This glossary focuses on phrases and terminology commonly used in the world of alternative investments. It is not meant to be an all-encompassing investment dictionary, but rather a tool to enhance understanding of alternative investments.

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Five Against Bond. A futures spread trade involving the buying (selling) of a five-year Treasury bond futures contract and the selling (buying) of a long-term (15-30 year) Treasury bond futures contract.

Five Against Note. A futures spread trade involving the buying (selling) of a five-year Treasury note futures contract and the selling (buying) of a ten-year Treasury bond futures contract.

The regulatory agency responsible for administering bank depository insurance in the US.

The Central Bank for the United States.

The relationship of the cost of feed, expressed as a ration to the sale price of animals, such as the
corn-hog ratio. These serve as indicators of the profit margin or lack of profit in feeding animals to
market weight.

Open positions are closed according to the FIFO accounting rule. All positions opened within a particular currency pair are liquidated in the order in which they were originally opened.

According to Chicago Board of Trade rules, the first day on which a notice of intent to deliver a commodity in fulfillment of a given month's futures contract can be made by the clearinghouse to a buyer. The clearinghouse also informs the sellers who they have been matched up with.

The fixed income arbitrageur attempts to profit from price anomalies between related interest rate instruments. The majority of managers trade globally, although a few just focus on the US market. In order to generate returns sufficient to exceed the transaction costs, leverage may range from 10 times up to 150 times NAV employed. Genuine fixed income arbitrageurs typically aim to deliver steady returns with low volatility, due to the fact that the directional risk is mitigated by hedging against interest rate movements, or by the use of spread trades. Fixed income arbitrage can include interest rate swap arbitrage, US and non-US government bond arbitrage, forward yield curve arbitrage, and Mortgage Backed Securities Arbitrage.

Dealer jargon used to describe a position that has been completely reversed, e.g. you bought $500,000 then sold $500,000, thereby creating a neutral (flat) position.

A contract whereby the seller agrees to pay to the purchaser in return for the payment of a premium, the difference between current interest rates and an agreed (strike) rate times the notional amount, should interest rates fall below the agreed rate. A floor contract is effectively a string of interest rate guarantees.

The simultaneous buying of one currency and selling of another.

The process of purchasing at a discount letters of credit or similar documents held as payment for goods sold to foreign buyers. This has the effect of giving exporters earlier payment by paying a premium to the forfaiter.

The pre-specified exchange rate for a foreign exchange contract settling at some agreed future date, based upon the interest rate differential between the two currencies involved.

See Contango.

A cash contract in which a seller agrees to deliver a specific cash commodity to a buyer sometime in the near future. Forward contracts, in contrast to futures contracts, are privately negotiated and are not standardized.

An agreement between two parties to set exchange rates in advance

The pips added to or subtracted from the current exchange rate to calculate a forward price.

An agreement between two parties to set future borrowing / lending rates

A futures market where the price difference between delivery months reflects the total costs of
interest, insurance and storage.

Analysis of economic and political information with the objective of determining future movements in a financial market.

The hedge fund industry's closest equivalent to a mutual fund, the majority of funds of funds invest in multiple hedge funds (5 to 100) with different investment styles. The objective is to smooth out the potential inconsistency of the returns from having all of the assets invested in a single hedge fund.
Funds of funds can offer an effective way for an investor to gain exposure to a range of hedge funds and strategies without having to commit substantial assets or resources to the specific asset allocation, portfolio construction and individual hedge fund selection. A growing number of style or category
specific funds of funds have been launched during the past few years. For example, funds of funds which invest only in Event Driven managers; or funds of funds which invest only in Equity Market
Neutral style managers.

The characteristic of interchangeability. Futures contracts for the same commodity and delivery month are fungible due to their standardized specifications for quality, quantity, delivery date and delivery locations.

An individual or organization that solicits or accepts orders to buy or sell futures contracts or options on futures and accepts money or other assets from customers to support such orders. Also referred to as commission house or wire house.

A legally binding agreement, made on the trading floor of a futures exchange, to buy or sell a
commodity or financial instrument sometime in the future. Futures contracts are standardized according to the quality, quantity and delivery time and location for each commodity. The only variable is price, which is discovered on an exchange trading floor.

A term frequently used with reference to speculative position limits for options on futures contracts.
The futures-equivalent of an option position is the number of options multiplied by the previous day's
risk factor or delta for the option series. For example, 10 deep out-of-money options with a risk factor
of 0.20 would be considered 2 futures-equivalent contracts. The delta or risk factor used for this
purpose is the same as that used on delta-based margining and risk analysis systems.

Foreign Exchange.

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The seven leading industrial countries, being US , Germany, Japan, France, UK, Canada, Italy.

Similar to standard deviation, except this statistic calculates a mean return for only the periods with a gain and then measures the variation of only the gain periods around this gain mean. This is a measure
of the volatility of upside performance.

