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Home My WebLink AboutDocumentation_Pension Public Safety_Tab 04_08/02/2010 ��' I� �� ,��,s" �." , ` ' ` a � � , � � . .. �� . �. - �� > �- _ �� I��►��v�o� ��Ca �� i�al ��d�i��r� � � � � � � �� _ : � - � s�� - : �� ` � �_ - g� �:.� g 4 � Strategy Review Presented By: Anthony K. Brown Senior Partner Tony@ rockwoodcapital. com vi I lage of Tequesta Pub1 ic �afety �ce�s' Pension �und Second Quarter 2010 Review August 02, 2010 _� ROCKWOOD CAPITAL ADVISORS � �� '.�� ,� � � R Fs �' � :��►. �, � �� . �I E Y��tl 1 1L.i F� L.�� ,, ` � v � � � � ,, a *� � � n � �� b �� ,�` , � � �"` "" . � � .� ., ; 2 nd 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 — commensurate with the Prudent Investor Rule and any other applicable statute. Reasonable consistency of return and protection of assets against the inroads of inflation are paramount. However, the volatility of interest 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 as of July 2010 will be compared to the return of a portfolio comprised of 50% Russell 3000 Stock Index, 10% MSCI EAFE and 40% Barclays Intermediate Aggregate Bond Index. Previously the comparison was to a combination 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 an appropriate peer 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. 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 15% of the value at cost of the fund. � ROCKWOOD CAPITAL ADVISORS PAGE 1 '� ' . .. ...� � �. �. e �.: � � q � „ . . # �t :'� � :.� � � w i� a �`U�� U��"1� �. '= �` �� # � - . � � �► - � �� w"� � � �`� �'� _�, . 2 nd Quarter 2 010 Tequesta Public Safety Officers' Pension Fund Beginning Ending % of Est. Annual Current Market Market Portfolio Income Yield Fixed Income $1,762,824 $2,115,098 46.1% $89,641 4.2% ECjuif�/ $3,228,832 $2,289,829 49.6% $21,635 1.0% Cash & Equivalents $329,542 $201,346 4.4% $362 0.2% Accrued Income $19,626 $15,576 -- -- -- To�l $5,340,824 $4,621,849 100% $111,638 2.4% Total Fund Performance 2� Fixed Income as.i�r Cash & �s.� � Equivalents �o.s � 10 �r � 4.4% '� � i � . � ° Tequesta Public Safety � � 0 � � 60% Russell 3000 � � �� 40% Barclays Int CJC 6.3 -5J s Y ;�s� � -10 1 , <��yi�ii�' : 49 6°k/ -20 �aiter One Year � � ROCKWOOD CAPITAL ADVISORS PAGE 2 ,� �'�' • i,�"` � s; ,�,` �° ,�" • ' � a � � 1 { k . . . . . . . . �. . . . . � ,� � •� }. . . . . . . . . � . ! " s � �r �� r� arr� � � .��z �� ;gg _ ,� �,� . �� .�� : 2 nd Quarter 2 010 Tequesta Public Safety Officers' Pension Fund Market Value Changes Total $ Change this quarter $(718,975) 2nd Quarter Total Fund Return -6.3% 2 nd Quarter Summary Fiscal Year Summary Beginning Market Balance $5,340,824 Beginning Market Balance (9/30/2009) $4,681,451 Interest / Dividends 25,535 Interest / Dividends 71,348 Contr�ibutions 154,212 Contri butions 666, 3 04 Net Disbursements (571,835) Net Disbursements (851,533) Net Realized & Unrealized (G/L) (326,887) Net Realized & Unrealized (G/L) 54,279 Ending Market Balance $4,621,849 Ending Market Balance $4,621,849 � ROCKWOOD CAPITAL ADVISORS PAGE 3 . ,� _ ,. � ., .. . � �,� �► .'�' � 1�, � ` t � ,� � � . . • .. f . . . � � . . . �` IM w A' A �� —�1� In �.�.. �� • .. . a . � �. � � Y . � �`� " -=�` �"` �, _ � � n� �. _ � � 2 nd C�udr�� r C u i u � , _'�.' ` �z� �� s � �, � � `�I►�� 'r T;Y'-''�"� i�,�' �, � �, � �� '�� t y � � � + � f � �� 1#�.t� � fe "� � � �� f'� � �� _.'. . . � �I i j �'�'`�,�-,� �. �ti =��`. 1�.�'� � ° � � � `f-� '") �� ; � � ��' 1 .;.. + .� � � �. � � I � i "� ti*a � f . � `� `.� � �� f � -t� �'� � `� � � �P � � � � � �� ' � � �� .� � : � j f �� " N � -� �� S � � ��'`' � �� '� �� ' � � � � �� a� ��;�� ` �� i � � � � '��i �� o� � � � �� `� °� ; � �.� ' �� '� ; � ,, � � ROCKWOOD CAPITAL ADVISORS PAGE 4 . . . . � . � . . . .. .. �� +. �. � �.�� ., � � � .. +�' ,r; _: r ; � ` # � / y � s �� ' �{( � . . . � . � � � f . . . . . . . � �. y .x ,Ma » � . e + s � � � A .� ... . . . .. � � � . . _ .. � � � . . . �� ` *� �Fi �. .._ _ �� „ ''�' 2 nd Quarter 2 010 FLASH "back" After one of the most impressive post-bear market rallies in history, the over-analyzed "pullback" in stodc prices finally stepped forward during the 2"� quarter. Greeoe, a"Flash Crash" and fears of a"double dip" all contributed to an incxease in global financial market volatility causing investors to once again seek refuge in U.S. Treasurys and gold. For the quarter, all major indices experienced the correction. The S&P 500 Index slid 11.9% while international stocks fared no better with the Morgan Stanley EAFE Index declining 14.9%. U.S. Treasurys were up 4.6% for the quarter and gold up 11.9%. While it is disappointing to