Joseph FarfsingDavid Garman

Ash Yijun GuScot Helton

Timothy Keith

Recap of sector presentation Stock recommendation/proposals Analysis of proposals Summary

Underweight Healthcare by 390 basis point to keep in line with S&P 500

Factors to consider in Healthcare: Uncertainties related with government regulation,

healthcare reforms and political risk Increasing aging populations

Security Unrealized Gain/(Loss) as % of total cost*

Beta Current Weight

Proposed weight

Action

Cardinal Health Inc.

-22.22% 0.89 3.55% 2.97% Sell 58 bps

Eli Lilly Co. -27.82% 0.93 2.6% 2.18% Sell 42 bps

Johnson & Johnson Co.

-13.34% 0.68 5.15% 4.69% Sell 46 bps

Medtronic Inc.

15.66% 0.83 2.4% - Liquidate

Wellpoint -43.78% 1.02 4.04% 3% Sell 104 bps

Gilead Science Inc.

- 0.81 - 1% Buy 100 bps

Total - - 17.74% 13.84% -

Liquidate Current Position Sell 240 bps

Industry: Medical Equipment

Strengths/Opportunities:- Technical prowess- Intellectual property portfolio- Experience with regulators- Sector Market Drivers (demographics)

Threats/Concerns:- Regulation reform (i.e, intellectual prop.)- Foreign exposure: 30+ %- Litigation - Most recently a news item: Medtronic

paid J&J $270 m to end a dispute over royalties involving use of stents

- Political risk related to sector

We are the least optimistic about the upside over a one year horizon for this security: strong hold for analysts

-History of litigation and general sector risk only enhance these feelings

Opportunity to take some profit for SIM portfolio

-approx. $48,000 unrealized gain-Only current SIM stock in sector without lossIn a nut shell: take a break while we are ahead

and reevaluate MDT after things shake out in terms of risk

Sell 58 bps

Cardinal Health (CAH)

Industry – Health Care Distributors

Cardinal Health is a global manufacturer and distributor of medical and surgical supplies and technologies dedicated to making healthcare safer and more productive.

Customers include hospitals, medical centers, retail and mail-order pharmacies, clinics, physicians, pharmacists and other healthcare providers.

Extremely tight margins - around 6% on average – which could be seriously hurt from decreased hospital spending and price control regulation

Lack of Health Care spending over the next year

Negative synergies from the spin-off of the Clinical and Medical Products division

Percentile Forecast values

0% $25.73

10% $33.95

20% $35.96

30% $37.57

40% $39.14

50% $40.65

60% $42.19

70% $44.10

80% $46.50

90% $50.17

100% $83.36

Statistic Forecast valuesTrials 10,000Mean $41.52 Median $40.65 Standard Deviation $6.65 Coeff. of Variability 0.1603Minimum $25.73 Maximum $83.36 Mean Std. Error $0.07

Terminal Discount Rate = 13.4%Terminal FCF Growth = 2.6%

Current Price 34.23Implied equity value/share 40.59052Upside/(Downside) to DCF 18.582%

Implied equity value / shareis most sensitive to changesin the Terminal Discount Rate

SELL 42 bps

Founded in 1876, Headquartered in Indianapolis, IN Principle activities are to discover, develop,

manufacturer and market pharmaceutical-based health care solutions

Specializes in the treatment of diabetes worldwide

Pharmaceutical—mature Highly competitive, threats from generic

drug makers Extensive expenditure in R&D Lengthy process of laboratory and clinical

testing, data analysis, manufacturing development and regulatory review

Currently the 10th largest pharmaceutical company in the world

Invested heavily in biotech, and by far the fifth largest biotech company in the world

Core competency: combine deep, therapeutic knowledge in targeted disease areas with the capability of generating potential biotech solutions alongside more traditional, chemistry-based work

Fully integrated pharmaceutical network: sophisticated partners all over the world, have access to critical resources around the globe, easier to expand overseas

Costly and highly uncertain drug research and development—delay drug introduction

Intense competition from multinational pharmaceutical companies and generic companies

Subject to increasing government price controls and other heathcare cost containment measures

Weaker foreign currency and prolonged economic downturn may adversely affect business operation

Sensitivity analysis of Terminal discount rate and FCF growth rate to target price

