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					Xavier Student Investment Fund
      2006 Annual Report

        April 24, 2006
                     XAVIER STUDENT INVESTMENT FUND
                           2006 ANNUAL REPORT

                           Student Fund Managers

   Tom Anderson                                  Nate Hollingsworth
   Dan Banaszak                                  Sara Knutson
   Tony DiVincenzo                               Emily Tuchscherer
   Justin Ganley


                                 Fund Advisors

Stafford Johnson, Course Professor
Roger Lanham, Director of Fixed Income, Fort Washington Investment Advisors
Tim Polincinski, Senior Portfolio Manager, Fort Washington Investment Advisors
Dan Carter, Fund Manager, Fort Washington Investment Advisors
Paul Tomich, Portfolio Analyst, Fort Washington Investment Advisors


                              Board of Directors


   J. Hunter Brown, Watson Wilkins & Brown, LLC
   John E. Callahan, O’Connor & Company LLC
   William Cousins, III, AB Financial
   William Effler, American Money Management
   Brian Gilmartin, Trinity Asset Management
   Coleman Goldsmith, Smith Barney
   Richard Hirte, Vice President of Finance, Xavier University
   R. Bryan Kroeger, US Bank
   Lawrence Leser, E.W. Scripps
   Ali Malekzadeh, Dean, William College of Business, Xavier University
   Matthew McCormick, Bahl & Gaynor Investment Counsel
   Joseph McManus, Morgan Stanley
   James Pawlukiewicz, Chair, Department of Finance, Xavier University
   Kim Renners, Ohio Casualty Group
   J. Patrick Rogers, Gateway Investment Advisers, Inc
   Andrew Schmitt, Merrill Lynch
   James Shade, Merrill Lynch




                                          1
                     XAVIER STUDENT INVESTMENT FUND
                           2006 ANNUAL REPORT

                               TABLE OF CONTENTS


INVESTMENT FUND STRATEGY

TRADING ACTIONS

    December 15, 2005 Trades

    February 14, 2006 Trades

    March 22, 2006 Trades

RELATIVE PERFORMANCE

CURRENT POSITION AND FUTURE PROSPECTS

APPENDICES

    Appendix A: Current Portfolio

    Appendix B: Original Portfolio

    Appendix C: Sample Credit Analysis: Bullet Summaries

                - Morgan Stanley, December 9, 2005
                - Goldman Sachs, December 9, 2005
                - Motorola, January 30, 2006




                                         2
                           XAVIER STUDENT INVESTMENT FUND
                                 2006 ANNUAL REPORT


INVESTMENT FUND STRATEGY

        The Xavier Student Investment Fund (XSIF) manages a portion of Xavier‘s endowment using
an enhanced bond indexing approach. The fund is indexed to the Lehman Government Credit Index.
This index consists of three sectors: Treasury, Federal Agency, and corporate. As approved by the
Board at its inaugural meeting on November 15, 2004, the XSIF uses a tactical allocation strategy in
which each cell can be overweight or underweight by 10% and the fund‘s overall duration can vary up
to 15%. Exhibit 1 summarizes the allocations of the fund and the Lehman index as of September 30,
2005. Similarly, Exhibit 2 shows our current portfolio‘s allocations and its deviation compared to that
of the Lehman Index (more detailed information of the original and current portfolios can be found in
Appendices A and B).

                                Exhibit 1: Sector and Quality Ranges
                                         September 30, 2005

Sector                                    Range                 Portfolio               Index
                                     (1 ± X) Current           Percentage             Percentage
                                        Allocation
Cash                                                              6.2%                     -
Treasury                                X = ± .10                 43.0%                 42.8%
Federal Agency                          X = ± .10                 14.2%                 19.5%
Corporate                               X = ± .10                 36.6%                 37.7%

Quality Distribution Range:               Range                 Portfolio               Index
                                     (1 ± X) Current           Percentage             Percentage
 AAA (Includes Treasuries and           Allocation
 Federal Agencies)                      X = ± .10                 62.8%                 64.4%
 AA                                     X = ± .10                 6.8%                   5.0%
 A                                      X = ± .10                 13.3%                 15.6%
 BBB                                    X = ± .10                 17.1%                 15.0%
 Duration                                Range                  Portfolio               Index
                                     (1 ± X) Current            Duration               Duration
                                        Allocation
                                        X = ± .15                  4.50                  5.14

 Corporate Sectors                        ± .05




                                                    3
                                          Exhibit 2: Current Portfolio
                                                 April 7, 2006

Sector                                        Range                    Portfolio                  Index
                                         (1 ± X) Current              Percentage                Percentage
                                            Allocation
Cash                                                                     1.7%                         -
Treasury                                     X = ± .10                   41.6%                     45.5%
Federal Agency                               X = ± .10                   18.9%                     21.3%
Corporate                                    X = ± .10                   37.8%                     33.2%

Quality Distribution Range:                    Range                   Portfolio                  Index
                                          (1 ± X) Current             Percentage                Percentage
    AAA (Includes Treasuries                 Allocation
    and Federal Agencies)                    X = ± .10                    60.0%                   64.3%
    AA                                       X = ± .10                    8.4%                     4.9%
    A                                        X = ± .10                    13.6%                   15.6%
    BBB                                      X = ± .10                    16.3%                   15.2%

    Duration                                  Range                    Portfolio                  Index
                                          (1 ± X) Current              Duration                  Duration
                                             Allocation
                                             X = ± .15                    4.81                      5.08

    Corporate Sectors                          ± .05


TRADING ACTIONS

       XSIF student managers assumed responsibility for the management of the index fund at an
October 10, 2005 meeting with the Ft. Washington fund advisors. The fund at that time consisted of
43% in Treasuries, 14.2% in Federal Agencies, and 36.6% in corporate bonds with duration at 4.50
(see Exhibit 1). Compared to the index, the fund was weighted more heavily in lower quality bonds,
with 17.1% of the fund‘s corporate bonds being allocated to BBB bonds compared to the index‘s
15%. AAA-rated bonds, which include cash, Treasuries, Agencies, and AAA corporate bonds,
were slightly underweight relative to the index, being about 1.6% short. During the ensuing year,
the managers made three major trades in December, February, and March (see Exhibit 3).

