` Series A Noes relaing o he MAN IP220 Index Series 4 EUR ISIN DE000DB0H018 Valoren Code: 3950870 Common Code 037951030 Series B Noes relaing o he MAN IP220 Index Series 4 EUR ISIN DE000DB0H026 Valoren Code: 3950871 Common Code 037951099 Series A Noes relaing o he MAN IP220 Index Series 4 CHF ISIN DE000DB0H034 Valoren Code: 3950872 Common Code 037951170 Series B Noes relaing o he MAN IP220 Index Series 4 CHF ISIN DE000DB0H042 Valoren Code: 3950873 Common Code 037951234 Series A Noes relaing o he MAN IP220 Index Series 4 USD ISIN DE000DB0H059 Valoren Code: 3950874 Common Code 037951358 Series B Noes relaing o he MAN IP220 Index Series 4 USD ISIN DE000DB0H067 Valoren Code: 3950875 Common Code 037951668 Indicaive Terms July 2008 Global Hedge Fund Derivaives Deusche Bank AG London
Summary of Core Terms Subjec o all legal erms included in he Informaion Memorandum Issuer & Calculaion Agen : Deusche Bank AG London Issuer Raing : (Aa1/AA-) (Moody's/S&P) Number of Noes : EUR Series A Noes: Up o [750,000,000] Denominaion/Nominal Amoun: Minimum Subscripion & Transfer Size EUR Series B Noes: Up o [750,000,000] CHF Series A Noes: Up o [750,000,000] CHF Series B Noes: Up o [750,000,000] USD Series A Noes: Up o [750,000,000] USD Series B Noes: Up o [750,000,000] : In respec of he EUR Securiies, EUR 1.00; in respec of he CHF Securiies, CHF 1.00; in respec of he USD Securiies, USD 1.00. : EUR10,000,CHF10,000 and USD 10,000 for Public Offer Jurisdicions EUR, CHF, USD 50,000 and higher (based on local laws and regulaion) for oher jurisdicion where no Public Offer is Made Issue Price per Noe : 100% Principal Proecion : 100% of he Nominal a mauriy Issue Dae : [ 22 ] Ocober 2008 Primary Marke Sar Dae: : 26 Augus 2008 Primary Marke End Dae: : 13 Ocober 2008 Mauriy Dae : Subjec o Cancellaion, Posponemen and Suspension, The hireenh Paymen Day following he Mauriy Valuaion Dae Mauriy Valuaion Dae : Wih respec o [each Underlying], he las calendar day of May 2021 Issue Price : 100% of he Principal Amoun Underlying In respec of he EUR Securiies, he MAN IP 220 Index Series 4 EUR; Mauriy Cash Amoun in respec of he CHF Securiies, he MAN IP 220 Index Series 4 CHF, and in respec of he USD Securiies, he MAN IP 220 Index Series 4 USD, : In respec of each Noe, - ReferenceIndex Nominal Amoun + Max NominalAmoun x ReferenceIndex T 0 ; 0 ReferenceIndex 0 Reference Index means an amoun equal o he level of he T Underlying on he Mauriy Valuaion Dae as published on he Reference Source, Page 2
ReferenceIndex means in respec of MAN IP220 Index Series 4 0 EUR, EUR [1.00];in respec of MAN IP220 CHF Index Series 4 CHF, CHF [1.00]; in respec of MAN IP220 USD Index Series 4 USD, USD [1.00] Reference Source : means, in relaion o he Underlying, he reference source or reference sources specified in he Index Descripion [or any successor o any such reference source accepable o he Calculaion Agen, as deermined by he Calculaion Agen;] Business Days : London, Targe, New York, Zurich (unadjused, following) Secondary Marke : Man Invesmens Limied or any of is affiliaes may in is discreion provide a secondary marke for he Securiies hrough which i may be possible o sell he Securiies wih a monhly dealing frequency. Governing Law Calculaion and Paying Agen Selemen English Law Deusche Bank AG Clearsream / Euroclear ISIN: EUR Series A Noes: [ ] EUR Series B Noes: [ ] CHF Series A Noes: [ ] CHF Series B Noes: [ ] USD Series A Noes: [ ] USD Series B Noes: [ ] Common Code: EUR Series A Noes: [ ] EUR Series B Noes: [ ] CHF Series A Noes: [ ] CHF Series B Noes: [ ] USD Series A Noes: [ ] USD Series B Noes: [ ] Valoren Code: EUR Series A Noes: [ ] EUR Series B Noes: [ ] CHF Series A Noes: [ ] CHF Series B Noes: [ ] USD Series A Noes: [ ] USD Series B Noes: [ ] Documenaion : X-Markes Program Page 3
INFORMATION RELATING TO THE UNDERLYING This secion conains informaion relaing o he applicable Underlying for each issue of Securiies. THE INFORMATION CONTAINED IN THIS SECTION HAS BEEN OBTAINED FROM THE RELEVANT INDEX SPONSOR (AS DEFINED BELOW). THE ISSUER CONFIRMS THAT SUCH INFORMATION HAS BEEN ACCURATELY REPRODUCED AND AS FAR AS THE ISSUER IS AWARE AND IS ABLE TO ASCERTAIN FROM INFORMATION PUBLISHED BY SUCH INDEX SPONSOR, NO FACTS HAVE BEEN OMITTED WHICH WOULD RENDER THE REPRODUCED INFORMATION INACCURATE OR MISLEADING. NO REPRESENTATION, WARRANTY OR UNDERTAKING, EXPRESS OR IMPLIED, IS MADE AND NO RESPONSIBILITY IS ACCEPTED BY THE ISSUER AS TO OR IN RELATION TO THE ACCURACY OR COMPLETENESS OR OTHERWISE OF THE INFORMATION CONTAINED IN THIS SECTION. THE ISSUER TAKES NO RESPONSIBILITY FOR ANY INDEX, THE CALCULATION OF ANY REFERENCE LEVEL, ANY DETERMINATIONS, CALCULATIONS, WAIVERS, DECLARATIONS OR DECISIONS MADE OR ANY ADJUSTMENTS, MODIFICATIONS OR OTHER ACTIONS TAKEN AT ANY TIME BY AN INDEX SPONSOR IN RESPECT OF ANY INDEX AND SHALL NOT BE LIABLE FOR ANY DIRECT, INDIRECT OR CONSEQUENTIAL LOSS OR DAMAGE SUFFERED BY THE SECURITYHOLDERS IN CONNECTION THEREWITH (INCLUDING, WITHOUT LIMITATION, ANY UNDERPERFORMANCE OR OPPORTUNITY COST OF THE SECURITIES). Informaion on he hisorical, if any, and ongoing performance of each Underlying described below is expeced o be published on he Man Invesmens public websie on [www.maninvesmens.com] and will be made available on Bloomberg pages. The Bloomberg page numbers relaing o each Underlying will be available on www.maninvesmens.com, on or shorly afer he Iniial Index Dae A12 A12 Page 4
INDEX DESCRIPTION OF (A) THE MAN IP 220 INDEX SERIES 4 USD, (B) THE MAN IP 220 INDEX SERIES 4 EUR AND (C) THE MAN IP 220 INDEX SERIES 4 CHF The following ses ou he descripion of each Index as of [ ] 2008 and, in respec of any Index, is subjec o change from ime o ime in accordance wih he relevan rules relaing o such Index. General Descripion of each Index The Man IP 220 Index Series 4 USD (he "Index USD"), he Man IP 220 Index Series 4 EUR (he "Index EUR"), he Man IP 220 Index Series 4 CHF (he "Index CHF") (ogeher he "Indices" and individually each an "Index") are capial proeced indices denominaed in USD, EUR and CHF respecively each of which primarily mirrors he performance of a baske of noional invesmens in hedge funds, a zero coupon bond and a cash balance which may provide leverage. The consrucion of each Index will ensure ha he Index Value on he Final Index Dae will equal or exceed he Iniial Index Value. The Index Sponsor seeks o generae absolue reurn performance of each Index, in paricular in respec of he Fund Componens of each Index. The Index Value of an Index shall never be negaive. Nowihsanding ha his documen ses ou a descripion of all hree Indices, each Index is