CONSOLIDATED FINANCIAL STATEMENTS OF ASSURED FUND AND ITS SUBSIDIARIES 31 DECEMBER 2013

Transcription

1 CONSOLIDATED FINANCIAL STATEMENTS OF AND ITS SUBSIDIARIES 31 DECEMBER 2013

2 CONTENTS Financial Statements Fund Information 1-2 Chairman's Statement 3 Directors' Report 4 6 Statement of Directors' Responsibilities 7 Independent Auditors' Report to the Directors 8-9 Consolidated Statement of Financial Position Consolidated Statement of Comprehensive Income 12 Consolidated Statement of Changes in Net Assets Attributable to Holders of Redeemable Participating Shares 13 Consolidated Statement of Cash Flows Page

3 Fund Information For the Year Ended Directors REGISTERED OFFICE INVESTMENT MANAGER Michael Simmons Mark Hindle Alan Morgan-Moodie Richard Brindley (resigned 7 December 2012) SH Corporate Services Ltd. P.O. Box 61 4th Floor Harbour Centre George Town Grand Cayman, KY Cayman Islands. Policy Selection Limited P.O. Box 61 4th Floor Harbour Centre George Town Grand Cayman, KY Cayman Islands. ADMINISTRATOR AND REGISTRAR Blue Sea International (resigned 25 January 2013) North Quay Douglas Isle of Man, IM1 4LB British Isles. Maples Fund Services (Cayman) Limited (appointed 31 March 2013) P.O. Box 1093 Boundary Hall Cricket Square Grand Cayman, KY Cayman Islands. LEGAL ADVISORS (as to Cayman Islands law) CUSTODIAN AND PRINCIPAL BANKERS INDENTURE TRUSTEE, CUSTODIAN AND BANKERS Solomon Harris P.O. Box 1990 First Caribbean House George Town Grand Cayman, KY Cayman Islands. Kleinwort Benson Trustees (Isle of Man) Limited P.O. Box 203 St George Court Upper Church Street Douglas Isle of Man, IM99 1RB British Isles. Wilmington Trust FSB (until 30 December 2013) Wilmington Family Office 520 Madison Avenue, 33rd Floor New York, NY USA.

4 Fund Information (continued) For the Year Ended AUDITORS PricewaterhouseCoopers (resigned 19 April 2013) P.O. Box 258 Strathvale House George Town Grand Cayman, KY Cayman Islands. KPMG (appointed 27 June 2013) P.O. Box 493 Century Yard, Cricket Square Grand Cayman, KY Cayman Islands. ACTUARIAL REVIEWERS Deloitte & Touche GmbH (resigned 30 April 2013) General Guisan-Quai Zurich Switzerland Deloitte Tax & Consulting S.à r.l.(appointed 30 April 2013) 560, rue de Neudorf, L-2220 Luxembourg, Grand Duchy of Luxembourg

5 Chairman's Statement Dear Shareholders, Assured Fund has implemented the planned restructure that is designed to improve liquidity prospects for the Group. The restructuring involved the Group selling the portfolio to Settlements S.A. and subscribing, via wholly owned subsidiaries, for convertible zero coupon bonds (the Bonds ) issued by Settlements SA. The Group will also subscribe for the equity of Settlements SA (the Equity ). It is intended that the Bonds and the Equity will be listed in Belgium and will be traded publicly. The Bonds and Equity will reflect in full the return of the portfolio and, accordingly, Assured Fund s shareholders will continue to participate in the portfolio s performance. Settlements S.A. will have certain operational expenses, such as the audit, custodial and administration charges, but the Directors believe these will be more than offset by the reduction in withholding tax liability (with the Life Offices potentially having the capability of withholding as much as $200m in taxes on Assured Fund s current portfolio). The shareholders should notice little difference and should not be inconvenienced by the restructuring. The Directors wish to emphasize that there is no change in the Group s investment strategy with the Net Asset Value per share continuing to mirror the performance of the underlying portfolio of policies. The life settlement market continues to show signs of growth, with a lot of interest in developing products around the asset class. The number of transactions in senior life settlements is increasing which is indicative of a strengthening market. But, given the nature of the asset, liquidity is still the consistent concern for investors with a short term investment perspective. However, long term prospects continue to be attractive. The Manager continues to investigate alternative ways to improve the attractiveness of the portfolio to meet realisations. Assured Fund remains gated and the Board continues to strive to improve liquidity within the Group.

