Spectrum Asset Management / Principal Adviser Select Preferred Securities Investment Philosophy Spectrum Preferred Securities is managed to an intermediate duration, and is predominantly comprised of $25 Par Preferred Securities that trade on the NYSE. Spectrum feels that because retail investors are the primary owners of $25 Par Preferred Securities, there is more inefficiency, and more trading opportunities that can be exploited than are usually found with other fixed income sectors that are owned primarily by institutional investors Spectrum's strategy provides yield enhancement over traditional fixed income portfolios without subjecting the portfolio to increased credit risk. Investment Selection Process Spectrum invests in issues that offer high quality, risk-adjusted yield premiums and compensation for any subordination, liquidity, maturity, and call differences. Only issuers whose senior unsecured debt is rated BBB-, or above by at least two credit rating agencies are included in Spectrum's investment universe. Key drivers in the security selection process are credit strength and yield. For a security to be considered for investment, the credit status of the issuer must be improving or stable. The security yield must be attractive, given the credit rating and credit trend relative to other preferred securities. Sell decisions can be either a function of a credit development or recognition that the preferred yield has become "rich" relative to the debt level. Approximately 30-40% of the portfolio will qualify for the 15% tax rate on dividends. Firm/Product Info Date Founded Firm Assets ($B) Firm Employee Ownership (%) Inception Date Vehicle Assets ($B) Analyst Commentary Spectrum underperformed the Bank of America Merrill Lynch Preferred Stock Fixed Rate Index (POP1) in 01 (+1.0% vs. +1.6%). During the quarter, relative underperformance came from a variety of areas, including Domestic Banking, Foreign Banking, Indu