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Home My WebLink AboutDocumentation_Pension Public Safety_Tab 05_11/03/2008t~ , ~ ~ ~" ~, ` , '~ :ock~rvood Ca ital Advisors ~ ~~ -~.~ ~ .. ` ~~ *. tOCKWOOD CAPITAL ADVISORS nvestment Policy 3rd QI Objectives - The Board recognizes that the obligations of the Fund are long-term and that the investment policy should be made with a view toward perform return over a number of years. The general investment objective, then, is to obtain a reasonable total rate of return -defined as interest anc income plus realized and unrealized capital gains or losses -commensurate with the Prudent Investor Rule and any other applicable statute. - Reasonable consistency of return and protection of assets against the inroads of inflation are paramount. However, the volatility of interest securities markets make it necessary to judge results within the context of several years rather than over short periods of two years or less. Performance - The performance of the total Fund will be measured for rolling three and five year periods and compared to the return of a portfolio comprised of 500 Stock Index and 40% Lehman Brothers Intermediate Government/Credit Bond Index. On a relative basis, performance for the combined por three to five year periods is expected to be in the 40% of the Mobius Universe. Additionally, on an absolute basis, performance for the combine over three to five year periods is expected to meet or exceed the actuarial earnings assumption of 8%. Authorized Investmentr - All investments made or held in the fund shall be limited to, obligations issued by the United States Government or guaranteed as to principal and ii the US Govt. or by an agency of the US Govt. Additionally, stocks, commingled funds administered by national or state banks, mutual funds and other evidence of indebtedness, issued or guaranteed by a corporation organized under the laws of the United States, any state or organized territ United States or the District of Columbia. Fixed income securities are to be ranked Investment Grade by S & P or Moody's and 90% of the equitie. rated by a major rating service in the top three quality grades. Not more than 5% of the Fund's assets shall be invested in the common stock, capita debt of any one issuing company, nor shall the aggregate investment in any one issuing company exceed 5% of the outstanding capital sto company. Foreign securities shall not exceed 10% of the value at cost of the fund. \OCKWOOD CAPITAL ADVISORS ~equesta Public Safety officers' Pension Fund ~ /~ 3 ~d Q~ Portfolio Summary Beginning Market Value Ending Market Value % of Portfolio Est Annual Income Current Yield EgUltleS $2,450,468 $2,187,326 51.6% $29,081 1.3% Fixed Income $1,586,386 $1,663,328 39.5% $81,842 4.9% Short-Term Funds $304,810 $376,762 8.9% $7,912 2.1% Accrued Income $13,930 $16,533 -- -- -- Total $4,355,593 $4,243,949 100.0% $118,835 2.8% Total Fund Performance Domestic Equities 52% short Term Funds 9% Fixed come 39% 5% 0% -5% -10% -15% Teque ^ 60% 40% L\OCKWOOD CAPITAL ADVISORS 3rd Qtr 2008 One Year vlarket Value Summary 3rd Tequesta Public Safety Officers' Pension Fund Market Value Changes Total $ Change this quarter I -$111, 645 2nd Quarter Total Fund Return - 2nd Quarter Summary Beginning Market Balance $4,355,593 Interest /Dividends 23,367 Contributions 242,206 Net Disbursements -13,173 Net Realized & Unrealized (G/L) -364,045 Ending Market Balance $4,243,949 Fiscal Year Summary Beginning Market Balance (10/1/2007) $4,313, Interest /Dividends 98, Contributions 549, Net Disbursements -67, Net Realized & Unrealized (G/L) -650, Ending Market Balance $4,243, ROCKWOOD CAPITAL ADVISORS i& P 500 3Q Events 3rd Q 1350 1300 1250 1200 1150 1100 1050 1000 ~ 6/30 7/7 7/14 7/21 7/28 8/4 8/11 8/18 8/25 9/1 9/8 9/15 9/22 9/29 ROCKWOOD CAPITAL ADVISORS --- --~-- :quity 3rd QI Beware of the Bear The 3rd quarter of 2008 was one for the record books, officially plunging us into bear market territory, down over 20% from the market': October. With some of the Nation's oldest and most respected financial institutions facing uncertain futures, we witnessed the S&P 5( nearly 9% during the quarter, bringing its slide for the calendar year to -19.3%. While the mortgage and real estate crisis remains the root of the problem, incredibly, we have witnessed firms such as Lehman Brothers, Merrill Lynch scrambling to stay in business as a result of their involvement in the crisis. Why is this happening? It's because, in the E firms have done a very poor job in one critical area: risk management. Managing risk is central to any organization. When companies ignore risk management, there is typically a high price to be paid down Needless to say, many firms are now paying the price for getting caught up in the frenzy of the housing mania. This begs the question, how do we manage the risk of your portfolio? Simply put, it involves our ability to identify negative change takin the equity markets and responding with an effective sell discipline that ultimately protects you from the worst of the market's declines. Yoi noticed that your portfolio is devoid of any of the financial stocks making headlines these days. Our research team issued a sell recomi on the financial sector over a year ago and aggressively reduced exposure to your current weighting of just 3%. The demise of our country's financial institutions is unfortunate and has been a drag not only on the financial sector, but on the entire stogy As a result, your portfolio is down 18.9% in the first 9 months of 2008 versus -19.3% for the S&P 500 benchmark. Mastering the psycho) stock market is never easy. In times like these, investors are put to the test. Stock prices have declined sharply, resulting in an extreme)! market. Many investors will be tempted to sell equities. In our view, this would be a mistake. These conditions typically present the moss long-term buy opportunities. In the last 50 years there have been nine bear markets with the average peak-to-trough decline of -32% ; one-year the average market recovery was +36%. Remember, good investing requires along-term commitment and that making decisions can detract from achieving your long-term objectives. (continued on LZOCKWOOD CAPITAL ADVISORS ~~ ~~~~ ~ 3rd Ql But the decision to stay invested in equities is not just about psychology. We are seeing evidence of improvement in many segments of tl over the past several months. In particular, the consumer discretionary and health care sectors have already recovered nicely, preserr constructive buy opportunities. Macro