Market Commentary

---

Market Commentary Summer 2010

Table of Contents 2010 Year-to-Date (YTD) Market Review

DOW 11,000 – Now What?

1



2010 YTD Major Index Performance Summary

3



2010 YTD U.S. Style Index Performance Summary

3

2010 Remaining Market Outlook

Is this Recovery Sustainable?

4



Unemployment

5



Residential Real Estate

7



Consumer Spending

9



Interest Rates

11



Sovereign Debt Concerns

12



Portfolio Management Ideas to Consider

14



Conclusion

15

2010 Year-to-Date (“YTD”) Market Review DOW 11,000 – Now What? The 1st quarter of 2010 saw the equity markets continue to build upon their dramatic recovery efforts that began when this most recent bear market hit bottom on March 9, 2009. While the stock market was not able to keep pace with the rapid ascents observed during the last three quarters of 2009, the lack of a significant pullback has many investors feeling cautiously optimistic about the prospects for future growth in the markets. The DJIA crossed 11,000 – a significant milestone in the continuing recovery of this widely recognized U.S. blue-chip index. In fact, the last time the DOW closed above 11,000 was back on September 26, 2008. However, before everyone starts to uncork their champagne bottles, we, at Hennion & Walsh, would suggest that it is too soon to signal “all-clear” for the equity markets and too soon to declare an official end to this current U.S. recession. With respect to the economy, the National Bureau of Economic Research (”NBER”), which identified the beginning of this recession as starting in December 2007, recently stated that, “…even though most indicators have turned up, the committee decided that the determination of a trough date on the basis of current data would be premature.” While we would agree with the NBER sentiment, we find one piece of current data related to manufacturing that is very intriguing. The Institute for Supply Management (”ISM”) Manufacturing Inventory Index increased in March to the highest level that it has reached since 1984. According to Keith Hembre of FAF Advisors in the April 2010 edition of Review & Outlook, “The ISM Manufacturing Index has historically displayed a high level of correlation with financial markets, as it is a key indicator of cyclical strength in the broader economy.” With respect to the equity markets, we would suggest that the days of heightened volatility are not behind us and the domestic equity markets will struggle in this transition year to find the next catalyst to add further fuel to the meteoric rise that the markets have experienced since the March 9, 2009 low was reached. A strong rise in corporate profits, driven by sales as opposed to revenue increases, could be just this catalyst as it would suggest that individuals, and businesses, are starting to spend again.

...we would suggest that the days of heightened volatility are not behind us...



Regardless, results from the first quarter of 2010 were strong across the board for the capital markets. In terms of domestic equity markets, during the quarter, the Dow Jones Industrial Average (“DJIA”) index rose 4.82% and the S&P 500 index rose 5.39%. While still positive, international equity markets did not fare as well as domestic equity markets as evidenced by the MSCI EAFE (Net) index increase of 0.87% during the quarter and the MSCI EM Emerging Markets (Net) index advance of 2.41% during the quarter. Fixed income markets were also positive for the first quarter of 2010 with High Yield and Convertible Bonds leading the way. For example, the Merrill Lynch High Yield Master II (HOAO) index increased by 4.82% and the Merrill Lynch Convertible Securities (VOAO) index advanced 5.30% over the course of the first three months of the new-year. Other fixed income markets did not fare as well but still posted attractive returns as evidenced by the 1.78% quarterly gain of the Barclays Capital US Aggregate Bond index and the Barclays Capital Muni Bond index increase of 1.25% during the first quarter. In terms of asset classes, Equities outperformed Bonds in the 1st quarter of 2010 as they did for all of 2009 as well. Defying their historically non-correlated relationship, Bonds and Equities both advanced during the first quarter of 2010, which once again highlights the apparent trepidation among investors with respect to what amount of risk they are comfortable assuming in the market following the historic declines of 2008 and early 2009. In terms of sub-asset classes, Small Cap beat out its Mid-Cap and Large Cap counterparts in the 1st quarter of 2010. To better understand the often-cited differences between these different capitalizations, and associated benchmark indexes, please refer to the chart below.

