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BAKER STREET USD FINANCE LIMITED

Directors' report and audited financial statements

for the year ended 31 December 2012

Bedell Trust Company LimitedPO Box 75, 26 New StreetSt. Helier, JerseyChannel Islands, JE4 8PP

Baker Street USD Finance LimitedContents

31 December 2012

PageDirectors' report 2

Independent auditor's report 6

Audited statement of comprehensive income 8

Audited statement of financial position 9

Audited statement of changes in equity 10

Audited statement of cash flows 11

Audited notes to the financial statements 12

Baker Street USD Finance LimitedDirectors' report

31 December 2012

The directors present their report together with the audited financial statements for Baker Street USD Limited (the'Company') for the year ended 31 December 2012.

Incorporation

The Company was incorporated as a public company in Jersey, Channel Islands on 9 February 2006.

Principal activities

The Company was formed for the purpose of participating in a synthetic credit default swap transaction (the

'Transaction') arranged by KBC Financial Products Brussels N.V. ('KBC'). The Company raised monies pursuant to

the issuance of class Al-USD, A2-USD, B-USD, C-USD, D-USD, E-USD, F-USD, G-USD and H-USD floating rate

credit-linked notes (together, the 'Notes'), which were listed on the Irish Stock Exchange. The total principal

amount of the Notes raised was US$45,500,000 divided into US$8,400,000 class A-1-USD Notes, US$8,200,000

class A-2-USD Notes, US$8,100,000 class B-USD Notes, US$6,250,000 class C-USD Notes, US$5,000,000 class

D-USD Notes, US$3,600,000 class E-USD Notes, US$2,200,000 class F-USD Notes, US$2,000,000 class G-USD

Notes and US$1,750,000 class H-USD Notes. The Notes were subordinated in payment of principal and interest in

accordance with the order of seniority. Any amounts by which the adjusted principal balance of the Notes was to

be reduced without payment to the noteholders was in accordance with the reverse order of seniority.

Initially the Company entered into a reverse repo agreement (the 'Reverse Repo Agreement) with KBC Bank N.V.

(the 'Repo Counterparty') whereby under the agreement the Company acquired eligible investments at a purchase

price of US$45,500,000 as collateral (the 'Collateral'), purchased with the proceeds of the Notes. All income

received on the Collateral was paid to the Repo Counterparty in consideration of a repo premium paid to the

Company by the Repo Counterparty. Upon the maturity or early redemption of the Notes, the Repo Counterparty

would deliver to the Company the purchase price of US$45,500,000 or such proportion of the Collateral to match

the Notes to be redeemed.

On 2 April 2007 the Company transferred to the Repo Counterparty the Collateral and the funds realised thereby (a

'Repo to GIC Transfer Amount') were invested in a guaranteed investment contract (a 'GIC' and hereafter referred

to as the 'Amounts due under the Investment Agreement') pursuant to an investment agreement (the 'Investment

Agreement') between the Company and KBC Investments Hong Kong Limited (the 'Eligible GIC Provider'). On 7

January 2011 KBC Bank N.V. was appointed as the new Eligible GIC Provider.

The Company also entered into a credit default swap arrangement (the 'Swap') with KBC Investments Cayman V,

Ltd (the 'Swap Counterparty') pursuant to the terms of which the Company had, in return for a fee, taken on the

mezzanine level credit and market risk of a diversified reference portfolio (the 'Portfolio'). The Portfolio was up to

US$250,000,000 in size. The Company had the mezzanine level credit risk for a maximum amount of

US$45,500,000 above the first loss tranche of US$3,764,000.

As security for its obligations, the Company charged the Amounts due under the Investment Agreement to BNY

Corporate Trustee Services Limited as trustee (the 'Trustee') for the secured parties (those transactional creditors

to whom security was provided under the security trust deed (the 'Trust Deed')). The Trustee had also been

appointed as trustee on behalf of the noteholders pursuant to a note trust deed and held the benefit of certain

covenants made by the Company in relation to the repayment of principal and interest on the Notes on trust for the

noteholders.

By way of protecting the Company from the risks of the Transaction arising from the Company's exposure to the

Swap Counterparty under the Swap, the Transaction documents contained limited recourse and bankruptcy

remoteness (non-petition) provisions pursuant to which each party recognised the limited financial resources of the

Company and the intended bankruptcy remoteness of the Company. The Amounts due under the Investment

Agreement were secured by way of support for the Company's exposure under the Swap and thereafter its

obligations under the Notes.

Certain of the Company's day to day obligations and powers in respect of the Transaction were performed on its

behalf by KBC Bank N.V, as administrator pursuant to an administration and cash management agreement.

Functions performed by the Irish paying agent, the transfer agent, the listing agent and the registrar were provided

by JP Morgan entities prior to January 2012 when they were novated to Bank of New York Mellon entities.

On 8 July 2013 the Swap Counterparty exercised its right to terminate the Transaction and the Transaction parties

terminated and discharged their obligations and accordingly, the Transaction was terminated.

-2-


31 December 2012

Directors

The directors of the Company, who served during the year and subsequently, are:

Shane Michael HollywoodAlasdair James Hunter

Secretary

The secretary of the Company during the year and subsequently is:

Bedell Secretaries Limited

Results and dividends

The results for the year are shown in the statement of comprehensive income

The directors have paid a final dividend during 2012 of £750 (US$1,158) in respect of the financial year ended 31

December 2011, being the 2011 Transaction fee (2011: £750 (US$1,163) in respect of the financial year 31

December 2010, being the 2010 Transaction fee).

The directors recommend the payment of a final dividend in the sum of £750 (US$1,199) in respect of the financial

year ended 31 December 2012, being the 2012 Transaction fee (2011: £750 (US$1,158) being the 2011

Transaction fee).

Independent auditor

Ernst &Young LLP has previously been appointed and has expressed willingness to continue in office until the

termination of the Transaction. A resolution to reappoint Ernst &Young LLP as auditor will be proposed at the next

annual general meeting.

Going concern

The optional termination date was April 2011, following which time and on any subsequent payment date, the Swap

Counterparty'had the right to terminate the Transaction.

On 8 July 2013 the Company redeemed the remaining Amounts due under the Investment Agreement and used

the proceeds to repay, in full, the remaining class Al-USD Notes. Following the repayment of the Notes the

Company and the other Transaction parties terminated and discharged their obligations in respect of the

Transaction and accordingly, the Transaction was terminated. As the purpose for which the Company was

incorporated no longer exists it is the intention of the directors to proceed with the dissolution of the Company prior

to 31 December 2013. The financial statement have therefore been prepared on a basis other than going concern.

No material adjustments arose as a result of ceasing to apply the going concern basis and the financial statements

do not include any costs relating to the dissolution of the Company as these costs will be met by KBC.

Post statement of financial position events

At the date of approving these financial statements there is considerable uncertainty in the financial markets

following the global liquidity and credit crisis. As a consequence there have been significant rating downgrades and

write downs in residential mortgage backed and other asset backed securities held or issued by banking and

financial institutions.