e�erience this kind of setback, it is imperative to understand tf�at historically, economic expansions last about four years, as do bull markets. We are in the early innings of todays bull market and most bull markets are accompanied by corrections, some of which can exceed 10%. While this correction has been sharp, it is important to remember that the market is still up o�er 50% from its lows in March of 2009. Despite the correction in Q2, the longer-term trend for stocks is still decisively up, and current data continue to point to an expanding U.S. economy. While our process is technically driven, we are not oblivious to the various economic forces in play and tf�e resufting preponderance of "doubting Thomases". There is no doubt that investors from Main Street to Wall Street are frightened. The news is almost uniformly neg�ive. Concerns over economic, fiscal and regulatory issues, combined with predictions of a"double-dip" recession, are stoking investor fear. However, such fear is understandably rooted in the bear mark� of 2008/2009. The deep bear market wounds have had a severe impact on investor psychology. AS contrarians, � interpr� such bearish investor sentiment as a STRONG BUYING OPPORTUNITY! It is time to step forward. As Warren Buffet likes to say, he is fearful when others are greedy and greedy when others are fearful. � ROCKWOOD CAPITAL ADVISORS PAGE S . ,. �,�.. : �, , � .r ��, �,,� � � � ; ♦ r y . . ... .. ,� . • � � a.. � > y • • � �� . . q � � �� .. � � �. . � ,� , . � � � i��.=�� . � �� = ,, �. �� . .�� 2 nd Quarter 2 010 Our research continues to indicate that longer-term positive trends in most industry groups and sectors remain in place. In the face of the pullback in equiiy prices during the quarter, relative strength persists in those sectors we favor most including Consumer Discretionary, Tcchnology, Financials, and Industrials. We continue to maintain our largest weighting,s in the above-mentioned sectors as these trends are expected to continue for at least the remainder of the year. As always, "Thank you" for your support, confidence, patience, and most of all, YOUR BUSINESS! PerFormance 20 15.6 10 5.5 �. ----- �;, , � °� 0 4 � Tequesta Public Safety � � �`�� ` ■ Russell 3000 -o.s I -o.� -o.s � -2.1 � ��'�, � �-2.5 -2.9 , --- -� "�� ' � -- - _' � -11.4 10.9 °8.� _9.5 -13.5 -�� Fiscal QTR YTD One Year Two Years Three Years Four Years Five Years Inception .� ROCKWOOD CAPITAL ADVISORS PAGE 6 ,� e �� It .. � � � � � , � x +�`� ' � . w � . , . .. . .. . . . . � . � � . !. ` � # .a.. tiF '� E u1 Pa�f�l�� v�: � �Y � .. m i g - � ,� . �• ,.++'r� .RE � a �� . � � � 2 nd Quarter 2 010 Portfolio Summary Top 10 Holdings Five Best Impact # of Stocks 37 1. Salesforce Com Inc 3.8% 1. Salesforce Com Inc +15.0 % 2. Staples Inc. +4.3 % B� 1.4 2. Nike Inc. 3.5% Yield p.g��o 0 3. Goldman Sachs Group +3.5 % 3. Ford Motor Co. 3.3 /o 4. Nationwide Health Propert +3.0 % P/E 19.3x 4. Hewlett Packard Co. 3.2% 5. Int') Business Corp. -0.2 % Style Box 5. TJX Companies Inc. New 3.2% Five Worst Impact Val Cr Gnv 6. Progressive Corp. 3.2% Large Cap - 23.7% 1. Nvidia Corp -41.2 % 7. Starwood Hotels & Resorts 3.1 % Mid Cap - 682% 2. Texh�on Inc. -26.8 % 8. Nationwide Health ProperUes Inc. 3.1 % Small Cap - 8.1 % 3. Mosaic Co -26.7 % 9.Oracle Systems Corp. 3.0% 4. CNH Global NV -26.4 % Average Market Cap $13.5 billion Median Market Cap $5.8 billion 10. Hen Schein Inc. 3.0% o �' S. Royal Caribbean Cruises -24.5 /o ROCKWOOD CAPITAL ADVISORS PAGE 7 ,�'�` I��► �� .�►' �''" ,� �. , � . `. . . ,,, • . . . . � . "� ,. Ec�� -� �r�a[�s�s ar�d A�t�� k�c�tic�n � � ,�; , r .�. � �� -� � � � :. 2 nd Quarter 2 010 Sector Allocation Health Info 35% Staples Discretionary Care Materials Tech Energy Industrial Tele Finance Util 31.4% 30% 25% ��`�� 24.6% � E �� N �'�� 20.5% 20% � �� 187% a Rockwood = 16.2% � S&P 500 15% 14.5% 11.5% 12.1% > �� o� 107% � 1 p 4% 10% ° 3.8% 5/o 'L$ % 2.3% 3.4% 2 5% ��I 3.0% � 0.0% �� ' � 0.0% 0.0% _l 0% --. .. » — _ _ . _— -- Performance i o�ra � I � � a.o�io � i o.o�r�! o.o�ro o�ro - -10% o � � -4 6% � l -57% -4.8% -8.8 /o i � ' ° '� `-i2.3°!0 �2.bio-l2 oio ' 0 1 i 4°.'0 o -13.2/0 -12.8% -13.6% -20% -1 5.7 /o as��,.� -21.7% -30% �,�,.. .v i;•s: -40% -34.8% Staples Discretionary Health Materials Info Energy Industrial Tele Finance Util Care Tech ROCKWOOD CAPITAL ADVISORS PAGE 8 . " '� "` " . - � '�� ` _ �� r ,ii � W �' * • , � ..� ,�� < . � � `� . E �i T�a��s � � ; :� �� ,�F� � � � � �'` ` .,�� .