Bloomberg Markets - November 2013 USA

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Overall rating of Class Y shares for the 3- and 5-year periods
ended 6/30/13 based on risk-adjusted performance.
1

Today, investors must be willing to pursue growth opportunities globally or risk missing
them altogether. Three out of four billion-dollar companies are now outside the U.S. and
80% of global GDP growth comes from emerging markets
2
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take advantage of long-term global macro-trends by investing in many of the best and
fastest-growing companies around the world.
Lets take a fresh look at portfolios and start a new conversation about growth, income
and protection* against certain risks in a changing world.
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6 BLOOMBERG MARKETS November 2013
November
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SPECI AL REPORT: CLI MATE CHANGE
F EATURES
26 Counting the Costs
As the planet gets hotter, a billionaire hedge-fund manager aims
to put a price tag on the consequences of carbon pollution.
by EDWARD ROBINSON
38 The Alaska Paradox
The Arctic is feeling the impact harder than anyplace else on Earth.
Thats creating risksand opportunities.
by JOHN LIPPERT
50 The Geography of Risk
by EDWARD ROBINSON
56 Abbys Road
Abigail Johnson, Fidelity Investments president, must contend
with falling profits and a decline in mutual-fund fees.
by CHRISTOPHER CONDON
68 Fleeced by Fees
Investors in the $337 billion managed-futures market, expecting
returns that will defy stock market slumps, instead find most of
their gains gobbled up by commissions.
by DAVID EVANS
84 Bitcoin Believers
Silicon Valley investors once wrote off the virtual currency
as a joke. Now, some see it as part of the next revolution.
by STEPHANIE BAKER
94 Amways Harvard Guanxi
The U.S. direct-sales company teamed up with Americas most
prestigious university to help make China its biggest market.
by DUNE LAWRENCE and LIZA LIN
F OCUS: BRAZI L
106 Making Sao Paulo Work
Fernando Haddad, a rookie mayor, pledges to curtail corruption,
quicken mass transit and improve schools in Latin Americas
biggest city.
by GABRIELLE COPPOLA
106
26
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COMMENTARY AGENDA
November
c o n t i n u e d
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STRATEGI ES STRATEGI ES
14 Rajan to the Rescue?
16 Europhoria
18 Biotech on the Side
18 Olympic Gaming
20 Hello Kitty Billionaire
116 Rides
Spirited Away
by JASON H. HARPER
118 Drinks
Curating Wine
by ELIN McCOY
10 Editors View
The Business of Climate
12 Letters
22 Bloomberg View
Stalked by Fees
122 Profile
Wally Weitz
by CHARLES STEIN
126 Equities
Dissecting a Trade
by VLAD RASHKOVICH
128 Cheat Sheet
Foreign Exchange
129 News
Most Influential
130 Foreign Exchange
Tracking Seasonality
by AMIR TAL
132 Equities
Tapping Into Telecoms
by PAULA COOK DINAN
and VINCENT TONG
134 Riskless Return
Fixer-Upper Opportunity
by CHRIS BURRITT
136 Whats New
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116
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Uncertainty, regulation and consolidation around
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In the future, growth will emerge
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Editors View
Bloomberg
Markets
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Visit us at bloombergmarkets.com and follow us on Twitter at @BloombergMrkts.
We need to
get rid of
this idea that
going with
the status quo
is a smart
thing to do, says
Tom Steyer.
The Business
of Climate
Climate change is coming to be seenat least by some business
leadersas the defining issue of our time. Look at the economic
havoc caused in recent years by superstorms, floods and
droughts. Although skeptics may question the causes of climate
change and others may bemoan the cost of some of the solutions
proposed to address it, theres no debate anymore that it is hap-
pening: The planet is getting hotter, the seas are rising, and the
weather is becoming more volatile.
Even in the face of all this evidence, politicians havent been
able to agree on a plan of action, and the business community
which has a huge vested interest in the effects of climate
changehas been largely absent from the discussion.
Billionaire hedge-fund manager Tom Steyer says its time for
people to pay attention to the risks, as Edward Robinson writes
in the first part of our special report (COUNTING THE COSTS,
page 26). Steyer and his partners are
funding a project to tally up how much
the world economy is being hurt by cli-
mate change. He wants to assess the
cost of doing nothing to limit carbon
emissions. We need to get rid of this
idea that going the way we are, with
the status quo, is a smart economic
thing to do, Steyer says.
When it comes to gauging the risks presented by climate
change, Alaska is on the front lines, John Lippert reports (THE
ALASKA PARADOX, page 38). The states economy depends on
royalties from pumping oil, the very fuel thats causing its ice to
meltand that, in turn, is making it possible to drill for even
more crude. Alaskans, National Weather Service analyst Rick
Thoman says, are living through climate change in ways people
have not experienced in many thousands of years.
EDITOR
EDITOR
Ronald Henkoff
MANAGING EDITOR
Laura Colby
CREATIVE DIRECTOR
Siung Tjia
ASSISTANT MANAGING EDITOR
Michael S. Serrill
DIRECTOR OF PHOTOGRAPHY
Brenda Milis
SENIOR EDITORS
Vince Bielski
Robert S. Dieterich
William Hawley
Stryker McGuire (London)
Jonathan Neumann
Gail Connor Roche
Joel Weber
EDITOR-AT-LARGE
Robert Friedman
RANKINGS EDITOR
Laurie Meisler
SENIOR WRITERS
Stephanie Baker (London)
Anthony Effinger
(Portland, Oregon)
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Edward Robinson
(London)
Michael Smith (Santiago)
DESIGN
Lou Vega (Senior Art Director)
John Genzo
(Managing Art Director)
Lily Chow (Senior Designer)
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Lauren Winfield
(Deputy Photo Editor, London)
Manuela Oprea
(Associate Photo Editor)
COPY EDITORS
Nicole Dekle Collins
Joyce L. Kehl
EDITORIAL ADMINISTRATOR
Missy Levy
STRATEGIES SECTION
Jon Asmundsson
(Strategies Editor)
STRATEGIES CONTRIBUTORS
Chris Burritt, Paula Cook Dinan,
Arne Olsen, Vlad Rashkovich,
Charles Stein, Amir Tal,
Vincent Tong
WEALTH COLUMNIST
Elin McCoy (Drinks)
EDITOR-IN-CHIEF, BLOOMBERG NEWS
Matthew Winkler

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Letters
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Doctor Dreams
Great article. This
is coming from one
who has taught on
and off at these
bogus medical
schools since
2002. I was repelled by behavior which
evinced that the main thing was not med-
ical education but money.
LOUIS WILTSHIRE, M.D.
Sanford, Florida
This article contains many mischaracter-
izations, but perhaps the most egregious is
an omission of a critical academic outcome:
the 96 percent first-time pass rate achieved
by students at the American University of
the Caribbean School of Medicine and Ross
University School of Medicine on Step 1 of
the U.S. Medical Licensing Examination in
2012. This is the same rate posted by U.S.
schools.
The article implies that students at our
schools are a high financial risk, but the
numbers say otherwise. The three-year
school default rates in fiscal 2009 are 1.8 per-
cent at AUC and 0.8 percent at Ross, showing
that graduates are securing employment and
paying down loans. The U.S. Department of
Educations National Committee on Foreign
Medical Education and Accreditation has
OCTOBER 2013
reviewed the standards set by our schools
accreditors and deemed them comparable
to those used to accredit U.S. schools.
Ross and AUC graduates are practicing in
every state. With growing U.S. health-care
needs, international schools like AUC and
Ross will be critical to the success of our
medical system.
DANIEL HAMBURGER
Chief executive officer, DeVry Inc.
Downers Grove, Illinois
C o r r e c t i o n
In 50 Most Influential
(October 2013), we published
an incorrect photo for Hamed
bin Zayed Al Nahyan, managing director
of the Abu Dhabi Investment Authority.
This is the correct photo.

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PEOPLE, COMPANI ES AND I DEAS THAT MOVE MARKETS
FROM THE DAY Prime Min-
ister Manmohan Singh named Ra-
ghuram Rajan to run the Reserve Bank
of India until he took office a month
later, on Sept. 4, the rupee slid more
than 10 percent. Global investors were
punishing the currency because the
countrys growth is the slowest in a de-
cade and its consumer inflation is the
worst among large emerging economies.
Rajan was being greeted with a crisis.
In his first briefing as gover-
nor, Rajan, 50, said he would sustain
Rajan to the
Rescue?
THE NEW HEAD OF INDIAS CENTRAL BANK
IS STRIVING TO RESTORE CONFIDENCE
IN AN ECONOMY SUFFERING FROM RISING
INFLATION AND SLOWING GROWTH.

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November 2013 BLOOMBERG MARKETS 15
confidence in the currency
with a new commitment to
keep inflation low and stable.
He also announced steps to
increase the supply of dollars
as India seeks to boost its re-
serves. Remarkably, it helped.
The rupee had its biggest five-
day rally in at least 40 years.
There is a hope now that
things will turn around,
says Samiran Chakraborty,
head of research for South
Asia at Standard Chartered
Plc in Mumbai. The gover-
nor has indicated a clear path
of embracing more market-
oriented reforms, a more-
targeted approach toward
monetary policy and, in a
broad sense, a novel way for
central banking in India.
The slide in the rupee began in May,
when the U.S. Federal Reserve indicated it
might soon begin withdrawing some of its
extraordinary stimulus measures. Inves-
tors are betting that a rebound in growth
in emerging markets such as India, Brazil
and China will become less likely as the
inexpensive credit fostered by Fed policy
dries up. Global funds sold a net of almost
$13 billion of stocks and bonds in the
third quarter, according to data from the
Securities and Exchange Board of India.
By Aug. 28, the rupee weakened to
68.845 to the dollar, a record low. The
year-to-date 20 percent drop was the
worst since 1991, when depletion of
foreign-exchange reserves pushed India
to the brink of default. In that episode,
India took an International Monetary
Fund loan and pledged its gold reserves
which were airlifted to London.
Although a weaker currency can
sometimes benefit a struggling econ-
omy by making its exports cheaper for
foreign buyers, this effect is muted in
India. Manufacturers rely on imported
energy and raw materials. Their costs
jump when the rupee falls, exacerbat-
ing the countrys inflation.
So the reversal of the currencys
trend once Rajan took his post was a
welcome development. The rupee ral-
lied on his arrival and on signs the Fed
was in no rush to taper its bond buy-
ing. India was in a currency crisis, but
a big part of that was also a confidence
crisis, and the message sent by the RBI
governor has managed to restore some
confidence, says Benoit Anne, head of
emerging-markets strategy at Societe
Generale SA in London.
On Sept. 20, Rajan raised the central
banks repurchase rate a quarter point
a surprise move no analyst had predicted.
Rajan was born in Bhopal, India, but
he has spent much of his career outside
the country. He served as the IMFs
chief economist from 2003 to 2006
and is currently on leave from the Uni-
versity of Chicago. His reputation was
made at a gathering of central bank-
ers in 2005, where he made the unpop-
ularand prescientargument that
changes in the financial system were
increasing the possibility of a harmful
disruption.
Anne points out that Rajan cant con-
trol fiscal policy, which is in the hands
of Prime Minister Singh. Lets not for-
get politics plays a big role for the me-
dium-term outlook, Anne says.
In late August, the Indian parlia-
ment approved Singhs food and nutri-
tion plan, which will subsidize grain for
two-thirds of the countrys 1.2 billion
citizens at an annual cost of $19 billion.
While the program may hinder a goal of
narrowing the budget deficit, it fulfills
a promise made to votersand elections
are due by May. On Sept. 3, Standard &
Poors reiterated that it might cut Indias
sovereign debt rating to junk status.
Indias government needs to do its
part if any optimism spurred by Rajans
arrival is to be maintained, Standard
Chartereds Chakraborty says. Fiscal
policy needs to follow through to con-
vert the hope into confidence, he says.
JEANETTE RODRIGUES
VICIOUS
CIRCLE
Sources: India Central Statistical Office, Bloomberg
Prime Minister Manmohan Singh is
seeking to spur economic growth, which has
dropped to the slowest pace in a decade.
SOVEREI GN CREDI T RATI NG:
BBB
(WI TH A NEGATI VE OUTLOOK
FROM STANDARD & POORS)
GROWTH RATE:
4.4%
(QUARTER ENDED I N JUNE)
BENCHMARK WHOLESALE
I NFLATI ON I NDEX:
6.1%
(AUGUST)
CURRENT ACCOUNT DEFI CI T:
4.8%
OF GDP
(12 MONTHS ENDED
I N MARCH)
The decline in the
currency makes inflation
worse in India and hurts
efforts to narrow the
current account deficit.
INDIAS CURRENCY HIT AN ALL-TIME LOW
DAYS BEFORE RAJAN TOOK UP HIS POST.
8/28/13 Rupee weakens
to 68.845 to the dollar.
1/1/13 9/18/13
DOLLAR-RUPEE EXCHANGE RATE

AGENDA
ECONOMICS
After 2015 21% Not confident 13%
WHEN WI LL THE FED BE COMPLETELY DONE WI TH BOND PURCHASES? WI LL OBAMA AND CONGRESS REACH AGREEMENT ON THE DEBT
CEI LI NG I N TI ME TO AVOI D DEFAULT?
Late 2014
33%
Mid-2014 16%
No idea 7%
2015 23%
Fairly confident
35%
Very confident 27%
No idea 2%
Somewhat confident 23%
WHAT I S YOUR VI EW OF THE ECONOMY I N THE EURO ZONE?
Deteriorating Stable Improving No Idea
Bloomberg
Global Poll
The sentiment of global poll respondents toward Europe
has completely turned around this year.
78%
SEPTEMBER
2013
21% 1% 40% 38%
38%
MAY
2013
29% 1% 9% 61%
79% 13% 1% 7%
20%
SEPTEMBER
2012
88% 9% 3%
SEPTEMBER
2011
Europhoria
GLOBAL INVESTORS HAVE WARMED TO THE IDEA THAT EUROPE
IS RECOVERING AND ITS TIME TO INVEST.
THE WORLDS developed econ-
omies are finding favor among the
investors, bankers and traders
surveyed in the Bloomberg Global
Poll. Theyve been bullish on the
U.S. economy all year, and now theyre getting
comfortable with the idea that the euro zone is
coming out of its longest recession.
In a sign the regions sovereign debt crisis has
finally begun to recede, 73 percent of respon-
dents have a favorable view of European Cen-
tral Bank President Mario Draghi. Thats the
best hes done since he took the job two years
ago and just 2 points shy of Fed Chairman Ben S.
Bernankes 75 percent favorable rating.
Developed economies are turning into global
growth engines as some emerging-markets
countries decelerate, according to a report the
International Monetary Fund prepared for the
leaders of the Group of 20 in September. The
poll reflects this, with financial professionals
for the first time choosing the BRICsBrazil,
Russia, India and Chinaas likely to offer inves-
tors the worst opportunities in the coming year.
The Bloomberg Global Poll was conducted Sept. 10 by Selzer & Co.
of Des Moines, Iowa. Sample size: 900 Bloomberg customers.
Margin of error: plus or minus 3.3 percentage points.
12%
Our j ob i s to make sure that i t
i s not a fal se dawn.
Bank of England Governor MARK CARNEY on recent improvement
in the U.K. economy and his commitment to keep rates low
L
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AGENDA
a unit of U.S.-based Invesco Ltd.
Less well-known is that Woodford
also oversees one of the largest pools of
money devoted to U.K. biotechnology
and health-care startups. He makes
investments that range from a few mil-
lion to 100 million pounds, according
to executives who have sought financ-
ing from him. These stakes are held
alongside the blue chips in his mutual
funds. Invesco Perpetual wont provide
a breakdown of the biotechnology
startups held. Woodford declined
a request for an interview.
Other sources of funding for
health-care startups have dried up in
recent years. Total financing for the
U.K. biotechnology sector fell 84
percent from 2007 to 2012, according
to data compiled by Ernst & Young.
Woodford has been something of a
lifeline for small startups in this field.
If it wasnt for him, itd be quite grim,
says analyst Navid Malik of Cenkos
Securities in London, who tracks drug
and biotechnology companies.
ANDREA GERLIN
THE VAST MAJORITY of the more
than 32 billion pounds ($51 bil-
lion) that Neil Woodford manages
is in shares of large companies such
as British American Tobacco Plc and
GlaxoSmithKline Plc. His two biggest
funds have had average annual returns
above 12 percent for the past decade,
making a star of Woodford, who is head
of U.K. equities at Invesco Perpetual,
Biotech on the Side
NEIL WOODFORD OVERSEES LARGE-CAP EQUITIES
FOR INVESCOAND IS ONE OF THE BIGGEST INVESTORS
IN U.K. HEALTH-CARE STARTUPS.
OLYMPIC
GAMING
THE SELECTION OF
TOKYO TO HOST IN 2020
LOOKS LIKE A WIN FOR
THE CASINO INDUSTRY.
THE BET IS that Japan will
now move forward with
legislation to allow casinos.
The development of gambling
resorts would add hotel rooms
and entertainment venues as
Tokyo prepares for a boost in
tourism. The worlds third-
largest economy is the biggest
potential gambling market
that has, to date, remained
of-limits to casino operators.
JACOB ADELMAN AND
YUKI YAMAGUCHI
Share gains in the week
after the Sept. 7 decision of
the International Olympic
Committee:
Las Vegas Sands
The U.S. company
is scouting sites for
casinos in Japan.
Sega Sammy Holdings
The maker of pachinko
machines and arcade
games is developing a
casino in South Korea.
Konami
The company makes
gambling machines
and pachinko games.
E-THERAPEUTICS
Develops treatments
for cancer and nervous
system diseases
MARKET CAP: 90 MILLION
I NVESCO STAKE: 49.8%
VECTURA GROUP
Develops inhaled
therapies for
respiratory diseases
REVOLYMER
Makes polymers for
nicotine gum
BTG
Develops drugs for
treating snake bites
and cancer
MARKET CAP: 1.35 BILLION
RETROSCREEN VIROLOGY
GROUP
Provides services to
help develop antiviral
drugs and vaccines
CIRCLE HOLDINGS
Funds a health-care
service provider
system
+7.3%
+13%
+17%
Source: Center for Responsive Politics
Amount spent by Native
American tribes and associations
on casino- and gambling-related
lobbying in 2012
M
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INVESTING

The world changes every
day. Our job is to understand
the global, political and
economic implications 12
to 18 months out.
Our Ideas Stand Up To
Scrutiny Every Morning.
I VY FUNDS Accountability & Collaboration
At Ivy Funds, each day begins with the Morning Meeting:
a roundtable where portfolio managers and analysts review
news from every corner of the global economy. A process
we started decades ago, it stresses group collaboration
to create our best thinkingand accountability for those
tasked with implementing it.
Through bull and bear markets, weve followed a
time-tested investment process, marked by rigorous debate,
hands-on research and a proven cross-disciplinary
approach. Because we never forget its our clients money
were managing. MI KE AVERY President
SM
I VYFUNDS.COM
FACEBOOK.COM/ I VYFUNDS
Past performance is no guarantee of future results. Investment return and principal value will fluctuate, and it is possible
to lose money by investing.
Investors should consider the investment objectives, risks, charges and expenses of a fund carefully before investing. For a prospectus
containing this and other information for the Ivy Funds, call your financial advisor or visit us online at www.ivyfunds.com.
Please read the prospectus or summary prospectus carefully before investing. I VY FUNDS DI STRI BUTOR, I NC. 18689 (11/ 13)

AGENDA
INVESTING
licensing its intellectual
property to companies
that make things based
on its characters rather
than focusing solely on
its own product line. This
strategy has helped double
operating profit margins
to 27 percent during the
past four years. The shares
were up 106 percent year to
date as of mid-September,
compared with a 38 percent
gain for the Topix index.
Almost all of Tsujis $1.2
billion fortune is in Sanrio
stock, according to the
Bloomberg Billionaires
Index. He owns 1.8 million
shares directly and 18.1
million more through his
son, Kunihiko, 61, whos
chief operating officer of
the company, and trusts
Hello Money
SHARES OF SANRIO, WHICH LICENSES THE ICONIC KITTY IMAGE, DOUBLED THIS YEAR,
MAKING COMPANY FOUNDER SHINTARO TSUJI A BILLIONAIRE.
LOYAL FANS OF a white
cartoon cat with a red
bow and no mouth have
made 85-year-old Shintaro
Tsuji very wealthy. Tsuji
began his career as an entre-
preneur in 1960, selling silk
goods and rubber beach
sandals, and marketed the
first Hello Kitty product,
a coin purse, in 1975. The
cartoon kitten boomed for
a time before fading. In the
1990s, the character had a
resurgence thats still going
strong. Today, Hello Kitty
can be found on everything
from commercial aircraft
to vibrators.
It must be way up there
in terms of the most-
recognized franchises in
the world, says Ted Bestor,
director of the Reischauer
Institute of Japanese Stud-
ies at Harvard University.
Tokyo-based Sanrio
Co., where Tsuji still
serves as chief executive
officer, has shifted toward
held by his wife. Tsuji has
never before appeared on
an international wealth
ranking. GILLIAN WEE
BLOOMBERG BI LLI ONAI RES I NDEX
NET WORTH: $1. 2 BI LLI ON
AGE: 85
CI TI ZENSHI P: JAPAN
RESI DENCE: TOKYO
PRI MARY ASSET: SANRI O
I NDUSTRY: RETAI L
HI DDEN
BI LLI ONAI RES
UBIQUITOUS KITTY
SANRIO HAS FOCUSED ON THE LICENSING OF ITS
CHARACTERS RATHER THAN ITS OWN PRODUCT LINE.
Deutsche Banks estimate of the
value of a share of EIKE BATISTAs
OGX Petroleo & Gas Participacoes,
which traded above 18 REAIS
(1,800 centavos) last year
EVA AI R PASSENGER JET
ROLLER
SKATES
SMART CAR
DOLLS OF THE
BAND KI SS
FRUI T BEER
1
0

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DELTA.COM
MORE LAPTOP OR
JUST MORE LAP?
MORE WORKSPACE WITH
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TYPE DLTA <GO>

proponents say, their performance is uncorrelated with
that of stocks and bonds, its possible that they can provide
value as part of a larger portfolio. The gains and losses of the
funds would tend to offset or mitigate those of the stocks
and bonds, resulting in a similar return with less volatility.
Such a scenario would reduce the likelihood that investors
would have to sell at a loss when they need their money.
Unfortunately, the perfor-
mance data funds provide to
investors often arent com-
plete and clear enough to
verify such claims. This sit-
uation is particularly trou-
bling for the less-affluent
customers that these funds
are increasingly seeking as
investors.
If fund advisers and bro-
kers want people to buy their
sales pitch, theyll have to
be more forthcoming. They
should publish easy-to-un-
derstand information on how
a generic portfolio with and
without their product would
have performed over different periods. Perhaps more impor-
tantly, they should publish the actual long-term impact of fees
on investor gains or losses. Failing that, if too many investors
end up putting their money in funds that generate fees while
destroying value, regulators might have to step in and impose
the transparency people need to make informed decisions.
B
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S
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A
U
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R
FEES, COMMISSIONS AND EXPENSES
ATE UP 89 PERCENT OF THE GAINS
OF 63 MANAGED-FUTURES FUNDS
IN A DECADE.
maintain returns while reducing nerve-wracking gyrations.
They need to do a much better job of making their case, start-
ing by being more transparent about their performance.
Consider managed futures, a hedge-fund strategy that in-
volves making bets on derivatives contracts tied to the value
of items ranging from wheat to the Japanese yen. As David
Evans reports in Fleeced by Fees (page 68), its a corner
of the market riddled with
hefty fees, incomplete data
on performance and con-
flicts of interest. Expenses
as high as 9 percent of as-
sets often obliterate inves-
tor returns. An index used to
promote the funds doesnt
include billions in fees and
just contains data volun-
tarily reported by trad-
ing advisers. Some funds
prospectuses explicitly al-
low managers to benefit at
their clients expense, for
example by secretly betting
against fund investments.
After advisers, brokers
and others take their cuts, the returns on managed futures
leave much to be desiredat least in recent years. Evans re-
ports that among 63 funds that have filed audited financial
data with the Securities and Exchange Commission, 29 left
their investors with losses over the decade from Jan. 1, 2003,
to Dec. 31, 2012. Fees, commissions and expenses ate up 89
percent of the 63 funds gains.
Meager returns, though, dont necessarily mean man-
aged futures are worthless as an asset class. If, as their
Stalked by Fees
BY THE EDITORS OF BLOOMBERG VIEW
To read more editorials, type VIEW <Go> on the Bloomberg Professional service or
go to BLOOMBERG.COM/VIEW.
Hedge funds, once reserved for the very wealthy, are being
marketed to a broadening range of investors with a sophisticated
sales pitch: Because the funds ups and downs dont coincide with
those of stocks and bonds, adding them to a portfolio will help

With increased regulation, heightened risk sensitivity and fast-changing
market dynamics, the management of collateral has never been more critical.
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Through our SOLVE
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TYPE USTT <GO>

27
Hurricane Sandy, which
shattered this New Jersey
beachfront community,
did $50 billion in damage.
AS THE RISKS GROW ON A HOTTER PLANET, A BILLIONAIRE
HEDGE-FUND MANAGER AND A FORMER TREASURY
SECRETARY AIM TO PUT A PRICE TAG ON THE
CONSEQUENCES OF CARBON POLLUTION.
BY EDWARD ROBI NSON

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PHOTOGRAPH BY ROBYN TWOMEY 28 BLOOMBERG MARKETS November 2013
Billionaire Tom Steyer recalls a dinner at the
U.S. Treasury in Washington with two senior
department officials and six money managers.
It was August 2012, and the meal was part of
an effort by the agency to keep up with what
the financial community was worrying about.
The diners discussed Chinas slowdown, Fed-
eral Reserve policy and other trends affecting
the U.S. economy. Steyer says they were
overlooking the biggest game changer
of all. He told the group the coun-
try would have to overhaul its energy
policy to address greenhouse gas emis-
sions. His fellow guests were skeptical.
Its like I was saying that whats
going to make a difference in the
economy is unicorns, says Steyer, 56,
the founder of Farallon Capital Man-
agement LLC, a San Francisco hedge-
fund firm with about $20 billion in
assets. He declines to name the other
people present because the meeting
was off the record but says they con-
trol a lot of money. I thought to my-
self: These guys need to be made aware
of the risks here, he says.
So in December, Steyer ended his 26-
year career as a hedge-fund manager
and set out to make an economic case
for addressing climate change. He wasnt
the only person from the financial world
to have this idea: Henry Paulson, Trea-
sury secretary from 2006 to 2009 and a
longtime conservationist, and Michael
Bloomberg, the outgoing mayor of New
York, which had suffered the costliest
WE NEED TO GET RID OF THIS IDEA THAT GOING WITH THE STATUS
QUO IS A SMART ECONOMIC THING. TOM STEYER, FOUNDER, FARALLON CAPITAL MANAGEMENT

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hurricane damage in its history, were
also plotting how to reframe the issue.
The three men agreed to join forces
to persuade investors, policy makers
and the public that the consequences
of unchecked carbon emissions would
eventually blow away whatever short-
term costs are involved in curbing
the pollution. Theyre funding and co-
chairing a study to calculate just how
much economic risk American indus-
tries and communities face as a warm-
ing atmosphere generates more storms,
droughts, floods and extreme heat. Rob-
ert Rubin, who served as Treasury sec-
retary from 1995 to 1999, and former
Secretary of State George Shultz have
signed on as advisers.
Climate change is every bit as big a
risk to our economy as it is to the en-
vironment, says Paulson, 67, who was
chairman and chief executive officer of
Goldman Sachs Group Inc. before he
went to Washington. With any com-
plex issue, we can never know with cer-
tainty what the timing and the impact
will be, but we know from the data that
the climate risk is very real. If we quan-
tify its economic impact, I think that
will be a catalyst for action.
The costs of a warming atmosphere
are already mounting as the planet
undergoes a geophysical
shift so profound it will al-
ter coastlines, rainfall cy-
cles and the productivity of
arable land. Carbon diox-
ide, the principal gas heat-
ing up the atmosphere, hit a
3-million-year high in May,
according to data collected
at the National Oceanic and
Atmospheric Administra-
tion monitoring station on the island of
Hawaii. The average global temperature
has increased 0.8 degree Celsius (1.4 de-
grees Fahrenheit) since 1850, according
to the 2007 report of the United Na-
tions Intergovernmental Panel on Cli-
mate Change. The decade from 2001 to
2010 was the warmest on every conti-
nent since modern measurements be-
gan 160 years ago. While new data show
that the warming trend may be slowing,
ice in Antarctica and Greenland is melt-
ing faster than researchers previously
knew, according to a leaked draft of the
next IPCC report, which was due to be
released at the end of September. Ac-
celerated melting makes risks related to
rising sea levels worse.
Warmer seas and a jump in airborne
water vapor are fueling more violent
weather: Last year, 900 disasters, in-
cluding Hurricane Sandy, which pum-
meled New York and New Jersey,
caused insured losses worldwide of
$65 billion, according to Munich Re,
the German reinsurance giant. Thats
more than double the 30-year average
of $29 billion. Farmers, meanwhile,
are struggling to cope with drastic dis-
turbances of weather patterns theyve
counted on for generations. In the Me-
kong River delta, the heart of Vietnams
agriculture and aquaculture, rice grow-
ers and shrimp farmers are losing har-
vests as precipitation becomes less
predictable and a rising sea inundates
their fields. The World Bank says Viet-
nam may lose more than 12 percent of
its crop production to saltwater intru-
sion by 2040. (See sidebar.)
As freakish weather traumatizes so-
ciety and rings up economic losses,
adaptation is now taking on as much
urgency as prevention, former Vice
President Al Gore says. There are
some changes that will continue to un-
fold no matter what we do, says Gore,
who won a Nobel Peace Prize in 2007
for alerting the world to the perils of
global warming. We have an obliga-
tion to pay attention to people who live
in areas where the sea level is already
The retreating Arctic ice
means ships can use the
Northern Sea Route,
saving time and fuel.
Climate change is as big
a risk to our economy as it
is to the environment,
Henry Paulson says.

