Half Yearly Report

ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

Half-Yearly Announcement of Results

For the period from 1 July 2011 to 31 December 2011

At a meeting of the Board of Directors held on 22 February 2012, the unaudited half yearly accounts for the Company for the period from 1 July 2011 to 31 December 2011 were approved, details of which are attached.

The financial information set out in this announcement does not constitute the Company's statutory accounts for the period from 1 July 2011 to 31 December 2011, but is derived from those accounts. Printed accounts for the period from 1 July 2011 to 31 December 2011 will be delivered to Shareholders during March 2012.

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). Whilst the financial information included in this announcement has been computed in accordance with IFRS, this announcement does not itself contain sufficient information to comply with IFRS. The Company will publish condensed financial statements that comply with IFRS in March 2012. This announcement has been prepared using accounting policies consistent with those set out in the Company's half yearly report and financial statements for the period from 1 July 2011 to 31 December 2011.

P W I Ingram

Company Secretary

Telephone number: 020 7065 1467

155 Bishopsgate

London EC2M 3AD

24 February 2012

For the period from 1 July 2011 to 31 December 2011

General information

Alternative Asset Opportunities PCC Limited (the "Company") was registered on 27 February 2004 in Guernsey, as a closed-ended protected cell company in accordance with the provisions of The Protected Cell Companies Ordinance, 1997 and The Companies (Guernsey) Law, 2008. It was established with one Cell known as the US Traded Life Interests Fund (the "Fund") which had a planned life of approximately 8 years from the date of launch. The Company is regulated by the Guernsey Financial Services Commission as an authorised fund under the Protection of Investors (Bailiwick of Guernsey) Law, 2008, as amended.

Following a Special Resolution passed at an Extraordinary General Meeting on 28 August 2009, the Articles of Incorporation were amended to move from having a fixed life in respect of the Company's Cell, US Traded Life Interests Fund (terminating on 31 March 2012) to offering shareholders annual continuation votes from the Company's 2012Annual General Meeting onward.

With effect from 1 September 2009, the Company has been managed with a view to being approved as an Investment Trust within the meaning of the Corporation Tax Act 2010, and has been resident in the UK for tax purposes from that date.

Investment objective

The Company's objective in respect of the Fund is to provide investors with an attractive capital return through investment predominantly in a diversified portfolio of US Traded Life Interests ("TLIs").

INVESTOR INFORMATION (CONTINUED)

For the period from 1 July 2011 to 31 December 2011

INVESTOR INFORMATION (CONTINUED)

For the period from 1 July 2011 to 31 December 2011

Directors

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

Charles Tracy, Chairman, (aged 66) has over 30 years' experience as a merchant banker, covering both the investment management and banking fields. On joining N.M. Rothschild & Sons in 1975 he was made responsible for Asian and commodity-related investments, working in Malaysia and Hong Kong before taking up the post of Managing Director of N.M. Rothschild & Sons (C.I.) Ltd. in 1981, and remaining in that position until 1998. During that period he was Chairman of the Association of Guernsey Banks and of the Guernsey International Business Association. He is currently non-executive Chairman of Louvre Fund Management Limited, President of the Guernsey Tax Tribunal and Chairman of the Board of the Guernsey Banking Deposit Compensation Scheme. He is a resident of Guernsey.

Ian Reynolds (aged 68) is a former Chief Executive of Commercial Union Life Assurance Company. He is a director of Liverpool Victoria Friendly Society and of The Equitable Life Assurance Society, and a former consultant actuary at Towers Perrin. Mr Reynolds is a Fellow of the Institute of Actuaries and a Chartered Director. He is UK resident.

John Scott (aged 59) is currently a director of several UK investment trusts and is Chairman of Scottish Mortgage Investment Trust PLC and of Dunedin Income Growth Investment Trust PLC. Mr Scott held a number of senior appointments at Lazard Brothers & Co., Limited between 1981 and 2001. Prior to that, he worked at Jardine Matheson & Co., Limited. He is a Fellow of the Chartered Insurance Institute and of the Chartered Institute for Securities and Investment. He is UK resident.

