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Exhibit MSD 67P Asset_Management-Reports
Table of Contents Item No. Document 5‐9 Recent Two‐Year Interest Rates Historical Two‐Year Interest Rate Yield Curve Still Exceptionally Steep The FOMC Keeps Rates Near Zero Two‐Year Yields Anticipate Future Fed Action Short Term Rates Remain Anchored by Fed Funds Spread Between 2 and 10‐Year Treasury Near Record High Agency Spreads Below Historical Average Economy Grows, Aided by Federal Programs Stocks on the Rebound Unemployment at Ten Percent What is the True Unemployment Rate? U.S. Unemployment is Gradually Improving Employment, Growth Concerns Push Confidence Lower Consumer Confidence is Improving Primary Dealers Disagree on the Direction of Rates Market Update Housing Starts and Building Permits Lower Producer Prices Down as Price of Gasoline Drops CPI Again Subdued in February Fed Continues to Call for Extended Period of Low Rates 2‐Year U.S. Treasury Yield Approach 1% Dollar and Commodities Move Slightly On Dovish Fed Yield Curve Remains Steep Long‐Term Rates Still Elevated Over Short‐Term Rates Unemployment Remains Stable Despite Harsh Weather Economic Calendar Will Durable Goods Orders Continue Upward Trend? Will the Second GDP Revision Remain High? Will Existing Home Sales Recover? Indicative Investment Rates – Money Markets Indicative Investment Rates – Intermediate Term Disclaimer Weekly Market Update A Vacation for Everyone More Quantitative Easing? Yes, No, Maybe… Heavy Fighting in Tripoli Dollar Decline Helps U.S. Economy Durable Goods Orders Beat Consensus Disappointing Homes Sales: Supply Up and Prices Down Housing Starts Hit a New Low GDP Revised Downward Consumption Higher than Estimated Confidence Dropped to the Lowest Level Since 2008 Upcoming Economic Releases Income Growth to Pick Up Manufacturing Expected to Decline ADP Employment Growth Forecasted to Slow Job Growth Unchanged Economic Calendar World Equity Indices U.S. Treasury Yield Curve Indicative Investment Rates – Money Markets Indicative Investment Rates – Intermediate Term Disclaimer Recent Two-Year Interest Rates•The 2-year Treasury finished the year at 1.14%. The low yield for the year was 0.67% on 11/30 and the high yield was 1.40% on 6/8. The 2-year note started 2008 at 0.768%. 1.50%2-Year U.S. Treasury YieldsDecember 1, 2008 – December 31, 20091.25%0 75%1.00%1.14% as of 12/31/090.50%0.75%Dec 08Mar 09Jun 09Sep 09Dec 090Dec 08Mar 09Jun 09Sep 09Dec 09Source: Bloomberg Historical Two-Year Interest Rates•The yield on the 2-year Treasury is still well below its historical average.7%2-Year U.S. Treasury YieldsDecember 1, 1999 – December 31, 20095%6%2%3%4%0%1%2%D99D01D03D0D0D091.14% as of 12/31/091Dec 99Dec 01Dec 03Dec 05Dec 07Dec 09Source: Bloomberg Yield Curve Still Exceptionally Steep•Investors are now demanding higher yields for longer maturities as the economic outlook continues to improve. Investors remain concerned about Treasury supply and the potential effects of inflation.•Short-term rates which are generally tied to the Federal Funds target rate remain near5%Shortterm rates, which are generally tied to the Federal Funds target rate, remain near record lows.U.S. Treasury Yield CurveDecember 31, 2008 versus December 31, 20094%12/31/0812/31/09Change3 month0.08% 0.05% - 0.03%6 month0.26% 0.19% - 0.07%2%3%Yield1 year0.34% 0.44% + 0.10%2 year0.77% 1.14% + 0.37%3 year0.97% 1.67% + 0.70%0%1%December 31, 2009December 31, 20085 year1.55% 2.67% + 1.13%10 year2.20% 3.82% + 1.61%30 year2.66% 4.61% + 1.95%20%3m6m1y2y3y5y10y30yMaturitySource: Bloomberg The FOMC Keeps Rates Near Zero•The FOMC has indicated that interest rates are likely to remain “exceptionally low” for “an extended period.”•The market is divided on when the Fed will increase rates6%Federal Funds Target RateDecember 2003 – December 20094%5%2%3%0%1%0.00% - 0.25% as of 12/31/093Dec 03 Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09Source: Federal Open Market Committee Two-Year Yields Anticipate Future Fed Action•Historically, the yield of two-year U.S. Treasury notes has increased noticeably prior to rate hikes by the Federal Reserve, and declined in anticipation of cuts to the target rate.7%2-Year U.S. Treasury Yield vs. Federal Funds Target RateDecember 1, 1999 – December 31, 20095%6%2-Year Treasury YieldFederal Funds Target Rate2%3%4%0%1%2%D99D01D03D0D0D094Dec 99Dec 01Dec 03Dec 05Dec 07Dec 09Source: Bloomberg Short-Term Rates Remain Anchored by Fed Funds•Yields on intermediate to long-term Treasuries have risen since the beginning of 2009, while Treasury bill yields, tied to the Federal Funds target rate, have remained near zero.3.0%3-Month Treasury Bill Yield versus 5-Year Treasury Note Yield December 1, 2008 – December 31, 20092.0%2.5%5-Year Treasury Note3-Month Treasury Bill1.0%1.5%0.0%0.5%D08Fb09A09J09A09O09D095Dec 08Feb 09Apr 09Jun 09Aug 09Oct 09Dec 09Source: Bloomberg Spread Between 2 and 10-Year Treasury Near Record High•The spread between two and ten-year Treasury securities has increased by more than 100 basis points since December, as the Treasury continues to issue debt in record amounts. The spread between the 2 and 10-year Treasury hit a record level in December. 3.0%Spread Between 2-Year and 10-Year U.S. Treasury Note YieldsDecember 1, 1999 – December 31, 20092.0%2.5%2.69% as of 12/31/0905%1.0%1.5%-0.5%0.0%0.5%6Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09Source: Bloomberg Agency Spreads Below Historical Average•The spread between 2-year U.S. Treasury and Federal Agency notes has narrowed dramatically below pre-credit-crisis levels, signaling increased investor confidence in the Government-Sponsored Enterprises.2.5%Spread Between 2-Year U.S. Treasury and Federal Agency NotesDecember 1, 2004 – December 31, 20092.0%1.0%1.5%0.0%0.5%D04D0D06D0D08D090.07% as of 12/31/097Dec 04Dec 05Dec 06Dec 07Dec 08Dec 09Source: Bloomberg Economy Grows, Aided by Federal Programs•The economy grew by 2.8% in the third quarter, the first quarter of growth since the third quarter of 2007.6%Change in Gross Domestic ProductThird Quarter 2004 – Third Quarter 20092%4%4%-2%0%December2009Bloomberg Survey MedianForecasts-8%-6%-4%3Q01Q03Q01Q063Q061Q03Q01Q083Q081Q093Q091Q103Q1083Q041Q053Q051Q063Q061Q073Q071Q083Q081Q093Q091Q103Q10Source: U.S. Department of Commerce – Bureau of Economic Analysis and Bloomberg Survey of Economists median forecasts Stocks on the Rebound•The S&P 500 has gained 24.3% in 2009, up by more than 445 points from its March lows.