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THE RESOURCE FOR CORPORATE FINANCE, ACCOUNTING & TREASURY PROFESSIONALS

Patrick Garrett

Managing Director, Equity Capital Markets

Wells Fargo Securities

IPO Markets Update & the Banker’s

Perspective for CFOs


Offer Date Issuer

Base Deal

Size

Offer/

1 Day

Offer/

Current Why Attractive to Investors?

05/18/11 LinkedIn Corp $352.8 109.4% 93.8% First public offering opportunity to invest in the social media growth story

04/07/11 307.2 9.7% 60.1% Variable rate MLP structure with high payout

03/31/11 GNC Holdings Inc 360.0 4.7% 56.8% Nutritional supplement market leader with 61% net after tax profit growth over three years

07/19/11 Zillow Inc 69.2 78.9% 53.9% Market leading internet home-value and rent estimate website with robust revenue growth

07/26/11 Dunkin' Brands Group Inc 422.8 46.6% 47.9% Profitable retail franchise that is expected to double its U.S. locations within 20 years

07/27/11 Teavana Holdings Inc 121.4 63.5% 40.4% Innovative and profitable retail-growth business focused on tea consumption

06/28/11 HomeAway Inc 216.0 48.9% 38.2% Internet growth story with increasing revenues and profitable operating model

04/13/11 Arcos Dorados Holdings Inc 1,249.2 24.7% 34.4% Alternative way to invest in Latin America growth prospects of McDonald's Corporation

03/24/11 ServiceSource International Inc 119.4 21.8% 33.3% Pure-play cloud computing and IT services company with strong revenue growth

05/04/11 Thermon Group Holdings Inc 120.0 2.3% 32.4% Established global leader in industrial electric heat tracing with 2011 revenue growth of 23%

11/03/11 Groupon Inc 700.0 30.6% 21.3% Market leading internet-based consumer discount service provider

Total: $4,038.1

Median: $307.2 30.6% 40.4%

Average: $367.1 40.1% 46.6%

Several Successful IPOs Have Priced This

Year

CVR Partners LP

Arcos Dorados Holdings

Thermon Holding Corp.

Teavana Holdings

Source: FactSet, Dealogic as of 11/11/11


IPO Market Generally Stable, but Subject

to Market Volatility

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IPO

0

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Vola

tility In

dex

IPO Volume CBOE Market Volatility IndexSource: FactSet, Dealogic as of 11/11/11


IPO Backlog Continues to Build

$37.1 $37.0 $36.5$34.6$34.3

$31.1$29.3

$28.8

$23.3$23.4$27.2

$21.8

151

189

185182172

166

153

143124

104111110

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

$50

Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11

Volu

me (

$B)

0

20

40

60

80

100

120

140

160

180

# o

f D

eals

Dollar Volume ($B) # of Deals

LTM Monthly IPO Backlog

1211

12

28

31

29

2324

17

1312

7

14

7

16 16

9

15

3

0

7

28

5

2

Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11

New Filings

Pricings

Ten Largest IPOs in Backlog

Monthly Filing and Pricing Activity

Source: Dealogic of 11/11/11

Issuer Name

Amount

Filed ($MM)

Initial Filing

Date

Days in

Registration Industry

Sponsor

Backed?

