The HFRq UCITS III Index Calculation Methodology

Transcription

1 4.1 peak;- The HFRq UCITS III Index Calculation Methodology August

2 Schedule 1: Definitions Cash Adjusted HFRIFWI means the HFRI Fund Weighted Composite Index ( HFRIFWI ) adjusted for the implied cash return. Contract Size in relation to an Eligible Instrument, means the factor by which the level of the Underlying must be multiplied in order to ascertain the price of such Eligible Instrument (for example, USD 50 in relation to the S&P 500 emini Future). Contract Price in relation to an Eligible Instrument, means the product of the Contract Size and the Underlying level. Disrupted Day means with respect to an Eligible Instrument any Scheduled Trading Day on which the Exchange fails to open for trading during its regular trading session or on which a Market Disruption Event has occurred or is continuing. Disrupted Rebalancing Day means an HFRq Rebalancing Day on which an HFRq Rebalancing Disruption Event occurs or is continuing with respect to any HFRq Program Constituent. Early Closure means the closure on any Exchange(s) prior to its Scheduled Closing Time unless such earlier closing time is announced by such Exchange(s) at least one hour prior to the earlier of (i) the actual closing time for the regular trading session on such Exchange(s) on such Exchange Business Day and (ii) the submission deadline for orders to be entered into the Exchange system for execution at the Valuation Time on such Exchange Business Day. Eligible Instrument is as defined in section 3.2 HFRq Program Portfolio. Exchange means with respect to any Eligible Instrument any options or futures exchange or trading system or quotation system on which the Eligible Instrument is traded or any successor to such exchange or quotation system or any substitute exchange or quotation system to which trading in such Eligible Instrument has temporarily relocated (provided that the HFRq Index Sponsor has determined that there is comparable liquidity relative to the futures contracts relating to such Eligible Instrument on such temporary substitute exchange or quotation system as on the original Exchange). 2

3 Exchange Business Day means any Scheduled Trading Day on which the relevant Exchange is open for trading during its respective regular trading sessions, notwithstanding any such Exchange closing prior to its Scheduled Closing Time. Exchange Disruption means any event (other than an Early Closure) that disrupts or impairs the ability of market participants in general to effect transactions in, or obtain market values for an Eligible Instrument on the Exchange. Expiry Date in relation to an Eligible Instrument, means the date on which the Eligible Instrument expires and following which settlement is required. GCSI Constituent Rebalancing Day means each day on which the GSCI Index index sponsor effects a change to the composition of the GSCI Index (subject to the occurrence of an HFRq Rebalancing Disruption Event as further described below in paragraph (iii) Implementation: Rebalancing of the HFRq Program Portfolio). GCSI Index means the S&P Goldman Sachs Commodity Index Spot, as updated and amended from time to time. HFRAM means HFR Asset Management, LLC, a SEC registered investment advisor, having its registered office in Chicago, 10 South Riverside Plaza, USA, or any duly appointed successor. HFRIFWI Performance reflects the performance of the investments underlying the HFRIFWI in USD. HFRIFWI Performance data are published on a monthly basis by HFR on Bloomberg page <HFRIFWI Index>. HFRq Cash Account means a notional account representing a deposit of cash and/or cash equivalents. HFRq Observation Day means each Tuesday of any calendar week or, if such day is not a scheduled Index Business Day, the immediately preceding Index Business Day. HFRq Program Portfolio means the portfolio of the HFRq Program Constituents as rebalanced in accordance with paragraph (iii) Implementation: Rebalancing of the HFRq Program Portfolio. HFRq Program Constituent Weight means the weighting for each HFRq Program Constituent. 3

4 HFRq Program Constituent means with respect to any Index Business Day each Eligible Instrument that is given a weighting other than zero on the HFRq Observation Day immediately preceding such Index Business Day (as further set out in paragraph 3.3 HFRq Program Construction ), and in addition, in respect of any GSCI Component and each GCSI Constituent Rebalancing Day, any Commodities Eligible Instrument included in the HFRq Program Portfolio as of such GCSI Constituent Rebalancing Day. HFRq Rebalancing Day means the (i) Index Start Date and (ii) thereafter each Wednesday of any calendar week or, if such day is not an Index Business Day, the next following Index Business Day. HFRq Underlying Asset Rebalancing Day means (a) in relation to each HFRq Program Constituent and an Index Business Day other than an HFRq Rebalancing Day, the immediately preceding HFRq Rebalancing Day, and (b) in relation to any HFRq Rebalancing Day, such day, provided in each case that, should such HFRq Rebalancing Day be a Disrupted Rebalancing Day with respect to such Eligible Instrument, then the HFRq Underlying Asset Rebalancing Day shall be deemed to be the relevant Disrupted Program Constituent Rebalancing Date (as defined in paragraph HFRq Program Algorithm), and provided further in relation to any GSCI Component, that if a GCSI Constituent Rebalancing Day has occurred in the period from but excluding (i) the later of the immediately preceding HFRq Rebalancing Day and the immediately preceding HFRq Underlying Asset Rebalancing Day, if any, to and including (ii) such Index Business Day, such GCSI Constituent Rebalancing Day shall be deemed to be the HFRq Underlying Asset Rebalancing Day. HFRq Rebalancing Disruption Event occurs, with respect to any HFRq Program Constituent, when (a) the relevant HFRq Rebalancing Day is a Disrupted Day with respect to such HFRq Program Constituent and/or (b) any data with respect to the HWRIFWI Performance, the HFRX Performance and/or the HFRX Sensitivity Analysis could not be obtained and/or was not made available to the Index Advisor in time to effect a rebalancing of the HFRq Program by the relevant HFRq Rebalancing Day. HFRq Underlying Assets means a notional portfolio which mirrors the HFRq Program Portfolio through a notional investment in the relevant HFRq Program Constituents as determined by the Index Sponsor, dynamically rebalanced in accordance with paragraph HFRq Program Algorithm below. 4

