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‘Flation Wars – Deflation, Reflation, Inflation.
Is Now the Time to Buy Inflation Protection?
The U.S. recession that officially began in December 2007 lingers into its 16 th
month and market conversation has begun to shift from concern about
another Great Depression to the “green shoots” of a potential economic
recovery. We believe the timing is right to discuss deflationary forces
currently at work, the reflationary efforts of the Federal Reserve and U.S.
Treasury, and the potential for inflation beyond the near term. In
conjunction with this effort, we will also consider the role of Treasury
Inflation Protected Securities (TIPS) in portfolios, and communicate our
belief that the proper time to buy an insurance policy, or hedge against an
unforeseen event, is before you or your portfolio becomes sick, not
afterwards, when premiums are much higher.
What is Deflation? Is it Here? Will it Continue?
Deflation can be defined as a decline in general price levels, and is often
caused by a reduction in the supply of money or credit. Deflation also has
psychological components that can be self-reinforcing, as consumers see
prices decline and delay purchases, forcing retailers and manufacturers to
reduce production and labor costs, further driving down prices. Deflation
also has the unappealing side effect of increasing unemployment in an
economy, as the process typically leads to a reduction in aggregate demand.
The consumer price index (CPI) reading for March 2009 declined by 0.4%
from March 2008, marking the first year-over-year deflationary period since
1955. In conjunction with dramatically falling prices in capital markets since
mid-2007, deflation indeed appears to be present in the U.S. economy. There
is a valid argument that deflation may remain in the U.S. for an extended
period of time, and this is best highlighted in recent work by Dr. Gary
Shilling. 1 He frames the argument for continued deflation in four key points
listed below:
• Ongoing weakness in commodity prices: takes time to work through
the economy
• Excess inventories: detract from a company’s ability to raise prices
• Wage cuts/shorter hours: unseen since the 1930s; in a deflationary
environment, employers must terminate employees or cut hours
• Excess capacity: the Commerce Department’s measure that suggests
excess capacity tends to reduce the CPI, with a six-month lag.
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Page 1
Keith M. Berlin
Vice President
INSIDE THIS ISSUE
APRIL 2009
Focus Topic 1
Economic Update 8
Domestic Equity 9
International Equity 11
Fixed Income 13
Real Estate Securities 14
Hedge Funds 17
Disclosures 19
Research Team 20
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APRIL 2009
Providing additional firepower to the potential for a lengthy bout of deflation is the de-leveraging of the U.S. consumer.
Savings rates declined from a robust 12% in the early 1980s, to a negative savings rate in the third quarter of 2005.
More recently amid the lengthening recession, personal savings reached 4.1% in the first quarter of 2009, as shown in
the following chart. 2 With personal savings rates climbing, the unemployment rate rising, and the inability of
corporations to re-lever their balance sheets, the prolonged deflationary argument and the possibility of a lengthier
recession than many investors anticipate holds merit. On a more positive note, economist Hyman Minsky, in his book
Stabilizing an Unstable Economy, noted that high personal savings rates built up during recessions ultimately lead the
consumer to be seen as the “hero” in the following expansion. 3
What is Reflation? A Reflationary Effort of Epic Proportions
Reflation can generally be defined as an economic policy whereby a government uses a combination of fiscal and/or
monetary stimulus in order to expand a country's output. The Federal Reserve, with help from the U.S. Treasury, acted
meaningfully to provide liquidity to a rapidly de-leveraging economy after finally acknowledging the growing potential
for the economy to head toward a second Great Depression. There are various sources of information tracking all of
the stimulus packages that have been put into place since the government began its reflationary effort, and listing them
all here is outside of the realm of this discussion. Suffice it to say, the stimulus packages are massive, ongoing, and likely
to keep growing. The government is well intentioned with its reflationary effort, and Paul McCulley, managing director
and portfolio manager at PIMCO, recently described the government’s ongoing efforts best when he noted “the
government is trying to take deflationary swamp water and create reflationary wine.”
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APRIL 2009
Is the reflationary road that our government has taken merely a road to financial perdition paved with good intentions?
To put the scale of the government’s reflationary effort in proper perspective, the team at Grant’s Interest Rate Observer
has been dutifully on the case. Grant’s features the balance sheet of the Federal Reserve and its recent growth in each of
its reports. Through April 18, 2009, the balance sheet of the Fed more than doubled from April 2008, standing at more
than $2 trillion. In its April 3, 2009 report 4, Grant’s provided unique insight into the amount of monetary and fiscal
stimulus and its relation as a percentage of GDP for this recession and past recessions dating back to the Great
Depression.
The most interesting takeaway from Grant’s analysis showed the decline of 27% in real GDP from August 1929 to
March 1933, in which the combined monetary and fiscal stimulus amounted to only 8.3% of GDP. By comparison, the
current recession, which officially began in December 2007, witnessed a decline in real GDP of 2.6% through the first
quarter of 2009, and has been met with an estimated monetary and fiscal stimulus amounting to almost 30% of GDP.
When compared to the Great Depression, the current contraction thus far of 2.6% real GDP matches the recession of
July 1981 to November 1982. While the current recession has certainly been a painful process for many people and is
not over, the 2.6% real GDP decline does not even place it within the top five of the past thirteen recessions. Despite
this fact, the current recession has been met with a tidal wave of liquidity that would perhaps make even the legendary
economist and pro-intervener, John Maynard Keynes blush.
The key question investors are asking is if the government’s reflationary efforts will ultimately lead to inflation? We
would opine that the actions themselves are not in and of themselves inflationary. Money sitting as banking reserves on
the Fed’s balance sheet is not inflationary in that form, particularly because banks are being paid interest to hold those
reserves, and therefore have less incentive to lend these dollars. The Fed’s actions would be inflationary if banks were
to begin lending out all of those reserves, increasing the velocity of money, as more money began chasing fewer goods.
