Overview

Fixed-income securities have proven over time to be a critical part of well-allocated portfolios because it is important to have assets that aren’t correlated to stock-market investments. Bond investing has become increasingly challenging over the years and we believe that an actively managed fixed-income portfolio — either through a separately managed account or a mutual fund — may make sense for long-term investors. To that end, Eagle Asset Management has employed an experienced team of bond managers, analysts and traders to help investors meet their long-term financial goals.

Investment Process

Portfolio managers anticipate and respond to changing market conditions such as:

• Interest-rate trends
• Economic outlook
• Federal Reserve policy
• Sector valuations

After analyzing these variables, managers establish current strategies and maturities for the portfolios. Securities are selected from a broad base and are evaluated on their status in the following categories:

• Current yield
• Credit quality
• Call risk/protection
• Coupon structure
• Capital gains potential
• Inefficient pricing

Generally speaking, management focuses more on structural bond analysis than credit analysis. Management believes that there are good opportunities to capitalize on the market's inefficiencies by investing in securities with unique characteristics that may help to reduce portfolio volatility and enhance yield. Our research staff carefully analyzes the structural features of asset-backed and mortgage-backed securities.

Sell discipline

• Current portfolio-maturity profile no longer met by bond
• Significant negative change to credit rating
• Development of more attractive investment opportunity
• Taking advantage of capital gains without compromising long-term income returns
• Calling of bond

Portfolio Characteristics (as of September 30, 2024)

Risk Information
Risks associated with Fixed Income investing: many investors consider bonds to be “risk free” investment vehicles. Historically, bonds have indeed provided less volatility and less risk of loss of capital than has equity investing. However, there are many factors that may affect the risk and return profile of a fixed-income portfolio. The two most prominent factors are interest-rate movements and the creditworthiness of the bond issuer. Bonds issued by the U.S. government have significantly less risk of default than those issued by corporations and municipalities (see footnotes 3 and 5 below for a discussion of the risk associated with high-yield bonds and convertible securities). However, the overall return on government bonds tends to be less than these other types of fixed-income securities. Investors should pay careful attention to the types of fixed-income securities that comprise their portfolio, and remember that, as with all investments, there is the risk of the loss of capital.

Not every investment opportunity will meet all of the stringent investment criteria mentioned to the same degree. Trade-offs must be made, which is where experience and judgment play a key role. Accounts are invested at the discretion of the portfolio manager and may take up to 60 days to become fully invested.

(1) Asset-backed securities and mortgage-backed securities are created by pooling loans from a variety of sources and issuing bonds that are backed by these loans. Creditworthiness stems from the credit quality of the underlying loans, as opposed to corporate bonds in which creditworthiness is derived from the earning power of the issuing company. The primary risk of these securities is interest-rate risk. Rising interest rates might cause loan principal prepayments to slow, resulting in less available principal to invest at prevailing higher rates. Conversely, rate decreases might accelerate prepayments, leaving more dollars to invest at lower rates.

(2) Investment grade refers to fixed-income securities rated BBB or better by Standard & Poor's or Baa or better by Moody's.

(3) Convertible securities and preferred stock combine the fixed-income characteristics of bonds with some of the potential for capital appreciation of equities and, thus, may be subject to greater risk than pure fixed-income instruments. Unlike bonds, preferred stock and some convertible securities do not have a fixed par value at maturity, and in this respect may be considered riskier than bonds. Convertible securities may include convertible bonds, convertible preferred stocks and other fixed-income instruments that have conversion features.

(4) Accounts using High Quality Tax-Free may only be available at select broker/dealers.

(5) Investments in high-yield bonds and convertible securities are subject to the client's authorization, as set forth in the Investment Management Agreement. Such investments may be subject to greater risks than other fixed-income investments. The lower rating of high-yield bonds (less than investment grade) reflects a greater possibility that the financial condition of the issuer or adverse changes in general economic conditions may impair the ability of the issuer to pay income and principal. Periods of rising interest rates or economic downturns may cause highly leveraged issuers to experience financial stress, and thus markets for their securities may become more volatile. Moreover, to the extent that no established secondary market exists, there may be thin trading of high-yield bonds, which increases the potential for volatility.

(6) Income earned from investments in municipal bonds, while exempt from federal taxes, may be subject to state and local income taxes. All capital gains, as well as income earned from other sources, are subject to taxation. Income from municipal securities may also be subject to the Alternative Minimum Tax. Municipal securities typically provide a lower yield than comparably rated taxable investments in consideration of their tax-advantaged status. Investments in municipal securities may not be appropriate for all investors, particularly those who do not stand to benefit from the tax status of the investment. Please consult an income-tax professional to assess the impact of holding such securities on your tax liability.

Be sure to consider your financial needs, goals, and risk tolerance before making any investment decisions. Eagle does not provide legal, tax, or accounting advice. Any statement contained in this communication concerning U.S. tax matters was not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code. Before making any investment decisions, you should obtain your own independent tax and legal advice based on your particular circumstances.

BLOOMBERG, BLOOMBERG INDICES and Bloomberg Fixed Income Indices (the “Indices”) are trademarks or service marks of Bloomberg Finance L.P. Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited, the administrator of the Indices (collectively, “Bloomberg”) or Bloomberg's licensors own all proprietary rights in the Indices. Bloomberg does not guarantee the timeliness, accuracy or completeness of any data or information relating to the Indices.

Definitions
Duration - is a measure of the average life of a bond, weighting each repayment by the time until it will be made and reflecting the fact that money flows in the near future are more valuable than the same money flows at a later date. Duration indicates how changes in interest rates will affect the price of a bond (or bond portfolio). The longer the duration of a bond, the greater the extent to which its price is affected by interest rate changes. As such, duration is used as a measure of risk for bond portfolios.

Average duration - is represented by effective duration for our taxable portfolios because it takes into consideration the embedded options and fluctuations in cash flows for structured products like mortgage-backed securities and asset-backed securities; Modified adjusted duration is used as average duration in our tax-advantaged portfolios since the calculation takes into account call options which are common in the municipal market.

Maturity - The date on which a loan or bond comes due and is to be paid off.

Yield-to-Worst - The lowest possible yield that can be received on a bond assuming no default. Yield-to-worst is calculated on all possible call dates and makes worst-case scenario assumptions on the issue by calculating the returns that would be received if provisions, including prepayment, call, or sinking fund, are used by the issuer. The yield-to-worst will be the lowest of yield-to-maturity or yield-to-call (if the bond has prepayment provisions); yield-to-worst may be the same as yield-to-maturity, but never higher.