53)

The Board of Directors will have the authority to declare dividend payments, based upon the recommendation of the Investment Manager, subject to the approval of the voting shares of TFG and adherence to applicable law, including the satisfaction of a solvency test as required pursuant to the Companies (Guernsey) Law, 2008, as amended.

The Investment Manager's recommendation with respect to the declaration of dividends (and other capital distributions) may be informed by a variety of considerations, including (i) the expected sustainability of the company's cash generation capacity in the short and medium term, (ii) the current and anticipated performance of the company, (iii) the current and anticipated operating and economic environment and (iv) other potential uses of cash ranging from preservation of the company's investments and financial position to other investment opportunities.

TFG has and may continue to also pay scrip dividends currently conducted through an optional dividend reinvestment program. If the Board of Directors declares a cash dividend payable by TFG, they will also (in their capacity as directors of the Master Fund) declare an equal dividend per share payable concurrently by the Master Fund.

Share Repurchases:

TFG has and may also continue to engage in share repurchases in the market from time to time. Such purchases may at appropriate price levels below NAV represent an attractive use of TFG's excess cash and an efficient means to return cash to Shareholders. Any decision to engage in share repurchases will be made by the Investment Manager, upon consideration of relevant factors, and will be subject to, among other things, applicable law and profits at the time. The company also continues to explore other methods of improving the liquidity of its shares.

REPORTING

In accordance with applicable regulations under Dutch law, TFG publishes monthly statements on its website for the benefit of its investors containing the following information: the total value of the investments of the Master Fund; a general statement of the composition of the investments of the Master Fund; and the number of legal issued and outstanding shares of TFG.

In addition, in accordance with the requirements of NYSE Euronext in Amsterdam and applicable regulations under Dutch law, TFG provides annual and semi-annual reports to its shareholders, including year-end financial statements, which in the case of the financial statements provided in its annual reports, will be reported in accordance with U.S. GAAP and audited in accordance with international auditing standards as well as U.S. GAAS for regulatory purposes, if applicable. TFG also provides interim management statements to investors in accordance with section 5:25e of the FMSA. The NAV of TFG is available to investors on a monthly basis on the company's website at http://www.tetragoninv.com.

APPENDIX VII

OTHER LEGAL MATTERS

On 18 June 2013, a shareholder derivative action was filed in United States District Court - Southern District of New York - against the six directors of TFG and the Master Fund, the Investment Manager, the principals of the Investment Manager and other affiliated entities by a purported shareholder of TFG (the "Action").

The Action makes a series of allegations including with respect to the October 2012 acquisition by TFG of Polygon Management L.P. and asks, amongst other things, for money damages and equitable relief against the defendants, including the termination of the investment management agreement among TFG and its Investment Manager.

TFG and its Board of Directors have stated that they believe that the Action is factually and legally without merit and intend to seek to have the Action dismissed as quickly as possible. On 13 January 2014, all defendants filed a motion to dismiss the Action in its entirety.

On 22 February 2011, TFG and the Master Fund and their six directors were served with proceedings in the Royal Court of Guernsey (the "Guernsey Proceedings") instigated by one of TFG's former directors, Alexander Jackson, seeking to impugn TFG's and the Master Fund's decision to enter into a joint venture with GreenOak. On 26 March 2013, Lieutenant Bailiff Patrick Talbot of the Royal Court of Guernsey dismissed the Guernsey Proceedings having determined that the entire claim should be struck out as an abuse of process as no aspect of it satisfied the standard for bringing such a derivative action in Guernsey. Lieutenant Bailiff Talbot also awarded costs against Mr. Jackson. On 10 September 2013, the Court of Appeal of the Island of Guernsey ordered the discontinuance of Mr. Jackson's appeal of the Guernsey Proceedings, Mr. Jackson having paid costs of such appeal.

On 1 March 2013, the English Court of Appeal dismissed in its entirety a claim filed by Mr. Jackson against Paddy Dear and Reade Griffith in the High Court in London regarding Mr. Jackson's removal in January 2011 from the Board of Directors of TFG and the Master Fund and awarded costs against Mr. Jackson.

APPENDIX VIII

RISK FACTORS

An investment in TFG (together with the Master Fund, the "company") involves substantial risks and uncertainties. Investors may review a more detailed description of these risks and uncertainties and others to which the company is subject on TFG's website at http://www.tetragoninv.com.

These risks and uncertainties include, among others, those listed below.