Credit events have occurred in the Portfolio in the form of a) bankruptcy credit events, b) ABS ratings downgrade

credit events, c) permanent reduction of capital credit events, and d) restructuring credit events (together, the

'Credit Events') with a claim date during the year ended 31 December 2012 and subsequently, for the following

corporate obligations and asset backed securities:

-3-


31 December 2012

Post statement of financial position events (continued)

a) bankruptcy credit events:

Overseas Shipholding Group, Inc., Sino-Forest Corporation, and The PMI Group, Inc.

b) ABS ratings downgrade credit events:

BSABS 2006-HE10 1M2, CMLTI 2006-WFH3 M2, CMLTI 2006-WFH4 M2, CWCI 2006-3A A, GSAMP

2006-HE7 M2, LBMLT 2005-2 M7, MLMI 2005-WMC1 63, MLMI 2006-HE2 M1, OWNIT 2006-2 M1, SVHE

2006-OPT3 M1, and SVHE 2006-OPT5 M1.

c) permanent reduction of capital credit events:

AHMA 2006-3 2A32, ACE 2006-FM2 M1, CWCI 2006-3A A, HASC 2006-HE1 M1, JPMAC 2006-CW2

MV6, and LUM 2006-1 A3.

d) restructuring credit events:

Bankia SA - restructured default, Irish Life &Permanent Public Limited Company - restructured default,

The Governor and Company of the Bank of Ireland - restructured default, and Victor Company of Japan,

Limited - restructured default.

Credit protection valuations were verified by an independent verification agent in respect of the Credit Event claims

which resulted in settlements being made under the Swap. The payment of Credit Event claims resulted in the

utilisation of the cash reserve amount (the 'Cash Reserve Amount'), in full, the reduction of the Amounts due under

the Investment Agreement and an equal reduction to the principal amounts due to the noteholders.

On the cash settlement date of 7 January 2013, the Amounts due under the Investment Agreement and the

principal balance of the class Al-USD Notes were reduced by US$399,140. The adjusted principal balance of the

class Al-USD Notes was US$7,302,677.

On the cash settlement date of 8 April 2013, the Amounts due under the Investment Agreement and the principal

balance of the class Al-USD Notes were reduced by US$911,118. The adjusted principal balance of the class A1-

USD Notes was US$6,391,559.

On the termination date the adjusted principal balance of the class Al-USD Notes was repaid, in full, in the sum of

US$6,391,559. The adjusted principal balance of the class Al-USD Notes was US$nil.

-4-


31 December 2012

Statement of directors' responsibilities with regard to the financial statements

The directors are required by the Companies (Jersey) Law 1991, as amended, to prepare financial statements for

each financial year which give a true and fair view of the state of affairs of the Company as at the end of the

financial year and of the profit or loss for that period. In preparing these financial statements, the directors are

required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and estimates that are reasonable and appropriate;

• state whether applicable accounting standards have been followed, subject to any material departures

disclosed and explained in the financial statements; and

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the

Company will continue in business.

The directors are responsible for keeping accounting records that are sufficient to show and explain the Company's

transactions. These records must disclose with reasonable accuracy at any time the financial position of the

Company and to enable the directors to ensure that any financial statements prepared comply with the Companies

(Jersey) Law 1991, as amended. They are also responsible for safeguarding the assets of the Company and

hence for taking reasonable steps for the prevention and detection of fraud, error and non-compliance with law and

regulations.

By order of the board

l iS~~ ~--~refary~- Bedell Secretaries~Limited

3 0 JUL 2013..............................Date

Registered office

26 New StreetSt HelierJerseyJE2 3RA

-5-

I~~~'~~~

~III~IIIIIiII °~ ERNST&YOUNG

INDEPENDENT AUDITOR'S REPORTTO THE MEMBERS OF BAKER STREET USD FINANCE LIMITED

We have audited the financial statements of Baker Street USD Finance Limited for the yearended 31 December 2012 which comprise Statement of comprehensive income, Statement offinancial position, Statement of changes in equity, Statement of cash flows and the related notes1 to 18. The financial reporting framework that has been applied in their preparation is applicablelaw and International Financial Reporting Standards. The financial statements have beenprepared on a break up basis.

This report is made solely to the company's members, as a body, in accordance with Article 113Aof the Companies (Jersey) Law 1991. Our audit work has been undertaken so that we mightstate to the company's members those matters we are required to state to them in an auditor'sreport and for no other purpose. To the fullest extent permitted by law, we do not accept orassume responsibility to anyone other than the company and the company's members as a body,for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors

As explained more fully in the Statement of directors' responsibilities with regards to the financialstatements set out on page 5, the directors are responsible for the preparation of the financialstatements and for being satisfied that they give a true and fair view. Our responsibility is to auditand express an opinion on the financial statements in accordance with applicable law andInternational Standards on Auditing (UK and Ireland). Those standards require us to comply withthe Auditing Practices Board's Ethical Standards for Auditors.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financialstatements sufficient to give reasonable assurance that the financial statements are free frommaterial misstatement, whether caused by fraud or error. This includes an assessment of:whether the accounting policies are appropriate to the company's circumstances and have beenconsistently applied and adequately disclosed; the reasonableness of significant accountingestimates made by the directors; and the overall presentation of the financial statements. Inaddition, we read all the financial and non-financial information in the Directors' report to identifymaterial inconsistencies with the audited financial statements. If we become aware of anyapparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statements

In our opinion the financial statements:• give a true and fair view of the state of the company's affairs as at 31 December 2012

and of its result for the year then ended;• have been properly prepared in accordance with International Financial Reporting

Standards; and• have been prepared in accordance with the requirements of the Companies (Jersey) Law

1991.

IIIill~~~ I~IIIIIIIfll411~1 °~ ERNST&YOUNG

INDEPENDENT AUDITOR'S REPORTTO THE MEMBERS OF BAKER STREET USD FINANCE LIMITED

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies (Jersey) Law1991 requires us to report to you if, in our opinion:• proper accounting records have not been kept, or proper returns adequate for our audit

have not been received from branches not visited by us; or• the financial statements are not in agreement with the accounting records and returns; or• we have not received all the information and explanations we require for our audit.

~~ ~~Kirsty Mackayfor and on behalf of Ernst &Young LLPJersey, Channel IslandsDate: 31 July 2013

IncomeMovement in fair value of the Swapthrough profit or lossSwap premiumInvestment incomeTransaction feeBank interestCash reserve incomeMovement in fair value of the Notesthrough profit or loss

ExpensesSettlement of Credit Event claimsMovement in fair value of the Notesthrough profit or lossOperating expensesInterest payable on the Notes

Total comprehensive income for

the year

Notes US$

454

8

Baker Street USD Finance LimitedAudited statement of comprehensive income

31 December 2012

2012US$

6 5,988,942

916,852140,608107, 291

6,909,700190,58453,2771,199132

7,154,892

2011US$ US$

19,169, 576297,75871,6811,158156

156,250

2.242

19,698,821

19,377,245

101, 232219,186

(7.153,693) (19.697.663)

1,199 1,158

The Company has no other items of income or expense for the year and accordingly the profit for the year

represents total comprehensive income.

