EEA Life Settlements Fund An Absolute Return, Historically Uncorrelated Investment Solution This document is being directed only at persons who are professional clients or eligible counterparties for the purposes of the FSA s Conduct of Business Sourcebook. Other persons should not act or rely on it in any circumstances. Your attention is drawn to the regulatory information and notices on pages 1 and 13. www.eeafm.com
The EEA Life Settlements Fund (the Fund ) The Risks This document is designed for professional clients or eligible counterparties for the purposes of the FSA s Conduct of Business Sourcebook. It therefore assumes a high level of knowledge and understanding and anticipates that its readers fully appreciate the particular risks of a life settlements fund. It is not a substitute for reading the Fund s prospectus and any decision to invest should be made purely on the basis of the Fund s prospectus. Life settlements funds are not suitable for all investors. We believe they are only suitable for investors with significant investment portfolios who can afford to take a medium to long-term view and are comfortable with the specific risks associated with life settlements funds. The risk factors for the Fund are set out in full in the Fund s prospectus. Some specific risks associated with life settlements funds are: Returns can be significantly adversely affected by underlying insureds living longer than expected. The Fund may not have access to liquid assets to make any payments to shareholders until the life insurance policies mature or it sells the assets through the secondary market, which is relatively illiquid. An underlying insured may go missing or there may be a delay in ascertaining that an insured has died or in obtaining required documentation needed to claim the insured s death benefit. There is counterparty risk in respect of the solvency of the insurance companies and therefore no guarantee that the insurance companies will meet their obligations to make payment on maturity. Your attention is drawn to the regulatory notice on page 13 www.eeafm.com EEA Fund Management (Guernsey) Limited
EEA Life Settlements Fund Investing in life policies purchased from US policyholders who would otherwise surrender their policy back to the life company the EEA Life Settlements Fund offers an alternative investment opportunity. Historically uncorrelated to traditional investment markets, life settlements enable investors to diversify risk without necessarily compromising on reward. Alternative investment opportunity Consistent monthly share price increase since January 2006 Historically uncorrelated to other traditional asset classes Low volatility Diversifies and reduces portfolio risk, while maintaining reward Well respected advisers and service providers UK Reporting Status Listed on the Channel Islands Stock Exchange (CISX) Aims to achieve a benchmark net return of 8% per annum, with a target net return of 9-10% per annum We are seeing a considerable increase in interest from IFAs looking to take their clients investments into safer waters, and also multi-managers who realise that the EEA Life Settlements Fund has continued to deliver in extremely volatile markets. Peter Winders - Marketing Director, EEA Fund Management Limited (Marketing agent for the Fund) Your attention is drawn to the regulatory notice on page 13 2
Absolute return The EEA Life Settlements Fund has an investment benchmark to provide an 8% annual net return to investors, with a target annual net return of 9% to 10%. In today s highly volatile market there are significant pressures on investment professionals all over the world to reduce risk in their portfolio while maintaining good and consistent returns for clients. As such, there is a growing appetite for new investment options that can achieve yields in excess of inflation and help to reduce volatility. Life settlements can offer a valuable and predictable source of return for many types of investors as part of a diversified investment portfolio. The market itself remains relatively untapped, with around $1trillion in face value of polices lapsing or being surrendered each year in the US*, of which approximately $200 billion could be suitable for purchase by the EEA Life Settlements Fund. Last year it is estimated that just about $12 billion was actually traded*. Life settlements have historically been uncorrelated to traditional investment markets and have demonstrated the ability to deliver consistent returns even at a time of significant volatility in traditional markets. *Source: Conning Research & Consulting Inc. (2009) Your attention is drawn to the regulatory notice on page 13 3 www.eeafm.com EEA Fund Management (Guernsey) Limited
