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TLI Alt. AO. Prfnpv

52.50
0.00 (0.00%)
28 Mar 2024 - Closed
Delayed by 15 minutes
Share Name Share Symbol Market Type Share ISIN Share Description
Alt. AO. Prfnpv LSE:TLI London Ordinary Share GB0034353424 RED PTG PRF SHS NPV US TRADED LIFE INT
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  0.00 0.00% 52.50 0.00 00:00:00
Industry Sector Turnover Profit EPS - Basic PE Ratio Market Cap
0 0 N/A 0

Alternative Asset Opps PCC Ltd Final Results (6159M)

14/10/2016 3:39pm

UK Regulatory


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TIDMTLI

RNS Number : 6159M

Alternative Asset Opps PCC Ltd

14 October 2016

14 October 2016

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

(THE "COMPANY")

Annual Financial Report Announcement

For the year ended 30 June 2016

The Directors announce the publication of the Company's annual financial report for the year ended 30 June 2016.

The following comprises the Company's annual financial report for the year ended 30

June 2016. The annual financial report is being made available to be viewed on or downloaded from the Company's website at www.allianzgi.co.uk/TLI and it will shortly be submitted to and available for inspection at http://www.hemscott.com/nsm.do.

The financial information set out in this announcement does not constitute the Company's statutory accounts for the year ended 30 June 2016, but is derived from those accounts, which will be delivered to Shareholders during October 2016. The auditor has reported on the annual financial report and your attention is drawn to their 'Emphasis of Matter' and the 'Statement of Going Concern'.

The financial information for the year ended 30 June 2015 has been extracted from the statutory accounts for that year.

The financial statements have been prepared in accordance with International Financial Reporting

Standards. This announcement has been prepared using accounting policies consistent with those set out in the Company's annual financial report for the year ended 30 June 2016.

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

Enquiries:

Tracey Lago

Company Secretary

Telephone number: 020 3246 7405

Melissa Gallagher

Head of Investment Trusts, Allianz Global Investors

Telephone number: 020 3246 7539

14 October 2016

199 Bishopsgate

London

EC2M 3TY

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Investor Information

For the year ended 30 June 2016

Investment policy and strategy

The investment objective and policy of Alternative Asset Opportunities PCC Limited (the "Company") in respect of the US Traded Life Interests Fund has been to provide investors with an attractive capital return through investment predominantly in a diversified portfolio of US Traded Life Interests ("TLIs"). The Company invested the assets of the Fund in a range of TLIs on the lives of US citizens aged, at the time of acquisition, between 78 and 92 years. All TLIs acquired were Whole-Of-Life policies or Universal Life policies. No viatical policies (that is, a policy on the life of an insured who, at the time of policy acquisition, is terminally ill and with a life expectancy of less than 2 years) were acquired and not more than 15 per cent of the gross assets of the Fund, at the time of purchase, was invested in life policies issued by any single US life insurance company or group.

As detailed in the Circular to shareholders dated 13 September 2016, the Board proposed a change to the investment objective and policy to become:

"The investment objective and policy of the Company in respect of the Fund is to conduct a sale of its portfolio: (i) to Vida Longevity Fund, L.P for a total cash consideration of $40.0 million, subject to adjustment in respect of the value of policies excluded from the sale, on the terms set out in the Sale and Purchase Agreement which has been entered into between Vida Longevity Fund, L.P and the Company on 12 September 2016; and (ii) to other parties, both as described in the circular to Shareholders dated 13 September 2016. Thereafter the Company will return cash to Shareholders and proceed towards a members' voluntary winding-up, or other restructuring, subject to the further approval of Shareholders.

Pending the return of cash to Shareholders of the Fund, cash balances 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. The Company (in respect of the Fund) does not intend to use gearing.

At the extraordinary general meeting held on 10 October 2016 a resolution was passed by shareholders to approve the change which became effective immediately. The disposal of the portfolio has therefore commenced and is expected to be materially complete by early November 2016.

History

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, 1994, and subsequently re-registered under the provisions of The Companies (Guernsey) Law, 2008, as amended. It was established with one Cell known as the US Traded Life Interests Fund (the "Fund") with a planned fixed life of approximately 8 years from the date of launch. By resolution of shareholders, on 28 August 2009, the Articles of Incorporation were amended to move from having a fixed life to offering shareholders annual continuation votes from the Company's 2012 Annual General Meeting onward.

The Company has been authorised by the Guernsey Financial Services Commission as an authorised closed-ended investment scheme under the Protection of Investors (Bailiwick of Guernsey) Law, 2008, as amended. With effect from 1 September 2009, the Company has been resident in the UK for tax purposes. In 2012 the Company applied for and was accepted as an approved investment trust under sections 1158 and 1159 of the Corporation Taxes Act 2010 and Part 2 Chapter 1 of Statutory Instrument 2011/2999. Approval related to accounting periods commencing on or after 1 December 2012. The Directors are of the opinion, having taken advice that the Company has continued to conduct its affairs so as to be able to retain such approval. As an investment trust the Financial Conduct Authority (FCA) rules in relation to non-mainstream pooled investment products do not apply to the Company. Accordingly, its shares can be recommended by IFAs to ordinary retail investors in accordance with the FCA's rules in relation to non-mainstream investment products.

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Investor Information (continued)

For the year ended 30 June 2016

History (continued)

The Company's redeemable participating preference shares (the "Shares") were admitted to the Main Market for Listed Securities Official List of the Financial Conduct Authority and commenced trading on the London Stock Exchange on 25 March 2004.

FATCA

The Company is registered with the Internal Revenue Service (IRS) as a Foreign Financial Institution for the purposes of the Foreign Tax Compliance Act (FATCA).

The Company's Global Intermediary Identification Number (GIIN) is 1L9EHP.99999.SL.826.

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Investor Information (continued)

For the year ended 30 June 2016

 
 Directors                              Recognised Auditor 
 CPG Tracy (Chairman)                   Deloitte LL.P 
 DIW Reynolds (Chairman of the          Regency Court 
  Audit 
 Committee)                             Glategny Esplanade 
 TJ Emmott                              St Peter Port 
 JPHS Scott                             Guernsey ,GY1 3HW 
 
 Registered Office                      Registrar 
 Ground Floor, Dorey Court              Capita Registrars (Guernsey) 
                                         Limited 
 Admiral Park                           Mont Crevelt House, Bulwer 
                                         Avenue 
 St Peter Port                          St Sampson 
 Guernsey, GY1 2HT                      Guernsey, GY2 4LH 
 
 Manager                                Investment Manager 
 Allianz Global Investors               SL Investment Management Limited 
  GmbH, UK Branch                       8/11 Grosvenor Court 
 199 Bishopsgate                        Foregate Street 
 London, EC2M 3TY                       Chester, CH1 1HG 
 
 Secretary                              Banker (UK) 
 Allianz Global Investors               AIB Group (UK) PLC 
 GmbH, UK Branch                        92 Ann Street 
 199 Bishopsgate                        Belfast 
 London , EC2M 3TY                      BT1 3HH 
 (Represented by TA Lago ACIS) 
                                        Banker (Guernsey) 
 Company Registration Number            Kleinwort Benson (Channel Islands) 
                                         Limited 
 Guernsey Registry - CRN:41664          Dorey Court, Admiral Park 
                                        St Peter Port 
 Company website                        Guernsey, GY1 2HT 
 www.allianzglobalinvestors.co.uk/TLI 
                                        Custodian 
 Administrator                          Kleinwort Benson (Guernsey) 
                                         Limited 
 JTC Fund Solutions (Guernsey)          Dorey Court, Admiral Park 
  Limited 
 (Formerly Kleinwort Benson             St Peter Port 
  (Channel Islands) 
 Fund Services Limited),                Guernsey, GY1 2HT 
 Ground Floor, Dorey Court 
 Admiral Park                           Sub Custodian 
 St Peter Port                          Wells Fargo Bank Northwest 
                                         N.A. 
 Guernsey ,GY1 2HT                      260 North Charles Lindbergh 
                                         Drive 
                                        Salt Lake City 
 Legal Advisers (UK)                    UT 84116, USA 
 Herbert Smith Freehills LLP 
 Exchange House                         Financial Adviser and Corporate 
                                         Broker 
 Primrose Street                        Stockdale Securities Limited 
 London ,EC2A 2HS                       (formerly named Westhouse Securities 
                                         Limited) 
                                        Beaufort House 
 Legal Advisers (Guernsey)              15 St, BotoL.Ph Street 
 Carey Olsen                            London EC3A 7BB 
 PO Box 98 
 Carey House, Les Banques 
 St Peter Port 
 Guernsey, GY1 4BZ 
 

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Investor Information (continued)

For the year ended 30 June 2016

Directors

The Directors have been chosen for their investment and commercial experience and are listed below:

Charles Tracy, Chairman, (aged 70) has over 40 years' experience as a merchant banker, covering both the investment management and banking fields. On joining N.M. Rothschild & Sons in 1975 he was made responsible for Asian and commodity-related investments, working in Malaysia and Hong Kong before taking up the post of Managing Director of N.M. Rothschild & Sons (C.I.) Ltd. in 1981, and remaining in that position until 1998. During that period he was Chairman of the Association of Guernsey Banks and of the Guernsey International Business Association. He is currently non-executive Chairman of Louvre Fund Services Limited and Chairman of the Board of the Guernsey Banking Deposit Compensation Scheme. He is a resident of Guernsey.

Ian Reynolds, Chairman of the Audit Committee, (aged 73) is a former Chief Executive of Commercial Union Life Assurance Company and a former director of Liverpool Victoria Friendly Society. He was, until December 2014, a director of The Equitable Life Assurance Society, and is a former consultant actuary at Towers Perrin. Mr Reynolds is a Fellow of the Institute of Actuaries and a Chartered Director. He is UK resident.

Tim Emmott (aged 64) has 40 years' experience in banking and investment in a variety of analytical, trading and management roles. He has been involved in investing in distressed, illiquid and alternative financial assets for the past 25 years. He is UK resident.

John Scott (aged 64) is currently a director of several UK investment trusts and is Chairman of Scottish Mortgage Investment Trust PLC. Mr Scott held a number of senior appointments at Lazard Brothers & Co., Limited between 1981 and 2001. Prior to that, he worked at Jardine Matheson & Co., Limited. He is a Fellow of the Chartered Insurance Institute and of the Chartered Institute for Securities and Investment. He is UK resident.

The Investment Manager

The Investment Manager, SL Investment Management Limited, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, was incorporated in 1990 and is an Investment Manager and Investment Advisor for a range of specialist investment products.

The Manager

Allianz Global Investors GmbH, UK Branch, which is authorised by Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) and which is subject to limited regulation by the Financial Conduct Authority, is manager of a number of closed-ended investment companies with approximately GBP1.2 billion of assets under management in a range of investment companies and investment trusts as at 30 September 2016. The Manager is responsible for managing the cash and borrowing facilities of the Fund and providing Company Secretarial services to the Company.

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Financial Highlights

For the period from 1 July 2015 to 30 June 2016

 
                                                           At 30           At 30 
                                                       June 2016       June 2015 
 
 Shares in 
 issue                                                72,000,000      72,000,000 
 
 Net assets attributable to shareholders           GBP36,808,942   GBP31,619,631 
 
 Net asset value per Share                                 51.1p           43.9p 
 
   Mid market share price                                  38.5p           39.5p 
 Discount to net asset value                               24.7%           10.0% 
 
 Total surplus on ordinary activities for 
  the financial year per Share                             7.21p           3.21p 
 
 Revenue loss per Share                                  (1.00p)         (1.00p) 
 
 Sterling to US$ Exchange 
  Rate                                                    1.3368          1.5727 
 

Dividends and Capital Distributions

The Directors did not declare a dividend for the year ended 30 June 2016 (2015: nil).

In the financial year to 30 June 2015 two capital distributions were made to shareholders each of 2.0 pence per share, amounting in aggregate to GBP2.88m. No capital or other distributions were made to shareholders in the financial year to 30 June 2016 and none have been proposed or made since the year end to the date of this report.

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Chairman's Statement

For the year ended 30 June 2016

Introduction

Several new factors have influenced the Board's policy in recent months. The first and most visible was the continuing slow rate of maturities in the portfolio, with only four in the financial year to 30 June 2016 and two since the year end; the second was the unwelcome and unexpected imposition of Cost of Insurance ("COI") increases on the premiums for some policies, while a third was the fact that, despite these uncertainties, demand for policies in the tertiary market remained strong. Finally, we were mindful of the fact that each maturity reduces the size of the Company, with the result that our running costs, many of which are fixed, have to be spread over an ever-smaller asset base. The Board decided that there might be an opportunity to dispose of the portfolio on attractive terms.

On 23 June 2016 the Board announced that it was exploring opportunities in the tertiary market for a sale of the portfolio. Further to this, and following a competitive sales process which produced a healthy number of bids, on 13 September 2016, it was announced that the Company had secured a purchaser, Vida Longevity Fund L.P ("Vida") for 71 of the 80 policies in the portfolio. On 26 September 2016 it was announced that Vida had further contracted to purchase 6 of the remaining 9 polices and Life Equity had contracted to purchase the final 3 policies in the portfolio. The sale of the 3 small policies to Life Equity was carried out in the ordinary course of business while the disposal of the 77 policies in the portfolio to Vida was subject to shareholder approval at an Extraordinary General Meeting ("EGM") held on 10 October 2016. At the EGM a Resolution was approved to change the investment objective and policy of the Company in order to facilitate the disposal.

The terms of the three agreements for the sale of the policies provided for the full purchase price to be placed in escrow, together with a sum equating to expected premiums due while the purchase is completed. These sums have been duly placed and as policies are transferred, the sale proceeds will be released from the associated escrow accounts. Final completion is envisaged during November 2016 and a second EGM will then be held to place the Company into voluntary liquidation; shareholders will be consulted on detailed plans for this by a further Circular. It should be noted that the risk transfer date of the policies within the agreements was 12 September 2016; all premium obligations and maturity proceeds from such date are therefore to the account of the respective purchasers.

The rest of my report contains a formal summary of the year but has, of course, been largely overtaken by events referred to above.

Portfolio developments

The financial year to 30 June 2016 saw another period of few maturities with only four occurring in the year with a total face value of USD$14m (2015: four policies face value total USD$10.9m) taking the total number of maturities since the Company's launch in 2004 to 68 policies at the date of writing.

Fortunately, those policies which did mature were again larger ones and the maturity proceeds exceeded the premiums and expenses for the year of US$9.2 million. Realised gains on the book value of maturing policies amounted to approximately US$7.7 million in the year, or 7.2 pence per share (2015: US$8.2 million, or 7.3 pence per share).

As at 30 June 2016 there were a total of 81 policies (70 lives) in the portfolio, with a face value of US$117.6 million and a valuation of US$42.6 million. Premiums continue to be paid on policies in force, amounting to US$8.0 million during the year (2015:US$8.4 million).

Since the 30 June 2016 the Company has been notified of two further maturities with a face value in aggregate of USD$3.2m. The first maturity, of USD$1.2, was verified and the uplift of 0.5 pence per share was recognised in the September net asset value ("NAV"); the second maturity of USD$2.0m occurred after the risk transfer date of 12 September 2016.

The Board felt that the low level of maturities in the period merited a cautious approach to distributions, despite the significant cash balances held at various times, and decided not to make any capital distributions in the year to 30 June 2016 (2015: 4 pence per share distributed).

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Chairman's Statement (continued)

For the year ended 30 June 2016

Portfolio developments (continued)

The NAV per share at the end of year was 51.1 pence, which is an increase of 16.4% on the NAV per share at the end of the last financial year of 43.9 pence. The mid-market share price at the year end of 38.5 pence was 2.5% down on the share price at the previous financial year end of 39.5 pence. Since the year end, and partly as a result of the portfolio disposal, the share price rose to 52.75p as at close of 11 October 2016.

