Investor Relations

Risk Factors

We refer to Tetragon Financial Group Limited ("TFG"), together with Tetragon Financial Group Master Fund Limited (the “Master Fund”), as the “Company”.  Investment in TFG non-voting shares (the “Shares”) involves substantial risks. The risks and uncertainties discussed below are those that the Company believes are material, but these risks and uncertainties are not the only ones that the Company faces.  Additional risks and uncertainties that the Company does not presently know about or that it currently believes are immaterial may also adversely impact the Company’s business, financial condition, results of operations, the value of its assets or the value of an investment in the Shares.  If any of the following risks actually occur, the Company’s business, financial condition, results of operations, the value of its assets and the value of your investment would likely suffer.

Risks Relating to the Company’s Investments

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

The Company’s current portfolio consists mainly of subordinated, residual tranches (“Residual Tranches”) of collateralized loan obligation (“CLO”) products. The Company has also held investments in the Residual Tranches of collateralized debt obligation (“CDO”) products (together with CLO products and other structured investment vehicles, “Securitization Vehicles”). Both CLOs, and CDOs are securitized interests in underlying assets assembled by asset managers and divided into tranches based on their degree of credit risk. Residual Tranches are the lowest ranking tranche, incurring first losses and are paid last out of the proceeds received by Securitization Vehicles from their underlying assets.

The Company’s investments in Residual Tranches represent leveraged investments in the underlying assets of the Securitization Vehicles. The fair value of these investments could be significantly affected by, among other things, changes in the financial rating ascribed to the underlying assets of a Securitization Vehicle by financial rating agencies, changes in the market value or fair value of the underlying assets, changes in payments, defaults, recoveries, capital gains and losses, prepayment and the availability, prices and interest rate of underlying assets. Moreover, market developments generally (including, without limitation, deteriorating economic outlook, rising defaults and rating agency downgrades) may impact the fair value of an investment and/or its underlying assets, as we experienced during the period from the third quarter of 2008 through the first half of 2009. Negative loan ratings migration, specifically migration to Caa1/CCC+ or below, may also place pressure on the performance of certain of the Company’s investments. Caa1/CCC+ or below rated assets exposure over pre-defined limits in such investments may temporarily or permanently cause cash diversion away from CLO equity tranches (the Company’s investments) and into the reinvestment of new collateral, and, if significant enough, potential de-leveraging of the CLO. Changes in the market value or fair value of such underlying assets could result in defaults under the terms of the Securitization Vehicle that may in turn reduce or halt the distribution of funds to Residual Tranche holders or trigger a liquidation of such Securitization Vehicle. The leveraged nature of a Residual Tranche increases the risk that a change in market conditions or the default of an issuer of underlying assets could result in significant losses. Accordingly, Residual Tranches may not be paid in full and may be subject to substantial losses, including a loss of 100% of the Company’s investment in them.

CLO vehicles generally invest in fixed income securities rated lower than Baa by Moody’s or lower than BBB by S&P (or, if not rated, of comparable quality) and may be regarded as predominately speculative with respect to the issuer’s continuing ability to meet principal and interest payments.

As mentioned above, the Company’s current portfolio consists mainly of CLOs. The primary asset underlying our current CLO portfolio are senior secured loans, although these transactions may allow for limited exposure to other asset classes including unsecured loans, high yield bonds, emerging market loans or bonds and structured finance securities with underlying exposure to CDO tranches, RMBS, commercial mortgage backed securities, trust preferred securities and other types of securitizations. CLO vehicles generally invest in lower-rated fixed income securities that are typically rated below Baa/BBB by Moody’s and S&P. Securities that are rated lower than Baa by Moody’s or lower than BBB by S&P are sometimes referred to as “high yield”.

Securities rated Baa or lower are considered by Moody’s to have some speculative characteristics. Lower-rated securities may be regarded as predominately speculative with respect to the issuer’s continuing ability to meet principal and interest payments. Analysis of the creditworthiness of issuers of lower-rated securities may be more complex than for issuers of higher quality debt securities.

In addition, high yield or speculative securities may be less liquid and more likely to default than securities of higher credit quality. Lower-rated securities may be more susceptible to losses and real or perceived adverse economic and competitive industry conditions than higher grade securities. The secondary markets on which lower-rated securities are traded are generally less liquid than the market for higher grade securities. Consequently, there may be limited liquidity if a Securitization Vehicle is required to sell or otherwise dispose of its underlying assets. Less liquidity in the secondary trading markets could adversely affect, and cause large fluctuations in, the fair value of the Company’s portfolio. Adverse publicity and investor perceptions, whether or not based on facts or fundamental analysis, may decrease the market values and liquidity of lower-rated securities, especially in a thinly traded market.

Defaults, their resulting losses and other losses on underlying assets (including bank loans) may have a negative impact on the fair value of the Company’s portfolio and cash flows received.

A default and any resulting loss as well as other losses on an underlying asset will reduce the fair value of such underlying asset and, consequently, the fair value of the related investment and the Company’s portfolio. A wide range of factors could adversely affect the ability of the issuer of an underlying asset to make interest or other payments on that asset. These factors include adverse changes in the financial condition of such issuer or the industries or regions in which it operates; its exposure to counterparty risks; systemic risk in the financial and settlement systems; changes in law and taxation; a downturn in general economic conditions; changes in governmental regulations or other policies; and natural disasters, terrorism, social unrest and civil disturbances. To the extent that actual defaults and losses on the underlying assets of an investment exceed the level of defaults and losses factored into the purchase price of such investment by Tetragon Financial Management LP (the “Investment Manager”), the value of the anticipated return from the investment will be reduced. The more deeply subordinated the tranche of securities in which the Company invests, such as investments in Residual Tranches, the greater the risk of loss upon a default. Any defaults and losses in excess of expected default rate and loss model inputs, which are based on historical bond default and recovery data, will have a negative impact on the fair value of the Company’s investments, will reduce the cash flows that the Company receives from its investments, adversely affect the fair value of the Company’s assets and could adversely impact the Company’s and TFG’s ability to pay dividends and enter into share repurchase transactions.

In addition, the underlying assets of Securitization Vehicles, including bank loans, may require substantial workout negotiations or restructuring in the event of a default or liquidation. Any such workout or restructuring is likely to lead to a substantial reduction in the interest rate of such asset and/or a substantial write-down or write-off of all or a portion the principal of such asset. Any such reduction in interest rates or principal will negatively affect the fair value of the Company’s portfolio.

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

The securities issued by Securitization Vehicles are, in general, privately placed and offer less liquidity than other investment grade or high-yield corporate debt. Other investments that the Company may purchase in privately negotiated (also called “over-the-counter” or “OTC”) transactions may also be illiquid or subject to legal restrictions on their transfer, sale, pledge or other disposition. Adverse publicity and investor perceptions, whether or not based on facts or fundamental analysis, may also decrease the liquidity of lower rated securities, especially in a thinly traded market. As a result of this illiquidity, the Company’s ability to sell certain investments quickly, or at all, in response to changes in economic and other conditions and to receive a fair price when selling such investments may be limited, which could prevent the Company from making sales to mitigate losses on such investments. In addition, Securitization Vehicles are subject to liquidation upon the failure of certain tests relating to the underlying assets, which can result in substantial loss of value to the holders of interests in Securitization Vehicles. Residual Tranches are the most illiquid and subordinated class of interests in Securitization Vehicles and the most likely tranche to suffer a loss of all or a portion of its value in these circumstances.

