Seix Investment Advisors

Perspective
ABOUT THE BOUTIQUE: REVIEW OF THIRD QUARTER 2009
BOUTIQUE PERSPECTIVE

Seix Investment Advisors LLC

Risk seeking and increasing risk appetites continued to be the themes of the global
financial markets. The dollar came under pressure as asset prices increased, concerns
about fiat currencies in general, US policies that risk a continued debasing of the
currency and 3-month dollar LIBOR rates falling to the lowest in the world thereby
making the dollar the de facto carry trade currency.
Seix Investment Advisors LLC (Seix)
Credit markets returns were positive across the board in the third quarter with the
is a fundamental, credit-driven fixed-
lowest quality segment of the high yield market leading the way. (Exhibit 1) The Federal
income boutique specializing in both
Reserve’s near “zero interest rate policy” has prompted investors to seek higher yields by
investment grade and high yield bond
going out on the risk curve in the bond market. The US has a savings problem and the
management. Seix has employed its
Fed’s near “zero interest rate policy” seems designed to “disincentivize” Americans to
bottom-up, research-oriented approach
save, an important prerequisite to a country’s long-term economic growth. Corporations
to fixed income management for over
have taken advantage of an environment characterized by low interest rates, very
15 years. The firm’s success can be
accommodative monetary policy and significant investor flows into bond funds to issue
attributed to a deep and talented group
record amounts of corporate debt. Many risky credits have been able to refinance
of veteran investment professionals, a
upcoming debt maturities, while many high quality credits have opportunistically
clearly defined investment approach
accessed cheap capital. The dislocation that existed in many sectors at the beginning of
and a performance-oriented culture
the year, coupled with the demand for yield in the near zero interest rate environment led
that is focused on delivering superior,
to equity like returns in the quarter and year-to-date periods.
risk-adjusted investment performance
for our clients. Exhibit 1 3Q YTD 12Mos

The Author: US TREASURIES 2.10% -2.29% 6.26%

AGENCIES 2.02% 1.99% 8.21%
James F. Keegan
MBS 2.31% 5.29% 9.85%
Chief Investment Officer and
ABS 6.30% 23.07% 14.68%
Head of High Grade Division
CORPORATES 8.12% 17.11% 21.77%
Jim is Chief Investment CMBS 12.70% 24.38% 7.56%
Officer and leads the HIGH YIELD 14.22% 48.98% 21.34%
High Grade division of BB 11.09% 39.46% 22.34%
Seix. Prior to joining the B 10.30% 38.15% 13.85%
firm in 2008, Jim was Caa 20.57% 75.38% 14.51%
Head of Investment Ca-D 34.78% 105.78% 88.64%
Grade Corporate & High Leveraged Loans 10.23% 48.40% 13.01%
Yield Bond Management for American S&P 500 15.61% 19.26% -6.91%
Century Investments, Chief Investment Source: Barclays Capital
Officer at Westmoreland Capital
Management and Managing Director of Treasury yields fell during the quarter as the 10-year treasury rallied to 3.31% on 9/30/09
High Grade and High Yield Fixed Income after reaching a high of 3.85% (August 7th) in the third quarter. Yields and spreads to
at UBS Global Asset Management. Jim’s Treasuries compressed during the quarter to the point where most sector index yields
High Grade team sub-advises several ended the third quarter much lower than where they began the year. (Exhibit 2)
of the RidgeWorth Funds, including the
RidgeWorth Investment Grade Bond Exhibit 2: Yield Comparison
Fund which won a Lipper Performance
32.06

35
Award in 2009. He has appeared on
28.35

30
CNBC and Bloomberg television, and n 12/31/08 Yields
has been quoted in a range of national 25 n 9/30/09 Yields
19.43

publications. Jim received a B.S. degree

19.06
17.58

from St. Francis College and an M.B.A. 20

Yields (%)

14.29

degree from Fordham University. Jim

12.26
11.57

15
10.45

10.31

has more than 25 years of investment

9.58
8.19
7.50

10
7.48

management experience.
4.85
3.63

3.89

3.04
2.34

5
2.12
2.16
1.55

0
U.S. Treasuries Agencies MBS ABS Corporates CMBS High Yield BB B CCC Ca-D

Source: Barclays Capital

 SEIX PERSPECTIVE Page 2

EQUITIES VS. TREASURIES: V-Shaped Recovery or W-Shaped Deflationary Deleveraging

BOUTIQUE PERSPECTIVE

The divergent signals emanating from the equity and Treasury bond markets demonstrate the tug of war between the V-shapers and
the double dippers (W, U or L-shaped). The equity markets are discounting a sharp sustainable economic recovery following the first
global synchronized economic contraction in the post-war period. The Great Recession involves a major financial/banking crisis
where significant balance sheet adjustments in the financial and consumer sector are in the early stages. The debt super cycle that
was built up over the 25 years through 2007 likely fostered what Ben Bernanke coined as “The Great Moderation” as debt expansion
created artificial growth masked by low volatility.