Another way to look at this situation is through the lens of the aggregate demand and aggregate supply model, which is
shown at initial equilibrium in the following chart. Because aggregate demand for goods and services declined amid the
recession, shifting downward and to the left (shown in the second chart), real GDP and the aggregate price level
therefore declined to a new equilibrium point where the aggregate demand line intersects the short run aggregate supply
curve.
AD: Aggregate
Demand
LRAS: Long Run
Aggregate Supply
SRAS: Short Run
Aggregate Supply
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APRIL 2009
In sum, the government’s reflationary efforts in current form are being used in an effort to stimulate aggregate demand
in hopes of pushing aggregated demand back up and to the right. If successful, this action would shift real GDP back
to the right, bringing the model to a new equilibrium.
So while these efforts are reflationary, the big question for investors is not if, but when the economy recovers and banks
lend again, can the Fed reduce its balance sheet, raise rates, and rein in its other lending programs quickly enough to
keep the velocity of money from spinning out of control, i.e., high inflation. To put the more recent past into
perspective, consider the future. Larry Summers, economic advisor to President Obama, has stated on more than one
occasion that it is much easier for policy makers to overshoot and deal with the after effects later than it is to not do
enough. 5 In considering how quickly the Fed has been able to act to rein in inflation following past recessions and past
countercyclical efforts, the team at Grant’s is again on the case. Noting that in the prior two recessions, which met with
considerably less monetary and fiscal stimulus than the current recession, those ending March 1991 and November
2001, the Fed removed its accommodative stance with a significant lag. Indeed, in the recession that ended March
1991, the Fed did not begin to raise rates until February 1994, and in the recession that ended November 2001, the Fed
did not begin to raise rates until June 2003. 6 While nobody knows the unintended consequences of what has become
the most epic of reflationary efforts in U.S. history, we believe that based on the past history of the Fed and the sheer
size and scope of the various programs put into place by the government, investors should be concerned with inflation
once the economy recovers.
What is Inflation?
Much like deflation is defined as too few dollars chasing too many goods, inflation can be defined as too many dollars
chasing too few goods. Also like deflation, there is a psychological component that can be self-reinforcing. Consumers
begin to believe that prices will increase and therefore increase aggregate demand. Retailers and manufacturers begin to
see this increase in demand and therefore begin increasing production, paying higher wages, and ultimately raising
prices. If deflation can lead to greater unemployment in an economy, then inflation can reduce unemployment in an
economy.
While fairly obvious to most economists and many market observers, a recent Bloomberg article posited that Federal
Reserve chairman Ben Bernanke is siding with economist, and well-known counter-cyclical intervener, John Maynard
Keynes against monetarist economist Milton Friedman, by flooding the financial system with money in an effort to
stimulate aggregate demand. Within this article, Allan Meltzer, the Fed historian and professor of political economy at
Carnegie Mellon University in Pittsburgh, noted that “if history is any guide, the Fed’s effort will end in tears and
inflation will be higher than it was in the 1970s. At the end of that decade, consumer prices rose at a year-over-year rate
of 13.3%.” 7
As mentioned earlier, the Federal Reserve has increased its balance sheet dramatically, and its subsequent monetization
of the government’s debt obligations through its Treasury purchases (known more fondly as quantitative easing) are
akin to printing money. Additionally, the M1 (currency, traveler’s checks, demand deposits, and other checkable
deposits) and M2 (M1 plus retail money market funds, savings, and small time deposits) money stock measures, as
reported by the Federal Reserve, have grown considerably on a seasonally adjusted basis since the beginning of the
recession. M1 has grown by 14.5%, to $1.6 trillion, and M2 has grown by 12.2% to $8.3 trillion. As economist Milton
Friedman said “inflation is always and everywhere a monetary phenomenon” and the growth of the monetary stock is
indeed on the rise and shows no immediate sign of slowing.
© 2009 Fund Evaluation Group, LLC

Is Now the Time to Buy Inflation Protection Through TIPS?
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APRIL 2009
While the ‘flations ebb and flow over long periods of time, the 50-year average for both the headline and core consumer
price index (CPI) was 4.1%. Through the end of April, the implied inflation break-even rate (the difference between the
10-year on the run nominal Treasury and the 10-year on the run TIPS) was approximately 1.5% (see the below chart),
which is well below its pre-credit crisis average of approximately 2.4%. For a more crystallized view of inflation
expectations, we can consider the 5 to 10 year part of the curve, which is of particular interest to the Federal Reserve, as
it can be used to calculate 5 year implied inflation, 5 years forward. As the second chart below reveals, this part of the
curve suggests that implied inflation expectations on a 5 year forward basis 5 years from now have already approached
pre-credit crisis levels of almost 2.5%.
Source: Bloomberg
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APRIL 2009
With both charts suggesting that implied inflation expectations have either increased or moved back toward pre-credit
crisis levels, a logical question is whether or not we have “missed the move” in TIPS. In fact, TIPS had an impressive
run from December 2008 to the end of March 2009, with the Barclays Capital U.S. TIPS Index gaining 10.8%. In April,
the easy gains had already been made, and the TIPS index declined by 2%. December 2008 marked a period where
implied inflation approached 0%. As mentioned earlier, April was a month where news of the first year-over-year
decline in the consumer price index since 1955 was announced and nominal Treasury yields rose, which increased
inflation expectations, but detracted from TIPS return for the month.
While the easy money in TIPS may already have been made, returns are not the only benefit of adding TIPS to a welldiversified
portfolio. TIPS provide protection from both inflation and deflation, and can improve the efficient frontier
of a portfolio due to its low correlation to other asset classes. We would argue that with the current situation being one
of deflation, a return of the consumer price index back toward its recent average of approximately 2.5% and from a
longer-term perspective, a return back to its 50-year average of 4.1% is certainly not outside of the realm of possibilities
following the most massive monetary and fiscal stimulus ever witnessed in the era of fiat currencies.
As such, we believe that the expectations for inflation currently implied by the market underestimate the long-term
potential for inflation, and we anticipate a secular reversion back toward historical averages.
What if We Are Wrong and the U.S. Remains in a Deflationary Environment?