6 Directors' Report For the year ended The Directors present their report and the audited consolidated financial statements for the year ended. Principal activities Assured Fund (the Fund ) was incorporated as an exempted limited liability company under the provisions of the Companies Law (as amended) of the Cayman Islands on 10 October 2003 and registered as an open ended fund under the Mutual Funds Law of Cayman Islands on 14 October The Fund commenced activities in February Although the Fund operates as an Overseas Scheme in accordance with the terms of the Isle of Man Financial Supervision Act 1988, the Fund is not subject to approval by the Isle of Man Financial Supervision Commission, neither has it the benefit of any compensation arrangement available. The redeemable Participating Shares of the Fund are listed on Cayman Stock Exchange (CSX).The registered office of the Fund is SH Corporate Services Ltd., 4th Floor Harbour Centre, George Town, Grand Cayman, KY1-1102, Cayman Islands. As at, the Fund owns 100% of the Shares in the following subsidiaries: Assured Holdings Ltd. ( Cayman SPV ), a Cayman Islands exempted limited liability company Ambernile Limited. ( Holding SPV1 ), a limited liability company incorporated under the laws of Isle of Man and with its registered office at PO Box 203, St Georges Court, Upper Church Street, IM1 1EE Douglas, Isle of Man Billingdale Limited. ( Holding SPV2 ), a limited liability company incorporated under the laws of Isle of Man and with its registered office at PO Box 203, St Georges Court, Upper Church Street, IM1 1EE Douglas, Isle of Man Feilam Limited. ( Holding SPV3 ), a limited liability company incorporated under the laws of Isle of Man and with its registered office at PO Box 203, St Georges Court, Upper Church Street, IM1 1EE Douglas, Isle of Man Stopgate Limited. ( Holding SPV4 ), a limited liability company incorporated under the laws of Isle of Man and with its registered office at PO Box 203, St Georges Court, Upper Church Street, IM1 1EE Douglas, Isle of Man Gallian Limited. ( Holding SPV5 ), a limited liability company incorporated under the laws of Guernsey and with its registered office at Dorey Court, Admiral Park, St. Peter Port, Guernsey GY1 2HT Glindale Limited. ( Holding SPV6 ), a limited liability company incorporated under the laws of Guernsey and with its registered office at Dorey Court, Admiral Park, St. Peter Port, Guernsey GY1 2HT Gumtree Limited. ( Holding SPV7 ), a limited liability company incorporated under the laws of Guernsey and with its registered office at Dorey Court, Admiral Park, St. Peter Port, Guernsey GY1 2HT Jemima Limited. ( Holding SPV8 ), a limited liability company incorporated under the laws of Jersey and with its registered office at Kleinwort Benson House, Wests Centre, St Helier, Jersey JE4 8PQ Jyles Limited. ( Holding SPV9 ), a limited liability company incorporated under the laws of Jersey and with its registered office at Kleinwort Benson House, Wests Centre, St Helier, Jersey JE4 8PQ Jaico Limited. ( Holding SPV10 ), a limited liability company incorporated under the laws of Jersey and with its registered office at Kleinwort Benson House, Wests Centre, St Helier, Jersey JE4 8PQ These consolidated financial statements include the results and net assets of the Fund, Cayman SPV and the 10 ("Holding SPVs") (together the Group ). The shares of the Holding SPVs were acquired during the year ended and hence the consolidated financial statements at 31 December 2012 comprise of the results and net assets of the Fund and the Cayman SPV only. The Fund owned 99.99% of the share capital (10 shares in issue) and corresponding voting rights in Assured Fund S.A. ( Belgium SPV ) since the Belgium SPV s incorporation on 28 July The Belgium SPV is a limited liability company incorporated (société anonyme) under the laws of Belgium and registered at Place Flagey 18, 1050 Brussels, Belgium. On 11 April 2011, the Belgium SPV changed its name to Settlements S.A. On this same date, the Fund s holding in the Belgium SPV was diluted to % as a result of a private placement during which 260 additional shares were issued to qualified investors. On 9 June 2011 the Belgium SPV was listed on the NYSE Alternext in Brussels.

7 Directors' Report For the year ended Principal activities (continued) The investment objective of the Fund and subsidiaries, (the Group ), is to deliver consistent, long-term capital growth by obtaining either a direct or indirect exposure to a portfolio of life settlement policies issued by life assurance companies scoring at least an A rating with Standard & Poor s or an equivalent rating at the time of purchase. The Group will be primarily exposed, either directly or indirectly to policies issued by US life assurance companies. Until 29 December 2013, the Fund invested in the life policies through the Cayman SPV. On 30 December 2013, (the "restructuring date"), the Group restructured its operations with the intention of improving the liquidity, tax efficiency and returns to the Group and to secure a credit facility with a third party provider. The restructuring program involved creation of 10 wholly owned special purposes vehicles incorporated in various tax neutral jurisdictions. The Fund then transferred net assets which included the portfolio of life settlement policies and other related assets and liabilities valued at US$250,550,620 in accordance with the redemption value outlined in the offering memorandum to the Belgium SPV in exchange for an equivalent value in reverse convertible and callable zero coupon bonds issued by the Belgium SPV. The bonds are held by the 10 Holding SPVs for the ultimate benefit of the outstanding share classes issued by the Fund. The investment activities of the Group are managed by Policy Selection Limited (the Investment Manager ). Blue Sea International (the Administrator ) was responsible for the administration of the Group including financial and accounting services until the date of their resignation (25 January 2013) after which Maples Fund Services (Cayman) Limited were appointed. The Fund currently issues shares in the following classes: Class A US$; Class B US$; Class C US$; Class D US$; Class F US$; Class B GBP; Class C GBP; Class B Euro; Class D Euro; and Class E CHF. Results for the year and state of affairs at The consolidated statement of financial position as at and the consolidated statement of comprehensive income for the period then ended are set out on pages 9, 10 and 11, respectively. Review of important events since the year end Refer to note 17 to the consolidated financial statements for a review of important events subsequent to. The Group evaluated subsequent events through 31 July 2014 being the date on which the consolidated financial statements became available for issue. Dividends No dividend was declared or paid during the year. Directors The Directors at the date of this report are listed on page 1. All directors served throughout the year, and to date, unless otherwise indicated.

