The Verredus Funds

the verredus funds delivering verifiable income and growth for investors

VERREDUS verifiable return funds

www.verredus.com

the verredus funds verredus offers clients an alternative way of generating high levels of income or returns though a medium to low risk investment strategy and is ideal for income investors or as part of a well diversified portfolio.

fund facts • • • • • • • • • • • • • • •

Projected Annualised Yield: 7% to 8% Quarterly Dividend Expectation: 1.6% to 1.8% Dividend Dates end of: December, March, June and September Legal Entity: Cayman Islands Exempted Company Structure: Open ended collective investment Pricing: Single priced (no bid offer spread) Dealing Frequency: Monthly Settlement Cycle: T +90 days Investment Currency: GBP Management Fee: 2% Entry Fee: Up to 0.5% - 5.0% Income Share Class – CUSIP: G9341A 109 and ISIN: KYG9341A1094 Capital Growth Share Class – CUSIP: G9341A 117 and ISIN: KYG9341A1177 Minimum Investment: £15,000 for Income and £10,000 for Growth Share Classes Additional Investment: £5,000 or more

fund key features ✓ Regular quarterly dividend payment or automatic accumulation for growth ✓ Capital protection through high quality government and corporate receivable counterparties plus insurance underwritten by highly rated insurance companies ✓ No gearing or exposure to financial derivatives ✓ Non-correlated to equities, commodities, real estate or bond markets ✓ Foreign currency exposure mitigated ✓ Steady, constant and predictable returns month on month ✓ Excellent diversification across industry and end-debtors ✓ Good liquidity with monthly dealing and average duration of less than 90 days on receivables ✓ A proven market with good track record

what does verredus mean?

Verredus comes from the word Verifiable which is defined as “something of fact undistorted by emotion or personal bias, an observable phenomena or an objective appraisal, something that is provable, demonstrable, testable (thefreedictionary).

These are the very principles at the heart of Verredus as returns from the underlying investments are known, testable and most importantly verifiable because of the markets Verredus Funds invest in and their investment methodology.

the income vs. security challenge Income is a conundrum in today’s world. Investors either have to settle for record low yields on fixed income and cash, take increasing risk by investing in the sub investment and junk bond space for yield or take equity risk and rely on dividends.

The results are twofold: 1) investors play it safe by utilising money market and quality investment grade bonds and accept the erosion of the real value of their money by inflation, or 2) investors take significantly more risk by looking to equity income or high yield debt, both of which carry higher levels of risk to capital and no real long term certainty on income.

introducing the verredus funds Verredus addresses the above challenges by providing investors with a vehicle that provides regular reliable income, high levels of capital security and most importantly a verifiable return.

There is no magic or complicated option structure behind Verredus, rather it is a pioneering fund that is making the global ‘quality receivables’ market available to the private investor. In addition, it’s doing it in a way that provides liquidity, transparency and high levels of capital security with strong regular dividend payments where required. Investors have a choice of Income or Growth share classes based in Pounds Sterling.

what verredus investors can expect Investors in Verredus can expect predictable consistent monthly returns with robust capital and income protection. Income investors will receive a strong yield and minimal variability in their capital value. Investors seeking capital appreciation will earn a slightly higher return through compound growth.

Some of the main features and benefits include: • Annual returns of between 7% and 8% “after fees” which is ideal for beating inflation and adding real value to an investor’s portfolio • The option to receive income by way of quarterly dividends which is sought by most income oriented investors • Returns are steady, constant and predictable month on month which is key for investors who need a specific level of income on a regular basis • Verredus is an excellent complement to Equity, Bond, Commodity and Real Estate investments as it is not correlated with these asset classes • High levels of capital security with additional insurance underwriting to protect Verredus’s assets and the investors’ interest

• • •

Verredus is not geared and does not use financial derivatives to enhance returns.

Currency exposure is mitigated within Verredus. The investment return and fund capital are protected from currency fluctuations.

Verredus also offers high levels of diversification across geographic region and industry to further reduce risk

what does verredus invest in?

Verredus is a fixed income fund and just like most fixed income funds Verredus is involved in corporate and government debt. However its exposure is to the quality short dated receivables market with an average duration of less than 90 days. In addition the receivables portfolio is insured by highly rated insurance companies.

Many people view short term government and corporate debt as the first alternative to cash and with the trouble some banks have been getting into over the last few years, potentially more secure than cash deposits.

The challenge, as noted earlier, is that with interest rates as low as they are, investments in traditional fixed income instruments end up seeing an erosion to value, as inflation outpaces the return. Verredus has the solution.