Saad Zein (44) is currently Managing Director, Head of Institutional and Corporate Solutions, Americas, of Standard Bank in New York. Mr Zein was formerly a Senior Managing Director of Aladdin Capital Management UK LLP. Prior to this, his career was spent as an investment banker with particular focus on credit markets and structured products, including US traded life interests. He was employed by Dresdner Kleinwort Wasserstein between 1999 and 2009, where he held a number of senior positions. He is US resident.

The Investment Manager

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

The Manager

RCM (UK) Limited, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is manager of a number of closed-ended investment companies with approximately £981 million of such assets under management in a range of investment companies and investment trusts as at 31 December 2011.

The Manager is responsible for managing the cash and fixed interest holdings of the Fund, and foreign currency hedging.

RESPONSIBILITY STATEMENT

For the period from 1 July 2011 to 31 December 2011

We confirm to the best of our knowledge:

a. the half yearly report and unaudited condensed financial statements have been prepared in accordance with IAS 34;

b. the interim management report (contained in the Chairman's Statement, Investment Manager's Report and Manager's Report) includes a fair review of the information required by Disclosure and Transparency Rule 4.2.7R (indication of important events during the first six months, and their impact on the financial statements, and a description of principal risks and uncertainties for the remaining six months of the year); and

c. the interim management report includes a fair review of the information required by Disclosure and Transparency Rule 4.2.8R (disclosure of related party transactions and changes therein).

By order of the Board

DIW Reynolds JPHS Scott

Director Director

22 February 2012

The half-yearly financial report has neither been audited nor reviewed by the Company's auditors. The financial information for the period ended 30 June 2011 has been extracted from the audited financial statements for that period.

Dividends

The Directors do not propose a dividend for the period from 1 July 2011 to 31 December 2011.

CHAIRMAN'S STATEMENT

For the period from 1 July 2011 to 31 December 2011

Introduction

This statement covers the six months from 1 July 2011. It has been a period of little progress as regards maturities, but much work has been done on other aspects which the Board feels has significantly improved the Company's longer term outlook.

Portfolio developments

A summary of portfolio maturities since inception is given in the following table:

During the six month period to 31 December 2011, two policy maturities were identified, with a total face value of US$1.9 million. This compares with 6 policies with a face value of US$12.9 million in the 12 month period to 30 June 2011, and 24 policies with a total face value of US$38.7 million, in the period from the Company's launch to 30 June 2010. In contrast to the last full year maturity proceeds exceeded premium outflow, the opposite has been the case in this period. The Board's actions with regards to funding are discussed below.

The gains on maturing policies amounted to approximately US$1.1 million in the period, or 1.7p per share. The Net Asset Value per Share as at 31 December 2011 was 75.4p, compared to 77.2p as at 30 June 2011.

As at 31 December 2011 there were a total of 127 policies in the portfolio, with a face value of US$202.8 million and a valuation of US$81.9 million. There have been no policy acquisitions since completion of the original policy purchase programme, but premiums continued to be payable on existing holdings, totalling US$ 4.2 million during the half year.

The Company's forward currency contracts are due to mature on 30 March 2012. These contracts were set up to hedge the net US$ value of the portfolio against sterling. During the period it was agreed by shareholders that the Company would no longer hedge its portfolio and these contracts were subsequently closed out at a loss, resulting in a net funding requirement as of 30 March 2012 of US$11.8 million (There are corresponding, but unrealised, gains in the sterling value of the US$-based portfolio). Given that the immediate effect of this will be an increase in borrowings to a level which your board feels would be too high, we initiated a programme of policy sales, which is reported on below, with the intention of realising around US$10 million to contain the overall level of indebtedness.

