Investment Analytics BP Complete

Business Plan 2005 – 2008

- May 2005 -

Investment Analytics Company Description: Investment Analytics is a quantitative investment research firm providing consulting services and investment research products to the international investment management industry. Postal Address: Investment Analytics(Bermuda) Ltd. Canon's Court 22 Victoria Street Hamilton HM12, Bermuda Contact Details: Telephone: 1-888-736-6650 Fax: 1-212-208-2492 Email: [email protected] Web Site: www.investment-analytics.com

© 2005 Investment Analytics - Business Plan 2

Copyright & Disclaimer This business plan is presented here to benefit and promote the services of Investment Analytics (Bermuda) Ltd. The information and ideas herein are the confidential, proprietary, sole, and exclusive property of Investment Analytics(Bermuda) Ltd.


Non-Disclosure Agreement You are being furnished with confidential information that has been prepared by Investment Analytics (Bermuda) Ltd. (The "Company"), and you may be furnished with additional information by the Company or by its representatives or agents in connection with evaluating a possible transaction with the Company. By your acceptance and as a condition hereof, you agree to treat all information concerning the Company which is furnished to you by or on behalf of the Company, whether furnished before or after the date of this letter and regardless of the manner in which it is furnished, together with analyses, studies or other documents or records prepared by you or any of your employees or agents (collectively, "Representatives") to the extent that such analyses, studies or documents contain or otherwise reflect or are generated from such information (hereinafter collectively referred to as the "Evaluation Material"), in accordance with the provisions of this agreement. You hereby agree that the Evaluation Material will be used solely for purposes in connection with a possible transaction with the Company, and that such information will be kept permanently confidential by you and your Representatives and you will not distribute this Evaluation Material or any part hereof to others at any time without the prior written consent of the Company. You agree to restrain your Representatives from prohibited or unauthorized disclosure or use of the Evaluation Material and shall be responsible for any such breach hereof. This Evaluation Material is being delivered for informational purposes and upon the express understanding that it will be used only for the purposes set forth above. In the event that the possible transaction which is the subject of this agreement is not completed or at the Company's request, you shall promptly return to the Company all written material containing or reflecting any information contained in the Evaluation Material and will not retain any copies, extracts or other reproductions in whole or in part of such written material. It is understood and agreed that money damages would not be a sufficient remedy for any breach of this agreement and that Company shall be entitled to specific performance and injunctive or other equitable relief as a remedy for any such breach. In the event of litigation relating to this agreement, the prevailing party shall be entitled to receive reasonable legal fees and costs incurred in connection with such litigation. New York State law will govern the terms and conditions of this agreement. Your retention of the Evaluation Material shall constitute acceptance of the terms and conditions hereof. If you do not agree to the terms hereof, please do not read the Evaluation Material and immediately return such to the Company. We would nonetheless appreciate your kindly signing and returning one copy of this agreement, which will constitute our agreement with respect to the subject matter hereof. Dated : _____________ (Signature) _________________________________


(Print Name) ____________________________________

TABLE OF CONTENTS


PAGE

DISCLAIMER 3 CONFIDENTIALITY AGREEMENT 4 EXECUTIVE SUMMARY 6 BUSINESS CONCEPT 7 Business Overview 7 Company’s Mission 8 Opportunity/Value Proposition 8 Services Provided 9 Income Streams 12

The Economics of the Business 13 Business Objectives 15 MARKET RESEARCH & ANALYSIS 17 Industry Analysis 17 Independent Investment Research 18 Regulations 19 Market Overview 19 Market Size & Characteristics 20 Market Trends and Growth 24 Market Needs 27 Target Market 28 SWOT Analysis 29 Competitive Environment 30 MARKETING 31 Marketing Strategy & Tactics 31 OPERATIONS 33 MANAGEMENT TEAM 34 OVERALL SCHEDULE 36 RISKS 37 FUNDING AND USE OF PROCEEDS 38 FINANCIAL SUMMARY 39 EXIT STRATEGY 40 APPENDICES 41

EXECUTIVE SUMMARY

Market: Alternative Investment Management Industry Overview: In a field as competitive as investment research, genuinely innovative ideas are hard to come by. In many cases, investment research remains locked into traditional methods of analysis that have evolved very little over the last 50 years, irrespective of the enormous advances that have taken place in investment theory. Consequently, as competing firms strive for research excellence using much of the same methodology, it is difficult to provide a distinctive client service that offers any significant competitive advantage. Investment Analytics provides independent research focusing on applications of sophisticated mathematical and financial modeling techniques to problems of strategy development and repair, performance analysis and risk management for clients in the investment management industry in Europe and North America. Investment Analytics has developed a highly successful proprietary investment program based on sophisticated econometric models that are used to forecast asset volatility and identify option arbitrage opportunities. CURRENT STATE Market Status: As the majority of hedge funds performed poorly in 2004, most of the players in the alternative investment industry are looking for ways to recalibrate their strategies. Need For New Ideas: Funds are facing enormous pressure to find new and improved strategies – an issue that continues to be more critical, especially as funds seek to distinguish themselves. Competition: The alternative investment industry is rapidly becoming mainstream. However, requisite experience and distinguished track records provide significant barriers to entry. Market Trend: Perhaps the most notable trend in the investment community recently has been the explosion of capital within the alternative fund space. With this increased profile, especially given the participation of pension funds, the need for in-depth risk analysis and support becomes increasingly relevant. THE SOLUTION Investment Analytics recognizes the crucial need for innovative and improved research techniques in the international investment management industry and has developed a business model to profit from their unique, proprietary offering. Our key success factors are:

Competitive Advantage in Research Innovative Methodology Proprietary Research Products Consulting Expertise

OUR MISSION Our mission is to enable clients to significantly improve investment returns and reduce investment risks by providing specific strategic recommendations rather than macro-level frameworks. Our consulting work is centered on enabling clients to correctly evaluate performance, diagnose strategy malfunction and to develop, test and implement new strategies capable of meeting investment performance criteria. Our success is based on delivering superior service to the investment management community at a competitive rate.

SERVICE FEATURES Our products and services are based on advanced quantitative financial models developed over many years of research effort. These include: The Volatility Arbitrage Investment Program: Identifies buying and selling opportunities in equity options markets using advanced mathematical models researched and developed by its team of quantitative analysts. Strategy Development: We assist clients in developing new in-house strategies, or evaluating third party strategies, and assess their suitability to meet the clients' investment objectives. Strategy Repair: We assist clients in diagnosing performance-related problems with existing strategies and in developing repair solutions to restore or enhance strategy performance. Performance Evaluation: We assist clients in evaluating the performance characteristics of their own or third party strategies and examine a wide range of performance criteria to determinate the degree to which investment performance is the result of manager skill. BENEFITS TO THE CUSTOMERS INNOVATION

SCALABILITY

LOW CORRELATION WITH EXISTING HEDGING STRATEGIES

FINANCIAL SUMMARY Funding requirement: $ 2,000,000 USD

$ -

$ 20.00

$ 40.00

$ 60.00

$ 80.00

$ 100.00

$ 120.00

$ 140.00

2005 2006 2007 2008 2009

Consulting & Other

Vol. Arb. Prog. -Perf.

Vol. Arb. Prog. -Mgt.

2005 2006 2007 2008 2009

3.60$ 22.26 29.87 63.04 120.16

(1.51)$ 10.85 14.17 38.41 82.24

Values in M illion US$

EBITDA

Total Income

Management Team Mr. Jonathan Kinlay - Founder and Chief Executive Officer Mr. Chris Rosevear - Founder and Managing Partner INFORMATION

Corporate Office: Investment Analytics(Bermuda) Ltd. Canon's Court, 22 Victoria Street Hamilton HM12, Bermuda Inquiries: Telephone: 1-888-736-6650 Fax: 1-212-208-2492 Email: [email protected] Web Site: www.investment-analytics.com

CONFIDENTIAL

This material has been produced in conjunction with The WorldGate Group and contains information which is protected by copyright

and other intellectual property law and is subject to the terms and conditions in the governing client contract.

mailto:[email protected]

http://www.investment-analytics.com/

BUSINESS OVERVIEW

In a field as competitive as investment research, genuinely innovative ideas are hard

to come by. In many cases, investment research remains locked into traditional

methods of analysis that have evolved very little over the last 50 years, irrespective of

the enormous advances that have taken place in investment theory. Consequently, as

competing firms strive for research excellence using much of the same methodology, it

is difficult to provide a distinctive client service that offers any significant competitive

advantage.

Investment Analytics recognizes the crucial need for innovative and improved

research techniques in the international investment management industry and has

developed a business model to profit from their unique, proprietary offering.

Investment Analytics was introduced in 1998 as a provider of independent research

and consulting services focusing on applications of sophisticated mathematical and

financial modeling techniques to problems of investment strategy for both buy- and

sell-side firms, in Europe and North America. Investment Analytics applies

innovative research techniques in developing distinctive research products, thereby

offering fresh investment insights for identifying and evaluating new investment

opportunities.

We develop custom research products for our clients based on our quantitative

research and developed specifically to complementing their existing strategies and

core holdings.

Our approach to consulting is typically highly quantitative and involves the application

of sophisticated mathematical and statistical models to simulate key features of

market behavior and strategy performance.

Our consultants are PhD mathematicians and investment managers with extensive

experience consulting to all genres of money management organizations.


BUSINESS CONCEPT

Our key success factors are:

Competitive Advantage in Research

Innovative Methodology

Proprietary Research Products

Consulting Expertise

OUR MISSION

Our mission is to enable clients to significantly improve investment returns or reduce

investment risks by providing specific strategic recommendations rather than macro-

level frameworks.

Our consulting work is centered on enabling clients to correctly evaluate performance,

diagnose strategy malfunction and to develop, test and implement new strategies

capable of meeting investment performance criteria.

Our success is based on delivering the best service to the investment management

community at a competitive rate.

OPPORTUNITY / VALUE PROPOSITION

Our methodology represents a radical departure from traditional methods of research.

It is based instead on advanced techniques of quantitative finance that have proved

highly successful in tackling complex problems encountered in financial engineering

and investment analysis. Investment Analytics has applied these effective and

incisive techniques to the field of equity analysis, bringing fresh insights and an

entirely new approach to investment research.


Not only is our research methodology unique, so too is our approach. We work with

our clients’ research teams to create a research product that is distinctive, innovative

and more informative than any other available today.

We use progressive financial engineering techniques to diagnose existing strategies

and advanced mathematical models to build, test and implement strategic

enhancements that will restore or enhance investment performance. Our team also

evaluates and develops new strategies consistent with our clients’ investment

objectives.

Our core value is in providing preeminent investment strategy services in an efficient

manner to investment management clients across Europe and North America.

PRODUCTS & SERVICES PROVIDED

Our products and services are based on advanced quantitative financial models

developed over many years of research effort.

Volatility Arbitrage Investment Program

The Investment Analytics Volatility Arbitrage Investment Program identifies

buying and selling opportunities in equity options markets using advanced

mathematical models researched and developed by its team of quantitative analysts.

Our proprietary volatility index and stochastic volatility models measure underlying

volatility and model its behavior more accurately and efficiently than traditional

methods. Using these models we are able to correctly anticipate the future direction

of volatility an average of 75% of the time in the universe of stocks and equity

indices we analyze, and identify regimes of unsustainably high or low levels of

volatility with a high degree of accuracy. Our stochastic option pricing models apply

these factors to detect options that are trading rich or cheap relative to fair value.

Together, these techniques enable us to select investment opportunities that offer

the greatest risk-reward trade-off, generating specific buy or sell recommendations

in selected stock and index options that are consistently profitable.


Our proprietary asset allocation methodology combines the volatility analytics with

elements of portfolio optimization and risk management theory to create optimal

portfolios capable of generating consistent, high returns, with minimal draw down,

even at times of high market stress and regardless of the direction of the overall

market.

In addition to our Volatility Arbitrage Investment Program, Investment Analytics

offers the following Consulting Services to investment management firms:

Strategy Development: We assist clients in developing new in-house strategies,

or evaluating third party strategies, and assess their suitability to meet the

clients' investment objectives.

Strategy Repair: We assist clients in diagnosing performance-related problems

with existing strategies and in developing repair solutions to restore or enhance

strategy performance.

Performance Evaluation: We assist clients in evaluating the performance

characteristics of their own or third party strategies and examine a wide range

of performance criteria to determinate the degree to which investment

performance is the result of manager skill.


Advantages of the Program

Unique approach to statistical arbitrage with proven track record of success within a $170M hedge fund.

Strategies based on the program produced returns of between 15% and 1600% in 2003.

Stable, low-risk alpha generator, uncorrelated to cash and derivative markets.

Rapid scalability, with capacity in the $Billions.

Adaptable to a broad range of strategies, markets and asset classes.

Non-discretionary, systematic approach that is independent of trader capability and other idiosyncratic factors.

Independent, dual delivery platforms guarantee fail-safe automatic delivery and backup.

Risk Management: Our reviews of clients´ risk management system will

typically focus on critical elements of the risk management process and can

result in catastrophic exposures under extreme market conditions and includes

an assessment of model, liquidity and volatility risk, as well as extreme market

analysis.


Training: The principals of Investment Analytics have extensive experience

of teaching advanced level finance program as leading academic and financial

institutions on the USA and Europe. Subjects covered in recent courses include

financial engineering, risk management, derivative strategies, forecasting, fixed

income analytics and portfolio management.

INCOME STREAMS

Investment Analytics will build income and profits from its products and services.

Our main product is the Volatility Arbitrage Program.

The Volatility Arbitrage Program represents our main source of income, and

revenues are built from a Management Fee and a Performance Fee. Financial

projections are created using a Monte-Carlo simulation model in which strategy returns

follow random processes with expected average levels and standard deviations of

return as set out in the table below. The table also shows the management and

performance fees for each strategy. There are five strategies in the Volatility Arbitrage

Program.

The growth in Assets Under Management (AUM) is computed from a baseline scenario

as shown in the table below.

An additional source of income derives from our consulting services. In order to make

a projection we assumed a 10% from the Volatility Arbitrage Program to this stream.


THE ECONOMICS OF THE BUSINESS

Income Forecast

Management expects that as a result

of the implementation of this plan

there will be a steady buildup of

revenues from the different income

streams.

Income will grow with the increase of

AUM (Assets Under Management.)

for the Volatility Arbitrage Program.

(See Table 3 below). See Appendix

1, for a detailed description of our income projection in projected Income Statement.

Table 3. Income Forecast Projection

Income Statement

We expect to make EBITDA of US$

82.24 Millions in 2009. (See Appendix

1 and Table 4 below). By the second

year of operations we anticipate

achieving positive net earnings. Our

cost of sales will be minimal on any

services we provide to our clients,

approximately 17% (Marketing, Sales


$ -

$ 20.00

$ 40.00

$ 60.00

$ 80.00

$ 100.00

$ 120.00

$ 140.00

2005 2006 2007 2008 2009

Consulting & Other



2005 2006 2007 2008 2009

1.00$ 3.11 7.76 13.80 23.16

2.27$ 17.13 19.39 43.51 86.08

0.33$ 2.02 2.72 5.73 10.92

3.60$ 22.26 29.87 63.04 120.16

Values in Million US$



Consulting & Other

Total Income

Net Earnings - Annual

$ (10.00)

$ -

$ 10.00

$ 20.00

$ 30.00

$ 40.00

$ 50.00

$ 60.00

$ 70.00

2005 2006 2007 2008 2009

incentives and Miscellaneous). With this minimal cost of income, we anticipate a

consistent gross profit margin of 83% or better.

Table 4. Profits in Years One to Five

Break-even Analysis

The following chart and the table

below (See Table 5) summarize the

break-even analysis.

The Operational Break-even point

was estimated based on total

income. The analysis shows that

break even is achieved and

sustained in the second year of

operations.

Table 5. Break Even Analysis


2005 2006 2007 2008 2009

3.60$ 22.26 29.87 63.04 120.16

0.65$ 4.05 5.43 11.46 21.85

4.46$ 7.37 10.27 13.17 16.08

(1.51)$ 10.85 14.17 38.41 82.24


Less Fixed Costs

EBITDA

Year

Total Income

Less Variable Costs

Break-even Analysis

$ -

$ 20.00

$ 40.00

$ 60.00

$ 80.00

$ 100.00

$ 120.00

$ 140.00

2005 2006 2007 2008 2009

Break-even Income

Total Income

2005 2006 2007 2008 2009

3.60$ 22.26 29.87 63.04 120.16

0.65$ 4.05 5.43 11.46 21.85

4.46$ 7.37 10.27 13.17 16.08

5.45$ 9.00 12.55 16.10 19.65


Variable Costs

Fixed Costs

Break-even Income

Total Income

BUSINESS OBJECTIVES & GROWTH STRATEGY

Our business objectives and goals are based, in this first stage of expansion on

targeting the list of Financial Services companies detailed in Appendix 5. Our goal for

our first year is to sell two licenses for the Volatility Arbitrage Program.

Our growth strategy will

initially be focused on selling

two licenses during the first

year of operations within the

US Equity Volatility market

(Stage 1).

From there, the company

plans to transfer and apply its

technology to the same

European and Asian markets

(Stage 2).

Once the expansion to the stated foreign markets has been achieved, Investment

Analytics will begin incorporating other asset areas into its horizon of products and

services. These additional asset categories will include currencies (Stage 3),

commodities (Stage 4), and fixed income products (Future Growth Stages).

This process will involve two to three months of research and development on the new

markets, and between six to nine months in the case of research and development of

new products. In both cases, there is a timeframe close to nine months for adapting

and modifying the business model to integrate effectively with the new markets and

product categories. The target penetration for each market segment would again be

two licenses.


STAGE 3 2 LicensesCurrencies

STAGE 4 2 Licenses

STAGE 4 2 Licenses

STAGE 4 2 LicensesCommodities

US Market

European Market

Asian Market

STAGE 1 2 Licenses

STAGE 2 2 Licenses

STAGE 2 2 LicensesEquities

STAGE 3 2 Licenses

STAGE 3 2 Licenses

After three to four years of operations, we reasonably estimate having 18 licenses.


