NuWave Investment Corp.

Combined Portfolio 2X

The Combined Portfolio evolved from the intent of the principals of the Trading Advisor to achieve a more stable, lower volatility return enhanced by diversification not only across different markets, but across trading styles as well. The Trading Advisor believes, based on its research to date, that the performance of each of its three programs, Alpha, Pattern Recognition and Beta, exhibit a substantial degree of non-correlation with one another as well as with other traditional strategies in any investment arena. Combining the three programs in one portfolio provides prospective investors with both enhanced diversification and expected cost savings. It is common for the Alpha, Pattern Recognition or Beta programs to hold opposite positions in any given market. Because positions for these programs are netted within a single account, clients save needless transactions costs that occur if these programs were managed by separate advisors. Similarly, incentive fees are netted for the three trading programs that comprise the Combined Portfolio. This prevents an incentive fee payment to the Trading Advisor unless the net performance across programs warrants. In the future, other programs and/or products may be included in the Combined Portfolio in varying degrees. Client accounts participating in the Combined Portfolio may thus be leveraged in a manor that reflects the addition of an additional program. Allocation and leverage decisions are made by the Trading Advisor with the aid of certain research studies, and combined experience, in an effort to minimize risk and maximize profit opportunities. Alpha Program The Alpha Program is a technical and systematic trading program designed to provide broadly diversified, low correlation returns from a trading style considerably different than that which is typical of the managed futures industry. Portfolio composition includes a broad and diverse group of domestic and international futures and currency markets. Nearly 65% of market exposure is derived from international stock, bond and currency markets. The remaining 35% includes various commodity markets. Alpha positions itself to take advantage of significant longer term price moves, often before it has become clear to market participants that such a movement in price is underway. The program employs a series of proprietary algorithms that highlight trading opportunities that may be with, or against, the current trend. The result is a strategy with the ability to trade in varying market conditions, multiple time frames, and in any liquid market. The benefits are obvious. There is the potential for more consistent, low correlation returns and the opportunity to manage larger pools of assets due to the offbeat nature of trade selection, entry, and exit. History has shown that managers of non-correlated futures portfolios are forced to trade the very short-term. This fact typically limits asset growth significantly. The Alpha Program, as it is applied here, generally trades the longer term time frame. As a result, low correlations and more consistent returns are possible from approximately 800 round turns per $million, per year versus the 2000-4000 round turns typical of short-term traders. This program is offered only as a component of the Combined Portfolio. Pattern Recognition Program The Pattern Recognition Program is a unique, systematic program that trades the world’s 35 most liquid futures markets while generating results that are designed to have little correlation with other investment styles. Nearly 65% of market exposure is derived from international stock, bond and currency markets. The remaining 35% includes various commodity markets. The trading strategy is based upon the assumption that markets exhibit a degree of repetitive price action that can be identified throughout history. Factors responsible for such repetition may include fundamental factors (economic cycles, interest rates, weather and seasonality etc.) and human factors (fear, greed and other emotions). The Trading Manager’s experience suggests that all successful traders rely on some form of pattern recognition, although the information they analyze to discern repetitive price tendencies may differ. Consider discretionary traders as an example. Their historical knowledge and experience allow them to analyze many kinds of information that give clues to future market direction. They study current fundamental data, economic trends, technical factors, etc. that collectively form the current pattern of events. This current pattern of events is evaluated in the context of history in order to form an opinion of the likely effect on prices. Trend-followers are another good example of pattern recognizers. They attempt to identify the “trend” pattern in its beginning and ending stages in order to capture repetitive profit opportunities in various markets. It is arguable that all successful traders benefit from repetitive patterns to market price movement. If this were not true, then it would be difficult to explain how successful traders continue to be profitable over the long run. The Pattern Recognition Program analyzes current price patterns in the context of history, emphasizing those occasions where there is statistical, evidence supporting the probability that prices will move in a particular direction. The Trading Manager believes that markets are, in general, very efficient and that price movement is to a large extent random. These facts do not prevent the identification of repetitive profit opportunities, however, they merely underscore the difficulty associated with capturing these opportunities with reasonable consistency. With a rigorous, probabilistic methodology that identifies repetitive historical tendencies, the Trading Manager attempts to benefit from a modest but consistent edge and solid risk control. This program is offered only as a component of the Combined Portfolio. Beta Program The Beta Program is a technical and systematic trading program designed to provide broadly diversified, low correlation returns from a short-term trading style considerably different than that which is typical of the managed futures industry. Incorporating a broad and diverse group of domestic and international futures and currency markets in its trading mix, nearly 65% of market exposure is derived from international stock, bond, and currency markets. The remaining 35% includes various commodity markets. Designed to take advantage of short-term volatility and the more random nature of short-term price movements, Beta will trade with 9-day average holding periods. It has been designed to complement the Alpha and Pattern Recognition programs that currently make up the Combined Portfolio and will not be offered separately. Correlation between the Beta Program and the other two Combined components will be approximately 0.1. History has shown that managers of non-correlated futures portfolios are forced to trade the very short-term, with round-turns of 2000-4000 per/$million per/year. This fact typically limits asset growth significantly. The Beta Program generates only 1000 round-turns per/$million per/year and is unique in its ability to complement both short and long term investment styles, while maintaining significant asset capacity.