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Bandon Isolated Alpha Fixed Income (Presentation) - Jun 11 Presentation Transcript

  • 1. Bandon Isolated Alpha Fixed Income Fund June 30, 2011 For Financial Professional Use Only Unbiased Unconstrained Global Fixed Income 1497-NLD-7/15/2011
  • 2. Bandon OverviewBandon Capital Management – Alternatives Democratization Specialist Privately owned firm based in Portland Oregon Registered Investment Advisor with the Securities and Exchange Commission Founder, has implemented hedge fund manager research for investors since 2004 Strategies delivered through strategic relationships with specialized institutional managers Seeks to deliver alternative return characteristics in both SMA and Mutual Fund format The information in this presentation is for informational purposes only and is not intended as an offer to buy or sell, or amount to a solicitation to buy or sell, any securities referred to herein. Important fee, performance and disclaimer information is contained towards the end of this presentation and should be read in conjunction with the 2 information presented above. There is no guarantee that any investment will achieve its objectives, generate 1497-NLD-7/15/2011 positive returns, or avoid losses.
  • 3. Institutionally Oriented Sub-AdvisersDix Hills Partners, LLC – Interest Rate Specialist Founded in 2003 with 14 full time employees, 4 founding partners 13 years experience managing active duration investment strategies $850 Million* in assets under management Strategic business partnership with Federated Investors, Inc.As a Sub-Adviser Dix Hills seeks to produce positive total returns in all market environmentsby actively managing interest rates using a systematic directional interest rate forecastingframework based on macro economic, bond market valuation and momentum indicators.The strategy is a disciplined, monthly, systematized fundamentally rooted interest rateforecasting process augmented with stringent risk controls Forecast four different developed sovereign 10-yr rates Risk management include hard stops and pre-defined exposure bands Research data of over 49 years *As of June 30tth, 2011. 3 There is no guarantee that any investment will achieve its objectives, generate positive returns, or avoid losses. 1497-NLD-7/15/2011
  • 4. Institutionally Oriented Sub-AdvisersLogan Circle Partners, LP – Credit Specialist Founded in 2007 – Delaware Investments institutional investment team transaction Fixed Income manager dedicated solely to the institutional marketplace Over $12.4 Billion* in assets under management including 4 MF Sub-Advisory mandates 64 employees, 9 portfolio managers, 15 research analysts, and 13 traders Purchased by Fortress Investment Group, LLC in April of 2010 (FIG)As a Sub-Adviser Logan Circle seeks to produce positive total returns in all marketenvironments by implementing unconstrained, multi-sector global credit based absolute returnstrategies while minimizing interest rate duration exposure.The approach is a disciplined, active, bottom-up driven process augmentedwith stringent risk controls Views driven by rigorous, bottom-up, in-depth research and analysis Risk management focused on liquidity and hard stops Ability to modify exposures without moving markets Access to primary debt capital markets *As of March 31st, 2011. 4 There is no guarantee that any investment will achieve its objectives, generate positive returns, or avoid losses. 1497-NLD-7/15/2011
  • 5. Why Fixed Income Alternatives? Low developed government bond yields Yields have declined for nearly 30 years providing a tail wind for bonds which may come to an end Many fixed income indices are heavily exposed to government bonds With the US gross public debt ballooning to over $12 Trillion government backed debt now represents more than 75%* of the Barclays Aggregate Bond Index Composition of the Barclays US Aggregate Bond Index 10-Yr Yields (1/2/1962 - 3/31/2011) 1% 18% 3% Government 16% 14% Corporate Credit - IG 12% 19% 10% Asset-Backed Securities / 8% Commercial Mortgages 6% 77% Emerging Markets Debt 4% 2% 0% Duration: 5.05 yrs 1/2/1962 1/2/1968 1/2/1974 1/2/1980 1/2/1986 1/2/1992 1/2/1998 1/2/2004 1/2/2010 * Includes domestic and sovereign debt, quasi government, such as agency government guaranteed and agency non-government guaranteed, municipal bonds and agency RMBS. Source: Barclays Capital as of December 31, 2010. 5 This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice. Please see additional disclosures. 1497-NLD-7/15/2011
