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Here's a bond fund with a diversified income stream

With rates on money market funds falling, investors wanting income might be smart to look at bond funds. Here's one that not only provides an income stream but one that's diversified too.

The Phoenix-Seneca Bond Fund, (1-800-243-4361), has been around for three years. It's an off-shoot of an institutional fund that bears the same name and as such, shares the same management style and management team. One of the attractive things about all that sharing, from a retail investors point of view, is the pay-off: Ever since the institutional fund began in 1996, and the retail fund's inception in 1998, neither has ever had a down performance year.

Another plus for the retail fund is that there's not just a team of two or three managing assets in it, there's a team of 13. "The team includes a junior portfolio manager, six credit analysts, two mortgage-back and asset-back analysts, a cash manager and two quantitative analysts, plus myself," says Charles Dicke, portfolio manger of the Phoenix-Seneca Bond fund, (SAVAX).

All that management has paid off thus far: As of July 17, the fund's total return was up 4.70 percent and at the end of June its yield was 5.45 percent.

Here's more from Dicke about how the fund is managed:

Q: With 100 bonds in the portfolio could you give me an idea of the quality of bonds the fund invests in?

Dicke: Currently, about 72 percent of the fund is in investment grade securities and 28 percent in high-yield bonds. Investment grade securities are bonds rated double-B and below and the fund has the ability to invest up to 35 percent of its assets in high yield bonds.

Q: Currently, where is the fund getting most of its yield kick?

Dicke: One area we like right now are 30-year discount Ginnie Mae securities. Those are yielding about 6.5 percent. And we also like investment grade corporates. Avis Rent A Car has an investment grade rated bond that's yielding 8.2 percent.

Q: Why do you think people are more interested in bonds these days then they were a few years back?

Dicke: They've learned that stocks can be volatile. And, that the combination of stocks and bonds can keep the volatility of your total assets from swings to wildly. Plus, bonds can provide some steady income.

Q: Speaking of income, where does the income stream in your fund come from?

Dicke: We're involved in all different sectors of the market place -- mortgage backs, asset backs, investment grade, corporate, Treasuries, high-yield corporates -- so this fund could really be a core holding for investors.

Q: How have the fund's portfolio holdings changed over the years?

Dicke: Yes. The value we add is picking the sectors right and picking the securities that we hope will perform well. So, when we were concerned with corporate spreads being at such rich levels back in 1997, we rotated out of some corporates and added to our mortgage positions which protected us from some of the blow-ups in corporates.

Also, in 1998, we were up to near maximum in high-yield securities and we've pared that position back.

Right now we feel good about the securities that we own including those that offer the extra yields.

Q: It sounds as though you're more interested in putting together a portfolio of bonds that make sense rather than creating one in which the goal is the highest possible returns.

Dicke: That's the trade off. We want to beat the market place, ( in terms of performance), but we don't want to be more volatile than the market place. So the first order is to preserve capital and the second order, to out perform the market.

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