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prepared by
Mark R. Gensheimer
Executive Vice President
mgensheimer@csmckee.com
C. S. McKee, L.P.
One Gateway Center
Pittsburgh, PA 15222
412/566-1234
www.csmckee.com
C. S. McKee’s Domestic Value Equity
Second Quarter 2008 Review
C. S. McKee, L.P.
C. S. McKee, L. P.
Domestic Value Equity Commentary, Second Quarter
2008 sales as consumers went bargain-hunting during this
They say it’s never wise to poke a sleeping bear. And period of economic weakness. Dell prospered through
yet, that is exactly what the markets did in the second expanded computer sales overseas while the booming
quarter, finishing the period with the worst performing commodities market sent mining firm Freeport
month of June since 1930. The Dow Jones Industrial McMoRan Copper & Gold higher.
Average ended the quarter with a 7.4% loss, leaving the
index down 14.4% for the first half of the year and down Higher commodity and food prices hurt Proctor and
19.9% from its October, 2007 high. The index was just Gamble by cutting into profit margins. The ongoing
20 points away from being in an official bear market. credit crisis and sub-prime mortgage woes continued to
The S&P 500 Index fell 3.2% for the quarter, and is also drag down the financial names in the portfolio, including
close to bear market territory. Bank of America and American International Group.
Finally, the weakening economy negatively affected the
As the price of oil continues to soar (up 38% in the performance of GE, FedEx, Ingersoll Rand and
quarter alone), it acts as both a threat to economic Honeywell within the Industrial sector.
growth and a driver of inflation. Higher energy prices
force consumers to spend less on other goods and Summary
services while driving up production and shipping costs. It appears almost certain that the market will officially
dip into “bear market” territory sometime early in the
A second weight on the market continues to be the third quarter. The good news is that historically, once
ongoing credit crisis, which has been devastating to the market hits this arbitrary 20% mark, it has already
many financial services firms, banks and brokerage suffered most of its losses. Since 1945 there have been
firms in particular. Financials were the worst 11 bear markets (as defined by the S&P 500 index)
performing sector in the Russell 1000 Value Index for producing an average decline of 30.4% and taking 386
the quarter, falling over 19%. days to go from peak to trough. Based on those
averages, this bear market could have another 125 days
Against this backdrop, C.S. McKee’s Value Equity to go and fall another 10% from its October, 2007 peak.
composite has performed quite well relative to the
Russell 1000 Value index. Aided by a portfolio
overweight to the Energy sector and continued
underweight to the Financial sector, the composite
finished the quarter at –2.46% compared to -5.31% for
the Index.
What helped and what hurt this quarter?
Higher oil prices and better refining margins helped
Marathon Oil, Chevron and Conoco Phillips to rally by
double digits, beating even bellweather Exxon. Apache
C. S. McKee, L. P. page 1
gained in a strong natural gas market. Wal-Mart
Performance, Value Equity
Quarter endedYear-to-DateYear ended Year ended Year ended Year ended Year ended Year ended Year ended Annualized Ended
6/30/08
6/30/08 6/30/08 2007 2006 2005 2004 2003 2002 2001 1 Year 3 Years 5 Years 7 Years
C. S. McKee -2.46% -9.61% 6.04% 14.97% 11.91% 14.44% 40.59% -12.77% 7.26% -11.87% 5.61% 10.92% 8.43%
Russell 1000 Value Index -5.31% 13.57% -0.17% 22.25% 7.05% 16.49% 30.03% -15.52% -5.59% -18.78% 3.53% 8.92% 4.72%
