Sage Advice Special Report 1Q2008

March 31, 2008 — Structured investment vehicles, or SIV’s for short, were created by offshore investment companies that sell short-term securities to purchase higher yielding long-term bonds and profit from the positive carry between the two. For SIV managers, longer dated securities such as mortgage backed and structured products were utilized to maximize the spread between the short and long positions. In turn, money market and short dated funds invested in the short dated paper sold by the SIV issuers due to the attractive yield relative to other short term products as well as its perceived safety and liquidity. The rise in market volatility that started at the beginning of 2007, shown below in the VIX chart, caused liquidity to quickly dry up and investors’ appetite for risk to suddenly wane.