creating opportunity through investment excellence

CREATING OPPORTUNITY THROUGH INVESTMENT EXCELLENCE

Since 1993

916 Prince StreetAlexandria, Virginia 22314

Tel. 703-684-7222 Fax [email protected]

HHUGHES CAPITAL MANAGEMENT, INCHUGHES CAPITAL MANAGEMENT, INC..

FIXED INCOME ASSET MANAGEMENT

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HHUGHES CAPITAL MANAGEMENT, INC.HUGHES CAPITAL MANAGEMENT, INC.

© 2007 Hughes Capital Management, Inc. All Rights Reserved.

CONTENTS

About Hughes Capital ManagementCourse of ActionHCM HistoryHCM Investment ProfessionalsDistinguishing CharacteristicsHCM Products and ServicesInvestment PhilosophyInvestment Decision-Making ProcessCredit ResearchHCM Client Service: A PriorityRepresentative Client ListContacts

Welcome to Hughes Capital Management, Inc. I am proud that Hughes Capital Management is recognized as a premier fixed income investment management firm. Our solid and continuous performance record is the result of many years of focused investment strategy, a consistently applied research discipline and talented investment professionals.

We welcome the opportunity to work with you and your colleagues to provide investment solutions that satisfy your specific investment criteria while maintaining a sharp focus on superior returns. We are committed to intelligent investment solutions, consistent investment principles, a transparent investment process, an experienced investment staff and prompt, effective communication. Additionally, we have a history of gradual and methodical firm growth with a focus on long-term stability in our investment team.

As President and founder, I've worked hard to build our reputation as a premier fixed income management firm and I invite you to consider allowing HCM to manage your account to maximize your investment potential.

Sincerely,

Frankie Hughes President and CIO

Welcome

Contents



ABOUT HUGHES CAPITAL MANAGEMENT

Hughes Capital Management, Inc. (HCM) was founded in 1993 and is a registered investment advisor. We are committed to creating optimal financial opportunity through expert capability and investment excellence. HCM focuses exclusively on fixed income investment management services for private and public sector investors. We have a demonstrated history of, and continue to maintain, the highest standards in meeting our clients’ needs. As fixed income specialists, we have consistently produced successful results for our nationwide client base.

HCM provides clients with high-quality, diversified portfolios that possess distinguished risk/return characteristics. Our client portfolios generate consistent returns while preserving principal during many interest rate environments. Today, we manage investments for 25 clients with portfolios totaling over $1 billion. Each of our clients benefits from our:

Dedicated and experienced investment team

Sophisticated credit and product research

Disciplined risk management

Excellent client service and reporting

Consistent, competitive results

Our primary objective is to create superior investment programs for investors who seek to incorporate fixed income investments in their portfolios. We will continue to leverage our expertise in fixed income asset management to address the needs of our investors, and we will continue to sponsor new partnerships with qualified investors by offering sophisticated investor-related services.

COURSE OF ACTION

1988

As Head of the Asset Management Division of WR Lazard & Co., Frankie Hughes developed the structured fixed income management product

1993

Hughes Capital Management, Inc. founded by Frankie Hughes

HCM registered as an investment advisor with the SEC

1994

$25 million from the Indiana Public Employees' Retirement Fund is the first assignment awarded to HCM

1995

HCM develops institutional business and acquires mandates from private and public funds and charities seeking expertise in fixed income management

1996

HCM enhances credit research with advanced technological systems

2002 through 2007

HCM makes Black Enterprise Magazine's list of Top 15 Asset Managers.

Today

HCM manages over $1 billion in assets for 25 clients. HCM continues to devote considerable resources to expanding its investment capabilities



HCM HISTORY

Hughes Capital Management, Inc. (HCM) was founded in August 1993 by Frankie Hughes, the Chief Investment Officer and largest shareholder of HCM. Ms. Hughes has over 29 years of fixed income experience, including 19 years of experience as a fixed income portfolio manager. Prior to establishing HCM, Ms. Hughes was Director of the Asset Management Division, Portfolio Manager and Member of the Investment Policy Committee at WR Lazard & Co. While at WR Lazard & Co., she developed the structured fixed income product.