If the recent credit crisis has taught us one thing, it is that clients have re-evaluated the risk they are willing to take in
their portfolios. To that end, discussions with investors throughout various points in the crisis have led many to suggest
selling risk assets and buying Treasuries, despite the negative expected real returns they offer. To which our answer was
and remains, that the opportunity for adding Treasuries as a hedge against deflation has passed and the opportunity to
add risk assets and hedge those assets with inflation protection is present. There is a little known concept for TIPS
investors that should play well to those who are concerned about a period of lengthy deflation. That concept is known
as the deflationary floor feature.
The deflationary floor feature is also known as the par put, where the holder of the inflation linked bond receives the
greater of par multiplied by the CPI ratio or 100, at maturity. Thus, investors in TIPS enjoy an inflation-uplifted
principal if the change in the CPI is positive over the entire life of the bond, but receive 100 if the CPI is lower at
maturity than at issue. For those investors who worry about inflation, but dread deflation, TIPS offer another little
known concept in deflationary markets, known as a margin of safety. In other words, there is minimal risk of principal
loss in TIPS if held to maturity, although coupon payments received may decline. The fixed coupon rate stays constant
through the life of the TIPS, but because TIPS coupons are a fixed percentage of the principal, and deflation is
physically realized via principal that actually declines in a deflationary environment, the fixed coupon is computed on a
lower base amount as principal adjusts downward. In sum, the principal amount of the TIPS can decline in value to less
than 100 prior to maturity, and this feature is what can drive the effective coupon rate lower.
By comparison to nominal Treasuries, which we believe offer “return free risk” at current levels, the margin of safety
implied by allocating to TIPS is attractive. For example, a 10-Year TIPS yielding 1.65% on April 30, 2009 would
provide a return of 1.65% on April 30, 2019 if the environment remains deflationary for 10 years and the bond was
purchased at par. There is the potential for principal loss if an investor paid a significant premium for the bond.
Therefore, the downside risk on the bond is a positive absolute return and the upside potential, if there is inflation, will
be captured in the security.
© 2009 Fund Evaluation Group, LLC

Conclusion
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APRIL 2009
The never-ending ‘flation wars continue onward. While the U.S. economy is currently experiencing deflation, our
economic history suggests that these periods tend to be relatively short-lived. Indeed, Thomas Donlan, editorial page
editor at Barron’s, noted in a recent article that CPI is up 693% since 1955. In other words, the U.S. dollar retained just
12% of the purchasing power it had in 1955. 8 We believe that while today’s talk is deflation, the U.S. government is
planning on stopping at nothing to reflate the economy, focusing on stimulating aggregate demand in an effort to fight
deflation, and restore equilibrium real GDP and the aggregate price level.
With the sheer size and scope of monetary and fiscal stimulus measures at epic proportions, FEG believes that the point
of least resistance over the secular horizon will be inflation. Indeed, the Fed has had great difficulty “removing the
punch bowl” following recent recessions, and that was with significantly lower levels of fiscal and monetary stimulus as
a percentage of GDP. While nobody knows the future, we believe that the primary consequence of today’s government
actions will be higher inflation.
Furthermore, we believe that the time to buy an inflation hedge is not after inflation has already come to pass, but
before. After all, the premiums of buying a life insurance policy after one has begun to physically deteriorate are
significantly higher than when the same policy is purchased when one is well. Today, we are relatively well in terms of
implied inflation expectations, despite the recent pain felt in our portfolios. FEG believes clients should begin
considering making allocations to protect themselves from eventual inflation through the relatively inexpensive
insurance policy that TIPS represent.
1 Advisor Perspectives. Gary Shilling – Economic Forecast and Current Market Opportunities. Robert Huebscher, April 28, 2009.
2 U.S. Bureau of Economic Analysis. Personal Savings Rate as a percent of disposable personal income.
3 Stabilizing an Unstable Economy. Hyman P. Minsky. 1986. Yale University Press. Pages 34-35. Reprinted in 2008.
4 Grant’s Interest Rate Observer. April 3, 2009. Volume 27, No. 7.
5 Peace Building. Person of the Year: Barack Obama. Edward Luce. December 23, 2008
6 Grant’s Interest Rate Observer. May 1, 2009. Volume 27, No. 9.
7 Bernanke Bet on Keynes has Meltzer Seeing 1970s-Style Inflation. Rich Miller. April 13, 2009.
8 It’s Greek to All of Us. Thomas G. Donlan. Barron’s April 20, 2009
© 2009 Fund Evaluation Group, LLC

ECONOMIC UPDATE
Despite sluggish economic activity, consumer sentiment, as measured by the
Conference Board Consumer Confidence Index, posted an increase for the
month of April, at 39.2, up from 26.9 in March. 1 This increase is based on
consumer’s improvement in their own short-term outlook and belief that the
economy is near a bottom. While this increase in consumer confidence is not
commensurate with strong economic growth as seen historically, the
improvement does provide a more optimistic view about the future of the
economy. Consumer optimism may be due in part to a continual increase in
housing affordability over the past year. Pending home sales, a forwardlooking
indicator, increased 3.2% for the month of March and was 1.1%
higher than levels seen in March 2008. Momentum in the housing market
will take time to percolate through the country, however, as first time home
buyers are taking advantage of an $8,000 tax credit, favorable housing
affordability levels, and historic low interest rates. Mortgage rates averaged
approximately 4.8%-5.25% for a 30-year fixed mortgage since January. The
National Association of Realtors Housing Affordability Index remained near
record highs, as the index was 166.7 in March versus 135.9 one-year ago. 2
The Federal Open Market Committee (FOMC) did not change interest rates
at the most recent meeting on April 28-29, as the target range for the federal
funds rate remained between 0 to 0.25%. 3 The FOMC expects that economic
activity likely will remain weak and expects inflation will remain subdued
based on data such as household spending, job losses, tight credit and weak
sales prospects. 4 Personal income fell 0.3% in March and correspondingly,
personal consumption expenditures fell 0.2% simultaneously as
unemployment continued to steadily increase. 5 The unemployment level was
8.9% for April and since the recession started in December 2007, the U.S.
lost over 5.7 million jobs. 6 U.S. retail and food services sales fell 1.1% in
March and were 9.4% lower than the March 2008 level, due to lower auto and
gasoline sales. 7
Trepidation among investors started to ease with incremental positive news;
however, a recovery is likely to be slow and uncertain. Consumer stress
throughout the recession intensified with increasing unemployment as
consumers remain defensive, increase personal savings, and delay large luxury
purchases. While consumer sentiment has incrementally improved, sustained
economic development has not been realized. Low mortgage rates are critical
in aiding the recovery of the U.S. economy; however, the re-financing wave
and first time homebuyer surge could be threatened if Treasury yields
continue to rise and put upward pressure on mortgage rates.