Value-Added Return 2.85% 3.96% 6.21% -7.28% 4.86% -2.05% 10.56% 2.75% 12.85% 6.91% 2.08% 2.00% 3.71%
Attribution
Stock Selection: 1.56% 1.83% 4.60% -6.33% 4.78% -0.20% 8.98% 2.38% 10.99%
Sector Selection: 1.29% 2.13% 1.61% -0.95% 0.08% -1.85% 1.58% 0.37% 1.86%
Russell 1000
McKee Value Stock Sector
Sector ReturnSector ReturnVarianceVariance Total
Consumer Discretionary -3.04 -7.80 0.40 -0.03 0.37
Consumer Staples -2.43 -5.98 0.36 -0.01 0.35
Energy 17.67 16.01 0.31 0.49 0.80
Financials -24.33 -19.19 -1.06 1.02-0.03
Healthcare -5.02 -3.10 -0.14 0.00-0.14
Industrials -5.11 -13.11 1.13 -0.20 0.93
Information Technology 5.09 -0.44 0.26 0.08 0.34
Materials 7.87 2.35 0.22 -0.02 0.20
Telecommunication Services -11.00 -4.75 -0.16 -0.02-0.18
Utilities 12.13 7.64 0.19 -0.31-0.12
Up Cap Up Cap Down Cap Down Cap
Cash 0.74 0.00 0.04 0.28 0.32 Return Ratio Return Ratio
Large Cap Value 17.48 101.57 -11.87 63.23
Total Returns/Variance -2.46 -5.31 1.56 1.29 2.85 R1000V Index 17.21 100.00 -18.78 100.00
C. S. McKee requests that any third party provide our performance data only on a “one-on-one” basis and disclose the following: C. S. McKee, L. P. has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS®). C. S. McKee, L. P. has received a firm-wide verification from Ashland Partners & Company, LLP through
2007. Disclosures are the representation of management and actual results have not been examined by Ashland Partners & Company, LLP. Past performance is not indicative of future results. Performance results, except for McKee International Equity, do not reflect the impact of investment fees. Actual fees are dependent upon account size and may be as much as
0.75%. As an example, the effect of investment management fees on the total value of a client’s portfolio assuming (a) $1,000,000 investment, (b) portfolio return of 8% a year, and (c) 0.75% annual investment advisory fee would be $7,806 in the first year, cumulative effects of $48,724 over five years and $131,256 over ten years. Actual investment advisory fees incurred
by clients may vary. Performance assumes the reinvestment of all dividends and capital gains. All performance results are expressed in U. S. dollars. For a complete list and description of composites and/or a full disclosure presentation that adheres to the GIPS® standards, please visit www.csmckee.com or call (412)566-1234.
C. S. McKee, L. P. page 2
Portfolio Characteristics, Value Equity
at June 30, 2008
Top 10 Holdings & Industries/Best & Worst
Benchmark Comparisons
Performers
% of % of
Russell 1000 Top 10 Holdings Portfolio Top 10 Industries
C. S. McKee Value Index Difference Portfoli
Number of Holdings 49 666 -617 Apache APA 6.04 o
Chevron CVX 5.42
Weighted Average Capitalization ($Mil) 75,995 92,110 -16,115 ConocoPhillips COP 5.29 Oil & Gas 23.30
Mean Capitalization ($Mil) 61,896 12,881 +49,015 Marathon Oil MRO 4.83 Commercial Banks 6.20
Public Service Enterprise Group PEG 3.51 Diversified Financial Services 5.01
Median Capitalization ($Mil) 36,725 4,356 +32,369 Wal-Mart Stores WMT 3.36 Insurance 4.48
Yield (%) 2.66 3.05 -0.39 Procter & Gamble PG 3.07 Metals & Mining 4.45
Beta (Volatility) 0.86 1.00 -0.14 Intel INTC 2.99 Specialty Retail 3.79
Burlington Northern Santa Fe BNI 2.79 Machinery 3.54
R-Squared (Risk due to Market) 0.92 1.00 -0.08 ALCOA AA 2.62 Multi-Utilities 3.51
5-Year Standard Deviation (Variability) 9.43 9.90 -0.47 Healthcare Providers & Services 3.42
Price-to-Book 2.62 1.69 +0.93 Total Multi-Retail Total
3.36
10 Best Performing Holdings Return 10 Worst Performing Holdings
Price-to-Earnings Ratios: Return
