Phone
Fax +41 44 444 37 21 +41 44 444 37 84 BDO Ltd Fabrikstrasse 50 CH-8031 Zurich www.bdo.ch
BDO Ltd, with its statutory seat in Zurich, is the legally independent Swiss member firm of the international BDO network.
To the Directors of
Trust House 112 Bonadie Street Kingstown
St. Vincent & the Grenadines
Life Settlements Fund Limited
Report of the auditors
on the Year End Report for the year 2013
(covering the period from 01.01.2013 to 31.12.2013)
11 September 2014
Phone
Fax +41 44 444 37 21 +41 44 444 37 84 BDO Ltd Fabrikstrasse 50 CH-8031 Zurich www.bdo.ch
BDO Ltd, with its statutory seat in Zurich, is the legally independent Swiss member firm of the international BDO network.
Report of the auditors
to the Directors of
Life Settlements Fund Limited, St. Vincent & the Grenadines
We have examined the accounting records and the Year End Report of Life Settlements Fund Limited for the year ended 31 December 2013.
This Year End Report is the responsibility of the Directors. Our responsibility is to express an opinion on the Year End Report based on our audit. We confirm that we meet the legal requirements concerning professional qualification and independence.
Our audit was conducted in accordance with auditing standards promulgated by the profession, accord-ing to which the audit must be planned and performed to obtain reasonable assurance about whether the Year End Report is free from material misstatement. We have examined on a test basis evidence supporting the amounts and disclosures in the Year End Report. We have also assessed the accounting principles used, significant estimates made and the overall Year End Report presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion,
the statements of assets, the profit and loss statement, the calculation of the net asset value and the schedules of investments give a true and fair view of the profit and loss for the period covered by the accounts and of the state of affairs of the company at the end of that period, and comply with the prospectus;
the information concerning issue, redemption and closing inventory of the units and the compila-tion of the purchases and sales are complete and correct;
the information on the mandatories of the investment company as well as information on matters of particular economic or legal importance are included in the Year End Report.
Without qualifying our audit opinion we draw your attention to the description of "Market in Retrospect" and "Market Outlook" disclosed in the Year End Report, in which the policies are valued with a discount rate of 30% due to illiquidity and unfavourable market conditions. Because of the inherent uncertainty associated with the policies, the carrying values of the policies may differ from their realizable values and the difference could be material.
Furthermore, we draw your attention to the description of "Market in Retrospect" and "Market Outlook" disclosed in the Year End Report, in which the Directors are disclosing the liquidity matters of the Fund. Zurich, 11 September 2014
BDO Ltd
Markus Eugster Franco A. Straub Auditor in Charge
Enclosure
Life Settlements Fund Limited
Year End Report per 31.12.2013
Registered Office: P.O. Box 1674
Regal Building, 2nd Floor Middle Street
Kingstown
Saint Vincent & the Grenadines {+1 (784} 457-2210 tel
Life Settlements Fund Limited
Year End Report per 31.12.2013
The Fund’s principal investment objectives are:
• to invest in Senior Life Settlements with a projected life expectancy of the insured of between four and seven years;
• by investing in Senior Life Settlements, provide Investors with rates of return that are attractive in today’s general investment marketplace; • to target Senior Life Settlements providing cumulative, annualised
rates of return of 12% (simple yield) or more over four to seven years; • to reduce risk and portfolio volatility;
• to diversify investment risk by pooling life insurance policies; and • provide an alternative investment with no correlation to the stock
and/or bond markets.
Investment Objective
Life Settlements Fund Limited
Year End Report per 31.12.2013
Fund Data Registered Agent: G. Grahame Bollers
Custodian Bank: Valartis Bank (Liechtenstein) AG, Bendern Asset Manager: Regent Asset Management Limited Administrator: Regent Fund Management Limited Transfer Agent: Regent Fund Management Limited
Auditor: BDO AG
Initial Subscription: 16.08.2005 Initial Offering Price: 100
Net Asset Value: USD 3.92 Mio.
ISIN Number: BSP6341F1044
Price calculation frequency: Quarterly
Fund currency: USD
Profit distribution: Reinvested Subscription fee: up to 5.00% Redemption Fee:
Custodian Fee: Min. USD 3’000.-Management Fee: 1.50% p.a.
