TIDMTLI
RNS Number : 2139T
Alternative Asset Opps PCC Ltd
23 September 2010
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Annual Financial Report Announcement
For the period 1 September 2009 to 30 June 2010
At a meeting of the Board of Directors held on 21 September 2010, the final
accounts for the Company for the period from 1 September 2009 to 30 June 2010
were approved, details of which are attached.
The financial information set out in this announcement does not constitute the
Company's statutory accounts for the period ended 30 June 2010, but is derived
from those accounts. Statutory accounts for the period ended 30 June 2010 will
be delivered to Shareholders during October 2010. The auditors have reported on
the accounts and their report was unqualified. The audit report draws attention
to the inherent uncertainty in the valuation of the Company's Traded Life
Interests.
The financial statements have been prepared in accordance with International
Financial Reporting Standards. The Company will publish full financial
statements that comply with International Financial Reporting Standards in
October 2010. This announcement has been prepared using accounting policies
consistent with those set out in the Company's annual report and financial
statements for the period ended 30 June 2010.
The Annual General Meeting of the Company will be held on 23 November 2010.
Peter Ingram
Company Secretary
Telephone number: 020 7065 1467
23 September 2010
155 Bishopsgate
London
EC2M 3AD
Investor Information
For the period from 1 September 2009 to 30 June 2010
General Information
Alternative Asset Opportunities PCC Limited (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, 2008. 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 the 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 (terminating on 31
March 2012) to offering shareholders annual continuation votes from the
Company's 2012 Annual General Meeting onward.
With effect from 1 September 2009, the Company has been managed with a view to
being approved as an Investment Trust within the meaning of the Corporation Tax
Act 2010, and has been resident in the UK for tax purposes from that date.
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. The Annual Financial Report
covers the ten month period from 1 September 2009 to 30 June 2010 and annually
thereafter.
Investment Objective
The Company's objective in respect of the Fund is to provide investors with an
attractive capital return through investment predominantly in a diversified
portfolio of U.S. Traded Life Interests ("TLIs").
Investment policy and strategy
The Company has invested the assets of the Fund in a range of TLIs on the lives
of US citizens aged, at the time of acquisition, between 80 and 90 years. All
TLIs acquired are Whole-Of-Life policies or Universal Life policies. No
viatical policies (that is, a policy on the life of an insured who is terminally
ill and with a life expectancy of less than 2 years) have been acquired.
The TLIs acquired are policies issued by a range of US life insurance companies.
Each underlying life insurance company has an A.M. Best or a Standard & Poor's
credit rating of at least "A" at the time of acquisition of the relevant policy.
A.M. Best is a US credit rating agency which provides the most comprehensive
coverage of the US life company sector. 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.
The Company has the ability to incur borrowings to be applied in meeting TLI
acquisition costs, premium payments and other expenses. The Company's borrowings
as at 30 June 2010 were US$24.0 million (31 August 2009: US$33.4 million).
Investor Information (continued)
For the period from 1 September 2009 to 30 June 2010
It is intended that the proceeds of TLIs which mature are used, after the
deduction of expenses:
· first, to reduce and then eliminate bank borrowings under the Company's
credit facility; and
· secondly, to return capital to shareholders, as determined by the Board.
Pending the return of capital to shareholders, the cash proceeds of TLIs 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.
Investor Information (continued)
For the period from 1 September 2009 to 30 June 2010
+------------------------------+------------------------------+
| Directors | Registrar |
| CPG Tracy (Chairman) | Capita Registrars (Guernsey) |
| DIW Reynolds (Chairman of | Limited |
| the Audit | Longue Hougue House |
| Committee) | St Sampson |
| JPHS Scott (appointed 22 | Guernsey, GY1 3US |
| October 2009) | |
| SM Zein (appointed 1 | |
| September 2009) | |
| | |
+------------------------------+------------------------------+
| Registered Office | Investment Manager |
| Dorey Court, Admiral Park | SL Investment Management |
| St Peter Port | Limited |
| Guernsey GY1 3BG | (formerly Surrenda-link |
| | Limited) |
| | 8/11 Grosvenor Court |
| | Foregate Street |
| | Chester, CH1 1HG |
| | |
+------------------------------+------------------------------+
| Manager | Banker and Custodian |
| RCM (UK) Limited | Kleinwort Benson (Guernsey) |
| 155 Bishopsgate | Limited |
| London EC2M 3AD | Dorey Court, Admiral Park |
| | St Peter Port |
| | Guernsey, GY1 3BG |
| | |
+------------------------------+------------------------------+
| Secretary | Sub Custodian |
| RCM (UK) Limited | Wells Fargo Bank Northwest |
| 155 Bishopsgate | N.A. |
| London EC2M 3AD | 299 South Main Street |
| Represented by PWI Ingram | 12th Floor |
| FCIS | Salt Lake City |
| | UT 84111-2263 |
| | |
+------------------------------+------------------------------+
| Administrator | Legal Advisers (Guernsey) |
| Kleinwort Benson (Channel | Carey Olsen |
| Islands) | PO Box 98 |
| Fund Services Limited | Carey House |
| Dorey Court, Admiral Park | Les Banques |
| St Peter Port | St Peter Port |
| Guernsey GY1 3BG | Guernsey GY1 4BZ |
| | |
+------------------------------+------------------------------+
| Legal Advisers (UK) | Recognised Auditors |
| Herbert Smith LLP | Deloitte LLP |
| Exchange House | Regency Court |
| Primrose Street | Glategny Esplanade |
| London EC2A 2HS | St Peter Port |
| | Guernsey GY1 3HW |
| | |
+------------------------------+------------------------------+
| Financial Adviser and | |
| Corporate Broker | |
| RBS Hoare Govett Limited | |
| 250 Bishopsgate | |
| London EC2M 4AA | |
+------------------------------+------------------------------+
Investor Information (continued)
For the period from 1 September 2009 to 30 June 2010
Directors
The Directors have been chosen for their investment and commercial experience
and are listed below:
Charles Tracy, Chairman, (aged 64) has over 30 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 Management
Limited, President of the Guernsey Tax Tribunal and Chairman of the Guernsey
Banking Deposit Compensation Scheme. He is a resident of Guernsey.
John Scott (aged 58) was appointed a Director on 22 October 2009. He is
currently a director of several UK investment trusts and is Chairman of Scottish
Mortgage Investment Trust PLC and of Dunedin Income Growth 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.
Ian Reynolds (aged 67) is a former Chief Executive of Commercial Union Life
Assurance Company. He is a director of Liverpool Victoria Friendly Society and
of The Equitable Life Assurance Society, and 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.
Saad Zein (aged 43) was appointed a Director on 1 September 2009. Mr Zein is a
Senior Managing Director of Aladdin Capital Management UK LLP. Prior to this,
his career has been spent as an investment banker with particular focus on
credit markets and structured products, including US traded life interests. He
was employed by Dresdner Kleinwort Wasserstein between 1999 and 2009, where he
held a number of senior positions. 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 Services Authority, was
incorporated in 1990 and is an Investment Manager for a range of specialist
investment products.
The Manager
RCM (UK) Limited is manager of a number of closed-ended investment companies
with approximately GBP988 million of such assets under management in a range of
investment companies and investment trusts as at 31 August 2010. The Manager is
responsible for managing the cash and fixed interest holdings of the Fund during
its life, and foreign currency hedging.
+---------------------------------------------------+---------------+----------+---------------+
| Financial Highlights | | | |
+---------------------------------------------------+---------------+----------+---------------+
| For the period from 1 September 2009 to 30 June | | | |
| 2010 | | | |
+---------------------------------------------------+---------------+----------+---------------+
| | | | |
+---------------------------------------------------+---------------+----------+---------------+
| | At 30 | | At 31 |
| | June | | August |
| | 2010 | | 2009 |
+---------------------------------------------------+---------------+----------+---------------+
| | | | |
+---------------------------------------------------+---------------+----------+---------------+
| Shares in issue | 40,000,000 | | 40,000,000 |
+---------------------------------------------------+---------------+----------+---------------+
| | | | |
+---------------------------------------------------+---------------+----------+---------------+
| Total net assets | GBP33,049,370 | | GBP37,064,596 |
+---------------------------------------------------+---------------+----------+---------------+
| | | | |
+---------------------------------------------------+---------------+----------+---------------+
| Net asset value per Share (see note below) | 82.6p | | 92.7p |
+---------------------------------------------------+---------------+----------+---------------+
| | | | |
+---------------------------------------------------+---------------+----------+---------------+
| Share price | 59.5p | | 58.5p |
+---------------------------------------------------+---------------+----------+---------------+
| | | | |
+---------------------------------------------------+---------------+----------+---------------+
| Total return on ordinary activities for the | (10.04p) | | (3.28p) |
| financial year per Share | | | |
+---------------------------------------------------+---------------+----------+---------------+
| | | | |
+---------------------------------------------------+---------------+----------+---------------+
| Revenue return per Share | (2.28p) | | (3.81p) |
+---------------------------------------------------+---------------+----------+---------------+
| | | | |
+---------------------------------------------------+---------------+----------+---------------+
| Dividends | | | |
+---------------------------------------------------+---------------+----------+---------------+
| The Directors do not propose a dividend for the period from 1 September 2009 to |
| 30 June 2010 (2009: nil). |
+---------------------------------------------------+---------------+----------+---------------+
Chairman's Statement
For the period from 1 September 2009 to 30 June 2010
Introduction
This statement covers the ten month period from 1 September 2009 and marks the
end of the period of transition for the Company which required a temporary
change in the year end to align the Company's UK tax accounting period with a
financial period. Future accounting periods will now revert to the usual twelve
months ending on 30 June.
I mentioned in my interim statement that this had been a relatively quiet period
and this remark can now be said to cover the whole ten month period. The new
corporate arrangements are working well and there are no proposals under
consideration for change in this respect.
Portfolio developments
A summary of portfolio maturities since inception is given in the following
table:
+--------------------+-----------+---------+---------+---------+
| Period | 40 | 12 | 14 | 10 |
| | months | months | months | months |
+--------------------+-----------+---------+---------+---------+
| Dates |Inception | 1/7/07 | 1/7/08 | 1/9/09 |
| |- 30/6/07 | - | - | - |
| | |30/6/08 |31/8/09 |30/6/10 |
+--------------------+-----------+---------+---------+---------+
| Number of policies | 7 | 6 | 7 | 4 |
| matured | | | | |
+--------------------+-----------+---------+---------+---------+
| Value of policies | $9.3m | $3.9m | $14.8m | $10.7m |
| matured | | | | |
| ($ million) | | | | |
+--------------------+-----------+---------+---------+---------+
| Premiums paid ($ | $18.8m | $9.0m | $10.5m | $7.3m |
| million) | | | | |
+--------------------+-----------+---------+---------+---------+
During the ten month period to 30 June 2010, 4 policy maturities were
identified, with a total face value of US$10.7million. This compares with 7
policies with a face value of US$14.8 million in the fourteen month period to 31
August 2009.
As at the time of writing, there have been no formal notifications of any
maturities since 30 June 2010.
It has to be said that this rate of maturities is surprisingly low, given the
age profile of the lives insured. At this stage in the life of the Company the
actuarial likelihood of maturities is increasing, but it must be remembered that
in any portfolio of policies which are randomly chosen there will be
considerable fluctuations in maturity rates despite the variety and spread in
the portfolio (See also my comments below about updating of Life Expectancies
("LEs").
As at 30 June 2010 there were a total of 135 policies in the portfolio, with a
face value of US$217.7 million and a valuation of US$86.7 million. Premiums
continue to be paid on policies in force amounting to US$7.3 million during the
ten month period.
There is a period in the life of a portfolio such as this when patience is
required. There is little that can be done to enhance the portfolio; outcomes
depend on the mortality experience. In the absence of maturities, the
enhancement of value in the portfolio with the passage of time is largely
negated by the payment of premiums. For this reason the NAV per share slightly
from 83.5p to 82.6p during the period 1 March 2010 to 30 June 2010. I comment
below on issues relating to valuation, credit risk, borrowings and hedging.
Valuation
The key factors in determining the NAV remain the LEs of the policies in the
portfolio and the rate of discount used. As before, the Company has continued
its policy of re-assessing the LEs on a portion of portfolios. To date a total
of 38 policies have been re-assessed, accounting for roughly 47% of the
portfolio by value, and the results have been incorporated into valuations. As
before, there is no consistent trend in these re-assessments, although LEs have
on balance increased as a result of this evaluation. During the period,
re-assessments have reduced the value of the portfolio by about GBP4.6 million.
While the immediate outcome has thus been a reduction in NAV, it should be noted
that the confidence level as regards the accuracy of LE estimates has been
increased.
Chairman's Statement (continued)
For the period from 1 September 2009 to 30 June 2010
Given the thin market in TLIs at the moment, the Board has continued to use the
IRR rates which applied at the beginning of the period, as explained in earlier
statements. The risk premium currently stands at 10.1% (weighted by value). It
remains a paradox why the market should demand such a high risk premiums when
the underlying insurers are of high standing, but at least part of the
explanation for this must be the uncertainty about LEs. To some extent this
argument is academic, as the Directors recommendation remains to hold policies
until maturity.
The current valuation model used assumes that policies lapse one month after the
final premium due on the policy. However for a large proportion of policies in
the portfolio, benefits continue beyond this date, although for most such
policies the impact of this on the valuation is negligible because the
probability of survival to that point is low and that point is some years in the
future so the present value of any benefit at that date is also low. Now that
the portfolio is ageing, however there are policies where the value of benefits
after the premium end date is starting to become material. The Board has
commissioned a detailed analysis of the relevant policies, and in due course
will consider whether incorporating the results in the Company's valuation is
appropriate, given that such factors may not generally be allowed for in the TLI
marketplace. The uplift in the valuation of policies, if adopted, would, on the
basis of preliminary findings, be quite modest.
During the period there was evidence of some distressed selling by investors,
with policies changing hands at high apparent IRRs. In recent months this has
been less noticeable, and there are some signs of an improved appetite for
policies as worries about the recession recede. Press articles continue to
refer to a growing market in TLIs, but there is concern that some institutional
holders managing open-ended funds may still be vulnerable to the lack of market
liquidity. Since the Company plans to hold its policies to maturity wherever
possible, this should not be of concern to investors.
The tables below give, as in the previous statement, a range of outcomes on
differing assumptions about the portfolio. The Board will continue to analyse
the information available to it to ensure valuations are soundly based.
