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Home My WebLink AboutDocumentation_Pension Public Safety_Tab 14_05/03/2010 r Rockwood Capital Advisors village of Tequesta Public Safety officers' Pension Fund First Quarter 2010 Review May 03, 2010 ROCKWOOD CAPITAL ADVISORS Investment Policy } 1 st Quarter 2 010 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 �qp s W ar PO40h Summa v� 1 st Quarter 2 010 Tequesta Public Safety Officers' Pension Fund Beginning Ending % of Est. Annual Current Market Market Portfolio Income Yield Fixed Income $1,779,866 $1,762,824 33.3% $68,248 3.9% Equity $2,945,331 $3,228,832 60.5% $26,029 0.8% Cash & Equivalents $199,785 $329,542 6.2% $593 0.2% Accrued Income $14,921 $19,626 -- -- -- Total $4,939,903 $5,340,824 100% $94,870 1.8% Total Fund Performance Fixed Income 40 33.3% Cash & 32.7 Equivalents 30 6.2% 24.4 20 Tequesta Public Safely 11 1 10 60% Russell 3000 5.4 4 3 40% Barclays Int. UC . 0 Equity -10 60.5% Quarter One Year ROCKWOOD CAPITAL ADVISORS PAGE 2 Market Value Summary 1 st Quarter 2010 Tequesta Public Safety Officers' Pension Fund Market Value Changes Total $ Change this quarter $400,921 1 st Quarter Total Fund Return 5.4% 1 st Quarter Summary Fiscal Year Summary Beginning Market Balance $4,939,903 Beginning Market Balance (9/30/2009) $4,681,451 Interest / Dividends 20,547 Interest / Dividends 46,772 Contributions 149,482 Contributions 294,452 Net Disbursements (21,103) Net Disbursements (62,079) Net Realized & Unrealized (G/L) 251,995 Net Realized & Unrealized (G/L) 380,228 Ending Market Balance $5,340,824 Ending Market Balance $5,340,824 ROCKWOOD CAPITAL ADVISORS PAGE 3 qw Cost of Reform??? 1 st Quarter 2 010 THAT'S GONNA BE A HARD PILL TO SWALLOW. F444'[... IT'S A ' SUPPOSITORY 4 61 �ROCKWOOD CAPITAL ADVISORS PAGE 4 E quity 1 st Quarter 2 010 Back To Normal Happiness is the return of a "normal" investment climate where volatility is relatively subdued and equity returns are looking up. Indeed, we have come a long way in just over a year. For the quarter, all major indices ended in the black. The S &P 500 Index had a positive month of March ( +5.9 %) that propelled the index to its best first quarter return in twelve years ( +4.9 %). Much of this was due to continued improvement in the economic landscape and corporate balance sheets. However, it was not without concern, as witnessed in a steep February selloff amid global economic and political uncertainty. Small cap stocks were the big winners for the quarter with the Russell 2000 Index +8.5 %. Foreign investors took a breather for the quarter, as the Morgan Stanley EAFE Index was up a modest 0.2 %. The Rockwood Equity Portfolios was up over 7.0 %. Once again, the stock market refuses to accommodate popular opinion. In this instance, the seeming majority of investbrs continue to wait for a "correction" to add reserves to equities. As the financial crisis reverberated throughout the economy in late 2008 and early 2009, factories closed, industrial output shriveled, and stock market prices tumbled. More than a year later, with the financial crisis seemingly in the history books, equity markets have rebounded and yet many investors have not switched their mentality from capital preservation to capital appreciation. For these "holdouts," it must be somewhat wrenching to believe that better opportunities for equities lie ahead! .