TIDMTLI
RNS Number : 2404B
Alternative Asset Opps PCC Ltd
28 February 2014
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Half-Yearly Announcement of Results
For the period from 1 July 2013 to 31 December 2013
At a meeting of the Board of Directors held on 27 February 2014,
the unaudited half yearly accounts for the Company for the period
from 1 July 2013 to 31 December 2013 were approved, details of
which are attached.
The financial information set out in this announcement does not
constitute the Company's statutory accounts for the period from 1
July 2013 to 31 December 2013, but is derived from those accounts.
Printed accounts for the period from 1 July 2013 to 31 December
2013 will be delivered to Shareholders during March 2014.
The financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS). Whilst the
financial information included in this announcement has been
computed in accordance with IFRS, this announcement does not itself
contain sufficient information to comply with IFRS. The Company
will publish condensed financial statements that comply with IFRS
in March 2014. This announcement has been prepared using accounting
policies consistent with those set out in the Company's half yearly
report and financial statements for the period from 1 July 2013 to
31 December 2013.
Peter Ingram
Company Secretary
Telephone number: 020 7065 1467
199 Bishopsgate
London EC2M 3TY
28 February 2014
INVESTOR INFORMATION
For the period from 1 July 2013 to 31 December 2013
General information
Alternative Asset Opportunities PCC Limited (the "Company") was
registered on 27 February 2004 in Guernsey, as a closed-ended
protected cell company in accordance with the provisions of The
Protected Cell Companies Ordinance, 1997 and The Companies
(Guernsey) Law, 2008. It was established with one Cell known as the
US Traded Life Interests Fund (the "Fund") which had a planned life
of approximately 8 years from the date of launch. The Company is
regulated by the Guernsey Financial Services Commission as an
authorised fund under the Protection of Investors (Bailiwick of
Guernsey) Law, 2008, as amended.
Following a Special Resolution passed at an Extraordinary
General Meeting on 28 August 2009, the Articles of Incorporation
were amended to move from having a fixed life in respect of the
Company's Cell, US Traded Life Interests Fund (terminating on 31
March 2012) to offering shareholders annual continuation votes from
the Company's 2012 Annual General Meeting onward.
With effect from 1 September 2009, the Company has been managed
with a view to being approved as an Investment Trust within the
meaning of the Corporation Tax Act 2010, and has been resident in
the UK for tax purposes from that date.
The Company's redeemable participating preference shares (the
"Shares") were admitted to the Official List of the UK Listing
Authority and commenced trading on the London Stock Exchange on 25
March 2004.
The interim financial information for the period from 1 July
2013 to 31 December 2013 has not been audited or reviewed in
accordance with International Standard on Review Engagement 2410
issued by the Auditing Practices Board. The financial information
for the year ended 30 June 2012 is derived from the financial
statements delivered to the UK Listing Authority and do not
constitute statutory accounts within the meaning of section 243 of
The Companies (Guernsey) Law, 2008. The Auditors reported on these
accounts, their report was unqualified, although it included an
emphasis of matter paragraph in connection with the valuation of
traded life interests, but did not contain a statement under
Section 263 (2) of The Companies (Guernsey) Law, 2008.
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").
INVESTOR INFORMATION (CONTINUED)
For the period from 1 July 2013 to 31 December 2013
Directors Registrar
CPG Tracy (Chairman) Capita Registrars (Guernsey)
DIW Reynolds (Chairman of the Limited
Audit Committee) Mont Crevelt House
T J Emmott Bulwer Avenue
JPHS Scott St Sampson
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)
Allianz Global Investors Europe Allied Irish Banks
GmbH, UK Branch St Helen's
(formerly RCM (UK) Limited) 1 Undershaft
199 Bishopsgate London EC3A 8AB
London EC2M 3TY
Secretary Banker (Guernsey)
Allianz Global Investors Europe Kleinwort Benson (Channel Islands)
GmbH, UK Branch Limited
(formerly RCM (UK) Limited) Dorey Court, Admiral Park
199 Bishopsgate St Peter Port
London EC2M 3TY Guernsey GY1 2HT
Represented by PWI Ingram FCIS
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 Freehills LLP Wells Fargo Bank Northwest N.A.
Exchange House 260 North Charles Lindbergh Drive
Primrose Street Salt Lake City
London EC2A 2HS UT 84116
Legal Advisers (Guernsey) Financial Adviser and Corporate
Carey Olsen Broker
PO Box 98 Westhouse Securities Limited
Carey House Heron Tower
Les Banques 110 Bishopsgate
St Peter Port London EC2N 4AY
Guernsey GY1 4BZ
Recognised Auditor
Deloitte LLP
Regency Court
Glategny Esplanade
St Peter Port
Guernsey GY1 3HW
INVESTOR INFORMATION (CONTINUED)
For the period from 1 July 2013 to 31 December 2013
Directors
The Directors have been chosen for their investment and
commercial experience and are listed below:
Charles Tracy, Chairman, (aged 68) 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 70)is a former Chief Executive of Commercial
Union Life Assurance Company. He is a director of The Equitable
Life Assurance Society, a former director of Liverpool Victoria
Friendly 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.
Tim Emmott (aged 61) has over 35 years' experience in banking
and investment in a variety of analytical, trading and management
roles. He has been involved in investing in distressed, illiquid
and alternative financial assets for the past 20 years and was
formerly a director of Economic Lifestyle Property Investment
Company Limited, a fund until recently listed on the Channel
Islands Stock Exchange. He is UK resident.
John Scott (aged 61)is currently a director of several UK
investment trusts and is Chairman of Scottish Mortgage Investment
Trust PLC and of Alpha Insurance Analysts Ltd. Mr Scott held a
number of senior appointments at Lazard Brothers & Co., Limited
between 1981 and 2001. Prior to that, he worked at Jardine Matheson
& Co., Limited. He is a Fellow of the Chartered Insurance
Institute and of the Chartered Institute for Securities and
Investment. He is UK resident.
The Investment Manager
The Investment Manager, SL Investment Management Limited, which
is authorised and regulated in the United Kingdom by the Financial
Conduct Authority, was formed in 1990 and is an investment adviser
for a range of specialist investment products.
The Manager
Allianz Global Investors Europe GmbH, UK Branch, which is
authorised by Bundesanstalt für Finanzdienstleistungsaufsicht
(BaFin) and which is subject to limited regulation by the Financial
Conduct Authority, is manager of a number of closed-ended
investment companies with approximately GBP1.16 billion of such
assets under management in a range of investment companies and
investment trusts as at 31 December 2013. The Manager is
responsible for managing the cash and fixed interest holdings of
the Fund.
RESPONSIBILITY STATEMENT
For the period from 1 July 2013 to 31 December 2013
We confirm to the best of our knowledge:
a) the half yearly report and unaudited condensed financial
statements which have been prepared in accordance with IAS 34,
gives a true and fair view of the assets, liabilities, financial
position and profit and loss of the Company;
b) the interim management report (contained in the Chairman's
Statement, Investment Manager's Report and Manager's Report)
includes a fair review of the information required by Disclosure
and Transparency Rule 4.2.7R (indication of important events during
the first six months, and their impact on the financial statements,
and a description of principal risks and uncertainties for the
remaining six months of the year); and
c) the interim management report includes a fair review of the
information required by Disclosure and Transparency Rule 4.2.8R
(disclosure of related party transactions and changes therein).