The following paragraphs cover the sales programme and other principal issues facing the Company, that is to say valuation, credit risk, gearing and foreign exchange.

Sales Programme

As at the date of this report, the sale of 12 policies has been agreed, for a total sum of US$10.7 million and proceeds of US$5.9 million had been received, with the balance due in the next few weeks. This sales programme has several important implications.

CHAIRMAN'S STATEMENT (continued)

For the period from 1 July 2011 to 31 December 2011

The Board acknowledges that policy sales potentially reduce returns to investors, since the return on cash in hand is less than the predicted return implicit in the policies' current value; sales also reduce the portfolio spread. The benefits of sales are, however, considerable. In the first place, they greatly improve cash flow, reduce borrowings and considerably assist our negotiations on the Company's borrowing facility. They reduce the size of the facility required, improve the ratio of portfolio value to borrowings, and demonstrate that there is liquidity in the marketplace.

Sales also serve to support the Company's portfolio valuation. I am pleased to report that expected sales proceeds will closely match the Company's carrying valuation on each policy, with total proceeds exceeding 95% of the latest valuation figures. Given current conditions in the TLI market, this is a very satisfactory outcome which has been achieved through a fully competitive bidding process involving several potential counterparties.

A further side benefit of this process has been the obtaining of up to date life expectancy (LE) assessments on the policies offered for sale. As at the date of this report, a total of 72 new assessments have been incorporated into the valuation, representing 73% of the face value of policies. I am pleased to report that the average LE on the policies assessed in 2011 was slightly shorter than our previous assessment. This both improves valuations, since the new LEs will now be used for this purpose, and gives greater overall confidence in the accuracy of LEs in the rest of the portfolio.

Given the recent slow rate of maturities, this new information is important in that it points strongly to slow maturities being the result of random mortality variations in a fairly small portfolio of lives rather than any underlying error in LE assumptions.

Valuation

The valuation remains the best estimate of the Board and the Investment Manager of the current value of the portfolio based on expected future cash flows. The three major components of the valuation are LE assessments, the tables of predicted mortalities based on these life assessments and the discount rate (internal rate of return, or IRR) used to arrive at a present value of the resulting cash flow projections.

I have commented on the outcome of recent LE assessments. A total of 65 policies within the portfolio have now been re-assessed within the last 12 months, with the results incorporated into recent valuations. Given the significant number of re-assessments, the Board will keep under review its policy in relation to further re-assessments. The table overleaf allows investors to consider the effects of differing LE assumptions, although the number of recent re-assessments and the generally positive outcome provide significant confidence to the LEs currently used for valuation.

There has been no material change in the mortality tables since my last report.

The valuation model currently uses an IRR of 12%, intended to reflect market pricing in an admittedly thin market. Given that interest rates are now low, and are likely to remain stable, this implies a significant risk premium above current interest rates. There is some evidence that distressed sellers are no longer the main factor in the market, and that there is, as recent sales have demonstrated, some new money being invested in TLIs. Recent sales have also given some support to the use of a 12% IRR, but it must be cautioned that information on market trades is closely guarded and the volume of trades carried out by the Investment Manager is insufficient to give a representative sample of trades on a non-distressed basis. The Board thus continues to believe that the 12% IRR assumption remains appropriate, but, as before, is providing information on the effect of differing IRRs in the table below.

CHAIRMAN'S STATEMENT (continued)

For the period from 1 July 2011 to 31 December 2011

Valuation (continued)

The table is expressed in terms of NAV per share (based on IRR to an assumed maturity date):

- The first line of NAVs in the new table uses the 'Latest LE' assumption, that is to say either an LE based on a recently updated assessment or, for the remaining 27% of the portfolio by face value the 'non-updated policies'), based on the original LE assessed at the time of purchase. The average LE (weighted by policy value) is given for reference (4.7 years). NAV is then shown at four different discount rates, ranging from 10% to 20%. This shows the effect of IRR on current value, but it also allows investors to assess the effects of forced sales if, for example, the portfolio was to be liquidated before 31 December 2016.

