TIDMTLI
RNS Number : 4633M
Alternative Asset Opps PCC Ltd
18 September 2012
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Annual Financial Report Announcement
For the year ended 30 June 2012
The Directors announce the Annual Financial Report for the year
ended 30 June 2012.
The Company has today, in accordance with DTR 6.3.5, submitted
its Annual Financial Report for the year ended 30 June 2012 to the
National Storage Mechanism and it will shortly be available for
inspection at http://www.hemscott.com/nsm.do. The Annual Financial
Report is available to be viewed on or downloaded from the
Company's website at
www.rcm.com/investmentrusts/investors_tlif.php.
The financial information set out in this announcement does not
constitute the Company's statutory accounts for the year ended 30
June 2012, but is derived from those accounts. Statutory accounts
for the year ended 30 June 2012 will be delivered to Shareholders
during September 2012. 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 September 2012. 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 2012.
The Annual General Meeting of the Company will be held on 14
November 2012.
Peter Ingram
Company Secretary
Telephone number: 020 7065 1467
18 September 2012
155 Bishopsgate
London
EC2M 3AD
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Investor Information
For the year ended 30 June 2012
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, and subsequently re-registered
under the provisions of The Companies (Guernsey) Law, 2008, as
amended. It was established with one Cell known as the US Traded
Life Interests Fund (the "Fund") 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 theUK 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 78 and 92 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 asborrowings as at 30 June 2012 were
US$29.2 million (GBP18.6 million) (2011: US$21.1 million (GBP13.1
million)).
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Investor Information (continued)
For the year ended 30 June 2012
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 2012 were US$29.2 million
(GBP18.6 million) (2011: US$21.1 million (GBP13.1 million)).
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 2012
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 2HT 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 2HT
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 2HT
Guernsey GY1 2HT
Legal Advisers (UK) Sub Custodian
Herbert Smith LLP Wells Fargo Bank Northwest
N.A.
Exchange House 260 North Lindbergh Drive
Primrose Street Salt Lake City
London EC2A 2HS UT 84116
Legal Advisers (Guernsey) Financial Adviser and Corporate
Broker
Carey Olsen LLP Westhouse Securities Limited
PO Box 98 One Angel Court
Carey House, Les Banques London EC2R 7HJ
St Peter Port
Guernsey GY1 4BZ
Recognised Auditor
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 2012
Directors
The Directors have been chosen for their investment and
commercial experience and are listed below:
Charles Tracy, Chairman, (aged 66) 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 and
Chairman of the Board of the Guernsey Banking Deposit Compensation
Scheme. He is a resident of Guernsey.
Ian Reynolds (aged 69) 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 60) is currently a director of several UK
investment trusts and is Chairman of Scottish Mortgage Investment
Trust PLC. Mr Scott held a number of senior appointments at Lazard
Brothers & Co., Limited between 1981 and 2001. Prior to that,
he worked at Jardine Matheson & Co., Limited. He is a Fellow of
the Chartered Insurance Institute and of the Chartered Institute
for Securities and Investment. He is UK resident.
Saad Zein (aged 45) 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
GBP920 million of such assets under management in a range of
investment companies and investment trusts as at 30 June 2012. 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 2011 to 30 June 2012
At 30 At 30
June 2012 June 2011
Shares in
issue 40,000,000 40,000,000
Net assets attributable to shareholders GBP32,468,299 GBP30,870,466
Net asset value per Share 81.2p 77.2p
Share price 47.25p 52.5p
Total surplus (deficit) on ordinary activities
for the financial year/period per Share 4.00p (5.45p)
Revenue deficit per
Share (2.89p) (2.77p)
Dividends
The Directors do not propose a dividend for the year ended 30
June 2012 (2011: nil).
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Chairman's Statement
For the year ended 30 June 2012
Introduction
This statement covers the twelve months to 30 June 2012. Whilst
the information presented below is in USD, the Company's functional
and presentational currency is sterling. The sterling equivalents
for the USD amounts for the current and prior years are included
within the financial statements. This has been a year of
significant progress. Some larger policy maturities have generated
the highest annualised rate of policy pay-outs since inception,
with a consequent beneficial effect on net cash flow after the year
end. The realised losses on the closed-out currency contracts
(which were matched by corresponding unrealised gains on the US$
assets held) have been largely covered in cash flow terms by policy
sales. These sales have been achieved at satisfactory prices. In
addition, confidence in LE assessments has
been boosted by recent LE data. Against this must be set the
longer-term issue of financing and a longer-term issue of financing
and a measure of uncertainty over valuations, as discussed
below.
Portfolio developments
A summary of portfolio maturities since inception is given in
the following table:
Period 52 months 12 months 10 months 12 months 12 months
------------------------ ----------- ----------- ----------- ----------- -----------
Dates Inception 1/7/08 1/7/08 1/7/10 1/7/11
- 30/6/08 - 30/6/09 - 31/8/09 - 30/6/11 - 30/6/12
------------------------ ----------- ----------- ----------- ----------- -----------
Number of policies
matured 13 7 4 6 8
------------------------ ----------- ----------- ----------- ----------- -----------
Face value of policies
matured
($ million) $13.1m $14.5m $10.6m $13.0m $16.9m
------------------------ ----------- ----------- ----------- ----------- -----------
Premiums paid ($
million) $27.8m $10.5m $7.3m $8.0m $8.4m
------------------------ ----------- ----------- ----------- ----------- -----------
During the year to 30 June 2012, 8 policy maturities were
identified, with a total face value of US$16.9 million. This
compares with 6 policies with a face value of US$13.0 million in
the year to 30 June 2011, and 24 policies with a face value of
US$38.2 million in the period from the Company's launch to 30 June
2010. As in the preceding year, maturity proceeds exceeded cash
outflows for premiums, although not all the proceeds had been
received by the year end, as noted in the discussion on gearing
below.
The realised gains on maturing policies amounted to
approximately US$9.7 million in the year, or 15.4p per share.
Unlike last year, when the effect of gains in maturities was
outweighed by premiums paid, policy re-valuations and overheads,
the overall result for the year was a gain in net assets per year
was a gain in net assets pershare of 4.00p, compared to a reduction
of 5.45p in the previous year.
