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Protecting Your Portfolio From Unintended Currency Risk

May 2016Adnan Akant, PhD

Protecting Your Portfolio From Unintended Currency Risk I May 2016 I 1

Agenda

● Currency in International Portfolios: Hedging and Active Alpha

● A Model of Alpha and Beta Returns From Currency Management

● The Currency Environment Today

● A Discretionary Approach to Currency Investing


Currency in International Portfolios: Hedging and Active Alpha


Currency is Critically Important in International Portfolios

● Unhedged international bond and equity returns can be dominated by currency movesExamples: – 2014: European equities returned 2.8% in euro terms, but returned -9.6% in US dollar terms due to a

weak euro– 2013: Japanese equities returned 27.7% in yen terms, but returned only 8.7% in US dollar terms due

to a weak yen

● Yet international equity managers generally do not focus on currency management; International bond managers have shown mixed results

● Expected return from passively holding developed market currencies is near zero for US investors

● Correlation of developed market currency returns with equities and bonds is near zero

● Currency is a full-time specialist activity


Currency Exposure is an Uncompensated Risk

Source, MSCI, Bloomberg, FFTW

Currency Component of the MSCI EAFE

-20%-15%-10%

-5%0%5%

10%15%20%25%30%35%40%45%50%

1989

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Cumu

lative

Ret

urn

MSCI EAFA Currency Component Return

Annualized Return 0.29%Volatility 7.74%Maximum Drawdown -41.72%


Typical Objectives of Currency Management1) Risk Reduction - Hedging of foreign currency to reduce absolute return volatility

2) Return Enhancement - Exploiting alpha opportunity

Risk

Retu

rn

Hedged Foreign Assets

Unhedged Foreign Assets

Risk Reduction viaHedging of FX

Return Enhancement via Active Management of FX


Investor Objective Proposed Solution Critical AspectsEliminate currency risk 100% Hedge • Large negative cash flows when foreign

currencies appreciate versus local currency

• No alpha and diversification benefits from currency

Gain diversification from foreign currency exposure

0% Hedge • Little diversification when most needed for U.S. investors

• Large uncompensated currency risk with no assurance risk will wash out over time

Pick “best” hedge ratio tominimize overall portfolio volatility

Optimal Hedge Ratio • Relies on historical data

• Potentially large drawdownsVary hedge ratio to limit currency risk while adding some return

Dynamic Hedging • Blends together risk reduction and alpha generation objectives, achieving neither very well

• Relies on trend-following for base currency

Addressing the Currency Hedging Conundrum


Investor Objective Proposed Solution Critical Aspects

Separate risk from return objective and address each with most effective strategy

Static hedge ratio to reduce majority of currency risk, combined with an active currency alpha process to add value

Manager selection is critical:

“True Alpha” generators should be preferred to “Beta grazers” in active currency

Addressing the Currency Hedging Conundrum - Preferred Solution


● A hedged US investor can experience large and persistent negative cash flows during periods of USD weakness

Fully Hedged: Significant Negative Cash Flows

Source: FFTW, Bloomberg

-42%

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c-89

Jan-

91Fe

b-92

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Draw

down

U.S. Dollar Index

U.S. Dollar Index Drawdowns


● US dollar tends to rally in times of risk aversion

● An unhedged US investor will miss out on diversification benefits when they are most needed

Unhedged: Limited Diversification Benefit When Most Needed

Source: MSCI, Bloomberg, FFTW

U.S. Dollar Index Versus MSCI EAFE Index When Returns Are 1σ Below Mean

-21%-18%-15%-12%-9%-6%-3%0%3%6%9%

12%Fe

b-90

Mar-9

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90No

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MSCI EAFE IndexU.S. Dollar Index


● A 50% hedge ratio has historically reduced 75% of the excess volatility caused by currencies

● Relative to the 100% hedged index, negative cash flows are cut in half

● A 50% hedge ratio gives an active manager a symmetric opportunity to add alpha – an important flexibility for return enhancement

50% Hedge: A Good Balance

Source: MSCI, Bloomberg, FFTW

MSCI EAFE Index Average of Rolling 5 Year Periods from January 1990 to March 2016 (256 periods)

0% Hedged50% Hedged

100% Hedged5.34%

5.36%

5.38%

5.40%

5.42%

5.44%

5.46%

5.48%

5.50%

5.52%

5.54%

14.5% 15.0% 15.5% 16.0% 16.5% 17.0%

Annu

alize

d Re

turn

Annualized Volatility

MSCI EAFE Index


Why Actively Manage Currencies for Alpha?