Administration Fee: 0.25% p.a. (Min. USD 30’000.-) Financial Year End: 31 December
Sales Restrictions: USA
Fund Jurisdiction: Saint Vincent & the Grenadines Legal Entity: International Business Company
Hurdle Rate: 12.00%
High Watermark: Continuous
Performance Fee: 50.00%
Advisor: Life Partners, Inc.
Report Based on: NAV-Calculation per 31.12.2013 0.00%
Life Settlements Fund Limited
Year End Report per 31.12.2013
The above shown performance is no guarantee of future perfomance of the fund.The value of a share can fluctuate up or down. The performance data do not include any subscription or redemption fees.
10 20 30 40 50 60 70 80 90 100110 120 130 140 150
Life Settlements Fund Limited
16 August 2005 – 31 December 2013
Evolution of key data
Net Asset Value in USD
10'995'000 2'844'541 2'959'084 3'917'805
Net Asset Value per Share in USD
123.0900 31.8400 33.1300 43.8600 89'325 89'325 89'325 89'325 Number of shares 31.12.2010 30.12.2011 31.12.2012 31.12.2013 per % Diff. -74.13% 4.05% 32.39%
3/17
Life Settlements Fund Limited
Year End Report per 31.12.2013
POLICY PORTFOLIO 31st DECEMBER 2013
As per the 31st December 2013 the fund’s portfolio holds 30 policies, which represent a cumulative Face Value of USD 10.5 million. The calculated cumulative value of the policies amounts to USD 3.3 million. Using a discount rate of 30% p.a., 3 out of the 30 policies have a calculated value of zero. Consequently, these 3 policies have an internal rate of return of less than 30% p.a. to their estimated maturities.
The average life expectancy (LE) per policy is 3.8 years and the average LE weighted by face value is 3.9 years.
The average age for the insured persons on which the fund holds policies is 87.
Based on the LE reports, it is estimated that 40.0% of the total face value should be realized through policy maturities through 2016 and a further 34.1% through 2018. The remainder, about 25.9% of the total face value, should be realized between 2019 and 2021.
One policy with a face value of USD 100’000 was estimated to mature in May 2014. As a matter of policy we decided to extend the estimated life expectancies arbitrarily by 2 years for policies with estimated maturities of less then half a year calculated from a current NAV valuation date. We deem it very unlikely that a policy matures within half a year because the estimations of life expectancies are rather imprecise in relation to one given person. The likelihood that such a policy will mature within 2 years is very much higher though. The arbitrary extension only has an effect on the book value of a given policy and on the estimated cash-flows as an expected maturity revenue will be pushed 2 years farther into the future. This means also more expected premium payments a long the way.
NET ASSET VALUE 31st DECEMBER 2013
The calculated Net Asset Value (NAV) as per 31st December 2013 is USD 43.86 per fund share. Compared with the NAV published by the end of 2012 (USD 33.13 per fund share) the calculated value per fund share rose by 32.4%.
Market in Retrospect
MANAGEMENT’S APPROACH
The current portfolio of the fund is well diversified with an average face value of about USD 350’000 per policy. The age structure of the insured persons is rather high and thus it is only a matter of time till the majority of the policies mature. The calculated yield of about 8.4% p.a. from now to the estimated maturity of the last policy is still attractive.
Market Outlook
Life Settlements Fund Limited
Year End Report per 31.12.2013
The best solution would be in obtaining a financing facility of up to USD 350’000 in order to meet the funds obligation after December 2014 till about July 2015. Maybe the financing will only be needed partially or even not at all when further maturities occur along the way. Yet having such financing facilities in place would give some comfort.
We still view the only realistic chance of getting a credit line for the fund is actually from the existing investors. A creditor would get the entire policy portfolio pledged as a security.
The sale of the entire policy portfolio is not really an option given the overall adverse market conditions, the expected longer new LE estimates, which would reduce the book/sale value of the policies and the reservation of a lot of market participants against policies originated by LPI.
Taking all facts and considerations into account, and primarily the best interest of the fund investors, the manager suggested to the board of directors to extend the fund’s life by a further year and reconsider the situation again next year.
The manager would continue providing in-depth analysis to the directors on which to base their future decisions.
Further, we suggest that in the case of an extension, followed by substantial early policy maturities, the fund would distribute the supplemental cash to the investors by proportional partial redemptions.
