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 invest-
ment 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 build-
ings 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 liquid-
ity 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)
Sm ith Group REIT 10 year Treasury S&P 500 Index
15
13
11
9.0 8.6
9
7.1 6.7
7 6.1 6.0
5.1 5.4
4.3 4.4 4.7 4.7
5 3.8 4.2 4.0 4.0
1.8 1.9 1.8 2.0 2.3
3 1.4 1.6 1.7
1
-1
2001 2002 2003 2004 2005 2006 2007 YTD 2008
Performance Highlights Annualized Rate of Return
Smith Income S&P 500 NAREIT Smith Income S&P 500 NAREIT
Period Period
Gross Net Index Index Gross Net Index Index
2001 Since Inception
3.6% 2.9% (5.6%) 2.2% 11.3% 10.1% 2.4% 13.0%
(7/1-
(7/1-12/31) (7/1/01)
2002 8.9 7.8 (22.2) 3.8 Five Year 10.1 9.0 7.6 14.3
2003 35.8 34.4 28.7 37.1
Three Year 2.0 1.0 4.4 5.0
2004 24.5 23.3 10.8 31.6
Two Year (0.8) (1.8) 2.3 (1.4)
2005 3.2 2.1 4.9 12.2
2006 28.0 26.8 15.8 35.1 One Year (12.6) (13.5) (13.2) (13.6)
2007 (13.8) (14.7) 5.5 (15.8)
1Q 2008 2.3 2.0 (9.5) 1.4
2Q 2008 (5.0) (5.2) (2.7) (5.0)
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 manager will review for appropriateness of inclusion in the composite any account maintaining a
Founded in 1995, Smith Asset Management Group, L.P. (“Smith Group”) is a registered cash position greater than 10%. The primary benchmark for these accounts should be the
investment advisor that specializes in equity investment management services. The firm NAREIT Index. The start date for the composite is July 1, 2001. The creation date for this compos-
manage assets for a diverse list of clients, which includes foundations, endowments, corpo- ite is Jan. 1, 2004. At this time, the composite containing accounts that directed trading was
rate pensions, public funds, multi-employer plans and high-net worth individuals. Effective closed, and those accounts were added to the composite containing accounts in which Smith
Jan. 1, 2006, the firm was redefined to exclude wrap SMA business. Smith Group claims Group has discretionary trading authority, creating a composite of all accounts invested in this
compliance with the Global Investment Performance Standards (GIPS®). Smith Group has particular strategy. Accounts are added to the composite at the beginning of the first calendar
received a firm-wide verification for the period Jan. 1, 1996 - Mar. 31, 2008. To receive a quarter after full investment of the account. Accounts are removed from the composite at the
complete list and description of Smith Group’s composites and/or a presentation that ad- month end prior to change in account status. Smith Group performance is the total return includ-
heres to the GIPS standards, contact John Brim, CFA at (214) 880-4608, or write to Smith ing cash and cash equivalents, gross of fees, of an asset-weighted composite of all discretionary
Group, 100 Crescent Court, Suite 1150, Dallas, TX 75201, or john@smithasset.com. REIT/ portfolios. Performance is expressed in U.S. dollars. Net of fee performance shown reflects the
Income Composite – is comprised of accounts whose primary objective is generation of deduction of the maximum applicable fixed rate fee level, 1.0% of managed assets per year. The
current income by investing primarily in income producing equity investments of U.S. compa- NAREIT Index is a capitalization weighted index of all publicly traded U.S. REITs. It includes divi-
nies or Real Estate Investment Trusts (REIT’s). Inclusion in this composite requires that dends and is presented gross of fees.
accounts are not missing in excess of 5% of the firm’s recommended portfolio. A portfolio