  • 6. Low Yields Create Multiple ChallengesOver the last 30 years bonds have had large coupons offering attractivereturn that has been often times enough to offset price change duringperiods of rising interest rates: 35% 21% Price Return Coupon Return 10-Year Treasury Yield 30% 18% 25% 15% 20% 12% Yield 10-Year Treasury Return Component2 15% 9% 10% 6% 5% 3% 0% 0% -5% -3% -10% -6% -15% -9% 2007 1995 2000 2009 2001 1989 1996 1981 2006 1982 1985 2008 1992 1991 1987 2005 1983 1986 1988 2010 1980 1994 1999 2002 2003 2004 1990 1993 1997 1998 1984 YTD 2011 1980s 1990s 2000s Avg. Calendar Yr Return: 12.8% 7.9% 6.3% Past performance is not indicative of future results, which may vary. Please note that you cannot invest directly in an index. Source: Barclays Capital, Bloomberg; as of January 31, 2011 1.The above-posted illustration demonstrates a steady decline in coupon returns for the Barclays Capital US Aggregate Bond Index and a structural drop in Treasury yields over the past 30 years. With the share of Treasuries in the Barclays Capital US Aggregate Bond Index never falling below 20% over the past three decades and accounting for 34.0% of the index as of December 31, 2010, we believe the index’s historical total return structure is partly correlated to the declining Treasury yields. Source: Barclays Capital. 2.The return components (i.e total return) accounts for two categories of fixed income return: income (i.e. coupon return) and price 6 return. Income includes interest paid by the fixed-income investments, whereas price return represents the change in the market price of the fixed income security, which, depending on market conditions, can be negative. 1497-NLD-7/15/2011
  • 7. The Fixed Income Toolbox Core Core-Plus Strategic Income Unconstrained Absolute Returnbeta / correlation > .95 > .85 > .6 .3 to .6 < .3US Gov / Agency / X X X X XInvestment GradeHigh Yield Limited X X XNon-US Limited X X XNon-traditional X X XincomeRelative ValueStrategiesSensitivity to High High Varies/High Various/Medium Various/LowInterest RatesDuration Tight to a Tight to a Varies / Varies / Varies / UnbiasedParameters benchmark benchmark Long only Long bias Long-Short Tight to a Tight to a Wide / Active / Wide / Active / Wide / Active /Allocation Ranges benchmark benchmark Tactical Tactical Tactical Long bias / Long bias / UnbiasedUse of shorting hedging hedging Long-Short Figures are based on Bandon’s estimations and do not reflect averages of actual returns. Figures should be used as a general guide only. The information reflects Bandon’s view on existing actively managed fixed income mutual funds and is for discussion purposes only. 7 1497-NLD-7/15/2011
  • 8. Absolute Return Within Your Fixed Income Allocation A Fixed Income Replacing core fixed income Diversifier during bear markets TIPS TIPS High Yield Barclay’s Emerging High Yield Absolute Return EmergingBank Loans Agg Market Debt Bank Loans Fixed Income Market Debt Absolute Return Barclay’s Fixed Income Agg The information contained on this page is for discussion purposes only and is not intended to be a recommendation for a particular allocation. Allocations will vary based on each client’s needs, objectives and risk tolerance. 8 1497-NLD-7/15/2011
  • 9. Fund OverviewUnconstrained to a benchmark, the fund utilizes a diverse set of global absolutereturn-oriented strategies.Seeking: positive returns through all market environments. limited volatility and downside risk (stop loss on every position). little to no correlation to traditional investments. Performance Goal*: Greater of 7 – 9% net or US T-bills + 4–6% Credit**: +/-100% (max) Duration: +/- 5 years (max) Risk Objective*: 3-5% standard deviation Correlation Objective*: Between -.33 and +.33 over a market cycle * The Performance, Risk and Correlation goals are current, subject to change, and should not be considered a predictor of investment return or risk characteristics. All investments involved the risk of loss and no measure of performance or risk is guaranteed. The fund aims to deliver its target return and risk over a full market cycle, which is likely to include stretches of both up and down performance. ** Excludes developed market sovereign credit risks. Total fund notional exposure may exceed 100%. The information in this presentation is for informational purposes only and is not intended as an offer to buy or sell, or amount to a solicitation to buy or sell, any securities referred to herein. Important fee, performance and disclaimer information is contained towards the end of this presentation and should be read in conjunction with the 9 information presented above. There is no guarantee that any investment will achieve its objectives, generate 1497-NLD-7/15/2011 positive returns, or avoid losses.