Subject to a credit line not being obtained, as things currently stand we will have to start putting some policies for sale in October of this year in order to generate enough cash for settling the funds future obligations through at least July 2015. Should any early maturity occur or a credit line be in place; no policies may need to be sold.
The completion of a policy sale will usually take about 3 to 4 months. DIRECTOR’S DECISION
In the section “Investment Considerations and Risk” the prospectus further states that a final distribution will be made to Investors at the end of the seventh year dependent on the number of policies that will have matured by that time and the state of the secondary market for policies at that time. The Directors may determine that it is in the best interests of Investors generally to maintain the Fund in existence and not make a final distribution until a later date.
Given the current situation in the fund and the extensive analysis provided by the manager the directors deemed it in the best interest of the investors to extend the fund’s life for one further year and will analyze and reconsider the situation again next year.
The board’s decision was made at its board meeting on the 4th of April 2014.
Life Settlements Fund Limited
Year End Report per 31.12.2013
% of Net Asset Value
Assets and Liabilities by Currency USD 100.00%
Investments by Sector Financial 84.92%
12.90% LP TLNLIC 7064823 (1000000) 12.69% LP ILIC IL00045850 (750000) 6.83% LP ILIC B05019723 (800000) 6.18% LP WPLIC NYU0111853 (500000) 5.53% LP WCLIC ZUA390999 (500000) 4.94% LP CILAC FK5029676 (500000) 4.76% LP NYLIAC 62848668 (500000) 4.15% LP TOLIC 92302242 (250000) 3.55% LP VFLIC ULCP000525 (425000) 3.38% LP VFLIC VMMT00307 (200000) 2.87% LP MLIC 7422240 (250000)
Ten Largest Investments
Assets and Liabilities by
Category Securities and Value Rights 84.92%
Fund Structure
15.99% Bank Deposits Miscellaneous Assets 0.13% Liabilities -1.04%6/17
Life Settlements Fund Limited
Year End Report per 31.12.2013
Current Accounts 626'629
Time Deposits 0
Total Accounts 626'629
Commercial Paper 0
Equities and Bonds 0
Other Securities and Value Rights 0
Miscellaneous Rights on Par with Securities 3'327'013
Derivative Instruments 0
Miscellaneous Assets 5'000
Total Assets 3'958'642
Current Account Liabilities 0
Liabilities -40'837
Net Assets 3'917'805
USD
Number of Shares Outstanding 89'325
Net Asset Value per Share 43.86
Statement of Assets
Commodities (including Precious Metals) 0
Life Settlements Fund Limited
Year End Report per 31.12.2013
USD
Profit and Loss Statement
Income from miscellaneous rights on
par with securities 0
Income from derivative instruments 0
Miscellaneous income 0
Adjustment of current income due to
issue of shares 0 Total income 0 Interest expenses 0 Auditing fees -5'244 Management fees -163'800 Custodian fees 0 Miscellaneous expenses -45'938
Adjustment of current income due to
redemption of shares 0
Net income -214'982
Realised capital gains and losses 289'321
Realised earnings 74'339
Income from current accounts 0
Income from commercial paper 0
Unrealised capital gains and losses 884'381
0 Income from bonds, convertible
bonds and warrant bonds
0 Income from equities and other
participation rights including income from bonus shares
0 Income from securities
0 Income from other securities and
value rights
0 Income from other investment funds
Total earnings 958'720
01.01.2013 to 31.12.2013
Life Settlements Fund Limited
Year End Report per 31.12.2013
USD
Distribution of Earnings Net income of current fiscal year -214'982 Current year capital gains deemed for distribution 0 Previous year’s capital gains deemed for distribution 0 Profit and loss carried forward from previous years 0
Earnings allocated for distribution to investors 0
Earnings allocated for reinvestment -214'982
Earnings available for distribution -214'982
Retained earnings 0
Net asset value at beginning of period 2'959'085
Earnings distributions 0
Balance of subscriptions less redemptions 0
Total earnings 958'720
3'917'805 Net asset value at end of period
Change in Net Asset Value from 01.01.2013 to 31.12.2013
