Synopsis Prospectus. Not For Public Distribution. Minimum investment GBP 100,000. Please read the disclaimer contained in this document.

Transcription

1 Synopsis Prospectus Not For Public Distribution. Minimum investment GBP 100,000. Please read the disclaimer contained in this document.

2 Life Settlements offer uncorrelated returns from High Credit, Quality Assets and represent a unique diversification opportunity for investors. International Life Settlements Fund offers: Consistent returns Low correlation Absolute returns Portfolio diversification for the investor Low volatility Well respected partners within the fund industry Fund Partners Custodian RBS Global Banking S.A. (Luxembourg) Sub-Custodian Wilmington Trust Company (USA) Administrator Vistra Financial Services S.A. (Luxembourg) Servicing Agent Torrey Pines Services LLC (USA) Origination Specialist Wharton Capital Advisor (USA) Auditors Deloitte S.A. (Luxembourg) Actuary DataLife Inc. (USA) Regulator CSSF Commission de Surveillance du Secteur Financier (Luxembourg) International Life Settlements Fund Unico Building [1st Floor] 13, Rue Eduard Streichen L-2540 Luxembourg Grand Duchy of Luxembourg +31 (0) [email protected] ILSF1102v10 The Fund is Luxembourg based and operates from offices in Luxembourg and Amsterdam. Please read the disclaimer contained in this document.

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5 Synopsis Prospectus Amsterdam February 2011 Luxembourg

6 DISCLAIMER THIS DOCUMENT IS INTENDED FOR ACCESS OR USE ONLY BY PERSONS WHO ARE ACCREDITED, PROFESSIONAL, QUALIFIED OR INSTITUTIONAL INVESTORS (AS DEFINED IN THE JURISDICTION OF THE USER) OR FINANCIAL INTERMEDIARIES TO WHOM THE INFORMATION IT CONTAINS MAY LEGALLY BE MADE AVAILABLE OR ACTED UPON AND NOT FOR ACCESS OR USE BY OTHER PRIVATE INDIVIDUAL INVESTORS. Please read this page, it explains certain restrictions imposed by law on the distribution of this information and the jurisdictions in which our products are authorised for sale. The International Life Settlements Fund ( ILSF ) is not a recognised collective investment scheme as described in the Financial Services and Markets Act 2000 of the United Kingdom (the Act ). The promotion and any distribution of material relating to ILSF in the United Kingdom is thus restricted by law. Consequently, this material is only directed at persons who are professional clients or eligible counterparties for the purposes of the FSA s Conduct of Business Sourcebook. Potential investors must read the relevant offering documents carefully for further details including the risk factors before any investment decision is made. Prospective investors should consult their own professional advisors, stock brokers, lawyers, accountants, tax consultants, bank managers or any other professional advisors they consider necessary before making an investment. This document is not directed to any person in any jurisdiction which prohibits the publication or availability of this document or where such publication or availability would subject [the International Life Settlement Fund] or any entity affiliated with the fund to any registration or similar requirement within such jurisdiction. It is your responsibility to be aware of and to observe all the applicable laws and regulations of your jurisdiction. You should consult your professional advisors as to whether you require any governmental or other consents, licenses or registrations or need to observe any formalities to enable you to access the information. Please do not access this document if the publication or availability of this document is in any way prohibited in your jurisdiction. If you are in any doubt, please do not proceed. By proceeding, you are representing and warranting that the applicable laws and regulations of your jurisdiction allow you to access the information. This document contains information relating to an investment product offered by the International Life Settlement Fund, which is not available to retail investors. The information is not guaranteed as to accuracy, nor is it a complete statement of the financial products or markets referred to herein. The opinions expressed are subject to change without notice by the Fund. The material in this document has been prepared for informational purposes only and is not intended to and shall not in any way constitute an invitation or an offer to invest in any investment products or a solicitation to purchase any investment. Information contained in this document does not constitute investment advice. Potential investors should note that investments can involve significant risks. No assurance can be given that the investment objective of any investment products will be achieved. Any past performance information presented is not indicative of future performance. Some of the information herein may contain projections or other forward looking statements regarding future events or future financial performance of countries, assets, markets or companies. These statements are only predictions and actual events or results may differ materially. Any geographic, political, economic, statistical, financial and exchange rate data may in certain cases be presented in approximate or summary or simplified form and may change over time. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same. While all the reasonable care has been taken in preparing the material on this website, no warranty or representation whatsoever is given and no responsibility or liability is accepted for any loss arising directly or indirectly in connection with, relating to, or as a result of any person acting on any information, opinion or statement expressed in this document. International Life Settlements Fund 2 Abridged Prospectus - February 2011

7 Contents Disclaimer Contents 5 Benefits at a glance 6 Why invest into International Life Settlements Fund? 8 Is International Life Settlements Fund suitable for you? 9 Parties Involved 10 Charges of investing into ILSF 11 Taxation 12 Net Asset Value Procedure 14 Key Features of the Investment 16 Risks 20 Subscription Process 22 Redemption Procedure 23 Overview of the Life Settlement Market 24 How are returns generated? 25 Hypothetical Policy Purchase 26 Overview of International Life Settlements Fund Disclaimer

