1. MARKET REVIEW AND ECONOMIC OUTLOOK 2012Q1 2011 saw the market gyrate with nearly unprecedented volatility which, in the end, was sound and fury signifying almost nothing. For example, in 2011, the S&P 500 had 72 daily drops of 0.50% or more, which represented nearly 1 out of every 3 trading days. The S&P 500 closed on December 31, 2010 at 1257.64. One year later, despite seeing highs of 1370.58 and a low of 1074.77, which was a 27% range, the S&P 500 finished the year almost exactly where it began, at 1257.60. While the 4 th quarter saw solid gains with both the S&P 500 and Russell 1000 gaining 11.8%, for the entire year the S&P 500 returned a meager 2.11% and the Russell 1000 1.50%. Last year was also a historically difficult year for money managers and we were no exception. In fact, only 17% of large-cap mutual funds outperformed the S&P 500 in 2011, the lowest percentage in 14 years. Every manager’s long- term record is made up of short-term periods of both over and under performance. Last year, for us, was the latter. However, as shown in the chart below, we are still proud of our long term record of outperformance and adding value after all fees and expenses on behalf of our clients. Time Period Bowling LCCV Net S&P 500 Index 10 Year44.50%33.35% 15 Year151.77%121.68% 20 Year460.32%350.13% Inception*1184.17%773.80% *Inception 1/1/88 The fundamental reasons behind our underperformance in 2011 can be traced to two areas. One has to do with the technical aspects of how the S&P 500 is comprised, and the other relates to the significant outperformance of growth stocks in 2011. The S&P 500 is what can be referred to as a market-cap weighted index. In simple terms, this means that the representation of each company in the index is weighted based on the size of the company. So companies like Apple and Exxon end up being a very large percentage of the index (over 3% for each of these companies), while the smallest companies in the index are weighted at less than 0.01%. In other words, if you invested $500 in the S&P 500 index, you would NOT end up with $1 in each of the 500 companies in the index. Instead you would end up with over $20 in Apple and less than a nickel in the smallest S&P 500 companies. If you break out our 2011 performance in more detail, virtually all of our underperformance can be traced to the 3rd quarter of 2011. This was a historically volatile period during which the Dow Jones Industrial Average experienced swings of 400 points for 4 days in a row, the first time in history this has occurred. During volatile times like these, investors tend to place a significant premium on safety and liquidity, rather than investing in companies that have the best long-term return potential. Thus, money tends to gravitate fairly quickly to the largest companies (mega-caps), which makes it extremely difficult to outperform a market-cap weighted index like the S&P 500.

2. FIRST QUARTER 2012 MARKET OUTLOOK Holding2011 Return% Weighting in S&P 500 Apple25.56%3.55% Exxon Mobil18.71%3.29% IBM27.42%1.89% Microsoft-4.56%1.85% Chevron20.28%1.70% Johnson & Johnson 9.89%1.65% P&G 7.04%1.60% AT&T 6.72%1.57% GE 1.26%1.56% Coca-Cola 9.44%1.45% Avg. = 11.89%Total = 20.11% Source: Standard and Poors for sector percentages, Thomson for stock returns, Zephyr for sector returns. These ten companies make up approximately 20% of the S&P 500 market weight. An equal weighted portfolio of these 10 companies would have returned 11.89% in 2011, compared to relatively flat performance for the S&P 500. To put that in perspective, roughly 70% of the holdings in the S&P 500 underperformed an equally weighted portfolio of the 10 holdings above. One other factor that hurt us in 2011 was the significant outperformance of growth stocks versus value stocks. For the year, the S&P 500 Growth Index was up 4.65%, versus the S&P 500 Value at -0.48%. This is a difference of over 5%, a very high gap. Over time our value bent has served us and our clients well, but we will experience periods from time to time where growth stocks do better. Thus, there were basically 4 ways for a large cap manager to outperform in 2011: 1. Concentrate the portfolio into the mega cap names listed above. 2. Concentrate the portfolio into growth stocks. 3. Time the market by moving money into and out of cash at the right times. 4. Get very, very lucky. Bowling’s process has historically not attempted to do 1, 2, or 3, and 4 didn’t happen for us last year. Economy Firming After slowing a bit in the 3rd quarter, the U.S. economy showed signs of firming throughout the 4th quarter. GDP accelerated to 2.8% in the 4th quarter, up from 2.5% in the 3rd quarter and 0.9% for the first half of the year. This was the fastest quarterly growth in 1 ½ years. Corporate profits advanced 16% for the year. Consumer confidence readings accelerated into year-end, and have now increased for 3 consecutive months. Initial jobless claims dropped by 50,000 last week, the largest weekly decline since 2005. Overall, economic readings have been beating expectations for the better part of 4 months. To further illustrate the impact of the mega-caps on the S&P 500 index returns in 2011, the following chart shows the top 10 holdings in the cap-weighted S&P 500.

