Tax-Exempt

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Philosophy

We believe that the client's municipal portfolio should be part of the low risk portion of the overall asset allocation.

We believe that successful fixed income management is a product of maintaining a conservative discipline that does not take undue risks in pursuit of yield, but rather selectively takes on moderate risk exposures when the risk/reward tradeoff for that exposure is favorable.

Interest Rate Risk
Credit Risk
Structure Risk
LOWER RISK HIGHER RISK
Interest Rate Risk - Low Exposure Credit Risk – High Quality Focus Structure Risk – Selective Exposure
Duration
Neutral
Interest Rate
Anticipation
Leveraged
Strategy
High Quality
Investment Grade
Investment
Grade
High
Yield
Distressed
Debt
Highly Predictable Cash Flow
(Bullet Bonds)
Unpredictable cash flow
(Calls, sinks, prepays)

Conservative, long-term focus

Interest rate risk is the most prevalent risk in any fixed income portfolio. The fact that interest rates move in cycles presents an opportunity to enhance the income generating ability of a portfolio. In general, we concentrate portfolios in shorter maturities during rising interest rate environments and longer maturities when rates are falling.

HIGH quality provides overall portfolio stability

In order to effectively reduce the risk of an overall portfolio, the fixed income allocation must have a low correlation to other asset classes included in an investor's overall asset allocation. This is most effectively achieved by concentrating on very high quality securities.

Giving Up Slight Call Protection Can Enhance Yield

We utilize callable bonds to the extent that the additional yield gained from the callable security offsets the loss of cash flow certainty. Typically, this occurs most often when giving up only slight call protection. We are able to enhance the income of our portfolios by owning this type of bond without unduly increasing reinvestment risk. We use far fewer callable bonds than exist in our benchmark.

Process

We invest in high quality bonds to preserve principle.

Many factors must be considered when building an optimal portfolio. Our fixed income team uses the macroeconomic landscape, relative value between sectors, and issue level risk/reward analysis as inputs to make portfolio decisions such as portfolio duration, sector contribution to duration, yield curve positioning and structure exposure.

Top down analysis

Client
Characteristics

Tax
Situation

Bottom up analysis

Municipal Credit
Risk Assessment

Issue Level
Selection

Client Characteristics

Every portfolio we build is unique, as dictated by the diverse needs of our clients. Each individual client's income requirements, liquidity needs, investment horizon and related risk tolerance drive our tax sensitive fixed income process.

Tax Situation

No two clients will have the same tax situation. A client's marginal tax bracket, state of residence, AMT concerns and capital gains positions are all considered while formulating the optimal portfolio.

State Level

We internally rank all 50 states using an internal ranking system. We look at many different statistics including but not limited to: long term debt to GDP ratio, interest expense to revenue ratio and pension liabilities.

County Level

The United States has 3140 counties. We internally rank the 1816 counties which have populations over 25,000. Some of the statistics that we consider include: median household income, unemployment, and the percentage of the population below the poverty level.

Local Level

We choose bonds of individual municipalities based on the strength of the county and the state. We compare bonds of similar structure, quality and maturity to find the best issue at the time of purchase.

Issue Level Selection

A well balanced portfolio will contain municipal issues backed by both the revenue of specific projects and by the general obligations of individual communities. We focus our investments in geographically stable regions of the country while diversifying individual state exposure as much as possible. Often, state exposure will be driven by tax regulations in the clients state of residence. Geographical diversity increases the safety of the municipal portfolio as each bond is exposed to different economic circumstances.