23rd Sep 2010 15:02
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Annual Financial Report Announcement
For the period 1 September 2009 to 30 June 2010
At a meeting of the Board of Directors held on 21 September 2010, the final accounts for the Company for the period from 1 September 2009 to 30 June 2010 were approved, details of which are attached.
The financial information set out in this announcement does not constitute the Company's statutory accounts for the period ended 30 June 2010, but is derived from those accounts. Statutory accounts for the period ended 30 June 2010 will be delivered to Shareholders during October 2010. The auditors have reported on the accounts and their report was unqualified. The audit report draws attention to the inherent uncertainty in the valuation of the Company's Traded Life Interests.
The financial statements have been prepared in accordance with International Financial Reporting Standards. The Company will publish full financial statements that comply with International Financial Reporting Standards in October 2010. This announcement has been prepared using accounting policies consistent with those set out in the Company's annual report and financial statements for the period ended 30 June 2010.
The Annual General Meeting of the Company will be held on 23 November 2010.
Peter Ingram
Company Secretary
Telephone number: 020 7065 1467
23 September 2010
155 Bishopsgate
London
EC2M 3AD
Investor Information
For the period from 1 September 2009 to 30 June 2010
General Information
Alternative Asset Opportunities PCC Limited (the "Company") was registered on 27 February 2004 in Guernsey, as a closed-ended protected cell company in accordance with the provisions of The Protected Cell Companies Ordinance, 1997 and The Companies (Guernsey) Law, 2008. It was established with one Cell known as the US Traded Life Interests Fund (the "Fund") which had a planned life of approximately 8 years from the date of the launch. Following a Special Resolution passed at an Extraordinary General Meeting on 28 August 2009, the Articles of Incorporation were amended to move from having a fixed life in respect of the Company's Cell, US Traded Life Interests Fund (terminating on 31 March 2012) to offering shareholders annual continuation votes from the Company's 2012 Annual General Meeting onward.
With effect from 1 September 2009, the Company has been managed with a view to being approved as an Investment Trust within the meaning of the Corporation Tax Act 2010, and has been resident in the UK for tax purposes from that date.
The Company's redeemable participating preference shares (the "Shares") were admitted to the Official List of the UK Listing Authority and commenced trading on the London Stock Exchange on 25 March 2004. The Annual Financial Report covers the ten month period from 1 September 2009 to 30 June 2010 and annually thereafter.
Investment Objective
The Company's objective in respect of the Fund is to provide investors with an attractive capital return through investment predominantly in a diversified portfolio of U.S. Traded Life Interests ("TLIs").
Investment policy and strategy
The Company has invested the assets of the Fund in a range of TLIs on the lives of US citizens aged, at the time of acquisition, between 80 and 90 years. All TLIs acquired are Whole-Of-Life policies or Universal Life policies. No viatical policies (that is, a policy on the life of an insured who is terminally ill and with a life expectancy of less than 2 years) have been acquired.
The TLIs acquired are policies issued by a range of US life insurance companies. Each underlying life insurance company has an A.M. Best or a Standard & Poor's credit rating of at least "A" at the time of acquisition of the relevant policy. A.M. Best is a US credit rating agency which provides the most comprehensive coverage of the US life company sector. Not more than 15 per cent. of the gross assets of the Fund, at the time of purchase, have been invested in life policies issued by any single US life insurance company or group.
The Board has overall responsibility for allocating the assets of the Fund in accordance with the investment objective and policy. The Investment Manager is responsible, inter alia, for identifying and monitoring, on behalf of the Board, TLIs that are consistent with the Company's investment objective and policy.
The Company has the ability to incur borrowings to be applied in meeting TLI acquisition costs, premium payments and other expenses. The Company's borrowings as at 30 June 2010 were US$24.0 million (31 August 2009: US$33.4 million).
Investor Information (continued)
For the period from 1 September 2009 to 30 June 2010
It is intended that the proceeds of TLIs which mature are used, after the deduction of expenses:
·; first, to reduce and then eliminate bank borrowings under the Company's credit facility; and
·; secondly, to return capital to shareholders, as determined by the Board.
Pending the return of capital to shareholders, the cash proceeds of TLIs may be invested in a portfolio that may include US treasury bonds, UK gilts and sterling-denominated corporate bonds with a minimum rating of AA by Standard & Poor's or an equivalent rating by another rating agency.
Investor Information (continued)
For the period from 1 September 2009 to 30 June 2010
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Directors CPG Tracy (Chairman) DIW Reynolds (Chairman of the Audit Committee) JPHS Scott (appointed 22 October 2009) SM Zein (appointed 1 September 2009)
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Registrar Capita Registrars (Guernsey) Limited Longue Hougue House St Sampson Guernsey, GY1 3US |
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Registered Office Dorey Court, Admiral Park St Peter Port Guernsey GY1 3BG |
Investment Manager SL Investment Management Limited (formerly Surrenda-link Limited) 8/11 Grosvenor Court Foregate Street Chester, CH1 1HG
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Manager RCM (UK) Limited 155 Bishopsgate London EC2M 3AD
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Banker and Custodian Kleinwort Benson (Guernsey) Limited Dorey Court, Admiral Park St Peter Port Guernsey, GY1 3BG
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Secretary RCM (UK) Limited 155 Bishopsgate London EC2M 3AD Represented by PWI Ingram FCIS |
Sub Custodian Wells Fargo Bank Northwest N.A. 299 South Main Street 12th Floor Salt Lake City UT 84111-2263
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Administrator Kleinwort Benson (Channel Islands) Fund Services Limited Dorey Court, Admiral Park St Peter Port Guernsey GY1 3BG
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Legal Advisers (Guernsey) Carey Olsen PO Box 98 Carey House Les Banques St Peter Port Guernsey GY1 4BZ
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Legal Advisers (UK) Herbert Smith LLP Exchange House Primrose Street London EC2A 2HS |
Recognised Auditors Deloitte LLP Regency Court Glategny Esplanade St Peter Port Guernsey GY1 3HW
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Financial Adviser and Corporate Broker RBS Hoare Govett Limited 250 Bishopsgate London EC2M 4AA |
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Investor Information (continued)
For the period from 1 September 2009 to 30 June 2010
Directors
The Directors have been chosen for their investment and commercial experience and are listed below:
Charles Tracy, Chairman, (aged 64) has over 30 years' experience as a merchant banker, covering both the investment management and banking fields. On joining N.M. Rothschild & Sons in 1975 he was made responsible for Asian and commodity-related investments, working in Malaysia and Hong Kong before taking up the post of Managing Director of N.M. Rothschild & Sons (C.I.) Ltd. in 1981, and remaining in that position until 1998. During that period he was Chairman of the Association of Guernsey Banks and of the Guernsey International Business Association. He is currently non-executive Chairman of Louvre Fund Management Limited, President of the Guernsey Tax Tribunal and Chairman of the Guernsey Banking Deposit Compensation Scheme. He is a resident of Guernsey.
John Scott (aged 58) was appointed a Director on 22 October 2009. He is currently a director of several UK investment trusts and is Chairman of Scottish Mortgage Investment Trust PLC and of Dunedin Income Growth Investment Trust PLC. Mr Scott held a number of senior appointments at Lazard Brothers & Co., Limited between 1981 and 2001. Prior to that, he worked at Jardine Matheson & Co., Limited. He is a Fellow of the Chartered Insurance Institute and of the Chartered Institute for Securities and Investment. He is UK resident.
Ian Reynolds (aged 67) is a former Chief Executive of Commercial Union Life Assurance Company. He is a director of Liverpool Victoria Friendly Society and of The Equitable Life Assurance Society, and a former consultant actuary at Towers Perrin. Mr Reynolds is a Fellow of the Institute of Actuaries and a Chartered Director. He is UK resident.
Saad Zein (aged 43) was appointed a Director on 1 September 2009. Mr Zein is a Senior Managing Director of Aladdin Capital Management UK LLP. Prior to this, his career has been spent as an investment banker with particular focus on credit markets and structured products, including US traded life interests. He was employed by Dresdner Kleinwort Wasserstein between 1999 and 2009, where he held a number of senior positions. He is UK resident.
The Investment Manager
The Investment Manager, SL Investment Management Limited, which is authorised and regulated in the United Kingdom by the Financial Services Authority, was incorporated in 1990 and is an Investment Manager for a range of specialist investment products.
The Manager
RCM (UK) Limited is manager of a number of closed-ended investment companies with approximately £988 million of such assets under management in a range of investment companies and investment trusts as at 31 August 2010. The Manager is responsible for managing the cash and fixed interest holdings of the Fund during its life, and foreign currency hedging.
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Financial Highlights |
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For the period from 1 September 2009 to 30 June 2010 |
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At 30 June 2010 |
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At 31 August 2009 |
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Shares in issue |
40,000,000 |
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40,000,000 |
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Total net assets |
£33,049,370 |
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£37,064,596 |
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Net asset value per Share (see note below) |
82.6p |
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92.7p |
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Share price |
59.5p |
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58.5p |
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Total return on ordinary activities for the financial year per Share |
(10.04p) |
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(3.28p) |
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Revenue return per Share |
(2.28p) |
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(3.81p) |
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Dividends |
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The Directors do not propose a dividend for the period from 1 September 2009 to 30 June 2010 (2009: nil). |
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Chairman's Statement
For the period from 1 September 2009 to 30 June 2010
Introduction
This statement covers the ten month period from 1 September 2009 and marks the end of the period of transition for the Company which required a temporary change in the year end to align the Company's UK tax accounting period with a financial period. Future accounting periods will now revert to the usual twelve months ending on 30 June.
I mentioned in my interim statement that this had been a relatively quiet period and this remark can now be said to cover the whole ten month period. The new corporate arrangements are working well and there are no proposals under consideration for change in this respect.
Portfolio developments
A summary of portfolio maturities since inception is given in the following table:
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Period |
40 months |
12 months |
14 months |
10 months |
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Dates |
Inception - 30/6/07 |
1/7/07 - 30/6/08 |
1/7/08 - 31/8/09 |
1/9/09 - 30/6/10 |
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Number of policies matured |
7 |
6 |
7 |
4 |
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Value of policies matured ($ million) |
$9.3m |
$3.9m |
$14.8m |
$10.7m |
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Premiums paid ($ million) |
$18.8m |
$9.0m |
$10.5m |
$7.3m |
During the ten month period to 30 June 2010, 4 policy maturities were identified, with a total face value of US$10.7million. This compares with 7 policies with a face value of US$14.8 million in the fourteen month period to 31 August 2009.
As at the time of writing, there have been no formal notifications of any maturities since 30 June 2010.
It has to be said that this rate of maturities is surprisingly low, given the age profile of the lives insured. At this stage in the life of the Company the actuarial likelihood of maturities is increasing, but it must be remembered that in any portfolio of policies which are randomly chosen there will be considerable fluctuations in maturity rates despite the variety and spread in the portfolio (See also my comments below about updating of Life Expectancies ("LEs").
As at 30 June 2010 there were a total of 135 policies in the portfolio, with a face value of US$217.7 million and a valuation of US$86.7 million. Premiums continue to be paid on policies in force amounting to US$7.3 million during the ten month period.
There is a period in the life of a portfolio such as this when patience is required. There is little that can be done to enhance the portfolio; outcomes depend on the mortality experience. In the absence of maturities, the enhancement of value in the portfolio with the passage of time is largely negated by the payment of premiums. For this reason the NAV per share slightly from 83.5p to 82.6p during the period 1 March 2010 to 30 June 2010. I comment below on issues relating to valuation, credit risk, borrowings and hedging.
Valuation
The key factors in determining the NAV remain the LEs of the policies in the portfolio and the rate of discount used. As before, the Company has continued its policy of re-assessing the LEs on a portion of portfolios. To date a total of 38 policies have been re-assessed, accounting for roughly 47% of the portfolio by value, and the results have been incorporated into valuations. As before, there is no consistent trend in these re-assessments, although LEs have on balance increased as a result of this evaluation. During the period, re-assessments have reduced the value of the portfolio by about £4.6 million. While the immediate outcome has thus been a reduction in NAV, it should be noted that the confidence level as regards the accuracy of LE estimates has been increased.
Chairman's Statement (continued)
For the period from 1 September 2009 to 30 June 2010
Given the thin market in TLIs at the moment, the Board has continued to use the IRR rates which applied at the beginning of the period, as explained in earlier statements. The risk premium currently stands at 10.1% (weighted by value). It remains a paradox why the market should demand such a high risk premiums when the underlying insurers are of high standing, but at least part of the explanation for this must be the uncertainty about LEs. To some extent this argument is academic, as the Directors recommendation remains to hold policies until maturity.
