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Value Equity Capital Growth and Income Growth Equity Core Equity International ADR Fixed Income Modern Portfolio Theory Professional Managed Accounts Investment Managers Construct Individually Managed Portfolios Cost Comparisons

VALUE EQUITY

The Value Equity portfolio is a conservative investment philosophy, characterized by the purchase of companies that are undervalued relative to the market. As a rule we hold 10 to 12 core value holdings representing five to six economic sectors. The remainder of the portfolio is invested into companies representing economic sectors or industry groups that appear particularly attractive. We typically hold 40 to 45 issues. Stocks are selected from the top half of the Russell 1000 Value and Standard & Poors 500 Barra Value universes, with particular attention paid to those companies that appear in both universes. This portfolio generally carries a lower beta than the stock market; the slightly lower volatility is a result of stock priced at a discount to the stock market. The value equity portfolio will generally outperform the stock market over a three-year stock market cycle regardless of economic conditions, but tends to do better in down stock markets. Back to top

CAPITAL GROWTH AND INCOME

The Capital Growth and Income portfolio combines the portfolio stability of companies, which pay cash dividends above the stock market average, with a combination of stocks of which represent above average capital growth potential. We typically hold 30 to 35 issues, to remove systematic portfolio risk. Stock issues are selected from the top half of the Russell 1000 Value and Russell 1000 Growth universes. We believe there are two reasons for selecting companies that pay dividends. FIRST: These companies demonstrate consistent and superior investment characteristics in virtually any economic environment. SECOND: Past dividend growth is the best indicator of future dividend increases. The income orientation of the portfolio helps provide below average volatility and provides a cushion of downside protection in times of unfavorable market conditions. The Capital Growth and Income portfolio is a low beta, low volatility portfolio with a lower standard deviation than that of the stock market. The Capital Growth and Income portfolio will generally outperform the stock market when conditions of economic uncertainty exist, but will under perform the stock market when conditions for dramatic economic expansion are present. Back to top

GROWTH EQUITY

The Growth Equity portfolio is an aggressive investment philosophy, characterized by the purchase of companies that have projected earnings growth rates greater than the stock market and pay little or no dividends. As a rule we hold 10 to 12 core growth holdings representing four to five economic sectors. The remainder of the portfolio is invested into companies representing economic sectors or industry groups that appear particularly attractive. We typically hold 40 to 45 issues. Stocks are selected from the top half of the Russell 1000 Value and Standard & Poors 500 Barra Growth universes, with particular attention paid to those companies that appear in both universes. This portfolio generally carries a higher beta than the stock market. The higher beta is a result of the significant weighting in the technology sector. The higher volatility is a result of stocks priced at a significant multiple greater than the stock market. The growth equity portfolio will generally outperform the stock market over a three to five year stock market cycle regardless of economic conditions, but tends to significantly outperform if the cycle favors a bull market. Back to top

ALL CAP CORE EQUITY

The Core Equity portfolio combines the investment characteristics of both the value and growth disciplines. Core holding of both value and growth stocks comprise about half of the portfolio. The remainder of the portfolio holdings are invested into either growth stocks or value stocks, depending upon the current investment climate. We typically hold 40 to 45 issues, to remove systematic portfolio risk. Stock issues are selected from the Russell 3000 Value and Russell 3000 Growth universes with particular attention to those companies which have a blend of both value and growth characteristics. This portfolio generally carries a lower beta than the market; the slightly lower volatility is a result of the value holdings. The portfolio will comprise a much broader capitalization spectrum and will hold large, mid and small capitalization issues. The Core Equity portfolio will generally outperform the stock market over a three-year market cycle regardless of economic conditions. Back to top

INTERNATIONAL ADR

The International ADR portfolio invests in companies domiciled outside the United States, although many of the companies purchased may serve markets in the U.S. as well as abroad. We review economic data provided by OECD on approximately 30 countries to determine which countries offers the best economic climate for investment. We invest in only mature economies, and avoid the emerging markets. We typically hold 30 to 35 issues representing ten to twelve different countries. Country indexes are reviewed to determine which sectors or industry groups dominate a particular index, which are then screened for purchase candidates. American Depository Receipts, which represent foreign shares, are purchased from a universe provided by MSCI, the Bank of New York, and Morning star Inc. The International ADR portfolio is a low beta portfolio relative to the EAFE Index (Europe, Australia, Far East) as well as the Standard & Poors 500 Index. The international portfolio has no investment style constraints and will generally hold both value and growth issues. The style bias is dependent upon the country selection, as well as which sectors or industry groups dominate the country indices selected for investment. Back to top

FIXED INCOME

The Fixed Income portfolio invests in AAA fixed income instruments that are either direct obligations of the United States government or carry the full faith and credit of the US government. We can also purchase tax free municipal bonds for our taxable accounts that require tax-free income. We purchase only direct obligations (tax roll) or insured municipal bonds. Our investment philosophy is based on the lengthening and reduction of duration (price movement relative to interest rate changes). Government bonds offer the liquidity we require and encompass a full host of fixed income selections to choose from. Corporate fixed income instruments may offer higher yields. However, they also offer the smaller investor, unless held to maturity, a host of potential problems, from fixed income rating agency downgrades, to liquidity, particularly on the sell side. The Fixed Income portfolio can at times be volatile, and in recent years, has out performed the stock market. Portfolio duration targets tend to be higher than the index (LBGC) in a falling interest rate environment, and less than the index, in a rising interest rate environment. Back to top

MODERN PORTFOLIO THEORY has determined that diversification among 20 to 40 issues minimize RISK and maximize RETURNS. The investment manager’s equity portfolio typically will contain between 20 and 45 stocks (depending on the specific portfolio characteristics). The average mutual fund contains 500 to 1500 positions. Portfolios with fewer holdings had in general, a greater variance from the market, and therefore a greater opportunity to outperform the market. Back to top

PROFESSIONALLY MANAGED ACCOUNTS do not have “unreasonable” cash flows (money deposited or withdrawn from accounts) as is the case with mutual funds. Thus, the manager is not “handcuffed” into buying when the market is HIGH (new Mutual Fund Clients) or selling when the market is DOWN (redemption’s) due to investor demands. Back to top

INVESTMENT MANAGERS CONSTRUCT new client portfolios by purchasing ONLY their best current investment ideas. Mutual funds often contain old positions that the mutual fund manager is holding, but would not purchase with “new” money. Mutual fund buyers cannot avoid the purchase of these “older” shares. Back to top

INDIVIDUALLY MANAGED PORTFOLIOS realize ONLY the full appreciation of the securities being taxed. When mutual funds are purchased, the client must buy into the existing tax liability of the fund. If an investor buys a mutual fund days before a capital gain is declared, that investor is taxed on the FULL amount of the gain as if they had participated in the price appreciation of those securities. The professionally managed account can accommodate special tax gain and loss requests for clients wishing to adjust their tax liability. Mutual funds DO NOT! Back to top

Discriminating investors require services that are not readily available through normal mutual fund channels. At a substantial cost savings to the investor, whether private or institutional, the CMA Family of Portfolios may be the solution.

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