The portfolio has gained significantly from the relative strength of the US$ dollar during the year, boosting the NAV per share by 8.0 pence.

Valuation of Investments

The NAV is a Directors' valuation, prepared with the assistance of the Investment Manager, utilising estimates of life expectancy to arrive at a series of cash flows, based on actuarial principles discounted to present value using a discount rate (or internal rate of return, IRR). The key factors in the valuation are therefore: the policy face value and the premiums payable; the assumed life expectancy (LE) of the insured; the actuarial mortality table; and the discount rate.

The portfolio is split into three parts: policies with routinely updated LEs, accounting for 78% of the portfolio by face value; small policies (face value under US$500,000) where the cost of regular review is deemed uneconomic; and policies for which it is not possible to obtain updated medical records. The Investment Manager has continued to carry out a regular programme of LE Updates during the year, with the latest review in progress at year end.

The Board continues to apply a 12% discount rate as explained and supported by note 20 on page 55, 'Market and longevity risk'.

The agreed price for the disposal of the portfolio is marginally above NAV.

Cost of Insurance increases

As announced during the year, some insurance companies have imposed COI increases on premiums on specific policies. The effects of these have all been included in the valuation and regularly notified by way of formal Stock Exchange announcements. While the Board feels that current litigation (to which the Company is not a party) may have some success in eventually mitigating such increases, the time frame for this is lengthy and the outcome uncertain. This has certainly been a factor in the Board's decision to proceed with the disposal of the

portfolio referred to above. Furthermore, during the sale negotiation the Board was informed of new COI increases on six policies, resulting in their withdrawal from the original sale agreement (although they were subsequently agreed to be sold).

Credit and Foreign Currency Risk

As the Investment Manager's report explains, there has been a re-rating of some of the insurance companies which issue the policies in the portfolio. As a result, at the year end 100% of the Company's policies by value were issued by companies with an AM Best rating of 'A-' or better (93.6% with a rating of 'A' or better) (2015: 96.4%).

The Company has operated on an unhedged currency basis since the change in investment policy in September 2011 and there is no current intention to initiate any new currency hedges.

During the year the GBP/US$ exchange rate moved from 1.5727 on 30 June 2015 to 1.3368 on 30 June 2016.

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Chairman's Statement (continued)

For the year ended 30 June 2016

Outlook

Following the resolution which was passed at the EGM held on 10 October 2016, the transfers of the policies to the buyers is now underway and it is envisaged that this process will be substantially complete by early November 2016. Shareholders will shortly thereafter receive a second Circular calling a further EGM at which a proposal to voluntarily wind-up the Company and appoint a liquidator will be put to shareholders.

Since the rights issue in November 2012 of 32 million shares at 32p per share the Company has distributed to date 4 pence per share and - subject to exchange rates - shareholders now stand to receive final distributions totalling in the region of 53 pence per share.

Following some very testing moments in the history of this Company, I am relieved to have achieved this, notwithstanding the considerable headwind of COI increases, which have proved such a threat to the value of your Company since the issue appeared at the end of 2015. I take this opportunity to thank both our team of advisers and my fellow Board members for their diligence and considerable support through an often challenging experience.

Charles Tracy

Chairman

14 October 2016

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Investment Manager's Review

For the year ended 30 June 2016

Portfolio Overview

During the twelve month period from 1 July 2015 to 30 June 2016 there were 4 confirmed policy maturities with a total face amount of US$14.0m. The 4 maturities related to 4 individual lives, 3 of which were male and 1 female. As at 30 June 2016, 81 policies remained within the portfolio with exposure to 70 individual lives.

Cumulatively, as of 30 June 2016, there have been 66 policy maturities across 57 lives since inception. Proceeds received from all maturities total US$117.1m. As at 30 June 2016, thirteen policies had been sold since inception of the Company, generating proceeds of US$11.2m.

No policies were sold during the reporting period. However as referenced in the Chairman's Statement, the Company has recently conducted a portfolio sales process and subsequently agreed a sale price which will result in the disposal of the whole portfolio at a premium to reported valuation. For the avoidance of doubt, all of the portfolio statistics referenced in this report relate to the reported valuation at 30 June 2016 and therefore do not take into account the portfolio sale price agreed post year end.

Two further maturities (one male, one female) have been identified since the year end. One policy with a death benefit of $1.2m which was formally certified in August added 0.5 pence to the NAV and the second, with a death benefit of $2.0m, the benefit of which once formally certified will accrue to the purchaser on disposal.

Full Portfolio Summary

 
 Face Value                                      $117.6m 
----------------------------------------  -------------- 
 Reported Valuation                               $42.6m 
----------------------------------------  -------------- 
 Number of Policies                                   81 
----------------------------------------  -------------- 
 Number of Lives                                      70 
----------------------------------------  -------------- 
 Total number of Holding Life Companies               26 
----------------------------------------  -------------- 
 
 Face Weighted Averages: 
----------------------------------------  -------------- 
 
 Male/Female Ratio at purchase             65.8% / 34.2% 
----------------------------------------  -------------- 
 Age at purchase                              81.4 years 
----------------------------------------  -------------- 
 LE at purchase                                8.1 years 
----------------------------------------  -------------- 
 
 Current Male/Female Ratio                 61.4% / 38.6% 
----------------------------------------  -------------- 
 Current Age                                  92.3 years 
----------------------------------------  -------------- 
 Current LE                                    4.2 years 
----------------------------------------  -------------- 
 

Credit Quality Distribution by Holding Life Company

In May 2016, three policies transferred from Athene Annuity and Life Company to Accordia Life and Annuity Company (both companies are rated A-). This completes the transfer agreed when Athene acquired Aviva's US life insurance annuity business in March 2014. As Athene was primarily interested in the annuity business, the life business was sold to Global Atlantic who set up Accordia to administer the policies. The three policies have a total face value of US$4.3m, representing 3.6% of the portfolio face value.

There were no AM Best rating changes during the period that affected the portfolio. As at the reporting date 93.6% of the Company's policies (by valuation) were issued by life companies with an AM Best rating of 'A' or better.

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Investment Manager's Review (continued)

For the year ended 30 June 2016

 
       AM Best Rating         % Total Death Benefit   % Total Valuation 
---------------------------  ----------------------  ------------------ 
                     A++                       9.5%               10.5% 
---------------------------  ----------------------  ------------------ 
                     A+                       62.5%               59.2% 
---------------------------  ----------------------  ------------------ 
                     A                        21.9%               23.8% 
---------------------------  ----------------------  ------------------ 
                     A-                        6.1%                6.5% 
---------------------------  ----------------------  ------------------ 
                     Total                     100%                100% 
---------------------------  ----------------------  ------------------ 
 

Life Group (Parent Company) Distribution (Top 5)

 
 Ranking by Valuation %                  Parent Company                  % Total Death Benefit   % Total Valuation 
-----------------------  ---------------------------------------------  ----------------------  ------------------ 
            1              Lincoln National Corporation                                  23.1%               24.3% 
-----------------------  ---------------------------------------------  ----------------------  ------------------ 
            2              American International Group, Inc.                            15.3%               17.8% 
-----------------------  ---------------------------------------------  ----------------------  ------------------ 
            3              Aegon N.V.                                                    18.4%               16.5% 
-----------------------  ---------------------------------------------  ----------------------  ------------------ 
            4              Massachusetts Mutual Life Insurance Company                    6.5%                8.3% 
-----------------------  ---------------------------------------------  ----------------------  ------------------ 
            5              MetLife, Inc.                                                  6.0%                6.3% 
-----------------------  ---------------------------------------------  ----------------------  ------------------ 
 

Distribution of Life Expectancy Estimates

The following table shows the distribution of the policies in the portfolio by LE band. Policies are grouped by 12 month LE bands and the table shows the number of lives, the total death benefit and valuation in each group. The LEs are the valuation LEs used for the 30 June 2016 valuation.

Note that the LE is an average of the estimated future lifetime for an individual with a given age and health status. The table is not, therefore, a prediction of when actual maturities will occur and is thus not a cash flow forecast. This has been demonstrated by the fact that, one year ago, there were no policies with a LE of less than one year; and yet maturities totalling US$14.0m of face value were realised during the year.

The current average LE is 4.2 years.

 
  LE band     No.      Total       % of       Total         % of 
  (years)      of       death      death     valuation    valuation 
              lives    benefit    benefit     US$000 
                       US$000 
----------  -------  ---------  ---------  -----------  ----------- 
  0 <= LE 
    < 1           0          0        0.0            0          0.0 
----------  -------  ---------  ---------  -----------  ----------- 
  1 <= LE 
    < 2           0          0        0.0            0          0.0 
----------  -------  ---------  ---------  -----------  ----------- 
  2 <= LE 
    < 3           7     13,837       11.8        8,281         19.5 
----------  -------  ---------  ---------  -----------  ----------- 
  3 <= LE 
    < 4          21     33,402       28.4       13,310         31.3 
----------  -------  ---------  ---------  -----------  ----------- 
  4 <= LE 
    < 5          28     46,970       39.9       15,503         36.4 
----------  -------  ---------  ---------  -----------  ----------- 
  5 <= LE 
    < 6           8     13,080       11.1        3,414          8.0 
----------  -------  ---------  ---------  -----------  ----------- 
  6 <= LE 
    < 7           5      8,850        7.5        1,774          4.2 
----------  -------  ---------  ---------  -----------  ----------- 
  7 <= LE 
    < 8           1      1,500        1.3          281          0.6 
----------  -------  ---------  ---------  -----------  ----------- 
  LE >= 8         0          0        0.0            0          0.0 
----------  -------  ---------  ---------  -----------  ----------- 
   Total         70    117,639      100.0       42,563        100.0 
----------  -------  ---------  ---------  -----------  ----------- 
 

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Investment Manager's Review (continued)

For the year ended 30 June 2016

Cost of Insurance (COI) increases

As discussed in detail in the interim statement, a number of US life insurance companies have announced increases to their COI rates on specific classes of policies. To date, this has resulted in increased future premium commitments for 21 policies with an aggregate face value of US$28.6m in the portfolio, which has had a significant impact on the valuation of these policies.

The life insurance groups which have imposed COI increases on certain policy types are: AXA S.A (AXA Equitable), Aegon N.V (Transamerica Life), Voya Financial (Voya Life and Annuity and Relia Star Life), Legal & General America (Banner Life), Prudential plc (Jackson National) and Lincoln National Corporation (Lincoln National Life).

During the 12 month reporting period, COI increases were incorporated into the valuation for 13 policies in the portfolio, representing a total face value of $15.3m. The impact of the COI increases was a reduction in valuation of the affected policies of $2.0m, equivalent to 2.0 pence per share.

Since the year end, COI increases have been confirmed for an additional 8 policies representing a total face value of $13.3m. The impact of these COI increases was a reduction in valuation of the affected policies of $2.4m, equivalent to 2.5 pence per share.

Premium Payments

Consequent to the conditional asset sale agreements coming into effect, the Company's responsibility for the payment of premiums ceased with effect from the risk transfer date of 12 September 2016. Had the agreements not come into effect the expected cost of premiums for the twelve months to 30 June 2017 would have been approximately US$10.0 million, assuming no further COI increases and no maturities.

Policy Expiry Date Analysis

Written into the contract for some policies is an expiry date after which no more premiums will be accepted by the life office and the death benefit will no longer be payable upon death. Where applicable, this usually coincides with the policy anniversary closest to the insured's 100th birthday. There are 41 such policies in the portfolio. The earliest expiry date is May 2020.

There are 6 policies with extension options to age 115, and 1 policy with a 'partial' extension - whereby the policy term is extended until death, but on a reduced death benefit after age 100.

33 policies in the portfolio have no expiry date.

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Investment Manager's Review (continued)

For the year ended 30 June 2016

Policy Expiry Date Analysis (Continued)

A summary of the policies in the portfolio as at 30 June 2016 is as follows:

 
                                           Death Benefit   % Death    Valuation 
                        Policies   Lives       US$000       benefit     US$000    % Valuation 
---------------------  ---------  ------  --------------  ---------  ----------  ------------ 
 No extension              41       37        50,292         42.7%      18,600       43.7% 
---------------------  ---------  ------  --------------  ---------  ----------  ------------ 
 Extensions to 
  age 115                   6        6         9,900         8.4%        4,201        9.9% 
---------------------  ---------  ------  --------------  ---------  ----------  ------------ 
 Extension to death 
  with reduced death 
  benefit after 
  age 100                   1        1          1,000        0.9%         307         0.7% 
---------------------  ---------  ------  --------------  ---------  ----------  ------------ 
 No expiry date            33       26         56,447        48.0%     19,455        45.7% 
---------------------  ---------  ------  --------------  ---------  ----------  ------------ 
 Total                     81       70        117,639       100.0%      42,563      100.0% 
---------------------  ---------  ------  --------------  ---------  ----------  ------------ 
 

For policies with an expiry date, the key metrics are as follows:

 
                                      Average 
----------------------------------  ----------- 
 Number of policies                          41 
----------------------------------  ----------- 
 Number of lives                             37 
----------------------------------  ----------- 
 Current age (years)                       92.4 
----------------------------------  ----------- 
 Expiry age (years)                       100.3 
----------------------------------  ----------- 
 Life Expectancy (years)                    4.3 
----------------------------------  ----------- 
 Expiry date                         23/05/2024 
----------------------------------  ----------- 
 Years between LE and expiry date           3.6 
----------------------------------  ----------- 
 Probability of expiry                    16.1% 
----------------------------------  ----------- 
 

The table below summarises the distribution of the time intervals between the LE and the expiry date:

 
    Expiry date exceeds                   Lives    Total     % Death    Valuation   % Valuation 
  average life expectancy                           Death     Benefit    ($'000) 
            by -               Policies            Benefit 
                                                   ($'000) 
--------------------------  -----------  ------  ---------  ---------  ----------  ------------ 
      0 <= Years < 1             1          1          750        0.6         292           0.7 
--------------------------  -----------  ------  ---------  ---------  ----------  ------------ 
      1 <= Years < 2             6          6        6,279        5.3       1,445           3.4 
--------------------------  -----------  ------  ---------  ---------  ----------  ------------ 
      2 <= Years < 3             10         9       16,550       14.1       7,122          16.7 
--------------------------  -----------  ------  ---------  ---------  ----------  ------------ 
      3 <= Years < 4             10         8       11,492        9.8       3,834           9.0 
--------------------------  -----------  ------  ---------  ---------  ----------  ------------ 
      4 <= Years < 5             7          6        3,720        3.2       1,352           3.2 
--------------------------  -----------  ------  ---------  ---------  ----------  ------------ 
        >= 5 Years               13        13       21,400       18.2       8,756          20.6 
--------------------------  -----------  ------  ---------  ---------  ----------  ------------ 
        No Expiry *              34        27       57,448       48.8      19,762          46.4 
--------------------------  -----------  ------  ---------  ---------  ----------  ------------ 
 TOTAL                           81        70      117,639      100.0      42,563         100.0 
 
 * includes the 1 policy where death 
  benefit reduces at age 100 
----------------------------------------------------------  ---------  ----------  ------------ 
 

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Investment Manager's Review (continued)

For the year ended 30 June 2016

Period Review and Outlook

This reporting period witnessed a similar volume of maturities compared with the previous 12 months; 4 lives (4 policies) totalling $14m this year, versus 4 lives (4 policies) totalling $10.9m in 2014/15. The average

face value of the 4 policy maturities during the period was $3.5m, which is notably higher than the $1.7m average face value for each life insured in the portfolio as a whole.

