Marketing Communication - For Professional Clients Only

Yield enhancement and downside protection

Adapting to changing demographics

November 2012

29 November 2012 2

Contents

1. Living longer and longevity risk ……………………………………………………(pg. 3)

2. Impact for private client managers ………………………………………………...(pg. 6)

3. Case Study 1: IFSL Harewood US Enhanced Income OEIC Fund ................(pg. 10)

4. Contacts Us ……………………………………..…………………….……..….……(pg. 17)

Living longer and longevity risk 1.

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Medical advances and healthier lifestyles means that life expectancy is rising and there is no sign that this

trend is about to stop anytime soon!(1)

Life expectancy in the US is increasing by one to three months every year(2)

More than 2 million people presently aged over 50 in the US will live to be older than 100 (17% of the present

population!)(3)

29 November 2012 4

Living longer

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UK Infant Mortality Rate (LHS) UK Life Expectancy (RHS)

Source: 1) OECD Health Data 2011 – Frequently Requested Data 2) Aegon – What is the right price for removing longevity risk 3) Department for Work and Pensions – Number of Future Centenarians – December 2010

Deaths per 1,000 live births Years

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Longevity Risk

Longevity risk simply refers to the risk that an individual will outlive his or her assets*

According to Aegon, every year of additional life expectancy is generally thought to add about 3–4% to future

pension requirements in the US(1)

Possible 31 years retirement!

*The purpose of this presentation is to deal with longevity risk from a private client manager perspective. The objective is not to deal with hedging mortality risk from an insurance company perspective Source: 1) Aegon – What is the right price for removing longevity risk 2) Morningstar and Annuity 2000 Mortality Tables – Transactions, Society of Actueries, 1995-1996 Reports

In the US, for a couple aged 65 who is about to retire, there is a 50% chance that one of them will live to age

91, and a 25% chance that at least one of them will live to age 96 (source Morningstar)(2)

Impact for private client managers

29 November 2012 6

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30010Y Government Bond Yield (LHS) UK RPI(RHS)

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29 November 2012 7

Key Challenges to Life-Cycle Investing

Traditionally, investors’ retirement planning means investing in risky assets (i.e. stocks) at the beginning of

the work life and gradually shifting holdings to bonds as retirement nears

Two keys challenges

Declining Bond Yields No longer sufficient for increasing retirement periods

Rising Inflation Declining real returns

Source: Bloomberg. Data is computed from 27/02/1989 to 31/03/2012. Tickers: UK RPI (UKRPI Index), 10Y UK Government Bond Yield (GUKG10 Index)

How can we help clients to meet their financial needs in post-retirement for over 25 years and preserve their

capital against the eroding impact of inflation, all within a tight risk-budget?

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Eurostoxx 50 FTSE 100 S&P 500

Look for ways to keep exposure to equity while mitigating the downside risk

29 November 2012 8

Source: Bloomberg. Data is computed from 03/01/00 to 30/09/11. Tickers: Eurostoxx 50 (SX5E Index), FTSE 100 (UKX Index), S&P 500 (SPX Index)

Necessity to keep exposure to equity in post-retirement

100% allocation to bonds does not work with very long post-retirement life

However equity downside risk must be mitigated for cautious, income-seeking investors

Some investors have been significantly affected by the recent market downturn

Keeping a defensive exposure to equity in post-retirement

29 November 2012 9

Risk Management and Longevity Risk

Bonds

Re

turn

Risk

Tweaking the Risk/Return Profile of Traditional Assets

Hybrid Equities and Defensive Strategies

Two Approaches to Investing for Longevity

Hybrid Equities Enjoying the benefits of non-linear payoffs and risk reduction

Defensive Strategies Capturing market increases while limiting the impact of any decreases

Hybrid

Equities

Equities

For illustration purposes only

3. Case Study 1: IFSL Harewood US Enhanced

Income OEIC Fund

29 November 2012 10

Fund Overview

IFSL Harewood US Enhanced Income Fund

(the “Fund”)

Exposure

to the

S&P 500 TR

Index

Dividend

Yield

Enhancement

Reduced

Volatility

vs. S&P 500 TR

Index

29 November 2012 11

Covered Call on the S&P 500 TR Index = Long exposure to the Index + Sale of call options on the Index

Key point: The premiums generated by the sale of call options create a cushion against potential market falls

The greater the risk in the market, the greater the cushion

However, upside participation is capped due to the sale of call options

S&P 500 TR Index

Cushioning effect increases

with higher volatility

Index price level

Performance of the strategy

The Covered Call strategy

For illustrative purposes only

How does a Covered Call strategy work?

29 November 2012 12

29 November 2012 13

Call options are sold on each scheduled trading day and expire 15 scheduled trading days thereafter

The daily sale of call options provides more reactivity to market trends:

No longer dependent on one single point of the market movements

Benefit from the increase in volatility during a bearish market

Closely follow the upward trends of the market

Traditional Covered Call: Does not follow upward

trends

Optimised Covered Call: Captures changing market

conditions

Time

Performance

17/08/11

Upper limit of the

monthly option sold

17/08 Time

Performance

18/08 19/08…

1) The daily sale of call options*

For illustrative purposes only * Except in the event of a bull market with a very low level of volatility (<9%); in such a situation no calls are sold

How is the “traditional Covered Call strategy” optimised ?