FTS International Inc $1,150 09/09/11 49 Energy & Power

Zynga Inc 1,000 07/01/11 119 Tech & Svcs

Avaya Holdings Corp 1,000 06/09/11 141 Tech & Svcs

Momentive Performance Materials Holdings LLC 863 04/21/11 190 Industrials

Morgan Properties Trust 800 07/27/11 93 Real Estate

Toys R Us Inc 800 05/28/10 518 Consumer & Retail

Allison Transmission Holdings Inc 750 03/18/11 224 Industrials

Rexnord Corp 700 05/26/11 155 Industrials

PetroLogistics LP 600 06/21/11 129 Industrials

PIMCO REIT Inc 600 04/05/11 206 Financial Institution


Investment Highlights

Positioning Your Story with Investors

Properly Drives Valuation and Demand

Growth Potential

Competitive Position

Predictable & Understandable Business Model

Proprietary Technology

Credible Management Team


Driving to a Premium Valuation

Valuation vs. Peers: Three Select 2011 IPOs

Comparables 2012 Price / Earnings

Peet's Coffee & Tea Inc. 33.5x

Starbucks Corporation 28.7x

The Wendy's Company 23.5x

Krispy Kreme Doughnuts, Inc. 22.2x

Sonic Corp. 21.8x

Tim Hortons Inc. 17.9x

McDonald's Corp. 17.1x

Yum! Brands, Inc. 16.8x

Domino's Pizza, Inc. 14.9x

AFC Enterprises Inc. 13.9x

Papa John's International Inc. 13.3x

Jack in the Box Inc. 13.3x

Median 17.5x

Average 19.7x

Comparables 2011 EV / EBITDA

Universal Health Services Inc. 7.8x

HMA Inc. 7.3x

Community Health Systems, Inc. 6.9x

Tenet Healthcare Corp. 6.5x

Lifepoint Hospitals Inc. 6.5x

Median 6.9x

Average 7.0x

Comparables 2011 EV / EBITDA

Solera Holdings Inc. 13.9x

IHS Inc. 13.8x

MSCI Inc. 13.5x

Verisk Analytics, Inc. 12.2x

Thomson Reuters Corporation 10.4x

Experian plc 10.2x

Reed Elsevier plc 9.0x

Equifax Inc. 8.4x

Alliance Data Systems Corporation 8.0x

Acxiom Corporation 6.1x

Median 10.3x

Average 10.6x

15.0x

16.5x

24.1x

17.5x

16.0x

Dunkin Donuts

6.6x

6.9x

7.0x6.9x

6.9x

HCA Holdings

9.2x

9.8x

10.5x10.3x

9.6x

Nielsen

Filing Multiple Range At Offer Multiple Multiple at 1-week Peer Median


IPO Valuation Methodologies

Valuation Ranges

($ in Millions) Valuation Summary

Implied Enterprise Value

Net Debt

Equity Value

EV / Revenue Multiple

3.0x - 4.0x 2012E Revenue ($180.0 mm)

EV / EBITDA Multiple

7.0x - 8.0x 2012E EBITDA ($75.0 mm)

Price / Earnings Multiple

11.0x - 13.0x 2012E Earnings ($30.0 mm)

Discounted Cash Flow Analysis

Sum-of-the-Parts Analysis

Implied 2012E EV / Revenue Multiple ($180.0 mm)

Implied 2012E EV / EBITDA Multiple ($75.0 mm)

Implied 2012E P / E Multiple ($30.0 mm)

$800$600 $650 $700 $750$400 $450 $500 $550

$580$380 $430 $480 $530$180 $230 $280 $330

$220$220 $220 $220 $220$220 $220 $220 $220

17.7x 19.3x11.0x 12.7x 14.3x 16.0x6.0x 7.7x 9.3x

10.7x5.3x 6.0x 6.7x 7.3x 8.0x 8.7x 10.0x

4.2x 4.4x3.3x 3.6x 3.9x

9.3x

2.2x 2.5x 2.8x 3.1x


Financial Adjustments – What Do

Investors Accept?

Often companies adjust financials with certain add-backs accepted by

the investor community

Amortization

Non-controlling Interests

M&A Costs

Add back on-going Swap Amortization

Add back Customer Intangible Amortization

Add back of net income attributable to non-controlling interests in hospital joint ventures

Add back of M&A cost amortization

Examples

Stock-based Compensation

Add back Stock-based Compensation to derive Adj. EBITDA and “cash earnings”


IPO Process Overview

Initial SEC Review Period

Phase 2:

30 Day Review Period

Roadshow preparation and practice

Receive SEC comments

Respond to comments

File amended S-1

File Add’l Amendments and Finalize S-1

Phase 3:

Subject to SEC Review

File amended S-1

Add valuation range to S-1

Finalize roadshow presentation

Conduct management “dry runs”

Print preliminary prospectus

Roadshow and Pricing

Phase 4:

2 Week Roadshow

Research analyst teach-ins to sales forces

Management presentations to sales forces

Management presentations:

1 x 1 meetings

Group lunches

Price IPO

S-1 and Preparation of Marketing Materials

Select banks

Organizational meeting

Due diligence (banker & analyst)

Draft S-1

Draft Management Presentation

4 – 6 Weeks

Phase 1:

Pre bake-off stage

Governance / BOD & Committees

Foster analyst relationships

Broaden banker relationships

Private company forums & conferences

Bolster capital base

12-24 mos. prior to selecting bankers

Initial Phase:

The IPO Process Begins Well Before The Bake-Off


Thoughtful Investor Targeting Drives

Success

Targeting Targeted Investor Community

Where Are the Investors?