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rising and to farmers who are suffer-
ing the impacts of droughts and erratic
weather. But the truly catastrophic im-
pacts can still be avoided.
As the climate story shifts into a new
phase, the key players arent just heads
of state or the environmentalists and
oil industry lobbyists who have long
clashed on this issue. Theyre agrono-
mists like Jerry Hatfield in Iowa, whos
developing new soil management and
tillage practices to help corn withstand
drought. And entrepreneurs who see
money to be made. This past summer,
Christian Bonfils, co-founder of Nordic
Bulk Carriers A/S, a Danish shipping op-
erator, sent two vessels carrying iron ore
from Murmansk, Russia, to Shanghai
through the virtually ice-free Northern
Sea Route along the coast of Siberia. The
newly opened route shaved 18 days off
the voyage and saved $600,000 in fuel,
compared with a trip via the Suez Ca-
nal, he says. The last time a new ship-
ping route opened that wasnt a canal
must have been hundreds of years ago,
so we thought this might be a very lucra-
tive possibility, Bonfils says.
Mining, shipping and energy in-
terests may plow more than $100 bil-
lion into the melting Arctic region in
the next decade, according to a report
released in April by Lloyds of London.
In the face of these developments,
Paulson and Steyer say they worry that
policy makers and the public alike are
beginning to accept the idea that cli-
mate change is inevitable. Their push
comes four years after a UN climate
change conference in Copenhagen
ended in disarray and a measure to reg-
ulate greenhouse gases stalled in the
U.S. Senate.
The economic study theyre funding,
which theyve dubbed Risky Business,
will be published in late 2014. They say
its just one piece of a larger
strategy to reboot the issue
as a global priority.
Paulson is focusing his in-
fluence on China, a country
that has fascinated him since
he visited as an investment
banker at the dawn of its
economic boom in the early
1990s. Through the Paul-
son Institute, a research and
advocacy group at the Uni-
versity of Chicago, he has ad-
vised Chinese political and
business leaders on energy-
efficient cities, protecting wetlands and
forests, and using more-sustainable
transportation systems.
Meanwhile, Steyer, whos donated
$65 million to set up renewable en-
ergy research centers at Stanford and
Yale universities, has raised almost $2
million for his political action commit-
tee. Its backing candidates across the
country who oppose approval of the
Keystone XL pipeline, which would
ship crude from Canadas oil sands to
refineries on the Gulf of Mexico. At a
cocktail party fundraiser Steyer hosted
at his San Francisco home in April, he
told President Barack Obama the pipe-
line would be a huge step backward in
the fight to curb greenhouse gas emis-
sions. The president has yet to make a
final decision on the project.
And Bloomberg, 71, whose 12-year
mayoralty ends on Jan. 1, has champi-
oned a $20 billion plan to construct sea
barriers, enhance wetlands and take
other steps to safeguard New York from
superstorms like Hurricane Sandy,
which killed 117 people and caused $50
billion in total losses in the Caribbean
and the U.S. Whether you believe cli-
mate change is real or not is beside
the point, Bloomberg said on June
11, when he announced the plan. The
bottom line is, we cant run the risk.
Bloomberg is the founder and major-
ity owner of Bloomberg LP, publisher
of BLOOMBERG MARKETS.
Steyer and company have their crit-
ics. James Valvo, director of policy at
This is a staggering creation
of risk, economist Nicholas
Stern says of climate change.
Sources: UN Intergovernmental Panel on Climate Change, U.S. National Academy of Sciences,
U.S. National Oceanic and Atmospheric Administration
MEASURI NG CHANGE
AI R TEMPERATURES AND THE LEVEL OF THE EARTH S OCEANS HAVE CLI MBED
ALONG WI TH CARBON EMI SSI ONS.
PRESENT
FORECAST
FOR 2100
1850 1960
+0. 8
C
+1.1
C
+6.4
C
PRESENT
FORECAST
FOR 2100
1870
+0. 2 M
+0.4 M
+1.4
METERS
MAY 2013
FORECAST
FOR 2100
400 PPM
317 PPM
500 PPM
950 PPM
I NCREASE I N AVERAGE
GLOBAL TEMPERATURE
RI SE I N SEA
LEVEL
CO2 LEVEL
I N ATMOSPHERE
HIGHEST
CONCENTRATION
IN 3 MILLION
YEARS

Lipper. And Morningstar? And Barrons?
Were going to need a bigger shelf.
1
In calculating the awards, Lipper considered funds registered for sale in the United States with at least 36 months of performance as of the end of
the calendar year of the respective evaluation year. Fund groups with at least fve equity, fve bond or three mixed-asset portfolios were eligible for an
overall group award. The award is given to the group with the lowest average decile ranking of three years Consistent Return measure of the eligible
funds over the three-year period ended 11/30/12. TIAA-CREF was ranked against 35 fund companies.
2
As of June 30, 2013, 42% have 3 stars, 41%
4 stars and 14% have 5 stars. Morningstar is an independent service that rates mutual funds and variable annuities. The top 10% of accounts in an
investment category receive fve stars, the next 22.5% receive four stars and the next 35% receive three stars. Morningstar proprietary ratings refect
historical risk-adjusted performance and can change every month. They are calculated from the accounts three-, fve- and ten-year average annual
returns in excess of 90- day Treasury bill returns with appropriate fee adjustments, and a risk factor that refects mutual fund/subaccount performance
below 90-day T- bill returns. The overall star ratings are Morningstars published ratings, which are weighted averages of its three-, fve- and ten-year
ratings for periods ended June 30, 2013.
3
The Barrons/Lipper Fund Family survey uses an asset-weighted ranking system. Each funds return was
measured against those in its Lipper category, and the resulting percentile ranking was then weighted by asset size relative to the fund familys other
assets in its general category. The familys overall ranking was then determined by weighting the fve fund categories in proportion to their overall
importance within Lippers fund universe. In 2012, TIAA-CREF is ranked 10th of 62 for the one-year, 29th of 53 for the fve-year and does not qualify
for the 10-year ranking. Consider the investment objectives, risks, charges and expenses carefully before investing.
Visit tiaa- cref.org for product and fund prospectuses that contain this and other information. Read the
prospectuses carefully before investing. TIAA-CREF Individual & Institutional Services, LLC and Teachers Personal Investors Services,
Inc., members FINRA, distribute securities products. Annuity contracts and certifcates are issued by Teachers Insurance and Annuity Association
(TIAA) and College Retirement Equities Fund (CREF), New York, NY. 2013 Teachers Insurance and Annuity Association-College Retirement Equities
Fund (TIAA-CREF), 730 Third Avenue, New York, NY 10017. C10238
Learn more about our breadth of award-winning
mutual funds, available to your clients, at
tiaa-cref.org/fundawards or call 800 719-1193.
TYPE TIAA <GO>

PHOTOGRAPH BY ROBYN TWOMEY 32 BLOOMBERG MARKETS November 2013
who worked under President George
W. Bush through the height of the fi-
nancial crisis, is a reserved Republican.
He returned to his family farm in Illi-
nois after leaving government. Steyer
is a gregarious Democratic Party fund-
raiser who used to live with his fam-
ily in San Franciscos Haight-Ashbury
neighborhood, the cradle of the coun-
terculture in the 1960s.
They have two things in common.
One is Goldman Sachs. Steyer began
his career at the investment bank in
the early 1980s on the risk arbitrage
desk run by Rubin, who went on to be-
come the firms co-chairman, from
1990 to 1992. The other is a conviction
that Americans will get serious about
climate change if they understand how
much its going to cost.
In June 2009, a bill that would
have regulated carbon pollution
and set up a national cap-and-
trade system passed the House
of Representatives and went to
the Senate. After the American
Petroleum Institute and coal
industry lobbyists argued that
such legislation would raise
energy costs and spur unem-
ployment, the Senates Demo-
cratic leadership failed to bring
the bill to a vote. The big boys
made this about jobs versus the
environment, and the environ-
ment loses that argument every
time, Steyer says. We need to
get rid of this idea that going the
way we are, with the status quo,
is a smart economic thing to do.
Thats Steyers goal in funding a
detailed risk analysis. The next
time lobbyists go from Senate of-
fice to Senate office saying this is
how many jobs youre going to
lose in your state, well have an
intellectual response: Bulls---.
Thats bulls---, he says.
The Risky Business project
will be directed by a 10-member
interdisciplinary team of econo-
mists and climatologists. It will
divide the U.S. into eight regions
3-degree to 5-degree increase, which
would cause major changes in rivers, a
collapse of the monsoon cycle in Asia,
and trigger deep conflicts, says Stern,
whose institute is supported by fund
manager Jeremy Grantham. This is a
staggering creation of risk, and an anal-
ysis of this risk is fundamental.
Stern, a former chief economist at
the World Bank, led a review for the
U.K. government in 2006 that con-
cluded a 5-degree rise in temperature
by the end of the century could totally
choke off global economic growth.
Paulson and Steyer each consulted
Stern separately last spring as they for-
mulated their thinking on the issue.
Paulson and Steyer make an odd
couple. The former cabinet official,
Americans for Prosperity, a Washing-
ton advocacy group that opposes reg-
ulating greenhouse gas emissions, says
that while laying out the costs of global
warming may be a fresh approach, the
effort may be outdated as industries
and governments focus their resources
on adaptation rather than mitigation.
Theyll have to prove that its more
economical to fix climate change than
to live with it, says Valvo, whose group
is financed by Charles and David Koch,
the billionaire brothers who head Koch
Industries Inc., the commodities con-
glomerate based in Wichita, Kansas.
The plan to measure economic im-
pacts only in the U.S. is flawed, Valvo
says, because climate change is caused
by global emissions and affects ev-
ery country on the planet. De-
mand for coal, the dirtiest power
source, will jump about 17 per-
cent worldwide over the next
four years, according to the In-
ternational Energy Agency, as
China and India burn more of
the fuel. Climate change is the
most complicated issue there is
because of the extraterritorial
impacts, Valvo says. Its not like
dealing with acid rain or smog.
The U.S. Environmental Protec-
tion Agency and state agencies
were able to address those two
air-quality problems by regulat-
ing local pollution sources.
Nicholas Stern, chair of the
Grantham Research Institute
on Climate Change and the
Environment at the London
School of Economics and Politi-
cal Science, counters that mak-
ing a fiscal case for regulating
carbon may be the best way to
break through the resistance on
the issue. Thats imperative, he
says, with scientists predicting
the atmosphere may warm an-
other 5 degrees by 2100. We are
already seeing what can happen
with a 0.8-degree increase in
temperature, and we are look-
ing at a high probability of a
THIS CANNOT BE A
LIBERAL NARRATIVE
ABOUT AN APOCALYPTIC
FUTURE. KATE GORDON, NEXT GENERATION

2013 Southern Company
We make electricity.
We make it from American sources
in a balanced way.
We invest billions in research and in 21st
century coal, natural gas and new nuclear.
We make it from water, wind, the sun
and things that grow.
We make it reliably, affordably, cleanly.

We make it to make progress.
To make jobs. To make our world smarter.
Brighter. Better.
We are the people of Southern Company.

We make electricity.
TYPE SOCO <GO>

PHOTOGRAPH BY JENN ACERKMAN AND TIM GRUBER 34 BLOOMBERG MARKETS November 2013
and present findings for each part of the
country as a range of probabilities, simi-
lar to an insurers actuarial table. Rather
than prescribing solutions, the research-
ers aim to provide state and municipal
policy makers, business leaders and in-
vestors with a data-rich framework they
can use to understand the climate risks
they face. This cannot be a liberal nar-
rative about an apocalyptic future, says
Kate Gordon, director of the energy
and climate program at Next Genera-
tion, a nonprofit Steyer co-founded in
San Francisco. People have to feel they
can do something about climate change
thats grounded in what they know and
where they live, says Gordon, whos
helping to direct the study.
The Risky Business analysis will
draw on climate models used by the
IPCC and the National Climate As-
sessment, a U.S. government effort
that combines information from 13
agencies to create region-by-region
predictions of the effects of global
warming. The Great Plains, stretch-
ing from Montana to Texas, likely
will experience more heat waves and
more-extreme swings in precipita-
tion, for example, and droughts will
put pressure on diminishing water
supplies, according to the assessment.
The U.S. Department of Agriculture
forecasts that over the next few de-
cades, these changes will reduce har-
vests and may force cattle producers
to set up air-conditioned shelters for
their herds, meaning the cost of sta-
ples such as meat and milk will prob-
ably go up.
The kind of volatile weather antici-
pated in the National Climate Assess-
ment is already being seen in the corn
belt, agronomist Hatfield says. In 2010,
Iowa endured its wettest summer on
record and its warmest nighttime tem-
peratures, he says. Corn went from pol-
lination to maturity in 35 days instead
of 50, which was bad news for farmers
as stressed-out crops yielded a poor
harvest. In 2012, Iowa was gripped by
the worst drought since 1934 only to
experience river flooding in March,
topped off with a sudden dry spell.
This is outside our normal thinking in
terms of what our climate looks like,
says Hatfield, the laboratory director
of the National Laboratory for Agri-
culture and the Environment in Ames,
Iowa, which is part of the USDA.
Hatfield is developing ways for farm-
ers to adapt. An upbeat man with salt-
and-pepper hair, he notes that in the
broader discussion of climate, soil is of-
ten forgotten. But its one element we
can actually manage, he says. Were
never going to make it rain, but what
we can do is capture every drop of wa-
ter and make it available to the plant.
Hatfield has urged farmers to stop
plowing before they plant and in-
stead blanket the soil with corn husks,
leaves and other leftovers from last
years harvest. Microbes feed on this
organic matter and enrich the crops
with nutrients. Soil cultivated in this
manner loses less moisture through
evaporation. Hatfield has found corn
plants can send roots 2.2 meters (7.2
feet) into the earth instead of 1.2 me-
ters, tapping deeper groundwater.
For every 2 to 3 percent increase of
organic matter in the soil, its capac-
ity to hold water jumps 25 percent,
Hatfield says, and that boosts yields,
even in dry years. About 20 percent
of the growers in Iowa have adopted
Hatfields water-conscious method of
tillage.
THIS IS OUTSIDE OUR NORMAL THINKING
IN TERMS OF WHAT OUR CLIMATE LOOKS
LIKE. JERRY HATFIELD, U.S. DEPARTMENT OF AGRICULTURE

TYPE BTAIR <GO>

X
I
N
H
U
A
/
L
A
N
D
O
V

WHEN FARMER DO KIM THU AND
her family planted an orchard of mango,
apple and litchi trees 20 years ago, she
says, the ocean was 100 meters away
from her home in southern Vietnam. Be-
ginning in 2000, she watched the sea-
water creep ever closer, damaging the
stand of mangroves that protected her
land. Finally, in 2006, the ocean sub-
merged her orchard and wiped out her
familys income. Standing on the porch
of her house, Thu, 55, points to the berm
that now holds back the Gulf of Thai-
land. I hope we will have a good year
and a better future, says Thu, who has
started raising sh. But the sea is here
now, and it will only get closer.
Southeast Asia, a region of 593 mil-
lion people shaped by the 4,800-
kilometer (3,000-mile) Mekong River,
has emerged as one of the places
most under threat from global warm-
ing, according to the World Bank. The
monsoon weather pattern, with its pre-
dictable wet and dry seasons, is show-
ing signs of breaking down. And in
Kien Giang, the rice-growing province
where Thu lives, more than 1 million
acres (405,000 hectares) of cropland
will be ooded under a meter or more
of seawater for several months each
year by 2050, according to forecasts
by the U.S. Agency for International
Development. This is land that used to
rarely ood, says Brad Philips, a senior
climate change policy adviser with US-
AID in Bangkok.
Farmers in the Mekong delta are al-
ready scrambling to adapt by planting
new saltwater-tolerant varieties of rice.
Many are turning to the cultivation of
shrimp for export. Vietnams aquaculture
industry soared 10-fold in the past six
years to become 5 percent of the coun-
trys $141 billion economy, according to
the World Bank.
Yet turbulent weather is threaten-
ing shrimp farmers now. Five years ago,
farmer Tran Van Chien doubled his fam-
ilys income by cultivating the crusta-
ceans in brackish water left over after
his rice harvest. As the wet and dry sea-
sons have started to blur, Chiens shrimp
are struggling to survive sudden uctua-
tions in salinity levels in their ponds. This
spring, when it was supposed to be dry,
it rained for 10 days straight, rapidly di-
luting the salt in the water. Then a heat
wave hit. The salinity surged as water
evaporated, and more than half of his
shrimp died. The weather was very pre-
dictable when I was a boy, Chien, 46,
says. You knew exactly when it would
be dry and when it would rain. Not any-
more, he says.
K. OANH HA AND DIEP NGOC PHAM
VIETNAMS FARMING REGIONS SHOW THEIR VULNERABILITY AS THE
OCEAN RISES AND THE MONSOON GROWS UNPREDICTABLE.
Forecasting exactly how much of an
impact the warming will have on the
$300 billiona-year U.S. agriculture
industry is a challenging exercise, says
John Reilly, an economics professor at
the Massachusetts Institute of Tech-
nology. The problem is that most cli-
mate models are too generalized to
predict how changes in rainfall will af-
fect particular crops in specific areas or
how rising temperatures will affect the
spread of pest insects. Everyone is try-
ing to put together a quantification of
what this all means, but our tools lack
the precision we need, Reilly says. All
the modeling we do tends to smooth
out the fact that theres a high proba-
bility that were going to be surprised.
Thats the problem the Risky Busi-
ness study will have to solve if its to be
at all effective. Yet Paulson says he has
a far bigger worry. The biggest prob-
lem were dealing with is a sense of
hopelessness, he says. But Im say-
ing were the first generation with the
knowledge and the ability to do some-
thing: We dont need new science, and
we have great technology. We need the
will to act now so we dont leave our
children and grandchildren with a cat-
astrophic burden.
Along with Steyer and Bloomberg,
Paulson is betting that as climate
change, once a distant possibility, be-
comes altogether real, our economic
self-interest will be the thing that fi-
nally provokes a popular call for ac-
tion. That will almost certainly have
to be making carbon dioxide emissions
expensive by either taxing or regulat-
ing the gas on a global basis, Steyer says.
Yet its striking that 53 years after the
U.S. governments station on the island
of Hawaii first recorded an increase
of carbon dioxide in the earths atmo-
sphere, were still trying to figure out
how to think about climate change, let
alone solve it.
EDWARD ROBINSON IS A SENIOR WRITER
AT BLOOMBERG MARKETS IN LONDON.
EDROBINSON@BLOOMBERG.NET WITH
ASSISTANCE FROM JOHN LIPPERT IN
AMES, IOWA, MARLEY DELDUCHETTO KAYDEN
IN CHICAGO AND ALEX MORALES IN LONDON.

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TYPE IPAT <GO>

38
PHOTOGRAPHS BY
BENJAMIN RASMUSSEN
The Trans-Alaska Pipeline traverses
the state, conveying oil from Prudhoe
Bay, on the north coast, to Valdez.
THE ARCTIC IS FEELING THE IMPACT HARDER
THAN ANYPLACE ELSE ON EARTH. THATS
CREATING RISKSAND OPPORTUNITIES.

BY JOHN LI PPERT

C
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T
E
S
Y

O
F

L
I
N
C

E
N
E
R
G
Y
When Jerry Otto started hunting for Alaskan
oil in 1980, his tractor-trailers barreled along
ice roads as much as 10 feet thick for 180
days every year. Last winter, when he set out
to drill 80 miles south of the Arctic Ocean for
Australias Linc Energy Ltd., regulators opened
the roads for 126 days. The rest of the
time, warm weather left the routes too
mushy for vehicles.
Then in January, in a twist that em-
bodies the perplexing reality of life and
commerce amid a changing global cli-
mate, the temperature dropped sud-
denly to minus 40 degrees Fahrenheit
(minus 40 degrees Celsius), encasing
drilling-rig components in ice as Otto
waited for roads to solidify to ship the
gear north. After thawing the equip-
ment with blowtorches, he discovered
that the cold was decreasing oil flow-
ing into Lincs well. With 200 workers
standing by, the company lost $300,000
a day with each delay, ending 2012 with
a $61 million deficit. Otto plans to try
again in December, this time drilling
sideways into a hill to get underneath
1,000 feet (300 meters) of permafrost
and up into reservoirs he says hold 1.2
billion barrels of light, sweet crude.
Its getting more unpredictable,
says Otto, 59, who runs Brisbane-based
Lincs drilling rig in Umiat, Alaska,
which is within the National Petro-
leum Reserve that President Warren
G. Harding created in 1923 to guaran-
tee oil for the Navy. Were in a race
against Mother Nature. If we dont get
cold weather early enough, or if it gets
too warm too fast in the spring, it could
stall the project.
Otto and others already braving the
extremes of a region where sunlight
disappears for 60 days a year are expe-
riencing a new phenomenon: daily life
navigating the risks and opportunities
of climate change.
The Arctic has heated up twice as
fast as the rest of the planet in the past
three decades. Sea ice has shrunk by 75
percent in that time. On Alaskas Arctic
coast, 30-foot-high cliffs that havent
budged since the last ice age are tum-
bling into the ocean overnight and vil-
lage coastlines are eroding, leaving
residents in peril. Lightning-sparked
forest fires have charred more than
1 million acres (405,000 hectares) in
five of the past 10 years. By midcen-
tury, the average area burned by wild-
fires each year is likely to double, the
U.S. Environmental Protection Agency
says. Heat waves are getting hotter
and longer, and winters are produc-
ing more rain and less snow as the
carbon-damaged atmosphere soaks up
moisture, says Rick Thoman, a climate
analyst for the National Weather Ser-
vice in Fairbanks, Alaska. Alaskans are
living through climate change in ways
people have not experienced in many
thousands of years, he says. Alaska is
a laboratory for everybody in the sense
that this is the kind of thing you can ex-
pect in your region down the road.
Alaska, with just 731,449 residents in
2012, is at the forefront of a global chal-
lenge: How do individuals, companies
and investors measure the costsand,
yes, the economic benefitsof a chang-
ing climate? In Alaska, the calcula-
tion starts with fossil fuels, the energy
sources the United Nations Intergov-
ernmental Panel on Climate Change
says are heating the atmosphere.
Most scientists agree that human-
produced carbon dioxide contributes
to climate change, says William Reilly,
a retired ConocoPhillips director and
former EPA head. As for oil-industry
executives, I dont know a single CEO
of a major company who doesnt ex-
pect carbon regulation in our future,
Reilly says. Even if carbon is taxed, oil-
men will still heed consumer demands
for energy, making Alaskas offshore
Linc Energy used
blowtorches
to free drilling-rig
gear as it waited
for ice roads to
solidify.

reserves too big to ignore, he predicts.
Robert Blaauw, Royal Dutch Shell
Plcs senior Arctic adviser, says his
company is interested in the Arc-
tic not for today but for 2050when
power use will have doubled and two-
thirds of energy will still come from
fossil fuels. Shell and the other ma-
jors will continue their search for Arc-
tic oil and gas, Blaauw says.
The oil and gas industry generates 30
percent of Alaskas personal income
and provides about 90 percent of the
revenue that runs the state govern-
ment each year. But the Prudhoe Bay
field, which has powered the Alaskan
economy since 1977, is so old that its
producing at just 26 percent of peak
output. Oil drillers are seizing a fresh
opportunity: As receding summer ice
exposes previously unreachable oil
under the sea, Statoil ASA, Shell and
others are buying drilling rights to
technically recoverable deposits that
the U.S. Bureau of Ocean Energy Man-
agement says could total 23.6 billion
barrels. The original Prudhoe Bay field
held 25 billion barrels, 13 billion of
which were considered recoverable, ac-
cording to a 2006 BP Plc fact sheet.
Opponents say Alaska is precipitating
its own decline by chasing fossil fuels.
Continuing to spew carbon into the at-
mosphere is only making climate change
worse, says Frances Beinecke, president
of the Natural Resources Defense Coun-
cil. The Arctic is where you can see that
more clearly than anywhere.
Alaskans from the quarter-mile-wide
village of Kivalina to the commercial
center of Anchorage are taking stands
on climate-change trade-offs for ev-
erything from petroleum extraction to
wildlife migration. Whats more im-
portant: polar bears or another decade
of oil? asks Raymond Pierrehum-
bert, a University of Chicago climate
scientist, referring to the animals fac-
ing starvation because the sea ice from
which they hunt seals is disappearing.
Its hard to know how people will re-
act when presented with this choice.
Richard Glenn wants his state to reap
the benefits of more oil drilling. Glenn
is executive vice president for land and
resources for Arctic Slope Regional
Corp., a Native Alaskanowned com-
pany to which the U.S. Congress gave
land and mineral rights in a 1971 set-
tlement. ASRC generates $2.5 billion
WE ROLL WITH THE PUNCHES AS ICE COMES AND GOES EVERY
YEAR. AND WELL ROLL WITH THE PUNCHES OF A CHANGING
CLIMATE. RICHARD GLENN, EXECUTIVE VICE PRESIDENT FOR LAND AND RESOURCES FOR ARCTIC SLOPE REGIONAL CORP.

in annual revenue from refining and
other businesses and pays dividends
to 11,000 Native Alaskan shareholders.
Glenn lives in Barrow, which enjoys
running water, sewers and a health
clinic. He says his city has these neces-
sities because the Prudhoe Bay oil field
brings the town revenue as part of the
North Slope Boroughs taxing authority.
Barrow artist Vernon Rexford op-
poses offshore drilling because he says
it threatens native lifestyles. Offshore
drilling directly infringes on our abil-
ity to continue as Eskimo people with
subsistence living, he says. Its a time
bomb waiting to activate.
John Moran of the National Marine
Fisheries Service is assessing the pluses
and minuses of climate change at 10 p.m.
on an August Saturday in Barrow, with
the sky still bright from the sun just be-
low the horizon. Standing in the Arctic
Ocean in khaki waders, Moran launches
a remote-controlled boat that
tracks how cod and salmon are
faring in waters that are get-
ting warmer and more acidic.
There will be winners and los-
ers, he says. There are lots of
variables we dont understand.
Shipping and vacation
cruises are enjoying a boom
with climbing temperatures.
Yet the heat is melting glaciers
and may force wildlife to flee
north from national parks, po-
tentially damaging the states
$1.8 billion tourism industry.
The Red Dog mine in Kot-
zebue in northern Alaska is
experiencing more ice-free
days, expanding the weeks it
can ship zinc and lead. With
longer summers, the mine
stockpiles less of its cache,
cutting costs. Vancouvers
Teck Resources Ltd., which
runs the mine, may be able
to open new deposits nearby,
says Reggie Joule, mayor of
the Northwest Arctic Bor-
ough based in Kotzebue.
BHP Billiton Ltd., mean-
while, is struggling with cli-
mate change. The worlds
largest mining company ap-
plied for an exploration per-
mit for 2 billion tons of
low-sulfur coal near Point
Lay in Alaskas northwestern corner in
2010. The coal, most of which lies un-
der ASRC-owned land, cant be loaded
directly onto ships because the area is a
breeding ground for threatened diving
ducks called Stellars eiders. Under the
Endangered Species Act of 1973, BHP
cant significantly modify the ecosystem
without federal approval. The eiders
feed on clams, and warming seas are
preventing the mollusks from getting
nutrients, says Jacqueline Grebmeier,
a University of Maryland biologist. BHP
may instead move the coal overland 150
miles (240 kilometers) to ship it, adding
to costs and environmental risks.
Linc is proceeding at Umiat in spite
of increasingly soggy tundra and hot-
ter summers. Otto says he knows the
climate is shifting because he wres-
tles every drilling season with pulpy
permafrost. He also remembers drill-
ing for oil in Prudhoe Bay in 1995. Back
then, his drill bits brought up palm
leaves and redwood trunks, which he
says are remnants of a time when Alas-
kas north coast was a tropical swamp.
Some people say that what were see-
ing could be a natural variation; others
say no, its the emissions, Otto says.
I came away with mixed ideas.
Employees preparing the Umiat site
on a 70-degree-Fahrenheit August day
step off the drilling pad and sink to
WERE IN A RACE AGAINST
MOTHER NATURE. IF WE
DONT GET COLD WEATHER
EARLY ENOUGH, OR IF IT
GETS TOO WARM TOO FAST
IN THE SPRING, IT COULD
STALL THE PROJECT.
JERRY OTTO, HEAD OF LINC ENERGY DRILLING IN UMIAT, ALASKA
ALASKA GENERAL FUND: OI L REVENUE
ALASKA GENERAL FUND: NONOI L REVENUE
AVERAGE OIL PRICE
AVERAGE DAILY SHIPMENTS
FROM PRUDHOE BAY
*Fiscal year started on July 1, 1977. **Through Sept. 6.
Sources: Alyeska Pipeline Service, University of Alaska
Anchorages Institute of Social and Economic Research
1977
1978
*
2013
**
2012
ALASKAS CRUCIAL LIFELINE
OI L REVENUE PROVI DES ABOUT 90 PERCENT OF
THE FUNDI NG THAT RUNS THE STATE GOVERNMENT
EACH YEAR. WHI LE THE PRI CE HAS RI SEN, THE MAI N
RESERVOI R, THE AGI NG PRUDHOE BAY OI L FI ELD, HAS
FALLEN SHARPLY FROM I TS PEAK PRODUCTI ON YEARS.
DOWN 74%
FROM 1988 PEAK
OI L GENERATED 93% OF
ALASKA GENERAL FUND
REVENUE I N 2012