The notes on pages 12 to 27 are an integral part of these financial statements.-8-

Baker Street USD Finance LimitedAudited statement of financial position

31 December 2012

2012 2011Notes US$ US$

AssetsCurrent assetsAmounts due under the InvestmentAgreement 6 7,701,817 13,690,759

Trade and other receivables 7 6,251 12,433

Cash and cash equivalents 8 18.552 37,500

Total assets 7.726.620 13.740,692

Equity and liabilitiesEquity attributable to owners of theCompanyCalled up share capital 9 3 3

Retained earnings 1,199 1.158

Total equity 1.202 1,161

LiabilitiesCurrent liabilitiesSwap at fair value through profit orloss 6,162,728 13,072,428

Notes at fair value through profit orloss 10 1,531,098 614,246

Trade and other payables 11 31.592 52.857

Total liabilities 7,725.418 13.739.531

Total equity and liabilities 7.726.620 13,740,692

The financial statements on pages 8 to 27 were approved by the board of directors and authorised for

issue on 30 July 2013, and signed on its behalf by:

~C_ --~~

irector - Alasdair~James Hunter Alterna e director- Ariel~Pinel


Balance at 1 January 2011

Profit for the year

Total comprehensive income for the the year ended 31 December2011

Transactions with owners:Equity dividend paid

Balance at 37 December 2011

Balance at 1 January 2012

Profit for the year

Total comprehensive income for the the year ended 31 December

2012

Transactions with owners:Equity dividend paid

Balance at 31 December 2012

Baker Street USD Finance LimitedAudited statement of changes in equity

31 December 2012

Called upshare Retainedcapital earnings TotalUS$ US$ US$

3 1,163 1,166

1.158 1,158

1.158 1.158

_ (1,163) (1,163)

3 1.158 1.161

Called upshare Retainedcapital earnings TotalUS$ US$ US$

3 1,158 1,161


1.199 1.199

1.199 1,199

- (1,158) (1.158)

3 1,199 1,202

Baker Street USD Finance LimitedAudited statement of cash flows

31 December 2012

2012 2011Notes US$ US$

Net cash used in operatingactivities 12 (143.850) (96,155)

Cash flows generated frominvesting activitiesSwap premium 188,353 202,478Cash reserve income - 156,250Investment income 59,440 81,816Bank interest 151 202Redemption of Amounts due underthe Investment Agreement 6 5.988.942 19.220,995

Net cash flows generated frominvesting activities 6,236,886 19.661.741

Cash flows used in financingactivitiesInterest payable on the Notes (127,884) (266,162)Settlement of Credit Event claims 6 (5,988,942) (19,377,245)Equity dividend (1.158) (1.163)

Net cash flows used in financingactivities (6.111,984) (19, 644, 570)

Net decrease in cash and cashequivalents (18,948) (78,984)Cash and cash equivalents at 1January 8 37,500 116,484

Cash and cash equivalents at 31December 8 18.552 37.500


Baker Street USD Finance LimitedAudited notes to the financial statements

31 December 2012

1 General information

The Company is a public limited company incorporated in Jersey, Channel Islands. The principal activities of the

Company are described in the directors' report.

2 Accounting policies

Statement of compliance

The financial statements for the year ended 31 December 2012 on pages 8 to 27 have been prepared in

accordance with the International Financial Reporting Standards ('IFRS').

Basis of measurement

The financial statements are prepared in accordance with accounting principles generally accepted in the island of

Jersey, incorporating IFRS and have been prepared under the historical cost convention, except for the revaluation

of certain financial instruments.

The Transaction terminated on 8 July 2013 and it is the directors' intention to proceed with the dissolution of the

Company within the next twelve months.

These financial statements are presented in US Dollars ('US$'), which is the Company's functional and reporting

currency.

A summary of the more important policies in dealing with items that are considered material to the Company are

shown below:

Going concern

The optional termination date was April 2011, following which time and on any subsequent payment date, the Swap

Counterparty had the right to terminate the Transaction.

On 8 July 2013 the Company redeemed the remaining Amounts due under the Investment Agreement and used

the proceeds to repay, in full, the remaining class Al-USD Notes. Following the repayment of the Notes the

Company and the other Transaction parties terminated and discharged their obligations in respect of the

Transaction and accordingly, the Transaction was terminated. As the purpose for which the Company was

incorporated no longer exists it is the intention of the directors to proceed with the dissolution of the Company prior

to 31 December 2013. The financial statement have therefore been prepared on a basis other than going concern.

No material adjustments arose as a result of ceasing to apply the going concern basis and the financial statements

do not include any costs relating to the dissolution of the Company as these costs wild be met by KBC.

Adoption of new and revised standards

At the date of authorisation of these financial statements the following standard, which has been applied in these

financial statements, was in issue and effective:

IFRS 7 Financial Instruments: Disclosures (amended) (effective 1 July 2011) ('IFRS 7 (amended) 1 July

2011').

The directors consider that the adoption of IFRS 7 (amended) 1 July 2011 has not had a significant impact upon

the Company.

Standards and interpretations in issue not yet adopted

At the date of authorisation of these financial statements the following standards and interpretations, which have

not been applied in these financial statements, were in issue but not yet effective:

-12-


31 December 2012

2 Accounting policies (continued)

Standards and interpretations in issue not yet adopted (continued)

IFRS 9 Financial Instruments (effective 1 January 2015) ('IFRS 9');

IFRS 12 Disclosure of Interests in Other Entities (effective 1 January 2013) ('IFRS 12'); and

IFRS 13 Fair Value Measurement (effective 1 January 2013) ('IFRS 13').

The directors anticipate that the adoption of IFRS 9, IFRS 12 and IFRS 13 will not have a significant impact upon

the results of the Company, but will have an impact on the disclosures of the Company.

The directors have reviewed and considered all other standards, amendments and interpretations issued but not

yet effective as at the date the financial statements are authorised for issue. In the opinion of the directors the

other standards, amendments and interpretations issued but not yet effective are either not relevant to the activities

of the Company or will have no impact on the financial statements of the Company.

Critical accounting judgements and key sources of estimation uncertainty

The preparation of these financial statements requires the directors to make estimates and assumptions that affect

the reported amounts of revenues, expenses, assets, liabilities and the disclosure of contingent liabilities as at the

statement of financial position date. The estimates and associated assumptions are based on historical experience

and other factors that are considered to be relevant. Actual results may differ from these estimates.

In the event such estimates and assumptions which are based on the best judgement of the directors as at the

statement of financial position date deviate from the actual circumstances in the future, the original estimates and

assumptions will be modified as appropriate in the year or period in which the circumstances change.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revision to accounting estimates

are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period

of the revision and future periods if the revision affects both current and future periods.

The assumptions made in calculating the fair value and the models used are detailed in note 13(d).