The Company may be exposed to counterparty risk, which could make it difficult for the Company or the Securitization Vehicles in which it invests to collect on the obligations represented by investments and result in significant losses. In addition, neither the Company nor the Securitization Vehicles in which it invests will have any direct claim against the underlying obligors.

The Company may hold investments (including synthetic securities) which would expose it to the credit risk of its counterparties or the counterparties of the Securitization Vehicles in which it invests. In the event of a bankruptcy or insolvency of such a counterparty, the Company or a Securitization Vehicle in which such an investment is held could suffer significant losses, including the loss of that part of the Company’s or Securitization Vehicle’s portfolio financed through such a transaction, declines in the value of its investment, including declines that may occur during an applicable stay period, the inability to realize any gains on its investment during such period and fees and expenses incurred in enforcing its rights.

In addition, with respect to certain swaps and synthetic securities, neither the Securitization Vehicle nor the Company usually has a contractual relationship with the entities (each, a “Reference Entity”) whose payment obligations are the subject of the relevant swap agreement or security. Therefore, neither the Securitization Vehicle nor the Company generally has a right to directly enforce compliance by the Reference Entity with the terms of this kind of underlying obligation, any rights of set-off against the Reference Entity or any voting rights with respect to the underlying obligation. Neither the Securitization Vehicle nor the Company will directly benefit from the collateral supporting the underlying obligation and will not have the benefit of the remedies that would normally be available to a holder of such underlying obligation.

The performance of many of the Company’s investments may depend to a significant extent upon the performance of its asset managers.

The Company will rely on asset managers (internal and external) to administer and review the portfolios of the underlying assets managed by them (each such portfolio a “Securitization Portfolio”). Particularly in the case of Residual Tranches, the actions of the asset managers may significantly affect the Company’s return on its investments.

The ability of each asset manager to identify and report on issues affecting its Securitization Portfolio on a timely basis could also affect the Company’s return on its investments, as the Company may not be provided with information on a timely basis in order to take appropriate hedging or other measures to manage its risks in the relevant Securitization Portfolio. In addition, concentration of a significant number of the Company’s investments with one or a few asset managers (including, asset managers, if any, affiliated with the Company) and whether having resulted from industry consolidation or otherwise, could affect the Company adversely in the event that the asset manager fails to fulfill its function effectively or at all.

Many of the Company’s investments and the related underlying assets are subject to prepayment rights, which could result in the Company achieving a lower than expected rate of return on its investments.

Although the Company’s valuations and projections take into account certain expected levels of prepayments, underlying assets may be prepaid more quickly than expected. Prepayment rates are influenced by changes in interest rates and a variety of economic, geographic and other factors beyond the Company’s control and consequently cannot be accurately predicted. Early prepayments give rise to increased reinvestment risk, as the asset manager or the Company might realize excess cash from prepayments earlier than expected. If an asset manager or the Company is unable to reinvest such cash in a new investment with an expected rate of return at least equal to that of the investment repaid, this may reduce the Company’s net income and the fair value of that asset.

In the event of a bankruptcy or insolvency of an issuer or borrower of underlying assets in which the Company invests, a court or other governmental entity may determine that the claims of the relevant Securitization Vehicle are not valid or not entitled to the treatment the Company expected when making its initial investment decision.

Various laws enacted for the protection of creditors may apply to the underlying assets in the Company’s investment portfolio. The information in this and the following paragraph represents a brief summary of certain points only, is not intended to be an extensive summary of the relevant issues and is applicable with respect to U.S. issuers and borrowers only. The following is not intended to be a summary of all relevant risks. Similar avoidance provisions to those described below are sometimes available with respect to non-U.S. issuers or borrowers, but there is no assurance that this will be the case which may result in a much greater risk of partial or total loss of value in that underlying asset.

If a court in a lawsuit brought by an unpaid creditor or representative of creditors of an issuer or borrower of underlying assets, such as a trustee in bankruptcy, were to find that such issuer or borrower did not receive fair consideration or reasonably equivalent value for incurring the indebtedness constituting such underlying assets and, after giving effect to such indebtedness, the issuer or borrower (i) was insolvent; (ii) was engaged in a business for which the remaining assets of such issuer or borrower constituted unreasonably small capital; or (iii) intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature, such court could decide to invalidate, in whole or in part, the indebtedness constituting the underlying assets as a fraudulent conveyance, to subordinate such indebtedness to existing or future creditors of the issuer or borrower or to recover amounts previously paid by the issuer or borrower in satisfaction of such indebtedness. In addition, in the event of the insolvency of an issuer or borrower of underlying assets, payments made on such underlying assets could be subject to avoidance as a “preference” if made within a certain period of time (which may be as long as one year under U.S. Federal bankruptcy law or even longer under state laws) before insolvency.

The Company’s underlying assets may be subject to various laws for the protection of creditors in other jurisdictions, including the jurisdiction of incorporation of the issuer or borrower of such underlying assets and, if different, the jurisdiction from which it conducts business and in which it holds assets, any of which may adversely affect such issuer’s or borrower’s ability to make, or a creditors ability to enforce, payment in full, on a timely basis or at all. These insolvency considerations will differ depending on the jurisdiction in which an issuer or borrower or the related underlying assets are located and may differ depending on the legal status of the issuer or borrower.

The Company is subject to concentration risk in its investment portfolio, which may increase the risk of an investment in the Shares.

Although the Investment Manager will regularly monitor the concentration of the Company’s investment portfolio in any one company, investment, CLO, industry, jurisdiction, region or asset class and its exposure to any given asset manager, concentrations of exposure may arise in the portfolio. For example, based on recent trends the Investment Manager expects that new CLOs will contain larger Residual Tranches than have historically been the case. Therefore, in order for the Company to continue its current strategy of seeking to hold a majority of the Residual Tranches in any CLO in which it invests, the Company may be required to make larger investments in individual CLOs than it has in the past. This may increase the concentration risk associated with the Company’s portfolio. The risk that payments on the Company’s investments could be adversely affected to a significant degree by one default or a series of defaults on debt obligations relating to a particular company, investment, CLO, industry, jurisdiction, region, asset class or asset manager will increase to the extent that the Company’s investments are concentrated in that company, investment, CLO, industry, jurisdiction, region, asset class or asset manager.

The Company’s investments are subject to interest rate risk, which could cause the Company’s cash flow, fair value of its assets and operating results to decrease.

