Due Diligence SV Onshore 08-09-05

Due Diligence Review of FUND OF FUNDS MANAGERS
Manager: PARADIGM Global Advisors, LLC.
Prepared
for
Marco Consulting Group
August 2005
TABLE OF CONTENTS
Items (Page #)
Background Information (4)
Product Information (12)
Performance (17)
Asset Allocation/Style Allocation (19)
Due Diligence/Manager Selection (42)
Portfolio Construction (45)
Risk Management (52)
Administration/Operations (56)
Client Information/Reporting (56)
Compliance/Legal (57)
Page 2
LIST OF ATTACHMENTS
Items
Bios:
Biographies of Key Personnel
Org Chart:
Organizational chart of various groups within PARADIGM and the personnel
involved
Fund Performance:
Historical performance data for a selection of products, including monthly returns,
standard deviation, and drawdown analyses
Client Reporting:
Sample client account statement
Page 3
BACKGROUND INFORMATION
CONTACT INFORMATION
Company name: PARADIGM Global Advisors, LLC
Address: 650 Fifth Avenue, 17th Floor, New York, NY 10019
Telephone: 212.271.3388
Fax: 212.271.3395
E-mail: info@paradigm-ny.com
Website: www.paradigmhedgefunds.com
Name of contacts: Jean-Michel Savre
Title of contacts: SVP, Marketing & Structured Products
Telephone of contacts: 212.271.3388 Ext. 303
STAFF INFORMATION
E-mail of contacts: nm@paradigm-ny.com
How many employees does the firm currently
28 employees
have?
NO. OF
AREA
EMPLOYEES
Management 3
Portfolio Managers 3{2}
Research 3 {4}
Show the number of employees by working
Marketing 11{1}
area:
Risk Management 1
Administration 5{1}
IT Support 2
Please note that the bracketed values include those employees who
perform multiple functions at the firm.
What is the greatest and least number of
Over the last three years, the greatest number of employees the firm
employees the firm has had in the last three
has had is 28, and the least number of employees is 13.
years?
Michael Natbony, co-founder and co-chairman of PARADIGM since
inception, retired in 2003. We also made several new additions to
the firm in 2003, 2004 and 2005.
NAME POSITION START DATE
Partner & Managing Director of
Stephane Farouze 2003
Marketing & Structured Products
Matteo Solbiati Head of the European Branch 2003
Computer Programmer
Denis Bychov 2003
Research Department
Vice President
Gerald Toledano 2003
Explain any significant employee turnover: Marketing & Structured Products
Senior Vice President
Jean-Michel Savre 2004
Jeffry Schneider 2004
Vice President
Rafael Castellanos 2004
Analyst
Robin Liu 2004
Asset Allocation
Louis Hanna 2005
Nick Markola 2005
Page 4
PARADIGM attracts new people with its very competitive
compensation scheme and the competitive edge in its investment
strategy.
PARADIGM hires employees through personal references. Through

How does the firm attract new people?
its many industry contacts, PARADIGM performs an ongoing and
continuous search for intelligent, highly educated individuals with
specific skills. Once hired, all new employees go through a long and
extensive training process to understand PARADIGM’s unique
approach to hedge funds.
Provide a brief background of key personnel Please see “Bios” attachment and the biographies section of the
(education, professional background): marketing presentation.
Explain the compensation scheme for key PARADIGM employees are compensated in line with industry
people: standards, which include salary plus bonus and a profit sharing plan
based upon position, tenure and performance.
COMPANY STRUCTURE
Legal structure: Limited Liability Company

Until 2002, PARADIGM was a privately owned company run by three
founding partners – James Park, Bill Natbony, and Michael Natbony.
In 2002, Dr. Park bought out Bill Natbony’s share in the partnership,
and he later bought the remaining shares of Michael Natbony in
Provide details of the firm’s current ownership 2003. In that same year, Stephane Farouze joined the firm as
structure and any changes in the last three Managing Director of Structured Products & Institutional Marketing
years: with a 31.5% partnership in the company.
Currently, James Park owns 49.5%, Stephane Farouze owns 31.5%,

senior members of PARADIGM own 10%, and a passive private
equity shareholder owns 9% of the company.
Are there any plans for further ownership
No.
changes?
PARADIGM Partners was launched by Dr. James Park in 1989.
Suma Capital Corporation was launched by Michael Natbony in
1991, and in that same year, both companies merged, forming
PARADIGM Capital Management, Inc. (“PCMI”), a Georgia
corporation. James Park was responsible for research and asset
allocation, Michael A. Natbony was responsible for administration
and operations, and Bill Natbony served as legal counsel. In April
1991, PARADIGM launched its core fund of funds program, Suma
Provide a short history of the company with
Fund I, LP, which later changed its name to PARADIGM Master
the most important milestones:
Fund, LP.
From 1992 through 1995, Dr. Park completed his Ph.D. in Financial
Economics at Columbia Business School. His doctoral thesis on
hedge funds as an asset class was the first work of its kind, and The
Journal of Futures Markets published a portion of this landmark
paper in 1996. In that same year, PARADIGM launched its second
fund of funds program, PARADIGM Equities Ltd., and Markus Karr
Page 5
joined as Managing Director of Asset Allocation to assist Dr. Park in
implementing the company’s research in areas of manager selection
and portfolio management. Topics from Dr. Park’s thesis include but
are not limited to statistical algorithms and the Diversification of
hedge funds, as well as subsequent research conducted by the firm.
Dr. Park’s research has been ingrained in and apply to PARADIGM
portfolios’s construction ans risk management process.
In 2001, PARADIGM’s assets under management grew to more than

$1 billion, and Alla Babikova joined the firm as Director of Marketing
& Client Services. In addition, the PARADIGM Employee
Compensation Program (PECP, allowing for compensation of senior
personnel with shares in the company) was established.
In 2002, Dr. Park purchased Bill Natbony’s share in the partnership,

and Jim Hirchak joined PARADIGM as Director of Risk and
Compliance. In the same year, PARADIGM launched its enhanced-
return fund of funds programs to give investors leveraged exposure
to our core Master Fund program. PARADIGM’s levered vehicles are
offered to both onshore and offshore investors.
In 2003, Dr. Park purchased Michael Natbony’s share in the

partnership. In that same year, PARADIGM launched PARADIGM
Master Fund, Ltd., the offshore version of our diversified core
strategy. Stephane Farouze joined the firm as Managing Director of
Structured Products & Institutional Marketing with a 31.5%
partnership in the company. In 2003, Gerald Toledano formerly with
Société Générale joined PARADIGM, bringing his experience in
structured products and institutional marketing.
In 2004, Jean-Michel Savre joined PARADIGM and is responsible for

the joint-venture with Cargill Investor Services (CIS). CIS is a
subsidiary of Cargill, one of the largest private companies in the
world. CIS signed an advisory agreement with PARADIGM to
distribute our Futures portfolio worldwide.
In 2004, PARADIGM signed distribution agreements with the

following European insurance companies: Scottish Provident, Aviva
and Hansard, as well as with six Swiss private banks.
In 2004, PARADIGM increased its institutional reach: pension funds

in the US, France and Spain invested in PARADIGM’s funds of
funds.
Furthermore, in 2004, Cyril Finance, a subsidiary of Mutuelle du

Mans Assurances, a major French insurance company managing
more than EUR 20 billion, selected PARADIGM as the exclusive
advisor of a fund of funds product to be distributed to French
institutions and high net worth individuals. PARADIGM brought
Philippe Alter to this venture, who was the former Chief Investment
Officer of HSBC Asset Management Europe. He will manage the
new fund called “Cyril Alternative”, which will be launched shortly.
Page 6
And finally, Key Bank and its subsidiary McDonald Financial,
selected three funds of hedge funds in 2004 that are now being
distributed through their network of Investment Advisors in the US.
These funds are managed by Citigroup, PARADIGM and Lazard.
The legal structure of the firm is outlined in the diagram below:
PARADIGM GROUP CORPORATE STRUCTURE
PARADIGM Holding
Corporation
100%
PARADIGM PARADIGM Capital PARADIGM

Global Advisors, Inc. Management, Inc. Global Mgmt, Inc.
(Dormant)
100%
PARADIGM
Founders, LLC
100%
PARADIGM
PARADIGM
Employee Compensation
Companies, LLC
Plan, LLC
99% 1% 1% 99% 1% 99%
PARADIGM Global PARADIGM PARADIGM Capital

Research Services, LLC Global Advisors, LLC Management, Inc.
Provide a chart of the legal structure of the

firm and list all branch or affiliate offices:
PARADIGM Global Advisors, LLC is headquartered in New York.
Currently, we have branch offices in Monte Carlo and Los Angeles.
Our distribution network, however, covers a very broad geographic
range, as detailed in the world map below:
Provide an organization chart: Please see “Org Chart” attachment.
Page 7
ASSET MANAGEMENT ACTIVITIES
No. PARADIGM is entirely focused on its core business of designing

portfolios of hedge funds with superior risk/reward characteristics.
This focus also includes extensive efforts in research and analysis of
the hedge fund/portfolio management industry. PARADIGM has, in
Does the firm conduct any other business the past, been retained to research and publish academic papers on
than asset management in alternative specified topics by various institutions.
investments? State the nature of those other
businesses: PARADIGM’s expertise in the area of hedge fund and fund of funds
investing has led to many consulting arrangements. As a pioneer in
the industry, PARADIGM is well known and retained to gain access to
our proprietary analytical tools and effective manager selection
process.
Does the firm manage investments of other

asset classes (incl. traditional assets), too? No.
If so, explain:
Does the firm manage funds of funds in Yes, the firm manages fund of funds in different strategies. Please
different strategies? If so, describe: find below a chart detailing our range of products:
Onshore/
Investment Programs Style Number of managers AUM (*)
Offshore
PARADIGM Master Fund Multi strategy Onshore 63 $173.1 MM
Domestic Funds Multi strategy

PARADIGM Enhanced Master Onshore 91 $30.9 MM
(Note A) Leverage on Master Fund
Multi strategy
PARADIGM Equities Fund I Onshore 93 $18.4 MM
Concentration+leverage
PARADIGM Master Fund Multi strategy Offshore 87 $238 MM
Managers trading
PARADIGM Asian Fund Offshore 10 $18.6 MM
Asian markets only
PARADIGM Public Fund Multi strategy Offshore 87 $32.7 MM

Non US Funds
Multi strategy
PARADIGM Tax Exempt Fund Offshore 89 $3.1 MM
Open to tax-exempt US investors
Multi strategy
PARADIGM Equities Fund Offshore 93 $139.7 MM
Concentration+leverage
PARADIGM Global Fund Multi strategy

Offshore 87 $ 220.8 MM
(Note B) Leverage on Master Fund
Sub-Total All Funds $875.3
Sub Advisory, Non-Discretionary Asset $927.0
Total Assets Under Management (Estimate as of July 1, 2005) $1,802.3
Note A Includes Gross Investment By Affiliates of: $530.5
Included in Above Funds PARADIGM Futures Fund I, LLC Onshore 19 $77.2
PARADIGM Multi Strategy Fund Onshore 44 $166.3
PARADIGM Equities Fund II, LLC Onshore 10 $97.6
Note B Includes Notional Amount of funds levered via off balance sheet transactions
* Includes Notional Invested amounts as of July 2005
Page 8
PARADIGM is entirely focused on designing portfolios of hedge
funds. All of our discretionary assets under management are in
PARADIGM’s funds of hedge funds. Our discretionary assets
What percentage of assets under management
represent approximately 49% of total assets under management.
is in funds of funds?
Non-discretionary assets (51% of total assets under management)
represent consulting clients, who utilize our services for portfolio
construction, asset allocation, due diligence, etc.
Institutions including Pension Funds, Insurance Companies,
Foundations, Endowments and Family offices.
Which investor group does the firm primarily
High Net Worth Investors through financial intermediary channels
target?
including Private Banking, Broker Dealer and Registered Investment
Advisor.
SIZE OF DURATION OF
CLIENT CLIENT TYPE
ASSETS RELATIONSHIP
A Family Office (Consulting) 300 Million 4 Years
B Family Office (Consulting) 300 Million 6 Years
C Family Office (Consulting) 300 Million 6 Years
Provide a list of main clients (incl. size of
assets, duration of client relationship): D Institutional (Discretionary) 150 Million 2 Years
E Institutional (Discretionary) 130 Million 2 Years
F Institutional (Discretionary) 60 Million 2 Years
G Family Office (Consulting) 27 Million 3 Years
H Institutional (Discretionary) 18 Million 2 Years
Provide three client references: Jean Marc Spitalier (Lehman Brothers London): 44-77-4777-7380
Inna White (Lehman Brothers New York): 212-526-6601
Maria Healy (Beta Capital Management): 305-358-8178
Bernard Abdo (Goldman Sachs): 917-697-2777
What are the current assets under

management? $1.8 billion (as of July 1, 2005)
• Total
• Traditional N/A
• Alternative
$1.8 billion (as of July 1, 2005)
Show the growth of assets under management

over the last five years? 2001 - $1.1 billion
• Total 2002 - $1.3 billion
2003 - $1.4 billion
2004 - $1.5 billion
2005 - $1.8 billion (as of July 1, 2005)
• Traditional Not Applicable
• Alternative Same as total value above
Page 9
Show a breakdown of assets under
BREAKDOWN OF ASSETS BY CLIENT GROUP
management by:
CLIENT GROUP ASSETS (MIL $)
EXTERNAL
• Client group
DIRECT investment
Institutional
Total employee benefit / pension 71
Foundation, endowment & hospital 9
Financial institution (Banks, Insurance Companies, etc.) 245
Total Institutional 325
High Net Worth & Family office 383
Other - specify:
Total DIRECT investment 708
INDIRECT investment (Consulting Assets)
Total INDIRECT Investment 927
TOTAL EXTERNAL (DIRECT + INDIRECT) 1635
INTERNAL
G.P. (all employees / principals) 1
Affiliated entities: Name(s): PARADIGM Feeder Funds 53
TOTAL INTERNAL 54
GRAND 1689
*As of March 2005
• Strategy
PMF PMSF PTEF PEMF PEI PEMN PFFI PAF

