This document provides an overview and summary of economic conditions in the first half of 2011. It discusses factors such as declines in stock market indexes, increases in unemployment, weakness in the housing market, high government debt levels, and inflation concerns. It also summarizes projections from economists for modest GDP growth, gradual declines in unemployment, mild home price increases, and contained inflation through 2012. However, it notes significant challenges and uncertainties remain in achieving these projections.

1. 2 0 11

2. 2011 State of the Markets
AGENDA
• A Review of the First Half
• Factors Affecting Our Economy
• Economist Projections
• Investment Strategies
2011 State of the Markets

3. A Look Back
-6.99
+ 6.79 + 6.38
-6.23
+4.36
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
All index returns exclude reinvested dividends. Past performance is no guarantee of future results.
Indices are unmanaged and cannot be invested into directly. Data Source: Yahoo Finance,.
2011 State of the Markets

4. A Look Back
Jan. 7
Announcement:
Economy Adds
103,000 Jobs in Feb. 26 Security
December; Council Approves Mar. 11 Massive
Unemployment Dips Sanctions on Libya 9.0 Magnitude
to 9.4% Earthquake and
Jan. 28 Egyptian Mar. 1 Oil Drilling to Tsunami
President Asks Army resume in the Gulf Devastate Japan
to Intervene After Jun. 30 All U.S.
Jun. 3 stock indexes finish
Days of Violent
Mar. 2 President Unemployment slightly positive for
Protest
Obama Signs Two- Rises as Job Growth the first half.
Week Budget Apr. 27 Series of Slows
Feb. 14 President
Extension Tornadoes
Obama Proposes
Jan. 25 President 2012 Federal Budget Devastate Southern
Obama Announces States
Budget Cuts,
Freezes Mar. 19 No-Fly Zone
is Imposed in Libya
May. 1 Osama bin
Laden Is Killed in
Pakistan
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
All index returns exclude reinvested dividends. Past performance is no guarantee of future results.
Indices are unmanaged and cannot be invested into directly. Data Source: Yahoo Finance, News points source: infoplease.com
2011 State of the Markets

5. S&P Performance
S&P Weight 15.1 17.8 11.7 11.3 12.7 10.7 10.6 3.1 3.4 3.7 100
2011 YTD -3.1 2.1 13.9 8.0 11.4 8.3 7.9 7.1 9.1 3.6 6
Since Peak (Oct. 07) -53.3 0.5 5.7 -7.1 3.1 13.3 24.0 -9.2 -5.3 -0.7 -8.4
Since Low (Mar. 09) 154.8 110.5 70.5 155.4 88.8 162.2 73.9 73.5 65.7 136.4 104.7
Source: Standard & Poor’s. All calculations are cumulative total return, including dividends for the stated period. Since Market Peak represents period 10/09/07 to 6/30/11, illustrating market
returns since the S&P 500 Index high on 10/9/07. Since Market Low represents period 3/9/09 – 06/30/11, illustrating market returns since the S&P 500 Index low on 3/9/09. Returns are
cumulative, not annualized. Past performance is not indicative of future returns. Data as of 06/30/2011.
2011 State of the Markets

6. Bear Markets vs. Bull Runs
Length of Years to
Bear Market Length of
Market Peak Market Low Decline Bull Run Reach Old
Return Run (Months)
(Months) Peak
5-29-46 5-19-47 -28.6% 12 257.6% 122 3.1
7-15-57 10-22-57 -20.7% 3 87.4% 50 0.9
12-12-61 6-26-62 -28.0% 6 79.8% 44 1.2
2-9-66 10-7-66 -22.2% 8 48.0% 26 0.6
11-29-68 5-26-70 -36.1% 18 74.2% 31 1.8
1-5-73 10-3-74 -48.4% 21 125.6% 74 5.8
11-28-80 8-12-82 -27.1% 20 228.8% 60 0.2
8-25-87 12-4-87 -33.5% 3 582.1% 148 1.6
3-24-00 10-9-02 -49.1% 31 101.5% 60 4.6
10-9-07 3-9-09 -56.8% 17 95.1% 28* ?
Average -35% 14 Months 176.0% 68 Months 2.2 Years
Source: Standard & Poor’s. A bear market is defined as a peak-to-trough decline in the S&P 500 Index (price only) of 20% or more. The bull run data reflect the market expansion
from the bear market low to the subsequent market peak. All returns are S&P 500 Index returns and do not include dividends . Past performance is not indicative of future returns.
*Current bull run from 3-9-09 to 6-30-11. Data as of 6-6-2011.
2011 State of the Markets