By order of the Board
DIW Reynolds JPHS Scott
Director Director
28 February 2014
FINANCIAL HIGHLIGHTS
For the period from 1 July 2013 to 31
December 2013
------------------------------------------------------- -------------- --------------
01.07.13 01.07.12 01.07.12
to 31.12.13 to 31.12.12 to 30.06.13
(6 months) (6 months) (12 months)
Shares in issue 72,000,000 72,000,000 72,000,000
Net Assets at GBP33,036,994 GBP39,107,438 GBP34,907,478
period end
Net asset value per Share at
period end 45.9p 54.3p 48.5p
Total deficit on ordinary activities
for the (2.60p) (6.25p) (12.02p)
financial period
per Share
Revenue deficit per Share (0.61p) (1.37p) (1.86p)
The half-yearly financial reports have neither been audited nor
reviewed by the Company's auditors. The financial information for
the period ended 30 June 2013 has been extracted from the audited
financial statements for that period.
Dividends
The Directors do not propose a dividend for the period from 1
July 2013 to 31 December 2013.
CHAIRMAN'S STATEMENT
For the period from 1 July 2013 to 31 December 2013
Summary
The six months since 1 July 2013 have seen a very satisfactory
rate of policy maturities, resulting in a positive cash flow, and
no borrowings as at 31 December 2013. Currently, once proceeds are
received from three policy maturities identified to date in 2014,
the Company will have enough cash to pay all its outgoings until
July 2014, even without further maturities. Policy maturities
identified since 30 June already exceed $14 million.
While the possibility of returning funds to shareholders depends
principally on a continuing flow of maturities, the Company is now
moving to a more flexible policy which will allow such a
distribution, and preliminary discussions have begun on the most
appropriate mechanism to achieve this. Approval by shareholders at
a General Meeting is likely to be required, and the Board's policy
will also be subject to any constraints imposed by banking
arrangements and the ongoing requirement to maintain an adequate
working capital cushion to meet operational costs, principally the
payment of premiums on policies.
Agreement has been reached in principle for a US$10 million
revolving credit facility committed until 31 March 2016 with the
Company's bankers, Allied Irish Banks ("AIB"), following the expiry
of the current facility on 31 March 2014.
As at 31 December 2013, the Net Asset Value ("NAV") was 45.9
pence per share (adjusted from the initially published figure of
45.1 pence per share to reflect two policy maturities which
occurred before the year end but for which death certificates were
received only after publication). This compares with the NAV as at
30 June 2013 of 48.5 pence per share. The benefit of maturities in
the period was offset by the strength of sterling, without which
the NAV would have improved by 3.4 pence per share.
Portfolio developments
A summary of portfolio maturities since inception is given in
the following table:
Period 76 months 12 months 12 months 12 months 6 months
------------------- ------------ ------------ ------------ ------------ ----------
Dates Inception 01/07/10 01/07/11 01/07/12 01/07/13-
- 30/06/10 - 30/06/11 - 30/06/12 - 30/06/13 31/12/13
------------------- ------------ ------------ ------------ ------------ ----------
Number of
policies matured 24 6 8 7 7
------------------- ------------ ------------ ------------ ------------ ----------
Number of
lives relating
to matured
policies 20 6 6 5 7
------------------- ------------ ------------ ------------ ------------ ----------
Value of policies
matured ($
million) $38.2m $13.0m $16.9m $5.7m $9.8m
------------------- ------------ ------------ ------------ ------------ ----------
Premiums paid
($ million) $45.6m $8.0m $8.4m $8.2m $4.1m
------------------- ------------ ------------ ------------ ------------ ----------
The realised gains on maturing policies in the last six months
amounted to approximately $5.0 million in the period, or 4.4 pence
per share (compared to $2.3 million, or 2.0 pence per share, in the
preceding 12 months).
CHAIRMAN'S STATEMENT
For the period from 1 July 2013 to 31 December 2013
As at 31 December 2013 there were a total of 95 policies in the
portfolio, representing 83 lives, with a face value of US$150.1
million and a valuation of US$52.8 million. There have been no
policy acquisitions since completion of the original policy
purchase programme, but premiums continued to be payable on
existing holdings, totalling US$4.1 million during the half
year.
Since 31 December 2013, three policy maturities have been
identified relating to two lives. The total face value of these
three policies is US$4.25 million. Once recognised in the NAV,
these three maturities will result in an increase in NAV of
approximately 2.7 pence per share.
The following paragraphs cover the other principal issues facing
the Company, including the valuation of policies.
Valuation
I reported on a significant change of valuation methodology in
my last report. There has been no subsequent change in methodology,
with life expectancies ("LEs") now being obtained from three,
compared to two, independent assessors.
The current NAV as released to the market is a Directors'
valuation, prepared with assistance from 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.
There has been no material change in the mortality tables since
my last report. The Company has periodically been obtaining updated
LE information on a selection of policies in the portfolio. LE
updates were obtained on 24 lives (27 policies) representing 41% of
the portfolio by value, during the half-year, so that 51% of the
portfolio is now covered by an LE obtained since 1 April 2013. The
programme for updating LEs continues as the Board has instructed LE
updates for a further 12 lives (17 policies), representing 14% of
the portfolio by face value. It is expected that the majority of
these new LEs will be received, and therefore incorporated into the
valuation, by the end of March 2014, so that 65% of the portfolio
will be covered by LE assessments obtained since 1 April 2013.
The valuation model currently uses an IRR of 12%, intended to
reflect market pricing in an admittedly thin market. Given that
interest rates are low, and are likely to remain stable, this
implies a significant risk premium above current interest rates.
Historical sales of policies by the Company have also given support
to the use of a 12% IRR, but it must be cautioned that information
on market trades is sparse. The Board thus continues to believe
that the 12% IRR assumption remains appropriate but, as before, is
providing information on the effect of differing IRRs and LEs in
the table below.
- 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 April 2013) or, for the
remaining policies an adjusted LE based on the most recent LE
obtained, increased by 12%. The average LE is shown for reference
(4.9 years). NAV is then
CHAIRMAN'S STATEMENT
For the period from 1 July 2013 to 31 December 2013
shown at four different discount rates, ranging from 10% to
20%.
- The second line shows the effect of an increase of one year in the valuation LEs.
- The third line shows the effect of a decrease of one year in the valuation LEs.
- 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 i.e. ignoring
medical assessments. This shows that portfolio LEs are now very
much in line with the general population.
Sensitivity Matrix
Net Asset Value in pence per share on various assumptions as at
31 December 2013
Discount Rates applied to cash
flows
----------------------- --------- -------------------------------------
Weighted
Average Current
Mortality Assumptions LE 10% (12%) 16% 20%
----------------------- --------- ------- -----------
Latest LE 4.9 48.8 45.9 40.9 37.0
----------------------- --------- ------- ----------- ------- ------
+1 year for all
LEs 5.9 36.2 33.6 29.4 26.1
----------------------- --------- ------- ----------- ------- ------
- 1 year for all
LEs 3.9 62.8 59.7 54.4 50.0
----------------------- --------- ------- ----------- ------- ------
Using VBT 5.0 48.7 45.6 40.5 36.4
----------------------- --------- ------- ----------- ------- ------
Policies and extension options
In earlier reports I have referred to the fact that some
policies lapse after the final premium is paid (typically at age
100), but that for a large proportion of policies in the portfolio
benefits continued to be payable. I refer to these latter policies
as policies with an extension option.
