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Thursday 31 October, 2013

Tetragon Financial Group Limit

Tetragon Financial Group Limited (TFG):


    Tetragon Financial Group Limited (TFG) is a Guernsey closed-ended investment
company
traded on NYSE Euronext in Amsterdam under the ticker symbol "TFG."(1) In this 
report we
provide an update on TFG's results of operations for the period ending 30 
September 2013.

    EXECUTIVE SUMMARY AND OUTLOOK

    OVERVIEW

    TFG achieved positive operating and financial performance in Q3 2013 with an
annualised Return on Equity ("RoE") of 11.2% for the first nine months of 2013,
in line
with the company's over-the- cycle target of 10-15% per annum.(2) Annualised RoE
for Q3
2013 alone was 9.1%, slightly below our target due to, among other things, 
continued loan
spread tightening in the United States, deleveraging of post-reinvestment period
CLO
structures, and loan defaults in certain U.S. CLOs.

    During the quarter, TFG invested over $53.4 million of capital(3) into new 
investments
in: loans (via CLO equity); real estate; equities; and credit. We expect, given
current
opportunities, to continue to invest in these asset classes in the fourth 
quarter.

    Loans remain the dominant asset class in the portfolio, but the composition
of
investments is changing as CLOs created before the crisis in 2008 (that we refer
to as
U.S. Pre-Crisis CLOs) are amortising, and as our new investments become more 
meaningful.
In addition, new CLO exante equity returns are at the lower end of their return
expectations due to a combination of factors including relatively high AAA debt
spread
levels. As we make new investments, we continue to compare risk-adjusted 
expected returns
with a desire to balance, amongst other things, the duration and correlation 
risks within
the total portfolio.

    TFG's asset management business ("TFG Asset Management") had a good quarter
with all
funds across the different asset classes performing well, which is not only 
accretive to
our RoE and Net Asset Value ("NAV") per share but also hopefully bodes well for
attracting
future client assets.

    GOALS

    Looking at the company's goals for 2013 expressed in the 2012 Annual Report:

    1. To deliver 10-15% RoE per annum to shareholders.(4)

    The company met its RoE target of 10-15% through 30 September 2013 with 
annualised RoE
of 11.2%.

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

    The amount of TFG's capital that was externally managed as of the end of Q3
2013 was
52.9%, down from 63.2% at the end of 2012.(5)

    3. To grow client AUM and fee income.

    TFG Asset Management's assets under management ("AUM") at 30 September 2013
stood at
$9.1 billion, compared to $7.7 billion at 2012 year-end.(6)

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

    As mentioned in TFG's interim report, a senior distressed credit portfolio 
manager
joined the TFG Asset Management platform. TFG Asset Management established a 
distressed
credit fund in Q3 2013, and this team is investing and building a performance 
track record
in the strategy.

    EXECUTIVE SUMMARY AND OUTLOOK

    OUTLOOK

    Notwithstanding the unknowns of the financial markets, we remain cautiously
optimistic
for TFG's current portfolio and new investments. We would highlight three areas
of note:

    First, as we have said before, managing the deleveraging of our Pre-Crisis 
CLO
portfolio is a complex and important dynamic; we are routinely evaluating the 
exercise of
refinancing and call options against available reinvestment opportunities to 
seek to
optimize the return on both individual investments and the overall portfolio.

    Second, GreenOak Real Estate ("GreenOak") has seen good performance in their
investment portfolios to date and as their business expands, so do TFG's 
opportunities to
invest in real estate in the United States, Europe and Japan, either within the
funds or
as a co-investor in discrete opportunities.

    Thirdly, corporate activity has picked up in Europe. This has benefitted the
investments in European equities over the last few months and may continue to do
so if it
this trend remains in place.

    KEY METRICS

    TFG continues to focus on three key metrics when assessing how value is 
being created
for, and delivered to, TFG shareholders: Earnings, NAV per share and Dividends.

    EARNINGS - RETURN ON EQUITY ("RoE")

<pre>    
    - Year to date RoE(7) to Q3 2013 was 8.4% (11.2% annualised) which maintains
      the year to date RoE performance within TFG's over-the-cycle target of 
10-15% per
      annum.(8)
    - TFG generated Net Economic Income(9) of $136.5 million in the first three
      quarters of 2013, a fall of 32.9% versus the same period in 2012.
    - Q3 2013's results saw a continuation of certain trends in CLO performance
      identified in Q2 2013; a slowing down in the CLO cashflows compared to 
prior years,
      and therefore the expected future returns generated by CLOs during the 
second quarter.
      This arose primarily from a continued combination of loan spread 
compression and
      elevated levels of prepayments, reflecting borrowers taking the 
opportunity to
      refinance at lower spreads. The U.S. CLO portfolio also saw some defaults
being
      recognised late in the quarter.
    - This trend was counterbalanced by two positives: (1.) a continued 
improvement
      in the outlook for Euro-denominated CLO deals which resulted in a further
reduction in
      the discount rate that TFG applied to the relevant projected cash flows, 
adding
      approximately $9.1 million (before fees) to the fair value of this part of
the CLO
      portfolio; and (2.) continuing strong performance in the non-CLO assets in
TFG's
      investment portfolio.
    - The TFG Asset Management segment contributed approximately $2.5 million of
      "EBITDA equivalent"(10) in the quarter and an EBITDA equivalent of $18.4 
million year
      to date through Q3 2013.
</pre><pre>   
    Figure 1
    Annual Return on Equity
                               RoE
                       2007  11.4%
                       2008  -3.7%
                       2009 -27.6%
                       2010  48.0%
                       2011  36.0%
                       2012  20.8%
            2013 annualised  11.2%
</pre>    EARNINGS PER SHARE ("EPS")

<pre>    
    - TFG generated an Adjusted EPS(11) of $0.37 during Q3 2013 resulting in a
      year to date EPS of $1.39 (YTD Q32012: $1.77).
</pre><pre>   
    Figure 2
    Adjusted EPS Comparison Q3 2011 - Q3 2013
    YTD through
    Q3 2011                 $2.77
    YTD through
    Q3 2012                 $1.77
    YTD through
    Q3 2013                 $1.39
</pre><pre>    
    - CLOs continue to contribute the majority of the investment portfolio
      income ($1.61 of EPS in the first three quarters of 2013) albeit at a 
lower level than
      recent years as returns on U.S. CLOs normalise.
    - The further recalibration of discount rates used in modelling the fair 
value
      of the European CLO portfolio, largely in response to sustained reductions
in observed
      risk premia, added approximately $0.09 of EPS after fees (please see page
26 for
      further detail).
    - The returns on other asset classes, shown in "other investment income",
      continue to contribute an increasing proportion of the investment 
portfolio gains,
      which we discuss in detail later in this report.
    - Fee income relating to the TFG Asset Management segment activities 
contributed
      $0.45 of EPS in the first three quarters, with the growth year-on-year 
primarily
      reflecting the addition of asset management activities through the Polygon
Transaction
      in 2012.
</pre><pre>   
    Figure 3
    TETRAGON FINANCIAL GROUP
    TFG Earnings per Share Analysis (2011-Q3 2013)
    Component                                             YTD Q3 2013    2012  
 2011
    CLOs                                                        $1.61   $3.65  
$4.76
    Hedging derivatives and options                             $0.05  ($0.10) 
($0.04)
    Direct loans                                                $0.02   $0.07  
$0.03
    Other investment income                                     $0.22   $0.09  
  N/A
    Fee income                                                  $0.45   $0.32  
$0.20
    Expenses and taxes net of recoveries excluding share
    based compensation                                         ($0.96) ($1.32) 
($1.47)
    Noncontrolling interest                                        N/A ($0.01) 
($0.02)
    Net economic income/ adjusted EPS                           $1.39   $2.70  
$3.46
</pre>    NAV PER SHARE

    Total NAV increased to $1,704.0 million which equated to Pro Forma Fully 
Diluted NAV
per Share(12) of $15.49.

    [Figure 4]

    DIVIDENDS

<pre>    
    - Dividends per Share ("DPS"): TFG declared a Q3 2013 DPS of $0.14,
      unchanged from Q2 2013. On a rolling 12-month basis, the dividend of $0.55
represents
      a 25.0% increase over the preceding four quarters.
    - TFG continues to pursue a progressive dividend policy with a target payout
      ratio of 30-50% of normalized earnings. The Q3 2013 DPS of $0.14 brings 
the cumulative
      DPS since TFG's IPO to $2.675.
</pre><pre>   
    Figure 5
    12-month Rolling DPS Comparison Q3 2011 - Q3 2013 (USD)
    Q3 2011        $0.380
    Q3 2012        $0.440
    Q3 2013        $0.550
</pre>    CASH FLOW &amp; USES OF CASH

    TFG's cash flows from operations increased by 10.1% in the first three 
quarters of
2013 compared with the same period of 2012, to $299.7 million. Cash flows 
generated by the
CLO portfolio continued to be the primary source of cash and increased by 9.0% 
in the
period to Q3 2013 to $361.5 million compared with the first three quarters of 
2012. CLO
cash flows are discussed in more detail in the Investment Portfolio section of 
this
report.

    TFG invested $46.4 million into the equity tranches of new CLO issues in the
first
three quarters of 2013, $45.5 million of it in the first quarter, as the new 
issue CLO
market slowed (and proved to be less attractive compared to other TFG investment
opportunities) in the second and third quarters. In Q3 2013, TFG invested a 
small amount
into a new CLO deal being managed by LCM Asset Management LLC ("LCM"). TFG 
continued to
add to its investments in equities, credit and convertible bonds primarily via 
Polygon
branded in-house managed funds and in real estate vehicles managed by GreenOak.