Risks Relating to the Company's Investment Portfolio

-    Many of the company's investments are in the form of highly subordinated securities, which are susceptible to losses of up to 100% of the initial investments, including losses resulting from changes in the financial rating ascribed to, or changes in the market value or fair value of, the underlying assets of an investment.

-    CLO vehicles, which make up the majority of the company's current investment portfolio generally invest in fixed income securities rated lower than Baa by Moody's or lower than BBB by S&P (or, if not rated, of comparable quality) and may be regarded as predominantly speculative with respect to the issuer's continuing ability to meet principal and interest payments. Moreover, market developments (including, without limitation, deteriorating economic outlook, rising defaults and rating agency downgrades) may impact the fair value of an investment and/or its underlying assets, as we experienced during the period from the third quarter of 2008 through the first half of 2009.

-    Defaults, their resulting losses and other losses on underlying assets (including bank loans) may have a negative impact on the value of the company's portfolio and cash flows received. In addition, bank loans may require substantial workout negotiations or restructuring in the event of a default or liquidation which could result in a substantial reduction in the interest rate and/or principal.

-    The modelled cash flow predictions and assumptions used to calculate the IRR and fair value of each CLO investment may prove to be inaccurate and require adjustment. Factors affecting the accuracy of such modelled cash flow predictions include: (1) uncertainty in predicting future market values of certain distressed asset types, (2) the inability to accurately model collateral manager behaviour and (3) the divergence of assumed variables from realized levels over the period covered by the model.

-    Bank loans are generally subject to liquidity risks and, consequently, there may be limited liquidity if a Securitization Vehicle is required to sell or otherwise dispose of such bank loans.

-    Many of the company's investments in securitization vehicles are and will be illiquid and have values that are susceptible to changes in the ratings and market values of such vehicles' underlying assets, which may make it difficult for the company to sell such holdings.

-    The company may be exposed to counterparty risk, which could make it difficult for the company to collect on the obligations represented by investments and result in significant losses.

-    The performance of many of the company's investments may depend to a significant extent upon the performance of its asset managers (internal and external).

-    The company is subject to concentration risk in its investment portfolio, which may increase the risk of an investment in TFG.

-    The company's CLO investments are subject to (i) interest rate risk, which could cause the company's cash flow, fair value of its assets and operating results to decrease and (ii) currency risk, which could cause the value of the company's CLO investments in U.S. Dollars to decrease regardless of the inherent value of the underlying investments.

-    The Investment Manager may not be successful in the utilization of hedging and risk management transactions, which could subject the company's investment portfolio to increased risk or lower returns on its investments and in turn cause a decrease in the fair value of the company's assets.

-    The ability of securitization vehicles in which the company invests to sell assets and reinvest the proceeds may be restricted, which may reduce the yield from the company's investment in those Securitization Vehicles.

-    In connection with the transaction with GreenOak, the company will invest its capital, directly and indirectly, in certain real estate investments. Real estate investments are subject to various risks and fluctuations and cycles in value and demand, many of which are beyond the company's control.

-    The real estate investments made, and to be made, by GreenOak are relatively difficult to sell quickly. Return of capital and realization of gains, if any, from an investment generally will occur upon disposition or refinance of the underlying property. GreenOak may be unable to realize its investment objectives by sale, other disposition or refinance at attractive prices within any given period of time or may otherwise be unable to complete any exit strategy.

-    The company invests a portion of its capital, directly and indirectly, in certain European-listed equity securities. Such investments are subject to various risks, many of which are beyond the company's control. Risks or events which could negatively affect such equity security investments include, but are not limited to: increased volatility in the market price and with respect to trading volume of the equity securities and increased uncertainty and government intervention in global financial markets.

-    The company invests a portion of its capital, directly and indirectly, in certain mining-industry related equity securities. Such investments are subject to various risks, many of which are beyond the company's control. In addition to the risks discussed above associated with equity investments generally, risks or events which could negatively affect mining-industry related equity investments include, but are not limited to: exploration, developmental and operational risks.

-    The company invests a portion of its capital, directly and indirectly, in certain convertible securities, mainly in the form of debt securities that can be exchanged for equity interests. Such investments are subject to various risks, many of which are beyond the company's control. Risks or events which could negatively affect convertible security investments include, but are not limited to: declining credit quality of issuers of the convertible securities and increased volatility in the market price and with respect to trading volume of the underlying equity into which the convertible securities are convertible.

