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Company "Automatic systems hedging"

BUSINESS PLAN

March 24, 2012

99012, Ukraine, Sevastopol

Russian: Tel: +38(066) 339-70-13 ICQ 483-624-139 Skype: automatic-systems-hedging

English:

Tel: +38(095) 355-56-06 ICQ 649-777-376 Skype: maxi19865

E-mail: Automatic_System_Hedging@mail.ru

CONFIDENTIAL No offering is made or intended by this document. Any offering of interests in Automatic systems hedging will be

made only in compliance with Federal and State securities laws. This document includes confidential and proprietary information of and regarding Automatic systems hedging. This

document is provided for informational purposes only. You may not use this document except for informational purposes, and you may not reproduce this document in whole or in part, or divulge any of its

contents without the prior written consent of Automatic systems hedging. By acce ting this document, you agree to pbe bound by these restrictions and limitations.

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Table of Contents 1. Pitch ……………………...………………………………………………………………………………...4 2. Executive summary ………………………………………………………………………………..….......5 3. Company ………………………………………………………………………………..…........................7

3.1. Background: aims and objectives 3.2. Characteristics of the company's services 3.3. Innovations Company: Automated portfolio management

4. Еnvironment for business ………………………………………………………………………..….........10 4.1. Sectoral environment: the category of hedge funds 4.2. Business concept: a comparison of hedge funds with mutual, mutual and other funds 4.3. Project Strategy

5. Analysis of markets for the company's services .……………………………………………………….14 5.1. Estimating the size of the market and the possible development trends 5.2. Assessment of market share and volume of services. 5.3. Market segmentation and identification of niche services company

6. Competition and competitive advantage ……….……………………………………………………….15 6.1. Comparative characteristics of competitive services 6.2. Comparative characteristics of competing firms 6.3. SWOT-analysis of the company

7. Risk-management ………………………………………………………………………………..…..........17 7.1. Trade (market) risk. 7.2. Administrative (organizational) risk. 7.3. Political and currency risks (the risks of incidence of the underlying assets). 7.4. Natural, technical and production risks. 7.5. Technical risks. 7.6. Operational risks. 7.7. Legal risks and risks of conflict of interest. 7.8. Liquidity risk. 7.9. Transaction costs. 7.10. Counterparty risk

8. The organization of foreign economic activity of the firm …..….……………………………………..23 8.1. Organizational maintenance of international relations. 8.2. Economic support of international relations.

9. The strategy of the marketing plan ………………………………...……………………………………24 9.1. The overall marketing strategy. 9.2. Pricing. 9.3. Tactics of implementation services to investors. 9.4. Warranty Policy: Methods of insurance. 9.5. Break-even point.

10. Organizational and Management plan…………………………………………………..…………….28 10.1. Business calendar: the creation of a hedge fund. Gantt chart. 10.2. The organizational structure and service contractors. 10.3. Summary of key executives. 10.4. Other investors. 10.5. Duties of directors and staff of the management company. 10.6. Hiring and bonus system.

11. Investment Plan ……….…………………………..…..…………………………..…..…………………33 11.1 Sources of funding.

11.2. The strategy to attract funding. 12. Financial plan ……………………………………………………………………………………..….......35

12.1 The need for funding (selection of the amount of investment and financing schedule): • Option №1. Investments up to $ 1-2 million. • Option №2. Investments 2 to $ 5 million. • Option №3. Investments of $ 5-7 million and above.

12.2. Statement of Cash Flow, the schedule of repayment of loans..…………………………………38

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12.3. The overall project efficiency and sensitivity analysis …..…………………………………...41 - Net present value (NPV); - Internal rate of return (IRR); - Profitability Index (PI); - Payback Period (PP); - Discounted Payback Period (DPP); - Net investment efficiency (NRR); - Duration (D); - Modified Internal Rate of Return (MIRR); - Modified the present value (MNPV); - Discounted profitability index (DPI); 12.4. Financial performance:….……………………………………………………………………….42

- Current ratio (CR), % - Quick ratio (QR), % - Total liabilities to total assets (TD / TA),% - Long-term liabilities to assets (LTD / TA) - Total commitment to his own. drops. (TD / EQ), % - Return on Investment (ROI),% - Return on equity (ROE),% - Return on sales (ROS),% - Absolute liquidity ratio (LR)? - Financial independence ratio (Equity to Total Assets)

12.5. Total costs, cost of service contractor, tax payments……………………………………………42

13. Notes to the business plan: 13.1. Sheets ASH: results on real accounts…………………………………….……………………...46

13.1.1. Screenshots of trading posts in the accounts and balance sheet growth chart 13.1.2. Analysis of changes in equity and the number of instruments involved in the trade 13.1.3. Rates of return. 13.1.4. Table of profitable / unprofitable trades. 13.1.5. The matrix of the currency pairs that are used in the accounts 13.1.6. Monitoring settings the account

13.2. Arbitrage trading with the help of "ASH-Arbitrage"……………...…….………………………67 13.3. List of prime brokers and discount brokers…….……………………………………………….67 13.4. Stages and types of hedge fund registration:……………..……………………………………..69

13.4.1. Incubator hedge fund 13.4.2. Fund for the Platform 13.4.3. Full hedge fund

13.5. Costs of administration…………………………………………………………………………..75 13.6. Hedge Fund Due Diligence…………………………………………………………………….. 77

13.7. Cayman Islands hedge funds ……………………………………………….………………….. 80 13.8. Еrrors of hedge funds…………………………………………………………………………….82

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1. PITCH.

The team developed and tested in the context of global markets trading automated methods of hedging risk. Developments allow to control trading on thousands of accounts and use for one-time trade in each of the accounts of over 100 instruments: currency, metals, CFDs and futures, which allows trading to hedge risks and to get ROI 11-14% per month (regardless the growth / decline of individual instruments). To create acompetitive business requires an organization capable of a hedge fund, which will formal opportunity to attract investment from institutional investors, banks and pension funds. Dividends to investors - 70-80% of net profit management company.

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2. EXECUTIVE SUMMARY. What is needed for each investor? • To make his money was invested in a variety of risk-free projects with a minimum amount of commercial risks: imperfect parts - perfect as a whole! • To all the investments were under the complete control of the investor and he could within a reasonable time to extract them out of business! • To the investor was confident that the new business will have a stable set of independent risk factors: political, administrative and competition! But how to find so many projects, which all start up risky? The solution is The project is within the community projects, each of which compensates for the temporary costs of the other - the fund that distributes risks to the set of trading tools and directions, independent of the incompetence of staff, political squabbles, falling exchange rates, taxes and competition. World analogs What structure can collect a lot of high-risk areas in the risk-free combination? At present, the best solution, tested by time and experience the world economy - it is hedge funds. Stability The percentage of defaults of hedge funds over the past 10 years - 0.37% per year. Investors Dozens of European banks invest their money in hedge funds - are UBS, Credit Suisse, Crédit Agricole, HSBC, Societe Generale, Anglo Irish Bank, etc. According to the research company Global Alternatives large private investors (which is about 7.1 million with a capital of more than $ 1 million and total assets of 26 trillion. $) Invested: in hedge funds - 82% in private equity funds - 8 % and 5% in real estate and commodity futures. A significant proportion of charitable investments, pension funds and non-profit account for hedge funds (this is especially characteristic for the U.S.). Assets and Income In 1990 the total assets managed by hedge funds accounted for only $ 30 billion. By 2007 they had increased to $ 1.8 trillion. The number of hedge funds in 2011 reached 12 000. Over the past 18 years the cost of investments in bonds and stocks increased by 4 times, then as an investment in a diversified portfolio of hedge funds has increased by 10 times. Taxes Funds that are registered in an offshore jurisdiction, pay a minimum tax. Competition and Liquidity To profit from trading in global markets - competition does not exist. The cost of trading is minimal barriers to entry are virtually absent, the number of participants and liquidity tremendously almost perfect. You do not need to open a shopping site, explore the markets, to spend money on advertising, to open offices in prestigious centers and other global markets will exist as long as there are separate state. Tools profit On the New York Stock Exchange and the London Stock Exchange for more than 70% of trade takes place with the participation of retail automation systems. Most of them - it's automatic system of hedge funds, as the company Sac Capital Advisor (assets of 14 billion $), RGM Advisors LLC, Man Investments LTD (1783, assets of $ 71.7 billion) is a fund of hedge funds (for example, one of its funds

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Global Fund sells 28 futures contracts), managed by Simons "Renaissance Technologies" is more than $ 25 billion (trade is conducted with the help of computer programs), and many others. That can offer our team? Ready for implementation, "Automatic system of hedging risks," which allows you to:

• Informed and well-calculated distribution of the fund investments in a variety of tools (over 100 currency pairs, metals, and contracts for difference);

• compensate for the problem at the expense of profitable elements (hedge of a tool by others); • gradual introduction of fund investments in trade (according to the strategy of "temporary" risk-

sharing); • consolidation of profits during the trading period (the set of accounts that are running on

different starting points in time); • profit from both the major and minor volatile instruments; • independence of trading results on the direction of tool (long / short strategies).

What is the investor? The expected profitability of the project - 11-14% per month (rate of return an investor - 70-80% of net profit). Terms investvlozheny return - 3 years. Project-developed scheme of protection against risks: falling base rates, administrative, commercial, legal and political. Monitoring the safety of investments and investment strategy by following a few inspectors partners: the bank, custodian, administrator, prime broker, auditors and legal counsel. Starting the project To start the project requires the cost of office equipment and legal registration of hedge fund - 1-5% of the total investment (about $ 40-50 thousand). Minimum investment - $ 1 million, the maximum - Unlimited (the strategy is scalable to any amount investment).

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3. COMPANY. 3.1. Background: aims and objectives.

AIM: To create a Hedge Fund using for the service ASH (automatic system hedging) for global markets in currency, stocks, bonds, commodities / raw materials (Foreign exchange, CFD).

OBJECTIVES: To create a working business that does not require large expenditures on the base and extension activities, has a stable independent of the commercial, political and administrative risks, and able to attract large investments from qualified and institutional investors (banks, providing clients with asset allocation to hedge funds, large private investors and pension funds).

3.2. Characteristics of the company's services. Hedge Fund offers to investors (with the volume of investments of $ 300 000) services effective investment and profit through the service of automatic hedging. An investor entering into an agreement with the hedge fund is able to hedge their investments and to profit from the volatility of the hundreds of tools (the movement of which is associated with global changes in the global economy). And at the same time, the service allows companies to avoid the influence of negative trends in the global economic situation due to long / short strategies. Monitoring the safety of investments and investment strategy by following a few inspectors partners: administrator, prime broker, auditors and legal counsel. 3.3. Innovations Company: Automated portfolio management

Parameters "automatically hedging"

• Using a system of independent investment pools and joint stabilization fund:

Individual approach to every investor can establish independent monitoring of accounts, selection of individual tools (used in commerce), insurance, individual selection of contractors (prime brokers), the repayment schedule. This system gives the performance an investor of investment independent of other investors and hedge funds in general. This is - additional insurance against the risks of scalability and availability of all the same all the benefits of the strategy.

Investment capital is divided into 2 parts: trade and stabilization. Stabilization Fund (amounting to 20-30% of total capital) is designed to meet the challenges necessary to prevent resetting the account in case of approaching critical levels Equity to the level of stop-outs. Practice shows that the level of Equity does not fall

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below 20-30% relative to the size of the Balance Sheet. However, such insurance bills provide for future periods of trade risk-free combination of technical and strategic account management tools.

Stabilization Fund is the general strategic reserve investments and connects to the solution of commercial risks of individual accounts of all investors.

• Use 10 or more base currencies for hedging long-term trends in currency portfolio: Investment in one currency is translated in equal installments of 10 or more currencies, which makes

hedging falling base rates. • Using an automated system of internal stabilization funds investment pool:

Automated system of internal transfers of funds between the accounts of the investment pool gives extra stability ratio Equity / Balance and does not allow to incur losses in the event of a fall in the equity of individual accounts.

• Distribution of fund investments in a variety of tools (over 100 currency pairs, metals, and

contracts for difference). Problematic elements of the compensation due to lucrative (one hedge instrument by others):

The distribution of investment fund (within the same account) on a variety of tools (over 100 currencies, metals and contracts for difference), ie Volatility trading using multiple tools allows interdependent management tools in one account (one hedge instrument by others).

• Using the matrix input tools in the trade:

Each account is distinct from other accounts (earlier and later switched to the active stage of the trade) a set of tools. That is, it is different for each of the accounts.

• Gradual introduction of fund investments in trade (according to the strategy of

"temporary" risk-sharing): Trading on the part of the allocated number of accounts equal to the trading period (1.5-2 months). The

gradual introduction of capital in the trade risks associated with trading and substantiated not repeatable market fluctuations. In the case of formation of the negative vibrations of tools, their impact will occur on a limited number of accounts, rather than all at once.

• Securing the profit for the entire trading period:

Due to the fact that you are using the distribution of investments by the number of days of trading period, the question is not only the gradual introduction of fund investment in trade, but also the phasing out of trade, ie secure profits. Thus, the graph has a smooth removal of profit rising curve.

Trading period and is associated with preservation of profit, ie at the end of active trading ASH system switches to a passive trade, and after 20-30 days, will close all orders, providing no subsidence approximation to the Equity Balance.

After the closure of all orders are removed from the account of the necessary funds, as well as part of the funds goes to the Stabilization Fund, located on unused accounts to trade.

• Making a profit from both micromotion currency pairs, day volatility instruments, and on

the medium-term periods (1-2 months): The automatic system provides an opportunity to profit from both the low volatility of currencies and the

volatility of longer periods (weeks to months). This system gives an advantage over other systems is that the availability of profitable trades is about 90%.

The presence of an automatic exchange system and calculate the change profitable base rates makes it possible to obtain additional revenue in the amount of 2-3% per month on investment.

• To profit from arbitrage trading on the SPOT-market, using the resources of the stabilization fund:

Stabilization Fund in addition to the direct purpose of using it as a stabilization in some accounts, the reallocation of resources between accounts is used to profit from arbitrage situations in the market for immediate delivery through the exchange of Reuters SPOT / FWDS Matching attached to «ASH-Arbitrage." Since the

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instantaneous exchange transactions, then the need for the base currency of the trading accounts can be implemented immediately, without any loss.

• The independence of the trading results of the direction of movement of tools (long / short strategies):

Trading strategy, implemented in the automatic schemes ASH, makes a profit regardless of the direction of the tool, which is implemented by means of multidirectional trade, which would enable the simultaneous closure of unprofitable trades through profitable.

• Ability to engage in trade an unlimited number of accounts:

The system can carry out transactions and monitor thousands of accounts. Staff shall be the controlling function and is not directly involved in trading operations, while the system performs a few thousand trades per month for each of the accounts.

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4. ENVIRONMENT FOR BUSINESS. 4.1. Sectoral environment: the category of hedge funds

1. Hedge funds that combine long and short positions on shares (Long / short equity).The strategy

corresponds to the "classical" model and is buying a "good" of securities and sale of "bad", thus not excluding completely, but significantly reducing market power.

2. Dedicated short. Funds that use only short positions in securities. 3. Equity market neutral. These funds use a ineffectiveness of market prices for different securities of the

relevant (similar) assets, completely neutralizing the effects of dependence on the market. 4. Foundations of troubled securities (Distressed securities). They operate with debts or assets of

companies with financial or operational problems, which could be followed for the transformation of the company: bankruptcy, sale of assets, restructuring, etc.

5. Arbitrage Merger (Merger arbitrage). The strategy consists of investments associated with the companies that are expected to go through the process of mergers or acquisitions with other companies.

6. Arbitration on convertible bonds (Convertible bond arbitrage). Funds try to take advantage of price discrepancies between convertible bonds and their underlying stocks.

7. Arbitrage bonds (Fixed income arbitrage). This class of strategies aimed at generating income from price anomalies between related bonds.

8. Emerging market funds (Emerging market). Funds invest in all types of securities related to developing countries: stocks, bonds, government debt.

9. Global macro. Is aimed at investing in global markets in currency, stocks, bonds, commodities / raw materials.

10. Managed futures (Managed futures). Trade in the initial offering commodity and financial futures contracts on behalf of its clients.

