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2014-02-21 TIA PIP Covered Call Results If Assumptions Not Achieved

TO:            Investments Consultants

FROM:       Larry K. Pitts, CFA

DATE:        February 21, 2014

SUBJECT:  7% Income Return “Forever”

The purpose of this e-mail is to discuss the current yield of our Preferred Income Portfolio (PIP).  Our investment strategy is to only own preferred issues with a coupon rate greater than 6.50%.  Since 2002 all preferred issues with a coupon higher than 6.50% have been called on schedule except two.  We have structured PIP with an average coupon of 7.23% and 41 months of call protection.  We believe our strategy is based on a solid foundation of historical data.  The key is our current 3.42% greater current yield (spread) over the 30-year U.S. Treasury current yield of 3.69%.  The historical spread is a range of 1.50% - 2.00% giving PIP a 1.42% cushion.  (No interest spread in 2006 prior to the “Credit Crisis”).

If our call assumptions are not achieved, PIP investors will receive a 7.11% current yield “Forever” because preferred issues are perpetual with no maturity.  This preferred yield will be competitive with equity returns in the future.

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