A copy of this document, which comprises listing particulars relating to Bank of Scotland in accordance with the listing rules of The Stock Exchange made under Part IV of the Financial Services Act 1986, has been delivered for registration to the Registrar of Companies in Scotland as required by that Act. The Directors of Bank of Scotland, whose names appear below under "Directors and Advisers", accept responsibility for the information contained in this document. To the best of the knowledge and belief of the Directors (who have taken all reasonable care to ensure that such is the case) the information contained in this document is in accordance with the facts and does not omit anything likely to affect the import of such information. In connection with this issue, Cazenove & Co. may effect transactions on The Stock Exchange which stabilise or maintain the market price of the 9 1/4 per cent. Non-Cumulative Irredeemable Preference Stock at a level which might not otherwise prevail. Such stabilising, if commenced, may be discontinued at any time. Application has been made to the Council of The Stock Exchange for the 9 1/4 per cent. Non-Cumulative Irredeemable Preference Stock of Bank of Scotland, to be issued in connection with the Placing, to be admitted to the Official List. It is expected that such admission will become effective and that dealings will commence on Monday, 12th December, 1988. The Governor and Company of the BANK OF SCOTLAND Constituted by Act of Parliament 1695 Placing by Cazenove & Co. of £100,000,000 nominal of 9 1/4 per cent. Non-Cumulative Irredeemable Preference Stock at 102.5p per £1 nominal of Preference Stock CONTENTS Page Directors and Advisers 3 Definitions 4 Part I 1. Activities 5 2. Financial Record 5 3. Current Trading and Prospects 5 4. Reasons for the Placing 5 5. Proposed Division of Ordinary Stock 6 Part II The Placing 7 Part (II Financial Information 8 Part IV Stock Rights 21 Part V Further Information 26 2 DIRECTORS AND ADVISERS Directors Sir Thomas Risk, BL, LLD, FRSE (Governor) Lord Balfour of Burleigh, CEng, FIEE, FRSE (Deputy Governor) D. B. Pattuilo, BA, FIB(Scot) (Deputy Governor and Group Chief Executive) A. S. Bell, FFA, FPMI J. E. Boyd, CA J. G. S. Gammell, MBE, CA T. O. Hutchison, BSc Professor R. B. Jack, CBE, MA, LLB N. Lesseis, CA D. J. MacLeod, CBE, CA J. M. Menzies A. M. Pelham Burn, JP, DL A. M. Rankin, CBE R. P. Reid, MA, LLD Sir Robert Smith, CBE, MA, LLD, CA, FRSE M. F. Strachan, CBE, FRSE Secretary H. K. Young, CA, FIB(Scot) Financial Advisers The British Linen Bank Limited 4 Melville Street Edinburgh EH3 7NS Auditors Arthur Young Chartered Accountants 17 Abercromby Place Edinburgh EH3 6LT Solicitors to Bank of Scotland Tods Murray, W.S. 66 Queen Street Edinburgh EH2 4NE Solicitors to the Placing Shepherd & Wedderburn, W.S. 16 Charlotte Square Edinburgh EH2 4YS Brokers Cazenove & Co. 12 Tokenhouse Yard London EC2R 7AN Bell Lawrie Limited Erskine House 68 Queen Street Edinburgh EH2 4AE Registrars Bank of Scotland Registrar Department 26A York Place Edinburgh EH1 3EY 3 DEFINITIONS The following definitions apply throughout this document unless the context requires otherwise: "Bank of Scotland" or "the Bank" The Governor and Company of the Bank of Scotland. "Bank of Scotland Group" or Bank of Scotland and its subsidiary companies. "the Group" "Board" or "the Directors" the Board of Directors of Bank of Scotland. "British Linen Bank" The British Linen Bank Limited. "the Executive Scheme" the Bank of Scotland Executive Stock Option Scheme. "G10 Central Banks" the central banks of Belgium, Canada, France, West Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom and the United States of America. "Ordinary Stock'' the existing Capital Stock of Bank of Scotland and any further Capital Stock ranking pari passu therewith which may be created in the future. "the Placing" the placing by Cazenove & Co. of Preference Stock as described in Part II of this document. "the Placing Agreement" the agreement described in Part II of this document. "Preference Stock" the 91 /4 per cent. Non-Cumulative Irredeemable Preference Stock of Bank of Scotland which it is proposed to create and which it is proposed the Board would be given power to allot in terms of the Resolutions. "the Regulations" the Regulations for the Management and Administration of Bank of Scotland. "the Resolutions" the Resolutions to be proposed at the Extraordinary General Meeting of the Proprietors of Bank of Scotland to be held on Friday, 9th December, 1988. "the Savings Scheme" the Bank of Scotland Savings-Related Stock Option Scheme. "the Stock Ownership Scheme" the Bank of Scotland Profit Sharing Stock Ownership Scheme. "The Stock Exchange" The International Stock Exchange of the United Kingdom and the Republic of Ireland Limited. 