+---------------+----------+------------+-----------+--------+---------+------------+-----------+---------+---------+
| | | 31 December 2012 | 31 December 2016 |
+---------------+----------+-------------------------------------------+--------------------------------------------+
| Variation | LE | Policies |Remaining | | | Policies |Remaining | | |
| in | change |surviving3 |Shares in | IRR5 | IRR5 |surviving3 |Shares in | IRR5 | IRR5 |
| mortality1 |(years)2 | | issue4 | | | | issue4 | | |
+ + + + +--------+---------+ + +---------+---------+
| | | | | 100%6 | 70%7 | | | 100%6 | 70%7 |
+---------------+----------+------------+-----------+--------+---------+------------+-----------+---------+---------+
| 100% | 0.00 | 67.2% | 100.0% |12.19% | -2.73% | 30.7% | 35.7% | 9.66% | 3.80% |
+---------------+----------+------------+-----------+--------+---------+------------+-----------+---------+---------+
| 80% | 1.20 | 72.5% | 100.0% | 7.17% | -7.08% | 37.9% | 59.9% | 5.00% | -0.61% |
+---------------+----------+------------+-----------+--------+---------+------------+-----------+---------+---------+
| 50% | 4.12 | 81.5% | 100.0% |-2.02% |-15.05% | 52.9% | 100.0% | -4.17% | -9.29% |
+---------------+----------+------------+-----------+--------+---------+------------+-----------+---------+---------+
| 30% | 8.00 | 88.3% | 100.0% |-9.78% |-21.77% | 67.0% | 100.0% |-20.03% |-24.30% |
+---------------+----------+------------+-----------+--------+---------+------------+-----------+---------+---------+
| Ignore | n/a | 80.7% | 100.0% | 0.52% |-12.85% | 43.9% | 87.7% | 2.47% | -3.00% |
| Medical | | | | | | | | | |
|Underwriting8 | | | | | | | | | |
+---------------+----------+------------+-----------+--------+---------+------------+-----------+---------+---------+
| 100% | 0.00 | 67.2% | 100.0% |27.93% | 10.92% | 30.7% | 35.7% | 15.34% | 9.18% |
| mortality | | | | | | | | | |
| projected | | | | | | | | | |
| from | | | | | | | | | |
| Share | | | | | | | | | |
| Price9 | | | | | | | | | |
+---------------+----------+------------+-----------+--------+---------+------------+-----------+---------+---------+
Chairman's Statement (continued)
For the period from 1 September 2009 to 30 June 2010
Notes:
1. The base case (100%) assumes that claim experience matches the valuation
basis in force at 30 June 2010. The other scenarios assume that the mortality
experience is worse than expected. 80% means that if one expects 10 deaths, one
instead experiences 8.
2. This shows the effect of the mortality experience on the life expectancy
(in years) for an otherwise normal 80-year-old non-smoker.
3. The proportion of policies surviving to the specified date based on the
portfolio as at 30 June 2010. No allowance has been made for the policies that
have matured after this date.
4. The model assumes that shares are repurchased whenever excess cash beyond
that required for premium reserves is available. This column represents the
number of shares still in issue and not repurchased at the relevant date.
5. This shows how the return varies for a shareholder holding the shares
between 30 June 2010 and the relevant date (31 December 2012 or 31 December
2016) based on the growth in the NAV per share. The NAV at that date was 82.6
pence per share.
6. Return based on winding up at the relevant date assuming that the net
realised proceeds of assets is 100% of the valuation calculated in accordance
with the valuation basis in force at 30 June 2010.
7. Return based on winding up at the relevant date assuming that the net
realised proceeds of assets is 70% of the valuation calculated in accordance
with the valuation basis in force at 30 June 2010.
8. Mortality outcome assuming the lives are all "normal" lives from the point
of view of mortality expectations and ignoring the implied relative health from
medical underwriting. These figures are projected from the current NAV.
9. Return to investor from share price at 30 June 2010 (59.5 pence per share).
Credit risk
There have been no major changes in the financial standing of the insurers who
have issued the policies in the portfolio. As at the period end, 99.5% of the
Company's policies by value were issued by companies with an A.M. Best rating of
'A' or better. This figure has not changed significantly for some time.
Borrowings
It remains the Board's intention to pay down borrowings whenever possible, and
during the ten month period to 30 June 2010, borrowings fell from US$33,447,000
to US$24,048,000. At the period end, under its agreement with Allied Irish Banks
plc, the Company had the power to borrow a further US$6 million. Of that, the
Company has since drawn down US$2 million, and the balance will fund the Company
until the end of 2010. In any case, the present agreement is due for renewal by
31 January 2011, and on the basis of early discussions with Allied Irish Banks,
the Board is confident that it will be renewed successfully.
Hedging
As at 30 June 2010 the Company had sold forward net US$71,000,000 to March 2012,
representing no change over the period. Although in excess of the Company's
current net dollar position, this is consistent with projected dollar cash
flows. The Statement of Comprehensive Income on page 23 recording 'foreign
exchange losses' of GBP4.7 million does not, of course, show the foreign
exchange gains of approximately GBP4.7 million in the period which are
incorporated in the value of investments.
Outlook
Although markets have recovered somewhat, it remains the Board's belief that the
best interests of shareholders are served by holding policies in its high
quality portfolio to maturity rather than seeking early liquidation.
CPG Tracy
Chairman
21 September 2010
Investment Manager's Review
For the period from 1 September 2009 to 30 June 2010
Portfolio Overview
During the 10 month period from 1 September 2009 to 30 June 2010, there were
four confirmed policy maturities. As at 31 June 2010, 135 policies remained
within the Fund's portfolio secured on 114 individual lives. Of the four
matured policies, two covered a female life assured and two were male. Proceeds
totalled just under US$10.8m for the period.
Cumulatively, as at 30 June 2010, there had been 24 policy maturities across 20
lives since inception. Proceeds from all maturities have totalled US$38.8m,
realising a US$21.2m gain. Moreover one policy has been sold since inception,
generating proceeds of US$550,000.
No further maturities have been confirmed subsequent to the period-end.
Portfolio Summary
+------------------------------------+------------------------------------+
| Net Death Benefits | $217.7m |
+------------------------------------+------------------------------------+
| Male/Female Ratio | 63.2%/36.8% |
+------------------------------------+------------------------------------+
| Total number of Holding Life | 31 |
| Companies | |
+------------------------------------+------------------------------------+
| | |
+------------------------------------+------------------------------------+
| Face Weighted Averages | |
+------------------------------------+------------------------------------+
| Age at purchase | 82.3 years |
+------------------------------------+------------------------------------+
| Age at valuation | 87.2 years |
+------------------------------------+------------------------------------+
| Pricing Life Expectancy at | 7.6 years |
| purchase | |
+------------------------------------+------------------------------------+
| Current Life Expectancy | 5.3 years |
+------------------------------------+------------------------------------+
Life Group (Parent Company) Distribution (Top 5)
+---------------+-------------------------+---------------+-------------------------+
| Ranking by | Parent Company | % Total Net | % Total Valuation |
| Valuation % | | Death Benefit | |
+---------------+-------------------------+---------------+-------------------------+
| 1 | AIG Life Group | 16.6% | 16.1% |
+---------------+-------------------------+---------------+-------------------------+
| 2 | Lincoln Financial Group | 18.2% | 15.4% |
+---------------+-------------------------+---------------+-------------------------+
| 3 | AEGON USA Group | 12.4% | 12.9% |
+---------------+-------------------------+---------------+-------------------------+
| 4 | MassMutual Financial | 9.3% | 9.1% |
| | Group | | |
+---------------+-------------------------+---------------+-------------------------+
| 5 | Manulife Financial | 8.8% | 8.9% |
| | Group | | |
+---------------+-------------------------+---------------+-------------------------+
Credit Quality Distribution by Holding Life Company
+-----------------------+-----------------------+-----------------------+
| AM Best Rating | % Total Net Death | % Total Valuation |
| | Benefit | |
+-----------------------+-----------------------+-----------------------+
| A++ | 12.8% | 12.6% |
+-----------------------+-----------------------+-----------------------+
| A+ | 58.2% | 55.8% |
+-----------------------+-----------------------+-----------------------+
| A | 28.4% | 31.1% |
+-----------------------+-----------------------+-----------------------+
| A- | 0.4% | 0.3% |
+-----------------------+-----------------------+-----------------------+
| B++ | 0.0% | 0.0% |
+-----------------------+-----------------------+-----------------------+
| B+ | 0.1% | 0.1% |
+-----------------------+-----------------------+-----------------------+
| Total | 100.0% | 100.0% |
+-----------------------+-----------------------+-----------------------+
Premium Payments
Premium payments remain the largest expense of the Fund. The expected cost of
premiums for the twelve months to 30 June 2011 is approximately US$9.6m. SL
Investment Management has continued the ongoing review of all policy statements
to identify any scope for further optimisation of the premium payment schedules.
Investment Manager's Review (continued)
For the period from 1 September 2009 to 30 June 2010
Outlook
Recent maturities have removed any pressure to sell policies in the current
market. As reported on previous occasions, SL Investment Management continues
to see considerable interest from investors looking to diversify away from
traditional asset classes, and into Life Settlements. However, confirmed
activity remains low. There remain a number of distressed sellers in the market
and as a result, market bid prices continue to be depressed.
There have been no major revisions by the life expectancy assessment firms
during 2010. The rolling programme of updating the life expectancies in the
portfolio continues, and the impact of updated assessments is being incorporated
into the valuation of the policies.
SL Investment Management Limited
21 September 2010
Manager's Review
For the period from 1 September 2009 to 30 June 2010
Borrowings and investments
As at the period end, 30 June 2010, the Company had drawn down US$23,156,000
under the amortising term loan facility with Allied Irish Banks and US$891,662
under the revolving credit facility. As at 30 June 2010, a further US$6 million
was available to the Company under the latter, and of that, since the period
end, the Company has drawn down US$2 million.
On current projections, this funding will last until the end of December 2010,
and the present borrowing agreement with Allied Irish Banks will expire on 31
January 2011. Accordingly, towards the end of 2010, Allied Irish Banks will be
asked to renew the borrowing agreement, in order to provide the Company with
enough funding for a further twelve months. As stated in the Directors' Report,
the Board is confident that, on the basis of early discussions with Allied Irish
Banks, the agreement will be renewed successfully.
Under the present agreement, the primary covenant obliges the Company to
maintain cover (i.e. asset value, subject to certain adjustments, divided by
borrowing) above 2.5 times. As at 30 June 2010 cover was 3.3 times.
In September 2009, the Company bought a GBP100,000 holding of the UK Treasury 4%
2016 gilt in order to generate UK eligible securities income.
Currency Hedging
The Company hedges its US dollar exposure by means of forward sales of US
dollars. As at 30 June 2010 the outstanding position was the sale of US$78.5
million and the purchase of US$7.5 million for 30 March 2012. This was
consistent with the expected cash flows up to that date.
The unrealised loss on this position amounted to GBP9,511,081, and once the
unrealised foreign exchange profit on the underlying policies, denominated in US
dollars, is taken into account, there was a total unrealised net loss on the
Company's foreign exchange positions equivalent to 2.5 pence per share.
RCM (UK) Limited
21 September 2010
Directors' Report
For the period from 1 September 2009 to 30 June 2010
The Directors have pleasure in submitting their Annual Financial Report for the
period from 1 September 2009 to 30 June 2010.
Principal activities
The Company is a Guernsey registered closed-ended protected cell company
established with one cell known as the US Traded Life Interests Fund (the
"Fund"). The redeemable preference shares (the "Shares") in the Company are
listed on the Main Market and traded on the London Stock Exchange as a Premium
Listing. The Company's objective in respect of the Fund is to provide investors
with an attractive capital return through investment predominantly in a
diversified portfolio of U.S. Traded Life Interests ("TLIs").
Revenue, capital and dividends
The Statement of Comprehensive Income set out on page 23 shows a revenue deficit
for the period amounting to GBP912,972 (2009: revenue deficit for the period
GBP1,524,889). There was a capital deficit for the period amounting to
GBP3,102,254 (2009: capital return for the period GBP213,780). The Directors
have not paid an interim dividend (2009: nil) and do not propose the payment of
a final dividend for the period (2009: nil).
Assets
At the period end the net assets attributable to the Shares were GBP33,049,370
(2009:GBP37,064,596). Based on this figure the net asset value of a Share in the
Fund was 82.6p (2009: 92.7p).
Share capital
During the period no Shares were issued or were repurchased.
Substantial shareholdings in the Company
As at the date of this report, the following companies had declared a notifiable
interest in the Company's voting rights:
+----+-----+--------+--------+-+-+------------+----------+------------+
| | | | | | | Shares | | Percentage |
| | | | | | | held | | held |
+----+-----+--------+--------+-+-+------------+----------+------------+
| | | | | | | | | % |
+----+-----+--------+--------+-+-+------------+----------+------------+
| Investec Asset Management | | | 8,009,000 | | 20.02 |
| Limited | | | | | |
+----------------------------+-+-+------------+----------+------------+
| Allied Irish Banks Plc | 4,625,000 | | 11.56 |
+--------------------------------+------------+----------+------------+
| Midas Capital Plc | 2,200,000 | | 5.50 |
+--------------------------------+------------+----------+------------+
| Rathbone Brothers PLC | 2,096,000 | | 5.24 |
+--------------------------------+------------+----------+------------+
| Brewin Dolphin Limited | 2,006,025 | | 5.02 |
+--------------------------------+------------+----------+------------+
| Premier Fund Managers Limited | 1,975,000 | | 4.94 |
+--------------------------------+------------+----------+------------+
| Rensburg Sheppards Investment | 1,960,704 | | 4.90 |
| Management Ltd | | | |
+----+-----+--------+--------+-+-+------------+----------+------------+
At the date of approval of this report, there has been no other notifiable
interest in the Company's voting rights reported to the Company.
Crest registration
Shareholders may hold Shares in either certificated or uncertificated form.
Directors
The Directors serving on the Board during the period, together with their
beneficial interests and those of their families, were as follows:
+----+-----+------------------------+----------+----------+------------+
| | | | Shares | | Shares |
+----+-----+------------------------+----------+----------+------------+
| | | | 30 June | | 31 August |
| | | | 2010 | | 2009 |
+----+-----+------------------------+----------+----------+------------+
| CPG Tracy (Chairman) | - | | - |
+-----------------------------------+----------+----------+------------+
| DIW | | 42,000 | | 42,000 |
| Reynolds | | | | |
+----------+------------------------+----------+----------+------------+
| SM Zein | | - | | -* |
+----------+------------------------+----------+----------+------------+
| JPHS | | - | | -* |
| Scott | | | | |
+----+-----+------------------------+----------+----------+------------+
Directors' Report (continued)
For the period from 1 September 2009 to 30 June 2010
The Company has no formal service contracts with the Directors.
There were no third party indemnities in respect of the Directors for the
current or prior period.
S M Zein was appointed a Director on 1 September 2009. J P H S Scott was
appointed a Director on 22 October 2009.
* Neither Mr Zein nor Mr Scott held any shares in the Company on their dates of
appointment.
Corporate Governance
Currently, the UK Listing Authority only requires UK listed companies to
disclose how they have applied the principles and complied with the provisions
of the Combined Code on Corporate Governance (the "Code"). However, the
Financial Services Authority has released Policy Statement and Consultation
Paper CP09/24 titled "Listing regime review" under which it will require all
overseas companies with a "Premium listing" (which includes the Company) to
"comply or explain" against the Code. The changes will be implemented by
amendments to the requirement in Listing Rule 9.8.7R, but the transitional
provisions mean that existing overseas Premium listed companies, such as the
Company, will only have to comply with this rule in financial years beginning
after 31 December 2009.
Moreover, the obligations under the EU Company Reporting Directive which are
implemented by Disclosure and Transparency Rule 7.2, and which currently only
apply to UK companies, will apply to all issuers of equities from 6 April 2010.
