DBIQ Index Guide. Deutsche DB Forward Rate Bias (FRB) Index. 24-Feb Table of Contents. Global Markets Research Index Research

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1 Global Markets Index 24-Feb-2005 Table of Contents Introduction to DBIQ...2 DB Forward Rate Bias (FRB) Index...2 Historical Analysis...3 Index Calculation...4 Disclosures...8 DBIQ Index Guide DB Forward Rate Bias (FRB) Index Deutsche DB FRB seeks to take advantage of the trend in money market forward rates in many major currencies to have a high probability of over-predicting future interest rates. The DB FRB index is designed to reflect the performance of holding the 3 month 1 year forward rate contract. The contracts are rolled on a quarterly basis. DB FRB indices based on USD, EUR and CHF contracts are calculated on a daily basis. These indices are available in a local and hedged in USD, EUR, JPY and GBP. A composite index DB FRB Basket is calculated in quanto and hedged versions DB FRB Short indices reflect the return from selling 3 month 1 year forward rate contracts. The quarterly returns are equal and opposite to that of the DB FRB indices. DB FRB Basket Leveraged index reflects the return of investing in 50 times the notional size of the index. DB FRB Index Returns Daniel Arnold Index Aram Flores Index Fergus Lynch Global Head Index DB FRB EUR DB FRB USD DB FRB Basket Quanto DB FRB CHF David Folkerts-Landau Managing Director, Head of Global Markets Source: Deutsche Bank IMPORTANT: PLEASE SEE CONFLICT DISCLOSURES AND ANALYST CERTIFICATION IMMEDIATELY AT THE END OF THE TEXT OF THIS REPORT. DEUTSCHE BANK DOES AND SEEKS TO DO BUSINESS WITH ISSUERS COVERED IN ITS REPORTS. AS A RESULT INVESTORS SHOULD BE AWARE THAT DEUTSCHE BANK MAY HAVE A CONFLICT OF INTEREST THAT COULD ADVERSELY AFFECT THE OBJECTIVITY OF ITS REPORTS. INVESTORS SHOULD CONSIDER THIS REPORT ONLY AS A SINGLE FACTOR IN MAKING THEIR INVESTMENT DECISION.

2 Deutsche DBIQ Index Guide 24-Feb-2005 Introduction to DBIQ DBIQ is Deutsche Banks powerful web based platform that provides sophisticated support for index and portfolio analysis. The site allows users to report on index, portfolio, pricing and bond level information in an intuitive, transparent and customisable way. The ease of use, speed, flexibility and wealth of data make the DBIQ system a compelling investment tool for money manager every. The DBIQ index family covers the global fixed income, fx, commodities and derivatives world. All indices are designed to be transparent and market reflective. DB Forward Rate Bias (FRB) Index Historical evidence shows that money market forward rates in many major currencies have a high probability of over-predicting future interest rates. A plausible reason for this bias is that investors generally favour short term trades and hence a relatively high term premium is embedded in duration extension trades. As a consequence, it is possible to construct an approach based on the assumption that the market is pricing in too high future short term rates. If such an approach had been applied to the type of investment product described by this document, it would have led to consistently positive returns for an investor in such a product over the last 15 years 1. The DB FRB index is designed to reflect the performance of going long the 3 month 1 year forward rate. The contract is rolled on a quarterly basis three business days prior to the IMM date. This approach was selected as a result of analysis carried out by DB Fixed Income research. A 3 month 1 year forward rate agreement contract is an instrument to lock in a 3 month interest rates 1 year into the future. The contract is settled via cash delivery on the date 1 year in the future. The settlement value is calculated by subtracting the Libor fixing on the future date from the contract fixing rate. DB FRB indices unwind the old contract every 3 months on the index rebalancing date. DB FRB indices based on USD, EUR and CHF contracts are calculated on a daily basis. These indices are available in a local and hedged in USD, EUR, GBP and JPY. A composite index DB FRB Basket is calculated in quanto and USD, EUR, GBP and JPY hedged versions. The USD and EUR index returns are equally weighted when calculating the Basket index. The weights are reset on the quarterly roll dates. All indices are calculated on a daily basis using market data as of 10:30am EST. WM FX rate fixings are used for the hedged indices. DB FRB return index levels are on an unfunded basis. This allows DB FRB to be applied as an overlay on other indices and or portfolios. DB FRB Short indices reflect the return from selling 3 month 1 year forward rate contracts. The quarterly returns are equal and opposite to that of the DB FRB indices. The index gains when forward rates rise over the holding period. DB FRB Basket Leveraged index reflects the return of investing in 50 times the notional size of the index. This represents the returns if approximately all the index notional is used as margin to buy forward rate agreements. The leverage index returns include a cost 1 Past Performance may not be a reliable guide to future performance. 2 Global Markets