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9 Benefits at a glance Target return of 8% per annum. Returns have shown little correlation to traditional asset classes. Tax-transparent structure (ILSF is a SIF FCP and not a Sicav SIF). Structured to remove with-holding tax risk for investors in countries with a double taxation treaty with US. Fund is domiciled in Luxembourg and regulated by Commission de Surveillance du Secteur Financier (CSSF), a world respected regulator. Fund already has critical mass of >300 policies, thereby benefiting from diversification and improving predictability of returns. Fund benefits from purchasing policies with Life Expectancies (LEs) based upon the 2008 Valuation Basic Tables (VBTs). This reduces the potential of any adverse longevity extension. High grade, independent counterparties. Fund unwinds profit in policies at the anticipated internal rate of return (up to maturity) that the policy is bought for and all maturities on policies will be fed back into the Net Asset Value for the benefit of investors. This is a much more transparent and fair way of unwinding profit. Fund conducts a top down extensive due diligence procedure on all parties relevant to any life settlement transaction to protect investors. Fund uses proprietary underwriting of medical records and LEs on all policies before they are bought. ILSF is SIPP eligible. ILSF is classified as an offshore fund and hence is part of the reporting fund regime in UK. This means that any direct investors into ILSF who are UK resident will pay tax on any gains at Capital Gains Tax rates not Income Tax rates. International Life Settlements Fund 5 Synopsis Prospectus - February 2011

10 Why invest into ILSF? The credit crisis of once again highlighted that traditional asset classes are prone to volatility and heavily influenced by macro-economic and political factors. Life Settlements (also known as Traded Life Policies) have demonstrated a consistent non-correlation to traditional asset classes and an ability to deliver consistent positive returns, whatever the global economic outlook. Investors seeking diversification in their portfolio have looked to Life Settlements. What became ILSF was established in 2006 with the aim of creating the next generation of Life Settlement Funds. The first 2 years were spent creating the appropriate fiscal and operational structures to bypass the risks that the fund managers felt more established funds are exposed to. ILSF is in a highly-regulated jurisdiction, Luxembourg, overseen by a world respected regulator CSSF; all counter parties attached to the fund are independent from one another and ILSF employs a transparent method to release profit from policies for the benefit of investors. The Fund seeks to deliver a minimum return of 8% per annum. The performance of ILSF tends not to be linked to equities, bonds, property or fixed income and hence offers investors another opportunity to diversify their assets away from the more traditional asset classes. There are a number of investment risks in relation to ILSF and an investor should read page 16 of this document. ILSF s performance is based on the underlying assets which are Life Settlements. Please see page 23 for a basic overview. The management of ILSF will select and purchase a portfolio of Life Settlements by following a strict set of criteria. A Policy shall be an Eligible Policy if it meets each of the following criteria: Issued by a United States registered life insurance company carrying an A.M. Best credit rating of A- or higher. Insured party and Seller(s) must be residents of the US (inclusive of all US territories). Universal Life (UL), Convertible Term (must be converted to UL before purchase), Joint and Survivor-ship, if one of the Insured s is deceased. Beyond the contestability period (unless advised by the Investment Committee and approved by Board of European Life Settlements Management). May not be premium financed (unless advised by Investment committee and approved by Board of ELSM and issued through a carrier approved program). Unencumbered by loan and have clean title. No more than 7% per annum premium of the full face value amount of a policy. Insured should be over 70 years of age. Face value limits are USD 250,000 to USD 5,000,000 net death benefit per insured. International Life Settlements Fund 6 Synopsis Prospectus - February 2011

11 Policy Purchase Process Important partners in the Policy purchase process described in the chart below are: 1. Origination Specialist Wharton Capital Advisors (WCA) 2. Service & Tracking Torrey Pines Services (TPS) 3. Sub-Custodian Wilmington Trust (WT) The flowchart below provides a simplified overview off all the steps from decision making until settlement of the policy in the sub-custodian account of ILSF at Wilmington Trust. The policy is never on the books of the provider and is always at arm s-length from ILSF. For a more detailed explanation please ask your ILSF representative or visit Policy Settlement ILSF POLICY SELLER 1. Payment instruction RBS 5. Policy vs. Cash 2. Payment instruction ESCROW WILMINGTON 4. Release of escrow funds 3. Policy package delivery WHARTON International Life Settlements Fund 7 Synopsis Prospectus - February 2011

12 Is ILSF suitable for you? Investing into ILSF may be appropriate if you are seeking capital growth from an asset class that is not linked to the volatility of equities and other traditional asset classes. Investing into ILSF is not suitable for everyone and is solely directed to wellinformed investors and professional intermediaries and not to the general public. Investors must read the offering document of ILSF before investing. Investing into ILSF may be suitable if: You can risk losing all of your investment You are happy for your capital to be locked in for a minimum of a year (though you should consider it a medium to long term investment) You don t need regular income from your investment You have a minimum of GBP 100,000 or if investing via a wrap, you are seeking to invest a minimum of GBP 25,000 You want an investment that is linked to Life Settlements You want an investment that is not linked to equities or other traditional asset classes You want an investment that is not linked to general economic performance You are happy that the underlying assets are USD (Dollar) denominated, there will be costs associated with hedging the FX exposure which may affect the return of capital if investing in GBP, JPY or EUR You are happy that the performance of the fund is based on the ability to source and purchase Life Settlements. Performance may be adversely affected if appropriate policies cannot be found or there are delays in sourcing them Investing into ILSF may not be suitable if: You don t want to invest into Life Settlements You want an investment linked to equities or other traditional asset classes You want regular income from your investment You don t want to risk losing all of your investment You need immediate access to your investment You don t have GBP 100,000 to invest or if through a wrap GBP 25,000 You want an investment linked to economic performance You want an unhedged investment International Life Settlements Fund 8 Synopsis Prospectus - February 2011