Merger Arbitrage 3% 4% 3% 4% 2% 3% 0% 0%
Mortgage-Backed 5% 5% 5% 7% 7% 0% 0% 0%
Distressed Securities 9% 9% 9% 8% 7% 0% 0% 5%
Event-Driven 11% 12% 11% 14% 13% 22% 0% 0%
Convertible Arbitrage 7% 7% 7% 8% 6% 0% 0% 5%
Multi-Strategy 0% 0% 0% 1% 1% 0% 0% 10%
Fixed Income 8% 9% 8% 7% 6% 0% 0% 15%
Long/Short Equity 28% 29% 28% 26% 28% 49% 0% 52%
Market Neutral 18% 19% 18% 14% 15% 19% 0% 5%
Statistical Arbitrage 5% 5% 5% 5% 6% 7% 0% 0%
CTA Discretionary 1% 0% 1% 1% 1% 0% 12% 0%
CTA Systematic 4% 0% 4% 3% 3% 0% 88% 0%
Global Macro 1% 1% 1% 2% 5% 0% 0% 10%
*As of March 2005
KEY INVESTMENT PROGRAM
PMF PARADIGM Master Fund, LP

PMSF PARADIDGM Multi Strategy Fund, LLC
PTEF PARADIGM Tax-Exempt Fund, Ltd.
PEMF PARADIGM Enhanced Master Fund, LLC
PEI PARADIGM Equities Fund I, LLC
PEMN PARADIGM Equity Market Neutral, LLC
PFFI PARADIGM Futures Fund I, LLC
PAF PARADIGM Asian Fund, LLC
Page 10
Consulting assets:
• Single largest client represents 32% of consulting assets
• Three largest clients represent 73% of consulting assets
What is the greatest percentage of assets
under management represented by any single
Discretionary assets:
and by the three largest clients?
• Single largest client represents 18% of discretionary assets
• Three largest clients represent 34% of discretionary assets
Page 11
PRODUCT INFORMATION
PARADIGM Master Fund, LP (PMF)
• Investment Objective: The fund aims to achieve stable, low-
volatility returns. This is achieved through broad diversification.
The fund does not employ leverage and seeks to achieve 7%-10%
in returns with 3%-4% volatility.
• Target investors: US institutions and private customers.
• Legal Structure: Georgia Limited Partnership.
• Number of Funds: 63
• Current Size: $174.5 Million
• Date of Inception: April 1991
• Fee Structure: 1% management fee, 10% incentive fee, 0.40%
expenses
• Monthly subscriptions. Monthly redemptions with a 35-day notice.
PARADIGM Multi-Strategy Fund, LLC (PMSF)

• Investment Objective: The fund aims to achieve stable, low-
Provide a short description of all products volatility returns. This is achieved through broad diversification,
(public and private, where disclosure which excludes CTAs. The fund does not employ leverage and
possible) of the firm, e.g. fund of funds, seeks to achieve 7%-10% in returns with 3%-4% volatility.
advisory mandates, client portfolios, • Target investors: US institutions and private customers.
structured products, etc. Include at least: • Legal Structure: Delaware Limited Liability Company
• Investment objective (including
target return and target risk)
• Target investors
• Legal structure • Date of Inception: May 1996
• Number of funds in the portfolio • Fee Structure: 1% management fee, 10% incentive fee, 0.40%
• Current size expenses
• Date of inception • Monthly subscriptions. Monthly redemptions with 35-day notice.
• Fee structure
• Conditions for Subscriptions and PARADIGM Tax-Exempt Fund, Ltd. (PTEFL)
Redemptions • Investment Objective: The fund aims to achieve stable, low-volatility
returns, which is achieved through broad diversification.
The fund has 3 classes:
Class A, which does not employ leverage and seeks to achieve
7%-10% in returns with 3%-4% volatility;
Class B, which employs a leverage factor of approximately 2
and seeks to achieve 13%-15% in returns with 5%-7% volatility;
Class C, which employs leverage of approximately three and
seeks to achieve 18%-22% returns with 7%-10% volatility.
• Target investors: ERISA Pension Funds, tax-exempt US institutions,
and tax-exempt US high net worth individuals.
• Legal Structure: BVI International Business Company
• Number of Funds: Depends on share class
• Date of Inception: June 2003
expenses
• Monthly subscriptions. Monthly redemptions with 35-day notice
Page 12
PARADIGM Enhanced Master Fund, LLC (PEMF)
• Investment Objective: The fund’s objective is to provide enhanced
returns by leveraging PARADIGM’s diversified Master Fund core
program. The fund seeks to achieve 18%-22% in returns with 7-
10% volatility and employs a leverage factor, whose range is
between 2x and 4x.
• Target investors: US institutions and private customers.
• Legal Structure: Delaware Limited Liability Company
• Date of Inception: May 2002
expenses
PARADIGM Equities I, LLC (PEI)

• Investment Objective: The fund was launched as the onshore
counterpart of our popular fund, PARADIGM Equities, Ltd, and has
the same objective. A portion of the fund is concentrated and the
remaining portion is highly diversified, utilizing the discretionary use
of leverage. Leverage ranges between 1.5x and 2x and is currently
at 1.8x. The fund seeks to achieve 15%-20% in returns with 5%-8%
volatility.
• Target investors: US Institutions and Private Customers.
• Date of Inception: March 2005
expenses
PARADIGM Equity Market Neutral Fund, LLC (PEMN)

• Investment Objective: The fund invests in equity relative value,
long/short equity and risk arbitrage with a very low net exposure to
the stock market, through managed accounts exclusively.
The fund does not employ leverage. The fund’s objective is to
achieve 5%-8% returns with 2%-4% volatility.
• Target investors: US Institutions and Private Customers
• Number of Funds: 10 (Managed Accounts Exclusively)
• Date of Inception: June 2003
expenses
For an investment of $ 50,000,000 or more, redemptions can be
done weekly.
Page 13
PARADIGM Futures Fund I, LLC (PFF)
• Investment Objective: The fund is single strategy fund of funds,
investing only in CTAs, through managed accounts exclusively.
The funds employ a leverage factor, currently around 4x. The
objective is 15%-20% per year with 15%-20% volatility.
• Target investors: US Institutions and Private Customers through
Registered Investment Advisors.
• Number of Funds: 19 (Managed Accounts Exclusively)
• Date of Inception: January 1999
expenses
• Monthly subscriptions. Monthly redemptions with 35-day notice.
PARADIGM Asian Fund, LLC (PAF)

• Investment Objective: The fund is a multi strategy, consisting only of
managers who trade Asian markets.
The fund does not employ leverage.
The fund’s objective is to achieve 7%-10% returns with 3%-5%
volatility.
• Target investors: US Institutions and Private Customers.
• Date of Inception: August 2004
expenses
• Monthly subscriptions. Monthly redemptions with 35-day.
Page 14
ADVISORY MANDATES/CLIENTS PORTFOLIOS
PARADIGM’s expertise in the area of hedge funds and fund of funds

investing has also led to many consulting arrangements. As a
pioneer in the industry, PARADIGM is well known and often retained
by firms, who want to gain access to our proprietary analytical tools
and effective manager selection process. Consulting mandates range
from manager selection to white-label portfolio construction.
STRUCTURED PRODUCTS
PARADIGM has been approved by the following banks for structuring

products on its funds of funds: Lehman Brothers, Goldman Sachs,
Commerzbank, BBVA, HVB, CDC-IXIS and Wachovia.
The onshore funds of funds approved are the following:

• PARADIGM Master Fund, Onshore and Offshore;
• PARADIGM Multi-Strategy Fund, Onshore and Offshore;
• PARADIGM Equities Fund Offshore.
PARADIGM offers a wide range of structured products, including
total return swaps, options and CPPI. The minimum size for
structured products is $10 million.
The new generation of capital-guaranteed products offered by

PARADIGM is designed to achieve real returns while guaranteeing
the principal during a specified term. The capital-guarantee is linked
to the performance of the underlying fund of hedge funds portfolio. It
is also structured with internal leverage with no additional risk to
client capital. This leverage enhances returns and is designed to
offset the additional cost of the guarantee. These products can be
structured with holding periods from four to fifteen years.
Capital-guaranteed products carry an extra guarantee fee and are

often underinvested. They, historically, have been costly insurance
policies for the investor. PARADIGM, however, utilizes the CPPI
model that uses leverage to offset the cost of the capital guarantee.
Guaranteeing institutions, such as Goldman Sachs and CDC, are
delighted with PARADIGM’s highly diversified manager selection
methodology. Given our extremely low-risk profile and large number
of hedge fund managers in our portfolios, the guaranteeing institution
will launch a capital guaranteed product with assets fully invested.
In addition, as the funds’ NAV steadily climbs, the guaranteeing

institution then automatically adds a small amount of leverage to the
portfolio, boosting returns to overcome the cap-guarantee fee of
about 1% per year. The combination of PARADIGM’s low-volatility
returns with the CPPI methodology results in a product where the
initial capital is guaranteed by institutions, like Goldman Sachs or
CDC, and the return over a 5 to 7 year period is virtually the same as
a PARADIGM non-guaranteed product. In other words, the cost of
the guarantee is generally offset over a 5 to 7 year period. Finally,
this product can be structured without a lock-up so that the investor
has liquidity for a small redemption fee that declines over time.
Page 15
The members of PARADIGM's Marketing and Structuring Team,
collectively, have launched more than 100 capital-guaranteed
investment products in the American, European, Asian and Middle
Eastern markets. PARADIGM has passed the due diligence process
of more than ten of the world's largest, most recognized banks and
insurance companies and can offer guaranteed products by a variety
of issuers rated from A to AAA.
State any other costs and fees borne by the
There are no additional fees other than the fees mentioned above.
product than the fees mentioned above:
• The minimum investment amount for PARADIGM’s fund of funds

products is $1 million USD.
Describe the minimum investment amounts of • Managed accounts must be $25 million USD in order to ensure
the different types of products and services: proper diversification, excluding managed futures funds, which
have a minimum investment of $1 million USD.
• Consulting arrangements are negotiable.
Does the firm specialize on any product or

Yes, please see the answer above.
group of products? If so, please explain:
Page 16
PERFORMANCE
Provide historical performance data for all
products (in electronic form, where possible),
including:
• Monthly returns
• Standard deviation (annualized) Please see “Fund Performance” attachment.
• Three largest drawdowns and
recovery periods
• Percentage of positive/negative
months
The current fee structure for all the funds is 1% management fee,
10% incentive fee, and 0.40% estimated charge for operating
expenses.
PARADIGM Master Fund, LP (PMF): The rates of return reflect the

fund’s actual performance, since the fund’s inception in April 1991,
adjusted for the current fee structure.
PARADIGM Multi-Strategy Fund, LLC (PMSF): All of the fund's

returns since its inception in May 1996 reflect actual performance
of the fund, adjusted for the current fee structure.
PARADIGM Tax-Exempt Fund, Ltd. (PTEFL): From April 1991 until

the fund's inception date in July 2004, performance is based on pro
forma returns derived from PARADIGM Master Fund, LP, adjusted
for the current fee structure. After July 2004, rates of return reflect
actual performance of the fund, adjusted for the current fee
structure. Please note that the performance shown is for Class A,
the unleveraged share class.
PARADIGM Enhanced Master Fund, LLC (PEMF): From April 1991