- The second line uses the assumption that updated LEs obtained for the non-updated policies would result in an LE increase of 20% on the non-updated policies. In practice, the LE changes exhibited by recent assessments on average show a decrease in LE, but outcomes vary widely and the Board does not feel it is necessarily correct to extrapolate the recent changes for the non-updated policies. The overall effect of this assumption is to increase average LE by 0.2 years.

- The third line assumes an increase in LE of 40% on the non-updated policies. The effect on NAV is roughly proportionate to that shown in the second line, but the increase in LE is only 0.1 years because of the fact that policies are weighted by value - such an extension to LE of course has significant impact on the values of some of these policies.

- Finally, the fourth line shows the outcome of assuming LEs are simply based on the current table of life expectancies for the general population, the 2008 Valuation Basic Table (Ultimate), i.e. ignoring LE assessments. The Board does not suggest that this is a realistic assumption, but it gives a measure of the degree to which the portfolio is dependent on assessed LEs being shorter than for the population as a whole.

Sensitivity Matrix

Net Asset Value in pence per share on various assumptions as at 31 December 2011

\* The weighted average LE (in years) is calculated by reference to the policy values obtained.

Note that all scenarios exclude the 12 policies the Board has agreed to be sold. For the purposes of the scenarios, the value of the policies is included as cash at the agreed sale price of $10.7m.

CHAIRMAN'S STATEMENT (continued)

For the period from 1 July 2011 to 31 December 2011

Gearing

During the six month period to 31 December 2011 the Company's total borrowings rose from US$21,093,000 to US$25,193,000. The Company's borrowing agreement with Allied Irish Banks plc ("AIB") has been extended until 30 March 2012, and is currently under review. AIB's renewal process has become a longer and more complex procedure, and discussions with AIB commenced at the end of 2011. Renewal will need to take account of the change in borrowings required as a result of the maturity of the forward currency contracts on 30 March 2012, net of the proceeds of sales, as discussed above. The Board will keep shareholders informed of the outcome, but a low level of maturities may require some further policy sales to keep borrowings within agreed limits.

Hedging

As stated above, the Company has changed its investment policy and no longer hedges its US dollar exposure. Accordingly, a net US$54.2 million was bought forward for 30 March 2012 during the period, compared with an initial short position of US$66 million. This leaves a balance of US$11.8 million for settlement on that date, which will cover the realised loss on all the Company's outstanding forward currency positions.

At 31 December 2011, the Company's net US dollar exposure amounted to US$46.8 million, being the carrying value of policies, US$81.9 million, plus cash of US$1.9 million, less the loan outstanding of US$25.2 million and less the above US$11.8 million.

Related Party Transactions

There have been no changes to the related party arrangements or transactions as reported in the statutory Annual Financial Report for the year ended 30 June 2011.

Statement of Principal Risks and Uncertainties

The Company's assets consist mainly of US Traded Life Interests and its principal risks are market and longevity risk, currency risk, interest rate risk and credit risk. These risks, and the way they are managed, are described in more detail within the Directors' Report in the Company's Annual Financial Report for the year ended 30 June 2011. The Company's principal risks and uncertainties have not changed since the date of that report. The credit rating of the underlying insurance companies issuing the TLI policies in the portfolio remains good with 99.5% rated A or better by AM Best.

FSA Consultation on TLIs

On 28 November 2011 the FSA issued a Guidance Consultation on Traded Life Policy Investments (which this Company refers to as TLIs) recommending that TLIs should not reach retail investors in the UK. While the Company does not actively market itself to retail investors, it responded to the FSA on 23 January 2012 since in the Board's view some of the FSA's comments were inaccurate. As at the date of this report, no formal guidance on TLIs has been issued by the FSA and recent policy sales, which took place immediately after the Consultation paper was issued, have not been affected.

