Using Convertible Bonds to Protect Portfolios and Increase Income

Plan Well. Invest Smart. Live Better 12 Amidon Avenue, Amesbury, MA 01913 | (978) 388-0020

Protecting Your Portfolio andProtecting Your Portfolio andIncreasing Income ThroughConvertible Bonds

Using Convertibles to Preserveand Grow Wealth

www.ClearViewWealthAdvisors.comClear View Wealth Advisors, LLC

Steve Stanganelli, MSF, CFP®, CRPC®[email protected]

http://www.clearviewwealthadvisors.com/

Steve Stanganelli, MSF, CFP®, CRPC®

– Over 20 years experienceadvising individuals

Principal of the Firm

© Clear View Wealth Advisors, LLC. 2010 2

Who is Clear View Wealth Advisors, LLC?

•Clear View Wealth Advisors, LLC is a Massachusetts-registeredinvestment advisory firm serving individuals, couples and businessenterprises with comprehensive planning and investment services.

•Established in 2010

Clear View Wealth Advisors: The Firm

•Number of Professionals: 1 (over 20 years experience)

•Located: Amesbury and Wilmington, Massachusetts

•Primary Goal: To protect client wealth through proactive andongoing planning combined with risk-controlled investing.

•Investment Strategy: Clients win by not losing. A multi-bucketapproach is used combining strategic and tactical asset allocation.The long-term bucket is focused on an absolute return strategythat includes the use of convertible bonds.

3© Clear View Wealth Advisors, LLC. 2010

Wellesley Investment Advisors, Inc.

•Wellesley is an SEC-registered investment advisory firm servinginstitutions, RIA’s, and other investment advisors.

•Established in 1991

•Number of Professionals: 17

Sub-Adviser Managing the Limited Risk Investment Program

•Number of Professionals: 17

•Assets Under Management: Over $475 million

•Located: Wellesley, Massachusetts

•Primary Goal: To preserve capital and generate positive returns inall market environments.

•Investment Strategy: Absolute return strategy deploying the use ofconvertible bonds.


Convertibles as an Asset Class

Clear View Wealth Advisors, LLC


Cumulative Total Returns 12/73 – 6/10

Beating Equities Over a Longer Period

Source: BofA Merrill Lynch Convertible Research 6/30/10

6

An asset class that has been utilized for over 150 years

© Clear View Wealth Advisors, LLC. 2010


Convertibles have the characteristics of three asset classes:

1.Bonds

2.Equities

3.Options



Get Paid While You Wait

Convertible bonds combine the stated repayment dates and yieldsof bonds and the upside potential of stocks.

Convertible bonds offer investors the potential to get paid withinterest during market corrections or bear markets while they waitfor the next market recovery or bull stock market.



Convertible Bond Advantages:

a) Yield advantage over equities

b) Capital appreciation potential

c) Low correlations with stocks and bonds which enhancesdiversificationdiversification

d) History of strong risk-adjusted returns

e) Track record of capital preservation

f) Unlike other types of bonds, convertible bonds have generallyperformed well during periods of rising interest rates

g) Convertible bonds have generally performed well in inflationaryperiods


Convertible Correlation With Other Markets

WellesleyS&P 500 TR

Index

Barclay'sAgg Bond

IndexBofA ML

V0A0 Index

Wellesley 1

S&P 500 TR Index 0.52 1

Barclay's AggBond Index 0.04 0.01 1

BofA ML V0A0Index 0.78 0.67 0.01 1

Source: Morningstar, Inc.

