August 31, 2007

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August 31, 2007

Hedge Fund Industry

2

Hedge Fund Industry Timeline

Inception: A.W. Jones

1st “Wave of Popularity”- Steinhardt- Soros- Emphasis on leverage

Quiet Period -Robertson launch-1982: Equity bull market begins

1st “Wave of Tears”- Small Cap Meltdown

1949-1965

1965-1969

1969-1974

1974-1986

1986-1998

1998-2000

2000-Present

2nd “Wave of Popularity”1987 Wall Street Crash

Leon Cooperman

2nd “Wave of Tears”-Traditional investing works-Hedge Fund growth falters-LTCM

3rd “Wave of Popularity”-2000 stock market bubble bursts-Hedge fund growth accelerates

Gro

wth

Timeline

3

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

Dec-98 Aug-99 Apr-00 Dec-00 Aug-01 Apr-02 Dec-02 Aug-03 Apr-04 Dec-04 Aug-05 Apr-06 Dec-06 Aug-07

Performance in Down Markets: January 1999 – August 2007

Outperformance: Bear Market protection and Bull Market participation

Hedge Funds v. U.S. Equities

Bull MarketCapture

Bear MarketProtection

Bull MarketCapture

HFRI Fund Weighted Composite

LABI

S&P 500 DRI

Source: HFRI Fund Weighted Composite (Hedge Fund Research). Past performance is not indicative of future results. See disclaimer page for further explanation.

4

Hedge Funds In Down Markets

Source: HFRI FW Composite: Hedge Fund Research (www.hr.com) Past performance is not indicative of future results. See disclaimer page for further explanation.

Performance in Down Markets: January 2000 – December 2002

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

$110,000

$120,000

Jan-00 May-00 Sep-00 Jan-01 May-01 Sep-01 Jan-02 May-02 Sep-02

MSCI World: -41%(Std Dev = 17%)

S&P 500: -38%(Std Dev = 19%)

HFRI Fund Weighted Composite: +8% (Std Dev = 8%)

Hedge funds outperformed traditional investments in falling equity markets.

5

Assets In Hedge Funds Are Growing…

Hedge Funds: Dollars Under Management & Net Asset Flow( 1990- 7/31/07)1

Includes Fund of Funds. 1 Source: Hedge Fund Research Industry Report Special Edition: July/August 2007. See last page for additional information.

$0 $8$91

$4

$126$39 $58 $96

$168 $167 $186$257

$368 $375$456 $491

$539$626

$820

$1,761

$136$55 $71 $74 $47$99

$47$23$57$15($1)$37$28

$973$1,105

$1,465

$(200)

$-

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 YTD2007

Net Assets Flow Assets

Ass

ets

(In

billi

ons)

6

610 8211,105

1,5141,945

2,3832,781 2,990

3,3253,617 3,873

4,454

5,379

6,297

7,436

8,661

9,4629,832

0

2,000

4,000

6,000

8,000

10,000

12,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 July2007YTD

Num

ber o

f Fun

ds

How can investors choose ?

The Number Of Hedge Funds Is Growing…

Source: Hedge Fund Research Industry Report Special Edition: July/August 2007

Estimated Number of Global Hedge Funds (1990 – 7/31/2007)

Permal employs approximately 200 managers, only about 2% of the managers in the industry.

8

Greater Institutional Demand

Global institutional investment in hedge funds projected to increase $1 trillion by 2010 1

1Source: Casey, Quirk & Associates and the Bank of New York, Oct. 2006

An estimated $360bn of global institutional investment is in hedge funds today.1

Institutions’ share of hedge-fund assets is expected to rise to 40% from 30% today.1

Institutions are expected to invest $510bn into hedge funds through 2010.1

Years 2006 – 2010 are estimated

0

100

200

300

400

500

600

700

800

900

1000

2005 2006 2007 2008 2009 2010

Projected Global Institutional Hedge Fund Assets

($ b

illio

ns)

9

Quality Of Hedge Fund Capacity

The hedge fund universe is perceived as having three distinct groups of managers:

Around 15% of managers are clear stars: they provide the prime capacity that is capable of generating risk-return characteristics in line with client expectations. The majority are based in the U.S.

A further 55% are wannabes who aspire to be stars before long. Many are based in Europe and also Asia/Pacific.

The remaining 30% are has-beens.

