1 this information is for professional investors only and should not be presented to, or relied upon...

1This information is for professional investors only and should not be presented to, or relied upon by, private investors.

Innovative SolutionsImmaculate Service

Meteor Asset Management

Structured Products for Retail Investors

2009

2

Contents

Topic Slide

Background

Asset Classes x

Rationale for Structured Investments

Client Motivations x

Market Factors and Sensitivities

Price Sensitivities x

The Greeks x

Structured Products

Overview x

Advantage and Disadvantages x

A Basic Structured Product x

Risks in Structured Products x

Volatility Dynamics x

3

Background

Structured products are sometimes referred to as Protected Investments and may be seen to combine the safety of a bond whilst potentially achieving higher returns by providing exposure to equity, commodity or other indices

Derivative markets are relatively inaccessible to non-professional / non expert investors

– Lack of knowledge among investors

– High levels of investor protection, especially for private investors

– Lack of access to professional pricing

– Some products simply not available such as bank zero-coupon bonds

4

Background

Many investors in the early 90s lost out to poorly designed ‘Precipice Bonds’ where investors were exposed to geared downside in the event of a market decrease i.e. for every 1% fall, the investor lost 2%

The reputation of structured products has been damaged due to this and other mis-selling examples

More recently, counterparty risk has been a hot topic with the collapse of Lehman Brothers in 2008

5

Rational for Structured Products

Capital protection

Leveraged upside exposure

Exposure to difficult to access assets classes i.e. inflation,

Exposure to bespoke baskets of assets

Income or growth

Defined returns

Completely bespoke!

Overview

6


Client would like to participate if the stock market recovers, but not suffer if it declines

Structured products provide a means by which to benefit from stock market growth but not suffer from declines

This has to cost something

How?

No dividends, <100% upside participation, capped upside

Client Motivations

7


Client would like exposure to commodities but doesn’t know where to start

There is obvious potential merit in buying access to an unfamiliar market

– To diversify a portfolio

– Through a structured vehicle

– Sold by a familiar organisation

Client Motivations

8


Client would like exposure to commodities but doesn’t know where to start

There is obvious potential merit in buying access to an unfamiliar market

– To diversify a portfolio

– Through a structured vehicle

– Sold by a familiar organisation

Client Motivations

9


Clients like the idea of having a limited range of pre-determined outcomes for my portfolio

Sky is the limit for equity investing however total, or near complete loss is possible

Can clients make money in sideways or falling markets?

Yes, the direction of a market is an important investment class, up or down

However, the volatility of a market is also an important area of prediction and opportunity

Client Motivations

10


Clients ask, how can they make money in the current difficult markets. Analysts would suggest:

Government bonds

Corporate bonds

Gold

Special situation stocks

Structured products

Client Motivations

11


Do clients care about income or capital preservation primarily?

The answer depends on their personal circumstances and requires detailed analysis

However, do not forget that with BoE base rate at 0.5% and 5 year gilts yielding 2.5%, a structured note that offers 11.5% income must be giving you principal risk

Credit? Real value? Cash value?

Client Motivations

12

This information has been prepared solely for information purposes and is not an offer to buy or sell or a solicitation of

an offer to buy or sell any security or instrument or to participate in any particular trading strategy. This information is

being delivered to IFAs and distributors in order to assist them in determining whether they have an interest in the type

of securities described herein and is solely for internal use. This information is based on or derived from information

generally available to the public from sources believed to be reliable. No representation or warranty can be given with

respect to the accuracy or completeness of the information, or with respect to the terms of any future offer of

transactions conforming to the terms hereof. We do not undertake to update this information. Certain assumptions

may have been made in the analysis that resulted in any information and returns/results detailed herein. Changes to

the assumptions may have a material impact on any results/returns detailed. Meteor Asset Management Limited and

its affiliates disclaim any and all liability relating to this information, including without limitation any express or implied

representations or warranties for statements contained in, and omissions from, this information. Additional information

is available on request. Meteor Asset Management Limited does not give investment, tax, accounting and legal or

regulatory advice and prospective investors should consult with their professional advisors. This memorandum is not a

product of Meteor’s Research Department and should not be regarded as a research report. This communication is

not directed in the UK to those persons who are retail customers (as defined in the UK Financial Services Authority's

rules).

