Issues may include bonds and notes of the United States government and its agencies, state and local municipalities, and corporations, preferred stocks and asset-backed securities. Mortgage pass-through and other securities with multiple option payment streams are generally not considered for investment.




Quality is subject to the margin-of-safety principle. The principle is to purchase a bond only when the available income or assets of the issuing enterprise are significantly greater than the interest payments and principal repayments due the security holder. Once this requirement is satisfied, bonds which offer the most attractive yields are purchased.

Bonds rated AA- or higher by Standard & Poor's or AA3 or higher by Moody's are considered to have an adequate margin of safety due to the stringent standards established by these organizations for their AAA and AA ratings. Bonds rated A+ or lower by Standard & Poor's or A1 or lower by Moody's or issues not rated by either organization are thoroughly investigated before purchase. The enterprise itself and its bond indentures are examined in detail to determine the margin of safety in each particular issue.

There are no other restrictive parameters based on credit quality ratings. The reason is to avoid over-delegating management responsibility and performance accountability to outside rating sources (except for AAA and AA rated issues as indicated).

Economic forecasts are not considered in the investment decision-making process.




The primary objective of the fixed income portfolio is to provide liquidity and stability. Therefore, bond maturities typically range from one to ten years. The primary objective regarding term structure is to protect the portfolio from inflation. A significant policy in this regard is to avoid locking up intermediate-term and long-term bonds at low rates, since such bonds are at risk of rising inflation and protracted negative after-inflation returns. Bond maturities are therefore structured using a "step-ladder" approach, where minimum yields are established at specified maturities. Short-term bonds, those with maturities of one to four years, have no minimum yield requirement. The following minimum yields apply for bonds with maturities from five to ten years:

The number of bonds in a portfolio is contingent on the client's total assets. No single issuer will comprise more than five percent of a client's total assets.




Taxes are an explicit consideration in all accounts. The tax rates of tax-paying owners and beneficiaries are recorded. Yields are then compared on an after-tax basis to determine whether or not taxable or tax-favored issues are most advantageous.




The bond investment performance objective is to obtain the highest after-tax yield possible without sacrificing credit quality standards. An index for comparative purposes is not selected. Traditional indexes do not have a comparable term structure, and the construction of a specific comparable index would be ineffective. It would replicate the portfolio with the matching of credits, and therefore performance would be decided by the ratings agencies.