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.