8 Directors' Report For the year ended Subject to the approval of the shareholders, directors fees have been charged at the rate per annum of US$33,112 in respect of Michael Simmons (2012: US$16,255) and Alan Morgan-Moodie US$41,390 (2012: US$24,382) with Mark Hindle receiving no fee (2012: same). Richard Brindley resigned on 7 December 2012 and hence no director fees were charged in the current period (2012: US$23,250). In addition the directors may recover their related expenses from the Group. The listing of the members of the board of directors is shown on page 2 of the annual report. Alan Morgan-Moodie owns shares in Class C GBP and shares in Class C US$ indirectly via a Self-Invested Personal Pension (SIPP). Mark Hindle is a director of both the Fund and the Investment Manager and owns shares in Class C GBP. Mark Hindle and Andrew Walters, the executive director and financial director respectively of the Investment Manager are also directors of the Belgium SPV On behalf of the Directors: MARK HINDLE Date: 31 July 2014 ALAN MORGAN-MOODIE Date: 31 July 2014

9 Statement of Directors' Responsibilities For the Year Ended The Directors are required to prepare consolidated financial statements for each financial year which present fairly the state of affairs of the Group and of the profit or loss of the Group for that period. In preparing those consolidated financial statements, the Directors are required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; state whether applicable International Financial Reporting Standards have been followed, subject to any material departures disclosed and explained in the consolidated financial statements; and prepare the consolidated financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business. The Directors are responsible for keeping proper books of account which disclose with reasonable accuracy at any time the financial position of the Group and to enable them to ensure that the consolidated financial statements are prepared in accordance with International Financial Reporting Standards and comply with the Memorandum and Articles of Association and with the laws of the Cayman Islands. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors confirm that they have complied with the above requirements. On behalf of the Directors: MARK HINDLE Date: 31 July 2014 ALAN MORGAN-MOODIE Date: 31 July 2014

10 ABCD KPMG PO Box 493 Telephone: Century Yard, Cricket Square Fax: Grand Cayman KY Internet: CAYMAN ISLANDS Independent Auditors Report to the Directors We have audited the accompanying consolidated financial statements of Assured Fund (the Fund ) and its subsidiaries ( the Group ), which comprise the consolidated statement of financial position, as at 31 December 2013, the consolidated statements of comprehensive income, changes in net assets attributable to holders of redeemable participating shares and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Basis for Qualified Opinion Up until 30 December 2013, the Group invested in life settlement policies issued exclusively in the United States. Proceeds received by the Group on the maturity of these life settlement policies are subject to withholding tax at the source in the amount of 30% on the gain realised by the Group on the investment as a result of the Group's domicile. In certain cases, the Group has received death benefits from the underlying insurance carriers without the withholding taxes having been withheld at the source. Management considers the possible future payment to be remote and hence, no provision has previously been made as outlined by International Accounting Standards 37 Provisions, Contingent Liabilities and Contingent Assets. (IAS 37"). At 31 December 2012, the total potential liability on receipts of this nature which have not been provided for by the Group in accordance with "IAS 37" and for which are subject to recourse either by underlying insurance carriers or the relevant taxing authority, amount to US$6,588,082. During the year, underlying insurance carriers sought recourse to withholding taxes in the amount of US$3,082,096 which was paid by the Group and recognised as an expense on payment thereof. The withholding tax expense recognised during the current year relates to prior period maturities and as a result is being recognised in the incorrect period. Management have decided to not make a retrospective adjustment in order to recognise the expense during the correct period and as a result, the opening balance of net assets attributable to holders of redeemable participating shares is materially misstated by US$3,082,096. KPMG, a Cayman Islands partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity.