�� . �`� � �� -'�` � 2 nd Quarter 2 010 Sold Purchased Stock Stock Mkt Cap Sector Industry Desc April Goldman Sachs Group April CBS Corp LCAP-Value Consumer Disc. Major TV, radio and outdoor advertising . ___ company. Staples Inc. � �,n rv_ a.. _ ._... ___� . . � . .. n a ,�. Starbucks Corp. LCAP-Growth Consumer Disc. Leading coffee roaster and retailer of May Cabot Oil & Gas Corp. high-quality coffee products in the world. __.._ __.._ May Capital One Financial Corp. LCAP-Blend Financial Diversified consumer finance company is one Google Inc. of the largest issuers of Visa & Mastercard credit cards in the world. June InYI Business Corp. Textron Inc. LCAP-Value Industrials Aerospace and industrial conglomerate � ��`��' ` " ""�"�" ' ' ' � makes Cessna business 'ets and Bell Medco Health Solutions � Inc. helicopters. Mosaic Co June Genworth Financial Inc. LCAP-Blend Financial Insurance holding company serves lifestyle protection, retirement income, investment and mortgage insurance needs around the world. . _ _- -_ � � . _ _ . _ _ . _ Informatica Corp. MCAP-Blend Technology Provides data warehousing/data integration I _ � I l software. Royal Caribbean Cruises Ltd. MCAP-Blend Co� �� . � � � � . � � � nsumer Disc. Second largest cruise ship company. Its business includes about 38 ships largely operating under three brands: RCI, Celebrity Cruises, and Pullmantur. Commissions Paid 2 nd Quarter Fiscal 2010 Year-to-Date Lynch, Jones & Ryan $ 929 $ 3,524 ROCKWOOD CAPITAL ADVISORS PAGE 9 +� 7r �� r� ,�I► y . 4 y: t °�' 3� � y + j s � . . ... y �Y P� • . . . . . . . " � . .. . . . � � .. ♦ � � Ec��[fi}� HQI��n�� .� ,� � � � �� .�� .T� * �`' � �. 2 nd Quarter 2 010 Exchange Market Total Market Current Annual Ticker Com an Name Shares Unit Cost Ori inal Cost Price Value % Mkt Yield Income - CASH 8 EQUIVALENTS 28,623 1.00 28,623 1.00 28,623 1.2 02 52 AMG AFFILIATED MANAGERS 835 66.90 55,864 60.77 ' S0,743 2.2 0.0 - AMP AMERIPRISE FINL INC 1,840 28.31 52,099 36.13 66,479 2.9 2.0 1,325 BEAV BE AEROSPACE INC. 2,600 23.40 60,837 25.43 66,118 2.9 0.0 - BPO BROOKFIELD PROPERTIES CORP. 4,060 11.80 47,918 14.04 57,002 2.5 4.0 2,274 CBG CB RICHARD ELLIS GROUP 4,520 14.01 63,320 13.61 61,517 2J 0.0 - CBS CBS CORP. 4,420 14.63 64,680 12.93 57,372 2.5 1.6 884 CHH CHOICE HOTELS INT'L 2,180 28.93 63,061 30.21 66,261 2.9 2.5 1,613 CNH CNH GLOBAL NV 2,190 21.46 46,987 22.65 49,604 2.1 0.0 - COF CAPITAL ONE FINANCIAL CORP 1,350 44.11 59,554 40.30 54,405 2.3 0.5 270 COH COACH WC. 1,655 3772 62,426 36.55 60,739 2.6 1.6 993 CRM SALESFORCE COM INC 1,D20 45.01 45,906 85.82 87,536 3.8 0.0 - CTXS CITRIXSYSINC 1,430 42.83 61,239 42.23 60,389 2.6 0.0 - EQIX EQUINIX INC 660 83.83 55,325 8122 53,605 2.3 0.0 - F FORD MOTOR CO. 7,680 7.60 58,353 10.08 77,414 3.3 0.0 - FLS FLOWSERVE CORP 585 107.47 62,869 84.80 49,778 2.2 1.4 679 GNW GENWORTH FINANCIAL INC. 3,760 15.52 58,336 13.07 49,143 2.1 0.0 - HOC HOLLYCORP 2,170 26.43 57,345 26.58 58,004 2.5 2.3 1,302 HOT STARWOOD HOTELS & RESORTS 1,760 33.42 58,815 41.43 72,917 3.1 0.5 352 HPQ HEWLETT PACKARD CO. 1,730 33.92 58,689 43.28 75,013 3.2 0.7 554 HSIC HENRY SCHEIN INC. 1,275 43.30 55,213 54.90 69,998 3.0 0.0 - INFA INFORMATICA CORP. 2,240 26.83 60,104 23.88 53,491 2.3 OA - M MACYS WC. 3,600 16.04 57,758 17.90 64,620 2.8 1.1 720 NHP NATIONWIDE HEALTH PROPERTIE: 2,030 31.01 62,951 35.77 72,613 3.1 5.0 3,654 NKE NIKE INC. 1,190 59.89 71,270 67.55 80,706 3.5 1.6 1,285 NVDA NVIDIA CORP 4,790 10.49 50,225 1021 48,906 2.1 0.0 - ORCL ORACLE SYSTEMS CORP. 3,290 20.70 68,101 21.46 70,603 3.0 0.9 658 PCP PRECISION CASTPARTS 535 106.72 57,094 102.92 55,062 2.4 0.1 64 PGR PROGRESSIVE CORP. 3,915 15.72 61,529 18.72 73,289 32 0.9 630 RCL ROYAL CARIBBEAN CRUISES 1,970 30.18 59,445 2277 44,857 1.9 0.0 - RVBD RIVERBED TECHNOLOGY 2,530 22.85 57,804 27.62 69,879 3.0 0.0 - SBUX STARBUCKS CORP 2,563 25.00 64,071 24.30 62,281 27 17 1,025 ' SLH SOLERA HOLDINGS INC 1,710 36.66 62,694 3620 61,902 27 07 428 TEX TEREX CORP NEW 2,845 21.61 61,473 18.74 53,3t5 2.3 0.0 - TJX TJX COMPANIES INC. NEW 1,750 25.41 44,461 41.95 73,413 32 1.4 1,050 TXT TEXTRON INC. 2,550 23:22 59,216 16.97 43,325 1.9 0.5 204 VSEA VARIAN SEMICONDUCTOR 1,760 32.04 56,382 28.66 50,442 2.2 0.0 - WSM WILLIAMS SONOMA INC 2,786 22.11 61,593 24.82 69,149 3:0 2.4 1,672 PortfolioTotal $2,193,632 $2,320,510 100.0 0.9 $21,688 � ROCKWOOD CAPITAL ADVISORS PAGE lO . . . . ,� ' .. .... � r yr.,. . � i �'� .8 � �.� � 9m- n .. �� #.� ' . : . �: .. . . . .. ' � F � � - � � �� j � o =` � "'' :" �� '�� ` �� , � � � � �:.