TIDMTLI
RNS Number : 6870O
Alternative Asset Opps PCC Ltd
21 September 2011
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Annual Financial Report Announcement
For the year ended 30 June 2011
At a meeting of the Board of Directors held on 20 September
2011, the final accounts for the Company for the year ended 30 June
2011 were approved, details of which are attached. The full Annual
Financial Report is available to be viewed on or downloaded from
the Company's website at
www.rcm.com/investmentrusts/investors_tlif.php. Copies will be
mailed to shareholders shortly. A copy of the Annual Financial
Report has been submitted to the National Storage Mechanism and
will shortly be available for inspection at
http://www.hemscott.com/nsm.do.
The financial information set out in this announcement does not
constitute the Company's statutory accounts for the year ended 30
June 2011, but is derived from those accounts. Statutory accounts
for the year ended 30 June 2011 will be delivered to Shareholders
during October 2011. 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 2011. This announcement
has been prepared using accounting policies consistent with those
set out in the Company's annual report and financial statements for
the year ended 30 June 2011.
The Annual General Meeting of the Company will be held on 17
November 2011.
Peter Ingram
Company Secretary
Telephone number: 020 7065 1467
21 September 2011
155 Bishopsgate
London
EC2M 3AD
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Investor Information
For the year ended 30 June 2011
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
Companies (Guernsey) Law, 1994. It was established with one Cell
known as the US Traded Life Interests Fund (the "Fund") which had a
planned life of approximately 8 years from the date of launch. The
Company is regulated by the Guernsey Financial Services Commission
as an authorised fund under the Protection of Investors (Bailiwick
of Guernsey) Law, 2008, as amended.
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.
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 US 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 had 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 2011 were US$21.1 million
(2010: US$24.0 million).
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Investor Information (continued)
For the year ended 30 June 2011
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.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Investor Information (continued)
For the year ended 30 June 2011
Directors Registrar
CPG Tracy (Chairman) Capita Registrars (Guernsey)
Limited
DIW Reynolds (Chairman of the Mont Crevelt House,
Audit Committee) Bulwer Avenue
JPHS Scott St Sampson
SM Zein Guernsey, GY2 4LH
Registered Office Investment Manager
Dorey Court, SL Investment Management Limited
Admiral Park 8/11 Grosvenor Court
St Peter Port Foregate Street
Guernsey GY1 3BG Chester CH1 1HG
Manager Banker (UK)
RCM (UK) Limited Allied Irish Banks PLC
155 Bishopsgate St Helen's
London 1 Undershaft
EC2M 3AD London EC3A 8AB
Secretary Banker (Guernsey)
RCM (UK) Limited Kleinwort Benson (Channel Islands)
Limited
155 Bishopsgate Dorey Court, Admiral Park
London EC2M 3AD St Peter Port
Represented by PWI Ingram FCIS Guernsey, GY1 3BG
Administrator Custodian
Kleinwort Benson (Channel Islands) Kleinwort Benson (Guernsey)
Limited
Fund Services Limited Dorey Court, Admiral Park
Dorey Court, Admiral Park St Peter Port
St Peter Port Guernsey, GY1 3BG
Guernsey, GY1 3BG
Legal Advisers (UK) Sub Custodian
Herbert Smith LLP Wells Fargo Bank Northwest
N.A.
Exchange House 299 South Main Street
Primrose Street 12th Floor
London, EC2A 2HS Salt Lake City
UT 84111-2263
Financial Adviser and Corporate Legal Advisers (Guernsey)
Broker
RBS Hoare Govett Limited Carey Olsen
250 Bishopsgate PO Box 98
London, EC2M 4AA Carey House, Les Banques
St Peter Port
Recognised Auditor Guernsey, GY1 4BZ
Deloitte LLP
Regency Court
Glategny Esplanade
St Peter Port
Guernsey, GY1 3HW
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Investor Information (continued)
For the year ended 30 June 2011
Directors
The Directors have been chosen for their investment and
commercial experience and are listed below:
Charles Tracy, Chairman, (aged 65) 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 Board of the
Guernsey Banking Deposit Compensation Scheme. He is a resident of
Guernsey.
Ian Reynolds (aged 68) 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.
John Scott (aged 59) 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.
Saad Zein (aged 44) is currently Managing Director, Head of
Institutional and Corporate Solutions, Americas, of Standard Bank
in New York. Mr Zein was formerly a Senior Managing Director of
Aladdin Capital Management UK LLP. Prior to this, his career was
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 US 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, which is authorised and regulated in the
United Kingdom by the Financial Services Authority, is manager of a
number of closed-ended investment companies with approximately
GBP1.1 billion of such assets under management in a range of
investment companies and investment trusts as at 30 June 2011. The
Manager is responsible for managing the cash and fixed interest
holdings of the Fund, and foreign currency hedging.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Financial Highlights
For the period from 1 July 2010 to 30 June 2011
At 30 At 30
June 2011 June 2010
Shares in
issue 40,000,000 40,000,000
Net assets attributable to shareholders GBP30,870,466 GBP33,049,370
Net asset value per Share 77.2p 82.6p
Share price 52.5p 59.5p
Total deficit on ordinary activities
for the financial year/period per Share (5.45p) (10.04p)
Revenue deficit per
Share (2.77p) (2.28p)
Dividends
The Directors do not propose a dividend for the year ended 30
June 2011 (2010: nil).
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Chairman's Statement
For the year ended 30 June 2011
Introduction
This statement covers the twelve months to 30 June 2011. In
terms of portfolio activity, it has been another quiet period, with
a continuing pattern of slow maturities.
Portfolio developments
A summary of portfolio maturities since inception is given in
the following table:
Period 40 months 12 months 14 months 10 months 12 months
------------- ----------- ----------- ----------- ----------- -----------
Inception 1/7/07 1/7/08 1/9/09 1/7/10
Dates - 30/6/07 - 30/6/08 - 31/8/09 - 30/6/10 - 30/6/11
------------- ----------- ----------- ----------- ----------- -----------
Number of
policies
matured 7 6 7 4 6
------------- ----------- ----------- ----------- ----------- -----------
Value of
policies
matured ($
million) $9.3m $3.9m $14.8m $10.7m $12.9m
------------- ----------- ----------- ----------- ----------- -----------
Premiums
paid ($
million) $18.8m $9.0m $10.5m $7.3m $8.0m
------------- ----------- ----------- ----------- ----------- -----------
During the year to 30 June 2011, 6 policy maturities were
identified, with a total face value of US$12.9 million. This
compares with 4 policies with a face value of US$10.7 million in
the 10 month period to 30 June 2010, and 20 policies with a face
value of US$28.0 million in the period from the Company's launch to
31 August 2009. Although the number of maturities remains
disappointing, policy proceeds continue to exceed cash outflows for
premiums.
The realised gains on maturing policies amounted to
approximately US$3.7 million in the year, or 5.9p per share. This
was a positive influence on portfolio value during the year, more
than outweighed, however, by the effect of updated Life
Expectancies ("LEs"), as discussed below, and by the negative
effects of premium flow, reflected in the Statement of
Comprehensive Income on page 25.
A further two maturities relating to one life assured have been
identified since 30 June 2011, but not yet formally certified, with
a total face value of US$1.9 million.
As at 30 June 2011 there were a total of 129 policies in the
portfolio, with a face value of US$204.7 million and a valuation of
US$80.1 million. There have been no policy acquisitions since
completion of the original policy purchase programme, but premiums
continued to be paid on policies in force, amounting to US$8.0
million during the year.
The principal issues facing the Company, that is to say
valuation, credit risk, gearing and hedging are discussed
below.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Chairman's Statement (continued)
For the year ended 30 June 2011
Valuation
The current Net Asset Value as released to the market is a
Directors' valuation, prepared with the assistance of the
Investment Manager, which uses estimates of life expectancy to
arrive at a table of cash flows, based on actuarial principles,
discounted to present value using a market-based discount rate (or
internal rate of return, IRR). The key factors in the valuation
therefore are: the policy face value and the premiums payable; the
assumed life expectancy of the insured; the actuarial mortality
table; and the discount rate.