-    The company invests a portion of its capital, directly and indirectly, in certain distressed opportunities. Such investments are subject to various risks, many of which are beyond the company's control. Risks or events which could negatively affect distressed opportunity investments include, but are not limited to: difficulty in obtaining information as to the true condition of the issuer; potential for abrupt and erratic market movements and above average price volatility of the securities; and potential for litigation.

-    Direct investments in asset managers will expose the company's business to additional risks, including: a decline in the price of securities, a more complex regulatory environment and competition.

Risks Relating to the Company's Asset Management Platform

-    As the company becomes more of a financial services firm that functions as a company that owns operating companies, it may face difficulties as it invests in asset classes in which it does not have substantial experience.

-    The asset management business is intensely competitive, with competition based on a variety of factors, including investment performance, the quality of service provided to clients, investor liquidity and willingness to invest, fund terms (including fees), brand recognition and business reputation. Our asset management business competes with a number of private equity funds, specialized investment funds, hedge funds, funds of hedge funds and other sponsors managing pools of capital, as well as corporate buyers, traditional asset managers, commercial banks, investment banks and other financial institutions (including sovereign wealth funds).

-    Asset management and financial advisory businesses are subject to extensive regulation, which affects the company's activities and creates the potential for significant liabilities and penalties. The possibility of increased regulatory focus could result in additional burdens on the company's business. Recent legislative and regulatory changes in the United States, such as the Dodd-Frank Act, and the European Union, such as the Alternative Investment Fund Managers Directive and the European Market Infrastructure Regulation, could adversely affect the company's business.

-    As we have expanded and as we continue to expand the number and scope of our businesses, we increasingly confront potential conflicts of interest relating to our activities. Certain of our funds may have overlapping investment objectives, including funds that have different fee structures, and potential conflicts may arise with respect to our decisions regarding how to allocate investment opportunities among those funds. To the extent we fail to appropriately deal with any such conflicts, it could negatively impact our reputation and ability to raise additional funds or result in potential litigation against us.

-    Poor performance of our managed investment funds and vehicles would cause a decline in our asset management revenue, income and cash flow, and could adversely affect our ability to raise capital for future investment funds.

-    Our asset management business depends in part on our ability to raise capital from third-party clients. If we are unable to raise capital from third-party clients, we would be unable to collect management fees or deploy their capital into investments and potentially collect transaction fees or incentive fees, which would materially reduce our asset management revenue and cash flow.

-    Misconduct of our employees or at the companies in which we have invested could harm us by impairing our ability to attract and retain clients and subjecting us to significant legal liability and reputational harm.

-    The performance of LCM and, in turn, the company's operating results, may be negatively influenced by various factors, including the (i) performance of LCM-managed CLOs, which in general are subject to the same risks as the company's CLO investments and are currently the primary source of LCM's revenues and (ii) ability of LCM to retain key personnel, the loss of whom may negatively affect LCM's ability to provide asset and collateral management services in a fashion, and of a quality, consistent with its prior practice. Furthermore, the company's ownership of LCM may negatively impact certain aspects of the company's CLO investment strategy and as a result the company's performance as well as the company's ability to diversify its investments across multiple asset managers.

-    The performance of Polygon and, in turn, the company's operating results, may be negatively influenced by various factors, including the (i) performance of Polygon-managed funds, and (ii) ability of Polygon to retain key personnel, the loss of whom may negatively affect Polygon's ability to provide asset management services in a fashion, and of a quality, consistent with its prior practice.

-    GreenOak has a limited operating history and it may be unable to successfully operate its business or achieve its investment objectives.

-    As the company invests in new asset classes and as its asset mix changes, its revenues and profitability could be reduced.

Risks Relating to TFG and the Master Fund

-    TFG's principal source of cash will be the investments that it makes through the Master Fund.

TFG's ability to pay dividends will depend on it receiving distributions from the Master Fund.

-    Shareholders will not be able to terminate the company's investment management agreement. None of the Investment Manager or the Service Providers owe fiduciary duties to the shareholders of TFG.

-    The shares of TFG may continue to trade below NAV. The NAV per Share will change over time with the performance of the company's investments and will be determined by the company's valuation principles. The fees payable to the Investment Manager will be based on NAV and changes in NAV, which will not necessarily correlate to changes in the market value of the shares of TFG.

-    TFG and the Master Fund have approved a very broad investment objective and the Investment Manager will have substantial discretion when making investment decisions. In addition, the Investment Manager's strategies may not achieve the company's investment objective.