There are no other significant assumptions made concerning the future or other sources of estimation uncertainty

that have been identified as giving rise to a significant risk of causing material adjustment to the carrying amount of

assets and liabilities within the next financial year.

Foreign exchange

Transactions in foreign currencies are recorded at the rate of exchange ruling at the date of transaction.

Monetary assets and liabilities denominated in foreign currencies are revalued at the rate of exchange ruling at the

statement of financial position date.

Foreign exchange gains and losses are included in the statement of comprehensive income for the period.

Financial instruments

In pursuing its objectives as a special purpose bankruptcy remote financing vehicle, the Company holds, held or

has issued a number of financial instruments. These comprise:

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31 December 2012


Financial instruments (continued)

• Amounts due under the Investment Agreement;

• trade and other receivables;

• cash and cash equivalents;

• Notes;

• Cash Reserve Amount;

• Swap; and

• trade and other payables.

The Company applied the Fair Value Option revision to International Accounting Standard 39 Financial

Instruments: Recognition and Measurement (amended 17 June 2005) ('IAS 39'). Accordingly all financial

instruments except trade and other receivables, cash and cash equivalents and trade and other payables were

classified as financial instruments at fair value through profit or loss in accordance with the provisions set out in IAS

39.

All financial instruments were initially recorded at cost, which corresponds with the fair value of such instruments.

Subsequently, with the exception of trade and other receivables, cash and cash equivalents and trade and other

payables, which were measured at amortised cost, they were re-measured at fair value in accordance with the

guidance provided in IAS 39 and established industry practices for the determination of fair values. Any gain or

loss resulting from changes in fair value was included in the statement of comprehensive income in the period in

which they arose. Trade and other receivables, cash and cash equivalents and trade and other payables were

recorded at amortised cost.

The Swap was a derivative financial instrument which was classified as held for trading under IAS 39. This

instrument was therefore measured at fair value through profit or loss. The Notes issued by the Company and the

Amounts due under the Investment Agreement were also measured at fair value through profit or loss as it

eliminated a measurement inconsistency, an accounting mismatch, that would otherwise have arisen from

measuring the derivatives at fair value through profit and loss and the related Notes and the Amounts due under

the Investment Agreement at amortised cost.

Recognition and derecognition of financial assets and liabilities

The Company initially recognises financial assets and liabilities on the date they originated. Purchases and sales

of financial assets are recognised on the date on which the Company commits to purchase or sell the asset. All

other financial assets and liabilities (including assets and liabilities designated at fair value through profit or loss)

are initially recognised on the date on which the Company becomes a party to the contractual provisions of the

instrument.

Financial assets are derecognised when the right to receive cash flows from the assets has expired or when the

Company has transferred its contractual right to receive the cash flows of the financial assets and substantially all

the risks and rewards of ownership have been transferred. Financial liabilities are derecognised when they were

extinguished, that is, when the obligation is discharged, cancelled or expires.

Impairment of financial assets

Financial assets are assessed at each reporting date to determine whether there was any objective evidence that

the asset was impaired. A financial asset is considered to be impaired if objective evidence indicates that one or

more events have had a negative effect on the estimated future cash flows of such asset. An impairment loss in

respect of an asset measured at amortised cost is calculated as the difference between the carrying value of the

asset and the present value of the estimated future cash flows discounted at the original effective interest rate.

-14-

Baker Street USD Finance Limited

Audited notes to the financial statements31 December 2012


Impairment of financial assets (continued)

Ail impairment losses are recognised in the statement of comprehensive income. An impairment loss is reversed if

the reversal can be related objectively to an event occurring after the impairment loss was recognised.

Fair value

The determination of fair values for financial assets and liabilities for which there is no observable market price

requires the use of valuation techniques as described below.

For financial instruments that trade infrequently and have little price transparency, fair value is less objective and

requires varying degrees of judgment depending on liquidity, concentration, uncertainty of market factors, pricing

assumptions and other risk factors affecting each financial instrument.

For complex financial instruments the Company used proprietary models which were developed from recognised

valuation models. Some or all of the significant inputs into these models may not have been market observable

and were derived from market prices or rates or were estimates based on assumptions.

The value produced by a model or other valuation techniques was adjusted to allow for a number of factors as

appropriate, since valuation techniques could not appropriately reflect all factors market participants consider when

entering into a transaction. Valuation adjustments were recorded to allow for model risk, bid-ask spreads, liquidity

risks and other contributing factors.

The directors believe that these valuation adjustments were necessary and appropriate to disclose the fair value of

the financial instruments on the statement of financial position that give a true and fair view.

Amounts due under the Investment Agreement

Amounts due under the Investment Agreement initially represented an amount equal to US$45,500,000 and was

invested pursuant to the Investment Agreement between the Company and the Eligible GIC Provider under a GIC.

Amounts due under the Investment Agreement were measured at fair value through profit or loss.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, demand deposits with banks and other financial institutions

and comprised amounts payable in relation to Cash Reserve Amount and are or were measured at amortised cost.

Interest payable on the Notes

Interest payable on the Notes was accounted for using the effective interest basis in accordance with IAS 39.

Revenue recognition

Investment income under the Investment Agreement accrued from time to time on the Amounts due under the

Investment Agreement and, on each payment date prior to the termination date, the Eligible GIC Provider would

pay to the Company the amount of investment income accrued during the interest period ending on such payment

date. Investment income was determined by the daily application of:

a 'per annum rate equal to USLIBOR; to

the Amounts due under the Investment Agreement, on the basis of the actual number of days elapsed

during such interest accrual period and a 360 day year.

-15-


31 December 2012


Revenue recognition (continued)

Swap premium was receivable under the Swap from the Swap Counterparty in return for the Company taking on

the mezzanine level credit and market risk of the Portfolio. The Company received Swap premium which equalled

the difference between the investment income (excluding the Transaction fee) and expenses and all other operating

expenses of the Company.

Investment income and Swap premium were recognised on an accruals basis.

The annual Transaction fee receivable was recognised on an accruals basis and was due to the Company in

accordance with the Transaction documentation.

Dividends

Under International Accounting Standard 10 Events after the Reporting Period ('IAS 10'), proposed dividends are

not considered to be a liability until the dividends are approved and declared by the directors of a company for

interim dividends or the shareholders of a company, at the annual general meeting, for final dividends.

Under IAS 10 dividends are recorded in the period in which they are declared.

3 Taxation

The Company is registered in Jersey, Channel Islands as an income tax paying company. The general rate of

income tax for companies resident in Jersey (such as the Company) is 0% for the current year of assessment

(2011:0%).

4 Swap premium and Transaction fee

Swap premiumTransaction fee

2012 2011US$ US$

190,584 297,7581.199 1,158

191.783 298,916

The Company entered into the Swap with the Swap Counterparty pursuant to the terms of which the Company

had, in return for the Swap premium, taken on the mezzanine level credit and market risk of the Portfolio. The

Portfolio was up to US$250,000,000 in size. The Swap Counterparty originally retained the first loss tranche of

US$3,764,000.

