Why am I receiving a letter from you? (note: updated answer)

How did we reach this situation?

When will the policy in which I invested mature?

What will happen if my policy matures before July 31, 2008, the Option 1 election date?

Have any policies matured in the past six months? (note: new updated answer)

Apart from accepting the arrangement that the Funder proposes, what options do I have?

I understand that under Option 1 I will have the opportunity to receive a share of the proceeds up to my original investment. Is there a way that I can obtain some excess beyond my original investment?

I invested in more than one life insurance policy with VESPERS. How do I know which policy is affected by the funding problem? (note: updated answer)

If a policy does not have current funding problems, what is the Investors’ situation?

Who is the volunteer funder?

How secure is the proposed arrangement?

Were any offers made to purchase the portfolio of VESPERS life insurance policies?

Please provide examples of how the Option 1 waterfall would operate.

Option 1 mentions that at the maturity of a policy, the Investor "will receive at most only the" originally invested amount. This implies that I could receive less if the accrued costs and premiums exceed the difference between the original invested amount and the full proceeds upon Maturity. Is that correct?

What does the following mean: “you will be required to grant to the Funder a contingent right to receive a residual amount of the death benefit payable?”

Please provide an example of how the Option 2 waterfall would operate.

Why are there restrictions on the self-financing Option 2?

What is my cost to participate in Option 2?

What will happen if less than 60% of investors vote for Option 1?

What will happen if I vote against Option 1 or take no action but 60% or move of all investors vote for Option 1?

How will the votes be counted? (note: updated answer)

Will an Option 2 election count toward the 60% threshold for Option 1 approval?

How will I learn about the election results?

Will I receive any other notices from you?

Why am I receiving a letter from you? (note: updated answer)

You made an investment in a life insurance policy or policies that VESPERS, LLC, (“VESPERS”) acquired for you. The payment that you made to VESPERS included an amount necessary to fund the premiums payable on that policy for the projected life expectancy of the insured plus one year. That premium funding has been exhausted because the insured has outlived his or her projected life expectancy by over one year. There is no funding left for the policy, and VESPERS has refused our request to provide that funding, despite its obligation to do so under its agreement with you. Our letter provides you with three options to respond to this situation.

If you believe that you are receiving this letter in error or if you have transferred ownership of your interest in the policy to another person, please fill out an online form.

Updated Answer:

VESPERS, not the policyholders, was responsible for setting the amount of the premium reserve. The second sentence of the answer should be clarified to read that "The payment that you made to VESPERS included an amount that VESPERS deemed necessary to fund the premiums payable on that policy for the projected life expectancy of the insured plus one year. Unfortunately, in the case of certain policies, Vespers underestimated the required premium reserve. Such underestimates also contributed to the premium funding problem that we now confront.

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How did we reach this situation?

VESPERS refused our request to provide necessary funding for the policy(ies) in which you purchased a fractional interest from VESPERS. The Funder, Sinomatic Investment Holdings, Ltd., is willing to pay your premiums in return for a change in the way the policy proceeds will be distributed when the policy matures as is explained in our letter.

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When will the policy in which I invested mature?

We have no idea when a policy will mature. The Funder’s Administrative Agent is in the process of reinstating a tracking service on the policies. We cannot share information about the insured with investors due to privacy laws. The Policyowners have a service that does check periodically as to whether a policy has matured. You will be notified of a policy maturity.

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What will happen if my policy matures before July 31, 2008, the Option 1 election date?

If a policy matures before the Option Election Deadline, you will receive your allocable share of the death benefit net of your pro rata share of the amount of premium payments that the Funder has advanced since September 1, 2007, and related Funder and Policyowner expenses.

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Have any policies matured in the past six months? (note: updated answer)

Yes, the following policies have matured and you will be hearing from the appropriate policyowner about the payout: V0175 V0187. Please continue to remain patient as the process of obtaining the death benefit payment from the insurance company takes time.

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Apart from accepting the arrangement that the Funder proposes, what options do I have?

You can approve the proposed agreement but elect to self finance the premiums under Option 2 or you can do nothing. If less than 60% of investors approve the Master Funding Agreement, the Master Funding Agreement will not be implemented, and thereby placing your policy at immediate risk of lapse for lack of premium payment.

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I understand that under Option 1 I will have the opportunity to receive a share of the proceeds up to my original investment. Is there a way that I can obtain some excess beyond my original investment?