51 10.00% 11.00% 12.00% 13.00% 14.00%

2% 61.86 54.52 48.67 43.91 39.95

2.50% 64.13 56.16 49.89 44.83 40.67

3.00% 66.74 58.02 51.25 45.86 41.45

3.50% 69.74 60.12 52.77 46.98 42.31

4.00% 73.24 62.52 54.48 48.24 43.25

4.50% 77.38 65.28 56.42 49.64 44.30

Sensitivity analysis of Termianl discount rate and FCF growth rate to P/E value

10.8 10% 11% 12% 13% 14%

2% 12.04 10.70 9.63 8.76 8.03

2.50% 12.90 11.39 10.19 9.22 8.42

3.00% 13.89 12.16 10.81 9.73 8.84

3.50% 15.04 13.03 11.50 10.29 9.31

4.00% 16.37 14.03 12.28 10.91 9.82

4.50% 17.94 15.18 13.16 11.61 10.39

Absolute Valuation

High Low Mean

Current

Target Multiple

Target E, S, B etc/share

Target Price

Forward P/E

25.4 7.1 16.6 8.3 14.7 4.15 61

P/B 8.5 2.8 5.4 5.1 5.4 9 48.6

P/S 6.6 1.6 4 1.9 3.4 16.94 57.6

P/CF 24.1 5.9 14.8 6.5 12.5 4.5 56.25

Current Price 34.34

Average Multiple Price

55.86

DCF Price 51.25

Prasugrel (co-developed by Daiichi Sankyo Company, Limited and Eli Lilly) reduced the risk of multiple types of heart attacks in phase III TRITON-TIMI 38 study

Eli Lilly will launch two global trials to advance second Alzherimer’s disease treatment candidate into late-stage testing - both phase iii pivotal trials begin enrollment in may 2009; reinforces Lilly's commitment to alzheimer's disease and biotech product research

Sell 46 bps

Johnson & Johnson (JNJ)

Market Leader in Pharmaceuticals and Medical Devices and Diagnostics

Strong Presence in Consumer Health Care products with brands such as Band-AID, Aveeno, Listerine, and Neutrogena

Consistent Earnings, Strong ROE, Modestly Leveraged, Recent Dividend Increase to 3.5% Div. Yield

Consumer Health Care◦ OTC availability of ZYRTEC◦ Strong Growth in Baby Care & Skin Care products◦ Strong International Sales

Pharmaceuticals◦ Strong Sales of Drugs REMICADE, CONCERTA, and

TOPAMAX◦ Strong Pipeline of New Drugs with 7 to 10 to complete

filings for FDA approval in 2009 and 2010.◦ European Commission Approval of STELARA and

PREZISTA During 1st Quarter

Medical Devices & Diagnostics◦ Number 1 position in Ophthalmic Lens Manufacturing◦ Growth Rate of 6.4% from 2007 to 2008

Generic competition for RISPERDAL resulted in 38% decrease in sales for the drug

Negative currency impact of 12.6% for First Quarter

Prolonged unemployment may lead to lower than expected spending on health care

Potential negative health care reform

Price to Book Price to Cash Flow

Forward P/E Price to Sales

Sell 104 bps

WellPoint Inc., was formed in 2004 with the merger between WellPoint Health Networks Inc. and Anthem Inc.

Leading provider of Health benefits plans by enrollment with 35 million members.

Independent licensee of Blue Cross and Blue Shield plans in 14 states with exclusive rights.

Diverse product offerings including PPO’s, HMO’s, CDHP’s, PBM, and many self-funded individual plans.

Highly competitive; Price competition contracts profit margins

Over 95% of revenue is derived from premiums

Barriers to entry are high from heavy regulation and medium concentration with the top four players contributing about 44% of revenues

Large exposure to the U.S.

High customer retention rates allowing for high growth potential contingent on rising employment levels.

Strong brand name through the Blue Cross Blue Shield.

Cost controls, this QTR reduced MCR from 85.%1 to 81.6% YoY. Exiting high cost Medicaid operations in Ohio and Connecticut

Acquisitions resulting in larger more diverse revenue streams. Acquired DeCare Dental adding 4 million new members.

Consumer trends to higher deductible lower premium plans (CDHP’s). Up 14% in Q1.

Rising unemployment contributing to loss of enrollment. 1st QTR enrollment down 2.3% YoY. Expect a drop to 33.9 million members, or 3% YoY, by end of the 2009.

Investment losses. Reduced EPS for 1st QTR 2009 by $.46. Expect total year to be $.45 per share.