Important Information

13

Introduction to Meteor

Meteor was established in early 2006 with the aim of providing individuals, institutions, trustees and their advisers with access to an organisation that is committed to designing and implementing innovative and attractive financial solutions. We are always striving to provide a consistently friendly and efficient service, in addition to delivering imaginative solutions at a competitive price.

Our product range offers a mix of closed ended structured products, open ended investment funds and a deposit based account that we believe provide a unique opportunity to bring positive benefits to a diversified portfolio

Our open ended investments are based on a variety of underlyings ranging from American ‘Whole of Life’ Policies, FTSE 100 volatility to our soon to be announced Clean Energy and Commercial and Retail property funds

The cornerstone to our structured product range is our ‘Prima’ series, which are autocallable structures offering attractive headline participation rates, with the investment being based on one or two stock market indices and using established and respected counterparties

Who we are

14


Graham Devile, Managing Director:

Graham has spent some 25 years working in the financial services sector, including ten years with one of the larger UK accountancy practices. The majority of this time Graham has spent as an IFA working with high net worth individuals and corporate clients, providing advice across the whole financial services spectrum. From 1999 to 2006 he was Managing Director of an IFA and a structured product provider, and with the latter he was heavily involved in the product design and marketing activities.

In 2006 Graham decided to set up a new business from scratch with a team who shared his vision of product and investment innovation and as a result they established what is now called Meteor Asset Management.

Simon Bottomley, Finance Director:

A chartered accountant, having trained with KPMG, Simon became Finance Director of a property investment & management firm. During this time he played a key role in a venture capital backed management buyout and the subsequent sale of the business.

In 2001 he joined a financial services group as Finance Director. Here his activities included managing the finances of its offshore operation and its structured product division. He brings to Meteor his knowledge of the accounting, taxation, product development, regulatory requirements and financial implications of operating in the investment sector.

Principal Biographies

15


Philip Saunders, Business Development Director

Phil began his career as a Broker Consultant with Legal & General before joining an IFA business where he pioneered Guaranteed Income Bonds and created new types of income and growth investment products.

In 1984 he established a business specialising in broker funds before selling this and setting up a new business in 1992 focused on the traded endowment policy market. For the last ten years he has specialised in the structured product arena working closely with the derivatives desks at a number of leading banks and designing the products for the retail and corporate markets.

At Meteor he can fully exploit his wide range of banking contacts, which extend around the globe, with a view to securing the best terms possible for our clients.

Susan Valler, Compliance Director:

A Fellow of the Chartered Insurance Institute and former Chairman of the Investment and Life Assurance Group (ILAG) Susan has specialised in the area of compliance for nearly 20 years.

Prior to specialising in the compliance arena she was the Administration Manager of a life assurance company. Since moving into Compliance she has developed and implemented compliance procedures, systems, control, risk mitigation and internal audit programmes in a number of different environments. Other key areas of input include working with the product development and marketing departments, as well as the handling of issues relating to Treating Customers Fairly.

Her role on the ILAG Regulations committee means she has an excellent working relationship with and knowledge of the FSA and brings a wealth of experience to Meteor in this vital area.

Principal Biographies

16


Meteor Asset Management

Fund Management Structured Products

Meteor Senior Life SettlementsSterling Fund

Protected Equity Funds:UK

Europe

Meteor Clean Energy Fund

Meteor UK Property Funds:CommercialResidential

e.g. Prima Series

Bespoke Products:LeverageProtected

AutocallableGrowthIncome

Linked to:Equities

Fixed IncomeCommodities, FX

Funds

Cashcade (Enhanced Cash Fund)

Product Range

17

Structured Products

Meteor are ideally positioned to provide bespoke structured products to fit the exact specifications for investors portfolio requirements

