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Home My WebLink AboutDocumentation_Pension Public Safety_Tab 05_05/04/2009~~ 1 y~ r f s Y yF - - ~ .ak~aac ~~~t~~ ~~sarS .~. ~ .~ ~r " :~ ," ~' ~ ~ ~ , Vi ~ lage of Tec~uesta Public Safety aff~icers` Pension fund First Quarter 2009 Review May 04, 2009 ROCKWOOD CAPITAL ADVISORS wr ~ -,r~ ~,°. e. f ,~ ~ t r } t .. `~ ~ r rr , ~ ~ ~s ~~ ~ y g ~ }~ a ~• 1st Quarter 2009 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 performance and return over a number of years. The general investment objective, then, is to obtain a reasonable total rate of return -defined as interest and dividend income plus realized and unrealized capital gains or losses - ommensurate 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 rates and 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 60% S&P 500 Stock Index and 40% Barclays Intermediate Government/Credit Bond Index. On a relative basis, performance for the combined portfolio over three to five year periods is expected to be in the 40% of the PSN Universe. Additionally, on an absolute basis, performance for the combined portfolio over three to five year periods is expected to meet or exceed the actuarial earnings assumption of 8%. Authorized Investments 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 interest by the US Govt. or by an agency of the US Govt. Additionally, stocks, commingled funds administered by national or state banks, mutual funds and bonds or other evidence of indebtedness, issued or guaranteed by a corporation organized under the laws of the United States, any state or organized territory of the 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 equities shall be 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, capital stock or debt of any one issuing company, nor shall the aggregate investment in any one issuing company exceed 5% of the outstanding capital stock of the company. Foreign securities shall not exceed 10% of the value at cost of the fund. <i ROCKWOOD CAPITAL ADVISORS PAGE 1 Portfolio Summary Tequesta Public Safety Officers' Pension Fund Beginning Market Ending Market % of Portfolio Est. Annual Income Current Yield Fixed Income $1,513,775 $1,448,132 38.0% $62,723 4.3% ECIUIty $1,881,122 $1,972,930 51.4% $39,809 2.0% Cash & Equivalents $525,114 $406,276 10.6% $813 0.2% Accrued Income $14,590 $16,207 -- -- -- Total $3,934,601 $3,843,546 100% $103,345 2.7% Total Fund Performance Eixed Income 38.0% Cash & Equivalents 10.6% Equity 51.4°0 s 0 -5 -10 -15 -20 -25 -30 Tequesla Public Safety ~ 60 % S&P 500 40 % Barclays Int CJC ROCKWOOD CAPITAL ADVISORS PAGE 2 1st Quarter 2009 Quarter One Year Market Value Summary I. P Tequesta Public Safety Officers' Pension Fund Market Value Changes Total $ Change this quarter I $(91,055) 1 st Quarter Summary Beginning Market Balance $3,934,601 Interest /Dividends 24,671 Contributions 77,546 Net Disbursements (33,822) Net Realized & Unrealized (G/L) (159,450) Ending Market Balance $3,843,546 1st Quarter Total Fund Return I -3.4% Fiscal Year Summary Beginning Market Balance (9/30/2008) $4,243,949 