Process

Active Duration Process

Our process is top down and we follow a team approach that is highly collaborative, with each individual member of the Investment Committee contributing to the success of our clients' investment objectives. We accomplish this with active duration management.

What Is Key

• Duration: The multiplier connecting interest rates changes to fixed income price movements
• Duration Management: Altering a portfolio's mix of securities to achieve a specific overall portfolio duration
• Active Duration Management:Setting a portfolio's duration in anticipation of interest rates

The Investment Committee, comprised of all portfolio managers, utilizes a 3- Step Process:

1. The first step we take in our investment process is to Assess the Economy. This step, by far, has the most influence over the makeup of our fixed income portfolios. Our task at this stage is to develop a coherent outlook for demand growth, inflation and profits and therefore identify long-term investment trends.

2. We next seek to Determine the Duration of the Portfolio. Because we are long-term investors, we set the duration of our portfolios based on our analysis of the fundamental long-term trends in the economy.

   As a result, our duration is low when we believe the long-term rate of inflation-the primary force affecting interest rates-is trending higher. Conversely, our duration is high when inflation is trending down. It is important to note, however, that these duration goals of "low" and high" are subject to, and defined by, our client's guidelines.

3. In our third step we Define Attractive Sectors of the bond market. We compare current yields and prices in various sectors-Treasuries, Agencies, Corporates, Municipals, etc.- to their historical norms, looking for variances. Of equal importance is calculating the impact of adverse interest rates moves on these securities.

   We determine the portfolio structure-bullet, barbell, ladder-that would be appropriate given current market conditions and the changes we anticipate. From these securities and structure we build client portfolios that reflect our best thinking.

Long Term Investment Results

Because our investment style is designed to anticipate change, our bond portfolios, although sometimes volatile in the short-term, over time have outperformed commonly used benchmarks.

We focus on achieving superior performance and growth from correct duration positioning which is achievable with credit risk-free securities. Our approach is based upon taking or avoiding interest rate risk and we implement it through extensive use of U.S. Government securities.

We do not invest in corporate high yield, international investment grade or international high yield. Portfolio managers customize our Investment Committee's fixed income strategy for each client based upon their individual duration and quality range.

Our performance over time has typically been accomplished by AAA securities, which provides a high quality portfolio with little or no credit risk.

How We Manage Risk

TSBJ's has historically provided superior returns to the Barclays Capital Aggregate Index over the long term by active duration positioning and the way in which we manage risk.

What Is Key:

• High Quality Securities: Portfolios are typically 90+% invested in U.S. Governments.
• Liquidity: High quality assets can be converted to cash without creating a substantial change in price or value.
• Sell Discipline: Sell triggers include changes in economic outlook, change in duration target, or changes in relative price. TSBJ turnover has historically been low.

In addition to emphasizing a portfolio of high quality and liquid securities, we maintain a strict sell discipline.

Purchases and sales are made to accomplish one of three goals:

• Alter the unique account duration
• Alter sector exposure
• Respond to an opportunity in a specific security

Correct duration positioning coupled with proper risk management has provided our clients superior performance over time. Our ongoing objective for clients is the preservation of capital, which is reflected by our longer term results.