Yes, you can elect self-financing under Option 2, but there is no guarantee that Option 2 will be implemented for any particular policy. Option 2 hinges on the participation of investors whose investments represent at least 40% of the face value of the policy. If you elect Option 2 and if Option 2 is implemented for the policy in which you have invested, you will have the potential, but no guarantee, of receiving proceeds which exceed your original investment.

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I invested in more than one life insurance policy with VESPERS. How do I know which policy is affected by the funding problem? (note: updated answer)

Schedule 1 to the joinder agreement enclosed with our letter identifies the affected policy(ies). There is a small subset of policies without current funding problems. The VESPERS’ viator numbers for those policies without current funding problems are as follows:

Option #1 described in our letter does not include these policies.

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If a policy does not have current funding problems, what is the Investors’ situation?

A policy will be placed outside the Master Funding Agreement until the reserve fund designed by VESPERS has been exhausted to pay premiums. Please bear in mind that there are a few policies that do not require premium funding because they are Federal Employees Group Life Insurance policies or the insured is under a waiver of premiums due to the insured’s disability. Those policies also are placed outside the Master Funding Agreement.

If a policy outside the Master Funding Agreement matures while a reserve fund exists or premium funding is not required, the proceeds will be paid out to the investors under the terms of the original Purchase Agreement.

If one of these policies later develops funding problems and Option 1 has been implemented, you will be notified that the policy is being placed under the Master Funding Agreement and you will be given an opportunity to make an Option 2 self-financing election.

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Who is the volunteer funder?

Sinomatic Investment Holdings, Ltd. (“Sinomatic”) is a company formed in the British Virgin Islands for the purpose of supporting the VESPERS policies by acting as the funder in this transaction.

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How secure is the proposed arrangement?

The Master Funding Agreement is a contractual undertaking by Sinomatic. Sinomatic is affiliated with the Lifetrade Fund B.V. which, as of December 2007, held a portfolio of over $635,000,000 in life insurance face value and net assets of over $300,000,000.

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Were any offers made to purchase the portfolio of VESPERS life insurance policies?

There were two parties who expressed to the Policyowners and/or to VESPERS an interest in purchasing the portfolio of VESPERS policies. Those parties indicated that they might consider making an offer of 40% of the face value of the VESPERS policies. However, no such offer actually was made. In contrast, Option 1 offers the investors an opportunity to receive a return of their principal investment in the VESPERS policies at policy maturity which represents 70% of the face value of the policies on average.

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Please provide examples of how the Option 1 waterfall would operate.

For example, assume that the face value of the Matured Policy is $100,000, and the investor’s principal investment was $70,000. If the reimbursable expenses on the Matured Policy are $10,000 (and the amount of expenses will vary with the Maturity Date), then the waterfall distribution would operate as follows:

• The expenses totaling $10,000 would be reimbursed

• The investors would receive a return of their principal investment totaling $70,000, and

• The Funder would receive the $20,000 balance.

For purposes of these examples, the term “reimbursable expenses” include the fees of the Administrative Agent Lifetrade Management Co., N.V., and our and the Funder’s allocable expenses. The Administrative Agent is an affiliate of the Funder with whom the Funder contracts to pay the premiums on the policy, periodically check on whether the policy has matured, and interact with the insurance company. The Administrative Agent files the insurance claim when the policy matures, collects the proceeds, and pays them out in accordance with the waterfall distribution.

If the reimbursable expenses are $30,000, then the waterfall distribution would be as follows:

• The expenses totaling $30,000 would be reimbursed, and

• The investors would receive a return of their principal investment totaling $70,000, and

• The Funder would receive no return on its premium payments

If the reimbursable expenses were $35,000, then the waterfall distribution would be as follows:

• The expenses totaling $35,000 would be reimbursed,

• The investors would receive $65,000 toward their total principal investment of $70,000,

• The Funder would receive no return on its premium payments.

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Option 1 mentions that at the maturity of a policy, the Investor "will receive at most only the" originally invested amount. This implies that I could receive less if the accrued costs and premiums exceed the difference between the original invested amount and the full proceeds upon Maturity. Is that correct?

Yes, that is correct. The Funder is not guaranteeing a minimum return to the investors or itself. However, the Funder will not receive a profit on a matured policy unless you and your fellow investors recoup the amount of your original investment.