Verredus invests in assets that are predominantly backed by the same high quality corporate and government entities. However, unlike the ‘old’ forms of fixed income, Verredus generates its returns by having exposure to the quality short dated receivables market.

receivables investing simplified For Verredus a “receivable” is a known amount that is acknowledged to be payable by a known date. In its simplest form – An Invoice. The key to this is that the party who has acknowledged that payment will be made is a high quality government or corporate entity. In all cases these amounts due are insured against default by highly rated insurance companies.

There is a global market trading in receivables/invoices and this is known as the accounts receivable financing market.

the receivables market – an overview The Accounts Receivables Financing Market is in itself nothing new.

Recognisable names such as HSBC Invoice Finance, Lloyds TSB Commercial Finance, RBS Invoice Finance and Close Invoice Finance are just some of the players who participate in £2 billion of revenues a year from the UK alone.1 Morgan Stanley estimates the total US market at $136 Billion.2 In March 2012 the UK government published “Boosting Finance Options for Business,” which strongly supports the role of receivable and invoice finance as a driver of business growth in the UK. The industry also enjoys a return on capital of between 25% and 35% making it extremely attractive to investors. To date, investors, with the exclusion of the ultra-high net worth client, have been excluded from this market because of the amount of capital required to enter it and the infrastructure and expertise needed to manage receivables investing.

The Verredus Funds are changing this by giving a wide range of investors the opportunity to enjoy exposure to the top end of this market in a highly

Source Materials 1 Factoring in the UK: Market Research Report, IBIS World, June 2011. 2 The Receivables Exchange, 2010.

five year stnd dev 7 6.18

controlled and structured way. Whilst focusing solely on the top end will mean that we will not be delivering double digit returns to investors, it also means that we will not be entertaining the risk. This approach secures a verifiable return with high levels of capital security and strong regular income/growth.

currency hedging Foreign exchange rates can have a significant impact on investment returns so where Verredus invests outside of the UK it still invests in Pounds Sterling and requires Pounds Sterling to be returned leaving any exchange risk in the hands of the seller of the receivable. Therefore Verredus is protected from currency fluctuation and at the same time does not carry the hedging costs for investors.

6

Significantly less capital fluctuation than Government & Corporate bonds

5.36

5 4

3.13 3

2.59

2 1 0.31 0 *UK Govt Bonds

**UK LIBOR

***GBP Corporate Bond

Verredus Acc

Verredus Income

largest drawdown *UK Govt Bonds

**UK LIBOR 0%

***GBP Corporate Bond

Verredus Acc

Verredus Income

-1.00%

-1.00%

0.00%

return profile and investment characteristics

-0.50%

The following section provides a market outlook and performance characteristics of how the fund is expected to perform, together with an analysis of sector exposure.

-1.00%

market outlook - bonds, cash or verredus?

-2.50%

Money Market: In late 2011 sentiment in the UK was moving towards interest rates rising again by early 2013. However, analysis of forward market interest rates now point to late 2014 or early 2015 before rates begin to increase. For investors this will continue to mean little to no return on cash and continued capital erosion as inflation outstrips what modest returns are available, plus the drag of management fees in this already very tight space.

Bonds: The UK bond market will not see the liquidity issues present in the Eurozone as it can control its own monetary policy. However, UK bond yields will continue to drift lower as long as economic growth remains anaemic. The Bank of England will not be willing to raise interest rates until evidence of real recovery is present. This is leaving the quality end of the market highly priced and expensive to access with the potential for capital loss in the medium term when rates eventually rise.

Verredus: With credit conditions remaining tight, we expect the receivables finance market to remain very consistent. Financed receivables from high quality corporations and governments will continue to provide strong yield as compared to cash or bonds without the implications of capital fluctuation which leaves a very positive outlook for this end of the fixed income market.

risk to return characteristics Verredus has been back tested against equivalents for cash, government and corporate debt to build a risk/return profile. This evidences the investment characteristics which include significantly lower capital volatility than corporate bonds but with higher yields. Put the other way, the risk return profile is between cash and government debt, but with more consistent and superior yields.

The following four diagrams opposite provide a range of alternative ways of assessing the investment characteristics of the fund and allow a like for like comparison between the short dated receivables market, cash, corporate and government debt. Verredus’s projected return is net of management fees so fee drag is captured whilst the benchmarks are gross of fees.