Interest /Dividends 50,406 Contributions 2 3 9,42 4 Net Disbursements (59,654) Net Realized & Unrealized (G/L) (630,578) Ending Market Balance $3,843,546 ROCKWOOD CAPITAL ADVISORS PAGE 3 1st Quarter 2 009 Stock ~~~ ~~ 1st Quarter 2009 f ~~t~ Fo~cOWt~1iG ~~Ra~~/~l'~ ~an~T~iNS ~`~ (E}T~S ~ ...r 1 "^ ~~ -y , ROCKWOOD CAPITAL ADVISORS PAGE 4 Equity T~ y rags ~~~ c~.,~ ~. '~"~ 1 st Quarter 2009 Despite the Carnage, Stocks Gifer Long Term Value March came in like a raging bear and went out like an enthusiastic bull, as the challenging market environment of 2008 spilled-over into the first quarter of 2009. Despite an 18% rally in the latter part of March, all major indices ended the quarter in the red. The S&P 500 declined 11.0% while the average U.S. stock fund depreciated 9.4%. Foreign investors continue to be hit hardest as the Morgan Stanley EAFE Index sank 14.6%. The Balanced Composite Index decreased 6.6%. The Rockwood Strategic Equity portfolio, while down just over 7% in the quarter, performed better than the overall market. While evidence of any significant leadership change is still somewhat muted, we are encouraged by the magnitude of several late-stage declining issues (typically signaling a bottom in many areas with potential for positive upside surprises). The over-weight in the "discounted" Consumer Discretionary and Consumer Staples sectors benefited the portfolio, as did the avoidance of big "money-center" banks in the Financial sector. While inconsistent, improvement in the Healthcare and Technology sectors has allowed us to add positions such as Johnson & Johnson and Qualcomm Inc. Continued erosion in the economically sensitive Industrial sector remains disappointing. We expect these trends to continue and have positioned your portfolio accordingly. What triggered the recent rally? In March, the U.S. Federal Reserve announced it would buy as much as $300 billion of long-term U.S. Treasury securities and hundreds of billions of mortgage-backed securities. In buying these securities, the Fed is attempting to lower interest rates thereby unclogging the bottleneck in the credit markets (both key factors in righting the economy). The Fed's actions should help limit the contraction of the U.S. economy and the world economy. The stock market does not have to wait to see the effect of the Fed's action in order to move higher. Like prior recessions and bear markets, equities will more than likely be affected by hope. In addition, there is hope that the actions will be effective in stimulating the economy and improving market conditions. ROCKWOOD CAPITAL ADVISORS PAGE 5 ~' r®~ .~ i ~~ ~ ~ ~. ,•~ f ~, E ~.. ~ ~ ~ ~~; ~~ ~ ~~ ~~ E 1 st Quarter 2 009 As this is written, the market appears to be in a mending pattern, and we believe patience will ultimately be rewarded. As contrarians, we are always seeking extremes in historical data to give us some guidance as to the future direction of the stock market. While it is impossible to predict the short-term movements of the market, we know that longer-term historical data offers statistically significant clues as to the