æ / Lehmann
July 2010
Income Securities www.incomesecurities.com
INVESTOR
B uilding Y our W ealth with B onds , C onvertibles & P referreds
Mid-Year Update Richard Lehmann Volume XXVII
Issue 7
Corporate Updates . . . . . . 2 Recommendations
Preferreds. . . . . . . . . . . . . . 3 Convertibles. . . . . . . . . . . . 3, 4 Closed End Funds. . . . . . . 4 Pricing
Bonds. . . . . . . . . . . . . . . . . 5 Closed End Funds. . . . . . . 5 Canadian Trusts. . . . . . . . . 5 Convertibles. . . . . . . . . . . . 6 Preferreds. . . . . . . . . . . . . . 7 Master Ltd. Partnerships. . 7
I
ncome investors can once again take solace in the fact that their investment approach continues to outperform equities. Those fortunate enough to invest in our model portfolios saw all risk categories show positive results. Equities of all persuasion saw mid-year losses after a first quarter surge. Only our multi-driver portfolio showed negative year to date results because of its partial exposure to the stock market. This is not a reason to abandon this approach, however, unless you feel you are smart enough to time the market (note that for 2009 it was the best overall performer). What accounts for the second quarter downturn? Various theories are being put forward. One is that corporations are pulling profits forward into 2010 to avoid the higher taxes coming in 2011. Yes, it is still
Rating Changes . . . . . . . . . 8 New Preferreds . . . . . . . . . 8 Model Portfolios. . . . . . . . . 9 Interest Rates & Yields. . . . 10 ALL PRICING AS OF 6/30/2010
Pick of the Month REITs are still considered untouchable by most investors, but its time to distinguish winners from losers. With inflation on the horizon for next year property companies should see a revival. Vornado Realty Trust holds commercial properties in solid markets like New York, D.C. and Chicago. Its operations are solid and growing. Its 6.625% preferred ( VNOpI) is rated investment grade and sports a 7.68% yield. We rate it a medium risk. See Page 3 for more details.
www.incomesecurities.com
Model Portfolios Low Risk Medium Risk High Risk Multi-Driver Market Indexes NASDAQ S&P 500 Dow Jones IA
possible to manipulate earnings despite Sarbanes-Oxly, you just have to be smarter than before. Another possible reason for the decline is the fear of a double dip recession starting early next year. This is supported in part by numerous factors including robbing 2011 results by the earnings manipulations described above, expiration of the Federal economic stimulus (yes, even bad stimulus has some effect on the economy) and uncertainty arising from the fallout expected from the financial reform legislation now pending in Congress and the actual fallout from the health care legislation. Finally, there is the expectation that corporate earnings and competitive position internationally will be negatively affected by the higher corporate tax rates in 2011. The often repeated mantra that ‘the more continued on page 10
2005
2006
2007
-1.41% 0.79% 2.74%
8.68% 14.31% 5.96%
1.59% 1.81% 2.75%
2.77% 4.95% 1.75%
10.28% 15.41% 18.44%
0.25% 0.14% -0.87%
2009
2nd Qtr 2010
Cumm. Growth of $1
-17.86% -28.94% -40.08%
20.71% 56.39% 53.62% 61.26%
4.91% 8.31% 11.18% -2.85%
1.13 1.53 1.16 1.57
-40.54% -38.49% -33.84%
43.90% 23.50% 18.80%
-7.05% -7.53% -6.27%
0.90 0.85 0.88
2008
Interest Rate Outlook
A
t mid-year we see ten year Treasuries below 3% and thirty year Treasuries below 4%. What would possess an asset manager to buy 30 year Treasuries with a locked in yield of 4% when the outlook for inflation over the next few years promises to make this a loosing proposition if not a disastrous one? The only answer I can devise is fear and special situations. Fear by those who have gotten burned in the financial crisis and therefore consider credit risk in the short term more important than market risk over the longer term. Special situation buyers include insurance companies who are matching long term payout commitments on annuities with the interest
payments on the Treasuries. Other special situation players would be hedge funds playing the carry trade game where they buy these Treasuries with short term loans at 25 basis points. It is this group who represent the greatest threat to the interest rate outlook since they will unload their positions en masse the moment they see a turn in rates. This is why I feel an interest rate rise will come suddenly and not be dependant on actual inflation. It may in fact be a cause of the inflation. Considerable media attention has been given to the municipal bond market in recent weeks. We see yields on ten year AAA munis going from 3.91% at year end continued on page 4
Corporate Updates Alpine Total Dynamic Dividend Fund The Alpine Total Dynamic Dividend Fund (AOD) is a closed-end fund. It’s primary objective is to provide a high current dividend income and long-term capital growth as a secondary objective. The fund uses a unique dividend capture strategy to increase its dividend income. We recommended the fund in September 2008 at a price of $11.97 for a then current yield of 18.05%. In September 2009, we recommended a hold on this fund, since it had begun trading at a significant 25% premium to its net asset value. The fund continued to trade at large premiums, once hitting a high of 42.76%. The fund recently decided to cut its dividend in half. This caused the funds price to drop to its current level of $4.95. The fund now trades at a discount to its net asset value of -4.26%, while producing a yield of 13.33%. The company has declared that none of its distributions were a return of capital, but only the results of their dividend capture strategy. We are suspicious of the company’s strategy and believe they might be losing net asset value when they sell securities after the exdividend date. The strategy could allow them to accurately state their distributions are not a return of capital, but leave the fund vulnerable to a loss of value, while still marinating high distributions. We think the fund is a candidate for tax loss harvesting, but suggest waiting for the dust to settle and collecting a few more monthly distributions. Recommendation: Sell