The fair value of certain of the Company’s investments may be significantly affected by changes in interest rates. The Company’s investments in leveraged loans through CLOs generate LIBOR plus returns and are sensitive to interest rate levels and volatility. Although CLOs are structured to hedge interest rate risk through the use of matched funding, there may be some difference between the timing of LIBOR resets on the liabilities and assets of a CLO, which could have a negative effect on the amount of funds distributed to Residual Tranche holders. In addition, many obligors have the ability to choose their loan base from among various terms of LIBOR and the Prime Rate thereby generating an additional source of potential mismatch. Furthermore, in the event of a significant rising interest rate environment and/or economic downturn, loan defaults may increase and result in credit losses that may be expected to affect the Company’s cash flow, fair value of its assets and operating results adversely. In the event the Master Fund’s interest expense were to increase relative to income, or sufficient financing became unavailable to the Master Fund, the Company’s return on investments and cash available for distribution to TFG shareholders would be reduced. In addition, future investments in different types of instruments may carry a greater exposure to interest rate risk.

The Company’s investments are subject to currency risks, which could cause the value of the Company’s investments in U.S. dollars to decrease regardless of the inherent value of the underlying investments.

The Company’s investments that are denominated in currencies other than U.S. Dollars are subject to the risk that the value of such currency will decrease in relation to the U.S. Dollar. Although the Company generally hedges its non-U.S. Dollar exposures back to U.S. Dollars, an increase in the value of the U.S. Dollar compared to other currencies in which the Company makes its investments would otherwise reduce the effect of increases and magnify the effect of decreases in the prices of the Company’s non-U.S. Dollar denominated investments in their local markets. Fluctuations in currency exchange rates will similarly affect the U.S. Dollar equivalent of any interest, dividends or other payments made to the Company denominated in a currency other than U.S. Dollars.

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

The success of the Investment Manager’s hedging strategy will depend, in part, upon its ability to correctly assess the relationship between the performance of the instruments used in the hedging strategy and the performance of the portfolio investments being hedged. Since the characteristics of many instruments change as markets change or time passes, the success of the Investment Manager’s hedging strategy will also be subject to its ability to continually recalculate, readjust and execute hedges in an efficient and timely manner. Although the Investment Manager may cause the Company to enter into hedging transactions to seek to reduce risk, such transactions may result in a poorer overall performance for the Company than if it had not engaged in such hedging transactions. The Investment Manager may not seek to establish a perfect correlation between the hedging instruments utilized and the portfolio holdings being hedged. Such an imperfect correlation may prevent the Company from achieving the intended hedge or expose the Company to an increased risk of loss. The Investment Manager may not hedge against a particular risk because it does not regard the probability of the risk occurring to be sufficiently high as to justify the cost of the hedge, or because it does not foresee the occurrence of the risk. These factors may have a significant negative effect on the fair value of the Company’s assets and the market value of the Shares.

The ability of Securitization Vehicles in which the Company invests to sell assets and reinvest the proceeds may be restricted, which may reduce the yield from the Company’s investment in those Securitization Vehicles.

The ability of Securitization Vehicles in which the Company invests to sell assets and reinvest the proceeds may be restricted. As part of the ordinary management of its portfolio, a Securitization Vehicle may typically dispose of certain of its assets and reinvest the proceeds thereof in substitute assets, subject to compliance with its investment guidelines and certain other conditions, including the terms of the debt securities issued by it. The earnings with respect to such substitute assets will depend on the quality of reinvestment opportunities available at the time and on the availability of assets that satisfy the Securitization Vehicle’s investment guidelines and that are acceptable to the asset manager, among other factors. The need to satisfy such guidelines and identify acceptable assets may require the asset manager to purchase substitute assets at a lower yield than those initially acquired or require that the sale proceeds be maintained temporarily in cash, either of which may reduce the yield that the asset manager is able to achieve. This will reduce the return to the Company and may have a negative effect on the fair value of the Company’s assets and the market value of the Shares.

The Company intends to engage in over-the-counter trading, which has inherent risks of illiquid markets, wide bid/ask spreads and market disruption.

The Company may engage in forward contracts, options, futures, swaps, and other derivatives in order to increase or decrease its risk exposure to, among other things, currency exchange rates, interest rates, credit spreads, and corporate credit events. The values of these derivatives will be dependent on, and may be affected by, a variety of factors, including the underlying financial instrument of each such derivative, changes to currency exchange rates, the level of interest rates, including shifts across rates of different maturities, the implied volatilities of the underlying instruments, the perceived credit worthiness or ratings of corporate entities, and length of time until potential exercise or termination of the derivative. These instruments may not be traded on exchanges and may not be standardized; rather, banks and dealers act as principals in the markets for these instruments, negotiating each transaction on an individual basis. These transactions are substantially unregulated, there is no limitation on daily price movements and speculative position limits are not applicable. The principals who deal in these markets are not required to continue to make markets and these markets can experience periods of significant illiquidity, sometimes of long duration. There have been periods during which certain participants in these markets have refused to quote prices for certain contracts or have quoted prices with unusually wide spreads between the prices at which they were prepared to buy and those at which they were prepared to sell. Disruptions can also occur in any market in which the Company trades due to unusually high trading volume, political intervention or other factors. The imposition of controls by governmental authorities might also limit such trading to less than that which the Investment Manager would otherwise recommend, to the possible detriment of the Company. Market illiquidity or disruption could result in significant losses to the Company.

The modeled cash flow predictions and assumptions used to calculate the IRR and fair value of each CLO investment may prove to be inaccurate and require adjustment.

The Investment Manager utilizes investment modeling software to model expected cash flows on TFG’s CLO investments. These modeled cash flows are then used to calculate the IRR and the fair value of each CLO investment, under certain specified assumptions, including without limitation, annual default rates, recovery rates, prepayment rates and reinvestment prices and spreads, as well as their timing and duration, which in certain instances may be several years or otherwise as long as the stated maturity of the investment. These modeled cash flows and assumptions may prove to be inaccurate and require adjustment. Factors affecting the accuracy of such modeled cash flow predictions include: (1) uncertainty in predicting future market values of certain assets (including, defaulted securities and “excess CCC rated” securities) utilized in determining overcollateralization or similar ratios, (2) the inability to accurately model collateral manager behavior such as trading gains/losses or cash holding levels, and (3) the divergence over the period covered by the model of assumed variables from realized levels, including reinvestment spreads/prices, the timing and severity of defaults and downgrades, prepayment levels as well as LIBOR and foreign exchange volatility. In addition, the underlying CLO trustee reports used to assemble applicable investment data for the cash flow models are subject to data entry and other human errors, which may not be immediately discovered, if at all, in the course of the Investment Manager’s investment portfolio updates and valuation procedures.

The performance of LCM and, in turn, the Company’s operating results, may be negatively influenced by various factors.

The performance of LCM and, in turn, the Company’s operating results, may be negatively influenced by various factors, including the (i) performance of LCM-managed CLOs, which in general are subject to the same risks as the Company’s CLO investments and are currently the primary source of LCM’s revenues and (ii) ability of LCM to retain key personnel, the loss of whom may negatively affect LCM’s ability to provide asset and collateral management services in a fashion, and of a quality, consistent with its prior practice. Furthermore, the Company’s ownership of LCM may negatively impact certain aspects of the Company’s CLO investment strategy and as a result the Company’s performance. For example, the Company’s relationship with its asset managers (other than LCM) may be negatively affected as such asset managers view the Company as a competitor. Further, there are inherent conflicts of interest if the Company invests in the Residual Tranches of LCM-managed CLOs which may make it more difficult to market and manage such CLOs. LCM may have difficulty marketing such CLOs because some investors may be unwilling to invest in CLOs where the owner of the manager is also the majority holder of the Residual Tranches. In addition, due to certain provisions of applicable collateral management agreements the Company may be precluded from exercising certain of its voting rights with respect to the securities it owns in LCM managed CLOs, which may restrict the Company’s ability to manage certain risks associated with its investment in such CLOs. Finally, the Company’s ability to diversify its investments across multiple asset managers may conflict with its desire to grow the LCM business through its participation in LCM managed deals.

