Nicholas Colas (Chief Market Strategist): 212 448 6095 or ncolas@convergex.

com Christine Clark: 212 448 6085 or cclark@convergex.com Beth Reed: 212 448 6096 or breed@convergex.com

Stocks traded deep in the red most of the day amid concern surrounding Europe’s banking problems and tensions between North and South Korea. The Dow and Nasdaq fell 0.2% and 0.1%, respectively, while the S&P 500 rose 4 basis points. According to Case-Shiller’s 20-city home price index, prices were unchanged in March from February, while the 10-city index inched up 0.2% on a seasonally adjusted basis. Excluding seasonal factors, house prices declined for a 6th consecutive month. The Conference Board’s index of consumer confidence unexpectedly popped to 63.3 this month – its highest level since March 2008 – compared with estimates for 59.0 and April’s revised 57.97 reading. This marked a 3rd straight month of increases.

Morning Markets Briefing
Market Commentary: May 26th, 2010 A snapshot of the markets through the lens of ConvergEx.

Fed Reality Check – Analyzing Recent (Lofty) Labor Market Expectations
Summary: According to the minutes from its latest Federal Open Market Committee (FOMC) meeting in April, the Fed predicts unemployment will fall to 9.3% this year followed by 8.2% in 2011. In order to reach these projections, by our calculations, the economy will need to add 385,000 jobs each month from now through December 2010 and 323,000 each month from now through December 2011. These already seemingly high numbers appear even more extraordinary when taking the government’s temporary hiring of census workers out of the equation. Also, in the 3 months since the FOMC’s prior meeting, unemployment projections became more optimistic: The average expected unemployment rate for this year dropped 0.3 percentage points from 9.6% to 9.3%.

There are experts in every field. College professors, sportswriters, doctors, lawyers, etc. They all give advice or guidelines, which we generally accept as fact and/or follow because they know more than we do on a given subject. This is not to say they’re never wrong. As an example, Sports Illustrated polled its “all-star lineup of college basketball writers and editors” for their final four picks prior to March Madness a couple months back. When all was said and done, the selected “all-stars” were collectively 34% correct in their predictions, while one gentleman was 0 for 4 in his picks. Safe to say, you might expect more than 34% from the experts. And what about the Preakness Stakes? After the Derby, Super Saver was a 5/2 favorite among the “expert picks around the country,” but as is not uncommon, the favorite didn’t win and in this case the victor was Lookin at Lucky, who went in with 3/1 odds.

Market Commentary – Pages 1-3, Equities/Conferences & Earnings – Page 4, Fixed Income – Page 5, Options – Page 6, Exchange-Traded Funds/Indexes – Page 7, Social Media & Internet Blogs Top Stories – Page 8

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Nicholas Colas (Chief Market Strategist): 212 448 6095 or ncolas@convergex.com Christine Clark: 212 448 6085 or cclark@convergex.com Beth Reed: 212 448 6096 or breed@convergex.com