    Net cash flows year to date from the sales, prepayments and maturity of 
loans is $70.9
million, which is largely unchanged from the end of Q2 2013. TFG utilised $40.1
million to
pay dividends in the first three quarters of the year compared with $37.3 
million in the
equivalent period in 2012. $12.7 million was utilised to repurchase TFG's shares
during
the first three quarters of 2013.

    At the end of Q3 2013, TFG's investible cash balance was $226.8 million, 
approximately
13.0% of net assets, unchanged as a percentage from Q2 2013.

    [Figure 6]

    TFG STRUCTURE OVERVIEW

    TFG owns 1) an investment portfolio of $1.7 billion of financial assets and
2) TFG
Asset Management, a global alternative asset management business with $9.1 
billion of
client assets under management. Investors may find the above chart useful to 
better
understand the company's structure.

    INVESTMENT PORTFOLIO

    INVESTMENT PORTFOLIO OVERVIEW

    During Q3 2013, TFG continued to invest in U.S. corporate loans (by 
investing in 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 via investments in Polygon-managed hedge funds.

    U.S. corporate loans accessed via CLO equity, which constitute the majority
of TFG's
investment assets, registered positive performance during Q3 2013, but saw 
declines in
their expected future cash flows primarily as a result of loan spread tightening
(which
may be reflected with a lag in TFG's CLO portfolio as compared with the overall
loan
market), de-leveraging of certain U.S. Pre- Crisis CLOs which exited their 
reinvestment
periods, and in some cases, losses on underlying CLO assets.

    TFG's real estate, equity, credit and convertible bond investments continued
to
perform well during the quarter.

    PORTFOLIO COMPOSITION AND OUTLOOK

    [Figure 7]

    TFG's net assets, which totalled $1,704.0 million at the end of Q3 2013, 
consisted
mainly of:

<pre>    
    - Corporate loans, both directly owned and indirectly owned through CLO
      investments;
    - Equity, credit, and convertible bonds, primarily owned through Polygon 
fund
      investments;
    - Real estate (GreenOak investments); and
    - Cash.
</pre>    The following charts summarize selected performance metrics for 
certain asset classes
in TFG's investment portfolio.

    Figure 8a

<pre>    
                                September 2013 Net
                                      Assets
    Asset Type                       (in $MM)         LTM Performance
    U.S. Pre-Crisis CLOs (i)          $727.1              22.9%(ii)
    U.S. Post-Crisis CLOs (i)         $178.9              10.5%(ii)
    European CLOs                     $155.2              53.7%(ii)
    U.S. Direct Loans                  $43.1                4.5%
</pre>    (i) "U.S. Pre-Crisis CLOs" and "U.S. Post-Crisis CLOs" refers to U.S.
CLOs issued
before and after December 2008, respectively. 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. Post-Crisis CLOs 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. Post-Crisis CLO equity investments which were made 
during the
year, and which 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 8b

<pre>    
                                                             LTM Return on
                                   September 2013 Net        Time-Weighted
                                         Assets              Average Capital
    Asset Type                          (in $MM)             Invested (ii)
    Equities (i)                         $158.5                  22.9%
    Credit and Convertible Bonds          $46.9                  13.5%
</pre>    (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 TFG's period of investment from 1 December 2012 to 30 September 2013 
against the
time-weighted average capital invested. Returns for directly-held equities are 
calculated
on the basis of cumulative investment-to-date performance 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 30 September 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 directly or 
indirectly
via CLO equity investments) totalled $1,104.4 million at the end of Q3 2013 
($1,184.9
million at the end of Q2 2013) and remained diversified, with 73.7% in U.S.
broadly-syndicated senior secured loans, 12.2% in U.S. middle-market senior 
secured loans
and 14.1% in European senior secured loans.(13)

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

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

<pre>    
    - U.S. Pre-Crisis CLOs
    - U.S. Post-Crisis CLOs
    - European CLOs
    - Direct U.S. Loans
</pre>    U.S. PRE-CRISIS CLOs

    As of the end of Q3 2013, TFG held equity investments in 52 U.S. Pre-Crisis
CLOs and
one investment in the debt tranche of a U.S. Pre-Crisis CLO.(14) U.S. Pre-Crisis
CLO
equity investments had total fair value of $727.1 million as of 30 September 
2013,
compared with $787.3 million at the end of the prior quarter. As of the end of 
Q3 2013 all
U.S. Pre-Crisis CLOs were passing their junior-most O/C tests.(15)

    During Q3 2013, TFG's U.S. Pre-Crisis CLO investments produced cash flows of
$76.1
million, compared with $89.5 million generated in Q2 2013. This 
quarter-on-quarter decline
was primarily driven by continued compression of CLO excess spread margins, the
result of
loan spread tightening and amortization of certain CLOs as they moved out of, or
further
beyond, the end of their reinvestment periods. Additionally, U.S. Pre-Crisis CLO
managers
which were able to reinvest during the quarter faced increasingly challenging 
reinvestment
criteria as a result of tightening weighted average life, maturity and other 
collateral
quality test constraints. We expect that the de-leveraging pace of U.S. 
Pre-Crisis CLOs
will become an increasingly important driver of their mid-term cash flow 
generation
capacity as well as a key input in our evaluation of the call options on these
transactions. The pace of CLO amortisation will, in turn, depend on the 
repayment rate of
the underlying loans as well as each transaction's reinvestment status, 
including the
ability to reinvest repayment proceeds after the end of the reinvestment period.
Although
U.S. loan prepayments recently declined to 4.6% in Q3 2013 from 13.9% in Q2 
2013,(16) we
believe that prepayment rates, and therefore the pace of CLO wind-down, will 
continue to
be volatile in the future, directly impacting the cash flow generation capacity
of TFG's
U.S. Pre-Crisis CLO equity investments.

    U.S. POST-CRISIS CLOs

    As of the end of Q3 2013, TFG held 11 equity investments in U.S. Post-Crisis
CLOs with
a total fair value of $178.9 million, down from $209.0 million as of the end of
Q2 2013.
The decrease in fair value was primarily the result of the early redemption of 
one CLO,
which was managed by LCM. We estimate the realized IRR to TFG on the redeemed 
investment
to be over 17.0%. Additionally, during the quarter TFG made a small investment 
in the
equity tranche of a new issue U.S. Post-Crisis CLO managed by LCM, totalling 
$1.0 million
at cost.

    U.S. POST-CRISIS CLOs (continued)

    The performance of TFG's U.S. Post-Crisis CLOs was shaped by the same loan 
market
trends as the U.S. Pre-Crisis CLO portfolio, with continued spread tightening 
serving as
the main driver of earnings for these investments. All U.S. Post-Crisis CLOs 
remained in
compliance with their O/C tests as of the end of Q3 2013.(17) During Q3 2013, 
TFG's U.S.
Post-Crisis CLO investments produced cash flows of $35.4 million, as compared 
with $12.6
million in the prior quarter. These gains in cash collections primarily reflect
the early
redemption of one CLO and an increase in the number of U.S. Post-Crisis CLO 
transactions
that have reached their first payment dates.

    EUROPEAN CLOs

    As of the end of Q3 2013, TFG held equity investments in 10 European CLOs 
with a total
fair value of $155.2 million, up from $145.4 million as of the end of Q2 2013. 
Shortly
after the end of the quarter, TFG made a secondary investment in the equity 
tranche of a
European CLO at a cost of $3.7 million.

    The performance of TFG's European CLO equity investments in Q3 2013 has 
improved
significantly, as O/C test levels of certain transactions increased and as 
previously
accrued CLO liabilities and management fees were repaid, allowing for 
distributions to the
equity tranches. Despite the progress made to date, we continue to expect that 
the
performance of the European CLO portfolio may remain volatile, as a result of 
their
relatively low excess structural and collateral quality test cushions.

    During Q3 2013, TFG's European CLO investments generated cash flow of EUR9.2
million,
compared with EUR5.0 million in the first quarter of 2013. We compare the cash 
flows
generated by the European CLO investments over a six-month period, as European 
CLOs
generally pay semi- annually, as opposed to quarterly for U.S. CLOs. As of the 
end of Q3
2013, 91.3% of all of TFG's European CLO investments were passing their 
junior-most O/C
tests, weighted by fair value, and 90.0% were passing when weighted by number of
deals.(18)

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

    [Figure 9]

    DIRECT LOANS

    As of the end of Q3 2013, TFG held U.S. direct loan investments with a total
fair
value of $43.1 million and par value of $43.1 million, largely unchanged from 
the end of
the prior quarter ($43.2 million fair value and $43.4 million par value). The 
fundamental
credit metrics of this portfolio were stable during the quarter and there 
continued to be
no defaults.

    EQUITIES

    As of the end of Q3 2013, TFG held $158.5 million of investments (at fair 
value) in
equities via Polygon-managed equity funds as well as directly owned. The net 
assets
attributable to directly owned equities currently consist primarily of the 
collateral
posted (or otherwise held) by TFG in margin accounts with financial 
institutions. Similar
to our approach to leveraged loan investing, we believe that TFG may benefit by
owning
equities outright, in addition to investing indirectly via Polygon-managed 
funds. TFG will
continue to look to deploy additional capital into direct investments of 
equities, credit,
and convertible bonds, when appropriate.