conditions are improving as well, as interest rates are declining and the dollar is rising. The eleme place for a market rally. Finally, perhaps the most constructive input making the case for a market recovery is the extreme level of bearish investor sentir contrarians, this phenomenon should be viewed bullishly. To quote one of the most successful practitioners of contrary thinking, Templeton: "Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism i. time to buy, and the time of maximum optimism is the best time to sell. " Performance 20% 1 o°i° 0% -10% -20% -30% - 1 . V /U -4.7% -8.4% -20.4% -22.0% ° 0.3% 0.2% 4.2 /0 2.4°/~ 3rd Qtr 2008 One Year Two Years Three Years Since Inception 5/05) EZOCKWOOD CAPITAL ADVISORS :quity Portfolio 3rd QI Portfolio Summary # of Stocks 38 Beta 0.9 Yield 1.3% P/E 17.6x Style Box Val Cr Gnru Large Cap - 60.9% Mid Cap - 39.1 Small Cap - 0% Average Market Cap $44.9 billion Median Market Cap $18.2 billion Top 10 Holdings 1. Stericycle Inc. 3.3% 2. Lockheed Martin Co. 3.1 3. Bayer AG 2.9% 4. Baxter InYI Inc. 2.8% 5. Ind Business Machine 2.8% 6. Praxair Inc. 2.8% 7. Hewlett Packard Co. 2.7% 8. T. Rowe Price Group 2.6% 9. Thermo Fisher Scientific 2.6% 10. Nike Inc. 2.6% Five Best Impact 1. Stericycle Inc. 2. Pepsico Inc. 3. Nike Inc. 4. Lockheed Martin Corp. 5. McDonalds Corp. Five Worst Impact 1. McDermott InY I 2. United States Steel Co. 3. Freeport McMoran 4. Verisign Inc. 5. PPL Corp. IZOCKWOOD CAPITAL ADVISORS :quity Transactions 3rd Q Sold Stock Jul Stryker Corp. Aug Unilever NV ___ _.. _ Archer Daniels Midland Sep Freeport-McMoran AT&T Inc. Koninklijke Ahold NV Anheuser Busch Companies Purchased Stock Mkt Cap Sector Description Jul First Solar Inc. LCap - Grw Industrials Produces solar modules using a p thin film semiconductor technology Aug Wal Mart Stores Inc. LCap -Blend Cons Staples Largest retailer in North America Burger King Holdings Inc. MCap - Grw Cons Disc Worlds second largest fast food h. chain Sep Landstar Systems Inc. SCap - Grw Industrials Operates a family of truckload can Hewitt Associates Inc. MCap - Grw Info Tech Global provider of human resourcE outsourcing and consulting servicE Boston Scientific Co. LCap - Grw Health Care Manufacturer of minimally invasivE devices New York Metro savings bank cats Hudson City Bancorp LCap -Blend Financials high median household counties a focuses on Jumbo Mortgages Commissions Paid 3'u Qtr Fiscal 2008 Year-to-Date Lynch, Jones & Ryan $ 5 31 $1, 942 2OCKWOOD CAPITAL ADVISORS =quity Holdings 3~ QI Exchange Ticker Com an Name Shares Avg Cost Total Cost Price Market Value Percent of Mkt Val (%) Current Yield (% Annual Income ISS CGQ - Cash ___ 356,624 1.00 356,624 1.00 356,624 14.0 2.1 7,489 NA AEM AGNICO EAGLE MINES 980 66.70 65,366 55.07 ___ 53,969 2.1 0.3 176 N/A BAX BAXTER INTL INC 1,100 58.90 64,791 65.63 72,432 2.8 1.3 957 0.35 BAYRY BAYER A G 1,000 55.32 55,318 72.93 72,930 2.9 2.2 1,634 N/A BSX BOSTON SCIENTIFIC 4,760 12.69 60,393 12.27 58,405 2.3 0.0 - 0.48 BKC BURGER KING HLDGS 2,300 28.62 65,826 24.56 56,488 2.2 1.0 575 0.61 CVX CHEVRONCORP .,620 65.34 52,910 82.48 51,138 2.0 3.2 1,612 0.67 KO COCA COLA CO 1,000 _._ 61.91 61,906 52.88 53,260 2.1 2.9 1,520 0.66 COST COSTCO WHSL CORP N 980 66.91 65,575 64.93 _ . 63,631 2.5 1.0 _. . 