HomeMy WebLinkAboutDocumentation_Pension Public Safety_Tab 05_11/05/2007Village of Tequesta
Public Safety
Officers' Pension Fund
3~°' Quarter 2007
November 5, 2007
Strategy Review
Presented by:
Andy Holtgrieve
Managing Partner
andy@rockwoodcapital. com
ROCKW OOD CAPITAL ADVISORS
721 Emerson Road, Suite 565 St. Louis, Missouri 63141 (888) 962-8336 (toll-free) (314) 962-1254 (fax)
I , Credit Crisis
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~ROCKWOOD CAPITAL ADVISORS ~
Tequesta Public Safety Officers' Pension Fund
Third Quarter 2007
Total Fund
Portfolio Summary
Change in Market Value
Interest /Dividends
Contributions
Net Disbursements
Net Realized & Unrealized (G/L)
Portfolio Summary
Fixed Income
36%
Equities
60%
ihort-Term
Funds
4%
$29,920
$239,370
($25,708)
$136, 722
Total Fund Performance
Tequesta PS 4.3% 15.0%
Policy (60/40) 2.4% 12.0%
(Policy 60% S&P 500 and 40% LBIN)
'ROCRW OOD CAPITAL ADVISORS 2
~ T
1
u
Public Safety Officers' Pension Fund
Equity -Third Quarter 2007
Along for the Ride
I,
1
1
The third quarter of 2007 was a bumpy ride for most equity investors. After experiencing asell-off in June, the quarter began
with a bang with the S&P 500 reaching a record high on July 19th but, began afree-fall due to subprime news and liquidity
concerns, lasting through mid August. The last two weeks of August saw stocks rally right on through September as the Fed
and Mr. Bernanke performed flawlessly giving the equity markets what they craved, a 50 basis-point rate cut. Who would
have guessed that the summer would end on such a positive note? Hopefully it's enough to stave off October goblins.
For the quarter, the S&P 500 Index gained 2.0% while in the foreign developed markets, the MSCI EAFE Index turning in
another similar quarter gaining 2.2%. Large-cap stocks continue to outpace their smaller siblings and growth outperformed
value. The big winner for the quarter, as well as for the last twelve months has been the foreign emerging markets with the
MSCI Emerging Markets Index up 14.5% for the quarter and 58.6% for the year!
Information Technology (+6.3%) and Industrials (+5.9%) were two of the big winners in the quarter, for both the market and
the portfolio. Cisco Systems (19%) and EBAY (21 %) lead the way on the Tech front and Stericycle (29%) and Precision
Castparts (20%) on the Industrial side. Technology continues to demonstrate significant relative strength, in particular within
the electronic equipment group, leading to our addition of Mettler-Toledo (MTD). Additionally, we continue to be impressed
with the continued leadership of the Aerospace/Defense industry group, and this month has provided us an ideal entry point to
buy Rockwell Collins (COL). The Energy sector also turned in an impressive quarter (9.8%), and though we hesitate to
"reach" for this sector a few buys do emerge that we're keeping an eye on.
' Financials (-4.3%) and Consumer Discretionary (-6.3%) took the biggest hit this quarter due to concerns over the subprime
mess, housing and inflation. Only Volvo (-12%), a recent "star" in the portfolio, took adouble-digit hit in the quarter.
Year-to-date, the portfolio has benefited from a shift toward the Large-cap Growth area, as well as by concentrating our
investment selections within those industry groups identified as displaying the greatest relative strength (i.e.
Aerospace/Defense, Integrated Telecom, Foreign ADRs and Utilities). We will continue our search for dominant themes in the
market and make adjustments to your portfolio as needed.
Contravisory Research & Management Corp. is a registered investment adviser and equity sub-adviser to Rockwood Capital
Advisors, LLC. &
Performance
25%
20%
15%
10%
5%
0%
Tequesta Public Safety S&P 500
'~ROCKWOOD CAPITAL ADVISORS
3
3rd Qtr. YTD One Two Since Inception
2007 Year Years (511/05)
Equity Portfolio
September 30, 2007
Style Box
Top Ten Holdings
1. Precision Castpart 4.1
2. Bayer AG 3.8%
3. Praxair Inc. 3.2%
4. Stericycle Inc. 3.2%
5. Loews Corp. 3.0%
6. Lockheed Martin Co. 3.0%
7. Hewlett Packard Co. 2.9%
8. Intl Business Machine 2.8%
9. AT&T Inc 2.8%
10. Thermo Fisher Scientific 2.7%
Five Best Impact
1. Stericycle Inc. +28.4%
2. Precision Castparts +21.4%
3. Cisco Systems Inc. +18.9%
4. Verisign Inc. +16.9%
5. Praxair Inc. +16.8%
Val Cr Grw
Large Cap - 62.3%
Mid Cap - 37.7%
Small Cap - 0%
Average Market Cap $41.9 billion
Median Market Cap $20.5 billion
Sector Allocation
Materials
12%
Health C
14%
Producer Technology
Durables 11%
6%
Utilities
.12%
Five Worst Impact
1. Tyco International Ltd. -15.2%
2. Tyco Electronics Ltd. -13.9%
3. Volvo -12.8%
4. Fiserv Inc. -10.4%
5. Covidien Ltd. -8.1
'ROCKWOOD CAPITAL ADVISORS 4
Characteristics
' Equity Analysis and Attribution
Third Quarter 2007
Sector Allocation
0
24 /o
o
20 /o
' 16%
12%
8%
'
4%
' 0%
Staples Discretionary Health Materials Info Energy Industrial Tel/Util Finance
Care Tech
' St le Distribution
Y
' 28% ~
~ Rockwood
24% 22 6 23.3 22.5 ~ ~ Russell 3000
21.5 21.6 !
' 20 % 19.5
I
16% i Relative
14.4 ' Performance
' 12% 10.4 10.8
8% 7.8 8.2
~.2
4% ~:. 3.5 4.2
0% - 0.0 0.0 ~ 0.0
-4
Value Core Growth Value Core Grow th Value Core Growth
Large Cap Mid Cap Small Cap
t '~ROCRWOOD CAPITAL ADVISORS 5
Equity Transactions
Third Quarter 2007
Sold
Jul Sears Holdings Corp.
Jul JP Morgan Chase and Co.
Jul Macy's Inc.
Aug Simon Property Group
Aug NYSE
Aug Biomet Inc.
Aug McCormick & Co. Inc.
Aug Ryanair Holdings Plc.
Sep Colgate Palmolive Co.
Sep PG&E Corp.
Sep Tyco Electronics LTD
Sep Covidien LTD
Bought
Jul IBM - Lg Cap Growth, Computer Hardware
Jul Biomet Inc. - Lg Cap Growth, Health Care & Medical Equipment
Jul Infineon Technologies -ADR, Lg Cap Grwth, Info Tech Semiconductor
Aug Smith & Nephew Plc. -ADR, Lg Cap Growth, Health Care
Aug Waters Corp. - Lg Cap Growth, Health Care Equipment
Aug Ebay Inc. - Lg Cap Growth, Info Tech Intemet
Aug Verisign Inc. - Lg Cap Blend, Info Tech Intemet
Aug Sprint Nextel Corp. - Lg Cap Value, Integrated Telecom
Sep Schering Plough Corp. - Lg Cap Blend, Health Care Pha-maceutical
Sep Ball Corp. - Lg Cap Blend, Metal & Glass Container
'ROCRWOOD CAPITAL ADVISORS 6
Proxy Voting Record
ii
..
...
..
Elect Directors FOR FOR 1,160 8/15/07
Ratify Auditors FOR FOR 1,160 8!15/07
Amend Nonqualified Employee Stock Purchase Plan FOR FOR 1,160 8/15/07
Approve Executive Incentive Bonus Plan FOR FOR 1,160 8/15/07
Reduce Supermajority Vote Requirement FOR FOR 1,160 8/15/07
Company Specific -Provide Majority Vote for Election of Directors FOR FOR 1,160 8/15/07
CAPITAL ADVISORS
'ROCxwooD
7
Equity Holdings -September 30, 2007
..
- Cash 38,080 1.00 38,080 1.00 38,080 1.5 4.2 1,615 NA
LNT ALLIANTCORP 1,400 38.82 54,351 38.32 53,648 2.1 3.3 1,778 0.75
BUD ANHEUSER BUSCH COS 1,200 47.30 56,762 49.99 59,988 2.3 2.6 1,584 0.66
T AT&T INC 1,700 34.20 58,146 42.31 71,927 2.8 3.4 2,414 0.75
BLL BALL CORP 1,257 52.51 66,003 53.75 67,564 2.6 0.7 503 0.39
BAY BAYERAG 1,250 54.83 68,532 79.44 99,300 3.8 1.4 1,340 NA
BA BOEING CO 670 64.60 43,282 104.99 70,343 2.7 1.3 938 0.92
CTL CENTURYTEL INC 1,286 45.65 58,705 46.22 59,439 2.3 0.6 334 0.14
CSCO CISCO SYS INC 2,042 28.66 58,531 33.11 67,611 2.6 0.0 - 0.65
DOW DOWCHEMCO 1,342 45.54 61,114 43.06 58,350 2.3 3.9 2,255 0.82
EBAY EBAY INC 1,791 34.47 61,733 39.02 69,885 2.7 0.0 - 0.66
DISH ECHOSTAR COMMUNICA 1,500 36.71 55,071 46.81 70,215 2.7 0.0 - 0.28
FISV FISERV INC 1,060 44.07 46,719 50.86 53,912 2.1 0.0 - 0.76
GM GENERAL MTRS CORP 1,685 33.55 56,525 36.70 61,840 2.4 2.7 1,685 0.98
HNZ HEINZ H J CO 1,160 42.56 49,367 46.20 54,033 2.1 3.3 1,763 0.90
HPO HEWLETT PACKARD CO 1,485 33.46 49,682 49.79 74,049 2.9 0.6 475 0.36
IFX INFINEON TECHNOLOG 3,280 17.65 57,893 17.18 56,350 2.2 0.0 - NA
IFF INTERNATIONAL FLAV 1,200 51.90 62,275 52.86 63,708 2.5 1.7 1,104 0.35
IBM INTL BUSINESS MCHN 613 110.24 67,575 117.80 72,211 2.8 1.4 981 0.32
AHO KONINKLIJKE AHOLD 4,260 16.09 68,543 15.08 64,220 2.5 0.0 - NA
LMT LOCKHEED MARTIN CO 710 64.92 46,095 108.49 77,028 3.0 1.3 994 0.20
LTR LOEWS CORP 1,630 25.16 41,007 48.35 78,811 3.0 0.5 408 0.12
PPL PPL CORP 1,500 34.50 51,752 46.30 69,877 2.7 2.6 1,830 0.34
PX PRAXAIR INC 1,000 63.70 63,700 83.76 83,760 3.2 1.4 1,200 0.78
PCP PRECISION CASTPART 715 50.64 36,211 147.98 105,824 4.1 0.1 86 0.34
SWY SAFEWAY INC 1,820 22.84 41,567 33.11 60,386 2.3 0.8 502 0.92
HSIC SCHEIN HENRY INC 1,085 46.78 50,753 60.84 66,011 2.5 0.0 - 0.79
SGP SCHERING PLOUGH CO 2,111 29.81 62,936 31.63 66,771 2.6 0.8 549 0.62
SNN SMITH & NEPHEW PLC 1,062 59.29 62,970 61.24 65,037 2.5 1.3 841 NA
S SPRINT NEXTEL CORP 2,974 19.69 58,569 19.00 56,506 2.2 0.5 297 0.93
SRCL STERICYCLE INC 1,440 33.13 47,713 57.16 82,310 3.2 0.0 - 0.46
TROW T.ROWE PRICE GROUP 1,250 35.30 44,130 55.69 69,825 2.7 1.2 850 0.41
TMO THERMO FISHER SCIE 1,219 49.08 59,827 57.72 70,361 2.7 0.0 - 0.24
TYC TYCO INTERNATIONAL 506 48.38 24,480 44.34 22,512 0.9 4.0 886 NA
WOOF VCAANTECHINC 1,570 29.55 46,401 41.75 65,548 2.5 0.0 - 0.07
VRSN VERISIGN INC 2,075 29.00 60,181 33.74 70,011 2.7 0.0 - 0.03
VOLV VOLVOAKTIEBOLAGET 3,873 16.82 65,154 17.35 67,197 2.6 3.6 2,405 NA
WAT WATERSCORP 1,037 61.84 64,124 66.92 69,396 2.7 0.0 - 0.91
WEN WENDYS INTL INC 1,700 33.88 57,602 34.91 59,347 2.3 1.4 850 0.16
•. .. • ~. iii ~ .
'ROCRWOOD CAPITAL ADVISORS g
Tequesta Public Safety Officers' Pension Fund
Fixed Income Third Quarter 2007
Market Environment
8%
6%
4%
2%
0%
• The Bernanke Fed shocked the market on September 18th by dropping the federal funds rate 50 basis points to 4.75%.
Most analysts anticipated an ease due to the implosion of the subprime mortgage market, but the magnitude of the move
jolted financial markets.