Identify Strong Institutional Investors – Anchor Orders

Plan Roadshow Around Top Investor Locations

Top Holders of Primary Peers

Top Buyers of Primary Peers

Top Holders of Secondary Peers

Top Buyers of Secondary Peers

Retail

Target Mid-Market Buyers – “the next 100 investors”

Include Retail Demand – “sticky/price insensitive”

$4,935,650

$3,375,551$3,180,881

$2,778,225

$2,362,344

$2,002,155

$1,294,652

$951,690

$-

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

London/Paris/

Frankfurt/Milan

New York West Coast Boston Mid-Atlantic/

Southeast

Midwest Asia Pacific Canada/

Americas

Assets

Un

der M

an

ag

em

en

t ($

MM

)


The Roadshow Schedule

7:30am Prep w/ underwriters

8:00am 1x1 meeting

9:15am 1x1 meeting

10:30am 1x1 meeting

12:00pm Group lunch

1:45pm 1x1 meeting

3:00pm 1x1 meeting

4:15pm 1x1 meeting

6:00pm Private dinner

The Overall Marketing Plan A Day on the Road

Baltimore

Boston London

Paris Frankfurt

Milan

San Francisco Chicago

Texas

Denver

Los Angeles San Diego

Kansas City

New York

Milwaukee Minneapolis

Start with presentation to salesforces

Roughly 50-60 1x1 meetings and 3-4 group lunches

Maximize demand by targeting key cities


10 Overriding Themes for IPO Process

1 Recognize up front the time commitment of the IPO process and plan accordingly (personnel, other commitments,

etc.)

2

3

4

5

6

7

8

9

10

Management credibility is THE key variable (historical performance, achievable business plan)

Must convey differentiated strategy relative to comps

No shortcuts – intense scrutiny on disclosure (financials airtight, S-1 disclosure perfect, IPO disclosure and financial presentation sets standard for future disclosure as a public company)

Keep it simple (projections must show logical growth, don’t over-optimize – complexity discount)

Do not put out projections you cannot achieve (gear back “stretch targets” by 20%)

Research analysts/sales force/investors must be carefully guided

Do not file unless you would buy the stock yourself

Valuation walk: file realistic valuation; build a strong book; price at the high end/above range; exercise the green shoe

Convey roadshow story in 30 slides/30 minutes


Thank You


Michael Poirier, Transaction Services Partner

PwC

Executing a Successful IPO: PwC's Perspective


• The Phases of Preparing for an IPO

• The Cross-functional, Multi-disciplinary approach to Preparation

• Anticipating the Accounting and Financial Reporting Requirements of the Form S-1

• Internal Control Considerations

• CFO Responsibilities Post-IPO

• Keys to Success

Overview

17


Taking control of your IPO process

IPO effective

Phase 1 Phase 2 Phase 3

Initial planning

and

preparation

Readiness

assessment

“Going Public”

• Execution of the registration

process

“Being Public”

• Changing the organization to enable it to operate as a

public company

Pre-effective time Post-effective

An IPO is a long journey – being prepared is key to maximizing value.

Not being ready can lead to massive value leakage.

18


Foundations for success in the

IPO process

Corporate

strategy

&

develop-

ment

Accounting,

reporting,

&

finance

effective-

ness

Governance

&

leadership

Internal

controls

Media

&

Investor

relations

Treasury

&

financial

risk

manage-

ment

Human

resources Tax Legal

Technology

Project management, change management, and communications

A comprehensive IPO Readiness Assessment requires a thorough evaluation of all areas of the company.

19


Illustrative high-level IPO project plan O

THER

Initial filing date

Effective date

20

Post Filing Pre Filing

Prepare 10-Q in 40 days and 10-K in 75 days. Continue to enhance And procedures, budgeting and

forecasting .