�& R OcKWOOD CAPITAL ADVISORS PAGE 5 Equity j 1 st Quarter 2 010 Evidence of significant leadership trends continue in full force as we are encouraged by the magnitude of several early —stage positive issues (typically signaling a longer -term bull market). Our results have benefited from an overweighting in two sectors, Consumer Discretionary and Industrials, that continue to perform well, as we move further and further away from the depths of the "Great Recession." The Consumer Discretionary sector was boosted in particular by the strength of hotels, department stores, and luxury goods. Within the Industrial Sector, aerospace/defense stocks led the charge while we have upgraded the conglomerates group, and machinery stocks are particularly attractive buys. Improvement in the Financial Sector has allowed us to add to the REIT area. Additionally, we maintain an overweight in Technology, which experienced a very normal correction in January after a great run in '09 producing exceptional returns for investors. Ted�nology represents the dominant leadership within this bull market. We expect these trends to continue and have positioned your portfolio accordingly. As always, "Thank you" for your support, confidence, patience, and most of all, YOUR BUSINESS! Performance 60 52.4 50 40 36.9 30 ■ Tequesta Public Safety 20 ■ Russell 3000 13.2 12.2 10 7.7 5.9 0.7 3.8 2.9 0 2.1 -2.9 -3.3 -4.0 -o.a -10 QTR Fiscal One Year Two Years Three Years Four Years Inception VTn ROCKWOOD CAPITAL ADVISORS PAGE 6 a Equ Portfolio ,.: so 1 st Quarter 2 010 Portfolio Summary Top 10 Holdings Five Best Impact # of Stocks 37 1. Ford Motor Co. 3.6% 1. Macys Inc. +30.2 % Beta 1.3 2. Hewlett Packard Co. 3.4% 2. BE Aerospace Inc. +29.6 % Yield 0.8% 3. Nike Inc. 3.2 /° ° 3. Brookfield Properties Cor +27.7 % 4. Stanvood Hotels &Resorts +27.5 P/E 24.3x 4. Salesforce Com Inc 3.2% 5. Ford Motor Co. +25.7 % Style Box 5. CNH Global NV 3.2% Five Worst Impact Val Cr Grw 6. Medco Health Solutions Inc. 3.1% Large Cap - 28.3% 1. UBS AG -16.7 7. Oracle Systems Corp. 3.1 Mid Cap - 64.2% 2. China Pete & Chem Co -15.6 % 8. Ameriprise Finl Inc 3.1 Small Cap - 7.5% 3. Cabot Oil & Gas Corp. -15.5 % Average Market Cap $27.7 billion 9. Nvidia Corp 3.1 4. Google Inc. -8.5 % Median Market Cap $8.7 billion 10. Starwood Hotels & Resorts 3.0% ° 5. Equinix Inc -8.3 /o - �&ROCKWOOD CAPITAL ADVISORS PAGE 7 Equity Analysis and Attribution ,. 1 st Quarter 2 010 Sector Allocation Health Info 32% Staples Discretionary Care Materials Tech Energy Industrial Tele Finance Util 28.3% 28% 24.5% 24% 20% 189% 0 17.0% 16.5% . Rockwood 16% S &P 500 12.1 % 13.0% 12% 11.3% 10.1 /o 0 10.9% 10.5% 8% 0 4% 3.5% 4.1% 2.8% 3.4% 0% 2.2% 0.0% 0.0% 0.0% Performance 40% 30% 20 /o ° 17.5% 19.1% 10.1% 10% 5.1% 5.8% 12.5% 11.3% 10.8% 2.9% 2.5% 2.4% 0.8% 1.7% 0.1% 0.0% 0.0% 0% -0.4% -10 /o o -5.7% -4.6% 12.8% -20% Staples Discretionary Health Materials Info Energy Industrial Tele Finance Util Care Tech ROCKWOOD CAPITAL ADVISORS PAGE 8 qF Historic Monthly Relative Returns - 1 st Quarter 2 010 Rockwood Strategic Equity Portfolio Monthly Performance Relative to S &P 500 Index January 2005 - March 2010 6.0% 56% Rate of Success 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% 1/05 6/05 11/05 4/06 9/06 2/07 7/07 12/07 5/08 10/08 3/09 8/09 1/10 ROCKWOOD CAPITAL ADVISORS PAGE 9 qu Sector Performancea 1 st Quarter 2 010 Market Symmetry & Elasticity of Returns (Previous Year vs. arrert Rally) Heath Cons un r Staples Care Utilities Info Tech Disc Energy Materials Intl Industrials Finance 100% 80.5 80% 67.1 68.6 60% 56.4 53.0 50.0 40% 31.7 31.7 26.71 20% 15.6 I 0% I I -20% -23.4 -40% -31.0 -39.7 -39.9 -60% -46.6 -47.3 -54.1 -54.5 - 56.8 - 80% - 74.3 - 100% Year Ended 3/8/09 ■ Bull Rally (3/31/06 3/31/10) �ROCKWOOD CAPITAL ADVISORS PAGE 10 qr ,. Equity ransachons 1 st Quarter 2 010 Sold Purchased Stock Stock Mkt Cap Sector Industry Desc Jan Alberto - Culver Co. New Jan Citrix Systems Inc. MCAP - Growth Technology Leading developer and supplier of access infrastructure software and services. Coca Cola Co. Terex Corp MCAP - Growth Industrials