DBC
PowerShares DB
Commodity Index
Tracking Fund
DBC

it, says Scott Broussard, Lincs presi-
dent of oil and gas. Global oil reached
$113.72 a barrel on Sept. 9, up from
$9.55 15 years earlier. To provide more
reasons to drill, the state in May en-
acted $1.1 billion a year in tax credits
and other incentives for such oil and
gas companies as Exxon Mobil Corp.,
ConocoPhillips, Linc and Shell. Brous-
sard says Linc plans to invest $1.3 bil-
lion in Umiat, 75 percent of which
will come from state inducements.
Hed like to start production in 2018
and ship 50,000 barrels a day as Linc
races against ever-shorter seasons. All
the easy oil is gone, Broussard says.
Thats why were in Umiat.
More hurdles are looming. The com-
pany wants to build a gravel road and
an 80,000-barrel-a-day underground
pipeline to ship oil 109 miles east to the
Trans-Alaska Pipeline System. Alaska
needs permanent thoroughfares be-
cause climate change is likely to trim
the ice-road season further, says Joe
Balash, deputy director of the states
Department of Natural Resources.
Eighty miles south, the 350 Native
Alaskans who live in Anaktuvuk Pass in
the foothills of the snow-capped Brooks
Range mostly oppose a permanent road.
The route could disrupt caribou migra-
tion, says lifelong resident Jerry Sikva-
yugak. In 2007, a fire burned 401 square
miles (1,039 square kilometers), hinder-
ing the animals journey and depleting
residents food supplies. Broussard says
Linc has met with the villages inhabitants
and hopes to find an acceptable pathway.
Climate change could cost us trillions
of dollars, but well also see new indus-
tries grow, says Mark Begich, Alaskas
Democratic U.S. senator. He says that by
investing in wind, geothermal and solar
power, Alaska plans to surpass all other
states and rely on renewables for 50 per-
cent of its energy needs in 2025, up from
27 percent this year.
Shell learned how volatile Alaskas
climate can be in October 2012. It sent
an armada of 22 ships to the northern
coast to begin searching for oil. First,
a patch of ocean the size of Pennsylva-
nia froze in 48 hours, forcing the com-
pany to delay drilling for two weeks.
After that, a drilling rig broke free and
ran aground in heavy surf. Shell has
their ankles in the water, moss and li-
chens of the tundra. The Colville River
flows past Umiat Mountain, which
rises like the white cliffs of Dover. Blue
and white shipping containers are
bolted together for storage and living
space. An old Navy airstrip operates in
summer for the only access.
Linc endures the conditions because
oil prices make the hardships worth
BERI NG
STRAI T
TRANS-
ALASKA
PI PELI NE
NATI ONAL PETROLEUM
RESERVEALASKA
FAI RBANKS
UMI AT
NOME
KI VALI NA
ANCHORAGE
BARROW
PRUDHOE BAY
A LAND IN FLUX
ALASKANS ARE LI VI NG WI TH CLI MATE CHANGE AS
THEY NAVI GATE SOGGY I CE ROADS TO UMI AT, ENDURE
I NTENSI FYI NG STORMS I N KI VALI NA AND GI RD FOR AN
I NFLUX OF SHI PS AND NONNATI VE SPECI ES I N NOME.
ANNUAL MEAN TEMPERATURE I N BARROW
5-YEAR AVERAGE
Source: Alaska Climate Research Center
15
F
10
5
0
HEAT WAVE
ALASKA TEMPERATURES ARE CLI MBI NG ENOUGH TO
MELT SUMMER SEA I CE, FACI LI TATI NG I NCREASED
SHI PPI NG BUT DI SRUPTI NG WI LDLI FE HABI TATS.
1949 2012
VALDEZ
200 MI LES
Kivalina, a barrier island that storms
have eroded to a quarter-mile wide, is
home to 400 Alaskans.

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canceled drilling for 2013 and has made
no announcement about 2014. With its
Alaskan drilling on hold, Shell in April
added its name to a parade of compa-
nies eyeing the Arctic Ocean north of
Russia. It agreed to study joining OAO
Gazprom, already the worlds biggest
natural gas producer, in an offshore
drilling program for oil.
In Nome, on Alaskas western coast,
Mayor Denise Michels is looking to cap-
italize on shipping now that melting ice
has opened the sea for longer summers.
Dockings in Nome harbor grew to 430
in 2012 from 30 in 1988, forcing vessels
to tie up three abreast. Some 200,000
cruise ships planned to visit the Arc-
tic this year, and retirees may rush to
Alaska as temperatures rise and water
dwindles in such parched U.S. cities as
Phoenix, says Fran Ulmer, chairman of
the U.S. Arctic Research Commission.
Commercial shipping to Europe is
growing in the Bering Strait via the
Northern Sea Route along Russias coast.
Permits for sailing in the area skyrock-
eted to 516 this year from four in 2010.
Michels recognizes the impacts of
the shipping bonanza. She says Nome
would be overwhelmed by a maritime
disaster. In 2010, 128 passengers were
stranded for two days when cruise ship
MV Clipper Adventurer struck an un-
charted rock in the Canadian Arctic.
Michels expects more noise and says
routine discharges of bilge water may
contain pollutants and invasive spe-
cies. You have to adapt, she says of
climate change. You plan for more
storms, more often. You watch roads
and buildings sink into the permafrost
as it melts. You watch as new species
arriveinsects, fish, crabs, vegeta-
tionand watch the impact they have
on animals that have been here forever
and on which we depend.
The 400 residents of Kivalina, a bar-
rier island about 300 miles north of
Nome, are nervously preparing for the
winter as rising seas erode their coast-
line. Storms are more violent on land
because theres less sea ice to slow
them. Stan Hawley, the tribal council
administrator, says bad weather has
washed human excrement from the
islands landfill into a lagoon used for
Te PIMCO
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Linc faces mushy tundra and shorter
oil-drilling seasons as its prepares its
site in Umiat.

THINK OUTSIDE THE INDEX.
Investors should consider the investment objectives, risks, charges and expenses of the funds carefully before investing. This and other
information are contained in the funds prospectus and summary prospectus, if available, which may be obtained by contacting your
PIMCO representative. Please read them carefully before you invest or send money.
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may be worth more or less than the original cost when redeemed. Equities may decline in value due to both real and perceived general market, economic,
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position could not be closed when most advantageous. Investing in derivatives could lose more than the amount invested.
The Lipper Large Company Equity Manager of the Year Award recognizes fund groups that have delivered consistently strong risk-adjusted performance,
relative to peers.
On 22 March 2013, the funds name and objective changed from Total Return or TR to Absolute Return or AR. In managing the strategys investments
in fxed income instruments, PIMCO utilizes an absolute return approach; the absolute return approach does not apply to the equity index replicating
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intermediaries who submit trades on behalf of eligible investors. Investors should consult their fnancial advisor prior to making an investment decision.
PIMCO Investments LLC, distributor, 1633 Broadway, New York, NY, 10019 is a company of PIMCO.
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oil revenue will bring. To assuage the
guilt of the world, wed be telling this
community to stay the way you were,
he says of native peoples. In the whole
history of the human race, not one
generation has been willing to say: I
want to turn back. I want my life to be
harder.
When he worked for the North Slope
Borough, Glenn rebuilt a Navy gas field
south of Barrowthe only place where
Native Alaskans control the extraction
of hydrocarbons. When you turn the
stove on, its a good feeling that the gas
is coming from the local community,
without ever going through a pipeline,
he says.
At ASRC, Glenn is advocating a road
leading due north from Umiat, avoid-
ing Anaktuvuk Pass, to help develop his
companys oil deposits west of Prud-
hoe Bay. There are organizations who
want to stop all hydrocarbon develop-
ment in the Arctic in the name of stop-
ping or slowing down climate change,
he says. It isnt going to change the
trend the world is experiencing. Theyd
just open up the valve a little wider in
Saudi Arabia or somewhere else.
As for the states warming environ-
ment, Glenn says Alaskans are used to
change: They experience extremes like
few others. We roll with the punches
as ice comes and goes every year, he
says. And well roll with the punches
of a changing climate.
JOHN LIPPERT IS A SENIOR WRITER AT
BLOOMBERG MARKETS IN CHICAGO.
JLIPPERT@BLOOMBERG.NET WITH ASSISTANCE
FROM MARK CHEDIAK IN SAN FRANCISCO AND
JIM POLSON IN NEW YORK.
Glenn, the ASRC official, says hes
happy to work to combat climate
changebut not without better un-
derstanding the effects on the envi-
ronment, and not if it means blocking
development and the improvements
Odigna aliquat. Im deliquat ullam
vullum incillam Name Here
tpatem eugiam, commy nulla.
drinking water and closed the airport,
trapping residents. The elders are un-
settled, watching the waves, Hawley,
51, says. The kids are freaking out.
Kivalina was a fishing camp until the
Bureau of Indian Affairs built a school
in 1905. Today, its half its width of 30
years ago. Weather-beaten houses on
stilts sit near tanks holding fuel de-
livered once a year by barge. Kivalin-
ians survive in part by floating on ice
to hunt whales. The U.S. government
allows subsistence hunting by Native
Alaskans as long as the catch doesnt
threaten the herd. Rising temperatures
are making that harder. The ice is too
thin and moves too fast, Hawley says.
We used to camp out there for weeks
as we hunted. Now, its a few days.
WINDOW ON THE
WEATHER
Bloomberg Tps
YOU HAVE TO ADAPT. YOU PLAN FOR MORE
STORMS, MORE OFTEN. YOU WATCH ROADS
AND BUILDINGS SINK INTO THE PERMA-
FROST AS IT MELTS. YOU WATCH AS NEW
SPECIES ARRIVEINSECTS, FISH, CRABS,
VEGETATIONAND WATCH THE IMPACT
THEY HAVE ON ANIMALS THAT HAVE BEEN
HERE FOREVER. DENISE MICHELS, MAYOR OF NOME

51 funds with 4 or 5 stars.
All from Columbia Management.
Before investing, consider the Funds investment
objectives, risks, charges and expenses. For this and
other information, visit ColumbiaManagement.com
for a prospectus. Read it carefully before you invest.
Past performance does not guarantee future results.
For the most recent month-end performance, visit
ColumbiaManagement.com. Class Z shares are sold
at Net Asset Value and have limited eligibility, and
the investment minimum may vary. Only eligible
investors may purchase Class Z shares directly or
by exchange.
All ratings are for Class Z shares as of 6/30/13. Other classes may have
different performance characteristics and may have different ratings.
Out of 97 Z-share Columbia funds rated by Morningstar, 10 funds
received a 5-star Overall Rating and 41 funds received a 4-star Overall
Rating. The Overall Morningstar Rating
TM
for a fund is derived from a
weighted average of the performanoe tgures assooiated with its 3-, 5-
and 10-year Morningstar Rating metrics.
1here are risks assooiated with investing whioh may inolude: txed inoome,
international and equity investments. See each funds prospectus for more
information on these and other risks associated with the funds.
For each fund with at least a 3-year history, Morningstar calculates a
Morningstar Rating based on a Morningstar Risk-Adjusted Return
measure that accounts for variation in a funds monthly performance
(including the effects of sales charges, loads and redemption fees),
placing more emphasis on downward variations and rewarding
consistent performance. The top 10% of funds in each category receive
5 stars, the next 22.5 reoeive 4 stars, the next 35 reoeive 3 stars,
the next 22.5 reoeive 2 stars and the bottom 10 reoeive 1 star.
(Each share class is counted as a fraction of one fund within this scale
and rated separately, which may cause slight variations in the
distribution percentages.)
2013 Morningstar, lno. All rights reserved. 1he Morningstar
information contained herein: (1) is proprietary to Morningstar and/or
its oontent providers, (2) may not be oopied or distributed, and (3) is not
warranted to be accurate, complete or timely. Neither Morningstar nor
its content providers are responsible for any damages or losses arising
from any use of this information.
Columbia lunds are distributed by Columbia Management lnvestment
Uistributors, lno., member llNRA. Columbia lunds are managed by
Columbia Management lnvestment Advisers, LLC, or Columbia wanger
Asset Management, LLC, a subsidiary of Columbia Management
lnvestment Advisers, LLC.
2013 Columbia Management lnvestment Advi sers, LLC.
All rights reserved.
Visit ColumbiaManagement.com
or call 877.538.3749.
Follow us @ColumbiaMgmt
149664 (07/13)
Columbia Dividend
Opportunity Fund (CDOZX)
0verall rating among 1,047 Large value funds. 1he lund reoeived a
Morningstar Rating
TM
of 5 stars among 1,047 funds, 5 stars among
935 funds and 4 stars among 605 funds for the 3-, 5- and 10-year
periods, respectively.
Columbia Dividend
Income Fund (GSFTX)
0verall rating among 1,047 Large value funds. 1he lund reoeived
a Morningstar Rating of 4 stars among 1,047 funds, 5 stars among
Columbia Limited Duration
Credit Fund (CLDZX)
Overall rating among 360 Short-Term Bond funds. The Fund received
a Morningstar Rating of 5 stars among 360 funds, 5 stars among
Columbia Corporate
Income Fund (SRINX)
0verall rating among 1,005 lntermediate-1erm Bond funds. 1he lund
received a Morningstar Rating of 5 stars among 1,005 funds, 5 stars
among 873 funds and 4 stars among 616 funds for the 3-, 5- and 10-year
Columbia U.S. Government
Mortgage Fund (CUGZX)
0verall rating among 315 lntermediate 0overnment funds. 1he lund
received a Morningstar Rating of 5 stars among 315 funds, 5 stars
among 286 funds and 5 stars among 247 funds for the 3-, 5- and 10-year
Columbia Thermostat
Fund (COTZX)
Overall rating among 789 Moderate Allocation funds. The Fund received
a Morningstar Rating of 5 stars among 789 funds, 4 stars among
Columbia Contrarian
Core Fund (SMGIX)
0verall rating among 1,381 Large Blend funds. 1he lund reoeived
a Morningstar Rating of 5 stars among 1,381 funds, 5 stars among
1,254 funds and 5 stars among 774 funds for the 3-, 5- and 10-year
Columbia Emerging
Markets Bond Fund (CMBZX)
0verall rating among 120 Lmerging Markets Bond funds. 1he lund
reoeived a Morningstar Rating of 5 stars among 120 funds and 4 stars
among 89 funds for the 3- and 5-year periods, respectively.
Here are a few.

On a warming planet, adaptation becomes
an urgent economic challenge. Industry and
government are beginning to respond to
climate change threats and, in some cases,
find new business possibilities.
Economic Threat Economic Opportunity
Geophysical Impact
BY EDWARD ROBI NSON ILLUSTRATION BY JASON LEE
T
I
M

J
O
H
N
S
O
N
/
R
E
U
T
E
R
S
/
L
A
N
D
O
V
Midwestern U.S.:
More droughts and
flooding may raise
prices of crops, meat
and milk.
Colorado and Texas:
Growth in wind power
in these and other
states has created
75,000 jobs.
Kivalina, Alaska:
Village of 400 is
threatened as sea
ice melts and storms
erode the coastline.
Caribbean Sea: The
power of tropical
storms has doubled
in 35 years.
Mekong River Delta:
A 0.3-meter (1-foot)
sea-level rise may
destroy 12 percent of
the rice crop by 2040.
Vietnam: Changes
in the monsoon are
causing downpours
in dry seasons and
rainless weeks in
wet periods.
Southern
Philippines: Warming
seas may halve fish
catch by 2050.
North Pole: The extent of Arctic sea
ice dropped below 4 million square
kilometers (1.5 million square miles)
for the first time in 2012.
AVERAGE SEPTEMBER SEA I CE
EXTENT, 1981 TO 2010
SEPT. 2012
South Dakota:
Wheat farmers are
switching to corn,
thanks to more rain
and milder winters.
Gulf of Mexico: Damage to energy-industry
infrastructure from fiercer storms and rising
seas may cost $8 billion annually by 2030.

F
R
O
M

T
O
P
:

P
E
D
R
O

A
R
M
E
S
T
R
E
/
A
F
P
/
G
E
T
T
Y

I
M
A
G
E
S
;

R
O
T
T
E
R
D
A
M

I
M
A
G
E

B
A
N
K
Spain: More-frequent heat waves in the
Mediterranean may intensify droughts and
wildfires throughout the region.
Rotterdam: Floating, solar-powered
buildings are prototypes of homes and offices
that can weather a rising sea.
New York and New
Jersey: Strengthened
by warmer seas and
changing air currents,
Hurricane Sandy
causes $50 billion
in damage.
Bordeaux, France:
Rising temperatures
may reduce wine pro-
duction in treasured
vineyards worldwide
by 73 percent by 2050.
Arctic Ocean:
Russias OAO Rosneft
is expanding oil and
gas exploration.
Danube and Rhine
rivers: Flooding may
cost the European
Union $55 billion
annually by 2050.
Southeast Asia: The
aquaculture industry
may have to spend
$190 million annually
to adapt to changing
weather.
Southern Greenland:
The worlds largest
rare earths and
uranium mine is
planned as ice retreats
across the island.
Sources: Bloomberg, Conservation International, European Commission, Greenland Minerals & Energy, Munich Re, National Snow and Ice Data Center,
Nature, UN Intergovernmental Panel on Climate Change, U.S. Department of Agriculture, U.S. Department of Energy, Wheat Growers, World Bank, World
Meteorological Organization
DAMAGE ASSESSMENT
FLOODS, DROUGHTS, WI LDFI RES AND STRONGER CYCLONES ARE DRI VI NG UP CATASTROPHI C LOSSES WORLDWI DE.
NUMBER OF NATURAL
DISASTERS
900
800
650
OVERALL LOSSES
I N BI LLI ONS
160
165
$115
INSURED LOSSES
I N BI LLI ONS
65
50
$29
2012
10-year
average
30-year
average
Northern Sea
Route: Retreating
ice makes shipping
possible between Asia
and Europe off the
northern coast
of Siberia.
Maniitsoq,
Greenland: The
temperature hits
a record 25.9 degrees
Celsius (79 degrees
Fahrenheit) on
July 30, and melting
affects almost half
of the Greenland
ice sheet.

D
uring his time as CEO of Ecobank Group, Arnold
Ekpe led a growth surge that eventually reached
35 countries across Africa while bringing together
differing cultures of Anglophone, Francophone and
Lusophone countries, creating a true Pan-African
enterprise. In one of Ekpes new roles, that of Honorary President
of the Business Council for Africa (BCA), his experience lends
credence to his views on what needs to happen for Africa to live
up to its potential. BCA (bcafrica.co.uk) encourages better busi-
ness and sustainable economic development in Africa.
Philosophically, Africa has to couple with the rest of the world to
grow a lot faster, and to do so it has to make its markets bigger, more
attractive and more integrated, says Ekpe. For that to happen,
two major things need to occur: We need to remove barriers to free
movements of goods, services and people; and achieve far greater
integration of road, air and sea transportation.
Many of Ekpes peers in the banking sector agree with him,
EXW DOVR VHH WKH QHHG IRU VWDELOLW\ DV HTXDOO\ LPSRUWDQW 7KH UVW
step toward making Africa a more functional economic whole
is political stability and functioning democracy within individual
countries, says Chris Newson, CEO, Standard Bank Africa.
Holding regular, successful elections is an important marker.
The next step is having a functional judiciary to enforce contracts
and protect investor interests. Thus, the decision by Kenya, for
example, to invite South African judge Albie Sachs to review its
judicial system is an important step in the right direction.
Standard Bank has a 150-year history in Southern Africa,
and started expanding to the rest of Africa in the early 1990s. The
group currently operates in 18 countries on the continent (trading
as Stanbic Bank in some markets), and in other select emerging
markets, so Newson has a birds-eye view of what he believes is the
next important factor in Africas growth: the ease of doing business.
IT TAKES A
CONTINENT
Regional integration is needed to weave
Africa into a giant market of 1 billion
people rather than a collection of 54
diverse countries. Financial institutions
are leading the way toward this goal
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J
E
N
E
L
L
E

S
C
H
U
L
E
R
Its vital that it becomes easier to register a business, access
hnance anc negotiate the regulatory environment," says Newson.
I would also focus on the need for infrastructurepower, telecoms
and transportas huge contributors to ease of doing business, as
well as the growing importance of institutional capacity to assist
organizations in navigating the local landscape he says.
Like Ekpe, Newson sees regulatory and infrastructure integra-
tion as something that must happen for Africa to truly thrive. The
hnal anc probably most important step in making the continent
function as an economic unit is regional integration, he says.
For sub-Saharan Africa, this starts with the regional blocs of East,
West, Southern and Central Africa, followed by harmonization of
trade and tax laws between regions.
The biggest challenge in achieving regional integration is the
inability to align the political and business legs of the process
the former simply does not keep up with the latter, and the move
toward declaration of free-trade areas between regional blocs hap-
pens at a slower pace than business activity dictates it should.
Another challenge is Africas transportation infrastructure, the
poor state of which hinders and raises the costs of moving people
and goods between countries.
Despite these challenges, Newson remains conhcent regarcing
the prospects for African growth. Generally, growth in sub-Saharan
Africa has been driven mainly by the continents mineral wealth,
infrastructure development, growing middle class and deepening
hnancial services," he says. "This growth has been acceleratec by
the explosion in telecommunications, and the possibilities it offers
in areas of payment technology and electronic transmission. The
outlook for growth in the region remains very encouraging on both
the retail and corporate sides of the business.
DRIVERS OF GROWTH
Small and midsized businesses are key growth drivers in
almost any emerging market, and that is certainly the case
in Africa. The greatest need for growth among businesses is
in small and midsized markets, says Bisi Onasanya, Group
Managing Director and CEO, First Bank of Nigeria Ltd. At First
Bank, we refer to these businesses as emerging corporates.
Emerging corporate customers represent the middle market of
the business banking value chain, and are made up of large
organizations across various industries. This group contributed
1 percent to the banks revenue in 2012, and given the nascent
opportunities in this segment, there is untapped potential and
signihcant room for improvec performance. The bank recog-
nizes the potential of these segments and their contribution
to the growth of the economy. These businesses are usually
nurtured and developed into large and enduring organizations,
adding value both to communities where they operate and to
the economy at large.
The Central Bank of Nigeria recently cevelopec a hnancial
inclusion strategy for Nigeria, with the focus of reducing the
percentage of acult Nigerians exclucec from hnancial services
from 46.3 percent, as of 2010, to approximately 20 percent by
2020. This is with a view toward enabling more people to have
access to hnancial services, engage in economic activities anc
contribute to the development of Nigeria, says Onasanya.
First Bank is Nigeria's most iconic anc encuring hnancial
institution, and at the moment, says Onasanya, the bank
is most focused on the fundamentals of the macroeconomy
and opportunities for expansion. A large number of the
Nigerian population are currently unbanked, he says. First
Bank has the largest network in the country, and is well
positionec to reap the most beneht from converting the
unbanked into customers.
In its assessment of the state of nations infrastructure, the
Global Competitiveness Report Index 20122013 ranks Nigeria
130 out of 144 countries. Some might hnc that hgure rather ce-
pressing, but Onasanya sees it as another open window. There
are opportunities in infrastructural hnancing, with a focus from
the government on bricging the signihcant infrastructural gaps
in order to unleash the vast economic potential of the economy,
he says. First Bank has been at the vanguard of leading change
in the hnancial services incustry, anc continues to support the
government and others in transforming the nation.
Over the course of 120 years, First Bank has evolved
and reinvented itself in line with Africas dynamic operating
environment and customers needs and increasing sophistica-
tion. For example, its micro-strategic business units (SBUs)
focus on startups and existing businesses in search of expan-
sion, and partner and support these businesses beyond basic
banking services.
As part of our growth strategy to focus on this category of
customers, we have tools that can be used to plan, analyze their
hnancial neecs anc performance, anc monitor their cash Now,"
says Onasanya. We also have industry experts, with rich experi-
ence in those businesses, that can assist these customers.
First Banks initiatives mesh nicely with what Ekpe calls
empowering African champions, a key theme in his blueprint
for progress in Africa. African champions are companies and in-
stitutions that, in effect, enforce the economic growth of Africa by
seeking to overcome the barriers to creating bigger markets. An
example of empowering those champions is having big African
hnancial institutions back the construction of factories anc infra-
structure improvements that enable such companies to thrive.
While he hrmly believes in the promise helc by /frica, Ekpe
knows there is still work to be done. Africa is not there yet, he
says. We need sustained growth rates at least in the double
digits to begin to catch up with the rest of the world.
We need to remove barriers to free
movements of goods, services and
people; and achieve far greater
integration of road, air and sea
transportation than we have today.
Arnold Ekpe
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> Corporate and Investment Banking
THE BEST PARTNERS
NEVER LOSE SIGHT
OF WHERE YOURE
GOING

ABIGAIL JOHNSON, FIDELITY
INVESTMENTS RECLUSIVE
PRESIDENT AND THE RICHEST
WOMAN IN U.S. FINANCE,
MUST CONTEND WITH FALLING
PROFITS AND A DECLINE IN FEES
EARNED BY THE FIRMS ONCE-
POWERFUL MUTUAL-FUND ARM.