● Currency market serves as “release valve” of global macro imbalances and plays a large role in macro equilibriumadjustments

● Currency inefficiencies exist because less than 10% of market participants have multi-week profit objectives

● Active currency strategies seek to anticipate capital flows and policy changes that generate adjustments between the currency of one country versus another

Free CapitalFlows

Sovereign MonetaryPolicy

Fixed ExchangeRates

The“Tri-lemma”


Major Factors Influencing Currency MarketsA global macro approach to anticipate capital flows

Drivers of Capital Flows

YieldSpreads

Tax/ regulatory

policy changes

Terms of trade

dynamics

Monetary policy

expectations

RiskAversion


A Model of Alpha and Beta Returns From Currency Management


Currency Investment Styles Exhibit Beta Characteristics With Positive Returns for Bearing Risk

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5

Trend

Carry

Value

Trend Value Carry

Excess Returns 1.48% 1.94% 3.47%

Volatility 5.0% 5.0% 5.0%

Information Ratio 0.30 0.38 0.69

Source: FFTW, Deutsche Bank, Bloomberg, as of December 31, 2015.

Historical Currency Beta Returns Adjusted to 5% Volatility


Most FX Managers Are Beta Grazers

Barclays Currency Traders Index (BCTI)– Equally-weighted composite of currency manager programs– 84 managers in 2014– Annual return since Jan 1987 is 6.77% with a Sharpe Ratio of 0.30

After adjusting for exposure to currency Betas, True Alpha is negative and not significantly different from zero

Index True Alpha Trend Beta Carry Beta Value BetaBCTI

Universe-8 bps

(-0.84; 59%)12 bps

(3.41; 99%)9 bps

(2.55; 98%)12 bps

(3.01; 99%)

Monthly returns based on data from April 1995 through March 2014.T-values and significance levels in parentheses

Source: FFTW, Deutsche Bank, BarclayHedge, March 2014


● Alpha hunters deliver persistent performance regardless of market environment

● Beta grazers have important limitations. In turbulent markets, Beta returns become highly correlated across different asset classes

● Investors should not pay Alpha fees for exposure to style Betas that could be obtained more cheaply

Alpha vs. Beta: Why It Matters?


Alpha Hunters vs. Beta Grazers

Consider these two managers. Over 6 years:– Both earned about 3% p.a. above LIBID

– Manager 2 returns were highly correlated with 3 factors (Beta grazer)

– Manager 28 returns were not correlated with the factors (Alpha hunter)

Jan 01-Dec 06

Total Excess Return

True Alpha

TrendBeta

CarryBeta

ValueBeta

Total Return

IR

True Alpha

IRManager #2R2 = 69%

3.70% -2.48%

(-1.13; 87%)0.90

(6.99; 99%)2.27

(5.41; 99%)0.34

(0.33; 63%) 0.74 -0.52

Manager #28R2 = 3%

3.02%3.51%

(2.03; 98%)-0.00

(-0.06; 52%)-0.07

(-0.24; 59%)-0.19

(-0.23; 59%) 0.78 0.93

Source: Pojarliev and Levich, "Do Professional Currency Managers Beat the Benchmark?" Financial Analysts Journal, Sept./Oct. 2008, pp. 18-32

Monthly returns based on data from April 1995 through March 2014.T-values and significance levels in parentheses


The Currency Environment Today


Central Banks are Very Active

US Quantitative Easing:Start of US Federal

Reserve QE

2008-2009

Sovereign Debt Crisis in the Eurozone

Japan Inflation Targeting (post Abe’s election)

2012

QE discussions in Europe begin

2014

Central Bank Surprise Actions:Swiss National Bank abandons

the Euro floor

PBOC’s devaluation of the Yuan in August (and January 2016)

2015 - Present

Taper TantrumUS Fed begins talk of ‘tapering’

QE causing sell-off in risky assets

2013

Swiss National Bank Institutes a Floor for the

Euro

2011


Policy Intervention: US Fed and European Central Bank (ECB)

0.8

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EUR / USDEuropean debt crisis starts with Germany

leading a hard-line of austerity on peripheral country debt

Fed increases QE by announcing

Treasury purchases

Fed brings rates to zero and

starts QE with mortgage backed

securities

The Eurozone announces a bail-out program for Greece

The Fed restarts QE and pre-announces it at the

Jackson Hole Conference

Lehman Crisis

The ECB President

Draghi says the ECB will do “Whatever it

takes”