GreenOak Real Estate is a newly formed entity with no prior operating history.

GreenOak Real Estate is a newly formed entity with no prior operating history and it may be unable to successfully operate its business or achieve its investment objectives. The past performance of other real estate investment programs sponsored by the founders of GreenOak Real Estate may not be indicative of the performance GreenOak Real Estate may achieve. GreenOak Real Estate has no income, cash flow, funds from operations or funds from which it can make distributions to the Company. If GreenOak Real Estate is unsuccessful the Company may lose all or part of our investment.

Investments in real estate assets are subject to numerous risks.

In connection with the transaction with GreenOak Real estate, the Company will invest its capital, directly and indirectly, in certain real estate investments. Real estate investments are subject to various risks and fluctuations and cycles in value and demand, many of which are beyond the Company’s control. Events which could negatively affect real estate investments include, but are not limited to:

• adverse changes in international, national or local economic and demographic conditions;
• vacancies or our inability to rent space on favorable terms, including possible market pressures to offer tenants rent abatements, tenant improvements, early termination rights or below-market renewal options;
• adverse changes in financial conditions of buyers, sellers and tenants of properties;
• inability to collect rent from tenants;
• competition from other real estate investors with significant capital, including other real estate operating companies, publicly traded REITs and institutional investment funds; and
• fluctuations in interest rates, which could adversely affect our ability, or the ability of buyers and tenants of properties, to obtain financing on favorable terms or at all.

In addition, periods of economic slowdown or recession, rising interest rates or declining demand for real estate, or the public perception that any of these events may occur, could result in a general decline in rents or an increased incidence of defaults among existing leases. If GreenOak cannot operate its properties to meet its financial expectations, its financial condition, results of operations, cash flow, and ability to satisfy its debt service obligations (including, amounts owed to the Company) and to make distributions to the Company could be adversely affected.

Real estate investments are generally illiquid, and therefore GreenOak Real Estate and we may not be able to dispose of properties when appropriate or on favorable terms.

The real estate investments made, and to be made, by GreenOak Real Estate are relatively difficult to sell quickly. Return of capital and realization of gains, if any, from an investment generally will occur upon disposition or refinance of the underlying property. GreenOak Real Estate may be unable to realize its investment objectives by sale, other disposition or refinance at attractive prices within any given period of time or may otherwise be unable to complete any exit strategy. In particular, these risks could arise from weakness in or even the lack of an established market for a property, changes in the financial condition or prospects of prospective purchasers, changes in national or international economic conditions and changes in laws, regulations or fiscal policies of jurisdictions in which the property is located.

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

As the Company invests in new asset classes and as its asset mix changes, its revenues and profitability could be reduced. Previously, the Company has focused its investments on the Residual Tranches of CLO products and leveraged loans. As the Company diversifies the asset classes in which it invests, including through acquiring and investing directly in asset managers and other operating businesses, its revenues and profitability could be reduced.

The Company may face difficulties as it begins to function not only as an investment holding company, but also as a Company that owns operating companies.

As the Company becomes more of a financial services firm that functions not only as an investment holding company, but also as a company that owns operating companies, it may face difficulties as it invests in asset classes in which it does not have substantial experience. In addition, the Company’s investment strategy involves investing in new asset classes in which the Investment Manager may not have substantial prior experience, including real estate investments. If the Company is unable to effectively manage its transition from an investment holding company to a Company that owns operating companies and the expansion of its investment strategy into new asset classes, its results of operations could be negatively affected.

Certain investment strategies, including co-investments and joint ventures, may limit the Company’s control over particular investments.

If the Company co-invests, including co-investments in real estate assets with GreenOak Real Estate, or enters into joint ventures, the ability of the Company or the Investment Manager to exercise control over these investments may be limited. As part of these co-investment and joint venture relationships the Company may rely on third-parties to identify investments and may not retain control over which specific investments are made, including the timing of such investments. In addition, the interests of the Company’s joint venture partners and any persons with which it co-invests may conflict with the interests of the Company. There can be no assurance that any such conflict would be resolved in favor of the Company and its Shareholders and this may negatively affect the market value of the Shares.

Direct investments in asset managers will expose the Company’s business to additional risks.

Direct investments in asset managers will expose the Company’s business to additional risks, including:

• A Decline in the Price of Securities: Revenues received by asset managers are substantially determined by the amount of assets under management. Accordingly, a general or prolonged decline in the prices of securities, including as a result of macroeconomic conditions, could decrease the fees earned by any asset managers in which the Company invests.
• Regulatory Environment: The asset management industry is subject to extensive regulation which directly affects the cost of doing business. Any additional laws or regulations could increase costs and decrease profitability. Further, the failure to comply with applicable laws or regulations could result in fines, censure, suspensions of personnel or other sanctions, including revocation of registrations as an investment advisor or broker-dealer, with respect to any asset managers in which the Company invests.
• Competition: The asset management business is intensely competitive and competitors may have substantially greater resources than any asset managers in which the Company invests and may offer a broader range of financial products and services across more markets.

Each of these risks could negatively affect any investments by the Company in asset managers. The Company may lose all or part of its investment in any asset manager.

Risks Relating to TFG and the Master Fund

TFG does not have any operations, and its only source of cash will be the investments that it makes through the Master Fund. TFG’s ability to pay its expenses and dividends will depend on it receiving distributions from the Master Fund. TFG’s ability to pay dividends will also be affected by other factors, such as its financial condition and applicable law.

TFG depends on the Master Fund to distribute cash to it in a manner that allows it to meet its expenses as they become due and to make distributions to its shareholders (the “Shareholders”). The Master Fund is not required to make any distributions to TFG, except upon final liquidation, even if it has distributable cash. The ability of the Master Fund to make cash distributions to TFG will depend on a number of factors, including, among others, the actual results of operations and financial condition of the Master Fund and its investments, restrictions on cash distributions that are imposed by applicable law or the articles ofincorporation of the Master Fund, the timing and amount of cash generated by investments that are made by the Master Fund, any contingent liabilities to which the Master Fund may be subject, the amount of taxable income generated by the Master Fund and other factors that the Master Fund’s board of directors and the Investment Manager deem relevant. If TFG does not receive cash distributions from the Master Fund or if the Master Fund does not receive cash distributions from its investments, TFG may not be able to make the cash distributions it intends to make to its Shareholders.

Although TFG currently intends, to the extent it has sufficient cash on hand and profits available for such purpose, to pay an annual dividend in quarterly installments, all distributions will be made at the discretion of TFG’s board of directors (the "Board of Directors"), based on the recommendation of the Investment Manager and subject to the approval of the voting shares of TFG (the “Voting Shares”). Among other things, the level of dividend, if any, will depend on TFG’s earnings, financial condition, fair value of its assets and such other factors as may be relevant from time to time, including limitations under The Companies (Guernsey) Law, 2008, as amended.