There remains considerable variation in the size of individual face amounts remaining in the portfolio. The table below illustrates the distribution of the 70 lives in the portfolio by face value as at 30 June 2016.

 
 Policy bands               No.         Total Death      Total Valuation   % of valuation 
  (DB: Death Benefit)     of lives        Benefit             US$000 
                                           US$000 
----------------------  ----------  ------------------  ----------------  --------------- 
 $0m <= DB < $0.5m         9                     2,865        1,025             2.4 
----------------------  ----------  ------------------  ----------------  --------------- 
 $0.5m <= DB < 
  $1m                     17                   10,244         3,504             8.2 
----------------------  ----------  ------------------  ----------------  --------------- 
 $1m <= DB < $2.5m        29                   42,138        14,926             35.1 
----------------------  ----------  ------------------  ----------------  --------------- 
 $2.5m <= DB < 
  $5m                     7                    21,651         6,902             16.2 
----------------------  ----------  ------------------  ----------------  --------------- 
 $5m <= DB < $6.0m         8                   40,741        16,206             38.1 
----------------------  ----------  ------------------  ----------------  --------------- 
 Total                    70                 117,639         42,563            100.0 
----------------------  ----------  ------------------  ----------------  --------------- 
 

Despite some of the larger policies in the portfolio (by face value) maturing during the period, a significant proportion of the total death benefit remains linked to a relatively small proportion of lives. 15 lives (21% of total lives) account for 53% of the total face value and 54% of the reported valuation.

Life Expectancy Updates

With life expectancy assumptions so critical to the pricing and valuation of policies, LEs remain a key focus of the life settlement industry. None of the major LE underwriters made any significant adjustments to their life expectancy assessments during the period.

The Board has continued with the regular programme of LE updating throughout the year, with new LEs obtained for policies representing $18.4m in face value during the period (16% of the total portfolio). The LEs updated during the reporting period were 7 months shorter on average than the prevailing valuation LEs. Incorporating this new LE data resulted in an increase in the valuation equivalent to 1.8 pence per share.

At the reporting date, 51% of total portfolio face value is valued with reference to LEs obtained within the previous 24 months, with a further 28% obtained in the previous 36 months. The remaining 21% of the portfolio is valued using LEs calculated with reference to the 2015 Valuation Basic Table (VBT), which is the latest version of the table currently available.

Since the reporting date, updated LEs have been received for a further 14 lives representing $23.6m face value (20% of the portfolio). These updated LEs were 7 months shorter on average than the prevailing valuation LEs, adding a further 1.8 pence to the NAV per share.

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Investment Manager's Review (continued)

For the year ended 30 June 2016

Outlook

The Cost of Insurance (COI) rate increases implemented by a number of the major life companies in the past year have been an unexpected and unwelcome development for the life settlement industry. Class action lawsuits have been brought against Transamerica, AXA, Banner Life and John Hancock in response to the COI increases; each suit cites a variety of arguments as to why the increases are inappropriate. However the reality is that the legal challenges are likely to be long drawn out processes with no conclusions reached for a number of years. The risk that further life companies impose COI increases over the coming months therefore remains a distinct possibility and a cause for concern amongst existing life settlement investors.

Under these circumstances SL Investment Management is supportive of the Board's decision to sell the portfolio and is pleased to note that this has been achieved at a premium to NAV.

SL Investment Management Limited

14 October 2016

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Manager's Review

For the year ended 30 June 2016

Borrowings and investments

A resolution was passed by shareholders at the EGM held on 10 October 2016 to change the investment objective and policy of the Company to effect a total disposal of the portfolio. The revolving credit facility with AIB Group (UK) PLC entered into on 31 March 2014 and extended to expire on 31 March 2018 will therefore be cancelled. As at 30 June 2016, there was a nil balance (30 June 2015: nil) on the US$10 million available under the facility.

The terms of the facility provided flexibility for the Company to make capital distributions to shareholders, subject to the availability of sufficient surplus cash. As a result, and following receipt of proceeds from maturities, the Company was able to make two capital distributions, each of 2.0 pence per share in the year to 30 June 2015, totalling in aggregate GBP2.88 million. No capital or other distributions were made in the year under review.

US dollar exposure

The Company no longer hedges its US dollar exposure; the Company is therefore fully exposed to the effect of exchange rates upon its net US dollar positions.

Allianz Global Investors GmbH, UK Branch

14 October 2016

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Strategic Report

For the year ended 30 June 2016

History and Status

The Company was incorporated in and is a Guernsey registered closed-ended protected cell company in accordance with the provisions of The Companies (Guernsey) Law, 1994, and subsequently re- registered under the provisions of The Companies (Guernsey) Law, 2008 ("the law"), as amended. It was established with one Cell known as the US Traded Life Interests Fund (the "Fund") which had a planned life of approximately 8 years from the date of launch. Following a Special Resolution passed at an Extraordinary General Meeting on 28 August 2009, the Articles of Incorporation were amended to move from having a fixed life in respect of the Company's Cell, US Traded Life Interests Fund, to offering Shareholders annual continuation votes from the Company's 2012 Annual General Meeting onward.

Principal Activities, Business Review and Regulatory Environment

The Company is regulated by the Guernsey Financial Services Commission as an authorised fund under the Protection of Investors (Bailiwick of Guernsey) Law, 2008, as amended.

The principal activity of the Company is to carry on business as an investment trust within the meaning of section 1158 of the Corporation Tax Act 2010 ("s1158 of the CT Act"). With effect from 1 September 2009, the Company has been resident in the UK for tax purposes. The Company has obtained approval of its status as an investment trust under s1158 of the CT Act and the Directors are of the opinion that the Company has continued to act in accordance with such. The Company's redeemable participating preference shares (the "Shares") were admitted to the Official List of the UK Listing Authority and commenced trading on the London Stock Exchange on 25 March 2004.

Investment trusts are collective investment vehicles constituted as closed-ended public limited companies. The Company is managed by a board of non-executive Directors and the management of the Company's investments is delegated to the Investment Manager.

This Strategic Report provides information about:

   --      the Company's strategy and business objectives, 
   --      its performance and results for the year, 

-- the information and measures which the Directors use to assess, direct and oversee SL Investment Management Limited (the "Investment Manager") and Allianz Global Investors GmbH, UK Branch (the " Manager")

Investment objective, policy and strategy

As detailed within the Chairman's Statement a resolution to change the Company's objective and policy was proposed and passed at an EGM of shareholders held on 10 October 2016. The Company's investment objective and policy with effect from such date is:

The investment objective and policy of the Company in respect of the Fund is to conduct a sale of its portfolio: (i) to Vida Longevity Fund, L.P for a total cash consideration of $40.0 million, subject to adjustment in respect of the value of policies excluded from the sale, on the terms set out in the Sale and Purchase Agreement which has been entered into between Vida Longevity Fund, L.P and the Company on 12 September 2016; and (ii) to other parties, both as described in the circular to Shareholders dated 13 September 2016. Thereafter the Company will return cash to Shareholders and proceed towards a members' voluntary winding-up, or other restructuring, subject to the further approval of Shareholders.

Pending the return of cash to Shareholders of the Fund, cash balances 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. The Company (in respect of the Fund) does not intend to use gearing.

The Company has previously invested the assets of the Fund in a range of traded life interests on the lives of US citizens aged, at the time of acquisition, between 78 and 92 years. All TLIs acquired were Whole-Of-Life policies or Universal Life policies.

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Strategic Report (continued)

For the year ended 30 June 2016

Investment objective, policy and strategy (continued)

No viatical policies (that is, a policy on the life of an insured who was terminally ill and with a life expectancy of less than 2 years) were acquired. Subsequent to the change of investment objective the Company has now commenced the process of transferring the policies to the buyers. A second Circular will soon be sent to shareholders giving notice of a second EGM at which a resolution to voluntarily wind-up the Company will be proposed.

Performance

The portfolio of investments at the year end is set out on pages 42 to 43 and more information is set out in the Investment Manager's Review on pages 10 to 15. In the year ended 30 June 2016, the Company's net asset total return per share was 7.21p. Details of trends and factors impacting the performance of the Company are included in the Chairman's Statement and the Investment Manager's Review.

Results, Dividends and Capital Distributions

Details of the Company's results are shown in the Financial Highlights on page 6. The revenue reserve remains in deficit, and accordingly no dividend is proposed in respect of the year ended 30 June 2016 (2015- nil).

Following a Special Resolution passed by shareholders at an Extraordinary General Meeting on 24 July 2014 the Company's Articles of Incorporation were amended to permit the capitalisation of any part of the amount for the time being standing to the credit of the Share Premium Account and accordingly that such sums be set free for distribution amongst shareholders. In the year to 30 June 2015, two such capital distributions were made and paid pro rata to Shareholders through the issue and redemption of 72,000,000 B Shares paid up out of the Company's Share Premium Account. Each distribution was of 2.0 pence per Share, totalling GBP1,440,000 in aggregate on each distribution. No capital distributions have been made in the year under review to 30 June 2016.

As highlighted above and detailed in the Chairman's Statement, shareholder approval has been given to change the investment objective of the Company and to dispose of the portfolio to third party purchasers, further to the disposal the Company will propose to shareholders the appointment of a liquidator and the voluntary winding-up of the Company. If approved, the appointed liquidator will effect the winding-up of the Company and capital will be returned to shareholders in accordance with the terms set out in the Circular to shareholders which will detail the proposal to wind up. It is expected that the Circular proposing the winding-up will be sent to shareholders in early November 2016.

Principal Risks and Uncertainties

At least twice per year the Board has reviewed an in-depth Risk Matrix detailing the risks faced by the Company and what actions are taken or put in place to mitigate such. At every Board meeting the Directors consider a number of performance measures, including the below Key Performance Indicators ("KPIs") to assess the Company's success in achieving its investment objective, performance measures are considered over various time periods. Following approval of shareholders at the EGM held on 10 October 2016 to change the investment objective and effect the disposal of the portfolio the KPIs have been re-assessed and the principal risks amended.

The KPIs shown below have been identified by the Directors as being of relevance to the Company in its traditional form. Financial comparatives are disclosed in the Financial Highlights on page 6:

   --      Net asset value (total return); 
   --      Share price (capital return); and 
   --      Premium or discount to net asset value. 

Other KPIs such as LE's, Sensitivity Matrix and Mortality levels experienced, as compared with that expected by a standard mortality table adjusted for regularly assessed life expectancies of policyholders, are also reviewed at every Board meeting and are detailed within the Chairman's Statement and Investment Manager's Review.

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Strategic Report (continued)

For the year ended 30 June 2016

Principal Risks and Uncertainties (continued)

The principal risks identified by the Board are set out below, together with information about the actions taken to mitigate these risks.

 
 Description                            Mitigation/Response 
 
 Foreign currency risk 
 Foreign currency risk is the           Since 2011 the Company no longer 
  risk that the fair value of            hedges its foreign currency 
  a financial instrument will            exposure, this risk is therefore 
  fluctuate because of changes           not mitigated. The proceeds 
  in foreign exchange rates.             to be received from the portfolio 
  The majority of the Company's          disposal will originate and 
  assets are denominated in US           be received in US dollars. 
  dollars, while the functional          The funds will be transferred 
  currency is GB pounds.                 to GB pounds very shortly thereafter 
                                         in order to minimise the currency 
                                         exposure. 
 Interest rate risk 
 Interest rate risk is the risk         The Company will hold the portfolio 
  associated with the effects            disposal proceeds in cash but 
  of fluctuations in the prevailing      may choose to invest such in 
  levels of market interest rates        US treasury bonds, UK gilts 
  on the Company's financial             and Sterling denominated corporate 
  flows.                                 bonds. 
 Liquidity risk 
 Liquidity risk is the risk             The Manager monitors cash levels 
  that the Company will encounter        and funding requirements for 
  difficulty in meeting obligations      expenses on a weekly basis 
  associated with its financial          and the Board reviews, at least 
  liabilities.                           monthly, periodic cash flow 
                                         forecasts. The Company has 
                                         sufficient funds for the day-to-day 
                                         running of the Company and 
                                         will receive policy sale proceeds 
                                         as each policy transfers to 
                                         the purchaser. Following or 
                                         near completion of the portfolio 
                                         disposal, it is expected that 
                                         shareholders will be consulted 
                                         on the proposal to voluntarily 
                                         wind-up the Company, as part 
                                         of the wind-up process cash 
                                         will be returned to shareholders. 
 Credit risk 
 Credit risk is the risk that           On 12 September 2016 the Company 
  one party to a financial instrument    entered into conditional asset 
  will cause a financial loss            sale agreements with Vida Longevity 
  for the other party by failing         Fund L.P and Life Equity LLC 
  to discharge an obligation.            to purchase the entire portfolio. 
                                         The solvency of the purchasers 
                                         is a risk to the Company mitigated 
                                         by 100% of the purchase proceeds 
                                         being placed into Escrow accounts 
                                         with independent Escrow Agents 
                                         to be transferred to the Company 
                                         on the confirmation of each 
                                         policy transfer. 
 
                                         Credit risk on liquid funds 
                                         is limited because the counterparties 
                                         are banks with high credit 
                                         ratings assigned by international 
                                         credit rating agencies. 
                                         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. 
 

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Strategic Report (continued)

For the year ended 30 June 2016

Principal Risks and Uncertainties (continued)

 
                                      The Company also holds cash 
                                       with the Sub-Custodian, Wells 
                                       Fargo, which has been assigned 
                                       a rating of A+/A-1 by Standard 
                                       & Poor's ratings agency. 
 
                                       The Company will consider various 
                                       options in relation to the 
                                       sale proceeds which will transfer 
                                       to the Company as ownership 
                                       of each policy transfers to 
                                       the purchaser. 
 
   Continuation of the Company 
 In 2009 the fixed life of the        At the EGM held on 10 October 
  Company was removed from and         2016 shareholders approved 
  a provision added to the Articles    the disposal of the entire 
  of Incorporation to provide          portfolio for an aggregate 
  for annual continuation votes        sale price of $43.25m. It is 
  by Shareholders from the             expected that the disposal 
  2012 Annual General Meeting          will be substantially complete 
  and thereafter.                      during November 2016. The voluntary 
                                       winding-up of the Company will 
                                       shortly be proposed to shareholders, 
                                       if approved it is expected 
                                       that the winding-up process 
                                       will commence in December 2016; 
                                       a continuation vote will therefore 
                                       not be required. 
 

Viability Statement

For the first time this year under the revised Corporate Governance provisions the Company is required to make a forward looking (longer term) Viability Statement in addition to the statement of going concern on page 23. However, further to the passing of the resolution by shareholders at the EGM held on 10 October 2016, the Board confirms that policy transfers are in process and the intention is to propose to shareholders the voluntary winding-up of the Company. The Board do not therefore believe it appropriate to make a statement beyond the date of the next EGM which is likely to be held in early December 2016. In the event that the resolution to appoint a liquidator and enter voluntary liquidation is not passed, the Board will consider the options and propose an alternative conclusion to shareholders.

Social, Community, Employee Responsibilities and Environmental Policy

As an investment trust, the Company has no direct social, community, employee or environmental responsibilities. Its principal responsibility to shareholders is to ensure that the investment portfolio is properly managed and invested. The Company has no employees and accordingly no requirement to report separately in this area as the management of the portfolio has been delegated to the Investment Manager. In light of the nature of the Company's business there are no relevant human rights issues and the Company does not have a human rights policy.

On behalf of the Board

Charles Tracy

Chairman

14 October 2016

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Directors' Report

For the year ended 30 June 2016

The Directors have pleasure in submitting their Annual Financial Report for the year ended 30 June 2016 with comparatives for the year ended 30 June 2015. Information pertaining to the business review is now included in the Strategic Report on pages 17 to 20.