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A year ago, Johnson, now 51, was
named president of a very different Fi-
delity. Under her father, Edward C.
Johnson III, known as Ned, Fidelity
has surrendered its leadership and
much of its iconic status as a money
manager. Fees for investing client
money in its own funds now produce
less than half of Fidelitys revenue,
and rivals BlackRock Inc., Pacific In-
vestment Management Co. and Van-
guard Group Inc. have shot past
Fidelity in assets managed in the
course of the past five years. The firm
has in the meantime become the na-
tions biggest administrator of 401(k)
retirement plans and one of its largest
discount brokers, offering clients hun-
dreds of funds in addition to its own.
Few people outside Fidelity know
what Johnson plans to do to turn
around the 67-year-old firms fund
business. In addition to being the
13th-wealthiest woman in the U.S.
with assets of $9.5 billion, according to
the Bloomberg Billionaires Index
Johnson is also among the most mys-
terious executives in finance. Fifteen
months after being named president,
in charge of all of Fidelitys key busi-
ness units, she has said nothing pub-
licly about her vision or goals for the
company. She declined to grant an in-
terview and has rejected all such re-
quests since she became president.
The challenges Johnson faces are
clear without her enumerating them.
Assets in Fidelitys actively managed
stock funds fell 16 percent in the past
five years, and management and
advisory fees were down an estimated
13 percent. Operating profit for all of
Fidelity fell 31 percent in 2012 to an
estimated $2.3 billion. Near-zero in-
terest rates have forced the firm to
waive fees for managing the $427 bil-
lion in its money-market funds to keep
the funds returns positive. In April,
Standard & Poors lowered the outlook
for the ratings on Fidelitys long-term
debt to negative from stable. And Fi-
delity is the last of the big money-
management firms to take advantage
of one of the most significant develop-
ments in personal finance: the shift
into exchange-traded funds, which
trade like stocks and were first offered
in the U.S. in 1993. Total investment in
U.S. ETFs grew to $1.48 trillion as of
mid-September from $65 billion in
2000. Just one of the 1,300 U.S. ETFs is
managed by Fidelity.
Donald Putnam, co-founder of Grail
Partners LLC, a San Franciscobased
firm that invests in money managers,
says Johnson clearly needs to shake
things up if she wants Fidelity to be a
leader in investment management
again. Since the 1980s, I dont believe
theres been a significant strategic de-
velopment at Fidelity, he says. Im
not saying its not a good company, but
as a strategic matter, it has long since
lost its way.
Ronald OHanley, head of asset man-
agement at Fidelity, says his boss is
taking action. He says shes behind
Fidelitys effort to raise its fee in-
come with a service in which Fi delity
Ned Johnson, now 83,
transformed Fidelity from pure
money manager to a broker and
pension administrator.
When Abigail Johnson began her apprenticeship at Fidelity
Investments 25 years ago, the Boston-based firm founded by
her grandfather was the nations biggest mutual-fund company
and star manager Peter Lynch was enjoying a performance
streak at the Magellan Funda 29 percent average return over
13 yearsthat ranks among the best in the industrys history.
ABBY S ROAD

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TYPE AZGI <GO>

advisers will help clients set up port-
folios made up of mutual funds, ETFs
and other investments that are custom-
ized according to their appetite for risk.
OHanley says Johnson is also driving
Fidelitys recent push to sell its prod-
ucts through social media. As for ETFs,
OHanley says Fidelity, which already
sells other firms ETFs through its bro-
kerage arm, will soon begin offering Fi-
delity-branded funds in collaboration
with BlackRock, whose iShares ETFs
dominate the market.
Still, Ned Johnsons daughter has
given no indication she intends to fun-
damentally change the Fidelity that he
built, a firm that earned more than
half of its estimated $13.24 billion in
2012 financial services revenue from
administering brokerage accounts,
pensions and 401(k) retirement funds.
In a rare speech at a Miami conference
in 2010, before she ascended to the
presidency, Johnson said she was es-
pecially fond of the noninvesting side
of the firm. I like analyzing and man-
aging large-scale transaction-process-
i ng pl atforms, record-keepi ng
administration and brokerage trading
services, she told the audience, ac-
cording to the Boston Globe.
Johnson needs to articulate a
broader mission than she has publicly,
says James Lowell, a financial adviser
and editor of the independent Fidelity
Investor newsletter in Needham,
Mass achusetts. That task requires
that she be a more visible and dynamic
leader, he says. Shes clearly compe-
tent, Lowell says. Whats also re-
quired is a more-defined form of
leadership. You cant be an amor-
phous, faceless place.
You can talk to Chuck, says the
ubiquitous advertising for Charles
Schwab Corp. You cant talk to Abby.
The fact that Johnson is a quiet
person who doesnt make herself the
face of the firm shouldnt be held
against her, OHanley says. Abbys
not a yeller, he says. Shes careful to
listen to others and let others speak
and absorb what they have to say. In
my mind, thats just a much more ef-
fective leadership style in a company
that has so many ways of touching
customers.
Don Phillips, president of research
at Chicago-based fund tracker Morn-
ingstar Inc., who has followed Fidel-
ity for more than 25 years, says
Fidelity doesnt need a hero CEO to
address its recent financial difficul-
ties. I dont know that Abby needs to
reinvent the business the way her
grandfather or father did, he says.
Whats required is a sense of stew-
ardship and a long-term view, which I
do think she brings to the table. For
her to pretend to be something shes
not would fall flat.
ABBY S ROAD
ABBYS NOT A YELLER, SAYS OHANLEY, FIDELITYS
ASSET MANAGEMENT HEAD. SHES CAREFUL TO LISTEN
TO OTHERS AND ABSORB WHAT THEY HAVE TO SAY.
AS I TS PERFORMANCE
LAGGED, THE MI GHTY
MAGELLAN FUND
SHRANK FROM
$68 BI LLI ON
I N ASSETS TO
$15 BI LLI ON.
F A D E D
S T A R
FI DELI TY MAGELLAN FUND S&P 500 I NDEX
Sources: Bloomberg,
Fidelity
Total Annual Returns
1964 2012
120%
90
60
30
0
30
60
1960s 1970s 1980s 1990s 2000s 2010s

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TYPE CME <GO>

No one outside the family is in a po-
sition to dislodge Johnson. She owns
about half of the familys shares in
FMR Corp., Fidelitys holding com-
pany, according to regulatory filings.
The familys stake totals 49 percent,
with the rest of the shares held by for-
mer and current employees. Based on
a comparison with publicly traded
peers, Fidelity is worth about $32 bil-
lion, according to data compiled by
Bloomberg. Combined with her hold-
ings in Fidelity International and
other enterprises, Johnsons net worth
was about $9.5 billion on Sept. 19. She
ranks No. 13 among women in the
Bloomberg Billionaires Index, and
shes the only one of the 13 whose for-
tune is in finance. Johnson was No.
120 on the overall billionaires list as of
Sept. 19. Her father, Ned, 83, who re-
mains chairman of FMR, was worth an
estimated $6.5 billion on that date.
Johnson lives up to the image of the
New England Yankee embarrassed by
public displays of wealth. She owns a
number of homes, including a water-
front property on Nantucket, worth
about $13 million, according to real es-
tate website Zillow.com. Most of the
time, she lives in a house that
once belonged to her grandfather, in
Milton, Massachusetts, worth about
$2 million. Neither property stands
out from its surroundings.
That discretion applies to her phi-
lanthropy as well. The family founda-
tion, the Edward C. Johnson Fund, has
no public website. Although it and the
Fidelity Foundation, also started by
the family, have given away more than
$425 million since 2000, according to
Bloomberg data, the foundations dont
advertise their charity. Johnson
doesnt present oversize checks or cut
ribbons for the cameras.
Fidelity employs 40,000 people in
the U.S., managed $1.7 trillion in assets
directly as of mid-September and ad-
ministered a total of $4 trillion world-
wide. In addition to its financial
services income, the FMR holding
company took in an estimated $4.52
billion in revenue last year from
private-equity investments, including
real estate and a building materials
company.
The firm has struggled to grow
money-management assets. Van-
guard, which surpassed Fidelity as the
biggest U.S. mutual-fund company in
2010 and offers mostly index funds
and ETFs, has been a beneficiary of the
shift into passive funds. Its assets
surged 73 percent to $2.6 trillion dur-
ing the 6 years from the end of 2007
to June 30, 2013. BlackRock, the
worlds biggest money manager, more
than doubled assets to $3.9 trillion.
Pimco, whose funds are overseen by
CoChief Investment Officer Bill
Gross, has seen its assets more than
double to $2 trillion. By contrast, Fi-
delitys directly managed assets rose
11 percent in the 6 years.
Johnsons firm last stood out as a
fund manager during the days of Lynch,
JOHNSON OWNS HALF OF THE FAMILYS 49 PERCENT
STAKE IN HOLDING COMPANY FMR. THAT AND HER
OTHER HOLDINGS ADD UP TO $9.5 BILLION.
ABBY S ROAD
Assets under
management,
in trillions
$4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
2007 2008 2009 2010 2011 2012 June 30,
2013
Bl ackRock
Vanguard Group
Fi del i ty Investments
Paci fi c Investment
Management
All figures are as of
the end of the year
except for 2013.
Source: Companies
Source: 2012
bond-offering
prospectus
L O S I N G G R O U N D
ONCE THE LARGEST U. S. MUTUAL-FUND COMPANY, FI DELI TY HAS FALLEN BEHI ND COMPETI TORS
SWOLLEN WI TH ETF AND BOND I NVESTMENTS.
FMR revenue, 2012 estimate
MANAGEMENT
AND I NVESTMENT
ADVI SORY FEES
$5. 93
TRANSFER-AGENT,
RECORD-KEEPI NG
AND OTHER
SERVI CE FEES
$4. 96
BROKERAGE
COMMI SSI ONS
AND OTHER FEES
$1.16
FIDELITY INVESTMENTS
$13. 24
BI LLI ON
TOTAL REVENUE
$17.76
BI LLI ON
FMR PRIVATE EQUITY
$4. 52 BI LLI ON
OTHER
$0. 64
NET BROKERAGE
I NTEREST
$0. 55

TYPE MPRC <GO>

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OHanley says Abby Johnson
doesnt need to be the face of
Fidelity to be an effective leader. fastest-growing product categories in
asset management. Fidelity also re-
ceived permission from regulators in
May to introduce a series of actively
managed ETFs, of which there are only
a handful now.
Exotic offerings like actively man-
aged ETFs were unheard of when Ed-
ward C. Johnson Jr. started Fidelity. A
lawyer and the son of a wealthy Boston
merchant, Edward established the
company in 1946 around the Fidelity
Fund, a mutual fund he took control of
in 1943. By 1972, when his son Ned
took over, Fidelity offered 17 funds
and managed $4.3 billion. Ned put his
own mark on the industry, creating the
first money-market fund with check
writing in 1974, introducing a tax-
exempt money fund in 1980 and
launching the first series of single-
industry stock funds in 1981 and 1982.
In 1982, Ned also started Fidelity In-
stitutional, an array of enterprises
aimed at independent financial advis-
ers that includes brokerage, transaction
settlement, record keeping and other
operational support. That same year,
Fidelity started administering pensions
and 401(k) plans for employers, a busi-
ness that has since expanded to a range
of record-keeping services, including
payroll and benefits administration.
Fidelitys retail brokerage, adviser
Composite Index Tracking Stock ETF,
a tech fund that returned 19.7 percent
for the year ended on Sept. 9.
Fidelity probably stayed away from
ETFs because it didnt want the low-
margin index funds to divert custom-
ers from the actively managed funds
that earn higher fees, says Lowell, of
the Fidelity Investor newsletter.
OHanley says Johnson is commit-
ted to expanding the firms footprint
in ETFs. In March, Fidelity struck a
deal with BlackRocks iShares, allow-
ing Fidelitys brokerage customers to
trade any of 65 iShares ETFs commis-
sion-free. BlackRock will pay Fidelity
an undisclosed portion of the fees it
earns when it sells its ETFs through
Fidelity. Johnson is also working with
BlackRock to introduce ETFs that
track single industries and to design
Fidelity-branded ETF portfolios, or
funds of ETFs, which are among the
in the 1980s and early 1990s. In recent
years, even its star managers have had
difficulty beating the soaring Standard
& Poors 500 Index. William Danoff, of
the Fidelity Contrafund, had an aver-
age annual three-year return of 16.7
percent net of fees as of Sept. 9, com-
pared with 17.3 percent for the S&P
500, including reinvested dividends.
Joel Tillinghast, of the Fidelity Low-
Priced Stock Fund, had average annual
returns of 19 percent during the three
years ended on Sept. 9 and 26 percent
for the year ended on the same date.
Of the firms 50 largest stock and
bond funds, accounting for $660 billion
in assets, 44 percent beat their bench-
mark indexes during the three years
ended on Aug. 31 and 46 percent out-
performed during the five years ended
on that date, according to Bloomberg
data. The Magellan Fund, once the big-
gest U.S. stock mutual fund, had shriv-
eled to $15 billion as of mid-September
from $68 billion at the end of 2003. It
trailed 96 percent of growth-fund ri-
vals during the five years ended on
Sept. 9. It returned 20.7 percent for the
year ended on that date.
As in the days of Lynch, Fidelitys
funds business is focused on actively
managed stock funds. The firm has
missed out on the explosion of ETFs,
popular with both retail and institu-
tional investors, which use them as
short-term tactical investments and
as hedges. BlackRock managed $806
billion as of mid-September in its
iShares ETF subsidiary, which it
bought from Barclays in 2009. Van-
guardalthough it didnt get into the
ETF business until 2001manages
$297 billion in ETFs, 11 percent of its
assets under management. Fidelitys
only entry is the $240 million Nasdaq
NEAR-ZERO INTEREST RATES HAVE FORCED FIDELITY
TO WAIVE FEES ON $427 BILLION IN MONEY-MARKET
FUNDS TO KEEP THEIR RETURNS POSITIVE.
ABBY S ROAD

TYPE RRAIL <GO>

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sharply in 2012, are unlikely to recover
in any meaningful way in 2013, the re-
port says.
OHanley says the S&P downgrade is
unfair, since the drop in revenue and
profit is partly due to record-low inter-
est rates, something thats out of Fidel-
itys control and that will eventually
swing back in its favor.
Johnson and Fidelity dont have to
rush to solve these problems. Thats
the beauty of being a private company,
OHanley says. We dont have analysts
gnawing at us, saying, Whats going on
with your margins? because we own
the margins. If those margins keep
narrowing and Fidelitys once high-fly-
ing funds continue to generate lacklus-
ter returns, the calls for Johnson to
emerge from her cloistered Boston of-
fices and explain how shes going to fix
the company will only grow louder.
CHRISTOPHER CONDON COVERS MUTUAL FUNDS
AND ETFS AT BLOOMBERG NEWS IN BOSTON.
CCONDON@BLOOMBERG.NET
Money management is still the firms
most lucrative business. So a 16 percent
decline in actively managed stock-fund
assets has stung Fidelitys bottom line.
Management and advisory fees declined
to an estimated $5.9 billion in 2012,
down 13 percent from 2007, according
to data in the January bond offering.
At the same time, Fidelitys expenses
jumped last year, with operating costs
for 2012 rising 6.9 percent from 2011,
according to Fidelitys own estimate.
The revenue decline and cost in-
crease prompted S&P to lower its out-
look on the firms ratings in April. The
companys profitability and other key
credit metrics, which deteriorated
services and wealth management
units now oversee $2.6 trillion in as-
sets. The retirement services branch
looks after another $911 billion. To-
gether, these divisions serve 20 mil-
lion individual investors. Everyone
said he was nuts for getting into such a
low-margin, scale business, says
Morningstar research director Phil-
lips. But that brought great stability
and made Fidelity less of a boom-and-
bust business.
Abby Johnson first joined Fidelity
as an equity analyst after earning her
Master of Business Administration at
Harvard Business School. She man-
aged a series of stock mutual funds
from the 1980s until 1997, averaging 17
months in each stint. A hypothetical
investor who put $10,000 with her
when she started would have had a
balance of $35,960 after fees when she
stopped managing the funds, accord-
ing to the firm. The same amount in-
vested in funds that tracked her funds
benchmark indexes, with no fees de-
ducted, would have produced $38,652.
Johnson, whos married with two
children, moved out of investments to
lead the asset management business
starting in 1997. Her father tapped her
to run the retirement unit in 2005. In
2010, she took over the brokerage and
other institutional services.
In the years before Johnson took
charge of the entire firm, non-money-
management businesses had already
come to dominate Fidelity Invest-
ments top line. Brokerage, retirement
and record keeping produced revenue
of $6.8 billion in 2011, compared with
$6.1 billion from money-management
fees, according to a prospectus filed by
Fidelity in connection with a bond of-
fering in January.
FOLLOWING FIDELITY Bloomberg Tps
FIDELITYS RETAIL BROKERAGE, ADVISER AND
RETIREMENT SERVICES, AND WEALTH MANAGEMENT
UNITS SERVE 20 MILLION INDIVIDUAL INVESTORS.
ABBY S ROAD
From left: Johnson competitors Larry
Fink of BlackRock, Schwab and
Gross of Pimco all have higher profiles.

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its position by the time of the 13F ling. The selection of holdings is not based upon performance of the fund underlying hedge funds. The funds manager employs lever-
age, which may accelerate the velocity of potential losses. The Fund invests in small and mid- capitalization companies, which have greater volatility and less nancial
resources than large capitalization companies. Furthermore, the fund may hold foreign securities which are subject to different risks than domestic securities, including
foreign currency uctuation, difference nancial and accounting standards, and political instability. Brokerage commissions will apply to buying and selling the fund.
These will reduce returns. Past performance is no guarantee of future results. Structured Solutions AG Indexes have been licensed for use by Global X Management Com-
pany, LLC. Global X Funds are not sponsored, endorsed, issued, sold, or promoted by Structured Solutions AG, nor does this company make any representations regarding
the advisability of investing in the Global X Funds. Global X Management Company, LLC serves as an advisor to the Global X Funds.
Lipper ratings for Total Return reect funds historical total return performance relative to peers as of 8/31/13. The Lipper ratings are subject to change every month
and are based on an equal-weighted average of percentile ranks for the Total Return, Consistent Return, Preservation, Tax Efciency, and Expense metrics over three-,
ve-, and ten-year periods (if applicable). As of 8/31/13, the Global X Top Guru Holdings Index ETF, in Lippers Large-Cap Core Funds, was ranked 2 out of 961 for the a
period 6/30/12 to 8/31/13. Lipper ratings are not intended to predict future results, and Lipper does not guarantee the accuracy of this information. More information is
available at www.lipperweb.com. Lipper Leader Copyright 2012.
TYPE GXFS <GO>

INVESTORS IN THE $337 BILLION MANAGED-FUTURES MARKET,
EXPECTING RETURNS THAT WILL DEFY STOCK MARKET SLUMPS,
INSTEAD FIND MOST OF THEIR GAINS GOBBLED UP BY COMMISSIONS.
BY DAVID EVANS

P
R
O
F
I
T
F
E
E

70 BLOOMBERG MARKETS November 2013 PHOTOGRAPH BY TI M KLEI N
THE PITCH
WAS ENTICING.
At a time when the Standard & Poors
500 Index had suffered a decline of 41
percent in the previous three years,
Morgan Stanley was offering its clients
the possibility of some relief.
In a prospectus, the New York securi-
ties firm invited its customers to put
their money into a little-known area of
alternative investing called managed
futures. If youve never diversified your
portfolio beyond stocks and bonds, you
should know about the powerful argu-
ment for managed futures, the bank
wrote. Managed futures may poten-
tially profit at times when traditional
markets are experiencing losses. Mor-
gan Stanley presented a chart telling in-
vestors that over 23 years, people who
put 10 percent of their assets in man-
aged futures outperformed those whose
investments were limited to a combina-
tion of stocks and bonds.
Clients jumped in. During the decade
ended in 2012, more than 30,000 inves-
tors entrusted Morgan Stanley with
$797 million in a managed-futures
fund called Morgan Stanley Smith Bar-
ney Spectrum Technical LP. The fund
already had $341.6 million invested
during the previous eight years. Top
fund managers speculated with that
cash in a wide range of asset classes.
In that period, the fund made $490.3
million in trading gains and money-
market interest income.
Investors who kept their money
in Spectrum Technical for that de-
cade, however, reaped none of those
returnsnot one penny. Every bit
of those profitsand morewas
consumed by $498.7 million in com-
missions, expenses and fees paid to
fund managers and Morgan Stanley.
After all of that was deducted, inves-
tors ended up losing $8.3 million over
10 years. Had those Morgan Stanley in-
vestors placed their money instead in
a low-fee index mutual fund, such as
Vanguard Group Inc.s 500 Index Fund,
they would have reaped a net cumula-
tive return of 96 percent in the same
period. The powerful argument for
managed futures turned out to be good
for brokers and fund managers but not
so good for investors.
In the $337 billion managed-futures
market, return-robbing fees like those
are common. According to data filed
with the U.S. Securities and Exchange
Commission and compiled by Bloom-
berg, 89 percent of the $11.51 billion of
gains in 63 managed-futures funds
went to fees, commissions and ex-
penses during the decade from Jan. 1,
2003, to Dec. 31, 2012. The funds held
$13.65 billion of investor money at the
end of last year, according to SEC fil-
ings. Twenty-nine of those funds left
investors with losses.
The $8.3 million loss in Morgan Stan-
leys Spectrum Technical fund over a
decade pales in comparison to an ag-
gregate deficit of $1 billion in 29 Mor-
gan Stanley and Citigroup Inc.
managed-futures funds in the four
years ended on Dec. 31, the filings show.
Those funds charged investors a total
Sol Waksman, who founded the firm
that tracks managed futures, says
investors should look at more than just
his firms benchmark index.
FLEECED
BY
FEES

of $1.5 billion in fees. Morgan Stanley
and Citigroup merged their funds
management in 2009; Morgan Stanley
bought out Citis share in June.
The big news here is, the fees are
so outlandish, they can actually wipe
out all the profits, says Bart Chilton,
one of five members of the Commodity
Futures Trading Commission. Even
though the CFTC oversees managed
futures, Chilton says he hadnt been
aware of the effects of the high costs for
investors. We absolutely need to do a bet-
ter job of letting consumers know in plain
English whats going on, he says. Those
numbers tell a story. Its astounding.
The impact of high fees on inves-
tors has escaped the notice not only
of regulators, but also some industry
executives.
The Morgan Stanley Spectrum Tech-
nical fund was opened in 1994 under
the leadership of thenChief Executive
Officer Philip Purcell. He was suc-
ceeded in 2005 by John Mack, who had
spent most of his career at Morgan
Stanley. James Gorman, who replaced
Mack in 2009, joined Morgan Stanley
from Merrill Lynch & Co. in 2006.
The prospectus pitching the Spec-
trum fund, issued in March 2003, said
the firm would accept investments as
low as $2,000 for individual retirement
accounts.
Morgan Stanleys chief investment
strategist, David Darst, who has written
a book on managed futures, declined to
comment on his firms fees. Bank
spokeswoman Christine Jockle also de-
clined to comment on the funds re-
ferred to in this story. Fees associated
with managed-futures funds across the
industry have been historically high,
Jockle says.
Brokers have an incentive to keep
clients in managed-futures funds be-
cause they receive commissions an-
nually of up to 4 percent of assets
invested, prospectuses show. Inves-
tors pay as much as 9 percent in total
fees each year, including charges by
general partners and fund managers.
People put money into managed
futures because their brokers recom-
mend them, says Thomas Schneeweis,
a finance professor at the University of
Massachusetts Amherst who was a
futures-fund manager from 2004 to
2010. Everything is marketing, he
says. Getting out there and pushing it.
These things are sold, not bought.
Broker pitches that dont clearly tell
investors about the drastic effect of
fees should be considered fraudulent,
says James Cox, a securities law profes-
sor at Duke University in Durham,
North Carolina. Otherwise, the pitch
is a half-truth, he says. The govern-
ment is to blame for allowing these
products to be offered with inadequate
disclosure, Cox says. I would call it a li-
cense to steal, he says.
Because the managed-futures mar-
ket is opaque and poorly understood,
otherwise sophisticated investors of-
ten dont realize how pervasive the
profit-eating fees are. The firms mar-
keting the funds are at times also left
in the dark. The industry refers to the
computers programmed with trading
algorithms as black boxes. Some banks
say they cant see into the boxes of the
traders they hired. Particularly given
the black box character of many man-
aged-futures strategies, it is virtually
impossible for the manager to detect
strategy changes, Bank of America
Corp.s Merrill Lynch says in an August
2010 SEC registration for its System-
atic Momentum FuturesAccess LLC.
The 7,752 investors in that fund faced
losses of $135.3 million, after fees, from
2009 to 2012, according to data from
Merrills SEC filings. Merrill spokes-
man Bill Haldin declined to comment.
High fees and black boxes are just
part of the story. Some funds also allow
their managers to make undisclosed
side bets by trading ahead of or oppo-
site to the funds trades. Chicago-based
Grant Park Futures Fund LP, which is
marketed by Zurich-based UBS AG,
says on page 90 of a 180-page, April
2013 prospectus that David Kavanagh,
president of the $660.9 million funds
general partner, may place such per-
sonal trades. Mr. Kavanagh may even
be the other party to a trade entered
into by Grant Park, it says. The Grant
Park Futures Fund reported a net in-
vestor loss of $68.6 million during the
decade ended on Dec. 31, after fees and
commissions of $427.7 million. Kava-
nagh, president of Dearborn Capital
Management LLC, which manages
Grant Park, didnt respond to requests
for comment.
When financial advisers promote
managed-futures funds, they often rely
on charts produced by a small company
in Fairfield, Iowa, called BarclayHedge
Ltd. The firm, which has no connection
to London-based Barclays Plc, reports
a 29-fold gain through 2012 for man-
aged futures overall since 1980. Those
THE BIG NEWS HERE IS, THE FEES ARE SO OUTLANDISH,
THEY CAN ACTUALLY WIPE OUT ALL THE PROFITS,
SAYS BART CHILTON, A CFTC COMMISSIONER.
All figures are totals for the 10 years ended on Dec. 31.
The gross amount invested excludes outflows.
*Closed to new investors in 2008. Source: SEC filings
The fund had $548.8 million of total assets in
2008. More than 30,000 investors contributed
during the decade ended in 2012.
Morgan Stanley Spectrum
Technical Fund
TRADI NG
PROFI T
NET I NTEREST
I NCOME
GROSS AMOUNT INVESTED: $797 MI LLI ON*
INVESTOR LOSS:
$8. 3 MI LLI ON
TOTAL GAI N:
$490. 34
MI LLI ON
FEES AND
EXPENSES:
$498.67
MI LLI ON

numbers can mislead investors. Bar-
clayHedge doesnt deduct billions of
dollars of fees charged by funds. It uses
only information volunteered by man-
aged-futures traders. Traders can stop
providing data if their system starts to
lose money or collapses, says Barclay-
Hedge President Sol Waksman.
The BarclayHedge data, even with its
flaws, Waksman says, is the industry
benchmark. Investors need to look at
more than just his index, he says.
Theyve got to accept some of the
blame for going into something
without any knowledge, he says.
Managed-futures funds are a subset
of hedge funds. Theyre run by so-
called commodity-trading advisers, or
CTAs, who these days invest largely in
financial futures. While hedge funds
typically charge a 2 percent manage-
ment fee and 20 percent of investor
profits each year, a managed-futures
fund often duns clients 7 to 9 percent of
assets invested annually and 20 per-
cent of any profits.
The National Futures Association, a
self-regulatory group, doesnt require
managers to disclose the effects of fees
on investor profits over time, says Mary
McHenry, an associate director in the
NFAs compliance department. We
cant just give investors all the an-
swers, she says. Its important that
they ask questions before they invest.
While brokers commonly promote
managed futures as protection against
stock market declines, the language in
prospectuses belies that notion. Man-
aged futures are noncorrelated; that
means their performance doesnt track
that of any other investments, either
positively or negatively. As a risk
transfer activity, trading in commodity
interests has no inherent correlation
with any other investment, Grant Park
wrote in its February 2013 prospectus.
In other words, managed futures be-
have like a knuckle ball in baseball.
Players know a knuckle ball isnt a fast-
ball or a curveball, but beyond that,
they dont know what it will do. A man-
aged-futures fund isnt a stock or a
bond; it may sometimes behave like
oneand sometimes not.
McHenry says she knows that bro-
kers pitch managed futures as protec-
tion from stock market declinesand
that fund risk disclosures say theres
no correlation. Asked how those
contradictory statements add up, she
says, I dont know how to answer that
question.
Like hedge funds, managed-futures
funds havent been required to file with
the SEC as a matter of course. However,
an SEC rule has mandated that any part-
nership with more than 500 investors
and $10 million in assetseven a hedge
fundmust file quarterly and annual re-
ports. The SEC has no category listing
managed-futures funds, as it does for
mutual funds or corporate filings.
BLOOMBERG MARKETS culled through
thousands of filings in several catego-
ries, including one called SIC 6221 Un-
known, to identify 63 managed-futures
funds that reported to the SEC.
While each trading adviser has a dif-
ferent black box, there are similarities in
how fund managers approach their jobs.
Some of their investments are plain
vanilla. They place money from inves-
tors into U.S. Treasury bills or other
short-term debt. They then use about 15
percent of the funds to buy or sell
futures contracts. They can bet that
prices will rise or fall on more than 150
different futures contracts, including
those covering stock indexes, govern-
ment bonds, currencies, interest rates,
agricultural commodities, oil and
metals.
Treasury bills turn out to be critical.
Interest income from T-bills and other
debt investments has effectively
masked the high fees funds charge their
investors. The 63 funds that reported
to the SEC collected interest totaling
$2.34 billion in the decade from 2003
to 2012. Without those gains, the com-
bined 10-year earnings of $1.3 billion
after fees in the 63 funds would have
been converted to a loss of more than
$900 million. As interest rates have
fallen to historic lows since 2008, man-
aged-futures funds have suffered their
largest declines ever.
Fund managers amp up the risk in
their investments by using leverage.
They can buy futures contracts on mar-
gin, with down payments as low as 10
percent. A $100 investment in Morgan
Stanleys Spectrum Technical fund, for
example, bought $1,000 worth of fu-
tures contracts, according to its 2003
prospectus. By comparison, the New
York Stock Exchange requires inves-
tors to maintain a minimum margin of
25 percent of the market value of a pur-
chased security.
Even the managed-futures funds that
file with the SEC dont have any obliga-
tion to disclose how fees in recent years
ate up all trading gains. The Grant Park
Futures Fund filed a prospectus in
IN MANY CASES, THE FINANCIAL ADVISERS DONT
COMPLETELY UNDERSTAND, SAYS AN INDUSTRY
EXECUTIVE, REFERRING TO MANAGED-FUTURES FUNDS.
FLEECED
BY
FEES
The fund had 34,990 investors and total assets of
$2.5 billion in 2008.
Campbell Strategic Allocation Fund
TRADI NG
PROFI T
NET I NTEREST
I NCOME
GROSS AMOUNT INVESTED: $4. 5 BI LLI ON*
TOTAL
GAI N:
$2.427
BI LLI ON
FEES AND
EXPENSES:
$2.268
BI LLI ON
INVESTOR GAIN:
+$158. 8 MI LLI ON

V A N E C K S E C U R I T I E S C O R P O R A T I O N , D I S T R I B U T O R 3 3 5 M A D I S O N A V E N U E N E W Y O R K , N Y 1 0 0 1 7
Investment Grade
Floating Rate ETF
marketvectorsetfs.com/fltr
888.MKT.VCTR
* Floating rate notes are less sensitive to interest rate changes, but may decline in value if their interest rates do not rise as much or as quickly as
interest rates in general.
Floating rate notes are debt issues with variable coupon payments that are pegged to a reference rate plus a spread. Coupons are reset periodically and
can rise or fall with changes in the reference rate. The Fund is subject to financial services sector risk, restricted securities risk, credit risk, interest rate
risk, call risk, concentration risk, and market risk, among others.
Fund shares are not individually redeemable and will be issued and redeemed at their NAV only through certain authorized broker-dealers in large,
specified blocks of shares called creation units and otherwise can be bought and sold only through exchange trading. Creation units are issued and
redeemed principally in kind. Shares may trade at a premium or discount to their NAV in the secondary market.
Investing involves substantial risk and high volatility, including possible loss of principal. Bonds and bond funds will decrease in value as
interest rates rise. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing.
To obtain a prospectus and summary prospectus, which contain this and other information, call 888.MKT.VCTR or visit marketvectorsetfs.
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Scan to view FLTRs yield
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FLTR
HOW WILL YOU HANDLE RISING RATES?

