Short Duration Government Fund

The portfolio management team at Smith Breeden Associates, Inc. specializes in analyzing and investing in mortgage securities. Through careful analysis and comparison of the characteristics of these securities, such as type of issuer, coupon, maturity, geographic structure, and prepayment rates, the portfolio manager seeks to structure a portfolio with similar risk characteristics to six-month U.S. Treasury securities and slightly higher returns. Because there is less certainty about the timing of principal payments to individual mortgage securities than for U.S. Treasury securities, they tend to carry a slightly higher yield. A properly structured portfolio of mortgage securities, however, can have a highly predictable cash flow while maintaining a yield advantage over Treasuries. Although the portfolio management team often purchases securities with maturities longer than six months, it does not attempt to increase returns by actively positioning the interest rate sensitivity of the portfolio. Instead the team typically manages the weighted average duration of the portfolio so that it remains close to six months.

Ideal Investment

• Yield advantage over Treasuries
• Very high quality (AAA or Government)
• Attractive value relative to other MBS opportunities

Portfolio Construction

The portfolio

• Seeks to optimize return per unit of risk
• Minimal exposure to credit risk and interest rate risk
• Consists of high quality MBS, CMBS, and ABS securities
• Will tend to have an interest-rate sensitivity similar to a 6-month Treasury Bill

Sell Discipline

The investment team will make a sell decision when:

• They no longer view the bonds as attractive
• They deem it necessary to reallocate the portfolio
• To maintain the portfolio’s target duration

Investment Process Chart

Investors should carefully consider the fund's investment objectives, risks, charges, and expenses before investing. For this and other information, please call 800.835.3879 or download a free prospectus. Read it carefully before investing or sending money.

The performance shown represents past performance and is not a guarantee of future results. Current performance may be lower or higher than the performance data quoted. The investment return and the principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. From time to time the advisor has waived fees or reimbursed expenses, which may have resulted in higher returns. The listed returns and yields on the Fund are net of expenses and the returns and yields on the indices exclude expenses. Current performance of the Fund may be lower or higher than the performance quoted.

There is no guarantee that these investment strategies will work under all market conditions, and each investor should evaluate their ability to invest for a long-term, especially during periods of downturns in the market.

The investment return and the principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost.