EMIRATES CAPITAL ASSET

MANAGEMENT

ECAM Managed Asset Allocation Model

"My two rules of investing: Rule one – never lose money. Rule two – never forget rule one."

Warren Buffett
 Overview
The ECAM Managed Asset Allocation Model is an investment strategy developed by Emirates Capital Asset
Management (ECAM). It is designed for investors seeking a systematic solution to long term equity investments
and is ideally suited to retirement portfolios.

The primary objective of the model is to provide above average risk adjusted rates of return over a complete
investment cycle when compared to traditional “buy and hold” strategies. The model utilizes a combination of
Strategic Asset Allocation based upon Modern Portfolio Theory combined with active Tactical Asset Allocation
using technical analysis tools.

The ECAM Managed Asset Allocation Model uses Exchange Traded Funds (ETFs) as investment vehicles due to
their low entry and administrative cost, liquidity and diversification.

The model’s long-term effectiveness as an investment strategy hinges on the principle of dividing investment
capital amongst a combination of equity, bond and real asset ETFs. This is combined with tactical asset timing
to avoid large drawdowns that are typically experienced during the bear market phase of a typical full
investment cycle as well as systematic portfolio rebalancing to avoid portfolio drift and keep asset allocations
within model targets.

The model will be used as the core investment strategy within a future investment fund to be known as the
ECAM Managed Asset Allocation Fund. This fund will be offered by Emirates Capital Asset Management at a
future date and will provide those investors who are in search of an actively managed portfolio superior rates
of return combined with low costs.
 Strategic Asset Allocation
The ECAM Managed Asset Allocation Model utilizes an investment strategy 1st published by Harry Markowitz in
1952. In his paper titled “Portfolio Selection”, Markowitz used mathematical proofs to demonstrate that
combining “traditional” investments (U.S. stock and bonds) with what was considered at the time to be “risky”
investments” (commodities, real estate, foreign stocks/bonds) actually resulted in an increase in absolute
returns and a reduction in volatility. The work of Markowitz became known as “Modern Portfolio Theory” for
which Markowitz was awarded the Nobel Prize in Economics in 1990.

The essence of Modern Portfolio Theory can best be summed up as “not putting your eggs in one basket”. The
academic theory behind the strategy is based upon mean-variance analysis. It was recognized by Markowitz
that all asset classes individually have periods where they will over or underperform their respective mean
rates of return over various periods of time. However, in all cases eventually every asset class would revert
back to its mean rate of return. He noted that while many asset classes have high levels of correlation
(tending to moving in tandem), asset classes which had traditionally been considered as “risky” tended to move
in a non-correlated manner from many of the traditional investment vehicles. Combining these non-correlated
“risky” assets into a complete portfolio resulted in above average rates of return over traditional portfolio
structures along with reduced drawdowns and decreased volatility (current market correlations shown in Annex
A).

Over the years Modern Portfolio Theory has become the backbone of a number of successful investment
organizations. The most famous is the endowment funds at Yale and Harvard University. During the period
1985-2008 the Yale University endowment fund returned 16.6% and the Harvard endowment fund just over 15%
when, during the same period, the S&P 500 index returned 12%. During that same period the Yale endowment
experienced 33% less volatility and the Harvard endowment 10% less volatility when compared to the S&P 500
index. When analyzing the composition of the endowment funds portfolios during that period, the salient
factor contributing to their success was their targeted underweighting of traditional investment vehicles such
as U.S. equities and U.S. bonds and targeted overweighting of non –traditional investments such as real estate,
commodities and foreign equities.

It is this strategy that the ECAM Managed Asset Allocation Model employs in its investment selection process.
 Tactical Asset Allocation
While Strategic Asset Allocation works well to compensate for small total market drawdowns during the bull
market phase of an investment cycle (resulting in above average rates of return with reduced volatility), it is
unable to compensate for large drawdowns experienced during the bear market phase of an investment cycle.
This is because during a severe market drawdown most non-correlated asset classes will become increasingly
correlated due to the sheer volume of liquidity withdrawn from risk assets and put into non-risk assets. It is
these severe drawdowns which need to be avoided.

Tactical Asset Allocation is commonly referred to as “market timing” but it can best be described as “risk
management”. It is a quantitative approach to removing investment capital from risk assets during periods
when the beneficial result of employing non-correlated assets within a portfolio may be overwhelmed by the
sheer magnitude of excessive capital outflows to safety during bear market periods.

It must be noted there is nothing more devastating to the value of a portfolio than the consequence of a severe
drawdown.