Potential to benefit from rising rates*
Floating rate notes have variable coupons that reset periodically
Investment grade credit quality
Underlying index is comprised of a non-leveraged portfolio of investment grade
floating rate corporate bonds
Short duration and income potential
Floating rate notes may offer higher yields than other short duration instruments
TYPE MVETF <GO>

74 BLOOMBERG MARKETS November 2013 PHOTOGRAPH BY FI NLAY MACKAY
April to raise $927 million from inves-
tors. Although it included the boiler-
plate language saying substantial fees
could offset trading profits, the docu-
ment doesnt say that the $25.6 million
the fund had gained since 2009 was
obliterated by fees. Investors suffered a
$223.6 million loss over that period.
Ken Steben, who runs a fund, says
managed futures can be confusing to
both investors and advisers. His Fu-
tures Portfolio Fund, started in 1990,
gathered $2 billion from more than
17,000 investors during the decade
ended on Dec. 31. The fund has been
marketed by 140 firms, including San
Franciscobased Wells Fargo & Co. and
Minneapolis-based Ameriprise Finan-
cial Inc. It had gross returns of $619.5
million in that decade. Investors paid
86 percent of that amount in fees and
commissions, leaving $84.3 million,
for a 3.6 percent compounded annual
growth rate.
Most individual investors dont un-
derstand what were doing, says Ste-
ben, 58, sitting in the boardroom of his
no-frills suburban Steben & Co. office
in Rockville, Maryland, in April before
the firm moved to Gaithersburg. In
many cases, the financial advisers dont
completely understand it.
While pension funds, college endow-
ments and other institutions invest in
managed futures, individuals bear the
brunt of the fees. Institutions that in-
vested at least $1 million with London-
based Winton Capital Management
Ltd., one of the worlds biggest CTA
firms, received a net total of 11.9 per-
cent from 2009 through 2012, the com-
pany reports. Winton charges those
investors a 1 percent management fee
and 20 percent of profits.
Individuals who invested in the
Altegris Winton Futures Fund were
less fortunate. Altegris Investments
Inc., an alternative investment firm in
La Jolla, California, allows clients to
come in with as little as $10,000. Alteg-
ris collects additional annual fees total-
ing up to 4 percent, according to SEC
filings. Because of that, some Altegriss
Winton investors lost 10.1 percent in
the same period institutional investors
had gains, SEC filings show.
Thats one of the problems with re-
tail investors going into managed fu-
tures, says Robin Eggar, a spokesman
for Winton in London. The level of
fees has been quite high. Its not the
fund; its the layering of fees on fees.
Altegris Executive Vice President
Richard Pfister asks, Are any of these
managed-futures funds worth it any-
more at these fee levels? Do they make
sense?
One of the biggest and oldest
futures managers, Baltimore-based
Ken Steben, a CTA who markets
futures funds, says the industry
can confuse financial advisers.
FLEECED
BY
FEES

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T
I
M

K
L
E
I
N
Campbell & Co., did well for investors
in the 1990s and early 2000s. Its flag-
ship Strategic Allocation Fund provided
a 10.5 percent compounded annual rate
of return to investors in its first decade
of trading through Dec. 31, 2003.
What followed wasnt as good. From
2003 to 2012, more than 15,000 inves-
tors put a total of $4.5 billion into the
fund. Clients were recruited by Merrill
Lynch, UBS and other firms. The Stra-
tegic Allocation Fund earned $2.43 bil-
lion, according to SEC filings. Those
returns shrank to $158.8 million after
investors paid fees and expenses of
$2.27 billion, equaling 93 percent of the
gains. The result was a 0.6 percent com-
pounded annual rate of return for the
decade. That compares with 7.1 per-
cent, including dividends, for the S&P
500 during the same period. Campbell
closed the fund to new investors in 2008.
Like most managed-futures funds,
Campbell develops algorithms for its
black box. Those systems are flawed,
Campbell tells investors in annual re-
ports. A previously highly successful
model often becomes outdated and in-
accurate, sometimes without Campbell
& Co. recognizing that fact before sub-
stantial losses are incurred, the firm
wrote. Keith Campbell, founder and
chairman of the firm, declined to
comment.
The knuckle ball nature of managed
futures can flummox even the profes-
sionals. Gerald Corcoran, CEO of
Chicago-based R.J. OBrien & Associ-
ates LLC, the largest independent fu-
tures broker in the U.S., says he recently
lost money investing in managed fu-
tures. Corcoran, 58, is a director of the
Futures Industry Association. His $25
million RJO Global Trust managed-fu-
tures partnership, pitched to retail in-
vestors with as little as $5,000 to invest,
fell 35 percent during the four years
ended on Dec. 31 after gaining 41 per-
cent in 2008. It charges up to 7.25 per-
cent in annual fees. Youre going to
lose money in managed futures over
the course of a period of time. Theres
no question, Corcoran says. I mean,
Ive just experienced it myself.
I actually would not even encourage
most retail investors to be in managed
futures, Corcoran continues. Its on
the riskier end of the investment spec-
trum. He says managed futures serve
wealthy investors. Theyre an impor-
tant part of a diversification of a sophis-
ticated portfolio, he says.
Keith Stafford, an accountant who
specializes in auditing hedge-fund and
managed-futures data, says he and his
colleagues are constantly amazed by
the poor performance of managed fu-
tures for individual investors. We look
at each other all the time and say, Why
would anyone invest in this? says
Stafford, the member in charge of per-
formance analysis at Arthur Bell, Certi-
fied Public Accountants, based in Hunt
Valley, Maryland. Its a racket.
While managed-futures funds are
relatively new, official trading of fu-
tures in the U.S. dates back to 1848 at
the Chicago Board of Tradewhich
became regulated by the U.S. Depart-
ment of Agriculture in 1922. The
CFTC, formed by an act of Congress in
1974, took on oversight in 1975. Mor-
gan Stanley was the first firm to allow
individual investors to buy into
managed-futures partnerships, start-
ing in 1979. Although commodity-
trading advisers initially focused on
futures tied to physical commodities,
such as wheat, corn, oil and gold, most
futures trades now cover stock in-
dexes, interest rates or currencies.
Today, CTAs can be based any-
where. Their main assets are com-
putersand the people who program
Keith Campbell
started a fund
with fees that
consumed 93
percent of all
gains in the past
decade.
FLEECED
BY
FEES
Merrill Lynch Trend Following Futures
Access Fund
Source: SEC filings
NET I NTEREST I NCOME
GROSS AMOUNT INVESTED: $1. 6 BI LLI ON
TOTAL GAI N: $37. 6 MI LLI ON
FEES AND EXPENSES: $359.9 MI LLI ON
INVESTOR LOSS:
$322.3 MILLION
TRADI NG
LOSS

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SJB SHORT HIGH YIELD
TYPE PRSH <GO>

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78 BLOOMBERG MARKETS November 2013 PHOTOGRAPH BY FI NLAY MACKAY
fees, commissions and expenses dur-
ing the decade ended on Dec. 31. (The
bank opened four of those funds after
2003.) Investors lost money in seven
of the 13 funds, SEC filings show. Spec-
trum Technical performed well during
its first eight years, starting in Novem-
ber 1994. Its investors received a com-
pounded annual return of 7.9 percent
in that period. In the decade ended
on Dec. 31, the fund had no gain. Mor-
gan Stanley closed the fund to new in-
vestors in 2008. The worst of the 13
funds was the Managed Futures Pre-
mier BHM Fund, which was started in
November 2010. It had a compounded
annual return of negative 11.7 percent
over two years and two months. Five
of the six gainers had compounded an-
nual returns below 1 percent. The best
performer, the Morgan Stanley Smith
Barney Spectrum Strategic Fund,
had a compounded annual return of
2.1 percent during the decade ended
on Dec. 31. By comparison, the Fidelity
them. Bill Dunn, a CTA pioneer, runs
Dunn Capital Management LLC from
the top floor of a three-story building in
Stuart, Florida, alongside the St. Lucie
River. Dunn, 79, who earned a doctorate
in theoretical physics from Northwest-
ern University in Evanston, Illinois, in
1966, began trading managed futures
for clients in 1974 after a brief career as
a consultant to the federal government.
He raised $137,000 from friends and
family and used punch cards to build
a program to detect profitable market
trends and control risk. He purchased
processing time on a mainframe com-
puter to run the cards.
High on one wall of Dunns window-
less trading-room floor, hundreds of
red and green numbers blink with cur-
rency and commodity prices. The three
traders on duty one March afternoon
watch the numbers but dont make de-
cisions based on them. They leave that
to their black box, which makes trading
choices on contracts for 53 invest-
ments, including the Australian dollar,
U.S. Treasury bonds, interest rates,
stock indexes, cocoa, copper, live cattle
and crude oil.
The so-called box is actually lodged in
six computer servers linked by blue and
yellow cables. It automatically collects
tick-by-tick trading data on all 53 possi-
ble trading choices and runs it through
hundreds of different models, asking
each whether to buy or sell. Then it
makes a decision, which it relays to the
human traders. In minutes, you have
your orders for the day, Dunn says.
Dunn doesnt cater to most retail in-
vestors; he requires a commitment of at
least $100,000. He boasts a 13.2 percent
compounded annual rate of return over
the past 29 years, after a 25 percent fee
taken from profits. He charges no man-
agement fee. I think investors are very
comfortable knowing that if theyre hav-
ing bad times, were having
them as well, says Dunn,
who sports a shaved head
and neatly trimmed salt-
and-pepper goatee. Were
in the same boat.
In a practice more typical of the
industry, Morgan Stanleys profits
arent dependent on investors mak-
ing money. The firms 220,000 clients
that purchased the 13 funds started by
Morgan Stanley and are included in
SEC filings paid a total of $2 billion in
Bill Dunn
founded a firm
that charges no
management
fees and takes
25 percent of
profits.
FLEECED
BY
FEES
Source: SEC filings
$685 million in 2008.
Grant Park Futures Fund
TRADI NG
PROFI T
NET I NTEREST
I NCOME
GROSS AMOUNT INVESTED: $1.4 BI LLI ON
TOTAL GAI N:
$359.1 MI LLI ON
FEES AND EXPENSES
$427.7 MI LLI ON
INVESTOR LOSS:
$68. 6 MI LLI ON

50% REDUCTION
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Money Market Fund
gained a compounded an-
nual return of 2.9 percent
in the same period.
Morgan Stanley runs
its managed-futures
funds through a subsid-
iary, Ceres Managed Futures LLC. That
was previously a joint venture with
New Yorkbased Citigroup. The two
top-performing Citi funds, now man-
aged by Morgan Stanley, were energy-
focused investments that returned 14.2
percent and 14.8 percent compounded
annually in the decade ended on Dec. 31.
Citigroup spokeswoman Shannon Bell
declined to comment.
Darst, Morgan Stanleys chief invest-
ment strategist, cautions investors
about the cost of managed futures in
his 2013 book, Portfolio Investment Op-
portunities in Managed Futures (John
Wiley & Sons). Darst, interviewed in
April, says investors shouldnt pay
more than 2 to 3 percent in annual fees
for managed-futures funds. He says
even thats steep compared with other
investments. Its higher, he says.
Thats something youve got to be up-
front with people about. This is not a
bargain-basement kind of thing. He
says investors should ask questions
about fees before buying managed
futures.
Most Morgan Stanley funds impose
annual fees that are doublesome are
tripleDarsts suggested level. Morgan
Stanley funds generally charge 6 to 9
percent of assets in annual fees. Darst
declined to answer follow-up questions
about his firms fees.
Even if an investor understands the
effect of fees on returns, its impossible
to avoid a potential conflict of inter-
est between investors and fund man-
agers. Such risks are explained deep
in prospectuses or SEC filings. Mor-
gan Stanley cautions that employees of
the general partner and trading advis-
ers may buy futures for their own ac-
counts, in competition with investors.
Clients will never know, the 2008 Mor-
gan Stanley Spectrum Technical fund
prospectus says. Thats because those
trading records are kept secret from in-
vestors. As a result, you will not be able
to compare the performance of their
trading to the performance of the part-
nership, the prospectus says.
Morgan Stanley spokeswoman
Jockle says the firms managed-futures
funds performed well during the stock
market plunges that began in 2000 and
late 2007. The funds overall gained 22.5
percent after fees in 2008. The bank
sells only to investors it deems quali-
fied, and it clearly defines risks and
fees, she says. Morgan Stanley is lower-
ing fees for its new funds, she says. She
declined to comment about conflicts of
interest.
So incomplete are the disclosures for
managed-futures funds that investors,
referred to as limited partners, some-
times cant even find out the names of
the people managing them. BlackRock
Inc., the worlds biggest money man-
ager, refused to name the CTAs it hired
for the BlackRock Global Horizons I
partnership, even after the SEC re-
quested that information in 2009. We
do not believe that disclosure of the
trading adviser identities would be ma-
terial to limited partners, New York
based BlackRock wrote to the agency
on Oct. 27, 2009.
WE LOOK AT EACH OTHER ALL THE TIME AND SAY,
WHY WOULD ANYONE INVEST IN THIS? A MANAGED-
FUTURES-FUNDS ACCOUNTANT SAYS. ITS A RACKET.
David Darst,
Morgan
Stanleys chief
investment
strategist, says
annual fees
shouldnt exceed
3 percent.
FLEECED
BY
FEES
Millburn Global Macro Fund
TOTAL GAI N:
$467.1 MI LLI ON
FEES AND EXPENSES:
$452.6 MI LLI ON
TRADI NG
PROFI T
NET I NTEREST
I NCOME
GROSS AMOUNT INVESTED: $1.4 BI LLI ON*
INVESTOR GAIN:
+$14. 5 MI LLI ON

TYPE TICE <GO>

the principal owner of the Boston Red
Sox and the Liverpool Football Club,
opened John W. Henry & Co. in 1980.
Henrys Financial and Metals Portfo-
lio earned 19.8 percent compounded
annually for the 27 years ended in
2011, when it closed.
Citigroup hired Henry to manage
at least four funds. Citi shut down
three of those in 2007 after they each
plunged more than 44 percent in
three years. The fourth, Westport Fu-
tures Fund, gained $40.7 million in
the decade ended on Dec. 31. Those
earnings were more than erased by
$73.8 million of fees. Henry declined
to comment.
In the secretive world of managed
futures, managers often keep millions
of dollars of investment gains even as
their clients suffer losses. And hype by
brokers routinely gives investors mis-
impressions. One improvement for in-
vestors would be a mandate that
managers clearly explain in writing
how severely fees have consumed re-
turns over time. We dont have a re-
quirement where they have to present
that information, says the National
Futures Associations McHenry. That
would be valuable.
It would also create a quandary for
the managed-futures industry. If fund
managers and brokers told investors
the whole truth, they might lose the
very people who make their business
so profitable.
DAVID EVANS IS A SENIOR WRITER AT
BLOOMBERG MARKETS IN LOS ANGELES.
DAVIDEVANS@BLOOMBERG.NET
higher, managed futures performed
better because they were less volatile.
Outperformance is more than raw re-
turns, it says.
Since most such funds dont file re-
sults publicly because they have less
than 500 investors and CME cites the
BarclayHedge index in its brochure,
theres no way to independently verify
whether managed futures are more or
less volatile than stocks.
CME Group makes money from
managed-futures trades. CTAs are im-
portant to CMEs bottom line, says
Kelly Brown, a managing director of
the exchange operator, who declined
to provide exact figures. CTAs are
kind of the backbone of the exchange,
he says.
No matter how good a CTAs track
record is, even some of the best can fall
from grace quickly. John Henry, 64,
The SEC persisted. Because your
trading advisers manage your assets, it
appears that the identity of these per-
sons is material, the SEC wrote back.
Five weeks later, BlackRock began mak-
ing the disclosures. The fund lost $10.2
million for investors in the decade
ended on Dec. 31, after paying fees, com-
missions and expenses of $170.3
million.
We maintain an open disclosure
with the funds accredited investors
and regularly provide them with in-
sight into who we are investing with,
says BlackRock spokeswoman Jessica
Greaney.
The worlds largest futures exchange
by trading volume entices individual in-
vestors to put money into managed fu-
tures by painting a glowing picture.
Over the past few decades, managed fu-
tures have consistently outperformed
asset classes such as stocks, CME Group
Inc., which owns the Chicago Mercantile
Exchange, wrote in a brochure.
CME Group, which says the man-
aged-futures market holds $337 billion
in assets, points to 2008 as a banner
year for managed futures, saying these
funds do well during stock market de-
clines. They employ short-selling and
options strategies that allow them to
profit in such markets, the CME bro-
chure says. When the S&P 500 plunged
37 percent in 2008 because of the
global financial crisis, BarclayHedge
reported a gain of 14 percent in man-
aged futures.
CME, which also owns the Chicago
Board of Trade and the New York Mer-
cantile Exchange, omits two key facts
from its promotional material. By using
BarclayHedge data, CME masks vast
extra fees paid by fund investors. And
CME says managed futures outper-
formed stocks. But from 2003 through
2012, the S&P 500 delivered more than
twice the gains of the BarclayHedge
CTA Index98.6 percent compared
with 47.9 percent.
In a written response to questions
from BLOOMBERG MARKETS, CME says
that although the S&P 500s return was
FOLLOWING MANAGED-
FUTURES FUNDS
Bloomberg Tps
FLEECED
BY
FEES
Figures are totals for the 10 years ended on Dec. 31. The
gross amount invested excludes outflows. *Figure is for
2004 to 2012. Source: SEC filings
The fund had 4,397 investors and total assets
of $239.8 million in 2008.
BlackRock Global Horizons I
TOTAL GAI N:
$160.1 MI LLI ON
FEES AND EXPENSES:
$170.3 MI LLI ON
TRADI NG
PROFI T
NET I NTEREST
I NCOME
GROSS AMOUNT INVESTED: $730.1 MI LLI ON*
INVESTOR LOSS:
$10. 2 MI LLI ON

*
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Source: Morningstar, Inc. as of 3/1/2013. Based on 2013 industry average expense ratio for S&P 500 Index Objective Fund
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TYPE VETF <GO>

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BY STEPHANI E BAKER

Tyler, left, and
Cameron Winklevoss
caught the Bitcoin bug
on a Spanish beach.
FOR YEARS, MANY SILICON VALLEY INVESTORS WROTE
OFF THE VIRTUAL CURRENCY AS A JOKE. NOW, SOME
SEE IT AS PART OF THE NEXT REVOLUTION TO HIT THE
WEB AFTER SOCIAL MEDIA.

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It was a chance encounter on
a beach in Ibiza, Spain, in the
summer of 2012 that would lead
to Cameron and Tyler Winkle-
voss becoming two of the biggest
investors in Bitcoin. While
looking for lounge chairs on
the celebrity-studded island,
the Winklevoss twins ran into
David Azar, a private investor from New
York who recognized them and ofered
them his seat. Azar started talking
about Bitcoin, the digital currency that
has gained prominence this year for its
wild price swings and for piquing the
interest of regulators from New York
to Germany. He asked us if wed given
much thought to virtual currency,
and, at the time, we really hadnt, says
Cameron Winklevoss, who along with
his brother in 2004 sued Facebook Inc.
founder Mark Zuckerberg claiming he
stole their idea for the social-network-
ing site. I got really fascinated by the
implications for the nancial world,
Cameron says.
Within weeks of their Ibiza sojourn,
the brothersush with cash from the
$65 million they won after settling the
Facebook case in 2008 started buy-
ing Bitcoins. They arent the only ones
to catch the Bitcoin bug. In the past six
months, at least half a dozen venture
capital rms that made fortunes from
early contrarian bets on tech compa-
nies such as Twitter Inc., Tumblr Inc.,
Skype Inc. and Spotify Ltd. have put
their money on Bitcoin.
After dismissing Bitcoin as a joke for
years, many Silicon Valley investors
now see digital currencies as the next
Then, Google Ventures jumped into
digital currency with undisclosed in-
vestments in OpenCoin Inc., the com-
pany behind Ripple, which operates a
payment system using Bitcoin.
Like the Bitcoin investors who came
after them, the Winklevii, as they are
known, started small. They invested
$1 million in BitInstant, a New York
based Bitcoin payment processor in
which Azar was investing. Rowers who
competed in the 2008 Olympic Games
in Beijing, the brothers say they be-
gan snapping up Bitcoins when the
price was in the low single digits. It
was a wise investment; one Bitcoin was
worth $133.10 as of Sept. 9.
The Winklevosses, 32, say they own
about 1 percent of the $1.5 billion worth
of Bitcoins in circulation, making their
holdings worth about $15 million as of
Sept. 9. They say they see Bitcoin as a
way around a sclerotic global payment
system that is Balkanized into rival cur-
rencies and competing nancial institu-
tions. We feel that digital currency, and
Bitcoin for now, is a huge place for inno-
vation, Cameron says.
Bitcoin originated at the
height of the nancial crisis in
November 2008, when a pro-
grammer or group of program-
mers known only as Satoshi
Nakamoto released an aca-
demic paper outlining the de-
sign for a new peer-to-peer
electronic cash system that re-
moves the need to deal with
third parties such as banks. A
few months later, in a blog post,
Nakamoto described the idea
for issuing encrypted digital coins that
were not tied to any central bank.
Users store Bitcoins in digital wal-
lets, with transactions recorded on
the Blockchain, a public ledger that
can be accessed via the Internet. The
system Nakamoto designed caps the
number of Bitcoins at 21 million. The
open-source Bitcoin protocol has been
tested by some of the worlds top cryp-
tographers, who have tried to hack
it and failed. While anyone can see
revolution to hit the Web after social
media. In May, Founders Fund, set up
by PayPal Inc. founders including Peter
Thiel, led a $2 million investment in At-
lanta-based BitPay Inc., which allows
merchants to accept Bitcoin payments
and is processing transactions totaling
about $7 million a month.
Also in May, after two years of
wait and see, New Yorkbased Union
Square Ventures, an early investor in
Twitter, put $2.5 million in Coinbase.
Coinbase was processing $20 million
worth of Bitcoins a month as of Sep-
tember, up from $1 million in February.
PayPal co-founder Peter Thiel led a
$2 million investment in BitPay.

transactions made from a Bitcoin ad-
dressa string of about 34 numbers
and lettersthe owner remains hid-
den. The same goes for Nakamoto,
whose identity remains a mystery.
No central authority issues Bitcoins,
which is part of their appeal to libertari-
ans, who form a signicant cohort of the
virtual currencys supporters. Naka-
moto argued that attempts to create dig-
ital money beginning in the 1990s failed
because, even though these currencies
were not issued by a government au-
thority, they were centrally controlled
by a company. One such attempt was E-
Gold Ltd., a digital currency based on
the precious metal. In 2007, the U.S. Jus-
tice Department indicted E-Gold. The
following year, the companys founder,
Douglas Jackson, pleaded guilty to a
conspiracy to engage in money launder-
ing and operating an unlicensed money-
transmitting business.
Skeptics say Bitcoin could fail, too.
Some compare its appeal to the ma-
nia for Dutch tulip bulbs in the 1600s,
when speculators drove up prices only
to see the market collapse as investors
rushed to sell. Others have branded
Bitcoin fools gold, saying a digital code
cant be valued as a traditional com-
modity can. Bitcoin will be the Es-
peranto of the monetary world, says
James Angel, a finance professor at
Georgetown University in Washing-
ton. Most people will see it as a fad
like hula hoops, and theyll look back
on it a decade from now and say, That
was a clever idea. I even bought a cup of
cofee with it once.
Fad or not, Bitcoins are being ad-
opted by a few merchants striving for
cyber cred. You can use your Bitcoins
to buy beer at Pembury Tavern in East
London, cocktails at EVR bar in New
York and dessert at Cups and Cakes
Bakery in San Francisco. Criminals
have used the currency to buy drugs at
Silk Road, a black-market version of
EBay Inc. Bitcoin exchanges and pay-
ment processors akin to PayPal have
mushroomed, luring users to trust of-
ten-unregulated third parties to hold
and handle their digital currency.
Regulators are scrambling to bring
some order to this Bitcoin free-for-all.
In March, the U.S. Treasurys Financial
Crimes Enforcement Network issued
guidelines requiring Bitcoin exchanges
and processors operating in the U.S. to
register with FinCEN as money ser-
vices businesses. The rulesa costly
headache for Bitcoin startupsrequire
companies to follow the same know-
your-customer rules that banks do
and report suspicious transactions.
In May and June, the Department
of Homeland Security seized $5 mil-
lion from two U.S. accounts con-
nected to one of the largest Bitcoin
exchanges, Tokyo-based Mt. Gox, for
failing to register as a money-trans-
mitting business. In June, Mt. Gox
registered with FinCEN. In keeping
with anti-money-laundering rules, it
is now requiring users to verify their
identities when they deposit or with-
draw cash.
In August, the regulatory onslaught
intensied. Benjamin Lawsky, the su-
perintendent of New Yorks Depart-
ment of Financial Services, jumped in
with subpoenas to 22 digital-currency
companies and investors, requesting
information on their Bitcoin opera-
tions as part of a fact-nding mission.
The DFS is considering issuing new
guidelines specific to virtual curren-
cies. If virtual currencies remain a vir-
tual Wild West for narcotrafckers and
other criminals, that would not only
threaten our countrys national secu-
rity but also the very existence of the
virtual-currency industry as a legiti-
mate business enterprise, Lawsky said
in a statement in August.
Also that month, Bitcoin won a vic-
tory of sorts. Germanys Finance
Ministry said that Bitcoin would be rec-
ognized as private money and would
be subject to sales and capi-
tal gains taxes. Frank Schaef-
er, a member of the German
parliaments nance commit-
tee, lauded Bitcoins as a rst
step toward the late Austrian
economist Friedrich Hayeks
vision of a world with dena-
tionalized, competing private
currencies.
In the U.S., the regula-
tory chill has caused Bitcoin
businesses to go into hiber-
nation. In July, BitInstant
said in a statement that it was sus-
pending operations to sort out grow-
ing pains before relaunchingcasting
a doubt on the Winklevosses invest-
ment. Tradehill Inc., a San Francisco
based Bitcoin exchange, announced in
late August that it was temporarily sus-
pending trading because of regulatory
issues. It had registered as a money
transmitter earlier in the month with
FinCEN. However, its bank, the Inter-
net Archive Federal Credit Union, said
in a statement that it could no longer
serve some Bitcoin customers until
there is greater regulatory clarity. For
Bitcoin to succeed, the banks need to
be on board, says Shakil Khan, head
Union Square
Ventures
Founders Fund*
Ribbit Capital
Winklevoss Capital
Bitcoin Opportunity
Fund**
$2.5
mi l l i on
2.0
1.7
1.0
1.0
Coinbase
BitPay
Coinbase
BitInstant
BitPay, BitPremier, Coinbase, CoinLab,
Coinsetter, OpenCoin, Tradehill and others
*Funding round included Max Keisers Heisenberg Capital.
**Entrepreneur Barry Silberts investment vehicle. Source: Bloomberg
Investors who made
early contrarian bets on
tech companies such
as Twitter and Spotify
are now putting their
money on outfits that
deal in the upstart
digital currency.

