TIDMTLI
RNS Number : 6159M
Alternative Asset Opps PCC Ltd
14 October 2016
14 October 2016
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
(THE "COMPANY")
Annual Financial Report Announcement
For the year ended 30 June 2016
The Directors announce the publication of the Company's annual
financial report for the year ended 30 June 2016.
The following comprises the Company's annual financial report
for the year ended 30
June 2016. The annual financial report is being made available
to be viewed on or downloaded from the Company's website at
www.allianzgi.co.uk/TLI and it will shortly be submitted to and
available for inspection at http://www.hemscott.com/nsm.do.
The financial information set out in this announcement does not
constitute the Company's statutory accounts for the year ended 30
June 2016, but is derived from those accounts, which will be
delivered to Shareholders during October 2016. The auditor has
reported on the annual financial report and your attention is drawn
to their 'Emphasis of Matter' and the 'Statement of Going
Concern'.
The financial information for the year ended 30 June 2015 has
been extracted from the statutory accounts for that year.
The financial statements have been prepared in accordance with
International Financial Reporting
Standards. This announcement has been prepared using accounting
policies consistent with those set out in the Company's annual
financial report for the year ended 30 June 2016.
Neither the contents of the Company's website nor the contents
of any website accessible from hyperlinks on the Company's website
(or any other website) is incorporated into, or forms part of, this
announcement.
Enquiries:
Tracey Lago
Company Secretary
Telephone number: 020 3246 7405
Melissa Gallagher
Head of Investment Trusts, Allianz Global Investors
Telephone number: 020 3246 7539
14 October 2016
199 Bishopsgate
London
EC2M 3TY
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Investor Information
For the year ended 30 June 2016
Investment policy and strategy
The investment objective and policy of Alternative Asset
Opportunities PCC Limited (the "Company") in respect of the US
Traded Life Interests Fund has been to provide investors with an
attractive capital return through investment predominantly in a
diversified portfolio of US Traded Life Interests ("TLIs"). The
Company invested the assets of the Fund in a range of TLIs on the
lives of US citizens aged, at the time of acquisition, between 78
and 92 years. All TLIs acquired were Whole-Of-Life policies or
Universal Life policies. No viatical policies (that is, a policy on
the life of an insured who, at the time of policy acquisition, is
terminally ill and with a life expectancy of less than 2 years)
were acquired and not more than 15 per cent of the gross assets of
the Fund, at the time of purchase, was invested in life policies
issued by any single US life insurance company or group.
As detailed in the Circular to shareholders dated 13 September
2016, the Board proposed a change to the investment objective and
policy to become:
"The investment objective and policy of the Company in respect
of the Fund is to conduct a sale of its portfolio: (i) to Vida
Longevity Fund, L.P for a total cash consideration of $40.0
million, subject to adjustment in respect of the value of policies
excluded from the sale, on the terms set out in the Sale and
Purchase Agreement which has been entered into between Vida
Longevity Fund, L.P and the Company on 12 September 2016; and (ii)
to other parties, both as described in the circular to Shareholders
dated 13 September 2016. Thereafter the Company will return cash to
Shareholders and proceed towards a members' voluntary winding-up,
or other restructuring, subject to the further approval of
Shareholders.
Pending the return of cash to Shareholders of the Fund, cash
balances may be invested in a portfolio that may include US
treasury bonds, UK gilts and Sterling-denominated corporate bonds
with a minimum rating of AA by Standard & Poor's or an
equivalent rating by another rating agency. The Company (in respect
of the Fund) does not intend to use gearing.
At the extraordinary general meeting held on 10 October 2016 a
resolution was passed by shareholders to approve the change which
became effective immediately. The disposal of the portfolio has
therefore commenced and is expected to be materially complete by
early November 2016.
History
The Company was registered on 27 February 2004 in Guernsey, as a
closed-ended protected cell company in accordance with the
provisions of The Protected Cell Companies Ordinance, 1997 and The
Companies (Guernsey) Law, 1994, and subsequently re-registered
under the provisions of The Companies (Guernsey) Law, 2008, as
amended. It was established with one Cell known as the US Traded
Life Interests Fund (the "Fund") with a planned fixed life of
approximately 8 years from the date of launch. By resolution of
shareholders, on 28 August 2009, the Articles of Incorporation were
amended to move from having a fixed life to offering shareholders
annual continuation votes from the Company's 2012 Annual General
Meeting onward.
The Company has been authorised by the Guernsey Financial
Services Commission as an authorised closed-ended investment scheme
under the Protection of Investors (Bailiwick of Guernsey) Law,
2008, as amended. With effect from 1 September 2009, the Company
has been resident in the UK for tax purposes. In 2012 the Company
applied for and was accepted as an approved investment trust under
sections 1158 and 1159 of the Corporation Taxes Act 2010 and Part 2
Chapter 1 of Statutory Instrument 2011/2999. Approval related to
accounting periods commencing on or after 1 December 2012. The
Directors are of the opinion, having taken advice that the Company
has continued to conduct its affairs so as to be able to retain
such approval. As an investment trust the Financial Conduct
Authority (FCA) rules in relation to non-mainstream pooled
investment products do not apply to the Company. Accordingly, its
shares can be recommended by IFAs to ordinary retail investors in
accordance with the FCA's rules in relation to non-mainstream
investment products.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Investor Information (continued)
For the year ended 30 June 2016
History (continued)
The Company's redeemable participating preference shares (the
"Shares") were admitted to the Main Market for Listed Securities
Official List of the Financial Conduct Authority and commenced
trading on the London Stock Exchange on 25 March 2004.
FATCA
The Company is registered with the Internal Revenue Service
(IRS) as a Foreign Financial Institution for the purposes of the
Foreign Tax Compliance Act (FATCA).
The Company's Global Intermediary Identification Number (GIIN)
is 1L9EHP.99999.SL.826.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Investor Information (continued)
For the year ended 30 June 2016
Directors Recognised Auditor
CPG Tracy (Chairman) Deloitte LL.P
DIW Reynolds (Chairman of the Regency Court
Audit
Committee) Glategny Esplanade
TJ Emmott St Peter Port
JPHS Scott Guernsey ,GY1 3HW
Registered Office Registrar
Ground Floor, Dorey Court Capita Registrars (Guernsey)
Limited
Admiral Park Mont Crevelt House, Bulwer
Avenue
St Peter Port St Sampson
Guernsey, GY1 2HT Guernsey, GY2 4LH
Manager Investment Manager
Allianz Global Investors SL Investment Management Limited
GmbH, UK Branch 8/11 Grosvenor Court
199 Bishopsgate Foregate Street
London, EC2M 3TY Chester, CH1 1HG
Secretary Banker (UK)
Allianz Global Investors AIB Group (UK) PLC
GmbH, UK Branch 92 Ann Street
199 Bishopsgate Belfast
London , EC2M 3TY BT1 3HH
(Represented by TA Lago ACIS)
Banker (Guernsey)
Company Registration Number Kleinwort Benson (Channel Islands)
Limited
Guernsey Registry - CRN:41664 Dorey Court, Admiral Park
St Peter Port
Company website Guernsey, GY1 2HT
www.allianzglobalinvestors.co.uk/TLI
Custodian
Administrator Kleinwort Benson (Guernsey)
Limited
JTC Fund Solutions (Guernsey) Dorey Court, Admiral Park
Limited
(Formerly Kleinwort Benson St Peter Port
(Channel Islands)
Fund Services Limited), Guernsey, GY1 2HT
Ground Floor, Dorey Court
Admiral Park Sub Custodian
St Peter Port Wells Fargo Bank Northwest
N.A.
Guernsey ,GY1 2HT 260 North Charles Lindbergh
Drive
Salt Lake City
Legal Advisers (UK) UT 84116, USA
Herbert Smith Freehills LLP
Exchange House Financial Adviser and Corporate
Broker
Primrose Street Stockdale Securities Limited
London ,EC2A 2HS (formerly named Westhouse Securities
Limited)
Beaufort House
Legal Advisers (Guernsey) 15 St, BotoL.Ph Street
Carey Olsen London EC3A 7BB
PO Box 98
Carey House, Les Banques
St Peter Port
Guernsey, GY1 4BZ
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Investor Information (continued)
For the year ended 30 June 2016
Directors
The Directors have been chosen for their investment and
commercial experience and are listed below:
Charles Tracy, Chairman, (aged 70) has over 40 years' experience
as a merchant banker, covering both the investment management and
banking fields. On joining N.M. Rothschild & Sons in 1975 he
was made responsible for Asian and commodity-related investments,
working in Malaysia and Hong Kong before taking up the post of
Managing Director of N.M. Rothschild & Sons (C.I.) Ltd. in
1981, and remaining in that position until 1998. During that period
he was Chairman of the Association of Guernsey Banks and of the
Guernsey International Business Association. He is currently
non-executive Chairman of Louvre Fund Services Limited and Chairman
of the Board of the Guernsey Banking Deposit Compensation Scheme.
He is a resident of Guernsey.
Ian Reynolds, Chairman of the Audit Committee, (aged 73) is a
former Chief Executive of Commercial Union Life Assurance Company
and a former director of Liverpool Victoria Friendly Society. He
was, until December 2014, a director of The Equitable Life
Assurance Society, and is a former consultant actuary at Towers
Perrin. Mr Reynolds is a Fellow of the Institute of Actuaries and a
Chartered Director. He is UK resident.
Tim Emmott (aged 64) has 40 years' experience in banking and
investment in a variety of analytical, trading and management
roles. He has been involved in investing in distressed, illiquid
and alternative financial assets for the past 25 years. He is UK
resident.
John Scott (aged 64) is currently a director of several UK
investment trusts and is Chairman of Scottish Mortgage Investment
Trust PLC. Mr Scott held a number of senior appointments at Lazard
Brothers & Co., Limited between 1981 and 2001. Prior to that,
he worked at Jardine Matheson & Co., Limited. He is a Fellow of
the Chartered Insurance Institute and of the Chartered Institute
for Securities and Investment. He is UK resident.
The Investment Manager
The Investment Manager, SL Investment Management Limited, which
is authorised and regulated in the United Kingdom by the Financial
Conduct Authority, was incorporated in 1990 and is an Investment
Manager and Investment Advisor for a range of specialist investment
products.
The Manager
Allianz Global Investors GmbH, UK Branch, which is authorised by
Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) and which
is subject to limited regulation by the Financial Conduct
Authority, is manager of a number of closed-ended investment
companies with approximately GBP1.2 billion of assets under
management in a range of investment companies and investment trusts
as at 30 September 2016. The Manager is responsible for managing
the cash and borrowing facilities of the Fund and providing Company
Secretarial services to the Company.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Financial Highlights
For the period from 1 July 2015 to 30 June 2016
At 30 At 30
June 2016 June 2015
Shares in
issue 72,000,000 72,000,000
Net assets attributable to shareholders GBP36,808,942 GBP31,619,631
Net asset value per Share 51.1p 43.9p
Mid market share price 38.5p 39.5p
Discount to net asset value 24.7% 10.0%
Total surplus on ordinary activities for
the financial year per Share 7.21p 3.21p
Revenue loss per Share (1.00p) (1.00p)
Sterling to US$ Exchange
Rate 1.3368 1.5727
Dividends and Capital Distributions
The Directors did not declare a dividend for the year ended 30
June 2016 (2015: nil).
In the financial year to 30 June 2015 two capital distributions
were made to shareholders each of 2.0 pence per share, amounting in
aggregate to GBP2.88m. No capital or other distributions were made
to shareholders in the financial year to 30 June 2016 and none have
been proposed or made since the year end to the date of this
report.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Chairman's Statement
For the year ended 30 June 2016
Introduction
Several new factors have influenced the Board's policy in recent
months. The first and most visible was the continuing slow rate of
maturities in the portfolio, with only four in the financial year
to 30 June 2016 and two since the year end; the second was the
unwelcome and unexpected imposition of Cost of Insurance ("COI")
increases on the premiums for some policies, while a third was the
fact that, despite these uncertainties, demand for policies in the
tertiary market remained strong. Finally, we were mindful of the
fact that each maturity reduces the size of the Company, with the
result that our running costs, many of which are fixed, have to be
spread over an ever-smaller asset base. The Board decided that
there might be an opportunity to dispose of the portfolio on
attractive terms.
On 23 June 2016 the Board announced that it was exploring
opportunities in the tertiary market for a sale of the portfolio.
Further to this, and following a competitive sales process which
produced a healthy number of bids, on 13 September 2016, it was
announced that the Company had secured a purchaser, Vida Longevity
Fund L.P ("Vida") for 71 of the 80 policies in the portfolio. On 26
September 2016 it was announced that Vida had further contracted to
purchase 6 of the remaining 9 polices and Life Equity had
contracted to purchase the final 3 policies in the portfolio. The
sale of the 3 small policies to Life Equity was carried out in the
ordinary course of business while the disposal of the 77 policies
in the portfolio to Vida was subject to shareholder approval at an
Extraordinary General Meeting ("EGM") held on 10 October 2016. At
the EGM a Resolution was approved to change the investment
objective and policy of the Company in order to facilitate the
disposal.
The terms of the three agreements for the sale of the policies
provided for the full purchase price to be placed in escrow,
together with a sum equating to expected premiums due while the
purchase is completed. These sums have been duly placed and as
policies are transferred, the sale proceeds will be released from
the associated escrow accounts. Final completion is envisaged
during November 2016 and a second EGM will then be held to place
the Company into voluntary liquidation; shareholders will be
consulted on detailed plans for this by a further Circular. It
should be noted that the risk transfer date of the policies within
the agreements was 12 September 2016; all premium obligations and
maturity proceeds from such date are therefore to the account of
the respective purchasers.
The rest of my report contains a formal summary of the year but
has, of course, been largely overtaken by events referred to
above.
Portfolio developments
The financial year to 30 June 2016 saw another period of few
maturities with only four occurring in the year with a total face
value of USD$14m (2015: four policies face value total USD$10.9m)
taking the total number of maturities since the Company's launch in
2004 to 68 policies at the date of writing.
Fortunately, those policies which did mature were again larger
ones and the maturity proceeds exceeded the premiums and expenses
for the year of US$9.2 million. Realised gains on the book value of
maturing policies amounted to approximately US$7.7 million in the
year, or 7.2 pence per share (2015: US$8.2 million, or 7.3 pence
per share).
As at 30 June 2016 there were a total of 81 policies (70 lives)
in the portfolio, with a face value of US$117.6 million and a
valuation of US$42.6 million. Premiums continue to be paid on
policies in force, amounting to US$8.0 million during the year
(2015:US$8.4 million).
Since the 30 June 2016 the Company has been notified of two
further maturities with a face value in aggregate of USD$3.2m. The
first maturity, of USD$1.2, was verified and the uplift of 0.5
pence per share was recognised in the September net asset value
("NAV"); the second maturity of USD$2.0m occurred after the risk
transfer date of 12 September 2016.
The Board felt that the low level of maturities in the period
merited a cautious approach to distributions, despite the
significant cash balances held at various times, and decided not to
make any capital distributions in the year to 30 June 2016 (2015: 4
pence per share distributed).