5 HFRX Hedge Fund Indices are a series of benchmarks of hedge fund industry performance which are engineered to achieve representative performance of a larger universe of hedge fund strategies. Hedge Fund Research, Inc. ("HFR") having their registered office in Chicago, 10 South Riverside Plaza, USA, employs the HFRX Methodology, a proprietary and highly quantitative process by which hedge funds are selected as constituents for the HFRX Hedge Fund Indices. HFRX Performance reflects the performance of the HFRX Hedge Fund Indices in USD. HFRX Performance data are published on a daily basis by HFR on Bloomberg page <HFRXGL Index>. HFRX Sensitivity Analysis evaluates aggregate hedge fund risk exposure within the HFRX Global Hedge Fund Index. The HFRX Sensitivity Analysis data are provided by HFRAM on a daily basis. Hypothetical Investor means a hypothetical investor invested in the relevant HFRq Program Constituents who is deemed to have the benefits and obligations of an investor holding such HFRq Program Constituents at the relevant time. Index Advisor means Quantitative Equity Strategies LLC, having their registered office in Denver, 8822 Ridgeline Boulevard Ste 220, USA, or any successor thereto duly appointed by the Index Sponsor; who maintain the HFRq Program on behalf of the Index Sponsor. Index Business Day means a day which is (a) a London/NY Business Day and (b) a Scheduled Trading Day with respect to each Eligible Instrument, as determined by the Index Sponsor. Index Currency means the base currency of the Index which is USD. Index Level means on any Index Business Day the level of the HFRq UCITS III Index (rounded to two decimal places) as determined by the Index Sponsor in accordance with paragraph 4.1 Index Level. The Index Level will be made available by the Index Sponsor through Bloomberg page <HFRQLU Index> or any successor page(s) as determined by the Index Sponsor. Index Sponsor means HFR or any duly appointed successor thereto. Index Start Date means 5 August Index Start Level means 1,000. 5

6 Inputs means certain input data as set out in paragraph Input Data, which is used to identify Eligible Instruments and their respective weightings for the HFRq Program Portfolio. London/NY Business Day means a day which is both a London Business Day and a NY Business Day. London Business Day means a day (other than a Saturday or Sunday) on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealing in foreign exchange and foreign currency deposits) in London. Market Disruption Event means the occurrence or existence of (i) a Trading Disruption, (ii) an Exchange Disruption, which in either case the HFRq Index Sponsor determines is material, during the one hour period ending at the Scheduled Closing Time, or (iii) an Early Closure which the HFRq Index Sponsor determines is material. NY Business Day means a day (other than a Saturday or Sunday) on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealing in foreign exchange and foreign currency deposits) New York. Official Settlement Price means the official settlement price (as described under the rules of the relevant Exchange or its clearing house) of the relevant Eligible Instrument as published by the Exchange or its clearing house. Point Value in relation to an Eligible Instrument, means the amount in USD by which the value of the Eligible Instrument moves when the Underlying level moves up by one unit. Scheduled Closing Time means, in respect of an Exchange and a Scheduled Trading Day, the scheduled weekday closing time of such Exchange on such Scheduled Trading Day, without regard to after hours or any other trading outside of the regular trading session hours. Scheduled Trading Day means with respect to an Eligible Instrument any day on which the relevant Exchange is scheduled to be open for trading for their respective regular trading sessions. Tick Size in relation to an Eligible Instrument, means the smallest increment by which the Underlying level may move in relation to the Eligible Instrument, expressed in units of the Underlying (for example, 0.25 in relation to the S&P 500 emini means that if the level of the S&P 6

7 500 is 1070, the first increment nearest possible reference level of the Underyling is , and the nearest possible lower Underlying level is ) Tick Value in relation to an Eligible Instrument, means the USD value by which the price of an Eligible Instrument will move if the Underlying level moves up by the Tick Size. Trading Disruption means with respect to an Eligible Instrument any suspension of or limitation imposed on trading by the relevant Exchange or otherwise and whether by reason of movements in price exceeding limits permitted by the relevant Exchange or otherwise relating to such Eligible Instrument. Underlying in relation to an Eligible Instrument, means the underlying asset to which the price of the Eligible Instrument is linked. USD means United States Dollars. Valuation Time means the Scheduled Closing Time on the relevant Exchange in relation to each Eligible Instrument. 7

8 Schedule 2: HFRq UCITS III Index Description 1. Overview of the HFRq UCITS III Index The HFRq UCITS III Index (the HFRq or the Index ) seeks to achieve a high correlation to the performance of the HFRI Fund Weighted Composite Index (the HFRIFWI as described below in paragraph 2. HFRI Fund Weighted Composite Index) through an initial notional investment of USD 100,000,000 as of the Index Start Date in a portfolio comprised of (i) the HFRq Underlying Assets (as described in paragraph HFRq Underlying Assets Performance) and (ii) a notional account comprising a deposit of cash and/or cash equivalents (the HFRq Cash Account as described in paragraph HFRq Cash Account Performance). The Index seeks to achieve a high correlation to the performance of the HFRIFWI through the HFRq Program, a methodology which determines exposures to up to 30 futures contracts of certain future markets. The HFRq Program is a quantitative hedge fund replication trading model designed to replicate the HFRIFWI (adjusted for the cash component of the HFRIFWI) by allocating exposures to liquid futures contracts of certain futures markets on each HFRq Rebalancing Day, the HFRq Program Portfolio, as more fully described in paragraph 3.2 HFRq Program Portfolio. The HFRq Underlying Assets mirror the composition of the HFRq Program Portfolio through a notional investment in the HFRq Program Constituents, rebalanced in accordance with paragraph 4.3 Composition and Rebalancing of the HFRq Underlying Assets. Thus, the performance of the HFRq Program Constituents is the main driver with respect to the performance of the Index. It is expected that the Index will go up if the HFRq Underlying Assets Performance goes up and that the Index will go down if the HFRq Underlying Assets Performance is negative and the HFRq Cash Account Performance does not compensate for a negative HFRq Underlying Assets Performance. The Index performance, however, is expected to exceed the performance of the HFRq Program Constituents Portfolio as the Index is not only based on the HFRq Underlying Assets Performance but also on the HFRq Cash Account Performance. There may however be differences between the HFRq Underlying Assets Performance and the performance of the HFRq Program Portfolio and thus the Index, due to, amongst other factors, (i) brokerage costs (ii) foreign exchange rate movements (iii) the level of margin/collateral applicable 8