Under this rule, a company must (i) make a corporate governance statement in its
annual report and accounts based on the code to which it is subject, or with
which it voluntarily complies and (ii) describe its internal control and risk
management arrangements.
Although the Company is not incorporated in the United Kingdom, the Board of
Directors has chosen to adopt where possible the principles of the Code and the
Turnbull guidance and has sought to comply throughout the period, insofar as the
principles can sensibly be applied to a company of this nature.
The following statements are therefore included to comply with the Code:-
The Board
The Board meets regularly, normally quarterly, and more frequently if necessary,
and retains full responsibility for the direction and control of the Company.
The Company is overseen by a Board comprising 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 non-executive Director for
the purpose of the Code. The appointment of Directors is considered by the Board
which carries out the functions of the Nominations Committee. One third, or the
number nearest to but not exceeding one third, of the Directors must retire and
offer themselves for re-appointment at each subsequent Annual General Meeting.
The Board reviewed its performance and composition during the period, and was
satisfied on both subjects. In addition, it is considered that the performance
of all Directors continues to be effective and that they have demonstrated
commitment to their roles.
The Board has established an Audit Committee which meets when necessary, but at
least twice a year, with the auditors of the Company with a view to providing
further assurance of the quality and reliability of, inter alia, the financial
information used by the Board in these financial statements. The Chairman of the
Audit Committee is D I W Reynolds.
Directors' Report (continued)
For the period from 1 September 2009 to 30 June 2010
The Board (continued)
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 has contractually delegated to SL Investment Management Limited the
investment management of the Fund's investments and to RCM (UK) Limited the
management of the cash and foreign exchange elements. 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. Kleinwort Benson (Channel Islands)
Fund Services Limited are 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 RCM (UK) Limited.
The Board reviews regularly the performance of the services provided by these
companies. A summary of the terms of the agreements with SL Investment
Management Limited and RCM (UK) Limited are set out in note 5 to the financial
statements. After due consideration of the resources and reputation of SL
Investment Management Limited and RCM (UK) Limited, the Board believe it is in
the interests of shareholders to retain the services of both SL Investment
Management Limited and RCM (UK) Limited for the foreseeable future.
The Company maintains 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.
The Company has a procedure whereby the Board is entitled to obtain independent
advice where relevant.
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 and makes recommendations on fee levels to the Board.
The emoluments of the Directors for the period were as follows:
+--------+--+--------+--------+-+-------------------------------+----------+-----------+
| | | | | | Period to | | Period to |
| | | | | | 30 June | | 31 August |
| | | | | | 2010 | | 2009 |
+--------+--+--------+--------+-+-------------------------------+----------+-----------+
| | | | | | GBP | | GBP |
+--------+--+--------+--------+-+-------------------------------+----------+-----------+
| | | | | | | | |
+--------+--+--------+--------+-+-------------------------------+----------+-----------+
| CPG Tracy | | | 16,644 | | 14,583 |
| (Chairman) | | | | | |
+--------------------+--------+-+-------------------------------+----------+-----------+
| IA Morris | | | | - | | 11,667 |
| | | | | | | |
+-----------+--------+--------+-+-------------------------------+----------+-----------+
| DIW | | | | 14,563 | | 11,667 |
| Reynolds | | | | | | |
+-----------+--------+--------+-+-------------------------------+----------+-----------+
| CW | | | | - | | 11,667 |
| Sherwell | | | | | | |
+-----------+--------+--------+-+-------------------------------+----------+-----------+
| SM | | | | | 12,483 | | |
| Zein | | | | | | | - |
+--------+--+--------+--------+-+-------------------------------+----------+-----------+
| JPHS | | | | | 10,404 | | |
| Scott | | | | | | | - |
+--------+--+--------+--------+-+-------------------------------+----------+-----------+
| | | | | | 54,094 | | 49,584 |
+--------+--+--------+--------+-+-------------------------------+----------+-----------+
The figures above represent emoluments earned as Directors during the relevant
financial period. The Directors receive no other remuneration or benefits from
the Company other than the fees stated above.
Directors' Report (continued)
For the period from 1 September 2009 to 30 June 2010
The Board (continued)
In the period to 30 June 2010 the Directors were paid at the rate of GBP15,000
per annum with the Chairman of the Board receiving an extra GBP5,000 per annum
and the Chairman of the Audit Committee an extra GBP2,500 per annum. In the
period to 31 August 2009 the Directors were paid at the rate of GBP10,000 per
annum with the Chairman of the Board receiving an extra GBP2,500 per annum. Per
note 6 to the financial statements the Directors' fees and expenses of GBP56,411
(2009: GBP50,993) included allowable expenditure of GBP2,317 (2009: GBP1,409).
Relations with shareholders
In conjunction with the Board, the Manager keeps under review the register of
members of the Company. Potential investors are contacted by the Manager.
All shareholders are encouraged to participate in the Company's Annual General
Meeting. All Directors normally attend the Annual General Meeting, at which
shareholders have the opportunity to ask questions and discuss matters with the
Directors, the Manager and the Investment Manager.
Accountability and audit
a) Directors' responsibilities in relation to the financial statements
The Directors have responsibility for ensuring that the Company keeps accounting
records which disclose with reasonable accuracy at any time the financial
position of the Company and which enable them to ensure that the financial
statements comply with the Companies (Guernsey) Law, 2008. They have general
responsibility for taking such steps as are reasonably open to them to safeguard
the assets of the Company and to prevent and detect fraud and other
irregularities.
b) Statement of going concern
The Board considered carefully the issue of 'going concern', specifically in
relation to the availability of funding. Total borrowings under the agreement
with Allied Irish Banks plc ("AIB") fell to circa US$24.0 million as at 30 June
2010 from circa US$33.4 million as at 31 August 2009. At this level the margin
of cover required under the loan agreement was comfortably met.
As at 30 June 2010, an additional US$6 million of funding was available to the
Company under the agreement with AIB, and this should provide the Company with
sufficient cash flow to meet premium payments until December 2010. At that
point the Company will seek to renew the loan agreement in order to provide the
necessary funding for a further twelve months, and on the basis of early
discussions with AIB, the Board is confident that it will be renewed
successfully, enabling the Company to continue as a going concern.
The Board has also considered the position in the unlikely event of failure to
renew the AIB agreement successfully. Acknowledging that this might involve the
sale of policies in an illiquid market, the Board is nevertheless confident that
the sales required to cover outstanding borrowings could be completed. To the
extent that the prices achieved did not match those in the valuation, the net
asset value of the Company would be reduced, but the business would remain a
going concern.
c) 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 Turnbull
Directors' Report (continued)
For the period from 1 September 2009 to 30 June 2010
Accountability and audit (continued)
c) Internal control (continued)
Committee. Such review procedures have been in place throughout the full
financial year and up to the date of the approval of the financial statements
the Board is satisfied with their effectiveness.
This process involves a review by the Board of the Company's internal control
report and review of the control environment within the Company's service
providers to ensure that the Company's requirements are met.
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
Administrator's, Manager's, Investment Manager's and Custodian's systems and
internal audit procedures.
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. The Audit Committee has a discussion annually
with the auditor to ensure that there are no issues of concern in relation to
the audit opinion on the accounts and, if necessary, representatives of the
Investment Manager and Manager would be excluded from that discussion. The
Audit Committee reviews the scope and results of the external audit, its cost
effectiveness, the balance of audit and non-audit services and the independence
and objectivity of the external auditors. In the Directors' opinion the
auditors are considered independent.
The Board has decided not to establish a Remuneration and Management Engagement
Committee as these functions are carried out by the Board. 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.
It is the opinion of the Directors that the continuing appointment of the
Manager on the terms agreed is in the interests of the Company's shareholders as
a whole. The main reasons for this opinion are the extensive investment
management resources of the Manager and its experience in managing and
administering investment trust companies.
It is also the opinion of the Directors that the continuing appointment of the
Investment Manager on the terms agreed is in the interests of the Company's
shareholders as a whole. The main reasons for this opinion are their extensive
knowledge of the US traded life interest market and their valuation together
with the complex financial and investment modelling related thereto.
Statements of compliance
The Directors believe that the Company has complied with the provisions of the
Code where appropriate, and that it has complied throughout the period with the
provisions where the requirements are of a continuing nature, except that a
Remuneration and Management Engagement Committee has not been established, and a
senior independent director has not been appointed given that all Directors are
independent.
Directors' Report (continued)
For the period from 1 September 2009 to 30 June 2010
Financial risk profile
The Company's financial instruments comprise investments, cash and various items
such as debtors, creditors etc that arise directly from the Company's
operations. The main purpose of these instruments is the investment of
Shareholders' funds.
Note 19 to the financial statements details matters relating to risk management.
A summary of some relevant items is given below.
Market price and longevity risk
One of the main risks arising from the Company's financial instruments is
longevity risk, i.e. the risk that actual mortality rates differ from predicted
values. To the extent that TLIs are held to maturity this will affect the rate
of return earned on individual policies. To the extent that policies have to be
sold, longevity risk is a key factor in determining the market value of
policies, although market values are also affected by a number of other factors.
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.
Initially, and until funds were required for investment into the TLIs, the
Company's funds were maintained in sterling. Funds required for investment were
converted into US dollars and will remain in US dollar assets until their
expected conversion into sterling as the portfolio matures. As the Company's
shares are denominated in sterling, US dollar exposure is hedged through forward
sales of US dollars into sterling pursuant to the Foreign Exchange Agreement
with Allied Irish Banks plc (see note 19). The Company's hedging policy is
substantially to hedge the present value of its US dollar assets, although at
present some future anticipated US dollar profits are also hedged.
Auditors
A resolution to re-appoint Deloitte LLP as auditors will be proposed at the next
Annual General Meeting.
At the date of approval of the financial statements the Directors confirm that:
· so far as the Directors are 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.
By order of the Board.
CPG Tracy DIW Reynolds
Director Director
21 September 2010
Directors' Responsibilities
For the period from 1 September 2009 to 30 June 2010
The Directors are responsible for preparing the Annual Financial Report for each
financial period which give a true and fair view of the state of affairs of the
Company and the total returns of the Company for that period and are in
accordance with applicable laws. In preparing those financial statements the
Directors are required to:
· select suitable accounting policies and then apply them consistently;
· make judgements and estimates that are reasonable and prudent; and
· prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and to enable them to ensure that the financial statements comply with
The Companies (Guernsey) Law, 2008. They are also responsible for the system of
internal controls for safeguarding the assets of the Company and hence for
taking reasonable steps for the prevention and detection of fraud and other
irregularities.
Directors' responsibility statement
We confirm to the best of our knowledge:
1. 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;
2. the Investment Manager's Review and the Manager's Review include a fair
review of the performance and position of the Company, together with a
description of the principal risks and uncertainties faced by the Company; and
3. the Directors' Report includes a fair description of the principal risks
and uncertainties faced by the Company.
By order of the Board.
CPG Tracy DIW Reynolds
Director Director
21 September 2010
Independent Auditors' Report to the Members of Alternative Asset Opportunities
PCC Limited
For the period from 1 September 2009 to 30 June 2010
We have audited the financial statements of Alternative Asset Opportunities PCC
Limited for the period 1 September 2009 to 30 June 2010 which comprises the
Income Statement, the Balance Sheet, the Statement of Changes in Redeemable
Participating Preference Shareholders' Funds, the Cash Flow Statement, the
Portfolio Statement and the related notes 1 to 20.
These financial statements have been prepared under the accounting policies set
out therein.
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 auditors' report 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.
Respective responsibilities of Directors and Auditors
As described in the statement of Directors' responsibilities, the Company's
Directors are responsible for the preparation of the financial statements in
accordance with International Financial Reporting Standards ("IFRS") and
applicable Guernsey law. Our responsibility is to audit the financial statements
in accordance with Guernsey relevant legal and regulatory requirements and
International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true
and fair view in accordance with the relevant reporting framework and are
properly prepared in accordance with The Companies (Guernsey) Law, 2008. We also
report if, in our opinion, the Company has not kept proper accounting records or
if we have not received all the information and explanations we require for our
audit.
We read the Directors' Report and the other information contained in the Annual
Report for the above period as described in the contents section and consider
the implications for our report if we become aware of any apparent misstatements
or material inconsistencies with the financial statements.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing
(UK and Ireland) issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of the
significant estimates and judgements made by the Directors in the preparation of
the financial statements and of whether the accounting policies are appropriate
to the Company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion, we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Opinion
In our opinion the financial statements give a true and fair view of the state
of the Company's affairs as at 30 June 2010 and of its total deficit for the
period ended on that date and have been properly prepared in accordance with The
Companies (Guernsey) Law, 2008 and IFRS.
Independent Auditors' Report to the Members of Alternative Asset Opportunities
PCC Limited (continued)
For the period from 1 September 2009 to 30 June 2010
Emphasis of matter
In forming our opinion on the financial statements, which is not qualified;
· We draw attention to note 2(b) of the financial statements concerning the
Company's actuarial valuation model applied in determining the fair value of its
Traded Life Interests (TLIs). Note 2(b) describes the method adopted by the
Directors to value the TLIs. The methodology adopted by the Directors is on the
basis that these investments are intended to be held to maturity and makes
assumptions over expected lives and discount rates. By its nature, assumptions
over expected lives are uncertain and due to the low levels of trading in TLIs
there is also uncertainty over the estimation of market based discount notes.
For these reasons note 2(b) to the financial statements highlights that this
valuation may differ materially from the realisable value of these investments.
· Note 2 (c) notes that the Company intends to renegotiate its borrowing
facilities at the end of 2010 as the Company currently relies on the facilities
to fund and meet ongoing future premium commitments arising from the TLI
portfolio. If this proves to be unsuccessful and the Company had to pay back its
borrowings, the Directors are confident this could be achieved through sales of
TLIs. However, the sales proceeds may not match the prices shown in the
valuation.
It is not possible to quantify the effects of these uncertainties on the
financial statements.