We have key relationships with leading investment banks in order to procure the best prices as well as having a varied choice of counterparty depending on the risk objectives of our clients

Products can be created to help hedge systemic portfolio risks (equity, interest rate, currency…) as well as simply satisfy stringent portfolio performance objectives

Products can be linked to any asset class including equities, bonds, currencies, commodities and funds

Flexibility: Products range from capital protected, leveraged, defined maturity, autocallable including capital growth and income options

We have the experience and expertise to work closely with our clients and industry counterparties to create completely flexible products at the right price in a timely manner

Bespoke Service

18

Prima Growth Plan 15

An autocallable structured product offering 11.25% per annum (not compounded) with 5 early maturity opportunities

Investment returns linked to the performance of the FTSE100 (the Index)

No Index growth required to achieve quoted returns

Early maturity will be triggered as long as the level of the Index is at or above its Opening Level at any anniversary date

100% capital return provided the Index doesn’t fall by more

than 50% over the term of the investment

Should the Index fall by more than 50% and not recover

by the end of the investment term there will be a capital loss

of 1% for each 1% the Final Index Level is below the

Opening Index Level

Available to 26 May 2009

Please refer to the brochure for full plan details

Active Product Example

19

Prima Plus Plan 6

An autocallable structured product offering 9% per annum (not compounded) with 9 early maturity opportunities

Investment returns linked to the performance of the FTSE100 and DJ EuroStoxx50 (the Indices)

No Index growth required to achieve quoted returns

Early maturity will be triggered as long as the level of the Index is at or above the pre-determined barrier levels at any anniversary date. The pre-determined Index levels are 100% of their Opening Levels at the end of year 1, 95% at the end of year 2, 90% at the end of year 3, 85% at the end of year 4, 80% at the end of year 5 and 75% at the end of years 6-10.

100% capital return provided the neither of the Indices are

more than 50% below their Opening Levels on 19 June 2019

If one or both of the Indices are more than 50% below their

Opening Levels on 19 June 2019 capital will be reduced

by 1% for each 1% the lower performing Index finishes below

its Opening Level

Available to 12 June 2009

Please refer to the brochure for full plan details

Active Product Example

20

G7 Countries Income Structure– 5 year investment term– Linked to the G7 countries (UK, USA, France, Germany, Italy, Japan, Canada)– Income of LIBOR + 0.90% paid each year (distributed quarterly)– Full return of capital at maturity providing none of the G7 countries default on their debt – If any G7 member state defaults on its debt then capital and future income reduced by 1/7 th at maturity for each one that does

Income Structures

Local Currency Foreign CurrencyMoody's S&P Fitch Moody's

Name 5Yr CDS Rating Date Rating Date Rating DateCanada LIBOR + 24 bps Aaa 03/05/2002 AAA 14/10/1992 AAA 26/10/1995French LIBOR + 27 bps Aaa 28/09/1988 AAA 17/03/1995 AAA 26/10/1995Germany LIBOR + 23 bps Aaa 29/04/1993 AAA 17/03/1995 AAA 26/10/1995Italian LIBOR + 76 bps Aa2 15/05/2002 A+ 19/10/2006 AA- 19/10/2006Japan LIBOR + 51 bps Aa3 30/06/2008 AA 23/04/2007 AA- 21/11/2002UK LIBOR + 64 bps Aaa 27/04/1993 AAA 06/10/1993 AAA 26/10/1995USA LIBOR + 27 bps Aaa 06/02/1996 AAA 17/03/1995 AAA 26/10/1995

Data as at 12 May 2009

Proposal

21

FTSE 100 ’20 Stock’ Income Structure- 5 year investment term- Linked to 20 stocks across a broad range of industries in the FTSE 100- Will not be linked to ‘Tobacco’ or ‘Arms’ companies at the request of the Hospice- Income of LIBOR + 3.0% paid each year (distributed quarterly)- Full return of capital at maturity providing none of the 20 stocks default on their debt- If any company defaults on its debt then capital and future income is reduced by 5% for each one that does