December 15, 2005 Trades

       At the XSIF meeting on December 9, 2005, the fund managers voted to sell a long-term
Treasury bond (maturing 2027) and the fund‘s position in Morgan Stanley while purchasing three
intermediate corporate securities: Goldman Sachs (maturing 2015), U.S. Bank (maturing 2014), and
Bank of America (maturing 2015). These actions were based on a variety of circumstances
regarding the fund. First, the fund had a cash position of approximately $21,000 that the managers
wished to invest in corporate bonds following Ft. Washington‘s sale of Statoil.1 Second, the fund



1
    This sale was based on Ft. Washington‘s liquidity needs and was done with the managers‘ knowledge.


                                                           4
                                               Exhibit 3: XSIF TRANSACTIONS 2005-2006
                                                                                                                          Total
                                       Transaction                                                                      Purchase
                                           Date                            Coupon       Maturity    Amount    Price      Amount
Trade A   At the XSIF 12/9/05           12/15/2005     Purchased:
          meeting, fund managers                     Goldman Sachs         5.125%       1/15/2015     25     98.71     $24,678.50
          voted to invest the fund’s                 U.S. Bank               6.3%       2/4/2014      20     108.06    $21,612.40
          cash position in financial                 Bank of America        4.75%       8/1/2015      20     97.03     $19,405.80
          bonds and to swap its                                                                                        $65,696.70
          Morgan Stanley bond for a
                                                      Sold:
          comparative Goldman
                                                     Morgan Stanley        4.75%        4/15/2014     25      95.54    $23,884.50
          Sachs issue while
          maintaining the fund’s
          duration.                                  Treasury              6.13%    11/15/2027        20     119.04    $23,807.81
                                                                                                                       $47,692.31
Trade B   At the XSIF 2/6/06            2/14/2006      Purchased:
          meeting, fund managers                     FHLMC                 2.875%   5/15/2007         60     97.60     $58,560.54
          voted to sell two                          Motorola               6.5%    11/15/2028        20     107.57    $21,513.20
          intermediate Treasury                                                                                        $80,073.74
          issues and buy a short-                      Sold:
          term agency bond and
                                                     Treasury              4.75%        5/15/2014     15     100.48    $15,071.48
          long-term Motorola bond.
          This increased the firm’s
          yield while maintaining
          duration.                                  Treasury              4.125%       5/15/2015     15      96.01    $14,401.50
                                                                                                                       $29,472.98
Trade C   At the XSIF 3/20/06           3/22/2006      Purchased:
          meeting, fund managers                     Treasury               4.5%    2/15/2009         70     99.47     $69,630.90
          voted to swap short-term                   Treasury               4.5%    2/28/2011         70     99.22     $69,455.90
          Treasuries for longer ones                 Duke                  5.625%   11/30/2012        20     101.17    $20,233.00
          and to swap International
                                                     Wachovia Bank         4.375%    6/1/2010         25     96.99     $24,246.80
          Paper and Comcast in
          favor of Duke Energy and                                                                                     $183,566.60
          Wachovia Bank due to                          Sold:
          credit concerns. The trade                 Treasury               2.5%    9/30/2006         70     98.8164   $69,171.50
          increased duration from                    Treasury                2%     5/15/2006         70      99.61    $69,729.30
          4.59 to 4.92 and increased                 International Paper   5.85%    10/30/2012        25     100.14    $25,034.80
          yield from 4.594% to                       Comcast                6.5%    1/15/2015         20     103.42    $20,683.20
          4.883%.
                                                                                                                       $184,618.70

                                                                    5
was 7.3% underweight in its financial sector holdings and the managers wanted to remedy this
situation by purchasing one to two more financial bonds. Finally, the student managers had credit
concerns about the fund‘s holdings in Morgan Stanley, which were reflected by a widening of the
bond‘s spread (see Appendix C for specific credit concerns).
        After coming to the agreement that Morgan Stanley should be sold, the managers decided to
swap the bond for Goldman Sachs, a comparable bond in the same industry with more established
leadership, a better credit outlook, and a strong performance in its Fixed Income Currency and
Commodities (FICC) division (see Appendix C). Based on favorable credit reports on U.S. Bank
and Bank of America, the fund also decided to buy 20 of each issue. This acquisition left the fund
only 3.2% short in financials. Finally, the sale of the long-term Treasury was made in order to raise
the cash necessary for the corporate purchases and to keep the fund‘s duration relatively low. After
the proposal was voted on and approved, Ft. Washington executed the trade on December 15, 2005.