3 24-Feb-2005 DBIQ Index Guide Deutsche to reflect the expense associated with rolling from the old forward rate agreement to a new one. Exceptional Rebalancing June 2004 Due to the US national holiday on 11-Jun-2004 for the funeral of Ronald Reagan the rebalancing date of the FRB indices was shifted to 14-Jun The index calculation remains the same for this period with only the roll date being changed. Historical Analysis Index returns for DB FRB are available since March Historical return calculations are based off market closes (pre March 2004 for EUR and USD and pre March 2005 for CHF). Pre Euro inception (31-DEC-1998) German interest rate market data is used to calculate the DB FRB EUR index. The XEU is used as a proxy for EUR before this date. DB FRB produces positive returns on the majority of quarters. Positive quarter returns are consistently higher then negative quarter returns. Historical returns for the DB FRB indices are summarized in the following table. DB FRB Index Return Summary Average Annualised Quarterly Return Volatility Return Quarters with Positive Return Average Quarterly Positive Return Average Quarterly Negative Return DB FRB EUR 1.00% 0.93% 0.26% 61.02% 0.58% -0.28% DB FRB USD 1.32% 1.25% 0.34% 71.19% 0.72% -0.59% DB FRB CHF 1.07% 1.42% 0.27% 69.49% 0.59% -0.45% DB FRB Basket Quanto 1.16% 0.90% 0.30% 67.80% 0.60% -0.33% DB FRB EUR Hedged USD 1.01% 0.96% 0.26% 61.02% 0.59% -0.28% DB FRB Basket Hedged USD 1.16% 0.91% 0.30% 67.80% 0.60% -0.33% DB FRB USD Hedged EUR 1.24% 1.27% 0.32% 71.19% 0.70% -0.61% DB FRB Basket Hedged EUR 1.12% 0.90% 0.29% 67.80% 0.58% -0.33% DB FRB Short EUR -1.00% 0.93% -0.26% 38.98% 0.28% -0.58% DB FRB Short USD -1.33% 1.25% -0.34% 28.81% 0.59% -0.72% DB FRB Short Basket Quanto -1.16% 0.90% -0.30% 32.20% 0.33% -0.60% DB FRB EUR Hedged JPY 1.00% 0.92% 0.26% 61.02% 0.58% -0.28% DB FRB USD Hedged JPY 1.27% 1.24% 0.33% 71.19% 0.70% -0.59% DB FRB Basket Hedged JPY 1.14% 0.89% 0.29% 67.80% 0.59% -0.33% DB FRB EUR Hedged GBP 1.02% 0.93% 0.26% 61.02% 0.59% -0.28% DB FRB USD Hedged GBP 1.25% 1.28% 0.33% 71.19% 0.70% -0.60% DB FRB Basket Hedged GBP 1.14% 0.91% 0.29% 67.80% 0.59% -0.33% DB FRB Basket Quanto Leveraged with Cost 47.36% 42.88% 14.01% 67.80% 28.87% % DB FRB Basket Hedged EUR Leveraged with Cost 44.93% 43.04% 13.49% 67.80% 28.25% % Source: DB Global Markets, Returns between Mar 1990 and Feb 2005 This data does not include transaction costs. Global Markets 3

4 Deutsche DBIQ Index Guide 24-Feb-2005 Index Calculation DB FRB indices are calculated on a daily basis using market data as at 10:30am EST. The indices are rebalanced three business days before the IMM date. Standard DB FRB indices For the standard single currency indices the index return is calculated by R( = FRA( r, f ) FRA( t, f ) The index level is given by ( 1 R( )* IL( ) IL ( = + r R( = return from long position in Forward Rate Agreement on day t FRA(r,f) = yield of forward rate on last roll date r for settlement on the fifth IMM date and expiry on the sixth IMM date from date r FRA(t,f) = yield of forward rate on date t for settlement on the fifth IMM date and expiry on the sixth IMM date from date r IL( = index level on day t IL( = index level on last roll date r On a daily basis a yield curve is built using 10:30am EST money market, future and swap rates. From this the forward rates are calculated by applying a bootstrapping method to the yield curve. Short DB FRB indices The short single currency FRB indices have a return equal and opposite to the standard indices. The return is calculated by R( = FRA( t, f ) FRA( r, f ) The index level is given by ( 1 R( )* IL( ) IL ( = + r Hedged DB FRB Indices The hedged index is calculated slightly differently to standard hedged indices because the DB FRB indices are unfunded. The notional value of the index on each roll date is not exposed to the index currency since no physical investment is made. Hedged return calculations for standard and short FRB indices are the same. The hedged return is expressed as. FX ( HR () t = R( FX ( The index level is given by IL ( = (1 + HR( ) * IL( 4 Global Markets