Outlook

The past six months has been a period of considerable activity, as the Board has on the one hand taken steps to analyse why the level of maturities has been at an abnormally low level, and on the other hand it has been looking at all options for safeguarding the solvency of the Company in the event that maturities do not in the short term return to somewhere near the levels predicted by the actuarial assessment. Meanwhile the emergence of a more liquid market is both useful and encouraging. The Board does not rule out further policy sales, but it remains of the view that, other things being equal, the best approach for the conservation of shareholder value is to hold policies to maturity rather than seek early liquidation.

CPG Tracy

Chairman

22 February 2012

INVESTMENT MANAGER'S REVIEW

For the period from 1 July 2011 to 31 December 2011

Market Review

The ongoing global financial turbulence continued to feed nervousness, resulting in investors tending to favour better-understood traditional investment classes. The supply of bank credit also remained tight as Banks looked to strengthen their capital positions. This has resulted in a difficult environment in which to raise new investment capital into the life settlement market.

A large proportion of transactions during 2011 were therefore trades in the tertiary market, as existing holders of Life Settlement policies looked to raise liquidity to fund future premium commitments. The relatively low level of demand has enabled buyers to be more selective with their purchasing criteria. There remains almost no market for premium finance or beneficial interest policies at present.

However, there are signs that conditions are improving, with a number of new players emerging in the second half of the year. The Company has taken advantage of this by agreeing some policy sales at prices very close to the prevailing valuation level.

The credit ratings of US life companies remain stable, with only one Life Company rating change affecting AAO during the period. Reassure American Life Insurance Company was upgraded from A to A+ in December 2011, affecting one policy in the portfolio. 99.9% of the portfolio is split across life companies currently possessing an AM Best rating of A or higher. The investments in the AAO portfolio were carefully selected in accordance with the Company's Investment Objective and Policy, ensuring a high quality portfolio composition.

Investment Portfolio Review

During the six-month period from 1 July 2011 to 31 December 2011 two policy maturities (one female life) were confirmed, releasing $1.9m in death benefits. As at 31 December 2011, 127 policies were in the Fund's portfolio secured on 107 individual lives.

From inception to 31 December 2011, there have been 32 policy maturities across 27 lives. Proceeds from these maturities total $53.8m, realising a $25.9m gain.

The expected cost of premiums for the remaining six months of the year ending 30 June 2012 is $4.5m. In the following 12-month accounting period ending 30 June 2013, scheduled premium commitments are $9.6m, assuming no maturities during this time. SL Investment Management continues the ongoing review of all policy statements to identify any scope for further optimisation of the premium payment schedules.

The Company continues to update Life Expectancies (LEs) for policies in the portfolio. During the 6 month period, updated LEs were received for lives affecting 54 policies in the portfolio. As at 31 December 2011, policies equating to 72.9% of the total net death benefit are valued using LEs dated after the LE re-basis in 2008. The LE update programme will continue during 2012.

Portfolio Summary

INVESTMENT MANAGER'S REVIEW

For the period from 1 July 2011 to 31 December 2011

Averages weighted by Death Benefits

Life Group (Parent Company) Distribution (Top 5)

Credit Quality Distribution by Holding Life Company

Minimum rating in portfolio: B+

Outlook

For the early months of 2012, the life settlement market is likely to mirror the activity level witnessed in late 2011. Active buyers tend to target policies available from the tertiary market ahead of sourcing policies on the secondary market. The attraction of buying policies in bulk and the often shorter closing process for tertiary deals are an added incentive. However, there is only a limited supply of quality tertiary policies and if demand increases, the competition for policies should drive prices up and also force investors to widen their buying parameters. Activity is therefore expected to increase as we move through the year.

