Your dividend is being cut from 18 cents last quarter to 8 cents this quarter----WHY?

Toward the end of last year, we dramatically increased our holding of 3.375% Treasury Inflation Protection Securities that mature on January 15, 2007 (TIPS) from approximately 17% of the portfolio to 40%. This had the effect of lowering current income due to a reduction in inflation compared to the prior quarter. This occurs since the TIPS’ principal value is adjusted each month for inflation. At the end of the term, we expect to receive a larger principal value than we purchased due to the inflation addition. In essence, the TIPS are being considered on a total return basis which is the combination of current income plus the change in principal value over the entire holding period. Though current income is lower, the principal amount of the security rises with inflation over the long term. As an example, the total return of Treasury bonds with maturities of one to three years was approximately 0.39% for the first quarter while that of our TIPS was 0.68%. If the fund had purchased regular Treasury bonds, the current income would have been higher but the total return would have been less.

We deployed this strategy because, at that time, the bond's real yield (yield before the inflation factor) was between 2% and 2.5%. Given our estimate of at least 3% inflation for the Consumer Price Index (CPI) in 2006, this would produce a total return for our TIPS of 5% to 5.5% versus lesser yields on short-term securities. Thus, we chose total return over current income which has always been the driving investment philosophy of your fund.

During the initial period of these additional purchases, the CPI declined because of a short-term decline in oil prices that had a disproportionately large effect on CPI. We viewed this as a transitory situation that created an attractive buying opportunity. The energy price decline initially hurt the TIPS value but, due to the recent rise in oil prices, has subsequently begun to add to its value. Our view is to consider the entire holding period, rather than a few months. However, this situation had the effect of initially reducing your dividend.

As we move forward, if the inflation rate continues to be about 3% or more, as we expect, our TIPS should be a net addition to your fund's dividend. The current portfolio run rate yield is approximately a 5.21% yield to maturity with a current coupon yield of 4.59%. The difference between the yield to maturity and the current coupon yield flows into the fund's total return through principal appreciation. After management fees and operating costs of approximately 0.6%, the Fund's dividend payout should average approximately 10-11 cents per quarter.

As these last two quarters have dramatically demonstrated, the changes in monthly inflation rates can create volatility that affects each quarter’s payout rate. In addition, since the holding is now a significantly larger portion of the portfolio that volatility could increase. However, when total distributions are viewed for longer periods, we believe it will demonstrate that the securities are performing as expected (the average payout for each of the last 4 quarters is about 12 cents, even though the last two quarters have been 8 cents and 18 cents). Of course, these are estimates based on today’s portfolio and are subject to change as the holdings and the bond market in general change. In addition, past returns may not be an indicator of future results.

Our strategy has been been one of protecting principal value during a period of rising interest rates. Your fund has achieved a positive total return of 0.74%* for the period December 31, 2005 to March 31, 2006, while the bond market has returned a negative 1.01%, as measured by the Lehman Brothers Government/Credit Index. During this period, both the two-year and ten-year Treasury bond yields have risen almost the same amount, 40 basis points, from 4.40% to 4.80%. Should rates continue to rise along with inflation this year, our TIPS position should not only produce higher income than this past quarter, but should also help to protect principal value.

Sincerely,

Robert L. Rodriguez, CFA

Thomas H. Atteberry, CFA

* The total return is based on Net Asset Value and does not reflect the deduction of the sales charge which, if reflected, would reduce the performance shown.

As fund managers, one of our responsibilities is to communicate with shareholders in an open and direct manner. Insofar as some of our opinions and comments in our communications with shareholders are based on current management expectations, they are considered “forward-looking statements” which may or may not be accurate over the long term. While we believe we have a reasonable basis for our comments and we have confidence in our opinions, actual results may differ materially from those we anticipate. You can identify forward-looking statements by words such as “believe,” “expect,” “may,” “anticipate,” and other similar expressions when discussing prospects for particular portfolio holdings and/or the markets, generally. We cannot, however, assure future results and disclaim any obligation to update or alter any forward-looking statements, whether as a result of new information, future events, or otherwise. Further, information provided in this commentary should not be construed as a recommendation to purchase or sell any particular security.