New Product

New Market 2 to 3 months 3 to 4 months 4 to 5 months

6 to 9 months 3 to 4 months 4 to 5 months

Research & Development

Technology Transfer

Implementation

YearQuarter

STAGE 1 - US Equity Volatility MarketResearch & DevelopmentEquities - US Market

Technology TransferEquities - US Market

ImplementationEquities - US Market

STAGE 2 - Expansion to European and Asian MarketsResearch & DevelopmentEquities - Europoean Market Equities - Asian Market

Technology TransferEquities - Europoean Market Equities - Asian Market

ImplementationEquities - Europoean Market Equities - Asian Market

STAGE 3 - Expansion to New Products ( Currencies ) in 3 MarketsResearch & DevelopmentCurrencies - US Market Currencies - European/ Asian Markets

Technology TransferCurrencies - US Market Currencies - European/ Asian Markets

ImplementationCurrencies - US Market Currencies - European/ Asian Markets

STAGE 4 - Expansion to New Products ( Commodities ) in 3 MarketsResearch & DevelopmentCommodities - US Market Commodities - European/ Asian Markets

Technology TransferCommodities - US Market Commodities - European/ Asian Markets

ImplementationCommodities - US Market Commodities - European/ Asian Markets

Q2 Q3 Q4Q1 Q2Q32005

Q4 Q1 Q2 Q32006

Q1Q32007 2008

Q4Q4

2 Licenses

4 Licenses

6 Licenses

6 Licenses

YearQuarter

STAGE 1 - US Equity Volatility MarketResearch & DevelopmentEquities - US Market

Technology TransferEquities - US Market

ImplementationEquities - US Market

STAGE 2 - Expansion to European and Asian MarketsResearch & DevelopmentEquities - Europoean Market Equities - Asian Market

Technology TransferEquities - Europoean Market Equities - Asian Market

ImplementationEquities - Europoean Market Equities - Asian Market

STAGE 3 - Expansion to New Products ( Currencies ) in 3 MarketsResearch & DevelopmentCurrencies - US Market Currencies - European/ Asian Markets

Technology TransferCurrencies - US Market Currencies - European/ Asian Markets

ImplementationCurrencies - US Market Currencies - European/ Asian Markets

STAGE 4 - Expansion to New Products ( Commodities ) in 3 MarketsResearch & DevelopmentCommodities - US Market Commodities - European/ Asian Markets

Technology TransferCommodities - US Market Commodities - European/ Asian Markets

ImplementationCommodities - US Market Commodities - European/ Asian Markets

Q2 Q3 Q4Q1 Q2Q32005

Q4 Q1 Q2 Q32006

Q1Q32007 2008

Q4Q4

2 Licenses

4 Licenses

6 Licenses

6 Licenses

INDUSTRY OVERVIEW

The past decade has witnessed a dramatic increase in institutional investment in both

domestic and international investable assets. While most of this investment remains

dedicated to traditional stock and bond assets, an increasing portion has been invested

in various forms of alternative investment vehicles.

For many institutional investors, alternative investments are viewed primarily as

private, illiquid, alternative investments including venture capital, leveraged buyout,

distressed securities, private equity, private debt, oil and gas programs, and timber or

farmland. However, other alternative investment vehicles, such as hedge funds and

managed futures, have also witnessed a dramatic increase in investment and often

provide access to investment not easily available from traditional stock and bond

investment or from traditional alternative investment vehicles such as private equity or

private debt. Unfortunately, the very fact that hedge funds and managed futures have

only recently come into prominence has meant that they have only recently been

considered as substitutes for, or as additions to, other traditional alternative

investment forms.

Over the past few weeks and mostly for geopolitical reasons, stock markets have

continued to decline and in the broad financial markets (especially in stocks and

commodities) volatility has remained extremely high. Fundamental economic

indicators provide an ambiguous picture. The (already lowered) corporate earnings

expectations in both the U.S. and Europe have mostly been met, but the quality of

earnings varies markedly.

Investor confidence has recently been shaken further by more cases of balance sheet

manipulation and the first signs of underfunding of corporate pension funds.

Fundamental company analysis has, therefore, become and will continue to be of

increased importance to investment performance. This is further supported by the

continuing weakness of the global economy. Aside from declining business investment,


MARKET RESEARCH AND ANALYSIS

consumer spending in the U.S. and Europe has also started to show early signs of

weakness. All this points to the diminished economic outlook to continue.

Credit spreads are persisting at very high levels, another indicator of the high degree

of global market uncertainty. At the same time, interest rates have continued to fall,

and the bond rally has not yet come to an end. Moreover, there is a growing fear that

the next “bond correction” is just a matter of time. One reason these bearish investors

are citing is that governments on both sides of the Atlantic need to finance a rising

budget deficit which will lead to a surplus of government bonds. Furthermore, the

central banks have pumped huge amounts of liquidity into the financial system, adding

to the increased in likelihood of inflation. Persistently high commodity prices are also

pushing up the rate of inflation. As long as uncertainty persists in the financial

markets, precious metals will be seen as an attractive investment alternative. Another

cause for concern is the strong and rapid depreciation of the US dollar. It appears that

the Europeans and Asians have become less willing to continue financing the U.S.

deficit. The dollar therefore looks to be headed for continued weakness.

INDEPENDENT INVESTMENT RESEARCH

Market analysts believe that a convergence of market forces, regulatory changes, and

an economic resurgence is creating a tremendous opportunity for independent

research services. Wall Street’s admission of conflicts of interest in traditional research

has already established the need and demand for credible independent research.

Pending regulatory changes that will effect how institutional investors buy and pay for

research will also create major operating changes in the independent research market.

Provided the slow recovering stock market, the demand for proprietary research ideas

being delivered in a timely manner will only increase.

The opportunity inherent in the independent research market is substantial. Mutual

funds and hedge funds spend over $4.5 billion dollars on research services every year.

For both competitive and regulatory reasons, the percentage of that amount being

spent on independent research services is increasing rapidly.


An explosion of new firms has jumped on the independent research bandwagon. They

see an opportunity in a large market to write and market research reports on

companies that have no research coverage. Of about 9,200 public companies,

approximately 5,500 do not have Wall Street analyst research coverage.

REGULATIONS

Hedge funds are currently not required to register with the SEC, or as investment

companies under US federal securities laws, because they generally only accept

financially sophisticated investors like professional fund mangers.

MARKET OVERVIEW

Alternative Investments

o Alternative Investments span the spectrum of financial instruments not covered

by equities, bonds, deposits and the traditional range of collective investment

vehicles such as mutual funds.

o Alternative Investments encompass a diverse set of asset classes and

investment strategies with varying risk/return characteristics.

o Hedge Funds target an absolute return, unlike traditional vehicles, which

manage to a relative benchmark.

o Hedge Funds primarily invest in publicly-traded securities:

Stocks/Bonds/Commodities/Currencies, etc.

Enhancing tools such as leverage and derivatives

o Hedge Funds managers seek flexibility

o A manager’s ability to generate alpha is based on its investment strategy.

These strategies will often utilize: Leverage, Short-selling, Use of derivatives,

Investment in illiquid securities

o Regulations limit the extent to which investment companies can engage in

those activities, therefore hedge funds seek to avoid registration


o In addition to investment flexibility, exemption provides reduced reporting

burden and reduced costs

Hedge Funds

o The hedge fund market is becoming more institutionalized.

o There are three main classes of hedge funds that can be identified:

o macro funds, which take large directional (unhedged) positions in

national markets based on top-down analysis of macroeconomic and

financial conditions, including the current account, the inflation rate, and

the real exchange rate.

o global funds, which also take positions worldwide, but employ bottom-up

analysis, picking stocks on the basis of individual companies' prospects.

o relative value funds, which take bets on the relative prices of closely

related securities (treasury bills and bonds, for example).

o The global fund of hedge funds (FOHFs) market is over $100 billion.

o FOHFs allocate about one-fifth of assets managed by hedge funds.

o FOHF growth is likely to remain strong. The market has grown at an annualized

rate of more than 40 percent over the last fourteen years and more than 30

percent since 1999. Despite a larger base and lower expected market

appreciation, strong growth is still likely, at least for the next few years.

o Sustained growth requires an advanced business model. Through the 1990s,

FOHFs have gained market share during bullish periods but their share has

fallen disproportionately during two downturns. To prevent such losses in the

future, FOHFs must deliver value in addition to simply being a conduit for hedge

fund investing. More advanced FOHFs must also excel at risk management,

portfolio construction, and client service.

MARKET SIZE & CHARACTERISTICS

o In a strong year for the broad markets, 2004 Annual Hennessee Hedge Fund

Manager Survey results indicate that the hedge fund industry grew 34% from

$592 billion to $795 billion.

o Growth was due to manager performance (20%) and new capital inflows

(14%).


o In addition, the number of hedge funds grew 23% from 5,700 to 7,000 funds.

o According to the survey, 85% of hedge funds have never exceeded Reg T

leverage.

o Furthermore, hedge funds represent less than 2% of the world financial

markets.

o Individuals and family offices continue to represent the largest source of capital

for hedge funds, comprising 44% of total industry assets.

o Fund of funds continue to be the fastest growing source of capital for hedge

funds, increasing 810% since January 1997 (from $21 billion to $191 billion).

o While fund of funds remain the fastest growing source of capital, pensions

investing directly in hedge funds have grown 453% since January 1997 (from

$13 billion to $72 billion).

o Hedge funds are reporting that have the capacity to grow assets by 197% on

average from current levels.

o On average, hedge funds have the highest short exposure (-50%) since 1999,

when it was -55%, expressing concerns over the market’s explosive liquidity-

driven performance in 2004.

o In 2004, the average hedge fund’s gross exposure (longs plus shorts) was

141%, further dispelling the notion that hedge funds are a highly levered asset

class.

o On average, hedge funds turned their portfolio over 3 times per year.

o 58% of Hedge Funds are registered with a regulatory agency (NASD, SEC,

CFTC).

o 48% of hedge funds are registered as RIAs (Registered Investment Advisers),

however, 39% are RIAs only and 9% are RIAs and registered with at least one

other regulatory agency.

1992 - 2004 Annual Return

(Annual Std. Deviation) Risk

Return / Risk

Hedge Funds 13.8% 6.9% 2.0 Bond Market 8.4% 8.6% 1.0 Stock Market 10.7% 14.6% 0.8

Current Hedge Fund Investing Model

Investment Model Number of

Institutional Investors

Percent of Total Institutional Capital in Hedge Funds

Direct Only 40% 40% Fund of Funds Only 35% 30% Dual 25% 30%


Primary Impediments to Hedge Fund Investing

Impediment % Respondents Headline risk 34% Returns will come down (and correlation up) as more money enters the market (capacity)

31%

Lack of investment process transparency 14% Can’t get comfortable with the fees 12% Too large to put enough capital to work to get the benefits of diversification

9%

Hedge Fund AUM have grown substantially

$0

$100

$200

$300

$400

$500

$600

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Sep-02

Ass

ets

(in $

billi

ons)

Growth in Hedge Fund AUM

$0

$100

$200

$300

$400

$500

$600

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Sep-02

Ass

ets

(in $

billi

ons)

Growth in Hedge Fund AUM

Source: Hedge Fund Research (HFR), “Industry Report Q3 2002”. See Appendix for a description of the HFR database.

The number of funds has also increased significantly

0

1000

2000

3000

4000

5000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Sep-02

Growth in Number of Hedge Funds(excludes FoHFs)

Num

ber o

f Fun

ds

0

1000

2000

3000

4000

5000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Sep-02

Growth in Number of Hedge Funds(excludes FoHFs)

Num

ber o

f Fun

ds

Source: Hedge Fund Research (HFR), “Industry Report Q3 2002”. See Appendix for a description of the HFR database.


Differences between Hedge Funds and traditional investments

Hedge Funds

Absolute performance objective

Performance driven primarily by advisor skill

Low correlations with market indices

Private investment vehicles

Opportunistic, flexible investment approach

Long and short

May use leverage

Generally not tax efficient for taxable US investors

ideal for IRAs and other tax-exempt investment vehicles

Traditional Investments

Relative performance objective

Performance driven primarily by asset class allocations and market returns

Highly correlated with market indices

Registered investment vehicles

Investment decisions may be constrained by benchmark

Long only

Generally no leverage

Opportunity for Tax Efficiency

Hedge Funds

Absolute performance objective

Performance driven primarily by advisor skill

Low correlations with market indices

Private investment vehicles

Opportunistic, flexible investment approach

Long and short

May use leverage

Generally not tax efficient for taxable US investors

ideal for IRAs and other tax-exempt investment vehicles

Traditional Investments

Relative performance objective

Performance driven primarily by asset class allocations and market returns

Highly correlated with market indices

Registered investment vehicles

Investment decisions may be constrained by benchmark

Long only

Generally no leverage

Opportunity for Tax Efficiency

Hedge Funds offer diverse risk/ reward benefits

Diversification-oriented

RET

UR

N

RISK

Performance-oriented

Arbitrage

Equity Market Neutral

Multi-Strategy

Long/Short Equity

Managed Futures

Global Macro

Diversification-oriented

RET

UR

N

RISK

Performance-oriented

Arbitrage

Equity Market Neutral

Multi-Strategy

Long/Short Equity

Managed Futures

Global Macro


MARKET TRENDS & GROWTH

Last year in the US a SEC roundtable identified some of the likely trends in the hedge

fund industry:

o The number of hedge funds, the size of their assets and the range of customers

will all increase, and the entrepreneurial management style will continue.

o Retailization through registered funds of hedge funds will increase. This will

increase the availability of hedge fund strategies to the public as investment

thresholds fall.

o Further work will be done by regulatory authorities regarding the type and level

of information made available by hedge funds to funds of hedge funds.

Projections of the current growth of investment in the hedge fund industry have

suggested some $2 trillion under management by 2010.

‘Rapid growth’ is, of course, a relative concept but among those who have put their

heads above the parapet to quantify this development is, Putnam Lovell. They

forecasted last year that cash under management by hedge fund managers would

grow by some 200% from mid-2003 to 2010 and that by 2010, total funds would have

risen to exceed two trillion dollars – a compound annual growth rate of some 17.5%.

Hedge funds have provided above average risk-adjusted returns compared to other

asset classes and investment styles

Investment Style Risk / Return (January 1999 – June 2004)


Growth in Alternative InvestmentsGrowth in Alternative Investments

1995 1995 –– 2005 ($B)2005 ($B)

1995 1998 2001 2005(E)

Credit Structures

Hedge Funds*

Private Equity

Real Estate Equity

5041,143

2,232

1995 - 2001CAGR

Total 28% 17%

Credit Structures 24% 14%

Hedge Funds* 19% 25%

Private Equity 32% 16%

Real Estate 35% 11%

4,126

2001 - 2005CAGR (E)

Growth in Alternative InvestmentsGrowth in Alternative Investments1995 1995 –– 2005 ($B)2005 ($B)

1995 1998 2001 2005(E)

Credit Structures

Hedge Funds*

Private Equity

Real Estate Equity

5041,143

2,232

1995 - 2001CAGR

Total 28% 17%

Credit Structures 24% 14%

Hedge Funds* 19% 25%

Private Equity 32% 16%

Real Estate 35% 11%

4,126

2001 - 2005CAGR (E)

Sources: Venture Economics, TASS hedge fund database, Rosen Consulting Group, Lend Lease Real Estate Investments; Boston Consulting Group; CAI analysis CAGR (E) is Compound Annual Growth Rate (Estimated) * Includes Managed Futures

Growth in Alternative Investing is being driven by multiple factors:

o Alternative investment assets are expected to almost double over the next four

years

o Increasing Allocations: certain high net-worth clients, institutions and

endowments are increasing their allocations to Alternative Investments to as

much as 20–40% of assets under management

o Portfolio Diversification / Risk-Adjusted Returns:

seeks to achieve strong absolute and risk-adjusted performance

returns typically with low correlation to traditional asset classes

or to each other

o Access to Talented Investment Management:

many top managers of traditional investments migrating to AI

funds of funds provide access to previously unavailable top AI

managers

o Access to Products: greater access facilitated by development in product

structures, such as:

Increased transparency

Increased liquidity

Lower investment minimums

Customized portfolios


Risk management and due diligence in funds of funds

Growth of U.S. Institutional Hedge Fund Capital

Institutional Share of Total Hedge Fund Capital Flows

Global Net Capital Flows to Hedge Funds


MARKET NEEDS

The following are the results of a recent survey in which investment consultants and institutional investment managers participated:

o Institutions have an average net-of-fee return expectation from hedge funds of

about 8 percent.

o Nearly three quarters have expectations between 6.5 and 9.5 percent.

o Many of the newer entrants to hedge fund investing (especially defined benefit

plans) prefer to do so through a lower volatility aggregate hedge fund portfolio

than was typical among earlier adopters.

o Many institutions are setting target returns on a risk-free-rate-plus basis,

rather than as a static absolute number; therefore, expectations have come

down with rates.

o Most institutions are placing a higher premium on hedge fund strategies’ ability

to diversify their portfolio—outsized returns are no longer the primary

justification for making a hedge fund allocation.

o Many institutions are anticipating a decline in returns as more capital pours into

hedge fund strategies.

o Market conditions over the past three years have exposed a widening gap

between investors’ expectations and investment managers’ ability to meet

objectives.

o Many individual and institutional investors were let down by managers that

were unable to deliver on expectations.

o The biggest disappointments were with managers that lost sight of risk in

pursuit of outsized returns.

o Investors of all types are now reevaluating their investment managers with a

particular focus on quality and dependability.


o With investors demanding greater levels of investment dependability, financial

planners and investment consultants are reexamining what makes a good

manager; and they are committing significant resources, time, and energy to

identifying Investment Quality. Investment Quality is defined as a manager’s

ability to consistently meet stated objectives.

TARGET MARKET

We segmented different financial institutions according to the following table, in order

to define our target market.

A list of these target institutions can be found in Appendix 5.

1 Asset Management 1.a Hedge Fund Management Yes 1.b Institutional Asset Management Yes 1.c Mutual Fund Management Unlikely

2 Investment Banking 2.a Large-Market Investment Banking Yes 2.b Middle-Market Investment Banking Yes 2.c Small-Market Investment Banking No

3 Investment Firms 3.a Shareholder Services No 3.b Venture Capital No

4 Investment Funds Possibly

5 Outsourced Financial Products & Services Marketing No


SWOT ANALYSIS

The following SWOT analysis captures the key strengths and weaknesses within the

company, and describes the opportunities and threats facing Investment Analytics.

S - Strengths W – Weaknesses

Technologically advanced offering that utilizes proprietary knowledge and techniques to deliver superior capabilities.

Unique research insights provide distinctive

client services, offering any significant competitive advantage.

Combination of skills: Management Team

with experience in risk management business and alternative investment industry.

Solid reputation and credibility amongst

industry peers through partners’ involvement with other successful industry ventures.

Robust and effective equity analysis

techniques that have demonstrated success and scalability.

Requisite experience and distinguished track

records provide significant barriers to entry.

Difficulty in achieving notoriety and in

establishing a reputation through consistent performance.

Rapidly evolving technology requires

substantial investment capital in order to remain cutting edge.

The challenge to continuously improve

techniques and put forth new ideas while maintaining the level of quality that is central to the company’s reputation.

O – Opportunities T - Threats

As the majority of hedge funds performed poorly in 2004, most of the players in the alternative investment industry are looking for ways to recalibrate their strategies.

The need for new and improved strategies

continues to be more critical, especially as funds seek to distinguish themselves.

The alternative investment industry is

rapidly becoming mainstream.

With the participation of pension funds, the need for in-depth risk analysis and support becomes more relevant.

A slump in the economy will constrict the

flow of money to enhancement services like Investment Analytics’.

The entrance of other risk management

service providers into this expanding market could increase competition.

The appearance of governmental status

and regulations adverse to our business.


COMPETITIVE ENVIRONMENT

In order to systematically diagnose the chief competitive pressures in our business

landscape, we applied Michael Porter’s Five Forces Model.

Although we face a moderate pressure from existing competitors, we feel there is a

high threat of potential new entrants as well as of substitute services.

In the case of new entrants, we feel that with the increase of investment capital to the

industry there will be a correlating increase of businesses trying to serve the

community. While the entry barriers to conducting world-class research and services

remain low, there is nonetheless a sizeable pool of newcomers that can be expect to

compete for the attractive profits. In fact, we anticipate the emergence of new

competitors within two years after our service is established.

