Alternative Asset Opportunities PCC Limited

28 July 2009
Proposed Conversion to a UK Investment Trust, Proposed Change to  the
Life  of  the  Company,  Proposed  Adoption  of  New  Memorandum   of
Incorporation and New Articles of Incorporation
Further to  the  announcement  on  17  June  2009,  the  Company  has
published a  Circular  to  Shareholders in  connection  with  certain
proposals for the Company:
-          to amend its Articles in order to move from having a fixed
life in respect of the Company's Cell, US Traded Life Interests  Fund
(terminating on  31  March  2012)  to  offering  Shareholders  annual
continuation votes from the Company's 2012 AGM onwards, and in  order
to remove reference to the intention to effect capital  distributions
on 31  March  2010  and 31  March  2011  (the "Life  of  the  Company
Proposal");
-          to convert to a UK investment trust (the "Investment Trust
Proposal"); and
-          to  adopt  a  New  Memorandum  of  Incorporation  and  New
Articles of Incorporation (the "New Articles Proposal"),
to be proposed at an Extraordinary General Meeting of the Company  to
be held in Guernsey on 28 August 2009.
The Company was launched in April 2004, and raised £40 million before
expenses by  means  of a  placing  and offer  for  subscription.  The
Company has created one  Cell known as the  US Traded Life  Interests
Fund and that  Fund's investment  objective is to  provide a  capital
return by  investing in  a diversified  portfolio of  US traded  life
interests.
During the period  from the  launch of the  Company to  July 2006,  a
diverse portfolio of US  traded life interests  were acquired by  the
Fund, achieving  full  investment  in 160  policies  secured  on  134
individual lives and  one joint-life policy  (of which  approximately
two thirds  were  male  and  one third  were  female).  At  the  time
acquired, the average remaining life expectancy of the lives  assured
was approximately 7.6  years and, in  accordance with the  investment
strategy of  the Fund,  none of  these  lives were  less than  78  or
greater than 92 years old at the time of acquisition.
Over the  past  five years,  there  have been  19  policy  maturities
(secured on  15  individual  lives)  generating  approximately  $27.0
million of cash and realising an aggregate profit (net of acquisition
costs and premiums  paid) on  these maturities  of approximately  $15
million. The  internal  rate of  return  on the  policies  that  have
matured to date is approximately 47 per cent.
As at  30 June  2009 (the  date of  the most  recent valuation),  the
portfolio consisted of 140 policies  secured on 119 individual  lives
(of which 76 were male and 43  were female). The face value of  these
policies was  approximately  $229  million,  compared  to  a  current
valuation of approximately $95 million.
Background to and Reasons for the Proposals
Conversion to UK Investment Trust
The Company's interim management statement, announced on 19 May 2009,
highlighted the  fact that  the Board,  together with  the  Company's
professional advisers and its manager, RCM (UK) have been informed by
the Company's US legal counsel, Locke Lord Bissell & Liddell  ("LLB")
of a recent US Internal  Revenue Service Revenue Ruling 2009-14  (the
"IRS Ruling") which could potentially  have an adverse impact on  the
Company.
The Company has been advised by LLB that the effect of the IRS Ruling
is that death benefits arising  from US term life insurance  policies
purchased by non-US persons in  the secondary market will be  treated
by the US  Internal Revenue Service  as US source  income and may  be
"fixed or determinable, annual or periodic" income in nature. In  the
event that the predominantly  universal life insurance policies  held
in the Fund's  portfolio are  deemed to  be treated  similarly, a  US
withholding tax of  30 per  cent. may be  levied by  the US  Internal
Revenue Service on any profit arising on any death benefits on future
portfolio maturities at the point  when the proceeds are remitted  to
the Company's payment agent in the US.
In light of  the IRS  Ruling, the Board  has concluded  that it  will
benefit the Company if it becomes UK tax resident and is approved  by
HMRC  as  a  UK  investment  trust.  The  Board  has  discussed  this