Similarly, the economists at the Fed are considered to be experts on the economy. Just like other experts, part of their mission is to make forecasts for the rest of us, given that their knowledge on the economy, by virtue of their jobs, is greater than ours. Not to say we can’t or shouldn’t evaluate the accuracy and feasibility of their conclusions… Conclusions such as unemployment rate predictions, which, in our opinion, are the most critical of the FOMC’s collection of economic indicator forecasts. While the Fed’s mandate is to create both price stability and full employment, excess capacity is presently taking care of price stability, so employment growth is the larger unknown in the foreseeable future. Therefore the pace of job creation will likely also inform the Fed’s thought process on how/when to raise rates. That being said, the latest “expert” predictions on the labor market – coming from 17 Federal Reserve Governors and Reserve Bank presidents – show they expect on average an estimated unemployment rate of 9.3% for 2010, which will fall to 8.2% by the end of next year. Below we outline our use of a yearly one percent labor force growth rate to estimate the number of jobs that need to be created to achieve the Fed’s predicted jobless rate. Why one percent? For starters, one percent is the historical annual population growth rate of the U.S. The labor force rate, however, might be even higher since we do not know how fast discouraged workers will come back into the workforce looking for jobs. Right now they are not looking for work so they are not considered part of the workforce, but if/when things improve, they will reenter the labor force and that will tend to increase the unemployment rate. The closest we have recently come to 9.3% unemployment was a 9.4% rate in May 2009, when there were a total of 131.2 million people employed in the U.S. Factoring in an annual increase in the labor force of one percent, payrolls would need to reach 133.2 million by this coming December to reach the Fed’s projected 9.4% unemployment rate. With 130.2 million people presently employed, that works out to an addition of 385,000 jobs in each month, May through December – and that’s just to reach 9.4%. The low-end Fed projection is 9.3%. Considering the economy added 290,000 jobs (more on this later) last month, 385,000 seems a touch ambitious to say the least. Even more extraordinary are the numbers it will take for unemployment to fall to the Fed’s target 8.2% rate by December 2011. February 2009, when there were 132.8 million people with jobs, was the last time unemployment was at 8.2%. Again factoring in a yearly one percent increase in the labor force, the economy needs an additional 323,000 jobs each month for the next 20 months to hit the Fed’s average estimate. In the past 2 decades (see Chart 1) the economy has only added 385,000 jobs on 8 separate occasions and a monthly addition of 323,000 or more jobs has only occurred 10% of the time. Lofty expectations, right? Well, unfortunately this year there’s another factor that comes into play – the government’s temporary hiring of workers to conduct the decennial census. Though on select occasions such temporary hiring has had a positive effect on net payrolls, it has overestimated permanently employed workers in each of the 2 latest months reported (March and April). Chart 2 shows net jobs added in each of the past 12 months, with both the BLS monthly reported number as well as nonfarm payrolls excluding the impact of government jobs. The jobs picture has undoubtedly picked up this year, but assuming a majority of the government’s hiring in the past 2 months has been of temporary census workers, March’s addition of 230,000 jobs is really only 174,000 permanent jobs, while April’s 290,000 increase in payrolls totals 231,000 when excluding the 59,000 workers hired by the government.

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Nicholas Colas (Chief Market Strategist): 212 448 6095 or ncolas@convergex.com Christine Clark: 212 448 6085 or cclark@convergex.com Beth Reed: 212 448 6096 or breed@convergex.com

We would make a few comments on the construction of the Fed’s predictions. Economic projections are submitted by a total of 17 people – the Federal Reserve Governors and the Reserve Bank presidents who vote on interest rate policy at the FOMC meetings. The range of projections that is quoted in the press, or the central tendency, is comprised of 11 predictions, as it excludes the 3 highest and 3 lowest estimates. The actual range for all 17 votes in many cases shows much more variety (i.e. uncertainty). For example, the current central tendency for unemployment is 9.1% to 9.5%, while the actual range is 8.6% to 9.7%. When compared with projections from January’s FOMC meeting, the most recent estimates show the Fed’s labor market expectations have improved. At the beginning of the year, all but 2 of the 17 voting members expected the unemployment rate would be at a minimum of 9.4% by the end of 2010. Now, the majority of votes (12 of 17) calls for a rate of 9.3% or lower. Projections for 2011 were for the most part unchanged. Perhaps net monthly nonfarm payroll increases thus far in 2010 influenced slightly more optimistic projections from the Fed - which is understandable – but the sheer number of additional jobs that need to be created to hit these projections seems a bit out of reach given the lack of a specific blueprint for where these jobs will come from. On the other hand, suppose the Fed were to choose a more pessimistic route and suggest unemployment were going higher. Imagine the effect that might have on a company’s hiring plans. We look forward to the next jobs report in hopes for another addition of 200,000+ permanent, non-census related jobs, as any increase in net jobs is a plus for economic recovery. While skeptical the economy will month-after-month add the jobs necessary to hit the Fed’s projected jobless rates, it appears the worst is behind us in terms of the employment picture – it just may be a longer road to recovery than many anticipate. Finally, just as proof that even the Fed – like all other “experts” – has gotten it wrong before, we make one final note. In June 2008 the Fed predicted 5.3% to 5.8% unemployment for 2009. Even after the Lehman collapse, the Fed vastly underestimated the severity of the recession, forecasting 7.1% to 7.6% unemployment in 2009. The lowest jobless rate in 2009? 7.7% in January. Which – as we are all aware – escalated to +10% by October.

