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Corporate Bonds
Corporate Securities are debt obligations issued by private and public corporations. In general, Corporate Securities are coupon-bearing bonds that pay interest on a semiannual basis. However, some are issued as "Zero Coupon" Bonds. These bonds are purchased at a substantial discount from par, make no periodic interest payments, and mature at face value (par).
Benefits
- Potentially enjoy a steady source of income.
- Corporate Bonds offer you opportunities for diversification because they are issued by a number of companies across a variety of industries and offer varying levels of safety or risk.
Features
- Yields on Corporate Bonds are generally higher than comparable U.S. Treasury Securities due to the increase in credit risk.
- Corporate Bonds can range from high quality triple A to below investment grade (junk bonds) bonds rated BB+ or below.
- If circumstances change, Corporate Bonds are actively traded with well-known names typically having the largest market. You are not locked in until the bond's maturity.
- You receive semi-annual or, in some cases, monthly coupon payments. (Zero Coupon Corporate Bonds, however, make no coupon payments.)
High Yield Bonds
High Yield Bonds are issued by organizations that do not qualify for "investment grade" (BBB- or better) ratings by one of the leading credit rating agencies. True to their name, High Yield Bonds generally offer greater yields to compensate for a significant increase in credit risk. In addition to increased credit risk, High Yield Bonds are also subject to interest rate risk and liquidity risk that to some degree affect most fixed income products.
Benefits
Enjoy a higher rate of current income from higher coupon payments.
High Yield Bonds offer you the potential for capital appreciation (increase in the bond's price) if, for example, the borrower's debt rating is upgraded due to improved earnings, mergers or acquisitions, positive industry developments, etc.
Features
- As a High Yield Bond holder, you have priority over common and preferred stock holders in the event of the liquidation of the issuer.
- You receive semi-annual interest payments and get your principal payment back at maturity.
Callable Bonds
Callable Bonds are securities that may be redeemed by the issuer prior to the stated maturity date at the issuer's discretion. The bonds may be called on specific dates only, or periodically upon notice to you.
Benefits
- This flexible investment is available in a variety of maturities so you can choose the time frame that works best for you.
Features
- Callable bonds usually offer you higher yields than comparable non-callable bonds to compensate for the higher risk that your bonds may be called away.
- Maturities may be as short as three years to as long as 30 years.
- Generally these bonds are "called in" during periods of declining interest rates, leaving investors to reinvest at lower yields.
- These bonds will typically have a period when they may not be called, known as the "non-call period," which can range from three months to five years.
Convertible Bonds
Convertible Bonds are securities that offer you the right to acquire common stock of the issuing corporation under specified conditions rather than by direct purchase in the market. The terms at which the security can be exchanged for the issuer's common stock are set forth in the bond indenture. The option to convert is solely at your discretion and will only be exercised when and if you find such an exchange desirable. New issue Convertible Bonds generally have a maturity of 5 to 30 years and offer a lower coupon rate than that of nonconvertible bonds of comparable quality.
Benefits
- Enjoy the potential for appreciation of the common stock combined with relative investment safety. If the price of the underlying common stock declines, the bond's price can be expected to fall only to a point where it yields a satisfactory return on its value as a straight bond. You receive the potential growth of a stock, plus the stability of a bond.
- This flexible investment is available in a variety of maturities so you can choose the time frame that works best for you.
Features
- Maturities range from 5 to 30 years and can be extended indefinitely if you choose to convert your bond to common stock.
Revenue Bonds
Revenue Bonds are a type of Municipal Bond where principal and interest are secured by revenues such as charges or rents paid by users of the facility built with the proceeds of the bond issue. Projects financed by Revenue Bonds include highways, airports, and not-for-profit health care and other facilities.
Benefits
- Enjoy tax-advantaged income and lower investment risk when diversifying your investment portfolio.
- This flexible investment is available in a variety of maturities so you can choose the time frame that works best for you.
Features
- Income from Revenue Bonds is free from federal taxes, and in some cases, it is also free from state and local taxes.
- Income from interest and repayment of principal is generally regarded with a high degree of safety.
- If circumstances change, Revenue Bonds are actively traded in the secondary market. You are not locked in until the bond's maturity.
- You receive semi-annual interest payments and get the principal payment back at maturity.
Collateralized Mortgage Obligations
Collateralized Mortgage Obligations are derivative debt securities that are backed by a portfolio of mortgage loans. A CMO is a security carved out of a pool of mortgage-backed securities or mortgage loans themselves. CMOs were developed to offer a wider range of investment time frames and greater cash flow certainty than was typically available with original mortgage-backed securities.
