The main body of the Manual contains methodology to calculate exposure information for various instruments, for example GP 15 to 17. The methodology in the main document should always take precedence over Appendix I. For example, GP 16 suggests that “All sovereign interest exposure (Section 3) should be reported as US 10 year swap equivalent basis” while Appendix I suggests that “Bond Future: N * NCS * market price of the CTD reference bond”. So, for Sovereign bonds, use the methodology prescribed in the main body, i.e. report exposure on US 10 year swap equivalent basis” and for non Sovereign bonds use the methodology in Appendix I.

On the exposure tabs, the classification of derivative instruments (by sector, region, maturity, market cap, credit rating, yield, etc) should be based on the underlying security. The only exceptions are the Instrument and Liquidity sections which should be based on the instrument (2.6, 2.8, 3.7, 4.7, 4.12, 5.6, 5.11, 6.6, 7.6, 7.10). Example 1: Equity options should be classified based on the underlying security in sections 2.4, 2.5 and 2.7, and based on the instrument type in sections 2.6 and 2.8. Example 2: Sovereign bond futures should be classified based on the underlying security in sections 3.4, 3.5 and 3.6. Note that this includes section 3.5 Instruments by Maturity; here the maturity should be the maturity of the underlying bond. Section 3.7 should be based on the instrument type.

Open Protocol required various types of values to be entered and the following is a rough guide: a.) All % values: should be reported with a percentage sign or as a decimal (max 3). For example, 9.355% holding should be reported as 9.4% or 0.094 but not 9.4. b) Numerical cells: text should not be entered in a numerical cell, i.e. do not put dashes or ‘n/a’ in any cells. If a cell is not applicable just leave it blank. c) All AUM numbers: should be reported to the nearest integer. Report the actual amount and do not use any text like “m” or “million” in these fields. d) In sections 2 to 7, “Total Exposure to ….”: Total long and short dollar exposure for each relevant asset class should be reported at the top of the template in sections 2.1, 3.1, 4.1, 5.1, 6.1 and 7.1. e) Section 4.8 Price Yield and Spread

• 4.8.1.1 & 4.8.1.2, metrics for performing debt: should be reported as a percentage or decimal. For example 11.8% or 0.118.
• 4.8.1.3 metrics for performing debt (CDS current spread): should be reported in terms of basis points 210 and NOT 2.10%
• 4.8.2.1, Average $ price (cents per $): Should be reported as cents, for example a $100 bond trading at $40 should be entered as 40.

f) Section 4.10.1, Portfolio Average Maturity: Should be reported as number of years, for example 5.1. Do not add “years” or other text at the end. g) Section 5.7, Derivative specific information

• 5.7.1 to 5.7.4: should be reported as a percentage or decimal. For example 10% or 0.10.
• 5.7.5: Average Portfolio Bond Market Price: should be reported as a dollar amount. Par value should be assumed to $100. For example a $1000 bond trading at $1128 should be reported as 112.8. Note: information at Grade 2 under 5.7.5 should be reported as percentage of AUM.
• 5.7.6: Average Portfolio Delta: should be reported as a percentage or decimal. For example 80% or 0.80.
• 5.7.7: Premium over Parity: should be reported as a percentage or decimal. For example 10% or 0.10.

h) In sections 8 to 11, for “% Long/Short exposure included in calculation”: Values should be reported as a percentage of total AUM and not as a percentage of total long / short exposure.

Side pockets should be included under the following sections only:

• 1.2 Total Firm Assets under Management
• 1.3 Total Fund Assets under Management
• 1.7 Investor Break Down
• 1.8 Investor Liquidity

Please do not include Side Pocket information for the following sections

• 1.6 Performance
• 2 to 7 Asset Class Exposures
• 8 to 10 Portfolio Level Risk Measures
• 11 Counterparty

QTD performance is the cumulative performance to date since the latest quarter end NOT rolling 3month return. Similarly, YTD performance is the cumulative performance since the latest 31st December. ITD performance must be annualised unless the fund is less than 12 months old.

Please report this section in the same manner as you would Form PF, Question 50 (http://www.sec.gov/divisions/investment/pfrd/pfrdfaq.shtml). Please report this section assuming that 100% of the investor base has requested liquidity. For each reporting date, this section should be filled in taking into account all relevant lock-ups, upcoming notice and redemptions dates, gates, etc. “Without Penalty” column should be completed cumulatively such that “More than 36 Months” + “Side Pockets” equals 100%. “With Penalty” column should only show what additional amount can be redeemed with Penalty in each cumulative period. Therefore, the sum of the two numbers across each row should not exceed 100%. The split between “with penalty” and “without penalty” should be proportional to the split between the investor base off lockup (“without penalty”) and investor base under soft lockup (“with penalty”). For example, assume the following:

• – 35% of investors are locked up, 50% are off lockup, and 15% are under soft lockup.
• – 20% gate applies.