Sub-Asset Class Large Cap Mid-Cap Small Cap

Market Capitalization Greater than $10 Billion Between $2 Billion and $10 Billion Less than $2 Billion

Benchmark Index S&P 500 Index Russell Mid-Cap Index Russell 2000 Index

Additionally, during the 1st quarter of 2010, in a reversal of what occurred during 2009, Value outpaced Growth. This trend, if it continues, could suggest that investors feel a pullback in the markets is inevitable and that volatility will remain high. Such a market environment would tend to favor value oriented investment strategies over growth oriented investment strategies. As we look to the different geographies of the world, the U.S. has reclaimed its position on top of the global investment return scorecard. While certain emerging market countries may have outperformed the U.S., the international developed markets and international emerging markets, as a whole, have underperformed the U.S. markets, as measured by their associated benchmark indexes, following their dramatic increases in 2009.



Here’s a recap of how the major indexes performed thus far in 2010:

2010 YTD Major Index Performance Summary Index S&P 500 Index Dow Jones Industrial Average Index NASDAQ Composite Index MSCI EAFE Index (Net) MSCI EM Emerging Markets Index (Net) Barclays Capital U.S. Government/Credit Bond Index Barclays Capital Aggregate Bond Index Barclays Capital U.S. Municipal Bond Index

2010 Year-to-Date % Rate of Return 5.39% 4.82% 5.91% 0.87% 2.41% 1.55% 1.78% 1.25%

Source: Wells Fargo Advisors. Performance data is as of March 31, 2010. Past performance is not an indication of future results.

2010 YTD U.S. Style Index Performance Summary Index Russell 1000 Index Russell 1000 Growth Index Russell 1000 Value Index Russell Midcap Index Russell Midcap Growth Index Russell Midcap Value Index Russell 2000 Index Russell 2000 Growth Index Russell 2000 Value Index

Asset Class 2010 Year-to-Date % Rate of Return U.S. Large-Cap Core 5.70% U.S. Large-Cap Growth 4.65% U.S. Large-Cap Value 6.78% U.S. Mid-Cap Core 8.67% U.S. Mid-Cap Growth 7.67% U.S. Mid-Cap Value 9.61% U.S. Small-Cap Core 8.85% U.S. Small-Cap Growth 7.61% U.S. Small-Cap Value 10.02%

Source: Wells Fargo Advisors. Performance data is as of March 31, 2010. Past performance is not an indication of future results



2010 Market Outlook Is this Recovery Sustainable? It is our belief that economic growth will be muted in the U.S. in 2010 and that a significant dent into the historically high, current level of unemployment will not be accomplished. According to the Bureau of Labor Statistics, the current U-3 unemployment rate stands at 9.7%. However, when one considers the wider encompassing U-6 unemployment rate, which counts not only people without work seeking full-time employment (the more familiar U-3 rate), but also counts marginally attached workers and those working part-time for economic reasons, of 16.9%, it begins to become very difficult to imagine a scenario where consumers will start to spend at the levels needed to build a sustainable economic recovery. As a result, the Federal Reserve will continue to find it challenging to raise interest rates, although inflationary concerns may present cause for them to do so. Volatility will likely stay at elevated levels during the second quarter of 2010 and the likelihood of several short term pullbacks has increased in our opinion. Accordingly, we believe that it is appropriate for investors, working with their financial advisors, to consider adding a wider range of asset classes to their strategies given the uncertainty in the markets in the months ahead during what will likely be a transition year for the markets.