• The combination of a "flight to quality" bid, a Fed in easing mode and a slowing US economy sent Treasury yields lower in
the third quarter. The yield curve steepened significantly in the quarter with two-year yields falling 87 basis points to less
than 4%, while 30-year yields fell 30 bps to 4.8%.
• The subprime problem is likely to remain with us for some time. This crisis was set in motion by subprime borrowers who
were initially funded with a low rate, adjustable mortgage. As these loans reset to higher rates, the borrowers defaulted.
The peak for subprime resets will be May 2008.
• The Lehman Aggregate had its best quarter of the year, returning 3.0%. YTD, the Aggregate is up nearly 4%. The
subprime meltdown led to a number of downgrades of mortgage related debt. Investors scurried for the safety of
Treasuries, and riskier assets took a beating. Corporate bonds badly underperformed the broad market during the quarter
with a modest 1.8% return.
• The stock market seems oblivious to the concerns in the financial sector and the likelihood of a slower economic growth.
The S&P 500 was up 2% in Q3 and 9.1 % through September 30. The Dow Industrials hit a new record high of 14,087 on
October 1. The bond market is anticipated weaker growth ahead. If bond investors are correct, stocks could be in for a
rude awakening.
Sector Index Returns
^ 3rd Qtr 2007
YTD 2007
Tsy Agy MBS Credit HY
8%
t)
a°i°
2%
()
-2 %
6°r°
5%
4%
3%
2%
U.S. Treasury Yield Curves
9/30/2007
6/30/2007
- - - - - 9/30/2006
3 2 5 10
mos yrs yrs yrs
Fixed Income Performance
3rd Qtr. YTD One Two Since Inception
2007 Year Years (5/1/05)
~ Tequesta Public Safety Lehman Int. Gov't/Credit
30
yrs
'ROCRWOOD CAPITAL ADVISORS g
Fixed Income Portfolio Structure
September 30, 2007
Effective Maturity
1 to 3 yrs
3 to 5 yrs
5 to 10 yrs
10+
Tequesta Public Safety
Cash
CMBS 4%
Corporates
9%
Mortgages
23%
U.S.
suries
3%
gencies
21%
Lehman Int. Gov't/Credit
Corporates
38%
u.s.
Treasuries
41%
testa PS
pan Int. G/C
Agencies
21%
Mortgages
0%
'ROCRWOOD CAPITAL ADVISORS 10
0% 10% 20% 30% 40%
Characteristics
Fixed Holdings -September 30, 2007
. ~. ~.. .,
,,, ~.~
141 USDCASHI USD CASH - 0.000 9129/2007 100.000 140,883 8.21 0.000 0.00 0.00 0.00
60 31359ME7 FEDERAL NATL MTG ASS Aaa - 5.000 1/23/2009 100.625 60,917 3.55 4.500 1.26 1.26 0.02
25 3133MLT8 FEDERAL HOME LN BKS Aaa - 5.250 2/13/2009 101.000 25,407 1.48 4.490 1.31 1.31 0.02
20 3134A3EM FEDERAL HOME LN MTG Aaa - 5.750 3/15/2009 101.781 20,398 1.19 4.480 1.39 1.39 0.03
50 3133X15Y FEDERAL HOME LN BKS Aaa - 4.100 3/30/2009 99.500 50,764 2.96 4.450 1.41 1.41 0.03
70 9128275N UNITED STATES TR NT Aaa - 6.000 8/15/2009 103.648 73,056 4.26 3.960 1.76 1.76 0.04
80 912828DX UNITED STATES TREAS Aaa - 3.625 6/15/2010 99.117 80,126 4.67 3.970 2.53 2.53 0.08
105 31359MHK FEDERAL NATL MTG AS Aaa - 5.500 3/15/2011 103.250 108,621 6.33 4.480 3.13 3.13 0.12
30 52108HU5 LBUBS 2004-CS A4 Aaa - 4.510 4/1512011 99.431 29,878 1.74 4.730 3.20 3.20 0.12
110 912828FH UNITED STATES TREAS Aaa - 4.875 5/31/2011 102.625 114,646 6.68 4.100 3.29 3.29 0.13
70 912828FN UNITED STATES TREAS Aaa - 4.875 7/31/2011 102.648 72,401 4.22 4.120 3.46 3.46 0.14
50 3133X8RQ FEDERAL HOME LN BKS Aaa - 4.700 10/4/2011 99.406 50,839 2.96 4.860 3.54 1.36 -1.51
25 07388VAB BSCMS 2007-TOP26 A2 - 5.330 3/15/2012 101.970 25,988 1.51 4.830 3.87 3.86 0.1 B
15 7134486E PEPSICO Aa2 N/A 5.150 5/15/2012 101.691 15,526 0.90 4.740 4.02 4.01 0.19
35 929766X2 WBCMT 2005-C19 A5 - 4.661 7/15/2012 98.974 34,972 2.04 4.900 4.21 4.21 0.21
25 46625HGT JPM MORGAN Aa2 N/A 5.375 10/1/2012 100.107 25,027 1.46 5.340 4.34 4.34 0.22
25 912828AP UNITED STATES TREAS Aaa - 4.000 11/15/2012 99.156 25,159 1.47 4.180 4.52 4.52 0.24
10 742718DA PROCTER & GAMBLE CO Aaa B+ 4.950 8/15/2014 98.240 9,883 0.58 5.260 5.72 5.71 0.39
10 78387GAP SBC COMMUNICATIONS I A2 C+ 5.100 9/15/2014 96.766 9,695 0.57 5.670 5.75 5.75 0.39
15 595620AD MIDAMERICAN ENERGY C A2 A- 4.650 10/1/2014 94.403 14,503 0.85 5.630 5.72 5.72 0.40
15 912828DV UNITED STATES TREAS Aaa - 4.125 5/15/2015 97.891 14,912 0.87 4.450 6.37 6.36 0.48
20 46625YNC JPMCC 05-LDP2 A4 Aaa - 4.738 5/15/2015 94.494 18,933 1.10 5.690 6.19 6.18 0.46
11 17275RAC CISCO SYS INC SR NT Al C+ 5.500 2/22/2016 99.331 10,987 0.64 5.600 6.61 6.60 0.53
40 31359MH8 FEDERAL NATL MTG ASS Aaa - 5.000 3/15/2016 100.406 40,235 2.34 4.940 6.83 6.81 0.56
75 912828GS UNITED STATES TREAS Aaa - 4.500 5/15/2017 99.438 75,826 4.42 4.570 7.61 7.59 0.70
110 912828HA UNITED STATES TREAS Aaa - 4.750 8/15/2017 101.344 112,103 6.53 4.580 7.79 7.77 0.73
15 806605AJ SCHERING-PLOUGH6.0 Baal A 6.000 9/15/2017 100.449 15,095 0.88 5.940 7.41 7.38 0.68
25 565849AD MARATHON OIL Baal N/A 6.000 10/1/2017 100.145 25,040 1.46 5.980 7.44 7.41 0.68
20 073902PR BEAR STEARNS COMPANY Al N/A 6.400 10/2/2017 99.556 19,911 1.16 6.450 7.31 7.28 0.67
23 31402DJS FNMA POOL #725773 - 5.500 9/25/2034 97.931 22,796 1.33 5.880 5.35 4.73 -1.33
30 36200EUP GNMAI POOL #599190 - 6.000 3/15/2035 100.644 30,262 1.76 5.890 4.60 3.93 -1.62
79 36291W7H GNMAI POOL #640896 - 7.000 4/15/2035 103.683 82,431 4.80 5.530 2.52 1.87 -1.48
66 36291XMW GNMAI POOL #641273 - 4.500 4/15/2035 93.641 61,739 3.60 5.580 5.95 5.94 -0.43
35 31402RDG FNMA POOL #735503 - 6.000 4/25/2035 100.150 35,388 2.06 5.960 4.62 3.87 -1.77
61 31407NOM FNMA POOL#835760 - 4.500 9/25/2035 92.326 56,394 3.29 5.800 5.90 6.11 -0.49
76 31402RRS FNMA POOL #735897 - 5.500 10/25/2035 97.958 74,995 4.37 5.880 5.36 4.71 -1.48
30 31413GN7 FNMA POOL 945114 - 5.800 8/2512037 100.993 30,056 1,75 5,640 5.93 2.46 -0.39
~ ii is •i ~i ii ~ i i
' 'ROCRW OOD
CAPITAL ADVISORS
11
Economic Environment & Outlook
Third Quarter 2007
~ The third quarter of 2007 will be remembered as the quarter of the subprime
mortgage meltdown. The entire economic landscape has been turned
upside down by the events of the last few months. The Fed is now in an
easing mode, talk of recession is growing, and risk premiums have
increased.
~ The Bernanke Fed shocked the market on September 18th by dropping the
federal funds rate 50 basis points to 4.75%. The Fed last lowered the funds
rate in June 2003 (to 1 %!). Most analysts anticipated an ease due to the
implosion of the subprime mortgage market, but the magnitude of the move
jolted financial markets.
~ The Fed eased in September despite concerns over inflationary pressures.
In the June FOMC statement, the Fed stated that "a sustained moderation
has yet to be convincingly demonstrated. "The financial markets remain
wary that in the process of attempting to contain the subprime damage, the
Fed may have stoked the flames of inflation.
~ Employment growth has decelerated sharply the last three months. In
August, the economy actually lost 4,000 jobs, the first monthly decline since
August 2003. The Fed's concern over "high levels of resource utilization"
was left out of the August FOMC statement, indicating an expectation of a
loosening labor market.
~ Q1 GDP grew only 0.6% (annualized), but Q2 growth rebounded to a robust
3.8% annualized growth rate. However, most economist anticipate slower
growth in the second half of 2007 as job losses in the financial services and
housing industries begin to mount.
~ Core CPI has continued to decelerate, with the YOY rate declining from
2.7% in February to 2.1 % in August. The Median CPI, a widely followed
measure of core inflation, has likewise dropped from 3.6% to 2.7% over the
same period. However, inflationary warnings are flashing. Oil and gold
prices are hitting record highs. Ethanol demand is pushing food prices
substantially higher.
~ Our forecast of no Fed ease in 2007 was dashed by the subprime crisis.
Bernanke apparently wanted to get ahead of the market with an aggressive
50 basis point ease. Despite inflation concerns and increasing recession
fears, the stock market jumped to new record highs following the Fed ease.
However, the economy is likely to slow over the next few quarters, and the
Fed is likely to remain in an easing mode.
'~ROCRWOOD CAPITAL ADVISORS 12
Monetary Policy
Fed Funds Target Rate
8%
6%
4%
2%
0%
6/00 12/00 6/01 12/01 6/02 12/02 6/03 12/03 6/04 12/04 6/05 12/05 6/06 12/06 6/07
Real GDP Growth
(Quarterly Growth at Annualized Rate)
10%
8%
6%
4%
2%
0%
-2%
-4%
2003 2004 2005 2006 2007
7.5
i
4.5 4.8
3.5
2.7 3.5 3.6 ~
3.0 2
5
3.1 2.8 3.8
*
. 2.4 2.1 2.3
1.2 1.2 1.1
0.6
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
*median forecast
'ROCKWOOD CAPITAL ADVISORS 13
Inflation Pressures Building
86
84
Capacity Utilization
U
Q 82
N
U
~' 80
L
~~
~ 78
~ 76
0
74 W
72
70
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
0
Inflation
7%
6%
5%
c
0
.~
c
0
m
c~
o!
}
0
Median CPI
Overall CPI
-Core CPI
4%
3%
2%
1%
0% ~
88 90 92 94 96 98 00 02 04 06
ROCRWOOD CAPITAL ADVISORS 14
' Labor Market Keeps Tightening
Unemployment Rate
0
9 /o
8%
7%
6%
5%
'
4%
'
3%
88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
Wages
0
' 5.0 /o
4.5%
.
~ 4.0%
~
w
' 3
5%
.
' L
=
3.0%
rn
Q 2.5%
0
}
1 } 2.0%
1.5%
1.0%
' 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
' 'ROCRWOOD CAPITAL ADVISORS 15
~^^~ ~ ~ l~ ~ illr• ~ l~ rr ~ ^r iill~ ~ I• ~^~^ ll~ ~ iw
Affribution Analysis for CRSM Core Equify Composif
Quarter Ending 8/30/07
Russell 3000
Market' 1.80
Benchmark +/- -0.24 LrgeVal LrgeGro LrgeCor
Benchmark Return 1.56
Skill 2.86
SECTOR Allocation 0.70
STOCK Selection 3.78
Activity -1.62
Total 4.42
Ranks:
Total 21
Within Style 17
Styles
Large Value
Large Core
Large Growth
Mid Value
Mid Core
Mid Growth
~'~ Small Value
Small Core
Small Growth
Cash
Market =Entire Compustat database -all companies.