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Chairman's Statement (continued)
For the year ended 30 June 2016
Portfolio developments (continued)
The NAV per share at the end of year was 51.1 pence, which is an
increase of 16.4% on the NAV per share at the end of the last
financial year of 43.9 pence. The mid-market share price at the
year end of 38.5 pence was 2.5% down on the share price at the
previous financial year end of 39.5 pence. Since the year end, and
partly as a result of the portfolio disposal, the share price rose
to 52.75p as at close of 11 October 2016.
The portfolio has gained significantly from the relative
strength of the US$ dollar during the year, boosting the NAV per
share by 8.0 pence.
Valuation of Investments
The NAV is a Directors' valuation, prepared with the assistance
of the Investment Manager, utilising estimates of life expectancy
to arrive at a series of cash flows, based on actuarial principles
discounted to present value using a discount rate (or internal rate
of return, IRR). The key factors in the valuation are therefore:
the policy face value and the premiums payable; the assumed life
expectancy (LE) of the insured; the actuarial mortality table; and
the discount rate.
The portfolio is split into three parts: policies with routinely
updated LEs, accounting for 78% of the portfolio by face value;
small policies (face value under US$500,000) where the cost of
regular review is deemed uneconomic; and policies for which it is
not possible to obtain updated medical records. The Investment
Manager has continued to carry out a regular programme of LE
Updates during the year, with the latest review in progress at year
end.
The Board continues to apply a 12% discount rate as explained
and supported by note 20 on page 55, 'Market and longevity
risk'.
The agreed price for the disposal of the portfolio is marginally
above NAV.
Cost of Insurance increases
As announced during the year, some insurance companies have
imposed COI increases on premiums on specific policies. The effects
of these have all been included in the valuation and regularly
notified by way of formal Stock Exchange announcements. While the
Board feels that current litigation (to which the Company is not a
party) may have some success in eventually mitigating such
increases, the time frame for this is lengthy and the outcome
uncertain. This has certainly been a factor in the Board's decision
to proceed with the disposal of the
portfolio referred to above. Furthermore, during the sale
negotiation the Board was informed of new COI increases on six
policies, resulting in their withdrawal from the original sale
agreement (although they were subsequently agreed to be sold).
Credit and Foreign Currency Risk
As the Investment Manager's report explains, there has been a
re-rating of some of the insurance companies which issue the
policies in the portfolio. As a result, at the year end 100% of the
Company's policies by value were issued by companies with an AM
Best rating of 'A-' or better (93.6% with a rating of 'A' or
better) (2015: 96.4%).
The Company has operated on an unhedged currency basis since the
change in investment policy in September 2011 and there is no
current intention to initiate any new currency hedges.
During the year the GBP/US$ exchange rate moved from 1.5727 on
30 June 2015 to 1.3368 on 30 June 2016.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Chairman's Statement (continued)
For the year ended 30 June 2016
Outlook
Following the resolution which was passed at the EGM held on 10
October 2016, the transfers of the policies to the buyers is now
underway and it is envisaged that this process will be
substantially complete by early November 2016. Shareholders will
shortly thereafter receive a second Circular calling a further EGM
at which a proposal to voluntarily wind-up the Company and appoint
a liquidator will be put to shareholders.
Since the rights issue in November 2012 of 32 million shares at
32p per share the Company has distributed to date 4 pence per share
and - subject to exchange rates - shareholders now stand to receive
final distributions totalling in the region of 53 pence per
share.
Following some very testing moments in the history of this
Company, I am relieved to have achieved this, notwithstanding the
considerable headwind of COI increases, which have proved such a
threat to the value of your Company since the issue appeared at the
end of 2015. I take this opportunity to thank both our team of
advisers and my fellow Board members for their diligence and
considerable support through an often challenging experience.
Charles Tracy
Chairman
14 October 2016
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Investment Manager's Review
For the year ended 30 June 2016
Portfolio Overview
During the twelve month period from 1 July 2015 to 30 June 2016
there were 4 confirmed policy maturities with a total face amount
of US$14.0m. The 4 maturities related to 4 individual lives, 3 of
which were male and 1 female. As at 30 June 2016, 81 policies
remained within the portfolio with exposure to 70 individual
lives.
Cumulatively, as of 30 June 2016, there have been 66 policy
maturities across 57 lives since inception. Proceeds received from
all maturities total US$117.1m. As at 30 June 2016, thirteen
policies had been sold since inception of the Company, generating
proceeds of US$11.2m.
No policies were sold during the reporting period. However as
referenced in the Chairman's Statement, the Company has recently
conducted a portfolio sales process and subsequently agreed a sale
price which will result in the disposal of the whole portfolio at a
premium to reported valuation. For the avoidance of doubt, all of
the portfolio statistics referenced in this report relate to the
reported valuation at 30 June 2016 and therefore do not take into
account the portfolio sale price agreed post year end.
Two further maturities (one male, one female) have been
identified since the year end. One policy with a death benefit of
$1.2m which was formally certified in August added 0.5 pence to the
NAV and the second, with a death benefit of $2.0m, the benefit of
which once formally certified will accrue to the purchaser on
disposal.
Full Portfolio Summary
Face Value $117.6m
---------------------------------------- --------------
Reported Valuation $42.6m
---------------------------------------- --------------
Number of Policies 81
---------------------------------------- --------------
Number of Lives 70
---------------------------------------- --------------
Total number of Holding Life Companies 26
---------------------------------------- --------------
Face Weighted Averages:
---------------------------------------- --------------
Male/Female Ratio at purchase 65.8% / 34.2%
---------------------------------------- --------------
Age at purchase 81.4 years
---------------------------------------- --------------
LE at purchase 8.1 years
---------------------------------------- --------------
Current Male/Female Ratio 61.4% / 38.6%
---------------------------------------- --------------
Current Age 92.3 years
---------------------------------------- --------------
Current LE 4.2 years
---------------------------------------- --------------
Credit Quality Distribution by Holding Life Company
In May 2016, three policies transferred from Athene Annuity and
Life Company to Accordia Life and Annuity Company (both companies
are rated A-). This completes the transfer agreed when Athene
acquired Aviva's US life insurance annuity business in March 2014.
As Athene was primarily interested in the annuity business, the
life business was sold to Global Atlantic who set up Accordia to
administer the policies. The three policies have a total face value
of US$4.3m, representing 3.6% of the portfolio face value.
There were no AM Best rating changes during the period that
affected the portfolio. As at the reporting date 93.6% of the
Company's policies (by valuation) were issued by life companies
with an AM Best rating of 'A' or better.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Investment Manager's Review (continued)
For the year ended 30 June 2016
AM Best Rating % Total Death Benefit % Total Valuation
--------------------------- ---------------------- ------------------
A++ 9.5% 10.5%
--------------------------- ---------------------- ------------------
A+ 62.5% 59.2%
--------------------------- ---------------------- ------------------
A 21.9% 23.8%
--------------------------- ---------------------- ------------------
A- 6.1% 6.5%
--------------------------- ---------------------- ------------------
Total 100% 100%
--------------------------- ---------------------- ------------------
Life Group (Parent Company) Distribution (Top 5)
Ranking by Valuation % Parent Company % Total Death Benefit % Total Valuation
----------------------- --------------------------------------------- ---------------------- ------------------
1 Lincoln National Corporation 23.1% 24.3%
----------------------- --------------------------------------------- ---------------------- ------------------
2 American International Group, Inc. 15.3% 17.8%
----------------------- --------------------------------------------- ---------------------- ------------------
3 Aegon N.V. 18.4% 16.5%
----------------------- --------------------------------------------- ---------------------- ------------------
4 Massachusetts Mutual Life Insurance Company 6.5% 8.3%
----------------------- --------------------------------------------- ---------------------- ------------------
5 MetLife, Inc. 6.0% 6.3%
----------------------- --------------------------------------------- ---------------------- ------------------
Distribution of Life Expectancy Estimates
The following table shows the distribution of the policies in
the portfolio by LE band. Policies are grouped by 12 month LE bands
and the table shows the number of lives, the total death benefit
and valuation in each group. The LEs are the valuation LEs used for
the 30 June 2016 valuation.
Note that the LE is an average of the estimated future lifetime
for an individual with a given age and health status. The table is
not, therefore, a prediction of when actual maturities will occur
and is thus not a cash flow forecast. This has been demonstrated by
the fact that, one year ago, there were no policies with a LE of
less than one year; and yet maturities totalling US$14.0m of face
value were realised during the year.
The current average LE is 4.2 years.
LE band No. Total % of Total % of
(years) of death death valuation valuation
lives benefit benefit US$000
US$000
---------- ------- --------- --------- ----------- -----------
0 <= LE
< 1 0 0 0.0 0 0.0
---------- ------- --------- --------- ----------- -----------
1 <= LE
< 2 0 0 0.0 0 0.0
---------- ------- --------- --------- ----------- -----------
2 <= LE
< 3 7 13,837 11.8 8,281 19.5
---------- ------- --------- --------- ----------- -----------
3 <= LE
< 4 21 33,402 28.4 13,310 31.3
---------- ------- --------- --------- ----------- -----------
4 <= LE
< 5 28 46,970 39.9 15,503 36.4
---------- ------- --------- --------- ----------- -----------
5 <= LE
< 6 8 13,080 11.1 3,414 8.0
---------- ------- --------- --------- ----------- -----------
6 <= LE
< 7 5 8,850 7.5 1,774 4.2
---------- ------- --------- --------- ----------- -----------
7 <= LE
< 8 1 1,500 1.3 281 0.6
---------- ------- --------- --------- ----------- -----------
LE >= 8 0 0 0.0 0 0.0
---------- ------- --------- --------- ----------- -----------
Total 70 117,639 100.0 42,563 100.0
---------- ------- --------- --------- ----------- -----------
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Investment Manager's Review (continued)
For the year ended 30 June 2016
Cost of Insurance (COI) increases
As discussed in detail in the interim statement, a number of US
life insurance companies have announced increases to their COI
rates on specific classes of policies. To date, this has resulted
in increased future premium commitments for 21 policies with an
aggregate face value of US$28.6m in the portfolio, which has had a
significant impact on the valuation of these policies.
The life insurance groups which have imposed COI increases on
certain policy types are: AXA S.A (AXA Equitable), Aegon N.V
(Transamerica Life), Voya Financial (Voya Life and Annuity and
Relia Star Life), Legal & General America (Banner Life),
Prudential plc (Jackson National) and Lincoln National Corporation
(Lincoln National Life).
During the 12 month reporting period, COI increases were
incorporated into the valuation for 13 policies in the portfolio,
representing a total face value of $15.3m. The impact of the COI
increases was a reduction in valuation of the affected policies of
$2.0m, equivalent to 2.0 pence per share.
Since the year end, COI increases have been confirmed for an
additional 8 policies representing a total face value of $13.3m.
The impact of these COI increases was a reduction in valuation of
the affected policies of $2.4m, equivalent to 2.5 pence per
share.
Premium Payments
Consequent to the conditional asset sale agreements coming into
effect, the Company's responsibility for the payment of premiums
ceased with effect from the risk transfer date of 12 September
2016. Had the agreements not come into effect the expected cost of
premiums for the twelve months to 30 June 2017 would have been
approximately US$10.0 million, assuming no further COI increases
and no maturities.
Policy Expiry Date Analysis
Written into the contract for some policies is an expiry date
after which no more premiums will be accepted by the life office
and the death benefit will no longer be payable upon death. Where
applicable, this usually coincides with the policy anniversary
closest to the insured's 100th birthday. There are 41 such policies
in the portfolio. The earliest expiry date is May 2020.
There are 6 policies with extension options to age 115, and 1
policy with a 'partial' extension - whereby the policy term is
extended until death, but on a reduced death benefit after age
100.
33 policies in the portfolio have no expiry date.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Investment Manager's Review (continued)
For the year ended 30 June 2016
Policy Expiry Date Analysis (Continued)
A summary of the policies in the portfolio as at 30 June 2016 is
as follows:
Death Benefit % Death Valuation
Policies Lives US$000 benefit US$000 % Valuation
--------------------- --------- ------ -------------- --------- ---------- ------------
No extension 41 37 50,292 42.7% 18,600 43.7%
--------------------- --------- ------ -------------- --------- ---------- ------------
Extensions to
age 115 6 6 9,900 8.4% 4,201 9.9%
--------------------- --------- ------ -------------- --------- ---------- ------------
Extension to death
with reduced death
benefit after
age 100 1 1 1,000 0.9% 307 0.7%
--------------------- --------- ------ -------------- --------- ---------- ------------
No expiry date 33 26 56,447 48.0% 19,455 45.7%
--------------------- --------- ------ -------------- --------- ---------- ------------
Total 81 70 117,639 100.0% 42,563 100.0%
--------------------- --------- ------ -------------- --------- ---------- ------------
For policies with an expiry date, the key metrics are as
follows:
Average
---------------------------------- -----------
Number of policies 41
---------------------------------- -----------
Number of lives 37
---------------------------------- -----------
Current age (years) 92.4
---------------------------------- -----------
Expiry age (years) 100.3
---------------------------------- -----------
Life Expectancy (years) 4.3
---------------------------------- -----------
Expiry date 23/05/2024
---------------------------------- -----------
Years between LE and expiry date 3.6
---------------------------------- -----------
Probability of expiry 16.1%
---------------------------------- -----------
The table below summarises the distribution of the time
intervals between the LE and the expiry date:
Expiry date exceeds Lives Total % Death Valuation % Valuation
average life expectancy Death Benefit ($'000)
by - Policies Benefit
($'000)
-------------------------- ----------- ------ --------- --------- ---------- ------------
0 <= Years < 1 1 1 750 0.6 292 0.7
-------------------------- ----------- ------ --------- --------- ---------- ------------
1 <= Years < 2 6 6 6,279 5.3 1,445 3.4
-------------------------- ----------- ------ --------- --------- ---------- ------------
2 <= Years < 3 10 9 16,550 14.1 7,122 16.7
-------------------------- ----------- ------ --------- --------- ---------- ------------
3 <= Years < 4 10 8 11,492 9.8 3,834 9.0
-------------------------- ----------- ------ --------- --------- ---------- ------------
4 <= Years < 5 7 6 3,720 3.2 1,352 3.2
-------------------------- ----------- ------ --------- --------- ---------- ------------
>= 5 Years 13 13 21,400 18.2 8,756 20.6
-------------------------- ----------- ------ --------- --------- ---------- ------------
No Expiry * 34 27 57,448 48.8 19,762 46.4
-------------------------- ----------- ------ --------- --------- ---------- ------------
TOTAL 81 70 117,639 100.0 42,563 100.0
* includes the 1 policy where death
benefit reduces at age 100
---------------------------------------------------------- --------- ---------- ------------
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Investment Manager's Review (continued)
For the year ended 30 June 2016
Period Review and Outlook
This reporting period witnessed a similar volume of maturities
compared with the previous 12 months; 4 lives (4 policies)
totalling $14m this year, versus 4 lives (4 policies) totalling
$10.9m in 2014/15. The average
face value of the 4 policy maturities during the period was
$3.5m, which is notably higher than the $1.7m average face value
for each life insured in the portfolio as a whole.
There remains considerable variation in the size of individual
face amounts remaining in the portfolio. The table below
illustrates the distribution of the 70 lives in the portfolio by
face value as at 30 June 2016.