mainained separaely by he Index Sponsor and discreions exercised or decisions made in one way in respec of any Index are no required o be exercised or made in he same or a similar way in respec of he oher Index or Indices. References o an Index in he singular shall include references o each Index (i.e. he Index USD, he Index EUR and he Index CHF) and references o oher defined erms in he singular shall include references o each currency specific version of such definiion as he conex requires. Each Index will comprise, a any ime, he following weighed consiuens: (i) cerain Fund Componens, provided ha hese Fund Componens mee he Composiion Obligaions, (ii) a Capial Proecion Componen and (iii) a Cash Componen. The Cash Componen can be posiive or negaive. The Fund Componens are furher divided ino he AHL Componens and he Glenwood Componens. Iniially each Index will be exposed o 7 Fund Componens, of which 1 is an AHL Componen and 6 are Glenwood Componens. In addiion o hese Index Consiuens, which are included in each Index wih he weighings assigned o hem by he Index Sponsor which will vary over ime, oher elemens will also be aken ino accoun in each Index, ha is, iner alia, a bond hedging facor, a currency hedging facor, a corporae acion facor and an adjusmen facor. Each Index is composed by he Index Sponsor. The Index Sponsor selecs componens for each Index as se ou below and will launch each Index as of he Iniial Index Dae a he Iniial Index Value of 1 uni in he Index Currency (i.e. EUR1, USD1 or CHF1 as he case may be). Following he Iniial Index Dae, he Index Sponsor will review he composiion of each Index and he weighings of he Index Consiuens wihin each Index on an ongoing basis and in accordance wih his Index Descripion. The inclusion and weighing of he Capial Proecion Componen in each Index will ensure ha he Index Value as of he Final Index Dae will equal or exceed he Iniial Index Value. The weighing of any Index Consiuen indicaes he noional invesmen exposure of he applicable Index o ha Index Consiuen. The sum of all he Fund Componens weighings corresponds o he oal invesmen exposure of each Index o is Fund Componens. In respec of each Index, including a he Iniial Index Dae, he weighing of each Index Componen will no necessarily be he same beween each Index and may be significanly differen. In respec of each Index, he Index Sponsor will seek o provide a oal invesmen exposure o he Fund Componens a a arge invesmen exposure of around 160% of he hen applicable Index Value wih around 100% arge invesmen exposure o he AHL Componens and a 60% arge invesmen exposure o he Glenwood Componens. The iniial invesmen exposure o he Fund Componens is expeced o be up o 160% in respec of each Index and may be approximaely [160]% of he Iniial Index Value in respec of he Index EUR and he Index USD, and approximaely [120]% of he Iniial Index Value in respec of he Index CHF. However, he acual iniial invesmen exposures of each Index may be higher or lower han hese esimaes, depending on marke condiions, and is deermined a he Index Sponsor s discreion. This will require leverage, resuling in a negaive allocaion o he Cash Componen. The invesmen exposure is based upon curren recommendaions by he Index Sponsor. The Index Sponsor will, a is discreion, seek o achieve he arge invesmen exposure as soon as possible following he Iniial Index Dae and in any even no laer han 1 December 2008. This discreion may be influenced by various facors such as marke condiions and he performance of he Fund Componens relaive o he performance of he applicable Index. In he even ha marke condiions change, he Index Sponsor may revise he arge invesmen exposure of 160% of he Index Value in order o mainain weighings of he Index Consiuens wihin each Index in accordance wih his Index Descripion 1. Addiionally, in respec of each Index, subjec o a prevailing invesmen exposure of around 160% of he hen applicable Index Value, he Index Sponsor may increase he weighing of he Capial Proecion 1 In such circumsances, i is anicipaed ha he Index Sponsor will no ordinarily decrease he arge invesmen exposure o less han 105%. Page 5
Componen such ha he level of capial proecion a he Final Index Dae will be increased above 100% of he Iniial Index Value a he Final Index Dae. Following he iniial composiion of each Index, subjec o secion 1.6, he ongoing calculaion of each Index is made by he Index Sponsor as of each Index Valuaion Dae on he applicable Index Calculaion Dae. Index Values shall be published by he Index Sponsor on or shorly afer each Index Calculaion Dae on Man Invesmens Inerne pages a hp://www.maninvesmens.com and can be found on he Bloomberg pages relaing o he relevan Index, he relevan Bloomberg page numbers shall also be published a hp://www.maninvesmens.com. In respec of each Index, he Index Sponsor may a any ime and from ime o ime suspend he composiion of he Index and he calculaion of he relaed Index Value if cerain circumsances exis which are deailed below. Invesmen Objecive: In respec of each Index, he main composiion objecive of he Index Sponsor is o creae an index ha mirrors he performance of a porfolio of cerain Fund Componens and ha provides capial proecion a Final Index Dae; he Index Sponsor seeks o generae absolue reurn performance of he Index, in paricular in respec of he Fund Componens. There can be no assurance ha he above-menioned reurn objecives of he Index Sponsor will be achieved and he performance of each Index may vary subsanially over ime. In respec of each Index, any deerminaions, calculaions, waivers, declaraions or decisions made by he Index Sponsor shall be made wih he aim of achieving he invesmen objecive se ou above and acing in good faih and in a commercially reasonably manner. Fees and Expenses 1.2.1 Charges a he level of he Indices In respec of each Index, he Index Value will be adjused o ake accoun of he following fees and expenses and unless oherwise saed he amouns se ou below are annual raes (per annum) ha will accrue on a monhly basis from he day on which iniial invesmen exposure o he Fund Componens is achieved unil he Final Index Dae, and such accrual o be deduced from he Index Value as of each Index Valuaion Dae: a managemen fee of 1.0% for he composiion, review and rebalancing of he Index, as of he respecive Index Valuaion Dae and calculaed by reference o he Index Value as of he respecive Index Valuaion Dae. No incenive fee will be charged a he Index level; a calculaion fee of up o 0.35% for he calculaion of he Index and mainaining he Index in he Index Sponsor s sysems, calculaed by reference o he Index Value as of he respecive