Step 1 Macro Assessment
Our investment process involves multiple stages and begins with an evaluation of the domestic and international economies. This is followed by a review of the current state of the credit markets. Based on this information, an interest rate outlook is developed for the intermediate term. Duration decisions are then made to maximize risk-adjusted returns. The object is to identify direction rather than magnitude of changes in interest rates. The interest rate outlook is constantly refined as conditions in the marketplace change.

Step 2 Sector Selection
Once a maturity decision is made, market sectors and credit spreads are reviewed to determine the sectors with the best relative value. The various sectors consist of:

• U.S. Treasury securities
• U.S. Agency securities
• Agency mortgage-backed securities
• Corporate bonds
• Municipal bonds

Step 3 Portfolio Construction
After the sector decisions are made, the next step is to evaluate the various securities in each sector to select the most attractive options. Particular attention is paid to the credit risk component of each security. We perform our own fundamental credit analysis on each security before purchase. The analysis begins with a detailed evaluation of the financial condition of the issuer. Emphasis is placed on cash flow analysis, ability of the issuer to repay debt, and quality of earnings. Once the security passes the first level of scrutiny, additional elements are evaluated including management, market position, industry outlook, and event risk. All securities in the portfolio will be investment grade at the time of purchase with an average portfolio rating of AA.

Once the portfolio is constructed, it is monitored for continuing compliance with the client's investment objectives and modified as objectives or market conditions change.