Investment Grade
Performance Comparison

Investment Grade Bond Strategy Composite and Comparative Benchmarks
for the Period Ended December 31, 2011

For the 3-months, we outperformed the Barclays U.S. Corporate Index by 35 basis points.  The principal factors attributing to our performance were: 
1) credit quality:  the BBB securities within the index (approximately 41%) outperformed the Index as a whole; however we limit our exposure to this sector to no more than 30% of our portfolio and typically have a 20-25% exposure.  This underweighting resulted in a negative impact on performance relative to the Index of 10 basis points; 2) industry exposure:  we limit our exposure to any one sector to 30%, and with the exception of Bank and Finance, generally have no more than a 10-15% exposure to any one industry.  Bank and Finance accounts for almost 33% of the Index, and we generally have a 20-25% exposure; this Sector underperformed the Index as a whole during the quarter and our performance benefitted from this underweighting by 5 basis points; 3) although longer maturity bonds in the index outperformed shorter maturities, our intermediate term portfolio (6-8 year average maturity) benefitted somewhat as the lower performance of the shorter maturities in the index outweighed the higher performance of the longer maturities and we benefitted by 28 basis points from our intermediate posture; and 4) invest up period; our disciplined approach results in a 6-10 week invest up period.  Given new cash inflows to our Strategy, cash pending investment (earning only money market returns) slightly negatively impacted our performance by 8 basis points relative to the Index.
For the twelve months, our performance exceeded the Index by 146 basis points.  The difference was primarily attributable to 1) maturity: although the longer maturities in the Index outperformed the Index as a whole, the lower performance of shorter maturity bonds more than offset this, resulting in a favorable 47 point difference in the performance of our intermediate portfolio; 2) credit quality:  the outperformance of the BBB sector outperformed the Index as a whole, and our underweighting of this credit subsector resulted in our underperforming the Index by 14 basis points; 3) industry exposure: the Bank and Finance Sector underperformed the Index as a whole, and our underweighting resulted in a 41 basis points benefit to our performance relative to the Index; 4) new cash inflows pending investment served to reduce our composite performance by 66 basis points during the year; and 5) security selection: the remaining difference in our performance versus the Index was attributable to security selection that benefitted our results.
Our performance trailed that of the Barclays U.S. Corporate Index  by 81 basis points for the 3-year period as Baa rated issues during 2009 significantly outperformed the Index and resulted in our trailing the Index by almost 500 basis points during that year; our 5-, 10-year and longer period performance has approximated or slightly exceeded the Index. 
We outperformed the Lipper A Rated Mutual Bond Fund average by 87 basis points for the three months and by 236 basis points for the year.  We outperformed  that benchmark by 114 basis points for 3-years and outperformed that benchmark by more than 100 basis points for the 5-, 10-year and longer periods.
Our Sharpe Ratio since inception was 10% greater than that of the Barclays Index and 28% greater than that of the Bond Funds.  

1. Does not include transaction costs.Source: Barclays.

Investment Grade Bond Strategy Annual Total Returns (Gross);
Diversification resulted in downside stability and strong upside participation