December 2005

1
PROtected Structured PERmal Notes Capital
Guaranteed Product linked to the Permal FX,
Financials and Futures Fund
The Safe Way to Play Hedge Funds
PROSPER Notes
December 2005
2

• Contents
• The Premise
• Permal a pioneer
• The Structure
• Contact us

3
The premise
4
Facts and Problems

• Institutional and Retail Clients are attracted to
  hedge funds by the promise of
• Diversification benefits
• Better and different risk/return profiles from
  their existing investments
• But they are put off, to some extent, by these
  problems
• The actual and perceived risks (blow-up, black
  box, no liquidity)
• Regulations that discourage direct investments
  in hedge funds
• Various tax and administrative issues

5
The Solution

• Capital guaranteed products linked to an
  alternative investment funds have been seen as
  the answer to these problems
• They eliminate the risk by offering Noteholders a
  100 principal protected vehicle enabling them to
  benefit from most of the upside of a hedge fund
  portfolio
• Capital guaranteed products overcome the
  regulatory hurdles by optimizing allocation to
  hedge funds through an unsubordinated EMTN
  (meeting regulators concerns for investor
  protection)

6
Characteristics

• Notes (EMTN)
• Issued by Royal Bank of Scotland
• Structured by Merrill Lynch International (also
  Calculation Agent)
• Maturity of 5 years, in USD
• 100 capital guaranteed at maturity
• Linked to the performance of the Permal FX,
  Financials and Futures Fund, a fund of
  alternative investment funds, with emphasis on
  directional and macro strategy managers
• CPPI mechanism
• 100 initial exposure to the fund on day one
  (subject to interest rates)
• Potential leverage up to 200 exposure
• Multiplier of 5
• Coupon payments on each anniversary year, the
  Note pays a coupon equal to the positive
  performance of the CPPI, capped at 6 on that
  year.

7
Permal a pioneer
8
Permal a pioneer
A pioneer in the multi-manager hedge fund
industry..

• One of the pioneers in multi-manager funds since
  1973
• Multi-manager funds are all the rage these days.
  Permal pioneered the concept and is still one of
  the best at it.
• Solid long-term performance
• 100,000 invested in original fund at its
  inception in 1973 is worth 16.1 million today
  (over 5 times the SP 500)
• Stable and experienced management team,
  providing.
• Access to highly regarded industry managers
• Ongoing selection and monitoring process
• Risk management / dynamic asset allocation
• Permal FX, Financials and Futures Fund provides
  access to some of the best CTA and macro trading
  managers of the industry

Hedge Funds Review November 2002
Financial Times June 2003
Forbes, February 2002
9
Permal a pioneer
Permal FX, Financials and Futures at a glance
Funds Main Characteristics
Performance
Manager Permal IM Strategy
Futures/CTA Country focus None Inception
date February 1992 Currency
USD Current size gt4 billion Redemption
frequency Monthly / 20 days
Notice period
YTD performance (09/05) 7.8 p.a. Performance
since 01/96 10.6 p.a.
10
Why Permal?

• Qualitative rationale
• The Fund manager benefits from the recognition
  of the largest institutional clients worldwide.
• The Fund is investing in some of the best hedge
  funds, which are often closed.
• Quantitative rationale
• The Fund has been consistently performing over
  the past years, with an annualised return above
  of 8 almost every calendar year.
• The volatility of the Fund has consistently been
  below 6 p.a., thanks to the diversification
  between managers.
• The Fund is therefore an optimal candidate for a
  CPPI-type strategy

11
The Structure
12
Protected Permal FX Notes

• The CPPI Strategy
• The PROtected Structured PERmal Notes use a
  dynamic CPPI (Constant Proportion Portfolio
  Insurance) strategy. The objectives are to
• Capture most of the upside in rising markets
• Preserve the capital in declining markets
• The Notes are linked to an Index which follows an
  algorithmic, pre-defined asset allocation
  mechanism. The Index allocates assets between the
  Market Asset Units (i.e. the Permal FX Fund) and
  Reserve Asset Units (Cash). The Cushion is
  defined as the difference between the Index and
  the present value of 100 at Maturity.
• As the Cushion increases
• The Index is adjusted so that it consists of
  more units of the Fund, thus allowing the
  investor to profit increasingly from the Fund
  gains.
• As the Cushion decreases
• The Index is adjusted so that it consists of
  more units of Reserve Assets. This reduces the
  exposure of the investment to further decreases
  in the Fund.

13
Protected Permal FX Notes
The CPPI Strategy The PROtected Structured
PERmal Notes provide a 100 Protection with a
dynamic allocation process.
14
Protected Permal FX Notes
Back-testing Using the historical performance
of Permal FX during the last 5 years and the
current yield curve, the PROtected Structured
Permal Notes would have performed by 25.3 at
maturity, and would have delivered four coupons
of 6 each year (2001, 2002, 2003 and 2004).
15
Protected Permal FX Notes

• The PROtected Structured PERmal Notes provide the
  investor with a dynamic exposure to the Permal FX
  Fund, with a full capital protection at Maturity.
• Characteristics
• Maturity 5 years
• Currency USD
• Protection 100 at Maturity
• Initial Exposure 100 (indicative, to be
  determined on strike date)
• Maximum Exposure 200
• Coupon Annual Coupon linked to the performance
  of the CPPI, cap at 6
• Strategy Constant Proportion Portfolio
  Insurance Strategy
• If Permal FX performs well, exposure to the Fund
  is dynamically increased
• If Permal FX performs badly, exposure to the
  Fund is dynamically decreased
• Targets Absolute Returns, that are uncorrelated
  to equity and bond markets
• Expected low volatility of the PROtected
  Structured PERmal Notes, with annual
  performance-linked coupons (similar to bond
  investments).

16
Contact us
17
Merrill Lynch and Fund Derivatives
National Bank of Bahrain Riyad Yousif
Phone [phone] Fax
973-17-213503 email riyadh.yousif_at_nbb.co
m.bh
18
Disclaimer The information presented herein is
intended only for discussion purposes. Material
terms of the investment generally described
herein are subject to change prior to the
consummation of the transaction. Any potential
investor will be provided with offering materials
for the investment and an opportunity to review
the documentations relating to the investment.
Prospective investors should review the offering
materials, including the risk factors, before
making a decision to invest. In addition,
prospective investors should rely only on the
final offering documentation relating to this
Note in making their investment decision.   These
materials are not intended as an offer or
solicitation with respect to the purchase or sale
of any security and may not be relied upon by any
prospective investor in evaluating the merits of
investing in the securities.   Distribution of
this information to any person other than the
person to whom this information was originally
delivered and to such persons advisors is
unauthorized and any reproduction of these
materials, in whole or in part, or the divulgence
of any of their contents, without the prior
consent of National Bank of Bahrain in each such
instance.   Certain information simulations in
this document result from estimations made by
Merrill Lynch International on the basis of the
terms of the structure, the market conditions at
such time (and historical date can in no way be
considered as a guarantee of future
performance).   The performance shown is
hypothetical and shows how the Notes would have
performed based upon a retroactive application of
its investment strategy. These performance
results do not represent the performance of
actual Notes, but were achieved by means of the
retroactive application of a back-tested model.
Therefore, the returns presented must be
considered as no more than an approximate
representation of the objectives of the Notes,
not as indicative of how they would have
performed in the past or will in fact perform in
the future.