John Clacy, as responsible individual on behalf of
Deloitte LLP
Chartered Accountants and recognised auditor
St Peter Port
Guernsey
21 September 2010
Statement of Comprehensive Income
For the period from 1 September 2009 to 30 June 2010
+---------------+--+-+-------+-----------+-------------+-------------+-+-------------+--------------+--------------+
| | | | Notes | Period from 1 September | | Period from 1 July 2008 |
| | | | | 2009 | | to 31 August 2009 |
| | | | | to 30 June 2010 | | |
+---------------+--+-+-------+---------------------------------------+-+-------------------------------------------+
| | | | | Revenue | Capital | Total | | Revenue | Capital | Total |
+---------------+--+-+-------+-----------+-------------+-------------+-+-------------+--------------+--------------+
| | | | | GBP | GBP | GBP | | GBP | GBP | GBP |
+---------------+--+-+-------+-----------+-------------+-------------+-+-------------+--------------+--------------+
| | | | | | | | | | | |
+---------------+--+-+-------+-----------+-------------+-------------+-+-------------+--------------+--------------+
| Operating | | | | | | | | | |
| income | | | | | | | | | |
+------------------+-+-------+-----------+-------------+-------------+-+-------------+--------------+--------------+
| Net gains on | | 10 | - | 1,644,708 | 1,644,708 | | - | 10,484,688 | 10,484,688 |
| investments | | | | | | | | | |
+------------------+-+-------+-----------+-------------+-------------+-+-------------+--------------+--------------+
| | | | | | | | | | | |
+---------------+--+-+-------+-----------+-------------+-------------+-+-------------+--------------+--------------+
| Foreign exchange | 17 | - | (4,746,962) | (4,746,962) | | - | (10,270,908) | (10,270,908) |
| losses | | | | | | | | |
+--------------------+-------+-----------+-------------+-------------+-+-------------+--------------+--------------+
| | | | | | | | | | | |
+---------------+--+-+-------+-----------+-------------+-------------+-+-------------+--------------+--------------+
| Interest and | | 4 | 3,454 | - | 3,454 | | 6,543 | - | 6,543 |
| similar income | | | | | | | | | |
+------------------+-+-------+-----------+-------------+-------------+-+-------------+--------------+--------------+
| | | | | | | | | | | |
+---------------+--+-+-------+-----------+-------------+-------------+-+-------------+--------------+--------------+
| Operating | | | | | | | | | |
| expenses | | | | | | | | | |
+------------------+-+-------+-----------+-------------+-------------+-+-------------+--------------+--------------+
| Management fee | | 5 | (70,607) | - | (70,607) | | (197,745) | - | (197,745) |
| | | | | | | | | | |
+------------------+-+-------+-----------+-------------+-------------+-+-------------+--------------+--------------+
| Investment | 5 | (141,863) | - | (141,863) | | (217,755) | - | (217,755) |
| manager's fee | | | | | | | | |
+--------------------+-------+-----------+-------------+-------------+-+-------------+--------------+--------------+
| Custodian fee | | (13,044) | - | (13,044) | | (21,708) | - | (21,708) |
+--------------------+-------+-----------+-------------+-------------+-+-------------+--------------+--------------+
| Other expenses | 6 | (332,737) | - | (332,737) | | (535,069) | - | (535,069) |
+--------------------+-------+-----------+-------------+-------------+-+-------------+--------------+--------------+
| | | | | | | | | | | |
+---------------+--+-+-------+-----------+-------------+-------------+-+-------------+--------------+--------------+
| | | | | | | | |
+----------------------------+-----------+-------------+-------------+-+-------------+--------------+--------------+
| Total operating | | | | | | | | (972,277) |
| expenses before | | (558,251) | - | (558,251) | | (972,277) | - | |
| finance costs | | | | | | | | |
+--------------------+-------+-----------+-------------+-------------+-+-------------+--------------+--------------+
| | | | | | | | | |
+--------------------+-------+-----------+-------------+-------------+-+-------------+--------------+--------------+
| Operating loss | | | | | | | | (751,954) |
| before finance | | (554,797) | (3,102,254) | (3,657,051) | | (965,734) | 213,780 | |
| costs | | | | | | | | |
+--------------------+-------+-----------+-------------+-------------+-+-------------+--------------+--------------+
| | | | | | | | | | | |
+---------------+--+-+-------+-----------+-------------+-------------+-+-------------+--------------+--------------+
| Finance costs | | | | | | | | |
+--------------------+-------+-----------+-------------+-------------+-+-------------+--------------+--------------+
| Loan interest | 14 | (358,175) | - | (358,175) | | (559,155) | - | (559,155) |
| payable | | | | | | | | |
+--------------------+-------+-----------+-------------+-------------+-+-------------+--------------+--------------+
| | | | | | | | | | | |
+---------------+--+-+-------+-----------+-------------+-------------+-+-------------+--------------+--------------+
| Net | | | (912,972) | (3,102,254) | (4,015,226) | | (1,524,889) | 213,780 | (1,311,109) |
| (deficit)/return | | | | | | | | | |
+------------------+-+-------+-----------+-------------+-------------+-+-------------+--------------+--------------+
| | | | | | | | | | | |
+---------------+--+-+-------+-----------+-------------+-------------+-+-------------+--------------+--------------+
| (Deficit)/return | | | | | | | | |
| per redeemable | 8 | (2.28p) | (7.76p) | (10.04p) | | (3.81p) | 0.53p | (3.28p) |
| share | | | | | | | | |
+---------------+--+-+-------+-----------+-------------+-------------+-+-------------+--------------+--------------+
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 28 to 47 are an integral part of these financial statements.
+----------+-----+--+----+----+----------+----------+--------------------+-------+----------+------------+----------+---------------+
| | | | | Notes | | 30 June | | 31 |
| | | | | | | 2010 | | August |
| | | | | | | | | 2009 |
+----------+-----+----------------------------------+--------------------+-------+----------+------------+----------+---------------+
| | | | | | | GBP | | GBP |
+----------+-----+----------------------------------+--------------------+-------+----------+------------+----------+---------------+
| Assets | | | | | |
+------------------------------------------------------------------------+-------+----------+------------+----------+---------------+
| Non-current assets | | | | | |
+------------------------------------------------------------------------+-------+----------+------------+----------+---------------+
| Financial assets at fair value through profit or loss | 10 | | 58,127,458 | | 58,253,174 |
+------------------------------------------------------------------------+-------+----------+------------+----------+---------------+
| | | | | | | 58,127,458 | | 58,253,174 |
+----------+-------------+--------------------------+--------------------+-------+----------+------------+----------+---------------+
| | | | | | | | | |
+----------+-------------+--------------------------+--------------------+-------+----------+------------+----------+---------------+
| Current assets | | | | | | | |
+------------------------+--------------------------+--------------------+-------+----------+------------+----------+---------------+
| Cash and cash equivalents | | 12 | | 669,700 | | 903,849 |
+---------------------------------------------------+--------------------+-------+----------+------------+----------+---------------+
| Other receivables | | 11 | | 18,462 | | 4,621,059 |
+---------------------------------------------------+--------------------+-------+----------+------------+----------+---------------+
| | | | | | | | | |
+----------+------------------+---------------------+--------------------+-------+----------+------------+----------+---------------+
| | | | | | | 688,162 | | 5,524,908 |
+----------+------------------+---------------------+--------------------+-------+----------+------------+----------+---------------+
| | | | | | | | | |
+----------+------------------+---------------------+--------------------+-------+----------+------------+----------+---------------+
| Total assets | | | | | 58,815,620 | | 63,778,082 |
+-----------------------------+---------------------+--------------------+-------+----------+------------+----------+---------------+
| | | | | | | | | |
+----------+------------------+---------------------+--------------------+-------+----------+------------+----------+---------------+
| Current liabilities (excluding net assets attributable to | | | | | |
| shareholders) | | | | | |
+------------------------------------------------------------------------+-------+----------+------------+----------+---------------+
| Loan facility | | 14 | | 16,090,774 | | 20,557,471 |
+---------------------------------------------------+--------------------+-------+----------+------------+----------+---------------+
| Other payables | | 13 | | 164,395 | | 435,398 |
+---------------------------------------------------+--------------------+-------+----------+------------+----------+---------------+
| | | | 16,255,169 | | 20,992,869 |
+------------------------------------------------------------------------+-------+----------+------------+----------+---------------+
| | | | | | |
+------------------------------------------------------------------------+-------+----------+------------+----------+---------------+
| Non-current liabilities | | | | | |
+------------------------------------------------------------------------+-------+----------+------------+----------+---------------+
| Fair value of forward foreign exchange contracts | 10 | | 9,511,081 | | 5,720,617 |
+------------------------------------------------------------------------+-------+----------+------------+----------+---------------+
| | | | | | | | | |
+----------+-----------------------------+----------+--------------------+-------+----------+------------+----------+---------------+
| Total liabilities | | | | | 25,766,250 | | 26,713,486 |
+----------------------------------------+----------+--------------------+-------+----------+------------+----------+---------------+
| | | | | | | | | |
+----------+-----------------------------+----------+--------------------+-------+----------+------------+----------+---------------+
| Net assets attributable to shareholders | 17 | | 33,049,370 | | 37,064,596 |
+------------------------------------------------------------------------+-------+----------+------------+----------+---------------+
| | | | | | | | | |
+----------+-----+----------------------------------+--------------------+-------+----------+------------+----------+---------------+
| Total equity and liabilities (including amounts due to shareholders) | | | 58,815,620 | | 63,778,082 |
+------------------------------------------------------------------------+-------+----------+------------+----------+---------------+
| | | | | | | | | |
+----------+--------+-------------------------------+--------------------+-------+----------+------------+----------+---------------+
| | | | | | | | | |
+----------+--------+-------------------------------+--------------------+-------+----------+------------+----------+---------------+
| Net asset value per share | 9 | | 82.6p | | 92.7p |
+------------------------------------------------------------------------+-------+----------+------------+----------+---------------+
| | | | | | | | | | | | | |
+----------+-----+--+----+----+----------+----------+--------------------+-------+----------+------------+----------+---------------+
These financial statements were approved by the Board of Directors on 21
September 2010.
Signed on behalf of the Board.
CPG Tracy DIW Reynolds
Director Director
21 September 2010
The notes on pages 28 to 47 are an integral part of these financial statements.
+-+----+--+----------+-------------+----------+-------------+----------+--------------+----------+-------------+
| | | | | Share | | Capital | | Revenue | | |
+-+----+--+----------+-------------+----------+-------------+----------+--------------+----------+-------------+
| | | | | Premium | | reserve | | reserve | | Total |
+-+----+--+----------+-------------+----------+-------------+----------+--------------+----------+-------------+
| For the period | GBP | | GBP | | GBP | | GBP |
| from 1 September | | | | | | | |
| 2009 to 30 June | | | | | | | |
| 2010 | | | | | | | |
+--------------------+-------------+----------+-------------+----------+--------------+----------+-------------+
| | | | | | | | | | | |
+-+----+--+----------+-------------+----------+-------------+----------+--------------+----------+-------------+
| Balance as at 1 | 39,168,236 | | 2,388,893 | | (4,492,533) | | 37,064,596 |
| Septemer 2009 | | | | | | | |
+--------------------+-------------+----------+-------------+----------+--------------+----------+-------------+
| | | | | | | | | | | |
+-+----+--+----------+-------------+----------+-------------+----------+--------------+----------+-------------+
| Deficit for the | - | | (3,102,254) | | (912,972) | | (4,015,226) |
| period | | | | | | | |
+--------------------+-------------+----------+-------------+----------+--------------+----------+-------------+
| | | | | | | | | | | |
+-+----+--+----------+-------------+----------+-------------+----------+--------------+----------+-------------+
| Balance as at 30 | 39,168,236 | | (713,361) | | (5,405,505) | | 33,049,370 |
| June 2010 | | | | | | | |
+-+----+--+----------+-------------+----------+-------------+----------+--------------+----------+-------------+
+----+----------+------+-------------+----------+-----------+----------+-------------+----------+-------------+
| | | | Share | | Capital | | Revenue | | |
+----+----------+------+-------------+----------+-----------+----------+-------------+----------+-------------+
| For the period from | Premium | | reserve | | reserve | | Total |
| 1 July 2008 to 31 | | | | | | | |
| August 2009 | | | | | | | |
+----------------------+-------------+----------+-----------+----------+-------------+----------+-------------+
| | | | GBP | | GBP | | GBP | | GBP |
+----+----------+------+-------------+----------+-----------+----------+-------------+----------+-------------+
| | | | | | | | | | |
+----+----------+------+-------------+----------+-----------+----------+-------------+----------+-------------+
| Balance as at 1 July | 39,168,236 | | 2,175,113 | | (2,967,644) | | 38,375,705 |
| 2008 | | | | | | | |
+----------------------+-------------+----------+-----------+----------+-------------+----------+-------------+
| | | | | | | | | | |
+----+----------+------+-------------+----------+-----------+----------+-------------+----------+-------------+
| Return/(Deficit) for | - | | 213,780 | | (1,524,889) | | (1,311,109) |
| the period | | | | | | | |
+----------------------+-------------+----------+-----------+----------+-------------+----------+-------------+
| | | | | | | | | | |
+----+----------+------+-------------+----------+-----------+----------+-------------+----------+-------------+
| Balance as at 31 | 39,168,236 | | 2,388,893 | | (4,492,533) | | 37,064,596 |
| August 2009 | | | | | | | |
+----+----------+------+-------------+----------+-----------+----------+-------------+----------+-------------+
The notes on pages 28 to 47 are an integral part of these financial statements.
+----------+----------+----------+--------+-+--+------+-------------+----------+--------------+
| | | | | | | | Period from | | Period from |
| | | | | | | | 1 September | | 1 July 2008 |
| | | | | | | | 2009 to 30 | | to |
| | | | | | | | June 2010 | | 31 August |
| | | | | | | | | | 2009 |
+----------+----------+----------+--------+-+--+------+-------------+----------+--------------+
| | | | | | | | GBP | | GBP |
+----------+----------+----------+--------+-+--+------+-------------+----------+--------------+
| Cash flows from operating activities | | | |
+-----------------------------------------------------+-------------+----------+--------------+
| Revenue account operating loss before finance | (554,797) | | (965,734) |
| costs for the period | | | |
+-----------------------------------------------------+-------------+----------+--------------+
| Decrease/(Increase) in other receivables | 4,602,597 | | (4,377,558) |
+-----------------------------------------------------+-------------+----------+--------------+
| (Decrease)/Increase in other payables | | (271,003) | | 75,625 |
+----------------------------------------------+------+-------------+----------+--------------+
| Premiums paid | | | | | | (4,707,868) | | (6,459,242) |
+---------------------+----------+--------+-+--+------+-------------+----------+--------------+
| Purchase of investments | (105,430) | | - |
+-----------------------------------------------------+-------------+----------+--------------+
| Proceeds from maturity of investments | 6,583,722 | | 9,586,000 |
+-----------------------------------------------------+-------------+----------+--------------+
| Currency losses | | | | | | (956,498) | | (3,245,159) |
+---------------------+----------+--------+-+--+------+-------------+----------+--------------+
| | | | | | | | | | |
+----------+----------+----------+--------+-+--+------+-------------+----------+--------------+
| Net cash inflow/(outflow) from operating | 4,590,723 | | (5,386,068) |
| activities before interest | | | |
+-----------------------------------------------------+-------------+----------+--------------+
| | | | | | | | | | |
+----------+----------+----------+--------+-+--+------+-------------+----------+--------------+
| Financing activities | | | | | | |
+-----------------------------------------+-+--+------+-------------+----------+--------------+
| (Decrease)/Increase in loan account | | | (4,466,697) | | 5,652,976 |
+-------------------------------------------+--+------+-------------+----------+--------------+
| Interest | | | | | | | (358,175) | | (559,155) |
| Paid | | | | | | | | | |
+----------+----------+----------+--------+-+--+------+-------------+----------+--------------+
| | | | | | | | | | |
+----------+----------+----------+--------+-+--+------+-------------+----------+--------------+
| Net cash (outflow)/inflow from financing | (4,824,872) | | 5,093,821 |
| activities | | | |
+-----------------------------------------------------+-------------+----------+--------------+
| | | | | | | | | | |
+----------+----------+----------+--------+-+--+------+-------------+----------+--------------+
| | | | | | | | | | |
+----------+----------+----------+--------+-+--+------+-------------+----------+--------------+
| Reconciliation of cash flow to movement in net | | | |
| cash | | | |
+-----------------------------------------------------+-------------+----------+--------------+
| Decrease in cash and cash equivalents in the | (234,149) | | (292,247) |
| period | | | |
+-----------------------------------------------------+-------------+----------+--------------+
| Cash and cash equivalents at the beginning of the | 903,849 | | 1,196,096 |
| period | | | |
+-----------------------------------------------------+-------------+----------+--------------+
| | | | | | | | | | |
+----------+----------+----------+--------+-+--+------+-------------+----------+--------------+
| Cash and cash equivalents at the end of the period | 669,700 | | 903,849 |
+----------+----------+----------+--------+-+--+------+-------------+----------+--------------+
The notes on pages 28 to 47 are an integral part of these financial statements.
