In 2005, the Credit Suisse/Tremont Investable Hedge Fund Index (“INVX”), was up +3.53% net. The INVX outperformed, on a gross basis, four out of five competing investable indices. The INVX finished the year up +4.41% gross, as compared to HFRX, S&P, DJHF, FTSE, and MSCI (+2.72%, +2.39%, +2.35%, +2.28%, and +4.68, respectively).

Performance and Risk Statistics (Gross)*
(January 2004 – December 2005)

	Dec-05	2005 YTD	ITD**	2004
INVX	0.58%	4.41%	10.89%	6.20%
MSCI	0.99%	4.68%	7.93%	3.10%
S&P	0.60%	2.74%	6.79%	3.95%
HFRX	1.48%	2.72%	5.49%	2.69%
DJHF	0.64%	2.35%	7.78%	5.31%
FTSE	1.23%	2.60%	5.34%	2.67%

*For the purposes of this chart, INVX returns are presented on a gross basis.
** ITD represents the cumulative return from January 2004 through December 2005.

The year was characterized by several market factors. In terms of currencies, the U.S. dollar (“USD”) appreciated versus both the Euro and the Yen. With regard to specific market sectors, energy was a major theme. During the year, the price of oil rose approximately +51%, this follows the approximate +53% rise that occurred in 2004. A number of other energy related investments also followed suit, as well as commodities, e.g. gold, which rose +18% during the year. In terms of equities, strong performance was registered in several Asian and European equity markets. In addition, ongoing levels of low volatility tended to negatively impact many of the relative value strategies.

Based on preliminary data from the Tremont Asset Flows Report, it appears that capital continued to flow into hedge funds in 2005, albeit at a slower pace than in 2004. With respect to capital flowing in and out of the various strategies in 2005, the largest net positive flows were in the Event Driven, Multi-Strategy and Long/Short Equity strategies. The largest net negative flows came from the Convertible Arbitrage, Equity Market Neutral and Managed Futures strategies. (2005 net flows are estimates.) As discussed later in this review, the Convertible Arbitrage strategy continues to face a number of challenges, especially with regard to the ongoing low levels of volatility.

Seven of the ten hedge fund strategies generated a positive return for the year. The Emerging Markets strategy was the best performing strategy of the overall INVX during 2005, up +22.80% net. Emerging markets managers that dedicated a sizeable portion of their overall portfolios to equities tended to be among the best performers. The Dedicated Short strategy, the second best performing strategy of the INVX during the year, was up +8.04%. The Multi-Strategy category, the third best performing strategy of the INVX during the year, was up +6.02% net.

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