-    TFG is an investment company that has been registered under the laws of Guernsey. The rights of its Shareholders and the fiduciary duties that the Board of Directors owes to TFG and the Shareholders are governed by Guernsey law and TFG's articles of incorporation. As a result, the rights of the Shareholders and the fiduciary duties that are owed to them and TFG may differ in material respects from the rights and duties that would be applicable if TFG were organized under the laws of a different jurisdiction or if it were not permitted to vary such rights and duties in its articles of incorporation.

-    The liability of the Investment Manager is limited under the company's arrangements with it, and the company has agreed to indemnify the Investment Manager against claims that it may face in connection with such arrangements, which may lead the Investment Manager to assume greater risks when making investment related decisions than it otherwise would if investments were being made solely for its own account.

-    TFG is not, and does not intend to become, regulated as an investment company under the Investment Company Act and related rules.

-    The company may become involved in litigation that adversely affects the company's business, investments and results of operations.

-    No formal corporate governance code applies to TFG under Dutch law and TFG will not be bound to comply with the U.K. Combined Code other than as set forth in its articles of incorporation.

Risks Relating to the Investment Manager and Services Providers and Affiliated Relationships

-    The company's organizational, ownership and investment structure may create significant conflicts of interest that may be resolved in a manner which is not always in the best interests of the company or the shareholders of TFG.

-    The company's success depends on its continued relationship with the Investment Manager and its principals. If this relationship were to end or the principals or other key professionals were to depart, it could have a material adverse effect on the company's business, investments and results of operations.

-    The Investment Manager's compensation structure may encourage the Investment Manager to invest in high-risk investments.

-    The liability of the Investment Manager to the company is limited and the company's indemnity of the Investment Manager may lead the Investment Manager to assume greater risks when making investment related decisions than it otherwise would.

-    The Investment Manager may devote time and commitment to other activities.

Risks Relating to Taxation

-    U.S. investors may suffer adverse tax consequences because TFG will be treated as a passive foreign investment company (a "PFIC") for U.S. federal income tax purposes.

-    Investors may suffer adverse tax consequences if TFG or the Master Fund is treated as resident in the U.K. or the U.S. for tax purposes.

Risks Relating to the Shares

-    Shares of TFG (the "Shares") do not carry any voting rights other than limited voting rights in respect of variation of their class rights. The holder of the voting shares of TFG will be able to control the composition of the Board of Directors and exercise extensive influence over TFG's and the Master Fund's business and affairs. Additional information on the organizational structure and corporate governance of TFG may be found on TFG's website at http://www.tetragoninv.com.

-    The Shares are subject to legal and other restrictions on resale and the NYSE Euronext in Amsterdam trading market is less liquid than other major exchanges, which could affect the price of the Shares. TFG may decide in the future to list the Shares on a stock exchange other than NYSE Euronext in Amsterdam. There can be no assurance that an active trading market would develop on such an exchange.

-    There are additional restrictions on the resale of Shares by Shareholders who are located in the United States or who are U.S. persons and on the resale of Shares by any Shareholder to any person who is located in the United States or is a U.S. person. These restrictions include that each Shareholder who is located in the United States or who is a U.S. person must be a "Qualified Purchaser" or a "Knowledgeable Employee" (each as defined in the Investment Company Act), and, accordingly, that Shares may be resold to a person located in the United States or who is a U.S. person only if such person is a "Qualified Purchaser" or a "Knowledgeable Employee" under the Investment Company Act. These restrictions may adversely affect overall liquidity of the Shares.

-    Your ability to invest in the Shares or to transfer any Shares that you hold may be limited by restrictions imposed by ERISA regulations, TFG's articles of incorporation and other tax considerations.

-    The company may issue additional securities that dilute existing holders of Shares, including as a result of the exercise of the Investment Management Options.

The foregoing is not a comprehensive list of the risks and uncertainties to which the company is subject.

BOARD OF DIRECTORS

     Paddy Dear    Reade Griffith     Byron Knief*     Rupert Dorey* David Jeffreys*    Greville Ward* 

*Independent Director

SHAREHOLDER INFORMATION

Registered Office of TFG and the Master Fund

Tetragon Financial Group Limited
Tetragon Financial Group Master Fund Limited
1st Floor Dorey Court
Admiral Park
St. Peter Port, Guernsey
Channel Islands GY1 6HJ

Investment Manager

Tetragon Financial Management LP
399 Park Avenue, 22nd Floor
New York, NY 10022
United States of America

General Partner of Investment Manager

Tetragon Financial Management GP LLC
399 Park Avenue, 22nd Floor
New York, NY 10022
United States of America

Investor Relations

David Wishnow / Greg Wadsworth[email protected]