4 PART I 1. Activities Bank of Scotland, which was established by Act of the Scottish Parliament in 1695, is a major British clearing bank with its headquarters in Edinburgh. It has over 500 branch outlets in Scotland as well as offices in London and major regional commercial centres in England and overseas offices in New York, Chicago, Houston, Jacksonville, Los Angeles, Hong Kong and Moscow. It is a member of both the Committee of London and Scottish Bankers and the Committee of Scottish Clearing Bankers. The Bank issues its own bank notes in Scotland, current circulation being around £270 million. The Bank provides a full range of clearing bank services and through its subsidiaries The British Linen Bank Limited, North West Securities Limited and Kellock Limited, merchant banking, leasing, finance and factoring services are available. Bank of Wales PLC, which is 75 per cent. owned, joined the Group in 1986 and the Bank now has a 40 per cent. investment in Countrywide Banking Corporation Limited which is located in New Zealand. 2. Financial Record The following is a summary of the Bank's financial record for the five years ended 29th February, 1988 as derived from the summary of the audited consolidated accounts of the Bank set out in Part III of this document, and of the unaudited consolidated results of the Bank for the six month period ended 31st August, 1988. 6 months ended 31st August, 1984 1985 1966 1987 1988 1988 (unaudited) £ million £ million £ million £ million £ million £ million Profit before taxation 59.3 80.4 95.2 118.5 131.3 87.1 Profit after taxation and minority interests but before extraordinary items 49.7 40.2 54.5 71.5 81.2 54.8 Dividends 9.2 12.8 17.3 20,5 23.5 9.4 Retained Profit 40.5 26.9 32,0 51.0 58.6 45.4 pence per £1 Ordinary Stock Earnings (Note) 39.2 27.5 30.7 38.4 43.5 29.3 Dividends (Note) 7.3 8.4 9.3 11.0 12.6 5.0 £ million £ million £ million £ million £ million Stock in Issue 33 82 124 124 125 Proprietors* Funds 322 402 515 559 650 Total Assets 6,189 7,277 8,126 9,343 11,005 Total Deposits 5,451 6,367 6,946 8,104 9,623 Total Advances 4,610 5,323 5,814 6,929 8,241 Note:— Adjusted for the capitalisation issues in 1984 and 1988 and the rights issues in 1984 and 1985, but not adjusted to reflect the proposed division of Ordinary Stock referred to in paragraph 5 below. 3. Current Trading and Prospects The current financial year has started weil with continuing substantial growth in business being experienced in all parts of the Group as the unaudited results for the half-year ended 31st August, 1988 demonstrated. Extracts from the interim report issued on 21st September, 1988 appear in Part III of this document. The pre-tax profit for the half-year was 56 per cent. ahead of that for the half-year ended 31 st August, 1987 in absolute terms and 14 per cent. ahead after making adjustments in respect of the exceptional specific provisions for sovereign debt made in the half-year ended 31st August, 1987. The Directors continue to view the prospects for the current year with confidence. 4. Reasons for the Placing The amount of business which may be undertaken by a U.K. bank is governed by the size of its capital base in terms both of prudent business practice and of compliance with Bank of England ratio requirements. The definition of the type of capital to be included in a bank's capital base for regulatory purposes has recently been reviewed by a committee known as "The Basle Committee on Banking Regulations and Supervisory Practices", a body on which the central banks and supervisory authorities of many of the developed nations are represented. The Basle Committee has been working to bring about international convergence of capital adequacy standards and in December 1987 published its draft 5 proposals. Following a period of consultation, the Basle Committee published its final proposals in a paper entitled "International Convergence of Capital Measurement and Capital Standards" dated July 1988. These proposals, which represent the framework for measuring a bank's capital adequacy and set out the minimum standards to be achieved, had been agreed to by the Governors of the G10 Central Banks. In a notice issued in October 1988 the Bank of England, which regulates all institutions authorised under the Banking Act 1987, has described in detail how the agreement will be implemented in the United Kingdom. In particular a two-tier capital structure is to be introduced. In accordance with the Bank of England notice, Tier 1 capital will consist inter alia of allotted, called up and fully paid ordinary stock, non-cumulative irredeemable preferred stock and disclosed reserves (excluding revaluation reserves).