  • 10. Isolating AlphaInterest rate and credit exposure is actively managed without a long bias by twoinstitutionally oriented specialist managers utilizing the following investment types: Interest Rates Credit US Treasury ABS / MBS Inv. Grade Corp German Bund Bank Loans High Yield Corp UK Gilt CDS Govt Bonds Japanese JGB Convertible Bonds Preferreds * The above are security type examples and do not represent the entire universe of potential investments for the fund or actual portfolio positions. Additional information regarding potential exposure can be found in the fund’s prospectus. The information in this presentation is for informational purposes only and is not intended as an offer to buy or sell, or amount to a solicitation to buy or sell, any securities referred to herein. Important fee, performance and disclaimer information is contained towards the end of this presentation and should be read in conjunction with the information 10 presented above. 1497-NLD-7/15/2011
  • 11. Performance and Statistics Monthly Performance: Actual results January 2011 to current Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD 2011 0.70% -0.79% -1.30% -0.81% 0.82% 0.30% -1.10%Return Summary BANIX Barclays Cumulative Growth1 (12/31/10 -Current)Last Month 0.30% -0.29% 4%Since Inception 12/31/2010 -1.10% 2.72%Ann. Standard Deviation 2.6% 3.4% Barclays 3%Sharpe Ratio (0.89) 1.59 AggregatePositive Months 50.0% 83.3% 2.72%Maximum Daily Drawdown -3.2% -1.4% 2%Exposure Analysis Excl Cash %s 1Long Market Value 4,065,016 37% 1% 1Short Market Value (3,045,710) -28% 1Net Market Value 1,019,306 9% 0%Gross Market Value 1 7,110,726 64% BANIXTotal Fund Assets 11,067,838 -1.10%Risk Summary BANIX -1% HFRXRate Duration -5 -4 -3 -2 -1 0 1 2 3 4 5 Ab ReturnSpread Duration 1.43 -1.48% -2%Alpha vs Barclays -2.12%Beta vs Barclays -0.04Correlation vs Barclays -0.05 -3% 12/31/2010 1/24/2011 2/14/2011 3/8/2011 3/29/2011 4/19/2011 5/11/2011 6/2/2011 6/23/2011Beta vs S&P 500 0.02 The Bandon Isolated Alpha Fixed Income Fund total annual operating expense ratio (gross) is 2.16% for Investor Class, 2.41% for class A shares, 3.16% for the class C shares and 2.66% for the class R shares The Funds adviser has contractually agreed to reduce its fees and/or absorb expenses of the Fund, until at least January 31, 2012, to ensure that total annual fund operating expenses after fee waiver and/or reimbursement will not exceed 1.95%, 2.20%, 2.95% and 2.45% of each classs net assets, respectively, for Investor Class, Class A, Class C and Class R shares. Expense waivers and reimbursements are subject to possible recoupment from the Fund in future years on a rolling three year basis (within the three years after the fees have been waived or reimbursed) if such recoupment can be achieved within the foregoing expense limits. Results shown reflect the waiver, without which the results could have been lower. The performance data quoted here represents past performance. Current performance may be lower or higher than the performance data quoted above. Investment return and principal value will fluctuate, so that shares, when redeemed, may be worth 11 more or less than their original cost. Past performance is no guarantee of future results. A Funds performance, especially for very short periods of time, should not be the sole factor in making your investment decisions. To 1497-NLD-7/15/2011 obtain performance information current to the most recent month-end, please call toll-free 1-503-477-8100.
