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PRIVACY CHALLENGES

A Competitive Response

SENTINEL INTERNATIONALASSET MANAGEMENT

Goodman’s Bay Corporate Centre, West Bay Street, Nassau, BahamasTel: 242-502-7000 Fax: 242-356-7466 E-mail: tony@sentinelbahamas.com

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Contents

• Summary

• The Immediate Challenge to the Bahamas

• An Immediate Solution

• Product Concept

• The Colina FlexFund Deferred Variable Annuity

• The Strategic Alliance

• Appendix I: Colina Insurance Company Limited

• Appendix II: Sentinel International Asset Management (SIAM)

• Appendix III: SIAM Funds and PlusFunds.com

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Summary

• Fundamental trends promoting strong challenge to banking secrecy in the world’s no/low tax privacy havens

• Immediate problem for Bahamas-based institutions are the U.S. Qualified Jurisdiction/Qualified Intermediary rules

• One solution protecting relationship with private clients is insurance contracts legally providing privacy and unlimited tax deferral

• We propose an alliance that provides an insurance wrap for your private client relationships that:

– Protects the privacy of your clients

– Protects your relationship with your clients

– Offers new services that will benefit you and your clients

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The Immediate Challenge to the Bahamas

• Crises to be resolved

– U.S. has delayed grant of Qualified Jurisdiction status to Bahamas

– Prevents Bahamian bank eligibility for Qualified Intermediary status

– All clients owning U.S. assets face immediate exposure

• After January 1, 2000, beneficial owners of U.S. assets in custody must be reported, or

• 30/31% withholding on dividends, interest and gross proceeds of U.S. asset sales

– Competitive disadvantage with Cayman Islands (granted QJ status)

• New legislation may severely reduce banking secrecy

– Judiciary may lose power to protect banks from unreasonable intrusion

– Proposed Financial Intelligence Unit will have extraordinary enforcement powers

• Legal controversy on protection for trusts, IBC’s and mutual funds

– May provide temporary safe harbor

– Certain to come under early and intense attack

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An Immediate Solution

• We have an insurance product in place that

– Can immediately house new and existing assets held in the Bahamas

– Eliminates all individual and intermediary reporting requirements

– Legally defers taxes on U.S. investment income for an indefinite period

• Structured as an insurance wrap on private client relationship

– Protects the client

– Preserves flexible investment powers for advisor

– Strong lock-in effect on client assets

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Product Concept

• Structured as a Flexible Premium Deferred Variable Annuity

– Traditionally, legal way of deferring taxes on investment income in U.S.

– Meets U.S. tax deferral rules

– One time 1% excise tax paid by U.S. person for policy from non-U.S. insurer

• Flexible investment powers– Each policy has segregated reserve (asset) account owned by Colina

– Policy owner or agent directs selection of funds and activity

• No reporting requirements on investments or income prior to term of policy– By Company to Bahamas

– By insured to home Government

• Delivered by an alliance between– Private bank

– Client’s legal counsel

– Colina Insurance Company Limited (See Appendix I)

– Sentinel International Asset Management Ltd (See Appendix II)

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The Colina Deferred Variable Annuity

Colina FlexFund• Establishes segregated

series• Acts on policy owner

instructions• Accounts for investment

performance

Legal Entity• Applies for Policy• Sends funds to escrow

account• Selects funds

Colina Insurance• Approves and issues Policy• Transfers funds to Colina

FlexFund• Policy service

Other Funds• Requested by policy owner• Approved by Colina

FlexFund

Any Corporation• No/low tax jurisdiction• Owned by Colina FlexFund• Beneficial owner Colina

Insurance Company Limited• Directed by trusted private

bank approved by Colina• Any legal business• May hold any property

acquired via purchase or exchanges for private annuity

SIAM Managed Funds*• SSTIF (Money Market Fund)• SIAM U.S. Large Cap

Markets• SIAM Diversified

Investments• SIAM U.S. Growth Markets• SIAM Europe• SIAM Principal Protected

Bond Fund• SIAM Forfaiting• ABS SOS+ (high yield bond

fund)• Liquid Opportunities Plus*See Appendix III

Sentinel Bank & Trust• FlexFund Administration• FlexFund Accounting

SIAM• Directs FlexFund

investments• Evaluates new options

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Private Bahamian Bank

• Banking license

• Trust and corporate services

• Trading and investment management

• Relations with major U.S. and non-U.S. custodian banks

The Strategic Alliance

Bahamian Legal Counsel

• Client legal, estate and tax advice• Legal design of investment

products

Colina Insurance Company

• Bahamian domestic insurance company

• Delivery of investment products via fixed and variable annuities issued in Bahamas

