Cornerstone Trading Company

International Value

Program Description: The International Value Program is a combination of different strategies. Methods employed include a model-based approach to spread trading, asset allocation models, and technical analysis. In spread trading the advisor uses a proprietary model to make judgments about the relative value of different sectors of yield curves or forward curves. Areas of a curve that are under-valued according to the model are bought and exposure is hedged against areas that are overvalued. Not all markets followed will have a position at all times and the weight given to any one position will vary depending on many factors including the expected profit of the trade, exposure in correlated markets and the advisor's fundamental analysis, among other factors. The second component of the International Value program is the Advisor's proprietary asset allocation models. These are econometric models which use a variety of market based and fundamental data to forecast excess returns of members of an asset class, for example government bond futures. A portfolio of long and short positions is then formed which maximizes return for a predetermined amount of risk. The total amount of long or short exposure will change over time depending on the Advisor's analysis of various factors including but not limited to the expected profit of each security, the expected volatility of each security, and the Advisor's fundamental analysis. The Advisor also uses technical analysis. These technical systems are designed to capture the broad movements of markets and use diversification of sectors and instruments to minimize the variance of returns. Positions are established and exited based on the Advisor's analysis of price fluctuations, with information about the shape of the forward curve taken into account. It covers most actively traded interest rate futures contracts as well as many non-financial commodities. The International Value Program currently trades in the following markets: CBOT, CME, EUREX, IMM, LME, LIFFE, MATIF, ME, MEFF, NYMEX, NZFOE, SFE, SIMEX, TIFFE, TSE and may expand to include trading in other markets.