Diversified global manufacturer of a broad Ross Stores Inc. range of construction equipment, vehic cranes and platforms. Feb China Pete & Chem Co Williams- Sonoma Inc. MCAP - Growth Consumer Disc. Nationwide specialty retailer sells high - quality products for the home. UBS AG Feb Holly Corp. SCAP - Growth Energy Independent petroleum refinery produces March Morgan Stanley high value light products such as gasoline, diesel fuel and jet fuel. Scotts Co. Precision Castparts Corp. LCAP - Growth Industrials Is a provider of complex metal components Sigma-Aldrich sed primarily in the mfg. of jet engines and Corp. p. gas turbines, and in the oil and gas industry. Sun Life Finl Services March CB Richard Ellis Group MCAP - Growth Financial Services A global commercial real estate services company. Coach Inc. MCAP- Growth Consumer Disc. Designs, manufactures and markets fine accessories for men & women, including handbags, weekend and travel accessories, outerwear, footware and business cases. Flowserve Corp. MCAP - Growth Industrials A global manufacturer of industrial pumps and related equipment for the chemical, oil & gas and power industries. ...._�.. _. Solera Holdings Inc. MCAP - Growth Technology Provides software and services to the automobile insurance claims processing industry (estimating and workflow software). Commissions Paid 1 st Quarter Fiscal 2010 Year -to- Date Lynch, Jones & Ryan $ 788 $ 2,595 1 ROCKWOOD CAPITAL .ADVISORS PAGE 11 Equity Holdings 1 st Quarter 2 010 Exchange Market Total Market Current Annual ISS Ticker Company Name Shares Unit Cost Oriciinal Cost Price Value % Mkt Yield Income CGQ CASH & EQUIVALENTS 1 1.00 1 1.00 1 0.0 0.2 N/A AMG AFFILIATED MANAGERS 1,000 66.90 66,903 79.00 79,000 2.5 0.0 0.19 AMP AMERIPRISE FINL INC 2,200 28.31 62,292 45.36 99,792 3.1 1.5 1,496 0.67 BEAV BE AEROSPACE INC. 3,100 23.40 72,536 30.45 94,395 2.9 0.0 0.05 BPO BROOKFIELD PROPERTIES CORP. 5,800 11.80 68,454 15.36 89,088 2.8 3.7 3,248 N/A CBG CB RICHARD ELLIS GROUP 5,400 14.01 75,648 15.85 85,590 2.7 0.0 0.81 CHH CHOICE HOTELS INT'L 2,600 28.93 75,210 34.81 90,987 2.8 2.1 1,924 0.79 CNH CNH GLOBAL NV 3,330 21.23 70,696 30.75 102,398 3.2 0.0 N/A COG CABOT OIL & GAS CORP. 1,675 39.98 66,971 36.80 61,640 1.9 0.3 201 0.52 COH COACH INC 1,975 37.72 74,497 39.52 78,052 2.4 0.8 593 0.25 CRM SALESFORCE COM INC 1,400 45.01 63,008 74.45 104,230 3.2 0.0 - 0.11 CTXS CITRIX SYS INC 1,710 42.83 73,230 47.47 81,174 2.5 0.0 0.78 EQIX EQUINIX INC 790 83.83 66,222 97.34 76,899 2.4 0.0 0.30 F FORD MOTOR CO. 9,170 7.60 69,674 12.57 115,267 3.6 0.0 0.03 FLS FLOWSERVE CORP 695 107.47 74,691 110.27 76,839 2.4 1.1 806 0.87 GOOG GOOGLE INC. 120 550.38 66,046 567.01 68,041 2.1 0.0 - 0.07 GS GOLDMAN SACHS GROUP 395 172.02 67,949 170.63 67,399 2.1 0.8 553 0.44 HOC HOLLY CORP 2,590 26.43 68,444 27.91 72,675 2.3 2.2 1,554 0.96 HOT STARWOOD HOTELS & RESORTS 2,100 33.42 70,177 46.64 97,944 3.0 0.4 420 0.72 HPQ HEWLETT PACKARD CO. 2,065 33.67 69,518 53.15 109,920 3.4 0.6 661 0.46 HSIC HENRY SCHEIN INC. 1,525 43.67 66,594 58.90 89,823 2.8 0.0 - 0.90 IBM INT'L BUSINESS CORP. 693 109.33 75,769 128.25 88,877 2.8 1.7 1,525 0.21 M MACYS INC. 4,300 16.04 68,989 21.77 93,826 2.9 0.9 860 0.54 MHS MEDCO HEALTH SOLUTIONS INC. 1,570 49.50 77,720 64.56 101,359 3.1 0.0 - 0.78 MOS MOSAIC CO 1,200 54.89 65,869 60.77 72,924 2.3 0.3 240 0.68 NHP NATIONWIDE HEALTH PROPERTIE! 