The Company has for some time been obtaining updated LE
information on a selection of the policies in the portfolio. Taking
only those policies which have received a new LE assessment since
31 October 2008, currently 62% of the portfolio by face amount is
now covered by an updated LE. Since that date the valuation has
been using updated actuarial tables and updated underwriting
methodology.
In addition, as previously advised, it has been difficult in
recent periods to arrive at a market-based discount rate when
trades being conducted were largely on a distressed seller basis.
For this reason, the valuation has for some time been using an
unchanged discount rate, or IRR, of 12%. Market conditions are
slowly recovering, but IRRs applied by buyers remain above 16%.
In previous reports, the Board has, for these reasons, attempted
to give investors an appreciation of the effects on valuation of
differing assumptions as to both LE and IRR. These tables have
tended to become quite complex, and the Board has been considering
how best to improve them. The new, simplified 'Sensitivity Matrix'
set out below is, in the first place, now expressed in terms of NAV
per share, an easier concept to understand than that previously
used (based on IRR to an assumed maturity date). Secondly, the
tables now enable the Board to show the effect of differing market
IRR assumptions.
- The first line of NAVs in the new table uses the 'Latest LE'
assumption, that is to say either an LE based on a recently updated
assessment or, for the remaining 38% of the portfolio by face value
(the 'non-updated policies'), based on the original LE assessed at
the time of purchase. The average LE (weighted by policy value) is
shown for reference (4.7 years). NAV is then shown at four
different discount rates, ranging from 10% to 20%. This shows the
effect of IRR on current value, but it also allows investors to
assess the effects of forced sales if, for example, the portfolio
was to be liquidated before 31 December 2016.
- The second line uses the assumption that updated LEs obtained
for the non-updated polices would broadly follow those already
obtained for other policies, resulting in an LE increase of 20% on
the non-updated policies. In practice, the LE changes exhibited by
actual revised assessments vary widely and the Board does not feel
it is necessarily correct to extrapolate the changes for the
non-updated policies. The overall effect is to increase average LE
by 0.3 years.
- The third line assumes an increase in LE of 40% on the
non-updated policies. The effect on NAV is roughly proportionate to
that shown in the second line, but the increase in LE is only 0.1
years because of the fact that policies are weighted by value -
such an extension to LE of course has significant impact on the
values of some of these policies.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Chairman's Statement (continued)
For the year ended 30 June 2011
Valuation (continued)
- Finally, the fourth line shows the outcome of assuming LEs are
simply based on the current table of life expectancies for the
general population, the 2008 Valuation Basic Table (Ultimate), i.e.
ignoring LE assessments. The Board does not suggest that this is a
realistic assumption, but it gives a measure of the degree to which
the portfolio is dependent on assessed LEs being shorter than for
the population as a whole.
Sensitivity Matrix
Net Asset Value in pence per share on various assumptions as at
30 June 2011
Weighted
Average
Mortality Assumptions LE* Discount Rates applied to cash flows
---------------------- --------- -------------------------------------------
10% Current (12%) 16% 20%
---------------------- --------- ------- ------------------ ------ ------
Latest LE 4.7 85.8 77.2 63.4 52.3
---------------------- --------- ------- ------------------ ------ ------
+20% for LE
dates before
01/11/2008 5.0 74.7 66.5 53.3 42.8
---------------------- --------- ------- ------------------ ------ ------
+40% for LE
dates before
01/11/2008 5.1 64.9 57.1 44.6 34.8
---------------------- --------- ------- ------------------ ------ ------
No underwriting 5.7 63.1 54.4 41.0 30.3
---------------------- --------- ------- ------------------ ------ ------
* The weighted average LE (in years) is calculated by reference
to the policy values obtained.
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 year end more than 99.4% 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.
Gearing
The Board's intention is to pay down borrowings whenever
possible, and during the year the Company's total borrowings fell
from US$24,048,000 to US$21,093,000. As the Manager's Review
records, discussion is under way with the Company's bankers to
renew the current facility. This has been delayed by additional
credit approval procedures imposed on Allied Irish Banks PLC
("AIB") as a result of the continuing difficulties in the Irish
banking industry. The Board remains confident that renewal will be
achieved, but, looking forward to the maturity of the Company's
foreign exchange contracts, feels that gearing needs to be reduced
in the medium term. For this reason, as already announced, the
Board is looking to dispose of some policies as and when suitable
opportunities arise. Because marketing policies includes the
obtaining of new LEs, the current programme of LE reassessment has
therefore been discontinued.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Chairman's Statement (continued)
For the year ended 30 June 2011
Hedging
As of 30 June 2011 the Company had sold forward US$66 million
net to March 2012, representing a reduction of US$5 million over
the period. Although a little in excess of the Company's current
net dollar position, this is consistent with projected dollar cash
flows. At some time between now and March 2012 the contracts will
have to be closed out and any resulting loss will need to be funded
by increasing bank borrowings in the short term. The outstanding
loss has, fortunately, fallen from GBP9.5 million as at 30 June
2010 to GBP6.5 million as at 30 June 2011, and GBP5.8 million as at
31 August 2011. The recent shareholder resolution approved at the
EGM on 20 September gives the Board greater flexibility in closing
out these contracts. Once closed out, however, it is not intended
to hedge the portfolio value in future against movements in the
dollar/sterling exchange rate.
Outlook
The market for TLIs has shown signs of a return to routine
activity in recent months, with some new investors interested in
the high returns on offer and fewer distressed sellers. Changes in
the US withholding tax regime have, however, reduced their
attraction to direct investors from outside the US. Funds such as
Alternative Asset Opportunities PCC Limited thus represent one of
the few ways in which non-US investors can enter this
marketplace.
CPG Tracy
Chairman
20 September 2011
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Investment Manager's Review
For the year ended 30 June 2011
Portfolio Overview
During the 12 month period from 1 July 2010 to 30 June 2011,
there were six confirmed policy maturities. As at 30 June 2011, 129
policies remained within the Fund's portfolio with exposure to 108
individual lives. Of the six matured policies, five covered male
lives assured and one was female. Proceeds totalled US$12.9m for
the year.
Cumulatively, as at 30 June 2011 there have been 30 policy
maturities across 26 lives since inception. Proceeds received from
all maturities totalled US$51.9m, realising a US$24.9m gain. One
policy has been sold since inception, generating proceeds of
US$550,000.
A further two maturities relating to one life assured have been
identified since 30 June 2011, but not yet formally certified, with
a total face value of US$1.9 million.
Portfolio Summary
Face Value $204.7m
======================================== ============
Male/Female Ratio 61.9%/38.1%
======================================== ============
Total number of Holding Life Companies 30
======================================== ============
Face Weighted Averages:
======================================== ============
Age at purchase 82.2 years
======================================== ============
Valuation Age 88.0 years
======================================== ============
Pricing LE at purchase 7.7 years
======================================== ============
Current LE 5.2 years
======================================== ============
Life Group (Parent Company) Distribution (Top 5)
Ranking by % Total Net Death
Valuation % Parent Company Benefit % Total Valuation
================== ================== ================== ==================
1 AIG Life Group 17.6% 17.9%
================== ================== ================== ==================
Lincoln Financial
2 Group 18.6% 16.3%
================== ================== ================== ==================
3 AEGON USA Group 13.2% 13.5%
================== ================== ================== ==================
MassMutual
4 Financial Group 9.9% 10.0%
================== ================== ================== ==================
Manulife
5 Financial Group 8.2% 8.7%
================== ================== ================== ==================
Credit Quality Distribution by Holding Life Company
AM Best Rating % Total Face Value % Total Value
================ =================== ==============
A++ 13.6% 13.8%
================ =================== ==============
A+ 57.1% 53.3%
================ =================== ==============
A 28.7% 32.4%
================ =================== ==============
A- 0.5% 0.4%
================ =================== ==============
B+ 0.1% 0.1%
================ =================== ==============
Total 100% 100%
================ =================== ==============
Premium Payments
Premium payments remain the largest expense of the Fund.