• Asset Allocation

• Investment Products

• Optimal Delivery Vehicles for Privacy and Efficiency

Sentinel International Asset Management

• Investment product analysis and design

• Portfolio management for funds, private and institutional accounts

• Trading services for private and institutional clients

Atlantic Portfolio Analytics and Management, Inc

• Investment research and analysis• Securities database infrastructure• Product structuring

PlusFunds.com

• Internet fund marketplace• See Appendix I for more

information

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Appendix I

Colina Insurance Company Limited

• Founded in 1965

• Provider of health and life insurance for over thirty years

• Purchased from CIGNA in 1997 by INSCO

• A completely Bahamian company that provides comprehensive financial services

– No OECD business base

– No OECD ownership

• Reputation for integrity, trust and service– One of largest administrators of public company and Government pension

assets in the Bahamas

– Over 54,000 life and health policies in force

• Demonstrated record of innovation and performance– Founding member of Bahamas Stock Exchange

– Raised 80% of all capital in new public offerings in Bahamas in last year

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SENTINEL INTERNATIONALASSET MANAGEMENT

Appendix II

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Concept

• Deliver world class investment services in the international environment

• Providing clients a full range of investment alternatives with– Efficient and responsive client service– The highest standards of investment performance – Flexible delivery options that protect investor privacy

• Through an alliance of dedicated experts operating in the Bahamas

Sentinel International Asset Management is housed in the most modern facility in the Bahamas, with direct satellite and high bandwidth fiber optics cable access to the Internet.

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Client Service

• Offer the investment products that investors want– A full set of investment options

– Deep expertise in specialty market investments

– Strong trading skills and relationships

• House assets in the most effective vehicle available– Privacy

– Asset protection

– Tax efficiency

– Favorable conveyance properties

• Most modern electronic communications systems

• Solid operational support in all phases of asset management process

• Total commitment to the private conduct of private affairs

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Investment Services

• Comprehensive asset allocation analysis

• Internally managed funds where we offer a clear competitive advantage– Unique technologically driven investment strategies

– Benign transparency and protection for the investor

• Branded or third party funds to access the best available investment products

• Efficient trade execution for client accounts

• Delivery vehicles that optimize privacy and conveyance properties

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Investment Performance

• The prerequisites of good investment performance are

– Integrity of valuation and risk management analytics

– Trading discipline

– Operational efficiency

• Exploiting risks that are

– Measurable

– Manageable

– Necessary (to achieve the return objectives of the client.)

• Delivered in investment vehicles that

– Are structurally appropriate for the liquidity and risks of the underlying strategy

– Provide transparency and liquidity

– Maximize net returns to the investors

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Investment Technology• SIAM integrates the state-of-the-art computational

finance into its investment process

– Market and risk factor simulators• Treasury and swap based term structure models• Mortgage prepayment models• Credit default models

– Portfolio risk and return measurement• Large scale horizon return simulation• Generalized duration analysis• VAR and bounding case analysis

– Portfolio optimization systems

– Investment management process integrated with investment technology

• Data support infrastructure

– 160 Gigabyte database of 1.2 million securities including

• Agency mortgage passthrough and derivative securities• Treasuries and Agency securities

• Models and data on most structured ABS and MBS products

• Price histories for securities and options

– Ability to manage data on security or portfolio level

– Distributed processing across a network of high-end workstations

Example: SIAM analytic system defines horizon return profile for complex mortgage derivative portfolio at different degrees of leverage.

Portfolio Return Profile

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

4.8 5.3 5.8 6.3 6.8 7.3 7.8 8.3 8.8 9.3 9.8 10.3

5-Year Swap Rate at Horizon

One

-Yea

r To

tal R

etur

n

$100 MM Capital $75 MM Capital $50 MM Capital

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Delivery Vehicles

• Custom designs to meet all client needs – Transparency

– Liquidity and accessibility

– Privacy

• Optimally exploit combinations of all available legal structures– Private banking relationship with independent Bahamian bank

– Trusts

– Exempt corporations

– Funds

– Deferred variable annuity products

– Internet marketplaces

• Strategic alliances to provide all elements for products that meet the most exacting client specifications

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Management Expertise

• Jon M. Knight, Ph.D. As President of SIAM, Dr. Knight supervises the investment management process, research, product and business development. He has been providing economic and investment advice for over twenty-five years, serving as Chief Investment Officer for a US investment manager with over US$3 billion under management, as Vice President of U.S. financial technology company, Director of a Bermuda reinsurance company, and Director of Sentinel Bank & Trust, Ltd. Dr. Knight has also been an Associate Professor of Economics at the Florida Institute of Technology and served as Chief of Economic Forecasting for the Florida Legislature. He earned a Bachelors of Industrial Engineering from the Georgia Institute of Technology and a Master of Engineering and a Ph.D. in Economics from Texas A&M University. Series 3, 7, and 24 licenses in U.S.