9 for trading the HFRq Program Constituents (iv) cash asset rates of return as well as (v) any other service provider expenses and transaction cost with respect to trading in the HFRq Program Constituents that are deducted from the HFRq Underlying Assets Performance on each Index Business Day as further described in paragraph HFRq Underlying Asset Performance. The return on the Index is designed to correlate with the performance of the HFRIFWI. There may however be differences between the performance of the Index and the performance of a direct investment in the assets contained in the HFRIFWI due to, amongst other factors, (i) the ability of the HFRq Program methodology to replicate the Cash Adjusted HFRIFWI and (b) the differences in trading schedules of assets referenced in the HFRIFWI and the HFRq Underlying Assets. The Index Level will be expressed in index points and will be published by the Index Sponsor with respect to each Index Business Day that is not a Disrupted Day on the sameday on Bloomberg page <HFRQLUIndex> and on the HFR website; The Index Level, as published by the Index Sponsor with respect to any Index Business Day that is not a Disrupted Day, will reflect the HFRq Underlying Assets Performance and the HFRq Cash Account Performance since the immediately preceding HFRq Rebalancing Day. As the Index is linked to the value of the HFRq Underlying Assets which mirror the composition of the HFRq Program Portfolio, any circumstances which would affect the performance of a direct investment in the HFRq Program Constituents may have an effect on the Index and/or Index Level on any day. 2. HFRI Fund Weighted Composite Index The HFRIFWI is comprised of over 2000 single manager funds that are the constituents of the HFRI Monthly Indices (the HFRI Indices ). The HFRI Indices are equally weighted performance indices, utilized by numerous hedge fund managers as a benchmark for their own hedge funds. The HFRI Indices are broken down into 4 main strategies, each with multiple sub strategies. The strategies applied within the HFRI Indices are a proprietary set of rules that are unable to be disclosed for commercial reasons. 9

10 The level of the HFRIFWI is published on a monthly basis on Bloomberg page HFRIFWI <Go> 1. The composition of the HFRIFWI and further information on the HFRI Indices can be obtained from the HFR website The published level of the HFRIFWI with respect to the relevant current month and the immediately preceding three months are estimates and subject to change. The level of the HFRIFWI is updated three times a month: there is a first estimate level around 5th business day of the relevant month which gets updated around the 15th of such month, and a final update around the 1st business day of the following month. All performance data of the HFRIFWI regarding periods occurring prior to the immediately preceding three months is final and locked in and no longer subject to change. 3. The HFRq Program The description of the HFRq Program set out below relates to proprietary methodologies applied by the Index Advisor. The description of the HFRq Program is derived from information provided by the Index Advisor and none of Index Sponsor nor any of its affiliates have confirmed the accuracy or adequacy of such information, nor does the Index Advisor has any obligation to assure the accuracy or adequacy of such information. The HFRq Program methodology and/or composition as set out below might be changed by the Index Advisor, which might have a positive as well as negative impact on the performance of the HFRq Underlying Assets and thus the Index. 3.1 Overview of the HFRq Program The HFRq Program is a quantitative hedge fund replication trading model designed to replicate the HFRIFWI adjusted for the cash component of the HFRIFWI (hereafter the Cash Adjusted HFRIFWI ) using liquid Exchange traded contracts of certain futures markets. 1 The HFRq Program will use the latest available HFRIFWI Performance data. For further detail please refer to the HFR website 10

11 3.2 HFRq Program Portfolio The HFRq Program Portfolio consists of up to 54 different futures contracts each traded on an Exchange, selected from among the eligible futures contracts referred to below (each an Eligible Instrument, classified below within a generic asset class category (each an Asset Class )). All futures contracts comprised within an Eligible Instrument Category are futures which are or in future will become components of the generic futures index referred to under the relevant Bloomberg Ticker, as such, these futures have the same contract specifications (such as the corresponding Exchange, Underlying, Contract Size, Point Value, Tick Size and Tick Value), except for their Expiry Date and Contract Price. Each Eligible Instrument relates to an Eligible Instrument Category as set out below. Conversely, different Eligible Instrument Categories regroup different types of Exchange traded futures, which have additional differences between their respective contract specifications than just Expiry Date and Price. On the Index Start Date the Eligible Instruments and their respective Asset Classes are those set out in the table below: Asset Class Eligible Instrument Category Bloomberg Page Global Equities S&P 500 Index Future SP1 Index S&P 500 Index emini Future ES1 Index Russell 1000 emini Futures RMA Index DJIA Futures DJ1 Index DJIA emini Futures DM1 Index DJIA $25 Futures EEM0 Index USD Nikkei 225 Index Futures NXA Index Nasdaq 100 Index emini Futures NQA Index Russell 2000 Index emini Futures RTAA Index FTSE 100 Index Futures Z 1 Index DAX Index Futures GX1 Index DJ Euro STOXX 50 Index Futures VG1 Index MSCI Emerging Markets Index emini Futures LLLA Index Global Fixed Income UST Two Year Note Future TU1 Comdty UST Five Year Note Future FV1 Comdty UST Ten Year Note Future TY1 Comdty 11

