EXPLORATION OF COMMERCIAL PAPER HOLDING

• Amid the credit crunch and corresponding financial market turmoil that came to life during the 2007 MBA group’s tenure, certain opportunities to capitalize on displaced market efficiencies and shifts in asset allocations existed.  The fund managers considered a strategy to capitalize on widening quality spreads, the steepening of the yield curve and lowering yields on Treasury debt. 
• At the beginning of September, the fund managers considered purchasing approximately $25,000 worth of A1/P1/F1 (Top Tier) commercial paper.  There were legitimate concerns over the underlying securities, especially in light of the fact that a significant amount of the paper is backed by subprime mortgage collateralized debt. Recognizing this, the fund managers’ strategy was only to invest in commercial paper from a non-financial company.  From a liquidity perspective, the goal was to participate in a 90-day CP offering and then hold it to maturity.  With the fund’s large cash and Treasury positions, the fund’s managers were willing to sacrifice liquidity to obtain higher yield.