HomeMy WebLinkAboutDocumentation_Pension Public Safety_Tab_03_08/03/2009-.. -
• fi f
i ~
i ;
Rock~rvood Ca ital Advisors ~ ..~ ,; ~~`
~ - .~
Strategy Review
Presented By:
Anthony K. Brown
Senior Partner
Tony@ rockwoodcapital.com
Village of Tequesta
Public Safety
Officers' Pension Fund
Second Quarter 2009
Review
August 03, 2009
ROCKWOOD CAPITAL ADVISORS
s
~ #
'~
• ^
investment Polk ~ ~ ~.:~ +
y .~
2nd 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.
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 $1,448,132 $1,513,302 37.1% $58,841 3.9%
Equity $1,972,930 $2,454,617 59.8% $44,786 1.8%
Cash & Equivalents $406,276 $125,342 3.1 % $251 0.2%
Accrued Income $16,207 $14,464 -- -- --
-r„+~I $3,843,546 $4,107,725 100% $103,878 2.5%
Total Fund Performance
Fixed Income
37.1%
Equity
59.8
Cash &
Equivalents
3.1
20
15
10
5
0
-5
-10
-15
-20
Tequesta Public Safety
60% S&P 500
~ 40% Barclays Int CJC
ROCKWOOD CAPITAL ADVISORS PAGE 2
2nd Quarter 2009
Quarter One Year
r r
r ~ ~
~~ ~~ i # ~ •
•
~, ';`,.
,.
ue Summa
~-
~. ~ ~ .~.
~~ a 1 ~ ~ +
2nd ~uUi~t~i ~'uv~
Tequesta Public Safety Officers' Pension Fund Market Value Changes
Total $ Change this quarter $264 179
2nd Quarter Summary
Beginning Market Balance $3,843,546
Interest /Dividends 27,452
Contributions 85,414
Net Disbursements (37,003)
Net Realized & Unrealized (G/L) 188,316
Ending Market Balance $4,107,725
2nd Quarter Total Fund Return ~ 5.6%
Fiscal Year Summary
Beginning Market Balance (9/30/2008) $4,243,949
Interest /Dividends 76,868
Contributions 324,838
Net Disbursements (96,657)
Net Realized & Unrealized (G/L) (441,273)
Ending Market Balance $4,107,725
~ROCKWOOD CAPITAL ADVISORS PAGE 3
M(B)illions $$$
2nd Quarter 2009
If you spent a million
dollars a day.._
as Congress did in
the Stimulus Bill.
every single day since
Jesus was born...
Now, let's quadruple
that amount...
you still wouldn't
have spent as much,..
ROCKWOOD CAPITAL ADVISORS PAGE 4
Relief
The "enthusiastic bull" that emerged in March, continued its charge for the better part of the 2"d Quarter, leading to renewed optimism that the worst may
be over for the financial markets - at least for now. While the recession remains with us, its severity seems to be lessening. Overall, the quarter brought
a "global sigh of relied' that "the world is not coming to an end" as emerging markets and commodities were the big winners. The S&P 500 Index
surged 15.9% while the Dow )ones Industrial Average gained 12.0%. However, foreign investors in developed markets and emerging markets fared
better as the Morgan Stanley EAFE Index rose 23.8%.
The markets seem to have moved past the pain and recalibrated over the past few months. Investors are no longer concerned about the possibilities of a
total bank failure, the ensuing wllapse of the financial system and the "end of the world." The likelihood of a second Great Depression seems to have
faded from investors' minds, although we are left with a recession that is deeper and longer than any post-World War II contraction.
The massive government and central bank efforts to support economic recovery and improve lending conditions appear to have stabilized the financial
markets and prevented the precipitous decline that many had feared. We have never seen the level of international cooperation on the economic front
that exists today. This intervention has buoyed consumer and business confidence -bosh key drivers within a capitalistic system.
The equity rally that began March 9~' seems to be taking a breather as investors attempt to align recent gains with economic expectations. While the rally
has been impressive, a "time out" or short term consolidation phase would be considered healthy for its overall longevity. A pullback will give the bears
an opportunity to justify their positions before the market resumes its longer-term uptrend. It is therefore reasonable to expect a choppy environment in the
interim as investors digest recent gains.
ROCKWOOD CAPITAL ADVISORS PAGE 5
2nd Quarter 2009
Equity
The construction of your portfolio continues to evolve as the market transitions from bear to bull. Such transitions are often initially accompanied by
dramatic price recoveries within the most damaged areas, a "dash for trash" (i.e. financials and commodity-based industries such as oil, ste~e/, and gvlc~,
and lackluster results from defensive aromas such as consumer staples and select healthcare, which had a negative impact on the portfolio for the quarter.
