Equilibrium Issue 3

Looking to save at least £10,000 and happy to hold the majority of your Deposit for four and a half years? Equilibrium Issue 3 could be right for you.

The last date applications can be accepted is 15 June 2012. However, the offer may close early if fully subscribed.

Your Deposit offers two distinct options:

If you close the Account before the Final Maturity Date, the return of your Deposit is not protected and will reflect investment conditions prevailing at the time. You will receive the Redemption Value less an administrative charge of £250 which may be less than your Deposit.

The ‘Fixed Rate Deposit’ and ‘Index Linked Deposit’ portions of the product are capital protected if you hold the Equilibrium Issue 3 account until the relevant maturity dates.

The last date applications can be accepted is 15 June 2012. However, the offer may close early if fully subscribed.

Each Relevant Index is exposed to equity markets. Prospective customers should understand that investments in instruments relating to equity markets may be negatively affected by global economic, financial and political developments, and that such developments, among other things, may have a material effect on the performance of each Relevant Index.

RBS UK Balanced Sector Index

The ‘RBS UK Balanced Sector Index’ was established in March 2009. The index is independently calculated by Standard & Poor’s.

The performance of the ‘RBS UK Balanced Sector Index’ is linked to the performance of up to 90 UK companies representing the different UK business sectors:

• Basic Materials
• Consumer Goods & Healthcare
• Consumer Services
• Financials
• Industrials
• Oil and Gas
• Technology & Telecommunications
• Utilities

As at the most recent semi-annual rebalancing date, there were not a sufficient number of eligible companies in the Healthcare sector, so Consumer Goods and Healthcare were merged to create one sector. The companies are included in the index because they all have shares listed in the UK and because they are one of the ten largest companies in their sector by Market Capitalisation (calculated by multiplying the number of shares of a company by its share price).

As with other stock market indices, the composition of the index will change from time to time, perhaps with newly created or growing companies joining the index or companies that merge with another company leaving or being replaced in the index for example.

Sector weightings within the index

Each of the sectors within the index is given an equal weighting on the semi-annual re-balancing date. This means that twice a year, each sector contributes an equal amount to the performance of the index. However, between re-balance dates, as the share prices of the companies move up and down, the weights of the companies, and hence the sectors, in the index will move up and down too. Companies within each sector are also equally weighted on these semi-annual dates.

On 1 December 2011, directly after the most recent semi-annual re-balance date the index was weighted 1/8th (12.5%) in each sector. More recently, on 2 March 2012, the sector weights were:

• Basic Materials (12.74%)
• Consumer Goods & Healthcare (12.31%)
• Consumer Services (11.32%)
• Financials (14.59%)
• Industrials (13.12%)
• Oil and Gas (12.24%)
• Technology & Telecommunications (12.02%)
• Utilities (11.67%)

One of the possible advantages of constructing an index this way is that unlike an index weighted by Market Capitalisation (such as the FTSE 100 Index), the ‘RBS UK Balanced Sector Index’ may avoid being overexposed to potentially volatile sectors or overweight in one particular company. Thus the index aims to provide a balanced, consistent performance in comparison to other UK stock market indices.

For more information on company selection criteria, index rules and index performance, please see www.rbs.com/ukbalancedsector.

RBS European Balanced Sector Index

The ‘RBS European Balanced Sector Index’ was established in November 2009. The index is independently calculated by Standard &Poor’s.

The performance of the ‘RBS European Balanced Sector Index’ is linked to the performance of up to 80 European companies representing the different European business sectors:

• Basic Materials
• Consumer Goods
• Consumer Services
• Financials
• Healthcare
• Industrials
• Oil and Gas
• Technology
• Telecommunications
• Utilities

These companies are incorporated and/or headquartered in Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and United Kingdom. The companies are included in the index because they are one of the eight largest companies in their sector by Market Capitalisation (calculated by multiplying the number of shares of a company by its share price).

As with other stock market indices, the composition of the index will change from time to time, perhaps with newly created or growing companies joining the index or companies that merge with another company leaving or being replaced in the index for example.

Sector weightings within the index

Each of the sectors within the index is given an equal weighting on the semi-annual re-balance date. This means that twice a year, each sector contributes an equal amount to the performance of the index. However, between re-balance dates, as the share prices of the companies move up and down, the weights of the companies, and hence the sectors, in the index will move up and down too. Companies within each sector are also equally weighted on these semi-annual dates.