possibility with legal and tax counsel in the UK, a jurisdiction that
has a double tax  treaty with the United  States. The Board  believes
that the Investment Trust Proposal would enable the Company to  avail
itself of  treaty  protection and  thus  mitigate the  impact  of  US
withholding taxes on future payments of death benefits as a result of
the IRS Ruling.
Once the Company becomes resident in the UK for tax purposes, it will
be able to apply for treaty relief under the UK-US double tax treaty,
provided that  its Shares  continue  to be  regularly traded  on  the
London  Stock  Exchange.  Treaty  relief  will  enable  the  maturity
proceeds of the policies  to be remitted to  the Company without  the
imposition of  any  US  withholding  tax. In  December  2008  the  UK
introduced a  new  regime for  non-resident  funds which  might  have
adverse consequences for UK-based investors in the Company's  Shares.
The adoption of UK residence as  an investment trust would thus  have
the added advantage that  the Company would not  be classified as  an
'offshore fund', as defined under this new regime.
It is not clear, and could be subject to legal challenge, whether the
IRS Ruling would,  in practice, be  applied retrospectively to  death
benefits previously remitted to  the Company. In  the event that  any
such retrospective  tax  charge  were  sought to  be  levied  on  the
Company's historic maturities,  its payment  agent in  the US,  Wells
Fargo Bank, N.A. ("WF") would be liable  for the tax to the IRS,  but
under its  agreements  with  WF,  the  Company  would  be  liable  to
reimburse WF for any withholding tax  assessed by the IRS against  WF
for these  prior  maturities.  It is  estimated  that  the  potential
liability could  be  approximately  $3.3  million  or  5p  per  share
(excluding any penalties and interest  which could be applied by  the
IRS).
Life of the Company
Independently  of  the  above  developments,  your  Board  has   been
considering the planned  life of  the Company.  The Articles  contain
provisions which oblige  the Directors  to put  forward proposals  to
liquidate the Fund not  later than 31 March  2012. The Directors  may
also consider, at  their sole  discretion and  subject to  prevailing
market conditions, capital redemption opportunities for  Shareholders
prior to this date.  The prospectus of the  Company published at  the
time of its  launch (the "Prospectus"),  referred to the  expectation
that the Board  would exercise  this discretion by  redeeming 25  per
cent. of the aggregate  number of Shares in  issue, pro rata to  each
Shareholder's holding of Shares, on both  31 March 2010 and 31  March
2011.
The Board  believes that  the Investment  Manager has  constructed  a
diversified portfolio of TLIs. However, the pace of policy maturities
has fallen short of expectations.  The slow pace of maturities  could
be attributed to numerous factors.  In particular, as referred to  in
previous annual and  interim reports,  the Board  has noted,  amongst
other factors, the likelihood  that, compared to  a random sample  of
the  population,  the  Company's   portfolio  may  exhibit   "select"
characteristics and also  the inherent  uncertainty in  extrapolating
life expectancy estimates to a relatively small portfolio of TLIs.
Since the launch of the Company,  the Board has always expected  that
the Fund would  have a residual  portfolio of policies  that had  not
matured by March  2012 and that  it would be  necessary to sell  this
residual portfolio on or before that date. Projections, such as those
shown  in  Table  1  below,  have  always  allowed  for  a  range  of
assumptions in  this respect,  covering both  the percentage  of  the
lives assured which might  survive and the  range of possible  prices
that might  be  obtained  for the  residual  portfolio.  The  central
assumption of  this  table  is that  life  expectancies  match  those
assumed in  the Company's  valuation model  and that  prices for  the
residual portfolio also correspond to those used for valuation. Table
1 below  illustrates  the  range of  illustrative  predicted  yields,
depending on the  assumptions used,  over the remaining  life of  the
Fund to 31 March 2012, with reference to the valuation as at 30  June
2009.
Table 1 - Illustrative predicted yields to 31 March 2012