...consider adding a wider range of asset classes to their strategies given the uncertainty in the markets in the months ahead... In this regard, we drill down into some critical areas (listed below) that have shaped our own current market outlook. • • • • •

Unemployment Residential Real Estate Consumer Spending Interest Rates Sovereign Debt Concerns

We will then finish this market commentary with some portfolio management ideas for your consideration, including an update on the growing popularity of Exchange-traded Products (“ETPs”), and a reminder of the importance of asset allocation and rebalancing in a long-term portfolio strategy.



Unemployment We believe that it will take more than a decade to arrive back at a point of full employment, which is generally defined as a national unemployment rate between 3% - 4% in our country. Our belief is based on the understanding that the United States economic engine is no longer driven by manufacturing but rather is now directed by services and innovation. Without a manufacturing backbone to support the recovery from this most recent dramatic recession, it will be difficult for the service sector to supply the amount of jobs needed to get from where we stand today (with a U-3 unemployment rate of 9.7%) to a state of full employment.

We believe that it will take more than a decade to arrive back at point of full employment... Our belief if given further statistical credence by Okun’s Law, which measures the relationship between changes in Gross Domestic Product (“GDP”) and unemployment. According to Okun’s Law, a 3% decline in GDP would translate to a 1% increase in unemployment. This ratio may still not hold true in today’s economy as evidenced by a recent estimate by Business News on January 31, 2010, which suggested that for unemployment to be reduced by even 1%, GDP would need to grow at an annualized rate of 5%. With most economists forecasting annual GDP growth rates of approximately 2.5%, this alone would suggest a 10 + year period to get back to full employment – assuming, of course, that any new jobs will go to existing unemployed American workers. Complicating matters even further for the floundering U.S. economic recovery, is the wider ranging U-6 unemployment rate which currently stands at 16.9%. This means that nearly 1 in every 5 able Americans is not working and likely spending less than they did in previous years (more on this later). We still contend that the prospects for a sustainable jobless recovery are not realistic.

...nearly 1 in every 5 able Americans is not working...



Unemployment Rate – U3 2000 - 2010 12

10

8

6

4

2

0 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2004

2005

2006

2007

2008

2009

2010

VS. Unemployment Rate - U6 2000 - 2010 20 18 16 14 12 10 8 6 4 2 0 2000

2001

2002

2003

Source: Portal Seven, March 2010



Residential Real Estate Despite a multi-month string of existing home sale increases, many economists believe that the housing recovery is still on a slippery slope. Existing home sales, which represent completed residential real estate transactions involving single family homes, townhomes, condominiums and co-ops, decreased by 0.6% in February. This report provided further fuel to those who believe that additional defaults are looming and that a great deal of the pick-up in existing home sales over the past eight months can be attributed to home buyer tax credit programs. As with housing marketability, the adage of location, location, location also applies to this residential real estate recovery. Geography and price range clearly are having an impact on the current attempt at a national recovery in the real estate market. As the charts below from the National Association of Realtors® suggest, sales of more expensive homes (i.e. $750,000 or greater) have increased significantly in the past year and the Western region of the country is lagging the rest of the nation in less expensive homes (i.e. less than $100,000) but keeping pace in other price ranges.

...the adage of location, location, location also applies to this residential real estate recovery.

Regional Sales by Price, Existing Single Family Homes, February 2010 % Change in Sales from 1 Year Ago Region Northeast Midwest South West U.S.

$0-100K -1.1% 6.9% 9.1% -15.8% 3.1%

$100-250K 250-500K 6.3% 10.3% 6.0% 4.5% 1.9% -0.9% 7.1% -1.4% 4.7% 2.4%



500-750K 12.7% -4.8% 1.8% 25.0% 11.6%

750-1M 36.5% 23.1% 28.2% 53.3% 39.6%

$1M+ 48.8% 4.8% 30.2% 39.8% 35.5%

February Metro Area Existing Single-Family Home Sales and Prices # MSA 1 Atlanta 2 Baltimore 3 Boston 4 Cincinnati 5 Dallas 6 Houston 7 Indianapolis 8 Kansas City 9 Miami/Ft. Lauderdale 10 Minneapolis 11 New Orleans 12 New York 13 Philadelphia 14 Phoenix 15 Pittsburgh 16 Portland 17 San Antonio 18 San Diego 19 St. Louis 20 Washington DC