During this first phase of recovery, it is critical to be disciplined by not overreacting to typical price behavior. True leadership will take longer to emerge.
The Equity Portfolio continues to benefit from an increased allocation within the strengthening consumer discretionary and technology sectors and from an
overweight in the healthcare area. Also, a reduction in holdings within the defensive consumer staples area has been a positive contributor. While the
portfolio is currently well positioned, we will continue to monitor and make adjustments when warranted. In fact, the recent price weakness is likely to
provide a growing list of buy opportunities in the near future.
Performance
40
20 ~ s.fi
8.2
a
z
~.6 .
0
-20
-40
-6.2 -6.3
-27.4 -26.6
QTR YTD One Year Three
Vaarc
-4.2
Four Years
~ Tequesta Public Safety
-~,3 30 ^ Russe113000
Inception
ROCKWOOD CAPITAL ADVISORS PAGE 6
2nd Quarter 2 009
Equity Par~o~io
Portfolio Summary
# of Stocks 3 7
Beta 0.9
Yield 1. g%
P/E 15.Ox
Style Box
Top 10 Holdings
1.Oracle Systems Corp. 3.4%
2. Qualcomm Inc. 3.3%
3. Hewlett Packard Co. 3.3%
4. Ross Stores Inc. 3.2%
5. Stericycle Inc. 3.0%
6. Nike Inc. 3.0%
7. Henry Schein Inc. 3.0%
8. Staples Inc. 3.0%
9.Int'I Business Corp. 2.9%
10. Medco Health Solutions Inc. 2.9%
Five Best Impact
1. CAvens & Minorlnc +33.0
2. Sigma-Aldrich Corp. +31.5
3. Boston Scientific Corp. +27.4
4. TJX Companies Inc. New +23.2
5. Yum Brands Inc.
Five Worst Imp
1. Burger King Holdings Inc. +22.0
act
-27.4
2. Celgene Corp. -12.4
3. Choice Hotels Int' I -7.4
4. Qwest Communications -6.6
5. Wal Mart Stores Inc. -6.5
ROCKWOOD CAPITAL ADVISORS PAGE 7
2nd Quarter 2009
Equity Analysis' and Attribution
Sector Allocation
Health Info
3E
3C
2°
2C
1E
1(
C
Performance
ao°io
30%
20% 17.7% 14.5% 15.5% 15.8 % 19.4
10% 81% 8.9% 38% ~ 8.3%
0%
-10%
-20%
-30%
Staples Discretionary Health Materials Info
Care Tech
ndustrial Tele Finance Util
18.0%
10.1%
3 9%
-0.8%
Energy
1.9%
35.1
0.0%
-28.0%
Industrial Tele Finance
8.8%
-17.2%
Util
Rockwood
~ S&P 500
„~~~ROCKWOOD CAPITAL ADVISORS PAGE 8
2nd Quarter 2009
2nd Quarter
100% -I
i
80%
60%
o I
40 /o ~
20% -
0%
-20%
I
-40%
1
-60
-80
-100%
Consumer Health
Staples Disc Care
43.3
-46.6
"Dash for Trash"
(Previous Year vs. Current Rally)
Materials Info Tech Industrials Energy Finance
90.9
41 9
--54.1
C p Year Ended 3/8/09
23.7
-47.3
^ Bull Rally (3/9 - 6/30)
___.
Utilities Int'I
44.5
-54.5
~~~RO( K~1OOD CAPI"r .A 1. ADS ISORS P
37.4 42.9
~~, . ~- ,
~: - ~ t:.
r
E ui Transactiar~s ~ .. ,..~
q tY
~.. ~.
2nd Quarter 2009
Sold
Purchased
Stock Stock Mkt Cap
May Celgene Corp. May Choice Hotels Int'I SCap -Growth
Hudson City Bancorp Inc. Lowes Cos lnc LCap -Growth
June Burger King Holdings Inc.
June Netgear Inc. SCap -Growth
Entergy Corp. New
Qwest Communications I MCap -Blend
Marsh & McLennan Cos.
Yahoo Inc I LCap -Growth
Sector I Industry Desc
Con Desc Discount hotel, resort and cruise line
Con Desc Home improvement retailer with about 1,600
stores in 49 states and Canada.
Info. Tech I Leading supplier of networking gear for small
businesses and home users.
Telecom I Offers cons. & corp. wireline and wireless
services, primarily in western U.S.
Info. Tech One~of the world's largest providers of online,
Internet content and services.