Assuming no further maturities, the expected cost of premiums for
the twelve months to 30 June 2012 is approximately US$9.2m. SL
Investment Management ("SL") continues the ongoing review of all
policy statements to identify any scope for further optimisation of
the premium payment schedules.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Investment Manager's Review (continued)
For the year ended 30 June 2011
Outlook
The high level of volatility recently witnessed in traditional
capital markets reinforces the benefits of life settlements as an
asset class. With low correlation to the prevailing economic and
political uncertainty, life settlements offer a less volatile
alternative to equities and bonds in the current financial
climate.
Hedge funds and large private equity groups continue to look for
portfolio deals but recently fewer transactions have taken place,
which SL believes indicates that existing holders of policies are
no longer in a forced sale position and can afford to hold out for
better prices. As a result this has created a disconnect between
the expectations of buyers and sellers. Buyers are pricing policies
assuming the seller is distressed, whereas sellers are under less
pressure to sell policies at depressed prices. Therefore SL
believes that market yields will fall (and prices rise) over the
next twelve months as buyer and seller expectations start to
converge.
With an average life insured age of 88 years and good
diversification, the Company holds a high quality portfolio of
policies.
There have been no major revisions by the life expectancy
assessment firms during 2011. The Company has directed the
Investment Manager to investigate the potential sale of a portion
of the portfolio and this will result in the need to update life
expectancy assessments on these policies. Given this need, the
Board has directed SL to cease its rolling programme of updating
life expectancies on the portfolio for the time being.
SL Investment Management Limited
20 September 2011
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Manager's Review
For the year ended 30 June 2011
Borrowings and investments
As at the year end, 30 June 2011, the Company had drawn down
US$20.3 million under the amortising term loan facility with AIB
and US$0.8m under the revolving credit facility. As at 30 June
2011, a further US$2 million was available to the Company under the
revolving credit facility, and this was drawn down in July.
As announced on 29 July 2011, the Company is in discussion with
AIB about renewing the loan agreement to cover the Company's cash
flow requirements up to 30 March 2012. Meanwhile, AIB has switched
the loan to "repayment on demand", and we remain confident that
available cash balances will enable the Company to continue
fulfilling its obligations, including the payment of premiums,
until such time as the agreement is renewed.
Under the loan 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
2011 cover was 3.2 times.
The Company has retained its GBP100,000 holding of UK Treasury
4% 2016.
Currency hedging
The Company currently hedges its US dollar exposure by means of
forward sales of US dollars. As at 30 June 2011 the outstanding
position was the sale of US$78.5 million and the purchase of
US$12.5 million for 30 March 2012.
If the resolution to approve the new investment policy is passed
at the Extraordinary General Meeting on 20 September 2011, the
Company will move to an unhedged position by buying back the
outstanding US dollars. As at 31 August 2011, this will crystallise
the profit or loss (being a loss of GBP5.8m at the current exchange
rate of $1.63), and this will have to be funded on 30 March 2012.
The AIB loan agreement which the Company will require from that
date will need to take this funding into account.
RCM (UK) Limited
20 September 2011
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Directors' Report
For the year ended 30 June 2011
The Directors have pleasure in submitting their Annual Financial
Report for the year ended 30 June 2011 with comparatives for the
period 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 25 shows a
revenue deficit for the year amounting to GBP1,107,727 (2010:
revenue deficit for the period GBP912,972). There was a capital
deficit for the period amounting to GBP1,071,177 (2010: capital
deficit for the period GBP3,102,254). The Directors have not paid
an interim dividend (2010: nil) and do not propose the payment of a
final dividend for the period (2010: nil).
Assets
At the period end the net assets attributable to the Shares were
GBP30,870,466 (2010: GBP33,049,370). Based on this figure the net
asset value of a Share in the Fund was 77.2p (2010: 82.6p).
Share capital
During the period no Shares were issued or were repurchased.
Substantial shareholdings in the Fund
As at the date of this report, the following companies had
declared a notifiable interest in the Company's voting rights:
Percentage
Shares held held
%
Investec Asset Management
Limited 7,574,000 18.93
Allied Irish Banks Plc 4,625,000 11.56
Reliance Mutual Society
Limited 2,400,000 6.00
Rathbone Brothers
Plc 2,096,000 5.24
Premier Fund Managers Limited 2,050,000 5.13
Brewin Dolphin Limited 2,006,025 5.02
Henderson Global Investors 2,000,000 5.00
Midas Capital Plc 1,970,000 4.92
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.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Directors' Report (continued)
For the year ended 30 June 2011
Directors
The Directors serving on the Board during the year, together
with their beneficial interests and those of their families at 30
June 2011, were as follows:
Shares Shares
30 June 2011 30 June 2010
CPG Tracy (Chairman) - -
DIW Reynolds 42,000 42,000
SM Zein - -
JPHS Scott 87,697 -
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.
In accordance with the Articles of Incorporation the Director
retiring by rotation at the Annual General Meeting is Mr DIW
Reynolds.
The Board believes that Mr DIW Reynolds, who has served for
seven years, is committed to his role as a non-executive Director
and that his re-election would be in the interests of the
Company.
Corporate Governance
The UK Corporate Governance Code ("the Code") was published in
May 2010 and applies to accounting periods commencing on or after
29 June 2010. All companies with a Premium Listing of equity
shares, regardless of whether they are incorporated in the UK or
elsewhere (which includes the Company), are required to "comply or
explain" against the Code.
Throughout the year ended 30 June 2011 the Company has been in
compliance with the Code provisions set out in Section 1 of the UK
Corporate Governance Code, except as set out below.
The Code includes provisions relating to:
-- The role of chief executive
-- Executive directors' remuneration
For the reasons set out in the preamble to the Code, the Board
considers these provisions are not relevant to the position of
Alternative Asset Opportunities PCC Limited, being an externally
managed investment company. The Company has therefore not reported
further in respect of these provisions.
Statements of compliance
The Directors believe that the Company has complied with the
provisions of the Code where appropriate except where stated above,
and that it has complied throughout the year with the provisions
where the requirements are of a continuing nature, except that a
Remuneration Committee and a Management Engagement Committee have
not been established, and a Senior Independent Director has not
been appointed given that all Directors are independent of the
Company and key service providers.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Directors' Report (continued)
For the year ended 30 June 2011
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 four non-executive
Directors, all of whom have wide experience and are considered to
be independent. The Board believes that it is in the shareholders'
best interests for the Chairman to be the point of contact for all
matters relating to the governance of the Company and as such has
not appointed a Senior Independent Director for the purpose of the
Code.
The Directors have access to the advice and services of the
Company Secretary, who is responsible to the Board for ensuring
that the Board procedures are followed and that applicable rules
and regulations are complied with.
The 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.
On appointment, the Manager and the Company Secretary provide
all Directors with induction training.
The Board reviewed its performance and composition during the
period, and was satisfied on both counts. In addition, it is
considered that the performance of all Directors continues to be
effective and that they have demonstrated commitment to their
roles.
In order to review the effectiveness of the Board, the
Committees and the individual Directors, the Chairman carried out a
thorough appraisal process in 2011 in respect of the year under
review. The appraisal of the Chairman was carried out by the Board
as a whole under the leadership of DIW Reynolds.
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 believes 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.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Directors' Report (continued)
For the year ended 30 June 2011
The Board (continued)
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 Directors are 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, after seeking
independent advice, makes recommendations on fee levels to the
Board.