Hedge funds, profit-making with multi-strategy Name Style Location Abax Global Capital Multi-Strategy Central Hong Kong

Alydar Capital Hedge Boston, MA

Alyeska Investment Group Multi-Strategy Chicago, IL Amaranth Advisors* Multi-Strategy Greenwich, CT Angelo, Gordon & Co. Multi-Strategy New York, NY APG Asset Management US Multi-Strategy New York, NY

Apollo Advisors Multi-Strategy New York, NY

Appaloosa Management Hedge Chatham, NJ

Avalon Global Asset Management Hedge Houston, TX Azentus Capital Multi-Strategy Hong Kong

Balyasny Asset Management Multi-Strategy Chicago, IL Barclays Capital Multi-Strategy New York, NY Blue Marble Capital Partners Limited Hedge Nelson, BC

BlueCrest Capital Management Hedge London

Bridgewater Associates LP Multi-Strategy Westport, CT

Buckingham Capital Management Hedge New York, NY

Canyon Capital Advisors Multi-Strategy Beverly Hills, CA

Carlson Capital Hedge Dallas, TX

Caxton Associates Multi-Strategy New York, NY

Cheyne Capital Hedge London

Citadel Investment Group Hedge Chicago, IL

Clinton Group Multi-Strategy New York, NY

Clovis Capital Management Hedge New York, NY CQS Management Limited Multi-Strategy London

CR Intrinsic Investors Hedge Stamford, CT Czech Asset Management Hedge Greenwich, CT

D.E. Shaw & Co Multi-Strategy New York, NY Deephaven Capital Management* Multi-Strategy Minnetonka, MN Duquesne Capital Management Multi-Strategy New York, NY Eclectica Asset Management Multi-Strategy London

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Elm Ridge Management LLC Hedge Irvington, NY

Eton Park Capital Management Multi-Strategy New York, NY

Farallon Capital Management Hedge San Francisco, CA Fortitude Capital Multi-Strategy Sydney

Fortress Investment Group Multi-Strategy New York, NY FRM Capital Advisors Multi-Strategy London FrontPoint Partners Multi-Strategy Greenwich, CT Gartmore Investment Management Multi-Strategy London

George Weiss Associates Multi-Strategy New York, NY GLG Partners Multi-Strategy New York, NY Goldman Sachs Principal Strategies* Multi-Strategy New York, NY

Hayground Cove Asset Management Multi-Strategy New York, NY

HBK Investments Multi-Strategy Dallas, TX

Highbridge Capital Management Multi-Strategy New York, NY

Highland Capital Management Multi-Strategy Dallas, TX

Hoplite Capital Management Hedge New York, NY

Hunter Global Investors Hedge New York, NY Hutchin Hill Capital Multi-Strategy New York, NY Implied Capital Multi-Strategy Boulder, CO International Standard Asset Mgmt Multi-Strategy New York, NY

Ionic Capital Management LLC Multi-Strategy New York, NY Ivaldi Capital Multi-Strategy London James Caird Asset Management Multi-Strategy London Jefferies Asset Management LLC Multi-Strategy New York, NY K Capital Partners Hedge Boston, MA Kynikos Associates Short Seller New York, NY LionRock Capital Pte Multi-Strategy Singapore Lone Peak Partners Management LP Multi-Strategy New York, NY

Magnetar Capital Partners Multi-Strategy Evanston, IL Man Group plc Multi-Strategy London

Manikay Partners Multi-Strategy New York, NY Mariner Investment Group Multi-Strategy Boston, MA

Marshall Wace Asset Management Hedge London Matrix Group Multi-strategy London

Maverick Capital Hedge New York, NY

Millennium Management Hedge New York, NY Mistral Capital Partners Hedge Boston, MA

MSD Capital Multi-Strategy New York, NY Myriad Asset Management Multi-Strategy Hong Kong Northwest Investment Management Multi-Strategy Hong Kong OM Investment Management Multi-strategy Tampa, FL Orchard Capital Partners Multi-Strategy Hong Kong Pacific Alternative Asset Management Co Multi-Strategy Irvine, CA Paloma Funds Multi-Strategy Greenwich, CT

PAR Capital Management Hedge Boston, MA Paris Capital Partners Multi-Strategy London

Paulson & Co. Multi-Strategy New York, NY Pequot Capital Management* Multi-Strategy Westport, CT

Perella Weinberg Partners Multi-Strategy New York, NY

Permit Capital LLC Multi-Strategy West Conshohocken, PA

Perry Capital Hedge New York, NY Platinum Management Multi-Strategy New York, NY

Polar Capital Multi-Strategy London

Porter Orlin Hedge New York, NY Ramius Capital Group Multi-Strategy New York, NY Round Rock Capital Advisors Co. Multi-Strategy Tokyo RWC Partners Multi-Strategy London

SAC Capital Advisors Multi-Strategy Stamford, CT Sandelman Partners Multi-Strategy New York, NY

Seminole Management Hedge New York, NY

Sigma Capital Management Multi-Strategy New York, NY SkyBridge Capital LLC Multi-Strategy New York, NY

Stark Investments Multi-Strategy St. Francis, WI

Steadfast Capital Management Hedge New York, NY Steenman Asset Management Multi-Strategy 1204 Geneva Talpion Fund Management LP Multi-Strategy New York, NY

Tiger Management Multi-Strategy New York, NY

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TPG-Axon Capital Multi-Strategy New York, NY Trafalgar Capital Management Multi-Strategy London

UBS O?Connor Multi-Strategy Chicago, IL

Visium Asset Management LLC Multi-Strategy New York, NY Voras Capital Management Multi-Strategy New York, NY Wexford Capital LLC Multi-Strategy Greenwich, CT

Xaraf Capital Multi-Strategy Greenwich, CT

Hedge-funds investing in Global Macro Name Style Location

Argonaut Capital Management Global Macro New York, NY Auriel Capital Management Global Macro London Autonomy Capital Research Global Macro London Avantium Investment Management Global Macro London

Balestra Capital Global Macro New York, NY

Brevan Howard Asset Management Global Macro London Cavenagh Capital Macro Singapore Clarium Capital Management Global Macro New York, NY Collard Capital Management Global Macro Geneva COMAC Capital LLP Global Macro London

Covepoint Capital Advisors LLC Global Macro New York, NY Galle Global Macro Partners LLC* Global Macro New York, NY Grant Capital Partners Global Macro Santa Barbara, CA Minerva Capital Management* Macro Hong Kong OGI Capital Partners Global Macro Tokyo Panda Global Advisors LLC Global Macro New York, NY Pilgrim Partners Asia Pte Global Macro Singapore PointState Capital Global Macro New York, NY Principalis Asset Management Global Macro London PSQR Management LLC Global Macro New York, NY

Round Table Investment Management Global Macro Charlotte, NC SemperMacro Capital LLP* Global Macro London SLJ Macro Partners Macro London

Soros Fund Management Global Macro New York, NY Suranya Capital Partners Global Macro Stamford, CT Trigon Investment Advisors LLC Global Macro New York, NY Universa Investments (Black Swan) Macro Santa Monica, CA

Woodbine Capital Advisors Global Macro New York, NY

4.2. Business concept: characteristics of hedge funds compared to stocks, mutual funds and other

Hedge-fund - a private, not limited to regulation, or regulation subject to weaker investment fund is not available a wide range of individuals and managed by professional investment managers. Characterized by special fee structure for asset management, as well as the presence of equity in the assets of the fund manager. U.S. hedge funds are entitled by law to serve only professional investors (qualified investors), with an initial payment of at least $ 5 million to private investors and $ 25 million - for institutional qualified investors. "Unbounded regulatory" means nelimitirovannost nelimitirovannost strategy and margin leverage (leverage). Professional funds in offshore jurisdictions offer a more simplified conditions (capital investment of $ 100,000, and there is no restriction on the equity of the management company).

The activities of hedge funds is subject to less regulation by government agencies, providing freedom of choice in the control tools of the trade, their share in the portfolio, investment strategies, etc.

Hedge funds use the full range of existing tools of the trade: futures, options, stocks, bonds, currencies, bank certificates, instruments OTC market .... It allows you to effectively diversify its portfolio and provides more opportunities to generate income.

Hedge funds use a wide range of asset management strategy: short selling, arbitrage, futures trading, the search for undervalued assets, markets, pricing anomalies, buying shares of companies with commitments to further influence, etc. As a rule, they all have zero or negative correlation with the stock market, ie Hedge funds, unlike conventional funds show returns regardless of whether the stock market is falling or rising.

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The basis of successful hedge fund of knowledge and skills management. They are professionals of the highest class, the elite of the financial market. Only the best fund managers have a chance to perform well for a long time for the entire spectrum of financial instruments and investment strategies.

Risk control - the most important stage of management of hedge funds. Working with a diverse set of asset managers constantly monitor and control the risks for each individual instrument, strategy, and the entire portfolio as a whole.

The remuneration of the management company, as a rule, consists of two parts: 1-2% of total assets under management (as well as mutual funds), and 20% of the profits earned by the fund (only in hedge funds). Thus, there is a convergence of interests of investors and the manager as the main income of the latter depends on the success of the fund.

Hedge funds - a tool for long-term investment horizon of 5-10 years. Accordingly, for the withdrawal of funds before a certain date (usually 3-5 years) are charged an additional commission of 1-3%. The initial investment amount is much higher than in conventional funds, and amounts to 10-50 thousand dollars.

Many hedge funds guarantee its investors a return of initial capital. This means that even if the manager is not able to generate income fund, investors lose their money. Classic Funds are deprived of such opportunities.

4.3. The strategy of the project.

ASH system allows the independent yields for all accounts that use different instruments to trade, as well

as running in various business aspects. The ability to manage tens of thousands of accounts with an independent income - a key factor for any of scalability, ie, strategy is equally functional to invest any amount investments.

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5. ANALYSIS OF MARKET SERVICE. 5.1. Estimating the size of the market and possible trends of its development.

According to the research company Global Alternatives large private investors (which is about 7.1 million with a capital of more than $ 1 million and total assets of 26 trillion. $) Invested: in hedge funds - 82% in private equity funds - 8 % and 5% in real estate and commodity futures. A significant proportion of charitable investments, pension funds and non-profit account for hedge funds (this is especially characteristic for the U.S.). Banks lend themselves as hedge funds and private investors to attract investment to the volume of investments from $ 10,000 to purchase shares of hedge funds.

If we compare this proportion with the banking sphere, it occupies a volume of 25-30 trillion. $ At a lower yield of bank fin. instruments and with a similar level of defaults.

So hedge funds are able, under the same trends, but it is - an increase in assets from $ 30 billion. (In 1990) to $ 1.8 trillion in 2011 (100 times in 22 years) - focus on managing the assets in its banking, family offices, pension funds and charities.

According to forecasts of the consulting firm McKinsey, in the coming years, the influence of hedge funds will continue to grow: by 2012 their assets will grow to 3.5 trillion dollars, and invested money - up to 9.12 trillion dollars. Thus, hedge funds along with funds and Asian central banks welfare will be among the institutions that have the greatest impact on the development of the global financial system. 5.2. Assessment of market share and volume of services.

According to the information portal HedgeCo.Net, now there are about nine thousand hedge funds. Last year, their total assets have exceeded 1.8 trillion dollars. At the same time four hundred and first in terms of capital structures controlled almost 80% of total assets industry. Among the most influential players - JP Morgan Asset Management, Goldman Sachs Asset Management, Bridgewater Associates, DE Shaw, Farallon Capital Management, Och-Ziff Capital Management, Barclays Global Investors, Man Group, Cerberus Capital Management. Most of them - came from the United States.

The volume of services provided depends on returns of hedge fund and less commonly associated with advertising activities, as the yield estimate is carried out by institutional investors. Because of the possibility of attracting investments based on three basic factors:

a) The ratio of return / risk hedge fund; b) the demonstrated stability of profitability; c) Availability of own funds in an asset manager of a hedge fund.

5.3. Market segmentation and identification of a niche service business.

According to the categories of hedge funds, pronounced 10 different types: 1. Hedge funds that combine long and short positions on shares (Long / short equity). 2. Dedicated short. 3. Equity market neutral. 4. Distressed securities. 5. Merger arbitrage. 6. Convertible bond arbitrage. 7. Fixed income arbitrage. 8. Emerging market. 9. Global macro. 10. Managed futures. Strategy "Automatic system of hedging" include the possibility of combining the Long / short equity in

Global macro and Managed futures. Possible coverage of all markets in which it is possible to combine in one instrument purchase / sale.

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6. COMPETITION AND COMPETITIVE ADVANTAGE. 6.1. Comparative characteristics of competitive services.

Many hedge funds use a staff (traders) to trade in different markets. It uses a fairly large amount of money,

because the number of professional traders is limited. Thus, increasing the risks of trading the transactions. Automatic systems are also very common, but they are rarely used in commerce for hundreds of hedging

instruments for trading on one account. Reference: automated trading, as less prone to the human factor is widely used for hedging, for example,

the company RGM Advisors LLC (in Austen, Texas) uses high-frequency trading. The founder of SAC CAPITAL ADVISOR Steve Cohen manages assets of about $ 7 billion that was earned with Scalping operations.

Consider the benefits of the ASH over manual trading. The main advantage - the ratio of labor costs and thus the feasibility of the principle of hedging. Given the

possibility of a person (not using ASH) to control accounts, he was given to the analysis of one currency pair and trading decision making can spend 5-30 minutes. one trading action. ASH, depending on the speed of the computer is a complex calculation of a single instrument within a fraction of a second, making a day on one bill from 500 to 1,000 transactions.

The decision regarding the trading activities, the complex calculations that take into account a comprehensive account status, opportunities for trade for each instrument separately, under the full control of ASH. The human factor affects only the installation of the correct input parameters (which can not be determined automatically), the moment of transition from active to passive trading (at the end of the trading period), the control over the need to involve the stabilization fund.

Cumulative comparative table of the effectiveness of trade

Bidder Accounts

Accounts of currency

pairs on an account

Trading on an account Total trading

The human factor in an

account

resource- expensiveness (200 accounts)

Тrader 5-10 5 10-20 200 20 bargain. decisions every day

20 computers

ASH+ multiterminal+

Тrader 1000 100 500-1000 200 000

2-1 bargaining. solutions for

the entire auction. Period

4 Comp. (1 per

50-100 of accounts)

Advantage 1:100 1:20 1:50 1:1000 1:300 1:5 The average final advantage on all counts - ASH (under the supervision of the trader) trader works more

efficiently at about 300 times, and taking into account the reduction of trade risk, the rate can increase efficiency by 5-10 times (depending on the size of the initial capital in the accounts of the trader).

In the implementation stage "Systems network control, global reporting and security ASH" (MultiTerminal), through which can be centralized to notify the Comptroller of accounts (100 to 10 000), as well as in-depth analysis of trade and create a common reporting. The system is also designed to protect accounts from unauthorized or accidental interference with trade.

6.2. Comparative characteristics of competing firms.

Feature of competition in the market for hedge funds is:

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1) Lack of competition on the fact of trading strategies (especially on the global macro).

2) The competition is based on the yield and accumulated image stability.

Closest to the niche occupied by the business - a company Sac Capital Advisor, and "Renaissance Technologies". They also form the basis of return on their automation systems. Profitability of these companies below the stated yield hedge fund, but their advantage is the high image stability.

In addition to these facts, the market of hedge funds in attracting new investment is growing and competitive services can be able to attract new investment clients without the need to adopt competing companies.

6.3. SWOT-analysis of the company. The positive impact The negative impact

The internal Environment

Strengths (project properties, or the team, giving advantages over others in the industry): 1. No need for a large staff to monitor tens of thousands of accounts. 2. The desire to replenish the command of knowledge in the field of know-how, trade and the desire to explore new opportunities to attract investment and Fin. lending.

Weaknesses (properties that weaken the project): 1. Small group experiences in the creation of international relations. 2.Reassessment of their own knowledge regarding the understanding of the complexity of financial models in global markets.

The external Environment

Opportunities (external apparent factors that provide additional opportunities to achieve the objective): 1.Of great interest from private investors to profitable hedge funds. 2. Number investvlozheny in this area continues to grow and has not yet reached the point of stability.

Threats (external probable factors that can complicate the achievement of the goal): 1. Crisis of global proportions that do not give fulfill duties with investors and counterparties.2. Bankruptcy prime brokers.

17

7. RISK-MANAGEMENT. 7.1. Trade (market) risk.

Typical errors of market hedge funds, for that matter, and other forms of investments is an attempt to "predict" the direction of movement of assets (stocks, bonds and other instruments). Examples of this Amaranth Advisors, Bailey Coates Cromwell Fund, Marin Capital, Aman Capital, Tiger Funds, Long-Term Capital Management (for more on errors of these funds in the 13.8. Еrrors of hedge funds.). Wishful thinking - is to lose a large part of the capital, as happened with these hedge funds. The strategy used by ASH, is not focused on a specific orientation of the movement of assets, and is focused on making a profit from any direction of the tool (long / short strategies).

In any automated system is a key parameter stability: the system should not be omitted due to the critical difference between equity and balance. For this is the internal settings of protection:

1. Depending on the appearance of a lot of orders over a certain value includes tracking and, if the balance of equity = - close all open and pending orders.

2. If the equity <20% balance included a ban on opening new units.

3. If the equity falls below the level of Risk by 10%, all open and pending orders are modified in such a way that the closure orders on the take occurred at a lower price movement (ie, faster).

4. Profit. Another way to reduce the risks - it is shutting down all orders that are open for a specified trading period, by the smooth end of trade. That is, after the termination of the period of active trading, the system switches to the passive trade, when all blocks are installed gradually over two to three weeks, and closed with a profit is the difference between equity and the balance goes smoothly to zero (no sagging balance sheet.)

5. The most basic way to protect against losses - a multi. The advantage of this moment is also the fact that all other methods of protection work independently on each of the pairs. Also, the possibility of getting into a price range in which the price of long-term "frozen" - is reduced by the amount of currency pairs.

6. Time-based strategy further reduces the possibility of entering orders in the long range of movement rates and makes it possible to make a profit even if nizkovolatilnyh movements of the instrument.

7. The optimum ratio of active and passive trading. The study of this relation to the accounts of dozens made it possible to optimize the trading periods and create an additional system of protection against trade risks.

During the entire cycle of trafficking used two trading strategies associated with a profit: a) from the small movements of currencies for a short period (the ratio of transactions and profits with the

minimum - that is, a lot of deals and a small profit on each transaction), the chart - this is the first 7 days;

18

b) on the major movements for long periods (the ratio of transactions and the maximum profit - that deals a little, and profits - large), the chart - from the 15th day of trading.

Thus, for 8 to 14 trading days there is an almost complete absence of transactions and profits associated with the fact that the 1st strategy exhausted, and on the 2nd - they have not yet occurred.

As you know, the less the period of active trade, the less prone to risks of any account. Thus, without loss of efficiency during the active trading can be reduced to terms of an effective trade strategy for the 1st or even less, ie, 1 (one) working day. This method also allows the optimization of trading periods, ie reducing downtime local yield, which is equivalent yield is not forgetting. Also, this method combined with the integrated software of the bank (providing transaction between accounts) and Multiterminal ON ASH, will provide an opportunity to use the unused funds in the accounts (in the transition from active to passive trading) due to the dynamic change of number of instruments used and the size of the account.

8. Dynamic tracking the ratio equity / balance on all accounts and automatic transaction of funds between accounts to maintain the same ratio.

9. Using arrays to determine the set rates for each of the accounts makes it possible to reduce the frequency of tools consistently running accounts.

10. It is advisable to consider ways to prevent a margin call one or more accounts. If the equity falls, say to 80% on the balance, you need to add to the expense of 30-50% of the balance (this figure is set for the stabilization fund). The necessity of this addition is calculated before the onset of the ASH price level when the bill may be lost.

The reasons for the possible situations that require the use of the stabilization fund - a very long period of movement within a wide range (not the price movement in a certain direction, namely a wide range of limitations, output prices from a wide range brings equity to the balance sheet). Again, to achieve such conditions, all previous methods of protection reduce the possibility of occurrence of such situations to insignificant interest. Practice shows that the decrease in equity on the balance does not exceed 20-30% during the trading period.

