Step 1 Equity/Fixed Income Positioning
The equity component of the Arcataur Managed Balance Portfolio will be the Arcataur Large Capitalization Equity Portfolio, utilizing the same process to achieve a separately managed account consisting of high quality, blue chip stocks which offer growth opportunities at a reasonable price. Small capitalization, mid-capitalization and international diversification will be considered where appropriate. The fixed income component will be the Arcataur Investment Grade Fixed Income Portfolio, and will offer the same investment style in the separately managed account format, focusing on treasuries, agency securities, corporate bonds, certificates of deposit, preferred stocks and, for its tax sensitive clients, municipal bonds, with an average portfolio credit rating of A or better.
 

Step 2 Macro Assessment
Arcataur has developed a model that assists us in determining the relative attractiveness of stocks versus bonds. Key factors we look at include corporate earnings, interest rates and the implied risk premium priced between stocks and bonds. We have identified key inflection points between prices of bonds and stocks. The 45% to 75% equity/fixed income targets for each of the Arcataur Managed Balance Portfolios were set after extensive research, utilizing historical data and data from our own previous management experience. The Arcataur Managed Balance Portfolio starts here. Based upon the market conditions and each client's investment objectives and risk tolerance, an asset allocation range and target are set to balance risk and return for that investor. Each of our balanced portfolios has distinct risk and return characteristics. The Arcataur Conservative Managed Balance Portfolio seeks to achieve moderate, long-term capital appreciation with higher current income, while recognizing the possibility of moderate fluctuation in year-to-year market values. The equity component target is 50%, and the fixed income component target is 50%. The Arcataur Core Managed Balance Portfolio seeks to achieve a moderate level of current income and, over time, above average capital appreciation with moderate risk of principal. The equity component target is 55%, and the fixed income component target is 45%. The Arcataur Aggressive Managed Balance Portfolio seeks to achieve high, long-term capital appreciation with lower current income while recognizing the possibility of substantial fluctuation in the year-to-year market value. The equity component target is 70% and the fixed income component is 30%.

Step 3 Portfolio Construction
Our portfolio managers ascertain the current state of financial markets and economies around the world. Many factors are considered to determine the probable course of future changes in financial assets. Inflation, economic growth, corporate earnings and input costs are the types of factors analyzed to gain insight into the future of the investment climate. When our models and fundamental analysis indicate stocks are more attractive, we will be near the upper end of the range for the particular Arcataur Managed Balance Portfolio. Conversely, when bonds are favored, we will be near the lower end of the stated range for the particular Arcataur Managed Balance Portfolio.