REIT STRATEGY
JUNE 30, 2008
Firm Background
Smith Asset Management Group, L..P. (Smith Group) is a registered investment advisor that specializes in equity investment management services. Currently, the firm manages assets for a diverse list of clients which include foundations, endowments, corporate pensions, public funds, multi-employer plans and high net worth individuals.
Corporate Mission
The mission of Smith Group is to provide high quality investment management service to a limited number of institutional and high net worth clients. The role of Smith Group is to be a specialist player in an industry dominated by large firms. The niche established by the firm is that of a performance-oriented investment advisor that focuses on delivering a high level of client service. The firm utilizes a number of constraints and systems to ensure that the asset base does not reach a level that hinders the ability of the firm to produce top-tier investment performance. It is the goal of the firm to create portfolios of stocks that can generate superior risk-adjusted rates of return over a full market cycle.
REIT Strategy
One of the most stable sources of investment income is the rent paid on commercial real state. Investors have access to this income through publicly traded Real Estate Investment Trusts (or REITs). A REIT is a corporation dedicated to owning and managing commercial rental property such as apartments, office buildings and shopping centers. Shareholders benefit from a REIT’s legal requirement to distribute 90% of its taxable income annually in the form of dividends. Being publicly traded, REITs also offer the investor liquidity in the real estate arena. For clients who need income and desire long-term moderate price appreciation, the Smith Group manages a diversified portfolio of publicly traded REITs. The investment approach followed by Smith Group to invest in REITs emphasizes three factors: (1) income yield, (2) quality and stability, and (3) business fundamentals. Beginning with the REIT universe, Smith Group’s portfolio management team eliminates companies with undesirable current yields. The universe is then screened on a variety of quality factors including dividend stability, senior debt rating and price stability. From the companies remaining, the team creates a diversified portfolio of companies consisting of high yielding, high quality REITs that are expected to have positive FFO (Funds From Operations) growth. The typical portfolio contains approximately 30 different holdings, diversified by geography and property type. Turnover is low, averaging 30% per year. Securities are approximately equally weighted at purchase and are trimmed for risk control purposes when they reach a 5% position.
Past performance is not indicative of future results. As with any investment vehicle, there is always a potential for profit as well as the possibility of loss. Actual results may differ from composite returns, depending on account should size, investment guidelines and/or restrictions, inception date and other factors. Nothing contained in this presentation should be construed as a recommendation to buy or sell a security or economic sector.
100 Crescent Court, Suite 1150 • Dallas, Texas 75201 • (214) 880-4600 • (800) 582-3435 • Fax (214) 880-4640 • www.smithasset.com
For use by Smith Asset Management Group and its clients and prospects only.
Yield Premium Analysis Since Inception (7/01/2001)
15 13 11 9 7 5 3 1 -1 2001 2002 2003 2004 2005 2006 2007 YTD 2008 1.4 5.1 3.8 1.8 9.0 8.6 7.1 4.3 1.6 6.1 4.2 1.7 6.7 4.4 1.9 4.7 4.7 1.8 5.4 4.0 2.0 6.0 4.0 2.3 Sm ith Group REIT 10 year Treasury S&P 500 Index
Performance Highlights
Period
2001 (7/1(7/1-12/31) 2002 2003 2004 2005 2006 2007 1Q 2008 2Q 2008
Annualized Rate of Return
Period
Since Inception (7/1/01) Five Year Three Year Two Year
Smith Income S&P 500 NAREIT Index Gross Net Index
3.6% 8.9 35.8 24.5 3.2 28.0 2.9% 7.8 34.4 23.3 2.1 26.8 (5.6%) (22.2) 28.7 10.8 4.9 15.8 5.5 (9.5) (2.7) 2.2% 3.8 37.1 31.6
Smith Income S&P 500 Index Gross Net
11.3% 10.1% 10.1 2.0 (0.8) (12.6) 9.0 1.0 (1.8) (13.5) 2.4% 7.6 4.4 2.3 (13.2)
NAREIT Index
13.0% 14.3 5.0 (1.4) (13.6)
12.2 35.1 (15.8) 1.4 (5.0) One Year
(13.8) (14.7) 2.3 (5.0) 2.0 (5.2)
The NAREIT Equity Index is an unmanaged index of the shares of Real Estate Investment Trusts. They include reinvested dividends and are presented gross of fees. Please note: All performance returns are presented gross of fees and are verified through March 31, 2008. Performance for June 30, 2008 is preliminary. Performance inception date is July 1, 2001. The S&P 500 Index is an unmanaged index of U.S. equities.
Performance and Presentation Disclosures
Founded in 1995, Smith Asset Management Group, L.P. (“Smith Group”) is a registered investment advisor that specializes in equity investment management services. The firm manage assets for a diverse list of clients, which includes foundations, endowments, corporate pensions, public funds, multi-employer plans and high-net worth individuals. Effective Jan. 1, 2006, the firm was redefined to exclude wrap SMA business. Smith Group claims compliance with the Global Investment Performance Standards (GIPS®). Smith Group has received a firm-wide verification for the period Jan. 1, 1996 - Mar. 31, 2008. To receive a complete list and description of Smith Group’s composites and/or a presentation that adheres to the GIPS standards, contact John Brim, CFA at (214) 880-4608, or write to Smith Group, 100 Crescent Court, Suite 1150, Dallas, TX 75201, or john@smithasset.com. REIT/ Income Composite – is comprised of accounts whose primary objective is generation of current income by investing primarily in income producing equity investments of U.S. companies or Real Estate Investment Trusts (REIT’s). Inclusion in this composite requires that accounts are not missing in excess of 5% of the firm’s recommended portfolio. A portfolio
manager will review for appropriateness of inclusion in the composite any account maintaining a cash position greater than 10%. The primary benchmark for these accounts should be the NAREIT Index. The start date for the composite is July 1, 2001. The creation date for this composite is Jan. 1, 2004. At this time, the composite containing accounts that directed trading was closed, and those accounts were added to the composite containing accounts in which Smith Group has discretionary trading authority, creating a composite of all accounts invested in this particular strategy. Accounts are added to the composite at the beginning of the first calendar quarter after full investment of the account. Accounts are removed from the composite at the month end prior to change in account status. Smith Group performance is the total return including cash and cash equivalents, gross of fees, of an asset-weighted composite of all discretionary portfolios. Performance is expressed in U.S. dollars. Net of fee performance shown reflects the deduction of the maximum applicable fixed rate fee level, 1.0% of managed assets per year. The NAREIT Index is a capitalization weighted index of all publicly traded U.S. REITs. It includes dividends and is presented gross of fees.