Revenue, capital and dividends

The Statement of Comprehensive Income set out on page 38 shows a revenue deficit for the year amounting to GBP724,022 (2015: revenue deficit for the year GBP717,625). There was a capital surplus for the year amounting to GBP5,913,333 (2015: capital surplus for the year GBP3,030,997). The Directors have not paid an interim dividend (2015: nil) and do not propose the payment of a final dividend for the year (2015: nil).

Assets

At the year end the net assets attributable to the Shares were GBP36,808,942 (2015: GBP31,619,631). Based on this figure the net asset value per Share in the Fund was 51.1p (2015: 43.9p).

Share capital

During the year no Shares were issued or repurchased. Total capital distributions through the issue and redemption of B shares in accordance with the Articles of Incorporation, during the year amounted to GBPNil (2015: GBP2,880,000).

Substantial shareholdings in the Fund

As at the date of this report, the following companies had declared a notifiable interest in the Company's voting rights in accordance with Chapter 5 of the Disclosure and Transparency Rules ("DTR"):

 
                                       Shares held   Percentage 
                                                           held 
                                                         % 
 Premier Fund Managers Limited           8,475,000     11.77 
 Investec Asset Management 
  Limited                                7,049,129      9.79 
 Brewin DoL.Phin Limited                 6,449,460      8.96 
 Miton Group Plc                         4,500,000      6.25 
 Rathbone Brothers 
  Plc                                    2,743,400      3.81 
 

At the date of approval of this report, there have been no further notifiable interest in the Company's voting rights reported to the Company.

Crest registration

Shareholders may hold Shares in either certificated or uncertificated form.

The Board

The Board currently consists of a non-executive Chairman, Charles Tracy, and three other non-executive Directors. The names and biographies of those Directors who held office at 30 June 2016 and at the date of this Report appear on page 5 and indicate their range of investment, industrial, commercial and professional experience. As the Company is an investment trust, all of its operational activities are outsourced and it does not have any employees.

The Directors serving on the Board during the year, together with their beneficial interests and those of their families at 30 June 2016, were as follows:

 
                                              Shares                     Shares 
                                        30 June 2016               30 June 2015 
 CPG Tracy (Chairman)                              -                          - 
 TJ Emmott                                 1,185,000                  1,185,000 
 DIW Reynolds                             100,000                       100,000 
 JPHS Scott                              397,854                       397,854 
 

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Directors' Report (continued)

For the year ended 30 June 2016

Emoluments of the Directors

In the year to 30 June 2016 Directors were paid at the rate of GBP15,000 (2015: GBP15,000) per annum with the Chairman of the Board receiving an extra GBP7,500 (2015: GBP15,000) per annum and the Chairman of the Audit Committee an extra GBP2,500 (2015: GBP15,000) per annum. Per note 6 to the financial statements the Directors' fees and expenses of GBP71,454 (2015: GBP76,188) included allowable expenditure of GBP3,032 (2015: GBP4,549) and employers' national insurance.

The Board continues to believe that all directors are committed to their roles and are independent of the Company irrespective of tenure. Each of the directors has taken an active part in the decision to propose the change of investment objective and the recommendation of such to shareholders and fully supports the resolution passed at the EGM on 10 October 2016 and the intention to further propose to shareholders the voluntary winding-up of the Company in due course.

The Board has agreed that the directors shall receive an additional fee in relation to the considerable amount of work involved in the lead up to and through the change of investment objective and the continued additional work required to move the Company through to eventual voluntary winding-up. Each director will therefore receive an additional 50% of annual remuneration, totalling GBP35,000 in aggregate. Such payment will be made upon entering liquidation, whereupon no further fees will be paid.

Conflicts of Interest

The Board has a formal system in place for Directors to declare actual or potential conflicts of interest which are then considered and authorised by the rest of the Board as appropriate. Where a Director is deemed to have an interest in a matter to be discussed or determined by the Board, such director is excluded from all discussion and decision on the matter of interest.

Related Party Transactions

With the exception of the receipt of remuneration by the Directors from the Company there are no other related parties. The appointment of the Investment Manager and the Manager are deemed to be significant contracts. Unless required within the liquidation process, all service provider contracts will terminate immediately on liquidation of the Company.

Relations with shareholders

The Board regularly monitors the shareholder profile of the Company. It aims to provide shareholders with a full understanding of the Company's activities and performance, and reports formally to shareholders twice a year by way of the Annual Financial Report and the half yearly Financial Report. This is supplemented by the monthly publication, through the London Stock Exchange, of the net asset value of the Company's shares and other ad hoc announcements.

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Directors' Report (continued)

For the year ended 30 June 2016

Accountability and audit

   a)             Statement of going concern 

Further to the passing by shareholders of the resolution to change the investment objective of the Company to enable the total disposal of the portfolio, the intention is that a further resolution will be recommended to shareholders to propose the appointment of a liquidator and the voluntary winding- up of the Company.

Due to the Board's intention to place the Company into liquidation, the financial statements have been prepared on a basis other than that of a going concern. The Board however confirms that there are adequate liquid resources in place to continue in operation throughout the disposal of the portfolio process and to the date of the proposed liquidation.

   b)             Internal control 

The Directors acknowledge that they are responsible for establishing and maintaining the Company's system of internal control and reviewing its effectiveness. Internal control systems are designed to manage rather than eliminate the failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. They have therefore established an ongoing process designed to meet the particular needs of the Company in managing the risks to which it is exposed, consistent with the guidance provided by the Financial Reporting Council. Such review procedures have been in place throughout the full financial year and up to the date of the approval of the financial statements and the Board is satisfied with their effectiveness.

This process involves a review and robust assessment by the Board of the Company's internal control report and risk matrix and review of the control environment of the Company's service providers to ensure that the Company's requirements are met. Such review and assessment has been carried out throughout the year under review and the Directors continually assess the risks and environment to which the Company is exposed.

The Company does not have an internal audit function. The Board has considered the need for an internal audit function but has decided to place reliance on the systems and internal audit procedures of the Administrator, the Manager, the Investment Manager and the Custodian.

These systems are designed to ensure effectiveness and efficient operations, internal control and compliance with laws and regulations. In establishing the systems of internal control regard is paid to the materiality of relevant risks, the likelihood of costs being incurred and costs of control. It follows therefore that the systems of internal control can only provide reasonable but not absolute assurance against the risk of material misstatement or loss.

The effectiveness of the internal control systems is reviewed annually by the Board and the Audit Committee.

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Directors' Report (continued)

For the year ended 30 June 2016

Continuation of the Company

The Company was incorporated in 2004 with a fixed life and an expected winding-up date of 31 March 2012. At an EGM of the Company held on 28 August 2009, a Special Resolution was passed to provide shareholders the right to vote at the Annual General Meeting to be held in 2014 and at every Annual General Meeting thereafter, on whether to continue the business of the US Traded Life Interests Fund of the Company.

The Directors wish to confirm that, as mentioned above, subsequent to the passing of a resolution at the EGM held on 10 October 2016, the Company will shortly be proposing to shareholders the appointment of a liquidator and the voluntary winding-up of the Company.

Auditor

At the date of approval of the financial statements the Directors confirm that:

-- so far as each Director is aware, there is no relevant audit information of which the Company's Auditor is unaware; and

-- the Directors have taken all steps they ought to have taken as Directors to make themselves aware of any relevant audit information and to establish that the Company's Auditor is aware of that information.

This confirmation is given and should be interpreted in accordance with the provisions of Section 249 of The Companies (Guernsey) Law, 2008, as amended.

By order of the Board.

   CPG Tracy                                                            DIW Reynolds 
   Director                                                                  Director 

14 October 2016

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Corporate Governance Report

For the year ended 30 June 2016

Introduction

The Board is accountable to the Company's shareholders for high standards of corporate governance and this statement describes how the Company applies the main principles identified in the UK Corporate Governance Code ("the UK Code") issued in September 2014. The Governance Code is available from the website of the Financial Reporting Council ("the FRC") at www.frc.org.uk. The Association of Investment Companies ("the AIC") has published its own Code on Corporate Governance ("the AIC Code"), by reference to the AIC Corporate Governance Guide for Investment Companies ("the AIC Guide"), both revised in February 2015, which provide a comprehensive guide to best practice in certain areas of governance where the specific characteristics of investment trusts suggest alternative approaches to those set out in the Governance Code. Both the AIC Code and AIC Guide are available from the AIC website at www.theaic.co.uk and have been endorsed by the FRC which has confirmed that following of the AIC Guide by investment companies should fully meet the obligations under the Governance Code.

This Statement of Corporate Governance forms part of the Directors' Report. All companies with a Premium Listing of equity shares, regardless of whether they are incorporated in the UK or elsewhere (which includes the Company), are required to "comply or explain" against the Code. The day-to-day running of the Company is delegated to various third parties; the overall governance of the Company however remains the responsibility of the Board.

As detailed within the Chairman's Statement and the Directors' Report at the EGM held on 10 October 2016, shareholders voted to change the investment objective and policy of the Company in order to effect a total disposal of the portfolio with the intention thereafter of proposing the voluntary winding-up of the Company. The following corporate governance statement is therefore provided in relation to the financial year under review to 30 June 2016 and for the operations of the Company to the expected date of entering liquidation.

Corporate Governance Statement

Throughout the year ended 30 June 2016 the Company has been in compliance with the Main Principles of the UK Code, and has also complied with the detailed provisions set out in Section 1 of the UK Code, except as set out below.

The UK Code includes provisions relating to:

   --      The role of chief executive 
   --      Executive remuneration, including the remuneration of executive directors 
   --      Appointment of a senior independent director 

As permitted in the preamble to the UK Code, the Board considers these provisions are not relevant to the position of the Company. The Company is an externally managed investment company without executive staff; a senior independent director has not been appointed given that all Directors are independent of the Company and of the key service providers.

On 30 September 2011, the Guernsey Financial Services Commission ("GFSC") issued a Code of Corporate Governance (the "Guernsey Code") which came into effect on 1 January 2012. The GFSC have stated that companies which report against the UK Code or the AIC Code of Corporate Governance (the "AIC Code") are deemed to meet compliance with the Guernsey Code.

The Directors believe the Company to be compliant with the requirements of the UK Listing Authority Listing Rules as regards corporate governance. The Company complies with the corporate governance statement requirements pursuant to the FCA's Disclosure and Transparency Rules by virtue of the information included in the Corporate Governance section of the annual report together with information contained in the Strategic Report and the Directors' Report.

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Corporate Governance Report (continued)

For the year ended 30 June 2016

The Board

The Company is overseen by a Board, chaired by Charles Tracy, which comprises 4 non-executive Directors, all of whom have wide experience and are considered to be independent. The Board believes that it is in the shareholders' best interests for the Chairman to be the point of contact for all matters relating to the governance of the Company and as such has not appointed a Senior Independent Director for the purpose of the Code.

The Board meets regularly, normally quarterly, and more frequently as necessary, and retains full responsibility for the direction and control of the Company. The Directors have access to the advice and services of the Company Secretary, who is responsible to the Board for ensuring that the Board procedures are followed and that applicable rules and regulations are complied with.

The Board is responsible for approval of the Annual and Half-Yearly Financial Results and all other public documents ensuring a balanced and fair approach is adopted which enables shareholders to understand and assess the performance of the Company.

Appointment

The appointment of Directors is considered by the Board as a whole which carries out the functions of the Nominations Committee. The Board regularly reviews its structure, size and composition giving full consideration to succession planning for Directors and keeping under review the leadership needs of the Company.

The Board believes that, as a whole, it comprises an appropriate balance of skills, experience and knowledge. The Board also believes that diversity of experience and approach amongst members is of great importance and it is the Company's policy to give careful consideration to issues of board balance and diversity, including gender diversity, when making new appointments. On appointment, the Manager and the Company Secretary provide all Directors with induction training.

The Articles of Incorporation require that one third, or the number nearest to but not exceeding one third, of the existing Directors must retire and may offer themselves for re-appointment at every Annual General Meeting and that every newly appointed Director must stand for appointment by shareholders at the Annual General Meeting following their appointment. In accordance with the UK Code non-executive directors who have served longer than nine years are also subject to annual re-election. The Board does not consider tenure to determine the independence of a Director and value the experience and knowledge gained through long service. The Board therefore continues to determine that all current directors are independent in character and judgement. In the event that a resolution is passed by shareholders before the end of the calendar year 2016 to place the Company into liquidation, there will not be a requirement to hold an Annual General Meeting in 2016.

Board Meetings

The Board meets at least quarterly. Certain matters are considered at all Board Meetings including the performance of the investments, the LE and policy maturity rates, NAV and share price and associated matters such as asset allocation, risks, strategy, investor relations and industry issues. Consideration is also given to administration and corporate governance matters, and where applicable, reports are received from the Board Committees.

The number of formal meetings of the Board and the Audit Committee held during the financial year and the attendance of individual directors and members of the Audit Committee are shown below:

 
 Type and Number    Board -   Audit - 
                       6         2 
-----------------  --------  -------- 
 CPG Tracy             6         2 
-----------------  --------  -------- 
 TJ Emmott             6         2 
-----------------  --------  -------- 
 DIW Reynolds          6         2 
-----------------  --------  -------- 
 JPHS Scott            6         2 
-----------------  --------  -------- 
 

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Corporate Governance Report (continued)

For the year ended 30 June 2016

Board Meetings (continued)

All Directors of the Company are non-executive. The Board as a whole fulfils the function of the Remuneration Committee and carries out periodic reviews of Directors' fees, after seeking independent advice.

Board Committees

The Board has established a separate Audit Committee. The Board has decided not to establish separate Nominations, Remuneration and Management Engagement Committees as these functions are carried out by the Board as a whole. This includes an annual review of the contracts with the Manager and the Investment Manager and whether they are in the best interests of shareholders.

Performance

The Board reviews its performance and composition on an annual basis in order to assess the effectiveness of the Board, the Audit Committee and the individual Directors. The latest formal process was carried out in late 2014 which incorporated the appraisal of the Chairman which was carried out by the Board as a whole under the leadership of the Chairman of the Audit Committee. While no formal process was adopted in 2015, the Board continually monitors their actions and effectiveness and continues to consider that the performance of all Directors individually, collectively as a Board and collectively as the formally appointed Audit Committee is effective and confirms that each has demonstrated commitment to their roles.

Internal Control

The Board is responsible for establishing, maintaining and monitoring the effectiveness of the Company's system of internal, financial and other controls. The internal financial controls operated by the Board include the authorisation of the investment strategy and regular reviews of the financial results and investment performance. The system of internal financial controls can provide only reasonable, and not absolute, assurance against material misstatement or loss. The Board regularly reviews and evaluates the risks faced by the Company and has put in place mitigating factors where possible. The Company's Investment Manager and Manager have established systems of internal control and provide assurance to the Board that adequate systems are in place in relation to the services provided to the Company.

Significant Contracts

The Board has contractually delegated to SL Investment Management Limited the investment management of the Fund's investments and to Allianz Global Investors GmbH, UK Branch the management of the cash and borrowings. The safe custody of the Fund's investments is managed by Kleinwort Benson (Guernsey) Limited. Wells Fargo Bank in the USA acts as sub-custodian. JTC Fund Solutions (Guernsey) Limited (JTC) bought the fund administration service from Kleinwort Benson in 2015 and took over as service provider to the Company, JTC are therefore contracted to provide the Company's administration and accounting functions and Capita Registrars (Guernsey) Limited its registration function. Since 1 September 2009 the secretarial function has been carried out by Allianz Global Investors GmbH, UK Branch. A summary of the terms of the agreements with SL Investment Management Limited and Allianz Global Investors GmbH, UK Branch are set out in note 5 to the financial statements.

