Relative Value Equity Performance

Matching the index for the quarter is probably better than we deserved! At this stage of the market recovery, investors have sought more volatile companies and not focused as much on the larger, high quality companies with attractive valuations. Our style is focused on larger, higher quality companies. Market cycles have distinct phases, and last year was an early recovery year, much like 2003. During early recovery year, investors seek out riskier, lower quality investments. The premise behind this is that if a company has survived the worst of a recession, then it has high leverage to a recovery. In practice, this means that companies that were most worrisome during the bear market and were probably driven to very low prices become the standouts of the early recovery. If a stock goes from $50 to $3 because investors fear they will default, it can easily move to the teens when it becomes apparent they will not default. That was the nature of 2009, and if you examine the best performers during the year, our guess is they will match this pattern. As you move into a later phase recovery, investors tend to return to the higher quality names. We expect that to occur this year.

A traditional economic recovery is unfolding, and we think that growth could be better than anyone expects in the first half of 2010. To take advantage of this, we have recently raised our allocation in the Consumer Discretionary stocks through the purchase of several retailers focused on the off price and dollar store segments. Current trends in place suggest the "Frugal Consumer," that our Chairman Emeritus, Bos Todd, speaks about, is a phenomenon that will be with us for some time. We want to take advantage of that trend.

We have maintained our overweighting in Technology and Industrial stocks. During the year, we have expected these areas to benefit from the trend of dollar weakness and better exports. The stocks have benefitted from these trends, and the Technology group was the best performing group for the year. As we move into 2010, our sense is that the Industrials and other later stage cyclical stocks will probably have their time in the sun. We have moved to an underweighting in the Consumer Staples and other defensive stocks over the past year and expect to maintain a below market weight in those names. History suggests it is the wrong part of the economic cycle for defensive stocks to outperform. If the prospect of a double-dip recession becomes likely, we will revisit that underweighted bias.

*Sources: TVAM, SunGard, Standard & Poor's, Frank Russell Company

Historical performance provides no guarantee of future success.¹ Additional information is shown on our Relative Value Equity Flyer.

Annualized Performance as of 12/31/09

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¹Past performance is not indicative of future results. A full performance disclosure is an integral part of this presentation. Returns are presented gross and net of management fees and include the reinvestment of all income. Net of fee performance was calculated using the highest management fee of 0.60% applied monthly. Prior to September 2001, the highest management fee applied to the composite was 0.50%.

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