•The index remains 28.3% below the all-time high reached in October 2007.1,6001,200S&P 500 IndexJanuary 1 – December 31, 2009S&P 500 IndexDecember 1, 2007 – December 31, 20091,4001,0001,1001,0001,200800900600800D0J08D08J09D09600700J09M09M09Jl09S09N099Dec 07Jun 08Dec 08Jun 09Dec 09Jan 09Mar 09May 09Jul 09Sep 09Nov 09Source: BloombergSource: Bloomberg Unemployment At Ten Percent•November marked the 23rd consecutive month of net job losses, with 10% of the United States labor force out of work.•In total, the economy has shed 7.2 million jobs since the recession began in December 2007.11%800,y j gChange in Non-Farm Payrolls vs. Unemployment RateNovember 2003 – November 20099%10%200400600m PayrollsUnem 6%7%8%-2000200nge in Non-FarmThousandsmployment Rate 4%5%6%-800-600-400N03N04N05N06N07N08N09Chan10Nov 03Nov 04Nov 05Nov 06Nov 07Nov 08Nov 09Source: U.S. Department of Labor – Bureau of Labor Statistics What Is the True Unemployment Rate?•While U-3, the most widely reported measure of unemployment, stood at 10.0% in November, the U-6 rate was an incredible 17.2% — meaning roughly one in six Americans is now looking for work.18%•U-6 includes the total unemployed (U-3), plus “all marginally attached workers, plus total employed part time for economic reasons.”U-3 vs. U-6 Unemployment RateNovember 2003 – November 200914%16%18%U-6 Unemployment RateU-3 Unemployment Rate10%12%4%6%8%114%Nov 03 Nov 04 Nov 05 Nov 06 Nov 07 Nov 08 Nov 09Source: U.S. Department of Labor – Bureau of Labor Statistics U.S. Unemployment is Gradually Improving•Initial jobless claims fell to 432,000, the peak in 2009 was 674,000. Continuing claims also continue to fall, dropping to 5 million, the peak in 2009 was 6.9 million.7,000700Initial Jobless ClaimsDecember 1999 – December 2009Continuing Jobless ClaimsDecember 1999 – December 20095,0006,000500550600650ousandsousands2 0003,0004,000300350400450ThoTho1,0002,00020025012Source: Bloomberg Employment, Growth Concerns Push Confidence Lower•December’s consumer confidence reading was slightly improved over the previous month, though weak employment prospects continue to weigh on the consumer.150Consumer ConfidenceDecember 1999 – December 20091001255075025D99D01D03D05D07D0913Dec 99Dec 01Dec 03Dec 05Dec 07Dec 09Source: Conference Board Consumer Confidence is Improving• The Conference Board's consumer confidence index rose 2.3 points to 52.9 in December. 160.00Consumer ConfidenceDecember1999 – December 2009100.00120.00140.0060.0080.00100.0020.0040.0014140.00Dec‐99 Dec‐00 Dec‐01 Dec‐02 Dec‐03 Dec‐04 Dec‐05 Dec‐06 Dec‐07 Dec‐08 Dec‐09Conference Board Consumer ConfSource: Bloomberg Primary Dealers Disagree on the Direction of RatesDealer 2‐Year 10‐Year Dealer 2‐Year 10‐YearPrimary Dealer Forecast for Yields Ending 2010Goldman 1.0 3.25 JPM 2.05 4.50HSBC 1.20 3.0 DB 2.25 4.50Mizuho 1.25 3.75 Daiwa 2.25 4.40BNP 1.30 3.75 Barclays 2.30 4.50Nomura 1.40 3.80 Citigroup2.75 4.25gpBAC 1.50 4.25 MS 2.75 5.50CS 1.50 3.75 JEFF 2.85 4.75Cantor 1.75 3.75 RBS 4.20 5.1UBS 1.80 4RBC18537515RBC1.853.75Source: Wall Street Journal, December 21, 2009 PFM Asset Management LLC One Keystone Plaza, Suite 300 North Front & Market Streets Harrisburg, PA 17101-2044 (717) 232-2723 (717) 233-6073 Fax Robert Cheddar –Senior Portfolio Manager Danny Nelson –Senior Managing Consultant www.pfm.com Market Update March 22, 2010 PFM 1© 2010 PFM Asset Management LLC Housing Starts And Building Permits Lower Housing Starts and Building Permits February 2000 –February 2010 Source: Bloomberg Housing Starts represents the number of residential buildings which have begun construction in each month. The start of cons truction is defined as the beginning of excavation of the foundation for a building. •Housing starts dropped in February due, in large part, to unseasonably cold and snowy winter weather. However, building permits, which are not as susceptible to harsh weather, also dropped. This indicates that homebuilders believe that housing demand still needs to rise in order to match the current supply on the market.Thousands0 500 1,000 1,500 2,000 2,500 Feb '00 Feb '02 Feb '04 Feb '06 Feb '08 Feb '10 Housing Starts Building Permits PFM 2© 2010 PFM Asset Management LLC Producer Prices Down As Price Of Gasoline Drops Producer Price Index (Month over Month) February 2008 –February 2010 Source: Bloomberg •The Producer Price Index fell more than expected in February as gasoline prices fell by 7.4% in February, partially reversing the 11.5% jump in January. PPI excluding food and energy met expectations, increasing 0.1%. Economists expect PPI to return positive in March due to an increase in gas prices in the month. However, it appears inflation is likel y to remain subdued. The Producer Price Index (PPI) represents the change in the average price level for a fixed basket of capital and consumer go ods received by producers. The PPI is a good early indicator of inflation, as rising producer costs often push prices higher. -4% -3% -2% -1% 0% 1% 2% 3% Feb '08 Jun '08 Oct '08 Feb '09 Jun '09 Oct '09 Feb '10 PPI (MoM)PPI ex Food & Energy (MoM) PFM 3© 2010 PFM Asset Management LLC CPI Again Subdued In February Consumer Price Index (Month Over Month) February 2008 –February 2010 •The month over month change in CPI was 0.0% in February. Lower gas prices in February helped keep inflation unchanged. The energy component of CPI fell 0.5% in February, but is expected to rebound in March. Core CPI moved positive in February after the first negative release in almost three decades came in January. Core CPI remained subdued, however, as shelter costs were little changed and apparel costs fell. Source: Bloomberg The Consumer Price Index (CPI) represents the month over month change in prices of goods and services purchased by urban hous eholds. Urban households represent about 80% of total U.S. population. CPI is the most widely followed indicator of inflation. -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% Feb '08 Jun '08 Oct '08 Feb '09 Jun '09 Oct '09 Feb '10 Consumer Price Index (MoM)CPI Ex Food& Energy (MoM) PFM 4© 2010 PFM Asset Management LLC Fed Continues To Call For Extended Period of Low Rates Fed Funds Target Rate March 2004 –March 2010 Source: Bloomberg The Fed chooses whether or not to change the fed funds target rate at each Federal Open Market Committee (FOMC) meeting. It sets its rate based on whether it wants to stimulate or slow economic activity. The target rate is currently set low to stimulate the economy. Short term interest rates are closely tied to the fed funds target rate. •In the statement from the March 16, 2010 meeting, the Fed saw signs of improvement in the economy from January, including a “stabilizing” labor market and expansion of household spending at a “moderate rate.” However, high unemployment, a weak housing market, and stable inflation expectations informed the Fed’s decision to continue its expansionary monetary policy, maintaining the target rate at a range of 0 -0.25%. 0% 1% 2% 3% 4% 5% 6% Mar '04 Mar '05 Mar '06 Mar '07 Mar '08 Mar '09 Mar '10 PFM 5© 2010 PFM Asset Management LLC 2-Year U.S. Treasury Yields Approach 1% 2-Year U.S. Treasury Yields March 1, 2009 –March 19, 2010 Source: Bloomberg •Intermediate term yields, which slid midweek, ended the week higher on an unconfirmed rumor that the Fed would increase the discount rate again. Downward pressure on rates came from the low CPI release this week as well as continued statements that the Fed plans to keep rates low for “an extended period.” 0.5% 0.6% 0.7% 0.8% 0.9% 1.0% 1.1% 1.2% 1.3% 1.4% 1.5% Mar '09 Jun '09 Sep '09 Dec '09 Mar '10 PFM 6© 2010 PFM Asset Management LLC Dollar And Commodities Move Slightly On Dovish Fed CRB Index March 1, 2009 –March 19, 2010 Source: Bloomberg •Following continued assurances by the Fed this week that rates will remain low for “an extended period,” the Dollar weakened slightly. Commodities, which often move inversely to the dollar, rallied slightly on the news. However, the long-term trends in both Indices have stalled as China’s cooling policy decreased commodity demand and the EU’s pledged support of Greece helped arrest the slide of the Euro against the Dollar. The U.S. Dollar Index March 1, 2009 –March 19, 2010 The U.S. Dollar Index indicates the general international value of the Dollar. The Index does this by averaging the exchange rates between the Dollar and six major world currencies. The CRB Index is a measure of the price movements of 22 sensitive basic commodities whose markets are presumed to be among the first to be influenced by changes in economic conditions. 70 75 80 85 90 95 Mar '09 Jul '09 Nov '09 Mar '10 $250 $300 $350 $400 $450 $500 Mar '09 Jul '09 Nov '09 Mar '10 PFM 7© 2010 PFM Asset Management LLC Yield Curve Remains Steep 3/17/09 3/17/10 Change 3 month 0.23%0.15%-0.08% 6 month 0.44%0.23%-0.21% 1 year 0.68%0.38%-0.30% 2 year 1.03%0.92%-0.11% 3 year 1.44%1.47%+ 0.03% 5 year 1.98%2.36%+ 0.39% 10 year 3.01%3.65%+ 0.64% 30 year 3.83%4.58%+ 0.75% U.S. Treasury Yield Curve March 17, 2009 versus March 17, 2010 Source: Bloomberg •The Fed continues to emphasize that rates will remain low “for an extended period” as the economy slowly recovers. With unemployment at 9.7% and 2010 midterm elections approaching, it is unlikely the Fed will change its stance anytime soon. Also, the Fed points to a large excess in bank reserves as another reason to continue to keep the Fed Funds rate low. •A slightly improving economy and increased U.S. Treasury supply in the past year have led investors to demand higher yields for longer-term U.S. Treasuries, leading to a very steep yield curve. 0% 1% 2% 3% 4% 5% 3 m 6 m 1 y 2 y 3 y 5 y 10 y 30 yYield Maturity March 17, 2010 March 17, 2009 PFM 8© 2010 PFM Asset Management LLC Long-Term Rates Still Elevated Over Short-Term Rates 2-Year and 10-Year U.S. Treasury Spread March 1, 2000 –March 19, 2010 •Long-term rates fell faster than short-term rates this week on disappointing housing starts and the FOMC statement, further narrowing the spread between the two. Despite slight flattening from record highs, the yield curve is still very steep from a historical standard. Source: Bloomberg -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% Mar '00 Mar '02 Mar '04 Mar '06 Mar '08 Mar '10 PFM 9© 2010 PFM Asset Management LLC Unemployment Remains Stable Despite Harsh Weather •Unemployment held steady at 9.7% in February. Change in non-farm payrolls was a better than anticipated -36,000 despite a 64,000 drop in construction workers brought on by unseasonably cold weather. Jobs in the service sector rose for the second month in a row, increasing by 42,000 jobs. Government hiring of census workers helped offset some large government layoffs. Local governments, feeling budgetary pressures, shrank their workforce by 31,000 in February. Source: BloombergChange in Non-Farm PayrollsThousandsUnemployment RateChange in Non-Farm Payrolls/ Unemployment Rate February 2004 –February 2010 (800) (600) (400) (200) 0 200 400 600 800 Feb '04 Feb '05 Feb '06 Feb '07 Feb '08 Feb '09 Feb '10 0% 2% 4% 6% 8% 10% 12% PFM 10© 2010 PFM Asset Management LLC Economic Calendar Date Event Survey Actual Prior Revised 3/22/2010 Chicago Fed Nat Activity Index --0.02 3/23/2010 Existing Home Sales 5.00 million 5.05 million 3/23/2010 House Price Index MoM ---1.60% 3/23/2010 Richmond Fed Manufact. Index --2 3/23/2010 Existing Home Sales MoM -1%-7.20% 3/23/2010 ABC Consumer Confidence ---43 3/24/2010 MBA Mortgage Applications ---1.90% 3/24/2010 Durable Goods Orders 0.40%3%2.60% 3/24/2010 Durables Ex Transportation 0.30%-0.60%-1% 3/24/2010 New Home Sales 315,000 309,000 3/24/2010 New Home Sales MoM 1.90%-11.20% 3/25/2010 Initial Jobless Claims ---- 3/25/2010 Continuing Claims ---- 3/25/2010 RPX Composite 28dy YoY ---1.10% 3/25/2010 RPX Composite 28dy Index --193.91 3/26/2010 GDP QoQ (Annualized)5.90%5.90% 3/26/2010 Personal Consumption --1.70% 3/26/2010 GDP Price Index 0.40%0.40% 3/26/2010 Core PCE QoQ 1.60%1.60% 3/26/2010 U. of Michigan Confidence 72.8 72.5 Market moving economic releases Source: Bloomberg PFM 11© 2010 PFM Asset Management LLC Will Durable Goods Orders Continue Upward Trend? Durable Goods Orders January 2005 –January 2010 Source: Bloomberg Durable Goods Orders, often shown as a month over month change, are new orders of factory hard goods placed with U.S. manufacturers. Increasing durable goods orders indicate increased future manufacturing. •Durable goods orders released in January at a 3% increase month over month, were revised lower in February to 2.6%. The main driver behind the increase in orders were purchases of nondefense aircraft, which jumped 126% from December. Economists expected durable goods orders to continue to increase in February. $150 $165 $180 $195 $210 $225 $240 -12% -8% -4% 0% 4% 8% 12% Jan '05 Jan '06 Jan '07 Jan '08 Jan '09 Jan '10 Durable Goods Orders (MoM)Billions PFM 12© 2010 PFM Asset Management LLC •The first revision of fourth quarter GDP came in 0.2% higher than the initial release at 5.9%. The initial release of 5.7% was based largely on businesses restocking inventories. The upward revision reflected even more investment in inventory than accounted for in the initial release. Concerns by some, that consumer demand may not be strong enough to meet inventory investments, were supported by the lower revision to the final sales component of GDP from 2.2% to 1.9%. While GDP growth is a good sign for the economy, current growth levels do not appear to be sustainable. Will The Second GDP Revision Remain High? Gross Domestic Product (Quarter over Quarter) Fourth Quarter 2004 –Fourth Quarter 2010 Source: Bloomberg Gross Domestic Product (GDP) is a measure of the United States’ production over the quarter, often shown as the quarter over quarter change. GDP includes consumption, government spending, investment, and net exports. It is the measure of economic activity in the United States. -8% -6% -4% -2% 0% 2% 4% 6% 8% 4Q04 2Q05 4Q05 2Q06 4Q06 2Q07 4Q07 2Q08 4Q08 2Q09 4Q09 2Q10 4Q10 PFM 13© 2010 PFM Asset Management LLC Will Existing Home Sales Recover? Existing Home Sales January 2000 –January 2010 Source: Bloomberg Existing home sales represents the number of sales in each month of previously constructed homes, condominiums, and co-ops. Existing homes are often a better indicator of trends in the housing market, as they account for a larger share of the market than new homes. •Existing home sales had its second disappointing month in a row, falling 7.2% in January. In anticipation of the year -end expiration of the first time home buyer tax credit, buyers rushed to purchase homes in November, leading to a spike in sales. The extension of the credit to spring 2010 has not led to a continued boost in sales, but may begin to increase demand closer to expiration in March and April. As such, economists are expecting a slight drop in sales in February.Millions4 5 6 7 8 Jan '00 Jan '02 Jan '04 Jan '06 Jan '08 Jan '10 PFM 14© 2010 PFM Asset Management LLC Indicative Investment Rates –Money Markets Current Yield Change over Week Change over Month Change over Year U.S. Treasury 1 month 0.14%0.02%0.10%0.04% 3 months 0.16%0.00%0.06%-0.08% 6 months 0.23%0.02%0.05%-0.21% 12 months 0.38%0.01%0.04%-0.30% Agency Discount Notes 7-day 0.11%0.01%0.04%0.02% 1 month 0.13%0.01%0.03%-0.02% 3 months 0.18%0.01%0.04%-0.10% 6 months 0.25%0.02%0.05%-0.22% 9 months 0.35%0.04%0.05%-0.35% 12 months 0.45%0.00%0.03%-0.27% Certificates of Deposit 1 month 0.20%0.01%0.03%-0.25% 3 months 0.23%0.03%0.03%-0.69% 6 months 0.32%0.01%0.04%-- 9 months 0.42%0.02%0.04%-1.05% 12 months 0.58%0.07%0.10%-- Commercial Paper 7-day 0.20%0.05%0.03%-0.16% 1 month 0.23%0.03%0.04%-0.45% 3 months 0.26%0.03%0.02%-1.03% 6 months 0.39%0.06%0.04%-1.32% 9 months 0.49%0.02%-0.02%-1.68% Rates as of March 17, 2010 Source: Bloomberg PFM 15© 2010 PFM Asset Management LLC Indicative Investment Rates –Intermediate Term Current Yield Change over Week Change over Month Change over Year U.S. Treasury 2 year 0.92%0.02%0.07%-0.11% 3 year 1.47%0.01%0.05%0.03% 5 year 2.37%-0.01%-0.02%0.39% Agency Bullets 2 year 1.03%0.00%0.00%-0.88% 3 year 1.69%0.00%-0.01%-0.58% 5 year 2.46%-0.04%-0.28%-0.47% Source: Bloomberg Rates as of March 17, 2010 PFM 16© 2010 PFM Asset Management LLC Disclaimer This material is based on information obtained from sources generally believed to be reliable and available to the public, however PFM Asset Management LLC cannot guarantee its accuracy, completeness or suitability. This material is for general information purposes only and is not intended to provide specific advice or a specific recommendation. All statements as to what will or may happen under certain circumstances are based on assumptions, some but not all of which are noted in the presentation. Assumptions may or may not be proven correct as actual events occur, and results may depend on events outside of your or our control. Changes in assumptions may have a material effect on results. Past performance does not necessarily reflect and is not a guaranty of future results. The information contained in this presentation is not an offer to purchase or sell any securities. August 29, 2011WeeklyWeeklyWeeklyWeeklyMarketMarketMarketMarketUpdateUpdateppPFM A M CPFM Asset Management LLC222 North LaSalle, Suite 910Chicago, IL 60601312-977-1570 • 312-977-1575 (fax)www.pfm.com A Vacation For Everyone1© 2011 PFM Asset Management LLCSource: gocomics.com More Quantitative Easing? Yes, No, Maybe…•During his speech to the Kansas City Fed inDuring his speech to the Kansas City Fed, in Jackson Hole, Chairman Ben Bernanke underlines the Fed’s commitment to keep interest rates low for the next two years.• While he makes clear that effective tax, trade and ,regulatory policies are needed, he fails to elaborate on new quantitative easing.• According to the Fed’s Chairman, problems in the economy are still prevalent and the recovery has been weaker than expected but the underlying growth fundamentals have not been permanently changed by the shocks of the past four years.• Bernanke calls for a better alignment of fiscal and monetary policies to boost the recovery and longmonetary policies to boost the recovery and long-term sustainability• While no signal was given as to if and when there will be more stimulus, the U.S. stock market responded positively to his speech reversing a 221responded positively to his speech, reversing a 221 point loss in the Dow Jones.2© 2011 PFM Asset Management LLCSource: Bloomberg Heavy Fighting In Tripoli•After four days of fighting in Tripoli the capital andAfter four days of fighting in Tripoli, the capital and largest city of Libya, the rebels control approximately three-quarters of the city.• Libya has more oil reserves than any other African country and most analysts agree that the country is still yyg yunderexplored.• Since the unrest erupted, output fell to 100,000 barrels a day in July, down from 1.6M before the rebellion. Meanwhile, Saudi Arabia boosted oil exports by about 1M barrels a day, partly offsetting the shortage caused by the turmoil in Libya.• Nevertheless, Crude oil futures for October delivery gained 18.0% from a year ago and settled at $85.30 per barrel on the New York Mercantile Exchangebarrel on the New York Mercantile Exchange.3© 2011 PFM Asset Management LLCSources: Bloomberg, EIA, Tripolipost Dollar Decline Helps U.S. Economy• Over the past five weeks the dollar has lost in value against all major currencies:¾2.7 percent against euro¾2.5 percent against the yen¾1.8 percent against the British pound• Overall the dollar has fallen 6.3 percent against the ten major currencies, in the Bloomberg Correlation Weighted Currency Index, since the beginning of this year.• The weaker U.S. dollar made imports more expensive and exports more attractive to foreign ticountries.• As a result consumers demanded more domestic goods and services and fewer imported products.• U.S. exports grew 16.0% compared to the prior year, as prices of American products became more competitive in foreign markets.4© 2011 PFM Asset Management LLCSource: Bloomberg Durable Goods Orders Beat Consensus • New orders for durable goods surged 4.0% in July, following a 1.9% revised decline (originally 2.1% down) in the prior month. U.S. stocks rose after the durable goods numbers came in 2% stronger than forecasted. Aircraft andprior month. U.S. stocks rose after the durable goods numbers came in 2% stronger than forecasted. Aircraft and motor vehicle orders caused a 14.6% jump in the transportation segment. Excluding transportation, new orders rose 0.7%, following 0.6% and 0.8% gains in May and June. Additionally, shipments increased 2.5% from the prior month, which is also very positive for the report. Primary metals and capital goods showed gains in shipments, however, there were also signs of significant contraction in the manufacturing sector, as reported by the New York, Philadelphia and Richmond Feds. Durable Goods OrdersJuly 2006 – July 2011$265 10%Billion $205$225 $245 2%6%ns $165$185 $205 10%-6%-2%$145 $165 -14%-10%Jul '06 Jul '07 Jul '08 Jul '09 Jul '10 Jul '11Durable Goods Orders (MoM)Durable Goods Orders Total5© 2011 PFM Asset Management LLCDurable Goods Orders, often shown as a month over month change, are new orders of factory hard goods placed with U.S. manufacturers. Increasing durable goods orders indicate increased future manufacturing.Durable Goods Orders (MoM)Durable Goods Orders TotalSource: Bloomberg Disappointing Home Sales: Supply Up And Prices Down• After existing home sales had slipped 0.8% in the prior month, the downward trend continued in July with actual sales of 4 67M being well below the consensus of 4 84M on an annual adjusted rate Pending home sales had failed to indicate the4.67M being well below the consensus of 4.84M on an annual adjusted rate. Pending home sales had failed to indicate the lack of final sales, which suggests that many homebuyers were unable or unwilling to finalize financing. As the supply on the market increased, home prices dropped by 0.9% to $174,000, for the median price and 0.8% to $224,200 for the average. Year-on-year prices, which had been positive in the prior month, turned negative at - 4.4%. Note that prices in this report are not seasonally adjusted. Spring and summer prices are typically stronger.8Existing Home SalesJuly 2001– July 201167ons5Millio34Jul'01Jul'03Jul'05Jul'07Jul'09Jul'116© 2011 PFM Asset Management LLCJul 01Jul 03Jul 05Jul 07Jul 09Jul 11Existing home sales represents the number of sales in each month of previously constructed homes, condominiums, and co-ops. Existing homes are often a better indicator of trends in the housing market, as they account for a larger share of the market than new homes.Source: Bloomberg Housing Starts Hit A New Low•The rate of new annual home sales declined to 298 000 units the lowest level in five months The initial median forecastThe rate of new annual home sales declined to 298,000 units, the lowest level in five months. The initial median forecast of a 313,000, annual pace in July, was significantly revised downward to a rate of 300,000. Monthly purchases fell an adjusted 0.6% from the prior month to 165,000 units. The supply on the market remained stable at 6.6 months, which helped to sustain an average price of $272,300 for a new home. Record low mortgage rates were offset by slow economic growth and high unemployment. The outlook for the housing market remains uncertain. Housing StartsJuly 2001 – July 20112,500nds1,5002,000Thousan5001,0000Jul '01 Jul '03 Jul '05 Jul '07 Jul '09 Jul '11HiSB ildi P i7© 2011 PFM Asset Management LLCHousing Starts represent the number of privately owned new houses on which construction has been started in a given period. This data is divided into three types: single-family houses, townhouses or small condos, and apartment buildings with five or more units.Source: BloombergHousing StartsBuilding Permits " G D P g r o w t h f o r t h e s e c o n d q u a r t e r w a s s l i g h t l y s o f t e r t h a n p r e v i o u s l y e s t i m a t e d T h e U S e c o n o m y g r e w a t a 1 % a n n u a l G D P R e v i s e d D o w n w a r d G D P g r o w t h f o r t h e s e c o n d q u a r t e r w a s s l i g h t l y s o f t e r t h a n p r e v i o u s l y e s t i m a t e d . T h e U . S . e c o n o m y g r e w a t a 1 % a n n u a l r a t e , c o m p a r e d t o t h e i n i t i a l e s t i m a t e o f 1 . 3 % , w h i c h a n a l y s t s e x p e c t e d t o b e r e v i s e d d o w n w a r d t o 1 . 1 % . W h i l e G D P w a s r e v i s e d d o w n w a r d , f i n a l s a l e s o f d o m e s t i c p r o d u c t , a m e a s u r e o f m o m e n t u m , w a s m o d e s t l y r e v i s e d u p w a r d t o 1 . 2 % f r o m 1 . 1 % p r e v i o u s l y , o n a n a n n u a l b a s i s . T h e s e c o n d q u a r t e r i n c r e a s e i n G D P w a s p o s i t i v e l y a f f e c t e d b y n o n r e s i d e n t i a l f i x e d i n v e s t m e n t , e x p o r t s , p e r s o n a l c o n s u m p t i o n e x p e n d i t u r e s , a n d f e d e r a l g o v e r n m e n t s p e n d i n g , t h a t w e r e p a r t l y o f f s e t b y l e s s s t a t e a n d l o c a l g o v e r n m e n t s p e n d i n g a n d f e w e r p r i v a t e i n v e n t o r y i n v e s t m e n t s . 6 % G r o s s D o m e s t i c P r o d u c t ( Q u a r t e r o n Q u a r t e r ) S e c o n d Q u a r t e r 2 0 0 6 S e c o n d Q u a r t e r 2 0 1 2 G D P S u r v e y P r e d i c t i o n s 0 % 2 % 4 % 6 % - 4 % - 2 % - 1 0 % - 8 % - 6 % 2 Q 0 6 4 Q 0 6 2 Q 0 7 4 Q 0 7 2 Q 0 8 4 Q 0 8 2 Q 0 9 4 Q 0 9 2 Q 1 0 4 Q 1 0 2 Q 1 1 4 Q 1 1 2 Q 1 2 8 � 2 0 1 1 P F M A s s e t M a n a g e m e n t L L C 2 Q 0 6 4 Q 0 6 2 Q 0 7 4 Q 0 7 2 Q 0 8 4 Q 0 8 2 Q 0 9 4 Q 0 9 2 Q 1 0 4 Q 1 0 2 Q 1 1 4 Q 1 1 2 Q 1 2 G r o s s D o m e s t i c P r o d u c t ( G D P ) i s a m e a s u r e o f t h e U n i t e d S t a t e s p r o d u c t i o n o v e r t h e q u a r t e r , o f t e n s h o w n a s q u a r t e r o n q u a r t e r c h a n g e . G D P i n c l u d e s c o n s u m p t i o n , g o v e r n m e n t s p e n d i n g , i n v e s t m e n t , a n d n e t e x p o r t s . I t i s t h e m e a s u r e o f e c o n o m i c a c t i v i t y i n t h e U n i t e d S t a t e s . S o u r c e : B l o o m b e r g " P e r s o n a l c o n s u m p t i o n f e l l f r o m a 2 2 % a n n u a l r a t e i n t h e f i r s t q u a r t e r o f 2 0 1 1 t o a 0 4 % i n t h e s e c o n d q u a r t e r C o n s u m p t i o n H i g h e r T h a n E s t i m a t e d P e r s o n a l c o n s u m p t i o n f e l l f r o m a 2 . 2 % a n n u a l r a t e i n t h e f i r s t q u a r t e r o f 2 0 1 1 t o a 0 . 4 % i n t h e s e c o n d q u a r t e r . N e v e r t h e l e s s , t h e r e a d i n g w a s r e v i s e d u p w a r d f r o m t h e 0 . 1 % p r e v i o u s l y f o r e c a s t e d . T h e u p w a r d r e v i s i o n w a s b a s e d o n g r e a t e r c o n s u m p t i o n o n f i n a n c i a l s e r v i c e s , h e a l t h c a r e a n d i n s u r a n c e . E c o n o m i c - w i d e i n f l a t i o n f o r t h e s e c o n d q u a r t e r w a s 2 . 4 % a n n u a l i z e d , c o m p a r e d t o t h e c o n s e n s u s f o r e c a s t o f 2 . 3 % . H i g h e r c o s t o f l i v i n g , s l u g g i s h j o b g r o w t h a n d p l u n g i n g c o n s u m e r c o n f i d e n c e m a y p o s e a t h r e a t t o c o n s u m e r a n d b u s i n e s s s p e n d i n g f o r t h e r e s t o f t h e y e a r . . U . S . G D P P e r s o n a l C o n s u m p t i o n C h a i n e d 2 0 0 5 D o l l a r s % C h a n g e S A A R S e c o n d Q u a r t e r 2 0 0 1 S e c o n d Q u a r t e r 2 0 1 1 8 . 0 % 2 0 % 4 . 0 % 6 . 0 % 2 . 0 % 0 . 0 % 2 . 0 % 6 . 0 % 4 . 0 % J u n - 0 1 J u n - 0 3 J u n - 0 5 J u n - 0 7 J u n - 0 9 J u n - 1 1 9 � 2 0 1 1 P F M A s s e t M a n a g e m e n t L L C S o u r c e : B l o o m b e r g R e a l G D P c o n s u m p t i o n e x p e n d i t u r e s i n c h a i n e d 2 0 0 5 d o l l a r s a t a s e a s o n a l l y a d j u s t e d a n n u a l r a t e . " T h e R e u t e r s / U n i v e r s i t y o f M i c h i g a n i n d e x f e l l e i g h t p o i n t s t o 5 5 7 t h i s m o n t h t h e l o w e s t l e v e l s i n c e t h e d e f a u l t o f C o n f i d e n c e D r o p p e d T o T h e L o w e s t L e v e l S i n c e 2 0 0 8 T h e R e u t e r s / U n i v e r s i t y o f M i c h i g a n i n d e x f e l l e i g h t p o i n t s t o 5 5 . 7 t h i s m o n t h , t h e l o w e s t l e v e l s i n c e t h e d e f a u l t o f L e h m a n B r o t h e r i n S e p t e m b e r o f 2 0 0 8 . A n a l y s t s h a d e s t i m a t e d a r e a d i n g o f 5 6 , w h i c h w a s l a s t s e e n i n F e b r u a r y o f 2 0 0 9 . H o w e v e r , t h e r e a d i n g c a m e i n 0 . 8 p o i n t s h i g h e r t h a n t h e 5 4 . 9 m i d - m o n t h r e a d i n g , i n d i c a t i n g a s l i g h t i m p r o v e m e n t d u r i n g t h e l a s t t w o w e e k s . T h e w e a k c o n s u m e r s e n t i m e n t w a s m a i n l y d u e t o u n e m p l o y m e n t e x c e e d i n g 9 . 0 % , f a l l i n g s t o c k p r i c e s , t h e c r e d i t d o w n g r a d e a n d r i s i n g i n f l a t i o n . U n i v e r s i t y o f M i c h i g a n C o n s u m e r S e n t i m e n t A u g u s t 2 0 0 1 A u g u s t 2 0 1 1 1 1 0 . 0 0 9 0 . 0 0 1 0 0 . 0 0 6 0 0 0 7 0 . 0 0 8 0 . 0 0 C t L l 1 0 Y A 5 0 . 0 0 6 0 . 0 0 A u g ' 0 1 A u g ' 0 3 A u g ' 0 5 A u g ' 0 7 A u g ' 0 9 A u g ' 1 1 1 0 � 2 0 1 1 P F M A s s e t M a n a g e m e n t L L C S o u r c e : B l o o m b e r g T h e U n i v e r s i t y o f M i c h i g a n ' s C o n s u m e r S u r v e y C e n t e r q u e s t i o n s 5 0 0 h o u s e h o l d s e a c h m o n t h o n t h e i r f i n a n c i a l c o n d i t i o n s a n d a t t i t u d e s a b o u t t h e e c o n o m y . C o n s u m e r s e n t i m e n t i s d i r e c t l y r e l a t e d t o t h e s t r e n g t h o f c o n s u m e r s p e n d i n g . C u r r e n t L e v e l 1 0 Y r . A v e r a g e " T h e 2 - y e a r U S T r e a s u r y y i e l d r o s e s l i g h t l y t o 0 2 2 2 % f r o m p r i o r n e a r r e c o r d l o w s o f 0 1 9 1 % D e s p i t e t h e l o w y i e l d T r e a s u r i e s Y i e l d s T o I n c r e a s e M a r g i n a l l y T h e 2 - y e a r U . S . T r e a s u r y y i e l d r o s e s l i g h t l y t o 0 . 2 2 2 % f r o m p r i o r , n e a r r e c o r d , l o w s o f 0 . 1 9 1 % . D e s p i t e t h e l o w y i e l d , t h e b i d - t o - c o v e r a g e r a t i o o f 3 . 4 4 i n d i c a t e d s o l i d i n v e s t o r d e m a n d f o r t h e 2 - y e a r s e c u r i t y . T h e b i d - t o - c o v e r r a t i o c o m p a r e s t h e n u m b e r o f b i d s r e c e i v e d t o t h e n u m b e r o f b i d s a c c e p t e d i n a T r e a s u r y s e c u r i t y a u c t i o n . T h e c o u p o n r a t e o f 0 . 1 2 5 % w a s t h e l o w e s t o n r e c o r d . 0 . 9 % 1 . 0 % 2 - Y e a r U . S . T r e a s u r y Y i e l d s A u g u s t 1 9 , 2 0 1 0 A u g u s t 2 3 , 2 0 1 1 0 . 7 % 0 . 8 % 0 . 9 % 0 . 4 % 0 . 5 % 0 . 6 % 0 . 1 % 0 . 2 % 0 . 3 % 1 1 � 2 0 1 1 P F M A s s e t M a n a g e m e n t L L C 0 . 1 % A u g ' 1 0 N o v ' 1 0 F e b ' 1 1 M a y ' 1 1 A u g ' 1 1 S o u r c e : B l o o m b e r g Upcoming Economic ReleasesUpcoming Economic Releases Income Growth To Pick Up• In June, both income and spending were weak, reflecting slow job growth, a decline in motor vehicle sales, and a decrease in gasoline prices Inflation news is mixed but more favorable Personal income in June moved up 0 1% easing from a 0 2%gasoline prices. Inflation news is mixed but more favorable. Personal income in June moved up 0.1%, easing from a 0.2% rise in May. Market expectations called for a 0.2% rise for the latest month. Wages & salaries were unchanged, following a gain of 0.2% the prior month. On a more favorable note, real disposable personal income increased 0.3% in June, compared to no change in May, as inflation was negative and taxes dipped in the latest month. Consumer spending declined 0.2% after posting a 0.1% uptick in May. Economists expect personal income and spending to increase 4.0% in July. Personal Income and OutlaysJune 2010 – June 20111 00%1.25%0.50%0.75%1.00%0.00%0.25%Personal income includes wages and salaries fringe benefits suchas employer contributions of private pension plans proprietors'income-0.25%Jun '10 Oct '10 Feb '11 Jun '11Personal Income MoMPersonal Spending MoM13© 2011 PFM Asset Management LLCPersonal income includes wages and salaries, fringe benefits such as employer contributions of private pension plans, proprietors income, income from rent, dividends and interest and transfer payments less contributions for social insurance.Personal outlays include consumption expenditures, interest payments, and transfer payments. Consumption expenditures make of a major portion of outlays and give an advanced indication of the quarterly consumption component of GDP.Source: Bloomberg " H i t b y w e a k n e s s i n n e w o r d e r s , t h e I S M ' s m a n u f a c t u r i n g i n d e x f o r J u l y c a m e i n b e l o w e x p e c t a t i o n s a t 5 0 . 9 v e r s u s M a n u f a c t u r i n g E x p e c t e d T o D e c l i n e I S M M a n u f a c t u r i n g C o m p o s i t e I n d e x w h a t w a s a n i n f l a t e d 5 5 . 3 r e a d i n g f o r J u n e . T h e J u l y i n d e x i s s t i l l a b o v e 5 0 t o i n d i c a t e m o n t h l y e x p a n s i o n i n b u s i n e s s c o n d i t i o n s , b u t i s n o w a t t h e s l o w e s t r a t e s o f a r o f t h e r e c o v e r y . N e w o r d e r s c o n t r a c t e d i n t h e m o n t h , c o m i n g i n a t 4 9 . 3 w h i c h i s o n l y s l i g h t l y b e l o w t h e b r e a k - e v e n o f 5 0 . N o n e t h e l e s s , t h i s i s t h e f i r s t s u b - 5 0 r e a d i n g s i n c e J u n e 2 0 0 9 . A n a l y s t s f o r e c a s t a f a l l t o 4 9 f o r t h e m o n t h o f A u g u s t . g p J u l y 2 0 0 7 J u l y 2 0 1 1 7 0 i n g 5 0 6 0 G r o w 4 0 n t r a c t i n g 3 0 J u l ' 0 7 J a n ' 0 8 J u l ' 0 8 J a n ' 0 9 J u l ' 0 9 J a n ' 1 0 J u l ' 1 0 J a n ' 1 1 J u l ' 1 1 C o n 1 4 � 2 0 1 1 P F M A s s e t M a n a g e m e n t L L C I S M m a n u f a c t u r i n g i s c r e a t e d f r o m a q u a l i t a t i v e s u r v e y o f m a n u f a c t u r i n g f i r m s c o v e r i n g n e w o r d e r s , p r o d u c t i o n , e m p l o y m e n t , s u p p l i e r d e l i v e r i e s , a n d i n v e n t o r i e s . H i s t o r i c a l l y , r e a d i n g s o f 5 0 o r a b o v e a r e a s s o c i a t e d w i t h a n e x p a n d i n g m a n u f a c t u r i n g s e c t o r a n d h e a l t h y G D P g r o w t h . R e a d i n g s b e l o w 5 0 i n d i c a t e a c o n t r a c t i n g m a n u f a c t u r i n g s e c t o r , b u t G D P g r o w t h i s s t i l l p o s i t i v e u n t i l t h e I S M i n d e x f a l l s b e l o w 4 2 . 7 . S o u r c e : B l o o m b e r g " F o r J u l y A D P E m p l o y m e n t e s t i m a t e d t h e l a b o r m a r k e t g a i n e d 1 1 4 0 0 0 s u b s t a n t i a l l y h i g h e r t h a n e c o n o m i s t s A D P E m p l o y m e n t G r o w t h F o r e c a s t e d T o S l o w F o r J u l y , A D P E m p l o y m e n t e s t i m a t e d t h e l a b o r m a r k e t g a i n e d 1 1 4 , 0 0 0 , s u b s t a n t i a l l y h i g h e r t h a n e c o n o m i s t s e x p e c t a t i o n s o f 8 6 , 0 0 0 . M a y s n u m b e r w a s r e v i s e d d o w n f r o m 1 5 7 , 0 0 0 t o 1 4 5 , 0 0 0 w h i c h i s s t i l l s u b s t a n t i a l l y h i g h e r t h a n t h e L a b o r D e p a r t m e n t s d a t a w h i c h s h o w e d a 5 3 , 0 0 0 j o b i n c r e a s e . A s l o w d o w n i n h i r i n g m e a n s c o n s u m e r s a r e u n l i k e l y t o b o o s t t h e s p e n d i n g t h a t f u e l s 7 0 p e r c e n t o f t h e e c o n o m y , r a i s i n g t h e r i s k t h e r e c o v e r y m a y s t u m b l e . E c o n o m i s t s p r e d i c t 1 0 5 , 0 0 0 n e w j o b s f o r t h e m o n t h o f A u g u s t . A D P E m p l o y m e n t J u l y 2 0 0 1 J u l y 2 0 1 1 2 0 0 4 0 0 - 2 0 0 0 2 0 0 - 6 0 0 - 4 0 0 - 1 , 0 0 0 - 8 0 0 J u l ' 0 1 J u l ' 0 3 J u l ' 0 5 J u l ' 0 7 J u l ' 0 9 J u l ' 1 1 1 5 � 2 0 1 1 P F M A s s e t M a n a g e m e n t L L C S o u r c e : B l o o m b e r g ; A D P : N a t i o n a l E m p l o y m e n t R e p o r t T h e A D P E m p l o y m e n t r e p o r t i s r e l e a s e d i n a d v a n c e o f t h e m o n t h l y n o n - f a r m p a y r o l l s r e p o r t a n d r e p r e s e n t s a w i d e r s e g m e n t o f b u s i n e s s e s w h e n c o m p a r e d t o t h e n o n - f a r m p a y r o l l s r e p o r t . " J u l y s e m p l o y m e n t r e p o r t s h o w e d n o n - f a r m p a y r o l l s a d v a n c e d 1 1 7 0 0 0 f o l l o w i n g a r e v i s e d 4 6 0 0 0 r i s e i n J u n e a n d J o b G r o w t h U n c h a n g e d " J u l y s e m p l o y m e n t r e p o r t s h o w e d n o n - f a r m p a y r o l l s a d v a n c e d 1 1 7 , 0 0 0 , f o l l o w i n g a r e v i s e d 4 6 , 0 0 0 r i s e i n J u n e , a n d r e v i s e d 5 3 , 0 0 0 i n c r e a s e i n M a y . A n a l y s t s w e r e e x p e c t i n g a 7 5 , 0 0 0 i n c r e a s e f o r J u l y . P r i v a t e s e c t o r g r o w t h w a s s o m e w h a t b e t t e r a s p r i v a t e n o n f a r m p a y r o l l s g r e w 1 5 4 , 0 0 0 i n J u l y , f o l l o w i n g a n 8 0 , 0 0 0 r i s e i n J u n e a n d 9 9 , 0 0 0 i n c r e a s e i n M a y . T h e m e d i a n f o r e c a s t w a s f o r a 1 0 8 , 0 0 0 i n c r e a s e f o r t h e l a t e s t m o n t h . F r o m t h e h o u s e h o l d s u r v e y , t h e u n e m p l o y m e n t r a t e e d g e d d o w n t o 9 . 1 % f r o m 9 . 2 % i n J u n e . T h e J u l y f i g u r e c a m e i n b e l o w e x p e c t a t i o n s f o r 9 . 2 % . T h e J u l y d i p w a s p r i m a r i l y d u e t o a c o n t r a c t i o n i n t h e l a b o r f o r c e . A n a l y s t s b e l i e v e t h a t u n e m p l o y m e n t w i l l r e m a i n c o n s t a n t a t 9 . 1 % i n A u g u s t . y p y g C h a n g e i n N o n - F a r m P a y r o l l s / U n e m p l o y m e n t R a t e J u l y 2 0 0 5 J u l y 2 0 1 1 9 0 0 1 2 % m P a y r o l l s s U n e m 3 0 0 6 0 0 8 % 1 0 % g e i n N o n - F a r m T h o u s a n d s m p l o y m e n t R a t ( 3 0 0 ) 0 4 % 6 % C h a n g t e ( 9 0 0 ) ( 6 0 0 ) J l ' 0 5 J l ' 0 6 J l ' 0 7 J l ' 0 8 J l ' 0 9 J l ' 1 0 J l ' 1 1 0 % 2 % 1 6 � 2 0 1 1 P F M A s s e t M a n a g e m e n t L L C J u l ' 0 5 J u l ' 0 6 J u l ' 0 7 J u l ' 0 8 J u l ' 0 9 J u l ' 1 0 J u l ' 1 1 S o u r c e : B l o o m b e r g Market-moving economic releasesEconomic CalendarDateEvent Survey Actual Prior Revised8/29/2011 Personal Income 0.30% - - 0.10% - -8/29/2011 Personal Spending 0.50% - - -0.20% - -8/29/2011 PCE Deflator (YoY)-- -- 2.60%--()%8/29/2011 PCE Core (MoM) 0.20% - - 0.10% - -8/29/2011 PCE Core (YoY) 1.40% - - 1.30% - -8/29/2011 Pending Home Sales MoM 0.00% - - 2.40% - -8/29/2011 Pending Home Sales YoY - - - - 17.30% - -8/30/2011 S&P/Case-Shiller US HPI YOY% - - - - -5.06% - -8/30/2011 Consumer Confidence 53 - - 59.5 - -8/30/2011 Minutes of FOMC Meeting8/31/2011 MBA Mortgage Applications - - - - - - - -8/31/2011ADP E l t Ch105K114K8/31/2011ADP Employment Change105K--114K--8/31/2011 Factory Orders 1.00% - - -0.80% - -9/1/2011 Nonfarm Productivity -0.50% - - -0.30% - -9/1/2011 Initial Jobless Claims - - - - - - - -9/1/2011Continuing Claims-- -- -- --9/1/2011Continuing Claims9/1/2011 Construction Spending MoM 0.10% - - 0.20% - -9/1/2011 ISM Manufacturing 49 - - 50.9 - -9/1/2011 ISM Prices Paid 55 - - 59 - -9/2/2011 Change in Nonfarm Payrolls 98K - - 117K - -17© 2011 PFM Asset Management LLC9/2/2011 Unemployment Rate 9.10% - - 9.10% - -9/2/2011 Chg in Household Survey Emply - - - - -38 - -Source: Bloomberg NIKKEI (Japan)DAX (Germany)FTSE (UK)World Equity Indices8 000(y)10,00011,0005,9006,6007,0008,0008,0009,000Aug '10 Dec '10 Apr '11 Aug '114,5005,200Aug '10 Dec '10 Apr '11 Aug '115,0006,000Aug '10 Dec '10 Apr '11 Aug '11Dow Jones (USA)ASX (Australia)Shanghai (China)YoY FTSE Return: 0.97%YoY DAX Return: -4.29%YoY NIKKEI Return: -3.95%11 90013,1004 7505,2503 0003,50010,70011,9004,2504,7502,5003,000Current Price200-Day Moving Avg.50-Day Moving Avg.YoY Shanghai Return: -2.40%YoY ASX Return: -3.53%YoY Dow Jones Return: 12.75%9,500Aug '10 Dec '10 Apr '11 Aug '113,750Aug '10 Dec '10 Apr '11 Aug '112,000Aug '10 Dec '10 Apr '11 Aug '1118© 2011 PFM Asset Management LLCThe moving average shown is a simple moving average, which is the unweighted mean of the 50 / 200 previous days’ prices. Movingaverages smooth price data and are frequently used as technical indicators.yggyggSource: BloombergPrices as of August 24, 2011 U.S. Treasury Yield CurveChangeChangeUS T Yi ldC8/25/108/18/118/25/11Change Over WeekChange Over Year3 month0.15% 0.00%-0.01%- 0.01% - 0.16%U.S. Treasury Yield Curve4%5%6 month0.19% 0.03%0.02%- 0.01% - 0.17%1 year0.26% 0.08%0.09%+ 0.01%-0.17%2 year0.52% 0.19%0.21%+ 0.02%-0.31%2%3%Yield3 year0.76% 0.33%0.36%+ 0.03%-0.40%5 year1.38% 0.88%0.99%+ 0.11%-0.39%10 year2.53% 2.06%2.24%+ 0.18%-0.29%0%1%36123 5 10 30August 25, 2010August 18, 2011August 25 201130 year3.57% 3.42%3.60%+ 0.18% + 0.03%-1%mmyyyyyyMaturityAugust 25, 201119© 2011 PFM Asset Management LLCSource: Bloomberg Indicative Investment Rates – Money MarketsCurrent Yield Change over Week Change over Month Change over YearU.S. Treasury 1 month 0.01% 0.00%-0.04% -0.16%3 months 0.02% 0.00%-0.02% -0.14%6 months 0.07% 0.00%-0.03% -0.12%12 months 0.11% 0.00%-0.07% -0.16%Agency Discount Notes 7-day 0.03% 0.00% 0.01%-0.10%1 month 0.03% 0.00% 0.00%-0.11%3 months 0.06% 0.00% 0.00%-0.11%6 months 0.12% 0.00% 0.01%-0.08%9 months 0.15% 0.00%-0.01% -0.10%12 months 0.18% 0.00% 0.00%-0.14%Certificates of Deposit p1 month 0.21% 0.01% 0.07%-0.03%3 months 0.29% 0.01% 0.10%-0.03%6 months 0.40% 0.03% 0.12%-0.05%9 months 0.60% 0.05% 0.23% 0.08%12 months0.43%n/a0.05%-0.54%12 months 0.43%n/a0.05%0.54%Commercial Paper 7-day 0.16% 0.02% 0.02%-0.02%1 month 0.22% 0.01% 0.07% 0.02%3 months 0.30%-0.01%0.12% 0.03%6 months0 40%0 00%012%0 04%20© 2011 PFM Asset Management LLC6 months 0.40%0.00%0.12%0.04%9 months 0.49%-0.01%0.16%-0.14%Source: BloombergRates as of August 25, 2011 Indicative Investment Rates – Intermediate TermCurrent Yield Change over Week Change over Month Change over YearU.S. Treasury 2 year 0.19% 0.00%-0.22% -0.34%3 year 0.33% 0.00%-0.35% -0.43%5 year 0.94% 0.00%-0.58% -0.43%Agency Bullets 2 year 0.38% 0.02%-0.19% -0.26%3 year 0.57% 0.03%-0.37% -0.43%5 year 1.29% 0.02%-0.59% -0.38%21© 2011 PFM Asset Management LLCSource: BloombergRates as of August 25, 2011 DisclaimerThis material is based on information obtained from sources generally believed to be reliable and available to the public, however PFM Asset Management LLC cannot guarantee its accuracy, completeness or suitability. This material is for general information purposes only and is not intended to provide specific advice or a specific recommendation. All statements as to what will or may happen under certain circumstances are based on assumptions, some but not all of which are noted in the presentation. Assumptions may or may not be proven correct as actual events occur, and results may depend on events outside of your or our control. Changes in assumptions may have a material effect on results. Past performance does not necessarily reflect and is not a guaranty of future results. The information contained in this presentation is not an offer to purchase or sell any securities. 22© 2011 PFM Asset Management LLC