Income Structures

Short Name Market Cap Price 11/05/09 EPS T12M 5Yr CDS S&P CreditANGLO AMER PLC 21090179072 1602 4.34 283.59 BBBAVIVA PLC 9303095296 350 -0.35 245.30 ABRIT AIRWAYS PLC 1873490944 162.4 0.13 680.98 BBCABLE & WIRELESS 3959994112 156 0.06 234.84 BB-MAN GROUP PLC 4189017088 245.25 0.88 420.17 BBB+GLAXOSMITHKLINE 53077131264 1023 0.86 67.81 A+HAMMERSON PLC 2274780928 327 -3.69 632.24 NRHSBC HLDGS PLC 99443826688 578 0.41 89.00 AA-INTL POWER PLC 4024126976 264.5 0.34 673.77 BB-INVENSYS PLC 1590115968 198.4 0.42 204.77 BB+KINGFISHER PLC 4185771008 177.3 0.09 178.84 BBB-PRUDENTIAL PLC 11298690048 452.5 -0.16 353.30 A+ROYAL BK SCOTLAN 25984600064 46.1 -1.46 149.66 AREXAM PLC 1898221952 295.25 0.27 249.68 BBB-SABMILLER PLC 18261929984 1211 1.66 160.00 BBB+WPP PLC 6029804032 481.25 0.38 275.80 BBBXSTRATA PLC 20604409856 702.5 2.12 460.05 BBBLEGAL & GEN GRP 3985942016 68 -0.18 516.73 A+3I GROUP PLC 1602089984 380 -5.2 842.06 BBB+NATIONAL GRID PL 14181869568 583 0.5 154.07 A-

Proposal

22

HPI (Halifax Price Index) Growth Structure- 5 year investment term- Linked to the movement in the HPI which is an indicator of residential property prices- 100% Capital Protected at maturity- 100% of the rise in the market over the 5 years- If the market ends at a lower point, full return of capital

Growth Structures

Re-Based (100) Index ComparisonFeb 83 - Apr 09

0

100

200

300

400

500

600

700

800

Feb

-83

Feb

-84

Feb

-85

Feb

-86

Feb

-87

Feb

-88

Feb

-89

Feb

-90

Feb

-91

Feb

-92

Feb

-93

Feb

-94

Feb

-95

Feb

-96

Feb

-97

Feb

-98

Feb

-99

Feb

-00

Feb

-01

Feb

-02

Feb

-03

Feb

-04

Feb

-05

Feb

-06

Feb

-07

Feb

-08

Feb

-09

HBOS House Price Index

Proposal

23

FTSE ‘Bull & Bear’ Structure- 5 or 6 year investment term- Linked to FTSE 100 and can create a return in both positive and negative markets- 100% Capital Protected at maturity- Downside barrier of 25% (FTSE at 3300 points) and upside barrier of 50% (FTSE at 6750

points)- 100% of the rise in the market between these barriers- Upside capped at 10% simple growth only if the market ends 5 year term at over 50% growth

Growth Structures

Re-Based (100) Index ComparisonJan 84 - Apr 09

0

100

200

300

400

500

600

700

800

Jan-

84

Jan-

85

Jan-

86

Jan-

87

Jan-

88

Jan-

89

Jan-

90

Jan-

91

Jan-

92

Jan-

93

Jan-

94

Jan-

95

Jan-

96

Jan-

97

Jan-

98

Jan-

99

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

FTSE 100 Index

Proposal

24

Income & Growth Structures

100% Allocation (No initial charge)

No Ongoing Annual Charges

Meteor Costs Built in at outset

Daily Priced and nominal administration fee on exit

Future revenue and profit for Meteor is dependent on ‘successful’ initial structures over

the first 5 years to highlight to the Trustees the benefits of investing for a further 5 year

period at maturity of the various structures

Cost of Solutions

25

Autocallable structures are very popular at the moment

Historically high levels of volatility in equity markets make for attractive coupons with possibility of early redemption Current products pay out early if markets trade sideways or up offering attractive returns in uncertain times