Chart 1: Net Jobs Added per Month: 1990-Present 500,000 400,000 300,000   200,000 100,000 0 -100,000 -200,000 -300,000 -400,000 -500,000 -600,000 -700,000 -800,000
250,000 150,000 50,000 -50,000 -150,000 -250,000 -350,000 -450,000
+385K jobs each month to reach 9.3% unempl in 2010 +323K jobs each month to reach 8.2% unempl in 2011

Chart 2: Net Jobs Added in the Past 12 Months

-550,000 Total NFP NFP Ex Govt Jobs
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Nicholas Colas (Chief Market Strategist): 212 448 6095 or ncolas@convergex.com Christine Clark: 212 448 6085 or cclark@convergex.com Beth Reed: 212 448 6096 or breed@convergex.com

U.S. EQUITIES In another sign that AAPL (-0.6%) may be gearing up to unveil a new iPhone model, WMT (-1.4%) announced it’s cutting the price of the most up-to-date version of the iPhone in half. AKS added 11.4% after Bank of America raised it to “Neutral” from “Underperform,” while EMC fell 1.2% on a JP Morgan downgrade to “Neutral” from “Overweight.” Real-estate investment trust DRH (-8.1%) agreed to buy the 821-room Hilton Minneapolis for roughly $156 million. CLF (+2.9%) said it plans to offer C$0.13 ($0.12) a share for the remaining stakes it doesn’t already own in KWG Resources and Spider Resources.

Important Earnings Today (with Estimates) From… AINV: $0.31 PAY: $0.22 DBRN: $0.59 ZLC: $-0.91 Source: Bloomberg JAS: $0.45 NTAP: $0.35 TOL: $-0.24 Important Conferences/Corporate Meetings Today:
Bank of America Merrill Lynch Services Conference – New York, NY Barclays Capital Communications, Media and Tech Conference B. Riley & Company Investor Conference – Santa Monica, CA Citi Global Healthcare Conference – New York, NY Stephens Spring Investor Conference – New York, NY UBS Global Oil and Gas Conference - Texas
Prior Day SPX (High – 1074.75; Low – 1040.78; Close – 1074.03):

S&P Futures
One Day (High – 1074.75; Low – 1036.75):

Three Day (High – 1088.75; Low – 1036.75):

Source: Thomson ONE

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Nicholas Colas (Chief Market Strategist): 212 448 6095 or ncolas@convergex.com Christine Clark: 212 448 6085 or cclark@convergex.com Beth Reed: 212 448 6096 or breed@convergex.com

FIXED INCOME Longer-term Treasuries advanced, pushing 10-year yields to the lowest level in more than a year amid concern the European debt crisis is spreading and escalating tensions between North and South Korea. The government’s $42 billion 2-year note auction drew a record low yield of 0.769 percent, compared with 1.024 percent at the previous sale in April. Coverage of 3.03 times was lower than the average of 3.09 times over the past 10 offerings. Indirect bidders accounted for 31 percent of the purchases, versus the recent 10-sale average of 41 percent.

Source: Bloomberg

Source: Bloomberg

Today’s Important Economic Indicators/Events:
MBA Purchase Applications Durable Goods Orders: 1.5% New Home Sales: 425K SAAR EIA Petroleum Status Report Jeffrey Lacker Speech – 4:15pm

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Nicholas Colas (Chief Market Strategist): 212 448 6095 or ncolas@convergex.com Christine Clark: 212 448 6085 or cclark@convergex.com Beth Reed: 212 448 6096 or breed@convergex.com