On 9 September 2011, directly after the most recent semi-annual re-balance date the index was weighted 1/10th (10%) in each sector. More recently, on 2 March 2012, the sector weights were:

• Basic Materials (10.15%)
• Consumer Goods (10.48%)
• Consumer Services (9.36%)
• Financials (10.53%)
• Healthcare (10.03%)
• Industrials (10.51%)
• Oil and Gas (10.71%)
• Technology (10.17%)
• Telecommunications (9.09%)
• Utilities (8.97%)

One of the possible advantages of constructing an index this way is that unlike an index weighted by Market Capitalisation (such as the Euro Stoxx 50 Index), the ‘RBS European Balanced Sector Index’ may avoid being overexposed to potentially volatile sectors or overweight in one particular company. Thus the index aims to provide a balanced, consistent performance in comparison to other broad European stock market indices.

For more information on company selection criteria, index rules and index performance, please see www.rbs.com/europeanbalancedsector.

• What is the Equilibrium Issue 3?
• Could I lose my money?
• How do I open an Account?
• What is the minimum deposit amount?
• Can I add to my Account?
• Can I close the Account early?
• Will I pay any charges?
• What updates will I receive to track the performance of my Account?
• What risks do I need to consider before opening an Account?
• What about tax?
• What happens to my funds between the date on which my Account is opened and the Start Date of the three and a half year term?
• What happens if the RBS UK Balanced Sector Index or the RBS European Balanced Sector Index perform?
• Is the account right for me?
• Do I have to apply by a certain date?

What is the Equilibrium Issue 3?

Equilibrium Issue 3 (the ‘Account’) is a four and a half year structured deposit, designed to allow you to select from two deposit options. Each option provides the certainty of a fixed interest rate and the opportunity to participate in any potential gains of either the RBS UK Balanced Sector Index or the RBS European Balanced Sector Index. You will receive 100% of your Index Linked Deposit if you keep your money in the Account until the Final Maturity Date (subject to the risks described below).

Back to top

Could I lose my money?

The Account is designed to return your Fixed Rate Deposit on the specified Fixed Rate Maturity Dates and your Index Linked Deposit on the Final Maturity Date, irrespective of the performance of the Relevant Index. However, you could still lose some, or all, of your Deposit if the Bank defaults or becomes insolvent.

Back to top

How do I open an Account?

Simply complete the application form. Your Account, along with a Structured Deposit Cash Management Account (SDCMA) in the same name, if required, will be opened once the application has been returned together with the required documentation.

Back to top

What is the minimum deposit amount?

The minimum deposit amount is GBP 10,000.

Back to top

Can I add to my Account?

No. You cannot add to or amend your Deposit after the Closing Date for applications.

Back to top

Can I close the Account early?

There is no ‘cooling off period’. The Account is designed to have a four and a half year term from the Start Date (with staggered repayments) and we can only ensure the remainder of your Deposit is protected if the funds are held in the Account for the Term, though you are always subject to the counterparty risk of the Bank. A request to close your Account prior to the Final Maturity Date will only be permitted at the Bank’s discretion and may mean that you receive back less than your Deposit.

Should you wish to close your Account during the Term you will receive the Redemption Value of your Deposit less an administrative charge of £250. An estimate of the Redemption Value can be provided upon request and you will be given the opportunity to withdraw your instruction to close the Account should you wish to do so. The Redemption Value includes any accrued interest due on the Fixed Rate Deposit. If all of, or a portion of, the Fixed Rate Deposit has already been repaid, the Redemption Value is based on the remaining portion of any Fixed Rate Deposit and the Index Linked Deposit.

Back to top

Will I pay any charges?

All costs are already factored into the Account, so there are no additional fees or charges to pay providing you do not close your Account before the end of the Term.

Back to top

What updates will I receive to track the performance of my Account?

You will receive an initial confirmation that your Account has been opened. We will then send you annual updates on the performance of your Account. A separate communication will also be forwarded to you approximately six weeks prior to Maturity Date.

Back to top

What risks do I need to consider before opening an account?

It is important that you consider the following before deciding whether the Account is right for you.