After due consideration of the resources and reputation of each of SL Investment Management Limited and Allianz Global Investors GmbH, UK Branch, the Board believes it is in the interests of shareholders to retain both contracts until such time as the Company enters the liquidation process as detailed in the Chairman's Statement and Directors' Report. The main reasons for this opinion are the extensive knowledge of the US traded life interest market and its valuation, together with the complex financial and investment modelling related thereto and the extensive investment management resources of the Manager and its experience in managing and administering investment trust companies respectively. Upon entering liquidation all current contracts will be terminated.

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Corporate Governance Report (continued)

For the year ended 30 June 2016

Independent Advice

The Board recognises that there may be occasions when one or more of the Directors feels it is necessary to take independent legal advice at the Company's expense. The Company has a procedure whereby the Directors are entitled to obtain independent advice where relevant.

Indemnities

To the extent permitted by Guernsey law, the Company's Articles of Incorporation provide an indemnity for the Directors against any liability except such (if any) as they shall incur by or through their own breach of trust, breach of duty or negligence.

During the year the Company has maintained Directors' and Officers' liability insurance which provides insurance cover for Directors against certain personal liabilities which they may incur by reason of their duties as Directors. Upon entering liquidation the Directors' and Officers' liability insurance cover will be converted to a become a 'run-off' policy for the recommended period of six years.

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Directors' Responsibilities Statement

For the year ended 30 June 2016

The Directors are responsible for preparing the Annual Financial Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, International Accounting Standard 1 requires that Directors:

   --      properly select and apply accounting policies; 

-- present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

-- provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and

   --      make an assessment of the Company's ability to continue as a going concern. 

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with The Companies (Guernsey) Law, 2008, as amended. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in Guernsey and the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Responsibility statement

Each Director confirms to the best of his knowledge that:

-- the financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company.

-- the Strategic Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties the Company faces.

-- the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary to assess the Company's performance, business model and strategy.

By order of the Board.

   CPG Tracy                            DIW Reynolds 
   Director                                  Director 

14 October 2016

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Audit Committee Report

For the year ended 30 June 2016

The principal role of the Audit Committee is to assist the Board in relation to the reporting of financial information, the review of financial controls and the management of risk. The Committee has defined terms of reference and duties and the terms of reference are published on the Company's website, www.allianzgi.co.uk/TLI. The terms include responsibility for the review of the Annual Financial Report and the Half Yearly Report, the nature and scope of the external audit and the findings therefrom and the terms of appointment of the Auditors, including their remuneration and the provision of any non-audit services by them. Where requested by the Board, the Audit Committee provides advice on whether the Annual Financial Report, taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.

The Audit Committee is also responsible for considering those matters that have enabled the Board of Directors to make its statement on Going Concern on page 23.

On 10 October 2016 shareholders resolved to the change the investment objective and policy to effect the disposal of the portfolio, the Company will therefore propose in due course the voluntary winding-up of the Company. The following report on the activities of the Audit Committee is therefore provided in relation to the financial year under review to 30 June 2016 and for the operations of the Audit Committee to the future date of entering liquidation.

Composition

The Board reviews the composition of the Audit Committee and considers that collectively the Committee members have sufficient recent and relevant financial experience to discharge fully their responsibilities. As this is a small company, the Committee comprises all the directors of the Company. I am the Chairman of the Committee, and as you will see from my biography on page 5, I am a Fellow of the Institute of Actuaries and was formerly Chief Executive of a major life assurance company. The biographies of the other members of the Audit Committee can also be found on page 5.

Role

The Audit Committee determined that the significant issues to be considered were the valuation of the Company's portfolio of TLIs and its cash flow requirements. The valuation of the Company's portfolio of TLIs is regularly reviewed by the Board in conjunction with the Investment Manager and, where appropriate, recommendations in relation to the basis of valuation are made to the Board. The risk of cash flow difficulties was significantly reduced by the extension of the revolving credit facility of up to US$10,000,000 with AIB Group (UK) PLC to 31 March 2018.

More details on the valuation can be found in the Chairman's Statement and the Investment Manager's Review. The external auditors explained the results of their review of the valuations. On the basis of their audit work there were no adjustments that were material in the context of the financial statements as a whole.

Risk Assessment and Significant Financial Statement Issues

The Company's risk assessment process and the way in which significant business risks are managed is a key area of focus for the Committee. The work of the Audit Committee is driven primarily by the Company's assessment of its principal risks and uncertainties as set out on page 18 of the Strategic Report, and it receives regular reports from the Investment Manager and the Manager on the Company's risk evaluation process and reviews changes to significant risks identified.

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Audit Committee Report (continued)

For the year ended 30 June 2016

Risk Assessment and Significant Financial Statement Issues (continued)

Prior to effecting the disposal of the portfolio, the principal risks to the Company's valuation and financial statement were mortality and cost of insurance increases. However, it was accepted that mortality risk was fundamental to the nature of the investments and that such had been the case since launch. The Audit Committee reviews LE expectations and mortality tables on a regular basis and is confident in the valuations recommended to and approved by the Board. The principal risk to the Company during the disposal process is the financial stability of the purchasers, this risk has however been mitigated as far as possible by the sale proceeds being placed in escrow accounts which will be transferred to the Company on the transfer of the policies to the purchasers.

The Audit Committee continued to consider the process for managing the risk of the Company and its service providers. Risk management procedures for the Company, as detailed in the Company's risk matrix, were reviewed and approved by the Audit Committee.

Audit Process

The Audit Committee continues to consider that the Company does not require an internal audit function as it delegates its day-to-day operations to third parties from whom it receives internal control reports. Such reports from third party auditors on the internal controls maintained on behalf of the Company by the Manager or directly to the Company were reviewed during the year.

The Audit Committee reviewed the performance of the auditors and its independence and tenure. Deloitte LL.P's first year of audit was for the period ended 30 June 2005. In 2014, the Company put the audit out to tender. Following presentations from a number of international auditing firms, including the Company's present auditors, the Board, following a recommendation from the Audit Committee, decided to retain Deloitte LL.P as the Company's auditors. The Company will in due course propose to shareholders the voluntary winding-up of the Company and if this is supported a further audit will not be required.

The Audit Committee has adopted a formal framework in its review of the effectiveness of the external audit process and audit quality which includes the following areas: the audit partners with particular focus on the lead audit engagement partner; the audit team; planning and scope of the audit and identification of areas of audit risk; the execution of the audit; the role of management in an effective audit process; communications by the auditor with the Audit Committee; how the auditor supports the work of the Audit Committee; how the audit contributes insights and added value; a review of independence and objectivity of the audit firm and the quality of the formal audit report to shareholders.

To assess the effectiveness of the external audit process the Audit Committee will review:

   --      the Auditor's fulfilment of the agreed audit plan and variations from it; 

-- discussions or reports highlighting the major issues that arose during the course of the audit;

   --      feedback from other service providers evaluating the performance of the audit team; 
   --      arrangements for ensuring independence and objectivity; and 
   --      robustness of the Auditor in handling key accounting and audit judgements. 

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Audit Committee Report (continued)

For the year ended 30 June 2016

Non-Audit Services

The Audit Committee reviews the need for non-audit services and authorises such on a case-by-case basis, having regards to the cost effectiveness of the services and the independence and objectivity of the Auditors. There were no non-audit fees incurred in the year under review (2015: nil)

The Audit Committee considers Deloitte LL.P to be independent of the Company.

Whistleblowing

As the Company has no employees it does not have a formal policy concerning the raising, in confidence, of any concerns about possible improprieties, whether in matters of financial reporting or otherwise, for appropriate independent investigation. The Audit Committee has, however, reviewed and noted the Manager's and Investment Manager's policy on this matter.

Year ended 30 June 2016

In finalising the Annual Financial Report for recommendation to the Board for approval, the Audit Committee has satisfied itself that the Annual Financial Report taken as a whole is fair, balanced and understandable, and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.

The Company's external auditors attended the meeting of the Audit Committee at which the Annual Financial Report was reviewed and they reported on their audit approach and work undertaken, the quality and effectiveness of the Company's accounting records and their findings in relation to the Company's statutory audit.

The Audit Committee reviewed and approved the performance of the Auditors at this meeting.

D I W Reynolds

Chairman of the Audit Committee

14 October 2016

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Independent Auditor's Report to the Members of

Alternative Asset Opportunities PCC Limited

For the year ended 30 June 2016

 
 
  Opinion on financial             In our opinion the financial statements: 
  statements of                    -- give a true and fair view of the state of 
  Alternative Asset                the Company's affairs as at 30 June 2016 and 
  Opportunities                    of its gain for the year then ended; 
  PCC Limited                      -- have been properly prepared in accordance 
                                   with International Financial Reporting Standards 
                                   (IFRSs) as issued by the International Accounting 
                                   Standards Board (IASB); and 
                                   -- have been prepared in accordance with the 
                                   requirements of The Companies (Guernsey) Law, 
                                   2008. 
 
                                   The financial statements comprise the Statement 
                                   of Comprehensive Income, the Statement of Financial 
                                   Position, the Statement of Changes in Redeemable 
                                   Participating Preference Shareholders' Funds, 
                                   the Statement of Cash Flows, the Portfolio of 
                                   Investments and the related notes 1 to 21. The 
                                   financial reporting framework that has been 
                                   applied in their preparation is applicable law 
                                   and IFRSs as issued by the IASB. 
 
 
 
  Emphasis of            In forming our opinion on the financial statements, 
  matter - Financial     which is not modified, we have considered the 
  statements prepared    adequacy of the disclosure made in note 2(c) 
  other than on          to the financial statements, which explains 
  a going concern        that the financial statements have been prepared 
  basis                  on a basis other than that of a going concern. 
 
 
 
  Going concern            We have reviewed the directors' statement relating 
  and the directors'       to the fact that the financial statements have 
  assessment of            been prepared on a basis other than that of 
  the principal            a going concern contained within note 2(c) to 
  risks that would         the financial statements and the directors' 
  threaten the             statement on the longer-term viability of the 
  solvency or liquidity    company contained within the strategic report. 
  of the company 
                           Aside from the matter disclosed in the emphasis 
                           of matter paragraph above, we have nothing material 
                           to add or draw attention to in relation to: 
 
                            *    the directors' confirmation on page 23 that they have 
                                 carried out a robust assessment of the principal 
                                 risks facing the company, including those that would 
                                 threaten its business model, future performance, 
                                 solvency or liquidity; 
 
 
                            *    the disclosures on pages 18-19 that describe those 
                                 risks and explain how they are being managed or 
                                 mitigated; 
 
 
                            *    the directors' statement in note 2(c) to the 
                                 financial statements about why they considered it 
                                 inappropriate to adopt the going concern basis of 
                                 accounting in preparing them; and 
 
 
                            *    the directors' explanation within the Viability 
                                 Statement on page 20 as to how they have assessed the 
                                 prospects of the company given that the financial 
                                 statements have been prepared on a basis other than 
                                 that of a going concern. 
 

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Independent Auditor's Report to the Members of

Alternative Asset Opportunities PCC Limited (continued)

For the year ended 30 June 2016

 
 
  Independence    We are required to comply with the Financial 
                  Reporting Council's Ethical Standards for Auditors 
                  and we confirm that we are independent of the 
                  company and we have fulfilled our other ethical 
                  responsibilities in accordance with those standards. 
                  We also confirm we have not provided any of 
                  the prohibited non-audit services referred to 
                  in those standards. 
 
 
 
  Our assessment          The assessed risks of material misstatement 
  of risks of material    described below are consistent with our 2015 
  misstatement            year-end audit report and represent those that 
                          had the greatest effect on our audit strategy, 
                          the allocation of resources in the audit and 
                          directing the efforts of the engagement team: 
 
 
 Risk   How the scope of our audit responded 
         to the risk 
=====  ===================================== 
 
 
 Valuation of investments                 In view of the disposal of the 
  Given the uncertainties surrounding      TLI portfolio post year-end, 
  significant unobservable inputs          we considered the terms of the 
  used in the Company's actuarial          TLI portfolio sale and purchase 
  valuation model, we considered           agreements ("SPAs") the Company 
  the year-end valuation of investments    received in September 2016 and 
  of GBP31,839,719 to be a key             reconciled these to the carrying 
  risk.                                    value of the policies at both 
  We feel that there is a risk             the balance sheet date and the 
  that developments in life expectancy     last reported NAV date of 31 
  "LE" re-assessments and mortality        August 2016. 
  experience, as well as developments      We also reviewed a sample of 
  in the markets' view of mortality        individual policy valuation models 
  estimates, are not adequately            prepared by the Investment Manager, 
  reflected in the overall valuation       which use actuarial techniques 
  in order to derive a best estimate       applied to data from mortality 
  of fair value.                           tables and policy specific data, 
  In addition there is a risk that         to check the models incorporated 
  the rate used to discount expected       the Board's stated methodology 
  cash flows does not adequately           and assumptions correctly, were 
  reflect a market rate.                   consistent with the prior year 
                                           methodology, and that the valuation 
                                           output was accurately recorded 
                                           by the Company. 
                                           We challenged the Board on their 
                                           valuation assumptions and methodologies, 
                                           which focused on the LE estimation 
                                           methodology and the discount 
                                           rate, with reference to relevant 
                                           publicly available data, bids 
                                           for the Company's policies, and 
                                           reports from the investment manager 
                                           relevant to valuation 
=======================================  ========================================== 
 
 
   The description of risks above should be read 
    in conjunction with the significant issues considered 
    by the Audit Committee from page 30 and in the 
    Principal Risks and Uncertainties section of 
    the Strategic Report from page 17. 
 
    These matters were addressed in the context 
    of our audit of the financial statements as 
    a whole, and in forming our opinion thereon, 
    and we do not provide a separate opinion on 
    these matters. 
 

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Independent Auditor's Report to the Members of

Alternative Asset Opportunities PCC Limited (continued)

For the year ended 30 June 2016

 
 
  Our application    We define materiality as the magnitude of misstatement 
  of materiality     in the financial statements that makes it probable 
                     that the economic decisions of a reasonably 
                     knowledgeable person would be changed or influenced. 
                     We use materiality both in planning the scope 
                     of our audit work and in evaluating the results 
                     of our work. 
 
                     We determined materiality for the Company to 
                     be GBP736,000 (2015: GBP630,000), which is approximately 
                     2% of shareholders' funds (2015: 2%) and represents 
                     a benchmark that is consistent with other investment 
                     entities which use valuation models with significant 
                     unobservable inputs to derive the portfolio 
                     valuation. 
 
                     We agreed with the Audit Committee that we would 
                     report to the Committee all audit differences 
                     in excess of GBP14,700 (2015: GBP12,600), as 
                     well as differences below that threshold that, 
                     in our view, warranted reporting on qualitative 
                     grounds. We also report to the Audit Committee 
                     on disclosure matters that we identified when 
                     assessing the overall presentation of the financial 
                     statements. 
 
 
 
  An overview     Our audit was scoped by obtaining an understanding 
  of the scope    of the entity and its environment, including 
  of our audit    internal control and internal control of 
                  its service providers, and assessing the 
                  risks of material misstatement. Audit work 
                  to respond to the risks of material misstatement 
                  was performed directly by the audit engagement 
                  team. 
 
 
 
  Matters on which 
  we are required 
  to report by 
  exception 
 Adequacy of explanations        Under the Companies (Guernsey) Law, 2008 we 
  received and                    are required to report to you if, in our opinion: 
  accounting records               *    we have not received all the information and 
                                        explanations we require for our audit; or 
 
 
                                   *    proper accounting records have not been kept; or 
 
 
                                   *    the financial statements are not in agreement with 
                                        the accounting records. 
 