None of the Investment Manager or the Services Providers owe fiduciary duties to the Shareholders

The obligations of the Investment Manager under the investment management agreement with the Company (the “Investment Management Agreement”) are contractual rather than fiduciary in nature. For example, the Investment Manager need not disclose to TFG or the Company anything that comes to its attention in the course of its dealings in any capacity other than as Investment Manager; it may also enter into transactions with companies in which the Company invests, and it will not be liable to account for any profits from any such transaction. The obligations of Polygon Investment Partners LP and Polygon Investment Partners LLP (together, the “Services Providers” or “Polygon”) under the services agreement entered into with the Investment Manager (the “Services Agreement”) are also contractual in nature and, in addition, such contracts are only between the relevant Services Provider and the Investment Manager. Neither TFG nor the Master Fund is a party to the Service Agreement.

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

As TFG’s Net Asset Value (“NAV”) will depend in large part on the fair value of the Company’s investments, TFG’s NAV per Share (“NAV per Share”) is expected to fluctuate over time with the performance of those investments. The Investment Manager’s compensation is based on NAV. It is possible that at the time of a particular fee calculation TFG’s valuation model will produce a NAV figure for its investments that is higher than the market value of its Shares, or that the Shares will be traded at a market value below NAV per Share for a significant period.

As a result, the management and incentive fees paid to the Investment Manager on a particular date may be higher than those which would be payable had the NAV been calculated on a different date or under a different methodology.

The management fee payable to the Investment Manager may create an incentive for such entity to make investments and take other actions that increase or maintain the Company’s NAV over the near term even though other investments or actions may be more favorable.

The Investment Manager will be entitled to receive a management fee of 1.5% of NAV under the Investment Management Agreement based on TFG’s NAV. This fee is payable monthly in advance prior to the deduction for accrued incentive fees. This fee is payable irrespective of the Investment Manager’s operating performance under the agreement. Accordingly, it may create an incentive for the Investment Manager to cause the Company to make investments and take other actions that increase or maintain the NAV of the Company over the near term even though other investments or actions may be more favorable to the Company or the Shareholders.

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

TFG and the Master Fund have established a very broad investment objective for the Company. The Investment Management Agreement provides that the Investment Manager may cause the Company to make any investment that the Investment Manager in its sole discretion deems consistent with the Company’s investment objective of generating distributable income and capital appreciation. As a result, the Investment Manager has very broad discretion when selecting, acquiring and disposing of investments, including in determining the types of investments that it deems appropriate, the investment approach that it follows when making investments and the timing of investments. The strategies currently employed by the Investment Manager may be modified and altered from time to time, so it is possible that the strategies used by the Investment Manager in the future may be different from those presently used, which could result in changes to, and expansion of, the Company’s investment and underlying asset mix in the future.

Shareholders will not be able to terminate the Investment Management Agreement, and the Investment Management Agreement may only be terminated by TFG or the Master Fund in limited circumstances.

The Investment Management Agreement can only be terminated (i) by the Investment Manager at any time upon 60 days’ notice or (ii) immediately upon TFG or the Master Fund giving notice to the Investment Manager or the Investment Manager giving notice to the Master Fund or TFG in relation to such entity in the event of (a) the party in respect of which notice has been given becoming insolvent or going into liquidation (other than a voluntary liquidation for the purpose of reconstruction or amalgamation upon terms previously approved in writing by the other party) or a receiver being appointed over all or a substantial part or of its assets or it becoming the subject of any petition for the appointment of an administrator, trustee or similar officer, (b) a party committing a material breach of the Investment Management Agreement which causes a material adverse effect on the business of the non-breaching party and (if such breach shall be capable of remedy) not making good such breach within 30 days of service upon the party in breach of notice requiring the remedy of such breach or (c) fraud or wilful misconduct in the performance of a party’s duties under the Investment Management Agreement.

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

Under the Investment Management Agreement, the Investment Manager has not assumed any responsibilities other than to perform the obligations, duties and responsibilities described in the Investment Management Agreement. As a result, the right of the Company to recover against the Investment Manager may be limited to damages arising out of the performance or non-performance of its responsibilities explicitly provided for in the Investment Management Agreement.

In addition, under the Investment Management Agreement, the liability of the Investment Manager is limited to the fullest extent permitted by law to conduct involving fraud or wilful misconduct, and the Investment Manager is indemnified from liabilities arising from such agreements, other than liabilities arising from such person’s fraud or wilful misconduct. Accordingly, the rights of the Company to recover against the Investment Manager as a result of default by the Investment Manager of its obligations under the Investment Management Agreement is limited, and any such recovery may be significantly lower than the loss that the Company or the Shareholders have suffered.

The Directors and the Administrator may have conflicts of interest in the course of their duties.

The members of the Board of Directors (the “Directors”) and the administrator (the “Administrator”) may also, from time to time, provide services to, or be otherwise involved with, other investment programs established by parties other than TFG or the Master Fund which may have similar objectives to those of TFG or the Master Fund. It is therefore possible that any of them may, in the course of business, have potential conflicts of interest with TFG or the Master Fund. In addition, subject to applicable law and the provisions of each company's articles of incorporation and the Investment Management Agreement, any persons providing services to the Company (including the Directors) may deal, as principal or agent, with TFG or the Master Fund.

TFG may experience fluctuations in its periodic operating results.

TFG may experience fluctuations in its operating results from month-to-month and quarter-to-quarter due to a number of factors, including changes in the fair values of investments that it makes through the Master Fund, which in turn could be due to changes in the amount of distributions, dividends or interest paid in respect of investments, changes in TFG’s or the Master Fund’s operating expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which TFG or the Master Fund encounters competition and general economic and market conditions. Such variability may cause TFG’s results for a particular period to be lower than previous periods and not to be indicative of future performance which may lead to volatility in the trading price of the Shares. Fluctuations in TFG’s operating results may also affect its ability to pay dividends in a particular quarter, which could materially adversely affect the market value of the Shares.

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

TFG has not been and does not intend to become registered as an investment company under the U.S. Investment Company Act of 1940 and related rules. The Investment Company Act and related rules provide certain protections to investors and impose certain restrictions on companies that are registered as investment companies. None of these protections or restrictions is or will be applicable to TFG or the Master Fund.

Changes in laws or regulations or accounting standards, or a failure to comply with any laws and regulations or accounting standards, may adversely affect the Company’s business, investments and results of operations.

TFG, the Master Fund and the Investment Manager are subject to various laws and regulations. TFG currently calculates its NAV and prepares its financial statements in accordance with applicable law and U.S. Generally Accepted Accounting Principles (“GAAP”). Those laws and regulations and standards and their interpretation and application may also change from time to time and those changes could have a material adverse effect on the Company’s business, investments and results of operations. In particular, a change in GAAP or its interpretation could lead to changes in valuation approach and ultimately an adverse impact on TFG’s NAV. In addition, a failure to comply with applicable laws or regulations or accounting standards, as interpreted and applied, by any of the persons referred to above could have a material adverse effect on the Company’s business, investments and results of operations.