A measure of how fast delta changes, given a unit change in the underlying futures price.

The manager of a limited partnership. The general partner has full responsibility for investing the capital. The general partner also bears personal liability for any lawsuits that arise from the investment's activities, but is often indemnified by the fund.

A trade practice in which a floor broker, in executing an order - - particularly a large order - - will fill a portion of the order at one price and the remainder of the order at another price to avoid an
exchange's rule against trading at fractional increments or "split ticks".

Aims to profit from changes in global economies, typically brought about by shifts in government policy which impact interest rates, in turn affecting currency, stock, markets. Participates in all major markets
- equities, bonds, currencies and commodities though not always at the same time. Uses leverage and derivatives to accentuate the impact of market moves. Utilizes hedging, but leveraged directional bets tend to be the largest impact on performance.

An international electronic trading system for futures and options that allows participating exchanges
to list their products for trading after the close of the exchanges' open outcry trading hours. Developed by Reuters Limited for use by the Chicago Mercantile Exchange (CME), Globex was launched on June 25, 1992, for certain CME contracts. Various MATIF (Marche a Terme International de France) contracts began trading on the system on March 15, 1993.

The purchase of a stock, commodity, or currency for investment or speculation.

The selling of a currency or instrument not owned by the seller.

An order to buy or sell at a specified price. This order remains open until filled or until the client cancels.

Total value of a country's output, income or expenditure produced within the country's physical borders.

The total of a fund's long and short positions in relation to the assets of the fund. For example, if the fund is 80% long and 50% short, then the fund is 130% gross invested.

Gross domestic product plus income earned from investment or work abroad.

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A position or combination of positions that reduces the risk of your primary position.

There is no formal definition in securities law for hedge fund. In broad terms, a hedge fund is an investment fund that endeavors to deliver absolute returns in all market conditions, with lower volatility and low correlation to bond and equity markets. Hedge funds encompass a wide range of strategies, all intended to reduce risk while focusing on absolute rather than relative returns. Hedge funds employ an extensive suite of sophisticated techniques not available to conventional funds, including short selling, derivatives and leverage.

An individual or company owning or planning to own a cash commodity corn, soybeans, wheat, U.S. Treasury bonds, notes, bills, etc. and concerned that the cost of the commodity may change before either buying or selling it in the cash market. A hedger achieves protection against changing cash prices by purchasing (selling) futures contracts of the same or similar commodity and later offsetting that position by selling (purchasing) futures contracts of the same quantity and type as the initial transaction.

The high point of value that an investment fund has reached. This term is often used in the context of fund manager's performance fee. Because the income of an investment manager is performance based, a high water mark means if the manager loses money over one time period they have to get back to the high water mark before getting a performance fee on new gains. For example, you invest $100,000 in a fund and your investment falls to $90,000 after 1 year. The manager would not be entitled to a performance fee until after surpassing the high water mark or highest point of value of the investment - which in this case is $100,000.

High yield investing involves applying a buy/hold, or a trading strategy to high yield securities.
Managers may buy the high yield debt of a company that they think will get a credit upgrade or that might be in a position to redeem the outstanding high coupon issue. Other areas of opportunity include buying the discounted bonds of companies that are potential take over targets. Some managers
combine these strategies with levered pools of bank debt. Portfolio securities are generally sold when they reach upside or downside price targets, or if the issuer of the securities, or industry fundamentals change materially. Until recently high yield was primarily a US focused strategy. However, today it can
be global. Some managers include emerging market bonds, others limit themselves to investment grade countries only.

The relationship of feeding costs to the dollar value of hogs. It is measured by dividing the price of hogs ($/hundredweight) by the price of corn ($/bushel). When corn prices are high relative to pork prices, fewer units of corn equal the dollar value of 100 pounds of pork. Conversely, when corn prices are low
in relation to pork prices, more units of corn are required to equal the value of 100 pounds of pork. See Feed Ratio.

The purchase of either a call or put option and the simultaneous sale of the same type of option with typically the same strike price but with a different expiration month. Also referred to as a calendar spread.

Hurdle Rate
A minimum return requirement before incentive fees apply. It is often the current interest rate on Treasury bills. In private equity, the minimum return paid to the Limited Partner before the General Partner receives any share of the profits.

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IFC Global Index
The IFC Global Index is a market capitalization weighted index that measures the market movements of 32 emerging markets. The Global Index is intended to represent the performance of the most active stocks in their respective stock markets and to be the broadest possible indicator of market movements. The markets include China, Korea, Philippines, Taiwan, India, Indonesia, Malaysia, Pakistan, Sri Lanka, Thailand, Argentina, Brazil, Chile, Columbia, Mexico, Peru, Venezuela, Czech republic, Egypt, Greece, Israel, Hungary, Jordan, Morocco, Nigeria, Poland, Russia, Saudi Arabia, Slovakia, South Africa, Turkey and Zimbabwe.