What Helped What Hurt
Indstrl Selection 2.01 Activity -1.62
HlthCar Selection 1.49
Beginning of Quarter Allocations
Sectors
CR8~M Core Equity Composit
Staples
Discrtnry
Healthcare
Materials
InfoTech
Energy
Industrial
Tel/Util
Finance
Cash
Rockwood Capital Advisors, LLC
721 Emerson Road, Suite 565 • St. Louis, MO 63141 • 888-962-8336 • http://www.rockwoodcapital.com Page 1
CR&M Core EquityComposit
Russe113000
Rus s e II 3000
Sector Performance Within Style Market for CR&M Core Equity Composit
Quarter Ending g/SO/2007
Russell 3000
25
20
15
10
R
e 5
t
u 0
r
n -5
-10
-15
-20
100
90
80
C
70 0
60 m
m
50 I
t
40 m
e
30 n
t
20
10
0
CR8~M Core Equity -1.67 -3.38 10.13 6.61 10.23 16.93 0.01 0.74 4.42
Fund Commitment 9.96 11.15 13.04 8.56 16.60 0.00 17.33 14.62 8.74
e Benchmark Return 2.87 -6.08 -1.29 12.75 5.16 5.67 5.34 0.91 -2.14 1.56
Benchmark Commitment 8.30 12.84 11.10 4.50 15.98 10.13 11.61 6.40 19.14
Large Cap Mid Cap Small Cap
Value Core Growth Value Core Growth Value Core Growth
Benchmark Allocation 22.58 19.48 21.58 10.79 5.19 8.19 4.50 3.50 4.20
Rockwood Capital Advisors, LLC
721 Emerson Road, Suite 565 • St. Louis, MO 63141 • 888-962-8336 • http://www.rockwoodcapital.com
Page 2
.~aaN~ca v~a.~uny nnnva~ ~naac~~a~a nnv~ca.n ~nc~yy nwux~ia~ ~cua~u~ rn~a~wc ~vaa~
Staples Discrtnry HlthCar Materials InfoTech Energy Industrial TellUtil Finance Total
~ ~ ~ ~ i ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ r ~ ~ ~
Analysis of Ski11 for CRSM Core Equity Composit
Quarter Ending 9/SO/07
Russell 3000
Portfo lio ! `Benchma rk
A B C D CD - b) CA - C) A(B - D)
Committment Return Rank Committment Return Sector Selection
Staples 9.96 -1.67 84 8.30 2.87 0.02 -0.45
Discrtnry 11.15 -3.38 37 12.84 -6.08 0.13 0.30
Healthcare 13.04 10.13 4 11.10 -1.29 -0.06 1.49
Materials 8.56 6.61 79 4.50 12.75 0.45 -0.53
InfoTech 16.60 10.23 19 15.98 5.16 0.02 0.84
Energy 0.00 0.00 10.13 5.67 -0.42 0.00
Industrial 17.33 16.93 3 11.61 5.34 0.22 2.01
Tel/Util 14.62 0.01 61 6.40 0.91 -0.05 -0.13
Finance 8.74 0.74 17 19.14 -2.14 0.38 0.25
Missing 4.33
6.04 9 4.93 1.56 0.70 3.78
Activity -1.62 b
4.42 17
Rockwood Capital Advisors, LLC
721 Emerson Road, Suite 565 • St. Louis, MO 63141 • 888-962-8336 • http://www.rockwoodcapital.com Page 3
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
Stock Se/action and Sector AI/ocation for CRBM Core Equity Composit
For the Psriod: 8/80/07
Broken Out By Sector
3.78
201
1.49
0.7
0.45
0.3
0.13
0.02 '
0.22 0.25
0.02 0
-0.06 -0.05
-0.13
-0.45 -0.42
-0.53
CL..~1~.. A:..-L.--.. LI~~ILL ~~-~ ••.L. -..1. 1_l_T-.L ~______ ._~___a_•_. T_... .... ~. w
___r.__ _.__. .... ~ ..~............ .. ......... ...... ...... ....... ....w. y~ .......~.. .v. . cuva.. . u.oua.c vaall 1 vaal
^ Allocation ~ Selection
Rockwood Capital Advisors, LLC
721 Emerson Road, Suite 565 • St. Louis, MO 63141 • 888-962-8336 • http:llwww.rockwoodcapital.com Page 4
r ~ ~ ~ ~ ~ ~ . a~ r. rri ~ rr ~ . rr r . ~^r~
Style Performance for CRBM Core Equity Composit
Quarter Ending 8/SO/2OO7
20
15
10
R 5
e
t 0
u
~ -5
n
-10
-15
-20
100
90
80
C
70 0
60 m
m
50 i
t
40 m
e
30 n
t
20
10
0
CR8.M Core Equity 0.71 6.65 11.88 -0.50 3.20 8.71
Fund Commitment 21.54 14.38 23.34 10.40 7.84 22.50
e Total Mkt Return 1.40 4.50 6.80 -3.00 -1.20 1.90
. Benchmark Commitment 22.58 19.48 21.58 10.79 5.19 8.19
Style Bets 0.00 -0.14 0.09 0.02 -0.08 0.01
4.42
0.00 0.00 0.00
-5.20 -0.90 -5.00 1.81
4.50 3.50 4.20
0.31 0.09 0.29 0.59
Rockwood Capital Advisors, LLC
721 Emerson Road, Suite 565 • St. Louis, MO 63141 •888-962-8336 • http://www.rockwoodcapital.com Page 5
~a~y` ...... ......,.. . _._.
Large Cap Mid Cap Small Cap Total
Value Core Growth Value Core Growth Value Core Growth
Biggest, Best and Worst for CR&M Core Equity Composit
Quarter Ending 9/SO/O7
Commitment Return Impact Security ID Security Description Style Sector
5.47 19.85 1.09 PCP PREC CASTPT LrgeGro Indstrl
3.86 -4.50 -0.17 LTR LOEWS CORP LrgeVal Finance
3.41 -12.23 -0.42 VOLV VOLVO AB SW LrgeVal Dsctnry
3.12 16.51 0.52 LMT LOCKHD MART LrgeVal Indstrl
3.09 12.16 0.38 HPQ HEWLETT-PCK LrgeGro InfoTek
3.08 0.05 0.00 PPL PPL CORP LrgeVal Tel&Utl
3.04 8.50 0.26 TROW PRICE GROUP MidlCor Finance
3.01 29.70 0.89 SRCL STERICYCLE MidlGro Indstrl
2.77 -1.91 -0.05 SWY SAFEWAY INC MidlCor Staples
2.73 11.88 0.32 BA BOEING CO LrgeCor Indstrl
33.58 2.81
Commitment Return Impact Security ID Security Description Style Sector
5.47 19.85 1.09 PCP PREC CASTPT LrgeGro Indstrl
3.01 29.70 0.89 SRCL STERICYCLE MidlGro Indstrl
3.12 16.51 0.52 LMT LOCKHD MART LrgeVal Indstrl
2.40 19.53 0.47 CSCO CISCO SYS LrgeGro InfoTek
2.67 17.28 0.46 PX PRAXAIR INC LrgeCor Materls
2.64 14.69 0.39 HSIC SCHEIN HNRY MidlGro HlthCar
3.09 12.16 0.38 HPQ HEWLETT-PCK LrgeGro InfoTek
1.71 21.45 0.37 EBAY EBAY INC LrgeGro InfoTek
2.73 11.88 0.32 BA BOEING CO LrgeCor Indstrl
2.47 12.77 0.32 IBM INTL BUS MA LrgeCor InfoTek
29.31 5.20
Commitment Return Impact Security ID Security Description Style Sector
3.41 -12.23 -0.42 VOLV VOLVO AB SW LrgeVal Dsctnry
2.26 -11.08 -0.25 FISV FISERV INC MidlGro InfoTek
3.86 -4.50 -0.17 LTR LOEWS CORP LrgeVal Finance
2.14 -6.42 -0.14 CTL CENTURYTEL MidlVal Tel&Utl
1.28 -9.07 -0.12 TYC TYCO INTL LrgeCor Indstrl
1.63 -6.93 -0.11 S SPRINT NEXT LrgeGro Tel&Utl
2.26 -4.27 -0.10 WEN WENDY'S MidlGro Dsctnry
2.28 -3.88 -0.09 GM GEN MTR LrgeGro Dsctnry
0.72 -9.36 -0.07 MKC MCCORMK &CO MidlCor Staples
2.26 -2.97 -0.07 BUD ANHEUSR-BSH LrgeCor Staples
22.10 -1.53
Rockwood Capital Advisors, LLC
721 Emerson Road, Suite 565 • St. Louis, MO 63141 • 888-962-8336 • http:/lwww.rockwoodcapital.com
Page 6
Single Point Style Map for CR&M Core Equity Composit
Quarter Ending 9/30/2007
Large Cap
Mid Cap
Small Cap
1
0
-1 +
-1
0 1
~ Value L Core
Style
• CR&M Core Equity .37
1 Broad Market -.04
~/ Benchmark .15
Growth ~
Size
.02
.41
.30
Rockwood Capital Advisors, LLC
721 Emerson Road, Suite 565 • St. Louis, MO 63141 • 888-962-8336 • http:/Iwww.rockwoodcapital.com Page 7
Appendix for CRBM Core Equify Composit
Quarter Ending 9/SO/O7
Style Floldings
LrgeVal
DOW DOW CHEMICL 42.0 12.1 3.5 2.36 -1.13 2.2 Materls
LMT LOCKHD MART 38.9 14.1 1.4 5.43 16.51 3.1 Indstrl
LTR LOEWS CORP 27.3 12.0 .5 1.59 -4.50 3.9 Finance
PCG PG&E CORP 15.8 14.8 3.0 1.87 6.84 2.3 Tel&Utl
PPL PPL CORP 18.0 20.5 2.5 3.18 .05 3.1 Tel&Utl
T AT&T INC 253.4 20.9 3.3 2.27 3.28 2.7 Tel&Utl
VOLV VOLVO AB SW 40.3 17.4 7.4 3.62 -12.23 3.4 Dsctnry
Portfolio 59.7 15.2 3.0 2.95 .71 20.6 7( 6.8)
Rank 98 5 5
Total Market 154.3 13.2 2.5 1.40 32.6
LrgeCor
BA BOEING CO 72.5 20.4 1.4 12.38 11.88 2.7 Indstrl
BUD ANHEUSR-BSH 39.1 19.7 2.3 10.00 -2.97 2.3 Staples
CL COLLATE-PAL 33.1 20.5 2.0 18.67 3.41 1.5 Staples
IBM INTL BUS MA 143.2 16.0 1.2 8.55 12.77 2.5 InfoTek
PX PRAXAIR INC 23.0 21.7 1.5 4.75 17.28 2.7 Materls
SPG SIMON PPTY 20.8 45.0 3.4 5.43 -6.35 .9 Finance
TYC TYCO INTL 67.2 -46.9 1.2 4.40 -9.07 1.3 Indstrl
Portfolio 62.1 21.8 1.7 9.32 6.65 13.8 7( 6.2)
Rank 83 1 9
Total Market 77.0 18.3 1.4 4.50 11.3
LrgeGro
CSCO CISCO SYS 169.9 23.0 .0 5.40 19.53 2.4 InfoTek
DISH ECHOSTAR 19.4 28.7 .0 85.71 8.91 2.7 Dsctnry
EBAY EBAY INC 43.7 32.2 .0 3.79 21.45 1.7 InfoTek
GM GEN MTR 21.4 12.6 2.7 -6.01 -3.88 2.3 Dsctnry
HPQ HEWLETT-PCK 115.9 17.5 .7 3.14 12.16 3.1 InfoTek
PCP PREC CASTPT 16.7 22.9 .1 5.38 19.85 5.5 Indstrl
S SPRINT NEXT 59.1 99.0 .5 1.15 -6.93 1.6 Tel&Utl
SGP SCHERING-PL 45.6 29.8 .8 5.14 6.01 .8 HlthCar
TMO THERMO FISH 22.1 44.6 .0 1.52 11.91 2.3 HlthCar
Portfolio 54.4 23.7 .5 12.84 11.88 22.3 9( 7.2)
Rank 89 92 84
Total Market 76.4 27.7 .6 6.80 21.2
MidlVal
BLL BALL CORP 5.4 15.9 .8 4.05 3.27 .8 Materls
CTL CENTURYTEL 5.3 16.2 .5 1.69 -6.42 2.1 Tel&Utl
HNZ HEINZ (HJ) 15.1 19.2 3.0 8.14 -.95 2.3 Staples
IFF INTL FLV8~FR 4.7 18.4 1.6 4.68 3.05 2.6 Materls
Rockwood Capital Advisors, LLC
721 Emerson Road, Suite 565 • St. Louis, MO 63141 • 888-962-8336 • http:/lwww.rockwoo dcapital.com Page 8
r ~ ~ i~ ~ ~ ~ ~ ~ ~ iiir~ ~
~ ~ ~ ~ ~ ~ ~ ~ ~ ~/ ~ ~ r ~ ~~ ~ ~ ~ ~
Append/x for CRSM Core Equity Composit
Quarter Ending 9/30/07
Style Holdings
.- .. .. ..
