FIXED INCOME--
LIMITED DURATION MACS

   PORTFOLIO OVERVIEW (As of Sep 30, 2008)   

  
  • Style Benchmark: LBGCI
  • Style Assets: $1.02 billion
  • Average Duration: 3.0 - 4.5 years
  

 
   FIRM INVESTMENT PHILOSOPHY
 		  
   Theoretically, the yield curve has a "normal" shape of a gradual, upward-sloping curve. After a yield curve has been distorted or torqued by cyclical, monetary or market pressures, it will tend to revert to its normal shape as these forces weaken or disappear. PIA's investment discipline of risk-adjusting the yield curve is based on the recognition of the inefficiencies created by those cyclical forces. Our investment process was designed to exploit these inefficiencies by capitalizing on the periodic opportunities to achieve above average yields adjusted for risk and the potential for capital gains, as the yield curve reverts to its normal shape.   

 
   SECTOR ALLOCATION (As of Sep 30, 2008)   

 
  

  

  PORTFOLIO CHARACTERISTICS (As of Sep 30, 2008)
  PIA
 		LBGCI
Duration 3.5 yrs 3.8 yrs
Wtd. Avg. Life 4.5 yrs 4.5 yrs
Avg. Credit Rating AAA AA+
* Return and yield information available upon request.
   INVESTMENT PROCESS
  
  
Our methodology analyzes the shapes of the yield curves for all the major bond market sectors. While the concept of a "yield curve" is generally associated with Treasury securities, an important aspect of PIA's investment process is our application of yield curve analysis to other yield curves such as those in the industrial, financial, government agency and mortgage-backed sectors. We maintain and analyze a database of over 75 bond market sectors, which provides insight into the probabilistic nature of shifts in these yield curves.

We structure portfolios to emphasize sectors that we believe are most likely to benefit from declines in relative yields as the various yield curves revert to their normal shape. We view a sector of the yield curve to be attractive when it provides above average yield after adjusting for risk. We structure portfolio maturities based on the shape of the "risk-adjusted" yield curve. Normally, when the yield curve is steep, portfolio maturities tend to be longer than average. When the yield curve is flat or inverted, portfolio maturities tend to be shorter than average.

The Bond Strategy Group meets to review the credit quality of portfolio holdings and analyze securities under consideration. We employ several strategies to select securities within the undervalued sectors. Optimization and barbell/bullet strategies are used to select Treasury securities. For corporate fixed income securities, we employ fundamental analysis combined with analysis of the credit-spread curve. We select Mortgage-backed securities utilizing several quantitative measures including: OAS analysis, cash flow sensitivities, effective duration, convexity, and prepayment and volatility durations.

PIA purchases securities that assist in achieving the composition goals of the portfolio, i.e. a) securities that are consistent with the client's governing Statement of Guidelines; b) securities in sectors that we rank as undervalued on a risk-adjusted basis. We construct investment grade portfolios utilizing all major fixed income sectors, which include Treasury, Agency, Corporate, Asset- backed and Mortgage-backed securities. PIA will sell a security if it and/or its sector appreciates on a relative price basis and becomes overvalued on a risk-adjusted basis.

  
 

Fixed Income Index Definition (The Index) — Last Updated Jun 11, 2007

The Lehman Brothers Government/Credit Intermediate Index (LBGCI) is the Intermediate component of the U.S. Government/Credit index.  The Government/Credit Index includes securities in the Government and Credit Indices.  The Government Index includes treasuries (i.e., public obligations of the U.S. Treasury that have remaining maturities of more than one year) and agencies (i.e., publicly issued debt of U.S. Government agencies, quasi-federal corporations, and corporate or foreign debt guaranteed by the U.S. Government).  The Credit Index includes publicly issued U.S. corporate and foreign debentures and secured notes that meet specified maturity, liquidity, and quality requirements.