High SG&A expenses increased 90 bp YoY to 15.5%.

Cost savings from IT initiatives and pay for performance standards.

Being able to tap into the market of the over 46 million Americans who are uninsured

Premium and deductible limitations deteriorating profit margins.

Mandatory coverage imposing adverse selection on the industry

Buy 100 bps

Gilead’s primary areas of focus include HIV/AIDS, liver disease and serious cardiovascular and respiratory conditions.

Respiratory

Cardiovascular

Liver Disease

HIV/AIDS

.

Gilead discovers, develops and commercializes therapeutics that advance patient care.

.

HEALTH CARE - BIOTECHNOLOGY

DCF Valuation Terminal Discount Rate = 13.8%Ticker: GILD Terminal FCF Growth = 2.8%Health Care

Forecast TerminalYear 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E Value

Revenue 6,509 7,810 9,216 10,875 12,832 14,886 17,119 19,686 22,442 25,584 29,166 % Growth 20.00% 18.00% 18.00% 18.00% 16.00% 15.00% 15.00% 14.00% 14.00% 14.00%

Operating Income 3,332 3,999 4,719 5,546 6,519 7,532 8,628 9,843 11,221 12,792 14,583 Operating Margin 51.20% 51.20% 51.20% 51.00% 50.80% 50.60% 50.40% 50.00% 50.00% 50.00% 50.00%

Interest - net (137) (164) (194) (190) (190) (190) (190) (190) (190) (190) (190) Interest % of Sales -2.10% -2.10% -2.10% -1.75% -1.48% -1.28% -1.11% -0.97% -0.85% -0.74% -0.65%

Taxes 798 1,041 1,228 1,434 1,677 1,931 2,204 2,508 2,853 3,246 3,693 Tax Rate 23.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0%Minority Interest 9 9 9 9 9 9 9 9 9 9 9

Net Income 2,611 3,062 3,624 4,311 5,040 5,800 6,622 7,533 8,567 9,745 11,088 % Growth 17% 18% 19% 17% 15% 14% 14% 14% 14% 14%

Add Depreciation/Amort 200 234 258 304 353 409 428 394 449 512 583 % of Sales 3.07% 3.00% 2.80% 2.80% 2.75% 2.75% 2.50% 2.00% 2.00% 2.00% 2.00%Plus/(minus) Changes WC (378) (346) (373) (326) (385) (595) (685) (787) (898) (1,023) (1,167) % of Sales -5.81% -4.42% -4.05% -3.00% -3.00% -4.00% -4.00% -4.00% -4.00% -4.00% -4.00%Subtract Cap Ex 100 115 125 217 257 298 342 394 449 512 583 Capex % of sales 1.54% 1.47% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00%                       Free Cash Flow 2,333 2,836 3,384 4,071 4,752 5,316 6,023 6,746 7,669 8,722 9,922 YOY growth 22% 19% 20% 17% 12% 13% 12% 14% 14% 14%

Terminal 92,723.0 Terminal Value 92,723 P/E 8.4 NPV of free cash flows 27,164 52% EV/EBITDA 6.05 NPV of terminal value 25,455 48% Free Cash Yield 10.70%Projected Equity Value 52,618 Free Cash Flow Yield 4.43%

Shares Outstanding 939.6

Current Price $ 42.33 Implied equity value/share $ 56.00 Upside/(Downside) to DCF 32.29%

(Normal Distribution) Simulation ParametersMean Std Dev

Terminal Discount Rate 12.50% 1.50%Terminal FCF Growth 2.50% 0.30%

Statistic Forecast values Percentile Forecast valuesTrials 10,000 0% $34.42 Mean $66.16 10% $51.50 Median $64.08 20% $55.35 Standard Deviation $13.25 30% $58.31 Variance $175.61 40% $61.18 Coeff. of Variability 0.2003 50% $64.08 Minimum $34.42 60% $67.20 Maximum $166.89 70% $70.91

80% $75.52 90% $83.11 100% $166.89

Sensitivity Analysis

Terminal Discount Rate = 13.8%Terminal FCF Growth = 2.8%

Current Price $ 42.33 Implied equity value/share $ 56.00 Upside/(Downside) to DCF 32.29%

Buy: Gilead Science—100 bps Sell: Cardinal Health—58 bpsEli Lilly— 42 bpsJohnson & Johnson— 46 bpsMedtronic— 240 bpsWellpoint— 104 bps

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