10


Who Should Invest in Convertible Bonds?

a) Bond holders seeking less exposure to Treasury bonds, municipalbonds or ‘straight’ corporate bonds with greater potential upside

b) Investors wanting reduced equity exposure without giving up stockb) Investors wanting reduced equity exposure without giving up stockmarket upside

c) Investors looking for a non-correlated asset class for morediversification

d) Investors fearful of rising interest rates on ‘straight’ fixed incomeproducts

11

Year Number of Bear Markets Percent Decline

1900s 3 46%, 49%, 27%

1910s 3 24%, 40%, 47%

1920s 1 89%

1930s 3 23%, 49%, 41%

1940s 1 24%

Historical Bear Markets: DJIA

1940s 1 24%

1950s 1 19%, S&P 500 fell 22%

1960s 3 27%, 26%, 36%

1970s 2 45%, 27%

1980s 2 24%, 36%

1990s 1 21%

2000s 2 38%, 53%

All numbers are approximate.All percent declines are declines in the Dow Jones Industrial Average. 12

The Wellesley Approach to Convertibles

Returns needed to breakeven after loss:


Rule #1Capital Preservation is Primary Goal

Rule #2Invest for Absolute Returns Not Relative Returns

Wellesley’s Three Rules

Invest for Absolute Returns Not Relative Returns

Rule #3Invest with a Time Horizon Through Complete Market Cycles


Historical Example: Home Depot

What Happens When the Stock Appreciates

303.64%

250%

300%

ConvertibleBond

StockConvertibleBond Stock

November 25, 1996

Purchased Home Depot3.25% convertible bond

$995.00

Per bond

$51.88

before split

$17.29

Home Run Example: Home Depot

It should not be assumed that recommendations made in the future will be profitableor will equal the performance of the securities listed. All numbers are approximate.

0%

211.96%

50%

100%

150%

200%

250%Bond3.25% convertible bond

Due 10/1/01 –Convertible to 43.402shares HD

$17.29

after 3:2 and2:1 splits

October 1, 1999

Sold Home Depotconvertible bond

Callable 10/2/99

$3,011.95

Per bond

$69.79

Includingdividends of

$0.23

GAIN (LOSS)

Interest Income

202.71%

9.25%

303.64%

15

Stock

0.00%

10.00%

20.00% Convertible

Bond

9.47%

Historical Example: AOL Time Warner

What Happens When the Stock Depreciates

ConvertibleBond Stock

November 30, 2000

Purchased AOL 0%

$501.25

Per bond

$40.61

Per share

Strike Out Example: AOL Time Warner

-50.00%

-40.00%

-30.00%

-20.00%

-10.00%

0.00%- 47.16%

It should not be assumed that recommendations made in the future will be profitableor will equal the performance of the securities listed. All numbers are approximate.

Purchased AOL 0%convertible bond

Due 12/6/2019 –Convertible to 5.834shares of AOL(Put on 12/6/2004 at$639.76 per bond)

Per bond Per share

March 28, 2002Sold AOL 0%convertible bond

$548.75

Per bond

$23.65

Per share

GAIN (LOSS) 9.47% - 47.16%

16

Wellesley Investment Advisors

Three Laws of Convertible Investing for

Absolute Return / Limited Risk Investing

1. Invest in long convertibles.

Goal is to maximize returns & protect principal over periods of 7 years.

Wellesley’s Three Laws

Goal is to maximize returns & protect principal over periods of 7 years.

2. Buy converts that have no (or minimal) loss to the next ‘liquidity event.’

A liquidity event is the next call, put or maturity.

3. Buy converts with short-term liquidity events.

A short-term liquidity event is a put or maturity of 7 years or less.

17

Year WIA S&P 500 MLV0A0

1995 20.05% 37.58% 24.75%

1996 10.15% 22.96% 14.30%

1997 22.92% 33.36% 18.98%

1998 16.56% 28.58% 8.21%

1999 19.60% 21.04% 44.32%

2000 17.32% -9.10% -11.70%

2001 11.74% -11.93% -3.95%

Performance Record

2002 3.08% -22.06% -4.95%

2003 15.28% 28.68% 25.80%

2004 6.58% 10.88% 8.49%

2005 3.60% 4.91% -0.34%

2006 9.57% 15.80% 12.75%

2007 7.33% 5.49% 4.12%

2008 -11.09% -37.00% -33.02%

2009 36. 58% 26.46% 47.19%

2010 0.12% -6.65% -0.34%

Annualized 11.72% 7.29% 8.11%Annualized returns are from January 1995 to June 30, 2010. Please see performance notes in appendix.