2,420 31.54 76,330 35.15 85,063 2.6 5.0 4,259 0.55 NKE NIKE INC. 1,420 61.18 86,871 73.50 104,753 3.2 1.5 1,534 0.05 NVDA NVIDIA CORP 5,720 10.49 59,976 17.38 99,414 3.1 0.0 - 0.43 ORCL ORACLE SYSTEMS CORP. 3,930 20.84 81,917 25.69 100,962 3.1 0.8 786 0.34 PCP PRECISION CASTPARTS 640 106.72 68,299 126.71 81,094 2.5 0.1 77 0.18 PGR PROGRESSIVE CORP. 4,675 15.90 74,353 19.09 89,246 2.8 0.8 753 0.62 RVBD RIVERBED TECHNOLOGY 3,020 22.85 68,999 28.40 85,768 2.7 0.0 - 0.41 SLH SOLERA HOLDINGS INC 2,040 36.66 74,793 38.65 78,846 2.4 0.7 510 0.88 SPLS STAPLES INC. 3,600 15.63 56,265 23.39 84,528 2.6 1.5 1,296 0.87 TEX TEREX CORP NEW 3,400 21.61 73,465 22.71 77,214 2.4 0.0 - 0.89 TJX TJX COMPANIES INC. NEW 2,090 25.41 53,100 42.52 88,867 2.8 1.1 1,003 0.94 VSEA VARIAN SEMICONDUCTOR 2,100 32.04 67,274 33.12 69,552 2.2 0.0 - 0.43 WSM WILLIAMS SONOMA INC 3,330 22.11 73,620 26.29 87,546 2.7 2.0 1,732 0.71 Portfolio Total $2,592,369 $3,230,992 100.0 0.8 $26,031 ROCKWOOD CAPITAL ADVISORS PAGE 12 qr Proxy Voti ng Record ;_ } 7" 1 st Quarter 2 010 Meeting Mgmt Vote Shares Date Agenda Item Rec Cast Alberto - Culver Co. (ACV) 1/28/2010 Elect Directors For For Hewlett- Packard Co (HPQ) 2,065 3/17/2010 Elect Directors For For Ratify Auditors For For Amend Omnibus Stock Plan For For Company Request on Advisory Vote on Executive For For Compensation Scotts Miracle Gro (SMG) 1/21/2010 Elect Directors For For Ratify Auditors For For Varian Semiconductor (VSEA) 2,100 2/8/2010 Elect Directors For For Ratify Auditors For For Proxy Footnote Rockwood Capital Advisors, through our equity sub - adviser, Contravisory Investment Management, has retained RiskMetrics Group (RMG) (formerly Institutional Shareholder Services) 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. Unless otherwise directed, all proxies are voted at the discretion of Contravisory through RMG, 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. Contravisory's Chief Compliance Officer has reviewed the most recent RMG 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 RMG, as a leading proxy voting firm, has the capacity and competency to adequately analyze proxy issues. The Compliance Officer has also received information from RMG demonstrating to the satisfaction of the Compliance Officer that RMG 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. RMG has agreed to notify the Adviser if it believes RMG faces a material conflict of interest with respect to voting the proxies of a particular issuer. The Compliance Officer will monitor RMG to ensure that all proxies are being properly voted by periodically engaging in "spot reviews" of votes made by RMG. The Compliance Officer will also have RMG 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 RMG 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 RMG voted such client's proxies, and a copy of any written response to any (written or oral) client request for information on how RMG voted its proxies. The Adviser has arranged with RMG to have RMG 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 RMG 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 RMG casts for one of Adviser's clients and (iii) a copy of any document RMG 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 13 - ,r 1W ft • Fixed Income f•.A� 1 St Quarter 2 010 Higher Rates? The battle between bond market bears and bulls continues apace. As we pointed out last quarter, highly respected economists and analysts are looking at the same data, yet coming to very different conclusions regarding the direction of interest rates, the prospects for stocks, and the overall health of the economy. The Wall Street Joumal recently pointed out that the two best forecasting teams of the past two years, Goldman Sachs and Morgan Stanley, couldn't disagree more where interest rates are headed. The 10 -year US Treasury yield ended the first quarter at 3.8 %. Morgan predicts the 10 -year yield will rise dramatically to 5.5% this year. Goldman, however, expects the 10 -year yield to fal l to 3.25 %. In a nut shell, the differences between these two camps boils down to (1) an