  • 12. Why Bandon Isolated Alpha Fixed Income? Targets alternative return characteristics in a Mutual Fund format Secular decline in U.S. interest rates may be over Price changes can overwhelm passive coupon return with yields near historic lows Potential for absolute returns regardless of interest rate environment Seeks non-correlation to traditional and alternative markets Seeks clean isolated alpha within both of the principal fixed income risk factors We believe the interest rate strategies will provide returns completely uncorrelated to the credit component, particularly during periods when credit is stressed / widening The information in this presentation is for informational purposes only and is not intended as an offer to buy or sell, or amount to a solicitation to buy or sell, any securities referred to herein. Important fee, performance and disclaimer information is contained towards the end of this presentation and should be read in conjunction with the 12 information presented above. There is no guarantee that any investment will achieve its objectives, generate 1497-NLD-7/15/2011 positive returns, or avoid losses.
  • 13. Why Democratized Alternatives?Investors have questioned traditional alternative investments structures because: Traditional Alternative Structure vs. Bandon Alternative Mutual Funds Limited Liquidity Daily Liquidity High Minimum Investment As low as $10,000 Fraud Risk Regulated Transparency K-1’s 1099 2% + 20% of profits + expenses 1.95% expense cap There is no guarantee than any investment will achieve its objectives, generate positive returns, or avoid losses. The information in this presentation is for informational purposes only and is not intended as an offer to buy or sell, or amount to a solicitation to buy or sell, any securities referred to herein. Important fee, performance and disclaimer information is contained towards the end of this presentation and should be read in conjunction with the information 13 presented above. 1497-NLD-7/15/2011
  • 14. Operational and Administrative Considerations Available Custodians Pershing, Fidelity/NFS, TD Ameritrade Trust Company of America Investor Class Ticker BANIX C Class Ticker CBANX Minimum Investment $10,000.00 Expense Cap 1.95% Tax Reporting 1099 – A & R share classes available upon capital commitments For more information please contact Mike Miller at 503-477-8100 or mike@bandonalts.com www.bandonalts.com 14 1497-NLD-7/15/2011
  • 15. Portfolio Manager BiosWilliam F. Woodruff - Mr. Woodruff is Bandon’s Founder, Managing Principal and Chief Investment Officer. He is responsible for all investmentmanagement activity at Bandon. Prior to founding Bandon in 2007, Mr. Woodruff spent four years with Beacon Investment Group and its subsidiaries,ultimately serving as a portfolio manager for the firm’s various hedge funds and alternative investment products. In that role, Mr. Woodruff evaluated andinvested in a wide variety of alternative strategies. His primary focus was developing ways to democratize alternative strategies. These efforts lead to thecreation of the trading approach for the DIRS Program that is now a flagship Bandon product. Mr. Woodruff began his career working for Portland, Oregonbased Philips & Co. Securities in 2002. He holds a B.B.A. in Finance from the University of Portland.Andrew J. Kronschnabel, CFA - Mr. Kronschnabel is a senior portfolio manager at Logan Circle Partners. As a member of the portfolio management teamhe is responsible for the firms absolute return strategies with a specialization in high grade. Prior to joining Logan Circle Partners, he was a member of theportfolio management team at Delaware Investments where he was responsible for Core-based and high grade products from 2000 to 2007. Mr.Kronschnabel received a Bachelor of Science degree in international economics and politics from Colorado College.Joseph A. Baggett, CFA - Mr. Baggett is a founder and Senior Portfolio Manager for Dix Hills Partners, LLC and its affiliate management company, Dix HillsAssociates, LLC. Until his departure in January 2003, Mr. Baggett served as Executive Director, Quantitative Investments Group, UBS Global AssetManagement in New York. At UBS, Joe was senior portfolio manager/research analyst for the quantitatively driven investment