Unlike most fixed-income products, CMOs typically mature based on their "average life" rather than the stated maturity date. Since CMOs are based on mortgage payments including principal and interest components, a CMO matures when you receive the final principal payment. The average life is the average time it takes for mortgages in the underlying pool to be "paid off," based on certain assumptions about mortgage prepayment speeds. If prepayment speeds are faster than expected (typical in declining interest rate environments), the average life of the CMO will be shorter than the original estimate. If prepayment speeds are slower (typical in rising interest rate environments) the CMOs average life will be extended.
Benefits
- Potentially enjoy a steady source of income.
- CMOs enable the issuer to direct principal and cash flow to meet your specific investment objectives.
Features
- CMOs are investments generally regarded with a high degree of safety. The majority of outstanding mortgage-backed securities are issued by U.S. Government agencies with credit quality typically considered equivalent to securities rated triple-A.
- Yields on CMOs are generally higher than other fixed.
Mortgage Pass Through Securities
A Mortgage-Backed Security represents an undivided ownership in an underlying pool of mortgage loans. The principal and interest cash flow from the mortgage loans, less servicing fees, is "passed through" to you on a pro-rata basis.
Unlike most fixed-income products, Mortgage - Backed Securities are sold and traded based on the average life of the security rather than the stated maturity. The average life is the average time it takes for mortgages in the underlying pool to be "paid off," based on certain assumptions about mortgage prepayment speeds. If prepayment speeds are faster than expected (typical in declining interest rate environments), the average life of the security will be shorter than the original estimate. If prepayment speeds are slower (typical in rising interest rate environments), the security's average life will be extended.
Benefits
- Potentially enjoy a steady source of income.
Features
- If circumstances change, Mortgage-Backed Securities are actively traded and easy to liquidate.
- Yields from Mortgage-Backed Securities are typically higher than other fixed income securities.
- Most Mortgage-Backed Securities are issued by agencies of the U.S. Government and regarded with a high degree of safety.
- You receive monthly payments of principal and interest.
Municipal Securities
Municipal Securities (Bonds) are debt obligations issued by states, cities, counties, and other governmental entities to raise money to build schools, highways, hospitals, other not-for-profit entities, and many other projects for the public good.
You can also purchase Insured Municipal Bonds. Bond insurance protects your investment by assuring the timely payment of principal and interest on a bond in the event the borrower is unable to meet their debt service obligations. Although bond insurance does not protect the market value of a security, insured bonds have historically retained more of their value than their uninsured counterparts during periods of financial stress.
Benefits
- This flexible investment is available in a variety of maturities so you can choose the time frame that works best for you.
- If circumstances change, Municipal Bonds are actively traded in the secondary market. You are not locked in until the bond's maturity.
Features
- Income from Municipal Securities is free from federal taxes, and in some cases, it is also free from state and local taxes.
- Income from interest and repayment of principal is generally regarded with a high degree of safety. Most Insured Municipal Bonds carry AAA ratings based on the claims-paying ability of the insurer and not necessarily the borrower's own creditworthiness. In addition, Insured Municipal Bonds typically have higher yields than natural AAA-rated Municipal Bonds, creating higher current income.
- You receive semi-annual interest payments and get your principal payment back at maturity.
- Insurers are highly regulated by state insurance departments and closely monitored by the major rating agencies.
Preferred Securities
Preferred Securities are fixed income securities issued by private or public corporations that possess characteristics of both debt and preferred stock. Preferred Securities rank above preferred stock but below subordinated debt and will typically pay you a fixed coupon rate. In addition, most have a stated maturity date.
Perpetual Preferred Securities are issued without maturity dates but offer you fixed dividend payments. These securities typically have call protection for the first five years. Convertible Preferred Securities provide you with an option to convert the preferred shares into common shares. In exchange for this benefit, the yields offered on convertibles are generally less than those of Perpetual Preferred Securities. However, they do provide you with an opportunity to share in the price movement of the underlying common stock.
Benefits
- Potentially enjoy a steady source of income.
- This flexible investment is available in a variety of maturities so you can choose the time frame that works best for you.
Features
- Yields on most Preferred Securities are higher than on Corporate Bonds.
- If circumstances change, Preferred Securities are actively traded in the secondary market. You are not locked in until the maturity date.
- Preferred Securities are available in denominations as low as $25 per share, allowing for a low initial investment.
- You typically receive quarterly interest payments.
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**Fixed Income Securities are subject to interest rate risk. Additionally, an individual must evaluate the stability and credit rating of the issuer, especially considering the purchase of high yielding fixed income securities.
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