Execute Sarbanes Oxley 404 Readiness and 302 certification

-

Ensure adequate resources and administer new plans

Perform incremental improvements / enhancements


Execute tax strategic plan and enhancements


Manage the post filing activities

Operate under new legal guidelines

Remediate required governance requirements , including : * Board/Audit Committee (independence) gaps * Internal Audit Function * Governance Guidelines

Support recruiting and reorganization efforts or workstreams throughout the organization pre - filing

Create appropriate compensation, benefit plans and agreements for public company .

Remediate personnel and process gaps pre - filing

Create appropriate tax structure and strategy for public company

Modify or enhance technology capabilities to support financial reporting requirements and to support effort to workstreams throughout the organization

Recruit additional finance talent and improve departments

Continue to remediate governance requirements. Perform incremental

compliance and transparency enhancements

Perform financial statement risk assessment

Assess HR and benefit needs

Assess media investor Relations needs

Assess treasury needs

Assess tax needs

Assess IT needs

Establish project governance structures

and processes

Assess legal needs

Assess corporate governance gaps

Assess acct / finance gaps and needs

Retain securities counsel. Retain underwriters .

Create appropriate legal entity structure . Obtain required regulatory approvals .

Remediate personnel and process gaps pre - filing

Remediate personnel and process gaps pre filing ( in conjunction with reporting needs )

Establish process for earnings releases and earning calls

Determine sustainable plan for maintaining effective internal control

Create Sarbanes 404/302 compliance plan Begin execution of Sarbanes 404 readiness

Accelerate financial close and reporting timelines. Enhance policies and procedures to support accelerated timeline and Certifications. Enhance management reporting including budgeting and forecasting .

Evaluate and resolve complex accounting issues and SEC reporting issues Prepare financial statements and other S-1 information with auditor reviews .

Review SEC Comments and revise S-1

Perform Road Show

4. Media & Investor Relations

5. Treasury & Risk Management

6. Legal

7. Tax

8. Human Resources

9. Information Technology

10. Project Management

3. Internal Controls

2. Governance & Leadership

1. Accounting, Reporting, & Finance Effectiveness

Define and develop project management capabilities. Note: These capabilities may need to be developed in parallel with the actual projects to meet Day One.


• Public company GAAP and

disclosures vs. private company

requirements (segments, EPS, etc.)

• 3 years of audited financial information

• 2 additional years of selected financial

data (may be unaudited)

• Interim financial statements

(comparative), and additional interim

data may be required later in the

process

• Predecessor/successor financial

statements (change in control)

• Pro forma financial information

• Capitalization and dilution financial

information

• Additional audited financial

statements for “significant” acquired

companies prior to date of acquisition

• Additional financial information for

guarantees and collateral

• Tax, legal and financial reporting

implications of reorganizations and

structures in advance of an IPO

• Non-GAAP measures

• Cheap stock

• Segments

• EPS

• Financial information in MD&A

Preparing for the accounting and financial

reporting requirements of the S-1

21


Internal Control Considerations

Section

409

Section

404

Section 906

Section

302

Various representations by certifying officers, similar to Section 906 plus additional representations related to disclosure controls and procedures, internal controls, and fraud

Perform annual assessment of the effectiveness of internal controls over financial reporting and obtain attestation from external auditors

Disclosure made to the public on a “rapid and current basis” of material changes to financial condition or results of operations

The periodic report states

that financial information

complies with the

Exchange Act and fairly

presents the financial

condition and results of the

operations

22


Sample CFO Responsibilities: Post-IPO

CFO

Controller FP&A

General Ledger

Revenue / AR

Purchasing / AP

SEC Reporting Director

Taxation Director

Internal Audit / SOX Director

Treasury Director

Team Team Team

International Operations

Team

Investor Relations

23


• Start with strong IPO leadership

• Support the effort with effective

project management

• Perform a thorough IPO Readiness

Assessment in advance to:

• Identify critical-path issues

• Establish a realistic timeline

and plan that prioritizes tasks

and stages key work streams

• Establish parallel Going Public and

Being Public work streams

• Build a finance organization that

can meet the needs of a public

company

• Use a multidisciplinary approach

• Strike the right balance between

internal and external resources

• Don’t try to do too much at once

• Set the IPO structure early

• Consider all the options including

dual track IPOs

Keys to Success

24


Final thoughts

Preparing for an IPO can be a long and complex process.