Policy bands No. Total Death Total Valuation % of valuation
(DB: Death Benefit) of lives Benefit US$000
US$000
---------------------- ---------- ------------------ ---------------- ---------------
$0m <= DB < $0.5m 9 2,865 1,025 2.4
---------------------- ---------- ------------------ ---------------- ---------------
$0.5m <= DB <
$1m 17 10,244 3,504 8.2
---------------------- ---------- ------------------ ---------------- ---------------
$1m <= DB < $2.5m 29 42,138 14,926 35.1
---------------------- ---------- ------------------ ---------------- ---------------
$2.5m <= DB <
$5m 7 21,651 6,902 16.2
---------------------- ---------- ------------------ ---------------- ---------------
$5m <= DB < $6.0m 8 40,741 16,206 38.1
---------------------- ---------- ------------------ ---------------- ---------------
Total 70 117,639 42,563 100.0
---------------------- ---------- ------------------ ---------------- ---------------
Despite some of the larger policies in the portfolio (by face
value) maturing during the period, a significant proportion of the
total death benefit remains linked to a relatively small proportion
of lives. 15 lives (21% of total lives) account for 53% of the
total face value and 54% of the reported valuation.
Life Expectancy Updates
With life expectancy assumptions so critical to the pricing and
valuation of policies, LEs remain a key focus of the life
settlement industry. None of the major LE underwriters made any
significant adjustments to their life expectancy assessments during
the period.
The Board has continued with the regular programme of LE
updating throughout the year, with new LEs obtained for policies
representing $18.4m in face value during the period (16% of the
total portfolio). The LEs updated during the reporting period were
7 months shorter on average than the prevailing valuation LEs.
Incorporating this new LE data resulted in an increase in the
valuation equivalent to 1.8 pence per share.
At the reporting date, 51% of total portfolio face value is
valued with reference to LEs obtained within the previous 24
months, with a further 28% obtained in the previous 36 months. The
remaining 21% of the portfolio is valued using LEs calculated with
reference to the 2015 Valuation Basic Table (VBT), which is the
latest version of the table currently available.
Since the reporting date, updated LEs have been received for a
further 14 lives representing $23.6m face value (20% of the
portfolio). These updated LEs were 7 months shorter on average than
the prevailing valuation LEs, adding a further 1.8 pence to the NAV
per share.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Investment Manager's Review (continued)
For the year ended 30 June 2016
Outlook
The Cost of Insurance (COI) rate increases implemented by a
number of the major life companies in the past year have been an
unexpected and unwelcome development for the life settlement
industry. Class action lawsuits have been brought against
Transamerica, AXA, Banner Life and John Hancock in response to the
COI increases; each suit cites a variety of arguments as to why the
increases are inappropriate. However the reality is that the legal
challenges are likely to be long drawn out processes with no
conclusions reached for a number of years. The risk that further
life companies impose COI increases over the coming months
therefore remains a distinct possibility and a cause for concern
amongst existing life settlement investors.
Under these circumstances SL Investment Management is supportive
of the Board's decision to sell the portfolio and is pleased to
note that this has been achieved at a premium to NAV.
SL Investment Management Limited
14 October 2016
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Manager's Review
For the year ended 30 June 2016
Borrowings and investments
A resolution was passed by shareholders at the EGM held on 10
October 2016 to change the investment objective and policy of the
Company to effect a total disposal of the portfolio. The revolving
credit facility with AIB Group (UK) PLC entered into on 31 March
2014 and extended to expire on 31 March 2018 will therefore be
cancelled. As at 30 June 2016, there was a nil balance (30 June
2015: nil) on the US$10 million available under the facility.
The terms of the facility provided flexibility for the Company
to make capital distributions to shareholders, subject to the
availability of sufficient surplus cash. As a result, and following
receipt of proceeds from maturities, the Company was able to make
two capital distributions, each of 2.0 pence per share in the year
to 30 June 2015, totalling in aggregate GBP2.88 million. No capital
or other distributions were made in the year under review.
US dollar exposure
The Company no longer hedges its US dollar exposure; the Company
is therefore fully exposed to the effect of exchange rates upon its
net US dollar positions.
Allianz Global Investors GmbH, UK Branch
14 October 2016
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Strategic Report
For the year ended 30 June 2016
History and Status
The Company was incorporated in and is a Guernsey registered
closed-ended protected cell company in accordance with the
provisions of The Companies (Guernsey) Law, 1994, and subsequently
re- registered under the provisions of The Companies (Guernsey)
Law, 2008 ("the law"), as amended. It was established with one Cell
known as the US Traded Life Interests Fund (the "Fund") which had a
planned life of approximately 8 years from the date of launch.
Following a Special Resolution passed at an Extraordinary General
Meeting on 28 August 2009, the Articles of Incorporation were
amended to move from having a fixed life in respect of the
Company's Cell, US Traded Life Interests Fund, to offering
Shareholders annual continuation votes from the Company's 2012
Annual General Meeting onward.
Principal Activities, Business Review and Regulatory
Environment
The Company is regulated by the Guernsey Financial Services
Commission as an authorised fund under the Protection of Investors
(Bailiwick of Guernsey) Law, 2008, as amended.
The principal activity of the Company is to carry on business as
an investment trust within the meaning of section 1158 of the
Corporation Tax Act 2010 ("s1158 of the CT Act"). With effect from
1 September 2009, the Company has been resident in the UK for tax
purposes. The Company has obtained approval of its status as an
investment trust under s1158 of the CT Act and the Directors are of
the opinion that the Company has continued to act in accordance
with such. The Company's redeemable participating preference shares
(the "Shares") were admitted to the Official List of the UK Listing
Authority and commenced trading on the London Stock Exchange on 25
March 2004.
Investment trusts are collective investment vehicles constituted
as closed-ended public limited companies. The Company is managed by
a board of non-executive Directors and the management of the
Company's investments is delegated to the Investment Manager.
This Strategic Report provides information about:
-- the Company's strategy and business objectives,
-- its performance and results for the year,
-- the information and measures which the Directors use to
assess, direct and oversee SL Investment Management Limited (the
"Investment Manager") and Allianz Global Investors GmbH, UK Branch
(the " Manager")
Investment objective, policy and strategy
As detailed within the Chairman's Statement a resolution to
change the Company's objective and policy was proposed and passed
at an EGM of shareholders held on 10 October 2016. The Company's
investment objective and policy with effect from such date is:
The investment objective and policy of the Company in respect of
the Fund is to conduct a sale of its portfolio: (i) to Vida
Longevity Fund, L.P for a total cash consideration of $40.0
million, subject to adjustment in respect of the value of policies
excluded from the sale, on the terms set out in the Sale and
Purchase Agreement which has been entered into between Vida
Longevity Fund, L.P and the Company on 12 September 2016; and (ii)
to other parties, both as described in the circular to Shareholders
dated 13 September 2016. Thereafter the Company will return cash to
Shareholders and proceed towards a members' voluntary winding-up,
or other restructuring, subject to the further approval of
Shareholders.
Pending the return of cash to Shareholders of the Fund, cash
balances may be invested in a portfolio that may include US
treasury bonds, UK gilts and Sterling-denominated corporate bonds
with a minimum rating of AA by Standard & Poor's or an
equivalent rating by another rating agency. The Company (in respect
of the Fund) does not intend to use gearing.
The Company has previously invested the assets of the Fund in a
range of traded life interests on the lives of US citizens aged, at
the time of acquisition, between 78 and 92 years. All TLIs acquired
were Whole-Of-Life policies or Universal Life policies.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Strategic Report (continued)
For the year ended 30 June 2016
Investment objective, policy and strategy (continued)
No viatical policies (that is, a policy on the life of an
insured who was terminally ill and with a life expectancy of less
than 2 years) were acquired. Subsequent to the change of investment
objective the Company has now commenced the process of transferring
the policies to the buyers. A second Circular will soon be sent to
shareholders giving notice of a second EGM at which a resolution to
voluntarily wind-up the Company will be proposed.
Performance
The portfolio of investments at the year end is set out on pages
42 to 43 and more information is set out in the Investment
Manager's Review on pages 10 to 15. In the year ended 30 June 2016,
the Company's net asset total return per share was 7.21p. Details
of trends and factors impacting the performance of the Company are
included in the Chairman's Statement and the Investment Manager's
Review.
Results, Dividends and Capital Distributions
Details of the Company's results are shown in the Financial
Highlights on page 6. The revenue reserve remains in deficit, and
accordingly no dividend is proposed in respect of the year ended 30
June 2016 (2015- nil).
Following a Special Resolution passed by shareholders at an
Extraordinary General Meeting on 24 July 2014 the Company's
Articles of Incorporation were amended to permit the capitalisation
of any part of the amount for the time being standing to the credit
of the Share Premium Account and accordingly that such sums be set
free for distribution amongst shareholders. In the year to 30 June
2015, two such capital distributions were made and paid pro rata to
Shareholders through the issue and redemption of 72,000,000 B
Shares paid up out of the Company's Share Premium Account. Each
distribution was of 2.0 pence per Share, totalling GBP1,440,000 in
aggregate on each distribution. No capital distributions have been
made in the year under review to 30 June 2016.
As highlighted above and detailed in the Chairman's Statement,
shareholder approval has been given to change the investment
objective of the Company and to dispose of the portfolio to third
party purchasers, further to the disposal the Company will propose
to shareholders the appointment of a liquidator and the voluntary
winding-up of the Company. If approved, the appointed liquidator
will effect the winding-up of the Company and capital will be
returned to shareholders in accordance with the terms set out in
the Circular to shareholders which will detail the proposal to wind
up. It is expected that the Circular proposing the winding-up will
be sent to shareholders in early November 2016.
Principal Risks and Uncertainties
At least twice per year the Board has reviewed an in-depth Risk
Matrix detailing the risks faced by the Company and what actions
are taken or put in place to mitigate such. At every Board meeting
the Directors consider a number of performance measures, including
the below Key Performance Indicators ("KPIs") to assess the
Company's success in achieving its investment objective,
performance measures are considered over various time periods.
Following approval of shareholders at the EGM held on 10 October
2016 to change the investment objective and effect the disposal of
the portfolio the KPIs have been re-assessed and the principal
risks amended.
The KPIs shown below have been identified by the Directors as
being of relevance to the Company in its traditional form.
Financial comparatives are disclosed in the Financial Highlights on
page 6:
-- Net asset value (total return);
-- Share price (capital return); and
-- Premium or discount to net asset value.
Other KPIs such as LE's, Sensitivity Matrix and Mortality levels
experienced, as compared with that expected by a standard mortality
table adjusted for regularly assessed life expectancies of
policyholders, are also reviewed at every Board meeting and are
detailed within the Chairman's Statement and Investment Manager's
Review.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Strategic Report (continued)
For the year ended 30 June 2016
Principal Risks and Uncertainties (continued)
The principal risks identified by the Board are set out below,
together with information about the actions taken to mitigate these
risks.
Description Mitigation/Response
Foreign currency risk
Foreign currency risk is the Since 2011 the Company no longer
risk that the fair value of hedges its foreign currency
a financial instrument will exposure, this risk is therefore
fluctuate because of changes not mitigated. The proceeds
in foreign exchange rates. to be received from the portfolio
The majority of the Company's disposal will originate and
assets are denominated in US be received in US dollars.
dollars, while the functional The funds will be transferred
currency is GB pounds. to GB pounds very shortly thereafter
in order to minimise the currency
exposure.
Interest rate risk
Interest rate risk is the risk The Company will hold the portfolio
associated with the effects disposal proceeds in cash but
of fluctuations in the prevailing may choose to invest such in
levels of market interest rates US treasury bonds, UK gilts
on the Company's financial and Sterling denominated corporate
flows. bonds.
Liquidity risk
Liquidity risk is the risk The Manager monitors cash levels
that the Company will encounter and funding requirements for
difficulty in meeting obligations expenses on a weekly basis
associated with its financial and the Board reviews, at least
liabilities. monthly, periodic cash flow
forecasts. The Company has
sufficient funds for the day-to-day
running of the Company and
will receive policy sale proceeds
as each policy transfers to
the purchaser. Following or
near completion of the portfolio
disposal, it is expected that
shareholders will be consulted
on the proposal to voluntarily
wind-up the Company, as part
of the wind-up process cash
will be returned to shareholders.
Credit risk
Credit risk is the risk that On 12 September 2016 the Company
one party to a financial instrument entered into conditional asset
will cause a financial loss sale agreements with Vida Longevity
for the other party by failing Fund L.P and Life Equity LLC
to discharge an obligation. to purchase the entire portfolio.
The solvency of the purchasers
is a risk to the Company mitigated
by 100% of the purchase proceeds
being placed into Escrow accounts
with independent Escrow Agents
to be transferred to the Company
on the confirmation of each
policy transfer.
Credit risk on liquid funds
is limited because the counterparties
are banks with high credit
ratings assigned by international
credit rating agencies.
The Company holds cash with
Kleinwort Benson (Channel Islands)
Limited which has been assigned
a rating of Baa2/Prime-2 by
Moody's Investors Service.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Strategic Report (continued)
For the year ended 30 June 2016
Principal Risks and Uncertainties (continued)
The Company also holds cash
with the Sub-Custodian, Wells
Fargo, which has been assigned
a rating of A+/A-1 by Standard
& Poor's ratings agency.
The Company will consider various
options in relation to the
sale proceeds which will transfer
to the Company as ownership
of each policy transfers to
the purchaser.
Continuation of the Company
In 2009 the fixed life of the At the EGM held on 10 October
Company was removed from and 2016 shareholders approved
a provision added to the Articles the disposal of the entire
of Incorporation to provide portfolio for an aggregate
for annual continuation votes sale price of $43.25m. It is
by Shareholders from the expected that the disposal
2012 Annual General Meeting will be substantially complete
and thereafter. during November 2016. The voluntary
winding-up of the Company will
shortly be proposed to shareholders,
if approved it is expected
that the winding-up process
will commence in December 2016;
a continuation vote will therefore
not be required.
Viability Statement
For the first time this year under the revised Corporate
Governance provisions the Company is required to make a forward
looking (longer term) Viability Statement in addition to the
statement of going concern on page 23. However, further to the
passing of the resolution by shareholders at the EGM held on 10
October 2016, the Board confirms that policy transfers are in
process and the intention is to propose to shareholders the
voluntary winding-up of the Company. The Board do not therefore
believe it appropriate to make a statement beyond the date of the
next EGM which is likely to be held in early December 2016. In the
event that the resolution to appoint a liquidator and enter
voluntary liquidation is not passed, the Board will consider the
options and propose an alternative conclusion to shareholders.
Social, Community, Employee Responsibilities and Environmental
Policy
As an investment trust, the Company has no direct social,
community, employee or environmental responsibilities. Its
principal responsibility to shareholders is to ensure that the
investment portfolio is properly managed and invested. The Company
has no employees and accordingly no requirement to report
separately in this area as the management of the portfolio has been
delegated to the Investment Manager. In light of the nature of the
Company's business there are no relevant human rights issues and
the Company does not have a human rights policy.
