Ratings

Preliminary ratings as of April 4, 2002
Class	Preliminary rating*	Preliminary amount (Mil. $)	Recommended credit support (%)
A	AAA	250.0	50.0
B	A	65.0	37.0
C	BBB	50.0	27.0
D	N.R.	135.0	N/A
N.R.—Not rated. N/A—Not Applicable. *The rating of each class of securities is preliminary and subject to change at any time.

Expected closing date: April 30, 2002.

Collateral: The portfolio will consist of shares in the master fund, cash, money market securities, and an interest rate protection instrument for hedging purposes only.

Lead manager: Credit Suisse First Boston International ('AA/A-1+').

Master fund: Diversified Strategies Fund II Ltd.

Investment and collateral manager: Investcorp Management Services Ltd.

Master fund administrator and valuation agent: International Fund Services (Ireland) Ltd.

Interest rate cap provider: Credit Suisse First Boston International or another similarly rated counterparty.

Trustee: JPMorgan Chase Bank, London branch ('AA-/A-1+').

Agent bank: JPMorgan Chase Bank.

The preliminary ratings assigned to Diversified Strategies CFO S.A.'s US$365 million asset-backed floating-rate notes reflect the credit enhancement provided by the subordinated classes; the cash flow structure (which is subject to various stresses by Standard & Poor's); and the transaction's interest-rate hedge. Based on the initial investment guidelines, Standard & Poor's calculated the following advance rates: (62%) for the class A notes; (75%) for the class B notes, and (85%) for the class C notes.

Final ratings are expected to be assigned on the closing date subject to a satisfactory review of the transaction documents and legal opinions.

The structure of the transaction is shown in the following chart.

Diversified Strategies CFO, the issuer of the notes, is a societe anonyme incorporated in Luxembourg. It will issue US$250 million class A notes, US$65 million class B notes, US$50 million class C notes; and US$135 million class D notes. At closing, the issuer will use the proceeds of the notes to purchase redeemable shares in the master fund and an interest rate cap for hedging purposes only.

The master fund will use the proceeds from the sale of such redeemable preference shares to invest indirectly in hedge fund shares and a minimum level of managed accounts, together the investment vehicles. Each investment in the vehicles is made through a special-purpose vehicle (SPV), and each SPV invests in one and only one investment vehicle. IMSL will act as investment manager to the master fund and to each SPV.

The master fund is a fund of hedge funds managed by IMSL. Its objective is to track the performance of Diversified Strategies Fund (DSF), an existing fund of hedge funds currently managed by IMSL. Since inception (October 1996), DSF has generated an annualized return of 9.7%, with an annualized volatility of 4.2% (through year-end 2001).

The master fund will focus on relative value strategies such as equity-market neutral, convertible arbitrage, merger arbitrage, fixed-income arbitrage and distressed. As of December 2001, DSF allocated 68.1% of its total assets to relative value strategies. The balance of the master fund will be allocated to directional strategies such as long/short equity, macro discretionary, and systematic. As of December 2001, DSF allocated 27.6% of its total assets to directional strategies.

IMSL, through its proprietary funds and third-party client funds, will co-invest with the master fund in each SPV. To accommodate the investment by the master fund in the SPVs, a new class of SPV shares will be created. This new class of shares will have preferential liquidity terms in certain defined circumstances including the curing of the overcollateralization test.

The portfolio will be subject to maximum allocations for relative value and directional strategies, as well as maximum allocations by sub strategies. In addition to the hedge fund strategy diversification there will be requirements relating to transparency, liquidity profile, managed accounts, maximum concentrations, minimum number of managers, and minimum number of investments.

The master fund will implement the investment strategy subject to the investment guidelines. The master fund will purchase and redeem certain interests in the investment vehicles. Master fund shares, together with the money market securities (if any), and the cash balance (if any) will, in aggregate, comprise the assets attributable to Diversified Strategies CFO.

The master fund will not invest in any dedicated emerging market strategies and is subject to the investment guidelines shown in tables 1 and 2.