Press Inquiries
Brunswick GroupAndrew Garfield[email protected]

Auditors

KPMG Channel Islands Ltd.
20 New Street
St. Peter Port, Guernsey
Channel Islands GY1 4AN

Sub-Registrar and Transfer Agent

Computershare
One Wall Street
New York, NY 10286
United States of America

Issuing Agent, Dutch Paying and Transfer Agent

Kas Bank N.V.
Spuistraat 172
1012 VT Amsterdam
The Netherlands

Legal Advisor (as to U.S. law)

Cravath, Swaine & Moore LLP
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
United States of America

Legal Adv<b>isor (as to Guernsey law)

OgierOgier House St. Julian's Avenue
St. Peter Port, Guernsey
Channel Islands GY1 1WA

Legal Advisor (as to Dutch law)

De Brauw Blackstone Westbroek N.V.
Claude Debussylaan 80
1082 MD Amsterdam
The Netherlands

Stock Listing

NYSE Euronext in Amsterdam

Administrator and Registrar

State Street (Guernsey) Limited
1st Floor Dorey CourtAdmiral Park
St. Peter Port, Guernsey
Channel Islands GY1 6HJ

END NOTES

Shareholder Letter

(1)     TFG's returns will most likely fluctuate with LIBOR. LIBOR directly flows through some of TFG's investments and, as it can be seen as the risk-free short-term rate, it should affect all of TFG's investments. In high-LIBOR environments, TFG should achieve higher sustainable returns; in low-LIBOR environments, TFG should achieve lower sustainable returns.

(2)    The asset class called "U.S. Pre-Crisis CLO" in previous reports is now termed "U.S. CLO 1.0" and refers to U.S. CLOs issued before or during 2008; similarly, "U.S. Post-Crisis CLO" is now called "U.S. CLO 2.0" and refers to U.S. CLOs issued after 2008.

(3)     TFG's returns will most likely fluctuate with LIBOR. LIBOR directly flows through some of TFG's investments and, as it can be seen as the risk-free short-term rate, it should affect all of TFG's investments. In high-LIBOR environments, TFG should achieve higher sustainable returns; in low-LIBOR environments, TFG should achieve lower sustainable returns.

(4)     The percentage of TFG's capital that is externally managed is calculated by dividing the sum of the U.S. GAAP fair value of all investment assets managed by parties other than TFG or its affiliates, by the total Net Asset Value of the company.

(5)     Includes GreenOak Real Estate, LP funds and advisory assets, AUM for Polygon Recovery Fund LP, Polygon Convertible Opportunity Master Fund, Polygon European Equity Opportunity Master Fund and associated managed account, Polygon Mining Opportunity Master Fund, Polygon Global Equities Master Fund and Polygon Distressed Opportunities Master Fund, as calculated by the applicable administrators for value date 31 December 2013. Includes, where relevant, investments by Tetragon Financial Group Master Fund Limited. TFG Asset Management AUM as used in this report includes the assets under management of several investment advisers, including Tetragon Asset Management L.P., and GreenOak Real Estate, LP, each of which is an investment manager registered under the U.S. Investment Advisers Act of 1940.

(6)     The sum of the holdings of TFG affiliates as defined in Appendix V of this report (14.5 million shares including those held in Escrow), divided by the number of Legal Shares Issued and Outstanding (134.77 million).

Key Metrics

(7)     TFG's returns will most likely fluctuate with LIBOR. LIBOR directly flows through some of TFG's investments and, as it can be seen as the risk-free short-term rate, it should affect all of TFG's investments. In high-LIBOR environments, TFG should achieve higher sustainable returns; in low-LIBOR environments, TFG should achieve lower sustainable returns.

(8)     TFG invests substantially all its capital through a master fund, Tetragon Financial Group Master Fund Limited ("TFGMF"), in which it holds 100% of the issued shares. In this report, unless otherwise stated, we report on the consolidated business incorporating TFG and TFGMF. References to "we" or "TFM" are to Tetragon Financial Management LP, TFG's investment manager.

(9)    Measured against a weighted average of U.S. GAAP shares outstanding on each dividend record date.

Investment Portfolio

(10)   The CLO asset characterizations referenced above reflect the primary asset focus of the vehicles. These transactions, however, may allow for limited exposure to other asset classes including unsecured loans, high yield bonds, or structured finance securities.

(11)    Please note that TFG may hold more than one investment in any CLO transaction within its portfolio.

(12)    Based on the most recent trustee reports available as of 31 December 2013.