February 14, 2006 Trades

        At the XSIF meeting on February 6, 2006, the fund managers voted to sell intermediate
Treasury notes maturing in 2014 and 2015 and to use the proceeds as well as an existing cash
position to buy Federal Home Loan Mortgage Corporation bonds maturing in 2007 and Motorola
bonds maturing in 2028. These trades kept the fund‘s duration approximately the same and
increased the fund‘s yield from 4.78% to 5.02%. These actions were based in part on a $57,000 cash
position resulting from Ft. Washington‘s sale of Natural Rural Utilities.2 At the same time, the
managers made a decision to align the fund‘s sector weights more closely with the Lehman Index;
the fund was slightly overweight in Treasuries and underweight in Agencies.
        The intermediate Treasury notes were sold following a decision to reduce the fund‘s
exposure to the middle part of the yield curve. At the time of the trade, the yield curve was partially
inverted (see Figure 1) with intermediate rates lower than short-term or long-term yields. This led
the managers to believe that intermediate rates would increase more than short-term or long-term
rates. The managers also saw more certainty in short-term rates because these rates are highly
correlated with the Federal Funds Rate. As a result, the managers moved some of the proceeds from
the intermediate Treasury sale to short-term securities. In addition, after noting the continued high
bond demand by foreign investors along with low inflation numbers, the managers concluded that
long-term rates would remain relatively stable (see Exhibit 4). Based on this expectation, the fund
managers decided to implement a barbell strategy by purchasing a long Motorola bond (see
Appendix C) as well as a short-term Agency. Before making the decision, the managers conducted a
portfolio simulation to estimate the fund‘s expected performance against that of the Merrill Index
under a variety of possible yield curve changes.3 The simulation provided quantitative evidence
supporting the managers‘ intended strategy. After the proposal was approved on February 6, Ft.
Washington executed the trade on February 14, 2006.




2
  This sale was made with the fund managers‘ understanding in mid-late January due to a tight spread and liquidity
concerns.
3
  The Merrill Index is the U.S. Corporate and Government Master Index. This index is highly correlated with the
Lehman Brothers Government Credit Index and is accessible through our current Bloomberg subscription .


                                                          6
                                             Figure 1
                            Historical Yield Curves (Treasury Actives)
  5.25%




  4.75%




  4.25%




  3.75%




  3.25%
          0             5             10              15             20             25             30


                     4/10/06         2/16/06          12/16/05            10/3/05


March 22, 2006 Trades

        At the XSIF meeting on March 20, 2006, the fund managers voted to sell two Treasury bill
issues, both maturing in 2006, along with two corporate bonds: Comcast (maturing 2015) and
International Paper (maturing 2012). The managers used the proceeds from this sale to purchase
two Treasury note issues maturing in 2009 and 2011 and two corporate securities: Duke Energy
(maturing 2012) and Wachovia Bank (maturing 2010). These trades were based both on credit
considerations and a desire to move the fund‘s exposure on the yield curve to a more neutral
position relative to the index. The trades lengthened the overall portfolio duration from 4.59 to 4.92
while increasing portfolio yield from 4.594% to 4.883%.
        The managers felt that the current economic scenario would be one in which the Fed would
continue to increase short-term rates at its next two meetings. The managers also believed that the
Fed‘s contractionary monetary policy would lessen inflationary pressures. This inflationary
expectation, coupled with steady long-term demand from foreign investors, led the managers to
conclude that the long end of the yield curve would stay relatively stable in the near future. Prior to
the trade, the portfolio was 19.5% overweight in maturities of less than one year. The managers
believed that in an environment of rising interest rates and uncertain yield curve shifts, a more
neutral stance would be prudent. Therefore, the managers purchased Treasury securities with longer
maturities where the fund was underexposed relative to the index.




                                                  7
                                            Exhibit 4: Economic Indicators


Source: Bloomberg L.P.
                                      Inflation Measures - YoY % Change
                                                           CPI        PPI

8.0%
                                                                                      CPI YOY = 3.4%
                                                                                      PPI YOY = 3.5%
7.0%

6.0%

5.0%

4.0%

3.0%

2.0%

1.0%

0.0%
                 Apr-05            Jun-05         Aug-05             Oct-05     Dec-05          Feb-06




                                       Net Foreign Security Purchases

                        120
 Amount (in billions)




                        100

                         80

                         60

                         40

                         20

                        -
                              Apr-05 May-05 Jun-05 Jul-05 Aug-05 Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06




                                                                 8
        The fund managers‘ decision to sell International Paper stemmed from concerns about the
company‘s creditworthiness, especially following the announcement of a planned sale of a
significant portion of timberland. This land has played an important role in providing raw materials
for the firm, so its sale would create a long-term credit risk. In addition, rising oil prices, combined
with IP‘s inability to pass along cost increases to their customers, were expected to cut profit
margins. The decision to sell Comcast reflected concerns about the company‘s ability to compete in
an increasingly competitive industry. Given the fund‘s large exposure to telecommunications
companies (other fund holdings include AOL Time Warner and Cingular), Comcast appeared to be
the fund‘s weakest holding in the sector.
        The decision to purchase bonds from Wachovia Bank stemmed from a strong credit report
as well as the fact that the index increased its weighting in the financial sector, making the fund
again underweight in financials. Finally, the fund managers‘ decision to purchase Duke Energy
reflected the fact that the company would provide a strong, lower quality bond in a stable sector,
making it a good candidate for replacing the weaker bonds. After the proposal was approved, Ft.
Washington executed the transaction on March 22, 2006.


