Relationship between Risk, Profitability and Temporary Horizon

Welzia, among its products and services, markets investment funds. These funds are constructed using the semi-active methodology explained above. In other words, the widest possible Universe of Assets is chosen (including the Alternative Investment and all geographic regions) and the Effective Border is estimated, using the most advanced estimation methodology (Modern Portfolio Management Theory, together with the Black-Litterman developments). From the Effective Border, the portfolios that have 5%, 10%, 15% and 20% hedge levels are chosen and a fund is formed with each of these portfolios, that will be submitted to a strict Risk Control throughout the length of time. Investors who are interested in funds should therefore decide what hedge level they want and invest in the respective fund.

Below you can seethe funds of Welzia:

• Welzia Sigma 5
• Welzia Sigma 10
• Welzia Sigma 15
• Welzia Sigma 20

The nomenclature of the fund precisely represents the hedge level established for each one (sigma= risk). Consequently, the Welzia Sigma 5, has the risk of a 5% pacted hedge, the Welzia Sigma 10, a 10%, etc. Welzia will maintain the established risk within agreed fluctuation bands, by means of the Rebalancing.

The relationship between the risk, the temporary horizon and the return is analysed below, taking two funds as example: Welzia Sigma 5 and Welzia Sigma 15, whose characteristics are summarised in the following table (the data shown in this table have been calculated at September 2005):

• The Welzia Sigma 5 Fund, has a 5% risk that Welzia will maintain within agreed fluctuation bands, by means of the Rebalancing. As consequence of maintaining a controlled hedge level, the expected annualised return is 4.80%. The Recommended Horizon of the Investment is at least 3 years because at that term there is approximately a 95% probability of having a positive annualised return (that is, less than 5% of probability of having a negative return).
• The Welzia Sigma 15 Fund, has a 15% risk that Welzia will maintain within agreed fluctuation bands, by means of the Rebalancing. As consequence of maintaining a controlled hedge level, the expected annualised return is 10.20%. The Recommended Horizon of the Investment is at least 7 years because at that term there is approximately a 95% probability of having a positive annualised return (that is, less than 5% of probability of having a negative return).