bsep structure & modeling principal protection model

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BPCG WHITE PAPER (Structure & Modeling)

PATENT PENDING BUSINESS METHOD

PRINCIPAL PROTECTION MODEL

Presented By Michael Bach Hasaan Austin

50 Main Street - Suite 1000 White Plains, New York 10606

646 – 650 - 2737 www.BSEPPlus.com



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BSEP Plus Capital Group, LLC (hereinafter referred to as “BPCG” or “the Company”) is pleased

to present the following presentation regarding the Balanced Sheet Enhancement Platform

(hereinafter referred to as “BSEP+”) as a Principal Protector. The BSEP+ is a proprietary

Business Method/Process that uses traditional Life Insurance Policies and Guaranteed Annuity

Contracts. The model attached for purposes of this Principal Protection Model is a hypothetical

60-year-old man applying for a $5,000,000 BSEP+. The insurance company used in this

scenario is Transamerica Financial Life Insurance Company, an A-rated company. A copy of the

applicable illustration is included in the attachments hereto. The columns of the Spreadsheet are

defined as follows:

Year – For modeling purposes the BSEP+ term is set for ten (10) years.

Premium - The premium scenario contemplated herein provides for making the maximum

premium payments throughout the ten (10) year loan term. This allows sufficient cash to accrue in

the “cash accumulation” account. These amounts are drawn upon in Years six (6) through ten (10),

meeting the funding requirements of the BSEP+ and ensuring that the projected returns are met.

The premium numbers are found on page 10 of the respective illustration.

The premium scenario is consistent with life insurance practices and will prevent the re-

classification of the selected life insurance policies as “modified endowment contracts”

(hereinafter referred to as a “MEC”). A MEC is created when a life insurance policy fails to meet

IRS guidelines concerning the seven-pay test or the cash value accumulation test. These tests

dictate how much premium can be paid into a policy and how quickly the cash value can build up

inside of a cash value policy before the policy is no longer treated as a life insurance policy. A

MEC will lose most of the tax benefits with life insurance and, for the purposes of this platform,

are against the interests of the Client. The Premium is paid from the investment/loan amount.

Annuity Deposit – Represents the amount of money deposited into the New Money Annuity

Column on a yearly basis. This amount is paid from the investment/loan amount in the early years

and then is drawn from the Cash Accumulation Account. The total amount of money placed into

the New Money Annuity Column on a yearly basis is the Annuity Deposit Amount plus the

Additional Payment to Annuity.

Cash Flow to Investor/Lender – Not applicable.

Percentage Annuity Payment to Investor - Not applicable.



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Annual Dividend Rate - Not applicable.

Additional Payment to Annuity - Comprised of the Free Withdrawal Amount, interest on

unallocated monies (when available) and monies from the investment amount (when available). .

Amount Allocated – Beginning in Year 0, the Amount Allocated consists of the Premium plus

Annuity Deposit plus any monies supplementing the Additional Payment to Annuity. Beginning

in Year 6 and continuing throughout the term of the Investment monies are also drawn are from

the Cash Accumulation Account.

Amount Unallocated – The Face Amount of the Investment minus the Amount Allocated.

Cash Accumulation Life Insurance – The amount of the Cash Accumulation Account from the

Life Insurance Policies is provided by the Insurance Companies in each policy’s respective

illustration and is found on page 10 of the attached illustrations. In determining Cash Values, two

(2) different types of values are presented based on the applicable interest rate used. The Current

Cash Values uses a non-guaranteed interest rate while the Guaranteed Cash Value uses guaranteed

interest rate through the term of the life insurance policy. The Current Cash Values are used for

purposes of this modeling.

Interest Unallocated – This rate is offered by an Independent Third Party Money Manager who

BPCG has engaged with to hold the Investment monies. Rates of between nine (9%) percent and

twelve (12%) percent were quoted by those independent Third Party Money Managers. BPCG has

negotiated a hundred (100%) percent principal guarantee as well as a seven (7%) interest rate on

the unallocated monies deposited in the Third Party Money Management Account during the term

of the BSEP+.

New Money – On an annual basis, this Column consists of the Annuity Deposit plus Additional

Payment to Annuity Column. Once the New Money totals are calculated, the Bonus Rate is

awarded on the deposit date plus the current cap rate which is credited on an annual basis.

Old Money – For monies already deposited in the Annuity, interest consists of the current Cap

Rate, which is credited on an annual basis.

The Bonus Rate is guaranteed on a yearly basis for each year of the ten (10) year BSEP+. The

BSEP+ Model will use a ten (10) percent Bonus Rate and a seven (7) percent cap rate for

modeling purposes.

Total Annuity Balance – The sum of the New Money plus the Old Money with the applicable

interest rates described above.



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Investor Position – The sum of the Total Annuity Balance plus the Cash Accumulation Life

Insurance plus the Unallocated Amount for any given year.

Surrender Charges – The percentage charge assessed by the Annuity Provider in the event the

Client wishes to liquidate the Annuity prior to the end of the BSEP+ Term. This fee equals a

percentage of the amount of the Annuity and decreases over time.