RELATIVE PERFORMANCE

        Figure 2 shows a comparison of daily total returns of the XSIF fund and the index from
November 1, 2005 to April 7, 2006. The total returns for both the fund and the index start at a base
of 100 on November 1, 2005. For the period, the XSIF was very close to the index. As of April 7,
2006 the XSIF fund was above the index by approximately 0.12%. This positive performance of the
fund can be attributed to: (1) the February 14 decision to move some of the fund out of intermediate
Treasuries prior to the increase in intermediate rates, (2) the credit decisions to swap the corporate
bonds that the managers considered to have increasing credit risk for ones that were considered
more stable, and (3) the March 22 decision to change the fund‘s exposure on the yield curve to a
more neutral position relative to the index.
        Exhibit 5 summarizes the characteristics of the fund compared to the index as of April 7,
2006. The XSIF fund‘s position was overweight in corporate bonds relative to the index, while
underweight in Treasuries and federal agencies. The fund‘s YTM was 5.303%, slightly lower than
the index‘s YTM of 5.403% but noticeably higher than when the managers took over the fund. With
respect to the quality distribution, the fund was closely aligned with the index, being slightly
underweight in AAA and A bonds and overweight in AA and BBB securities. The overall portfolio
quality was consistent with the index, with a Moody‘s rating of AA1. Finally, the portfolio‘s
modified duration was 4.81 while the index‘s was 5.08. This 5% short position was considerably
closer than the fund‘s previous positions that had ranged between 8% and 10% short of the index.




                                                   9
                                                                                                                                                                                    Figure 2

                                                                                                    XSIF Historical Performance vs. Index
                                1.01500



                                1.01000
Rolling Returns (9/30/05 = 1)




                                1.00500



                                1.00000
                                                                                                                                                                                                                                                                                                                                         Portfolio
                                                                                                                                                                                                                                                                                                                                         LBGC
                                0.99500



                                0.99000



                                0.98500
                                             -October-November 2005: Fed continues to raise rates, strong demand at long end of curve keeps LT rates steady
                                             -January 2006: Weak economic performance keeps inflation low, boosting LT demand as Fed continues rate hikes
                                             -February-April 2006: Rising oil prices combined with improving economic numbers add upward pressure to LT rates
                                0.98000
                                                                                                                                                                                                 1/6/06




                                                                                                                                                                                                                                        2/3/06




                                                                                                                                                                                                                                                                               3/3/06




                                                                                                                                                                                                                                                                                                                                4/7/06
                                          9/30/05
                                                    10/7/05
                                                              10/14/05
                                                                         10/21/05
                                                                                    10/28/05
                                                                                               11/4/05
                                                                                                         11/11/05
                                                                                                                    11/18/05
                                                                                                                               11/25/05
                                                                                                                                          12/2/05
                                                                                                                                                    12/9/05
                                                                                                                                                              12/16/05
                                                                                                                                                                         12/23/05
                                                                                                                                                                                     12/30/05


                                                                                                                                                                                                          1/13/06
                                                                                                                                                                                                                    1/20/06
                                                                                                                                                                                                                              1/27/06


                                                                                                                                                                                                                                                 2/10/06
                                                                                                                                                                                                                                                           2/17/06
                                                                                                                                                                                                                                                                     2/24/06


                                                                                                                                                                                                                                                                                        3/10/06
                                                                                                                                                                                                                                                                                                  3/17/06
                                                                                                                                                                                                                                                                                                            3/24/06
                                                                                                                                                                                                                                                                                                                      3/31/06
                                                                                                                                                                                                10
                                     XSIF Returns (in BP compared to Index)
             10
               /3
                  /




                              -0.1
                                                               0.1
                                                                               0.2




                                                      0.05
                                                                        0.15




                                     -0.05
                                              0
                     05
            10
              /1
                   7/
                      0   5
            10
              /3
                   1/
                      0   5
            11
              /1
                   4/
                      0   5
            11
              /2
                   8/
                      0   5
            12
              /1
                   2/
                      0   5
            12
              /2
                   6/
                      0   5




11
              1/
                9/
                  06




     Date
             1/
               23
                    /0
                      6
                                                                                                                                              Figure 2 Continued

                                                                                     XSIF Return - LBGC Return
                                                                                                                 XSIF Performance vs. Index




              2/
                6/
                  06
             2/
               20
                    /0
                      6
              3/
                6/
                  06
             3/
               20
                    /0
                      6
              4/
                3/
                  06
                        Exhibit 5: Position Compared to the Index as of April 7, 2006


                                                                                                                  Sector Allocations
                         XSIF             Index
                                                                                                                         XSIF   LBGC
Market Value            $997,000
Number of Bonds            33                                                   50
Average Coupon           4.98%            5.21%




                                                          % of Portfolio
                                                                                40
YTM                      5.30%            5.40%
Effective Duration        4.81             5.08                                 30
                                                                                20
Sector Allocations
                                                                                10
Cash                      1.7%
Treasuries               41.6%            45.5%                                         0
Agencies                 18.9%            21.3%




                                                                                                                                                 A
                                                                                              sh




                                                                                                                                  A




                                                                                                                                                            B
                                                                                                                                          AA
                                                                                                                       e
                                                                                                                      es
                                                                                                        s




                                                                                                                    at
                                                                                                     rie




                                                                                                                                AA




                                                                                                                                                          BB
                                                                                            Ca




                                                                                                                   ci
Corporate                37.8%            33.2%




                                                                                                                  or
                                                                                                     su


                                                                                                                en


                                                                                                               rp
                                                                                                   ea


                                                                                                            Ag


                                                                                                            Co
                                                                                                 Tr
Quality Allocations                                                                                                        Ratings
AAA                      61.7%            64.3%
AA                        8.4%             4.9%                                                                Duration Distribution
A                        13.6%            15.6%
BBB                      16.3%            15.2%                                                                         XSIF    LBGC
                                                                                            50
Duration Distribution
                                                                                            40
                                                                           % of Portfolio
 0-1                      6.6%             0.3%
 1-3                     29.3%            35.9%                                             30
 3-4                     12.9%            13.1%
                                                                                            20
 4-6                     19.2%            16.2%
 6-8                     15.0%            16.8%                                             10
   8+                    15.1%            17.7%                                              0
                                                                                                     0-1       1-3      3-4      4-6       6-8       8+
                                                                                                                     Effective Duration