The ECB President Draghi starts to talk

about QE

The European Debt Crisis intensifies

Source: Bloomberg, January 2016


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CNY / USDChina allows measured appreciation of the CNY

China stops the appreciation of the CNY in the wake of the Lehman crisis

China resumes the gradual appreciation of the CNY as global

economic conditions stabilize

China allows the CNY to start to weaken due to a slowing

Chinese economy

China allows an accelerated depreciation of the CNY as Chinese

equities fall sharply

China starts 2016 with another accelerated drop

in the CNY as the outlook for the Chinese economy continues to

be poor

Policy Intervention: People’s Bank of China (PBOC)

Source: Bloomberg, January 2016


► Systematic-only strategies will be challenged to generate consistent positive returns in periods of heavy central bank intervention and policy surprises

► Inflation and growth are too low worldwide and key central banks will actively try to target higher levels using currency as a tool

► It may take many years for global growth, inflation, interest rates, and currency misalignments to normalize, during which time official policy intervention will dominate currency markets

We Expect Heavy Official Policy Intervention to Continue

Source: FFTW, views as of April 30, 2016


A Discretionary Approach to Currency Investing

“A Discretionary Approach for Currency Investing” was written by Adnan Akant, PhD, Head of Currencies, at Fischer Francis Trees & Watts, Inc. (FFTW), and is a chapter in “The Role of Currency in Institutional Portfolios,” edited by Momtchil Pojarliev and Richard M. Levich, London: Risk Books, 2014.


Important Principles of This Approach

► Separation of Alpha (manager skill) and Beta (market returns) is critical in building a long-term investment strategy

► Within currency, a blend of discretionary and systematic processes allows for the separation of Alpha and Smart Beta

► Models have not historically been appropriate in all market environments and the investment process should incorporate discretion to turn models off, at times, and rely on portfolio manager judgment solely

► A strong focus on drawdown in discretionary decisions and models limits downside risk


A Diversified Investment Process

Programmatically deploy empirically tested strategies based on key global macro factors to analyze future currency movements, with an emphasis on a diversity of investment styles and holding

periods

Utilize a flexible approach to analyze global macro developments, with

emphasis on turning points

- Yield spreads

- Terms of trade dynamics

- Risk aversion

- Monetary policy expectations

- Tax/regulatory policy changes

Discretionary Systematic

-

- Yield spreads

- Volatility measures

TrendFocus on momentum

in major currency pairs

--

-

ValueFocus on measure of

valuation

-- PPP

CarryFocus on short term

interest spreads levels

- Terms of trade dynamics

- Monetary policy expectations

-

Market Timing of FX Beta: Judgment, or discretion utilized to turn models off when market conditions are not conducive forsystematic processes. Examples: Macro-driven event risk, geopolitical risk, high correlation between model performances.

FX Alpha FX Beta

- Real effectiveexchange

rates


Trade Example: EUR/CHF – January 2015

► Background Information– SNB introduced 1.20 EUR/CHF floor in September 2011 to stop appreciation of the CHF – SNB Foreign Exchange Reserves reached above 80% of GDP in 2015– Pressure on the floor intensified after expectations for QE by ECB in January

► Key Discretionary Decisions Made– Asymmetry to the downside for EUR/CHF since the introduction of the floor at 1.20 in 2011– SNB was reaching limits of its willingness to defend EUR/CHF ahead of ECB decision on QE– No standard FX beta model (e.g. trend, carry, value, etc.) would be long CHF and therefore surprises had

potential for a large move

► Trade idea– Remove short CHF positions from all models and position long CHF for a break of the floor ahead of ECB

meeting

► Post-Mortem– Single style approaches have large left tail risk: carry and value currency managers were hurt by a 25 standard

deviation move – which occurs more frequently than expected in the real world– Systematic-only approaches have limitations. Models look only at price history – difficult to anticipate event risk

and abrupt monetary policy changes

Past performance is not indicative of future results.


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Cum

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etur

n

Representative Account Targeting 5% VolatilityJudgment in the Representative AccountModels in the Representative AccountModels in the Representative Account Without Judgment Stops

A Representative Portfolio Attribution for a 5% Volatility Target

Correlation Discretionary Systematic (Models) Total Portfolio

Discretionary 100% 85%

Systematic (Models) 17% 100% 66%

Source: FFTW, since inception October 1, 2006, as of March 31, 2016. Past performance is not a reliable indicator of future performance.