Median Price Feb-09 Feb-10 114,300 110,100 255,100 236,200 299,600 315,800 108,000 120,400 137,300 139,700 138,900 147,500 96,000 101,800 128,200 122,000 206,300 190,900 150,000 159,000 154,400 157,700 379,400 382,600 198,600 206,500 128,200 139,400 99,300 109,400 255,600 234,200 145,100 142,400 n/a 349,500 99,400 102,700 271,700 290,600

% Change from 1 Year Ago Price Sales -3.7% -3.7% -7.4% 8.3% 5.4% 15.1% 11.5% -19.0% 1.7% -2.8% 6.2% -4.9% 6.0% 39.5% -4.8% -4.1% -7.5% 21.0% 6.0% 4.2% 2.1% -20.6% 0.8% 12.8% 4.0% -2.0% 8.7% -2.9% 10.2% -0.1% -8.4% 25.1% -1.9% 8.3% n/a -4.3% 3.3% -1.3% 7.0% -8.1%

*All data reported herein is unadjusted for seasonality **NOTE: There may be differences between this data and locally reported data because of differences in geographic coverage area and housing types. ©2009 NATIONAL ASSOCIATION OF REALTORS®

Clearly the existing-home sales trends have been promising over the last year. However, there is another often overlooked real estate statistic that gives us even more reason for optimism on this front. That statistic is pending home sales. Pending home sales, which represent sales of existing homes where contracts have been signed but the transaction has yet to be completed, are often viewed as a leading indicator of the housing sector. In February, pending home sales rose 8.2%. We believe that this could suggest that a second wave of much needed home sales activity may be ahead of us this year. The continued recovery of the residential real estate market in addition to a reduction of foreclosure activity in the commercial real estate market, are needed for the U.S. economy to mount a sustainable recovery for both economic and psychological reasons.



Consumer Spending Here is how we view the effect of consumer spending patterns on the U.S. economy.

t



Consumer Spending

t

Unemployment

t



Consumer Confidence



GDP Growth

t



t

Corporate Earnings

As unemployment increases, consumer confidence decreases. As consumer confidence decreases, consumer spending decreases. As consumer spending decreases, corporate earnings decrease – absent any efficiency gains or work force reductions. As corporate earnings decrease, GDP growth decreases. All of this leads to either more unemployment or a stagnant employment picture for some period of time. Something has to give to change this vicious cycle and we believe that the catalyst could be consumer spending as consumer spending accounts for over 70% of economic growth in our country. Despite some recent encouraging reports related to consumer spending, consumer spending behavior is clearly still suffering from the recession that began in December of 2007. According to a fairly recent ChangeWave Research survey, 37% of the individuals surveyed expected to spend less over the first 90 days of 2010 than they did over the same timeframe last year while only 25% believe that they will actually spend more. We do not see this trend changing significantly anytime soon.



Overall Consumer Spending Results Last 3 Years Comparisons Nov ‘06 - Dec ‘09 ‘Would you say your overall spending over the next 90 days will be more than last year, less than last year or the same as last year?’ Spending Less Spending More 70% 60% 50% 40% 30% 20% 10% 0% N J M M J A S N J F A M J A S N D J F M A M J J A S O N D ‘06 ‘07 ‘07 ‘07 ‘07 ‘07 ‘07 ‘07 ‘08 ‘08 ‘08 ‘08 ‘08 ‘08 ‘08 ‘08 ‘08 ‘09 ‘09 ‘09 ‘09 ‘09 ‘09 ‘09 ‘09 ‘09 ‘09 ‘09 ‘09 Source: ©2009 ChangeWave Research

With unemployment still a concern, buyers will spend but with great restraint. We are not alone in our less than glowing consumer spending forecast as a recent Nielson Company survey concluded, “Consumers will continue to be cautious with their spending in 2010. With unemployment still a concern, buyers will spend but with great restraint.” We have said it before and we will say it again now, the U.S. economy cannot build a sustainable recovery without the U.S. consumer.