Index Valuaion Dae; a capial proecion fee of 0.25% for arranging and providing he securiy of capial proecion a mauriy, calculaed by reference o he Iniial Index Value and accrued on each Index Valuaion Dae from he Iniial Index Dae; preliminary coss of up o 0.40% incurred in connecion wih he formaion of he Index, including bu no limied o he coss of legal and ax advice, he coss of obaining he regisraion wih daa service providers (e.g. Bloomberg) and oher preliminary coss calculaed by reference o he Iniial Index Value, accrued from he Iniial Index Dae and deduced on each of he hiry six (36) Index Valuaion Daes following he Iniial Index Dae and hereafer being zero; leverage coss a an ineres rae of One Monh USD LIBOR, One Monh EUR LIBOR or One Monh CHF LIBOR, as he case may be, plus a Financing Spread, charged on any negaive allocaion in he Cash Componen on or afer he Iniial Index Dae; and an adjusmen facor deermined a he reasonable discreion of he Index Sponsor reflecing he appropriae coss or he corresponding reurns, as he case may be, an acual holder of he Index Consiuens would incur or receive if replicaing he Index and which shall be incorporaed ino he Index on he firs Index Calculaion Dae following he noional occurrence of such coss or noional receip of such reurns. The above fees and expenses will accrue from he Iniial Index Dae, nowihsanding ha he exposure of he relevan Index o is Fund Componens may no be achieved unil 1 December 2008. For he avoidance of doub, he fees and coss payable a he level of he Indices as se ou above will only be charged in respec of an Index on any dae o he exen ha Ne Reference Index as a such dae is in excess of he presen value as a such dae of a paymen of he Proeced Amoun on he Final Index Dae. 1.2.2 Charges a he Level of he Fund Componens In implemening each Index in accordance wih he Index Descripion, each Index will gain invesmen exposure o a number of Fund Componens. Accordingly, each Index will, indirecly, paricipae in proporion o such invesmen exposure in all fees charged o and expenses incurred by such Fund Componens and underlying managers in relaion o hose allocaions (i.e. he weighing allocaed from each Index o he Fund Componen as deermined by he Index Sponsor from ime o ime). Page 6
The Fund Componens generally incur, where applicable, a combinaion of managemen and incenive fee. A ypical fee srucure for an AHL Componen is a managemen fee a a rae of up o onequarer of 1% per monh (approximaely 3% per annum) of he invesmen exposure allocaed o he AHL Componen and a monhly incenive fee of up o 20% calculaed by reference o he ne increase in value aribuable o he AHL Componen. In paricular, Man AHL Diversified plc incurs an annual managemen fee of approximaely 3% per annum of he invesmen exposure allocaed o i and a monhly incenive fee of up o 20% calculaed by reference o he ne increase in value aribuable o i. Addiionally, an inroducing broker fee as described below under Underlying fees and expenses may be charged o he AHL Componens. For a ypical Glenwood Componen, a managemen fee will be charged a a rae of up o one-eighh of 1% per monh (approximaely 1.5% per annum) of he invesmen exposure allocaed o he Glenwood Componen. A monhly incenive fee of up o 10% will also be charged based on he ne increase in value aribuable o he Glenwood Componen. An inroducing broker fee in respec of reviewing, negoiaing and monioring brokerage arrangemens will be payable by he Fund Componens in respec of he invesmen exposure o cerain underlying managers. Where i applies, his fee is charged a a rae of up o 1% per annum of he invesmen exposure o cerain underlying managers as of he day on which invesmen exposure o he Fund Componens is achieved. Such fee does include any inroducing broker fee ha may be charged a he level of he AHL Componens. No all fees a he level of he Fund Componens are srucured in his manner or fall wihin hese ranges. In cerain circumsances, incenive fees may only be payable if he ne increase in value exceeds a arge or hurdle rae of reurn or exceeds a previously aained value for such Fund Componen. Incenive fees may also be charged prior o he deducion of cerain fees and expenses. Managemen fees and incenive fees will be calculaed separaely for each Fund Componen and wihou se-off or averaging beween Fund Componens. All or a porion of he fees incurred by an AHL Componen or a Glenwood Componen or any oher Fund Componen may be received by he Index Sponsor or is affiliaes. 1.2.3 Underlying fees and expenses In implemening he invesmen sraegies of he Fund Componens, allocaions will be made by a number of mehods, such as hrough invesmens in oher invesmen funds or managed accouns or hrough underlying invesmen managers and he Fund Componens will, indirecly, bear all coss and brokerage commissions associaed wih hese rading ransacions. Furher fees and expenses including, where applicable, managemen and incenive fees will be incurred a he underlying level in respec of he proporion so allocaed. Underlying managers are generally compensaed hrough a combinaion of managemen and incenive fee arrangemens. A ypical fee srucure is an annual managemen fee of around 2% of he invesmen exposure and a 20% incenive fee calculaed by reference o ne new gains on he invesmen wih each underlying manager. No all compensaion arrangemens wih underlying managers are srucured in his manner. The fees and ransacion coss payable by he Fund Componens as se ou in his secion may be subjec o change and/or renegoiaion over he erm of each Index where, for example, he underlying invesmens or he argeed invesmen exposure change. Definiions [Each definiion below applies independenly in respec of each Index (even if no explicily saed below).] For he purposes of his Index Descripion only he following erms shall, unless expressly oherwise defined herein, have he following meanings: "AF " means, in respec of an Index, an adjusmen facor deermined a he reasonable discreion of he Index Sponsor reflecing he appropriae coss or he corresponding reurns, as he case may be, a Hypoheical Invesor in he Index Consiuens would incur or receive if replicaing he Index a ime "" and which shall be incorporaed ino he Index on he firs Index Calculaion Dae following he noional incurrence of such coss or noional receip of such reurns. ["AHL", a division of Man Invesmens Limied, is one of he world s leading quaniaive hedge fund managers and has a rading hisory of more han 20 years. I is he invesmen manager of he AHL Diversified Programme and a core invesmen manager of Man Invesmens Limied. Is asses are invesed in proprieary rading programmes, which are quaniaive and primarily direcional in naure. A 31 March 2008, AHL had USD 24.7 billion asses under managemen.] "AHL Componen" means, in respec of an Index, noional Unis in Man AHL Diversified plc (preceding AHL Componen has been lised wih is legal name) and any oher Unis in Invesmen Vehicles managed by he invesmen manager AHL(a member of he Man Group), or anoher member of he Man Group, Page 7
