Consumer Consumer DiscretionaryDiscretionary

July 17, 2007July 17, 2007

Haixia JiHaixia Ji

Jaime NaleJaime Nale

Adam RobertsonAdam Robertson

Hui SongHui Song

S&P 500 Composition S&P 500 Composition as of as of 07/06/0707/06/07

3.14%

3.48%

3.68%

9.20%

10.23%

10.93%

11.10%

11.74%

15.67%

20.82%

Materials

Utilities

Telecommunication Services

Consumer Staples

Consumer Discretionary

Energy

Industrials

Health Care

Information Technology

Financials

Industry Breakdown Industry Breakdown as of as of

06/30/0706/30/07

0.6%

1.2%

1.9%

2.1%

2.2%

4.0%

4.5%

5.7%

11.3%

15.1%

18.4%

33.0%

Distributors

Diversified Consumer Services

Leisure Equipment & Products

Internet & Catalog Retail

Auto Components

Automobiles

Textiles, Apparel & Luxury Goods

Household Durables

Multiline Retail

Hotels Restaurants & Leisure

Specialty Retail

Media

Top 10 HoldingsTop 10 Holdings as of 07/15/07as of 07/15/07

1.83%

2.09%

3.35%

3.70%

4.32%

4.48%

4.93%

5.71%

5.84%

6.30%

CBS

Viacom

Lowe's

News Corporation

Target

McDonald's

Walt Disney

Home Depot

Time Warner

Comcast

Select Sector SPDR’s Select Sector SPDR’s Composition and Returns YTDComposition and Returns YTD

as ofas of 06/30/0706/30/07

3.20%

3.52%

9.20%

9.81%

11.22%

11.23%

11.62%

19.44%

20.75%

17.02%

9.08%

4.72%

2.90%

18.04%

12.04%

6.40%

10.14%

-0.57%

Materials

Utilities

Consumer Staples

ConsumerDiscretionary

Energy

Industrials

Health Care

Technology

Financials

ReturnYTDSectorWei ght

Business AnalysisBusiness Analysis

Mature Mature SectorSector

Foreign Foreign InfluenceInfluence

Cyclicality Cyclicality

SeasonalitySeasonality

Quarterly Revenues of LTD

0200400600800

1000120014001600

Q4 200

6

Q3 200

6

Q2 200

6

Q1 200

6

Q4 200

5

Q3 200

5

Q2 200

5

Q1 200

5

Q4 200

4

Q3 200

4

Q2 200

4

Q1 200

4

Quarter

Re

ve

nu

es

in M

illio

ns

Revenues

Economic AnalysisEconomic Analysis

Changes in the Federal Funds RateChanges in the Federal Funds Rate

Economic AnalysisEconomic Analysis

UnemploymentUnemployment

Economic AnalysisEconomic Analysis

Discretionary IncomeDiscretionary Income

Economic AnalysisEconomic Analysis Gasoline PricesGasoline Prices

Economic AnalysisEconomic Analysis

Economic AnalysisEconomic Analysis

Economic AnalysisEconomic Analysis

Mixed indicationsMixed indications Federal Funds Rate Federal Funds Rate Strong Unemployment FiguresStrong Unemployment Figures Discretionary Income GrowingDiscretionary Income Growing Gasoline Appears OverpricedGasoline Appears Overpriced

Encouraging PotentialEncouraging Potential

Financial AnalysisFinancial Analysis

S&P 500 Financial S&P 500 Financial AnalysisAnalysis

Income Statement Income Statement AnnualAnnual

Income Statement Qtr.Income Statement Qtr.

Cash Flow AnnualCash Flow Annual

Financial AnalysisFinancial Analysis

Valuation Analysis 10-Valuation Analysis 10-yearsyears

Valuation Analysis 10-Valuation Analysis 10-yearsyears

Valuation Analysis 10-Valuation Analysis 10-yearsyears

Currently all measures of valuation Currently all measures of valuation is relative higher than the 10 years is relative higher than the 10 years averageaverage

All five graphs show the same All five graphs show the same upward trend since 2000, but the upward trend since 2000, but the plots do show the contract sign this plots do show the contract sign this year.year.

The whole sector is inline to The whole sector is inline to overpriced relative to the market. overpriced relative to the market.

RecommendationsRecommendations

Sector should be even-weighted Sector should be even-weighted instead of 100 Basis Points instead of 100 Basis Points underweightunderweight

Currently inline to slightly expensive Currently inline to slightly expensive when compared to S&P 500when compared to S&P 500

Positive economic outlookPositive economic outlook