expectation of higher inflation due to loose monetary policy, an improving economy and a tidal wave of debt issuance by federal government, OR (2) an outlook for deflationary forces to dominate as the economic recovery falters following the withdrawal of government stimulus, income growth stagnates, and housing prices continue to skid. While we believe that both camps make credible arguments, we continue to believe that the most likely direction for interest rates is UP. Ifs a simply a matter of supply and demand; specifically, the unprecedented $2.4 trillion of expected 2010 US Treasury issuance that will be required to finance the exploding US government deficit. US Treasury Yield Curves Sector Index Returns 6% 70% 5% 60% ® 1Q 2010 ` _� 50% YTD 2009 4% 40% 3% 30% 2% "" 20% / 7 3/31/2010 10% 1% 12/31/2009 0% 3/31/2009 0% -10% 3 2 5 10 30 Tsy Agy MBS Credit CMBS HY mos yrs yrs yrs yrs ROCKWOOD CAPITAL ADVISORS PAGE 14 f Fixed Income . - I* a • 1 st Quarter 2 010 The National Bureau for Economic Research has not officially declared the current recession over, but many analysts suspect that the recession ended in mid -2009. However, that does not mean that the economy is out of the woods. While the economy has added jobs in three of the last five months, keep in mind that 8.2 million jobs have been lost since the beginning of 2008 and unemployment still hovers near 10 %. Ultimately, the economy is dependent on consumer spending, which in turn is driven by income growth. On that score, things appear rather bleak. Personal income has shown modest growth, but largely because government transfer payments to individuals have risen 24% over the past two years. This is not a recipe for sustainable economic growth. In summary, the jury is still out on the health of the "patient." Once the "medicine" of government stimulus checks is withdrawn, will the economy suffer a relapse? As long as the government stays out of the way, we believe the economy will gradually regain its vigor, and interest rates will move higher in 2010. In this environment, longer term fixed income securities are likely to under perform those with shorter final maturities. In particular, it is difficult to envision US Treasuries having a good 2010 due to supply concerns. Our 2010 focus will be to underweight Treasuries while protecting the invested principal of our clients' portfolios against the effects of higher rates. Performance 8 7.1 6.9 6 5.4 5.9 5.5 6.0 4.0 4.4 4.8 5.2 4 Tequesta Public Safety 2 1.6 1.5 1.9 1 ■ Barclays Int. G/C 0 -2 Quarter Fiscal YTD One Year Two Years Three Years Four Year Inception ROCKWOOD CAPITAL ADVISORS PAGE 15 Fixed Portfolio Structure W ,, 1 st Quarter 2 010 Characteristics Effective Maturity 50 Tequesta Public Barclays Int. 40 Safety G/C 30 Average Maturity 4.2 yrs 4.5 yrs Effective Duration 3.6 yrs 3.9 yrs 20 Yield to Maturity 2.7% 2.6% 10 0 .. 1 to 3 years 3 to 5 years 5 to 10 years 10+ years ■ Tequesta Public Safety ■ Barclays Int. G/C Portfolio Index International 4% U.S. Treasuries Cash a 31% 16% U.S. Treasuries Corporates 51% 27% Agencies 5% Mortgages 5% ABS /CMBS Corporates 3% Agencies 40% 18% ROCKWOOD CAPITAL ADVISORS PAGE 16 s 1r Fixed Holdings 1 st Quarter 2 010 Moody's / E Coupon Maturity Market Original Market % of CG Par Cusip I Issuer S &P f Rate Date Price Cost Value Port YTM Eff Dur Grade 330 - CASH & EQUIVALENTS Aaa /AAA 0.00 04/01/2010 100.00 329,541 329,541 15.62 0.100 0.08 - -- 15 009363AG AIRGAS INC GTD SR NT 4.5 %14 Baa3 / BBB 4.50 09/15/2014 103.21 14,982 15,511 0.74 3.712 4.08 - -- 20 025816BA AMERICAN EXPRESS CO SR NT 7.2 A3 / BBB+ 7.25 05/20/2014 113.33 21,002 23,193 1.10 3.740 3.58 B 35 06051GDY BANK AMER FDG CORP SR NT 7.37 A2 /A 7.38 05/15/2014 112.45 39,900 