In the case of substitute products, we feel a high threat because the market might be

attracted by substitutes that have comparable or better features and buyers switching

costs might be low. We anticipate the emergence of substitute products within 2 years

after our service is established.

Porter’s Five Forces Model

© 2005 Investment Analytics - Busin

We com

W s

Threat of New Entrants HIGH

anticipate the emergence of new petitors within 2 years after our

service is established

Rivalry Among Existing Competitors

MODERATE

Bargaining Power of Buyers

MODERATE

Financial Institutions

Bargaining Power of Suppliers

NONE

e do not have Supplier

ess Plan 30

Threat of Substitute ServicesHIGH

We anticipate the emergence of substitute products within 2

years after our service is established

MARKETING STRATEGY

Key Message The key message to describe our business is:

Investment Analytics is a quantitative investment research firm providing consulting services and investment research products to the international

investment management industry.

Marketing Pillars

The three pillars that support our marketing approach are:

1. Innovation

2. Scalability

3. Low Correlation with existing hedging strategies

As funds look to develop and recalibrate their strategies, conduct performance analysis

and assess and navigate risk exposure, it is imperative that they utilize the leading

tools, technology and expertise available. Investment Analytics is in the business of

providing precisely these solutions.

Marketing Tactics

Our marketing and sales tactics are based on referrals, industry networking and word

of mouth. We will conduct selected interviews with investment managers from our

target market (See Appendix 5). After several demonstrations we expect to sell two

licenses to our prospects in our first year of operations, and from there, expand to new

markets and products.


MARKETING

Operations for the company will be based initially in the US, followed by an additional

location in London that will coincide with expansion to the European market.

The company’s capabilities will be centered on three main activities:

· Research & Development – The majority of hedge funds performed poorly in

2004, most of the players in the alternative investment industry are looking to

recalibrate their strategies. As the need for new and improved strategies becomes

more critical, Investment Analytics will focus on bringing playing a leading role in

supplying superior tactics to the marketplace.

· Management Support – Within the alternative investment industry, there

exists a low correlation of existing strategies to that of the mainstream community.

Provided the abundance of hedge funds that are largely trying to do the same thing, it

is essential for funds to identify themselves by applying strategies that (1) have the

capacity to generate substantial returns, and (2) can establish consistently strong

performances. As issues of scalability can often thwart potentially successful ideas,

Investment Analytics will look to support investment managers through lending the

confidence and keen perception to take the winners forward.

· Marketing – To reach these investment managers who are this elite

community, Investment Analytics will center its marketing efforts on targeting funds

of significant profile. Leveraging the well-recognized and applauded experience of the

partners, the company will seek to harness industry presence and awareness in

penetrating the top tier fund management community.


OPERATIONS

JONATHAN KINLAY, FOUNDER AND CHIEF EXECUTIVE OFFICER

Mr. Kinlay has consulted with leading investment funds and financial

institutions in Europe and North America for over 20 years in the areas of

financial engineering, investment strategy, quantitative analysis and risk

management, initially with NatWest and Chase Manhattan banks and

subsequently as the head of quantitative analytics and proprietary trading

in a European hedge fund, where he traded US and European equities,

fixed income and OTC & exchange traded derivatives.

Mr. Kinlay was the founding partner of the hedge fund Caissa Capital and pioneered the

use of advanced econometric models in volatility arbitrage strategies. The models,

which provide the basis for the highly successful investment strategies used by Caissa

Capital, are made available by Investment Analytics under license. He is the

General Partner of the Proteom Fund, which offers sophisticated quantitative strategies

using proprietary, state-of-the-art bioengineering technologies developed by the

research partnership with Daytrends Inc. and Investment Analytics.

Mr. Kinlay has lectured to postgraduate audiences at a number of leading universities

including, Carnegie Mellon University in New York, and Oxford, Cambridge and Reading

Universities in the UK. He continues to teach advanced courses in trading and

investment strategy and financial engineering in the US and Europe. Mr. Kinlay has

postgraduate qualifications in economics, statistics and business administration from

the universities of Bristol, Sheffield and London Business School.


MANAGEMENT TEAM

CHRIS ROSEVEAR, FOUNDER AND MANAGING PARTNER

Chris Rosevear began his professional career as a corporate finance

analyst at AG Becker in New York before moving to Natwest in London.

He worked in treasury management at Citibank from 1983-1986 before

going on to establish his own consulting firm, Finance Technique 2000

Ltd.

Mr. Rosevear has a Doctorate in Economics from the University of Vienna.

Jonathan Kinlay and Chris Rosevear initially worked together from 1983 to 1985 at

NatWest and subsequently on various consulting projects over the last 20 years.

MANAGEMENT COMPENSATION AND OWNERSHIP

The founders intend to hold 51% of the company. The remaining 49% will be available

to potential investors in exchange for investments.


PROJECT MANAGEMENT SYSTEM

For controlling the overall schedule of the project, we will use MS Office Product, in

order to project tasks, estimate budgets, and keep track of the project.

MAIN MILESTONES

From our detailed schedule, the main milestones before launching are shown in the

following table.

Milestone Date Fund Raising Starts June 15th, 2005 Money Available August 31st, 2005 First Licensee US September 23rd, 2006 First Licensee Europe October 1st, 2007 First Licensee Asia October 1st, 2007 Exit via sale March 31st, 2015


OVERALL SCHEDULE

We recognize and understand some risks associated with launching this new company

with regards to growth and operations.

RISKS ASSOCIATED WITH LAUNCHING INVESTMENT ANALYTICS

Limited operating history

Limited resources

Market uncertainties

Competitive threats

RISKS ASSOCIATED WITH GROWTH

Losing touch with customers

Loss of clientele to other providers

Quality of services diminished

New competitors

By maintaining our focus on superior product knowledge and outstanding customer

service, we will be able to uphold our position in the industry, thereby retaining

current clients and attracting new clients.


RISKS

START-UP COSTS Start-up costs are primarily required to purchase the equipment needed to start

developing the operations, as well as cash back-up funds to support operations until

the company begins to cover its cost structure.

FUNDING REQUIREMENTS The table below summarizes the funding requirements as well as the estimated use of

these funds.


FUNDING AND USE OF PROCEEDS

Founder's invested capital 500,000 Operations & Service providers 0Start-up Funding Equity 2,000,000 Equipment ( Hard & Software & Data) 1,113,999Loans 0 Salaries 0

Marketing promotion 0Emergency back-up funds/cash 1,386,001

Total Sources of Funds 2,500,000$ Total Uses of Funds 2,500,000$

Uses of FundsSources of FundsFounder's invested capital 500,000 Operations & Service providers 0Start-up Funding Equity 2,000,000 Equipment ( Hard & Software & Data) 1,113,999Loans 0 Salaries 0

Marketing promotion 0Emergency back-up funds/cash 1,386,001

Total Sources of Funds 2,500,000$ Total Uses of Funds 2,500,000$

Uses of FundsSources of Funds

PROJECTED CASH FLOW ANALYSIS

The Projected Income Statement

shows Investment Analytics’

expected performance for the

first five years, with a break-

even in the early months of our

second year. This is evident in

the cash flow statement, which

indicates an annually increasing

positive cash position. Table 6

below shows a summary of the

projected Cash Flow Statement. Appendices 1 to 4 show pro forma financial

statements.

Table 6. Free Cash Flow Summary

We have performed several financial simulations to support this model. We use Monte

Carlo simulations applied to the different strategies available in our Arbitrage Program.


FINANCIAL SUMMARY

Free Cash-Flow

$-

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

2005 2006 2007 2008 2009

Years

2005 2006 2007 2008 2009

(1.07)$ 7.99 10.34 27.33 58.03

(1.11)$ (0.06) (0.06) (0.06) (0.07)

2.50$ - - - -

-$ 0.32 8.25 18.52 45.79

0.32$ 8.25 18.52 45.79 103.75


Cashflow from

Operations

Investing

Financing

Year End Cash Flow

Initial Cash

The company anticipates either going public or being acquired by an industry player.

Should the exit strategy take the form of a strategic sale/ IPO in primary markets, the

time frame for market exit is approximately 6 years given the current market

conditions. We anticipate that Investment Analytics will be positioned for a liquidity

event in the year 2011.

It is more likely that existing risk management companies would pursue Investment

Analytics for its capabilities. Many firms who stand to benefit from the efficiencies

gained through Investment Analytics’ services would be equally interested in

intercepting this valuable offering from going into the hands of competitors. Moreover,

by combining Investment Analytics’ extensive market expertise, state-of-the-art

technology and risk management capabilities, firms could circumvent proprietary

investments in developing these capabilities.


EXIT STRATEGY

Appendix 1: Pro forma Income Statement

Appendix 2: Pro Forma Cash Flow Statement

Appendix 3: Pro Forma Balance Sheet

Appendix 4: 2003- Target Market Survey –

Appendix 5: Target Market – Selected Profiles

Appendix 6: Target Market – List of Funds & Financial Institutions

Appendix 7: Volatility Arbitrage Program – Financial Projections

Appendix 8: Volatility Arbitrage Program – Modeling System and Investment Strategy


APPENDICES

APPENDIX 1 – PRO FORMA INCOME STATEMENT


2005 2006 2007 2008 2009

Volatility Arbitrage ProgramManagment Fees( $ M )E1000 -$ 0.25 0.81 2.53 4.38F500 0.35$ 0.50 1.32 1.74 2.92F1000 -$ 0.00 0.00 0.00 0.00G000 0.65$ 2.11 5.50 9.31 15.54H500 -$ 0.25 0.13 0.22 0.32Total Mgt Fees 1.00$ 3.11 7.76 13.80 23.16Performance Fees ( $ M )E1000 -$ 1.56 7.23 10.38 18.91F500 0.70$ 5.75 3.91 13.73 36.11F1000 -$ 4.35 0.00 2.53 4.82G000 1.57$ 5.47 8.18 16.76 25.87H500 -$ 0.00 0.07 0.11 0.37Total Perf Fees 2.27$ 17.13 19.39 43.51 86.08 Consulting and other ServicesTotal C & S 0.33$ 2.02 2.72 5.73 10.92

Total Revenue 3.60$ 22.26 29.87 63.04 120.16

Marketing 0.65$ 4.05$ 5.43$ 11.46$ 21.85$ 0.65$ 4.05 5.43 11.46 21.85

2.95$ 18.21 24.44 51.58 98.31

Staff 2.73$ 4.20 5.68 7.15 8.63Marketing 0.16$ 0.27 0.38 0.50 0.61Service Providers 0.48$ 0.77 1.06 1.35 1.63Operations 1.10$ 2.12 3.15 4.18 5.21

4.46$ 7.37 10.27 13.17 16.08(1.51)$ 10.85 14.17 38.41 82.24

Depreciations (0.22)$ (0.24)$ (0.25)$ (0.26)$ (0.27)$ (1.29)$ 11.08 14.41 38.67 82.51

Interest -$ -$ -$ -$ -$ (1.29)$ 11.08 14.41 38.67 82.51

30% Taxes -$ 3.33 4.32 11.60 24.75(1.29)$ 7.76 10.09 27.07 57.76

EBITDA

EBIT

EBT

NET EARNINGS

Total Fixed Costs

REVENUE

Total Variable Costs

VARIABLE COSTS

FIXED COSTS

Gross Margin

APPENDIX 2 – PRO FORMA CASH FLOWS STATEMENT


2005 2006 2007 2008 2009

Net Income (1.29)$ 7.76 10.09 27.07 57.76Prepayments -$ Depreciation and others 0.22$ 0.24 0.25 0.26 0.27Cashflow from Operations (1.07)$ 7.99 10.34 27.33 58.03

Non-Current AssetsProperty & Equipment (1.11)$ (0.06) (0.06) (0.06) (0.07)Start Up Costs -$ 0.00 0.00 0.00 0.00Cashflow from Investing (1.11)$ (0.06) (0.06) (0.06) (0.07)

New FinancingIncrease in Short-term Bank Borrowing -$ 0.00 0.00 0.00 0.00Increase in Long-term Borrowing -$ 0.00 0.00 0.00 0.00Founder's invested capital 0.50$ 0.00 0.00 0.00 0.00Sale of Common Stock: 2.00$ 0.00 0.00 0.00 0.00Reduction in FinancingRepayment of ST Borrowing -$ 0.00 0.00 0.00 0.00Repayment of LT Debt -$ 0.00 0.00 0.00 0.00Dividends -$ 0.00 0.00 0.00 0.00Other Financing Transactions -$ 0.00 0.00 0.00 0.00Cash Flow from Financing 2.50$ 0.00 0.00 0.00 0.00

Net Change in Cash 0.32$ 7.93 10.27 27.27 57.97

Cash, Beginning of Year -$ 0.32 8.25 18.52 45.79

Cash, End of Year 0.32$ 8.25 18.52 45.79 103.75

OPERATIONS

INVESTING

FINANCING

APPENDIX 3 – PRO FORMA BALANCE SHEET


2005 2006 2007 2008 2009

Current AssetsCash 0.32$ 8.25 18.52 45.79 103.75Pre-payments -$ 0.00 0.00 0.00 0.00

Total Current Assets 0.32$ 8.25 18.52 45.79 103.75

Long-Term AssetsLong Term CreditEquipment + Amort. Start Ups 1.11$ 1.18 1.24 1.31 1.37

Less depreciations (0.22)$ (0.46) (0.71) (0.97) (1.24)Total Long Term Assets 0.89$ 0.72 0.54 0.34 0.13

1.21$ 8.97 19.06 46.13 103.88

Current LiabilitiesAccounts Payable -$ 0.00 0.00 0.00 0.00Bank Loans Payable -$ 0.00 0.00 0.00 0.00Long Term DebtLong Term Debt -$ 0.00 0.00 0.00 0.00Total Liabilities -$ 0.00 0.00 0.00 0.00

Founder's invested capital 0.50$ 0.50$ 0.50$ 0.50$ 0.50$ Additional paid-in capital 2.00$ 2.00 2.00 2.00 2.00

Net Earnings Current (1.29)$ 7.76 10.09 27.07 57.76Retained Earnings (Prev) -$ (1.29) 6.47 16.56 43.63 Less Dividends paid -$ 0.00 0.00 0.00 0.00

Retained Earnings (Curr) (1.29)$ 6.47 16.56 43.63 101.38

Total Shareholder's Equity 1.21$ 8.97 19.06 46.13 103.88

1.21$ 8.97 19.06 46.13 103.88Total Liabilities and Shareholder's Equity

LIABILITIES

SHAREHOLDER'S EQUITY

ASSETS

LIABILIES & SHAREHOLDER'S EQUITY

Total Assets

APPENDIX 4 – 2003- SURVEY – PLAN SPONSORS, INVESTMENT CONSULTANTS, INDIVIDUAL FINANCIAL ADVISORS, INVESTMENT MANAGERS Return Expectations

The following are the results of a 2003 survey in which participated 250 plan sponsors, investment consultants, individual financial advisors, and investment managers: Participant Organization Type

Institutional and Individual Consultant Respondent Assets Under Advisement

© 2005 Investment Analytics - Business Plan Appendix 4

Investment Manager Respondent Assets Under Advisement






APPENDIX 5 – TARGET MARKET – SELECTED PROFILES

Financial Services 1. Asset Management a. Hedge Fund Management

AIG Global Investment Group 70 Pine Street New York, New York [email protected] Free: +1.800.706.6661 www.aiggig.com

o AIGGIG’s multi-manager strategy strives to generate consistently positive returns with lower volatility and low correlation to traditional equity and bond markets while preserving capital through rigorous risk management.

o Their Hedge Fund Strategies Group provides advice and asset allocation related to hedge fund managers and separate account investments.

o They are currently invested with approximately 60 hedge fund and other managers and manage approximately US $5.8 billion assets, of which 55% are AIG Companies’ assets.

Andor Capital Management, L.L.C. 153 East 53rd St. 58th Floor New York, NY 10022 Katherine Bailon Tel: 212-224-5848 www.andorcap.com

o Andor Capital Management has been recognized as 2003 Hedge Fund Leader of the Year not only for its stellar performance but also for being out in front of a growing trend to institutionalize its business structure.

o The long/short equity specialist, with roughly $9.6 billion under management, has taken steps to tie its managers and operations officials tighter to the firm.

o Last year it launched sector and non-tech hedge funds that served the dual purpose of diversifying its lineup beyond its technology focus and offering some of its analysts the chance to become portfolio managers.


http://www.aiggig.com/

http://www.andorcap.com/

Asset Alliance Corporation 800 Third Avenue New York, NY 10022 United States Tel: 212.207.8786 Fax: 212.207.8785 [email protected] www.assetalliance.com

o Asset Alliance is a multi-faceted investment management firm, specializing in alternative investment management - specifically hedge funds and hedge fund products.

o Asset Alliance and its affiliate managers have approximately $4.0 billion of assets under management and sub-advise approximately $12 billion of assets.

The Bank of Bermuda Limited 6 Front St. Hamilton HM 11, Bermuda Tel: 441-295-4000 Fax: 441-295-7093 www.bankofbermuda.bm

o Bank of Bermuda has net assets of $10.4 billion and $80 billion in assets under administration.

o Bank of Bermuda has a family of mutual funds and over $4 billion under management covering the equity, bond, alternative and cash asset classes.

o Bank of Bermuda’s top performing flagship investment vehicle, All Points Multi-Manager plc ("APMM"), has surpassed the $1 billion funds under management milestone.

Bear Stearns Asset Management Inc. 383 Madison Ave. New York, NY 10179 Tel: (212) 272-2000 www.bearstearns.com

o Bear Stearns Asset Management (BSAM), a subsidiary of Bear Stearns, provides equity and fixed-income investment management services, as well as hedge funds.

o Its private equity funds focus on biotechnology and digital media companies. BSAM also administers The Bear Stearns Funds, a family of about a dozen mutual funds.

o The firm has more than $30 billion of assets under management, most of it on behalf of corporate clients.



http://www.assetalliance.com/

http://www.bankofbermuda.bm/

http://www.bearstearns.com/

http://www.hoovers.com/bear-stearns/--ID__10191--/free-co-factsheet.xhtml

The Bessemer Group, Incorporated 630 Fifth Avenue New York, New York 10111-0333 Steven Brandfield [email protected] Tel: (212) 708-9118 www.bessemer.com

o The Bessemer Group manages more than $40 billion in assets for wealthy individuals and families.

o Main subsidiary Bessemer Trust administers portfolios with holdings in domestic and international equities and bonds, as well as such alternative assets as hedge funds, real estate, and private equity funds of funds

BlackRock, Inc. 40 East 52nd Street New York, New York 10022-5911 Tel: 212.810.5560 Fax: 212 935 1370 www.blackrock.com

o BlackRock® is a premier provider of global investment management, risk management, and advisory services.

o As of December 31, 2004, BlackRock's assets under management total $342 billion across various investment strategies, including fixed income, liquidity/cash management, equity, and alternatives.

o Their risk management and consulting/advisory services combine BlackRock's capital markets expertise with their proprietarily-developed systems and technology.

