Securities Lending Presentation. State Universities Retirement System of Illinois

Transcription

1 Securities Lending Presentation State Universities Retirement System of Illinois October 23, 2008

2 Table of Contents Table of Contents Pages Executive Summary 2 Market Update 3 6 Cash Collateral 7-10 Revenue Dynamics Program Profile Appendix 20 SURS 1

3 Confidential Executive Summary State Universities Retirement System of Illinois (SURS) entered Credit Suisse s securities lending program in August SURS securities lending earnings totaled $2,603,303, for August and September The guaranteed annual revenue for the securities lending program for the year ending July 31, 2008 was $10,556,541. SURS first year earnings from August 2007 thru July 2008 totaled $14,962,604, exceeding the guarantee by 41.7%, and 33.86% greater than the annual estimated revenue of $11,177,514. SURS revenue out performance was driven by larger than estimated intrinsic and reinvestment spreads, predominantly driven by increased demand for U.S. Government securities, and a widening of the spread between LIBOR and Fed Funds. During the period of August 2007 to July 2008, SURS utilization rate was 22.8% versus our estimate of 32%. Lower utilization was attributed to a lower amount of lendables in U.S. Treasuries, Agencies, and International Equities. Furthermore, demand for U.S. Agencies and Mortgages decreased, and borrowing of international equities occurred over a shorter than usual timeframe due to increased financing costs. As of June 30, 2008, Credit Suisse had one of the highest Tier 1 capital ratio s for any bank worldwide at 10.2%, and also had a market capitalization of $51 billion, and net earnings of $1.5 billion. SURS 2

4 Credit Ratings and Core Credit Strengths Credit Suisse Group Credit Suisse Credit Suisse (USA) Inc. Short-Term Senior Outlook Short-Term Senior Outlook Moody's - Aa2 Stable P1 Aa1 Stable S&P A1 A+ Negative A1+ AA- Negative Fitch F1+ AA- Stable F1+ AA- Stable Core Credit Strengths Top ppositions in private and investment banking Resilient and cross-cyclical revenue generation capacity Realized and expected benefits from major efficiency measures Enhanced risk control and structurally reduced risk appetite Strong economic and regulatory capital positions Increased profitability and sound asset quality SURS 3

5 Capital Ratios of CSG & CS Bank vs. Peers Tier 1 Ratio for CSG, CS Bank & Peer Financial i Institutions i (2Q 2008) 11.6 (%) Non-Swiss Average Basel II 8.1% (%) 8 CSG CS Bank UBS Deutsche Bank BNP Paribas ING Bank BSCH JP Morgan 1) Chase 1) Citigroup RBS Barclays HSBC Soc Gen UniCredit Total Capital Ratio for CSG, CS Bank & Peer Financial Institutions (2Q 2008) Non-Swiss Average Basel II 11.8% 1) Basel I CSG CS Bank UBS Deutsche BNP Paribas ING Bank BSCH JP Morgan Citigroup 1) RBS Barclays HSBC Soc Gen UniCredit Bank Chase 1) 0.0 Not disclose d Source: Company Reports SURS 4

6 Market Summary Credit concerns have caused tighter lending standards between banks, and other counterparties thus widening the LIBOR spread to Fed Funds, increasing returns from money market investments in SURS securities lending program. Capital issues for banks, have decreased lending, and have created illiquidity in money market investments, and other short-term t fixed income securities. Declines in home prices and tighter lending standards, increases foreclosures, and creates illiquidity in mortgage backed securities. Bankruptcies and takeovers in the financial sector have decreased lending counterparties, decreasing utilization rates. Tighter credit standards and deleveraging have decreased loan balances. Lehman files for bankruptcy in September 2008, Credit Suisse restricts lending with Lehman, and recalls/buys-in all loans. As of October 7 th, there are two buy-ins pending settlement; and one new position that settled into SURS account on 10/7, as a result of shares from a corporate action (stock dividend), pending a buy-in, with a total market value of $685,000. SEC order prohibiting short selling in certain financial companies, comprises over 1000 securities. Many other countries impose short selling bans to varying degrees. Congress passes $700 billion Troubled Assets Rescue Program (TARP), details of first steps released October 13, SURS 5