    Currently, TFG's equity investments are primarily focused on European 
event-driven
equity, global equities and mining equities-related investments. An initial 
equity fund
investment was made on 1 December 2012, and through the end of Q3 2013, TFG's 
investments
in equities (including both fund investments and direct investments) generated 
an
annualised return on time- weighted average capital of approximately 22.9%.(19)

    CREDIT AND CONVERTIBLE BONDS

    As of the end of Q3 2013, TFG held $46.9 million of investments (at fair 
value) in
Polygon-managed credit and convertible bond funds, up from $20.8 million at the
end of Q2
2013. An initial fund investment was made on 1 December 2012 and through the end
of Q3
2013, TFG's investments in credit and convertible bonds generated an annualised
return on
time-weighted average capital of approximately 13.5%.(20)

    REAL ESTATE

    As of the end of Q3 2013, TFG held $50.3 million of investments (at fair 
value) in
GreenOak- managed real estate funds and vehicles, including $16.4 million of new
capital
investments funded during Q3 2013. Such investments include numerous commercial
and
residential properties across Japan, the United States and Europe.

    The company expects to continue to fund capital commitments into GreenOak 
projects
during the remainder of 2013.

    FINANCING SOURCES, HEDGING ACTIVITY AND OTHER MATTERS

    As of the end of Q3 2013, TFG had no outstanding debt and the net 
consolidated cash on
its balance sheet stood at $256.9 million, compared to $243.8 million at the end
of Q2
2013. The balance of TFG's "investible cash," which excludes certain amounts 
consolidated
for U.S. GAAP purposes but which are restricted to specific uses or otherwise 
unavailable
to be invested, was $226.8 million, compared to $217.8 million at the end of Q2
2013.

    TFG had no direct credit hedges in place at the end of Q3 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

    TFG Asset Management comprises the fee income-generating areas of TFG's 
portfolio:
management and performance fees from internal and external asset managers. The 
three
internal asset management brands, LCM, GreenOak and Polygon, continued to 
perform well
through 30 September 2013.

    UPDATE ON KEY METRICS

<pre>    
    - Performance of the underlying funds: all of the various funds managed by
      TFG Asset Management's brands had positive net performance through the end
of Q3 2013.
    - Gross revenues: composed primarily of management and performance fees from
      clients, totalled $43.7 million through 30 September 2013.
    - "EBITDA equivalent": totalled $18.4 million through Q3 2013.
</pre><pre>   
    Figure 10
    TETRAGON FINANCIAL GROUP
    TFG Asset Management Statement of Operations Through Q3 2013
                                                     U.S. GAAP       Net 
Economic income
                                                         $MM                 $MM
                                                         YTD                 YTD
    Fee income(i)                                        43.7                
43.7
    Unrealised Polygon performance fees(ii)                 -                 
2.1
    Interest income                                       0.2                 
0.2
    Total income                                         43.9                
46.0
    Operating, employee and administrative expenses(i)  (27.6)              
(27.6)
    Net income - "EBITDA equivalent"                     16.3                
18.4
    Performance fee allocation to TFM                    (1.7)               
(2.2)
    Amortisation expense on management contracts         (5.1)               
(5.1)
    Net income before taxes                               9.5                
11.1
    Income taxes                                         (2.5)               
(3.0)
    Net income                                            7.0                 
8.1
</pre>    (i) Nets off cost of recovery on "Other fee income" against this cost
contained in
"Operating, employee, and administrative expenses." Operating costs also removes
amortisation from the U.S. GAAP segmental report.

    (ii) Unrealised Polygon performance fees represent the fees calculated by 
the
applicable administrator of the relevant Polygon funds, in accordance with the 
applicable
fund constitutional documents, when determining NAV at quarter end, less certain
assumed
costs. Similar amounts, if any, from LCM and GreenOak are excluded from this 
line item.
Such fees would typically not be realised or recognised under U.S. GAAP until 
calendar
year end, and are therefore subject to change based on fund performance during 
the
remainder of the year. There can be no assurance that the company will realise 
all or any
portion of such amounts. Through 30 September 2013, this amount equalled $2.1 
million
before (1) an assumed imputed tax charge and (2) estimated TFM performance fees
reduced
the net contribution to $1.1 million as shown in Figure 10 and further 
represented in
Figures 17 and 18 of this report.

    ASSET MANAGEMENT BRANDS

    AUM for LCM, GreenOak and Polygon are shown below at 30 September 2013.

    Figure 11

<pre>    
    Summary of TFG Asset Management AUM ($BN)
    Brand 30 September 2013 30 June 2013
    LCM                               $ 4.3         $ 4.5
    GreenOak (i)                      $ 3.6         $ 3.2
    Polygon (ii)                      $ 1.2         $ 1.1
    Total                             $ 9.1         $ 8.8
</pre>    (i) Includes funds and advisory assets.

    (ii) 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 fund administrator. 
Includes,
where relevant, investments by Tetragon Financial Group Master Fund Limited.

    LCM

    LCM is a specialist in below investment-grade U.S. broadly-syndicated 
leveraged loans
that was established in 2001. Farboud Tavangar is the senior portfolio manager.

    LCM continued to perform well in Q3 2013, with all of LCM's Cash Flow CLOs 
that were
still within their reinvestment periods continuing to pay senior and 
subordinated
management fees.

    At 30 September 2013, LCM's total CLO loan assets under management stood at
approximately $4.3 billion. During the quarter, LCM successfully raised LCM XIV,
a $400.0
million asset CLO which closed on 11 July 2013, while LCM VIII, with assets 
totalling
approximately $300.0 million, was called in mid-July 2013. LCM currently manages
11 CLOs.

    [Figure 12]

    GREENOAK

    GreenOak is a real estate-focused principal investing and advisory firm 
established in
2010. The Principals and Founders are John Carrafiell, Sonny Kalsi and Fred 
Schmidt.

    During Q3 2013, GreenOak continued to execute on its strategy with respect 
to its
funds and its advisory assignments on behalf of select strategic clients with 
mandates in
Europe, Japan, and the United States.

    At 30 September 2013, assets under management totalled approximately $3.6 
billion.

    POLYGON FUNDS

    [Figure 13]

    (i) Assets under management include all third-party interests and total 
projected
capital investment costs.

    Total AUM for the Polygon funds was approximately $1.2 billion at 30 
September 2013.
The funds continued to perform well through the end of Q3 2013. A distressed 
credit fund
was launched in September 2013 and the team is currently building a performance
track
record in the strategy.

    Figure 14

<pre>    
                    Summary of Polygon Funds Assets Under Management ($ MM)
                                                                 Annualised
                      2013 Net LTD Fund 30 Sep 2013 Performance Performance
    European Event-Driven Equity(i) $ 296              12.8%       13.8%
    Convertibles(ii)                $ 297               7.1%       21.4%
    Mining Equities(iii)            $ 51                1.6%        4.3%
    Private Equity Vehicle(iv)      $ 519               1.4%        6.9%
    Distressed Credit(v)            $ 25                1.2%       15.7%
    Other Equity(vi)                $ 17               16.8%       13.5%
    Polygon Funds' Total AUM(vii) $1,205
</pre>    (i) The fund began trading 8 July 2009 with Class B shares which carry
no incentive
fee. Class A shares commenced trading on 1 December 2009. Returns from inception
through
November 2009 for Class A shares have been pro forma adjusted to match the 
fund's Class A
share terms as set forth in the Offering Memorandum (1.5% management fee, 20% 
incentive
fee and other items, in each case, as set forth in the offering Memorandum). 
From December
2009 to February 2011, the table reflects actual Class A share performance on 
the terms
set forth in the Offering Memorandum. From March 2011, forward, the table 
reflects actual
Class A1 share performance on the terms set forth in the Offering Memorandum. 
Class A1
share performance is equivalent to Class A share performance for prior periods.
AUM figure
is for the Polygon European Equity Opportunity Master Fund and associated 
managed account
as calculated by the applicable fund administrators.

    (ii) The fund began trading with Class B shares, which carry no incentive 
fees, on 20
May 2009. Class A shares of the fund were first issued on 1 April 2010 and 
returns from
inception through March 2010 have been pro forma adjusted to match the fund's 
Class A
share terms as set forth in the Offering Memorandum (1.5% management fee, 20% 
incentive
fee over a hurdle and other items, in each case, as set forth in the Offering 
Memorandum).
AUM figure is for the Polygon Convertible Opportunity Master Fund as calculated
by the
applicable fund administrator.

    POLYGON FUNDS (continued)

    (iii) The fund began trading with Class B1 shares, which carry no incentive
fees, on 1
June 2012. Returns shown here have been pro forma adjusted to account for a 2.0%
management fee, a 20% incentive fee, and non trading expenses capped at 1%, in 
each case,
as set forth in the Offering Memorandum. AUM figure is for the Polygon Mining 
Opportunity
Master Fund as calculated by the applicable fund administrator.

    (iv) The fund's inception was on 8 March 2011. Individual investor 
performance will
vary based on their high water mark. Currently the majority of Class C share 
class
investors have not reached their high water mark, so their performance is the 
same as
their gross performance. AUM figure is for the Polygon Recovery Fund LP as 
calculated by
the applicable fund administrator.

    (v) The fund's inception was on 1 September 2013. Returns shown are for 
Class A shares
reflecting the terms set forth in the offering documents (2.0% management fee, 
20%
incentive fee and other items, in each case, as set forth in the offering 
documents). AUM
figure is for the Polygon Distressed Opportunities Master Fund as calculated by
the
applicable fund administrator.

