During the first week of March 2008, The Trust Company will be making some changes to our investment portfolios.  As part of our proactive investment monitoring process, we have decided to terminate the Neuberger Berman International mutual fund.  Our original intent in hiring Neuberger several years ago was to have exposure in small and mid cap international stocks while other managers could cover the large cap international style.  Neuberger has been increasingly purchasing large cap international stocks where our other international managers are already investing.  We cannot argue with Neuberger’s recent change in strategy from an opportunity standpoint, but we already have coverage in that area.  Causeway International Value and William Blair International Growth (or Principal International Growth for some types of retirement plans) have a much more proven investment process in large cap international stocks.  Therefore, in our stock mix we are going to maintain a 20% allocation to international stocks and invest half with Causeway and half with William Blair (or Principal). 

The small and mid cap international sector has done very well over the last several years, including emerging markets. As performance in different sectors tends to cycle, we do not think it is a good time to allocate more towards the small and mid international or emerging markets sectors.  Going forward, we will evaluate if and when we should allocate more towards small and mid cap international or emerging markets.

At this time we do not plan on any other manager changes or allocation changes but we will continue to daily monitor our recommended managers and investment portfolios to make sure we are doing what is best for our clients.  We appreciate your business at The Trust Company!   

2/28/07, Wednesday

Tuesday’s Market Decline

Yesterday, the Dow declined over 416 points or 3.29%. Historically speaking, the decline was the 7th largest point decline ever, yet it doesn’t even fall within the top 50 worst days as a percentage decline. The Trust Company invests with a long-term perspective and does not over react to short-term gyrations of the market. For the period 1985-2006, there have been 5,297 trading days for the S&P 500. Over this period a S&P investor has had an average annual return of 12.12%. Had an investor missed the best 10, 40, or 70 days, their return would have 8.56%, 1.87%, and <3.02%>, respectively. Remember, it is “ the time in the market, not timing the market ” that really matters.

Several factors influenced Tuesday’s decline. First, on the domestic front, Alan Greenspan, who recently retired after 18 years as Chairman of the Federal Reserve, commented that the U.S. economy might be heading into a recession. This was very unnerving to the market and the market reacted accordingly. His comments are reminiscent of the famous E.F. Hutton, a defunct brokerage firm, ad that had the famous slogan, “When E.F. Hutton talks, people listen.” When Greenspan speaks, the world listens.

At The Trust Company we believe the economy is strong and will continue to grow. The huge impact of productivity gains on our economy doesn’t always show up in the government statistics. The foundation of capitalism is to provide a product or service that creates value for the consumer and a profit for the provider. In order to survive the ever-changing landscape of competition, providers must find ways of doing it better and cheaper, and as a result they achieve productivity gains.

Certain areas of the market have performed better than others since the market peak of March 24, 2000 through December 31, 2006 (see chart).

Total Returns (3/24/00-12/31/06)

We recognize there are periods where extremes are reached on both ends of the spectrum and it is at these times that real value can be added. The Trust Company has always been proactive in its investment strategy and as a consequence, as stated in our 12/31/2006 Commentary, we are reducing our exposure to small-mid cap stocks (taking profits) and increasing our allocation to large cap companies (buying low).

The second significant factor in the US market decline was the 8.8% decline in the China Shanghai Composite Index, the largest in over 10 years. It was fueled by profit taking in light of the index being up over 130% in 2006 and had advanced by over 20% in 2007, prior to yesterday’s decline. One would expect some type of pull back in light of the red-hot performance. Another concern was that the Chinese government would begin to take steps to slow the economy. Their economy would still be strong even if the government ever so softly taps on the brakes. What is important to understand is that this is a shift from their perspective of unbridled economic growth. Apparently, they are recognizing that there are limits that if ignored, can cause adverse economic consequences in the long run.

As always, The Trust Company appreciates the confidence you have shown by allowing us to manage your monies. Remember, we are investing our monies the same way that we are recommending you our clients. Please do not hesitate to call with any questions or concerns.