With the right planning and approach, however, companies can ensure

resources and incremental costs are appropriately managed and incurred only

when necessary.

25

Being prepared is key to maximizing value.

Not being ready can lead to massive value leakage.


Thank You


The Legal Ins and Outs of the IPO Paul Broude, Partner, Foley & Lardner LLP


Settle on your Management Team

• If you plan to upgrade your management team

or add outside directors, do it now

• “Upgrades” right after the IPO create potential

liability

• Will management’s experience engender

confidence in the investor community?

• Will the road show presenters convince

institutional investors?

• Underwriters will conduct detailed background

checks before the S-1 is filed


Become SOX compliant

• Independent board committees; audit committee

financial expert

• Many rules apply to “filing date” rather than

effective date

• Eliminate loans to officers and directors

• Prepare for section 404 compliance

• CEO and CFO need to provide certification in

10-Qs and 10-Ks


Review all business contracts

for IPO obstacles

• Make sure key contracts can be disclosed in the

S-1

• You may need 3rd party consents

• Fix contracts now, before you lose leverage

• For non-disclosure provisions, include carve out

“as required by law, including any governmental

filings”


Review all equity contracts

for IPO obstacles

• Do you have the votes to amend your charter?

• Are there preferred blocking rights?

• Need to waive any IPO participation rights? Note one year integration concern

• Do warrants exercise on IPO? Are loans due on IPO?

• Review registration rights provisions


Think about confidentiality

treatment requests

• Key contracts need to be filed as exhibits to the

S-1

• The SEC permits “limited” provisions to be

redacted, typically pricing and milestone

payments


Make sure all equity and debt

issuances are documented

• Stock issuances, option and warrant grants, and

loans must be documented

• Need to be disclosed in detail in the S-1

• Lawyers will need to issue opinion

• Accountants will need for financial statements


Address IP Issues

• Do you own your Intellectual Property?

– Do you have assignments of inventions from all

current and former employees, consultants, and

contractors?

– Review your patent and trademark portfolio

– Review your domain name strategy

– If you have any doubt, clean up title now, as claims

will come out of the woodwork once your plans to go

public are known


Address IP Issues

• Do you use any Open Source software?

– Conduct a Black Duck review of your code to identify

any open source components

– Verify that you have any required licenses

– Revise code as necessary to avoid disclosure/

licensing requirements


Address IP Issues

• Do you license any Intellectual Property?

– Review your license agreements to make sure they

are valid

– Consider amending/revising/extending agreements

before you lose leverage

– Make sure the agreements allow you to disclose

them in your registration statement


Address IP Issues

• Can you sell or license your Intellectual Property?

– Review export control issues

– Obtain any necessary licenses

– Review technology transfer limitations related to

sensitive technology for both offshore sales and

offshore developers


Clean up your web site

• Scrutinized by the SEC and public

• Make sure statements are true and supportable

• Eliminate links to third party sites

• Have legal counsel review website

• Continuously revise as your S-1 changes

• Prepare investor relations section of website for

launch upon IPO


Develop a practice of issuing

press releases

• “Quiet period” press releases will be scrutinized for gun jumping

• Gun jumping can delay IPO and create liability

• Quiet period releases must: – be consistent with past practice

– contain factual information about the business (and not the offering)