which may be added by he Index Sponsor from ime o ime o he AHL Componens o reflec marke developmens. "AHL Diversified Programme" means he rading programme of he same name used by Man Invesmens Limied, a limied liabiliy company incorporaed under he laws in force in England and Wales and regulaed in he conduc of regulaed aciviies in he Unied Kingdom by he Financial Services Auhoriy. "Applicable Rae" means, in respec of an Index, he zero-coupon ineres rae for he period from, and including, he dae on which he calculaion is being made o, and including, he Final Index Dae, which rae shall be based on he prevailing swap marke raes (such raes o be deermined beween he Deerminaion Agen and Index Sponsor in heir absolue discreion bu in good faih and in a commercially reasonable manner) in he relevan Index Currency. " "BH represens, in respec of an Index, a noional ineres rae hedging ransacion in respec of Index Valuaion Dae. This bond hedging facor will be applied o replicae a noional hedging of he ineres rae exposure an acual holder of he Capial Proecion Componen would ener ino. BH shall be calculaed according o he following formula: BH = (SR SR 1 ) D 1 W CPC ( ) BHR "BHR " means, in respec of an Index, an ineres rae hedging raio deermined a he reasonable discreion of he Index Sponsor reflecing he raio beween a noional ineres rae hedging ransacion he Index Sponsor would ener ino and he ineres rae exposure in respec of he Capial Proecion Componen during he monh in which Index Valuaion Dae falls. "CAF " means, in respec of an Index and a relaed Index Valuaion Dae, a facor deermined by he Index Sponsor a is reasonable discreion o ake ino accoun corporae acions or valuaion correcions of he Fund Componens as repored by he adminisraor of he relevan Fund Componen and which shall be incorporaed ino he Index on he firs Index Calculaion Dae following he noional occurrence of such even. "Capial Proecion Componen" means, in respec of an Index, a noional invesmen in unis and/or fracions of unis of a financial securiy he erms of which would resul in he paymen of he equivalen of USD1, EUR1 or CHF 1 respecively on he Final Index Dae and which price on an Index Valuaion Dae will be deermined by he Calculaion Agen based on he Applicable Rae. "Cash Componen" means, in respec of an Index, a noional cash balance which can be posiive, negaive or zero. The Index Sponsor aims o keep any posiive cash balance reasonably low and he average weighing of his componen should no normally exceed 5% [(and may only be 100% in he circumsances se ou in paragraphs (d) and (e) of he definiion of Composiion Obligaions)]. In order o mainain and/or achieve he argeed invesmen exposure of 160% of he hen applicable Index Value, he negaive cash balance may be significan. "CF" means, in respec of an Index, a noional monhly calculaion fee for he calculaion of he Index and mainaining he Index in he Index Sponsor s sysems, and corresponds o 1/12 of 0.35%. "CHF" means Swiss Francs. "CH " means CH EUR in respec of Index EUR, CH CHF in respec of Index CHF and zero in respec of Index USD. "CH EUR" means, in respec of Index EUR and Index Valuaion Dae, a noional currency hedging facor a ime "". This currency hedging facor will be applied in order o replicae a noional hedging of he currency exposure an acual holder of he Fund Componens would ener ino in respec of Fund Componens ha are no denominaed in EUR. CH shall be calculaed according o he following formula: CH 1+ One Monh EUR LIBOR = 1+ One Monh USD LIBOR 1 1 /12 1 P /12 ( CHR ) FX TC "CH CHF" means, in respec of an Index and an Index Valuaion Dae, a noional currency hedging facor a ime "". This currency hedging facor will be applied in order o replicae a noional hedging of he currency exposure an acual holder of he Fund Componens would ener ino in respec of Fund Componens ha are no denominaed in CHF. CH shall be calculaed according o he following formula: CH 1+ One Monh CHF LIBOR = 1+ One Monh USD LIBOR 1 1 /12 1 P /12 ( CHR ) FX TC "CHR " means, in respec of an Index, a currency hedging raio deermined a he reasonable discreion of he Index Sponsor reflecing he raio beween a noional currency hedging ransacion he Index Sponsor would ener ino and he currency exposure during he monhhich Index Valuaion Dae falls. Page 8
"CI " means, in respec of an Index, he cash ineres earned beween he issue of he Noes and he Iniial Index Dae. "Composiion Obligaions" means, in respec of an Index, he following obligaions of he Index Sponsor when composing and rebalancing he Fund Componens: here shall be no fewer han 3 Fund Componens and no more han 40 Fund Componens a any ime; no Fund Componen, oher han a Fund Componen which has been graned permission for promoion and markeing in Swizerland by he Swiss Federal Banking Commission, shall exceed 33% of he sum of he weighings of all Fund Componens; he sum of he weighings of all Fund Componens will be around a arge of 160% of he Index Value, such arge ordinarily being subjec o poenial adjusmen beween 105% and 180%; up o and including 1 December 2008 he Index Sponsor reserves he righ o mainain he iniial weighings of all Fund Componens a 0% in favour of he Cash Componen; and hree monhs prior o he Final Index Dae he Index Sponsor reserves he righ o reduce he weighings of all Fund Componens o 0% in favour of he Cash Componen. "CPC " means, in respec of an Index, he price of he Capial Proecion Componen as deermined by he Deerminaion Agen on he relevan Index Calculaion Dae "" for he relevan Index Valuaion Dae "". "CPF" means, in respec of an Index, a noional monhly capial proecion fee a guaranor would charge for arranging and providing he securiy of a capial proecion a mauriy and corresponds o 1/12 of 0.25% of he Iniial Index Value. ["CU i " means, in respec of an Index, he noional cash invesmen in he Fund Componen "i", in respec of Index Valuaion Dae, which corresponds o he percenage level o which he noional exposure of he Fund Componen "i" is cash funded a ime "" on he respecive Index Valuaion Dae as deermined by he Index Sponsor.] "D " means, in respec of an Index, he modified duraion of he Capial Proecion Componen as deermined by he Index Sponsor on an Index Calculaion Dae. "Derivaives" means financial