The 20% gate should be split as follows:

• – Without penalty: 20% * (50% / (50%+15%)) = 15.4%
• – With penalty: 20 *( 15% / (50% + 15%)) = 4.6%

Generally, funds can report Unencumbered Cash as defined for Form PF: “The fund’s plus the value of overnight repos used for liquidity management where the assets purchased are U.S. treasury securities or agency securities minus the sum of the following (without duplication): (i) cash and cash equivalents transferred to a collateral taker pursuant to a title transfer arrangement; and (ii) cash and cash equivalents subject to a security interest, lien or other encumbrance (this could include cash and cash equivalents in an account subject to a control agreement).” In general we expect Unencumbered Cash to include only cash, risk free government bonds and money market funds that are in the same currency as the fund. Any cash or cash equivalents that are not in the base currency of the fund must be reported in section 3, sovereign and interest rate exposure, and section 6, currency.

Any investment in funds where the manager has “no control” over the investment decisions of, should be treated as external. If you are reporting for a fund which invests in other funds within the same company where the manager has control over its investments, then these funds should not be treated as external investments and their exposure and position information of should be included in the appropriate exposure tabs. Investments in money market funds should be reported under 1.10.1 and 1.9 (if unencumbered) and investments in any other funds should be reported under 1.10.2.

Baskets should be broken down into individual stocks in order to accurately reflect the sector and region exposures in the portfolio. This may appear to inflate your total number of positions in sections 2.4 and 2.5 however in the Instrument and Market Cap tables you can report each basket as one position under “Indices and Baskets” It would also be acceptable to report baskets in the “Equity (Single Stock)” line in section 2.6 to distinguish them from listed indices, but in 2.7 they should be bundled under “Indices and Baskets”.

Since the Open Protocol template does not treat volatility as a separate asset class, VIX positions should be captured in the Equity Exposure tab. For consistency, they should be expressed as a combination of options on the SP500 which would be captured under the Equity Indices – Options exposure row. For example, a long VIX future position can be expressed as long calls and long puts and then the delta adjusted exposure of the latter would be reported in OP. Alternatively, if the above treatment is not possible, the position could be captured as long or short index future exposure, depending on whether it is a bearish or bullish view on the SP500. For example, long VIX is a hedge against falling equities hence it would be captured as short exposure in OP.

The basic idea here is to calculate the interest rate exposure in terms of 10 year swaps by using DV01 as the relationship.

• Step 1: Calculate present value of all the bonds in the portfolio
• Step 2: for non USD bonds, convert to USD.
• Step 3: Calculate DV01 for all the bonds in the portfolio and the reference 10 year Swap
• Step 4: For each bond in the portfolio calculate the ratio of its DV01 to DV01 of 10 year swap (so bonds with DV01 lower than 10 year swap will have ratio less than 1 and those with higher DV01 will have a multiplier greater than 1)
• Step 5: Multiply ratio in step 4 with present value in step 2 to arrive at the final exposures.

• 4.4 Sector:
  Based on the underlying loans:
  If the underlying loans are concentrated to a specific sector (more than 75%): Report the whole exposure under the relevant sector. Otherwise, report the whole exposure under Other.
• 4.5 Region:
  Based on the underlying loans:
  If the underlying loans concentrated to a specific region (more than 75%): Report the whole exposure under the relevant geographical region. Otherwise, report the whole exposure under Other.
• 4.6 Credit Type:
  Funds are encouraged to complete this at grade 2 thus providing greater transparency on the underlying assets of the pooled products they are invested in.
• 4.7 Credit Instrument:
  At grade 1, structured products will fall under CDO. Funds are encouraged to complete this at grade 3, thus providing greater transparency on the type and seniority of the pooled products they are invested in.
• 4.8: Price Yield and Spread:
  Reporting should be based on the tranches. A tranche should be considered performing if there are cashflows.
• 4.9 Credit Rating:
  Based on the rating of the tranche.
• 4.10 Maturity Buckets:
  Based on the duration of the tranche.
• 4.11 Concentration of Ownership:
  Based on the tranche.
• 4.12 Instrument Liquidity:
  Based on the tranche.

The classification depends on the underlying risk. For example, if the debt is backed by corporate revenues, it would fall under Corporate Credit (regardless of whether the company is state-owned), if the debt is backed by local government taxation, it would fall under Municipal Bonds, and if the debt is backed by mortgages it should be Mortgages. If the debt is issued by a government or supranational body, it would fall under the Sovereign tab.