This information should be considered supplemental to the “Currency Alpha Translated USD (Unfunded)” composite which is included in the appendix. The composite at times may have contained accounts with varying risk objectives. Correlationand attribution information for the representative portfolio is provided for illustrative purposes only and relates solely to the representative portfolio for the relevant period. The past performance of the representative portfolio is shown for illustrativepurposes only in connection with a consideration of the proposed strategy. It represents performance of a portfolio with a fundamental investment objective that is similar to the investment objective of the strategy under consideration. Please seeAdditional Disclosures for further information.

Models did well until 2011

Judgment and models together provide diversification

Portfolio is driven mostly through Judgment

Judgment has done well after policy interventions intensified overseas

Timing the models provides additional returns and lowers risk


Focus on Drawdown Risk Management

Histogram of Monthly Returns of the Representative Portfolio Targeting 5% Volatility

► Distribution is skewed to the rightSource: FFTW, since inception October 1, 2006, as of March 31, 2016. Past performance is not a reliable indicator of future performance.

This information should be considered supplemental to the “Currency Alpha Translated USD (Unfunded)” composite which is included in the appendix of this presentation. The composite at times may have containedaccounts with varying risk objectives. The past performance of the representative portfolio is shown for illustrative purposes only in connection with a consideration of the proposed strategy. It represents performance of aportfolio with a fundamental investment objective that is similar to the investment objective of the strategy under consideration. Please see Additional Disclosures for further information.

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3

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<-5.0

%<-

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1.5%

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%<-

0.5%

<0.0

%<0

.5%

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.5%

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.5%

<3.0

%<3

.5%

<4.0

%<4

.5%

<5.0

%

Freq

uenc

y

Monthly Return


Currency Alpha Correlations for this Approach

*Source: Barclays, Goldman Sachs, Deutsche Bank, Bloomberg, FFTW, as of December 31, 2015.

1 Barclays U.S. Treasury Bond Index2 Barclays U.S. Aggregate Bond Index3 Goldman Sachs Commodities Index4 Barclays Global Inflation-Linked Bond Index 5 Deutsche Bank Currency Carry Index 6 Deutsche Bank Currency Momentum Index7 Deutsche Bank Currency Value Index

Correlations (Oct 2006 - Dec 2015)

FX Alpha Composite

US Treasuries1

US Aggregrate2 S&P 500 Russell 2000 Commodities3

Global Inflation-Linked Bonds4

DB Carry5 DB Momentum6 DB Value7

FX Alpha CompositeUS Treasuries1 0.08US Aggregrate2 0.13 0.84

S&P 500 0.14 -0.31 0.04Russell 2000 0.14 -0.35 -0.02 0.92

Commodities3 0.02 -0.30 -0.05 0.51 0.45Global Inflation-Linked Bonds4 0.15 0.36 0.65 0.48 0.39 0.51

DB Carry5 0.02 -0.28 0.03 0.73 0.67 0.62 0.50DB Momentum6 0.20 -0.04 -0.15 -0.21 -0.12 -0.25 -0.25 -0.21

DB Value7 -0.04 0.08 -0.13 -0.42 -0.38 -0.48 -0.49 -0.42 -0.04


-80%

-60%

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0%

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%NA

V Ex

posu

re

Euro ExposureJapanese Yen ExposureBritish Pound Exposure

-80%

-60%

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0%

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80%

%NA

V Ex

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re

Euro ExposureJapanese Yen ExposureBritish Pound Exposure

● Plan is concerned with foreign currency exposure in international equity portfolio

● Current Currency Policy: 0% Hedged

● Conservative Board: Active positions should only reduce risk, i.e. hedge foreign currencies into the US dollar when appropriate

● Resulting positions from Currency Alpha can be translated into exposures for a defensive US dollar hedging mandate which can only go long the US dollar.

Portfolio Exposures for Currency Alpha

Hypothetical Portfolio Exposures for the Hedging Mandate

Hypothetical or simulated performance results are presented for illustrative purposes only and have many inherent limitations. Such results do not reflect actual portfolio returns or fees and are generally prepared with the benefit of hindsight. No representation is made that any portfolio will or is likely to achieve profits or losses similar to those shown. Please see Additional Disclosures for further information.Source: FFTW

An Active Hedging Approach


An Active Hedging ApproachResults for a 2% tracking error budget

● The hypothetical hedging portfolio acts as an insurance policy– Performs well in periods of USD strength– Little impact in periods of USD weakness

Return of the Hypothetical Hedging Mandate Currency Component of the Equity Portfolio

Hypothetical or simulated performance results are presented for illustrative purposes only and have many inherent limitations. Such results do not reflect actual portfolio returns or fees and are generally prepared with the benefit of hindsight. No representation is made that any portfolio will or is likely to achieve profits or losses similar to those shown. Please see Additional Disclosures for further information.Source: FFTW, S&P Dow Jones Indices, Bloomberg

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Cumulative Re

turn

Defensive Currency Alpha Return

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Cumulative Re

turn

Currency Component Return

Ann. Return 1.24%Volatility 2.18%IR 0.57

Ann. Return -1.29%Volatility 7.31%IR (0.18)


Case Studies – Outcomes of Recent US Client Reviews A.