    (vi) The fund began trading with Class B/B1 shares, which carry no incentive
fees, on
12 September 2011. Returns shown here have been pro forma adjusted to account 
for a 2.0%
management fee and a 20% incentive fee, in each case, as to be set forth in 
further
definitive documents. AUM figure is for the Polygon Global Equities Master Fund
as
calculated by the applicable fund administrator.

    Note: The AUM noted above includes investments in the relevant strategies by
TFG,
other than in respect of the Private Equity Vehicle, where there is no such 
investment.
The Private Equity vehicle, at the time of the Polygon transaction and 
currently, remains
a closed investment strategy.

    Note: Past performance or experience (actual or simulated) does not 
necessarily give a
guide for the future and no representation is being made that the funds listed 
will or are
likely to achieve profits or losses similar to those shown.

    [Figure 15]

    FINANCIAL TABLES

    FINANCIAL HIGHLIGHTS

    Figure 16

<pre>    
                             TETRAGON FINANCIAL GROUP 
                    Financial Highlights Through Q3 2011-2013

                                                 Q3 2013   Q3 2012   Q3 2011

    U.S. GAAP net income ($MM) (YTD)              $118.1    $203.4    $330.1
    Net economic income ($MM) (YTD)               $136.5    $203.4    $330.1
    U.S. GAAP EPS (YTD)                            $1.21     $1.77     $2.77
    Adjusted EPS (YTD)                             $1.39     $1.77     $2.77
    Return on equity (YTD)                          8.4%     13.8%     29.0%

    Net assets ($MM)                            $1,704.0  $1,623.6  $1,413.6
    U.S. GAAP number of shares outstanding (MM)     97.7     113.6     117.2
    U.S. GAAP NAV per share                       $17.45    $14.29    $12.06
    Pro Forma number of shares outstanding (MM)    110.0     113.6     117.2
    Pro Forma fully diluted NAV per share         $15.49    $14.29    $12.06
    DPS                                           $0.140    $0.115    $0.100
</pre>    In this section, we present consolidated financial data incorporating
TFG and its 100%
subsidiary, Tetragon Financial Group Master Fund Limited.

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

<pre>    
    - Return on Equity (8.4%): Net Economic Income ($136.5 million) divided by
      Net Assets at the start of the year ($1,624.4 million).
    - Net Economic Income (+$136.5 million): adds back to the U.S. GAAP net 
income
      (+$118.1 million) the imputed Q3 2013 share based employee compensation 
(+$17.3
      million), which is generated on an ongoing basis resulting from the 
Polygon
      transaction and also includes unrealized Polygon performance fees(21) 
(+$1.1 million).
    - Pro Forma Fully Diluted Shares (110.0 million): adjusts the U.S. GAAP 
shares
      outstanding (97.7 million) for the impact of escrow shares used as 
consideration in
      the Polygon transaction and associated stock dividends (+12.3 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 ($1.39): calculated as Net Economic Income ($136.5 million)
      divided by weighted-average U.S. GAAP shares outstanding (97.9 million).
    - Pro Forma Fully Diluted NAV per Share ($15.49): calculated as Net Assets
      ($1,704.0 million) divided by Pro Forma Fully Diluted shares (110.0 
million).(22)
</pre>    STATEMENT OF OPERATIONS

<pre>   
    Figure 17
    TETRAGON FINANCIAL GROUP
    Statement of Operations Through Q3 2011-2013
                                                                          Q3
                                                                Q3 2013  2012  
Q3 2011
                                                                 ($MM)  ($MM)  
($MM)
    Statement of Operations                                      (YTD)  (YTD)  
(YTD)
    Interest income                                              158.9  175.1  
154.0
    Fee income                                                    43.7   18.8  
 15.9
    Other income - cost recovery                                  15.4      -  
    -
    Investment income                                            218.0  193.9  
169.9
    Management and performance fees                              (50.7) (73.3) 
(115.5)
    Other operating and administrative expenses                  (73.8) (14.8) 
(18.8)
    Total operating expenses                                    (124.5) (88.1) 
(134.3)
    Net investment income                                         93.5  105.8  
 35.6
    Net change in unrealised appreciation in investments          10.6  106.5  
300.1
    Realised gain on investments                                  11.0    0.6  
  0.6
    Realised and unrealised gains/(losses) from hedging and fx     6.2   (5.4) 
 (1.8)
    Net realised and unrealised gains from investments and fx     27.8  101.7  
298.9
    Income taxes                                                  (3.2)  (2.4) 
 (3.0)
    Noncontrolling interest                                          -   (1.7) 
 (1.4)
    U.S. GAAP net income                                         118.1  203.4  
330.1
    Add back share based employee compensation                    17.3      -  
    -
    Net unrealised Polygon performance fees                        1.1      -  
    -
    Net Economic Income                                          136.5  203.4  
330.1
</pre>    A performance fee of $7.7 million was accrued in Q3 2013 in accordance
with TFG's
investment management agreement and based on a "Reference NAV" of Q2 2013. Year
to date,
the Investment Manager has earned performance fees of $32.0 million. The hurdle
rate for
the Q4 2013 incentive fee has been reset at 2.893708% (Q3 2013: 2.920958%) as 
per the
process outlined in TFG's 2012 audited financial statements and in accordance 
with TFG's
investment management agreement.

    Please see TFG's website, http://www.tetragoninv.com and the 2012 TFG 
audited
financial statements for more details on the calculation of this fee.

    STATEMENT OF OPERATIONS BY SEGMENT

<pre>   
    Figure 18
    TETRAGON FINANCIAL GROUP
    Statement of Operations by Segment Through Q3 2013
                                                                Investment
                                                                Portfolio  TFG 
AM  Total
                                                                   $MM      $MM
    $MM
                                                                  (YTD)    (YTD)
  (YTD)
    Interest income                                                158.7    0.2
  158.9
    Fee income                                                         -   43.7
   43.7
    Other income - cost recovery                                       -   15.4
   15.4
    Investment and management fee income                           158.7   59.3
  218.0
    Management and performance fees                                (49.0)  (1.7)
 (50.7)
    Other operating and administrative expenses                     (8.4) (48.1)
 (56.5)
    Share based employee compensation                                  -      -
  (17.3)
    Total operating expenses                                       (57.4) (49.8)
(124.5)
    Net investment income                                          101.3    9.5
   93.5
    Net change in unrealised appreciation in investments            10.6      -
   10.6
    Realised gain on investments                                    11.0      -
   11.0
    Realised and unrealised gains from hedging and fx                6.2      -
    6.2
    Net realised and unrealised gains from investments and fx       27.8      -
   27.8
    Income taxes                                                    (0.7)  (2.5)
  (3.2)
    U.S. GAAP net income                                           128.4    7.0
  118.1
    Share based employee compensation                                  -      -
   17.3
    Net unrealised Polygon performance fees                            -    1.1
    1.1
    Net economic income                                            128.4    8.1
  136.5
</pre><pre>   
    Figure 19
    TETRAGON FINANCIAL GROUP
    Balance Sheet as at 30 September 2013 and 31 December 2012
                                                               Sep-13    Dec-12
                                                                 $MM      $MM
    Assets
    Investments, at fair value                                 1,364.4  1,440.4
    Management contracts                                          38.3     43.4
    Cash and cash equivalents                                    256.9    175.9
    Amounts due from brokers                                      42.6     13.1
    Derivative financial assets                                   12.8      7.6
    Property, plant and equipment                                  0.3        -
    Deferred tax asset                                             1.2        -
    Other receivables(i)                                          49.3     15.8
    Total assets                                               1,765.8  1,696.2
    Liabilities
    Other payables and accrued expenses                           45.3     61.7
    Amounts payable on share options                               7.8      6.6
    Income and deferred tax payable                                0.3      4.3
    Derivative financial liabilities                               8.4      2.2
    Total liabilities                                             61.8     74.8
    Net assets                                                 1,704.0  1,621.4
</pre>    (i) Includes $35 million of cash committed to investments which will 
migrate to
investments, at fair value in Q4 2013.

    STATEMENT OF CASH FLOWS

    Figure 20

<pre>    
    TETRAGON FINANCIAL GROUP
    Statement of Cash Flows Through Q3 2011-2013
                                                                 Q3 2013  Q3 
2012  Q3 2011
                                                                   $MM      $MM
     $MM
                                                                  (YTD)    (YTD)
   (YTD)
    Operating Activities
    Operating cash flows after incentive fees and before
    movements in working capital                                  294.5    272.6
   155.1
    Purchase of fixed assets                                       (0.4)       -
       -
    Change in payables/receivables                                  5.6     
(0.3)     6.0
    Cash flows from operating activities                          299.7    272.3
   161.1
    Investment Activities
    Amounts payable for purchase of investments                     0.0
    Proceeds on sales of investments
    - Net proceeds from swap resets                                 4.6        -
       -
    - Proceeds sale of bank loans and maturity and prepayment of
      investments                                                 91.40     65.6
  112.40
    - Proceeds on realisation of real estate investments           10.9      0.8
     0.0
    - Proceeds sale of derivatives - swaptions                      2.6      0.0
     0.0
    - Proceeds sale of CLOs                                         0.0      0.2
     0.0
    Purchase of investments
    - Purchase of CLOs                                            (46.4)   
(87.8)   (46.6)
    - Purchase of bank loans                                      (20.5)   
(44.6)  (129.2)
    - Purchase of real estate investments                         (33.4)    
(9.8)    (1.4)
    - Purchase of interest rate swaptions                           0.0        -
   (17.8)
    - Investments in asset managers                                (0.5)    
(2.7)     0.0
    - Investments in equities                                     (85.0)     0.0
     0.0
    - Investments in credit and convertible bonds                 (60.0)     0.0
     0.0
    Cash flows from operating and investing activities            163.4    194.0
    78.5
    Amounts due from broker                                       (29.5)     2.8
    (6.9)
    Net purchase of shares                                        (12.7)   
(17.3)   (20.6)
    Dividends paid to shareholders                                (40.1)   
(37.3)   (33.4)
    Distributions paid to noncontrolling interest                   0.0     
(0.8)    (2.6)
    Cash flows from financing activities                          (82.3)   
(52.6)   (63.5)
    Net increase in cash and cash equivalents                      81.1    141.4
      15
    Cash and cash equivalents at beginning of period              175.9    211.5
   140.6
    Effect of exchange rate fluctuations on cash and cash
    equivalents                                                    (0.1)     0.2
       0
    Cash and cash equivalents at end of period                    256.9    353.1
   155.6
</pre>    U.S.GAAP TO FULLY DILUTED SHARES RECONCILATION