• J. Anthony Huggins, Ph.D. As Managing Director of SIAM, Dr. Huggins is involved in product and business development and serves on several investment committees for funds operated by SIAM. He has been providing economic and investment advice for over thirty years, serving as President of a US$3 billion US investment manager, President of a U.S. financial technology company, Chairman of Board of a Bermuda life reinsurance company. Dr. Huggins also served as Chief Economist and Investment Strategist for Florida’s State Board of Administration (which manages the $100 billion State employee pension fund), and Chief Economic Advisor to Florida Governors Askew and Graham. Dr. Huggins earned his Ph.D. in Economics from Florida State University. Series 3, 7 and 24 in U.S.

• Raymond Pousaz, MBA As Managing Director of SIAM, Mr. Pousaz is involved in product and business development and serves on several investment committees for funds operated by SIAM. He has been providing financial and investment advice for over thirty years. acting as Managing Director of Swiss owned investment management firm in Nassau. General Manager of Uto Bank, a Zurich private bank, and Managing Director of Bankers Trust AG Zurich and Vice President of Bankers Trust Company. Mr. Pousaz is a graduate of Lausanne University and earned a Master Degree in Business Administration from the Harvard Business School. He was chairman of the Harvard of Club of Switzerland (Geneva) and is a director of numerous corporations.

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Investment Expertise

• Joseph E. Muehl, MBA Mr. Muehl is Managing Director of Trading at SIAM and serves as manager of two portfolios. He directs relative value analysis and trades all investments related to MBS collateral. He develops and executes hedging strategies using liquid Government Agency MBS passthrough securities for SIAM’s investment funds. Mr. Muehl has fourteen years of experience in actively trading MBS passthroughs for Wall Street firms such as Union Bank of Switzerland (UBS), Prudential Securities and Dean Witter Reynolds. Mr. Muehl earned a B.S. from Rutgers University in 1982 and an MBA from Fordham University in 1985.

• Jonathan P. Knight, Ph.D. Dr. Knight is Managing Director for Technology at SIAM and serves as portfolio manager of two portfolios. He is expert in the analysis and trading of mortgage related asset backed securities and mortgage derivatives. He manages risk modeling and due diligence efforts prerequisite to investing in these sectors. Dr. Knight was previously responsible for managing Levered Mortgage Arbitrage portfolios, overseeing the capital committed to levering and hedging mortgage derivatives and correlated instruments. Prior to SIAM, Dr. Knight was Director of Research for a US$3 billion U.S. investment manager. Before entering the financial arena, Dr. Knight’s technical background was in large-scale optimization of chemical process design. He earned his Ph.D. in Chemical Engineering with a minor in Applied Mathematics from MIT.

• Anthony R. Ferguson, CFA

As Managing Director of SIAM, Mr. Ferguson brings fourteen years of experience to his role as portfolio manager and trader for two of SIAM’s funds and directs the execution of equity trading for all client accounts. He is also Director of two insurance companies and Sentinel Bank & Trust, Ltd., past member of Securities Market Task Force and Director of the National Insurance Board. He has a degree in Finance from Acadia University and is past President of the Bahamas Society of Financial Analysts. He is currently a member of the Council of Examiners for the Association of Investment Management & Research (AIMR).

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Operational Expertise

• Richard T. Grelecki

Based upon twenty-five years of financial experience, Mr. Grelecki provides advice on business valuation and on the credit-worthiness of underlying collateral for asset backed security deals. He is Chief Operating Officer of a U.S. financial technology firm. Previously COO of US$3 billion U.S. registered investment advisor and past Chairman and CEO of Palm Beach Savings, a south Florida banking institution.

• Deborah Krise

Ms. Krise has over eighteen years experience in all aspects of portfolio operations, fund administration, and securities portfolio accounting for total return funds, hedge funds, insurance companies and banks. She has managed settlements, collections and payments, fund administration, and fund accounting functions. Ms. Krise has special expertise in accounting for all types of mortgage, asset backed and derivative securities and levered portfolio performance.