 
                                  We have nothing to report in respect of these 
                                  matters. 
 
 

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Independent Auditor's Report to the Members of

Alternative Asset Opportunities PCC Limited (continued)

For the year ended 30 June 2016

 
 Corporate Governance   Under the Listing Rules we are also required 
  Statement              to review the parts of the Corporate Governance 
                         Statement relating to the Company's compliance 
                         with ten provisions of the UK Corporate Governance 
                         Code. We have nothing to report arising from 
                         our review. 
 Our duty to read       Under International Standards on Auditing (UK 
  other information      and Ireland), we are required to report to you 
  in the Annual          if, in our opinion, information in the annual 
  Report                 report is: 
                          *    materially inconsistent with the information in the 
                               audited financial statements; or 
 
 
                          *    apparently materially incorrect based on, or 
                               materially inconsistent with, our knowledge of the 
                               Company acquired in the course of performing our 
                               audit; or 
 
 
                          *    otherwise misleading. 
 
 
 
                         In particular, we are required to consider whether 
                         we have identified any inconsistencies between 
                         our knowledge acquired during the audit and 
                         the directors' statement that they consider 
                         the annual report is fair, balanced and understandable 
                         and whether the annual report appropriately 
                         discloses those matters that we communicated 
                         to the audit committee which we consider should 
                         have been disclosed. We confirm that we have 
                         not identified any such inconsistencies or misleading 
                         statements. 
 
 
 
  Respective responsibilities    As explained more fully in the Directors' Responsibilities 
  of directors                   Statement, the directors are responsible for 
  and auditor                    the preparation of the financial statements 
                                 and for being satisfied that they give a true 
                                 and fair view. Our responsibility is to audit 
                                 and express an opinion on the financial statements 
                                 in accordance with applicable law and International 
                                 Standards on Auditing (UK and Ireland). Those 
                                 standards require us to comply with the Auditing 
                                 Practices Board's Ethical Standards for Auditors. 
                                 We also comply with International Standard on 
                                 Quality Control 1 (UK and Ireland). Our audit 
                                 methodology and tools aim to ensure that our 
                                 quality control procedures are effective, understood 
                                 and applied. Our quality controls and systems 
                                 include our dedicated professional standards 
                                 review team and independent partner reviews. 
 
                                 This report is made solely to the Company's 
                                 members, as a body, in accordance with Section 
                                 262 of The Companies (Guernsey) Law, 2008. Our 
                                 audit work has been undertaken so that we might 
                                 state to the Company's members those matters 
                                 we are required to state to them in an auditor's 
                                 report and/or those matters we have expressly 
                                 agreed to report to them on in our engagement 
                                 letter and for no other purpose. To the fullest 
                                 extent permitted by law, we do not accept or 
                                 assume responsibility to anyone other than the 
                                 Company and the Company's members as a body, 
                                 for our audit work, for this report, or for 
                                 the opinions we have formed. 
 

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Independent Auditor's Report to the Members of

Alternative Asset Opportunities PCC Limited (continued)

For the year ended 30 June 2016

 
 
  Scope of the            An audit involves obtaining evidence about 
  audit of the            the amounts and disclosures in the financial 
  financial statements    statements sufficient to give reasonable assurance 
                          that the financial statements are free from 
                          material misstatement, whether caused by fraud 
                          or error. This includes an assessment of: whether 
                          the accounting policies are appropriate to the 
                          Company's circumstances and have been consistently 
                          applied and adequately disclosed; the reasonableness 
                          of significant accounting estimates made by 
                          the directors; and the overall presentation 
                          of the financial statements. In addition, we 
                          read all the financial and non-financial information 
                          in the annual report to identify material inconsistencies 
                          with the audited financial statements and to 
                          identify any information that is apparently 
                          materially incorrect based on, or materially 
                          inconsistent with, the knowledge acquired by 
                          us in the course of performing the audit. If 
                          we become aware of any apparent material misstatements 
                          or inconsistencies we consider the implications 
                          for our report. 
 

David Becker

for and on behalf of Deloitte LLP

Chartered Accountants and Recognised Auditor

St. Peter Port, Guernsey

14 October 2016

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Statement of Comprehensive Income

For the year ended 30 June 2016

 
                        Notes               Year to 30 June 2016                     Year to 30 June 2015 
                                             Revenue     Capital       Total     Revenue     Capital       Total 
                                                 GBP         GBP         GBP         GBP         GBP         GBP 
 
 Operating income 
 Net gains on 
  investments            10                        -   5,177,824   5,177,824           -   2,819,001   2,819,001 
 Foreign exchange 
  gains                   17                       -     735,509     735,509           -     211,996     211,996 
 Interest and similar 
  income                  4                    2,008           -       2,008         491           -         491 
                               ---------------------  ----------  ----------  ----------  ----------  ---------- 
 Total income                                  2,008   5,913,333   5,915,341         491   3,030,997   3,031,488 
 
 Operating 
  expenses 
 Management 
  fee                     5                (104,236)           -   (104,236)    (95,481)           -    (95,481) 
 Investment Manager's 
  fee                     5                (139,449)           -   (139,449)   (127,500)           -   (127,500) 
 Custodian fee                              (17,431)           -    (17,431)    (15,914)           -    (15,914) 
 Other expenses           6                (342,888)           -   (342,888)   (354,508)           -   (354,508) 
 
 Total operating 
  expenses before 
  finance costs                            (604,004)           -   (604,004)   (593,403)           -   (593,403) 
 
 Operating 
  (loss)/gain 
  before finance 
  costs                                    (601,996)   5,913,333   5,311,337   (592,912)   3,030,997   2,438,085 
 
 Finance costs 
 Loan interest 
  payable                14                (122,026)           -   (122,026)   (124,713)           -   (124,713) 
 
         Net 
   (deficit)/return        8               (724,022)   5,913,333   5,189,311   (717,625)   3,030,997   2,313,372 
                               =====================  ==========  ==========  ==========  ==========  ========== 
 
   Return/(Deficit) 
       per share           8                 (1.00p)       8.21p       7.21p     (1.00p)       4.21p       3.21p 
 

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 44 to 58 are an integral part of these financial statements.

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Statement of Financial Position

As at 30 June 2016

 
                                                                 Notes         2016         2015 
                                                                                GBP          GBP 
 
 Non-current assets 
 Financial assets at fair value 
  through profit or loss                                          10     31,839,719   30,570,116 
 
 Current assets 
 Cash and cash equivalents                                        12      4,986,455    1,122,172 
 Other receivables                                                11        127,570       99,928 
 
                                                                          5,114,025    1,222,100 
                                                                        -----------  ----------- 
 
 Total assets                                                            36,953,744   31,792,216 
                                                                        -----------  ----------- 
 
 Current liabilities 
 Other payables                                                   13        144,802      172,585 
                                                                            144,802      172,585 
                                                                        -----------  ----------- 
 
 Total liabilities                                                          144,802      172,585 
                                                                        -----------  ----------- 
 
 Net assets attributable to shareholders                          17     36,808,942   31,619,631 
 
 Total equity and liabilities (including 
  amounts due to shareholders)                                           36,953,744   31,792,216 
                                                                        ===========  =========== 
 
 
 Net asset value per share                                         9          51.1p        43.9p 
 
 

These financial statements were approved by the Board of Directors on 14 October 2016.

Signed on behalf of the Board.

   CPG Tracy                                                                            DIW Reynolds 

Director Director

14 October 2016

The notes on pages 44 to 58 are an integral part of these financial statements.

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Statement of Changes in Redeemable Participating Preference Shareholders' Funds

For the year ended 30 June 2016

 
 
 For the year ended              Share       Capital        Revenue 
  30 June 2016                 Premium       reserve        reserve        Total 
                                   GBP           GBP            GBP          GBP 
 
 Balance as at 1 July 
  2015                      46,034,968   (4,125,384)   (10,289,953)   31,619,631 
 
 Return/(Deficit) for 
  the year                           -     5,913,333      (724,022)    5,189,311 
 
 Capital distribution                -             -              -            - 
 
 Balance as at 30 June 
 2016                       46,034,968     1,787,949   (11,013,975)   36,808,942 
                           ===========  ============  =============  =========== 
 
 
 
 For the year ended                        Share       Capital        Revenue 
  30 June 2015                           Premium       reserve        reserve         Total 
                                             GBP           GBP            GBP           GBP 
 
 Balance as at 1 July 
  2014                                48,914,968   (7,156,381)    (9,572,328)    32,186,259 
 
 Return/(Deficit) for 
  the year                                     -     3,030,997      (717,625)     2,313,372 
 
 Capital distribution                (2,880,000)             -              -   (2,880,000) 
 
 Balance as at 30 June 
 2015                                 46,034,968   (4,125,384)   (10,289,953)    31,619,631 
                                    ============  ============  =============  ============ 
 
 

The notes on pages 44 to 58 are an integral part of these financial statements.

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Statement of Cash Flows

For the year ended 30 June 2016

 
                                                                     Year to       Year to 
                                                                     30 June       30 June 
                                                                        2016          2015 
                                                                         GBP           GBP 
 Cash flows from operating activities 
 Operating expenses before finance costs for 
  the year                                                         (692,413)     (592,912) 
 (Increase)/decrease in other receivables                           (27,641)       751,513 
 (Decrease)/increase in other 
  payables                                                          (27,784)        35,307 
 Premiums paid                                                   (5,417,057)   (5,325,557) 
 Proceeds from maturities and sale of investments                  9,325,278     6,954,486 
 
 Net cash inflow from operating activities 
  before interest                                                  3,160,383     1,822,837 
                                                                ------------  ------------ 
 
 Cash flows from financing activities 
 Receipts of borrowings                                            7,799,412     1,253,103 
 Repayment of borrowings                                         (7,799,412)   (1,253,103) 
 Interest paid                                                      (31,609)     (124,713) 
 Capital distribution                                                      -   (2,880,000) 
                                                                ------------  ------------ 
 Net cash used in financing activities                              (31,609)   (3,004,713) 
                                                                ------------  ------------ 
 
 
 Net increase/(decrease) in cash and cash equivalents              3,128,774   (1,181,876) 
 Cash and cash equivalents at the beginning 
  of the year                                                      1,122,172     2,092,052 
 Effects of foreign 
  exchange                                                           735,509       211,996 
 
 Cash and cash equivalents at the end of the 
  year                                                             4,986,455     1,122,172 
                                                                ============  ============ 
 
 

The notes on pages 44 to 58 are an integral part of these financial statements.

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Portfolio of Investments

As at 30 June 2016

 
                                              Number      Valuation     Total         Portion       AM Best 
   Traded Life Interests ("TLI's")          of Policies                  Death       (by value)      Rating 
                                                                        Benefit     of Portfolio    (Issuer) 
 Parent Group    Issuer                                      GBP         GBP             % 
 Lincoln National Corporation 
  Lincoln National 
   Life Insurance 
   Company                                      12        7,476,253   19,016,730           23.48      A+ 
  Lincoln Life 
   & Annuity Company 
   of New York                                  1           267,619    1,309,096            0.84      A+ 
 American International 
  Group, Inc. 
  American General 
   Life Insurance 
   Company                                      8         5,652,206   13,502,393           17.75       A 
 Aegon N.V. 
  Transamerica 
   Life Insurance 
   Company                                      16        5,258,339   16,215,738           16.52      A+ 
 Massachusetts Mutual Life 
  Insurance Company 
  C.M Life Insurance 
   Company                                      3         2,408,489    5,148,215            7.56      A++ 
  Massachusetts 
   Mutual Life Insurance 
   Company                                      1           218,533      561,041            0.69      A++ 
 MetLife, 
  Inc. 
  MetLife Insurance 
   Company USA                                  6         1,926,140    4,870,018            6.05      A+u 
  General American 
   Life Insurance 
   Company                                      1            70,045      374,027            0.24      A+u 
 Manulife Financial Corporation 
  John Hancock 
   Life Insurance 
   Company (U.S.A.)                             4           688,157    2,244,165            2.16      A+ 
 Pacific Mutual Holding 
  Company 
  Pacific Life 
   Insurance Company                            4         1,527,517    6,022,737            4.80      A+ 
 New York Life Insurance 
  Company 
  New York Life 
   Insurance and 
   Annuity Corporation                          4           726,494    2,618,192            2.28      A++ 
 Voya Financial Inc. 
  Security Life 
   of Denver Insurance 
   Company                                      1         1,058,485    3,740,275            3.32       A 
  Voya Retirement 
   Insurance and 
   Annuity Company                              2           284,905      523,638            0.89       A 
  ReliaStar Life 
   Insurance Company                            1           134,424      374,027            0.42       A 
 Global Atlantic Financial 
  Group 
  Accordia Life 
   and Annuity Company                          3         1,613,923    3,190,455            5.07      A- 
 
 

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Portfolio of Investments (continued)

As at 30 June 2016

 
                                             Number      Valuation      Total         Portion       AM Best 
   Traded Life Interests ("TLI's")         of Policies                   Death       (by value)      Rating 
                                                                        Benefit     of Portfolio    (Issuer) 
 Parent Group    Issuer                                     GBP          GBP             % 
 AXA S.A. 
  AXA Equitable 
   Life Insurance 
   Company                                     3            445,786    1,084,680            1.40      A+ 
  MONY Life Insurance 
   Company of America                          1            295,739      748,055            0.93       A 
 Sammons Enterprises, Inc. 
  North American 
   Company for Life 
   and Health Insurance                        2            344,991    1,496,110            1.08      A+ 
 Resolution Life Holdings 
  Inc 
  Lincoln Benefit 
   Life Company                                1            247,956    1,496,110            0.78      A- 
 Prudential 
  plc 
  Jackson National 
   Life Insurance 
   Company                                     1            369,809      763,365            1.16      A+ 
 Western & Southern Mutual 
  Holding Company 
  Columbus Life 
   Insurance Company                           1            181,158      748,055            0.57      A+ 
 Mutual of Omaha Insurance 
  Company 
  United of Omaha 
   Life Insurance 
   Company                                     1            204,224      644,403            0.64      A+ 
 StanCorp Financial Group, 
  Inc 
  Standard Insurance 
   Company                                     1            150,599      374,027            0.47       A 
 Security Mutual Life Insurance 
  Company of New York 
  Security Mutual 
   Life Insurance 
   Company of New 
   York                                        1            137,581      561,041            0.43      A- 
 Legal & General Group Plc 
  Banner Life Insurance 
   Company                                     1            101,615      224,416            0.32      A+ 
 DMC Reserve Trust 
  Beneficial Life 
   Insurance Company                           1             48,732      149,611            0.15      A- 
 
 
  Portfolio Total                              81        31,839,719   88,000,620             100 
                                         =============  ===========  ===========  ============== 
 

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Notes to the Financial Statements

For the year ended 30 June 2016

   1              Principal activity 

The Company was registered in Guernsey on 27 February 2004 as a closed-ended protected cell company established with one cell known as the US Traded Life Interests Fund (the "Fund" or "Cell"). The Company has been authorised by the Guernsey Financial Services Commission as an authorised closed-ended investment scheme. The redeemable preference shares (the "shares") in the Company have been admitted to the Official List of the Financial Conduct Authority with a premium listing and to trading on the London Stock Exchange's Main Market for Listed Securities.

The Company's original objective in respect of the Fund was to provide investors with an attractive capital return through holding to maturity (or until the end of the life of the Fund) a diversified portfolio of US Traded Life Interests ("TLIs"); as approved by Shareholders on 10 October 2016, the new investment objective is, in summary, to conduct a sale of its portfolio and thereafter to return cash to Shareholders through a members' voluntary winding-up, or other restructuring, subject to the further approval of Shareholders.