    Figure 21 (23)

<pre>    
    U.S. GAAP to Fully Diluted Shares Reconciliation

                                            30 Sep 2013
                                            Shares (MM)
    Legal Shares Issued and Outstanding          134.50
    Less: Shares Held In Subsidiary               16.60
    Less: Shares Held In Treasury                  7.95
    Less: Escrow Shares(23.i)                     12.29
    U.S. GAAP Shares Outstanding                  97.66
    Add: Manager (IPO) Share Options(23.ii)        0.04
    Add: Escrow Shares(23.i)                      12.29
    Pro Forma Fully Diluted Shares               109.99
</pre>    (i) As previously disclosed, on 28 October 2013, approximately 1.2 
million non-voting
shares of TFG (together with accrued dividends, the "Vested Shares") that were 
issued
pursuant to TFG's acquisition in October 2012 of Polygon Management L.P. and 
certain of
its affiliates (the "Polygon Transaction") will vest with certain persons (other
than
Messrs. Griffith and Dear whose shares will not vest on such date) (such 
persons, the
"Sellers"), all of whom are employees of TFG, pursuant to the Polygon 
Transaction.

    Certain of these employees are entering into a sales trading plan (the 
"Fixed Trading
Plan") providing for the sale of up to an aggregate of approximately 105,000 
Vested Shares
in the market. Beginning on 15 November 2013, a brokerage firm will be 
authorized to sell
such TFG shares under the Fixed Trading Plan pursuant to certain irrevocable 
instructions.
The Fixed Trading Plan is intended to comply with TFG's Insider Trading Policy 
and Rule
10b5 -1 under the United States Securities Exchange Act of 1934, as amended. The
Fixed
Trading Plan has been approved by TFG in accordance with its Insider Trading 
Policy, and
will expire no later than 28 February 2014. Employees of TFG may enter into 
additional
trading plans in the future from time to time.

    Concurrently with the entry into the Fixed Trading Plan, the Sellers expect
to agree
to sell to Messrs. Griffith and Dear on 15 November 2013 an aggregate of 
approximately
225,000 Vested Shares at a price equal to the volume -weighted average trading 
price of
the TFG shares over the period from October 1 through October 14, 2013 (adjusted
for the
Q3 2013 dividend). Messrs. Griffith and Dear have advised TFG that they have no
plans to
dispose of these shares.

    For additional information regarding the Polygon Transaction and the future
vesting
schedule for shares issued thereunder, see Notes 4 and 9 to the 2012 Tetragon 
Financial
Group Limited audited financial statements and Note 4 to the 2012 Tetragon 
Financial Group
Master Fund Limited audited financial statements, each included in the TFG 2012
Annual
Report.

    Rule 10b5-1 provides a "safe harbor" that is designed to permit individuals
to
establish a pre-arranged plan to buy or sell company stock if, at the time such
plan is
adopted, the individuals are not in possession of material, nonpublic 
information.

    APPENDIX I

    CERTAIN REGULATORY INFORMATION

    This Performance Report constitutes TFG's interim management statement as 
required
pursuant to Section 5:25e of the Dutch Financial Markets Supervision Act 
("FMSA").
Pursuant to Section 5:25e and 5:25m of the FMSA, this report is made public by 
means of a
press release and has been filed with the Netherlands Authority for the 
Financial Markets
(Autoriteit Financiele Markten) and also made available to the public by way of
publication on the TFG website (http://www.tetragoninv.com).

    An investment in TFG involves substantial risks. Please refer to the 
Company's website
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 designated country. This 
release
constitutes regulated information ("gereglementeerde informative") within the 
meaning of
Section 1:1 of the FMSA.

    APPENDIX II

    FAIR VALUE DETERMINATION OF TFG'S CLO EQUITY INVESTMENTS

    In accordance with the valuation policies set forth on the company's 
website, the
values of TFG's CLO equity investments are determined using a third-party cash 
flow
modeling 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 modeling, 
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 Modeling Assumptions Unchanged in Q3 
2013

    The Investment Manager reviews and, when appropriate, adjusts in 
consultation with
TFG's audit committee, the CLO equity investment portfolio's modeling 
assumptions as
described above. At the end of Q3 2013, key assumptions relating to defaults, 
recoveries,
prepayments and reinvestment prices were unchanged from the previous quarter. 
This was the
case across both U.S. and European deals.

<pre>   
    Figure 22
    U.S. Deals
    Variable           Year                  Current Assumptions
    CADR
                       2013-2014             1.0x WARF-implied default rate 
(2.2%)
                       2015-2017             1.25x WARF-implied default rate 
(2.7%)
                       Thereafter            1.0x WARF-implied default rate 
(2.2%)
    Recovery Rate
                       Until deal maturity   73%
    Prepayment Rate
                       Until deal maturity   20.0% p.a. on loans; 0.0% on bonds
    Reinvestment Price
                       Until deal maturity   100%
</pre><pre>   
    Figure 23
    European Deals
    Variable           Year                  Current Assumptions
    CADR
                       2013-2014             1.5x WARF-implied default rate 
(3.1%)
                       2015-2017             1.25x WARF-implied default rate 
(2.6%)
                       Thereafter            1.0x WARF-implied default rate 
(2.1%)
    Recovery Rate
                       Until deal maturity   68%
    Prepayment Rate
                       Until deal maturity   20.0% p.a. on loans; 0.0% on bonds
    Reinvestment Price
                       Until deal maturity   100%
</pre>    APPENDICES

    APPENDIX II (Continued)

    These key average assumption variables include the modeling 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 288 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 U.S. Pre-Crisis CLO Equity Cash 
Flows:
European Discount Rates Recalibrated; U.S. Discount Rates Unchanged

    In determining the applicable rates to use to discount projected cash flows,
an
analysis of observable risk premium data is undertaken. For U.S. CLOs, 
observable risk
premia such as BB and BBB CLO tranche spreads maintained reductions which had 
been
observed in previous quarters, and continued to edge lower. For example, 
according to
Citibank research, BB spreads, which were 6.5% at the end of Q2 2013, finished 
Q3 2013 at
5.6%, whilst BBB spreads marginally decreased quarter on quarter.(24) Taking 
this into
account, whilst also considering other market and deal related factors, the 
discount rates
for the U.S. deals have, for now, been maintained at 15.0% for strong deals and
20.0% for
other deals. Stability around these levels will be monitored closely as we move
through
Q4.

    European observable risk premia, such as BB and BBB CLO tranche spreads, 
like their
U.S. counterparts, have followed a downward trajectory since the middle of 2012.
Taking
the BB spreads for example, they have reduced from 22.0% at the end of Q2 2012 
to 11.9% at
the end of Q1 2013, then decreased further into Q3 2013 to 9.9%.(25) This 
tightening has
resulted not just in a reduction of the European CLO mezzanine spreads at an 
absolute
level, but also relatively when compared to the equivalent U.S. rates. For 
example, the
differential between U.S. and European BB spreads has narrowed from 8.2% a year
ago to
approximately 4.3% at the end of Q3 2013.(26)

    Whilst there remain certain factors which may support a differential between
European
and U.S. spreads, such as the CCC and O/C ratios in European deals and the 
higher risks
connected with the ongoing Eurozone issue, observable data and other evidence 
are
supportive of a reduction in the differential between the discount rates which 
are being
applied to deals from these two geographies. Consequently, the discount rate 
applied to
European deal projected cash flows has been reduced to 20.0% from 22.5%. We will
continue
to monitor observable factors in determining the appropriate discount rate as we
move
towards the end of the year.

    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 
modeled IRRs,
as the "ALR Fair Value Adjustment" or "ALR". For European deals, at the end of 
Q3 2013 the
ALR was $51.0 million compared to $56.4 million at the end of Q2 2013. As 
explained in
prior reports, the ALR is now zero for U.S. deals.

    APPENDICES

    APPENDIX II (Continued)

    U.S. Post-Crisis CLOs-Discount Rates Remain at Deal IRRs

    The applicable discount rate for U.S. Post-Crisis CLOs 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 Q3 2013, the weighted-average discount rate (and IRR) on these deals
was 10.3%.
Such deals represented approximately 16.9% of the CLO equity portfolio by fair 
value (down
from 18.3% at the end of Q2 2013). We will continue to monitor observable data 
on these
newer vintage transactions to determine whether the IRR remains the appropriate
discount
rate.

    Effect on Fair Value and Net Income of Recalibration of Certain Discount 
Rates

    Overall, the net impact of the recalibration of European discount rates 
described
above led to an overall increase in fair value of the total CLO equity portfolio
of
approximately $9.1 million, or $6.8 million in bottom line net income.