(13)    Based on the most recent trustee reports available as of 31 December 2013.

(14)    Based on the most recent trustee reports available as of 31 December 2013.

(15)    The net assets attributable to directly owned equities consist of collateral posted (or otherwise held) by TFG in margin accounts with financial institutions and the fair value of equity securities directly held by TFG.

(16)    Returns presented reflect the cumulative annualised performance for each asset type over the 12 months ending 31 December 2013 against the time-weighted average capital invested. Returns for directly-held equities are calculated on the basis of investment-to-date performance over the 12 month period and the time-weighted average required amount of margin posted with all relevant counterparties over the analysis period. Time-weighted average capital invested in each asset type is calculated for each investment through 31 December 2013, based on the actual number of days and assuming a 365-day year. TFG invests in Polygon-managed funds on a preferred fee-basis.

(17)    Returns presented reflect the cumulative annualised performance for each asset type over the 12 months ending 31 December 2013 against the time-weighted average capital invested. Returns for directly-held equities are calculated on the basis of investment-to-date performance over the 12 month period and the time-weighted average required amount of margin posted with all relevant counterparties over the analysis period. Time-weighted average capital invested in each asset type is calculated for each investment through 31 December 2013, based on the actual number of days and assuming a 365-day year. TFG invests in Polygon-managed funds on a preferred fee-basis.

TFG Asset Management

(18)   The LCM III, LCM IV, LCM V, LCM VI, LCM VIII, LCM IX, LCM X, LCM XI, LCM XII, LCM XIII and LCM XIV CLOs are referred to as the "LCM Cash Flow CLOs." The LCM VII CLO was a market value CLO previously managed by LCM, which was liquidated commencing in 2008, and is not included in the mentioned statistics. LCM I CLO has sold all of its assets and repaid all of its liabilities with excess proceeds distributed to equity holders as of 31 December 2012, and is therefore not included in the mentioned statistics. In addition, these statistics do not include the performance of certain transactions that were developed and previously managed by a third-party prior to being assigned to LCM, some of which continue to be managed by LCM. LCM II CLO has sold all of its assets and repaid all of its liabilities with excess proceeds distributed to equity holders as of 30 April 2013. LCM VIII CLO has sold all of its assets and repaid all of its liabilities with excess proceeds distributed to equity holders as of 31 July 2013. The following CLOs paid incentive fees to the manager during 2013 as follows: LCM IV: $0.1 million; LCM V: $1.7 million; LCM VI: $1.4 million; LCM VIII: $0.5 million.

(19)   The Polygon Convertible Opportunity Fund won the 2013 EuroHedge Award in the Convertible & Volatility category. There were five other nominees for this award. The EuroHedge Award is compiled by EuroHedge magazine, a publication of HedgeFund Intelligence. To be considered for an award, funds were required to submit performance data to the HedgeFund Intelligence Database and required at least a 12-month track record history. The only exception to this rule was for new fund awards where a minimum seven -month track record was required; for these awards, the funds' whole performance history to date was taken into account. Winners were decided using an established methodology based upon a combination of Sharpe ratios and returns over the relevant time period. Nominations were decided by those funds in each peer group that achieved the strongest Sharpe ratios over 12 months, so long as they also beat the median returns in their relevant peer groups and were within 10% of their high-water marks. The eventual winners were the funds that had the best returns, as long as they also had Sharpe ratios within 25% of the best Sharpe of the nominees in their relevant peer groups. Most of the award categories required a minimum asset level of at least $100 million. The only exceptions were the Emerging Manager & Smaller Fund and the New Fund of the Year awards, where the minimum was set at $30 million, and the Long-Term Performance awards, where the minimum asset level was $500 million. Further information about the award is available at http://www.hedgefundintelligence.com.

(20)  The Polygon European Equity Opportunity Fund was nominated for a 2013 EuroHedge Award in the Event Driven & Distressed category. There were seven other nominees for this award. The EuroHedge Award is compiled by EuroHedge magazine, a publication of HedgeFund Intelligence. To be considered for an award, funds were required to submit performance data to the HedgeFund Intelligence Database and had to have at least a 12-month track record history. The only exception to this rule was for new fund awards where a minimum seven-month track record was required; for these awards, the funds' whole performance history to date was taken into account. Winners were decided using an established methodology based upon a combination of Sharpe ratios and returns over the relevant time period. Nominations were decided by those funds in each peer group that achieved the strongest Sharpe ratios over 12 months, so long as they also beat the median returns in their relevant peer groups and were within 10% of their high-water marks. The eventual winners were the funds that had the best returns, as long as they also had Sharpe ratios within 25% of the best Sharpe of the nominees in their relevant peer groups. Most of the award categories required a minimum asset level of at least $100 million. The only exceptions were the Emerging Manager & Smaller Fund and the New Fund of the Year awards, where the minimum was set at $30 million, and the Long-Term Performance awards, where the minimum asset level was $500 million. Further information about the award is available at http://www.hedgefundintelligence.com.

