TIDMTLI
RNS Number : 2122Z
Alternative Asset Opps PCC Ltd
16 September 2015
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED (the "Company")
Annual Financial Report Announcement
For the year ended 30 June 2015
The Directors announce the publication of the Company's annual
financial report for the year ended 30 June 2015.
The following comprises the Company's annual financial report
for the year ended 30 June 2015.
The annual financial report is being made available to be viewed
on or downloaded from the Company's website at
www.allianzgi.co.uk/TLI and it will shortly be submitted to and
available for inspection at http://www.hemscott.com/nsm.do.
The financial information set out in this announcement does not
constitute the Company's statutory accounts for the year ended 30
June 2015, but is derived from those accounts, which will be
delivered to Shareholders during in early October 2015. The auditor
has reported on the annual financial report 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 information for the year ended 30 June 2014 has
been extracted from the statutory accounts for that year, which
have been delivered to Shareholders.
The financial statements have been prepared in accordance with
International Financial Reporting Standards. This announcement has
been prepared using accounting policies consistent with those set
out in the Company's annual financial report for the year ended 30
June 2015.
Neither the contents of the Company's website nor the contents
of any website accessible from hyperlinks on the Company's website
(or any other website) is incorporated into, or forms part of, this
announcement.
The Annual General Meeting (the "AGM") of the Company will be
held on 4 November 2015 and notice of the AGM will be sent to
shareholders with the annual financial report.
Enquiries:
Tracey Lago
Company Secretary
Telephone number: 020 3246 7405
Melissa Gallagher
Head of Investment Trusts, Allianz Global Investors
Telephone number: 020 3246 7539
16 September 2015
199 Bishopsgate
London
EC2M 3TY
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Investor Information
For the year ended 30 June 2015
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 the UK Listing
Authority and commenced trading on the London Stock Exchange on 25
March 2004.
Investment objective
The Company's objective in respect of the Fund is to provide
investors with an attractive capital return through investment
predominantly in a diversified portfolio of US Traded Life
Interests ("TLIs").
Investment policy and strategy
The Company has invested the assets of the Fund in a range of
TLIs on the lives of US citizens aged, at the time of acquisition,
between 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, at the time of policy
acquisition, 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
AM Best credit rating of at least "A" at the time of acquisition of
the relevant policy. Page 40 to 41 discloses the current ratings
against the Company's exposure based on year-end valuation. AM 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 the assets of the Fund,
in accordance with the investment objective and policy, and subject
to advice received from the Investment Manager. At present there is
no intention to acquire further policies, but sales of policies may
occasionally be made when appropriate. The Company has a borrowing
facility in place with AIB Group (UK) plc the terms of which
require the Company to utilise the net proceeds of maturing TLIs to
repay any outstanding amounts. At 30 June 2015 and 30 June 2014
there were no borrowings outstanding. Subject to covenants, the
Company may return capital to shareholders either by means of the
purchase of shares in the market as authorised by shareholders
resolution or by return of capital in accordance with the
Articles.
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 2015
Directors Registrar
CPG Tracy (Chairman) Capita Registrars (Guernsey)
Limited
DIW Reynolds (Chairman of the Mont Crevelt House,
Audit Bulwer Avenue
Committee)
TJ Emmott St Sampson
JPHS Scott 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 AIB Group (UK) PLC
GmbH, UK Branch 92 Ann Street
199 Bishopsgate Belfast
London EC2M 3TY BT1 3HH
Secretary Banker (Guernsey)
Allianz Global Investors Kleinwort Benson (Channel Islands)
Limited
GmbH, UK Branch Dorey Court, Admiral Park
199 Bishopsgate St Peter Port
London EC2M 3TY Guernsey GY1 2HT
(Represented by TA Lago, ACIS)
Custodian
Administrator Kleinwort Benson (Guernsey)
Limited
Kleinwort Benson (Channel Islands) Dorey Court, Admiral Park
Fund Services Limited St Peter Port
Dorey Court, Admiral Park Guernsey GY1 2HT
St Peter Port
Guernsey GY1 2HT Sub Custodian
Wells Fargo Bank Northwest
N.A.
Legal Advisers (UK) 260 North Charles Lindbergh
Drive
Herbert Smith Freehills LLP Salt Lake City
Exchange House UT 84116, USA
Primrose Street
London EC2A 2HS Financial Adviser and Corporate
Broker
Westhouse Securities Limited
Legal Advisers (Guernsey) 110 Bishopsgate
Carey Olsen London EC2N 4AY
PO Box 98
Carey House, Les Banques
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 2015
Directors
The Directors have been chosen for their investment and
commercial experience and are listed below:
Charles Tracy, Chairman, (aged 69) has over 40 years' experience
as a merchant banker, covering both the investment management and
banking fields. On joining N.M. Rothschild & Sons in 1975 he
was made responsible for Asian and commodity-related investments,
working in Malaysia and Hong Kong before taking up the post of
Managing Director of N.M. Rothschild & Sons (C.I.) Ltd. in
1981, and remaining in that position until 1998. During that period
he was Chairman of the Association of Guernsey Banks and of the
Guernsey International Business Association. He is currently
non-executive Chairman of Louvre Fund Services Limited and Chairman
of the Board of the Guernsey Banking Deposit Compensation Scheme.
He is a resident of Guernsey.
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September 16, 2015 06:30 ET (10:30 GMT)
Ian Reynolds, Chairman of the Audit Committee, (aged 72) is a
former Chief Executive of Commercial Union Life Assurance Company
and a former director of Liverpool Victoria Friendly Society. He
was, until December 2014, a director of The Equitable Life
Assurance Society, and is a former consultant actuary at Towers
Perrin. Mr Reynolds is a Fellow of the Institute of Actuaries and a
Chartered Director. He is UK resident.
Tim Emmott (aged 62) has 40 years' experience in banking and
investment in a variety of analytical, trading and management
roles. He has been involved in investing in distressed, illiquid
and alternative financial assets for the past 25 years. He is UK
resident.
John Scott (aged 63) is currently a director of several UK
investment trusts and is Chairman of Scottish Mortgage Investment
Trust PLC. Mr Scott held a number of senior appointments at Lazard
Brothers & Co., Limited between 1981 and 2001. Prior to that,
he worked at Jardine Matheson & Co., Limited. He is a Fellow of
the Chartered Insurance Institute and of the Chartered Institute
for Securities and Investment. He is UK resident.
The Investment Manager
The Investment Manager, SL Investment Management Limited, which
is authorised and regulated in the United Kingdom by the Financial
Conduct Authority, was incorporated in 1990 and is an Investment
Manager and Investment Advisor for a range of specialist investment
products.
The Manager
Allianz Global Investors GmbH, UK Branch, which is authorised by
Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) and which
is subject to limited regulation by the Financial Conduct
Authority, is manager of a number of closed-ended investment
companies with approximately GBP1.22 billion of assets under
management in a range of investment companies and investment trusts
as at 30 June 2015. The Manager is responsible for managing the
cash and fixed interest holdings of the Fund.
Non Mainstream Pooled Investments
The Company is an investment trust and therefore its shares are
not subject to the Financial Conduct Authority's (FCA) rules
relating to the restrictions on the retail distribution of
unregulated collective investment schemes and close substitutes
which came into effect on 1 January 2014. Accordingly, its shares
can be recommended by IFAs to ordinary retail investors in
accordance with the FCA's rules in relation to non-mainstream
investment products.
FATCA
The Company is registered with the Internal Revenue Service
("IRS") as a Foreign Financial Institution for the purposes of the
Foreign Tax Compliance Act ("FATCA"). The Company's Global
Intermediary Identification Number ("GIIN") is
1L9EHP.99999.SL.826.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Financial Highlights
For the period from 1 July 2014 to 30 June 2015
At 30 At 30
June 2015 June 2014
Shares in
issue 72,000,000 72,000,000
Net assets attributable to shareholders GBP31,619,631 GBP32,186,259
Net asset value per Share 43.9p 44.7p
Mid market share price 39.5p 38.0p
Discount to net asset value 10.0% 15.0%
Total surplus/(deficit) on ordinary activities
for the financial year per Share 3.21p (3.78p)
Revenue loss per Share (1.00p) (1.08p)
Sterling to US$ Exchange
Rate 1.5727 1.7098
Dividends
The Directors do not propose a dividend for the year ended 30
June 2015 (2014: nil).
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Chairman's Statement
For the year ended 30 June 2015
Introduction
The Company's year can best be understood as three distinct
phases. Initially, a good flow of policy maturities towards the end
of the last financial year led to a change to the Articles of
Incorporation in July 2014 to allow the issue of B shares in order
to permit capital distributions. The very satisfactory influx of
funds enabled the Company to repay outstanding borrowings and make
a capital distribution to shareholders of 2.0 pence per share on 8
August 2014. In the second phase, a further flow of policy
maturities enabled a second distribution, again of 2.0 pence per
share on 20 March 2015, residual cash being withheld to meet
expenses and premium payments for a further period. This caution
turned out to be justified, as there has been a 'maturity drought',
the US$4 million policy maturity announced on 20 August being the
first since January 2015, an unusually long period without a
maturity.
While this lack of maturities mainly has a negative effect on
cash flow, the Board accepts the importance of continuing to
monitor the accuracy of life expectancy (LE) data used. Recent LE
assessments have if anything been shorter than before, which may
reflect factors specific to individual policies, but is reassuring
in this context. Meanwhile it is very helpful to have extended the
Company's overdraft facility for a further two years to March 2018,
with a modest reduction in charges.
The net asset value (NAV) per share at the end of year was 43.9
pence; adjusted for the distribution to shareholders of 4 pence per
share during the year, this means an increase of 7.1% on the NAV
per share at the end of last financial year of 44.7 pence.
Similarly, the mid-market share price at the year end of 39.5
pence, adjusted for the 4 pence distribution, was 14.4% up on the
share price at the previous financial year end of 38.0 pence,
implying a tightening of the discount between the share price and
the NAV per share.
In contrast to last year, when foreign exchange was a negative
factor, the portfolio has gained significantly from the relative
strength of the US$ dollar during the year, boosting the NAV per
share by 3.5 pence.
Portfolio developments
During the year to 30 June 2015, 4 policy maturities occurred,
with a total face value of US$10.9 million. This compares with 13
policies with a face value of US$17.4 million in the year to 30
June 2014, and 45 policy maturities between the Company's launch in
2004 and 30 June 2013.
Fortunately, those policies which did mature were larger ones
and the maturity proceeds again exceeded the premiums and expenses
for the year of US$9.3 million. Realised gains on the book value of
maturing policies amounted to approximately US$8.2 million in the
year, or 7.3 pence per share (2014:US$10.2 million, or 8.7
pence).
As at 30 June 2015 there were a total of 85 policies (74 lives)
in the portfolio, with a face value of US$131.6 million and a
valuation of US$48.1 million. Premiums continue to be paid on
policies in force, amounting to US$8.4 million during the year
(2014:US$8.4 million).
A policy maturity with a face value of US$4 million occurred
after our year end during August 2015, with the proceeds expected
to be received in October 2015, which will provide an uplift of
approximately 2.0 pence to the NAV per share. The policy maturity
is not reflected in the accounts as it occurred after the
accounting date.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Chairman's Statement (continued)
For the year ended 30 June 2015
Gearing and Cash Flow
The Board's policy has been to reduce dependence on gearing. The
first important stage was reached last year with the elimination of
borrowings at the year end. During the year, the Company's total
borrowings amounted to US$2,000,000 which was repaid in full in
January 2015 with proceeds from policy maturities. The two capital
distributions each of 2.0 pence per share, amounting in total to
GBP2.88 million, fall within the terms of the revised lending
covenants.
On 15 May 2015 the Company announced that AIB Group (UK) PLC had
agreed to extend the US$10 million revolving credit facility on
improved terms to 31 March 2018. We are pleased to report that the
extension has since been documented thereby securing the financing
of the Company for a further period of two years.
Since the year end, the Company has drawn down US$2 million to
meet premium and expense commitments. The expected maturity
proceeds of US$4 million will be used, when received, to reduce
indebtedness.
Valuation of Investments
The NAV is a Directors' valuation, prepared with the assistance
of the Investment Manager, utilising estimates of life expectancy
to arrive at a series of cash flows, based on actuarial principles
discounted to present value using a discount rate (or internal rate
of return, IRR). The key factors in the valuation are therefore:
the policy face value and the premiums payable; the assumed life
expectancy (LE) of the insured; the actuarial mortality table; and
the discount rate.
The portfolio is split into three parts: policies with routinely
updated LEs, accounting for 82% of the portfolio by face value;
small policies (face value under US$500,000) where the cost of
regular review is deemed uneconomic to value; and policies for
which it is not possible to obtain updated medical records. The
Investment Manager continues to carry out a regular programme of LE
Updates with the latest review completing in July 2015, shortly
after the year end.
The Board continues to apply a 12% discount rate as explained
and supported by note 20 on page 54, Market and longevity risk.
Credit and Foreign Currency Risk
As the Investment Manager's report explains, there has been a
re-rating of some of the insurance companies which issue the
policies in the portfolio. As a result, at the year end 100% of the
Company's policies by value were issued by companies with an AM
Best rating of 'A-' or better (96.4% with a rating of 'A' or
better).
(MORE TO FOLLOW) Dow Jones Newswires
September 16, 2015 06:30 ET (10:30 GMT)
The Company has operated on an unhedged currency basis since the
change in investment policy in September 2011 and there is no
current intention to initiate any new currency hedges.
During the year the US$ exchange rate moved from 1.7098 on 30
June 2014 to 1.5727 on 30 June 2015.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Chairman's Statement (continued)
For the year ended 30 June 2015
Sensitivity Matrix
As in previous periods, the table below aims to give investors
an appreciation of the effects on valuation of differing
assumptions as to both LE and IRR.