insrumens whose characerisics and values depend upon he characerisics and values of an underlying insrumen or asse, ypically commodiies, bonds, equiies or currencies. "Deerminaion Agen" means, in respec of an Index, a bank appoined o perform valuaions wih respec o he Capial Proecion Componen and is expeced o be Deusche Bank AG, London branch. "EUR" means Euros. "Financing Spread" means, in respec of an Index, a financing spread applicable if he Cash Componen is negaive which is likely o be subjec o change, bu is no expeced o exceed 2% and may be significanly lower, i may exceed 2% under cerain marke condiions. "Final Index Dae" means, in respec of an Index, [31 May 2021] as he final dae of such Index. "Final Index Valuaion Dae" means he Final Index Dae. "Fund Componens" means he AHL Componens and he Glenwood Componens and "Fund Componen" shall mean any AHL Componen or Glenwood Componen as he conex requires. "Glenwood" is a wholly-owned subsidiary of Man Group plc where i operaes as a division of Man Invesmens Limied. Glenwood operaes as a Chicago-based independen asse managemen company under he Man Group umbrella wih an independen invesmen eam and full invesmen auonomy. A 31 March 2008, Glenwood had USD 6.3 billion asses under managemen. "Glenwood Componens" means (i) he Glenwood Syle Producs Ld Share Class Glenwood Commodiies & Macro Series, (ii) Glenwood Syle Producs Ld Share Class Glenwood Equiy Hedge Series, (iii) Glenwood Syle Producs Ld Share Class Glenwood Even Driven Series, (iv) Glenwood Syles and Sraegies Ld Share Class Glenwood Disressed Series, (v) Glenwood Syle Producs Ld Share Class Glenwood Relaive Value Series, (vi) Glenwood Syle Producs Ld Share Class Glenwood Equiy Variable Series, (preceding Glenwood Componens have been lised wih heir legal name) and any oher Unis in Invesmen Vehicles managed by he invesmen manager Glenwood (a member of he Man Group), or anoher member of he Man Group ha may be added by he Index Sponsor o he Glenwood Componens o reflec marke developmens (each a "Glenwood Componen"). Page 9
"Hypoheical Invesor" means a hypoheical or acual invesor (as deermined by he Index Sponsor in he conex of any relevan siuaion) who has an exposure similar or idenical o an exposure o he Index by way of an invesmen in he Index Consiuens or oherwise, which is deemed: o have he benefis and obligaions of an invesor in he Index Consiuens a any relevan ime; in he case of any subscripion for shares or unis in any Fund Componen (for any reason), o have submied a valid and duly compleed subscripion noice and o have paid subscripion monies o he relevan Fund Componen, on or before he las dae on which i would be permied o submi a subscripion noice and subscripion monies, ha would be imely for a subscripion for such shares or unis in he relevan amoun and proporion; and in he case of any redempion of shares or unis in any Fund Componen, o have submied a valid and duly compleed redempion noice o he relevan Fund Componens on or before he las dae on which i would be permied o submi a redempion noice ha would be imely for a redempion of such shares or unis in he relevan amoun and proporion. "Index" has he meaning given in Secion 1.1 (General Descripion of each Index). "Index Currency" means: (a) in respec of he Index USD, USD; (b) in respec of he Index EUR, EUR; and (c) in respec of he Index CHF, CHF. "Index Descripion" means, in respec of an Index, he descripion se ou in paragraphs 1.1 o 1.7 (inclusive) herein as applicable o such Index. "Index USD" has he meaning given in Secion 1.1 (General Descripion of each Index). "Index EUR" has he meaning given in Secion 1.1 (General Descripion of each Index). "Index CHF" has he meaning given in Secion 1.1 (General Descripion of each Index). "Index 0 " means, in respec of an Index, 1 uni in he Index Currency (i.e. EUR1, USD1 or CHF1 as he case may be). "Index Business Day" means, in respec of an Index, any calendar day (oher han Saurday or Sunday) on which banks and sock exchanges are open for business in Dublin, London, New York, Guernsey and Zurich and "Index Business Days" shall be consrued accordingly. "Index Calculaion Dae" means, in respec of an Index and an Index Valuaion Dae, he Index Business Day seleced by he Index Sponsor and no expeced o fall laer han eigheen Index Business Days afer such Index Valuaion Dae. "Index Consiuens" means, in respec of an Index, he Fund Componens, he Capial Proecion Componen and he Cash Componen. Ne " Index 0 " means, in respec of an Index, 1 uni in he Index Currency (i.e. EUR1, USD1 or CHF1 as he case may be). Ne " Index " means, in respec of an Index, he Index Value in he Index Currency as calculaed on he relevan Index Calculaion Dae "" for he relevan Index Valuaion Dae "" by he Index Sponsor according o he following formula: Index Ne = Index Ne -1 Index Index - 1 (1- MF - CF) - CPF - PC - AF provided ha he Index Ne, in respec of each Index relaing o he Final Index Valuaion Dae shall be a leas equal o he Proeced Amoun. "Index Sponsor" means, in respec of an Index, Man Invesmens Limied, Sugar Quay, Lower Thames Sree, London EC3R 6DU, England as he eniy composing and calculaing he Index or any successor appoined by i. "Index " means, in respec of an Index, he number calculaed according o he following formula: Index = Index -1 n 1+ i i + i= 1 ( W P ) ( TC P ) FX + CH + BH + CAF "Index Valuaion Dae" means, in respec of an Index, he las calendar day of each monh in he period from, and including, he las calendar day of he monh in which he iniial invesmen exposure o he Fund Componens is achieved o, and including, he Final Index Dae. Page 10
"Index Valuaion Dae " means, in respec of an Index, he Index Valuaion Dae for which a calculaion or deerminaion is being made. "Index Value" means, in respec of an Index and an Index Valuaion Dae, he value of Ne Index calculaed by he Index Sponsor on an Index Calculaion Dae for he preceding Index Valuaion Dae. as "Indices" has he meaning given in Secion 1.1 (General Descripion of each Index). "Iniial Index Dae" means, in respec of an Index, he incepion dae of he Index being on or around [21 November] 2008 unless changed for any reason by he Index Sponsor who will noify he Deerminaion Agen. "Iniial Index Value" means, in respec of an Index, 1 uni in he Index Currency (i.e. EUR1, USD1 or CHF1 as he case may be). "Invesmen Vehicles" means invesmen funds, fund-ype invesmen insrumens (in paricular collecive invesmen schemes, invesmen companies, limied parnerships and russ) and managed securiies accouns ha pursue a variey of alernaive invesmen sraegies. "London Business Day" is a calendar