One further maturity relating to one life assured, with a face
value of US$2.8 million has been identified since 30 June 2012, but
not yet formally certified,.
As at 30 June 2012 there were a total of 109 policies in the
portfolio, with a face value of US$165.6 million and a valuation of
US$65.4 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$8.4
million during the year.
The Board has noted the EU Directive on Alternative Investment
Fund Managers ("AIFMD") and also the new US law entitled the
Foreign Account Tax Compliance Act ("FATCA"). Both of these will
have a potential impact on the Company, but the precise effects on
the Company are not yet clear, partly because the implementation
provisions are not yet finalised. The Board will take all necessary
steps to ensure that any effects from these two pieces of
legislation are minimised.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Chairman's Statement (continued)
For the year ended 30 June 2012
The principal issues facing the Company, that is to say
valuation, credit risk, gearing and hedging are discussed below.
The topic of gearing is dealt with first.
Gearing
The Board's intention is to pay down borrowings whenever
possible. Given the maturities reported above, it might have been
expected that borrowings would have fallen as at 30 June 2012, but
in fact the Company's total borrowings increased from US$21,093,000
to US$29,210,000 during the year. As has already been reported, the
Company had to settle a loss of US$11,829,000 on its foreign
exchange contracts in March 2012 and the decision was taken to
effect a sale of policies, which raised US$10,662,000. Secondly, as
at 30 June 2012
capital debtors, being the unsettled proceeds from matured
policies, amounted to US$14,000,000. The equivalent figure for
capital debtors as at 30 June2011 was zero. These proceeds have
been received since the year end: adjusted for these receipts,
borrowings would have fallen to US$15,210,000.
As reported in the Manager's Review, the Company has signed a
renewal of its loan agreement with Allied Irish Banks. This will
provide the necessary financing for the period to 28 March 2013.
Discussions continue with regards to the Company's future financing
requirements.
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 process of preparing policies for sale requires updated LEs
to be obtained on policies being sold. The Company has also for
some time been obtaining updated LE information on a selection of
the policies in the portfolio, partly because of the significant
shift in industry LE estimates in 2008, when new actuarial tables
became available. Over 80% of the portfolio by face value is now
covered by an LE obtained since October 2008 but, because of recent
sales, 65% of the portfolio by face value is now covered by an LE
obtained on or after 1 January 2011. It is encouraging to note that
recent LE revisions have, on average, resulted in smaller
variations in LE; indeed for those policies which have received two
LE assessments since October 2008 ($65m face value) the more recent
assessments resulted in a small average reduction in LE of 0.2
years. Overall, the confidence level in the LEs used
for valuation purposes has improved considerably over the last
few years.
Previous reports have referred to the difficulty in recent
periods in arriving 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%. The Board wasencouraged that the
policy sales referred to above were achieved at close to the
Directors' valuation (averaging over 95% of valuation) but is aware
that, while market conditions are slowly recovering, indicative
IRRs applied by buyers remain above 16%. Taking this into account
as well as the well established nature of the portfolio and the
intention to hold policies to maturity, the Board continues to use
12% as the applicable discount rate as a reasonable best estimate
of pricing on a willing buyer/willing seller basis. The effects on
valuation of altering the discount rate assumption are shown
in the appended table.
The tables below therefore aim to give investors an appreciation
of the effects on valuation of differing assumptions as to both LE
and IRR.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Chairman's Statement (continued)
For the year ended 30 June 2012
- The first line of NAVs in the table uses the 'Latest LE'
assumption, that is to say either an LE
based on a recently updated assessment (obtained on or after 1
January 2011) or, for the
remaining 34% of the portfolio by face value (the 'non-updated
policies'), either the original
LE at the time of purchase or an LE updated before 31 December
2010. The average LE
(weighted by policy value), is shown for reference (4.8 years).
NAV is then shown at four
different discount rates, ranging from 10% to 20%. This shows
the effect of IRR on current
value, and 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 policies would broadly follow those already
obtained for other policies, resulting in an LE increase of 10% 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 0.2 years.
- The third line assumes an increase in LE of 20% on the
non-updated policies. The effect on
NAV is similar to that shown in the second line, with an
incremental increase in LE of 0.1
years.
- 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 2012
Mortality Assumptions Weighted Discount Rates applied to cash flows
Average
LE
----------------------- --------- -------------------------------------------
10% Current (12%) 16% 20%
----------------------- --------- ------- ------------------ ------ ------
Latest LE 4.8 88.0 81.2 69.9 60.8
----------------------- --------- ------- ------------------ ------ ------
+10% for LE
dates before
01/01/2011 5.0 83.5 76.8 65.8 57.0
----------------------- --------- ------- ------------------ ------ ------
+20% for LE
dates before
01/01/2011 5.1 79.3 72.8 62.0 53.4
----------------------- --------- ------- ------------------ ------ ------
No underwriting 5.5 71.4 64.5 53.4 44.6
----------------------- --------- ------- ------------------ ------ ------
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 99.5% of the Company's policies by value
were issued by companies with an A.M. Best rating of 'A' or better.
This figure has not changed significantly for some time.
Hedging
The Company's original Investment Policy stated that it was the
intention to hedge the US dollar exposure. Following the removal of
this statement as part of the changes to the policy adopted in
September 2011, the Company's outstanding foreign exchange
positions were closed out. In view of the strength of the US dollar
over the life of these contracts, this realised a loss of
US$11,829,000 (offset by an unrealised gain on the underlying US
dollar exposure on the value of the US$ assets we hold), which was
settled on 30 March 2012.From that date, the Company has operated
on an unhedged basis, and there is no current intention to initiate
any further currency hedges.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Chairman's Statement (continued)
For the year ended 30 June 2012
Hedging (continued)
During the seven months to 30 June 2012, after the removal of
the Company's US dollar hedge, the US dollar sterling rate fell
from 1.5704 at 30 November 2011 to 1.5685 at 30 June 2012 (1.6053
at 30 June 2011). Given the movements in the Company's US dollar
exposure during that time, it is estimated that this movement in
currency had no impact upon the net asset value per share.
Other
The Company's net asset value as at 30 June 2012 is reported in
these accounts as being 81.2 pence per share, which compares with a
figure of 74.0 pence per share that was announced on 12 July 2012.