627 0.04 EIX EDISON INTL _ 1,120 _ _ 56.72 63,527 _... 39.90 45,030 1.8 3.1 1,366 0.79 ETR ENTERGY CORP NEW 580 111.76 64,818 89.01 __ __. .. 51,626 2.0 3.4 1,740 .......... 0.92 FSLR FIRST SOLAR INC 260 253.74 65,973 188.91 49,117 1.9 0.0 _ - _. 0.86 HNZ HEINZ H J CO 1 160 42.56 49,367 49.97 _ 58,447 2.3 3.3 1,926 0.94 HEW HEWITTASSOCS INC 1,490 40.16 59,834 36.44 54,296 2.1 0.0 _.._.. - 0.89 HPO HEWLETT PACKARD CO _. 1,485 33.46 49,682 46.24 68,785 2.7 0.7 475 0.52 HCBK HUDSON CITY BANGOR 3,390 18.97 64,296 18.45 _.._ 62,546 2.5 2.6 1,627 0.64 IBM INTL BUSINESS MCHN 613 _ _ 110.24 67,575 116.96 71,696 2.8 1.7 1,226 0.23 LSTR LANDSTAR SYS INC 1,240 49.48 61,354 44.06 54,634 2.2 0.4 _ 198 0.20 LMT LOCKHEED MARTIN CO 710 64 92 46,095 109.67 77,866 3.1 2.1 1,619 0.16 MDR MCDERMOTT INTL 970 49.79 48,297 25.55 24,784 1.0 0.0 - N/A MCD MCDONALDS CORP 950 52.86 50,213 61.70 58,615 2.3 3.2 1,900 _ 0.53 MHS MEDCO HEALTH SOLUT 1,330 __ 50.05 66,563 45.00 59,850 2.4 0.0 - 0.45 MTD METTLERTOLEDOINT 632 102.87 _ .. 65,012 _ 98.00 __ _ 61,936 2.4 0.0 - 0.78 NKE NIKE INC 980 67.83 66,472 66.90 65,787 2.6 1.4 902 __.. 0.05 ORCL ORACLE SYSTEMS COR 3,100 21.59 66,920 20.31 62,961 2.5 0.0 - 0.44 PEP PEPSICOINC 700 _. _ 70.14 49,099 71.27 49,889 2.0 2.4 1,190 0.92 PPL PPL CORP 1,500 34.50 51,752 37.02 _ 56,033 2.2 3.6 _. 2,010 0.55 PX PRAXAIR INC 1,000 _ 63.70 63,700 71.74 71,740 _ 2.8 2.1 1,500 0.84 HSIC SCHEIN HENRY INC 1,085 46.78 50,753 53.84 58,416 2.3 0.0 - 0.77 SLB SCHLUMBERGER LTD 620 98.10 60,822 78.09 48,546 1.9 1.1 521 _. _ _... N/A SIAL SIGMA ALDRICH CORP 1,150 58.39 67,150 52.42 60,283 2.4 1.0 598 0.30 SRCL STERICYCLE INC 1,440 33.13 47,713 58.91 84,830 3.3 0.0 - __ 0.39 SU SUNCOR INC 1,180 57.37 67,691 42.14 49,725 2.0 0.5 228 N/A TROW T.ROWE PRICE GROUP 1,250 35.30 44,130 53.71 67,138 2.6 1.8 1,200 __.. _.. 0.53 TMO THERMO FISHER SCIE 1,219 49.08 59,627 55.00 67,045 2.6 0.0 - 0.30 X UNITED STATES STL _.. __ 622 - 104.30 64,872 77.61 48,273 1.9 1.6 746 ....... 0.61 VRSN VERISIGN INC 2,075 29.00 60,181 26.08 54,116 2.1 0.0 - 0.02 WMT WAL MART STORES IN 1,060 60.95 64,607 59.89 63,483 2.5 1.6 1,007 0.36 Portfolio Total $2,557,004 $ 2,546,369 100.0 1.4 $36,569 COCKWOOD ~.APITAL ADVISORS 'ro~cy Voting Record 3rd Company Shares Voted Meeting Date Agenda Item Mgmt Rec Vote Cast Heinz H J Co. (HNZ) 1,160 8/1312008 ElectDirecbrs For For Ratify Audibrs For For Reduce Supermajority Vob Requirementb Amend Limitation of Direcbr Liability and Direcbrl0~icer IndemnilCation For For Reduce Supermajority Vote Requirementb Approve Certain Business Combinations For For Nike, Inc. (NKE) 980 9122/2008 ElectDirecbrs For For Ratif~r Audibrs For For Rockwood Capital Advisors, through our equity sub-adviser, Contravisory Research & Management Co., has retained Institutional Shareholder Services ("ISS") to coordinate and vote proxie with respect to client securities. Proxy voting is an important right of shareholders and reasonable care and diligence must be undertaken to ensure that such rights are properly and time) exercised. When the Adviser has discretion to vote the proxies of its clients, they will be voted by ISS in accordance with their Proxy Voting Guidelines in effect from time to time. The Advise believes that having proxies voted by a professional proxy voting service which has the staff