Number of shares outstanding from 01.01.2013 to 31.12.2013
Number of shares at beginning of period 89'325
Number of shares issued 0
Number of shares redeemed 0
Number of shares at end of period 89'325
Life Settlements Fund Limited
Year End Report per 31.12.2013
USD
Securities Lending Income from securities lending 0 Adjustments of income from securities lending due to
issue of new shares 0
Adjustments of income from securities lending due to
redemption of shares 0
Value of loaned securities 0
Income from securities lending adjusted for share
movements 0
Total Expense Ratio (TER) with Performance Fee Total Expense Ratio (TER) without Performance Fee
Miscellaneous figures 5.63%
5.63%
0.00 Portfolio Turnover Ratio (PTR)
Asset Manager(s) The asset manager(s) of this fund is/are: Regent Asset Management Limited
Custodian(s) The fund has its cash deposits and securities with the following custodian(s): Valartis Bank (Liechtenstein) AG, Bendern
The Alder Trust
Life Settlements Fund Limited
Year End Report per 31.12.2013
Detailed Statement of Assets
Non-Publicly Traded Securities and Value Rights
Value in USD Sell Buy Opening Balance Price Pro-portion Closing Balance Warrants and Other Rights
USD USD LP BLIC 17B560311 (400000) 1 0 0 1 73'082.07 73'082 1.87% LP CGLIC 5055084 (100653) 1 0 0 1 39'772.19 39'772 1.02% LP CILAC FK5029676 (500000) 1 0 0 1 193'532.10 193'532 4.94% LP CILAC FK5114458 (250000) 1 0 0 1 41'872.23 41'872 1.07% LP ILIC B05018889 (350000) 1 0 0 1 32'584.68 32'585 0.83% LP ILIC B05019723 (800000) 1 0 0 1 267'639.95 267'640 6.83% LP ILIC IL00045850 (750000) 1 0 0 1 497'295.56 497'296 12.69% LP JNLIC 3100001134 (100000) 1 0 0 1 32'742.07 32'742 0.83% LP JPFIC JF5224787 (250000) 1 0 0 1 84'895.37 84'895 2.17% LP MLIC 7422240 (250000) 1 0 0 1 112'322.60 112'323 2.87% LP MLIC 7462102 (650000) 1 0 0 1 0.00 0 0.00% LP MMLIC 15506925 (300000) 1 0 0 1 27'646.31 27'646 0.70% LP MMLIC 6225151 (250000) 1 0 0 1 0.00 0 0.00% LP NACLHI LO12308260 (300000) 1 0 0 1 0.00 0 0.00% LP NLAIC N101485450 (500000) 1 0 0 1 7'879.19 7'879 0.20% LP NYLIAC 62848668 (500000) 1 0 0 1 186'354.97 186'355 4.76% LP NYLIAC 62848670 (100000) 1 0 0 1 36'195.08 36'195 0.92% LP NYLIAC 62850102 (100000) 1 0 0 1 40'224.42 40'224 1.03% LP SLDI 1511974 (450000) 1 0 0 1 26'914.56 26'915 0.69% LP SLDI 989393 (50000) 1 0 0 1 1'963.19 1'963 0.05% LP TCLAC Y145026 (120000) 1 0 0 1 67'873.82 67'874 1.73% LP TCLAC Y157917 (100000) 1 0 0 1 48'560.44 48'561 1.24% LP TLNLIC 7064823 (1000000) 1 0 0 1 505'276.34 505'276 12.90%
11/17
Life Settlements Fund Limited
Year End Report per 31.12.2013
LP TOLIC 92302242 (250000) 1 0 0 1 162'746.37 162'746 4.15% LP TOLIC 92430980 (250000) 1 0 0 1 964.95 965 0.02% LP VFLIC ULCP000525 (425000) 1 0 0 1 138'888.29 138'888 3.55% LP VFLIC VMMT00307 (200000) 1 0 0 1 132'612.15 132'612 3.38% LP WCLIC ZUA390999 (500000) 1 0 0 1 216'769.59 216'770 5.53% LP WCLIC ZUA391587 (250000) 1 0 0 1 108'401.40 108'402 2.77% LP WPLIC NYU0111853 (500000) 1 0 0 1 242'002.99 242'003 6.18% Total USD 3'327'013 84.92%
Total Warrants and Other Rights 3'327'013 84.92%
Total Securities and Value Rights 3'327'013 84.92%
Total Non-Publicly Traded 3'327'013 84.92%
3'327'013 84.92% Portfolio
Life Settlements Fund Limited
Year End Report per 31.12.2013
Value in USD Bank Deposits Pro-portion Portfolio 3'327'013 84.92% 472'797 153'832 472'797 153'832 USD USD JPMC Acanthus
Valartis Bank (Liechtenstein) AG
Miscellaneous Assets 5'000 0.13%
Total Assets 3'958'642 101.04%
Liabilities -40'837 -1.04%
Net Asset Value 3'917'805 100.00%
Number of Shares Outstanding 89'325
43.86 Net Asset Value per Share
Accrued interest rates from securities 0 0.00%
12.07% 3.92%
Total Portfolio 3'327'013 84.92%
Life Settlements Fund Limited
Year End Report per 31.12.2013
Registered Agent G. Grahame Bollers
P.O. Box 1674
Regal Building, 2nd Floor Middle Street
Kingstown
Saint Vincent & the Grenadines
Custodian Bank Valartis Bank (Liechtenstein) AG
Schaaner Strasse 27 9487 Gamprin-Bendern Liechtenstein
Administrator Regent Fund Management Limited
Trust House 112 Bonadie St. POB 613 Kingstown