Death Benefit- The amount of death benefit the Insured’s beneficiaries will receive in the event

of death during the Investment term.



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Principal Protection BSEP+ Model

The assumptions used to create this model are as follows:

1. The model is set up for a ten (10) year term;

2. The Insured is a 60-year-old male using standard life insurance rates;

3. The face value of the life insurance policy is $5,000,000;

4. The interest on the unallocated monies will be fixed at 7%. The interest on the unallocated

monies will be applied to the Additional Payment to Annuity;

5. Bonus Rate (New Money) and Cap Rate (Old Money) used during the BSEP+™ term are

as follows:

Bonus Rate Cap Rate

10% 7.00%



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Year-by-Year Self-Funded BSEP+ Performance and Time-Line

1. Year 0, Day 0 – BSEP Inception:

a) Life Insurance Policy issued;

b) Guaranteed Annuity Contracts executed;

c) Investment monies equal to the face value of the life insurance policy transferred to Third

Party Money Managed Account

2. Year 0, Day 1 – Funding Anniversary Day:

a) Premium ($204,550) and the Annuity Deposit ($600,000) are paid from the investment

proceeds leaving a balance of $4,195,450 in Unallocated Monies;

b) Interest on the unallocated monies equal $293,682 which accrues on Year 0, Day 365;

c) Annuity Deposit ($600,000) is added to the New Money Column and yields $706,200

which accrues Year 0, Day 365;

d) Investor Position - $5,054,633

e) Death Benefit - $5,152,983

3. Year 1, Day 1:

a) Premium ($204,550), plus the Annuity Deposit ($457,270) are paid from the investment

proceeds. Additional Payment to Annuity equals $526,802. Balance of the Unallocated

Monies is $3,371,130;


c) 90% of the Total Annuity Balance of $706,200 equaling $635,580 becomes the Old

Money, $70,620 is withdrawn from the Total Annuity Balance on Year 1, Day 1;

d) Annuity Deposit ($457,270) plus the Additional Payment to Annuity ($526,802) are added

to the New Money Column which together with the Old Money Total of $635,580 yields

$1,838,324 which accrues Year 1, Day 365;

e) Investor Position - $5,522,514

f) Death Benefit - $5,313,060

4. Year 2, Day 1:



Monies is $2,540,560;


c) 90% of the Total Annuity Balance of $1,838,324 equaling $1,654,492 becomes the Old




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to the New Money Column which together with the Old Money Total of $1,654,492 yields




5. Year 3, Day 1:



Monies is $1,655,823;









6. Year 4, Day 1:



Monies is $771,086;









7. Year 5, Day 1:



Monies is $43,619;






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8. Year 6, Day 1:

a) Premium ($43,619) is paid from the investment proceeds and the balance ($160,931) is

paid from the Cash Accumulation Account. $300,000 Annuity Deposit is paid from Cash

Accumulation Account. Additional Payment to Annuity equals $668,969;

b) 90% of the Total Annuity Balance of $6,659,161 equaling $5,993,245 becomes the Old


c) Annuity Deposit ($300,000) plus the Additional Payment to Annuity ($668,969) are added





9. Year 7, Day 1:

a) Premium of $204,550 and the Annuity Deposit of $350,000 is paid from Cash

Accumulation Account;








10. Year 8, Day 1:

a) Premium of $204,550 and the Annuity Deposit of $350,000 is paid from Cash

Accumulation Account;










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11. Year 9, Day 1:

a) Premium of $204,550 is paid from the Free Withdrawal



c) Additional Payment to Annuity ($763,318) are added to the New Money Column which

together with the Old Money Total of $8,710,811 yields $10,218,993 which accrues Year

7, Day 365;





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Risk Factors

Although the BSEP+ is a high yielding, transparent and secure transaction there are

certain risk factors which may affect the Client yield over the term of the investment. These

factors are as follows:

1. Security of the Life Insurance and Annuity Companies

2. Cash Accumulation Amount

3. Interest Rate on Unallocated Amount

4. Market Volatility Affecting the Bonus and Cap Rate on the Selected Annuities

Security of the Life Insurance and Annuity Companies – The BSEP+ uses off-the-shelf

universal and/or whole life insurance policies along with different annuity products, depending on

market conditions. As a result, the financial stability and security of the respective companies are

paramount. To mitigate risk, BPCG will only use “A” rated or better Life Insurance Companies

along with the highest rated Annuity Companies. In the extremely unlikely event that either the

Life Insurance Company or Annuity Company is placed into either rehabilitation or liquidation by

State Authorities, the Guaranty Funds in the respective state would guarantee coverage over the

BSEP+ term. A chart of the AM Best and S&P ratings of various Annuity Companies are

attached hereto.

Cash Accumulation Amount - In determining the Cash Accumulation Value to be used, two (2)

different types of values are presented based on the applicable interest rate used. The Current

Cash Accumulation Value uses a non-guaranteed interest rate while the Guaranteed Cash

Accumulation Value uses a guaranteed interest rate through the term of the life insurance policy.