             Impact
             80yr
             old  on            Valuation IRRbasedonexitpricerange5:
             male               of        -10c   -5c     0c     +5c    +10c
Variation in non     Proportion surviving
mortality1   smoker2 surviving3 policies4
125%          -1.09   60%        41.3c    +10.2% +13.9%  +17.4% +20.7% +23.8%
110%          -0.48   63%        41.6c    +6.4%  +10.4%  +14.2% +17.7% +21.1%
100%          0.00    66%        41.8c    +3.8%   +8.1%  +12.0% +15.8% +19.3%
80%           +1.20   71%        42.3c    -1.7%   +3.2%   +7.6% +11.8% +15.7%
50%           +4.12   81%        43.0c    -11.9%  -5.5%   +0.2%  +5.4% +10.2%
30%           +8.00   88%        43.5c    -21.2%  -13.0%  -5.9%  +0.4%  +6.0%
Ignore
Medical
Underwriting         80%        43.8c     -10.2% -4.0%   +1.5%  +6.6%  +11.2%
&  Use  Full
VBT Table6

Source: Surrenda-link Limited
Notes
1. The central case  (100 per cent.)  assumes that claims  experience
matches the  valuation basis  in force  at 30  June 2009.  The  other
scenarios assume mortality experience is higher (e.g. 110 per  cent.)
or lower (e.g. 80 per cent.).
2. This shows the effect of the selected mortality experiences on the
life expectation (in years) for an otherwise normal 80 year old  male
non-smoker.
3. This shows the percentage of  the lives assured which are  assumed
to survive to 31 March 2012.
4. This shows the assumed average  realisation values (per $1 of  TLI
policy face value)  for the  surviving lives  at 31  March 2012.  The
third row  in  this  column  (41.8c)  corresponds  to  the  valuation
assumptions used in arriving at the 30 June 2009 NAV.
5.  This  shows  how  returns  might  be  expected  to  vary   should
realisation values differ from those shown in column 4 by the margins
shown.
6. This shows the returns using the full VBT Select Table without any
adjustments for the life expectancy assessments.
If  policy  maturities  continue  to  fall  below  expectations,  the
consequence is  that  the size  of  the residual  portfolio  will  be
substantially larger than expected. For example, if actual  mortality
experience were 80 per cent. of the valuation basis then the  average
life expectancy would increase by 1.2 years (corresponding to a  15.8
per cent. increase  in life expectancy),  and the residual  portfolio
would increase  from  approximately  66  per  cent.  of  the  current
portfolio to  approximately 71  per cent.  Such an  increase in  life
expectancy would  not only  reduce returns,  but it  would result  in
increased reliance on the  actual price which  could be obtained  for
the residual portfolio.
Table 2  below shows  the potential  size of  the residual  portfolio
(based on the valuation of the current portfolio as at 30 June  2009)
at the dates shown, both on the basis of actual maturities  occurring
in line with expectations set out in the valuation model ("100%") and
on the basis of  actual maturities being half  those expected in  the
valuation model ("50%").


Table 2 - Illustrative size and valuation of the residual portfolio

                           Proportion      of Proportion of  policies
           Number of lives policies surviving surviving by number  of
           alive           by valuation       policies
Date       100%    50%     100%      50%      100%         50%
31/03/2012  93      113     66.6%     83.8%    66.2%        80.8%
31/03/2013  78      103     56.2%     77.2%    56.0%        73.9%
31/03/2014  65      93      46.5%     69.9%    46.8%        66.8%
31/03/2015  54      84      37.8%     62.5%    38.6%        60.2%
31/03/2016  44      75      30.1%     54.6%    31.5%        53.7%

Source: Surrenda-link Limited
Trading  conditions   in  the   secondary   market  for   TLIs   have
deteriorated,  with  transactions  by  value  significantly   reduced
compared to prior  years. While these  conditions partly reflect  the
illiquid conditions  currently  evident in  many  financial  markets,
which may not still apply in 2011 and 2012, the Board is concerned at
the possibility of having to make a substantial disposal of  policies
simply to meet the date originally set at the launch of the  Company,
especially as the rate of return  on the portfolio may be  materially
affected by the sale price achieved.
The existence of this residual portfolio and the requirement for  its
disposal by a specified date would be a matter of public record. This
factor could  prejudice the  Company's prospects  of achieving  sales
prices  at  or  close  to  reasonable  values  for  the  benefit   of
Shareholders. Table 3  below illustrates how  the NAV as  at 30  June
2009 would be affected if a  premium or discount were applied to  the
valuation of the residual portfolio in existence as at 31 March 2012.
Table 3 - Illustrative NAV as at 30 June 2009