LNT ALLIANT ENR 4.3 11.5 3.1 1.59 .24 2.2 Te18~Ut1
Portfolio 7.2 15.9 1.9 4.11 -.50 10.0 5( 4.5)
Rank 80 17 88
Total Market 8.1 14.5 2.7 -3.00 10.2
MidlCor
MKC MCCORMK &CO 5.0 21.9 2.0 4.93 -9.36 .7 Staples
RYAA RYANAIR 11.7 18.7 .0 10.56 1.0 Indstrl
SWY SAFEWAY INC 14.9 17.2 .7 2.40 -1.91 2.8 Staples
TROW PRICE GROUP 13.8 23.6 1.3 5.22 8.50 3.0 Finance
Portfolio 13.1 20.0 1.0 3.99 3.20 7.5 4( 3.1)
Rank 1 86 66
Total Market 8.3 21.6 1.1 -1.20 5.4
MidlGro
FISV FISERV INC 9.5 22.6 .0 3.96 -11.08 2.3 InfoTek
HSIC SCHEIN HNRY 4.8 23.6 .0 3.04 14.69 2.6 HlthCar
IFX INFINEON 12.4 99.0 .0 4.42 2.1 InfoTek
NYX NYSE EURONE 19.4 40.5 .3 2.25 5.27 .6 Finance
SNN SMITH & NEP 11.7 29.0 .9 -.39 2.4 HlthCar
SRCL STERICYCLE 3.9 33.3 .0 5.99 29.70 3.0 Indstrl
VRSN VERISIGN 7.7 99.0 .0 3.07 14.08 1.8 InfoTek
WAT WATERS CORP 5.9 24.4 .0 15.65 15.64 1.7 HlthCar
WEN WENDY'S 3.2 47.1 1.3 4.19 -4.27 2.3 Dsctnry
WOOF VCA ANTECH 3.2 28.5 .0 6.29 11.35 2.7 HlthCar
Portfolio 7.1 33.0 .2 5.58 8.71 21.5 10( 9.2)
Rank 61 94 63
Total Market 7.4 62.5 .3 1.90 9.3
Missing
AHO 2.1
BAY 2,2
COV ,p
TEL ,p
4.3 4
Rockwood Capital Advisors, LLC
721 Emerson Road, Suite 565 • St. Louis, MO 63141 •888-962-8336 • http://www.rockwoodcapital.com Page 9
Appendix for CRSM Core Equity Composit
Quarter Ending 9/30/07
Sector Holdings
.. _ ._
Staples
BUD ANHEUSR-BSH 39.1 19.7 2.3 10.00 -2.97 2.3 LrgeCor
CL COLLATE-PAL 33.1 20.5 2.0 18.67 3.41 1.5 LrgeCor
HNZ HEINZ (HJ) 15.1 19.2 3.0 8.14 -.95 2.3 MidlVal
MKC MCCORMK &CO 5.0 21.9 2.0 4.93 -9.36 .7 MidlCor
SWY SAFEWAY INC 14.9 17.2 .7 2.40 -1.91 2.8 MidlCor
Portfolio 22.8 19.0 1.9 8.31 -1.67 9.5 5( 4.4)
Rank 99 48 78
Total Market 92.5 19.3 2.4 3.71 7.7
Benchmark 64.5 46.8 2.2 2.87 8.3
Rank 95 4 41
Dsctnry
DISH ECHOSTAR 19.4 28.7 .0 85.71 8.91 2.7 LrgeGro
GM GEN MTR 21.4 12.6 2.7 -6.01 -3.88 2.3 LrgeGro
VOLV VOLVO AB SW 40.3 17.4 7.4 3.62 -12.23 3.4 LrgeVal
WEN WENDY'S 3.2 47.1 1.3 4.19 -4.27 2.3 MidlGro
Portfolio 23.1 20.5 3.2 22.57 -3.38 10.7 4( 3.9)
Rank 76 88 1
Total Market 25.9 34.3 1.1 -4.23 11.7
Benchmark 32.5 27.4 1.3 -6.08 12.8
Rank 21 56 15
HlthCar
HSIC SCHEIN HNRY 4.8 23.6 .0 3.04 14.69 2.6 MidlGro
SGP SCHERING-PL 45.6 29.8 .8 5.14 6.01 .8 LrgeGro
SNN SMITH i~ NEP 11.7 29.0 .9 -.39 2.4 MidlGro
TMO THERMO FISH 22.1 44.6 .0 1.52 11.91 2.3 LrgeGro
WAT WATERS CORP 5.9 24.4 .0 15.65 15.64 1.7 MidlGro
WOOF VCA ANTECH 3.2 28.5 .0 6.29 11.35 2.7 MidlGro
Portfolio 11.6 28.7 .2 5.83 10.13 12.5 6( 5.4)
Rank 99 49 99
Total Market 61.4 32.4 1.4 1.74 10.8
Benchmark 56.3 28.7 2.6 -1.29 11.1
Rank 67 49 1
Materls
BLL BALL CORP 5.4 15.9 .8 4.05 3.27 .8 MidlVal
DOW DOW CHEMICL 42.0 12.1 3.5 2.36 -1.13 2.2 LrgeVal
IFF INTL FLV&FR 4.7 18.4 1.6 4.68 3.05 2.6 MidlVal
PX PRAXAIR INC 23.0 21.7 1.5 4.75 17.28 2.7 LrgeCor
Portfolio 20.6 16.7 2.0 4.03 6.61 8.2 4( 3.5)
Rank 26 67 30
Rockwood Capital Advisors, LLC
721 Emerson Road, Suite 565 • St. Louis, MO 63141 • 888-962-8336 • http://www.rockwoodcapital.com Page 10
Appendix *or CRBM Core Equity Composit
Quarter Ending 9/30/07
Sector Holdings
Total Market 17.4 18.4 1.8 9.12 4.5
Benchmark 19.1 36.0 1.6 12.75 4.5
Rank 37 2 66
InfoTek
CSCO CISCO SYS 169.9 23.0 .0 5.40 19.53 2.4 LrgeGro
EBAY EBAY INC 43.7 32.2 .0 3.79 21.45 1.7 LrgeGro
FISV FISERV INC 9.5 22.6 .0 3.96 -11.08 2.3 MidlGro
HPQ HEWLETT-PCK 115.9 17.5 .7 3.14 12.16 3.1 LrgeGro
IBM INTL BUS MA 143.2 16.0 1.2 8.55 12.77 2.5 LrgeCor
IFX INFINEON 12.4 99.0 .0 4.42 2.1 MidlGro
VRSN VERISIGN 7.7 99.0 .0 3.07 14.08 1.8 MidlGro
Portfolio 79.0 25.3 .3 4.71 10.23 15.9 7( 6.8)
Rank 59 79 87
Total Market 81.8 29.2 .5 5.41 14.8
Benchmark 65.5 26.5 .7 5.16 16.0
Rank 79 70 9
Indstrl
BA BOEING CO 72.5 20.4 1.4 12.38 11.88 2.7 LrgeCor
LMT LOCKHD MART 38.9 14.1 1.4 5.43 16.51 3.1 LrgeVal
PCP PREC CASTPT 16.7 22.9 .1 5.38 19.85 5.5 LrgeGro
RYAA RYANAIR 11.7 18.7 .0 10.56 1.0 MidlCor
SRCL STERICYCLE 3.9 33.3 .0 5.99 29.70 3.0 MidlGro
TYC TYCO INTL 67.2 -46.9 1.2 4.40 -9.07 1.3 LrgeCor
Portfolio 31.3 22.1 .6 6.65 16.93 16.6 6( 4.7)
Rank 99 13 99
Total Market 91.1 19.5 1.5 3.90 11.1
Benchmark 63.3 23.2 1.1 5.34 11.6
Rank 83 10 97
Tel&Utl
CTL CENTURYTEL 5.3 16.2 .5 1.69 -6.42 2.1 MidlVal
LNT ALLIANT ENR 4.3 11.5 3.1 1.59 .24 2.2 MidlVal
PCG PG&E CORP 15.8 14.8 3.0 1.87 6.84 2.3 LrgeVal
PPL PPL CORP 18.0 20.5 2.5 3.18 .05 3.1 LrgeVal
S SPRINT NEXT 59.1 99.0 .5 1.15 -6.93 1.6 LrgeGro
T AT&T INC 253.4 20.9 3.3 2.27 3.28 2.7 LrgeVal
Portfolio 63.8 18.2 2.3 2.08 .01 14.0 6( 5.8)
Rank 71 96 80
Total Market 71.7 25.2 2.6 1.58 6.9
Benchmark 47.8 89.7 2.0 .91 6.4
Rank 88 4 93
Rockwood Capital Advisors, LLC
721 Emerson Road, Suite 565 • St. Louis, MO 63141 • 888-962-8336 • http:l/www.rockwoodcapital.com Page 11
Appendix for CRSM Core Equify Composif
Quarter Ending 9/30/07
Sector Holdings
- - ..
Finance
LTR LOEWS CORP 27.3 12.0 .5 1.59 -4.50 3.9 LrgeVal
NYX NYSE EURONE 19.4 40.5 .3 2.25 5.27 .6 MidlGro
SPG SIMON PPTY 20.8 45.0 3.4 5.43 -6.35 .9 LrgeCor
TROW PRICE GROUP 13.8 23.6 1.3 5.22 8.50 3.0 MidlCor
Portfolio 21.1 17.3 1.1 3.35 .74 8.4 4( 2.8)
Rank 99 5 99
Total Market 74.3 13.3 2.5 -3.56 21.1
Benchmark 54.2 21.8 1.8 -2.14 19.1
Rank 87 4 90
Rockwood Capital Advisors, LLC
721 Emerson Road, Suite 565 • St. Louis, MO 63141 •888-962-8336 • http://www.rockwoodcapital.com Page 12
r ~ ~ ~ ~^ r ~ i~ r ~ ~ iit~ ~ r ~ ~ ~ w ~
~ ~ ^~ii i~ ~ ~ i~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ iii ~
Appendix for CRSM Core Equity Composit
Quarter Ending 8/30/07
Portfolio Charact®ristics
..
Portfolio 37.8 20.9 1.3 4.42 7.07 46( 38.1) 467348.
Total Market 81.3 18.8 1.6 1.80
Benchmark 68.4 26.2 1.5 1.56
Rockwood Capital Advisors, LLC
721 Emerson Road, Suite 565 • St. Louis, MO 63141 • 888-962-8336 • http://www.rockwoodcapital.com Page 13
~ } 't.
s y s1
Roc~cwooo EQu~-rir
Objective:
Seeks capital appreciation through a diversified equity portfolio. Goal,
is to outperform the appropriate benchmark with less risk.
Philosophy:
^ Long-term relative price trend analysis exposes the two primary drivers
^ of stock price behavior -underlying fundamentals and investor
sponsorship (or psychology) that leads to changes in trend direction,
either positive or negative. (18 - 24 months)
Relative Price Cycle
~~~
r
w
1•
Positive
Phase
?+ +W A B _ ns C
Negative
Phaw~
I_....---- - ---_.._..
Annual Relative Return
I
I
~~
~ ', -~.~~~~ ',;mss
~ ~~
Unclear Early ;Developing
Accelerating' ,
,Established Ear1j f~,>~:~^ia,, ~~r. _ _ .
gc;.r^Iera!ingtSt~Llishetf; tlne!~.>~
Uptrend Acceleration; Uptrend Uptrend '~ , Uptrend .>~rrierah r; C'c:vr: E!7~ ~ i:rJ .ntrrta~J . ~7oslr,trend :Dar;nl=~ ~~
:~a,
~-~
Ranking
Top
Percentile
5cn
Percentile
Upper
Quartile
Median
Third
Quartile
Lower
Quartile
95rn
Percentile
Worst
A Com Ilin C for Diversification
I~ g
Year-to-Year
2000 2001 2002 2003 2004 2005 2006
Mid Cap
Small Cap Rockwood Rockwood
Intl.
Intl.
Stocks
Stocks Strategic Nasdaq Strategic
Stocks
Stocks
Equity 50.00% Equity
8.20% 2.60%
-3.48%
24.x4°<° 13.54% 26.34%
Large Cap Rackwood
Strategic Large Cap Small Cap Mid Cap Mid Cap Large Cap
Value ,., ;. Value Stocks Stocks Stocks Value
7.00% -15.50% 47.30% 20.22% 12.62% 22.25
Rockwood
Strategic Large Cap Mid Cap Mid Cap Small Cap Large Cap Small Cap
Equity Value Stocks Stocks Stocks Value Stocks
2 37°I°
-5.60%
0
-16.20 /0
0
40.10 /0
0
18.33 /0
0
6.97 /0
0
18.37 /o
Small Cap Mid Cap Intl. Intl. Intl.