7. Welcome to the “New Normal”
2011 State of the Markets

8. Recessions and Expansions
Average Lengths:
Recessions: 15 Months
Expansions: 44 Months
Source: www.nber.org/cycles. Past performance is not indicative of future returns. For illustrative use only. Data as of 06-30-2011.
*Based on expansion from July 2009 thru June 2011.
2011 State of the Markets

9. Our Fiscal House is Crumbling!
The 2011 Federal Budget
Trillions, USD
$4.0
Total Spending: $3.7tn
$3.5 Other
$504bn (14%)
$3.0 Net Int.: $214bn (6%) Borrowing:
$1,427bn (39%)
Non-defense
Discretionary:
$2.5
$636bn (17%)
$2.0 Defense:
$733bn (20%)
$1.5
Social Security:
$727bn (20%) Revenues:
$1.0
$2,228bn (61%)
$0.5 Medicare & Medicaid:
$841bn (23%)
$0.0
Total Government Spending Sources of Financing
Source: U.S. Treasury, BEA, CBO, OMB, J.P. Morgan Asset Management.. Numbers reflect CBO estimates for FY 2010.
Data reflect most recently available as of 6/30/11.
2011 State of the Markets

10. Over-leveraged Uncle Sam
2011 State of the Markets

11. Deleveraging – A Painful Path Back to Prosperity
2011 State of the Markets

12. Housing–Still Ugly
Source: National Association of Realtors. Home price based on median sales price of existing homes and are cumulative, not annualized.
Data reflect most recently available as of 6/30/11.
2011 State of the Markets

13. Unemployment–Stuck in First Gear
12
June 2011: 9.2%
11
10
9
8
7
6
5
4 50-Year Average
3
1960 1970 1980 1990 2000 2010
Source: BLS.gov
Data reflect most recently available as of 6/30/11.
2011 State of the Markets

14. Unemployment-State By State
4.8%
9.1% 5.4% 7.7%
7.3% 3.2%
6.6%
9.3% 7.9% 7.6%
7.4%
9.4% 4.8% 10.9%
10.3%
6.0% 9.1%
7.4% 9.4%
6.0%
4.1% 8.6% 8.0%
12.1% 8.9% 8.2% 6.8%
7.3% 8.6% 6.0%
8.7% 9.8% (DC)
6.6% 8.9% 9.8%
11.7%
9.7%
9.7%
5.3% 7.8% 10.0%
9.1% 6.9%
10.3% 9.6% 9.8%
8.2%
8.0%
10.6%
Lowest Quintile
Second Quintile
7.4%
Third Quintile
6.0% Fourth Quintile
Highest Quintile
.
Source: BLS.gov
Data reflect most recently available as of 6/30/11.
2011 State of the Markets

15. Inflation
Economic Environment Examples
Deflation United States in the Great
A decrease in the money supply often accompanied by a decrease in prices. Depression
Disinflation United States in the 1990s
Prices are still increasing, but at a slower rate than before.
Inflation
Most normal periods
An increase in the money supply often accompanied by an increase in prices.
Stagflation
United States in the 1970s
High inflation and high unemployment rate/stagnant economic growth.
Hyperinflation
Prices increase rapidly (out of control) as a currency loses its value Germany post-World War I
Often ends in extreme political turmoil.
Source: DWS Investments.
This information is subject to change at any time based on market and other conditions and should not be construed as investment advice.
2011 State of the Markets