In the Average Portfolio Delta computation, delta is defined as a ratio (known as the hedge ratio) between the change in convertible bond price and the change in the underlying equity price, (Change in CB price due to small change in equity price)/(small change in equity price) To arrive at the average, the hedge ratio needs to be computed for each bond and then weighted using the bond market value. Average Portfolio Delta would typically lie in the region of 35% to 80%. This gives as an estimate of how much the portfolio would change in value due to a small shift in equity prices, ∆, by computing: (Average Portfolio Delta) x ∆ In the sensitivities tab, Convertible delta is defined as a percentage impact on portfolio value: (Change in value of all convertible bonds held by the fund due to a 1% equity increase)/AUM Note that this number would of course be affected by the exposure in convertibles. Now, to try and connect the two different deltas, suppose we only have one bond with delta (hedge ratio) 0.8. So for a small shift in the equity, ∆, price the bond will move by: 0.8 x ∆

Hopefully the examples below will help clarify the process: In the examples below, it is assumed the base currency is not Euro. Example 1

• Position: Long Philips in Euro and currency exposure is not hedged.
• Treatment in Open Protocol:
• In the Equity section:
• Long 2.4.2 (Industrial)
• Long 2.5.5 (Europe)
• Long 2.6.1 (Equity (single stock))
• Long 2.7.1 (Mega Cap)
• Long 2.8.1 (Exchange Traded)
• In Currency section
• Short 6.4.1 (Base Currency)
• Long 6.4.2 (Europe)

Example 2

• Position: Long Philips in Euro and currency exposure hedged.
• Treatment in Open Protocol
• In the Equity section:
• Long 2.4.2 (Industrial)
• Long 2.5.5 (Europe)
• Long 2.6.1 (Equity (single stock))
• Long 2.7.1 (Mega Cap)
• Long 2.8.1 (Exchange Traded)
• In Currency section
• Short 6.4.1 (Base Currency)
• Long 6.4.2 (Europe)
• Long 6.4.1 (Base Currency)
• Short 6.4.2 (Europe)
• Short 6.5.1 (Non Base Currency G10 Currency)
• Short 6.6.1 (Non Exchange Traded)

The rationale for asking for information in this manner is that if the manager has active currency risk, it would be picked up by the long Euro in Example 1, however if the manager then hedges the currency risk, as seen Example 2, then it will show a net zero exposure to Euro and the base currency. An alternative approach which would lead to a similar output would be to calculate the base currency delta for all the positions (not just the currency positions) in the portfolio with respect to all the currencies. The output could be used to complete section 6.4.

Row 11 captures the opposite leg of all non-base currency exposures whether these are direct (i.e. through FX instruments) or indirect (i.e. through non base currency denominated securities/derivatives). It should not however include base currency cash/securities/derivatives. To illustrate this with an example, suppose you hold the following and your base currency is USD:

• • a) Long EUR stock @10% of AUM
  • b) Short CAD stock @5% of AUM
  • c) Long USD stock @15% of AUM
  • d) USD Cash @20% of AUM.

c and d would not count towards the Base Currency row.

• a) Would be captured as 10% long in the EUR row (row 14) and 10% short the Base Currency row
• b) Would be captured as 5% short in the CAD row (r 37) and 5% long in the Base Currency row.

Then the totals in rows 7 and 3 should not include the Base Currency row as this does not pose currency risk (it is the base currency).

There are two alternative methods:

• i. Include the impact of foreign currency movements under the appropriate asset class VaR, and exclude from the Currency VaR line. For example: Use USD returns to compute VaR for foreign equity, i.e. equity VaR incorporates the foreign currency price movements
• ii. Exclude the impact of foreign currency movements from the asset class VaR, and include separately under Currency VaR For example: Use foreign currency returns to compute VaR for foreign equity positions, and compute separately the VaR from the foreign currency exposure.

Clarification: cell B4 should read “9.8 Asset Classes” and not “10.8 Asset Classes”. All values should be entered as a percentage of AUM. For purpose of calculating Delta underlying asset value should be increased on a relative basis by 1%. So if the underlying is 50 then the increase value would be 50.5 and not 51.

Clarification: cell B4 should read “9.8 Asset Classes” and not “10.8 Asset Classes”. All values should be entered as a percentage of AUM. Gamma should be calculated with respect to the Delta and the calculation methodology should be consistent. Therefore for 3. Sovereign & Int Rate Exp, convexity should be on Interest rate while for 4 it should be on credit spread.

The portfolio inception does not really matter as you would be stressing the current positions. Hence the impact could be reported for all scenarios. For all historical stress tests report the performance of the current exposures over the period of the test. For positions on securities that existed during the period of the test, then use their actual historical prices to calculate the impact. For positions on securities that did not exist at the time, use a predictive methodology.

Available Liquidity is meant to capture access to additional financing that is not yet utilised by the manager. Required Margin would be margin for all instruments which require margin, so includes futures, but other derivatives would be included as well.

Cash should include excess margin plus any other cash balance held at the counterparty. Cash used for position collateral should not be included here as this would create a double counting of the position reported under the LMV, SMV or OTE/MTM column.