March 2007

We will be replacing three managers as well as making changes to the allocations of our stock portfolios. These changes will be completed by March 8th. The following bullet points summarize the upcoming changes.

• Wells Fargo Capital Advantage (SLGIX) replacing TCW Galileo Select Equities Fund (TGCNX) & Aston/Montag & Caldwell Growth Fund (MCGNX)– Wells Fargo Capital Advantage (SLGIX) has demonstrated the ability to outperform in both up and down markets. Over the last several years, the large growth style as a whole has lagged in performance versus other styles. We believe it is poised to do well versus other investment styles and we are confident that Wells Fargo will outperform its peer group. TCW and Montag were utilized to cover the large growth allocation with independent strategies. The combination has not performed as we had hoped.
• Rainier Mid Cap Equity (RIMMX) replacing Calamos Growth (CVGRX) – Rainier Mid Cap Equity (RIMMX) is a fund with a stellar investment process and is committed to investing in the mid growth space. They also understand the importance of closing a fund at the appropriate time to benefit their shareholders. Calamos Growth was originally hired to cover the mid growth allocation, but we have seen an increase in the number of large cap growth names that have been added to the portfolio. The fund has also experienced tremendous growth in assets and they have been unwilling to close it or limit their investments to the mid growth space.
• Stock Portfolio Allocation Changes – Our stock portfolio currently has 50% allocated to the large cap style. We will be increasing that large cap allocation to 60% while reducing our mid and small cap exposure from 30% to 20%. The two reasons for this change are the slowing economy and underperformance of large cap stocks over the last several years. As the economy slows down, large cap names are typically favored and we want to take advantage of that without abandoning exposure to mid cap, small cap, or international stocks. Additionally, because large cap stocks have been out of favor for several years, we believe that the pendulum is going to swing back to them. We don’t know exactly when that will happen but we want to be in position when it does.
• Aggressive Portfolio Allocation Changes – Our aggressive portfolio historically has taken on more risk for longer-term investors (20+ years). In the last several years, we have allocated more to the small and mid cap space, which has generated additional return but we will now be reducing it from 60% to 40%. At the same time, we will be increasing our allocation to large caps from 20% to 40%. We are also going to overweight the growth style to 60% as opposed to equally weighting growth and value. Just as small cap stocks have outperformed large caps in the last several years, value strategies have outperformed growth strategies. We see the tide turning here and are going to position the portfolio as such.

Please contact The Trust Company if you have questions or would like additional information.
(865) 971-1902

November 20, 2006

As seen in the Knoxville New Sentinel

Knoxville firm reaches $1 billion milestone
The Trust Co., an administrator of trusts and employee benefits, has reached $1 billion of assets under management, said president and CEO Sharon Miller Pryse.

"Our 20th birthday will be in January. We look forward to strengthening our relationships and service over the next two decades," she said.

The Trust Co. has 42 employees and manages investments for individuals, foundations, 401k plans and trusts.

October 18, 2006

ABN AMRO sold its U.S. mutual fund business to Highbury Financial Inc.
on March 31, 2006. As a result, the ABN AMRO funds will be re-branded The Aston Funds, and the ABN AMRO/Montag & Caldwell Growth Fund - N Shares - will become the Aston/Montag & Caldwell Growth Fund - N Shares, effective October 31, 2006. Montag & Caldwell will remain as advisor to the Fund, and the operations team administering the Fund will remain intact.

April 17, 2006

The Trust Company of Knoxville is making some changes to our recommended investment mix. The change is being made to our fixed income portfolios as a result of Goldman Sachs purchasing the First Funds Group. In light of this, we will be liquidating our position in the First Fund Intermediate Bond Fund, which represent a 1/3 position in our fixed income portfolios. We will reallocate the First Funds sale proceeds to the PIMCO Total Return Fund, which over the last 5 and 10 year periods have been in the top 10% of its peer group. This change will take effect at the end of April 2006. If you have any questions or would like further information, please contact your Account Administrator.

New 2008 Plan Limits