7 Interest Rate Environment Review Since August 2007, the Federal Reserve Open Market Committee has reduced Fed Target Rates by 375 basis points (5.25% 1.50%) and the Discount Rate by 450 basis points (6.25% %) January 28, % - Pause February 2, % % January 31, % % January 31, % - Pause January 22, % %* March 16, % - Pause March 22, % % March 28, % % March 21, % - Pause January 30, % % May 4, % - Pause May 3, % % May 10, % % May 9, % - Pause March 18, % % June 30, % % June 30, % % June 29, % % June 28, % - Pause April 30, % % August 10, % % August 9, % % August 8, % - Pause August 7, % - Pause June 25, % - Pause September 21, % % September 20, % % September 20, % - Pause September 18, % % August 5, % - Pause November 10, % % November 1, % % October 25, % - Pause October 31, % % September 16, % - Pause December 14, % % December 13, % % December 12, % - Pause December 11, % % October 7, % %* * Inter-meeting rate action October 29, % -??? December 16, 2008??? -??? FOMC left rates unchanged at its September 16th meeting for the third consecutive time, but revised the statement noting risk posed by strains to both the financial and labor markets as follows: Strains in financial markets have increased significantly and labor markets have weakened further. Economic growth appears to have slowed recently, partly reflecting a softening of household spending. Tight credit conditions, the ongoing housing contraction, and some slowing in export growth are likely to weigh on economic growth over the next few quarters. October 8, Fed leads round of globally interest rate cuts, that included Bank of England, European Central Bank, and the Central Banks of China, Canada, Sweden and Switzerland. Outlook - Uncertainty over Economic factors will determine the Fed Policy Fed Funds Futures contracts in August had predicted a 14% probability of an interest rate hike at the September 16th meeting and a 26% probability of a hike at the October 29th meeting. Currently, futures contracts show a zero probability of future rate increases. Futures contracts now show a 100% probability of an interest rate cut on October 29 th and a 100% chance of an interest rate cut on December 16 th.. SURS 6

8 Cash Collateral Review SURS 7

9 SURS Portfolio Breakdown 10/07/08 10/07 Average Yield: 3.38% Investment Type Amortized Cost Allocation % FRS (PAY QUARTERLY) $ 431,339, % Ratings Tri-Party Repo $ 420,939, % FRS (PAY MONTHLY) $ 199,691, % CD $ 195,941, % ABS (PAY MONTHLY) $ 125,704, % CP $ 99,731, % Repo 27% A 5% A+ & A+e 12% A-1+ 10% ABS (PAY QUARTERLY) $ 78,589, % 5.1% TOTAL $ 1,551,937, % Portfolio Diversification AAA/ *- 3% AAA & AAAe 14% AA- & AA-e 18% AA & AAe 8% AA+e 3% ABS (PAY MONTHLY) 8% CP 6% ABS (PAY QUARTERLY) 5% FRS (PAY QUARTERLY) 28% CD 13% FRS (PAY MONTHLY) 13% Tri-Party Repo 27% SURS 8

10 SURS Portfolio Breakdown 10/07/08 Days to Reset 61 to 180 days 5% Overnight 34% 31 to 60 days 39% 2to30days 22% Days to Maturity > 360 days 24% 0 to 90 days 37% 180 to 360 days 36% 90 to 180 days 3% SURS 9

11 SURS Cash Collateral Investment Spread to Fed Funds (8/1/07 to 10/08/08) Yield: Rebate: Spread: 73.5 bps eld & Rebat te Yi Rebates spike to because of a FFO of 7.00 on 9/30 Yield Rebate = Spread Basis Points Aug-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan- 08 Fe b-08 Mar-08 Apr-08 May-08 Jun-08 Jul- 08 Aug-08 Sep-08 (25) Yield Rebate Spread SURS 10

12 Revenue Dynamics SURS 11

13 SURS Historical Earnings Aug 07 to Sep 08 $2,000,000 $1,800,000 $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $- Annual Estimate: $11,177,514 Guarantee: $10,556,541 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Month SURS Earnings Aug-07 $ 618,130 Sep-07 $ 841,334 Oct-07 $ 1,072,927 Nov-07 $ 1,141,060 Dec-07 $ 1,244,098 Jan-08 $ 1,574,302 Feb-08 $ 1,106,017 Mar-08 $ 1,308,020 Apr-08 $ 1,439,861 May-08 $ 1,831,249 Jun-08 $ 1,439,682 Jul-08 $ 1,345,924 Aug-08 $ 1,325,210 Sep-08* $ 1,278,093 Total $ 17,565,907 * Sep 08 earnings are unaudited Estimate Guarantee SURS 12