Commissions Paid
2nd Quarter Fiscal
2009 Year-to-Date
Lynch, Jones & Ryan $ 913 $ 2,029
ROCKWOOD CAPITAL ADVISORS PAGE 10
~ Equity Holdings
Exchange
- CASH & EQUIVALENTS
ACV ALBERTO-CULVER CO. NEW
BAX BAXTER INT'L INC.
BSX BOSTON SCIENTIFIC CORP.
CHH CHOICE HOTELS INT'L
COST COSTCO WHOLESALE CORP. NEW
CVX CHEVRON CORP.
HEW HEWITTASSOCIATESINC.
HNZ HJ HEINZ CO.
HPO HEWLETT PACKARD CO.
HSIC HENRY SCHEIN INC.
IBM INT'L BUSINESS CORP.
JNJ JOHNSON & JOHNSON
KO COCA COLA CO.
KR KROGER CO.
LMT LOCKHEED MARTIN CORP.
LOW LOWES COS INC
LSTR LANDSTAR SYSTEM INC.
MCD MCDONALD'S CORP.
MHS MEDCO HEALTH SOLUTIONS INC.
NHP NATIONWIDE HEALTH PROPERTIE:
NKE NIKE INC.
NTGR NETGEARINC.
OMI OWENS & MINOR INC
ORCL ORACLE SYSTEMS CORP.
PEP PEPSICOINC.
PGR PROGRESSIVE CORP.
- O QWEST COMMUNICATIONS
OCOM QUALCOMMINC.
ROST ROSS STORES INC.
SIAL SIGMA-ALDRICH CORP.
SPLS STAPLES INC.
SRCL STERICYCLE INC.
STJ ST. JUDE MEDICAL INC.
TJX TJX COMPANIES INC. NEW
WMT WAL MART STORES INC.
YHOO YAHOO INC
YUM YUM BRANDS INC.
Portfolio Total
Market
Price
1.00
Total Market
Value
% Mkt Current
Yield
7,237 0.3 0.2
55,946 2.3 1.2
58,542 2.4 2.0
_ 66,518 2.7 0.0
69,667 2.8 2.8
53,926 2.2 1.6
66,250 2.7 3.9
57,773 2.3 0.0
57 070 2.3 4.7
7,237 1.00 7,237
2,200 27.41 60,309
1,100 58.90 64,791
6,560 11.66 76,473
2,600 28.93 75,210
1,180 62.80 74,103
1,000 78.57 78,567
_~< 2,065
1,525
693
1,150
1, 992
950
1, 570
2,420
3,930
1,090
4,675
4,270
1, 770
2,010
1, 390
3,600
1,440
33.67 '-
43.67
109.33
49.65
57.46
20.30
64.92
20.64
43.64
52.86
49.50
31.54
61.18
14.70
40.23
20.84
62.96
15.90
4.45
35.44
30.41
54.73
15.63
33.13
39.87
25.41
58.56
16.16
28.07
66,594
75,769
57, 097
74, 303
86,933
50,213
77,720
76, 330
86,871
62,637
55,520
81,917
68,626
74,353
63,430
62,724
61,119
76,078
56,265
47,713
68,982
53,100
76,707
62,545
52,776
$2,498,703
26.61
47.95
104.42
56.80
80.65
19.41
35.91
57.49
45.61
25.74
51.78
14.41
43.82
21.42
54.96
15.11
4.15
45.20
20.17
51.53
41.10
31.46
48.44
15.66
Annual ISS
Income CGQ
14 N/A
660 0.34 r
1,144 0.46
- 0.37 -.-
1,924 0.77
850 0.04
2,600 0.66
- 0.29
79,977 3.3 0.8 661 0.49
73,124 3.0 0.0 - 0.85
72,363 2.9 2.1 1,525 0.25
65,320 2.7 3.5 2,254 0.18
62,920 2.6 3.4 2,132 0.11
63,945 2.6 1.6 1,044 0.79
57,262 2.3 2.8 1,619 0.21
71,533
54,616
71,608
62,291
73,883
61, 387
- 60,472
84,181
59,906
70,639
59, 221
80,004
77,586
68,888
72,909
74,203
71,103
2.8
2.9
2.2
2.5
2.5
3.4
2.4
2.9
2.4
3.3
65,751 2.7
63,456 2.6
60,604 2.5
62,679 2.5
$2,464,635 ~ 100.0
1.9 1,296 0.58
0.5 319 0.10 _
3.5 1,900 0.54
0.0 - 0.44
-.._.
