About the Fixed Income Ladders

The Fixed Income Ladders program has been designed to offer investors a “safe haven” for their assets that allows them to continue to invest their funds without being subjected to stock market volatility. Using various A quality or better securities including corporate securities , foreign or emerging market securities, municipals securities, government securities, and zero-coupon government securities, the Fixed Income Ladders program will tailor fit a portfolio to meet the investor’s risk tolerance and investment needs. Maturities from one to three, one to five, one to seven, and one to ten years will also be used on the different securities to supply the investor with a laddered portfolio designed to meet investor needs over the course of time.

The Advantages of a Laddered Portfolio

In order to hopefully sustain investment success and to limit failure, it is often recommended that investors diversify their bond holdings. Laddering a portfolio spreads the portfolio’s holdings over several maturities, keeping the average maturity at a level acceptable to the investor. For example, a typical laddered portfolio may contain equal amounts of 1, 3, 5, 7, and 9-year government treasury securities. This mix gives the portfolio an average maturity of 5 years. After the first year, when the 1-year securities come due, the money invested in them could be re-invested in 10-year securities, thus bringing the average maturity to 6 years. The process continues from there.

One of the best advantages to this program is that it limits the exposure of the portfolio to interest-rate risk. If interest rates were to rise soon after investing in the ladder, the investor only has to wait a year before new securities are bought that would take advantage of the changes. If interest rates decline, the portfolio has several years of higher interest rates locked in. The disadvantage is that capital gains are hard to come by in a ladders program.

The Fixed Income Ladders

The Fixed Income Ladders consists of five options, or ladders. The ladders offer different maturities and risk characteristics. Central Plains Advisors will help select the best ladder for each client based on the Investor Risk Tolerance and Investment Goals Profile found in the Fixed Income Ladders enrollment forms. The Ladders are as follows:

• Short Term Income Ladder: A portfolio of corporate, foreign or emerging markets, and government securities rated A or better. The maturity of these securities will be between one and three years. This ladder is designed for the investor who has a short time horizon and therefore needs to maintain a relatively high level of liquidity in the portfolio.

• Intermediate Term Income Ladder: A portfolio of corporate, foreign or emerging markets, and government securities rated A or better. The maturity of these securities will be between one and five years. This ladder is designed for the investor with a moderate time horizon who may need to redeploy the assets at a later time. This investor is typically uncertain or cautious about future income requirements.

• Long Term Income Ladder: A portfolio of corporate, foreign or emerging markets, and government securities rated A or better. The maturity of these securities will be between one and seven years. This ladder is designed for the investor who has a lesser amount of need for liquidity and is looking for moderate income returns without taking excessively high levels of risk.

• Municipal Income Ladder: A portfolio of municipal securities rated A or better with maturities ranging from one to seven years. This ladder is designed for the investor with a high tax bracket who is looking for tax shelter as well as income.

• Total Return Extension Ladder: A portfolio of corporate, foreign or emerging markets, government securities, and zero-coupon government securities with maturities ranging from one to ten years. This ladder is designed for the most aggressive investor who has the least need for liquidity and is willing to assume additional market risk for the opportunity of achieving capital gains.

Risks Associated with this Investment

The following are the risks inherent in all of the above Ladder programs. Central Plains Advisors will endeavor to mitigate these risks as best they can. Obviously, no program can eliminate all risks.

• Interest Rate Risk: These investments, like all fixed-income investments, will lose value as interest rates rise, and gain value as rates decline. Zero-coupon securities will be more sensitive to these moves than securities making regular interest payments.

• Default Risk: The issuers of the securities may not be able to pay the interest in a timely fashion and/or may not be able to retire the securities at the maturity date.

• Reinvestment Risk: As the assets in each program are reinvested, the income from the new bond may be more or less than previously attained, depending upon the interest rate environment.

• Market Risk: Due to various inefficiencies in the marketplace, the market value of any particular bond at any particular time may be more or less than the amount originally paid.

• Maturity Risk: Securities with shorter maturities are relatively less sensitive to all these risks than those with longer maturities.