The management of fixed-income portfolios incorporates our overall investment philosophy.  A substantial part of the total rate of return on an annual basis is represented by the change in principal values.  The prime goal of fixed-income management is to reduce the volatility in principal value declines of the portfolio and to capture a portion of principal value increases.  This is accomplished by adjusting the reserve and maturity  mix as we move through the interest rate cycle.

The function of fixed-income management is far more than merely investing new cash flows at prevailing interest rates.  Fixed-income securities are readily marketable and therefore lend themselves to active but prudent management.  A continual review of fixed-income portfolios against economic factors which will significantly impact interest rates is essential.

We invest primarily in the quality segment of the fixed-income markets.  This provides security against credit risks and produces greater market liquidity.  Private placement and “Junk” bond issues are not used.

The turnover rate of portfolios will vary from year to year.  This depends upon interest rate trends and the volatility of the market with the accompanying distortions and aberrations between various market sectors.  Our turnover rate will generally run between 33% and 100% annually.  There is little evidence to support claims that there is a direct correlation between continually higher turnover rates and investment results.

Discretionary authority, although not mandatory, is highly desirable in order to react quickly to market opportunities.  We believe this is essential to improve the long-term total rate of return.