-- 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 30 June 2013), or for the
remaining policies an LE based on the 2008 Valuation Basic Table.
The average LE is shown for reference. NAV is then shown at 4
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 4th line shows the outcome of assuming all LEs
are based on the current table of life expectancies for the general
population, the 2008 Valuation Basic Table, i.e. ignoring LE
assessments.
Net Asset Value in pence per share as at 30 June 2015:
Mortality Assumptions Average Discount Rate - applied
LE (years) to cash flows
----------------------- ------------ -----------------------------------
10% 12% (current) 16% 20%
----------------------- ------------ ----- -------------- ----- -----
Latest LE 4.5 46.6 43.9 39.4 35.8
----------------------- ------------ ----- -------------- ----- -----
+1 year for all LEs 5.5 34.3 31.9 27.9 24.9
----------------------- ------------ ----- -------------- ----- -----
-1 year for all LEs 3.5 60.4 57.6 52.9 49.0
----------------------- ------------ ----- -------------- ----- -----
Using VBT 4.4 46.7 44.0 39.4 35.8
----------------------- ------------ ----- -------------- ----- -----
The valuations are discussed further within the Investment
Manager's Review. The principal risks facing the Company are
discussed within the Strategic Report.
Outlook
The recent experience where we saw no maturities for over 6
months makes the Board acutely aware of the need to monitor the
Company's cash position, LE updates and its valuation of the
policies. While aiming to make cash distributions to shareholders
when appropriate, the Board will need to take into account the
fluctuating nature of portfolio maturities when deciding on the
timing and quantum of such distributions.
It remains the intention of the Board to hold the majority of
policies to maturity, but the possibility of policy sales will
continue to be kept under review.
Charles Tracy
Chairman
14 September 2015
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Investment Manager's Review
For the year ended 30 June 2015
Portfolio Overview
During the twelve month period from 1 July 2014 to 30 June 2015
there were 4 confirmed policy maturities with a total face amount
of $10.9m. The 4 maturities related to 4 individual lives, 3 of
which were male and 1 female. As at 30 June 2015, 85 policies
remained within the portfolio with exposure to 74 individual
lives.
Cumulatively, as of 30 June 2015, there have been 62 policy
maturities across 53 lives since inception. Proceeds received from
all maturities total $102.9m. Thirteen policies have been sold
since inception of the Company, generating proceeds of $11.2m. No
policies were sold during the reporting period.
One further maturity (a male life insured) has been identified
since the year end. This policy has a death benefit of US$4.0m, and
will add approximately 2.0 pence to the NAV per share once formally
certified.
Full Portfolio Summary
Face Value $131.6m
---------------------------------------- --------------
Reported Valuation $48.1m
---------------------------------------- --------------
Number of Policies 85
---------------------------------------- --------------
Number of Lives 74
---------------------------------------- --------------
Total number of Holding Life Companies 25
---------------------------------------- --------------
Face Weighted Averages:
---------------------------------------- --------------
Male/Female Ratio at purchase 65.8% / 34.2%
---------------------------------------- --------------
Age at purchase 81.4 years
---------------------------------------- --------------
LE at purchase 8.1 years
---------------------------------------- --------------
Current Male/Female Ratio 63.3% / 36.7%
---------------------------------------- --------------
Current Age 91.4 years
---------------------------------------- --------------
Current LE 4.5 years
---------------------------------------- --------------
Credit Quality Distribution by Holding Life Company
Following the acquisition of Lincoln Benefit Life Company by
Resolution Life Holdings, Inc, AM Best downgraded the financial
strength rating of Lincoln Benefit Life Company from A+ to A- in
July 2014. The Company holds one policy from this life company with
a face value of $2m, representing 1.5% of the portfolio face value.
Summary details of the Traded Life Interests issued by each life
company are shown on page 40 to 41.
In April 2015, AM Best upgraded the rating of Athene Annuity and
Life Company from B++ to A-. The Company holds three policies from
this life company with a total face value of $4.3m, representing
3.2% of the portfolio face value.
There were no other AM Best rating changes during the period
that affected the portfolio. As at the reporting date 96.4% of the
Company's policies (by valuation) were issued by life companies
with an AM Best rating of 'A' or better.
AM Best Rating % Total Death Benefit % Total Valuation
--------------------------- ---------------------- ------------------
A++ 10.7% 11.0%
--------------------------- ---------------------- ------------------
A+ 61.2% 59.4%
--------------------------- ---------------------- ------------------
A 22.6% 26.0%
--------------------------- ---------------------- ------------------
A- 5.5% 3.6%
--------------------------- ---------------------- ------------------
Total 100% 100%
--------------------------- ---------------------- ------------------
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Investment Manager's Review (continued)
For the year ended 30 June 2015
Life Group (Parent Company) Distribution (Top 5)
Ranking by Valuation % Parent Company % Total Death Benefit % Total Valuation
----------------------- --------------------------------------------- ---------------------- ------------------
1 Lincoln National Corporation 23.7% 23.3%
----------------------- --------------------------------------------- ---------------------- ------------------
2 American International Group, Inc. 16.8% 21.3%
----------------------- --------------------------------------------- ---------------------- ------------------
3 Aegon N.V. 16.5% 18.0%
----------------------- --------------------------------------------- ---------------------- ------------------
4 Massachusetts Mutual Life Insurance Company 5.8% 7.4%
----------------------- --------------------------------------------- ---------------------- ------------------
5 MetLife, Inc. 5.3% 5.5%
----------------------- --------------------------------------------- ---------------------- ------------------
Distribution of Life Expectancy Estimates
The following table shows the distribution of the policies in
the portfolio by LE band. Policies are grouped by 12 month LE bands
and the table shows the number of lives, the total death benefit
and valuation in each group. The LEs are the valuation LEs used for
the 30 June 2015 valuation.
It is important to note that the LE is an average of the
estimated future lifetime for an individual with a given age and
health status. The table is not, therefore, a prediction of when
actual maturities will occur and is thus not a cash flow forecast.
This has been demonstrated by the fact that, one year ago, there
were no policies with a LE of less than one year; and yet
maturities totalling US$10.9m of face value were realised during
the year.
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September 16, 2015 06:30 ET (10:30 GMT)
The current average LE is 4.5 years, the average of the shortest
LE estimate is 3.8 years and the average of the longest LE estimate
is 5.3 years.
LE band No. Total % of Total % of
(years) of death death valuation valuation
lives benefit benefit US$000
US$000
---------- ------- --------- --------- ----------- -----------
0 <= LE
< 1 0 0 0.0 0 0.0
---------- ------- --------- --------- ----------- -----------
1 <= LE
< 2 0 0 0.0 0 0.0
---------- ------- --------- --------- ----------- -----------
2 <= LE
< 3 5 13,116 10.0 8,061 16.8
---------- ------- --------- --------- ----------- -----------
3 <= LE
< 4 20 32,108 24.4 14,422 30.0
---------- ------- --------- --------- ----------- -----------
4 <= LE
< 5 25 47,521 36.1 15,986 33.3
---------- ------- --------- --------- ----------- -----------
5 <= LE
< 6 17 28,044 21.3 7,616 15.8
---------- ------- --------- --------- ----------- -----------
6 <= LE
< 7 4 6,100 4.6 1,120 2.3
---------- ------- --------- --------- ----------- -----------
7 <= LE
< 8 3 4,750 3.6 873 1.8
---------- ------- --------- --------- ----------- -----------
LE >= 8 0 0 0.0 0 0.0
---------- ------- --------- --------- ----------- -----------
Total 74 131,639 100.0 48,078 100.0
---------- ------- --------- --------- ----------- -----------
Premium Payments
Premiums remain the largest draw on the Company's cash. As a
result, it is important that premium streams are optimised such
that AAO pays the minimum premium required to meet the cost of
insurance required by the life company. SL Investment Management
continues to review all policy statements to identify any scope for
further optimisation of the premium payment schedules. Without
further maturities other than the US$4 million policy announced on
20 August 2015, the expected cost of premiums for the twelve months
to 30 June 2016 is approximately US$8.8 million.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Investment Manager's Review (continued)
For the year ended 30 June 2015
Policy Expiry Date Analysis
Written into the contract for some policies is an expiry date
after which no more premiums will be accepted by the life office
and the death benefit will no longer be payable upon death. Where
applicable, this usually coincides with the policy anniversary
closest to the insured's 100th birthday. There are 42 such policies
in the portfolio. The earliest expiry date is May 2020.
There are 6 policies with extension options to age 115, and 2
policies with 'partial' extensions - whereby the policy term is
extended until death, but on a reduced death benefit after age
100.
35 policies in the portfolio have no expiry date, including the
policy maturity announced on 20 August 2015.
A summary of the policies in the portfolio as at 30 June 2015 is
as follows:
Death Benefit % Death Valuation
Policies Lives US$000 benefit US$000 % Valuation
--------------------- --------- ------ -------------- --------- ---------- ------------
No extension 42 38 56,992 43.3% 22,455 46.7%
--------------------- --------- ------ -------------- --------- ---------- ------------
Extensions to
age 115 6 6 9,900 7.5% 3,085 6.4%
--------------------- --------- ------ -------------- --------- ---------- ------------
Extension to death
with reduced death
benefit after
age 100 2 2 4,000 3.0% 1,481 3.1%
--------------------- --------- ------ -------------- --------- ---------- ------------
No expiry date 35 28 60,747 46.2% 21,057 43.8%
--------------------- --------- ------ -------------- --------- ---------- ------------
Total 85 74 131,639 100.0% 48,078 100.0%
--------------------- --------- ------ -------------- --------- ---------- ------------
For policies with an expiry date, the key metrics are as
follows:
Average
---------------------------------- -----------
Number of policies 42
---------------------------------- -----------
Number of lives 38
---------------------------------- -----------
Current age (years) 91.5
---------------------------------- -----------
Expiry age (years) 100.3
---------------------------------- -----------
Life Expectancy (years) 4.5
---------------------------------- -----------
Expiry date 21/05/2024
---------------------------------- -----------
Years between LE and expiry date 4.3
---------------------------------- -----------
Probability of expiry 13.7%
---------------------------------- -----------
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Investment Manager's Review (continued)
For the year ended 30 June 2015
Policy Expiry Date Analysis (Continued)
The table below summarises the distribution of the time
intervals between the LE and the expiry date:
Expiry date exceeds Lives Total % Death Valuation % Valuation
average life expectancy Death Benefit ($'000)
by - Policies Benefit
($'000)
-------------------------- ----------- ------ ---------- --------- ---------- ------------
0 <= Years < 1 0 0 0 0.0 0 0.0
-------------------------- ----------- ------ ---------- --------- ---------- ------------
1 <= Years < 2 3 3 2,000 1.5 577 1.2
-------------------------- ----------- ------ ---------- --------- ---------- ------------
2 <= Years < 3 7 6 12,629 9.6 4,503 9.4
-------------------------- ----------- ------ ---------- --------- ---------- ------------
3 <= Years < 4 7 7 9,900 7.5 4,298 8.9
-------------------------- ----------- ------ ---------- --------- ---------- ------------
4 <= Years < 5 13 11 18,763 14.3 7,244 15.1
-------------------------- ----------- ------ ---------- --------- ---------- ------------
>= 5 Years 18 17 23,600 17.9 8,918 18.5
-------------------------- ----------- ------ ---------- --------- ---------- ------------
No Expiry * 37 30 64,747 49.2 22,538 46.9
-------------------------- ----------- ------ ---------- --------- ---------- ------------
TOTAL 85 74 131,639 100.0 48,078 100.0
* includes the 2 policies where death
benefit reduced at age 100
----------------------------------------------------------- --------- ---------- ------------
Period Review and Outlook
This reporting period witnessed a lower volume of maturities
compared with the previous 12 months. The average face value of the
4 policy maturities during the period was $2.7m; which is notably
higher than the $1.5m average face value for the portfolio as a
whole. This is attributable in part to the largest policy in the
portfolio maturing during the period ($6m face value).
There remains considerable variation in the size of individual
face amounts remaining in the portfolio. Therefore short term
performance will be driven not just by the frequency of maturities,
but also the size of the policy maturities. The table below
illustrates the distribution of the 74 lives in the portfolio by
face value as at 30 June 2015.
Policy bands No. Total Death Total Valuation % of valuation
(DB: Death Benefit) of lives Benefit US$000
US$000
---------------------- ---------- ------------------ ---------------- ---------------
$0m <= DB < $0.5m 9 2,865 1,003 2.1
---------------------- ---------- ------------------ ---------------- ---------------
$0.5m <= DB <
$1m 17 10,244 3,458 7.2
---------------------- ---------- ------------------ ---------------- ---------------
$1m <= DB < $2.5m 29 42,138 13,955 29.0
---------------------- ---------- ------------------ ---------------- ---------------
$2.5m <= DB <
$5m 11 35,651 13,844 28.8
---------------------- ---------- ------------------ ---------------- ---------------
$5m <= DB < $6.0m 8 40,741 15,818 32.9
---------------------- ---------- ------------------ ---------------- ---------------
Total 74 131,639 48,078 100.0
---------------------- ---------- ------------------ ---------------- ---------------
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Despite the largest policy in the portfolio (by face value)
maturing during the period, a significant proportion of the total
death benefit remains linked to a relatively small proportion of
lives. 19 lives (26% of total lives) account for 58% of the total
face value and 62% of the reported valuation.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Investment Manager's Review (continued)
For the year ended 30 June 2015
Life Expectancy Updates
With life expectancy assumptions so critical to the pricing and
valuation of policies, LEs remain a key focus of the life
settlement industry. In September 2014, 21st Services, one of the
LE underwriters used by AAO (and most market participants),
announced changes to their mortality tables which resulted in
longer LE assessments.