1 The Conference Board. Information available from http://www.conference-board.org. 28 April 2009.
2 National Association of Realtors. Information available from http://www.realtor.org. Accessed 11 May
2009.
3 Board of Governors of the Federal Reserve System. Information available from http://
www.federalreserve.gov. Accessed 11 May 2009.
4 Ibid.
5 Bureau of Economic Analysis. Information available from http://www.bea.gov. 30 April 2009.
6 Bureau of Labor Statistics. Information available from http://www.bls.gov. Accessed on 11 May 2009.
7 U.S. Census Bureau. Information available from http://www.census.gov. 14 April 2009.
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Christina M. Sunderman
Research Analyst
APRIL 2009
“Momentum in the
housing market will take
time to percolate
through the country.”
© 2009 Fund Evaluation Group, LLC

DOMESTIC EQUITY
April was a continuation of the equity market rally that began in March, as
investor sentiment improved with better-than-expected corporate earnings
reports. Large, mid, and small capitalization indices, measured by the Russell
1000 Index, Russell Mid Cap Index, and Russell 2000 Index, each climbed
more than 10%, with small cap stocks posting the largest gain of 15.5%.
April’s 9.6% return also marked the largest monthly gain in the S&P 500
Index since March 2000. Value stocks outperformed growth stocks, as the
Russell 3000 Value Index posted a 11.1% return versus 10.0% for the Russell
3000 Growth Index. 1 Performance for the Russell indices in April and yearto-date
is shown in the chart below.
While the economic data released in April continued to be weak, the market
rallied for the second straight month. It is too early to tell if this is the start
of a new bull market or simply a bear market rally, but many investors saw an
attractive opportunity to invest in equities in anticipation of economic
improvement. The S&P 500 Index was broadly positive and the strongest
areas of the market were primarily the cyclical sectors, such as consumer
discretionary and industrials. 1 Economic data showed signs the economy was
shrinking at a slower pace than previously measured and led investors to
favor areas of the market that should benefit from an economic recovery. 2
Further stabilization of the credit markets also contributed to the improved
investor sentiment. Financials were among the best performing stocks across
all market capitalizations with American Express (+96.9%) and Bank of
America (+48.1%) posting strong gains. 3
Technology stocks continued to show signs of positive momentum, as the
sector (S&P 500) gained 12%. Technology benefitted from minimal debt
levels amid the financial crisis. Many technology companies do not rely on
borrowing to finance their operations, which proved beneficial during the
freeze of the credit markets. Additionally, technology companies often
provide products or services that improve operating efficiencies during an
economic recession. 4 Consumer discretionary stocks also posted strong
returns, gaining 18.5% in April. This was one of the most battered sectors in
the market, as consumer spending fell precipitously in 2008, but many of
these companies appeared attractively valued. 5 The health care sector was the
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Brian A. Hooper
Research Analyst
Jason A. Raiti
Research Analyst
Christina M. Sunderman
Research Analyst
APRIL 2009
“April marked the largest
monthly gain in the S&P
500 Index since March
2000.”
© 2009 Fund Evaluation Group, LLC

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APRIL 2009
worst performing sector and the only sector to post a negative return (-0.9%) in the S&P 500 Index. An increase in
selling pressure out of defensive areas of the market by investors hurt the sector, but the increased prospects of an
overhaul of the healthcare industry outlined by the Obama administration may have provided a greater headwind. The
release of the administration’s health care budget caused increased speculation that lower reimbursement rates from the
government would lead to significantly lower earnings for health care companies. 6
1 Lauricella, Tom. “Investors See Silver Lining, as Bad News Clouds Outlook.” The Wall Street Journal Online. 4 May 2009.
2 Slater, Joanna and Neil Shah. “Global Stock Rally Is Strongest Since 1991.” The Wall Street Journal Online. 1 May 2009.
3 Slater, Joanna and Neil Shah. “Stocks Rally as Bulls Seize Month.” The Wall Street Journal Online. 1 May 2009.
4 Kansas, Dave. “Why Tech Stocks Are on a Tear.” The Wall Street Journal Online. 3 May 2009.
5 Lauricella, Tom. “Can a Rally Last on Diet of Junk?.” The Wall Street Journal Online. 27 April 2009.
6 Information available from http://www.standardandpoors.com. Standard and Poors. Accessed on 11 May 2009.
© 2009 Fund Evaluation Group, LLC

INTERNATIONAL EQUITY
(All returns in U.S. dollars unless otherwise indicated)
International equity markets posted strong gains in April, turning some
segments of the international equity markets positive for the year.
International developed markets gained 12.8% for the month, as measured in
U.S. dollars by the MSCI EAFE Index. Returns were up slightly less, at
11.4%, when measured in local currencies due to a slight decline in the U.S.
dollar against some major currencies, most notably the British sterling.