direction of the market over the next 12 plus months. In early March, our data signaled that the selling pressure had reached unprecedented levels. During past cycles when the data had reached similar extremes, investors were rewarded with above average gains by staying the course. Today's data suggest that stocks are particularly attractive for longer-term investors. Performance 0 -5 -10 -15 -20 -25 -30 -35 -40 requesta Public Safety S&P 500 ROCKWOOD CAPITAL ADVISORS PAGE 6 QTR Fiscal One Year Two Years Three Years Inception YTD Equity Portfolio 1st Quarter 2009 Portfolio Summary # of Stocks 37 Beta 0.9 Yield 1.7% P/E 15.1x Style Box Val Cr Gnv Large Cap - 49.1 Mid Cap - 48.8% Small Cap - 2.1 Average Market Cap $37.5 billion Median Market Cap $12.8 billion Top 10 Holdings 1. Stericycle Inc. 3.0% 2. Ross Stores Inc. 3.0% 3. St Jude Medical Inc. 2.7% 4. Henry Schein Inc. 2.7% 5. Int' I Business Corp. 2.6% 6. Progressive Corp. 2.5% 7. Hewitt Associates Inc. 2.5% 8. Coca Cola Co. 2.5% 9. Baxter Int'I Inc. 2.5% 10. Pepsico Inc. 2.4% Five Best Impact 1. TJX Companies Inc. New I +25.3 2. Staples Inc. +24.7 3. Ross Stores Inc. +19.5 4. Them~o Fisher Scientific +17.4 5. Qualcomm Inc. Five Worst Imp 1. Wells Fargo & Co. New +17.0 act -70.5 2. T. Rowe Price Group I -42.4 3. Mettler-Toledo Int'I Inc. -30.3 4. Hudson City Bancorp Inc. -25.8 5. Nationwide Health Propert ~ -19.8 ROCKWOOD CAPITAL ADVISORS PAGE 7 "~ t ~ ~ '` ~ .~ .~ '. 9 ~ ~ -~ a ,~ a .:,~ i oaf ~~s ar~c~ ~~r~ i .. _, s4~ #' c. v 1st Quarter 2 009 Health 28% Staples Discretionary Care 26.1 24% 20% 17.1% 16% 15.7% ~`~' 12% ~:y 9.1% 8% - , . ~: ~~~ 4 % i ~'E.. ! ~~ v< 0% 0% -10% -20% -30% -40% -50% -5.4% - -11.3% -0.3% - -8.6 Sector Allocation Info Materials Tech Energy 18.2% 12.0% 2 6% 3.2% -0.7% _ -8.5% -2.8% Staples Discretionary Health Materials Care Performance 4.0% i et2 -2.7% y~~'.. 81% -12.1% ndustrial -6.3% ^ -21.8% Info Energy Industrial Tech Tele Finance Util 0.0% ~ -8.5% ii ~`~ ~% -17.2% -~8.0 % _2° ~0;~ Tele Finance Util Rockwood ~ S&P 500 ROCKWOOD CAPITAL ADVISORS PAGE 8 s - ~~' , ~~"~ - ~" ~~ ~° ~t ,,. _, R 1st Quarter 2009 Sold Stock Jan Bayer AG Praxair Inc. ~ ~~ ~ ~ ~~~ Feb Thermo Fisher Scientific March Copart Inc. Mettler-Toledo Infl Inc. T. Rowe Price Group I Wells Fargo & Co. Purchased Stock Mkt Cap Sector Industry Desc Jan Celgene Corp. LCap - Gwth Health Care Biotech company develops & distributes small _.. ..... ,._.... _._ . w molecule drugs. --- Ross Stores Inc. MCap - Gwth Con Desc Discount retailer with stores in 27 states and Guam. Feb Owens & Minor Inc. MCap -Blend Health Care Leading domestic wholesaler of medical and surgical supplies. March Johnson & Johnson LCap - Gwth Health Care Leading pharmaceutical, medical device and consumer products company. . . ~ _ Kroger Co. m ..~~ . ._... ,. LCap -Blend ~ .. ~ e , Con Staples _ .. . _ ~ _.