40,334 1.91 4.062 3.55 - -- 40 06739FFZ BARCLAYS BK PLC SR NT 5.2°/x14 Aa3 /AA- 5.20 07/10/2014 106.78 40,465 43,182 2.05 3.477 3.86 - -- 20 06849UAC BARRICK AUSTRALIA FIN PTY LTD Baal /A- 4.95 01/15/2020 100.12 20,148 20,233 0.96 4.933 7.93 - -- 0 07388LAE BEAR STEARNS COMMERCIAL MORTG NR /AAA 5.54 09/11/2041 103.09 0 289 0.01 - -- 25 07388VAB A -2 -FIXED RTBEAR STEARNS COMMER Aaa /AAA 5.33 01/12/2045 104.50 25,137 26,236 1.24 3.813 1.82 - -- 25 096630AB BOARDWALK PIPELINES LP GTD SR Baa2 / BBB- 5.75 09/15/2019 103.31 24,798 25,890 1.23 5.449 7.52 - -- 10 10112RAQ BOSTON PPTYS LTD PARTNERSHIP Baa2 /A- 5.88 10/15/2019 103.81 9,993 10,662 0.51 5.831 7.54 - -- 10 12189TBA BURLINGTON NORTHN SANTA FE CP A3 / BBB+ 5.75 03/15/2018 107.04 9,843 10,730 0.51 4.679 6.60 B 15 14041 NEF A -FIXED RTCAPITAL ONE MULTI -ASSET Aaa /AAA 4.85 04/15/2011 104.04 14,981 15,638 0.74 0.900 1.01 - -- 20 161571 C A-FIXED RTCHASE ISSUANCE TRUST20 Aaa /AAA 4.65 03/15/2013 107.36 19,999 21,514 1.02 1.960 2.75 - -- 35 172967EY CITIGROUP INC SR NT 6.375 %14 A3 /A 6.38 08/12/2014 106.83 36,300 37,694 1.79 4.627 3.84 - -- 35 219350AT CORNING INC NT 7 %051524 Baal / BBB+ 7.00 05/15/2024 107.15 34,680 38,428 1.82 6.230 9.22 B+ 20 244199BC DEERE & CO NT 4.375 %19 A2 /A 4.38 10/16/2019 99.19 20,075 20,239 0.96 4.390 8.15 - -- 20 2515AOT4 DEUTSCHE BANK AG LONDON Aa3 /A+ 2.38 01/11/2013 100.17 19,980 20,140 0.95 2.311 2.69 - -- 25 25179MAH DEVON ENERGY CORP NEW SR NT 6 Baal / BBB+ 6.30 01/15/2019 111.62 25,240 28,237 1.34 4.672 7.01 B+ 20 25459HAM DIRECTV HOLDINGS Baa3 / BBB- 3.55 03/15/2015 98.30 19,984 19,700 0.93 4.055 4.57 - -- 10 260543BX DOW CHEM CO SR NT CR SENS 19 Baa3 / BBB- 8.55 05/15/2019 120.97 9,979 12,420 0.59 5.583 6.63 B+ 15 26884LAA EQT CORP SR NT 8.125°/x19 Baal / BBB 8.13 06/01/2019 118.80 15,208 18,227 0.86 5.380 6.77 - -- 20 29379VAE ENTERPRISE PRODS OPER LLC GTD Baa3 / BBB- 4.60 08/01/2012 105.48 19,990 21,250 1.01 2.176 2.22 - -- 9 36200EUP GNMA I POOL 599190 Aaa /AAA 6.00 03/15/2035 107.48 9,701 10,084 0.48 3.595 3.43 - -- 40 36291W7H GNMA I POOL 640896 Aaa /AAA 7.00 04/15/2035 109.08 43,053 43,930 2.08 4.171 2.77 - -- 50 36291XMW GNMA I POOL 641273 Aaa /AAA 4.50 04/15/2035 101.86 48,783 50,988 2.42 4.068 4.38 - -- 24 36962G4F GENERAL ELEC CAP CORP MTN BE Aa2 /AA+ 4.38 09/21/2015 103.11 23,936 24,776 1.17 3.741 4.95 - -- 36 38141EA3 GOLDMAN SACHS GRP INC MTN BE Al /A 6.00 05/01/2014 109.50 38,263 40,319 1.91 3.483 3.61 B+ 15 46625HGY JPMORGAN CHASE & CO SR NT 6 %0 Aa3 /A+ 6.00 01/15/2018 108.57 14,932 16,476 0.78 4.673 6.39 B 20 46625HHP JPMORGAN CHASE & CO SR NT 3.7 Aa3 /A+ 3.70 01/20/2015 100.62 20,323 20,269 0.96 3.558 4.42 - -- 20 53947MAA LLOYDS TSB BANK Aa3 /A+ 4.38 01/12/2015 98.83 20,109 19,957 0.95 4.709 4.30 - -- 25 565849AD MARATHON OIL CORP SR NT 6 %17 Baal / BBB+ 6.00 10/01/2017 107.33 25,030 27,581 ( I 1.31 4.824 6.08 B 15 595620AD MIDAMERICAN ENERGY CO FR 4.65 A2 /A- 4.65 10/01/2014 106.40 14,073 16,309 { 0.77 3.114 4.05 B- 22 61747YCE MORGAN STANLEY FR 6°/x042815 A2 /A 6.00 04/28/2015 107.12 20,792 24,128 j 1.14 4.417 4.36 B+ 20 61747YCL MORGAN STANLEY SR NT 4.1%15 A2 /A 4.10 01/26/2015 99.46 19,948 20,040 0.95 4.223 4.38 - -- 10 72650RAV PLAINS ALL AMERN PIPELINE L P Baa3 / BBB- 4.25 09/01/2012 103.89 10,136 10,425 0.49 2.398 2.31 - -- 100 7591 EAAB REGIONS BK ALA MTN FDIC TLGP Aaa /AAA 3.25 12/09/2011 103.72 103,813 104,731 4.96 1.022 1.64 - -- ROCKWOOD CAPITAL ADVISORS PAGE 17 � l r r Fixed Holdings I ;iit 1st Quarter 2 010 Moody's / Coupon Maturity Market Original Market % of CG Par Cusip Issuer S &P Rate Date Price Cost Value Port YTM Eff Dur Grade 25 7591 EPAF REGIONS FINANCIAL CORP NEW SR Baa3 / BBB- 7.75 11/10/2014 105.21 25,000 27,062 1.28 7.747 3.77 - -- 15 78010JCV ROYAL