SL Investment Management is aware of a number of life settlement-dedicated Funds that have recently launched or are expecting to launch soon. These types of investors will have a mandate to deploy their capital in a more consistent manner than the opportunistic private equity and hedge funds prevalent in early 2011. It is likely that during 2012, these Funds will replace the opportunistic buyers.

Holding a well diversified seasoned portfolio with an average life insured age of 88.5 years, the Company holds assets most likely to appeal to new buyers in the market. AAO is therefore well placed to benefit from an upturn in activity in 2012.

SL Investment Management Limited

22 February 2012

MANAGER'S REVIEW

For the period from 1 July 2011 to 31 December 2011

Borrowings and investments

In September 2011, the Company renewed its loan agreement with Allied Irish Banks, covering the period to 30 March 2012. This agreement consists of an amortising loan of US$23.1 million and a revolving credit facility (RCF) initially of US$5.9 million. By 31 December 2011, the amortising loan still stood at US$23.1 million, while the balance on the RCF was US$2.1 million.

Since the period-end, the Company has repaid US$6.3 million from the sale of policies. As a result, the total loan balance now stands at US$18.9 million, and, once the final US$1.9 million available under the RCF is drawn down, the Company will hold enough cash to fund its premium payments and expenses until 30 March 2012.

Under the agreement, the primary covenant obliges the Company to maintain cover (i.e. asset value, subject to certain adjustments, divided by borrowing) above 2.5 times. As at 31 December 2011 cover was 2.8 times.

The Company is negotiating a renewal of the loan agreement with Allied Irish Banks to cover its financing needs beyond 30 March 2012.

The Company has retained its £100,000 holding of UK Treasury 4% 2016.

Currency hedging

At an Extraordinary General Meeting in September 2011, it was resolved no longer to hedge the Company's US dollar exposure. Accordingly, the Company closed out its forward currency contracts, crystallising a loss of £7.4 million for settlement on 30 March 2012.

Since this loss will be funded by US dollar borrowing, the Company has now covered this by means of a forward purchase of £7.5 million from US dollars, also for 30 March 2012. As a result, the Company is due to deliver US$11.8 million to Allied Irish Banks on that date, and the loan negotiation, referred to above, recognises this funding requirement.

RCM (UK) Limited

22 February 2012

CONDENSED STATEMENT OF COMPREHENSIVE INCOME

For the period from 1 July 2011 to 31 December 2011

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 19 to 27 are an integral part of these condensed financial statements.

CONDENSED STATEMENT OF FINANCIAL POSITION

As at 31 December 2011

These condensed financial statements were approved by the Board of Directors on 22 February 2012.

Signed on behalf of the Board.

DIW Reynolds JPHS Scott

Director Director

22 February 2012

The notes on pages 19 to 27 are an integral part of these condensed financial statements.

CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' FUNDS

For the period from 1 July 2011 to 31 December 2011

The notes on pages 19 to 27 are an integral part of these condensed financial statements.

CONDENSED STATEMENT OF CASH FLOWS

For the period from 1 July 2011 to 31 December 2011

The notes on pages 19 to 27 are an integral part of these condensed financial statements.

PORTFOLIO OF INVESTMENTS

As at 31 December 2011

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

For the period from 1 July 2011 to 31 December 2011

1 Principal activity

The Company is a Guernsey registered closed-ended protected cell company established with one Cell known as the US Traded Life Interests Fund (the "Fund" or "Cell"). The redeemable participating preference shares (the "Shares") in the Company are listed on the London Stock Exchange. The Company's objective in respect of the Fund is to provide investors with an attractive capital return through investment predominantly in a diversified portfolio of US Traded Life Interests ("TLIs").

2 Principal Accounting Policies

(a) Basis of preparation

 Statement of compliance

The condensed financial information for the six months ended 31 December 2011 has been prepared in accordance with IAS 34 'Interim Financial Reporting'. The condensed interim financial information should be read in conjunction with the annual financial statements for the year ended 30 June 2011, which have been prepared in accordance with International Financial Reporting Standards.

