New currency basket for wealth protection

1. FTSE WPU
Wealth Preservation Unit
December 2011

2. FTSE WPU
Contents
1 Introduction .................................................................................................................................................... 3
2. Currency Risk ................................................................................................................................................. 4
3. Wealth Preservation Unit .............................................................................................................................. 4
3.1 Developed Currency Component: Diversifying Foreign Currency Exposure ............................................ 4
3.2 Emerging Currency Component: Hedging External Devaluation Risk ...................................................... 5
3.3 Commodity Component – Hedging Internal Devaluation / Inflation Risk................................................ 6
4. Hedging Into WPU ......................................................................................................................................... 8
Disclaimer ......................................................................................................................................................... 10
December 2011 Company Confidential 2

3. FTSE WPU
1 Introduction
The FTSE Wealth Preservation Unit (WPU) is a currency unit comprising a basket of currencies and
commodities. WPU aims to preserve the long-term real wealth or purchasing power of investors. WPU
reduces risk of external loss from changes in relative valuation in currencies and internal loss from inflation
erosion of purchasing power. In summary WPU is:
• A new mechanism to hedge currency and inflation risks at lower cost
• A new tool for investors to control investment risks
This is achieved by a systematic process of minimizing global currency translation risk and the hedging of
inflation risk through exposure to storable commodities.
For non-domestic funds, currency risk is likely to be the largest single risk faced by the fund. Global equities
have highly undiversified foreign currency risk. Historically investors have accepted currency exposure as the
unplanned consequence of international asset allocation decisions. The implicit currency risk of a global equity
basket is concentrated in four currencies (USD, Euro, Sterling and Yen) with unsustainable deficits and the
incentive to monetize this debt. These currencies are likely to provide a poor long term store of value.
WPU is designed to minimize risk for investors and exhibit greater stability than any single currency, thereby
stabilizing currency allocations. WPU is not designed to provide an expected return: the role of WPU is to act
as a stable global currency unit for global investors. The base date of the FTSE WPU is 31 December 2011.
The base value of the FTSE WPU is one, such that as of the base date the WPU:USD rate is one. The FTSE
WPU is a spot reference index.
WPU Wealth Protection
60%
WPU Wealth Protection
WPU appreciation
40% against USD
20%
World
inflation
0%
Cumulative Growth
-20%
USD depreciation
-40% against Euro
EUR depreciation
against Oil USD depreciation
against Gold
-60%
-80%
-100%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
USD : EUR USD : Ozs of Gold EUR : Barrels of Oil World Inflation WPU : USD
December 2011 Company Confidential 3

4. FTSE WPU
2. Currency Risk
The paper currency risk to a Global Investor is large and has a negative real return. Currency swings also
dominate investment returns.
• Developed market investors are increasingly aware of the need to preserve value in global terms or
hedge home currency risk
• Investors outside of the main currencies are acutely aware of home currency risk, but face
undiversified domestic currency risk and un-hedged cash-flow risk if they fully hedge
Currency risk will restrict attempts to diversify outside of one’s home market. This is a particular problem in
countries where funds are large relative to the domestic asset market. These funds are forced to invest
outside their home market and incur the currency risk. WPU can reduce this risk.
3. Wealth Preservation Unit
WPU consists of three components each of which mitigates a particular source of risk:
3.1 Developed Currency Component: Diversifying Foreign Currency Exposure
Global wealth and the majority of international transactions, both trade and financial, are concentrated in the
capital markets of the US, Europe, Japan and the UK. Consequently wealth tends to be held in the currencies
of these countries.
To reduce the level of uncompensated risk borne by global investors from developed markets, the developed
market currency component weights are determined by a constrained optimization that minimizes the variance
of a basket of foreign currencies relative to the USD and ensures a more diversified set of currency holdings.
Cumulative USD/WPU and Euro /WPU Return
Cumulative USD/WPU and Euro /WPU Return
40%
Euro more recent depreciation against
30%
20%
10%
USD depreciating against WPU
0%
-10%
-20%
-30%
-40%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
USD : WPU Euro : WPU
December 2011 Company Confidential 4