    APPENDIX III

    CLO MARKET COMMENTARY

<pre>    
    - U.S. leveraged loan default rate rises: The U.S. lagged 12-month loan
      default rate rose to 2.41% by principal amount at the end of Q3 2013, up 
from 1.37% at
      the end of Q2 2013.(27) Despite the increase, the trailing 12-month U.S. 
loan default
      rate remains below the 3.2% historical average.(28) TFG's lagging 12-month
loan
      default rate increased to 1.8% at the end of Q3 2013, up from 1.5% at the
end of Q2
      2013.(29) The graph below summarizes three-year history for both TFG and 
the U.S.
      market-wide loan default rates.
</pre>    [Figure 24]

<pre>    
    - U.S. and European primary loan issuance remains robust despite
      deceleration: Institutional U.S. loan issuance volumes declined modestly 
to $100.8
      billion in Q3 2013 vs. $116.9 billion in Q2 2013.(30) Nonetheless, total 
institutional
      loan issuance for the first nine months of 2013 totalled $367.0 billion, 
up 79.0%
      versus the prior year and only slightly below the prior 2007 full-year 
record, placing
      the market on a path to exceed that record should issuance continue at 
this pace.(31)
      European institutional leveraged loan issuance also declined to EUR8.7 
billion in Q3
      2013, down from EUR14.6 billion in Q2 2013, but year to date institutional
volumes,
      totalling EUR31.1 billion, are up 173.0% vs. the prior year.(32)
    - U.S. loan refinancing activity slows while M&amp;A volumes rise: U.S. 
leveraged
      loan issuers executed $28.9 billion of leveraged loan re-pricings during 
Q3 2013
      representing a significant decline from $71.1 billion of such amendments 
executed in
      Q2 2013.(33) Conversely, M&amp;A-linked volumes reached a post-credit 
crunch high at $44.3
      billion of institutional loans, up from $27.2 billion in Q2 2013.(34)
    - Loan performance positive year to date as European loan returns outpace 
the
      U.S.: The U.S. S&amp;P/LSTA Leveraged Loan Index returned 3.53% year to 
date as of the end
      of Q3 2013.(35) Total returns on the S&amp;P European Leveraged Loan Index
("ELLI") stood
      at 6.15% year to date (including currency effects), outperforming the U.S.
market and
      reflecting strong technical market conditions.(36)
</pre>    APPENDIX III (Continued)

<pre>    
    - U.S. repayments decline but rise in Europe: The U.S. S&amp;P/LSTA 
Leveraged
      Loan Index repayment rate declined to 4.6% during Q3 2013 vs. 13.9% in Q2
2013.(37)
      Prepayments within the S&amp;P European Leveraged Loan Index ("ELLI"), on
the other hand,
      rose to 11.0% during Q3 2013, up from 10.0% in the prior quarter.(38) Q3 
2013 was the
      first quarter since 2012 that the European quarterly loan repayment rate 
outpaced the
      U.S. rate.(39)
    - U.S. and European CLO junior O/C ratios remain range-bound: During Q3 
2013,
      average O/C ratios of U.S. and European CLOs remained broadly stable with
marginal
      changes as compared with the end of Q2 2013. According to Morgan Stanley,
the median
      junior O/C test cushion for U.S. CLOs rose slightly to 5.17% at the end of
Q3 2013(40)
      vs. 5.12% in Q2 2013.(41) The median junior O/C test cushion for Euro CLOs
declined to
      0.84% at the end of Q3 2013(42) vs. 0.86% at the end of the prior 
quarter.(43)
    - U.S. arbitrage CLO issuance volumes decline vs. prior quarters: U.S. 
arbitrage
      cash flow CLO issuance totalled $15.1 billion in Q3 2013, down from $16.0
billion in
      Q2 2013 and $26.3 billion in Q1 2013.(44) This decline reflected multiple
headwinds,
      including a tightening of the equity "arbitrage funding gap" as AAA 
liability spreads
      remained persistently high in the face of generally tightening loan 
spreads as well as
      continued regulatory uncertainty with respect to U.S. CLO risk-retention.
Nonetheless,
      year to date issuance of $57.4 billion has already exceeded the 2012 
total,(45) and
      market participants anticipate that issuance will continue at a measured 
pace during
      the remainder of the year.
</pre>    APPENDIX IV

    ADDITIONAL CLO PORTFOLIO STATISTICS

<pre>    
    - CLO Portfolio Credit Quality: The weighted-average WARF across all of
      TFG's CLO equity investments stood at approximately 2,553 as of the end of
Q3 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.
</pre>    Figure 25

<pre>    
              Q3    Q2    Q1    Q4    Q3    Q2    Q1    Q4    Q3    Q2    Q1   
Q4
    ALL CLOs  2013  2013  2013  2012  2012  2012  2012  2011  2011  2011  2011 
2010
    Caa1/CCC+
    or 
    Below
    Obligors: 4.9%  5.0%  5.1%  6.0%  6.4%  5.7%  6.2%  7.0%  7.0%  7.2%  7.6% 
8.3%
    WARF:     2,553 2,568 2,541 2,599 2,605 2,578 2,588 2,624 2,614 2,642 2,664
2,671
</pre><pre>    
              Q3    Q2    Q1    Q4    Q3    Q2    Q1    Q4    Q3    Q2    Q1   
Q4
    U.S. CLOs 2013  2013  2013  2012  2012  2012  2012  2011  2011  2011  2011 
2010
    Caa1/CCC+
    or
    Below
    Obligors: 3.9%  4.1%  4.0%  4.5%  4.9%  4.2%  4.8%  5.5%  5.5%  5.8%  6.5% 
6.9%
    WARF:     2,534 2,550 2,510 2,524 2,528 2,491 2,504 2,533 2,522 2,542 2,591
2,622
</pre><pre>    
              Q3    Q2    Q1    Q4    Q3    Q2    Q1    Q4    Q3    Q2    Q1   
Q4
    EUR CLOs  2013  2013  2013  2012  2012  2012  2012  2011  2011  2011  2011 
2010
    Caa1/CCC+
    or
    Below
    Obligors: 9.1%  8.7%  9.7%  11.7% 12.2% 11.6% 11.1% 12.3% 12.0% 12.3% 11.4%
13.1%
    WARF:     2,631 2,642 2,670 2,896 2,903 2,910 2,900 2,948 2,941 2,997 2,914
2,837
</pre>    CLO EQUITY PORTFOLIO DETAILS AS OF 30 SEPTEMBER 2013

<pre>    
    Figure 26 part 1
    Tetragon Financial Group Limited (TFG)
    CLO Portfolio Details
    As of 30 September 2013
                                                                               