5 24-Feb-2005 DBIQ Index Guide Deutsche HR( FX( FX( = hedged return from long position in Forward Rate Agreement on day t = FX rate on day t quoted Index Currency: Hedge Currency = FX rate on day r quoted Index Currency: Hedge Currency DB FRB Basket Indices The basket indices are equally weighted, the weights are reset on each roll date. Basket index calculations for standard and short FRB indices are the same. The quanto index calculation is [ ( RE( RU ( )]* IL( ) IL ( = + r RE( RU( = Local return of DB FRB EUR = Local return of DB FRB USD The hedged basket indices are calculated using the following 1 ILE( ILUH ( ILHE( = + ILHE( 2 ILE( ILUH ( 1 ILEH ( ILU ( ILHU ( = + ILHU ( 2 ILEH ( ILU ( ILHE( = DB FRB basket Euro Hedged index level at time t ILHE( = DB FRB basket Euro Hedged index level on last roll date r ILE( = DB FRB EUR index level at time t ILE( = DB FRB EUR index level on last roll date r ILUH( = DB FRB USD hegded in EUR index level at time t ILUH( = DB FRB USD hegded in EUR index level on last roll date r ILHU( = DB FRB basket USD Hedged index level at time t ILHU( = DB FRB basket USD Hedged index level on last roll date r ILEH( = DB FRB EUR hegded in USD index level at time t ILEH( = DB FRB EUR hegded in USD index level on last roll date r ILUH( = DB FRB USD index level at time t ILUH( = DB FRB USD index level on last roll date r DB FRB Basket Leveraged Indices The forward rate contracts are 50 times leveraged. The basket indices are equally weighted, the weights are reset on each roll date. The quanto index calculation is [ 1+ 50*0.5( RE( + RU ( ) 50* C] * IL( ) IL( = r RE( RU( = Local return of DB FRB EUR = Local return of DB FRB USD Global Markets 5

6 Deutsche DBIQ Index Guide 24-Feb-2005 The hedged basket indices are calculated using the following ILHE( = 1+ 50* ILHU ( = 1+ 50* ILE( ILUH ( * C ILHE( ILE( ILUH ( ILEH ( ILU ( * C ILHU ( ILEH ( ILU ( ILHE( = DB FRB basket Euro Hedged index level at time t ILHE( = DB FRB basket Euro Hedged index level on last roll date r ILE( = DB FRB EUR index level at time t ILE( = DB FRB EUR index level on last roll date r ILUH( = DB FRB USD hegded in EUR index level at time t ILUH( = DB FRB USD hegded in EUR index level on last roll date r ILHU( = DB FRB basket USD Hedged index level at time t ILHU( = DB FRB basket USD Hedged index level on last roll date r ILEH( = DB FRB EUR hegded in USD index level at time t ILEH( = DB FRB EUR hegded in USD index level on last roll date r ILUH( = DB FRB USD index level at time t ILUH( = DB FRB USD index level on last roll date r C = Cost of rebalancing. Cost is zero on non-rebalancing days. On rebalancing days cost is 0.02% 6 Global Markets

7 24-Feb-2005 DBIQ Index Guide Deutsche Certifications The views expressed in this report accurately reflect the personal views of the undersigned lead analyst about the subject issuers and the securities of those issuers. In addition, the undersigned lead analyst has not and will not receive any compensation for providing a specific recommendation or view in this report. Daniel Arnold Global Markets 7

8 Deutsche DBIQ Index Guide 24-Feb-2005 Disclosures Additional Information Available upon Request Disclosure Checklist Company Ticker Recent Price Disclosure 1. Within the past year, Deutsche Bank and/or its affiliate(s) has managed or co-managed a public offering for this company, for which it received fees. 2. Deutsche Bank and/or its affiliate(s) makes a market in securities issued by this company. 3. Deutsche Bank and/or its affiliate(s) acts as a corporate broker or sponsor to this company. 4. The author of or an individual who assisted in the preparation of this report (or a member of his/her household) has a direct ownership position in securities issued by this company or derivatives thereof. 5. An employee of Deutsche Bank and/or its affiliate(s) serves on the board of directors of this company. 6. Deutsche Bank and/or its affiliate(s) owns one percent or more of any class of common equity securities of this company. 7. Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment banking or financial advisory services within the past year. 8. Deutsche Bank and/or its affiliate(s) expects to receive or intends to seek compensation for investment banking services from this company in the next three months. 9. Deutsche Bank and/or its affiliate(s) was a member of a syndicate which has underwritten, within the last five years, the last offering of this company. 10. Deutsche Bank and/or its affiliate(s) holds one percent or more of the share capital of the company whose securities are subject of the research, calculated under computational methods required by German law (data as of the last trading day of the past month). 11. Please see special footnote below for other relevant disclosures. 12. Deutsche Bank and/or its affiliate(s) holds a net short position of one percent or more of the share capital of the company whose securities are subject of the research, calculated under computational methods required by German law (data as of the last trading day of the past month). 13. Deutsche Bank and/or its affiliate(s) holds a trading position, as that term is defined by German law, in shares of the company whose securities are subject of the research. 14. Deutsche Bank AG and/or its affiliate(s) has received non-investment banking related compensation from this company within the past year. 15. This company has been a client of Deutsche Bank AG and/or its affiliate(s) within the past year. During this time, Deutsche Bank Securities AG and/or its affiliate(s) provided non-financial services to this company for which it received compensation. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at 8 Global Markets