and resources to carefully evaluate voting issues is in the best interests of its clients and will remov the possibility of encountering conflicts of interest on the part of the Adviser with respect to the voting of proxies. The Compliance Officer has reviewed the most recent ISS Proxy Voting Guidelines and believes that having proxies voted in accordance with such guidelines is consistent with the be: interests of the Adviser's clients. The Chief Compliance Officer has also determined that ISS, as a leading proxy voting firm, has the capacity and competency to adequately analyze prox issues. The Compliance Officer has also received information from ISS demonstrating to the satisfaction of the Compliance Officer that ISS has adopted procedures to ensure that it i independent with respect to its proxy voting decisions, including using "Chinese wall" and other procedures to segregate its proxy voting operations from its corporate servicing operations. IS has agreed to notify the Adviser if it believes ISS faces a material conflict of interest with respect to voting the proxies of a particular issuer. The Compliance Officer will monitor ISS to ensur that all proxies are being properly voted by periodically engaging in "spot reviews" of votes made by ISS. The Compliance Officer will also have ISS confirm annually that it is maintainin appropriate records as set forth below. Client quarterly reports contain information with respect to each voted proxy about which the client portfolio held during the period, including (a) the name of the issuer, (b) the proposal vote upon, and (c) how ISS voted the client's proxy. Additionally, the Compliance Officer will maintain files relating to the Adviser's proxy voting procedures in an easily accessible place. Records wi be maintained and preserved for five years from the end of the fiscal year during which the last entry was made on a record, with records for the first two years kept in the offices of the Advise Records of the following will be included in the files: Copies of this proxy voting policy and procedures, and any amendments thereto. A copy of each written client request for information on how ISS voted such client's proxies, and a copy of any written response to any (written or oral) client request fc information on how ISS voted its proxies. The Adviser has arranged with ISS to have ISS maintain and make available promptly upon request (i) copies of each proxy statement that is received for one of Adviser's clients, provide however that ISS and the Adviser may rely on obtaining a copy of proxy statements from the SEC's EDGAR system for those proxy statements that are so available, (ii) a record of each vote that ISS casts for one of Adviser's clients and (iii) a copy of any document ISS created that was material to making a decision how to vote proxies, or that memorializes that decision. KOCKWOOD CAPITAL ADVISORS =fixed Income 3rd Ql Financial Armageddon or Historic Buying Opportunity? The equity and credit markets have not experienced this level of upheaval since the Great Depression. The Fed and the Treasury have taken unprecedented steps to create firebreaks in an attempt to halt the spread of this financial forest fire. While each step has knocked down the flames for a time, new fires have been