Marquette Associates Investment Perspectives

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1 M Marquette Associates Investment Perspectives 28 Market Update g During these challenging times, we compiled our third quarter Investment Perspectives Newsletter to offer perspective and analysis on the market, asset classes, and issues important to our client portfolios. Timeline Fixed Income Markets U.S. Equity Markets International Equity Markets Hedge Fund Markets Private Equity Real Estate Infrastructure Securities Lending Commercial Paper Page 1 Page 2 Pages 3-4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 1 Page 11

2 Timeline of a Tumultuous Twelve Months The last twelve months have been an extraordinary and unprecendented time in the US markets. As the graphs below demonstrate, poor economic news has taken a severe toll on the equity market. The VIX index is a widely used measure of market risk and is often referred to as the "investor fear gauge." Not surprisingly, it has risen substantially as the market has faltered. 18 October 9, 27 The S&P 5 peaks at S&P 5 Declines Substantially VIX Index Rises to Record Levels S&P 5 Index October 27, 28 The S&P 5 index closes at its lowest level since March 31, VIX Index September 15, 28 The Fed lends $85 billion to AIG to prevent the insurance company's failure. October 3, 28 Congress passes the $7 billion bailout package after tweaking the original proposal S&P 5 Level 12 January 22, 28 The Fed lowers the Fed Funds Target rate.75%, the largest cut in 25 years, to 3.5% at an emergency meeting. 5 4 VIX Index September 16, 28 Lehman Brothers files for bankruptcy; Merrill Lynch sells itself to Bank of America. October 7, 28 S&P 5 drops below 1 for first time since September 3, % 1-Year Treasury Yield 4.6% October 31, 27 The Fed lowers the Fed Funds Target rate to 4.5%. July 11, 28 Oil prices rise to a record level of $147 per barrel. September 26, 28 JP Morgan Chase acquires Washington Mutual in a government assisted deal. 1-Year Treasury Yield 4.2% 3.8% 3.4% 3.% March 17, 28 Bear Stearns collapses and is sold to JP Morgan Chase in a deal facilitated by the Fed. S&P 5 falls to September 7, 28 Fannie Mae and Freddie Mac are bailed out by the US Government. 1/9/27 1/9/28 4/9/28 7/9/28 1/9/28 The sources of information used in this report are believed to be reliable. Marquette has not independently verified all of the information contained herein. Prepared by Marquette Associates, Inc. 1

3 Investment Grade Fixed Income: No Safe Haven Over the past 18 months, the landscape of the fixed income markets has changed drastically. After a prolonged period of tight spreads, low volatility, heavy appetite for risk and increasing leverage, the pendulum has swung completely in the other direction. We are currently in an environment marked by historically wide spreads, unprecedented volatility, extreme risk aversion, and frenzied deleveraging. 7. Option Adjusted Spread (OAS) Oct-3 Dec-3 Feb-4 Apr-4 Jun-4 Aug-4 Oct-4 Dec-4 Feb-5 Apr-5 Jun-5 Aug-5 Oct-5 Dec-5 Feb-6 Apr-6 Jun-6 Aug-6 Oct-6 Dec-6 Feb-7 Apr-7 Jun-7 Aug-7 Oct-7 Dec-7 Feb-8 Apr-8 Jun-8 Aug-8 Oct-8 Source: Lehman Brothers Aaa OAS Aa OAS A OAS Baa OAS The extreme risk aversion in the fixed income markets can be illustrated by the drastic spike in the Option Adjusted Spread (OAS) of investment grade corporate bonds over the past year. Aaa corporate bonds, which have an average OAS of.55% over the past 1 years currently have an OAS of 1.83%. Similarly, Aa, A, and Baa bonds, which have an average OAS of.87%, 1.25% and 1.85% respectively, currently have OAS s of 3.98%, 5.53%, and 6.44%. All of these measures are at all time highs. Excess Returns vs. Treasuries Spread Sector Agencies Avg. Annual Return % MBS.41% ABS.65% CMBS 1.7% Inv. Grade Credit.25% Trailing 12 Months ending 1/31/28-2.9% -2.4% -21.5% -24.8% -2.1% As the credit crisis unfolded, investors began flocking to Treasuries as a safe haven. As a result, Treasuries have been the best performing sector over the past year, returning 7.8%. A deterioration of fundamentals combined with massive deleveraging over the past year has resulted in significant underperformance for every spread sector. Prepared by Marquette Associates, Inc. 2

U.S. Equity Market: Perspective for Difficult Times There is no doubt that the last 12 months, particulary Q3 28, have been a trying time for the U.S. Equity Market. Since peaking in October 27, the S&P 5 is down more than 34% through October 31, 28.

