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Glossary of Terms

Asset-Backed Securities
Asset-Backed Securities include pools of mortgages, loans, receivable or other assets. Payment of principal and interest may be largely dependent upon the cash flow generated by the assets backing the securities, and in certain cases, supported by letters of credit, surety bonds, or other credit enhancements. The value of asset-backed securities may also be affected by the creditworthiness of the serving agent for the pool, the originator of the loans or receivable, or the financial institution(s) providing the credit support.

Bankers’ Acceptances
These are credit instruments evidencing the obligation of a bank to pay a draft that has been drawn on it by a customer. These instruments constitute an irrevocable primary obligation of the accepting bank, and may also be a contingent obligation of the drawer to pay the face amount of the instrument at maturity.

Certificates of Deposit (CDs)
CDs are negotiable certificates, representing a bank’s obligation to repay funds deposited with it, earning specified rates of interest over a given period of time.

Commercial Paper
Commercial Paper consists of short-term obligations issued by broker-dealers, corporations and other entities for purposes such as financing their current operations.

Debt Securities
Bonds and other debt instruments are used by issuers to borrow money from investors. The issuer pays the investor a fixed or variable rate of interest, and must repay the amount borrowed at maturity. Some debt securities, such as zero coupon bonds, do not pay current interest but are purchased at a discount from their face values. In general, bond prices rise when interest rates fall, and vice versa. Debt securities have varying degrees of quality and varying levels of sensitivity to changes in interest rates. Long-term bonds are generally more sensitive to interest rate changes than short-term bonds.

Repurchase Agreements
Transactions by which the Fund purchases a security and simultaneously commits to resell that security at an agreed-upon price on an agreed-upon date. The resale price reflects the purchase price plus an agreed-upon incremental amount which is unrelated to the coupon rate or maturity of the purchased security. While it does not presently appear possible to eliminate all risks from these transactions (particularly the possibility of a decline in the market value of the underlying securities, as well as delays and costs to the Fund in connection with bankruptcy proceedings), it is the policy of the Fund to limit repurchase agreements to parties whose creditworthiness has been reviewed and found satisfactory by the Investment Advisor.

Time Deposits
Time Deposits are non-negotiable deposits in a banking institution earning a specified interest rate over a given period of time.

U.S. Government Obligations
These are debt securities issued by the U. S. Treasury or by an agency or instrumentality of the U. S. Government. Not all U. S. Government securities are backed by the full faith and credit of the United States.

Issues (or related institutions) have a superior capacity for repayment of short-term promissory obligations. Prime-1 repayment capacity will normally be evidenced by the following characteristics:

  • leading market positions in well established industries
  • high rates of return on funds employed
  • conservative capitalization structure with moderate reliance on debt and ample asset protectio
  • broad margins in earnings coverage of fixed financial charges with high internal cash generation
  • well established access to a range of financial markers and assured sources of alternate liquidity.

Description of Moody’s Investors Service, Inc.’s corporate bond ratings:

Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issuers.

Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long term risks appear somewhat large than in Aaa securities.

Bonds which are rated A possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment some time in the future.

This designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics will be denoted with a plus (+) sign designation.

Description of Standard & Poor’s Ratings Group’s corporate bond ratings:

Debt rated AAA has the highest rating assigned by Standard & Poor’s Ratings Group. Capacity to pay interest and repay principal is extremely strong.

Debt rated AA has a very strong capacity to pay interest and repay principal and in the majority of instances differs from the highest rated issues only in small degree.

Debt rated A has a strong capacity to pay interest and repay principal, although it is more susceptible to the adverse effect of changes in circumstances and economic conditions than debt rated in higher rated categories.

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