Following the announcement, AAO obtained updated 21st Services
LEs for all policies in the portfolio valued with reference to
medical LEs. On average, the revised 21st Services LEs were 18%
longer, resulting in a 5.8% reduction in the November 2014
portfolio valuation. None of the other major LE underwriters has
made any significant adjustments to their life expectancy
assessments during the period.
The Board has continued with the regular programme of LE
updating throughout the year, with new LEs obtained for policies
representing $38.8m in face value during the period (29% of the
total portfolio). The LEs updated in 2015 were 4 months shorter on
average than the prevailing valuation LEs. Incorporating this new
LE data resulted in an increase in the valuation equivalent to 1.9
pence per share.
At the reporting date, 82% of total portfolio face value is
valued with reference to LEs obtained within the previous 24
months. The remaining 18% of the portfolio is valued using LEs
calculated with reference to the 2008 Valuation Basic Table (VBT),
which is the latest version of the table currently available.
The US Society of Actuaries Mortality Taskforce exposed the
preliminary 2014 VBT mortality tables for comment from the life
insurance industry in 2014. Following feedback from the industry,
the taskforce was asked to implement further adjustments to the
tables and to incorporate improvements in the rates to create a
2015 VBT. The preliminary 2015 VBT tables have now been released
for further comments. Based on present information, the 2015 VBT is
not expected to have a significant impact on the Company's
valuation. The implementation date of the 2015 VBT is, as yet,
unknown.
Outlook
The life settlement market is set to remain competitive with new
investment capital continuing to enter the market. Strong
competition in the secondary and tertiary markets for policies is
supporting market prices and prices are expected to remain at
current levels for the foreseeable future. Larger investors will
likely continue to look to the tertiary market in an attempt to
source blocks of policies from existing portfolio holders. A number
of large tertiary transactions have been reported over the past 12
months.
The average life insured age for policies seen in the secondary
market is approximately 83 years. Therefore with an average life
insured age of 91.4 years, the Company holds something of a unique
portfolio compared with what is generally available in the market.
To build a portfolio from scratch that resembled the age and LE
profile seen in AAO would take an investor a significant amount of
time and effort.
The total death benefit of the policies held in the portfolio is
$131.6m, versus a valuation of $48.1m. Even taking into account
future premium commitments, the potential for investment gains by
allowing policies to mature is evident. The magnitude and timing of
gains will ultimately depend on the actual mortality experienced
over the coming years.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Investment Manager's Review (continued)
For the year ended 30 June 2015
Outlook (Continued)
Although the nearly 7 month gap between maturities witnessed in
2015 could be considered as somewhat of an anomaly, there may be
further sustained periods of time without maturities in the future.
However, with a comfortable liquidity position, the Company is well
placed to deal with any short to medium-term lulls in maturities
without becoming a forced seller of policies.
SL Investment Management Limited
14 September 2015
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Manager's Review
For the year ended 30 June 2015
Borrowings and investments
The Company's two year revolving credit facility with AIB Group
(UK) PLC entered into on 31 March 2014 has been extended for an
additional period of two years and will expire on 31 March 2018. As
at 30 June 2015, there was a nil balance (30 June 2014: nil) on the
US$10 million available under the facility. During the year under
review, the Company borrowed and repaid US$2 million under the
facility.
The terms of the facility provide flexibility for the Company to
make capital distributions to shareholders, subject to the
availability of sufficient surplus cash. As a result, and following
receipt of proceeds from maturities, the Company was able to make
two capital distributions in the year under review of 2.0 pence per
share to shareholders on both 8 August 2014 and 20 March 2015, (see
Note 15 of the financial statements for further details), totalling
in aggregate GBP2.88 million.
Since the year end, the Company has drawn down US$2 million
under the facility which remains outstanding at the time of writing
and will be repaid on receipt of future maturity proceeds of which
US$4 million has recently been identified.
US dollar exposure
The Company no longer hedges its US dollar exposure; the Company
is therefore fully exposed to the effect of exchange rates upon its
net US dollar positions.
Allianz Global Investors GmbH, UK Branch
14 September 2015
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Strategic Report
For the year ended 30 June 2015
Status
The Company was incorporated in and is a Guernsey registered
closed-ended protected cell company in accordance with the
provisions of The Companies (Guernsey) Law, 1994, and subsequently
re-registered under the provisions of The Companies (Guernsey) Law,
2008 ("the law"), as amended. It was established with one Cell
known as the US Traded Life Interests Fund (the "Fund") which had a
planned life of approximately 8 years from the date of launch.
Following a Special Resolution passed at an Extraordinary General
Meeting on 28 August 2009, the Articles of Incorporation were
amended to move from having a fixed life in respect of the
Company's Cell, US Traded Life Interests Fund, to offering
Shareholders annual continuation votes from the Company's 2012
Annual General Meeting onward.
Principal Activities, Business Review and Regulatory
Environment
The Company is regulated by the Guernsey Financial Services
Commission as an authorised fund under the Protection of Investors
(Bailiwick of Guernsey) Law, 2008, as amended.
The principal activity of the Company is to carry on business as
an investment trust within the meaning of section 1158 of the
Corporation Tax Act 2010 ("s1158 of the CT Act"). With effect from
1 September 2009, the Company has been resident in the UK for tax
purposes. The Company has obtained approval of its status as an
investment trust under s1158 of the CT Act and the Directors are of
the opinion that the Company has continued to act in accordance
with such. The Company's redeemable participating preference shares
(the "Shares") were admitted to the Official List of the UK Listing
Authority and commenced trading on the London Stock Exchange on 25
March 2004.
Investment trusts are collective investment vehicles constituted
as closed-ended public limited companies. The Company is managed by
a board of non-executive Directors and the management of the
Company's investments is delegated to the Investment Manager.
This Strategic Report provides information about:
-- the Company's strategy and business objectives,
-- its performance and results for the year,
-- the information and measures which the Directors use to
assess, direct and oversee SL Investment Management Limited (the
"Investment Manager") and Allianz Global Investors GmbH, UK Branch
(the " Manager")
The management of the investments is delegated to SL Investment
Management Limited, authorised and regulated by the Financial
Conduct Authority while the management of the cash, fixed interest
holdings and provision of the administration and company
secretarial service is delegated to Allianz Global Investors GmbH,
UK Branch, authorised and regulated by Bundesanstalt für
Finanzdienstleistungsaufsicht (BaFin) and which is subject to
limited regulation by the Financial Conduct Authority. The Board
acknowledge that a breach of s1158 of the CT Act could lead to the
loss of investment trust status and the Company being subject to
corporation tax while a breach of the law could result in criminal
proceedings, financial and/or reputational damage. Both the
Investment Manager and Manager have extensive experience which is
relied upon in the services provided to the Company and provide
internal controls reports to the Board on a periodic basis.
Investment objective, policy and strategy
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"). 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.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Strategic Report (continued)
For the year ended 30 June 2015
Performance
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The portfolio of investments at the year end is set out on page
40 to 41 and more information is set out in the Investment
Manager's Review on pages 9 to 14. In the year ended 30 June 2015,
the Company's net asset total return was 3.18p. Details on future
trends and factors that may impact on the future performance of the
Company are included in the Chairman's Statement and the Investment
Manager's Review.
Results and Dividends
Details of the Company's results are shown in the Financial
Highlights on page 5. The revenue reserve remains in deficit, and
accordingly no dividend is proposed in respect of the year ended 30
June 2015 (2014-nil).
Following a Special Resolution passed by shareholders at an
Extraordinary General Meeting on 24 July 2014 the Company's
Articles of Incorporation were amended to permit the capitalisation
of any part of the amount for the time being standing to the credit
of the Share Premium Account and accordingly that such sums be set
free for distribution amongst shareholders. On each of 8 August
2014 and 20 March 2015 the Company made a capital distribution paid
pro rata to Shareholders through the issue and redemption of
72,000,000 B Shares paid up out of the Company's Share Premium
Account, amounting to a sum of 2.0 pence per Share and totalling
GBP1,440,000 in aggregate on each distribution.
Principal Risks and Uncertainties
At least twice per year the Board reviews an in-depth Risk
Matrix detailing the risks faced by the Company and what actions
are taken or put in place to mitigate such. At every Board meeting,
the Directors consider a number of performance measures, including
the below Key Performance Indicators ("KPIs") to assess the
Company's success in achieving its investment objective,
performance measures are considered over various time periods.
The KPIs shown below have been identified by the Directors to
determine the progress of the Company and a record of the measures,
with comparatives, is disclosed in the Financial Highlights on page
5:
-- Net asset value (total return);
-- Share price (capital return); and
-- Premium or discount to net asset value.
Other KPIs such as LE's, Sensitivity Matrix and Mortality levels
experienced as compared with that expected by a standard mortality
table adjusted for regularly assessed life expectancies of
policyholders are also reviewed at every Board meeting and are
detailed within the Chairman's Statement and Investment Manager's
Review.
The principal risks identified by the Board are set out below,
together with information about the actions taken to mitigate these
risks.
Description Mitigation
Market price and longevity
risk
Longevity risk is the risk The Board, as advised by the
that the actual mortality rates Investment Manager, periodically
differ from predicted values obtains Life Expectancy updates
and is a key factor in determining which are applied to the valuation
the market value of policies. of policies and monitors actual
mortality experience against
current Life Expectancy estimates.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Strategic Report (continued)
For the year ended 30 June 2015
Principal Risks and Uncertainties (continued)
Description Mitigation
Discount rate risk
Depending on supply and demand The Board, in conjunction with
in the TLI market, there is its advisers, periodically
a risk the IRR of 12% currently reviews the IRR used for valuation
being used for valuation purposes purposes and considers a Sensitivity
may no longer be appropriate. Matrix at every Board meeting.
Foreign currency risk
Foreign currency risk is the Since 2011 the Company no longer
risk that the fair value of hedges its foreign currency
a financial instrument will exposure, this risk is therefore
fluctuate because of changes not mitigated. The assets of
in foreign exchange rates. the Company and principal future
The majority of the Company's liabilities, being premium
assets are denominated in US payments, are denominated in
dollars, while the functional US dollars.
currency is GB pounds.
Interest rate risk
Interest rate risk is the risk The Company holds modest amounts
associated with the effects of cash on deposit and the
of fluctuations in the prevailing only interest bearing liability
levels of market interest rates is the revolving credit facility.
on the Company's financial However, market position and
flows. cash interest rates would also
impact the IRR used for valuation
purposes.
Liquidity risk
Liquidity risk is the risk The Company has agreed a revolving
that the Company will encounter credit facility of up to US$10
difficulty in meeting obligations million with AIB Group (UK)
associated with its financial PLC expiring on 31 March 2018.
liabilities. The Manager monitors cash levels
and funding requirements on
a weekly basis and the Board
reviews, at least monthly,
periodic cash flows forecasts.
Credit risk
Credit risk is the risk that The Company only invests in
one party to a financial instrument policies issued by US Life
will cause a financial loss Companies with an AM Best credit
for the other party by failing rating of at least "A" at the
to discharge an obligation. time of acquisition. Any available
cash must be held in an acceptable
bank as defined in note 14
on page 49 to 50.
Concentration risk
Concentration risk is the risk The Company's portfolio of
that the Company's portfolio TLIs is issued by a range of
of TLIs is not sufficiently over 20 US life insurance companies.
diversified within a range
of US life insurance companies.
Continuation of the Company
In 2009 the fixed life of the There is no present intention
Company was removed from and to acquire further TLIs into
a provision added to the Articles the Fund which is managed with
of Incorporation to provide the intention of wherever possible
for annual continuation votes holding a policy to its maturity
by Shareholders from the 2012 or expiry. The Board has put
Annual General Meeting and in place sufficient funding
thereafter. to ensure the Company remains
a going concern and continues
to manage the Company as such.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Strategic Report (continued)
For the year ended 30 June 2015
Social, Community, Employee Responsibilities and Environmental
Policy
As an investment trust, the Company has no direct social,
community, employee or environmental responsibilities. Its
principal responsibility to shareholders is to ensure that the
investment portfolio is properly managed and invested. The Company
has no employees and accordingly no requirement to report
separately in this area as the management of the portfolio has been
delegated to the Investment Manager. In light of the nature of the
Company's business there are no relevant human rights issues and
the Company does not have a human rights policy.
On behalf of the Board
Charles Tracy
Chairman
14 September 2015
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Directors' Report
For the year ended 30 June 2015
The Directors have pleasure in submitting their Annual Financial
Report for the year ended 30 June 2015 with comparatives for the
year ended 30 June 2014. Information pertaining to the business
review is now included in the Strategic Report on pages 16 to
19.
Revenue, capital and dividends
The Statement of Comprehensive Income set out on page 36 shows a
revenue deficit for the year amounting to GBP717,625 (2014: revenue
deficit for the year GBP774,514). There was a capital surplus for
the year amounting to GBP3,030,997 (2014: capital deficit for the
year GBP1,946,705). The Directors have not paid an interim dividend
(2014: nil) and do not propose the payment of a final dividend for
the year (2014: nil).
Assets
At the year end the net assets attributable to the Shares were
GBP31,619,631 (2014: GBP32,186,259). Based on this figure the net
asset value per Share in the Fund was 43.9p (2014: 44.7p).
Share capital
During the year no Shares were issued or repurchased. Total
capital distributions during the year amounted to GBP2,880,000
(2014: GBPNil).
The new provisions in the Company's Articles of Incorporation
enable the Directors of the Company to distribute cash to
Shareholders through the issue and redemption of B Shares. Each
time the Board resolves to make such a distribution, the Company is
able to announce a bonus issue of B Shares on a pro rata basis.
Immediately upon being issued, deemed fully paid, the B Shares can
be redeemed for the amount deemed paid up and cash proceeds then be
paid to Shareholders.
On each of 8 August 2014 and 20 March 2015, 72,000,000 B Shares
were issued 1 for 1 pro rata to Shareholders and redeemed for the
amount deemed paid up and the cash proceeds of 2.0 pence per share
were paid to Shareholders amounting on each occasion to
GBP1,440,000.
Substantial shareholdings in the Fund
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September 16, 2015 06:30 ET (10:30 GMT)
As at the date of this report, the following companies had
declared a notifiable interest in the Company's voting rights in
accordance with Chapter 5 of the Disclosure and Transparency Rules
("DTR"):
Shares held Percentage
held
%
Investec Asset Management
Limited 7,049,129 9.79
Brewin Dolphin Limited 6,449,460 8.96
Premier Fund Managers
Limited 5,185,000 7.20
Miton Group Plc 4,500,000 6.25
Reliance Mutual Society
Limited 4,320,000 6.00
Rathbone Brothers Plc 2,743,400 3.81
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 2015
The Board
The Board currently consists of a non-executive Chairman,
Charles Tracy, and three other non-executive Directors. The names
and biographies of those Directors who held office at 30 June 2015
and at the date of this Report appear on page 4 and indicate their
range of investment, industrial, commercial and professional
experience. As the Company is an investment trust, all of its
operational activities are outsourced and it does not have any
employees.
The Directors serving on the Board during the year, together
with their beneficial interests and those of their families at 30
June 2015, were as follows:
Shares Shares
30 June 2015 30 June 2014
CPG Tracy (Chairman) - -
TJ Emmott 1,185,000 1,185,000*
DIW Reynolds 100,000 59,600
JPHS Scott 397,854 357,854
*In 2014 235,000 shares were non-beneficial interest
Both Mr C P G Tracy and Mr D I W Reynolds have served as
Directors for over ten years. Under the provisions of the UK
Corporate Governance Code the Board considers that Mr C P G Tracy
and Mr D I W Reynolds remain independent, notwithstanding the fact
that both have served as Directors over the guideline of nine
years. Thus both Mr C P G Tracy and Mr D I W Reynolds shall retire
at the Annual General Meeting and shall continue to offer
themselves for annual re-election as Directors.
The Board believes that Mr C P G Tracy and Mr D I W Reynolds are
both committed to their roles as non-executive Directors and that
their re-election would be in the interests of the Company.
The emoluments of the Directors for the year were as
follows:
30 June 30 June 2014
2015
GBP GBP
CPG Tracy (Chairman) 22,500 22,500
DIW Reynolds 17,500 17,500
TJ Emmott 15,000 15,000
JPHS Scott 15,000 15,000
70,000 70,000
======== ==============
The figures above represent emoluments earned as Directors
during the relevant financial year. The Directors receive no
remuneration or benefits from the Company other than the fees
stated above.
In the year to 30 June 2015 Directors were paid at the rate of
GBP15,000 per annum with the Chairman of the Board receiving an
extra GBP7,500 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 GBP76,188 (2014: GBP83,991)
included allowable expenditure of GBP4,549 (2014: GBP2,796) and
employers' national insurance.
Conflicts of Interest
The Board has a formal system in place for Directors to declare
actual or potential conflicts of interest which are then considered
and authorised by the rest of the Board as appropriate. Where a
Director is deemed to have an interest in a matter to be discussed
or determined by the Board such director is excluded from all
discussion and decision on the matter of interest.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Directors' Report (continued)
For the year ended 30 June 2015
Related Party Transactions
With the exception of the receipt of remuneration by the
Directors from the Company there are no other related parties. The
appointment of the Investment Manager and the Manager are deemed to
be significant contracts.
Relations with shareholders
The Board regularly monitors the shareholder profile of the
Company. It aims to provide shareholders with a full understanding
of the Company's activities and performance, and reports formally
to shareholders twice a year by way of the Annual Financial Report
and the half yearly Financial Report. This is supplemented by the
monthly publication, through the London Stock Exchange, of the net
asset value of the Company's shares and other ad hoc
announcements.
All shareholders are encouraged to participate in the Company's
Annual General Meeting, which is being held this year on 4 November
at 3.00pm. 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) Statement of going concern
The Board considered carefully the issue of 'going concern',
specifically in relation to the availability of funding. On 31
March 2014, the Company signed a two year revolving credit facility
agreement of up to US$10 million with AIB Group (UK) PLC ("AIB"),
expiring on 31March 2016. In May 2015 it was announced that AIB had
agreed to extend the facility for a further period of two years on
improved terms. Shortly after the year end documentation was put in
place extending the life of the facility to 31 March 2018.
The extension of the facility enables the Company to cover cash
flow requirements, with no policy maturities, until January 2017.
The Board acknowledges that in the event of a continued drought in
maturities there may be a requirement to make policy sales, which
may take some months to complete, but the Board is confident that
the sales required to cover outstanding borrowings could be
completed in time. To the extent that the prices achieved did not
match those in the valuation, the net asset value of the Company
could be adversely affected, but the Company would remain a going
concern.
Total drawn borrowings under the revolving credit facility with
AIB were nil as at 30 June 2015 and 30 June 2014. Since there was a
nil balance drawn down for both years the asset cover was not
applicable. The Board has further considered the effect of the
continuation vote in their assessment.
Accordingly, the Directors have adopted the going concern basis
for the preparation of these
financial statements.
b) Internal control
The Directors acknowledge that they are responsible for
establishing and maintaining the Company's system of internal
control and reviewing its effectiveness. Internal control systems
are designed to manage rather than eliminate the failure to achieve
business objectives and can only provide reasonable and not
absolute assurance against material misstatement or loss. They have
therefore established an ongoing process designed to meet the
particular needs of the Company in managing the risks to which it
is exposed, consistent with the guidance provided by the Financial
Reporting Council. Such review procedures have been in place
throughout the full financial year and up to the date of the
approval of the financial statements and the Board is satisfied
with their effectiveness.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Directors' Report (continued)
For the year ended 30 June 2015
Accountability and audit (continued)
b) Internal control (continued)
This process involves a review by the Board of the Company's
internal control report and risk matrix 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 systems and internal audit
procedures of the Administrator, the Manager, the Investment
Manager and, the Custodian.
These systems are designed to ensure effectiveness and efficient
operations, internal control and compliance with laws and
regulations. In establishing the systems of internal control regard
is paid to the materiality of relevant risks, the likelihood of
costs being incurred and costs of control. It follows therefore
that the systems of internal control can only provide reasonable
but not absolute assurance against the risk of material
misstatement or loss.
The effectiveness of the internal control systems is reviewed
annually by the Board and the Audit Committee.
Continuation of the Company
The Company was incorporated in 2004 with a fixed life and an
expected winding up date of 31 March 2012. At an 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 provides shareholders the
right to vote at the Annual General Meeting to be held in 2014 and
at every Annual General Meeting thereafter, on whether to continue
the business of the US Traded Life Interests Fund of the
Company.
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September 16, 2015 06:30 ET (10:30 GMT)
The Directors wish to draw Shareholders' attention to Resolution
6 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 2016. The
Directors have no reason to believe that the continuation vote will
not be passed at the forthcoming Annual General Meeting.
Auditor
A resolution to re-appoint Deloitte LLP as Auditor was proposed
and passed at the Annual General Meeting in 2014 and will be
proposed again at the next Annual General Meeting in November
2015.
At the date of approval of the financial statements the
Directors confirm that:
-- so far as each Director is aware, there is no relevant audit
information of which the Company's Auditor is unaware; and
-- the Directors have taken all steps they ought to have taken
as Directors to make themselves aware of any relevant audit
information and to establish that the Company's Auditor is aware of
that information.
This confirmation is given and should be interpreted in
accordance with the provisions of Section 249 of The Companies
(Guernsey) Law, 2008, as amended.
By order of the Board.
JPHS Scott DIW Reynolds
Director Director
14 September 2015
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Corporate Governance Report
For the year ended 30 June 2015
Applicable Corporate Governance Codes
The UK Corporate Governance Code ("the UK Code") in force for
the period under review was published in September 2012 and applied
to accounting periods commencing on or after 1 October 2012. In
September 2014, a revised Code was published and will be applicable
to the Company for the year ended 30 June 2016. All companies with
a Premium Listing of equity shares, regardless of whether they are
incorporated in the UK or elsewhere (which includes the Company),
are required to "comply or explain" against the Code. The
day-to-day running of the Company is delegated to various third
parties; the overall governance of the Company however remains the
responsibility of the Board.
Corporate Governance Statement
Throughout the year ended 30 June 2015 the Company has been in
compliance with the Main Principles of the UK Code, and has also
complied with the detailed provisions set out in Section 1 of the
UK Code, except as set out below.
The UK Code includes provisions relating to:
-- The role of chief executive
-- Executive remuneration, including the remuneration of executive directors
-- Appointment of a senior independent director
As permitted in the preamble to the UK Code, the Board considers
these provisions are not relevant to the position of the Company.
The Company is an externally managed investment company without
executive staff; a senior independent director has not been
appointed given that all Directors are independent of the Company
and of the key service providers.
On 30 September 2011, the Guernsey Financial Services Commission
("GFSC") issued a Code of Corporate Governance (the "Guernsey
Code") which came into effect on 1 January 2012. The GFSC have
stated that companies which report against the UK Code or the AIC
Code of Corporate Governance (the "AIC Code") are deemed to meet
compliance with the Guernsey Code.
The Directors believe the Company to be compliant with the
requirements of the UK Listing Authority Listing Rules as regards
corporate governance. The Company complies with the corporate
governance statement requirements pursuant to the FCA's Disclosure
and Transparency Rules by virtue of the information included in the
Corporate Governance section of the annual report together with
information contained in the Strategic Report and the Directors'
Report.
The Board
The Company is overseen by a Board, chaired by Charles Tracy,
which comprises 4 non-executive Directors, all of whom have wide
experience and are considered to be independent. The Board believes
that it is in the shareholders' best interests for the Chairman to
be the point of contact for all matters relating to the governance
of the Company and as such has not appointed a Senior Independent
Director for the purpose of the Code.
The Board meets regularly, normally quarterly, and more
frequently if necessary, and retains full responsibility for the
direction and control of the Company. The Directors have access to
the advice and services of the Company Secretary, who is
responsible to the Board for ensuring that the Board procedures are
followed and that applicable rules and regulations are complied
with.
The Board is responsible for approval of the Annual and
Half-Yearly Financial Results and all other public documents
ensuring a balanced and fair approach is adopted which enables
shareholders to understand and assess the performance of the
Company.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Corporate Governance Report (continued)
For the year ended 30 June 2015
Appointment
The appointment of Directors is considered by the Board as a
whole which carries out the functions of the Nominations Committee.
The Board regularly reviews its structure, size and composition
giving full consideration to succession planning for Directors and
keeping under review the leadership needs of the Company. 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 believes that, as a whole, it comprises an appropriate
balance of skills, experience and knowledge. The Board also
believes that diversity of experience and approach, amongst members
is of great importance and it is the Company's policy to give
careful consideration to issues of board balance and diversity,
including gender diversity, when making new appointments. On
appointment, the Manager and the Company Secretary provide all
Directors with induction training.
The Articles of Incorporation require that one third or the
number nearest to but not exceeding one third, of the existing
Directors must retire and may offer themselves for re-appointment
at every Annual General Meeting and that every newly appointed
Director must stand for appointment by shareholders at the Annual
General Meeting following their appointment. In accordance with the
UK Code non-executive directors who have served longer than nine
years are also subject to annual re-election. The Board does not
consider tenure to determine the independence of a Director and
value the experience and knowledge gained through long service. The
Board therefore continues to determine that all current directors
are independent in character and judgement.
Board Meetings
The Board meets at least quarterly. Certain matters are
considered at all Board Meetings including the performance of the
investments, the LE and policy maturity rates, NAV and share price
and associated matters such as asset allocation, risks, strategy,
investor relations and industry issues. Consideration is also given
to administration and corporate governance matters, and where
applicable, reports are received from the Board Committees.
The number of formal meetings of the Board and the Audit
Committee held during the financial year and the attendance of
individual directors and members of the Audit Committee are shown
below:
Type and Number Board - Audit -
5 2
----------------- -------- --------
CPG Tracy 5 2
----------------- -------- --------
TJ Emmott 5 2
----------------- -------- --------
DIW Reynolds 5 2
----------------- -------- --------
JPHS Scott 5 2
----------------- -------- --------
All Directors of the Company are non-executive. The Board as a
whole fulfils the function of the Remuneration Committee and
carries out periodic reviews of Directors' fees, after seeking
independent advice.
Board Committees
The Board has established a separate Audit Committee. The Board
has decided not to establish separate Nominations, Remuneration and
Management Engagement Committees as these functions are carried out
by the Board as a whole. This includes an annual review of the
contracts with the Manager and the Investment Manager and whether
they are in the best interests of shareholders.
Performance
The Board reviews its performance and composition on an annual
basis. In order to review the effectiveness of the Board, the Audit
Committee and the individual Directors, the Chairman carried out a
thorough appraisal process in 2014 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 the Chairman of the Audit
Committee. It is considered that the performance of all Directors
continues to be effective and that they have demonstrated
commitment to their roles.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Corporate Governance Report (continued)
For the year ended 30 June 2015
Internal Control
The Board is responsible for establishing, maintaining and
monitoring the effectiveness of the Company's system of internal,
financial and other controls. The internal financial controls
operated by the Board include the authorisation of the investment
strategy and regular reviews of the financial results and
investment performance. The system of internal financial controls
can provide only reasonable and not absolute assurance against
material misstatement or loss. The Board regularly reviews and
evaluates the risks faced by the Company and has put in place
mitigating factors where possible. The Company's Investment Manager
and Manager have established systems of internal control and
provide assurance to the Board that adequate systems are in place
in relation to the services provided to the Company.