2007 Actual P/E Ratio (FY0) 13.3 15.4 -2.1 ConocoPhillips COP 24.49
2008 Forecast P/E Ratio (FY1) 11.8 14.3 -2.5 Freeport-McMoran FCX 22.30 American Int’l Group AIG -38.48
Chevron CVX 16.90 Bank of America BAC -35.78
2009 Forecast P/E Ratio (FY2) 10.5 11.5 -1.0 Dover DOV 16.21 SunTrust Banks STI -33.36
% EPS Growth - Next 5 Years 11.3 9.5 +1.8 Apache APA 15.17 General Electric GE -27.08
Public Service Enterprise Group Merrill Lynch & Company MER -21.63
PEG 15.10 CitiGroup C -20.79
Marathon Oil MRO 14.26 Masco MAS -19.71
Transocean RIG 12.71 JP Morgan Chase & Company
Weighting by Economic DellL DELL 9.84 JPM -19.46
25% Sector Burlington Northern Santa Fe BNI 8.63 John Hancock Bank & Thrift
BTO -19.30
C.S. McKee Unionbancal UB -16.75
Russell 1000 Value Index
20% Diversification by Market Capitalization
Percent of Portfolio
C. S. McKee Russell 1000 Value
Stocks % of Portfolio Stocks % of Index
15%
Less than $5.0 Billion 2 1.2 363 11.6
$5.0 Billion - $10.0 Billion 9 14.1 132 10.4
10%
$10.0 Billion - $25.0 Billion8 12.5 97 17.0
$25.0 Billion - $50.0 Billion13 31.9 43 16.5
5% Over $50.0 Billion 17 40.3 31 44.5
49 100.0 666 100.0
0%
Consumer Consumer Energy Financials Health Care Industrials Information M aterials Telecomm Utilities
Discretionary Staples Technology Service
C. S. McKee, L. P.
page 3
Value Equity
Portfolio Holdings at June 30, 2008
% of % of
Ticker Company Name Portfolio Ticker Company Name Portfolio
AA ALCOA INC 2.62% HIG HARTFORD FINL SVCS 2.03%
ALL ALLSTATE CORP 0.89% HON HONEYWELL INTL INC 2.12%
MO ALTRIA GROUP INC 0.53% HUM HUMANA INC 0.93%
ABC AMERISOURCE-BERGEN 1.58% IR INGERSOLL-RAND CO 1.13%
AIG AMERN INTL GROUP INC 1.55% INTC INTEL CORP 2.99%
APA APACHE CORP 6.04% BTO JOHN HANCOCK BK&THR 0.72%
T AT&T INC 2.24% JNJ JOHNSON & JOHNSON 0.99%
AZO AUTOZONE INC 1.76% JPM JPMORGAN CHASE & CO 2.02%
BAC BANK OF AMERICA CORP 1.75% LH LABORATORY CORP AMER 1.45%
BBY BEST BUY INC 1.40% MRO MARATHON OIL CORP 4.83%
BNI BURLINGTN NRTHRN S F 2.79% MAS MASCO CORP 0.43%
CVX CHEVRON CORP 5.42% MCD MCDONALDS CORP 2.55%
C CITIGROUP INC 0.80% MER MERRILL LYNCH & CO 1.46%
COP CONOCOPHILLIPS 5.29% PFE PFIZER INC 0.77%
DF DEAN FOODS CO NEW 0.41% PM PHILIP MORRIS INTL 1.27%
DELL DELL INC 2.08% PG PROCTER & GAMBLE CO 3.07%
DOV DOVER CORP 2.41% PEG PUBLIC SVC ENTERPR 3.51%
EMR EMERSON ELEC CO 1.99% DGX QUEST DIAGNOSTICS 1.03%
FDX FEDEX CORPORATION 0.76% STI SUNTRUST BANKS INC 0.91%
FO FORTUNE BRANDS INC 1.93% RIG TRANSOCEAN INC 1.72%
FPL FPL GROUP INC 1.36% UB UNIONBANCAL CORP 1.77%
FCX FREEPORT-MCMORAN C&G 1.83% UTX UNITED TECHNOLOGIES 1.12%
GPS GAP INC 0.64% USB US BANCORP DEL 1.76%
GE GENERAL ELECTRIC CO 1.02% WMT WAL MART STORES INC 3.36%
GIS GENERAL MILLS INC 1.41% CASH CASH 5.52%
C. S. McKee, L. P. page 4
Performance Update, Gross of Fees
Primary Composites (vs. Policy Benchmarks) at June 30, 2008
2001 2002 2003 2004 2005 2006 2007 2nd Qtr. 2008 YTD 2008
Equity (1/1/08-6/30/08)
McKee Domestic Core Equity 9.41% -13.30% 40.95% 9.47% 12.52% 13.90% 3.35% -0.95% -10.59%
S&P 500 -11.88% -22.10% 28.68% 10.88% 4.91% 15.80% 5.49% -2.73% -11.91%
Value-Added 21.29% 8.80% 12.27% -1.41% 7.61% -1.90% -2.14% 1.78% 1.32% C. S. McKee requests that any third
party provide our performance data
only on a “one-on-one” basis and
McKee Domestic Value Equity 7.26% -12.77% 40.59% 14.44% 11.91% 14.97% 6.04% -2.46% -9.61% disclose the following: C. S. McKee,
L. P. has prepared and presented
Russell 1000 Value -5.59% -15.52% 30.03% 16.49% 7.05% 22.25% -0.17% -5.31% -13.57% this report in compliance with the
Value-Added 12.85% 2.75% 10.56% -2.05% 4.86% -7.28% 6.21% 2.85% 3.96% Global Investment Performance
Standards (GIPS®).