~ . - -- ~ Supermarket operator with over 2500 stores in 31 states Qualcomm Inc. LCap - Gwth Tech Develops products and services in wireless ~. broadband technology Staples Inc. LCap - Gwth Con Desc Leading specialty retailer of office supply superstores with 2000 units in the U.S. and abroad Commissions Paid 1 st Quarter Fiscal 2009 Year-to-Date Lynch, Jones & Ryan $ 558 $ 1,116 ROCKWOOD CAPITAL ADVISORS PAGE 9 Equity Holdings Exchange Market Total Market Current Annual ISS Ticker Com an Name Shares Unit Cost Ori final Cost Price Value % Mkt Yield Income CGQ - CASH & EQUIVALENTS 330,789 1.00 330,789 1.00 330,789 14.3 0.2 662 N/A ACV ALBERTO-CULVER CO. NEW 2,200 27.41 60,309 22.61 49,742 2.2 1.3 660 0.33 BAX BAXTER INT'L INC. 1,100 58.90 64,791 51.22 56,628 2.5 2.0 1,144 0.35 _,~ BKC BURGER KING HOLDINGS INC. 2,300 28.62 65,826 22.95 52,785 2.3 1.1 575 0.93 BSX BOSTON SCIENTIFIC CORP. 5,560 12.03 66,905 7.95 44,202 1.9 0.0 - 0.47 CELG CELGENE CORP. 1,080 51.26 55,359 44.40 47,952 2.1 0.0 - 0.11 COST COSTCO WHOLESALE CORP. NEW 1,180 62.80 74,103 46.32 54,658 2.4 1.4 755 0.04 __ CVX CHEVRON CORP. 800 81.72 65,372 67.24 53,792 2.3 3.9 2,080 0.67 ETR ENTERGY CORP. NEW 780 100.62 78,483 68.09 53,110 2.3 4.4 2,340 0.99 HCBK HUDSON CITY BANCORP INC. 3,390 18:97 64,296 11.69 39,629 1.7 4.8 1,898 ' 0.64 HEW HEWITTASSOCIATES INC. 1,940 37.39 72,538 29.76 57,734 2.5 0.0 - 0.95 HNZ HJ HEINZ CO. 1,580. 40.48 63,962 33.06 52,891 2.3 5.0 2,623 0.93 HPQ HEWLETT PACKARD CO. 1,485 33.46 49,682 32.06 47,728 2.1 1.0 475 0.51 HSIC HENRY SCHEIN INC. 1,525 43.67 66,594 40.01 61,015 2.7 0.0 - 0.78 t IBM INT'L BUSINESS CORP. 613 110.24 67,575 96.89 59,394 2.6 2.1 1,226 0.29 JNJ JOHNSON 8 JOHNSON 850' 47.61 40,465 52.60 44,710 1.9 3.5 1,564 0.18 KO COCA COLA CO. 1,300 57.46 74,704 43.95 57,668 2.5 3.7 2,132 0.64 KR KROGER CO. 2,100 19.75 41,467 21.22 44,562 1.9 1.7 756 0.79 LMT LOCKHEED MARTIN CORP. 710 64.92 46,095 69.03 49,011 2.1 3.3 1,619 0.17 LSTR LANDSTAR SYSTEM INC. 1,660 45.46 75,457 33.47 55,560 2.4 0.5 266 0.19 MCD MCDONALD'S CORP. 950 52.86 50,213 54.57 51,842 2.3 3.7 1,900 0.55 MHS MEDCO HEALTH SOLUTIONS INC. 1,330 50.05 66,563 41.34 54,982 2.4 0.0 - 0.45 MMC MARSH & MCLENNAN COS. 2,660 23.44 62,356 20.25 53,865 2.3 4.0 2,128 0.32 NHP NATIONWIDE HEALTH PROPERTIE; 2,220' 32.07 71,189 22.19 49,262 2.1 7.9 3,907 0.77 ., 4 NKE NIKE INC. 1,180 63.55 74,989 46.89 55,625 2.4 2.1 1,180 . 0.04 _ OMI OWENS & MINOR INC 1,380 40.23 55,520 33.13 45,719 2.0 2.8 1,270 0.89 ORCL ORACLE SYSTEMS CORP. 3,100 21.59 66,920 18.07 56,017 2.4 1.1 620 0.43 PEP PEPSICOINC. 1,090 62.96 68,626 51.48 56,113 2.4 3.3 1,853 0.91 PGR PROGRESSIVE CORP. 4,350 15.93 69,277 13.44 58,464 2.5 0.0 - 0.61 QCOM QUALCOMM INC. 1,200 33.27 39,924 38.91 46,692 2.0 1.6 768 0.69 _ _- ROST ROSS STORES INC. 1,900 30.13 57,237 35.88 68,172 3.0 1.2 836 0.23 SIAL SIGMA-ALDRICH CORP. 1,390 54.73 76,078 37.79 52,528 2.3 1.5 806 0.30 SPLS STAPLES INC. 2,800 14.59 40,851 18.11 50,939 2.2 1.8 924 0.77 SRCL STERICYCLE INC. 1,440 33.13 47,713 47.73 68,731 3.0 0.0 - 0.19 STJ ST. JUDE MEDICAL INC. 1,730 39.87 68,982 36.33 62,851 2.7 0.0 - 0.61 TJX TJX COMPANIES INC. NEW 2,090 25.41 53,100 25.64 53,588 2.3 1.7 920 0.91 WMT WAL MART STORES INC. 1,060 60.95 64,607 52.10 55,515 2.4 2.1 1,155 0.36 YUM YUM BRANDS INC. 1,880 28.07 52,776 27.48 51,662 2.2 2.8 1,429 0.62 _ Portfolio Total $2,611,694 $2,306,128 100.0 1.7 $40,471 I~ROCKWOOD CAPITAL ADVISORS PAGE l0 1st Quarter 2 009 Meeting Shares Date Agenda Item Alberto-Culver Co. (BKC) Mgmt Vote Rec Cast 2,300 1/22/2009 Elect Directors For For __ __ Elect Directors For __ For Costco Wholesale (ORCL) 3,100 1/28/2009 Elect Directors For For Ratify Auditors For For _.. _ Hewitt Associates (ORCL) _ __, 3,100 2/4/2009 Elect Directors For For Ratify Auditors For For 3/18/2009 Elect Directors For __.._ For Ratify Auditors __ For For Proxy Footnote Rockwood Capital Advisors, through our equity sub-adviser, Contravisory Research & Management Co., has retained Institutional Shareholder Services ("ISS") to coordinate and vote proxies 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 timely 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 Adviser 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 remove 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 best 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 proxy 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 is 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. ISS 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 ensure 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 maintaining 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 voted 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 will 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 Adviser. 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 for 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, provided 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. "' If there are no shares listed, a proxy was voted but shares were not held at the end of the quarter. Refer to prior holdings reports. `"" ROCKWOOD CAPITAL ADVISORS PAGE 11 1st Quarter 2009 Fixed Income E~ ~ ~~~ ~~~~~ ~ ~~ Light at the End of the Tunnel??? We stated last quarter, "The Fed and the Treasury have developed proposal after proposal, seeking to contain the damage. Paulson and Bernanke always seemed to be reacting to the latest crisis; creating some new acronym to address the newest problem even before the efficacy of the previous program was evaluated." True to form, Treasury Secretary Geithner introduced a new acronym into the current investment lexicon, the PPIP (Public-Private Investment Program). This is the last scheme to get "toxic" assets off of bank balance sheets. The Treasury is attempting to attract buyers of these assets by offering non-recourse financing, effectively offering leveraged upside returns, with any downside absorbed by tax payers (sweet deal, huh). The Treasury is offering such great terms as an inducement for investors to pay more for these securities than they are currently worth. The banks will only sell these securities if they can get at least what they are being carried at, which by all accounts are being carried at "fairy tale" levels. In short, we feel that this plan is a method of overpaying for securities, subsidizing the returns for a small group of investors at taxpayer expense. The Fed also took a historic step this quarter when it