Consumer Discretionary Sector February 2 nd, 2010 Sekhar Achanta,Tongyu Zhou

Recommendation The Fund should underweight this sector when compared to S&P 500 index. The Fund should rebalance the sector by selling some retail sector stocks. We see 20% - 50% returns in some select industries in this sector. Automobile and components Internet & Catalog Retail Major positives for this sector is improvement is Consumer Confidence. Biggest risk - Unemployment. We recommend that the Fund should rebalance by selling 300 basis points of retail stocks in this sector and buy 300 basis points of automobile and components industry stocks and Internet and Catalog Retailing to keep the SIM weighting relative to the S&P500 at 6.99%.

S & P 500 Sector Weights (as of 1/27/2010) SectorCurrent Index Weight Current SIM Weight Consumer Discretionary 10.15%6.99% Consumer Staples 10.49%11.66% Energy 10.88%11.90% Financials 14.91%11.37% Health Care 12.63%14.30% Industrials 10.83%12.36% Information Technology 19.41%19.04% Materials 3.85%3.46% Telecommunication Services 2.88%3.27% Utilities 3.95%2.94%

Consumer Discretionary - Sector Details The Consumer Discretionary Sector encompasses industries that tend to be the most sensitive to economic cycles. Consumer Discretionary Sector manufacturing segment includes automotive, household durable goods, textiles & apparel and leisure equipment. The services segment includes hotels, restaurants and other leisure facilities, media production and services, and consumer retailing and services. Sector Size - The Market cap of the sector is $28.6 billion in the S & P 500 index. The Total Market Cap of the sector is $2 Trillion.

Consumer Discretionary - Industries There are 33 sub-industry indices in this sector, with Movies & Entertainment being the largest, at 15.2% of the sector's market value. Industries in this sector –Auto Components –Automobiles –Distributors –Diversified Consumer Services –Hotels, Restaurants and Leisure –Household Durables –Internet & Catalog Retail –Media –Multiline Retail –Specialty Retail –Textiles, Apparel & Luxury Goods Source:

Consumer Discretionary Sector- Top 10 holdings Source:

Sector Performance YTD and QTD

Consumer Discretionary Sector And Economic Cycles FinancialsTechnology Consumer Discretionary IndustrialsMaterialsEnergy Consumer Staples Healthcare Utilities & Telecom Source:

Fed Stimulus –Fed Funds Rate

US Real GDP Growth

US Unemployment Numbers

Personal Savings Rate

Disposable Income

Consumer Confidence Index

Change In Consumption

Real Consumer Spending

Consumer Spending: Ex-Housing, Bills and Auto

Retail Sales

Consumer Discretionary –Same Store Sales

Correlation Coefficient R Consumer Spending Vs. Consumer Confidence

Correlation Coefficient R Consumer Spending Vs. Employment Rate

Correlation Coefficient R Consumer Spending Vs. Unemployment Rate

Correlation Coefficient R Consumer Spending Vs. CD Sector Performance

Consumer Discretionary Sector Revenues

Consumer Discretionary Sector Earnings Growth Rates

Consumer Discretionary Industries – Revenues and Earnings Growth Rates IndustryRevenue Growth (5 Year)Earnings Growth(5 Year) Auto Components(-25)%40% Automobiles(-13)%n/a Distributors5%4% Diversified Consumer Servicesn/a Hotels, Restaurants and Leisure15%8% Household Durables4%2% Internet & Catalog Retail18%27% Media9%8% Multiline Retail5%2% Specialty Retail6%4% Textiles, Apparel & Luxury Goods0%(-2%)

Consumer Discretionary Top 10 Companies – Revenues, Earnings, Margins and FCF CompaniesRevenue (5 Year) Earnings (5 Year) MarginsFree Cash Flow McDonald's Corp.3%19%33.6%1.14% Walt Disney Co.4%13%10.6%0.58% Home Depot Inc.(-3%)(-9%)14.6%0.40% Comcast Corp14%29%8%0.82% Amazon.com29%26%28.8%0.94% Target Corp.7%5%15.1%1.9% Ford Motor Companyn/a Time Warner Inc.n/a4%7%2.94% Lowe's Cos.5%(-3%)9.3%0.03% DIRECTV Group Inc.13%48%24.4%1.16%

Consumer Discretionary Earnings

Consumer Discretionary Sector Margins- Relative to S&P 500

Consumer Discretionary Sector- FCF Generation Compared to S&P

Consumer Discretionary Sector – ROE

Valuation Analysis - Sector Valuation Absolute BasisHighLowMedianCurrent P/Trailing E P/Forward E P/B P/S P/CF Relative to SP500 HighLowMedianCurrent P/Trailing E P/Forward E P/B P/S P/CF

P/B Relative to S&P 500

P/S Relative to S&P 500

P/CF Relative to S&P 500

Forward P/E Relative to S&P 500

Recommendation The Fund should underweight this sector when compared to S&P 500 index. The Fund should rebalance the sector by selling some retail sector stocks. We see 20% - 50% returns in some select industries in this sector. Automobile and components Internet & Catalog Retail Major positives for this sector is improvement is Consumer Confidence. Biggest risk - Unemployment. We recommend that the Fund should rebalance by selling 300 basis points of retail stocks in this sector and buy 300 basis points of automobile and components industry stocks and Internet and Catalog Retailing to keep the SIM weighting relative to the S&P500 at 6.99%.

Questions