(public fund)B.

(public fund) C.

(public fund) D.

(DC multi-manager pool)

Context($ Unhedged FX Exposure)

$750 million $9 billion $2.7 billion Real assets portfolio of $3.25 billion

New investment

policy adopted

Selected 1 manager to actively manage

hedge ratio between 0% and 100% for

each DM currency in international equity

exposure

Asymmetry of exposure:

- cannot short the US

- cannot trade non-USD cross rates

Selected 2 active managers to manage

$1 billion of an unhedged international

equity exposure

50% allocated to a dynamic hedging

program

50% allocated to an unconstrained currency alpha

program

Selected 1 active manager to manage

$1 billion of an unhedged

international equity exposure

$1 billion of the portfolio allocated to

Currency Alpha

Selected 1 active FX manager to diversify overall

fund

10% of the portfolio allocated to Currency Alpha

Size of active currency mandate

Vol Target: 2.5% Vol Target: 3-5% Vol Target: 3-5% Vol Target: 5%

The client list provided does not list all FFTW clients. Please see Additional Disclosures for further information.


Conclusions

► International investing implies currency exposure: an uncompensated risk best managed by specialist currency managers

► Both FX Alpha and Active hedging mandates have a positive impact on institutional investor portfolios using FX managers with positive expected return

► There exist positive return FX Beta strategies such as trend, carry, and value that can be captured systematically

► Asset correlation and FX manager universe return data support allocating risk to active FX management

► Paying close attention to the return attribution (Alpha-Beta separation) of currency managers can be beneficial in selecting managers

► A discretionary approach to currencies has become more important in the current post-Lehman environment of active central bank and policy intervention worldwide


Appendix


Currency Alpha Translated USD (Unfunded) Composite

Representative Investment Management Fee Schedule:50bps on all assets; 20% performance share

PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.Please see Additional Disclosures for further information.