Simple mathematics reveals the following:

-a 25% loss in investment capital requires a 33% gain to return to break even
-a 50% loss in investment capital requires a 100% gain to return to break even
-a 75% loss in investment capital requires a 300% gain to return to break even

It is easy to see based upon the above that it is imperative to protect a portfolio from major market
drawdowns. The smaller the drawdown, the smaller the compounded rate of return required to return to
break even. Avoid the big losses and the small losses will take care of themselves.
 ECAM Managed Asset Allocation Model
The ECAM Managed Asset Allocation Model is composed of 3 distinct investment strategies:

1) Strategic Asset Allocation

2) Systematic Portfolio Rebalancing

3) Tactical Asset Allocation

Strategic Asset Allocation Strategy

Utilizing Modern Portfolio Theory, the ECAM Managed Asset Allocation Model is divided into 5 distinct
investment classes and 1 discretionary investment class. Each investment class is further subdivided into sub-
classes.

The various asset classes and their respective percentage weightings within the portfolio model are as follows:

1) U.S. Domestic Equities (15%)

-U.S. Large Cap equities (10%)

-U.S. Small Cap equities (5%)

Even following the equity crisis that enveloped the U.S. over the past few years, the United States is still the
world’s largest economy. According to the World Bank, in 2009 it contributed 24.3% of total World Gross
Domestic Product (GDP) output. As such, every portfolio must include exposure to the U.S.

The U.S. equity exposure within the model is further subdivided into Large Capitalization equities (companies
with market values of $5 Billion or more) and Small Capitalization equities (companies with market values of
$250 Million to $1 Billion). Small cap equities tend to outperform large cap equities during market advances
but they are quite volatile and therefore are weighted less than large cap equities within the model.

2) Non-U.S. Equities (25%)

-Non-U.S. Developed markets equities (15%)

-Non-U.S. Emerging market equities (10%)

Conversely, given the U.S. only contributes 24% of the worlds GDP, it is logical that a balanced portfolio must
include exposure to non-U.S. equity markets.

The non-U.S. equity exposure within the model is subdivided into developed market equities (countries such as
Japan, Germany, the UK, Australia, Canada, etc) and emerging market equities (countries such as China,
Brazil, Russia, India, etc).

Emerging markets are under-weighted within the Non-U.S. Equities portion of the model as the Non-U.S.
Developed markets ETF utilized in the model includes some exposure to emerging markets. As such, emerging
markets are given an almost equal weighting overall due to the above average growth rates within emerging
market economies that continue to outpace “old world” non-U.S. economies.
3) Bonds (15%)

-U.S. Domestic government bonds (10%)

-U.S. Inflation protected bonds (5%)

All investment portfolios should have some exposure to bonds to provide for possible deflation protection and
act as a “financial accident” hedge during a bear market decline. The failing of most portfolio models is to
overweight bonds to such an extent that they significantly reduce the overall return of an investment portfolio.

The ECAM model carries an underweight bond position when compared to other model portfolios. The reason a
small bond position is maintained is to act as a “buffer” to moderate portfolio volatility (due to the inverse
correlation between equities and bonds). However, as the portfolio is actively managed, the requirement for a
larger allocation to bonds is eliminated by the risk management practices which move equity investments into
cash as quantified technical indicators are triggered during a period of substantial equity declines.

4) Real Estate (15%)

-U.S. commercial real estate (10%)

-Non U.S. commercial real estate (5%)

Real Estate Investment Trusts (REITs) provide a combination of rental yield and capital appreciation. They
tend to have a low positive correlation to other asset classes thereby providing moderate diversification.

5) Commodities (20%)

-General commodity basket (10%)

-Agricultural commodity basket (5%)
-Managed timber (2.5%)
-Gold Miners (2.5%)

Commodities act as an excellent hedge against inflation. They have a relatively low correlation to equity index
returns and therefore work well to balance a diversified portfolio.

Discretionary (10%)

The model reserves a 10% weighting for discretionary investment. This discretionary capital is invested in the
Exchanged Traded Funds (ETFs) that are identified through relative strength analysis as having the greatest
short term growth potential. Through this targeted investment the model aims to add alpha to the overall
investment returns (alpha is the excess rate of return generated above the benchmark model’s nominal rate of
return that would be achieved through static strategic asset allocation).

The strategy invests in 4 ETFs with the highest short term potential rates of return based upon their individual
relative strength readings over the previous 1, 5, and 30 day periods. These momentum-driven ETFs are
reviewed weekly and remain within the portfolio as long as their relative strength readings remain within the
top 4 rankings. When an ETF falls outside this range it is sold and replaced by the next highest relative
strength ETF.