-1.50% -2.00% Importantly capital at risk of drawdown is much less than traditional fixed income investments

-3.00% -3.50% -4.00%

-3.80%

-4.50% -4.70%

-5.00%

five year annual return 9.00% 8.00%

8.19% Strong annual returns but without the capital volatility of other fixed income investments

7.71%

7.00% 6.00%

6.99%

5.54%

5.00% 4.00% 3.00%

2.90%

2.00% 1.00% 0.00% *UK Govt Bonds

**UK LIBOR

***GBP Corporate Bond

Verredus Acc

Verredus Income

sharpe ratio 1.8 1.6 1.4 1.2

The high Sharpe ratio demonstrates the excess expected return per unit of risk that Verredus should provided given its exposure in the receivables market.

1.69 1.58 1.39

1 0.8

0.78

0.6 0.4 0.2 0.00 0 *UK Govt Bonds

**UK LIBOR

***GBP Corporate Bond

Verredus Acc

Verredus Income

investment return Verredus aims to provide stable and verifiable returns with the option of a good regular level of income. The following diagram shows how the growth and income share classes are expected to behave. The income line shows the dividend component of the investor’s capital and the effect of taking a dividend whilst the growth fund shows the compounding effect as this share class cannot distribute.

The majority of the return from Verredus is income and unlike traditional bond funds there is no expected fluctuation in the capital value of the underlying debt and therefore no corresponding change to yield. It is also worth noting that the average receivable duration is less than 90 days.

Therefore its investment performance characteristics are more akin to a money market fund but with significantly higher yield.

The chart below is based in GBP and is modelled on the returns from the proposed portfolio for Verredus including the sector and credit exposures expressed in this document. The following chart shows the projected performance for the income and growth share classes. The trend line on the Income Fund also shows a small element of capital appreciation over time.

verredus income and growth funds - consistent, stable and predictable returns £109

A choice between consistent growth and regular dividend payment, generated by strong consistent income flows.

The trend line also shows some capital growth in the income fund.

£108 £107 £106 £105 £104 £103 £102 £101 £100 £99 01/08/2012

01/09/2012

Verredus Income

01/10/2012

01/11/2012

Cumulative Dividend

01/12/2012

01/01/2013

01/02/2013

01/03/2013

01/04/2013

01/05/2013

01/06/2013

01/07/2013

01/08/2013

Verredus Growth

sector exposure

capital security

The receivables market offers a wide range of sectors from which to generate returns. Verredus diversifies amongst these various sectors to mitigate risk.

Like money market and bond funds, understanding the risk of default is key. However unlike money market and bond funds Verredus specifically insures against default through quality insurers with excellent credit ratings. The insurance, along with the short term average duration of less than 90 days on receivables, significantly reduces credit risk when compared to a corporate bond fund. In addition the capital value is not susceptible to the fluctuations that corporate and government bond funds have due to interest rate sensitivity as well as supply and investor demand.

The chart below represents the expected sector split at launch for both the Income and Growth Fund.

proposed portfolio credit ratings by insurance provider 9% Film & Entertainment 2% Government 10% IT/Telecom 35% Manufacturing

68% AA 7% AA-

3% Oil 25% A+ 15% Other Services 5% Retail 5% Transportation 16% Wholesale/Importing

All calculations are in GBP and are net of management fees for Verredus. *Citi UK Government Bond Index, **UK Three month LIBOR, ***Blackrock UK Corporate Bond Index

VERREDUS verifiable return funds

verredus offers clients an alternative way of generating high levels of income or returns though a medium to low risk investment strategy and is ideal for income investors or as part of a well diversified portfolio.

For more information or to gain a better insight into Verredus please contact: Maurice Fortier - Director Verredus Funds Inc. Email: mfortier@verredus.com Office: 246-271-9175 Mobile: 246-823-4876 www.verredus.com

Matt MacKay - Director Verredus Funds Inc. Email: mmackay@verredus.com Office: 246-271-9175 Mobile: 246-823-0474

@verredus

This document is issued by Verredus Funds Inc., an exempted company incorporated under the laws of the Cayman Islands with limited liability. Certain countries have restrictions imposed by law on the distribution of this document and the sale of investments. It is the responsibility of the user of this document to acquaint themselves and observe these terms and conditions and to comply with the relevant laws and regulations. This document does not constitute an offer or solicitation to sell shares in Verredus Funds Inc. by anyone in any jurisdiction and the shares may not be directly or indirectly offered or sold in the USA or any of its territories or areas subject to its jurisdiction or to, or for the benefit of, a US person. This document should not be construed as investment advice. Prospective investors should consult their own professional advisors as to the legal, tax, financial or other matters relevant to the suitability of an investment in Verredus Funds Inc. Please read the Offering Memorandum carefully before investing. Details of the risk factors of this investment are contained in the Offering Memorandum.

Indicated returns are projections with no guarantee of future performance.