Sources: KPMG, 2005 “Hedge Funds, A Catalyst Reshaping Global Investment”

10

Sector(Total)5%

Macro11%

Equity Non-Hedge4%

Equity Hedge28%

Distressed Securities5%

Other5%

Convertible Arbitrage3%

Emerging Markets4%

Event Driven13%

Fixed Income (High Yield, Diversified,

Arbitrage, Convertible Bonds)

8%

Relative Value Arbitrage

14%

Growing Choice Of Hedge Fund Universe (By AUM)

“Other” includes strategies which represent less than or equal to 3% of the hedge fund universe. Source: Hedge Fund Research. See disclaimer page for further information.

Macro71%

Event Driven4%

Equity Hedge5%

Other7%

Relative Value Arbitrage

10%

Fixed Income 3%

As of December 31, 1990 As of July 31, 2007

Estimated composition by strategy

Approximately 610 Hedge Funds Over 9,800 Hedge Funds

11

The number of hedge funds that were liquidated in recent years has nearly tripled.

As Number Of Hedge Funds Increase, So Do Closings


Estimated Number of Funds Launched / Liquidated (1990 – Q2 2007)

507

261450

348 328

673

1087 1094

1435

2073

1518

251358

-109 -52 -115 -57 -71 -92 -162 -176-296

-848-717

-138 -166

-1000

-500

0

500

1000

1500

2000

2500

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Q12007

Q22007

Nu

mb

er o

f F

un

ds

12

Half of the Universe of Hedge Funds Is Small or Inexperienced

Estimated Fund Age Estimated Fund Size

There appears to be a shortage of experienced management and an abundance of relatively small sized funds .

< $50Million47%

$200 to $500 Million13%

>1 Billion 5%

$50 to $100 Million15%

$100 to $200 Million14%

$500 Million to $1 Billion

6%

>7 yrs24%

5 to < 7 yrs15%

< 5 years61%


13

Estimated Fund Age

There is a shortage of experienced managers


< 1 Yr

1 to < 2 Yrs

2 to < 3 Yrs

3 to < 5 Yrs

5 to < 7 Yrs

> 7 Yrs

24%

15%

25%

14%

7%

15%

Over 85% of the assets in Permal funds are invested with managers with over 20 years of investment experience

As of July 31, 2007

< 1 Yr

14

Risk / Reward Profile of Hedge Funds in 2006*

Hedge Funds’ Wide Dispersion Of Returns - 2006

This chart consists of approximately 1,300 distinct, active single manager funds which are tracked by the Hedge Fund Research database and are included in the HFRI Fund Weighted Composite.

The graph’s range was scaled down to +70% return and 40% standard deviation and excludes funds outside these limits.

-20%-15%-10%-5%0.005%10%15%20%25%30%35%40%45%50%55%60%65%70%

0.00 5% 10% 15% 20% 25% 30% 35% 40%

Ret

urn

%

-30

-10

10

30

50

70

90

0.00 10% 20% 30% 40% 50

Ret

urn

%

-30

-10

10

30

50

70

90

0.00 10% 20% 30% 40% 50%

Ret

urn

%

HFRI Equity Hedge Index Constituents in 2006

Source for all 3 charts: HFR Industry Report 2006. Excluded are funds in the HFR database which had not reported 2006 performance by January 31, 2007.

STD %

STD %STD %

Past performance is not a guide to future performance. See last page for disclaimer.

HFRI Macro Index Constituents in 2006

15

Performance By Strategy

Choosing a strategy can be a challenge

Source: HFRI Indices from Hedge Fund Research and Permal. Past performance is not a guide to future performance. See statement on last page.Lehman Agg Bond= Lehman Aggregate Bond Index; HFRI Fund Weighted Comp = HFRI Fund Weighted Composite Index

