Q Market ChartBook

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1 Q3 215 Market ChartBook Baird Private Wealth Management Wealth Management Capital Markets Investment Banking Private Equity Asset Management Charlotte Chicago Frankfurt London Milwaukee Shanghai 1

2 About Baird A Great Place to Work Since 24, Baird has been recognized annually as one of the FORTUNE 1 Best Companies to Work For. We ranked No. 5 for 215. Ownership Founded in 1919 and headquartered in Milwaukee, WI, Baird is employee-owned and fully independent. Most Trusted Research In 214, for the eleventh consecutive year, small-cap and mid-cap institutional fund managers ranked Baird as their highest quality, most trusted source of research. 1 Global Reach Baird has more than 2,9 employees and over 1 offices in the United States, Europe and Asia. 1 Greenwich Associates U.S. Equity Investors Small/Mid-Cap Funds, May 213. Surveys conducted with 88 U.S. small-cap and 1 mid-cap fund managers. Rankings based on top 1 research firms in survey. Greenwich Associates is the leading consulting firm in the institutional and sell-side research market. 2

3 Table of Contents 1 Economy & Market Market Highlights The Markets at a Glance S&P 5 Index Economic Growth Inflation Watch Jobs Market Housing Market Consumer Health Corporate Profitability Market Volatility Commodity Prices Mutual Fund and ETF Flows 2 Domestic Equity US Equity Snapshot Asset Class Performance US Economic Sector Performance Investment Style Leadership Historical Market Cap Valuations Historical Sector Valuation & Growth Ranges Mutual Fund Over/Under Performance 3 International Equity Global Market Performance International Equity Snapshot International Country Performance Economic Sector Returns International Style Leadership Global Stock Market Valuations Country Valuation Ranges 4 Fixed Income Bond Market Snapshot Performance by Maturity/Credit Quality Yield and Volatility Characteristics U.S. Treasury Bonds Municipal Bonds Corporate Bond Yields Bond Spreads Mutual Fund Over/Under Performance 3

4 Economy and Market 4 4

5 Q3 215 Market Highlights Economy and Market Economic Growth: GDP data indicated the U.S. economy rebounded sharply from a paltry.6% in Q1 to rise 3.9% in Q2. The rebound stemmed from strong consumer spending and improving business investment. The strong number indicates the U.S. economy is one of the lone bright spots in a world where growth continues to lag expectations. Economic Health: Economic data was mostly positive during the quarter. Employers added on average 221, jobs during the previous three months through August, pushing the unemployment rate to a post-recession low of 5.1%. More impressive, the demand for housing continued to firm as starts reached their highest level in nearly eight years in July. Inflation. Core inflation (excluding food and energy prices) ticked higher to 1.8% y/o/y through August, but still remains below the Fed s 2% target. When including the effects of food and energy prices, headline inflation firmed slightly, rising to.2% y/o/y. It s the stark contrast of a strong economy and persistent deflationary trends that further complicates the Fed s decision to hike interest rates. Fed Speak. September s long-awaited Fed meeting came and went with no action taken by the Fed to move interest rates off zero. Fed members cited increased concerns over the fragility of the global economy and heighten volatility across financial markets. Domestic Equity At a Glance: U.S. stocks fell sharply during the quarter as concerns over a stalling Chinese economy sparked volatility across global financial markets. The S&P 5 experienced its sharpest quarterly decline since 211, falling 6.4%. With the decline, the S&P 5 officially entered correction territory, typically defined as a drop of at least 1% from the recent peak. Market Cap and Style: While nearly all segments of the market fell in Q3, Large Cap and Growth-oriented areas generally lost less than Smaller Cap and Value-leaning names. Sector: Defensive sectors like Utilities (5.4%) and Consumer Staples (.2%) held up the best as investors sought safe-haven assets. Among laggards, sectors most exposed to economic growth suffered the most. Energy (-17.4%) and Materials (-16.9%) were weak due to falling commodity prices and the outlook for weak global demand. International Equity At a Glance: No area of the globe was immune to the quarter s selloff. China concerns weighed on International equities. Domestic equities held up better than international with the MSCI EAFE Index falling 1.2%. The MSCI Emerging Markets Index fell 17.8%. Country/Region: Among developed markets, Asian markets experienced their worst quarterly loss since 211. Among emerging markets, Latin America was among the weakest regions. Brazil was the weakest region after being downgraded to junk status following their deepening recession. Fixed Income At a Glance: Volatility surged across all fixed income segments driven by the economic weakness abroad and uncertainty over the timing and eventual extent of Fed rate hikes. Benchmark 1-Year Treasury yields trading in a wide range, starting the quarter at 2.4% before ending at 2.%. The Barclays Agg. Bond Index returned 1.2%. Sector: A flights to quality was evident during the quarter as volatility rose across global markets. Government securities and high quality corporates were the standout sectors as demand for safe-haven assets increased. Credit-heavy sectors like High Yield (-4.9%) and Bank Loans (-1.4%) were noticeably weak. TIPS (-1.2%) finished lower as the outlook for inflation fell. Maturity and Credit Quality: Longer maturity bonds finished higher on lower interest rates while shorter maturity bonds finished flat. Among credit, investors preferred quality over yield. With the risk-off environment, credit spreads among investment grade bonds moved to the highest levels since 212. Yield Curve: The yield curve experienced significant flattening during the quarter. Long duration yields dropped in excess of 4 bps while short-term rates were flat to marginally up. Municipal Bonds: Insulated from the volatility of international markets and falling commodity prices, municipal bonds returned 1.7% during the quarter, outpacing their taxable peers. 5

6 The Markets at a Glance (as of 9/3/15) Trailing Returns (%) Annual Returns (%) Asset Class Last Qtr YTD 1-Year 3-Year 5-Year 1-Year Benchmark U.S. Stocks Large Cap Value (8.4) (9.) (4.4) Russell 1 Value Large Cap Growth (5.3) (1.5) Russell 1 Growth Mid Cap (8.) (5.8) (.2) Russell Midcap Small Cap (11.9) (7.7) Russell 2 International Stocks Developed Markets (1.2) (5.3) (8.7) (4.9) MSCI EAFE (Net) Bonds Short-Term Taxable Barclays 1-3 Yr Govt/Credit Intermediate-Term Taxable (.9) 3.9 Barclays Intermed. Govt/Credit Short-Term Municipal Barclays 1-3 Yr Municipal Intermediate-Term Municipal (1.) 4.2 Barclays 7 Yr Municipal Cash Cash/Cash Equivalents Citi 3 Month T-bills Satellite High Yield (4.9) (2.5) (3.6) BofA/ML High Yield Master II Real Estate.5 (4.8) DJ US REIT Commodities (14.5) (15.8) (26.) (16.) (8.9) (5.7) (17.) (9.5) (1.1) Bloomberg Commodity Emerging Markets (17.9) (15.5) (19.3) (5.3) (3.6) 4.3 (2.2) (2.6) 18.2 MSCI Emerging Mkts (Net) Source: Morningstar Direct; Russell, MSCI, Barclays, Citigroup, and Dow Jones benchmarks. Performance greater than one year is annualized. Performance is represented by the benchmark listed in the representative benchmark column. See important disclosures and definitions included with this publication. 6