• Amy Sorrell

Ms. Sorrell has over ten years experience in all aspects of trading and managing the operations of both total return and levered capital portfolios. She has handled both trading of short-term instruments and active financing and collateral management of portfolio positions among multiple dealers. Moreover she has managed all aspects of portfolio operations, including establishing and maintaining credit lines with dealers and management of data management system integrity.

• Desiree ParkerMs. Parker has five years of experience trading Treasuries, Commercial Paper, and repurchase agreement transactions, and she executes equity trades on the behalf of client accounts. She is a member of the Association for Investment Management and Research, and was awarded the CFA charter in September 1999. Prior to joining the Investment Manager, Ms. Parker was a Senior Trust Officer for Ansbacher (Bahamas) Ltd. She holds a Bachelors Degree in Finance from Acadia University.

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Available SIAM Funds

PlusFunds.com

Appendix III

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SIAM Funds

FundI nvestorProfile Strategy Features

PlusFundPlatform

ABS SOS PlusPartners

Target Return:10-30%Risk Tolerance:ModeratelyAggressive

Unlevered market neutralinvestments in subordinateclasses of mortgage relatedasset backed securities

3-year redemptionlock

Quarterly coupon Returns uncorrelated

with major marketindices

Yes – See page23

Liquid OpportunityPlus Funds

Target Return:8-12%Risk Tolerance:Moderate to Low

Active trading of U.S.Government agency MBS,Treasury and derivativesmarkets

Unlimited monthlyliquidity – no fee

Minimal interest raterisk

Return uncorrelatedwith market indices

Yes – See Page23

SI AM PrincipalProtected BondFund

5-year horizonTarget Return:9-14%Very littleprincipal riskmaturity

Combination:(1) Active trading/ liquid

products(2) Opportunistic buy-in

distressed assets(3) 3rd party guarantor

5-year expectedmaturity

Principal protection atterm by Bear Stearns

May redeem monthlyat NAV with 2% fee

No

SI AM DiversifiedI nvestments

Target Return:10-50%Risk Tolerance:Aggressive

SIAM selects managers forestablished track record,clarity of risk factorsexploited, sound riskmanagement, compatibleliquidity provisions

Quarterlysubscriptions

Annual redemption

No

Sentinel Short TermI nvestment Fund

Target Return:short term bankdeposit ratesRisk Tolerance:Very Low

Conservative short-termhigh grade investmentsoptimized againstexpected liquidityrequirements

Bank client access Subscriptions daily Two-day notice for

redemptions Reserve fund

protection

No

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SIAM Funds

FundI nvestorProfile Strategy Features

PlusFundPlatform

SI AM U.S. Large CapMarkets

Target Return:S&P I ndexRisk Tolerance:Moderate

Assemble broadlydiversified portfolio of largecap U.S. based companieswith beta between 0.9 and1.1 versus S&P index

Monthly liquidity $10,000 minimum

initial investment No sales charge

No

SI AM U.S. GrowthMarkets

Target Return:NASDAQ I ndexRisk Tolerance:AggressiveGrowth

Assemble broadly diversifiedportfolio of U.S. based growthcompanies with beta between0.9 and 1.1 versus NASDAQindex

Monthly liquidity $10,000 minimum

initial investment No sales charge

No

SI AM EuropeTarget Return:EMU MarketI ndexRisk Tolerance:Moderate

Assemble broadly diversifiedportfolio of large cap EMUbased companies with betabetween 0.9 and 1.1 versusMorgan Stanley index of EMUbased companies

Monthly liquidity $10,000 minimum

investment No sales charges

No

SI AM ForfaitingTarget Return:15-60%Risk Tolerance:Very Aggressive

Purchases and serviceswhole loans andreceivables originated byCaribbean region bankinginstitutions for separateinvestor accounts

Separate portfolio foreach investor

Cash flows paid out asreceived

No sales charges

No

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PlusFunds.com

• Two SIAM offered hedge funds currently listed and included in PlusFunds.com hedge fund index

– ABS SOS Plus Partners, Ltd– Liquid Opportunities Plus Fund, Ltd

• PlusFunds.com has been developed to provide:

– Internet hedge fund marketplace

– Standardized fund structure

– Subscriptions and shares maintained through Euroclear or Clearstream

– Fund information published real time on www.plusfunds.com

• Daily risk analysis by S&P

• Daily or real-time valuation by Ernst & Young

• Bids and offers posted by primary dealer market makers

– Shares traded 22/6 on Bermuda Stock Exchange