 Original
                                   Original      Deal          End of    Wtd Avg
 Cost of 
                                Invest. Cost   Closing Year of  Reinv    Spread
   Funds
    Transaction(i)    Deal Type  ($MM USD)(ii)   Date  Maturity Period 
(bps)(iii)(bps)(iv)
    Transaction 1     EUR CLO        37.5         2007     2024   2014     374 
      55
    Transaction 2     EUR CLO        29.7         2006     2023   2013     387 
      52
    Transaction 3     EUR CLO        22.2         2006     2022   2012     414 
      58
    Transaction 4     EUR CLO        33.0         2007     2023   2013     422 
      48
    Transaction 5     EUR CLO        36.9         2007     2022   2014     413 
      60
    Transaction 6     EUR CLO        33.3         2006     2022   2012     386 
      51
    Transaction 7     EUR CLO        38.5         2007     2023   2013     402 
      46
    Transaction 8     EUR CLO        26.9         2005     2021   2011     394 
      53
    Transaction 9     EUR CLO        41.3         2007     2023   2013     423 
      50
    Transaction 10    EUR CLO        27.0         2006     2022   2012     385 
      50
    EUR CLO Subtotal:               326.3                                  400 
      52
    Transaction 11     US CLO        20.5         2006     2018   2012     311 
      45
    Transaction 12     US CLO        22.8         2006     2019   2013     346 
      46
    Transaction 13     US CLO        15.2         2006     2018   2012     336 
      47
    Transaction 14     US CLO        26.0         2007     2021   2014     351 
      49
    Transaction 15     US CLO        28.1         2007     2021   2014     417 
      52
    Transaction 16     US CLO        23.5         2006     2020   2013     399 
      46
    Transaction 17     US CLO        26.0         2007     2021   2014     337 
      40
    Transaction 18     US CLO        16.7         2005     2017   2011     306 
      45
    Transaction 19     US CLO        1.2          2005     2017   2011     306 
      45
    Transaction 20     US CLO        26.6         2006     2020   2012     423 
      52
    Transaction 21     US CLO        20.7         2006     2020   2012     410 
      53
    Transaction 22     US CLO        37.4         2007     2021   2014     421 
      53
    Transaction 23     US CLO        19.9         2007     2021   2013     320 
      66
    Transaction 24     US CLO        16.9         2006     2018   2012     420 
      46
    Transaction 25     US CLO        20.9         2006     2018   2013     408 
      46
    Transaction 26     US CLO        27.9         2007     2019   2013     426 
      43
    Transaction 27     US CLO        23.9         2007     2021   2014     560 
      51
    Transaction 28     US CLO        7.6          2007     2021   2014     560 
      51
    Transaction 29     US CLO        19.1         2005     2018   2011     392 
      66
    Transaction 30     US CLO        12.4         2006     2018   2012     435 
      67
    Transaction 31     US CLO        9.5          2005     2017   2012     308 
      52
    Transaction 32     US CLO        24.0         2007     2021   2014     318 
      59
    Transaction 33     US CLO        16.2         2006     2020   2012     363 
      56
    Transaction 34     US CLO        22.2         2006     2020   2012     364 
      50
    Transaction 35     US CLO        23.6         2006     2018   2012     450 
      52
    Transaction 36     US CLO        28.4         2007     2021   2013     420 
      46
    Transaction 37     US CLO        9.3          2005     2017   2011     292 
      50
    Transaction 38     US CLO        23.7         2007     2021   2013     322 
      42
    Transaction 39     US CLO        7.8          2005     2017   2011     429 
      70
    Transaction 40     US CLO        13.0         2006     2020   2011     377 
      39
    Transaction 41     US CLO        22.5         2006     2020   2013     375 
      48
    Transaction 42     US CLO        22.4         2007     2021   2014     388 
      47
    Transaction 44     US CLO        22.3         2006     2018   2012     318 
      54
    Transaction 45     US CLO        23.0         2006     2018   2012     304 
      46
    Transaction 46     US CLO        21.3         2007     2019   2013     301 
      51
    Transaction 47     US CLO        28.3         2006     2021   2013     314 
      47
    Transaction 48     US CLO        23.0         2006     2019   2013     330 
      46
    Transaction 49     US CLO        12.6         2005     2017   2011     362 
      40
    Transaction 50     US CLO        12.3         2006     2018   2012     345 
      40
    Transaction 51     US CLO        18.0         2007     2020   2013     360 
      53
    Transaction 54     US CLO        0.5          2005     2017   2012     336 
      56
    Transaction 55     US CLO        0.3          2005     2017   2011     344 
      39
    Transaction 56     US CLO        23.0         2007     2019   2014     371 
      42
    Transaction 57     US CLO        0.6          2007     2019   2014     371 
      42
    Transaction 58     US CLO        21.8         2007     2019   2014     374 
      49
    Transaction 59     US CLO        0.4          2007     2019   2014     374 
      49
    Transaction 61     US CLO        18.8         2010     2021   2014     346 
      45
    Transaction 62     US CLO        29.1         2007     2021   2014     329 
      42
    Transaction 63     US CLO        25.3         2007     2020   2013     380 
      53
    Transaction 64     US CLO        27.3         2007     2021   2013     409 
      38
    Transaction 65     US CLO        15.4         2007     2021   2013     378 
      47
    Transaction 66     US CLO        26.9         2006     2021   2013     311 
      49
    Transaction 67     US CLO        21.3         2006     2020   2013     322 
      46
    Transaction 68     US CLO        27.3         2007     2022   2014     356 
      48
    Transaction 69     US CLO        19.3         2006     2020   2013     369 
      44
    Transaction 70     US CLO        28.2         2007     2019   2013     293 
      52
    Transaction 71     US CLO        24.6         2006     2020   2013     345 
      40
    Transaction 72     US CLO        1.7          2006     2018   2012     371 
      42
    Transaction 73     US CLO        4.8          2007     2019   2014     371 
      42
    Transaction 74     US CLO        1.9          2007     2019   2014     374 
      49
    Transaction 75     US CLO        5.5          2007     2019   2014     399 
      168
    Transaction 76     US CLO        32.7         2011     2022   2014     304 
      46
    Transaction 77     US CLO        1.9          2006     2018   2012     404 
      212
    Transaction 78     US CLO        14.5         2011     2023   2016     491 
      217
    Transaction 79     US CLO        22.9         2012     2023   2015     417 
      215
    Transaction 80     US CLO        19.4         2012     2022   2015     416 
      185
    Transaction 81     US CLO        22.7         2012     2022   2016     452 
      216
    Transaction 82     US CLO        21.7         2012     2024   2016     425 
      206
    Transaction 83     US CLO        25.4         2012     2022   2016     479 
      193
    Transaction 84     US CLO        20.8         2013     2025   2017     411 
      183
    Transaction 85     US CLO        24.6         2013     2023   2017     404 
      170
    US CLO Subtotal:              1,327.1                                  379 
      72
    Total CLO Portfolio:          1,653.3                                  383 
      68
</pre><pre>    
    Figure 26 part 2
    Tetragon Financial Group Limited (TFG)
    CLO Portfolio Details
    As of 30 September 2013
                                                           Annualized
                          Current Current Jr- Jr-Most O/C (Loss) Gain          
 ITD Cash
                          Cost of Most O/C    Cushion at   of Cushion          
 Received
                          Funds   Cushion(vi) Close(vii)       (viii)  IRR(ix) 
  as % of
    Transaction(i)       (bps)(v)                                              
   Cost(x)
    Transaction 1         58      0.88%        3.86%          (0.48%)    0.6%  
     29.6%
    Transaction 2         60      0.71%        3.60%          (0.42%)    9.6%  
     96.1%
    Transaction 3         81      4.67%        5.14%          (0.06%)   12.1%  
    121.4%
    Transaction 4         47      5.49%        5.76%          (0.04%)   15.6%  
    107.8%
    Transaction 5         59      0.91%        5.74%          (0.78%)    9.4%  
     74.8%
    Transaction 6         60     (0.13%)       4.70%          (0.66%)    5.3%  
     49.7%
    Transaction 7         45      1.32%        3.64%          (0.36%)    6.0%  
     31.9%
    Transaction 8         58      2.82%        4.98%          (0.27%)    8.7%  
     90.6%
    Transaction 9         49      1.69%        6.27%          (0.71%)    6.5%  
     62.9%
    Transaction 10        57      0.87%        4.54%          (0.51%)    4.4%  
     36.6%
    EUR CLO Subtotal:     56      1.80%        4.84%          (0.45%)          
     67.1%
    Transaction 11        50      7.11%        4.55%            0.36%   20.3%  
    176.9%
    Transaction 12        52      8.09%        4.45%            0.53%   20.2%  
    175.0%
    Transaction 13        49      5.00%        4.82%            0.03%   21.1%  
    190.5%
    Transaction 14        50      2.98%        5.63%          (0.40%)   18.7%  
    166.5%
    Transaction 15        48      3.56%        4.21%          (0.10%)   29.2%  
    212.8%
    Transaction 16        45      3.37%        4.44%          (0.15%)   21.1%  
    188.6%
    Transaction 17        40      4.48%        4.24%            0.04%   23.6%  
    181.2%
    Transaction 18        54     11.17%        4.77%            0.81%   19.7%  
    187.9%
    Transaction 19        54     11.17%        4.77%            0.81%   23.6%  
    182.1%
    Transaction 20        67      5.47%        5.28%            0.03%   22.1%  
    190.8%
    Transaction 21        69      5.26%        4.76%            0.07%   18.5%  
    170.4%
    Transaction 22        53      2.92%        5.00%          (0.32%)   21.2%  
    168.0%
    Transaction 23        89      5.12%        4.98%            0.02%   19.7%  
    170.1%
    Transaction 24        49      5.91%        4.17%            0.24%   18.2%  
    157.4%
    Transaction 25        48      7.01%        4.13%            0.43%   22.6%  
    181.6%
    Transaction 26        47      5.78%        4.05%            0.26%   19.6%  
    161.7%
    Transaction 27        51     10.83%        6.11%            0.70%   32.7%  
    230.8%
    Transaction 28        51     10.83%        6.11%            0.70%   44.0%  
    156.6%
    Transaction 29        236    23.26%        4.82%            2.31%   17.8%  
    171.2%
    Transaction 30        96      4.33%        5.16%          (0.11%)   18.2%  
    163.6%
    Transaction 31        86      7.24%        5.02%            0.27%   16.0%  
    184.5%
    Transaction 32        59      4.03%        5.57%          (0.25%)   21.0%  
    165.3%
    Transaction 33        123     8.75%        6.99%            0.23%   13.8%  
    153.4%
    Transaction 34        61      6.04%        6.66%          (0.09%)   18.8%  
    173.7%
    Transaction 35        124    11.95%        5.00%            0.96%   18.7%  
    172.7%
    Transaction 36        60      2.76%        5.18%          (0.37%)   19.6%  
    160.4%
    Transaction 37        129    17.73%        4.34%            1.67%   14.7%  
    162.8%
    Transaction 38        45      4.19%        5.07%          (0.13%)   27.6%  
    206.6%
    Transaction 39        447    72.52%        3.15%            8.73%    9.3%  
     89.6%
    Transaction 40        52       N/A          N/A              N/A    21.2%  
    180.6%
    Transaction 41        49      4.16%        4.71%          (0.08%)   21.8%  
    181.0%
    Transaction 42        48      4.92%        3.92%            0.15%   22.0%  
    173.1%
    Transaction 44        156     9.61%        4.16%            0.74%    9.7%  
    124.3%
    Transaction 45        72      3.06%        4.46%          (0.21%)    8.3%  
    111.4%
    Transaction 46        71      1.85%        4.33%          (0.39%)    7.2%  
     99.9%
    Transaction 47        43      2.82%        4.34%          (0.22%)   21.5%  
    182.5%
    Transaction 48        55      3.40%        5.71%          (0.33%)   15.5%  
    142.9%
    Transaction 49        58      5.86%        3.94%            0.24%   12.3%  
    124.4%
    Transaction 50        51      6.14%        4.25%            0.26%   13.3%  
    127.2%
    Transaction 51        55      5.12%        4.47%            0.10%   21.2%  
    173.8%
    Transaction 54        151    18.17%        3.69%            1.72%   54.6%  
    919.4%
    Transaction 55        86     22.02%        3.59%            2.26%   58.4%  
    879.0%
    Transaction 56        42      4.58%        4.53%            0.01%   22.8%  
    180.1%
    Transaction 57        42      4.58%        4.53%            0.01%   48.9%  
   1000.9%
    Transaction 58        49      3.61%        4.04%          (0.07%)   25.1%  
    188.1%
    Transaction 59        49      3.61%        4.04%          (0.07%)   52.7%  
   1392.9%
    Transaction 61        45      2.45%        4.04%           -0.25%   17.7%  
    139.6%
    Transaction 62        43      4.10%        5.20%          (0.17%)   22.3%  
    184.2%
    Transaction 63        53      2.12%        4.78%          (0.43%)   19.4%  
    161.9%
    Transaction 64        44       N/A          N/A              N/A    22.9%  
    178.9%
    Transaction 65        55      4.33%        4.96%          (0.09%)   15.3%  
    129.8%
    Transaction 66        49      3.45%        4.05%          (0.09%)   22.4%  
    187.1%
    Transaction 67        45      4.16%        4.38%          (0.03%)   20.5%  
    167.3%
    Transaction 68        48      5.70%        4.41%            0.19%   27.4%  
    225.5%
    Transaction 69        44      6.91%        5.61%            0.20%   26.6%  
    210.1%
    Transaction 70        52      4.96%        6.21%          (0.18%)   18.9%  
    162.8%
    Transaction 71        51      6.14%        4.25%            0.26%   25.8%  
     92.8%
    Transaction 72        42      4.58%        4.53%            0.01%   20.6%  
     82.3%
    Transaction 73        42      4.58%        4.53%            0.01%   20.6%  
     82.3%
    Transaction 74        49      3.61%        4.04%          (0.07%)   22.5%  
     86.8%
    Transaction 75        168     4.57%        4.05%            0.23%   12.1%  
     47.6%
    Transaction 76        72      3.06%        2.43%            0.09%   33.3%  
    100.7%
    Transaction 77        213     5.63%        5.04%            0.33%   12.7%  
     29.6%
    Transaction 78        217     5.34%        4.00%            0.79%   14.4%  
     39.0%
    Transaction 79        215     4.26%        4.00%            0.16%    7.2%  
     29.7%
    Transaction 80        185     4.26%        4.17%            0.06%   10.9%  
     27.7%
    Transaction 81        217     4.57%        4.00%            0.55%    7.6%  
     16.6%
    Transaction 82        207     4.16%        4.00%            0.16%    8.1%  
     17.1%
    Transaction 83        193     6.24%        4.02%            3.65%   11.9%  
      7.7%
    Transaction 84        184     4.17%        4.02%            0.25%    8.3%  
     14.8%
    Transaction 85        170     5.07%        4.00%            4.89%    7.4%  
      2.2%
    US CLO Subtotal:      85      5.70%        4.59%            0.23%          
    148.1%
    Total CLO Portfolio:  79      4.92%        4.64%            0.09%          
    131.9%
</pre>    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. Note
that
Transaction 60 was removed from the table above, as the remaining value of the 
assets of
the CLO is immaterial. Transaction 60 continues to be held as of 30 September 
2013.

