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Pacific Asset Management
Pacific Asset Management Pamria
Overview
Shawn A. Mesaros, Principal
Pacific Asset Management, LLC
Two Union Square
601 Union Street, Suite #4200
Seattle, WA 98101
(206 933-1600 Voice(206) 600-3175 Fax(877) 637-2767 Toll Free
Building a High Probability Positive Return Portfolio
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Pacific Asset Management
Section 1
Partnership
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Pacific Asset Management Our Approach to Investing
Needs Drive Investment Parameters
Level One
Level Two
Level Three
WealthLevel
Time
HigherWealthLevel
LowerWealthLevel
Wealth Seeding Phase Wealth Building Phase Wealth Realization Phase
Basic Needs1. Housing2. Healthcare
3. Sustenance
Intermediate Needs1. Education2. Retirement3. Lifestyle enhancement
Advanced Needs1. Philanthropy2. Multiple estates3. Capital intensive pursuits Venture Capital
Absolute Return Investments
Private Equity
Private Real Estate
International Equities
International Fixed Income
Real Estate and REITS
Commodities
Domestic Fixed Income
Domestic Equities
Mutual Funds
Cash Equivalents
Asset ClassesWith Generally GreaterLiquidity and PricingFrequency, and Lesser
Complexity
Asset ClassesWith Generally LesserLiquidity and Pricing
Frequency, and GreaterComplexity
Matching Asset Classes with Wealth Levels and Investor Needs
We believe these two words asset allocation - are the mostoverused and abused words in
our business. We have fourgeneral statements concerningasset allocation:
1. The more equity (stocksand related assets)exposure you choose, themore risk you accept andthe more return you shouldexpect.
2. Emotions will not be yourfriend.
3. Long term actions shouldproduce better results than
short term reactions.4. There are no investment
short cuts.
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Pacific Asset Management Our Approach to Investing
Asset Allocation Over Time
U.S. Stocks60%
U.S. Bonds30%
Cash
10%
Historical Strategy:Cash, Stocks, and Bonds
%
Traditionally, most U.S. private clients'
portfolios were invested almost
completely in domestic stocks, bonds,
and cash, with an asset mix that
averaged about 60% in stocks, 30% in
bonds, and 10% in cash over time.
U.S. Stocks30%
EMDebt2%
EMEquity10%Int'l Debt
(Developed)5%
Int'l Equity(Developed)18%
Private Equity(VC, LBOs, O&G)5%
Real Estate5%
Cash10%
U.S. Bonds
15%
1980s:
Alternative and International Assets
%
Beginning in the mid- to late 1980s,
some institutional and a smaller
proportion of private client investors
began to shift some assets into venture
capital, real estate, LBOs, oil and gas
investments, and, more recently, into
international and emerging markets
equity and debt.
In the 1990s and after the turn of the
Millennium, institutional and private
client investors have pursued various
market-neutral strategies based on
equities (including warrant and
convertible arbitrage, hedged closed-
end fund strategies, hedged balance
sheet or cross ownership arbitrage,paired shares arbitrage, synthetic
security arbitrage, and other techniques
involving derivative instruments)
and/or fixed-income securities
(including futures, swap arrangements,
and mispricings of credit risk, yield
curve shape, and embedded and
explicit option features).
U.S. Stocks
26%
AbsoluteReturn8%
EMDebt2%
EMEquity10%
Int'l Debt(Developed)5%
Int'l Equity(Developed)18%
Private Equity(VC, LBOs,O&G) 5%
RealEstate5%
Cash9%
U.S. Bonds
12%
1990s and post-2000:Absolute Return Strategy
%
See attached disclaimer
Understanding investmentalternatives is paramount to
making prudent allocationdecisions
Different asset classespresent very differentrisk/reward characteristics
Our clients input, inconjunction with our
investment outlook, ultimatedrives the allocation decision
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GIC Chart Book| June 2010
Please refer to important information, disclosures and qualifications at the end of this material.
Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation
of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.