While testing patience, a long-term prespective provides clarity to these issues.

The current bear market has seen a 34% decline in just over 12 months.

4 U.S. Equity Market: Perspective for Difficult Times There is no doubt that the last 12 months, particulary Q3 28, have been a trying time for the U.S. Equity Market. Since peaking in October 27, the S&P 5 is down more than 34% through October 31, 28. A look at past bear markets indicates that additional declines are likely, but the end may be near. Following a trough, markets have historically recovered quickly. While testing patience, a long-term prespective provides clarity to these issues. A Historical Perspective on S&P 5 Bear Markets: We've Seen Worse % During the past 9 bear markets, the average S&P 5 decline has been 31% over a period of 12.4 months. The current bear market has seen a 34% decline in just over 12 months. -5% -1% -15% % Decline -2% -25% -3% -35% -4% -45% -5% -21% -22% -28% -27% The S&P 5 peaked on October -36% -34% -34% 9, 27 at As of October 31, 28, the S&P was at % -49% 7/1/ /12/1961 2/9/ /29/1968 1/11/ /28/198 8/25/1987 7/16/199 3/24/2 1/9/27-2% Calendar Date represents the Price Peak of the S&P 5, followed by a bear market % Increase 5% 45% 4% 35% 3% 25% 2% 15% 1% 5% % 6% 5% 1% 9% 7% 2% Data Sources: Goldman Sachs, Morningstar Following a Trough, Markets Typically Recover Quickly 1 mo after Trough 3 mo after Trough 6 mo after Trough Calendar Date represents the Price Trough of the S&P 5, preceded by a bear market In the prior 9 bear markets, the S&P 5 averaged a 15% gain in the 3 months following a trough. 1% 13% 22% 6% 17% 24% 17% 14% 31% 19% 36% 45% 14% 19% 19% 1/22/1957 6/26/1962 1/7/1966 5/26/197 1/3/1974 8/12/ /4/1987 1/11/199 1/9/22 Average The current bear market, while painful, is not among the 3 worst bear markets. The bear market between 2-22 produced a 49% drop in the S&P 5, while led to a 48% decline. Given the historical averages, however, it's likely this bear market will continue in the near term, with more losses expected. 8% 7% 28% 13% 19% 11% 11% 15% 23% Prepared by Marquette Associates, Inc 3

Market Cycles: The Danger of Market Timing Historically, in a typical market cycle, the equity market troughs while corporate profits are still contracting.

5 Market Cycles: The Danger of Market Timing Historically, in a typical market cycle, the equity market troughs while corporate profits are still contracting. Similarly, earnings growth rates tend to peak prior to the equity market peak. The path from expansion through contraction is rarely a very smooth one, however. More often, the market will encounter several mini-peaks or troughs along the way. Typical Cycle: The S&P 5 Tends to Peak Later and Trough Earlier Than Earnings Growth Earnings Growth Peak Typical Market Peak Expansion Contraction We Are Here? Typical Market Trough Earnings Growth Trough Investors may be tempted to sit on the sidelines during contractions or down markets. That is a mistake. The market bottom or top are nearly impossible to predict. The next bull market run could be around the corner, a few months away or longer. Missing out on even a few days of the market's best days can have a significant impact on returns. The chart below demonstrates the impact of missing just 1, 1, 25, or 5 of the market's best days over the past 3 year period on an annualized basis. S&P 5 Annualized Returns, All Days 7.8% Excludes Best 1 Days 5.9% Excludes Best 25 Days 3.8% Excludes Best 5 Days.9%.% 1.% 2.% 3.% 4.% 5.% 6.% 7.% 8.% 9.% Based on returns through October 31, 28 S&P 5 data from Yahoo finance. Returns calculated by Marquette Associates, Inc. Prepared by Marquette Associates, Inc. 4