day on which banks in London are open for business. "Man AHL Diversified plc" is an invesmen company which was incorporaed under he laws of he Republic of Ireland on 23 Ocober 1995 as an open-ended invesmen company, wih variable capial and wih limied liabiliy. Man AHL Diversified plc seeks o achieve impressive medium-erm growh of capial, while resricing he associaed risks, by using he AHL Diversified Programme and which has been graned permission for promoion and markeing in Swizerland by he Swiss Federal Banking Commission. "Man Group" means he Man Group plc. "MF" means, in respec of an Index, a noional monhly managemen fee for he composiion, review and rebalancing of he Index and corresponds o 1/12 of 1.0% of he relevan Index Value as of he respecive Index Valuaion Dae. "n" means, in respec of an Index, he number of Index Consiuens wihin he Index. "NAV i " means, in respec of an Index, he ne asse value of he Fund Componen "i" a ime "" per Uni, on he respecive Index Valuaion Dae, as deermined by he adminisraor of he relevan Fund Componen in each case ne of all axes which would be applicable o an acual holder of Unis in such Fund Componen and which, in he opinion of he Index Sponsor, shall be relevan for ha purpose. If in respec of he Fund Componen "i", managemen fees, performance fees, inroducing broker fees and/or coss and brokerage commissions have no been charged for he ime period ending on he Index Valuaion Dae and commencing on he preceding Index Valuaion Dae, he NAV i, as deermined by he adminisraor shall be adjused by he Index Sponsor o reflec such fees and expenses. The managemen fee shall be charged a a rae of up o (i) one-quarer of 1% per monh (approximaely 3% per annum) of he invesmen exposure allocaed o an AHL Componen and (ii) one-eighh of 1% per monh (approximaely 1.5% per annum) of he invesmen exposure allocaed o a Glenwood Componen, each calculaed per monh. A monhly incenive fee a a rae of up o 20% shall also be charged based on he ne increase in value aribuable o he AHL Componen and of up o 10% on he ne increase in value aribuable o a Glenwood Componen. The incenive fee will only be payable if he ne increase in value exceeds a previously aained value of NAV i,. NAV i, shall be rounded according o commercial convenions o four decimal places. If NAV i, for a Fund Componen is no available on an Index Calculaion Dae for he relevan Index Valuaion Dae, he Index Sponsor may, for he purposes of calculaing and rebalancing he Index and wih Page 11
regard o he hen prevailing marke condiions, deermine he Index Value on he basis of an unofficial NAV i, of ha Fund Componen as of he relevan Index Valuaion Dae or any oher value of ha Fund Componen, esimaed a is reasonable discreion; provided, however, ha if such Index Valuaion Dae is he Final Index Valuaion Dae only NAV i, may be used. "One Monh CHF LIBOR -1 " means, in respec of an Index, he 1 monh CHF LIBOR fixing as se forh on Bloomberg page "SF0001M Curncy" wo London Business Days prior o he Index Valuaion Dae -1. "One Monh USD LIBOR -1 " means, in respec of an Index, he 1 monh USD LIBOR fixing as se forh on Bloomberg page "US0001M Curncy" wo London Business Days prior o he Index Valuaion Dae -1. "One Monh EUR LIBOR -1 " means, in respec of an Index, he 1 monh EUR LIBOR fixing as se forh [on he relevan Bloomberg page] wo London Business Days prior o he Index Valuaion Dae -1. "P FX, " means P FX, EUR in respec of Index EUR, P FX, CHF in respec of Index CHF and zero in respec of Index USD. "P FX, EUR" means, in respec of Index EUR, he performance of he USD/EUR exchange rae from and including Index Valuaion Dae -1 ("USDEUR -1 ") o and including Index Valuaion Dae ("USDEUR ") calculaed according o he following formula and obained by he Index Sponsor from such sources as i considers, acing in a commercially reasonably manner, appropriae: P FX, = USDEUR - USDEUR -1 USDEUR -1 "P FX, CHF" means, in respec of Index CHF, he performance of he USD/CHF exchange rae from and including Index Valuaion Dae -1 ("USDCHF -1 ") o and including Index Valuaion Dae ("USDCHF "), calculaed according o he following formula and obained by he Index Sponsor from such sources as i considers, acing in a commercially reasonably manner, appropriae: P FX, = USDCHF - USDCHF -1 USDCHF -1 "P i, " means, in respec of an Index, he performance of (i) each of he Fund Componens, (ii) he Capial Proecion Componen or (iii) he Cash Componen, as he case may be, in he period from and including Index Valuaion Dae -1 o and including Index Valuaion Dae. The performance of each of he Fund Componens from and excluding Index Valuaion Dae -1 o and including Index Valuaion Dae will be calculaed according o he following formula: CU i,-1 NAV i, - NAV i,-1 NAV i,-1 The performance of he Capial Proecion Componen from and excluding Index Valuaion Dae -1 o and including Index Valuaion Dae will be calculaed according o he following formula: CPC i, - CPC CPC i,-1 i,-1 The Cash Componen will perform from and including Index Valuaion Dae -1 o and including Index Valuaion Dae a: One Monh USD LIBOR -1 if a posiive cash balance applies while a One Monh USD LIBOR -1 plus Financing Spread in he case of a negaive cash balance. Page 12
"Profi Lock-in Amoun" has he meaning given o ha erm in secion 1.5.2 (Weigh of he Capial Proecion Componen) below. "Proeced Amoun" means, in respec of an Index, he sum of he Iniial Index Value plus any Profi Lockin Amouns. "SMF" means, in respec of an Index, a se-up and mainenance fee in connecion wih he formaion of he Index and corresponds o 1/12 of up o 0.40% of he Iniial Index Value deduced from he Index on each of he firs hiry six (36) Index Valuaion Daes following he Iniial Index Dae and hereafer being zero. "SR " means SR CHF in respec of Index CHF, SR CHF in respec of Index EUR and SR CHF in respec of Index USD. "SR CHF" means, in respec of Index CHF, he 10 year CHF Swap Rae as se forh on he relevan Bloomberg page on he preceding Index Valuaion Dae if D is more han 7.5 years on he Index Calculaion Dae. In all oher cases SR corresponds o he 5 year CHF Swap Rae as se forh on he relevan Bloomberg page on he preceding Index Valuaion Dae. "SR EUR" means, in respec of Index EUR, he 10 year EUR Swap Rae as se forh on he relevan Bloomberg page on he preceding Index Valuaion Dae if D is more han 7.5 years on he Index Calculaion Dae. In all oher cases SR corresponds o he 5 year EUR Swap Rae as se forh on he relevan Bloomberg page on he preceding Index Valuaion Dae. "SR USD" means, in respec of Index USD, he 10 year USD Swap Rae as se forh on he relevan Bloomberg page on he preceding Index