16. Inflation-Components of CPI
Other Goods
Apparel and Services
Education and 4% 3%
Communication
6%
Recreation
6%
Housing
Medical Care 42%
7%
Food and Beverage
15%
Transportation
17%
Source: BLS as of 12/31/10.
2011 State of the Markets

17. Inflation
Source: BLS as of 5/13/11.
2011 State of the Markets

18. Sovereign Debt
2011 State of the Markets

19. Sovereign Debt
120.0%
100.0%
80.0%
60.0%
88.0% 90.0%
97.0% 94.6% Other
Trade with Europe
40.0%
20.0%
12.0% 10.0%
3.0% 5.4%
0.0%
U.S. Economic Activity U.S. GDP U.S. Bank Loan Total U.S. Bank Asset
Exposure Exposure
Source: MSNBC.com
2011 State of the Markets

20. The Talking Heads
The Biggest Risk to the U.S. Economy
50%
45% 43%
40% 39%
35%
30%
25%
20%
15%
10%
6%
5% 4% 4% 4%
0%
0%
A Persistent A Sustained A U.S. Default on The European A Slowdown in A Further Let The Expiration of
Slowdown in Increase in Oil its Debt Sovereign Debt Chinese Growth Down in the the Fed's QE2
Hiring Prices Crisis Housing Market Program
Source: online.wsj.com. The Wall Street Journal surveys a group of 56 economists throughout the year.
Broad surveys on more than 10 major economic indicators are conducted monthly.
2011 State of the Markets

21. Jobs-Are They Serious?
Unemployment Rate
9.5
9
8.5
Current as of
8 June 2011, 9.2%
End of 2011,
8.6%
7.5 End of 2012,
7.9%
7
Source: online.wsj.com. Projections are based on opinions of analysts polled at the time of the survey. Survey conducted June 3-8, 2011. The Wall Street Journal surveys a group of 56 economists
throughout the year. Broad surveys on more than 10 major economic indicators are conducted monthly.
2011 State of the Markets

22. Reducing Unemployment – The Harsh Reality
Targeted Rate
Jobs created per month to achieve targeted rate
2011 State of the Markets

23. Housing Projections-Wishful Thinking?
Home Prices - Annual Percent Change
2
1 2012
1.75%
0
-1
2011
-2.85%
-2
-3
-4
Source: online.wsj.com. Average home prices are based on opinions of analysts polled at the time of the survey. Survey conducted June 3-8, 2011. The Wall Street Journal surveys a group of 56
economists throughout the year. Broad surveys on more than 10 major economic indicators are conducted monthly.
2011 State of the Markets

24. Housing Projections-A Bit of Realism
2011 State of the Markets

25. Inflation
Consumer Price Index
4
3.5
3
2.5
2
June 2011,
3.4%
End of 2011,
1.5
3%
June 2012, End of 2012,
2.3% 2.4%
1
0.5
0
Source: BLS.gov, online.wsj.com. Projections are based on opinions of analysts polled at the time of the survey. Survey conducted June 3-8, 2011. The Wall Street Journal surveys a group of 56
economists throughout the year. Broad surveys on more than 10 major economic indicators are conducted monthly.
2011 State of the Markets

26. Overall Growth
Annual Gross Domestic Product
3.5
3%
3 2.8%
2.7%
2.5 2.3%
2
1.5
1
0.5
0.2%
0
2007 2008 2009 2010 2011 2012
-0.5
-1 -0.8%
Source: BLS.gov, online.wsj.com. Projections are based on opinions of analysts polled at the time of the survey. Real Gross Domestic Product at an annualized growth rate. Survey conducted June
3-8, 2011. The Wall Street Journal surveys a group of 56 economists throughout the year.
Broad surveys on more than 10 major economic indicators are conducted monthly.
2011 State of the Markets