In both the UK: Percentage Growth 40 35 30 25 20 15 10 5 0 5 10 15 20 25 30 35 40 Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 EEA Life Settlement GBP Acc IBOXX Non-Gilt OA TR And the US: FTSE 100 TR LIBOR GBP 1 Month Source: Bloomberg as at 31 January 2010 45 40 35 30 25 20 15 10 5 0 5 10 15 20 25 30 35 40 Oct 05 Apr 06 Oct 06 Apr 07 Oct 07 Apr 08 Oct 08 Apr 09 Oct 09 EEA Life Settlement USD A S&P 500 TR Source: Bloomberg as at 31 January 2010 LIBOR USD 1 Month Barclays U.S. Agg Bd TR Your attention is drawn to the regulatory notice on page 13 4 Percentage Growth
Life settlements explained The legal framework in the US regarding life insurance companies is more conducive to life settlements than the UK. The Fund ensures that the policies it acquires are no longer contestable by those companies, which is an advantage that US life policies have over UK life policies. A life settlement is quite simply the sale of a US life policy to a third party where the policyholder has an impaired life expectancy. Just as equity funds invest in equities and property funds in property, life settlements funds invest in life assurance policies. People sell their policies for a number of reasons: perhaps the premiums have become too expensive, extra capital is needed now or the insured has no dependants who would benefit from the proceeds after their death. In these situations policyholders would normally have to surrender their policies to the life company in exchange for a relatively low cash-in value if they receive any payment at all. Life settlements provide an attractive solution: the policyholder sells their policy to a third party and receives fair market value for it. The buyer becomes the owner of the policy and pays all the remaining premiums. When the policyholder (the life assured) dies, the buyer receives the full face value (the sum assured) of the policy. The liquidity provided by the secondary market benefits policyholders, who no longer want or need the life insurance, as they might get a higher cash sum in the secondary market than the surrender value offered by the issuing insurance company. Source: And death shall have no dominion, Pensions Institute, July 2008 Your attention is drawn to the regulatory notice on page 13 5 www.eeafm.com EEA Fund Management (Guernsey) Limited
Case Study The following example illustrates how a life settlement provides both consumer choice and the possibility of good returns on investment. Imagine an 87 year old lady had several life insurance policies but could no longer afford all the premiums. With full consent from all the beneficiaries, including her husband, she decided to sell one policy with a face value (sum assured) of US$2,500,000. The surrender value she was offered from the life company was US$ 58,361.55 The amount she received as a life settlement was US$ 1,045,000 The policyholder made US$ 986,368.45 more than she would have from surrendering the policy. In calculating what to pay her our expert advisers estimated that the policyholder had a life expectancy of approximately 33 months. If policy matured after 33 months as expected Income from policy $2,500,000 Cost of premiums $535,513 Other fees and expenses = $51,519 Expected gross return to Fund = $867,968 If policy matured after 21 months, 1 year earlier than expected Income from policy = $2,500,000 Cost of premiums $340,751 Other fees and expenses = $48,642 Expected gross return to Fund = $1,065,607 If policy matured after 45 months, 1 year later than expected Income from policy = $2,500,000 Cost of premiums = $730,245 Other fees and expenses = $54,935 Expected gross return to Fund = $669,820 The value of the gross investment return to the Fund clearly depends, amongst other things, upon the date of death / maturity. This is why the EEA Life Settlements Fund works with expert advisers in purchasing policies. Your attention is drawn to the regulatory notice on page 13 6
Choice and flexibility Invest in a range of currencies USD, GBP, Euro Choice of distribution and accumulation share classes Monthly dealing Minimum subscription levels of $50,000, 25,000 and 35,000 GBP and Euro funds are currency hedged against movements in USD Your attention is drawn to the regulatory notice on page 13 7 www.eeafm.com EEA Fund Management (Guernsey) Limited
EEA Life Settlements Investment Process The biggest uncertainty in buying life policies is when the maturity will be - which makes the buying process key to the overall success of the Fund. Our appointed investment advisers, ViaSource Funding Group, specialists in life settlement provision, employ a rigorous and robust process. Each policy considered for purchase is carefully scrutinised against a set of strict criteria, and two independent life expectancy reports are commissioned to determine a fair price. The Fund adopts a conservative approach to pricing for valuation purposes adding 12 months to the life expectancy of each individual. The Fund is not permitted to buy any policy with a life expectancy of more than eight years and typically the life expectancy at purchase is between three and four years. Since January 2006, EEA Life Settlements Fund has delivered consistent monthly share price increases including realised gains from 94 matured policies*. The Fund targets total annual returns of 9 10 % net of taxes and charges, with the aim to provide a benchmark 8% annual net return to investors on a stable long-term basis. Risk diversification As at 31 January 2010, the Fund owned 582 policies issued by 91 different insurance companies making it one of the most diverse life settlements funds in the market with more than 95% of the net asset value of life policies with life companies whose rating is A or higher**. *Information as at 31st January 2010 ** Rated by A.M.Best Your attention is drawn to the regulatory notice on page 13 8
