Allocation decisions are made by the T. Rowe Price allocation committee, of which Notzon is chairman. Last year, the fund returned 6.19%. Since inception in 1990, it has returned 8.15%.

Strategic income funds have both their proponents and detractors among advisors. Both Aaron Skloff, of Skloff Financial Group, Berkeley Heights, N.J., and Tow Financial's Sanford, use them in clients' portfolios, citing their flexibility.

Says Skloff: "What I like about them is that the portfolio manager is given tremendous flexibility to control credit quality, duration, sector concentration and security concentration, all resulting in optimizing portfolio performance and risk control. The ability to control the duration of the portfolio benefits investors when the manager properly assesses the direction of interest rates."

Both advisors singled out Loomis Sayles' strategic income funds as especially well managed. Bill Walsh, president of investment firm Hennion & Walsh, Parsippany, N.J., is skeptical, however, about strategic income funds. He believes investors can get the same degree of diversification and growth with a target-date fund.

"You have to understand the inherent risk and volatility you are undertaking when you go into one of these funds," Walsh says. "To start, your principal is not guaranteed at maturity. Secondly, your income or dividend also is not locked in; it will change according to whatever is in that fund at that time, and many have highly speculative securities within their portfolios. If your objective is growth, some of the new target funds offer asset allocation, diversification and rebalancing."

Are these funds a buy for your clients at this time? Many experts say yes. These managers foresee volatility ahead in all the bond markets as investors sort out the implications of low interest rates. But all say broadly diversified shareholders have the best chance to do well, whether bonds recover quickly or slowly.

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