� � � iFi c .F = 2 nd Quarter 2 010 Meeting Mgmt Vote Meeting Mgmt Vote Shares Date Agenda Item Rec Cast Shares Date Agenda Item Rec Cast A�liated Managers Group, Inc. ( AMG) Ford Motor Company ( F) 6/8/2010 Elect Directors For For 5/13/2010 Elect Directors For For Amend Executive Incentive Bonus Plan For For RatifyAuditors For For _ _ __ _ _ _ RatifyAuditors For For Adopt NOL Rights Plan (NOL Pill) For For _ _ __ . _ _ Ameriprise Financial, Inc. ( AMP) Disclose Prior Government Service Against Against _ _ 4/28/2010 Elect Directors For For Adopt Recapitalization Plan Against Against Declassify the Board of Directors For For Report on Political Contnbutions Against Against Advisory Vote to Ratify Named Executive Officers' For For Advisory Vote to Ratiry Named Executive Officers' Against Againsf Compensation Compensation Amend Omnibus Stock Plan For For Prohibit Energy Projects Only Concerned With CO2 Against Against __ Reduction Ratify Auditors For For _ _ - Google Ina ( GOOG) Brookfield Properties Corp. ( BPO) 5/13I2010 Elect Directors For For 5/5/2010 Fix Number of Directors at Ten For For Ratify Auditors For For Elect Directors For For Amend Omnibus Stock Plan For For Approve Deloitte & Touche LLP as Auditors and For For Prepare Sustainability Report Against Against Authorize Board to Fix Their Remuneration Adopt Pnnciples for Online Advertising Against Against Cabot Oil & Gas Corporation ( COG) Amend Human Rights Policies Regarding Chinese Against Against 4/27/2010 Elect Directors For For Operations _ _ _ __ . Ratify Auditors For For Henry Schein, Ina ( HSIC) Report on Environmental Impacts of Natural Gas Against Again§t 5/10/2010 Elect Directors For For Fracturing Amend Non-Employee Director Omnibus Stock Plan For For CB Richard Ellis Group, lna ( CBG) Ratify Auditors For For _ 6/2/2010 Elect Directors For For Holly Corporation ( HOC) Ratiiy Auditors _ For For 5/5/2010 Elect Directors For For Choice Hotels International, Ina ( CHH) RatifyAuditors For For _ __ _ _ _ _. _ . _ 4/29l2010 Elect Directors For For International Business Machines Corporation ( IBM) Amend Omnibus Stock Plan For For 4l27/2010 Elect Directors For For � Approve Executive Incentive Bonus Plan �� For For �-- — -- RatifyAuditors For For RatiiyAuditors For For - - - - - - Adopt Policy on Bonus Banking Against Against Citrix Systems, Inc. ( CTXS) Provide for Cumulative Voting Against Against 5/26/2010 Elect Directors For For Amend Articles/Bylaws/Charter -- Call Special Against Against Amend Omnibus Stock Plan For For Meetings Adviso Vote to Rati Named Executive Officers' A ainst A ainst Ratify Auditors For For �Y tY 9 9 Equinix, Inc. ( EQIX) _ _ _ Compensation. _ Macy's, Inc. ( M) 6/10/2010 Elect Directors For For Ratify Auditors � For For 5/14/2010 Elect Directors For For RaUfy Auditors For For Flowserve Corporation ( FLS) Amend Certificate of Incorporation to Reduce For For 5/14/2010 Elect Directors For For Supermajority Vote Requirements and Eliminate RatityAuditors For For Certain Prowsions Require a Majority Vote for the Election of Directors Against Against ROCKWOOD CAPITAL ADVISORS PAGE I1 -� „, �■ �,,, � ��'�` � " ` �' � '� , P'�� f�ti � ��or�# , �. . ,� , � � b ��. � �� x .� � � �` _ � �� -� � ... � , �F .� � . ., _ : 2 nd Quarter 2 010 Meeting Mgmt Vote Meeting Mgmt Vote Shares Date Agenda Item Rec Cast Shares Date Agenda Item Rec Cast Medco Health Solutions, Inc. ( MHS) Ratify Auditors For For _ . _ _ __ 5/12/2010 Elect Directors For For Advisory Vote to Ratify Named Executive Offcers' For For Rati Auditors For For Compensation �' Reduce Supermajority Vote Requirement For For Provide Right to Call Special Meeting For For Provide Right to Call Special Meeting For For _ __ _ _ _ _ _ _ Nationwide Health Properties, Ina ( NHP) Provide for Cumulative Voting Against Against 5/4/2010 Elect Directors For For Report on Collateral in Derivatives Trading Against Againsf __ _ __ - - - y Re uire Inde endent Board Chairman A ainst A ainst Ratify Auditors For For 4 P _ 9 9 Amend Omnibus S4ock Plan For For Report on Political Contributions Against Against NVIDIA Corporation ( NVDA) Report on Global Warming Science Against Againsf Report on Pay Disparity Against Against 5/19/2010 Elect Directors For For Stock Retention/Holding Period Against Against Ratify Auddors For For The Progressive Corporation ( PGR) Riverbed Technology, Inc. ( RVBD) 4/23/2010 Elect Directors For For 5/25/2010 Elect Directors For For Approve Omnibus Stock Plan and Pertormance For For Ratify Auditors For For Criteria __ _ ___ _ _ ___ Amend Omnibus Stock Pian For For Ratify Auditors For For salesforce.com, inc. ( CRM) The TJX Companies, Inc. ( TJX) 6/10/2010 Elect Directors For For 6/2/2010 Elect Directors For For _ _ _ __ Ratify Auditors For For Ratify Auditors For For _ ___ ._ . _ _ Sigma-Aldrich Corporation ( SIAL) Advisory Vote to Ratify Named Executive Offcers' Against Against 5!4/2010 Elect Directors For For Compensation Amend