State in which period performance is actual or
until the fund's inception date in May 2002, performance is based
pro forma (backtracked)?
on pro forma returns derived from PARADIGM Master Fund, LP
and adjusted for the current fee structure. After May 2002, rates of
return reflect actual performance of the fund, adjusted for the
current fee structure.
PARADIGM Equities I, LLC (PEI): From January 1996 until the

fund’s inception in March 2005, performance is based on pro forma
returns, derived from PARADIGM Equities, Ltd. and adjusted for
the current fee structure. After March 2005, rates of return reflect
actual performance of the fund, adjusted for the current fee
structure.
PARADIGM Equity Market Neutral Fund, LLC (PEMN): All of the

fund’s returns since June 2003 reflect actual performance of the
fund, adjusted for the current fee structure.
PARADIGM Futures Fund I, LLC (PFF): All of the fund's returns

since January 1999 reflect actual performance of the fund,
adjusted for the current fee structure.
Page 17
PARADIGM Asian Fund, Ltd. (PAFL): Prior to August 2004,
performance is based on pro forma returns derived from actual
returns of the 6 underlying funds that were in the portfolio on
August 1, 2004, adjusted for the current fee structure. From August
2004, rates of return reflect actual performance, adjusted for the
current fee structure.
Is performance net of fees to the investor? Yes.
Page 18
ASSET ALLOCATION / STYLE ALLOCATION
A - INVESTMENT PHILOSOPHY
PARADIGM believes the best approach to capturing the premium of
the hedge fund asset class is to apply the time-tested principles of
Modern Portfolio Theory to hedge funds. PARADIGM implements its
investment philosophy in the defined, disciplined, multi-step
approach outlined below.
1. DEFINE THE ASSET CLASS
PARADIGM’s theoretical model is based on the proposition that

hedge funds are Information Age companies – not portfolio
managers. A money manager who is long and short at the same
time does not have a portfolio of assets, because the asset base
cancels out. Hedge Fund Managers are skill-based, profit-
maximizing entities that generate a rate of return through their ability
to monitor and process constantly changing information, without
reliance on market direction. Under our definition, hedge fund
managers are “Information Processors.” By allocating exclusively to
these Information Processors, our portfolios extract an “information-
processing premium” from the market (much like a risk or liquidity
premium) that did not exist before the Information Age.
2. DEFINE THE APPROPRIATE BENCHMARK

Describe the firm’s asset allocation process
Identifying an accurate performance benchmark against which to
evaluate a manager relative to his peer group is essential to creating
an optimal portfolio of hedge funds. PARADIGM’s proprietary
database is one of the largest of its kind and
has been carefully constructed to identify and eliminate the
significant biases inherent in published hedge fund returns. These
biases include:
Survivorship Bias – The absence of performance data of defunct

managers from performance indexes has the unintended effect
of inaccurately boosting historical hedge fund returns. Since
1992, PARADIGM has built and maintained one of the world’s
largest databases of surviving and non-surviving hedge funds.
Self-selection Bias – Many hedge fund managers generate initial
returns through luck and self-select themselves as successful
hedge fund managers by reporting initial-year returns to the
databases. Since luck does not persist, their performance will
eventually decline. PARADIGM’s statistical analysis eliminates
this bias from its benchmarks.
Liquidation Bias – Hedge funds that have gone out of business
as a result of global information shocks, such as the Asian
currency crisis of 1997 and the Russian loan default of 1998,
have little incentive to report their final monthly return. As
performance reporting is not mandatory, this can overstate the
aggregate reported returns of the remaining managers.
Page 19
PARADIGM corrects for these shocks at the time global crises
occur, which can have a dramatic effect on the shape and
movement of certain benchmarks.
Bull/Bear-Market Bias – Many hedge funds have not operated
outside of the bull or bear market, and their inclusion in hedge-
fund databases can somewhat skew the data. According to
PARADIGM’s model, a portfolio of hedge funds should have no
correlation or beta with any conventional market index.
Maintaining our proprietary database is of paramount importance

because it enables us to reduce data biases and construct accurate
and reliable hedge fund indexes. PARADIGM's hedge fund index
research gives us critical advantage in our screening process of
managers and thus contributes to our success in outperforming our
benchmark on a risk-adjusted return basis over the long term.
3. BROADLY DIVERSIFY THE PORTFOLIO
Because PARADIGM defines hedge funds as Information Age

companies, we view a portfolio of hedge funds as equivalent to a
mutual fund. It is well established under Modern Portfolio Theory
that mutual funds must be diversified to over 100 different companies
to protect the portfolio from idiosyncratic risk (i.e. the risk that affects
the value of an individual company, such as the loss of a key
executive or damage to a major manufacturing plant). Since each
individual hedge fund’s performance relies exclusively on the skill of
one management team, a portfolio of hedge funds must be similarly
diversified to avoid undue idiosyncratic risk. PARADIGM’s published
research clearly shows that diversification reduces risk but does not
reduce expected returns. To avoid excess portfolio volatility,
PARADIGM applies the lessons of Modern Portfolio Theory to hedge
fund investing. By including 75 to 100 hedge funds in our portfolios,
PARADIGM eliminates more than 98% of the diversifiable risk of the
hedge fund asset class.
4. EFFECTIVELY SELECT MANAGERS THROUGH PARADIGM'S

QUANTITATIVE AND QUALITATIVE ANALYSES AND DUE
DILIGENCE PROCESS
PARADIGM’s unique, quantitative research is based on the

application of the Capital Asset Pricing Model to hedge funds, which
PARADIGM calls the Hedge Fund Alpha-Beta Model. The
application of this model entails analyzing the performance of any
one hedge fund relative to its peers, using proprietary algorithms,
such as Hedge Fund Alpha, Hedge Fund Beta and Park Ratio.
Hedge Fund Alpha measures relative risk-adjusted returns and is
therefore a measure of manager skill, i.e. the manager’s ability to
outperform his/her peer group. As Hedge Fund Alpha may go up
with leverage, PARADIGM uses another proprietary statistical tool,
the Park Ratio, that accounts for leverage and serves as a more
accurate measure of relative skill.
Page 20
Our research shows that skill, or HF Alpha, along with Park Ratio,
generally persists over time and can therefore be indicative of future
performance. Our model rewards managers, who consistently beat
their peer group on a risk-adjusted basis and who consistently
demonstrate exceptional levels of skill at processing information.
By identifying managers with a high level of skill, or Hedge Fund

Alpha and Park Ratio, we are able to construct portfolios of hedge
funds that outperform peers and have almost zero correlation to the
stock and bond markets.
In addition, we utilize Hedge Fund Beta. For example, a merger

arbitrage manager’s annual return of 13% against an industry return
of 10% might appear good. However, if the same manager has a 1.3
Hedge Fund Beta, this would indicate that his/her returns are only
average, because the manager failed to generate excess return, or
alpha, on top of the additional risk. Hedge Fund Beta greater than
one indicates that a manager is either leveraged or concentrated.
Neither leverage nor concentration is an indication of skill, and both
can potentially harm a portfolio.
After a manager passes PARADIGM's quantitative analysis, we

interview these managers in the order of their ranking. If a manager
passed all stages of interview process, members of PARADIGM’s
research team will initiate a thorough due-diligence process outlined
below.
5. PORTFOLIO CONSTRUCTION, MONITORING & RISK

MANAGEMENT
Portfolio Construction and Monitoring
PARADIGM’s manager selection philosophy involves a bottom-up

approach, where a manager’s skill relative to his/her peer group is the
driving component in portfolio construction. By using our proprietary
and patent-pending quantitative methods and analysis, we are able to
develop meaningful expectations about which managers should
perform well in the future. In addition PARADIGM diligently monitors
the performance of its hedge fund managers on an on-going basis,
using both proprietary quantitative tracking and scoring methods and
periodic qualitative reviews.
Owning a single hedge fund or a concentrated portfolio of a few

hedge funds is an extremely risky proposition. Every hedge fund
manager, regardless of skill, can suffer traumatic losses, because
every hedge fund is exposed to idiosyncratic risk. PARADIGM
research shows that a hedge fund benchmark return may be
achieved by allocating to 50-100 managers. Our goal is to reduce
the risk of the portfolio by allocating the assets to a large number of
hedge funds in order to capture a passive index and increase the
return through manager selection. Furthermore, positions in
managers are volatility-centric, meaning more volatile managers
receive smaller allocations.
Page 21
Consistent with the Efficient Market Hypothesis, we do not view
discretionary sector/strategy weightings as the main component of
optimal portfolio management. It is our view that macroeconomic and
sector/strategy performance predictions do not yield excess return.
There is simply no statistical evidence that one can predict which
sector/strategy will outperform in any given year. Although we do not
view sector/strategy allocation as a main component in portfolio
construction, we do conduct monthly sector tilting, based on
quantitative methods and our view of the financial markets, as well as
expectations for each particular sector/strategy.
Risk Management
Our risk management philosophy is characterized by several

overriding principles.
The first principle is an organizational one: it is crucial that there

are different entities involved in risk management.
There are three PARADIGM entities involved in the process:
• The asset allocation team;
• The structuring team;
• The risk management and compliance officer.
There are two external entities involved in the risk management:
• The risk management department of Lehman Brothers,
CDC-IXIS and Commerzbank monitor our portfolios on a
monthly basis to make sure our portfolios are in-line with risk
guidelines they set forth for our structured products;
• RiskMetrics produces monthly risk statements providing the
following aggregated information: exposure to
markets/securities, sensitivity to equities, fixed income, credit
and FX risk, stress testing, and VaR.
The second principle is compliance-related: we have a list of

guidelines for the implementation of procedures. Our portfolios
follow internal risk guidelines as well as guidelines from CDC-IXIS
and Lehman Brothers, and are reviewed on a monthly basis by risk
management teams of all the aforementioned institutions, as well as
the risk management team at Commerzbank.
The third principle is an operational one: procedures and risk

management tools are in place to monitor the risk of underlying
managers, as well as our portfolios on a daily, weekly, and monthly
basis. Risk monitoring relies on reward/risk parameters set for each
manager, continuous monitoring for red flags, and the careful
monitoring of a manager’s performance using individual scoring.
Page 22
B - ASSET ALLOCATION PROCESS
The construction of our multi-manager portfolios consists of a
rigorous manager selection process, coupled with the ongoing
monitoring of managers that have already received allocations.
The Asset Allocation Process consists of 5 steps:
Database Utilization and

maintenance
More than 16,500 Funds
(7,500 Active & 9,000 Inactive)
Nikolay Fedorovskiy
Markus Karr - Gordon Kelly
Robin Liu - Matteo Solbiati
7,500 Active Funds
Quantitative Filtering
Gordon Kelly - Robin Liu
Markus Karr - James Park
Matteo Solbiati
-1 Qualitative Analysis
600 Managers
-2 Due Diligence
Shirley Xian
-3 Manager Approval Jim HIrchak
100 Managers
Gordon Kelly -Robin Liu
Markus Karr – Shirley Xian
James Park
Allocation Initial allocation – Portfolio

Construction and On-Going Monitoring
Process
STEP 1: Database Utilization
, our proprietary system, has been in

development since 1991. It is the backbone of manager selection and
monitoring process. The database system includes more than 15,000
hedge funds track records, as well as including automated methods
for the selection and monitoring of managers.
Data
Currently, there are more than 40,000 track-records, of which more

than 15,000 are distinct hedge fund track records in our database. If
we take into account our indices (proprietary and non-proprietary), our
database contains more than 16,000 track-records.
The 15,000 track-records represent both existing hedge funds (Active

Funds) and hedge funds that have gone out of business (Defunct
Funds). There are currently more than 6,600 Active Funds and about
3,000 different active asset management firms.
Furthermore, there is a continuous inflow of data into our database

from hedge fund data providers and from hedge funds managers
directly. We currently subscribe to 8 hedge fund database providers.
Page 23
Automated Methods: (these methods are described in more detail in steps
2, 4 and 5).
1) enables us to screen our universe of

approximately 3,000 active managers, which represents
approximately 6,600 different track records.
The automatic ranking of managers and track records, according

to Hedge Fund Alpha and Park Ratio, utilizes only a few human
resources, and analysts are not involved in this process. The
automation consistently screens out the top 30% of managers
within our ratios, in a disciplined and precise manner.
Additional quantitative analyses enable us to reduce the whole
universe of hedge funds to about 500 to 600 funds that then
undergo our qualitative analysis and monitoring.
2) regularly produces systematic reports

that support the manager selection/monitoring process:
Monthly manager scoring that enables us to monitor manager

allocation;
Detailed monthly reports for each manager, which provide
valuable information, such as manager performance and risk
analyses; these reports are used for managers in our portfolios
and also serve as support for manager meetings in the qualitative
stage of the selection process;
Monthly sector/strategy analysis that enables us to manage
sector allocation;
Quarterly cluster analysis, which is used for monitoring both
managers in the portfolios and managers under selection.
STEP 2: Quantitative Manager Selection
PARADIGM calculates Hedge Fund Alpha, Hedge Fund Beta and

