Q:  Could you give us a very brief overview of the company and the fund? A : The Wilmington family of mutual funds falls into four broad categories: Allocation Funds; Equity Funds; Fixed Income Funds; and Money Market Funds. Wilmington Trust has been managing mutual funds for approximately 20 years. The Broad Bond Market Fund provides investors with exposure to the taxable bonds including Treasuries, government agencies bonds, corporate bonds, and mortgage-backed securities and asset-backed securities. Q:  What is the investment objective for the Broad Bond Market Fund? A : This fund seeks to provide investors a high total return while also striving to achieve high current income by investing at least 80% of its assets in investment-grade fixed income securities. It may also invest up to 20% of its assets in high-yield bonds and preferred stocks and up to 10% of its assets in investment-grade foreign bonds. Q:  What is your investment strategy? A : Sector selection, yield curve exposure and duration management are three important steps in our investment process. We are looking for securities that produce superior income to the benchmark holdings that will give the portfolio at least 20 basis points to 30 basis points income advantage over the benchmark. Depending on the market condition, we either take more risk by being more present in the corporate bonds, or we take a conservative position by allocating money in the Treasury or U.S. government agency bonds. For instance, during the down period of 2007-2008 we were underweight in the credit sectors and exactly the opposite in 2009 when the market began to recover. While making the sector selection we do a top- down screening and while looking at individual securities for their credit patterns we follow a bottom- up approach. It is not only important to get the sector right but also securities within sectors correct, as well. The macroeconomic view helps us to understand what sectors are likely to benefit from the trends in the economy and which sectors are likely to be weak. In addition to the sectors and securities selection, we pay close attention to yield curve and duration management. In many ways, they are two sides of the same coin. One may get the duration call right but if you are not positioned properly on the yield curve you will not get much benefit out of the call. They have to be in proper sync to get the optimal results. As I said earlier, we may invest in asset-backed securities and mortgage-backed securities. The reason for this is that our investment model is designed so that when a credit crisis develops we are generally out of asset-backed securities and vice versa. We have a team of three dedicated analysts and a separate team that looks into all the risk management processes. The portfolio management team consists of three veterans to the fixed income market including Dominick D’Eramo, CFA; Randy Vogel, CFA; and me. Q:  How did your models indentify early development of the credit crisis? A : Let us take the home equity loan market for instance. At their inception, home equity loans were primarily used by borrowers to make additions or alterations to their homes. At the time, these loans were well- structured and had a clear purpose of either renovating asset or adding to the real assets. The market gave us a nice yield premium but nowhere near the level of pre-payment risk associated with residential mortgages. After a few years, when real estate market values began to appreciate, standards of underwriting began to ease on the belief that home prices never decline nationwide at the same time. Home loans were issued for purposes that were not real estate improvement or investment related; they were more linked to household consumption or as a replacement for traditional first mortgages. The maturities of the loans were getting longer and longer and underlying collateral for these loans was getting weaker and weaker. In the beginning of the credit cycle expansion, the yields were sufficiently high to compensate these weaker collaterals. But with the passage of time, credit risks were rising and yields were not sufficient to compensate for these additional risks and volatility in the marketplace was growing. When our models identified these changes we decided to get out of this sector and look elsewhere for our income. When the collapse in RMBS markets took place in 2007, we had no exposure to this sector. Q:  What is your research process? A : When we look at the market we are constantly looking for warning signals like prospective interest rates, spread compression, or expansion in rates or other situations that affect rates. When we see these signs we move cautiously by not taking large bets and maybe sometimes avoiding certain sectors where these signs are more prevalent. Our research process in rooted in evaluating individual securities and making sure that we are well insulated from default risks. We look at the credit risks and also look for income streams that are linked to revenues that are clearly identifiable and sufficiently protected. In early 2009, when the credit situation changed for the better, we added Pfizer, Inc; Time Warner, Inc; and the longer-term California Build America Bond. In fact when California bonds came into the market, it had an extraordinary yield and we participated in the offering. In the financial sector, we have added Goldman Sachs. In the utility sector we picked on Illinois Power and we have also traded in and out of Bank of America Bonds. As far as the California Build America Bond is concerned, we are not overly worried about the financial problems California is facing since the bond had sufficient yield coverage and the state’s backing when it came to repayment. The state must service its debt ahead of all other expenditures except for those earmarked for education. At this time we also added bonds of Florida Power & Light, which we thought was somewhat protected from the credit crisis and had good credit spreads. Other names, including General Mills, Inc and Honeywell International, Inc., were also added, as were a few others that were trading at a discount. We did this since we expected the markets to turnaround. Even if they didn’t do so, we were getting good income with the good interest rate spread. Also, it is important to get the balance between the position on the yield curve and duration right. First we build a view on the rate outlook, both the short- term and long- term rates. The long- term rates are likely to stay low at least till the end of the year. As active managers we ensure that we have plenty of liquidity, which then allows us to make the necessary shift in the duration and the yield curve exposure to get the sync needed. Q:  How many holdings do you typically have in the portfolio? A : We have somewhere between 110 to 120 securities in the fund. Q:  What are your position size limits and how do you diversify among sectors? A : We try to limit exposures for individual corporate bond holdings between 2% to 3%. At the end of December 2009, Treasuries were roughly 11%, agencies were 14%, corporate bonds 68%, and asset-backed securities around 5%. Q:  Is that representative of your sector weighting? A : Our sector weighting generally depends on market conditions. Right now we are now overweight in corporate, which, in a defensive environment, would be anywhere from 30% to 35% of the portfolio. Q:  What is your benchmark index? A : Our primary index is the Barclays Government/Credit Bond Index. On a secondary basis we do occasionally look at the Merrill Lynch Treasury Master Index and the Barclays Aggregate Bond Fund Index. We consider the Lipper Intermediate Investment Grade Index universe as our peer group for comparison purposes. Q:  Do you follow the index weighting as a guideline for your sector weightings? A : Since we want to outperform the benchmark, we are more weighted in those sectors that give better yields. But we try to be always within the benchmark range of the index sector weightings. Q:  What kinds of risks do you monitor and how do you contain them? A : We are generally more concerned with the interest rate risk and credit risk. By managing the duration to be in sync with the yield curve , we can mitigate the interest rate risk. Credit risk can be controlled by moving up and down the quality scale as well as by proper positioning along the yield curve. The most important aspect of risk control is to know and be comfortable with what we own in the fund. We find that the consistent earners in the portfolio hold better in a tougher market environment and so the very structure of our portfolio construction gives us better control of striking the proper balance between taking risk and reaping reward.