Emerging market equities posted U.S. dollar returns of 16.6% in April, and
led all international equity returns for the year. Emerging market returns in
local currencies, up 12.8%, were less than returns in U.S. dollars, as most
emerging market currencies appreciated against the U.S. dollar, boosting
returns for U.S. investors. International small cap stocks, up 15.4% in U.S.
dollars, were essentially in-line with U.S. small cap stocks, which returned
15.5% for the month. The MSCI All Country World Ex-U.S. Index, which
includes both developed and emerging markets, returned 13.6% in U.S.
dollars. International value stocks, up 17.3%, were the strongest segment of
international equities and outperformed international growth stocks, which
gained 8.7%, as represented by the MSCI EAFE Value and MSCI EAFE
Growth Indices, respectively. Performance of the MSCI Indices through
April is shown in the following chart. 1
The European Central Bank, whose rate cuts have lagged other central banks,
cut its target interest rate in April by 0.25% points to 1.25%, a new low for
the bank. The Bank of England, whose rate is at 0.5%, held the rate steady
but announced that the planned quantitative easing of £75 billion should be
attained by June. The U.S. dollar rose slightly against the euro and declined
over 3% against the sterling for the month. The Japanese government
announced an additional stimulus package of $150 billion, while the Bank of
Japan (BoJ) kept the overnight lending rate at 0.1%. The U.S. dollar declined
0.5% against the yen in April. 2
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Gregory D. Houser, CFA
Vice President
Brian A. Hooper
Research Analyst
APRIL 2009
“Emerging market
economies benefitted
from the news following
the G-20 summit.”
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APRIL 2009
Emerging market economies benefitted from the news following the G-20 summit that International Monetary Fund
(IMF) resources would be boosted to $1 trillion with between $400 and $500 billion to support emerging economies. 3
The plans also included an increase to Special Drawing Rights quotas to aid foreign currency reserves and trade finance. 4
Most emerging market currencies strengthened against the U.S. dollar, with the most significant gains in the South African
rand (+10.9%), the Korean won (+6.2%), and the Brazilian real (+5.9%). 5
Developed Markets
In Europe, equities rose almost 14% in U.S. dollars, as the financials sector posted the strongest rally, returning 32% for
the month. Earnings reports indicated a return to profitability for both Credit Suisse and Deutsche Bank, which boosted
the sector. Consumer discretionary stocks rose 19.1%, as the German government extended the country’s car scrapping
bonus program to encourage the purchase of more efficient new cars and the U.K. announced a similar plan. Materials
and industrials also outperformed the broad market amid expectations of increased infrastructure spending. Health care
stocks were essentially flat for the month after Roche’s early April decline due to poor cancer drug test results. This was
later offset by increased government demand for Tamiflu, due to the swine flu outbreak. 6
While Japanese equities underperformed on a relative basis, they posted positive returns of 9.6% amid a difficult
economic environment. Despite a year-over-year decline in exports, March export data indicated a rise from February’s
measure, the first month-to-month increase in almost one year. Consumer discretionary stocks, up 21%, posted the
highest returns, due primarily to strong performance in the auto industry. Merger activity in both financials and
technology led to returns of approximately 9% for both sectors. Hong Kong equities returned 16.7%, as the technology
sector outperformed and property stocks responded to strong sales by Chinese property developer, China Overseas. In
Singapore, stocks were up 17.5%, led by financials and consumer sectors amid easing monetary policy to combat a record
decline of 19.7% in first quarter GDP.
Emerging Markets
Emerging market equities outperformed other international equity markets in April. IMF support and increased investor
demand for emerging equities drove returns for the industrials, financials, and consumer discretionary sectors, each of
which gained in excess of 20%, as export and manufacturing data improved.
Equities in Brazil outperformed other markets with consumer discretionary stocks, especially autos, posting returns over
35%. Brazilian financials also outperformed as lending activity increased in March. Despite struggling with containment
of the swine flu, Mexican equities returned almost 15% amid news of a request to the IMF for a line of credit and the use
of the swap line from the U.S. Federal Reserve.
In Russia, increasing oil prices lifted the market over 20%. Eastern European stocks, which suffered significantly during
the first quarter, outperformed with Poland and Hungary each rising in excess of 25%. Turkey returned 29.5% amid
discussions with the IMF for economic aid. Indian stocks rose almost 20%, as foreign investors increased investment in
the nation, leading to the Indian equity market’s best performance monthly in 10 years.
In China, equities were up 11% during the month, as China’s capital spending on fixed-asset investment in urban areas
rose over 30% and industrial production increased. Taiwan posted returns over 17% with the first Chinese investment in
a Taiwanese company since the civil war ended sixty years ago, and a relaxing of Chinese controls on Taiwanese
investments. 7 Better than expected shipping order reports boosted Korean stocks over 21%. Korean GDP turned
positive for the first quarter, as interest rate reductions and increased infrastructure spending improved the economic
environment. 8
1 Information available from http://www.mscibarra.com. MSCI Barra. Accessed on 7 May 2009.
2 “World Markets Review.” Capital Guardian Trust Company. (April 2009).
3 Slater, Joanna. “Emerging Markets Go on a Tear.” The Wall Street Journal Online. 13 April 2009.
4 Schweitzer, Stu and Efeyini, Ehiwario “Monthly Market Monitor.” J.P. Morgan Insights. (April 2009).
5 Bloomberg LP.
6 “World Markets Review.” Capital Guardian Trust Company. (April 2009).
7 “Investment Strategy Weekly.” Deutsche Bank. (4 May 2009).
8 “World Markets Review.” Capital Guardian Trust Company. (April 2009).
© 2009 Fund Evaluation Group, LLC

FIXED INCOME
Fixed income performance for the month of April can be summarized with
one word, risk. Risk sectors strongly outperformed nominal Treasuries and
Treasury Inflation Protected Securities (TIPS). While agency mortgagebacked
securities posted a slight return of 0.2% and Treasuries posted a
decline of 1.3%, investment grade corporate bonds gained 2.8%, leading the
Barclays Capital Aggregate Bond Index (BCAG) to a gain of 0.5% for April.
TIPS declined 1.9% during the month, as nominal rates rose and real yields
remained largely unchanged. On a year-to-date basis, the BCAG is up 0.6%,
with spreads sectors outperforming Treasuries in the first four months.