7 S&P 5 Index Year-to-Date Performance of the S&P 5 Index 215 Q1: +1.% Q2: +.3% Q3: -6.4% Adjusted Closing Level Jan -3.% Feb +5.8% Mar -1.6% Apr +1.% May +1.3% Jun -2.% Jul 2.1% Aug -6.% Sep -2.5% 18 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Source: Standard and Poor s. The S&P 5 Index, computed by the Standard & Poor's Corporation, is a well known gauge of stock market movements determined by the weighted capitalization of the 5 leading U.S. common stocks. Indices are unmanaged and it is not possible to invest directly in an index. 7

8 Economic Growth US GDP Growth (Last 2 Years) 1 8 GDP Growth (%) Gross Domestic Product (GDP) GDP is a basic measure of U.S. economic output. Alternatively, it can be thought of as the final value of all goods and services produced within the U.S. Positive GDP growth signals an expanding economy. GDP is comprised of four major categories: personal consumption, private investment, government spending and net exports Contribution to U.S GDP Growth (Last 1 Years) 1 8 Contribution to GDP Growth (%) Personal Consumption Expenditures -6 Gross Private Domestic Investment -8 Government Consumption Expenditures -1 Net Exports Jun-5 Jun-6 Jun-7 Jun-8 Jun-9 Jun-1 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Source: US Department of Commerce: Bureau of Economic Analysis (GDP Growth) 8

9 Inflation Watch Historic CPI Level (Last 1 Years) Year-Over-Year Change in CPI (%) Consumer Price Index (CPI) A common measure of inflation, Headline CPI tracks a broad basket of goods and services relatable to most consumers. Core CPI excludes Food and Energy due to the volatile nature of those categories and the distortive effect it can have on the broader inflation measure. Headline CPI -2 Aug-5 Aug-6 Aug-7 Aug-8 Aug-9 Aug-1 Aug-11 Aug-12 Aug-13 Aug-14 Aug-15 Core CPI CPI Breakdown Headline CPI Components Weight (%) 12-mo Change (%) Core CPI: Headline less Food and Energy Components Weight (%) 12-mo Change (%) Headline CPI 1.2 Core CPI Housing Food Energy/Transportation 16 (15.) Energy 8 (15.) Food & Beverage Education 7.1 Medical Care Recreation 6.7 Apparel/Clothing 3 (1.5) Other Source: Bureau of Labor Statistics; Baird Analysis. CPI figures lag one month. 9

10 Jobs Market Jobs Gained/Lost Unemployment and Underemployment Rates Change in Payroll (s) Change in Non-Farm Payroll This is a key economic indicator that measures changes in the size of the labor force (excluding farm, government and not for-profit workers). -1, Aug-5 Aug-7 Aug-9 Aug-11 Aug-13 Aug-15 Unemployment Rate (%) Unemployment Rate The U-3 Unemployment Rate is the standard measure of the % of the labor force that is without a job. The U-6 Underemployment Rate includes those in the U-3 measure as well as those employed on a parttime status that would prefer fulltime status. U-3 Unemployment Rate U-6 Underemployment Rate Aug-5 Aug-7 Aug-9 Aug-11 Aug-13 Aug-15 Labor Participation Rate Wage Growth (Last 1 Years) 69 4 Change in Employment Cost Index Participation Rate (%) Labor Participation Rate The % of working age persons that are employed or seeking employment relative to the size of the entire population. Discouraged workers and retirees cause a decline in this rate. Wage Grrowth (%) Measures the year-over-year growth of wages and salaries within the private sector, and is based on the Employment Cost Index. 6 Source: US Department of Labor: Bureau of Labor Statistics. Data will lag one month and is subject to revision. Wage growth is calculated quarterly and will lag one quarter. 1

11 Housing Market Housing Market Trend S&P/Case Shiller Home Price Index This is a well-known housing market index that measures home prices among the 2 largest metropolitan areas. Housing Affordability Index Level Index Level Housing Affordability Index A value of 1 means that a family with a median income can qualify for a medianpriced home. A higher value means housing is generally more affordable. 1 Aug-5 Aug-6 Aug-7 Aug-8 Aug-9 Aug-1 Aug-11 Aug-12 Aug-13 Aug-14 Aug-15 8 Aug-5 Aug-6 Aug-7 Aug-8 Aug-9 Aug-1 Aug-11 Aug-12 Aug-13 Aug-14 Aug-15 Average Selling Price of New and Existing Homes Housing Market Activity $325, $275, New Housing Starts Existing Home Sales Home Starts/Sales These are indicators of housing market activity that track new home construction as well as the sales of existing homes. $225, Units (s) 7 6 $175, 5 Median Price (Existing) Median Price (New Homes) $125, Aug-5 Aug-6 Aug-7 Aug-8 Aug-9 Aug-1 Aug-11 Aug-12 Aug-13 Aug-14 Aug Aug-5 Aug-6 Aug-7 Aug-8 Aug-9 Aug-1 Aug-11 Aug-12 Aug-13 Aug-14 Aug-15 Source: Standard & Poor s, US Department of Commerce: Bureau of Economic Analysis. 11

12 Consumer Health Consumer Sentiment Consumer Spending Growth Index Level Univ. of Michigan Consumer Sentiment A monthly survey of consumers feelings toward personal financial health and direction of the economy. Consumer Spending Growth (%) Personal Consumption Expenditures Measures the rate of change of consumer expenditures. Core Spending excluded food and energy spending. 5-4 Personal Savings Rate Personal Income per Capita 12 Personal Savings Rate $4, Personal Savings Rate (%) An average estimate of how much a consumer is saving as a percentage of total disposable income. 4.6 $38, $36, $34, $37,989 Personal Income per Capita This measures the average gross annual wage/salary of working US citizens. $32, Source: Thomas Reuters/University of Michigan, US Department of Commerce: Bureau of Economic Analysis. 12

