Each client's Federal and state tax exposure is thoroughly analyzed. Considerations in establishing fixed-income strategy include: taxation of capital gains as well as income; the client's overall investment profile; and any anticipated changes in the client's situation.

• Credit risk is minimized by concentrating purchases in AA-rated general obligation and essential-purpose revenue bonds. Insured or guaranteed issues must have an underlying A rating. We avoid lower-quality sectors such as hospital and housing revenues and Certificates of Participation.
  
  
• Issuer-specific risk is minimized through broad geographic diversification. In general market portfolios, exposure to any one state is generally limited to 10 percent of the total portfolio. In state-specific portfolios, exposure to any one issuer is generally limited to 10 percent of the total portfolio.
  
  
• Studies have shown that over time investors are not rewarded for assuming the additional market risk of longer maturities. We, therefore, generally purchase bonds maturing within 10 years.
  
  
• Reinvestment risk is limited by laddering maturities, with the portfolio's weighted average life ordinarily ranging from 4 to 5 years. To protect the investor's income stream and facilitate active duration management, we typically purchase non-callable bonds.
  
  
• Liquidity is maximized through the use of large, highly marketable issues. Purchases are made in the largest block size possible without sacrificing diversification in order to minimize transaction costs. Private placements are not purchased. Anticipated future liabilities such as tax payments can readily be immunized by taking advantage of market opportunities.

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