Executive Incentive Bonus Plan For For Williams-Sonoma, Inc. ( WSM) " 5l26/2010 Elect Directors For For Ratify Auditors For For __ ___ _ Reduce Supermajority Vote Requirement Against Against Amend Omnibus Stock Plan For For __ Staples, Inc. ( SPLS) Amend Executive Incentive Bonus Plan For For Ratify Auditors For For 6/7/2010 Elect Directors For For Approve Executive Incentive Bonus Plan For For Amend Omnibus Stock Plan For For _ _ __ _ _. Ratify Auditors For For - -- -- Provide'Right to Act by Written Consent Against Against __ . _ _. _ Amend Articles/Bylaws/Charter -- Call Special Against Against Meetings Stanvood Hotels 8 Resorts ( HOT) 5/13l2010 Elect Directors For For __ _ RatifyAuditors For For Amend Executive Incentive Bonus Plan For For .__ _ ___ _. Terex Corporation ( TEX) 5/13/2010 Elect Directors For For Ratify Auditors For For __ �_ _ --- — -- The Goldman Sachs Group, Inc. ( GS) 5/7/2010 Elect Directors For For � ROCKWOOD CAPITAL ADVISORS PAGE 12 � £ � � `� �"'� � . ,. � � � � ��+ '�� ,� :�, � � �I � ;. , . � , ,. .. ++i� � t � Prc��}� Fo��c�t� � � � �� : . �� .~� � � _ �`_ Y. � ,.,. u « ' 2 nd Quarter 2 010 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 clienYs 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 clienYs 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 13 ` �t' , � �F, '�� ",� •4r ,j �-� {�•.� R "� s :. � i� � . ::* � � � e .. • � ., , ��t� ` .. .. . . . . . . . � � � . FI�c�� Ir��rm� . � ;�: ,. :� �� .x � � �■�� : �:� . . 2 nd Quarter 2 010 "�'s Greek fi� US" The fog that enveloped the economic landscape over the past few quarters has finally begun to lift. Unfoitunately, the view now revealed is not very pleasant. At the end of the first quarter, it appeared t�at t1�e economy had begun to stabilize. Economic data was coming in stronger ti�an anticipated and stocks had risen 15% since their 2010 February lows. The Dow Industrials pierced the 1 1,200 in April, and all was good. These signs of strength combined with the exploding federal budget deficit made the "bond vigilantes" uncomfortable. The yield on the 10-year US Treasury note touched 4% in early April, the high for the year. And then came Greece. Suddenly, fears of huge budget deficits, loose monetary policy and resurgent inflation were tossed aside. Greece was t1�e canary in the coal mine, and investors fear�d that the Euro might crumble. Despite all its warts, the US financial system is still considered the world's "safest" investment option. Investors flocked for the safety of US Treasuries, driving yields down to levels not seen since early 2009. The panic in Europe also caused investors to shy away from risky assets, hurting t1�e performance of non-govemment securities. For now, inflation fears are virtually non-existent, and the Fed is expected to keep the federal funds rate near zero for the foreseeable future. The expiration of the first time home buyer fiax credit has caused the residential real estate market to tank. Consumer confidence is tuming lower as t1�e unemployment rate hovers near 10% and income growth is stagnant US Treasury Yield Curves Sector Index Returns 6% 15% 5% � 2Q 2010 � ■ YTD 2010 4% ,..-. ° �,„,�, . �^,^ " 3% ° �„�,>.m«�°�: �`" 5 % � � 2% � �"� ' i �� ,-�"� � *6/30/2010 Do � �"� - 1% �� 3/31/2010 , �� --- - - 6/30/2009 0% - 5% 3 2 5 10 30 Tsy Agy MBS Gedd CMBS ITY mos yrs yrs yrs yrs ROCKWOOD CAPITAL ADVISORS PAGE l4 �". � ��■ s �,, �: �,� .�► � � � � _ �� - .m F��C� �C�CQ�� , �� , �. . • �� ,� , . .�� ' S; � � } j� .. 2 nd Quarter 2 010 At some point, tf�e market will once again be concerned about aggressive US monetary policy, huge budget deficifis, and rising prices. For now, these are distant tt�reats. The situation in Europe is far from stable, and we believe that Greece will eventually be forced to default or "restructure" its debt. Other European countries are in similar financial straights. It is impossible to know how or if this contagion will spread to the US. For now, the US dollar is up and interest rates are down due to "flight to safety" buying of US Treasuries. Stocks on the other hand, have been harmed by t1�e damage done to the European export market and the fear that US job growth and personal income will remain weak. In summary, tt�e world economic situation is quite bleak. The stimulus spending of t�e past couple of years seems to have only served as a temporary "hiY' for bloated, spendingaddicted government (local, s�te and federal). With ta�c revenues down, state and local governments have been forced to reduce services and layoff workers, doing furtt�er damage to job and income growth. Early in d�e quarter, we extended the