7.2. Administrative (organizational) risk. The main causes of administrative risks - it is an authority to manage risk and cash flow control in one

person. Because the proposed organizational model to manage a fund, these functions are separated, the administration risks can be offset.

Negative example, when these positions were combined in one person, it's Nick Lisson, the collapse of one of the most stable banks in the history of Britain - "Barings". His strategy is also indicative in the sense of lack of hedging items - dependent on the movement of one instrument (he has put on the Nikkei 225 index) and the dependence on the direction of the market (he has put on growth).

Hedge funds are secure and transparent investment business. As strange as it may sound for a weakly regulated company in the Cayman Islands, but the credibility of qualified investors in such hedge funds are not less than the usual regulated mutual funds. It is based on a system of independent contractors who work with hedge fund on a commercial basis. In the hedge fund, that is, investment structures, including the management company and the fund, there are at least five reputable auditors partners: the bank, custodian, administrator, prime broker, auditors and legal counsel. Some contractors (eg, prime broker and custodian) interact with each other, administrators monitor daily performance, liquidity, etc. In any action inconsistent control signal is input to investors and partners, and with the active development of the institution of the independent risk management falls under the control and the implementation of the strategy itself.

In other words, to organize a fraudulent scheme in this case is almost impossible. If you have any suspicion of a counterparty leaves the scheme or simply initially refused to cooperate with the Fund, as the reputation it more expensive. So if you intend to deceive investors to create the classic structure of a hedge fund simply does not make sense.

7.3. Political and currency risks (the risks of incidence of the underlying assets). The main factor of political risks are the risks of incidence of the underlying assets (this is the currency

which is the basic input / output in the accounts of the broker). There is a complete solution of such risks. At a certain agreement with a broker can also provide additional revenue (amounting to 1-2% per month) due to the implementation of protection against these risks.

19

Addressing these risks is to ensure that all open accounts at the broker had:

1) his base currency (7-10 major currencies separately on each of the accounts);

2) the opportunity at the end of the trading period change the base currency at the current rate for the currency, which fell for the current period relative to the base currency of the course - see details in paragraph 4 of the Business Plan "strategy trades" (§ § Specification for Prime- broker).

Thus, the dynamic change in rates will provide additional revenue and hedging political risks. In the event of a significant drop in one of the base currency for the current trading period by 15-20% relative to other currencies, the availability of the list of underlying assets is 7.10 neutralizes rates drop to 1.5-2%, which did not significantly affect the profitability of the trading period.

It is also possible the combination of this strategy using options to hedge the risk of incidence of the underlying assets.

Another example of the indigenous influence political decisions on the exchange rate was demonstrated to September 6, 2011 the Swiss Central Bank, when he tied the Swiss franc (CHF) to Euros (EUR) - see Fig. A. Following this decision a couple EURSHF volatility was significantly reduced by the infusion method of the Central Bank. Such a situation is not a risk for ASH, because:

1) is used to hedge a few dozen currency pairs;

2) The profitability of the system is extracted from both the volatile movements of currency pairs, and from nizkovolatilnyh;

3) In the case of excess volatility of the spread of a share of the pair, it is automatically disconnected from the trade and open positions are closed after a certain time.

An example of a situation on the currency markets - the uncertainty of investors about the course "Eurodollar" in connection with the expected default dollars August 3, 2011 - see Fig. Two. As a result of this uncertainty, there was steady movement of a wide range.This character of the currency pair exchange rate movements is also not critical to thetrading strategy ASH:

1) In case of exceeding the threshold of one pair of lots, the remaining pairs compensatethe destabilization (described in more detail in a trade risks);

2) The presence of time-strategy provides a minimum percentage of open orders fallinginto similar price ranges.

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7.4. Natural, technical and production risks. Natural, technical and operational risks - partial or complete destruction of office equipment, which is

designed to solve the trade problem. These risks are offset by the use of VPS-servers. The software (settings of trading accounts) during the installation on office computers simultaneously duplicated on separate VPS-server. In case of violation of the office for more than a few hours and the inability to transfer work to another office, includes a remote trading terminals in the VPS-servers. This is a temporary solution to provide virtually uninterrupted trade, regardless of the risks.

7.5. Technical risks.

Technical risks are associated with several factors: a violation of Internet communications, power failure,

equipment failure (PC).

Violation of Internet connection

Solved by the presence of all computers connected to two independent providers. In the event of power

failure - and an additional fixed-connection basis on each computer with a modem (telephone operator).

Violation of the power

In order to prevent short-term (up to 2 to 4 hours) of power outages to trade should be used laptops. For

long trips should be provided for equipment (generator) to maintain power for a few days.

Breakdown of equipment (PC)

Solved with the help of preset settings for all accounts on one server. In the event of failure of one of the

computers efficiently incorporated into the same trading account on the server.

Note: in order to verify the degree of dependence ASH-fault connection, power failure, equipment failure

due to a run for nearly a month on the principle - the power is only a third of the total trading time. The results are

as follows (see picture):

1. Disconnections hardly affected the balance of growth trends. That is, special subsidence is observed

2. The growth of the balance is less than planned for a given set of currencies and CFDs (65).

Conclusions: The system is stable with technical faults, but with lower profitability.

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7.6. Operational risk. Examples of professionalism in the actions of traders can lead to significant losses, because the use of

automated trading with ASH and multiterminalnogo software system will provide a significant proportion of protection against these risks (for details see Section 7 of the Business Plan, "The advantages over manual trading ASH").

Historical examples of professionalism in the actions of traders:

London's FTSE100 index fell 2%, when a trader is one of the brokers sold the shares for 300 million pounds instead of 30 million

A more comical story is connected with Salomon Brothers, now part of Citigroup. In 1998, a trader of the company unwittingly sold the French government bonds worth 850 million pounds. The thing is that he inadvertently leaned against the keyboard, thus pushing some "unnecessary" buttons.

7.7. Legal risks and risks of conflict of interest. The primary brokers, which typically interact with hedge funds, have a high reputation. Nevertheless, the

risk of nonpayment by the broker of positive trading results and solve a technical and legal methods.

Techniques (warning and monitoring):

1) Connected, the terminal hangs.

Short breaks connection to the server are reflected in the results of trade with ASH only indirectly, if they are limited to a few minutes. These cliffs are mainly affected the speed of updating currency pairs (a change of control for them). Low speed operation can significantly affect profitability.

2) Submission of quotations of poor quality: this includes an increase in spreads is not provided for in the contract, gaps (gaps between the candles), candle drawing nonexistent size of several hundred items, etc.

The size of gaps, drawing candle does not have any significant effect on the account, can only boost their profits. Growth spread above a certain value to the minimum can be fixed with the help of ASH and inform the broker of non-compliance of contract (in which the prescribed limits of these changes). For candles, having a size above a certain value is the control for all currency pairs with a periodicity of 7-15 seconds, which is the appearance of a candle can immediately track and in the absence of connection between these bursts with real quotations (including by comparing quotes from other brokers) may apply to the broker for an explanation.

3) Third party broker closes the open orders.

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In the case of closing the deal were not from the terminal, ASH tracks incident intervention.

Legal techniques

A properly executed contractual relationship with the broker that clearly specified trading terms (commission, a range of changes in spreads, etc.) as well as the choice of a broker who is not tarnished its "name" of fraud, minimize legal risks. If you have any problems with the West by the broker can make a complaint to the Commission Commodity Futures Trading http://www.cftc.gov/ or the National Futures Association http://www.nfa.futures.org/. If there is evidence of violation of its obligations broker may fines million.

Examples of recent incidents are quite revealing:

Alpari Ltd Company in the spring of 2010 was fined by the Financial Services UK - FSA to 140,000 pounds for the lack of control by the company for money laundering by their clients.

Brokerage company BroCo Investments was fined by the Securities and Exchange Commission USA (SEC) in the amount of $ 1.3 million. Russian broker accused of manipulating the quotes, and breaking into customer accounts.

The use of market access through the prime broker, who often value their prestige, to avoid legal risks, and control all elements of the trade with ASH - to reduce those risks to zero.

7.8. Liquidity risk. Risk arising from the sale of an existing asset. This type of risk means the inability to quickly implement an

asset without significantly reducing the cost. The main measure of market liquidity is the difference between the purchase and sale (the so-called spread).The value of the spread depends on the volume of trading financial asset in the market.The smaller the value of trading volume, the greater the spread. Therefore, before starting to trade in a test mode ASH excludes trades less liquid instruments (currency pairs and CFD): all of the tools that have spread in relation to the average daily volatility of the above 1:10 (1:7 for example) are excluded from the trade as ineffective. The same thing happens in the trading process - a tool can be excluded from active trading after the start of the trading account.

7.9. Transaction costs. Access to different markets (in different countries) by PRIME-broker (and legal guardians and powers

custodian bank), thereby reducing transaction costs and difficulties associated with the need to monitor multiple accounts, etc.

7.10. Counterparty risk. After the bankruptcy of Lehman Brothers investors realized that no one, even the largest prime broker, is

not protected from bankruptcy, and began to actively put their money in different primary brokers, reducing the risk of the counterparty.

There are several reasons for the active use of multiple prime brokers: • First, the financial crisis and the bankruptcy of Lehman Brothers have set the task of hedge funds to

diversify counterparty risk: it is clear that if you have multiple primary broker, you can quickly share and transfer their assets between them.

• Second, for those hedge funds that need to securities lending by their primary brokers, the presence of multiple primary means brokers can access various sources of borrowing, covering the necessary range of securities with a choice of "best" price.

• Third, an additional primary brokers allow you to use additional sources of funding, thereby reducing the risk of financing.

• Fourth, the "new" prime brokers may offer some services which did not have the "old" or that broker provided on less favorable terms.

To date, large hedge funds have a 5 to 10 primary brokers. Therefore, the original term "primary broker» (prime broker), in the sense of principal, principal, sole (meaning primary broker), no longer reflects its original essence, since hedge funds are working with multiple prime brokers.

Thus, to solve the counterparty risk, cooperation with several prime brokers.

23

8. THE ORGANIZATION OF FOREIGN ECONOMIC ACTIVITY OF THE FIRM

8.1. Organizational maintenance of international relations.

The output of transnational markets is through technological cooperation with the Prime Broker.

Technical requirements for Prime-broker:

1. A sufficient number of instruments for hedging (over 50). Trading tools that can be used to hedge:

• currency pairs - all except for those that do not meet the principles of trading strategies, most often spread with commensurate volatility pairs. In case of failure ASH currency pair, it is a transition into the category of passive trade until the close of all orders (after the trade is automatically terminated on the inefficient instrument).

• CFD (Contracts For Difference - CFDs): CFD INDICES (major stock indexes), CFD GRAINS (wheat), CFD MEATS (meat and poultry), CFD SOFTS (coffee, cocoa), CFD CTOCK (U.S. stocks) CFD ENERGIES (energy: oil, petrol), CFD BOND (government bonds), CFD RUS (Russian stocks), CFD METALS (metal).

• Futures (futures) - provided that the duration of the futures contract exceeds the trading period.

Note: The technical requirements of efficiency, determined automatically apply to all instruments. The number used on one account and the instruments depends on the speed of the terminal broker - the smaller requotes, breaks communication with the server, the more it makes sense to use the tools.

2. Minimum lot size - 0.01 (no more), the maximum lot - 10 (no less), or in a ratio of 1:1000. For the CFD - minimum lot may be 0.1.

3. The number of open and pending orders - no less than 200. Minimum number associated with the number of CMV-used tools, such as 50 instruments: 50h8 = 400 (orders).

4. Terminal "MetaTrader-4" of "MetaQuotes Software Corp."

Five. Ability to set countervailing orders (long / short).

6. The size of the shoulder 1:100-1:500. Can trade with any shoulder, but the effectiveness of the strategy (profitability) depends on the size of the shoulder. The minimum level of leverage for the most efficient trade is automatically determined for each instrument, and may be issued in the form of a tabular report on the stage of checking the validity of trading conditions.

7. The presence of an automatic (configurable) of transactions between the accounts of the investment pool. The system features:

a) automatic transactions between trading and reserve (stabilization) accounts managed by the signals emanating from Multiterminal ASH;

b) Management of foreign exchange operations on the SPOT-market stabilization fund by using the system Reuters SPOT / FWDS Matching, connected to the "ASH-Arbitrage."

8.2. Economic support of international relations.

Custodian will charge a fee (per transaction) between 0.05% and 0.10% of total NAV or transactional

basis. It can also be set a minimum threshold of payment.

Prime brokers also establishes a commission depending on the size of the order.

24

9. THE STRATEGY OF THE MARKETING PLAN. 9.1. The overall marketing strategy.

Short term plans:

1-3 months: the creation of legal and financial framework for trade in global markets.

3-15 months: the accumulation of good trading history.

Medium-term plans:

1-3 years: audit the results of trade, bringing the results of additional investment from private investors.

Long-term plans:

3-10 years: the expansion of effective strategies for different markets. Attracting investment from institutional investors, banks and pension funds.

9.2. Pricing.

In world practice, set fees for the services of a hedge fund. They consist of an entrance fee, management fee and the fee for the result.

Entry fee - can vary up to 1% for other investors and is required to complete necessary legal documents and additional office equipment technology.

Management fee (% of capital) - 1-2% of the managed capital (before the trading period) and divided between the Fund and the Management Company.

All costs for contractors (bank-custodian, prime broker, administrator, auditor and legal counsel) are usually borne by the fund. S / n, office and other expenses (including an investment adviser) associated with the management takes care of the Management Company.

Success Fee (20% of profit) - paid monthly by the Management Company on the fact of making a profit. Remuneration for the result can be withdrawn from your account without interrupting trade, as a percentage of the removal of 1-2% the size of the account balance does not affect the trade and would not require reconfiguration of Automatic hedging.

9.3. Tactics of implementation services to investors.

1. With the potential investor held a presentation of services provided by the hedge fund and its

counterparties. 2. The investor signs the investment memorandum (Offering memorandum), and, if necessary, the

insurance risks of trading with counterparties. Investment memorandum is signed for one year and may be extended.

3. After that transaction in the investment accounts of the hedge fund custodian bank. 4. Through the system of foreign exchange transactions received by Reuters Investment divided

by 10 or more accounts with different base currencies. 5. Further, the Management Company account connects to the trading system, Prime-broker or

multiple brokers according to Prime-entry plan for investment (displayed in the Investment Memorandum).

6. In any moment of shopping can be displayed from the sale of investments. In this case, the possible loss an investor incurs. In addition, the investor pays a fee for CC lost profits amounting to 5% of the investment.

7. If an investor wishes to stop the trade in accordance with the investment strategy, its funds for 4 months will be refunded an amount equal to the embedding.

25

8. In a year when investment memorandum will not be renewed, the investor returns the sum of investment + income received after deduction of all expenses: entry fee, management fee, the fee for the result.

9. During the year the investor's costs (management fees and compensation for the results) are taken from the returns received from investment.

9.4. Warranty Policy: Methods of Insurance Hedge-fund may use internal and external resources of insurance transactions. Internal resources: 1. The use of the stabilization fund (from 10 to 30% depending on the decision of the investor). 2. Using a complex dynamic changes in the balance of accounts (depending on changes in equity on

account of the investment pool). External Resources: 1. Insurance risks of trading companies with contractors. For example, "Miller Insurance Services Limited

2012" http://www.miller-insurance.com/specialist_areas/professional_executive_and_financial_risks.aspx insures commercial risk.

2. The formation of the legal elements of the guaranteed hedge fund (GHF). Most of the guaranteed funds are arranged on the same principle: the part of the invested funds used to

purchase guarantees the return of investment capital, and the remaining funds are invested to produce income (see the figure.). Also, for security in the GHF used options strategies.

9.5. The point of payback.

The hedge fund is not a manufacturing company, for break-even point can not be calculated for him. But

the point of the project payback (when profits exceed the projectcosts are spent) depends on the size of the initial investment.

Take, for example: 400 thousand, a million and 10 million: MONTH 0 1 2 3 4 5

BANALCE (at the end of month) 400000 372312 386352 400932 416073 431796 one-time

costs Registration of hedge fund -35000 0 0 0 0 0

Office costs -5800 0 0 0 0 0 variable costs Management costs -4000 -3723 -3864 -4009 -4161 -4318

Transaction and other costs -355 -372 -386 -401 -416 -432 fixed costs Office costs -262 -262 -262 -262 -262 -262

Balance (at the beginning of month)

354583 367955 381840 396260 411234 426784

26

400000

-40000

-30000

-20000

-10000

0

10000

20000

30000

40000

1 2 3 4 5 400000

MONTH 0 1 2 3 4 5

BANALCE (at the end of month) 1000000 993041 1030908 1070231 1111067 1153472one-time

costs Registration of hedge fund -35000 0 0 0 0 0

Office costs -8000 0 0 0 0 0 variable costs Management costs -10000 -9930 -10309 -10702 -11111 -11535

Transaction and other costs -947 -993 -1031 -1070 -1111 -1153 fixed costs Office costs -300 -300 -300 -300 -300 -300

Balance (at the beginning of month)

945753 981817 1019268 1058159 1098545 1140484

1000000

-20000

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

1 2 3 4 5

1000000

MONTH 0 1 2 3 4 5

BANALCE (at the end of month) 10000000

10311427

10707102

11117990

11544676

11987769

one-time costs

Registration of hedge fund -35000 0 0 0 0 0

Office costs -34000 0 0 0 0 0 variable costs Management costs -100000 -103114 -107071 -111180 -115447 -119878

Transaction and other costs -9831 -10311 -10707 -11118 -11545 -11988 fixed costs Office costs -762 -762 -762 -762 -762 -762

Balance (at the beginning of month)

9820407 10197240

10588562

10994930

11416923

11855141

27

10000000

0

500000

1000000

1500000

2000000

2500000

1 2 3 4 5

10000000

The point of return for the investment amount in nearly 10 million comes in the 1st month of trading. At the start of trading depends on the speed of processing of legal issues: 1) Making jur. documents the hedge fund. 2) Formation of external economic relations with the prime brokers. The possibility of removal of funds from trading accounts occurs within 1.5-2 months fromthe start of

trading. Thus an investment of between 1 million and above give coherencetime of return and trading strategies of the system.