Significant Contracts
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The Board has contractually delegated to SL Investment
Management Limited the investment management of the Fund's
investments and to Allianz Global Investors GmbH, UK Branch the
management of the cash and borrowings. The safe custody of the
Fund's investments is managed by Kleinwort Benson (Guernsey)
Limited. Wells Fargo Bank in the USA acts as sub-custodian.
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 Allianz Global Investors GmbH, UK Branch. A summary
of the terms of the agreements with SL Investment Management
Limited and Allianz Global Investors GmbH, UK Branch are set out in
note 5 to the financial statements.
After due consideration of the resources and reputation of each
of SL Investment Management Limited and Allianz Global Investors
GmbH, UK Branch, the Board believes it is in the interests of
shareholders to retain both contracts for the foreseeable future.
The main reasons for this opinion are the extensive knowledge of
the US traded life interest market and their valuation together
with the complex financial and investment modelling related
thereto; and, the extensive investment management resources of the
Manager and its experience in managing and administering investment
trust companies respectively.
Independent Advice
The Board recognises that there may be occasions when one or
more of the Directors feels it is necessary to take independent
legal advice at the Company's expense. The Company has a procedure
whereby the Directors are entitled to obtain independent advice
where relevant.
Indemnities
To the extent permitted by Guernsey law, the Company's Articles
of Incorporation provide an indemnity for the Directors against any
liability except such (if any) as they shall incur by or through
their own breach of trust, breach of duty or negligence.
During the year the Company has maintained Directors' and
Officers' liability insurance which provides insurance cover for
Directors against certain personal liabilities which they may incur
by reason of their duties as Directors.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Directors' Responsibilities Statement
For the year ended 30 June 2015
The Directors are responsible for preparing the Annual Financial
Report and the financial statements in accordance with applicable
law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have elected to prepare the financial statements in accordance with
International Financial Reporting Standards (IFRSs) issued by the
International Accounting Standards Board (IASB). Under company law
the Directors must not approve the financial statements unless they
are satisfied that they give a true and fair view of the state of
affairs of the Company and of the profit or loss of the Company for
that period. In preparing these financial statements, International
Accounting Standard 1 requires that Directors:
-- properly select and apply accounting policies;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the entity's financial position and financial
performance; and
-- make an assessment of the Company's ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with The Companies (Guernsey) Law,
2008, as amended. They are also responsible for safeguarding the
assets of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in Guernsey and the United Kingdom
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Responsibility statement
Each Director confirms to the best of his knowledge that:
-- the financial statements, prepared in accordance with
International Financial Reporting Standards, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the Company.
-- the Strategic Report includes a fair review of the
development and performance of the business and the position of the
Company, together with a description of the principal risks and
uncertainties the Company faces.
-- the Annual Report and Financial Statements, taken as a whole,
are fair, balanced and understandable and provide the information
necessary to assess the Company's performance, business model and
strategy.
By order of the Board.
JPHS Scott DIW Reynolds
Director Director
14 September 2015
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Audit Committee Report
For the year ended 30 June 2015
The principal role of the Audit Committee is to assist the Board
in relation to the reporting of financial information, the review
of financial controls and the management of risk. The Committee has
defined terms of reference and duties and the terms of reference
are published on the Company's website, www.allianzgi.co.uk/TLI.
The terms include responsibility for the review of the Annual
Financial Report and the Half Yearly Report, the nature and scope
of the external audit and the findings therefrom and the terms of
appointment of the Auditors, including their remuneration and the
provision of any non-audit services by them. Where requested by the
Board, the Audit Committee provides advice on whether the Annual
Financial Report, taken as a whole is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Company's performance, business model
and strategy.
The Audit Committee is also responsible for considering those
matters that have enabled the Board of Directors to make its
statement on Going Concern on page 22.
Composition
The Board reviews the composition of the Audit Committee and
considers that collectively the Committee members have sufficient
recent and relevant financial experience to discharge fully their
responsibilities. As this is a small company, the Committee
comprises all the directors of the Company. I am the Chairman of
the Committee, and as you will see from my biography on page 4, I
am a Fellow of the Institute of Actuaries and was formerly Chief
Executive of a major life assurance company. The biographies of the
other members of the Audit Committee can also be found on page
4.
Role
The Audit Committee determined that the significant issues to be
considered were the valuation of the Company's portfolio of TLIs
and its cash flow requirements. The valuation of the Company's
portfolio of TLIs is regularly reviewed by the Board in conjunction
with the Investment Manager and, where appropriate, recommendations
in relation to the basis of valuation are made to the Board. The
risk of cash flow difficulties was significantly reduced by the
agreement of a revolving credit facility of up to US$10,000,000
with AIB Group (UK) PLC on 31 March 2014; with effect from 11
August 2015 the terms were improved and the expiry date was
extended to 31 March 2018.
More details on the valuation can be found in the Chairman's
Statement and the Investment Manager's Review. The external
auditors explained the results of their review of the valuations,
including their challenge of the Board's underlying cash flow
projections, produced in conjunction with the Investment Manager,
the LE assessments and discount rates, to the Audit Committee. On
the basis of their audit work there were no adjustments that were
material in the context of the financial statements as a whole.
The Directors and the Investment Manager have adopted IFRS13:
Fair Value Measurement. This standard defines fair value and sets
out in a single IFRS a framework for measuring fair value which has
been applied to these financial statements.
During the year the Committee met twice during which the Annual
Financial Report and the Half Yearly Report respectively were
reviewed in detail. The Committee also meets with representatives
of the Manager and Administrator and receives reports on the
effectiveness of the Company's internal controls.
Risk Assessment and Significant Financial Statement Issues
The Company's risk assessment process and the way in which
significant business risks are managed is a key area of focus for
the Committee. The work of the Audit Committee is driven primarily
by the Company's assessment of its principal risks and
uncertainties as set out on page 18 of the Strategic Report, and it
receives regular reports from the Investment Manager and the
Manager on the Company's risk evaluation process and reviews
changes to significant risks identified.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Audit Committee Report (continued)
For the year ended 30 June 2015
Risk Assessment and Significant Financial Statement Issues
(continued)
The principal risk to the Company's valuation and financial
statement is mortality. However, it is accepted that mortality risk
is fundamental to the nature of the investments and that such has
been the case since launch. The Audit Committee reviews LE
expectations and mortality tables on a regular basis and is
confident in the valuations recommended to and approved by the
Board.
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The Audit Committee continued to consider the process for
managing the risk of the Company and its service providers. Risk
management procedures for the Company, as detailed in the Company's
risk matrix, were reviewed and approved by the Audit Committee.
Audit Process
The Audit Committee continues to consider that the Company does
not require an internal audit function as it delegates its
day-to-day operations to third parties from whom it receives
internal control reports. Such reports from third party auditors on
the internal controls maintained on behalf of the Company by the
Manager or directly to the Company were reviewed during the
year.
The Audit Committee reviewed the performance of the auditors and
its independence and tenure. Deloitte LLP's first year of audit was
for the period ended 30 June 2005. In 2014, the Company put the
audit out to tender. Following presentations from a number of
international auditing firms, including the Company's present
auditors, the Board, following a recommendation from the Audit
Committee, decided to retain Deloitte LLP as the Company's
auditors. The Audit Committee continues to recommend Deloitte LLP
as the Company's auditors.
On 16 June 2014 the EU Directive on Statutory Audits of Annual
and Consolidated Accounts (the "Directive") came into force. Member
States have two years after the Directive comes into force to adopt
and publish the provisions in national law. The Directive includes
further provisions on audit firm rotation. The Audit Committee will
keep this matter under review.
The Audit Committee has adopted a formal framework in its review
of the effectiveness of the external audit process and audit
quality which includes the following areas: the audit partners with
particular focus on the lead audit engagement partner; the audit
team; planning and scope of the audit and identification of areas
of audit risk; the execution of the audit; the role of management
in an effective audit process; communications by the auditor with
the Audit Committee; how the auditor supports the work of the Audit
Committee; how the audit contributes insights and added value; a
review of independence and objectivity of the audit firm and the
quality of the formal audit report to shareholders.
To assess the effectiveness of the external audit process the
Audit Committee will review:
-- the Auditor's fulfilment of the agreed audit plan and variations from it;
-- discussions or reports highlighting the major issues that
arose during the course of the audit;
-- feedback from other service providers evaluating the performance of the audit team;
-- arrangements for ensuring independence and objectivity; and
-- robustness of the Auditor in handling key accounting and audit judgements.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Audit Committee Report (continued)
For the year ended 30 June 2015
Non-Audit Services
The Audit Committee reviews the need for non-audit services and
authorises such on a case-by-case basis, having regards to the cost
effectiveness of the services and the independence and objectivity
of the Auditors. There were no non-audit fees incurred in the year
under review (2014: nil). In order to maintain auditor
independence, Deloitte LLP ensured the following safeguards were in
place:
-- the use of review partners from outside the core audit team
to ensure professional scepticism was applied appropriately;
and
-- Independent Partner reviews, together with a quality
assurance review were undertaken as part of the reporting
accountant work and the final audit stage.
The Audit Committee considers Deloitte LLP to be independent of
the Company and that the provision of non-audit services is not a
threat to the objectivity and independence of the conduct of the
audit as appropriate safeguards are in place.
Whistleblowing
As the Company has no employees it does not have a formal policy
concerning the raising, in confidence, of any concerns about
possible improprieties, whether in matters of financial reporting
or otherwise, for appropriate independent investigation. The Audit
Committee has, however, reviewed and noted the Manager's and
Investment Manager's policy on this matter.
Year Ended 30 June 2015
In finalising the Annual Financial Report for recommendation to
the Board for approval, the Audit Committee has satisfied itself
that the Annual Financial Report taken as a whole is fair, balanced
and understandable, and provides the information necessary for
shareholders to assess the Company's performance, business model
and strategy.
The Company's external auditors attended the meeting of the
Audit Committee at which the Annual Financial Report was reviewed
and they reported on their audit approach and work undertaken, the
quality and effectiveness of the Company's accounting records and
their findings in relation to the Company's statutory audit.
The Audit Committee reviewed the performance of the Auditors at
this meeting and recommended to the Board that Deloitte LLP be
reappointed as auditor for the year ending 30 June 2016. A
resolution will therefore be put to the 2015 AGM for the
reappointment of Deloitte LLP as independent external auditor.
I will be available at the Annual General Meeting to answer any
questions about the work of the Committee.
D I W Reynolds
Chairman of the Audit Committee
14 September 2015
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Independent Auditor's Report to the Members of
Alternative Asset Opportunities PCC Limited
For the year ended 30 June 2015
Opinion on financial In our opinion the financial statements:
statements of -- give a true and fair view of the state of
Alternative Asset the Company's affairs as at 30 June 2015 and
Opportunities of its gain for the year then ended;
PCC Limited -- have been properly prepared in accordance
with International Financial Reporting Standards
(IFRSs) as issued by the International Accounting
Standards Board (IASB); and
-- have been prepared in accordance with the
requirements of The Companies (Guernsey) Law,
2008.
The financial statements comprise the Statement
of Comprehensive Income, the Statement of Financial
Position, the Statement of Changes in Redeemable
Participating Preference Shareholders' Funds,
the Statement of Cash Flows, the Portfolio of
Investments and the related notes 1 to 22. The
financial reporting framework that has been
applied in their preparation is applicable law
and IFRSs as issued by the IASB.
Emphasis of In forming our opinion on the financial statements,
matter - investment which is not modified, we have considered the
valuation 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
information available in respect of closed deals
in TLIs in the tertiary market, there is uncertainty
over the estimation of market based discount
rates that would apply to the Company's TLI
valuation.
For these reasons note 2 (b) to the financial
statements highlights that this valuation may
be materially different from either the value
on maturity or the realisable sale value of
these investments.
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 disclose a sensitivity analysis in respect
of both the life expectancies and discount rate
assumptions which quantifies the effect on the
Company's net asset value per share for the
selected range of scenarios.
We describe below how the scope of our audit
has responded to this risk.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Independent Auditor's Report to the Members of
Alternative Asset Opportunities PCC Limited (continued)
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For the year ended 30 June 2015
Going concern We have reviewed the directors' statement contained
within the Directors' Report that the Company
is a going concern. We confirm that
* we have concluded that the Directors' use of the
going concern basis of accounting in the preparation
of the financial statements is appropriate; and
* we have not identified any material uncertainties
that may cast significant doubt on the Company's
ability to continue as a going concern.
However, because not all future events or conditions
can be predicted, including the result of the
continuation vote at the forthcoming Annual
General Meeting, this statement is not a guarantee
as to the Company's ability to continue as a
going concern.
Our assessment The assessed risks of material misstatement
of risks of material described below are those that had the greatest
misstatement effect on our audit strategy, the allocation
of resources in the audit and directing the
efforts of the engagement team:
Risk How the scope of our audit responded
to the risk
Valuation of investments We engaged with Deloitte actuarial
Given the uncertainties surrounding specialists to test the mathematical
significant unobservable inputs accuracy of a sample of individual
used in the Company's actuarial policy valuation models, which
valuation model, which are explained use actuarial techniques applied
above under Emphasis of matter to data from mortality tables
- investment valuation, we considered and policy specific data.
the valuation of investments We challenged the Board on their
to be a key risk. valuation assumptions and methodologies,
Therefore we feel that there which focused on the LE estimation
is a risk that developments in methodology and the discount
life expectancy "LE" re-assessments rate, with reference to relevant
and mortality experience, as publicly available data and reports
well as developments in the markets' from the investment manager relevant
view of mortality estimates, to valuation.
are not adequately reflected We also considered the indicative
in the overall valuation in order bids the Company received on
to derive a best estimate of a representative population of
fair value. In addition there the TLI portfolio compared to
is a risk that the rate used the carrying value of the policies
to discount expected cash flows concerned.
does not adequately reflect a We have concluded that, in view
market rate. of the possible range of best
estimates, in particular the
impact of the uncertainties around
LE for the portfolio valuation,
there remains material uncertainty
over the valuation of the investment
portfolio and have included an
emphasis of matter paragraph
to this effect above.