Portfolio of Investments
+------+-----+-----+---------+----------+----------+------------+----------+-----------+----------+--------+
| | Number | | | | Portion | | |
| | of | | | | of | | A.M. |
| Traded Life Interests | Policies | | Valuation | | Portfolio | | Best |
| ("TLI's") | | | | | | | Rating |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| | | | | | | GBP | | % | | |
+------+-----+-----+---------+----------+----------+------------+----------+-----------+----------+--------+
| Issuer | | | | | | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| American General Life | 13 | | 9,366,526 | | 16.1% | | A |
| Insurance Company | | | | | | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| Lincoln National Life | 18 | | 7,998,032 | | 13.8% | | A+ |
| Insurance Company | | | | | | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| Transamerica Life | 21 | | 7,470,735 | | 12.9% | | A+ |
| Insurance Company | | | | | | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| Massachusetts Mutual Life | 10 | | 5,274,286 | | 9.1% | | A++ |
| Insurance Company | | | | | | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| Aviva Life and Annuity | 6 | | 3,700,177 | | 6.4% | | A |
| Company | | | | | | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| Pacific Life Insurance | 6 | | 3,486,163 | | 6.0% | | A+ |
| Company | | | | | | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| John Hancock Life | 10 | | 3,431,607 | | 5.9% | | A+ |
| Insurance Company | | | | | | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| MetLife Insurance Company | 8 | | 2,524,978 | | 4.3% | | A+ |
| of Connecticut | | | | | | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| New York Life Insurance | 6 | | 2,045,763 | | 3.5% | | A++ |
| and Annuity Corp | | | | | | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| Security Life of Denver | 1 | | 1,865,729 | | 3.2% | | A |
| Insurance Company | | | | | | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| John Hancock Variable Life | 3 | | 1,759,935 | | 3.0% | | A+ |
| Insurance Company | | | | | | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| National Western Life | 1 | | 1,339,617 | | 2.3% | | A |
| Insurance Company | | | | | | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| Columbus Life Insurance | 2 | | 1,139,634 | | 2.0% | | A+ |
| Company | | | | | | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| AXA Equitable Life | 4 | | 943,399 | | 1.6% | | A+ |
| Insurance Company | | | | | | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| Lincoln Life & Annuity | 2 | | 908,128 | | 1.6% | | A+ |
| Company of NY | | | | | | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| MONY Life Insurance | 1 | | 803,761 | | 1.4% | | A+ |
| Company | | | | | | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| Genworth Life Insurance | 1 | | 654,411 | | 1.1% | | A |
| Company | | | | | | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| Aviva Life and Annuity | 2 | | 427,479 | | 0.7% | | A |
| Company of NY | | | | | | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| North American Company for | 2 | | 425,183 | | 0.7% | | A+ |
| L & H Insurance | | | | | | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| Lincoln Benefit Life | 1 | | 415,173 | | 0.7% | | A+ |
| Company | | | | | | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| United of Omaha Life | 2 | | 298,972 | | 0.5% | | A+ |
| Insurance Company | | | | | | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| Sun Life Assurance Company | 2 | | 254,858 | | 0.4% | | A+ |
| of CA | | | | | | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| ReliaStar Life Insurance | 2 | | 247,948 | | 0.4% | | A+ |
| Company | | | | | | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| Banner Life Insurance | 2 | | 236,054 | | 0.4% | | A+ |
| Company | | | | | | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| ING Life Insurance and | 2 | | 209,487 | | 0.4% | | A |
| Annuity Company | | | | | | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| MONY Life Insurance | 1 | | 196,791 | | 0.3% | | A+ |
| Company of America | | | | | | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| Security Mutual Life | 1 | | 155,522 | | 0.3% | | A- |
| Insurance Company of NY | | | | | | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| Standard Insurance Company | 1 | | 153,742 | | 0.3% | | A |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| Reassure America Life | 1 | | 102,770 | | 0.2% | | A |
| Insurance Company | | | | | | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| Phoenix Life Insurance | 1 | | 74,860 | | 0.1% | | B+ |
| Company | | | | | | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| General American Life | 1 | | 68,776 | | 0.1% | | A+ |
| Insurance Company | | | | | | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| Beneficial Life Insurance | 1 | | 38,590 | | 0.1% | | A- |
| Company | | | | | | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| | | | | | | | | | | |
+------+-----+-----+---------+----------+----------+------------+----------+-----------+----------+--------+
| | | | | | | 58,019,086 | | 99.8% | | |
+------+-----+-----+---------+----------+----------+------------+----------+-----------+----------+--------+
| | | | | | | | | | | |
+------+-----+-----+---------+----------+----------+------------+----------+-----------+----------+--------+
| | | | | | Portion | | |
| | | | | | of | | |
| | Nominal | | Valuation | | Portfolio | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| | | | GBP | | % | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| | | | | | | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| UK Treasury 4% 7 September | 100,000 | | 108,372 | | 0.2% | | |
| 2016 | | | | | | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| | | | | | | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| | | | 108,372 | | 0.2% | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| | | | | | | | |
+----------------------------+----------+----------+------------+----------+-----------+----------+--------+
| Portfolio Total | | | 58,127,458 | | 100.0% | | |
+------+-----+-----+---------+----------+----------+------------+----------+-----------+----------+--------+
Notes to the Financial Statements
For the period from 1 September 2009 to 30 June 2010
1 Principal activity
The Company is a Guernsey registered closed-ended protected cell company
established with one cell known as the US Traded Life Interests Fund (the "Fund"
or "Cell"). The Shares in the Company are listed on the London Stock Exchange as
a Premium Listing. The Company's objective in respect of the Fund is to provide
investors with an attractive capital return through investment predominantly in
a diversified portfolio of U.S. Traded Life Interests ("TLIs").
2 Principal Accounting Policies
The financial statements have been prepared in accordance with the applicable
IFRS issued by the International Accounting Standards Board (the IASB) and the
International Financial Reporting Interpretations Committee (IFRIC) of the IASB.
The Directors have adopted the following standards and interpretations in the
preparation of the financial statements for the period 1 September 2009 to 30
June 2010:
Presentation of financial statements
The Company has applied revised IAS 1 Presentation of Financial Statements
(2007), which became effective as of 1 January 2009. The Company has chosen to
adopt the single-statement approach in the presentation of its total
comprehensive income.
The adoption of this standard impacts only on presentation aspects and does not
impact on the amounts reported in the current or prior financial periods.
Fair value disclosures
In March 2009, the IASB issued Amendments to IFRS 1 Financial Instruments:
Disclosures - Improving Disclosures about Financial Instruments, which became
effective for annual periods beginning on or after 1 January 2009.
The amendments extended the disclosures to be made with respect to the fair
value measurements and its components disclosed within the financial statements.
A key new disclosure required now is the categorisation of fair value
measurements within a three-level hierarchy that reflects the significance of
inputs used in measuring fair value. The fair value hierarchy is disclosed in
note 19.
Comparative information has not been presented nor restated as permitted by the
transitional provisions of the amendment.
The adoption of the revised IFRS 7 has resulted in additional disclosures being
made in the financial statements. The revised standard does not have any
financial impact on the amounts reported in the financial statements for the
current or prior financial periods.
Operating segments
IFRS 8, Operating Segments, which became effective for annual periods beginning
on or after 1 January 2009, replaces IAS 14, Segment Reporting. IFRS 8 requires
an entity to identify and disclose financial information on operating segments
of the entity on the "management approach" basis, which is consistent with
information provided internally to the chief operating decision maker of the
entity and is reviewed regularly to make decisions about the allocation of
resources to the respective segments and assess it performance, and for which
discrete financial information is available. This is disclosed by the Company in
note 3.
Notes to the financial statements (continued)
For the period from 1 September 2009 to 30 June 2010
2 Principal Accounting Policies (continued)
Presentation of financial instruments
The IASB issued amendments to IAS 32, Financial Instruments: Presentation and
IAS 1, Presentation of Financial Statements - Puttable Instruments and
Obligations Arising in Liquidations, in February 2008. The changes were
effective for periods beginning on or after 1 January 2009 although early
adoption was permitted.
The amendments to IAS 32 require that entities that have issued financial
instruments that are puttable at fair value and that are not the most
subordinate, to classify such financial instruments as a liability. The
Company's redeemable participating shares (the "Shares") fall under the scope of
these amendments and as the Shares are redeemable at the sole discretion of the
Directors, the Shares have been presented as equity under the provisions of IAS
32 "Financial Instruments: Presentation".
Presentation of statements of financial position
As the impact of the changes noted above has been limited to presentational
changes, the Directors have not produced three statements of financial position
as strictly required under IAS 1 (revised 2007) for retrospective changes in
accounting policies. The Directors believe this departure does not materially
affect the readers' overall understanding of these financial statements.
The Directors believe that other pronouncements, listed below, which are in
issue but not yet operative or adopted by the Company, will not have a material
impact on the financial statements of the Company in this, or future accounting
periods:
IFRS 9: Financial Instruments: Recognition and Measurement (effective for annual
periods beginning 1 January 2013) (issued but not adopted by the European
Union).
The Directors do not anticipate that any other standard or interpretation in
issue but not yet effective will have a material impact on the financial
statements.
The following accounting policies have been applied consistently in dealing with
items which are considered material in relation to the Company's financial
statements:-
(a) Basis of preparation
The financial statements have been prepared under the historical cost convention
as modified by the revaluation of investments and derivatives. The financial
statements have been prepared in accordance with International Financial
Reporting Standards as detailed above 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.
The financial statements have been prepared on a total company basis and not on
a cell- by-cell basis as there is currently only one cell. The only non-cellular
assets and liabilities are in respect of the two management shares of no par
value issued at GBP1 each fully paid represented by cash at bank. As they are
immaterial they have been excluded from the financial statements.
Notes to the financial statements (continued)
For the period from 1 September 2009 to 30 June 2010
2 Principal Accounting Policies (continued)
Basis of preparation (continued)
Reporting and Presentational Currency
The financial information shown in the financial statements is shown in
sterling, being the Company's reporting 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. The Directors believe the critical accounting judgements and sources of
estimation uncertainty are in respect of the valuations of investments and on
going concern. These judgements are discussed below.
(b) Valuation of Investments
US Traded Life Interest Investments
The Company primarily invests in US Traded Life Interests ("TLIs") which it
intends to hold to maturity or until the end of the life of the Fund. The
Company has only invested in Whole of Life and Universal Life policies. All TLI
investments are classified as fair value through profit and loss.
Recognition and basis of measurement
Purchases of TLIs are recognised on a trade date basis and are initially held at
cost, being the consideration given.
Valuation
As the market for TLIs is thin, and there is relatively little trading in these
investments, there are no reliable market prices. The TLIs are 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 expected present value of its net future cash
flows. The calculation uses the following data and assumptions provided by the
Investment Manager:
· Death benefit payable under the policy;
· Premiums due under the policy;
· Mortality using the 2008 Valuation Basic Table (Ultimate) as adjusted
using a 24-month 'select period' adjustment and the most recent life expectancy
for each policy; and
· An estimate of the market based discount rate derived by the Investment
Manager.
Notes to the financial statements (continued)
For the period from 1 September 2009 to 30 June 2010
2 Principal Accounting Policies (continued)
Valuation of Investments (continued)
Valuation (continued)
There is inherent uncertainty within this basis of valuation and this valuation
will likely be materially different from either the valuation on maturity or the
realisable sale value of these investments.
United Kingdom Gilts
The Company has also invested in a United Kingdom Gilt ("UK Gilt") which it
intends to hold to maturity or until the end of the life of the Fund. The UK
Gilt is classified as fair value through profit and loss.
Recognition and basis of measurement
Purchases of UK Gilts are recognised on a trade date basis and are initially
held at cost, being the consideration given.
Valuation
The UK Gilt is valued monthly at the mid market price available for the stock at
each valuation date.
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.
(c) Going concern
The Board considered carefully the issue of 'going concern', specifically in
relation to the availability of funding. Total borrowings under the agreement
with Allied Irish Banks Plc ("AIB") fell to circa US$24.0 million as at 30 June
2010 from circa US$33.4 million as at 31 August 2009. At this level the margin
of cover required under the agreement was comfortably met.
As at 30 June 2010, an additional US$6 million of funding was available to the
Company under the agreement with AIB, and this should provide the Company with
sufficient cash flow to meet premium payments until December 2010. At that point
the Company will seek to renew the agreement in order to provide the necessary
funding for a further twelve months, and on the basis of early discussions with
AIB, the Board is confident that it will be renewed successfully, enabling the
Company to continue as a going concern.
The Board has also considered the position in the unlikely event of failure to
renew the AIB agreement successfully. Acknowledging that this might involve the
sale of policies in an illiquid market, the Board is nevertheless confident that
the sales required to cover outstanding borrowings could be completed. To the
extent that the prices achieved did not match those in the valuation, the net
asset value of the Company would be affected, but the business would remain a
going concern.
(d) Interest income
Bank deposit interest is accounted for on an accruals basis.
Notes to the financial statements (continued)
For the period from 1 September 2009 to 30 June 2010
2 Principal Accounting Policies (continued)
(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) Forward currency contracts
A forward currency contract obliges the Company to receive or deliver a fixed
quantity of currency at a specified price on an agreed basis. These contracts
are accounted for when any contract becomes binding and are valued in the
Statement of Financial Position at the period end rate. Realised and unrealised
gains are included in the Statement of Comprehensive Income and in the capital
reserve - realised, and capital reserve - unrealised respectively.
(h) 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 engaged in a single segment of
business, 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 allocating the assets of the Company in
accordance with the investment objective and policy. The Investment Manager will
identify on behalf of the Board TLIs that are consistent with the Company's
investment objective and policy.
Whilst the Investment Manager may make the investment decisions on a day to day
basis, any changes to the investment strategy or major allocation decisions have
to be approved by the Board, even though they may be proposed by the Investment
Manager. The Board therefore retains full responsibility as to the investment
strategy or major allocation decisions made on an ongoing basis. The Investment
Manager will always act under the terms of the Prospectus which cannot be
radically changed without the approval of the Board and the shareholders.
The key measure of performance use 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.