6.8 4,259 0.75
1.9 1,420 0.05
,,
0.0 - 0.79
2.1 1,270 0.89 _
0.9 786 0.43
3.3 1, 962 0.29
0.0 - 0.67
7.7 4,566 0.29 _
1.5 1,204 0.69
1.1 884 0.23
1.2 806 0.33
1.6 1,188 0.77 =-
0.0 0.21
0.0 - 0.61 _ _
1.5 1,003 0.90
2.3 1,428 0.35 ~, '; ,
0.0 - 0.86
2.3 1,429 0.62
1.8 $44,801
ROCKWOOD CAPITAL ADVISORS PAGE 11
2nd Quarter 2 009
Pro~cy Voting Record
Meeting
Shares Date Agenda Item
Baxter International Inc. (BAX)
Mgmt Vote
Rec Cast
1,100 5/5/2009 Elect Directors For For
Ratify Auditors For For
Report on Animal Testing Against Against
Boston Scientific Corp. (BSX)
6,560 5/5/2009 Elect Directors For For
Ratify Auditors For For
Other Business For For
Celgene Corp. (CELG)
6/17/2009 Elect Directors For For
Ratify Auditors For For
Amend Omnibus Stock Plan For For
Require a Majority Vote for the Election of birectors Against Against
Chevron Corporation (CVX)
1,000 5/27/2009 Elect Directors For For
Ratify Auditors For For
Amend Executive Incentive Bonus Plan For For
Amend Omnibus Stock Plan For For
Amend Articles/Bylaws/Charter -Call Special Against Against
Meetings
Advisory Vote to Ratify Named Executive Officers' Against Against
Compensation
Adopt Quantitative GHG Goals for Products and Against Against
Operations
Adopt Guidelines for Country Selection Against Against
Adopt Human Rights Policy Against Against
Report on Market Specific Environmental Laws Against Against
Copart, Inc. (CPRT)
411 412 0 0 9 Approve Stock-for-Salary/Bonus Plan For For
Entergy Corp. (ETR)
Henry Schein, Inc. (HSIC)
1,525 5/812009 Elect Directors For For
Amend Omnibus Stock Plari For For
Approve Executive Incentive Bonus Plan For For
Ratify Auditors For For
Hudson City Bancorp, Inc. (HCBK)
International Business Machines Corp. (IBM)
693 4128/2009 Elect Directors For For
Ratify Auditors For For
Meeting Mgmt Vote
Shares Date Agenda Item Rec Cast
Approve Executive Incentive Bonus Plan For For
Provide for Cumulative Voting Against Againsf
Review Executive Compensation Against Against
Advisory Vote to Ratify Named Executive Officers' Against Against
Compensation
Landstar System, Inc. (LSTR)
1,992 4/30/2009 Elect Directors For For
Ratify Auditors For For
Amend Omnibus Stock Plan For For
Lockheed Martin Corp. (LMT)
710 4/2312009 Elect Directors For For
Ratify Auditors For For
Reduce Supermajority Vote Requirement For For
Report on Space-based Weapons Program Against Against
Adopt a Policy in which the Company will not Make or Against Against
Promise to Make Any Death Benefit Payments to
Senior Executives
Advisory Vote to Ratify Named Executive Officers' Against Against
Compensation
Marsh & McLennan Companies, Inc. (MMC)
5/21/2009 Elect Directors For For
Ratify Auditors For For
Reincorporate in Another State from Delaware to Against Against
North Dakota
Amend Articles/Bylaws/Charter-- Call Special Against Against
Meetings
Report on Political Contributions
_..__ Against Against
McDonald's Corp. (MCD)
950 5/27/2009 Elect Directors For For
Ratify Auditors For For
Amend Omriibus Stock Plan For For
Approve Executive Incentive Bonus Plan For
_. For
_.
Advisory Vote to Ratify Named Executive Officers' Against Against
Compensation
Phase out Sales of Eggsfrom Battery Cage Hens Against Against
Medco Health Solutions, Inc. (MHS)
1,570 5/21/2009 Elect Directors For For
_w. _...
i2atify Auditors For For
_..
Approve Executive Incentive Bonus Plan For For
Mettler-Toledo International Inc. (MTD)
ROCKWOOD CAPITAL ADVISORS PAGE 12
2nd Quarter 2009
Pro
~Y Voti n
g Recard
Meeting Mgmt Vote
Sha res Date Agenda Item Rec Cast
Nationwide Health Properties, Inc. (NHP)
2,420 5/5/2009 Elect Directors For For
RatiTyAuditors For For
Owens & Minor, Inc. (OMI)
1,380 4/24/2009 Elect Directors For For
Ratify Auditors For For
PepsiCo, Inc. (PEP) _ _
1,090 5/6/2009 Elect Directors For For
Ratify Auditors For For
_._-.. w.