Notes:1. As of November 2013, the Firm's definition due to a firm restructuring has been updated. The Firm's definition includes Fischer Francis Trees & Watts, Inc. ("FFTW") and its affiliates Fischer Francis Trees & Watts UK Ltd. Both entities are part of the global investment management group, Fischer Francis Trees & Watts (the "FFTW Group"), which is part of the BNP Paribas' asset management business. The FFTW Group specializes in managing U.S. and global fixed income portfolios for institutional clients. FFTW is wholly owned by BNP Paribas Investment Partners USA Holdings Inc. (formerly known as Charter Atlantic Corporation). As of January 1, 2011, due to Investment Team reorganization the Firm's definition changed to include Fischer Francis Trees & Watts, Inc. ("FFTW") and its affiliates Fischer Francis Trees & Watts UK Ltd. and Fischer Francis Trees & Watts Singapore, which is a registered business name (Business Reg. No. 53207544K) of BNP Paribas Investment Partners Singapore Limited Co. (Reg. No.199308471D). All were part of the global investment management group, Fischer Francis Trees & Watts (the "FFTW Group"). Additional details are available in each firm's ADV, which is available upon request. 2. A complete list and description of firm composites will be made available upon request. 3. FFTW does not include any portfolio whose net asset value ("NAV") or levered exposure, as applicable, is less than US $5 million in any composite. 4. Returns are expressed in USD currency. 5. Leverage: The strategy presented represents unfunded FX Allocations that rely on the use of derivatives, primarily FX Forward contracts. Leverage can be considered to be employed to a high degree given the nature of both the underlying strategy and instruments themselves. 6. The returns presented are gross of all fees and expenses other than trading expenses. Performance returns for each portfolio that is included in this composite will be reduced by those fees and expenses that are charged to such portfolio. For an illustration of the impact of fees on portfolio returns please see Additional Disclosures. 7. When applicable, performance is presented net of withholding taxes (if any) actually withheld, but gross of all other applicable taxes. In the event that any portion of withholding taxes previously withheld is recouped, performance is adjusted to reflect the recoupment on a going forward basis from the date of recoupment. 8. Additional information regarding policies for calculating and reporting returns is available upon request. 9. Composite description: Currency Alpha USD (Unfunded) strategy reflects returns in USD. Underlying accounts with non-USD base were translated into USD. The composite strategy generates absolute currency returns using judgment-based currency processes combined with quantitative proprietary systematic models. Currencies utilized and traded are predominantly G10 currencies, with a diversifying allocation to EM currencies. Risk levels may be linked to the underlying portfolio or set to a specific return. 10. Composite Currency Alpha Translated USD (Unfunded) was created on April 15, 2009. 11. Policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request. 12. Composite Dispersion as of year-end is an asset weighted measure of standard deviation for accounts within the composite. When there are five or fewer accounts in the composite as of each year end, the dispersion metric is not statistically meaningful.13.The Firm's definition includes Fischer Francis Trees & Watts,Inc. (FFTW) and its affiliate Fischer Francis Trees & Watts UK Ltd. Both entities are part of the of the global investment management group, Fisher Francis Trees & Watts (the "FFTW Group"). The FFTW Group claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. The FFTW Group has been independently verified for the periods January 1, 1990 to June 30, 2015. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm's policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. The Currency Alpha Translated USD (Unfunded) composite has been examined for the periods October 1, 2006 to June 30, 2015. The verification and performance examination reports are available upon request.. 14. No benchmark is present due to the fact that in an absolute return strategy such as FX, capital is not well defined because we trade FX without using any capital, or cash when we use forward contracts. The returns generated from the FX activity are not based on a cash amount invested. The returns are based on a notional portfolio size which has no underlying earnings. The FX returns come from pure gains and losses from trading forward contracts. Such gains and losses should be measured against a baseline of zero which represents the alternative of not trading FX at all. 15. There can be no assurance that a targeted tracking error will be achieved. Please see Additional Disclosures for further information. 16. Effective January 1, 2011, the Firm has decided that accounts will no longer be removed when there is a significant cash inflow or outflow. Prior to this time, a significant cash flow policy was applied. The most recent threshold (effective since Mar 1, 2010) was 15%. Additional details are available as requested. 17. As a result of the functional integration on September 30, 2010, FFTW incorporated approx $16.8B (USD) of transfer account assets under (AUM). Of this total, approximately $13.7B (USD) was eligible for inclusion in FFTW's GIPS assets under management. 18. The FFTW basic fee schedules, listed below, are subject to negotiation between the parties at FFTW's discretion. The precise schedule of fees is dependent upon the size of the mandate as well as any client specific requirements. 19. *The amount shown represents the notional value of FX assets used in the strategy and is presented as supplemental information. Currently, these accounts trade FX Forwards uncollateralized. Therefore, composite assets for GIPS purposes is zero for all periods. Performance is calculated using the notional value as the capital base for the respective accounts in the composite.

Gross CompositeReturn %

Dollar WeightedBenchmark Return %

Gross Return Increment

Portfolios at End of Period

*Total Notional Assets at End of Period (USD

millions)

Total Firm Assets(USD millions)

Past 3yrs Annualized Composite

Standard Deviation

Past 3yrs Annualized Benchmark

Standard Deviation3Mths 6 818.4 38,972.52015 3.42 0.00 3.42 <=5 735.1 40,239.9 4.90 0.002014 6.15 0.00 6.15 <=5 41.8 39,188.3 3.90 0.002013 3.23 0.00 3.23 <=5 41.8 37,231.9 3.63 0.002012 -1.05 0.00 -1.05 <=5 41.8 45,334.2 3.72 0.002011 -0.88 0.00 -0.88 <=5 56.8 40,876.6 4.11 0.002010 1.93 0.00 1.93 <=5 61.8 31,908.3 4.94 0.002009 2.46 0.00 2.46 <=5 20.4 17,397.9 8.06 0.002008 2.17 0.00 2.17 <=5 8.7 22,027.6

March 31, 2016


Currency Alpha Translated USD (Unfunded) CompositeAdditional Information

GrossCompositeReturn %

Dollar WeightedBenchmarkReturn %

GrossReturn

Increment

AnnualizedCompositeStandardDeviation

AnnualizedBenchmarkStandardDeviation

TrackingVolatility

InformationRatio

March 2016 0.22 0.00 0.22Q-T-D -0.39 0.00 -0.39Y-T-D -0.39 0.00 -0.39Last 12 months -3.49 0.00 -3.49 4.70 0.00 4.70 -0.74Last 3 years 2.76 0.00 2.76 4.71 0.00 4.71 0.58Last 5 years 2.02 0.00 2.02 4.52 0.00 4.52 0.45

March 31, 2016


Additional Disclosures

Opinions expressed are current as of the date appearing in this document only. This document is confidential and may not be reproduced or redistributed, in any form and by any means, without FFTW’s priorwritten consent.