13 Parties involved Fund House European Life Settlements Fund SIF ELSF Sub-Fund International Life Settlements Fund ILSF ( Management Company European Life Settlements Management Sarl ELSM Custodian Royal Bank of Scotland Global Banking (Luxembourg) S.A. RBS is a global financial business serving over 40 million customers globally. In Luxembourg they are a specialist in custodian services towards the fund industry. Administrative Agent, Registrar and Transfer Agent Vistra Financial Services. Vistra is a major specialist in fund administration services and offers global fund support from their (amongst others) offices in Luxembourg. auditors Deloitte S.A. With over 1100 professional staff Deloitte is one of Luxembourg s largest and strongest professional services firms. Origination Specialist Wharton Capital Advisors WCA. WCA enhances value for its institutional Life Settlement clients through its emphasis on risk mitigation protocols, compliance processes, portfolio optimisation strategies and probabilistic valuation models to be a best-in-breed Life Settlement origination and advisory company. Sub-Depository, Escrow Agent and Securities Intermediary in the US Wilmington Trust Company WTC. WTC has provided banking, investment and fiduciary services for more than 100 years. Servicing Agent Torrey Pines Services LLC is an innovator in the life insurance policy service and maintenance arena. Torrey administers and tracks policies once acquired and part of ILSF s portfolio. Actuary Firm DataLife, founded in 1964, is based in Verona, New Jersey and employs more than 30 highly specialised and experienced individuals who work with leading US and European institutional investors in the Life Settlement sector. DataLife provides monthly independent valuations on policies held within ILSF. International Life Settlements Fund 9 Synopsis Prospectus - February 2011

14 Charges Management Fee % per annum from Net Asset Value of ILSF Administration Fee 0.15% per annum from Net Asset Value (not included in the management fee) Initial Charge nil Subscription Commission I share class nil B share class up to 5% of the initial investment C share class up to 10% of the initial investment The subscription commission will be paid by the share class of ILSF, in favour of the intermediaries/independent Financial Advisors involved. This may be reduced or waived and paid direct to the investor resulting in the possibility of an enhanced investment allocation being made. Whether paid to distributors, given back to an investor or a combination of the two, these amounts will become an asset of ILSF and will be amortised over the period of and at a rate similar to the scale of reduction in redemption charges noted in the offering document for each share class and below. This treatment will have the effect of reducing the return of Class B and C Shares for the period of the amortisation. Should an investor redeem prior to the completion of the amortisation, they will be charged as per the redemption charge set out below. Redemption Charge I share class 3% year 1, 2% year 2, 1% year 3. Nil thereafter B share class 5% year 1, 4% year 2, 3% year 3, 2% year 4, 1% year 5. Nil thereafter C share class 9.8% year 1, 8.4% year 2, 7% year 3, 5.6% year 4, 4.2% year 5, 2.8% year 6, 1.4% year 7. Nil thereafter Annual Management Charge I share class 1.25% (.25% payable as trail) B/C share class 1.5% (.5% payable as trail) International Life Settlements Fund 10 Synopsis Prospectus - February 2011

15 Taxation Please see Sections 29 and 30 of the ILSF Prospectus for a more thorough discussion of taxation. In view of the complexity of the applicable tax rules, potential investors should satisfy themselves as to the overall tax consequences in their own particular circumstances of their acquisition, ownership and disposal of the Units, by consulting their own tax advisers, accountants or other professional advisors. Structure of ILSF. ILSF was established in 2008 and advised by Baker & McKenzie LLP on the drafting of the Tax clause in the prospectus and advised on the structure of ILSF. ILSF is a Luxembourg-based Structured Investment Fonds (SIF), a Fonds Commun de Placement. This structure, a SIF-FCP is a fully transparent structure for US tax purposes. ILSF is not a SICAV SIF. ILSF is regulated and domiciled in Luxembourg; an onshore jurisdiction that has a tax treaty in place with the US. Luxembourg qualifies to be exempt from US taxes. Many Life Settlement funds are domiciled in offshore jurisdictions where no double taxation treaty exists between that jurisdiction and the US. ILSF is structured to avoid the unnecessary risk of policy pay-outs being exposed to a Withholding tax rate of up to 30% by the US tax service. As a SIF-FCP, ILSF is a look through structure whereby the US tax service is able to see that the underlying investor, whilst not residing in the US, resides in a country which has a double taxation agreement in place with the US. Thus, the US tax service should not apply any Withholding tax as the investor will pay tax in his country of domicile. It is for this reason that all investors into ILSF must complete a SS-4 and W8-BEN form before their subscription is accepted. These documents enable the US tax service to know that the investor is not domiciled in the US and will pay tax under the appropriate double taxation agreement. The US has established tax treaties with countries that are published on the US Internal Revenue Service (IRS) website This list incorporates all major European countries (including and amongst others Switzerland, Benelux, UK, Finland, Greece, Germany and Italy). Luxembourg is the household name for over 19,000 umbrella structures (over 35,000 funds are registered there). Many major financial institutions have established their legal fund framework in Luxembourg. The structure of ILSF is very similar with the same structures that are applied by these major institutions. International Life Settlements Fund 11 Synopsis Prospectus - February 2011