...the U.S. economy cannot build a sustainable recovery without the U.S. consumer.

10

Interest Rates The Federal Reserve surprised virtually everyone during the first quarter by announcing their intentions to raise the Discount Rate by 0.25% (i.e. 25 Basis Points) from 0.50% to 0.75%. This marked the first time that the Federal Reserve has raised the Discount Rate since June of 2006.

Step up Federal Reserve discount rate 7% 6% 5%

Perhaps more importantly, the Federal Reserve also curtailed the duration of the loans from the “discount window” from 28 days to overnight. So what does this recent action suggest about the direction of interest rates and the status of the economic recovery? Let’s examine each of these two seemingly interrelated areas separately.

4%

1. The Discount Rate is the interest rate the Federal Reserve charges to commercial banks and other depository institutions from the 1% discount window at the Federal Reserve. These loans are generally 0 short term, emergency loans. This rate historically has ranged between 2007 2008 2009 2010 0.25% - 0.50% above the more recognized Federal Funds Rate.It is Source: WSJ Market Data Group the Federal Funds Rate, which many other rates of credit rely upon for direction, that has more of a direct impact on the U.S. economy as the Federal Funds Rate is the interest rate at which depository institutions lend their balances at the Federal Reserve to other depository institutions. Through their open market operations, the Federal Reserve attempts to implement their current monetary policy towards an intended Federal Funds Rate. This rate was not part of the recent Federal Reserve action although many individual investors probably thought that it was and remain confused by the distinction between the two interest rates. While the increase in the Discount Rate does not guarantee an increase in the Federal Funds Rate, and the Federal Reserve even suggested in an accompanying statement that their move will not necessarily lead to a change in monetary policy through adjustments in the intended Federal Funds Rate, history suggests that it is almost a foregone conclusion. Given that the Federal Funds Rate is currently close to 0%, it is reasonable to suggest that the rate certainly cannot go any lower and must move higher. The question then becomes when and to what extent? 3% 2%

0.75% Friday

11

2. In terms of the implications of the move on the status of the U.S. economic recovery, the Federal Reserve is standing by their previous contentions that they intend to leave the Federal Funds Rate low for an extended period of time in an effort to continue to try to stimulate a struggling U.S. economy. While this may be accurate, we also believe that the Federal Reserve recognizes the imposing threat of inflation and perceive this as a first step along a longer-term, measured exit strategy with the ultimate goal of returning the credit markets to a more normal state of operations. On the topic of inflation, despite what many economists and journalists have lead us to believe, inflation, which can be defined as when the flow of money into the economy is faster than the flow of money out of the economy, is already in the system. The nasty ramifications of inflation such as wage and commodity price increases have not been realized yet due to current high levels of unemployment and a tight credit market, but this will only last for so long. The timing of the Federal Reserve’s interest rate policy implementation will be critical to the success of the economic recovery.