13 Corporate Profitability S&P 5 Earnings per Share (EPS) $1,4 Earnings Per Sh (right axis) $12 $1,2 $1, $8 Revenues Per Sh (left axis) S&P 5 EPS: Current: $11 Average: $64 $1 $8 $6 Earnings/Revenue Per Share One way to evaluate a company s profitability is to measure its earnings on a per share basis. The same can be done at a broader market level. The S&P 5 EPS illustrates how profitable companies are, on average. $6 $4 $4 $2 $2 $ $ Sep- Sep-1 Sep-2 Sep-3 Sep-4 Sep-5 Sep-6 Sep-7 Sep-8 Sep-9 Sep-1 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Corporate Profits (% of GDP) 12% Corporate Profits /GDP 9% 6% Corporate Profits This chart illustrates after-tax corporate profits as a percentage of U.S. GDP. The larger the percentage, the more important corporate profits are to overall economic growth. 3% Jun-95 Jun-97 Jun-99 Jun-1 Jun-3 Jun-5 Jun-7 Jun-9 Jun-11 Jun-13 Jun-15 Source: BEA, Bloomberg, Standard & Poors, Baird analysis. Past performance is not a guarantee of future results. 13

14 Market Volatility (as of 9/3/15) Historic VIX Level (Last 1 Years) VIX Level VIX (CBOE Volatility Index) The VIX measures the implied volatility of S&P 5 future options. Simply put, it measures the expected volatility of the S&P 5 Index over the next 3 days. The higher the index, the higher the expected volatility. It is also commonly referred to as the fear index. 2 Sep-5 Sep-6 Sep-7 Sep-8 Sep-9 Sep-1 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Quarterly S&P 5 Trading Volatility (Last 1 Years) 8% Percent of Trading Days 6% 4% 2% % of days up/down 2% or more % of days up/down 1-2% S&P 5 Trading Volatility Rather than focus on implied volatility, this measures actual trading volatility. Trading days where the S&P 5 Index closes up/down more than 1% or 2% are reported on a quarterly basis. % Q3 215 Q2 215 Q1 215 Q4 214 Q3 214 Q2 214 Q1 214 Q4 213 Q3 213 Q2 213 Q1 213 Q4 212 Q3 212 Q2 212 Q1 212 Q4 211 Q3 211 Q2 211 Q1 211 Q4 21 Q3 21 Q2 21 Q1 21 Q4 29 Q3 29 Q2 29 Q1 29 Q4 28 Q3 28 Q2 28 Q1 28 Q4 27 Q3 27 Q2 27 Q1 27 Q4 26 Q3 26 Q2 26 Q1 26 Q4 25 Q3 25 Q2 25 Source: Standard & Poor s; CBOE; Baird Analysis. 14

15 Commodity Markets (as of 9/3/15) Year-to-Date Returns of Various Commodity Types Oil Prices (Last 1 Years) Gold Prices (Last 1 Years) $16 $2, $14 $1,8 WTI Crude Oil Prices ($/bbl) $12 $1 $8 $6 $4 $2 $45 London PM Gold ($/oz) $1,6 $1,4 $1,2 $1, $8 $6 $4 $2 $1,135 $- $- Source: U.S. Dept of Energy; London PM Gold Fix Index; Baird Analysis. Broad Market is represented by the Bloomberg Commodity Index, specific commodity types are reported segments of that index. See important disclosures and definitions included with this publication. 15

16 Mutual Fund and ETF Flows (as of 8/31/15) Annual Mutual Fund and ETF Flows ($millions) Calendar Year Net Flows ($M) Year-to- Date Money Market (44,267) 17,49 37,782 2,812 (65,566) (439,558) (296,92) 63, , , ,924 Municipal Bond 8,644 32,149 (56,962) 54,411 (8,698) 15,66 77,568 13,231 14,48 18,267 7,757 Taxable Bond 47,731 14,474 25, ,557 2, , ,931 58,171 18,272 51,839 41,246 Allocation 2,74 47,659 62,986 41,25 2,41 27,612 12,877 (2,814) 47,81 29,49 49,133 U.S. Stock (73,495) 16, ,11 (42,548) (49,74) (23,36) (32,598) (4,252) 35,785 51,48 73,71 International Stock 187, ,549 22,855 6,742 17,982 92,835 62,519 (45,24) 173, , ,736 Alternative 14,787 21,57 49,39 15,645 22,688 23,53 29,89 21,258 11,59 1,916 3,91 Commodities 1,6 (3,12) (32,633) 11,993 8,243 24,925 36,377 12,341 6,55 8,748 9,83 Biggest % Gainers/Losers by Asset Class Top 1 In-Flows Trailing 1-Year Top 1 Out-Flows Trailing 1-Year (as a % of assets) Growth Rate (as a % of assets) Growth Rate Managed Futures 4.3% Market Neutral -2.7% Multialternative 28.6% Long-Term Bond -19.3% Europe Stock 23.% Bank Loan -19.% Foreign Small/Mid Blend 14.7% Long/Short Equity -12.7% Foreign Large Blend 13.8% Emerging Markets Bond -12.2% Health 13.5% Utilities -9.4% Foreign Small/Mid Value 8.8% Convertibles -6.3% Muni California Intermediate 7.6% Muni Single State Short -6.1% World Bond 7.% Mid-Cap Growth -5.8% Equity Energy 6.8% Nontraditional Bond -5.8% Annual Fund Flows The examination of annual mutual fund and ETF flows shows the investment pattern of the average investor by broad asset class. For example, in 28 investors exited stocks when the markets fell. In 29, large amounts of capital went to fixed income, but little flowed back to stocks. Gainers/Losers These tables depict individual asset classes that have exhibited the greatest positive or negative percentage change in assets. Source: Morningstar Direct; Baird Analysis. Asset classes with less than $25 billion invested were excluded from the analysis. 16

17 Domestic Equity 17 17

18 U.S. Stock Market Snapshot (as of 9/3/15) Trailing Returns (%) 5-Year Risk Stats Other Metrics Representative Last Qtr YTD 1-Year 3-Year 5-Year 1-Year Std. Dev. Max. Loss P/E EPS Gr. Div. Yld. Benchmark Bellw ethers S&P 5 (6.4) (5.3) (.6) (16.3) S&P 5 DJIA (7.) (7.) (2.1) (13.8) Dow Jones Industrial Avg. Market Cap Mega (5.5) (4.6) (1.6) (13.2) Russell Top 5 Large (6.3) (5.) (.8) (15.4)... Russell Top 2 Mid (8.) (5.8) (.2) (2.9)... Russell Midcap Small (11.9) (7.7) (25.1)... Russell 2 Micro (13.8) (8.6) (26.5) Russell Micro Cap Style Value (8.6) (9.1) (4.2) (19.3)... Russell 3 Value Core (7.2) (5.4) (.5) (17.7)... Russell 3 Grow th (5.9) (1.9) (16.2)... Russell 3 Growth S&P 5 Sectors Consumer Staples (2.6) (13.4) S&P 5/Cons. Staples Consumer Discretionary (.2) (1.) (6.5) S&P 5/Cons. Disc. Energy (17.4) (21.3) (29.7) (4.1) (35.7) S&P 5/Energy Financials (6.7) (7.1) (.3) (.4) 16.3 (29.2) S&P 5/Financials Health Care (1.7) (2.1) (13.1) S&P 5/Health Care Industrials (6.9) (9.8) (3.6) (23.7) S&P 5/Industrials Information Technology (3.7) (3.) (11.6) S&P 5/Info. Tech. Materials (16.9) (16.5) (18.) (26.8) S&P 5/Materials Telecomm (6.8) (3.9) (7.9) (1.6) S&P 5/Telecomm Utilities 5.4 (5.9) (12.7) S&P 5/Utilities Source: Morningstar Direct. Performance greater than one year is annualized. Performance is represented by the benchmark listed in the representative benchmark column. See important disclosures and definitions included with this publication. 18