Saint Vincent & the Grenadines
Auditor BDO AG
Fabrikstrasse 50 8031 Zürich Switzerland
Asset Manager Regent Asset Management Limited
Trust House 112 Bonadie St. POB 613 Kingstown
Saint Vincent & the Grenadines
Life Settlements Fund Limited
Year End Report per 31.12.2013
Income Income from interest earnings 0.00
Adjustment of current interest earnings due to issue of shares 0.00
Adjustment of current interest earnings due to redemption of shares 0.00
Interest expenses 0.00
Adjustment of current interest expenses due to issue of shares 0.00
Adjustment of current interest expenses due to redemption of shares 0.00
Interest income adjusted for share movements 0.00
Income from equities and participation rights 0.00
Adjustment of current income from equities and participation rights due to issue of shares 0.00 Adjustment of current income from equities and participation rights due to redemption of shares 0.00
Dividend expenses equities short 0.00
Adjustment of current dividend expenses due to issue of shares 0.00
Adjustment of current dividend expenses due to redemption of shares 0.00
Income from equities and participation rights adjusted for share movements 0.00
Income from derivative instruments 0.00
Adjustment of current income from derivative instruments due to issue of shares 0.00 Adjustment of current income from derivative instruments due to redemption of shares 0.00
Income from derivative instruments adjusted for share movements 0.00
Income from securities lending 0.00
Adjustment of current income from securities lending due to issue of shares 0.00
Adjustment of current income from securities lending due to redemption of shares 0.00
Income from securities lending adjusted for share movements 0.00
Miscellaneous income 0.00
Adjustment of current miscellaneous income due to issue of shares 0.00
Adjustment of current miscellaneous income due to redemption of shares 0.00
Miscellaneous income adjusted for share movements 0.00
Auditing fees -5'243.60
Adjustment of current auditing fees due to issue of shares 0.00
Adjustment of current auditing fees due to redemption of shares 0.00
Auditing fees adjusted for share movements -5'243.60
Fixed management fees -163'800.00
Adjustment of current fixed management fees due to issue of shares 0.00
Adjustment of current fixed management fees due to redemption of shares 0.00
Fixed management fees adjusted for share movements -163'800.00
Fixed custodian/broker fees 0.00
Adjustment of current fixed custodian/broker fees due to issue of shares 0.00
Adjustment of current fixed custodian/broker fees due to redemption of shares 0.00
Fixed custodian/broker fees adjusted for share movements 0.00
Performance fees 0.00
Adjustment of current performance fees due to issue of shares 0.00
Adjustment of current performance fees due to redemption of shares 0.00
Performance fees adjusted for share movements 0.00
Miscellaneous expenses -44'245.10
Adjustment of current miscellaneous expenses due to issue of shares 0.00
Adjustment of current miscellaneous expenses due to redemption of shares 0.00
Miscellaneous expenses adjusted for share movements -44'245.10
Withholding tax expenses -1'693.15
Adjustment of current withholding tax expenses due to issue of shares 0.00
Adjustment of current withholding tax expenses due to redemption of shares 0.00
Withholding tax expenses adjusted for share movements -1'693.15
Securities borrowing expenses 0.00
Adjustment of current securities borrowing expenses due to issue of shares 0.00
Adjustment of current securities borrowing expenses due to redemption of shares 0.00
Securities borrowing expenses adjusted for share movements 0.00
Expenses and Fees
Appendix: Detailed Profit and Loss Statement
USD
Life Settlements Fund Limited
Year End Report per 31.12.2013
Realized capital gains and losses on securities and value rights 289'320.52
Adjustment of current realized capital gains and losses on securities and value rights due to
issue of shares 0.00
Adjustment of current realized capital gains and losses on securities and value rights due to
redemption of shares 0.00
Realized capital gains and losses on securities and value rights adjusted for share