11 ABCD Independent Auditors Report to the Directors (continued) At 30 December 2013, the restructuring date, the total potential liability on receipts of this nature which have not been provided for by the Group in accordance with "IAS 37" and for which are subject to recourse either by underlying insurance carriers or the relevant taxing authority, amount to US$10,112,651. This potential liability was novated to Settlements S.A. (the Belgium SPV ) as it is associated with the transfer of the life settlement policies portfolio. Subsequent to the restructuring date, maturities will no longer be subject to the withholding taxes due on maturity of life settlement policies transferred to the Belgium SPV. At 30 December 2013, the Belgium SPV has not provided for the potential liability and as a result, the Group s investment in the bonds, which has been valued at the net asset value of the Belgium SPV is potentially overstated by US$10,112,651. If the provision had been recorded by the Belgium SPV, the net assets attributable to holders of redeemable Participating Shares of the Group would have been reduced by US$10,112,651. Qualified Opinion In our opinion, except for the matter referred to in the Basis for Qualified Opinion paragraph, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as at, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. Emphasis of Matter Without qualifying our opinion, we draw attention to matters as set forth in note 13, which indicate the existence of a material uncertainty that may cast significant doubt about the Group s ability to continue as a going concern. We also draw your attention to note 4 and 9 of the consolidated financial statements. The Group invests in bonds classified as financial assets at fair value through profit or loss, which were valued at US$208,596,749 by the Group using a valuation technique that principally considers the net asset value (adjusted for the market internal rate of return) of the bond issuer being the Belgium SPV. The net asset value of the Belgium SPV is primarily a reflection of the value of the underlying portfolio of life settlement policies held at. The underlying portfolio of life settlement policies has been valued at using a discounted cash flow model in the absence of readily ascertainable market values. However because of the inherent uncertainty of model valuation and uncertainties associated with the significant model inputs, the estimated values may differ significantly from the values that would have been used had readily available market values existed or if another valuation methodology had been adopted, and the difference could be material. We further draw your attention to note 8 and 10(c) of the consolidated financial statements. As at, redemptions at net asset value have been suspended but redemptions are available to investors on a Net Realisable Value basis. These redemptions are funded by the return on the Group s investment in bonds issued by the Belgium SPV. The bond returns are based in part on the sale of life settlement policies by the Belgium SPV in the secondary market. However, due to the illiquid nature of the underlying life settlement policies portfolio, the option to dispose of life settlement policies to meet redemption requests may not be exercised. At, redemption requests on a Net Realisable Value basis pending approval by the Board of Directors across the various classes amount to US$78,637, July 2014.

12 Consolidated Statement of Financial Position Note Assets Cash and cash equivalents 3 9,690,200 5,670,979 Restricted cash 3-28,981,008 Accounts receivable on maturity of life settlement policies 2-14,500,000 Prepayments 29,940 - Other receivables 1,868, ,000 Financial assets at fair value through profit or loss 1,4 208,596,749 - Investment in life settlement policies 5,9-237,088,759 Total assets 220,185, ,340,746 Financial liabilities Loan notes payable 6-43,665,959 Policy loans payable 7-4,295,000 Policy and loan note interest payable 6,7-17,786,678 Management fee payable 276, ,808 Accounts payable and other accruals 553, ,048 Total liabilities (excluding net assets attributable to holders of redeemable Participating Shares) 829,720 66,760,493 Net assets attributable to holders of redeemable Participating Shares 219,356, ,580,253 Represented by: Net assets attributable to holders of redeemable Participating Shares (valued at last redemption valuation) 219,356, ,200,632 Adjustment to account for difference between market price and last redemption valuation - (59,620,379) Net assets attributable to holders of redeemable Participating Shares 219,356, ,580,253 See accompanying notes which form an integral part of the financial statements. 10

13 Consolidated Statement of Financial Position (continued) Note Net Asset Value per redeemable Participating Share (2012 valued at last redemption valuation and reflected in United States dollars): Class A US$ (Based on 717,119 (2012: 722,667) shares outstanding) 8 $ $ Class B US$ (Based on 619,781 (2012: 618,436) shares outstanding) 8 $ $ Class B Euro (Based on 13,581 (2012: 12,730) shares outstanding) 8 $ $ Class B GBP (Based on 218,219 (2012: 218,752) shares outstanding) 8 $ $ Class C US$ (Based on 42,833 (2012: 42,918) shares outstanding) 8 $ $ Class C GBP (Based on 242,152 (2012: 244,208) shares outstanding) 8 $ $ Class D US$ (Based on 164,382 (2012: 166,956) shares outstanding) 8 $ $ Class D Euro (Based on 136,117 (2012: 137,154) shares outstanding) 8 $ $ Class F US$ (Based on 3,002 (2012: 3,004) shares outstanding) 8 $ $ Class E CHF (Based on 255,770 (2012: 256,225) shares outstanding) 8 $ $ Approved on behalf of Board of Directors on 31 July MARK HINDLE Date: 31 July 2014 ALAN MORGAN-MOODIE Date: 31 July 2014 See accompanying notes which form an integral part of the financial statements. 11