• The Account has a fixed term of four years and is not suitable if you need easy access to your money or require regular income. If you need to close your Account before the Maturity Date, you may not receive back the full amount deposited. Partial withdrawals from the Account are not permitted in any circumstances. There is no ‘cooling off’ period for you to change your mind and get your money back once your application has been accepted.
• The use of the word ‘protected’ in relation to this Account refers only to our obligation to repay your Deposit at the Maturity Date, however, if the Bank defaults or becomes insolvent, then you may lose some, or all, of your Deposit. The Account is not guaranteed by any third party.
• As your Account is held in the Isle of Man, in the unlikely event of the Bank defaulting or becoming insolvent, you would not be afforded protection from the UK’s Financial Services Compensation Scheme. Your Account and the SDCMA will be opened and maintained in the Isle of Man. As a result, you may be afforded the protection of the Isle of Man Deposit Compensation Scheme (DCS) as set out in the Compensation of Depositors Regulations 2010. You can get more information about the Isle of Man Depositors’ Protection Scheme at www.fsc.gov.im/investor/dep_comp.xml.
• Funds deposited in the Account are not invested directly into the shares of the underlying listed companies. Instead, your funds are held in a deposit account with the Bank with Annual Returns linked to the performance of the Index. As you do not invest directly in shares, you will not receive any dividend payments.
• The Index is exposed to equity markets. Prospective customers should understand that investments in instruments relating to equity markets may be negatively affected by global economic, financial and political developments, and that such developments, among other things, may have a material effect on the performance of the Index.
• The account is available in Sterling only.
• Although your Deposit is protected if the Account is held until maturity (subject to the risks described above) the return from the Account may not be as much as if you had invested in a traditional deposit account.
• Inflation may reduce the purchasing power of your Deposit and any returns that you receive annually and on the Maturity Date.
• The Annual Return is limited to 6% per annum. If the FTSE 100 Index is always outside the Specified Range, no Annual Return would be paid.

Back to top

What about tax?

• If you are resident in the European Union (EU) you may be affected by the EU Savings Tax Directive (EUSD).
• The Bank will automatically exchange information about your identity and residence, the amount of savings income earned and the period it relates to with the tax authorities in the Isle of Man.
• More information on how the EUSD affects your accounts can be found in our Guide to the EU Savings Directive or by speaking to your normal point of contact.
• Please note our understanding is that any return on the Maturity Date from the element of the Account linked to the Index is not currently subject to Exchange of Information. In providing this information we are not acting as tax advisers and we strongly recommend that you seek independent professional advice for your personal circumstances as regards to all aspects of this Deposit.
• The Bank is not able to advise on any subsequent changes in legislation that may effect the Account or your return from it. It is your responsibility to declare any income and returns to the appropriate tax authorities.
• The statements above are not intended to be, nor should they regarded as, legal or tax advice and you should consult your own tax advisor to obtain advice about your particular tax treatment in relation to the Account. Tax treatment depends on your individual circumstances and may be subject to change in the future.

Back to top

What happens to my funds between the date on which my Account is opened and the Start Date of the four year term?

Your funds will be placed on deposit until the Start Date and will earn interest at 0.50% below the Bank of England Base Rate, provided that interest will not be less than 0.50%. Any interest earned prior to the Start Date will be added to your initial deposit and the total amount deposited into your Account. You must ensure that there are cleared funds in your Account by 28 June 2012.

Back to top

What happens if the RBS UK Balanced Sector Index or the RBS European Balanced Sector Index performance?

Whatever the performance of the RBS UK Balanced Sector Index or the RBS European Balanced Sector Index during the Term of your Deposit, your Deposit is protected against any falls in the Relevant Index by the Bank, providing you don’t close the Account before the end of the Term. However, note that you are subject to counterparty risk: if the Bank defaults or becomes insolvent, you may lose some, or all, of your Deposit. This is a limited offer deposit account. Due to the nature of this type of account, the offer may be withdrawn early and without notice if it is fully subscribed. In this event all funds received by the Bank will be returned to you in full without interest. The Account is available on a first come, first served basis.

Back to top

Is the Account right for me?

Is the Account right for me?

• You are happy to receive back portions of your Fixed Rate Deposit with a fixed rate of interest.
• You’re happy to hold your Index Linked Deposit for the full four and a half years.
• You’re looking for the potential to receive a return after four and a half years that is dependent on the performance of either the RBS UK Balanced Sector Index or the RBS European Balanced Sector Index or a combination of both.

Back to top

Do I have to apply by a certain date?

