US Value Equity The Renaissance of Conservatism September 2007 Edwin Walczak Portfolio Manager

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<ul><li> Slide 1 </li> <li> US Value Equity The Renaissance of Conservatism September 2007 Edwin Walczak Portfolio Manager </li> <li> Slide 2 </li> <li> 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 well b)LBOs of many very poor quality companies c)Subprime lending crisis (lax underwriting) d)Commodities boom e)Emerging markets (or is it a new world, this time) </li> <li> Slide 3 </li> <li> Slide 3 Industrial Capital Goods Stocks 1 Profit Margins 1953 Through Early-June 2007 </li> <li> Slide 4 </li> <li> Slide 4 Global Cyclicals 1 Return on Equity 1952 Through Early-June 2007 </li> <li> Slide 5 </li> <li> Slide 5 Industrial Capital Goods 1 ROEs </li> <li> Slide 6 </li> <li> Slide 6 Industrial Capital Goods Stocks 1 Year-over-Year Capital Spending Growth 1960 Through April 2007 </li> <li> Slide 7 </li> <li> 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 - Wells 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 </li> <li> Slide 8 </li> <li> Slide 8 Source: Factset </li> <li> Slide 9 </li> <li> Slide 9 FRE Portfolio by FICO Score as of March, 2007 Source: US Mortgage Finance, August 22, 2007 </li> <li> Slide 10 </li> <li> Slide 10 FRE Average Current LTV Source: US Mortgage Finance, August 22, 2007 </li> <li> Slide 11 </li> <li> Slide 11 </li> <li> Slide 12 </li> <li> Slide 12 Exxon Exxons 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 The risk in commodities: </li> <li> Slide 13 </li> <li> 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 </li> <li> Slide 14 </li> <li> 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 </li> <li> Slide 15 </li> <li> Slide 15 The largest stocks today have higher than usual ROEs relative to the market </li> <li> Slide 16 </li> <li> 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 worlds 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 </li> <li> Slide 17 </li> <li> Slide 17 Procter &amp; 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 </li> <li> Slide 18 </li> <li> Slide 18 Representative portfolio Source: Vestek US Value Equity - Sector and Industry Weights as of August 2007 Food &amp; Beverage19.40%Banks 8.56%Consumer Staples20.28% Coca Cola3.00%Bank of America1.50%Altria Group Inc.5.00% Diageo3.00%British American Tobacco ADR4.50% General Mills2.70% Fifth Third Bancorp 2.06% Procter &amp; Gamble5.23% Kellogg Co.3.50% Wachovia Corp.2.50% Colgate-Palmolive Co.3.50% Nestle SA2.70% Wells Fargo &amp; Co.2.50% Walgreen Co.2.05% PepsiCo Inc.4.50% Government Agencies5.50%Multi-Sector Holdings2.00% Retail6.95% Federal National Mort. Assn.2.00%Berkshire Hathaway Inc.2.00% Bed Bath &amp; Beyond Inc.1.47%Federal Home Loan Mortgage3.50% Signet Group1.08% Consumer Discretionary1.53% TJX Co.2.00% Health Care7.70% H &amp; R Block1.53% Wal-Mart Stores2.40%Johnson &amp; Johnson4.00% United Healthcare3.70% Media3.66% Industrials2.40% Entercom Communications1.50% United Parcel Service2.40% Property &amp; Casualty Insurance8.40% Gannett Co.1.00% American International Group Inc.6.40%Saga Communications1.16% Ambac Financial Group Inc.2.00% Cash13.50% Cash13.50% TOTAL100.00% </li> <li> Slide 19 </li> <li> 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 </li> </ul>