This document is provided for your reference on a private and confidential basis to discuss an existing or potential advisory relationship. You are invited to meet with FFTW to discuss any of the informationprovided herein or otherwise, including any and all terms (including fees) that may apply to the relationship.

Past performance is not indicative of future results. The value of investments and the income derived from those investments may fluctuate over time such that the value of a portfolio at any given point in timemay be more or less than its original value.

No warranty is provided as to the performance or profitability of any portfolio or any part thereof, nor is any guarantee made that the investment objectives, expectations or targets described in this presentation oranywhere else will be achieved, including without limitation any risk control, risk management or return objectives, expectations or targets. A portfolio may suffer loss of principal, and income, if any, mayfluctuate. The value of investments may be affected by a variety of factors, including, but not limited to, economic and political developments, interest rates and issuer-specific events, market conditions, sectorpositioning, and other factors. Performance results presented reflect the reinvestment of earnings.

Performance results presented are gross of all fees, including management fees and, if applicable, performance fees. A portfolio’s returns will be reduced by all applicable fees and expenses. A description ofmanagement and performance fees is included in Part II of FFTW’s Form ADV.

Below is an illustration of the effect of management and performance fees (where applicable) on portfolio returns. The illustration assumes that (i) the portfolio had a steady excess return, gross of fees, of 1% peryear (examples A & B), (ii) the portfolio was subject to a yearly management fee of 15 basis points of the market value of the portfolio (examples A & B), (iii) the portfolio was subject to an annual performance feeof 20 percent of the net excess return of the portfolio for the year (example B only), and (iv) there were no cash flows during the period (examples A & B). The illustration shows the compounding effect ofmanagement and performance fees (where applicable) on portfolio returns over time, assuming that other factors such as investment return and fees remain constant. The illustration below is simplified. Thedifference between gross-of-fees and net-of-fees performance return will in practice depend on a variety of factors. The illustration below is cumulative and not annualized.

These performance results may be presented by consultants to clients (or prospective clients) only in accordance with applicable law, including on a one-on-one basis and with required disclosures.

Target/expected returns represent results of statistical modeling of return ranges of asset classes. They are provided for informational purposes only as of a certain date. There is no assurance that thetarget/expected returns set forth in this presentation will be achieved. Target/expected returns are subject to high levels of uncertainty regarding future economic and market factors that may affect actual futureperformance. Accordingly, target/expected returns are hypothetical and should be viewed as merely representative of a broad range of possible returns. Target/expected returns should not be construed asproviding any assurance or guarantee as to returns that may be realized in the future from investments in any asset or asset class described herein. Target/expected returns are based on a number ofassumptions, they are subject to significant revision and may change materially with changes in underlying assumptions that may occur, among other things, as a result of changes in economic and marketconditions. FFTW has no obligation to provide recipients hereof with updates or changes to this data as assumptions, economic and market conditions, models or other matters change.

The calculation of target/expected returns includes observations and/or assumptions and involves significant elements of subjective judgment and analysis. No representations are made as to the accuracy ofsuch observations and/or assumptions and there can be no assurances that actual events will not differ materially from those assumed. In the event any of the assumptions used in this presentation do not proveto be true, results are likely to vary from those discussed herein.

Example A: Base Management Fee Example B: Base Management and Performance Fee

Period: Gross Cumulative Excess Return: Net Return: Period: Gross Cumulative

Excess Return: Net Return:

1 year 1.00% 0.85% 1 year 1.00% 0.68%

2 years 2.01% 1.71% 2 years 2.01% 1.33%

5 years 5.10% 4.32% 5 years 5.10% 3.32%

Example A: Base Management Fee Example B: Base Management and Performance Fee

Period: Gross Cumulative Excess Return: Net Return: Period: Gross Cumulative

Excess Return: Net Return:

1 year 1.00% 0.85% 1 year 1.00% 0.68%

2 years 2.01% 1.71% 2 years 2.01% 1.33%

5 years 5.10% 4.32% 5 years 5.10% 3.32%


Additional Disclosures

The past performance of the representative portfolio is shown for illustrative purposes only in connection with a consideration of the proposed strategy. It represents performance of a portfolio with a fundamentalinvestment objective that is similar to the investment objective of the strategy under consideration. Past performance is not indicative of future performance, and, in addition, the past performance of therepresentative portfolio does not represent the past or future performance of any other portfolio. The performance of the portfolio under consideration may differ from the performance of the representativeportfolio due to a number of factors including, without limitation, potentially differing rates of fees and expenses applicable to each such portfolio, cash levels, investment timing issues, and regulatoryconsiderations that could impact the performance of each portfolio relative to the other.