Through this strategy an additional 1-2% rate of return is expected to be added to the overall investment
returns of the asset allocation model.
Systematic Portfolio Rebalancing Strategy

A key part of strategic asset allocation is systematic rebalancing. Over time the non-correlations of asset
classes will result in an imbalance within the portfolio during a bull market advance. Some asset classes will
outperform while other asset classes will underperform. This is known as portfolio drift and these imbalances
need to be addressed in order to maintain the structure of the asset allocation model.

A systematic rebalancing strategy forces the investor to sell some of the out-performing asset classes (taking
profits in the process) and reinvesting in the under-performing asset classes (buying cheap). This is the classic
“buy low, sell high” investment strategy enacted as a result of portfolio rebalancing.

The ECAM Managed Asset Allocation Model is rebalanced either quarterly (if the asset has moved greater than
1% above its model percentage allotment) or on the rare occasion an asset class closes on a daily closing basis 3
standard deviations above its 20 day moving average.

For example, if during a bull market advance non-U.S. Developed market equities (which have an assigned 15%
weighting within the model) were to outperform the other asset classes, there would become a time when its
relative rating within the model would be above its 15% target. At the end of the quarter, a portion of that
ETF is sold to bring its relative percentage holding back into its model percentage range and the proceeds are
used to purchase under-performing ETFs in other asset classes to bring the portfolio back into balance. This
purchasing of under-performing ETFs is only done as long as the asset class is still in a confirmed uptrend.

Tactical Asset Allocation Strategy

As discussed previous, the use of non-correlated assets within an investment portfolio reduces the volatility
and small drawdowns associated with normal market activity during the bull market phase of an investment
cycle. However, they are insufficient to compensate for the large drawdowns experienced during the bear
markets phase of the cycle when excessive liquidity is withdrawn and asset correlations increase. In order to
reduce the risk of severe drawdown, the model employs quantitative technical analysis.

Each of the 12 ETFs within the 5 asset classes is reviewed based upon a set of quantified technical indicators
applied to monthly stock charts (sample chart shown is for the Vanguard Total Market ETF). These technical
indicators have been chosen to provide for optimal rates of return (while allowing for normal market
fluctuations) during the bull market phase of every investment cycle and additionally providing for downside
risk protection during the bear market phase of every investment cycle.

The strategy utilizes a strictly mechanical quantitative approach. When the monthly chart generates a sell
signal (via a monthly close below the 10 month simple moving average along with at least one technical
indicator in agreement), the asset class is sold and the proceeds invested into 90 day Treasury bills (cash). The
confirmed monthly sell signal indicates a very high probability the asset class has entered a bear market phase
and investments within that asset class should be sold.

Using this approach for the period January, 1980 to December 2009 on the S&P 500 Index returned a 663%
excess rate of return over a “Buy and Hold” strategy (shown in Annex B).
Monthly Chart:

-Relative Strength Indicator (RSI) 14 period midpoint

-Simple Moving Average 10 period crossover
-Full Stochastic Oscillator midpoint
-Moving Average Convergence-Divergence (MACD) crossover

As can be seen, utilizing this strategy results in the 5 asset classes (12 ETFs) each “thinking individually”.
During a normal market advance when price remains in an uptrend, the relative non-correlation of the asset
classes will buffer the portfolio from volatility and small drawdowns while not triggering a technical event
which would require the sale of assets. However, as each asset class individually determines that a new bear
market is beginning within its own sphere of influence by way of quantitative technical triggers, downside
protections are automatically applied to guard against severe drawdowns.

As a consequence of using such a risk avoidance model, there will be a tendency for a portfolio managed using
tactical asset allocation to underperform its benchmark during bull markets (as can be seen in Annex B). The
reason is because such a risk avoidance tool cannot predict exactly where the top or the bottom of any given
market is at any given time; it can only assess based upon current price action whether there is a reasonable
chance the market has transitioned from one phase to another and in the process adopts a conservative risk
avoidance strategy. However, over the course of an entire market cycle the model will outperform its
benchmark and provide an overall increase in compounded rates of return due to the avoidance of large
portfolio drawdowns associated with bear market declines.
 Asset Investment Vehicles
The ECAM Managed Asset Allocation Model uses Exchange Traded Funds (ETFs) as its chosen investment
vehicles. The reason why ETFs are used is due to their low purchase and administrative costs, liquidity,
diversification and targeted asset strategies.

While there are many ETF providers available, the ECAM Managed Asset Allocation model predominantly uses
those offered by Vanguard Investments. Vanguard is one of the world’s largest investment management
companies ($1.4 trillion in assets) and are pioneers in offering ETFs with very low administrative costs. It is the
combination of the strong capital base of the company combined with their low cost structure that makes their
ETF offerings appealing.

