Investment Outlook Girard Miller, CFA Chief Operating Officer Janus Capital Group

1. Investment OutlookGirard Miller, CFAChief Operating OfficerJanus Capital Group CMTA San Diego April 22, 2005

2. Disclaimer • Girard’s presentation represents his personal views and not necessarily those of Janus or the firm’s other investment professionals • This presentation is not to be construed as investment advice • Girard is sometimes “early” in forecasts • Anomalies take time to correct • This information is presented only for professional or personal use by CMTA membership and may not be used or referenced for commercial purposes without the written permission of the speaker, Girard Miller

3. Keeping Score: Mid-game perspectives • 2nd Term • 3rd Inning • 2nd Half

4. President Bush’s 2nd Term:Financial Market Implications • Bond traders are edgier than usual lately • Deficits and supply-side rhetoric • Expansion has now kicked in • Dollar on the defensive, fundamentally • Where will inflation rates peak? • Permanent tax reductions? • Income taxes • Estate taxes • “Revenue neutral” tax simplification • Social Security partial-privatization

5. Business Cycle:Now in the 3rd Inning • Business cycles are extended, as services now dominate the economy • No longer an industrial 3½ - year cycle • More normally 7-9 years? • We are beyond the “recovery” phase • Previous peak capacity now reached • Now into “expansion” phase • Hint: 2nd Half generally longer than 1st • Interest rate impact • Growth vs Value story to come

6. Cyclical Recovery Source: Bloomberg

7. Leading Economic Indicators Source: Bloomberg

8. Business Cycle:Now in the Third Inning • Business cycles are extended, as services now dominate the economy • No longer an industrial 3.5-year cycle • More normally 7-9 years? • We are beyond the “recovery” phase • Now into “expansion” phase • But no interest rate spike this time • It’s not 1984 or 1994 • Why?

9. The Fed

10. The “Transparent” Fed • Pre-announced “snugging” at “measured pace” • Policy of transparency • Aligning short rates with inflation • But gradually, step by step • Good chance of 4% Fed funds by December • Unless economy begins to stall • Prime rate could approach 7% (no moral hazard there!) Q: Must history repeat itself this cycle?

11. The “Transparent” Fed • Pre-announced “snugging” at “measured pace” • Policy of transparency • Aligning short rates with inflation • But gradually, step by step • Good chance of 4% Fed funds by December • Unless economy begins to stall • Prime rate could approach 7% (no moral hazard there!) • Avoiding a 1994 LTCM crisis • Most hedge funds should get out of Carry Trades with profits and no crises on Alan’s watch • Risk: Fed growing impatient with “moral hazard” • Flatter, higher yield curve seems inevitable • Tightening will end when somebody’s credit cracks Q: Must history repeat itself this cycle?

12. Fed Goal: Sustainable Growth Rate, Modest Inflation • Difficult to achieve • Moving target • Overshooting and undershooting • Other factors often dominate • But easier to accomplish in a Services Economy • Generally requires a “real” interest rate • E.g., PPI/CPI/PCED plus 1–2 % for Fed Funds • “Perfect World” scenario for 2006-10: • 2% underlying inflation • Positive productivity • 4% Fed funds and 5-6% (10/30Y) Treasurys?

13. Flatter Yield Curve Source: Baseline

14. Softer economic growth, fewer new jobs this cycle

15. Moderating Expansion • Drags on growth rate: • Consumer over-extension and debt • Watch housing sales and building permits closely • Offshoring: exporting our demand for labor • Limits personal income for workers in affected industries • Rising interest rates • Petroleum prices • Acts like a tax

16. Feeling Pinched at the Pump

17. Why This is Not 1973 • Despite upward-creeping PPI numbers: • Fed is not inflating this time • Moderate money supply growth • Petroleum is smaller % of GDP • Futures market drives ahead of need; adjusts real-time • Witness recent market correction • Result: Micro-economics 101

18. Oil prices: A Super-Spike? (A Long-Term Perspective) • In 10 - 12 years, only 4 major global producers • NY Times • China and India now locking up reserves • China’s roadway expansion plan • US: Alternative fuels becoming viable • With crude > $50 and >$70/bbl • Ethanol • Oil shale and Canadian oil sands • What would it take to reach $100/bbl in 2015?

19. Meanwhile: Raw commodities could keep running higher • Could be the beginning of a new “long-wave” cycle in commodity prices • China and India would be major drivers • Examples: Copper, soybeans, petro • Brings a new kind of inflation risk: • Non-monetary • Currency- and credit-based • Offset: finished goods should become cheaper as offshore manufacturing becomes ever more efficient Might this era resemble the British ’50s ?