19 Domestic Asset Class Performance (as of 9/3/15) Performance by Market Cap and Style Market Cap Style Return (%) Large Cap Mid Cap Small Cap Large Value Large Growth Mid Value Mid Growth Small Value Small Growth Last Quarter Year-to-Date Source: Morningstar Direct. Asset classes are represented by the following benchmarks: S&P 5 (Large Cap), Russell Midcap (Mid Cap), Russell 2 (Small Cap), Russell 1 Value (Large Value), Russell 1 Growth (Large Growth), Russell Midcap Value (Mid Value), Russell Midcap Growth (Mid Growth), Russell 2 Value (Small Value), and Russell 2 Growth (Small Growth). See important disclosures and definitions included with this publication. 19

20 U.S. Economic Sector Performance (as of 9/3/15) S&P 5 Index: Performance by Sector (Latest Quarter) Utilities 5.4 Cons. Staples -.2 Cons. Disc Info. Tech S&P Financials -6.7 Telecomm -6.8 Industrials -6.9 Health Care -1.7 Materials Energy Return (%) S&P 5 Index: Performance by Sector (Year to Date) Cons. Disc. 4.1 Cons. Staples -1. Health Care -2.1 Info. Tech. -3. Telecomm -3.9 S&P Utilities -5.9 Financials -7.1 Industrials -9.8 Materials Energy S&P 5 Index: Industry Metrics P/E Ratio (TTM) P/E Ratio (NTM) Dividend Yield (%) EPS Growth (%) S&P 5 Index Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Info. Tech Materials Telecomm Utilities Source: Morningstar Direct; Standard & Poor s; Baird Analysis. P/E ratios are based on trailing 12 month earnings (TTM) and the consensus forecast over the next 12 months (NTM). EPS Growth is a measure of forecasted earnings growth over the next 5 years. Past performance is not a guarantee of future results. Direct investments in sectors is not possible Return (%) 2

21 Investment Style Leadership Large Cap vs. Small Cap (Rolling 12 month periods) Value vs. Growth (Rolling 12 month periods) 12-Mo Performance Differential (%) Large Cap Outperforms Small Cap Outperforms 12-Mo Performance Differential (%) Value Outperforms Growth Outperforms High Quality vs. Low Quality (Rolling 12 month periods) Defensive vs. Cyclical (Rolling 12 month periods) 12-Mo Performance Differential (%) High Quality Outperforms Low Quality Outperforms 12-Mo Performance Differential (%) Defensive Outperforms Cyclical Outperforms Source: Morningstar Direct. Styles represented by S&P 5 (Large Cap), Russell 2 (Small Cap), Russell 1 Value (Value), Russell 1 Growth (Growth), S&P 5 High Quality (High Quality), S&P 5 Low Quality (Low Quality), Russell 1 Defensive (Defensive), Russell 1 Dynamic (Cyclical). See important disclosures and definitions included with this publication. 21

22 Historical Market Cap Valuations S&P 5 Valuation History 22 2 P/E Ratio (TTM) S&P 5 P/E 1-Year Average P/E Average +1 Std. Dev. Average -1 Std. Dev. 6 Sep-5 Sep-6 Sep-7 Sep-8 Sep-9 Sep-1 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Mid Cap Valuation History 25 Small Cap Valuation History 25 P/E Ratio (TTM) P/E Ratio (TTM) Mid Cap Average +1 Std. Dev. 1-Year Average P/E Average -1 Std. Dev. 5 Small Cap Average +1 Std. Dev. 1-Year Average P/E Average -1 Std. Dev. Source: Morningstar Direct, Standard & Poor s, Russell. P/E (Price/Earnings) is calculated based on the weighted-average price relative to earnings over the trailing 12 months. Mid Cap is measured by the Russell Midcap Index; Small Cap is measured by the Russell 2 Index. See important disclosures and definitions included with this publication. 22

23 Historical Sector Valuation and Growth Ranges S&P 5 Sectors: 1-Year P/E Valuation Range P/E Ratio LEGEND 1-Year High 5 Cons. Disc. Cons. Staples Energy Financials Health Care Industrials Info Tech Materials Telecomm Utilities Current S&P 5 Sectors: 1-Year Earnings Growth Range Average LT Earnings Growth Year Low 2 Cons. Disc. Cons. Staples Energy Financials Health Care Industrials Info Tech Materials Telecomm Utilities Source: Morningstar Direct; Standard & Poor s; Baird Analysis. P/E ratios are based on trailing 12 month earnings. EPS Growth is a measure of forecasted earnings growth over the next 5 years. See important disclosures and definitions included with this publication. 23

24 Mutual Fund Over/Under Performance (Equity Funds) Percent of Funds Outperforming Market Benchmarks (Trailing 1 Year) 1% Percent of Total 75% 5% 25% % 57% 47% 45% 46% 34% 39% 35% Large Growth Large Value Mid Growth Mid Value Small Growth Small Value Int'l % Underperform % Outperform Mutual Fund Performance Active investment managers often have a primary objective of outperforming a relevant market benchmark based on the fund s investment style. In certain periods, active managers can find it easier or more difficult to outperform. This chart examines four main assets classes, detailing what percentage of mutual fund managers over- or underperformed in a given period. This provides useful context when assessing mutual funds that you may own. Percent of Funds Outperforming Market Benchmarks (Trailing 5 Years) 1% 75% Percent of Total 5% 25% 2% 26% 2% 18% 33% 55% 41% % Underperform % Outperform % Large Growth Large Value Mid Growth Mid Value Small Growth Small Value Int'l Mutual Fund Style Universe: Style-specific universe of mutual funds as categorized by Morningstar. Number of funds in each category as of March 215: 338 for Large Growth, 259 for Large Value, 177 for Mid Growth, 91 for Mid Value, 182 for Small Growth, 82 for Small Value, and 124 for International. Source: Morningstar Direct; S&P 5 and Russell benchmarks; Baird Analysis. See important disclosures and definitions included with this publication. 24

