Source - RNS
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 Audit

Regency Court

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) Limited

Dorey Court, Admiral Park

(Formerly Kleinwort Benson (Channel Islands)

St Peter Port

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 £1.2 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

June 2016

 

At 30

June 2015

 

 

 

 

 

 

 

 

 

 

Shares in issue

 

 

 

 

 

72,000,000

 

72,000,000

 

 

 

 

 

 

 

 

 

 

Net assets attributable to shareholders

 

£36,808,942

 

£31,619,631

 

 

 

 

 

 

 

 

 

 

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 £2.88m. 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 £/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 (years)

No. of lives

Total death benefit
US$000

% of death benefit

Total valuation US$000

% of valuation

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:

 

Policies

Lives

Death Benefit US$000

% Death benefit

Valuation    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 average life expectancy by -

 

 

Policies

Lives

Total

Death Benefit
($'000)

% Death Benefit

Valuation ($'000)

%  Valuation

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
(DB: Death Benefit)

No. of lives

Total Death Benefit
US$000

Total Valuation US$000

% of valuation

$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 £2.88 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 £1,440,000 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 risk that the fair value of a financial instrument will fluctuate because of changes in foreign exchange rates. The majority of the Company's assets are denominated in US dollars, while the functional currency is GB pounds.

Since 2011 the Company no longer hedges its foreign currency exposure, this risk is therefore not  mitigated. The proceeds to be received from the portfolio disposal will originate and be received in US dollars. The funds will be transferred to GB pounds very shortly thereafter in order to minimise the currency exposure.

 

Interest rate risk

 

Interest rate risk is the risk associated with the effects  of fluctuations  in the prevailing levels of market interest rates on the Company's financial flows.

 

The Company will hold the portfolio disposal proceeds in cash but may choose to invest such in US treasury bonds, UK gilts and Sterling denominated corporate bonds.

Liquidity risk

 

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with its financial liabilities.

The Manager monitors cash levels and funding requirements for expenses on a weekly basis and the Board reviews, at least 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  one  party  to  a financial instrument will cause a financial loss for the other party by failing to discharge an obligation.

 

On 12 September 2016 the Company entered into conditional asset sale agreements with Vida Longevity Fund L.P and Life Equity LLC 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 Company was removed from and a provision added to the Articles of Incorporation to provide for annual continuation  votes by Shareholders from  the

2012 Annual General Meeting and thereafter.

At the EGM held on 10 October 2016 shareholders approved the disposal of the entire portfolio for an aggregate sale price of $43.25m. It is expected that the disposal will be substantially complete 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 £724,022 (2015: revenue deficit for the year £717,625). There was a capital surplus for the year amounting to £5,913,333 (2015: capital surplus for the year £3,030,997). 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 £36,808,942 (2015: £31,619,631). 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 £Nil (2015: £2,880,000).

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 £15,000 (2015: £15,000)  per annum with the Chairman of the Board receiving an extra £7,500 (2015: £15,000) per annum and the Chairman of the Audit Committee an extra £2,500 (2015: £15,000) per annum. Per note 6 to the financial statements the Directors' fees and expenses of £71,454 (2015: £76,188) included allowable expenditure of £3,032 (2015: £4,549) 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 £35,000 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 - 6

Audit - 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 statements of Alternative Asset Opportunities PCC Limited


In our opinion the financial statements:

·           give a true and fair view of the state of the Company's affairs as at 30 June 2016 and of its gain for the year then ended;

·           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 matter - Financial statements prepared other than on a going concern basis


In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosure made in note 2(c) to the financial statements, which explains that the financial statements have been prepared on a basis other than that of a going concern.

 

 


Going concern and the directors' assessment of the principal risks that would threaten the solvency or liquidity of the company


We have reviewed the directors' statement relating to the fact that the financial statements have been prepared on a basis other than that of a going concern contained within note 2(c) to the financial statements and the directors' statement on the longer-term viability of the company contained within the strategic report.

 

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 of risks of material misstatement


The assessed risks of material misstatement described below are consistent with our 2015 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

Given the uncertainties surrounding significant unobservable inputs used in the Company's actuarial valuation model, we considered the year-end valuation of investments of £31,839,719  to be a key risk.

We feel that there is a risk that developments in life expectancy "LE" re-assessments and mortality experience, as well as developments in the markets' view of mortality estimates, are not adequately reflected in the overall valuation in order to derive a best estimate of fair value.

In addition there is a risk that the rate used to discount expected cash flows does not adequately reflect a market rate.

 

In view of the disposal of the TLI portfolio post year-end, we considered the terms of the TLI portfolio sale and purchase agreements ("SPAs") the Company received in September 2016 and reconciled these to the carrying value of the policies at both the balance sheet date and the last reported NAV date of 31 August 2016.