Park Ratio for each manager by regressing manager track records
against hedge fund aggregate indexes, style indexes, cluster indexes,
as well as multiple long-only benchmarks and indexes.
The fist step in our quantitative analysis involves the ranking of funds,
according to the Overall Park Ratio, which is calculated by regressing
manager track records against PARADIGM’s aggregate hedge fund
index and adjusted for leverage. Each fund receives a Park score,
ranging from 0 to 100, and PARADIGM performs further analysis on
the top three deciles.
At this stage some managers are screened out for the following
reasons:
Managers already in our portfolio;

Managers without a minimum track record;
Managers deploying strategies that we do not invest in.
Page 24
In the second stage, PARADIGM runs additional analyses to better
understand the investment process of each manager and obtain
additional rankings:
Overall Hedge Fund Alpha: calculated by regressing managers

track records against PARADIGM’s aggregate hedge fund index;
the objective is to identify managers that produce higher Hedge
Fund Alpha within the top deciles of our Park Ratio ranking;
Peer Group Park Ratio: calculated by regressing manager track
records against PARADIGM’s hedge fund strategy index, and
adjusted for leverage; the objective is to identify the best
managers within a peer group;
Peer Group Hedge Fund Alpha: calculated by regressing
manager track records against PARADIGM’s hedge fund strategy
index; the objective is to identify managers that produce higher
Hedge Fund Alpha within the best managers (highest Park Ratio
scores) of a peer group;
Overall and Peer Group Hedge Fund Beta: calculated by
regressing manager track records against PARADIGM’s
aggregate hedge fund and strategy indices; the objective is to
measure the exposure of a manager to the hedge fund industry
as a whole (Overall Hedge Fund Beta), as well as his/her peer
group. PARADIGM favors managers that produce high alpha and
that differentiate themselves from the industry or their peer group
(indicated by a low beta). PARADIGM does not exclude
managers showing a high beta (which is typically an indication of
leverage or concentration), as long as Hedge Fund Alpha and
Park Ratio remain high;
“Cluster analysis” is an alternative statistical approach, whose
objective is to group and compare hedge funds using statistical
regressions based on their past performance. Each manager
(each point) in the hedge fund universe is defined by a 12, 24 or
36 dimension/coordinate, which represents the last 12, 24 or 36-
month’s returns. Each cluster is defined as a sub universe of
hedge funds, linked by some statistical characteristics embedded
in the past performance. The algorithm, through an iterative
process, looks for clusters that are the most condensed and
verifies whether that number of clusters is statistically optimal.
We perform additional analysis on outliers, which may indicate:
(1) managers with exceptional performance compared to
managers in the same cluster, (2) managers who declare using a
strategy, while using another one, or (3) style drift;
Cluster Park Ratio: calculated by regressing manager track
records against PARADIGM’s hedge fund cluster index, and
adjusted for leverage; Cluster Hedge Fund Alpha: calculated by
regressing manager track records against PARADIGM’s hedge
fund cluster index; these two measures provide additional
rankings, which help us better understand the investment style of
the managers;
PARADIGM also performs correlation-screening analyses (Hedge
Fund Beta) against hundreds of long-only benchmarks and
indexes to identify managers who generate skill-based returns.
Our filter makes sure we allocate only to those managers who fall
within our definition of hedge funds. We do not allocate to stock
Page 25
pickers, fixed beta managers, trend-followers or directional risk
takers.
Managers who pass PARADIGM's quantitative filter are approved for

further qualitative analyses.
STEP 3: Qualitative Manager Selection, Due Diligence

and Manager Approval
Once a manager passes PARADIGM’s Quantitative Analysis, the

asset allocation team initiates a critical, in-depth qualitative review.
This is accomplished through a multi-step interview process that is
designed to assess both a manager’s information-processing skills
and trading strategy. PARADIGM proactively interviews managers,
who pass the quantitative screen, to verify our quantitative
understanding of a potential manager. Furthermore, the interviews
must reveal a high level of skill and professionalism.
James Park
Markus Karr
Portfolios Shirley Xian
Gordon Kelly
Robin Liu
~ 100 Managers
A List Invest.
A List
Comm.
Level
Due Diligence
Investment Shirley Xian

Investment Jim Hirchak
Committee Committee
Level to approve
600
Head of Dr. Park/M. Karr
Managers need to meet
Allocation
Analysts Level Analyze, Screen,

Gordon Kelly - Robin Liu Evaluate
Matteo Solbiati - Under Monitoring
Each manager in the selection process is classified into a category,

catalogued by degree of progress, as well as denoting the next step
for the manager in question. The categories are as follows:
Under Monitoring
Watch and Wait
James Park/Markus Karr Needs to Meet
James Park/Markus Karr Approved
Investment Committee to Approve
Due Diligence to be performed
A List
PARADIGM’s Qualitative Analysis also evaluates other factors,

including career background, integrity, risk management,
organizational stability and asset growth. Initial interviews are
conducted by our analysts, and follow-up interviews are conducted
Page 26
by senior members of the asset allocation team. A manager will
typically have two or three meetings with various members of the our
analyst team, one or two meetings with Markus Karr, our head of
asset allocation, as well as one or two meetings with Dr. James
Park, the Chief Investment Officer.
At the conclusion of the interview process, the Investment

Committee [Dr. Park, Markus Karr, Shirley Xian, Gordon Kelly and
Robin Liu] makes a “thumbs-up” or “thumbs-down” decision as to
whether or not a manager should be approved for inclusion in the
portfolio.
Upon receiving a “thumbs-up” from the Investment Committee, the

manager then undergoes an extensive due diligence process. This
process consists of thorough background checks, including
confirmation of education and previous employment, confirmation of
regulatory compliance status, the contact of prime brokers,
administrators or custodians to verify assets under management,
reference checks from clients and service professionals, and a
manager office inspection.
PARADIGM systematically allocates to managers with prime brokers

on our approved list, which typically consist of industry leaders. For
other service providers, such as auditors or legal counsel,
PARADIGM performs random reference checks on principals and
their client base, verifies registration and licenses, checks for
regulatory complaints or litigations and requires audited financial
statements. PARADIGM also requires proof of licensing, audited
financial statements and asset verification.
The initial due diligence process usually takes approximately 4 to 8

weeks. Upon completion, if the senior asset allocation staff deem
the information gathered adequate, the manager is approved for an
initial allocation.
STEP 4: Initial Allocation, Portfolio Construction and

On-Going Monitoring
Initial Allocation
Typically, an initial allocation to a manager will remain small (less

than 2% of the portfolio) for 6-12 months. During this period the
return stream is analyzed against expectations. We are more
sensitive to any return behavior that does not match with historical
behavior before we invested in the manager. Atypical historical
return patterns (good or bad), which are out of sample with the
historical returns with which we based our quantitative and some of
our qualitative analyses on, would be considered red flags. The level
and quality of communication are also tested during this period, and
we also watch for the operational capacity of the manager to handle
subscriptions and redemptions properly. If and when PARADIGM is
comfortable with the behavior of the allocation, the manager will be
eligible for a more “standard” allocation.
Page 27
Portfolio Construction
The construction of our portfolios is based on the following objectives

and principles:
Optimization of risk/reward profile of the portfolio;

Bottom-up (manager) versus top-down (sector) approach;
Broad diversification: 50 to 100 managers for our multi strategy
portfolios; we try to allocate at least to 10 managers for single
strategy funds of funds; we also set up maximum allocations for
managers and sectors (Please see table on page 35 –
PARADIGM’s Guidelines Section: 3. Diversification).
Volatility weighted allocations: more volatile managers receive
smaller allocations;
General balance in the portfolio: for example, for the PARADIGM
Futures Fund, we try to achieve a good balance of managers
according to criteria, such as Trade Horizon, Style and Markets
Traded.
On-Going Monitoring
Similar to the selection and portfolio construction processes, the on-

going monitoring of managers and portfolios involve continuous
quantitative and qualitative analyses and due-diligence.
The quantitative analysis uses the same performance indicators as

the ones used for the selection of new managers: Hedge Fund Alpha,
Beta, Park Ratio, Cluster Analysis and Cross Correlation Analysis.
compiles all the previous results in a monthly

report for each manager: the PASS Monthly Manager Report.
This monthly report includes several different sections:

Section 1: General Information;
Page 28
Section 2 : Detailed Performance (annual and monthly),
compared with the relevant sector index;
Section 3 : Risk/Return and Drawdown Analysis;
Section 4 : Benchmark Analysis

Hedge Fund Alpha, Beta and Correlation analyses conducted by
regressing manager returns against a series of indices, for
different periods of time: whole history, 60-, 36- and 12-months.
Results are sorted (1) by alphabetic order of the indices and (2)
by decreasing Hedge Fund Beta;
Page 29
Section 5 – Summary of the major performance indicators;
Section 6 : Comparison of Performance before and after

investment in the manager;
Section 7 : Historical evolution of Park Ratios and Hedge Fund

Alpha.
Page 30
produces a cluster analysis report on a
quarterly basis.
produces two monthly reports that support

manager allocation/monitoring process (described in further detail
below on page 32-33) and sector/strategy allocation/monitoring
process (described in further detail below on page 33-34).
The qualitative analysis is a continuous process, which involves

communicating with managers on a weekly, bi-weekly and monthly
basis via email, telephone and fax. Face-to-face meetings occur as
needed and average once or twice a year, either at the manager’s
office or at PARADIGM’s office in New York.
During the on-going due-diligence process, we monitor our

managers for the following red flags.
Red Flag Monitoring
Red Flag Response
In-depth quantitative and
Style drift
qualitative analysis
Unusual drawdowns In-depth quantitative and
or profits qualitative analysis
Returns inconsistent In-depth quantitative and
with strategy qualitative analysis
Loss of focus
Rapid asset growth
Immediate redemption
Regulatory concerns
request
Industry reputation
request
Information compiled and analyses conducted for the various stages

of the quantitative and qualitative analyses, as well as the due-
diligence process, are evaluated and discussed in a series of different
meetings. In these meetings, the Investment Committee discusses
the status and allocation of each manager (including both managers
already in our portfolios and potential managers).
Meetings Purpose Schedule In Attendance
Daily meetings Gordon Kelly
Actively investigate the Monday –Thursday Robin Liu
database and utilize our Matteo Solbiati
PASS Search quantitative research to
identify candidates for Friday review of the Markus Karr
further investigation past week’s meetings Gordon Kelly
Robin Liu
Monitoring: Review all managers in Monthly Gordon Kelly
Group Review any level of investigation (By the end of the month) Robin Liu
Review all managers who
have been designated into
the following 4 categories: Markus Karr
Monthly
Review of (1) Dr. Park/M.Karr Approved Shirley Xian
(Around the 10th of the
Manager Process (2) Dr. Park/M.Karr need to Gordon Kelly
Month)
meet Robin Liu
(3) Watch and Wait
(4) Under Monitoring
James Park
Review of the managers on Markus Karr
Investment Monthly (Around the 20th
the A-List for allocation or Shirley Xian
Committee of the month)
termination decision Gordon Kelly
Robin Liu
Review the current sector
weightings in the funds and Markus Karr
Monthly
Sector Review compare with 3rd Party
(After the 15th)
Gordon Kelly
Research and our own Robin Liu
optimization models
Page 31
Once managers have been approved, PARADIGM calculates an
optimal allocation for each manager. This allocation model does not
rely on an equal-dollar approach, but a more meaningful volatility-
weighted approach, i.e. more volatile managers receive smaller
allocations. In addition, in order to build diversified portfolios,
PARADIGM applies limits to the allocation to each manager and
sector/strategy. These limits are shown in the table below on page 35
in PARADIGM’s Guidelines Section: 3. Diversification.
MANAGER ALLOCATION
PARADIGM diligently monitors the performance of the hedge fund

managers on our A List on an on-going basis, using proprietary
scoring methods. PARADIGM uses a simple multi-factor model of the
primary factors in evaluation of a manager. We currently include 5
factors (we may add others in the future): Park Score, Performance
(absolute and sector relative), Volatility, Liquidity, and Analyst
Sentiment. These factors are combined into an overall score ranging
from 1.0 to 5.0, with 5.0 being the best.
Factors can have different weightings depending on the funds. For

example, products may have different liquidity objectives and
consequently have different liquidity weightings in the overall score
calculations. This scoring method is used for all the managers that
PARADIGM invests in, as well as for managers that are in the final
stage of our manager selection process.
On what basis does the firm define and
change the asset allocation of the portfolios? Based on the overall score, the Investment Committee will assign an
Investment Instruction for each fund. There are 4 instructions:
Investment
Scores Comments
Instructions
Initiate or increase
> 3.0 BUY
allocation
Allocation cannot be
HOLD increased at this time
> 1.5 and <3.0 (*) or