             Premium (+)/discount (-) applied to the valuation of the
             residual portfolio
             +10%      0%        -10%      -20%     -30%     -40%
NAV as at 30
June 2009    100.2     93.4p     86.6p     79.8p    73.0p    66.3p

Source: Surrenda-Link Limited
It is a requirement  of the Company's  borrowing facilities that  the
proceeds of TLIs which mature  are (after the deduction of  expenses)
utilised to reduce borrowings.
The Board believes that there is no longer any realistic  possibility
of the Company being in a position to meet this requirement and  also
to offer  Shareholders  the  opportunity  to  redeem  part  of  their
holdings in 2010 or 2011 without materially reducing the value of the
Fund's portfolio.  In addition,  the  Board believes  that it  is  no
longer in Shareholders' best interests  to continue with the  planned
liquidation of the Fund on a fixed date in March 2012.
In light of the above, in the  Board's view it is important that  the
Company address this issue now, rather than at a later date.
Companies (Guernsey) Law, 2008 (as amended)
On 1 July 2008, the Companies (Guernsey) Law, 2008 (as amended)  (the
"Companies Law") came into force in Guernsey. Guernsey companies  are
required by the Companies Law to amend their articles to comply  with
the Companies Law by 1 July 2011.
The Board is  proposing that the  Company adopt a  New Memorandum  of
Incorporation and New  Articles of Incorporation  to reflect  changes
introduced by the Companies  Law. The Board  believes that this  will
enable the Company to  comply with the  new provisions introduced  by
the Companies Law.

