Financial Sector

Kate FarleyRyan O’Connor

AgendaS&P and SIM Sector AnalysisFinancial Sector AnalysisCurrent and Future Sector OutlookBusiness and Industry CyclesFinancial EvaluationEconomic IndicatorsRecommendations

S&P 500 Sector Weights

SIM Sector WeightS&P Financial

Weight: 10.72% SIM Weight: 9.59%Currently

underweighted by 113 bps

Current Holdings in 1Q09Berkshire Hathaway

(BRKA)Goldman Sachs (GS)Wells Fargo (WFC)

SIM Financial Sector Returns

Berkshire Hathaway

Goldman Sachs

Wells Fargo

SP 500SP

Financials

% YTD -7.35% -4.34% -35.89% -8.62% -25.45%

% 2008 -31.78% -60.76% -2.35% -37.44% -52.62%

Select Financial Segments Foreign Money Center Banks Money Center Banks Property & Casualty Insurance Life Insurance Diversified Investments Foreign Regional Banks Closed-End Fund - Debt Credit Services Regional - Midwest Banks Asset Management REIT - Retail Investment Brokerage –

National Regional – Northeast Banks Savings & Loans Accident & Health Insurance Investment Brokerage –

Regional Closed-End Fund - Equity

REIT - Residential Regional - Mid-Atlantic Banks REIT - Industrial Insurance Brokers REIT - Healthcare Facilities Regional - Pacific Banks Property Management Regional - Southwest Banks Regional - Southeast Banks REIT - Diversified Mortgage Investment Surety & Title Insurance Closed-End Fund - Foreign REIT - Office REIT - Hotel/Motel Real Estate Development

Leaders in Monetary BanksMarket

CapP/E

JP Morgan 89.77B 17.58

Wells Fargo 78.63B 24.58

Royal Bank of Canada

33.49B 9.23

Bank of NY Mellon Co.

31.18B 22.57

BOA 26.59B 9.57

Market Cap P/E

Berkshire Hathaway

140.20B 17.91

Travelers 22.93B 8.13

Chubb Corporation

15.13B 8.73

ACE Limited 14.27B 8.30

Allstate 11.73B NA

Market Cap P/E

Goldman Sachs

116.90B 15.3

Morgan Stanley

38.24B 18.51

CME Group 11.49B 11.17

NYSE Euronext

5.52B 7.35

Nasdaq OMX 4.29B 11.10

Current Industry ConditionsFirms getting rid of “toxic” assetsRecession and layoffsPoor public perceptionEvolving TARP Rules

- Executive compensation limits- Dividends- Monies loaned only used for lending

Financial Stability PlanVagueness released todayFour main routes of action

Equity injections into banksPrograms to help homeownersExpansion of consumer lendingAllow banks to get rid of bad assets

Public-private joint venture

Future Industry Conditions

SEC to increase regulationFurther consolidationsPossible nationalization of banksRemoving “toxic” debt could make

things worse before they get betterLess faith in the markets

"There will be time for them to make profits, and there will be time for them to get bonuses. Now is not that time.”

~ President Obama

Seguin-Associates Financial Services Ltd.

Problems With Financial ValuationStock Val data doesn’t have 2008 sector data

- Based on 2007, nothing has changed except profit. 2008 was when deleveraging occurred.

Price to Book Ratios’ accuracy questionable

Industry SafetyBroad categories have performed worse than

S&P 500 since 2006Individual industries may provide some safetyIndividual companies have outperformed with

respect to the market

Real Estate WoesEstimated $3.3 Trillion loss to date“mid-prime” loans are failing

Brought down Indy-MacPoses problems for insurance companiesUS Banks hold ~ $800B

Commercial Real Estate is expected to decline in value

4Q08 SIM ActivitySold Bank of America and Merrill LynchPurchased Wells FargoRecommended to hold underweighting at

200bps

RecommendationsFurther underweight to a total of 150 bps

Reduces ExposureKeeps the fund in the game when upside

occurs