The reason for the significant difference is that these
accounts
recognise the maturity of two policies, on one life, with a
combined face value of US$7,500,000, whereas for the purposes of
the original announcementthe death of the policy-holder had not yet
been confirmed and was therefore not recognised.
Outlook
The market for TLIs continues to show signs of increased
activity, with a number of new investors entering the market during
the year. The US withholding tax regime has, however, reduced the
appeal of the asset class to direct investors 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
14 September 2012
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Investment Manager's Review
For the year ended 30 June 2012
Portfolio Overview
During the 12 month period from 1 July 2011 to 30 June 2012,
there were eight confirmed policy maturities. As at 30 June 2012,
109 policies remained within the Fund's portfolio with exposure to
95 individual lives. Of the eight matured policies, four covered
male lives assured and four female. Proceeds totalled US$16.9m for
the year.
Cumulatively, as at 30 June 2012 there have been 38 policy
maturities across 32 lives since inception. Proceeds received from
all maturities totalled US$68.9m, realising a US$32.4m gain.
Moreover, thirteen policies have been sold since inception,
generating proceeds of US$11.2m.
One further maturity (relating to one life assured) has been
identified since the year end, but has not yet formally certified.
The total death benefit for this policy is US$2.8m.
Portfolio Summary
Face Value $165.6m
======================================== ============
Male/Female Ratio 66.3%/33.7%
======================================== ============
Total number of Holding Life Companies 29
======================================== ============
Face Weighted Averages:
======================================== ============
Age at purchase 81.8 years
======================================== ============
Valuation Age 88.7 years
======================================== ============
Pricing LE at purchase 7.9 years
======================================== ============
Current LE 4.9 years
======================================== ============
Life Group (Parent Company) Distribution (Top 5)
Ranking by Valuation % Parent Company % Total Face Value % Total Valuation
======================= ======================================= =================== ==================
1 American International Group, Inc 20.9% 21.6%
======================= ======================================= =================== ==================
2 Lincoln National Corporation 19.0% 18.3%
======================= ======================================= =================== ==================
3 AEGON N.V. 14.5% 15.1%
======================= ======================================= =================== ==================
4 Massachusetts Mutual Life Insurance Co 5.5% 5.7%
======================= ======================================= =================== ==================
5 Manulife Financial Corporation 5.9% 5.6%
======================= ======================================= =================== ==================
Credit Quality Distribution by Holding Life Company
AM Best Rating % Total Face Value % Total Value
================ =================== ==============
A++ 9.5% 9.1%
================ =================== ==============
A+ 56.7% 52.7%
================ =================== ==============
A 33.2% 37.8%
================ =================== ==============
A- 0.6% 0.5%
================ =================== ==============
Total 100% 100%
================ =================== ==============
Premium Payments
Premium payments remain the largest draw on the Fund's cash.
Assuming no further maturities, the expected cost of premiums for
the twelve months to 30 June 2013 is approximately US$8.4m. SL
Investment Management 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 2012
Outlook
This reporting period has witnessed the largest volume of
maturities in any year since the Company's inception. $17m of
maturities was identified during the financial year. With an
average life insured age of nearly 89 years and an average life
expectancy of less than five years, it is reasonable to assume that
maturities will continue to increase over coming years as the
portfolio continues to age. The total death benefit of the policies
held is $165.6m versus a prevailing valuation of $65.4m. The
potential for investment gains over the next few years is therefore
apparent.
The ongoing volatility in the traditional capital markets
continues to present a challenging financial backdrop. Although
policy maturities are uncorrelated to the macro economic factors
driving this uncertainty, the financial environment does impact the
ability for new TLI funds to raise capital and secure bank
financing. As a result, we have not yet seen market activity return
to the levels witnessed prior to 2009.
However, recent market intelligence suggests that a number of
new buyers have entered the Life Settlement market in 2012. Many of
these are smaller players such as family offices, looking to invest
tranches of $5m-$10m. This is a positive development for the market
in the short term, although the consensus is that more sustained
investment from large institutions will be required to drive a full
recovery, and with it competition for policies.
The Company continues to adopt a buy and hold investment
strategy and is therefore not currently actively pursuing policy
sales. However, the policies held in the portfolio are well
diversified in terms of life expectancy, life company mix and face
amount. The Company therefore holds a high quality portfolio of
policies and is well placed to secure market bids on policies if
required, particularly as many of the other tertiary portfolios in
the market have already changed hands.
The life expectancy assessment firms have made no significant
revisions to their life expectancy models during the year.
Following the rebasis in 2008, the major life assessment companies
are now quoting much greater accuracy of their 'actual to expected'
mortality experience. Therefore, no further significant life
expectancy adjustments are anticipated in the near-term.
SL Investment Management Limited
14 September 2012
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Manager's Review
For the year ended 30 June 2012
Borrowings and investments
On 30 March 2012, the Company renewed its loan agreement with
Allied Irish Banks, covering the period to 28 September 2012. This
agreement consisted initially of an amortising loan of US$27.5
million, after settlement of the Company's foreign exchange
contracts, and a revolving credit facility (RCF) of US$6 million.
As at 30 June 2012, the amortising loan remained at US$27.5
million, while the balance on the RCF was US$1.7 million with a
further US$4 million available.
Since the year-end, the Company has repaid US$14 million as a
result of policy maturities and has drawn down the remaining US$4
million available under the RCF. As a result, the total loan
balance now stands at US$19.2 million, and there is a cash balance
of US$1.5 million available to fund premium payments and
expenses.
Under the above agreement, the Company has been obliged to
maintain cover (i.e. asset value divided by borrowing) of at least
1.5 times. As at 31 July 2012, the latest date available, cover was
3.1 times.
The Company has negotiated a renewal of its loan agreement with
Allied Irish Banks for the six months from 28 September 2012 to 28
March 2013. This renewed agreement will make a further US$4 million
available to the Company, covering its financing needs for that
period. Under the terms of this agreement, the Company will be
obliged to maintain cover of at least 2.5 times.
The Company has retained its GBP100,000 holding of UK Treasury
4% 2016.
Currency hedging
At an Extraordinary General Meeting in September 2011, it was
resolved no longer to hedge the Company's US dollar exposure.