The current valuation model used assumes that policies lapse one month after the final premium due on the policy. However for a large proportion of policies in the portfolio, benefits continue beyond this date, although for most such policies the impact of this on the valuation is negligible because the probability of survival to that point is low and that point is some years in the future so the present value of any benefit at that date is also low. Now that the portfolio is ageing, however there are policies where the value of benefits after the premium end date is starting to become material. The Board has commissioned a detailed analysis of the relevant policies, and in due course will consider whether incorporating the results in the Company's valuation is appropriate, given that such factors may not generally be allowed for in the TLI marketplace. The uplift in the valuation of policies, if adopted, would, on the basis of preliminary findings, be quite modest.
During the period there was evidence of some distressed selling by investors, with policies changing hands at high apparent IRRs. In recent months this has been less noticeable, and there are some signs of an improved appetite for policies as worries about the recession recede. Press articles continue to refer to a growing market in TLIs, but there is concern that some institutional holders managing open-ended funds may still be vulnerable to the lack of market liquidity. Since the Company plans to hold its policies to maturity wherever possible, this should not be of concern to investors.
The tables below give, as in the previous statement, a range of outcomes on differing assumptions about the portfolio. The Board will continue to analyse the information available to it to ensure valuations are soundly based.
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31 December 2012 |
31 December 2016 |
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Variation in mortality1 |
LE change (years)2 |
Policies surviving3 |
Remaining Shares in issue4 |
IRR5 |
IRR5 |
Policies surviving3 |
Remaining Shares in issue4 |
IRR5 |
IRR5 |
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100%6 |
70%7 |
100%6 |
70%7 |
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100% |
0.00 |
67.2% |
100.0% |
12.19% |
-2.73% |
30.7% |
35.7% |
9.66% |
3.80% |
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80% |
1.20 |
72.5% |
100.0% |
7.17% |
-7.08% |
37.9% |
59.9% |
5.00% |
-0.61% |
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50% |
4.12 |
81.5% |
100.0% |
-2.02% |
-15.05% |
52.9% |
100.0% |
-4.17% |
-9.29% |
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30% |
8.00 |
88.3% |
100.0% |
-9.78% |
-21.77% |
67.0% |
100.0% |
-20.03% |
-24.30% |
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Ignore Medical Underwriting8 |
n/a |
80.7% |
100.0% |
0.52% |
-12.85% |
43.9% |
87.7% |
2.47% |
-3.00% |
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100% mortality projected from Share Price9 |
0.00 |
67.2% |
100.0% |
27.93% |
10.92% |
30.7% |
35.7% |
15.34% |
9.18% |
Chairman's Statement (continued)
For the period from 1 September 2009 to 30 June 2010
Notes:
1. The base case (100%) assumes that claim experience matches the valuation basis in force at 30 June 2010. The other scenarios assume that the mortality experience is worse than expected. 80% means that if one expects 10 deaths, one instead experiences 8.
2. This shows the effect of the mortality experience on the life expectancy (in years) for an otherwise normal 80-year-old non-smoker.
3. The proportion of policies surviving to the specified date based on the portfolio as at 30 June 2010. No allowance has been made for the policies that have matured after this date.
4. The model assumes that shares are repurchased whenever excess cash beyond that required for premium reserves is available. This column represents the number of shares still in issue and not repurchased at the relevant date.
5. This shows how the return varies for a shareholder holding the shares between 30 June 2010 and the relevant date (31 December 2012 or 31 December 2016) based on the growth in the NAV per share. The NAV at that date was 82.6 pence per share.
6. Return based on winding up at the relevant date assuming that the net realised proceeds of assets is 100% of the valuation calculated in accordance with the valuation basis in force at 30 June 2010.
7. Return based on winding up at the relevant date assuming that the net realised proceeds of assets is 70% of the valuation calculated in accordance with the valuation basis in force at 30 June 2010.
8. Mortality outcome assuming the lives are all "normal" lives from the point of view of mortality expectations and ignoring the implied relative health from medical underwriting. These figures are projected from the current NAV.
9. Return to investor from share price at 30 June 2010 (59.5 pence per share).
Credit risk
There have been no major changes in the financial standing of the insurers who have issued the policies in the portfolio. As at the period end, 99.5% of the Company's policies by value were issued by companies with an A.M. Best rating of 'A' or better. This figure has not changed significantly for some time.
Borrowings
It remains the Board's intention to pay down borrowings whenever possible, and during the ten month period to 30 June 2010, borrowings fell from US$33,447,000 to US$24,048,000. At the period end, under its agreement with Allied Irish Banks plc, the Company had the power to borrow a further US$6 million. Of that, the Company has since drawn down US$2 million, and the balance will fund the Company until the end of 2010. In any case, the present agreement is due for renewal by 31 January 2011, and on the basis of early discussions with Allied Irish Banks, the Board is confident that it will be renewed successfully.
Hedging
As at 30 June 2010 the Company had sold forward net US$71,000,000 to March 2012, representing no change over the period. Although in excess of the Company's current net dollar position, this is consistent with projected dollar cash flows. The Statement of Comprehensive Income on page 23 recording 'foreign exchange losses' of £4.7 million does not, of course, show the foreign exchange gains of approximately £4.7 million in the period which are incorporated in the value of investments.
Outlook
Although markets have recovered somewhat, it remains the Board's belief that the best interests of shareholders are served by holding policies in its high quality portfolio to maturity rather than seeking early liquidation.
CPG Tracy
Chairman
21 September 2010
Investment Manager's Review
For the period from 1 September 2009 to 30 June 2010
Portfolio Overview
During the 10 month period from 1 September 2009 to 30 June 2010, there were four confirmed policy maturities. As at 31 June 2010, 135 policies remained within the Fund's portfolio secured on 114 individual lives. Of the four matured policies, two covered a female life assured and two were male. Proceeds totalled just under US$10.8m for the period.
Cumulatively, as at 30 June 2010, there had been 24 policy maturities across 20 lives since inception. Proceeds from all maturities have totalled US$38.8m, realising a US$21.2m gain. Moreover one policy has been sold since inception, generating proceeds of US$550,000.
No further maturities have been confirmed subsequent to the period-end.
Portfolio Summary
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Net Death Benefits |
$217.7m |
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Male/Female Ratio |
63.2%/36.8% |
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Total number of Holding Life Companies |
31 |
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Face Weighted Averages |
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Age at purchase |
82.3 years |
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Age at valuation |
87.2 years |
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Pricing Life Expectancy at purchase |
7.6 years |
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Current Life Expectancy |
5.3 years |
Life Group (Parent Company) Distribution (Top 5)
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Ranking by Valuation % |
Parent Company |
% Total Net Death Benefit |
% Total Valuation |
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1 |
AIG Life Group |
16.6% |
16.1% |
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2 |
Lincoln Financial Group |
18.2% |
15.4% |
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3 |
AEGON USA Group |
12.4% |
12.9% |
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4 |
MassMutual Financial Group |
9.3% |
9.1% |
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5 |
Manulife Financial Group |
8.8% |
8.9% |
Credit Quality Distribution by Holding Life Company
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AM Best Rating |
% Total Net Death Benefit |
% Total Valuation |
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A++ |
12.8% |
12.6% |
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A+ |
58.2% |
55.8% |
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A |
28.4% |
31.1% |
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A- |
0.4% |
0.3% |
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B++ |
0.0% |
0.0% |
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B+ |
0.1% |
0.1% |
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Total |
100.0% |
100.0% |
Premium Payments
Premium payments remain the largest expense of the Fund. The expected cost of premiums for the twelve months to 30 June 2011 is approximately US$9.6m. SL Investment Management has continued the ongoing review of all policy statements to identify any scope for further optimisation of the premium payment schedules.
Investment Manager's Review (continued)
For the period from 1 September 2009 to 30 June 2010
Outlook
Recent maturities have removed any pressure to sell policies in the current market. As reported on previous occasions, SL Investment Management continues to see considerable interest from investors looking to diversify away from traditional asset classes, and into Life Settlements. However, confirmed activity remains low. There remain a number of distressed sellers in the market and as a result, market bid prices continue to be depressed.
There have been no major revisions by the life expectancy assessment firms during 2010. The rolling programme of updating the life expectancies in the portfolio continues, and the impact of updated assessments is being incorporated into the valuation of the policies.
SL Investment Management Limited
21 September 2010
Manager's Review
For the period from 1 September 2009 to 30 June 2010
Borrowings and investments
As at the period end, 30 June 2010, the Company had drawn down US$23,156,000 under the amortising term loan facility with Allied Irish Banks and US$891,662 under the revolving credit facility. As at 30 June 2010, a further US$6 million was available to the Company under the latter, and of that, since the period end, the Company has drawn down US$2 million.
On current projections, this funding will last until the end of December 2010, and the present borrowing agreement with Allied Irish Banks will expire on 31 January 2011. Accordingly, towards the end of 2010, Allied Irish Banks will be asked to renew the borrowing agreement, in order to provide the Company with enough funding for a further twelve months. As stated in the Directors' Report, the Board is confident that, on the basis of early discussions with Allied Irish Banks, the agreement will be renewed successfully.
Under the present agreement, the primary covenant obliges the Company to maintain cover (i.e. asset value, subject to certain adjustments, divided by borrowing) above 2.5 times. As at 30 June 2010 cover was 3.3 times.
In September 2009, the Company bought a £100,000 holding of the UK Treasury 4% 2016 gilt in order to generate UK eligible securities income.
Currency Hedging
The Company hedges its US dollar exposure by means of forward sales of US dollars. As at 30 June 2010 the outstanding position was the sale of US$78.5 million and the purchase of US$7.5 million for 30 March 2012. This was consistent with the expected cash flows up to that date.
The unrealised loss on this position amounted to £9,511,081, and once the unrealised foreign exchange profit on the underlying policies, denominated in US dollars, is taken into account, there was a total unrealised net loss on the Company's foreign exchange positions equivalent to 2.5 pence per share.
RCM (UK) Limited
21 September 2010
Directors' Report
For the period from 1 September 2009 to 30 June 2010
The Directors have pleasure in submitting their Annual Financial Report for the period from 1 September 2009 to 30 June 2010.
Principal activities
The Company is a Guernsey registered closed-ended protected cell company established with one cell known as the US Traded Life Interests Fund (the "Fund"). The redeemable preference shares (the "Shares") in the Company are listed on the Main Market and traded on the London Stock Exchange as a Premium Listing. The Company's objective in respect of the Fund is to provide investors with an attractive capital return through investment predominantly in a diversified portfolio of U.S. Traded Life Interests ("TLIs").
Revenue, capital and dividends
The Statement of Comprehensive Income set out on page 23 shows a revenue deficit for the period amounting to £912,972 (2009: revenue deficit for the period £1,524,889). There was a capital deficit for the period amounting to £3,102,254 (2009: capital return for the period £213,780). The Directors have not paid an interim dividend (2009: nil) and do not propose the payment of a final dividend for the period (2009: nil).
Assets
At the period end the net assets attributable to the Shares were £33,049,370 (2009:£37,064,596). Based on this figure the net asset value of a Share in the Fund was 82.6p (2009: 92.7p).
Share capital
During the period no Shares were issued or were repurchased.
Substantial shareholdings in the Company
As at the date of this report, the following companies had declared a notifiable interest in the Company's voting rights:
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Shares held |
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Percentage held |
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% |
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Investec Asset Management Limited |
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8,009,000 |
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20.02 |
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Allied Irish Banks Plc |
4,625,000 |
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11.56 |
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Midas Capital Plc |
2,200,000 |
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5.50 |
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Rathbone Brothers PLC |
2,096,000 |
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5.24 |
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Brewin Dolphin Limited |
2,006,025 |
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5.02 |
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Premier Fund Managers Limited |
1,975,000 |
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4.94 |
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Rensburg Sheppards Investment Management Ltd |
1,960,704 |
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4.90 |
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At the date of approval of this report, there has been no other notifiable interest in the Company's voting rights reported to the Company.
Crest registration
Shareholders may hold Shares in either certificated or uncertificated form.