14 SURS Collateralized Outstanding Loan Balance Aug 07 to Sep 08 $3,500,000,000 $3,000,000,000 $2,500,000,000 $2,000,000,000 $1,500,000,000 $1,000,000,000 Reduction in balances due to various transitions in Mar 08, Jun 08, Aug 08 and Sep 08, equity market declines, and changes to the overall financial landscape. $500,000,000 $0 1-Aug-07 1-Sep-07 1-Oct-07 1-Nov-07 1-Dec-07 1-Jan-08 1-Feb-08 1-Mar-08 1-Apr-08 1-May-08 1-Jun-08 1-Jul-08 1-Aug-08 1-Sep-08 Balance Projection SURS 13

15 SURS Securities Lending Performance Aug 07 to Jul 08 Assets On % of Lendable Intrinsic Gross Intrinsic Reinvestment Gross SURS Asset Type Lendable Assets Loan On Loan Spread Spread Revenue Revenue Revenue Revenue US Securities ADRs $ 57,849,214 $ 21,486,245 37% $ 71,951 $ 99,838 $ 171,788 $ 154,610 ADRs Estimate $ 70,192,424 $ 26,680,982 38% $ 202,258 $ 58,698 $ 260,956 $ 234,861 Corp Bonds $ 1,197,130,422 $ 48,667,659 4% $ 112,074 $ 226,139 $ 338,213 $ 304,391 Corp Bonds Estimate $ 743,127,779 $ 74,312,778 10% $ 111,469 $ 163,488 $ 274,957 $ 247,462 US Equities $ 4,963,677,263 $ 1,220,866,426 25% $ 2,109,830 $ 5,672,870 $ 7,782,700 $ 7,004,430 US Equities Estimate $ 4,465,929,104 $ 1,318,187,406 30% $ 2,639,204 $ 2,900,012 $ 5,539,217 $ 4,985,295 US Agencies $ 136,018,009 $ 55,086,950 40% $ 67,824 $ 255,967 $ 323,790 $ 291,411 US Agencies Estimate $ 266,978,826 $ 221,550,753 83% 0 22 $ - $ 487,412 $ 487,412 $ 438,670 US Mortgages $ 1,592,458,401 $ 88,714,222 6% 3 49 $ 25,306 $ 412,219 $ 437,525 $ 393,772 US Mortgages Estimate $ 1,770,175,701 $ 219,763,092 12% $ (131,858) $ 483,479 $ 351,621 $ 316,459 US Treasuries $ 777,134,966 $ 736,449,219 95% $ 2,729,579 $ 3,421,980 $ 6,151, $ 5,536, US Treasuries Estimate $ 950,172,344 $ 939,705,896 99% 9 31 $ 865,582 $ 2,067,353 $ 2,932,935 $ 2,639,641 Emerging Market Debt $ - $ - 0% 0 0 $ - $ - $ - $ - Emerging Market Debt Estimate $ 15,028,546 $ 1,973,427 13% $ 3,385 $ 4,342 $ 7,727 $ 6,954 US Sub-totals $ 8,724,268,276 $ 2,171,270,721 25% $ 5,116,562 $ 10,089,013 $ 15,205,575 $ 13,685,018 US Sub-Totals Estimate $ 8,281,604,724 $ 2,802,174,334 34% $ 3,690,040 $ 6,164,784 $ 9,854,825 $ 8,869,342 Non US Securities International Equities $ 1,146,808,777 $ 80,560,781 7% $ 1,045,207 $ 374,333 $ 1,419,540 $ 1,277,586 International Equities Estimate $ 1,528,503,760 $ 300,312,900 20% $ 1,903,946 $ 660,688 $ 2,564,635 $ 2,308,171 Grand Total (All Assets) $ 9,871,077,052 $ 2,251,831,503 23% $ 6,161,769 $ 10,463,346 $ 16,625,115 $ 14,962,604 Grand Total (All Assets) Estimate $ 9,810,108,484 $ 3,102,487,234 32% $ 5,593,986 $ 6,825,472 $ 12,419,460 $ 11,177,513 Reinvestment Spread = 67 Reinvestment Spread Estimate = 22 In total, lendable assets averaged close to original estimates, however, certain asset classes have varied: US Treasury and Agency lendable assets have decreased by approximately 20% and 50%, respectively. US equity lendables have increased by 10%. International equity lendables have decreased by 25%. Utilization rates have been lower than estimated due to demand changes. US Agency and Mortgage demand decreased due to increased risk to underlying assets. International equity demand decreased due to the increased cost of financing. Overall, intrinsic spread averaged 27.4 bps versus an estimated 18 bps. International equity intrinsic spread averaged bps versus an estimate of 63 bps due to loans extending over shorter timeframes. US Treasury intrinsic spread averaged 37.1 bps versus an estimate of 9 bps due to flight to quality by investors. Reinvestment spread was 45 basis points larger than estimated due to LIBOR spread widening to Fed Funds, associated with credit crisis. SURS 14