Brascan Financial Corporation One Liberty Plaza New York, NY 10006 USA Tel: 212- 417-7195 Fax: 212-417-7000 www.trilon.ca

o Brascan Asset Management is a leading North American asset manager focused primarily on alternative investments. They invest in industry sectors in which they are able to realize superior risk-adjusted returns by leveraging the industry and operational expertise of Brascan and capitalizing on the synergies across their various funds.

o With $7 billion of assets under management, their clients include pension funds, life insurance companies, financial institutions, corporations and high net-worth individuals.



http://www.bessemer.com/

http://www.blackrock.com/

http://www.trilon.ca/

CI Fund Management Inc. 151 Yonge Street, 11th Floor Toronto, ON M5C 2W7 Tel: 416-364-1145 Free: 1-800-268-9374 Fax: 416-364-6299 www.cifunds.com

o CI Fund Management Inc. ("CI") reported that at January 31 2005, had fee-earning assets of $68.1 billion

o Total fee-earning assets consisted of managed assets of $47.2 billion and administered/other assets of $20.9 billion. Managed assets included investment fund assets at CI Mutual Funds Inc. and Assante Wealth Management of $45.9 billion, labour-sponsored funds of $175 million and structured products and closed-end funds of $1.1 billion.

o Administered/other assets included institutional assets of $4.5 billion at BPI Global Asset Management LLP and $15.7 billion in assets at Assante and IQON Financial Management Inc. net of assets under management at Assante.

Citadel Investment Group, L.L.C. 131 S. Dearborn St. Chicago, IL 60603 Tel: 312-395-2100 Fax: 312-977-0270 www.citadelgroup.com

o Citadel, which has some $10 billion in assets under management, has expanded its derivatives operations. It recently announced plans to make markets in equity options on the Pacific Exchange (PCX).

o Citadel also makes markets on the International Securities Exchange, the Boston Options Exchange and the Chicago Board Options Exchange.

Clinton Group, Inc. 9 West 57 St., 26th Floor New York, NY 10019 Tel: 212.825.0400 Fax. 212.825.0079 [email protected] www.clinton.com

o Clinton Group, which has $5.3 billion of assets under management in its hedge funds and $4.1 billion in collateralized bond obligations, is the world's No. 14 hedge fund group, according to rankings by Institutional Investor magazine.


http://www.cifunds.com/

http://www.citadelgroup.com/


http://www.clinton.com/

Coast Asset Management, L.P. 2450 Colorado Avenue, Suite 100 East Tower Santa Monica, CA 90404 Tel: (310) 576-3500 Fax: (310) 576-3512 [email protected] www.coastasset.com

o Coast Asset Management, one of the top hedge fund administrators in the US, uses market-neutral investment strategies to try to make money for institutional clients and wealthy individuals (and itself) in any economic climate.

o The company focuses on fixed-income investments, such as sovereign debt of G-7 nations and collateralized debt obligations, employing fixed-income arbitrage, multi-manager portfolio management, and credit-spread strategies in administering its funds.

o Coast Asset Management has over $3.1 billion in assets under management

Credit Suisse Asset Management 466 Lexington Ave. New York, NY, 10017, USA Tel: +1 212 875 3500 Free: 877 272 6872 Fax: +1 646 658 0728 www.csam.com

o Credit Suisse Asset Management (CSAM) is a leading global asset manager focusing on institutional, mutual fund and private client investors, providing investment products and portfolio advice in three regions (Americas, Asia Pacific and Europe) around the world.

o Credit Suisse Asset Management has global assets under management of USD 341 billion and employs 1,885 people worldwide.

o Credit Suisse Asset Management is part of Credit Suisse First Boston (CSFB), a leading global investment bank serving institutional, corporate, government and individual clients.

o CSAM has investment capabilities in all major asset classes, including equities, fixed income, balanced products and alternative investments.

Elliott Management Corporation 712 Fifth Ave. New York, NY 10019 Tel: 212-974-6000 Fax: 212-586-9431 www.elliottmgmt.com

o Elliott Management Corporation is a leading multi-strategy hedge fund based in New York City, with nearly $4 billion in assets under management



http://www.coastasset.com/

http://www.csam.com/

http://www.elliottmgmt.com/

Hanseatic Group, Inc. 5600 Wyoming Blvd. NE, Ste. 220 Albuquerque, NM 87109 Tel: 505-828-2824 Fax: 505-828-2825 www.hanseaticgroup.com

o Hanseatic Group employs an investment philosophy based on nonlinear systems, using algorithms similar to those applied to ecology and quantum mechanics to detect patterns in market activity.

o Hanseatic Group also invests in domestic and international equities, trades managed futures, and oversees investment portfolios for institutional clients and high-net worth individuals.

o It has some $250 million of assets under management.

Henderson Global Investors Limited Olympia Centre 737 North Michigan Avenue Suite 1950 Chicago IL60611 USA Tel: +1 312 397 1122 Fax: + 1 312 397 1494 www.henderson.com

o Henderson has been managing property assets for more than four decades and has over £6.5 billion (€9.7 billion)* of property assets under management globally in the form of segregated mandates, pooled funds, both balanced and sector specialist, for direct property as well as property securities funds.

Highland Capital Management, L.P. 245 Park Avenue 39th Floor New York, NY 10167 Phone: 212 792 4382 Fax: 212 792 4322 [email protected] www.hcmlp.com

o Founded in 1993, Highland is a market leading Registered Investment Advisor, specializing in credit and alternative investment investing.

o Over $11 billion in assets under management. o Over $9 billion in leveraged loans o Over $1 billion in high yield bonds

o Highland is one of the largest managers of leveraged loans and collateralized loan obligations in the world.

o Over $200MM of firm capital invested in its funds.


http://www.hanseaticgroup.com/

http://www.henderson.com/


http://www.hcmlp.com/

Integrated Asset Management Corp. Stephen Johnson Chief Financial Officer Tel: (416) 933-8278 [email protected] www.iamgroup.ca

o Integrated Asset Management Corp. is a leading Canadian alternative asset management company headquartered in Toronto

o The firm has assets under management of over $2.6 billion.

Julius Baer Holding Ltd. Bahnhofstrasse 36 CH-8010 Zurich, Switzerland Tel: 41-1-58-888-1111 Fax: +41-1-58-888-5517 www.juliusbaer.com

o J. Baer, with some $115 billion in assets under management, operates in many of the world's financial centers.

Man Group plc MCAP Inc. 123 North Wacker Drive Suite 2800 Chicago IL 60606 USA Tel: +1 312 881 6800 Fax: +1 312 881 6700 www.maninvestments.com

o Man Group plc is a leading global provider of alternative investment products and solutions as well as one of the world’s largest futures brokers

o Man Group has funds under management of $41 billion

Mellon Financial Corporation 1 Mellon Center Pittsburgh, PA 15258-0001 (Map) Phone: 412-234-5000 Fax: 412-234-9495 Mike Dunn - Manager, Media Relations 212 922-7859 www.mellon.com

o Mellon Financial Corporation (NYSE: MEL) has $500 billion in assets under management o Mellon is one of the world's leading providers of asset management, trust, custody and

benefits consulting services



http://www.iamgroup.ca/

http://www.juliusbaer.com/

http://www.maninvestments.com/

http://www.mellon.com/

Merrill Lynch Investment Managers P.O. Box 9011 Princeton, NJ 08543-9011 Tel: 1-800-MERRILL [email protected] www.mlim.ml.com

o Merrill Lynch Investment Managers is a leader in the financial services field o It has $496 billion in assets under management, making them one of the world's

largest active money managers.

Mesirow Financial Holdings, Inc. 350 North Clark Street Chicago, IL 60610 Phone: 312-595-6000 Tel: 312-595-4246 Toll Free: 1-800-453-0600 www.mesirowfinancial.com

o Mesirow Financial is a diversified financial services firm headquartered in Chicago. o The firm is well-capitalized with over $136 million in capital, $20 billion in advisory or

managed assets, and $267 million in revenue.

Nuveen Investments, Inc. 333 West Wacker Drive Chicago, IL 60606 Peggy Wilson, 312-917-6801 www.nuveen.com

o Nuveen Investments has more than $109 billion in assets under management o It has $3 billion in alternative investments

Pequot Capital Management, Inc. 153 East 53rd St. 35th Floor New York, NY 10022 Tel: 212.702.4400 www.pequotcap.com

o Pequot Capital Management, Inc., is a private investment firm with approximately $7 billion of assets under management



http://www.mlim.ml.com/

http://www.mesirowfinancial.com/

http://www.nuveen.com/

http://www.pequotcap.com/

RAB Capital PLC Michael Alen-Buckley 207 389 7001 www.rabcap.com

o RAB Capital plc has approximately $1,75 billion in assets under management

Schonfeld Securities, LLC Lance Donenberg, 312.499.2973 [email protected] www.schonfeldsecurities.com

o Schonfeld Capital Group holds a diversified portfolio of investments in a variety of hedge funds employing a wide range of trading strategies.

o Investments range from $500,000 direct investments to multimillion dollar managed accounts

Schroders plc 31 Gresham Street London EC2V 7QA Tel: +44 (0) 207 658 6000 www.schroders.com

o Schroders is one of the world’s leading independent investment managers with assets under management of approximately £100 billion including an active investment trust business in the UK

Soros Fund Management LLC 888 Seventh Ave., 33rd Fl. New York, NY 10106 Tel: 212 262 6300 Fax 212 245 5154

o Soros Fund Management LLC has approximately $15 billion in assets under management

Tremont Capital Management, Inc. 555 Theodore Fremd Avenue Suite C-300 Rye, NY 10580 Telephone (914) 925-1140 (914) 921-3499 [email protected] www.tremontadvisers.com


o Tremont Capital Management, Inc. is one of the leading global alternative investment management firms, whose business lines include research and investment

http://www.rabcap.com/


http://www.schonfelddonenberg.com/

http://www.schroders.com/


http://www.tremontadvisers.com/

management services, sale and distribution of its proprietary investment products, and database sales and information services.

o Tremont advises on approximately $9 billion in alternative investment assets, including more than $1billion in its proprietary funds.

b. Institutional Asset Management

American Express Financial Corporation 50606 AXP Financial Center, H27/52 Minneapolis, MN 55474 Phone: 612-671-2711 Toll Free: 800-386-2042 www.americanexpress.com

o American Express' mutual funds, hold nearly half of the $232 billon in assets under management at the company

Citigroup Inc. 399 Park Ave. New York, NY 10043 Tel: 212-559-1000 Fax 212-793-3946 Toll Free: 800-285-3000 www.citigroup.com William Comfort, Citigroup Venture Capital

o Citigroup Inc has $7.9 trillion in assets under custody and trust. o Citigroup’s new product line, Fund Services, was recognized as best in class for Mutual

Fund Administration and Hedge Fund Administration in Bermuda, one of the world’s key hubs for offshore hedge funds.

Countrywide Financial Corporation 4500 Park Granada Calabasas, CA 91302-1613 Tel: 818-225-3000 Fax 818-225-4051 www.countrywide.com

o Countrywide Financial Corporation is a member of the S&P 500 and Fortune 500 o Countrywide Financial Group has $120.2 billion in assets under management and

serves some 13 million customers


http://www.americanexpress.com/

http://www.citigroup.com/

http://www.countrywide.com/

FMR Corp. 82 Devonshire St. Boston, MA 02109 Phone: 617-563-7000 Fax: 617-476-6150 www.fidelity.com

o Together Fidelity Management and Research Company and Fidelity International Limited. have grown into one of the largest and most successful fund management organizations in the world, managing US$1.2 trillion in assets.

J.P. Morgan Chase & Co. 270 Park Ave. New York, NY 10017 Phone: 212-270-6000 Fax: 212-270-2613 800-576-6209 www.jpmorganchase.com

o J.P. Morgan Chase (the #2 bank in the US) is one of the largest private banks in the world, with more than $270 billion in client assets under management.

o J.P. Morgan Private Bank's offerings include asset management, lines of credit, private equity investment, hedge funds, and custody and transaction services, as well as advice on tax and estate planning and philanthropy.

Merrill Lynch & Co., Inc. 4 World Financial Center New York, NY 10080 Tel: 212-449-1000 Fax 212-449-7357 Toll Free: 800-637-7455 www.merrilllynch.com

o Merrill Lynch is one of the world’s leading financial management and advisory companies, with offices in 36 countries and total client assets of approximately $1.6 trillion

MetLife, Inc. 200 Park Ave. New York, NY 10166 Tel: 212-578-2211 Fax 212-578-3320 Toll Free: 800-638-5433 www.metlife.com

o MetLife is one of the US’s largest insurers.


o Besides its insurance products the company also provides institutional investment management products (retirement plans, mutual funds, and more) through its Asset Management segment.

http://www.fidelity.com/

http://www.jpmorganchase.com/

http://www.merrilllynch.com/

http://www.metlife.com/

Morgan Stanley Investment Management 1585 Broadway New York, NY 10036 Tel: 212-761-4000 Fax 212-762-0575 www.morganstanley.com

o With over 17 years of experience in managing alternative investments, the Morgan Stanley Alternative Investments team manages portfolios which offer institutional investors access to the alternatives marketplace through two primary approaches: fund of hedge funds portfolios and fund of private equity funds portfolios

o Manages $424 billion in assets for our clients globally o Offers over 50 globally-diversified investment products

Wells Fargo & Company 420 Montgomery St. San Francisco, CA 94163 Phone: 800-869-3557 Fax: 415-677-9075 Toll Free: 800-333-0343 www.wellsfargo.com

o Wells Fargo has $428 billion in assets

Western & Southern Financial Group 400 East Fourth Street Cincinnati, OH 45202 Phone: 800.936.1212 Fax: 513.629.1220 www.westernsouthern.com

o Western & Southern Financial Group is a FORTUNE 500 company ranked eighth among mutual life and health insurance companies in the country.

o It has in excess of $32 billion in assets owned and under management


http://www.morganstanley.com/

http://www.wellsfargo.com/

http://www.westernsouthern.com/

2. Investment Banking a. Large-Market Investment Banking

AmSouth Bancorporation PO Box 628327 Orlando, FL 32862-8327 1-800-581-7998 www.amsouthfunds.com

o AmSouth Asset Management, Inc. ("AAMI"), a wholly owned subsidiary of AmSouth Bank, serves as investment advisor to the AmSouth Funds and is paid a fee for their services.

o AmSouth Bancorporation has $20 billion in assets under management

Bank of America Securities LLC 100 North Tryon Street Mail Code NC1-007-18-01 Charlotte, NC 28255 Jeff Hershberger, Financial Institutions Finance 1.212.847.6160 [email protected] www.bankofamerica.com

o Bank of America Capital Management, with more than $275 billion in assets under management, provides individuals, small businesses and commercial, corporate and institutional clients around the world new and better ways to manage their financial lives.

Credit Suisse First Boston LLC Eleven Madison Avenue Tel: 1 212 325 2000 www.csfb.com

o With more than $19 billion of private equity assets, $8.5 billion in fund of hedge funds, and approximately $6 billion in leveraged investments and CDOs, as well as other alternative investments, the Group manages over $34 billion in assets


http://www.amsouthfunds.com/


http://www.bankofamerica.com/

http://www.cdfb.com/

Deutsche Bank Alex. Brown Incorporated 1 South Street Baltimore, Md. 21202 Phone: (410) 727-1700 Fax: 410-895-5151 www.alexbrown.db.com

o Deutsche Bank Alex. Brown is the U.S. Private Client Services division of Deutsche Bank Securities Inc., the investment banking and securities arm of Deutsche Bank AG in the United States.

o It has more than €849 billion in assets under management.

The Goldman Sachs Group, Inc. 85 Broad Street New York, NY 10004 USA Melina Higgins 1-212-902-1254 www.gs.com

o Goldman Sachs is a leading global investment banking, securities and investment management firm.

o It has more than $400 billion in assets under management

Lehman Brothers Inc. 745 Seventh Ave. New York, NY 10019 212-526-7000 www.lehman.com

o Founded in 1850, Lehman Brothers maintains leadership positions in equity and fixed income sales, trading and research, investment banking, private investment management, asset management and private equity.


Nomura Holdings, Inc. 2 World Financial Center, Building B New York, NY 10281-1198 Phone: (212) 667-9300 Fax: (212) 667-1001 Michael H. Lowry, Managing Director (212) 667-9557 [email protected] www.nomura.com

o The Nomura Group, one of the largest global investment banking and securities firms, is represented in The Americas by Nomura Holding America Inc. (NHA),

o Nomura Securities International has more than $7.7 billion in assets under management


http://www.alexbrown.db.com/

http://www.gs.com/

http://www.lehman.com/


http://www.nomura.com/

Société Générale SG House, 41 Tower Hill London EC3N 4SG, United Kingdom Tel: +44 20 7597 3000 Fax: +44 20 7597 3056 [email protected] www.sghambros.com

o Société Générale is one of the largest financial services groups in the euro-zone o It has more than $300 billion in assets under management

U.S. Bancorp U.S. Bancorp Center, 800 Nicollet Mall Minneapolis, MN 55402 Phone: 612-303-3381 Toll Free: 800-754-7221 am.usbancorp.com

o U.S. Bancorp, with assets under management of $195 billion, is the 6th largest financial services holding company in the United States.

b. Middle-Market Investment Banking

Adams Harkness, Inc. 99 High St. Boston, MA 02110 Phone: 617-371-3900 Fax: 617-371-3793 800-225-6201 www.adamsharkness.com

o Winslow, a division of Adams Harkness Asset Management, is a growth-oriented asset manager seeking above-average performance and capital appreciation for its investors through environmentally responsible investing.

o It has $210 million in assets under management

CIBC World Markets Inc. 300 Madison Avenue New York, New York USA 10017 Tel: 212-856-4000 www.cibcwm.com

o CIBC World Markets is the wholesale banking arm of CIBC, providing a range of integrated credit and capital markets products, investment banking, and merchant banking to clients in key financial markets in North America and around the world.


o The firm has $63 billion in assets under management.


http://www.sghambros.com/

http://www.adamsharkness.com/

http://www.cibcwm.com/

Harris Bankcorp, Inc. 111 W. Monroe St. Chicago, IL 60603 Phone: 312-461-2000 Fax: 312-461-7869 www.harrisbank.com

o Harris is an integrated financial service organization providing more than 1.5 million personal, business, corporate and institutional clients with banking, lending, investing and financial management solutions

o Harrisdirect provides direct investors with an award-winning trading platform, a broad range of investment options, high-powered planning tools and access to eight leading sources of research.

o The firm has $32 billion in assets under management

Jefferies Group, Inc. 520 Madison Ave., 12th Fl. New York, NY 10022 Phone: 212-284-2300 Fax: 203-708-5922 www.jefco.com

o Jefferies, a global investment bank and institutional securities firm, has served middle-market and growth companies and their investors for over 40 years.

o The company has $3 billion in assets under management

Lazard LLC 121 Boulevard Haussmann 75382 Paris Cedex 08, France Tel: +33-1-4413-01-11 Fax +33-1-4413-01-00 www.lazard.com

o Lazard is a pre-eminent global investment bank committed to helping its clients - corporations, partnerships, institutions, governments and individuals - achieve their strategic and financial goals.

o The firm has $82 billion in assets under management.