Directors
The Directors serving on the Board during the period, together with their beneficial interests and those of their families, were as follows:
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Shares |
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Shares |
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30 June 2010 |
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31 August 2009 |
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CPG Tracy (Chairman) |
- |
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- |
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DIW Reynolds |
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42,000 |
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42,000 |
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SM Zein |
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- |
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-* |
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JPHS Scott |
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- |
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-* |
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Directors' Report (continued)
For the period from 1 September 2009 to 30 June 2010
The Company has no formal service contracts with the Directors.
There were no third party indemnities in respect of the Directors for the current or prior period.
S M Zein was appointed a Director on 1 September 2009. J P H S Scott was appointed a Director on 22 October 2009.
* Neither Mr Zein nor Mr Scott held any shares in the Company on their dates of appointment.
Corporate Governance
Currently, the UK Listing Authority only requires UK listed companies to disclose how they have applied the principles and complied with the provisions of the Combined Code on Corporate Governance (the "Code"). However, the Financial Services Authority has released Policy Statement and Consultation Paper CP09/24 titled "Listing regime review" under which it will require all overseas companies with a "Premium listing" (which includes the Company) to "comply or explain" against the Code. The changes will be implemented by amendments to the requirement in Listing Rule 9.8.7R, but the transitional provisions mean that existing overseas Premium listed companies, such as the Company, will only have to comply with this rule in financial years beginning after 31 December 2009.
Moreover, the obligations under the EU Company Reporting Directive which are implemented by Disclosure and Transparency Rule 7.2, and which currently only apply to UK companies, will apply to all issuers of equities from 6 April 2010. Under this rule, a company must (i) make a corporate governance statement in its annual report and accounts based on the code to which it is subject, or with which it voluntarily complies and (ii) describe its internal control and risk management arrangements.
Although the Company is not incorporated in the United Kingdom, the Board of Directors has chosen to adopt where possible the principles of the Code and the Turnbull guidance and has sought to comply throughout the period, insofar as the principles can sensibly be applied to a company of this nature.
The following statements are therefore included to comply with the Code:-
The Board
The Board meets regularly, normally quarterly, and more frequently if necessary, and retains full responsibility for the direction and control of the Company.
The Company is overseen by a Board comprising non-executive Directors, all of whom have wide experience and are considered to be independent. The Board believes that it is in the shareholders' best interests for the Chairman to be the point of contact for all matters relating to the governance of the Company and as such has not appointed a senior independent non-executive Director for the purpose of the Code. The appointment of Directors is considered by the Board which carries out the functions of the Nominations Committee. One third, or the number nearest to but not exceeding one third, of the Directors must retire and offer themselves for re-appointment at each subsequent Annual General Meeting.
The Board reviewed its performance and composition during the period, and was satisfied on both subjects. In addition, it is considered that the performance of all Directors continues to be effective and that they have demonstrated commitment to their roles.
The Board has established an Audit Committee which meets when necessary, but at least twice a year, with the auditors of the Company with a view to providing further assurance of the quality and reliability of, inter alia, the financial information used by the Board in these financial statements. The Chairman of the Audit Committee is D I W Reynolds.
Directors' Report (continued)
For the period from 1 September 2009 to 30 June 2010
The Board (continued)
The Board is responsible for establishing, maintaining and monitoring the effectiveness of the Company's system of internal, financial and other controls. The internal financial controls operated by the Board include the authorisation of the investment strategy and regular reviews of the financial results and investment performance. The system of internal financial controls can provide only reasonable and not absolute assurance against material misstatement or loss.
The Board has contractually delegated to SL Investment Management Limited the investment management of the Fund's investments and to RCM (UK) Limited the management of the cash and foreign exchange elements. The safe custody of the Fund's investments is managed by Kleinwort Benson (Guernsey) Limited. Wells Fargo Bank in the USA acts as sub-custodian. Kleinwort Benson (Channel Islands) Fund Services Limited are contracted to provide the Company's administration and accounting functions and Capita Registrars (Guernsey) Limited its registration function. Since 1 September 2009 the secretarial function has been carried out by RCM (UK) Limited.
The Board reviews regularly the performance of the services provided by these companies. A summary of the terms of the agreements with SL Investment Management Limited and RCM (UK) Limited are set out in note 5 to the financial statements. After due consideration of the resources and reputation of SL Investment Management Limited and RCM (UK) Limited, the Board believe it is in the interests of shareholders to retain the services of both SL Investment Management Limited and RCM (UK) Limited for the foreseeable future.
The Company maintains Directors' and Officers' liability insurance which provides insurance cover for Directors against certain personal liabilities which they may incur by reason of their duties as Directors.
The Company has a procedure whereby the Board is entitled to obtain independent advice where relevant.
All Directors of the Company are non-executive. The Board as a whole fulfils the function of the Remuneration Committee and carries out periodic reviews of Directors' fees and makes recommendations on fee levels to the Board.
The emoluments of the Directors for the period were as follows:
|
|
|
|
|
|
Period to 30 June 2010 |
|
Period to 31 August 2009 |
|
|
|
|
|
|
£ |
|
£ |
|
|
|
|
|
|
|
|
|
|
CPG Tracy (Chairman) |
|
|
16,644 |
|
14,583 |
||
|
IA Morris |
|
|
|
- |
|
11,667 |
|
|
DIW Reynolds |
|
|
|
14,563 |
|
11,667 |
|
|
CW Sherwell |
|
|
|
- |
|
11,667 |
|
|
SM Zein |
|
|
|
|
12,483 |
|
- |
|
JPHS Scott |
|
|
|
|
10,404 |
|
- |
|
|
|
|
|
|
54,094 |
|
49,584 |
The figures above represent emoluments earned as Directors during the relevant financial period. The Directors receive no other remuneration or benefits from the Company other than the fees stated above.
Directors' Report (continued)
For the period from 1 September 2009 to 30 June 2010
The Board (continued)
In the period to 30 June 2010 the Directors were paid at the rate of £15,000 per annum with the Chairman of the Board receiving an extra £5,000 per annum and the Chairman of the Audit Committee an extra £2,500 per annum. In the period to 31 August 2009 the Directors were paid at the rate of £10,000 per annum with the Chairman of the Board receiving an extra £2,500 per annum. Per note 6 to the financial statements the Directors' fees and expenses of £56,411 (2009: £50,993) included allowable expenditure of £2,317 (2009: £1,409).
Relations with shareholders
In conjunction with the Board, the Manager keeps under review the register of members of the Company. Potential investors are contacted by the Manager.
All shareholders are encouraged to participate in the Company's Annual General Meeting. All Directors normally attend the Annual General Meeting, at which shareholders have the opportunity to ask questions and discuss matters with the Directors, the Manager and the Investment Manager.
Accountability and audit
a) Directors' responsibilities in relation to the financial statements
The Directors have responsibility for ensuring that the Company keeps accounting records which disclose with reasonable accuracy at any time the financial position of the Company and which enable them to ensure that the financial statements comply with the Companies (Guernsey) Law, 2008. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.
b) Statement of going concern
The Board considered carefully the issue of 'going concern', specifically in relation to the availability of funding. Total borrowings under the agreement with Allied Irish Banks plc ("AIB") fell to circa US$24.0 million as at 30 June 2010 from circa US$33.4 million as at 31 August 2009. At this level the margin of cover required under the loan agreement was comfortably met.
As at 30 June 2010, an additional US$6 million of funding was available to the Company under the agreement with AIB, and this should provide the Company with sufficient cash flow to meet premium payments until December 2010. At that point the Company will seek to renew the loan agreement in order to provide the necessary funding for a further twelve months, and on the basis of early discussions with AIB, the Board is confident that it will be renewed successfully, enabling the Company to continue as a going concern.
The Board has also considered the position in the unlikely event of failure to renew the AIB agreement successfully. Acknowledging that this might involve the sale of policies in an illiquid market, the Board is nevertheless confident that the sales required to cover outstanding borrowings could be completed. To the extent that the prices achieved did not match those in the valuation, the net asset value of the Company would be reduced, but the business would remain a going concern.
c) Internal control
The Directors acknowledge that they are responsible for establishing and maintaining the Company's system of internal control and reviewing its effectiveness. Internal control systems are designed to manage rather than eliminate the failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. They have therefore established an ongoing process designed to meet the particular needs of the Company in managing the risks to which it is exposed, consistent with the guidance provided by the Turnbull
Directors' Report (continued)
For the period from 1 September 2009 to 30 June 2010
Accountability and audit (continued)
c) Internal control (continued)
Committee. Such review procedures have been in place throughout the full financial year and up to the date of the approval of the financial statements the Board is satisfied with their effectiveness.
This process involves a review by the Board of the Company's internal control report and review of the control environment within the Company's service providers to ensure that the Company's requirements are met.
The Company does not have an internal audit function. The Board has considered the need for an internal audit function but has decided to place reliance on the Administrator's, Manager's, Investment Manager's and Custodian's systems and internal audit procedures.
These systems are designed to ensure effectiveness and efficient operations, internal control and compliance with laws and regulations. In establishing the systems of internal control regard is paid to the materiality of relevant risks, the likelihood of costs being incurred and costs of control. It follows therefore that the systems of internal control can only provide reasonable but not absolute assurance against the risk of material misstatement or loss.
The effectiveness of the internal control systems is reviewed annually by the Board and the Audit Committee. The Audit Committee has a discussion annually with the auditor to ensure that there are no issues of concern in relation to the audit opinion on the accounts and, if necessary, representatives of the Investment Manager and Manager would be excluded from that discussion. The Audit Committee reviews the scope and results of the external audit, its cost effectiveness, the balance of audit and non-audit services and the independence and objectivity of the external auditors. In the Directors' opinion the auditors are considered independent.
The Board has decided not to establish a Remuneration and Management Engagement Committee as these functions are carried out by the Board. This includes an annual review of the contracts with the Manager and the Investment Manager and whether they are in the best interests of shareholders.
It is the opinion of the Directors that the continuing appointment of the Manager on the terms agreed is in the interests of the Company's shareholders as a whole. The main reasons for this opinion are the extensive investment management resources of the Manager and its experience in managing and administering investment trust companies.
It is also the opinion of the Directors that the continuing appointment of the Investment Manager on the terms agreed is in the interests of the Company's shareholders as a whole. The main reasons for this opinion are their extensive knowledge of the US traded life interest market and their valuation together with the complex financial and investment modelling related thereto.
Statements of compliance
The Directors believe that the Company has complied with the provisions of the Code where appropriate, and that it has complied throughout the period with the provisions where the requirements are of a continuing nature, except that a Remuneration and Management Engagement Committee has not been established, and a senior independent director has not been appointed given that all Directors are independent.
Directors' Report (continued)
For the period from 1 September 2009 to 30 June 2010
Financial risk profile
The Company's financial instruments comprise investments, cash and various items such as debtors, creditors etc that arise directly from the Company's operations. The main purpose of these instruments is the investment of Shareholders' funds.
Note 19 to the financial statements details matters relating to risk management. A summary of some relevant items is given below.
Market price and longevity risk
One of the main risks arising from the Company's financial instruments is longevity risk, i.e. the risk that actual mortality rates differ from predicted values. To the extent that TLIs are held to maturity this will affect the rate of return earned on individual policies. To the extent that policies have to be sold, longevity risk is a key factor in determining the market value of policies, although market values are also affected by a number of other factors.
Foreign currency risk
Foreign currency risk is the risk that the fair value of a financial instrument will fluctuate because of changes in foreign exchange rates.
Initially, and until funds were required for investment into the TLIs, the Company's funds were maintained in sterling. Funds required for investment were converted into US dollars and will remain in US dollar assets until their expected conversion into sterling as the portfolio matures. As the Company's shares are denominated in sterling, US dollar exposure is hedged through forward sales of US dollars into sterling pursuant to the Foreign Exchange Agreement with Allied Irish Banks plc (see note 19). The Company's hedging policy is substantially to hedge the present value of its US dollar assets, although at present some future anticipated US dollar profits are also hedged.
Auditors
A resolution to re-appoint Deloitte LLP as auditors will be proposed at the next Annual General Meeting.
At the date of approval of the financial statements the Directors confirm that:
·; so far as the Directors are aware, there is no relevant audit information of which the Company's auditor is unaware; and
·; the Directors have taken all steps they ought to have taken as Directors to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information.
This confirmation is given and should be interpreted in accordance with the provisions of Section 249 of The Companies (Guernsey) Law, 2008.
By order of the Board.