5. FTSE WPU
WPU Australian Dollar and USD Australian Dollar Rates
WPU AUD Rate
2.2
AUD depreciating
2.0
1.8
1.6
1.4
1.2
1.0 AUD appreciating
0.8
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
USD : AUD WPU : AUD
3.2 Emerging Currency Component: Hedging External Devaluation Risk
Developing economies represent an increasing component of world GDP and are significant producers of
goods and services. WPU attempts to maintain the purchasing power of developed market currencies relative
to developing market currencies, as the latter’s currencies appreciate in value relative to developed market
currencies.
WPU assumes a position in each developing market currency that is proportionate to each nation’s contribution
to world GDP. Consequently, as developing economies form a larger part of the world economy, WPU will
automatically reflect the increasing importance of maintaining the ability to purchase goods and services from
the developing world. Developing market currencies are proxied by the BRIC country foreign exchange rates
relative to the US dollar, which is itself a proxy for the developed world.
December 2011 Company Confidential 5

6. FTSE WPU
WPU Brazilian Real and USD Brazilian Real Rates
WPU Brazilian Real and USD Real Rate
4.5
BRL appreciation
4.0
BRL depreciation
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
USD : BRL WPU : BRL
3.3 Commodity Component – Hedging Internal Devaluation / Inflation Risk
Over time unexpected inflation destroys real wealth. Therefore in order to maintain purchasing power, periods
of negative real return should be minimized.
The link between commodity prices and inflation may be captured by the energy and precious metal sectors of
the commodity markets. Historically, storable commodities have exhibited a positive and statistically significant
relationship to changes in the global inflation rate. Thus oil, gold and silver can serve as an effective hedge
against a decline in the real value of money. The high historic volatility of silver, particularly on the downside,
results in a low WPU weighting to silver. The minimum WPU component weight is 25bp, consequently the
weight allocated to silver is zero.
Commodity prices also represent the exchange rate between commodities and the value of the US dollar.
Historically, commodity prices were set and priced in US dollars, but increasing global demand for commodities
means that they are increasingly being set by global supply and demand conditions. The consequence is a
negative correlation between the US price of commodities and the external value of the US dollar i.e. if the US
dollar falls against foreign currencies, commodity prices rise in US dollar terms. Hence, commodity exposure
may also offer global investors an additional hedge against a loss in the relative purchasing power of
developed market currencies.
December 2011 Company Confidential 6

7. FTSE WPU
FTSE WPU Component Weightings as of November 2011
Commodities
Silver,
0.00%
Oil,
1.51%
Gold,
3.06%
Commodity
Developed Developed Country Weights
Weights 4%
82%
EUR, Developing Country
10.04% Weights
USD, Developing
14%
23.13%
BRL,
JPY, 2.55%
17.81%
CAD,
5.15% CNY, RUB,
CHF, 7.17% 1.80%
6.21% AUD, GBP,
12.57%
6.89% INR,
2.11%
December 2011 Company Confidential 7

8. FTSE WPU
4. Hedging Into WPU
Global investors’ preference for assets in the leading developed market countries is a function of the size,
liquidity and transparency of those markets. For global investors seeking to maintain the global value of their
asset holdings, WPU provides a solution.
• Hedging into WPU reduces a fund’s currency risk. Home country currency appreciation can lead
to material currency losses for a fund that may outweigh the performance impact of all other active
decisions a fund makes as part of the investment process.
• WPU offers the scope to hedge large currency exposures. For certain currencies, the foreign
exchange market lacks sufficient depth for a fund to be able to hedge back to it’s domestic currency.
The lack of depth and and the risk of extreme currency movements places limits on international
exposure. Foreign currency risk is a dominant source of the home currency bias exhibited by funds in
most countries.
• WPU provides protection against a decline in the value of a fund’s home currency. Hedging the
currency exposure of international investments into WPU rather than the home currency provides a
hedge for a portion of the fund’s assets. This is a sensible objective; hedging all exposure into the
home currency violates the basic principle of diversification and exposes a find to significant local risk,
be it political or economic.
Passive hedging into WPU prevents the forced active management of currency by a fund or the forced reaction
to currency crisis by undertaking potentially destabilising hedging activties.
WPU Component Weights
WPU Component Weights
16% 94%
14% 92%
90%
12%
88%
10%
86%
8%
84%
6%
82%
4%
80%
2% 78%
0% 76%
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
Developing Commodity Developed
December 2011 Company Confidential 8