20. Stock Market Perspectives So, how has the market responded? The economic recovery gave us an above-normal rally in 2003 And then, sideways in 2004 - 2005 Why?

21. 2004 – 2005: A Sideways Correction Sideways correction In 2004 - 2005 Up 40% from Feb 2003 bottom to Feb 2004 top Source: Baseline

22. 2004 - 2005 Business Conditions • Uncertainty • Fear • Deceleration of growth • Oil And the Fed is removing the safety net

23. The Case for Growth • Beyond 40 months since recession bottom • Growth appears poised to overtake value* • Second half of a long cycle • Earnings will expand • Companies well-positioned for growth • Upside leverage is strong *opinion

24. Post Through Date Growth Months Outperforming Annualized Through Date Value Growth Outperformance Mar. 1975 26 43 410 bps Nov 1982 37 77 287 Mar. 1991 30 83 830 Sept. 2001 41 ? The Case for Growth Now Growth Wins ? Value Wins

25. Is Growth Cheap Yet? Could we be approaching a “GARP” moment?

26. Global Perspectives • China and India • Japan • Asia otherwise • Europe • Canada • Latin America

27. Portfolio Strategies and Issues • Cash management • Callables? • Simple (PAC) CMOs? • MTNs? • Automobile credits? Don’t jump into the Junkyard too soon • Yield curve analysis: do your break-evens • Pension funds • Despite lags, equity over bonds • International markets offer dollar hedge • Emerging market equity: value opportunity? • Too early for high yield; too late for emerging market debt • Need to “wait in the bushes” for spreads to widen on panic somewhere • Mathematical, risk-managed strategies for alpha generation • Deferred compensation/defined contribution plans • Menus, growth strategies and model portfolios • Boomers will need to think about “inflation with income” strategies

28. Special Sectors, Issues, Opportunities and Risks • Emerging markets • Equity • Debt • High-yield equity with commodities hedge vs. $US • Real estate: REITS, residential and retirement • Prime rate and bank loan products • After-tax dividends and capital gains now at 15% • vs. 401k, 457 and IRA’s at ordinary income tax rates • California tobacco bonds and local high-yield paper • ETFs in retirement accounts

29. Conclusion, Comments & Summary • 3 more conservative years ahead in U.S. • International risks will flare regularly • China is a real tiger • Rest of Asia will follow • Dollar weaker, perhaps inevitably

30. Conclusion, Comments & Summary • 3 more conservative years ahead in U.S. • International risks will flare regularly • China is a real tiger • Rest of Asia will follow • Dollar weaker • Equities still outperform for long-term investors • Retirement real estate could regain traction after market digests 2003-04 run-up

31. Thanks for inviting me back !!! • Questions? • Observations? • Arguments?

32. Other Important Disclosures • Data presented reflects past performance, which is no guarantee of future results. • Differences between compared investments may include objectives, sales and management fees, liquidity, volatility, tax features and other features, which may result in differences in performance. As with all investments, there are inherent risks that individuals need to address. • For more detailed information about taxes, consult your tax attorney or accountant for advice. • Growth and value investing each have their own unique risks and potential for rewards, and may not be suitable for all investors. A growth investing strategy typically carries a higher risk of loss and a higher potential for reward than a value investing strategy. A growth investing strategy emphasizes capital appreciation; a value investing strategy emphasizes investments in companies believed to be undervalued. • The S&P 500 Index is the Standard & Poor’s composite index of 500 stocks, a widely recognized, unmanaged index of common stock prices. The index is not available for direct investment; therefore its performance does not reflect the expenses associated with the active management of an actual portfolio. • Dividend yield is the weighted average dividend yield of the securities in the index. The number is not intended to demonstrate income earned or distributions made by the index. • Price/Earnings and Price/Book Ratios represents equity securities within an index, and are not intended to demonstrate index growth, income earned by the index, or distributions made by the index. • Growth Rate represents the rate of growth of equity securities within an index, and is not meant as a prediction of the index’s future performance, income earned by the index, or distributions made by the index. There can be no assurance that a company’s actual earnings growth rate will be consistent with the estimate. • Price/Earning (P/E) Ratio is calculated by dividing a companies annual earnings per share its stock price. • Return on Equity (ROE) is calculating by dividing the companies annual earnings by its book value • Janus Distributors LLC 151 Detroit Street Denver, CO 80206