AFN32287_1007 AFN32287_1009 Investing in a Volatile Market

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1AFN32287_1007AFN32287_1009

Investing in a Volatile Market

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Agenda

• Today’s market environment • Is this time different? • Learning from the past • Gauging volatility • Investing strategies in a volatile market• Looking ahead

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Today’s Exceptional Market Environment

Beginning ofbear market

Fed real effectiverate below 0% Bear Stearns

bailout announced

National housing marketdown 20% from peak

Barak Obamaelected President

U.S. economyenters recession

Congress passes $787 billion stimulus package

Federal Reservetakes over AIG

Lehman Brothersfiles for bankruptcy

Government takes over Fannie and Freddie

U.S. Stock Market in Decline

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Behind the Bear

• Bursting real estate bubble• Subprime crisis• Institutional bankruptcies and bailouts• Economic slump• Growing risk aversion of banks• Changing consumer attitudes• Changing demographics

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Is This Time Different?

Recent Bear* 1970’s Bear 1930’s BearJapan's

"Lost Decade"

Drop in Market Value (peak to trough)

57% 48% 86% 80%

Duration 17 months* 19 months 39 months 161 months

Annualized Real GDP Growth

-0.70% 1.5% -9.4% 1.5%

Recession/Depression Duration

16 months* 16 months 43 months Over 12 years

Sources: Standard & Poor’s; Bureau of Economic Analysis; International Monetary Fund; Economic Planning Agency (Japan); National Bureau of Economic Research. GDP data is based on quarterly data for the most recent bear market and the 1970’s bear market; it is based on annual data otherwise. Periods of economic contraction do not exactly coincide with bear markets. *Assumes that the most recent bear market ended on March 9, 2009, and that the recession ended on March 31, 2009. Neither of these has been determined conclusively.

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Learning From the Past:Bear Markets Since 1950

Source: Standard & Poor’s. For the period from January 1, 1950, through December 31, 2009. Stocks are represented by the daily closing price of the Standard & Poor's 500. Past performance is not a guarantee of future results. (CS000144)

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Learning From the Past:Stock Markets and Economic Contractions

Source: Standard & Poor’s. For the period from January 1, 1950, through December 31, 2009. U.S. stocks are represented by Standard & Poor’s Composite Index of 500 Stocks, an unmanaged index that is generally considered representative of the U.S. stock market. Economic contractions are as defined by the National Bureau for Economic Research. (CS000228)

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Learning From the Past: Conclusions

• Economic cycles don’t tell the whole story• Every bear is unique• Fundamental investing concepts and strategies still

apply

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Gauging Volatility: Standard Deviation

S&P 500 Standard Deviation — 1959-2009

Source: Standard & Poor's. Represents the annualized monthly standard deviation of the total returns of the S&P 500 index for rolling 10-year periods from January 1959 to December 2009. Past performance is not a guarantee of future results.

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Gauging Volatility: VIX

Source: Chicago Board Options Exchange. For the period from January 1990 to December 2009.

Volatility Index (VIX) 1990-2009

0

10

20

30

40

50

60

70

80

90

100

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

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Five Investing Strategies for a Volatile Market

• Don’t panic• Take advantage of asset allocation• Diversify by sector, size, and style • Keep a long-term perspective • Consider buying opportunities

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Don’t Panic

Source: Standard & Poor’s. This chart shows how a $10,000 investment would have been affected by missing the market's top-performing days over the 20-year period from January 1, 1990, to December 31, 2009. Stocks are represented by Standard & Poor's Composite Index of 500 Stocks, an unmanaged index that is generally considered representative of the U.S. stock market. Past performance is not a guarantee of future results. (CS000076)

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Take Advantage of Asset Allocation

All Stock Portfolio 40% Stock Portfolio

Total Return Risk*

Total Return Risk*

Total Return Risk*

1-year 26.45% 21.36% 17.77% 14.03% 13.06% 9.82%

5-year 0.41% 16.04% 2.34% 9.96% 3.07% 6.94%

10-year -0.95% 16.13% 1.93% 9.73% 3.06% 6.61%

20-year 8.21% 15.03% 7.72% 9.31% 7.19% 6.49%

60% Stock Portfolio

*Annualized monthly standard deviation. Sources: Standard & Poor’s, Barclays Capital. For the periods ended December 31, 2009. Stocks represented by the S&P 500 index. Bonds represented by the Barclays U.S. Aggregate Bond Index. Cash represented by the Barclays 3-Month Treasury-Bill Index. Past performance is no guarantee of future performance.

