For the first quarter of 2011, the markets brought some fancy footwork. In late January, the Middle East erupted in protest and violence, oil was surely going back to $200 a barrel, and consumer spending would subsequently slow.

1. 1033 Skokie Blvd Suite 470
Northbrook, IL 60062
847-513-6300
Stare at the Belt
April 2011
“Stare at the belt” is how every peewee football coach teaches his players how to tackle. As our clients
that played high school and college football can attest, this remains a fundamental lesson even as players
get older, stronger and faster. A defensive player is taught not to focus on a ball carrier’s shoulders,
arms, or feet, but rather the middle of his waist. Despite possibly having an arsenal of moves to fool a
defender, a player can only go in the direction of their belt buckle. Similarly, as investment managers, it
is our job to not get faked out. The financial media will flail their arms and the markets will stutter step,
but we take great pride in our efforts to stare at the belt and not be fooled.
For the first quarter of 2011, the markets brought some fancy footwork. In late January, the Middle East
erupted in protest and violence, oil was surely going back to $200 a barrel, and consumer spending
would subsequently slow. The markets, however, cut left and instead focused on the improving domestic
economy. The 10-year Treasury yield backed up 40 bps and the S&P 500 rallied 7% before the end of
February. Headlines claimed a renewal of a global bull market and quantitative easing was obsolete. All
of a sudden, the market cut to the right. A horrific earthquake sent a wall of water at the world’s 3rd
largest economy, causing tremendous death, destruction and a nuclear disaster. Furthermore, Europe’s
fiscal problems showed little progress. Nonetheless, the market turned in the best first quarter since the
late 90’s and the S&P 500 ended higher at quarter end than when the tsunami struck.
RVP 1st Quarter Returns Net of Fees
Product YTD (12/31/10 – 03/31/11) TTM (03/31/10 – 03/31/11 )
RVP Balanced 4.89% 14.11%
60/40 Benchmark* 3.71% 11.79%
RVP Absolute Return 2.67% 8.35%
3-Month T-Bill 0.03% 0.12%
* 60/40 Benchmark is 60% S&P 500 and 40% Barclays Aggregate Bond Index re-weighted monthly.
Our Balanced Strategy maintained its investment discipline for the quarter, returning 4.89% net versus
its benchmark of 3.72%, a net outperformance of 1.17%. For our long only accounts, we used the March
volatility to slightly increase our equity exposure though we remained defensive overall relative to our
benchmark. In fixed income, we continue to maintain our short duration and high credit quality. Our
credit quality improved after we opportunistically sold closed-end bond funds and replaced it with
MuniFund Term Preferred (MTP) and the new preferred security issued by the GDL Fund.

2. Our Absolute Return Strategy returned 2.67% net for the quarter, in-line with our goal of 8-12%
annually. The performance was primarily a result of three key themes: activist plays, Auction Rate
Preferred (ARP) redemptions and dividend reinstatements. Our activist holdings were well bid with a
tender offer announced and other future actions expected. The sweeping ARP redemptions led by
Nuveen again provided additional return to the composite. Finally, two of our largest equity holdings
reinstated dividends to attractive levels providing strong discount support.
In the face of geopolitical risk, natural disasters and market volatility, the Sector SPDR Energy Select
Fund (XLE) was a strong contributor of year-to-date performance in our long only accounts. One of our
few sector overweights, we originally purchased shares due to attractive sector valuations and as a
natural hedge against inflation and a weaker dollar. This position complements our traditionally
conservative equity allocations as a way to increase our market exposure with some protection against
rising commodity prices.
On March 9, 2011, the LMP Capital & Income Fund (SCD), one of our largest and most widely held
positions announced a tender offer for 30% of the fund. We welcomed this news as we originally
purchased a majority of the shares at discounts greater than 15% and a significant amount in excess of
20%. We were originally attracted to the fund’s historically wide discount, conservative strategy and its
bias towards high quality companies. As its discount contracted, however, it became clear SCD was
facing significant activist pressure. We paired back our overweight position and raised our sell target
based on the new developments and historic patterns of similar situations. We expect to tender a
significant amount of our holdings by the end of July.
The first quarter of 2011 was an important one for ARP redemptions. Of the ARP positions we held at
the end of 2010, over 40% were redeemed by the end of the first quarter of 2011. Most redemptions
were announced by Nuveen, but we also saw a sweeping redemption notice of Blackrock ARPs. Nuveen
announced the approval of Variable Rate MuniFund Term Preferred Shares (VMTP), another weapon in
their ARP redemption arsenal. In our view, it is clear that the market continues to make progress in ARP
redemptions, both in the form of new structures and management’s commitment to refinancing.
One of our largest and oldest holdings, the GDL Preferred Series A, also known as GDLPRA,
announced it was going to refinance with GDL Preferred Series B, GDLPRB. The preferred was offered
via a rights offering for existing shareholders of the series A preferred. In addition to the rights we
received from GDLPRA, we purchased rights in the secondary market because we believe the new
security represents value in today’s market. We view the new issue as attractively priced and it fits well
with our views on the current interest rate and credit environment. The new preferred will pay 7% for
the first year and resets at a floating rate of at least 3% every year thereafter. While the issue has a
mandatory redemption in 2018, it is puttable, or can be sold back to the fund, at any point after the
second year at par and is callable after the third year. This is a rare situation where the option, or put, is
in the buyer’s favor. Regardless of the way this plays out, we equate it to a minimum of a 2 year, 5%
bond with AAA credit quality characteristics. The preferred is secured 3:1 by the underlying assets in
the fund.
While we continue to find interesting opportunities in the closed-end fund market, our current portfolio
has a larger percentage of activist holdings than it has historically. This reflects our view that activist
positions maintain lower discount volatility. We continue to believe that too many directors are failing
in their fiduciary duty to their shareholders. As such, we believe these situations offer significant alpha-
generating potential given a closed-end fund market that is fairly valued overall.