Accordingly, the Company closed out its forward currency contracts,
and the resulting loss of GBP7.4 million was settled on 30 March
2012. The Company is therefore fully exposed to the effect of
exchange rates upon its US$ positions.
RCM (UK) Limited
14 September 2012
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Directors' Report
For the year ended 30 June 2012
The Directors have pleasure in submitting their Annual Financial
Report for the year ended 30 June 2012 with comparatives for the
year ended 30 June 2011.
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 have been admitted to the Official List of
the UK Listing Authority with a premium listing and to trading on
the London Stock Exchange's main market for listed securities. 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 GBP1,156,807 (2011:
revenue deficit for the year GBP1,107,727). There was a capital
surplus for the year amounting to GBP2,754,640 (2011: capital
deficit for the year GBP1,071,177). The Directors have not paid an
interim dividend (2011: nil) and do not propose the payment of a
final dividend for the period (2011: nil).
Assets
At the period end the net assets attributable to the Shares were
GBP32,468,299 (2011: GBP30,870,466). Based on this figure the net
asset value of a Share in the Fund was 81.2p (2011: 77.2p).
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:
Shares held Percentage
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
MAM Funds 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 2012
Directors
The Directors serving on the Board during the year, together
with their beneficial interests and those of their families at 30
June 2012, were as follows:
Shares Shares
30 June 2012 30 June 2011
CPG Tracy (Chairman) - -
DIW Reynolds 42,000 42,000
SM Zein - -
JPHS Scott 87,697 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 SM
Zein.
The Board believes that Mr SM Zein, who has served for three
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 2012 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.
On 30 September 2011, the Guernsey Financial Services Commission
issued a new Code of Corporate Governance (the "Guernsey Code") to
come into effect on 1 January 2012. Companies which report against
the UK Code are deemed to meet compliance with the Guernsey
Code.
Statements of compliance
The Directors believe that the Company has complied with the
provisions of the UK 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. By complying
with the
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Directors' Report (continued)
For the year ended 30 June 2012
provisions of the UK Code as outlined above, the Directors
believe that the Company has thus complied with the Guernsey
Code.
The Board
The Board meets regularly, normally quarterly, and more
frequently if necessary, and retains full responsibility for the
direction and control of the Company.
The Company is overseen by a Board comprising 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
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Directors' Report (continued)
For the year ended 30 June 2012
The Board (continued)
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. 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 GBP3,800 (2011: GBP10,000) compared with audit fees of
GBP27,300 (2011: GBP23,100). 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 2012
The Board (continued)
The emoluments of the Directors for the year were as
follows:
30 June
2012 30 June 2011
GBP GBP
CPG Tracy (Chairman) 20,000 20,000
DIW Reynolds 17,500 17,500
SM Zein 15,000 15,000
JPHS Scott 15,000 15,000
67,500 67,500
========== ===============
The figures above represent emoluments earned as Directors
during the relevant financial year. The Directors receive no other
remuneration or benefits from the Company other than the fees
stated above.
In the year to 30 June 2012 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 GBP76,852 (2011: GBP75,945)
included allowable expenditure of GBP7,877 (2011: GBP2,188) 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 8 2
-------------------- ------ ----------------
CPG Tracy 8 2
-------------------- ------ ----------------
DIW Reynolds 7 2
-------------------- ------ ----------------
JPHS Scott 8 2
-------------------- ------ ----------------
SM Zein 8 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.
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
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Directors' Report (continued)
For the year ended 30 June 2012
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 increased to circa US$29.2
million as at 30 June 2012 from circa US$21.1 million as at 30 June
2011. At this level the margin of cover required under the
agreement was comfortably met.
The Company's loan agreement with AIB is due to expire on 28
September 2012. On 10 September 2012, the Company signed a renewal
of the loan agreement with AIB up to 28 March 2013, which will
cover the Company's cash flow requirements up to that date.
The Board has considered the position should AIB not renew the
agreement beyond March 2013. Acknowledging that this might involve
the forced 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.
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.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Directors' Report (continued)
For the year ended 30 June 2012
Accountability and audit (continued)
c) Internal control (continued)
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.
Discount rate risk
There is a risk that if the market for TLIs became more active,
that the IRR of 12% currently being used for valuation purposes may
no longer be appropriate.
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 would remain in
US dollar assets until their expected conversion into sterling as
the portfolio matured. The Company's policy historically was to
hedge its US dollar assets, but, following the special resolution
passed at an Extraordinary General Meeting on 20 September 2011,
this policy no longer applies and the Company closed out its
foreign currency contracts, crystallising a loss of GBP7.4 million
that was settled on 30 March 2012.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Directors' Report (continued)
For the year ended 30 June 2012
Continuation of the Company
The Company was incorporated in 2004 with a fixed life with an
expected winding up date of 31 March 2012. At an Extraordinary
General Meeting of the Company held on 28 August 2009, a Special
Resolution was passed by shareholders to adopt a new Memorandum and
Articles of Incorporation. As a result, Article 44.1 of the
Company's Articles of Incorporation now gives shareholders the
right to vote at the Annual General Meeting to be held in 2012 and
at every Annual General Meeting thereafter, on whether to continue
the business of the US Traded Life Interests Fund of the
Company.
The Directors wish to draw your attention to Resolution 5 in the
Notice of Annual General Meeting, which proposes that the business
of the US Traded Life Interests Fund of the Company be continued
until the Annual General Meeting to be held in 2013.
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 each Director is aware, there is no relevant audit
information of which the Company's auditor is unaware; and
-- the Directors have taken all steps they ought to have taken
as Directors to make themselves aware of any relevant audit
information and to establish that the Company's auditor is aware of
that information.
This confirmation is given and should be interpreted in
accordance with the provisions of Section 249 of The Companies
(Guernsey) Law, 2008.
By order of the Board.
JPHS Scott DIW Reynolds
Director Director
14 September 2012
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Directors' Responsibilities Statement
For the year ended 30 June 2012
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.
-- the Investment Manager's Review and Director's Report
includes a fair review of the development and performance of the
business and the position of the Company, together with a
description of the principal risks and uncertainties the Company
faces.
By order of the Board.