The Proposals
Conversion to UK Investment Trust
To  effect  the  Investment  Trust  Proposal,  the  Board  will  pass
appropriate board resolutions approving the conversion of the Company
to a UK  investment trust  and the  move to  UK tax  residency. As  a
result, the Directors also propose  to change the composition of  the
Board. As a minimum, it is proposed that Christopher Sherwell  resign
as a director of the Company once the proposals become effective  and
that he is  replaced by a  new UK-resident Director  to be  appointed
when the Company's UK tax residency becomes effective.
The Company will also  need to amend its  Articles of Association  to
effect the Investment  Trust Proposal. The  Board therefore  proposes
that the  New Memorandum  of Incorporation  and the  New Articles  of
Incorporation include amendments appropriate to reflect the Company's
proposed status as a UK investment  trust, and its UK tax  residency,
should the Investment Trust Proposal be approved by Shareholders.
Once the Company has become resident  in the UK for tax purposes,  it
is intended that the Company will be managed in such a way as to meet
the conditions  for investment  trust status  in Section  842 of  the
Income and Corporation Taxes  Act 1988 in  respect of the  accounting
period which will commence when it becomes resident in the UK for tax
purposes and subsequent periods.
Assuming that the Company obtains investment trust status, it will be
exempt from United  Kingdom corporation tax  on chargeable gains,  as
computed for tax purposes, in  respect of each accounting period  for
which such approval is granted. It  is expected that any maturity  or
disposal proceeds from the policies  should therefore be exempt  from
corporation tax.
The Company will be liable to UK corporation tax on any income in the
normal way. However, the Board  is satisfied that the Company  should
have sufficient administrative and other expenses such that it should
not have any meaningful exposure to UK corporation tax in the future.
The Company's UK tax accounting period will commence on the date  the
Company becomes  UK  resident.  The  Board  proposes  to  change  the
Company's accounting reference date  to ensure that the  commencement
of the Company's UK tax accounting period is aligned with a financial
accounting period.  It  is  therefore  proposed  that  the  Company's
accounting reference  date be  changed to  31 August  in the  current
year, reverting  to 30  June  thereafter. As  a result,  the  current
financial accounting period will  be the 14  months ending 31  August
2009, to be followed by a 10 month financial accounting period ending
30 June 2010.
Life of the Company
In order to effect the Life  of the Company Proposal, it is  proposed
that the  Articles be  amended  so that  they  no longer  include  an
obligation for the Directors to bring forward liquidation proceedings
in respect  of the  Fund in  March  2012, nor  any reference  to  the
intention to effect  capital distributions  on 31 March  2010 and  31
March 2011, as stated in the Prospectus. It is also proposed that the
Articles be amended in order to offer Shareholders the opportunity to
vote on the continuation of the Fund at the annual general meeting in
2012 and annually thereafter.
The  Board  remains   firmly  committed  to   returning  capital   to
Shareholders in the Fund at the earliest practical opportunity having
regard to the desire to maintain a commercially viable portfolio.  To
that end the Board  has resolved, in  accordance with the  investment
policy and strategy of the Fund,  that once future net cash flows  of
the Company have  been used  to repay the  Company's borrowings  they
will subsequently, after allowance  for the estimated future  premium
payments and operational expenses required for a minimum of one year,
be used  to provide  capital distributions  for Shareholders  (to  be
effected  at  the  Directors'  discretion)  from  time  to  time.  In
addition, the Board may pursue opportunistic secondary market  policy
sales where  deemed  appropriate, with  a  view to  accelerating  the
return of capital to Shareholders.
Management and other Costs and Expenses
It is proposed that, with effect  from 1 September 2009, the  current
annual fee of 0.5 per cent. of  the Net Asset Value, payable to  each
of the Investment Manager  and the Manager, be  reduced to 0.475  per
cent. and 0.425 per  cent. respectively of the  Net Asset Value  from
time to time and, with effect  from 1 April 2012, be further  reduced
in respect of both the Investment Manager and the Manager to 0.4  per
cent. of  the  Net  Asset  Value from  time  to  time.  The  existing
contracts with  the  Investment  Manager and  the  Manager  will  not
otherwise be affected by the Proposals.
The costs and expenses incurred in relation to the Proposals will  be
borne by the  Company and  are estimated to  amount to  approximately
£200,000.
Current Trading
As at 30 June  2009, the Net  Asset Value per Share  in the Fund  was
93.4p. Since 31 March 2009, there have been two maturities secured on
two lives. The benefit of  these maturities amounts to  approximately
5.9 pence per share, and has been included in the Company's NAV as at
30 June 2009. In addition, on 12 May 2009, the Company completed  the
disposal of a policy to a third party for $552,994, a discount of  11
per cent. to the valuation as at 29 May 2009.
As at 30 June 2009, $32 million of the $38 million borrowing facility
provided by Allied Irish  Banks had been drawn  down (which does  not
take account of  the $6.5 million  face value due  to be received  in
relation to the two recent maturities).
Table 4 below sets out the illustrative annual cost of premiums to 31
March 2016, on the basis of: actual maturities occurring in line with
expectations  set  out  in  the  valuation  model  ("100%");   actual
maturities being half those expected in the valuation model  ("50%");
and no further maturities occurring ("0%"):
Table 4 - Illustrative annual cost of premiums

                    12 months to 31 March
$'m                 2010  2011 2012  2013  2014  2015  2016
Maturity assumption
100%                6.22 8.06  7.47  6.87  6.18  5.59  4.99
50%                 6.41 9.00  9.18  9.20  8.95  8.71  8.54
0%                  6.62 10.11 11.47 12.77 13.72 14.52 16.12

Source: Surrenda-Link Limited

Expected Timetable

Latest time  and date  for receipt  of  Proxy 11.30 a.m. on 26 August
Forms for the Extraordinary General Meeting   2009
Extraordinary General Meeting of the Company  11.30 a.m. on 28 August
                                              2009


Enquiries:


Simon White                                     Tel: +44 (0) 20 7859
RCM (UK) Limited                                9000

Gary Gould                                      Tel: +44 (0) 20 7678
RBS Hoare Govett Limited                        8000

Sharon Wrench                                   Tel: +44 (0) 1481 752
Kleinwort Benson (Channel Islands) Fund         591
Services Limited

Terms used in this announcement  shall, unless the context  otherwise
requires, bear the meanings  given to them in  the Circular dated  27
July 2009.
A  copy  of  the  Circular  will  shortly  be  available  for  public
inspection at the Document  Viewing Facility, the Financial  Services
Authority, 25 North Colonnade, Canary Wharf, London E14 5HS.

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