U.S. EQUITY OPTIONS
SPX: Following losses overnight, the index sold off sharply in early trading hitting the low of the day (-3.1%) in early trading. As the market rallied off these lows there was a size buyer of over 10,000 June 1100 calls and a similar size seller of the September 900/1175 “Risk” (Sold 900 puts, bought 1175 calls). The market continued the recovery throughout the day ending with a small gain just off the high of the day (+0.1%). Into this market strength, there were protection trades such as: the purchase of the June 1050/1100 risk (Bought put/ sold calls); the outright purchase of July 1050 puts; and in December of 2011 the 400/650/900 put butterfly was bought (900&400 Bought, 650 Sold). ETF: We saw mixed trading throughout a relatively whippy day. In GLD there was a buyer of 25,000 Jun 120/125 call spreads while we also saw a buyer of roughly 8000 Jun 109/102 put spreads. In IWM we saw a buyer of a slightly skewed butterfly where an investor bought the Jun 57 and 65 outs 10,000 times to sell the Jun 60 puts 20,000 times, and we saw a seller of the Jun 72/66 quarterly call spread 50,000 times delta neutral. In EEM we saw a seller of 45,000 Jun 36/40 put spreads while another investor financed the purchase of 10,000 Jun 38 calls through the sale of the Jun 32 puts. In XLF an investor sold 14,500 Jun 15 puts to buy 29,000 Jun 13 puts while another investor bought 15,000 XLF Jun 15/16 call spreads. Finally, in XOP we saw a seller of 20,000 Jun 39/41 put spreads @ 1.10.
CURRENT IMPLIED VOLATILITY / CURRENT HISTORICAL VOLATILITY 5/19/2010 5/20/2010 5/21/2010 5/24/2010 5/25/2010
MIL GENZ SJM MDT FMC CPB LLY GME NUE CPWR SAI VZ AKS CSC BIIB MCO CELG COST ED BSX WMT AZO DGX BDX PEG FDO ABT MYL MON MIL GENZ SJM LLY MDT ARG FMC CPB CPWR VZ RSH CSC XTO MCO COST BIIB NUE SAI ABT ED AKS T PEG KG CVS AZO WMT CELG DGX BSX BDX GME MIL SJM GENZ LLY MDT FMC VZ CPB ED T ARG DGX COST NUE BIIB SAI CNP RSH ETR BSX AKS PEP BDX XTO ABT CVS PEG MCO CSC CPWR KG MIL SJM LLY GENZ TSS MDT FMC CINF BIIB SAI ARG CPB FII FDO VZ RSH KG COST STJ T XTO MDP NUE AZO CNP BDX PEP ETR BSX AKS DGX ED ABT MIL SJM LLY BIIB FMC EFX SAI CPB MDT T XTO ED COST FII VZ BSX KG AVP MKC NI FDO ZMH NUE RSH XOM AZO MDP STJ CINF TSS CNP ARG GENZ

Rank
1 2 3 4 5 6 7 8 9 1 0 1 1 1 2 1 3 1 4 1 5 1 6 1 7 1 8 1 9 20 21 22 23 24 25

BIGGEST MOVERS
EFX PGR DNB CTL PKI DELL MO LLTC ETFC NI Top 10 44.84% 29.32% 26.65% 23.54% 22.92% 22.11% 20.88% 20.53% 20.03% 19.66% Bottom 10 GENZ -22.74% CINF -22.30% AKS -22.19% AZO -17.61% Q -12.83% TSS -11.77% S -9.21% ARG -6.93% GS -6.41% ATI -6.18%

Above we ranked the S&P 500 from highest 30 day implied/historical volatility ratio to the lowest. We then identified the most significant positive and negative movers. The table to the left represents the 25 highest 30 day implied to historical volatility ratios within the S&P 500. The green represents names new to the list and the red represents names that have fallen out.

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Nicholas Colas (Chief Market Strategist): 212 448 6095 or ncolas@convergex.com Christine Clark: 212 448 6085 or cclark@convergex.com Beth Reed: 212 448 6096 or breed@convergex.com

Exchange-Traded Funds/Indexes
Prior Day Peformance of Largest ETFs by Assets
Name (Net Assets*) SPDRs (66.71B) SPDR Gold Shares (38.54B) iShares MSCI Emerging Markets Index (36.02B) iShares MSCI EAFE Index (33.64B) iShares S&P 500 Index (20.86B) Ticker SPY GLD EEM EFA IVV Category Large Blend N/A Diversified Emerging Mkts Foreign Large Blend Large Blend Daily Return 0.10% 0.45% -1.08% -0.40% 0.08% Sector Energy Health Industrials Utilities Consumer Staples

S&P 500 Sector ETFs
Ticker 1-Day Perf YTD Perf XLE 0.23% -8.82% XLV -0.42% -7.92% XLI -0.07% 4.21% XLU -0.88% -9.03% XLP -1.17% -1.32% Sector Ticker 1-Day Perf Telecomm IYZ 0.52% Technology XLK -0.28% Consumer Discretionary XLY 0.60% Financials XLF 0.91% Materials XLB 1.84% YTD Perf -3.40% -7.06% 6.92% 0.42% -7.85%

