CULROSS GLOBAL MANAGEMENT LIMITED

Investment Process & Procedure -- Background of Employees

Business

The Company's principal business is discretionary management of institutional fixed income portfolios.

Philosophy

Culross takes a global approach to fixed income investments, concentrating on balancing the weighting of exposure to potentially profitable markets with the continuous need to create stable low risk returns. Individual national bond market weightings are actively managed to maximise returns and typically this enhances returns over the domestic bond market or money market alternative and simultaneously reduces risk through diversification. The key to creating these return characteristics is successful risk management.

"THE EFFECTIVE MANAGEMENT OF RISK SECURES OPTIMAL LONG TERM RETURNS"

This investment philosophy builds on being able to identify and understand the risks involved in a bond portfolio. As a specialist bond manager, Culross has particular expertise in this field and knows how to create and secure a conservative, low-risk, diversified portfolio - which is the primary goal of bond ownership.

Typically, there are four risks to all bond investment: Credit risk, Currency risk, Concentration risk and (interest rate) Cycle risk.

Credit risk is eliminated by investing solely in sovereign, supranational and top quality ( AA+ or better) corporate bonds. Government bonds dominate portfolio holdings.

Foreign exchange risk is managed separately from interest rate risk and is divided into 'wanted' and 'unwanted' foreign exchange risk. The philosophy is to remove unwanted foreign exchange risk by hedging and set exposure to chosen foreign exchange risks only. This may result in foreign bonds being hedged or unhedged and also outright foreign exchange positions being held. At no time, however, do the foreign exchange positions become sufficient to dominate the return characteristics of the portfolio overall.

Concentration risk is encountered when all or most bonds in a portfolio are denominated in one currency. On average, 80-90% of the risk and return characteristic of a bond is attributable to the yield curve movements in that currency. In practice, therefore, it is impossible to diversify a bond portfolio properly without investing globally.

Interest rate cycle risk refers to the general movement of interest rates and bond prices through an economic cycle. Over shorter periods of time there is also a noticeable systemic market risk from bond prices fluctuating as rates move in response to changes in investor perceptions of government policy and economic data. Both the long and short term risks need to be managed by an investment process which takes active steps to control volatile bond markets and which avoids owning bonds as interest rates rise.