The BoA / ML V0A0 represents the US Convertible Market excluding mandatory convertibles.

All numbers are approximate. 18

Wellesley S&P 500 BOA/MLConvertibles Total Return V0A0

15 Years 11.32% 6.24% 7.34%

Performance Record

10 Years 7.83% -1.59% 2.30%

Returns through June 2010

Sources: BoA / V0A0 is the US Convertible Index. The S&P 500 Index is designed to be a leading indicator of US Equities.

Please see performance notes in appendix All numbers are approximate.


Complete Market Cycle Performance (Annualized):


1. Wellesley only invests in convertible bonds

2. Wellesley only invests in bonds with short-term maturities or puts

What Makes Wellesley Different From OtherConvertible Managers

WIA Investment Strategy

3. Wellesley focuses on absolute returns

4. Wellesley can be a core principal protected equity strategy

5. Wellesley can be an enhanced fixed income replacement strategy

6. Wellesley’s convertible bond strategy has never had a default

• Weighted Average Credit Quality: BBB / BBB-

21

Advantages of Wellesley VS the Big ConvertibleManagers

More Alpha

WIA Investment Strategy

• Ability to acquire smaller convertible bond issues (even from largecompanies)

• Better ability to equitize cash

• Manager can react faster to important investment decisions

© Wellesley Investment Advisors, Inc. 2010 22

Convertibles can be structured as a

Core Principal Protected Equity Strategy

Investing with Convertibles

Or an

Enhanced Fixed Income Strategy


4,000,000

5,000,000

6,000,000

7,000,000

Growth of $1,000,000 : January 1995 – March 2010

WIA:$5,572,662

Performance Record

Growth of $1,000,000 : January 1995 – June 2010

Total WIAAdvantage

overS&P 500 TR:

All numbers are approximate.

Sources: BoA / ML V0A0 is the Bank of America / Merrill Lynch V0A0 US Convertible Index.Please see performance notes in appendix.

0

1,000,000

2,000,000

3,000,000

S&P 500: $2,979,356

ML V0A0: $3,350,630

24

S&P 500 TR:87.04%

What Lost Decade?

What Would Happen to $1 Million Placed in WIAConvertibles VS the S&P 500?

Year % Inc (Dec) BalanceAnnual 5%Withdrawal

1999 1,000,000

2000 17.32 1,173,235 58,662


Year % Inc (Dec) BalanceAnnual 5%Withdrawal

1999 1,000,000

2000 -9.10 909,000 45,450

S&P 500 Total Return

© Wellesley Investment Advisors, Inc. 2010 25

2001 11.74 1,245,423 62,271

2002 3.08 1,219,538 60,977

2003 15.28 1,335,634 66,782

2004 6.58 1,352,372 67,619

2005 3.60 1,331,048 66,552

2006 9.57 1,385,530 69,277

2007 7.33 1,412,692 70,635

2008 -11.09 1,193,158 59,658

2009 36.58 1,548,089 77,404

Total Return: 145.63%

2001 -11.93 760,528 38,026

2002 -22.06 563,118 28,156

2003 28.68 688,389 34,419

2004 10.88 725,122 36,256

2005 4.91 722,689 36,134

2006 15.80 795,030 39,752

2007 5.49 796,743 39,837

2008 -37.00 476,851 23,843

2009 26.46 572,874 28,644

Total Return: - 9.10%

Wellesley VS PimcoGrowth of $1,000,000 : January 1995 – June 2010

WIA $5,572,662

Total WIAAdvantage:

90.89%

Convertibles as a Fixed Income Replacement

Sources: PIMCO Total Return Fund A – Ticker Symbol: PTTAXPlease see performance notes in appendix.

© Wellesley Investment Advisors, Inc. 2010

All numbers are approximate.

PTTAX$2,919,320

90.89%

26

How Do Convertibles Perform When TheFed Tightens?

Fed Tightening Cycles


Fed Tightening Cycles

Source: Fed data provided by Deutsche Bank. V0A0 data provided by Merrill Lynch/Bank of America. All numbers are approximate.