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 2015
The description of risks above should be read
in conjunction with the significant issues considered
by the Audit Committee discussed on page 28
and in the Chairman's Statement on pages 7 and
8.
Our audit procedures relating to these matters
were designed in the context of our audit of
the financial statements as a whole, and not
to express an opinion on individual accounts
or disclosures. Our opinion on the financial
statements is not modified with respect to any
of the risks described above, and we do not
express an opinion on these individual matters.
Our application We define materiality as the magnitude of misstatement
of materiality in the financial statements that makes it probable
that the economic decisions of a reasonably
knowledgeable person would be changed or influenced.
We use materiality both in planning the scope
of our audit work and in evaluating the results
of our work.
We determined materiality for the Company to
be GBP630,000 (2014: GBP640,000), which is approximately
2% of shareholders' funds.
We agreed with the Audit Committee that we would
report to the Committee all audit differences
in excess of GBP12,600 (2014: GBP12,800), as
well as differences below that threshold that,
in our view, warranted reporting on qualitative
grounds. We also report to the Audit Committee
on disclosure matters that we identified when
assessing the overall presentation of the financial
statements.
An overview Our audit was scoped by obtaining an understanding
of the scope of the entity and its environment, including
of our audit internal control and internal control of
its service providers, and assessing the
risks of material misstatement. Audit work
to respond to the risks of material misstatement
was performed directly by the audit engagement
team.
Matters on which
we are required
to report by
exception
Adequacy of explanations Under the Companies (Guernsey) Law, 2008 we
received and are required to report to you if, in our opinion:
accounting records * we have not received all the information and
explanations we require for our audit; or
* proper accounting records have not been kept; or
* the financial statements are not in agreement with
the accounting records.
We have nothing to report in respect of these
matters.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Independent Auditor's Report to the Members of
Alternative Asset Opportunities PCC Limited (continued)
For the year ended 30 June 2015
Corporate Governance Under the Listing Rules we are also required
Statement to review the parts of the Corporate Governance
Statement relating to the Company's compliance
with ten provisions of the UK Corporate Governance
Code. We have nothing to report arising from
our review.
Our duty to read Under International Standards on Auditing (UK
other information and Ireland), we are required to report to you
in the Annual if, in our opinion, information in the annual
Report report is:
* materially inconsistent with the information in the
audited financial statements; or
* apparently materially incorrect based on, or
materially inconsistent with, our knowledge of the
Company acquired in the course of performing our
audit; or
* otherwise misleading.
In particular, we are required to consider whether
we have identified any inconsistencies between
our knowledge acquired during the audit and
the directors' statement that they consider
the annual report is fair, balanced and understandable
and whether the annual report appropriately
discloses those matters that we communicated
to the audit committee which we consider should
have been disclosed. We confirm that we have
not identified any such inconsistencies or misleading
statements.
Respective responsibilities As explained more fully in the Directors' Responsibilities
of directors Statement, the directors are responsible for
and auditor 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.
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We also comply with International Standard on
Quality Control 1 (UK and Ireland). Our audit
methodology and tools aim to ensure that our
quality control procedures are effective, understood
and applied. Our quality controls and systems
include our dedicated professional standards
review team and independent partner reviews.
This report is made solely to the Company's
members, as a body, in accordance with Section
262 of The Companies (Guernsey) Law, 2008. Our
audit work has been undertaken so that we might
state to the Company's members those matters
we are required to state to them in an auditor's
report and/or those matters we have expressly
agreed to report to them on in our engagement
letter and for no other purpose. To the fullest
extent permitted by law, we do not accept or
assume responsibility to anyone other than the
Company and the Company's members as a body,
for our audit work, for this report, or for
the opinions we have formed.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Independent Auditor's Report to the Members of
Alternative Asset Opportunities PCC Limited (continued)
For the year ended 30 June 2015
Scope of the An audit involves obtaining evidence about
audit of the the amounts and disclosures in the financial
financial statements statements sufficient to give reasonable assurance
that the financial statements are free from
material misstatement, whether caused by fraud
or error. This includes an assessment of: whether
the accounting policies are appropriate to the
Company's circumstances and have been consistently
applied and adequately disclosed; the reasonableness
of significant accounting estimates made by
the directors; and the overall presentation
of the financial statements. In addition, we
read all the financial and non-financial information
in the annual report to identify material inconsistencies
with the audited financial statements and to
identify any information that is apparently
materially incorrect based on, or materially
inconsistent with, the knowledge acquired by
us in the course of performing the audit. If
we become aware of any apparent material misstatements
or inconsistencies we consider the implications
for our report.
David Becker
for and on behalf of Deloitte LLP
Chartered Accountants and Recognised Auditor
St. Peter Port, Guernsey
14 September 2015
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Statement of Comprehensive Income
For the year ended 30 June 2015
Notes Year to 30 June 2015 Year to 30 June 2014
Revenue Capital Total Revenue Capital Total
GBP GBP GBP GBP GBP GBP
Operating income/(loss)
Net gains/(loss)
on investments 10 - 2,819,001 2,819,001 - (1,822,843) (1,822,843)
Foreign exchange
gains/(loss) 17 - 211,996 211,996 - (123,862) (123,862)
Interest and similar
income 4 491 - 491 176 - 176
---------- ---------- ---------- ---------- ------------ ------------
Total income/(loss) 491 3,030,997 3,031,488 176 (1,946,705) (1,946,529)
Operating
expenses
Management
fee 5 (95,481) - (95,481) (103,947) - (103,947)
Investment Manager's
fee 5 (127,500) - (127,500) (101,855) - (101,855)
Custodian fee (15,914) - (15,914) (16,780) - (16,780)
Other expenses 6 (354,508) - (354,508) (410,104) - (410,104)
Total operating
expenses before
finance costs (593,403) - (593,403) (632,686) - (632,686)
Operating (loss)/gain
before finance
costs (592,912) 3,030,997 2,438,085 (632,510) (1,946,705) (2,579,215)
Finance costs
Loan interest
payable 14 (124,713) - (124,713) (142,004) - (142,004)
Net return/(deficit) 8 (717,625) 3,030,997 2,313,372 (774,514) (1,946,705) (2,721,219)
========== ========== ========== ========== ============ ============
Return/(Deficit)
per share 8 (1.00p) 4.21p 3.21p (1.08p) (2.70p) (3.78p)
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 42 to 58 are an integral part of these
financial statements.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Statement of Financial Position
As at 30 June 2015
Notes 2015 2014
GBP GBP
Non-current assets
Financial assets at fair value through
profit or loss 10 30,570,116 29,380,044
Current assets
Cash and cash equivalents 12 1,122,172 2,092,052
Other receivables 11 99,928 61,898
Maturity proceeds
receivable 11 - 789,543
1,222,100 2,943,493
----------- -----------
Total assets 31,792,216 32,323,537
----------- -----------
Current liabilities
Loan facility 14 - -
Other payables 13 172,585 137,278
172,585 137,278
----------- -----------
Total liabilities 172,585 137,278
----------- -----------
Net assets attributable to shareholders 17 31,619,631 32,186,259
Total equity and liabilities (including
amounts due to shareholders) 31,792,216 32,323,537
=========== ===========
Net asset value per share 9 43.9p 44.7p
These financial statements were approved by the Board of
Directors on 14 September 2015.
Signed on behalf of the Board.
JPHS Scott DIW Reynolds
Director Director
14 September 2015
The notes on pages 42 to 58 are an integral part of these
financial statements.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Statement of Changes in Redeemable Participating Preference
Shareholders' Funds
For the year ended 30 June 2015
For the year ended Share Capital Revenue
30 June 2015 Premium reserve reserve Total
GBP GBP GBP GBP
Balance as at 1 July
2014 48,914,968 (7,156,381) (9,572,328) 32,186,259
Return/(Deficit) for
the year - 3,030,997 (717,625) 2,313,372
Capital distribution (2,880,000) - - (2,880,000)
Balance as at 30 June
2015 46,034,968 (4,125,384) (10,289,953) 31,619,631
============ ============ ============= ============
For the year ended Share Capital Revenue
30 June 2014 Premium reserve reserve Total
GBP GBP GBP GBP
Balance as at 1 July
2013 48,914,968 (5,209,676) (8,797,814) 34,907,478
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Deficit for the year - (1,946,705) (774,514) (2,721,219)
Balance as at 30 June
2014 48,914,968 (7,156,381) (9,572,328) 32,186,259
=========== ============ ============ ============
The notes on pages 42 to 58 are an integral part of these
financial statements.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Statement of Cash Flows
For the year ended 30 June 2015
Year to Year to
30 June 2015 30 June 2014
GBP GBP
Cash flows from operating activities
Revenue account operating loss before
finance costs for the year (592,912) (632,510)
Decrease in other receivables 751,513 144,233
Increase/(decrease) in other
payables 35,307 (45,285)
Premiums
paid (5,325,557) (5,164,817)
Proceeds from maturities and sale
of investments 6,954,486 10,899,311
Net cash inflow from operating activities
before interest 1,822,837 5,200,932
-------------- --------------
Cash flows from financing
activities
Receipts of borrowings 1,253,103 -
Repayment of borrowings (1,253,103) (3,915,675)
Interest
paid (124,713) (142,005)
Capital distribution (2,880,000) -
-------------- --------------
Net cash used in financing activities (3,004,713) (4,057,680)
-------------- --------------
Net (decrease)/increase in cash
and cash equivalents (1,181,876) 1,143,252
Cash and cash equivalents at the
beginning of the year 2,092,052 1,072,662
Effects of foreign exchange 211,996 (123,862)
Cash and cash equivalents at the
end of the year 1,122,172 2,092,052
============== ==============
The notes on pages 42 to 58 are an integral part of these
financial statements.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Portfolio of Investments
As at 30 June 2015
Number Valuation Total Portion AM Best
Traded Life Interests ("TLI's") of Policies Death (by value) Rating
Benefit of Portfolio (Issuer)
Parent Group Issuer GBP GBP %
Lincoln National Corporation
Lincoln National
Life Insurance
Company 13 6,951,805 18,707,674 22.73% A+
Lincoln Life
& Annuity Company
of New York 1 176,224 1,112,736 0.58% A+
American International
Group, Inc.
American General
Life Insurance
Company 9 6,515,155 14,020,470 21.31% A
Aegon N.V.
Transamerica
Life Insurance
Company 16 5,490,014 13,783,426 17.96% A+
Massachusetts Mutual Life
Insurance Company
Massachusetts
Mutual Life Insurance
Company 4 2,253,277 4,852,885 7.37% A++
MetLife,
Inc.
MetLife Insurance
Company USA 6 1,626,343 4,139,530 5.32% A+
General American
Life Insurance
Company 1 59,733 317,924 0.20% A+
Manulife Financial Corporation
John Hancock
Life Insurance
Company (U.S.A.) 5 1,319,811 3,815,094 4.32% A+
Pacific Mutual Holding
Company
Pacific Life
Insurance Company 4 1,227,576 5,119,344 4.02% A+
New York Life Insurance
Company
New York Life
Insurance and
Annuity Corporation 5 1,120,157 4,133,018 3.66% A++
Voya Financial Inc.
Security Life
of Denver Insurance
Company 1 693,268 3,179,245 2.27% A
ING Life Insurance
and Annuity Company 2 231,938 445,094 0.76% A
ReliaStar Life
Insurance Company 1 131,721 317,924 0.43% A
Athene Holding Ltd.
Athene Annuity
and Life Company 3 727,440 2,711,896 2.38% A-
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Portfolio of Investments (continued)
As at 30 June 2015
Number Valuation Total Portion AM Best
Traded Life Interests ("TLI's") of Policies Death (by value) Rating
Benefit of Portfolio (Issuer)
Parent Group Issuer GBP GBP %
AXA S.A.
AXA Equitable
Life Insurance
Company 3 349,834 921,981 1.14% A+
MONY Life Insurance
Company of America 1 240,196 635,849 0.79% A
Sammons Enterprises, Inc.
North American
Company for Life
and Health Insurance 2 383,979 1,271,698 1.26% A+
Resolution Life Holdings
Inc
Lincoln Benefit
Life Company 1 209,920 1,271,698 0.69% A-
Prudential
plc
Jackson National
Life Insurance
Company 1 189,180 648,863 0.62% A+
Western & Southern Mutual
Holding Company
Columbus Life
Insurance Company 1 159,408 635,849 0.52% A+
Mutual of Omaha Insurance
Company
United of Omaha
Life Insurance
Company 1 141,780 547,745 0.46% A+
StanCorp Financial Group,
Inc
Standard Insurance
Company 1 122,554 317,924 0.40% A
Security Mutual Life Insurance
Company of New York
Security Mutual
Life Insurance
Company of New
York 1 117,371 476,887 0.38% A-
Legal & General Group Plc
Banner Life Insurance
Company 1 89,540 190,755 0.29% A+
DMC Reserve
Trust
Beneficial Life
Insurance Company 1 41,892 127,170 0.14% A-
85 30,570,116 83,702,679 100.0%
------------- --------------- -------------- --------------
Portfolio Total 30,570,116 83,702,679 100.0%
=============== ============== ==============
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the Financial Statements
For the year ended 30 June 2015
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 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
holding to maturity (or until the end of the life of the Fund), a
diversified portfolio of US Traded Life Interests ("TLIs"),
notwithstanding the Company may make sales of selected policies
from time to time.