25 International Equity 25 25

26 Global Market Performance (as of 9/3/15) Year-to-Date Performance of Selected Stock Markets Canada -19.6% Europe -4.8% France -1.% UK -8.2% Germany -8.3% Russia 9.4% S&P 5-5.3% Spain -13.2% China -11.2% Japan.5% Mexico -13.3% India -5.3% Hong Kong -6.2% Brazil -39.3% South Africa -16.3% Australia -18.% Source: Standards & Poor s (S&P 5); MSCI benchmarks (country returns). All performance is measured in USD. See important disclosures and definitions included with this publication. 26

27 International Equity Snapshot (as of 9/3/15) Trailing Returns (%) Annual Returns (%) Asset Class/Region Last Qtr YTD 1-Year 3-Year 5-Year 1-Year Benchmark Broad Developed Markets Developed Markets (USD) (1.2) (5.3) (8.7) (4.9) MSCI EAFE (Net) USD Developed Markets (Local Currency) (9.) (.9) MSCI EAFE (Net) Local Currency Effect (USD - Local Returns) (1.3) (4.3) (9.5) (7.1) (3.7) (.3) (1.8) (4.1). Broad Emerging Markets Emerging Markets (17.9) (15.5) (19.3) (5.3) (3.6) 4.3 (2.2) (2.6) 18.2 MSCI Emerging Markets (Net) BRIC (21.) (14.4) (17.9) (4.9) (5.7) 4.7 (2.6) (3.3) 14.9 MSCI BRIC Returns by Style Value (11.8) (8.1) (12.6) (5.4) MSCI EAFE Value Growth (8.7) (2.4) (4.7) (4.4) MSCI EAFE Growth Large Cap (1.8) (6.3) (1.3) (5.5) MSCI EAFE Large Cap Mid Cap (8.) (1.2) (1.7) (2.1) MSCI EAFE Mid Cap Small Cap (6.8) (4.9) MSCI EAFE Small Cap Returns by Region Europe (8.7) (4.7) (8.8) (5.7) MSCI Europe Japan (11.7).5 (1.9) (3.7) MSCI Japan Pacific (ex Japan) (15.9) (15.4) (16.7) (1.9) (.3) MSCI Pacific ex Japan Source: Morningstar Direct; MSCI benchmarks. Performance greater than one year is annualized. Performance is represented by the benchmark listed in the representative benchmark column. See important disclosures and definitions included with this publication. 27

28 International Country Performance (as of 9/3/15) Selected Country Performance (Latest Quarter) Selected Country Performance (Year to Date) Italy -4.3 Italy 5.4 France -6.4 Japan.5 Developed Markets Switzerland Netherlands Sweden U.K. MSCI EAFE Germany Spain Switzerland France Netherlands MSCI EAFE Sweden U.K. Germany Japan Spain Australia Australia -18. India -6.7 Russia 9.4 South Korea India -5.3 Mexico China Emerging Markets Russia Taiwan MSCI Em. Mkts Malaysia South Africa China South Korea Taiwan Mexico MSCI Em. Mkts South Africa Malaysia Indonesia Indonesia Brazil Brazil Return (%) Return (%) Source: Morningstar Direct.; MSCI Indices; Baird Analysis. All returns are reported in USD. MSCI EAFE (Developed markets) and MSCI EM (Emerging markets) are broad benchmarks representing many countries. Includes the 1 largest countries by weighting in the benchmark. See important disclosures and definitions included with this publication. 28

29 International Economic Sector Performance (as of 9/3/15) MSCI ACWI Ex U.S. Performance by Sector (Latest Quarter) Cons. Staples -3.2 Health Care -6.2 Utilities -7. Telecomm Cons. Disc Industrials MSCI ACWI ex US Info. Tech Financials Energy -2.1 Materials Return (%) MSCI ACWI Ex U.S. Performance by Sector (Year to Date) Sector Weighting (%) in the MSCI ACWI Ex U.S. Index Energy 4.9 Telecomm 5.1 Materials 6.9 Utilities 3.8 Info. Tech. 4.7 Financials 25.8 Health Care 2.3 Cons. Staples Cons. Disc Cons. Staples 11.3 Cons. Disc. 13. Telecomm -6.8 Industrials MSCI ACWI Ex US Health Care 12. Industrials 12.7 Info. Tech Utilities -1.4 Financials -1.6 Materials -2.1 Energy Return (%) Source: Morningstar Direct; Baird Analysis. Sectors based on global industry classification standards (GICS). The MSCI ACWI Ex US Index is a benchmark designed to measure developed market and emerging market performance excluding the U.S. See important disclosures in appendix. 29

30 International Style Leadership U.S. vs International (Rolling 12 month periods) 12-Mo Performance Differential (%) U.S. Outperforms Int l Outperforms Developed vs Emerging Markets (Rolling 12 month periods) 12-Mo Performance Differential (%) Dev. Markets Outperform Emg. Markets Outperform Value vs Growth (Rolling 12 month periods) 12-Mo Performance Differential (%) Value Outperforms Growth Outperforms Source: Morningstar Direct. Returns based on 12-month performance, calculated monthly over the most recent 1-year period. Benchmark proxies are as follows: S&P 5 (U.S.), MSCI EAFE (Int l), MSCI EAFE Value (Value) and MSCI EAFE Growth (Growth), MSCI EAFE (Developed markets), and MSCI EM (Emerging markets). See important disclosures and definitions included with this publication. 3

31 Global Stock Market Valuations (as of 9/3/15) Historical P/E Ratio P/E Ratio (TTM) S&P 5 P/E MSCI EAFE MSCI EM 6 Sep-5 Sep-6 Sep-7 Sep-8 Sep-9 Sep-1 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Current P/E Ratio of Selected Countries 25 Europe Asia-Pacific Emerging Markets P/E Ratio (TTM) Source: Standards & Poor s (S&P 5); MSCI benchmarks (country returns). All performance is measured in USD. US is measured by the S&P 5 Index, Developed International is measured by the MSCI EAFE Index, Emerging International is measured by the MSCI EM Index. P/E ratios are based on trailing 12 month earnings. See important disclosures and definitions included with this publication. 31

32 Country Valuation Ranges (as of 9/3/15) Developed Markets: 7-Year P/E Valuation Range 25 P/E Ratio LEGEND 7-Year High 5 Current Emerging Markets: 7-Year P/E Valuation Range 35 Average 3 P/E Ratio Year Low 5 Source: Morningstar Direct. USA is represented by the S&P 5. All other countries are represented by the respective MSCI country benchmark. P/E ratios are based on trailing 12 month earnings. See important disclosures and definitions included with this publication. 32