16 SURS Utilization and Spreads Utilization Overview Overall utilization of SURS assets (22.6%) is lower than projection (32.0%) due to lower than expected balances in corporate bonds, agencies, mortgages and non-us equities. Withholding tax changes for US pension plans reduced loan balances in countries like Germany, Finland and Sweden, while high internal cost of funding shortened the tenor of dividend related borrows. As a result, the outstanding loan balances averaged $2.25 Billion, $850 Million less balances than the original forecast of $3.1 Billion. The reduction in outstanding loan balances is a direct result of increasing borrower costs due to inflated financing costs during this liquidity idit crisis. International dividend enhancement trades were shorter in duration than previous years as a result of higher financing cost to the borrowers. Furthermore, withholding tax changes for US pension plans reduced loan balances in countries like Germany, Finland and Sweden. We continue to see high demand for US Treasury assets as the flight to quality remains strong due to the volatile market conditions globally. US Agency and Mortgage demand decreased due to increased risk to underlying assets. Demand dto borrow US equities has decreased ddue to de-leveraging, SEC actions, and fewer market participants. i t Spreads to Fed Funds on large-cap, easy to borrow names, have narrowed considerably, reducing intrinsic value. The amount of specials ( stocks trading higher than 50 bps fee ) in SURS portfolio has increased from around $35MM noted in the May 2007 analysis to approximately $100MM currently. Spread Overview Overall spreads of SURS balances (74.6 bps) were higher than revenue projection ( bps) as the cash collateral yield was 47 bps, more than double the projection of 22 bps. The liquidity crisis inflated LIBOR rates driving up reinvestment spread., and shorter international equity trades, were the primary reasons for greater cash spreads. International equity spreads are cyclical as borrower demand is based on dividend payments. Peak spreads occur during April thru July and were consistent with estimate when factoring in the increased liquidity premiums, and shorter borrowing time periods. US Treasury spreads were wider than historical i levels, l as the credit and liquidity idit crisis i increased demand d for these structures. t Corporate bond spreads were generally higher than projected as borrowers focused on high yield bonds and reduced general collateral borrows. The demand to borrow investment grade (GC) corporate bonds has decreased as hedge funds have turned to the Credit Default Market to short/hedge exposure. Recently we have seen increasing pressure on intrinsic spreads for US Agencies and US Mortgages as borrowers now look for rebate levels well above Fed Funds because of the liquidity crunch. Bloated dealer balance sheets have decreased demand to borrow mortgage and agency debt for matched dbook purposes. SURS 15