12 UST Long Bond Future ISDA Five Year Swap Future ISDA 10Y Swap Future Eurodollar Swap Index Future US1 Comdty DS1 Comdty DI1 Comdty ED1 Comdty Commodities GSCI Index Future GI1 Index Wheat (Chicago) Future* W 1 Comdty Wheat (Kansas) Future* KW 1 Comdty Corn Future* C 1 Comdty Soybeans Future* S 1 Comdty Coffee C Future* KC 1 Comdty Sugar #11 Future* SB1 Comdty Cocoa Future* CC1 Comdty Cotton #2 Future* CT1 Comdty Lean Hogs Future* LH1 Comdty Cattle (Live) Future* LC1 Comdty Cattle (Feeder) Future* FC1 Comdty Oil (WTI Crude) Future* CL1 Comdty Oil (#2 Heating) Future* HO1 Comdty Oil (RBOB) Future* XB1 Comdty Oil (Brent Crude) Future* CO1 Comdty Oil (Gasoline) Future* QS1 Comdty Natural Gas Future* NG1 Comdty Aluminum (High Gd. Prim.) Future* LA1 Comdty Copper Future* LP1 Comdty Standard Lead Future* LL1 Comdty Primary Nickel Future* LN1 Comdty Zinc (Special High Grade) Future* LX1 Comdty Gold Future* GC1 Comdty Currencies Volatility Silver Future* USD/Australian Dollar Future USD/Euro Future USD/Pound Sterling Future USD/Japanese Yen Future USD/Swiss Franc Future USD/Canadian Dollar Future USD/New Zealand Dollar Future US Dollar Index Future CBOE VIX Index Future SI1 Comdty AD1 Curncy ECA Curncy BPA Curncy JYA Curncy SFA Curncy CDA Curncy NVA Curncy AD1 Currency UX1 Index *Each a GCSI Constituent 12

13 The Index Advisor may in its sole discretion, acting in good faith and a commercially reasonable manner, at any time add to or remove from the HFRq Program Portfolio certain Asset Classes and/or Eligible Instrument Categories with respect to such Asset Class, and make any consequential changes to the methodology of the HFRq Program HFRq Program Constituents Composition For each Eligible Instrument, the Index Advisor will designate the HFRq Rebalancing Day falling immediately prior to the day which falls approximately one week prior to such Eligible Instrument s first delivery date (or with respect to an Eligible Instrument relating to the Commodities Asset Class the day falling one month prior to such first delivery) as the roll date for such Eligible Instrument (such day, in relation to such Eligible Instrument, a Roll Date ) provided that if such day is a Disrupted Rebalancing Day with respect to the relevant Eligible Instrument the Index Advisor may determine in its discretion, that the Roll Date should be adjusted to a later day. On each HFRq Observation Day and GCSI Constituent Rebalancing Day, the Index Advisor selects in respect of each Eligible Instrument Category, the nearest (each, a First Nearby and, in the case of the Global Fixed Income Eligible Instruments only, also the second nearest: the latter a Second Nearby ) expiring Eligible Instrument (each a Potential HFRq Portfolio Constituent ) referencing such Eligible Instrument Category (a) which has an expiry date next following such HFRq Rebalancing Day and (b) for which neither (i) such HFRq Rebalancing Day nor (ii) any preceding HFRq Rebalancing Day, is a Roll Date. Each Potential HFRq Program Constituent is given a weight as set out in paragraph 3.3 HFRq Program Construction subject to the allocation limits set out in paragraph 3.4 HFRq Program Constituent Allocation Limits. With respect to each Eligible Instrument that is a GCSI Constituent, the HFRq Program will be updated on each GCSI Constituent Rebalancing Day (subject to the occurrence of an HFRq Rebalancing Disruption Event as further described below in paragraph (iii) Implementation: Rebalancing of the HFRq Program Portfolio). Each such Eligible Instrument is given a weight as set out in paragraph 3.3 HFRq Program Construction subject to the allocation limits set out in paragraph 3.4 HFRq Program Constituent Allocation Limits. 13

14 3.3. HFRq Program Construction On the Index Start Date the HFRq Program Portfolio will be composed of the following HFRq Program Constituents (the Initial HFRq Program Constituents ): Eligible Instrument HFRq Program Constituent Bloomberg Ticker Exchange Direction Contract Month Number of Program Constituents Global Equities S&P 500 Index Future SP CME S&P 500 Index emini Future ES CME Long U0 75 Russell 1000 emini Futures RM NYF DJIA Futures DJ CBT DJIA emini Futures DM CBT DJIA $25 Futures EEM CBT USD Nikkei 225 Index Futures NX CME Short U0 2 Nasdaq 100 Index emini Futures NQ CME Short U0 96 Russell 2000 Index emini Futures RTA NYF Long U0 78 FTSE 100 Index Futures Z LIF Short U0 3 DAX Index Futures GX EUX DJ Euro STOXX 50 Index Futures VG EUX Long U0 4 MSCI Emerging Markets Index emini Futures LLL CME Long U0 249 Global Fixed Income UST Two Year Note Future TU CBT UST Five Year Note Future FV CBT Short U0 13 UST Ten Year Note Future TY CBT Short U0 8 UST Long Bond Future US CBT Short U0 8 ISDA Five Year Swap Future DS CBT ISDA 10Y Swap Future DI CBT Eurodollar Future ED CBT Commodities S&P Goldman Sachs Commodity Index Spot Future Wheat (Chicago) Future Wheat (Kansas) Future KW CBT Corn Future C KCB Soybeans Future S CBT Coffee C Future KC CBT GI CME Long Q0 38 W 14