Tracking volatility is one possible measurement of the dispersion of a portfolio’s returns from its stated benchmark. More specifically, it is the standard deviation of such excess returns. Tracking volatility is afigure that represents statistical expectations falling within a normal distribution of returns. Dependent on the measurement period, normal statistical distributions of returns suggests that approximately two thirdsof the time the annual gross returns of the accounts will lie in a range equal to the benchmark return plus or minus the tracking volatility if the market behaves in a manner suggested by historical returns.Targeted tracking volatility therefore applies statistical probabilities (and the language of uncertainty) and so cannot be predictive of actual results. The returns that will actually be achieved may inherently lieoutside of the range suggested by the historic tracking volatility. The actual tracking volatility is the result of many factors (including but not limited to market volatility, company specific anomalies, instability ofcorrelation between benchmark holdings, timing differences between the calculation of the portfolio value and the valuation of the benchmark by the index provider). In addition, past tracking volatility is notindicative of future tracking volatility and there can be no assurance that the tracking volatility actually reflected in a portfolio will be at levels specified in the investment objectives.

Comparisons to a benchmark are provided for informational purposes only. While FFTW seeks to design a portfolio that reflects appropriate risk and return characteristics, including in respect of sector weights,credit quality and duration, it should be understood that such characteristics, as well as portfolio volatility, may deviate to varying degrees from those of the benchmark.

The risk management process described herein includes an effort to monitor and manage risk, but should not be confused with and does not imply low risk.

This document is not to be construed as an offer to buy or sell any financial instrument. It is presented only to provide information on investment strategies and current financial market trends. The analyses andopinions contained in this document are those of Fischer Francis Trees & Watts, and are based upon information obtained by Fischer Francis Trees & Watts from sources which are believed to be reliable.Fischer Francis Trees & Watts provides no assurance as to the completeness or accuracy of the information contained in this document. Statements concerning financial market trends are based on currentmarket conditions, which will fluctuate. Investment strategies which utilize foreign exchange may entail increased risk due to political and economic uncertainties. The views expressed in this document maychange at any time. Information is provided as of the date indicated and Fischer Francis Trees & Watts assumes no duty to update such information. There is no guarantee, either express or implied, that theseinvestment strategies work under all market conditions. Past performance is not a guarantee of future results. Readers should independently evaluate the information presented and reliance upon suchinformation is at their sole discretion.

The information contained herein (and any calculation of targeted/expected returns) includes estimates and assumptions and involves significant elements of subjective judgment and analysis. No representationsare made as to the accuracy of such estimates and assumptions, and there can be no assurance that actual events will not differ materially from those estimated or assumed. In the event that any of theestimates or assumptions used in this presentation prove to be untrue, results are likely to vary from those discussed herein.

Please note that FFTW utilizes pricing sources and methodologies which reflect market practice, including its own valuations if FFTW determines that valuation data from independent sources is not available or isunreliable. However, your custodian, who maintains the official books and records for your portfolio, may utilize different pricing sources resulting in deviations between FFTW’s and the custodian’s valuations.Further, from time to time financial markets may suffer periods of illiquidity caused by unusual volatility or extreme disturbances and prices realized could vary widely from recent valuations.

Hypothetical or simulated performance results have many inherent limitations. No representation is made that any portfolio will or is likely to achieve profits or losses similar to those shown. In fact, there arefrequently sharp differences between hypothetical or simulated performance results and the actual results subsequently achieved by any particular strategy. One of the limitations of hypothetical or simulatedperformance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical or simulated trading does not involve financial risk and no hypothetical or simulated trading record cancompletely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular strategy in spite of losses are material points which can also adverselyaffect actual results. There are numerous other factors related to the markets in general or to the implementation of any specific strategy which cannot be fully accounted for in the preparation of hypothetical orsimulated performance results and all of which can adversely affect actual results.

This information should be considered supplemental to the “Currency Alpha Translated USD (Unfunded)” Composite information presented herein.

Fischer Francis Trees & Watts, Inc. is registered with the US Securities and Exchange Commission as an investment adviser under the Investment Advisers Act of 1940.

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