Lower Rated Bonds Outperform Higher Quality Bonds
Within credit, lower rated investment grade corporate bonds posted the
strongest performance, as BBB-rated companies gained 4.5% and A-rated
companies gained only 2.9%. While AA-rated corporate bonds were up 1.2%
in April, AAA-rated bonds actually declined 1.1%. On a year-to-date basis,
BBB-rated bonds gained 5.7%. A similar event of lower rated bonds
outperforming higher quality bonds took place in below investment grade
credit, as CA-D rated bonds gained an astounding 30.5% in April, CCC-rated
issues gained 19.2%, B-rated bonds returned 10.8%, and BB-rated bonds
returned 7.8%. The Barclays Capital High Yield Index gained 12.1% in April
and bank loans, as measured by the CSFB Leveraged Loan Index, gained
8.0%.
Default Rates Rise, Recoveries Mixed
The strong rallies of the riskiest credits during the month of April occurred in
the face of rising default rates. According to Credit Suisse, the trailing twelve
month default rate for high yield bonds reached 10.2% in April, and the
recovery rate for these bonds declined by 82 basis points to 26.3%. The
trailing twelve month default rate for bank loans rose to 6.6%, while
recoveries rose 1.5% to 44.2%, which is well below the historical average.
The total combined defaults between high yield and bank loan issuance was
$20 billion. 1
International Bond Returns Remain Beholden to U.S. Dollar
Strength
International bonds that were hedged to the U.S. dollar outperformed nondollar
denominated bonds, as the U.S. dollar declined slightly during April.
Emerging market bonds realized a much stronger month relative to
developed market sovereign debt, as the JP Morgan Emerging Market Bond
Plus Index gained 5.1% and the JP Morgan Global Bond Non-U.S., U.S.
Dollar Hedged Index posted flat returns.
1 Credit Suisse. Leveraged Finance Strategy Update. May 4, 2009.
information@feg.com
Page 13
Keith M. Berlin
Vice President
APRIL 2009
“The strong rallies of the
riskiest credits during
the month of April
occurred in the face of
rising default rates.”
© 2009 Fund Evaluation Group, LLC

REAL ESTATE SECURITIES
Domestic
Real estate investment trusts (REITs), as measured by the NAREIT Equity
Index, significantly outperformed the broad equity markets in April, with a
gain of 31%, versus a gain of 9.6% for the S&P 500 Index. 1 All of the major
property sectors experienced double-digit gains for the month, as U.S. equity
markets rebounded from their lows in early March and expectations for
stabilization in the broad economy led to an improving outlook for real
estate.
Real estate stocks, which had been plagued by liquidity concerns earlier in the
year, raised some $6 billion in new capital since March in a wave of
recapitalizations and debt refinancing, which stabilized their balance sheets
and demonstrated their ability to access the capital markets. 2 While dilutive to
existing shareholders, these offerings were viewed positively by the market
because they gave companies the necessary capital to manage debt maturities
in the coming year.
REITs also moved to deleverage through buying back their bonds, in many
cases at discounts to face value, with 16 REITs repurchasing a total of $3.9
billion in debt at a discounted price of $2.5 billion over the past six months. 3
Beyond the successful debt and equity issuances by REITs, the most notable
news during April was the announcement by General Growth Properties, one
of the largest mall operators in the U.S., that it would file for bankruptcy
protection after the company failed to restructure its massive debt load with
creditors. This news had little impact on the REIT market, however, as the
company’s bankruptcy had been widely anticipated for several months.
The hotel/lodging sector (+67.5%) was the top performing property sector
within the NAREIT Equity Index during April, as U.S. business travel
stabilized and investors anticipated a potential economic recovery. 4 Retail
(+43.5%) also outperformed, primarily due to rising consumer confidence
and better-than-expected first quarter retail sales. 5 The industrial sector
(+35.3%) benefited from a successful $1 billion equity offering by Prologis,
the largest company in the industrial sector. Conversely, defensive sectors
such as healthcare (+18.3%) and self storage (+21.9%), which outperformed
during the downturn, lagged the index in the rally during April.
information@feg.com
Page 14
Christian Busken
Vice President
APRIL 2009
“Real estate stocks,
which had been plagued
by liquidity concerns
earlier in the year, raised
some $6 billion in new
capital since March in a
wave of recapitalizations
and debt refinancing. ”
© 2009 Fund Evaluation Group, LLC

International
(All returns in U.S.-dollars)
information@feg.com
Page 15
APRIL 2009
International real estate securities underperformed domestic REITs in April, with the S&P Developed Property Ex-U.S.
Index gaining 15.2% versus a 31% gain for U.S. REITs. All major regions experienced positive returns, as investors
anticipated that economic stimulus measures would lead to stabilization in the global economy and real estate
companies in the U.S. and U.K. successfully raised equity and debt in an effort to strengthen their balance sheets.
Countries that had experienced significant declines due to liquidity concerns, most notably the U.K., outperformed in
April.
The Asia Pacific region (+13.3%) underperformed the international index during the month, primarily due to weakness
in Japan (+9.4%). Real estate fundamentals continued to soften, as the office vacancy rate in Tokyo reached its highest
level since 2005. 6 Australia (+12.9%) slightly underperformed, as credit markets remained tight and real estate
fundamentals were weak, with rising office vacancies and declining rents. Hong Kong (+16.9%) was the strongest
performing country within the Asia Pacific region and benefited from strength in stocks of development companies due
to favorable mortgage terms on residential projects. 7
© 2009 Fund Evaluation Group, LLC

information@feg.com
Page 16
APRIL 2009
Europe (+20.6%) was the strongest performing region in the international property market, led by gains in the U.K.
(+28%). Successful capital raisings by a number of U.K. companies strengthened their balance sheets. Transaction
activity also indicated that London property valuations may be stabilizing. 8 The amount of capital being raised by
REITs in the U.K. exceeded $3.8 billion, and gave real estate companies ample capital to manage liquidity needs. 9
Outside of the U.K., French real estate securities gained 14.2%, as consumer spending was better-than-expected,
contributing to strength in the retail sector.