Many reasons have been cited as to the causes of this crisis: low interest rates, lax regulation, greedy bankers, etc. One of the most
fundamentally compelling causes of this financial crisis and maybe the one with most popular support is unsustainable leverage. The
story goes likes this: consumers went
on a debt financed spending spree Exhibit 3: Total U.S. Debt/GDP
to finance an impossible standard 400 2009
2007 363%
of living, while the financial system 347%
leveraged up significantly to magnify 350
what in effect were low asset yields.
Most bulls argue the deleveraging 300 1997
247%
process is well underway, which seems
U.S. Debt/GDP

1986
to be the consensus view. 250
214%

The most recent “Flow of Funds 1981

161%
Accounts” report for 2Q09 by the Fed 200
1957
shows a different picture. Thanks to the 138%
record issuance of government bonds 150
our country has reached a new record
debt/GDP ratio during 2Q09 (Exhibit 3). 100
1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2009
In other words, the United States as a *Estimated by Seix Investment Advisors as of 2Q09
nation has continued to increase its
leverage since the crisis began. Source: Federal Reserve

How do leverage levels compare in

the financial system? Unfortunately Exhibit 4: Domestic Financial Debt Outstanding, billions of USD
levels have declined very little. The $18,000

domestic financial sectors managed 17,000

to reduce its debt outstanding levels
by 0.9% compared to a year ago (see 16,000

Exhibit 4). In other words, the current 15,000

level of financial leverage is similar
to 2Q08. 14,000

It seems fairly obvious that, for many 13,000

years and over the last few cycles, 12,000

policymakers were lulled into a false
sense of security as they focused 11,000

on the wrong inflation measures 10,000

(goods and services) when the real
Q103
Q203
Q303
Q403
Q104
Q204
Q304
Q404
Q105
Q205
Q305
Q405
Q106
Q206
Q306
Q406
Q107
Q207
Q307
Q407
Q108
Q208
Q308
Q408
Q109
Q209

dangerous inflation affecting the US

was asset inflation. This significant
Source: Federal Reserve
inflation in asset prices led to massive
asset bubbles in equities (dot com), followed by housing and credit. A recession by definition is supposed to expose and expunge the
excesses built up during the business cycle. The primary excess built up over the last few cycles in the US was one of excessive debt.
The cure for excessive debt is deleveraging, where the debt is either paid down/off or reduced through defaults and ultimately written
off by lenders. Our concern is that the current policies being pursued by policymakers is creating asset inflation again and potential
asset bubbles as indicated by the 50+% gain in stock prices over the last 6 months when over 2.1 million additional jobs have been
lost. (We must remember the Japanese stock market experienced rallies of 50% or more several times, but remains 70% below its
1989 peak.) We’ve seen this movie before and it does not end well. The ability to pay off or pay down debt is driven by jobs and income.
While the markets are concerned about another jobless recovery, this decade is shaping up as a decade where the job creation
machine went into reverse and was negative.
 SEIX PERSPECTIVE Page 3

To put this into some perspective let’s look at the last few decades. Exhibit 5 shows the trailing 10-year cumulative payroll growth
BOUTIQUE PERSPECTIVE

going back to 1959. Prior to the 2000s, the trailing payroll growth only slipped below 15 million during the recession of the early 80s,
when it bottomed at about 12 million jobs added over the previous 10 years. The 70s, 80s and 90s each had job creation in excess
of 18 million. The first decade
of the 2000s is shaping up to Exhibit 5: Trailing 10 Year Payroll Growth (Sep)
be a decade where there was 25,000
negative job creation. Between
January 2000 and September
2009, 400,000 net new jobs 20,000
Payroll Growth (000s)

were created. Given that the

U.S. is still losing hundreds of 15,000
thousands of jobs a month, it
is highly likely that the next
three months will take the net 10,000
PAYROLL GROWTH BY DECADE
new jobs to a negative number 1970s 19,429K
before the end of the year. 1980s 18,140K
5,000 1990s 21,723K
Graphically, the trailing 10 2000s 415K
year cumulative payroll growth
0
chart clearly illustrates the
Dec 59

Dec 63

Dec 67

Dec 71

Dec 75

Dec 79

Dec 83

Dec 87

Dec 91

Dec 95

Dec 99

Dec 03

Dec 07
jobless nature of the most
recent decade.
Source: Bureau of Labor Statistics

TRANSITORY VS. SUSTAINABLE ORGANIC GROWTH

While we expect to see a couple of quarters of economic growth it is important to distinguish between transitory and sustainable
organic growth. The V-shapers case largely rests on inventory restocking, the belief that the deeper the recession the sharper the
recovery that follows and that corporations panicked laying off too many workers that will need to be rehired as the recovery starts.