17 Confidential SURS Top Ten Borrowers as of 9/30/08 & Earnings by Borrower (Aug 07 to Sep 08*) Loan Value by Borrower 13.9% 24.9% 4.0% 4.4% 5.8% 6.4% 12.3% 6.7% 6.8% 7.2% 76% 7.6% GOLDMAN SACHS & CO CITIGROUP WORLD MARKETS BARCLAYS CAPITAL INC DRESDNER KLEINWORT BENSON SECS LTD MERRILL LYNCH GOVERNMENT SECURITIES NOMURA SECURITIES INTL SOCIETE GENERALE, NEW YORK BRANCH ABN AMRO INC. BNP PARIBAS SECURITIES CORP. MERRILL LYNCH,PIERCE,FENNER & SMITH INC. ALL OTHERS (12 "OTHERS") Borrower SURS Earnings GOLDMAN SACHS & CO $ 3,899,172 LEHMAN BROTHERS $ 2,246,434 DEUTSCHE BANK SECURITIES INC $ 1,922,165 CITIGROUP WORLD MARKETS $ 1,727,112 ABN AMRO INC $ 1,455,653 DRESDNER KLEINWORT BENSON SECS LTD $ 1,225,942 SOCIETE GENERALE, NEW YORK BRANCH $ 1,042,509 MERRILL LYNCH,PIERCE,FENNER & SMITH INC $ 695,480 NOMURA SECURITIES INTL $ 616,565 BNP PARIBAS SECURITIES CORP $ 603,566 MS SECURITIES SERVICES INC $ 544,119 BARCLAYS CAPITAL INC $ 375,632 HSBC SECURITIES (USA) INC $ 192,624 MORGAN STANLEY & CO, INC $ 184,290 UBS SECS LLC $ 180,797 ALL OTHERS (11 "OTHERS") $ 489,651 Total $ 17,401,712 Adjustments $ 164,195 Grand Total $ 17,565,907 Borrower Market Value Loan Value Collateral % % of Total GOLDMAN SACHS & CO 371,120, ,246, % 24.90% CITIGROUP WORLD MARKETS 187,333, ,897, % 12.34% BARCLAYS CAPITAL INC 113,529, ,255, % 7.55% DRESDNER KLEINWORT BENSON SECS LT 106,166, ,408, % 7.17% MERRILL LYNCH GOVERNMENT SECURITIE 101,929, ,915, % 675% 6.75% NOMURA SECURITIES INTL 100,173, ,002, % 6.69% SOCIETE GENERALE, NEW YORK BRANCH 97,135,904 99,129, % 6.44% ABN AMRO INC. 86,697,653 89,073, % 5.79% BNP PARIBAS SECURITIES CORP. 66,378,481 68,269, % 4.44% MERRILL LYNCH,PIERCE,FENNER & SMITH 59,113,221 61,857, % 4.02% ALL OTHERS (12 "OTHERS") 205,822, ,159, % 05% 13.91% Grand Total 1,495,399,821 1,539,214, % % * Sep 08 earnings are unaudited. SURS 16

18 SURS Top Earning Securities 2008 (Jan- Sep) TOP 10 EARNINGS - GOVERNMENT SECURITY ID SECURITY DESCRIPTION SURS EARNINGS US912810FR42 US TREASURY (TIPS) BOND / 01/ 25 $ 290,695 US912810FH69 U S TREASURY BOND TIPS / 04/ 29 $ 273,041 US912828CZ11 US TREASURY NOTES (TIPS / 04/ 10 $ 213,777 US912828AF74 US TREASURY NOTE (TIPS) / 07/ 12 $ 194,260 US912828CP39 US TREASURY NOTES (TIPS / 07/ 14 $ 190,330 US912828BW98 US TREASURY NOTE TIPS / 01/ 14 $ 184,426 US912828DH04 US TREASURY NOTES TIPS / 01/ 15 $ 165,690 US912828EA42 US TREASURY NOTES (TIPS / 07/ 15 $ 161,794 US912810FD55 USTREASURYBOND(TIPS) /04/ / 28 $ 161,506 US912810PS15 US TREASURY NOTE (TIPS) / 01/ 27 $ 157,247 TOP 10 EARNINGS - EQUITY SECURITY ID SECURITY DESCRIPTION SECTOR - INDUSTRY COUNTRY SURS EARNINGS US SIMON PPTY GROUP INC FINANCIAL - REIT (RETAIL) UNITED STATES $ 108,247 US SEARS HLDGS CORP SERVICES - DEPT STORES UNITED STATES $ 105,417 IT ENEL SPA UTILITIES - ELECTRIC UTILITIES ITALY $ 88,931 FR AXA SA FINANCIAL - INSURANCE FRANCE $ 85,299 US PROLOGIS FINANCIAL - REIT (INDUSTRIAL) UNITED STATES $ 68,992 US WELLS FARGO CO FINANCIAL - BANKING UNITED STATES $ 67, US AVALONBAY COMMUNITIES FINANCIAL - REIT (RESIDENTIAL) UNITED STATES $ 64,663 US BOSTON PPTYS INC FINANCIAL - REIT (OFFICE) UNITED STATES $ 58,096 FR FRANCE TELECOM SA TECHNOLOGY - TELECOMMUNICATIONS FRANCE $ 57,892 US44107P1049 HOST HOTELS & RESORTS FINANCIAL - REIT (HOTEL) UNITED STATES $ 53,880 SURS 17