Amend Executive Incentive Bonus Plan
For
For
Report on Recycling Against Against
Report on Genetically Engineered Products Against Against
Report on Charitable Contributions Against Against
Advisory Vote to Ratify Named Executive Officers' Against Against
Compensation
Ross Stores, Inc. (ROSY)
2,010 5/20/2009 Elect Directors For For
Ratify Auditors For For
Sigma-Aldrich Corp. (SIAL)
1,390 5/5/2009 Elect Directors For For
Ratify Auditors For For
St. Jude Medical, Inc. (STJ)
1,730 5/8/2009 Elect Directors For For
Approve Executive Incentive Bonus Plan For For
Ratify Auditors For For
Staples, Inc. (SPLS)
3,600 6/9/2009 Elect Directors For For
Amend Qualified Employee Stock Purchase Plan For For
Amend IJonqualified Employee Stock Purchase Plan For For
Ratify Auditors For For
Reincorporate in Another State [from Delaware to Against Against
North Dakota]
Stericycle, Inc. (SRCL)
1,440 5/28/2009 Elect Directors For For
Ratify Auditors For ......For...
T. Rowe Price Group, Inc. (TROW)
The Coca-Cola Company (KO)
1,300 4/22/2009 Elect Directors For For
Meeting Mgmt Vote
Shares Date Agenda Item Rec Cast
Ratify Auditors For For
Advisory Vote to Ratify Named Executive Officers' Against Againsf
Compensation
Require Independent Board Chairman Against Against
Amend Bylaws to Establish a Board Committee on Against Against
Human Rights
Performance-Based Awards Against Againsf
The Kroger Co. (KR)
2,900 6/25!2009 Elect Directors For For
Ratify Auditors For For
Increase Purchasing of Cage Free Eggs Against Against
Require a Majority Vote for the Election of Directors Against Against
The Progressive Corp. (PGR)
4,675 4/24/2009 Elect Directors For For
Require Advance Notice for Shareholder Proposals For For
Amend Nomjnation Procedures for the Board For For
Ratify Auditors For For
The TJX Companies, Inc. (TJX)
2,090 6/2/2009 Elect Directors For For
Amend Omnibus Stock Plan For For
Ratify Auditors For For
Wal-Mart Stores, Ina (WMT)
1,310 6/5/2009 Elect Directors For For
Ratify Auditors For For
Amend EE0 Policy toProhibit Discrimination based Against Against
on Sexual Orientation and Gender Identity
...
........
Pay For Superior Performance Against Against
Advisory Vote to Ratify Named Executive Officers' Against Against
Compensation
Report on Political Contributions Against Against
Amend Articles/Bylaws/Charter-- CaII Special Against Against
Meetings
Stock Retention/Holding Period Against Against
Wells Fargo and Company (WFC)
ROCKWOOD CAPITAL ADVISORS PAGE 13
2nd Quarter 2009
Meeting Mgmt Vote
Shares Date Agenda Item Rec Cast
Yum Brands, Inc. (YUM)
1,880 5/21/2009 Elect Directors For For
__ _
Ratify Auditors _
For
For
Approve Executive Incentive Bonus Plan For For
Submit Shareholder Rights Plan (Poison Pill) to Against Against
Shareholder Vote
Advisory Vote to Ratify Named Executive Officers' Against Againsf
Compensation
Report on Sustainability and Food Safety in the Against Against
Supply Chain
Adopt Principles for Health Care Reform Against Against
Report on Animal Welfare Policies Against Against
*" 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 14
2nd Quarter 2 009
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.
ROCKWOOD CAPITAL ADVISORS PAGE l5
2nd Quarter 2009
~ Fixed Income
~~~ .~
Waiting for the Fog to Lift
We feel that the US economy is currently at a major inflexion point The June payroll report (released July 2), in our view, had a surprisingly
strong negative impact on investor sentiment June payrolls came in at aworse-than-expected loss of 467,000 jobs with the unemployment rate
rising to 9.5%. 7.2 million workers have lost their jobs since the beginning of the recession. However, the employment data is viewed as a
lagging indicator by most economists, meaning the jobs picture probably won't improve until months after the recession ends. So, it is important to
analyze leading and coincident economic indicators to get a better sense of the current state of the economy and its likely direction. Some highly
respected economists have come to very different conclusions regarding the health of the "green shoots" that began to sprout earlier in the year.