C. S. McKee, L. P. has received a
McKee International Equity (Net)1-14.99%-15.56%38.33% 23.11% 10.80% 25.35% 11.44% -1.87% -8.04% firm-wide verification from Ashland
EAFE -21.44% -15.94% 38.59% 20.25% 13.54% 26.34% 11.17% -2.25% -10.96% Partners & Company, LLP through
2007. Disclosures are the
Value-Added 6.46% 0.38% -0.26% 2.86% -2.74% -0.99% 0.27% 0.38% 2.92% representation of management and
actual results have not been
examined by Ashland Partners &
McKee Small-Cap Core Equity2 -13.54%3 40.33% 21.82% 9.24% 32.03% 1.91% 4.03% -4.25% Company, LLP.
Russell 2000 -23.53%3 47.25% 18.33% 4.55% 18.37% -1.57% 0.58% -9.37% Past performance is not indicative of
Value-Added 9.99% -6.92%
3
3.49% 4.69% 13.66% 3.48% 3.45% 5.12% future results. Performance results,
except for McKee International
Equity, do not reflect the impact of
McKee Small-Cap Value Equity4 -13.54%3 40.33% 21.82% 9.24% 32.03% 1.93% 0.20% -5.72% investment fees. Actual fees are
dependent upon account size and
Russell 2000 Value -19.17%3 46.03% 22.25% 4.71% 23.48% -9.78% -3.55% -9.84% may be as much as 0.75%. As an
Value-Added 5.63%3 -5.70% -0.43% 4.53% 8.55% 11.71% 3.75% 4.12% example, the effect of investment
management fees on the total value
of a client’s portfolio assuming (a)
McKee All-Cap Equity5 41.30% 10.45% 12.54% 15.43% 3.27% -0.33% -9.90% $1,000,000 investment, (b) portfolio
return of 8% a year, and (c) 0.75%
Russell 3000 31.06% 11.95% 6.12% 15.72% 5.14% -1.69% -11.05% annual investment advisory fee
Value-Added 10.24% -1.50% 6.42% -0.29% -1.87% 1.36% 1.15% would be $7,806 in the first year,
cumulative effects of $48,724 over
five years and $131,256 over ten
years. Actual investment advisory
Fixed Income fees incurred by clients may vary.
McKee Aggregate 8.92% 10.33% 4.42% 4.74% 3.56% 5.07% 7.61% -0.12% 3.04% Performance assumes the
reinvestment of all dividends and
Lehman Brothers Aggregate 8.44% 10.26% 4.10% 4.34% 2.43% 4.33% 6.97% -1.02% 1.13% capital gains. All performance
Value-Added 0.48% 0.07% 0.32% 0.40% 1.13% 0.74% 0.64% 0.90% 1.91% results are expressed in U. S.
dollars.