Performance to be proud of Since January 2006, the EEA Life Settlements Fund has consistently increased its unit price by around 60 to 90 basis points per month. USD Class 'A' NAV per share since launch (9 November 2005) to January 2010 NAV per share 144.00 142.00 140.00 138.00 136.00 134.00 132.00 130.00 128.00 126.00 124.00 122.00 120.00 118.00 116.00 114.00 112.00 110.00 108.00 106.00 104.00 102.00 100.00 98.00 96.00 9 Nov Nov 05 05 Dec 05 Jan 06 Feb 06 Mar 06 Apr 06 May 06 Jun 06 06 Jul Aug 06 Sep 06 Oct 06 Nov 06 Dec 06 Jan 07 Feb 07 Mar 07 Apr 07 May 07 Jun 07 07 Jul Aug 07 Sep 07 Oct 07 Nov 07 Dec 07 Jan Feb 08 08 Mar 08 Apr 08 May 08 Jun 08 08 Jul Aug 08 Sep 08 Oct 08 Nov 08 Dec 08 Jan Feb 09 09 Mar 09 Apr 09 May 09 Jun 09 09 Jul Aug 09 Sep 09 Oct 09 Nov 09 Dec 09 Jan 10 Source: International Administration (Guernsey) Limited For more information on the performance of the EEA Life Settlements Fund please see the latest Fund Fact sheet available on our website www.eeafm.com Your attention is drawn to the regulatory notice on page 13 9 www.eeafm.com EEA Fund Management (Guernsey) Limited
EEA group The EEA group currently has over 1.2 billion of assets under management and advice. The EEA Life Settlements Fund is just one of six reputable investment opportunities managed or advised by a member of the EEA group. EEA Futures Programme offers an investment solution aiming to generate absolute returns in excess of 15% per annum net of fees. EEA Europe Long Short Fund aims to deliver an absolute return with a medium term target return averaging in excess of 15% per annum net of fees investing long and short in European equities with a focus on mid cap companies. EEA Select Opportunities Company is a UK long/short equity hedge fund domiciled in the Isle of Man and listed on the Channel Islands stock exchange. Trading Emissions PLC, quoted on AIM in London, specialises in investment in emissions instruments such as carbon credits and related investments. The company had a Net Asset Value of 370m as at 15 February 2010. Leaf Clean Energy Company is quoted on AIM, investing in clean energy companies and projects principally in the US. As at 15 February 2010, it had a Net Asset Value of 184m. EEA Fund Management Founded Aug 03 EEA Select Opportunities Fund Launched May 04 EEA Life Settlements Fund Launched Nov 05 EEA launched Europe Long Short Fund Jul 09 Climate Exchange PLC Quoted Sep 03 Trading Emissions PLC Quoted on AIM Apr 05 Trading Emissions PLC C-share Quoted May 06 Leaf Clean Energy Company Quoted on AIM June 07 Futures Fund Launched Aug 08 EEA Group reaches 1bn assets under management and advice Oct 08 EEA Life Settlements reaches $500m assets under management Jul 09 2003 2004 2005 2006 2007 2008 2009 Source: EEA Fund Management Limited, authorised and regulated by the FSA (No. 438417). Registered in England (No. 0472946) Your attention is drawn to the regulatory notice on page 13 10
The Fund has engaged with some of the largest and most respected financial institutions in the world. Your attention is drawn to the regulatory notice on page 13 11 www.eeafm.com EEA Fund Management (Guernsey) Limited
Well respected advisers and service providers ViaSource Funding Group - Investment Adviser Specialist Life Settlement Provider In excess of $909m invested on behalf of investors* BNP Paribas Securities Services - Custodian One of the leading providers of securities services and investment operations worldwide In excess of 3 trillion assets under custody** Bank of New York Mellon Trustee and Escrow Agent One of the world s largest custodian banks with over $20.2 trillion under custody and administration*** Acts as trustee and escrow agent for investors in the Fund Holds the life policies on behalf of the Fund Mills, Potoczak & Company Secondary Asset Servicer Market leading Life Settlement Servicing Company Verifies all policies meet the criteria of the Fund International Administration (Guernsey) Ltd Administrator Independently owned Licensed by the Guernsey Financial Services Commission $15billion under administration as at February 2010**** Ernst & Young Auditors Global perspective and experience 130,000 people working in 140 countries***** US$21.4 billion global revenues in 2009***** *Source: Via Source Funding Group **Source: BNP Securities Services ***Source: Bank of New York Mellon ****Source: International Administration (Guernsey) Limited *****Source: Ernst & Young Your attention is drawn to the regulatory notice on page 13 12