Notes to the financial statements (continued)
For the period from 1 September 2009 to 30 June 2010
4 Interest and similar income
+----+--------+--------------+-----------+----------+----------+
| | | | Period | | Period |
| | | | from 1 | | from 1 |
| | | | September | | July |
| | | | 2009 to | | 2008 to |
| | | | 30 June | | 31 |
| | | | 2010 | | August |
| | | | | | 2009 |
+----+--------+--------------+-----------+----------+----------+
| | | | GBP | | GBP |
+----+--------+--------------+-----------+----------+----------+
| | | | | | |
+----+--------+--------------+-----------+----------+----------+
| Bank | | 326 | | 6,543 |
| deposit | | | | |
| interest | | | | |
+-------------+--------------+-----------+----------+----------+
| Bond interest | 3,128 | | - |
+----------------------------+-----------+----------+----------+
| | | | | | |
+----+--------+--------------+-----------+----------+----------+
| Total income | 3,454 | | 6,543 |
+----+--------+--------------+-----------+----------+----------+
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 shorter notice as the parties may agree to
accept.
From 1 September 2009 the fee payable to the Investment Manager is 0.475% per
annum of the Company's Net Asset Value. With effect from 1 April 2012 the fee
will be reduced to 0.4% per annum of the Company's Net Asset Value. RCM (UK)
Limited, 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.
With effect from 1 September 2009 the fee payable to the Manager is 0.425% per
annum of the Company's Net Asset Value. With effect from 1 April 2012 the fee
will be reduced to 0.4% per annum of the Company's Net Asset Value. With effect
from 1 September 2009 a separate Agreement was signed between the Company and
the Manager for the provision of Administration and Secretarial Services at a
fixed fee of GBP20,000 per annum.
With effect from 1 September 2009 the Administration Agreement between the
Company and Kleinwort Benson (Channel Islands) Fund Services Limited (formerly
Kleinwort Benson (Guernsey) Fund Services Limited) dated 16 March 2004 was
amended to a fixed fee of GBP50,000 per annum.
Notes to the financial statements (continued)
For the period from 1 September 2009 to 30 June 2010
6 Other expenses
+----------+--------+--------+--+------------+----------+------------+
| | | | | Period | | Period |
| | | | | from 1 | | from 1 |
| | | | | September | | July 2008 |
| | | | | 2009 to 30 | | to 31 |
| | | | | June 2010 | | August |
| | | | | | | 2009 |
+----------+--------+--------+--+------------+----------+------------+
| | | | | GBP | | GBP |
+----------+--------+--------+--+------------+----------+------------+
| | | | | | | |
+----------+--------+--------+--+------------+----------+------------+
| Administration and | | 63,541 | | 45,594 |
| accountancy fees | | | | |
+----------------------------+--+------------+----------+------------+
| Broker fees | | | 28,658 | | 29,344 |
+-------------------+--------+--+------------+----------+------------+
| Directors' fees and | | 56,411 | | 50,993 |
| expenses | | | | |
+----------------------------+--+------------+----------+------------+
| D&O | | | 8,492 | | 12,408 |
| Insurance | | | | | |
+-------------------+--------+--+------------+----------+------------+
| Auditors' | | | 29,895 | | 31,249 |
| remuneration | | | | | |
+-------------------+--------+--+------------+----------+------------+
| Legal fees | | | 27,276 | | 203,370 |
+-------------------+--------+--+------------+----------+------------+
| Printing | | | | 6,626 | | 5,089 |
+----------+--------+--------+--+------------+----------+------------+
| Safe custody | | | 12,443 | | 15,277 |
| fees | | | | | |
+-------------------+--------+--+------------+----------+------------+
| Bank fees | | | 45,162 | | 58,484 |
| and charges | | | | | |
+-------------------+--------+--+------------+----------+------------+
| Sundry | | | 54,233 | | 83,261 |
| expenses * | | | | | |
+-------------------+--------+--+------------+----------+------------+
| | | | | | | |
+----------+--------+--------+--+------------+----------+------------+
| | | | | 332,737 | | 535,069 |
+----------+--------+--------+--+------------+----------+------------+
* Sundry expenses include mailing services, tax exempt fees, registrar fees,
stock exchange fees and other sundry costs.
7 Taxation
The Company is exempt from Guernsey Income Tax under the Income Tax (Exempt
Bodies) (Guernsey) Ordinance 1989 and 1992 and is charged an annual exemption
fee of GBP600 included in sundry expenses.
The Company, as a collective investment scheme, will be able to continue to
apply for exempt tax status under the revised company income tax regime that
came into effect on 1 January 2008.
Following an Extraordinary General Meeting on 28 August 2009, it was resolved
that the Company would adopt 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 in due course as an investment trust under Section 1158
of the Corporation Tax Act 2010 in respect of the accounting period commencing
on 1 September 2009. Accordingly no UK tax has been provided for.
8 Return per share
Revenue deficit per Share is based on the net deficit attributable to the Shares
of GBP912,972 (2009: deficit GBP1,524,889) and on the average number of Shares
in issue of 40,000,000. Capital deficit per Share is based on the net capital
return attributable to the Shares of GBP3,102,254 (2009: return GBP213,780) and
on the average number of Shares in issue of 40,000,000.
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 GBP33,049,370 (2009: GBP37,064,596) and on the
40,000,000 Shares in issue at the period end.
Notes to the financial statements (continued)
For the period from 1 September 2009 to 30 June 2010
10 Investments
+-------+--------+--+-------+--+----------+------+--------+--------------+----------+---------------+
| (a) Categories of financial instruments | 30 June | | 31 |
| | 2010 | | August |
| | | | 2009 |
+---------------------------------------------------------+--------------+----------+---------------+
| | | | | | GBP | | GBP |
+-------+--------+--+-------+-----------------------------+--------------+----------+---------------+
| Financial assets | | | |
+---------------------------------------------------------+--------------+----------+---------------+
| Cash and cash equivalents | | 669,700 | | 903,849 |
+---------------------------+-----------------------------+--------------+----------+---------------+
| Fair value through profit and loss: | | | |
+---------------------------------------------------------+--------------+----------+---------------+
| TLI Policies | 58,019,086 | | 58,253,174 |
+---------------------------------------------------------+--------------+----------+---------------+
| Government Bonds | 108,372 | | - |
+---------------------------------------------------------+--------------+----------+---------------+
| | | | 58,127,458 | | 58,253,174 |
+------------------------------+----------+---------------+--------------+----------+---------------+
| Loans and receivables at amortised cost | 18,462 | | 4,621,059 |
+---------------------------------------------------------+--------------+----------+---------------+
| | | | | | 58,815,620 | | 63,778,082 |
+-------+--------+-------------+-----------------+--------+--------------+----------+---------------+
| | | | | | | | |
+-------+--------+-------------+-----------------+--------+--------------+----------+---------------+
| Financial liabilities | | | | | |
+------------------------------+-----------------+--------+--------------+----------+---------------+
| Fair value through profit and loss: | | | |
+---------------------------------------------------------+--------------+----------+---------------+
| Derivatives | (9,511,081) | | (5,720,617) |
+---------------------------------------------------------+--------------+----------+---------------+
| Loans and payables at amortised cost | (16,255,169) | | (20,992,869) |
+---------------------------------------------------------+--------------+----------+---------------+
| | | | (25,766,250) | | (26,713,486) |
+------------------------------+-----------------+--------+--------------+----------+---------------+
| | | | | | |
+------------------------------+-----------------+--------+--------------+----------+---------------+
| | | | 33,049,370 | | 37,064,596 |
+------------------------------+-----------------+--------+--------------+----------+---------------+
| | | | | | | | | | | |
+-------+--------+--+-------+--+----------+------+--------+--------------+----------+---------------+
+----------+----------+----------+-----+--+----------+------+--------------+-------------+----------+-------------+
| (b) Investments at fair value through profit or loss | Period | | Period |
| | from 1 | | from 1 |
| | September | | July |
| | 2009 to | | 2008 to |
| | 30 June | | 31 |
| | 2010 | | August |
| | | | 2009 |
+--------------------------------------------------------------------------+-------------+----------+-------------+
| | | | | | GBP | | GBP |
+----------+----------+----------+-----+-----------------------------------+-------------+----------+-------------+
| Movements in the period: | | | |
+--------------------------------------------------------------------------+-------------+----------+-------------+
| Opening valuation | | 58,253,174 | | 50,895,244 |
+--------------------------------------+-----------------------------------+-------------+----------+-------------+
| Premiums paid | | | | 4,707,868 | | 6,459,242 |
+---------------------+----------+-----+-----------------------------------+-------------+----------+-------------+
| Purchase of investments | 105,430 | | - |
+--------------------------------------------------------------------------+-------------+----------+-------------+
| Proceeds from the maturities of investments | (6,583,722) | | (9,586,000) |
+--------------------------------------------------------------------------+-------------+----------+-------------+
| Realised gain on maturities | | | 3,601,232 | | 4,664,216 |
+-----------------------------------------+----------+---------------------+-------------+----------+-------------+
| Unrealised movement in (depreciation)/appreciation on revaluation of | | | |
| investments | | | |
+ +-------------+----------+-------------+
| | (1,956,524) | | 5,820,472 |
+--------------------------------------------------------------------------+-------------+----------+-------------+
| | | | | | | | |
+----------+----------+-------------------+-----------------+--------------+-------------+----------+-------------+
| Closing valuation | | | 58,127,458 | | 58,253,174 |
+-----------------------------------------+-----------------+--------------+-------------+----------+-------------+
| | | | | | | | |
+----------+----------+-------------------+-----------------+--------------+-------------+----------+-------------+
| Comprising: | | | | | | |
+---------------------+-------------------+-----------------+--------------+-------------+----------+-------------+
| Closing book cost | | | 58,545,385 | | 56,714,577 |
+-----------------------------------------+-----------------+--------------+-------------+----------+-------------+
| Closing unrealised (depreciation)/appreciation | (417,927) | | 1,538,597 |
+--------------------------------------------------------------------------+-------------+----------+-------------+
| | | | | | | | |
+----------+----------+-------------------+-----------------+--------------+-------------+----------+-------------+
| Closing valuation | | | 58,127,458 | | 58,253,174 |
+-----------------------------------------+-----------------+--------------+-------------+----------+-------------+
| | | | | | | | | | | |
+----------+----------+----------+-----+--+----------+------+--------------+-------------+----------+-------------+
Notes to the Financial Statements (continued)
For the period from 1 September 2009 to 30 June 2010
10 Investments (continued)
+---+-----+--------+------+------+----------+-------------+----------+------------+
| (c) Net gain/(loss) on | | Period | | Period |
| investments held at fair value | | from 1 | | from 1 |
| through profit or loss | | September | | July |
| | | 2009 to | | 2008 |
| | | 30 June | | to 31 |
| | | 2010 | | August |
| | | | | 2009 |
+--------------------------------+----------+-------------+----------+------------+
| | | | | | | GBP | | GBP |
+---+-----+--------+------+------+----------+-------------+----------+------------+
| | | | | | | | | |
+---+-----+--------+------+------+----------+-------------+----------+------------+
| Realised gain on | | | 3,601,232 | | 4,664,216 |
| maturities | | | | | |
+-------------------------+------+----------+-------------+----------+------------+
| | | | | | | | | |
+---+-----+--------+------+------+----------+-------------+----------+------------+
| Movement in unrealised | (1,956,524) | | 5,820,472 |
| appreciation/(depreciation) on | | | |
| revaluation of investments | | | |
+-------------------------------------------+-------------+----------+------------+
| | | | | | | | | |
+---+-----+--------+------+------+----------+-------------+----------+------------+
| | | | | | | 1,644,708 | | 10,484,688 |
+---+-----+--------+------+------+----------+-------------+----------+------------+
+-----------------+----------+----------+----------+-------------+----------+-------------+----------+-------------+
| (d) Derivative financial | | | | | | |
| instruments | | | | | | |
+---------------------------------------+----------+-------------+----------+-------------+----------+-------------+
| | | | | | | | | |
+-----------------+----------+----------+----------+-------------+----------+-------------+----------+-------------+
| Forward currency contracts | | | | | | | |
+----------------------------+----------+----------+-------------+----------+-------------+----------+-------------+
| | | | | | | | |
+----------------------------+----------+----------+-------------+----------+-------------+----------+-------------+
| As at 30 June | | | | | | | | |
| 2010 | | | | | | | | |
+-----------------+----------+----------+----------+-------------+----------+-------------+----------+-------------+
| | | Average | | Contract | | Contract | | |
| Outstanding | | exchange | | amount | | amount | | Fair |
| contracts | | rate | | USD | | GBP | | value |
| | | | | | | | | GBP |
+-----------------+----------+----------+----------+-------------+----------+-------------+----------+-------------+
| Buy GBP | | 1.8229 | | 78,500,000 | | 43,063,246 | | (9,411,825) |
+-----------------+----------+----------+----------+-------------+----------+-------------+----------+-------------+
| Sell GBP | | 1.4644 | | (7,500,000) | | (5,121,551) | | (99,256) |
+-----------------+----------+----------+----------+-------------+----------+-------------+----------+-------------+
| | | | | 71,000,000 | | 37,941,695 | | (9,511,081) |
+-----------------+----------+----------+----------+-------------+----------+-------------+----------+-------------+
| | | | | | | | |
+----------------------------+----------+----------+-------------+----------+-------------+----------+-------------+
| As at 31 August | | | | | | | | |
| 2009 | | | | | | | | |
+-----------------+----------+----------+----------+-------------+----------+-------------+----------+-------------+
| | | Average | | Contract | | Contract | | |
| Outstanding | | exchange | | amount | | amount | | Fair |
| contracts | | rate | | USD | | GBP | | value |
| | | | | | | | | GBP |
+-----------------+----------+----------+----------+-------------+----------+-------------+----------+-------------+
| Buy GBP | | 1.8229 | | 78,500,000 | | 43,063,246 | | (5,267,179) |
+-----------------+----------+----------+----------+-------------+----------+-------------+----------+-------------+
| Sell GBP | | 1.4644 | | (7,500,000) | | (5,121,551) | | (453,438) |
+-----------------+----------+----------+----------+-------------+----------+-------------+----------+-------------+
| | | | | 71,000,000 | | 37,941,695 | | (5,720,617) |
+-----------------+----------+----------+----------+-------------+----------+-------------+----------+-------------+
The Company hedges its US dollar exposure by entering into forward sales and
purchases of US dollars in sterling. At the period end there were twelve
outstanding forward foreign exchange contracts for the sale of US$78.5 million
against sterling contracts maturing 30 March 2012 and one contract for the
purchase of US$7.5 million against a sterling contract maturing 30 March 2012.
11 Other receivables
+----------+-----------+------+-------+-----------+----------+------------+
| | | | | 30 June | | 31 August |
| | | | | 2010 | | 2009 |
+----------+-----------+------+-------+-----------+----------+------------+
| | | | | GBP | | GBP |
+----------+-----------+------+-------+-----------+----------+------------+
| | | | | | | |
+----------+-----------+------+-------+-----------+----------+------------+
| Sundry debtors | | | 18,462 | | 11,348 |
+----------------------+------+-------+-----------+----------+------------+
| Maturity proceeds | | - | | 4,609,711 |
| receivable | | | | |
+-----------------------------+-------+-----------+----------+------------+
| | | | | | | |
+----------+-----------+------+-------+-----------+----------+------------+
| | | | | 18,462 | | 4,621,059 |
+----------+-----------+------+-------+-----------+----------+------------+
Notes to the Financial Statements (continued)
For the period from 1 September 2009 to 30 June 2010
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.