6 International Equity Meltdown Crosses Every Border The credit crisis has continued to haunt global markets, with all major makets posting steep losses during 28. Most major foreign currencies are declining vs. the U.S. dollar, therefore magnifying the losses felt by U.S. investors. Escalating unemployment and slowing GDP growth may lead to a recession in Europe. Weak markets and falling currency values have increased volatility and drastically reduced equity values. Key International Equity Year-To-Date Returns U.S. Dev. World Emg. Mkts. Japan UK Brazil China All major markets are negative for 28 China and Emerging Markets have declined the most Local currency depreciation vs. the dollar contributes to the negative returns Slowing GDP Growth and rising unemployment (especially in Europe) have also hindered returns YTD Return -1% -3% -5% -7% -32.8% -38.3% -53.1% -33.6% -43.1% -59.1% -64.1% Source: Morningstar EnCorr Analyzer Software International Equities Are Less Attractive on a Risk/Return Basis 16.% Ten Year Risk/Return Slowing Growth Increased Volatility Heightened concern regarding the credit crisis International small cap stocks have seen the largest shift during this time period Return 14.% 12.% 1.% 8.% 6.% 4.% 2.% EAFE 12/7 S&P 5 12/7 Small-Cap Intl. 12/7 EAFE 1/8 Emerging Markets 12/7 Small-Cap Intl. 1/8 Emerging Markets 1/8.% S&P 5 1/8 12.% 17.% 22.% 27.% 32.% Risk (Standard Deviation) Source: Morningstar EnCorr Analyzer Software Prepared by Marquette Associates, Inc. 5

7 Impact of Global Deleveraging on Hedge Funds In 28, several significant developments have hurt the returns of the hedge fund industry. The credit crisis caused a global deleveraging that led to losses across all hedge fund strategies. As banks have limited lending, strategies that rely on leverage have seen forced sales of securities to meet margin calls. Hedge funds have also experienced a tumultuous year due to a series of non-market events including several government interventions. On at least three occasions, the government took action that detracted from performance of hedge fund strategies with short exposure. It became clear that many hedge funds were crowded into the same securities that were hurt in the deleveraging. As managers sold securities to reduce leverage, many common stocks were widely sold. According to Goldman Sachs, equities commonly held by hedge funds fell almost 2% in September while equities with little hedge fund overlap fell only 2%. Source: Goldman Sachs Hedge Fund Trend Monitor Update, October 1, 28. Effects of Government Intervention The chart below shows the effects of the three government interventions on the hedge fund market. In the middle of March, the government facilitated the sale of Bear Stearns to JPMorgan causing a month-end rally in the heavily shorted financial sector. In July, the government moved in to support Fannie Mae and Freddie Mac and financials again rallied where hedge funds had short positions. Finally, in September, the SEC banned short selling in the financial companies that had been having difficulties. The abrupt intermonth changes in direction of the equity markets following these government actions have had a negative effect on hedge fund performance this year. 28 Government Interventions 1.% 7.1% Financials HFR FOF S&P 5.% -2.7% -.4% -.8% -2.7% -2.7% -4.9% -5.% -1.% -8.9% March July September Historical Context of Hedge Fund Returns The current draw-down in the hedge fund industry is substantial but not historically unprecedented. The following table shows periods of draw-downs in hedge funds as shown in the HFRI Fund Weighted Composite since 199. In the summer of 1998, hedge funds declined over 11% due to the failure of Long Term Capital Management and the Russian debt default. In previous periods of hedge fund losses, the industry has recovered quickly and positively, as the average recovery in the year following draw-downs is 18.7%. Peak Bottom Duration Decline Jul-9 Apr-98 Aug- May-2 Average Current (As of Sep. 3, 28) Oct-9 Aug-98 Nov- Sep-2 3 Months 4 Months 3 Months -5.38% % -6.39% 4 Months -5.72% -7.23% -1.92% Avg. Recovery after 6 months Avg. Recovery after 12 months 8.4% 18.66% Source: HFR, Inc., Attalus Capital Prepared by Marquette Associates, Inc. 6