breaking out. Finally, we reached the point when the federal government felt compelled to propose the mother of all bailouts, a $700 billion plan to purchase impaired assets. Here are our current thoughts: Henry Paulson's $700 Billion Bailout Package. The meat of this package involves the federal government's purchase of impaired assets from banks, insurance companies, and other financial institutions. The government would hold these assets for some period of time, and then, theoretically, sell them at a profit when the market "returns to normal." Everybody is happy, right? Not so fast... What's the Root of the Problem? Large financial institutions have been hammered by losses on mortgage related securities, especially subprime. The prices of these assets have been written down, and the resulting losses have pushed some firms to the brink of insolvency. If the government buys these assets at "current market value" NOTHING is accomplished. The unrealized losses would simply become realized losses. For this plan to work, the government must purchase these assets at an ABOVE MARKET price, which would inject capital into the banks, meaning tax payers would be subsidizing these financial institutions. In our opinion, this plan is ripe for abuse, and we feel there are better ways. (We would prefer to see the government purchase preferred stock in these troubled institutions, which would directly recapitalize these firms.) We are skeptical that Paulson's bailout will work. (continued on next page) U.S. Treasury Yield Curves 6% 9/30/2008 2% 6/30/2008 - - - - -9/30/2007 ~% 3 2 5 mos yrs yrs 10 30 yrs yrs COCKWOOD CAPITAL ADVISORS =fixed Income 3rd QI Investment Implications. The genesis of this crisis was the bursting of the real estate bubble. Failed government policies that promoted risky lending coupled with overly loose monetary policy caused the bubble. The crisis will not end until home prices stabilize. If the banks are recapitalized, lending will resume, propping up the housing market. We feel that we are near the bottom, and better times are ahead. However, this will not be a V-shaped recovery. The economy is clearly slowing, and it will take some time to recover. Volatile times are ahead, especially if Paulson's plan falls short. How Are Your Funds Invested? Our conservative management style has benefited our clients during this crisis. We have avoided the major credit "blow-ups" such as Lehman Brothers and Washington Mutual. As you can see in the accompanying charts, investment grade bond yields relative to Treasuries are at astronomical levels, meaning investors are requiring greater compensation for risk. For investors with cash to invest, high quality bonds have never been cheaper. However, wise investors remain cautious and patient. Our longer term objective is to selectively increase our credit exposure, and overweight high quality corporate bonds and Agency mortgages. In some instances our returns were hurt because we were a bit early moving out of Treasuries and into Agency bonds and mortgages. Over the long term, allocations to high quality bonds and mortgages will be a winning trade. 10% 5% 0% -5% 3rd Qtr 2008 PerFormance 4.3% 4.3% 2.8% 3.1 One Year Twn Years 4.1% 4.0% Three Years ~~ ~OCKWOOD CAPITAL ADVISORS =.