CPG Tracy DIW Reynolds
Director Director
21 September 2010
Directors' Responsibilities
For the period from 1 September 2009 to 30 June 2010
The Directors are responsible for preparing the Annual Financial Report for each financial period which give a true and fair view of the state of affairs of the Company and the total returns of the Company for that period and are in accordance with applicable laws. In preparing those financial statements the Directors are required to:
·; select suitable accounting policies and then apply them consistently;
·; make judgements and estimates that are reasonable and prudent; and
·; prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with The Companies (Guernsey) Law, 2008. They are also responsible for the system of internal controls for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Directors' responsibility statement
We confirm to the best of our knowledge:
1. the financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company;
2. the Investment Manager's Review and the Manager's Review include a fair review of the performance and position of the Company, together with a description of the principal risks and uncertainties faced by the Company; and
3. the Directors' Report includes a fair description of the principal risks and uncertainties faced by the Company.
By order of the Board.
CPG Tracy DIW Reynolds
Director Director
21 September 2010
Independent Auditors' Report to the Members of Alternative Asset Opportunities PCC Limited
For the period from 1 September 2009 to 30 June 2010
We have audited the financial statements of Alternative Asset Opportunities PCC Limited for the period 1 September 2009 to 30 June 2010 which comprises the Income Statement, the Balance Sheet, the Statement of Changes in Redeemable Participating Preference Shareholders' Funds, the Cash Flow Statement, the Portfolio Statement and the related notes 1 to 20.
These financial statements have been prepared under the accounting policies set out therein.
This report is made solely to the Company's members, as a body, in accordance with Section 262 of The Companies (Guernsey) Law, 2008. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of Directors and Auditors
As described in the statement of Directors' responsibilities, the Company's Directors are responsible for the preparation of the financial statements in accordance with International Financial Reporting Standards ("IFRS") and applicable Guernsey law. Our responsibility is to audit the financial statements in accordance with Guernsey relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true and fair view in accordance with the relevant reporting framework and are properly prepared in accordance with The Companies (Guernsey) Law, 2008. We also report if, in our opinion, the Company has not kept proper accounting records or if we have not received all the information and explanations we require for our audit.
We read the Directors' Report and the other information contained in the Annual Report for the above period as described in the contents section and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the financial statements and of whether the accounting policies are appropriate to the Company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion, we also evaluated the overall adequacy of the presentation of information in the financial statements.
Opinion
In our opinion the financial statements give a true and fair view of the state of the Company's affairs as at 30 June 2010 and of its total deficit for the period ended on that date and have been properly prepared in accordance with The Companies (Guernsey) Law, 2008 and IFRS.
Independent Auditors' Report to the Members of Alternative Asset Opportunities PCC Limited (continued)
For the period from 1 September 2009 to 30 June 2010
Emphasis of matter
In forming our opinion on the financial statements, which is not qualified;
·; We draw attention to note 2(b) of the financial statements concerning the Company's actuarial valuation model applied in determining the fair value of its Traded Life Interests (TLIs). Note 2(b) describes the method adopted by the Directors to value the TLIs. The methodology adopted by the Directors is on the basis that these investments are intended to be held to maturity and makes assumptions over expected lives and discount rates. By its nature, assumptions over expected lives are uncertain and due to the low levels of trading in TLIs there is also uncertainty over the estimation of market based discount notes. For these reasons note 2(b) to the financial statements highlights that this valuation may differ materially from the realisable value of these investments.
·; Note 2 (c) notes that the Company intends to renegotiate its borrowing facilities at the end of 2010 as the Company currently relies on the facilities to fund and meet ongoing future premium commitments arising from the TLI portfolio. If this proves to be unsuccessful and the Company had to pay back its borrowings, the Directors are confident this could be achieved through sales of TLIs. However, the sales proceeds may not match the prices shown in the valuation.
It is not possible to quantify the effects of these uncertainties on the financial statements.
John Clacy, as responsible individual on behalf of
Deloitte LLP
Chartered Accountants and recognised auditor
St Peter Port
Guernsey
21 September 2010
Statement of Comprehensive Income
For the period from 1 September 2009 to 30 June 2010
|
|
|
|
Notes |
Period from 1 September 2009 to 30 June 2010 |
|
Period from 1 July 2008 to 31 August 2009 |
||||
|
|
|
|
|
Revenue |
Capital |
Total |
|
Revenue |
Capital |
Total |
|
|
|
|
|
£ |
£ |
£ |
|
£ |
£ |
£ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
|
|
|
|
|
|
|
|
|
Net gains on investments |
|
10 |
- |
1,644,708 |
1,644,708 |
|
- |
10,484,688 |
10,484,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange losses |
17 |
- |
(4,746,962) |
(4,746,962) |
|
- |
(10,270,908) |
(10,270,908) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and similar income |
|
4 |
3,454 |
- |
3,454 |
|
6,543 |
- |
6,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
Management fee |
|
5 |
(70,607) |
- |
(70,607) |
|
(197,745) |
- |
(197,745) |
|
|
Investment manager's fee |
5 |
(141,863) |
- |
(141,863) |
|
(217,755) |
- |
(217,755) |
||
|
Custodian fee |
|
(13,044) |
- |
(13,044) |
|
(21,708) |
- |
(21,708) |
||
|
Other expenses |
6 |
(332,737) |
- |
(332,737) |
|
(535,069) |
- |
(535,069) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Total operating expenses before finance costs |
|
(558,251) |
- |
(558,251) |
|
(972,277) |
- |
(972,277) |
||
|
|
|
|
|
|
|
|
|
|
||
|
Operating loss before finance costs |
|
(554,797) |
(3,102,254) |
(3,657,051) |
|
(965,734) |
213,780 |
(751,954) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance costs |
|
|
|
|
|
|
|
|
||
|
Loan interest payable |
14 |
(358,175) |
- |
(358,175) |
|
(559,155) |
- |
(559,155) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (deficit)/return |
|
|
(912,972) |
(3,102,254) |
(4,015,226) |
|
(1,524,889) |
213,780 |
(1,311,109) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Deficit)/return per redeemable share |
8 |
(2.28p) |
(7.76p) |
(10.04p) |
|
(3.81p) |
0.53p |
(3.28p) |
||
The revenue column of this statement is the revenue account of the Company.
All revenue and capital items in the above statement derive from continuing operations.
The notes on pages 28 to 47 are an integral part of these financial statements.
Statement of Financial Position As at 30 June 2010
|
|
|
|
|
Notes |
|
30 June 2010 |
|
31 August 2009 |
||||
|
|
|
|
|
|
|
£ |
|
£ |
||||
|
Assets |
|
|
|
|
|
|||||||
|
Non-current assets |
|
|
|
|
|
|||||||
|
Financial assets at fair value through profit or loss |
10 |
|
58,127,458 |
|
58,253,174 |
|||||||
|
|
|
|
|
|
|
58,127,458 |
|
58,253,174 |
||||
|
|
|
|
|
|
|
|
|
|
||||
|
Current assets |
|
|
|
|
|
|
|
|||||
|
Cash and cash equivalents |
|
12 |
|
669,700 |
|
903,849 |
||||||
|
Other receivables |
|
11 |
|
18,462 |
|
4,621,059 |
||||||
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
688,162 |
|
5,524,908 |
||||
|
|
|
|
|
|
|
|
|
|
||||
|
Total assets |
|
|
|
|
58,815,620 |
|
63,778,082 |
|||||
|
|
|
|
|
|
|
|
|
|
||||
|
Current liabilities (excluding net assets attributable to shareholders) |
|
|
|
|
|
|||||||
|
Loan facility |
|
14 |
|
16,090,774 |
|
20,557,471 |
||||||
|
Other payables |
|
13 |
|
164,395 |
|
435,398 |
||||||
|
|
|
|
16,255,169 |
|
20,992,869 |
|||||||
|
|
|
|
|
|
|
|||||||
|
Non-current liabilities |
|
|
|
|
|
|||||||
|
Fair value of forward foreign exchange contracts |
10 |
|
9,511,081 |
|
5,720,617 |
|||||||
|
|
|
|
|
|
|
|
|
|
||||
|
Total liabilities |
|
|
|
|
25,766,250 |
|
26,713,486 |
|||||
|
|
|
|
|
|
|
|
|
|
||||
|
Net assets attributable to shareholders |
17 |
|
33,049,370 |
|
37,064,596 |
|||||||
|
|
|
|
|
|
|
|
|
|
||||
|
Total equity and liabilities (including amounts due to shareholders) |
|
|
58,815,620 |
|
63,778,082 |
|||||||
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
|
Net asset value per share |
9 |
|
82.6p |
|
92.7p |
|||||||
These financial statements were approved by the Board of Directors on 21 September 2010.
Signed on behalf of the Board.
CPG Tracy DIW Reynolds
Director Director
21 September 2010
The notes on pages 28 to 47 are an integral part of these financial statements.
Statement of Changes in Redeemable Participating Preference Shareholders' Funds For the period from 1 September 2009 to 30 June 2010
|
|
|
|
|
Share |
|
Capital |
|
Revenue |
|
|
|
|
|
|
|
Premium |
|
reserve |
|
reserve |
|
Total |
|
For the period from 1 September 2009 to 30 June 2010 |
£ |
|
£ |
|
£ |
|
£ |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at 1 Septemer 2009 |
39,168,236 |
|
2,388,893 |
|
(4,492,533) |
|
37,064,596 |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit for the period |
- |
|
(3,102,254) |
|
(912,972) |
|
(4,015,226) |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at 30 June 2010 |
39,168,236 |
|
(713,361) |
|
(5,405,505) |
|
33,049,370 |
|||
|
|
|
|
Share |
|
Capital |
|
Revenue |
|
|
|
For the period from 1 July 2008 to 31 August 2009 |
Premium |
|
reserve |
|
reserve |
|
Total |
||
|
|
|
|
£ |
|
£ |
|
£ |
|
£ |
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at 1 July 2008 |
39,168,236 |
|
2,175,113 |
|
(2,967,644) |
|
38,375,705 |
||
|
|
|
|
|
|
|
|
|
|
|
|
Return/(Deficit) for the period |
- |
|
213,780 |
|
(1,524,889) |
|
(1,311,109) |
||
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at 31 August 2009 |
39,168,236 |
|
2,388,893 |
|
(4,492,533) |
|
37,064,596 |
||
The notes on pages 28 to 47 are an integral part of these financial statements.
Statement of Cash Flows For the period from 1 September 2009 to 30 June 2010
|
|
|
|
|
|
|
|
Period from 1 September 2009 to 30 June 2010 |
|
Period from 1 July 2008 to 31 August 2009 |
|
|
|
|
|
|
|
|
£ |
|
£ |
|
Cash flows from operating activities |
|
|
|
||||||
|
Revenue account operating loss before finance costs for the period |
(554,797) |
|
(965,734) |
||||||
|
Decrease/(Increase) in other receivables |
4,602,597 |
|
(4,377,558) |
||||||
|
(Decrease)/Increase in other payables |
|
(271,003) |
|
75,625 |
|||||
|
Premiums paid |
|
|
|
|
|
(4,707,868) |
|
(6,459,242) |
|
|
Purchase of investments |
(105,430) |
|
- |
||||||
|
Proceeds from maturity of investments |
6,583,722 |
|
9,586,000 |
||||||
|
Currency losses |
|
|
|
|
|
(956,498) |
|
(3,245,159) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash inflow/(outflow) from operating activities before interest |
4,590,723 |
|
(5,386,068) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|||
|
(Decrease)/Increase in loan account |
|
|
(4,466,697) |
|
5,652,976 |
||||
|
Interest Paid |
|
|
|
|
|
|
(358,175) |
|
(559,155) |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (outflow)/inflow from financing activities |
(4,824,872) |
|
5,093,821 |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of cash flow to movement in net cash |
|
|
|
||||||
|
Decrease in cash and cash equivalents in the period |
(234,149) |
|
(292,247) |
||||||
|
Cash and cash equivalents at the beginning of the period |
903,849 |
|
1,196,096 |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the period |
669,700 |
|
903,849 |
||||||
The notes on pages 28 to 47 are an integral part of these financial statements.