Board Committees
The Board has established itself as an Audit Committee, which
has defined terms of reference and duties. This Committee 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 the financial statements. This Committee is
responsible for the review of the annual financial statements and
half-yearly Financial Report, terms of appointment of the auditors
together with their remuneration, as well as the non-audit services
provided by the auditors. It also meets with representatives of the
Manager and Administrator and receives reports on the effectiveness
of the Company's internal controls. Following a recommendation from
the Audit Committee, the Board has concluded that there is no
current need for the Company to have an internal audit function;
all of the Company's management functions are delegated to the
Manager, Administrator or Investment Manager, all of whom have
their own compliance departments. The Chairman of the Audit
Committee is DIW Reynolds.
The Audit Committee also reviews any non-audit services provided
by the auditor. Such services have been, and are, limited to the
provision of advice on tax compliance. This year non-audit fees
amounted to GBP10,000 (2010: GBP5,000) compared with audit fees of
GBP23,100 (2010: GBP20,000). Non-audit services are pre-approved by
the Audit Committee after they are satisfied that relevant
safeguards are in place to protect Auditor objectivity and
independence. As such, the Audit Committee is satisfied that the
provision of such advice does not in any way prejudice the
objectivity and independence of the auditor.
The Audit Committee reviews cost-effectiveness and quality of
the external audit on an annual basis and opens the role of Auditor
to tender when appropriate. During the course of the external
audit, the Audit Committee discusses with the Auditor any findings
or issues that may arise, without the presence of the Manager or
Investment Manager, if required.
The Board carries out the functions of a Nominations Committee
and makes recommendations on the appointment of new Directors. The
Committee meets at least annually to ensure that the Board has a
balance of skills to carry out its fiduciary duties and to select
and appoint suitable candidates for appointment when necessary. A
variety of sources, including the use of external search
consultants, may be used to ensure that a wide range of candidates
is considered. The Board has decided not to establish Remuneration
and Management Engagement Committees 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.
The terms of reference for the Audit Committee are available for
inspection on the Company's website,
www.rcm.com/investmenttrusts/investors_tlif.php or available on
request from the Company Secretary.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Directors' Report (continued)
For the year ended 30 June 2011
The Board (continued)
The emoluments of the Directors for the year/period were as
follows:
1
1 July September
2010 to 30 2009 to 30
June 2011 June 2010
GBP GBP
CPG Tracy (Chairman) 20,000 16,644
DIW Reynolds 17,500 14,563
SM Zein 15,000 12,483
JPHS Scott 15,000 10,404
67,500 54,094
=========== ===========
The figures above represent emoluments earned as Directors
during the relevant financial year/period. The Directors receive no
other remuneration or benefits from the Company other than the fees
stated above.
In the year to 30 June 2011 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. Per note 6 to the financial statements
the Directors' fees and expenses of GBP75,945 (2010: GBP56,411)
included allowable expenditure of GBP2,188 (2010: GBP2,317) and
employers national insurance.
The number of formal meetings of the Board and the Audit
Committee held during the financial year and the attendance of
individual directors and members of the Audit Committee are shown
below:
Board Audit Committee
-------------------- ------ ----------------
No. of meetings in
the year 4 2
-------------------- ------ ----------------
CPG Tracy 4 2
-------------------- ------ ----------------
DIW Reynolds 4 2
-------------------- ------ ----------------
JPHS Scott 4 2
-------------------- ------ ----------------
SM Zein 4 2
-------------------- ------ ----------------
Relations with shareholders
The Board regularly monitors the shareholder profile of the
Company. It aims to provide shareholders with a full understanding
of the Company's activities and performance, and reports formally
to shareholders twice a year by way of the Annual Financial Report
and the half yearly Financial Report. This is supplemented by the
monthly publication, through the London Stock Exchange, of the net
asset value of the Company's shares and the publication twice
yearly of Interim Management Statements.
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.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Directors' Report (continued)
For the year ended 30 June 2011
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 AIB fell to circa US$21.1
million as at 30 June 2011 from circa US$24.0 million as at 30 June
2010. At this level the margin of cover required under the
agreement was comfortably met.
On 29 July 2011 the Company's loan agreement with AIB was
switched to "repayment on demand", pending ongoing negotiations to
cover the Company's cash flow requirements up to March 2012. As at
the date of this report, AIB had signed off the renewal of the loan
agreement and the only remaining approval required was from the
Central Bank of Ireland.
Furthermore the Company's intends renegotiating any borrowing
facilities it may secure ahead of the proposed maturity on 30 March
2012. As described in note 10 (c), the unrealised loss on the
Company's forward currency contracts, which stood at GBP6.5m as at
30 June 2011, will need to be funded on 30 March 2012 as the
contracts mature on this date.
The Board has considered the position should AIB not renew the
agreement. 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 Company 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
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 and 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.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Directors' Report (continued)
For the year ended 30 June 2011
Accountability and audit (continued)
c) Internal control (continued)
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 auditor is considered
independent.
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.
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 20 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 Fund'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.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Directors' Report (continued)
For the year ended 30 June 2011
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 Fund'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 a Foreign Exchange Agreement with
Allied Irish Banks plc (see note 20). The Company's policy
historically has been to hedge its US dollar assets, but, as a
result of the special resolution passed at an Extraordinary General
Meeting on 20 September 2011, this policy will no longer be in
operation and current foreign currency contracts will be closed
out.
Auditor
A resolution to re-appoint Deloitte LLP as auditor 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
20 September 2011
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Directors' Responsibilities Statement
For the year ended 30 June 2011
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have elected to prepare the financial statements in accordance with
International Financial Reporting Standards (IFRSs). Under company
law the Directors must not approve the accounts unless they are
satisfied that they give a true and fair view of the state of
affairs of the Company and of the profit or loss of the Company for
that period. In preparing these financial statements, International
Accounting Standard 1 requires that Directors:
-- properly select and apply accounting policies;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the entity's financial position and financial
performance; and
-- make an assessment of the company's ability to continue as a
going concern.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the company's
transactions and disclose with reasonable accuracy at any time the
financial position of the company and enable them to ensure that
the financial statements comply with the Companies (Guernsey) Law,
2008. They are also responsible for safeguarding the assets of the
company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
company's website. Legislation in Guernsey and the United Kingdom
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Responsibility statement
We confirm that to the best of our knowledge 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.
By order of the Board.
CPG Tracy DIW Reynolds
Director Director
20 September 2011
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Independent Auditor's Report to the Members of Alternative Asset
Opportunities PCC Limited
For the year ended 30 June 2011
We have audited the financial statements of Alternative Asset
Opportunities PCC Limited for the year to 30 June 2011 which
comprise the Statement of Comprehensive Income, the Statement of
Financial Position, the Statement of Changes in Redeemable
Participating Preference Shareholders' Funds, the Statement of Cash
Flows, the Portfolio Statement and the related notes 1 to 22. The
financial reporting framework that has been applied in their
preparation is applicable law and International Financial Reporting
Standards ("IFRSs").
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 explained more fully in the Directors' Responsibilities
Statement, the Directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true
and fair view. Our responsibility is to audit and express an
opinion on the financial statements in accordance with applicable
law and International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board's
Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies are
appropriate to the Company's circumstances and have been
consistently applied and adequately disclosed; the reasonableness
of significant accounting estimates made by the Directors; and the
overall presentation of the financial statements. In addition, we
read all the financial and non-financial information in the annual
report to identify material inconsistencies with the audited
financial statements. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications for
our report.
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.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Independent Auditor's Report to the Members of Alternative Asset
Opportunities PCC Limited (continued)
For the year ended 30 June 2011
Opinion on financial statements
In our opinion the financial statements:
-- give a true and fair view of the state of the Company's
affairs as at 30 June 2011 and of its deficit for the year then
ended;
-- have been properly prepared in accordance with IFRSs; and
-- have been prepared in accordance with the requirements of the
Companies (Guernsey) Law, 2008.
Emphasis of matter
In forming our opinion on the financial statements, which is not
modified, we have considered the adequacy of the disclosure in;
-- note 2 (b) of the financial statements, which concerns the
Company's actuarial valuation model applied in determining the fair
value of its Traded Life Interests ("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 life
expectancies and discount rates. By their nature, assumptions over
life expectancies are uncertain and due to the low levels of
trading in TLIs there is also uncertainty over the estimation of
market based discount rates. For these reasons note 2 (b) to the
financial statements highlights that these valuation are materially
higher than the expected realisable value of these investments in a
short term sale.