movements 289'320.52
Realised Capital Gains and Losses
USD
Realized capital gains and losses on commodities (including precious metals) 0.00
Adjustment of current realized capital gains and losses on commodities (including precious
metals) due to issue of shares 0.00
Adjustment of current realized capital gains and losses on commodities (including precious
metals) due to redemption of shares 0.00
Realized capital gains and losses on commodities (including precious metals) adjusted
for share movements 0.00
Unrealized capital gains and losses on securities and value rights adjusted for share movements
Realized capital gains and losses on derivative instruments 0.00
Adjustment of current realized capital gains and losses on derivative instruments due to issue of
shares 0.00
Adjustment of current realized capital gains and losses on derivative instruments due to
redemption of shares 0.00
Realized capital gains and losses on derivative instruments adjusted for share movements 0.00
Unrealized capital gains and losses on securities and value rights 884'511.83
Adjustment of current unrealized capital gains and losses on securities and value rights due to
issue of shares 0.00
Adjustment of current unrealized capital gains and losses on securities and value rights due to
redemption of shares 0.00
884'511.83
Realized capital gains and losses on currencies 0.00
Adjustment of current realized capital gains and losses on currencies due to issue of shares 0.00 Adjustment of current realized capital gains and losses on currencies due to redemption of shares 0.00
Realized capital gains and losses on currencies adjusted for share movements 0.00
Unrealized capital gains and losses on derivative instruments adjusted for share movements
Unrealized capital gains and losses on derivative instruments 0.00
Adjustment of current unrealized capital gains and losses on derivative instruments due to issue of
shares 0.00
Adjustment of current unrealized capital gains and losses on derivative instruments due to
redemption of shares 0.00
0.00
Unrealized capital gains and losses on currencies -130.14
Adjustment of current unrealized capital gains and losses on currencies due to issue of shares 0.00 Adjustment of current unrealized capital gains and losses on currencies due to redemption of shares 0.00 Unrealized capital gains and losses on currencies adjusted for share movements -130.14
Unrealised Capital Gains and Losses
Unrealized capital gains and losses on commodities (including precious metals) 0.00 Adjustment of current unrealized capital gains and losses on commodities (including precious
metals) due to issue of shares 0.00
Adjustment of current unrealized capital gains and losses on commodities (including precious
metals) due to redemption of shares 0.00
Unrealized capital gains and losses on commodities (including precious metals) adjusted
for share movements 0.00
Life Settlements Fund Limited
Year End Report per 31.12.2013
Total earnings adjusted for share movements 958'720.36
Total income 0.00
Adjustment of current total income due to issue of shares 0.00
Adjustment of current total income due to redemption of shares 0.00
Total income adjusted for share movements 0.00
Total unrealized capital gains and losses 884'381.69
Adjustment of current total unrealized capital gains and losses due to issue of shares 0.00 Adjustment of current total unrealized capital gains and losses due to redemption of shares 0.00
Total unrealized capital gains and losses adjusted for share movements 884'381.69
Total realized capital gains and losses 289'320.52
Adjustment of current total realized capital gains and losses due to issue of shares 0.00 Adjustment of current total realized capital gains and losses due to redemption of shares 0.00
Total realized capital gains and losses adjusted for share movements 289'320.52
Total expenses and fees -214'981.85
Adjustment of current total expenses and fees due to issue of shares 0.00
Adjustment of current total expenses and fees due to redemption of shares 0.00
Total expenses and fees adjusted for share movements -214'981.85
Totals