14 Consolidated Statement of Comprehensive Income For the year ended Note Investment income Interest income 326,907 2,413 Dividend income 2,604 - Net realised gain on restructuring of investment in life settlement policies 2 59,994,862 11,312,603 Net change in unrealised gain on investment in life settlement policies 2-35,404,051 Net change in unrealised loss on financial assets at fair value through profit or loss (41,953,870) - Net foreign exchange gain/(losses) 75,827 (52,710) Net investment income 18,446,330 46,666,357 Expenses Loan and policy note interest 6,7 9,436,936 9,015,988 Investment advisory and management fees 11 3,391,384 3,466,045 Legal and professional fees 1,085,805 1,557,465 Other expenses 81,151 1,006,234 Administration expenses , ,048 Custodian and escrow fees , ,266 Audit fees 145, ,000 Directors' fees and expenses 11 74,502 68,097 Bank charges 33,432 58,234 Commission 70,456 7,636 Total expenses 15,114,112 16,059,013 Increase in net assets attributable to holders of redeemable Participating Shares before tax 3,332,218 30,607,344 Withholding tax expense 15 (3,082,096) - Net increase for the year before adjustment for difference between market value and last redemption value 250,122 30,607,344 Net change in adjustment to account for difference between market price and last redemption valuation - (22,461,046) Net increase in net assets attributable to holders of redeemable Participating Shares 250,122 8,146,298 See accompanying notes which form an integral part of the financial statements. 12

15 Consolidated Statement of Changes in Net Assets Attributable to Holders of Redeemable Participating Shares For the year ended Net assets attributable to holders of redeemable Participating Shares at beginning of year 219,580, ,947,121 Net increase in net assets attributable to holders of redeemable Participating Shares 250,122 8,146,298 Net change in adjustment to account for difference between market price and last redemption valuation - 22,461,046 Capital transactions: Redemptions of redeemable Participating Shares (474,263) (5,974,212) Gross transfers in between various share classes 19,503,943 16,945,078 Gross transfers out from various share classes (19,503,943) (16,945,078) Net assets attributable to holders of redeemable Participating Shares at end of year 219,356, ,580,253 Represented by: Net assets attributable to holders of redeemable Participating Shares (valued at last redemption valuation) 219,356, ,200,632 Adjustment to account for difference between market price and last redemption valuation - (59,620,379) See accompanying notes which form an integral part of the financial statements. 13

16 Consolidated Statement of Cash Flows For the year ended Cash flows from operating activities: Net increase in net assets attributable to holders of redeemable Participating Shares resulting from operations 250,122 8,146,298 Net change in adjustment to account for difference between market price and last redemption valuation - 22,461,046 Net realised gain on restructuring of investment in life settlement policies (59,994,862) (11,312,603) Net change in unrealised gain on investment in life settlement policies - (35,404,051) Net change in unrealized loss on financial assets at fair value through profit or loss 41,953,870 - Net changes in non-cash operating balances: (Increase)/decrease in other receivables and prepayments (1,798,883) 171,752 Decrease/(increase) in amounts receivable from maturity of life settlements 14,500,000 (14,500,000) (Decrease)/increase in policy and loan note interest payable (17,786,678) 8,286,382 Decrease in management fee payable (14,653) (172,065) Decrease in accounts payable and other accruals (168,483) (252,169) (Decrease)/increase in premium liability - (13,185,778) Proceeds from restructuring sales and maturity of investments in life settlement policies 297,083,621 51,615,115 Payments for purchase of bonds (250,550,619) - Net cash flows from operating activities 23,473,435 15,853,927 Cash flows from financing activities: Capitalised interest paid on loan notes - 729,605 Novation of loan notes payable to Belgium SPV (43,665,959) - Novation of policy notes to Belgium SPV (4,295,000) - Gross transfers in between various share classes 19,503,943 16,945,078 Gross transfers out from various share classes (19,503,943) (16,945,078) Redemptions of redeemable Participating Shares (474,263) (5,974,212) Increase in restricted cash - (20,192,424) Transfer of restricted cash to Belgium SPV (net) 28,981,008 - Repayment of loan notes payable - (6,000,000) Proceeds from issuance of loan notes - 15,000,000 Net cash flows used in financing activities (19,454,214) (16,437,031) Net cash increase/(decrease) in cash and cash equivalents 4,019,221 (583,104) Cash and cash equivalents at beginning of year 5,670,979 6,254,083 Cash and cash equivalents at end of year 9,690,200 5,670,979 Supplementary information on cash flows from operating activities Interest received 401,707 2,413 See accompanying notes which form an integral part of the financial statements. 14