announced on March 18 that it would purchase at least $300 billion in US Treasuries, embarking on a strategy known as "quantitative easing." With the federal funds rate already near zero, the Fed has decided to make massive purchases of Treasuries, agencies and MBS as a means of injecting additional liquidity into the banking system. This is a strategy first pursued by Japan in the 198O's. Many are concerned that the Fed is planting the seeds of a large upward spike in inflation in the not-to-distant future. Treasury yields fell dramatically on the news of the coming Fed purchases of Treasuries. US Treasury Yield Curves Sector Index Returns 6% 5% 4% 3% 2% 1% 0% .. ~^ -.^' ~° -..- m'° . ~,° ~~ 3/31 /2D09 m' '"`~ ~ 12/31 /2008 -- - - 3/31/2008 3 2 5 10 30 mos yrs yrs yrs yrs 20% 10% 0% -10% -20% -30% ® 1 Q 2009 ^ YTD 2008 Tsy Agy MBS Credit CMBS HY ~iROCKWOOD CAPITAL ADVISORS PAGE 12 1 st Quarter 200 1st Quarter 200 Suffice it to say, the federal government continues to take any and all steps to revive the economy, regardless of the potential long- term consequences. The Fed is going to have its hands full in a year or so. We liken the current amount of monetary stimulus to a cloud of propane gas floating along the ground. When the economy starts to turn, it will be like a match being struck. The Fed will have to drain this liquidity in a hurry, or a substantial spike in inflation will surely occur. For political reasons, we feel the Fed will have a difficult time pulling off this balancing act. (Politicians hate it when the Fed tries to take away the punch bowl.) Our approach for 2009 has been adjusted following the Fed announcement to buy Treasuries. While we continue to feel that Treasuries are overvalued, we recall the famous adage of Martin Zweig: "Don't fight the Fed." We increased our allocation to US Treasuries and extended our duration given the Fed's intention to drive rates lower. We also reduced our MBS exposure. When we feel the economy is bottoming, we will revert to a Treasury underweight, and overweight high quality corporate bonds, CMBS and Agency mortgages. Repeating our advice of last quarter, "Investors would be well advised to invest in those sectors supported by Uncle Sam, particularly if one has the foresight to anticipate the next bailout recipient and to arrive before the crowd gets there." Performance 10 >` Tequesta Public Safety ^ Barclays Int. G/C -5 ROCKWOOD CAPITAL ADVISORS PAGE 13 Quarter Fiscal YTD One Year Two Years Three Years Inception ~ ;. '~$ „ ~ +s r ® ~ ~ ~ fir ~r~ ~ ~~* 4 ~ ~ ~"~''z?"` e s ~,.. ~~ s %~ ~: ~. g ~ ~' . ,. ~:. 1 st Quarter 2009 Characteristics 45 40 Effective Maturity Tequesta Public Safety ~ Barclays Int. G/C Index U.S. Treasuries 45% Agencies 23% ROCKWOOD CAPITAL ADVISORS PAGE 14 1 to 3 years 3 to 5 years 5 to 10 years 10+ years e; Fixed Holdings if 1st Quarter 2 009 Moody's / Coupon Maturity S&P Rate Date 75 - CASH & EQUIVALENTS Aaa /AAA 0.00 04/01/2009 20 06051GDX BANKAMER FDG CORP MTN-L 5.65 A2 /A 5.65 05/01/2018 25 07388VA6 A-2-FIXED RTBEAR STEARNS COMMER~ Aaa /AAA 5.33 01/12/2045 7 086516AJ BEST BUY INC NT 