Portfolio of Investments
As at 30 June 2010
|
Traded Life Interests ("TLI's") |
Number of Policies |
|
Valuation |
|
Portion of Portfolio |
|
A.M. Best Rating |
|||
|
|
|
|
|
|
|
£ |
|
% |
|
|
|
Issuer |
|
|
|
|
|
|
|
|||
|
American General Life Insurance Company |
13 |
|
9,366,526 |
|
16.1% |
|
A |
|||
|
Lincoln National Life Insurance Company |
18 |
|
7,998,032 |
|
13.8% |
|
A+ |
|||
|
Transamerica Life Insurance Company |
21 |
|
7,470,735 |
|
12.9% |
|
A+ |
|||
|
Massachusetts Mutual Life Insurance Company |
10 |
|
5,274,286 |
|
9.1% |
|
A++ |
|||
|
Aviva Life and Annuity Company |
6 |
|
3,700,177 |
|
6.4% |
|
A |
|||
|
Pacific Life Insurance Company |
6 |
|
3,486,163 |
|
6.0% |
|
A+ |
|||
|
John Hancock Life Insurance Company |
10 |
|
3,431,607 |
|
5.9% |
|
A+ |
|||
|
MetLife Insurance Company of Connecticut |
8 |
|
2,524,978 |
|
4.3% |
|
A+ |
|||
|
New York Life Insurance and Annuity Corp |
6 |
|
2,045,763 |
|
3.5% |
|
A++ |
|||
|
Security Life of Denver Insurance Company |
1 |
|
1,865,729 |
|
3.2% |
|
A |
|||
|
John Hancock Variable Life Insurance Company |
3 |
|
1,759,935 |
|
3.0% |
|
A+ |
|||
|
National Western Life Insurance Company |
1 |
|
1,339,617 |
|
2.3% |
|
A |
|||
|
Columbus Life Insurance Company |
2 |
|
1,139,634 |
|
2.0% |
|
A+ |
|||
|
AXA Equitable Life Insurance Company |
4 |
|
943,399 |
|
1.6% |
|
A+ |
|||
|
Lincoln Life & Annuity Company of NY |
2 |
|
908,128 |
|
1.6% |
|
A+ |
|||
|
MONY Life Insurance Company |
1 |
|
803,761 |
|
1.4% |
|
A+ |
|||
|
Genworth Life Insurance Company |
1 |
|
654,411 |
|
1.1% |
|
A |
|||
|
Aviva Life and Annuity Company of NY |
2 |
|
427,479 |
|
0.7% |
|
A |
|||
|
North American Company for L & H Insurance |
2 |
|
425,183 |
|
0.7% |
|
A+ |
|||
|
Lincoln Benefit Life Company |
1 |
|
415,173 |
|
0.7% |
|
A+ |
|||
|
United of Omaha Life Insurance Company |
2 |
|
298,972 |
|
0.5% |
|
A+ |
|||
|
Sun Life Assurance Company of CA |
2 |
|
254,858 |
|
0.4% |
|
A+ |
|||
|
ReliaStar Life Insurance Company |
2 |
|
247,948 |
|
0.4% |
|
A+ |
|||
|
Banner Life Insurance Company |
2 |
|
236,054 |
|
0.4% |
|
A+ |
|||
|
ING Life Insurance and Annuity Company |
2 |
|
209,487 |
|
0.4% |
|
A |
|||
|
MONY Life Insurance Company of America |
1 |
|
196,791 |
|
0.3% |
|
A+ |
|||
|
Security Mutual Life Insurance Company of NY |
1 |
|
155,522 |
|
0.3% |
|
A- |
|||
|
Standard Insurance Company |
1 |
|
153,742 |
|
0.3% |
|
A |
|||
|
Reassure America Life Insurance Company |
1 |
|
102,770 |
|
0.2% |
|
A |
|||
|
Phoenix Life Insurance Company |
1 |
|
74,860 |
|
0.1% |
|
B+ |
|||
|
General American Life Insurance Company |
1 |
|
68,776 |
|
0.1% |
|
A+ |
|||
|
Beneficial Life Insurance Company |
1 |
|
38,590 |
|
0.1% |
|
A- |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,019,086 |
|
99.8% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nominal |
|
Valuation |
|
Portion of Portfolio |
|
|
|||
|
|
|
|
£ |
|
% |
|
|
|||
|
|
|
|
|
|
|
|
|
|||
|
UK Treasury 4% 7 September 2016 |
100,000 |
|
108,372 |
|
0.2% |
|
|
|||
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
108,372 |
|
0.2% |
|
|
|||
|
|
|
|
|
|
|
|
|
|||
|
Portfolio Total |
|
|
58,127,458 |
|
100.0% |
|
|
|||
Notes to the Financial Statements
For the period from 1 September 2009 to 30 June 2010
1 Principal activity
The Company is a Guernsey registered closed-ended protected cell company established with one cell known as the US Traded Life Interests Fund (the "Fund" or "Cell"). The Shares in the Company are listed on the London Stock Exchange as a Premium Listing. The Company's objective in respect of the Fund is to provide investors with an attractive capital return through investment predominantly in a diversified portfolio of U.S. Traded Life Interests ("TLIs").
2 Principal Accounting Policies
The financial statements have been prepared in accordance with the applicable IFRS issued by the International Accounting Standards Board (the IASB) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB.
The Directors have adopted the following standards and interpretations in the preparation of the financial statements for the period 1 September 2009 to 30 June 2010:
Presentation of financial statements
The Company has applied revised IAS 1 Presentation of Financial Statements (2007), which became effective as of 1 January 2009. The Company has chosen to adopt the single-statement approach in the presentation of its total comprehensive income.
The adoption of this standard impacts only on presentation aspects and does not impact on the amounts reported in the current or prior financial periods.
Fair value disclosures
In March 2009, the IASB issued Amendments to IFRS 1 Financial Instruments: Disclosures - Improving Disclosures about Financial Instruments, which became effective for annual periods beginning on or after 1 January 2009.
The amendments extended the disclosures to be made with respect to the fair value measurements and its components disclosed within the financial statements. A key new disclosure required now is the categorisation of fair value measurements within a three-level hierarchy that reflects the significance of inputs used in measuring fair value. The fair value hierarchy is disclosed in note 19.
Comparative information has not been presented nor restated as permitted by the transitional provisions of the amendment.
The adoption of the revised IFRS 7 has resulted in additional disclosures being made in the financial statements. The revised standard does not have any financial impact on the amounts reported in the financial statements for the current or prior financial periods.
Operating segments
IFRS 8, Operating Segments, which became effective for annual periods beginning on or after 1 January 2009, replaces IAS 14, Segment Reporting. IFRS 8 requires an entity to identify and disclose financial information on operating segments of the entity on the "management approach" basis, which is consistent with information provided internally to the chief operating decision maker of the entity and is reviewed regularly to make decisions about the allocation of resources to the respective segments and assess it performance, and for which discrete financial information is available. This is disclosed by the Company in note 3.
Notes to the financial statements (continued)
For the period from 1 September 2009 to 30 June 2010
2 Principal Accounting Policies (continued)
Presentation of financial instruments
The IASB issued amendments to IAS 32, Financial Instruments: Presentation and IAS 1, Presentation of Financial Statements - Puttable Instruments and Obligations Arising in Liquidations, in February 2008. The changes were effective for periods beginning on or after 1 January 2009 although early adoption was permitted.
The amendments to IAS 32 require that entities that have issued financial instruments that are puttable at fair value and that are not the most subordinate, to classify such financial instruments as a liability. The Company's redeemable participating shares (the "Shares") fall under the scope of these amendments and as the Shares are redeemable at the sole discretion of the Directors, the Shares have been presented as equity under the provisions of IAS 32 "Financial Instruments: Presentation".
Presentation of statements of financial position
As the impact of the changes noted above has been limited to presentational changes, the Directors have not produced three statements of financial position as strictly required under IAS 1 (revised 2007) for retrospective changes in accounting policies. The Directors believe this departure does not materially affect the readers' overall understanding of these financial statements.
The Directors believe that other pronouncements, listed below, which are in issue but not yet operative or adopted by the Company, will not have a material impact on the financial statements of the Company in this, or future accounting periods:
IFRS 9: Financial Instruments: Recognition and Measurement (effective for annual periods beginning 1 January 2013) (issued but not adopted by the European Union).
The Directors do not anticipate that any other standard or interpretation in issue but not yet effective will have a material impact on the financial statements.
The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the Company's financial statements:-
(a) Basis of preparation
The financial statements have been prepared under the historical cost convention as modified by the revaluation of investments and derivatives. The financial statements have been prepared in accordance with International Financial Reporting Standards as detailed above and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (SORP) issued in January 2009 by the Association of Investment Companies.
The financial statements have been prepared on a total company basis and not on a cell- by-cell basis as there is currently only one cell. The only non-cellular assets and liabilities are in respect of the two management shares of no par value issued at £1 each fully paid represented by cash at bank. As they are immaterial they have been excluded from the financial statements.
Notes to the financial statements (continued)
For the period from 1 September 2009 to 30 June 2010
2 Principal Accounting Policies (continued)
Basis of preparation (continued)
Reporting and Presentational Currency
The financial information shown in the financial statements is shown in sterling, being the Company's reporting and presentational currency.
Critical accounting judgements and key sources of estimation uncertainty
The preparation of Financial Statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimate is revised if the revision affects only that year, or in the year of the revision and future years if the revision affects both current and future years. The Directors believe the critical accounting judgements and sources of estimation uncertainty are in respect of the valuations of investments and on going concern. These judgements are discussed below.
(b) Valuation of Investments
US Traded Life Interest Investments
The Company primarily invests in US Traded Life Interests ("TLIs") which it intends to hold to maturity or until the end of the life of the Fund. The Company has only invested in Whole of Life and Universal Life policies. All TLI investments are classified as fair value through profit and loss.
Recognition and basis of measurement
Purchases of TLIs are recognised on a trade date basis and are initially held at cost, being the consideration given.
Valuation
As the market for TLIs is thin, and there is relatively little trading in these investments, there are no reliable market prices. The TLIs are valued monthly at the Directors' discretion. The methodology adopted by the Directors intends to reflect the fair value of the policies. This methodology uses a discounted cash flow method.
The value of a TLI policy is the expected present value of its net future cash flows. The calculation uses the following data and assumptions provided by the Investment Manager:
·; Death benefit payable under the policy;
·; Premiums due under the policy;
·; Mortality using the 2008 Valuation Basic Table (Ultimate) as adjusted using a 24-month 'select period' adjustment and the most recent life expectancy for each policy; and
·; An estimate of the market based discount rate derived by the Investment Manager.
Notes to the financial statements (continued)
For the period from 1 September 2009 to 30 June 2010
2 Principal Accounting Policies (continued)
Valuation of Investments (continued)
Valuation (continued)
There is inherent uncertainty within this basis of valuation and this valuation will likely be materially different from either the valuation on maturity or the realisable sale value of these investments.
United Kingdom Gilts
The Company has also invested in a United Kingdom Gilt ("UK Gilt") which it intends to hold to maturity or until the end of the life of the Fund. The UK Gilt is classified as fair value through profit and loss.
Recognition and basis of measurement
Purchases of UK Gilts are recognised on a trade date basis and are initially held at cost, being the consideration given.
Valuation
The UK Gilt is valued monthly at the mid market price available for the stock at each valuation date.
De-recognition
The Company de-recognises a financial asset when the contractual rights to cash-flows from the financial asset expire. A financial liability is de-recognised when the obligation specified in the contract is discharged, cancelled or expired.
(c) Going concern
The Board considered carefully the issue of 'going concern', specifically in relation to the availability of funding. Total borrowings under the agreement with Allied Irish Banks Plc ("AIB") fell to circa US$24.0 million as at 30 June 2010 from circa US$33.4 million as at 31 August 2009. At this level the margin of cover required under the agreement was comfortably met.
As at 30 June 2010, an additional US$6 million of funding was available to the Company under the agreement with AIB, and this should provide the Company with sufficient cash flow to meet premium payments until December 2010. At that point the Company will seek to renew the agreement in order to provide the necessary funding for a further twelve months, and on the basis of early discussions with AIB, the Board is confident that it will be renewed successfully, enabling the Company to continue as a going concern.
The Board has also considered the position in the unlikely event of failure to renew the AIB agreement successfully. Acknowledging that this might involve the sale of policies in an illiquid market, the Board is nevertheless confident that the sales required to cover outstanding borrowings could be completed. To the extent that the prices achieved did not match those in the valuation, the net asset value of the Company would be affected, but the business would remain a going concern.
(d) Interest income
Bank deposit interest is accounted for on an accruals basis.
Notes to the financial statements (continued)
For the period from 1 September 2009 to 30 June 2010
2 Principal Accounting Policies (continued)
(e) Expenses
Expenses are accounted for on an accruals basis and all amounts have been allocated to the Statement of Comprehensive Income - revenue account.