– be intended for customers and suppliers

• Issue releases now when you sign key contracts or hire key employees

• Limit number of spokespersons for the company

• Have legal counsel review press releases and public relations campaigns


Address Stock Compensation Issues

• SEC comments on stock compensation issues

are universal

– Be able to demonstrate that shares and options

granted were at fair market value on the date of grant

– Be prepared to defend the company’s valuation

methodology

– Goal is to avoid restating financial statements due to

revised compensation charges

– Complex analysis which has the ability to delay an

IPO while issues are resolved



• Engage an independent valuation firm

• Perform contemporaneous valuations on a

quarterly basis

• Establish a pattern of quarterly option grants

using valuations



• Impact of comparable company group

• Impact of stock sales by the company

• Impact of secondary sales by shareholders

• Impact of IPO process

• SEC will require complete disclosure in S-1

• Be prepared to provide date for prior 18 months

• Articulate reasons for officer and director grants


Look into D&O insurance

• Board members of public companies will insist

on it

• Engage an experienced Insurance Broker with

a book of clients in your industry

• Review current D&O coverage; determine

additional coverage needs

• Allow time for multiple quotations and the

underwriting process


Do you have enough $$ if the IPO

takes longer than expected

• Process can take a year or longer from filing the

S-1 through effectiveness

• Know your burn rate

• Consider a financing before you file the S-1

• After filing, financing options are more limited


Begin preparing now for

Post-IPO SEC filings

• Identify your “Named Executive Officers” and understand the heightened transparency applicable to these individuals

• Understanding Form 3s, Form 4s and 13Ds and 13Gs

• Have processes in place immediately after the IPO regarding insider trading and proper reporting

• Understand what happens to outstanding stock options after the IPO; when can they be exercised; how is this processed

• Prepare a calendar of post-IPO SEC filing obligations and identify responsible parties


Thank You


Michael P. Rodgers

Managing Director, Institutional Fixed Income,

Wells Capital Management

Short Duration Investment Strategy &

Guideline Development


Investment options summary:

• Deposit proceeds with a bank

• Invest in a money market mutual fund

• Invest a portion in a short duration fixed income mutual fund

• Outsource to an investment professional money manager to

customize an investment portfolio

• Direct a broker to purchase individual fixed income instruments

• No matter which approach you follow, start by building a proper

investment policy

Investment Solutions for IPO Proceeds


An Investment Policy Statement Is Good

Corporate Governance

Every organization with funds to manage should have in place

a formal written investment policy statement. The benefits of

having an investment policy statement are:

• The first and most important step in the investment process

• Satisfies an important fiduciary duty

• Guides the asset management process – no surprises

• Provides discipline to the process

• Effective risk management

• Designed to endure the ups and downs of market cycles

• Structured with a long-term focus that evolves over time

• Meets documentation requirements under SOX 404


What are some unique investment guideline drivers:

• Asset/Liability Matching

• Liquidity Needs

• Cash Flow Schedule

• Gain/Loss Sensitivity

• Accounting/Financial Statement Implications

• Accounting Classification: FAS 115 » Hold-to-Maturity

» Available For Sale

• Credit Rating Sensitivity

• Shareholder Sensitivities and Expectations

• Unique Business Risks and Biases

Understanding Your Organization


Regulatory Constraints:

• Investment Company Act of 1940

• State and Local Government Statutes

• Offshore

• Foreign Withholding

• US Real Property Issues

• Qualified Institutional Buyer (QIB)

• Rule 144A Offerings

• Industry Specific Regulations

• Banks

• Insurance Companies

Understanding Your Organization


Investment Objectives for Corporate Cash are always the same:

• Preservation of Principal (primary)

• Providing Liquidity (secondary)

• Maximizing Return (tertiary)

Investment Objectives


1994-2010 Rolling 12-Month Returns At Each Quarter-End

Maturity Risk-Return

Source: Merrill Lynch and Bloomberg

3.50%

4.00%

4.50%

5.00%

5.50%

6.00%

0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00%

Merrill Lynch 6-Month T-Bill Index

Merrill Lynch 1 Year Treasury Index

Merrill Lynch 1-3 Year Treasury Index



Standard Deviation

Av

era

ge R

oll

ing

12

-Mo

nth

Retu

rn

Greater duration is typically accompanied by higher expected return and higher volatility


Maturity Constraints

*Maximum individual maturity

Po

rtfo

lio

Eff

ecti

ve A

vera

ge M

atu

rity

(M

on

ths)

6-Month 1-Year 1-2 Year 1-3 Year 1-5 Year

Benchmark Benchmark Benchmark Benchmark Benchmark

(after-tax objective)

0

6

12

18

24

30

Maximum

1-Year

Maximum

1.75-Years

Maximum

2-Years

Minimum

12-Months

Minimum

6-Months

Minimum

3-Months

Maximum

2.25-Years

Minimum

15-Months

36

2 Years* 3 Years* 5 Years* 5 Years* 7 Years*

Maximum

3.1-Years

Minimum

18-Months


2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

1 U.S.

Corporates,

1-3 Years

9.59%

Mortgages

0-3 Years

WAL

7.50%

U.S.