16 NAV Net Asset Value Procedure The value of ILSF that invests in Life Settlements will be affected by the values of those Life Settlements. At any time, the value of the Life Settlements may change as a consequence of a modification of some of the parameters established in the actuarial model and reviewed by the actuarial auditor. Such modifications will result in a change in the NAV. The NAV Procedure The NAV is calculated by Vistra but is based on input from the various service providers of the fund. The filtering process is outlined to the right. Vistra is dependent on the data from these various sources. The table provides an overview of number of working days per service provider. Certain working days are parallel processes, but this offers an insight to the timelines of the monthly calculation by Vistra. escrow account Wilmington Trust Torrey Pines Saxo Bank RBS Net Asset Value datalife Valuations of LS credit suisse Libor Valuation Level all data are gathered by vistra General Time Overview service partner Wilmington Trust Torrey Pines Saxo Bank RBS CS DataLife Vistra topic Escrow account policy purchase Escrow account premium payment Margin account / unrealized cash position Account statement of the trading account Libor-rate for revaluation purposes Valuations NAV draft schedule NUMBER OF WORKING DAYS working days International Life Settlements Fund 12 Synopsis Prospectus - February 2011

17 NAV Background ILSF has an escrow account with Wilmington Trust and Torrey Pines Services. Both accounts have to be verified by the administrator on month-end valuation. The cash position in these accounts is an integral part of the ILSF cash-position. Saxo Bank and RBS are the banking relationships for hedging purposes (Saxo Bank) and the overall custodian role (RBS) on the various share-class accounts, as well as the trading account of ILSF. DataLife aims to deliver within 2 working days the valuations of the assets of ILSF. Valuations are based on their actuarial model (no straight line interpretation of the LE curve, but based on actuarial models and the latest mortality table) as well as on the independent LIBOR-rate input by Credit Suisse. All information is gathered at the central point of NAV calculation, the administrator of ILSF, Vistra. Due to the multiple parties involved in the provision of data this can often lead to a delay in production of the NAV. However a NAV is produced for each month. Life Settlements are valued using an actuarial model developed by DataLife, an independent actuarial firm. The methodology used in determining the value of Life Settlements will be a discounted cash flow methodology using a probabilistic calculation, based on the present value of expected future benefits, expenses and premium. This methodology is permitted by the methodology described in the Life Settlement Valuation Guidelines as prepared by the Life Insurance Settlement Association in June This will be documented in the valuation policy prepared by the Fund. Present values will be based on a discount rate which will be formulaically derived and will be reviewed and confirmed by an independent actuarial firm (DataLife). The related methodology will take into account several factors, including without limitation, estimated life expectancies, policy face values upon maturity, estimated policy premiums needed to keep the policy in force, estimated policy cash values (if any), type of policy, mortality curve, etc. For several years following the inception of the Fund, credible mortality experience will not exist to support assumptions used in the calculation of the value of Life Settlements, so the assumptions will use the life expectancies provided to the actuarial auditor applied to a reasonable mortality curve as acceptable to the management company and the independent actuarial firm. As more credible mortality experience begins to emerge, the Management Company may, in conjunction with the independent actuarial firm, revise assumptions and models. The valuations of Life Settlements will be reviewed by DataLife on a monthly basis. DataLife will check the calculations performed are consistent with the probabilistic methodology defined above and with the assumptions specified by the Management Company. The Management Company and DataLife will discuss periodically whether any actuarial assumptions should be revised. DataLife will document its work each month in a report provided to the Management Company. Such report will be available upon request at the registered address of the Fund. International Life Settlements Fund 13 Synopsis Prospectus - February 2011

18 Key Features of the Investment Commitment There is a 1 year lock in across all share classes. However, due to the nature of Life Settlements you should consider this a long term investment. Investment date ILSF is open-ended with monthly dealing. Subscriptions plus all the required forms must be received by the administrator, Vistra, 5 business days before the last business day of the month. How much will the advice cost? Your Independent Financial Adviser (IFA) should tell you how much advice will cost. Even if no advice is taken we may still pay commission to the IFA who introduces the business to us. The payment of commissions may adversely affect the returns in the B and C share classes (please see page 10). Effect of inflation? You need to be aware that inflation will work to reduce the real value of your capital return you receive when you realise your investment. How much should I invest? The minimum investment is GBP 100,000 which, ideally, should not represent more than 10% of your overall portfolio. You should always maintain a minimum of 3 months of cash savings that can be accessed immediately and without penalty to meet any short term emergency needs. If investing via a wrapper then the minimum investment is GBP 25,000 and this should only form a maximum of 10% of your overall portfolio i.e. GBP 250,000. How am I kept informed? Information is available on our website ( or through your financial adviser/investment adviser. If investing directly then we can arrange for investment updates to be mailed to you monthly. International Life Settlements Fund 14 Synopsis Prospectus - February 2011

