Client

1. Client Market Analysis / First Quarter 2010

2. Key Takeaways • Our strong investment performance continued in the first quarter • Looking ahead over the next few years, we expect slower than normal economic growth in the U.S. as the unwinding of the debt bubble forces lower spending • Stimulus and entitlement spending are contributing to ballooning federal deficits, which will eventually pose a major challenge and threat to the economy • Recent economic positives stems mostly from temporary factors of stimulus spending and inventory rebuilding, and the job market – which is key – remains weak • We remain underweight to equities as stocks are not cheap enough to compensate for the macro risks • We are optimistic that our positions in emerging-markets bonds will add value over our five-year time horizon • Further cycles of fear and greed in the years ahead should create opportunities for • Our stock and bond managers at the individual security level • Litman/Gregory at the asset class level • Given our conservative positioning, we will likely underperform our equity benchmarks if markets continue rising in the near term Market Analysis 1Q2010

3. Asset Class Returns Through 3/31/2010. Past performance may not be indicative of future returns. Market Analysis 1Q2010

4. Performance Summary • Riskier assets continued to do well in the first quarter • Stocks added to their gains of 2009, with smaller-caps beating larger-caps • Riskier bond areas like high-yield and emerging-markets local-currency were again strong • Our portfolios again outperformed their benchmarks in the first quarter • Our active stock and bond managers generally added value Market Analysis 1Q2010

5. Asset Class Returns First Quarter 2010 Market Analysis 1Q2010

6. The Economy Will Continue to Face Serious Challenges in the Years Ahead • The debt binge fueled a lot of spending, but reducing debt necessitates less spending, which suggests a sluggish economy in coming years • Stimulus spending revived the economy but added to the ballooning public debt problem that will be difficult to fix without causing more damage • In addition to stimulus spending, the economy has been helped by inventory rebuilding, but neither can be sustained • Jobs are key, and despite slow improvement the job market remains poor • There are more problems, including: • Huge amounts of commercial real estate debt coming due • Continued strains in the housing market • Possible high inflation down the road from deficit spending • Stressed state and local government finances Market Analysis 1Q2010

7. Debt Reduction is Still in its Early Stages Market Analysis 1Q2010

8. Unemployment Could Remain High for Years to Come Market Analysis 1Q2010

9. There are Several Positives that Could Contribute to a Better Outcome • Continued strength from emerging economies would provide an important source of demand • Domestically, we could see stimulus spending, low rates, and inventory rebuilding create a virtuous circle • This could involve businesses with strong balance sheets adding jobs, and consumer and business confidence building and feeding on itself Market Analysis 1Q2010

10. Stocks Are Not Priced to Deliver Strong Returns • After their powerful recent run, strong multi-year returns from stocks would require a level of earnings growth we consider unlikely • We think mid-single-digit returns or worse are more likely for stocks than higher returns over the next five years • Our outlook for developed market foreign equities is similar and for emerging-markets equities is slightly higher across all scenarios • We believe risks are relatively high, but if rates stay low and there is no negative catalyst, we could see low double-digit returns in 2010 Market Analysis 1Q2010

11. Asset Class Return Estimates 5 Year Projection The chart represents gross return forecasts for several asset classes. The forecasts are forward looking statements based upon the reasonable beliefs of Litman/Gregory and are not a guarantee of future performance. Actual results may differ materially from the forecasts above. Market Analysis 1Q2010

12. There’s Little Incentive to Take On Risk but Opportunities Still Exist We are underweighted to equities because we don’t think probable returns are very good relative to less risky assets That said, even when overall returns are low, evidence suggests stock pickers can do well if the spread of returns among individual stocks is wide Further, many stock pickers we use report finding good opportunities Emerging-markets local-currency bonds remain a compelling opportunity High-yield’s appeal has diminished and we are closer to selling We continue to research absolute return and alternative investment vehicles and are using some in our portfolios Market Analysis 1Q2010

13. Adding Value on the Fixed-Income Side • We use several flexible bond managers who we think can earn competitive returns at lower risk • Collectively these managers can mitigate the impact of rising rates and rising inflation • PIMCO Unconstrained has the flexibility to pursue strategies that would benefit from rising inflation, including having a negative duration • Osterweis Strategic Income is focused on high-yield bonds but with short maturities • FPA New Income has a very low duration, and little inflation-related risk. • Loomis Sayles Bond has significant exposure to countries with commodity-based economies, which should benefit in an inflationary environment • PIMCO Emerging Local Bond should do well against the dollar if U.S. inflation spikes Market Analysis 1Q2010

14. Future Volatility Will Present Further Opportunities • We think it is likely we’ll see a downturn at some point as risky assets reset to levels that will provide a better payoff for taking on that risk • If that happens it will create opportunities for our stock and bond managers • Volatility also creates tactical asset allocation opportunities as asset classes become more and less compelling relative to one another • Setting a high bar in which we take advantage only of compelling opportunities allows us to improve long-term returns • But in the meantime, it is very possible stock markets could continue going up, and because we are invested very differently from our benchmarks we will likely lag if that happens Market Analysis 1Q2010

15. Closing Thoughts “Recognize reality even when you don’t like it. Especially when you don’t like it.”—Charlie Munger • The picture we paint is not the most uplifting, but we must make decisions based on what our analysis tells us • We could be wrong in the short term and investors need to recognize that it is the willingness to be wrong in the short term that enables us to outperform over the more important longer spans • There are a number of reasons to be optimistic about the longer-term returns we can deliver even in a challenged environment • Doing so will require us to be honest about the environment we’re in and patient and highly selective in the decisions we make Market Analysis 1Q2010