1. FIAP International Seminar Strategies for investing internationally David F. Holstein Capital Guardian May 18, 2006

2. Why go International Big picture decisions Portfolio structure

3. It’s a big world Global equities 1 Sovereign debt 2 United States 46.4% Other Developed 46.6% Other Emerging Markets 5.7% Latin America 1.3% United States 36.2% Other Developed 59.3% Other Emerging Markets 3.9% Latin America 0.6% 1 Source: MSCI ACWI as of 3/31/06 2 Source: Lehman Brothers Global Aggregate Bond Index as of 3/31/06 Why international

4. Reasons Diversification — Economic — Political — Securities Opportunities Better returns/risk Liabilities in home currency Capital should support home industries — public policy Create healthy domestic financial markets Investment expertise, cost WhyWhy not Why international

5. Diversification Looking at correlations Equity Correlation: Emerging Markets — Latin America vs. Developed Markets 3 year rolling periods: January 1988–March 2006 Computed Monthly Why international

6. Diversification Looking at sectors SectorEM Latin AmericaWorld Top 3 Materials25.66.0 Energy17.39.5 Telecommunication Services16.54.1 Subtotal top 359.319.6 Financials13.825.5 Consumer Staples11.07.8 Utilities5.74.0 Bottom 4 Industrials5.010.7 Consumer Discretionary4.911.5 Health Care0.39.9 Information Technology0.011.0 Subtotal bottom 410.243.1 Sources: MSCI World Index and MSCI EM Latin America Index as of 3/31/06 Why international

7. How much to invest internationally? Market capitalization weights — define opportunity set Home country bias Optimization – Need to define asset classes – Inputs: expectations for markets – Small differences drive output – Good exercise to understand assets and diversification Common sense — comfort levels Average U.S. DB plan has 25% Decisions

8. Asset allocation Defining international assets – In-house expertise or delegate – Level of involvement Low ACWE managers High ACWE, U.S. Large, Europe, Japan, Asia ex. Japan, Int’l Small, Emerging Markets, Home Country Medium ACWE, U.S., EAFE®, Emerging Markets Decisions

9. Currency — necessary evil or opportunity Hedged vs. unhedged MSCI EAFE Index returns for U.S. investors Source: MSCI EAFE indices with gross dividends reinvested Decisions

10. Asset class Median manager % Benchmark % Value added %Benchmark Equity Global9.77.52.2MSCI World Index Developed International ex. U.S.9.56.23.3MSCI EAFE Index United States10.39.11.2S&P 500 Index Emerging Markets10.86.84.0MSCI Index Fixed Income Global6.05.01.0 Citigroup World Government Bond Index United States6.46.20.2Citigroup BIG Index Source: 10-year annual returns — Frank Russell Universe Active strategies add signi fi cant value Decisions

11. Asset managers — plenty of choice Style — Value, Growth, Core Market Oriented Market capitalization Top-down — Rotation among style, countries, sectors, and market cap — Thematic Bottom-up fundamental analysis — stock picking Quantitative Passive and enhanced index People Process — Repeatable — Consistent — Sensible Performance — Peers or benchmark — Proof statement Price Investment processesSelecting managers Portfolio structure

12. Quantitative vs. qualitative investing Identify factors that have been associated with success Process evolves over time — new variables Typically value-oriented and sector/country neutral Key positives — Rank large number of stocks — Portfolio construction reflects degree of attractiveness — Dispassionate — Understand portfolio results Value added via gaining specific company insights — Model financials — Understand company strategy — Interact with management All disciples — deep value to growth Challenges — Manageable universe — Differentiate investment process — “Argument” with consensus QuantitativeFundamental: Stock-pickers Portfolio structure

13. U.S. pension trends Changing environment Asset returns no longer primary focus — Reduce impact on company financials — Fulfill the pension promise — funded status Liabilities matter — Extend duration Popular ideas — Portable alpha — Hedge funds — Alternatives: private equity, commodities Work assets harder — Overlay strategies — More aggressive managers Portfolio structure

14. U.S. de fi ned contribution plan DC plans being expanded — Cheap alternative to DB plans — Straightforward accounting Obligation to provide for retirement — DC returns inferior to DB returns — Legal concerns – Education vs. ownership – Retirement savings insufficient – Automatic enrollment – Lifecycle funds Employees accepting — Profitability and ownership — High profile bankruptcies and globalization Portfolio structure

15. Next steps Going international is an “easy” decision Expertise, resources and energy may limit your efforts — Use strategic partners to increase knowledge — Good payoffs for extra effort needed to manage assets more aggressively Important to understand goals, objectives, liabilities and limitations — Don’t invest in anything you do not understand completely — Being cynical, skeptical and deliberate in decision-making are positive qualities — Common sense — increased return means increased risk New ideas and investment vehicles may provide opportunities to attain goals in a more cost effective way