Sovereign Debt Concerns There has been a great deal of concern throughout the capital markets related to a group of countries in Europe affectionately known as the P.I.I.G.S. The countries, which many believe are the weaker components of the Euro-zone, include Portugal, Ireland, Italy, Greece and Spain. There has been mounting concern that these countries will continue to struggle to control their own budget deficits. Such a struggle could lead to rating downgrades or even, in the most extreme case, defaults on interest payments related to the sovereign debt that each of these countries have outstanding. Such a credit action could send shivers through the global capital markets especially at a time when frozen credit markets are just beginning to thaw. Greece has been the one country within the P.I.I.G.S. that has been in the headlines lately given the concern about a potential default with respect to some of their outstanding debt issuances. After various governments in the Euro-zone agreed in principle to offer emergency loans to Greece when and if necessary, the crisis has seemingly stalled but not disappeared completely. Sovereign debt concerns are not isolated to the P.I.I.G.S. countries as they have extended to the Far East and even to our domestic soil as of late. To this end, credit rating service Standard & Poor’s (”S&P”) recently revised its credit outlook on Japan to “negative” from “stable.” This could seemingly pave the road to a future downgrade to Japan’s current AA long-term rating. As part of the rationale behind the revision to their credit outlook for the country, S&P cited concerns over amount of Japanese government debt outstanding. Japan’s government debt is already among the highest in the world and S&P thinks the debt burden might peak at a level as high as 115% of their Gross Domestic Product (”GDP”) over the next few years.

12

After reviewing the S&P report, we immediately turned our attention to the United States to see if a similar rating action could be possible for the U.S. given the size of our debt outstanding vs. our own GDP. While the projections are not as alarming as those of Japan, they still paint a concerning picture. According to the Office of Management and Budget (“OMB”), the following table provides the recent and projected Gross Federal Debt to GDP ratios. Please recognize that these figures contain projections and are as of a point in time.

Category

2008

2009

2010

GDP Gross Federal Budget Gross Federal Budget/GDP%

$14,257 $9,986 70%

$14,047 $12,867 92%

$14,576 $14,456 99%

Note: All figures are displayed in billions. Source of the data is the Budget of the U.S. Government Fiscal Year 2010 Report as published by the Office of Management and Budget, Updated May 2009.

Moody’s and Fitch, two other credit rating services, went on further recently to suggest that Japan’s debt burden was “relatively moderate” and expressed confidence that “the market will finance them without putting big upward pressure on yields.” We believe this to be the case for the U.S. as well although we may very well reach at point where the overall debt burden in the United States is too high for certain foreign investors and credit rating services. Based on the information available to us, we do not believe that a sovereign debt default domino effect is imminent but do understand and share the concern that many investors have when the topic of a potential sovereign default arises. With all of these points in mind, we suggest the following portfolio management ideas for careful and thoughtful consideration remembering that any investment portfolio should be custom tailored to an investor’s specific financial goals, income needs, investment timeframe and tolerance for risk.

…we may very well reach a point where the overall debt burden in the United States is too high for certain foreign investors and credit rating services.

13

Portfolio Management Ideas to Consider •

Be Creative

Having a portfolio of only U.S. large cap stocks may present unnecessary concentration risk to the growth portion of an investment portfolio following a decade where the DJIA lost 9.3% in the 2000’s – the second worst decade performance in history. Investors should consider adding a wider range of asset classes including available alternative and hybrid investment strategies, as we have, to their portfolios given the uncertainty in the markets in the months ahead.

•

Bonds can Provide for Safety, Income and Growth

For income-oriented investors, we have always strongly believed that single-issue bonds offer the best avenue for predictable streams of income and principal protection when held to maturity. They can also provide for compounded growth opportunities when the income received from the bonds is reinvested. Additionally, for growth-oriented investors, fixed income securities can provide investors with downside protection and diversification within a growth portfolio especially in a highly volatile market where measured, short-term flights to quality are likely. Bonds can usually find a home in most investment portfolios throughout most market cycles.

•

Future Growth may take place outside U.S. Borders

The prospects for sustainable and consistent GDP growth in the short-intermediate term within the U.S. seem challenging at best and the likelihood of U.S. interest rates staying at record lows is considerable in our opinion. As a result, having some allocation to International Equities – notably certain Emerging Markets like Brazil and India – seem worthy of consideration recognizing that international investments have their own unique set of risks that should be understood before considering any potential investment within these asset classes.