-- note 2 (c) of the financial statements, which concerns the
Company's renegotiation of its borrowing facilities that matured on
29 July 2011 and which are now repayable on demand. Whilst the
Board are confident that the loan will be extended to 30 March 2012
to allow sufficient funding to meet ongoing premium commitments
arising from the TLI portfolio, there is no certainty that the
extension will be approved before October 2011, at which point the
Company would need to realise a proportion of their TLI portfolio
to continue as a going concern. The expected proceeds receivable in
such a situation are materially lower than the carrying value in
the financial statements. The financial statements have not made
any adjustment to the valuation of the TLI portfolio that would be
required under this future scenario as no decision to sell the
portfolio has been made.
-- note 2 (c) of the financial statements, which concerns the
Company's intention to renegotiate any borrowing facilities it may
secure ahead of the proposed maturity on 30 March 2012.
Additionally, as described in note 10 (c), the unrealised loss on
the Company's forward currency contracts, which stood at GBP6.5m as
at 30 June 2011, will need to be funded on 30 March 2012 as the
contracts mature on this date. The Directors are confident that
sales of TLIs could fund the settlement of these forward currency
contracts and/or any loan repayment that might materialise should
the future loan renegotiation prove to be unsuccessful. For these
reasons note 2 (b) to the financial statements highlights that the
valuation of the TLI portfolio is materially higher than the
expected realisable value of these investments in a short term
sale.
Whilst it is not possible to quantify the effects of these
uncertainties on the financial statements, the Chairman's Statement
on page 8 discloses a sensitivity analysis in respect of both the
life expectancies and discount rate assumptions which quantifies
the affect on the Company's net asset value per share for the
selected range of scenarios. In this respect, the higher IRR
scenarios are likely to better represent the realisable value of
investments in a short term sale.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Independent Auditor's Report to the Members of Alternative Asset
Opportunities PCC Limited (continued)
For the year ended 30 June 2011
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies (Guernsey) Law, 2008 we are required to
report to you if, in our opinion:
-- adequate accounting records have not been kept; or
-- the financial statements are not in agreement with the
accounting records and returns; or
-- we have not received all the information and explanations we
require for our audit.
Under the Listing Rules we are required to review:
-- the part of the Corporate Governance Statement relating to
the Company's compliance with the nine provisions of the UK
Corporate Governance Code specified for our review.
Richard Anthony Garrard, FCA
for and on behalf of Deloitte LLP
Chartered Accountants and Recognised Auditor
St. Peter Port
Guernsey
20 September 2011
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Statement of Comprehensive Income
For the year ended 30 June 2011
Period from 1 September
2009
Notes Year to 30 June 2011 to 30 June 2010
Revenue Capital Total Revenue Capital Total
GBP GBP GBP GBP GBP GBP
Operating
income
Net
(losses)/gains
on investments 10 - (4,999,872) (4,999,872) - 1,644,708 1,644,708
Foreign exchange
gains/(losses) 17 - 3,928,695 3,928,695 - (4,746,962) (4,746,962)
Interest and
similar income 4 4,300 - 4,300 3,454 - 3,454
------------ ------------ ------------ ---------- ------------ ------------
Total income 4,300 (1,071,177) (1,066,877) 3,454 (3,102,254) (3,098,800)
Operating
expenses
Management
fee 5 (136,400) - (136,400) (70,607) - (70,607)
Investment
manager's fee 5 (155,097) - (155,097) (141,863) - (141,863)
Custodian fee (22,178) - (22,178) (13,044) - (13,044)
Other expenses 6 (405,284) - (405,284) (332,737) - (332,737)
Total operating
expenses before
finance costs (718,959) - (718,959) (558,251) - (558,251)
Operating loss
before finance
costs (714,659) (1,071,177) (1,785,836) (554,797) (3,102,254) (3,657,051)
Finance costs
Loan interest
payable 14 (393,068) - (393,068) (358,175) - (358,175)
Net deficit (1,107,727) (1,071,177) (2,178,904) (912,972) (3,102,254) (4,015,226)
============ ============ ============ ========== ============ ============
Deficit per
redeemable
share 8 (2.77p) (2.68p) (5.45p) (2.28p) (7.76p) (10.04p)
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 30 to 49 are an integral part of these
financial statements.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Statement of Financial Position
As at 30 June 2011
Notes 2011 2010
GBP GBP
Non-current assets
Financial assets at fair value through
profit or loss 10 50,027,517 58,127,458
Current assets
Cash and cash equivalents 12 692,721 669,700
Other receivables 11 21,844 18,462
714,565 688,162
----------- -----------
Total assets 50,742,082 58,815,620
----------- -----------
Current liabilities
Loan facility 14 13,139,390 16,090,774
Other payables 13 228,630 164,395
Fair value of forward currency contracts 10 6,503,596 -
----------- -----------
19,871,616 16,255,169
----------- -----------
Non-current liabilities
Fair value of forward currency contracts 10 - 9,511,081
Total liabilities 19,871,616 25,766,250
----------- -----------
Net assets attributable to shareholders 17 30,870,466 33,049,370
Total equity and liabilities (including
amounts due to shareholders) 50,742,082 58,815,620
=========== ===========
Net asset value per share 9 77.2p 82.6p
These financial statements were approved by the Board of
Directors on 20 September 2011.
Signed on behalf of the Board.
CPG Tracy DIW Reynolds
Director Director
20 September 2011
The notes on pages 30 to 49 are an integral part of these
financial statements.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Statement of Changes in Redeemable Participating Preference
Shareholders' Funds
For the year ended 30 June 2011
For the year ended Share Capital Revenue
30 June 2011 Premium reserve reserve Total
GBP GBP GBP GBP
Balance as at 1 July
2010 39,168,236 (713,361) (5,405,505) 33,049,370
Deficit for the year - (1,071,177) (1,107,727) (2,178,904)
Balance as at 30
June 2011 39,168,236 (1,784,538) (6,513,232) 30,870,466
=========== ============ ============ ============
For the period from
1 September 2009 to Share Capital Revenue
30 June 2010 Premium reserve reserve Total
GBP GBP GBP GBP
Balance as at 1
September 2009 39,168,236 2,388,893 (4,492,533) 37,064,596
Deficit for the
period - (3,102,254) (912,972) (4,015,226)
Balance as at 30
June 2010 39,168,236 (713,361) (5,405,505) 33,049,370
=========== ============ ============ ============
The notes on pages 30 to 49 are an integral part of these
financial statements.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Statement of Cash Flows
For the year ended 30 June 2011
Period from
1 September
2009
Year to to 30 June
30 June 2011 2010
GBP GBP
Cash flows from operating activities
Revenue account operating loss before
finance costs for the year/period (714,659) (554,797)
(Increase)/ Decrease in other receivables (3,382) 4,602,597
Increase /(Decrease) in other
payables 64,235 (271,003)
Premiums
paid (5,213,977) (4,707,868)
Purchase of investments - (105,430)
Proceeds from maturity of investments 8,314,046 6,583,722
Net cash from operating activities
before interest 2,446,263 5,547,221
-------------- -------------
Cash flows from financing
activities
Net repayment of borrowings (2,951,384) (4,466,697)
Interest
Paid (393,068) (358,175)
Net cash used in financing activities (3,344,452) (4,824,872)
-------------- -------------
Net (decrease)/increase in cash
and cash equivalents (898,189) 722,349
Cash and cash equivalents at the
beginning of the year/period 669,700 903,849
Effects of foreign exchange 921,210 (956,498)
Cash and cash equivalents at the
end of the year/period 692,721 669,700
============== =============
The notes on pages 30 to 49 are an integral part of these
financial statements.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Portfolio of Investments
As at 30 June 2011
Number Portion
of of A.M. Best
Traded Life Interests ("TLI's") Policies Valuation Portfolio Rating
GBP %
Issuer
American General Life Insurance
Company 13 8,939,204 17.9 A
Lincoln National Life Insurance
Company 17 7,285,328 14.6 A+
Transamerica Life Insurance
Company 21 6,731,694 13.5 A+
Massachusetts Mutual Life Insurance
Company 10 4,977,704 10.0 A++
John Hancock Life Insurance
Company 11 4,320,108 8.6 A+
Aviva Life and Annuity Company 5 2,419,649 4.8 A
MetLife Insurance Company of
Connecticut 8 2,300,047 4.6 A+
New York Life Insurance and
Annuity Corp 6 1,917,113 3.8 A++
Security Life of Denver Insurance
Company 1 1,732,453 3.5 A
National Western Life Insurance
Company 1 1,273,447 2.6 A