5 Investment income

Investment income

2012 2011US$ US$

53.277 71,681

Investment income was received on the Amounts due under the Investment Agreement held with the Eligible GIC

Provider and was received on each quarterly payment date pursuant to the terms of the Investment Agreement,

calculated on the basis of USLIBOR. There was no premium or discount on the Amounts due under the

Investment Agreement therefore the USLIBOR rate equalled the effective interest rate.

-16-

6 Amounts due under the Investment Agreement

Amounts due under the Investment Agreement


31 December 2012

2072 2011US$ US$

7,701,817 13.690.759

The Amounts due under the Investment Agreement comprised the sum of all amounts deposited with or

transferred to the Eligible GIC Provider at the direction of the Eligible GIC Provider less all amounts withdrawn from

such arrangement, other than payments of investment income.

The Company pledged the Amounts due under the Investment Agreement to the Trustee to secure the trustee

claims under the Trust Deed. The trustee claims entitled the Trustee to demand that all obligations under the

Notes were fulfilled.

On the legal maturity date or such earlier date on which the last outstanding notes were to be redeemed in whole,

the Eligible GIC Provider would transfer to the Company the balance of the Amounts due under the Investment

Agreement to the Company's principal collections account on such date.

During the year the Company realised Amounts due under the Investment Agreement in the sum of US$5,988,942

(2011: US$19,220,995) and used the proceeds together with US$nil (2011: US$156,250) from the Cash Reserve

Amount to settle Credit Event claims totalling US$5,988,942 (2011: US$19,377,245).

The Amounts due under the Investment Agreement have been classified as a current asset in recognition of the

Swap Counterparty's option to end the Transaction by terminating the Swap on, or after, any payment date

following the optional termination date which fell in April 2011.

7 Trade and other receivables

Accrued investment incomeAccrued bank interest

8 Cash and cash equivalents

Balance as at 1 January

Net decrease in cash and cash equivalents

Balance as at 31 December

2092 2011US$ US$

6,237 12,40014 33

6, 251 12, 433

2012 2011US$ US$

37.500 116.484

(18,948) (78,984)

18,552 37,500

The Company received the Cash Reserve Amount from KBC equivalent to 0.25% per annum of the underlying

Portfolio payable on each payment date until the earlier of the payment date which fell in April 2011 or the

termination date. The Cash Reserve Amount was retained in a cash reserve bank account held with KBC Bank

N.V. and was pledged in priority to the Amounts due under the Investment Agreement to secure all present and

future obligations under the Notes.

-17-


31 December 2012

8 Cash and cash equivalents (continued)

Application of the Cash Reserve Amount:

the Company paid to the Swap Counterparty cash settlement amounts in an amount equal to the Credit

Event claims which exceeded the first loss tranche; and

• in the event that a principal shortfall existed on the Notes the Company would reinstate the principal

amount of the Notes. Such reinstatements would have been allocated to the Notes in enforcement order

of seniority until the adjusted principal balance was reinstated to its initial principal balance.

The Company was called to settle amounts under the Swap and used the Cash Reserve Amount, in full, before the

Company realised Amounts due under the Investment Agreement equal to the amounts due. Due to the limited

recourse nature of the Transaction, such settlement amounts reduced the principal amounts due to the

noteholders in reverse enforcement order of seniority.

The Company continued to receive the Cash Reserve Amount until the payment date which fell in April 2011.

During the prior year the Company received a total of US$156,250 into the cash reserve bank account and used

this amount in order to settle its obligations under the Swap due to Credit Event claims. Income receivable under

the Cash Reserve Amount in the sum of US$156,250 was recognised during the prior year.

9 Called up share capital2012 2011US$ US$

Authorised:2 ordinary shares of £1.00 each - at historical cost

3 3

Issued and fully paid:

2 ordinary shares of £1.00 each - at historical cost 3 3

There are no other share classes which would dilute the rights of the ordinary members. Amongst other rights as

prescribed in the articles of association of the Company, the rights of the ordinary members include:

the right to attend meetings of members. On a show of hands every member present in person or by

proxy shall have one vote and on a poll every member shall have one vote for each share of which the

member is a shareholder; and

the right to receive dividends recommended by the directors and approved by the shareholders.

10 Notes

The Company issued the following classes of Notes which had a legal maturity date of October 2040 and an

optional termination date which was exercisable by the Swap Counterparty on, or after, the payment date which fell

in April 2011.


and settlements made under the Swap. Therefore, the occurrence of the Credit Event claims resulted in the

utilisation of the Cash Reserve Amount, in full, and impacted upon the principal amounts due to the noteholders,

as follows:

-18-



10 Notes (continued)

At cost Reduction of At cost At fair value

1 January principal in 31 December 31 December

2012 the year 2012 2012

US$ US$ US$ US$

Class Al-USD 8,400,000 (698,183) 7,701,817 1,531,098

Class A2-USD 5.290,759 (5.290.759)

At fair value31 December

2011US$

614, 246

13,690.759 (5,988,942) 7.701.817 1.531,098 614,246

The aggregate amount of realised losses were allocated in reverse order of seniority whereby class

H-USD

suffered the first realised loss, then class G-USD, then class F-USD, then class E-USD, then class D-

USD, then

class C-USD, then class B-USD, then class A2-USD and then, in part, class Al-USD. The aggregate

amount of

any future realised losses will be allocated to the remaining class Al-USD. The payment oblig

ations of the

Company under the Notes in respect to interest and principal amounts were secured by the Cash Res

erve Amount

and the Amounts due under the Investment Agreement.

Issue costs in respect of the Notes have been paid by KBC Bank N.V.

The agent bank is required, as soon as practicable after the interest determination date in rel

ation to each interest

period, to calculate the amount of interest (the 'Interest Amount) payable in respect of each Not

e for such interest

period.

The Interest Amount for each Note was calculated by applying the rate of interest applicable

to such Note for the

relevant interest period to the adjusted principal balance of such Note on the first day of

such interest period,

multiplying the product by the actual number of days in such interest period divided by 36

0 and rounding the

resulting figure to the nearest cent (half a cent being rounded upwards).

The interest margin meant:

(a) subject to (b) and (c) below, in respect of each class of Notes listed below, the rat

e and interest margin per

annum set next to such:

Class, rate and interest margin

Class Al-USD - 3 Month USLIBOR +0.45%

Class A2-USD - 3 Month USLIBOR +0.60%

or,

(b) subject to (c) below if the Swap Counterparty had not exercised the Swap termina

tion option by the payment

date scheduled to fall in April 2016 (the 'Coupon Step-Up Date') and the termin

ation date had not otherwise

occurred, for each interest period commencing on or after the Coupon Step-Up Date and

in respect of each class

of Notes listed below, the rate and interest margin per annum set out next to such:

Class, rate and interest margin

Class Al-USD - 3 Month USLIBOR +0.90%

Class A2-USD - 3 Month USLIBOR +1.20%

or,

(c) for each interest period commencing on or after the termination date and in respect

of each class of Notes,

zero.