1 All performance data from www.nareit.com and www.sp-indexdata.com.
2 Cohen & Steers Global Real Estate Securities Commentary, April 2009.
3 Hudson, Kris REITs Seize a Chance to Deleverage at Discounted Prices, The Wall Street Journal May 6, 2009.
4 Cohen & Steers Global Real Estate Securities Commentary: April 2009.
5-8 Ibid.
9 Boston, William, British REITs Stampede to Raise Capital; The Wall Street Journal; February 24, 2009.
© 2009 Fund Evaluation Group, LLC

HEDGE FUNDS
The broad hedge fund indices of the HFRI Fund Weighted Composite and
HFRI Fund of Funds Composite returned 3.8% and 0.7%, respectively
during the month of April. By way of comparison, the S&P 500 Index
returned 9.6% and the Barclays Capital Aggregate Bond Index returned 0.5%
in April. The S&P 500 enjoyed its best monthly return since 1991 as
investors brushed off concerns of the H1N1 Flu while awaiting the results of
the Federal Reserve’s stress tests of the 19 largest U.S. banks. On a year-todate
basis, however, the hedge fund indices remained ahead of their
traditional counterparts. The HFRI Fund Weighted Composite and HFRI
Fund of Funds Composite returned 4.2% and 1.1%, respectively through
April, versus -2.5% and 0.6% for the S&P 500 and Barclays Capital Aggregate
Bond.
The HFRI Equity Hedge (Total) Index was one of the strongest performing
subcomponents for the month, returning 6.4%. In general, managers within
Equity Hedge adopted a market neutral stance and reigned in market
exposures to near historic lows. While these low net exposures preserved
investor capital the first two months of the year, low exposures also
prevented managers from capturing the complete upside in the sharp rally of
last two months. While the HFRI Equity Hedge (Total) Index trailed the
S&P 500’s swift resurgence in March and April by approximately 8.6% points,
the index was coincidentally ahead of the S&P 500 by that same amount on a
year to date basis. The HFRI EH: Equity market Neutral Index was up 1.2%
for the month and as expected, short biased mangers suffered poor
performance. The HFRI EH: Short Bias Index declined 7.5% for April.
Equity volatility, as measured by the Chicago Board Options Exchange
(VIX), closed the month at 36.5. While considerably lower from the 41.1
close at the end of March, volatility levels remained at heighted levels when
contrasted to the five-year average of 20.0. Despite the volatility and low net
market exposures, equity managers sought to add alpha through security
selection as company and sector dispersion increased.
The HFRI Emerging Markets (Total) Index was the best performing
subcomponent in April, gaining 8.0%. Emerging markets continued their
strong performance from March as trillions of dollars were pledged to the
International Monetary Fund during the G20 Summit earlier in the month.
The IMF funds helped ameliorate investors’ fears in several emerging market
regions. The HFRI Emerging Markets: Latin America Index was the
strongest performer in April, gaining 12.8%. This was followed by the HFRI
Emerging Markets: Russia/Eastern European Index, return of 10.6%, and the
HFRI Emerging Markets: Asia ex-Japan Index, return of 7.0%.
The HFRI Relative Value (Total) Index increased 3.1% for April.
Convertible arbitrage managers maintained their impressive performance in
2009 as the HFRI RV: Fixed Income-Convertible Arbitrage Index gained
5.7% for the month and an 18.1% return for year.
information@feg.com
Page 17
J. Alan Lenahan, CFA
Managing Principal /
Director of Hedged Strategies
APRIL 2009
Gregory M. Dowling, CFA, CAIA
Managing Principal /
Director of Hedged Strategies
David L. Mason
Research Analyst
“Volatility levels remain
at heighted levels when
contrasted to the fiveyear
average.”
© 2009 Fund Evaluation Group, LLC

information@feg.com
Page 18
APRIL 2009
Managers focusing on distressed situations were strong performers in April, as the HFRI ED: Distressed/Restructuring
Index returned 4.4%. Leveraged loans in particular did well as the CSFB Leveraged Loan Index gained 8.0%. Managers
investing in lower quality credits on the capital structure benefitted as spreads narrowed significantly and the Barclays
Capital High Yield Index increased 12.1%.
The HFRI Macro (Total) Index was the lone negative major subcomponent, declining 0.4% for the month. Since the
beginning of the year, the Macro Index declined 1.4%. Sudden trend reversals in March continued into April, hurting
systematic traders. Commodities were mixed as oil moved above $50 per barrel, and precious metals sold off.
© 2009 Fund Evaluation Group, LLC

DISCLOSURES
Indices:
information@feg.com
Page 19
APRIL 2009
Russell Investments rank U.S. common stocks from largest to smallest market capitalization at each annual reconstitution period
(May 31). The primary Russell Indices are defined as follows: 1) the top 3,000 stocks become the Russell 3000 Index, 2) the
largest 1,000 stocks become the Russell 1000 Index, 3) the smallest 800 stocks in the Russell 1000 Index become the Russell
Midcap index, 4) the next 2,000 stocks become the Russell 2000 Index, 5) the smallest 1,000 in the Russell 2000 Index plus the
next smallest 1,000 comprise the Russell Microcap Index.
S&P 500 Index consists of 500 stocks chosen for market size, liquidity and industry group representation, among other factors by
the S&P Index Committee, which is a team of analysts and economists at Standard and Poor's. The S&P 500 is a market-value
weighted index, which means each stock's weight in the index is proportionate to its market value and is designed to be a leading
indicator of U.S. equities, and meant to reflect the risk/return characteristics of the large-cap universe.
Morgan Stanley Capital International – MSCI - A series of indices constructed by Morgan Stanley to help institutional investors
benchmark their returns. There are a wide range of indices created by Morgan Stanley covering a multitude of developed and
emerging economies and economic sectors.
