The portfolio management team
meets formally twice a week to
review the economy and its impact
on securities markets and client
portfolios. The team regularly
reviews sector and duration
targets for each fixed income
portfolio and discusses any
adjustments that need to be made.

Tax-Exempt Bonds

Cavanaugh Capital Management (CCM) structures municipal bond portfolios to satisfy each client's need for high after-tax returns, while ensuring safety of principal. The portfolio management team strives to limit price volatility in changing interest rate environments. CCM is an active bond manager, continuously evaluating the bonds held in client portfolios against new opportunities.

The firm's tax-exempt strategy seeks to identify opportunities in the primary and secondary markets in order to exploit inefficiencies. By employing rigorous bond analysis, the portfolio management team examines each bond's underlying credit, the financial condition of the issuer, the status of the regional economy, and the specific call and sinking fund provisions under each indenture.

Both the security selection process and the manner in which the team structures municipal bond portfolios serve as critical elements to the team's success. Keeping client guidelines in mind, CCM diversifies each portfolio's holdings by bond characteristics, geography, sectors and issues. Moreover, the team consults with client tax advisors to develop strategies in order to enhance after-tax returns.

One of the nuances in the municipal market is the wide variation in price for individual issues. To ensure the best execution for each client, CCM accesses a broad network of municipal bond dealers to obtain the best prices. Consisting of national as well as regional firms, this network of dealers provides the firm's clients with a wide array of investment opportunities.

Types of tax-exempt portfolios include, but are not limited to, Intermediate Municipals and Broad Municipals.

Broad Intermediate Municipal Bond Composite

Each portfolio in the Composite must be a discretionary, fee-paying account.  100% of the securities in each portfolio will be invested in U.S. dollar-denominated securities.  A minimum of 80% of the securities in each portfolio will have credit quality ratings of A or better.  The client policy must allow the latitude of a duration range + or – 25% of the Index.  The goal of the account is Total Return.  Should a portfolio have sector restrictions in place due to client guidelines, the portfolio may be excluded from the Composite. Specifically, if client guidelines force the exclusion of two of these four major sectors, Pre-Refunded/Escrow to Maturity Municipals, State General Obligation Municipals, Local General Obligation Municipals, and Revenue Municipals, and/or restrict to less than 50% of favor by more than 50% of one of these three major taxable categories, Treasuries/Agencies, Mortgage-Backed Securities, and Corporate Bonds/Taxable Municipal Bonds, the portfolio will be excluded from the Composite.  All clients included in the Intermediate Municipal Bond Composite are expected NOT to be in the maximum federal tax bracket (35%).  The benchmark of the portfolio will be a weighted average of the 1-3 year (20%), 3-7 year (40%) and 7-12 (40%) year Merrill Lynch Municipal Bond Indices. Portfolios must have a minimum asset size of $1 million in order to be entered into the Composite. Once included in the Composite, accounts that drop to an asset size below $500,000 will be removed from the Composite.