6.75%13 Baa21 BBB- 6.75 07/15/2013 10 12189TBA BURLINGTON NORTHN SANTA FE CP Baa1 /BBB 5.75 03/15/2018 15 14041NEF A-FIXED RTCAPITAL ONE MULTI-ASSET Aaa /AAA 4.85 04/15/2011 20 161571CH A-FIXED RTCHASE ISSUANCE TRUST20 AaalAAA 5.12 10/15/2014 20 161571CP A-FIXED RTCHASE ISSUANCE TRUST20 Aaa /AAA 4.65 03/15/2013 11 17275RAC CISCO SYS INC SR NT 5.5%16 Al /A+ 5.50 02/22/2016 15 172967DZ CITIGROUP INC GLBL SR 5.25%12 A3 /A 5.25 02/27/2012 15 172967ES CITIGROUP INC SR NT 6.125%18 A3 !A 6.13 05/15/2018 25 25179MAH DEVON ENERGY CORP NEW SR NT 6 Baal /BBB+ 6.30 01/15/2019 20 30161 MAE EXELON GENERATION CO LLC SRN A3 /BBB 6.20 10/01/2017 100 3133XMQ8 FEDERAL HOME LN BKS CONS BD 5 Aaa /AAA 5.00 11/17/2017 25 31359MH8 FEDERAL NATL MTG ASSN FR 5%03 Aaa /AAA 5.00 03/15/2016 105 31359MHK FEDERAL NATL MTG ASSN FR 5 Aaa /AAA 5.50 03/15/2011 100 3137EABA FEDERAL HOME LN MTG CORP REFR Aaa /AAA 5.13 11/17/2017 100 3137EABU FEDERAL HOME LN MTG CORP REFR Aaa /AAA 3.13 10/25/2010 9 36200EUP GNMA I POOL 599190 Aaa /AAA 6.00 03/15/2035 46 36291W7H GNMA I POOL 640896 Aaa /AAA 7.00 04/15/2035 60 36291XMW GNMA I POOL 641273 Aaa /AAA 4.50 04/15/2035 30 46625HGY JPMORGAN CHASE & CO SR NT 6%0 Aaa /A+ 6.00 01/15/2018 20 46625YNC A-4-FIXED RTJP MORGAN CHASE COMB Aaa /AAA 4.74 07/15/2042 30 46629PAE A-M-FIXED RTJP MORGAN CHASE COMI Aaa /AAA 5.37 05/15/2047 30 52108HU5 A-4-FIXED RTLB-UBS COMMERCIAL MOI Aaa /AAA 4.51 12/15/2029 25 565849AD MARATHON OIL CORP SR NT 6%17 Baal /BBB+ 6.00 10/01/2017 20 58013ME6 MCDONALDS CORP MED TERM NT BE A3 /A 5.80 10/15/2017 15 59018YJ3 MERRILL LYNCH CO INC MTN BE F A2 /A 6.05 08/15/2012 15 595620AD MIDAMERICAN ENERGY CO FR 4.65 A2 /A- 4.65 10/01/2014 20 61166WAF MONSANTO CO NEW SR NT 5.125%1 A2 !A+ 5.13 04/15/2018 35 61747YCE MORGAN STANLEY FR 6%042815 A2 /A 6.00 04/28/2015 10 78387GAP SBC COMMUNICATIONS INC GLBL N A2 /A 5.10 09/15/2014 15 806605AJ SCHERING PLOUGH CORP NT 6%17 Baal /A- 6.00 09/15/2017 20 907818CZ UNION PAC CORP NT 5.75%17 Baal /BBB 5.75 11/15/2017 30 912828JZ UNITED STATES TREAS NTS 1.750 Aaa /AAA 1.75 01!31/2014 Market ~ Original 82.60 25,137 95.14 6,322 98.69 9,843 99.00 14,981 100.62 20,000 97.08 19,999 105.81 11,015 89.42 20,089 109.25 108, 866 110.97 24,199 107.88 110,959 111.56 106,780 102.97 100, 276 104.78 9,851 .51 103.09 95.47 100.68 58,262 29,864 19,095 26,762 29,388 25,030 20,416 14,806 14, 073 20, 002 33,665 9,621 14,994 Market Value % of '' Port i, YTM r Eff Dur CG Grade 75,487 4.91 0.100 0.08 --- 17,156 1.12 8.281 6.76 C+ 20,760 1.35 11.675 2.56 --- 6,760 0.44 8.108 3.61 --- 9,895 0.64 5.940 7.10 --- 14,882 0.97 5.376 1.90 --- 20,170 1.31 4.939 3.17 --- 19,458 1.27 5..499 3.52 --- 11,705 0.76 4.508 5.82 B 13,441 0.87 9.631 2.60 --- 13,294 0.86 8.291 6.69 C 24,751 1.61 6.640 7.32 --- 18,504 1.20 7.935 6.32 B ,798 ~ 1.81 ~ 3.227 ~ 6.04 ~ --- 113,471 ! 7.38 { 3.556 ~ 7.16 - --- 61,269 - 30,682 14,767 :.13,606 ' 26,142 23,920 22, 037 12,987 15,437 20,667 33, 937 10, 056 15,504 19,528 30,291 ROCKWOOD CAPITAL ADVISORS PAGE 15 <' .