13 Other payables
+----------+--------+----------------+-----------+----------+------------+
| | | | 30 June | | 31 August |
| | | | 2010 | | 2009 |
+----------+--------+----------------+-----------+----------+------------+
| | | | GBP | | GBP |
+----------+--------+----------------+-----------+----------+------------+
| | | | | | |
+----------+--------+----------------+-----------+----------+------------+
| Accrued expenses | 164,395 | | 435,398 |
+------------------------------------+-----------+----------+------------+
| | | | | | |
+----------+--------+----------------+-----------+----------+------------+
| | | | 164,395 | | 435,398 |
+----------+--------+----------------+-----------+----------+------------+
14 Loan facility
As at 30 June 2010 the Company had a US$23,156,000 (31 August 2009:
US$28,000,000) amortising term loan, and a revolving credit facility of c.US$6.9
million (31 August 2009: c. US$5.4 million) with Allied Irish Banks plc (the
"Bank"). Interest is payable at LIBOR plus 2% on the amortising term loan and at
LIBOR plus 2.5% in respect of the revolving credit facility. As at 30 June 2010
a total of US$24,047,662 (GBP16,090,774) had been drawn down (2009:
US$33,447,006 (GBP20,557,471)). The facility expires on 31 January 2011, but it
is expected to be replaced by a new facility in December 2010.
Borrowings will be repaid with proceeds receivable from the maturity of the
TLIs. See note 19.
The covenants to the Bank, per the Security Interest Agreement, dated 8 April
2004 and amended on 16 March 2009, are as follows:
· That the Company is the sole beneficial owner of and has good title to
the Contract Rights and the property, title to and/or possession of which is
held by the Custodian subject only to the rights granted in favour of the Bank
by this agreement and the terms of the Custodian Agreement;
· That the Contract Rights are, and will throughout the continuance of this
agreement be, free from all Encumbrance save for those created in favour of the
Bank or otherwise permitted by the terms of this agreement;
· That the Company will reimburse the Bank within 3 Business Days of demand
for all sums which the Bank may from time to time pay or become liable for in
the enforcement or attempted enforcement of the security provided by this
agreement or in or about the exercise by the Bank of any of the powers vested in
it under or pursuant to this agreement (including without limitation reasonable
legal costs) together with interest on such sums at the applicable rate from
time to time provided by the Agreements.
15 Share capital and share premium
The share capital of the Company is two Management Shares of no par value and an
unlimited number of Redeemable Participating Preference Shares (the "Shares") of
no par value.
The two Management Shares were issued at GBP1 each fully paid and are
beneficially owned by the Manager. The Management Shares do not carry any
rights to dividends and holders of Management Shares are only entitled to
participate in the non-cellular assets of the Company on a winding-up.
Notes to the Financial Statements (continued)
For the period from 1 September 2009 to 30 June 2010
15 Share capital and share premium (continued)
40,000,000 Shares were issued in the Fund at GBP1 per Share on 25 March 2004.
The issue costs incurred of GBP831,764 were debited against the share premium
account to leave net proceeds of the share issue of GBP39,168,236.
The holders of Shares attributable to the Fund will only be entitled to
participate in the income, profits and assets attributable to that fund. On
winding up the holders of Shares are only entitled to participate 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.
At an Extraordinary General Meeting held on 28 August 2009 the Articles of
Incorporation were amended so that the US Traded Life Interests Fund now has an
unlimited life, subject to regular continuation votes from 2012 onward.
However, shareholders shall be offered the opportunity to vote on the
continuation of the Fund at the Annual General Meeting in 2012 and annually
thereafter.
16 Share buy-backs
By way of an ordinary resolution passed by a written resolution dated 10 March
2004 the Company took authority, in accordance with Clause 5 of the Companies
(Purchase of Own Shares) Ordinance 1998, to make market purchases of fully paid
Shares, provided that the maximum number of Shares authorised to be purchased
shall be no more than 14.99 per cent of the issued Shares of the Company.
The Company will be seeking to renew this authority at the forthcoming Annual
General Meeting.
The minimum price which may be paid for a Share pursuant to such authority is
one pence and the maximum price which may be paid for a Share is an amount equal
to the higher of 105 per cent of the average of the middle market quotations for
a Share taken from the Official List for the five business days immediately
preceding the date on which the Share is purchased or the higher of the price of
the last independent trade and the highest current independent bid at the time
of purchase. Such authority will then expire at the Annual General Meeting of
the Company in 2011 unless such authority is varied, revoked or renewed prior to
such date by a special resolution of the Company in general meeting.
During the period under review no Shares were bought back for cancellation
(2009: nil).
Notes to the Financial Statements (continued)
For the period from 1 September 2009 to 30 June 2010
17 Net assets attributable to shareholders
+----------+--------+----------+----------+----------+------------+------------+----------+--------------+----------+-------------+----------+-------------+
| | | | | | | Capital Reserve | | | | |
+----------+--------+----------+----------+----------+------------+--------------------------------------+----------+-------------+----------+-------------+
| | | | | | Share | | | | | Revenue | | |
| | | | | | Premium | Realised | | Unrealised | | Reserves | | Total |
+----------+--------+----------+----------+----------+------------+------------+----------+--------------+----------+-------------+----------+-------------+
| | | | | | 2010 | 2010 | | 2010 | | 2010 | | 2010 |
+----------+--------+----------+----------+----------+------------+------------+----------+--------------+----------+-------------+----------+-------------+
| | | | | | GBP | GBP | | GBP | | GBP | | GBP |
+----------+--------+----------+----------+----------+------------+------------+----------+--------------+----------+-------------+----------+-------------+
| | | | | | | | | | | | | |
+----------+--------+----------+----------+----------+------------+------------+----------+--------------+----------+-------------+----------+-------------+
| Balance at 1 September 2009 | | | 39,168,236 | 8,329,265 | | (5,940,372) | | (4,492,533) | | 37,064,596 |
+------------------------------+----------+----------+------------+------------+----------+--------------+----------+-------------+----------+-------------+
| Realised gain on maturities | - | 3,601,232 | | - | | - | | 3,601,232 |
+----------------------------------------------------+------------+------------+----------+--------------+----------+-------------+----------+-------------+
| Movement in unrealised appreciation on investments | | - | | (1,956,524) | | - | | (1,956,524) |
| | - | | | | | | | |
+----------------------------------------------------+------------+------------+----------+--------------+----------+-------------+----------+-------------+
| Movement in unrealised currency loss on forward | | | | | | | | |
| foreign currency contracts | | | | | | | | |
+ +------------+------------+----------+--------------+----------+-------------+----------+-------------+
| | - | - | | (3,790,464) | | - | | (3,790,464) |
+----------------------------------------------------+------------+------------+----------+--------------+----------+-------------+----------+-------------+
| Movement in unrealised currency losses | - | - | | (956,498) | | - | | (956,498) |
+----------------------------------------------------+------------+------------+----------+--------------+----------+-------------+----------+-------------+
| Revenue loss for the period | - | - | | - | | (912,972) | | (912,972) |
+----------------------------------------------------+------------+------------+----------+--------------+----------+-------------+----------+-------------+
| | | | | | | | | | | | | |
+----------+--------+----------+----------+----------+------------+------------+----------+--------------+----------+-------------+----------+-------------+
| Balance at 30 June 2010 | | | 39,168,236 | 11,930,497 | | (12,643,858) | | (5,405,505) | | 33,049,370 |
+----------+--------+----------+----------+----------+------------+------------+----------+--------------+----------+-------------+----------+-------------+
+----------+--------+----------+----------+----------+------------+------------+----------+--------------+----------+-------------+----------+-------------+
| | | | | | | Capital Reserve | | | | |
+----------+--------+----------+----------+----------+------------+--------------------------------------+----------+-------------+----------+-------------+
| | | | | | Share | | | | | Revenue | | |
| | | | | | Premium | Realised | | Unrealised | | Reserves | | Total |
+----------+--------+----------+----------+----------+------------+------------+----------+--------------+----------+-------------+----------+-------------+
| | | | | | 2009 | 2009 | | 2009 | | 2009 | | 2009 |
+----------+--------+----------+----------+----------+------------+------------+----------+--------------+----------+-------------+----------+-------------+
| | | | | | GBP | GBP | | GBP | | GBP | | GBP |
+----------+--------+----------+----------+----------+------------+------------+----------+--------------+----------+-------------+----------+-------------+
| | | | | | | | | | | | | |
+----------+--------+----------+----------+----------+------------+------------+----------+--------------+----------+-------------+----------+-------------+
| Balance at 1 July 2008 | | | 39,168,236 | 3,665,049 | | (1,489,936) | | (2,967,644) | | 38,375,705 |
+------------------------------+----------+----------+------------+------------+----------+--------------+----------+-------------+----------+-------------+
| Realised gain on maturities | | - | 4,664,216 | | - | | - | | 4,664,216 |
+-----------------------------------------+----------+------------+------------+----------+--------------+----------+-------------+----------+-------------+
| Movement in unrealised appreciation on investments | - | - | | 5,820,472 | | - | | 5,820,472 |
+----------------------------------------------------+------------+------------+----------+--------------+----------+-------------+----------+-------------+
| Movement in unrealised currency loss on forward | | | | | | | | |
| foreign currency contracts | | | | | | | | |
+ +------------+------------+----------+--------------+----------+-------------+----------+-------------+
| | - | - | | (7,025,749) | | - | | (7,025,749) |
+----------------------------------------------------+------------+------------+----------+--------------+----------+-------------+----------+-------------+
| Movement in unrealised currency losses | - | - | | (3,245,159) | | - | | (3,245,159) |
+----------------------------------------------------+------------+------------+----------+--------------+----------+-------------+----------+-------------+
| Revenue loss for the period | - | - | | - | | (1,524,889) | | (1,524,889) |
+----------------------------------------------------+------------+------------+----------+--------------+----------+-------------+----------+-------------+
| | | | | | | | | | | | | |
+----------+--------+----------+----------+----------+------------+------------+----------+--------------+----------+-------------+----------+-------------+
| Balance at 31 August 2009 | | | 39,168,236 | 8,329,265 | | (5,940,372) | | (4,492,533) | | 37,064,596 |
+----------+--------+----------+----------+----------+------------+------------+----------+--------------+----------+-------------+----------+-------------+
Notes to the Financial Statements (continued)
For the period from 1 September 2009 to 30 June 2010
18 Related party transactions
Fees earned by the Directors of the Company during the period were GBP54,094 of
which GBP2,714 was outstanding at the period end (2009: GBP49,584 of which
GBP7,083 was outstanding at the period end). Allowable expenses claimed by the
Directors in the course of their duties amounted to GBP2,317 for the period from
1 September 2009 to 30 June 2010. Fees earned by the Investment Manager,
Manager and Administrator are discussed in Note 5.
19 Financial risk management objectives and policies
The main risks to which the Company is exposed are market and longevity risk,
currency risk and interest rate risk, liquidity risk and credit risk.
Fair value measurements
The Company adopted the amendment to IFRS 7, effective 1 January 2009. This
requires the Company to classify fair value hierarchy that reflects the
significance of the inputs used in making the measurements. IFRS 7 establishes a
fair value hierarchy that prioritises the inputs to valuation techniques used to
measure fair value. 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 7 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 judgment,
considering factors specific to the asset or liability.
The determination of what constitutes 'observable' requires significant judgment
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 and liabilities by
level within the valuation hierarchy as of 30 June 2010.
+--------------------------------+----------+-------------+------------+
| | | | Percentage |
| | | 2010 | of net |
| | | | assets |
+--------------------------------+----------+-------------+------------+
| | | GBP | % |
+--------------------------------+----------+-------------+------------+
| Level 1 fair value assets | | 108,372 | 0.33 |
+--------------------------------+----------+-------------+------------+
| Level 2 fair value liabilities | | (9,511,081) | (28.79) |
+--------------------------------+----------+-------------+------------+
| Level 3 fair value assets | | 58,019,086 | 175.64 |
+--------------------------------+----------+-------------+------------+
| | | 48,616,377 | 147.18 |
+--------------------------------+----------+-------------+------------+
The Company holds one investment, being the UK Treasury Stock, which is listed
and which is therefore categorised as level 1 of the IFRS fair value hierarchy.
Notes to the Financial Statements (continued)
For the period from 1 September 2009 to 30 June 2010
19 Financial risk management objectives and policies (continued)
Fair value measurements (continued)
The forward foreign exchange contracts held by the Company are categorised as
level 2 of the IFRS fair value hierarchy. The contracts were over the counter
trades and the valuation of the contracts is based on recognised valuation
methodologies as opposed to a readily attainable market value for the contracts.
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 a valuation model 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.
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. The Company does not have
any externally imposed capital requirements. At 30 June 2010 net assets
attributable to the holders of Shares were GBP33,049,370 (2009: GBP37,064,596).
As at 30 June 2010, the Company had borrowed circa US$24.0 million from Allied
Irish Banks Plc. The existence of these borrowings means that Shareholder
returns are "geared" and that these borrowings will need to be repaid prior to
any return of capital to shareholders.
The Company's investment objective is to provide investors with an attractive
capital return through investment predominantly in a diversified portfolio of US
Traded Life Interests ("TLIs"). The Company has invested its assets principally
in a range of TLIs on the lives of US citizens aged between 80 and 90 years at
the point of investment.
The Board has overall responsibility for allocating the assets of the Company in
accordance with the investment objective and policy. The Investment Manager has
identified on behalf of the board TLIs that are consistent with the Company's
investment objective and policy.
The TLIs acquired are held to maturity or otherwise disposed of towards the end
of the life of the Company. The Company is responsible for payment of policy
premiums.
As at 30 June 2010, the current portfolio comprises 135 TLIs. All TLIs acquired
are Whole-of-Life or Universal Life policies.
The TLIs acquired are policies issued by a range of US life insurances
companies. Each underlying life insurance company has an A.M. Best credit rating
of at least "A" at the time of acquisition of the relevant policy. A.M. Best is
a U.S. credit rating agency which provides the most comprehensive coverage of
the U.S. life company sector. Once the investment programme was concluded, not
more than 15 per cent. of the gross assets of the Company were initially
invested in life policies issued by any single US Life Insurance Company or
Group. This percentage is subject to change dependent on the maturities realised
from the Company's TLI portfolio.
The Investment Manager has engaged the services of tracking agents to monitor
the status of lives insured in respect of TLIs purchased by the Company. The
agents use tracking methods to ensure both the Company and the Investment
Manager are notified in a timely manner following the death of an insured. Upon
receipt of notification of the death of an insured, the death certificate will
be forwarded to the
Notes to the Financial Statements (continued)
For the period from 1 September 2009 to 30 June 2010
19 Financial risk management objectives and policies (continued)
Capital risk management (continued)
Sub-Custodian, who then forwards it to the relevant life insurance company with
the original policy document. The life insurance company will usually pay the
Company the full face value of the policy within 60 days of receipt of the
requisite documents.
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.
The IRR assessment is based on the Investment Manager's own successful bids
(that is the IRR implied by bids that have been accepted by the seller of a
policy). The results are compared to US$ swap interest rates on a three-month
rolling average basis, to derive a risk premium. The IRR is thus the sum of the
risk premium and the swap rate for the appropriate life expectancy. Every
quarter, the risk premiums are re-assessed and discussed between the Board and
the Investment Manager.
As of 30 June 2010 the weighted average swap yield was 1.9%; this also allows
for the fact that there is some shortening of life expectancies with the elapse
of time. The weighted average risk premium was 10.1% (2009: 9.4%), resulting in
an overall IRR of 12.0%.
These IRRs are in line with the IRRs being obtained by the Investment Manager in
the open market at the moment, but a lack of success in some market areas may
suggest that they are not indicative of the market as a whole, The question of
whether the IRRs reflect the market or simply a change in the Investment
Manager's client strategies was discussed between the Board and the Investment
manager and the conclusion was that, while the IRRs may not be wholly
representative, they are the best information currently available, given the
lack of public information on successful transactions in this marketplace.
At 30 June 2010, should each individual IRR used have increased by 1 per cent
with all other variables remaining constant, the decrease in net assets
attributable to shareholders for the period would amount to GBP1,713,265 (2009:
decrease of GBP1,757,695).
At 30 June 2010, should each individual IRR used have decreased by 1 per cent
with all other variables remaining constant, the increase in net assets
attributable to shareholders for the period would amount to GBP1,819,783 (2009:
increase of GBP1,869,612).
The life expectancy which applies to each policy is based on the original third
party medical assessments made at the time of purchase, adjusted for any
relevant factors, which include the period since original purchase and any
information available to the Investment Managers which affects life expectancy.
Any new life expectancy obtained from the Investment manager is also
incorporated. The cash flow projections resulting from this life expectancy
allow for a 24-month select period but are otherwise based on standard actuarial
tables.
Notes to the Financial Statements (continued)
For the period from 1 September 2009 to 30 June 2010
19 Financial risk management objectives and policies (continued)
Market and longevity risk (continued)
At 30 June 2010, should the remaining life expectancy of the insured have
increased by 20% with all other variables remaining constant, the decrease in
net assets attributable to shareholders for the period would amount to
GBP13,002,287 (2009: decrease of GBP12,217,793). In order to achieve this,
mortality would have to be 37% lower than that assumed in the valuation (2009:
38% lower than that assumed in the valuation).
At 30 June 2010, should the remaining life expectancy of the insured have
decreased by 20% with all other variables remaining constant, the increase in
net assets attributable to shareholders for the period would amount to
GBP14,304,642 (2009: increase of GBP13,328,392). In order to achieve this,
mortality would have to be 57% higher than that assumed in the valuation (2009:
60% higher than that assumed in the valuation).
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 hedges this exposure
through the sale of US dollars into sterling. The Company has forward sold
US$78.5 million and forward purchased US$7.5 million which means that at the
current valuation, the Company's net exposure to US dollars was a US$7.6 million
liability. In the event that expected future US$7.6 million profits are not
crystallised, the Company will be exposed to the risk of currency losses.
In the event of a fall in the value of the Company's assets or a loss on the
Company's forward currency contracts, 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 | | 31 August |
| | | | | 2010 | | 2009 |
+----+-+-------+------------+--------------+----------+--------------+
| | | | | GBP | | GBP |
+----+-+-------+------------+--------------+----------+--------------+
| | | | | | | |
+----+-+-------+------------+--------------+----------+--------------+
| U.S. Dollar | | 42,443,971 | | 43,060,214 |
+--------------+------------+--------------+----------+--------------+
| Less: | | | |
| Effect of forward foreign | (47,452,976) | | (43,662,312) |
| exchange contracts | | | |
+---------------------------+--------------+----------+--------------+
| | | | | | | |
+----+-+-------+------------+--------------+----------+--------------+
| | | | | (5,008,805) | | 602,098 |
+----+-+-------+------------+--------------+----------+--------------+
At 30 June 2010, had pound sterling strengthened against the US dollar by 5%
with all other variables held constant, the increase in net assets attributable
to shareholders would amount to approximately GBP241,122 (2009: decrease
GBP28,379). A decrease of 5% would amount to a decrease in net assets
attributable to shareholders of approximately GBP253,178 (2009: increase
GBP31,388).
Notes to the Financial Statements (continued)
For the period from 1 September 2009 to 30 June 2010
19 Financial risk management objectives and policies (continued)
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 Company holds modest amounts of cash on deposit and the only interest
bearing liability is the loan facility, therefore exposure to interest rate
changes is limited to the effect on cash and the loan facility.
The following table details the Company's exposure to interest rate risk at 30
June 2010 and 31 August 2009:
+----------+-------------+-------------+---------+-------+--------------+--------------+-------------+-------------+
| | Financial | | | |
| | assets/(liabilities) | Fixed rate | Floating rate | |
| | on which no interest | financial | financial | Total |
| | is paid | assets | assets/(liabilities) | |
+----------+---------------------------+-----------------+-----------------------------+---------------------------+
| | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 |
+----------+-------------+-------------+---------+-------+--------------+--------------+-------------+-------------+
| | GBP | GBP | GBP | GBP | GBP | GBP | GBP | GBP |
+----------+-------------+-------------+---------+-------+--------------+--------------+-------------+-------------+
| | | | | | | | | |
+----------+-------------+-------------+---------+-------+--------------+--------------+-------------+-------------+
| Sterling | (9,511,081) | (5,720,617) | 108,372 | - | 141,313 | 61,896 | (9,261,396) | (5,658,721) |
+----------+-------------+-------------+---------+-------+--------------+--------------+-------------+-------------+
| U.S. | 58,019,086 | 58,253,174 | - | - | (15,562,387) | (19,715,518) | 42,456,699 | 38,537,656 |
| Dollars | | | | | | | | |
+----------+-------------+-------------+---------+-------+--------------+--------------+-------------+-------------+
| | 48,508,005 | 52,532,557 | 108,372 | - | (15,421,074) | (19,653,622) | 33,195,303 | 32,878,935 |
+----------+-------------+-------------+---------+-------+--------------+--------------+-------------+-------------+
The above analysis excludes short term other receivables and other payables as
the material amounts are non-interest bearing.
At 30 June 2010, should interest rates have decreased by 100 basis points with
all other variables remaining constant, the increase in net assets attributable
to shareholders for the period would amount to approximately GBP154,211 (2009:
GBP196,536). A decrease of 100 basis points would have had an equal, but
opposite effect.
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting
obligations associated with its financial liabilities.
The Company has exposure to liquidity risk as it holds a loan facility for
US$33,156,000 of which US$24,047,662 was drawn down at 30 June 2010 as detailed
in note 14.
Notes to the financial statements (continued)
For the period from 1 September 2009 to 30 June 2010
19 Financial risk management objectives and policies (continued)
Liquidity risk (continued)
The maturity profile of the Company's financial assets and liabilities is set
out below (the TLIs are broken down in terms of the estimated remaining life
expectancy of the insured at valuation rather than undiscounted face value). The
future premiums payable on the Company's portfolio are not deemed to be
financial liabilities for the purposes of this note. Future loan interest is
not material and has also been excluded.
+----------+----+----+-----------+---------+--------------+-------------+------------+--------------+
| As at 30 June 2010 | | | | | | |
+--------------------+-----------+---------+--------------+-------------+------------+--------------+
| | | 1 | 1 to | 3 to 12 | 1 to 5 | >5 | Total |
| | | month | 3 | months | years | years | |
| | | or | months | | | | |
| | | less | | | | | |
+---------------+----+-----------+---------+--------------+-------------+------------+--------------+
| Financial | | GBP | GBP | GBP | GBP | GBP | GBP |
| assets: | | | | | | | |
+---------------+----+-----------+---------+--------------+-------------+------------+--------------+
| At fair value | - | - | - | 35,327,459 | 22,799,999 | 58,127,458 |
| through profit and | | | | | | |
| loss | | | | | | |
+--------------------+-----------+---------+--------------+-------------+------------+--------------+
| Other receivables | 18,462 | - | - | - | - | 18,462 |
+--------------------+-----------+---------+--------------+-------------+------------+--------------+
| Cash and cash | 669,700 | - | - | - | - | 669,700 |
| equivalents | | | | | | |
+--------------------+-----------+---------+--------------+-------------+------------+--------------+
| | | | | | | | |
+----------+---------+-----------+---------+--------------+-------------+------------+--------------+
| | | 688,162 | - | - | 35,327,459 | 22,799,999 | 58,815,620 |
+----------+---------+-----------+---------+--------------+-------------+------------+--------------+
| | | | | | | | |
+----------+---------+-----------+---------+--------------+-------------+------------+--------------+
| Financial | | | | | | |
| liabilities: | | | | | | |
+--------------------+-----------+---------+--------------+-------------+------------+--------------+
| Fair value of | - | - | - | (9,511,081) | - | (9,511,081) |
| forward foreign | | | | | | |
| currency contracts | | | | | | |
+--------------------+-----------+---------+--------------+-------------+------------+--------------+
| Loan facility | - | - | (16,090,774) | - | - | (16,090,774) |
+--------------------+-----------+---------+--------------+-------------+------------+--------------+
| Other payables | (164,395) | - | - | - | - | (164,395) |
+--------------------+-----------+---------+--------------+-------------+------------+--------------+
| | | | | | | | |
+----------+---------+-----------+---------+--------------+-------------+------------+--------------+
| | | (164,395) | - | (16,090,774) | (9,511,081) | - | (25,766,250) |
+----------+---------+-----------+---------+--------------+-------------+------------+--------------+
| | | | | | | | |
+----------+---------+-----------+---------+--------------+-------------+------------+--------------+
| | | 523,767 | - | (16,090,774) | 25,816,378 | 22,799,999 | 33,049,370 |
+----------+---------+-----------+---------+--------------+-------------+------------+--------------+
| | | | | | | | |
+----------+---------+-----------+---------+--------------+-------------+------------+--------------+
| As at 31 August | | | | | | |
| 2009 | | | | | | |
+--------------------+-----------+---------+--------------+-------------+------------+--------------+
| | | 1 | 1 to | 3 to 12 | 1 to 5 | >5 | Total |
| | | month | 3 | months | years | years | |
| | | or | months | | | | |
| | | less | | | | | |
+---------------+----+-----------+---------+--------------+-------------+------------+--------------+
| Financial | | GBP | GBP | GBP | GBP | GBP | GBP |
| assets: | | | | | | | |
+---------------+----+-----------+---------+--------------+-------------+------------+--------------+
| At fair value | - | 175,357 | - | 33,776,028 | 24,301,789 | 58,253,174 |
| through profit and | | | | | | |
| loss | | | | | | |
+--------------------+-----------+---------+--------------+-------------+------------+--------------+
| Other receivables | 4,621,059 | - | - | - | - | 4,621,059 |
+--------------------+-----------+---------+--------------+-------------+------------+--------------+
| Cash and cash | 903,849 | - | - | - | - | 903,849 |
| equivalents | | | | | | |
+--------------------+-----------+---------+--------------+-------------+------------+--------------+
| | | | | | | | |
+----------+---------+-----------+---------+--------------+-------------+------------+--------------+
| | | 5,524,908 | 175,357 | - | 33,776,028 | 24,301,789 | 63,778,082 |
+----------+---------+-----------+---------+--------------+-------------+------------+--------------+
| | | | | | | | |
+----------+---------+-----------+---------+--------------+-------------+------------+--------------+
| Financial | | | | | | |
| liabilities: | | | | | | |
+--------------------+-----------+---------+--------------+-------------+------------+--------------+
| Fair value of | - | - | - | (5,720,617) | - | (5,720,617) |
| forward foreign | | | | | | |
| currency contracts | | | | | | |
+--------------------+-----------+---------+--------------+-------------+------------+--------------+
| Loan facility | - | - | (20,557,471) | - | - | (20,557,471) |
+--------------------+-----------+---------+--------------+-------------+------------+--------------+
| Other payables | (435,398) | - | - | - | - | (435,398) |
+--------------------+-----------+---------+--------------+-------------+------------+--------------+
| | | | | | | | |
+----------+---------+-----------+---------+--------------+-------------+------------+--------------+
| | | (435,398) | - | (20,557,471) | (5,720,617) | - | (26,713,486) |
+----------+---------+-----------+---------+--------------+-------------+------------+--------------+
| | | | | | | | |
+----------+---------+-----------+---------+--------------+-------------+------------+--------------+
| | | 5,089,510 | 175,357 | (20,557,471) | 28,055,411 | 24,301,789 | 37,064,596 |
+----------+---------+-----------+---------+--------------+-------------+------------+--------------+
| | | | | | | | | |
+----------+----+----+-----------+---------+--------------+-------------+------------+--------------+
Notes to the financial statements (continued)
For the period from 1 September 2009 to 30 June 2010
19 Financial risk management objectives and policies (continued)
Liquidity risk (continued)
The Directors intend to renegotiate the loan facility prior to its expiration on
31 January 2011, when it is expected that a renewed or successor loan will come
into force. This loan and its successors are expected to be repaid with proceeds
receivable from the maturity of the TLIs.
Were it to be necessary, the Company could sell TLIs in order to repay the loan.
It is noted that the valuation methodology does not assume sales of TLIs, rather
that they would be held to maturity. In the event of a sale, the proceeds
received would in all likelihood be lower than the valuation.
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 and derivative financial instruments 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 AA-/A-1+ by Standard & Poor's ratings agency.
The TLIs in the Company's portfolio, as disclosed on page 27, have been assigned
ratings ranging from B+ to A++ by A.M. Best ratings agency.
Concentration risk
The Company has invested its assets in a range of TLIs on the lives of US
citizens aged, at the time of acquisition, between 80 and 90 years. All TLIs
acquired are Whole-Of-Life policies or Universal Life policies. No viatical
policies (that is, a policy on the life of an insured who is terminally ill and
with a life expectancy of less than 2 years) have been acquired.
The TLIs acquired are policies issued by a range of US life insurance companies.
Each underlying life insurance company had an A.M. Best credit rating of at
least "A" at the time of acquisition of the relevant policy; as at 30 June 2010,
99.8% by value of the TLI portfolio was underwritten by companies whose credit
rating is "A" or better. A.M. Best is a US credit rating agency which provides
the most comprehensive coverage of the US life company sector. 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.
Notes to the financial statements (continued)
For the period from 1 September 2009 to 30 June 2010
19 Financial risk management objectives and policies (continued)
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.
20 Events after the reporting period
There have been no significant events subsequent to the reporting period of
either an adjusting or non-adjusting nature which require adjustment or
disclosure in the financial statements in accordance with IAS 10 'Events after
the Reporting Period'.
21 Contingent Liabilities
Following a ruling issued by the US Internal Revenue Service ("IRS") during the
previous period, the Board has received advice from its US tax counsel in
respect of withholding tax on the proceeds of certain maturities already
received by the Company prior to its move to a UK tax residency. The Directors
continue to be of the view that there is significant doubt about liability under
US law for such a levy on the relevant maturity receipts and the Directors are
still not aware of any evidence to date that any levy will be imposed by the IRS
with retrospective effect. Accordingly, no provision for any such liability has
been made in these financial statements.
The Company received approximately US$20 million of maturity proceeds prior to
its adoption of UK tax residency on 1 September 2009. If US withholding tax were
to be payable with respect to these past maturities the Board has estimated that
such a liability would not exceed US$3.5 million (before interest and penalties
if applicable), calculated on the basis that the relevant withholding tax rate
has been 30% since the inception of the Company.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SELFDDFSSEIU
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