How to find out more The EEA Life Settlements Fund has a wide appeal to a broad range of investment professionals; from intermediaries to institutional investors, multi managers to SIPP investors and wealth managers to individual investors, in each case being an exempted person (as defined below). For more information please visit our website at www.eeafm.com where you can quickly download up to date: Fact sheets Prospectus Further brochures Annual report Important Information: This material is being issued by EEA Fund Management (Guernsey) Limited (which is licensed by the Guernsey Financial Services Commission to carry on the restricted activities of promotion, subscription, dealing, management and administration in connection with Category 1 Collective Investment Schemes and Category 2 General Securities and Derivatives under The Protection of Investors (Bailiwick of Guernsey) Law, 1987 as amended), but has been approved by EEA Fund Management Limited (which is authorised and regulated by the Financial Services Authority ( FSA"). The Fund is not a recognised collective investment scheme for the purposes of the Financial Services and Markets Act 2000 of the United Kingdom (the Act ). The promotion of the Fund and the distribution of this material in the United Kingdom is accordingly restricted by law. Therefore, this material is being directed only at persons who are professional clients or eligible counterparties for the purposes of the FSA s Conduct of Business Sourcebook. This material is exempt from the scheme promotion restriction (in Section 238 of the Act) on the communication of invitations or inducements to participate in unrecognised collective investment schemes on the grounds that it is being issued to and/or directed at only the types of person referred to above. To the extent that this material is issued by EEA Fund Management Limited shares in the Fund are only available to such persons and this material must not be relied or acted upon by any other persons. Any recipient of this material who is an authorised person may (if and to the extent it is permitted to do so by the FSA rules applicable to it) distribute it or otherwise promote the Fund in accordance with Section 238 of the Act but not otherwise. Any recipient of this material who is not an authorised person may not distribute it to any other person. Reliance on this material for the purpose of engaging in any investment activity without professional advice may expose an investor to significant risk of losing the amount invested. This note does not provide or offer financial or other advice and should not relied on as such. Potential investors in the Fund should always seek their own independent advice. It is expressly agreed that while all reasonable efforts have been made to ensure this document is accurate and up to date, no representations or warranties are given as to the reliability, accuracy or completeness of information. Any opinions expressed are judgments at the time of writing and are subject to change without notice. No liability is accepted for any damage or loss, including loss of profit whether direct, indirect or consequential, in respect of the use of this material. Investors are reminded that the value of investments may go down as well as up and may be affected by changes in rates of exchange. Reference should be made to the prospectus for full details. Past performance is not necessarily a guide to future performance. Investments in the Fund do not provide capital guarantees like a deposit account and are not readily accessible. The rules on taxation can change and/or the tax treatment of the Fund could be challenged. Any person who is in any doubt about investing in the Fund should consult an authorised person specialising in such investments. 13 www.eeafm.com EEA Fund Management (Guernsey) Limited
Diversify Your Portfolio with An Absolute Return, Historically Uncorrelated Investment Solution: The EEA Life Settlements Fund. Your attention is drawn to the regulatory notice on page 13
Manager: EEA Fund Management (Guernsey) Limited PO Box 282, Regency Court Glategny Esplanade St Peter Port, Guernsey GY1 1WW Tel: + 44 (0) 1481 740900 Fax: + 44 (0) 1481 716868 EEA Fund Management (Guernsey) Ltd is licensed by the Guernsey Financial Services Commission to carry on the restricted activities of promotion, subscription, dealing, management and administration in connection with Category 1 Collective Investment Schemes and Category 2 General Securities and Derivatives under The Protection of Investors (Bailiwick of Guernsey) Law,1987 as amended. Telephone calls may be recorded. Registered in Guernsey Number 43289. Marketing Agent: EEA Fund Management Limited 7th Floor, 22 Billiter Street London EC3M 2RY Tel: +44 (0) 20 7553 2350 Fax: +44 (0) 20 7553 2351 EEA Fund Management Limited is authorised and regulated by the Financial Services Authority in the UK with registration number 438417. Printed March 2010. www.eeafm.com