PREPARED BY:ASHLEY CLARKRICHARD GROSSJON HARMACEKOLGA ISENBERGBRYON JORDAN

Industrial Sector Presentation

Agenda

Sector AnalysisBusiness AnalysisEconomic AnalysisFinancial AnalysisValuation AnalysisRecommendationQ&A

Sector Analysis

SIM Weight

7.50%

12.36% 10.68%

9.33%

13.58%

11.57%

20.19%

4.12%

3.28%

3.87%

3.53%

Consumer Discretionary

Consumer Staples

Energy

Financials

Health Care

Industrials

Information Technology

Materials

Telecommunication Services

Utilities

Cash

Industrials Sector SIM Weight vs S&P 500

9.79%

11.57%

8.50%

9.00%

9.50%

10.00%

10.50%

11.00%

11.50%

12.00%

S&P 500 Weight SIM Weight

S&P 500 Weight

SIM Weight

The Industrials Sector makes up 11.57% of the SIM Portfolio, 178 basis points above the S&P 500.

Sector Analysis – Top 10 companies

General Electric Co 14.7%

United Parcel Service Inc 6.1%

United Technologies Corp 5.9%

3M Co 5.5%

Union Pacific Corp 3.6%

Boeing Co 3.5%

Lockheed Martin 3.4%

Emerson Electric Co 3.2%

Burlington Northern Santa Fe Co 3.1%

Honeywell Intl Inc 2.9%

All Other 48.1%

Sector Analysis – Returns by sector

Returns by Sector

-10.00%

-5.00% 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00%

S&P 500

Energy

Materials

Industrials

Consumer Discretionary

Consumer Staples

Health Care

Financials

Information Technology

Telecommunications Services

Utilities

Secto

r

% Return

YTD

QTD

Industrial QTD Return – 3.65%Industrial YTD Return - -4.32%

Business Analysis – Economic cycle

Source: http://personal.fidelity.com/products/funds/content/sector/cycle.shtml

Business Analysis – Industrials vs. S&P 500

Source: http://www.yahoo.com

Source: http://openlearn.open.ac.uk/mod/resource/view.php?id=281253

Business Analysis – Stages of Maturity

Economic Analysis

Industrials are highly correlated to GDP, real interest rates, real private investments, federal government spending and housing market

In June 2009, The Fed Beige Book report indicated that the expectations of several districts regarding the recession have improved, though they do not see the substantial increase in economic activity through the end of the year

In Q2 2009, manufacturing activity declined or remained at a low level across most states

Economic Analysis – GDP vs. Industrial Equipment

Economic Analysis – GDP vs. Change in Real Investment

Economic Analysis – GDP vs. New Single Family Home Sales

Economic Analysis – Industrial Production Index vs. Recessions

Economic Analysis – Capacity Utilization vs. Recessions

Economic Analysis – Real Private Investment vs. Recessions

Financial Analysis - Net Profit Margin

Financial Analysis - ROE

Financial Analysis - ROE Key Operating Statistics

2005 2006 2007 2008 2009

EBITDA Margin 18.0% 17.8% 18.5% 18.4% 18.4% Stable

Net Profit Margin 7.7% 8.2% 8.4% 7.8% 7.3% Decreasing

ROE 17.3% 17.8% 19.5% 20.7% 21.3% Increasing

*Red indicates consensus estimates

Financial Analysis - EPS YOY Growth

Financial Analysis - Earnings Per Share

Next Expected EPS Date: Sep

2004 2005 2006 2007 2008 2009 2010

Mar 2.91 3.48 4.06 4.52 5.05 3.12 3.09

Jun 3.37 4.08 4.52 5.24 5.73 3.21 3.58

Sep 3.34 4.07 4.72 5.22 5.4 3.36 3.88

Dec 3.6 4.37 5.16 5.63 4.72 3.62 4.03

Year 13.22 16.00 18.46 20.61 20.90 13.83 14.64

Year to Year 21% 15% 12% 1% -34% 6%

*Red indicates consensus estimates

Expected Significant

Decrease in 2009 Overall

Expected Significant

Decrease in 2009 Overall

Expected Increase in 2010

Overall

Expected Increase in 2010

Overall

Validation Analysis - Industrials

Industrials Sector

High Low Median Current

P/E 30.5 7.1 20.2 10.7

P/S 1.6 0.6 1.4 0.8

P/B 3.6 1.4 3.2 2.3

P/CS 14.0 4.9 11.4 6.7

vs S&P 500

P/E 1.2 0.66 1.1 0.69

P/S 1.1 0.8 1.0 0.8

P/B 1.3 1.0 1.1 1.1

P/CS 1.2 0.7 1.1 0.8

Validation Analysis - P/E vs. S&P 500

Validation Analysis - P/S vs. S&P 500

Validation Analysis - P/B vs. S&P 500

Validation Analysis - P/CF vs. S&P 500

Recommendation

Maintain the current overweight of 178 basis points (SIM 11.57% vs. S&P 500 9.79%)

Positives: During the recession most of industrial stocks are undervalued Most of the stocks should have an upside when economy turns around Increased government spending (i.e. OSK, GE, Shaw) Low interest rates

Risks: Double-dip recession driving prices further down Lag between GDP growth and Industrial growth Companies have divested most of the assets due to the prolonged recession Excess capacity in the housing market and commercial real estate

Q&A