US Value Equity

The Renaissance of ConservatismSeptember 2007

Edwin WalczakPortfolio Manager

Slide 2

The market has been risk-seeking the last several years and “Riskier” assets have outperformed “conservative assets”

Risk seeking precipitated by numerous Fed rate cuts post the Tech bubble collapse provided excess liquidity

Evidence that speculative assets have done the best recently:a) Small caps did very wellb) LBOs of many very poor quality companiesc) Subprime lending crisis (lax underwriting)d) Commodities boome) Emerging markets (or is it a new world, this time)

Slide 3Industrial Capital Goods Stocks1

Profit Margins1953 Through Early-June 2007

Slide 4

Global Cyclicals1 Return on Equity1952 Through Early-June 2007

Slide 5

Industrial Capital Goods1 ROEs

Slide 6Industrial Capital Goods Stocks1 Year-over-Year Capital Spending Growth 1960 Through April 2007

Slide 7

The Subprime Crisis and its impact on our financial holdings

Generally, credit costs are normalizing from unsustainably low levels. We had already factored higher credit loss provisioning into normalized earnings forecasts

The financial companies in our portfolio have good track records of conservative underwriting

Much of subprime industry lending over the past 3-4 years has been based on lax underwriting

None of our financial holdings has a heavy exposure to subprime- Wachovia, Bank of America and Fifth Third Bank have virtually no subprime exposure- Freddie Mac has 18% of its retained portfolio in AAA tranches of subprime mortgage pools, which are protected by significant subordination- Well’s Fargo subprime mortgages represent 7% of total loans. Wells is a AAA-rated bank. And has a long history of skillful underwriting- AIG may have about 2% of their book value exposed to subprime related losses

Many financials have already sold off well in excess of potential future credit problems (Baby thrown out with bathwater) and may present attractive investment opportunities

Slide 8

AIG Price/Book History, 1997-2007

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Source: Factset

Slide 9

FRE Portfolio by FICO Score as of March, 2007

< 6205%

620 to 65910%

660 to 69919%

> 74045%

700 to 73921%

Source: US Mortgage Finance, August 22, 2007

Slide 10

FRE Average Current LTV

66%65%

63%

60%61% 61% 61%

58%

56%57%

58%

50%

52%

54%

56%

58%

60%

62%

64%

66%

68%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 1Q2007

Source: US Mortgage Finance, August 22, 2007

Slide 11

Slide 12

Exxon

Exxon’s 35% return on equity today is 2x its historical norm

We would expect this to trend down as the cost of doing business keeps rising, even if high oil prices were to persist.

Source: FactSet

0%

5%

10%

15%

20%

25%

30%

35%

1999 2000 2001 2002 2003 2004 2005 2006

RO

E

Exxon Mobil Corp. Return on Equity

The risk in commodities:

Slide 13

Most companies in commodity businesses do not earn their cost of capital over time

In real terms, over long periods, returns on commodities have been modest

Commodity companies generally are not differentiated and have no unique competitive advantage

Few can regularly, successfully forecast future commodity prices

But, commodities have been “where the action is” for 3 years

Commodities really do not fit a Buffett-like approach

Slide 14

Source: Page 6

Small Caps have outperformed since 2003 because 40% of small cap earnings come from global cyclical sectors, such as energy, industrial commodities, and capital goods (emerging markets beneficiaries).Many strategists believe large cap high quality U.S. stocks are very attractively priced; Large Cap P/E ratios are below historic average relative to the market.

The Opportunity in Large Cap Quality Today

Largest 100 Stocks Relative to Other Large-Cap Issues 1

Relative Forward P/ E-Ratio1976 Through March 2007

0.8

0.9

1.0

1.1

1.2

1.3

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1.5

76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

Average

Source: Corporate Reports, Empirical Research Partners Analysis.1 Capitalization-weighted data.

x

Slide 15

The largest stocks today have higher than usual ROEs relative to the market

The Largest 100 Versus Other Large-Cap Stocks1

Comparison of ROEs1952 Through Early-April 2007

10

12

14

16

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28

52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06

Largest 100 Other Large-Cap Stocks

Source: Corporate Reports, Empirical Research Partners Analysis.1 Capitalization-weighted data smoothed on a trailing six-month basis.

%

Slide 16

Altria Group Inc. Leading consumer products company and largest tobacco company in

the U.S. Major segments: domestic and international tobacco Parent company Philip Morris International and Philip Morris USA Produces 7 of the top 20 global cigarette brands (Top global brand

Marlboro) Enjoys a 50% share of the US cigarette market and about a 14.5% share

of the overseas market Owns 28.7% of SABMiller plc., the world’s second-largest brewer Good position with Marlboro in important growth markets such as China

and Indonesia (licensing with most important government owned Chinese company)

History of dividend increases EPS 15 year compound annual growth rate 9.7% Market capitalization USD 158.6bn, Estimated 2007 P/E Ratio 13.5

Large Cap, High ROE Companies are well represented in our portfolio

Slide 17

Procter & Gamble Leading global household product manufacturer Provides products in the laundry and cleaning, paper, beauty care,

food and beverage, and health care segments Becoming the largest beauty company in the world; beauty categories

have global appeal, faster growth and higher margins Well exposed in emerging economies with rising per capita income, as

consumers trade-up from local to global brands New product pipeline looks robust Business mix is shifting towards faster-growing and higher margin

categories and regions Gillette integration is on track, integration of systems, sales forces and

distribution networks in 31 countries (acquired in 2005) EPS 15 year CAGR 10.1% Market capitalization USD 195.7bn, Estimated 6/2007 P/E Ratio 20.5

Slide 18

Representative portfolioSource: Vestek

US Value Equity - Sector and Industry Weights as of August 2007

Food & Beverage 19.40% Banks 8.56% Consumer Staples 20.28%Coca Cola 3.00% Bank of America 1.50% Altria Group Inc. 5.00%Diageo 3.00% British American Tobacco ADR 4.50%General Mills 2.70%

Fifth Third Bancorp 2.06%Procter & Gamble 5.23%

Kellogg Co. 3.50%Wachovia Corp. 2.50%

Colgate-Palmolive Co. 3.50%Nestle SA 2.70%

Wells Fargo & Co. 2.50%Walgreen Co. 2.05%

PepsiCo Inc. 4.50%Government Agencies 5.50% Multi-Sector Holdings 2.00%

Retail 6.95% Federal National Mort. Assn. 2.00% Berkshire Hathaway Inc. 2.00%Bed Bath & Beyond Inc. 1.47% Federal Home Loan Mortgage 3.50%Signet Group 1.08% Consumer Discretionary 1.53%TJX Co. 2.00% Health Care 7.70% H & R Block 1.53%

Wal-Mart Stores 2.40% Johnson & Johnson 4.00%United Healthcare 3.70% Media 3.66%

Industrials 2.40% Entercom Communications 1.50%United Parcel Service 2.40% Property & Casualty Insurance8.40% Gannett Co. 1.00%

American International Group Inc.6.40% Saga Communications 1.16%Ambac Financial Group Inc. 2.00%

Cash 13.50%Cash 13.50%

TOTAL 100.00%

Slide 19

Advantages of Style Our style of investing tends to protect our clients’ capital in

down markets while it lets it participate in up markets Beta of the fund is one half that of the market

Since 2003, we have seen only an aggressively rising market