19 Key Features What are the compensation arrangements? ILSF is not a recognised collective investment scheme as described in the Financial Services and Markets Act 2000 of the UK. If ILSF or any of the parties involved in the fund were in financial difficulty and this adversely affected investors, no compensation would be available through the Financial Services Compensation Scheme in UK. What happens if I die? If you die whilst invested in ILSF, the administrator will aim to work with your estate and deal with the investment as directed by your personal representatives. The administrator will provide a value at death/when requested and will explain the options available. Should I see an Independent Financial Adviser? This document is not a recommendation to invest (please see the full disclaimer at the beginning and end of this document). ILSF recommends that all investors (unless suitably qualified) seek independent financial advice or guidance on the specific risks involved investing into Life Settlements and whether it is suitable for them relevant to their time horizon and risk appetite and current portfolio construction. An investor must read the offering document in full before investing. International Life Settlements Fund 15 Synopsis Prospectus - February 2011

20 Investment Risks Introduction ILSF is an investment fund that invests in Life Settlements (Traded Life Policies). This type of investments has specific risk characteristics. Various are listed and addressed in this overview. If in any doubt as to the suitability of this investment, you should consult your independent advisor. General Despite the possibility for ILSF to use options, futures and swap contracts and to enter into forward foreign exchange transactions with the aim to hedge exchange rate risks, ILSF is subject to market or currency fluctuations, and to the risks inherent in all investments. Therefore, no assurance can be given that the invested capital will be preserved, or that capital appreciation will occur. Longevity Returns on Traded Life Insurance Policies are dependent on the LEs of the insured persons and these may be difficult to predict. If an insured person outlives his indicated life expectancy, returns may fall considerably due to continuing premium payments and delayed receipt of death benefits. Services Providers The achievement of ILSF s objective requires the use of a broad range of service providers including, without limitation, medical underwriters, policy providers, escrow agents, verification and tracking agents and actuarial auditors. Given the special features and the lack of sophistication of the Life Settlements market, there can be no assurance for Investors that any of the providers will be in existence at all times and that will perform their activities efficiently. A deficient service (e.g. inappropriate due diligence by a Policy Provider and/or poor verification by the tracking agent) may affect the value of the Life Settlements and therefore affect the overall value of ILSF. Purchase of Life Settlements The Board of Directors as advised by the Investment Committee of ILSF, and in accordance with ILSF s objective, strategies and restrictions, selects the Life Settlements that better suits with its strategy. If there is a lack of available Life Settlements meeting with the Management Company s specifications this will affect the performance of ILSF. Liquidity Potential investors should note that investments in Life Settlements are not liquid investments. In some cases, a decision to unwind a portfolio of Life Settlements may not be the most efficient option to meet the Fund s liquidity needs. In addition, investments in Life Settlements are considered to be long term investments, consequently investors should notice that in certain cases, several years may be required before a realisation of value is achieved. Realisation of value in the shortterm may be difficult or may have to be made at a substantial discount compared to its expected long-term return. In some situations The Board of Directors as advised by the Investment Committee of ILSF may decide to leave Assets in a liquid form, therefore investors should be aware that this may substantially decrease the performance of the Fund. International Life Settlements Fund 16 Synopsis Prospectus - February 2011

21 Investment Risks Exchange Rates The currency in which the Classes of Units of ILSF is denominated is not necessarily the Reference Currency of ILSF or the investment currency of ILSF concerned. Investments are made in those currencies that best benefit the performance of ILSF in the view of the Board of Directors as advised by the Investment Committee of ILSF. Changes in foreign currency exchange rates may affect the value of Units held in ILSF. Unitholders investing in a share class other than in the currency in which the relevant Class of Units is denominated should be aware that exchange rate fluctuations could cause the value of their investment to diminish or increase. The Board of Directors hedge the currency risk for GBP, EUR and JPY investors. Valuation The value of ILSF that invests in Life Settlements will be affected by the values of the Life Settlements. At any time, the value of the Life Settlements may change as a consequence of a modification of some of the parameters established in the actuarial model and reviewed by the actuarial auditor. Such modifications will result in a change in the Net Asset Value (please see pages 12-14). Regulatory Framework The regulatory supervision and legal infrastructure in the traded insurance policy market may not provide the same degree of protection or information to investors as would generally apply in other highly sophisticated markets. Any change in the regulatory framework may lead to a decline of the Fund s return. Management Company Investors should note that ILSF s performance may suffer a negative impact should one of the key persons acting on behalf of the Management Company, managers, officers and/or advisors, die, are declared incompetent or otherwise ceases to act on behalf of the Management Company. Actuarial Model The values of the Life Settlements are established through the actuarial model and reviewed by an independent actuarial firm as well as by the Auditor of ILSF. This model is subject to data provided by different sources. There is no assurance that such information is accurate or sufficient. Taxation Despite the possibility that ILSF may use special purpose vehicles to place investments in order to mitigate certain tax risks, there can be no assurance that an amendment, inaction, abolition or interpretation of one or more laws may not directly impact the investments of ILSF. ILSF will elect to be treated as partnerships for US federal income tax purposes. ILSF will not be entitled to treaty benefits under the US-Luxembourg income tax treaty. Unless a Unitholder is entitled to treaty benefits under a treaty between his, her or its country of residence and the US, life insurance proceeds paid upon the death of a U.S. insured allocable to such Unitholder may be subject to US withholding tax at a 30% rate. International Life Settlements Fund 17 Synopsis Prospectus - February 2011