Allocation must be
DECREASE discretionarily
decreased
A 100% redemption
< or =1.5 FIRE notice must be issued
to this manager.
(*) At 2.0, we run an in-depth manager analysis and evaluation.
These instructions represent guidelines supporting the final allocation

decision that may take into account other elements:
If a PARADIGM fund has cash needs, redemption notices are

issued for managers on “HOLD” before any “BUY” managers;
There may be HOLD's on some managers with scores above 3.0
because (1) the Investment Committee feels the allocation is
already large and does not want to increase it, or (2) the
allocation is new and still in our test account phase;
Page 32
Similarly, a DECREASE instruction can be issued if the
Investment Committee feels that our exposure to a manager or a
hedge fund sector is too large and needs trimming down (which is
not directly related to the manager scoring system)
A “FIRE” instruction can be triggered by non-quantitative red
flags (ex. Regulatory Concerns or Industry Reputation);
PARADIGM also monitors the behavior pattern of the returns
and look for signs of performance that is uncharacteristic of what
we believe the manager should be trading;
We may delay termination if we have a particular conviction on
the short-term outlook for the manager and attempt to exit the
allocation at a higher level.
SECTOR/STRATEGY ALLOCATION
PARADIGM does not view sector/strategy allocation as a main

component in portfolio construction and does not observe defined
sector/strategy weightings. It is impossible to predict which sectors
will perform well in a given year. However, we do conduct monthly
sector tilting, based on various optimizations to see how quantitative
methods may yield weightings different from those we currently
employ on our funds.
Quantitative methods are categorized as follows:
Performance: comparison of the monthly performance for each

of our proprietary sector/strategy indices over different time
spans (3, 12, 24, 36, 60 months). For example, we compare the
performance of our 3, 12, 24, 36-month fixed income arbitrage
index to our 60-month fixed income arbitrage index to identify
situation of over/underperformances;
EFF: efficient frontier analysis for optimizing our sector/strategy

allocation. We run efficient frontier analyses under different time
spans (3yr and 10yr) and constraints (volatility, returns) to get
additional information in terms of optimal strategy allocation and
to compare this optimal allocation to our current strategy
allocation;
EFF - columns Research and 3rd party: our current strategy

allocation is also compared to allocation suggested by third party
research.
All these analyses, combined with our view on the financial markets,
contribute to our final decision on strategy allocation. Modifications
for strategy allocation are implemented gradually, taking advantage
of subscriptions and redemptions. For instance, strategies we favor
will receive more assets and vice versa for strategies we do not
favor.
For example, 2004 was a difficult year for the merger arbitrage
sector, mainly due to the lack of opportunities. This sector
represented 2%-5% in various PARADIGM products at the end of
2004, compared to our 10% exposure in January 2004. Another
Page 33
example is the Mortgage-Backed sector, where a series of bad news
involving both managers and instruments increased our concerns as
to the extent to which manager-supervised (as opposed to
independently-verified) pricing of portfolios pervaded the asset-
backed industry; thus, in 2004, a gradual slight paring down of our
exposure to this sector was initiated. The sector was trimmed from
12% in early 2003 to 5%-7% in 2004.
On what periodicity is the asset allocation of
The portfolio is reviewed on a monthly basis.
the portfolios reviews?
PARADIGM’s clients engage our advisory services to access our

expertise in the area of hedge fund investing. The level of investor
For non-standard products, to what extent can
participation for non-standard products is accommodated based on
the investor be involved in the asset allocation
investor needs. This can range from joint committee discussions on
process?
manager selection to consulting contacts where the investor retains
full discretion on the allocation of funds.
Our portfolios follow 2 sets of investment guidelines:
PARADIGM’s own investment guidelines;

Guidelines set by the investment banks that structured products
using PARADIGM’s funds as underlying, for leverage or capital-
guarantee purpose.
A - PARADIGM’S GUIDELINES
1. Manager profile
Our managers generally meet the following profiles:
Average size: $50 to $500 millions;

Monthly performance statistics for 2-3 years; managers with less
than 2 years performance statistics can also be considered
through our qualitative analysis and their past experience;
Do investment guidelines exist for all High HEDGE FUND ALPHA;
products? If so, please provide sample: High PARK RATIO;
Superb credentials, superior intelligence, highly experienced;
Able to articulate the fundamental phenomenon the manager
attempts to capture;
Independent operation and ownership, which signals self-
confidence;
Single strategy focus, which signals expertise;
High percentage of manager's net worth invested in own fund,
which also signifies confidence.
Page 34
2. Not Allowed strategies
STRATEGIES WE AVOID REASON FOR AVOIDANCE
It is well established that most stock

Fixed beta managers pickers do not outperform the overall
market, even before the consideration of
fees. We want to ensure the funds in our
Trend followers portfolio derive profits by processing
information rather than depending upon
Directional risk takers market direction.
We will occasionally have minimal

exposure to these securities through
Non-marked-to-market securities (includes underlying hedge funds but we do not
private equity, Venture Capitalist) allocate to these strategies due to the
difficult nature of pricing them and
potential liquidity dangers.
May signal lack of expertise or the

Very Little in Multi-Strategy managers
manager’s inability to control style drift.
We do not invest in this strategy due to

the regulatory issues involved and
Mutual Fund Timing
because it does not fit into our definition
of information processing.
Emerging markets typically have severe
restrictions in taking short positions in
Very Little in Emerging Markets securities, so these managers are
invariably forced to be fixed beta
managers.
3. Diversification
PARADIGM constructs broadly diversified portfolios to mitigate

idiosyncratic risk. There are between 48 and 93 managers in our
multi-strategy portfolios. In addition, we have maximum allocation
constraints for each manager and sector.
Maximum Maximum
Investment Current Number
Allocation Allocation
Programs of Managers
to Any Manager to Any Sector
PARADIGM Master Fund 87 5% 20%*
PARADIGM Equities Fund 93 no limit no limit
Multi Strategy PARADIGM Global Fund 87 5% 20%*

Portfolios PARADIGM Multi Strategy 68 5% no limit
PARADIGM Tax Exempt Fund 67 5% 20%*
PARADIGM Public Fund 87 5% 20%*
Single Strategy PARADIGM Equity Market Neutral 10 20% N/A

Portfolios PARADIGM Futures Fund 19 10% N/A
Sector Portfolio PARADIGM Asian Fund 10 20% no limit
* L/S equity strategy, as a whole can represent more than 20%, but
there are regional subsets. For example, at the end of March 2005,
the regional breakdown for the PARADIGM Master Fund was the
following: L/S US (70%), L/S Europe (15%) and L/S Japan (15%).
thus, the allocation to L/S US was about 17%, compared to L/S
Europe and Japan, which were at about 3.5% each, which is still
below the maximum of 20%.
Page 35
B - INVESTMENT BANKS’ GUIDELINES
Our portfolios follow guidelines from CDC-IXIS, Lehman Brothers,

and JP Morgan and are reviewed on a monthly basis by risk
management teams of all the aforementioned institutions, as well as
the risk management team at Commerzbank.
PARADIGM Master Fund is managed under the following guidelines

in agreement with and monitored by Lehman Brothers International
(Europe), Commerzbank and CDC-IXIS, all of which shall be referred
to as “the banks” hereafter. With respect to PARADIGM Equities
Fund, we do not have such guidelines and will typically run that fund
in a more concentrated fashion and will also employ the use of
leverage.
1. Allowed Instruments
The Fund will invest in the following financial instruments (“Permitted

Funds”): (a) shares of single hedge funds, (b) managed accounts of
single hedge funds, (c) funds of funds, and (d) swaps and options of
funds.
In addition, for hedging purposes only, the Fund may invest in (e)
forward positions in one or more of the following currencies against
the US Dollar: Euro, British Pound, Swiss Franc, Canadian Dollar
and Japanese Yen. The portfolio denomination currency is USD.
Furthermore, the Fund may have (f) residual cash balances in the
following currencies: US Dollar, Euro, British Sterling, Swiss Franc,
Canadian Dollar and Japanese Yen.
For the purpose of earning interest on any cash balance, the Fund
may invest in (g) money market cash instruments with a maturity of
183 days at most and with counterparty rated at least A-1 by
Standard & Poor's or P-1 by Moody's Investors Service, and (h)
shares or units in money market cash instruments funds.
All other instruments are prohibited, except for PARADIGM Equities,

Ltd., which may invest in any security, derivative, commodity or
financial instrument.
The investments of the Fund, including borrowing, if any, are

hereafter collectively referred to as the “Portfolio.”
2. Allowed strategies
The Fund will only invest in Permitted Funds implementing the

investment strategies described below:
• Equity Strategies
• Event Driven Strategies
• Relative Value Strategies
• CTA
• Global Macro Strategies
Page 36
Investment in multi-strategy managers is allowed, as long as the
underlying strategies are part of the list above.
3. Diversification
The Fund will invest in at least 30 Permitted Funds. In lieu of a

single Permitted Fund, the Fund may hold a cash position of 4% of
net assets, this figure being cumulative such that 8% will equal 2
Permitted Funds.
The Fund must, at all times, hold investments in Permitted Funds in

each of the categories shown below within the specified ranges
(defined as percentage of net asset value of the Portfolio).
Investment Strategy Minimum Maximum
ALL EQUITY STRATEGIES 0 50
Long Bias 0 45
Market Neutral 0 50
Short Bias 0 10
ALL EVENT-DRIVEN STRATEGIES 0 40
Merger Arbitrage 0 25
Distressed/High Yield 0 15
Special Situations 0 10
Mutual Fund Timing 0 0
ALL RELATIVE VALUE STRATEGIES 0 50
Convertible Arbitrage 0 25
Fixed Income Arbitrage 0 15
MBS/ABS Arbitrage 0 15
Volatility Arbitrage 0 15
Statistical Arbitrage 0 15
Index Arbitrage 0 15
Convertible Arbitrage + Fixed Income Arbitrage 0 40
ALL CTA 0 20
ALL GLOBAL MACRO 0 25
ALL CTA + ALL GLOBAL MACRO 0 35
Permitted Funds which implement more than one strategy as defined

in guideline #2 (“Multi-Strategy Funds”) will be allocated towards the
underlying strategies following guideline #4 below.
The above strategy diversification limit can be revised in consultation

with the fund manager to appropriately reflect the trend in the hedge
fund industry.
4. Limits for Multi-Strategy Individual Funds
The Funds can invest in a multi-strategy fund if:
• All the underlying strategies are themselves allowed strategies as

given in guideline #2.
• Reliable information on the actual allocation of capital to the

underlying strategies is made available on a monthly basis.
• Lehman Brothers, JP Morgan and CDC do not disagree with the

Allocation Manager on how to allocate the multi-strategy fund
towards its underlying strategies, based on available information.
Page 37
5. General Concentration Rules
Notwithstanding specific concentration rules as set out in guideline

#6 and the possibility for the Fund to depart from the guidelines
under specific conditions, as set forth in guideline #13 (Amendments
& Waivers), the Fund will observe the following General
Concentration Rules:
5.1. As Per Net Asset Value of the Portfolio
5.1.1. Concentration at the time an initial investment is made: The

Fund shall not, at the time an initial investment is made, (a) invest
more than 8% of the net asset value of the Portfolio in any single
Permitted Fund, nor shall it (b) invest more than 10% of the net asset
value of the Portfolio in Permitted Funds managed by one particular
Fund Management group.
5.1.2. Concentration at any time after an initial investment is made:

The Fund shall not, at any time after an initial investment is made (a)
have more than 10% of the net asset value of the Portfolio invested
in any single Permitted Fund, nor shall it (b) have more than 12% of
the net asset value of the Portfolio invested in Permitted Funds
managed by one particular Fund Management group.
5.1.3. Concentration of top 5 holdings at any time: The Fund shall

not, at any time, have more than 25% of the net asset value of the
Portfolio invested in top 5 single Permitted Funds.
5.2. As Per Assets Under Management of Permitted Funds: At any

time, the investment of the Fund in any single Permitted Fund shall
not exceed 17% of the total assets under management of that single
Permitted Fund, unless such an investment is implemented through
a dedicated managed account.
6. Exceptions to Concentration Rules
Following guideline #13 (Amendments and Waivers), the Fund may

depart from the limits set in guideline #5 with respect to certain
Permitted Funds or Fund Management groups, on a case by case
basis and upon the agreement of the banks.
7. Managers’ Experience
The Fund will not at any time allocate more than 25% of its net asset
value to Permitted Funds whose investment managers have less
than 12 months of track record in the strategy followed.
For the purpose of this guideline, the banks reserve all discretion to
decide whether a previous track record of one or more managers, in
the same or in different fund management companies, applies to the
Permitted Fund being considered.
Page 38
It is hereby acknowledged that on a case per case basis, the banks
may approve a Permitted Fund proposed by the Fund pursuant to
guideline #13 (Amendments and Waivers), whose experience does
not satisfy the above provision on the basis of official track record,
but which is acceptable to the banks because of other parameters
(.e.g. industry experience or recognition).
8. Investments in New Funds
• In any calendar year, the Fund can invest into any new single Fund
without prior approval of the banks, if the initial allocation in the
particular fund is less that 4% of the net asset value of the Portfolio.
• In any calendar year, the sum total of the investments in new funds
cannot exceed 25% of the net asset value of the Portfolio.
Once the above mentioned limit is utilized for the given calendar
year, any further investments in new single funds will need the prior
consent of the banks.
This prior consent is, in effect, a limited veto right, as it does not
affect the validity of other guidelines (such as, for instance, #3
Diversification and #7 Managers’ Experience). Procedure of getting
the consent will be as follows:
• If the new single fund has not obtained prior consent of the banks,
then the Allocation advisor should provide the banks all the relevant
information (such as the fund fact sheet, historical performance,
Fund Manager bio, due diligence sheet filled by Allocation advisor,
revised portfolio allocation, etc). Once the complete set of
information is received, the banks will get back to the Allocation
Advisor with the final decision within 3 business days.
Note: Veto is usually exercised by the banks under the following

circumstances: (a) The inclusion of the new single fund in the
portfolio breaches the investment guideline (b) There exists a strong
evidence of manager-specific information, which provides sufficient
reason for such exclusion.
However, the above mentioned cases for exercising veto rights are
not a comprehensive list. Nevertheless, for the avoidance of doubt,
provided the Allocation Advisor is operating within these guidelines,
the banks shall not unreasonably withhold consent with respect to
new Permitted Funds.
9. Leverage
The Fund may have borrowings of up to 15% of the net asset value
of the Portfolio at any time. In addition, this limit may be increased to
a maximum of 25%, on a temporary basis (no more than four
consecutive weeks), for settlement facilities or in order to meet
temporary shortages of liquidity caused by the need to satisfy
redemption requests by investors.
Page 39
This borrowing limit does not cover any leverage, which might be
used by individual portfolio managers within their own funds; it only
covers direct leverage at the Fund level.
10. Liquidity
Total Liquidity for the purpose of this document is defined as the

number of days between redemption dates plus the number of days
notice required to effect redemptions. A fund, which offers monthly
liquidity, will be deemed to have 31 days between redemption dates.
A fund with quarterly liquidity will be deemed to have 91 days, a fund
with semi-annual liquidity will have182 days and a fund with annual
liquidity will have 365 days.
• At least 55% of the net asset value of the Fund shall be invested in
Permitted Funds that offer liquidity no greater than 66 days (including
most funds with an advertised 'monthly' redemption frequency with a
35 days notice period).
• At least 75% of the net asset value of the Fund shall be invested in
Permitted Funds that offer liquidity no greater than 150 days
(including most funds with advertised 'quarterly' redemption
frequency with a 60 days notice period).
• No more than 5% of the net asset value of the Fund shall be
invested in funds that have lock up period of greater than 180 days.
• The Fund shall not invest in Permitted Funds with a remaining lock-
up period greater than 365 days.
11. Redemption Fees*
For the purpose of this guideline, redemption fees are defined as

mandatory fees to be paid upon redemption of part or whole of a
Permitted Fund, at the time an investment is made and at any time
thereafter, expressed as a percentage of the redemption amount or
otherwise.
• No more than 30% of the net asset value of the Fund shall be
invested in Permitted Funds that apply redemption fees policy with a
redemption fee greater than 2.5%.
• The Fund shall not invest in Permitted Funds with a redemption fee
higher than 5%.
* PARADIGM does not charge redemption fees on its funds.
12. Cure Period
The above investment guidelines are meant to be respected at all

times. In particular, unless explicitly specified otherwise, these limits
must be respected throughout the life of the investments, not just at
the Issue Date of the Notes.
In the event that any of the above listed Investment Guidelines is
broken, unless explicitly specified otherwise, the Fund will have 45
Page 40
business days (the 'Cure Period') to take action to remedy the issue
and re-establish compliance.
13. Amendments & Waivers
Any of the above Investment Guidelines may be amended, or

waived, for all or some particular investments, both on an intended
temporary or permanent duration, and possibly under specific
conditions, provided that this is done with the mutual consent of the
Investment Manager of the Fund and the banks, CDC-Ixis, Lehman,
JP Morgan and Commerzbank.
In any case, the banks shall reserve the right to subsequently revert
to the original guideline(s), as set out in this document, provided that
it gives sufficient notice to the Fund, so that it does not break the
Cure Period (as set forth in #12 above), while proceeding to unwind
or reallocate some investments as a result of that change.
How can the guidelines be altered? Please see Guideline 13 (Amendments & Waivers) above.
Page 41
DUE DILIGENCE / MANAGER SELECTION
PARADIGM’s due diligence process is based on a theoretical model
that defines hedge funds as skill based, profit-maximizing entities,
not as diversified investment vehicles. Hedge funds are companies
which seek to generate what PARADIGM calls an Information
Processing Premium. Just as stock and bond mutual funds diversify
risk by investing in many companies across different
sectors/strategies, PARADIGM funds seek to diversify the
idiosyncratic risk of individual hedge funds by holding a large number
of hedge funds across many different strategies. In PARADIGM's
view, hedge funds, like stocks and bonds, are Information Age
companies and comprise an independent asset class; therefore, a
On what principles are the firm’s due diligence fund of hedge funds is analogous to a mutual fund. By viewing a
process based? hedge fund as a company, PARADIGM performs thorough due
diligence checks on our underlying managers, as one would in
assessing the value of any investment opportunity.
The overall due diligence process is the combination and the

succession of (1) quantitative analysis, (2) qualitative analysis and
(3) checks on the following, without limitation: manager backgrounds,
manager organization, assets under management, regulatory
compliance, legal and financial checks. These checks are done
through meetings with the manager and manager office inspection.
Checks are also performed on service providers, such as auditors or
legal counsel.
The firm’s due diligence process is described in further detail on

pages 23 through 31 above. Examples of reports are also included
Describe in detail the firm’s due diligence
in that section.
process.
The killer criteria for excluding managers are as follows:

Bad rumor;
False statement of education, previous employment and/or
regulatory compliance status;
Regulatory complaints and litigations;
Inconsistency of assets under management statements with no
satisfactory explanations such as poorly informed marketers or
incorrect reporting to databases;
Name the minimum requirements (killer Prime broker not in our approved list (inadequate references for
criteria) a manager has to meet, if any, to pass the Prime Broker means no one in our network of contacts
the due diligence: knows the Prime Broker);
Monthly scoring equal or inferior to 1.5 (see Monthly manager
scoring on page 32-33).
In addition to these killer criteria, our managers typically meet the

following criteria:
Average size: $50 to $500 million;
Monthly performance statistics for 2-3 years; managers with less
than 2 years performance statistics can also be considered
Page 42
through our qualitative analysis and their past experience;
Superb credentials, superior intelligence, and highly
experienced;
Independent operation and ownership (signals self-confidence)
Single strategy focus (signals expertise);
High percentage of manager's net worth invested in own fund;
Able to articulate the fundamental phenomenon the manager
attempts to capture.
Do you conduct on-site visits with the
Yes.
managers?
How much time is spent with each manager Often, a manager will have three or four meetings with different
during the due diligence process? members of the PARADIGM team as well as one or two meetings
with Dr. Park. Onsite visits are also conducted prior to an allocation.
• Before initial investment The due diligence process usually takes about 4 to 8 weeks before
the test account stage.
PARADIGM communicates with managers on a weekly, bi-weekly
• Every following year and monthly basis via e-mail, telephone and fax. Face-to-face
meetings occur as needed and average once to twice a year in a
manager’s office and several more times per year at PARADIGM’s
office in New York.
PARADIGM performs quantitative analysis on all the active funds in
its database twice a year, currently 6,600 funds, which are managed
by about 3,000 different managers. This first quantitative screening
enables use to reduce the universe of eligible managers. This
reduced list comprises both managers already on our A List and
potential managers.
In 2004, we performed an initial analysis on approximately 550 new

How many new managers do you analyze per
managers and met with almost 300 during the course of the year.
year? In how many of the analyzed managers
do you finally invest?
We performed a monthly quantitative analysis on all the
funds/managers in our A List: managers we currently invest in and
managers approved for first allocation.
In terms of final investments in new managers, there is no annual

quota we must meet. As mentioned before, PARADIGM seeks to
invest only in highly-skilled information processors. Thus, some
years may garner more than others.
Yes. PARADIGM performs a thorough due diligence check on the

administrator or service providers for the funds that we invest in.
Do you carry out due diligence checks on the Generally, we will allocate to managers with prime brokers on our
administrator or any other service provider to approved list, which are typically industry leaders. For other service
the target investee funds? If so, please providers, such as auditors or legal counsel, PARADIGM performs
describe: reference checks on principals and their client base, verifies
registration and licenses, checks for regulatory complaints or
litigations and requests audited financial statements.
On March 31, 2005, PARADIGM’s approved manager list contained

How many managers are currently on your
95 managers, including 93 managers who have already received
approved list?
allocations.
Page 43
Most of our underlying managers have $50-$500 million under
management, which leaves substantial room for additional
investments with these funds. We currently have 95 managers on our
approved list, of which 72 are open for additional investment with
capacity of approximately $5 billion. This capacity broken down by
How much capacity is available from strategy is as follows:
managers on the approved list? Please
STRATEGY CAPACITY
provide breakdown by strategy:
CTAs $1 billion
Equities (including long/short, market

$2 billion
neutral, and stat arbitrage)
Relative Value $2 billion
Page 44
PORTFOLIO CONSTRUCTION
Manager Selection - Quantitative Criteria
Hedge Fund Alpha measures
Hedge Fund Alpha Score (1)
manager’s ability to outperform
Park Ratio Score (1)
the overall hedge fund
Calculated from the regression
industry, his/her peer group, or
of each manager’s returns
his/her cluster group.
Performance against the following:
• Overall Hedge Fund Index;
Park Ratio accounts for
• Sector/Strategy Indices;
leverage, serving as a more
• Cluster Indices;
accurate measure of relative
• PARADIGM’s portfolios
skill.
Beta and correlation against Beta and Correlation
about 100 different indices: calculation helps us to:
• PARADIGM proprietary • better understand the
indices: Global, Sector, investment strategy and
Cluster Indices; confirm the skill set of a
• Long-only industry manager;
Correlation benchmarks; • exclude managers that have
high exposures to stock or
• Hedge Fund and Fund of
bond markets or a certain
Hedge Funds Indices; style; we do not allocate to
• PARADIGM’s own stock pickers, fixed beta
portfolios. managers, trend-followers or
directional risk takers.
Explain the qualitative and quantitative criteria Statistical grouping of Identifies best managers within
Cluster
used in your portfolio construction process: managers, according to the a group and also helps us
Analysis
past 36 months of returns detect style drift
We tend to favor young
Assets Under
Between $50 and $500 million managers, who have
Management
remaining capacity.
Assets Under
Asset Growth Rapid growth is a red flag
Management
Managers with less than 2
years performance statistics
Track Record 2-3 years can also be considered
through our qualitative analysis
and their past experience
Manager
High percentage of manager's net worth invested in own fund
Commitment
Score between 1.0 and 5.0
calculated for each manager, Managers in A List Score must
Manager resulting from a multi-factor be higher than 3.0 for initiating,
Scoring algorithm taking into account maintaining or increasing their
Park Ratio, Performance, allocation.
Volatility, Liquidity, Sentiment.
(1) for a detailed definition and description of Hedge Fund Alpha and Park Ratio
scores see pages 24 and 25.
Page 45
As far as the quantitative criteria for the portfolio construction itself,
we seek to construct highly diversified funds and try to allocate to a
minimum number of managers in our multi-strategy and single
strategy funds of funds; we have limits allocations to managers and
sectors.
Maximum Maximum
Investment Current Number
Allocation Allocation
Programs of Managers
to Any Manager to Any Sector
PARADIGM Master Fund 87 5% 20%*
PARADIGM Equities Fund 93 no limit no limit
Multi Strategy PARADIGM Global Fund 87 5% 20%*

Portfolios PARADIGM Multi Strategy 68 5% no limit
PARADIGM Tax Exempt Fund 67 5% 20%*
PARADIGM Public Fund 87 5% 20%*
Single Strategy PARADIGM Equity Market Neutral 10 20% N/A