(f) Foreign exchange
Foreign currency monetary assets and liabilities are translated into sterling at the rate of exchange ruling at the reporting date. Transactions in foreign currencies are translated into sterling at the rate ruling at the date of the transaction. Realised and unrealised foreign exchange gains and losses are recognised in the Statement of Comprehensive Income and in the capital reserve - realised, and capital reserve - unrealised respectively.
(g) Forward currency contracts
A forward currency contract obliges the Company to receive or deliver a fixed quantity of currency at a specified price on an agreed basis. These contracts are accounted for when any contract becomes binding and are valued in the Statement of Financial Position at the period end rate. Realised and unrealised gains are included in the Statement of Comprehensive Income and in the capital reserve - realised, and capital reserve - unrealised respectively.
(h) Bank borrowings
Interest bearing bank loans and overdrafts are recorded when the proceeds are received. Interest payments are recognised in the Statement of Comprehensive Income in the period in which they are incurred.
3 Segmental Reporting
The Board has considered the requirements of IFRS 8 'Operating Segments'. The Board has determined that the Company is engaged in a single segment of business, being investment in a portfolio of TLIs. The Board, as a whole, has been determined as constituting the chief operating decision maker of the Company.
The Board has overall responsibility for allocating the assets of the Company in accordance with the investment objective and policy. The Investment Manager will identify on behalf of the Board TLIs that are consistent with the Company's investment objective and policy.
Whilst the Investment Manager may make the investment decisions on a day to day basis, any changes to the investment strategy or major allocation decisions have to be approved by the Board, even though they may be proposed by the Investment Manager. The Board therefore retains full responsibility as to the investment strategy or major allocation decisions made on an ongoing basis. The Investment Manager will always act under the terms of the Prospectus which cannot be radically changed without the approval of the Board and the shareholders.
The key measure of performance use by the Board to assess the Company's performance and to allocate resources is the total return of the Company's net asset value, as calculated under IFRS, and therefore no reconciliation is required between the measure of profit or loss used by the Board and that contained in the financial statements.
Notes to the financial statements (continued)
For the period from 1 September 2009 to 30 June 2010
4 Interest and similar income
|
|
|
|
Period from 1 September 2009 to 30 June 2010 |
|
Period from 1 July 2008 to 31 August 2009 |
|
|
|
|
£ |
|
£ |
|
|
|
|
|
|
|
|
Bank deposit interest |
|
326 |
|
6,543 |
|
|
Bond interest |
3,128 |
|
- |
||
|
|
|
|
|
|
|
|
Total income |
3,454 |
|
6,543 |
||
5 Investment management and management fees
SL Investment Management Limited, the Investment Manager, was appointed under an agreement with the Company and other parties dated 16 March 2004 as amended and restated on 20 July 2004. The agreement may be terminated by either party giving not less than 12 months notice or shorter notice as the parties may agree to accept.
From 1 September 2009 the fee payable to the Investment Manager is 0.475% per annum of the Company's Net Asset Value. With effect from 1 April 2012 the fee will be reduced to 0.4% per annum of the Company's Net Asset Value. RCM (UK) Limited, the Manager, was appointed under an agreement with the Company dated 16 March 2004 to manage the fixed interest and near cash assets of the Company in accordance with the investment policy and to implement the currency hedging facility from time to time approved by the Directors. Either party giving not less than 12 months notice may terminate the agreement.
With effect from 1 September 2009 the fee payable to the Manager is 0.425% per annum of the Company's Net Asset Value. With effect from 1 April 2012 the fee will be reduced to 0.4% per annum of the Company's Net Asset Value. With effect from 1 September 2009 a separate Agreement was signed between the Company and the Manager for the provision of Administration and Secretarial Services at a fixed fee of £20,000 per annum.
With effect from 1 September 2009 the Administration Agreement between the Company and Kleinwort Benson (Channel Islands) Fund Services Limited (formerly Kleinwort Benson (Guernsey) Fund Services Limited) dated 16 March 2004 was amended to a fixed fee of £50,000 per annum.
Notes to the financial statements (continued)
For the period from 1 September 2009 to 30 June 2010
6 Other expenses
|
|
|
|
|
Period from 1 September 2009 to 30 June 2010 |
|
Period from 1 July 2008 to 31 August 2009 |
|
|
|
|
|
£ |
|
£ |
|
|
|
|
|
|
|
|
|
Administration and accountancy fees |
|
63,541 |
|
45,594 |
||
|
Broker fees |
|
|
28,658 |
|
29,344 |
|
|
Directors' fees and expenses |
|
56,411 |
|
50,993 |
||
|
D&O Insurance |
|
|
8,492 |
|
12,408 |
|
|
Auditors' remuneration |
|
|
29,895 |
|
31,249 |
|
|
Legal fees |
|
|
27,276 |
|
203,370 |
|
|
Printing |
|
|
|
6,626 |
|
5,089 |
|
Safe custody fees |
|
|
12,443 |
|
15,277 |
|
|
Bank fees and charges |
|
|
45,162 |
|
58,484 |
|
|
Sundry expenses * |
|
|
54,233 |
|
83,261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
332,737 |
|
535,069 |
* Sundry expenses include mailing services, tax exempt fees, registrar fees, stock exchange fees and other sundry costs.
7 Taxation
The Company is exempt from Guernsey Income Tax under the Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 and 1992 and is charged an annual exemption fee of £600 included in sundry expenses.
The Company, as a collective investment scheme, will be able to continue to apply for exempt tax status under the revised company income tax regime that came into effect on 1 January 2008.
Following an Extraordinary General Meeting on 28 August 2009, it was resolved that the Company would adopt UK tax residency from 1 September 2009 onwards. Since that date the Company has been managed in such a way as to meet the conditions for approval in due course as an investment trust under Section 1158 of the Corporation Tax Act 2010 in respect of the accounting period commencing on 1 September 2009. Accordingly no UK tax has been provided for.
8 Return per share
Revenue deficit per Share is based on the net deficit attributable to the Shares of £912,972 (2009: deficit £1,524,889) and on the average number of Shares in issue of 40,000,000. Capital deficit per Share is based on the net capital return attributable to the Shares of £3,102,254 (2009: return £213,780) and on the average number of Shares in issue of 40,000,000.
9 Net Asset Value per Share
The diluted and undiluted net asset value per Share is based on net assets attributable to the Shares of £33,049,370 (2009: £37,064,596) and on the 40,000,000 Shares in issue at the period end.
Notes to the financial statements (continued)
For the period from 1 September 2009 to 30 June 2010
10 Investments
|
(a) Categories of financial instruments |
30 June 2010 |
|
31 August 2009 |
|||||||
|
|
|
|
|
|
£ |
|
£ |
|||
|
Financial assets |
|
|
|
|||||||
|
Cash and cash equivalents |
|
669,700 |
|
903,849 |
||||||
|
Fair value through profit and loss: |
|
|
|
|||||||
|
TLI Policies |
58,019,086 |
|
58,253,174 |
|||||||
|
Government Bonds |
108,372 |
|
- |
|||||||
|
|
|
|
58,127,458 |
|
58,253,174 |
|||||
|
Loans and receivables at amortised cost |
18,462 |
|
4,621,059 |
|||||||
|
|
|
|
|
|
58,815,620 |
|
63,778,082 |
|||
|
|
|
|
|
|
|
|
|
|||
|
Financial liabilities |
|
|
|
|
|
|||||
|
Fair value through profit and loss: |
|
|
|
|||||||
|
Derivatives |
(9,511,081) |
|
(5,720,617) |
|||||||
|
Loans and payables at amortised cost |
(16,255,169) |
|
(20,992,869) |
|||||||
|
|
|
|
(25,766,250) |
|
(26,713,486) |
|||||
|
|
|
|
|
|
|
|||||
|
|
|
|
33,049,370 |
|
37,064,596 |
|||||
|
(b) Investments at fair value through profit or loss |
Period from 1 September 2009 to 30 June 2010 |
|
Period from 1 July 2008 to 31 August 2009 |
|||||||
|
|
|
|
|
|
£ |
|
£ |
|||
|
Movements in the period: |
|
|
|
|||||||
|
Opening valuation |
|
58,253,174 |
|
50,895,244 |
||||||
|
Premiums paid |
|
|
|
4,707,868 |
|
6,459,242 |
||||
|
Purchase of investments |
105,430 |
|
- |
|||||||
|
Proceeds from the maturities of investments |
(6,583,722) |
|
(9,586,000) |
|||||||
|
Realised gain on maturities |
|
|
3,601,232 |
|
4,664,216 |
|||||
|
Unrealised movement in (depreciation)/appreciation on revaluation of investments |
|
|
|
|||||||
|
(1,956,524) |
|
5,820,472 |
||||||||
|
|
|
|
|
|
|
|
|
|||
|
Closing valuation |
|
|
58,127,458 |
|
58,253,174 |
|||||
|
|
|
|
|
|
|
|
|
|||
|
Comprising: |
|
|
|
|
|
|
||||
|
Closing book cost |
|
|
58,545,385 |
|
56,714,577 |
|||||
|
Closing unrealised (depreciation)/appreciation |
(417,927) |
|
1,538,597 |
|||||||
|
|
|
|
|
|
|
|
|
|||
|
Closing valuation |
|
|
58,127,458 |
|
58,253,174 |
|||||
Notes to the Financial Statements (continued)
For the period from 1 September 2009 to 30 June 2010
10 Investments (continued)
|
(c) Net gain/(loss) on investments held at fair value through profit or loss |
|
Period from 1 September 2009 to 30 June 2010 |
|
Period from 1 July 2008 to 31 August 2009 |
||||
|
|
|
|
|
|
|
£ |
|
£ |
|
|
|
|
|
|
|
|
|
|
|
Realised gain on maturities |
|
|
3,601,232 |
|
4,664,216 |
|||
|
|
|
|
|
|
|
|
|
|
|
Movement in unrealised appreciation/(depreciation) on revaluation of investments |
(1,956,524) |
|
5,820,472 |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,644,708 |
|
10,484,688 |
|
(d) Derivative financial instruments |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
Forward currency contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at 30 June 2010 |
|
|
|
|
|
|
|
|
|
Outstanding contracts |
|
Average exchange rate |
|
Contract amount USD |
|
Contract amount GBP |
|
Fair value GBP |
|
Buy GBP |
|
1.8229 |
|
78,500,000 |
|
43,063,246 |
|
(9,411,825) |
|
Sell GBP |
|
1.4644 |
|
(7,500,000) |
|
(5,121,551) |
|
(99,256) |
|
|
|
|
|
71,000,000 |
|
37,941,695 |
|
(9,511,081) |
|
|
|
|
|
|
|
|
|
|
|
As at 31 August 2009 |
|
|
|
|
|
|
|
|
|
Outstanding contracts |
|
Average exchange rate |
|
Contract amount USD |
|
Contract amount GBP |
|
Fair value GBP |
|
Buy GBP |
|
1.8229 |
|
78,500,000 |
|
43,063,246 |
|
(5,267,179) |
|
Sell GBP |
|
1.4644 |
|
(7,500,000) |
|
(5,121,551) |
|
(453,438) |
|
|
|
|
|
71,000,000 |
|
37,941,695 |
|
(5,720,617) |
The Company hedges its US dollar exposure by entering into forward sales and purchases of US dollars in sterling. At the period end there were twelve outstanding forward foreign exchange contracts for the sale of US$78.5 million against sterling contracts maturing 30 March 2012 and one contract for the purchase of US$7.5 million against a sterling contract maturing 30 March 2012.
11 Other receivables
|
|
|
|
|
30 June 2010 |
|
31 August 2009 |
|
|
|
|
|
£ |
|
£ |
|
|
|
|
|
|
|
|
|
Sundry debtors |
|
|
18,462 |
|
11,348 |
|
|
Maturity proceeds receivable |
|
- |
|
4,609,711 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
18,462 |
|
4,621,059 |
Notes to the Financial Statements (continued)
For the period from 1 September 2009 to 30 June 2010
12 Cash and cash equivalents
Any amounts held on deposit or in current accounts at the Company's Custodian, Sub-Custodian or financial institutions are included in cash or cash equivalents.
