Crescent Bay Capital

Management (Balanced Volatility)

Fund Investment Objectives

The trading method and strategy applied by CBCM is both proprietary and confidential. As a result, the following discussion is of necessity general in nature, and not intended to by exhaustive. The Advisor relies on proprietary systematic trading models that its Principal has developed and traded in-house. These models operate systematically. The trading strategy is non-directional. The BVP trading strategy blends various short and long Put options to create an overall position that is buffered from increases in volatility. Furthermore, positions are strategically placed across different calendar months using a "diagonal spread method" providing an overall net long volatility position. Each new position is "delta neutral" which provides additional insulation from market volatility. These core elements result in a balanced strategy. In May 2010, CBCM developed a proprietary option pricing model. The Advisor believes this "Straight Line Time" option pricing model to be more useful than Black-Scholes in determining the true time decay value of options. It is the opinion of CBCM that the Straight Line Time ("SLT") model identifies the optimal exit points at which open trade positions should be closed. In December 2011, CBCM put in place a trailing profit stop policy. This enhanced risk parameter has increased the frequency with which the BVP program trades. CBCM believes this adjustment has led to smaller drawdowns and increased per trade profitability, in a market environment that would typically be a challenge for the profit (steadily up-trending without pullbacks). Trade positions are placed (using proprietary strike level and ratio algorithms) to achieve a strategy that can be profitable in flat or volatile market conditions. Profit is made through the expansion of the spread's "Theta Differential." This creates a position that can make profit from time decay and underlying market moves. The primary risk controls for the BVP are stop limits (which are derived as a function of account value) and real-time monitoring of positions. Furthermore, the BVP only participates in high liquidity markets (currently the S&P 500 futures Put option contracts). CBCM regularly evaluates its trading methodology and retains the discretion to revise any method or strategy, including the technical trading factors used, the commodity interests traded, and/or the money management principles applied. Such revisions, unless deemed material, will not be made known to clients.