17 1. Incorporation and background information Assured Fund (the Fund ) was incorporated as an exempted limited liability company under the provisions of the Companies Law (as amended) of the Cayman Islands on 10 October 2003 and registered as an open ended fund under the Mutual Funds Law of Cayman Islands on 14 October The Fund commenced activities in February Although the Fund operates as an Overseas Scheme in accordance with the terms of the Isle of Man Financial Supervision Act 1988, the Fund is not subject to approval by the Isle of Man Financial Supervision Commission, neither has it the benefit of any compensation arrangement available. The redeemable Participating Shares of the Fund are listed on Cayman Stock Exchange (CSX).The registered office of the Fund is SH Corporate Services Ltd., 4th Floor Harbour Centre, George Town, Grand Cayman, KY1-1102, Cayman Islands. As at, the Fund owns 100% of the Shares in the following subsidiaries: Assured Holdings Ltd. ( Cayman SPV ), a Cayman Islands exempted limited liability company Ambernile Limited. ( Holding SPV1 ), a limited liability company incorporated under the laws of Isle of Man and with its registered office at PO Box 203, St Georges Court, Upper Church Street, IM1 1EE Douglas, Isle of Man Billingdale Limited. ( Holding SPV2 ), a limited liability company incorporated under the laws of Isle of Man and with its registered office at PO Box 203, St Georges Court, Upper Church Street, IM1 1EE Douglas, Isle of Man Feilam Limited. ( Holding SPV3 ), a limited liability company incorporated under the laws of Isle of Man and with its registered office at PO Box 203, St Georges Court, Upper Church Street, IM1 1EE Douglas, Isle of Man Stopgate Limited. ( Holding SPV4 ), a limited liability company incorporated under the laws of Isle of Man and with its registered office at PO Box 203, St Georges Court, Upper Church Street, IM1 1EE Douglas, Isle of Man Gallian Limited. ( Holding SPV5 ), a limited liability company incorporated under the laws of Guernsey and with its registered office at Dorey Court, Admiral Park, St. Peter Port, Guernsey GY1 2HT Glindale Limited. ( Holding SPV6 ), a limited liability company incorporated under the laws of Guernsey and with its registered office at Dorey Court, Admiral Park, St. Peter Port, Guernsey GY1 2HT Gumtree Limited. ( Holding SPV7 ), a limited liability company incorporated under the laws of Guernsey and with its registered office at Dorey Court, Admiral Park, St. Peter Port, Guernsey GY1 2HT Jemima Limited. ( Holding SPV8 ), a limited liability company incorporated under the laws of Jersey and with its registered office at Kleinwort Benson House, Wests Centre, St Helier, Jersey JE4 8PQ Jyles Limited. ( Holding SPV9 ), a limited liability company incorporated under the laws of Jersey and with its registered office at Kleinwort Benson House, Wests Centre, St Helier, Jersey JE4 8PQ Jaico Limited. ( Holding SPV10 ), a limited liability company incorporated under the laws of Jersey and with its registered office at Kleinwort Benson House, Wests Centre, St Helier, Jersey JE4 8PQ These consolidated financial statements include the results and net assets of the Fund, Cayman SPV and the 10 ("Holding SPVs") (together the Group ). The shares of the Holding SPVs were acquired during the year ended and hence the consolidated financial statements at 31 December 2012 comprise of the results and net assets of the Fund and the Cayman SPV only. 15

18 1. Incorporation and background information (continued) The Fund owned 99.99% of the share capital (10 shares in issue) and corresponding voting rights in Assured Fund S.A. ( Belgium SPV ) since the Belgium SPV s incorporation on 28 July The Belgium SPV is a limited liability company incorporated (société anonyme) under the laws of Belgium and registered at Place Flagey 18, 1050 Brussels, Belgium. On 11 April 2011, the Belgium SPV changed its name to Settlements S.A. On this same date, the Fund s holding in the Belgium SPV was diluted to % as a result of a private placement during which 260 additional shares were issued to qualified investors. On 9 June 2011 the Belgium SPV was listed on the NYSE Alternext in Brussels. The investment objective of the Fund and subsidiaries, (the Group ), is to deliver consistent, long-term capital growth by obtaining either a direct or indirect exposure to a portfolio of life settlement policies issued by life assurance companies scoring at least an A rating with Standard & Poor s or an equivalent rating at the time of purchase. The Group will be primarily exposed, either directly or indirectly to policies issued by US life assurance companies. Until 29 December 2013, the Fund invested in the life policies through the Cayman SPV. On 30 December 2013, (the "restructuring date"), the Group restructured its operations with the intention of improving the liquidity, tax efficiency and returns to the Group and to secure a credit facility with a third party provider. The restructuring program involved creation of 10 wholly owned special purposes vehicles incorporated in various tax neutral jurisdictions. The Fund then transferred net assets which included the portfolio of life settlement policies and other related assets and liabilities valued at US$250,550,620 in accordance with the redemption value outlined in the offering memorandum to the Belgium SPV in exchange for an equivalent value in reverse convertible and callable zero coupon bonds issued by the Belgium SPV. The bonds are held by the 10 Holding SPVs for the ultimate benefit of the outstanding share classes issued by the Fund. The investment activities of the Group are managed by Policy Selection Limited (the Investment Manager ). Blue Sea International (the Administrator ) was responsible for the administration of the Group including financial and accounting services until the date of their resignation (25 January 2013) after which Maples Fund Services (Cayman) Limited were appointed. The Fund currently issues shares in the following classes: Class A US$; Class B US$; Class C US$; Class D US$; Class F US$; Class B GBP; Class C GBP; Class B Euro; Class D Euro; and Class E CHF. The classes exist to cater for differing investor requirements, with different rates of commission being charged according to the class and utilisation of a shared investment pool known as the Operating Class. This optimises the spread for investors whilst reducing the costs of holding the assets (except for forward contracts which can be held in the non US$ classes). Expenses of specific classes are discharged in the relevant class whilst common expenses are borne through the Operating Class. The Operating Class invests exclusively in US$ denominated assets and accordingly the functional currency of the Fund is the US Dollar. Prior to the restructure, PartnerRe Principal Finance, Inc. (the Noteholder ) had a charge over the assets of the Cayman SPV which had been formed in order to hold all of the policies as security for the US$50 million credit facility. 16