8 Private Equity: Deal Flow Slows The tightness in the credit market has had a profound effect on private equity investments. Even though the private equity landscape has changed, the fundraising pace is only modestly off of 27 records. As the public markets tumble, investors did begin to slow their commitments to private equity as the "denominator effect" left fewer assets for investment in alternative asset classes. The major disconnect in the private equity arena has been that while fundraising continues, investment activity has slowed dramatically. Sellers have yet to lower their asking prices and lenders are providing less capital for deals. Global Buyout Annual Fundraising Global Buyout Annual Investments Amount Raised Number of Funds Amount Invested Number of Deals $ Billions Number $ Billions , 5, 4, 3, 2, 1, Number Year Year Data Source: Thomson Venture Economics, July 22, 28 Data Source: Buyouts, Issue Data only includes first half of Data only includes first half of 28 The few transactions that have been closed are being done at lower purchase price multiples and with lower amounts of leverage. Performance for private equity has begun to face some headwinds as the exit market has become more challenging. The economic slowdown and challenges in the credit markets have led to dramatic declines in both buyout and venture backed IPOs. Distressed debt, mezzanine and secondary strategies perform well during contractions in the credit cycle and slow economic periods. Opportunities in these areas should continue to increase as we work through the credit crunch and economic downturn over the next months. Average Buyout Purchase Price Multiples, 1999 to 28 < $25 mm $25 - $499 mm > $5 mm 12 Multiple of EBITDA Year Data source: Q2 28 Leveraged Buyout Review, Standard and Poor's Data only includes first half of 28 Prepared by Marquette Associates, Inc. 7

9 3Q8 YTD 1 Year 3 Year 5 Year 1 Year 15 Year NCREIF Property Index Total.6% 2.2% 9.2% 15.% 14.7% 12.2% 11.3% Income 1.3% 2.5% 5.3% 5.9% 6.5% 7.5% 8.% Capital Appreciation -.7% -.4% 3.8% 8.7% 7.9% 4.5% 3.2% Source: NCREIF Commercial Real Estate Market: A Source of Income? The credit crisis and subsequent turmoil in the economy has led to a gradual process of re-pricing commercial real estate investments since the peak in the second quarter of 27. This is most evident in the decline of the capital appreciation component of the NCREIF-NPI which turned negative for the quarter ending June 28 and remained negative for the third quarter. However, the income generated by commercial real estate has continued to grow thereby cushioning the negative impact of the risk re-pricing. Commercial real estate has been slow to respond to the re-pricing of risk as transaction activity on all levels remains stalled. Buyers want to pay less than peak value for assets, but that gives property owners little incentive to sell if they are not in distress. The limited sales activity and lack of sales comps has made it difficult for appraisers and other industry participants to accurately ascertain property values. However, industry participants suggest asset values have dropped 5% to 2% from their peaks. Source: PREI, American Realty, TIAA-CREF Transaction Volume Plummets Volume ($Bil) Q1 3Q1 1Q2 3Q2 1Q3 3Q3 1Q4 3Q4 1Q5 3Q5 1Q6 3Q6 1Q7 3Q7 1Q8 Source: Real Capital Analytics Since the credit crisis began in mid-27, U.S. commercial real estate fundamentals have held up solidly. Vacancy rates were holding near their long-term averages as of June 28. New supply is constrained and rents have grown sharply since the last recession, which should boost NOI growth as leases expire. Finally, credit quality for commercial real estate debt continues to hold up well with commercial mortgage delinquency rates near zero for life insurance companies and.5% for CMBS. However, that appears about to change with the dramatic withdrawal of credit and the deterioration of market fundamentals due to the weakening economy. Source: TIAA-CREF Source: American Realty Prepared by Marquette Associates, Inc. 8