Pacific Life Insurance Company 4 1,007,367 2.0 A+
MONY Life Insurance Company
of America 2 952,891 1.9 A+
Lincoln Life & Annuity Company
of NY 2 869,625 1.7 A+
AXA Equitable Life Insurance
Company 4 866,841 1.7 A+
Genworth Life Insurance Company 1 756,214 1.5 A
Columbus Life Insurance Company 2 601,255 1.2 A+
Lincoln Benefit Life Company 1 411,356 0.8 A+
Aviva Life and Annuity Company
of NY 2 408,365 0.8 A
North American Company for
L & H Insurance 2 404,093 0.8 A+
United of Omaha Life Insurance
Company 2 289,629 0.6 A+
Sun Life Assurance Company
of CA 2 259,399 0.5 A+
Banner Life Insurance Company 2 233,746 0.5 A+
ReliaStar Life Insurance Company 2 209,842 0.4 A
ING Life Insurance and Annuity
Company 2 204,025 0.4 A
Security Mutual Life Insurance
Company of NY 1 152,135 0.3 A-
Standard Insurance Company 1 144,247 0.3 A
Reassure America Life Insurance
Company 1 80,057 0.2 A
General American Life Insurance
Company 1 70,827 0.1 A+
Phoenix Life Insurance Company 1 61,987 0.1 B+
Beneficial Life Insurance Company 1 38,124 0.1 A-
129 49,918,772 99.8%
--------- ----------- ----------
Portion
of
Nominal Valuation Portfolio
GBP %
UK Treasury 4% 7 September
2016 100,000 108,745 0.2%
108,745 0.2%
----------- ----------
Portfolio Total 50,027,517 100.0%
=========== ==========
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the financial statements
For the year ended 30 June 2011
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 US Traded Life Interests
("TLIs").
2 Principal Accounting Policies
(a) Basis of preparation
Statement of compliance
The financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRSs) issued by the
International Accounting Standards Board (IASB) and with the
Statement of Recommended Practice 'Financial Statements of
Investment Trust Companies and Venture Capital Trusts' (SORP)
issued in January 2009 by the Association of Investment
Companies.
Basis of measurement
The financial statements have been prepared under the historical
cost convention as modified by the revaluation of investments and
derivatives, as detailed above.
The financial statements have been prepared on a total company
basis and not on a cell- by-cell basis as there is currently only
one cell. The only non-cellular assets and liabilities are in
respect of the two management shares of no par value issued at GBP1
each fully paid represented by cash at bank. As they are immaterial
they have been excluded from the financial statements.
Functional and Presentational Currency
The financial information shown in the financial statements is
shown in sterling, being the Company's functional and
presentational currency.
Critical accounting judgements and key sources of estimation
uncertainty
The preparation of Financial Statements in conformity with IFRS
requires management to make judgements, estimates and assumptions
that affect the application of policies and the reported amounts of
assets and liabilities, income and expenses. The estimates and
associated assumptions are based on historical experience and
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making
judgements about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may
differ from these estimates The estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the year in which the
estimate is revised if the revision affects only that year, or in
the year of the revision and future years if the revision affects
both current and future years. 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.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the financial statements (continued)
For the year ended 30 June 2011
2 Principal Accounting Policies (continued)
(a) Basis of preparation (continued)
Adoption of new and revised standards
In the current year, the Company has not adopted any new or
revised standards.
At the date of authorisation of these financial statements, the
following standards and interpretations which have not been applied
in these financial statements were in issue but not yet
effective.
IFRS 9 "Financial Instruments"
IFRS 10 "Consolidated Financial Statements"
IFRS 11 "Joint Arrangements"
IFRS 12 "Disclosure of Interests in Other Entities"
IFRS 13 "Fair Value Measurement"
IAS 24 (amended) "Related Party Disclosure"
IAS 27 (amended) "Separate Financial Statements"
IAS 28 "Investments in Associates and Joint Ventures"
IAS 32 (amended) "Classification of Rights Issue"
IFRIC 19 "Extinguishing Financial Liabilities with Equity
Instruments"
IFRIC 14 (amended) "Prepayments of a Minimum Funding
Requirement"
The Directors do not expect that the adoption of the other
standards listed above will have a material impact on the financial
statements of the Company in the future periods.
(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 little published
information on 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.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the financial statements (continued)
For the year ended 30 June 2011
2 Principal Accounting Policies (continued)
(b) Valuation of Investments (continued)
The value of a TLI policy is the present value of its net
expected future cash flows. The calculation uses the following data
and assumptions provided by 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 a market based discount rate derived by the
Investment Manager.
There is inherent uncertainty within this basis of valuation and
this valuation will 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 clean bid market price
available for the stock at each valuation date. Accrued interest is
included within sundry debtors.
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 AIB fell to circa US$21.1
million as at 30 June 2011 from circa US$24.0 million as at 30 June
2010. At this level the margin of cover required under the
agreement was comfortably met.
On 29 July 2011 the Company's loan agreement with AIB was
switched to "repayment on demand", pending ongoing negotiations to
cover the Company's cash flow requirements up to March 2012. As at
the date of this report, AIB had signed off the renewal of the loan
agreement and the only remaining approval required was from the
Central Bank of Ireland.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the financial statements (continued)
For the year ended 30 June 2011
2 Principal Accounting Policies (continued)
(c) Going concern (continued)
Furthermore the Company's intends renegotiating any borrowing
facilities it may secure ahead of the proposed maturity on 30 March
2012. As described in note 10 (c), the unrealised loss on the
Company's forward currency contracts, which stood at GBP6.5m as at
30 June 2011, will need to be funded on 30 March 2012 as the
contracts mature on this date.
The Board has considered the position should AIB not renew the
agreement. 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 Company would remain a going concern.
(d) Interest income
Bank deposit interest is accounted for on an accruals basis.
(e) Expenses
Expenses are accounted for on an accruals basis and all amounts
have been allocated to the Statement of Comprehensive Income -
revenue account.
(f) Foreign exchange
Foreign currency monetary assets and liabilities are translated
into sterling at the rate of exchange ruling at the reporting date.
Transactions in foreign currencies are translated into sterling at
the rate ruling at the date of the transaction. Realised and
unrealised foreign exchange gains and losses are recognised in the
Statement of Comprehensive Income and in the capital reserve -
realised, and capital reserve - unrealised respectively.
(g) 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 by discounting the expected future cash flows calculated
by using the year end forward 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.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the financial statements (continued)
For the year ended 30 June 2011
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. The Investment Manager is required
to act under the terms of the prospectus which cannot be radically
changed without the approval of the Board and the shareholders.
The key measure of performance used by the Board to assess the
Company's performance and to allocate resources is the total return
of the Company's net asset value, as calculated under IFRS, and
therefore no reconciliation is required between the measure of
profit or loss used by the Board and that contained in the
financial statements.
4 Interest and similar income
Period from
1 September
2009 to
Year to 30 June
30 June 2011 2010
GBP GBP
Bank deposit
interest 300 326
Bond interest 4,000 3,128
Total income 4,300 3,454
============== =============
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.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the financial statements (continued)
For the year ended 30 June 2011
5 Investment management and management fees (continued)
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.