The final date that applications can be accepted is 15 June 2012. However, the offer may close early if fully subscribed.

Back to top

Account - the Equilibrium Issue 3 account, a structured deposit account opened and maintained in the Isle of Man.

AER - means the Annual Equivalent Rate. It shows what the interest rate would be if it was paid once each year. This lets you compare interest rates across different accounts and what return you can expect from your savings over time.

Average Closing Level - the average of the Closing Levels of the Relevant Index on the 5th calendar day of each month over the last 12 months of the Term, from and including 5 January 2016 to and including the Expiry Date. If the 5th calendar day is not a Scheduled Trading Day or is a Disrupted Day, the Closing Level of the Relevant Index will be taken on the next Scheduled Trading Day that is not a Disrupted Day.

Closing Date - 15 June 2012, being the last date applications can be accepted. However, the offer may close early if fully subscribed.

Closing Level – means the closing level of the Relevant Index on each Scheduled Trading Day that is not a Disrupted Day.

Date of Acceptance - the date on which we are in possession of both cleared funds and any information and documentation that may be required by us. If any of that documentation or information is not received before the offer is withdrawn or fully subscribed, we may be unable to open the Account for you and any funds received by the Bank will be returned to you in full without interest.

Deposit - the sum deposited prior to the Start Date together with any interest earned from, and including, the Date of Acceptance to, but excluding, the Start Date.

Disrupted Day - any Scheduled Trading Day on which the Index Sponsor fails to publish the level of the Relevant Index, or on which a Market Disruption Event has occurred.

EUSD - The European Union Savings Directive is an agreement between the Member States of the European Union to exchange information about customers who earn savings income in one EU Member State but live in another. Some jurisdictions have voluntarily put into place the same or equivalent measures. These include Switzerland, Jersey, Guernsey and the Isle of Man. In some circumstances retention tax may be allowable.

Expiry Date - 5 January 2017, being the date on which your final return is calculated unless such a date is not a Scheduled Trading Day or is a Disrupted Day in which case take the next Scheduled Trading Day that is not a Disrupted Day, subject to condition 16 of the terms and conditions, Alterations and amendments.

Final Level - means the Average Closing Level of the Relevant Index.

Final Maturity Date – 10 January 2017, being the date on which the Index Linked Deposit and any additional return will be repaid.

Fixed Rate Maturity Dates - means the dates on which the Fixed Rate Deposit and any fixed rate return will be repaid.

These are:

• First Fixed Rate Maturity Date (10% of deposit): 6 January 2014
• Second Fixed Rate Maturity Date (10% of deposit): 6 January 2015
• Third Fixed Rate Maturity Date (10% of deposit): 6 January 2016

Fixed Rate Deposit - 30% of the Deposit with three 10% portions, which are, respectively, to be paid back on three Fixed Rate Maturity Dates.

Index Linked Deposit - 70% of the Deposit is to be paid back on the Final Maturity Date with returns linked to the Relevant Index.

Index Sponsor - with respect to each Relevant Index The Royal Bank of Scotland Plc.

Initial Level - the Closing Level of the Relevant Index on the Start Date.

Last Date for Funds - 28 June 2012, the date by which funds must be received.

Market Capitalisation - calculated by multiplying the number of shares of a company by its share price.

Market Disruption Event - any material event which disrupts (i) the exchanges or futures exchanges upon which the constituents of the Index are traded or (ii) the ability of the Index Sponsor

Redemption Value - the fair market value of the Deposit at any point in time, which depends on various factors such as interest rates and the performance of the Relevant Index, less any costs relating to the unwinding of any hedging and funding arrangements.

Relevant Index - means the RBS UK Balanced Sector Index or the RBS European Balanced Sector Index.

Scheduled Trading Day - any day on which the Relevant Index is scheduled to be published.

SDCMA - a Structured Deposit Cash Management Account. This is a Cash Management Account as detailed within our Personal or Business Banking Terms & Conditions (as applicable) opened with the Bank for repayment of maturing funds and, any additional return and interest earned.

Security Details - the identifying words, codes and/or numbers agreed between you and us that are used in the security procedure and for identification purposes.

Start Date - 5 July 2012.

Term - the period from, and including, the Start Date to, and including, the Final Maturity Date.

'the Bank', we', 'us' and 'our'  - each mean The Royal Bank of Scotland International Limited, trading as NatWest.