15 Sugar #11 Future SB NYB Cocoa Future CC NYB Cotton #2 Future CT NYB Lean Hogs Future LH NYB Cattle (Live) Future LC CME Cattle (Feeder) Future FC CME Oil (WTI Crude) Future CL NYM Long U0 1 Oil (#2 Heating) Future HO NYM Oil (RBOB) Future XB NYM Oil (Brent Crude) Future CO ICE Oil (Gasoline) Future QS ICE Natural Gas Future NG NYM Aluminum (High Gd. Prim.) Future LA LME Copper Future LP LME Standard Lead Future LL LME Primary Nickel Future LN LME Zinc (Special High Grade) Future LX LME Gold Future GC CMX Long Z0 1 Silver Future SI CMX Currencies USD/Australian Dollar Future USD/Euro Future EC CME AD CME Short U0 1 USD/Pound Sterling Future BP CME Long U0 2 USD/Japanese Yen Future JY CME Long U0 1 USD/Swiss Franc Future SF CME Long U0 3 USD/Canadian Dollar Future CD CME USD/New Zealand Dollar Future NV CME Short U0 4 US Dollar Index Future DX FNX Long U0 38 Volatility CBOE VIX Index Future UX CBF On each HFRq Observation Day thereafter, the Program seeks to identify the weight and then the number of Potential HFRq Portfolio Constituents to be included in the HFRq Program Portfolio on the following HFRq Rebalancing Day based on the results derived from the HFRq Program Algorithm (as defined in paragraph HFRq Program Algorithm). The HFRq Program Portfolio is then rebalanced on each HFRq Rebalancing Day (subject to the occurrence of an HFRq Rebalancing Disruption Event as further described below in paragraph (iii) Implementation: Rebalancing of the HFRq Program Portfolio), applying the updated number of HFRq Program Constituents with respect to the relevant Potential HFRq Portfolio Constituents (the Number of 15

16 Program Constituents ). Once the Number of Contracts has been established on an HFRq Observation Day, such Number of Program Constituents is allocated to the relevant the HFRq Program Constituent on the next following HFRq Rebalancing Day (subject to the occurrence of an HFRq Rebalancing Disruption Event as further described below in paragraph (iii)) and such Number of Program Constituents is applied, regardless of any change in value of the relevant Eligible Instruments or the occurrence of any Disrupted Day between the HFRq Observation Day and such HFRq Underlying Asset Rebalancing Day. In addition, with respect to each Eligible Instrument Category that is a GCSI Constituent, the Program is rebalanced on each GCSI Constituent Rebalancing Day to mirror the components of the GSCI Index as of such day by including and/or removing Eligible Instruments in relation to the relevant Eligible Instrument Category. The weight of Eligible Instruments and then the Number of Program Constituents in respect of such Eligible Instruments will be included in the HFRq Program Portfolio as of such day to reflect (i) any adjustments and valuations effected on such day within the GSCI Index and (ii) the accrued performance of such Eligible Instrument since the immediately preceding HFRq Rebalancing Day (subject always to the occurrence of an HFRq Rebalancing Disruption Event as further described below in paragraph (iii) Implementation: Rebalancing of the HFRq Program Portfolio). On the Index Start Date the HFRq Program Portfolio is deemed to have a total notional exposure to the Initial HFRq Program Constituents equivalent to USD 100,000,000, i.e. a 1% weighting of an HFRq Program Constituent relating to an Eligible Instrument Category represents a USD 100,000 notional exposure to such Eligible Instrument Category. Such total notional exposure across all HFRq Program Constituents will thereafter increase or decrease, as applicable, exactly in proportion to the performance of the Index since the Index Start Date, as determined by the Index Sponsor Input Data The main input data (collectively the Inputs ) to the HFRq Program, amongst other input data, are as follows: (i) HFRIFWI Performance, (ii) HFRX Performance and (iii) HFRX Sensitivity Analysis. The HFRIFWI Performance data is published monthly by HFR on Bloomberg page <HFRIFWI Index>. The HFRX Performance data is published daily by HFR on Bloomberg page <HFRXGL Index>. The HFRX Sensitivity Analysis data is proprietary information which, as of any Business Day, is provided by HFRAM to the Program Manager on the 3 rd NY Business Day following such day. All Input is based on the latest data available to the Index Advisor. 16

17 In the event HFR cannot publish the HFRIFWI Performance and/or the HFRX Performance for any reason, HFR will post an announcement of the delay on the HFR website and publish the relevant data on the next Index Business Day HFRq Program Algorithm The HFRq Program Constituents are selected through a three step procedure: i. Primary analysis: establish and maintain the weights of the HFRq Program Constituents with respect to the HFRI Performance data, ii. Secondary analysis: adjust the weights of the HFRq Program Constituents using HFRX Sensitivity Analysis data, and iii. Implementation: rebalance the HFRq Program Portfolio in accordance with the adjusted weights of the HFRq Program Constituents that are converted into the updated Number of Program Constituents. The HFRq Program Algorithm involves applying a proprietary set of rules that are unable to be disclosed for commercial reasons. A broad outline of the steps followed by the Index Advisor (as disclosed to the Index Sponsor) to determine the HFRq Program Portfolio composition is set out as follows: (i) Primary analysis: HFRq Program Constituent Weight based on the Cash Adjusted HFRIFWI The objective of the HFRq Program is to replicate the hedge fund industry s performance, as represented by the Cash Adjusted HFRIFWI. This is achieved through a multi-stage process designed to identify the proper HFRq Program Constituents and the relevant weights of such HFRq Program Constituent. In the primary analysis, the Index Advisor estimates the weights of each HFRq Program Constituent by evaluating (a) the pro-forma performance over time of the HFRq Program Constituents, relative to (b) the historical performance of the Cash Adjusted HFRIFWI over the same time period. The Index Advisor applies the above process using varying historical periods of between 24 and 120 months in length. Each estimate uses the latest available monthly HFRIFWI Performance figure, noting that for each month, the first HFRIFWI Performance figure is an estimate, which is then updated monthly by HFR over a period of up to 3 months. The primary analysis concludes by combining the weight estimates from varying historical 17

