Large Cap Passive Equities

Investment Philosophy

We believe that the most tax-efficient way to manage a large-cap passive equity portfolio is by managing a separate account and replicating the S&P 100 Index, which is highly correlated with but has lower turnover than the S&P 500 Index.

Investment Process

Our Large Cap Passive Equity product is managed as a separate account, utilizing lot accounting. Therefore, we are able to optimize each taxable client’s unique tax circumstances while simultaneously accommodating each client’s specific investment guidelines (e.g. limits and/or exclusions of individual holdings). Our investment process starts with a clear understanding of these investment guidelines. For client’s with no investment restrictions, we fully replicate the composition of the S&P 100 Index.¹ For clients with investment restrictions, for example a 5% absolute limit for an individual holding (there are a few individual positions in the S&P 100 which exceed 5%), we reallocate to other holdings on a pro rata basis. We review the S&P web-site on a daily basis to determine if there are any corporate actions (e.g. spin-off’s, etc.) and/or planned changes to the composition of the S&P 100 Index. New holdings in the portfolio that result from corporate actions, but which are not in the S&P 100 Index, are sold from the portfolio on a timely basis. In accommodating client investment restrictions and/or changes to the composition of the S&P 100 Index, we strive to maximize the use of available portfolio cash and minimize turnover and net realized gains. Largely because of the inherently low turnover of the S&P 100 Index (historically averaging less than 3% per year), we do not practice active tax loss harvesting with our Large Cap Passive equity product.

¹S&P 100 index allocations are determined by Standard & Poor’s Corporation. Standard & Poor’s®, S&P®, S&P 100® and Standard & Poor’s 100 Index® are trademarks of the McGraw Hill Companies, Inc. and have been licensed for use by Duff & Phelps Investment Management Co. The product is not sponsored, endorsed, sold or promoted by Standard & Poor’s, and Standard & Poor’s makes no representation regarding the advisability of investing in the product. Indices are not available for direct investment.

Sector Allocations vs. Benchmark (%)²

	Portfolio	S&P 100³	S&P 500⁴
Consumer Discretionary	5.6	5.5	8.5
Consumer Staples	15.5	15.1	12.2
Energy	15.4	15.0	13.4
Financials	12.9	14.8	15.9
Health Care	12.3	12.0	13.1
Industrials	10.8	10.9	11.1
Information Technology	19.4	18.9	16.0
Materials	1.8	1.7	3.4
Telecommunications	4.5	4.4	3.1
Utilities	1.8	1.8	3.6

Portfolio Characteristics vs. Benchmark²

	Portfolio	S&P 100	S&P 500
Latest P/E	15.4x	15.4x	15.5x
Forward P/E (12 mos)	12.2x	12.3x	14.5x
Dividend Yield	2.8%	2.9%	2.2%
Price to Book	2.3x	2.3x	2.4x
Price to Cash Flow	9.4x	7.81x	7.77x
5 Year Avg ROE	22.5%	22.4%	19.2%
Weighted Market Cap (bn)	$130.5	$130.9	$86.8
Beta	0.93	0.94	1.00

After-tax risk/return (since inception)^2,5

R² vs S&P 100	0.99
R² vs S&P 500	0.98
S&P 100 Standard Deviation	17.45
S&P 500 Standard Deviation	16.45
Composite Standard Deviation	17.26
Tracking Error vs S&P 100	0.87
Tracking Error vs S&P 500	2.56

²As of 9/30/08. This material is deemed supplemental and complements the Institutional Performance & Disclosure contained in the Product Profile. Holdings are subject to change. ³An unmanaged index of 100 stocks. ⁴An unmanaged index of 500 stocks. ⁵Inception: September 30, 1998. After-tax returns based on tax rate of 20%. Data shown represents past performance and is no guarantee of future results.