On behalf of the Board
Charles Tracy
Chairman
14 October 2016
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Directors' Report
For the year ended 30 June 2016
The Directors have pleasure in submitting their Annual Financial
Report for the year ended 30 June 2016 with comparatives for the
year ended 30 June 2015. Information pertaining to the business
review is now included in the Strategic Report on pages 17 to
20.
Revenue, capital and dividends
The Statement of Comprehensive Income set out on page 38 shows a
revenue deficit for the year amounting to GBP724,022 (2015: revenue
deficit for the year GBP717,625). There was a capital surplus for
the year amounting to GBP5,913,333 (2015: capital surplus for the
year GBP3,030,997). The Directors have not paid an interim dividend
(2015: nil) and do not propose the payment of a final dividend for
the year (2015: nil).
Assets
At the year end the net assets attributable to the Shares were
GBP36,808,942 (2015: GBP31,619,631). Based on this figure the net
asset value per Share in the Fund was 51.1p (2015: 43.9p).
Share capital
During the year no Shares were issued or repurchased. Total
capital distributions through the issue and redemption of B shares
in accordance with the Articles of Incorporation, during the year
amounted to GBPNil (2015: GBP2,880,000).
Substantial shareholdings in the Fund
As at the date of this report, the following companies had
declared a notifiable interest in the Company's voting rights in
accordance with Chapter 5 of the Disclosure and Transparency Rules
("DTR"):
Shares held Percentage
held
%
Premier Fund Managers Limited 8,475,000 11.77
Investec Asset Management
Limited 7,049,129 9.79
Brewin DoL.Phin Limited 6,449,460 8.96
Miton Group Plc 4,500,000 6.25
Rathbone Brothers
Plc 2,743,400 3.81
At the date of approval of this report, there have been no
further notifiable interest in the Company's voting rights reported
to the Company.
Crest registration
Shareholders may hold Shares in either certificated or
uncertificated form.
The Board
The Board currently consists of a non-executive Chairman,
Charles Tracy, and three other non-executive Directors. The names
and biographies of those Directors who held office at 30 June 2016
and at the date of this Report appear on page 5 and indicate their
range of investment, industrial, commercial and professional
experience. As the Company is an investment trust, all of its
operational activities are outsourced and it does not have any
employees.
The Directors serving on the Board during the year, together
with their beneficial interests and those of their families at 30
June 2016, were as follows:
Shares Shares
30 June 2016 30 June 2015
CPG Tracy (Chairman) - -
TJ Emmott 1,185,000 1,185,000
DIW Reynolds 100,000 100,000
JPHS Scott 397,854 397,854
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Directors' Report (continued)
For the year ended 30 June 2016
Emoluments of the Directors
In the year to 30 June 2016 Directors were paid at the rate of
GBP15,000 (2015: GBP15,000) per annum with the Chairman of the
Board receiving an extra GBP7,500 (2015: GBP15,000) per annum and
the Chairman of the Audit Committee an extra GBP2,500 (2015:
GBP15,000) per annum. Per note 6 to the financial statements the
Directors' fees and expenses of GBP71,454 (2015: GBP76,188)
included allowable expenditure of GBP3,032 (2015: GBP4,549) and
employers' national insurance.
The Board continues to believe that all directors are committed
to their roles and are independent of the Company irrespective of
tenure. Each of the directors has taken an active part in the
decision to propose the change of investment objective and the
recommendation of such to shareholders and fully supports the
resolution passed at the EGM on 10 October 2016 and the intention
to further propose to shareholders the voluntary winding-up of the
Company in due course.
The Board has agreed that the directors shall receive an
additional fee in relation to the considerable amount of work
involved in the lead up to and through the change of investment
objective and the continued additional work required to move the
Company through to eventual voluntary winding-up. Each director
will therefore receive an additional 50% of annual remuneration,
totalling GBP35,000 in aggregate. Such payment will be made upon
entering liquidation, whereupon no further fees will be paid.
Conflicts of Interest
The Board has a formal system in place for Directors to declare
actual or potential conflicts of interest which are then considered
and authorised by the rest of the Board as appropriate. Where a
Director is deemed to have an interest in a matter to be discussed
or determined by the Board, such director is excluded from all
discussion and decision on the matter of interest.
Related Party Transactions
With the exception of the receipt of remuneration by the
Directors from the Company there are no other related parties. The
appointment of the Investment Manager and the Manager are deemed to
be significant contracts. Unless required within the liquidation
process, all service provider contracts will terminate immediately
on liquidation of the Company.
Relations with shareholders
The Board regularly monitors the shareholder profile of the
Company. It aims to provide shareholders with a full understanding
of the Company's activities and performance, and reports formally
to shareholders twice a year by way of the Annual Financial Report
and the half yearly Financial Report. This is supplemented by the
monthly publication, through the London Stock Exchange, of the net
asset value of the Company's shares and other ad hoc
announcements.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Directors' Report (continued)
For the year ended 30 June 2016
Accountability and audit
a) Statement of going concern
Further to the passing by shareholders of the resolution to
change the investment objective of the Company to enable the total
disposal of the portfolio, the intention is that a further
resolution will be recommended to shareholders to propose the
appointment of a liquidator and the voluntary winding- up of the
Company.
Due to the Board's intention to place the Company into
liquidation, the financial statements have been prepared on a basis
other than that of a going concern. The Board however confirms that
there are adequate liquid resources in place to continue in
operation throughout the disposal of the portfolio process and to
the date of the proposed liquidation.
b) Internal control
The Directors acknowledge that they are responsible for
establishing and maintaining the Company's system of internal
control and reviewing its effectiveness. Internal control systems
are designed to manage rather than eliminate the failure to achieve
business objectives and can only provide reasonable and not
absolute assurance against material misstatement or loss. They have
therefore established an ongoing process designed to meet the
particular needs of the Company in managing the risks to which it
is exposed, consistent with the guidance provided by the Financial
Reporting Council. Such review procedures have been in place
throughout the full financial year and up to the date of the
approval of the financial statements and the Board is satisfied
with their effectiveness.
This process involves a review and robust assessment by the
Board of the Company's internal control report and risk matrix and
review of the control environment of the Company's service
providers to ensure that the Company's requirements are met. Such
review and assessment has been carried out throughout the year
under review and the Directors continually assess the risks and
environment to which the Company is exposed.
The Company does not have an internal audit function. The Board
has considered the need for an internal audit function but has
decided to place reliance on the systems and internal audit
procedures of the Administrator, the Manager, the Investment
Manager and the Custodian.
These systems are designed to ensure effectiveness and efficient
operations, internal control and compliance with laws and
regulations. In establishing the systems of internal control regard
is paid to the materiality of relevant risks, the likelihood of
costs being incurred and costs of control. It follows therefore
that the systems of internal control can only provide reasonable
but not absolute assurance against the risk of material
misstatement or loss.
The effectiveness of the internal control systems is reviewed
annually by the Board and the Audit Committee.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Directors' Report (continued)
For the year ended 30 June 2016
Continuation of the Company
The Company was incorporated in 2004 with a fixed life and an
expected winding-up date of 31 March 2012. At an EGM of the Company
held on 28 August 2009, a Special Resolution was passed to provide
shareholders the right to vote at the Annual General Meeting to be
held in 2014 and at every Annual General Meeting thereafter, on
whether to continue the business of the US Traded Life Interests
Fund of the Company.
The Directors wish to confirm that, as mentioned above,
subsequent to the passing of a resolution at the EGM held on 10
October 2016, the Company will shortly be proposing to shareholders
the appointment of a liquidator and the voluntary winding-up of the
Company.
Auditor
At the date of approval of the financial statements the
Directors confirm that:
-- so far as each Director is aware, there is no relevant audit
information of which the Company's Auditor is unaware; and
-- the Directors have taken all steps they ought to have taken
as Directors to make themselves aware of any relevant audit
information and to establish that the Company's Auditor is aware of
that information.
This confirmation is given and should be interpreted in
accordance with the provisions of Section 249 of The Companies
(Guernsey) Law, 2008, as amended.
By order of the Board.
CPG Tracy DIW Reynolds
Director Director
14 October 2016
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Corporate Governance Report
For the year ended 30 June 2016
Introduction
The Board is accountable to the Company's shareholders for high
standards of corporate governance and this statement describes how
the Company applies the main principles identified in the UK
Corporate Governance Code ("the UK Code") issued in September 2014.
The Governance Code is available from the website of the Financial
Reporting Council ("the FRC") at www.frc.org.uk. The Association of
Investment Companies ("the AIC") has published its own Code on
Corporate Governance ("the AIC Code"), by reference to the AIC
Corporate Governance Guide for Investment Companies ("the AIC
Guide"), both revised in February 2015, which provide a
comprehensive guide to best practice in certain areas of governance
where the specific characteristics of investment trusts suggest
alternative approaches to those set out in the Governance Code.
Both the AIC Code and AIC Guide are available from the AIC website
at www.theaic.co.uk and have been endorsed by the FRC which has
confirmed that following of the AIC Guide by investment companies
should fully meet the obligations under the Governance Code.
This Statement of Corporate Governance forms part of the
Directors' Report. All companies with a Premium Listing of equity
shares, regardless of whether they are incorporated in the UK or
elsewhere (which includes the Company), are required to "comply or
explain" against the Code. The day-to-day running of the Company is
delegated to various third parties; the overall governance of the
Company however remains the responsibility of the Board.
As detailed within the Chairman's Statement and the Directors'
Report at the EGM held on 10 October 2016, shareholders voted to
change the investment objective and policy of the Company in order
to effect a total disposal of the portfolio with the intention
thereafter of proposing the voluntary winding-up of the Company.
The following corporate governance statement is therefore provided
in relation to the financial year under review to 30 June 2016 and
for the operations of the Company to the expected date of entering
liquidation.
Corporate Governance Statement
Throughout the year ended 30 June 2016 the Company has been in
compliance with the Main Principles of the UK Code, and has also
complied with the detailed provisions set out in Section 1 of the
UK Code, except as set out below.
The UK Code includes provisions relating to:
-- The role of chief executive
-- Executive remuneration, including the remuneration of executive directors
-- Appointment of a senior independent director
As permitted in the preamble to the UK Code, the Board considers
these provisions are not relevant to the position of the Company.
The Company is an externally managed investment company without
executive staff; a senior independent director has not been
appointed given that all Directors are independent of the Company
and of the key service providers.
On 30 September 2011, the Guernsey Financial Services Commission
("GFSC") issued a Code of Corporate Governance (the "Guernsey
Code") which came into effect on 1 January 2012. The GFSC have
stated that companies which report against the UK Code or the AIC
Code of Corporate Governance (the "AIC Code") are deemed to meet
compliance with the Guernsey Code.
The Directors believe the Company to be compliant with the
requirements of the UK Listing Authority Listing Rules as regards
corporate governance. The Company complies with the corporate
governance statement requirements pursuant to the FCA's Disclosure
and Transparency Rules by virtue of the information included in the
Corporate Governance section of the annual report together with
information contained in the Strategic Report and the Directors'
Report.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Corporate Governance Report (continued)
For the year ended 30 June 2016
The Board
The Company is overseen by a Board, chaired by Charles Tracy,
which comprises 4 non-executive Directors, all of whom have wide
experience and are considered to be independent. The Board believes
that it is in the shareholders' best interests for the Chairman to
be the point of contact for all matters relating to the governance
of the Company and as such has not appointed a Senior Independent
Director for the purpose of the Code.
The Board meets regularly, normally quarterly, and more
frequently as necessary, and retains full responsibility for the
direction and control of the Company. The Directors have access to
the advice and services of the Company Secretary, who is
responsible to the Board for ensuring that the Board procedures are
followed and that applicable rules and regulations are complied
with.
The Board is responsible for approval of the Annual and
Half-Yearly Financial Results and all other public documents
ensuring a balanced and fair approach is adopted which enables
shareholders to understand and assess the performance of the
Company.
Appointment
The appointment of Directors is considered by the Board as a
whole which carries out the functions of the Nominations Committee.
The Board regularly reviews its structure, size and composition
giving full consideration to succession planning for Directors and
keeping under review the leadership needs of the Company.
The Board believes that, as a whole, it comprises an appropriate
balance of skills, experience and knowledge. The Board also
believes that diversity of experience and approach amongst members
is of great importance and it is the Company's policy to give
careful consideration to issues of board balance and diversity,
including gender diversity, when making new appointments. On
appointment, the Manager and the Company Secretary provide all
Directors with induction training.
The Articles of Incorporation require that one third, or the
number nearest to but not exceeding one third, of the existing
Directors must retire and may offer themselves for re-appointment
at every Annual General Meeting and that every newly appointed
Director must stand for appointment by shareholders at the Annual
General Meeting following their appointment. In accordance with the
UK Code non-executive directors who have served longer than nine
years are also subject to annual re-election. The Board does not
consider tenure to determine the independence of a Director and
value the experience and knowledge gained through long service. The
Board therefore continues to determine that all current directors
are independent in character and judgement. In the event that a
resolution is passed by shareholders before the end of the calendar
year 2016 to place the Company into liquidation, there will not be
a requirement to hold an Annual General Meeting in 2016.
Board Meetings
The Board meets at least quarterly. Certain matters are
considered at all Board Meetings including the performance of the
investments, the LE and policy maturity rates, NAV and share price
and associated matters such as asset allocation, risks, strategy,
investor relations and industry issues. Consideration is also given
to administration and corporate governance matters, and where
applicable, reports are received from the Board Committees.
The number of formal meetings of the Board and the Audit
Committee held during the financial year and the attendance of
individual directors and members of the Audit Committee are shown
below:
Type and Number Board - Audit -
6 2
----------------- -------- --------
CPG Tracy 6 2
----------------- -------- --------
TJ Emmott 6 2
----------------- -------- --------
DIW Reynolds 6 2
----------------- -------- --------
JPHS Scott 6 2
----------------- -------- --------
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Corporate Governance Report (continued)
For the year ended 30 June 2016
Board Meetings (continued)
All Directors of the Company are non-executive. The Board as a
whole fulfils the function of the Remuneration Committee and
carries out periodic reviews of Directors' fees, after seeking
independent advice.
Board Committees
The Board has established a separate Audit Committee. The Board
has decided not to establish separate Nominations, Remuneration and
Management Engagement Committees as these functions are carried out
by the Board as a whole. This includes an annual review of the
contracts with the Manager and the Investment Manager and whether
they are in the best interests of shareholders.
Performance
The Board reviews its performance and composition on an annual
basis in order to assess the effectiveness of the Board, the Audit
Committee and the individual Directors. The latest formal process
was carried out in late 2014 which incorporated the appraisal of
the Chairman which was carried out by the Board as a whole under
the leadership of the Chairman of the Audit Committee. While no
formal process was adopted in 2015, the Board continually monitors
their actions and effectiveness and continues to consider that the
performance of all Directors individually, collectively as a Board
and collectively as the formally appointed Audit Committee is
effective and confirms that each has demonstrated commitment to
their roles.
Internal Control
The Board is responsible for establishing, maintaining and
monitoring the effectiveness of the Company's system of internal,
financial and other controls. The internal financial controls
operated by the Board include the authorisation of the investment
strategy and regular reviews of the financial results and
investment performance. The system of internal financial controls
can provide only reasonable, and not absolute, assurance against
material misstatement or loss. The Board regularly reviews and
evaluates the risks faced by the Company and has put in place
mitigating factors where possible. The Company's Investment Manager
and Manager have established systems of internal control and
provide assurance to the Board that adequate systems are in place
in relation to the services provided to the Company.