In areas where Vanguard does not offer targeted specific ETFs to satisfy the models asset allocation strategy,
other fund companies are chosen that offer similar levels of financial safety.

The specific ETFs used by the model are as follows.

1) U.S. Domestic Equities (15%)

-U.S. Large Cap Equities (10%)

-Vanguard Total Stock Market ETF (VTI)

-composed of 3427 stocks representing the U.S. domestic market

-total fund net assets $146.2 billion
-expense ratio 0.07%
-5 largest holdings

Exxon Mobil Corp

Apple Inc
Microsoft Corp
International Business Machines Corp
Proctor & Gamble Co

-U.S. Small Cap Equities (5%)

-Vanguard Small-Cap EFT (VB)

-composed of 1761 stocks and seeks to track the MSCI US Small Cap 1750 Index
-total fund net assets $$22.0 billion
-expense ratio 0.14%
-5 largest holdings

Riverbed Technology Inc

Informatica Corp
Del Monte Foods Co
MICROS Systems Inc
BE Aerospace Inc
2) Non-U.S. Equities (25%)

-Non-U.S. Developed markets equities (15%)

-Vanguard FTSE All-World ex-US ETF (VEU)

-composed of 2256 large and mid cap stocks and seeks to track the FTSE All-World ex
US Index
-total fund net assets $11.6 billion
-expense ratio 0.25%
-worldwide regional allocation

-Europe 43.10%
-Emerging markets 26.9%
-Pacific 23.70%
-North America 6.30%

-5 largest holdings

Nestle SA
HSBC Holdings plc
BHP Billiton Ltd.
Vodafone Group plc
BP plc

-Non-U.S. Emerging market equities (10%)

-Vanguard Emerging Markets ETF (VWO)

-composed of 849 stocks and seeks to track the MSCI Emerging Markets Index
-total fund net assets $54.8 billion
-expense ratio 0.27%
-5 largest regional allocations

China 17%
Brazil 16%
South Korea 13%
Taiwan 11%
India 8%

-5 largest holdings

Vale SA Class B ADR (metals and mining)

Petroleo Brasileiro SA ADR Type A (integrated oil and gas)
China Mobile Ltd (wireless telecom services)
Samsung Electronics Co Ltd (semiconductors)
Gazprom OAO ADR (integrated oil and gas)
3) Bonds (15%)

-U.S. Domestic government bonds (10%)

-Vanguard Total Bond Market ETF (BND)

-composed of 4746 bonds representing the broad U.S. investment-grade market

-total fund net assets $89.0 billion
-expense ratio 0.12%
-average maturity 6.8 years, average duration 4.9 years
-distribution of credit quality

Aaa 76%
Aa 4.6%
A 10.5%
Baa 8.9%
< Baa 0.0%

-U.S. Inflation protected bonds (5%)

-iShares Barclays TIPS Bond Fund (TIP)

-tracks the performance of US Treasury Inflation Protected Bonds

-total fund net assets $19.1 billion
-expense ratio 0.20%
-average maturity 8.9 years, average duration 4.95 years
-distribution

US Government Treasury 99.16%

Cash 0.10%
Other 0.74%

4) Real Estate (15%)

-U.S. commercial real estate (10%)

-Vanguard Real Estate Fund (VNQ)

-composed of 104 stocks issued by REITs and companies that purchase office buildings,
hotels and other real property
-total fund net assets $15.8 billion
-expense ratio 0.13%
-5 largest holdings

Simon Property Group Inc

Equity Residential
Public Storage
Vornado Realty Trust
Boston Properties Inc
 -Non U.S. commercial real estate (5%)

-SPDR Dow Jones International Real Estate ETF (RWX)

-composed of 129 stocks and invests in non-US global real estate companies
-total fund net assets $1.37 billion
-expense ratio 0.59%
-top 5 country weightings

Japan 20.56%
Australia 19.27%
Hong Kong 14.41%
United Kingdom 12.55%
Canada 9.70%

-5 largest holdings

Westfield Group
Unibail-Rodamco Se
Mitsui Fudosan Co
Brookfield Asset Mgmt Inc
Hang Lung Properties

5) Commodities (20%)

-General commodity basket (10%)

-PowerShares DB Commodity Index Tracking ETF (DBC)

-composed of futures contracts on 14 physical commodities grouped into Petroleum,