Since registering as an investment advisor with the U.S. Securities and Exchange Commission in 1993, HCM has been dedicated exclusively to providing fixed income portfolio management and advisory services to private and public sector funds, focusing on tax-exempt portfolios for state and local governments, Taft-Hartley plans, corporations and philanthropic institutions. The firm was awarded its first assignment by the Indiana Public Employees’ Retirement Fund in February 1994. Since that time, HCM has increased the number of investment professionals on staff and enhanced its technological capabilities. HCM now manages over $1 billion in assets for 25 clients.



HCM INVESTMENT PROFESSIONALS

Our staff has extensive experience and breadth of knowledge in the fixed income industry. Additionally, clients can rely on the leadership and commitment of our investment professionals, who have specialized expertise in the following key areas of the firm:

· Investment management · Risk management· Credit and product research· Compliance · Client service &·reporting

Frankie HughesPresident and Chief Investment Officer

Ms. Hughes founded Hughes Capital Management, Inc., in 1993. As the founder of HCM, she established the firm as a leader in the business of fixed income management and was directly responsible for the development of HCM's investment management philosophy. Ms. Hughes is actively involved in developing investment strategy for client portfolios.

She has served as a Board Member of the Victory Funds family of mutual funds and as a Trustee on the Board of the Virginia Retirement System. Currently, she is affiliated with the Board of Trustees of the JPMorgan Funds. Through HCM, Ms. Hughes has served as a guest lecturer for the Center for Public Investment Management of the State of Ohio, Office of the Treasurer. In addition, she is a member of Leadership Washington (Class of 2000) and has been featured in several business periodicals.

Prior to forming Hughes Capital Management, Ms. Hughes was Director of the Asset Management Division, Portfolio Manager and Member of the Investment Policy Committee at WR Lazard & Co. There she managed $1.1 billion in fixed income assets for institutional clients. For five years, she worked at Exxon Corporation, managing $1.5 billion of employee benefit fixed income assets. Ms. Hughes served as an officer with Citibank and sold fixed income securities at both Salomon Brothers and LF Rothschild. She graduated Phi Beta Kappa, summa cum laude from Howard University in Mathematics and Business Administration and received an MBA from Stanford University.



Michael DownsPortfolio Manager

Mr. Downs joined the HCM team in 2005 and has over 20 years of investment management experience. He is responsible for all aspects of strategy implementation as well as security structure and credit analysis. Previously, Mike was a fixed income portfolio manager for five and a half years at Legg Mason Investment Advisors, where he was responsible for the strategy formulation and implementation for all sectors of the institutional client portfolios. Prior to Legg Mason, he was a fixed income portfolio manager for two years at The Dow Chemical Company, co-managing over $1 billion in pension fund assets. Before that, Mike was responsible for the management of a $2.1 billion multi-sector fixed income portfolio for four and a half years at the Ohio Police and Fire Pension Fund after spending four and a half years assisting in the management of the same portfolio. He also spent a year managing a $900 million fixed income portfolio at the Ohio Bureau of Workers’ Compensation. Mike received the designation of Chartered Financial Analyst in 1999. He received his MBA in Finance as well as his BS in Finance and Accounting from The Ohio State University.



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DISTINGUISHING CHARACTERISTICS

Our portfolio construction methodology inherently reduces the likelihood of the portfolio under-performing the benchmark.

Portfolio returns are highly correlated with market returns. Therefore, the variability of the portfolio's return relative to the market is low.

Our disciplined decision-making process helps decrease portfolio volatility, lowering transaction costs and adding to investment returns.

The depth of experience of our investment professionals, coupled with market and industry intelligence, ensures that the integrity of funds under our management is not compromised.

The strength of our exhaustive research process allows us to construct portfolios that serve the unique criteria of each client.