~. ^~ ~ r r =fixed Portfolio Structure 3rd QI Characteristics Tequesta PS Lehman Int Gov'bCredit Average Maturity 4.3 yrs 4.6 yrs Effective Duration 3.7 yrs 3.8 yrs Yield to Maturity 4.6% 4.5% POnfO~ 10 Nbrtgages 17% U.S. Treasuries 3% Cash 5% ABS/CMBS 11 % Corporate 17% COCKWOOD CAPITAL ADVISORS Agencies 47% 60% 40% 20% o°i° Effective Maturity Lehman Int C/C Nbrtgages , 0% Int'I 4% ABS / C 0% Agencies 23% 1 to 3 yrs 3 to 5 yrs 5 to 10 yrs 10+ yrs Tequesta PS ~ Lehman Int Gov't Corporates 31% =fixed Holdings ~i 3rd Ql PAR 000 CUSIP ISSUER MDYS CG GRADE COUPON % MATURITY PRICE ORG COST MKTVAL 000 % OF PORT YTMIC EFF DUR 20 OOOOOOCM Cash & Cash Equivalents Aaa - 0.00 10/1/2008 100.000 20,138 20,138 1.19 2.120 0.08 20 06051 GDX BANK AMER FDG CORP M Aa2 NIA 5.65 5/1/2018 84.229 18,688 17,313 1.02 8.040 7.04 25 07388VA6 A-2-FIXED RTBEAR STE Aaa - 5.33 1/12/2045 93.036 25,137 23,370 1.38 5.819 3.08 15 086516AG BEST BUY INC NT CR S Baal B 6.75 7/15/2013 101.075 15,060 15,434 0.91 6.784 4.00 15 14041 NEF A-FIXED RTCAPITAL O_N Aaa - 4.85 4/1512011 97.175 14,981 14,609 0.86 5.905 2.32 20 161571 CH A-FIXED RTCHASE ISSU Aaa - 5.12 10/15/2014 97.544 20,000 19,554 1.15 5.608 3.55 20 161571 CP A-FIXED RTCHASE ISSU Aaa - 4.65 311512013 95.117 19,999 19,065 1.12 5.745 3.91 11 15 17275RAC 172967ES CISCO SYS INC SR NT CITIGROUP INC SR NT Al Aaa B C 5.50 6.13 2/2212016 5/1512018 96.092 82.800 11.015 14,947 10.636 12,775 0.63 0.75 6.165 8434 6.06 6.91 20 142 30161MAE 3128M5Z0 EXELON GENERATION CO FHLM POOL G04051 A3 Aaa B - 6.20 6.00 10/1/2017 2/112038 87.882 101.325 20,089 145,035 18,196 144,322 1.07 8 50 8.124 5.623 6.56 3.62 25 3133MLT8 FEDERAL HOME LN BKS Aaa - 5.25 2/13!2009 100.781 25,940 25,363 1.49 3.092 0.37 50 3133X15Y FEDERAL HOME LN BKS Aaa - 4.10 3/3012009 100.438 49,725 50,225 2.96 3.210 0.49 200 3133XRN2 FEDERAL HOME LOAN BA Agy - 3.50 7116/2010 100.313 199,770 202,084 11.90 3.317 1.72 20 25 3134A3EM 31359MH8 FEDERAL HOME LN MTG FEDERAL NATL MTG ASS Aaa Aaa - - 5.75 5.00 3/15/2009 _ 311512016 101.094 102.906 20,866 24,199 20,270 25,782 1.19 1.52 3.319 4.536 0.45 6.32 105 22 31359MHK 31371NBD FEDERAL NATL MTG ASS FNMA POOL 256636 Aaa Agy - - 5.50 5.50 3/15/2011 3/1/2037 105.313 99720 110,959 22,102 110,835 21,901 6.53 1.29 3.234 5.512 2.30 397 100 300 3137EABA 3137EABS FEDERAL HOME LN MTG FEDERAL HOME LN MTG Aaa Aaa - 5.13 4.13 11/1712017 9/27/2013 103.063 100.781 106,780 304,521 104,971 303,752 6.18 17 89 4.708 3.949 7.36 4.51 23 31413GN7 FNMA POOL 945114 Aaa - 5.75 811/2037 100.000 23,523 23,503 1.39 4.168 1.18 10 36200EUP GNMA I POOL 599190 Aaa - 6.00 3!15/2035 101.660 9,922 9,758 0.58 5.457 4.49 46 36291 W7H GNMA I POOL 640896 Aaa - 7.00 4/15/2035 104.760 49,518 48,539 2.86 5.224 2.63 60 36291XMW GNMAIPOOL641273_ Aaa - 4.50 4/15/2035 95.544 58,907 57,766 3.40 5.403 5.56 20 38144LAC GOLDMANSACHSGROUP Aaa B+ 5.45 ___ 11/1/2012 84.769 _ 20,135 ___ 17,408 1.03 10.087 _ 3.44 15 428236A0 HEWLETT-PACKARD A2 8- 4.50 3/1!2013 96.088 15,040 14,469 0.85 4.436 3.99 20 46625HHB JPMORGAN & CHASE & C Aa2 B 4.75 5/1/2013 93.064 19,937 19,017 1.12 4.827 4.03 20 46625YNC A-0-FIXED RTJP MORGA Aaa - 4.74 7/15/2042 88.187 19,095 17,716 1.04 5.769 5.59 30 30 46629PAE 52108HU5 A-M-FIXED RTJP MORGA A-4-FIXED RTLB UBS C Aaa Aaa - - 5.37 4.51 5/15/2047 11/1512029 _ 78.957 94.681 26,762 29,388 23,821 