*As of January 31, 2010

Prior Day Top Volume ETFs
Name SPDRs Financial Select SPDR PowerShares QQQ iShares MSCI Emerging Markets Index iShares Russell 2000 Index
Name

Currency ETFs
Shares Traded 380,589,564 154,095,192 152,109,772 143,420,058 108,844,456
Daily Return

Ticker SPY XLF QQQQ EEM IWM

Category Large Blend Specialty - Financial Large Growth Diversified Emerging Mkts Small Blend

Currency Ticker 1-Day Perf YTD Perf Australian Dollar FXA -0.72% -8.22% British Pound Sterling FXB -0.24% -10.96% Canadian Dollar FXC -0.92% -1.95% Euro FXE -0.36% -13.95% Japanese Yen FXY 0.32% 3.15%

Currency Mexican Peso Swedish Krona Swiss Franc USD Index Bearish USD Index Bullish
Bonds

Ticker 1-Day Perf FXM -1.01% FXS -1.63% FXF 0.19% UDN -0.44% UUP 0.36%

YTD Perf -0.33% -10.44% -10.59% -10.35% 9.62%

Prior Day Top Performers
Ticker Category Name

VIX ETNs
Ticker 1-Day Perf YTD Perf

Fixed Income ETFs
Ticker 1-Day Perf YTD Perf

Barclays Short D Lvgd Inv S&P 500 TR ETN iPath Global Carbon ETN UltraShort Russell3000 ProShares Barclays Short B Lvgd Inv S&P 500 TR ETN B2B Internet HOLDRs

BXDD GRN TWQ BXBD BHH

Bear Market Commodities Misc Bear Market Bear Market Technology

14.05% 6.92% 6.81% 6.52% 5.49%

iPath S&P 500 VIX VXX Short-Term Futures ETN iPath S&P 500 VIX VXZ Mid-Term Futures ETN

-4.41%

-7.01%

-1.03%

21.67%

Aggregate Investment Grade High Yield 1-3 Year Treasuries 7-10 Year Treasuries 20+ Year Treasuries
ETF

AGG LQD HYG SHY IEF TLT

0.18% -0.48% -0.12% -0.02% 0.34% 0.42%

2.71% 1.85% -4.03% 1.02% 5.81% 9.65%

Others
ETF Ticker 1-Day Perf YTD Perf Ticker 1-Day Perf YTD Perf

Gold Silver Natural Gas

GLD SLV UNG

0.45% -0.11% 1.27%

9.37% 6.05% -30.06%

Crude Oil EAFE Index Emerging Markets SPDRs

USO EFA EEM SPY

-0.99% -0.40% -1.08% 0.10%

-18.97% -14.40% -11.93% -3.26%

Major Index Changes:
None

ETFs in the Headlines and Blogs:
What Oil ETF Cash Flows Tell Us About Crude Prices - http://etfdb.com/2010/what-oil-etf-cash-flows-are-telling-us-about-crude-prices/ Warning: Five Country ETFs Heavily Focused on Financials - http://etfdb.com/2010/warning-five-country-etfs-heavily-focused-on-financials/ Global Market ETFs Walloped - http://www.bespokeinvest.com/thinkbig/2010/5/24/global-market-etfs-walloped.html

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Nicholas Colas (Chief Market Strategist): 212 448 6095 or ncolas@convergex.com Christine Clark: 212 448 6085 or cclark@convergex.com Beth Reed: 212 448 6096 or breed@convergex.com