33 Fixed Income 33 33

34 Bond Market Snapshot (as of 9/3/15) Characteristics Trailing Returns (%) Annual Returns (%) Bond Types Yield (%) Duration Last Qtr YTD 1-Year 3-Year 5-Year 1-Year Benchmark Broad Developed Markets U.S. Taxable Bonds (2.) 4.2 Barclays US Aggregate Bond U.S. Municipal Bonds (2.6) 6.8 Barclays Municipal Bond International Bonds (4.8) (7.7) (4.) (.9) 3. (3.1) (3.1) 4.1 Barclays Glbl Agg. Bond ex US Broad Emerging Markets Emerging Market Bonds (2.4).3 (1.4) (4.1) 17.9 Barclays Emerging Markets Taxable Bond Categories Treasuries (2.7) 2. Barclays US Treasury Agencies (2.6) 2. Barclays US Government Mortgage-Backed (1.4) 2.6 Barclays US MBS Inv-Grade Corporate (.1) (1.5) 9.8 Barclays US Corporate IG High Yield Corporate (4.9) (2.5) (3.6) BofA/ML High Yield Master II Municipal Bond Categories Insured (2.) 7.3 Barclays Municipal Insured State GO (2.3) 5.1 Barclays Municipal State GO Local GO (2.4) 6.3 Barclays Municipal Local GO Revenue (2.9) 7.8 Barclays Municipal Revenue High Yield (5.5) 18.1 Barclays High Yield Muni Source: Morningstar Direct; Barclays benchmarks. Individual security types are subsets of either the Barclays U.S. Aggregate or Municipal Bond benchmarks. Duration, measured in years, is a relative term that expresses the price sensitivity of an investment/benchmark to changes in interest rates. All else equal, the lower the duration, the less price sensitivity to interest rate changes. See important disclosures and definitions included with this publication. 34

35 Performance by Maturity and Credit Quality (as of 9/3/15) Taxable Bonds Return (%) Short-Term Intermediate Long-Term AAA AA A Baa Below Baa QTR YTD (High Yield) Municipal Bonds Return (%) Short-Term Intermediate Long-Term AAA AA A Baa Below Baa (High Yield) QTR YTD Source: Bloomberg; Baird Analysis. Ratings are as defined by Bloomberg and represent bonds in the Barclays Aggregate Bond index (taxable bonds) and Barclays Municipal Index (municipal bonds). Short-term maturity is defined as 1-3 years, intermediate is 5-7 years for taxable and 6-8 for municipal, longterm is 1+ years for taxable and 8-12 years for municipal. See important disclosures and definitions included with this publication. 35

36 Yield and Volatility Characteristics of Various Bond Types The Relationship Between Yield and Volatility 8 6 HY Municipal Emerging Mkts High Yield Bank Loans Yield (%) 4 Mortgage Backed Corporate Municipal 2 Broad Bond Market Treasury International Year Historical Volatility (Standard Deviation) Source: Morningstar Direct; Barclays benchmarks. Individual security types are subsets of either the Barclays U.S. Aggregate or Municipal Bond benchmarks. Bond types are represented by the following indices: Barclays Aggregate Bond (Broad Bond Market), Barclays US MBS (Mortgage-Backed), Merrill Lynch High Yield Master II (High Yield), Barclays IG Corporate (Corporate), Barclays Municipal (Municipal), Barclays US Treasury (U.S. Treasury), Barclays Global Aggregate ex USD (International), and S&P/LSTA Leveraged Loan (Bank Loans). Indices are unmanaged and are used to measure and report performance of various sectors of the market. Past performance is no guarantee of future results and diversification does not ensure against loss. Direct investment in indices is not available. See important disclosures and definitions included with this publication. 36

37 U.S. Treasury Bonds U.S. Treasury Yield Curve Historical U.S. 1-Year Treasury Rate (since 199) Sep-9 Sep-91 Sep-92 Sep-93 Sep-94 Sep-95 Sep-96 Sep-97 Sep-98 Sep-99 Sep- Sep-1 Sep-2 Sep-3 Sep-4 Sep-5 Sep-6 Sep-7 Sep-8 Sep-9 Sep-1 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 1-Year U.S. Treasury Rate (%) Yield (%) 9/3/15 Current Qtr 9/3/15 Last Year. 3mo 2yr 3yr 5yr 2yr Maturity 1yr 3yr Current U.S. Treasury Yields by Maturity Yield (%) mo 6 mo 2 yr 3 yr 5 yr 1 yr 3 yr Source: U.S. Department of Treasury; Baird Analysis. See important disclosures and definitions included with this publication.

38 Municipal Bonds U.S. Municipal and Treasury Yield Curves Yield (%) Treasury Municipal. 3mo 6mo 5yr 1yr Maturity 2yr 3yr Yield Comparisons of Treasury and Municipal Bonds 6 5 Treasury Municipal Tax-Equivalent Yield Yield (%) Tax Equivalent Yield The income from many municipal bonds is exempt from federal taxes. The tax equivalent yield is the pre-tax income needed from a taxable bond to possess the same after-tax result. In this chart, a tax rate of 39.6% is assumed mo 6mo 1yr 2yr 3yr 5yr 7yr 1yr 2yr 3yr Source: U.S. Department of Treasury; Bloomberg. Municipal yields are based on the Barclays AAA GO Bond Index. The Tax-Equivalent Yields assumes a 39.6% federal tax rate and full exemption of those taxes. See important disclosures and definitions included with this publication. 38

39 Corporate Bond Yields Investment Grade Bonds: Historical Yields Investment Grade Bonds: Current Yield & Historic Default Rate Effective Yield (%) Effective Yield (%) Average Default Rate (%) Sep-5 Sep-6 Sep-7 Sep-8 Sep-9 Sep-1 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 AAA AA A BBB High Yield Bonds: Historical Yields High Yield Bonds: Current Yield & Historic Default Rate Effective Yield (%) Effective Yield (%) Average Default Rate (%) Sep-5 Sep-6 Sep-7 Sep-8 Sep-9 Sep-1 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 BB B CCC Source: BofA/Merrill Lynch, Standard & Poor s. Investment Grade Bonds are represented by the BofA/ML US Corporate Bond Index; High Yield Bonds are represented by the BofA/ML High Yield Master II Index. Historic default rates provided by Standard & Poor s and encompass the period from 1/1/81 to 1/1/14. See important disclosures and definitions included with this publication. 39

40 Bond Spreads Average OAS Spread: Max/Min/Avg/Current (1-Year History) 1,5 1, Spread over Treasury Bond (bps) 1,3 1,2 1,1 1, Average Current (1) High Yield Corporate MBS Global Agencies Current/Historical Spreads (%) High Yield Corporate MBS Global Agencies High Average Low Current Source: Barclays, Bloomberg. The length of each bar represents the range of a particular spread relative to an appropriate Treasury benchmark over the past 1 years. The maximum and minimum spreads are capped at the 95th and 5th percentiles to account for outliers. The data point marked current represents the most recent quarter. Past performance is not a guarantee of future results and this chart is not intended to be a valuation tool. 4