19 Program Profile SURS 18

20 Confidential SURS Program Profile Compensation Schedule: Guarantee of $10,556,541 SURS Credit Suisse Fee Split 90% 10% Assets participating in the lending program US Corp Bonds, US Equities, Non-US Equities (currently lending in 16 markets), US Treasuries (Strips, TIPS, Bills, Bonds, & Notes), & Non-US Fixed Income Securities Indemnifications Borrower Default Repurchase Agreement Counterparty Default Custodial Relationship Northern Trust (Approx $10.4 Billion) Approved Collateral Types Separately managed US Dollar cash collateral account held at Northern Trust Approved Borrowers SURS approves all of Credit Suisse Borrowers, except for Credit Suisse affiliates which h have been restricted. Reporting Requirements Semi-annually performance reporting Annual Audit Reporting Annual Compliance Letter (Investment Guidelines) Illinois Finance Entity Certification Sudan/Iran Law Certification SURS Fiscal Year End Letter Monthly Earnings Report Monthly Reporting Package Loans & Investments Daily Reporting available via Loan View SURS 19

21 Appendix SURS 20

22 Glossary of Terms Borrower: approved counterparty Collateral: Cash delivered by a borrower to a lender to collateralize a loan of securities Discount Rate: the interest rate that an eligible depository institution is charged to borrow short-term funds directly from a Federal Reserve Bank Fed Funds Open: first opening trade in the fed fund market from bank to bank Intrinsic Spread: spread between Fed Funds Open and the rebate rate Lendable Base: average market value of lendable assets Loan Balance: average loan value Loan Value: market value of the loan plus collateral margin (102% Domestic, 105% International) Rebate Rate: rate of interest paid to the borrower on the cash collateral pledged (based off Fed Funds Open) Reinvestment Spread: basis point spread between the Fed Funds Open and the investment rate of the cash collateral investment Tier 1 Capital Ratio: A term used to describe the capital adequacy of a bank. Tier I capital is core capital, this includes equity capital and disclosed reserves Utilization Rate: percentage of lendable base out on loan SURS 21

23 CS does not provide any tax advice. Any tax statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding any penalties. Any such statement herein was written to support the marketing or promotion of the transaction(s) or matter(s) to which the statement relates. Each taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor. These materials have been provided to you by Credit Suisse ("CS") in connection with an actual or potential mandate or engagement and may not be used or relied upon for any purpose other than as specifically contemplated by a written agreement with CS. In addition, these materials may not be disclosed, in whole or in part, or summarized or otherwise referred to except as agreed in writing by CS. The information used in preparing these materials was obtained from or through you or your representatives or from public sources. CS assumes no responsibility for independent verification of such information and has relied on such information being complete and accurate in all material respects. To the extent such information includes estimates and forecasts of future financial performance (including estimates of potential cost savings and synergies) prepared by or reviewed or discussed with the managements of your company and/or other potential transaction participants or obtained from public sources, we have assumed that such estimates and forecasts have been reasonably prepared on bases reflecting the best currently available estimates and judgments of such managements (or, with respect to estimates and forecasts obtained from public sources, represent reasonable estimates). These materials were designed for use by specific persons familiar with the business and the affairs of your company and CS assumes no obligation to update or otherwise revise these materials. Nothing contained herein should be construed as tax, accounting or legal advice. You (and each of your employees, representatives or other agents) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the transactions contemplated by these materials and all materials of any kind (including opinions or other tax analyses) that are provided to you relating to such tax treatment and structure. For this purpose, the tax treatment of a transaction is the purported or claimed U.S. federal income tax treatment of the transaction and the tax structure of a transaction is any fact that may be relevant to understanding the purported or claimed U.S. federal income tax treatment of the transaction. CS has adopted policies and guidelines designed to preserve the independence of its research analysts. CS s policies prohibit employees from directly or indirectly offering a favorable research rating or specific price target, or offering to change a research rating or price target, as consideration for or an inducement to obtain business or other compensation. CS s policies prohibit research analysts from being compensated for their involvement in investment banking transactions. SURS 22