Significant Contracts
The Board has contractually delegated to SL Investment
Management Limited the investment management of the Fund's
investments and to Allianz Global Investors GmbH, UK Branch the
management of the cash and borrowings. The safe custody of the
Fund's investments is managed by Kleinwort Benson (Guernsey)
Limited. Wells Fargo Bank in the USA acts as sub-custodian. JTC
Fund Solutions (Guernsey) Limited (JTC) bought the fund
administration service from Kleinwort Benson in 2015 and took over
as service provider to the Company, JTC are therefore contracted to
provide the Company's administration and accounting functions and
Capita Registrars (Guernsey) Limited its registration function.
Since 1 September 2009 the secretarial function has been carried
out by Allianz Global Investors GmbH, UK Branch. A summary of the
terms of the agreements with SL Investment Management Limited and
Allianz Global Investors GmbH, UK Branch are set out in note 5 to
the financial statements.
After due consideration of the resources and reputation of each
of SL Investment Management Limited and Allianz Global Investors
GmbH, UK Branch, the Board believes it is in the interests of
shareholders to retain both contracts until such time as the
Company enters the liquidation process as detailed in the
Chairman's Statement and Directors' Report. The main reasons for
this opinion are the extensive knowledge of the US traded life
interest market and its valuation, together with the complex
financial and investment modelling related thereto and the
extensive investment management resources of the Manager and its
experience in managing and administering investment trust companies
respectively. Upon entering liquidation all current contracts will
be terminated.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Corporate Governance Report (continued)
For the year ended 30 June 2016
Independent Advice
The Board recognises that there may be occasions when one or
more of the Directors feels it is necessary to take independent
legal advice at the Company's expense. The Company has a procedure
whereby the Directors are entitled to obtain independent advice
where relevant.
Indemnities
To the extent permitted by Guernsey law, the Company's Articles
of Incorporation provide an indemnity for the Directors against any
liability except such (if any) as they shall incur by or through
their own breach of trust, breach of duty or negligence.
During the year the Company has maintained Directors' and
Officers' liability insurance which provides insurance cover for
Directors against certain personal liabilities which they may incur
by reason of their duties as Directors. Upon entering liquidation
the Directors' and Officers' liability insurance cover will be
converted to a become a 'run-off' policy for the recommended period
of six years.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Directors' Responsibilities Statement
For the year ended 30 June 2016
The Directors are responsible for preparing the Annual Financial
Report and the financial statements in accordance with applicable
law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have elected to prepare the financial statements in accordance with
International Financial Reporting Standards (IFRSs) issued by the
International Accounting Standards Board (IASB). Under company law
the Directors must not approve the financial statements unless they
are satisfied that they give a true and fair view of the state of
affairs of the Company and of the profit or loss of the Company for
that period. In preparing these financial statements, International
Accounting Standard 1 requires that Directors:
-- properly select and apply accounting policies;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the entity's financial position and financial
performance; and
-- make an assessment of the Company's ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with The Companies (Guernsey) Law,
2008, 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 and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in Guernsey and the United Kingdom
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Responsibility statement
Each Director confirms to the best of his knowledge that:
-- the financial statements, prepared in accordance with
International Financial Reporting Standards, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the Company.
-- the Strategic Report includes a fair review of the
development and performance of the business and the position of the
Company, together with a description of the principal risks and
uncertainties the Company faces.
-- the Annual Report and Financial Statements, taken as a whole,
are fair, balanced and understandable and provide the information
necessary to assess the Company's performance, business model and
strategy.
By order of the Board.
CPG Tracy DIW Reynolds
Director Director
14 October 2016
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Audit Committee Report
For the year ended 30 June 2016
The principal role of the Audit Committee is to assist the Board
in relation to the reporting of financial information, the review
of financial controls and the management of risk. The Committee has
defined terms of reference and duties and the terms of reference
are published on the Company's website, www.allianzgi.co.uk/TLI.
The terms include responsibility for the review of the Annual
Financial Report and the Half Yearly Report, the nature and scope
of the external audit and the findings therefrom and the terms of
appointment of the Auditors, including their remuneration and the
provision of any non-audit services by them. Where requested by the
Board, the Audit Committee provides advice on whether the Annual
Financial Report, taken as a whole is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Company's performance, business model
and strategy.
The Audit Committee is also responsible for considering those
matters that have enabled the Board of Directors to make its
statement on Going Concern on page 23.
On 10 October 2016 shareholders resolved to the change the
investment objective and policy to effect the disposal of the
portfolio, the Company will therefore propose in due course the
voluntary winding-up of the Company. The following report on the
activities of the Audit Committee is therefore provided in relation
to the financial year under review to 30 June 2016 and for the
operations of the Audit Committee to the future date of entering
liquidation.
Composition
The Board reviews the composition of the Audit Committee and
considers that collectively the Committee members have sufficient
recent and relevant financial experience to discharge fully their
responsibilities. As this is a small company, the Committee
comprises all the directors of the Company. I am the Chairman of
the Committee, and as you will see from my biography on page 5, I
am a Fellow of the Institute of Actuaries and was formerly Chief
Executive of a major life assurance company. The biographies of the
other members of the Audit Committee can also be found on page
5.
Role
The Audit Committee determined that the significant issues to be
considered were the valuation of the Company's portfolio of TLIs
and its cash flow requirements. The valuation of the Company's
portfolio of TLIs is regularly reviewed by the Board in conjunction
with the Investment Manager and, where appropriate, recommendations
in relation to the basis of valuation are made to the Board. The
risk of cash flow difficulties was significantly reduced by the
extension of the revolving credit facility of up to US$10,000,000
with AIB Group (UK) PLC to 31 March 2018.
More details on the valuation can be found in the Chairman's
Statement and the Investment Manager's Review. The external
auditors explained the results of their review of the valuations.
On the basis of their audit work there were no adjustments that
were material in the context of the financial statements as a
whole.
Risk Assessment and Significant Financial Statement Issues
The Company's risk assessment process and the way in which
significant business risks are managed is a key area of focus for
the Committee. The work of the Audit Committee is driven primarily
by the Company's assessment of its principal risks and
uncertainties as set out on page 18 of the Strategic Report, and it
receives regular reports from the Investment Manager and the
Manager on the Company's risk evaluation process and reviews
changes to significant risks identified.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Audit Committee Report (continued)
For the year ended 30 June 2016
Risk Assessment and Significant Financial Statement Issues
(continued)
Prior to effecting the disposal of the portfolio, the principal
risks to the Company's valuation and financial statement were
mortality and cost of insurance increases. However, it was accepted
that mortality risk was fundamental to the nature of the
investments and that such had been the case since launch. The Audit
Committee reviews LE expectations and mortality tables on a regular
basis and is confident in the valuations recommended to and
approved by the Board. The principal risk to the Company during the
disposal process is the financial stability of the purchasers, this
risk has however been mitigated as far as possible by the sale
proceeds being placed in escrow accounts which will be transferred
to the Company on the transfer of the policies to the
purchasers.
The Audit Committee continued to consider the process for
managing the risk of the Company and its service providers. Risk
management procedures for the Company, as detailed in the Company's
risk matrix, were reviewed and approved by the Audit Committee.
Audit Process
The Audit Committee continues to consider that the Company does
not require an internal audit function as it delegates its
day-to-day operations to third parties from whom it receives
internal control reports. Such reports from third party auditors on
the internal controls maintained on behalf of the Company by the
Manager or directly to the Company were reviewed during the
year.
The Audit Committee reviewed the performance of the auditors and
its independence and tenure. Deloitte LL.P's first year of audit
was for the period ended 30 June 2005. In 2014, the Company put the
audit out to tender. Following presentations from a number of
international auditing firms, including the Company's present
auditors, the Board, following a recommendation from the Audit
Committee, decided to retain Deloitte LL.P as the Company's
auditors. The Company will in due course propose to shareholders
the voluntary winding-up of the Company and if this is supported a
further audit will not be required.
The Audit Committee has adopted a formal framework in its review
of the effectiveness of the external audit process and audit
quality which includes the following areas: the audit partners with
particular focus on the lead audit engagement partner; the audit
team; planning and scope of the audit and identification of areas
of audit risk; the execution of the audit; the role of management
in an effective audit process; communications by the auditor with
the Audit Committee; how the auditor supports the work of the Audit
Committee; how the audit contributes insights and added value; a
review of independence and objectivity of the audit firm and the
quality of the formal audit report to shareholders.
To assess the effectiveness of the external audit process the
Audit Committee will review:
-- the Auditor's fulfilment of the agreed audit plan and variations from it;
-- discussions or reports highlighting the major issues that
arose during the course of the audit;
-- feedback from other service providers evaluating the performance of the audit team;
-- arrangements for ensuring independence and objectivity; and
-- robustness of the Auditor in handling key accounting and audit judgements.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Audit Committee Report (continued)
For the year ended 30 June 2016
Non-Audit Services
The Audit Committee reviews the need for non-audit services and
authorises such on a case-by-case basis, having regards to the cost
effectiveness of the services and the independence and objectivity
of the Auditors. There were no non-audit fees incurred in the year
under review (2015: nil)
The Audit Committee considers Deloitte LL.P to be independent of
the Company.
Whistleblowing
As the Company has no employees it does not have a formal policy
concerning the raising, in confidence, of any concerns about
possible improprieties, whether in matters of financial reporting
or otherwise, for appropriate independent investigation. The Audit
Committee has, however, reviewed and noted the Manager's and
Investment Manager's policy on this matter.
Year ended 30 June 2016
In finalising the Annual Financial Report for recommendation to
the Board for approval, the Audit Committee has satisfied itself
that the Annual Financial Report taken as a whole is fair, balanced
and understandable, and provides the information necessary for
shareholders to assess the Company's performance, business model
and strategy.
The Company's external auditors attended the meeting of the
Audit Committee at which the Annual Financial Report was reviewed
and they reported on their audit approach and work undertaken, the
quality and effectiveness of the Company's accounting records and
their findings in relation to the Company's statutory audit.
The Audit Committee reviewed and approved the performance of the
Auditors at this meeting.
D I W Reynolds
Chairman of the Audit Committee
14 October 2016
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Independent Auditor's Report to the Members of
Alternative Asset Opportunities PCC Limited
For the year ended 30 June 2016
Opinion on financial In our opinion the financial statements:
statements of -- give a true and fair view of the state of
Alternative Asset the Company's affairs as at 30 June 2016 and
Opportunities of its gain for the year then ended;
PCC Limited -- have been properly prepared in accordance
with International Financial Reporting Standards
(IFRSs) as issued by the International Accounting
Standards Board (IASB); and
-- have been prepared in accordance with the
requirements of The Companies (Guernsey) Law,
2008.
The financial statements comprise the Statement
of Comprehensive Income, the Statement of Financial
Position, the Statement of Changes in Redeemable
Participating Preference Shareholders' Funds,
the Statement of Cash Flows, the Portfolio of
Investments and the related notes 1 to 21. The
financial reporting framework that has been
applied in their preparation is applicable law
and IFRSs as issued by the IASB.
Emphasis of In forming our opinion on the financial statements,
matter - Financial which is not modified, we have considered the
statements prepared adequacy of the disclosure made in note 2(c)
other than on to the financial statements, which explains
a going concern that the financial statements have been prepared
basis on a basis other than that of a going concern.
Going concern We have reviewed the directors' statement relating
and the directors' to the fact that the financial statements have
assessment of been prepared on a basis other than that of
the principal a going concern contained within note 2(c) to
risks that would the financial statements and the directors'
threaten the statement on the longer-term viability of the
solvency or liquidity company contained within the strategic report.
of the company
Aside from the matter disclosed in the emphasis
of matter paragraph above, we have nothing material
to add or draw attention to in relation to:
* the directors' confirmation on page 23 that they have
carried out a robust assessment of the principal
risks facing the company, including those that would
threaten its business model, future performance,
solvency or liquidity;
* the disclosures on pages 18-19 that describe those
risks and explain how they are being managed or
mitigated;
* the directors' statement in note 2(c) to the
financial statements about why they considered it
inappropriate to adopt the going concern basis of
accounting in preparing them; and
* the directors' explanation within the Viability
Statement on page 20 as to how they have assessed the
prospects of the company given that the financial
statements have been prepared on a basis other than
that of a going concern.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Independent Auditor's Report to the Members of
Alternative Asset Opportunities PCC Limited (continued)
For the year ended 30 June 2016
Independence We are required to comply with the Financial
Reporting Council's Ethical Standards for Auditors
and we confirm that we are independent of the
company and we have fulfilled our other ethical
responsibilities in accordance with those standards.
We also confirm we have not provided any of
the prohibited non-audit services referred to
in those standards.
Our assessment The assessed risks of material misstatement
of risks of material described below are consistent with our 2015
misstatement year-end audit report and represent those that
had the greatest effect on our audit strategy,
the allocation of resources in the audit and
directing the efforts of the engagement team:
Risk How the scope of our audit responded
to the risk
===== =====================================
Valuation of investments In view of the disposal of the
Given the uncertainties surrounding TLI portfolio post year-end,
significant unobservable inputs we considered the terms of the
used in the Company's actuarial TLI portfolio sale and purchase
valuation model, we considered agreements ("SPAs") the Company
the year-end valuation of investments received in September 2016 and
of GBP31,839,719 to be a key reconciled these to the carrying
risk. value of the policies at both
We feel that there is a risk the balance sheet date and the
that developments in life expectancy last reported NAV date of 31
"LE" re-assessments and mortality August 2016.
experience, as well as developments We also reviewed a sample of
in the markets' view of mortality individual policy valuation models
estimates, are not adequately prepared by the Investment Manager,
reflected in the overall valuation which use actuarial techniques
in order to derive a best estimate applied to data from mortality
of fair value. tables and policy specific data,
In addition there is a risk that to check the models incorporated
the rate used to discount expected the Board's stated methodology
cash flows does not adequately and assumptions correctly, were
reflect a market rate. consistent with the prior year
methodology, and that the valuation
output was accurately recorded
by the Company.
We challenged the Board on their
valuation assumptions and methodologies,
which focused on the LE estimation
methodology and the discount
rate, with reference to relevant
publicly available data, bids
for the Company's policies, and
reports from the investment manager
relevant to valuation
======================================= ==========================================
The description of risks above should be read
in conjunction with the significant issues considered
by the Audit Committee from page 30 and in the
Principal Risks and Uncertainties section of
the Strategic Report from page 17.
These matters were addressed in the context
of our audit of the financial statements as
a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on
these matters.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Independent Auditor's Report to the Members of
Alternative Asset Opportunities PCC Limited (continued)
For the year ended 30 June 2016
Our application We define materiality as the magnitude of misstatement
of materiality in the financial statements that makes it probable
that the economic decisions of a reasonably
knowledgeable person would be changed or influenced.
We use materiality both in planning the scope
of our audit work and in evaluating the results
of our work.
We determined materiality for the Company to
be GBP736,000 (2015: GBP630,000), which is approximately
2% of shareholders' funds (2015: 2%) and represents
a benchmark that is consistent with other investment
entities which use valuation models with significant
unobservable inputs to derive the portfolio
valuation.