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of special projects at music-streaming
service Spotify and an early investor in
BitPay. Living in hope that the regula-
tory challenges will disappear is not a
strategy.
The libertarian wing of the Bitcoin
movementmany of them geeks in
T-shirts who wouldnt look out of place
at an Occupy protestbelieve the U.S.
government is bent on destroying Bit-
coin. I recommend setting up in the
least tyrannical jurisdiction, so stay
the hell away from the U.S., Erik Voor-
hees, founder of Panama-based Coin-
apult, which helps customers transmit
Bitcoins via e-mail and mobile phones,
said in July at a digital-currency con-
ference in Londons Canary Wharf.
The currency has gyrated wildly this
year, turning some young entrepre-
neurs into Bitcoin millionaires, such
as 25-year-old Coinbase co-founder
Fred Ehrsam, a former Goldman Sachs
Group Inc. trader. After trading as low
as $17 in January, the price of a Bit-
coin surged to a high of $240 in April,
spurred by the banking crisis in Cyprus.
Bitcoin was behaving like gold, a store
of value that tends to rise at times of
economic or political uncertainty.
Bitcoin believers say the currency is
more than just an antidote to nancial
turmoil. In his ofce in Manhattans
Flatiron District, Union Square Ven-
tures co-founder Fred Wilson com-
pares Bitcoin with the creation of the
protocols behind e-mail and the World
Wide Web. Its a scheme for comput-
ers to talk to each other that people
can build on top of, says Wilson, 52,
whose rm was one of the rst to in-
vest in social media site Tumblr and
social-gaming company Zynga Inc.
Bitcoin has many investors excited
because they believe it could chal-
lenge dominant players such as Visa
Inc. and Western Union Co as a means
Bitcoin investor Fred Wilson was an early
backer of social media site Tumblr.
3/09/12 9/9/13
The cryptocurrency has gained prominence this year for its wild price swingsand for piquing the interest of regulators.
Source: Mt. Gox Source: Blockchain
Closing Market Price of Bitcoins
MAY MAY MARCH
2012 2013
JULY JULY SEPT. NOV
Bitcoins are mined
by computers at a
fixed rate. Transac-
tions in the currency
are recorded on the
Blockchain, a public
ledger on the Internet.
SEPTEMBER
2012
9. 9 mi l l i on
SEPTEMBER
2013
11. 6 mi l l i on
PROJECTED
2040
21 mi l l i on
Number of Bitcoins
in Circulation
$240
220
200
180
160
140
120
100
80
60
40
20
0
$132.71
$4. 86
JAN

Spreading
the health.
The next few years
will see an explosion in
the number of people
entering the health
care system.
In fact, by 2016, as many as
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2013144

at institutional and accredited inves-
tors, not retail clients. Silbert declined
to disclose the size of the fund, which
was due to launch in September. He
says the only way for Bitcoin to become
a global currency is for trading volumes
and overall market value to increase
beyond $1.5 billion as of Sept. 9.
Silbert began buying the virtual cur-
rency as a personal investment in early
2012, when the price was about $5
to $10. Then in the spring of 2012, he
started the Bitcoin Opportunity Fund
with his own money and began invest-
ing in startups, including Tradehill, the
exchange that suspended operations at
the end of August. He says hes invested
more than $1 million so far in 10 com-
paniesand used Bitcoins to finance
many of the companies hes backed.
Bitcoin could go viral, Silbert says. Im
not going to suggest it will replace the
U.S. dollar, he says. But can it have as
transformative an efect on the world
as Facebook? Yes.
Bitcoins future is largely in the
hands of regulators. By forcing compa-
nies that handle digital currencies to
act by the same rules that banks do, reg-
ulatory authorities could draw Bitcoin
into the mainstream like any number
of innovations that are now embraced
by the marketplace. Or they could
break it, marginalizing it as a threat to
nancial integrity and spelling the end
of what many hoped would be a digital-
currency revolution.
STEPHANIE BAKER IS A SENIOR WRITER
AT BLOOMBERG MARKETS IN LONDON.
STEBAKER@BLOOMBERG.NET WITH ASSISTANCE
FROM CHRISTOPHER CONDON IN BOSTON.
of ETF trading at Knight Capital Group
Inc., the largest lead market maker for
ETFs on the New York Stock Exchange.
I think its a riot, he says, laughing.
The Winklevosses have competition
in the race to snag mainstream Bitcoin
investors. Barry Silbert, the 37-year-old
founder of New Yorkbased Second-
Market Inc., which became the big-
gest private market for trading shares
in Facebook before it went public, is
readying a private Bitcoin trust aimed
Barry Silbert began buying Bitcoins as
a personal investment in early 2012.
of international money transfer. With
no need for a third-party intermediary,
users can send Bitcoins to one another
for free. PayPal, by contrast, charges
sellers 2.9 percent per transaction and
more for international sales.
Working from Flatiron ofces featur-
ing sleek gray sofas and exposed indus-
trial pipes, the Winklevoss twins want
to ofer pension funds and retail inves-
tors a way to gain exposure to the dig-
ital currency without actually buying
Bitcoins. The driving force is bringing
Bitcoin to the mainstream investor,
Cameron says. In July, the brothers
led a 95-page application with the Se-
curities and Exchange Commission for
an entity called the Winklevoss Bitcoin
Trust, an exchange-traded fund that
would track the performance of the dig-
ital currency.
Cameron says he and Tyler spent
months on the filing with a team of
lawyers at Katten Muchin Rosenman
LLP, which helped draft the paperwork
for the rst ETF 20 years ago. The Bit-
coin ETF idea is so far-fetched that SEC
approval, if it ever comes, could take
years, says Reggie Browne, former head
TRACKING BITCOIN
FILINGS
Bloomberg Tps

From China to Indonesia, the Philippines to Bangladesh, The Asia Foundation has
six decades of experience supporting economic growth through public and private
channels. We assist micro, small, and medium-sized enterprises in accessing the
legal information, financing, business services, and skills they need to enhance
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Whats at stake in Asia?
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asiafoundation.org
TYPE ASFN <GO>

P
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H
95
O
THE U.S. DIRECT-SALES COMPANY
TEAMED UP WITH AMERICAS MOST
PRESTIGIOUS UNIVERSITY TO HELP
MAKE CHINA ITS BIGGEST MARKET.
BY DUNE LAWRENCE
AND LIZA LIN
N A SWELTERING JULY EVENING IN
the inland Chinese city of Hefei, 1,000
people whistle and clap as Cao Yuchao
tells them about Amway Corp., the
household-products giant named after
the American Way.
Against a rainbow backdrop and
the Chinese characters for glory and
dreams, Cao, Amways local chief,
paints a glowing portrait: China has
been the companys top market for
nine years, with booming sales of Art-
istry cosmetics and Nutrilite dietary
supplements.
Amway also was a sponsor of Chi-
nas team at the 2012 Olympics. I cant
say for sure that these champions were
successful because of Nutrilite prod-
ucts, but I can say for certain that every
medalist has taken a Nutrilite product
before walking up to the winners po-
dium, says Cao, whos dressed in a gray
suit and tie.
Amway offers great rewards, Cao
tells the salespeople and potential re-
cruits gathered before him: The com-
pany has paid 57 billion yuan ($9.3
billion) in commissions and royalties
to Chinese distributors. Its taken the
best salespeople on free trips to Paris
and Rome. And it gives each of its
300,000 Chinese representatives the
chance to be his or her own boss.
Cao introduces dozens of successful
representatives, who tell the audience,
Believe in yourself and nothing is im-
possible. Gao Hanping, who left a job
with the railway ministry for Amway,
starts with a video showing his luxury
car, a home with a garden and photos of
his vacation in Las Vegas. People say
working for Amway is tough; they dont
want to do it, Gao says. Hard work is
the key to success.
Since its founding in small-town
Michigan in 1959, Amway has pitched
its direct-sales systema corpora-
tized version of peddlers going door
to dooras a path to wealth and hap-
piness. Now, its American Way de-
pends increasingly on China, which
accounted for almost 40 percent of
parent company Alticor Inc.s $11.3 bil-
lion in global revenue last year. Thats
a remarkable turnaround, consider-
ing that China banned direct selling

96
entirely 15 years ago, endangering Am-
ways growth.
Amway won back its place in China by
changing its business model and open-
ing stores for the first time. It also im-
proved its reputation by teaming up
with Americas most prestigious school:
Harvard University. In a program bank-
rolled by Amway at a cost of about $1 mil-
lion a year, Harvards John F. Kennedy
School of Government has been train-
ing Communist apparatchiks known as
Amway Fellows. Since it started in 2002,
the program has brought more than 500
Chinese officials to Cambridge, Massa-
chusetts, to study public management
for a few weeks. Every group also visits
Amways headquarters in Ada, Michi-
gan, near Grand Rapids.
In a country where nothing is more
valuable than guanxi, the term for the
connections considered crucial to doing
business, Amway has supersized its net-
work thanks to the Harvard program.
Though there are no public lists of partic-
ipants, BLOOMBERG MARKETS identified
50 alumni through references in resumes
in official publications and on websites.
The Amway Fellows include current
leaders of Henan, Ningxia and Shaanxi
provinces, with a combined population
of about 138 million; the party secre-
taries of cities Nanjing and Wuxi; and
the national vice ministers of civil af-
fairs and industry and information
technology. Also on the list are two of-
ficials who became heads of provin-
cial branches of whats now the China
Food and Drug Administration, which
approves the sale of nutritional prod-
ucts and cosmetics, Amway staples.
Another alumnus is a former official in
the government agency that polices di-
rect selling.
Since the program began, Amways
sales in China have surged more than
fourfold. The turnaround is all the
more striking because Amwaya com-
pany dogged around the world by accu-
sations that its a pyramid schemewon
over Chinese officials in part by paint-
ing itself as a crusader against such
abuses. Pyramid schemes lure individu-
als to join a business that grows mainly
by recruiting other people rather than
by selling products to consumers.
Harvard has benefited from its asso-
ciation with Amway. The program has
raised the profile in Asia of the Ken-
nedy School, whose mission is to train
enlightened public leaders and which
was less well known there than the
universitys vaunted business school.
The Kennedy School has started sev-
eral similar programs for officials
from Asiaa lead its elite peers have
followed.
The Amway Fellows get to put the
prestigious imprimaturs of Harvard
and its partners in Chinaa policy re-
search arm of Chinas State Council and
Tsinghua Universityon their resumes.
(Of the 20 fellows that Bloomberg con-
tacted, three declined to comment
and the rest didnt respond to faxed or
e-mailed interview requests.)
Scott Balfour, vice president and lead
regional counsel for Amway in Asia, says
the Harvard program is just one of many
that the company is involved in to help
local communities. Wed have the same
success without this program, he says.
I dont think this is a linchpin of our suc-
cess, but we certainly are very proud of it.
Audie Wong,
a former English
teacher, heads
Amways China
unit.
PHOTOGRAPH BY JASPER JAMES
AMWAY S HARVARD GUANXI

98 PHOTOGRAPH BY GREG RUFFING
A
A
President Doug DeVos wrote
an article for the Harvard
Business Review about
Amways experiences in China.
Amways guanxi with officials is
impressive, says Corey Lindley, who
helped Provo, Utahbased Nu Skin En-
terprises Inc. establish its skin-care di-
rect-selling business in Asia and spent
four years in China for the company.
You have to build relationships with
the government, and Amway has been
a master of that, he says.
NHUI, THE PROVINCE IN WHICH CAO
presided over the July rally, shows
how strong Amways ties to local of-
ficials can be. Hefei, some 400 kilo-
meters (250 miles) west of Shanghai,
in July announced the winners of its
Amway Cup, which solicited cartoons
and poetry illustrating illegal pyra-
mid schemes. The competition was
sponsored by the city government, in-
cluding the local Administration for In-
dustry and Commerce, which polices
direct selling.
In 2011, the province staged Anhui
Sword, a campaign to combat pyramid
sales schemes. In one city, Amway co-
organized the program, and an Amway
press release shows a company worker
and local AIC officers staffing the same
booth and handing out information. In
four months, the province shut down
1,302 pyramid schemes involving about
7,200 people, provincial officials an-
nounced that December.
The top official at a press conference
announcing the campaign was Anhuis
vice governor, Tang Chengpei, according
to another press release. Tang, who has
since been promoted to provincial party
secretary, was a 2002 Amway Fellow.
MWAY, WHICH WAS FOUNDED IN 1959
by Richard DeVos and his friend Jay
Van Andel to sell a liquid household
cleaner, has become a global giant.
Today, it employs more than 21,000
people in about 100 countries and ter-
ritories and sells some 450 different
products through a network of more
than 3 million independent busi-
ness owners, the companys term for
its nonemployee sales force. DeVos,
87, had a net worth of $8.3 billion as of
Sept. 15, making him the 144th-richest
person in the world, according to the
Bloomberg Billionaires Index. In ad-
dition to a 50 percent interest in Al-
ticor, hes the principal owner of the
Orlando Magic basketball franchise
and funds Christian organizations and
free-enterprise groups such as the Her-
itage Foundation, a think tank. His son
Doug, 49, is president of Amway. Van
Andel, who died in 2004, was also a bil-
lionaire. His son Steve, 58, is now Am-
ways chairman.
Traditionally, direct sellers ply their
wares to consumers face to face rather
than through stores, says Bill Keep,
dean of the business school at The Col-
lege of New Jersey in Ewing. Many such
companies employ something called
multilevel marketing: Their salespeo-
ple earn money not only by selling
products; they also get rewarded for
recruiting more salespeople beneath
themqualifying for bonuses or other
compensation based on purchases
made by those that they en-
list, Keep says. The burden
of recruiting and training is
now on the salespeople, and
it actually lowers fixed costs
for the parent firm, he says.
But that recruitment aspect
of it carries the risk of pyra-
mid-scheme behavior.
Therein lies a gray area,
Keep says. In legitimate mar-
keting, the main purpose
is to make sales to the con-
sumer. In a pyramid scheme,
salespeople are primarily re-
warded for recruiting others,
he says. Telling the differ-
ence between the two re-
quires transparency about
how much of salespeoples
earnings ultimately come
from selling to consumers
versus to recruits, he says.
Amway says it doesnt break down
sales in that way. The traditional plan,
which operates in most of the world,
cant be deemed a pyramid, because
no one earns a thing based on the act
of recruitment, says Michael Mohr,
Amways general counsel and secre-
tary. Benefit is only accrued based
on the sale of product. That has been
misunderstood.
In China, Zheng Yimei, a petite
23-year-old in a white blouse, black
skirt and heels, first heard about Am-
way from someone she met at a bus
stop five years ago. Since then, shes at-
tended meetings regularly at Amway
stores in Hefei. Zheng says she wanted
the opportunity to work for herself af-
ter dropping out of school at 14 and
toiling as a garment worker, in a bak-
ery and at a supermarket weighing
produce, where she earned 700 yuan
a month. She says she has bigger ambi-
tions now.
Two salespeople in China told

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100
BLOOMBERG MARKETS how Am-
ways compensation system works:
The more products you sell, the
higher the commission you get.
One of the salespeople showed
BLOOMBERG MARKETS a document
on the Internet with detailed illus-
trations of the system. In the fiscal
year ended on Aug. 31, 2,500 yuan
in net sales earned a commission
of 9 percent, sales of 7,500 yuan
earned 12 percent and on up to the
top rate of 27 percent on net sales
of 125,000 yuan or more. The sales-
people said they would also earn a
bonus on the sales of each person
they brought into the organiza-
tion. If the salesperson made 8,000
yuan in net sales and enlisted four
people, who each also made 8,000
yuan in sales, he would get a 3,360 yuan
bonus (18 percent of the total 40,000
yuan in revenue minus the 12 percent,
or 960 yuan, that would go to each of
his four recruits).
Its not correct to say a salesperson
would get a bonus for sales made by
recruits, Amways Balfour says. The
online document isnt an Amway doc-
ument and isnt accurate, he says. The
company has two categories of distrib-
utors in China: sales representatives,
who earn commissions solely on their
own personal sales, and authorized
agents, individuals who formally regis-
ter with the government as businesses.
Sales representatives are true direct
sellers in that theyre going out and sell-
ing the product to family and friends,
Balfour says. Authorized agents ac-
tually have a fixed location. The sales
from agents shops are counted as per-
sonal volume, he says.
Under Chinese law, Balfour adds,
networks and groups are not allowed,
so Amway structures its business dif-
ferently than in the rest of the world.
Chinas 2005 Regulations on Direct
Selling Administration stipulate that
the remuneration paid by the direct-
selling enterprise to its direct sales-
man shall be calculated only based on
the income of the products sold to the
consumers.
In Beijing, framed photos of Amway
executives with Chinese leaders going
back to Jiang Zemin plaster the wall
at Amways office, a command center
that takes up the 11th floor of a build-
ing across the street from the Ministry
of Commerce. Golden hammer-and-
sickle symbols on red fields adorn the
cubicles of Communist Party members
on staff.
We have a fabulous government re-
lations team, and the origin of that is
that we were really born out of
a crisis, says Audie Wong, pres-
ident of Amways business in
China. We had to solve crises
over and over again. Wong, 61,
joined Amway in Hong Kong in
1981 after spending three years
as an English teacher at a Cath-
olic school there.
The crisis Wong is referring
to came in 1998. Amway meetings like
the one in Hefei made the Chinese au-
thorities nervous because they feared
the gatherings might be a cover for reli-
gious or other rallies, says Herbert Ho,
a former Amway China executive and
the author of a 2004 U.S.-China Busi-
ness Council report about regulation
of direct selling in China. Unscrupu-
lous entrepreneurs with fraudulent
sales schemes also brought scrutiny,
Hos report says. In one notorious case
in a town in Guangdong province, a Tai-
wanese company convinced farmers to
buy a foot massager for 3,900 yuan
about eight times the regular price
and pay 800 yuan to join its sales
force, the report says. Participants ri-
oted when they realized theyd been
scammed. Similar incidents of social
unrest triggered an official backlash,
according to the report.
China banned direct selling in April
1998. The timing was lucky, Wong
says, because China had begun ne-
gotiations to enter the World Trade
Organization and didnt want to be
perceived as shutting down U.S. com-
panies. Amway and other direct sell-
ers lobbied U.S. politicians and policy
makers to raise the ban in the WTO
talks, Wong says. Later that year, China
agreed to let Amway and several other
WE HAVE A FABULOUS
GOVERNMENT RELATIONS
TEAM, AMWAYS WONG
SAYS. WE WERE REALLY
BORN OUT OF A CRISIS.
MUTUAL
BENEFITS
Amway, Harvards
Kennedy School
and Chinese
officials each gain
from their unusual
relationship.
FUNDING
Amway pays about
$1 million per year
to sponsor the
program
Harvards
Kennedy
School
Chinese Officials
ELEVATED PROFILE
Harvards Kennedy
School gets name
recognition in China.
TRAINING AND
PRESTIGE
Amway Fellows learn
about governance
and get to put the
name Harvard on
their resumes.
Amway
GUANXI
Some 500
Amway Fel-
lows comprise
a network of
Chinese gov-
ernment con-
nections for
Amway.

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102
international companies continue op-
erating, with modifications, includ-
ing opening stores. Amway, which had
never before had retail outlets in any
country, now has close to 300 in China.
It also began manufacturing in China
and advertising there. We needed to
demonstrate that Amway would be a
long-term honorable corporate citizen
in China, Doug DeVos, Amways pres-
ident, wrote in an article chronicling
the companys China experiences that
was published in the April issue of the
Harvard Business Review. The article
doesnt mention Amways connection
to the Kennedy School.
China isnt the only place Amway has
had crises. In the U.S., the Federal Trade
Commission investigated the company
in the 1970s for price fixing and mis-
representation of the potential prof-
its salespeople could make. The FTC in
1979 found that Amway was not a pyr-
amid scheme but ordered the company
to stop making misleading earnings
claims and fixing prices and to disclose
information on the average income for
its salespeople. Active U.S. salespeople
earn an average of $202 a month, ac-
cording to the most recent company
figures. Balfour says Amway doesnt
publish such information for China.
In 2010, Amway agreed to settle a
class-action lawsuit filed by former
distributors in California, alleging
that it was a pyramid scheme. Amway
agreed to pay $55 million in cash and
free products and overhaul some
business practices at a cost of
$100 million, without admitting
wrongdoing.
The U.K. government sought to
have Amway shut down there in
2007. A court dismissed the case
the next year on the condition
that the company make changes
including disclosing average
earnings data for its salespeople.
When we realized how the Am-
way business was being perceived,
we made changes, Mohr says.
Amway also has critics in China.
An instant-messaging chat group called
Oppose Amway on Tencent Holdings
Ltd.s QQ service has more than 500
members who gripe that the companys
selling tactics are a pyramid scheme,
that products are overpriced and that it
nurtures cultlike devotees.
Any large company faces critics,
Balfour says. Many of these sites or
groups are operated by former distrib-
utors that were sanctioned by the com-
pany, he says.
Mao Shoulong, a professor of pub-
lic policy at Renmin University in Bei-
jing, argues that Amways funding of
the Harvard program is inappropriate.
Of course this influences Amways po-
sition in China; theyve got provincial
governors and department heads vis-
iting their headquarters each year, he
says. Government officials shouldnt be
taking money from a company to travel
to the U.S. or visit sites around the coun-
try, especially when one of those stops
includes the companys headquarters.
Balfour says the company doesnt
have any say in which officials are cho-
sen to attend the program. I dont
think our success is in any way depen-
dent on this program, he says. Any
educational program just helps the
business environment generally.
Corporate backing isnt unheard of
at the Kennedy School. Out of 1,049
sponsored awards from July 2000
through June, 39 were from for-profit
companies such as Amway, according
to school records.
The school began a push to focus
more on Asia in the late 1990s and hired
Anthony Saich, who had run the Ford
Foundation in Beijing for five years, to
make it happen. In 1998, the school be-
gan training about 20 Chinese officials
a year through a fellowship funded by
New World Development Co., a Hong
Kongbased real estate company. Lu
Mai, a policy researcher for Chinas
State Council who had attended the
Kennedy School in the 1990s, sought
Saich out to propose a more ambitious
initiative to train local officials.
Amway opened stores in China
like the ones on this page, its first
anywhere in the world.

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Saich liked the idea. He drew in
Tsinghua as a Chinese partner, along-
side the State Councils Development
Research Center. Tsinghua had created
a school of public policy in 2000, and
Saich says he was eager to promote ties
with it, as well as to have a partner on
curriculum and training development.
Money quickly became a sticking
point. Sending 50 senior officials to
America was not approved of by some
people in China, says Saich, 60, a na-
tive of the U.K. who has written or ed-
ited more than 20 books on China.
There were a lot of fears about what
the program would teach, would it be
worthwhile. So Saich began looking
for a company that would be willing
to pay for the program in exchange for
a chance to improve its relations with
the Chinese government.
Edward Cunningham, then a 24-year-
old program officer who worked with
Saich, suggested Amway. Cunningham
was well versed in Amways travails in
China: Hed written a paper about its
corporate strategy there for a class at
the Massachusetts Institute of Tech-
nology, where he later earned a Ph.D. in
political science. And he had a connec-
tion to Amway: His uncle had managed
the design and procurement of luxury
yachts for the DeVos family. I at least
had an idea of what Amway had gone
through, says Cunningham, whos now
an assistant professor at Boston Uni-
versity and director of the Asia Energy
and Sustainability Initiative at the Ken-
nedy School.
Cunningham sent a letter to Doug De-
Vos that ended up on Wongs desk in Bei-
jing. Wong saw a great opportunity. It
has this combination of the best brands,
Wong says, laughing. You have Harvard,
you have Tsinghua, and you have the
State Council. Amway signed up.
In the hallway outside Saichs office
near the Charles River in Cambridge,
a newspaper cartoon hangs on the wall.
In the first frame, an official in a Mao
suit has jumped up, raising his fist be-
fore a Chinese flag to say, I staunchly
oppose Americas hegemony! In the
second frame, hes grinning ear to ear
as a seated official says: You are very
patriotic. Well send you to Harvard for
training next year!
Amway Fellows, who are selected by
the Communist Party, prepare for two
weeks at Tsinghua before studying
government functions from budget-
ing to crisis management at Harvard.
Classes and lectures taught by well-
known Harvard facultyJoseph Nye,
famous for his study of political power
and influence, for instanceare trans-
lated into Chinese. The group takes
trips to local institutions such as the
Boston Redevelopment Authority

PHOTOGRAPHS BY ADAM AMENGUAL 104
and then travels for a fifth week of
site visits, including a stop at Amways
headquarters.
An Amway employee from China
travels with the officials to Harvard
to monitor their health and happi-
ness, Saich says. And the company has
suggested adding China-specific case
studies, he says.
Saich says the sponsorship lets Am-
way show its interested in more than
profits in China. It gives them some-
thing to talk about with senior gov-
ernment officials, he says. Secondly,
it probably gives them a local network
base that they can interact with. They
have people from the program in every
single province around China.
Wong says there has never been
any direct commercial gain to Amway
China from the program. Still, he adds,
its importance has become more and
more noticeable.
Amway has been able to accom-
plish things other foreign enterprises
havent. It was the first and remains
the only foreign company allowed to
register a charitable foundation with
the Ministry of Civil Affairs, Wong says.
Jiang Li, one of the vice ministers of
civil affairs, is a former Amway Fellow.
The company also makes donations
and organizes volunteers to contribute
to government charity efforts.
The Kennedy Schools Ash Cen-
ter for Democratic Governance and
Innovation, which Saich heads, now
trains city staff from Shanghai and In-
donesian and Vietnamese officials.
State-owned China Southern Power
Grid Co. and Thai investment firm
Charoen Pokphand Group Co. have
sponsored training programs at the
Kennedy School, whose recent grad-
uates include Bo Guagua, son of Bo
Xilai, the disgraced former member of
Chinas ruling Politburo.
The Amway-funded program has
provoked online criticism by Chinese
citizens who question the need and ex-
pense of sending public officials over-
seas, Saich says, adding that many
Chinese dont know how the program
is funded.
This years program was shortened
to 12 class days at Harvard from four
weeks in previous years. Julian Chang,
executive director of the Ash Cen-
ter, says the Chinese government has
been cutting back on perceived ex-
cesses, including overseas training.
The students also spent two days in
Michigan.
Meanwhile, in China, Amways net-
work continues to grow. Zheng, the
saleswoman in Hefei, is now devoting
herself full time to selling Amway
products, though she has yet to make
any money. Amway is my China
dream, she says. If you speak about
education, I dont have much. If you
focus on relevant work experience, I
havent got much either. Its my ticket
to a better life.
DUNE LAWRENCE IS A PROJECTS AND
INVESTIGATIONS REPORTER AT BLOOMBERG
NEWS IN NEW YORK.
DLAWRENCE6@BLOOMBERG.NET LIZA LIN
COVERS CONSUMER PRODUCTS COMPANIES
IN SHANGHAI. LLIN15@BLOOMBERG.NET WITH
ASSISTANCE FROM WENXIN FAN IN SHANGHAI
AND MICHAEL FORSYTHE AND BENJAMIN HAAS
IN HONG KONG.
Anthony Saich has helped the
Kennedy School increase its
prominence in Asia. A cartoon
about Chinese-U.S. relations
hangs on a wall outside his office.

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FOCUS
BRAZIL
MAKI NG
SAO PAULO
FERNANDO HADDAD, A ROOKIE MAYOR,
PLEDGES TO CURTAIL CORRUPTION,
QUICKEN MASS TRANSIT AND IMPROVE
SCHOOLS IN LATIN AMERICAS BIGGEST CITY.
WORK
BY
GABRIELLE
COPPOLA

PHOTOGRAPH BY TUCA VIEIRA
Residents of Paraisopolis,
a low-income neighborhood,
pushed Sao Paulo to finish
this road.