13 Other payables
|
|
|
|
30 June 2010 |
|
31 August 2009 |
|
|
|
|
£ |
|
£ |
|
|
|
|
|
|
|
|
Accrued expenses |
164,395 |
|
435,398 |
||
|
|
|
|
|
|
|
|
|
|
|
164,395 |
|
435,398 |
14 Loan facility
As at 30 June 2010 the Company had a US$23,156,000 (31 August 2009: US$28,000,000) amortising term loan, and a revolving credit facility of c.US$6.9 million (31 August 2009: c. US$5.4 million) with Allied Irish Banks plc (the "Bank"). Interest is payable at LIBOR plus 2% on the amortising term loan and at LIBOR plus 2.5% in respect of the revolving credit facility. As at 30 June 2010 a total of US$24,047,662 (£16,090,774) had been drawn down (2009: US$33,447,006 (£20,557,471)). The facility expires on 31 January 2011, but it is expected to be replaced by a new facility in December 2010.
Borrowings will be repaid with proceeds receivable from the maturity of the TLIs. See note 19.
The covenants to the Bank, per the Security Interest Agreement, dated 8 April 2004 and amended on 16 March 2009, are as follows:
·; That the Company is the sole beneficial owner of and has good title to the Contract Rights and the property, title to and/or possession of which is held by the Custodian subject only to the rights granted in favour of the Bank by this agreement and the terms of the Custodian Agreement;
·; That the Contract Rights are, and will throughout the continuance of this agreement be, free from all Encumbrance save for those created in favour of the Bank or otherwise permitted by the terms of this agreement;
·; That the Company will reimburse the Bank within 3 Business Days of demand for all sums which the Bank may from time to time pay or become liable for in the enforcement or attempted enforcement of the security provided by this agreement or in or about the exercise by the Bank of any of the powers vested in it under or pursuant to this agreement (including without limitation reasonable legal costs) together with interest on such sums at the applicable rate from time to time provided by the Agreements.
15 Share capital and share premium
The share capital of the Company is two Management Shares of no par value and an unlimited number of Redeemable Participating Preference Shares (the "Shares") of no par value.
The two Management Shares were issued at £1 each fully paid and are beneficially owned by the Manager. The Management Shares do not carry any rights to dividends and holders of Management Shares are only entitled to participate in the non-cellular assets of the Company on a winding-up.
Notes to the Financial Statements (continued)
For the period from 1 September 2009 to 30 June 2010
15 Share capital and share premium (continued)
40,000,000 Shares were issued in the Fund at £1 per Share on 25 March 2004. The issue costs incurred of £831,764 were debited against the share premium account to leave net proceeds of the share issue of £39,168,236.
The holders of Shares attributable to the Fund will only be entitled to participate in the income, profits and assets attributable to that fund. On winding up the holders of Shares are only entitled to participate in the assets of the Fund and have no entitlement to participate in the distribution of any assets attributable to any other cell.
Holders of Shares are entitled to attend and vote at general meetings of the Company.
At an Extraordinary General Meeting held on 28 August 2009 the Articles of Incorporation were amended so that the US Traded Life Interests Fund now has an unlimited life, subject to regular continuation votes from 2012 onward. However, shareholders shall be offered the opportunity to vote on the continuation of the Fund at the Annual General Meeting in 2012 and annually thereafter.
16 Share buy-backs
By way of an ordinary resolution passed by a written resolution dated 10 March 2004 the Company took authority, in accordance with Clause 5 of the Companies (Purchase of Own Shares) Ordinance 1998, to make market purchases of fully paid Shares, provided that the maximum number of Shares authorised to be purchased shall be no more than 14.99 per cent of the issued Shares of the Company.
The Company will be seeking to renew this authority at the forthcoming Annual General Meeting.
The minimum price which may be paid for a Share pursuant to such authority is one pence and the maximum price which may be paid for a Share is an amount equal to the higher of 105 per cent of the average of the middle market quotations for a Share taken from the Official List for the five business days immediately preceding the date on which the Share is purchased or the higher of the price of the last independent trade and the highest current independent bid at the time of purchase. Such authority will then expire at the Annual General Meeting of the Company in 2011 unless such authority is varied, revoked or renewed prior to such date by a special resolution of the Company in general meeting.
During the period under review no Shares were bought back for cancellation (2009: nil).
Notes to the Financial Statements (continued)
For the period from 1 September 2009 to 30 June 2010
17 Net assets attributable to shareholders
|
|
|
|
|
|
|
Capital Reserve |
|
|
|
|
||
|
|
|
|
|
|
Share Premium |
Realised |
|
Unrealised |
|
Revenue Reserves |
|
Total |
|
|
|
|
|
|
2010 |
2010 |
|
2010 |
|
2010 |
|
2010 |
|
|
|
|
|
|
£ |
£ |
|
£ |
|
£ |
|
£ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 1 September 2009 |
|
|
39,168,236 |
8,329,265 |
|
(5,940,372) |
|
(4,492,533) |
|
37,064,596 |
||
|
Realised gain on maturities |
- |
3,601,232 |
|
- |
|
- |
|
3,601,232 |
||||
|
Movement in unrealised appreciation on investments |
- |
- |
|
(1,956,524) |
|
- |
|
(1,956,524) |
||||
|
Movement in unrealised currency loss on forward foreign currency contracts |
|
|
|
|
|
|
|
|
||||
|
- |
- |
|
(3,790,464) |
|
- |
|
(3,790,464) |
|||||
|
Movement in unrealised currency losses |
- |
- |
|
(956,498) |
|
- |
|
(956,498) |
||||
|
Revenue loss for the period |
- |
- |
|
- |
|
(912,972) |
|
(912,972) |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 30 June 2010 |
|
|
39,168,236 |
11,930,497 |
|
(12,643,858) |
|
(5,405,505) |
|
33,049,370 |
||
|
|
|
|
|
|
|
Capital Reserve |
|
|
|
|
||
|
|
|
|
|
|
Share Premium |
Realised |
|
Unrealised |
|
Revenue Reserves |
|
Total |
|
|
|
|
|
|
2009 |
2009 |
|
2009 |
|
2009 |
|
2009 |
|
|
|
|
|
|
£ |
£ |
|
£ |
|
£ |
|
£ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 1 July 2008 |
|
|
39,168,236 |
3,665,049 |
|
(1,489,936) |
|
(2,967,644) |
|
38,375,705 |
||
|
Realised gain on maturities |
|
- |
4,664,216 |
|
- |
|
- |
|
4,664,216 |
|||
|
Movement in unrealised appreciation on investments |
- |
- |
|
5,820,472 |
|
- |
|
5,820,472 |
||||
|
Movement in unrealised currency loss on forward foreign currency contracts |
|
|
|
|
|
|
|
|
||||
|
- |
- |
|
(7,025,749) |
|
- |
|
(7,025,749) |
|||||
|
Movement in unrealised currency losses |
- |
- |
|
(3,245,159) |
|
- |
|
(3,245,159) |
||||
|
Revenue loss for the period |
- |
- |
|
- |
|
(1,524,889) |
|
(1,524,889) |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 31 August 2009 |
|
|
39,168,236 |
8,329,265 |
|
(5,940,372) |
|
(4,492,533) |
|
37,064,596 |
||
Notes to the Financial Statements (continued)
For the period from 1 September 2009 to 30 June 2010
18 Related party transactions
Fees earned by the Directors of the Company during the period were £54,094 of which £2,714 was outstanding at the period end (2009: £49,584 of which £7,083 was outstanding at the period end). Allowable expenses claimed by the Directors in the course of their duties amounted to £2,317 for the period from 1 September 2009 to 30 June 2010. Fees earned by the Investment Manager, Manager and Administrator are discussed in Note 5.
19 Financial risk management objectives and policies
The main risks to which the Company is exposed are market and longevity risk, currency risk and interest rate risk, liquidity risk and credit risk.
Fair value measurements
The Company adopted the amendment to IFRS 7, effective 1 January 2009. This requires the Company to classify fair value hierarchy that reflects the significance of the inputs used in making the measurements. IFRS 7 establishes a fair value hierarchy that prioritises the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under IFRS 7 are as follows:
·; Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities;
·; Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly (that is, as prices) or indirectly (that is, derived from prices); or
·; Level 3 - Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).
The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the asset or liability.
The determination of what constitutes 'observable' requires significant judgment by the Company. The Company considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.
The following table presents the Company's financial assets and liabilities by level within the valuation hierarchy as of 30 June 2010.
|
|
|
2010 |
Percentage of net assets |
|
|
|
£ |
% |
|
Level 1 fair value assets |
|
108,372 |
0.33 |
|
Level 2 fair value liabilities |
|
(9,511,081) |
(28.79) |
|
Level 3 fair value assets |
|
58,019,086 |
175.64 |
|
|
|
48,616,377 |
147.18 |
The Company holds one investment, being the UK Treasury Stock, which is listed and which is therefore categorised as level 1 of the IFRS fair value hierarchy.
Notes to the Financial Statements (continued)
For the period from 1 September 2009 to 30 June 2010
19 Financial risk management objectives and policies (continued)
Fair value measurements (continued)
The forward foreign exchange contracts held by the Company are categorised as level 2 of the IFRS fair value hierarchy. The contracts were over the counter trades and the valuation of the contracts is based on recognised valuation methodologies as opposed to a readily attainable market value for the contracts.
The investments categorised as level 3 are the TLI policies held in the Company's portfolio. The valuation of the TLI policies is not based on observable market data, but on a valuation model used by the Investment Manager to determine the fair value of the policies held and therefore these investments are categorised as level 3 of the IFRS fair value hierarchy.
Capital risk management
The capital structure of the Company consists of cash and cash equivalents and net assets attributable to holders of Shares, comprising issued Shares, capital reserves and revenue reserves as detailed in Note 17. The Company does not have any externally imposed capital requirements. At 30 June 2010 net assets attributable to the holders of Shares were £33,049,370 (2009: £37,064,596).
As at 30 June 2010, the Company had borrowed circa US$24.0 million from Allied Irish Banks Plc. The existence of these borrowings means that Shareholder returns are "geared" and that these borrowings will need to be repaid prior to any return of capital to shareholders.
The Company's investment objective is to provide investors with an attractive capital return through investment predominantly in a diversified portfolio of US Traded Life Interests ("TLIs"). The Company has invested its assets principally in a range of TLIs on the lives of US citizens aged between 80 and 90 years at the point of investment.
The Board has overall responsibility for allocating the assets of the Company in accordance with the investment objective and policy. The Investment Manager has identified on behalf of the board TLIs that are consistent with the Company's investment objective and policy.
The TLIs acquired are held to maturity or otherwise disposed of towards the end of the life of the Company. The Company is responsible for payment of policy premiums.
As at 30 June 2010, the current portfolio comprises 135 TLIs. All TLIs acquired are Whole-of-Life or Universal Life policies.
The TLIs acquired are policies issued by a range of US life insurances companies. Each underlying life insurance company has an A.M. Best credit rating of at least "A" at the time of acquisition of the relevant policy. A.M. Best is a U.S. credit rating agency which provides the most comprehensive coverage of the U.S. life company sector. Once the investment programme was concluded, not more than 15 per cent. of the gross assets of the Company were initially invested in life policies issued by any single US Life Insurance Company or Group. This percentage is subject to change dependent on the maturities realised from the Company's TLI portfolio.
The Investment Manager has engaged the services of tracking agents to monitor the status of lives insured in respect of TLIs purchased by the Company. The agents use tracking methods to ensure both the Company and the Investment Manager are notified in a timely manner following the death of an insured. Upon receipt of notification of the death of an insured, the death certificate will be forwarded to the
Notes to the Financial Statements (continued)
For the period from 1 September 2009 to 30 June 2010
19 Financial risk management objectives and policies (continued)
Capital risk management (continued)
Sub-Custodian, who then forwards it to the relevant life insurance company with the original policy document. The life insurance company will usually pay the Company the full face value of the policy within 60 days of receipt of the requisite documents.
Market and longevity risk
The Company's exposure to market risk is comprised mainly of movements in the valuation of the TLI portfolio, which, in turn, also reflects the Company's assessment of longevity (life expectancy) for each policy. The Company's basis of valuation is to arrive at an estimate of market value by applying an Internal Rate of Return (IRR) based on market rates to estimates of future cash flow, based on the life expectancy of the life assured and future premiums payable.
The IRR assessment is based on the Investment Manager's own successful bids (that is the IRR implied by bids that have been accepted by the seller of a policy). The results are compared to US$ swap interest rates on a three-month rolling average basis, to derive a risk premium. The IRR is thus the sum of the risk premium and the swap rate for the appropriate life expectancy. Every quarter, the risk premiums are re-assessed and discussed between the Board and the Investment Manager.