We agreed with the Audit Committee that we would
report to the Committee all audit differences
in excess of GBP14,700 (2015: GBP12,600), as
well as differences below that threshold that,
in our view, warranted reporting on qualitative
grounds. We also report to the Audit Committee
on disclosure matters that we identified when
assessing the overall presentation of the financial
statements.
An overview Our audit was scoped by obtaining an understanding
of the scope of the entity and its environment, including
of our audit internal control and internal control of
its service providers, and assessing the
risks of material misstatement. Audit work
to respond to the risks of material misstatement
was performed directly by the audit engagement
team.
Matters on which
we are required
to report by
exception
Adequacy of explanations Under the Companies (Guernsey) Law, 2008 we
received and are required to report to you if, in our opinion:
accounting records * we have not received all the information and
explanations we require for our audit; or
* proper accounting records have not been kept; or
* the financial statements are not in agreement with
the accounting records.
We have nothing to report in respect of these
matters.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Independent Auditor's Report to the Members of
Alternative Asset Opportunities PCC Limited (continued)
For the year ended 30 June 2016
Corporate Governance Under the Listing Rules we are also required
Statement to review the parts of the Corporate Governance
Statement relating to the Company's compliance
with ten provisions of the UK Corporate Governance
Code. We have nothing to report arising from
our review.
Our duty to read Under International Standards on Auditing (UK
other information and Ireland), we are required to report to you
in the Annual if, in our opinion, information in the annual
Report report is:
* materially inconsistent with the information in the
audited financial statements; or
* apparently materially incorrect based on, or
materially inconsistent with, our knowledge of the
Company acquired in the course of performing our
audit; or
* otherwise misleading.
In particular, we are required to consider whether
we have identified any inconsistencies between
our knowledge acquired during the audit and
the directors' statement that they consider
the annual report is fair, balanced and understandable
and whether the annual report appropriately
discloses those matters that we communicated
to the audit committee which we consider should
have been disclosed. We confirm that we have
not identified any such inconsistencies or misleading
statements.
Respective responsibilities As explained more fully in the Directors' Responsibilities
of directors Statement, the directors are responsible for
and auditor the preparation of the financial statements
and for being satisfied that they give a true
and fair view. Our responsibility is to audit
and express an opinion on the financial statements
in accordance with applicable law and International
Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing
Practices Board's Ethical Standards for Auditors.
We also comply with International Standard on
Quality Control 1 (UK and Ireland). Our audit
methodology and tools aim to ensure that our
quality control procedures are effective, understood
and applied. Our quality controls and systems
include our dedicated professional standards
review team and independent partner reviews.
This report is made solely to the Company's
members, as a body, in accordance with Section
262 of The Companies (Guernsey) Law, 2008. Our
audit work has been undertaken so that we might
state to the Company's members those matters
we are required to state to them in an auditor's
report and/or those matters we have expressly
agreed to report to them on in our engagement
letter and for no other purpose. To the fullest
extent permitted by law, we do not accept or
assume 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.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Independent Auditor's Report to the Members of
Alternative Asset Opportunities PCC Limited (continued)
For the year ended 30 June 2016
Scope of the An audit involves obtaining evidence about
audit of the the amounts and disclosures in the financial
financial statements statements sufficient to give reasonable assurance
that the financial statements are free from
material 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 been consistently
applied and adequately disclosed; the reasonableness
of significant accounting estimates made by
the directors; and the overall presentation
of the financial statements. In addition, we
read all the financial and non-financial information
in the annual report to identify material inconsistencies
with the audited financial statements and to
identify any information that is apparently
materially incorrect based on, or materially
inconsistent with, the knowledge acquired by
us in the course of performing the audit. If
we become aware of any apparent material misstatements
or inconsistencies we consider the implications
for our report.
David Becker
for and on behalf of Deloitte LLP
Chartered Accountants and Recognised Auditor
St. Peter Port, Guernsey
14 October 2016
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Statement of Comprehensive Income
For the year ended 30 June 2016
Notes Year to 30 June 2016 Year to 30 June 2015
Revenue Capital Total Revenue Capital Total
GBP GBP GBP GBP GBP GBP
Operating income
Net gains on
investments 10 - 5,177,824 5,177,824 - 2,819,001 2,819,001
Foreign exchange
gains 17 - 735,509 735,509 - 211,996 211,996
Interest and similar
income 4 2,008 - 2,008 491 - 491
--------------------- ---------- ---------- ---------- ---------- ----------
Total income 2,008 5,913,333 5,915,341 491 3,030,997 3,031,488
Operating
expenses
Management
fee 5 (104,236) - (104,236) (95,481) - (95,481)
Investment Manager's
fee 5 (139,449) - (139,449) (127,500) - (127,500)
Custodian fee (17,431) - (17,431) (15,914) - (15,914)
Other expenses 6 (342,888) - (342,888) (354,508) - (354,508)
Total operating
expenses before
finance costs (604,004) - (604,004) (593,403) - (593,403)
Operating
(loss)/gain
before finance
costs (601,996) 5,913,333 5,311,337 (592,912) 3,030,997 2,438,085
Finance costs
Loan interest
payable 14 (122,026) - (122,026) (124,713) - (124,713)
Net
(deficit)/return 8 (724,022) 5,913,333 5,189,311 (717,625) 3,030,997 2,313,372
===================== ========== ========== ========== ========== ==========
Return/(Deficit)
per share 8 (1.00p) 8.21p 7.21p (1.00p) 4.21p 3.21p
The revenue column of this statement is the revenue account of
the Company.
All revenue and capital items in the above statement derive from
continuing operations.
The notes on pages 44 to 58 are an integral part of these
financial statements.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Statement of Financial Position
As at 30 June 2016
Notes 2016 2015
GBP GBP
Non-current assets
Financial assets at fair value
through profit or loss 10 31,839,719 30,570,116
Current assets
Cash and cash equivalents 12 4,986,455 1,122,172
Other receivables 11 127,570 99,928
5,114,025 1,222,100
----------- -----------
Total assets 36,953,744 31,792,216
----------- -----------
Current liabilities
Other payables 13 144,802 172,585
144,802 172,585
----------- -----------
Total liabilities 144,802 172,585
----------- -----------
Net assets attributable to shareholders 17 36,808,942 31,619,631
Total equity and liabilities (including
amounts due to shareholders) 36,953,744 31,792,216
=========== ===========
Net asset value per share 9 51.1p 43.9p
These financial statements were approved by the Board of
Directors on 14 October 2016.
Signed on behalf of the Board.
CPG Tracy DIW Reynolds
Director Director
14 October 2016
The notes on pages 44 to 58 are an integral part of these
financial statements.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Statement of Changes in Redeemable Participating Preference
Shareholders' Funds
For the year ended 30 June 2016
For the year ended Share Capital Revenue
30 June 2016 Premium reserve reserve Total
GBP GBP GBP GBP
Balance as at 1 July
2015 46,034,968 (4,125,384) (10,289,953) 31,619,631
Return/(Deficit) for
the year - 5,913,333 (724,022) 5,189,311
Capital distribution - - - -
Balance as at 30 June
2016 46,034,968 1,787,949 (11,013,975) 36,808,942
=========== ============ ============= ===========
For the year ended Share Capital Revenue
30 June 2015 Premium reserve reserve Total
GBP GBP GBP GBP
Balance as at 1 July
2014 48,914,968 (7,156,381) (9,572,328) 32,186,259
Return/(Deficit) for
the year - 3,030,997 (717,625) 2,313,372
Capital distribution (2,880,000) - - (2,880,000)
Balance as at 30 June
2015 46,034,968 (4,125,384) (10,289,953) 31,619,631
============ ============ ============= ============
The notes on pages 44 to 58 are an integral part of these
financial statements.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Statement of Cash Flows
For the year ended 30 June 2016
Year to Year to
30 June 30 June
2016 2015
GBP GBP
Cash flows from operating activities
Operating expenses before finance costs for
the year (692,413) (592,912)
(Increase)/decrease in other receivables (27,641) 751,513
(Decrease)/increase in other
payables (27,784) 35,307
Premiums paid (5,417,057) (5,325,557)
Proceeds from maturities and sale of investments 9,325,278 6,954,486
Net cash inflow from operating activities
before interest 3,160,383 1,822,837
------------ ------------
Cash flows from financing activities
Receipts of borrowings 7,799,412 1,253,103
Repayment of borrowings (7,799,412) (1,253,103)
Interest paid (31,609) (124,713)
Capital distribution - (2,880,000)
------------ ------------
Net cash used in financing activities (31,609) (3,004,713)
------------ ------------
Net increase/(decrease) in cash and cash equivalents 3,128,774 (1,181,876)
Cash and cash equivalents at the beginning
of the year 1,122,172 2,092,052
Effects of foreign
exchange 735,509 211,996
Cash and cash equivalents at the end of the
year 4,986,455 1,122,172
============ ============
The notes on pages 44 to 58 are an integral part of these
financial statements.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Portfolio of Investments
As at 30 June 2016
Number Valuation Total Portion AM Best
Traded Life Interests ("TLI's") of Policies Death (by value) Rating
Benefit of Portfolio (Issuer)
Parent Group Issuer GBP GBP %
Lincoln National Corporation
Lincoln National
Life Insurance
Company 12 7,476,253 19,016,730 23.48 A+
Lincoln Life
& Annuity Company
of New York 1 267,619 1,309,096 0.84 A+
American International
Group, Inc.
American General
Life Insurance
Company 8 5,652,206 13,502,393 17.75 A
Aegon N.V.
Transamerica
Life Insurance
Company 16 5,258,339 16,215,738 16.52 A+
Massachusetts Mutual Life
Insurance Company
C.M Life Insurance
Company 3 2,408,489 5,148,215 7.56 A++
Massachusetts
Mutual Life Insurance
Company 1 218,533 561,041 0.69 A++
MetLife,
Inc.
MetLife Insurance
Company USA 6 1,926,140 4,870,018 6.05 A+u
General American
Life Insurance
Company 1 70,045 374,027 0.24 A+u
Manulife Financial Corporation
John Hancock
Life Insurance
Company (U.S.A.) 4 688,157 2,244,165 2.16 A+
Pacific Mutual Holding
Company
Pacific Life
Insurance Company 4 1,527,517 6,022,737 4.80 A+
New York Life Insurance
Company
New York Life
Insurance and
Annuity Corporation 4 726,494 2,618,192 2.28 A++
Voya Financial Inc.
Security Life
of Denver Insurance
Company 1 1,058,485 3,740,275 3.32 A
Voya Retirement
Insurance and
Annuity Company 2 284,905 523,638 0.89 A
ReliaStar Life
Insurance Company 1 134,424 374,027 0.42 A
Global Atlantic Financial
Group
Accordia Life
and Annuity Company 3 1,613,923 3,190,455 5.07 A-
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Portfolio of Investments (continued)
As at 30 June 2016
Number Valuation Total Portion AM Best
Traded Life Interests ("TLI's") of Policies Death (by value) Rating
Benefit of Portfolio (Issuer)
Parent Group Issuer GBP GBP %
AXA S.A.
AXA Equitable
Life Insurance
Company 3 445,786 1,084,680 1.40 A+
MONY Life Insurance
Company of America 1 295,739 748,055 0.93 A
Sammons Enterprises, Inc.
North American
Company for Life
and Health Insurance 2 344,991 1,496,110 1.08 A+
Resolution Life Holdings
Inc
Lincoln Benefit
Life Company 1 247,956 1,496,110 0.78 A-
Prudential
plc
Jackson National
Life Insurance
Company 1 369,809 763,365 1.16 A+
Western & Southern Mutual
Holding Company
Columbus Life
Insurance Company 1 181,158 748,055 0.57 A+
Mutual of Omaha Insurance
Company
United of Omaha
Life Insurance
Company 1 204,224 644,403 0.64 A+
StanCorp Financial Group,
Inc
Standard Insurance
Company 1 150,599 374,027 0.47 A
Security Mutual Life Insurance
Company of New York
Security Mutual
Life Insurance
Company of New
York 1 137,581 561,041 0.43 A-
Legal & General Group Plc
Banner Life Insurance
Company 1 101,615 224,416 0.32 A+
DMC Reserve Trust
Beneficial Life
Insurance Company 1 48,732 149,611 0.15 A-
Portfolio Total 81 31,839,719 88,000,620 100
============= =========== =========== ==============
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the Financial Statements
For the year ended 30 June 2016
1 Principal activity
The Company was registered in Guernsey on 27 February 2004 as a
closed-ended protected cell company established with one cell known
as the US Traded Life Interests Fund (the "Fund" or "Cell"). The
Company has been authorised by the Guernsey Financial Services
Commission as an authorised closed-ended investment scheme. The
redeemable preference shares (the "shares") in the Company have
been admitted to the Official List of the Financial Conduct
Authority with a premium listing and to trading on the London Stock
Exchange's Main Market for Listed Securities.
The Company's original objective in respect of the Fund was to
provide investors with an attractive capital return through holding
to maturity (or until the end of the life of the Fund) a
diversified portfolio of US Traded Life Interests ("TLIs"); as
approved by Shareholders on 10 October 2016, the new investment
objective is, in summary, to conduct a sale of its portfolio and
thereafter to return cash to Shareholders through a members'
voluntary winding-up, or other restructuring, subject to the
further approval of Shareholders.
2 Principal Accounting Policies
(a) Basis of preparation
Statement of compliance
The financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRSs) issued by the
International Accounting Standards Board (IASB) and with the
Statement of Recommended Practice 'Financial Statements of
Investment Trust Companies and Venture Capital Trusts' (SORP)
issued in January 2009 by the Association of Investment
Companies.
Basis of measurement
The financial statements have been prepared under the historical
cost convention as modified by the revaluation of investments, as
detailed below under note 2(b).
The financial statements have been prepared on a total company
basis and not on a cell-by-cell basis as there is currently only
one cell. The only non-cellular assets and liabilities are in
respect of the two management shares of no par value issued at GBP1
each fully paid represented by cash at bank. As they are immaterial
they have been excluded from the financial statements.
Functional and Presentational Currency
The financial information shown in the financial statements is
shown in sterling, being the Company's functional and
presentational currency.
Critical accounting judgements and key sources of estimation
uncertainty
The preparation of Financial Statements in conformity with IFRS
requires management to make judgements, estimates and assumptions
that affect the application of policies and the reported amounts of
assets and liabilities, income and expenses. The estimates and
associated assumptions are based on historical experience and
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making
judgements about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may
differ from these estimates. The estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the year in which the
estimate is revised if the revision affects only that year, or in
the year of the revision and future years if the revision affects
both current and future years. Such judgements and key sources of
estimation uncertainty include the valuation of investments and the
going concern assumption, which are discussed in note 2(b) and 2(c)
respectively.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the Financial Statements (continued)
For the year ended 30 June 2016
2 Principal Accounting Policies (continued)
(a) Basis of preparation (continued)
Adoption of new and revised standards
In the current year, no new standards have been adopted by the
Company.
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.