Portfolios PARADIGM Futures Fund 19 10% N/A
Sector Portfolio PARADIGM Asian Fund 10 20% no limit
To monitor manager and sector/strategy allocations, PARADIGM

uses the Monthly Scoring of Managers method (see page 32-33) and
Monthly Sector Analysis (see page 33-34).
Quantitative criteria do not absolutely dictate our decisions. Rather,

the quantitative analyses using Hedge Fund Alpha and Park Ratio
scores enable PARADIGM to screen the whole universe of hedge
funds and to reduce it to a sub-universe of managers that then go
through further analysis. Quantitative indicators are also used as
support in the qualitative interviews, where results are discussed with
managers to better understand the manager’s investment philosophy
and process.
Managers Selection - Qualitative Criteria

Investment Able to articulate the fundamental phenomenon the
Process manager attempts to capture
Investment
Single strategy focus (signals expertise)
Process
Investment
There are strategies we do not invest in: See page 35.
Process
Superb credentials, superior intelligence, highly
Experience/Skills
experienced
Organization High-quality risk management
Independent operation and ownership (signals self-
Organization
confidence)
Organization Stability
Qualitative criteria are used mainly to identify managers that have an

edge (in terms of investment style, level of skill, professionalism),
have developed a stable organization and reliable operations and
have aligned interests with their investors.
Page 46
Our portfolio turnover is generally 5%-10%, including test accounts.
Because we view hedge funds as companies and PARADIGM as a
portfolio manager, we agree with Warren Buffet when he says that
successful portfolio management is about identifying outstanding
individuals and investing in them for the long run. PARADIGM does
not trade its managers. We search for and identify talent. When
returns are poor, we examine the manager closely and try to
determine the reason for the drawdown. If our confidence still
remains high, we often add to the allocation to rebalance the
State the average turnover of managers within
portfolio.
the portfolios:
A portion of our terminations occur after being invested in a manager

for 12 months. This is, in effect, a trial period and the final stage of
our due diligence on a manager, in which we invest a minimum
allocation to monitor the level of communication and behavior of the
monthly and mid-monthly performance. Terminations, for the most
part, occur due to a combination of the deterioration in our
quantitative rankings and poor performance relative to the manager’s
peer group.
Does the turnover of managers in different
No.
portfolios vary substantially?
The following are some of the main reasons managers are fired or
excluded from an existing portfolio:
1. Did not pass successfully the test account stage;
2. Manager score equal to or below 1.5 (see description of Monthly

Scoring of Managers on page 32-33);
3. Performance not in line with peer group;
4. Inconsistent risk-adjusted returns with strategy or expectations;
What are the main reasons for managers to be 5. Style drift - PARADIGM uses a proprietary technique called
excluded from an existing portfolio? rolling Hedge Fund Beta analysis to assist with this
determination in addition to the results of cluster analysis;
6. Manager no longer accepts managed accounts (especially
CTAs);
7. Tracking error between managed accounts and published fund
performance (especially CTAs);
8. Inability to manage rapid asset growth;
9. Regulatory issues;
10. Industry Reputation.
According to PARADIGM’s definition of a hedge fund as an

Has a manager included in a portfolio of the information processing company, we are aware that, like all
firm ever gone out of business due to losses? businesses, it is possible that one can go out of business. However,
If yes, what are the lessons learnt from that in our 14-year history, the number of managers who have gone out
experience and how have they been applied to of business while PARADIGM has invested in them is low. In any
your business? case, PARADIGM has learned valuable lessons from such
instances.
Page 47
In 2002, one of our managers lost 54% within a one-month time
frame. PARADIGM had been invested in this manager for several
years and had always been satisfied with the fund's stable, low-
volatility return. The manager had consistently reported solid
performance numbers up until September 2002, when the fund blew
up. 90 days prior to the manager’s posting the 54% drawdown,
however, PARADIGM sent a partial redemption notice as part of its
portfolio rebalancing process and was able to collect $1 million of the
investment back.
Thus, while we were disappointed that this manager had a significant

drawdown, this situation compliments PARADIGM’s view on the
necessity of diversification and the importance of a continuous
monitoring and rebalancing process. With 95 managers in our
portfolio and with our consistent monitoring and rebalancing process,
no single manager will substantially decrease the overall
performance of our portfolios.
At the discretion of PARADIGM and upon signature of a Non-

Disclosure Agreement, transparency on underlying managers (name,
AUM, background, etc.) is provided to investors.
PARADIGM sets realistic expectations for its transparency

requirements from underlying managers, because we accept the fact
that most skilled and sophisticated managers are not inclined to
Are portfolios transparent to the investor? disclose their proprietary methodology and systems. Although we
make an effort to obtain as much transparency as possible, full
transparency is not a requirement. Our quantitative screening and
qualitative analysis, coupled with a rigorous due-diligence process,
allow us to create an accurate profile and set risk/reward
expectations for each manager. We currently allocate to 93
managers, one third of which provide full transparency, which
currently includes our 27 managed accounts.
Most of our underlying managers have $50-$500 million under

management, which leaves substantial room for additional
investments with these funds. We currently have approximately 95
managers in our portfolio, of which two thirds are open for additional
investment with capacity of approximately $5 billion.
In addition, we continue to enter into side-letter capacity agreements

with underlying hedge funds to ensure excess capacity for
How does the firm secure capacity with top PARADIGM’s funds. We have signed 24 side-letter capacity
class managers now and in the future? agreements.
In addition, approximately 30% of our portfolio is exposed to closed

funds. Generally, however, due to our high degree of diversification,
closed managers are not crucial to our success. Allocating more
assets to a portfolio of closed managers will lead to the dilution of
returns, because the track record of closed managers cannot be
replicated. Nevertheless, we have cultivated various business
relationships that occasionally allow us to obtain capacity of closed
managers.
Page 48
What is more important and what we seek to achieve is to identify the
next outstanding manager and allocate to him/her, while the manager
has a small AUM and has enough capacity. We typically try to enter
into relationships with managers at an earlier stage than most large
funds of funds, thus getting a foot in the door before the soft close.
PARADIGM’s has a leg up above its competitors in several critical

areas, which include: (1) our investment philosophy and process; (2)
our proprietary software and database, ;
(3) our manager assessment and ranking processes; (4) our
sector/strategy allocation process; and (5) our diversified portfolios.
Investment Philosophy and Process

What is the competitive edge in the firm’s
investment strategy? PARADIGM’s investment process is materially different from other
fund of funds managers. Our entire approach to hedge funds relies
on a well-researched and unique theoretical foundation that supports
and guides every function within our company. We screen the
universe of hedge funds and exclude stock-pickers and directional
risk-taking managers to ensure the funds in our portfolio derive
profits by processing information, rather than depending upon market
direction.
In our perspective, hedge funds are a separate asset class because

they perform a clearly discernible function (information processing),
exhibit unique, definable fundamental characteristics (no reliance on
market direction to generate returns) and their historic performance
provides evidence of their uniqueness (low or no correlation to the
performance of the overall stock or bond markets). By allocating to
managers that fall into this asset class, our portfolios provide an
information-processing premium (similar to a risk or liquidity
premium) that does not depend upon market direction.
Conversely, other FOF managers select from the universe of self-

labeled hedge funds primarily on their performance. This failure to
observe a theoretical foundation has serious implications because
many so-called hedge funds are detrimental to their investors. For
example, consider a privately offered, long-only fund that charges a
Page 49
20% performance fee. In all probability, this closet mutual fund will
call itself a hedge fund. However, investors in this fund are seriously
disadvantaged. The fund might generate profits during significant
bull markets, but the investors will have paid too much for their long
market exposure because they could have obtained the same
exposure in a mutual fund for 50 to 100 basis points. Over extended
time periods, the outlook for this fund’s investors is bleak. It is well
established that most stock pickers do not outperform the overall
market (even before consideration of fees). Therefore, in all
likelihood, the investors will participate in 80% of market gains, but
suffer 100% of market losses.
PARADIGM’s Proprietary Database and Software
Our competitive edge in terms of choosing information processors,

uncorrelated to the markets, relies on our proprietary database and
software, , which is critical for the
quantitative leg of our manager selection and portfolio monitoring
processes. Several major banks, who structure our products,
emphasized the fact that less than 10 of our competitors have a
information system similar to .
The system enables us to screen a universe of about 3,000 active

managers, representing about 6,600 active funds, and measures
each fund’s performance relative to more than 100 indices we
maintain in our database. These include long-only indices, as well as
proprietary and third-party hedge funds and funds of hedge funds
indices. Furthermore, regularly produces
preformatted reports that support the manager selection/monitoring
process and risk management.
Manager Performance Assessment
We do not rank managers based on return and Sharpe ratio.

Despite its popularity with other funds of funds and its widespread
use, our research shows that Sharpe ratio has several flaws that do
not contribute to building a superior portfolio. Sharpe ratio is a
comparison statistic that compares the performance of two portfolios
at a time. Sharpe ratio and other comparison statistics (like
correlation) answer the question, “Which manager is the best?”
However, they do not give any insight into the more meaningful
question of which managers contribute to an optimal portfolio of
managers. We use portfolio measurements such as Hedge Fund
Alpha and Park Ratio because they have a basis in portfolio theory
and have been proven (both statistically and in real-time fund
management) to select the managers that contribute to an optimal
portfolio.
Sector/Strategy allocation
We do not observe defined sector weightings. It is impossible to

predict which sectors will perform well in a given year. However, by
using proprietary, quantitative methods and analysis (patented or
patent-pending) we are able to develop meaningful expectations
Page 50
about which managers should perform well in the future. Therefore,
we strive to provide superior, risk-adjusted returns based on
manager skill. We allocate to the managers who exhibit the highest
level of skill relative to their peer group. By selecting the best
available managers, regardless of sector/strategy, our portfolios
become immune to the unpredictable success or failure of any given
sector.
Even though PARADIGM does not view strategy allocation as a main

component in portfolio construction and does not observe defined
sector weightings, we do conduct monthly sector tilting, based on
various optimizations to see how quantitative methods may yield
weightings different from those we currently employ on our funds.
For further details, see page 33-34.
Broad diversification
PARADIGM also differs from other fund of funds managers, because

its hedge fund portfolios are highly diversified in accordance with
Modern Portfolio Theory. Other managers do not diversify to the
extent we do because, they believe diversification reduces returns.
While it is true that portfolio concentration can generate high returns,
the level of resulting risk is too high. One manager or one event can
easily destroy a concentrated portfolio. The safer way to generate
returns is through a diversified portfolio of skill-based managers. Our
unleveraged portfolios will generate equity-like returns with bond-like
volatility. In addition, those seeking higher returns can achieve this
by leveraging our low risk portfolio rather than concentrating their
portfolio.
PARADIGM uses the same investment strategy for all of its funds
and has shown in its 14-year returns that this strategy will yield
continuous profits, regardless of market direction. We constantly
How sustainable is this competitive edge?
challenge, test and refine our modeling assumptions to validate its
significance and effectiveness. We also research, examine and
implement economies of scale as assets grow.
Page 51
RISK MANAGEMENT
Does the company maintain a written risk
Yes.
management policy?
Our risk management philosophy is characterized by several

overriding principles.
The first risk management concept is an organizational one: for

double-checking purposes, it is crucial that there are different entities
involved in risk management.
There are three PARADIGM entities involved in the process:

The asset allocation team;
The structuring team;
The risk management and compliance officer.
There are two external entities involved in the risk management:

The risk management department of Lehman Brothers, CDC-
IXIS and JP Morgan monitor our portfolios on a monthly basis to
make sure our portfolios are in-line with risk guidelines they set
forth for our structured products;
RiskMetrics produces monthly risk statements providing the
following aggregated information: exposure to
markets/securities, sensitivity to equities, fixed income, credit
and FX risk, stress testing, and VaR.
What risk management concepts does the firm
apply to its portfolios? The second risk management concept is an operational one:
procedures and risk management tools are in place to monitor the risk
of the underlying managers as well as our portfolios on a daily,
weekly, monthly basis.
Our internal risk management personnel includes Markus Karr, Head

of Asset Allocation, Shirley Xian and Gordon Kelly, all of whom
monitor our portfolios on an intraday basis (for our portfolio of CTAs),
as well as on a daily and monthly basis (for all our portfolios).
Risk monitoring relies on:
Reward/risk parameters set for each manager;
Continuous monitoring for red flags (which include style drift,
regulatory concerns, and/or an inability to manage rapid asset
growth);
Careful monitoring of a manager’s performance using individual
scoring.
In addition, our structuring team, which consists of Stephane

Farouze and Gerald Toledano, also contributes to the process. They
discuss risk guidelines on a monthly basis with banks that structure
our fund of funds products and serve as the third internal checkpoint
in our risk management process.
Page 52
Jim Hirchak, our risk management and compliance officer, monitors
our portfolios on an intraday, daily and monthly basis, serving as a
secondary opinion, separate from the asset allocation team. He is
also in charge of managing PARADIGM’s use of RiskMetrics and
providing our investors with monthly customized risk reports.
As for external resources, the risk management department of