BANK OF SCOTLAND Aa3 /A+ 4.88 08/25/2014 100.84 15,077 15,198 0.72 5.065 3.96 - -- 15 806605AJ SCHERING PLOUGH CORP NT 6 %17 Aa3 /AA- 6.00 09/15/2017 112.53 14,994 16,920 0.80 4.036 6.26 B+ 15 816851AN SEMPRA ENERGY NT 6.5 %16 Baal / BBB+ 6.50 06/01/2016 111.72 14,967 17,083 0.81 4.314 5.16 13- 20 883203BQ TEXTRON INC NT 7.25 %19 Baa3 / BBB- 7.25 10/01/2019 108.04 20,001 22,389 1.06 6.121 6.91 - -- 25 89346DAD TRANSALTA CORP SR NT 4.75 %15 Baa2 / BBB 4.75 01/15/2015 103.27 24,946 26,272 1.25 3.990 4.27 -- 20 907818CZ UNION PAC CORP NT 5.75 %17 Baa2 / BBB 5.75 11/15/2017 107.17 19,992 21,869 1.04 4.622 6.26 B- 75 912828KG UNITED STATES TREAS NTS 1.375 Aaa /AAA 1.38 03/15/2012 100.77 74,977 75,622 3.58 0.979 1.93 - -- 155 912828KQ UNITED STATES TREAS NTS 03.12 Aaa /AAA 3.13 05/15/2019 95.24 148,413 149,458 7.08 3.745 8.08 - -- 30 912828KU UNITED STATES TREAS NTS 0.875 Aaa /AAA 0.88 05/31/2011 100.43 29,746 30,217 1.43 0.505 1.16 - -- 100 912828KX UNITED STATES TREAS NTS 1.875 Aaa /AAA 1.88 06/15/2012 101.63 100,746 102,184 4.84 1.124 2.16 - -- 15 912828LM UNITED STATES TREAS NTS 1.375 Aaa /AAA 1.38 09/15/2012 100.22 14,972 15,042 0.71 1.284 2.42 - -- 35 912828LW UNITED STATES TREAS NTS 1.000 Aaa /AAA 1.00 09/30/2011 100.40 35,005 35,142 1.67 0.730 1.49 - -- 140 912828MB UNITED STATES TREAS NTS 1.125 Aaa /AAA 1.13 12/15/2012 99.13 138,529 139,249 6.60 1.452 2.67 -- 35 912828MH UNITED STATES TREAS NTS 2.250 Aaa /AAA 2.25 01/31/2015 98.91 34,889 34,750 1.65 2.489 4.63 - -- 75 912828MW UNITED STATES TREAS NTS 2.500 Aaa /AAA 2.50 03/31/2015 99.72 74,801 74,820 3.55 - -- 25 92343VAJ VERIZON COMMUNICATIONS INC NT A3 /A 4.35 02/15/2013 106.07 24,971 26,656 1.26 2.159 2.72 13- 25 929043AF VORNADO RLTY L P NT 4.25 %15 Baa2 / BBB 4.25 04/01/2015 99.24 24,892 24,825 1.18 4.064 4.56 - -- 25 94974BET WELLS FARGO CO MTN BE SR NT 3 Al /AA- 3.75 10/01/2014 101.21 24,959 25,772 1.22 3.457 4.11 - -- Portfolio Total $2,046,992 $2,109,832 100% ROCKWOOD CAPITAL ADVISORS PAGE 18 With US Treasury Yields Near Historic Lows... •: :� 1 st Quarter 2 010 Concern... BC Int. Covernment Index (Yre(d to mabarity) 8.0% f Rates Total Dollar Increase Return Loss" 7.0% +5% -14.3% - $1,431,846 6.0% +4% -11.4% - $1,139,000 5.0% +3% -8.3% - $834,000 Af 4.0% +2% -5.1% - $511,000 3.0% +1% -1.7% 4172,000 2.0% 'assumes $10,000,000 beginning portfolio vakie 1.0% 0.0% 99 00 01 02 03 04 05 06 07 08 09 10 ROCKWOOD CAPITAL ADVISORS PAGE 19 The Fed is in a Tou Spot 1 st Quarter 2 010 The Fed Balance Sheet & the Housing Sector Total Federal Reserve Bank Credit Changes In The Casa Shilier Composke -20 Home Price Index (The Fed's Balance Sheet) 2,400 2,400 20% 20% 12!172008, 2253.74 2,200 2, 200 10/1412000,210614 1e% Year -over -Year z,000 2,000 Change 1,800 1,800 10% 10K 1,600 1,600 Q cart er -o ver -Q ua rte r 5% Change 6% 1,400 1,400 $ $ 1A1nom Z) 1200 1,200p -a.70x m m 0% __ __ .. ....._.. _..._ _.. . Y2I'3j r 0% p tA1l2010 1,000 1, ONG -0.675 00 800 800 .4% 9/10!2008 600 888 28 OD0 400 400 200 200 -16% 0 0 8 rn rn m 8 rn 0 rn rn w m iii R 8 m 9 0 0 ° p 1 8 0 8 0 8 000 •20% •20% t2 a V I� M O> N O a7 r C I� � O M m N �5 � O mq Q • N t0 The balance sheet of the Federal Reserve has exploded. In other words, Home prices appear to have bottomed. However some fear that the the Fed has been buying securities at a rapid rate, injecting an enormous bounce in home prices is a temporary phenomenon driven by federal amount of cash into the banking system. If the economy starts to gain programs such as the first time home buyer credit and the Fed's $1.25 traction, the Fed will need to shrink its balance sheet or inflation will billion mortgage purchase program. Skeptics believe that housing will surely follow. roll over now that these programs