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What does the following mean: “you will be required to grant to the Funder a contingent right to receive a residual amount of the death benefit payable?”

This is simply a legal description of the transaction, noting that the lender may receive amounts of death benefits (after payment of the waterfall elements, including the investor's original invested amount), if any, left after the waterfall payments.

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Please provide an example of how the Option 2 waterfall would operate.

For example, assume that the face value of the Matured Policy is $100,000, and there are five investors. Investors A and B who initially invested $40,000 elect Option 2 and the other three investors, who initially invested $10,000 each, elect Option 1. If the reimbursable expenses on the Matured Policy are $10,000 (and the amount of expenses will vary with the Maturity Date), then the waterfall distribution would operate as follows:

• The expenses totaling $10,000 would be reimbursed

• The Option 2 investors would receive $57,142 which represents their original percentage interest ($40,000/$70,000) times the face value of the policy

• The Option 1 investors would receive a return of their principal investment totaling $30,000, and

• The Funder would receive the $2,857 balance.

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Why are there restrictions on the self-financing Option 2?

Because the self financing option is expensive to administer, there must be a minimum number of investors who are willing to self-finance the policy in order for the option to be feasible. If Option 1 is approved, Option 2 may be used for a particular policy if investors with interests representing at least 40% of the face value of the policy have expressed interest in Option 2.

For example, assume the face value of the policy is $100,000 and there five investors with equal 20% interests. If Option 1 is approved and two of these investors have expressed interest in Option 2, those investors will be allowed to self finance the premiums. If only one investor expresses interest in Option 2, there will be no self-financing Option implemented with respect to that policy.

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What is my cost to participate in Option 2?

The Option 2 administrator, Lifetrade Management Company, N.V., an affiliate of the Funder, will set a reserve requirement for your policy. The Option 2 administrator will pay premiums and expenses out of the reserve which must be replenished periodically until the policy matures. The Option 2 administrator also will reimburse the Funder for the premiums that it paid for you and related Funder and Policyowner expenses before Option 2 was implemented. Your share of the reserve funding obligation will be based on your Original Percentage Interest for that policy. A non-binding, initial Option 2 reserve estimate for your policy(ies) is included with our letter.

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What will happen if less than 60% of investors vote for Option 1?

In that case, Option 1 will not be implemented. The Funder will stop voluntarily funding premiums and the policies become at immediate risk of lapse for lack of funding. The Funder will take a loss on the premiums that it voluntarily paid.

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What will happen if I vote against Option 1 or take no action but 60% or move of all investors vote for Option 1?

You will become an Option 1 investor automatically.

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How will the votes be counted? (note: updated answer)

Each investor will receive one vote, regardless of the number of policies in which he or she is invested. If the investor fails to respond to the letter or fails to return the executed joinder agreement for Option 1, the investor will be counted as a vote against Option 1.

There are 532 investors. If 320 or more of these investors vote for Option 1 by returning the executed joinder agreement by the deadline - July 31, 2008 - then Option 1 will be implemented. If the 320 vote threshold is not reached, Option 3 will be implemented.

Updated Answer:

After making the investor letter mailing in May 2008, we confirmed that the number of investors entitled to make an option election is 499. (This number remains subject to adjustment.) Therefore, if 300 or more of these investors vote for Option 1 by returning the executed joinder agreement by the deadline - July 31, 2008 - then Option 1 will be implemented. If the 300 vote threshold is not reached, the Funder will stop voluntarily funding premiums and the policies will become at immediate risk of lapse for lack of funding.

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Will an Option 2 election count toward the 60% threshold for Option 1 approval?

Yes, because in order to elect Option 2 you must execute the joinder agreement.

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How will I learn about the election results?

We will send you a report on the election results, and we will post the election results on our website. We will be counting the votes as we receive them and we will implement Option 1 shortly after receiving executed joinder agreements from 60% of investors. For example, if the 60% of investors threshold is met on June 15, 2008, Option 1 will be implemented on July 1. We will continue to collect joinder agreements for Option 1 after Option 1 implementation. However, the deadline for submitting an Option 2 self-financing election is July 31, 2008.

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Will I receive any other notices from you?

We will provide you with a weekly update on the election results by electronic mail beginning on June 27. This will allow you an opportunity to engage in contingency planning with your advisors.

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