Lehman Brothers, CDC-IXIS, JP Morgan and Commerzbank monitor
our portfolios on a monthly basis to make sure our portfolios are in-
line with risk guidelines they set forth for our structured products.
See guidelines on pages 36 to 41.
Refco and Cargill Investor Services serve as the FCM, clearing most
of our CTAs’ trades in our Futures portfolio. They monitor the activity
of the CTAs on a real-time basis for any abnormal trading behavior
and excessive positions or losses, all of which would be reported
immediately to PARADIGM.
Page 53
Quantitative Risk Management Tools
Spreadsheet for our futures portfolios, providing P/L for
each contract, markets and geographic sectors on an
Intraday P/L aggregate basis and on an individual manager basis.
Monitoring Real time P/L is compared to thresholds, corresponding
and Stress Testing to losses in the case that all the markets move 1, 2 and
3 standard deviations at the same time against our
portfolios.
Daily P/L and
Daily performances of all the managers we are invested
Drawdowns
in. Monitoring focuses on drawdowns.
Monitoring
Reports for each manager detailing performance,
standard deviation, drawdowns, as well as the evolution
Monthly Manager from one month to another of PARADIGM indicators
Monitoring such as Hedge Fund Alpha and Beta, Park Ratio.
Monitoring focuses performance evolution, style drift.
Please see page 28-30.
Monthly Manager
Score below or equal to 1.5 will trigger redemption.
Scoring
Through RiskMetrics we get the following risk reports at
the manager level:
Exposure of NAV to hedge fund strategies
Monthly Portfolios Exposure of NAV to markets/products
Risk Indicators Sensitivities to equity and fixed income markets
Stress testing, parallel shocks
Describe the firm’s quantitative risk
VaR analysis
management tools. Provide examples, where
available:
Diversification Manager and sector/strategy allocation has to stay
Monitoring within limits. Please see description on page 35.
We have a table of red flags that we monitor and would
Red Flags
trigger specific response in case of their occurrence.
Monitoring
See table below.
Quarterly Cluster Contribute in conjunction with other analysis to
Analysis identifying “Style Drift”.
Red Flag Monitoring

Red Flag Response
Style drift
Unusual drawdowns In-depth quantitative and
or profits qualitative analysis
Returns inconsistent In-depth quantitative and
with strategy qualitative analysis
Loss of focus
Rapid asset growth
Regulatory concerns
request
Industry reputation
request
In addition, we evaluate a fund’s internal controls over trading limits,

credit limits, and stop loss policy through our qualitative review. We
perform due diligence on the fund’s risk management system, stress
Page 54
test procedures, and marked-to-market procedures. PARADIGM
continuously monitors major news feeds, particularly those specific
to the hedge fund industry, to find independent news regarding our
existing allocations. Other sources of information are manager-
reported returns, proprietary analytic models, proprietary indices and
sector sub-indices, and external databases of indices. We also
maintain close contact with third-party service providers, and our
network of business associates provide us with background
information.
Two areas we are particularly sensitive to are legal issues

(regulatory violations, lawsuits, etc.) and dramatic increases in
assets managed.
PARADIGM uses a line of credit to manage additions and
redemptions, capture managers and enhance returns. PARADIGM’s
core programs (Master Fund, LP,Master Fund, Ltd. and PARADIGM
Multi Strategy) do not employ leverage. PARADIGM Equities Fund
employs the discretionary use of leverage of approximately 1.8, with
Does the firm apply leverage to some or all of a maximum leverage of 2.0.
its products? If so, please explain:
Our enhanced return programs (see pages 12 to 15) provide 2x, 3x
or 4x leveraged exposure to our Master Fund core program. The
use of leverage on a fund of funds level is a multiple of the total
investment; hence, $20 million in capital leveraged 3 times equals a
$60 million investment.
The firm has an official Policies & Procedures Manual, which
Does the firm maintain a firm wide risk
includes operational, legal, reputational and business risk
management system including operational,
management systems. This manual also includes the Disaster
legal, reputational and business risks? If so,
Recovery Plan, which details all the necessary steps to take, should
please describe:
an unforeseen disaster occur.
Page 55
ADMINISTRATION/OPERATIONS
Is the fund administration performed in-
No.
house?
If services are outsourced:
All fund and corporate accounting is provided by Global Fund
• Which tasks are fulfilled by external Services, LLC, an Atlanta-based accounting firm. Offshore fund
service providers (include names of accounting and servicing for our offshore funds is provided by Folio
companies? Administrators, Ltd. The Administrator handles all shareholder
registration and custody issues including subscriptions and
redemptions and computes the net asset value for each fund. The
custodian for all onshore funds is Bank of America, and the custodian
for offshore funds is JP Morgan.
• How long have the relationships with The time frame of our relationships with our service providers are as
those service providers lasted? follows:
Global Fund Services, LLC – 13 years
Folio Administrator, Ltd. – 3 years
• Has the firm ever terminated any
PARADIGM terminated its working relationship with Arthur Anderson,
service providers (including
the auditor, due to their inability to continue providing professional and
auditors)? If so, explain the
timely services.
circumstances:
CLIENT INFORMATION/REPORTING
Client account statements are mailed to clients on a monthly basis
What kinds of reports are sent to investors? and are also available on our website. In addition, clients in all our
Provide sample reports: funds receive quarterly and yearly reports. Please see “Client
Reporting” attachment.
Institutional investors and distributors may request customized

Can investors receive customized reports?
reports.
PARADIGM reports on a monthly, quarterly and yearly basis.

What is the periodicity of the reporting? However, if necessary, weekly or bi-weekly reporting will be
provided.
Are audited reports available to the investor? Yes.
Does the company publish regularly in the
Yes.
press? Provide sample:
Has the company published or commissioned Yes. PARADIGM has published numerous research reports on the
any research/academic papers? topic of hedge funds and hedge fund investing.
Page 56
COMPLIANCE/LEGAL
PARADIGM Global Advisors, LLC is registered with the SEC as an
investment adviser and with the Commodities Futures Trading
Commission as a commodity pool operator and a commodity trading
advisor and is a member of the US National Futures Association.
Is the firm registered with any regulatory
and/or supervisory bodies? PARADIGM Capital Management, LLC, the General Partner for our
domestic products, is registered with the Commodities Futures
Trading Commission as a commodity pool operator and commodity
trading advisor and is a member of the US National Futures
Association.
The NFA performed an audit in 2000, and the SEC audited
When was the last inspection of those PARADIGM Global Advisors in Oct 2003. Both were routine exams.
bodies? Additionally, PARADIGM Global Advisors, LLC and PARADIGM
Capital Management perform an annual self exam for the NFA.
There have been no material, civil, criminal or administrative actions
Are any lawsuits pending against the
against any of the PARADIGM companies, their principals or
company?
employees.
Does the company have a full time compliance
P. James Hirchak, Jr.
officer?
Yes - The firm has an official “Policies and Procedures Manual,”

Does the company have a written compliance
which includes our compliance policies and is signed by every
manual?
employee.
Provide a list of professional counterparties
the firm maintains a business relationship
with:
• Custodians Custodian (onshore funds): Bank of America
Custodian (offshore funds): JP Morgan
• Administrators Offshore Administrator: Folio Administrators, Ltd.
• Legal advisors Legal: Henderson & Lyman (US)
Legal: Smith Hughes Raworth & McKenzie (BVI)
• Auditors Auditors: Ernst & Young (onshore and offshore)
• Banks Bank of America
JP Morgan
• Distribution channels Various U.S. Broker Dealers
• External marketers
Independent third party Marketers
• Other important business partners
Abaxbank (Italy); Cargill Investor Services, IXIS, Cyril Finance
McDonald Financial (Key Bank).
All of PARADIGM’s partners are invested in the firm and the firm’s
How does the firm ensure an alignment of products, and several senior staff members have their 401(k)’s and
interests between the firm, as fund manager, IRA accounts invested in our funds. In addition, many of the investors
and the investor? in our funds are close acquaintances and family members of our staff
members.
All of PARADIGM's partners have significant amounts of their liquid

How much of the firm’s or the partners’ money
net worth invested in the firm’s products or in the firm itself to expand
is invested in the firm’s products?
the operations of the firm.
Page 57
PARADIGM does not participate in any situation that may be
considered a conflict of interest. It is a common knowledge that some
funds of funds negotiate down fees with underlying hedge funds and
Are there any conflicts of interests the profit from the difference. PARADIGM considers it a conflict of
investor should be aware of? interest and has never participated in this type of activity. As a
result, PARADIGM will not accept any financial or other direct or
indirect compensation from our underlying managers (including
equity participation and soft-dollar arrangements.
Please state the name and title of the officer at your firm who has prepared and reviewed this
questionnaire.
Name: Jean-Michel Savre; Nick Markola

Date: August 2005
Position: Senior Vice President, Marketing & Structured Products
Page 58

Due Diligence SV Onshore 08-09-05

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Due Diligence SV Onshore 08-09-05

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Due Diligence Review of FUND OF FUNDS MANAGERS

Manager: PARADIGM Global Advisors, LLC.

Background Information (4)

Product Information (12)

Asset Allocation/Style Allocation (19)

Due Diligence/Manager Selection (42)

Portfolio Construction (45)

Risk Management (52)

Client Information/Reporting (56)

Matteo Solbiati Head of the European Branch 2003

PARADIGM hires employees through personal references. Through

Legal structure: Limited Liability Company

Currently, James Park owns 49.5%, Stephane Farouze owns 31.5%,

In 2001, PARADIGM’s assets under management grew to more than

In 2002, Dr. Park purchased Bill Natbony’s share in the partnership,

In 2003, Dr. Park purchased Michael Natbony’s share in the

In 2004, Jean-Michel Savre joined PARADIGM and is responsible for

In 2004, PARADIGM signed distribution agreements with the

In 2004, PARADIGM increased its institutional reach: pension funds

Furthermore, in 2004, Cyril Finance, a subsidiary of Mutuelle du

The legal structure of the firm is outlined in the diagram below:

PARADIGM GROUP CORPORATE STRUCTURE

PARADIGM PARADIGM Capital PARADIGM

99% 1% 1% 99% 1% 99%

PARADIGM Global PARADIGM PARADIGM Capital

Provide a chart of the legal structure of the

Provide an organization chart: Please see “Org Chart” attachment.

No. PARADIGM is entirely focused on its core business of designing

Does the firm manage investments of other

PARADIGM Master Fund Multi strategy Onshore 63 $173.1 MM

Domestic Funds Multi strategy

PARADIGM Master Fund Multi strategy Offshore 87 $238 MM

PARADIGM Public Fund Multi strategy Offshore 87 $32.7 MM

PARADIGM Global Fund Multi strategy

Sub-Total All Funds $875.3

Sub Advisory, Non-Discretionary Asset $927.0

Total Assets Under Management (Estimate as of July 1, 2005) $1,802.3

Note A Includes Gross Investment By Affiliates of: $530.5

Included in Above Funds PARADIGM Futures Fund I, LLC Onshore 19 $77.2

PARADIGM Multi Strategy Fund Onshore 44 $166.3

PARADIGM Equities Fund II, LLC Onshore 10 $97.6

* Includes Notional Invested amounts as of July 2005

What are the current assets under

$1.8 billion (as of July 1, 2005)

Show the growth of assets under management

PMF PMSF PTEF PEMF PEI PEMN PFFI PAF

*As of March 2005

KEY INVESTMENT PROGRAM

PMF PARADIGM Master Fund, LP

PARADIGM Multi-Strategy Fund, LLC (PMSF)

PARADIGM Equities I, LLC (PEI)

PARADIGM Equity Market Neutral Fund, LLC (PEMN)

PARADIGM Asian Fund, LLC (PAF)

PARADIGM’s expertise in the area of hedge funds and fund of funds

PARADIGM has been approved by the following banks for structuring

The onshore funds of funds approved are the following:

The new generation of capital-guaranteed products offered by

Capital-guaranteed products carry an extra guarantee fee and are

In addition, as the funds’ NAV steadily climbs, the guaranteeing

• The minimum investment amount for PARADIGM’s fund of funds

Does the firm specialize on any product or

PARADIGM Master Fund, LP (PMF): The rates of return reflect the

PARADIGM Multi-Strategy Fund, LLC (PMSF): All of the fund's

Survivorship Bias – The absence of performance data of defunct

The automatic ranking of managers and track records, according

Monthly manager scoring that enables us to monitor manager

Managers already in our portfolio;

Overall Hedge Fund Alpha: calculated by regressing managers

Optimization of risk/reward profile of the portfolio;

Section 3 : Risk/Return and Drawdown Analysis;

Section 4 : Benchmark Analysis

Section 6 : Comparison of Performance before and after

Section 7 : Historical evolution of Park Ratios and Hedge Fund