Stocks
Stocks
Stocks
Stocks
Stocks S8P 50
-3.00% -5.60% -16.30% 38.50% 17.59% 15. /o
0
` Small Cap Large Cap Large Cap Mid Cap
Stocks ~~ Value Growth Stocks
- .10% -11.90 -20.50% E ~!
q ~
31.10% 16.49% 5.09% 15.26%
Intl. Large Cap Large Cap Rockwood
Stocks Growth P 500 Value S8P 5 Strategic
-14.00% -20.40% -2 % 30.00% 10.9 /0 4.84% Equity
13.70%
Large Cap Int. Large Cap Large Cap
Nasdaq Small Cap
Nasdaq
Growth Stocks Growth Growth Stocks
-22.40% -21.20% -27.90% 9.80% 8.59% 4.32% 9.52%
Nasdaq Nasdaq Nasdaq S&P 0 Large Cap Nasdaq Large Cap
-39.30
-22.40%
-31.60%
28.70% Growth
1.37% Growth
6.30% 9.07%
(Trailing Performance record by Equity Investment Style)
Rockwood
Strategic E
^ Russe111000 I
Growth Index
Russell
2000 Index
Nasdaq
Index
^ Russell 1000
Value Index
^ MSCI
EAFE Index
^ Russell
Mid-Cap Index
S&P 500
uf-
V-5
A Compelling Cas'~ for Diversification
Over the Longer-Term
(Cumulative Performance results by Equity Investment Style)
Zooa - aoo6
100%
80%
60%
40%
20%
0%
-20%
-40%
-60%
80°/
86%
(~~)'io
~ ~ `.'~o
-42°,/0
---- Straret*ic
Equity
Portfolio
Mid Cap
Small Cap
Large Value
--- Intematianal
SAP 500
Large Cap
Growth
_.___ Nasdaq
- o
2000 2001 2002 2003 2004 2005 2006 2007
An Agn~tic View
Rockwood Strategic Equity Por~olio
Style Box Breakdown
Value Blend Growth
Apri12000
Apri12002
Large
Medium
Small
Value Blend Growth
Apri12004
Apri12006
Average Market Cap Average Market Cap Average Market Cap Average Market Cap
$73.6 billion $10.8 billion $18.8 billion $15.7 billion
Median Market Cap Median Market Cap Median Market Cap Median Market Cap
$24.2 billion $4.4 billion $5.7 billion $8.7 billion
Value Blend Growth
Value Blend Growth
• •
S& P 500 vs
road Market
.
Ca turin
p g the Best of Both Worlds
January 2007
ao~ 12 Month Price Change of S&P 500 Index
Relative to CR Universe
30~
Zoe
ion S&P 500 Outperforming Broad Market
~~~
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~BOE/NG
March 23, 2007
Dear Shareholder:
I am pleased to invite you to attend The Boeing Company's 2007 Annual Meeting of Shareholders, which will be
held an Monday, April 30, 2007, beginning at 10:00 a.m., Central time, in Chicago, Illinois. We will meet at The
Field Museum, which is located at 1400 South Lake Shore Drive in Chicago.
Activities at the Annual. Meeting will be limited to the items of business listed in the Notice of Annual. Meeting
of Shareholders. The following items of business will be presented:
(1) election of eleven directors;
(2) advisory vote on the appointment of the Company's independent auditors; and
(3) vote on nine shareholder proposals, if they are presented.
Your Board of Directors recommends a vote for the election of the nominees for director and approval of an
advisory vote on the appointment of the Company's independent auditors. The Board recommends a vote against
each of the shareholder proposals. We will also report on the activities of the Company. You will have an
opportunity to submit questions or comments on matters of interest to shareholders generally.
Your vote is important. Whether or not you plan to attend the Annual Meeting in person,l urge you to complete
t11e proxy card and return it promptly.
Very truly yours,
1 ~~~-~
W. James McNerney, Jr.
C3tairman of t)ze Board, President and
Chief Executive Officer
t-~oc.~doU+-
V~~~~ls~
~- s
ITEM 3. SHAREHOLDER PROPOSAL ON DISCLOSURE OF FOREIGN MILITARY SALES
The School Sisters of Notre Dame of St. Louis, 320 East Ripa Avenue, St. Louis, MO 63125-2897, owners of 200
shares of common stock, and the Sisters of Charity, BVM, 205 West Monroe, Suite 500, Chicago, IL 60606- 5061,
owners of at least 100 shares of common stock, along with additional co-sponsors, have advised the Company that
they intend to present the following resolution at the Annual Meeting. Approval of this proposal would require- the
affirmative vote of a majority of the outstanding shares of Boeing stack present in person or by proxy and entitled to
vote at the Annual Meeting.
Shareholder Resolution
Foreign Military Sales
WHEREAS the United States exports weapons and related military services through foreign military sales
(government-to-government), direct commercial weapons sales (LJ.S. companies to foreign buyers), equipment
leases, transfers of excess defense materiel and emergency drawdowns of weaponry.
The U.S. ranked first in arms transfer deliveries with developing nations, including thaw in the Near East and Asia,
with $7.746 billion for 2005. The weapons sold range from ammunition to tanks, combat aircraft, missiles and
submarines. These figures were taken from The Department of Defense Security Assistance Agency's "Facts Book"
release at the end of fiscal year 2005, September 30, 2005. A listing of countries located in the regions defined for
the purpose of this analysis-Asia, Near East, Latin America, and Africa-is provided at the end of the report
"Conventional Arms Transfers to Developing Nations, 1997-2004," Congressional. Research Service, 8-29-05. http:/
/M~ww. fczs. nrg/sgp/cns/natsec/RL33051. pdf
In a number of recent LJ.S. combat engagements (e.g., the first Gulf War, Somalia, Afghanistan and Iraq), our troops
faced adversaries who had previously received U.S. weapons or military technology.
In Fiscal Year 2005, Boeing was ranked as 2nd largest Department of Defense contractor with $18.8 billion in
contracts. (100 Companies Receiving the Largest Dollar Volume of Prime Contract Awards-Fiscal Year 2005,
Government B'xeeaztive, 8-'15-t}6)
RESOLVED: Shareholders request that, within six months of the annual meeting, the Board of Directors provide a
comprehensive report, at reasonable cost and omitting proprietary and classified information, of Boeing's foreign
sales of weapons-related products and services.
Supporting Statement
We believe it is reasonable that the report include:
1. Processes used to determine and promote foreign sales e.g. Israel, Saudi Arabia, Egypt and other
Middle East countries;
2. Criteria for choosing countries with which to do business, including selling weapon components and
technology and subcontracting arms manufacturing and assembly overseas; (Arms without Borders,
Amnesty International LJSA)
3. Procedures used to negotiate foreign arms sales, government. ta-government and direct commercial
sales and the percentage of sales for each category;
4. Categories of military equipment or components, including dual use items exported for the past three
years, with as much statistical information as permissible; contracts for servicing/maintaining
equipment; offset agreements; and licensing and/or co-production with foreign governments.
We believe with the American Red Cross that "the greater the availability of arms, the greater the violations of
human rights and international humanitarian law." Global security is the security of all people. Several times in our
recent history, we've seen weapons sold to one country result in a threat to our own security. We know, too, that
there is an increase in human rights abuses inflicted on women and children, people of minority ethnicities, NGOs
offering medical services and, now, injuries, torture and death of employees of private military corporations
contracted to the DOD (e.g. Iraq).
54
Board of Directors' Response
The U.S. government relies on the technological and manufacturing capability of the private sector to develop the
expertise and produce the equipment it has determined will be needed to achieve a sound defense posture as the
nation faces new and vau-ied threats. The Company, with its technological capabilities and expertise, participates in
the nation's defense activities in the belief that it is appropriate to support government decisions made in the interest
of peace and national security.
The Company sells military products only in strict compliance with all U.S. laws, regulations and governmental
policies/procedures that control the export, sale and transfer of military products and technologies to foreign entities.
The Board of Directors believes that disclosure of the information requested by this proposal-such as the processes
used to determine and promote foreign military sales, the criteria for choosing countries with which to do business
and the procedures used to negotiate foreign arms sales-involves policies/procedures that are properly made by
national legislative and executive governmental officials, and is properly within the purview of these government
policymakers and regulators.
The Board of Directors also believes that producing the report requested by this proposal is unnecessary because
sufficient information is publicly available. The Company's foreign military sales are made under contract~S with the
U.S. government, which then are accepted and delivered by the U.S. government to the foreign government. These
sales are a matter of public record through U.S. government-provided information or the news media. The
Department of Defense (foreign military sales) and Department of State (direct commercial sales) provide
notification of such sales to Congress and the media. In addition, the Company's Annual Report, periodic reports on
Forms 10-K and 10-Q, and website provide extensive information concerning the Company's military products and
services. The "Selected Programs, Products and Services" section of the Company's 200b Annual Report (pages
85-90) contains detailed information about the Company's Integrated Defense Systems ("IDS") business products,
including the sale of products to foreign governments. Note 24 to the Consolidated Statements of Operations in the
Company's 2006 Form 10-K brellc down IDS's sales to Europe, Asia and the U.S. government. Finally, the
Company's website at www.hoeing.corn/ids/index.html contains extensive information regarding the IDS business
segments, including a full list of lDS's products and a chart detailing IDS's monthly major deliveries
(www.boeing.comJids/ids-back/deliveries.html). The Board believes this disclosure provides the Company's
shareholders with adequate information concerning the C,ompany's IDS business.
Accordingly, the Board of Directors does not believe that the report requested by this proposal is warranted or that
the report would provide meaningful additional information to shareholders.
THE BOARD OF DH2F,CTORS UNANIMOUSLY RECOMMENDS
A VOTF. AGAINST PROPOSAL ~.
~S
ITEM 4. SHAREHOLDER PROPOSAI, ON HUMAN RIGHTS POLICIES
The Province of Saint Joseph of the Capuchin Order, 1015 North Ninth Street, Milwaukee, WI 53233, owner of at
least 200 shares of common stock, along with additional. co-sponsors, has advised the Company that it intends to
present the following resolution at the Annual Meeting. Approval of this proposal would require the affirmative vote
of a majority of the outstanding shares of Boeing stock present in person or by proxy and entitled to vote at the
Annual Meeting.
Shareholder Resolution
Develop & Adopt Human Rights Policies
WHEREAS, for at least a decade, Boeing has received a shareholder resolution asking it to develop a
comprehensive human rights policy governing its operations abroad, especially China. As yet no such policy has
been enacted; nor has the company evidenced any significant movement on resolving its shareholders' concern.
Meanwhile the United States Government and human rights groups continually list China as one of the world's most
egregious violators of human rights.
Un its website discussing China, Boeing features at length the history of its operations in that now-Communist state.
However, as of the writing of dlis resolution not one word therein refers to any effort to ensure its China employees
can organize, speak freely and be free of harassment by Government/Party officials in its plants-rights assumed in
all free societies. On the contrary, Boeing has been called "China's most valuable lobbyist." It has lobbied the U.S.
government to grant China Most Favored Nation status. Meanwhile its patriotic union members in the U.S.A. find
their jobs being sent there.
At last year's annual meeting a similar shareholder resolution received aver 20% of the vote. In stating its
opposition, management assured shareholders it is serious about the issue. It agreed to discuss these concerns with
the proponents. Yet, since that 2006 annual meeting not one member of the Board nor management have contacted
the proponents to discuss this critical issue. Afollow-up letter to Mr. McNerney on May 22, 2006 by the
resolution's main proponent asked "your staff to move on this issue in a way that would be so constructive" that no
further resolution would need to he filed again. The letter received no response. Thus, as last year, despite its
professed concerns, Boeing has not acted on them as requested by the resolution.
We believe transnational corporations operating in countries with repressive governments, ethnic conflict, weak rule
of law, endemic corruption, or poor labor and environmental standards face serious reputational risks and
diminished share value if they are perceived to be responsible for, or complicit in, human rights violations;
While other companies have adopted comprehensive human rights policies, including Ford for its China operations,
Boeing has no comprehensive human rights policy enabling it to effectively manage and avoid allegations of aiding
and abetting such abuses;
We believe significant commercial advantages may accrue to Boeing by adopting such a policy including: enhanced
corporate reputation, improved employee recruitment and retention, improved community and stakeholder relations,
and reduced risk of adverse publicity, divestment campaigns, and law suits;
RESOLVED: shareholders request die Board to develop and adopt a comprehensive human rights policy to include
an explicit commitment to support and uphold the principles and values contained in the Universal Declaration of
Human Rights no later than November 5, 2007. We suggest the Board adopt such a policy at the earliest possible
time and that it issue a report on the progress made in this regard, especially in countries like China who
consistently violate basic human rights.
Board of Directors' Response
The Company agrees with the principles on which this proposal is based and already addresses the concerns it
raises, making this proposal unnecessary. The Company already has in place policies that promote improvement of
working conditions, protection of the environment and achievement of diversity. T11e Company's related policies
and procedures are also designed to ensure that its operations worldwide are conducted using the highest standards
of integrity and ethical business conduct applied uniformly and consistently.
S6
The Company undertook a thorough review of its policies and procedures, as well as an evaluation of human rights
principles and codes, advanced by various international organizations such as the Global Sullivan Principles of
Social Responsibility, the Universal Declaration of Human Rights and standards issued by the International Labor
Organization. That review included an assessment of the impact on the Company's foreign subsidiaries, consultation
with other companies about their own experience in these matters, and an evaluation of the practicalities associated
with adopting the concepts in these various third-party codes. As a result of this review, the Company adopted a
Boeing-specific set of human rights principles, "The Boeing Company Code of Basic Working Conditions and
Human Rights," which represents the Company's commitment to fundamental standards in the following important
areas: Non-Discrimination and Harassment; Freedom of Association; Safety, Health and Environmental Affairs;
Work Environment and Compensation; Hours of Work and Work Scheduling; Expectations far our Suppliers; and
Forced Labor and Child Labor.
In accordance with its definition of Good Corporate Citizenship, the Company invests in the communities where its
employees work and live, both in the United States and abroad. The Company s Learning Together program
provides every employee with Company-funded opportunities to realize their full potential through continuing
education. In China, the Company's philanthropic activities include support of the China Charity Federation (a
nationwide nongovernmental charity organization delivering assistance and services to the poor and disaster
victims), the Golden Key Research Center of Education for Visually Impaired (providing education for blind
children in China to enable them to support themselves as adults), Junior Achievement International China, Inc.