Raymond James Financial, Inc. 880 Carillon Pkwy. St. Petersburg, FL 33716 Phone: 727-567-1000 Toll Free: 800-248-8863 www.rjf.com

o Founded in 1962, Raymond James Financial, Inc. is now one of the largest financial services firms in the United States, with 2,200 locations worldwide.


o The firm has $22 billion in assets under management

http://www.harrisbank.com/

http://www.jefco.com/

http://www.lazard.com/

http://www.rjf.com/

RBC Dain Rauscher Inc. Dain Rauscher Plaza, 60 S. 6th St. Minneapolis, MN 55402-4422 Phone: 612-371-2711 Fax: 612-371-7619 Toll Free: 800-678-3246 www.rbcdain.com

o RBC Dain Rauscher Inc., a wholly owned subsidiary of Royal Bank of Canada (RY: TSX, NYSE), is one of Canada’s largest full-service securities firms

o It has $117 billion in assets under management

UBS Financial Services Inc. 1285 Avenue of the Americas New York, NY 10019 Phone: 212-713-2000 Fax: 212-713-9818 financialservicesinc.ubs.com

o UBS AG is a leading global financial services firm serving a diverse client base that includes affluent individuals, corporations, institutions and governments.

o It has approximately $434 billion in assets under management worldwide

Veronis Suhler Stevenson Partners LLC 350 Park Avenue New York, NY 10022 212-935-4990 telephone 212-381-8168 fax James P. Rutherfurd [email protected] www.vss.com

o Since 1987, Veronis Suhler Stevenson's private equity affiliate, VSS Fund Management LLC, has managed four equity funds exclusively dedicated to investments in the media, communications and information industries.


Webster Financial Corporation Webster Plaza Waterbury, CT 06702 Phone: 203-578-2476 Fax: 203-573-8688 Toll Free: 800-325-2424 www.websterbank.com

o Webster Financial Corporation is the holding company for Webster Bank and Webster Insurance


o The firm has 12 billion in assets under management

http://www.rbcdain.com/


http://www.vss.com/

http://www.websterbank.com/

APPENDIX 6 – TARGET MARKET – FUNDS & FINANCIAL INSTITUTIONS

Financial Services 1. Asset Management a. Hedge Fund Management

AIG Global Investment Group Alexander Securities Group L.L.C. Allianz Global Investors of America L.P. Altin AG Andor Capital Management, L.L.C. Ardsley Partners Asset Alliance Corporation Avenue Financial Corporation The Bank of Bermuda Limited Bear Stearns Asset Management Inc. The Bessemer Group, Incorporated BlackRock, Inc. Bowman Capital Management, LLC Brascan Financial Corporation Cargill, Incorporated CI Fund Management Inc. Citadel Investment Group, L.L.C. Clinton Group, Inc. Coast Asset Management, L.P. Credit Suisse Asset Management Elliott Management Corporation Greenlight Capital, Inc. Hanseatic Group, Inc. Henderson Global Investors Limited Highland Capital Management, L.P. Integrated Asset Management Corp. International Assets Holding Corporation J.P. Morgan Private Bank Julius Baer Holding Ltd. JWM Partners, LLC Knightsbridge Advisers Incorporated Liberty Group Limited Man Group plc MCAP Inc. Mellon Financial Corporation Merrill Lynch Investment Managers Mesirow Financial Holdings, Inc. Nuveen Investments, Inc.


Pequot Capital Management, Inc.

RAB Capital PLC Schonfeld Securities, LLC Schroders plc Soros Fund Management LLC Tremont Capital Management, Inc. UBS Investment Bank Verus Investment Management, LLC

b. Institutional Asset Management

A&W Revenue Royalties Income Fund AEGON USA Investment Management LLC Affiliated Managers Group, Inc. AIG Global Investment Group A I M Management Group Inc. Alliance Capital Management L.P. Allianz Global Investors of America L.P. American Century Companies, Inc. American Express Financial Corporation Amerindo Investment Advisors Inc. AmeriServ Financial, Inc. AmSouth Bancorporation AMVESCAP PLC Arnhold and S. Bleichroeder Advisers, Inc. Asset Alliance Corporation Atalanta Sosnoff Capital, LLC AXA Rosenberg Group LLC The Bank of New York Company, Inc. Barclays Global Investors, N.A. Bear Stearns Asset Management Inc. The Bessemer Group, Incorporated BKF Capital Group, Inc. Blaylock & Partners, L.P. BOK Financial Corporation Brascan Financial Corporation Brewin Dolphin Holdings PLC Calamos Asset Management, Inc. Caywood-Scholl Capital Management LLC Chandler Asset Management, Inc. CI Fund Management Inc. Citigroup Inc. Clinton Group, Inc. Close Brothers Group plc CoBiz Inc. Cohen & Steers, Inc. Columbia Management Group, Inc.


Comerica Incorporated

Conning Corporation Countrywide Financial Corporation Credit Suisse Asset Management Credit Suisse First Boston LLC Credit Suisse Group Davis Selected Advisors, L.P. Detwiler, Mitchell & Co. Diamond Hill Investment Group, Inc. Dimensional Fund Advisors, Inc. Duncan-Hurst Capital Management Inc. Dundee Bancorp Inc. Dundee Wealth Management Inc. E. Öhman J:or Fondkommission AB Eaton Vance Corp. EnTrust Capital Inc. Evergreen Investment Management Company, LLC The Evolution Group Plc Federated Investors, Inc. First Quadrant L.P. FMR Corp. Frank Russell Company Fred Alger Management, Inc. Froley, Revy Investment Company, Inc. Gerrard Limited Gleacher Partners LLC Hanseatic Group, Inc. Harris Bankcorp, Inc. Henderson Global Investors Limited Hirtle, Callaghan & Co., Inc. Hokanson Capital Management, Inc. ING Americas Integrated Asset Management plc International Assets Holding Corporation Intrepid Capital Corporation John Hancock Financial Services, Inc. Jones Lang LaSalle Incorporated J.P. Morgan Chase & Co. J.P. Morgan Fleming Asset Management Kayne Anderson Rudnick Investment Management, LLC KBC Peel Hunt Ltd. Keefe, Bruyette & Woods, Inc. Kirlin Holding Corp. Legg Mason, Inc. Liontrust Asset Management PLC LM Capital Group, LLC Man Group plc Martin Capital Advisors, LLP Massachusetts Financial Services Company


MCF Corporation

Mellon Capital Management Corporation Mellon Financial Corporation Merrill Lynch & Co., Inc. Merrill Lynch Investment Managers Mesirow Financial Holdings, Inc. Messner & Smith Investment Management, Ltd. MetLife, Inc. Metropolitan West Asset Management, LLC Minnesota Mutual Companies, Inc. Montanaro Investment Managers Limited Morgan Stanley Morgan Stanley Investment Management New York Community Bancorp, Inc. Newton Investment Management Ltd. NFJ Investment Group Nicholas-Applegate Capital Management Northern Trust Corporation Nuveen Investments, Inc. NWQ Investment Management Company, LLC Oak Associates, ltd. Old Mutual plc Old Mutual (US) Holdings, Inc. Pacific Mutual Holding Company Phoenix Investment Partners, Ltd. Pioneer Investment Management USA Inc. Progress Investment Management Company Provident Investment Counsel, Inc. Prudential Investment Management, LLC PSEG Energy Holdings L.L.C. PSEG Resources Inc. Rice Hall James & Associates LLC Roxbury Capital Management, LLC RS Investment Management, Inc. Sage Advisory Services, Ltd. Co. St.George Bank Limited The Sanlam Group Schroders plc Seneca Capital Management, LLC Silicon Valley Bancshares Singer & Friedlander Group PLC Sinopia Asset Management Southwest Bancorporation of Texas, Inc. Standard Chartered PLC State Street Corporation The Sumitomo Trust and Banking Company, Limited The TCW Group, Inc. Teachers Insurance and Annuity Association - College Retirement Equities Fund


Trainer Wortham & Company, Inc.

Tremont Capital Management, Inc. UBS AG UBS Financial Services Inc. UBS Investment Bank UnionBanCal Corporation U.S. Bancorp U.S. Bancorp Asset Management, Inc. U.S. Trust Corporation Waddell & Reed Financial, Inc. Webster Financial Corporation Wellington Management Company, LLP Wells Capital Management Wells Fargo & Company Western & Southern Financial Group Westwood Holdings Group, Inc. W.P. Stewart & Co. Ltd.

2. Investment Banking a. Large-Market Investment Banking

AmSouth Bancorporation Banc of America Securities LLC The Bear Stearns Companies Inc. Citigroup Global Markets Europe Limited Citigroup Global Markets Holdings Inc. Citigroup Inc. Credit Suisse First Boston LLC Credit Suisse First Boston (USA), Inc. Deutsche Bank Alex. Brown Incorporated Deutsche Bank Securities Inc. Goldman Sachs Group Holdings (U.K.) The Goldman Sachs Group, Inc. J.P. Morgan Chase & Co. J.P. Morgan Securities Inc. Lehman Brothers Holdings Inc. Lehman Brothers Inc. Lehman Brothers U.K. Holdings Ltd. Merrill Lynch & Co., Inc. Merrill Lynch Europe PLC Morgan Stanley Nomura Holdings, Inc. Nomura International PLC Société Générale UBS Investment Bank


U.S. Bancorp

b. Middle-Market Investment Banking

Adams Harkness, Inc. AdMedia Partners, Inc. Advanced Equities Financial Corp. The Advest Group, Inc. Allen & Company, Inc. Arbuthnot Securities Limited Arnhold and S. Bleichroeder Advisers, Inc. Banc of America Investment Services, Inc. BankAtlantic Bancorp, Inc. Barclays Capital Inc. Bayview Capital Group Benefit Capital Companies Berkery, Noyes & Co. British Linen Advisers Limited Broadview International Brown, Gibbons, Lang & Company, L.P. Burrill & Company Calyon Securities (USA) Inc. Cantor Fitzgerald, L.P. The CapStreet Group, LLC Cazenove Group plc C.E. Unterberg, Towbin Charles Stanley Group plc CIBC World Markets Inc. Citigroup Geneva Capital Strategies Inc. Cohen & Steers, Inc. Crown Financial Group, Inc. Daiwa Securities Group Inc. DeSilva & Phillips, LLC Detwiler, Mitchell & Co. DN Partners Dresdner Kleinwort Wasserstein Durlacher Corporation PLC EarlyBirdCapital Inc. E. J. De La Rosa & Co., Inc. The Evolution Group Plc Evolution Securities Ltd. Ferris, Baker Watts Incorporated Firebrand Financial Group, Inc. First Albany Companies Inc. Fox-Pitt, Kelton Inc. Friedman, Billings, Ramsey Group, Inc. Galen Capital Group, LLC Gleacher Partners LLC


Granite Financial Group, Inc.

Green Manning & Bunch, Ltd. Greenhill & Co, Inc. Gruppo, Levey & Co. Gulf Capital Partners, Inc. Harris Bankcorp, Inc. Harris Williams & Co. Hill Street Capital LLC Houlihan Lokey Howard & Zukin Janney Montgomery Scott LLC Jefferies Group, Inc. The Jones Financial Companies, L.L.L.P. The Jordan, Edmiston Group, Inc. Katalyst LLC Keefe, Bruyette & Woods, Inc. Kinsman Capital, LLC Kirlin Holding Corp. Ladenburg Thalmann Financial Services Inc. Lazard LLC Leerink Swann & Company, Inc. Lightyear Capital Inc. Lincoln Partners McDonald Investments, Inc. MCF Corporation MEDIOBANCA - Banca di Credito Finanziario S.p.A. MFC Bancorp Ltd. MHT Partners, LP Monitor Company Group, LP Morgan Joseph & Co. Inc. Moss Adams LLP MTS Health Partners, L.P. N M Rothschild & Sons Limited Nomura Securities International, Inc. Numis Corporation Plc Odyssey Investment Partners, LLC Oppenheimer Holdings Inc. Parker/Hunter Incorporated Paulson Capital Corp. Piper Jaffray Companies Pointe Financial Corporation Putnam Lovell NBF Group Inc. Raymond James Financial, Inc. RBC Dain Rauscher Inc. RBC Dominion Securities Inc. Robert W. Baird & Co. Incorporated Rodman & Renshaw Inc. Roth Capital Partners, LLC Ryan Beck & Co., Inc. Sandler O'Neill & Partners, L.P.


Sands Brothers & Co., Ltd.

Sanford C. Bernstein & Co., LLC Scott & Stringfellow, Inc. Secured Capital LLC SG Cowen & Co., LLC Shore Capital Group plc Société Générale Sonnenblick-Goldman Company Stephens Group, Inc. Stephens Inc. Sterling Financial Investment Group, Inc. Stonebridge Associates, LLC SVB Alliant SWS Group, Inc. TD Securities Inc. Teather & Greenwood Holdings PLC THCG, Inc. Thomas Weisel Partners LLC Trenwith Group, LLC UBS Financial Services Inc. Veronis Suhler Stevenson Partners LLC Vontobel Holding AG Walker, Crips, Weddle, Beck plc Waterous & Co. Webster Financial Corporation Wedbush Morgan Securities Westchester Associates, LLC William Blair & Company, L.L.C. WR Hambrecht + Co.


The Ziegler Companies, Inc.

3. Investment Funds

5Banc Split Inc. A&W Revenue Royalties Income Fund Aberforth Partners The Adams Express Company Agility Capital, LLC AIC Diversified Canada Split Corp. Allied Solutions, LLC Argosy Investment Partners LP Asset Value Investors Ltd. Augen Capital Corp. Bank Hapoalim B.M. Bonavista Energy Trust Brascan Financial Corporation CLX Investment Company, Inc. Coastal Income Corp. Collective Assets Trust plc Credit Suisse First Boston LLC Diamond Hill Investment Group, Inc. DIAMONDS Trust, Series 1 EarlyBirdCapital Inc. Ecclesiastical Insurance Group Fidelity Capital Investors Finance Wales plc First Reserve Corporation HHG PLC Highland Capital Management, L.P. Home Equity Income Trust ING Canada Inc. Innergex Power Income Fund Kohlberg Kravis Roberts & Co. Liontrust Investment Funds Ltd. Littlejohn & Co. LLC M&G Securities Ltd. Morgan Stanley UK Group Nasdaq-100 Trust, Series 1 Newcastle Building Society Limited Noble Fund Managers Limited Noble Group Limited Odyssey Investment Partners, LLC Overlord Financial Inc. Pacific Retail Group Limited Petroleum & Resources Corporation Phoenix Equity Partners Holdings LLP Sarasin Investment Management Ltd.


Shorenstein Company LLC

Skylon Capital Yield Trust SPDR Trust, Series 1 Sterling Capital Corporation SVG Capital plc TD Waterhouse Group, Inc. Thomas Weisel Partners LLC Versacold Income Fund


VOLATILITY ARBITRAGE PROGRAM

FINANCIAL PROJECTIONS

FEBRUARY 2005

I N V E S T M E N T A N A L Y T I C S ( B E R M U D A ) L T D

2

CONTENTS

Management Summary.......................................3

Assumptions ........................................................4

Returns Processes ........................................................................... 4

Asset Growth ................................................................................ 4

Discount Rates and Terminal Multiples ........................................ 5

Strategy Returns ............................................................................ 5

Management Fees and Performance Allocations ............................. 5

Expenses ....................................................................................... 5

Present Value Computations ......................................................... 6

Simulation Scenarios...........................................7

Results ...................................................................8

Conclusion............................................................8

Equity Investment Terms ..................................9

Results for Scenario 6 ...................................... 10

3

FINANCIAL PROJECTIONS

MANAGEMENT SUMMARY

Investment Analytics is an investment research and consulting firm established by its Chief Executive Jonathan Kinlay in 1998. Investment Analytics provides independent research focusing on applications of sophisticated mathematical and financial modeling techniques to problems of strategy development and repair, performance analysis and risk management for clients in the investment management industry in Europe, North America and Asia. Full details about the firm, its personnel and products and services is given on the web site:www.investment-analytics.com.

In 1999-2001 Investment Analytics developed a new framework for modeling and forecasting asset volatility using advanced econometric models based on extensive theoretical and empirical research. These models provided the basis for a volatility arbitrage program which was made available under license to the hedge fund Caissa Capital in 2002. The arbitrage strategies proved highly successful, producing double- and triple-digit uncorrelated alphas, and enabling the fund to raise over $300M in assets from institutional investors in the US, Europe and Asia. Since expiration of the Caissa license in 2004, Investment Analytics has issued a new license for use of its volatility arbitrage program to the Proteom Fund, of which Mr. Kinlay is also a principal, in order to provide the basis for a range of volatility arbitrage products. The Proteom Fund is expected to open in 2005 with Assets Under Management of $100M. Full details of the Fund including strategy presentations, strategy analyses, performance statistics, due diligence information and offering documents, can be found on the web site: www.proteomcapital.com

This document sets out financial projections for Investment Analytics, for the five years from inception of the Proteom Fund. A variety of scenarios are considered in which different combinations of products are launched in the first two years. The analysis suggests that the optimal strategy would be to launch three already-developed products in year 1. Projections under this scenario show Assets Under Management rising to over $1.7 Bn by year 5 and indicate a fair valuation of Investment Analytics to be $61M.

Investment Analytics proposes to sell 49% of the equity for the sum of $58.6M.

4

5,,1;5,1 KK ==×= jier

bgi

ijjij

Asset Growth 2 3 4 5 5+Baseline 150.00% 100.00% 75.00% 60.00% 4.00%

Strategy Mean SD Mgt. Fee Perf. FeeE1000 24.00% 15.00% 2.00% 35.00%F500 40.00% 25.00% 2.00% 35.00%F1000 65.00% 40.00% 0.00% 50.00%G000 12.90% 6.92% 2.00% 25.00%H500 6.68% 13.97% 2.00% 25.00%

ASSUMPTIONS

RETURNS PROCESSES

Financial projections are created using a Monte-Carlo simulation model in which strategy returns follow random processes with expected average levels and standard deviations of return as set out in the Table 1 below. The table also shows the management and performance fees for each strategy.

Table 1: Strategy Performance Characteristics and Fees.

ASSET GROWTH

The growth in Assets Under Management (AUM) is computed from a baseline scenario as shown in Table 2. The growth rate in any year is then adjusted for each strategy’s performance during that year according to the formula:

Where

gij is the growth rate for strategy i in year j

bj is the baseline growth rate in year j

rij is the return from strategy i in year j (by simulation)

ei is the expected return for strategy i

The baseline growth rate beyond year five is 4% per annum. Strategies such as the F500, F100 and G000, are likely to be close to capacity at this stage are assumed to grow at this rate. Other strategies with greater capacity are assumed to have long term growth rates of 6% to 8%.

Table 2: Baseline Growth rates in Assets Under Management

5

DISCOUNT RATES AND TERMINAL MULTIPLES

For strategies with established track records in prior funds we apply a discount rate to cash flows of 50%. Strategies in this group are the F500, F1000 and G000 volatility strategy series. Cash flows from the H500 strategy which is new, but based on a methodology similar to other existing strategies with established track records, are discounted at 55%. A higher discount rate of 60% is used for the E1000 strategy, which is entirely new. A weighted average discount rate (WADR) is computed from individual strategy discount rates by weighting each rate by the proportion of total Assets Under Management invested in each strategy. The WADR is used to compute a weighted average terminal multiple (WATM), which is used to value cash flows beyond year 5.