Valuaion Dae if D is more han 7.5 years on he Index Calculaion Dae. In all oher cases SR corresponds o he 5 year USD Swap Rae as se forh on he relevan Bloomberg page on he preceding Index Valuaion Dae. "TC " means, in respec of he relevan Index, he noional rading capial iniially available o gain exposure o he Fund Componens and he Cash Componen and is approximaely equal o (1 - W CPC ) + CI "Uni" means any kind of paricipaion in an Invesmen Vehicle irrespecive of he legal srucure hereof. "USD" or "Dollars" means he legal currency of he Unied Saes of America. "W CPC, " means, in respec of an Index and an Index Valuaion Dae, he noional weighing exposure, expressed as a percenage, assigned o he Capial Proecion Componen. "W i " means, in respec of an Index and an Index Valuaion Dae, he noional weighing exposure, expressed as a percenage, assigned o each of he Fund Componens, he Capial Proecion Componen ("W CPC ") or he Cash Componen by he Index Sponsor. The arge aggregae weigh of he Fund Componens will be around 160% of he Index Value. Composiion of he Index Each Index will comprise from ime o ime, weighed exposure o each of he Fund Componens, he Capial Proecion Componen and he Cash Componen, as deermined by he Index Sponsor wih he aim of achieving he objecive of he Index se ou in Secion 1.1 above. The Fund Componens will be composed in accordance wih he Composiion Obligaions. The mehodology o compose and calculae he Index may be subjec o modificaions or changes as a consequence of marke, regulaory, legal, financial or fiscal circumsances. Following he iniial composiion of he Index, subjec o he objecive of he Index se ou in Secion 1.1 above and he Composiion Obligaions, he Index Sponsor in is own discreion will adjus he composiion of he Index from ime o ime. This may be done by one or a combinaion of (i) adjusing he weighs of he Capial Proecion Componen and/or he Cash Componen in he Index and (ii) adjusing he Fund Componens subjec always o he Composiion Obligaions, by (a) re-weighing he Fund Componens and/or (b) adding and/or removing Fund Componens. The Fund Componens seleced by he Index Sponsor on he Iniial Index Dae will give, direcly or indirecly, exposure o some or all of he following rading programmes and syles/sraegies: Page 13
- Managed fuures - Commodiies & Macro - Equiy hedge - Even driven - Disressed & Credi - Relaive value - Variable equiy Brief descripions of hese rading programmes and syles/sraegies are provided below. These descripions may change over ime due o developmens in he hedge funds marke. However, afer he Iniial Index Dae he Index Sponsor may selec Fund Componens applying invesmen approaches oher han hose oulined above, subjec o he objecive of he Index se ou in Secion 1.1 above. Managed fuures The managed fuures exposure is mainly hrough he AHL Diversified Programme. The AHL Diversified Programme is primarily a direcional rading sysem i employs quaniaive rading sraegies ha seek o idenify and ake advanage of price rends. The AHL Diversified Programme rades 24 hours a day, in more han 140 diverse inernaional markes on roughly 34 exchanges. The programme use real-ime price informaion o respond o price movemens across hese markes. The scope o inves in a diversified porfolio from currencies o commodiies widens he opporuniies available and helps decrease invesmen risk. Relying solely on compuer-driven rading, he programme is 100% sysemaic. The AHL Diversified Programme is designed o be robus, sable and scalable. I uses a variey of rading frequencies, giving i he poenial o capialise on shor or long-erm marke rends. The insrumens raded in he diversified porfolio may include fuures, opions, forward conracs, swaps and oher derivaive insrumens. AHL conducs rigorous risk conrol and ongoing research, focusing on a disciplined invesmen approach, diversificaion and he consan ques for efficiency. The key objecives of he AHL Diversified Programme are o: - Produce above average medium-erm capial growh - Exploi profi opporuniies in boh rising and falling markes using a disciplined quaniaive invesmen process - Minimise risk by operaing across a range of secors and markes using a consisen invesmen process ha adheres o pre-defined leveraged limis and in accordance wih marke correlaion, volailiy and liquidiy facors - Provide diversificaion away from radiional sock and bond invesmens There can be no assurance ha any of hese objecives will be achieved. Commodiies and Macro Commodiy and Macro managers ypically aemp o profi from direcional rading across he specrum of asse classes. In general posiions are concenraed in commodiies, currencies, ineres raes, and sock index fuures. However, managers may also ake posiions in specific equiy or credi securiies, bu hese posiions end o be driven by a more hemaic vs. company-specific raionale. In addiion, while posiions end o be direcional here may also be a significan amoun of exposure o relaive value rades among various commodiies, currencies, ineres raes and sock index markes, eiher wihin or across counries and geographic regions. This syle is divided ino hree disinc sraegies, discreionary commodiy managers, sysemaic CTAs, and global macro managers (boh sysemaic and discreionary). Discreionary commodiy managers end o ake direcional and relaive value posiions in commodiies and commodiy-relaed securiies. The raionale for hese posiions is largely based on fundamenal research ino he supply and demand for he commodiy, and, in he case of securiies, he sensiiviy of he underlying companies o changes in he price of he commodiy. Managers are able o earn aracive reurns by successfully gahering and inerpreing informaion from a variey of sources, boh public and proprieary. Sysemaic CTAs rade commodiies, currencies, ineres raes, and sock indices, hrough boh he fuures and cash markes. Their rades are based on signals generaed quaniaive algorihms ha are largely if no exclusively based on price daa. Mos managers in his area use rend-following sysems ha aemp o capure price momenum in hese markes. Global macro managers aemp o profi from large direcional or relaive value moves in any of he major asse classes, bu unlike sysemaic CTAs, end o be more relian on fundamenal vs. price daa. These managers can be eiher sysemaic, applying quaniaive algorihms o economic daa, or fundamenal, applying he managers judgmen o whaever he manager believes is he perinen daa for he paricular asse class being raded. In general hese managers benefi from large changes in he absolue or relaive prices wihin or across asse classes. Managers are largely unconsrained in erms of asse class and are hus able o earn excess reurns by correcly predicing price moves, and generally benefi from inefficiencies and price disorions ha arise when more consrained invesors (e.g., cenral banks, corporae fx hedgers, ec.) are forced o make less economically opimal rading decisions. Mos of hese managers have an expeced volailiy higher han hose of oher hedge fund syles. However, due o heir srong diversificaion characerisics as compared o oher hedge fund sraegies, commodiy and macro funds can serve o proec porfolio capial during difficul marke condiions. Page 14