Emerging Mkts

-10.7%

MSCI World (Local)-9.6%

S&P 500 w/div -9.1%

Global Macro 2.0%

Fixed Income Arbitrage 4.8%

HFRI Fund Weighted Comp

5.0%

Event Driven

6.7%

Equity Hedge 9.1%

Lehman Agg Bond 11.6%

Convertible Arbitrage 14.5%

Equity Mkt Neutral 14.6%

2000

MSCI World (Local) 4.5%

Convertible Arbitrage 12.2 %

Global Macro 6.8%

Equity Hedge 7.7%

Equity Hedge 20.5%


Equity Market Neutral 6.7%

6

S&P 500 w/div 5.2%


12.9%Event Driven 7.3%

HFRI Fund Weighted

Comp 9.0%

Global Macro 21.4%

Emerging Mkts 3.7%

Global Macro 6.9%5




Global Macro 8.2%

Equity Hedge 11.7%

Event Driven 15.3%

S&P 500 w/div 15.8%


Emerging Mkts 24.3%

2006





Global Macro 4.4%

Event Driven 5.8%


6.2%

Equity Hedge 6.6%

Emerging Mkts 15.0%

YTD 8-31-07*

Convertible Arbitrage

-1.9%


S&P 500 w/div 4.9%

Fixed Income Arbitrage

5.6%



9.3%

Equity Hedge 10.6%


Emerging Mkts 21.0%

2005




Global Macro 4.6%


S&P 500 w/div 10.9%

MSCI World (Local)11.8%

Event Driven 15.0%

Emerging Mkts 18.4%

2004



MSCI World (Local) -13.9%

11


S&P 500 w/div -22.1%

S&P 500 w/div -11.9%

10


Equity Hedge -4.7%

Equity Hedge 0.4%9


Event Driven

-4.3%


4.6%8

HFRI Fund Weighted

Comp 19.6%


-1.5%


7

Event Driven 25.3%

Global Macro 7.4%Lehman Agg Bond

8.4%4



Emerging Mkts 10.4%

3

S&P 500 w/div 28.7%


Event Driven 12.2%2

Emerging Mkts 39.4%



1

200320022001

Emerging Mkts

-10.7%


S&P 500 w/div -9.1%

Global Macro 2.0%



5.0%

Event Driven

6.7%

Equity Hedge 9.1%




2000


Convertible Arbitrage 12.2 %

Global Macro 6.8%

Equity Hedge 7.7%

Equity Hedge 20.5%



6

S&P 500 w/div 5.2%


12.9%Event Driven 7.3%

HFRI Fund Weighted

Comp 9.0%

Global Macro 21.4%

Emerging Mkts 3.7%

Global Macro 6.9%5




Global Macro 8.2%

Equity Hedge 11.7%

Event Driven 15.3%

S&P 500 w/div 15.8%


Emerging Mkts 24.3%

2006





Global Macro 4.4%

Event Driven 5.8%


6.2%

Equity Hedge 6.6%

Emerging Mkts 15.0%

YTD 8-31-07*

Convertible Arbitrage

-1.9%


S&P 500 w/div 4.9%

Fixed Income Arbitrage

5.6%



9.3%

Equity Hedge 10.6%


Emerging Mkts 21.0%

2005




Global Macro 4.6%


S&P 500 w/div 10.9%


Event Driven 15.0%

Emerging Mkts 18.4%

2004



MSCI World (Local) -13.9%

11


S&P 500 w/div -22.1%

S&P 500 w/div -11.9%

10


Equity Hedge -4.7%

Equity Hedge 0.4%9


Event Driven

-4.3%


4.6%8

HFRI Fund Weighted

Comp 19.6%


-1.5%


7

Event Driven 25.3%

Global Macro 7.4%Lehman Agg Bond

8.4%4



Emerging Mkts 10.4%

3

S&P 500 w/div 28.7%


Event Driven 12.2%2

Emerging Mkts 39.4%



1

200320022001

*HFRI current month and prior three month values are left as estimates and are subject to change.

16

EQUITY

HEDGEHFRI Emerging Markets

HFRI Global Macro

HFRI Equity Hedge

T Bill 90 Day

S&P 500 DRI

NIKKEI 225 (Yen)

MSCI Europe Index (USD)HFRI Equity Market

Neutral

HFRI Fixed Income Arbitrage

HFRI Convertible Arbitrage

HFRI Fund Weighted Composite

NASDAQ

MSCI World Index (Local) Price Index

MSCI EMF (Emerging Markets Free) (USD)

-10%

-5%

0%

5%

10%

15%

20%

0% 5% 10% 15% 20% 25% 30%

Source: Investorforce & Hedge Fund Research. Past performance is not indicative of future results. See last page for further information.