The Company may become involved in litigation that adversely affects the Company’s business, investments and results of operations.

The Company’s business and investment activities subject it to the normal risks of becoming involved in litigation. The occurrence of such litigation could divert the Company’s attention and resources away from its business operations and investment activities and therefore adversely affect the Company’s business, investments and results of operations. The expense of bringing a claim against or defending against claims and paying any amount pursuant to settlements or judgments would reduce net assets.

No formal corporate governance code applies to TFG.

The Dutch corporate governance code only applies to companies incorporated in the Netherlands. There is no formal corporate governance code with which TFG must comply. Although TFG’s articles of incorporation require the majority of the Board of Directors to be independent, satisfying in all material respects the standards for independence set forth in the U.K. Combined Code, this compliance is limited to the composition of TFG’s Board of Directors and TFG will not be bound to comply with other aspects of the U.K. Combined Code. In addition, this requirement can be changed by a vote of holders of TFG’s voting shares. Furthermore, no legal sanctions would apply to TFG if it failed to comply with such standards

Risks Relating to the Investment Manager and Services Providers

The Company’s success depends on its continued relationship with the Investment Manager and its Principals and, in turn, on the Investment Manager’s relationship with Polygon. If this relationship were to end or the Principals or other key Polygon professionals were to depart, it could have a material adverse effect on the Company’s business, investments and results of operations.

The Company relies exclusively on the Investment Manager and its principals and employees for the management of its investment portfolio. The Company is highly dependent on the financial and managerial experience of the Investment Manager, its principals and the other investment professionals it employs. If such persons ceased for any reason to participate in the management of the Company, the consequence to the Company could be material and adverse.

In addition, any termination of the Services Agreement could materially and adversely affect the Company’s business. Neither TFG nor the Master Fund is a party to the Services Agreement and accordingly TFG and the Master Fund have no consent rights as to termination thereof or amendment thereto.

If the Investment Manager or the Services Providers were to cease to provide services under the Investment Management or Services Agreements or to cease to provide investment management, operational and financial advisory services to TFG or the Master Fund for any reason, the Company could experience difficulty in making new investments, the Company’s business and prospects could be materially harmed and the value of its existing investments and its results of operations and financial condition would be likely to suffer materially.

The Company will be reliant on the skill and judgment of the Investment Manager in valuing and determining an appropriate purchase price for its investments. Any determinations of value that differ materially from the values the Company realizes at the maturity of the investments or upon their disposal will likely have a negative impact on the Company and its Share price.

The Company will be dependent on the Investment Manager’s assessment of an appropriate acquisition price for, and ongoing valuation of, all of its investments including Residual Tranches and certain other illiquid investments. The acquisition price determined by the Investment Manager in respect of a residual income position will be based on the returns (internal rate of return or discount rates for such asset as well as the expected cash flow returns) that the Investment Manager expects the investment to generate, utilizing a financial model that reflects numerous variables including, among other things, the Investment Manager’s assessment of the nature of the investment and the relevant collateral, security position, risk profile, historical default rates and the originator, asset manager and servicer of the position. As each of these factors involves subjective judgments and forward looking determinations by the Investment Manager, the Investment Manager’s experience and knowledge is instrumental in the valuation process.

Since the Investment Manager’s valuations will be based on assumptions and estimates, not all of which can be confirmed, whether readily or at all, the Investment Manager’s, and therefore the Company’s, determinations of fair value of relevant financial assets, including in particular the Company’s determination of the fair value of Residual Tranches, may differ materially from the values that might have been used if a ready market for those investments existed. In the event that the Investment Manager misprices an investment (for whatever reason), the actual returns on the investment may be less than anticipated at the time of acquisition, and a write-down of the carrying value for financial reporting purposes or the NAV of such investment might result. Also the value of the Shares could be adversely affected if the Investment Manager’s determinations regarding the fair value of these investments are materially higher than the values that the Company ultimately realizes to maturity of the investments or upon their disposal.

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

In addition to receiving a management fee, the Investment Manager also receives an incentive fee from the Company based upon the appreciation, if any, in the net assets of the Company. The Investment Manager may have an incentive to make investments that are generally more risky than would be the case in the absence of such fee arrangements or to use higher leverage to increase returns on investments. Under certain circumstances, the use of leverage may increase the likelihood of a loss that could materially adversely affect the fair value of the Company’s assets and the market value of the Shares. In addition, because the incentive fee is calculated on a basis which includes unrealized appreciation, it may be greater than if such compensation were based solely on realized gains.

The compensation of the Investment Manager’s personnel contains significant performance-related elements, and poor performance by the Company or any other entity for which the Investment Manager provides services may make it difficult for the Investment Manager to retain staff.

In common with most investment managers, the compensation of the Investment Manager’s personnel contains significant performance related elements which are funded by performance related fees payable to the Investment Manager by its managed entities in respect of strong performance. Poor performance by any of the Investment Manager’s managed entities, including TFG and the Master Fund, may reduce the amount available to pay performance related compensation to the Investment Manager’s personnel, which may result in those persons seeking other employment. In that case, poor performance of TFG and the Master Fund may be further compounded by Investment Manager staff departures. In addition, as the performance related compensation of the Investment Manager’s personnel will depend on the performance of more than one fund and not just that of TFG and the Master Fund, poor performance of one managed entity, other than TFG or Master Fund, could adversely impact TFG if it led to the departure of Investment Manager personnel.

Risks Relating to Affiliated Relationships

The Company’s organizational, ownership and investment structure may create significant conflicts of interest that may be resolved in a manner which is not always in the best interests of the Company or the Shareholders.

The Company’s organizational, ownership and investment structure involves a number of relationships that may give rise to conflicts of interest between the Company and the Shareholders, on the one hand, and the Investment Manager, the Services Providers and the Principals, on the other hand. In certain instances, the interests of the Investment Manager, the Services Providers and the Principals may differ from the interests of the Company and the other Shareholders, including with respect to the types of investments made, the timing and method in which investments are exited, the timing and amount of distributions to and by TFG, the purchase by the Company of investments currently held by Polygon’s affiliates, the investment by the Company in Securitization Vehicles managed by Polygon and Polygon’s affiliates (including the Investment Manager), the reinvestment of returns generated by investments and the appointment of outside advisors and services providers. There can be no assurance that any such conflict would be resolved in favor of the Company and the Shareholders and this may negatively affect the market value of the Shares.

TFG’s arrangements and the arrangements of the Master Fund with the Investment Manager, and the Investment Manager’s arrangements with the Services Providers, were negotiated in the context of an affiliated relationship and may contain terms that are less favorable than those which otherwise might have been obtained from unrelated parties in an arm’s-length negotiation.

The terms of the Investment Management Agreement and the Company’s investment objective were established by persons who were, at the relevant time, affiliates of the Investment Manager and one another. The terms of the Services Agreement, which is between the Investment Manager and the Services Providers, were similarly established in a related party context. Because these arrangements were negotiated between related parties, their terms, including terms relating to compensation, contractual or fiduciary duties, conflicts of interest, termination rights and the Investment Manager’s and Services Providers’ ability to engage in outside activities, including activities that compete with TFG, TFG’s activities and the activities of the Master Fund, and limitations on liability and indemnification, may be less favorable than otherwise might have resulted if the negotiations had involved unrelated parties.