108 BLOOMBERG MARKETS November 2013 PHOTOGRAPH BY ANDRE VIEIRA
Sao Paulo Mayor
Fernando Haddad
steps out of a black
sedan in Paraisopolis,
a neighborhood of
small brick homes,
cramped storefronts
and narrow streets,
in mid-July. He is
meeting with
residents weeks
after about a
million Brazilian
protesters took to
the streets across the nation, railing
against corruption, shoddy education
and inadequate public transportation.
On this sunny morning, a throng of peo-
ple surround Haddad at the site of a
partially constructed road. As the mayor
takes questions for 30 minutes, he in-
dicates to residents that hes heard the
cries of protesters and is responding.
Gilson Rodrigues, president of a com-
munity group, points to mounds of con-
struction debris from people who built
their own homes. He wants it hauled
away. OK, so we need to set up a regu-
lar system of collection, says Haddad,
dressed in casual pants and a blazer.
A man in a green-checked shirt asks
about security: Theres a stoplight
where carjackers trap five or six cars
at a time and rob them. Weve already
asked to put a police station there.
Haddad cant offer much help. The
city doesnt control the military po-
lice, the mayor says. Have you tried
speaking to the security secretary?
Before Haddad, a native of Sao Paulo
and former minister of education,
leaves the site, he delivers a promise.
bus lanes in a city famous for traffic
jamshas helped restore some stabil-
ity in the streets and markets. You can
already see that Haddad is doing things,
particularly with transportation, says
Leonardo Kestelman, a Sao Paulo
based managing director at Dinosaur
Securities LLC, an investment firm that
oversees $800 million in assets. A calm
Sao Paulo is good for markets.
Brazils President Dilma Rousseff has
made Sao Paulo, Latin Americas big-
gest city, with a population of 11 mil-
lion, a focal point of her response to
the protests. The demonstrations that
In 60 to 90 days, this road project will
be completed, he says.
Haddad, 50, has issued a flurry of
pledges to improve everything from
mass transit to government transpar-
ency after the sometimes violent dem-
onstrations in June helped fuel a sell-off
of stocks and bonds. Brazils Ibovespa
benchmark equity index plunged 11.3
percent in June, the worst rout in more
than a year, before rising 15 percent
from July 1 to Sept. 9. Sao Paulo, Bra-
zils financial hub, contributes almost
12 percent of gross domestic product to
a national economy thats sputtering.
Investors say Haddads response to the
demands of protestershes installing
220 kilometers (137 miles) of exclusive
Mayor Fernando Haddad is
making government more
transparent.
FOCUS
BRAZIL

TYPE CEMIG <GO>

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Sao Paulos traffic
jams, like this one on
May 23 Avenue, are
world famous.
swept the nation began in Sao Paulo af-
ter Haddad raised bus fares by 20 cen-
tavos (9 cents). In July, Rousseff joined
Haddad at city hall to announce that the
government was giving Sao Paulo 8 bil-
lion reais ($3.5 billion) to help pay for
the mayors transportation and housing
initiatives. With a presidential election
in 2014, Rousseff is counting on Had-
dad, a fellow Workers Party leader, to
improve public services and help her
regain the confidence of voters, says
Joao Augusto de Castro Neves, a Latin
America senior analyst in Washington
at political risk firm Eurasia Group. (On
Sept. 17, Rousseff canceled her state visit
to Washington over allegations that the
U.S. National Security Agency had mon-
itored her e-mail and telephone com-
munications with top aides.)
As long as local government responds
to the protesters specific demands, that
will keep things where they are now and
wont undermine Rousseffs election
chances, says Castro Neves, a Brazilian.
Everything that happens in Sao Paulo
has national repercussions.
Haddad, who hadnt held elective of-
fice before his term started in January,
said the city would build 55,000 afford-
able-housing units, three hospitals and 43
health clinics by 2016. In August, Haddad,
a former professor of political theory at
the University of Sao Paulo, proposed im-
provements to public education in a city
where 38 percent of fourth graders have
trouble reading and writing. He wants
additional university training for teach-
ers, more homework and testing, and
367 new schools. And Haddad has hired
the citys first comptroller and installed
a whistle-blower program to curtail cor-
ruption that can sabotage proposals from
a mayor.
My dream is to transform Sao Paulo
into a city capable of promoting devel-
opment, says Haddad, whose full head
of tousled dark-brown hair adds to his
youthful appeal, at his office in April.
There are federal resources, but we
lack the capacity to execute.
Haddads goal is made harder by a
national economy that may expand
only 2.35 percent in 2013, accord-
ing to a central bank survey of econo-
mists in September. And Rousseff, who
succeeded Luiz Inacio Lula da Silva
in 2010, has stoked price increases by
pressuring banks to boost lending. In-
flation, which stood at 6.09 percent in
August, has twice broken the upper
limit of the central banks target this
year, squeezing consumers and help-
ing spur the demonstrationsthe larg-
est in Brazil in two decades.
In 2005, Lula appointed Haddad
as his minister of education amid the
biggest corruption scandal since the
countrys dictatorship ended in 1985.
Haddad, who has a masters degree in
economics and a doctorate in philoso-
phy from USP, was a political unknown
serving as executive secretary in the
ministry. Haddad replaced a minister
who had left his post to run Lulas Work-
ers Party after its president became
ensnared in a bribes-for-votes scheme.
The Supreme Court convicted 25 party
officials, congressmen and executives,
including Lulas former cabinet chief,
in connection with bribing lawmakers
to win votes. On Sept. 18, the Supreme
Court allowed 12 of the defendants to
appeal their sentences.
As minister of education, Haddad
made the school systems more trans-
parent and accountablethemes hes
carried over to city hall. Haddad is
someone who likes to get his hands
dirty in policy, says Ricardo Musse,
a USP professor who now works as
Sao Paulos coordinator of cultural
programs. Over more than six years,
Haddad created a program to track
ministry projects online and demanded
that city and state education officials
document their results after receiving
grants. He also expanded the number
of university campuses to accommo-
date 300,000 students a year, triple
the amount when he started, although
some new schools lack full-time faculty
and libraries. You have to train people,
change laws, make your acts transpar-
ent, create internal control systems to
SIZING UP
THE CITY
Sources: Ibope, Mayors Office, Sao Paulo Traffic
Engineering, Security Department of the State of Sao
Paulo
SAO PAULO POPULATION: 11 million
SIZE: 1,530 square kilometers
(590 square miles), twice New York Citys size
TRAFFIC JAMS: 300 kilometers,
the record total on July 26
MURDER RATE: 12.02 per 100,000 in 2012,
a 34% annual jump
ILLITERACY: 38% of 10-year-olds in 2011
QUALITY OF LIFE: 59% said its great or good
in 2012, down from 67% in 2007
FOCUS
BRAZIL

People who understand
business choose Brazil.
People who understand Brazil
choose the countrys
greatest bank.
From Brazil to the world.
From the world to Brazil.
bb.com.br
TYPE BDOB <GO>

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catch misuse of money, Haddad says.
You have to create a culture of execu-
tion, and thats not a simple task.
The Workers Party brass picked
Haddad to run for mayor based on
his record as minister and because he
was one of the few prominent officials
left untainted by the bribery scandal,
Musse says. He says Haddad won Lulas
trust while serving as his minister and
the former president was a close ad-
viser to the mayor during his campaign.
The party wants to renew its leaders,
and Haddad is one of the new genera-
tion, more technocratic, less ideologi-
cal, analyst Castro Neves says.
As mayor, Haddad is trying to rein
in developers and relocate businesses
after decades of chaotic construction
have left the city a tangled mess. Sao
Paulos postindustrial north and east
sections are marred by little-used rail-
road tracks, empty warehouses and
large pockets of poverty. These areas
reaped few of the economic benefits
of Brazils boom starting a decade ago,
which spurred the building of high-rise
luxury condos now selling for $3.9 mil-
lion and offices towers mostly in the fi-
nancial districts in the south and west.
The lopsided development has wors-
ened the citys gridlock as workers in
the north and east are forced to com-
mute long distances across town. The
combined length of all of Sao Paulos
traffic jams on July 26 stretched to a
record 300 kilometers, according to
the citys traffic engineering company.
A city has to have a design, says
Haddad, whose father immigrated to
Brazil from Lebanon and owned a tex-
tile store in Sao Paulo. If you cant see
the design, you cant see the city. That is
what is happening now.
The mayor has proposed changes
to the citys master plan to reconfigure
where Paulistanos live, work and drive.
Hes calling for the elimination of property
taxes for businesses that move to the east
side, bringing jobs to commuters door-
steps. Hes pushing for incentives for de-
velopers to create affordable housing in
the job-rich city center and tax hikes on
builders who want to put up taller struc-
tures outside areas favored by the city.
New housing located near train and bus
stops must be denser, with more units
that are smaller, to encourage the use
of mass transportation. And to discour-
age car ownership, each unit can have no
more than one parking spot.
Real estate developers are bristling
at some of the proposed restrictions. Ra-
fael Rossi, a partner at Huma Desenvolvi-
mento Imobiliario, a Sao Paulobased
builder, says the tax increases could make
new developments in certain areas nonvi-
able and shrink the housing supply. This
will freeze the real estate market, Rossi
says. Apartment prices will go up a lot.
With the number of cars registered
Haddad, at far left, with
President Dilma Rousseff;
above, the mayor visits with
schoolchildren.
FOCUS
BRAZIL
Source: Bloomberg
ECONOMIC
HURDLES
Brazils President Dilma
Rousseff has spurred high
inflation by encouraging
banks to boost lending to
revive growth.
QUARTERLY GDP GROWTH ( 6/ 30/ 2005 TO 6/ 30/ 2013) MONTHLY I NFLATI ON RATE ( 8/ 30/ 2005 TO 8/ 30/ 2013)
3
2
1
0
1
2
3
4
8%
7
6
5
4
3
2
2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013
%

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by public officials. It receives hundreds
of complaints each week. Working with
the comptroller, police have arrested
five public employees this year for so-
liciting bribes.
Haddads ability to improve city ser-
vices ultimately depends on federal
funding. Hes asked the government for
an additional 14 billion reaisa request
that federal officials have yet to approve.
In July, in a show of fiscal restraint, Rous-
seffs finance minister said 10 billion
reais would be cut from the budget. Had-
dad is also trying to free up money for im-
proving services by negotiating a lower
rate on the 54 billion reais of city debt
owed to the federal government from a
1997 bailout.
The people of Paraisopolis, one of the
favelas, or low-income neighborhoods,
in Sao Paulo, have reason to approve of
their mayor. Paraisopolis began decades
ago as a squatter settlement and over
the years added better housing, schools,
clinics and retail chains. By mid-Sep-
tember, city crews had built 85 percent
of the 1.5-kilometer paved road that
should be finished by November, a few
weeks later than the mayor had prom-
ised. The six-lane thoroughfare will con-
nect two sections of Paraisopolis and
ease travel to surrounding areas for its
100,000 residents. The completion of
the road will be a small victory for the
rookie mayor who hopes to leave his im-
print on Sao Paulo and the nations pres-
idential elections in 2014.
GABRIELLE COPPOLA COVERS BRAZILIAN CREDIT
MARKETS AT BLOOMBERG NEWS IN SAO PAULO.
GCOPPOLA@BLOOMBERG.NET
with Our Sao Paulo Network, a collec-
tion of 700 civic groups.
Corrupt government officials, who
work for bribes rather than the pub-
lic interest, are a threat to any mayors
agenda, says Jose Carlos Blat, a prose-
cutor for the state of Sao Paulo. Blat says
bribery and extortion infect city govern-
ment: Developers overcharge on pub-
lic works as part of kickback schemes,
and regulators extort bribes from busi-
ness- and homeowners in
exchange for permits. Cor-
ruption is barely a hindrance
to elected office. Although
former Sao Paulo Mayor
Paulo Maluf was charged by
federal prosecutors in 2004
for getting kickbacks on a
road project, he was elected
as a federal deputy from Sao
Paulo state in 2006. In 2007,
the New York district at-
torney indicted him for al-
legedly hiding stolen funds
from the road project off-
shore. Maluf, who was re-elected in
2010, has denied the charges in the two
cases. His spokesman says the city au-
ditor approved all of the costs related to
the road project.
Corruption in Brazil is like a can-
cer that has spread out of control, Blat
says. But even with a terminal patient,
there is always a little hope.
Soon after taking office, Haddad hired
a comptroller, Mario Vinicius Claussen
Spinelli, to guard against the misuse of
funds. In July, the mayor established a
Web page for people to report abuses
in Sao Paulo rising 32 percent to 7.4 mil-
lion during the past decade, a commute
within the city can take several hours.
On a May afternoon, Dulce Bernardo, a
60-year-old housekeeper, boarded an ac-
cordionlike bus for a 14-mile trip home
to the citys southwestern fringe. She
was lucky to get a seat while other
passengers stood packed in the aisle. The
bus crept to a halt for 10 minutes several
times on the clogged highway during the
two-hour journey. Some days, Bernardo
says, the trip takes four hoursand six
when it rains. There are times when
you cant see anything. People keep get-
ting on. They sit on top of the ones who
are seated, Bernardo says. No one de-
serves to have to travel like this.
In June, Haddad began a shake-up of
the public transit bureaucracy, cancel-
ing an auction to renew contracts with
private bus companies worth 46 billion
reais. The Mayors Office plans to hire an
international auditor to examine the con-
tracts for signs of abuse and inefficiency.
And Haddad set up a council on public
transportation, made up of commuters,
bus company executives and union rep-
resentatives, who were given access to the
contracts and will see the auditors report
in 2014 to help them make recommenda-
tions for service improvements.
Haddad is doing a lot around public
participation, says Americo Sampaio,
a government transparency advocate
TRACKING BRAZILS
RISKS
Bloomberg Tps
FOCUS
BRAZIL
Mario Vinicius Claussen
Spinelli is Sao Paulos
first comptroller.

When Brazilian force meets
German energy expertise, a new star
is born in the energy sector. ENEVA.
Mix the entrepreneurial vision and growth of Brazil with the
advanced technology of a global energy specialist, and the
result is a new brand, driven by the energy of its team.
Add a valuable portfolio of assets, and you have ENEVA.
Creating energy for a new era.
More than 1,780 MW
in operation in Cear and in
Maranho, providing reliable energy
and development for Brazil.
Some stars
already
shine when
theyre born.

EARN, I NVEST, SPEND
Return to the 1950s
with a reproduction
of Porsches iconic
550 Spyder, which
was made famous
by James Dean.
BY JASON H. HARPER
Spirited
Away
plans to produce about two per year.
The project began with scans of an
unrestored original, which led to a
3-D model and four years of reverse-
engineering the entire car. While this
$320,000 prototype has a push-rod
engine from a 1969 Porsche 912, in the
future, the company plans on using the
iconic Type 547, four-cam, air-cooled
the 550s body is handhammered out of
aluminum by Fort Lauderdale, Florida
based Alloycars Inc. andoutfitted with
period-correct Porsche engines and
parts by technicians from Speedsport
Tuning, in Danbury, Connecticut.
When I say this is an exact reproduc-
tion, I mean exact, says Spyder Cre-
ations co-owner Rob Edwards, who
IM BEHIND THE WHEEL OF ONE OF
the rarest and most desired Porsches
ever made, the 550 Spyder. The sen-
suous curves of the tiny, two-seat con-
vertible are unmistakable as the model
driven by actor James Dean when he
died on a California highway in 1955.
Only this Spyder is a fakeor, more
precisely, a facsimile. Only 90 of the
original midengine 550 Spyders were
built in the 1950s, and last year, one net-
ted $3.69 million at auction. So unless
you can snag one of those rare beau-
ties, this kit-car reproductionwhich is
made by Prospect, Connecticutbased
Spyder Creations and not affiliated with
Porsche AGis the only alternative.
Whereas most replicas have fiber-
glass bodies and Volkswagen engines,
R I D E S
PHOTOGRAPHS BY JAMIE CHUNG
The Spyder Creations
550 features a
130-horsepower,
1.7-liter, push-rod,
flat-four engine that
reaches 60 miles
per hour in about
8 seconds. Buckles
secure the rear deck,
near left.
550spyderforsale.com

JASON H. HARPER WRITES ABOUT AUTOS
FOR BLOOMBERG NEWS IN NEW YORK.
JASON@JASONHHARPER.COM AND ON
TWITTER AT @JASONHARPERSPIN
engine, found on late-model 550s. That
version will likely start from $470,000.
The 550 prototype certainly looks
the part of a vintage Porsche. Its star-
tlingly small, with doll-sized doors, a
tight cockpit and a half windshield.
The interior has period-correct vinyl
upholstery, an oversize steering wheel
and a four-speed manual transmission.
The rear deck is hinged and secured
by buckles; inside, youll find the en-
gine compartment and a spare tire tied
down with leather straps. One word of
caution: Youll have to seek out ethanol-
free fuel or risk motor problems.
As I push the Spyder to 6,000 revolu-
tions per minute in third gear, the car
is alive, floating over crests in the road
and razoring around curves. The breeze
blows into my face over the half wind-
shield, and my sunglasses prove more
necessity than fashion statement.
Im sure James Dean would approve.

D R I N K S
These importers discover
worthy bottles from
unsung producers.
BY ELIN McCOY
Curating
Wine
IN SEPTEMBER, JOSE PASTOR WAS
working the harvest and tasting the lat-
est vintage on sunny La Palma, one of
the Canary Islands. The 32-year-old
Spaniard, who lives in California, fell in
love with the islands earthy wines six
years ago, when he met and tasted with
vintners. A year later, the Valencia native
began bringing his discoveries from this
little-known Spanish region to the U.S.
Pastor ( josepastorselections.com) is
one of dozens of small, independent
importers, mostly from the U.S. and the
U.K., who are tracking down exciting
wines around the globe. Think of them
as scouts and curators whose picks re-
flect their wine philosophies and what
they personally like to drink.
The new players are following in the
footsteps of pioneering importers who
introduced a generation of drinkers to
wines from unsung regions. In the U.S.,
Kermit Lynch popularized French la-
bels from the then-obscure Rhone,
while Terry Theise celebrated grower
Champagnes. Their U.K. counterpart
was Robin Yapp, of Yapp Brothers, who
hunted down Sancerres and Condrieus.
One of those names on a bottles back
label tells you the wine will be both inter-
esting and worth trying. The same can be
said for the new wave of indie importers,
who also focus on family-owned do-
maines that tread lightly on the land.
Like his colleagues, Pastor spends sev-
eral months a year visiting wineries rec-
ommended by friends or whose bottlings
impressed him at a local restaurant.
David Weitzenhoffer, co-founder
of A.I. (Acid Inc.) Selections (aiselec-
tions.com), looks for wines with the
bright acidity that makes them good
with foodnot surprising considering
hes the former wine director at Italian
restaurant Felidia in New York.
Friends he made during his years as
head buyer at Scarsdale, New York
based retailer Zachys Wine & Liquor
helped Ned Benedict sign on traditional
producers such as Cascina Fontana for
his Grand Cru Selections, which he co-
founded in 2010.
Austrian-born Stephan Schindler,
a former film producer who established
Winemonger (winemonger.com) with
his wife, Emily, first imported wines
from only his native country. Theyve
since expanded to other countries and
also sell their finds online.
See the box for other importers who
are sleuthing out fascinating wines.
PHOTOGRAPH BY TOM SCHIERLITZ
ELIN McCOY IS THE DRINKS COLUMNIST FOR
BLOOMBERG MARKETS. ELINMCCOY@GMAIL.COM
AUSTRALIA
The Spanish Acquisition
Spanish and Portuguese
producers, such as Luis Pato
from Portugals Beiras
thespanishacquisition.com
U.K.
Indigo Wine Ltd. Mostly
ofbeat wines from France
and Spain, such as Sao del
Coster from Priorat
indigowine.com
Las Bodegas Ltd. All
Argentine wines, with stars
such as Susana Balbo
lasbodegas.co.uk
New Generation Wines Up-
and-comers from 10 coun-
tries, including Kalleske from
Australias Barossa Valley
newgenerationwines.com
The Winemakers Club
Largely eco-conscious
producers in Australia and
Italy, such as Brezza
thewinemakersclub.co.uk
U.S.
Jon David Headrick
Selections Mostly wineries
from the Loire Valley, such
as Domaine des Huards
jondavidwine.com E.Mc.
LABELS TO
LOOK FOR

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WALLY WEITZ LIKES TO INVEST WITH BIL-
lionaires hes known a long time. Hes been a
shareholder for more than 35 years in Berk-
shire Hathaway Inc., which is run by his Omaha,
Nebraska, neighbor Warren Buffett, and he has
held stakes in companies run by media mogul
John Malone for more than two decades.
The investments helped Weitzs Partners III
Opportunity Fund return 16.4 percent annually
on average during the five years ended on Sept. 9.
That gain topped 98 percent of similar U.S. value
funds, according to data compiled by Bloomberg.
For the 12 months ended on Sept. 9, Weitzs fund
returned 27 percent, beating 82 percent of peers.
For three years, it returned 20.8 percent a year on
average, better than 96 percent of similar funds.
In addition, the $901 million fund had one-year
volatility of 9.3 percent compared with an aver-
age of 11.4 percent for peer funds.
WEITZ HAS ALWAYS LOOKED FOR COMPANIES
whose stocks are cheap compared with the cash
flow he expects them to generate, a common met-
ric for value investors. Over time, hes come to be-
lieve that finding management teams that know
how to redeploy any excess cash intelligently is
critical to investment success. Warren Buffett and
John Malone could not be more different, but both
of them know how to create more than a dollar of
Betting on Billionaires
Wally Weitzs Partners III Opportunity Fund topped 98 percent of peers
during the past five years, in part by investing in Warren Buffetts
and John Malones companies. BY CHARLES STEIN
PROFILE
STRATEGIES
value for every dollar they reinvest, Weitz, 64, says.
The Opportunity fund has the most flexibil-
ity of his firms five equity funds because it reg-
ularly shorts, or bets against, stocks.
Unlike many short sellers, Weitz typ-
ically doesnt bet against individual
stocks. He wagers against baskets of
equities using index options and ex-
change-traded funds, a technique that
allows him to put more money into his
favorite stocks while hedging market
risk, tempering volatility. Options are
contracts that grant the right to buy or
sell a stock at a set strike price before
expiration.
Weitzs fund operated as a private partner-
ship from June 1983 until December 2005, when
it became a mutual fund. Over its three decades,
the fund has returned 14 percent a year on aver-
age, compared with 11 percent for the Standard
& Poors 500 Index, according to Weitzs website.
Like many value investors, who pick assets that
they deem cheap relative to peers, Weitz isnt too
concerned with producing steady results. An in-
vestor must ride out the inevitable periods when
his style isnt in favor, he says. We agree with
Warren on this one, Weitz says, referring to Buf-
fett. We would rather have a lumpy 14 percent
annual return than a smooth 10 percent.
PHOTOGRAPH BY JENN ACKERMAN AND TIM GRUBER
Wally Weitz
PORTFOLIO MANAGER,
PARTNERS III OPPORTUNITY
FUND
Seeks managers who
can effectively deploy cash.
Looks for stocks cheap
relative to cash flow.
Shorts baskets of equities.

June 2012 BLOOMBERG MARKETS 123

STRATEGIES
RATES & CREDIT
Weitz calls Malone a master at dream-
ing up ways to separate out valuable busi-
nesses from less valuable ones. Two of
his firms, Englewood, Coloradobased
Liberty Interactive Corp. and London-
based Liberty Global Plc, were among the
biggest contributors to the funds perfor-
mance in the past five years, according
to data compiled by Bloomberg. Liberty Interac-
tive gained 99 percent in that span; Liberty Global
more than doubled.
One of Weitzs largest positions, El Segundo,
Californiabased DirecTV, counts both Malone
and Berkshire Hathaway among its five biggest
shareholders.
WEITZS FUND ISNT IMMUNE TO SLUMPS. IT
fell 13 percent in 2007, worse than 99 percent of
peers, dragged down by financial stocks such as
New Yorkbased insurer American International
Group Inc., which had to be rescued by the U.S.
government in 2008 amid losses. The crisis of
2007 to 2009 convinced Weitz that financial
firms were taking risks he never appreciated. I
would characterize our mostly happy, 30-year
experience investing in financials as a bad idea we
got away with, Weitz says.
Weitz, whos in the process of selling his firm
to his employees, says he has no intention of leav-
ing any time soon. He says hes confident that his
approach still works. Human nature has not
changed, he wrote to shareholders in a 2009 let-
ter. People acting out of fear and greed cause
assets to be mispriced from time to time. Our
business is to take advantage of this mispricing.
CHARLES STEIN COVERS MUTUAL-FUND COMPANIES AT
BLOOMBERG NEWS IN BOSTON. CSTEIN4@BLOOMBERG.NET
Weitz, who manages about $5.3 billion
in funds and separate accounts, has run
his Omaha-based firm, Weitz Investment
Management, since 1983. He has invested
in Buffetts Berkshire Hathaway for clients since
1976. His office and Buffetts are about 5 miles
(8 kilometers) apart.
Weitz, who has a bachelors degree in econom-
ics from Carleton College in Northfield, Minne-
sota, recalls going to a Berkshire annual meeting
in the 1970s in the lunchroom of a local insur-
ance company, where he was among
only a handful of investors pres-
ent. Today, the meetings draw tens
of thousands. We see each other
periodically, were friendly, but he
doesnt call and give me secrets,
Weitz says about his relationship
with Buffett.
Weitzs value style of investing is similar to Buf-
fetts, says Bradley Alford, founder of Alpha Capital
Management LLC in Atlanta, who owns shares in
the Opportunity fund. Hes Buffett with a lot less
zeros, Alford says.
Weitz first met Malone at a media conference
in the late 1980s, when the executive was running
Denver-based Tele-Communications Inc., and was
struck by his grasp of the cable industry. Today,
Malones assorted publicly traded companies hold
stakes in businesses from satellite radio company
Sirius XM Radio Inc. to home-shopping network
QVC Inc. Malone was worth $6.5 billion as of Sept.
9, according to the Bloomberg Billionaires Index.
PROFILE
SCREENING FOR VALUE
You can use the Equity Screening (EQS) function to identify stocks whose
price is low relative to their free cash ow. Type EQS <Go>. To limit the search
to companies in the Russell 3000 Index, tab in to the eld, enter RAY and
click on the top match in the list that appears. Tab in to the eld again, enter
PRICE TO FREE CASH FLOW and click on the matching item. In the menu that
appears, select % Percentile. Then select Sequential. Click on the arrow to
the right of Higher Value Is Better and select Lower Value Is Better. In the eld
to the right of Top, enter 5 to limit the search to the top 5 percent and press
<Go>. Then click on the Results button. JON ASMUNDSSON
INVESTING IN
FINANCIALS WAS
A BAD IDEA WE
GOT AWAY WITH,
WEITZ SAYS.
TIP BOX
Type FSRC
<Go> to
search for
funds that
match your
criteria.

2013 Bloomberg L.P. All rights reserved. Type SITE <GO>
Currency hedging often provides some major benets for investments, but nding the right strategy in this
space can sometimes prove elusive. Even the most sophisticated of investors have been burned by forward
contract risk costs. Couple this with higher interest rates in Emerging Markets, many investors are questioning
whether traditional hedging strategies will meet their needs in the future.
In this Bloomberg Markets LiveINSIGHTS, a panel of noted experts will discuss the latest trends in hedging
Emerging Markets currencies and will uncover which hedging strategies and products yield the best results.
REGISTER TODAY SITE <GO> www.bloombergmarkets.com/insite
THE BEST OPTIONS AND STRATEGIES
Wednesday, 23 October 2013
1:00 pm BST/8:00 am EDT
SPONSORED BY
SPEAKERS:
Head of Quantitative Solutions Group
Commerzbank
Portfolio Manager, CFA
CalPERS
Senior Vice President
Paulson & Co
Professor Emeritus & Managing Director
Cambridge University & Cambridge
Systems Associates
Senior Editor
Bloomberg Markets

Dissecting a Trade
of volume could result in a lower average price.
Maneuvering tracks the gain or loss from front-
or backloading the trade or otherwise varying the
participation rate to try to take advantage of price
fluctuations.
Liquidity sourcing refers to the incremental gain
or loss from the actual execution. That difference
may come from capturing the spreadpatiently
waiting on your side of the bid-ask spread for your
order to be filled. It could also derive from finding
natural blocks of liquidity.
THERE ARE A NUMBER OF WAYS TO ACCESS
the Trading Performance Attribution tool within
EMSX, Bloombergs multi-asset-class trading
platform. In the EMSX blotter, for example, se-
lect a parent or child order, click on the Actions
button on the red tool bar, select Analytics and
then click on Performance Attribution.
Lets look at some real-life examples of the
types of situations traders face and how the trade
performance attribution tool would assess them.
Bloombergs new approach to analyzing execution
uncovers the components of trading performance.
BY VLAD RASHKOVICH
PORTFOLIO MANAGERS USE ATTRIBUTION TO
see whether their returns come from asset alloca-
tion, stock selection or other factors. In a similar
vein, Bloomberg now introduces a new approach
for analyzing the sources of a traders or algorithms
performance. Called Trade Performance Attribu-
tion, the novel methodology aims to streamline
work flows and align the goals of traders and port-
folio managers, potentially adding to returns.
Bloombergs approach presents total trading
performance as the sum of three factors: average
speed, maneuvering and liquidity sourcing.
Average speed represents the gain or loss at-
tributable to the difference between the actual
participation ratethe executed shares com-
pared with total market volume for the security
during the measured periodand the target par-
ticipation rate. For a stock thats rising, for exam-
ple, a trader may pick up a relative gain by buying
shares faster than his target rate. If his target par-
ticipation rate is, say, 20 percent, then actually
acquiring shares at a higher rate of 30 percent
TIP BOX
For a Journal
of Trading
article on the
underlying
methodology,
type BPS
L#2115913
<Go>.
Before the market opened on May 22, a trader in
New York received an order to buy 2.1 million shares
of Facebook Inc. The participation rate, agreed on with
the portfolio manager, was 20 percent of volume. The
trader expected the market to go down. He thus de-
cided to slow down to capture favorable momentum.
The Trading Performance screen shows what hap-
pened. Reading from left to right, the analysis starts
with the target participation-weighted price, which
is denoted PWP Target. Thats the volume-weighted
EXAMPLE 1: SPEED
INTERVAL VWAP
This data point
shows the average
market price over
the life of the trade.
STRATEGIES
EQUITIES

ADVERTI SEMENT
Nationally Recognized Law Firm
Thrives Amid Legal Industrys Downturn
McElroy, Deutsch, Mulvaney & Carpenter, LLP
1300 Mount Kemble Ave., P.O. Box 2075 | Morristown, NJ 07962-2075 | (973) 993-8100 | info@mdmc-law.com | www.mdmc-law.com
2013 Chambers USA
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Leading Lawyers for
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#1 Employment
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Guide to Americas
Leading Lawyers for
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#4 Bankruptcy/
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National Law Journal`s
Top 350 Law Firms
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2014 Best Lawyers in
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recognized
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Almanac
#1 Largest Law Firm
W
hile the fnancial crisis continues to force thousands
of layofs within the legal services sector, it is creating
an environment for growth at one innovative law
frm. Rather than seeing the glass as half empty, we are excited
about responding to new opportunities created in a very fuid
marketplace, says Ed Deutsch, Managing Partner of McElroy,
Deutsch, Mulvaney & Carpenter, LLP (MDM&C).
Celebrating its 30th anniversary in 2013, MDM&C is one of
the largest law frms in the Northeast. The full-service practice
has a national reputation for excellence and is consistently ranked
among the best by Chambers USA, U.S.News & World Report,
The American Lawyer, National Law Journal and others. Over
three decades, MDM&C has grown steadily and strategically from
two founding partners to almost 300 lawyers with 10 ofces in
New Jersey, New York, Pennsylvania, Connecticut, Massachusetts,
Delaware and Colorado.
The same economic headwinds pummeling Big Law
are being captured by MDM&C to propel the frm into even
stronger growth. Rather than scheduling layofs in 2013, the frm
continued recruiting summer associates, enlarged its ranks with
talented new attorneys, and attracted legal luminaries including
former Connecticut Supreme Court Justice C. Ian McLachlan.
MDM&C is able to adapt because of a sound philosophy
established in 1983. The philosophy is defned by excellent
legal representation for clients, fscal discipline, a dynamic
entrepreneurial spirit, and a
commitment to maintaining
workplaces in which everyone is
always treated with respect, whether
working in the mail room or the
managing partners ofce.
Weve been selective about
cases, never chasing every dollar or
headline-making transaction, and we
dont take unnecessary chances with debt, explains Deutsch.
We also consciously avoid a pressure-cooker environment and
operate under a no jerk rule to encourage a workplace where a
sense of loyalty pervades.
By adhering to its philosophy, MDM&C retains the needed
fexibility to make creative changes that contribute to more
efcient and efective client service. For example, it has
established attractive fee arrangements, including fxed fees
and other alternative arrangements for counseling and litigation
matters. And MDM&C enjoys the luxury of proactively fnding
emerging opportunities and outstanding talent in felds where the
demand for legal expertise is growing.
We look at change as a good thing, adds Deutsch. We keep
moving forward, providing top-fight representation to a growing
network of clients at fee terms which, we believe, competitive
frms cannot match.
From left: Joseph P. LaSala, Edward B. Deutsch and James M. Mulvaney