Top Online Social Networking Stories
Latest Popular Digg.com Business Stories: Where VCs Are Putting Their Money in 2010 - http://www.inc.com/best-industries-2010/state-of-venture-capital-investments.html Chick-fil-A Debuts First New Sandwich in 20 Years , You’ll Need a Reservation to Taste It Though - http://blogs.riverfronttimes.com/gutcheck/2010/05/chickfil-a_debuts_first_new_sandwich_in_20_years_spicy_chicken.php Ireland worse than Greece, faces financial ruin, say two leading economists - http://www.irishcentral.com/news/Ireland-worse-than-Greece-faces-financialruin-say-two-leading-economists--94688524.html How Much Revenue Does Google Keep from AdSense? - http://mashable.com/2010/05/24/google-adsense-revenue-share/ Can employers not hire smokers? - http://articles.mcall.com/2010-04-18/news/all-lettersbox8u13974j.7241571apr18_1_control-tobacco-policies-hospitalhealth-network Calculated Risk Case Shiller House Prices “Weakening” - http://www.calculatedriskblog.com/2010/05/case-shiller-house-prices-weakening.html DOT: Vehicle Miles Driven Increase in March - http://www.calculatedriskblog.com/2010/05/dot-vehicle-miles-driven-increase-in.html ‘Shadow’ Condos coming back on market - http://www.calculatedriskblog.com/search?updated-max=2010-05-24T17%3A55%3A00-04%3A00&max-results=5 The Big Picture Can Bloomberg Topple the Ratings Agencies? - http://www.ritholtz.com/blog/2010/05/can-bloomberg-topple-ratings-agencies/ New SEC Regulations for CEOs - http://www.ritholtz.com/blog/2010/05/new-sec-regulations-for-ceos/ Case Shiller: Weakening Home Prices in Q1 - http://www.ritholtz.com/blog/2010/05/case-shiller-weakening-home-prices/ Bespoke Investment Group Still Some Stocks Doing Well - http://www.bespokeinvest.com/thinkbig/2010/5/24/still-some-stocks-doing-well.html S&P 500 and Sector Valuations - http://www.bespokeinvest.com/thinkbig/2010/5/24/sp-500-and-sector-valuations.html Robert Reich’s Blog Obama’s Regulatory Brain - http://robertreich.org/post/628324698/obamas-regulatory-brain The Baseline Scenario Why Does Steve Ballmer Still Have a Job? - http://baselinescenario.com/2010/05/24/microsoft-mobile-phones-steve-ballmer/ Regulation vs. Structural Change - http://baselinescenario.com/2010/05/25/regulation-vs-structural-change/ Zero Hedge Case Shiller Index Shows Sixth Consecutive Month of Seasonally Unadjusted Housing Declines - http://www.zerohedge.com/article/case-shiller-indexshows-sixth-consecutive-month-seasonally-unadjusted-housing-declines
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Nicholas Colas (Chief Market Strategist): 212 448 6095 or ncolas@convergex.com Christine Clark: 212 448 6085 or cclark@convergex.com Beth Reed: 212 448 6096 or breed@convergex.com

GENERAL DISCLOSURES
This presentation discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions. It is provided for general informational purposes only and should not be relied on for any other purpose. It is not, and is not intended to be, research, a recommendation or investment advice, nor an offer to sell or the solicitation of offers to buy any BNY ConvergEx Execution Solutions LLC (“ConvergEx”) product or service in any jurisdiction. It does not take into account the particular investment objectives, restrictions, tax and financial situations or other needs of any specific client or potential client. Please consult with your financial and other advisors before buying or selling any securities or other assets. This presentation is for qualified investors and NOT for retail investors. Please be advised that options carry a high level of risk and are not suitable for all investors. To receive a copy of the Options Disclosure Document please contact the ConvergEx Compliance Department at (800) 367-8998. The opinions and information herein are current only as of the date appearing on the cover. ConvergEx has no obligation to provide any updates or changes to such opinions or information. The economic and market assumptions and forecasts are subject to high levels of uncertainty that may affect actual performance. Such assumptions and forecasts may prove untrue or inaccurate and should be viewed as merely representative of a broad range of possibilities. They are subject to significant revision and may change materially as market, economic, political and other conditions change. Past performance is not indicative of future results, which may vary significantly. The value of investments and the income derived from investments can go down as well as up. Future returns are not guaranteed, and a loss of principal may occur. The information and statements provided herein do not provide any assurance or guarantee as to returns that may be realized from investments in any securities or other assets. The opinions expressed in this presentation are those of various authors, and do not necessarily represent the opinions of ConvergEx or its affiliates. This material has been prepared by ConvergEx and is not a product, nor does it express the views, of other departments or divisions of BNY ConvergEx Group, LLC and its affiliates.

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