Table 1 Diversification by Strategy Category
Strategy category	Max. allocation of NAV (%)*	Current DSF allocation (year-end 2001) (%)
Relative value	80.0	68.1
Directional	40.0	27.6
NAV—Net asset value. *If the portfolio NAV is greater than the initial NAV, the excess amount will not be subject to these minimum constraints.

Table 2 Diversification by Investment Strategies
Investment strategy	Max. allocation of NAV (%)*	Current DSF Allocation (year-end 2001) (%)
Distressed	12.0	2.1
Risk arbitrage	30.0	14.5
Convertible arbitrage	30.0	19.7
Equity market neutral	30.0	16.9
Fixed income relative value	20.0	10.9
Hedge equity (U.S.)	20.0	9.6
Hedge equity (global)	20.0	9.8
Macro discretionary	15.0	2.8
Macro systematic	15.0	3.9
Portfolio insurance	15.0	5.5
Multistrategy	15.0	10.9
NAV—Net asset value. *If the portfolio NAV is greater than the initial NAV, the excess amount will not be subject to these minimum constraints.

Table 3 Diversification by Investment Vehicles
	Limit	Current DSF allocation (year-end 2001)
No. of investment vehicles (min.)	25	68
No. of managers (min.)	20	58
Single investment vehicle concentration (max.)(%)	9.0	4.3
Single manager concentration (max.)(%)	12.0	4.4
No. of investment vehicles with an allocation of more than 6% of the NAV (max.)	8	0
10 largest investments as a % of the NAV of the portfolio (max.)	50.0	31.6
Max. % of any underlying manager's assets under management	10.0	In compliance

Table 4 Managed Accounts and Transparency Profile
	Min. allocation of NAV (%)	Current DSF allocation (year-end 2001) (%)
Managed accounts	20.0	37.0
Transparency	40.0	76.7
NAV—Net asset value.

Compliance with the investment guidelines will be reviewed at the end of each month and, in addition, immediately prior to each subscription or redemption by the master fund in respect of its investments in the investment vehicles. (See tables 3 and 4.)

Breach of the diversification by investment strategies and failure to cure within the cure period may lead to lower advance rates (depending on the risk of the underlying strategies) for the purpose of performing the overcollateralization test.

Liquidity requirements of the issuer arise from:

• Periodic coupon payments due on the notes and ongoing expenses of Diversified Strategies CFO;
• Principal repayments at maturity; and
• Satisfaction of the overcollateralization test.

To manage the cash requirements due on each coupon payment date, the investment manager will be notified of the amount due on the following coupon payment date by the trustee six months in advance. The investment manager will deliver redemption notices prior to the next coupon payment date based on the cash amount and on the existing liquidity profile of the portfolio (see table 5). For example if three months prior to the next coupon payment, the two-month bucket is not sufficient to fund the next coupon payment, the collateral manager may rebalance the portfolio or start delivering redemption notices of the three-months bucket to cover the expected shortfall.

Table 5 Liquidity Profile
Target liquidity	Master fund proportion (%)*	Current DSF allocation (year-end 2001) (%)
Two months	5.0	59.0
Three months	60.0	65.6
Six months	80.0	92.9
Twelve months	90.0	97.3
*If the portfolio net asset value is greater than the initial NAV, the excess amount will not be subject to these minimum constraints.

For example three-months liquidity means that the investment manager will receive the proceeds of such liquidation three months after the request to liquidate the underlying investment of the investment vehicle.

To mitigate the risk of a high LIBOR environment, the issuer will enter into an interest rate cap with Credit Suisse First Boston International or another similarly rated counterparty. Under the cap agreement, the issuer will receive an amount equal to the excess of six-month LIBOR for the related interest period over a predetermined strike rate on the notional amount of the cap. The notional amount of the cap agreement initially is US$365 million.

To mitigate the liquidity risk of the underlying hedge fund shares, the investment manager will maintain a minimum investment in managed accounts at all times. If five business days prior to the payment date, the cash amount in the bank account is insufficient to cover the amount due on the payment date, then the investment manager will immediately draw down the managed accounts to cover the cash shortfall, in a manner that will ensure receipt of sufficient proceeds prior to the coupon payment date.