18 periods into one composite weight set, which comprises the weights of that HFRq Program Constituent before adjustment by the secondary analysis. The primary analysis is conducted monthly, on the first HFRq Observation Day following publication of the latest HFRIFWI Performance figures. Thus, the estimated weights established in a primary analysis are then applied to the secondary analysis and the implementation until a new primary analysis has been conducted once the new HFRIFWI Performance figures have been published. (ii) Secondary analysis: Adjustment of the weights of the HFRq Program Constituents based on the HFRX Performance The secondary analysis uses daily HFRX Performance data (adjusted for the cash component of the HFRX) and daily HFRX Sensitivity Analysis data to adjust the weights of the HFRq Program Constituents of the primary analysis. This secondary analysis employs algorithms that seek to optimally adjust the HFRq Program Constituent Weights using the HFRX Performance data, incorporating the ex-post success of prior adjustments, and is conducted on each HFRq Observation Day. (iii) Implementation: Rebalancing of the HFRq Program Portfolio (A) Conversion of weights into Number of HFRq Program Constituents Weekly On each HFRq Observation Day, the Index Advisor determines the weights for each HFRq Program Constituent, resulting from the secondary analysis - that are converted into the relevant updated Numbers of HFRq Program Constituents - to which the HFRq Program Portfolio is due to be adjusted on the next following HFRq Rebalancing Day (subject to the occurrence of an HFRq Rebalancing Disruption Event as further described below in paragraph 3.3.2(iii)(C)). In relation to GSCI Constituents, on each HFRq Observation Day on which a Re-Allocation occurs further to paragraph (D) Weight allocation in respect of Commodities Asset Class below, the Program Manager may determine that all GCSI Constituents, or a certain number of these, arising from the Re-Allocation, shall constitute GSCI Linked Constituents. Daily 18

19 In addition, with respect to GCSI Linked Constituent, on each GCSI Constituent Rebalancing Day the Index Advisor will determine the weight allocation to each GCSI Linked Constituent such that the weight allocation in respect of each GCSI Linked Constituent relative to the weight of all other GCSI Linked Constituents remains in exactly the same proportion as the weightings of the corresponding commodities components in the GSCI Index represent relative to each other on such day. Where allocated weights would result in fractional Numbers of HFRq Program Constituents, the Index Advisor shall round the relevant Number of Program Constituents by reference to the contract size of the relevant HFRq Program Constituent and any decimal equal to or greater than 0.5 will be rounded up, unless the rounded number would lead to a breach of the applicable limits set out under paragraph 3.4 HFRq Program Constituent Allocation Limits, in which case any decimal equal to or greater than 0.5 will be rounded down). (B) Weight allocation in respect of the Global Fixed Income Asset Class In order to comply with UCITS guidelines and ensure continued diversification of the HFRq Program Portfolio and thereby the Index, allocations to the Global Fixed Income Eligible Instruments are each subject to a maximum weight of 20% and a minimum weight of minus 20% (subject to the Allocation Exception described below). Nevertheless, the proposed weight allocation generated by the HFRq Program Algorithm in relation to any Global Fixed Income Eligible Instrument may, in aggregate, be greater than 20% or lower than minus 20%. Should this occur, then the Index Advisor shall determine only one Eligible Instrument which may be given an allocation greater than 20%, up to a maximum of 35%, or alternatively only one Eligible Instrument which may be given an allocation lower than minus 20%, up to a minimum of minus 35% (such allocation, the Allocation Exception ). For the avoidance of doubt there will only ever be one Eligible Instrument allocation whose absolute value is excess of 20% but below 35%. All remaining proposed allocations generated by the HFRq Program Algorithm will be shared across the First Nearby and Second Nearby Eligible Instrument relating to the relevant Global Fixed Income Asset, such that the relevant First Nearby has an allocation of 20% or minus 20%, as applicable, and the Second Nearby has the remaining proposed allocation (the Excess Allocation ), provided that the Index Advisor has established that there is sufficient liquidity in such Second Nearby, taking into account the portion that the 19

20 notional exposure such Excess Allocation represents, relative to the HFRq Program Constituents total notional exposure across all Eligible Instruments Categories (as described in paragraph 3.3 HFRq Program Construction above). Should the Index Advisor determine that there is insufficient liquidity in such Second Nearby for the entire Excess Allocation, it will allocate to the Second Nearby such proportion of the Excess Allocation as it considers that there is sufficient liquidity for (subject always to the relevant Minimum Limit applicable to the Second Nearby, as specified in paragraph 3.4. HFRq Program Constituents Allocation Limits) and allocate the remaining proposed weight allocation to the most highly correlated Eligible Instruments among the Global Fixed Income Eligible Instruments. The allocation to the relevant Global Fixed Income Eligible Instrument within the HFRq Program Portfolio, when adding (i) the Number of Program Constituents initially allocated to such Global Fixed Income Eligible Instrument, and (ii) any additional portion of the Excess Allocation, shall not be less than the Minimum Limits specified in paragraph 3.4. HFRq Program Constituents Allocation Limits. (C) Weight allocation in respect of the Currencies Asset Class In order to comply with UCITS guidelines and ensure continued diversification of the HFRq Program Portfolio and thereby the Index, allocations to the Currencies Eligible Instruments are each subject to a maximum weight at or below 20% and a minimum weight at or above minus 20% as set out in the Initial Allocation Limits section of the Currencies Eligible Instrument table set out in paragraph 3.4 HFRq Program Constituents Allocation Limits. Nevertheless, the proposed initial weight allocation generated by the HFRq Program Algorithm may be (i) either greater than 20% or lower than minus 20%, in relation to the USD Dollar Index, (ii) greater than 20% in relation to the l Pound Sterling Eligible Instrument or (iii) lower than minus 20% in relation to the Japanese Yen Eligible Instrument. Should this occur, then the Index Advisor shall apply the minimum or maximum allocation permitted under the Initial Allocation Limits (which, for the avoidance of doubt, is capped at 20% in absolute value in all cases). The HFRq Program Algorithm will allocate the remaining proposed weight allocations (each, a Re-Allocation ) to the most highly correlated Currencies Eligible Instruments, provided always that the sum of (i) the Number of Program Constituents initially allocated to such Currencies Eligible Instrument and (ii) the relevant Re-Allocation shall not exceed the Aggregate Reallocation Limits set out in paragraph 3.4 HFRq Program Constituents Allocation Limits. 20