10 Infrastructure Market: A Viable Alternative Investment in Infrastructure has seen dramatic growth in recent years. It is becoming widely accepted as a separate asset class playing a distinctive role in a diversified portfolio. Institutional investors, in search of high-yielding, stable investments, have flocked into this space globally. According to Preqin's online database, public pension funds may commit $15 billion to the space in the next 18 months to 2 years. Growth of Infrastructure Market # of Funds Total Capital Raised ($bn) Source: Preqin's Infrastructure Spotlight, Sept. 28 Issue Pension funds, in particular, are prominent investors in infrastructure funds due to the attractive profiles: relatively low correlation to other asset classes, long duration, predictable and steady cash flows, and the inherent inflation hedge associated with mature infrastructure investments. 52% Infrastructure Investment by Plan Type 4% 8% 5% 1% 1% 3% 2% 3% 3% Source: Preqin's Infrastructure Spotlight, Sept. 28 Issue Asset Manager Bank Corporate Investor Endowment Plan Family Office/Foundation Government Agency PE Firm Investor Fund of Funds Manager Pension Fund Sovereign Wealth Fund Recent Transactions Pension Funds: Source of Infrastructure Allocation Privatization of Chicago Midway Airport: Midway Investment and Development Corporation (MIDC) won a 99-year concession to operate Chicago Midway Airport for $2.5 billion. The MIDC team comprises: YVR Airport Services, Citi Infrastructure Investors and John Hancock Life Insurance. The transaction is subject to approval by the Federal Aviation Administration and the Chicago City Council. Almost all commercial airports in the US are owned and operated by local or state governments, but Congress has permitted up to five airports to be privatized. Midway will be the first privatized airport. AIG Sells 5% stake in London City Airport: AIG sold its 5% stake in London City Airport to its JV partner, Global Infrastructure Partners (GIP), which is a joint venture Infrastructure Fund between Credit Suisse and GE Infrastructure. The two investors paid a total of 859m for the airport in 26. Abertis/Citi consortium walks away from Pennsylvania Turnpike Bid The Abertis/Citi consortium, made up of Abertis, Citi Infrastructure Investors and Criteria CaixaCorp, walked away from the $12.8 billion offer for the Pennsylvania Turnpike after a September 3th deadline passed. The consortium extended its offer twice to help comply with the legislative process. According to Pennsylvania's Governor Ed Rendell, the Abertis consortium would be given priority if the project is re-bid in % 28% 2% Private Equity Real Assets Separate Allocation Prepared by Marquette Associates, Inc. 9

11 Securities Lending: Under Pressure What Is Securities Lending? Securities lending is the process of loaning eligible securities to approved borrowers in exchange for collateral. Borrowers are looking to borrow securities for, among other reasons, covering short positions and market making. The securities lending agent invests the collateral from the borrower in a short-term cash vehicle or money market fund to make a return in excess of the "rebate rate" paid back to the borrower on the collateral. The resulting securities lending income is split between the client and securities lending agent. What Are the Risks of Securities Lending? Borrower Default - A majority of securities lending agents offer indemnification against borrower default. Collateral Deficiencies/Investment Risk - Accounts for a majority of the risk involved with securities lending. Settlement, Corporate Actions, Dividends and Interest - Loaned securities may occasionally cause settlement issues. Cash is received for loaned security in lieu of regular dividends and interest. Proxy Voting - The right to vote proxies on securities moves with the security to the borrower. Securities Lending Process Client Securities Investment Earnings/Loss Lending Agent 1. Initiate Loan 2. Negotiate Terms 3. Receive Collateral Borrower Collateral (12% - 15%) Investment Earnings/Loss 4. Move Security 5. Daily Mark to Market 6. Return Security Collateral Pool 7. Return Collateral 8. Rebate How and Why Are Securities Lending Collateral Pools in trouble? Collateral Pools came under pressure several months ago with the onset of the subprime mortgage crisis. Many collateral pools invested a portion of their assets in Structured Investment Vehicles, or SIVs, which, in essence, borrow money through the commercial paper market and use that borrowed money to purchase Asset-Backed Securities and Mortgage-Backed Securities. The subprime mortgage crisis put severe liquidity pressure on many SIVs as commercial paper spreads widened and then became illiquid. Several SIVs collapsed and entered into restructuring, including Cheyne Finance, KKR Atlantic, KKR Pacific, Theta Finance, Whistlejacket, and most recently Sigma Finance. When these securities were written down, many collateral pools' net asset value, or NAV, dropped below $1., in some cases causing a collateral deficiency. How Did Lehman Brothers Affect Securities Lending? The Lehman Brothers bankruptcy affected securities lending on two fronts: Lehman Brothers was a major borrower in the securities lending market, and many collateral pools held Lehman Brothers debt. Lending agents were forced to attempt to recover securities that were lent to Lehman Brothers. When the Lehman Brothers debt was written down, many collateral pools' net asset value, or NAV, dropped below $1., in some cases causing a collateral deficiency. Securities Lending Collateral Pool Deficiency Simplified Example Lending Agent receives cash collateral of $12,, Cash collateral is invested in collateral pool at $1. NAV yielding 2.5%. Collateral pool drops to $.99 NAV Collateral + Rebate (at 1.9%) owed to borrower Difference owed to borrower to recall security $12,, $12,2,91 $11,9,71 $12,19,38 -$118,679 Prepared by Marquette Associates, Inc. 1