As you know our view has been that this recession is not a typical recession that was caused by an inventory correction or the
Fed tightening to slow an overheating economy. This economic contraction is the result of excessive debt and an overleveraged
economy that is unable to service an unsustainable debt that resulted in this financial/banking crisis. The unwinding of this 25-year
debt super cycle will entail deleveraging and balance sheet repair processes that will take years to fix. However, our political
leadership continues to try to solve this excessive debt problem with more debt, which will cause more problems in the future.
Spending programs like Cash for Clunkers and the $8,000 first-time homebuyer’s tax credit and other Keynesian programs are not
sustainable. The evidence is clear that such programs just pull demand forward as evidenced as car sales collapsed (to 9.2 million
annualized in September from 14. 1 million in August) after the Cash for Clunkers program expired. The homebuyer tax credit is set
to expire at the end of November and many in Washington not only want to extend it, but raise it to $15,000 and open it up to all
homebuyers’ not just-first time buyers.

A key question that must be considered is can this economy stand on its own without government support and spending programs.
The government has lent, spent or guaranteed $11.6 trillion to support the system and counter the economic contraction. The flood
of government largesse has benefited Wall Street, “Too Big To Fail” (TBTF) institutions and the financial markets, but done little
for Main Street as the unemployment situation worsens and home foreclosures accelerate. The problems continue to mount as
indicated by such things as the FDIC’s insurance fund (bank failures are approaching 100, which exceeds the total over the last 15
years combined) becoming dangerously low requiring replenishment and talk of the FHA requiring a bailout at some point in the
not-too-distant future.

The inventory restocking part of the equation is entirely dependent on final demand since final demand will determine whether this
inventory build turns into increased consumption or excess inventory.

The most frequently cited strategy every country plans to pursue to get out of this global synchronized contraction is exports. By
definition every country cannot export its way out of the global recession. Which planet is going to do all of this importing? The US
remains the largest export market. Unless US consumers revert back to the “minimum payment mentality” (where you could have
anything you wanted as long as you could make the minimum payment) we do not see the US as being the destination for these
exports.
 SEIX PERSPECTIVE Page 4

OUTLOOK: Employment is Critical

BOUTIQUE PERSPECTIVE

Employment is critical to getting the US economy growing on a sustainable basis again. While many economists say the unemployment
rate has peaked or is close to peaking the evidence does not support this conclusion, which seems to be based on hope. The most recent
household survey showed that the economy lost 785,000 jobs in September and almost 1.2 million jobs over the last two months. Additionally,
the workweek fell to a record low and were it not for the fact that 571,000 workers dropped out of the labor force (meaning they are no longer
counted) the unemployment rate would have been 10.2% rather than the reported 9.8%. The underemployment rate keeps rising and is
currently at 17% translating into more than 1 out of every 6 Americans either unemployed or underemployed.

Weekly jobless claims are perhaps one of the most followed economic indicators in this crisis. Jobless claims measure the amount of
new filers for unemployment insurance during the previous week. Continuing jobless claims (CJC) simply adds the total amount of people
currently receiving unemployment insurance, which lasts twenty-six weeks. Once that period expires, the person drops from the data. An
important question arises: if CJC declines, can we conclude that the job market is improving or is it actually the opposite (i.e. is it taking
longer to find a job)?

Thanks to a couple of new government programs we can more accurately determine the fate of those receiving their last unemployment
insurance check. On June 2008, the government created the Emergency Unemployment Compensation program (EUC), which pays
unemployment insurance for an additional 20 weeks. On November 2008, the government created the Extended Benefits (EB) program, which
pays unemployment insurance for another 13 weeks. We can look at EUC and EB beneficiaries to determine the state of the unemployed.