Terminal multiples are calculated in the standard way:

M = 1 / (D – G)

Where M is the terminal multiple;

D is the discount rate; and

G is the long term growth rate.

STRATEGY RETURNS

These are assumed to follow a Normal distribution with means and standard deviations as shown in Table 1. Strategy returns for each year are generated by sampling repeatedly (1,000 times) from each of these distributions.

MANAGEMENT FEES AND PERFORMANCE ALLOCATIONS

Fees are computed using the standard terms as set out in Table 1. License fees received by Investment Analytics are computed at a standard rate of 50% of total management and performance fees.

Although it is likely that discounts will be offered to large and early-stage investors, these are not factored into the computations for fees. Instead a marketing allowance of 20% is made in the expense calculations (see below).

EXPENSES

As previously mentioned, a marketing allocation of 20% of total fees (management fees and performance allocation) is expensed against revenues.

Details of overhead computations are given in the workbook. The breakdown by expense category for the first two years is summarized in Table 3. Beyond year 2, overhead is assumed to grow at 50% of the rate of growth in assets. Under scenarios in which fewer than nine strategies are launched, overhead is scaled down pro-rata by the number of strategies launched:

Ok = Om x Nk / 5

Where Om is the overhead applicable when all nine strategies are launched, and Nk is the number of strategies launched in the current scenario k.

6

Overhead Expenses Year 1 Year 2Hardware $365,499 $365,499Software $446,000 $446,000Data $302,500 $367,500Staff $2,725,000 $4,200,000Marketing $156,400 $270,000Service Providers $484,000 $771,000Operations $1,096,000 $2,124,400

$5,575,399 $8,544,399

Table 3: Overhead Expenses

PRESENT VALUE COMPUTATIONS

Net cash flows in year i, CFi, are discounted using the weighted average discount rate using the formula:

ii

i WADRCFPV

)1( +=

7

SCENARIOSSCENARIO 1 F500 G000 NONE

SCENARIO 2 F1000 G000 NONE

SCENARIO 3 F1000 G000 E1000

SCENARIO 4 F1000 G000 H500

SCENARIO 5 F500 G000 E1000

SCENARIO 6 F500 F1000 G000 NONE

SCENARIO 7 F500 F1000 G000 H500

SCENARIO 8 F500 F1000 G000 E1000

SCENARIO 9 F500 F1000 G000 H500 E1000

Year 1 Year 2

SIMULATION SCENARIOS

We consider a number of different launch scenarios for simulation purposes. In Scenarios 1 and 2 two products are launched in year 1 only. In Scenarios 3-5 we consider the launch of two strategies in year 1, with a third strategy in year 2. In Scenarios 6-8 we assume that three products are launched in year 1, and one new product in year 2. In the final scenario, we evaluate the outcome of launching all five products (three in year 1 and two in year 2).

All scenarios consider a mix of medium and high performance strategies. The performance characteristics of each product portfolio varies according to the simulated performance characteristics of the products it includes. Product portfolios range in their performance characteristics from “conservative” to “aggressive”. An example of the former is the portfolio in Scenario 1, which include two strategies with existing track records of intermediate performance (F500 and G000). An example of the latter is the portfolio in Scenario 8, which includes two high risk/return volatility strategies. The range of scenarios considered is presented in Table 4.

Table 4: Product Launch Scenarios

8

SCENARIOS NPV AUM NPV/AUMSCENARIO 1 F500 G000 NONE 29.54 1,426.36 2.07%

SCENARIO 2 F1000 G000 NONE 39.40 1,260.17 3.13%

SCENARIO 3 F1000 G000 E1000 39.90 1,459.29 2.73%

SCENARIO 4 F1000 G000 H500 36.33 1,544.89 2.35%

SCENARIO 5 F500 G000 E1000 54.62 2,297.89 2.38%

SCENARIO 6 F500 F1000 G000 NONE 60.71 1,722.16 3.53%

SCENARIO 7 F500 F1000 G000 H500 54.62 2,105.67 2.59%

SCENARIO 8 F500 F1000 G000 E1000 59.38 1,976.41 3.00%

SCENARIO 9 F500 F1000 G000 H500 E1000 56.10 2,318.09 2.42%

Year 1 Year 2

RESULTS

Table 5 summarizes the simulation results for each of the scenarios. The results break down into two groups, the first comprising Scenarios 1-4, the second comprising Scenarios 5-9.

In the first group we assume that at most two products are launched in year 1, with at most one new product being introduced in year 2. Assets Under Management are expected to rise to around $1.3Bn - $1.5Bn by year 5, and the cash flow NPV’s range from $30M to $40M.

The second group features scenarios in which three products are launched in year 1, with up to two products introduced in year 2 (Scenario 5 is an exception, with only two product launches in year 1). For this group Assets Under Management are forecast to be considerably higher than for the first group: in the range $1.7Bn to $2.3Bn. Cash flow NPV’s in this group range from $55M - $61M.

One means of making a “like for like” comparison of the results for the different scenarios is to consider the ratio of cash flow NPV to projected Assets Under Management. This ratio suggest that the scenario with the best risk/reward characteristics is Scenario 6, in which the F500, F1000 and G00 products are all launched in year 1.

Table 5: Scenario Results

CONCLUSION

Based on the financial projections in this analysis Investment Analytics should aim to license its technology to facilitate the launch of three products during the first year of operations: the F500 Volatility Opportunity Fund (5x), the F1000 Volatility Opportunity Fund (10x) and the G000 Strategic Volatility Fund. This product portfolio should be capable of supporting Assets Under

9

Management of around $1.7Bn by year 5, generating licensing fees with an NPV estimated to be $61M.

EQUITY INVESTMENT TERMS

We propose to offer investors a total of up to 49% of the economics in Investment Analytics (Bermuda) Ltd (either in the form of equity or equivalent). The value of this equity share is $58.6M ($58.6M / ($61M + $58.6M) = $58.6M / $119.6M = 49%). The proposed terms are as follows:

Expected AUM ($M) 1 2 3 4 5 Expected Cash Flows ($M) 1 2 3 4 5 5+ TOTAL125.00 313.13 623.04 1,084.17 1,722.16 Revenues 8.63 21.86 44.05 76.82 123.12

Expenses 5.12 9.51 16.17 25.39 37.25Net Cash Flow 3.51 12.36 27.88 51.43 85.87NPV 2.44 5.65 7.96 10.09 11.12 24.18 60.71Overhead 3.35 5.13 7.86 12.29 17.36

Assets under Management ($M)

6,000

Assets under Management ($M)

0

1,000

2,000

3,000

4,000

5,000

6,000

1 2 3 4 5Year

($M

)

MinMaxMean

Annual NPV's ($M)

-20

0

20

40

60

80

100

120

1 2 3 4 5 6Year

($M

)

MinMaxMean

NPV of Cash Flows

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

0 10 20 30 40 50 60 70 80 90 100

110

120

130

140

150

160

170

180

190

200

Total NPV ($M)

RESULTS FOR SCENARIO 6

VOLATILITY ARBITRAGE PROGRAM

DESCRIPTION OF MODELING SYSTEM AND INVESTMENT PROGRAM

AND

DUE DILIGENCE QUESTIONNAIRE

PRIVATE AND CONFIDENTIAL

Prepared for:

Copy #

NOTICE:

This document is intended only for the use of the individual or entity to which it is addressed, and contains private and confidential information. If the reader of this document is not the intended recipient you are hereby notified that any review, retransmission, dissemination, distribution, copying or other use of this document is strictly prohibited. All material contained herein is copyright © 2004 Investment Analytics (Bermuda) Ltd.

I N V E S T M E N T A N A L Y T I C S ( B E R M U D A ) L T D . A U G U S T 2 0 0 4

INVESTMENT ANALYTICS VOLATILITY ARBITRAGE PROGRAM PAGE - 2 -

Arbitrage Program

OVERVIEW

The Investment Analytics proprietary arbitrage program comprises econometric models that produce forecasts of future volatility of exceptional accuracy. One measure of the ability of the models, direction prediction accuracy, shows that, on average, the models enable the correct timing of the volatility market approximately 75% of the time. This extraordinary level of forecasting performance accounts for the exceptional trading results achieved by the Caissa Capital Fund, which licensed the investment program from Investment Analytics in 2002. The models are based on advanced econometric research into the properties of asset volatility conducted by Mr Kinlay and other leading academic researchers, dating from around 1996, most of which has yet to be released into the public domain. The system uses a variety of sophisticated analytical tools to identify option arbitrage opportunities and construct long/short volatility portfolios that have the desired risk/return characteristics. Specific trading recommendations are issued in the form of a daily trading sheet, which is emailed automatically to traders and risk mangers before the start of the trading session. The system is run concurrently on two independent servers, one based in New York, the other In the UK, to ensure failsafe delivery and backup. Hedge fund arbitrage strategies using the Investment Analytics program produced returns of between 15% and 1600% in 2003 and have remained very profitable during 2004.

DATA MANAGEMENT SYSTEM

The data management system is an automated system that handles the process of downloading and validating stock and option data for the stocks in the investment universe. Currently around 100,000 data items for an investment universe comprising 150 stocks in the S&P500 are downloaded at the end of each trading day, including market closing prices for each stock and options with varying strikes and maturities. The data are subjected to a number of integrity checks prior to being added to the databases. These are then manipulated by the Model Management System to update the individual forecasting models. The data management system is highly robust and operates on two independent servers to ensure redundancy.

THE MODELING SYSTEM

The Investment Analytics proprietary arbitrage program comprises econometric models that produce forecasts of future volatility of exceptional accuracy. One measure of the ability of the models, direction prediction accuracy, shows that, on average, the models enable the correct timing of the volatility market approximately 75% of the time. This extraordinary level of forecasting performance accounts for the exceptional trading results achieved by the Caissa Capital Fund, which licensed the investment program from Investment Analytics in 2002. The modelling system analyses stock and option data at the end of each trading day, updates volatility forecasts, and identifies new arbitrage opportunities. Using complex portfolio construction algorithms, the system produces a trading sheet which contains specific recommendations specifying the quantities of each option be bought or sold, the theoretical edge of the trade and the hedging requirement. The trading sheet is emailed automatically to traders and risk managers before the start of each trading session.


FORECASTING MODELS

The system operates on a ground-up approach with several different individual models for every asset in the investment universe. Each model emphasises different aspects of volatility behavior and will perform best under different market conditions. The types of model include:

i. Long memory models that model the important long term serial autocorrelation effects which are pervasive in asset volatility processes. These models perform best when the behaviour of the process is dominated by reinforcing trends, such as applied in the period from 1995–1999 and from 2003–mid 2004 in US equity volatility markets.

ii. Short term models that capture transient mean-reverting behaviour, another important characteristic of volatility. These models typically give rise to contrarian trading recommendations.

iii. Models that follow the interaction and feedback between the asset returns and volatility processes, which give rise to skewness and kurtosis in the returns process.

iv. Asymmetry models that take account of the tendency of volatility to spike more during market sell-off than during periods when the market is strong.

v. Multifactor models that model the interaction of long memory and transient volatility processes.

vi. Markov models that identify different volatility regimes and associated state transition probabilities.

MODEL MANAGEMENT SYSTEM

The models are maintained by a Model Management System (“MMS”) that analyses the data processed by the data management system, updates each of the models, produces current forecasts and evaluates the performance of each of the models. The MMS rates each model on approximately 30 different criteria and compares the current performance of each model with its historical performance, with the performance of other models of the same process and with the performance of models for other asset processes. The MMS then selects the best models whose aggregate results lie in the upper quartile of performance. In this way the system automatically biases volatility forecasts to favour models best suited to current market conditions, while filtering out models which are currently performing with lower levels of accuracy.

OPTION ANALY SIS

The next stage of the process is for the system to identify risk arbitrage opportunities amongst the universe of equity options under consideration. The system selects the stocks for which the forecasting models are performing at the highest levels and evaluates the options using the volatility forecasts and proprietary option pricing models. The system then “cherry picks” the best opportunities where the differential between market and theoretical value exceeds a minimum threshold level., which can be set by the model user.


COINTEGRATION ANALY SIS AND PORTFOLIO CONSTRUCTION

During the portfolio construction stage the modelling system decides the amounts of capital to allocate to the available arbitrage opportunities. The system examines the multivariate behaviour of the volatility processes and identifies cointegrated baskets, comprising long and short volatility positions that typically have more stable risk-returns characteristics than the individual underlying processes. The procedure is comparable to the mean-variance optimization procedure due to Markovitz, but is significantly more sophisticated. The resulting baskets, or portfolios, tend to have more stable and robust performance characteristics than portfolios constructed in the traditional way using correlations, as the latter are notoriously unreliable, especially during market crashes. The cointegrated baskets identified by the system are tested by a simulation processes to ensure that their performance characteristics meet the minimum criteria and behave robustly under varying market conditions. A genetic algorithm is employed to select the most appropriate baskets for trading.

MODEL OUTPUT

The final stage of the process entails the creation and distribution a trading sheet containing the detailed trading recommendations. The sheet gives the current volatility forecast for every stock in the investment universe, but highlights only those option trades which meet the pricing differential criterion. Options that have been selected for purchase (sale) are highlighted in blue (red), and the sheet gives the market bid and offer prices and the theoretical price based on the latest volatility forecasts. In addition, the output shows the quantity of options to be bought or sold, the % price differential and the option delta, so that trades can readily be executed on a market-neutral basis. Trading sheets are contained in an Excel workbook, which is emailed by an automated email server to a specified list of email recipients, usually members of the trading and risk management teams.

Option Values Expiry: 16-Jan % Cutoff 30% $ Cutoff 0.1

2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

Spreads Code Jan-04 OTM PUT Code Jan-04 ATM PUT Code Jan-04 ATM CALL Code Jan-04 OTM CALL

Stock Price Vol Model Total B/S Strike Bid Ask Theory B/S Strike Bid Ask Theory B/S Strike Bid Ask Theory B/S Strike Bid Ask Theory

FCST

03-Dec-03

HDI 46.50 19% ** HDIMV 42.5 0.40 0.50 0.12 HDIMW 47.5 2.05 2.20 1.77 HDIAW 47.5 1.10 1.20 0.89 HDIAK 55 0.10 0.01

1.65 S 30% 222% -0.08 -906 27% 16% -0.60 -896 23% 24% 0.40 -1,179 25% -100% 0.01 27,986

HON 29.64 23% ** HONMY 27.5 0.20 0.35 0.21 HONMF 30 1.10 1.20 1.11 HONAF 30 0.70 0.80 0.82 HONAZ 32.5 0.10 0.20 0.17

1.7 27% -03% -0.16 39,080 26% -0.53 20% -03% 0.47 11,718 22% 20% 0.14 -7,656

HPQ 22.41 32% *** HHYMD 20 0.15 0.20 0.18 HHYMX 22.5 0.85 0.90 1.01 HHYAX 22.5 0.75 0.80 0.98 HPQAE 25 0.10 0.15 0.23

1.81 33% -16% -0.14 9,387 29% -11% -0.48 2,416 24% -18% 0.52 1,513 25% -36% 0.18 3,155

IACI 30.96 37% ** QTHMY 27.5 0.45 0.55 0.36 QTHMF 30 1.15 1.25 1.11 QTHAF 30 2.30 2.40 2.14 QTHAZ 32.5 1.00 1.20 1.01

1.74 43% 27% -0.16 -2,650 41% 04% -0.37 -6,069 41% 07% 0.63 -1,589 38% 19% 0.39 -1,308

IBM 90.30 15% *** IBMMO 75 0.05 0.10 0.00 IBMMR 90 2.15 2.20 1.60 IBMAR 90 2.70 2.70 2.13 IBMAA 105 0.05 0.10 0.00

1.91 28% 36167% 0.00 -5,816 S 21% 34% -0.45 -532 18% 27% 0.55 -505 22% 1586% 0.00 -6,166

ICOS 44.80 50% * IIQMG 35 0.30 0.40 0.24 IIQMI 45.00 2.75 2.95 3.16 IIQAI 45.00 2.50 2.70 3.07 IIQAK 55.00 0.20 0.35 0.52

1.3 56% 27% -0.06 -3,960 47% -07% -0.47 1,174 41% -12% 0.53 669 B 42% -33% 0.14 1,438

IMCL 41.49 52% *** QCIMF 30 0.35 0.50 0.09 QCIMH 40 2.90 3.20 2.24 QCIAH 40 4.40 4.70 3.83 QCIAJ 50 1.25 1.30 0.68

1.96 S 74% 269% -0.03 -1,186 69% 30% -0.38 -457 64% 15% 0.62 -527 S 66% 83% 0.18 -533

Fig. 1 Model Output in Excel File Format


Due Diligence Questionnaire

FIRM BACKGROUND

Please attach bio for the principals of the Firm. Jonathan Kinlay Jonathan Kinlay is the chief executive of the investment consultancy Investment Analytics, which he founded in 1998, and a general partner of the Proteom Fund, founded in 2004. In 2002 Mr. Kinlay founded Caissa Capital LP, a quantitative derivatives hedge fund that uses the Investment Analytics volatility arbitrage program as the basis for its investment strategies. Mr. Kinlay has consulted with leading investment funds and financial institutions in Europe and North America for over 20 years in the areas of financial engineering, investment strategy, quantitative analysis and risk management, initially with NatWest and Chase Manhattan banks and subsequently as the head of quantitative analytics and proprietary trading in a European hedge fund, where he traded US and European equities, fixed income and OTC & exchange traded derivatives. Mr. Kinlay has lectured at postgraduate level at a number of leading universities including, Carnegie Mellon University in New York, and Oxford, Cambridge and Reading Universities in the UK. His first degree is in Mathematics and Statistics from University of Bristol. He also graduated with an MSc in Statistics from University of Sheffield and an MBA from the London Business School and Stern School of Business, New York University. Please provide referees for the principals of the Firm. Mr. Niall Lawlor Head of Municipal Bond Sales/Trading Morgan Stanley 1585 Broadway New York NY 10036 Tel: (212) 762-8139 Email: [email protected] Prof. Haftan Eckholdt CEO, Daytrends Inc 10 Jay Street Brooklyn, New York 11201 Tel: (718) 522-3170 Email: [email protected] Mr. Paul Dietrich CEO, Nye Parnell & Emerson Capital Management, Inc. 1630 Duke Street, Suite 200 Alexandria, VA 22314 800-416-2053 toll-free 703-683-8575 main 703-683-9083 fax Email: [email protected] Describe the advisory firm’s history: Investment Analytics (Bermuda) Ltd is an investment strategy consulting firm formed by Mr Jonathan Kinlay in 2003, which succeeded a partnership of the same name that existed since 1998. Investment Analytics provides independent research focusing on applications of sophisticated mathematical and financial modeling techniques to problems of strategy development and repair, performance analysis and risk management for clients in the investment management industry in Europe and North America. Further details of the firm and its services is to be found on the web site: www.investment-analytics.com. Beginning in 1998 Mr Kinlay researched and developed a number of sophisticated econometric models used for measuring and forecasting the volatility of financial processes such as asset returns. In 2002 Mr Kinlay formed a hedge fund, Caissa Capital LP, and invited two associates to join him in that venture as partners. The models were licensed to Caissa Capital to provide the basis for the firm’s volatility arbitrage strategies. The strategies proved very profitable and assets under


management quickly grew to over $160M. Having established the underlying concept within Caissa Capital, Mr Kinlay has decided to focus on his work in Investment Analytics and to start a new hedge fund, the Proteom Fund. Describe the advisory firm and its structure: Investment Analytics (Bermuda) Ltd. is a Bermudan based limited company. The firm’s Directors are Jonathan Kinlay and James Keyes. The firm was established in 2003, although a partnership of the same name existed from 1998. Who were the founders? Mr. Jonathan Kinlay. Are there any new principals or owners since founding? If Yes, who? No. Who owns the firm? Are any owners not active in the firm’s management? Mr. Jonathan Kinlay is the owner of the firm and he is active in the firm’s management.