The point of return to investors, investing in an already-formed hedge fund, is 4 monthssince the launch of investment in trade (according to the investment memorandum.)

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10. ORGANIZATION AND MANAGEMENT PLAN. 10.1. Business calendar: the creation of a hedge fund. Gantt chart.

MonthsWeeks 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

anufacturing matters:office.

cting to the office of the alarm system.tallation of office equipment, furniture and

ationary power systems.cting to a 3rd independent providers of

net-Network.cting to the Reuters system.

estions for personnel: set of qualified personnel.raining of staff to the principles of monitoring and

mpliance reporting ASH.raining work on Reuters.ormation Questions:Setting up "the system network control, global porting and security ASH".

etting up interaction with the software ASH prime oker and Reuters.gal Questions:egal registration of hedge fund and management

mpany (see section 13.4).tration foreign economic relations and

ntracts with prime brokers, auditors and ministrators.udit.

ading:Realization trade operations.

5 6 7 8 1 2 3 4 13 14 15 9 10 11 12

M1. Rent an 2.Conne3.Insst4.ConneInter5.ConneQu1.A2.Tco3.TInf1. re2.SbrLe1.Lco2.Regiscoad3.ATr1. 2.Reporting.

29

10.2. The organizational structure of hedge fund counterparties and services.

INVESTMENT

(money, valuable securities, other assets)

INVESTMENT MANAGER (operations)

BOARD OF DIRECTORS CUSTODIAN BANK (deposit of assets)

AUDITOR HEDGE FUND INVESTMENT ADVISER

ADMINISTRATOR (accounting)

SUB-BROKER 2

PRIME BROKER (access to markets, trading platforms, loan to the fund)

SUB-BROKER 1

LEGAL ADVISOR

THE MARKET (stocks, bonds, futures, currencies and other instruments)

It is quite possible to do a simple structure, in some cases, for example, there are funds for a limited of

number of investors who may not be so cumbersome. Also features custodian bank often does Prime Broker.

The sponsor / owner of the fund Sponsor, often a major participant in the hedge fund is its creator. As a parent he becomes the primary or

sole holder of voting shares through which control is exercised over the activities of the board of directors. Voting shares, as a rule, do not give the holder the right to a share of the profits derived from investment of the fund. In addition, the sponsor may be one of the investors and as such holds equity stakes in the form of non-voting shares that are entitled to profit participation fund.

Board of directors On the board of directors of hedge fund charged with the function of control of all aspects of its activities.

The Board of Directors oversees the activities of the investment manager and other professional firms providing services to the fund. Its mission also includes conflict resolution, when the shareholders' interests are in conflict with the interests of the investment manager. The Board of Directors approves the remuneration of the manager, appoints independent auditors, as well as selects the key agents that will serve the hedge fund. Although these duties are often represented a mere formality, and ideally the board of directors of hedge fund shall consist of the most respected professionals in the financial or legal field, whose task is to prevent fraud or illegal acts on the part of managers. Board members are personally liable up to the criminal, for the observance of the principles and rules of the fund, stated in the investment memorandum.

The board of directors and may include the owner fund. Investment Manager Investment Manager is a management company, which uses the funds accumulated in hedge-fund

investment, according to investment strategy, taking concrete investment decisions for its implementation, as well as taking the lead in the operating performance of the fund.

Typically, hedge fund manager is the owner or part owner, and manages its own funds.In the hedge fund industry adopted a fee structure 2/20, that is, the management company receives a percentage of fund assets for the management (Management Fee, typically 2%) and the percentage of the result (Success Fee, usually 20%). Opening and maintenance fund is quite expensive, so the Management Fee is usually completely spent on registration fees of all contractors, office personnel, marketing, etc.

Investment adviser Attracts investments in hedge fund and interacts with customers. Hedge funds voluntarily provide

information about their activities to specialized news agencies, as they are forbidden to advertise themselves

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among ordinary investors. Qualified investors use to search for and selection of hedge funds such sources as the "Bloomberg", specialized databases and platforms such as Hedgefund.net largest investment banks.

Legal Consultant Sometimes they can be an administrator. Responsibilities consist of a consultant to comply with the

requirements of regulators, contracts with the investors and the decision of other legal issues. Bank-Custodian In the role of hedge fund custodian should serve a large bank with a good reputation in the function of

which is, above all, keeping the assets of the investor, ie, securities and cash. In some cases the custodian does not have them in reality, it just takes them to the balance of a central depository system of the country in which located. Custodian may also engage in conduct and execution of transactions, but this function is actually more often goes to the primary broker. Custodian also prepares reports on the transactions that pass through the fund, and sometimes it can check compliance with investment policy manager stated in the charter of the fund objectives.

Administrator The main function of an administrator is to determine the fund's net asset value (net asset value - NAV).

Calculation of NAV, as a rule, the date of subscription for shares of the Fund or the repayment, which usually falls on the first working day of each month or the next day at regular intervals, usually within a month. For some funds with greater liquidity (eg, CTA) NAV calculation is carried out weekly and even daily. Essentially, the activities of the administrator is to determine the value of the Fund regardless of the investment manager. Most administrators also perform several other functions, including preparation of financial statements, paying bills, sending reports to shareholders, the coordination of investor relations, etc. Often, the administrator assumes the tasks of the paying agent, which holds the subscription for shares of stock and repay them, and distributes profits to shareholders. Administrators are usually licensed by local regulators, and are responsible for their work.

Auditor The auditor shall audit the financial statements of fund accounting rules and financial regulations.

Typically, the fund conducts an audit of its accounts on an annual basis. The presence of an auditor - a necessary condition of the hedge fund as an auditor without other agents, and service companies are unlikely to agree to serve. Availability of audit as a prerequisite for attracting investment.

In the event of an audit - it may be such famous companies such as KPMG, Deloitte, etc. For example, a global company "Ernst & Young" (http://www.ey.com) carries out an audit of financial

statements in accordance with International Financial Reporting Standards (IFRS) and national standards (US GAAP, the Russian Accounting Principles).

The prime broker If conventional brokers simply spend one-off transactions of hedge funds, prime broker takes a much

broader set of functions. In the role of prime broker acts as a rule, an investment bank with a worldwide reputation (Morgan Stanley, Goldman Sachs, Merrill Lynch, Bear Stearns). Since the structure of such a bank and brokerage company located, and trading unit, and operating office and management company, it is able to provide hedge funds at the same time a range of services. Thus, the brokerage division conducts transactions of hedge fund or redirects them through a broker, which selects hedge fund, and then closes the deal and will report to the custodian of it. In addition, the primary agent and he often acts as a custodian. The management company may provide prime broker hedge-fund shares in debt. In addition, the primary broker provides hedge fund leverage.

10.3. Summary of key executives.

KSENDZOV ОLEKSANDR

31

28/09/1977, married, two daughters. Experience in building software: 2000-2006. Creating a system morfosinteza the Russian language. Development and registration of copyright in the program "A collection of texts and illustrations." Licensingauthoring program (SBU License and License Min.ekonomiki Ukraine). 2006-2011. Development of a mathematical model of the global market laws. Creating"automatically hedging" strategy and management, providing risk-free trading in global markets. Tasks in the project: investment manager.

TSURKAN MAKSYM 08/07/1986 unmarried. Education: Southern Branch «Crimean Agrotechnological University" National Agrarian University, Faculty of accounting profession - accounting and auditing. Courses on management of tourist business. Courses on Internet trading. Experience: 2007-2008. Internship in England. 2008. SC "Crimean Wine House» Ltd. «L'EMPIRE DU VIN». Manager to manage material flows of materials main production warehouse. 2009. LLC "Kaczynski." Organization of accounting. Development of standards for wages. 2010-2011. Commodity-accountant jewelry network, "Silver Star" (UKRZOLOTO)

32

Duties: Work in 1S 8.2 "Management Accounting": recording and analysis of the TMC, the primary accounting, record keeping, discount programs, interaction with various parts of the central office and the entire chain of stores "Silver Star". 2011-2012. The official representative of the broker "InstaForex". General skills: driving license categories A, B, C, English (fluent), Ukrainian (fluent), 1C: Accounting 8.2. Tasks in the project: Investment Advisor.

10.4. Other investors. Investors put their money into the fund in order to make a profit. Usually they do not have the right

to vote (voting shares), and vote with their money, or bringing them to the fund or taking back. 10.5. Duties of directors and staff of the management company. Investment Manager:

1. Alignment with the investor some points of the memorandum of the investment: a plan of capital input into the scheme hedged trade, inventory hedging instruments (currency pairs, etc.), the optimal size of the stabilization fund.

2. Setting up a stabilization fund management. 3. Organization of round the clock monitoring of trading activities in the accounts of investors, and

analysis of the changes in the accounts of the investment pool. 4. Sending a test report on the accounts of the investor of the investment pool. 5. Trading decisions and setting ASH under trading conditions the broker. 6. Personnel matters. Investment Advisor: 1. Attracting investment / loan to the fund. 2. Dealing with financial issues of interaction with the counterparties: prime brokers, custodian bank, the

administrator and the auditors. 3. Bookkeeping Management Company.

Legal Counsel: 1. Monitoring compliance with the requirements of regulators. 2. The conclusion of contracts with investors. 3. The decision of legal issues of cooperation with banks, prime brokers, and others.

Programmer: 1. Configuration and control of serviceability of the equipment and software. 2. Setting up "The system network control, global reporting and security ASH". 3. Setting up interaction with the software ASH prime broker and Reuters. 4. Providing information security management company, designing and creating complex information

security systems (KSZI) for the OID (object information activities), writing a threat model (description of the channel information leaks, and their elimination).

Supervisors (4 people): the control and maintenance of Multiterminal ASH. 1. Undergo preliminary training on demo accounts. 2. Lead round the clock monitoring of accounts. 3. Trading decisions are not taken. Report a need for intervention in trade investment manager. 4. Control of constant power and Internet connections. 5. Monitoring the effectiveness of interaction with the software ASH prime broker. 10.6. Hiring and bonus system. Hiring of staff will be through the media (newspapers), as well as with the "Employment Center". The system of bonuses and changes in employees' salaries will be commensurate increase in the

net profitability of the company.

33

11. INVESTMENT PLAN: STRATEGY AND SOURCES OF FUNDING. 11.1 Sources of funding.

Potential investors of hedge funds: • high net worth individuals; • financial advisors; • wealth-management offices and RIAs; • single- and multi-family offices; • fund of hedge funds; • corporations; • foundations and endowments; • pensions; • sub-advisory relationships; • banks.

Consider for example the ability to attract capital in a hedge fund formed by the leading European

banks: Swiss bank UBS Under the direction of Wealth Management Bank offers wealthy clients with services to build an

investment portfolio, which may include investments in hedge funds. The website of the bank the possibility of such investments are as follows:

"Hedge funds can generate an attractive return over the long term. They have a relatively modest level of volatility in the capital and most of them have the means to produce positive results even in falling markets. In addition, hedge funds portfolio confer resistance and improve its performance in the ratio yield / risk. "

The Management Company UBS Global Asset Management A & Q is recognized as one of the largest investors in the shares of hedge funds.

Swiss investment bank Credit Suisse The Bank offers its customers a wide range of services to build an investment portfolio, built on the basis

of the strategies of hedge funds. Credit Suisse has established links with many hedge funds and can offer its customers as investments in single hedge funds, and multiple strategies of hedge funds.

Credit Suisse calculates and publishes its own index of hedge funds, Credit Suisse / Tremont. The bank allows customers to build an investment portfolio based on its index.(Https://www.credit-suisse.com/us/hedge_strategies/en/index.jsp )

Credit Suisse is the largest investor in hedge funds and attempts to expand its business through the acquisition of investment companies, managers of hedge funds (http://old.k2kapital.com/news/fin/696365.html ).

French investment banking group Crédit Agricole In August 2009, the investment arm of the group, Crédit Agricole Asset Management (Caam), has a

running fund of hedge funds of $ 14 billion, said it was going to jump on the platform of managed accounts. (Http://www.hfmweek.com/news/255892/crdit-agricole-turns-to-managed-accounts.html )

HSBC London HSBC also provides services to wealthy clients to build portfolios based on alternative investment

instruments, including hedge funds. The bank and hedge funds are among the major players in this market. The Management Company HSBC Private Bank is recognized as one of the largest investors in the shares of hedge funds. HSBC also offers prime brokerage for hedge funds.

(Http://www.hsbcprivatebank.com/services/alternative-investments.html) French Societe Generale In the area of private banking offers customers a portfolio of services based on the formation of hedge

funds. (Http://www.privatebanking.societegenerale.com/our-expertise/hedge-funds.html )

34

Irish Anglo Irish Bank The direction of the bank's private banking offers to invest in alternative investments, including, and hedge

funds. (Http://www.angloirishbank.ie/Wealth_Management/Investment_Services/ ).

11.2. The strategy of attracting funding.

In order to attract additional investment in a hedge fund, you must earn a "historical performance". An audit of the company (Die Dillegence) at the end of the first reporting period (1 year), as well as advertising makes it possible to attract the attention of investors on the basis of historical data.

Hedge-Fund may advertise themselves in specialized media outlets, as advertising among ordinary investors is prohibited. Qualified investors use to search for and selection of hedge funds such sources as the "Bloomberg", specialized databases and platforms such as Hedgefund.net largest investment banks.

35

12. FINANCIAL PLAN. 12.1 The need for funding: the selection of the amount of investment and financing

schedule. Depending on the amount of financing is chosen the most convenient legal form of enterprise, which with

an increase in investment can be converted into other forms, corresponding to a global practice of hedge funds. Because the funding schedule may vary depending on the form and, accordingly, the timing of the formation of the company.

Consider the possible amount of funding:

• Option №1. Investments up to $ 1-2 million. • Option №2. Investments 2 to $ 5 million. • Option №3. Investments of $ 5-7 million and above.

Option №1. Investments up to $ 1-2 million: Incubation Fund (Road show) Legal form: Cayman Exempt (offshore) company. The cost of creating and maintaining: approximately $ 10,000 (for details, see 13.4.1. Incubator hedge

fund). Interaction with investors: the default in the incubator can only work with their agents (the

beneficiaries). Working with investors can be either in the form of release for their shares (taking them to the beneficiaries of the company), or through a broker, as a consultant. In the latter case, the broker provides the opportunity Manage account.

Contractors: it is necessary to negotiate individually with counterparties - the administrator, auditor and prime broker.

Conversion: In the future, the company can move to Stage 2 as a consulting company (Advisor company), or transformed into MC (Management Company) and to open a full-fledged hedge fund (third stage). The company can demonstrate its past track record (he remains with the company) can carry out its audit, but it differs from the history of the fund in full (in the hedge fund all payments made by an independent contractor - the Administrator).

Advantages: 1. Managing a small amount in the account of the investor to confirm the operation strategy at the time of

the Road show. Disadvantages: 1. The absence of decisions on the risks of counterparties: the inability to connect to multiple prime

brokers. 2. Inability or limitation in the use of system capabilities "ASH-Arbitration", and hence reducing the stated

return. 3. The absence of discounts on the cost of counterparties, which are available for the fund on the platform. 4. It is impossible to cause a negligible investment items Guaranteed Hedge Fund. 5. The lack of opportunities in the world to attract qualified investors in a similar structure. Option № 2. Investments 2 to $ 5 million: Fund Platform Legal form: Advisor company. The cost of creating and maintaining: the cost to run the Advisor company + 10.000 $ for the creation

and launch of fund on the platform (for details, see 13.4.2. Foundation on the platform). Annual maintenance fee: 0.25% of the NAV (net asset value) per year (Commission of the platform of

assets) + Service Advisor company. Interaction with investors: Investors in the fund include, but not in the Advisor company. It turns almost

complete analogy normal (stand alone) fund. Therefore, we can draw any number of investors in the fund on the platform.

Contractors: if the assets of 2-5 million may negotiate with a counterparty (for example, administrator), having umbrella funds (platform), they create a fund for their infrastructure. At the same time the costs of running

36

and maintaining fund is less than the full hedge fund, the basic cost of the expenses - it is just payment for the services of an administrator when working fund. To manage the fund created by a consulting company (Advisor company), which concludes the contract with the Management Company, part of the platform to manage the fund created in the platform. Prime broker should be chosen independently.

Conversion: In consequence the company can be transformed into a full CC. If you want to withdraw fund from the platform, it is also easy. Advisor to the company converted to the Management Company and establishes a fund, and fund platform translates into a new fund.Establishment of the Management Company and the fund in this case involves the payment of the structure of its actual value.

Advantages: 1. Fund created within the structure of the platform, other than the broker counterparties are already

there - no need to choose the cheaper and allows obsuzhivanie fund. For example, the auditor is usually provided by the platform and immediately makes a good discount.

2. The presence of investment opportunities for qualified investors. 3. Opportunity, without time-consuming (and therefore potential profit) in parallel to form the

structure of "MC-hedge fund" (as the creation of such structures over time requires 3-6 months). Disadvantages: 1. When converting a consulting company in the management company must spend the same amount as in

the formation of the structure "of the Management Company, hedge fund," from scratch. Option №3. Investments of $ 5-7 million and above: full-hedge fund The cost of creating and maintaining: approximately $ 30,000 (for details, see 13.4.3. A full-hedge

fund). Legal form: a member of the management company and hedge fund. The Fund may exist in various forms: in common law jurisdictions - this is usually a company (company),

or a unit trust (unit trust), or Limited Partnership (limited partnership). In Mauritius, the funds are only in the form of the company. In the case of fund in the form of an investor acquires its stock or shares (shares), and the management of the fund by the directors. In the case of a trust fund in the form of an investor passes the funds to be managed to give him the right to shares (units), a fund managed by a trustee (trustee). In the case of stock in the form of limited partnership investors become limited partners (limited partner), a fund managed by a full partner (general partner). The most common form of offshore investment fund is a legal entity with limited liability.