are expiring. Can the Fed afford to end its purchases and risk another housing collapse? &ROCKWOOD CAPITAL ADVISORS PAGE 20 r Fixed Income Relative Value -: 1 st Quarter 2 010 Corporate Bonds & Mortgages Investment Grade Spreads The Di fewce Be11Mee11 10- YearTreastry And TM OpfornAdMted Spread (OAS) of the Merril hnstrnerd Ora do C orporain Master Index 30 -Year FNMA Mwtpge Y1" 770 700 arsr2ms, 5s� 280 2.50 599 2AD 2.40 600 000 3A /m08 550 am 220 220 500 000 200 2.00 � 450 400 180 1.80 ADO 400 I a o ar .r. 180 1.50 4 350 360 It m m 300 300 1 AO 1.40 1 Or10Rm2, 26T 780 2M 120 120 12+82MO, ZIJ 2DO 100 1.00 1 V1119B5, 11l 150 VO m,amos, „D 080 0.90 100 100 sR1noe2 5RN159E, 89 7V10/1OT8, T9 2126MUT, 58 080 0.00 Investment grade corporate bonds have staged a tremendous rally since The yield spreads of mortgage pass- throughs vs. Treasuries has narrowed December 2008. At an average yield spread of 1.75% over Treasuries, substantially since March 2009 largely driven by Fed purchases. corporate bonds still remain attractive relative to the 2004 -2007 period. Mortgages did very well in 2009, however, the Fed purchase program expired at the end of March 2010. Mortgage yields could rise substantially without government support ROCKWOOD CAPITAL ADVISORS PAGE 21 US Budget: A BIG Problem 1 A Quarter 2 010 Exploding Deficit + Massive Treasury Issuance = Higher Rates in 2010 Federal Budget Deflck/Surplus Treasury Borrowings ("Net Marketable ") By Quarter (Roving 12 -Morlh Sun) Apr91 370 TT b6 300 $000 9 $600 Blue = Actual B orroWngs lisp 150 Red= Treasury Estimate pay -01 $500 $41 3+t $500 -169 b6 0 - .uilo�• 0 579J -160 -160 $400 >a�a $400 Ar9� G -300 -t smnr -300 Apl-W y � 6 1 0 j 450 J3201 Ap l -460 m -164.57 Q° 's Ft91 1200 $200 V •Wo -000 a $146 $141 5168 sas S m -760 -760 m m $100 $100 a $ I �s $100 Wo. No 1�� I so -1050 4060 ' W) p -1200 -1200 •$1 SG SI -$too b Blue= Actual t -1350 Red =0B0's August Forecast No*09 -1350 IL - 1,433.04 -$200 •$200 Awo yy p� �py y� 9qQ -1500 40 1020 30 40 1020 30 40 1020 30 40 1020 30 40 102Q 30 40 1020 30 40 10 0 0 0 0 0 2f 3 3 tf 6 2004 2006 2006 2007 200e 2009 2010 Cskndmr Mapes The US budget deficit exploded to $1.4 trillion in 2009, forcing the US The Treasury sold $2.1 trillion in note and bonds in 2009, more than Treasury to sell an unprecedented amount of new debt (notes and 2007 and 2008 combined In 2010, issuance is expected to approach bonds). $2.6 trillion! ROCKWOOD CAPITAL ADVISORS PAGE 22 2 010 Treasury Issuances 1 st Quarter 2 010 A Tsunami of Treasury Debt is About to Wash Ashore Total Treasury Gross Issuance (Amount Offered) For The Week Percentage Of Treasury Issuance Bought By Foreigners AN Treas uy Bet, Notes And Bonds $326 am 300% 300°0 $300 $$00 Blue = All Foreigners geP W $275 $2'76 25 0 Red = China 260% 250% $250 $ZBO 200% 200% $225 $226 $200 $200 g 1 150 150% c $175 $176 0 T toe % o $16o $16o r x 100% 100% ao $125 $125 $100 26 Week Average $lop 500 Mar -07 42% 50% 27 $75 $76 23% 24%21% $50 $60 0% 0% 6% $ W eeky 826 $0 . m o r w f a w w $0 -50% -50 $ $ $ $ $ $ 8 $ $ $ $ g gg gg g w o M g a e v o c o� o 9 � o o 9 a r r 9 m w m rn 4 4 4 4 4 4 4 4 4 4 4 4 0�� 4 w w n • d c d d c iIj S a `m S m , `m c ) b c$ N o o 5 o 8i o N o n o 3 n 8 Due to the ballooning federal budget deficit, the increase in issuance of One of the problems of increased US Treasury issuance is finding US Treasury securities (federal borrowing) has been astounding. "homes" for all this debt In recent years, the US has relied heavily on countries such as China and Japan to finance our deficit However, foreigners have been purchasing a decreasing percentage of our debt, which will eventually force interest rates higher to entice investors. ROCKWOOD CAPITAL ADVISORS PAGE 23