(19.9) (13.1)(12.0) (14.3)
8.3 7.6 6.7 5.8
(60.7) (53.9)(47.1) (40.3)
(33.5)(26.7)
11.1 10.5 9.9 9.3 8.7 8.1 5.66.26.97.5
48.146.455.0
146.6 131.4116.1
100.885.6
70.349.7
4.9 4.211.5 10.7 10.1 9.6
(80)
(40)
0
40
80
120
160
Worst One-Year Return
Average of One-Year Returns
Best One-Year Return
Median One-Year Return
Portfolio Mix
90%
0%
10%
Stocks
Bonds
Cash
80%
10%
10%
Stocks
Bonds
Cash
70%
20%
10%
Stocks
Bonds
Cash
60%
30%
10%
Stocks
Bonds
Cash
50%
40%
10%
Stocks
Bonds
Cash
40%
50%
10%
Stocks
Bonds
Cash
30%
60%
10%
Stocks
Bonds
Cash
20%
70%
10%
Stocks
Bonds
Cash
10%
80%
10%
Stocks
Bonds
Cash
0%
90%
10%
Stocks
Bonds
Cash
Year Ending December 2009
Worst One-Year Return
Average of One-Year Losses
Average of One-Year Returns
Median One-Year Return
Average of One-Year Gains
Best One-Year Return
% One-Year Negative Returns
% One-Year Positive Returns 83.2
(13.4)%
(14.3)
(3.3)
5.6
4.2
7.9
49.7
20.6
79.4
4.9
8.1
48.1
16.8
(9.3)%
(12.0)
(3.1)
6.2
82.2
(5.1)%
(13.1)
(3.5)
6.9
5.8
8.8
46.4
15.9
84.1
6.7
10.0
55.0
17.8
(1.0)%
(19.9)
(4.2)
7.5
3.1 %
75.3
(26.7)
(5.2)
8.1
7.6
11.5
70.3
20.7
79.375.9
7.3 %
(33.5)
(6.4)
8.7
8.3
13.2
85.6
22.9
77.1
9.6
14.8
100.8
24.1
11.4 %
(40.3)
(7.9)
9.39.9
10.1
16.3
116.1
24.7
74.3
15.5 %
(47.1)
(9.6)
10.7
18.0
131.4
25.7
19.7 %
(53.9)
(11.2)
10.5
73.4
11.5
19.8
146.6
26.6
23.8 %
(60.7)
(12.8)
11.1
January 1926June 2010
Returns Expressed in Percentage Terms
U.S. Domestic Risk and Reward AnalysisRolling One-Year Returns(1)(2)(3)
Note: (1) Rolling one-year returns data are calculated using 996 sample time periods. (2) Indexes used for this analysis include: (i) Stocks: S&P 500 Index Total Return; (ii) Bonds: Ibbotson U.S. Long-Term 20-Year Government IndexTotal Return; and (iii) Cash: U.S. 30-Day T-Bill Index Total Return. (3) Historical data shown represent past performance and do not guarantee comparable future results. The indexes are unmanaged. An investor cannot investdirectly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would lowerperformance.
Source: Morgan Stanley Global Wealth Management Asset Allocation Group, Ibbotson Associates.
80
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GIC Chart Book| June 2010
Please refer to important information, disclosures and qualifications at the end of this material.
Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation
of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.
(15.5) (13.2)(11.5)
(9.2)(7.2)
(5.2)(3.2) (1.7) (2.1) (2.4)
6.8 6.3 5.8 5.4
22.0 22.4 22.7 23.1
8.4 7.9 7.2 6.5 5.8 5.3 4.7 4.37.27.78.28.3
9.19.6
22.122.723.926.4
29.532.5
9.410.1
(20)
(10)
0
10
20
30
40
Worst Five-Year Return
Average Five-Year Return
Best Five-Year Return
Median Five-Year Return
Portfolio Mix
90%
0%
10%
Stocks
Bonds
Cash
80%
10%
10%
Stocks
Bonds
Cash
70%
20%
10%
Stocks
Bonds
Cash
60%
30%
10%
Stocks
Bonds
Cash
50%
40%
10%
Stocks
Bonds
Cash
40%
50%
10%
Stocks
Bonds
Cash
30%
60%
10%
Stocks
Bonds
Cash
20%
70%
10%
Stocks
Bonds
Cash
10%
80%
10%
Stocks
Bonds
Cash
0%
90%
10%
Stocks
Bonds
Cash
Year Ending December 2009
Worst Five-Year Return
Average of Five-Year Losses
Average of Five-Year Returns
Median Five-Year Return
Average of Five-Year Gains
Best Five-Year Return
% Five-Year Negative Returns
% Five-Year Positive Returns
22.7
1.6
98.4
23.1
4.0
96.095.7
22.4
1.4
98.693.8
22.1
6.1
93.990.8
23.9
7.5
92.587.7
29.5
10.6
89.4
5.9 5.6
32.5
12.3
26.4
9.2
22.7
6.2
22.0
4.3
4.7 4.3
11.6 10.7 9.5 9.1 8.4 7.8 7.1 6.4
5.8 5.4
10.1 9.4 8.4 7.9 7.2 6.5 5.8 5.3
(0.7) (0.8)
9.5 9.1 8.2 8.2 7.7 7.2 6.8 6.3
(2.1) (2.4)
(5.3) (4.8) (4.4) (3.9) (3.2) (1.8) (0.9) (0.7)
4.4 % 4.9 %
(15.5) (13.2) (11.5) (9.2) (7.2) (5.2) (3.2) (1.7)
2.5 % 3.0 % 3.5 % 4.0 %0.7 % 1.1 % 1.3 % 2.1 %
January 1926 June 2010
Returns Expressed in Percentage Terms
U.S. Domestic Risk and Reward AnalysisCompound Annual Growth Rate of Rolling Five-Year Returns(1)(2)(3)
Note: (1) Rolling five-year returns data are calculated using 948 sample time periods. (2) Indexes used for this analysis include: (i) Stocks: S&P 500 Index Total Return; (ii) Bonds: Ibbotson U.S. Long-Term 20-Year Government IndexTotal Return; and (iii) Cash: U.S. 30-Day T-Bill Index Total Return. (3) Historical data shown represent past performance and d o not guarantee comparable future results. The indexes are unmanaged. An investor cannot investdirectly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would lowerperformance.
Source: Morgan Stanley Global Wealth Management Asset Allocation Group, Ibbotson Associates.
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