average maturity of our por(folios to benefit from falling interest rates, while scaling back on non-government holdin�. In normal times, interest rates would be moving higher. However, these times are anyd�ing but normal. Fear is the operative word, and global investors are flocking to the safety of the US dollar and US Treasuries. Interest rates are likely to remain low until stability returns. Hopefully, sfiability returns sooner rather than later. PerFormance 20 15 10 � $ 8.7 �.3 Tequesta Public Safety 5 4 3 5 � 3 6 � 2 5.0 5 � 6 5 0 5 • 6 ■ Barclays Int. G/C 2.9 2.4 � � 0 -5 Quarter Fiscal YTD One Year Three Years Five Years Inception ROCKWOOD CAPITAL ADVISORS PAGE 15 . . . . . . �7 �°�� `�' � �"�� ,ll�` i j�'t •� : R� » ' . .. . � . � . ` "� , X � . . . . . .... . . . . . . . . . .� , ' R � �. y r �i�ec� Pc��folio Stru�ur� � � .•,��X �� . ,��„ . . .�� _.., �' � 2 nd Quarter 2 010 Characteristics Effective Maturity 45 40 �� Tequesta Public Barclays Int. 35 ��` � Safety Aggregate so _ �� ; �� ,, ��; Average Maturity 4.4 yrs 4.2 yrs 25 �� ' �� #� Effective Duration 3.6 yrs 3.4 yrs �� 15 � � - �� i Yield to Maturi 2.8% 2.5°/o �:; °��, a#�. `7 10 �� a a � x A � �� 5 �� b � � e ; .�. � � , . � _ _�� 1 to 3 years 3 to 5 years 5 to 10 years 10+ years � Tequesta Public Safety ■ Barclays Int. Aggregate Portfolio Index International Cash U.S. Treasuries 3% 0 24% U.S. Treasuries 7 /0 32% Corporates 15% Agencies � ` 5% ABS/CMBS Corporates �� ` o � 24% � 4/a ��ko�t¢I , Agencies 9% ABS/CMBS 5% Mortgages Mortgages 35% 37% _� ROCKWOOD CAPITAL ADVISORS PAGE 16 �t " ��. �"'�'��' ,�pp�' . . � # .... ¢ ... . . . . �' � � E �UI� . � � � r . � . . .. . . ,� � � � M�Ie � , a� ��d Ho�d�r� S F. � _ � � � � �: �.�� : �= � � . �� . ,,� � - �� . �� ;;�,� �� . 2 nd 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 173 - CASH & EQUIVALENTS Aaa /AAA 0.00 07/01/2010 100.00 172,723 172,723 7.51 0.100 0.08 --- 15 009363AG AIRGAS INC GTD SR NT 4.5%14 Baa3 / BBB 4.50 09/15l2014 103.98 14,982 15,796 0.69 3.474 3.82 --- 10 025816BA AMERICAN EXPRESS CO SR NT 7.2 A3 / BBB+ 7.25 05/20/2014 113.66 10,501 11,449 0.50 3.463 3.44 B 20 06051 GDY BANK AMER FDG CORP SR NT 7.37 A2 /A 7.38 05/15/2014 112.08 22,800 22,604 0.98 3.979 3.40 --- 25 07388VAB A-2-FIXED RTBEAR STEARNS COMMER Aaa /AAA 5.33 01/12/2045 103.75 25,137 26,048 1.13 3.596 1.60 --- 25 096630AB BOARDWALK PIPELINES LP GTD SR Baa2 / BBB- 5.75 09/15/2019 104.71 24,798 26,602 1.16 5.442 7.22 --- 10 10112RAR BOSTON PPTYS LTD PARTNERSHIP Baa2 /A- 5.63 11/15/2020 104.61 9,989 10,573 0.46 4.972 8.08 --- 10 12189TBA BURLINGTON NORTHN SANTA FE CP A3lBBB+ 5.75 03/15/2018 112.31 9,843 11,400 0.50 3.886 6.38 B 20 161571CP A-FIXED RTCHASE ISSUANCE TRUST20 Aaa /AAA 4.65 03/15/2013 108.35 19,999 21,711 0.94 1.511 2.54 --- 20 172967EY CITIGROUP INC SR NT 6.375%14 A3 /A 6.38 O8/12/2014 106.22 21,116 21,735 0.94 4.695 3.57 B+ 35 219350AT CORNING INC NT 7%051524 Baa1 / BBB+ 7.00 05/15/2024 114.41 34,680 40,355 1.75 5.501 9.45 B+ 25 25179MAH DEVON ENERGY CORP NEW SR NT 6 Baa1 / BBB+ 6.30 01/15/2019 115.85 25,240 29,688 1.29 4.083 6.78 B+ 20 25459HAN DIRECN HLDGS LLC / DIRECN S Baa2 / BBB- 3.55 03/15/2015 100.66 19,929 20,350 0.88 3.427 4.32 --- 10 2605436X DOW CHEM CO SR NT CR SENS 19 Baa3 ! BBB- 8.55 05/15/2019 122.41 9,979 12,350 0.54 5.344 6.61 B+ 15 26884LAA EQT CORP SR NT 8.125%19 Baa1 / BBB 8.13 06/01/2019 117.64 15,208 17,747 0.77 5.328 6.72 --- 20 29379VAE ENTERPRISE PRODS OPER LLC GTD Baa3 / BBB- 4.60 08/01/2012 104.59 19,990 21,301 0.93 2.333 1.96 --- 277 3128MJKN FHLMC GOLD POOL FGG08300 Agy /Agy 5.50 11/01/2038 107.44 295,273 298,662 12.98 2.558 1.65 --- 225 312938K8 FHLMC GOLD POOL A90319 Agy /Agy 5.00 12/01/2039 105.93 237,292 239,684 10.41 3.451 3.90 --- 155 3129402H FHLMCPOOLA92576 Agy/Agy 4.50 07/01/2040 103.74 159,432 161,375 7.01 3.698 4.87 --- 9 36200EUP GNMA I POOL 599190 Aaa /AAA 6.00 03/15/2035 109.67 9,662 10,247 0.45 2.255 2.28 --- 40 36291W7H GNMAIPOOL640896 Aaa/AAA 7.00 04/15/2035 110.01 42,890 44,138 1.92 3.379 2.07 --- 50 36291XMW GNMA 1 POOL 641273 Aaa /AAA 4.50 04/15/2035 104.74 48,461 52,080 2.26 3.139 2.61 --- 12 36962G4F GENERAL ELEC CAP CORP MTN BE Aa2 /AA+ 4.38 09/21/2015 105.15 11,968 12,763 0.55 3.294 4.69 B- 10 46625HGY JPMORGAN CHASE & CO SR NT 6%0 Aa3 /A+ 6.00 01/15/2018 110.42 9,955 11,319 0.49 4.363 6.13 B+ 10 46625HHP JPMORGAN CHASE & CO SR NT 3.7 Aa3 /A+ 3.70 01/20/2015 102.29 10,161 10,394 0.45 3.157 4.16 B+ 40 46625YNC JPMCC 2005-LDP2 A4 CMBS Aaa /AAA 4.74 07/15/2042 104.12 40,906 41,804 1.82 4.822 4.31 --- 28 46629PAE JPMCC 2006-LDP9 AM CMBS Aaa / BBB 5.37 05/15/2047 83.44 22,680 23,490 1.02 8.536 5.24 --- 9 565849AD