                                                     12
CURRENT POSITION AND FUTURE PROSPECTS

        With an overall quality rating of AA1, an overall duration closer to the index‘s, and a
duration distribution that is more aligned with that of the index, the fund is currently positioned to
track the index more closely. This neutral position should result in future fund performances
mirroring those of the index. This can be seen by examining the results of three portfolio
simulations conducted by the managers that are summarized in Exhibit 6. The simulations show the
total returns from the current portfolio and the Merrill index three months from now under three
rising yield curve shift scenarios: parallel, inverting, and steepening. In each yield curve case, the
fund and the index have similar, but not identical, returns. In the cases of the parallel shift and the
steepening, the returns of both the fund and the index decrease by approximately the same
percentage, with the fund slightly outperforming the index given its lower overall duration. In the
inversion case, the fund and index returns increase by approximately the same percentage, with the
fund again slightly outperforming the index.
        Thus, the fund‘s neutral position with its lower duration, strong individual corporate
holdings, and similar duration distribution should outperform the index marginally under all three
yield curve shift scenarios. Such scenarios are possible given the following economic conditions:

   1. Future economic growth remains balanced, allowing the solid credit analysis of our
      corporate holdings to meet or exceed the manager‘s expectations of the companies.

   2. Interest rates continue to rise across all maturities, giving the fund‘s short duration exposure
      an opportunity to outperform the index.

The XSIF managers believe that this situation is likely to occur assuming current economic
conditions persist: moderate economic growth driven by modest growth in spending, rising energy
prices, and uncertainty over inflation. This neutral position reflects a conservative strategy that the
fund managers deemed appropriate given the uncertainty over yield curve shifts. Economic
conditions that future fund managers need to consider include:

    1. Future Fed actions: How long will the Fed continue to increase short-term rates?

    2. The U.S. government deficit: Will the deficit have an impact on rates?

    3. The inflow of Asian investments: Will the dollar inflow from China, Japan, and other Asian
       economies continue to impact the U.S. capital markets?

    4. U.S economy: Will the U.S. economy continue to grow?

    5. Energy prices and inflation: Will the price of oil continue to increase?

       Currently, possible concerns over the economy arise from the increasingly sluggish housing
market, which could produce a possible lagging slowdown of the economy. There is also
considerable apprehension over rising energy prices, mostly due to rising demand from emerging
economies along with international supply concerns due to political instability in the Middle East.
Balancing anxiety over inflation along with a possible upcoming economic slowdown has created
an unclear situation regarding the future of interest rates. The XSIF managers believe that in this
ambiguous scenario, a bottom-up approach is best suited to outperform the index. In regards to the
future of the fund, the neutral position will allow future managers to make moves if and when
economic conditions become more predictable.
                                                  13
            Exhibit 6: Portfolio Simulation



           25 BP increase in Fed Funds

0.8
0.6
0.4
0.2
                                                XSIF
  0
                                                LBGC
-0.2
-0.4
-0.6
-0.8
       Parallel      Steepening     Inversion