~ ~, Fixed Holdings 1st Quarter 2009 Par Cusip Issuer Moody's / S8~P Coupon Rate Maturity Date Market Price Original Cost 85 912828KD UNITED STATES TREAS NTS 0.000 Aaa /AAA 2.75 02/15/2019 100..55 84,881 :50 912828KG UNITED STATES TREAS NTS 1.375 Aaa /AAA 1.38 03!1512012 100.70 251,447 25 92343VAJ VERIZON COMMUNICATIONS INC NT A3 /A 4.35 02/15/2013 99.20 24,971 35 929766X2 A-5-FIXED RTWACHOVIA BANK COMME Aaa /AAA 4.66 05/15/2044 81.06 34,103 Portfolio Total $1,547,271 Market % of CG Value Port YTM Eff Dur Grade 85,756 " 5.58 2.686 8.97 --- 251,896 16.38 1.135 2.90 --- 24,938 1.62 4.578 3.54 6- 28,508 1.85 11.767 2.86 --- $1,537,418 I 100% ROCKWOOD CAPITAL ADVISORS PAGE 16 ,~ ~ .~! Unprecedented Market Conditions • The current economic crisis was triggered by falling home prices; unfortunately they continue to tumble. • Financial institutions have greatly reduced their borrowings in an effort to repair decimated balance sheets. • On the other hand, the Fed is attempting to fill the void, becoming the lender of last resort. While probably necessary, the Fed's aggressive stance could be inflationary at some point. Taal federal Reserve Bank CredK z46s z.4m .a 1xx¢oa. aa~ u z~6 zz64 2,W0 2'.;:~n«tiK&. ;vtii Hr 2.004 1 806 1.804 1.606 1,~ 1.40^^. 1 4604 1.26'^ 1.x'7 1,004 1, 800 e60 &ir_.2M)5 60'0 ~'r gOp 40' 4t0 200 200 6$ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ s ~ ~ ~6 - - ~ ~ _ ~ r_ 6 ., Changes In The Case ShiHer Canposke-10 Fbme Price Index at! YN ~aV1 ~ :~: r ~v>y Year-over•Year r y ~ i ~ '~ Change J ~ iC"~ / .-..~ ~.r./ ~ ~ } ~` ii fps `~ j ~ ~ ! ~ n ~~ ~ ~:~ ~ r, ,~~4 ~'! '~~ ._ ~.~~~,~~-~~,e ~, L.: F ' ( lj _se~ r:~,~~ ~a~ ~ ~ -~. o ,r~r tB 1PU ~~ 4 - - 3, '~'. $ ~ ~ 4 4 ~ c `~, d ,~ ~ t K k E $ ~ R%~ A ~ g ~ ~ ~ ~ ~ ~ f ~ F E ~ ~ g .. ... _ .= Leverage In The Markets: Bonds Vs Stocks - . er, `+VJ ,~iJ i Vii.:. ~:~ .., . :'41'x, BbM1d blMlt~t Lararap! _., Pnsnsry{,~a~r IdH C~orrom!:g: i `+[ 1 JO~ = 4ftU ire; _ $ i0%~ .. SQJ q!+{. a~ e 1 __ _ .+.. - ~._-~i{aek MUFstL o sqc F wst Barrowsg F'.re - -~ ~ i t~ iP[: e.. r. ,~„~ . : ~. N - ~ a - w ._ d y = ~. . ROCKWOOD CAPITAL ADVISORS PAGE 17 1st Quarter 2009 Investment Grade Spreads me Op6rn-.odjustee s~aa (aasi a me r~~ hrvesment cxade co,po!at r~tr ~ndeu • Investment grade corporates, asset-backed and commercial mortgage-backed securities are all trading at attractive levels versus Treasuries. • Residential MBS, despite good recent performance, is still attractive given the Fed's plan to purchase $1.25 trillion this year. 400 350 sao ?a,w.^oca.a6t 250 t?~^_000. 2A9 200 ~f1990, 1H 150 sft9II006, t1 ~~ 5..^_er1&9B, fig :N, SII9C5. S 50 ~g Q~ f~ Q ca Si & ~ S ffi S S H ~~ "-' N N F Fi Fi A t4 a m- ~ a ~a ~~ a a~ a a a a goo ,y5rzo%'6aa 65D 600 5S0 500 450 A 4ao 350 srzer.6a.s,e soo 250 200 150 0 t0() a261~GI, 666 50 ~ ~ m ff ~ ~ ~ ROCKWOOD CAPITAL ADVISORS PAGE 18 1st Quarter 2009 ,. ~- ~ ~. ~,~ ,~ ~.: '~,~,'" ask ~r Treys Y~~ ~A ~~ ,~~ ~o .. ~~ . ~~~. ;~* ~. ~~ • Although the Treasury plans to issue an unprecedented amount of securities to fund government spending, the Fed's plan to purchase Treasuries will offset some of the pressure for higher yields. 1st Quarter 2009 ROCKWOOD CAPITAL ADVISORS PAGE 19