strategy group that managedover $6 billion in assets. Joe served as Model Developer and Portfolio Manager for Quantitative Fixed Income Strategies and Quantitative Allocation, LLC(“Q.A.”). Additionally, Joe was also a member of the Portfolio Management Team for UBS Tactical Allocation Fund, a $3 billion, fully flexible mutual fund thatallocated between stocks (S&P 500), bonds (intermediate-term Treasury notes) and cash on the basis of a quantitatively-driven market valuation model. Hehas extensive experience in other traditional quantitative disciplines as well, including portfolio optimization, indexation, stock selection models, performanceattribution/analysis, risk management and securities and derivatives trading. At UBS, he was also actively involved in marketing these products to institutionaland individual prospects. Prior to UBS Asset Management, Joe worked as an Economist at PaineWebber, Inc., part of a three-person unit that produced thefirms U.S. economic growth, inflation and interest rate outlooks. Prior to PaineWebber, Joe worked at the Federal Reserve Bank of New York as an AssistantEconomist, Domestic Financial Markets Division. Mr. Baggett holds a B.A. in Economics from Columbia University (Summa Cum Laude, Phi Beta Kappa). Healso attended the University of Chicago Graduate School of Business, completing the first year of a two year M.B.A. program with a 4.0 G.P.A. The information in this presentation is for informational purposes only and is not intended as an offer to buy or sell, or amount to a solicitation to buy or sell, any securities referred to herein. Important fee, performance and disclaimer information is contained towards the end of this presentation and should be read in conjunction with the information 15 presented above. 1497-NLD-7/15/2011
  • 16. Important DisclosuresThe material contained in this document is for general information purposes only and is based oninformation that is considered to be reliable, but Bandon makes this information available on an “as is”basis and make no warranties, express or implied regarding the accuracy of the information containedherein, for any particular purpose. Bandon and its independent providers are not liable for anyinformation errors, incompleteness, or delays, or for any actions taken in reliance on informationcontained herein. Nothing contained in this material is intended to constitute legal, tax, securities,financial or investment advice, nor an opinion regarding the appropriateness of any investment. Theinformation herein should not be acted upon without obtaining specific legal, tax or investment advicefrom a licensed professional.Bandon Capital Management, LLC, Dix Hills Partners, LLC and Logan Circle Partners, LLC are notaffiliated with Northern Lights Distributors, LLCInvestors should carefully consider the investment objectives, risks, charges and expenses ofthe Bandon Isolated Alpha Fixed Income Fund. This and other important information about theFund is contained in the prospectus, which can be obtained at www.bandonfunds.com or bycalling 503-477-8100. The prospectus should be read carefully before investing. The BandonIsolated Alpha Fixed Income Fund is distributed by Northern Lights Distributors, LLC memberFINRA. The information in this presentation is for informational purposes only and is not intended as an offer to buy or sell, or amount to a solicitation to buy or sell, any securities referred to herein. Important fee, performance and disclaimer information is contained towards the end of this presentation and should be read in conjunction with the information 16 presented above. 1497-NLD-7/15/2011
  • 17. Important DisclosuresMutual Funds involve risk including the possible loss of principal. Closed-end funds are subject toinvestment advisory and other expenses, which will be indirectly paid by the Fund. There is a risk thatissuers and counterparties will not make payments on securities and other investments held by theFund, resulting in losses to the Fund. The Funds use of derivative instruments involves risks differentfrom, or possibly greater than, the risks associated with investing directly in securities and othertraditional investments. Emerging market countries may have relatively unstable governments, weakereconomies, and