IFC Investable Index
The IFC Investable Index is a subset of the IFC Global Index; it includes only those securities, which
are "Investable", i.e. those stocks which are freely available to foreign institutional investors. This
index is also capitalization weighted. The regional weights are notably different from the Global Index.

Incentive Fee
See Performance Fee.

Inflation
An economic condition whereby prices for consumer goods rise, eroding purchasing power.

Information Ratio
The Active Premium divided by the Tracking Error. This relates the degree by which an investment has beaten the benchmark to the consistency by which the investment has beaten the benchmark.

Initial Margin
The initial deposit of collateral required to enter into a position as a guarantee on future performance.

In Sight
The amount of a particular commodity that arrives at terminal or central locations is or near producing areas. When a commodity is "in sight", it is inferred that reasonably prompt delivery can be made; the quantity and quality also become known factors rather than estimates.

Interbank Rates
The Foreign Exchange rates at which large international banks quote other large international banks.

Intercommodity Spread
A spread in which the long and short legs are in two different but generally related commodity markets. Also called an Intermarket spread. See Spread.

Interdelivery Spread
A spread involving two different months of the same commodity. Also called an Intracommodity spread. See Spread.

Interest Rate Swap
A transaction in which two counterparties exchange interest payment streams of differing character based on an underlying notional principal amount. The three main types are coupon swaps (fixed rate
to floating rate in the same currency), basis swaps (one floating rate index to another floating rate
index in the same currency) and cross-currency interest rate swaps (fixed rate in one currency to floating rate in another).

Intermarket Spread
The sale of a given delivery month of a futures contract on one exchange and the simultaneous
purchase of the same delivery month and futures contract on another exchange.

Internal Rate of Return
IRR is the generally accepted methodology for measuring the performance of private equity
investments. The IRR is the annualized implied discount rate calculated from a series of cash flows. It is the return that equates the present value of all invested capital in an investment to the present value
of all returns.

IRR is preferred for private equity for several reasons. First, cash flow is controlled by the General Partner, negating the need to make time-weighted cash flow adjustments for the purpose of equitable comparisons. Secondly, the cash flow pattern inherent in the lifecycle of a private equity investment
may create distortions on a time-weighted rate of return that are not indicative of the true investment performance. For example, the initial funding in partnerships may be used for expenses that result in a very large percentage loss on a very small invested base in the first few periods. Because only cash flows and the closing market value are used in IRR calculations, the return is not affected by interim pricing inaccuracies, as would be the case for a time-weighted rate of return.

International Business Company (IBC)
A term used to define a variety of offshore corporate structures. Common to all IBC's are the dedication to business use outside the incorporating jurisdiction, rapid formation, secrecy, broad powers, low cost, low to zero taxation and minimal filing and reporting requirements. An increasing number of offshore jurisdictions are permitting the use of nominee shareholders, directors and officers.

Intervention
Action by a central bank to effect the value of its currency by entering the market. Concerted intervention refers to action by a number of central banks to control exchange rates.

In-the-Money Option
An option having intrinsic value. A call option is in-the-money if its strike price is below the current price
of the underlying futures contract. A put option is in-the-money if its strike price is above the current price of the underlying futures contract.

Intrinsic Value
A measure of the value of an option or a warrant if immediately exercised. The amount by which the current price for the underlying commodity or futures contract is above the strike price of a call option
or below the strike price of a put option for the commodity or futures contract.

Introducing Broker (or IB)
Any person (other than a person registered as an "associated person" of a futures commission
merchant) who is engaged in soliciting or in accepting orders for the purchase or sale of any commodity for future delivery on an exchange who does not accept any money, securities, or property to margin, guarantee, or secure any trades or contracts that result there from.

Inverted Market
A futures market in which the nearer months are selling at prices higher than the more distant months;
a market displaying "inverse carrying charges," characteristic of markets with supply shortages. See Backwardation.

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Jensen's Alpha
Quantifies the extent to which an investment has added value relative to a benchmark. Jensen Alpha is equal to the investment's average return in excess of the risk-free rate minus the beta times the benchmark's average return in excess of the risk-free rate.

Jones Model
Developed and launched by sociologist and journalist Alfred Winslow Jones in 1949. While traditional mutual fund models took only long positions in stocks, Jones's Model, a limited partnership, combined
long positions (in favored stocks) with short positions (in stocks expected to decline) in the same sector, thus insulating or "hedging" the model against market movement. The return earned by the model would depend on the manager's skill in stock selection rather than on the movement of the market. The model thus targeted an absolute return rather than a relative return to the market's performance. For his services Jones charged a performance fee of 20% of realized profits and was required to invest his
own capital in the fund. The Jones Model is committed to capital preservation. See Long/Short Equity.