Prior to the release of the June jobs data, investors were becoming increasingly concerned about the tremendous amount of liquidity that the Fed
has injected into the banking system. Also, given the ballooning federal budget deficit, bond investors feared the onslaught of Treasury bond
issuance that would be necessary to pay the bills. Interest rates were expected to soar as an inducement for investors to take down this
unprecedented amount of debt. In addition, many analysts are expecting growth to resume. Bank of America/Merrill Lynch recently declared that
the recession ended in Q2 and that "a fragile recovery has begun."
US Treasury Yield Curves
s°i°
5%
4% - _ w~
„s
3°i° ~..
• -
z°i° ~ .
6/30/2009
1 % 12/31 /2008
- - - 6/30/2008
0%
3 2 5 10 30
m05 yes yrs yes yes
ROCKWOOD CAPITAL ADVISORS PAGE lE
2nd Quarter 2009
Fixed Income
~~
On the other hand, economist David Rosenberg, after looking at 60 years of data, concluded that "the yield on the 10-year Treasury note has
never bottomed before the unemployment rate peaks." Most forecasters do not expect the jobless rate to peak until 2010, meaning Rosenberg
believes interest rates could fall substantially over the next several months. Rosenberg's interest rate forecast would coincide with the beliefs of a
growing number of analysts who anticipate an economic relapse as it is becoming increasingly clear that the economic stimulus package is having
only limited success. A recent GAO study found that 90% of stimulus funds have gone to cover state government shortfalls in education and
healthcare spending. Not exactly an engine of job creation.
While yield spreads on corporate bonds have narrowed from the Armageddon levels of several months ago, they remain wide from a historical
perspective and appear to be pricing in a rather dire economic outlook. We believe that corporate bonds continue to offer some of the best values
in the fixed income arena.
In summary, we would characterize the current environment as one with "low visibility." One can make a strong argument for both economic
resurgence and for continued recession. Thus, our client portfolios are rather "neutral" with respect to sector allocations and durations relative to
their assigned benchmarks. We are overweight corporate bond and underweight US Treasuries. We continue to monitor the incoming data and
will adjust the portfolios as needed to maximize our clients' risk-adjusted returns.
Performance
Zo
15
10
6.1
5 1.8 1.7 ,. a 2 '' 5.6
-5
-10
Quarter One Year Three Years
a.s a.s a.s a.7 Tequesta Public Safety
~; ~ ,_~~ ~ ^ Barclays Int. G/C
Four Year Inception
ROCKWOOD CAPITAL ADVISORS PAGE 17
2nd Quarter 2009
Fixed Portfolio Structure
Characteristics
60
50
Tequesta Public Barclays Int.
Safety G/C ao
Average Maturity 4.0 yrs 4.5 yrs 30
Effective Duration 3.4 yrs 3.9 yrs
zo
Yield to Maturity 3.0% 3.1%
10
0
Cash
7%
Corporates
35%
Portfolio
ABS4 MBS Mort a es
9 9
7%
U.S. Treasuries
34%
Agencies
13%
Corporates
29%
Effective Maturity
Index
Agencies
21%
U.S. Treasuries
46%
~~~ROCKWOOD CAPITAL ADVISORS PAGE 18
2nd Quarter 2 009
1 to 3 years 3 to 5 years 5 to 10 years 10+ years
Tequesta Public Safety ^ Barclays Int. G/C
International
4%
Fixed Holdings
Par
Cusip
Issuer Moody's /
S&P Coupon
Rate Maturity
Date
118 - CASH 8~ EQUIVALENTS Aaa /AAA 0.00 07/01/2009
30 0258166A AMERICAN EXPRESS CO SR NT 7.2 A3 /BBB+ 7.25 05/20/2014
20 06051GDX BANKAMER FDG CORP MTN-L 5.65 A2 /A 5.65 05/01/2018
15 06406HBL BANK NEW YORK MTN BK ENT FR 4 Aa2 /AA- 4.30 05/15/2014
25 07388VAB A-2-FIXED RTBEAR STEARNS COMMER~ Aaa /AAA 5.33 01/12/2045
10 12189TBA BURLINGTON NORTHN SANTA FE CP Baa1 /BBB 5.75 03/15/2018