MARATHON OIL CORP SR NT 6%o17 Baa1 /BBB+ 6.00 10l01/2017 111.73 9,011 10,191 0.44 4.111 6.02 B- 15 595620AD MIDAMERICAN ENERGY CO FR 4.65 A2 /A- 4.65 10/01/2014 109.45 14,073 16,592 0.72 2.303 3.89 B- 22 61747YCE MORGAN STANLEY FR 6%042815 A2 /A 6.00 04/28/2015 104.51 20,792 23,223 1.01 ' 4.937 4.19 B- 10 61747YCL MORGAN STANLEY SR NT 4.1%15 A2 /A 4.10 01/26/2015 97.46 9,974 9,922 0.43 4.724 4.09 B- 10 72650RAV PLAINS ALL AMERN PIPELINE L P Baa3 / BBB- 425 09/01/2092 104.48 10,136 10,589 0.46' 2.198 2.05 --- 100 7591 EAAB REGIONS BK ALA MTN FDIC TLGP Aaa /AAA 3.25 12/09/2011 103.64 103,813 103,839 4.51 0.708 1.41 --- 25 7591 EPAF REGIONS FINANCIAL CORP NEW SR Baa3 / BBB- 775 11/10/2014 105.49 25,000 2&,648 1.16 7746 3.65 --- 15 806605AJ SCHERING PLOUGH CORP NT 6%17 Aa3 /AA- 6.00 09/15/2017 117.48 14,994 17,887 0.78 3.258 6.04 B+ 15 816851AN SEMPRA ENERGY NT 6.5%16 Baa1 /BBB+ 6.50 06/01l201fi 11475 14,967 17,294 075 3.702 5.06 B- 20 883203BQ TEXTRON INC NT 7.25%19 Baa3 / BBB- 7.25 10/01l2019 114.16 20,001 23,195 1.01 5.293 6.99 --- � ROCKWOOD CAPITAL ADVISORS PAGE 17 _, � � � ' �`,� '�i' � �' N a, , . - � � � ;,, . , . . � • • , �` ' . �� I�C�C� � Q�� I I��S � . : � � o f �� .�� .,.. �` �: � -� ,� � �� - ::'� 2 nd Quarter 2 010 Moody's / Coupon Maturiry Market Original Market °/a of CG Par Cusip Issuer S&P Rate Date Price Cost Value Port YTM Eff Dur Grade 25 89346DAD TRANSALTA CORP SR NT 4.75%15 Baa2 / BBB 4.75 01/15/2015 105.30 24,946 27,076 1.18 3.479 4.02 --- 20 907818CZ UNION PAC CORP NT 5.75°/o17 Baa2 / BBB 5.75 11/15/2017 112.90 19,992 22,728 0.99 3.732 6.21 B- 75 912828KG UNITED STATES TREAS NTS 1.375 Aaa /AAA 1.38 03/15/2012 101.45 74,977 7f,389 3.32 0.522 1.68 --- 130 912828KQ UNITED STATES TREAS NTS 03.12 Aaa /AAA 3.13 05/15l2019 102.09 126,248 133,231 5.79 2.857 7.98 --- 100 912828KX UNITED STATES TREAS NTS 1.875 Aaa /AAA 1.88 O6/15/2012 102.47 100,746 102,551 4.46 0.605 1.93 --- 15 912828LM UNITED STATES TREAS NTS 1.375 Aaa /AAA 1.38 09/15/2012 101.52 14,972 15,289 0.66 0.679 2.17 --- 90 912828LU UNITED STATES TREAS NTS 3.125 Aaa /AAA 3.13 10/31/2016 104.90 91,939 94,882 4.12 2.290 5.86 --- 35 912828LW UNITED STATES TREAS NTS 1.000 Aaa lAAA 1.00 09/30/2011 100.69 35,005 35,329 1.54 0.448 1.24 --- 90 912828MW UNITED STATES TREAS NTS 2.500 Aaa /AAA 2.50 03/31/2015 103.63 92,633 93,828 4.08 1.702 4.52 --- 25 92343VAJ VERIZON COMMUNICATIONS INC NT A3 /A 4.35 02/15/2013 106.90 24,971 27,135 1.18 1.654 2.47 B 25 929043AF VORNADO RLTY L P NT 4.25%15 Baa2 / BBB 4.25 04/01/2015 99.41 24,892 25,133 1.09 3.437 4.30 --- Portfolio Total $2,219,675 $2,301,338 100% � ROCKWOOD CAPITAL ADVISORS PAGE 18 »� ,. �- . � ��''�� +�` * � " f , , �� , � , �- .. � � � � � �, �,, �. < � * . .. , \/t�it.� l�� T��asu Yield� Ne�r Hi�to�ic Lows... � � ��, �f �` � e ,��. � t.. �`� ``` 9 � � 2 nd Quarter 2 010 Concern BC Int. Govemment Index (Yield to Maturity) 8.0% If Ra�es Total Dollar Increase Retum Loss* �'�% +5% -14.3% -$1,431,846 6.0% +4% -11.4% -$1,139,000 5.0% +3% -8.3% -$834,000 4.0% +2% -5.1% -$511,000 3.0% +1% -1.7% -$172,000 2.0% "`assumes $10,000,000 beginning portfolio value 1.0 % 0.0% 99 00 01 02 03 04 05 06 07 08 09 10 . �� ROCKWOOD CAPITAL ADVISORS PAGE 19 ,�'� � i�+` , s� �°' +�� `" � � ' � �� , ° , • � �; a , * � t , T he Fed i � i � a Tc�� i _ � ca� � : .� � � .}�� , - � � �� ` __ _. .,. .� a. : ; , 2 nd Quarter 2 010 The Fed Balance Sheet & the Housing Sector Total Federal Reserve Bank Cred'R Changas In The Cas� Shiller Composita-2D Home Price Index (fhe Fed's Balance Sheet) 2.400 2.400 20% 2096 12l1�20D8, 22`a9J4 2,200 2, 200 ,o�,azow.z,o��a �5x Year-over-Year ��% 2,000 2, o0o Change 1,800 1, 800 109G 1016 i,soo �, soo Q uarter-over-Q uarter u3��o 5x Change 3 s+x 5x � i,aoo �,aoo� V �� ^ �..�� S $ ✓--_, f � � p 1,200 1,2bQj 0% . •r.`• ...... 7A»os ... . 0 % 5 `o -�. t3x ° 1,000 1,OD� iF3or.om m m -0S: ti 800 g�0 •5% 1 -516 9l10/2JD8 600 8 �� 28 600 •10'A .1096 400 400 200 200 •15'R •�596 0 0 � � u�i � � � m m 8i m � e �O m aD o o N g �n &p oJ o 1A6'31�.-15f119F rn m m� m rn a� rn m m S3 8�' 8�' m 83 0 8 0 8 0 8 0 � - 0'X •209c rn c3 �n m c� ry n � i+� � m N v 3f .