Corporates,

1-3 Years

5.33%

Municipals

1-3 Years

3.41%

Municipals

1-3 Years

3.79%

Municipals

1-3 Years

5.81%

Municipals

1-3 Years

7.45%

Municipals

1-3 Years

7.93%

U.S.

Corporates,

1-3 Years

14.69%

Mortgages

0-3 Years

WAL

5.42%

2 Municipals

1-3 Years

8.87%

Municipals

1-3 Years

7.40%

Municipals

1-3 Years

4.28%

Mortgages

0-3 Years

WAL

2.80%

Asset

Backed

Securities,

0-3 Years

2.60%

Asset

Backed

Securities,

0-3 Years

4.73%

U.S.

Treasuries,

1-3 Years

7.32%

U.S.

Agencies,

1-3 Years

7.05%

Asset

Backed

Securities,

0-3 Years

13.80%

U.S.

Corporates,

1-3 Years

4.86%

3 U.S.

Agencies,

1-3 Years

8.64%

U.S.

Corporates,

1-3 Years

6.53%

Asset

Backed

Securities,

0-3 Years

2.74%

Asset

Backed

Securities,

0-3 Years

2.16%

Mortgages

0-3 Years

WAL

2.15%

U.S.

Corporates,

1-3 Years

4.71%

Mortgages

0-3 Years

WAL

6.95%

U.S.

Treasuries,

1-3 Years

6.61%

Municipals

1-3 Years

6.77%

Municipals

1-3 Years

3.53%

4 U.S.

Treasuries,

1-3 Years

8.30%

U.S.

Agencies,

1-3 Years

6.11%

U.S.

Agencies,

1-3 Years

2.18%

U.S.

Corporates,

1-3 Years

1.82%

U.S.

Corporates,

1-3 Years

1.89%

Mortgages

0-3 Years

WAL

4.64%

U.S.

Agencies,

1-3 Years

6.74%

Mortgages

0-3 Years

WAL

5.27%

Mortgages

0-3 Years

WAL

5.98%

Asset

Backed

Securities,

0-3 Years

3.35%

5 Asset

Backed

Securities,

0-3 Years

8.16%

Asset

Backed

Securities,

0-3 Years

5.95%

U.S.

Treasuries,

1-3 Years

1.90%

U.S.

Agencies,

1-3 Years

1.18%

U.S.

Agencies,

1-3 Years

1.77%

U.S.

Agencies,

1-3 Years

4.52%

U.S.

Corporates,

1-3 Years

5.67%

Asset

Backed

Securities,

0-3 Years

-1.22%

U.S.

Agencies,

1-3 Years

2.17%

U.S.

Treasuries,

1-3 Years

2.35%

6

Mortgages

0-3 Years

WAL

7.79%

U.S.

Treasuries,

1-3 Years

5.76%

Mortgages

0-3 Years

WAL

1.83%

U.S.

Treasuries,

1-3 Years

0.91%

U.S.

Treasuries,

1-3 Years

1.67%

U.S.

Treasuries,

1-3 Years

3.96%

Asset

Backed

Securities,

0-3 Years

4.84%

U.S.

Corporates,

1-3 Years

-2.68%

U.S.

Treasuries,

1-3 Years

0.79%

U.S.

Agencies,

1-3 Years

2.32%

Annual Returns for Key Sector Indices – Taxable Equivalent

Table of Short Duration Returns: A Case

For Diversification

Source: Bloomberg

Returns shown are the annual total returns of select Merrill Lynch indices. This Periodic Table of Sector Returns is a comprehensive representation of relative sector performance for a

10-year period through 12/31/2010. Municipal index returns are presented as taxable equivalent returns, assuming a 35% tax rate . This material is offered compliments of Wells

Capital Management to its clients. It is for your own personal information and we are not soliciting an action based upon it. Past performance is not indicative of future results.