less-developed legal systems with fewer security holder rights. The value of the Fundsinvestments in fixed income securities and derivatives will fluctuate with changes in interest rates.Currency trading risks include market risk, credit risk and country risk. Investments in foreign securitiescould subject the Fund to greater risks including, currency fluctuation, economic conditions, anddifferent governmental and accounting standards. The Fund may invest in high yield securities, alsoknown as "junk bonds." High yield securities provide greater income and opportunity for gain, but entailgreater risk of loss of principal. Using derivatives to increase the Funds combined long and shortexposure creates leverage, which can magnify the Funds potential for gain or loss. The default rate onunderlying mortgage loans or asset loans may be higher than anticipated, potentially reducingpayments to the Fund. As a non-diversified fund, the Fund may invest more than 5% of its total assetsin the securities of one or more issuers. The Fund will incur a loss as a result of a short position if theprice of the short position instrument increases in value between the date of the short position sale andthe date on which the Fund purchases an offsetting position. The information in this presentation is for informational purposes only and is not intended as an offer to buy or sell, or amount to a solicitation to buy or sell, any securities referred to herein. Important fee, performance and disclaimer information is contained towards the end of this presentation and should be read in conjunction with the information 17 presented above. 1497-NLD-7/15/2011
  • 18. DefinitionsS&P refers to the Standard and Poors 500 Index which is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broaddomestic equity market. This index is used for comparative purposes only.Barclays Agg, BarCap refers to the Barclays Aggregate US Bond Index. The index is designed to measure performance of the broad based investment-grade, fixed rate,taxable bond market. This index is used for comparative purposes only.IEF is an Exchange Traded Fund that seeks results that correspond generally to the price and yield performance, before fees and expenses, of the Barclays Capital U.S. 7-10 Year Treasury Bond Index.TLT is an Exchange Traded Fund that seeks results that correspond generally to the price and yield performance, before fees and expenses, of the Barclays Capital U.S.20+ Year Treasury Bond Index.Alpha is a risk-adjusted measure of the active return on an investment. It is a measure of the manager’s contribution to performance. A positive annual Alpha indicates theportfolio outperformed the market on a risk-adjusted basis, and a negative Alpha indicates the portfolio underperformed in relation to the market.Beta describes how the expected return of a stock or portfolio is correlated to the return of the financial market as a whole. A Beta greater than 1.00 indicates the portfolio ismore volatile than the market, and a Beta less than 1.00 indicates the portfolio is less volatile than the market.Duration is a measure of a bonds price sensitivity to yield. It can also be described as the percentage change in price for a parallel shift in yield.Standard Deviation measures the degree of variation of monthly returns around the mean (average) return. The higher the volatility of the investment returns, the higher thestandard deviation will be.Correlation: Measures how closely the investment tracks the market (the "market" can be defined as an index).Absolute Return: The return that an asset achieves over a certain period of time. This measure looks at the appreciation or depreciation (expressed as a percentage) thatan asset - usually a stock or a mutual fund - achieves over a given period of time.Directional Trading: strategy used by investors that open positions, either long or short, on the belief that they are able to correctly predict the movement of price in asecurity.Event Driven: Strategy where positions seek profits from the consummation of a given event (e.g. takeover, merger, etc).Cap Structure: A strategy that attempts to exploit a pricing inefficiency between two securities of the same company.Paris Trade: The strategy of matching a long position with a short position in two stocks of the same sector. This creates a hedge against the sector and the overall marketthat the two stocks are in.Opportunistic: A strategy that seeks to take advantage of short-term mispricing in securities. The information in this presentation is for informational purposes only and is not intended as an offer to buy or sell, or amount to a solicitation to buy or sell, any securities referred to herein. Important fee, performance and disclaimer information is contained towards the end of this presentation and should be read in conjunction with the information 18 presented above. 1497-NLD-7/15/2011