1 In addition to the normal risks
McKee Government/Credit 9.59% 11.74% 4.92% 5.21% 3.86% 4.86% 8.68% -0.29% 2.93% associated with equity investing,
Lehman Bros. Government/Credit8.50% 11.04% 4.67% 4.19% 2.37% 3.78% 7.23% -1.51% 0.98% international investing may involve
risk of capital loss from unfavorable
Value-Added 1.09% 0.70% 0.25% 1.02% 1.49% 1.08% 1.45% 1.22% 1.95% fluctuations in currency values, from
differences in generally accepted
accounting principals or from
McKee Government 7.37% 11.43% 2.52% 5.23% 3.76% 5.07% 9.39% -0.29% 3.70% economic or political instability in
Lehman Brothers Government 7.23% 11.50% 2.36% 3.48% 2.65% 3.48% 8.66% -1.91% 2.06% other nations. The performance
data quoted represents past
Value-Added 0.14% -0.07% 0.16% 1.75% 1.11% 1.59% 0.73% 1.62% 1.64% performance and the investment
return and principal value of an
investment will fluctuate so that an
McKee Interm. Govt./Credit 9.38% 10.27% 4.52% 4.03% 2.46% 4.77% 7.72% -0.34% 2.84% investor’s shares, when redeemed,
Lehman Bros. Interm .Govt./Credit 8.96% 9.84% 4.31% 3.04% 1.58% 4.08% 7.39% -1.53% may be worth more or less than
1.43% their original cost.
Value-Added 0.42% 0.43% 0.21% 0.99% 0.88% 0.69% 0.33% 1.19% 1.41% 2 4/1/02 Inception
3 Partial year (4/1/02 - 12/31/02).
McKee Intermediate Aggregate 8.81% 9.33% 4.25% 4.47% 3.24% 5.55% 7.72% 0.08% 3.04% 4 All history prior to 3/1/07
represents performance of the
Lehman Bros. Intermediate Aggregate 8.68% 9.49% 3.81% 3.74% 2.01% 4.58% 7.02% -0.96% Small-Cap Core Equity composite.
1.36% 5 1/1/03 Inception
Value-Added 0.13% -0.16% 0.44% 0.73% 1.23% 0.97% 0.70% 1.04% 1.68% Please contact C. S. McKee, L.P. to
receive a complete list and
description of composites and/or a
full disclosure presentation that
adheres to the GIPS® standards.
C. S. McKee, L. P. page 5
Performance Update, Gross of Fees
Primary Composites (vs. Policy Benchmarks), Trailing Periods ending June 30, 2008
Annualized
1 Year 2 Years 3 Years 4 Years 5 Years 6 Years 7 Years 7 ½ Years
Equity
McKee Domestic Core Equity -15.10% 1.51% 4.08% 6.32% 8.93% 8.84% 7.07% 7.61% C. S. McKee requests that any third
party provide our performance data
S&P 500 -13.12% 2.36% 4.41% 4.88% 7.58% 6.33% 2.45% 1.35% only on a “one-on-one” basis and
Value-Added -1.98% -0.85% -0.33% 1.44% 1.35% 2.51% 4.62% 6.26% disclose the following: C. S. McKee,
L. P. has prepared and presented this
report in compliance with the Global
McKee Domestic Value Equity -11.87% 2.99% 5.61% 8.09% 10.92% 9.87% 8.43% 8.60% Investment Performance Standards
(GIPS®).
Russell 1000 Value -18.78% -0.51% 3.53% 6.06% 8.92% 7.20% 4.72% 4.23% C. S. McKee, L. P. has received a
Value-Added 6.91% 3.50% 2.08% 2.03% 2.00% 2.67% 3.71% 4.37% firm-wide verification from Ashland
Partners & Company, LLP through
2007. Disclosures are the
McKee International Equity (Net)1 -8.63% 7.70% 13.49% 12.90% 17.20% 12.38% 9.72% 7.66% representation of management and
EAFE -10.61% 6.55% 12.84% 13.04% 16.67% 12.45% 9.01% 6.13% actual results have not been examined
by Ashland Partners & Company,
Value-Added 1.98% 1.15% 0.65% -0.14% 0.53% -0.07% 0.71% 1.53% LLP.