2 Principal Accounting Policies
(a) Basis of preparation
Statement of compliance
The financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRSs) issued by the
International Accounting Standards Board (IASB) and with the
Statement of Recommended Practice 'Financial Statements of
Investment Trust Companies and Venture Capital Trusts' (SORP)
issued in January 2009 by the Association of Investment
Companies.
Basis of measurement
The financial statements have been prepared under the historical
cost convention as modified by the revaluation of investments, as
detailed below under note 2(b).
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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 IFRSs
requires management to make judgements, estimates and assumptions
that affect the application of policies and the reported amounts of
assets and liabilities, income and expenses. The estimates and
associated assumptions are based on historical experience and
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making
judgements about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may
differ from these estimates. The estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the year in which the
estimate is revised if the revision affects only that year, or in
the year of the revision and future years if the revision affects
both current and future years. Such judgements and key sources of
estimation uncertainty include the valuation of investments and the
going concern assumption, which are discussed in note 2(b) and 2(c)
respectively.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the Financial Statements (continued)
For the year ended 30 June 2015
2 Principal Accounting Policies (continued)
(a) Basis of preparation (continued)
Adoption of new and revised standards
In the current year, no new standards have been adopted by the
Company.
At the date of authorisation of these financial statements, the
following standards and interpretations which have not been applied
in these financial statements were in issue but not yet
effective.
Title Subject Effective date
--------------- ----------------------- ---------------
IFRS 9 Financial Instruments 1 January 2018
--------------- ----------------------- ---------------
Amendments to Investment Entities 1 January 2016
IFRS 10, IFRS
12 and IAS 27
--------------- ----------------------- ---------------
IFRS 15 Revenue from Contracts 1 January 2017
with Customers
--------------- ----------------------- ---------------
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.
(b) 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
The ongoing payment of premiums on TLIs are recognised on an
accrual basis and are initially held at cost, being the
consideration given.
Valuation
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 third party LE underwriters, the
Investment Manager (or the Directors, where stated):
-- Death benefit payable under the policy;
-- Mortality using the 2008 Valuation Basic Table (Ultimate) and
the most recent life expectancy for each policy;
-- Premiums payable under the policy; and
-- An estimate of a market based discount rate derived by the Directors.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the Financial Statements (continued)
For the year ended 30 June 2015
2 Principal Accounting Policies (continued)
(b) Investments
The Company does not obtain LE assessments for every policy in
the Company's portfolio. This applies specifically to two
sub-sections of the portfolio: those with face values of under
US$500,000, where the cost of regular review is deemed uneconomic,
and those where it has not been possible to obtain updated medical
records. Following discussions with its investment advisers, SL
Investment Management, the Board decided to change the basis of the
valuation for these two groups of policies to Valuation Basic Table
(VBT), the standard population mortality table in the US. This
adjustment was made in the 31 May 2014 valuation.
There is inherent uncertainty within the valuation such that the
valuation, due to the large range of possible outcomes in
particular the variations in LE, may be materially different from
either the value on maturity or the realisable sale value of these
investments.
The significant unobservable inputs used in the valuation of the
Company's assets, Life Settlement policies, are the Life Expectancy
(LE) and the discount rate. See note 20 on page 55.
The LE for each insured has been sourced from the major
recognised providers of LE assessments that are used in the Life
Settlement market or, where these are not available, standard US
population mortality tables have been used to derive the LE. The
average LE for each insured as at 30 June 2015 is 4.5 years.
The Company has adopted a discount rate of 12% for each
policy.
The valuation basis of the portfolio is specified by the Board
and the Investment Manager computes the portfolio valuation
monthly. Analysis is provided to the Board, on a monthly basis, of
the change in value of the portfolio over this period.
The Board receives regular updates from the Investment Manager
on market activity and has periodically submitted policies to
market, to compare the individual computed policy valuations to
indicative market values.
The impacts on the portfolio of varying the LE and varying the
discount rate are as indicated in the sensitivity matrix included
in the Chairman's statement.
Typically, an increase in the LE will reduce the value of a
policy and conversely a reduction in the LE will increase the value
of a policy.
Typically, an increase in the discount rate will reduce the
value of a policy and conversely a reduction in the discount rate
will increase the value of a policy.
De-recognition
The Company de-recognises a financial asset when the contractual
rights to cash flows from the financial asset expire. A financial
liability is de-recognised when the obligation specified in the
contract is discharged, cancelled or expired. TLI investments are
de-recognised on the date of death of the insured or on the trade
date if a policy is sold.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the Financial Statements (continued)
For the year ended 30 June 2015
2 Principal Accounting Policies (continued)
(c) Going concern
The Board considered carefully the issue of 'going concern',
specifically in relation to the availability of funding. On 31
March 2014, the Company signed a two year revolving credit facility
agreement of up to US$10 million with AIB Group (UK) PLC ("AIB"),
expiring on 31March 2016. In May 2015 it was announced that AIB had
agreed to extend the facility for a further period of two years on
improved terms. Shortly after the year end documentation was put in
place extending the life of the facility to 31 March 2018.
The extension of the facility enables the Company to cover cash
flow requirements, with no policy maturities, until January 2017.
The Board acknowledges that in the event of a continued drought in
maturities there may be a requirement to enter a forced sale of
policies in an illiquid market, the Board is confident however 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 could be
adversely affected, but the Company would remain a going
concern.
Total drawn borrowings under the revolving credit facility with
AIB were nil as at 30 June 2015 and 30 June 2014. Since there was a
nil balance drawn down for both years the asset cover was not
applicable.
A continuation vote will be put to the Shareholders at the 2015
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 in preparing the
financial statements.
(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
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Foreign currency monetary assets and liabilities are translated
into sterling at the rate of exchange ruling at the reporting date.
Transactions in foreign currencies are translated into sterling at
the rate ruling at the date of the transaction. Realised and
unrealised foreign exchange gains and losses are recognised in the
Statement of Comprehensive Income and in the capital reserve -
realised, and capital reserve - unrealised, respectively.
(g) Bank borrowings
Interest bearing bank loans and overdrafts are recorded when the
proceeds are received. Interest payments are recognised in the
Statement of Comprehensive Income in the period in which they are
incurred.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the Financial Statements (continued)
For the year ended 30 June 2015
3 Segmental Reporting
The Board has considered the requirements of IFRS 8 'Operating
Segments'. The Board has determined that the Company is organised
in one main operating segment, being investment in a portfolio of
TLIs. The Board, as a whole, has been determined as constituting
the chief operating decision maker of the Company.
The Board has overall responsibility for the assets of the
Company in accordance with the investment objective and policy, and
subject to advice received from the Investment Manager.
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 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 2015 30 June
2014
GBP GBP
Bank deposit
interest 491 176
Total income 491 176
============== =========
5 Investment management and management fees
SL Investment Management Limited, the Investment Manager, was
appointed under an agreement with the Company and other parties
dated 16 March 2004, as amended and restated on 20 July 2004. The
agreement may be terminated by either party giving not less than 12
months notice or such shorter notice as the parties may agree to
accept.
From 1 April 2012 the fee payable to the Investment Manager is
0.4% per annum of the Company's Gross Assets. Additional fees may
be paid for additional ad hoc services performed outside of the
Investment Management Agreement.
Allianz Global Investors GmbH, UK Branch, the Manager, was
appointed under an agreement with the Company dated 16 March 2004
to manage the fixed interest and near cash assets of the Company in
accordance with the investment policy and to implement the currency
hedging facility from time to time approved by the Directors. The
agreement may be terminated by either party giving not less than 12
months notice or such shorter notice as the parties may agree to
accept.
With effect from 1 July 2013 the fee payable to the Manager is
0.3% per annum of the Company's Gross Assets. These fees are shown
in the Statement of Comprehensive Income on page 36.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the Financial Statements (continued)
For the year ended 30 June 2015
5 Investment management and management fees (continued)
The fixed fee payable for the provision of Administration and
Secretarial Services is GBP30,000 per annum.
With effect from 1 September 2009 the fixed fee payable under
the Administration Agreement between the Company and Kleinwort
Benson (Channel Islands) Fund Services Limited (formerly Kleinwort
Benson (Guernsey) Fund Services Limited) is GBP50,000 per
annum.
6 Other expenses
Year to Year to
30 June 2015 30 June 2014
GBP GBP
Administration fees 50,000 55,072
Secretarial fees 25,000 27,598
Broker fees 41,872 41,624
Directors' fees, national
insurance and expenses 76,188 83,991
D&O Insurance 6,733 7,155
Auditor's remuneration 27,540 40,967
Legal and professional
fees 56,801 72,567
Printing 4,388 10,000
Safe custody
fees 12,196 11,975
Bank fees and
charges 1,786 1,101
Registrar fees 13,034 10,314
Cost of obtaining new
LEs 23,925 13,522
Sundry expenses
* 15,045 34,218
354,508 410,104
============== ==============
* Sundry expenses include mailing services, tax exempt fees,
stock exchange fees and other sundry costs.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the Financial Statements (continued)
For the year ended 30 June 2015
7 Taxation
The Company is exempt from Guernsey Income Tax under the local
Income Tax (Exempt Bodies) (Guernsey) Ordinances and is charged an
annual exemption fee of GBP1,200 which is included in sundry
expenses.
The Company adopted UK tax residency from 1 September 2009
onwards. Since that date the Company has been managed in such a way
as to meet the conditions for approval as an investment trust under
Section 1158 of the Corporation Tax Act 2010. As an investment
trust, the Company is subject to corporation tax on its income, but
no corporation tax is provided for in these accounts, as the
Company has significant unutilised tax losses which are not deemed
to be recoverable.
In December 2012 the Company received confirmation from HM
Revenue & Customs as an approved investment trust for
accounting periods commencing on or after 1 July 2012, subject to
the Company continuing to meet the eligibility conditions at
Section 1158 Corporation Tax Act 2010 and the ongoing requirements
in Chapter 3 of Part 2 Investment Trust (Approved Company) Tax
Regulations 2011 (Statutory Instrument 2011/2999).
In the opinion of the Directors, the Company has conducted its
affairs in such a manner that it continues to meet these
eligibility conditions.
8 Return/(deficit) per share
Revenue deficit per Share is based on the net deficit
attributable to the Shares of GBP717,625 (2014: deficit GBP774,514)
and on the average number of Shares in issue of 72,000,000 (2014:
72,000,000). Capital return per Share is based on the net surplus
attributable to the Shares of GBP3,030,997 (2014: deficit
GBP1,946,705) and on the average number of Shares in issue of
72,000,000 (2014: 72,000,000).
9 Net Asset Value per Share
The diluted and undiluted net asset value per Share is based on
net assets attributable to the Shares of GBP31,619,631 (2014:
GBP32,186,478) and on the 72,000,000 (2014: 72,000,000) Shares in
issue at the year end.
10 Investments
Year to Year to
(a) Investments at fair value through 30 June 30 June
profit or loss 2015 2014
GBP GBP
Movements in the year:
Opening valuation 29,380,044 36,937,381
Premiums
paid 5,325,557 5,164,817
Proceeds from the maturity and sale
of investments (6,954,486) (10,899,311)
Net realised gain
on maturities 3,623,110 4,491,743
Movement in unrealised depreciation
on revaluation of investments (804,109) (6,314,586)
Closing valuation 30,570,116 29,380,044
------------- -------------
Comprising:
Closing book cost 51,361,964 49,367,784
Closing unrealised loss (20,791,848) (19,987,740)
Closing valuation 30,570,116 29,380,044
============= =============
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the Financial Statements (continued)
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For the year ended 30 June 2015
10 Investments (continued)
(b) Net gain/(loss) on investments Year to Year to
held at fair value through profit 30 June 2015 30 June
or loss 2014
GBP GBP
Net realised gain on maturities 3,623,110 4,491,743
Movement in unrealised depreciation
on revaluation of investments (804,109) (6,314,586)
2,819,001 (1,822,843)
-------------- ------------
11 Other receivables and maturity proceeds receivable
30 June 2015 30 June 2014
GBP GBP
Sundry debtors 99,928 61,898
Maturity proceeds
receivable - 789,543
99,928 851,441
============= =============
The carrying value for the current and prior year is materially
the same as the fair value.
12 Cash and cash equivalents
Any amounts held on deposit or in current accounts at the
Company's Custodian, Sub-Custodian or financial institutions are
included in cash or cash equivalents. The carrying value for the
current and prior year is materially the same as the fair
value.
13 Other payables
30 June 2015 30 June 2014
GBP GBP
Accrued expenses 172,585 137,278
172,585 137,278
============= =============
The carrying value for the current and prior year is materially
the same as the fair value.
14 Loan facility
On 31 March 2014 the Company signed a revolving credit facility
agreement with AIB Group (UK) PLC ("the Lender") for up to US$10
million the terms of which were amended in August 2015 to extend
the facility expiry to 31 March 2018. This is designed to allow the
Company to continue fulfilling its financial obligations, including
the payment of premiums until that date. As at 30 June 2015 the
Company's drawings under this agreement were nil (30 June 2014:
nil).
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the Financial Statements (continued)
For the year ended 30 June 2015
14 Loan facility (continued)
Interest on the revolving credit facility agreement is payable
at LIBOR plus 3.00% (2014: 3.25%). Under the revolving credit
facility agreement the primary covenant obliges the Company to
maintain cover (i.e. asset value, subject to certain adjustments,
divided by borrowings) above 3 times (2014: 3 times). Since there
was a nil balance drawn down as at 30 June 2015 and 30 June 2014
the asset cover was not applicable. Under the terms of the new
revolving credit facility agreement an arrangement fee of US$40,000
(2014: US$70,000) is payable after the first Utilisation Date of
the extended facility.