           50 BP increase in Fed Funds

  0


-0.5

                                                XSIF
 -1
                                                LBGC

-1.5


 -2
       Parallel      Steepening     Inversion




                          14
                                 List of Appendices
Appendix A: Current Portfolio

Appendix B: Original Portfolio

Appendix C: Sample Credit Analysis: Bullet Summaries




                                          15
                                      Appendix A: Current Portfolio
                                                                                       MKT VAL
BOND HOLDINGS FOR 4/7/2006     MDYS   COUPON          MATURITY          PRICE              (000)         PORT %         YTM/C          MOD DUR
----------------------------   ----   ---------       ----------       ----------   ----------          ------         ------        -----
CASH & EQUIVALENTS             AAA           4.74         5/7/2006           100                   17            1.7        4.787           0.08
CINGULAR WIRELESS              BAA2         5.625      12/15/2006      100.214                     20          2.04         5.292           0.66
FEDERAL NATL MTG ASSN          AGY                5     1/15/2007        99.849                    25          2.53         5.191           0.74
HOUSEHOLD FINANCE CORP         AA3           5.75       1/30/2007      100.398                     20          2.04         5.233           0.78
FEDERAL HOME LN MTG CORP       AGY          2.875       5/15/2007        97.544                    59          5.94         5.187           1.06
SAFEWAY INC                    BAA2             4.8     7/16/2007        99.097                    25          2.51         5.537           1.21
UNITED STATES TREAS NTS        TSY           2.75       8/15/2007        97.164                    93          9.29           4.93          1.31
FEDERAL NATL MTG ASSN          AGY           5.25       1/15/2009      100.221                     25          2.54           5.16          2.52
UNITED STATES TREAS NTS        TSY              4.5     2/15/2009        98.977                    70          6.99         4.886           2.63
DAIMLERCHRYSLER NA CORP        A3               7.2       9/1/2009       104.12                    21            2.1        5.844           2.98
UNITED STATES TREAS NTS        TSY          3.375       9/15/2009        95.258                    67            6.7          4.89          3.18
FEDERAL NATL MTG ASSN          AGY          7.125       6/15/2010      107.033                     27          2.74         5.231           3.55
WACHOVIA CORP GBL MTN          AA3          4.375         6/1/2010       96.127                    24          2.45         5.428           3.67
CENTEX CORP                    BAA2          4.55       11/1/2010        94.904                    10          0.97         5.836           3.96
UNITED STATES TREAS NTS        TSY              4.5     2/28/2011        98.238                    69          6.93         4.908           4.32
ALCOA INC                      A2                 6     1/15/2012      101.734                     21          2.07         5.642           4.77
AOL TIME WARNER                BAA2         6.875         5/1/2012     104.315                     21          2.15         6.014            4.8
LILLY ELI & CO                 AA3                6     3/15/2012      102.513                     26          2.58         5.497           4.94
FEDERAL NATL MTG ASSN          AA2           5.25         8/1/2012       98.605                    20              2        5.513           5.25
DUKE ENERGY                    A3           5.625      11/30/2012        99.621                    20          2.04         5.693           5.38
GENL ELEC CO                   AAA                5       2/1/2013       97.014                    15          1.47           5.53          5.63
US BK NA MINN MTN              AA2              6.3       2/4/2014     103.773                     21            2.1        5.694           6.09
CITIGROUP INC                  AA1          5.125         5/5/2014        96.45                    20          1.98         5.678           6.36
GOLDMAN SACHS GROUP            AA3          5.125       1/15/2015         94.99                    24          2.41         5.862           6.84
FEDERAL NATL MTG ASSN          AGY                5     4/15/2015        98.007                    15          1.51           5.28          6.99
SOUTHERN POWER CO              BAA1         4.875       7/15/2015         92.47                    23          2.35         5.942           7.19
BANK OF AMERICA                AA2           4.75         8/1/2015       93.194                    19          1.89         5.701           7.29
UNITED STATES TREAS BONDS      TSY          9.125       5/15/2018      135.891                     28            2.8        5.111           7.84
UNITED STATES TREAS BONDS      TSY           8.75       8/15/2020      135.844                     27          2.75           5.18             9
MOTOROLA INC                   BAA2             6.5    11/15/2028      102.886                     21          2.12         6.259          11.63
UNITED STATES TREAS BONDS      TSY          6.125      11/15/2027      111.945                     40          4.01         5.198           12.2
CONOCOPHILLIPS                 A1               5.9    10/15/2032         98.68                    25          2.54              6         12.87
FEDERAL HOME LN MTG CORP       AGY           6.25       7/15/2032      110.495                     17          1.68           5.49          13.3
UNITED STATES TREAS BONDS      TSY          5.375       2/15/2031      103.281                     21          2.09         5.139          13.72
                               ----   ---------       ----------       ----------   ----------          ------         ------        -----
                               AA1          4.976               6.99   101.614                   997            100         5.303           4.81


                                                                 16
                                      Appendix B: Original Portfolio
BOND HOLDINGS AS OF 9/30/05
ISSUER                         MDYS   COUPON           MATURITY          PRICE        MKT VAL (000)     PORT %        YTM/C       MOD DUR
----------------------------   ----   ---------       ----------        ----------   ----------        ------         ------     -----
CASH & EQUIVALENTS             AAA            3.75       10/31/2005            100                26          2.58        3.75          0.08
CASH & EQUIVALENTS             AAA            3.75       10/31/2005            100                36          3.57        3.75          0.08
FEDERAL HOME LN MTG CORP       AGY            5.25         1/15/2006     100.329                  25          2.51      4.064           0.29
UNITED STATES TREAS NTS        TSY                2        5/15/2006        98.77                 70          6.91      4.009           0.61
UNITED STATES TREAS NTS        TSY              2.5        9/30/2006       98.438                 69          6.83        4.11          0.97
CINGULAR WIRELESS              BAA2         5.625        12/15/2006      101.211                  21          2.04      4.577           1.14
FEDERAL NATL MTG ASSN          AGY                5        1/15/2007     100.757                  25          2.52      4.385           1.23
HOUSEHOLD FINANCE CORP         A1             5.75         1/30/2007     101.551                  21          2.03      4.533           1.26
SAFEWAY INC                    BAA2             4.8        7/16/2007       99.841                 25            2.5     4.889           1.68
UNITED STATES TREAS NTS        TSY            2.75         8/15/2007       97.477                 93          9.21      4.161            1.8
NATL RURAL UTIL                A1             3.25         10/1/2007       97.305                 25          2.45      4.675           1.88
FEDERAL NATL MTG ASSN          AGY            5.25         1/15/2009     102.309                  26          2.56      4.485           2.97
DAIMLERCHRYSLER NA CORP        A3               7.2         9/1/2009     106.684                  21          2.13      5.288           3.39
UNITED STATES TREAS NTS        TSY          3.375          9/15/2009       97.008                 68          6.74      4.203           3.65
FEDERAL NATL MTG ASSN          AGY          7.125          6/15/2010       110.79                 28            2.8     4.551           3.95
CENTEX CORP                    BAA2           4.55         11/1/2010       96.684                 10          0.98      5.301           4.38
ALCOA INC                      A2                 6        1/15/2012       105.81                 21          2.12      4.914           5.18
AOL TIME WARNER                BAA1         6.875           5/1/2012     109.289                  22          2.22      5.191           5.19
LILLY ELI & CO                 AA3                6        3/15/2012     106.798                  27          2.65      4.764           5.35
INTERNATIONAL PAPER CO         BAA2           5.85       10/30/2012      102.528                  26            2.6     5.415           5.63
FEDERAL NATL MTG ASSN          AA2            5.25          8/1/2012     102.734                  21          2.05      4.775           5.67
GENL ELEC CO                   AAA                5         2/1/2013     100.831                  15          1.51      4.863           6.04
MORGAN STANLEY                 A1             4.75          4/1/2014       96.477                 25          2.45      5.269           6.72
STATOIL AKTIESELSKAP 144A      AA2          5.125          4/30/2014       101.36                 16          1.54      4.928           6.75
CITIGROUP INC                  AA1          5.125           5/5/2014       101.17                 21          2.05      4.956           6.76
UNITED STATES TREAS BONDS      TSY            4.75         5/15/2014     103.023                  16          1.56      4.326           6.93
COMCAST CORP NEW               BAA2             6.5        1/15/2015     108.025                  22          2.17      5.389           6.94
SOUTHERN POWER CO              BAA1         4.875          7/15/2015       97.541                 25          2.44      5.198            7.6
UNITED STATES TREAS BONDS      TSY          9.125          5/15/2018     144.246                  30          2.93      4.494           8.22
UNITED STATES TREAS BONDS      TSY            8.75         8/15/2020     144.731                  29          2.89      4.572            9.4
UNITED STATES TREAS BONDS      TSY          6.125        11/15/2027        120.66                 37          3.66      4.623          12.75
CONOCOPHILLIPS                 A3               5.9      10/15/2032      108.263                  28          2.75        5.32         13.62
FEDERAL HOME LN MTG CORP       AGY            6.25         7/15/2032       119.43                 18            1.8     4.934          13.94
UNITED STATES TREAS BONDS      TSY          5.375          2/15/2031     112.031                  23          2.23      4.569          14.35
                               ----   ---------       ----------        ----------   ----------        ------         ------     -----
                               AA1          4.651                6.47    104.813                1009           100      4.543            4.5


