Blackheath Fund Mgmt Inc.

(Vol Arb Offshore LTD)

Fund Investment Objectives

The BLACKHEATH VOLATILITY ARBITRAGE FUND involves trading both futures and futures options to exploit the fact that implied volatility (a measure of what investors are willing to pay for options) consistently outstrips realized volatility (a determinant of the fair value of options). The investment strategy attempts to remain delta neutral and does not take a view on assets it sells or purchases. The Fund trades a diversified basket of futures and futures options. There are 20 different major contracts in which the Fund trades. The portfolio is dynamically hedged using real-time tick by tick risk monitoring driven by an in-house algorithmic risk management system. Our system monitors such variables as implied volatility and time to expiration and creates multiple stop levels for each open position. These levels are updated frequently according to the algorithm.