3. It seems as though numerous investors find themselves in the uncomfortable position of having an
excess amount of cash paying literally 0% as the market grinds higher. We have coincidentally
experienced increased inquiries into some of our balanced strategies with a lower equity weighting. A
look at the data would probably help a person’s perspective. The worst calendar year return for a
portfolio with a 30% allocation to the S&P 500 and a 70% allocation to the Barclays Aggregate Bond
Index since 1976 was in 2008 at -7.46% and the second worst was in 1994 at -1.65%. In fact, there were
only 2 down years in the last 34 on the 30/70 blend. While RVP has the most assets in our 60/40
Balanced Composite, we have always offered customized asset class blends to meet client needs. For
those investors with a time horizon beyond the next few quarters, it may make sense to keep their eye on
the belt buckle and not the noise on CNBC.
As always, thank you for your trust in us.
Maury Fertig Bob Huffman
Relative Value Partners, LLC Absolute Return Composite
1 Year 3 Years Annualized Inception to 03/31/11
(ending 03/31/11) (ending 03/31/11) Annualized*
RVP Absolute Return 8.35% 8.72% 10.02%
3 Month T-Bill 0.12% 0.46% 2.00%
*Composite started on 6/1/2006
Relative Value Partners, LLC Balanced Composite
1 Year 3 Years Annualized 5 Years Annualized
(ending 03/31/11) (ending 03/31/11) (ending 03/31/11)
RVP Balanced 14.11% 6.48% 5.82%
60/40 Benchmark* 11.79% 4.09% 4.37%
Relative Value Partners, LLC Equity Composite
1 Year 3 Years Annualized 5 Years Annualized
(ending 03/31/11) (ending 03/31/11) (ending 03/31/11)
RVP Equity 17.73% 5.91% 5.10%
S&P 500 15.64% 2.37% 2.63%
Relative Value Partners, LLC Fixed Income Composite
1 Year 3 Years Annualized 5 Years Annualized
(ending 03/31/11) (ending 03/31/11) (ending 03/31/11)
RVP Fixed Income 6.17% 7.07% 6.67%
Barclays Aggregate 5.13% 5.27% 6.01%

4. Relative Value Partners, LLC (RVP) is an independent registered investment advisor. The Balanced Account composite
contains fully discretionary balanced accounts and for comparison purposes is measured against the 60/40 Benchmark. The
60/40 Benchmark is comprised of 60% S&P 500 and 40% Barclays Aggregate Bond Index, reweighted monthly. The
Absolute Return Composite contains fully discretionary absolute return accounts and for comparison purposes is measured
against the 3 Month Treasury bill. The Equity Account Composite contains fully discretionary equity accounts and for
comparison purposes is measured against the S&P 500. The Fixed Income composite contains fully discretionary fixed
income accounts and for comparison purposes is measured against the Barclays Aggregate Bond Index.
All returns are shown in US dollars and are net of actual fees. The returns shown include the reinvestment of dividends and
other earnings. Accounts may own levered closed-end funds or ETFs and may short ETFs. Past performance may not be
indicative of future results. Different types of investments involve varying degrees of risk and there can be no assurances
that any specific investment will be profitable. Investors may experience a loss.
RVP claims compliance with the Global Investment Performance Standards (GIPS®).
To receive a complete list and description of RVP’s composites and/or a presentation that adheres to the GIPS standards,
contact Catherine Goel at (847) 513-6300, or write RVP, 1033 Skokie Blvd, Ste 470 Northbrook, IL 60062, or
cgoel@rvpllc.com.