                                                                 17
                 Appendix C: Sample Credit Analysis: Bullet Summaries


                               Morgan Stanley Credit Report
                                    December 9, 2005

   Morgan Stanley is the fifth largest corporation in its sector [Diversified Financial Services]
    with market capitalization of $58.83B (Citigroup is the largest at $233.32B and Goldman
    Sachs is just below MWD at $58.77B).

   Credit card industry may be headed for a rough patch as customers and stores are both
    getting fed up with fees and charges, government may be stepping in with legislation to
    prevent ―loan shark‖ tendencies. Stock analysts have identified Morgan Stanley‘s Discover
    credit card as a company weakness.

   CEO – John Mack. Mack was the president and COO of MWD until 2001 when he left after
    a power struggle with Philip Purcell, the CEO. When Purcell was ousted in summer 2005,
    the board voted unanimously to name Mack chairman and CEO.
        o Our bond‘s spread narrowed soon after Mack was named chairman and this held
           through the summer (approximately 90 BP in mid-late July and August). But the
           spread has been gradually rising since (approximately 110 BP from mid-October to
           the present). In the past week, the spread has come down somewhat and is now
           trading at 98 BP but this may not be permanent.
        o Mack‘s plans: wants to buy a hedge fund—already made an offer for FrontPoint, but
           the deal didn‘t go through apparently because the two firms could not agree on a
           price. Also wants to bring back top employees who left during Purcell‘s tenure.
        o Zoe Cruz remains the acting president and has verbal support from Mack, but he has
           not removed the ‗acting‘ from her title—mixed signals.

   Merrill Lynch recently downgraded MWD‘s stock from a Buy to a Hold (11/4/05). Analysts
    singled out the leadership of Mack, saying that Morgan Stanley‘s turnaround has been going
    slowly and has been hurt by rising costs. Merrill Lynch analysts admitted that they may have
    been too optimistic about Mack‘s ability to fix things quickly although they stated that they
    still believe in the value of the franchise.

   Morgan Stanley took a $1 billion charge to write off the value of its aircraft financing
    business, causing its 2005 third quarter profits to drop 83%. Before the charge, it had
    surpassed Wall Street‘s expectations.

   Top management changes: Equity sales head Sheldon Johnson is retiring after 25 years at
    the firm. Chairman of operations in Europe is also retiring and will be replaced by Jonathan
    Chenevix-Trench who is moving up from the European management committee.

   Our bond ratings:
          Moody‘s: A1 Negative Effective: 11/2/05
          S&P:        A Stable   Effective: 10/11/05
          Fitch:     A+ Negative Effective: 4/11/05


                                              18
                               Goldman Sachs Credit Report
                                     December 9, 2005

   Operates in three segments: Investment Banking (financial advisory services), Trading and
    Principal Investments (interest rate and credit products, etc.), and Asset Management and
    Securities Services (investment advisory and financial planning services). The company
    serves institutions and individuals, including pension funds, governmental organizations,
    corporations, insurance companies, foundations and endowments.

   4th largest company in the Investment Banking/Banking industry behind Citi Group, JP
    Morgan Chase & Co, and Merrill Lynch. (Market Cap of 60,747.43 MLN)

   CEO – Hank M Paulson. Took over in May 1999. Paulson refuses to follow the pack. He
    scorns the very idea that Goldman should seek out a merger partner so that it can lend big.
    "We don't need to buy a [commercial] bank," he says. "If we wanted to reduce our return on
    equity by 50% through lending, we could do it ourselves." Instead, he is determined to see
    that Goldman will remain a pure-play investment bank.

   COO – Lloyd C Blankfein. Took over in December 2003. Has been at Goldman since 1982,
    and was a tax attorney prior to that. He is known to be aggressive in business and a risk
    taker, and some believe that this could eventually backfire on Goldman. Anecdotal evidence
    suggests that there is some unrest at the firm; as FICC generates a higher and higher
    proportion of overall revenues, the bankers who formed the old backbone of the firm – those
    from M&A and equity capital markets – are allegedly getting the brush-off from the new
    guys at the top. Some say this shift was exposed to the outside world by the shock
    departures in 2003 of veteran M&A banker John Thornton and COO John Thain. Both had
    spent more than 20 years at Goldman and had been seen as heirs to Mr Paulson‘s throne.