As it is now some time since I commented on this aspect of the
portfolio, I thought that this might be an appropriate opportunity
to provide some more detail as, with the passage of time, the
probability of some policies expiring increases.
Policies Lives Death benefit % Death Investment % Investment
US$000 benefit value value
US$000
--------------------- --------- --------- -------------- --------- ----------- -------------
No Expiry date 38 31 64,097 42.7% 22,025 41.7%
--------------------- --------- --------- -------------- --------- ----------- -------------
Extension to
age 115 7 7 10,300 6.9% 2,736 5.2%
--------------------- --------- --------- -------------- --------- ----------- -------------
Extension to
death with reduced
death benefit
after age 100 3 3 6,500 4.3% 2,924 5.5%
--------------------- --------- --------- -------------- --------- ----------- -------------
No extension 47 42 69,242 46.1% 25,109 47.6%
--------------------- --------- --------- -------------- --------- ----------- -------------
95 83 150,139 11.2% 52,793 10.7%
--------- --------- -------------- --------- ----------- -------------
For the 47 policies without an extension option, the average age
of the insured is currently 90.3 years, while the policy expiry
dates are at an average age of 100.3 years, giving an average time
to expiry of 10.0 years. According to the latest LE data we have on
record, the
CHAIRMAN'S STATEMENT
For the period from 1 July 2013 to 31 December 2013
average LE for these insureds is 4.9 years, so insureds would on
average have to live for over twice as long as expected for these
policies to expire. Within this range of policies, of course, there
are some which are more likely to expire than others. Five
policies, for example, have an interval of less than three years
between their expected maturity and the expiry date. It should be
noted however that two of these policies relate to one mortality
identified since 31 December 2013, and will therefore exit the
portfolio in early 2014. Only one life insured in this category is
aged over 94 (current policy value US$0.7 million, face value US$2
million).
Excluding the pending maturities referenced above, 16 policies
have a calculated actuarial possibility of expiring of over 10%.
Only four policies have a probability of expiring of over 20%.
All of this information is factored into the valuation for each
policy and was incorporated into the purchase price calculations.
In addition, such policies tend to have lower premiums. In
actuarial terms, they simply have a different risk profile to the
policies with extension options. All policies carry a risk; in the
case of those with extension options there is a risk that the
insured will live beyond his expected LE, resulting in premium
payments for a longer period and a delay in the receipt of maturity
proceeds.
Borrowings and cash flow
One consequence of the positive cash flow from policy maturities
is that during the six month period to 31 December 2013 the
Company's total borrowings fell from US$5,939,000 to a nil balance;
with maturities since the year-end the Company now has a net
positive cash balance and sufficient funds to pay outgoings until
July 2014. It remains important for the Company to have access to
credit facilities, given the unpredictable nature of its short-term
cash flows, and agreement in principle has been reached with AIB
for a new loan facility beyond the expiry of the current facility
on 31 March 2014. This will take the form of a two year revolving
credit facility rather than a reducing loan, and will give the
Company greater flexibility in its cash flow planning.
Currency
From 30 March 2012, the date the Company settled its forward
currency contracts, the Company has operated on an unhedged
basis.
At 31 December 2013, the Company's net US dollar exposure
amounted to US$55,100,000, being the value of policies,
US$52,800,000, plus certain US$ balances totalling
US$2,300,000.
The strength of sterling during the six months has had a
material adverse effect on the Net Asset Value per Share. On 30
June 2013 the GBP/US$ exchange rate was 1.5170, but by 31 December
2013 the rate had moved to 1.6562, a change of 9.2%.
Related Party Transactions
There have been no changes to the related party arrangements or
transactions as reported in the statutory Annual Financial Report
for the year ended 30 June 2013.
CHAIRMAN'S STATEMENT (continued)
For the period from 1 July 2013 to 31 December 2013
Statement of Principal Risks and Uncertainties
The Company's assets consist mainly of US Traded Life Interests
and its principal risks are market and longevity risk, currency
risk, interest rate risk and credit risk. These risks, and the
way they are managed, are described in more detail within the
Directors' Report in the Company's Annual Financial Report for the
year ended 30 June 2013. The Company's principal risks and
uncertainties have not changed since the date of that report. The
credit
rating of the underlying insurance companies issuing the TLI
policies in the portfolio remains good with 94.4% rated A or better
by AM Best.
Audit Tender
Deloitte LLP has acted as the Company's auditors since launch in
2004. In line with current best practice the Audit Committee has
now agreed to put the audit out to tender. Contact has been made
with a number of international auditing firms, including the
present incumbents, with a view to putting forward proposals to act
as the Company's auditors for the financial
year ending 30 June 2015. Shareholders will be advised of the
outcome of these discussions in due course.
Outlook
There has been a significant improvement in the Company's
position during the course of the last six months, with maturities
in the period exceeding those for the whole of last year.
Maturities will always be unpredictable, especially given the
predominance of larger policies in the portfolio, but the Board is
optimistic that what we have experienced over the past year lays
the ground for returning funds to shareholders in due course, which
has always been the Company's intention.
The Company holds a well-diversified portfolio of 83 lives (95
policies) with an average life insured age of 90 policies. With
$150 million of death benefits, compared with a carrying value of
$53 million, combined with a strong liquidity position, the Company
is well placed to hold its portfolio and realise gains over the
coming years as maturities inevitably occur.
CPG Tracy
Chairman
27 February 2014
INVESTMENT MANAGER'S REVIEW
For the period from 1 July 2013 to 31 December 2013
Investment Portfolio Review
During the six month period from 1 July 2013 to 31 December 2013
there were seven policy maturities with a total death benefit of
$9.8m. The seven maturities related to seven individual lives,
three males and four females. As of 31 December 2013, 95 policies
remained within the portfolio with exposure to 83 individual
lives.
Cumulatively, as of 31 December 2013 there have been 52 policy
maturities across 44 lives since inception. Death benefits from all
maturities total $83.5m, realising a $38.0m gain.
Since 31 December 2013, a further three maturities, relating to
two lives, have been identified. The total death benefit for these
three policies is $4.25m.
Portfolio Summary
Death Benefits US$150.1m
---------------------------------- ----------
Investments at Carrying Value US$52.8m
---------------------------------- ----------
Number of Holding Life Companies 27
---------------------------------- ----------
Averages weighted by Death Benefits
Male/Female ratio at purchase 66%/34%
------------------------------- -----------
Age at purchase 81.7 years
------------------------------- -----------
LE at purchase 8.0 years
------------------------------- -----------
Male/Female ratio 64%/36%
------------------------------- -----------
Current Age 90.0 years
------------------------------- -----------
Current LE 4.9 years
------------------------------- -----------
Premium Payments
The expected cost of premiums for the six month period ending 30
June 2014 is $4.4m. In the following 12-month accounting period
ending 30 June 2015, scheduled premium commitments are $9.3m,
assuming no maturities during this time. SL Investment Management
continues the on-going review of all policy statements to identify
any scope for further optimisation of the premium payment
schedules.