9 Stuart Parkinson Chief Operating Officer, Karen Weaver Head of Global Markets Global Markets Directory David Folkerts-Landau Managing Director, Global Head of Peter Garber Global Strategist, Fergus Lynch Relationship Management, Regional Management Americas Asia-Pacific Australia/New Zealand Europe Germany Michael Spencer David Plank Jamil Baz Head of Global Markets Head of Global Markets Head of Global Markets Ulrich Beckmann Head of Global Markets High Yield Americas David Bitterman Co-head of US High Yield Credit Andrew W. Van Houten Co-head of US High Yield Credit Credit Anne Milne Head of Latin America Corporates Global High Grade Marion Boucher Soper Global Head Nuj Chiaranussati Head of Asian Credit Quantitative Credit Strategy Jean-Paul Calamaro, Global Head, Yoshio Shima Head of Japan Credit Ciaran Barr Chief UK Economist, Thomas Mayer Chief European Economist, Economic Peter Hooper Chief US Economist, Tony Meer Chief Australian Economist, Emerging Markets Marcel Cassard, Global Head, Mikihiro Matsuoka Chief Economist, Japan, Ulf Schoefisch Chief New Zealand Economist, Fixed Income and Relative Value Jamil Baz, Global Head, Foreign Exchange Bilal Hafeez Global Head of FX Strategy, Winchester House 1 Great Winchester Street London EC2N 2DB United Kingdom Index Development Fergus Lynch, Global Head, Bankim Chadha Global Head of Macro FX, Securitization Karen Weaver, Global Head, Anthony Thompson, Head of CDO, Commodities Michael Lewis, Global Head, Main Offices London Frankfurt New York Hong Kong Sydney Singapore Tokyo Grosse 60 Wall Street 55/F, Cheung Kong Grosvenor Place 5 Temasek Boulevard Gallusstrasse New York, NY Center Level 18,225 George #08-01 Suntec Tower Five Frankfurt United States of 2 Queen s Road, Street Singapore Germany America Central Sydney NSW Hong Kong Australia Subscribers to research via receive their electronic publication on average 1-2 working days earlier than the printed version. If you would like to receive this or any other product via please contact your usual Deutsche Bank representative. Publication Address: Deutsche Bank Securities, Inc. 60 Wall Street New York, NY United States of America Internet: Ask your usual contact for a username and password. Sanno Park Tower , Nagatacho, Chiyoda-ku, Tokyo Japan The information and opinions in this report were prepared by Deutsche Bank AG or one of its affiliates (collectively "Deutsche Bank"). The information herein is believed by Deutsche Bank to be reliable, but Deutsche Bank makes no representation as to the accuracy or completeness of such information. Important Information Regarding Our Independence. The research analyst principally responsible for the preparation of this report receives compensation that is based upon, among other factors, Deutsche Bank s overall investment banking and/or trading revenues. Deutsche Bank may engage in securities transactions in a manner inconsistent with this research report, and with respect to securities covered by this report, will sell to or buy from customers on a principal basis. Disclosures of conflicts of interest, if any, are discussed at the end of the text of this report or on the Deutsche Bank website at Opinions, estimates and projections in this report constitute the current judgement of the author as of the date of this report. They do not necessarily reflect the opinions of Deutsche Bank and are subject to change without notice. Deutsche Bank has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate, or if research on the subject company is withdrawn. Prices and availability of financial instruments also are subject to change without notice. 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Furthermore, past performance is not necessarily indicative of future results. Unless governing law provides otherwise, all transactions should be executed through the Deutsche Bank entity in the investor s home jurisdiction. In the U.S. this report is approved and/or distributed by Deutsche Bank Securities Inc., a member of the NYSE, the NASD, NFA and SIPC. In the United Kingdom this report is approved and/or communicated by Deutsche Bank AG London, a member of the London Stock Exchange. This report is distributed in Hong Kong by Deutsche Bank AG, Hong Kong Branch, in Singapore by Deutsche Bank AG, Singapore Branch, and in Japan by Deutsche Bank AG Tokyo. Additional information relative to securities, other financial products or issuers discussed in this report is available upon request. This report may not be reproduced, distributed or published by any person for any purpose without Deutsche Bank s prior written consent. Please cite source when quoting. Copyright 2004 Deutsche Bank AG REV100504

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