Barclays Capital Fixed Income Indices – an index family comprised of the Barclays Capital Aggregate Index, Government/
Corporate Bond Index, Mortgage-Backed Securities Index, and Asset-Backed Securities Index, Municipal Index, High-Yield
Index, and others designed to represent the broad fixed income markets and sectors within constraints of maturity and minimum
outstanding par value.
The FTSE NAREIT Composite Index (NAREIT Index) includes only those companies that meet minimum size, liquidity and
free float criteria as set forth by FTSE and is meant as a broad representation of publicly traded REIT securities in the U.S.
Relevant real estate activities are defined as the ownership, disposure, and development of income-producing real estate.
The HFRI Monthly Indices (HFRI) are equally weighted performance indexes, compiled by Hedge Fund Research Inc., and are
used by numerous hedge fund managers as a benchmark for their own hedge funds. The HFRI are broken down into 37
different categories by strategy, including the HFRI Fund Weighted Composite, which accounts for over 2000 funds listed on the
internal HFR Database. The HFRI Fund of Funds Composite Index is an equal weighted, net of fee, index composed of
approximately 800 fund of funds which report to HFR. See www.hedgefundresearch.com for more information on index
construction.
This report was prepared by Fund Evaluation Group, LLC (FEG) − an investment adviser registered under the Investment
Advisers Act of 1940, as amended − providing non-discretionary and discretionary investment advice to its clients on an
individual basis.
The information herein was obtained from various sources. FEG does not guarantee the accuracy or completeness of such
information provided by third parties. The information in this report is given as of the date indicated and believed to be
reliable. FEG assumes no obligation to update this information, or to advise on further developments relating to it.
Index performance results do not represent any managed portfolio returns. An investor cannot invest directly in a presented
index, as an investment vehicle replicating an index would be required. An index does not charge management fees or brokerage
expenses, and no such fees or expenses were deducted from the performance shown.
Neither the information nor any opinion expressed in this report constitutes an offer, or an invitation to make an offer, to buy or
sell any securities. FEG, its affiliates, directors, officers, employees, employee benefit programs and client accounts may have a
long position in any securities of issuers discussed in this report.
Any return expectations provided are not intended as, and must not be regarded as, a representation, warranty or predication that
the investment will achieve any particular rate of return over any particular time period or that investors will not incur losses.
Past performance is not indicative of future results.
This report is prepared for general circulation and information only. It does not address specific investment objectives, or the
financial situation and the particular needs of any person.
© 2009 Fund Evaluation Group, LLC

RESEARCH TEAM
James W. Angelica
jangelica@feg.com / (317) 615-7454
Keith M. Berlin
kberlin@feg.com / (513) 719-5140
Christian S. Busken
cbusken@feg.com / (513) 719-5142
Gregory M. Dowling, CFA, CAIA
gdowling@feg.com / (513) 719-5058
Susan Mahan Fasig, CFA
sfasig@feg.com / (317) 615-7454
Brian Hooper
bhooper@feg.com / (513) 719-5109
Gregory D. Houser, CFA
ghouser@feg.com / (513) 719-5054
J. Alan Lenahan, CFA
alenahan@feg.com / (513) 719-5057
David L. Mason
dmason@feg.com / (513) 719-5048
Christopher M. Meyer, CFA
cmeyer@feg.com / (513) 719-5134
Michael J. Oyster, CFA
moyster@feg.com / (513) 719-5120
Thomas S. Porter
Jason A. Raiti
jraiti@feg.com / (513) 719-5144
J. David Stein
dstein@feg.com / (208) 656-9933
Christina M. Sunderman
csunderman@feg.com / (513) 719-5127
Nathan C. Werner
nwerner@feg.com / (317) 615-7454
Ryan S. Wheeler
rwheeler@feg.com / (513) 719-5073
information@feg.com
Senior Research Analyst - Alternative Investments
M.B.A. in Finance, Fordham University
B.S. in Business Administration, Providence College
Vice President - Global Fixed Income and Credit
M.B.A., Thomas More College
B.A. in Economics, University of Kentucky
Vice President - Real Assets
M.B.A., Thunderbird - The American Graduate School of International Management
B.A. in International Relations, Brigham Young University
Managing Principal / Director of Hedged Strategies
M.B.A. in Business Administration, Xavier University
B.S.B.A. in Business Administration, University of Cincinnati
Managing Principal / Director of Alternative Investments
B.A. in Economics, DePauw University
Research Analyst - Domestic and International Equities
B.S. in Economics and Finance, University of Dayton
Vice President - Global Equities and Fixed Income
M.B.A. in Finance, Katz Graduate School of Business, University of Pittsburgh
B.S. in Finance and General Business, Miami University
Managing Principal / Director of Hedged Strategies
B.S.B.A. in Finance and Marketing, Xavier University
Research Analyst - Hedged Strategies
M.B.A. candidate, Xavier University
B.S.B.A. in Finance, University of Cincinnati
CAIA Program level II candidate
Managing Principal / Chief Investment Officer
M.B.A. in Finance, The Ohio State University
B.S. in Statistics and Economics, University of Akron
Managing Principal
B.B.A. in Finance, University of Cincinnati
Private Equity - Senior Advisor
M.B.A. University of Michigan
B.A. DePauw University
Research Analyst - Domestic Equity and REITs
B.A. in Economic, Dartmouth College
CFA Program level III candidate
Managing Principal / Chief Portfolio Strategist - FEG Advisors
M.B.A. in Finance, Miami University
B.B.A. in Finance, University of Cincinnati
Research Analyst - Domestic Value Equity
M.B.A. candidate, Xavier University
B.S. in Finance, Miami University
CFA Program level I
Vice President - Alternative Investments
M.B.A. in Finance, Indiana University
B.A. in Economics, DePauw University
CFA Program level III candidate
Research Analyst - Alternative Investments
M.F.E..candidate, Ohio University
B.B.A. in Finance, University of Cincinnati
CFA Program level I candidate
CAIA Program level II candidate
Page 20
APRIL 2009
© 2009 Fund Evaluation Group, LLC