9. FTSE WPU
WPU Commodity Component Weights
WPU Commodity Component Weights
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
Oil Gold Silver
WPU Developing Component Weights
WPU Developing Component Weights
8%
7%
6%
5%
4%
3%
2%
1%
0%
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
BRL RUB INR CNY
WPU Developed Component Weights
WPU Developed Component Weights
35%
30%
25%
20%
15%
10%
5%
0%
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
EUR JPY GBP AUD CHF CAD USD
December 2011 Company Confidential 9

10. FTSE WPU
About FTSE Group
FTSE Group (FTSE) is a world-leader in the provision of global index and analytical solutions. FTSE calculates
indices across a wide range of asset classes, on both a standard and custom basis. FTSE indices are used
extensively by investors worldwide for investment analysis, performance measurement, asset allocation,
portfolio hedging and the creation of a wide range of index derivatives, funds, Exchange Traded Funds (ETFs),
and other structured products.
FTSE has built an enviable reputation for the reliability and accuracy of our indices and related data services.
FTSE has a long tradition of listening and responding to the market so that it is at the forefront of developing
new approaches to index design, many of which are now accepted as the market standard. FTSE prides itself
in continuing to invest significant resources in researching and developing new index solutions.
The foundation for FTSE’s global, regional, country and sector indices is the FTSE global equity universe,
which covers over 8,000 securities in 48 different countries and captures 98% of the world’s investable market
capitalisation. FTSE’s flagship global benchmark, the FTSE All-World, is used by investors worldwide to
structure and benchmark their international equity portfolios.
Exchanges around the world have chosen FTSE to calculate their domestic indices. These include ATHEX,
Bolsas y Mercados Españoles, Borsa Italiana, Bursa Malaysia, Casablanca SE, Cyprus Stock Exchange, IDX,
JSE, LSE, NASDAQ Dubai, NYSE Euronext, PSE, SGX, Stock Exchange of Thailand and TWSE. In addition,
FTSE works with a variety of companies and associations to deliver innovative index solutions which provide
the market with fresh opportunities.
For more information visit www.ftse.com
About Mountain Pacific Group (MPG)
MPG is an investment management firm committed to the research and development of programs in
partnership with senior decision makers from large funds around the world. MPG is responsible for providing
FTSE with its expertise in investment management for currency, commodities and financial risk management.
For more information visit www.mountainpacificgroup.com
December 2011 Company Confidential 10

11. FTSE WPU
Disclaimer
The FTSE WPU Index Series is calculated by FTSE International Limited (“FTSE”) or its agent. All rights in the
FTSE WPU Index Series vest in FTSE. “FTSE®” is trade mark of the London Stock Exchange Plc and The
Financial Times Limited and is used by FTSE under licence. “WPU®” and “Wealth Preservation Unit®” are
registered trade marks of Mountain Pacific (“Mountain Pacific”). Neither FTSE nor their licensors nor Mountain
Pacific shall be liable (including in negligence) for any loss arising out of use of the FTSE WPU Index Series by
any person.
All information is provided for information purposes only. Every effort is made to ensure that all information
given in this publication is accurate, but no responsibility or liability can be accepted by FTSE, Mountain Pacific
or their licensors for any errors or for any loss from use of this publication. Neither FTSE, Mountain Pacific nor
any of their licensors makes any claim, prediction, warranty or representation whatsoever, expressly or
impliedly, either as to the results to be obtained from the use of the name of the Index set out above or the
fitness or suitability of the Index for any particular purpose to which it might be put. No part of this information
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and/or its licensors.
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December 2011 Company Confidential 11