   2              Principal Accounting Policies 
   (a)   Basis of preparation 

Statement of compliance

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB) and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (SORP) issued in January 2009 by the Association of Investment Companies.

Basis of measurement

The financial statements have been prepared under the historical cost convention as modified by the revaluation of investments, as detailed below under note 2(b).

The financial statements have been prepared on a total company basis and not on a cell-by-cell basis as there is currently only one cell. The only non-cellular assets and liabilities are in respect of the two management shares of no par value issued at GBP1 each fully paid represented by cash at bank. As they are immaterial they have been excluded from the financial statements.

Functional and Presentational Currency

The financial information shown in the financial statements is shown in sterling, being the Company's functional and presentational currency.

Critical accounting judgements and key sources of estimation uncertainty

The preparation of Financial Statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimate is revised if the revision affects only that year, or in the year of the revision and future years if the revision affects both current and future years. Such judgements and key sources of estimation uncertainty include the valuation of investments and the going concern assumption, which are discussed in note 2(b) and 2(c) respectively.

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Notes to the Financial Statements (continued)

For the year ended 30 June 2016

   2              Principal Accounting Policies (continued) 
   (a)   Basis of preparation (continued) 

Adoption of new and revised standards

In the current year, no new standards have been adopted by the Company.

At the date of authorisation of these financial statements, the following standards and interpretations which have not been applied in these financial statements were in issue but not yet effective.

 
 Title     Subject                  Effective date 
--------  -----------------------  --------------- 
 IFRS 9    Financial Instruments    1 January 2018 
--------  -----------------------  --------------- 
 IFRS 15   Revenue from Contracts   1 January 2018 
            with Customers 
--------  -----------------------  --------------- 
 

The Directors do not expect that the adoption of the standards listed above will have a material impact on the financial statements of the Company.

(b) Investments

US Traded Life Interest Investments

The Company's assets were invested primarily in US Traded Life Interests ("TLIs") with the aim to hold such to maturity or until the end of the life of the Fund. The Company only invested in Whole of Life and Universal Life policies. All TLI investments are classified as fair value through profit and loss on initial recognition. Following the passing of the resolution to change the investment objective and policy on 10 October 2016, the disposal of the portfolio has been activated and the policies are in the process of being transferred to the purchasers.

Recognition and basis of measurement

The ongoing payment of premiums on TLIs are recognised on an accrual basis and are initially held at cost, being the consideration given. The purchasers of the policies in the portfolio became responsible for premiums with effect from the risk transfer date of 12 September 2016.

Valuation

Prior to seeking bids in the secondary market for the entire portfolio, the TLIs were valued monthly at the Directors' discretion. The methodology adopted by the Directors intends to reflect the fair value of the policies. This methodology uses a discounted cash flow method.

The value of a TLI policy is the present value of its net expected future cash flows. The calculation uses the following data and assumptions provided by third party LE underwriters, the Investment Manager (or the Directors, where stated):

   --      Death benefit payable under the policy; 

-- Mortality using the 2015 Valuation Basic Table (Ultimate) and the most recent life expectancy for each policy;

   --      Premiums payable under the policy; and 
   --      An estimate of a market based discount rate derived by the Directors. 

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Notes to the Financial Statements (continued)

For the year ended 30 June 2016

   2              Principal Accounting Policies (continued) 
   (b)   Investments(continued) 

There is inherent uncertainty within the valuation such that the valuation may be materially different from either the value on maturity or the realisable sale value of these investments.

The significant unobservable inputs used in the valuation of the Company's assets, Life Settlement policies, are the Life Expectancy (LE) and the discount rate.

The LE for each insured has been sourced from the major recognised providers of LE assessments that are used in the Life Settlement market or, where these are not available, standard US population mortality tables have been used to derive the LE.

The Company has adopted a discount rate of 12% for each policy, as explained in previous reports.

The valuation basis of the portfolio is specified by the Board and the Investment Manager computes the portfolio valuation monthly. Analysis is provided to the Board, on a monthly basis, of the change in value of the portfolio over this period.

The Board receives regular updates from the Investment Manager on market activity and has periodically submitted policies to market, to compare the individual computed policy valuations to indicative market values.

The impacts on the portfolio of varying the LE and varying the discount rate are as indicated in the sensitivity matrix included in the Chairman's Statement on page 8.

Typically, an increase in the LE will reduce the value of a policy and conversely a reduction in the LE will increase the value of a policy.

Typically, an increase in the discount rate will reduce the value of a policy and conversely a reduction in the discount rate will increase the value of a policy.

De-recognition

The Company de-recognises a financial asset when the contractual rights to cash flows from the financial asset expire. A financial liability is de-recognised when the obligation specified in the contract is discharged, cancelled or expired. TLI investments are de-recognised on the date of death of the insured or on the trade date if a policy is sold.

   (c)   Going concern 

Further to the passing by shareholders of the resolution to change the investment objective of the Company to enable the total disposal of the portfolio, the intention is that a further resolution will be recommended to shareholders to propose the appointment of a liquidator and the voluntary winding- up of the Company.

Due to the Board's intention to place the Company into liquidation, the financial statements have been prepared on a basis other than that of a going concern. The Board however confirms that there are adequate liquid resources in place to continue in operation throughout the disposal of the portfolio process and to the date of the proposed liquidation.

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Notes to the Financial Statements (continued)

For the year ended 30 June 2016

   2              Principal Accounting Policies (continued) 
   (d)           Interest income 

Bank deposit interest is accounted for on an accruals basis.

   (e)           Expenses 

Expenses are accounted for on an accruals basis and all amounts have been allocated to the Statement of Comprehensive Income - revenue account.

   (f)            Foreign exchange 

Foreign currency monetary assets and liabilities are translated into sterling at the rate of exchange ruling at the reporting date. Transactions in foreign currencies are translated into sterling at the rate ruling at the date of the transaction. Realised and unrealised foreign exchange gains and losses are recognised in the Statement of Comprehensive Income and in the capital reserve - realised, and capital reserve - unrealised, respectively.

   (g)           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 organised in one main operating segment, being investment in a portfolio of TLIs. The Board, as a whole, has been determined as constituting the chief operating decision maker of the Company.

The Board has overall responsibility for the assets of the Company in accordance with the investment objective and policy, and subject to advice received from the Investment Manager.

The Board therefore retains full responsibility as to the investment strategy or major allocation decisions. The Investment Manager is required to act under the terms of the prospectus which cannot be radically changed without the approval of the Board and Shareholders.

The key measure of performance used by the Board to assess the Company's performance and to allocate resources is the total return of the Company's net asset value, as calculated under IFRS, and therefore no reconciliation is required between the measure of profit or loss used by the Board and that contained in the financial statements.

   4              Interest and similar income 
 
                         Year to    Year to 
                    30 June 2016    30 June 
                                       2015 
                             GBP        GBP 
 
 Bank deposit 
 interest                  2,008        491 
 
 Total income              2,008        491 
                  ==============  ========= 
 

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Notes to the Financial Statements (continued)

For the year ended 30 June 2016

   5              Investment management and management fees 

SL Investment Management Limited, the Investment Manager, was appointed under an agreement with the Company and other parties dated 16 March 2004, as amended and restated on 20 July 2004. The agreement may be terminated by either party giving not less than 12 months' notice or such shorter notice as the parties may agree to accept.

From 1 April 2012 the fee payable to the Investment Manager is 0.4% per annum of the Company's Gross Assets. Additional fees, as disclosed in Note 6, are paid to the Investment Manager to obtain LE Updates periodically.

Allianz Global Investors GmbH, UK Branch, the Manager, was appointed under an agreement with the Company dated 16 March 2004 to manage the fixed interest and near cash assets of the Company in accordance with the investment policy and to implement the currency hedging facility from time to time approved by the Directors. Either party giving not less than 12 months' notice may terminate the agreement.

From 1 July 2013 the fee payable to the Manager is 0.3% per annum of the Company's Gross Assets and a fixed fee of GBP30,000 per annum for the provision of Administration and Secretarial Services. These fees are shown in the Statement of Comprehensive Income on page 38 and under Other Expenses in the table in Note 6, respectively.

The Investment Management Agreement and Management Agreement are subject to immediate termination on the Company entering liquidation.

With effect from 1 September 2009 the fixed fee payable under The Administration Agreement between the Company and JTC Fund Solutions (Guernsey) Limited (Formerly Kleinwort Benson (Channel Islands) Fund Services Limited) is GBP50,000 per annum.

   6              Other expenses 
 
                                       Year to         Year to 
                                  30 June 2016    30 June 2015 
                                           GBP             GBP 
 Administration fees                    50,000          50,000 
 Secretarial fees                       37,521          25,000 
 Broker fees                            42,075          41,872 
 Directors' fees, national 
  insurance and expenses                71,454          76,188 
 D&O Insurance                           7,047           6,733 
 Auditor's remuneration                 29,532          27,540 
 Legal and professional 
  fees                                  40,553          56,801 
 Printing                                1,561           4,388 
 Safe custody 
  fees                                  13,644          12,196 
 Bank fees and 
  charges                                1,991           1,786 
 Registrar fees                         19,420          13,034 
 Cost of obtaining new 
  LEs                                   11,226          23,925 
 Sundry expenses 
  *                                     16,864          15,045 
                                       342,888         354,508 
                                ==============  ============== 
 

* Sundry expenses include mailing services, tax exempt fees, stock exchange fees and other sundry costs.

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Notes to the Financial Statements (continued)

For the year ended 30 June 2016

   7              Taxation 

The Company is exempt from Guernsey Income Tax under the local Income Tax (Exempt Bodies) (Guernsey) Ordinances and is charged an annual exemption fee of GBP1,200 which is included in sundry expenses.

The Company adopted UK tax residency from 1 September 2009 onwards. Since that date the Company has been managed in such a way as to meet the conditions for approval as an investment trust under Section 1158 of the Corporation Tax Act 2010. As an investment trust, the Company is subject to corporation tax on its income, but no corporation tax is provided for in these accounts, as the Company has significant unutilised tax losses which are not deemed to be recoverable.

In December 2012 the Company received confirmation from HM Revenue & Customs as an approved investment trust for accounting periods commencing on or after 1 July 2012, subject to the Company continuing to meet the eligibility conditions at Section 1158 Corporation Tax Act 2010 and the ongoing requirements in Chapter 3 of Part 2 Investment Trust (Approved Company) Tax Regulations 2011 (Statutory Instrument 2011/2999).

In the opinion of the Directors, the Company has conducted its affairs in such a manner that it continues to meet these eligibility conditions.

   8              Return/(deficit) per share 

Revenue (deficit) per Share is based on the net deficit attributable to the Shares of GBP724,022 (2015: deficit GBP717,625) and on the average number of Shares in issue of 72,000,000 (2015: 72,000,000). Capital return per Share is based on the net surplus attributable to the Shares of GBP5,913,333 (2015: deficit GBP3,030,997) and on the average number of Shares in issue of 72,000,000 (2015: 72,000,000).

   9              Net Asset Value per Share 

The diluted and undiluted net asset value per Share is based on net assets attributable to the Shares of GBP36,808,942 (2015: GBP31,619,631) and on the 72,000,000 (2015: 72,000,000) Shares in issue at the year end.

   10           Investments 
 
                                                                               Year to        Year to 
 (a) Investments at fair value through                                         30 June        30 June 
  profit or loss                                                                  2016           2015 
                                                                                   GBP            GBP 
 Movements in the year: 
 Opening valuation                                                          30,570,116     29,380,044 
 Premiums 
  paid                                                                       5,417,057      5,325,557 
 Proceeds from the maturity and sale 
  of investments                                                           (9,325,278)    (6,954,486) 
 Net realised gain 
  on maturities                                                              3,524,172      3,623,110 
 
 Movement in unrealised appreciation/(depreciation) 
  on revaluation of investments                                              1,653,652      (804,109) 
 Closing valuation                                                          31,839,719     30,570,116 
                                                                         -------------  ------------- 
 
 Comprising: 
 Closing book cost                                                          50,977,915     51,361,964 
 Closing unrealised loss                                                  (19,138,196)   (20,791,848) 
 Closing valuation                                                          31,839,719     30,570,116 
                                                                         =============  ============= 
 
 

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Notes to the Financial Statements (continued)

For the year ended 30 June 2016

   10           Investments (continued) 
 
 (b) Net gain on investments held                                 Year to     Year to 
  at fair value through profit or                            30 June 2016     30 June 
  loss                                                                           2015 
                                                                      GBP         GBP 
 
 Net realised gain on maturities                                3,524,172   3,623,110 
 
 Movement in unrealised appreciation/(depreciation) 
  on revaluation of investments                                 1,653,652   (804,109) 
                                                                5,177,824   2,819,001 
                                                           --------------  ---------- 
 
   11           Other receivables and maturity proceeds receivable 
 
                      30 June 2016   30 June 2015 
                               GBP            GBP 
 
 Sundry debtors            127,570         99,928 
                           127,570         99,928 
                     =============  ============= 
 

The carrying value for the current and prior year is materially the same as the fair value.

   12           Cash and cash equivalents 

Any amounts held on deposit or in current accounts at the Company's Custodian, Sub-Custodian or financial institutions are included in cash or cash equivalents. The carrying value for the current and prior year is materially the same as the fair value.

   13           Other payables 
 
                       30 June 2016   30 June 2015 
                                GBP            GBP 
 
 Accrued expenses           144,802        172,585 
                            144,802        172,585 
                      =============  ============= 
 

The carrying value for the current and prior year is materially the same as the fair value.

   14           Loan facility 

On 31 March 2014 the Company signed a revolving credit facility agreement with AIB Group (UK) PLC ("the Lender") for up to US$10 million, the terms of which were amended in August 2015 to extend the facility expiry to 31 March 2018. As at 30 June 2016, the Company's drawings under this agreement were nil (30 June 2015: nil).

Following the passing of the Shareholder resolution to change the investment objective and policy and effect the disposal of the portfolio, the facility will be cancelled.

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Notes to the Financial Statements (continued)

For the year ended 30 June 2016

   15           Share capital and share premium 

The share capital of the Company is two Management Shares of no par value and an unlimited number of Redeemable Participating Preference Shares (the "Shares") of no par value.

The two Management Shares were issued at GBP1 each fully paid and are beneficially owned by the Manager. The Management Shares do not carry any rights to dividends and holders of Management Shares are only entitled to participate in the non-cellular assets of the Company on a winding-up. The Management Shares shall only have the right to vote when there are no Participating Shares of any cell in issue.

40,000,000 Shares were issued in the Fund at GBP1 per share on 25 March 2004. A further 32,000,000 shares were issued on 5 November 2012.

The holders of shares attributable to the Fund will be entitled to participate only in the income, profits and assets attributable to the Fund. On winding-up, the holders of shares are entitled to participate only in the assets of the Fund and have no entitlement to participate in the distribution of any assets attributable to any other cell. Holders of shares are entitled to attend and vote at general meetings of the Company.

   16           Share buy-backs 

By way of an ordinary resolution passed at the Annual General Meeting held on 4 November 2015, the Company took authority to make market purchases of fully paid Shares, provided that the maximum number of Shares authorised to be purchased would be no more than 10,792,800 Shares or such number as represented 14.99 per cent. of the Shares in issue as at the date of the Annual General Meeting, whichever was less (in either case, excluding Shares held in Treasury). Such authority will expire on 4 November 2016 or the date of the next Annual General Meeting (whichever is earlier), unless previously renewed, varied, or revoked prior to such date by a special resolution of the Company in general meeting. During the year under review no Shares were bought back for cancellation (2015: nil).