Title Subject Effective date
-------- ----------------------- ---------------
IFRS 9 Financial Instruments 1 January 2018
-------- ----------------------- ---------------
IFRS 15 Revenue from Contracts 1 January 2018
with Customers
-------- ----------------------- ---------------
The Directors do not expect that the adoption of the standards
listed above will have a material impact on the financial
statements of the Company.
(b) Investments
US Traded Life Interest Investments
The Company's assets were invested primarily in US Traded Life
Interests ("TLIs") with the aim to hold such to maturity or until
the end of the life of the Fund. The Company only invested in Whole
of Life and Universal Life policies. All TLI investments are
classified as fair value through profit and loss on initial
recognition. Following the passing of the resolution to change the
investment objective and policy on 10 October 2016, the disposal of
the portfolio has been activated and the policies are in the
process of being transferred to the purchasers.
Recognition and basis of measurement
The ongoing payment of premiums on TLIs are recognised on an
accrual basis and are initially held at cost, being the
consideration given. The purchasers of the policies in the
portfolio became responsible for premiums with effect from the risk
transfer date of 12 September 2016.
Valuation
Prior to seeking bids in the secondary market for the entire
portfolio, the TLIs were valued monthly at the Directors'
discretion. The methodology adopted by the Directors intends to
reflect the fair value of the policies. This methodology uses a
discounted cash flow method.
The value of a TLI policy is the present value of its net
expected future cash flows. The calculation uses the following data
and assumptions provided by third party LE underwriters, the
Investment Manager (or the Directors, where stated):
-- Death benefit payable under the policy;
-- Mortality using the 2015 Valuation Basic Table (Ultimate) and
the most recent life expectancy for each policy;
-- Premiums payable under the policy; and
-- An estimate of a market based discount rate derived by the Directors.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the Financial Statements (continued)
For the year ended 30 June 2016
2 Principal Accounting Policies (continued)
(b) Investments(continued)
There is inherent uncertainty within the valuation such that the
valuation may be materially different from either the value on
maturity or the realisable sale value of these investments.
The significant unobservable inputs used in the valuation of the
Company's assets, Life Settlement policies, are the Life Expectancy
(LE) and the discount rate.
The LE for each insured has been sourced from the major
recognised providers of LE assessments that are used in the Life
Settlement market or, where these are not available, standard US
population mortality tables have been used to derive the LE.
The Company has adopted a discount rate of 12% for each policy,
as explained in previous reports.
The valuation basis of the portfolio is specified by the Board
and the Investment Manager computes the portfolio valuation
monthly. Analysis is provided to the Board, on a monthly basis, of
the change in value of the portfolio over this period.
The Board receives regular updates from the Investment Manager
on market activity and has periodically submitted policies to
market, to compare the individual computed policy valuations to
indicative market values.
The impacts on the portfolio of varying the LE and varying the
discount rate are as indicated in the sensitivity matrix included
in the Chairman's Statement on page 8.
Typically, an increase in the LE will reduce the value of a
policy and conversely a reduction in the LE will increase the value
of a policy.
Typically, an increase in the discount rate will reduce the
value of a policy and conversely a reduction in the discount rate
will increase the value of a policy.
De-recognition
The Company de-recognises a financial asset when the contractual
rights to cash flows from the financial asset expire. A financial
liability is de-recognised when the obligation specified in the
contract is discharged, cancelled or expired. TLI investments are
de-recognised on the date of death of the insured or on the trade
date if a policy is sold.
(c) Going concern
Further to the passing by shareholders of the resolution to
change the investment objective of the Company to enable the total
disposal of the portfolio, the intention is that a further
resolution will be recommended to shareholders to propose the
appointment of a liquidator and the voluntary winding- up of the
Company.
Due to the Board's intention to place the Company into
liquidation, the financial statements have been prepared on a basis
other than that of a going concern. The Board however confirms that
there are adequate liquid resources in place to continue in
operation throughout the disposal of the portfolio process and to
the date of the proposed liquidation.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the Financial Statements (continued)
For the year ended 30 June 2016
2 Principal Accounting Policies (continued)
(d) Interest income
Bank deposit interest is accounted for on an accruals basis.
(e) Expenses
Expenses are accounted for on an accruals basis and all amounts
have been allocated to the Statement of Comprehensive Income -
revenue account.
(f) Foreign exchange
Foreign currency monetary assets and liabilities are translated
into sterling at the rate of exchange ruling at the reporting date.
Transactions in foreign currencies are translated into sterling at
the rate ruling at the date of the transaction. Realised and
unrealised foreign exchange gains and losses are recognised in the
Statement of Comprehensive Income and in the capital reserve -
realised, and capital reserve - unrealised, respectively.
(g) Bank borrowings
Interest bearing bank loans and overdrafts are recorded when the
proceeds are received. Interest payments are recognised in the
Statement of Comprehensive Income in the period in which they are
incurred.
3 Segmental Reporting
The Board has considered the requirements of IFRS 8 'Operating
Segments'. The Board has determined that the Company is organised
in one main operating segment, being investment in a portfolio of
TLIs. The Board, as a whole, has been determined as constituting
the chief operating decision maker of the Company.
The Board has overall responsibility for the assets of the
Company in accordance with the investment objective and policy, and
subject to advice received from the Investment Manager.
The Board therefore retains full responsibility as to the
investment strategy or major allocation decisions. The Investment
Manager is required to act under the terms of the prospectus which
cannot be radically changed without the approval of the Board and
Shareholders.
The key measure of performance used by the Board to assess the
Company's performance and to allocate resources is the total return
of the Company's net asset value, as calculated under IFRS, and
therefore no reconciliation is required between the measure of
profit or loss used by the Board and that contained in the
financial statements.
4 Interest and similar income
Year to Year to
30 June 2016 30 June
2015
GBP GBP
Bank deposit
interest 2,008 491
Total income 2,008 491
============== =========
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the Financial Statements (continued)
For the year ended 30 June 2016
5 Investment management and management fees
SL Investment Management Limited, the Investment Manager, was
appointed under an agreement with the Company and other parties
dated 16 March 2004, as amended and restated on 20 July 2004. The
agreement may be terminated by either party giving not less than 12
months' notice or such shorter notice as the parties may agree to
accept.
From 1 April 2012 the fee payable to the Investment Manager is
0.4% per annum of the Company's Gross Assets. Additional fees, as
disclosed in Note 6, are paid to the Investment Manager to obtain
LE Updates periodically.
Allianz Global Investors GmbH, UK Branch, the Manager, was
appointed under an agreement with the Company dated 16 March 2004
to manage the fixed interest and near cash assets of the Company in
accordance with the investment policy and to implement the currency
hedging facility from time to time approved by the Directors.
Either party giving not less than 12 months' notice may terminate
the agreement.
From 1 July 2013 the fee payable to the Manager is 0.3% per
annum of the Company's Gross Assets and a fixed fee of GBP30,000
per annum for the provision of Administration and Secretarial
Services. These fees are shown in the Statement of Comprehensive
Income on page 38 and under Other Expenses in the table in Note 6,
respectively.
The Investment Management Agreement and Management Agreement are
subject to immediate termination on the Company entering
liquidation.
With effect from 1 September 2009 the fixed fee payable under
The Administration Agreement between the Company and JTC Fund
Solutions (Guernsey) Limited (Formerly Kleinwort Benson (Channel
Islands) Fund Services Limited) is GBP50,000 per annum.
6 Other expenses
Year to Year to
30 June 2016 30 June 2015
GBP GBP
Administration fees 50,000 50,000
Secretarial fees 37,521 25,000
Broker fees 42,075 41,872
Directors' fees, national
insurance and expenses 71,454 76,188
D&O Insurance 7,047 6,733
Auditor's remuneration 29,532 27,540
Legal and professional
fees 40,553 56,801
Printing 1,561 4,388
Safe custody
fees 13,644 12,196
Bank fees and
charges 1,991 1,786
Registrar fees 19,420 13,034
Cost of obtaining new
LEs 11,226 23,925
Sundry expenses
* 16,864 15,045
342,888 354,508
============== ==============
* Sundry expenses include mailing services, tax exempt fees,
stock exchange fees and other sundry costs.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the Financial Statements (continued)
For the year ended 30 June 2016
7 Taxation
The Company is exempt from Guernsey Income Tax under the local
Income Tax (Exempt Bodies) (Guernsey) Ordinances and is charged an
annual exemption fee of GBP1,200 which is included in sundry
expenses.
The Company adopted UK tax residency from 1 September 2009
onwards. Since that date the Company has been managed in such a way
as to meet the conditions for approval as an investment trust under
Section 1158 of the Corporation Tax Act 2010. As an investment
trust, the Company is subject to corporation tax on its income, but
no corporation tax is provided for in these accounts, as the
Company has significant unutilised tax losses which are not deemed
to be recoverable.
In December 2012 the Company received confirmation from HM
Revenue & Customs as an approved investment trust for
accounting periods commencing on or after 1 July 2012, subject to
the Company continuing to meet the eligibility conditions at
Section 1158 Corporation Tax Act 2010 and the ongoing requirements
in Chapter 3 of Part 2 Investment Trust (Approved Company) Tax
Regulations 2011 (Statutory Instrument 2011/2999).
In the opinion of the Directors, the Company has conducted its
affairs in such a manner that it continues to meet these
eligibility conditions.
8 Return/(deficit) per share
Revenue (deficit) per Share is based on the net deficit
attributable to the Shares of GBP724,022 (2015: deficit GBP717,625)
and on the average number of Shares in issue of 72,000,000 (2015:
72,000,000). Capital return per Share is based on the net surplus
attributable to the Shares of GBP5,913,333 (2015: deficit
GBP3,030,997) and on the average number of Shares in issue of
72,000,000 (2015: 72,000,000).
9 Net Asset Value per Share
The diluted and undiluted net asset value per Share is based on
net assets attributable to the Shares of GBP36,808,942 (2015:
GBP31,619,631) and on the 72,000,000 (2015: 72,000,000) Shares in
issue at the year end.
10 Investments
Year to Year to
(a) Investments at fair value through 30 June 30 June
profit or loss 2016 2015
GBP GBP
Movements in the year:
Opening valuation 30,570,116 29,380,044
Premiums
paid 5,417,057 5,325,557
Proceeds from the maturity and sale
of investments (9,325,278) (6,954,486)
Net realised gain
on maturities 3,524,172 3,623,110
Movement in unrealised appreciation/(depreciation)
on revaluation of investments 1,653,652 (804,109)
Closing valuation 31,839,719 30,570,116
------------- -------------
Comprising:
Closing book cost 50,977,915 51,361,964
Closing unrealised loss (19,138,196) (20,791,848)
Closing valuation 31,839,719 30,570,116
============= =============
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the Financial Statements (continued)
For the year ended 30 June 2016
10 Investments (continued)
(b) Net gain on investments held Year to Year to
at fair value through profit or 30 June 2016 30 June
loss 2015
GBP GBP
Net realised gain on maturities 3,524,172 3,623,110
Movement in unrealised appreciation/(depreciation)
on revaluation of investments 1,653,652 (804,109)
5,177,824 2,819,001
-------------- ----------
11 Other receivables and maturity proceeds receivable
30 June 2016 30 June 2015
GBP GBP
Sundry debtors 127,570 99,928
127,570 99,928
============= =============
The carrying value for the current and prior year is materially
the same as the fair value.
12 Cash and cash equivalents
Any amounts held on deposit or in current accounts at the
Company's Custodian, Sub-Custodian or financial institutions are
included in cash or cash equivalents. The carrying value for the
current and prior year is materially the same as the fair
value.
13 Other payables
30 June 2016 30 June 2015
GBP GBP
Accrued expenses 144,802 172,585
144,802 172,585
============= =============
The carrying value for the current and prior year is materially
the same as the fair value.
14 Loan facility
On 31 March 2014 the Company signed a revolving credit facility
agreement with AIB Group (UK) PLC ("the Lender") for up to US$10
million, the terms of which were amended in August 2015 to extend
the facility expiry to 31 March 2018. As at 30 June 2016, the
Company's drawings under this agreement were nil (30 June 2015:
nil).
Following the passing of the Shareholder resolution to change
the investment objective and policy and effect the disposal of the
portfolio, the facility will be cancelled.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the Financial Statements (continued)
For the year ended 30 June 2016
15 Share capital and share premium
The share capital of the Company is two Management Shares of no
par value and an unlimited number of Redeemable Participating
Preference Shares (the "Shares") of no par value.
The two Management Shares were issued at GBP1 each fully paid
and are beneficially owned by the Manager. The Management Shares do
not carry any rights to dividends and holders of Management Shares
are only entitled to participate in the non-cellular assets of the
Company on a winding-up. The Management Shares shall only have the
right to vote when there are no Participating Shares of any cell in
issue.
40,000,000 Shares were issued in the Fund at GBP1 per share on
25 March 2004. A further 32,000,000 shares were issued on 5
November 2012.
The holders of shares attributable to the Fund will be entitled
to participate only in the income, profits and assets attributable
to the Fund. On winding-up, the holders of shares are entitled to
participate only in the assets of the Fund and have no entitlement
to participate in the distribution of any assets attributable to
any other cell. Holders of shares are entitled to attend and vote
at general meetings of the Company.
16 Share buy-backs
By way of an ordinary resolution passed at the Annual General
Meeting held on 4 November 2015, the Company took authority to make
market purchases of fully paid Shares, provided that the maximum
number of Shares authorised to be purchased would be no more than
10,792,800 Shares or such number as represented 14.99 per cent. of
the Shares in issue as at the date of the Annual General Meeting,
whichever was less (in either case, excluding Shares held in
Treasury). Such authority will expire on 4 November 2016 or the
date of the next Annual General Meeting (whichever is earlier),
unless previously renewed, varied, or revoked prior to such date by
a special resolution of the Company in general meeting. During the
year under review no Shares were bought back for cancellation
(2015: nil).
The minimum price which may be paid for a Share pursuant to such
authority is one penny and the maximum price which may be paid
shall be the higher of (1) not more than 5% above the average of
the middle market quotations for a Share in the Company as derived
from The Stock Exchange Daily Official List for the five business
days immediately preceding the day on which such share is
contracted to be purchased, and (2) the higher of the price of the
last independent trade and highest current independent bid on the
relevant market when the purchase is carried out, provided that the
Company shall not be authorised to acquire Shares at a price above
the estimated prevailing net asset value per Share on the date of
purchase.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the Financial Statements (continued)
For the year ended 30 June 2016
17 Net assets attributable to shareholders
Share Premium Capital Revenue
Reserves Reserves Total
2016 2016 2016 2016
GBP GBP GBP GBP
Balance at 1 July
2015 46,034,968 (4,125,384) (10,289,953) 31,619,631
Net realised gain
on maturities - 3,524,172 - 3,524,172
Movement in unrealised
depreciation on
investments - 1,653,652 - 1,653,652
Net currency gains - 735,509 - 735,509
Revenue loss for
the year (724,022) (724,022)
Capital distributions - - - -
------------
Balance at 30
June 2016 46,034,968 1,787,949 (11,013,975) 36,808,942
============== ============ ============= ============
Share Premium Capital Revenue
Reserves Reserves Total
2015 2015 2015 2015
GBP GBP GBP GBP
Balance at 1 July
2014 48,914,968 (7,156,381) (9,572,328) 32,186,259
Net realised gain
on maturities - 3,623,110 - 3,623,110
Movement in unrealised
depreciation on
investments - (804,109) - (804,109)
Net currency gains - 211,996 - 211,996
Revenue loss for
the year - - (717,625) (717,625)
Capital distributions (2,880,000) - - (2,880,000)
------------
Balance at 30
June 2015 46,034,968 (4,125,384) (10,289,953) 31,619,631
============== ============ ============= ============
18 Related party transactions
Fees earned by the Directors of the Company during the year were
GBP71,454 of which GBP17,500 was outstanding at the year end (2015:
GBP76,188 of which GBP17,500 was outstanding at the year end).