28,479 1.40 1.68 6.877 5 779 _ 6.49 2.91 25 20 565849AD 58013ME6 MARATHON OIL CORP SR MCDONALDS CORP MED T Baal A3 _ B B+ 6.00 5.80 10/1 /2017 10/15/2017 89.830 99.443 25,030 20,416 23,208 20,423 1.37 1.20 7.579 5.860 6.67 6 97 15 595620AD _ MIDAMERICA_N_ENERGYC _A2_ B- 4.65 10!1/2014 92.691 14,073 14,252 0.84 6.123 5.07 20 61166WAF MONSANTO CO NEW SRN A2 B+ 5.13 4115/2018 _ 95.107 20,002 19,494 1.15 5.799 7.44 20 61747YCE MORGAN STANLEY FR 6% Al B+ 6.00 4128/2015 68.023 19,806 14,115 0.83 6.022 5.32 15 10 7134486E 78387GAP PEPSICO INC SR NT 5. SBC COMMUNICATIONS I Aa2 A2 8+ B+ 5.15 5.10 5/15/2012 9/1512014 103.307 93.529 14,993 9,621 15.788 9,376 0.93 0.55 4.156 6.424 3.25 5.09 15 20 606605AJ 907818CZ SCHERING PLOUGH CORP UNION PAC CORP NT 5. Baal Baal B+ N/A 6.00 5 75 - 9115!2017 11/15/2017 93.774 92.559 14,994 19,992 -- 14,106 18,946 0.83 1.12 6.944 6 859 6.92 6.94 50 25 912828HX 92343VAJ UNITED STATES TREAS VERIZON COMMUNICATIO _ Aaa A3 - B 2.13 4.35 4/30/2010 211512013 100.477 93.278 49,607 24,971 50,683 23.458 2.99 1.38 1.816 6.123 1.54 3.92 35 929766X2 A-5-FIXED RTWACHOVIA Aaa - 4.66 _ 5115/2044 92.915 34,103 32,656 1.92 5.882 3.39 Total $1,729,788 $1,697,579 100.0 •OCKWOOD CAPITAL ADVISORS historic Times 3rd QI • Investment grade credit spreads have skyrocketed to levels not previously seen. • Investors are frightened and are demanding additional yield to compensate for the risk they perceive in corporate bonds. • While we may not "be out of the woods" yet, at some point we feel that investors will look back on this period as a historic buying opportunity. Total Federal Reserve Bank Credit x,560 1,460 1,360 1260 1,750 1,0'30 b O Ii30 • 860 m 760 060 t~0 460 360 ZS ~ ~ ~ ~ g ~ 2G S ~ ~ y 5 Q f8 ^7 ^ H ~ i4 ~ ~ ~ ~ ~ ~ aa ~ ? ~ N ~ ~ + ~y ~ C ci & ~ v ~ R~ C _ 550 The CP tior~Adju investment Grade Spreads &ed Spread OAS of the Merritl Irnestrrmt Glade Corporate Irtaster Index 500 d50 9flOI2008, 459 doo 350 a~~noe.3z ~ 300 on_enow, o+a 250 +a+onapz, zer 200 1X820D0, 201 150 +vu+vse. +ss t ~ sn sreocs, ++o ~ Sr1a1996, 65 3nonoo5, rs z~a.eoor, ec ~ ~ ~ ~ ~_ ~ ~ 8 8 ~ e s 8 ~ ~ ~ ~ ~ ~ 8 ~ ~ ' ~ ~ ~ ~ ~ ~ ~ o ~ !~ ~ b ~ Zr F ~. ~ ~ 3 _ ~ o goo soo 500 ~, 400 q soo o° zoo too ZOCKWOOD CAPITAL ADVISORS o W ~ m o 0 0 0 0 `8 ~ q O ~ Q ~ Q LL p O Q ~ Q LL p O The Merrill Lynch ABS Master Index OpliorMdjusted Spread -listoric Times 3rd Q • The residential real estate bubble precipitated this crisis. • We will not see sustainable improvement until after housing prices stabilize. • Mortgage borrowing rates remain stubbornly high despite the drop in US Treasury Yields. 10 2546 56 20% ~D 15% % 10% `~' 5% % ~ 208 9°k ~' -5% % -to^6 ~0 -15% ~° -20% r ~, ~ ~~~ ~ s Q Q o a Q~ s ~ ~ ~ ~ ~ ~ ~ ~ ~ g ~ ~ ~ ~ ~ ~ ~ ~ ~ S ~ ~ 2.so 2.ao 2.20 2.00 1.80 1.60 1.40 i.2o ~.oo 0.80 0 c rn Obi 0 C ~ r 0 ~ g r n 0 0 ~ m .~- ~ 0 0 ~ o N n 0 0 ~ 0 lC'1 n 0 0 ~ 0 V r~ 0 0 ~ 0 ~ n 0 0 ~ ~ ^ ~ 0 0 c o OD ~ 0 0 c v W ~ 0 0 c m O n 0 0 ~ o L~ ~ 0 0 c ~ ro 0 0 c ~ N m 0 0 c `- c'~ m 0 0 ~ ~ v m 0 0 c ~ in c ~ c o c c c m S co r tOCKWOOD CAPITAL ADVISORS Fannie Mae 30-Year Mortgage Spreads Changes In The Case Shiller Composite-10 Home Price Index Rockwood Capital Advisors, LI.0 721 Emerson Road, Suite 565 St. Louis, MO 63141 314-962-8336 • toll -free 1-888-962-8336 rockwoodcapital.com