Life Expectancy Estimates
There have been no significant adjustments to estimated life
expectancies by any of the major LE assessment companies during the
period.
Following the LE update programme undertaken during 2013, at the
end of the period 51% of the portfolio by death benefit is valued
using LE assessments dated after 1 April 2013. The Board has
initiated a further programme of LE updates for Q1 2014,
representing an additional 14% of the portfolio.
The following table shows the distribution by death benefit of
the policies by LE band. Policies are grouped 6 month LE bands and
the table shows the number of policies and the total death benefit
in each group. The LEs are the valuation LEs used for the 31
December 2013 valuation.
INVESTMENT MANAGER'S REVIEW
For the period from 1 July 2013 to 31 December 2013
It is important to note that the LE is an average of the
estimated length of future lifetime for an individual with a given
age and health status. The table is not, therefore, a prediction of
when actual maturities will occur and is thus not a cashflow
forecast.
LE band No. of Total Death % of death Total Valuation % of valuation
(years) lives Benefit benefit US$'000
US$'000
---------- ------------- ------------ ----------- ---------------- ---------------
0< LE<1 0 0 0.0 0 0.0
---------- ------------- ------------ ----------- ---------------- ---------------
1< LE<2 1 1,300 0.9 941 1.8
---------- ------------- ------------ ----------- ---------------- ---------------
2< LE<3 3 7,500 5.0 3,672 7.0
---------- ------------- ------------ ----------- ---------------- ---------------
3< LE<4 16 26,287 17.5 12,833 24.3
---------- ------------- ------------ ----------- ---------------- ---------------
4< LE<5 25 45,885 30.6 17,969 34.0
---------- ------------- ------------ ----------- ---------------- ---------------
5< LE<6 19 32,155 21.4 10,001 18.9
---------- ------------- ------------ ----------- ---------------- ---------------
6< LE<7 13 26,513 17.7 5,645 10.7
---------- ------------- ------------ ----------- ---------------- ---------------
7< LE<8 4 7,500 5.0 1,114 2.1
---------- ------------- ------------ ----------- ---------------- ---------------
LE> 8 2 3,000 2.0 618 1.2
---------- ------------- ------------ ----------- ---------------- ---------------
Total 83 150,139 100 52,793 100
---------- ------------- ------------ ----------- ---------------- ---------------
Life Group (Parent Company) Distribution (Top 5)
Ranking by Parent Company % Total Death % Investment
total death Benefits Value
benefit
------------- ----------------------------- -------------- -------------
American International
1 Group, Inc 18.7% 20.4%
------------- ----------------------------- -------------- -------------
2 Lincoln National Corporation 21.0% 19.5%
------------- ----------------------------- -------------- -------------
3 AEGON N.V. 15.4% 16.3%
------------- ----------------------------- -------------- -------------
Massachusetts Mutual
4 Life Insurance Co 5.1% 6.8%
------------- ----------------------------- -------------- -------------
5 ING Groep N.V. 4.1% 6.0%
------------- ----------------------------- -------------- -------------
Credit Quality Distribution by Holding Life Company
Following the acquisition of Aviva US by Athene Holding Ltd,
A.M. Best has downgraded Aviva Life and Annuity Company and its
wholly owned subsidiary, Aviva Life and Annuity Company of New
York. Both companies were downgraded to B++ from A- during the
period.
A.M. Best cited anticipated earnings volatility and sales
disruption arising from the change of ownership as the main reason
for the downgrade. A.M. Best also stated that an upward rating
movement could be achieved if Athene can quickly demonstrate strong
financial performance and minimal disruption from the Aviva USA
integration.
This affects 6 policies in the portfolio with a total face value
of $7.5m equating to 5.0% of the portfolio. Overall, 94.4% of the
portfolio by face value has an A.M. Best rating of A or higher.
INVESTMENT MANAGER'S REVIEW
For the period from 1 July 2013 to 31 December 2013
AM Best Policy Life Company Total % Total Total Investment % Total Investment
Rating Count Count death Death Benefit Value US$'000 Value
benefit
US$'000
--------- ------- ------------- --------- --------------- ----------------- -------------------
A++ 9 2 14,132 9.4% 5,793 11.0%
--------- ------- ------------- --------- --------------- ----------------- -------------------
A+ 61 14 89,292 57.9% 28,264 53.5%
--------- ------- ------------- --------- --------------- ----------------- -------------------
A 17 7 38,250 25.5% 15,948 30.2%
--------- ------- ------------- --------- --------------- ----------------- -------------------
A- 2 2 950 0.6% 266 0.5%
--------- ------- ------------- --------- --------------- ----------------- -------------------
B++ 6 2 7,515 5.0% 2,522 4.8%
--------- ------- ------------- --------- --------------- ----------------- -------------------
95 27 150,139 100% 52,793 100%
------- ------------- --------- --------------- ----------------- -------------------
Period Review
In terms of number of policies, this six month reporting period
witnessed the same number of maturities as witnessed during the
previous twelve months, which is in itself encouraging.
The average death benefit associated with each life insured in
the portfolio is $1.8m, but there is considerable variation in the
size of individual death benefit amounts. The table below
illustrates the distribution of the 83 lives in the portfolio by
death benefit as at 31 December 2013. Where a life insured
represents more than one policy in the portfolio, the life is
categorised according to the total death benefit relating to that
life:
No. of Total Death Total Valuation % of valuation
Policy bands lives Benefit US$'000
(face value) US$'000
---------------- -------- --------------- ------------------------ ---------------
$0m<NDB<$0.5m 11 3,615 1,246 2.4
---------------- -------- --------------- ------------------------ ---------------
$0.5m<NDB<$1m 17 10,244 3,441 6.5
---------------- -------- --------------- ------------------------ ---------------
$1m<NDB<$2.5m 33 48,389 16,569 31.4
---------------- -------- --------------- ------------------------ ---------------
$2.5m<NDB<$5m 13 41,151 14,295 27.1
---------------- -------- --------------- ------------------------ ---------------
$5m<NDB<$6.0m 9 46,741 17,242 32.7
---------------- -------- --------------- ------------------------ ---------------
Total 83 150,139 52,793 100
---------------- -------- --------------- ------------------------ ---------------
It can be seen that a significant proportion of the total death
benefit is represented by a relatively small proportion of lives.
22 lives (27% of total lives) account for 60% of the total death
benefit and 60% of the reported valuation.
Market Review
During the second half of 2013, life settlement activity
remained high, with a noticeable return of capital to both the
secondary and tertiary markets. The increased competition for
policies has resulted in secondary market prices reaching levels
not seen since 2008.
Consistent demand for policies is starting to provide brokers
with sufficient confidence to invest in marketing to agents and
direct to US seniors to increase policy supply. Previously,
INVESTMENT MANAGER'S REVIEW
For the period from 1 July 2013 to 31 December 2013
the prices that buyers were willing to pay were often below the
cash surrender values offered by the insurance company so many
brokers were unwilling to invest in marketing campaigns.
A number of tertiary portfolios have also reportedly transacted
during the year, the largest relating to a portfolio representing
$4.2bn in total death benefit. Information regarding the
transaction prices of such deals is not available.