41 Mutual Fund Over/Under Performance (Bond Funds) Percent of Funds Outperforming Market Benchmarks (Trailing 1 Year) 1% Mutual Fund Performance Percent of Total 75% 5% 25% % 27% 2% 23% 15% Short Term Taxable Intermediate Taxable Short Term Municipal Intermediate Municipal % Underperform % Outperform Active investment managers often have a primary objective of outperforming a relevant market benchmark based on the fund s investment style. In certain periods, active managers can find it easier or more difficult to outperform. This chart examines four main assets classes, detailing what percentage of mutual fund managers over- or underperformed in a given period. This provides useful context when assessing mutual funds that you may own. Percent of Funds Outperforming Market Benchmarks (Trailing 5 Years) 1% 75% Percent of Total 5% 82% 86% % Underperform % Outperform 25% 31% 33% % Short Term Taxable Intermediate Taxable Short Term Municipal Intermediate Municipal Mutual Fund Style Universe: Style-specific universe of mutual funds as categorized by Morningstar. Number of funds in each category as of March 215: 13 for Short-Term Taxable, 214 Intermediate Term, 46 for Short-Term Municipal, and 7 for Intermediate Municipal. Source: Morningstar Direct; Barclays benchmarks; Baird Analysis. See important disclosures and definitions included with this publication. 41

42 Appendix and Important Disclosures 42 42

43 Disclosures Disclaimers This is not a complete analysis of every material fact regarding any company, industry or security. The information has been obtained from sources we consider to be reliable, but we cannot guarantee the accuracy. Past performance is not a guarantee of future results. Style Definitions Large Growth: equity securities of large capitalization companies having growth stock characteristics (high price to earnings, high return on equity and low dividend yield. Based upon the Russell 1 Growth Index. Large Value: equity securities of large capitalization companies having value stock characteristics (low forecasted price to earnings ratio, low price to book ratio, high dividend yield). Based upon the Russell 1 Value Index. Mid Growth: equity securities of middle capitalization companies having growth stock characteristics (high price to earnings, high return on equity and low dividend yield). Based upon the Russell Midcap Growth Index. Mid Value: equity securities of middle capitalization companies having growth stock characteristics (high price to earnings, high return on equity and low dividend yield). Based upon the Russell Midcap Value Index. Small Growth: equity securities of small capitalization companies having growth stock characteristics (high price to earnings, high return on equity and low dividend yield). Small capitalization stock may be subject to additional risks including illiquidity. Based upon the Russell 2 Growth Index. Small Value: equity securities of small capitalization companies having value stock characteristics (low price toearnings ratio, low price to book ratio, high dividend yield). Small capitalization stocks may be subject to additional risks including illiquidity. Based upon the Russell 2 Value Index. International: afreefloat adjusted market capitalization index that is designed to measure developed market equity performance, excluding the US & Canada, consisting of 21 developed market country indices. Based upon the MSCI EAFE Index. Satellite: these asset classes, as defined by Baird, include commodities, real estate, high yield bonds and emerging markets. Representative benchmarks are as follows: Dow Jones UBS Commodity (commodities), Dow Jones US REIT (real estate), BofA High Yield Master II (high yield), and MSCI Emerging Markets (emerging markets). Short Term Taxable: Short term bond portfolios invest primarily in corporate and other investmentgrade U.S. fixed income issues and have durations of one to 3.5 years. Based upon the Barclays 1 3 Year Govt/Credit Index. Intermediate Taxable: Intermediate term bond portfolios invest primarily in corporate and other investment grade U.S. fixed income issues and have durations of 3.5 to six years. Based upon the Barclays Intermediate Gov t/credit Index. Short Term Municipal: Muni national short portfolios invest in bonds issued by various state and local governments to fund public projects. These portfolios have durations of less than 4.5 years. Based upon the Barclays 3 Year Municipal Index. Intermediate Term Municipal: Muni national short portfolios invest in bonds issued by various state and local governments to fund public projects. These portfolios have durations of 4.5 to 7 years. Based upon the Barclays 7 Year Municipal Index. GICS The Global Industry Classification Standard ("GICS") is the exclusive property of Morgan Stanley Capital International Inc. ("MSCI") and Standard & Poor's, a division of The McGraw Hill Companies, Inc. ("S&P") and is licensed for use by Inc. MSCI and S&P hereby provided all information "as is" and expressly disclaim all warranties. Without limiting any of the foregoing, in no event shall MSCI or S&P have any liability. Domestic Equity Benchmarks S&P 5 Index: A representative sample of 5 leading companies in leading industries of the U.S. economy. Considered a large cap index. Russell 3 Growth Index: Measures the performance of those Russell 3 Index companies with higher price to book ratios and higher forecasted growth values. An all cap index. Russell 3 Value Index: Measures the performance of those Russell 3 Index companies with lower price to book ratios and lower forecasted growth values. An all cap index. Russell Top 5 Index: Measures the performance of the 5 largest companies in the Russell 1 Index, which represents approximately 4% of the total market capitalization of the Russell 1 Index. A mega cap index. Russell Top 2 Index: Measures the performance of the 2 largest companies in the Russell 1 Index, which represents approximately 68% of the total market capitalization of the Russell 1 Index. A large cap index. Russell 1 Growth Index: Measures the performance of those Russell 1 Index companies with higher price to book ratios and higher forecasted growth values. A large cap index. Russell 1 Value Index: Measures the performance of those Russell 1 Index companies with lower price to book ratios and lower forecasted growth values. A large cap index. Russell 1 Defensive/Dynamic Index: Measures the performance of those Russell 1 Index companies based in terms of volatility of price and earnings, leverage and return on assets. The Russell 1 Defensive Index includes those with relative stability and less sensitivity to economic cycles. The Russell 1 Dynamics Index includes those with less stability and greater sensitivity to economic cycles. Russell Midcap Index: Measures the performance of the 8 smallest companies of the Russell 1 Index, which represents approximately 36% of the total capitalization of the Russell 1 Index. A mid cap index. Russell Midcap Growth Index: Measures the performance of those Russell Midcap Index companies with higher price to book and higher forecasted growth values. A midcap index. Russell Midcap Value Index: Measures the performance of those Russell Midcap companies with lower price to book and lower forecasted growth values. A mid cap index. Russell 2 Index: Measures the performance of the 2, smallest companies in the Russell 3 Index, which represent approximately 1% of the total market capitalization of the Russell 3 Index. A small cap index. Russell 2 Growth Index: Measures the performance of those Russell 2 Index companies with higher price to book ratios and higher forecasted growth values. A small cap index. Russell 2 Value Index: Measures the performance of those Russell 2 Index companies with lower priceto book ratios and lower forecasted growth values. A small cap index. Russell Microcap Index: Measures the performance of smallest 1 companies in the Russell 2 Index, which represents less than 3% of the total market capitalization. A micro cap index. Dow Jones U.S. Real Estate: Measures the performance of Real Estate Investment Trusts (REIT) and other companies that invest directly or indirectly through development, management or ownership, including properties. Dow Jones Industrial Average: Aprice weighted index composed of 3 actively traded large cap stocks. Bloomberg Commodity: Aims to provide broadly diversified representation of commodity markets and represents 2 commodities, weighted based on economic significance and market liquidity. S&P 5 High/Low Quality Index: The S&P Quality Rankings System measures growth and stability of earnings and dividends within the S&P 5 Index. The S&P 5 High Quality Index tracks stocks identified by Standard & Poor s as high quality (ranked A and above); The S&P 5 Low Quality Index tracks stocks identified by Standard & Poor s as low quality (ranked B and below). The Russell Indices are a trademark of the Frank Russell Company. Russell is a trademark of the Frank Russell Company. Investors should consider the investment objectives, risks, charges and expenses of a fund carefully before investing. This and other information is found in the prospectus or summary prospectus. For a prospectus or summary prospectus, contact your Baird Financial Advisor. Please read the prospectus carefully before investing. 43