6 Other expenses
Period from
1 September
Year to 2009 to 30
30 June 2011 June 2010
GBP GBP
Administration and accountancy
fees 52,151 46,938
Secretarial fees 28,164 16,603
Broker fees 48,050 28,658
Directors' fees, national
insurance and expenses 75,945 56,411
D&O Insurance 10,794 8,492
Auditors' remuneration 32,716 29,895
Legal and professional
fees 10,200 27,276
Printing 1,869 6,626
Safe custody
fees 23,170 12,443
Bank fees and
charges 42,783 45,162
Registrar fees 11,862 13,065
Sundry expenses
* 67,579 41,168
405,283 332,737
============== =============
* Sundry expenses include mailing services, life tracking
services, life expectancy analysis fees, tax exempt 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 which is included in
sundry expenses.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the financial statements (continued)
For the year ended 30 June 2011
7 Taxation (continued)
The Company adopted UK tax residency from 1 September 2009
onwards. Since that date the Company has been managed in such a way
as to meet the conditions for approval as an investment trust under
Section 1158 of the Corporation Tax Act 2010. Accordingly, no UK
tax has been provided for. The Company was approved by HM Revenue
& Customs as an investment trust in accordance with Section
1158 of the Corporation Tax Act 2010 for the period from 1
September 2009 to 30 June 2010. The Company will continue to seek
approval under Section 1158 of the Corporation Tax Act 2010 each
year.
8 Return per share
Revenue deficit per Share is based on the net deficit
attributable to the Shares of GBP1,107,727 (2010: deficit 912,972)
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 GBP1,071,177 (2010: return GBP3,102,254) 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 GBP30,870,466 (2010:
GBP33,049,370) and on the 40,000,000 Shares in issue at the period
end.
10 Investments
Period from
1 September
(a) Investments at fair value through Year to 30 2009 to 30
profit or loss June 2011 June 2010
GBP GBP
Movements in the period:
Opening valuation 58,127,458 58,253,174
Premiums
paid 5,213,977 4,707,868
Purchase of investments - 105,430
Proceeds from the maturities of investments (8,314,046) (6,583,722)
Realised gain on
maturities 2,381,422 3,601,232
Movement in unrealised depreciation
on revaluation of investments (7,381,294) (1,956,524)
Closing valuation 50,027,517 58,127,458
------------ ------------
Comprising:
Closing book cost 57,826,738 58,545,385
Closing unrealised loss (7,799,221) (417,927)
Closing valuation 50,027,517 58,127,458
============ ============
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the financial statements (continued)
For the year ended 30 June 2011
10 Investments (continued)
Period from
1 September
(b) Net (loss)/gain on investments Year 2009 to
held at fair value through profit to 30 June
or loss 30 June 2011 2010
GBP GBP
Realised gain on maturities 2,381,422 3,601,232
Movement in unrealised depreciation
on revaluation of investments (7,381,294) (1,956,524)
(4,999,872) 1,644,708
-------------- -------------
(c) Derivative financial
instruments
Forward currency
contracts
As at 30 June 2011
Average Contract Contract
exchange amount amount Fair value
Outstanding contracts rate USD GBP GBP
Buy GBP 1.8229 78,500,000 43,063,246 (5,964,638)
Sell GBP 1.4967 (12,500,000) (8,351,526) (538,958)
66,000,000 34,711,720 (6,503,596)
------------- ------------ ------------
As at 30 June 2010
Average Contract Contract
exchange amount amount Fair value
Outstanding contracts rate USD GBP 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)
------------- ------------ ------------
The Company currently 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 currency contracts
for the sale of US$78.5 million against sterling maturing 30 March
2012 and two contracts for the purchase of US$12.5 million against
sterling maturing 30 March 2012.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the financial statements (continued)
For the year ended 30 June 2011
11 Other receivables
30 June 2011 30 June 2010
GBP GBP
Sundry debtors 21,844 18,462
21,844 18,462
============= =============
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 2011 30 June 2010
GBP GBP
Accrued expenses 228,630 164,395
228,630 164,395
============= =============
14 Loan facility
As at 30 June 2011 the Company had a US$23,156,000 (2010:
US$23,156,000) term loan, and a revolving credit facility of
c.US$6.0 million (2010: c. US$6.9 million) with AIB. Interest is
payable at LIBOR plus 2.5% on the term loan and the revolving
credit facility. As at 30 June 2011 a total of US$21,092,662
(GBP13,139,390) had been drawn down (2010: US$24,047,662
(GBP16,090,774)). The loan agreement with AIB expired on 29 July
2011 and was switched to "repayment on demand", allowing the
Company to continue fulfilling its obligations, including the
payment of premiums. It is expected to be replaced by a new
facility in October 2011.
Under the loan 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.
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.
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.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the financial statements (continued)
For the year ended 30 June 2011
15 Share capital and share premium (continued)
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. 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 minimum price which may be paid for a Share pursuant to such
authority is one penny 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 expire at the Annual
General Meeting of the Company in 2012 unless such authority is
varied, revoked or renewed prior to such date by a special
resolution of the Company in general meeting.
The Company will be seeking to renew this authority at the
forthcoming Annual General Meeting.
During the period under review no Shares were bought back for
cancellation (2010: nil).
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the financial statements (continued)
For the year ended 30 June 2011
17 Net assets attributable to shareholders
Capital Reserve
Share Revenue
Premium Realised Unrealised Reserves Total
2011 2011 2011 2011 2011
GBP GBP GBP GBP GBP
Balance at 1
July 2010 39,168,236 11,930,497 (12,643,858) (5,405,505) 33,049,370
Realised gain
on
maturities - 2,381,422 - - 2,381,422
Movement in
unrealised
depreciation
on
investments - - (7,381,294) - (7,381,294)
Movement in
unrealised
currency loss
on forward
foreign
currency
contracts - - 3,007,485 - 3,007,485
Movement in
unrealised
currency
losses - - 921,210 - 921,210
Revenue loss
for the year - - - (1,107,727) (1,107,727)
Balance at 30
June 2011 39,168,236 14,311,919 (16,096,457) (6,513,232) 30,870,466
=========== =========== ============= ============ ============
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
=========== =========== ============= ============ ============
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the financial statements (continued)
For the year ended 30 June 2011
18 Related party transactions
Fees earned by the Directors of the Company during the year were
GBP73,757 of which GBP6,441 was outstanding at the year end (2010:
GBP54,094 of which GBP2,714 was outstanding at the period end).
Allowable expenses claimed by the Directors in the course of their
duties amounted to GBP2,188 for the year ended 30 June 2011. Fees
earned by the Investment Manager, Manager and Administrator are
discussed in note 5.
19 Categories of financial assets and financial liabilities
The following table analyses the carrying amounts of the
financial assets and liabilities by category as defined in IAS
39.
30 June 2011 30 June 2010
GBP GBP
Financial assets
Cash and cash equivalents 692,721 669,700
Fair value through profit or
loss:
TLI Policies 49,918,772 58,019,086
Government Bonds 108,745 108,372
------------- -------------
50,027,517 58,127,158
Loans and receivables at amortised
cost 21,844 18,462
50,742,082 58,815,620
------------- -------------
Financial liabilities
Fair value through profit or
loss:
Derivatives (6,503,596) (9,511,081)
Loans and payables at amortised
cost (13,368,020) (16,255,169)
------------- -------------
(19,871,616) (25,766,250)
------------- -------------
30,870,466 33,049,370
============= =============
20 Financial risk management objectives and policies
The main risks to which the Company is exposed are market and
longevity risk, currency risk, interest rate risk, liquidity risk
and credit risk.