Typical option when a company issues shares of two classes: ordinary (ordinary) shares of voting without the right to dividends, which belong to the founders of the fund, and preference (preferred) non-voting shares offered to investors.

Interaction with investors: Funds are open (open-ended) and closed (close-ended). In the first case, the investor at any time have the

right to withdraw your contributions, and fund, respectively, required to redeem its shares (stocks, shares) at a price corresponding to the current value of net assets of the fund. In the second case, the investor receives a dividend and share repurchase is only possible by arrangement with the Fund.

Legislation on inside the company (including its own corporate and tax) in different countries also varies. BVI offshore company called type "company International Business» (international business company - IBC), the Cayman Islands and Bermuda - "tax-free company» (exempt company), in Mauritius - a "company's global business» (global business company).

In addition, a number of countries (including the Cayman Islands, Bermuda and Mauritius) have been developed and passed legislation on a special kind of companies, specifically designed for use as investment funds. In Bermuda, they are called "company with separate accounts» (segregated accounts company), in Mauritius - a "company with protected cells» (protected cell company), in the Caymans - Segregated Portfolio Company. The essence of law lies in the fact that the company is divided into several independent "cells", each with responsibility limited. This makes it possible to invest in various asset classes within the same company, and those investors who invest in one of the types of assets are protected from the risks of other species.

To reduce costs you can create a closed-end fund (close-ended) - Investors in such funds are only at the beginning and more extra. emissions is not carried out.

Advantages:

37

1. The possibility of formation of the investment pools with several reputable prime broker. 2. Reduced percentage of total costs with respect to the amount of investment, and hence the growth in net income. 3. The possibility of introducing investment in trade for a few months since the beginning of the trading period. 4. Ability to connect to trading platforms 15-20 and receive a substantial return on arbitrage situations that occur on them. 5. Having opportunities to raise funds of institutional investors in hedge funds.

Funding schedule,% / month

0

20

40

60

80

100

1 2 3 4 5

The organizing term (2-4 months) will require a slight infusion of 1-3% of the totalinvestment. The rest of

the investvlozheny embedded directly into the generated hedge fund as an asset, after making all necessary legal documents and the establishment offoreign economic relations with contractors. The process of replenishment of the assetis carried out according to the "timetable for the introduction of investment in active trade," which is registered in the investment memorandum and may last from one to several months.

38

12.2. Statement of Cash Flow, the schedule of repayment of loans.

Invested Capital (IC ) 3 000 000 The initial investment can be between 400 000 to tens of millions. strategy is scalable.

Stabilization fund 20% It is used both for insurance and to profit from risk-free operations. Fee 2% Depending on the size of the initial investment can range from 1% to 5%. Management fee, total costs, cost of service contractors and tax payments. % от IC 1 %

Depending on the size of initial investment can range from 1% to 0.2% (downward). That is, the greater the investment, the lower the costs as a percentage of IC (for details, see 12.5)

Success fee, % from benefit 20% The percentage of the profits paid to the account of the Management Company. The expected return (per month) 7% Specified minimum yield, depending on the instruments and trading strategies, it

can vary from 7 to 15% Reinvestment of profits during the year 100% Reinvestment of profits may be made on the plan stipulated in the investment

memorandum.

Pos i t i on

Return on investor income (year end) 50% Return of the investor is based on the possibility to repay long-term liabilities to assets(LTD / TA) for 4 years

Month (at the end of the period)

Assets (at the beginning of the period)

Assets (at the end of the period)

1-3 months (depending on the IC, legal form of company) 3 000 000 2 940 000

Мonth (trading period)

Asset (at the beginning of the period

Asset (at the end of the period

Total costs (at the

beginning of the month)

Success fee (at the end of the

month)

Total costs (at the end of the month)

Net income (at

the end of the month)

Result costly part

1 2925000 3 088 800 14 625 32 760 14 625 101 790 62 010 2 3 026 790 3 196 290 15 134 33 900 15 134 105 332 64 168 3 3 132 122 3 307 521 15 661 35 080 15 661 108 998 66 401 4 3 241 120 3 422 623 16 206 36 301 16 206 112 791 68 712 5 3 353 911 3 541 730 16 770 37 564 16 770 116 716 71 103 6 3 470 627 3 664 982 17 353 38 871 17 353 120 778 73 577 7 3 591 405 3 792 524 17 957 40 224 17 957 124 981 76 138 8 3 716 386 3 924 504 18 582 41 624 18 582 129 330 78 787 9 3 845 716 4 061 076 19 229 43 072 19 229 133 831 81 529 10 3 979 547 4 202 402 19 898 44 571 19 898 138 488 84 366 11 4 118 035 4 348 645 20 590 46 122 20 590 143 308 87 302

1

yea r

12 4 261 343 4 499 978 21 307 47 727 21 307 148 295 90 340

39

The balance of capital accounts for the future 3 667 319 Cash outflows 904 434 Total payments to the investor for the year 742 319 Total payments to the investor for the entire period 742 319 Increase in net balance,% per year 22% Increase in net balance,% for the entire period 22%

Мonth (trading period)

Asset (at the beginning of the period

Asset (at the end of the period

Total costs (at the

beginning of the month)

Success fee (at the end of the

month)

Total costs (at the end of the month)

Net income (at

the end of the month)

Result costly part

1 3 667 319 3 872 689 18 337 41 074 18 337 127 623 77 747 2 3 794 942 4 007 458 18 975 42 503 18 975 132 064 80 453 3 3 927 006 4 146 918 19 635 43 982 19 635 136 660 83 253 4 4 063 665 4 291 231 20 318 45 513 20 318 141 416 86 150 5 4 205 081 4 440 565 21 025 47 097 21 025 146 337 89 148 6 4 351 418 4 595 097 21 757 48 736 21 757 151 429 92 250 7 4 502 847 4 755 006 22 514 50 432 22 514 156 699 95 460 8 4 659 546 4 920 481 23 298 52 187 23 298 162 152 98 782 9 4 821 698 5 091 713 24 108 54 003 24 108 167 795 102 220 10 4 989 493 5 268 905 24 947 55 882 24 947 173 634 105 777 11 5 163 128 5 452 263 25 816 57 827 25 816 179 677 109 458 12 5 342 805 5 642 002 26 714 59 839 26 714 185 930 113 267

The balance of capital accounts for the future 4 598 027 Cash outflows 1 133 966 Total payments to the investor for the year 930 708 Total payments to the investor for the entire period 1 673 027 Increase in net balance,% per year 25%

2

yea r

Increase in net balance,% for the entire period 53%

Мonth (trading period)

Asset (at the beginning of the period

Asset (at the end of the period

Total costs (at the

beginning of the month)

Success fee (at the end of the

month)

Total costs (at the end of the month)

Net income (at

the end of the month)

Result costly part

1 4 598 027 4 855 516 22 990 51 498 22 990 160 011 97 478 2 4 758 038 5 024 488 23 790 53 290 23 790 165 580 100 870 3 4 923 618 5 199 340 24 618 55 145 24 618 171 342 104 381 4 5 094 959 5 380 277 25 475 57 064 25 475 177 305 108 013 5 5 272 264 5 567 511 26 361 59 049 26 361 183 475 111 772 6 5 455 739 5 761 260 27 279 61 104 27 279 189 860 115 662 7 5 645 599 5 961 752 28 228 63 231 28 228 196 467 119 687 8 5 842 065 6 169 221 29 210 65 431 29 210 203 304 123 852 9 6 045 369 6 383 910 30 227 67 708 30 227 210 379 128 162 10 6 255 748 6 606 070 31 279 70 064 31 279 217 700 132 622 11 6 473 448 6 835 961 32 367 72 503 32 367 225 276 137 237

3

yea r

12 6 698 724 7 073 853 33 494 75 026 33 494 233 116 142 013

40

The balance of capital accounts for the future 5 764 933 Cash outflows 1 421 748 Total payments to the investor for the year 1 166 907 Total payments to the investor for the entire period 2 839 933 Increase in net balance,% per year 25% Increase in net balance,% for the entire period 92%

Мonth (trading period)

Asset (at the beginning of the period

Asset (at the end of the period

Total costs (at the

beginning of the month)

Success fee (at the end of the

month)

Total costs (at the end of the month)

Net income (at

the end of the month)

Result costly part

1 5 764 933 6 087 769 28 825 64 567 28 825 200 620 122 217 2 5 965 553 6 299 624 29 828 66 814 29 828 207 601 126 470 3 6 173 154 6 518 851 30 866 69 139 30 866 214 826 130 871 4 6 387 980 6 745 707 31 940 71 545 31 940 222 302 135 425 5 6 610 282 6 980 457 33 051 74 035 33 051 230 038 140 138 6 6 840 319 7 223 377 34 202 76 612 34 202 238 043 145 015 7 7 078 362 7 474 751 35 392 79 278 35 392 246 327 150 061 8 7 324 689 7 734 872 36 623 82 037 36 623 254 899 155 283 9 7 579 589 8 004 046 37 898 84 891 37 898 263 770 160 687 10 7 843 358 8 282 586 39 217 87 846 39 217 272 949 166 279 11 8 116 307 8 570 820 40 582 90 903 40 582 282 447 172 066 12 8 398 755 8 869 085 41 994 94 066 41 994 292 277 178 054

The balance of capital accounts for the future 7 227 982 Cash outflows 1 782 566 Total payments to the investor for the year 1 463 049 Total payments to the investor for the entire period 4 302 982 Increase in net balance,% per year 25%

4

yea r

Increase in net balance,% for the entire period 141%

Мonth (trading period)

Asset (at the beginning of the period

Asset (at the end of the period

Total costs (at the

beginning of the month)

Success fee (at the end of the

month)

Total costs (at the end of the month)

Net income (at

the end of the month)

Result costly part

1 7 227 982 7 632 749 36 140 80 953 36 140 251 534 153 233 2 7 479 516 7 898 369 37 398 83 771 37 398 260 287 158 566 3 7 739 803 8 173 232 38 699 86 686 38 699 269 345 164 084 4 8 009 148 8 457 661 40 046 89 702 40 046 278 718 169 794 5 8 287 867 8 751 987 41 439 92 824 41 439 288 418 175 703 6 8 576 284 9 056 556 42 881 96 054 42 881 298 455 181 817 7 8 874 739 9 371 725 44 374 99 397 44 374 308 841 188 144 8 9 183 580 9 697 861 45 918 102 856 45 918 319 589 194 692 9 9 503 169 10 035 346 47 516 106 435 47 516 330 710 201 467 10 9 833 879 10 384 576 49 169 110 139 49 169 342 219 208 478 11 10 176 098 10 745 959 50 880 113 972 50 880 354 128 215 733

5

yea r

12 10 530 226 11 119 919 52 651 117 939 52 651 366 452 223 241

41

The balance of capital accounts for the future 9 062 330 Cash outflows 2 234 953 Total payments to the investor for the year 1 834 348 Total payments to the investor for the entire period 6 137 330 Increase in net balance,% 25% Increase in net balance,% for the entire period 202% The growth of total assets of hedge fund and investor payments,% (for the entire period)

5,07

The total amount of assets of hedge fund and investor benefits (for the entire period)

15 199 660

12.3. The overall project efficiency and sensitivity analysis.

Investment indicators The effectiveness of the project

The sensitivity of the project (growth rate of the

barrier of 5%)

The sensitivity of the project (in the fall of

return of 5%)

The sensitivity of the project (with a decrease

in reinvestment of 5%) NPV Net present value 8 171 850 -6 % -15,2 % -6,7 % IRR Internal Rate of Return 306% - -14,7% -6,5 %

PI profitability index 2,72 -6 % -15,2 % -6,7 % PP

Payback Period

1,85 0% 8,2 % 1 %

DPP Discounted payback period 2,00 3,2 % 6,7 % 0,8 %

NRR Net investment efficiency 163,1% 0 -4 % 0 D Duration 3,46 0 -0,8 % -1,1 % MIRR Modified Internal rate of return

72,8% 0 -6,2 % -6,6 %

MNPV The modified current value 14 212 541 -24,30% -12,2 % -12,9 % DPI Discounted profitability index 3,72 -4,40% -11,1 % -4,9 %

hurdle rate 9,20% * Thus the project is most sensitive to a drop in profitability, which could affect performance at all.

42

12.4. Financial performance:

Current ratio (CR),% Current liabilities can be repaid from the assets of the stabilization fund, which has a volume of 20-30% of total assets. In this case the stabilization fund may be increased due to the fact that the average "drawdown" equity does not exceed 10%, the use of the stabilization fund in the market SPOT can be immediately suspended.

CR = 100/30 = 3.33

Quick ratio (QR),% As part of short-term obligations are paid for the management and reward results. In calculating the rate stabilization fund is used (30%) to the short-term liabilities (2.4%).

QR = 0,3 / 0,04 = 7,5 Total liabilities to total assets (TD / TA) and long-term liabilities to assets (LTD / TA) Total liabilities to assets are long-term obligations. The indicators range from 1 to 0 during the 4 years since the opening of the fund and cover all long-term commitment to the investor while maintaining the growth of fund assets. The total commitment to his own. drops. (TD / EQ),% The use of foreign loans is decided by the Board of Directors of the hedge fund in the presence of a sufficiently long (1-3 years) of a positive track record. In the first year of the hedge-fund external borrowing, except for the shoulder-Prime broker is not planned. Return on investment (ROI),%

ROI = 53,8 %.

Return on equity (ROE),% As the owner of the hedge fund and investor - one person,

ROE = ROI = 53,8%. Return on sales (ROS),% Sales, given the leverage is very difficult to assess. Especially since they practically do not depend on demand. In the foreign exchange market is in constant demand. Absolute liquidity ratio (LR)

LR= QR = 0,3/0,04=7,5 Equity to Total Assets Hedge-fund assets and its growth is not dependent on foreign loans, and yet, they can be used in the presence of accumulated track record.

12.5. Total costs, cost of service contractors and tax payments. Costs associated with the size of investment and legal forms of enterprise. 1. The initial payment. The initial fee (from 1 to 5% of investment) is to: a) the establishment of hedge fund (for major investor-sponsor) or the registration of legal documents (for

other investors); b) to create the material basis for the investment management (equipment). 2. Success fee. The percentage of the profits, paid on a monthly basis by the Management Company on the fact of

profitable trading in the accounts of the investment pool. Remuneration for the result can be withdrawn from your account without interrupting trade, because the removal of 1-1.5% of the account balance is not reflected in the trade and does not require a restart (or reset) an automatic system of hedging.

43

3. Management fee. Management fee (% of total equity) - is 0.2-1% (per month) from the capital managed and allocated between the Fund and the Management Company. All costs for contractors (bank-custodian, administrator, prime broker, auditors and legal counsel) are usually borne by the fund. S / n, office and other expenses (including an investment adviser) associated with the management takes care of the Management Company.

Table calculations of positions of "entry fee" and "management fee" Terms Items of costs investment

up to 2 million

investment up to 5 million

investment up to 10 million

and more Making up the company 5567 9835 9835 Registration Fund (sub-fund) - 10000 20814 "Europe Finance" Commission 5000 3000 14000 Opening a bank account 1000 1000 1000

One-time costs

Office equipment МC* 13150 21500 36200 Office rent МC, in a month 400 550 813 Monthly costs before

the trading period Salaries of employees of the МC, in the month 5900 8800 13300

In total: 31017 54685 122562

Еnt

ry fe

e

% from investment: 1,55% 1,09% 1,23% The commission of prime-broker** (per year) 6000 30000 60000

The Commission custodian bank 0,05-0,1% NAV per year (not necessarily) 2000 5000 10000

The Commission of the insurance company *** by agreement

Commission operating intermediaries (trading platforms) **** by agreement

Rent an office for the МC (at work), per month 400 550 850

Service Fund (the place of registration), in the year - - 3500

Salaries of employees of the МC, in the month 8300 12500 18700

The monthly cost of the trading period (variable

costs)

Service МС (the place of registration), in the year 2412 6680 1780

Administrative costs ***** - 18000 36000 The Commission platform - 12500 - Audit 5000 12000 25000 Preparation of reports to the Audit 5000 - - Shareholders - - - Taxes of Foundation - - 2850

The annual cost of the trading period

Taxes of МC 2300 3009 3009 Restructuring of the platform 14268 - -

Tot

al c

osts

, cos

t of s

ervi

ce c

ontr

acto

r,

tax

paym

ents

, man

agem

ent f

ee

One-time costs (growth of investments) Restructuring in a hedge-fund 27494 23226 -

In total (without the reconstruction): 127112 243789 373239

% from the investments in a year 6,36% 4,88% 3,73%

average % in a month 7,91% 5,97% 4,96%

* Rent and office equipment - in more detail in the table with necessary equipment and leased space (see page 46).

** The Commission prime broker - is taken out of the total trading volume after the closing of positions in this commission may include the commission of bank-custodian (as part of the prime brokers act as custodian banks).

44

*** The Commission insurance company - will be calculated based on the preferences of the investor and the choice of their form of insurance. As the commission can use income from the use of the stabilization fund in the elements of Certified Hedge Fund.

**** The Commission operating intermediaries (trading platforms) - a commission being withdrawn trading platforms (Reuters, and others) and is dependent on trading volumes. Possible agreement with the prime broker for payment of the total commissions through its content.

***** Administrative expenses - more detailed calculations in Section 13.5. Administrative costs.

Table of necessary equipment and leased office space for the working of the Management Company (calculation is based on the number of accounts)

Investment 2 000 000

Trading accounts 200

Positions Amount

Value, $ Comments

Rent an office (area, m) 32 400 4 meters per workstation and 1 m at the workstations, + 3 m on additional.