-19-


31 December 2012

11 Trade and other payables

Interest accrued on the NotesSwap premium received in advance

Other creditors

12 Cash flows from operating activities

Reconciliation of operating profit to net cash flows used in operating activities.

Profit for the yearSwap premiumCash reserve incomeInvestment incomeBank interestSettlement of Credit Event claimsInterest payable on the Notes(Decrease)/increase in trade and other payables

Movement in fair value of the Swap through profit or loss

Movement in fair value of the Notes through profit or loss

Cash flows used in operations

13 Financial instruments

2012 2011US$ US$

14,228 28,8211,652 3,883

15.712 20.153

31.592 52,857

2012 2011US$ US$

1,199 1,158(190,584) (297,758)

-

(156,250)(53,277) (71,681)

(132) (156)5,988,942 19,377,245107,291 219,186(4,441) 3,919

(6,909,700) (19,169,576)916.852 (2,242)

(143,850) (96.155)

In pursuing its objectives as a special purpose bankruptcy remote financing vehicle, the Company holds, held or

has issued a number of financial instruments. These comprise:

Amounts due under the Investment Agreement;

• trade and other receivables;

• cash and cash equivalents;

Notes;

• Cash Reserve Amount;

• Swap; and

• trade and other payables.

The main risks from holding or issuing the Company's financial instruments are detailed below together with the

policies adopted by the board of directors to manage the risk:

-20-


31 December 2012

13 Financial instruments (continued)

(a) Market risk

The Company's exposure to market risk is comprised of the following risks:

(i) Foreign exchange risk

The Notes issued by the Company were denominated in US$. The Amounts due under the Investment Agreement

were represented by funds deposited with the Eligible GIC Provider and were denominated in US$. The Portfolio

contained securities denominated in currencies other than US$ but the Company only took on the credit risk and

market risk of such securities. Any credit or market risk, regardless of currency, which materialised was transferred

to the noteholders. Accordingly, the directors are of the opinion that there was no material currency risk exposure

to the Company.

(ii) Interest rate risk

Amounts due under the Investment Agreement -the Company received investment income at a rate equal to

USLIBOR.

Notes -the Company paid interest on the Notes in accordance with the terms of the Notes as described in note 10.

Swap -the Company received funds under the Swap (Swap premium), this was calculated as the difference

between the investment income (excluding the Transaction fee) and expenses comprising interest payable on

Notes and all other operating expenses of the Company.

The directors consider that the Company was not exposed to the risk of interest rate fluctuations.

(b) Credit risk

The Company had two types of risk. Firstly there was a risk that the Company will lose title over its deposits held

by KBC and Amounts due under the Investment Agreement. The risk of this was considered remote. Secondly,

there was the risk of a claim being made on the Amounts due under the Investment Agreement as a result of Credit

Events in the Portfolio.

The Transaction documents were structured such that the obligations of the Company were limited in recourse and

such documents contained bankruptcy remoteness (non-petition) provisions. In the event of Credit Events

occurring before the redemption of the Notes, the Company was obliged, subject to certain conditions, to make

payments) to the Swap Counterparty.

This obligation was met initially by use of the Cash Reserve Amount and once this was utilised and, subsequent to

this, by utilising a proportionate amount of the Amounts due under the Investment Agreement. The credit risk was

transferred to the noteholders who received a reduced amount of interest and principal. Accordingly the directors

are of the opinion that there was no net credit risk to the Company.

The maximum credit risk at the year end is US$7,726,620 (2011: US$13,740,692).

(c) Liquidity risk

Liquidity risk was the risk that the Company would encounter difficulties in meeting obligations associated with

financial liabilities. In the opinion of the directors the risk of liquidity was reduced as the Transaction documents

were structured such that the obligations of the Company were limited in recourse and the Company had the

benefit of bankruptcy remoteness.

-21-




(c) Liquidity risk (continued)

The undiscounted contractual cash flows maturity profile of the Company's significant financial liabilities is as

follows:

NotesLess than 1 yearBetween 1 and 5 yearsMore than 5 years

SwapLess than 1 yearBetween 1 and 5 yearsMore than 5 years

Other liabilitiesTrade and other payables - maturity within 1 year

2012 2011US$ US$

7,382,083 10,957,642

7,382.083 10,957,642

6,162,728 13, 072, 428

6.162.728 13.072.428

17.364 24,036

The maturity profile of the Notes in the current and prior year is less than one year in recognition of the optional

termination date which is on, or after, the payment date which fell in April 2011. Amounts of interest payable on the

Notes have been calculated based on a twelve month maturity period notwithstanding the fact that the Swap

Counterparty may exercise their option to cause the Transaction to terminate on any payment date prior to the legal

maturity date.

Credit Events occurred in the Portfolio. In accordance with the Swap and prior to the redemption of the Notes, the

Company was obliged, subject to certain conditions, to make payments) to the Swap Counterparty in the form of a

Credit Event claim.

Pursuant to the Swap, the Swap Counterparty retained the first loss tranche of US$3,764,000. The Company had

the mezzanine level credit risk for a maximum amount of US$45,500,000 above the first loss tranche. This

obligation was met initially by use of the Cash Reserve Amount and subsequent to this, by utilising a proportionate

amount of the Amounts due under the Investment Agreement. The liquidity risk was transferred to the noteholders

who received a reduced amount of interest and principal.

As disclosed in the above maturity analysis, the Cash Reserve Amount has been utilised in full and the payment of

principal on the Notes have been reduced in the reverse order of seniority with reference to the best estimate of the

amount to be settled under the Swap and in accordance with the structure of the Transaction.

Upon receipt of the valuation of the Credit Event claims within two years of such occurrence, the amount to be

settled under the Swap may have differed from the fair value of the Swap. Therefore the amount of interest and

principal payable to the noteholders may have differed from the amounts included in the above maturity analysis.

In the event the aggregate value of a Credit Event Claim exceeded the first loss tranche of US$3,764,000, payment

to the Swap Counterparty would occur on the first payment date which falls four or more business days after the

calculation verification date, as described in the Transaction documentation. The amount paid to the Swap

Counterparty will be the least of:

the aggregate amount of a Credit Event claim eligible for payment on such date;

the excess of aggregate amount of the Credit Event claim over the first loss tranche on such date; and

-22-


31 December 2012


(c) Liquidity risk (continued)

the mezzanine level credit risk of US$45,500,000 plus the Cash Reserve Amount less the sum of each

Credit Event claim paid prior to such date.

The payment of Credit Event claims resulted in the Cash Reserve Amount being used, in full, and impacted on the

Amounts due under the Investment Agreement and the principal due to the noteholders as described in notes 6

and 10 respectively.

(d) Fair value estimation

All financial instruments except trade and other receivables, cash and cash equivalents and trade and other

payables were classified as financial assets at fair value through profit or loss in accordance with the provisions set

out in IAS 39. Changes in fair value of the financial instruments were included in the statement of comprehensive

income in the period in which they occur.