3. FIRST QUARTER 2012 MARKET OUTLOOK Housing is one closely watched area that may be close to turning the corner. New home sales, housing starts, and building permits all tend to be fairly volatile indicators, but are starting to show consistent signs of growth with higher lows and higher highs being the norm. While housing prices continued to fall in 2011, the decline was modest, and currently the inventory of homes available for sale is the lowest in over 5 years. Manufacturing has been another bright spot, with industrial production growth in-line with historical averages. Consumer spending and income are at pre-crisis levels. Initial unemployment claims, while still elevated compared to historical levels, are down 50% from the peak of the financial crisis and are trending in the right direction. Stock Market Review The 16% advance in profits combined with flattish stock prices for the year reduced the trailing Price/Earnings ratio of the S&P 500 to levels which continue to be well below historical norms (13 at the end of 2011). To put that in perspective, the market would have to rally 18% to get back to the historical average P/E ratio of 15.4. The market is currently trading at just over 2 times book value, and would have to rally 19% to get its historical Price/Book average of 2.4. The dividend yield on the S&P 500 is currently higher than the rate on the 10-year Treasury. This has only happened once in the last 50 years; during the recent financial crisis, which turned out to be a pretty good time to invest money in the market. As a long term investor, would it be preferable to own a 10-year Treasury that caps your annual return at less than 2%, or own a portfolio of stocks that provides both higher income and higher potential long-term growth? In 2011, the number of shares outstanding in the U.S. markets declined as corporations repurchased a staggering $397 billion of stock, underscoring the strength of corporate balance sheets. These buybacks are a no- brainer for U.S. corporations and will likely continue, based on the unprecedented access companies have to cheap capital (i.e. low bond yields), combined with historically low stock valuations. As bond returns begin to disappoint investors, we could easily see a situation where an increasing number of investors are chasing fewer and fewer shares. The longer term view looks even better for high quality U.S. stocks. We are coming off a 10-year period that saw negative stock returns, which is an extremely rare event. This has only happened one other time, during the Great Depression, and came close to a negative 10-year return in the early 1970’s. On both of these other occasions, stocks averaged double digit annual returns over the following decade. As an example of the kind of bargains that now abound, Apple, one of our current portfolio holdings, now has close to $100 billion in cash. To put that in perspective, that would be enough to cover Greece’s debt payments for the next 2 years. There are over 10,000 companies listed on the U.S. stock exchanges, and with the exception of the 24 biggest, Apple now has enough cash to buy any of them It’s All Relative In addition to the attractiveness of large cap stocks as measured in absolute terms, we also believe that U.S. stocks are growing more attractive by the day on a relative basis. One thing we know with certainty is that there is an unprecedented amount of liquidity in the world right now. Short-term rates are near zero and can’t go down much further. The number of Russell 1000 companies with dividend yields higher than the 10-year Treasury is back to levels last seen during the financial crisis in early 2009. The risk premium for the S&P 500, defined as the stock market earnings yield minus the 10-year Treasury yield, is near an all-time high and is twice the historical average. The last time the risk premium spiked to current levels was in 1974. In 1975-76 the S&P 500 returned a cumulative 60%. Individual investors, pension funds, and institutional investors are all looking for a return on their money, and most of the alternatives to large, high-quality U.S. stocks aren’t pretty. It seems inconceivable to us that investors will continue to accept a negative real return on fixed income investments (bonds, CDs, etc.) over the long run. Europe is making our problems look manageable. Emerging markets have actually underperformed the S&P 500 over the last 4 years, as the highly touted “decoupling” of these countries has failed to occur, with the U.S. still being the main driver of consumption in the world. Real estate seems to be stabilizing, but over the long term has only provided returns