(21)   The index shown here has not been selected to represent an appropriate benchmark to compare an investor's performance, but rather is disclosed to allow for comparison of an investor's performance to that of a well -known and widely-recognised index. The volatility of the index may be materially different from the individual performance attained by a specific investor. In addition, the Fund's holdings may differ significantly from the securities that comprise the index. You cannot invest directly in an index. The Market Vectors Junior Gold Miners Index (Bloomberg Code: GDXJ) is compiled by Market Vectors Index Solutions, a subsidiary of Van Eck. Further information relating to index constituents and calculation methodology can be found at http://www.marketvectorsindices.com.

(22) Source: Thomson Reuters Global Equity Capital Markets Review, Managing Underwriters for full year 2013.

Financial Review

(23)   Pro Forma Fully Diluted NAV per Share seeks to reflect certain potential changes to the total non-voting shares over the next few years, which may be utilized in the calculation of NAV per Share. Specifically, the number of shares used to calculate U.S. GAAP NAV per Share has been adjusted to incorporate:

(i)   The Escrow Shares, which have been used as consideration for the acquisition of Polygon and applicable stock dividends relating thereto, and which are held in escrow and are expected to be released and incorporated into the U.S. GAAP NAV per Share over the next four years.

(ii) The number of shares corresponding to the applicable intrinsic value of the options issued to the Investment Manager at the time of the company's IPO with a strike price of $10.00, to the extent such options are in the money at period end. The intrinsic value of the manager (IPO) share options is calculated as the excess of (x) the closing price of the shares as of the final trading day in the relevant period over (y) $10.00 (being the exercise price per share) times (z) 12,545,330 (being a number of shares subject to the options before the application of potential anti-dilution). The terms of exercise under the options allow for exercise using cash, as well as, with the consent of the board of the company, certain forms of cashless exercise. Each of these prescribed methods of exercise may give rise to the issuance of a different number of shares than the approach described herein. If the options were to be surrendered for their intrinsic value with the board's consent, rather than exercised, the number of shares issued would equal the intrinsic value divided by the closing price of the shares as of the final trading day in the relevant period. This approach has been selected because we currently believe it is more reasonably illustrative of a likely outcome if the options are exercised. The options are exercisable until 26 April 2017.

Appendix II

(24) Citi Globa Structured Credit Strategy - 13 December 2013.

(25) Citi Global Structured Credit Strategy - 9 April 2013.

(26) Citi Global Structured Credit Strategy - 13 December 2013.

Appendix III

(27)   S&P/LCD News, "With one default in December, leveraged loan default rate inches up," 2 January 2014.

(28)   S&P/LCD News, "(EUR) ELLI default rate falls to 2.9% in December," 9 January 2014.

(29)   S&P/LCD News, "(EUR) S&P ELLI: Default rate rises to 6.6% in December," 9 January 2013.

(30)   The calculation of TFG's lagging 12-month corporate loan default rate does not include certain underlying investment collateral that was assigned a "Selective Default" rating by one or more of the applicable rating agencies. Such Selected Defaults are included the S&P/LCD lagging 12-month U.S. institutional loan default rate discussed above. Furthermore, TFG's CLO equity and direct loan investment portfolio includes approximately 14.1% CLOs with primary exposure to European senior secured loans and such loans are included in the calculation of TFG's corporate default rate.

(31)   S&P/LCD Quarterly Review, Q4 2013.

(32)   S&P/LCD News, "Flying high: Refinancing, recaps drive record loan volume in 2013," 23 December 2013.

(33)   S&P/LCD News, "(EUR) 2013 new-issue loan volume hits five-year high," 6 January 2014.

(34)   S&P/LCD News, "(EUR) 2013 new-issue loan volume hits five-year high," 6 January 2014.

(35)   S&P/LCD Quarterly Review, Q4 2013.

(36)   S&P/LCD Quarterly Review, Q4 2013.

(37)   S&P/LCD Quarterly Review, Q4 2013.

(38)   S&P/LCD News, "(EUR) ELLI repayments push maturity wall to 2017-2018," 9 January 2014.