   Recent News:
    o 11/15—Paulson says growth, returns will be ‗above average‘ Says they won‘t pursue
       size for its own sake
    o Involved in a lawsuit with the Koch/GP deal, but not named as a defendant. Also settled
       lawsuit over NYSE sale to Archipelago. GS didn‘t have to pay out anything as a result

 DBRS (Dominion 11/22) puts GS‘s debt ―Under review with positive implications‖ as a
   result of GS‘s success in execution of its strategies to increase earnings diversification –
   reducing earnings volatility- while maintaining leadership in equity capital markets and
   investment banking products.

 Management maintains excellent liquidity, keeps expenses flexible and has demonstrated
   robust risk control in many market environments

 Revenue can be volatile from Q to Q, but mitigated by several factors: diversification of
   trading business by asset class, instrument, and geography; limited appetite for illiquid
   assets and good overall risk controls; flexibility in the firm‘s expense base.




                                              19
 Pressure is being placed on major investment banks to lend but this could weaken the firm‘s
   credit quality for two reasons.1) They are at a liquidity disadvantage to commercial banks
   due to lack of a deposit base; and 2) Wholesale lending creates lumpy credit risks that
   generate sub-par standalone returns and have large potential downsides. GS protected
   against these risks a couple of ways; letters of credit from SMFG; starting two new
   companies (the Williams Street entities) to make and prefund credit commitments and loans
   (non-recourse and not guaranteed by GS)

 Litigation risk is always an issue in the industry, but GS has strong advisory franchises and a
   conservative culture that allows it to turn business away and GS is also inherently less
   conflicted

 GS acknowledges that it will take on higher-risk transactions under certain conditions.
   (Returns must be sufficient, downside risk manageable and measurable, magnitude of the
   risk reasonable relative to earnings power of the firm). They have demonstrated time and
   time again their ability to manage these risks.

           Potential bond: 10/1/9 GS, 7.35 coupon, A+ rating, yield 5.026, spread 65.70



                           Motorola Corporation Credit Report
                                    January 30, 2006

   Provides mobility products and solutions across broadband, embedded systems, and wireless
    networks worldwide. It operates in four segments: Mobile Devices (wireless subscriber and
    server equipment), Networks (wireless infrastructure communication systems), Government
    and Enterprise Mobility Solutions (analog and digital two-way radio, voice, and data
    communications products and systems), and Connected Home Solutions (digital systems and
    set-top terminals for cable TV and broadcast networks).

   CEO – Edward J. Zander, Chairman, CEO and Chairman of Exec. Committee since January
    2004. Former COO of Sun Microsystems from 1998-2002 before retiring due to lack of
    promotional opportunity. Hands on CEO, considered by many to be very intelligent and
    high energy. When he came in, he decided to focus Motorola more on the consumer
    electronics business and return to a customer oriented focus targeting not only individual
    consumers, but corporate clients as well. Largely responsible for the turnaround Motorola
    experienced. Recently, he was named MarketWatch CEO of the year for 2005.

   CFO and Executive VP – David Devonshire. With Motorola since April 2002. Former CFO
    of Ingersoll-Rand from 2000-2002; appointed by former CEO Christopher Galvin.
    Financial strategy centered on improving Motorola‘s cash position and paying down debt in
    order to make cash flows more predictable. Announced a $4 billion stock repurchase plan
    announced in May 2005 to be completed within the next 3 years (Motorola‘s first repurchase
    in 62 years). Has a goal to get Motorola back to an A- rating, partly by improving their
    debt-to-total-capital ratio.

   Market Cap: 54872.73, Common Weight: 92.70%


                                              20
   About a year ago, Motorola spun off their semiconductor business (Freescale
    Semiconductor) to improve their overall capital profile.

   One of Motorola‘s biggest strengths is their innovation and leadership. As CEO Ed Zander
    said, ―It's nice that competitors are following us," he said. "I'd rather have it that way -- I'd
    rather set the agenda.‖ The RAZR phone quickly became the most popular phone on the
    market and they are planning new prototypes within the RAZR line as well as new designs
    (Slvr and Pebl) that they expect will keep them leaders in the handset market.

   Motorola‘s mobile devices division made up 58% of the company‘s total revenue this year.
    The release of the RAZR phone last year has been the largest factor contributing to the
    company‘s growth. In order to keep their profitability high, they will need to continue
    producing new innovative products.

   Not only focusing in America, Motorola should benefit from their ventures in other
    countries as well. By expanding their European and Asian cell phone markets, they should
    be able to further improve their financials. However, their profitability overseas may be
    slightly tempered by decreased margins due to the need to lower prices to successfully enter
    markets and gain market share.

   Recent News
    o Motorola announced its earnings on January 20. While they barely failed to reach their
       earnings estimates, they still had a very good end of the year overall. Revenue rose 18%
       to $10.43 billion, net earnings for the quarter increased to $1.2 billion from $641 million
       one year ago.

    o Fourth quarter income rose 86%. Their government unit had an 8% increase in sales and
      a 41% increase in operating earnings. Their networks segment had an 18% drop in
      operating earnings and a 4% drop in sales and its connected home division had a 1% rise
      in sales.

    o Sales of their handsets increased from 31.8 million to 44.7 million, again, barely missing
      expectations.

    o They are the second largest company in their industry following Nokia that controls 33%
      of the market. Their world market share went up 3% to 19% total this past year.

   Bond Ratings:
          Moody‘s: Baa2 Stable Effective: 6/2/05
          S&P:     BBB+ Positive Effective: 3/16/06
          Fitch:   BBB+ Positive Effective: 1/20/05
    o Bond was upgraded 6 months ago by 2, 1 year ago by 1




                                                21