Does the Firm have any branch offices/locations/operations? What activities are conducted at them? The firm is located in Bermuda. It conducts research activities there and in other locations in the USA and Europe.

Do the principals engage in any business activities outside of the firm? Jonathan Kinlay is the General Partner of the Proteom Fund, a quantitative equity hedge fund. based in New York and Bermuda.

Who is primarily responsible for managing research analysts? How many analysts are there? At present, Mr. Jonathan Kinlay is responsible for the ongoing research effort.. Consultants are employed to assist in the development of new technologies.

Who is primarily responsible for managing operations? How many operations people are there? Mr. Kinlay is responsible for operations. Dr Christopher Rosevear is also employed in operations.

What is the total number of firm employees? How many are dedicated full time to the Strategy? At present Mr. Jonathan Kinlay is the only employees. All bookkeeping, accounting and administrative work has been outsourced.

How are employees and principals compensated? What percentage of principals’ compensation is salary vs. bonus? Investment Analytics earns consulting and licensing fees. There is a direct correlation between compensation and authority.

Are any legal or disciplinary actions being taken against the Firm, its affiliates, or its principals? Have any been taken? What were the outcomes? There are no pending legal or disciplinary actions being taken against the firm or any of its affiliates or principals. There have been no legal or disciplinary actions taken against the firm in the past.


MODELING SY STEM

Who developed the models? When were they developed? Jonathan Kinlay developed the theory and all of the models in the system in the period from 1998 to 2004.

Who owns the intellectual property? The entire program, including the modeling system, is the property of Investment Analytics (Bermuda) Ltd, which owns all of the copyright. The program is in the process of being patented.

Describe the underlying theory behind the modeling system. The program includes a number of proprietary theoretical concepts developed by Jonathan Kinlay. These include:

• New volatility metric, which is up to three times more efficient than standard estimators. • Multifactor models of long memory and short term transient volatility processes and their interaction. • New theoretical framework for modeling skewness and kurtosis in the returns distribution. • Applications of multivariate factional cointegration to portfolio construction. • New methodology for model performance assessment. • Proprietary methodology for regime shift detection.

In addition, the system applies a wide variety of known econometric theory, some of which is described in the paper “Long Memory and Regime Shifts in Asset Volatility”, published in Wilmott magazine in 2003.

What programming languages are used in the development of the models? The models were developed in a variety of programming languages, including C, C++, Visual Basic and Ox.

What computer systems are used to run the models? The modeling system runs on two independent machines each with very fast math processors and large amounts of RAM. The output is passed to two independent servers, one in the USA and the other in Europe, which mail the trading sheet as an Excel workbook to a specified recipient list.

Describe the types of forecasting models used in the system. The system operates on a ground-up approach with several different individual models for every asset in the investment universe. Each model emphasises different aspects of volatility behavior and will perform best under different market conditions. The types of model include:

vii. Long memory models that model the important long term serial autocorrelation effects which are pervasive in asset volatility processes. These models perform best when the behaviour of the process is dominated by reinforcing trends, such as applied in the period from 1995–1999 and from 2003–mid 2004 in US equity volatility markets.

viii. Short term models that capture transient mean-reverting behaviour, another important characteristic of volatility. These models typically give rise to contrarian trading recommendations.

ix. Models that follow the interaction and feedback between the asset returns and volatility processes, which give rise to skewness and kurtosis in the returns process.

x. Asymmetry models that take account of the tendency of volatility to spike more during market sell-off than during periods when the market is strong.

xi. Multifactor models that model the interaction of long memory and transient volatility processes. xii. Markov models that identify different volatility regimes and associated state transition probabilities.

How many models are there in the system? There are between 4 -6 models for each stock. With 150 stocks in the investment universe, there are in excess of 600 models in total.

What data does the system use? Does the system use fundamental data? Fundamental data is used only to help in defining and selecting the investment universe. The models themselves use historical prices to construct asset returns, volatility and correlation series.

Describe the data management system. The data management system is an automated system that handles the process of downloading and validating stock and option data for the stocks in the investment universe. Currently around 100,000 data items for an investment universe comprising 150 stocks in the S&P500 are downloaded at the end of each trading day, including market closing prices for each stock and options with varying strikes and maturities. The data are subjected to a number of integrity checks prior to being added to the databases. These are then manipulated by the Model Management System to update the individual forecasting models. The data management system is highly robust and operates on two independent servers to ensure redundancy.

Which asset classes have the models been tested on?


The models have been tested on US and European equities, Pacific Rim equity markets, and approximately eleven emerging markets. Limited tests have been performed in currency and commodities markets. The models performed well in all tests.

Which asset classes could the program be applied to? The capabilities of the system have been clearly demonstrated in equity markets. It is likely that the system would perform equally well in currency and commodity markets, but further research and development is required.

What is the role of the Model Management System? The models are maintained by a Model Management System (“MMS”) that analyses the data processed by the data management system, updates each of the models, produces current forecasts and evaluations the performance of each of the models. The MMS rates each model on the basis of approximately 30 different criteria and compares the current performance of each model with its historical performance, with the performance of other models of the same process and with the performance of models for other asset processes. The MMS then selects the best models, whose aggregate results lie in the upper quartile of performance. In this way the system automatically biases volatility forecasts to favour models best suited to current market conditions, while filtering out models which are currently performing with lower accuracy.

Describe some of the performance criteria used to assess model performance. There are approximately 30 different criteria used to asses the performance of each model. The Model Management System uses an adaptive weighting system to evaluate these criteria and judge their relative importance. An overall performance “score” is produced which is used to compare the performance of each model against its historical performance and against its peers. The criteria break down into two broad categories: measures of forecasting performance and measures of statistical goodness of fit. Both sets of criteria are important, but greater weight is assigned to forecasting performance in assessing the overall model performance. The single most important model criterion is direction prediction accuracy, as this closely correlates with strategy performance. The direction prediction criterion measures the ability of the model to forecast the direction of the underlying process one period ahead. A random predictor would expect to achieve a DP score of 50%. The Investment Analytics models achieve a DP accuracy level of close to 75%, across all assets and time periods. This means that, on average, the models correctly predict the future direction of volatility three periods out of four. The forecasting performance measures include the following:

• Mean Square Error • Mean Absolute Deviation • Mean Absolute Percentage Error • Theil’s U • Direction prediction

Statistical measures include:

• Likelihood • Adjusted Coefficient of Determination • Akaike Information Criterion • Bayes Information Criterion • Error skewness • Error Kurtosis • Jarque-Bera Normality test • Box-Pierce portmanteau test • ARCH-LM test • Sign Bias test • Durbin-Watson statistic

What is cointegration? The concept of cointegration was due to Nobel prize winning economist Clive Granger in the 1990’s. It is best illustrated by means of an example. Consider the prices series of a spot and futures contract on a commodity such as gold. Both series are non-stationary – the prices of gold can vary anywhere between $200 and $800 an ounce (or higher). If fact the series are integrated order 1, meaning that the first difference of each series (i.e. the returns process) is a stationary white noise process. Non-stationery series are, understandably, very difficult to trade profitably. Now consider a series consisting of the differential between the spot and futures prices, i.e. the Basis. This too is a stochastic process, but unlike the price series it is stationary – it fluctuates inside a range. The reason for this behavior is of course that cash and carry arbitrage obliges the basis to remain within bounds. In this example, we would say that the spot and future price series are cointegrated order 1. There are two important points to note. The first is that cointegrated “baskets” such as the Basis in the above example, are inherently more stable, and hence easier to trade, than the underlying non-stationery price processes. The second point is that cointegration relationships tend to be more reliable than correlation relationships because they relate to some underlying economic factor (cash and carry arbitrage, in the example).


Hence portfolios constructed using the principles of cointegration will tend to have more reliable risk/return characteristics than portfolios constructed using classical portfolio theory, which is based on (unstable) correlations.

How is cointegration used in the modeling system? During the portfolio construction stage the modelling system decides on the amounts of capital to the available arbitrage opportunities. The system examines the multivariate behaviour of the volatility processes and identifies cointegrated baskets, comprising long and short volatility positions that typically have more stable risk-returns characteristics than the individual underlying processes. The procedure is comparable to the mean-variance optimization procedure due to Markovitz, but is significantly more sophisticated. The resulting baskets or portfolios tend to have more stable and robust performance characteristics that portfolios constructed in the traditional way using correlations, as the latter are notoriously unstable, especially during market crashes. The cointegrated baskets identified by the system as tested by a simulation processes to ensure that their performance characteristics meet the minimum criteria and behave robustly under varying market conditions. A genetic algorithm is employed to select the most appropriate baskets for trading.

Describe how volatility forecasts are used to produce trading recommendations. The system selects the stocks for which the forecasting models are performing at the highest levels and evaluates the options using the volatility forecasts and proprietary option pricing models. The system then “cherry picks” the best opportunities where the differential between market and theoretical value exceeds a minimum threshold level., which can be set by the model user.

Describe the option pricing models are used to evaluate arbitrage opportunities. The modelling system uses proprietary Monte-Carlo option pricing models which price options based on the forecast asset volatility over the life of the option. The option models are two factor models (one factor for the returns process, the second for the volatility process) that take account of volatility skews, kurtosis in the underlying returns distributions as well as important asymmetry effects in the volatility process itself.

Describe the model output. The final stage of the modelling process entails the creation and distribution a trading sheet containing the detailed trading recommendations. The sheet gives the current volatility forecast for every stock in the investment universe, but highlights only those option trades which meet the pricing differential criterion. . Options that have been selected for purchase (sale) are highlighted in blue (red), and the sheet gives the market bid and offer prices and the theoretical price based on the systems volatility forecasts. In addition, the output shows the quantity of options to be bought or sold, the % price differential and the option delta, so that trades can readily be executed on a market-neutral basis. Trading sheets are contained in an Excel workbook, which is emailed by an automated email server to a specified list of email recipients, usually members of the trading and risk management team.

Option Values Expiry: 16-Jan % Cutoff 30% $ Cutoff 0.1

2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

Spreads Code Jan-04 OTM PUT Code Jan-04 ATM PUT Code Jan-04 ATM CALL Code Jan-04 OTM CALL

Stock Price Vol Model Total B/S Strike Bid Ask Theory B/S Strike Bid Ask Theory B/S Strike Bid Ask Theory B/S Strike Bid Ask Theory

FCST

03-Dec-03

HDI 46.50 19% ** HDIMV 42.5 0.40 0.50 0.12 HDIMW 47.5 2.05 2.20 1.77 HDIAW 47.5 1.10 1.20 0.89 HDIAK 55 0.10 0.01

1.65 S 30% 222% -0.08 -906 27% 16% -0.60 -896 23% 24% 0.40 -1,179 25% -100% 0.01 27,986

HON 29.64 23% ** HONMY 27.5 0.20 0.35 0.21 HONMF 30 1.10 1.20 1.11 HONAF 30 0.70 0.80 0.82 HONAZ 32.5 0.10 0.20 0.17

1.7 27% -03% -0.16 39,080 26% -0.53 20% -03% 0.47 11,718 22% 20% 0.14 -7,656

HPQ 22.41 32% *** HHYMD 20 0.15 0.20 0.18 HHYMX 22.5 0.85 0.90 1.01 HHYAX 22.5 0.75 0.80 0.98 HPQAE 25 0.10 0.15 0.23

1.81 33% -16% -0.14 9,387 29% -11% -0.48 2,416 24% -18% 0.52 1,513 25% -36% 0.18 3,155

IACI 30.96 37% ** QTHMY 27.5 0.45 0.55 0.36 QTHMF 30 1.15 1.25 1.11 QTHAF 30 2.30 2.40 2.14 QTHAZ 32.5 1.00 1.20 1.01

1.74 43% 27% -0.16 -2,650 41% 04% -0.37 -6,069 41% 07% 0.63 -1,589 38% 19% 0.39 -1,308

IBM 90.30 15% *** IBMMO 75 0.05 0.10 0.00 IBMMR 90 2.15 2.20 1.60 IBMAR 90 2.70 2.70 2.13 IBMAA 105 0.05 0.10 0.00

1.91 28% 36167% 0.00 -5,816 S 21% 34% -0.45 -532 18% 27% 0.55 -505 22% 1586% 0.00 -6,166

ICOS 44.80 50% * IIQMG 35 0.30 0.40 0.24 IIQMI 45.00 2.75 2.95 3.16 IIQAI 45.00 2.50 2.70 3.07 IIQAK 55.00 0.20 0.35 0.52

1.3 56% 27% -0.06 -3,960 47% -07% -0.47 1,174 41% -12% 0.53 669 B 42% -33% 0.14 1,438

IMCL 41.49 52% *** QCIMF 30 0.35 0.50 0.09 QCIMH 40 2.90 3.20 2.24 QCIAH 40 4.40 4.70 3.83 QCIAJ 50 1.25 1.30 0.68

1.96 S 74% 269% -0.03 -1,186 69% 30% -0.38 -457 64% 15% 0.62 -527 S 66% 83% 0.18 -533


INVESTMENT STRATEGY

Characterize strategy’s investment style: Classical economic theory has experienced considerable success over the last fifty years in advancing our understanding of the general behavior of financial markets. The products of that research, which include CAPM and the Black-Scholes model, have played a central role in the progress achieved in investment theory during that time. Empirical research over the last fifteen years, however, has brought more clearly to focus some of the major deficiencies of classical theory. In particular we now know that:

• Asset returns are not normally distributed. Gaussian theory will tend to underestimate the probability of very small, or very large, movements in the market.

• Asset correlations are highly unstable, especially at times of market stress, when they become increasingly correlated. Consequently risk management tools such as Value-at-Risk tend to break down during extreme market conditions.

• Volatility is not constant, as envisaged in the Black-Scholes world, but varies over time. There is clear evidence of strong autocorrelations and long memory effects in asset volatility.

Investment Analytics has developed research tools to enable us to identify opportunities to trade asset volatility at times of favorable market conditions. Our proprietary asset allocation methodology combines elements of portfolio optimization and risk management theory that enable us to create portfolios capable of generating consistent, high returns, with minimal drawdown, even at times of high market stress and regardless of the direction of the overall market.

In summary our investment approach is:

1. Asset Class: Equity Options 2. Strategy: Volatility Arbitrage 3. Methodology: Econometric Modeling 4. Style: Market Neutral

The Strategic Volatility Strategy exploits short-term arbitrage opportunities in equity options to deliver very high rates of return. The strategy employs a statistical arbitrage style of trading and is a classical long and short hedge fund portfolio. The difference is that it is long and short volatility instead of equities.

The investment universe comprises options on around 150 leading equities that are members of the S&P 500 Index. These includes many household names such as BAC, BMY, C, DOW, GE, GM, IBM, JNJ, MMM, MRK, PG and WMT. Investment Analytics has constructed sophisticated, proprietary volatility models for each of these stocks that enable us to identify short-term opportunities to buy or sell options that are trading at uneconomic prices. A trade may be executed using any one of a number of possible option combinations, including verticals, calendars or butterflies, and typically will be initiated with 5 – 50 days to expiration. Some of these trades are designed to exploit a mismatch between the forecast level of volatility and that priced into the options (the implied volatility). In other cases the chief intention is to trade the volatility skew. In the majority of cases the trades will be initiated close to delta-neutral and the strategy seeks to maintain a non-directional, delta-neutral position by selling or buying SPDRs at the close of each trading day. The strategy also employs sophisticated risk controls to ensure that at all times the account is operating within acceptable Value-at-Risk limits and that its exposure to extreme market or volatility moves is managed within pre -defined limits. Briefly describe the strategy conceptually: The Strategic Volatility Strategy is a volatility statistical arbitrage strategy designed to produce annual returns of 15% - 20%% with a volatility of 6%-9%. The pricing of most exchange-traded options is based on variants of the vanilla Black-Scholes model and its extensions. Among the model’s main shortcomings are the assumptions of Gaussian distributed returns and constant volatility in the underlying. Empirical studies have demonstrated consistently that returns follow a distribution that is skewed and leptokurtic: markets are more likely to remain where they are or make a large move than a Normal distribution would suggest. It is evident, too, that volatility is not constant, but stochastic, and may fluctuate in a wide range depending on general market conditions and firm-specific events. There are several extensions to Black -Scholes which enable non-Normal returns, stochastic volatility and long memory effects to be incorporated into the model. Although option prices are typically adjusted to account for the effects of stochastic volatility and non-Gaussian returns, this is not always the case. According to our analysis, at certain times both put and call options are under- or over-priced by as much as 30%. Part of what we are seeking to do in our investment strategies is to capture these mis -pricing opportunities. An important element in the investment strategy is the prediction of future volatility. We know from empirical research that, in addition to being stochastic, volatility is typically both very volatile and highly persistent. We use these additional characteristics of volatility to improve investment performance and enhance the risk-reward profile of the basic strategy. Investment Analytics has developed a proprietary volatility index that measures underlying volatility more accurately and efficiently than traditional methods. Using proprietary econometric models we are able to correctly anticipate the future direction of volatility an average of 72%-75% of the time in the universe of stocks and equity indices we analyze, and identify regimes of unsustainably high or low levels of volatility with a high degree of accuracy. These additional techniques enable us to select investment opportunities that offer the greatest risk-reward trade-off. The Strategy seeks to achieve its target returns by trading volatility portfolios comprising long and short positions in options on major listed equities and indices, primarily the DOW 30 and the 150 largest cap SP500 index stocks. The strategy resembles a traditional