(39)   S&P/LCD Leveraged Lending Review, Q4 2013.

(40)   S&P/LCD News, "(EUR) ELLI repayments push maturity wall to 2017-2018," 9 January 2014.

(41)   S&P/LCD News, "Leveraged loans return 0.47% in December; 2013 return is 5.29%," 2 January 2014.

(42)   S&P/LCD News, "(EUR) ELLI returns 0.37% in December, 9.09% in 2013," 8 January 2014.

(43) Morgan Stanley CLO Market Tracker, 9 January 2014; based on a surveillance universe of 388 USD- denominated CLOs and 183 Euro-denominated CLOs.

(44) Morgan Stanley CLO Market Tracker, 4 January 2013; based on a surveillance universe of 451 USD-denominated CLOs and 187 Euro-denominated CLOs.

(45) Morgan Stanley CLO Market Tracker, 9 January 2014; based on a surveillance universe of 388 USD-denominated CLOs and 183 Euro-denominated CLOs.

(46) Morgan Stanley CLO Market Tracker, 4 January 2013; based on a surveillance universe of 451 USD-denominated CLOs and 187 Euro-denominated CLOs.

(47) Morgan Stanley CLO Market Tracker, 9 January 2014.

(48) MorganStanley CLO Market Tracker, 9 January 2014.

(49) Morgan Stanley CLO Market Tracker, 9 January 2014.

(50) Morgan Stanley CLO Market Tracker, 9 January 2014.

(51) Morgan Stanley CLO Market Tracker, 9 January 2014.

Appendix V

(52)   Pro Forma Fully Diluted NAV per Share seeks to reflect certain potential changes to the total non-voting shares over the next few years, which may be utilized in the calculation of NAV per Share. Specifically, the number of shares used to calculate U.S. GAAP NAV per Share has been adjusted to incorporate:

(i)   The Escrow Shares, which have been used as consideration for the acquisition of Polygon and applicable stock dividends relating thereto, and which are held in escrow and are expected to be released and incorporated into the U.S. GAAP NAV per Share over the next four years.

(ii) The number of shares corresponding to the applicable intrinsic value of the options issued to the Investment Manager at the time of the company's IPO with a strike price of $10.00, to the extent such options are in the money at period end. The intrinsic value of the manager (IPO) share options is calculated as the excess of (x) the closing price of the shares as of the final trading day in the relevant period over (y) $10.00 (being the exercise price per share) times (z) 12,545,330 (being a number of shares subject to the options before the application of potential anti-dilution). The terms of exercise under the options allow for exercise using cash, as well as, with the consent of the board of the company, certain forms of cashless exercise. Each of these prescribed methods of exercise may give rise to the issuance of a different number of shares than the approach described herein. If the options were to be surrendered for their intrinsic value with the board's consent, rather than exercised, the number of shares issued would equal the intrinsic value divided by the closing price of the shares as of the final trading day in the relevant period. This approach has been selected because we currently believe it is more reasonably illustrative of a likely outcome if the options are exercised. The options are exercisable until 26 April 2017.

Appendix VI

(53)   TFG's returns will most likely fluctuate with LIBOR. LIBOR directly flows through some of TFG's investments and, as it can be seen as the risk-free short-term rate, it should affect all of TFG's investments. In high-LIBOR environments, TFG should achieve higher sustainable returns; in low-LIBOR environments, TFG should achieve lower sustainable returns.

An investment in TFG involves substantial risks. Please refer to the company's w</i>ebsite at http://www.tetragoninv.com for a description of the risks and uncertainties pertaining to an investment in TFG.

This release does not contain or constitute an offer to sell or a solicitation of an offer to purchase securities in the United States or any other jurisdiction. The securities of TFG have not been and will not be registered under the U.S. Securities Act of 1933 (the "Securities Act"), as amended, and may not be offered or sold in the United States or to U.S. persons unless they are registered under applicable law or exempt from registration. TFG does not intend to register any portion of its securities in the United States or to conduct a public offer of securities in the United States. In addition, TFG has not been and will not be registered under the U.S.Investment Company Act of 1940, and investors will not be entitled to the benefits of such Act. TFG is registered in the public register of the Netherlands Authority for the Financial Markets under Section 1:107 of the FMSA as a collective investment scheme from a des<i>ignated country. This release constitutes regulated information ("gereglementeerde informative") within the meaning of Section 1:1 of the FMSA.

PRN NLD

SOURCE Tetragon Financial Group Limited