Allowable expenses claimed by the Directors in the course of their
duties amounted to GBP3,032 for the year ended 30 June 2016 (2015:
GBP4,549). Fees earned by the Investment Manager, Manager and
Administrator are discussed in note 5.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the Financial Statements (continued)
For the year ended 30 June 2016
19 Categories of financial assets and financial liabilities
The following table analyses the carrying amounts of the
financial assets and liabilities by category as defined in IAS
39.
30 June 2016 30 June 2015
GBP GBP
Financial assets
Cash and cash equivalents 4,986,455 1,122,172
Fair value through profit or
loss:
TLI Policies 31,839,719 30,570,116
Loans and receivables at amortised
cost 127,570 99,928
36,953,744 31,792,216
------------- -------------
Financial liabilities
Loans and payables at amortised
cost (144,802) (172,585)
============= =============
36,808,942 31,619,631
============= =============
20 Financial risk management objectives and policies
The main risks to which the Company was exposed prior to the
shareholder approval to change the investment objective and effect
the disposal of the portfolio were market and longevity risk,
currency risk, interest rate risk, liquidity risk and credit
risk.
Fair value measurements
The Company classifies financial instruments using the following
fair value hierarchy that reflects the significance of the inputs
used in making the measurements. The hierarchy gives the highest
priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1 measurements) and
the lowest priority to unobservable inputs (Level 3
measurements). The three levels of the fair value hierarchy under
IFRS 13 are as follows:
-- Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities;
-- Level 2 - Inputs other than quoted prices included within
Level 1 that are observable for the asset or liability either
directly (that is, as prices) or indirectly (that is, derived from
prices); or
-- Level 3 - Inputs for the asset or liability that are not
based on observable market data (that is, unobservable inputs).
The level in the fair value hierarchy within which the fair
value measurement is categorised in its entirety is determined on
the basis of the lowest level input that is significant to the fair
value measurement in its entirety. For this purpose, the
significance of an input is assessed against the fair value
measurement in its entirety. If a fair value measurement uses
observable inputs that require significant adjustment based on
unobservable inputs, that measurement is a level 3 measurement.
Assessing the significance of a particular input to the fair value
measurement in its entirety requires
judgement, considering factors specific to the asset or
liability.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the Financial Statements (continued)
For the year ended 30 June 2016
20 Financial risk management objectives and policies (continued)
Fair value measurements (continued)
The determination of what constitutes 'observable' requires
significant judgement by the Company. The Company considers
observable data to be that market data that is readily available,
regularly distributed or updated, reliable and verifiable, not
proprietary, and provided by independent sources that are actively
involved in the relevant market.
The following table presents the Company's financial assets held
at fair value by level within the valuation hierarchy as of 30 June
2016.
30 June Percentage 30 June Percentage
2016 of net 2015 of net
assets assets
GBP % GBP %
Level 3 fair value
assets 31,839,719 86.50 30,570,116 96.68
----------- ----------- ----------- -----------
31,839,719 86.50 30,570,116 96.68
=========== =========== =========== ===========
The investments categorised as level 3 are the TLI policies held
in the Company's portfolio. The valuation of the TLI policies is
not based on observable market data, but on the valuation model
detailed in note 2(b) used by the Investment Manager to determine
the fair value of the policies held, and therefore these
investments are categorised as level 3 of the IFRS fair value
hierarchy. There has been no movement between the categories and
the reconciliation of the movement is detailed in the investment
note 10.
Capital risk management
The capital structure of the Company consists of cash and cash
equivalents and net assets attributable to holders of Shares,
comprising issued Shares, capital reserves and revenue reserves as
detailed in note 17.
At 30 June 2016 net assets attributable to the holders of Shares
were GBP36,808,942 (2015: GBP31,619,631).
As at 30 June 2016, the Company had no borrowings (2015: nil).
Any borrowings mean that Shareholder returns are "geared" and that
such borrowings will need to be repaid prior to any return of
capital to shareholders.
The Company's investment objective was changed by shareholder
resolution on 10 October 2016 and is to conduct a sale of its
portfolio: (i) to Vida Longevity Fund, L.P for a total cash
consideration of $40.0 million, subject to adjustment in respect of
the value of policies excluded from the sale, on the terms set out
in the Sale and Purchase Agreement which has been entered into
between Vida Longevity Fund, L.P and the Company on 12 September
2016; and (ii) to other parties, both as described in the circular
to Shareholders dated 13 September 2016. Thereafter the Company
will return cash to Shareholders
and proceed towards a members' voluntary winding-up, or other
restructuring, subject to the further
approval of Shareholders.
Pending the return of cash to Shareholders of the Fund, cash
balances may be invested in a portfolio
that may include US treasury bonds, UK gilts and
Sterling-denominated corporate bonds with a
minimum rating of AA by Standard & Poor's or an equivalent
rating by another rating agency. The Company (in respect of the
Fund) does not intend to use gearing.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the Financial Statements (continued)
For the year ended 30 June 2016
20 Financial risk management objectives and policies (continued)
Capital risk management (continued)
As at 30 June 2016, the portfolio comprised 81 TLIs representing
71 lives. All TLIs acquired are Whole-of-Life or Universal Life
policies. Agreement was reached, conditional on shareholder
approval, on 12 September 2016 to dispose of the entire portfolio
in relation to the change of investment objective stated above.
Shareholder approval was granted on 10 October 2016.
Market and longevity risk
The Company's exposure to market risk is comprised mainly of
movements in the valuation of the TLI portfolio, which, in turn,
also reflects the Company's assessment of longevity (life
expectancy) for each policy. The Company's basis of valuation is to
arrive at an estimate of market value by applying an Internal Rate
of Return (IRR) based on market rates to estimates of future cash
flow, based on the life expectancy of the life assured and future
premiums payable.
Previous Annual Financial Reports have commented on the choice
of a 12% discount rate (IRR) used in arriving at valuations,
intended to correspond to the IRR for similar policies in the
market on a willing buyer/willing seller basis. While data on
comparable sales is still difficult to obtain, the Investment
Manager has been able to provide limited data on this occasion on
its own policy purchase activities. These involve policies with a
different maturity profile from the Company's policies, but broadly
confirm the accuracy of the Board's valuations. Similarly, the
Board has obtained bids on a representative selection of policies
which also suggests that the Board's valuations correspond closely
to market prices and confirm that policies such as the Company
holds are attractive to other market participants. Meanwhile, the
notes below and the information available in the Chairman's
Statement give an indication of the effects on valuation of
differing IRR assumptions.
At 30 June 2016, should the valuation IRR used increase by 4 per
cent with all other variables remaining constant, the decrease in
net assets attributable to shareholders for the period would amount
to GBP3,215,012 (2015: decrease of GBP3,234,319).
At 30 June 2016, should the valuation IRR used decrease by 4 per
cent with all other variables remaining constant, the increase in
net assets attributable to shareholders for the period would amount
to GBP4,076,395 (2015: increase of GBP4,138,026)
As explained in the Investment Manager's Review, the majority of
policies are valued using an LE obtained since 1 April 2013 with
over 82% by face value obtained since 1 July 2013. Where an LE is
not obtainable because of lack of access to medical records or
where the policy is deemed too small to justify the cost of
obtaining an LE, the LE used is derived from the 2015 Valuation
Basic Table. The cash flow projections are then based on the
adjusted LEs using standard actuarial tables.
At 30 June 2016, should the remaining life expectancy of the
lives insured have increased by 1 year with all other variables
remaining constant, the decrease in net assets attributable to
shareholders for the period would amount to GBP9,795,690 (2015:
decrease of GBP8,677,831).
At 30 June 2016, should the remaining life expectancy of the
lives insured have decreased by 1 year with all other variables
remaining constant, the increase in net assets attributable to
shareholders for the period would amount to GBP11,308,634 (2015:
increase of GBP9,877,997).
Currency risk
Currency risk is the risk that the fair value of future cash
flows of a financial asset will fluctuate because of changes in
foreign exchange rates.
The TLIs held by the Company are denominated exclusively in US
dollars, whereas the issued Shares are denominated in sterling. The
Company had no open forward currency contracts as at 30 June 2016
(30 June 2015: None).
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the Financial Statements (continued)
For the year ended 30 June 2016
20 Financial risk management objectives and policies (continued)
Currency risk (continued)
In the event of a fall in the value of the Company's assets, the
Company may not be able to comply with the borrowing covenants
contained in the Credit Facility Agreement and may be obliged to
sell policies on disadvantageous terms in order to raise cash.
The Company's net currency exposure was as follows:
30 June 2016 30 June 2015
GBP GBP
Exposure to US
dollar 36,890,065 31,717,383
36,890,065 31,717,383
============= =============
At 30 June 2016, had the pound sterling strengthened against the
US dollar by 5% with all other variables held constant, the
decrease in net assets attributable to shareholders would amount to
GBP1,756,670 (2015 decrease: GBP1,510,352). A weakening of 5% would
amount to an increase in net assets attributable to shareholders of
GBP1,941,582 (2015 increase: GBP1,669,336).
Interest rate risk
The Company's interest-bearing financial assets and liabilities
expose it to risks associated with the effects of fluctuations in
the prevailing levels of market interest rates on its financial
position and cash flows.
The following table details the Company's exposure to interest
rate risk at 30 June 2016 and 30 June 2015 from its interest
bearing financial instruments:
Financial Fixed rate Floating Total
assets/(liabilities) financial rate financial
on which assets assets/(liabilities)
no interest
is paid
2016 2016 2016 2016
GBP GBP GBP GBP
Sterling (96,098) - 14,974 (81,124)
US Dollars 31,918,585 - 4,971,481 36,890,066
---------------------- ----------- ---------------------- -----------
31,822,487 - 4,986,455 36,808,942
====================== =========== ====================== ===========
Financial Fixed rate Floating Total
assets/(liabilities) financial rate financial
on which assets assets/(liabilities)
no interest
is paid
2015 2015 2015 2015
GBP GBP GBP GBP
Sterling (105,762) - 8,011 (97,751)
US Dollars 30,603,221 - 1,114,161 31,717,382
---------------------- ----------- ---------------------- -----------
30,497,459 - 1,122,172 31,619,631
====================== =========== ====================== ===========
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the Financial Statements (continued)
For the year ended 30 June 2016
20 Financial risk management objectives and policies (continued)
Interest rate risk (continued)
The above analysis excludes short term other receivables and
other payables as the material amounts are non-interest
bearing.
No sensitivity analysis has been provided as interest rate risk
is not directly considered material to the Company.
Liquidity risk
Liquidity risk is the risk that the Company will encounter
difficulty in meeting obligations associated with its financial
liabilities.
In May 2015 the two year revolving credit facility agreement of
up to US$10 million with AIB Group (UK) PLC ("AIB") was extended
for a further period of two years on improved terms. Following
shareholder approval to change the investment objective of the
Company and effect the disposal of the portfolio the facility will
be cancelled. The Board confirm that sufficient liquid resources
are in place to meet the obligations of the Company up to the date
of proposing and entering voluntary liquidation.
The maturity profile of the Company's financial liabilities is
set out below. The purchasers of the policies in accordance with
the terms of agreement for the disposal of the portfolio are
responsible for the future premiums payable on the Company's
portfolio which are not deemed to be financial liabilities for the
purposes of this note.
As at 30 June GBP GBP GBP GBP GBP GBP
2016
1 month 1 to 3 3 to 12 1 to
or less months months 5 years >5 years Total
Financial liabilities:
Other payables (144,802) - - - - (144,802)
(144,802) - - - - (144,802)
---------- -------- -------- --------- --------- ----------
As at 30 June GBP GBP GBP GBP GBP GBP
2015
1 month 1 to 3 3 to 12 1 to
or less months months 5 years >5 years Total
Financial liabilities:
Other payables (172,585) - - - - (172,585)
(172,585) - - - - (172,585)
---------- -------- -------- --------- --------- ----------
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the Financial Statements (continued)
For the year ended 30 June 2016
20 Financial risk management objectives and policies (continued)
Credit risk
Credit risk is the risk that one party to a financial instrument
will cause a financial loss for the other party by failing to
discharge an obligation.
Credit risk on liquid funds is limited because the
counterparties are banks with high credit ratings assigned by
international credit rating agencies. The Directors manage this
risk by monitoring the credit quality of its bankers on an ongoing
basis. If the credit quality of the bank deteriorates, the Company
would seek to move the short-term deposits or cash to another
bank.
The Company holds cash with Kleinwort Benson (Channel Islands)
Limited which has been assigned a rating of Baa2/Prime-2 by Moody's
Investors Service.
The Company also holds cash with the Sub-Custodian, Wells Fargo,
which has been assigned a rating of A+/A-1 by Standard & Poor's
ratings agency.
The Company will consider various options in respect of the cash
to be received as proceeds for each policy sale which will transfer
to the Company as ownership of each policy transfers to the
purchaser.
The TLIs in the Company's portfolio, as disclosed on pages 42 to
43, have been assigned ratings ranging from A- to A++ by AM Best
ratings agency.
Concentration risk
Concentration risk is the risk that the Company's portfolio of
TLIs is not sufficiently diversified within a range of US life
insurance companies.
The Company has invested its assets in a range of TLIs on the
lives of US citizens aged, at the time of acquisition, between 78
and 92 years.
The TLIs acquired are policies issued by a range of US life
insurance companies. Each underlying life insurance company had an
AM Best credit rating of at least "A" at the time of acquisition of
the relevant policy. AM Best is a US credit rating agency which
provides the most comprehensive coverage of the US life company
sector. As at 30 June 2016, 93.7% by value of the TLI portfolio was
underwritten by companies whose credit rating is "A" or better. Not
more than 15 per cent of the gross assets of the Fund, at the time
of purchase, have been invested in life policies issued by any
single US life insurance company or group.
The Board has overall responsibility for allocating the assets
of the Fund in accordance with the investment objective and policy.
The Investment Manager is responsible, inter alia, for identifying
and monitoring on behalf of the Board, TLIs that are consistent
with the Company's investment objective and policy.
Fair value disclosure
In the opinion of the Directors there is no material difference
between the values presented in the financial statements and the
fair values of the financial assets and liabilities.
21 Events after the reporting period
On 10 October 2016 it was announced that at an EGM of the
Company Shareholders passed a resolution to change the investment
objective and policy of the Company in order to effect the disposal
of the entire portfolio. A second EGM will shortly be arranged to
propose to Shareholders the placing of the Company into voluntary
liquidation. It is expected that a Circular detailing such proposal
will be sent to Shareholders in early November.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR FFEFLLFMSEDS
(END) Dow Jones Newswires
October 14, 2016 10:39 ET (14:39 GMT)
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