22 Investment Risks To the extent US withholding taxes are imposed on a Unitholder s allocable share of policy proceeds or other income, such Unitholder s account will be credited with its share of policy proceeds or other income reduced by such withholding tax. Requirements for US treaty entitlement are discussed in general terms below. However, a Unitholder should satisfy him, her, or itself with the overall US and non-us tax consequences in their own particular circumstances of their acquisition, ownership and disposal of the Units, by consulting their own tax advisers. Insurance Company Credit Investors should note that the Life Settlements are issued by Insurances Companies. Consequently ILSF is exposed to the risk of the life insurance company becoming insolvent. ILSF will invest in policies issued by carriers with a minimum rating of A- at the time of the investment. Borrowing/Leverage The Management Company may borrow Assets for any purpose including coverage of operating expenses, payment of redemptions and transactions. Investors should be aware that such leverage can substantially increase the performance of the Sub- Fund but also result in greater loss. Effect of Substantial Redemptions Substantial Redemption of the Units could cause the liquidation of ILSF. Moreover, this substantial redemption could cause a significant sale of a position which would bring adverse effects on the Management Company s strategy, the performance of ILSF and increase the expenses of ILSF. Legal Risk Potential investors should note that investments in Life Settlements carry risks additional to those inherent in other investments. In particular, potential investors should note that, given the particularities of the market, investment in any Traded Insurance Policy may afford a lower level of legal protection to investors which may in turn have a negative impact on ILSF. ILSF may need to enforce its contracts against Insurance Companies located in foreign jurisdictions. Also it must face the risk of having to contend with the legal system of that jurisdiction, a lack of investors protection, inadequate legislation for market participants, change of laws, etc. Medical Cures and Mortality Uncertainty The acquisition of Life Settlements is associated to the life expectancy of the insured; consequently any medical discovery may increase the life expectancy of an insured and decrease the performance of ILSF. The mortality uncertainty relates to current insufficient historical data of life expectancy predictions as against actual deaths in Traded Insurances Policies. As a result of this, mortality tables used to value the policies may not be accurate. International Life Settlements Fund 18 Synopsis Prospectus - February 2011

23 Investment Risks Options, Futures and Swaps ILSF may use options, futures and swap contracts and enter into forward foreign exchange transactions to the extent allowed in the Appendices of the prospectus and in accordance with the investment policy of ILSF. The ability to use these strategies may be limited by market conditions and regulatory limits and there can be no assurance that the objective sought to be attained from the use of these strategies will be achieved. Participation in the options or futures markets, in swap contracts and in foreign exchange transactions involves investment risks and transaction costs to which ILSF would not be subject if they did not use these strategies. If the Management Company s predictions of movements in the direction of the securities, foreign currency and interest rate markets are inaccurate, the adverse consequences to ILSF may leave ILSF in a less favourable position than if such strategies were not used. Risks inherent in the use of options, foreign currency, swaps and futures contracts and options on futures contracts include, but are not limited to a. dependence on the Management Company s ability to predict correctly movements in the direction of interest rates, securities prices and currency markets; b. imperfect correlation between the price of options and futures contracts and options thereon and movements in the prices of the securities or currencies being hedged; c. the fact that skills needed to use these strategies are different from those needed to select portfolio of Life Settlements; d. the possible absence of a liquid secondary market for any particular instrument at any time; and e. the possible inability of ILSF to purchase or sell a portfolio at a time that otherwise would be favourable for it to do so, or the possible need for ILSF to sell a portfolio at a disadvantageous time. Where ILSF enters into swap, option and forward transactions on an OTC basis, it is exposed to a potential counterparty risk. In case of insolvency or default of the said counterparty, such event would affect the assets of ILSF. Risk of Insurable Interest It is important that the original policyholder (or family or other persons with a substantial interest in the continuity of the insured) has an insurable interest in the policy at the time of issuance of the policy. An insurance company has always the right to re-investigate this during the existence of the policy. An insurance company can also deny claims based on fraud. International Life Settlements Fund 19 Synopsis Prospectus - February 2011

24 Subscription Process Before investing you should read this document and must read the offering document in full and ensure you understand the nature of investing in ILSF. Applications for subscriptions into ILSF can be made on any business day. The subscription is valid for the next valuation date of ILSF. For the avoidance of doubt this is five business days before the last business day of the month. The acceptance of subscriptions is based on an application form for each separate share class. The minimum amount for acceptance is GBP 100,000 for each share class except for the I-share where the minimum level is USD 1,000,000 (or currency equivalent). In addition the Fund can accept any amount based on a standard Know Your Client form. Based on this form, the Board of Directors may accept subscriptions lower than the required minimum amount. Subscription forms can be obtained from Vistra, our website ( and also representatives of ILSF. Furthermore, for tax-transparency two separate forms must also accompany a subscription. The W8-BEN and SS-4 forms are essential for mitigating potential tax risks. Please be aware that an investor should still seek independent tax advice. The two forms are issued by the US Department of the Treasury of the Internal Revenue Service (IRS). The SS-4 form is related to a US IRS identification number. The W8-BEN is a certificate of foreign status of beneficial ownership for US tax withholding. Additional background on the forms is available from ILSF, your distributor or the IRS website: SS-4 W8-BEN International Life Settlements Fund 20 Synopsis Prospectus - February 2011