The accounting policies applied in the condensed financial statements are consistent with those of the annual financial statements for the year ended 30 June 2011, as described in those financial statements.

Basis of measurement

The financial statements have been prepared under the historical cost convention as modified by the revaluation of investments and derivatives, as detailed above

The financial statements have been prepared on a total company basis and not on a cell- by-cell basis as there is currently only one cell. The only non-cellular assets and liabilities are in respect of the two management shares of no par value issued at £1 each fully paid represented by cash at bank. As they are immaterial they have been excluded from the financial statements.

Functional and Presentational Currency

The financial information shown in the financial statements is shown in sterling, being the Company's functional and presentational currency. The exchange rate used for these financial statements was 1.5543 (2010:1.5612).

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 period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Where such judgements are made they are discussed below.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (CONTINUED)

For the period from 1 July 2011 to 31 December 2011

2 Principal Accounting Policies

(b) Valuation of investments

US Traded Life Interest Investments

The Company primarily invests in US Traded Life Interests ("TLIs") which it intends to hold to maturity or until the end of the life of the Fund, unless sales are required to meet cash flow demands. The Company has only invested in Whole of Life and Universal Life policies. All TLI investments are classified as fair value through profit and loss

Recognition and basis of measurement

Purchases of investments are recognised on a trade date basis and are initially measured at cost, being the consideration given.

Valuation

As the market for TLIs is thin, and there is little published information on these investments, there are no reliable market prices. The TLIs are valued monthly at the Directors' discretion. The methodology adopted by the Directors intends to reflect the fair value of the policies. This methodology uses a discounted cash flow method.

The value of a TLI policy is the present value of its net expected future cash flows. The calculation uses the following data and assumptions provided by the Investment Manager:

·; Death benefit payable under the policy;

·; Premiums due under the policy;

·; Mortality using the 2008 Valuation Basic Table (Ultimate) as adjusted using a 24-month 'select period' adjustment and the most recent life expectancy for each policy; and

·; An estimate of a market based discount rate derived by the Investment Manager.

There is inherent uncertainty within this basis of valuation that this valuation will differ from the realisable value of these investments were the TLIs to be sold at the reporting date.

United Kingdom Gilts

The Company has also invested in a United Kingdom Gilt ("UK Gilt") which it intends to hold to maturity or until the end of the life of the Fund. The UK Gilt is classified as fair value through profit and loss.

Recognition and basis of measurement

Purchases of UK Gilts are recognised on a trade date basis and are initially held at cost, being the consideration given.

Valuation

The UK Gilt is valued monthly at the clean bid market price available for the stock at each valuation date. Accrued interest is included within sundry debtors.

De-recognition

The Company de-recognises a financial asset when the contractual rights to cash flows from the financial asset expire. A financial liability is de-recognised when the obligation specified in the contract is discharged, cancelled or expired.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (CONTINUED)

For the period from 1 July 2011 to 31 December 2011

2 Principal Accounting Policies (continued)

(c) Going concern

The condensed financial statements have been prepared on the going concern basis. The Directors believe that this basis is appropriate as the Company has net assets significantly in excess of its liabilities. The bank loan (see note 12) was extended to 30 March 2012 on 28 September 2011. The Directors have submitted a request to AIB to extend the agreement for a further twelve months.

The Board considered carefully the issue of 'going concern', specifically in relation to the availability of funding. Total borrowings under the agreement with AIB increased to circa US$25.2 million as at 31 December 2011 from circa US$21.1 million as at 30 June 2011. At this level the margin of cover required under the agreement was comfortably met.

As described in note 9 (c), the unrealised loss on the Company's forward currency contracts, which stood at £7.5m as at 31 December 2011, will need to be funded on 30 March 2012 as the contracts mature on this date. As detailed in note 15, at the date of this report, the sale of 12 policies had been agreed for a total sum of US$10.7 million.