19 2. Significant accounting policies The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been applied consistently, unless stated otherwise. (a) Basis of preparation The consolidated financial statements are prepared in accordance with International Financial Reporting Standards ( IFRS ) issued by the International Accounting Standards Board ( IASB ). The functional and presentation currency of the Group is United States dollars and not the local currency of the Cayman Islands to reflect the fact that the primary activities of the Group is to gain exposure to a portfolio of life settlement policies issued by US assurance companies through either a direct investment in the portfolio or through its investments in United States dollar denominated bonds. Redeemable Participating Shares of the Fund are issued and redeemed in United States dollars, Sterling, Euro and Swiss Franc s but the performance of the Group is measured and reported to these investors in United States dollars. The Board of Directors considers the United States dollar as the currency that most faithfully represents the economic effects of the underlying transactions, events and operations of the Group. The financial statements are prepared on a fair value basis for financial assets and financial liabilities at fair value through profit or loss and investments in life settlement policies. Other assets and liabilities are valued at amortised cost or historical cost. There are a number of other International Financial Reporting Standards and Interpretations which are in issue but have not been applied in these financial statements as they are not yet effective. See note 2(r) for details. (b) Basis of consolidation These consolidated financial statements include the results of the Cayman SPV, and 10 Holding SPVs which are 100% subsidiaries of the Fund. All intercompany balances and transactions are eliminated upon consolidation. As at 31 December 2013 and 2012, the Fund only holds % of the shares issued by the Belgium SPV and hence the results of the Belgium SPV have not been consolidated. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and are deconsolidated on the date that control ceases to exist. (c) Use of estimates The preparation of consolidated financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the amounts and disclosures in the consolidated financial statements and accompanying notes. Management believe that the estimates utilised in preparing its consolidated financial statements are reasonable and prudent. Actual results could differ from these estimates. Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year, as well as critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements are included in note 9. 17

20 2. Significant accounting policies (continued) (d) Financial assets and liabilities (i) Classification The Fund classifies financial assets and financial liabilities into the following categories: Financial assets designated as at fair value through profit or loss include investment in bonds. Financial assets classified as loans and receivables include cash and cash equivalents, restricted cash, amounts receivable on maturity of life settlement policies and other receivables. Financial liabilities at amortised cost include loan notes payable, policy loans payable, interest payable, management fee payable, and accounts payable and other accruals. Other assets comprise prepayments and investment in life settlement policies. Investment in life settlement policies are classified separately as they are excluded from the scope of IAS 39 'Financial Instruments: Recognition and Measurement' ("IAS 39"). (ii) Recognition A financial asset is recognised on the consolidated statement of financial position when, and only when, the Group becomes a party to the contractual provisions of the instrument. The initial recognition of financial assets is at fair value normally represented by the transaction price. The transaction price for financial assets not classified at fair value through profit or loss includes the transaction costs that are directly attributable to the acquisition or issue of the financial asset. Transaction costs incurred on the acquisition or issue of financial assets classified at fair value through profit or losses are expensed immediately. The transactions are recorded at the trade date. A financial liability is recognised on the consolidated statement of financial position when, and only when, the Group becomes a party to the contractual provisions of the instrument and it is derecognised when the obligation specified in the contract is discharged or cancelled or expires. The initial recognition of financial liability is at fair value normally represented by the transaction price. The transaction price for a financial liability not classified at fair value through profit or loss includes the transaction costs that are directly attributable to the acquisition or issuance of the financial liability. Transaction costs incurred on the acquisition or issuance of financial liability classified at fair value through profit or losses are expensed immediately. The transactions are recorded at the trade date. (iii) Measurement Financial assets designated as at fair value through profit or loss are measured initially at fair value, with transaction costs recognised in the consolidated statement of comprehensive income. Subsequent to initial recognition, all financial assets designated at fair value through profit or loss are measured at fair value with changes in their fair value recognised in the consolidated statement of comprehensive income. 18