We also reviewed a sample of individual policy valuation models prepared by the Investment Manager, which use actuarial techniques applied to data from mortality tables and policy specific data, to check the models incorporated the Board's stated methodology and assumptions correctly, were 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 of materiality

 


We define materiality as the magnitude of misstatement 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 £736,000 (2015: £630,000), 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 £14,700 (2015: £12,600), 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 of the scope of our audit


Our audit was scoped by obtaining an understanding of the entity and its environment, including 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 received and accounting records

Under the Companies (Guernsey) Law, 2008 we are required to report to you if, in our opinion:

·      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 Statement

Under the Listing Rules we are also required 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 other information in the Annual Report

Under International Standards on Auditing (UK and Ireland), we are required to report to you if, in our opinion, information in the annual 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 of directors and auditor


As explained more fully in the Directors' Responsibilities Statement, the directors are responsible for 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 audit of the financial statements


An audit involves obtaining evidence about the amounts and disclosures in the financial 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

 

 

 

£

£

£

 

£

£

£

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

£

 

£

 

 

 

 

 

 

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 30 June 2016

Share

Premium

 

Capital

reserve

 

Revenue

reserve

 

 

Total

 

 

 

£

 

£

 

£

 

£

 

 

 

 

 

 

 

 

 

 

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 30 June 2015

Share

Premium

 

Capital

reserve

 

Revenue

reserve

 

 

Total

 

 

 

£

 

£

 

£

 

£

 

 

 

 

 

 

 

 

 

 

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

 30 June 2016

 

Year  to

 30 June 2015

 

 

 

 

 

 

 

£

 

£

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

 

 

Traded Life Interests ("TLI's")

Number of Policies

Valuation

Total Death Benefit

Portion (by value) of Portfolio

AM Best Rating (Issuer)

Parent Group

Issuer

 

£

£

%

 

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

 

 

Traded Life Interests ("TLI's")

Number of Policies

Valuation

Total Death Benefit

Portion (by value) of Portfolio

AM Best Rating (Issuer)

Parent Group

Issuer

 

£

£

%

 

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 £1 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 with Customers

1 January 2018

 

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

30 June 2016

 

Year to

30 June 2015

 

 

 

£

 

£

 

 

 

 

 

 

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 £30,000 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 £50,000 per annum.

 

6              Other expenses

 

 

 

 

Year to

30 June 2016

 

Year to

30 June 2015

 

 

 

 

£

 

£

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 £1,200 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 £724,022 (2015: deficit £717,625) 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 £5,913,333 (2015: deficit £3,030,997) 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 £36,808,942 (2015: £31,619,631) and on the 72,000,000 (2015: 72,000,000) Shares in issue at the year end.

 

10           Investments

(a)   Investments at fair value through profit or loss

Year to

 30 June 2016

 

Year to

 30 June 2015

 

 

 

 

 

£

 

£

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 at fair value through profit or loss

 

Year to

30 June 2016

 

Year to

30 June 2015

 

 

 

 

 

 

£

 

£

 

 

 

 

 

 

 

 

 

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

 

 

 

 

£

 

£

 

 

 

 

 

 

 

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

 

 

 

£

 

£

 

 

 

 

 

 

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 £1 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 £1 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

Reserves

 

Revenue

Reserves

 

 

Total

 

 

 

 

 

2016

 

2016

 

2016

 

2016

 

 

 

 

 

£

 

£

 

£

 

£

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

Reserves

 

Revenue

Reserves

 

 

Total

 

 

 

 

 

2015

 

2015

 

2015

 

2015

 

 

 

 

 

£

 

£

 

£

 

£

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 £71,454 of which £17,500  was outstanding at the year end (2015: £76,188 of which £17,500 was outstanding at the year end). Allowable expenses claimed by the Directors in the course of their duties amounted to £3,032 for the year ended 30 June 2016 (2015: £4,549). 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

 

 

 

 

 

£

 

£

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 2016

Percentage of net assets

 

30 June 2015

Percentage of net assets

 

£

%

 

£

%

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 £36,808,942 (2015: £31,619,631).

 

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 £3,215,012 (2015: decrease of £3,234,319).

 

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 £4,076,395 (2015: increase of £4,138,026)

 

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 £9,795,690 (2015: decrease of £8,677,831).

 

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 £11,308,634 (2015: increase of £9,877,997).

 

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

 

 

 

 

£

 

£

 

 

 

 

 

 

 

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 £1,756,670 (2015 decrease: £1,510,352). A weakening of 5% would amount to an increase in net assets attributable to shareholders of £1,941,582 (2015 increase: £1,669,336).

 

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 assets/(liabilities) on which no interest is paid

Fixed rate financial assets

Floating rate financial assets/(liabilities)

Total

 

2016

2016

2016

2016

 

£

£

£

£

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 assets/(liabilities) on which no interest is paid

Fixed rate financial assets

Floating rate financial assets/(liabilities)

Total

 

2015

2015

2015

2015

 

£

£

£

£

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 2016

£

£

£

£

£

£

 

 

1 month or less

1 to 3 months

3 to 12 months

1 to 5 years

>5 years

Total

Financial liabilities:

 

 

 

 

 

 

Other payables

(144,802)

-

-

-

-

(144,802)

 

 

 

 

 

 

 

 

 

 

(144,802)

-

-

-

-

(144,802)

 

 

 

 

 

 

 

 

As at 30 June 2015

£

£

£

£

£

£

 

 

1 month or less

1 to 3 months

3 to 12 months

1 to 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.

 

 


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