JPHS Scott DIW Reynolds
Director Director
14 September 2012
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Independent Auditor's Report to the Members of Alternative Asset
Opportunities PCC Limited
For the year ended 30 June 2012
We have audited the financial statements of Alternative Asset
Opportunities PCC Limited for the year to 30 June 2012 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 2012
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 2012 and of its surplus 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, as amended.
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 valuations 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 which were due
to mature on 28 September 2012 and have now been renewed until 28
March 2013. Whilst the Board is 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, 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.
Whilst it is not possible to quantify the effects of these
uncertainties on the financial statements, the Chairman's Statement
on page 8 and note 20 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 2012
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 Garrard
for and on behalf of Deloitte LLP
Chartered Accountants and Recognised Auditor
St. Peter Port
Guernsey
14 September 2012
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Statement of Comprehensive Income
For the year ended 30 June 2012
Notes Year to 30 June 2012 Year to 30 June 2011
Revenue Capital Total Revenue Capital Total
GBP GBP GBP GBP GBP GBP
Operating income/(losses)
Net gains/(losses)
on investments 10 - 4,114,252 4,114,252 - (4,999,872) (4,999,872)
Foreign exchange(losses)/
gains 17 - (1,359,612) (1,359,612) - 3,928,695 3,928,695
Interest and similar
income 4 4,205 - 4,205 4,300 - 4,300
------------ -------------- -------------- ------------ -------------- ------------
Total income/(losses) 4,205 2,754,640 2,758,845 4,300 (1,071,177) (1,066,877)
Operating expenses
Management
fee 5 (122,657) - (122,657) (136,400) - (136,400
Investment manager's
fee 5 (123,010) - (123,010) (155,097) - (155,097)
Custodian fee (15,908) - (15,908) (22,178) - (22,178)
Other expenses 6 (384,495) - (384,495) (405,284) - (405,284)
Total operating
expenses before
finance costs (646,070) - (646,070) (718,959) - (718,959)
Operating (loss)/profit
before finance
costs (641,865) 2,754,640 2,112,775 (714,659) (1,071,177) (1,785,836)
Finance costs
Loan interest payable 14 (514,942) - (514,942) (393,068) - (393,068)
Net (deficit)/surplus (1,156,807) 2,754,640 1,597,833 (1,107,727) (1,071,177) (2,178,904)
============ ============== ============== ============ ============== ============
(Deficit)/surplus
per redeemable
share 8 (2.89p) 6.89p 4.00p (2.77p) (2.68p) (5.45p)
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 48 are an integral part of these
financial statements.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Statement of Financial Position
As at 30 June 2012
Notes 2012 2011
GBP GBP
Non-current assets
Financial assets at fair value
through profit or loss 10 41,813,775 50,027,517
Current assets
Cash and cash equivalents 12 558,411 692,721
Other receivables 11 16,687 21,844
Maturity proceeds
receivable 11 8,926,008 -
9,501,106 714,565
----------------- -----------
Total assets 51,314,881 50,742,082
----------------- -----------
Current liabilities
Loan facility 14 18,623,654 13,139,390
Other payables 13 222,928 228,630
Fair value of forward currency
contracts 10 - 6,503,596
----------------- -----------
18,846,582 19,871,616
----------------- -----------
Total liabilities 18,846,582 19,871,616
----------------- -----------
Net assets attributable to shareholders 17 32,468,299 30,870,466
Total equity and liabilities (including
amounts due to shareholders) 51,314,881 50,742,082
================= ===========
Net asset value per share 9 81.2p 77.2p
These financial statements were approved by the Board of
Directors on 14 September 2012.
Signed on behalf of the Board.
JPHS Scott DIW Reynolds
Director Director
14 September 2012
The notes on pages 30 to 48 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 2012
For the year ended 30 Share Capital Revenue
June 2012 Premium reserve reserve Total
GBP GBP GBP GBP
Balance as at 1 July
2011 39,168,236 (1,784,538) (6,513,232) 30,870,466
Surplus/(deficit) for
the year - 2,754,640 (1,156,807) 1,597,833
Balance as at 30 June
2012 39,168,236 970,102 (7,670,039) 32,468,299
=========== ============ ============ ===========
For the year ended 30 Share Capital Revenue
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) 33,049,370
=========== ============ ============ ============
The notes on pages 30 to 48 are an integral part of these
financial statements.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Statement of Cash Flows
For the year ended 30 June 2012
Year to
30 June 2012 Year to
30 June 2011
GBP GBP
Cash flows from operating activities
Revenue account operating loss before
finance costs for the year (641,865) (714,659)
Increase in other receivables (8,920,852) (3,382)
(Decrease) /increase in other
payables (6,509,298) 64,235
Premiums
paid (5,326,029) (5,213,977)
Proceeds from maturity and sale
of investments 17,654,023 8,314,046
Net cash (outflow)/inflow from operating
activities before interest (3,744,021) 2,446,263
-------------- ---------------
Cash flows from financing
activities
Net receipt/(repayment) of
borrowings 5,484,265 (2,951,384)
Interest
Paid (514,942) (393,068)
Net cash used in financing activities 4,969,323 (3,344,452)
-------------- ---------------
Net increase /decrease in cash and
cash equivalents 1,225,302 (898,189)
Cash and cash equivalents at the
beginning of the year 692,721 669,700
Effects of foreign exchange (1,359,612) 921,210
Cash and cash equivalents at the
end of the year 558,411 692,721
============== ===============
The notes on pages 30 to 48 are an integral part of these
financial statements.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Portfolio of Investments
As at 30 June 2012
Portion
Number of A.M. Best
Traded Life Interests ("TLI's") of Policies Valuation Portfolio Rating
GBP %
Issuer
American General Life Insurance
Company 12 9,000,714 21.5% A
Lincoln National Life Insurance
Company 14 7,334,450 17.5% A+
Transamerica Life Insurance
Company 19 6,281,863 15.0% A+
Massachusetts Mutual Life Insurance
Company 7 2,371,650 5.7% A++
John Hancock Life Insurance
Company 9 2,314,437 5.5% A+
MetLife Insurance Company of
Connecticut 6 1,809,717 4.3% A+
Security Life of Denver Insurance
Company 1 1,795,712 4.3% A
Aviva Life and Annuity Company 4 1,642,163 3.9% A