21 (D) Weight allocation in respect of the Commodities Asset Class In order to comply with UCITS guidelines and ensure continued diversification of the HFRq Program Portfolio and thereby the Index, allocations to the Commodities Eligible Instruments are each subject to a maximum weight at or below 20% and a minimum weight at or above minus 20% as set out in the Allocation Limits section of the Commodities Eligible Instrument table set out in paragraph 3.4 HFRq Program Constituents Allocation Limits. Nevertheless, the proposed initial weight allocation generated by the HFRq Program Algorithm may be greater than 20% in relation to the GSCI Index Future, the Oil (WTI Crude) Future, or the Copper Future. Should this occur, then the Index Advisor shall apply the maximum allocation permitted under the Allocation Limits (which, for the avoidance of doubt, is capped at 20% in absolute value in all cases). The HFRq Program Algorithm will allocate the remaining proposed weight allocations (each, a Re-Allocation ) to the most highly correlated Commodities Eligible Instruments, provided always that the sum of (i) the Number of Program Constituents initially allocated to such Commodities Eligible Instrument and (ii) the relevant Re-Allocation shall not exceed the Allocation Limits set out in paragraph 3.4 HFRq Program Constituents Allocation Limits. (E) Rebalancing disruption of the HFRq Program Portfolio Upon the occurrence of an HFRq Rebalancing Disruption Event on any HFRq Rebalancing Day with respect to an HFRq Program Constituent other than a GSCI Linked Constituent, each HFRq Program Constituent not affected by a HFRq Rebalancing Disruption Event shall be rebalanced and valued on that HFRq Rebalancing Day and each HFRq Program Constituent affected by a HFRq Rebalancing Disruption Event (each a Disrupted HFRq Program Constituent ) shall be rebalanced and valued on the first succeeding Scheduled Trading Day with respect to such Disrupted HFRq Program Constituent that is a London Business Day (in case of Eligible Instruments traded on a European Exchange), or a NY Business Day (in respect of Eligible Instruments traded on an US Exchange) and on which the relevant HFRq Rebalancing Disruption Event ceased to exist with respect to such Disrupted HFRq Program Constituent and no other HFRq Rebalancing Disruption Event has occurred with respect to that Disrupted HFRq Program Constituent (the Disrupted Program Constituent Rebalancing Date ). 21

22 On any HFRq Rebalancing Day the Number of Program Constituents is allocated to the relevant HFRq Program Constituents which are not affected by the occurrence of an HFRq Rebalancing Disruption Event on such day. With respect to a Disrupted HFRq Program Constituent, the Number of Program Constituents is allocated to such Disrupted HFRq Program Constituent on the relevant Disrupted Program Constituent Rebalancing Date. With respect to each GCSI Linked Constituent, if any GCSI Constituent Rebalancing Day or HFRq Rebalancing Day is a Disrupted Day with respect to a GSCI Linked Constituent, then each GSCI Linked Constituent not affected shall be rebalanced and valued on that day and in respect of each GSCI Linked Constituent affected the Program Manager may adjust the Numbers of Program Constituents or the price of such GSCI Linked Constituents as of the day and time the GSCI Index index sponsor effects adjustments in relation to the corresponding component of the GSCI Index (such day being the Disrupted Program Constituent Rebalancing Date and Time in respect of the relevant GSCI Linked Constituents) to reflect (i) the relevant valuations and adjustments implemented by the index sponsor of the GSCI Index as of such Disrupted Program Constituent Rebalancing Date and Time and (ii) the accrued performance of such GSCI Linked Constituents from and including the immediately preceding HFRq Rebalancing Day to and excluding the relevant Disrupted Program Constituent Rebalancing Date and Time HFRq Program Constituents Allocation Limits The weight for each Potential HFRq Program Constituent on any HFRq Rebalancing Day, as determined by the Index Advisor, is subject to the minimum and maximum levels as set out in the following table: GLOBAL EQUITIES Eligible Instrument Category Maximum Minimum S&P 500 Index Future 20% -20% S&P 500 Index emini Future 20% -20% Russell 1000 emini Futures 20% -20% 22

23 DJIA Futures 20% -20% DJIA emini Futures 20% -20% DJIA $25 Futures 20% -20% USD Nikkei 225 Index Futures 10% -4% Nasdaq 100 Index emini Futures 10% -4% Russell 2000 Index emini Futures 10% -4% FTSE 100 Index Futures 14% -15% DAX Index Futures 12% -6% DJ Euro STOXX 50 Index Futures 9% -5% MSCI Emerging Markets Index emini Futures 20% -5% GLOBAL FIXED INCOME Eligible Instrument Category Maximum Minimum Treasury Eligible Instruments UST Two Year Note First Nearby 20% -20% UST Five Year Note First Nearby 20% -20% UST Ten Year Note First Nearby 20% -20% UST Long Bond First Nearby 11% -20% UST Two Year Note Second Nearby* 20% -20% UST Five Year Note Second Nearby* 20% -20% UST Ten Year Note Second Nearby* 20% -20% UST Long Bond Second Nearby* 11% -20% Swap Rates ISDA Five Year Swap First Nearby 20% -15% ISDA Ten Year Swap First Nearby 20% -15% Eurodollar Swap First Nearby 20% -15% ISDA Five Year Swap Second Nearby* 20% -20% 23