The Shares do not carry any voting rights other than limited voting rights in respect of variation of their class rights. The Voting Shareholder will be able to control the composition of the Board of Directors and exercise extensive influence over TFG’s and the Master Fund’s business and affairs.

Under TFG's articles of incorporation, holders of the Shares are not entitled to vote on any matters relating to TFG or to participate in the management or control of its business and affairs. In particular, the Shareholders do not have the right to cause a new Investment Manager to be appointed, elect or remove Directors, prevent a change of control of TFG or propose changes to or otherwise approve its investment objective or strategies. In addition, the Shareholders do not have the right to cause the Investment Manager to withdraw from the management of the Master Fund. As a result, the Shareholders will not be able to influence the direction of the Company’s business and affairs, including the Company’s investment objective, or to cause a change in its management, even if they are unsatisfied with the performance of the Investment Manager or the value of the Shares.

The holder of the voting shares of TFG (the “Voting Shareholder”), an affiliate of Polygon and the Investment Manager, holds all of the Voting Shares. As a result of its ownership and the degree of control that it exercises, the Voting Shareholder will be able to control the appointment and removal of TFG’s Directors. The Voting Shareholder is controlled by Reade Griffith, Alexander Jackson, and Paddy Dear. Affiliates of Polygon also control the Investment Manager and, accordingly, control the Company’s business and affairs. Under TFG's articles of incorporation, a majority of TFG’s Directors are required to be independent (the “Independent Directors”), satisfying in all material respects the U.K. Combined Code definition of that term. However, because the Board of Directors may generally take action only with the approval of five of its Directors, the Board of Directors generally will not be able to act without the approval of one or more Directors who are affiliated with Polygon. The Voting Shares will have the right to amend TFG's articles of incorporation to change these provisions regarding Independent Directors. As a result of these provisions, the Independent Directors may be limited in their ability to exercise influence over TFG’s and the Master Fund’s business and affairs.

The activities of Polygon may create conflicts of interest.

Certain inherent conflicts of interest may arise from the fact that Polygon, an affiliate of the Investment Manager, currently provides investment management services to other investment funds and may, in the future, carry on investment activities for other clients, including other investment funds, Securitization Vehicles, client accounts and proprietary accounts in which the Company will have no interest and whose respective investment programs may or may not be substantially similar. Participation in specific investment opportunities may be appropriate at times for both the Company and such other investment programs. In particular, the investment program of such other investment funds allow investments in Securitization Vehicles and other instruments in which the Company may invest, which may lead the Investment Manager to pursue investment opportunities other than in the way most advantageous to the Company. In addition, the portfolio strategies employed for other investment programs could conflict with the transactions and strategies employed in managing the Company’s portfolio and affect the prices and availability of the securities and instruments in which the Company invests and the market value of the Shares.

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

The Investment Manager and its affiliates, partners, members, officers, principals and employees devote as much of their time to the activities of the Company as the Investment Manager deems necessary and appropriate. The Investment Manager and its affiliates are not restricted from forming additional investment funds, forming or sponsoring CLO or CDO products and other Securitization Vehicles, serving as collateral or asset manager for CLO or CDO products and other Securitization Vehicles, entering into other investment management relationships or engaging in other business activities, even though such activities may be in competition with the Company and/or may involve substantial time and resources of the Investment Manager and its affiliates. The existence of activities that compete for the time and commitment of the Investment Manager may result in the Company’s investment performance being less favorable than it would have been had resources and personnel been devoted exclusively to the Company. This may have a negative impact on the results of operations of the Company and the market value of the Shares.

Financing Risks

The use of leverage will expose the Company to additional levels of risk.

In addition to the embedded leverage in a Securitization Vehicle, the Company may apply leverage to the investments in its portfolio. There are no restrictions on the amount of leverage it may apply for its investments. The Company may borrow funds from brokerage firms, banks, other institutions and Polygon and Polygon’s affiliates in order to increase the amount of capital available for investment. This debt financing may be secured against some or all of the Company’s assets. In addition, the Company may in effect borrow funds through entering into repurchase and similar agreements, and may “leverage” its investment return with options, futures contracts, swaps, forward contracts and other derivative instruments. The Company has entered into certain repurchase agreements to obtain debt financing and may be adversely affected by the termination of any such repurchase agreements. The Company may not be successful in obtaining alternate sources of financing on commercially acceptable terms under such circumstances. Should the securities pledged to brokers to secure the Company’s repurchase agreements significantly decline in value, the Company could be subject to a “margin call” pursuant to which the Company will be required to either deposit additional funds with the lender or suffer mandatory liquidation of the pledged securities to compensate for the decline in the securities’ value, including at prices less than fair value.

The amount of debt financing that the Company may have outstanding at any time may be large in relation to its capital. Consequently, the level of interest rates generally and the rates at which the Company can borrow in particular will affect the operating results of TFG. The Company’s return on investments and cash available for distribution to Shareholders would be reduced to the extent that its interest expense increases relative to income, such as may occur in the event of a general rise in interest rates, or in the event of losses arising from the sale of assets. Interest rates are highly sensitive to factors beyond the Company’s control, including, among other things, governmental monetary and tax policies and domestic and international economic and political conditions. Leverage also has the effect of magnifying both profits and losses compared with unleveraged positions.

Although the use of leverage may increase Shareholder returns if the Company earns a greater return on leveraged investments than the Company’s cost of such leverage, the use of leverage exposes the Company to additional levels of risk. Where an investment fails to earn a return that equals or exceeds the Company’s cost of leverage related to such investments, TFG’s ability to generate cash flow and pay dividends would be adversely affected.

If the Company breaches the covenants under its financing agreements it could be forced to sell assets at price less than fair value.

The Company is or may become party to various loan, repurchase and other financing agreements which are likely to contain financial and other covenants that could, among other things, require it to maintain certain financial ratios. Should the Company breach the financial or other covenants contained in any loan, repurchase or other financing agreement, the Company may be required immediately to repay such borrowings in whole or in part, together with any attendant costs. If the Company does not have sufficient cash resources or other credit facilities available to make such repayments, it may be forced to sell some or all of the assets constituting its investment portfolio. To the extent that the Company’s borrowings are secured against all or a portion of its assets, a lender may be able to sell those assets. Sales of assets in such circumstances may be at prices less than fair value, realizing insufficient funds to repay in full any outstanding borrowings and therefore not yield excess value for the Company. Moreover, any failure to repay such borrowings or, in certain circumstances, other breaches of covenants under the Company’s loan or repurchase agreements could result in TFG being required to suspend payment of its dividends.

In addition, the Company’s financing arrangements may contain cross default provisions such that a default under one particular financing arrangement could automatically trigger defaults under other financing arrangements. Such cross default provisions could therefore magnify the effect of an individual default, and, if such a provision were exercised, result in a substantial loss for the Company.