Hedge Funds’ Role In A Diversified Portfolio

January 1, 1994 – January 31, 2005Return v Risk (January 1, 1990 – August 31, 2007)

Standard Deviation

An

nu

aliz

ed

Re

turn

By lowering volatility lower portfolio risk

By improving overall portfolio return

17

Statement

SOURCES:Hedge Fund Research, Inc. (HFR) is a research firm specializing in the collection, aggregation, and analysis of alternative investment information. The estimates contained in HFR Quarterly Industry Reports are based upon the HFR Database, which tracks the hedge fund industry (including fund of hedge funds). The HFR Database currently consists of information on over 6,800 funds and fund of funds Information on their hedge fund universe of established and emerging managers is collected directly from the fund managers and/or their respective offshore administrators. HFR has monitored and tracked performance and administrative data internally on over 11,000 domestic and international funds. www.hfr.com. HFRI Indices are equally weighted performance indexes, utilized by numerous hedge fund managers as a benchmark for their own hedge funds. The HFRI are broken down into 37 different categories by strategy, including the HFRI Fund Weighted Composite, which accounts for over 2000 funds listed on the internal HFR Database. Funds included in the HFRI Monthly Indices must: report monthly returns, report net of all fees returns, report assets in USD, have at least $50 Million under management or have been actively trading for at least twelve (12) months. HFRI was launched in January 1990 and is updated three times a month.HFRX Indices currently consist of eight single strategy indices and an asset-weighted Global Hedge Fund Index. In addition to meeting HFRI criteria, fund must be open to new transparent investment and meet track record and minimum asset size. Most HFRX Indices are priced daily. The inception date of the HFRX is 04/01/2003. Index values and returns provided prior to the inception dates were calculated by means of retroactive application of the index model.

Investor/Altvest Database - An extensive hedge fund on-line database of more than 2,700 hedge funds and hedge products with integrated analytical and reporting tools.

The indexes listed have not been selected to represent benchmarks for the Funds, but rather allow for comparison of a Fund’s performance to that of a widely recognized index. An investor cannot invest directly in an index. Index performance does not reflect fees and expenses of investing. Past performance is not indicative of future results. Performance figures are for Class A shares, reflect the reinvestment of dividends, distributions and other earnings and are net of Fund level expenses but not sales charges which may be up to 5.5% or taxes which would reduce the return. Fees and expenses are payable at the Fund level in addition to those of third party portfolio managers or their funds. The Fund may have high fees and expenses that would reduce gross returns. Performance may be volatile and the Fund’s NAV will fluctuate. Hedge Funds are speculative and involve a number of risks including those associated with the use of leverage, options, derivative instruments, distressed securities, futures, illiquid investments and short sales. In addition, alternative investment funds with an emphasis on specific industry sector and/or public and private companies present certain risks that may not exist in a more diversified portfolio. Multi-manager funds are dependent not only on the investment performance of individual managers but also on the ability of the investment manager to effectively allocate the fund's assets. Investors may not receive the full amount invested upon redemption or withdrawal. Exchange rate fluctuations may affect Fund returns. Fund allocations and holdings are subject to change. There is no assurance that the Fund’s objective will be attained. This material is not an offer or solicitation to subscribe for shares in the Fund and is by way of information only. Sales of shares are made on the basis of the offering circular only and cannot be offered in any jurisdiction in which such offer is not authorized. The Fund is not for sale in the US or to US persons, including US citizens and residents, and its sale is restricted in certain other jurisdictions. There are restrictions on transferring Fund shares. Investment in the Fund may not be suitable for all investors and prospective investors should consult their professional advisers as to suitability, legal, tax and economic consequences of an investment in the Fund. Permal believes that the information contained herein is accurate as of the date of the materials. No entity of the Permal Group makes any warranties of accuracy of the information and they shall not be liable for any losses or damages relating to it. To UK investors: This material is approved for issue in the UK by Permal Investment Management Services Limited ("PIMS") which is authorized and regulated by the Financial Services Authority (“FSA”). The Fund is not regulated under the Financial Services and Markets Act 2000 ("the Act") and consequently no protection is provided by the UK regulatory system.. Similarly, benefits available under the UK Financial Services Compensation Scheme do not apply. This document is only intended for distribution to persons permitted to receive it by the Financial Services and Markets Act (Promotion of Collective Investment Schemes) (Exemption) Order 2001 and the rules of the FSA, any investment to which this material may relate will not be made available to private customers. If you are in any doubt as to whether or not you may receive this material, please contact PIMS at 44 (0) 20 7389 1300. To Singapore investors: This material is distributed in Singapore by PIMS, Singapore branch, which is regulated by the Monetary Authority of Singapore. To Dubai investors: This information has been distributed by Permal Investment Management Services Limited, Dubai U.A.E. Related financial products or services are only available to wholesale customers with liquid assets of over $1 million, and who have sufficient financial experience and understanding, to participate in financial markets in a wholesale jurisdiction. Permal Investment Management Services Limited is duly licensed and regulated by Dubai Financial Services Authority (DFSA).

August 31, 2007 [P100-IFT.E-0807r2]

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August 31, 2007