Further to the issuance of amendments to IFRS 7 Financial Instruments: Disclosures (effective 1 January 2009)

('IFRS 7 (amended) 1 January 2009'), a hierarchal disclosure framework has been established which prioritises and

ranks the level of market price observability used in measuring financial instruments at fair value.

Market price observability is impacted by a number of factors, including the type of financial instrument and the

characteristics specific to that type of financial instrument. Financial instruments with readily available quoted

prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of

market price observability and a lesser degree of judgement used in measuring fair value.

Financial instruments measured and reported at fair value are classified and disclosed in one of the following

categories:

level I - an unadjusted quoted price in an active market provides the most reliable evidence of fair value

and is used to measure fair value whenever available. As required by IFRS 7 Financial Instruments:

Disclosures, the Company will not adjust the quoted price for these financial instruments, even in

situations where it holds a large position and a sale could reasonably impact the quoted price;

level II - inputs are other than quoted prices in active markets, which are either directly or indirectly

observable as of the reporting date and fair value is determined through the use of models or other

valuation methodologies; or

• level III - significant inputs are unobservable for the financial instrument and include situations where there

is little, if any, market activity for the financial instrument. The inputs into the determination of fair value

require significant management judgment or estimation.

The fair value of the Notes was categorised under the IFRS 7 (amended) 1 January 2009 fair value hierarchy as

level III as a market quotation was not readily available. Instead the fair value was determined through the use of

the models described below.

The fair value of the Notes has been calculated using the Gaussian Copula Mixture model (the 'GCM'). This

method was used to model the distribution of default times of the underlying corporate obligations and asset

backed securities in the Portfolio. The asset default trigger in the GCM was derived from the Swap spreads in the

market. By discounting the cash flows resulting from the default time curves on the underlying assets, a value for a

specific tranche of Notes was reached. The GCM modelled the fair value of the Notes via the following steps:

for each individual underlying asset in the Portfolio, the Swap spread curve in the market was observed

and a recovery rate was assumed, consistent with the market's expectations towards the recovery rate.

The Swap spreads reflected the markets perception of the creditworthiness of the underlying asset. The

Swap spread curves and assumed recovery rates were then translated into individual survival probability

curves. The probability curve provided an indication of the probability and timing of default. For example,

the probability curve could show that for a certain underlying asset, there was percentage probability that

the underlying asset would not be in default in one year and a percentage probability the underlying asset

would not be in default after two years;

-23-


31 December 2012


(d) Fair value estimation (continued)

• given the recovery rate assumption and the survival probability curve for each underlying asset, an

immense number of scenarios were simulated. The scenarios were randomly generated through a Monte

Carlo simulation, consistent with the individual survival probability curves and taking into account base

correlations in the Portfolio;

• the Notes comprised different inner tranches and a direct bucket of corporate obligations and asset

backed securities. The latter could be viewed as one entire inner tranche. The prior two steps were

repeated for each of the inner tranches included in the Notes. The result of immense simulations was a

Portfolio loss distribution for each of the inner tranches;

• the individual loss distributions for each inner tranche were mapped to market observations. Mechanically

calibrating a model to a developing market might not result in a rational model and stable parameters.

Therefore, a balance was created between the economically plausible model while pricing to the market.

Initially the implied loss distribution from the index tranche market was derived then a mapping was

created between the market implied loss distribution and the modelled loss distribution; and

• given a set of GCM parameters and a set of calibrated loss distributions for the individual underlying inner

tranches, the Note tranches could be fair valued. The GCM took into account the correlation between the

different inner tranches, reflecting the overlap in underlying asset pools. The GCM also took into account

'correlation skew'. In a good state of the economy, correlation was less than in a bad state of the

economy. A mixture of parameter weights reflected the percentage of time that the economy was in either

state.

The fair value of the Swap has been categorised by the IFRS 7 (amended) 1 January 2009 fair value hierarchy as

level III as a market quotation is not readily available. Instead the fair value of the Swap has been calculated, using

the model of the Notes above, as the net present value of future cash flows to maturity. The discount rate used in

this model is the weighted coupon. The weighted coupon is calculated using individual coupons weighted

according to the notional balance for each class of Notes.

There has been a significant cumulative decrease, since issue, in the fair value of the Notes due to Credit Events

occurring. The Cash Reserve Amount was utilised, in full, then Amounts due under the Investment Agreement

were realised in payment of the Credit Event claims. The fair value of the Swap has significantly decreased and

accordingly reflects the amounts still due and payable due to further Credit Events.

The Company's financial assets and liabilities were measured using valuation techniques and assumptions as set

out above. Underlying the definition of fair value (as defined by IAS 39) was a presumption that the Company was

a going concern without any intention or need to liquidate, to curtail materially the scale of its operations or to

undertake a transaction on adverse terms.

Cost Fair Value Fair value2012 2012 2011US$ US$ US$

Financial assetsAmounts due under Investment Agreement 7,701,817 7,701,817 13,690,759

Trade and receivables 6,251 6,251 12,433

Cash and cash equivalents 18,552 18,552 37,500

Financial liabilitiesSwap - 6,162,728 13,072,428

Notes 7,701,817 1,531,098 614,246

Trade and other payables 31,592 31,592 52,857

Whilst the Company's limited recourse Notes were listed on the Irish Stock Exchange, they were not priced, there

being no liquid secondary market for this type of note. The purchase price of the Company's main financial asset,

the Amounts due under the Investment Agreement, was considered to be the fair value of the asset.

-24-


31 December 2012


(d) Fair value estimation (continued)

Given the limited recourse nature of the Transaction, any differences between fair value and book value of the

financial instruments would have had no net effect on the position of the Company. Furthermore, the holders of the

Company's limited recourse Notes, as sophisticated investors, were aware of the link between their investment and

the underlying assets.

Fair value was not, therefore, the amount that the Company would receive or pay in a forced transaction,

involuntary liquidation or distress sale. However, fair value reflected the credit quality of the financial assets and

liabilities measured. The objective of using these valuation techniques was to establish what the transaction price

would have been at the statement of financial position date in an arm's length exchange motivated by normal

business considerations.

In the opinion of the directors the fair value of Amounts due under the Investment Agreement approximated to the

sum of all amounts deposited with or transferred to the Eligible GIC Provider less all amounts withdrawn from such

arrangement, other than payments of investment income. The Amounts due under the Investment Agreement

generated the credit support for the Notes and thus the fair value of the Notes approximated the combined fair

value of the Swap and the Amounts due under the Investment Agreement.

(e) Capital management

The Company is a special purpose entity therefore exposure to risk in relation to capital management is not

considered significant.

14 Derivative financial instruments

The Company entered into derivative financial instruments to allow the noteholders the opportunity to participate in

the risks and rewards in relation to the Portfolio whilst allowing the Company to benefit from a Transaction fee and

costs of administration being met.

The Company entered into the Swap with the Swap Counterparty pursuant to the terms of which, the Company in

return for a Swap premium fee, took on the credit and market risk of the Portfolio which was scheduled to

terminate in July 2038. On 8 July 2013 the Swap Counterparty exercised its right to terminate the Transaction and

the Transaction parties terminated and discharged their obligations and accordingly, the Transaction was

terminated.