Investors need to be secure with both the payoff profile of the product and the levels of protection inherent in the them as well as the credit quality of the underlying issuer

Many banks have been downgraded in the last 12 months so choosing the right counterparty requires in depth due diligence

Risk Considerations

15 May 20095Y CDS 1Y CDS S&P LT Rating

BNP PARIBAS 89.70 85.12 AAHSBC HLDGS PLC 92.00 92.00 AA-BANCO SANTANDER 100.05 104.78 AABBVA 101.46 104.81 AASOC GENERALE 106.29 106.32 A+CREDIT AGRICOLE 110.64 109.57 AA-DEUTSCHE BANK 113.67 120.60 A+COMMERZBANK 116.99 112.66 AJPMORGAN CHASE 120.52 149.67 A+CREDIT SUISSE 128.00 136.03 ARABOBANK 129.64 141.08 AAAUBS AG-REG 157.81 160.52 A+BARCLAYS PLC 160.10 161.03 AA-LLOYDS BANKING 169.19 170.73 AROYAL BK SCOTLAND 178.65 174.34 ASTANDARD CHARTER 186.33 186.33 AGOLDMAN SACHS 190.27 226.10 ABANK OF AMERICA 210.07 269.64 AMACQUARIE GROUP 239.97 200.58 A-NOMURA HLDGS 272.00 235.50 BBB+MORGAN STANLEY 288.37 364.91 AMERRILL LYNCH 308.74 440.94 ACITIGROUP INC 408.82 520.79 A

26

Autocallable Structures Explained

Autocallable structures are designed to appeal to investors who have an uncertain view on a given underlying investment that is not necessarily bullish or bearish

The product is designed to offer a pre-determined performance coupon over a specific time period based on the underlying asset being above its initial strike level on day 1 on any given pre-determined observation date

Autocallable structures can be both capital at risk and capital protected. If capital protected, an attractive coupon payoff can only be achieved if some capital is put at risk should a low barrier be breached by the underlying asset.

For instance, if the barrier is 50%, the underlying asset would have to fall by 50% (or more) before any capital is put at risk

Typically, if the underlying asset recovers this loss and ends up greater than 100% on any given observation date (n), then the (coupon * n) payoff would still be achieved.

If, at maturity, the underlying asset has not recovered then the capital returned to investors will be initial investment – underlying asset performance at maturity

Autocallable structures typically comprise a bond (synthetic zero coupon bond) and derivatives

Aside from the investment risk inherent in the structure, investors should also be aware that the products are only as safe as the underlying bank issuing them

Product Objective

27

Diagrammatic Overview

Inherent Income Streams:

Sell OTM Call Option = Premium

Sell OTM Put Option = Premium

Index and Deposit Dividends =

Premium

1

2

3

Maturity

100%

-50%

80%

T0 T1 T2 T3 T4 T5

14%

28%

42%

56%

70%

1

2

Synthetic ZeroCoupon Bond

-50% Barrier

Autocall Level

84%

92%

See overleaf of explanation


28

Overview Explanation

The autocall structure contains inherent revenue streams in order to purchase securities and ultimately pay out a pre-defined coupon (14% * n) as well as principal returned in full

There are 3 revenue streams Premium earned from selling an out of the money (OTM) call option (capped upside potential in structure) Premium earned from selling and OTM put option Dividends from Equity Index and deposit

Revenue streams are required to be enough to cover: Structure coupon (No of years (n) * 14%) Shortfall between level of synthetic Zero Coupon Bond (ZCB) and 100% initial capital

Scenario 1: Index up in Year 1 (T1), product calls. Premiums earned would need to cover: 14% coupon ZCB: 100 – 84 = 16% Total = 30% (Premiums earned in Year 1)

Scenario 2: Index up by Year 3 (T3), product calls. Index down 10% in T1, down 10% in T2 and up 25% in T3. Year 1 and 2 do not satisfy the callable criteria but

by the end of Year 3, the index is above its initial level on day 1. Premiums earned though the life of the product would need to cover:

42% coupon ZCB: 100 – 92 = 8% Total = 50% (Premiums earned and Year 1, 2 and 3)


29

Index Level

Return onRedemption Date

Product terminates at 114% after Year 1



50%0%

100%

§ Underlying:

§ Payoff at maturity: 1. Index>= 100%: 100% + (n x Coupon), else: 2. Index> 50%, <100%: 100%, else:3. Index>-50% Percentage level of negative

Index

Equity Index

§ Knock In Put Barrier:

50%, only observed at maturity

§ Maturity: 3 years

§ Coupon: 14%

Product example Illustration

Zero bond with conditional maturity (it will repaid early, if the Equity Index is above 100% of it’s initial level on one of the observation dates)

A series of long digital options with annual observation dates on the Equity Index with barrier 100%

A series of short digital options with a barrier of 50% on the Equity Index with digital payout of 50% and a short put with strike 50% on the Equity Index

Product Composition

Price Factors Rates Price Volatility Price Correlation Price Dividend yield Price

↑ →↓ ↑ ↓ ↑ ↑ ↑ →

Product Example


30

Scenario Analysis

Start Date

Year 1

Year 2

Year 3

Fixing of the initial value Offer Price 100%

Equity Index > 50%? Payout: 100%

% Level of the Equity Index -

yesEquity Index > = initial level?

no

Equity Index > = initial level?

Equity Index > = initial level?

no

no

no

Payout: 114%

Payout: 128%

Payout: 142%

yes

yes

yes

Zero Bond: Zero bond with conditional maturity, i.e. it will repaid early, if the Equity Index is above 100% on one of the observation dates

Rationale: Facilitates the capital guarantee Long digital option: with annual observation dates on the Equity Index with barrier 100%; digital payout depending on the

timing of the coupon being triggered (No of year since inception x coupon) Rationale: Facilitates the coupon payments Short options: Short digital option with barrier 50%, digital payout of 50%. Short put strike of 50% on the Equity Index: 3

year maturity with knock out, if early redemption was triggered Rationale: To finance the long option and capital guarantee in case of early redemption

Autocall Decomposition


31

Rising levels in the underlying will lead to increases in price of the Autocallable

The coupon payout levels are the upper limit for any value increases as the product payout is capped at those levels

The product payout is linked to the performance of the Equity Index

Rising volatility will reduce the value of the product. The maximum payout is capped, at the same time the investor only has a soft capital guarantee, i.e. for any falls in the underlying beyond the barrier he will fully participate in the downside

Pricing Factors

Digital Options

Digital options have a discrete rather than a continuous payout profile. There are two types of digital options: “cash-or-nothing“ and “asset-or-nothing“. The former pays out a predefined amount, if the strike has been crossed. The latter pays out the value of the underlying if the strike is crossed. Digital options which never crossed the strike expire worthless and the investor loses his option premium.

Strike

Underlying

Pay

out

Underlying

Pay

out

Strike

Vanilla Call “Cash-or-Nothing” Call

Hedging a “Cash-or-Nothing“ Call

Digital options can be replicated using call spreads. A digital option with a payout of 14% can be replicated by a 86% - 100% call spread. The call payout of 14% will only be paid to the investor, when the underlying is above the 100% level on the observation date. The trader is therefore over hedged, which is the name of this strategy (“over hedge-strategy”).

86%0%

14.0%

100%

Underlying

Volatility


32

Solutions that are ‘removed’ from the volatile nature of world stock markets

Solution to Virtually ‘Zero’ Cash Rates

Income & Security of assets aligned as primary objective

Growth Strategies implemented with ‘Protection’ caveat & ‘crystallisation’ mechanism

Utilising completely non-correlated asset class to aid with income generation

Returns achieved with risk profile well within given parameters

Summary and Questions

1 this information is for professional investors only and should not be presented to, or relied upon...

Documents

structured products

structured vehiclesold

declinesstructured products

professional investors

stock market growth

stock market recovers

unfamiliar marketto

obvious potential merit