24 ISDA Ten Year Swap Second Nearby* 20% -20% Eurodollar Swap Second Nearby* 20% -20% Only one of the Global Fixed Income Eligible Instruments is allowed to breach the Maximum or Minimum weight and can have a Maximum exposure of up to 35% or alternatively a Minimum exposure of up to minus 35% (this is referred to as the Allocation Exception as defined above). * Allocations to the Second Nearby contracts will only be made if the proposed allocations to the First Nearby contracts would be in excess of their respective minimum or maximum limits, pursuant to paragraph (B) Weight allocation in respect of Global Fixed Income Asset Class above. CURRENCIES Eligible Instrument Category Initial Allocation Limits Maximum Minimum USD/Australian Dollar Future 16% -11% USD/Euro Future 20% -14% USD/Pound Sterling Future 20% -13% USD/Japanese Yen Future 14% -20% USD/Swiss Franc Future 18% -14% USD/Canadian Dollar Future 18% -14% USD/New Zealand Dollar Future 18% -14% US Dollar Index Future 20% -20% Aggregate Reallocation Limits Maximum Minimum Each foreign exchange currency pair in the US Dollar Index* 20% -20% *US Dollar Index is an index to calculate the value of the USD by averaging the exchange rates between the USD and the six major world currencies (EUR, JPY, GBP, CAD, CHF and SEK). The 24

25 Maximum and Minimum weights limit the exposure to each of the constituent pairs of foreign currency rates. COMMODITIES Eligible Instrument Category Maximum Minimum GSCI Index Future 20% -20% Wheat (Chicago) Future 20% -20% Wheat (Kansas) Future 20% -20% Corn Future 20% -20% Soybeans Future 20% -20% Coffee C Future 20% -20% Sugar #11 Future 20% -20% Cocoa Future 20% -20% Cotton #2 Future 20% -20% Lean Hogs Future 20% -20% Cattle (Live) Future 20% -20% Cattle (Feeder) Future 20% -20% Oil (WTI Crude) Future 20% -20% Oil (#2 Heating) Future 20% -20% Oil (RBOB) Future 20% -20% Oil (Brent Crude) Future 20% -20% Oil (Gasoline) Future 20% -20% Natural Gas Future 20% -20% Aluminium (High Gd. Prim.) Future 20% -20% Copper Future 20% -20% Standard Lead Future 20% -20% Primary Nickel Future 20% -20% Zinc (Special High Grade) Future 20% -20% 25

26 Gold Future 20% -20% Silver Future 20% -20% No Commodities Eligible Instrument may ever have a Maximum weight greater than 20% or a Minimum weight less than -20%. VOLATILITY Eligible Instrument Category Maximum Minimum CBOE VIX Index Future 8% -2% The aggregate weights of all HFRq Program Constituents with respect to each Asset Class on any HFRq Rebalancing Day are subject to the minimum and maximum levels as set out in the following table: Asset Class Maximum Minimum Global Equities 134% -57% Global Fixed Income * 52% -82% Currencies 38% -25% Commodities 51% -27% Volatility 8% -2% Accordingly, the sum of the weights of the HFRq Program Constituents allocated to an Asset Class with respect to any HFRq Rebalancing Day shall be within the respective range set out in the above table. For the avoidance of doubt, such sum shall be calculated on a net basis, whereby positive levels are offset by negative ones. In addition, the sum of the weights of all HFRq Program Constituents in the HFRq Program on any HFRq Rebalancing Day shall not exceed 150% and not be below minus 100% and the sum of the absolute value of the weights of all HFRq Program Constituents in the HFRq Program with respect to any HFRq Rebalancing Day shall not exceed 200%. 26

27 The sum of the absolute value of the weights of the HFRq Program Constituents allocated to an Asset Class with respect to any HFRq Rebalancing Day shall be within the respective range set out in the table below: Asset Class Maximum Global Equities 136% Global Fixed Income 120% Currencies 63% Commodities 51% Volatility 8% 4. Index Level Calculation The Index will comprise a 100% allocation to each of (i) the HFRq Underlying Assets and (ii) the HFRq Cash Account on each HFRq Underlying Assets Rebalancing Day. The HFRq Cash Account represents a synthetic deposit of cash and/or cash equivalents which accrues interest on each Index Business Day as more fully described in paragraph HFRq Cash Account Performance. The HFRq Underlying Assets represent a synthetic portfolio which mirrors the composition of the HFRq Program Portfolio. The calculation of the performance of the HFRq Underlying Assets is described in paragraph HFRq Underlying Assets Performance Index Level The Index is expected to commence on the Index Start Date (t=0) when it will be set at the Index Start Level. On any Index Business Day (t) thereafter, the Index Sponsor will determine the Index Level ( I(t) ) in accordance with the following formula reflecting the performance of the Index from the previous HFRq Rebalancing Day to such Index Business Day (t): I(t) = I(R) x ( 1 + CA(t) + PF(t) ) 27

28 Where: I(R) means (i) the Index Level as of the HFRq Rebalancing Day immediately preceding such Index Business Day (t), provided that in the event that such HFRq Rebalancing Day is a Disrupted Rebalancing Day, the Index Level (t) shall equal the Portfolio Value with respect to such HFRq Rebalancing Day; CA(t) means the HFRq Cash Account Performance with respect to such Index Business Day (t); and PF(t) means the HFRq Underlying Assets Performance with respect to such Index Business Day (t) HFRq Cash Account Performance As of the Index Start Date (t=0), the HFRq Cash Account Performance will equal 1 (one). On any Index Business Day (t) thereafter, the HFRq Cash Account Performance will be determined by the Index Sponsor in accordance with the following formula reflecting the performance of the HFRq Cash Account from the previous HFRq Rebalancing Day to such Index Business Day (t) based on the 1 week USD Libor rate as of such previous HFRq Rebalancing Day : Where: CA (t) = USD0001W(R) x DCF(t) US0001W(R) means the offered rate for deposits in USD for a period of 1 week which appears on Bloomberg Page US0001W Index, or any successor page as determined by the Index Sponsor, as of as of the immediately preceding HFRq Rebalancing Day ; and DCF(t) means (i) the number of calendar days from (and including) the immediately preceding HFRq Rebalancing Day to (and excluding) such Index Business Day (ii) divided by HFRq Underlying Assets Performance As of the Index Start Date (t=0), the HFRq Underlying Assets Performance will equal zero. 28