The interest rate used in the calculation of Non-Guaranteed Cash Accumulation Value is

typically the rate of return on the insurance company’s investment portfolio and may be subject

to change through the life of the insurance policy. The interest rate used in the calculation of

Guaranteed Cash Accumulation Value is less but is guaranteed through the life of the policy.

Based upon experience, the Non-Guaranteed Cash Accumulation Value has proven to be the

value much more commonly used. As a result, for purposes of this product the Non-Guaranteed

Cash Values are used

.Interest Rate on the Unallocated Amount – This rate is offered by Independent Third Party

Money Managers who BPCG will engage with to hold the Investment/Loan monies. Rates of

between nine (9%) percent and twelve (12%) percent were quoted by those independent Third

Party Money Managers. BPCG has negotiated a hundred (100%) percent principal guarantee as

well as a seven (7%) interest rate on the unallocated monies during the term of the BSEP with

one of these Money Managers.



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Market Volatility Affecting the Bonus and Cap Rate on the Selected Annuities - BSEP+

uses available Index Annuities which are designed with an underlying minimum guarantee,

which guarantees principal plus interest if the market does not outperform the guarantee. Most

Index Annuities offer a variety of account strategies. Some index strategies achieve better results

in certain market scenarios. Typical earning cap rates are in the four (4%) percent to eight (8%)

percent range. The BSEP+ uses Index Annuities that allow either a single strategy or a

combination of strategies and permits reallocation on a yearly basis without surrender charges

that can maximize return. Although earning caps may vary, positive interest will be credited up

to the annual cap rate and negative returns will not impact the total annuity balance.

The BSEP+ process uses multiple Annuity Products to achieve the greatest possible result. Each

Annuity Provider has a different product design, with different features available (bonus product,

non-bonus products, crediting methods, etc.). After the initial contract year the Annuity will be

transferred to a new contract to take advantage of any changes in the financial markets. This

continues every year of the BSEP+ Term at the anniversary date. By following this process, the

BSEP+ takes advantage of increased earning potential based upon trends in the financial market.

Additionally by spreading the risk among several Annuity Providers, the BSEP+ process manages

and lessens any ratings concerns. This process allows for maximum flexibility in the products and

ensures that the Rate of Return projected over the BSEP+ Term is arrived at.

The management of the annuities is an important function of the BSEP+ process to manage market

volatility and mitigate risk. Safe Money Resources, (www.SafeMoney.com), a New Jersey

Company will be tasked with regard to product placement recommendations, supervision and

servicing of the Annuity accounts on an annual basis in order to maintain and evaluate the

performance of the selected Annuities to ensure that the Rate of Return projections are met. The

company is led by Craig Rosof, who has over 18 years of financial services experience and is

considered an expert in the positioning of annuity and life products with various insurance carriers.

Market volatility is managed and mitigated by the annual review and, if appropriate, lateral

repositioning of the annuity amounts. In cases of extreme market volatility during any year

of the BSEP+ term, there is never any loss of principal and credited interest. Use of this

strategy will result in:

Upside return potential linked to the growth of a stock based index;

Downside protection from stock market declines;

No risk of loss of principal or credited interest in the face of extreme market volatility

Guaranteed rate of return if the market underperforms over the long term.

As a result the BSEP+ is a very secure, risk adverse financial platform.

http://www.safemoney.com/



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Conclusion

As demonstrated above the Principal Protection “BSEP+” Business Method/Process Model is

an ideal method of Principal Protection. The amount of Principal Protection per year is shown as

follows:

Investment Death Total Project

Year Day Principal Protection Benefit Protection

0 0 $5,000,000 $5,000,000 $10,000,000

0 365 $5, 054,633 $5,152,983 $10,207,616

1 365 $5,522,514 $5,313,060 $10,835,574

2 365 $6,026,924 $5,485,118 $11,512,042

3 365 $6,579,133 $5,669,963 $12,249,096

4 365 $7,173,135 $5,868,453 $13,041,588

5 365 $7,784,424 $6,081,644 $13,866,068

6 365 $8,403,234 $5,849,985 $14,253,219

7 365 $9,083,373 $5,508,626 $14,591,999

8 365 $9,817,650 $5,138,971 $14,956,621

9 365 $10,518,041 $5,299,048 $15,817,089

With the addition of the key man life insurance policy the “BSEP+” Principal Protection Model

offers substantial benefits over other commonly used Principal Protection strategies. These

benefits include:

1. 10 years of paid Life Insurance Premium;

2. Life Insurance Policy with a face value equal to the investment providing additional

protection to the Project and the Insured’s family;

3. Life Insurance can be placed in a Life Insurance Trust removing the face amount of the

Life Insurance Policy from the Insured’s Estate.

We look forward to working with you in this regard.

Michael Bach

Michael Bach

Chief Executive Officer/Managing Partner

BSEP Plus Capital Group, LLC.

bsep structure & modeling principal protection model

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