44 Disclosures MSCI International Equity Benchmarks MSCI EAFE Index: Afreefloat adjusted market capitalization index that is designed to measure developed market equity performance, excluding the US & Canada. The MSCI EAFE Index consists of 21 developed market country indices in Europe, Australasia, and the Far East. An international index. MSCI EAFE Large Cap: The MSCI EAFE Large Cap Index is an unmanaged, market weighted index of large companies in developed markets, excluding the U.S and Canada. An international large cap index. MSCI EAFE Mid Cap: The MSCI EAFE Mid Cap Index is a free float adjusted market capitalization index that is designed to measure the performance of mid capitalization equities in the developed markets excluding the US & Canada. An international mid cap index. MSCI EAFE Small Cap: The MSCI EAFE Small Cap Index represents the small cap segment in 21 developed equity markets outside of North America. It targets 4% of the eligible small cap universe in each country. An international small cap index. MSCI EAFE Growth: A sub set of the MSCI EAFE Index, this benchmark is generally considered to be representative of the international growth stock market activity and often used as a benchmark for international growth equity portfolios. An international growth index. MSCI EAFE Value: A sub set of the MSCI EAFE Index, this benchmark is generally considered to be representative of international value stock market activity and often used as a benchmark for international value equity portfolios. An international value index. MSCI Europe Index: Afreefloat adjusted market capitalization index that is designed to measure developed market equity performance in Europe. As of June 26, the MSCI Europe Index consisted of the following 16 developed market country indices: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the UK. An international index. MSCI Pacific ex Japan Index: A free float adjusted market capitalization index designed to measure equity market performance in the Pacific region, minus Japan. As of June 26, the MSCI Pacific ex Japan Index consisted of the following 5 Developed Market countries: Australia, Hong Kong, New Zealand, and Singapore. An international index. MSCI BRIC: Afreefloat adjusted market capitalization weighted index that is designed to measure the equity market performance of thefollowing four emerging market country indices: Brazil,Russia, India and China. MSCI Emerging Markets Index: Afreefloat adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. As of December 23 the MSCI Emerging Markets Index consisted of 26 emerging market country indices. An emerging markets index. MSCI Country Indices: To construct an MSCI Country Index, every listed security in the market is identified. Securities are free float adjusted, classified in accordance with the Global Industry Classification Standard (GICS ), and screened by size and liquidity. MSCI then constructs its indices by targeting for index inclusion 85% of the free float adjusted market capitalization in each industry group, within each country. By targeting 85% of each industry group, the MSCI Country Index captures 85% of the total country market capitalization while it accurately reflects the economic diversity of the market. International indices. Fixed Income Benchmarks Barclays Aggregate Bond Index: is an unmanaged index that tracks domestic investment grade bonds, including corporate, government, and mortgage backed securities. Barclays 1 3 Yr Government/Credit Bond Index: Includes bonds covered by the Barclays Government/Credit Index, with maturities from 1 up to (but not including) 3 years. Barclays Intermediate Government/Credit Bond Index: Composed of approximately 3,5 publicly issued corporate and U.S. government debt issues rated Baa or better, with at least one year to maturity and at least $1 million par outstanding. The index is weighted by the market value of the issues included in the index. The Index has duration of a little over 3 years and a maturity equal to slightly more than 4 years. Barclays Muni Bond Index: Bonds must have a minimum credit rating of at least Baa, an outstanding par value of at least $3 million, part of a transaction of at least $5 million, issued after December 31, 199 and have a year or longer remaining maturity. Barclays 3 Year Muni Bond Index: Includes bonds that have a minimum credit rating of BAA3, are issued as part of a deal of at least $5 million, have a minimum maturity of 2 years and a maximum maturity of 4 years, and have been issued after December 31, 199. Barclays 7 Year Muni Bond Index: This index is a subset of the BC Municipal Bond Index. It includes maturities of six to eight years. Barclays Global Aggregate ex USD Index: Tracks investment grade government, corporate, agency, and mortgage related bonds in markets outside the U.S. An international bond index. BofA/ML US High Yield Master II Index: The US High Yield Master II Index tracks the performance of below investment grade US dollar denominated corporate bonds publicly issued in the US domestic market, subject to various qualifications. A high yield taxable bond index. Barclays US Treasury Bond Index: Measures the performance of public obligations of the US Treasury with a remaining maturity of one year or more. Barclays US MBS Index: Measures the performance of investment grade mortgage backed pass through securities of GNMA, FNMA and FHLMC. Barclays IG Corporate: Measures the performance of investment grade corporate bonds with a remaining maturity of one year or more. Citigroup Treasury Bill 3 Month: An unmanaged index of three month Treasury bills. Representative of shortterm money market deposits, or cash. S&P/LTSA Leveraged Loan: A broad index designed to reflect the performance of U.S. dollar facilities in the leverage loan market. Other Benchmarks Dow Jones CSFB Managed Futures: Designed to provide transparent representation of managed futures hedge fund performance. Funds are selected by Credit Suisse based on eligibility standards, rebalanced semi annually and performance is calculated quarterly. Dow Jones CSFB Multi Strategy: Designed to provide transparent representation of fund of hedge fund performance. Funds are selected by Credit Suisse based on eligibility standards, rebalanced semi annually and performance is calculated quarterly. Dow Jones CSFB Long/Short: Designed to provide transparent representation of long/short equity hedge fund performance. Funds are selected by Credit Suisse based on eligibility standards, rebalanced semi annually and performance is calculated quarterly. 44

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