EEA Life Settlements Fund PCC Limited (the "Fund") 6th May 2015 Revised fee arrangements With effect from 1 May 2015, EEA Fund Management (Guernsey) Limited (the "Manager") has agreed to become responsible for the fees of the Administrator (approximately $875,000 in 2014). The Manager will pay such fees out of its own management fee which will mean a reduction in the level of fees paid by the Fund from that date. The Manager has also agreed to waive its entitlement to any further Performance Fee. As part of these new arrangements, the notice period that either the Manager or the Fund must give in order to terminate the Management Agreement has been extended from six months to twelve months. These changes have been reflected in the Fund's Information Memorandum and Supplements, which have been published on the Manager's website www.eeafmg.gg/eea-life-settlements-fund DT Comment : This effectively reduces the Management Charges from 1.5% of NAV to 1.4% of NAV. Combined with the new valuation methodology announced in February, this results in a reduction of Management and Administration charges from around $13m pa to $9.2m pa in a full year, saving $4m pa. Other updates to the May Information Memorandum and Supplements include : a) EEA Holdings Ltd (in the UK) has been renamed Melquart Ltd wef 6th Feb 2015. The sole shareholder of Melquart Ltd is Simon Shaw with his wife as co-Director. Melquart Holdings Ltd owns 100% of EEA Group Ltd in the UK which (among other things) owns 100% of Distribution Holdings Guernsey Ltd which in turn owns 100% of EEA Fund Management (Guernsey) Ltd – the Manager of the EEA Life Settlements Fund. b) UK HMRC has confirmed that the delayed 2011 and 2012 Accounts constituted two minor breaches of the UK Reporting Fund regime. If the Fund were to commit four minor breaches of the reporting fund regime in any ten year period, the fourth of such breaches would be regarded as a serious breach for the purposes of the regime. This could result in withdrawal of reporting fund status. With the implication that any gains arising to Shareholders resident in the United Kingdom on a sale, redemption or other disposal of Shares in the Cell (including a deemed disposal on death) would be taxed as offshore income rather than capital gains. Fund update and commentary The Fund currently consists of a diverse portfolio of 401 life insurance policies with an average policy size of US$2,777,034 covering 83 illnesses and 79 insurance companies, which have a total net death benefit of $1.11 billion. The current net asset value ("NAV") of the Fund is $602.5 million, including total cash and net receivables from maturities of $128 million. DT Comment : Our position is still that the new NAV / Valuation methodology introduced retrospectively from December 2014 is inappropriate. We also have a $5m discrepancy in the cash balance at the end of March 2015, which might be linked to the separate item / comment below. We would note that 85% of the portfolio, based upon weighted Net Death Benefit, is represented by insureds aged 80 or over. DT Comment : Our bigger concern is that more than $985m (87%) of the outstanding $1113m NDB is covered by 191 (46%) policies and 127 (39%) lives insured for more than $2m per life and that these policies are still not maturing as predicted. EEA repeatedly avoids giving any explanation as to why these polices aren’t maturing as expected and what they are going to do about it. The premiums bill for these policies will exceed EEA’s current estimates and are likely to increase even faster as the insureds reach 90, 95 or 100 years of age. There were 150 of the remaining 401 policies in this age group at 31st March 2015, representing $427m (38%) of remaining NDB. The undiscounted net death benefit revenues, calculated on the basis of the current life expectancy ("LE") reports and used by the Fund's independent valuation agent, Maple Life Analytics LLC, in the calculation of the current NAV of the portfolio of life insurance policies, anticipates 34% of the remaining death benefit maturing over the next two years, 53% over three years and 72% over five years. DT Comment : We have no idea what basis Maple Life is using for the above forecasts. The EEA / ViaSource Fact Sheet for 31st March 2015 gives 47%, 55% and 77% respectively. None of these forecasts based on the Original or Revised (2013) LE estimates have any credibility because policies are still failing to mature in accordance with the estimates, and it is clear that the LE estimates are flawed, making all predictions and valuations meaningless. In the last quarter to 31 March 2015, one policy expired with a death benefit of $500k. Policies like this are written down over several years to reduce the impact on the Fund's NAV of their expiring rather than maturing. No further policies are due to expire in 2015. DT Comment : The challenge is to identify these policies and abandon them before they expire so that premium payments can be saved over the last few years of the policy term. Writing down the NAV is not a solution to the problem of protecting the net cash value available to investors over time. This is another consequence of flawed LE estimates and poor portfolio management. Over the year to 31 March 2015, there were 73 maturities, contributing a total death benefit of $122 million. This compares with the undiscounted net death benefit revenues forecast on the basis of the latest LE estimates at 31 March 2014, that maturities for the 12 months ending 31 March 2015 would contribute a total net death benefit of approximately $201 m, assuming maturities happened at LE. DT Comment : There were actually 75 Maturities (57 lives) within this 12-month period (there were two late postings in April) totaling $123m NDB. The prediction using the more accurate 2 x LE model introduced in 2013 was $237m, making the actual shortfall even greater. EEA have now abandoned this 2 x LE model rather than fix the problem of badly estimated LEs. Even EEA’s flawed forecast of $201m (including $80m in 1Q2015) is significantly more than has been achieved over the past four years ($123-139m pa, average = $133m pa) or just over $10m per month. For much of the previous 12 months, this forecast and the maturity record were closely aligned, but the quarter ending 31 March 2015, when $80m of death benefits were forecast, again on the assumption that maturities happened at LE, saw only 11 maturities and the generation of just $11.3m. For the same three month period, the Fund's independent valuation agent, Maple Life Analytics LLC, forecast $45.6m of net death benefit revenues. DT Comment : So EEA / ViaSource expected $80m in 1Q2015, and Maple Life expected $45.6m whereas the historical maturities for this quarter have been around $11-52m (average = $30m). This confirms that the higher face value policies are failing to mature in accordance with their LE estimates, and these now account for more than $855m (87%) of the remaining NDB. With any life settlements fund, asset value is preserved by the ongoing payment of premiums, which is dependent on cash being available. As a consequence, no distribution was made during the quarter. DT Comment : $4.1m was distributed to Continuing shareholders who requested their 5% redemption option, even though there was insufficient cash available to meet the two-year premium reserve. This was taken from the cash balances of the relevant Continuing Cells during February 2015, as shown by the January and February Fact sheets. Cash levels (excluding approximately $5.4m attributable solely to the Continuing Cells) currently stand at $128m and premium payments for the 12-month period to 31 March 2015 were $68m. The Fund is therefore currently in a strong position to meet premium payments and the Fund's Board is committed to ensuring it exercises caution so that it remains that way. The Fund's Board will review the cash position again as at 30 June 2015 and give a further update towards the end of July. DT Comment : We don’t understand the comment about $5.4m attributable “solely to Continuing Cells” and will seek clarification from EEA. As we understand it, the whole $134m cash balance (at the end of March 2015) is held within the 28 cells on a pro-rata basis (of which $59m is held within Continuing Cells) and there is no separate cash account for the premium reserve or redemption payments. EEA is claiming that the cash balance is $128m (of which $56.4m is held within the continuing Cells) plus the $5.4m attributable solely to Continuing Cells.