Computers and add. equipment: 1. Invest. manager 1 500 2. Managing the server. 2 2000 1 - a worker, 2 - helper (in the case of a breakdown

of trade stations or Ctrl. Server) 3. Trading Station. 9 4500 if the trading stations - 1, the management server -

a (sub) 4. Analytical station. 1 500 to analyze the information collected by the control

server 5.Equipment to the computer. 3 19 1 on 5 computers 6. Router. 2 75 to number of providers 7.Modem. 13 650 to number of providers 8.Invest. consultant 1 500 9.Server Reuters 2 2000 Internet: 1.Connect. 2 63 2.Communication. 3 227 through an individual modem - for each computer

through the router 2 - For all Office furniture: 1.Tables. 9 788 2.Chairs. 3 113 Uninterrupted system Luxeon Power consumption, W / h 1.UPS Luxeon UPS-3000ZX 1 1160 2.Storage battery Bossman 12-150

1 1199 continuity of the approximate calculation, based on 1.8 kWt = $ 1770

All in All: 13532

Investment 5 000 000 Trading accounts 500

Positions Amount

Value, $ Comments

Rent an office (area, m) 44 550 4 meters per workstation and 1 m at the workstations, + 3 m on additional.

Computers and add. equipment: 1. Invest. manager 1 500 2. Managing the server. 2 2000 1 - a worker, 2 - helper (in the case of a breakdown

of trade stations or Ctrl. Server) 3. Trading Station. 21 10500 if the trading stations - 1, the management server -

a (sub)

45

4. Analytical station. 1 500 to analyze the information collected by the control server

5.Equipment to the computer. 5 31 1 on 5 computers 6. Router. 2 75 to number of providers 7.Modem. 25 1250 to number of providers 8.Invest. consultant 1 500 9.Server Reuters 2 2000 Internet: 1.Connect. 2 63 2.Communication. 3 479 through an individual modem - for each computer

through the router 2 - For all Office furniture: 1.Tables. 15 1313 2.Chairs. 3 113 Uninterrupted system Luxeon Power consumption, W / h 1.UPS Luxeon UPS-3000ZX 1 2140 2.Storage battery Bossman 12-150

1 2213 continuity of the approximate calculation, based on 1.8 kWt = $ 1770

All in All: 22085

Investment 10 000 000 Trading accounts 1000

Positions Amount

Value, $ Comments

Rent an office (area, m) 65 812,5 4 meters per workstation and 1 m at the workstations, + 3 m on additional.

Computers and add. equipment: 1. Invest. manager 1 500 2. Managing the server. 2 2000 1 - a worker, 2 - helper (in the case of a breakdown

of trade stations or Ctrl. Server) 3. Trading Station. 42 21000 if the trading stations - 1, the management server -

a (sub) 4. Analytical station. 1 500 to analyze the information collected by the control

server 5.Equipment to the computer. 10 63 1 on 5 computers 6. Router. 2 75 to number of providers 7.Modem. 46 2300 to number of providers 8.Invest. consultant 1 500 9.Server Reuters 2 2000 Internet: 1.Connect. 2 63 2.Communication. 3 920 through an individual modem - for each computer

through the router 2 - For all Office furniture: 1.Tables. 25 2188 2.Chairs. 3 113 Uninterrupted system Luxeon Power consumption, W / h 1.UPS Luxeon UPS-3000ZX 1 3870 2.Storage battery Bossman 12-150

1 4001 continuity of the approximate calculation, based on 1.8 kWt = $ 1770

All in All: 37033

46

13. NOTES TO THE BUSINESS PLAN. 13.1. Sheets ASH: results on real accounts. Analysis of trading on real accounts:

Broker: "InstaForex". Software: MT4 terminal.

Server: 173.193.189.162:443 - InstaForex-Cent2.com Accounts № investor password

3503653 NepOs239 3504090 wEkAk870 3504667 rewq77 3504881 liDAv816 3505059 JOsis289 3505071 SeDen388 3505525 FarOp121 3506042 XiViq659 3506320 wiBAh018 3506510 niRAy787 3506744 WElaw871 3506964 GeFar706 3507560 VoBec003 3507628 QaQij175 3507631 BOpaq838

13.1.1. Screenshots of trading posts in the accounts and balance sheet growth chart

Account № 3503653

47

Account № 3504090

Account № 3504667

48

Account № 3504881

Account № 3505059

49

Account № 3505071

Account № 3505525

50

Account № 3506042

Account № 3506320

51

Account № 3506510

Account № 3506744

52

Account № 3506964

Account № 3507560

53

Account № 3507628

Account № 3507631

Each account is different from others in that it is open in another trading day has its own set of instruments (currency pairs). Each account - to 35 currencies, but the total sale is for 49 currency pairs. Because of this hedging is carried out on time and on hedge instruments.

54

13.1.2. Analysis of changes in equity and the number of instruments involved in the trade

In the analysis - the number of instruments involved in the trade is constantly falling to the end of the trading period. It is also estimated index of Equity (the difference in percentage with respect to the account balance).

Accounts № 3503653 Accounts № 3503866 Accounts № 3504090 Accounts № 3504667 Accounts № 3504881 Accounts № 3505059 Accounts № 3505071 Accounts № 3505525 Accounts № 3506042 Accounts № 3506320

-10

-5

0

5

10

15

20

25

30

35

15.03.2012 22.03.2012 29.03.2012 05.04.2012 12.04.2012 19.04.2012

Number of currenciesEquity (%)

Accounts № 3504090

-10

-5

0

5

10

15

20

25

30

35

19.03.2012 26.03.2012 02.04.2012 09.04.2012 16.04.2012 23.04.2012

Number of currenciesEquity (%)

55

Accounts № 3504667

-5

0

5

10

15

20

25

30

35

Number of currenciesEquity (%)

20.03.2012 27.03.2012 03.04.2012 10.04.2012 17.04.2012 24.04.2012

Accounts № 3504881

-20

-10

0

10

20

30

40

21.03.2012 04.04.2012 18.04.2012

Number of currenciesEquity (%)

Accounts № 3505059

-30

-20

-10

0

10

20

30

40

22.03.2012 29.03.2012 05.04.2012 12.04.2012 19.04.2012

Number of currenciesEquity (%)

56

Accounts № 3505071

-50

-40

-30

-20

-10

0

10

20

30

40

Number of currenciesEquity (%)

23.03.2012 30.03.2012 06.04.2012 13.04.2012 20.04.2012

Accounts № 3505525

-15

-10

-5

0

5

10

15

20

25

30

35

26.03.2012 02.04.2012 09.04.2012 16.04.2012 23.04.2012

Number of currenciesEquity (%)

Accounts № 3506042

-20

-10

0

10

20

30

40

27.03.2012 03.04.2012 10.04.2012 17.04.2012 24.04.2012

Number of currenciesEquity (%)

57

Accounts № 3506320

-10

-5

0

5

10

15

20

25

30

35

Number of currenciesEquity (%)

28.03.2012 04.04.2012 11.04.2012 18.04.2012

Accounts № 3506510

-10

-5

0

5

10

15

20

25

30

35

29.03.2012 05.04.2012 12.04.2012 19.04.2012

Number of currenciesEquity (%)

Accounts № 3506744

-15

-10

-5

0

5

10

15

20

25

30

35

30.03.2012 06.04.2012 13.04.2012 20.04.2012

Number of currenciesEquity (%)

58

Accounts № 3506964

-10

-5

0

5

10

15

20

25

30

35

Number of currenciesEquity (%)

02.04.2012 09.04.2012 16.04.2012 23.04.2012

Accounts № 3507560

-5

0

5

10

15

20

25

30

35

03.04.2012 10.04.2012 17.04.2012 24.04.2012

Number of currenciesEquity (%)

Accounts № 3507628

-10

-5

0

5

10

15

20

25

30

35

04.04.2012 11.04.2012 18.04.2012

Number of currenciesEquity (%)

59

Accounts № 3507631

-10

-5

0

5

10

15

20

25

30

35

Number of currenciesEquity (%)

05.04.2012 12.04.2012 19.04.2012

Thus the total "drawdown" Equity for all the analyzed accounts does not exceed 10.28%, which is totally unused portion of a trading account (stabilization fund) is 7.19%.

report on equity drawdown

13.1.3. Rates of return. According to the latest accounts, profit ranges from 7 to 14% per month. Total rates of return on various elements of the trading strategies: • The total rate of return of ASH: 11% per month. • Yield on foreign exchange transactions of underlying assets: 1.5-2% per month. • Yield to use the stabilization fund for SPOT-market: 5-10% per month. • The total rate of return without regard to cost - 10-15% per month. reported profitability in the month

60

61

62

63

64

65

13.1.4. Table of profitable / unprofitable trades.

Accounts № profitable

trades Unprofitable

trades 3503653 303 33 3504090 243 22 3504667 264 24 3504881 271 26 3505059 265 36 3505071 268 31 3505525 320 21 3506042 245 23 3506320 278 29 3506510 287 25 3506744 256 13 3506964 233 25 3507560 264 21 3507628 242 18 3507631 273 12 Total: 4012 359

% 91,8% 8,2%

13.1.5 The matrix of the currency pairs that are used in the accounts

Acconts

3506

042

3506

320

3506

510

3506

744

3506

964

3507

560

3507

628

3507

631

3503

653

3504

090

3504

667

3504

881

3505

059

3505

071

3505

525

Quantity of currency 49 35 35 35 35 35 35 35 35 35 35 35 35 35 35 35

EURUSD 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1AUDUSD 2 1 1 1 1 1 1 1 1 1 1EURCHF 3 1 1 1 1 1 1 1 1 1 1 1GBPUSD 4 1 1 1 1 1 1 1 1 1 1 1 1USDJPY 5 1 1 1 1 1 1 1 1 1 1 1USDCHF 6 1 1 1 1 1 1 1 1 1 1 1USDCAD 7 1 1 1 1 1 1 1 1 1 1 1NZDUSD 8 1 1 1 1 1 1 1 1 1 1 1 1

66

EURJPY 9 1 1 1 1 1 1 1 1 1 1 1 1EURGBP 10 1 1 1 1 1 1 1 1 1 1 1AUDCHF 11 1 1 1 1 1 1 1 1 1 1 1AUDJPY 12 1 1 1 1 1 1 1 1 1 1 1EURAUD 13 1 1 1 1 1 1 1 1 1 1 1GBPCHF 14 1 1 1 1 1 1 1 1 1 1 1GBPJPY 15 1 1 1 1 1 1 1 1 1 1 1EURCAD 16 1 1 1 1 1 1 1 1 1 1 1EURNZD 17 1 1 1 1 1 1 1 1 1 1GBPAUD 18 1 1 1 1 1 1 1 1 1 1 1GBPCAD 19 1 1 1 1 1 1 1 1 1GBPNZD 20 1 1 1 1 1 1 1 1 1 1USDDKK 21 1 1 1 1 1 1 1 1 1USDNOK 22 1 1 1 1 1 1 1 1 1 1USDSEK 23 1 1 1 1 1 1 1 1 1 1USDZAR 24 1 1 1 1 1 1 1 1 1AUDCZK 25 1 1 1 1 1 1 1 1 1 1AUDHKD 26 1 1 1 1 1 1 1 1 1 1 1AUDHUF 27 1 1 1 1 1 1 1 1 1 1AUDMXN 28 1 1 1 1 1 1 1 1 1 1AUDSGD 29 1 1 1 1 1 1 1 1 1 1CADCZK 30 1 1 1 1 1 1 1 1 1 1 1CADHUF 31 1 1 1 1 1 1 1 1 1CADNOK 32 1 1 1 1 1 1 1 1 1 1 1 1CADPLN 33 1 1 1 1 1 1 1 1 1 1CADSEK 34 1 1 1 1 1 1 1 1 1 1 1 1CADSGD 35 1 1 1 1 1 1 1 1 1CHFCZK 36 1 1 1 1 1 1 1 1 1 1 1CHFHKD 37 1 1 1 1 1 1 1 1 1GBPCZK 38 1 1 1 1 1 1 1 1 1 1 1 1GBPHUF 39 1 1 1 1 1 1 1 1 1 1GBPMXN 40 1 1 1 1 1 1 1 1 1 1 1 1NZDCZK 41 1 1 1 1 1 1 1 1 1NZDHKD 42 1 1 1 1 1 1 1 1 1 1 1NZDMXN 43 1 1 1 1 1 1 1 1NZDNOK 44 1 1 1 1 1 1 1 1 1 1 1NZDPLN 45 1 1 1 1 1 1 1 1 1 1 1 1NZDZAR 46 1 1 1 1 1 1 1 1 1 1 1 1USDCZK 47 1 1 1 1 1 1 1 1 1 1 1 1USDMXN 48 1 1 1 1 1 1 1 1 1 1 1USDSGD 49 1 1 1 1 1 1 1 1 1 1 1

13.1.6. Monitoring settings the account The system monitors the set of parameters accounts, keeping and analyzing them. Date of launch - launch date is the date (the date / time), when begins a trading. The list of currencies - the list of currency pairs, used in trade. Transaction History - is preserved history of all completed transactions. The history of equity - the history of changes in equity for the control of the instruments used, the

number of open and pending orders. Modification history - the history is stored in the files of all versions of orders and their causes. No activity - examines the moment when this or that instrument has ceased to participate in commercial

transactions. No history - examines those currency pairs that do not have historical data in the terminal. Inefficient - A list of currency pairs that are inefficient in terms of the ratio of daily volatility spread. If

this parameter is too low, the currency pair is not used for trading. Optimal - calculation of the optimal balance for all currency pairs. Errors - errors that occur in the trading terminal. Completions-removal - the list of completions / withdrawals to / from the account.

67

Profitability of Currency - calculation of the profitability of each currency in terms of profit margins of all pairs of orders in relation to the time taken to obtain it.

Lot Size - Calculation of the ratio of maximum and minimum lot of currency pairs. Calculation of currencies - Currency calculations used to determine the beneficial exchange rate

according to the strategy of hedging long-term trends in the currency portfolio. Candles - the emergence of short-term but significant price surges ("candles") in the movement of

currency pairs. SWAP - swaps the table, the cost of the item, the compensation rates for the swap for 30 days. Spread - the emergence of shots spread on all currency pairs. Current orders - a list of current orders and settings trading. Efficiency - the efficiency Currency in terms of the size of spreads and swaps.

13.2. Arbitrage trading with the help of "ASH-Arbitrage." The automatic system has the ability to track hedge arbitrage opportunities (up to 100 thousand foreign

exchange "chains") in dozens of shopping sites that use the currency exchange operations. To use these features, the system should:

1. The presence of large accounts in 5-10 prime brokers that have a connection to 15-20 different trading platforms.

2. The presence of multiple prime brokerage agreements with the counterparties exchange market. 3. Connect accounts to trading platforms via Reuters SPOT / FWDS Matching and Reuters Agregator. To

realize high-arbitrage situations you must install a server in a data center company "Reuters" in London. The test trials "ASH-Arbitration" has shown yield several times the yield of "long-short" strategy in the

absence of risk. Note: Platform Reuters SPOT / FWDS Matching allows you to trade currency pairs not only with Russian

banks, but also the world's largest contractors, both on its own behalf or through Prime Broker. Platform Reuters SPOT Matching allows you to trade not only in manual mode, but with the help of

algorithms written for robots (API protocol FIX, I can send you the documentation). http://thomsonreuters.com/products_services/financial/financial_products/az/spot_matching/ The product is Reuters Dealing Aggregator allows you to automate the work of many trading platforms,

with algotorgovli. http://thomsonreuters.com/products_services/financial/financial_products/az/dealing_aggregator/ 13.3. List of prime brokers and discount brokers.

BEST IN THE WORLD prime broker № The prime broker Average score 1. Credit Suisse 5,82 2. Deutsche Bank 5,80 3. Citi Prime Finance 5,72 4. J.P. Morgan 5,70 5. Barclays Capital Prime Services 5,61 6. Bank of America Merrill Lynch 5,59 7. Goldman Sachs 5,52 8. Morgan Stanley Prime Brokerage 5,51 9. UBS 5,46 10. Newedge 5,45 11. RBC Capital Markets 4,90 LIST OF PRIME BROKERS IN THE WORLD 1. Alaris Trading Partners 2. Albert Fried & Company, LLC 3. Bank of America Merrill Lynch

68

4. Barclays Capital 5. BMO Nesbitt Burns 6. BNP Paribas Securities Services 7. Callatay & Wouters 8. Calyon 9. Cantor Fitzgerald & Co. 10. CIBC World Markets 11. Citi 12. ConvergEx North Point Trading Partners 13. Credit Suisse 14. Davis Securities LLC 15. Deutsche Bank 16. Dresdner Kleinwort Wasserstein 17. Edelweiss Custodial Services Limited 18. Fidelity Prime 19. Fiserv Corporate 20. Fortis Bank 21. Fund-interface 22. Garwood Securities 23. Global Securities Inc. 24. Goldman Sachs 25. Grace Financial Group LLC 26. Greenwich Prime Trading Group 27. Interactive Brokers Group 28. Investment Education PLC 29. J.P. Morgan 30. Jefferies & Company Inc. 31. KB 32. Koenig 33. Korea Securities Finance Corp. 34. Lightspeed Trading, LLC 35. M.S. Howells & Co. 36. Macquarie Prime 37. MALTA STOCK EXCHANGE 38. Merlin Securities 39. Morgan Stanley 40. Natexis Bleichroeder Inc. 41. National Bank Financial Prime Services 42. NBCN 43. Newedge Group 44. Nomura Prime Services 45. Northpoint Trading Partners LLC 46. NTS 47. Pearlman CTA Capital Management 48. Penson Financial Services, Inc. 49. Pershing LLC 50. Rafferty Capital Markets, LLC 51. RBC Capital Markets 52. RCM Prime 53. Samsung Securities 54. Schroders PLC 55. Scotia Capital 56. SEB Group 57. Shoreline Trading Group, LLC 58. Skye Fund Services Ltd 59. Societe Generale Securities Services 60. SPT SWISS PRIME TRUST AG

69

61. Standard Chartered Bank 62. Tax Advisor India 63. TD Securities 64. Triad Securities Corp 65. Trophy Property Group 66. UBA Plc 67. UBS 68. VanthedgePoint Securities LLC 69. Victor Securities 70. ViewPoint Securities, LLC 71. Wachovia Securities DISCOUNT BROKERS 1. Datek-Ameritrade. 2. ETrade. 3. Versus. 4. CSFBDirect. 5. IB (interactive brokers).