12 Trouble in the Commercial Paper Market What Is Commercial Paper? Commercial paper is a form of short-term debt used by corporations around the world to finance day-to-day operations. While most corporations also maintain lines of credit with banks, these lines are typically seen as backups, and generally carry little to no balance on them. A large portion of the commercial paper is purchased by money market funds because it typically offers a higher yield than alternative investments such as treasuries. What Is Affecting the Commercial Paper Market? After Lehman Brothers filed bankruptcy, the Reserve Primary Fund (the world's oldest money market fund) was forced to write down its Lehman Brothers debt exposure, causing the fund's NAV to drop below $1., often called "breaking the buck". This news, coupled with another large institutional money market fund liquidating, caused a large amount of retail investors to pull their assets out of prime money market funds out of fear of losing money. Money market funds have been able to support redemption requests to date; however, to ensure liquidity most prime funds have cut back their holdings of commercial paper. Currently, the commercial paper money market funds are only buying short maturity paper in an attempt to reduce risk in their portfolio. This is causing commercial paper rates to move dramatically, and putting tremendous pressure on companies. Commercial Paper Market 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % 9/5/28 9/7/28 9/9/28 9/11/28 AA financial CP Issuance by Maturity 9/13/28 9/15/28 9/17/28 9/19/28 9/21/28 9/23/28 9/25/28 9/27/28 9/29/28 1/1/28 1/3/ days 41-8 days 21-4 days 1-2 days 5-9 days 1-4 days Percentage day A2/P2 Nonfinancial less AA Nonfinancial Higher spread traditionally signals higher default rates among lower quality nonfinancial companies. Currently at an all-time high. 9/17/7 12/17/7 3/17/8 6/17/8 9/17/8 Why Is this Important? Companies are now forced to finance business operations on a day to day basis, which is a dangerous position. Without relatively long-term financing for business operations, many companies are at risk of default. Why Don't Companies use their Lines of Credit? In the past, drawing on a line of credit was often seen as a precursor to bankruptcy; however, perception has changed in the past year as many companies have used their lines of credit, including General Motors, Delta, Marriott and Goodyear Tire. Many banks are dramatically decreasing their line of credit approvals, and many companies have had their lines of credits called in. Currently, banks do not have the capital to facilitate the usage of all of their lines of credit at one time. Furthermore, because credit is currently at a premium, borrowing has become increasingly more expensive, especially for lower-rated companies. Recent U.S. Federal Reserve Action On October 7, 28, the Federal Reserve announced it was creating a facility to buy commercial paper in an attempt to restore credit flows to companies. The facility will purchase three-month unsecured and asset-backed commercial paper directly from eligible issuers. TED Spread The lack of lending, both in the commercial paper market and among banks, is at the heart of the current market issues. An indication of banks' willingness to lend money to each other is the TED spread. The spike in the TED spread indicates lenders believe there is a severe risk of bank defaults, and that lenders would rather accept near zero returns via treasury bills than risk lending to another bank. % 3.5 TED Spread (3 mo. $ LIBOR minus 3 mo. T-Bill) 3. Emergency 75 bps Fed rate cut Lehman Brothers files for bankruptcy Bear Stearns Hedge Fund Collapse Ambac and MBIA have outlook lowered.5 by S&P. 1/4/27 4/4/27 7/4/27 1/4/27 1/4/28 4/4/28 7/4/28 IndyMac seized by FDIC Countrywide bankruptcy rumors, taps $11.5 billion line of credit to maintain liquidity. JP Morgan agrees to buy Bear Stearns for $2/share Freddie Mac and Fannie Mae are taken over by Treasury Prepared by Marquette Associates, Inc. 11

18 North LaSalle Street Suite 35 Chicago, IL 661 312-527-55 www.marquetteassociates.com The sources of information used in this report are believed to be reliable.

13 18 North LaSalle Street Suite 35 Chicago, IL The sources of information used in this report are believed to be reliable. Marquette has not independently verified all of the information and its accuracy cannot be guaranteed. Opinions, estimates, projections and comments on financial market trends constitute our judgment and are subject to change without notice. References to specific securities are for illustrative purposes only and do not constitute recommendations. Past performance does not guarantee future results. Prepared by Marquette Associates, Inc. 12

Capital Markets Update

Capital Markets Update The Forces Transforming Markets November 2007 The Past December 2006 April 2007 The Height of the Market November 2007 Changes in Risk Tolerance Spring 2007 Rating Agencies Tighten