On a regulatory note, Massachusetts has become the 42nd US state
to regulate the life settlement market with the signing of a Bill
that allows policies to be settled two years after issue and also
includes provisions on licensing and measures to thwart
Stranger-Originated Life Insurance.
Texas has become the first US state to enact a bill that allows
policy owners to enter into a life settlement contract and use the
proceeds to pay for long term care through Medicaid. As well as
encouraging seniors to sell their life settlement policies, the
publicity surrounding the introduction of the bill, which came into
effect on 1 January 2014, should serve to increase awareness of the
life settlement option and therefore may increase secondary market
supply. Similar legislation is under consideration in California,
Maine, New Jersey and New York.
Outlook
There are strong indications that further investment capital
will enter the market during 2014, the majority of which will be
via institutional investors. Pension funds are expected to increase
their exposure to life settlements during 2014 as they continue to
seek investments that are not highly correlated to the equity or
bond markets.
If the secondary market does remain competitive, large investors
will increasingly turn to the tertiary market to attempt to source
policies from existing portfolio holders. Although it is likely
that the buy and hold investment strategy adopted by the Company
will continue to be in the best interests of shareholders, market
conditions will continue to be monitored closely to identify any
favourable sales opportunities, should they arise.
SL Investment Management Limited
27 February 2014
MANAGER'S REVIEW
For the period from 1 July 2013 to 31 December 2013
Borrowings
Between 30 June 2013 and 31 December 2013 the balance on the
Company's loan account with Allied Irish Banks fell from
US$5,939,000 to a nil balance as a result of receipts from matured
policies totalling US$10,315,000.
Since the period-end the Company has drawn down a further US$2
million and has repaid a further US$1.25 million from matured
policies and, as a result, a further US$3,000,000 remains available
under the current Facility Letter dated 30 October 2012. The total
loan balance now stands at US$750,000, and the Company holds enough
cash to fund its premium payments and expenses until at least July
2014.
The Company has agreed in principle a new Revolving Credit
Facility of US$10 million with Allied Irish Banks for a further two
years from 31 March 2014 to cover its funding requirements beyond
that date.
Change of Manager
As previously reported in the Annual Financial Report, RCM (UK)
Limited merged into Allianz Global Investors Europe GmbH
("AllianzGI Europe") on 31 October 2013, pursuant to the European
Cross-Border Merger Directive 2005/56/EC.
As a result of the merger, AllianzGI Europe has become the
Manager and Company Secretary of the Fund and has replaced RCM (UK)
Limited as a party to the agreements that it had entered into in
connection with services that it provided to the Fund.
AllianzGI Europe's duties as the Manager and Company Secretary
are performed out of its UK Branch and the same personnel perform
the relevant functions as they did previously.
US dollar exposure
The Company no longer hedges its US dollar exposure, so the
Company is fully exposed to the effect of exchange rates upon its
US dollar positions.
Allianz Global Investors Europe GmbH, UK Branch
27 February 2014
CONDENSED STATEMENT OF COMPREHENSIVE INCOME
For the period from 1 July 2013 to 31 December 2013
Notes 01.07.13 to 31.12.13 01.07.12 to 31.12.12 01.07.12 to 30.06.13
Revenue Capital Total Revenue Capital Total Revenue Capital Total
GBP GBP GBP GBP GBP GBP GBP GBP GBP
Operating
income
Net losses
on
investments 9 - (1,413,595) (1,413,595) - (2,719,194) (2,719,194) - (6,378,059) (6,378,059)
Other
foreign
exchange
(losses)
/gains 14 - (18,173) (18,173) - 289,643 289,643 - 198,281 198,281
Interest and
similar
income 3 103 - 103 2,409 - 2,409 3,775 - 3,775
------------ -------------- -------------- ------------ -------------- -------------- ------------ -------------- --------------
103 (1,431,768) (1,431,665) 2,088 (2,429,551) (2,427,142) 3,775 (6,179,778) (6,176,003)
Operating
expenses
Management
fee 4 (55,384) - (55,384) (68,769) - (68,769) (146,320) - (146,320)
Investment
manager's
fee 4 (73,698) - (73,698) (68,769) - (68,769) (156,423) - (156,423)
Custodian
fee (8,686) - (8,686) (8,596) - (8,596) (18,289) - (18,289)
Other
expenses 5 (200,985) - (200,985) (199,675) - (199,675) (338,854) - (338,854)
Total
operating
expenses
before
finance
costs (338,753) - (338,753) (345,809) - (345,809) (659,886) - (659,886)
Operating
loss
before
finance
costs (338,650) (1,431,768) (1,770,418) (343,400) (2,429,551) (2,772,951) (656,111) (6,179,778) (6,835,889)
Finance
costs
Finance
charges
including
bank
interest 12 (100,066) - (100,066) (334,642) - (334,642) (471,664) - (471,664)
Net deficit (438,716) (1,431,768) (1,870,484) (678,042) (2,429,551) (3,107,593) (1,127,775) (6,179,778) (7,307,553)
============ ============== ============== ============ ============== ============== ============ ============== ==============
Deficit per
share 7 (0.61p) (1.99p) (2.60p) (1.37p) (4.88p) (6.25p) (1.86p) (10.17p) (12.02p)
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 22 to 33 are an integral part of these
condensed financial statements.
CONDENSED STATEMENT OF FINANCIAL POSITION
As at 31 December 2013
Notes 31.12.13 31.12.12 30.06.13
GBP GBP GBP
Non-current assets
Financial assets at fair value
through profit or loss 9 31,875,123 39,570,506 36,937,381
Current assets
Cash and cash equivalents 513,100 1,125,116 558,411
Other receivables 10 9,991 10,359 6,685
Maturity proceeds receivable 880,997 - 988,989
1,404,088 1,135,475 2,068,336
--------------- --------------------- -------------
Total assets 33,279,211 40,705,981 39,005,717
=============== ===================== =============
Current liabilities
Bank loan 12 - 1,377,364 3,915,675
Other payables 11 242,217 221,179 182,564
242,217 1,598,543 4,098,239
--------------- --------------------- -------------
Total liabilities 242,217 1,598,543 4,098,239
--------------- --------------------- -------------
Net assets attributable to
shareholders 14 33,036,994 39,107,438 34,907,478
Total equity and liabilities
(including amounts due to
shareholders) 33,279,211 40,705,981 39,005,717
=============== ===================== =============
Net asset value per share 8 45.9p 54.3p 48.5p
These condensed financial statements were approved by the Board
of Directors on 27 February 2014.
Signed on behalf of the Board.
DIW Reynolds JPHS Scott
Director Director
27 February 2014
The notes on pages 22 to 33 are an integral part of these
condensed financial statements.
CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' FUNDS
For the period from 1 July 2013 to 31 December 2013
Share Capital Revenue
Premium Reserve Reserve Total
GBP GBP GBP GBP
At 1 July 2012 39,168,236 970,102 (7,670,039) 32,468,299
Deficit for the period - (2,429,551) (678,042) (3,107,593)
Issue of shares 9,746,732 - - 9,746,732
At 31 December 2012 48,914,968 (1,459,449) (8,348,081) 39,107,438
------------- ------------ ------------ -------------
Deficit for the period - (3,750,227) (449,733) (4,199,960)
At 30 June 2013 48,914,968 (5,209,676) (8,797,814) 34,907,478
------------- ------------ ------------ -------------
Deficit for the period - (1,431,768) (438,716) (1,870,484)
At 31 December 2013 48,914,968 (6,641,444) (9,236,530) 33,036,994
------------- ------------ ------------ -------------
The notes on pages 22 to 33 are an integral part of these
condensed financial statements.
CONDENSED STATEMENT OF CASH FLOWS
For the period from 1 July 2013 to 31 December 2013
01.07.13 01.07.12 01.07.12
to 31.12.13 to 31.12.12 to 30.06.13
GBP GBP GBP
Cash flows from operating activities
Revenue account operating loss before
finance costs for the period (338,650) (343,400) (656,111)
Decrease in other receivables 104,686 8,932,337 7,947,021
Increase (decrease) in other payables 59,653 (1,750) (40,365)
Premiums paid (2,625,592) (2,580,370) (5,237,071)
Proceeds from maturity of investments 6,274,255 2,104,445 3,735,406
Net cash inflow from operating activities 3,474,352 8,111,262 5,748,880
------------ ------------- -------------
Financing activities
Decrease in bank loan (3,915,675) (17,246,290) (14,707,979)
Interest paid (100,066) (334,642) (471,664)
Shares issued - 9,746,732 9,746,732
------------ ------------- -------------
Net cash outflow from financing activities (4,015,741) (7,834,200) (5,432,911)
------------ ------------- -------------
Reconciliation of cash flow to movement
in net cash
Decrease (increase) in cash and cash
equivalents in the period (541,389) 277,062 315,969
Cash and cash equivalents at the beginning
of the period 1,072,662 558,411 558,411
Effects of foreign exchange (18,173) 289,643 198,282
Cash and cash equivalents at the end
of the period 513,100 1,125,116 1,072,662
------------ ------------- -------------
The notes on pages 22 to 33 are an integral part of these
condensed financial statements.
PORTFOLIO OF INVESTMENTS
As at 31 December 2013
Total Portion
Number Death of AM Best
Traded Life Interests ("TLI's") of Policies Valuation Benefit Portfolio Rating*
GBP GBP %
Issuer
American General Life Insurance
Company 10 6,515,958 16,935,861 20.4 A
Lincoln National Life Insurance
Company 14 5,962,772 17,975,298 18.7 A+
Transamerica Life Insurance
Company 18 5,204,864 13,933,413 16.3 A+
Massachusetts Mutual Life Insurance
Company 5 2,182,666 4,608,084 5.6 A++
MetLife Insurance Company of
Connecticut 6 1,631,698 3,930,714 5.1 A+
Security Life of Denver Insurance
Company 1 1,584,797 3,018,870 5.0 A
John Hancock Life Insurance
Company USA 6 1,412,235 4,830,192 4.4 A+
New York Life Insurance and
Annuity Corp 5 1,315,241 3,924,531 4.1 A++
Aviva Life and Annuity Company 4 1,249,796 3,782,644 3.9 B++
Pacific Life Insurance Company 4 799,862 4,861,102 2.5 A+
Genworth Life Insurance Company 1 781,565 1,509,435 2.5 A
Columbus Life Insurance Company 2 535,492 2,415,096 1.7 A+
North American Company for
L & H Insurance 2 331,985 1,207,548 1.0 A+
MONY Life Insurance Company
of America 1 306,385 603,774 1.0 A
AXA Equitable Life Insurance
Company 3 303,496 875,472 0.9 A+
Aviva Life and Annuity Company
of NY 2 272,689 754,718 0.9 B++
Lincoln Life & Annuity Company
of NY 1 262,544 1,056,605 0.8 A+
ING Life Insurance and Annuity
Company 2 214,938 422,642 0.7 A
Lincoln Benefit Life Company 1 207,138 1,207,548 0.7 A+
Jackson National Life Insurance
Company 1 181,031 616,131 0.6 A+
Security Mutual Life Insurance
Company of NY 1 124,558 452,831 0.4 A-
Standard Insurance Company 1 116,609 301,887 0.4 A
ReliaStar Life Insurance Company 1 108,662 301,887 0.3 A
United of Omaha Life Insurance
Company 1 103,992 520,114 0.3 A+
Banner Life Insurance Company 1 70,706 181,132 0.2 A+
General American Life Insurance
Company 1 57,492 301,887 0.2 A+
Beneficial Life Insurance Company 1 35,952 120,754 0.1 A-
Portfolio Total 95 31,875,123 90,650,170 100.00%
============== ============ ============ ===========
*As at the date of this report
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
For the period from 1 July 2013 to 31 December 2013
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 redeemable participating
preference shares (the "Shares") in the Company are listed on the
London Stock Exchange. 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 condensed financial information for the six months ended 31
December 2012 has been prepared in accordance with IAS 34 'Interim
Financial Reporting'. The condensed interim financial information
should be read in conjunction with the annual financial statements
for the year ended 30 June 2013, which have been prepared in
accordance with International Financial Reporting Standards.
The accounting policies applied in the condensed financial
statements are consistent with those of the annual financial
statements for the year ended 30 June 2013, as described in those
financial statements.
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. The exchange rate used for these financial
statements was 1.6255 (June 2012: 1.5685, December
2011:1.5543).
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.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
For the period from 1 July 2013 to 31 December 2013
2 Principal Accounting Policies (continued)
The estimates and underlying assumptions are reviewed on an
on-going basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future
periods, if the revision affects both current and future periods.
Where such judgements are made they are discussed below.
(a) Basis of preparation (continued)
Adoption of new and revised standards
IFRS 13 - explains how to measure fair value and aims to enhance
fair value disclosures. The guidance includes enhanced disclosure
requirements that could result in additional disclosure for
reporting entities. These requirements are similar to those in IFRS
7, 'Financial instruments: Disclosures', but apply to all assets
and liabilities measured at fair value, not just financial ones.
IFRS 13 was adopted for the first time for the period ended 30
September 2013 and will be applied prospectively, subject to
certain transitional provisions. Additional disclosures have been
brought into the interim financial statement in Note 16 of the
interim 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"
IAS 1 (amended) "Presentation of items of other comprehensive
income"
IAS12 (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 Associate 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 standards
listed above will have a material impact on the financial
statements of the Company in future periods.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
For the period from 1 July 2013 to 31 December 2013
2 Principal Accounting Policies (continued)
(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, unless sales are required to meet cash flow
demands. The Company has only invested in Whole of Life and
Universal Life policies. All TLI investments are classified as fair
value through profit and loss.
Recognition and basis of measurement
Purchases of investments are recognised on a trade date basis
and are initially measured 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.
The value of a TLI policy is the present value of its net
expected future cash flows. The calculation uses the following data
and assumptions provided by the Investment Manager:
-- Death benefit payable under the policy;
-- Mortality using to the 2008 Valuation Basic Table (Ultimate)
and the most recent life expectancy for each policy;
-- Premiums due under the policy;
-- An estimate of a market based discount rate derived by the Directors.
If the most recent life expectancy was obtained prior to 1 April
2013 then that life expectancy has
been uplifted by an adjustment factor of 12%.