Equiy hedge Equiy hedge is characerised by managers invesing in domesic and inernaional equiy markes wih a srong commimen o running porfolios on a highly hedged basis. Porfolios may be run eiher on a purely balanced exposure or wihin igh bands of ne exposure o he equiy markes hey rade. Reurns can be driven by fundamenal or quaniaive securiy selecion, boh wihin secors or across secors, bu wihou a significan bea exposure in he porfolio. As a resul, ne long or shor marke exposure generally is no a driver of reurns. The managers ha are seleced in his area mus be highly skilled wih respec o securiy selecion, bu also possess srong porfolio managemen skills in order o reduce or miigae he impac of secor, syle or oher sysemaic facors on reurns. Managers ypically use low o moderae leverage, in erms of gross exposure, and end o focus on highly liquid markes. Risk in his area is ofen characerised by periods of underperformance in highly direcional and momenum-driven markes. These managers end o susain difficul periods of ime when here is lile price differeniaion on eiher he shor or he long side of he marke and when marke aciviy ends o be dominaed by bea or momenum wihin he marke iself. Even driven The even driven syle includes managers capialising on opporuniies in significan corporae evens. Someimes referred o as corporae lifecycle invesing, hese evens can include a wide variey of corporae aciviies ha are ypically (hough no always) cenered on changes in he balance shee, capial srucure or ownership of a company. The common hread is ha he even changes he acual or perceived value of a company s securiies, hus creaing opporuniy for asue and specialised invesors. Examples of such evens would be: Mergers and acquisiions, spin-offs and/or divesiures of divisions or subsidiaries, recapialisaion or changes in balance shee srucure hrough acions such as increasing leverage hrough increased dividends, share buybacks, or increased borrowings, decreasing leverage hrough equiy issuance or deb paydown, enry ino bankrupcy or exi from bankrupcy. The syle consiss of wo sraegies, special siuaions, and muli-sraegy even. The special siuaions sraegy includes wo main groups of managers. The firs is passive even generalis managers, who will capialise on opporuniies in mergers, acquisiions, spin-offs, divesiures, recapialisaions and in some cases, he (deb or equiy) securiies of bankrup, near bankrup, or pos-bankrupcy companies. The second is acivis managers, who ry o influence he value of heir invesmens by aking large sakes in companies and aemping o persuade managemens, boards of direcors, and shareholders o implemen specific acions. In many cases he acions he acivis managers advocae are he same corporae evens ha arac oher even-driven managers o he siuaion. In addiion, some acivis managers may advocae operaional, raher han corporae finance, changes as a means of realising value. The approaches acivis managers use range from quie cooperaion o direc confronaion, and he degree of conrol acivis mangers seek ranges from simply convincing companies o complee a one-ime even, o gaining effecive conrol of he company hrough board seas. Specific acics range from quiely and cooperaively making suggesions o managemen and/or boards of direcions o publicly advocaing changes o proxy fighs o gain board seas or force oher changes. The choice of wheher o be passive or acive ofen depends on he specific siuaion so while managers will choose o emphasise acivism o a greaer or lesser degree, managers using passive and acive sraegies are no muually exclusive. Many even generaliss will become acive in cerain siuaions, and many aciviss will make invesmens where hey do no inend o ake an acive role. Muli-sraegy even consiss of managers who, in addiion o special siuaions rading also engage in rading in disressed securiies rading. They will end o adjus he mix of hese sraegies as underlying marke condiions warran. Disressed and Credi Managers in his syle will ake direcional posiions in corporae deb securiies. The sraegies wihin his syle are disressed deb and credi long / shor. Boh of hese sraegies will end o inves in corporae deb securiies based on fundamenal credi analysis of he underlying companies. In disressed deb, alhough managers end o be long-biased over he cycle, hey will ake boh long and shor posiions in he securiies of companies which are in bankrupcy, have he near-erm poenial o ener bankrupcy, or have recenly emerged from bankrupcy. The poenial for excess reurns in he sraegy derives from srucural impedimens o many insiuions holding disressed securiies and from he difficuly of evaluaing securiies and claims ha are subjec o bankrupcy proceedings. In credi long / shor, managers will ypically ake direcional long and shor posiions in corporae deb securiies. Alhough hey will end o have some direcional bias a any poin in ime, managers in his sraegy will end o be neural abou he overall direcion of he credi markes over he course of he cycle. In addiion, managers will also ake some relaive value posiions beween differen credis and wihin he capial srucure of he same credi. Excess reurns in his sraegy come from srucural inefficiencies due o he dominance of hese markes by raings and regulaor-driven invesors as well as he abiliy o consruc aracive risk-reurn posiions by virue of he opion-like characerisics of long and shor credi posiions. Relaive value Relaive value is characerised by he abiliy o exploi mispricings wihin differen securiies of eiher he same issuer or of issuers wih similar fundamenal characerisics. The sraegy can ofen involve exploiing he opionaliy ha may be apparen in he marke for selec securiies, paricularly for converible bonds. Reurns are generaed by being long or shor he spreads of relaed securiies and he impac of ighening or widening of hese spreads. While he sraegies wihin he relaive value syle end o be classified as arbirage sraegies, hey are no necessarily perfecly marke neural, nor are hey necessarily perfec or realisable arbirage. Managers ofen rely on a moderae o higher level of leverage in order o profi from Page 15