Internet brokers, which in the U.S. alone there are currently about a hundred, refer to the "class" of so-called discount brokers. In contrast to classical brokerages (full-services broker), which involves personal service advice to the client, discount brokers only conclude your deal on the market (often through another broker, what the client has no idea). So they take a very small fee, for which he received its name.

13.4. Stages and types of hedge fund registration.

Create a hedge fund requires the use of a lawyer who specializes in the financial and corporate law and familiar with the peculiarities of the laws of offshore jurisdictions, or with the assistance of the contractor as Europe Finance http://www.europe-finance.ru, who specializes in jur. support of hedge funds, as well as creating low-cost incubation hedge fund.

13.4.1. INCUBATOR hedge funds (through the mediation of Europe Finance). CREATION OF INCUBATION COMPANY Creating a legal framework in the form of an incubation fund company in the Cayman Islands Law Firm

implements (Further Counterparty) represents the interests of management in the chosen jurisdiction. Counterparty is a non-resident of the Russian Federation, all payments are sent to him as a non-resident of the Russian Federation.

Cayman Islands Exempt Company Legal fees US$1 000,00 Tax Exemption Undertaking US$1 829,27

Miscellaneous Disbursements От US$325,00

Government registration fee US$731,71

In total От US$3 885,98 Opening a bank account is paid in addition to the $ 1 000,00 - a 1500,00 US $.

Notes: • As a general rule, for the Registrar of Companies requires 3-5 business days to process an application for

the establishment (incorporation) of the company. If you pay the Registrar an additional special payment 487,80 US $, the Office will process the application within 1-2 business days. Legal fees for the compulsory registration of Contractor companies make 1500 US $

70

• Exempt Company may be obtained from the Cayman Islands Government committed to free from taxes for 12 years. That is, for 12 years in the shares, debentures or other obligations of a company registered in the Cayman Islands will not be applied to a law imposing any tax on profits, income, capital gains or capital gains of the company. The Cayman Islands currently levy such taxes, and is not expected that any such taxes are imposed in the near future. Exempt Company is not obligated to obtain such a commitment, but it is recommended that it was received.

• The "other payments" in the cost of establishment, is an estimate (325,00 US $). These payments cover the cost of stamp duty for charter, applications to the Registrar to appoint the initial directors and managers, the cost of unscheduled telephone, fax and other minor expenses incurred in the registration process and the initial organization of the company.

CORPORATE SERVICES FUND FOR HATCHING CAYMAN ISLANDS (1 year) Maintenance of the legal structure of the company in the Cayman Islands Law Firm implements (Further

Counterparty) represents the interests of management in the chosen jurisdiction. This company is a non-resident of the Russian Federation, all payments are sent to her as a non-resident of the Russian Federation.

Annual maintenance Annual payments for the service company that is not licensed or regulated differently (payments prorated

for each month, beginning with the month of registration, inclusive - Note 1). Fees are payable in advance (the provision of registered office, the maintenance of corporate documents, provision of nominee shareholders, if required, preparation of the Protocol's annual shareholders meeting, filing of the Annual Declaration of state agencies and providing advice on changes in laws affecting the Company). - $ 1320 (annual)

The annual fee for a company that is licensed or otherwise regulated (fees prorated for each month, beginning with the month of registration, inclusive - Note 1). Fees are payable in advance (the provision of registered office, the maintenance of corporate documents, provision of nominee shareholders, if required, the preparation protocol of the annual meeting of shareholders, the filing of the Annual Declaration of state agencies, pay an annual fee to CIMA, providing advice on changes in laws affecting the Company). - $ 1560 (annual)The annual fee for the provision of services by the Secretary / Assistant Secretary - $ 360 (annually)Providing up to 2 suppliers as corporate directors (payable in advance for a year, distributed in proportion to monthly - Note 1). - $ 3,000 (year + hourly rate).

Payment of current expenses (Note 2). - $ 100.

Note:

- Maintenance and service fees are calculated and paid by the directors once a year to 31st December each year. Companies registered after 1st September of any year shall pay an annual fee to the 31st December of the following year (see below). Divided in proportion to costs are included (calculated) based on the month of registration.

- The amount of US $ 100 for a variety of future costs incurred by the Contractor, will be added to their invoice. As the cost overruns of more than U.S. $ 100 in any year, the Contractor will include a charge for excess in the account.

- State registration and annual fees (payable annually in January) are calculated based on the amount approved by shareholders' equity of the Company as follows:

State annual fee

71

Up to US$51,200 US$731.71 (CI$600.00)

From US$51,200 to US$1,000,000 US$1,097.56

(CI$900.00)

From US$1,000,000 to US$2,000,000 US$2,297.56 (CI$1,884.00)

More US$2,000,000 US$3,009.76 (CI$2,468.00)

SUPPORT BUSINESS INCUBATION FACILITY START

Services in support of the launch business incubation fund (Customer) provides the company Europe

Finance (Contractor). Pay as a resident of the Russian Federation. Wire transfer to the account of Europe Finance in rubles at the Central Bank exchange rate on the date of invoice. At the start of the incubation fund services include:

Launch of the incubation fund. Support the creation of the company in the Cayman Islands - Filling the customer brief to clarify the outgoing data to create a structure Incubation hedge fund. - Provide contact details of the Contractor by the Contractor (law firm) to initiate a business relationship

the Customer and the Contractor. - Provision of customer personal data and / or data about legal entities of the Customer at the request of

the Contractor for future due diligence conducted by the Contractor. - Direct customer due diligence procedures by the Contractor. - Review and sign the contract the Contractor and the Customer for services for the establishment of the

Company. As p- art of the procedure for the establishment of the Company may provide the Customer with the

Contractor and the Contractor may implement the following Support Services: • Interaction with government authority in the country • Registration for the name of the Company, coordinate the preparation of statutory and organizational

documents for the Company to its registration (establishment). • Review of the resolutions of directors to run the company. Making the legal address of registered office

of the Company. • Preparation of memorandum and articles of the Company, as well as other documents as required. o

Ensure consistency of drafting and filing of their total to the appropriate authorities. • Preparation of documents confirming registration with the government organizations in the country of

registration of the Company, as well as other documents necessary for the Company. The course of Hedge Fund Fundamentals, with the following program:

- Background and history of the hedge fund industry

- Business model and regulation of hedge funds

- Service providers of hedge funds- The main financial instruments of hedge funds-

Investment strategies of hedge funds

- Evaluation of Hedge Funds

- Basics of investing in hedge funds

In total: 3000 $. SULTING SUPPCON ORT OF INCUBATION OF FUND

Services for the preparation of the incubation fund to transform into a hedge fund company has Europe Finance. Pay as a resident of the Russian Federation. Wire transfer to the account of Europe Finance in rubles at the Central Bank exchange rate on the date of invoice. Audit carries out a specialized company. Payment

72

for the audit may be conducted as a resident company of the Russian Federation, as well as non-residents of Russia and negotiated on an individual basis.

Consulting support fund incubation Individual counseling manager (advice on the formulation of risk management systems, etc.)

From 6 hours in a month

- Advice on positioning and marketing, fund the preparation of all necessary materials of individual templates and samples of marketing materials fund: - Pitch book - Tearsheet Letter to investors

From 4 hours in a month

Offices in the business center to meet Class A (with investors, contractors, etc.)

Up to 5 days in a month***

In total from US$800 in a month*

Audit of fund incubation ** 1 per year, individually (from US $ 5000 per year **)

Provision of IT infrastructure deployment in the cloud (Cloud) Individually

The independent risk management Individually

13.4.2. FUND FOR THE PLATFORM (through the mediation of Europe Finance). Launch of Adviser-identical to the launch activities on the incubation of the company. 13.4.3. FULL hedge fund (through the mediation of Europe Finance). Criteria for selecting the country of the fund In terms of Russian law, hedge funds are one of the categories of conventional mutual funds (mutual

funds). From the stock funds and funds of mixed investments they have only minor differences in the regulation and, therefore, the Russian hedge fund - this is just marketing shell, and not an effective management structure that exists abroad. In the West, most hedge funds are registered in an offshore jurisdiction.

The activities of the investment fund is subject to regulation (in varying degrees) from the state of registration. In many offshore areas this regulation is quite soft and is usually limited to the fact that the fund must obtain permission from the authorities for their activities (which need to document integrity of its founders and professional management), and then submit reports on the statutory form. At the same time very little investment activities of the fund is not regulated, which makes it possible to invest in a variety of instruments, including futures and options, what the funds to the "mainland" is usually very limited.

The intensity of state control may depend on the type of fund. As a general rule, funds, raise funds, the general public more closely monitored than those intended to raise funds for a narrow circle of professional investors.

The advantages of an offshore jurisdiction in the UCITS Directive In principle the establishment of an offshore fund and in some other jurisdictions, particularly in Guernsey

and Jersey (Channel Islands), where some tougher regulation, as well as in Ireland or Luxembourg, where it is more intense (though much milder than in the main " neofshornyh "jurisdictions). These options are more complex and expensive.However, funds are registered under the European UCITS directive in effect are capable of operating throughout the EU (they have a single EU passport), so the discovery of the structure of the stock is held in EU countries or jurisdictions recognized by this directive.

Thus, such a fund by following the directive takes on investor confidence in a higher level.

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UCITS Directive allow a serious investment to control the structure, providing virtually no impact on the effectiveness of strategies. Funds of UCITS (and their far more than 1000) may not work for most hedge fund strategies, and have at least a weekly subscription and entrance fee into the fund starts at 10 thousand dollars. In other words, in fact, shares of hedge funds in Europe are in the same retail products as mutual funds in Russia.For example, Bank of HYPO Investment Bank allows a customer with a capital of 10,000 euros to buy securities of hedge funds.

More information about the UCITS IV Directive can be downloaded at: http://ec.europa.eu/internal_market/investment/legal_texts/index_en.htm#directive Profitability of private and public fund The structure of a hedge fund may be closed or open. It all depends on the objectives of investors. If they

do not want to attract additional investors, then they create a closed-end fund and attract new investors becomes impossible. In this case the issue of shares at the time the stock and additional emissions are not held.If they want to get more assets, which allows a greater yield in most cases, then it creates an open fund. If investors want to enter the current board of directors or founders of the management company, then they will receive, including dividends from income management company. Also, investors should bear in mind that the more assets in the fund, the lower the percentage of expenditure of this sum, which, to a lesser extent, affects the NAV of the Fund. Therefore, the profitability is directly related to the volume of the fund's assets.

Limitations on the number of investors Depending on the jurisdiction has its own rules. Basically, there are limitations, but it affects more the

shape of the stock structure, and usually when you reach the border, the structure is transformed to meet this requirement. For example, in the BVI "Pivate-fund" at the age of 50 investors, should be converted to a "Professional".In the Caymans have their own limitations, such as "Exempted" restriction is imposed in the 15 investors, and then need to convert to "Registred".

VALUE CREATION HEDGE FUNDS The work of Europe Finance: - Step 1. The formation of the future structure and preparation for registration.

- Provision of materials for the jurisdiction (s) of, legislation, documents, funds (memorandum), and other information as required (duties of directors in a given jurisdiction, the information on the closure of the hedge fund industry standards).- Assist in the preparation of information describing the basic options strategies, risk management, structure, commissions and other data in the framework of the memorandum of the future fund.

- Assistance in pre-selecting an administrator to coordinate future work environment.- Comments on the marketing materials and advice on industry standards, providing information to quantify the parameters of the net asset value (NAV) of the fund.

- Assistance in selecting and negotiating with lawyers, brokers, administrators and auditors to negotiate a possible future cooperation.

- Assist in the process of KYC and the passage of Due Diligence. The result:

- Completed basic description of the options for documents created fund. - Selected counterparties and the ability to conclude a treaty with them (number of counterparties and the

parameters agreed by the parties). from 7000 USD (Includes not morePrice: than 48 hours of consultation).

- Step 2. Register and start fund to the operating mode.

- At this stage, we accompany the process of incorporating the structure of law firm (we can take the

ntractors, lawyers will prepare a draft of the document

eparation of the final strategy descriptions and other information, document preparation

maximum interaction with the lawyers) and a partial interaction with other contractors to enter into all necessary agreements and contracts.

- Once decided on the structure and commercial coon the Offering of Securities, as well as prepare a rough foundation documents, and subsequently the final version.

- Support the prbeneficiaries.

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Result: Created and ready to run the stock structure (the МС and the Fund). On this stage of the variant get out of control, this option agreed by the parties separately. Price: from 7000 USD (Includes not more than 60 hours of consultation). Below is the estimated cost of establishing and maintaining a management company in the Cayman Islands and the fund in the Caymans one of the service providers.

The management company in the Cayman Islands

Payment of the law firm

between US$1.500 and US$2.000

Fee for registration of a company (if the authorized capital of US $ 50,000 or less)

US$732

Commission SIBL for the release of a person from having to obtain a license

US$4,688.29

Registration fee exemption US$1,829

In total US$8,749.29-9,249.29 The registered office in a year US$1,320 Extras. the cost of office US$100 Secretarial services US$360 Assistance in opening bank account US$1000

In total US$11,529.29-12,029.29 The cost of establishing a fund in the Cayman Islands

Preparation of all necessary documents and the establishment of a framework law firm (stand-alone, exempted, registered)

US$15,000 - 20,000, plus the additional costs

Registration fee for the creation US$732, if the share capital is less than US$50,000

Registration in the CIMA (if necessary) US$3,659.00

The fee for tax exemption

US$1,830

The cost of servicing the registered office for the first year

US$1,560 + US$100

Extra cost of telephone, fax, courier and other expenses (such as copies of documents, etc.)

Measure of emergence

In total US$22,881-26,881

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13.5. Costs of administration. Fee Schedule for Fund Administration Services

Service (NAV calculation and RTA)

Standard Parameters Fee Scale Based on Net Assets Minimum Fees

Single Manager - Moderate securities transaction volume - Listed Equities, Fixed income and other

Exchange traded securities - Securities pricing is verifiable to third

party sources - Single Prime Broker holds all Securities - Investors from approved jurisdictions - Less than 50 investors

Sliding scale on Net Asset Value:

US$0 to US$50 million 12 Bps US$50 to US$100 million 10 Bps Over US$100 million 8 Bps

US$42,000

Fund of Funds - Moderate securities transaction volume - Some derivatives for hedging purposes - Pricing provided by the underlying Fund

of Funds Administrator. - Custody service provided by Appleby

Fund Services and included in fees shown- Investors from approved jurisdictions - Less than 50 investors

Sliding scale on Net Asset Value:

US$0 to US$50 million 14 Bps US$50 to US$100 million 12 Bps Over US$100 million 10 Bps

US$54,000

Private Equity - Moderate securities transaction volume - Some derivatives for hedging purposes - Securities pricing is provided by

independent valuer - Custody service provided by Appleby

Fund Services and included in fees shown- Investors from approved jurisdictions - Less than 50 investors

Sliding scale on Net Asset Value:

US$0 to US$50 million 14 Bps US$50 toUS$100 million 12 Bps Over US$100 million 10 Bps

US$54,000

Feeder Funds - Standard Offshore and Onshore feeder fund where basis point fees detailed above are charged at the master fund level

Fixed Fee per feeder fund US$15,000 per annum

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Fee Schedule for Registrar and Transfer Agency Service only

Service Standard Parameters Number of Investors

Standard AM L Min. Fees

Full AM L Min. Fees

Assumptions: Standard AML

- Cayman AML for each investor transaction. - Investors with bank accounts held in their name and in approved

jurisdictions. - Bank account maintained at HSBC for subscription and redemption

proceeds. - Monthly reporting to investors. - Review and process subscription, redemption and transfer

documents. - Issue investment acknowledgements, contract notes and statements

and handle investor queries. - Deal with audit queries.

1 – 10 11- 20 21- 30 31- 40 41- 50 > 50

17,500 22,500 27,500 32,500 37,500 TBA

20,000 25,000 30,000 35,000 40,000 TBA

Full AML - All the above as for Standard AML except as follows: - Where Investors are from non-approved jurisdictions and bank

accounts are held in non-approved jurisdictions.

Capital Call Fee - Fee of $200 per capital call per investor when distributing capital call

notices, tracking receipts and outstanding amounts due and processing the receipts.

Distribution/Dividend Payment Fee - Fee of $150 per distribution payment per investor when processing

distributions or dividends including sending investors notices of the distribution/dividend. The fee excludes any Bank wire charges which need to be paid by the Fund in addition to the above.

Certificate Fee

- Where required, a fee of $100 per share certificate issued.

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13.6. Hedge Fund Due Diligence. Thinking about buying into a hedge fund? Once a hedge fund has been chosen for further evaluation, the

first step in the due diligence process is the information-gathering phase. Information can be obtained from the hedge fund manager or third party sources, depending on the type of information and the required level of detail.

In most cases, when requesting information from a hedge fund manager, an investor must be able to

identify himself or herself as an accredited investor or a registered investment advisor (RIA). This requirement is also becoming mandatory for obtaining information from many third-party sources. Some hedge fund managers require as little as a signed document stating that the investor is attesting to his accredited investor status, while others may go as far as requesting personal financial statements. In other words, you can't investigate a hedge fund carefully unless you have the resources to buy in. Assuming you do have the resources and experience required to invest in a hedge fund, it's important to conduct your due diligence to ensure that you're putting your money in the most productive place possible. Find out what you need to know to make your decision and where to find that information. (For background reading, see Taking A Look Behind Hedge Funds.)

Document Request One of the simplest documents to review is what is often called a pitchbook. A pitchbook is a presentation

that describes the firm and its fund strategy, and often provides details on the manager's strategy and process, biographies for firm personnel and performance history.

The pitchbook is a great resource for a preliminary determination of whether a full-fledged due diligence is

warranted. Up to this point, much of what an investor knows about the hedge fund is performance data, so the detailed explanation of the fund's strategy can enable an investor to determine whether it's a fund worth pursuing. Pitchbooks can vary greatly from one hedge fund to another. Some pitchbooks contain a variety of visual aids, like graphs and tables, to explain the manager's strategy and investment methodology. Others may differ in the level of detail provided, from short summaries of their investment strategy to a discussion of the portfolio and position details. Once reviewed, the pitchbook will give an investor an adequate description of the fund. (To learn more, see Picking Top-Quality Hedge Funds.)

