pauleckler: thanks again. This will be my last reply to this post, I'm going to make a new post (Jan. 17) about TIPS if you care to respond to that one, also.

>I presume the major factor is that bonds paying
> a good yield mature and must be replaced by new
>ones that pay a market yield.

Yes, but supposedly the fund manager has had that problem constantly for 2-3 years. I.e., that wouldn't explain the precipitous drop in monthly dividends starting in April 2004.

Anyway, I found another Morningstar article that uses slightly different terminology: "...market YIELDS moved higher in March-April...the bond market slumped...but then recovered by late summer. So what's holding prices up now and yields down? EXPECTATIONS..." The market feared in March greater FOMC raises than actually occurred, but when the actual raises were only .25%, buyers leapt back in even though FOMC raises occurred regularly for 5 months!

So here's what I've learned: (1) the disconnect between FOMC actions and market behavior, and (2) bonds seem cut-and-dried, but ain't.