Client service is a top priority at HCM. We are committed to providing clear, continuous communication and direct consultation. Our client reviews are always thorough and informative.



HCM PRODUCTS AND SERVICES

We believe a full-service fixed income manager must provide disciplined investment solutions and top quality products customized to meet the unique needs of each client. As a structured fixed income asset manager, we offer a range of strategies based upon one fundamental conceptual framework. These strategies are duration neutral and add value by sector emphasis and security selection.

Separate Account Management

We exercise discretionary management, and we serve as a fiduciary for individually managed portfolios customized to unique client criteria. Additionally, we adhere to a client's specific set, if any, of social and investment sensitivities or investment restrictions. HCM clients will benefit from our expertise in the following:

Synthetic GIC Indexed Portfolio

Cash Manageme

nt

HCM Services for Investors:Innovative solutions and

quality products customized to

meet the unique needs of each client

Immunized Portfolio

Active Manageme

nt

Duration Matched Portfolio

Enhanced Index

Portfolio

Liability & Cash Flow Matched Portfolio

HCM has extensive expertise managing portfolios that track a variety of benchmarks and that have various maturities and investment constraints. We recognize that each of our clients has fiduciary responsibilities and operating structures unique to its constituency. We carefully consider all criteria as we design a client's investment strategy and manage its account. HCM ensures that clients' customized portfolios fulfill specific income and liquidity needs, achieve established performance goals and control the agreed upon level of risk. Clients may select any taxable bond index for performance evaluation.



INVESTMENT PHILOSOPHY

HCM's investment approach has a singular focus: identify and capitalize on superior long-term returns through market analysis, sector research and security selection. We believe that we can obtain superior returns while carefully managing the risk profile of our portfolios. We are committed to offering our clients consistent and superior risk adjusted returns through disciplined asset management.

According to Lehman Brothers (see Figure 1), for the period 1984-2004, treasuries, corporate debt and mortgages returned an average of 8.52%, 9.51% and 8.94% respectively. Our long-term strategy is to increase allocation to these sectors, generating a higher yield than the benchmark. Over time, we believe that higher yields translate to higher returns. We add value by allocating funds where the best risk/reward tradeoffs exist. Purchase candidates are identified after satisfying multiple criteria.

Experienced Managers &Established Support Infrastructure

HCM's investment professionals have extensive experience and strong fixed income backgrounds in top-tier investment firms and in the fixed income industry. This depth of experience, coupled with market and industry intelligence, provides clients with specialized expertise and affords the greatest level of confidence.

Average Return, Lehman Brothers (Figure 1)

1984-2004

Treasuries 8.52%

Corporate Debt 9.51%

Mortgages 8.94%

EXCELLENCE

EXPERIENCE

DISCIPLINE

INTEGRITY

OPPORTUNITY

The strength of our research process–established quantitative and qualitative research sources, in addition to the disciplined investment process executed by highly qualified analytical staff, has resulted in consistent success in achieving returns for our clients. Our well-integrated client service operation enables portfolio managers to focus on their portfolios.



INVESTMENT DECISION-MAKING PROCESS

AQuantitative Analysis

Quantitative Model supplied by Capital Management Science

BQualitative Analysis

Qualitative Analysis enhanced by Credit Research

COptimization Process

1 2 3 4 5

Baseline US

Treasury Portfolio

Construction

Portfolio Stress Test &

Simulations

Optimized PortfolioSelection

Optimized PortfolioStress Tested

Return

Comprised solely of US Treasuries

with modified duration equaling that of

targeted benchmark

Ensures portfolio, except for yield-to-maturity, has the same

exposure to market risk

as benchmark

Corporate Asset &

Mortgage Backed

Securities Added to Portfolio

Ensures risk &

performance reflect

expectations

30-40 basis points of

annualized return

relative to benchmark over a full

market cycle

expectedFixed Income Sectorsfrom which HCM selects securities:

Collateralized Mortgage Obligations

Mortgage Backed Securities

Investment Grade Corporate Bonds

Asset Backed Securities

U.S. Treasuries U.S. Government Sponsored Agencies



CREDIT RESEARCH

Credit research is a cornerstone of our investment process. Our commitment to exhaustive research and analysis ensures that the portfolios we build will provide clients with optimal relative value. Quantitative and qualitative inputs are continuously updated and evaluated.