25 Subscription Procedure for Investments below GBP 100,000 or currency equivalent Vistra is responsible for the procedure allowing investors into the fund. To accept smaller amounts, a different procedure has to be followed, Vistra must receive: 1. A written confirmation from the investor that he is a well-informed investor. This form is available from ILSF or your distributor, entitled E25k investor form. Or 2. A certificate delivered by a credit institution, another professional of the financial sector within the meaning of Directive 2004/39/EC on markets in financial instruments or a management company within the meaning of Directive 200/1/107/CE stating that he is experienced enough to appreciate in an adequate manner an investment into a specialised investment fund. This is to reflect the Mifid/KYC procedures. This certificate can be provided by the bank (e.g. retail) or broker of the investor, where the financial service company is known and supervised by a regulatory European body. If in doubt please contact ILSF or your distributor. Business Advice Sheet For all subscriptions via a distributor, a Business Advice Sheet is essential. The Business Advice Sheet offers Vistra the information on any distribution fee to be applied to a specific subscription. Without a Business Advice Sheet, ILSF will not be able to pay out any distribution fee. The Business Advice Sheet can be obtained through Vistra, ILSF or your distributor International Life Settlements Fund 21 Synopsis Prospectus - February 2011

26 Redemption Procedure Redemptions are possible, but are also subject to the approval of the Board of Directors if the subscription is within one year of the initial investment or greater than 10% of the NAV of the Fund. The standard procedure is that an investor will need to send a redemption form to Vistra. Vistra will accept the form and liaise with the board of directors of ILSF. The Board of Directors will grant the redemption on the earliest redemption date, whereby it will not materially affect the other investors in the Fund. Redemptions cannot be more that 10% of the NAV of the Fund. In those cases, where this would occur, the Board of Directors has the right and fiduciary obligation to protect the other investors and grant not more than 10% of the redemption at that moment in time. International Life Settlements Fund 22 Synopsis Prospectus - February 2011

27 Overview of the life settlement market The Asset Class A life settlement involves the sale of a US-issued life insurance policy, typically owned by a senior, to a third party investor. When a life settlement is transacted the price paid and gross return are defined with the only unknown issue being time, i.e. when the policy will mature. By acquiring the policy the investor will receive the full cash value of the policy at maturity but becomes liable for the premiums on the policy. Life Settlements are a genuinely alternative asset class with low volatility and low correlation with equities, bonds, commodities and property. They offer investors steady and secure returns when structured and managed optimally. History The ability of US individuals to sell their insurance policies has been possible for almost 100 years since the Supreme Court case of Grigsby v. Russell (1911). The Judge in the case remarked that life insurance had all the hallmarks of property and hence could be freely traded. It was not until the onset of the HIV epidemic of the 1980s that investors began to take notice of the opportunities the sale of such assets provided. During this early period in the life settlement industry, investors purchased viatical policies (where the underlying insured was terminally ill) from sellers who had, unfortunately, been diagnosed with HIV. Investors anticipated receiving the policy proceeds in a short space of time as the initial medical outlook for sufferers of the HIV epidemic was bleak. However, due to medical advances, people who had been diagnosed with HIV survived with the virus for considerably longer than initially anticipated, and as a result, many investors in viatical policies suffered losses. This led the industry to gravitate towards the sale and purchase of life insurance policies from the elderly (aged over 70) where life expectancy opinions are much more accurate. Size of the market The life settlement market is huge and has grown exponentially over the last decade. The senior Life Settlements market was approx. $18 billion in 2008, and is expected to reach $160 billion in the coming years, according to Sanford Bernstein. Total individual life insurance held on US citizens was $1.4 trillion in US insurance companies overall retain high credit ratings. The 65 and over baby boomers is the fastest growing segment of the overall US population. As such there will continue to be a supply of assets and this is likely to grow exponentially particularly as more US citizens realise that their life insurance policies are an asset that can generate a cash return for them today. International Life Settlements Fund 23 Synopsis Prospectus - February 2011

28 How are returns generated? The graph below demonstrates how a life insurance policy, and thus a portfolio of life insurance policies, may generate returns for investors. In principal ILSF benefits from having a portfolio that achieves beneficial diversification (in excess of 300 policies) to increase the predictability of returns. Returns Generated $ / MONEY PAID Return for Policy Purchaser Premiums Paid by Purchaser Death Benefit = Absolute Return Policy Purchase Price Higher Return Lower Return Life Expectancy of the Insured Maturity Period TIME International Life Settlements Fund 24 Synopsis Prospectus - February 2011