4. FIRST QUARTER 2012 MARKET OUTLOOK BOWLING PORTFOLIO MANAGEMENT LLC 4030 SMITH ROAD SUITE 140 CINCINNATI, OH 45209 (513) 871-7776 WWW.BOWLINGPM.COMWWW.BOWLINGPM.COM This report is provided for informational purposes only and should not be construed as a recommendation for the purchase or sale of any security nor should it be construed as a recommendation of any investment strategy. There is no guarantee that any opinion, forecast, estimate or objective will be achieved. Certain information has been obtained from sources that we believe to be reliable: however, we do not guarantee the accuracy or completeness of such information. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. 2012 Q1 U.S. Stock Market Outperformance With the high level of volatility experienced over the past couple of years, one fact that is lost on many investors is that the U.S. has significantly outperformed most other stock markets around the world. In 2011, the U.S. stock market was the only developed market in the world that didn’t experience a loss. In fact, the second best performing developed market in the world (Britain), trailed the U.S. market by over 5.5%. Japan was down 17%, Canada was down 11%, and Germany was down 14%. The U.S. market has also outperformed both the Emerging Markets and EAFA Developed International Indexes over the trailing 3-year period. In 2011, there were only 10 countries whose stock exchanges gained global market share in 2010. The U.S. saw the biggest increase by far, with a 2.9% increase. The second biggest increase in total global stock market share went to Russia, with a 0.46% increase. Clearly, investors still see the U.S. as the safest market in the world. The period from 2000-2008 saw unprecedented outperformance in international stock markets (compared to the U.S. market). This was partly due to growth in those markets, partly due to a declining U.S. dollar, and partly due to the fact that the S&P 500 was trading at over 30x earnings back at the beginning of 2000. As we write this letter today, the S&P 500 is trading at 13x earnings, the U.S. dollar is strengthening, and companies in the U.S. are participating in global growth with close to half the S&P 500’s revenues coming from outside the U.S. When you add all this up, and factor in the previously mentioned statistical attractiveness, it’s hard for us to find a better alternative to high-quality, U.S. stocks for a long-term investor. From a statistical standpoint, it’s hard to find an absolute or relative valuation metric that doesn’t point to U.S. large cap stocks looking fairly cheap. approaching the rate of inflation. Commodities and precious metals have done well in recent years, but it’s anybody’s guess how long that will continue. The Path of Least Resistance In 1946, at the end of World War II, the debt-to-GDP ratio peaked at 122%, even higher than the current ratio of around 100%. The Fed response in the 1940’s was to keep interest rates low for an extended period of time, not beginning to raise rates until well into the 1950’s. This extended period of artificially low rates subsequently increased inflation, which resulted in capital losses for bondholders, not to mention a significant loss of purchasing power. Stock holders, however, did exceptionally well during this period, with the Dow Jones Industrial Average price index gaining 285% during the 12 years following the end of the war, and this doesn’t even count dividends! Today’s Fed seems to be telegraphing explicitly that they are taking a page from this playbook, which brings to mind the axiom “Don’t Fight the Fed.” In fact, as we write this letter the Fed has just announced that rates “are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.” The overwhelming majority of our government debt is fixed rate securities with very low yields, while the government’s future revenues (taxes) are variable. Allowing moderate levels of inflation would increase the government’s future revenues as higher price levels flow through corporate and individual tax returns. Stocks are one of the few assets that have outperformed inflation over the long run.