We utilize the Capital Management Sciences (CMS)* quantitative model to screen over 55,000 securities. These selections are used to help us identify a universe of securities which are both liquid and perceived to offer value relative to their peers. The effectiveness of this model has been validated repeatedly since its implementation in 1979.

Our decision process then shifts to a qualitative assessment phase. Our internal research effort is enhanced by sources such as Standard & Poor's RatingsDirect, an online service that allows access to the latest credit report on any issuer, and Gimme Credit, an independent research firm. While we have online access to the research reports generated by Wall Street firms such as Lehman Brothers, Citigroup Gobal Markets and Morgan Stanley, we also take full advantage of independent research firm services by contacting the analyst directly.

In-house research supplements the above sources. Additional financial analysis is conducted using data from the Bloomberg or SEC filings. The amount of research performed in-house ranges between 30 to 50%. Prospective purchases are reviewed for timeliness of financial data. For issuers who are new to the market, in-house research is the main contributor to the decision to include the security in our universe.

*CMS is a Los Angeles based corporation providing fixed income analytic tools, software and consulting services to the investment management community.



HCM CLIENT SERVICE: A PRIORITY

Clients are our top priority at HCM

We believe that client service is a critical component of successful account management. HCM professionals function as a team to provide a responsive, effective and informative service structure for our clients. As client service specialists, we provide focused and individual client communication to educate clients about their fixed income investments. We maintain separate custody of assets. Each client selects a financial institution as custodian for its assets. This ensures independent party verification of holdings and records transactions and provides monthly valuation for the portfolio.

Communication pieces designed to educate clients about their portfolios are updated quarterly and provide a comprehensive summary of a client's portfolio investment objectives, investment strategy, quality standards and performance. Reports can be customized for unique reporting requirements and clients are free to select reporting periods. Information is available in a variety of formats, including hard copy and electronic communication.

From investment management to account reconciliation, performance reporting and investment strategy, we provide the advantage of a small professional staff of experienced and dedicated specialists. Our approach to client services is direct personal attention for clients and their constituents.



REPRESENTATIVE CLIENT LIST

1. Avon Products, Inc.2. Birmingham Water Works Retirement Plan3. Chevron Texaco4. City of Birmingham Retirement and Relief Fund5. Community Foundation of Greater Memphis6. Dimensions Assurance, Ltd.7. Dominion Resources Services, Inc.8. Education Testing Service Retirees Medical Benefits Plan9. Florida A&M University10. Hampton Roads Shipping Association-International

Longshoreman Association11. Howard University 12. Indiana Public Employees’ Retirement Fund13. Michelin North America, Inc.14. Nationwide Life Insurance Company15. City of Philadelphia, Pennsylvania16. Philadelphia Gas Works17. Philadelphia Housing Authority18. Society for Human Resource Management19. Teamsters Local 639 - Employers Pension Trust20. United Negro College Fund21. Verizon Foundation22. Virginia Port Authority23. Washington Metropolitan Area Transit Authority/ Local 922

Retirement Plan24. Washington Metropolitan Area Transit Authority/Amalgamated

Transit Union Local #68925. Washington Suburban Sanitary Commission

This is a representative client list of our total client base. Inclusion on this list should not be deemed an endorsement of HCM.



CONTACTS

Frankie HughesPresident & CIOHughes Capital Management916 Prince StreetAlexandria, Virginia 22314Tel. 703-684-7222 Fax [email protected]

Mike DownsPortfolio ManagerHughes Capital Management916 Prince StreetAlexandria, Virginia 22314Tel. 703-684-7222 Fax [email protected]