Outperformance over the S&P 500 TR Index

1.25% p.a. outperformance

Performance analysis of the US Covered Call Strategy (Pro-forma)

IFSL Harewood US

Enhanced Income Fund

(Class B)

S&P 500 TR Index

Annualised return 2.71% 1.46%

Annualised volatility 17.40% 22.14%

Source: Bloomberg, BNP Paribas. Data ranges from 31 January 2001 to 31 October

2012. Performance simulations based on proforma data over the 31 January 2001 to 20

May 2010 period, and on historical performances from 21 May 2010.

Pro-forma Performance analysis (January 2001 – October 2012)

Source: Bloomberg, data ranges from 31 January 2001 to 31 October 2012. Past performance is not a reliable indicator of future results. Performance simulations based on proforma data over the 31 January 2001 to 20 May 2010 period, and on historical performances from 21 May 2010. Performance displayed is net of the annual management charge, and gross of any tax applied at the Fund level

Lower volatility than the S&P 500 TR Index

Lower volatility: Reducing the impact of market drawdowns on

portfolios for defensive, income-seeking investors

Enhanced yield

12 Month Net Yield is 7.70%

29 November 2012 14

0%

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140%

160%

IFSL US Enhanced Income Fund

S&P 500 TR Index (in GBP)

Gross Income Generated*

Feb-12 3.55%

May-12 1.90%

Aug-12 2.18%

Nov-12** 1.40%

Total (over 1Y) 9.03%

*Net of Charges

**Estimated: to be paid on the 30th of November 2012

29 November 2012 15

Lower volatility and limited drawdown (Pro-forma)

A better risk/return ratio in simulations, than the S&P 500 TR Index (composite GBP)

Calendar

monthly returns

IFSL Harewood US Enhanced

Income Fund (Class A)

S&P 500 TR Index

(composite GBP)

Min -9.58% -11.89%

Max 12.18% 10.53%

31 January 2001 –

28 October 2011

IFSL Harewood US Enhanced Income

Fund (Class A)

S&P 500 TR Index

(composite GBP)

Annualised Return 2.71% 1.46%

Annualised Volatility 17.40% 22.14%

Max Drawdown -35.23% -45.44%

Distribution of simulated rolling monthly returns of the Fund* Distribution of rolling monthly returns of S&P 500 TR Index (compo GBP)

Source: Bloomberg, data ranges from 31 January 2001 to 31 October 2012. *Past performance is not a reliable indicator of future results. Performance simulations based on proforma data over the 31 January 2001 to 21 February 2011 period, and on historical performances from 22 February 2011. Performance displayed is net of the annual management charge, and gross of any tax applied at the Fund level

A lower volatility in simulated historical returns than the S&P 500 TR Index

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Summary of Fund Details*

Collateral**

The Fund’s counterparty risk on BNP Paribas is mitigated through the posting of cash and/or

government and public securities issued by the following countries: Austria (AA+), Belgium (AA),

France (AA+), Germany (AAA), Sweden (AAA), Netherlands (AAA), UK (AAA), and USA (AA+)

Underlying

Investment

Exposure to the performance of the S&P 500 TR Index (Bloomberg: SPTR Index) and to BNP Paribas’

systematic daily enhanced Covered Call strategy on the Index through an OTC Derivative contract

with BNP Paribas as counterparty

Liquidity Daily at NAV

Launch date 22/02/2011

Classification UCITS III compliant UK OEIC Fund, authorised and regulated by the FSA

Currency Sterling Unhedged

Minimum

Investment £1,000

Tax Currently eligible for ISA; SIPP/SSAS; Offshore Bonds; Capital growth currently expected to be taxed

as CGT for direct investments (applied to UK tax residents)

Sedol Code B3RHSV1

ISIN Code GB00B3RHSV16

*The full terms and conditions of the Fund are contained in the Prospectus of the Fund dated 01 October 2011. Potential investors should read the prospectus before making a decision to invest in the Fund. In the event of discrepancy between the terms of this document and the terms of the Prospectus, the terms of the Prospectus will prevail. **The Fund is exposed to counterparty risk on BNP Paribas since it seeks to achieve its investment objectives by entering into a contract (OTC Derivative) currently with BNP Paribas as counterparty.

29 November 2012 16

Capital

Protection None: capital is fully at risk (equity income fund)

Tel: +44 (0)800 328 7419

Email: privalto@uk.bnpparibas.com

Website: www.privalto.co.uk

29 November 2012 17

Contacts Us

Privalto

Tel: +44 (0)800 595 8056

Email: harewoodsolutions@bnpparibas.com

Website: www.harewoodsolutions.com

Harewood Solutions

For Financial Advisers and Planners For Discretionary Fund Managers

29 November 2012 18

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Important Notice