The Board has considered the position should AIB not renew the agreement. Acknowledging that this might involve the sale of further policies in an illiquid market, the Board is nevertheless confident that the sales required to cover outstanding borrowings could be completed. To the extent that the prices achieved did not match those in the valuation, the net asset value of the Company would be affected, but the Company would remain a going concern.

A continuation vote will be put to the Shareholders at the next Annual General Meeting in late 2012. While the Directors cannot be certain what the results of this vote will be, the financial statements are prepared on a going concern basis supported by the Directors' current assessment of the Company's ability to continue in existence for the foreseeable future and ongoing shareholder interest in the continuation of the Company. Based on the above, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future, and they continue to adopt the going concern basis.

3 Interest and similar income

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (CONTINUED)

For the period from 1 July 2011 to 31 December 2011

4 Investment management and management fees

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

Since 1 September 2009 the fee payable to the Investment Manager has been 0.475% per annum of the Company's net assets attributable to the Fund. With effect from 1 April 2012 the fee will be reduced to 0.4% per annum of the Company's net assets attributable to the Fund.

RCM (UK) Limited, the Manager, was appointed under an agreement with the Company dated 16 March 2004 to manage the fixed interest and near cash assets of the Company in accordance with the investment policy and to implement the currency hedging facility from time to time approved by the Directors. This agreement may be terminated by either party giving not less than 12 months notice.

With effect from 1 September 2009 the fee payable to the Manager has been 0.425% per annum of the Company's net assets attributable to the Fund. With effect from 1 April 2012 the fee will be reduced to 0.4% per annum of the Company's net assets attributable to the Fund. With effect from 1 September 2009 a separate Agreement was signed between the Company and the Manager for the provision of Administration and Secretarial Services at a fixed fee of £20,000 per annum.

With effect from 1 September 2009 the Administration Agreement between the Company and Kleinwort Benson (Channel Islands) Fund Services Limited (formerly Kleinwort Benson (Guernsey) Fund Services Limited) dated 16 March 2004 was amended to a fixed fee of £50,000 per annum.

5 Other expenses

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

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (CONTINUED)

For the period from 1 July 2011 to 31 December 2011

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (CONTINUED)

For the period from 1 July 2011 to 31 December 2011

9 Investments

Since its formation the Company has entered into a number of forward sales and purchases of US dollars in sterling. At the period end there were thirteen outstanding forward currency contracts for the sale of US$90.329 million against sterling maturing 30 March 2012 and five contracts for the purchase of US$78.5 million against sterling maturing 30 March 2012.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (CONTINUED)

For the period from 1 July 2011 to 31 December 2011

10 Other receivables

11 Other payables

12 Loan facility

As at 31 December 2011, under its loan agreement with Allied Irish Banks, the Company had an amortising term loan of US$23,093,000 (31 December 2010: US$23,156,000, 30 June 2011:US$20,292,000) and a revolving credit balance of US$2,100,000 (31 December 2010: US$3,900,000, 30 June 2011: US$800,000) at 31 December 2011 making a total loan balance of US$25,193,000 (£16,208,366) (31 December 2010: US$27,048,000, 30 June 2011: US$21,092,000). Under the revolving credit facility a further US$1,900,000 remained available (31 December 2010: US$ nil, 30 June 2011: US$2,000,000).

The loan agreement with AIB is due to expire on 30 March 2012. The Company has submitted a request to AIB to extend the agreement.

It is the Company's intention to repay all loans with proceeds receivable from the maturity of TLIs but, were it necessary, the Company could sell TLIs in order to repay these loans. It is noted that the valuation methodology does not assume the sale of TLIs, rather that they would be held to maturity. In the event of a sale in current market conditions, the proceeds are likely to be lower than the valuation.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (CONTINUED)

For the period from 1 July 2011 to 31 December 2011

13 Net assets attributable to shareholders