Precious Metals, Base Metals and Soft Commodities

Light Crude 12.375%

Brent Crude 12.375%
Heating Oil 12.375%
RBOB Gasoline 12.375%
Natural Gas 5.500%
Gold 8.000%
Silver 2.000%
Aluminum 4.167%
Zinc 4.167%
Copper Grade A 4.167%
Corn 5.625%
Wheat 5.625%
Soybeans 5.625%
Sugar 5.625%

-total fund net assets $5.46 billion

-expense ratio 0.85%
-Agricultural commodity basket (5%)

-PowerShares DB Agriculture Fund (DBA)

-composed of futures contracts on a range of agricultural commodities

Corn 12.50%
Soybeans 12.50%
Sugar 12.50%
Live Cattle 12.50%
Cocoa 11.11%
Coffee 11.11%
Lean Hogs 8.33%
Wheat 6.25%
Kansas Wheat 6.25%
Feeder Cattle 4.17%
Cotton 2.78%

-total fund net assets $2.94 billion

-expense ratio 0.85%

-Managed timber (2.5%)

-Guggenheim Timber ETF (CUT)

-composed of 27 stocks and seeks to track the Beacon Global Timber Index of global
timber companies
-total fund net assets $141.5 million
-expense ratio 0.70%

-Gold Miners (2.5%)

-Market Vectors Gold Miners ETF (GDX)

-composed of 30 stocks and seeks to track the NYSE Arca Gold Miners Index
-total fund net assets $7.5 billion
-expense ratio 0.53%
-5 largest holdings

Barrick Gold Corp

Goldcorp Inc
Newmont Mining Corp
Kinross Gold Corp
AngloGold Ashanti Ltd
 Summary
It has long been recognized that the ultimate aim of a well defined investment strategy is to safely maximize
the actual rates of return within a given portfolio (adjusted for inflation) while minimizing downside risk. Too
little exposure to “risk assets” within a portfolio and the portfolio will never keep up with affects of inflation.
Too much exposure to “risk assets” within a portfolio and there is the dual risk of significant short term “fat
tail” declines associated with extraneous market-moving events and the long term substantial declines
associated with full cycle bear markets.

The ECAM Managed Asset Allocation Model can be seen as a comprehensive investment strategy for managing
equity capital. Full cycle rates of return (peak-to-peak or trough-to-trough) consistently outperform
established benchmarks due to the diversified components within the fund and the systematic approach to fund
management. The strategy employs portfolio exposure to a diversified variety of non-correlated risk assets (to
provide for capital appreciation while lessening the affects of short term “fat tail” events) as well as active
portfolio management (to provide for capital appreciation while lessening the affects of long term bear market
events).

“There is only one side of the market and it is not the bull side or the bear side, but the right side.”

Jesse Livermore

"In the short run, the market is a voting machine but in the long run it is a weighing machine."

Benjamin Graham
Annex A
ECAM Managed Asset Allocation Model Correlation Matrix

BND- Vanguard Total Bond Market ETF

CUT- Guggenheim Timber ETF
DBA- PowerShares DB Agriculture ETF
DBC- PowerShares DB Commodity Index Tracking ETF
GDX- Market Vectors Gold Miners ETF
RWX- SPDR Dow Jones International Real Estate ETF
TIP- iShares Barclays TIPS Bond ETF
VB- Vanguard Small-Cap ETF
VEU- Vanguard FTSE All-World ex-US EFT
VNQ- Vanguard Real Estate ETF
VTI- Vanguard Total Stock Market ETF
VWO- Vanguard Emerging Markets ETF

Explanation

-a correlation of 1.00 between 2 ETFs means they will move 100% together
-a correlation of 0.00 between 2 ETFs means they will move totally independent
-a correlation of -1.00 between 2 ETFs means they will move 100% opposite each other
Annex B

ECAM Tactical Asset Allocation Strategy 1980-2009

S&P 500 Index Jan 1980-Dec 1989

Total S&P 500 points accumulated during period:

Buy and Hold: +247.64

Timing: +228.01

Difference: Timing underperformed Buy and Hold by 19.63 points

S&P 500 Index Jan 1990-Dec 1999

Total S&P 500 points accumulated during period:

Buy and Hold: +1115.86

Timing: +923.75

Difference: Timing underperformed Buy and Hold by 192.11 points

S&P 500 Index Jan 2000-Dec 2009

Total S&P 500 points accumulated during period:

Buy and Hold: -354.15

Timing: +559.40

Difference: Timing outperformed Buy and Hold by 913.55 points

_____________________________________________________________

Total S&P 500 Points accumulated Period Jan/1980-Dec/2010

Buy and Hold: 1009.35 (954%)

Timing: 1711.16 (1618%)

Timing outperformance: 701.81 points (663%)