New York Life Insurance and
Annuity Corp 5 1,418,281 3.4% A++
National Western Life Insurance
Company 1 1,326,973 3.2% A
Pacific Life Insurance Company 4 1,082,495 2.5% A+
Genworth Life Insurance Company 1 865,574 2.1% A
Columbus Life Insurance Company 2 558,996 1.3% A+
North American Company for
L & H Insurance 2 453,169 1.1% A+
Lincoln Benefit Life Company 1 446,488 1.1% A+
Aviva Life and Annuity Company
of NY 2 342,792 0.8% A
MONY Life Insurance Company 1 341,863 0.8% A+
United of Omaha Life Insurance
Company 2 324,703 0.8% A+
AXA Equitable Life Insurance
Company 3 319,288 0.8% A+
Lincoln Life & Annuity Company
of NY 1 309,898 0.7% A+
Banner Life Insurance Company 2 250,299 0.6% A+
ReliaStar Life Insurance Company 2 241,907 0.6% A
ING Life Insurance and Annuity
Company 2 224,212 0.5% A
Sun Life Assurance Company
of CA 1 156,301 0.4% A
Security Mutual Life Insurance
Company of NY 1 152,037 0.4% A-
Standard Insurance Company 1 151,037 0.4% A
General American Life Insurance
Company 1 72,235 0.2% A+
Reassure America Life Insurance
Company 1 69,087 0.2% A+
Beneficial Life Insurance Company 1 41,524 0.1% A-
109 41,699,865 99.7%
-------------- ------------ --------------
Portion
of Portfolio
Nominal Valuation
GBP %
UK Treasury 4% 7 September
2016 100,000 113,910 0.3%
113,910 0.3%
------------ --------------
Portfolio Total 41,813,775 100.0%
============ ==============
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the financial statements
For the year ended 30 June 2012
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. Such judgements and sources of
estimation uncertainty include the valuation of investments and the
going concern assumptions, which are discussed in note 2(b) and
2(c) respectively.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the financial statements (continued)
For the year ended 30 June 2012
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 that have had a material impact on the financial
statements.
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 1 (amended) "Presentation of items of other comprehensive
income"
IAS 12 (amended) "Deferred Tax: Recovery of Underlying
Assets"
IAS 19 (amended) "Employee benefits"
IAS 24 (amended) "Related Party Disclosure"
IAS 27 (amended) "Separate Financial Statements (2011)"
IAS 28 "Investments in Associates and Joint Ventures (2011)"
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 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 on initial
recognition.
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 2012
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 (or the
Directors, where stated):
-- Death benefit payable 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;
-- Premiums due under the policy; and
-- An estimate of a market based discount rate derived by the Directors.
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 on initial recognition.
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. TLI investments are
de-recognised on the date of death of the insured or on the trade
date if a policy is sold.
(c) Going concern
The Board considered carefully the issue of 'going concern',
specifically in relation to the availability of funding. Total
borrowings under the agreement with AIB increased to circa US$29.2
million as at 30 June 2012 from circa US$21.1 million as at 30 June
2011. At this level the margin of cover required under the
agreement was comfortably met.
The Company's loan agreement with AIB was due to expire on 28
September 2012. On 10 September 2012, the Company signed a renewal
of the loan agreement with AIB up to 28 March 2013, which will
cover the Company's cash flow requirements up to that date. The
Board has considered the position should AIB not renew the
agreement beyond 28 March 2013. 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
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the financial statements (continued)
For the year ended 30 June 2012
2 Principal Accounting Policies (continued)
(c) Going concern (continued)
Company would be adversely affected, but the Company would
remain a going concern.
A continuation vote will be put to the Shareholders at the 2012 Annual General Meeting. While the Directors cannot be certain what the result of this vote will be, the financial statements are prepared on a going concern basis supported by the Directors' current assessment of the Company's ability to continue in existence for the foreseeable future and shareholder interest in the continuation of the Company. Based on the above, the Directors have reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future, and they continue to adopt the going concern basis.
(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.
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.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the financial statements (continued)
For the year ended 30 June 2012
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
Year to Year to
30 June 2012 30 June
2011
GBP GBP
Bank deposit
interest 216 300
Bond interest 3,989 4,000
Total income 4,205 4,300
============== ==========
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 was reduced to 0.4% per annum of the
Company's Net Asset Value.
RCM (UK) Limited, the Manager, was appointed under an agreement
with the Company dated 16 March 2004 to manage the fixed interest
and near cash assets of the Company in accordance with the
investment policy and to implement the currency hedging facility
from time to time approved by the Directors. Either party giving
not less than 12 months' notice may terminate the agreement.
With effect from 1 September 2009 the fee payable to the Manager
is 0.425% per annum of the Company's Net Asset Value. With effect
from 1 April 2012 the fee was 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.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the financial statements (continued)
For the year ended 30 June 2012
6 Other expenses
Year to Year to
30 June 2012 30 June 2011
GBP GBP
Administration and accountancy
fees 37,085 52,151
Secretarial fees 20,001 28,164
Broker fees 31,444 48,050
Directors' fees, national
insurance and expenses 76,852 75,945
D&O Insurance 7,546 10,794
Auditors' remuneration 31,094 32,716
Legal and professional
fees 23,652 10,200
Printing 4,392 1,869
Safe custody
fees 22,178 23,170
Bank fees and
charges 29,191 42,783
Registrar fees 9,438 11,862
Cost of obtaining
new LEs 56,437 21,907
Sundry expenses
* 35,185 45,672
384,495 405,283
============== ==============
* Sundry expenses include mailing services, 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.