long/short equity hedge fund strategy, with the attendant benefits of risk reduction through diversification. We supplement this with hedging mechanisms that are specifically designed to protect the portfolio in the event of a market crash. The result is a portfolio producing high risk-adjusted rate of return with very stable performance characteristics. The Strategic Volatility Strategy is based on certain statistical properties of volatility processes that render them more amenable to econometric modeling than asset returns processes. Specifically, volatility processes exhibit 'long memory' behavior in which events affecting the series today continue to affect it for many months into the future. In principle, this makes volatility more easily forecastable. Our quantitative methodology identifies volatility processes that are co -integrated (i.e. that tend to vary together in a stable pattern) and applies sophisticated econometric models to produce volatility forecasts that are then fed into our option pricing models. Sophisticated genetic algorithms are then used to construct volatility portfolios that have appropriate risk-return characteristics. The final step in portfolio construction is to overlay an optimal hedge that protects the portfolio against extreme market moves. The hedge is constructed using CrashMetrics®, a proprietary risk management technology. The investment universe comprises options on around 150 leading equities that are members of the S&P 500 Index. These include many household names such as BAC, BMY, C, DOW, GE, GM, IBM, JNJ, MMM, MRK, PG and WMT. Investment Analytics has constructed sophisticated, proprietary volatility models for each of these stocks that enable us to identify short-term opportunities to buy or sell options that are trading at uneconomic prices. A trade may be executed using any one of a number of possible option combinations, including verticals, calendars or butterflies, and typically will be initiated with 5 – 50 days to expiration. Some of these trades are designed to exploit a mismatch between the forecast level of volatility and that priced into the options (the implied volatility). In other cases the chief intention is to trade the volatility skew. In the majority of cases the trades will be initiated close to delta -neutral and the strategy seeks to maintain a non-directional, delta-neutral position by selling or buying SPYDRs at the close of each trading day. The strategy also employs sophisticated risk controls to ensure that at all times the account is operating within acceptable Value-at-Risk limits and that its exposure to extreme market or volatility moves is managed within pre -defined limits. Discuss the investment process/strategy. The trading universe consists of options in the nearest two months in approximately 150 stocks of the S&P500 index, together with the S&P500 and QQQ indices. Data comprising closing market prices and risk parameters are downloaded overnight and analyzed by the modeling systems. A number of forecasting models are applied to each stock or index in the investment universe, which vary both in terms of forecast frequency and in the emphasis given to individual aspects of volatility behavior such as long-term memory or short-term memory, volatility correlation, volatility asymmetry and the volatility of volatility (kurtosis). A model management system continuously evaluates each model on approximately 20-30 performance criteria and weights the forecasts according to current performance. Using these volatility forecasts, the modeling systems then seek to identify risk arbitrage opportunities comprising options which are substantially under-priced or over-priced, on the basis of proprietary option pricing models. These arbitrage opportunities are identified in an electronic trading sheet which is routed to the trading system for review by the trading team prior to execution. Typically 50-60 arbitrage opportunities are identified in each daily trading sheet. These arbitrage opportunities are used to construct the volatility portfolios incrementally each day. Volatility portfolios are consequently widely diversified, not only with regard to the number of stock in which positions are held, but also with regard to option expiration, strike and entry point. This serves to mitigate the stock-specific volatility risk in the portfolio of each of the Funds. As a consequence, the number of positions in a given portfolio, as well as its average tenor, will vary over the course of time as existing positions expire and new positions are added. Since the profitability of the strategies is dependent upon the differential between the strategies’ view of volatility and that held by the market (as expressed by option implied volatility), it is important that the majority of the positions in the portfolio are held until option expiration. Consequently, we are attentive to the issue of hedging the portfolio risk over the expiration cycle, and in particular to maintaining market neutrality. At the end of each day, the inventory of current positions is loaded automatically into the risk management system for analysis. A daily risk analysis is produced several hours before the start of each trading day which seeks to identify the Value-at-Risk (VaR) in the existing volatility portfolio of each Series Fund and each of its constituent elements. Positions which may be contributing significantly to the total VaR, or which have low or negative expected return, are marked for individual hedging using underlying stocks, or may be liquidated prior to expiration. The risk management system also seeks to identify an excess or deficit in the overall portfolio deltas, which are then hedged at the start of the trading session using a combination of underlying stocks and SPYDRS (as a market proxy). The risk system also evaluates the Gamma, Theta and Vega risk of the portfolio, and performs stress tests to assess the exposure to crashes either in the overall market or in market volatility, or both.

What opportunities are being exploited? The Strategy takes arbitrage positions in options on our universes of 150 SP500 stocks which, based on our valuation models, are mis-priced by minimum of 30% (average 55%). These opportunities typically arise from the hedging and speculation activities of market participants for whom derivatives are of secondary concern, including equity portfolio managers, market timing strategists, and those pursuing yield enhancement strategies such as covered call writing.

Which market environment does this strategy perform well/poorly? For the Strategy to perform it we requires either (a) a wide divergence of views as to the level of future volatility in universe of stocks we trade or (b) a consistent, but incorrect, view of future volatility. The first of these situations is the normal state of volatility markets. The second arises from time to time and can be highly profitable for our strategy (for example in Feb 02).


The strategy would perform poorly in a situation where the market held a consistent, correct view about future volatility in a large proportion of stocks in our investment universe. Such a situation has arisen in the past in currency markets during Euro convergence, but is highly unlikely to arise in equity markets.

Describe the idea generation process: The process of identifying arbitrage opportunities is entirely automated and model-driven. The models identify 50-60 potential investment opportunities each day in options which are under- or over-priced by 30% or more. Co-integration analysis is used to identify how these potential trades should be combined to create volatility baskets with stable risk-return characteristics which meet our investment objectives. Our overall portfolio is constructed using these volatility baskets. Discuss the main drivers of performance and risk of the strategy:

The main drivers of performance are: • Divergences of views on future volatility • The volatility of volatility (kurtosis) • Price insensitivity of market participants who use options for hedging and speculation. • Note that neither the level of the market nor the level of market volatility is a driver of performance.

The main drivers of risk are: • Gamma • Liquidity • Event risk

Describe why the strategy should be expected to generate excess returns over time: In recent years many important discoveries have been made in the study of volatility. Only in the past year has “Volatility” become a media buzzword. As a niche area of the marketplace, it has been slow to attract the attention and resources of the powerhouse firms on Wall Street. This represents both uncharted territory and opportunity for those with the tools to exploit them. The research team at Investment Analytics believes this creates the opportunity for generating alpha for a number of years to come. However, it will be important to keep a vigilant eye on theoretical discoveries in the area of volatility. In order to maintain the Investment Analytics advantage, it will be incumbent upon the research team to incorporate worthwhile discoveries into existing models and strategies. Practical considerations are keeping pace with constantly improving execution platforms and technologies as well as the structural changes in the US options markets. As with any financial strategy, success will encourage others to devote talent and resources. Over time, the existing marketplace will either:

a. have to expand to accommodate the new entrants b. have narrowing spreads (edge) c. squeeze out less talented entrants

Investment Analytics management foresees this process as taking a minimum of three to five years. The most likely scenario by that time is a recovering stock market, leading to expanding marketplace [there are already signs of increased public participation (retail) returning to the options market. In addition, a rising market tends to lead people away from statistical based strategies and back to the realm of directional and momentum strategies. Therefore it is quite possible the Investment Analytics volatility arbitrage program will be very viable over the medium to long term. Describe the investment objectives of the strategy (return, risk, correlation, other): The Strategic Volatility Strategy is a volatility statistical arbitrage strategy designed to produce annual returns of 15% - 20%% with a volatility of 6%-9%%. The strategy seeks to achieve its target returns by trading volatility portfolios comprising long and short positions in options on major listed equities and indices, primarily the DOW 30 and the 150 largest cap SP500 index stocks. The strategy resembles a traditional long/short equity hedge fund strategy, with the attendant benefits of risk reduction through diversification. We supplement this with hedging mechanisms that are specifically designed to protect the portfolio in the event of a market crash. The result is a portfolio producing high risk-adjusted rate of return with very stable performance characteristics. The Strategic Volatility Strategy is based on certain statistical properties of volatility processes that render them more amenable to econometric modeling than asset returns processes. Specifically, volatility processes exhibit 'long memory' behavior in which events affecting the series today continue to affect it for many months into the future. In principle, this makes volatility more easily forecastable. Our quantitative methodology identifies volatility processes that are co -integrated (i.e. that tend to vary together in a stable pattern) and applies sophisticated econometric models to produce volatility forecasts that are then fed into our option pricing models. Sophisticated genetic algorithms are then used to construct volatility portfolios that have appropriate risk-return characteristics. What are the strengths and weaknesses of your investment strategy? Much of the theory that Investment Analytics employs has only been developed since 1996. Many earlier important works were either ignored, or not fully appreciated. Investment Analytics has developed proprietary models that embrace and combine these technologies with their own ideas, to develop a unique approach in a niche market. Investment Analytics also enjoys the advantage of being able to correctly predict the direction of volatility in the underlying assets, 72%-75% of the time. This is combined with portfolio optimization, stringent risk management and low cost execution. What is the universe of securities considered for trading? The portfolio comprises exchange-traded options on major indices and on large-cap stocks with liquid options markets, defined as assets on which there is sufficient liquidity to trade at least 1,000 options. The majority of stocks whose options traded are DOW and


S&P500 index constituents. Our investment universe includes the leading companies from virtually every industrial sector, from capital goods to pharmaceuticals. Some assets we trade only from the short or long side, but the majority we take either long or short positions depending on market conditions and our model projections, which may vary from month to month. In general the fund will have short positions in around 400-600 stock or index options and an equal number of longs. All investments are executed as long or short positions in at-the- money straddles or butterflies, typically with 30 – 60 days to expiration. How many investments are used on the portfolio’s long side and short side? A typical portfolio at present contains 400-600 positions. The Strategy does not have a long volatility or short volatility mandate. In any given period of time, the portfolio can lean as high as 70% to 30% in either direction. Historically the portfolio has shown an approximate 60% short volatility bias. What is the range of market capitalization of positions and the liquidity of investment positions? The underlying equities are household names (i.e. IBM,GE,GM, MRK etc) that are either in the S&P top 200, or are number 1, 2 , or 3 in their industry sector. The universe of securities that is traded is very liquid. What is the maximum allowed single position size by percent of NAV? Typically no more than 4% of available capital is allocated to a single entity. What is your target long/short/cash position as a percentage of NAV? Investment Analytics does not have a long volatility or short volatility mandate. In any given period of time, the portfolio can lean as high as 70% to 30% in either direction. Historically the portfolio has shown an approximate 60% short volatility bias.

What is your average holding period for longs and shorts? Does it differ for winning or losing positions? The average holding period for both longs and shorts is 32 days.

What are your criteria for entering new trades? All new trades are generated by proprietary mathematical quantitative models on a daily basis. The models generate volatility forecasts and produce optimized portfolios. Capital is allocated by using a portfolio optimization model that studies correlations between the different volatilities. Monte Carlo simulations with risk parameters and capital allocation guidelines are run to determine which portfolio offers the highest risk adjusted rate of return. No more than 4% of any portfolio is allowed to one individual position. Each portfolio is reviewed by the investment committee prior to implementation. These portfolios are then executed efficiently and at the lowest possible cost in the US listed options market.

What are your criteria for exiting trades? The criteria are:

1. The positions have become a negative contributor to Value-at-Risk. 2. The expected value of the position has been fully extracted. 3. News event in the horizon related to the position provides an undue reason to believe there will be a problem.

What is your edge versus other advisors using similar strategies? Investment Analytics enjoys the advantage of being able to correctly predict the direction of volatility in the underlying assets, 72%-75% of the time. This is combined with portfolio optimization, stringent risk management and low cost execution. Investment Analytics also enjoys the combination of superior proprietary mathematical option pricing models, and risk management systems, developed by leading reseeachers in the field and successful money management and trading professionals with proven track records.

How does the fund differentiate itself from others in its strategy? Much of the theory that Investment Analytics employs has only been developed since 1996. Many earlier important works were either ignored, or not fully appreciated. The partners have developed proprietary models that embrace and combine state-of-the-art technologies with their own ideas, to develop a unique approach in a niche market. These proprietary models combined with over 20 years of money management experience afford Investment Analytics the advantage over its peers.

What benchmark do you feel is most appropriate against which to measure performance? Why? There is no benchmark that is appropriate for this strategy. The strategy has high turnover, high leverage and is aggressive.

In which type of markets or situations does your strategy perform best/worst? The best market environment for Investment Analytics is market in which participants expressed a wide divergence of views on future volatility. These conditions, which typically apply, give rise to a continuous flow of opportunities where implied volatilities are mis-priced relative to the actual volatility in the marketplace.

The most challenging market in an absolute sense would be a completely static market where the world was in total agreement across the board on how much range the underlying stocks should have (actual volatility) and accurately priced the options (implied volatility) accordingly. Such a market would be efficient and therefore lack the pricing discrepancies that create our opportunities and consequently our returns.


STRATEGY PERFORMANCE

Strategic Volatility Strategy - Summary Performance

As of most recent calendar month end: (Figures reported below are as of 1st July, 2004)

Year-to-Date Return (gross): 12.52% Since Inception Return (gross): 19.47%

Total Months Since Inception: 21 ITD Annualized Daily Std Deviation: 6.98%

% Positive Months Since Inception: 66% ITD Sharpe Ratio: 1.32

Annualized alpha vs. S&P: 10.43% Correlation to S&P: -0.04

AUM (this strategy): $126.2MM Firm-Wide AUM: $159.5MM

Volatility Opportunity Strategy- Summary Performance

As of most recent calendar month end: (Figures reported below are as of 1st July, 2004)

Year-to-Date Return (gross): 8.99% Since Inception Return (gross): 1,853.39%

Total Months Since Inception: 21 ITD Annualized Daily Std Deviation: 70.94%

% Positive Months Since Inception: 81% ITD Sharpe Ratio: 6.27

Annualized alpha vs. S&P: 166.429% Correlation to S&P: 0.04

AUM (this strategy): $13.3M Firm-Wide AUM: $159.5M

Do you expect the strategy’s performance going forward to differ from prior performance? Why? “ In recent years many important discoveries have been made in the study of volatility. Only in the past year has “Volatility” become a media buzzword. As a niche area of the marketplace, it has been slow to attract the attention and resources of the powerhouse firms on Wall Street. This represents both uncharted territory and opportunity for those with the tools to exploit them. The management team at Investment Analytics believes this creates the opportunity for generating alpha for a number of years to come. However, it will be important to keep a vigilant eye on theoretical discoveries in the area of volatility. In order to maintain the Investment Analytics advantage, it will be incumbent upon the management team to incorporate worthwhile discoveries into existing models and strategies. Practical considerations are keeping pace with constantly improving execution platforms and technologies as well as the structural changes in the US options markets. As with any financial strategy, success will encourage others to devote talent and resources. Over time, the existing marketplace will either a) have to expand to accommodate the new entrants, b) Spreads (edge) in the marketplace will narrow, or c) The less talented entrants will be squeezed out and move on to other areas. Investment Analytics management foresees this process as taking a minimum of three to five years. The most likely scenario by that time is a recovering stock market, leading to expanding marketplace [there are already signs of increased public participation (retail) returning to the options market]. In addition, a rising market tends to lead people away from statistical based strategies and back to the realm of directional and momentum strategies. Therefore it is quite possible the Investment Analytics volatility arbitrage strategy will be quite viable for the foreseeable future. What drives the volatility of your strategy? The volatility of the strategy is a direct derivative of the difference between the model generated volatility and the actual volatility. What steps do you take to reduce volatility? N/A What is the correlation of your strategy with managers implementing a similar strategy? We believe this to be a unique strategy. How many days per month on average do you generate a positive return? On average the portfolio generates positive return about 65% of the month. What is the highest number of days in a month you would expect to show negative returns? We expect the highest number of negative return days in a month to be 6 out of 20. How long did it take you to recover from the largest peaks to valley drawdowns? Draw down ______ Start ___________ Bottom _________ Full Recovery______________ Reason


-5.09% Dec-03 Feb-04 3 months See details below How volatile is the strategy relative to its peers? The volatility of the fund will be commensurate with its return. Do you expect to turn a profit in all positions? While the investment advisor expects to turn a profit in all positions, it has been less than perfect. The Strategy definitely does not turn a profit on every issue. Several issues in any given portfolio may act as nothing more than a hedge for other higher profit potential aspects of the given portfolio. The losses and gains in the Investment Analytics portfolio are spread over a broad range of issues.

How often do a few positions account for most of the returns of the strategy on any given day? Some issues seem to have ongoing success, while other issues may perform without distinction for a period and then produce favorable results.

What is the average number of investments in the portfolio? What is the breakdown in terms of long and short? The average number of positions in a portfolio is 400-600, spread over 100-150 symbols. Investment Analytics does not have a long volatility or short volatility mandate. In any given period of time, the portfolio can lean as high as 70% to 30% in either direction. Historically the portfolio has shown an approximate 60% short volatility bias.

Is the fund's investment process easily repeatable or did an isolated incident cause the fund to report good performance? We have no difficulty producing consistently high returns in every month since Feb 2003. We expect returns to remain consistent under most market conditions Provide monthly returns for the strategies which use the Investment Analytics Investment Program.

Caissa Capital Strategic Volatility Fund

Inception: October 2002

Gross Gross Cumulative

Year Monthly Since

Month

Returns Oct-02

Oct-02 -1.14% -1.14%Nov-02 -0.08% -1.21%Dec-02 1.14% 2.39% 1.14%Jan-03 2.55% 3.72%Feb-03 10.53% 14.64%Mar-03 0.49% 15.21%Apr-03 -0.71% 14.40%

May-03 -1.44% 12.75%Jun-03 -0.60% 12.08%Jul-03 0.37% 12.50%

Aug-03 2.19% 14.96%Sep-03 -0.18% 14.75%Oct-03 1.37% 16.33%

Nov-03 2.03% 18.68%Dec-03 15.22% -1.81% 16.54%Jan-04 -1.80% 14.44%Feb-04 1.62% 16.29%Mar-04 1.82% 18.41%Apr-04 -0.37% 17.97%

May-04 0.90% 18.87%Jun-04 2.52% 0.37% 19.47%


Caissa Capital Volatility Opportunity Fund

Inception: October 2002

Gross Gross Cumulative

Year Monthly Since

Month

Returns Oct-02

Oct-02 -0.93% -0.93%

Nov-02 0.29% -0.64%

Dec-02 8.52% 9.22% 8.52%

Jan-03 -6.93% 1.00%

Feb-03 151.74% 154.26%

Mar-03 28.28% 226.17%

Apr-03 17.26% 282.48%

May-03 16.23% 344.56%

Jun-03 47.75% 556.82%

Jul-03 19.89% 687.48%

Aug-03 52.04% 1097.28%

Sep-03 11.23% 1231.71%

Oct-03

26.31% 1582.07%

Nov-03

17.55% 1877.28%

Dec-03 1551.58%

-9.35% 1692.35%

Jan-04

-3.84% 1623.61%

Feb-04

8.43% 1768.93%

Mar-04

3.51% 1834.52%

Apr-04 0.30% 1838.33%

May-04 0.61% 1838.94%

Jun-04 8.99%

0.06% 1839.00%

Strategies undertaken by the fund are not intended to track any index. The fund may employ leverage. Past performance is not necessarily an indicator of future results. Nothing here should be construed as a solicitation of clients, or as an offer to sell or a solicitation of an offer to invest in the fund. Such activities may be made only pursuant to a private placement memorandum. As a matter of practice, Investment Analytics (Bermuda) Ltd does not solicit investments on behalf of any fund. NO REPRESENTATION IS MADE THAT ANY INVESTOR IN THE PARTNERSHIP WILL OR IS LIKELY TO ACHIEVE RESULTS COMPRABLE TO THOSE SHOWN OR WILL MAKE ANY PROFIT AT ALL OR WILL BE ABLE TO AVOID INCURING SUBSTANTIAL LOSSES. While every effort has been made to provide data from sources considered to be reliable, no guarantee of accuracy is given.

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