29 Hypothetical Policy Purchase LE Sum Assured / Face Value Purchase Price Allowance for Future Premiums Total Purchase Price Net return (Months) (USD) (USD) (USD) (USD) (USD) ,000 51,000 54, , ,000 Return (%) SAR (%) CAR (%) In the example above a Life Settlement is purchased for USD 51,000 with a Life Expectancy (LE) of 72 months (6 years) with an anticipated premium amount up to LE of USD 54,000. The total gross return expected to the Fund would be USD 300,000 (otherwise known as the face value of the policy) with the net return being USD 195,000 (face value less cost of the policy and premiums up to LE). In this scenario the total return would be % giving an annual return over LE of 47.62% per annum which, when compounded, would give 18% per annum over LE. Obviously if maturity occurred earlier than anticipated this would enhance the return, and conversely, if maturity occurred later than anticipated this would reduce the return on this particular policy. International Life Settlements Fund 25 Synopsis Prospectus - February 2011

30 Investment Possibilities Overview of International Life Settlements Funds SHARECLASS BLOOMBERGCODE ISIN CODE TELEKURS CODE MANAGEMENT FEE ILSF Shareclass B Class B - EUR ELSTHBE LX LU ,50% Class B - GBP ELSTHBS LX LU ,50% Class B - JPY ELSTHBY LX LU ,50% Class B - USD ELSTHBU LX LU ,50% ILSF Shareclass C Class C - EUR ELSTHCE LX LU ,50% Class C - GBP ELSTHCS LX LU ,50% Class C - JPY ELSTHCY LX LU ,50% Class C - USD ELSTHCU LX LU ,50% ILSF Shareclass 1 Class 1 - EUR ELSTHIE LX LU ,25% Class 1 - GBP ELSTHIS LX LU ,25% Class 1 - JPY ELSTHIY LX LU ,25% Class 1 - USD ELSTHIU LX LU ,25% ILSF is accessible directly, various platforms, personal portfolio bonds and Self Invested Personal Pensions. ILSF is classified as an offshore fund and hence is part of the reporting fund regime in UK. This means that any direct investors into ILSF who are UK resident will pay tax on any gains under Capital Gains Tax rates not Income Tax rates. International Life Settlements Fund 26 Synopsis Prospectus - February 2011

31 DISCLAIMER THIS DOCUMENT IS INTENDED FOR ACCESS OR USE ONLY BY PERSONS WHO ARE ACCREDITED, PROFESSIONAL, QUALIFIED OR INSTITUTIONAL INVESTORS (AS DEFINED IN THE JURISDICTION OF THE USER) OR FINANCIAL INTERMEDIARIES TO WHOM THE INFORMATION IT CONTAINS MAY LEGALLY BE MADE AVAILABLE OR ACTED UPON AND NOT FOR ACCESS OR USE BY OTHER PRIVATE INDIVIDUAL INVESTORS. Please read this page, it explains certain restrictions imposed by law on the distribution of this information and the jurisdictions in which our products are authorised for sale. The International Life Settlements Fund ( ILSF ) is not a recognised collective investment scheme as described in the Financial Services and Markets Act 2000 of the United Kingdom (the Act ). The promotion and any distribution of material relating to ILSF in the United Kingdom is thus restricted by law. Consequently, this material is only directed at persons who are professional clients or eligible counterparties for the purposes of the FSA s Conduct of Business Sourcebook. Potential investors must read the relevant offering documents carefully for further details including the risk factors before any investment decision is made. Prospective investors should consult their own professional advisors, stock brokers, lawyers, accountants, tax consultants, bank managers or any other professional advisors they consider necessary before making an investment. This document is not directed to any person in any jurisdiction which prohibits the publication or availability of this document or where such publication or availability would subject [the International Life Settlement Fund] or any entity affiliated with the fund to any registration or similar requirement within such jurisdiction. It is your responsibility to be aware of and to observe all the applicable laws and regulations of your jurisdiction. You should consult your professional advisors as to whether you require any governmental or other consents, licenses or registrations or need to observe any formalities to enable you to access the information. Please do not access this document if the publication or availability of this document is in any way prohibited in your jurisdiction. If you are in any doubt, please do not proceed. By proceeding, you are representing and warranting that the applicable laws and regulations of your jurisdiction allow you to access the information. This document contains information relating to an investment product offered by the International Life Settlement Fund, which is not available to retail investors. The information is not guaranteed as to accuracy, nor is it a complete statement of the financial products or markets referred to herein. The opinions expressed are subject to change without notice by the Fund. The material in this document has been prepared for informational purposes only and is not intended to and shall not in any way constitute an invitation or an offer to invest in any investment products or a solicitation to purchase any investment. Information contained in this document does not constitute investment advice. Potential investors should note that investments can involve significant risks. No assurance can be given that the investment objective of any investment products will be achieved. Any past performance information presented is not indicative of future performance. Some of the information herein may contain projections or other forward looking statements regarding future events or future financial performance of countries, assets, markets or companies. These statements are only predictions and actual events or results may differ materially. Any geographic, political, economic, statistical, financial and exchange rate data may in certain cases be presented in approximate or summary or simplified form and may change over time. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same. While all the reasonable care has been taken in preparing the material on this website, no warranty or representation whatsoever is given and no responsibility or liability is accepted for any loss arising directly or indirectly in connection with, relating to, or as a result of any person acting on any information, opinion or statement expressed in this document. International Life Settlements Fund 27 Synopsis Prospectus - February 2011

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