Investment Grade Portfolio
Management Disclipline

The portfolio management team employs a "Value" strategy. We purchase only corporate bonds and seek those that are undervalued. Investment decisions made by the management team are based on independent fundamental credit analysis, relative value comparisons and yield curve considerations.

The historical low turnover of the portfolio (about 20% per year) is an important conservative trait of the program and helps to lower imbedded transaction costs. Securities selected are those, which we feel have the best prospects for significant performance over the next 3-5 years. Morningstar reports (1/6/03) the average turnover of the general bond fund is 163%. The additional cost to the investor is the “hidden” bid/ask spread on buys and sells.

An investment grade (A3/A- minimum) average credit rating is the constant target. BBB/Ba and Baa/BB rated bonds are purchased (to a maximum of 30%) to enhance cash flow, reduce interest rate sensitivity, and provide greater potential capital appreciation. In the event of a downgrade the security may be held if we anticipate credit improvement in the future.

The conservative nature of the portfolio is improved through a preference for more seniority, therefore preferred stocks are not considered as suitable. Also preferreds issued over the past five years generally have terms that are unfavorable to the investor. This conservative bias (to purchase only bonds stands in stark contrast to mutual funds, some of which were recently buying high yielding common stocks (The Wall Street Journal 1/10/03).

Portfolios are fully invested with an average maturity in the intermediate range. As such we are “Market Neutral” avoiding interest rate anticipation or market timing. Our focus is on the potential future value of individual corporate issuers based on potential earnings growth and stability over the long term.

Portfolios are diversified. Portfolios contain at least 20 equally weighted positions.. Industry concentration is limited to 30%.

Illiquid and volatile issues are avoided. We purchase only larger issue, U. S. dollar denominated registered public corporate bonds. Neither Zero coupon bonds nor preferred stocks are considered. Only North American issuers or those corporations with significant North American assets and operations are considered.

A strict sell discipline is employed. Issues and issuers are analyzed regularly to ensure that gains are captured, relative value is optimized, and capital is preserved.

A Trading Network provides all our clients with excellent pricing. We access over 30 institutional broker/dealers seeking competitive bids and offerings; we are constantly searching out the “natural seller/ buyer”. The competition among the brokers for bigger trades involving large numbers of our clients leads to better prices. This advantage could “pay” for the program.