High Grade Core Fixed Income

We believe that diversified and controlled exposure to a variety of risks associated with the fixed income market provides the best opportunity to achieve above-market returns over a market cycle.

Our actively managed fixed income product is customized to meet each client’s investment guidelines and benchmark while managing a portfolio of investment grade credits (“AA” overall average). Interest rate risk in our fixed-income portfolios is moderate as we strive for good distribution across the yield curve while simultaneously keeping duration within +/- 20% of the relevant benchmark.

Unless client restricted, each portfolio will contain each of the major sectors of the fixed income markets such as US Treasuries, Mortgage-Backed securities, Asset-Backed Securities, and investment grade corporates but will also contain municipal bonds (including both tax-exempt and taxable municipals). Our sector allocation process entails evaluating spread/sector relationships on an ongoing basis and comparing current levels to historical norms.

Our risk analysis and control involves the use of very sophisticated interest rate and spread relationship analytical models to constantly evaluate the risk for the portfolio under the changing economy and market conditions. Based on an evaluation of these risks in the context of each client’s investment guidelines, we are then able to make the appropriate adjustments to the composition of the portfolio.

To minimize transaction costs, turnover is moderate.

Sector allocations vs. benchmark (%)^*

	Portfolio	Lehman Aggregate
Treasuries	6.5	23.4
Agencies	6.6	10.2
Corporates	13.7	13.9
Taxable-Municipals	9.6	0.0
Mortgage-Backed	41.5	40.3
ABS	1.4	0.8
CMBS	8.2	5.4
Tax-Exempt Municipals	10.7	0.0
Yankees	0.0	6.0
Cash	1.8	0.0

Risk/return (10 years) (%)^*

R² vs Lehman Aggregate	0.99
Lehman Aggregate Standard Deviation	3.49
Composite Standard Deviation	3.50
Tracking Error vs Lehman Aggregate	0.40

Quality vs. Benchmark (%)^*

*Periods ending 3/31/08. Past performance is no guarantee of future results. This material is deemed supplemental and complements the Institutional Performance & Disclosure contained in the Product Profile. Holdings are subject to change. Indices are not available for direct investment.