If the fund looks interesting, an investor would then review the offering memorandum and subscription

documents. Both are legal documents, and an investor should pay careful attention when reviewing them. Two important areas to peruse are the stated investment objectives and the description of securities in which the hedge fund is allowed to invest. Hedge funds are becoming more flexible, which allows investment in securities outside of the fund's core capabilities and historical trends. By allowing a broader mandate, funds can make opportunistic investments in temporarily attractive sectors or shift focus when their investment style is out of favor. Although this could give a hedge fund manager more opportunities to invest, it could also raise risk management issues for the investor. (To learn more, see How Risky Is Your Portfolio?)

An investor should feel comfortable with the level of flexibility inherent in the investment mandate. If an

investor is looking for a merger arbitrage hedge fund manager, for example, he or she should be wary of an investment mandate that also allows the hedge fund manager to invest in commodities, futures or private equity, which are not necessarily merger arbitrage-type investments. Broader investment mandates can potentially change the risk or return expectations of a hedge fund and may have liquidity implications. Be wary of very broad mandates.

Investment Terms An investor should also review the investment terms. Investment terms include minimum investment

amounts, share classes, fee terms, redemption terms and notice periods, among others. Minimum Investment Not only can an investor determine estimates of his or her own allocation amounts, the minimum

investment can also give an investor an idea of the types of investors in the fund. Higher minimums indicate a greater number of institutional investors or ultra-high net worth individuals compared to lower minimums, which would indicate a higher number of individual investors. (To learn more, see Hedge Funds Go Retail.)

Share Classes

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Some funds will only have one share class. Others, however, will have multiple share classes that may have different investment terms, fee structures or investment mandates. It's important to note that some share classes allow for less liquid investments than other share classes.

Fee Terms The industry norm is "two and 20". That means a fund charges 2% of assets under management

(management fee) and 20% of the profits (incentive fee). The fee terms should also include a high-water mark, which requires a hedge fund to exceed any prior high before collecting incentive fees. (Find out more in Choosing A Fund With A Winning Manager.)

Redemption Terms and Notice Period While some funds allow for monthly withdrawals, others will only allow quarterly, semiannual or annual

redemptions. These terms have critical implications for liquidity and the portfolio management process. However, an investor should evaluate the terms relative to the investment strategy of the fund and determine their compatibility. Infrequent redemption periods are not necessarily a disadvantage as an investor might prefer to ensure that large, frequent investor redemptions will not occur. Some strategies will be punished by frequent investor redemptions.

Conference Call Before a conference call, an investor should obtain all of the information he or she needs to make an

investment decision. To prepare for a conference call, an investor should complete the following activities: 1. Develop a list of relevant questions that should be answered during the entire due diligence process. 2. Make sure to review the pitchbook, offering memo and performance analysis data. This information will

be the foundation upon which to build a conversation and may answer many of your questions prior to the conference call.

3. Schedule a convenient time for the call and take into consideration that the hedge fund manager may not

want to speak until after market hours. 4. Make sure all the right people are on the call so time isn't wasted looking for others. The call shouldn't

last more than an hour and you want to maximize this time. 5. If more than one person will be on the call from the investor point of view, make sure to coordinate the

conversation so it does not become a chaotic question and answer session. The goal is to have an in-depth dialogue with the hedge fund manager, not just fill out a questionnaire.

6. Have the fund manager describe his or her past experiences, how his or her strategy has evolved and

what his or her vision is for the future. He should be able to tell a story that leads into his current investment process and how it will provide above-average returns in the current and future environment.

7. Ask the manager to describe specific past investments that were a success and those that were failures. A

manager should be able to describe failures and lessons learned from them. 8. Describe your decision-making process and next steps. 9. Introduce the possibility of an office visit and determine the appropriate contact person to organize a

visit. (For related reading, check out Conference Call Basics.) Office Visit Depending on the type of hedge fund strategy and the amount of outsourcing a hedge fund has

implemented, an office visit should range from as short as a few hours to as long as a couple of days. Many hedge funds are increasingly outsourcing their back office operations, so an office visit will not include an assessment of back-office capabilities.

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Office visits should be conducted annually. Although communication should be occurring on a regular

basis throughout the year, it is important to make periodic visits to not only build the relationship with a hedge fund manager, but also to visually assess any changes in the office environment, personnel or even the physical appearance of the hedge fund manager to determine any changes that may indicate high levels of stress or poor health.

When conducting an office visit, it is important to meet with all relevant personnel and spend enough time

with each to assess their capabilities and the fund's exposure to certain risks. Investment Decision Makers The most important person to meet with during an office visit is obviously the person or people making

investment decisions. This is a great time to go into detail about topics discussed during the initial conference call or issues that have come up during the continuing due diligence process.

Idea Generators Hedge fund managers may develop ideas on their own, rely on a team of analysts to uncover new

opportunities or use a combination of the two in either an individual or team-based approach. It is important for the investor to interview everyone who contributes to the idea and investment process in the event that a top contributor leaves the firm. (To learn more, see Should You Follow Your Fund Manager?)

Risk Manager/Committee Ideally, a fund will have separate investment and risk teams with the risk team responsible for monitoring

the portfolio and ensuring it is maintained within the targeted risk parameters. CFO/Operations Manager The back-office manager should be able to describe all of the firm's processes and the investor's focus

should be on financial controls, such as signing authority, compliance, trade execution processes and financial reporting, among others.

Some of the specific functions might include: IT - This includes trading software and systems, portfolio risk analysis software, database and storage

systems and contingency planning in the event of disaster. Accounting - This includes net asset value (NAV) calculations, fund auditing and fund administration. References - Investors who are currently or have been invested in the fund in the past can provide a good

idea of a manager's communication, honesty and consistency. Other Information Finally, there are public and fee-based sources that can be used to gather additional information about a

fund and its principals. Online and print news sources such as the Wall Street Journal, Google, FINalternatives, hedgefund.net, albournevillage, Yahoo, LexisNexis and a variety of other sources can be used to search for announcements or news about the firm or the individual principals.

Conclusion Proper hedge fund due diligence hinges on being able to effectively gather and analyze information about

the fund. A hedge fund may offer up information that is not requested, but an investor should assume that only requested information will be provided. Therefore, a proper list of documents, questionnaires and interviews will ensure that an investor is properly informed about a fund before making an investment decision. Keep in mind that the information gathering process presumes a hedge fund manager's honesty in providing complete and accurate information, and that intentional fraud will more likely be uncovered through a thorough due diligence process.

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13.7. Cayman Islands hedge funds. 2008 proved the ultimate stress test for all kinds of investment methodologies and asset allocations. Many

hedge funds suffered severe crises of liquidity and required major restructuring, some suffered major losses as a result of strategy failure or investing in the Madoff Ponzi scheme, but when the dust had cleared it became apparent that as a class hedge funds had continued their outperformance when compared to more highly regulated retail funds adopting simpler and supposedly less risky methodologies. Hedge funds are here to stay because hedge funds work. (The Barclays Hedge Fund Index was down -21.63% in 2008, the S&P500 which outperforms most retail funds dropped -38.43%. In 2009 the Barclays Hedge Fund Index rose 23.74%.)

General advantages of Cayman as a fund jurisdiction

The Cayman Islands is the jurisdiction of choice worldwide for the establishment of offshore open and closed-ended funds. In the case of open-ended funds, Cayman has three times as many funds as the second largest offshore jurisdiction for funds (BVI) with AUM dwarfing competitors as many Cayman funds are amongst the largest established. Reasons for Cayman's pre-eminence as an offshore funds jurisdiction are set out below.

The Cayman Islands is a stable common law jurisdiction where bonafide contractual relations are not generally subject to judicial or governmental interference. Funds can be established and registered quickly and the Cayman Islands does not seek to impose material conditions on the terms of securities offerings by open-ended funds to non-retail investors.

There is no limit to the asset classes which a fund can acquire or to the leverage it may employ. The service provider pool is deep, and in particular the leading law firms field experienced lawyers, many with top tier onshore experience, who appreciate the need for diligence and the rapid closure of transactions. Cayman has full membership of IOSCO2 and has been commended by the IMF for having a strong compliance culture in relation to antimoney laundering requirements. With the signing of a 12th tax information exchange agreement in August 2009 Cayman is on the OECD's whitelist of countries complying with the global standard for tax cooperation and exchange of information.

Setting up a Cayman hedge fund

This note is intended to provide a brief road map for Sponsors looking to establish a stand alone corporate Cayman Islands hedge fund (the Fund). It therefore assumes that the Fund will not be set up as a retail or a closed-ended fund but will offer redeemable equity securities to investors in minimum subscriptions of US$100,000 or more in which case the Fund will qualify to be treated as a Registered Fund under Section 4 (3) of the Mutual Funds Law.

It is possible to set up a Registered Fund as an exempted company (the usual Cayman offshore corporate vehicle), a limited partnership or a unit trust. In practice most Registered Funds are set up as exempted companies limited by shares as, unless special considerations apply, this is the simplest vehicle to establish and administer and the one with which investors are most familiar.

Stage 1 - Commercial Structuring

Before instructing counsel a Sponsor should consider the proposed commercial terms of the Fund; what investment strategies and restrictions will be applied and in particular thought must be given to matching the asset base of the Fund to the liquidity being offered to investors. The recent market turmoil has thrown up many examples of funds with mismatched asset/liquidity terms with illiquid assets such as property interests being unable to support the cash required for investor redemptions.

The next key question will be the nature of the interests to be offered to investors. Should the Fund issue one class of shares or many classes with different fee structures, functional currencies or rights to separate pools of assets? How should performance and management fees be calculated?

An investment management vehicle should be selected and while there is no need for this entity to be a Cayman entity, investment managers advising Registered Funds are not subject to regulation under Cayman's Securities Investment Business Law but qualify for an annual exemption so a Cayman company is often used. The adjacent flowchart shows just a few of the other issues that should be considered at this stage, but a good funds lawyer should be able to provide you with a Sponsor with a more exhaustive list of the issues that should be considered and provide guidance on any problematic areas.

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Stage 2 - Prepare draft documents

Once the commercial structure has been broadly agreed, a draft offering document should be prepared describing the shares in all material respects and containing such other information as is necessary to enable a prospective investor in the Fund to make an informed decision as to whether or not to purchase shares. Draft constitutional documents enshrining share rights and subscription agreements governing the terms on which investors will subscribe for shares and containing subscriber eligibility representations and anti-money laundering KYC requirements should also be prepared.

Stage 3 - Incorporation

The Fund can be established at this stage by filing a standard incorporation form with the Registrar of Companies and the Fund can request its tax exemption certificate guaranteeing freedom from all Cayman taxes for 20 or 30 years irrespective of any subsequent change in law.

Stage 4 - Functionaries

The Fund will need to negotiate terms with and appoint key functionaries. The Fund will ordinarily require at least two directors who will be responsable for overall supervision of the Fund although in practice day to day management is delegated to an investment manager.

There is no requirement for the directors to be Cayman residents and often officers of the investment manager will also act as directors but independent directors can be appointed to provide some level of oversight and assist in resolving conflicts which might arise between the investment manager and the Fund.

The key third party service provider to the Fund will be the administrator who will be required to be located in Cayman or another jurisdiction approved by the Cayman Islands Monetary Authority (CIMA) as having an equivalent anti-money laundering KYC regime. The administrator will be responsible, inter alia, for the calculation of the net asset value of the Fund, the processing of subscriptions and redemptions and the compliance with the AML requirements applicable to the Fund's investors.

The Fund will also need to appoint one or more independent custodians and/or prime brokers and an auditor approved by CIMA to prepare and file accounts and submit other financial and operating information in respect of the Fund to CIMA through an e-reporting approved portal.

Stages 5/6 - Finalise documentation/agree operational guidelines

Commercial terms will need to be agreed and documents finalised and executed with functionaries but this is also the time for the investment manager's staff to discuss and familiarise themselves with the actual operating procedures of the functionaries and in particular the administrator of the Fund.

Stage 7 - CIMA filing

The offering and constitutional documents are finalised, adopted and approved and the documents required to establish the Fund3 are filed with CIMA. Unlike retail funds where considerable diligence will be done on promoters and managers, in the ordinary course CIMA does not usually raise any issues on the documents filed for a Registered Fund and will normally issue a fund registration within five business days of filing. From this point the Fund may begin accepting subscriptions from investors as a registered Cayman fund.

Fund Establishment Flowchart Concept Commercial structuring Prepare draft offering document, subscription agreement and constitutional documents Establish fund Fund selects and appoints functionaries Prepare and agree operational guidelines, service standards and finalise service contracts Finalise constitutional, subscription and offering documents and approve fund launch by board resolution,

file required documents with CIMA.

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13.8. Еrrors of hedge funds. Amaranth Advisors Although the collapse of Long Term Capital Management (discussed below) is the most documented hedge

fund failure, the fall of Amaranth Advisors marked the most significant loss of value. After attracting $9 billion worth of assets under management, the hedge fund's energy trading strategy failed as it lost over $6 billion on natural gas futures in 2006. Faced with faulty risk models and weak natural gas prices due to mild winter conditions and a meek hurricane season, gas prices did not rebound to the required level to generate profits for the firm, and $5 billion dollars were lost within a single week. Following an intensive investigation by the Commodity Futures Trading Commission, Amaranth was charged with the attempted manipulation of natural gas futures prices.

Bailey Coates Cromwell Fund In 2004, this event-driven, multistrategy fund based in London was honored by Eurohedge as Best New

Equity Fund. In 2005, the fund was laid low by a series of bad bets on the movements of U.S. stocks, supposedly involving the shares of Morgan Stanley, Cablevision Systems, Gateway computers and LaBranche (a trader on the New York Stock Exchange). Poor decision making involving leveraged trades chopped 20% off of a $1.3-billion portfolio in a matter of months. Investors bolted for the doors and on June 20, 2005, the fund disolved.

Marin Capital This high-flying California-based hedge fund attracted $1.7 billion in capital and put it to work using credit

arbitrage and convertible arbitrage to make a large bet on General Motors. Credit arbitrage managers invest in debt. When a company is concerned that one of its customers may not be able to repay a loan, the company can protect itself against loss by transferring the credit risk to another party. In many cases, the other party is a hedge fund.

With convertible arbitrage, the fund manager purchases convertible bonds, which can be redeemed for shares of common stock, and shorts the underlying stock in the hope of making a profit on the price difference between the securities. Since the two securities normally trade at similar prices, convertible arbitrage is generally considered a relatively low-risk strategy. The exception occurs when the share price goes down substantially, which is exactly what happened at Marin Capital. When General Motors' bonds were downgraded to junk status, the fund was crushed. On June 16, 2005, the fund's management sent a letter to shareholders informing them that the fund would close due to a "lack of suitable investment opportunities". (To learn more, see Convertible Bonds: An Introduction and Trading The Odds With Arbitrage.)

Aman Capital Aman Capital was set up in 2003 by top derivatives traders at UBS, the largest bank in Europe. It was

intended to become Singapore's "flagship" in the hedge fund business, but leveraged trades in credit derivatives resulted in an estimated loss of hundreds of millions of dollars. The fund had only $242 million in assets remaining by March 2005. Investors continued to redeem assets, and the fund closed its doors in June 2005, issuing a statement published by London's Financial Times that "the fund is no longer trading". It also stated that whatever capital was left would be distributed to investors.

Tiger Funds In 2000, Julian Robertson's Tiger Management failed despite raising $6 billion in assets. A value investor,

Robertson placed big bets on stocks through a strategy that involved buying what he believed to be the most promising stocks in the markets and short selling what he viewed as the worst stocks.

This strategy hit a brick wall during the bull market in technology. While Robertson shorted overpriced

tech stocks that offered nothing but inflated price to earnings ratios and no sign of profits on the horizon, the greater fool theory prevailed and tech stocks continued to soar. Tiger Management suffered massive losses and a man once viewed as hedge fund royalty was unceremoniously dethroned.

Long-Term Capital Management The most famous hedge fund collapse involved Long-Term Capital Management (LTCM). The fund was

founded in 1994 by John Meriwether (of Salomon Brothers fame) and its principal players included two Nobel Memorial Prize-winning economists and a bevy of renowned financial services wizards. LTCM began trading

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with more than $1 billion of investor capital, attracting investors with the promise of an arbitrage strategy that could take advantage of temporary changes in market behavior and, theoretically, reduce the risk level to zero.

The strategy was quite successful from 1994 to 1998, but when the Russian financial markets entered a

period of turmoil, LTCM made a big bet that the situation would quickly revert back to normal. LTCM was so sure this would happen that it used derivatives to take large, unhedged positions in the market, betting with money that it didn't actually have available if the markets moved against it.

When Russia defaulted on its debt in August 1998, LTCM was holding a significant position in Russian government bonds (known by the acronym GKO). Despite the loss of hundreds of millions of dollars per day, LTCM's computer models recommended that it hold its positions. When the losses approached $4 billion, the federal government of the United States feared that the imminent collapse of LTCM would precipitate a larger financial crisis and orchestrated a bailout to calm the markets. A $3.65-billion loan fund was created, which enabled LTCM to survive the market volatility and liquidate in an orderly manner in early 2000.

Conclusion Despite these well-publicized failures, global hedge fund assets continue to grow as total international

assets under management amounts to approximately $2 trillion. These funds continue to lure investors with the prospect of steady returns, even in bear markets. Some of them deliver as promised. Others at least provide diversification by offering an investment that doesn't move in lockstep with the traditional financial markets. And, of course, there are some hedge funds that fail.

Hedge funds may have a unique allure and offer a variety of strategies, but wise investors treat hedge funds

the same way they treat any other investment - they look before they leap. Careful investors don't put all of their money into a single investment, and they pay attention to risk. If you are considering a hedge fund for your portfolio, conduct some research before you write a check, and don't invest in something you don't understand. Most of all, be wary of the hype: when an investment promises to deliver something that sounds too good to be true, let common sense prevail and avoid it. If the opportunity looks good and sounds reasonable, don't let greed get the best of you. And finally, never put more into a speculative investment than you can comfortably afford to lose.