    (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 don't 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 annualizing 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 modeling 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 30 SEPTEMBER 2013

    [Figure 27]

    APPENDICES

    BOARD OF DIRECTORS

<pre>    
    Paddy Dear      Reade Griffith     Byron Knief*
    Rupert Dorey*   David Jeffreys*    Greville Ward*
</pre>    *Independent Director

<pre>    
    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 Group
    Andrew 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 &amp; Moore LLP
    One Ropemaker Street
    London EC2Y 9HR
    United Kingdom

    Legal Advisor (as to Guernsey law)
    Ogier
    Ogier 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 Court
    Admiral Park
    St. Peter Port, Guernsey
    Channel Islands GY1 6HJ
</pre>    END NOTES

    Executive Summary and Outlook

    (1) 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.

    (2) 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.

    (3) The amount of capital invested during the quarter is net of certain 
repayments of
capital for directly owned bank loans and real estate funds.

    (4) Please see endnote 2 above.

    (5) 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.

    (6) Includes GreenOak 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 30 September 2013. 
Includes,
where relevant, investments by Tetragon Financial Group Master Fund Limited. TFG
Asset
Management as used in this report includes the assets under management of 
several
investment advisers, including Tetragon Asset Management L.P., which is an 
investment
manager registered under the U.S. Investment Advisers Act of 1940.

    Key Metrics

    (7) Please refer to Financial Highlights on page 17 of this report for the 
definition
of Return on Equity.

    (8) Please see endnote 2 above.

    (9) Please refer to Financial Highlights on page 17 of this report for the 
definition
of Net Economic Income.

    (10) Please see Figure 10, "TFG Asset Management Statement of Operations 
Through Q3
2013" on page 13 for the determination of TFG Asset Management EBITDA.

    (11) Please refer to Financial Highlights on page 17 of this report for the
definition
of Adjusted EPS.

    (12) Please refer to Financial Highlights on page 17 of this report for the
definition
of Pro Forma Fully Diluted Shares and Pro Forma Fully Diluted NAV per Share.

    Investment Portfolio

    (13) 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.

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

    (15) Based on the most recent trustee reports available as of 30 September 
2013.

    (16) S&amp;P/LCD Leveraged Lending Review, Q3 2013.

    (17) Based on the most recent trustee reports available as of 30 September 
2013.

    (18) Based on the most recent trustee reports available as of 30 September 
2013.

    (19) 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. Cumulative annualised
equity
returns are calculated over TFG's period of investment from 1 December 2012 to 
30
September 2013 against the time-weighted average capital invested. Time-weighted
average
capital invested is calculated using each investment through 30 September 2013,
the actual
number of days and assuming a 365-day year, where the time-weighted capital for
directly-held equities is calculated on the basis of the required amount of 
margin posted
with all relevant counterparties over the analysis period. TFG invests in 
Polygon-managed
funds on a preferred fee-basis.

    (20) Returns presented reflect the cumulative annualised performance for the
asset
type over TFG's period of investment from 1 December 2012 to 30 September 2013 
against the
time-weighted average capital invested. Time-weighted average capital invested 
is
calculated using each investment through 30 September 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.

    Financial Tables

    (21) Unrealised Polygon performance fees represent the fees calculated by 
the
applicable administrator of the relevant Polygon funds, in accordance with the 
applicable
fund constitutional documents, when determining net asset value at quarter end,
less
certain assumed costs. Similar amounts, if any, from LCM and GreenOak are 
excluded from
this line item. Such fees would typically not be realised or recognised under 
U.S. GAAP
until calendar year end, and are therefore subject to change based on fund 
performance
during the remainder of the year. There are can be no assurance that the company
will
realise all or any portion of such amounts. Through 30 September 2013, this 
amount
equalled $2.1 million before (1) an assumed imputed tax charge and (2) estimated
TFM
performance fees reduced the net contribution to $1.1 million as shown in Figure
10 and
further represented in Figures 17 and 18 of this report.

    (22) 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) 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 a 
five-year period.

    (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.

    (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) 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 a 
five-year period.

    (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 Research - "Global Structured Credit Strategy" - 11 October 2013

    (25) Citi Research - "Global Structured Credit Strategy" - 11 October 2013

    (26) Citi Research - "Global Structured Credit Strategy" - 11 October 2013.

    Appendix III

    (27) S&amp;P/LCD News, "With one default in September, loan default rate 
hits 3-year
high," 1 October 2013.

    (28) S&amp;P/LCD News, "With one default in September, loan default rate 
hits 3-year
high," 1 October 2013.

    (29) 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&amp;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.

    (30) S&amp;P/LCD Quarterly Review, Q3 2013.

    (31) S&amp;P/LCD Quarterly Review, Q3 2013.

    (32) S&amp;P/LCD Quarterly Review, Q3 2013.

    (33) S&amp;P/LCD Quarterly Review, Q3 2013.

    (34) S&amp;P/LCD Quarterly Review, Q3 2013.

    (35) S&amp;P/LCD News, "Leveraged loans return 0.24% in September; YTD 
return is 3.53%," 1
October 2013.

    (36) S&amp;P/LCD News, "(EUR) S&amp;P ELLI: ELLI gains 1.02% in September, 
returns 6.69% YTD,"
8 October 2013.

    (37) S&amp;P/LCD Leveraged Lending Review, Q3 2013.

    (38) S&amp;P/LCD News, "(EUR) ELLI repayments fall to EUR1.2B in September,"
9 October
2013.

    (39) S&amp;P/LCD News, "(EUR) ELLI repayments EUR1.6 billion in March," 8 
April 2013.

    (40) Morgan Stanley CLO Market Tracker, 4 October 2013; based on a 
surveillance
universe of 405 USD-denominated CLOs and 184 Euro-denominated CLOs.

    (41) Morgan Stanley CLO Market Tracker, 9 July 2013; based on a surveillance
universe
of 420 USD-denominated CLOs and 184 Euro-denominated CLOs.

    (42) Morgan Stanley CLO Market Tracker, 4 October 2013; based on a 
surveillance
universe of 405 USD-denominated CLOs and 184 Euro-denominated CLOs.

    (43) Morgan Stanley CLO Market Tracker, 9 July 2013; based on a surveillance
universe
of 420 USD-denominated CLOs and 184 Euro-denominated CLOs.

    (44) S&amp;P/LCD Quarterly Review, Q3 2013.

    (45) S&amp;P/LCD Quarterly Review, Q3 2013.



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