Fair value measurements
The Company classifies financial instruments using the following
fair value hierarchy that reflects the significance of the inputs
used in making the measurements. The hierarchy gives the highest
priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1 measurements) and the
lowest priority to unobservable inputs (Level 3 measurements). The
three levels of the fair value hierarchy under IFRS 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
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the financial statements (continued)
For the year ended 30 June 2011
20 Financial risk management objectives and policies
(continued)
Fair value measurements (continued)
-- 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
2011.
Percentage Percentage
30 June of net 30 June of net
2011 assets 2010 assets
GBP % GBP %
Level 1 fair value
assets 108,745 0.35 108,372 0.33
Level 2 fair value
liabilities (6,503,596) (21.07) (9,511,081) (28.79)
Level 3 fair value
assets 49,918,772 161.70 58,019,086 175.64
------------ ----------- ------------ -----------
43,523,921 140.98 48,616,377 147.18
============ =========== ============ ===========
The Company holds one investment, being the UK Treasury Stock,
which is quoted in an active market and which is therefore
categorised as level 1 of the IFRS fair value hierarchy.
The forward currency 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 the valuation model
detailed in note 2(b) used by the Investment Manager to determine
the fair value of the policies held, and therefore these
investments are categorised as level 3 of the IFRS fair value
hierarchy.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the financial statements (continued)
For the year ended 30 June 2011
20 Financial risk management objectives and policies
(continued)
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 2011 net assets
attributable to the holders of Shares were GBP30,870,466 (2010:
GBP33,049,370).
As at 30 June 2011, the Company had borrowed circa US$21.0
million from AIB. 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 2011, the current portfolio comprised 129 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 US credit rating agency
which provides the most comprehensive coverage of the US 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 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.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the financial statements (continued)
For the year ended 30 June 2011
20 Financial risk management objectives and policies
(continued)
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 market for TLIs is currently thin and the previous practice
of using the results of the Manager's own successful bids to obtain
information on market IRRs has, as result, been temporarily
replaced with the use of a fixed IRR of 12%. Most recent trades in
the market have been carried out by distressed sellers and the
Board, after discussion with the Investment Manager, does not feel
that the IRRs obtained are truly representative of willing
buyer/willing seller pricing. The Board is aware that there are
indications that IRRs significantly higher than 12% have been
evident, but does not feel that these IRRs are necessarily
appropriate for the pricing of investments held for the long term.
It is keeping this matter under active review and will resume
pricing based on actual trades as soon as possible. Meanwhile, the
notes below and the further information available in the Chairman's
report give an indication of the effects on valuation of differing
IRR assumptions.
At 30 June 2011, should each individual IRR used increase by 4
per cent with all other variables remaining constant, the decrease
in net assets attributable to shareholders for the period would
amount to GBP5,558,807 (2010: decrease of GBP5,859,574).
At 30 June 2011, should each individual IRR used decrease by 4
per cent with all other variables remaining constant, the increase
in net assets attributable to shareholders for the period would
amount to GBP7,184,566 (2010: increase of GBP7,463,159).
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.
At 30 June 2011, 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 GBP11,158,605 (2010: decrease of
GBP13,002,287).
At 30 June 2011, should the remaining life expectancy of the
lives 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 GBP12,458,678 (2010:
increase of GBP14,304,642).
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the financial statements (continued)
For the year ended 30 June 2011
20 Financial risk management objectives and policies
(continued)
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 currently hedges this exposure through the sale of US
dollars into sterling. The Company has forward sold US$78.5 million
and forward purchased US$12.5 million which means that at the
current valuation, the Company's net short exposure to US dollars
is GBP6.5 million.
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 2011 30 June 2010
GBP GBP
U.S. Dollar 37,431,365 42,443,971
Less:
Effect of forward currency
contracts (41,215,317) (47,452,976)
(3,783,952) (5,009,005)
============= =============
At 30 June 2011, had the 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 GBP180,188 (2010: GBP241,122). A decrease of 5% would
amount to a decrease in net assets attributable to shareholders of
approximately GBP199,155 (2009: GBP253,178).
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 changes in interest rates is primarily linked to the cost of the
variable rate loan facility from AIB.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the financial statements (continued)
For the year ended 30 June 2011
20 Financial risk management objectives and policies
(continued)
Interest rate risk (continued)
The following table details the Company's exposure to interest
rate risk at 30 June 2011 and 30 June 2010 from its interest
bearing financial instruments:
Financial Fixed
assets/(liabilities) rate Floating rate
on which no interest financial financial
is paid assets assets/(liabilities) Total
2011 2011 2011 2011
GBP GBP GBP GBP
Sterling (6,503,596) 108,745 40,735 (6,354,116)
US
Dollars 49,918,772 - (12,487,404) 37,431,368
--------------------- ---------- --------------------- ------------
43,415,176 108,745 (12,446,669) 31,077,252
===================== ========== ===================== ============
Financial Fixed
assets/(liabilities) rate Floating rate
on which no interest financial financial
is paid assets assets/(liabilities) Total
2010 2010 2010 2010
GBP GBP GBP GBP
Sterling (9,511,081) 108,372 141,313 (9,261,396)
US
Dollars 58,019,086 - (15,562,387) 42,456,699
--------------------- ---------- --------------------- ------------
48,508,005 108,372 (15,421,074) 33,195,303
===================== ========== ===================== ============
The above analysis excludes short term other receivables and
other payables as the material amounts are non-interest
bearing.
No sensitivity analysis has been provided as interested rate
risk is not considered material to the Company.
Liquidity risk
Liquidity risk is the risk that the Company will encounter
difficulty in meeting obligations associated with its financial
liabilities.
The Company has exposure to liquidity risk as it holds a loan
facility for US$36,048,000 of which US$21,092,662 was drawn down at
30 June 2011.
On 29 July 2011 the Company's loan agreement with AIB was
switched to "repayment on demand", pending ongoing negotiations to
cover the Company's cash flow requirements up to March 2012. As at
the date of this report, AIB had signed off the renewal of the loan
agreement and the only remaining approval required was from the
Central Bank of Ireland.
Furthermore the Company's intends renegotiating any borrowing
facilities it may secure ahead of the proposed maturity on 30 March
2012. As described in note 10 (c), the unrealised loss on the
Company's forward currency contracts, which stood at GBP6.5m as at
30 June 2011, will need to be funded on 30 March 2012 as the
contracts mature on this date.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the financial statements (continued)
For the year ended 30 June 2011
20 Financial risk management objectives and policies
(continued)
Liquidity risk (continued)
The Board has considered the position should AIB not renew the
agreement. 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 and the
funding of the foreign currency losses 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.
The maturity profile of the Company's financial liabilities is
set out below. 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. The table also includes derivative financial
liabilities at their discounted fair value, which is not materially
different to their undiscounted fair value.
As at 30 June
2011
1 month 1 to 3 3 to 12 1 to 5 >5
or less months months years years Total
Financial
liabilities:
Fair value of
forward currency
contracts - - (6,503,596) - - (6,503,596)
Loan facility (13,139,390) - - - (13,139.390)
Other payables (228,630) - - - - (228,630)
(13,368,020) - (19,642,986) - - (19,871,616)
------------- ------- ------------- ------------ ------ -------------
As at 30 June
2010
1 month 1 to 3 3 to 12 1 to 5 >5
or less months months years years Total
Financial
liabilities:
Fair value of
forward currency
contracts - - - (9,511,081) - (9,511,081)
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)
------------- ------- ------------- ------------ ------ -------------
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the financial statements (continued)
For the year ended 30 June 2011
20 Financial risk management objectives and policies
(continued)
Credit risk
Credit risk is the risk that one party to a financial instrument
will cause a financial loss for the other party by failing to
discharge an obligation.
Credit risk on liquid funds 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 29,
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 2011, 99.4% 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.
Fair value disclosure
In the opinion of the Directors there is no material difference
between the values presented in the financial statements and the
fair values of the financial assets and liabilities.
21 Events after the reporting period
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'.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the financial statements (continued)
For the year ended 30 June 2011
22 Contingent liabilities
Following a ruling issued by the US Internal Revenue Service
("IRS") during 2009 the Board 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
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