21 2. Significant accounting policies (continued) (d) Financial assets and liabilities (continued) (iii) Measurement (continued) Financial assets classified as loans and receivables are carried at amortised cost using the effective interest rate method, less impairment losses, if any. Financial liabilities are measured at amortised cost or redemption amounts for redeemable Participating Shares. (iv) Fair value measurement principles Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Fund has access at that date. The fair value of a liability reflects its non-performance risk. When available, the Group measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The Group measures instruments quoted in an active market at a mid price. If there is no quoted price in an active market, then the Group uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction. As such the Group measures the fair value of the bonds based on the net asset value of the Belgium SPV adjusted for the use of a market internal rate of return when valuing the portfolio of life settlement policies as opposed to the purchase internal rate of return. The purchase internal rate of return is currently reflected in the determination of the fair value of the life settlement policies within the net asset value of the Belgium SPV. As at, the Group considers this valuation technique as the most appropriate method of estimating the fair value of the bonds issued by the Belgium SPV. The Group recognises transfers between levels of the fair value hierarchy as at the end of the reporting period during which the change has occurred. Prior to 1 January 2013, assets and long positions are measured at a bid price, liabilities and securities sold short are measured at an asking price. After 1 January 2013, mid price is considered appropriate for assets, liabilities and securities sold short at fair value through profit and loss if prices are readily available on an exchange (note 2 (r)). All changes in fair value, other than interest and dividend income and expense, are recognised in the consolidated statement of comprehensive income. (v) Amortised cost measurement principles The amortised cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment. 19

22 2. Significant accounting policies (continued) (d) Financial assets and liabilities (continued) (vi) Impairment A financial asset not classified at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence of impairment. A financial asset or group of financial assets is impaired if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset, and that loss event had an impact on the estimated future cash flows of that asset that can be estimated reliably. Objective evidence that the financial assets are impaired includes significant financial difficulty of the borrower or issuer, default or delinquency by a borrower, restructuring of amount due on the terms that the Group would not consider otherwise, indications that a borrower or issuer will enter bankruptcy, or adverse changes in the payment status of the borrowers. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset s original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against receivables. Interest on the impaired asset continues to be recognised. When an event occurring after the impairment was recognised causes the amount of the impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss. (vii) Derecognition The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the financial asset and the transfer qualifies for derecognition in accordance with IAS 39. On derecognition of a financial asset, the difference between the carrying amount of the asset, and the consideration received is recognised in the consolidated statement of comprehensive income. A financial liability is derecognised when the obligation specified in the contract is discharged, cancelled or expired. (e) Offsetting financial instruments Financial assets and liabilities are offset and the net amount presented in the consolidated statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously. Income and expenses are presented on a net basis only when permitted under IFRS, for example, for gains and losses arising from a group of similar transactions, such as realised and change in unrealised gains and losses from life settlement policies. (f) Other assets Other assets include prepayments and investments in life settlement policies which are classified separately as they are excluded from the scope of IAS

23 2. Significant accounting policies (continued) (f) Other assets (continued) Life settlement policies (i) Recognition The purchase of a life settlement policy is recognised on the date the Group is acknowledged as owner and beneficiary of the policy by the insurance carrier. The Group does not hold the right to receive the future death benefit until the transfer of ownership and beneficiary rights have been acknowledged by the insurance carrier. At the purchase date of the life settlement policies, the Group reserves the complete purchase price in escrow with a third party escrow agent. Once the transfer of ownership and the beneficiary rights are confirmed by the insurance carrier, the settlement amount and applicable fees are disbursed to the seller and relevant intermediaries in order to complete the purchase. From the date of the purchase, any gains and losses arising from changes in fair value are recorded in the consolidated statement of comprehensive income and any premium payments are for the account of the Group. (ii) Measurement Investments in life settlement policies are initially recognised at fair value (transaction price) plus all acquisition costs that are directly attributable to the purchase of the specific policy net of future premium liabilities. Certain transaction costs associated with the purchase of the life settlement policies are expensed as incurred in the consolidated statement of comprehensive income. Net changes in fair value on investments in life settlement policies are recorded in the consolidated statement of comprehensive income through changes in unrealised gains and losses. Refer to note 9 for more details on the fair value estimation of life settlement policies. Derecognition The Group derecognises its investment in a life settlement policy either when the Group is no longer entitled to the beneficial rights to the cashflows from the life settlements policy, the date of lapsation of the life settlement policy or the date on which the life settlement policy matures. On the derecognition of a life settlement policy, the difference between the carrying amount of the life settlement policy and the proceeds received on either disposal or maturity, is recognised in the consolidated statement of comprehensive income. (g) Cash and cash equivalents and restricted cash Cash comprises cash on hand and demand deposits. Cash must be readily available for the payment of obligations, and free from any contractual restriction that limits its use (i.e. excludes restricted cash). Cash equivalents are short term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to insignificant changes in value. Restricted cash include cash balances which are held in accounts which have been designated to be used for a specific purpose and are therefore not available for immediate and general use by the Group. 21