A performance benchmark should reflect:

• Organization’s goals and objectives

• Risk tolerance

• Return expectations over the long run

Performance benchmark should be:

• Representative of the portfolio’s duration/time horizon

• A meaningful measurement of investment performance vs. the

market and/or alternative solutions

• Consistent across all managers with similar mandates

• Consistently calculated and obtained from a third party

Performance Benchmark


Source: Standard & Poor’s

AAA

AA+ AA A-1+

AA- A+ A-1

A A-

BBB+ A-2

BBB BBB- A-3

BB+ BB B

BB-

The Link Between Short-Term and Long-Term Ratings

Taxable Ratings

Standard and Poor’s Ratings


Rating Definition

AAA Highest rating; extremely strong

capacity to pay interest and repay

principal.

AA Very strong capacity; differs from

AAA in only a small degree.

A Strong capacity but more

susceptible to adverse economic

effects than higher-rated

categories.

BBB Adequate capacity, but adverse

economic conditions more likely to

weaken capacity.

BB Lowest degree of speculation; risk

exposure.

B Speculative; risk exposure.

CCC Vulnerable to nonpayment;

Speculative; major risk exposure.

CC Highly vulnerable to nonpayment;

Speculative.

C Highly vulnerable to nonpayment,

but currently paying interest.

D Bonds in default with interest and/or

repayment of principal in arrears.

Credit Quality – Standard & Poor’s

Long-Term Ratings Short-Term Taxable Ratings

Rating Definition

A-1+ Highest degree of safety.

A-1 Strong degree of safety.

A-2 Satisfactory degree of safety.

A-3 Adequate degree of safety.

Short-Term Municipal Ratings

Rating Definition

SP-1 Very strong capacity to pay

principal and interest; those

issues determined to possess

over-whelming safety

characteristics will be given a

plus (+) designation.

SP-2 Satisfactory capacity to pay

principal and interest.

SP-3 Speculative capacity to pay

principal and interest.

The ratings from “AA” to “B” may be modified by the addition of a plus or

minus sign to show relative standings within the major rating categories.


Investment Policy Statement

Investment Objectives

• Preservation of principal

• High degree of liquidity

• Maximum Book Return

Acceptable Investments (U.S. Dollar-Denominated Only)1,2

Benchmark: Lipper Institutional Money Market Fund Index

Maturity Parameters

• Maximum Maturity/Demand Feature/Average Life: 2 years

• Maximum Average Maturity Deviation From Benchmark: 1 Year

Concentration and Diversification

• No more than 5% in any single issue/issuer at the time of purchase (except U.S. Treasury and Agency securities).

Minimum Acceptable Credit Quality

• The obligor must be rated in the rating category as indicated below by at least two of the Nationally Recognized Statistical Rating

Organizations (NRSRO).

•U.S. Treasury Securities •Money Market Funds/Sweep Vehicle •Municipal Notes/Bonds

•Federal Agency Securities (GSEs) •Mortgage-Backed Securities •Municipal Variable Rate Securities

•FDIC-Guaranteed Securities •Collateralized Mortgage Obligations •Pre-refunded bonds

•Repurchase Agreements •Commercial Mortgage-Backed Securities •Tax-Exempt Commercial Paper

•Commercial Paper (foreign and domestic issues) •Foreign Government Related Securities •Asset-Backed Securities

•Corporate Notes/Bonds •Taxable Short-Term Municipal Debt •Tax-Exempt Commercial Paper

•Covered Bonds •Certificates of Deposit (incl. Yankee, Euro) •Master Notes

S&P Moody’s Fitch

Minimum Short-Term Rating A-1 P-1 F-1

Minimum Long-Term Rating A- A3 A-

1Non-rated and non-rerated, pre-refunded issues may be purchased (collateralized by U.S. Treasuries and Agencies). 2Tax Status: 35% Federal Tax Rate; Securities subject to the Alternative Minimum Tax (AMT) may be purchased.


Thank You


Panel Discussion and Q&A


Proformative Contact John Kogan

CEO [email protected]

We will send you a follow-up survey and would

appreciate your feedback.

Please join us at www.proformative.com to ask any

additional questions you may have and to continue

this conversation with your peers and the experts

you heard from today.

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