Anadarko Finance Company Anadarko Finance Company is a subsidiary of Anadarko Petroleum Corp. (APC). Anadarko is an oil and gas exploration and production company. and are the largest independent deepwater producer in the Gulf of Mexico. Since the Deepwater Horizon oil spill, shares of BP and Anadarko both dropped by half, no doubt because Anadarko is the largest independent deepwater producer in the Gulf of Mexico and owns 25% of the Deepwater Horizon drilling project. The company’s 7.50% bonds of 2031 were recommended in May 2009 at a price of 79.875 for a then current yield of 9.39%. Despite the extremes of the common stock price, bondholders have seen less volatility. The oneyear high price for this bond was about 112 and the one-year low is its recent price of 83.67. The bond was recently downgraded to below investment grade by Moody’s, but not by S&P. The credit ratings are Ba1/ BBB-. At its current price of 83.67, the bond has a yield to maturity of 9.29%. We don’t think BP will succeed at forcing Anadarko to pay for 25% of the oil spill costs because it can reasonably be asserted that BP was reckless in its operation of the rig. We think the bonds are a buy at this level. Recommendation: Buy
FPL Group -> NextEra Energy Our pick of the month, in the June 2010 newsletter, the FPL Group’s 8.375% convertible preferred (FPLZ), has changed its ticker symbol to NEEXU. The company announced the change on June 8, 2010 effective June 9, 2010. The announcement came after our newsletter was mailed. The reason for the ticker symbol change is that Florida Power and Light (FPL) changed its name to NextEra Energy Inc. in keeping with its “going green” style public relations campaign. Its ticker symbol changed to NEE effective June 23, 2010. We have also recommended a straight preferred the 8.75% preferred (FPL F) its 2 • July 2010
ticker symbol is now (NEE F) and it trades at $28.67. Note that the convertible trades on the pink sheets and some quote systems need a suffix of .pk to get a quote. Thus, the new convert ticker symbol of NEEXU may need to be entered as NEEXU.PK to work properly. The convertible preferred recently traded at $49.60, while the common trades at $48.83. Despite the difficulty in finding this convert, it is still a buy under $52.50. The straight preferred however, is only a hold at its current price. Recommendation: Buy the convert, Hold the straight preferred.
Provident Energy Trust Provident Energy Trust (PVX) is a Canadian oil and gas trust. Provident intends to concentrate on its midstream business by merging its upstream operations to form a new company to be called Pace Oil & Gas Ltd and keeping the more conservative midstream operations. Provident unitholders of record on July 9, 2010 will receive 0.12225 shares of Pace for every unit of Provident held representing an 81% ownership stake. Pace shares will be listed on the Toronto Stock Exchange under the trading symbol PCE. In such mergers, the ex-distribution date occurs after the distribution date. In this case July 14 is the ex date. Trades on the NYSE between July 7, 2010 and July 13, 2010 will be trading units at the pre-stock distribution price. Therefore, expect a price drop on July 14, 2010 because the units are trading ex distribution. Recommendation: Hold
Schering-Plough Corporation/Merk Schering-Plough Corporation is a large pharmaceutical company. Their 6.00% mandatory convertible was recommended in September 2008 at a price of $184.72. Par value for this security is $250. Merk acquired Schering at a 34% premium over the price before the announcement. The preferreds now trade at $250.00. Merk now trades at $34.56, putting the common shares slightly above the threshold price of $33.69. Above this price the preferred will convert into 7.4206 shares of common stock or $256.46, but if the common stock slips under $33.69 holders will receive par or get $250 worth of the common stock. In order to trigger the higher conversion ratio of 9.0909 the common stock would have to fall below $27.50, which still leaves investors less than $250.00 per share. The mandatory conversion takes place on August 13, 2010. We recommend selling the preferred well before then to avoid a host of complicated accounting issues. Recommendation: Sell
Southern Union Company Southern Union (SUG) is primarily engaged in the transportation, storage, processing and distribution of natural gas. The company’s 7.55% perpetual non-cumulative preferreds (SUG C) were recommended in February 2007 at a price of $25.67 for a then current yield of 7.35%. The company announced on June 29, 2010 a call for redemption of the preferreds at $25.00 plus accrued and unpaid interest effective July 30, 2010. On the day of the announcement, the preferreds were trading at $25.01. We recommend holding these until they are called to avoid brokerage commissions. