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Lockwood Moves toward Large Cap Investments.
April 16, 2007

Lockwood Advisors announced changes today to the strategic asset allocation in both the Lockwood Asset Allocation and Lockwood Investment Strategies portfolios.  We are pleased to see that Lockwood has included an allocation to emerging markets in the new models.  This has been a topic of discussion between our firm and the Lockwood Investment Strategies team.  Lockwood is also reducing small cap domestic stock in favor of large cap.

We are somewhat disappointed by the elimination of REIT’s from the standard portfolios.  On a philosophical level, we believe that REIT’s provide important reduction in portfolio volatility during turbulent periods in the stock market.  On a practical level, Lockwood’s allocation to REIT’s has been so small that elimination should have little or no impact.

Details of the changes can be found below.  As always, should you have any questions at all, please do not hesitate to contact your advisor.

Effective immediately, the following strategic portfolio changes have been implemented in the Lockwood Investment Strategies (LIS) and Lockwood Asset Allocation Portfolios (LAAP) programs:

• Exposure to REITs in all Model portfolios has been eliminated. The 5% REIT exposure that we previously implemented in Traditional Models I and II, as well as Alternative Model II, has been reduced to 0%.
• Small-cap U.S. equity exposure in Models IV and V, as well as Alternative Models IV and V, has been reduced.
• Large-cap U.S. equity exposure has been increased in Traditional Models I, II, IV, and V, as well as Alternative Model II.
• A new explicit exposure to emerging market equities has been introduced for Traditional and Alternative Models III, IV, and V, while reducing our exposure to developed non-U.S. markets. Each model’s total allocation to non-U.S. equities remains unchanged.
• Mid-cap U.S. equity exposure has been adjusted, with a portion of that market-cap segment allocated to a relatively style neutral, broadly diversified, mid-cap exchange-traded fund. With the exception of Alternative Model IV, each model’s total allocation to mid-cap equities remains unchanged.

The rationale for the changes is as follows:

• Although REITs have not suffered the difficulties of the residential real estate market, and in fact rose slightly in the first quarter, in our view, REIT valuations have become excessively rich, and return prospects have turned negative.
• Small-cap U.S. equities have enjoyed a strong period of performance relative to larger-cap stocks during a strong period of economic expansion for the U.S. economy. It is our view that valuations for small-cap U.S. equities are high, and that prospective return relative to risk has turned less favorable. As a result, we are reducing allocations to this segment accordingly.
• Valuations in large-cap U.S. equities appear reasonable and, in an environment of expected slowing economic growth and corporate earnings, we believe that large-cap stocks offer a more attractive risk-return tradeoff.
• Continuing strong secular growth in emerging markets, improving liquidity and better capital market structure, and reasonable valuations relative to growth rates have prompted us to allocate a modest but explicit part of the portfolio to an investment vehicle designed to track the MSCI Emerging Markets Index. This will provide broad exposure to equities in countries such as South Korea, Taiwan, China, Russia, and Brazil.