Retirement Income Fund
The RETIREMENT INCOME FUND seeks to provide investors with a high level of income without undue risk of principal.
Principal Investment Strategies and Security Selection Criteria: The Fund strives to meet its investment objective by investing in a broad range of fixed income investments.
The Retirement Income Fund invests at least 65% of its total assets in corporate or U.S. Government fixed income securities. The remaining assets may be invested in preferred stocks, U.S. Government agency securities, U.S. Government obligations, Yankee Bonds, exchange-traded funds ("ETFs"), high yielding common stocks and money market instruments. These non-principal investments are discussed in the Statement of Additional Information (SAI).
When choosing investments, the portfolio manager adheres to the following policies:
1) The Fund may invest as much as 33% of the total assets in lower rated, high-yielding debt securities (junk bonds) or high yielding common stocks. The junk bonds are those rated between Ba1 and B2 by Moody's or between BB+ and B by S&P. If the quality rating criteria are met at the time of investment, a later decline in the rating by either or both of the rating agencies shall not be a violation of the investment policies of the Fund. In the event that a security held by the Fund is downgraded below B3 by Moody’s and B- by S&P, the Fund may continue to hold the security until such time as the investment adviser deems it advantageous to dispose of the security. High yielding common stocks will consist of stocks with a dividend yield, at the time of purchase, higher than the average dividend yield of the stocks comprising the S&P 500 Index.
2) No more than 50% of the Fund's total assets will be invested in obligations issued or guaranteed by the U.S. Government.
3) At least 50% of total assets will be invested in the following securities: obligations of, or guaranteed by the Government or its agencies corporate debt or preferred stocks rated Baa3 or higher by Moody’s, or BBB- or higher by S&P.
4) The Fund may hold unrated securities if the portfolio manager believes that the securities are comparable in investment quality to the rated securities. However, the Fund will hold no more than 5% of the total assets in unrated securities.
5) The portfolio manager uses credit analysis, security research and credit ratings when choosing bonds. The portfolio manager takes into consideration such factors as the following:
- present and potential liquidity
- capability to generate funds
- profitability
- adequacy of capital
When selling investments, the portfolio manager considers the following:
1) Whether the current market price accurately reflects the credit worthiness of the company.
2) Whether changes in the industry could have a negative impact on the company’s business or marketing opportunities.
3) Credit ratings which fall below the Fund’s minimum standards.
4) The possible impact of rising or falling interest rates on bonds in the Fund.
The Retirement Income Fund may adjust the average maturity based on the interest rate outlook. When interest rates are expected to rise and bond prices fall, the Fund may hold bonds with a shorter average maturity. When rates are expected to fall and bond prices rise, the Fund may hold bonds with a longer average maturity.
The investment adviser may adjust the quality of bonds held based on current economic conditions. Any adjustment in the maturity or quality of the holdings may cause an increase in portfolio turnover resulting in an increase in expenses.
Principal Risks of Investing in the Fund
Interest Rate Risk – Bond prices fluctuate due to changing interest rates. When interest rates rise, bond prices fall, and bond prices go up when interest rates fall. Bonds with longer maturities have greater interest rate risk than do bonds with shorter maturities.
High Yield Securities Risk – Issuers of high yield fixed-income securities (commonly referred to as “junk bonds”) are not as strong financially as those companies issuing investment grade bonds. Junk bonds are subject to greater credit quality risk than higher rated fixed-income securities and should be considered speculative. The value of debt securities may be affected by changing credit ratings.
Credit Risk – There is a chance that the issuer of a bond will default on its promise to pay interest and/or principal at maturity. Credit ratings are an attempt to assess this risk. All things being equal, the lower a bond’s credit rating, the higher the interest the bond must pay in order to attract investors and compensate them for taking additional risk.
U.S.Government Agency Risk – Some U.S. Government agency securities, such as those of the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) have only limited support from the agency’s authority to borrow from the U.S. Government or the discretionary authority of the Treasury to purchase obligations of the issuing agency. Agencies with this limited credit support or no legally required support from the U.S. Government could default on their obligations or suffer reductions in their credit ratings.
Call and Prepayment Risk – Investment grade and high-yield bonds may contain prepayment or redemption (call) provisions which, if exercised during a period of declining interest rates, may require the Fund to reinvest in a lower-yielding security, resulting in a decreased return for investors. Also, mortgage-backed securities issued by U.S. Government agencies are subject to prepayment risk because the underlying mortgages are being repaid on a regular basis.