The minimum price which may be paid for a Share pursuant to such authority is one penny and the maximum price which may be paid shall be the higher of (1) not more than 5% above the average of the middle market quotations for a Share in the Company as derived from The Stock Exchange Daily Official List for the five business days immediately preceding the day on which such share is contracted to be purchased, and (2) the higher of the price of the last independent trade and highest current independent bid on the relevant market when the purchase is carried out, provided that the Company shall not be authorised to acquire Shares at a price above the estimated prevailing net asset value per Share on the date of purchase.

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Notes to the Financial Statements (continued)

For the year ended 30 June 2016

   17           Net assets attributable to shareholders 
 
                               Share Premium       Capital        Revenue 
                                                  Reserves       Reserves         Total 
                                        2016          2016           2016          2016 
                                         GBP           GBP            GBP           GBP 
 Balance at 1 July 
  2015                            46,034,968   (4,125,384)   (10,289,953)    31,619,631 
 Net realised gain 
  on maturities                            -     3,524,172              -     3,524,172 
 Movement in unrealised 
 depreciation on 
 investments                               -     1,653,652              -     1,653,652 
 Net currency gains                        -       735,509              -       735,509 
 Revenue loss for 
  the year                                                      (724,022)     (724,022) 
 Capital distributions                     -             -              -             - 
                                              ------------ 
 Balance at 30 
  June 2016                       46,034,968     1,787,949   (11,013,975)    36,808,942 
                              ==============  ============  =============  ============ 
 
                               Share Premium       Capital        Revenue 
                                                  Reserves       Reserves         Total 
                                        2015          2015           2015          2015 
                                         GBP           GBP            GBP           GBP 
 Balance at 1 July 
  2014                            48,914,968   (7,156,381)    (9,572,328)    32,186,259 
 Net realised gain 
  on maturities                            -     3,623,110              -     3,623,110 
 Movement in unrealised 
 depreciation on 
 investments                               -     (804,109)              -     (804,109) 
 Net currency gains                        -       211,996              -       211,996 
 Revenue loss for 
  the year                                 -             -      (717,625)     (717,625) 
 Capital distributions           (2,880,000)             -              -   (2,880,000) 
                                              ------------ 
 Balance at 30 
  June 2015                       46,034,968   (4,125,384)   (10,289,953)    31,619,631 
                              ==============  ============  =============  ============ 
 
   18           Related party transactions 

Fees earned by the Directors of the Company during the year were GBP71,454 of which GBP17,500 was outstanding at the year end (2015: GBP76,188 of which GBP17,500 was outstanding at the year end). Allowable expenses claimed by the Directors in the course of their duties amounted to GBP3,032 for the year ended 30 June 2016 (2015: GBP4,549). Fees earned by the Investment Manager, Manager and Administrator are discussed in note 5.

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Notes to the Financial Statements (continued)

For the year ended 30 June 2016

   19           Categories of financial assets and financial liabilities 

The following table analyses the carrying amounts of the financial assets and liabilities by category as defined in IAS 39.

 
                                                 30 June 2016   30 June 2015 
                                                          GBP            GBP 
 Financial assets 
 Cash and cash equivalents                          4,986,455      1,122,172 
 Fair value through profit or 
  loss: 
   TLI Policies                                    31,839,719     30,570,116 
 
 Loans and receivables at amortised 
 cost                                                 127,570         99,928 
 
                                                   36,953,744     31,792,216 
                                                -------------  ------------- 
 Financial liabilities 
 Loans and payables at amortised 
  cost                                              (144,802)      (172,585) 
                                                =============  ============= 
 
                                                   36,808,942     31,619,631 
                                                =============  ============= 
 
 
   20           Financial risk management objectives and policies 

The main risks to which the Company was exposed prior to the shareholder approval to change the investment objective and effect the disposal of the portfolio were market and longevity risk, currency risk, interest rate risk, liquidity risk and credit risk.

Fair value measurements

The Company classifies financial instruments using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and

the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under IFRS 13 are as follows:

   --      Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities; 

-- Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly (that is, as prices) or indirectly (that is, derived from prices); or

-- Level 3 - Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires

judgement, considering factors specific to the asset or liability.

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Notes to the Financial Statements (continued)

For the year ended 30 June 2016

   20           Financial risk management objectives and policies (continued) 

Fair value measurements (continued)

The determination of what constitutes 'observable' requires significant judgement by the Company. The Company considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.

The following table presents the Company's financial assets held at fair value by level within the valuation hierarchy as of 30 June 2016.

 
                          30 June   Percentage      30 June   Percentage 
                             2016       of net         2015       of net 
                                        assets                    assets 
                              GBP            %          GBP            % 
 Level 3 fair value 
  assets               31,839,719        86.50   30,570,116        96.68 
                      -----------  -----------  -----------  ----------- 
                       31,839,719        86.50   30,570,116        96.68 
                      ===========  ===========  ===========  =========== 
 

The investments categorised as level 3 are the TLI policies held in the Company's portfolio. The valuation of the TLI policies is not based on observable market data, but on the valuation model detailed in note 2(b) used by the Investment Manager to determine the fair value of the policies held, and therefore these investments are categorised as level 3 of the IFRS fair value hierarchy. There has been no movement between the categories and the reconciliation of the movement is detailed in the investment note 10.

Capital risk management

The capital structure of the Company consists of cash and cash equivalents and net assets attributable to holders of Shares, comprising issued Shares, capital reserves and revenue reserves as detailed in note 17.

At 30 June 2016 net assets attributable to the holders of Shares were GBP36,808,942 (2015: GBP31,619,631).

As at 30 June 2016, the Company had no borrowings (2015: nil). Any borrowings mean that Shareholder returns are "geared" and that such borrowings will need to be repaid prior to any return of capital to shareholders.

The Company's investment objective was changed by shareholder resolution on 10 October 2016 and is to conduct a sale of its portfolio: (i) to Vida Longevity Fund, L.P for a total cash consideration of $40.0 million, subject to adjustment in respect of the value of policies excluded from the sale, on the terms set out in the Sale and Purchase Agreement which has been entered into between Vida Longevity Fund, L.P and the Company on 12 September 2016; and (ii) to other parties, both as described in the circular to Shareholders dated 13 September 2016. Thereafter the Company will return cash to Shareholders

and proceed towards a members' voluntary winding-up, or other restructuring, subject to the further

approval of Shareholders.

Pending the return of cash to Shareholders of the Fund, cash balances 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. The Company (in respect of the Fund) does not intend to use gearing.

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Notes to the Financial Statements (continued)

For the year ended 30 June 2016

   20           Financial risk management objectives and policies (continued) 

Capital risk management (continued)

As at 30 June 2016, the portfolio comprised 81 TLIs representing 71 lives. All TLIs acquired are Whole-of-Life or Universal Life policies. Agreement was reached, conditional on shareholder approval, on 12 September 2016 to dispose of the entire portfolio in relation to the change of investment objective stated above. Shareholder approval was granted on 10 October 2016.

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.

Previous Annual Financial Reports have commented on the choice of a 12% discount rate (IRR) used in arriving at valuations, intended to correspond to the IRR for similar policies in the market on a willing buyer/willing seller basis. While data on comparable sales is still difficult to obtain, the Investment Manager has been able to provide limited data on this occasion on its own policy purchase activities. These involve policies with a different maturity profile from the Company's policies, but broadly confirm the accuracy of the Board's valuations. Similarly, the Board has obtained bids on a representative selection of policies which also suggests that the Board's valuations correspond closely to market prices and confirm that policies such as the Company holds are attractive to other market participants. Meanwhile, the notes below and the information available in the Chairman's Statement give an indication of the effects on valuation of differing IRR assumptions.

At 30 June 2016, should the valuation IRR used increase by 4 per cent with all other variables remaining constant, the decrease in net assets attributable to shareholders for the period would amount to GBP3,215,012 (2015: decrease of GBP3,234,319).

At 30 June 2016, should the valuation IRR used decrease by 4 per cent with all other variables remaining constant, the increase in net assets attributable to shareholders for the period would amount to GBP4,076,395 (2015: increase of GBP4,138,026)

As explained in the Investment Manager's Review, the majority of policies are valued using an LE obtained since 1 April 2013 with over 82% by face value obtained since 1 July 2013. Where an LE is not obtainable because of lack of access to medical records or where the policy is deemed too small to justify the cost of obtaining an LE, the LE used is derived from the 2015 Valuation Basic Table. The cash flow projections are then based on the adjusted LEs using standard actuarial tables.

At 30 June 2016, should the remaining life expectancy of the lives insured have increased by 1 year with all other variables remaining constant, the decrease in net assets attributable to shareholders for the period would amount to GBP9,795,690 (2015: decrease of GBP8,677,831).

At 30 June 2016, should the remaining life expectancy of the lives insured have decreased by 1 year with all other variables remaining constant, the increase in net assets attributable to shareholders for the period would amount to GBP11,308,634 (2015: increase of GBP9,877,997).

Currency risk

Currency risk is the risk that the fair value of future cash flows of a financial asset will fluctuate because of changes in foreign exchange rates.

The TLIs held by the Company are denominated exclusively in US dollars, whereas the issued Shares are denominated in sterling. The Company had no open forward currency contracts as at 30 June 2016 (30 June 2015: None).

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Notes to the Financial Statements (continued)

For the year ended 30 June 2016

   20           Financial risk management objectives and policies (continued) 

Currency risk (continued)

In the event of a fall in the value of the Company's assets, the Company may not be able to comply with the borrowing covenants contained in the Credit Facility Agreement and may be obliged to sell policies on disadvantageous terms in order to raise cash.

The Company's net currency exposure was as follows:

 
                      30 June 2016   30 June 2015 
                               GBP            GBP 
 
 Exposure to US 
 dollar                 36,890,065     31,717,383 
                        36,890,065     31,717,383 
                     =============  ============= 
 

At 30 June 2016, had the pound sterling strengthened against the US dollar by 5% with all other variables held constant, the decrease in net assets attributable to shareholders would amount to GBP1,756,670 (2015 decrease: GBP1,510,352). A weakening of 5% would amount to an increase in net assets attributable to shareholders of GBP1,941,582 (2015 increase: GBP1,669,336).

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 following table details the Company's exposure to interest rate risk at 30 June 2016 and 30 June 2015 from its interest bearing financial instruments:

 
                           Financial   Fixed rate                Floating        Total 
                assets/(liabilities)    financial          rate financial 
                            on which       assets    assets/(liabilities) 
                         no interest 
                             is paid 
                                2016         2016                    2016         2016 
                                 GBP          GBP                     GBP          GBP 
 Sterling                   (96,098)            -                  14,974     (81,124) 
 US Dollars               31,918,585            -               4,971,481   36,890,066 
              ----------------------  -----------  ----------------------  ----------- 
                          31,822,487            -               4,986,455   36,808,942 
              ======================  ===========  ======================  =========== 
 
 
                           Financial   Fixed rate                Floating        Total 
                assets/(liabilities)    financial          rate financial 
                            on which       assets    assets/(liabilities) 
                         no interest 
                             is paid 
                                2015         2015                    2015         2015 
                                 GBP          GBP                     GBP          GBP 
 Sterling                  (105,762)            -                   8,011     (97,751) 
 US Dollars               30,603,221            -               1,114,161   31,717,382 
              ----------------------  -----------  ----------------------  ----------- 
                          30,497,459            -               1,122,172   31,619,631 
              ======================  ===========  ======================  =========== 
 

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Notes to the Financial Statements (continued)

For the year ended 30 June 2016

   20           Financial risk management objectives and policies (continued) 

Interest rate risk (continued)

The above analysis excludes short term other receivables and other payables as the material amounts are non-interest bearing.

No sensitivity analysis has been provided as interest rate risk is not directly considered material to the Company.

Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with its financial liabilities.

In May 2015 the two year revolving credit facility agreement of up to US$10 million with AIB Group (UK) PLC ("AIB") was extended for a further period of two years on improved terms. Following shareholder approval to change the investment objective of the Company and effect the disposal of the portfolio the facility will be cancelled. The Board confirm that sufficient liquid resources are in place to meet the obligations of the Company up to the date of proposing and entering voluntary liquidation.

The maturity profile of the Company's financial liabilities is set out below. The purchasers of the policies in accordance with the terms of agreement for the disposal of the portfolio are responsible for the future premiums payable on the Company's portfolio which are not deemed to be financial liabilities for the purposes of this note.

 
 As at 30 June                         GBP       GBP       GBP        GBP        GBP         GBP 
  2016 
                                   1 month    1 to 3   3 to 12       1 to 
                                   or less    months    months    5 years   >5 years       Total 
 Financial liabilities: 
 Other payables                  (144,802)         -         -          -          -   (144,802) 
 
                                 (144,802)         -         -          -          -   (144,802) 
                                ----------  --------  --------  ---------  ---------  ---------- 
 
 As at 30 June                         GBP       GBP       GBP        GBP        GBP         GBP 
  2015 
                                   1 month    1 to 3   3 to 12       1 to 
                                   or less    months    months    5 years   >5 years       Total 
 Financial liabilities: 
 Other payables                  (172,585)         -         -          -          -   (172,585) 
 
                                 (172,585)         -         -          -          -   (172,585) 
                                ----------  --------  --------  ---------  ---------  ---------- 
 
 
 

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Notes to the Financial Statements (continued)

For the year ended 30 June 2016

   20           Financial risk management objectives and policies (continued) 

Credit risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation.

Credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies. The Directors manage this risk by monitoring the credit quality of its bankers on an ongoing basis. If the credit quality of the bank deteriorates, the Company would seek to move the short-term deposits or cash to another bank.

The Company holds cash with Kleinwort Benson (Channel Islands) Limited which has been assigned a rating of Baa2/Prime-2 by Moody's Investors Service.

The Company also holds cash with the Sub-Custodian, Wells Fargo, which has been assigned a rating of A+/A-1 by Standard & Poor's ratings agency.

The Company will consider various options in respect of the cash to be received as proceeds for each policy sale which will transfer to the Company as ownership of each policy transfers to the purchaser.

The TLIs in the Company's portfolio, as disclosed on pages 42 to 43, have been assigned ratings ranging from A- to A++ by AM Best ratings agency.

Concentration risk

Concentration risk is the risk that the Company's portfolio of TLIs is not sufficiently diversified within a range of US life insurance companies.

The Company has invested its assets in a range of TLIs on the lives of US citizens aged, at the time of acquisition, between 78 and 92 years.

The TLIs acquired are policies issued by a range of US life insurance companies. Each underlying life insurance company had an AM Best credit rating of at least "A" at the time of acquisition of the relevant policy. AM Best is a US credit rating agency which provides the most comprehensive coverage of the US life company sector. As at 30 June 2016, 93.7% by value of the TLI portfolio was underwritten by companies whose credit rating is "A" or better. Not more than 15 per cent of the gross assets of the Fund, at the time of purchase, have been invested in life policies issued by any single US life insurance company or group.

The Board has overall responsibility for allocating the assets of the Fund in accordance with the investment objective and policy. The Investment Manager is responsible, inter alia, for identifying and monitoring on behalf of the Board, TLIs that are consistent with the Company's investment objective and policy.

Fair value disclosure

In the opinion of the Directors there is no material difference between the values presented in the financial statements and the fair values of the financial assets and liabilities.

   21           Events after the reporting period 

On 10 October 2016 it was announced that at an EGM of the Company Shareholders passed a resolution to change the investment objective and policy of the Company in order to effect the disposal of the entire portfolio. A second EGM will shortly be arranged to propose to Shareholders the placing of the Company into voluntary liquidation. It is expected that a Circular detailing such proposal will be sent to Shareholders in early November.

This information is provided by RNS

The company news service from the London Stock Exchange

END

FR FFEFLLFMSEDS

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October 14, 2016 10:39 ET (14:39 GMT)

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