There is inherent uncertainty within this basis of valuation
that this valuation will differ from the realisable value of these
investments were the TLIs to be sold at the reporting date.
De-recognition
The Company de-recognises a financial asset when the contractual
rights to cash flows from the financial asset expire. A financial
liability is de-recognised when the obligation specified in the
contract is discharged, cancelled or expired. TLI investments are
de-recognised on the date of death of the insured or on the trade
date if the policy is sold.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
For the period from 1 July 2013 to 31 December 2013
2 Principal Accounting Policies (continued)
(c) Going concern
The Board considered carefully the issue of 'going concern',
specifically in relation to funding. Total borrowings under the
agreement with AIB reduced to US$nil as at 31 December 2013 from
circa US$5.9 million as at 30 June 2013.
Agreement in principle has been reached with AIB for a new
revolving credit facility of US$10 million up to 31 March 2016
which should cover the Company's premium and other cost commitments
for at least 12 months.
A continuation vote will be put to the Shareholders at the 2014
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 a reasonable expectation
that the Company has adequate resources to continue in operational
existence for thr foreseeable future, and they continue to adopt
the going concern basis.
3 Interest and similar income
01.07.13 01.07.12 01.07.12
to 31.12.13 to 31.12.12 to 30.06.13
GBP GBP GBP
Bank deposit
interest 103 377 774
Bond interest - 2,032 3,001
Total income 103 2,409 3,775
============ ============ ============
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
For the period from 1 July 2013 to 31 December 2013
4 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 April 2012 the fee payable to the Investment Manager is
0.4% per annum of the Company's Net Asset Value.
Allianz Global Investors Europe GmbH, UK Branch (formerly 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 this agreement.
From 1 April 2012 the fee payable to the Manager is 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
July 2013 the fee payable to the Manager was reduced to 0.3% per
annum of the Company's Gross Assets and the fixed fee for the
provision of Administration and Secretarial Services was increased
to GBP30,000 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.
5 Other expenses
01.07.13 01.07.12 01.07.12
to 31.12.13 to 31.12.12 to 30.06.13
GBP GBP GBP
Administration and accountancy
fees 25,547 25,217 49,699
Secretarial fees 20,201 10,137 19,936
Broker fees 20,560 28,189 48,413
Directors' fees and
expenses** 44,175 60,560 92,948
D&O Insurance 3,798 4,988 10,364
Auditors' remuneration 28,884 12,217 23,933
Legal and professional
fees 10,355 652 10,099
Printing 5,027 6,131 9,355
Safe custody fees - 8,545 17,159
Bank fees and charges 129 249 315
Registrar fees 7,651 7,561 15,073
Cost of obtaining new
LEs 12,329 - 16,269
Sundry expenses * 22,329 35,229 25,291
200,985 199,675 338,854
============ ============ ============
* Sundry expenses include mailing services, tax exempt fees,
stock exchange fees, bank charges and other sundry costs.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (CONTINUED)
For the period from 1 July 2013 to 31 December 2013
** Directors' fees for the six months ended 31 December 2012
include one off additional payments of GBP5,000 per director to
reflect all the extra work done during the year in relation to the
share issue and related matters.
6 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 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 period 1 July 2010 to 30 June
2011.
Under the new investment trust regime rules affecting accounting
periods commencing on or after 1 January 2012 an initial
application must be submitted to HM Revenue & Customs for entry
into the regime and the Company must therefore demonstrate annually
compliance with the regulations. In December 2012 the Company
received confirmation from HM Revenue & Customs as an approved
investment trust for accounting periods commencing on or after 1
July 2012 subject to the Company continuing to meet the eligibility
conditions at Section 1158 Corporation Tax Act 2010 and the
on-going requirements for approved companies in Chapter 3 of Part 2
Investment Trust (Approved Company) Tax Regulations 2011 (Statutory
Instrument 2011/2999).
7 Return per share
Revenue deficit per Share is based on the net deficit
attributable to the Shares of GBP438,716 (December 2012: deficit
GBP678,042, June 2013: deficit GBP1,127,775) and on the average
number of Shares in issue of 72,000,000 (December 2012: 49,739,130,
June 2013: 60,778,082). Capital return per Share is based on the
net capital deficit attributable to the Shares of GBP1,431,768
(December 2012: deficit GBP2,429,551, June 2012: deficit
GBP6,179,778) and on the average number of Shares in issue of
72,000,000 (December: 2012 49,739,130, June 2013: 60,778,082).
8 Net Asset Value per Share
The diluted and undiluted net asset value per Share is based on
net assets attributable to the Shares of GBP33,036,994 (December
2012: GBP39,107,438, June 2013: GBP34,907,478) and on the
72,000,000 Shares in issue at the period end (December 2012 and
June 2013: 72,000,000).
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (CONTINUED)
For the period from 1 July 2013 to 31 December 2013
9 Investments
(a) Investments at fair value through profit
or loss
01.07.13 01.07.12 01.07.12
to 31.12.13 to 31.12.12 to 30.06.13
GBP GBP GBP
Opening valuation 36,937,381 41,813,775 41,813,775
Premiums paid 2,625,592 2,580,370 5,237,071
Proceeds from the maturities
of investments (6,274,255) (2,104,445) (3,735,406)
Realised gains on maturities 2,855,405 601,438 1,139,032
Unrealised movement in depreciation
on revaluation of investments (4,269,000) (3,320,632) (7,517,091)
Closing valuation 31,875,123 39,570,506 36,937,381
============== ============== ==============
Comprising:-
Closing book cost 49,817,275 49,047,199 50,610,534
Closing unrealised depreciation (17,942,152) (9,476,693) (13,937,381)
Closing valuation 31,875,123 39,570,506 36,937,381
============== ============== ==============
(b) Net gain/(loss) on investments 01.07.13 01.07.12 01.07.12
held at fair value through profit
or loss
to 31.12.13 to 31.12.12 to 30.06.13
GBP GBP GBP
Realised gain on maturities 2,855,405 601,438 2,471,093
Movement in unrealised depreciation
on revaluation of investments (4,269,000) (3,320,632) (7,517,091)
(1,413,595) (2,719,194) (6,378,059)
-------------- -------------- --------------
(c) Derivative financial instruments
There were no forward currency contracts as at 31 December
2013, 31 December 2012 or 30 June 2013.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (CONTINUED)
For the period from 1 July 2013 to 31 December 2013
10 Other receivables
31.12.13 31.12.12 30.06.13
GBP GBP GBP
Sundry debtors 9,991 10,359 6,685
Maturity proceeds receivable 880,997 - 988,989
890,988 10,359 995,674
========= ========= =========
11 Other payables
31.12.13 31.12.12 30.06.13
GBP GBP GBP
Accrued expenses 242,217 221,179 182,564
242,217 221,179 182,564
========= ========= =========
12 Borrowings
As at 31 December 2013, under the terms of an agreement with
Allied Irish Banks dated 30 October 2012, the Company had an
amortising term loan of US$nil (31 December 2012: US$238,906, 30
June 2013: US$nil) and had drawn down US$nil (31 December 2012:
US$2,000,000: 30 June 2013: US$5,938,906) under a reducing credit
facility, making a total balance of US$nil (GBPnil) (31 December
2012: US$2,238,906 (GBP1,377,364), 30 June 2013: US$5,938,906)
(GBP3,915,675). Under the reducing credit facility a further
US$5,000,000 (31 December 2012: US$13 million, 30 June 2013:
US$9,000,000) remained available. Since the period end a further
US$2,000,000 has been drawn down under the reducing credit
facility.