The minimum liquidity requirement in the form of managed accounts will be equal to the amount of the next coupon plus margin plus fees, minus amounts to be received from the cap provider minus any amount in the cash account or eligible liquidity securities that mature before the next payment date.

The valuation agent will receive a monthly valuation of the assets in the managed accounts from the individual hedge fund administrator or manager. The underlying assets of the managed accounts eligible for the liquidity requirement will be invested in the following strategies:

• Convertible arbitrage,
• Equity market neutral,
• Equity long/short, and
• Risk arbitrage.

This minimum liquidity requirement must be maintained until the transaction matures.

Liquidity breaches may occur in relation to the managed accounts or because of a decline in the value of the managed accounts below the liquidity requirement.

If at any time, there is a breach of the liquidity requirement, based on the monthly valuations of the managed accounts, the investment manager must immediately liquidate sufficient underlying investments in the managed accounts and convert them into cash or eligible liquidity securities that mature before the next coupon payment in order to comply with the liquidity requirement.

Classes A, B, and C will be finally redeemed on the interest payment date of April 30, 2007, at their outstanding principal amount. Redemption will be sequential.

IMSL, a Cayman Islands corporation, is the investment manager of the funds under the program and is an affiliate of Investcorp Bank E.C. (Investcorp). The investment manager, through an agreement with Investcorp effective as of Nov. 1, 1990, has employed Investcorp officers to act as its funds management team responsible for the selection and monitoring of portfolio managers and negotiating underlying terms applicable to investment funds and managed accounts for the program. Investcorp has offices in Bahrain, London, and New York, and has approximately $2.7 billion in assets under management and over 260 employees. IMSL has performed due diligence on over 600 different portfolio managers. Portfolio managers are visited regularly, at least twice per year.

Investcorp's investment management business is supported by a team of 21 full-time professionals. Each hedge fund strategy is monitored by two members of the team to ensure an in-depth coverage of the strategy and its environment and outlook. Asset allocation with respect to strategies and managers are thoroughly discussed by the team and must be agreed upon by the program's two head portfolio managers and then approved by the chief financial officer. All the positions of the existing programs are marked-to-market monthly by an independent third party, IFSL. Internally, Investcorp has a quality assurance team whose function is to reconcile the positions and confirm that the managers are in compliance with the guidelines of the managed accounts. In addition, the quality assurance team conducts an independent valuation of the positions and accounts and compares their own valuations with that from the prime brokers and managers.

Standard & Poor's rating approach employs the market value CDO advance-rate technology. Relevant risk factors affecting the return volatility of the aggregate NAV of the underlying funds include portfolio concentration by number of managers and strategies, taking into account the cross correlation among managers and strategies. The model determines the probability of there being sufficient asset value in the portfolio available to pay each rated obligation at the end of the determined exposure period.

The exposure period represents the longest window of exposure that assets in the transaction have to market volatility, incorporating the interval of time between portfolio valuations and time allocated to cure when the portfolio is out of compliance.

IFSL, the valuation agent to the master fund, will calculate the master fund NAV at the end of each month. The estimated NAV of DSF II will be determined 12 calendar days after the last business day of each month, and the final NAV of DSF II will be determined 75 calendar days after the last business day of each month. The NAV of DSF II, together with the NAV of the money market portfolio, and the NAV of the cash reserve account, constitute the NAV of Diversified Strategies CFO. These NAVs will be calculated by the trustee, in the case of NAV of the master fund, using values provided by the valuation agent, and in the case of the NAV of the money market portfolio and the cash reserve account, using values provided by the trustee. The estimated NAV of the fund will be used to perform the overcollateralization tests. However, if there is a difference of more than 0.50% between the estimated and the final DSF II NAV, then the valuation agent will deliver a report explaining such difference.

Continual surveillance will be maintained on the transaction until the notes mature or are otherwise retired. As a result, servicer reports detailing the performance of the underlying collateral will be analyzed, supporting ratings will be monitored, and contact will be maintained with the servicer to ensure that minimum servicing standards are being sustained and that any material changes in the servicer's operations are communicated and assessed.