Credit Events in respect of the Portfolio occurred during the current and prior year resulted in the Company making

payment of cash settlement amounts to the Swap Counterparty. The interest and principal balance of the Notes

were reduced accordingly by the proportion of the Cash Reserve Amount and the Amounts due under the

Investment Agreement were utilised to make payment of cash settlement amounts to the Swap Counterparty, as

per the terms of the Notes.

KBC Bank N.V., as Portfolio manager, was permitted to add or delete reference entities in the Portfolio. This was

subject to a minimum rating for the reference entity of at least BBB- by Standard & Poor's and Baa3 by Moody's.

On issue, the Portfolio size was approximately 5.5 times the nominal amount of the Notes.

As security for its obligation under the Swap, the Company pledged the Amounts due under the Investment

Agreement to the Trustee.

15 Ultimate controlling party

The Company is owned by Bedell Trustees Limited, in its capacity as trustee of the Baker Street USD Charitable

Trust.

The Company is consolidated for accounting purposes with KBC Investments Cayman Islands Ltd and KBC

Investments Cayman Islands Ltd is consolidated for accounting purposes with KBC Group N.V. In the opinion of

the directors the ultimate parent company is KBC Group N.V.

-25-



16 Related party transactions

The Company was formed for the purpose of participating in the Transaction arranged by KBC. The Company

raised funds from the issuance of the Notes in the sum of US$45,500,000 and subsequently on 2 April 2007 the

Repo to GIC Transfer Amount was invested pursuant to the Investment Agreement between the Company and the

Eligible GIC Provider. All income received on the Amounts due under the Investment Agreement was paid by the

Eligible GIC Provider to the Company.

On the legal maturity date or such earlier date on which the last outstanding notes are to be redeemed in whole,

the Eligible GIC Provider shall transfer to the Company the balance of the Amounts due under the Investment

Agreement on such date. For the year ended 31 December 2012 the Company had received from the Eligible GIC

Provider investment income in the sum of US$59,440 (2011: US$81,816) and investment income in the sum of

US$6,237 was receivable (2011: US$12,400).

The Company also entered into the Swap with the Swap Counterparty pursuant to the terms of which the Company

had, in return for a fee, taken on the mezzanine level credit and market risk of the Portfolio which was up to

US$250,000,000 in size. The Swap Counterparty retained the first loss tranche of US$3,764,000. The Company

had the mezzanine level credit risk for a maximum amount of US$45,500,000 above the first loss tranche. For the

year ended 31 December 2012 the Company had received from the Swap Counterparty Swap premium in the sum

of US$188,353 (2011: US$202,478) and had received excess Swap premium in the sum of US$1,652 (2011:

US$3,883).

The 2012 financial statements of the Company are consolidated in the financial statements of KBC Investments

Cayman Islands Ltd. Prior to this the financial statements of the Company were consolidated in the financial

statements of KBC Bank. N.V.

The directors of the Company are the Company's only key management personnel. Corporate administration

services are provided to the Company by Bedell Trust Company Limited, including the provision of Company

secretary, Bedell Secretaries Limited and the directors. Shane Michael Hollywood and Alasdair James Hunter are

directors of Bedell Trustees Limited and Bedell Secretaries Limited and are partners of Bedell Group. Shane

Michael Hollywood is also a director of Bedell Trust Company Limited. The directors' fees are included in the fee

expense payable to Bedell Trust Company Limited.

Total fees charged to Bedell Trust Company Limited during the year amounted to £26,428 (US$42,711) (201

1:

£23,846 (US$36,804)). Fees were payable to Bedell Trust Company Limited in the sum of £1,463 (US$2,36

5) as

at the year end (2011: £858 (US$903)).

Legal services are provided to the Company by Bedell Cristin, from time to time. Alasdair James Hunter is als

o a

partner of Bedell Cristin.

17 Dividends

Dividends were paid during the year in the sum of £750 (US$1,158) which equates to £375 (US$579) per sha

re

(2011: £750 (US$1,163) which equates to £375 (US$582) per share).

A dividend in the sum of £750 (US$1,199) is recommended in respect of the financial year ended 31 December

2012 which equates to £375 (US$600) per share (2011: £750 (US$1,158) equates to £375 (US$579) per share).

18 Post statement of financial position events

At the date of approving these financial statements there is considerable uncertainty in the financial markets

following the global liquidity and credit crisis. As a consequence there have been significant rating downgrades

and write downs in residential mortgage backed and other asset backed securities held or issued by banking and

financial institutions.

Credit Events had occurred in the Portfolio with a claim date during the year ended 31 December 2012 and

subsequently, for the following corporate obligations and asset backed securities:

a) bankruptcy credit events:

Overseas Shipholding Group, Inc., Sino-Forest Corporation, and The PMI Group, Inc.

-26-


31 December 2012

18 Post statement of financial position events (continued)

b) ABS ratings downgrade credit events:

BSABS 2006-HE10 1M2, CMLTI 2006-WFH3 M2, CMLTI 2006-WFH4 M2, CWCI 2006-3A A, GSAMP

2006-HE7 M2, LBMLT 2005-2 M7, MLMI 2005-WMC1 B3, MLMI 2006-HE2 M1, OWNIT 2006-2 M1,

SVHE 2006-OPT3 M1, and SVHE 2006-OPT5 M1.

c) permanent reduction of capital credit events:

AHMA 2006-3 2A32, ACE 2006-FM2 M1, CWCI 2006-3A A, HASC 2006-HE1 M1, JPMAC 2006-CW2

MV6, and LUM 2006-1 A3.

d) restructuring credit events:

Bankia SA - restructured default, Irish Life &Permanent Public Limited Company - restructured default,

The Governor and Company of the Bank of Ireland - restructured default, and Victor Company of Japan,

Limited - restructured default.


which resulted in settlements being made under the Swap. The payment of Credit Event claims resulted in the

utilisation of the Cash Reserve Amount, in full, the reduction of the Amounts due under the Investment Agreement

and an equal reduction to the principal amounts due to the noteholders.

On the cash settlement date of 7 January 2013, the Amounts due under the Investment Agreement and the

principal balance of the class Al-USD Notes were reduced by US$399,140. The adjusted principal balance of the

class Al-USD Notes was US$7,302,677.

On the cash settlement date of 8 April 2013, the Amounts due under the Investment Agreement and the principal

balance of the class Al-USD Notes were reduced by US$911,118. The adjusted principal balance of the class A1-

USD Notes was US$6,391,559.

On the termination date the adjusted principal balance of the class Al-USD Notes was repaid, in full, in the sum of

US$6,391,559. The adjusted principal balance of the class Al-USD Notes was US$nil.

On 8 July 2013 the Swap Counterparty exercised its right to terminate the Transaction and the Transaction parties

terminated and discharged their obligations and accordingly, the Transaction was terminated.

-27-

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