  • 19. Appendix 1: Fixed Income Return Drivers Prepayment, 8% Prepayment: Sensitivity to prepayment call feature Credit, 23% Credit: Sensitivity to underlying company fundamentals Interest Rate, 69% Duration: Sensitivity to changes in interest rates We believe interest rates are the dominant risk exposure and should receive significantattention, particularly in the current low yield environment We believe the current credit environment provides unique opportunities outside ofinterest rate risk factors Chart: Multifactor Beta Research from Investing Separately in Alpha and Beta, CFA Institute Research Foundation, Clark, de Silva, Thorley 2009 19 1497-NLD-7/15/2011
  • 20. Appendix 2: How Does a BANIX fit in a Portfolio? Alpha / Beta Separation Non-Correlated Alternative Fixed Income Fixed Income Beta or BANIX BANIX Alternative Alternative Investments Investments There is no guarantee than any investment will achieve its objectives, generate positive returns, or avoid losses. The information in this presentation is for informational purposes only and is not intended as an offer to buy or sell, or amount to a solicitation to buy or sell, any securities referred to herein. Important fee, performance and disclaimer information is contained towards the end of this presentation and should be read in conjunction with the information 20 presented above. 1497-NLD-7/15/2011
  • 21. Appendix 3: Alpha / Beta SeparationBy going away from traditional actively managed product where Beta and Alpha areblurred together you gain control of your asset allocation. Giving you the choice ofeither minimizing costs or reducing beta. Actively Managed Isolated Alpha Isolated Alpha Bond Portfolio (Cost Reduction) (Beta Reduction) 0.58% total cost 0.30% Avg cost 0.58% Avg cost 10% Cost of Alpha 10% Cost of Alpha 1.95% Cost of Alpha Alpha 4.70% BANIX 25% 1.95% BANIX 90% BND 90% BND 0.12% BND Beta Exp Ratio 0.12% 75% Beta 0.12% Exp Ratio Exp Ratio Beta BND: Vanguard Total Bond Market ETF. The portfolios are hypothetical examples created by Bandon and are provided for illustration purposes only. No assumptions should be made that the allocations above will be profitable or provide alpha. Allocations and their 21 percentages should change based on an individual investors needs. 1497-NLD-7/15/2011
  • 22. Appendix 4: Logan Circle - Investment Team High Grade EM / Non-Dollar High Yield Structured Product PORTFOLIO & RISK Andy Kronschnabel, CFA Scott Moses, CFA MANAGEMENT Tim Rabe, CFA Al Leone, CFA Stephen Mullin, CFA Todd Howard, CFA Jude Driscoll, CIO Risk Analytics Paul Polichino High Grade High Yield Structured Product TRADING / Matt Buchanan Tom McClintic EM / Non-Dollar TECHNICAL ANALYSIS Joseph Watkins Dana Cottrell Spencer Tullo Todd Howard, CFA Kevin Hendrickson Lou Petriello Credit Research Team FUNDAMENTAL Michael Borowske Michael Frey Matt Higgins, CFA RESEACH Brian Funk, CFA, Lee Rubenstein Director Ian Bowman Ximena Galvez Chris Moon, CFA Greg Zappin, CFA Zach Bauer, CFA Evan Driedger, CFA Brent Garrels Michael Recchiuti The information in this presentation is for informational purposes only and is not intended as an offer to buy or sell, or amount to a solicitation to buy or sell, any securities referred to herein. Important fee, performance and disclaimer information is contained towards the end of this presentation and should be read in conjunction with the information 22 presented above. 1497-NLD-7/15/2011