On May 8, a trader in London was selling a big chunk
of Lloyds Banking Group Plc stockand it had to be
done before the U.S. market opened. She correctly
On Sept. 3, a trader in Tokyo was given a percentage-
of-volume trade: sell 809,300 shares of Sharp Corp.
at a participation rate of 20 percent of volume. He
had no discretion to vary speed or execution strategy.
Yet by using a good VWAP algorithm, which sends
automated orders that seek to match the stocks
volume-weighted average price, the trader was able to
outperform by 12 basis points while holding average
speed and maneuvering at zero, as requested.
VLAD RASHKOVICH IS A GLOBAL BUSINESS MANAGER FOR
TRADE ANALYTICS AT BLOOMBERG IN NEW YORK.
VRASHKOVICH1@BLOOMBERG.NET
average price for the time from the start of the trade
that it would have taken to buy 2.1 million shares of
the Menlo Park, California, social-networking site
based on a participation rate of 20 percent.
In this case, the traders reading of momentum was
correct. By slowing down and executing at a speed of
11 percent, he was able to buy shares at a lower price.
The volume-weighted average price over the actual
trade was better than the target. Thanks to his man-
agement of momentum, he picked up 26 basis points
of return, which is represented by the Average Speed
bar. (A basis point is 0.01 percentage point.)
The next data point, EWP, is execution-weighted
price, a Bloomberg proprietary measure of the efect
of varying the participation rate during the trade. Here,
the efect was negative. The variations over the course
of the trade, which are represented by the Maneuver-
ing bar, reduced return by 14 basis points.
The nal data point is the actual average execution
price. The trader bought, on average, slightly below
the midpoint of the spread, resulting in a small gain of
3 basis points from Liquidity Sourcing.
The sum of the three factors is shown by the Total
Performance bar: a 15-basis-point gain. Most of the
outperformance came from capturing momentum.
Some of that performance was given away by unsuc-
cessful maneuvering.
anticipated favorable momentum. She couldnt slow
down though. In order to sell 10 million shares and still
nish the trade as required, she needed to participate
at 20 percent of volume. So to try to capture momen-
tum, the trader decided to backload the trade.
As a result, the average speed component of trade
performance was zero: The trader went with the
target speed of 20 percent during the whole interval
of the trade. The backloading worked well: Maneu-
vering brought a gain of 19 basis points. Because
she had to trade aggressively toward the end of the
interval, the trader had to cross the spreadselling
at the bidand ended up paying 11 basis points for
liquidity sourcing. Overall, the strategy resulted in
an 8-basis-point gain.
AVERAGE
EXECUTION PRICE
This data point
reflects the price the
trader actually got.
EXECUTION-
WEIGHTED PRICE
The EWP measures
the effect of varying the
participation rate over
the course of the trade.
EXAMPLE 2: MANEUVERING
EXAMPLE 3: LIQUIDITY
STRATEGIES
EQUITIES

STRATEGIES
CHEAT SHEET
T
E
A
R

O
U
T

A
N
D

S
A
V
E
.
Foreign Exchange
PULL OUT AND SAVE. // NOVEMBER 2013 // PRESS <HELP> TWICE TO SEND A QUESTION TO THE BLOOMBERG ANALYTICS HELP DESK.
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BDXY <Go>
lets you monitor the
Bloomberg U.S. Dollar
Index, which tracks
the performance of
a basket of 10 leading
global currencies
versus the dollar.
RES FX <Go>
displays all of the
foreign-exchange
research and com-
mentary that youre
privileged for or that
youve received in
your messages.
FXGO <Go>
lets you access
information about
Bloombergs FX
electronic-trading
platform.
STNI FXCHART-
BOOK <Go>
displays headlines
of Bloomberg
Currency Chart
Book stories, which
provide technical
analysis of the
FX market.
XLTP REAL TIME
MULTI-SECURITY
FX FORWARD <Go>
enables you to
download a spread-
sheet that con-
solidates forward
and implied FX and
deposit rates for
multiple currencies.
NI BFWFX <Go>
displays headlines of
Bloomberg First Word
FX stories.
NI FXKEY <Go>
displays headlines
of important global
FX news stories.
NI FXHOT <Go>
displays headlines
of hot and breaking
stories in currency
markets, as selected
by Bloomberg News
editors.
ADXY <Go>
BloombergJP Morgan
Asia Dollar Index.
STNI <Go>
lets you set lters to
monitor news related
to currencies.
DRVD <Go>
provides access to
documentation such
as white papers and
user guides related
to derivatives
valuation and
pricing.
FXFC <Go>
enables you to access
FX rate forecasts.
LDXY <Go>
BloombergJP Morgan
Latin America
Currency Index.
XLTP
REAL TIME FX
FORWARDS <Go>
enables you to
download a spread-
sheet that calculates
real-time cross-
currency forward
points and rates.
COMPILED BY ARNE OLSEN
AOLSEN6@BLOOMBERG.NET
displays synopses of potentially market-
moving news for currencies and other
asset classes from the Bloomberg First
Word service.
FIRST <Go>

DO YOUR INVESTMENTS FALL SHORT OF YOUR
INVESTMENT STRATEGY?
Before investing, carefully consider the funds investment objectives,
risks, charges and expenses. To obtain a prospectus or summary
prospectus, which contains this and other information, call
1.866.787.2257 or visit www.spdrs.com. Read it carefully.
EIFs trade Iike stocks, uctuate io arket vaIue aod ay trade at prices above or beIow the EIFs oet asset vaIue. rokerage coissioos
aod EIF expeoses wiII reduce returos.
The SPDR S&P MidCap 400 ETF Trust is an exchange traded fund designed to generally correspond to the price and yield performance of the S&P MidCap 400 Index.
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"S|0R' +rJ MiJC+u S|0R +|e |eiste|eJ t|+Jea+||s c St+rJ+|J 8 |cc|'s |ir+rci+| Se|ices, ||C ,"S8|'} +rJ |+e |eer |icerseJ c| use |] St+te St|eet Cc|uc|+ticr. |c r+rci+|
u|cJuct ce|eJ |] St+te St|eet c| its +|i+tes is sucrsc|eJ, erJc|seJ, sc|J c| u|cacteJ |] S8|.
ALPS Distributors, Inc., a registered broker-dealer, is distributor for the MidCap SPDR Trust, a unit investment trust.
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COMPILED BY JON ASMUNDSSON JASMUNDSSON@BLOOMBERG.NET
Trading patterns in early September suggested the
worst may be over for the Australian dollar after it
had plunged 9.5 percent in the previous six months.
Among the positive developments were signs that
the Reserve Bank of Australia was nearing the end
of its interest-rate-cutting cycle and that Chinas
economy was recovering. The Aussie, the worlds
fifth-most-traded currency, reached a three-year
low of 88.48 U.S. cents on Aug. 5.
Technical indicators in September signaled that
the Aussie had bottomed out. Type AUDUSD
<Crncy> GOC <Go> on the Bloomberg Professional
service for an Ichimoku chart of the currency. The
Aussie rose above the lower end of the Ichimoku
cloud on Sept. 4 for the first time since May. Its
conversion line, which plots the sum of the highest
high and lowest low for the prior nine data points,
climbed above the base line, which uses the same
calculation for the previous 26 points. Both are
bullish signals, says Junichi Ishikawa, a Tokyo-based
analyst at IG Markets Securities Ltd.
The cloud refers to the area between the first and
second span lines on the chart and is used to show
an area where trading orders may be clustered. For
the original story, type NSN MSWDVD6TTDT1 <Go>.
Aussie Signals Gain
Deal Talk Boosts
Sterling Financial
Shares of Sterling Financial Corp. rose as much as
11 percent after Bloomberg News reported on
Sept. 9 that Umpqua Holdings Corp. was in ad-
vanced talks to buy the lender. The stock of Port-
land-based Umpqua, Oregons largest bank, gained
as much as 7.2 percent after the report. A $2 bil-
lion deal with Spokane, Washingtonbased Sterling,
which is backed by private-equity investors Warburg
Pincus LLC and Thomas H. Lee Partners LP, was an-
nounced two days later, on Sept. 11. For the original
story, type NSN MSVKRQ6TTDSY <Go>.
INTO THE CLOUD
The Aussie rose
above the first span
line in September.
TIP BOX
Type NI
INFLUENTIAL
<Go> for daily
roundups of
exclusive
market-moving
stories.
You can use the Twitter Filter Builder (TWTR)
function to create a search for the 140-
character social-media messages that are most
relevant to you. Type TWTR <Go>. Click on Com-
panies, for example. In the Companies Selec-
tions window, click on Portfolio and then on the
name of a portfolio. Click on Save and then on
Open in Launchpad. For more information on
using TWTR, type BPS L#2081373 <Go>.
FILTERING TWITTER CONTENT
Most Influential
Exclusive Bloomberg News stories that moved markets
STRATEGIES
NEWS

Tracking Seasonality
You can use the heat map in SEAG to spot patterns in the way certain
currencies tend to strengthen or weaken during particular months.
BY AMIR TAL
Type SEAG
<Go> and click
on Heat Map to
chart a selected
currency.
THE BLOOMBERG U.S. DOLLAR INDEX FELL
by more than 1 percent in July. The drop fol-
lowed a rally that started in mid-June on specu-
lation that the Federal Reserve was nearing the
end of its cycle of accommodative policy and
would begin to taper quantitative easing.
The Seasonality Chart (SEAG) function shows
the dollars decline in July wasnt uncommon: The
greenback weakened in July in four of the past
five years.
To track the seasonality of the Bloomberg U.S.
Dollar Index, type BBDXY <Index> SEAG <Go> and
click on the Heat Map button. By default, the heat
map displays data for five calendar years, includ-
ing the current one. You can display up to 10 years
of data. To display data starting in 2005, for ex-
ample, click four times on the plus sign to the
left of Years in the upper-left corner of the
screen and press <Go>. From 2005 to 2013, the
dollar was mostly up in May. It fell in six of the
past nine Julys.
EXAMINING OTHER CURRENCIES REVEALS
stronger seasonal patterns. The South
African rand, for example, strength-
ened against the U.S. dollar only once in
the month of August in the past 10 years.
To chart the rand, tab in to the field in
the upper-left corner of
the screen, enter USDZAR
<Crncy> and click on the
top match. (The numbers
on each box represent the
percentage change of the
currency pairin this case,
dollar-rand.)
Similar patterns for the
month of August can be
found for the Turkish lira
versus the dollar (in nine of
10 years, the lira declined)
and the South Korean won
against the greenback (eight
out of 10).
The Indonesian rupiah declined against the
dollar every August for the past 10 years. Among
the so-called expanded-majors basket of most-
traded currencies, the rupiah is the only one
with that unbroken streak.
AMIR TAL IS A FOREIGN-EXCHANGE AND ECONOMICS
APPLICATION SPECIALIST AT BLOOMBERG IN NEW YORK.
ATAL4@BLOOMBERG.NET
PATTERNS
The rupiah declined
against the dollar during
the past 10 Augusts.
STRATEGIES
FOREIGN EXCHANGE

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STRATEGIES
132 BLOOMBERG MARKETS Dec ember 201 0 132 BLOOMBERG MARKETS November 2013
An FA chart shows how telecommunications companies cash flow has climbed.
COMPANIES THAT GENERATE CASH TYPI-
cally face a choice: reinvest it to grow or pay it out
to investors. Telecommunications companies
have been doing both in recent yearsindicating
that the sector has been particularly flush.
To track the cash flow generated by companies
in the Standard & Poors 500 Telecommunication
Services Index, type S5TELS <Index> FA CF <Go>
for the Cash Flow section of the Financial Analysis
function. Click on the graph icon to the left of Free
Cash Flow. Using annual periods, you can see that
the sectors free cash flow has generally climbed
since 2001, rising to $15.3 billion in 2013 through
Sept. 9. To chart spending on investments and div-
idend payouts, click on the box to the left of Capital
Expenditures so that a check mark appears. Then
click on the box to the left of Dividend Yield.
Among the 10 sectors of the S&P 500 Index,
communications has the highest average indi-
cated dividend yieldcalculated by annualizing
Tapping Into Telecoms
the most-recent payout and dividing by price. You
can use the Equity Screening (EQS) function to
rank and compare the payout ratios of compa-
nies and sectors. For a ready-made search that
ranks S&P 500 companies by dividend yield,
type EQS /SAMPLE 10652469 /RESULTS <Go>.
To analyze whether telecom companies high
payouts are likely to continue, tab in to the ADD
COLUMN field, enter BDVD PROJECTED
12-MONTH DIVIDEND YIELD, click on the top
match and press <Go>. Next, enter BDVD NEXT
PROJECTED ACTION, click on the match and
press <Go>. The two data columns, which display
data from the Bloomberg Dividend Forecasting
team, show that as of early September, the pro-
jected yield for the next 12 months was expected
to remain consistent.
IN ADDITION TO PAYING DIVIDENDS, TELE-
communications companies have been using cash
in mergers and acquisitions. This year through
Sept. 9, acquirers announced 669 pending or com-
pleted deals involving telecoms. Altogether, those
deals were valued at $268 billion, making telecom-
munications the most active industry this year.
The largestand the third-biggest deal everwas
Newbury, Englandbased Vodafone Group Plcs
$130 billion sale of its 45 percent stake in Verizon
Wireless to its joint-venture partner, New York
based Verizon Communications Inc.
To track telecommunications deals, type MA SU
<Go> for the Mergers & Acquisitions Advanced
Search function. First, in the Search Criteria panel
on the left side of the screen, click on Date Range.
In the window that appears, click on the arrow to
the right of Date Range and select Year-to-Date.
Phone companies are awash with cash. Here are some tools you can use to dig
into how theyre deploying money: paying dividends and doing deals.
BY PAULA COOK DINAN AND VINCENT TONG
TIP BOX
Type BDVS
<Go> for
information
about
Bloomberg
Dividend
Forecasting.
EQUITIES

The Summary tab
in the enhanced
M&A Transaction
Details screen
displays a
snapshot of a
selected deal.
The deal screen was recently reorganized and
enhanced with more than 40 new data points cov-
ering deal structure, multiples analysis and mar-
ket sentiment. To view the new screen if you
havent yet opted in, click on the green Show New
Screen button and then on the Opt-in button.
THE SUMMARY PAGE GIVES A SNAPSHOT OF
the transactiona brief synopsis, terms, equity
and transaction valuations, and key dates. Click on
Timeline to get a more comprehensive view of the
life cycle of the deal, letting you track share price,
amendments and regulatory approvals. Click on
Parties to display key financial information on
each of the parties involved in the deal. Click on
Structure to view data on the legal aspects of the
deal, contingency or special payments (including
dividends), termination fees and post-transaction
synergies. To view individual dealmakers involved
in the transaction, click on Advisers.
PAULA COOK DINAN AND VINCENT TONG ARE ANALYSTS IN
THE GLOBAL DATA DEPARTMENT AT BLOOMBERG IN LONDON.
PCOOKDINAN1@BLOOMBERG.NET, VTONG7@BLOOMBERG.NET
Click on the box to the left of Announced Date so a
check mark appears and then click on Update.
Next, click on Deal Status. Click on the boxes to the
left of Pending and Completed and then on Up-
date. Click on Sector/Industry. Click on the plus
sign to the left of Communications to expand the
list. Click on Telecommunications and then on
Update. Click on the Results button.
For a list of M&A transactions in the industry
this year, click on the Deal List tab. Lets look at
London-based Liberty Global Plcs $18.4 billion
acquisition of Virgin Media Inc. Click on the deal.

HOME IMPROVEMENTS
1 HOME DEPOT 6.9% 20.5 141.5%
2 LOWES 5.9 26.5 156.0
3 GAP 5.6 29.6 166.8
4 TJX 5.4 20.9 113.0
5 ROSS STORES 3.8 23.8 90.3
RISK-
ADJUSTED
RETURN VOLATILITY
TOTAL
RETURN
Figures are for the period from Sept. 10, 2011, to Sept. 9, 2013. The risk-adjusted return, which isnt
annualized, is calculated by dividing total return by volatility, or the degree of daily price variation, giving a
measure of income per unit of risk. A lower volatility means the price of an asset doesnt swing as
dramatically during a specified period, reducing the potential for unexpected losses. Source: Bloomberg
Fixer-Upper Opportunity
HOME DEPOT INC. PRODUCED THE HIGHEST
risk-adjusted return among peers over the past
two years after store improvements preceding
the housing rebound sparked stronger sales.
Home Depot, the worlds largest home-
improvement chain, gained 6.9 percent adjusted
for volatility during the two years ended on
Sept. 9. That was the best track record among the
32 retail stocks in the Standard & Poors 500 In-
dex, the Bloomberg Riskless Return ranking
shows. Home Depot had the fourth-highest abso-
lute return combined with the fourth-lowest price
swings, outpacing rival Lowes Cos., Gap Inc. and
discounters TJX Cos. and Ross Stores Inc.
Chief Executive Officer Frank Blake, 64, who
took charge in 2007, slowed Home Depot store
openings and cut 7,000 jobs in closing the Expo
Design Center unit and trimming costs at support
centers two years later. Spending shifted to distri-
bution, stocking of merchandise and employee
training, spurring three straight years of revenue
gains. Analysts forecast sales will rise 5.1 percent
in 2013 as the housing recovery gains momentum.
Home Depot was already well on its way to be-
coming lean and mean when everybody else woke
up to the housing downturn, says Bill Smead, who
oversees $622 million, including 233,000 Home
Depot shares, as CEO of Smead Capital Manage-
ment Inc. in Seattle. Its maybe three or four
years into a great 10-year era.
HOME DEPOT, BASED IN ATLANTA, IS EXPECTED
to generate sales of $78.6 billion for the fiscal
year ending on Feb. 2, according to the average
estimate of 22 analysts in a Bloomberg survey, an
increase of 16 percent from fiscal 2011. During
the same three years, analysts expect Lowes, the
second-biggest home-improvement retailer, to
boost sales 8.6 percent.
On a risk-adjusted basis, Mooresville, North
Carolinabased Lowes returned 5.9 percent dur-
ing the two years ended on Sept. 9, pairing the
third-highest total return with roughly average
volatility to rank second among the S&P 500 re-
tailers, according to Bloomberg data.
Home Depot returned 141.5 percent to share-
holders in the two years through Sept. 9, com-
pared with 51.4 percent for the S&P 500 Index,
and its volatility was 20.5. Lowes gained 156 per-
cent, with volatility of 26.5. Home Depot traded at
$73.58 on Sept. 9. People who own this stock feel
very comfortable owning it, David Strasser, an
analyst at Janney Montgomery Scott LLC in New
York, says of Home Depot. If you are a mutual
fund and you own the stock and it comes down,
the feeling is that theyre operating so well
theyre not going to underperform.
CHRIS BURRITT COVERS RETAILERS AT BLOOMBERG NEWS IN
GREENSBORO. CBURRITT@BLOOMBERG.NET
Building-supplies chain Home Depot leads retailers after making some
improvements itself and tapping into the housing rebound.
BY CHRIS BURRITT
TIP BOX
Type XLTP
RISKLESS
<Go> to
download the
Riskless
Return
spreadsheet.
STRATEGIES
RISKLESS RETURN

At MFS
we understand that a great deal is expected of

you. Youve made a commitment to managing peoples
fnancial futures. And you need the kind of insights
MFS can provide. You can rely on our quantitative analysts
who run daily metrics for securities and portfolios.
Our fundamental researchers who make risk assessments
for every security they follow. And our proprietary research
that fully integrates fundamental and quantitative analyses.
We are investment management for investment managers.
SM
You determine more than your own fate.
Because you are not the average investor.
You are a professional investor.
BOSTON
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HONG KONG
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LONDON
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MEXICO CITY
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SO PAULO
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SYDNEY
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MFS.COM/FOR-YOU
27707.1 TYPE YMFS <GO>

The BLOOMBERG PROFESSIONAL service (BPS) is owned and distributed by Bloomberg Finance L.P. (BFLP), except that Bloomberg L.P. and its subsidiaries distribute the BPS in Argentina, Bermuda, China, Japan, Korea and India. Bloomberg Tradebook is
provided by Bloomberg Tradebook LLC and its afliates and is available on the BPS. BLOOMBERG, BLOOMBERG PROFESSIONAL, BLOOMBERG MARKETS, BLOOMBERG NEWS, BLOOMBERG ANYWHERE and BLOOMBERG TRADEBOOK are trademarks and
service marks of BFLPor its subsidiaries. Nothing herein constitutes an ofer or a solicitation of an ofer to buy or sell a security or nancial instrument or investment advice or recommendation of a security or nancial instrument. Bloomberg believes the information
herein was obtained fromreliable sources but does not guarantee its accuracy.
Communicated, as applicable, by Bloomberg Tradebook LLC; Bloomberg Tradebook Europe Ltd., authorized and regulated by the U.K. Financial Services Authority; Bloomberg Tradebook (Bermuda) Ltd.; Bloomberg Tradebook Services LLC. This communica-
tion is directed only to market professionals who are eligible to be customers of the relevant Bloomberg Tradebook entity. Please visit http://www.bloombergtradebook.com/pdfs/disclaimer.pdf for more information and a list of Tradebook afliates involved with
Bloomberg Tradebook products in applicable jurisdictions.
Neither Bloomberg Finance L.P. nor any of its afliates (Bloomberg) is a Nationally Recognized Statistical Rating Organization (NRSRO) in the United States or an ofcially recognized credit rating agency in any other jurisdiction. Bloombergs ratings have
not been solicited by issuers, and issuers do not pay Bloomberg any fees to rate them or their securities. Customers should not use or rely on Bloombergs ratings to comply with applicable laws or regulations that prescribe the use of ratings issued by
accredited or otherwise recognized credit rating agencies. Bloombergs ratings and related data are not investment advice or recommendations of an investment strategy or whether to buy, sell or hold an investment.
For information on the BLOOMBERGPROFESSIONAL service, contact the sales ofce in your region: New York 212-318-2000, San Francisco 415-912-2960, Frankfurt 49-69-920410, Hong Kong 852-2977-6000, London 44-20-7330-7500, Sao Paulo
5511-3048-4500, Singapore 65-6212-1000, Sydney 61-2-9777-8686, Tokyo 81-3-3201-8900.
November 2013, volume 22, number 11. BLOOMBERGMARKETS (ISSN1531-5061, USPS 008-897) is published monthly with an extra issue in December by Bloomberg Finance L.P., 731 Lexington Ave., NewYork, NY 10022, and distributed free to subscrib-
ers of the BLOOMBERGPROFESSIONAL service. POSTMASTER: Send address changes to Circulation, BLOOMBERGMARKETS, P.O. Box 1583, NewYork, NY 10150-1583. Periodicals postage paid in NewYork and at additional mailing ofces.
2013 Bloomberg Finance L.P. Bloomberg Finance reserves the exclusive right to reproduce or authorize reproduction of articles. Advertisers and ad agencies assume liability for all ad content.
Private-equity professionals and investors can use a new
suite of tools on the Bloomberg Professional service to help
monitor investments, nd and analyze deals, perform due
diligence and track fundraising. Type PEM <Go> for the Private Equity
Market function, a portal that displays news and data related to deals
and capital raising. Type PEFR <Go> for the Private Equity Fundraising
Environment function, which gives an overview of the capital raised by
funds currently in the market. For a list of buyout funds that are seeking
money, for example, click on the Buyout bar in the chart in the Fundrais-
ing Funds section of the screen. To display a prole of a particular fund, click on its
name. Type PE <Go> for the Private Equity Home function, which lets you search
for funds and investors and access a cheat sheet. For more information on private
equityrelated tools, type BPS L#1936873 <Go>.
Tracking Private Equity
VIEWING
U.S. MARKET
VOLUME
Market Volume Snap-
shot is a new function
that gives you an
overview of volume
patterns and news
about trading in the
U.S. Type MVS <Go>
to see where stocks
are trading, including
on dark venues. For
a video with more
information about
MVS, type VOD
112313968 <Go>.
VISUALIZING
TRADE
The Trade Flow func-
tion, which displays a
visualization of a coun-
trys imports from and
exports to its trading
partners, has been
enhanced with a num-
ber of new features.
Type ECTR <Go>. In
ECTRs trade-ow
map, a countrys total
trade is represented
by a gray box. Imports
are outside the solid
white circle; exports
are inside it.
COMPILED BY JON
ASMUNDSSON
JASMUNDSSON@
BLOOMBERG.NET
TIP BOX
For more recent enhancements,
type NEW <Go>.
STATEMENT OF OWNERSHIP, MANAGEMENT
AND CIRCULATION
1. Publication title: Bloomberg Markets
2. Publication number: 1531-5061
3. Filing date: Sept. 16, 2013
4. Issue frequency: Monthly with an extra issue in December
5. No. of issues published annually: 13
6. Annual subscription price: $29.95
7. Complete mailing address of known office of publication:
Bloomberg LP, 731 Lexington Ave., New York, NY 10022
8. Complete mailing address of headquarters or general business
office of publisher: Bloomberg LP, 731 Lexington Ave.,
New York, NY 10022
9. Full names and complete mailing addresses of publisher, editor and
managing editor:
Publisher: Michael Dukmejian, Bloomberg LP, 731 Lexington Ave.,
New York, NY 10022; Editor: Ronald Henkoff, Bloomberg LP, 731
Lexington Ave., New York, NY 10022; Managing Editor: Laura Colby,
Bloomberg LP, 731 Lexington Ave., New York, NY 10022
10. Owner: Bloomberg Finance LP, 731 Lexington Ave.,
New York, NY 10022
11. Known bondholders, mortgagees and other security holders owning
or holding 1 percent or more of total amount of bonds, mortgages or
other securities: None
12. Not applicable
13. Publication name: Bloomberg Markets
14. Issue date for circulation data below: September 2013
15. Extent and nature of circulation:
a. Total number of copies (net press run)
379,162
1
370,597
2
b. Legitimate paid and/or requested circulation:
(1) Paid/requested outside-county mail subscriptions
stated on form 3541
141,690
1
142,148
2
(2) Not applicable
(3) Sales through dealers and carriers, street
vendors, counter sales and other non-USPS paid
distribution 205,873
1
200,409
2
(4) Not applicable
c. Total paid and/or requested circulation [sum of
15b(1), (2), (3) and (4)] 347,563
1
342,557
2
d. Nonrequested distribution by mail (samples,
complimentary and other free)
(1) Outside-county as stated on form 3541
1,940
1
1,483
2
(2) Not applicable
(3) Not applicable
(4) Nonrequested distribution outside the mail
(carriers or other means) 1,790
1
1,801
2
e. Total nonrequested distribution
[sum of 15d(1), (2), (3) and (4)] 3,730
1
3,284
2
f. Total distribution
(sum of 15c and 15e) 351,293
1
345,841
2
g. Copies not distributed 27,869
1
24,756
2
h. Total (sum of 15f and 15g) 379,162
1
370,597
2
i. Percent paid and/or requested circulation
(15c divided by 15f times 100) 98.94%
1
99.05%
2
16. Publication of statement of ownership. Publication required. Will be
printed in the November issue of this publication.
1
Average no. copies each issue during preceding 12 months.
2
No. copies of single issue published nearest to filing date.
I certify that all information furnished on this form is true and complete.
Ronald Henkoff, Editor
STRATEGIES
WHATS NEW

TAKE A NEW LINE WITH YOUR
EQUITY
An investor should consider investment objectives, risks, charges and expenses carefully before investing. To obtain a prospectus, which contains this and other
information, call 1-866-SECTOR-ETF or visit www.sectorspdrs.com. Read the prospectus carefully before investing.
The S&P 500, SPDRs, and Select Sector SPDRs are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use. The stocks included in each Select Sector
Index were selected by the compilation agent. Their composition and weighting can be expected to differ to that in any similar indexes that are published by S&P. The S&P 500
Index is an unmanaged index of 500 common stocks that is generally considered representative of the U.S. stock market. The index is heavily weighted toward stocks with
large market capitalizations and represents approximately two-thirds of the total market value of all domestic common stocks. Investors cannot invest directly in an index. The
S&P 500 Index gures do not reect any fees, expenses or taxes. Ordinary brokerage commissions apply. ETFs are considered transparent because their portfolio holdings are
disclosed daily. Liquidity is characterized by a high level of trading activity.
Select Sector SPDRs are subject to risks similar to those of stocks, including those regarding short-selling and margin account maintenance. All ETFs are subject to risk,
including possible loss of principal. Funds focusing on a single sector generally experience greater volatility. Diversication does not eliminate the risk of experiencing investment
losses.
ALPS Distributors, Inc. a registered broker-dealer, is distributor for the Select Sector SPDR Trust.
Consumer Discretionary - XLY Consumer Staples - XLP Energy - XLE Financial - XLF Health Care - XLV Industrial - XLI Materials - XLB Technology - XLK Utilities - XLU
Potential benets of adding Sector SPDR ETFs to your portfolio include:
Unoiluto xposur to a spcinc sctor o th SP
Th alloay traoability o stocks
Th oivrsincation o mutual unos
Total transparncy
Liuioity
Visit www.sectorspdrs.com
or call 1-866-SECTOR-ETF
Time For A
Stock Alternative
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