= c�+� � o M � m c��+ �1 [7 0 0 � o s � � o � g 8 o s � � � � � g � ir� 3s � �n oZ � ir� ° N �o o N �o o N co o � r � n n � � � � � '� � '� � '�+ ' '� ' ', � � � t � -i ' -' i ' -� The balance sheet of it�e Federal Reserve has exploded. In other words, Home prices appear to have bottomed. However some fear tt�at t1�e 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. ff the economy starts to gain programs such as the first time home buyer credit and tt�e Fed's $1.25 traction, the Fed will need to shrink its balance sheet or inflation will billion mortgage purchase program. Skeptics believe tf�at housing will surely follow. Events in Europe, however, are currently pushing roll over now that these programs are expiring. While prices seem to be inflationary concems to t1�e back bumer. stabilizing, sales have suffered a substantial drop since the e�cpiration of the home buyer credit _� ROCKWOOD CAPITAL ADVISORS PAGE 2O � , � ` � �� r��" Et � � � , . '"� a : .. a � . . . � . .. . . . ..r . � � � r v .. g �ix�� r��r�e �el�tiv� �falue 4 w. ,� ;.� :w .� � �` , � . � �� -� � �� 2 nd Quarter 2 010 Corporate Bonds & Mortgages In�astmQnt CradQ Spreads The Difference B�tween 10-YeazTreas�x}► And The OpSonAdjiatad Spread (OAS) ofthe MQrril IruestrtwrRGr�da Co�poraSo Mastw IrMex � �o0 30-Year FNM4 Nbrtgage Ylelds 1719,2m8, 453 2A0 2.� eao eso s2en� 3J13J1m9, 6m B00 E00 2.40 2.40 3.8l2008 � � I 220 220 � "J00 600 I� 2A0 2.00 I yo �0 �0 p I 180 1.80 G L g aoo aro g I �ea �.ea i � aso �o � ' �.ao �.w � ,�' ! 300 J �✓ 300 120 � 20 I �SO �"�' � �70 � 2n7Jmf0 �R1mt0 1D0 1.00 � '� 191 iZl � 1J13A10.176 ; r O80 0.� 150 '`� `�� 1",lU YA2010. 75t 621MB92 �¢�f72mr, t i2 ODO � q 0.60 � '� � m � � $ ao � g � � � � S � � � � � Q � �" � � 4 � � o 0 o a ae o a m au o o m � � � � � CV 7 � a y v � � � � � � LI � � � � � i � � � � v a n (v � o Lv � � � � � i 5 a�' _ y � i � m � (� a � (�! � � � Cv � � � ^ � � 6 � W � � C � � Gf ^ r�l d � � � � O $ d � o�C � n n d a m 8 r ' $ t�l Pf [� � � c7 � � 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 approximately 1.75% substantially since March 2009 largely driven by Fed purchases. over Treasuries, corporate bonds still remain attractive relative to the Mortgages did very well in 2009, however, the Fed purchase program 2004-2007 period. However, concems over the European sovereign e�cpired at t1�e end of March 2010. Despite lack of government sirtuation are causing some investors to tum cautious and reduce their risk support, mortgage rates have fallen to historic lows, driven by safe-haven exposure. buying in US Treasuries. ROCKWOOD CAPITAL ADVISORS PAGE 21 ��` ,�� "-� ;� .* � � � � � . . . . .. . . . . . � � + � # �..1� ��d e�: � I� PrO�ler� - , � � .._ # A �� . g � � � � ��,�` . � _ �� -. �: � � �: � .� .n , 2 nd Quarter 2 010 Exploding Deficit leads to Massive Treasury Issuance Federol 8udget DeficitiSurplus APw ; Treasury Borrowings ("Net Nbuk�table"j By QuarGa� (RolSrp 12-Mo�h Sum) i 300 i756 �� il 5800 � i�0 B lu e=� ct ual B o rrowi ng s $�+ 150 t50 Retl=Trea�ur,,� Eslimate 41ay�o'r 5500 s�� s+� ySpp -759bS D �� 0 �S7 -150 , �Sp a�� 5400 $3/3 � A�gZ1 � •300 -ig�ni •300 .c : AP „� I r aaoo �- 5 a�o N � � n -z+s.w 1Q ' ' m I s-G60 np l -460 9 I ° -rst.� � c c ° ° � � asoo �'�, azoo u i o � •6 � S I s Sii6 5u� i�5e �� 'a 73 im •730 •750 m m 8100 �� S'I00 m '� -900 -800 0 � . ,'. I I' I I ..I . � . i � ' ' ' .. . . . SO -7Q50 •'IOfiO Y,p� c -1270 -1200 SQ9� BIue=Actual � •itoo a �� •S�oo ^ -�35o Red = C6C�'s F.ugu�t F orecas[ Nass02 - �350 � aa� a -1,4;�.04 � •i200 •5200 •�� g � Q p p � {Q y[ .1 `� 40 '10 2Q 30 M] �0 2Q 3Q 4Q 1� 2Q 3Q 4Q 1Q 2Q 3Q 4Q 'IQ 20 3Q 4Q 1 � 2Q 3� 40 1 Q 8 a a� 0 0 0 � � � � � S & � $ S � �i � � �i � 2004 2005 2008 20tl7 �008 2008 2010 � GkMar QuarteR 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 tf�an Treasury to sell an unprecedented amount of new debt (notes and 2007 and 2008 combined. In 2010, issuance is e�ected to approach bonds). $2.6 trillion! ROCKWOOD CAPITAL ADVISORS PAGE 22 �� _ ' : .. ' � ' x 201 T�easu� Issuance . �. � �, � ;� � �� ."�� _�,r_ � ;�.� � �,�� .� , � nd Quarter 2 010 A Tsunami of Treasury Debt is About to Wash Ashore � TotalTreasury Gross Issuance (Amount Offered) ForThe Week ': Percentage OfTreasury Issuance Bought By Foreigners AO TrQasury B ilk, Notes An d Bonds � $325 �325 300'/0 300% b300 5300 i Blue =All Fo2igners se m P S27g 82�5 �� 25 �� Red=China 260i 250% I a�so arso i � zoar Zo o r E22S 3226 I k E200 5200 R II a . a I �50% 150% c �175 5175 c o e �09 / I o a+5o a+ao 0 � : ioo^r ■ ■ �oo� m a+za s+z� m , , ', b�oo 2F'JVeakl�vFra�e t ��oo � 50% nnar-67 aY/o 50 % i i75 � j I I I � � 8�5 �� zs°�� zar � zi r � sso � � � a5o ! � mi o�r € , si � � �;°d B 8'r::ly� 525 i 90 0 �-. v w 80 I � -50% -50% � � _ _ � � _ � _ � _ � $ �i r �i � �i I o 0 0 0`a o o q o 0 o q o o q o o q o 0 o q o� o o� g,' o g M a w — e a r� o o � j d c d � 5� d�`m � ��' `m h �i `m � m a�i `m i0 �i �' c c c c cz � c � � c a c c d�' m' m�' `m 5 m I o n _ m �, o � _ o H _ ao rn o� �n o� 83 0� 83 o s cn o� v� o�� o �� cn 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 borrowin� 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