The Company adopted UK tax residency from 1 September 2009
onwards. Since that date the Company has been managed in such a way
as to meet the conditions for approval as an investment trust under
Section 1158 of the Corporation Tax Act 2010. As an investment
trust, the Company is subject to corporation tax on its income, but
no corporation tax is provided for in these accounts, as the
Company has significant unutilised tax losses which are not deemed
to be recoverable. 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 year to 30 June 2011. 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 GBP1,156,807 (2011: deficit
GBP1,107,727) and on the average number of Shares in issue of
40,000,000. Capital surplus per Share is based on the net capital
return attributable to the Shares of GBP2,754,640 (2011: deficit
GBP1,071,177) 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 (2011:
GBP30,870,466) and on the 40,000,000 Shares in issue at the period
end.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the financial statements (continued)
For the year ended 30 June 2012
10 Investments
(a) Investments at fair value through Year to Year to
profit or loss 30 June 30 June
2012 2011
GBP GBP
Movements in the period:
Opening valuation 50,027,517 58,127,458
Premiums paid 5,326,029 5,213,977
Proceeds from the maturity and sale
of investments (17,654,023) (8,314,046)
Net realised gain on maturities 2,471,093 2,381,422
Movement in unrealised appreciation/(depreciation)
on revaluation of investments 1,643,159 (7,381,294)
Closing valuation 41,813,775 50,027,517
------------- ------------
Comprising:
Closing book cost 47,969,837 57,826,738
Closing unrealised loss (6,156,062) (7,799,221)
Closing valuation 41,813,775 50,027,517
============= ============
(b) Net gain/(loss) on investments Year to Year to
held at fair value through profit 30 June 2012 30 June
or loss 2011
GBP GBP
Net realised gain on maturities 2,471,093 2,381,422
Movement in unrealised appreciation/(depreciation)
on revaluation of investments 1,643,159 (7,381,294)
4,114,252 (4,999,872)
--------------- ------------
(c) Derivative financial
instruments
There were no open forward currency contracts as at 30
June 2012.
As at 30 June 2011
Average Contract Contract
Outstanding contracts exchange amount amount Fair value
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)
------------- ------------ -------------
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the financial statements (continued)
For the year ended 30 June 2012
11 Other receivables and maturity proceeds receivable
30 June 2012 30 June 2011
GBP GBP
Sundry debtors 16,687 21,844
Maturity proceeds 8,926,008 -
receivable
21,844 21,844
============= ============================
12 Cash and cash equivalents
Any amounts held on deposit or in current accounts at the
Company's Custodian, Sub-Custodian or financial institutions are
included in cash or cash equivalents. The carrying value for the
current and prior year is materially the same as the fair
value.
13 Other payables
30 June 2012 30 June 2011
GBP GBP
Accrued expenses 222,928 228,630
222,928 228,630
============= =============
The carrying value for the current and prior year is materially
the same as the fair value.
14 Loan facility
As at 30 June 2012 the Company had a US$27,510,276 (2011:
US$23,156,000) term loan, and a revolving credit facility of
c.US$1.7 million (2010: c. US$6.0 million) with AIB. Interest is
payable at LIBOR plus 4.0% (2011:2.5%) on the term loan and the
revolving credit facility. As at 30 June 2012 a total of
US$29,210,276 (GBP18,623,654) had been drawn down (2011:
US$21,092,662 (GBP13,139,390)). The loan agreement with AIB was due
to expire on 28 September 2012. On 10 September 2012, the Company
signed a renewal of the loan agreement with AIB up to 28 March
2013. This will allow the Company to continue fulfilling its
obligations, including the payment of premiums until that date.
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 1.5 times (2011:2.5
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 2012
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 at the Annual General
Meeting held on 17 November 2011 the Company took authority to make
market purchases of fully paid Shares, provided that the maximum
number of Shares authorised to be purchased would be no more than
5,996,000 Shares or such number as represented 14.99 per cent of
the Shares in issue at the date of the Annual General Meeting,
whichever was less (in either case, excluding Shares held in
Treasury). The Company will be seeking to renew this authority at
the forthcoming Annual General Meeting. Such authority will expire
on the date of the next Annual General Meeting, unless previously
renewed, varied, or revoked prior to such date by a special
resolution of the Company in general meeting. During the year under
review no Shares were bought back for cancellation (2011: nil).
The minimum price which may be paid for a Share pursuant to such
authority is one penny and the maximum price which may be paid
shall be the higher of (1) not more than 5% above the average of
the middle market quotations for a Share in the Company as derived
from the Stock Exchange Daily Official List for the five business
days immediately preceding the day on which the such share is
contracted to be purchased, and (2) the higher of the price of the
last independent trade and the highest current independent bid when
the purchase is carried out, provided that the Company shall not be
authorised to acquire Shares at a price above the estimated
prevailing net asset value per Share on the date of purchase.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the financial statements (continued)
For the year ended 30 June 2012
17 Net assets attributable to shareholders
Share Capital Revenue
Premium Reserves Reserves Total
2012 2012 2012 2012
GBP GBP GBP GBP
Balance at 1 July
2011 39,168,236 (1,784,538) (6,513,5232) 30,870,466
Net realised gain
on maturities - 2,471,093 - 2,471,093
Movement in unrealised
depreciation on
investments - 1,643,159 - 1,643,159
Movement in unrealised
gains on forward
foreign currency
contracts (7,403,534) (7,403,534)
- 6,503,596 - 6,503,596
Net currency losses - (459,674) - (459,674)
Revenue loss for
the year - - (1,156,807) (1,156,807)
Balance at 30 June
2012 39,168,236 970,102 (7,670,039) 32,468,299
=========== ============ ============= ============
Share Capital Revenue Total
Premium Reserves Reserves
2011 2011 2011 2011
GBP GBP GBP GBP
Balance at 1 July
2010 39,168,236 (713,361) (5,405,505) 33,049,370
Net realised gain
on maturities - 2,381,422 - 2,381,422
Movement in unrealised
appreciation on
investments - (7,381,294) - (7,381,294)
Movement in unrealised
losses on forward
foreign currency
contracts - 3,007,485 - 3,007,485
Net currency gains - 921,210 - 921,210
Revenue loss for
the period - - (912,972) (912,972)
Balance at 30 June
2011 39,168,236 (1,784,538) (6,513,232) 30,870,466
============= ============ ============== =============
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the financial statements (continued)
For the year ended 30 June 2012
18 Related party transactions
Fees earned by the Directors of the Company during the year were
GBP76,852 of which GBP8,063 was outstanding at the year end (2011:
GBP73,757 of which GBP6,441 was outstanding at the year end).