(providing market-driven economics education far the youth of China), and the Philip Hayden Foundation (helping
China's orphaned and special needs children.). These initiatives help build a framework for local development that is
fundamental to the furtherance of human rights.
The Company's policies in other important functional areas also demonstrate its commitment to human rights and
responsible corporate citizenship. For example, the policy on Safety, Health and Environmental Affairs states the
Company's commitment to provide employees with a safe and healthful workplace, protect the environment
wherever the Company conducts business, and strive for excellence in safety, health and environmental stewardship.
The policy on People states the Company's commitment to promote a work environment that fosters
communication, productivity, creativity, teamwork and employee satisfaction, and to provide fair and equitable
compensation anal benefits.
For the reasons set forth above, the Board of Directors believes that adoption of the policy called for by this
proposal is unnecessary.
THE BOARD OE DIRECTORS UNANIMOUSLY RECOMMENDS
,~ VOTE, AGAINST PROPOSA[. 4.
57
ITEM 5. SHAREHOLDER PROPOSAL ON DISCLOSURE OF CHARITABLE CONTRIBUTIONS
The National Legal and Policy Center, 107 Park Washington Court, Falls Church, VA 22046, owner of 58 shares of
common stock, has advised the Company that it intends to present the following resolution at the Annual Meeting.
Approval. of this proposal would require the affirmative vote of a majority of the outstanding shares of Boeing stock
present in person or by proxy and entitled to vote at the Annual Meeting.
Shareholder Resolution
Charitable Contributions Report
Resolved: The shareholders request that Boeing provide a report updated semi-annually, omitting proprietary
information and at reasonable cost, disclosing the Company's:
1. Policies and procedures for charitable contributions (both direct and indirect) made with corporate assets,
2. Monetary and non-monetary contributions made to non-profit organizations operating tinder
Section 501(c)(3) and 501(c)(4) of the Internal Revenue Code, and any other public or private charitable
organizations;
3. Rationale for each of the charitable contributions.
This report may be posted on the company's website to reduce costs to shareholders.
Supporting Statement:
Boeing's assets belong to its shareholders. The expenditure or distribution of corporate assets, including charitable
contributions, should be consistent with shareholder interests. Accordingly, the Company's rationale for charitable
contributions should be disclosed to shareholders.
Company executives exercise wide discretion over the use of corporate assets for charitable purposes. Absent a
system. of transparency and accountability for charitable contributions, Company executives may use Company
assets for objectives that are not shared by and may be inimical to the interests of the Company and its shareholders.
Current disclosure is insufficient to allow the Company's Board and its shareholders to fully evaluate the charitable
use of corporate assets, especially for controversial causes.
There is currently no single source providing shareholders the information sought by this resolution.
Details of contributions only sometimes become known when publicized by recipients. Company contributions to
the Rainbow/PUSH coalition, in 2004, 2005, and 2006 were disclosed in Rainbow/PUSH conference programs.
Board of Directors' Response
The $oard of Directors believes that sufficient information about the Company's charitable contributions already is
publicly available, and that this proposal would not result in any meaningful additional information to the
Company's shareholders.
The Company has prepared a Corporate Philanthropy Report on its 2006 corporate citizenship activities in the
United States and internationally. This report is available in print and through the Company s website on the "About
Us-Global Corporate Citizenship" page at www.boeing.com. Additional detailed information concerning the
Company's charitable contribution programs, such as that requested by this proposal, can be found on the "Global
Corporate Citizenship" page of the Company's website. This disclosure includes the total amount of contributions,
the types of organizations or services eligible for grants and grant application procedures.
As disclosed in the Company's Corporate Philanthropy Report and on the Global Corporate Citizenship page of its
website, Boeing focuses its charitable giving domestically in five main areas: education, health and human services,
culture and the arts, civic and environmental issues. Internationally the focus is on primary and secondary education,
health and human services and disaster relief. While mast contributions are made in the communities where Boeing
58
people work and live, on some occasions Boeing makes contributions to organizations that operate across a nation
or around the globe. In 2006, Boeing corporate charit<ble contributions totaled $48.3 million. This figure consists of
$40 million in corporate charitable grants and $8.3 million in gift matching contributions. Employee contributions
totaled $41 million dollars, which includes nearly $31.3 million in payroll deductions through the Employees
Community Fund and $9.7 million dollars through the Company's gift matching programs.
Good corporate citizenship is a core value at Boeing, and includes strategic philanthropy (including cash grants,
in-kind and surplus donations, and contributions of intellectual capital); volunteerism; employee drives; gift
matching programs; the Employees Community Fund of The Boeing Company; and philanthropy-related
sponsorships, business contributions and business sponsorships. The Company's corporate citizenship activities are
site-based and extend to 27 states in the United States, 14 other countries and four international regions where the
Company has a presence. The Company identifies and partners with organizations that will transform these
communities for the better. In general, dIe Company makes charitable contribution decisions with the goal of
providing the maximum benefit for employees' communities, meeting real needs in the short run while providing
broader positive effects beyond the period of the Company's involvement.
The Company also recognizes the need for accountability and. risk management in connection with its philanthropic
contributions program, and has well-established practices for the review, analysis and recommendation of
contributions that are managed by the Company s Global Corporate Citizenship (GCC) function, which is overseen
by the Senior Vice President of Human Resources and Administration. This senior executive chairs the Global
Corporate Citizenship Committee, which is composed of the CEO and several of the members of the Executive
Council. The committee meets quarterly to review and approve the Company's philantlopic philosophy, both
domestically and internationally.
In order to minimize risk to the Company, Boeing GCC representatives conduct thorough diligence before grants
are approved and funded_ International grant applications also include a legal review. The Company follows a
detailed process to ensure compliance with Executive Order 13224, the USA Patriot Act, the Treasury Department's
anti-terrorism voluntary guidelines, and applicable U.S. and local laws. The process includes:
• Wnrld Tracker. Checks applicants against government watch lists. This process is incorporated into the
online grant management system.
• Fnreigra Corrupt Prnetces Act (FCPA) Review. A Boeing attorney is assigned to review international grant
applications for compliance with the FCPA, which prohibits improper payments to foreign government
officials and customers. This includes reviewing the affiliations of an organization's governing body
members.
Employee contributions related to the Company's gift-matching programs are vetted through this same process as
are grants made through the Employees Community Fund of The Boeing Company.
The Board of Directors does not believe that the further disclosure sought by this proposal would provide any
additional meaningful. information or in any way serve the interests of the Companys shareholders. The report
sought by the proponent would duplicate much of what the Company already reports. Further, the Board believes
that describing the Company's guiding principles and examples of the programs it supports, as disclosed in the
Corporate Philanthropy Report and on the Company's website, provides more context and is more instructive than a
list of donations. Such detailed descriptions of every individual donation would involve an unnecessary expenditure
of administrative cost and effort, which would produce no corresponding meaningful information or benefit to the
Company's shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMF,NDS
A VOTF, AGAINST PROPOSAL S.
59
ITEM h. SHAREHOLDER PROPOSAL ON DISCLOSURE
OP' POLITICAL CONTRIBUTIONS
Newgmund Social Investment, 2206 Queen Anne Ave. N., Suite 402, Seattle, WA 98109, as proxy for Mr. Dyke
Richard Turner, owner of more than 560 shares, has advised the Company that it intends to present the following
resolution. at the Annual Meeting. Approval of this proposal would require the affirmative vote of a majority of the
outstanding shares of Boeing stock present in person or by proxy and entitled to vote at the Annual Meeting.
Shareholder Resolution
Corporate Political Contributions and Trade Association Payments
Resolved, that the shareholders of the Boeing Company ("Company") hereby request that the Company provide a
report, updated semi-annually, disclosing the Company's:
1. Policies and procedures for political contributions and expenditures (both direct and indirect) made with
corporate funds.
Monetary and non-monetary political. contributions and expenditures not deductible under section 162
(e)(I)(B) of the Internal Revenue Code, including but not ]invited to contributions to or expenditures on
behalf of political candidates, political parties, political committees and other political entities organized
and operating under 26 tTSC Sec. 527 of the Internal Revenue Code and any portion of any dues or similar
payments made to any tax exempt organization that is used for an expenditure or contribution if made
directly by the corporation would not be deductible under section 162 (e)(1)(B) of the .Internal Revenue
Code. The report shall include the following:
a. An accounting of the Company's funds that are used for political contributions or expenditures as
described above;
b. Identification of the person or persons in the Company who participated in making the decisions to
make the political contribution or expenditure; and
c. The internal guidelines or policies, if any, governing the Company's political contributions and
expenditures.
The report shall he presented to the board of directors' audit committee or other relevant oversight committee and
posted on the company's website to reduce costs to shareholders.
Stockholder Supporting Statement
As long-term shareholders of Boeing, we support policies that apply transparency and accountability to corporate
spending on political activities. Such disclosure is consistent with public policy and in the best interest of the
Company's shareholders.
Company executives exercise wide discretion over the use of corporate resources for political activities. These
decisions involve political contributions, called "soft money," and payments to trade associations and related groups
that are used for political activities. Most of these expenditures are not disclosed. In 2003-04, the last fully reported
election cycle, the Company contributed at least $245,000 in soft money (Center for Political Accountability: http://
www.politicalaccountablity.net/files/TABoeing05-O6.pdf). However, its payments to bade associations used for
political activities are undisclosed and. unknown. These activities include direct and indirect political contributions
to candidates, political parties or political organizations; independent expenditures; or electioneering
communications on behalf of a federal, state or local candidate. The result: shareholders and, in many cases,
management do not know how trade associations use their company's money politically. The proposal asks the
Company to disclose its political contributions and payments to trade associations and other tax exempt
organizations.
Absent a system of accountability, company assets can be used for political objectives that are not shared by and
may be inimical to the interests of the Company and its shareholders. Relying on publicly available data does not
provide a complete picture of the Company's political expenditures. The Company's Board and its shareholders
need complete disclosure to he able to fully evaluate the political use of corporate assets. Thus, we urge your
support for this critical governance reform.
60
Board of Directors' Response
The Board of Directors opposes this proposal as unnecessary because a comprehensive system of reporting and
accountability for political contributions in the United States already exists. Current law limits the amount of
contributions and the uses of corparate funds, and it also provides for appropriate public disclosure and
accountability for compliance. The Board notes that the Company's Political Action Committee ("PAC")
contributions are generally reported and publicly available at the appropriate governmental agencies, including the
Federal Election Commission, whose website is www.fec.gov. Similarly, Company political contributions at the
state and local level are recorded and disclosed by the respective states, for example, in Washington at
www.pdc.wa.gov and in California at wwwss.ca.gov.
The Board of Directors believes that all. political contributions made by the Company help support the Company's
businesses and are in the best interests of the Company and its shareholders. The Company is committed to adhering
to the highest standards of ethics and. accountability in engaging in political activities. The Board authorizes
annually the maximum aggregate contributions that the Company can make on the state and local level, as permitted
by, and in strict compliance with, applicable law. The Company's policy regarding political contributions, a
description of which is available in the Company's Ethical Business Conduct Guidelines, sets forth an oversight
process that is designed to ensure compliance with current laws and our ethical business conduct principles. Those
Guidelines are available on our website at www.boeing.com/companyoffices/aboutus/ethics/ethics_booklet.pdf.
Political contributions to federal candidates and political party committees are made by the PAC, which is
administered by a committee comprised of four senior management employees, including one executive officer. The
PAC is not funded by corporate funds, but from vo]unt<1ry contributions by management-level employees.
The Board of Directors recommends that you vote against this proposal because the Company's policy on political.
contributions aligns with shareholder interests, and adopting this proposal would result in the unnecessary reporting
of information that is already publicly available to the Company's shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMF,NDS
A VOTE AGAINST PROPOSAL 6.
hl
ITEM 7. SHAREHOLDER PROPOSAL ON SEPARATING THE ROLES OF CEO AND CHAIRMAN
John Chevedden, 2215 Nelson Ave., No. 205, Redondo Beach, CA 90278, as proxy for Thomas Finnegan, 8152
S.E. Ketchum Road, Olalla, WA 98359, owner of 74 shares, has advised the Company that he intends to present the
following resolution at the Annual Meeting. Approval of this proposal would require the affirmative vote of a
majority of the outstanding shares of Boeing stock present in person or by proxy and entitled to vote at the Annual
Meeting.
Shareholder Resolution
Separate the Roles of CEO and Chairman
RESOLVED: Shareholders request that our Board establish a rule (firmly specified in our charter or bylaws if
feasible) of separating the roles of our CEO and Board Chairman, so that an independent director who has not
served as an executive officer of our Company, serve as our Chairman whenever possible.
This proposal gives our company an opportunity to follow SEC Staff Legal Bulletin 14C to cure a Chairman's
non-independence. This proposal shall not apply to the extent that compliance would necessarily breach any
contractual obligations in effect at the time of the 2007 shareholder meeting.
The primary purpose of our Chairman and Board of Directors is to protect shareholders' interests by providing
independent oversight of management, including our Chief Executive Officer. Separating the roles of CEO and
Chairman can promote greater management accountability to shareholders and lead to a more objective evaluation
of our CEO.