27. Fighting “Economic Gravity”
2011 State of the Markets

28. Fighting “Economic Gravity”
When:
• Credit Spreads on Corporate Debt wider than 6
months prior
• S&P 500 below its level of 6 months prior
• Treasury Yield Curve flatter than 2.5% (10 year minus
3 month)
• Year-over-Year GDP Growth below 2%
• ISM Purchasing Managers Index below 54
• Year-over-Year Growth in Nonfarm Payrolls below 1%
• AND Plunging Consumer Confidence
Then:
• 100% of time historically has resulted in a recession
2011 State of the Markets

29. The Wisdom of Bernanke?
“…most of the economic policies that support robust
economic growth in the long run are outside the
province of the central bank.”
- Ben Bernanke, Federal Reserve Chairman
August 26, 2011
2011 State of the Markets

30. "The Fed has spent a lot of its bullets. The real
focus lies on what's going on with the political
side of the equation. That's where the problem
needs to get solved, not what the Fed does.“
- Mead Briggs, IronGate Partners
August 9, 2011
2011 State of the Markets

31. A Way Forward
Investment Strategies for the
“New Normal”
2011 State of the Markets

32. Avoid Emotional Investing
20 Year Annualized Returns By Asset Class (1991-2010)
12
10.5%
10
8%
8 7.7%
7.2%
6.1%
6
4.7%
4
2.8% 2.6% 2.4%
2
0
REITS Oil S&P 500 Gold Bonds EAFE Homes Average Inflation
Investor
The S&P 500 Index is a broad-based unmanaged index not available for direct investment. Results reflect the reinvestment of dividends. Average equity investor as measured by Dalbar, Inc. Dalbar
derives the average equity investor return using a proprietary model that measures actual historical returns and average shareholder holding periods. Past performance is no guarantee of future
results. Indexes used are as follows: REITS: NAREIT Equity REIT Index, EAFE: MSCI EAFE, Oil: WTI Index, Bonds: Barclays Capital U.S. Aggregate Index, Homes: median sale price of existing
single-family homes, Gold: USD/troy oz, Inflation: CPI. Returns are annualized (and total return where applicable) and represent the 20-year period ending 6/30/11 to match Dalbar’s most recent
analysis.
2011 State of the Markets

33. Avoid Significant Losses!
150%
100%
66%
55% % Loss
42.8%
% Needed to Get Back to Even
25%
20%
30%
35%
40%
50%
60%
The above hypothetical scenarios are for illustration purposes only, and are not a prediction of future market conditions.
2011 State of the Markets

34. Rowing vs. Sailing
45 2000
40 Price-Earnings Ratio 8/26/2011
35
1929
30
1901
25 1966
20 20.23
15
1921 1981
10
5
0
1896 1916 1936 1956 1976 1996
2011 State of the Markets Source: Rydex Investments and Robert J. Shiller; Irrational Exuberance