Risks Relating to Taxation

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

TFG is a PFIC for U.S. federal income tax purposes because of the composition of its assets and the nature of its income. As a result, U.S. investors will be subject, unless a special election is made, to adverse U.S. federal income tax consequences, including additional taxes and interest charges upon disposition of the Shares or upon the receipt of certain distributions.

Changes to tax treatment of derivative instruments may adversely affect TFG and certain tax positions it may take may be successfully challenged.

The regulatory and tax environment for derivative instruments is evolving, and changes in the regulation or taxation of derivative instruments may adversely affect the value of derivative instruments held by TFG and its ability to pursue its investment strategies. In addition, TFG may take positions with respect to certain tax issues which depend on legal conclusions not yet resolved by the courts. Should any such positions be successfully challenged by an applicable taxing authority, there could be a material adverse effect on TFG.

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

TFG and the Master Fund intend to manage their affairs so that neither of them is subject to regular U.S. federal income taxation on a net income basis or subject to U.K. corporation tax on income and capital gains. However, there can be no assurance that the conditions necessary to prevent any such tax treatment will at all times be satisfied. Any such taxation could adversely affect TFG’s cash flow and results of operations.

Risks Relating to the Shares

The Shares are subject to restrictions on transfers to any Shareholder located in the United States or who is a U.S. person, which may impact the price and liquidity of the Shares.

The Shares have not been registered in the United States under the Securities Act or under any other applicable securities law and are subject to restrictions on transfer contained in such laws and under regulations under the U.S. Employee Retirement Income Security Act of 1974, as amended (“ERISA”).

There are additional restrictions on the resale of Shares by Shareholders who are located in the United States or who are U.S. persons and on the resale of Shares by any Shareholder to any person who is located in the United States or is a U.S. person. These restrictions may adversely affect overall liquidity of the Shares.

The price of the Shares may fluctuate significantly and you could lose all or part of their investment.

The market price of the Shares may fluctuate significantly, may bear no correlation to NAV and you may not be able to resell your Shares at or above the price at which you purchased them. Factors that may cause the price of the Shares to vary include:

• changes in the Company’s financial performance and prospects or in the financial performance and prospects of companies engaged in businesses that are similar to the Company’s business;
• changes in the underlying values of the investments that TFG makes through the Master Fund;
• the termination of the Investment Management Agreement and the departure of some or all of the Principals;
• changes in laws or regulations, including tax laws, or new interpretations or applications of laws and regulations, that are applicable to the Company’s business;
• sales of the Shares by Shareholders;
• illiquidity in the market for Shares;
• general economic trends and other external factors, including those resulting from war, incidents of terrorism or responses to such events;
• speculation in the press or investment community regarding the Company’s business or investments, or factors or events that may directly or indirectly affect its business or investments;
• a loss of a major funding source; and
• a further issuance of Shares.

Securities markets in general have experienced extreme volatility that has often been unrelated to the operating performance or underlying asset value of particular companies or partnerships. Any broad market fluctuations may adversely affect the market liquidity and trading price of the Shares.

The Euronext Amsterdam by NYSE Euronext. trading market is less liquid than other major exchanges, which could affect the price of the Shares.

The principal trading market for the Shares is Euronext Amsterdam by NYSE Euronext, which is less liquid than major markets in the United States and certain other European markets. As a result, the Shareholders may face difficulty or be able to dispose of their Shares, especially in large blocks. TFG may decide in the future to list the Shares on a stock exchange other than Euronext Amsterdam by NYSE Euronext. There can be no assurance that an active trading market would develop on such an exchange.

The market price of the Shares could be adversely affected by sales or the possibility of sales of substantial amounts of these securities.

Shares of TFG are held by Polygon or its affiliates. The occurrence of any sales by Polygon, or the perception that such sales might occur, could have a material adverse effect on the price of the Shares and could impair TFG’s ability to obtain capital through an offering of equity securities.

TFG or the Master Fund may issue additional securities that dilute existing holders of Shares.

Under TFG's articles of incorporation, TFG may issue additional securities, including Shares, and options, rights, warrants and appreciation rights relating to TFG’s securities for any purpose (including, issuing additional shares as a result of the exercise of any of the Investment Management Options). TFG is not required under Guernsey law to offer any such Shares or other securities to existing Shareholders on a preemptive basis. Therefore, it may not be possible for existing Shareholders to participate in such future issues, which may dilute the existing Shareholders’ interests in TFG. The Master Fund will have the power to issue additional securities under its articles of incorporation. Investors in such securities may have rights and privileges more favorable than investors in the Shares. Any such issuance by TFG or the Master Fund would dilute investors’ indirect interests in the Master Fund and could cause the market price of the Shares to decline.

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

Except with respect to certain U.S. persons who were investors in the Company prior to the listing of the Shares, TFG intends to restrict the ownership and holding of the Shares so that none of its assets will constitute “plan assets” of any (i) “employee benefit plan”, (ii) a plan subject to Section 4975 U.S. Internal Revenue Code of 1986, as amended (the “U.S. Internal Revenue Code”) or (iii) an entity whose underlying assets are considered to include “plan assets” (each of (i), (ii) and (iii), a “Plan”). TFG intends to impose such restrictions based on deemed representations. If TFG’s assets were deemed to be “plan assets” of any Plan subject to Title I of ERISA or Section 4975 of U.S. Internal Revenue Code, pursuant to U.S. Department of Labor regulations promulgated under ERISA by the U.S. Department of Labor and codified at 29 C.F.R. Section 2510.3-101 (as modified by Section 3(42) of ERISA), which we refer to as the “Plan Asset Regulations”, (i) the prudence and other fiduciary responsibility standards of ERISA would apply to investments made by TFG and (ii) certain transactions that TFG, the Master Fund or a subsidiary of the Master Fund may enter into, or may have entered into, in the ordinary course of business might constitute or result in non-exempt prohibited transactions under Section 406 of ERISA or Section 4975 of U.S. Internal Revenue Code and might have to be rescinded. Governmental plans, certain church plans and non-U.S. plans, although not subject to Title I of ERISA or Section 4975 of U.S. Internal Revenue Code, may nevertheless be subject to other state, local, non-U.S. or other laws or regulations that would have the same effect as the Plan Asset Regulations so as to cause the underlying assets of TFG to be treated as assets of an investing entity by virtue of its investment (or any beneficial interest) in TFG and thereby subject TFG, the Master Fund or the Investment Manager (or other persons responsible for the investment and operation of TFG’s assets) to laws or regulations that are similar to the fiduciary responsibility or prohibited transaction provisions contained in Title I of ERISA or Section 4975 of U.S. Internal Revenue Code.We refer to these laws as “Similar Laws”.

Each purchaser and subsequent transferee of the Shares will be deemed to represent and warrant that no portion of the assets used to acquire or hold its interest in the Shares constitutes or will constitute the assets of any Plan. TFG's articles of incorporation provide that any purported acquisition or holding of Shares in contravention of the restriction described in such representation will be void and have no force and effect. If, notwithstanding the foregoing, a purported acquisition or holding of Shares is not treated as being void for any reason, the Shares will automatically be transferred to a charitable trust for the benefit of a charitable beneficiary and the purported holder will acquire no right in such Shares.

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