It is important to take a step forward and support this one proposal to improve our corporate governance since our
2006 governance standards were not impeccable. For instance in 2006 it was reported (and certain concerns are
noted):
• The Corporate Library (TCL) httr://www.thecnrpnratelihrary.cnrn/ an independent investment research
firm rated our company:
"D" in Overall Board Effectiveness.
"Very High Concern" in CEO Compensation.
"High" in Overall Governance Risk Assessment.
• We had no Independent Board Chairman-Independent oversight concern.
• Plus our Lead Director, Mr. Duberstein, was a director for scandal-ridden Fannie Mae (FNM) and worked
as a lobbyist.
• The Chair of our Governance Committee, Ms. Ridgway had a history of serving on boards rated "D" or "F"
by The Corporate Library.
• Mr. Duberstein and Ms. Ridgway each held S board seats-Over-extension concern.
• Our CEO came from 3M with a board rated "F" overall by The Corporate Library dtu-ing his tenure.
• Mr. Biggs was designated as an "Accelerated Vesting" director by The Corporate Library due to his
involvement with a board that accelerated the vesting of stock options just prior to implementation of FAS
123R policies in order to avoid recognizing the related expense-which is now required.
• There are too many active CEOs on our board with 4-Independence and over-commitment concern.
• Cumulative voting was not allowed.
• Our directors could be elected with one-vote from our 800-plus million voting shares.
• Furthermore, our management attempted and failed 2-times to exclude this topic from even a shareholder
vote. This is in correspondence to the Securities and Exchange Commission. Further details are in The
Boeing Company (Jan. 27, 2005) and The Boeing Company (March 10, 2005 Reconsideration) available
through SECnet at http://www.wsb.com/.
The above status shows there is room far improvement and reinforces the reason to take one step forward now
and vote yes to:
Separate the Roles of CEO and Chairman
Yes on 7
62
Board of Directors' Response
The Board of Directors believes that it is in the best interests of the Company and its shareholders for the $oard to
have the flexibility to determine who should serve as Chairman of the Board at any particular point depending on
the circumstances, including whether such director is an independent director or the Chief Executive Officer. At the
present time, the Board believes that the Company and its shareholders are best served by having the Chief
Executive Officer also serve as Chairman of the Board. While the Board may separate these positions in the future
should circwnstances change, it believes that implementing this proposal would deprive the Board of its ability to
organize its functions and conduct its business in the most efficient and effective manner.
The Company's Corporate Governance Principles, which are set forth on the Company's website at
www.boeing.com/corp~ov/corp_gov_principles.html, provide that if the Chief Executive Officer currently holds
the position of Chairman, an independent Lead Director will be elected annually by a majority of the independent
directors upon a recommendation from the Governance, Organization and Nominating Committee. Pursuant to these
guidelines, Mr. Duberstein, an independent director, has served as Lead Director of the Board of Directors since his
election to this position on December 12, 2005.
The Board of Directors has been, and continues to be, a strong proponent of Board independence. As a result, the
Company's corporate governance structures and practices include several additional independent oversight
mechanisms. Currently, all of our directors other than the Chairman and Chief Executive Officer, including each
member of the Board's Audit, Compensation, Finance and Governance, Organization and Nominating Committees,
are independent directors under the New York Stock Exchange's independence standards. The Board believes that
the Company's Corporate CToveruance Principles ensure that strong and independent directors will continue to
effectively oversee the Company's management and key issues related to long-range business plans, long-range
strategic issues and risks, and integrity. Under these governance principles, the Lead Director presides over
executive sessions of the Board that are held at each regularly scheduled Board meeting and facilitates
communication between independent directors and management. The Lead Director also provides input with respect
to the agendas for Board and committee meetings that are prepared by the Chief Executive Officer and the
committee chairpersons. Furthermore, each director is free to suggest items for the Board agenda, and to raise at any
Board meeting subjects that are not on the agenda for that meeting. Finally, the governance principles provide that
all Board committees, including those whose members are exclusively independent directors, may seek legal,
financial or other expert advice from a source independent of management.
The Board of Directors believes that this proposal imposes an unnecessary restriction that does not strengthen the
Board's independence or oversight functions and is therefore not in the best interests of the Company and its
shareholders.
TFIE BOARD OF DIRECTOR,4 UNANIMOUSLY RECOMMENDS
n VOTE AGAINST PROrcnaL 7.
63
ITEM R. SHAREHOLDER PROPOSAL ON SHAREHOLDER RIGHTS PLANS
John Chevedden, 2215 Nelson Ave., No. 205, Redondo Beach, CA 90278, owner of at least 100 shares of common
stock, has advised the Company that he intends to present the following resolution at the Annual Meeting. Approval
of this proposal would require the affirmative vote of a majority of the outstanding shares of Boeing stock present in
person or by proxy and entitled to vote at the Annual Meeting.
Shareholder Resolution
Subject Any Future Poison Pill to a Shareholder Vote
RESOLVED, Shareholders request that our $oard adopt a bylaw or charter amendment that any future or current
poison pill he subject to a shareholder vote as a separate ballot item, to be held as soon as possible. A poison pill is
such a drastic step that a required shareholder vote on a poison pill is important enough to be a permanent part of
ottr bylaws or charter-rather than a fleeting short-lived policy.
It is essential that a sunset provision not be used as an escape clause from a shareholder vote. Since a vote would be
as soon as possible, it could take place within 4-months of the adoption of a new poison pill. Since a poison pill is
such a drastic measure that deserves shareholder input, a shareholder vote would be required even if a pill had been
terminated.
John Chevedden, 2215 Nelson Ave., No. 205, Redondo Beach, Calif. 90278 sponsors this proposal.
"Poison. pills ... prevent shareholders and the overall market, from exercising their right to discipline management
by turning it out. They entrench the current management, even when it's doing a poor job. They water down
shareholders' votes and deprive them of a meaningful voice in corporate affairs."
"Take on the Street" by Arthur Levitt, SEC Chairman, 1993-2001
"[Poison pill] That's akin to the argument of a benevolent dictator, who says, 'Give up more of your freedom and
I'll take care of you."'
T.J. Dermot Dunphy, CEO of Sealed Air (NYSE) for 25 years
"That's the key negative of poison pills-instead of protecting investors, they can also preserve the interests of
management deadwood as well."
Mnrningstnncnrn, Aug. 15, 2003
According to the book Power and Accountability by Nell Minow and Robert Monks: "All poison pills raise question
of shareholder democracy and the robustness of the corporate governance process. They amount to major de facto
shifts of voting rights away from shareholders to management, on matters pertaining to the sale of the corporation.
They give i<•trget boards of directors absolute veto power over any proposed business combination, no matter how
beneficial. it might be for the shareholders..."
Subject Auy Future Poison Pill to a Shareholder Vote
Yes on 8
Board of Directors' Response
This proposal asks the Company to adopt a By-Law or charter amendment that any future or current shareholder
rights plan (sometimes called a "poison pill") he subject to shareholder vote, to be held as soon as possible. The
Board of Directors recommends a vote against this proposal because it is unnecessary and duplicative. The
Company does not have a shareholder rights plan, has no present intention to adopt one, and has a}ready adopted a
policy that is responsive to shareholder interests. We do not believe that there are any meaningful differences
between the current proposal and the policy that the Board has already adopted.
The Board of Directors adopted its current policy on shareholder rights plans in February 2006 as part of its
Corporate Governance Principles. The policy is as follows:
Boeing does not have a shareholder rights plan and has no present intention to adopt one. Subject to its
continuing fiduciary duties, which may dictate otherwise depending on the circumstances, the Board shall.
submit the adoption of any future rights plan to a vote of the shareholders. Any shareholder rights plan adopted
64
without shareholder approval shall be approved by a majority of the independent members of the $oard. If the
Board adopts a rights plan without prior shareholder approval, the Board shall, within one year, either submit
the plan to a vote of the shareholders or redeem the plan or cause it to expire. If the rights plan is not approved
by a majority of the votes cast on this issue, the plan will immediately terminate.
The Board of Directors believes this policy protects shareholders and helps maximize shareholder value by enabling
the Board to adopt such a rights plan, subject to subsequent shareholder vote or expiration, in the event of unfair and
abusive takeover tactics. A major function of a shareholder rights plan is to give a board of directors a greater period
of time within which to properly evaluate an acquisition offer to determine whether an offer reflects the full value of
the company and is fair to all shareholders and, if not, to reject the offer or to seek an alternative that meets these
criteria. A second major function of the rights plan is to induce a bidder for the company to negotiate with a board
and thus strengthen a board's bargaining position vis-~-vis the bidder. The rights plan thus enables a board, as
elected representatives of the shareholders, to better protect and further the interests of shareholders in the event of
an acquisition proposal.
The Company is committed to goad corporate governance. Upon adoption of any shareholder rights plan without
prior approval, this policy requires the rights to be redeemed, caused to expire ar submitted to a vote of the
s17<areholders within one year. This one-year period provides the Board of Directors a reasonable amount of time to
seek a shareholder vote on any new shareholder rights plan if it decides that such a plan is in the best interests of
shareholders. Any shorter period. of time may be insufficient to prepare, conduct and process a shareholder vote.
In addition, the distinction made in this proposal between a By-Law and a policy is irrelevant. The Board of
Directors, in the exercise of its fiduciary duties to the Company and its shareholders, has equal discretion to amend a
By-Law or policy addressing this issue.
The Board of Directors believes its policy on shareholder rights plans, as provided in the Corporate Governance
Principles, sufficiently protects shareholder interests, and recommends a vote against this proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE AGAINST PROPOSAL $.
65
ITEM 9. SHAREHOLDER PROPOSAL ON ADVISORY VOTE ON COMPENSATION
DISCUSSION AND ANALYSIS
John Chevedden, 2215 Nelson Ave., No. 205, Redondo Beach, CA 9027$, as proxy for Ray T. Chevedden and the
Ray T. Chevedden and Veronica G. Chevedden Residual Trust 051401, owner of approximately 4,024 shares of
common stock, has advised the Company that he intends to present the following resolution at the Annual Meeting.
Approval. of this proposal would require the affirmative vote of a majority of the outstanding shares of Boeing stock
present in person or by proxy and entitled to vote at the Ant-ual Meeting.
Shareholder Resolution
Shareholder Vote on F,xecutivc Pay
RESOLVED, shareholders ask. our board of directors to adopt a policy that shareholders be given the opportunity to
vote on an advisory management resolution at each annual meeting to approve the Compensation Discussion and
Analysis report in the proxy statement.
The policy should provide that appropriate disclosures will be made to ensure that stockholders fully understand that
the vote is advisory, will. not affect any person's compensation and will not affect the approval of any
compensation-related proposal submitted for a vote of stockholders at the same or any other meeting of
stockholders.
Ray T. Chevedden, 5965 S. Citrus Ave., Los Angeles, Calif. 90043 sponsors this proposah
The current rules governing senior executive compensation do not give stockholders enough influence over pay
practices. In the United Kingdom, public companies allow stockholders to cast an advisory vote on the "directors
remuneration report." Such a vote isn't binding, but allows stockholders a clear voice which could help reduce
excessive pay. Stockholders do not have any mechanism for providing ongoing input. See "Pay Without
Performance" by Lucian Bebchuk and Jesse Fried.
Accordingly, we ask our board to allow stockholders to express their view about senior executive compensation.
practices by establishing an annual referendum process. The results of such a vote would provide our management
with useful information about whether stockholders view the company's compensation practices, as reported each
year in the Compensation Committee Report, to be in shareholders' best interests.
Important Because Our Board Has a Record of Overcompensation
The Corporate Library (TCL) httn://wtivrv.thecnrporatelibrary~.cotn/ an independent investment firm rated our
company "Very High Concern" in CEO Compensation-$28 million. The Corporate Library said:
• The amount of the CEO's "Other Annual Compensation" questions the board's ability to ensure that the
executive compensation process is sufficiently performance-related.
• The amount of the CEO's "All Other Compensation" questions the board's ability to ensure that the
executive compensation process is sufficiently performance-related.
• The CEO's total annual compensation exceeds the median for a company of this size by more than 20%.
• The CEO's total compensation for the reported period, including realized options, exceeds the median for a
company of this size by more than 20%o,
Also the Chairman of our Compensation Committee, Mr. Duberstein, was a CEO. CEOs seem to have a hard time
saying no to one another according to The Corporate Library. Mr. Duberstein was also on the Fannie Mae (FNM)
board rated D by The Corporate Library.
Thus we aslc our board to allow stockholders to express their view about senior executive pay.
Shareholder Vote on Executive Pa_v
Yes on 9
66
Board of Directors' Response
The Board of Directors does not believe this proposal is in the best interests of the Company ar its shareholders far
the following reasons: (i) this proposal fails to recognize that the Compensation Committee has already
implemented a comprehensive, thoughtfully designed executive compensation program focused on performance-
based compensation that aligns the interests of executives with those of the Company's shareholders; (ii) the
Securities and Exchange Commission recently adopted an extensive overhaul of its executive compensation
disclosure rules that requires more detailed proxy statement disclosure of executive compensation; (iii) the
requested advisory vote is not an efficient or adequate means for shareholders to communicate their concerns to the
Board or the Compensation Committee; and (iv) the Company's shareholders a}ready have an efficient way of
communicating their concerns about executive compensation to the Board and the Compensation Committee.
