Island Drive

Partners L.P.

Fund Investment Objectives

The Fund invests in and trades, both long and short, primarily equity and debt securities. John A. Levin, Cindy L. Rizzo, Rick Lodewick, and Ari Zweiman are authorized to initiate trades. The trading system is open. Instructions are usually given verbally to either Glenn Gately or Dan Aron, who then enter the trade on a manual trade blotter and into our automated trading system, Charles River Development. We maintain relationships with over 80 brokerage firms, to facilitate our ability to achieve best execution and to maximize our information flow from key market makers. Trades may be executed verbally or electronically, but in either case are immediately recorded in the trade blotter. Island Drive is a short-biased hedge fund designed to benefit from market corrections while preserving capital in other market environments. With its current negative market exposure, this vehicle is an excellent compliment to existing long-biased equity portfolios because it is designed to mitigate the losses that those portfolios would suffer in a market correction. The Fund is managed by John A. Levin & Co., Inc., the sole portfolio manager for the partnership, with the assistance of four securities analysts dedicated to identifying short stock opportunities. The Fund invests in a portfolio of long and short equities as well as index futures and put options. The fund does not write naked options. Since July 1997, a short bias has been maintained based on a belief that the market could experience a significant correction. Since then, the partnership's average net exposure has been approximately - 50% and as of May 31, 2002, it was - 66%. From July 1997 (when Island Drive adopted a negative bias) through the present period, the fund has succeeded in preserving substantially all of its capital while being positioned to benefit from the market's decline. This is demonstrated by the performance of Island Drive (gross of fees): From July 1997 to December 1999, Island Drive decreased in value by only 4% while the S&P 500 Index increased 72%. Conversely, in 2000, the fund increased 18.73% while the S&P 500 decreased 9.10%. In market declines the fund has, for the most part, outperformed the S&P 500 Index: in August 1998 the fund gained 8.99% while the S&P 500 fell 14.46%; July - September 1999 the fund gained 8.80% while the S&P 500 fell 6.23%. From September 2000 to September 2001 the S&P 500 fell 30.50%, while Island Drive increased 29.14%. From September 2000, the start date of the S&P 500's current drawdown, through May 2002 the S&P 500 is down 28.05%. Over the same time period Island Drive increased 22.96%.