Fed Policy Rate S&P 500Merrill LynchV0A0 Index

Start Date End DateDuration(months) Start Value End Value

Interest RateIncrease Change (%) Change (%)

03/29/88 02/24/89 11 6.50 9.75 3.25% 10.38% 11.20%

02/04/94 02/01/95 12 3.00 6.00 3.00% 0.13% -8.46%

06/30/99 05/16/00 11 4.75 6.50 1.75% 6.80% 26.47%

06/30/04 06/29/06 24 1.00 5.25 4.25% 11.58% 8.67%

28

“If you stay out of stocks, you might miss the rally. If you buy stocks, you mightget creamed in another slump. But convertible(s)…let you have it both ways.

Making good selections from among convertible securities with so many variablesis challenging, but very rewarding. Finding the right convertibles is like a

Quote from Forbes Magazine

Notable Convertible Quotations

is challenging, but very rewarding. Finding the right convertibles is like agame where you can win or, alternatively, get your money back – withinterest.”


Steve Stanganelli, MSF, CFP®, CRPC® (978) 388-0020 or (617) [email protected]

About Steve Stanganelli, CFP®, CRPC®

Steve Stanganelli is a five-star rated, board-certified financial planning professional who has over 20 years of experience coaching individualsand businesses on ways to improve and protect their personal or business bottom line.

Chief Personal Portfolio Strategist & Money Coach

Steve has worked with numerous individuals and businesses as a mortgage banker, business owner, business finance consultant and now as aCERTIFIED FINANCIAL PLANNER ™ Professional.

His practice encompasses retirement income planning, investment management, divorce settlement analysis and college funding strategies. Heis a published author and regularly presents on these topics to businesses, civic groups and community organizations.

Steve works with a variety of individuals and families with a special focus on Baby Boomer pre-retirees, business owners, corporate executivesand medical professionals.

Steve earned his Master of Science degree in Finance (MSF) from Bentley College with high distinction. He is also an honors graduate of theUniversity of Massachusetts – Lowell.

Steve holds the designations of CERTIFIED FINANCIAL PLANNER ™ and CHARTERED RETIREMENT PLANNING COUNSELOR ™ awarded aftercompletion of extensive, in-depth studying and exam requirements.

Steve is an executive officer of the Greater Merrimack Valley Estate Planning Council. Steve, formerly of Methuen, is a resident of Amesburywhere he lives with his wife, Kristin, a Registered Dietitian, and their infant son, Spencer. He is an avid competitive cyclist.

Clear View Wealth Advisors, LLC is a fee-only state-registered investment adviser.

The firm provides personalized financial planning advice on a broad range of topics with anemphasis on retirement income planning, self-directed IRA strategies, college funding andfinancial aid strategies, and divorce planning and settlement analysis.

Money management tools are available including customized investment programs forindividuals.

We offer a tool kit for money and help people make smarter money moves for life.

About Clear View Wealth Advisors & The Tool Kit for Money

We offer a tool kit for money and help people make smarter money moves for life.

Clear View: Who We Serve

We work with individuals or couples in need of trusted guidance while going through transitionslike a job change, retirement, divorce or other life-changing event.

We strive to make our services accessible to busy professionals and their growing families toassist with retirement planning, elder care or college funding issues.

Footnotes for WIA Convertible Bond Returns1. This presentation reflects only the convertible bond portion of WIA's client accounts. Returns are based on all convertiblebond positions held in accounts of all WIA clients during the periods reflected. Actual client accounts include positions otherthan convertible bond positions. Such other positions are not included in this performance presentation. Accordingly, theactual return of WIA client accounts is different, in some cases substantially, from the performance information presented forconvertible bonds. During the periods reflected, WIA did not manage any other accounts that included convertible bonds intheir portfolios.2. Returns include a 0.00% annual management fee. WIA's standard fee schedule is included in its Form ADV Part II.3. Past performance is not indicative of future results.4. No representation is made that the investor will obtain similar results to those shown above. The performance presentedmay not be representative of investments held in any one client account or performance realized in any one client account. Aninvestor's actual performance may differ from the performance presented above due to timing of investment, contributions and

Wellesley Investment Advisors - Footnotes

investor's actual performance may differ from the performance presented above due to timing of investment, contributions andwithdrawals. Performance does not reflect the effects of taxation, which result in lower returns to taxable investors.5. This report is meant for broad discussion purposes only, and is not intended as a recommendation to buy or sell any security.6. An investment in convertible bonds involves a risk of loss. The value of an investment in convertible bonds may decrease aswell as increase.7. WIA's convertible returns have been calculated using the methodology set forth below. Such methodology includes severalassumptions that result from systems limitations on aggregating the convertible bond portion of multiple client accounts.Although information has been obtained from and is based on sources WIA believes to be reliable, WIA does not guarantee theaccuracy of the information, and it may be incomplete or condensed. Returns do not reflect reinvestment of interest anddividend income.

8. Methodology for WIA Convertible Bond Returns:(a) Listed the market value of all convertible bonds held on the last day of each month.(b) Determined the weight of each bond holding in the portfolio (individual bond value / total bond value).(c) Determined each bond's return for the month (monthly interest earned plus / minus monthly price change).(d) Assumed that a bond entered the portfolio on the first day of the month in which it was first purchased.(e) When a bond is completely sold out of the portfolio, its prior month end value is adjusted to reflect the final sales price.(f) Weighted each bond's return for the month by the bond's weight in the portfolio.(g) Summed each bond's weighted return for the month to get the portfolio's return for the month.(h) Compounded monthly returns to calculate annual return.


Other FootnotesOther Footnotes- A complete market cycle is defined either by a top-bottom-top or bottom-top-bottom pattern in the stock market. In the WIAanalysis, the S&P 500 was used to define the market cycle of the stock market.

- Bond & Average Credit Quality reflects the higher of the ratings of Standard & Poor’s Corporation, Moody’s InvestorsService, Inc., and Fitch. If a bond is not rated by any of these organizations, Wellesley Investment Advisors uses theirproprietary credit rating system to demonstrate the credit quality of convertible bonds. Ratings are relative, subjective and notabsolute standards of quality.

- Alpha statistics provided by Morningstar, Inc. as of June 30, 2010.

1 Year 3 Years 5 Years 10 Years

All US Convertibles (VXA0)* 22.64% -6.79% 17.70% 22.84%

Appendix: Convertibles as an Asset Class

© Wellesley Investment Advisors, Inc. 2010Please see Wellesley performance notes in appendix.

VXA0 Underlying Equities* 28.38% -30.78% -6.73% -27.19%

S&P 500 14.43% -26.62% -3.90% -14.77%

Russell 2000 21.50% -23.65% 1.93% 34.99%

Through 6/30/10 *Source: BofA Merrill Lynch Convertible Research 6/30/10

Appendix: A Fairly Balanced Universe of CB Issuers

Source: BofA Merrill Lynch Convertible Research 6/30/10



Convertibles From an Issuer Viewpoint:

Less dilutive than common stock offering, issuer monetizes volatility

Less costly than pure debt offering, and potential conversion tocommon by holders if equity performs no principal repayment

Expand investor base – flexibility, less restrictive covenants


Source: Barclays Capital

Expand investor base – flexibility, less restrictive covenants

Recent innovations provide tax and EPS advantages

Exchangeable structure allows for monetizing a stake in anothercompany

• Defers capital gains until maturity

Part of the classic financing chain


Why convertibles cannot be replaced with Equities, Bondsand Options:

a) Unlike Bonds and options, many convertible bond holders canobtain a certain amount of underlying shares in exchange for theconvertible bond structure at any time.

b) Unlike options, most convertible bonds have dividend and takeoverb) Unlike options, most convertible bonds have dividend and takeoverprotection.

c) Convertibles offer optionality for companies where there is no liquidoption market.

d) Convertible bond market tendency is to offer investors theopportunity to buy volatility exposure at a relatively cheap price

e) Convertible bonds offer issues “suboptimal” call features

Source: 2007 UBS Global Asset Management (Americas) Inc.


Using Convertible Bonds to Protect Portfolios and Increase Income

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