•

Find a Place for Smaller Capitalized Companies in Your Portfolio

While we believe there is also risk adjusted return potential in U.S. Large Cap stocks in 2010 and that a reduction in pre-existing U.S. Small and Mid-Cap allocations may be appropriate for the New Year, we still feel that there is a case to be made for including allocations to U.S. Small-U.S. Mid cap investment strategies in most diversified growth portfolios.

14

•

Start Looking for ways to help Inflation-proof your Portfolio

Having some allocation to certain commodities or baskets of commodities in your portfolio could not only help with return potential in the months ahead but also serve as an inflation hedge. Other potential inflation hedges include Treasury Inflation Protected Securities (“TIPS”) and diversified growth portfolios, which often include allocations to global equity products.

•

A Return of Value

Growth oriented stocks (i.e. stocks, typically with higher Price-to-Earnings ratios, of companies which are growing earnings and/or revenue faster than their industry or the overall market) outperformed Value oriented stocks (i.e. stocks, typically with a high dividend yields, low price-to-book ratios and/or low price-to-earnings ratios, that tend to trade at a lower price relative to their fundamentals and are thus considered undervalued) among U.S. stocks in 2009. We expect this trend to reverse in 2010 and suggest an overall weighting more towards value than growth during what we expect to be a volatile and uncertain transition year.

We...suggest an overall weighting more towards value than growth... Conclusion Asset allocation decisions can be critical to the long-term success of an investment portfolio. The landmark “Determinants of Portfolio Performance” study conducted in 1991 by Brinson, Singer and Beebower, as published in the Financial Analysts Journal, identified asset allocation as being responsible for more than 91% of portfolio performance – many times greater than the selection and timing of individual security transactions. Some have suggested that traditional forms of asset allocation strategies failed during the global credit crisis of 2008/2009 and perhaps will not play as significant of a role in portfolio management techniques going forward. We suggest that the benefits of asset allocation were exemplified over the global credit crisis of 2008/2009 and asset allocation itself will likely play an even more significant role in portfolio management in the months and years ahead. Asset allocation remains of the upmost importance, from our point of view, and should always be constructed in accordance with one’s investment objectives, investment timeframe and tolerance for risk. While past performance cannot guarantee future results, and asset allocation cannot ensure a profit or protect against a loss, applying a historical perspective and maintaining an appropriate strategic asset allocation can help provide comfort and direction to investors during periods of great volatility.

15

When implementing asset allocation strategies, we have found that it is becoming increasingly more common to utilize Exchange-traded Products (“ETPs”) for certain asset classes, styles and sectors. ETPs consist of Exchange-traded Funds (“ETFs”) and Exchange-traded Notes (“ETNs”). ETPs themselves continue to grow in popularity among portfolio managers, financial advisors and individual investors. According to the Investment Company Institute (“ICI”), as of February 2010, there are now 832 ETPs with over $750 billion in assets. ETPs are now available for a wide range of equity asset classes, sub-classes, styles and sectors as well as fixed income, commodity and foreign currency categories on a long and short basis. However, as with other security types, investors should educate themselves on the intricacies of the ETP marketplace and consult a professional advisor as appropriate. Our mission is to be the advocate for individual investors, and we believe educating investors is a significant part of this mission. Please let us know if there is anything that we can do to help with your understanding of the market as a whole or your investment portfolio in particular. From our family at Hennion & Walsh to yours, best wishes for a very enjoyable and safe summer season.

Sincerely,

Kevin Mahn Chief Investment Officer

Bill Walsh Partner

Rich Hennion Partner

For more information on our Firm and the many products and services that we offer, please visit www.hennionandwalsh.com. To read frequent updates on our market and economic insights throughout the quarter, please visit our blog at www.portfoliostrategynews.com.

16

17

2001 Route 46, Waterview Plaza, Parsippany, NJ 07054 (973) 299-8989 • (800) 836-8240 • Fax (973) 299-0692 www.hennionandwalsh.com Securities offered through Hennion & Walsh Inc. Member of FINRA,SIPC.

18