Fixed Income Management

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Fixed Income Management
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Fixed Income Services

• Broad Market Fixed Income10-year average
  maturity benchmark
• Add value through interest-rate analysis and
  sector/security selection.
• Active duration management.
• Intermediate Fixed Income5-year average maturity
  benchmark
• Add value through interest-rate analysis and
  sector/security selection.
• Active duration management.
• Lowered volatility.
• Enhanced Cash Money Market Management--1 year
  average maturity benchmark
• Emphasize capital preservation and stability.
• Seek yield and total return.
• Maintain cash levels required for operating
  expenses.

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Fixed Income Approach

• Active, total-return manager.
• Add value through interest-rate analysis and
  sector/security selection.
• Control risk through
• Portfolio diversification,
• Managed interest rate exposure.
• Focus on relative value.

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Fixed Income Investment Process
Implementation
Investment Constraints
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Fixed Income Methodology

• Investment Policy Committee meets on an ongoing
  basis to
• Review current economic and interest rate
  developments.
• Analyze key factors shaping economy.
• Anticipate changes in direction of interest
  rates.
• Fixed-Income Team meets regularly to
• Review investment policy.
• Adjust duration target and sector allocations.
• Incorporate undervalued securities.

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Duration Management

• Duration targets represent strategic risk/reward
  postures consistent with each clients risk
  tolerance as stated in the client guidelines.
• A Maximum duration target and a minimum duration
  target are specified in the client guidelines.
  Movements between the limits are based on the
  policies of the Investment Policy Committee.

Implementation Bearish
Neutral Bullish Years/Duration Very Mildly Mil
dly Very 0 Minimum Neutral Maximum Cl
ient Guidelines
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Yield Curve Management

• Yield curve shifts such as steepening and
  flattening present opportunities as well as
  risks.
• Maturity distributions can produce different
  results as the yield curve shifts.
• The distribution of maturities within the
  portfolio is based on an analysis of relative
  values along the yield curve, taking into account
  the current and historical shape.

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Sector Management
Spread 30 AAA Corp 30 Yr. UST

• Shifts in relative value among sectors allow for
  gains to be made by selling the overvalued sector
  and buying the undervalued sector.
• As shown above, the spread between the higher
  yielding 30-year AAA-rated Corporates and the
  lower yielding U.S. Treasuries widened resulting
  in a lower total return for the Corporates
  despite their higher yield.

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Portfolio Construction

• If credit quality deteriorates, the benefits of
  everything else are quickly overcome.
• Only securities of issuers demonstrating stable
  or improving quality are purchased.
• Non-U.S. Government issuers are generally limited
  to 5-percent maximum positions.

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Performance Summary
Fixed Income-Segregated Accounts Annual Rates of
Return Before Investment Management Fees

Calendar Period Returns through June 2006

All investment returns are computed before
advisory fees. Past performance does not
guarantee future results. 2006 is YTD June
30th. 2002-2005 moved to Ariba and reflects
performance of single largest account benchmarked
against the LB Intermediate Gov/Credit Bond
Index. 1995-2001 represents fixed income
accounts managed by Aribas Fixed Income director
Roger Marshall benchmarked against the LB
Aggregate Bond index. Source Zephyr Associates
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Roger W. Marshall
Fixed income assets at Ariba GLB Asset Management
are managed by Roger Marshall who has compiled an
excellent long term record in managing both
institutional and individual portfolios. Mr.
Marshall was the former President of Ariba Asset
Management, and the Director of Fixed-Income
Portfolio Management, as well as a member of the
firm's Investment Policy Committee. His 24 years
of experience includes both fixed-income
portfolio management and capital markets
research. Prior to joining Ariba in 2000, Mr.
Marshall was a Managing Director at Potomac Asset
Management, President of Wainwright Asset
Management, President of Riggs Investment
Management Corporation (1989-1994), and a
research Economist at the U.S. Securities and
Exchange Commission and at the American Stock
Exchange. Mr. Marshall earned his B.A. in
Economics, and his M.A. in Economics from the
State University of New York at
Binghamton. Outside of Ariba, Mr. Marshall
devotes time to learning and promoting the
Martial Arts, advocating environmentalism, and
volunteering with local schools.