15 14041NEF A-FIXEDRTCAPITALONE MULTI-ASSET Aaa/AAA 4.85 04/15!2011
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
35 219350AT CORNING INC NT 7%051524 Baal /BBB+ 7.00 05/15/2024
25 25179MAH DEVON ENERGY CORP NEW SR NT 6 Baal /BBB+ 6.30 01/15/2019
10 260543BX DOW CHEM CO SR NT CR SENS 19 Baa3 /BBB- 8.55 05/15/2019
15 26884LAA EOT CORP SR NT 8.125%19 Baal /BBB 8.13 06/01/2019
20 29379VAE ENTERPRISE PRODS OPER LLC GTD Baa3 /BBB- 4.60 08/01/2012
20 30161 MAE EXELON GENERATION CO LLC SRN A3 /BBB 6.20 10/01 /2017
105 31359MHK FEDERAL NATL MTG ASSN FR 5 Aaa /AAA 5.50 03/15/2011
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
59 36291XMW GNMA I POOL 641273 Aaa /AAA 4.50 04/15/2035
30 36962G4C GENERAL ELEC CAP CORP MTN BE Aa2 /AA+ 5.90 05/13/2014
30 38141EA3 GOLDMAN SACHS GRP INC MTN BE Al /A 6.00 05/01/2014
30 46625HGY JPMORGAN CHASE & CO SR NT 6%0 Aaa /A+ 6.00 01/15/2018
25 565849AD MARATHON OIL CORP SR NT 6%17 Baal /BBB+ 6.00 10/01/2017
15 59018YJ3 MERRILL LYNCH CO INC MTN BE F A2 /A 6.05 08/15/2012
25 59217EBW MET LIFE GLOBAL FUNDING Aa2 /AA- 5.13 06/10/2014
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
15 665859AK NORTHERN TR CORP SR NT 4.625% Al /AA- 4.63 05/01/2014
15 806605AJ SCHERING PLOUGH CORP NT 6%17 Baal /A- 6.00 09!15/2017
15 816851AN SEMPRA ENERGY NT 6.5%16 Baal /BBB+ 6.50 06/01/2016
20 907818CZ UNION PAC CORP NT 5.75%17 Baal /BBB 5.75 11/15/2017
Market Original
Price Cost
100.00 118,105
103.44 31,503
88.36 18,688
101.61 14,995
93.65 25,137
103.98 14,981
102.52 19,999
105.94 11,015
34,680
25,240
107.04 ~ 15,208
100.68 19,990
99.54 20,089
103.09 100, 276
104.51 9,814
107.38 48,926
100.34 57,931
102.07 31,070
100.26
99.22
103.96
103.60
99.74
102.76
106.50
104.38
100.80
14,073
20,002
33,665
15,000
14,994
14,967
19,992
Market I % of
Value Port
2nd Quarter 2009
1 I CG
0.100
Dur I Grade
0.08 ---
4.11 ---
6.84 C+
4.42 ---
2.49 ---
6.92 B
~ ~n ---
17,861 1.09 7.471
15,330 0.93 3.932
23,525 1.43 3.934
20,545 1.25 3.812 3.36
11,870 0.72 4.456 5.61 B
- 14,919 0.91 6.219 2.41 C
13,237 0.81 6.584 6.89 C
35,042 2.13 7.090 9.32 ---
27,468 1.67 5.371 7.25 B+
10,132 0.62 8.520 6.69 ---
16,211 0.99 7.121 7.01 ---
20,190 1.23 4.356 2.87 ---
20,217 1.23 6.271 6.48 B
114,575 6.97 1.057 1.63 ---
103,667 6.31 0.763 1.29 ---
9,922 0.60 4.179 3.44 ---
49,150 2.99 4.314 2.65 ---
'; 59,650 3.63 4.337 3.91 ---
30,856 1.88 5.409 4.23 ---
31, 585 1.92 4.971 4.21 B+
i 30,632 1.86 6.100 6.63 B
25,831 1.57 5.718 6.57 B
15,382 0.94 5.953 2.78 C+
24,880 1.51 5.305 4.37 ---
15,768 0.96 3.810 4.69 6-
20,937 1.27 4.621 7.23 B+
35,276 2.15 6.024 4.90 B+
15,530 0.95 3.990 4.35 --
16,240 0.99 5.023 6.59 B+
15,782 0.96 5.721 5.65 --
20,308 1.24 5.627 6.75 B-
ROCKWOOD CAPITAL ADVISORS PAGE 19
Fixed Holdings
s
__ . , ~
2nd Quarter 2 009
80 912828JZ UNITED STATES TREAS NTS 1.750
230 912828KG UNITED STATES TREAS NTS 1.375
150 912828KU UNITED STATES TREAS NTS 0.875
100 912828KX UNITED STATES TREAS NTS 1.875
25 92343VAJ VERIZON COMMUNICATIONS INC P
Portfolio Total
Moody's /
S8~P Coupon
Rate Maturity
Date Market
Price Original
Cost Market
Value % of
Port
YTM
Eff Dur CG
Grade
Aaa /AAA 1.75 01/31/2014 97.19 78,569 78,334 4.77 2.401 4.42 ---
Aaa /AAA 1.38 03/15/2012 99.81 230,448 230,480 14.03 1.448 2.66 ---
Aaa /AAA 0.88 05/31!2011 99.64 148,729 149,573 9.10 1.064 1.90 ---
Aaa /AAA 1.88 06/15/2012 100.73 100,746 100,809 6.14 1.622 2.89 ---
A3/A 4.35 02/15/2013 102.15 24,971 25,947 1.58 3.711 3.33 8-
$1,619,463 $1,643,090 100%
ROCKWOOD CAPITAL ADVISORS PAGE 20
~1r~reCedented Market Conditions ~ ~ ~.N .~
e~ ~~ ~ ~`
~~ x ~ ti~ x~~ h ,
•~ i
• 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
2pog
lxtrnooe
zna
re 2,400
2,200 .