Past performance is not indicative of
4
McKee Small-Cap Core Equity -10.37% 4.00% 12.08% 13.07% 15.86% 12.84% 12.43% 4
future results. Performance results,
except for McKee International
Russell 2000 -16.19% -1.22% 3.79% 5.18% 10.29% 8.21% 6.37%4 Equity, do not reflect the impact of
Value-Added 5.82% 5.22% 8.29% 7.89% 5.57% 4.63% 6.06% investment fees. Actual fees are
dependent upon account size and may
be as much as 0.75%. As an example,
McKee Small-Cap Value Equity2 -11.42% 3.20% 11.51% 12.63% 15.50% 12.55% 12.15%4
4
the effect of investment management
fees on the total value of a client’s
Russell 2000 Value -21.63% -4.63% 1.39% 4.50% 10.02% 7.58% 6.90%4 portfolio assuming (a) $1,000,000
Value-Added 10.21% 7.83% 10.12% 8.13% 5.48% 4.97% 5.25% investment, (b) portfolio return of 8%
a year, and (c) 0.75% annual
investment advisory fee would be
McKee All-Cap Core Equity3 -14.63% 1.87% 4.87% 7.02% 9.62% 9.36% 12.23% $7,806 in the first year, cumulative
effects of $48,724 over five years
Russell 3000 -12.69% 2.39% 4.73% 5.55% 8.37% 7.07% 9.95% and $131,256 over ten years. Actual
Value-Added -1.94% -0.52% 0.14% 1.47% 1.25% 2.29% 2.28% investment advisory fees incurred by
clients may vary. Performance
assumes the reinvestment of all
Fixed Income dividends and capital gains. All
performance results are expressed in
McKee Aggregate 9.47% 8.08% 5.49% 5.93% 4.77% 5.83% 6.18% 6.34% U. S. dollars.
Lehman Brothers Aggregate 7.12% 6.62% 4.09% 4.76% 3.85% 4.92% 5.44% 5.57% 1 In addition to the normal risks
associated with equity investing,
Value-Added 2.35% 1.46% 1.40% 1.17% 0.92% 0.91% 0.74% 0.77% international investing may involve
risk of capital loss from unfavorable
fluctuations in currency values, from
McKee Government/Credit 9.82% 8.44% 5.61% 6.33% 4.90% 6.40% 6.71% 6.88% differences in generally accepted
Lehman Brothers Government/Credit 7.24% 6.62% 3.83% 4.68% 3.58% 5.12% 5.56% 5.66% accounting principals or from
economic or political instability in
Value-Added 2.58% 1.82% 1.78% 1.65% 1.32% 1.28% 1.15% 1.22% other nations. The performance data
quoted represents past performance
and the investment return and
McKee Government 10.77% 8.89% 6.01% 6.63% 5.14% 6.08% 6.48% 6.43% principal value of an investment will
Lehman Brothers Government 9.68% 7.60% 4.60% 5.11% 3.78% 5.00% 5.54% 5.48% fluctuate so that an investor’s shares,
when redeemed, may be worth more
Value-Added 1.09% 1.29% 1.41% 1.52% 1.36% 1.08% 0.94% 0.95% or less than their original cost.
2 All history prior to 3/1/07
McKee Intermediate Government/Credit 9.05% 7.59% 5.30% 5.34% 4.32% 5.48% 5.84% 6.11% represents performance of the Small-
Cap Core Equity composite.
Lehman Brothers Intermediate Government/Credit 7.37% 6.57% 4.27% 4.40% 3.49% 4.68% 5.17%
5.38% 3All history for McKee’s All-Cap
Core Equity portfolio prior to its
Value-Added 1.68% 1.02% 1.03% 0.94% 0.83% 0.80% 0.67% 0.73% 1/1/03 inception date uses the
weighted average performance
results of the Large-Cap Core and
McKee Intermediate Aggregate 9.36% 8.12% 5.79% 5.83% 4.91% 5.65% 5.97% 6.17% Small-Cap Core composites.
Lehman Brothers Intermediate Aggregate 7.17% 6.58% 4.35% 4.61% 3.85% 4.64% 5.21% 5.39% 4 Investment returns for McKee’s
Value-Added 2.19% 1.54% 1.44% 1.22% 1.06% 1.01% 0.76% 0.78% Small-Cap Core and Small-Cap Value
portfolios and their respective
benchmark indices reflect the period
from the products’ 4/1/02 inception
date. Accordingly, the results under
the trailing 7-year column represent
the 6 ¼-year period 4/1/02 through
6/30/08.
C. S. McKee, L. P. page 6 Please contact C. S. McKee, L.P. to
receive a complete list and
description of composites and/or a
full disclosure presentation that