Any available cash must be held in an acceptable bank, which is
defined as either (a) the Company's existing bankers; (b) the
Lender of an affiliate of the Lender; (c) a bank or financial
institution with a rating by Standard & Poor's of A-1 or
higher, a rating by Fitch of F1 or higher, or a rating by Moody's
of P-1 or higher; or (d) any other bank or financial institution
approved by the Lender.
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. The Management Shares shall only have the
right to vote when there are no Participating Shares of any cell in
issue.
At 30 June 2015 there were 72,000,000 Shares in issue in the
Fund (2014: 72,000,000).
The provisions in the Company's Articles of Incorporation enable
the Directors of the Company to distribute capital in the form of
cash to Shareholders through the issue and redemption of B Shares.
No voting rights are attached to such B Shares. Each time the Board
resolves to make such a capital distribution, the Company is able
to announce a bonus issue of B Shares on a pro rata basis.
Immediately upon being issued, deemed fully paid, the B Shares can
be redeemed for the amount deemed paid up and cash proceeds then be
paid to Shareholders.
On each of 8 August 2014 and 20 March 2015 72,000,000 B Shares
were issued 1 for 1 pro rata to Shareholders and redeemed for the
amount paid up; the cash proceeds of GBP1,440,000, or 2.0 pence per
share, were paid on each occasion to Shareholders.
The holders of Shares attributable to the Fund will be entitled
to participate only in the income, profits and assets attributable
to that fund. On winding up the holders of Shares are entitled to
participate only in the assets of the Fund and have no entitlement
to participate in the distribution of any assets attributable to
any other cell. Holders of Shares are entitled to attend and vote
at general meetings of the Company. 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 were offered the opportunity to vote on the
continuation of the Fund at the Annual General Meeting in 2014 and
shall continue to be offered such annually.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the Financial Statements (continued)
For the year ended 30 June 2015
16 Share buy-backs
By way of an ordinary resolution passed at the Annual General
Meeting held on 13 November 2014, the Company took authority to
make market purchases of fully paid Shares, provided that the
maximum number of Shares authorised to be purchased would be no
more than 10,792,800 Shares or such number as represented 14.99 per
cent. of the Shares in issue as at the date of the Annual General
Meeting, whichever was less (in either case, excluding Shares held
in Treasury). 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
(2014: nil).
The minimum price which may be paid for a Share pursuant to such
authority is one penny and the maximum price which may be paid
shall be the higher of (1) not more than 5% above the average of
the middle market quotations for a Share in the Company as derived
from The Stock Exchange Daily Official List for the five business
days immediately preceding the day on which such share is
contracted to be purchased, and (2) the higher of the price of the
last independent trade and highest current independent bid on the
relevant market when the purchase is carried out, provided that the
Company shall not be authorised to acquire Shares at a price above
the estimated prevailing net asset value per Share on the date of
purchase.
17 Net assets attributable to shareholders
Share Premium Capital Revenue
Reserves Reserves Total
2015 2015 2015 2015
GBP GBP GBP GBP
Balance at 1 July
2014 48,914,968 (7,156,381) (9,572,328) 32,186,259
Net realised gain
on maturities - 3,623,110 - 3,623,110
Movement in unrealised
depreciation on
investments - (804,109) - (804,109)
Net currency gains - 211,996 - 211,996
Revenue loss for
the year - - (717,625) (717,625)
Capital distributions (2,880,000) - - (2,880,000)
------------
Balance at 30
June 2015 46,034,968 (4,125,384) (10,289,953) 31,619,631
============== ============ ============= ============
Share Premium Capital Revenue
Reserves Reserves Total
2014 2014 2014 2014
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 - 4,491,743 - 4,491,743
Movement in unrealised
depreciation on
investments - (6,314,586) - (6,314,586)
Net currency losses - (123,862) - (123,862)
Revenue loss for
the year - - (774,514) (774,514)
------------
Balance at 30
June 2014 48,914,968 (7,156,381) (9,572,328) 32,186,259
============== ============ ============ ============
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ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the Financial Statements (continued)
For the year ended 30 June 2015
18 Related party transactions
Fees earned by the Directors of the Company during the year were
GBP76,188 of which GBP17,500 was outstanding at the year end (2014:
GBP83,991 of which GBP4,599 was outstanding at the year end).
Allowable expenses claimed by the Directors in the course of their
duties amounted to GBP4,549 for the year ended 30 June 2015 (2014:
GBP2,796). 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 2015 30 June 2014
GBP GBP
Financial assets
Cash and cash equivalents 1,122,172 2,092,052
Fair value through profit or
loss:
TLI Policies 30,570,116 29,380,044
Loans and receivables at amortised
cost 99,928 851,441
31,792,216 32,323,537
------------- -------------
Financial liabilities
Loans and payables at amortised
cost (172,585) (137,278)
============= =============
31,619,631 32,186,259
============= =============
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
-- Level 3 - Inputs for the asset or liability that are not
based on observable market data (that is, unobservable inputs).
The level in the fair value hierarchy within which the fair
value measurement is categorised in its entirety is determined on
the basis of the lowest level input that is significant to the fair
value measurement in its entirety. For this purpose, the
significance of an input is assessed against the fair value
measurement in its entirety. If a fair value measurement uses
observable inputs that require significant adjustment based on
unobservable inputs, that measurement is a level 3 measurement.
Assessing the significance of a particular input to the fair value
measurement in its entirety requires judgement, considering factors
specific to the asset or liability.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the Financial Statements (continued)
For the year ended 30 June 2015
20 Financial risk management objectives and policies (continued)
Fair value measurements (continued)
The determination of what constitutes 'observable' requires
significant judgement by the Company. The Company considers
observable data to be that market data that is readily available,
regularly distributed or updated, reliable and verifiable, not
proprietary, and provided by independent sources that are actively
involved in the relevant market.
The following table presents the Company's financial assets held
at fair value by level within the valuation hierarchy as of 30 June
2015.
30 June Percentage 30 June Percentage
2015 of net 2014 of net
assets assets
GBP % GBP %
Level 3 fair value
assets 30,570,116 96.68 29,380,044 91.32
----------- ----------- ----------- -----------
30,570,116 96.68 29,380,044 91.32
=========== =========== =========== ===========
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. More information on the impact of IFRS13 "Fair Value
Measurement" can be found in note 2(b). There has been no movement
between the categories and the reconciliation of the movement is
detailed in the investment note 10.
Capital risk management
The capital structure of the Company consists of cash and cash
equivalents and net assets attributable to holders of Shares,
comprising issued Shares, capital reserves and revenue reserves as
detailed in note 17. The Company has external capital requirements
in respect of the loan facility with AIB. Further details on the
loan covenants are included in note 14.
At 30 June 2015 net assets attributable to the holders of Shares
were GBP31,619,631 (2014: GBP32,186,259).
As at 30 June 2015, the Company had no borrowings (2014: nil).
Any borrowings mean that Shareholder returns are "geared" and that
such borrowings will need to be repaid prior to any return of
capital to shareholders.
The Company's investment objective 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 intended to be held to maturity but may be
disposed of when suitable opportunities arise, when there is a cash
flow requirement to sell, or towards the end of the life of the
Company. The Company is responsible for payment of policy
premiums.
As at 30 June 2015, the current portfolio comprised 85 TLIs
representing 74 lives. All TLIs acquired are Whole-of-Life or
Universal Life policies.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the Financial Statements (continued)
For the year ended 30 June 2015
20 Financial risk management objectives and policies (continued)
Capital risk management (continued)
The TLIs acquired are policies issued by a range of US life
insurance companies. Each underlying life insurance company had an
AM Best credit rating of at least "A" at the time of acquisition of
the relevant policy, and 96.4% of the portfolio still has, the
other 3.6% being A-. AM 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 uses 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 is 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 proceeds of the policy
within 60 days of receipt of the requisite documents.
Market and longevity risk
The Company's exposure to market risk is comprised mainly of
movements in the valuation of the TLI portfolio, which, in turn,
also reflects the Company's assessment of longevity (life
expectancy) for each policy. The Company's basis of valuation is to
arrive at an estimate of market value by applying an Internal Rate
of Return (IRR) based on market rates to estimates of future cash
flow, based on the life expectancy of the life assured and future
premiums payable.
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Previous Annual Financial Reports have commented on the choice
of a 12% discount rate (IRR) used in arriving at valuations,
intended to correspond to the IRR for similar policies in the
market on a willing buyer/willing seller basis. While data on
comparable sales is still difficult to obtain, the Investment
Manager has been able to provide limited data on this occasion on
its own policy purchase activities. These involve policies with a
different maturity profile from the Company's policies, but broadly
confirm the accuracy of the Board's valuations. Similarly, the
Board has obtained bids on a representative selection of policies
which also suggests that the Board's valuations correspond closely
to market prices and confirm that policies such as the Company
holds are attractive to other market participants. Meanwhile, the
notes below and the further information available in the Chairman's
Statement give an indication of the effects on valuation of
differing IRR assumptions.
At 30 June 2015, should the valuation IRR used increase by 4 per
cent with all other variables remaining constant, the decrease in
net assets attributable to shareholders for the period would amount
to GBP3,234,319 (2014: decrease of GBP3,309,507).
At 30 June 2015, should the valuation IRR used decrease by 4 per
cent with all other variables remaining constant, the increase in
net assets attributable to shareholders for the period would amount
to GBP4,138,026 (2014: increase of GBP4,270,535)
As explained in the Investment Manager's Review, the majority of
policies are valued using an LE obtained since 1 April 2013 with
over 82% by face value obtained since 1 July 2013. Where an LE is
not obtainable because of lack of access to medical records or
where the policy is deemed too small to justify the cost of
obtaining an LE, the LE used is derived from the 2008 Valuation
Basic Table. The cash flow projections are then based on the
adjusted LEs using standard actuarial tables.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the Financial Statements (continued)
For the year ended 30 June 2015
20 Financial risk management objectives and policies (continued)
Market and longevity risk (continued)
At 30 June 2015, should the remaining life expectancy of the
lives insured have increased by 1 year with all other variables
remaining constant, the decrease in net assets attributable to
shareholders for the period would amount to GBP8,677,831 (2014:
decrease of GBP8,183,628).
At 30 June 2015, should the remaining life expectancy of the
lives insured have decreased by 1 year with all other variables
remaining constant, the increase in net assets attributable to
shareholders for the period would amount to GBP9,877,997 (2014:
increase of GBP9,225,482).
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 2015
(30 June 2014: None).
In the event of a fall in the value of the Company's assets, the
Company may not be able to comply with the borrowing covenants
contained in the Credit Facility Agreement and may be obliged to
sell policies on disadvantageous terms in order to raise cash.
The Company's net currency exposure was as follows:
30 June 2015 30 June 2014
GBP GBP
Exposure to US
dollar 31,717,383 32,350,801
31,717,383 32,350,801
============= =============
At 30 June 2015, 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
GBP1,510,352 (2014 decrease: GBP1,540,514). A weakening of 5% would
amount to an increase in net assets attributable to shareholders of
GBP1,669,336 (2014 increase: GBP1,702,674).
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 2015
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 2015 and 30 June 2014 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
2015 2015 2015 2015
GBP GBP GBP GBP
Sterling (105,762) - 8,011 (97,751)
US Dollars 30,603,221 - 1,114,161 31,717,382
---------------------- ----------- ---------------------- -----------
30,497,459 - 1,122,172 31,619,631
====================== =========== ====================== ===========
Financial Fixed rate Floating Total
assets/(liabilities) financial rate financial
on which assets assets/(liabilities)
no interest
is paid
2014 2014 2014 2014
GBP GBP GBP GBP
Sterling (165,193) - 651 (164,542)
US Dollars 30,259,400 - 2,091,401 32,350,801
---------------------- ----------- ---------------------- -----------
30,094,207 - 2,092,052 32,186,259
====================== =========== ====================== ===========
The above analysis excludes short term other receivables and
other payables as the material amounts are non-interest
bearing.
No sensitivity analysis has been provided as interest rate risk
is not directly considered material to the Company.
However, large changes in interest rates are likely to impact on
IRRs used in the valuation of TLIs. A sensitivity analysis on IRRs
is included on page 54.
Liquidity risk
Liquidity risk is the risk that the Company will encounter
difficulty in meeting obligations associated with its financial
liabilities.
On 31 March 2014, the Company signed a two year revolving credit
facility agreement of up to US$10 million with AIB Group (UK) PLC
("AIB"), expiring on 31 March 2016. In May 2015 it was announced
that AIB had agreed to extend the facility for a further period of
two years on improved terms. Shortly after the year end
documentation was put in place extending the life of the facility
to 31 March 2018.
The extension of the facility enables the Company to cover cash
flow requirements, with no further policy maturities beyond the
US$4 million maturity identified in August 2015 (see note 21),
until January 2017. The Board acknowledges that in the event of an
extended drought in maturities there may be a requirement to sell
policies in an illiquid market; the Board is confident, however,
that the sales required to cover outstanding borrowings could be
completed in time.
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Notes to the Financial Statements (continued)
For the year ended 30 June 2015
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.
As at 30 June
2015
1 month 1 to 3 3 to 12 1 to
or less months months 5 years >5 years Total
Financial liabilities:
Other payables (172,585) - - - - (172,585)
(172,585) - - - - (172,585)
---------- -------- -------- --------- --------- ----------
As at 30 June
2014
1 month 1 to 3 3 to 12 1 to
or less months months 5 years >5 years Total
Financial liabilities:
Other payables (137,278) - - - - (137,278)
(137,278) - - - - (137,278)
---------- -------- -------- --------- --------- ----------
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.
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