As of 30 June 2010 the weighted average swap yield was 1.9%; this also allows for the fact that there is some shortening of life expectancies with the elapse of time. The weighted average risk premium was 10.1% (2009: 9.4%), resulting in an overall IRR of 12.0%.
These IRRs are in line with the IRRs being obtained by the Investment Manager in the open market at the moment, but a lack of success in some market areas may suggest that they are not indicative of the market as a whole, The question of whether the IRRs reflect the market or simply a change in the Investment Manager's client strategies was discussed between the Board and the Investment manager and the conclusion was that, while the IRRs may not be wholly representative, they are the best information currently available, given the lack of public information on successful transactions in this marketplace.
At 30 June 2010, should each individual IRR used have increased by 1 per cent with all other variables remaining constant, the decrease in net assets attributable to shareholders for the period would amount to £1,713,265 (2009: decrease of £1,757,695).
At 30 June 2010, should each individual IRR used have decreased by 1 per cent with all other variables remaining constant, the increase in net assets attributable to shareholders for the period would amount to £1,819,783 (2009: increase of £1,869,612).
The life expectancy which applies to each policy is based on the original third party medical assessments made at the time of purchase, adjusted for any relevant factors, which include the period since original purchase and any information available to the Investment Managers which affects life expectancy. Any new life expectancy obtained from the Investment manager is also incorporated. The cash flow projections resulting from this life expectancy allow for a 24-month select period but are otherwise based on standard actuarial tables.
Notes to the Financial Statements (continued)
For the period from 1 September 2009 to 30 June 2010
19 Financial risk management objectives and policies (continued)
Market and longevity risk (continued)
At 30 June 2010, should the remaining life expectancy of the insured have increased by 20% with all other variables remaining constant, the decrease in net assets attributable to shareholders for the period would amount to £13,002,287 (2009: decrease of £12,217,793). In order to achieve this, mortality would have to be 37% lower than that assumed in the valuation (2009: 38% lower than that assumed in the valuation).
At 30 June 2010, should the remaining life expectancy of the insured have decreased by 20% with all other variables remaining constant, the increase in net assets attributable to shareholders for the period would amount to £14,304,642 (2009: increase of £13,328,392). In order to achieve this, mortality would have to be 57% higher than that assumed in the valuation (2009: 60% higher than that assumed in the valuation).
Currency risk
Currency risk is the risk that the fair value of future cash flows of a financial asset will fluctuate because of changes in foreign exchange rates.
The TLIs held by the Company are denominated exclusively in US dollars, whereas the issued Shares are denominated in sterling. The Company hedges this exposure through the sale of US dollars into sterling. The Company has forward sold US$78.5 million and forward purchased US$7.5 million which means that at the current valuation, the Company's net exposure to US dollars was a US$7.6 million liability. In the event that expected future US$7.6 million profits are not crystallised, the Company will be exposed to the risk of currency losses.
In the event of a fall in the value of the Company's assets or a loss on the Company's forward currency contracts, the Company may not be able to comply with the borrowing covenants contained in the Credit Facility Agreement and may be obliged to sell policies on disadvantageous terms in order to raise cash.
The Company's net currency exposure was as follows:
|
|
|
|
|
30 June 2010 |
|
31 August 2009 |
|
|
|
|
|
£ |
|
£ |
|
|
|
|
|
|
|
|
|
U.S. Dollar |
|
42,443,971 |
|
43,060,214 |
||
|
Less: Effect of forward foreign exchange contracts |
(47,452,976) |
|
(43,662,312) |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,008,805) |
|
602,098 |
At 30 June 2010, had pound sterling strengthened against the US dollar by 5% with all other variables held constant, the increase in net assets attributable to shareholders would amount to approximately £241,122 (2009: decrease £28,379). A decrease of 5% would amount to a decrease in net assets attributable to shareholders of approximately £253,178 (2009: increase £31,388).
Notes to the Financial Statements (continued)
For the period from 1 September 2009 to 30 June 2010
19 Financial risk management objectives and policies (continued)
Interest rate risk
The Company's interest-bearing financial assets and liabilities expose it to risks associated with the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows.
The Company holds modest amounts of cash on deposit and the only interest bearing liability is the loan facility, therefore exposure to interest rate changes is limited to the effect on cash and the loan facility.
The following table details the Company's exposure to interest rate risk at 30 June 2010 and 31 August 2009:
|
|
Financial assets/(liabilities) on which no interest is paid |
Fixed rate financial assets |
Floating rate financial assets/(liabilities) |
Total |
||||
|
|
2010 |
2009 |
2010 |
2009 |
2010 |
2009 |
2010 |
2009 |
|
|
£ |
£ |
£ |
£ |
£ |
£ |
£ |
£ |
|
|
|
|
|
|
|
|
|
|
|
Sterling |
(9,511,081) |
(5,720,617) |
108,372 |
- |
141,313 |
61,896 |
(9,261,396) |
(5,658,721) |
|
U.S. Dollars |
58,019,086 |
58,253,174 |
- |
- |
(15,562,387) |
(19,715,518) |
42,456,699 |
38,537,656 |
|
|
48,508,005 |
52,532,557 |
108,372 |
- |
(15,421,074) |
(19,653,622) |
33,195,303 |
32,878,935 |
The above analysis excludes short term other receivables and other payables as the material amounts are non-interest bearing.
At 30 June 2010, should interest rates have decreased by 100 basis points with all other variables remaining constant, the increase in net assets attributable to shareholders for the period would amount to approximately £154,211 (2009: £196,536). A decrease of 100 basis points would have had an equal, but opposite effect.
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with its financial liabilities.
The Company has exposure to liquidity risk as it holds a loan facility for US$33,156,000 of which US$24,047,662 was drawn down at 30 June 2010 as detailed in note 14.
Notes to the financial statements (continued)
For the period from 1 September 2009 to 30 June 2010
19 Financial risk management objectives and policies (continued)
Liquidity risk (continued)
The maturity profile of the Company's financial assets and liabilities is set out below (the TLIs are broken down in terms of the estimated remaining life expectancy of the insured at valuation rather than undiscounted face value). The future premiums payable on the Company's portfolio are not deemed to be financial liabilities for the purposes of this note. Future loan interest is not material and has also been excluded.
|
As at 30 June 2010 |
|
|
|
|
|
|
||
|
|
|
1 month or less |
1 to 3 months |
3 to 12 months |
1 to 5 years |
>5 years |
Total |
|
|
Financial assets: |
|
£ |
£ |
£ |
£ |
£ |
£ |
|
|
At fair value through profit and loss |
- |
- |
- |
35,327,459 |
22,799,999 |
58,127,458 |
||
|
Other receivables |
18,462 |
- |
- |
- |
- |
18,462 |
||
|
Cash and cash equivalents |
669,700 |
- |
- |
- |
- |
669,700 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
688,162 |
- |
- |
35,327,459 |
22,799,999 |
58,815,620 |
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
||
|
Fair value of forward foreign currency contracts |
- |
- |
- |
(9,511,081) |
- |
(9,511,081) |
||
|
Loan facility |
- |
- |
(16,090,774) |
- |
- |
(16,090,774) |
||
|
Other payables |
(164,395) |
- |
- |
- |
- |
(164,395) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
(164,395) |
- |
(16,090,774) |
(9,511,081) |
- |
(25,766,250) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
523,767 |
- |
(16,090,774) |
25,816,378 |
22,799,999 |
33,049,370 |
|
|
|
|
|
|
|
|
|
|
|
|
As at 31 August 2009 |
|
|
|
|
|
|
||
|
|
|
1 month or less |
1 to 3 months |
3 to 12 months |
1 to 5 years |
>5 years |
Total |
|
|
Financial assets: |
|
£ |
£ |
£ |
£ |
£ |
£ |
|
|
At fair value through profit and loss |
- |
175,357 |
- |
33,776,028 |
24,301,789 |
58,253,174 |
||
|
Other receivables |
4,621,059 |
- |
- |
- |
- |
4,621,059 |
||
|
Cash and cash equivalents |
903,849 |
- |
- |
- |
- |
903,849 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
5,524,908 |
175,357 |
- |
33,776,028 |
24,301,789 |
63,778,082 |
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
||
|
Fair value of forward foreign currency contracts |
- |
- |
- |
(5,720,617) |
- |
(5,720,617) |
||
|
Loan facility |
- |
- |
(20,557,471) |
- |
- |
(20,557,471) |
||
|
Other payables |
(435,398) |
- |
- |
- |
- |
(435,398) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
(435,398) |
- |
(20,557,471) |
(5,720,617) |
- |
(26,713,486) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,089,510 |
175,357 |
(20,557,471) |
28,055,411 |
24,301,789 |
37,064,596 |
|
Notes to the financial statements (continued)
For the period from 1 September 2009 to 30 June 2010
19 Financial risk management objectives and policies (continued)
Liquidity risk (continued)
The Directors intend to renegotiate the loan facility prior to its expiration on 31 January 2011, when it is expected that a renewed or successor loan will come into force. This loan and its successors are expected to be repaid with proceeds receivable from the maturity of the TLIs.
Were it to be necessary, the Company could sell TLIs in order to repay the loan. It is noted that the valuation methodology does not assume sales of TLIs, rather that they would be held to maturity. In the event of a sale, the proceeds received would in all likelihood be lower than the valuation.
Credit risk
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation.
Credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies. The Directors manage this risk by monitoring the credit quality of its bankers on an ongoing basis. If the credit quality of the bank deteriorates, the Company would seek to move the short-term deposits or cash to another bank.
The Company holds cash with Kleinwort Benson (Channel Islands) Limited which has been assigned a rating of Baa2/Prime-2 by Moody's Investors Service.
The Company also holds cash with the Sub-Custodian Wells Fargo which has been assigned a rating of AA-/A-1+ by Standard & Poor's ratings agency.
The TLIs in the Company's portfolio, as disclosed on page 27, have been assigned ratings ranging from B+ to A++ by A.M. Best ratings agency.
Concentration risk
The Company has invested its assets in a range of TLIs on the lives of US citizens aged, at the time of acquisition, between 80 and 90 years. All TLIs acquired are Whole-Of-Life policies or Universal Life policies. No viatical policies (that is, a policy on the life of an insured who is terminally ill and with a life expectancy of less than 2 years) have been acquired.
The TLIs acquired are policies issued by a range of US life insurance companies. Each underlying life insurance company had an A.M. Best credit rating of at least "A" at the time of acquisition of the relevant policy; as at 30 June 2010, 99.8% by value of the TLI portfolio was underwritten by companies whose credit rating is "A" or better. A.M. Best is a US credit rating agency which provides the most comprehensive coverage of the US life company sector. Not more than 15 per cent. of the gross assets of the Fund, at the time of purchase, have been invested in life policies issued by any single US life insurance company or group.
The Board has overall responsibility for allocating the assets of the Fund in accordance with the investment objective and policy. The Investment Manager is responsible, inter alia, for identifying and monitoring on behalf of the Board, TLIs that are consistent with the Company's investment objective and policy.
Notes to the financial statements (continued)
For the period from 1 September 2009 to 30 June 2010
19 Financial risk management objectives and policies (continued)
Fair value disclosure
In the opinion of the Directors there is no material difference between the values presented in the financial statements and the fair values of the financial assets and liabilities.
20 Events after the reporting period
There have been no significant events subsequent to the reporting period of either an adjusting or non-adjusting nature which require adjustment or disclosure in the financial statements in accordance with IAS 10 'Events after the Reporting Period'.
21 Contingent Liabilities
Following a ruling issued by the US Internal Revenue Service ("IRS") during the previous period, the Board has received advice from its US tax counsel in respect of withholding tax on the proceeds of certain maturities already received by the Company prior to its move to a UK tax residency. The Directors continue to be of the view that there is significant doubt about liability under US law for such a levy on the relevant maturity receipts and the Directors are still not aware of any evidence to date that any levy will be imposed by the IRS with retrospective effect. Accordingly, no provision for any such liability has been made in these financial statements.
The Company received approximately US$20 million of maturity proceeds prior to its adoption of UK tax residency on 1 September 2009. If US withholding tax were to be payable with respect to these past maturities the Board has estimated that such a liability would not exceed US$3.5 million (before interest and penalties if applicable), calculated on the basis that the relevant withholding tax rate has been 30% since the inception of the Company.
Related Shares:
TLI.L