. 2~Op
2.000 a¢s2aa, .roso.sr 2.000
1,800 1,800
1,800 1,800
1,400 ~r
1,400
p 1.200 1,20gt5
1.ooa 1.000
800
wlazooe 800
600 a68 xe 800
400 400
200 200
0
~ 0
~ a _ ~' m ~ a a a a ~ a a a~ a ~~ a"s
ROCKWOOD CAPITAL ADVISORS
Changes In The Case ShNer Composite-10 Fbme Pries Index
2S% 25%
aatnwa
]OA094
20% 20%
15x Yeerover-Yem 15%
Change
,6% ' 10%
6% ,,~ ^ r1 r~ /~ i
' 5%
~~ °
~
~
o% t ,,~ ,,
lr,' ``'" Ouartercver-Quarter
~
Ch g%
5% ange
i `
,
-5%
`
~,~,
~ r
.~~v^~
-10% r
a px
~--~8x -10%
-15%
-20%
lnrnwa
as 4ox -15%
-20%
i ~ ~ i 9 ~ ~ ~ ~ ~ S ~ ~ ~ E ~ ~ ~ i
2nd Quarter 2009
Leverage In The Markets: Bonds Vs Stocks
00
1
1700
1.800 7
1,600
1500 1,500
1,400 1,400
1,300 1,300
1200 Bond Market Leverapa 1100
Pnmary Cwaler N5t Bortomngs
1 100 1,100
1,000 1,000
900 900
b soo eoo 8
~o0 200
800 600 ~
500 500
400
~" 400
300 a
~~~~.-'~ 300
200 i-~~~ '-
,7 r 200
100 ~
^ .l
'-' StocM Market Leverage 100
0 _. - _ Nat Borrowing 0
100
-100
~ ~ ~ ~ ~ ~ ~ ~ ~ 8 8 ~ ~ 8 ~ -
_ 'a 'a ~ ~ ~ = a ~ ~ a ~ ~ ~
Q ~ ~ ~ a a ~ ~ m a m
PAGE 21
e R
{ y ~
r I {
• • • ~ ~ • ~~
H istoric Buying Opportunity. . ; .. ~.'~~~
• 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.
Investment Grade Spreads
11r op5on-.ad7~stea S~xead ~oas~ a M+e r.+anw tr+vesmca cede comas: Mitsrr rra~
700 700
,. ~,
650 650
soo fioo
550 550
.SOD 600
aso a5o
r
~
aoo a
aD0 g
~
1
y 950
r3 p
35D
9~ v;6rooe. xfe 900
1Mt P^.n0i. 96T
250 250
umrooo.xos
200 200
150 ttKnvae. f~a 15D
sn~oos,tto
100 100
scan mn,fi9 yHn2C95. }9 x26 ^JOt, nn
50
50
F g g g
~ ~ ~ ~ ~ ~
~ P R ~ ~ ~ R
~ s ~
~ ~
a ~
~ -a a ~ ~ a' - $ a S ~ ~ "a °' S ~ S z
ROCKWOOD CAPITAL ADVISORS PAGE 22
2nd Quarter 2009
Risk of H i der Treasu Yields ~ #~ #r
g ~
.. ,,. ~ .
• 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.
~~~ROCKWOOD CAPITAL ADVISORS PAGE 23
2nd Quarter 2 009
1
Zk
Rockwood Capital Advisors, LLC
721 Emerson Road, Suite 565
St. Louis, MO 63141
314-962-8336 • toll -free 1-888-962-8336
rockwoodcapital.com