Not surprisingly, the media’s and the market obsession with CJC data are forgetting that unemployment in the current economic cycle is lasting
longer than the historical average of less than 26 weeks. Since the S&P 500 low in March 2009, EUC recipients have increased from 2.1 million
to 3.3 million. Furthermore, the amount of EB recipients has increased from 15,000 to 465,000. The amount of people currently receiving
unemployment benefits is over
9.8 million (Exhibit 6), about the Exhibit 6: Total Number of Unemployed Collecting Insurance
same amount as of June 26th, 10
when the CJC “finally turned” for
n Extended benefits (nsa)
the better.
Number of Unemployed (millions)

n EUC 2008 (nsa) 8

n Continuing claims (sa)
The outlook for job creation
remains problematic. Looked at
6
through the lens of the various
hiring surveys (Manpower, NFIB,
The Business Roundtable, etc) it 4
does not appear that job creation
is around the corner. The labor
2
differential (jobs plentiful minus
jobs hard to get) component
of the Conference Board’s 0
Jan 05
Mar 05
May 05
July 05
Sept 05
Nov 05
Jan 06
Mar 06
May 06
July 06
Sept 06
Nov 06
Jan 07
Mar 07
May 07
July 07
Sept 07
Nov 07
Jan 08
Mar 08
May 08
July 08
Sept 08
Nov 08
Jan 09
Mar 09
May 09
July 09
Sept 09
Consumer Confidence report has
deteriorated and is approaching
this cycle’s low. Job security Source: Barclays Global Investors, Department of Labor
remains the number one issue as it relates to consumer confidence. Until the US creates jobs on a sustainable basis the average American
will continue to perceive and act like the US is still in recession even though Wall Street, the pundits and statistics indicate a bottom is in
and a statistical recovery is at hand.

Our base case remains that once we emerge from “The Great Recession” the US will be mired in an extended period of below trend growth
driven by secular changes in consumer spending/saving and the headwinds of higher taxes, bigger government involvement in the private
sector and more regulation. Washington is making it more difficult and costly for business, particularly for small business, which is the job
creation engine for the US. Washington is addicted to spending and unwilling to conduct prudent or responsible fiscal policy; instead they’re
using this financial crisis and the analogy to The Great Depression to expand the role of government. Only massive tax increases can pay for
this inefficient and wasteful spending; the economy cannot grow its way out of this unprecedented debt expansion. The balance sheet repair
process will continue unabated as the consumer and financial sectors de-leverage thereby resulting in less supply of and demand for credit.

We continue to favor the investment grade corporate bond sector. The easy money has been made in risky assets and security selection will
take on an increasingly important role in managing portfolios. A retracement of some of the unprecedented rally in 2009 is likely with the
riskiest sectors/asset classes most vulnerable as inevitable profit taking can turn positive momentum negative. US investors have become
painfully aware that equity returns are entry and exit point sensitive.

The Federal Reserve will keep rates very low for an extended period of time as Chairman Bernanke uses the playbook he devised studying
The Great Depression where he believes the central bank raised rates prematurely. It will be interesting to monitor the speeches and public
statements of the regional Federal Reserve Presidents, who tend be less dovish as a group.
BOUTIQUE PERSPECTIVE SEIX PERSPECTIVE Page 5

®RidgeWorth Investments. This perspective was prepared for institutional clients and prospective institutional clients of RidgeWorth
Investments.  Neither RidgeWorth nor any affiliates make any representation or warranties as to the accuracy or merit of this analysis
for individual use.  Comments and general market related projections are based on information available at the time of writing and
believed to be accurate; are for informational purposes only, are not intended as individual or specific advice, may not represent the
opinions of the entire firm and may not be relied upon for future investing. Investors are advised to consult with their investment
professional about their specific financial needs and goals before making any investment decisions.
Past performance does not guarantee future results. The performance data quoted represents past performance and current
returns may be lower or higher. The investment return and principal value of an investment will fluctuate thus an investor’s
shares, when redeemed, may be worth more or less than their original cost. For performance data current to the most recent
month end, visit our website at www.ridgeworthfunds.com.
An investor should consider the fund’s investment objectives, risks, and charges and expenses carefully before investing or
sending money. This and other important information about the RidgeWorth Funds can be found in the fund’s prospectus. To
obtain a prospectus, please call 1-888-784-3863 or visit www.ridgeworthfunds.com. Please read the prospectus carefully before
investing.
RidgeWorth Funds are distributed by RidgeWorth Distributors LLC. RidgeWorth Investments is the trade name for RidgeWorth Capital
Management, Inc., the adviser to the RidgeWorth Funds, and is not affiliated with the distributor.
Collective Strength Individual Insight is a federally registered service mark of RidgeWorth Investments.

• Not FDIC Insured • No Bank Guarantee • May Lose Value

RCBP-SA-0909