Allowable expenses claimed by the Directors in the course of their
duties amounted to GBP7,877 for the year ended 30 June 2012 (2011:
GBP2,188). 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 2012 30 June 2011
GBP GBP
Financial assets
Cash and cash equivalents 558,411 692,721
Fair value through profit or
loss:
TLI Policies 41,699,865 49,918,772
Government Bonds 113,910 108,745
--------------------- -------------
41,813,775 50,027,517
Loans and receivables at amortised
cost 8,942,695 21,844
51,314,881 50,742,082
--------------------- -------------
Financial liabilities
Fair value through profit or
loss:
Derivatives - (6,503,596)
Loans and payables at amortised
cost (18,846,582) (13,368,020)
--------------------- -------------
(18,846,582) (19,871,616)
--------------------- -------------
32,468,299 30,870,466
===================== =============
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 2012
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 judgement, considering factors
specific to the asset or liability.
The determination of what constitutes 'observable' requires
significant judgement by the Company. The Company considers
observable data to be that market data that is readily available,
regularly distributed or updated, reliable and verifiable, not
proprietary, and provided by independent sources that are actively
involved in the relevant market.
The following table presents the Company's financial assets and
liabilities by level within the valuation hierarchy as of 30 June
2012.
30 June Percentage 30 June Percentage
2012 of net 2011 of net
assets assets
GBP % GBP %
Level 1 fair value
assets 113,910 0.35 108,745 0.35
Level 2 fair value
liabilities - 0.00 (6,503,596) (21.07)
Level 3 fair value
assets 41,699,865 128.28 49,918,772 161.70
----------------- ----------- ------------ -----------
41,813,775 128.63 43,523,921 140.98
================= =========== ============ ===========
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 at the prior
year end 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 2012
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 2012 net assets
attributable to the holders of Shares were GBP32,468,299 (2011:
GBP30,870,466).
As at 30 June 2012, the Company had borrowed circa US$29.2
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 78 and 92 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 or when there is a cash
flow requirement to sell before maturity. The Company is
responsible for payment of policy premiums.
As at 30 June 2012, the current portfolio comprised 109 TLIs.
All TLIs acquired are Whole-of-Life or Universal Life policies.
The TLIs acquired are policies issued by a range of US life
insurance 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 2012
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 Investment Manager's own successful
bids to obtain information on market IRRs has, as a result, been
replaced with the use of a fixed IRR of 12%. After discussion with
the Investment Manager, the Board does not feel that the IRRs
obtained by the Investment Manager 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 if and when the market becomes
active. 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 2012, 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 GBP4,523,933 (2011: decrease of GBP5,558,807).
At 30 June 2012, 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 GBP5,810,927 (2011: increase of GBP7,184,566).
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 2012, 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 GBP9,263,124 (2011: decrease of
GBP11,158,605).
At 30 June 2012, 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 GBP10,349,803 (2011:
increase of GBP12,458,678).
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the financial statements (continued)
For the year ended 30 June 2012
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 had no open forward currency contracts as at 30 June
2012.
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 2012 30 June 2011
GBP GBP
U.S. Dollar 32,502,601 37,431,365
Less:
Effect of forward currency
contracts - (41,215,317)
32,502,601 (3,783,952)
============= ===============
At 30 June 2012, had the pound sterling strengthened against the
US dollar by 5% with all other variables held constant, the
decrease in net assets attributable to shareholders would amount to
approximately GBP1,547,743 (2011 increase: GBP180,188). A weakening
of 5% would amount to an increase in net assets attributable to
shareholders of approximately GBP1,710,663 (2011 decrease:
GBP199,155).
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 2012
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 2012 and 30 June 2011 from its interest
bearing financial instruments:
Financial Fixed rate Floating Total
assets/(liabilities) financial rate financial
on which assets assets/(liabilities)
no interest
is paid
2012 2012 2012 2012
GBP GBP GBP GBP
Sterling (167,305) 113,910 19,093 (34,302)
US Dollars 50,586,937 - (18,084,336) 32,502,601
---------------------- ----------- ---------------------- -----------
50,419,632 113,910 (18,065,243) 32,468,299
====================== =========== ====================== ===========
Financial Fixed rate Floating Total
assets/(liabilities) financial rate financial
on which assets assets/(liabilities)
no interest
is paid
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
====================== =========== ====================== ============
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.
However, large increases in interest rates would likely impact
on IRRs. A sensitivity analysis on IRRs is included on page 42.
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$32,048,000 of which US$29,210,276 was drawn down at
30 June 2012.
The Company's loan agreement with AIB was due to expire on 28
September 2012. On 10 September 2012, the Company signed a renewal
of the loan agreement with AIB up to 28 March 2013, which will
cover the Company's cash flow requirements up to that date.
The Board has considered the position should AIB not renew the
agreement beyond 28 March 2013. Acknowledging that this might
involve the forced 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.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the financial statements (continued)
For the year ended 30 June 2012
20 Financial risk management objectives and policies (continued)
Liquidity risk (continued)
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
2012
1 month 1 to 3 3 to 12 1 to
or less months months 5 years >5 years Total
Financial liabilities:
Fair value of - - - - - -
forward currency
contracts
Loan facility - (18,623,654) - - (18,623.654)
Other payables (228,928) - - - - (228,928)
(222,928) (18,623,654) - - - (18,846,582)
------------- ------------- ------------ --------- --------- -------------
As at 30 June
2011
1 month 1 to 3 3 to 12 1 to
or less months months 5 years >5 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) - (6,503,596) - - (19,871,616)
------------- ------------- ------------ --------- --------- -------------
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the financial statements (continued)
For the year ended 30 June 2012
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 A+/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 A- 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 78
and 92 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 2012, 99.5% 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
Since the year end, the Company has received policy maturity
proceeds of US$14 million, following which it has repaid US$14
million of its loan facility with Allied Irish Banks.
On 10 September 2012 the Company signed a renewal of its loan
facility with Allied Irish Banks until 28 March 2013.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the financial statements (continued)
For the year ended 30 June 2012
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 maturities
that occurred prior to the Company becoming tax resident in the UK.
Based on this advice, the Directors continue to be of the view that
there would be significant doubt about the merits under US law of
any IRS claim to withholding tax on these proceeds, and they would
challenge any such claim accordingly. As a result, no provision for
any such liability has been made in these financial statements.
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$4.7 million (before interest and penalties if
applicable), calculated on the basis that the relevant withholding
tax rate has been 30% since the inception of the Company.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SFEFIWFESEIU
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