As discussed in the Compensation Discussion and Analysis, the Company already has a thoughtful and
comprehensive executive compensation program that rewards executives for their performance and aligns their
interests with those of the Company's shareholders. This program is designed and administered by the
Compensation Committee, which is comprised solely of independent, nonemployee directors. In addition, the
Compensation Committee directly engages an independent executive compensation consultant for advice regarding
trends and recommendations on various issues associated with the Company's program and practices.
The proponent urges adoption of this proposal based on the fact that the practice is required for all U.K. companies.
The SEC did not adopt the British practice of requiring an advisory vote on executive compensation. The Board of
Directors believes the new SEC proxy statement disclosure requirements, which are applicable to all U.S. public
companies, are the proper means of addressing the proponent's concerns.
Further, the advisory vote advocated by this proposal would not provide the Board of Directors or the Compensation
Committee with an_y meaningful insight into specific shareholder concerns regarding executive compensation that
the Board could address when considering the Company's compensation policies. It is simply a vote to approve or
disapprove the Compensation Discussion and Analysis contained in the proxy statement. Such an advisory vote will
not provide the Board with the context necessary to interpret the shareholder views behind it, and will force the
Board to speculate about whether the vote signifies shareholder views on a portion or all of the substantive content
of the Compensation Discussion. and Analysis, the adequacy of the disclosure in the Compensation Discussion and
Analysis, or both. The advisory vote will therefore not provide any benefit to the shareholders, nor will it provide
any usefitl information to the Board or the Compensation Committee.
The Company's shareholders can communicate with the Board of Directors, and the independent Lead Director or
the independent directors through the process out]ined on page 73 and on the Company's website, at
www.booing.com/corp~ov/email_the_board.html. By contacting the Board or members of the Compensation
Conmiittee directly, shareholders can more specifically express their support or criticism of the Company's pay
practices directly to those charged with designing those practices.
For these reasons, the Board of Directors believes that the advisory vote called for by this proposal is unnecessary
and not in the best interests of the Company or its shareholders.
THE BOARD OF DIRF.CTOILS L''NANIMOUSLY RECOMMENDS
A VOTE AGAINST PROPOSAL 9.
67
ITEM 10. SHAREHOLDER PROPOSAL ON PERFORMANCE-BASF,D STOCK OPTIONS
John Chevedden, 2215 Nelson Ave., No. 205, Redondo Beach, CA 90278, as proxy for David Watt, 23401 N.E.
Union Hill Road, Redmond, WA 98053, owner of over 200 shares of common stock, has advised the Company that
he intends to present the following resolution at the Annual Meeting. Approval of this proposal would require the
affirmative vote of a majority of the outstanding shares of Boeing stock present in person or by proxy and entitled to
vote at the Annual Meeting.
Shareholder Resolution
Performance Based Stock Options
Resolved, Shareholders request that our Board of Directors adopt a policy whereby at least 75% of future equity
compensation (stock options and restricted stock) awarded to senior executives shall be performance-based, and the
performance criteria adopted by the Board disclosed to shareowners.
"Performance-based" equity compensation is defined here as:
(a) Indexed stock options, the exercise price of which is linked to an industry index;
(b) Premium-priced stock options, the exercise price of which is substantially above the market price on
the grant date; or
(c) Performance-vesting options or restricted stock, which vest only when the market price of the stock
exceeds a specific target for a substantial period.
This is not intended to unlawfully interfere with existing employment contracts. However, if there is a conflict with
any existing employment contract, our Compensation Committee is urged for the good of our company to negotiate
revised contracts consistent with this proposal.
As a long-term shareholder, I support pay policies for senior executives that provide challenging performance
objectives that motivate executives to achieve long-term sharehwner value.
Warren Buffett criticized standard stock options as "a royalty on the passage of time" and favors indexed options. In
contrast, peer-indexed options reward executives for outperforming their direct competitors and discourage
re-pricing. Premium-priced options reward executives who enhance overall shareholder value. Performance-vesting
equity grants tie compensation mare closely to key measures of shareholder value, such as share appreciation and
net operating income, thereby encouraging executives to set and meet performance targets.
It is also important to take a step forward and support this one proposal since our 2006 executive pay practices were
not impeccable. For instance in late 2006 The Corporate Library http://www.thecnrporatelibrary.cnrn/, an
independent investment research firm, reaffirmed its overall rating of D for the Boeing Company. The main concern
related to our CEO pay practices. The golden hello awarded to CEO James McNerney merely served as a reminder
that awarding long-term pay to executives to make up far long-term pay allegedly foregone elsewhere completely
undermines the entire point of such pay. In no case is any of this pay dependent on performance.
In "making whale" McNerney's supplemental retirement benefits, his evenRtal annual pension wilt be based on a
calculation of "50% of his highest three-consecutive-year average compensation over the prior ten-year period of
employment at the Company, 3M and General. Electric, another prior employer." So Boeing shareholders are being
asked to fund a pension potentially based on what 3M and GE paid McNerney, rather than what they themselves
paid him. Such an arrangement would seem. to take inappropriate to a new level. Source: The Corporate Library.
The above executive pay practice reinforces the reason to take one step forward now regarding executive pay and
vote yes for:
Performance Based Stock Options
Yes on ]0
Board of Directors' Response
The Board of Directors believes this proposal is unnecessary because as discussed in the Compensation Discussion
and Analysis, the Company already has a thoughtful and comprehensive executive compensation program that
rewards executives for their performance and aligns their interests with those of the Company's shareholders.
68
The Compensation Committee, which is comprised solely of independent, nonemployee directors, administers and
oversees the Company's compensation programs, including the compensation of senior executives. In addition, the
Company retains an independent compensation consultant to evaluate and assess the Company's compensation
programs. As described in the Compensation Discussion and Analysis on page 27, the Company links pay to
Company and individual performance by targeting a significant portion of an executive's total pay as variable,
at-risk compensation that is dependent on the successful achievement of specified annual and Lang-term
performance goals. The Company's executive compensation program is heavily perforrnance-based, using a
combination of annual. incentives, performance awards and stock options to motivate senior executives to meet both
short-term and long-term goals relating to the Company's financial performance and stock price appreciation.
For example, as described in the Compensation Discussion and Analysis on page 28, annual incentives are based on
corporate economic profit results for the year versus the planibudget, as well as individual performance based on
executive-specific contributions, including leadership and business results. Long-term performance awards are
based on corporate economic profit results aggregated over athree-year period relative to the Company's long-range
business plan. For both the annual incentive and performance awards, a threshold economic profit performance must
be met in order for executives to receive any payment. Furthermore, stock options awarded to senior executives are
inherently performance-based, as they are granted at fair market value on the day of grant and provide no value to
the executive until they vest and only when the trading price for the stock exceeds the price at which the options
were granted. If the price of the stock has not appreciated, the option is worthless. These forms of compensation are
directly linked to perforrnance, benefiting not only the executives, but the Company's shareholders in general.
The Board of Directors also believes that this proposal could adversely affect the Company's flexibility in
determining compensation and its ability to attract and retain the most qualified senior executives. The Company
should maintain the flexibility to determine the form of stock options that may be granted to executives in the
future, and not be limited to the categories of options that the proponent characterizes as performance-based. The
Compensation Committee, comprised of independent directors, is the governing body best suited to implement the
compensation principles and practices that are in the best interests of shareholders, given the needs of the
Company's business. This proposal. may impede the Compensation Committee's ability to respond to other complex
factors in determining compensation, such as changes in strategic goals, economic and industry conditions,
accounting requirements and tax laws, evolving governance trends and the competitive compensation practices of
other companies.
The Board of Directors believes the current equity incentive compensation program is already performance-based, is
properly designed and aligns the interests of executives with shareholders. The Board also believes that the
Company must be permitted to ret<~in the flexibility it needs to effectively manage its equity compensation programs
in the future.
TIIE BOARD OF DIRF,CTORS UNANIMOUSLY RECOMMENDS
A VOTF, AGAINST PROPOSAL. 10.
v~
ITEM 11. SHAREHOLDER PROPOSAL ON RECOUPING UNEARNED MANAGEMENT BONUSES
Edward P. Olson, 3729 Weston Place, Long Beach, CA 90807, owner of approximately 200 shares of common
stock, has advised the Company that he intends to present the following resolution at the Annual Meeting. Approval
of this proposal would require the affirmative vote of a majority of the outstanding shares of Boeing stock present in
person or by proxy and entitled to vote at the Annual Meeting.
Shareholder Resolution
Recoup Unearned Management Bonuses
RESOLVED: Shareholders request our board to adopt a bylaw for our board to recoup for the benefit of our
company all unearned incentive bonuses or other incentive payments to senior executives to the extent that their
corresponding performance targets were later reasonably determined to have not been achieved. If it is absolutely
impossible for this to be adopted as a hylaw, then this would be adopted as a policy. The Securities and Exchange
Commission sa]d there is a substantive distinction between a policy and a bylaw.
This would include that all applicable employment agreements and incentive plans adopt enabling or consistent text
as soon as feasibly possible. This proposal is not intended to unnecessarily limit our Board's judgment in crafting
the requested change in accordance with applicable laws and existing contracts and pay plans. Restatements are one
means to determine unearned bonuses,
This proposal is similar to the proposal voted at the Computer Associates (CA) August 20(14 annual meeting. In
October 2003 Computer Associates announced that it had inflated income in the fisca] year ending March 31, 2000
by reporting income from contracts before they were signed.
Bonuses for senior executives that year were based on income exceeding goals. Sanjay Kumar, then CEO, received
a $3 million bonus based on Computer Associates' supposedly superior performance. Mr. Kumar did not offer to
return his bonus based on discredited earnings. Mr. Kumar was later sentenced to 12-years in jail in regard to his
employment at Computer Associates.
There is no excuse for over-compensation based on discredited earnings at any company. This proposal will give us
as shareholders more options if we find ourselves in a situation similar to the Computer Associates scenario. If it
appears that our Company reported erroneous results that must be negatively restated, then our board should have
the power, by adoption of this proposal, to seek to recoup all incentive pay that was not earned or deserved.
Recoup Unearned Management Bonuses
Yes on 11
Board of Directors' Response
The Board of Directors opposes this proposal because it believes the fundamental concerns the proposal raises are.
already addressed by a policy implemented by the Board and forfeiture provisions of the Sarbanes-Oxley Act, and
because this proposal is vague and overreaching.
In 2006, the Board of Directors adopted an executive compensation clawback ("recoupment") policy, which is now
a part of the Company's Corporate Governance Principles. Under the Company's recoupment policy, the Board
must, in all appropriate circumstances, require an executive officer to reimburse the Company for any annual
incentive payment or long-term incentive payment to the executive officer where: (i) the payment was predicated
upon achieving certain financial results that were subsequently the subject of a substantial restatement of Company
financial statements filed with the Securities and Exchange Commission; (ii) the Board determines the executive
engaged in intentional misconduct that caused or substantially caused the need for the substantial restatement; and
(iii) a lower payment would have been made to the executive based on the restated financial results, In each such
instance, the Company will, to the extent practicable, seek to recover from the individual executive the amount by
which the individual executive's incentive payments for the relevant period exceeded the lower payment that would
have been made based on the restated financial results.
70
Under the Sarbanes-Oxley Act, where a company is required to restate its financial statements as a result of
misconduct leading to the company's material noncompliance with any financial reporting requirement under the
securities laws, the company's chief executive officer and chief financial officer must reimburse the company for
any bonus or other incentive-based or equity-based compensation and profits from the sale of the company's
securities received within the 12-month period following initial publication of the financial statements that had to be
restated. In addition, the Sarbanes-0xley Act requires both management and the company's independent public
accounting firm to annually report on the company's internal controls for financial reporting. The current report can
be found on pages 81-82 of the Company's Annual Report.
The Board of Directors believes this proposal is fundamentally flawed because it is vague and overreaching. This
proposal would require reimbursement for "all unearned incentive bonuses or other incentive payments to senior
executives to the extent that their corresponding performance targets were later reasonably determined to have not
been achieved." This apparently would require reimbursement whether or not there was a restatement and whether
or not there was misconduct. It would also apparently apply to all senior executives, even those not involved in any
misconduct or having any role in the circumstances that led to the compensation being determined not to have been
earned. Because this proposal. could put a substantial portion of performance-based compensation at risk due to
events over which an executive had no control where no misconduct was involved, and would prevent the Board
from considering all relevant facts and circumstances, we believe that attempted implementation of this proposal
would be overly mechanistic and inequitable, and would place the Company at a competitive disadvantage in
attracting, retaining and motivating executive talent.
The Board of Directors believes its current policy, along with the Company's obligations under the Sarbanes-Oxley
Act, suitably addresses the concern raised by this proposal in a practicable and enforceable manner that i in the best
interests of the Company and its shareholders and that renders unnecessary the by-law advocated by this proposal.
TIIF. BOARD OF DIR.F.,CTORS LNANIMOLISL7 RECOMMENDS
n VOTE AGAINST PROPOSAL 11.
71