35. Diversify
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Small/Mid Small/Mid Small/Mid Small/Mid Large Cap Small/Mid Small/Mid
Bond International International Bond
Cap Value Cap Value Cap Growth Cap Value Growth Cap Growth Cap Growth
10.25% 13.54% 26.34% 5.24%
20.79% 9.74% 46.31% 21.58% 11.81% 41.66% 28.86%
Best
Small/Mid Small/Mid Large Cap Large Cap Small/Mid
Bond Bond Cash International International Cash
Cap Value Cap Growth Value Growth Cap Value
11.63% 8.44% 1.61% 20.25% 11.17% 1.40%
44.93% 8.17% 22.25% 37.21% 24.82%
Large Cap Small/Mid Large Cap Small/Mid Small/Mid Small/Mid Diversified Large Cap
Cash International International
Value Cap Value Value Cap Value Cap Value Cap Growth Portfolio Growth
3.48% 38.59% 32.46% 16.71%
7.01% -9.87% 16.49% 7.74% 20.18% 9.69% -31.15%
Large Cap Diversified Diversified Small/Mid Diversified Diversified Small/Mid Small/Mid Diversified
Cash Bond
Value Portfolio Portfolio Cap Growth Portfolio Portfolio Cap Growth Cap Value Portfolio
5.94% 6.97% 27.68%
-5.59% -14.68% 32.29% 14.59% 7.37% 15.73% -31.99% 16.23
Diversified Diversified Large Cap Large Cap Diversified Large Cap Small/Mid Diversified Large Cap Diversified Large Cap
Portfolio Portfolio Value Value Portfolio Value Cap Growth Portfolio Value Portfolio Value
-2.21% -6.68% -15.52% 30.03% 13.92% 7.05% 12.26% 5.37% -36.85% 23.55% 15.51%
Small/Mid Large Cap Large Cap Large Cap Large Cap Large Cap Large Cap
International International Cash Value Bond
Cap Growth Growth Growth Growth Growth Growth
-14.17% -15.94% 4.40% -38.44% 19.69% 6.67%
-10.83% 29.75% 6.30% 5.26% 9.07%
Worst
Small/Mid Large Cap Large Cap Large Cap Small/Mid Bond
Bond Bond Cash Cash International
Cap Growth Growth Growth Value Cap Value 5.93%
4.10% 4.34% 3.07% 4.67% -41.50% 4.86%
-16.09% -20.42% -27.88% -0.17%
Large Cap Small/Mid Small/Mid
International Cash Cash Bond Bond International Cash Cash
Growth Cap Growth Cap Value
-21.44% 1.03% 1.38% 2.43% 4.33% -43.38% 0.16% 0.01%
-22.42% -29.09% -7.27%
Source: Lipper, Inc. Annual returns are based on calendar years. Indexes are unmanaged and do not take transaction costs or fees into consideration. It is not possible to invest directly in an index.
Performance figures assume reinvestment of dividends and capital gains. This chart is for illustrative purposes only and does not represent the performance of any particular investment. Diversification
does not guarantee against a loss. Past performance is no guarantee of future results. Large growth is represented by the Russell 1000 Growth Index, a market capitalization-weighted index of securities
in the Russell 1000 Index with higher price-to-book ratios and higher forecasted growth values. Large value is represented by the Russell 1000 Value Index, a market capitalization-weighted index of
securities in the Russell 1000 Index with lower price-to-book ratios and lower forecasted growth values. Small/Mid growth is represented by the Russell 2500 Growth Index which measures the
performance of those Russell 2500 companies with higher price-to-book ratios and higher forecasted growth values. Small/Mid value is represented by the Russell 2500 Value Index which measures the
performance of those Russell 2500 companies with lower price-to-book ratios and lower forecasted growth values. International is measured by the (MSCI) EAFE Index, a market value-weighted,
arithmetic average of the performance of more than 900 securities listed in several developed world markets, excluding the United States. Bonds are measured by the Lehman Aggregate Bond Index
which includes U.S. government, corporate, and mortgage-backed securities with maturities up to 30 years. Cash represents the performance of the 3-month T-bill, published by the Federal Reserve.
Diversified is represented by the average return of the six indexes above, excluding cash. It does not represent any specific index.
2011 State of the Markets

36. Think Globally
2011 State of the Markets

37. Weathering The Storm
Investment Themes for Remainder of 2010
1. Protect the downside!
2. Overweight fixed income vs. equities.
3. Favor multi-asset class managers over
single mandate managers.
4. Provide upside through income
guarantees.
5. Utilize the collective wisdom of our team
to continually refine our investment
strategy.

38. Questions?

39. Where the Rubber Meets the Road
July 22, 2011 thru August 10, 2011
• S&P 500 (16.7%)
• Average IGP Client (2.1%)
2011 State of the Markets