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Diversify by Sector, Size, and StyleSector outperformance varies with the economic cycle

Sector Rotation -- 2000 to 2009

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Utilities57.17%

Materials3.50%

Consumer Staples-4.28%

Information Technology

47.23%

Energy31.54%

Energy31.37%

Telecom Services36.81%

Energy34.41%



61.71%

Health Care37.06%

Consumer Discretionary

2.79%

Materials-5.46%

Materials38.23%

Utilities24.33%

Utilities16.84%

Energy24.20%

Materials22.55%

Health Care-22.81%

Materials48.58%

Financials25.69%

Industrials-5.75%

Energy-11.13%


37.42%


Health Care6.48%

Utilities20.99%

Utilities19.39%

Utilities-28.97%


41.30%

Consumer Staples16.78%


Financials-14.64%

Industrials32.20%

Industrials18.05%

Financials6.48%

Financials19.18%


16.33%

Telecom Services-30.49%

Industrials20.91%

Energy15.68%

Financials-8.95%

Health Care-18.84%

Financials31.13%


13.26%

Materials4.43%


18.67%



-33.48%

Health Care19.70%

Industrials5.88%

Energy-10.41%


-23.81%

Utilities26.36%

Materials13.21%


Materials18.64%

Industrials12.01%

Energy-34.88%

Financials17.20%

Materials-15.72%

Health Care-11.94%

Industrials-26.34%

Energy25.61%

Financials10.90%

Industrials2.32%



Industrials-39.91%



-20.00%


Utilities-29.99%

Health Care15.04%



1.00%

Industrials13.29%

Health Care7.16%


-43.14%

Energy13.82%



-25.87%




2.56%



8.40%


-13.21%

Materials-45.64%

Utilities11.91%


-40.89%

Utilities-30.44%


-37.42%


Health Care1.77%


-6.36%

Health Care7.53%

Financials-18.64%

Financials-55.32%


S&P 500 -9.09% -11.88% -22.10% 28.69% 10.87% 4.89% 15.79% 5.50% -36.99% 26.45%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Source: Standard & Poor’s. Sector performance represented by the performance of the 10 GICS sectors within Standard & Poor's Composite Index of 500 Stocks. Past performance is not a guarantee of future results. (CS000172)

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Keep a Long-Term PerspectiveThe longer the holding period, the lower the variability in returns

Source: Standard & Poor’s. For all indicated holding periods between between January 1, 1926, and December 31, 2009. Domestic stocks are represented by the total annual returns of Standard & Poor's Composite Index of 500 Stocks, an unmanaged index that is generally considered representative of the U.S. stock market. Past performance is not a guarantee of future results. (CS000070)

160%

57%47% 45% 38%

21% 20% 18% 15%

-53%-41%

-26%-17%

-4% 0% 2% 8%

-67%

-100%

-50%

0%

50%

100%

150%

200%

1 2 3 4 5 10 15 20 30Holding Period in Years

Hig

he

st/

Lo

we

st

An

nu

al

Tota

l R

etu

rn

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Consider Buying Opportunities

Market Valuation Metrics in Selected Bull and Bear Markets

Price/Earnings Ratio

2000-02 bull market peak (2000) 30.0

2000-02 bear market bottom (2002) 25.9

2007 bull market peak (2007) 19.9

Average bull market peak since 1950 19.6

Average bear market bottom since 1950 16.9

Average all markets since 1950 17.8

Source: Standard & Poor’s. For the period from January 1, 1950, through December 31, 2009. Price/earnings ratios are based on 4-quarter trailing earnings. Average bull and bear market peak and bottom ratios based on final month average in cycle.

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Special Considerations for Retirement Plan Assets

• Reallocate, don’t cut• Never cut contributions below employer match• If employer cuts match, contributing still makes

sense

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Looking Ahead

• Economy still in a downturn• Housing slump continues• Administration and Congress are confronting the issues• Increased government oversight of financial markets

will come• Other structural changes to markets and economy are

likely

= Market volatility is likely to remain a given

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Forward, Not Back

• Steps to recovery in process• Upside greater than downside• Using time-proven investing strategies is the best

way to deal with continued market volatility

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Questions?

Investment options are offered through a group variable annuity contract (Forms 902-GAQC-09 or 902-GAQC-09(OR) or 901-GAQC-07 or 901-GAQC-07(OR)) underwritten by United of Omaha Life Insurance Company for contracts issued in all states except New York. United of Omaha Life Insurance Company is not licensed in New York. In New York, Companion Life Insurance Company, Hauppauge, NY underwrites the group variable annuity (Form 900-GAQC-07(NY)). Each company accepts full responsibility for each of their respective contractual obligations under the contract but does not guarantee any contributions or investment returns except as to the Guaranteed Account and the Lifetime Guaranteed Income Account as provided under the contract. Neither United of Omaha, Companion Life Insurance, nor their representatives or affiliates offers investment advice in connection with the contract.

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