  • 23. Appendix 5: Logan Circle – Investment Process Idea Generation• Research • Portfolio Management 1 • Trading Risk Management/ Research Portfolio Review Proprietary Research 5 2 • Examination of critical industry trends.• Forward Looking Risk Identification • Identification of potential relative value opportunities.• Position Sizing • 5 Senior Analysts/Group Leaders closely monitoring• Portfolio Level Assessments 20-25 companies. • Gross / Net Exposure • Industry Specialists Monitoring 50-75 Companies • Strategy Allocation %’s Portfolio Trading Management Sell Discipline 4 3 Portfolio Construction • Research identifies negative change in fundamentals • Directional (Long & Short) • Securities reach price targets or stop losses • Event Driven / Cap Structure • Better opportunities arise (relative value) • Pairs Trades • Opportunistic The information in this presentation is for informational purposes only and is not intended as an offer to buy or sell, or amount to a solicitation to buy or sell, any securities referred to herein. Important fee, performance and disclaimer information is contained towards the end of this presentation and should be read in conjunction with the information 23 presented above. 1497-NLD-7/15/2011
  • 24. Appendix 6: Credit StrategiesIsolated active global credit decision making within predetermined exposure bandsexpressed by strategy type unconstrained by a benchmark: Category Strategy Characteristics Examples Higher current yield MGM 2011 Subs Longs Express via cash or CDS ILFC 2012s Directional Low interest rate sensitivity Brazil 2014s 0% - 50% Special situations Shorts expressed via CDS CDX.IG14 Shorts Single name or index FDC 5yr CDS Directional Thematic basket trades Basket Consumer/Retail - 50% - 0% Typically used to hedge longs Cap Structure / Identifiable catalysts TXU Bank Loans Directional / Industry consolidations CNH 2013s Event Driven Long & Short positions Hasbro 5yr CDS (Short) Relative Value Special situations 0% - 50% Special situations Goldman/Morgan Stanley Pairs Trades Identifiable catalysts Prudential/MetLife Relative Value Industry consolidations GE Capital/Capital One 0% - 50% Intermediate holding period Mispriced security Anadarko 7yr Bonds Opportunistic Liquidity imbalance Prudential 30yr bonds Short Term Mispricing Typically hedged w / futures WellPoint Inc. 10yr bonds 0% - 50% Very short holding period *The examples are based on the holdings of the investment universe of Logan Circle. The Securities were not based on performance and should not be construed as recommendations or endorsements. These examples may 24 or may not have been included in a composite at any given point in time. Ranges are subject to change. 1497-NLD-7/15/2011
  • 25. Appendix 7: Active Duration FrameworkA robust directional interest rate forecasting framework based onMacro economic, bond market Valuation and Momentum indicators. overall forecast higher rates lower rates macro indicators expanding contracting valuation indicators expensive cheap momentum indicators rising rate declining rate STRONG WEAK STRONG Forecast is for illustrative purposes only. Not an example of a current interest rate forecast. 25 1497-NLD-7/15/2011
  • 26. Appendix 8: The Fixed Income Toolbox When fixed income bear markets occur a broader toolbox may prove useful.1) Initial unconstrained fixed income productsdeviate from benchmark sectors, ultimatelystretching out and taking different kinds of risks 2) Second stage unconstrained fixed income products have started using shorting to hedge g Short mergin eld out unwanted risk factors but remain long-bias Co Yi T rp gh erm Intl / E – te Hi In Go Ra 3) Bandon’s innovative approach is not v. – v- g G rp De tin g Short only unconstrained to a benchmark but ra vel Co oa mergin de ope l eld d F Co also lacks a long bias. Yi T rp ABS / MBS TIPS i gh erm Intl / E – te In –H Go Ra v. v- g G rp De tin g Short ra vel Co loa mergin de ope eld d F Yi Co T ABS / MBS TIPS gh erm rp Intl / E te Hi – Go Ra In – v- v. Rate Hedge Credit Hedge g rp De tin G vel Co oa ra ope F l de d ABS / MBS TIPS Rate Hedge Credit Hedge Potential for Short Exposure The information in this presentation is for informational purposes only and is not intended as an offer to buy or sell, or amount to a solicitation to buy or sell, any securities referred to herein. Important fee, performance and disclaimer 26 information is contained towards the end of this presentation and should be read in conjunction with the information 1497-NLD-7/15/2011 presented above.