The loan agreement provides funding for the Company until 31
March 2014, subject to the Company maintaining cover (i.e. asset
value divided by borrowing) at above 2.5 times.
Agreement in principle has been reached with AIB for a new
revolving credit facility of US$10 million up to 31 March 2016.
Under this agreement the Company will be required to maintain cover
at above 3 times.
13 Share capital and share premium
The share capital of the Company is two Management Shares of no
par value and an unlimited number of Redeemable Participating
Preference Shares (the "Shares") of no par value.
The two Management Shares were issued at GBP1 each fully paid
and are beneficially owned by the Manager. The Management Shares do
not carry any rights to dividends and holders of Management Shares
are only entitled to participate in the non-cellular assets of the
Company on a winding-up.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (CONTINUED)
For the period from 1 July 2013 to 31 December 2013
40,000,000 Shares were issued in the Fund at GBP1 per Share on
25 March 2004. A further 32,000,000 shares were issued at 32 pence
per shre on 5 November 2012. The issue costs incurred of GBP493,268
were debited against the share premium account to leave net
proceeds of the share issue of GBP9,746,732.
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. Following a vote by shareholders in 2013
there will be an opportunity to vote on the continuation of the
Fund at the Annual General Meeting in 2014 and annually
thereafter.
14 Net assets attributable to shareholders
Share Premium Capital Revenue
Reserves Reserves Total
2013 2013 2013 2013
GBP GBP GBP GBP
Balance at 1 July 2013 48,914,968 (5,209,676) (8,797,814) 34,907,478
Net realised gain on
maturities - 2,855,405 - 2,855,405
Movement in unrealised
depreciation on investments - (4,269,000) - (4,269,000)
Net currency losses - (18,173) - (18,173)
Revenue loss for the
period - - (438,716) (438,716)
Balance at 31 December
2013 48,914,968 (6,641,444) (9,236,530) 33,036,994
============== ============== ============ ==============
Share Premium Capital Revenue
Reserves Reserves Total
2012 2012 2012 2012
GBP GBP GBP GBP
Balance at 1 July 2012 39,168,236 970,102 (7,670,039) 32,468,299
Net realised gain on
maturities - 601,438 - 601,438
Movement in unrealised
appreciation on investments - (3,320,632) - (3,320,632)
Movement in unrealised
currency loss on forward - - - -
foreign currency contracts
Net currency gains - 289,643 - 289,643
Revenue loss for the
period - - (678,042) (678,042)
Issue of share capital 9,746,732 - - 9,746,732
Balance at 31 December
2012 39,168,236 (1,459,449) (8,348,081) 39,107,438
============== ============== ============ ==============
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (CONTINUED)
For the period from 1 July 2013 to 31 December 2013
14 Net assets attributable to shareholders (continued)
Share Capital Revenue
Premium Reserves Reserves Total
2013 2013 2013 2013
GBP GBP GBP GBP
Balance at 1 July 2012 39,168,236 970,102 (7,670,039) 32,468,299
Net realised gain on
maturities - 1,139,032 - 1,139,032
Movement in unrealised
depreciation on investments - (7,517,092) - (7,517,092)
Issue of share capital 9,746,732 - - 9,746,732
Net currency losses - 198,282 - 198,282
Revenue loss for the
year - - (1,127,775) (1,127,775)
Balance at 30 June 2013 48,914,968 (5,209,676) (8,797,814) 34,907,478
=========== ============== ============ ==============
15 Related party transactions
Fees earned by the Directors of the Company during the period
were GBP44,175 of which GBP6,192 was outstanding at the period end
(December 2012: GBP60,560 of which GBP23,288 was outstanding at the
period end; June 2013 GBP91,042 of which GBP555 was outstanding at
the year end). Allowable expenses claimed by the Directors in the
course of their duties amounted to GBP694 for the period ended 31
December 2013 (December 2012:GBP4,988, June 2013:GBP4,236). Fees
earned by the Investment Manager, Manager and Administrator are
discussed in note 4.
16 Financial risk management objectives
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 IFRS7 are as
follows:
-- Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities;
-- Level 2 - Inputs other than quoted prices included within
Level 1 that are observable for the asset or liability either
directly (that is, as prices) or indirectly (that is, derived from
prices); or
-- Level 3 - Inputs for the asset or liability that are not
based on observable market data (that is, unobservable inputs).
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (CONTINUED)
For the period from 1 July 2013 to 31 December 2013
Financial risk management objectives (continued)
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 valuations hierarchy as of 31
December 2013.
31 December 2013 30 June 2013 31 December 2012
Net assets Net assets Net assets
GBP % GBP % GBP %
Level 1
fair value
assets - 0.00 - 0.00 112,560 0.29
Level 3
fair value
assets 31,875,123 96.48 36,937,381 105.82 39,570,506 101.18
----------- ------ ----------- ------- ----------- -------
31,875,123 96.48 36,937,381 105.82 39,683,066 101.47
=========== ====== =========== ======= =========== =======
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.
Market price risk
Price risk is the risk that the fair value or future cash flows
of a financial instrument will fluctuate due to a change in market
prices (other than those arising from interest rate risk or
currency risk), whether those changes are caused by factors
specific to the individual financial instrument or its issuer, or
factors affecting similar financial instruments traded in the
market.
The Company is exposed to market price risk arising from its investments in securities.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (CONTINUED)
For the period from 1 July 2013 to 31 December 2013
Financial risk management objectives (continued)
The Investment Manager moderates this risk through a careful
selection of securities and other financial instruments within
specified limits. The Company's overall market positions are
monitored on a daily basis by the Company's Investment Manager and
are reviewed on a quarterly basis by the Board of Directors.
All security investments present a risk of loss of capital, the
maximum risk resulting from instruments is determined by the fair
value of the financial instrument. The following represents
the Company's market pricing exposure at the end of the period:
Alternative Asset Opportunities PCC Limited:
Investments at fair value through profit
and loss
-Managed investment schemes
31 December 2013
GBP 31,875,123
% of net assets 96.48
30 June 2013
GBP 36,937,381
% of net assets 105.82
31 December 2012
GBP 39,570,506
% of net assets 101.18
The following table details the Company's sensitivity to a 10%
increase in the market prices while all other variables are held
constant. 10% is the sensitivity rate used when reporting price
risk internally to management and represents management's
assessment of the possible change in market prices. The analysis is
performed on the same basis for the prior year.
Increase in Net assets attributable to holders of Redeemable
shares:
Alternative Asset Opportunities
PCC Limited
GBP
31 December 2013
Investments at fair value through
profit and loss 3,187,512
30 June 2013
Investments at fair value through
profit and loss 3,693,738
31 December 2012
Investments at fair value through
profit and loss 3,968,307
A 10% decrease in the market prices at the year end would have
had the equal but opposite effect, on the basis that all other
variables remain the same.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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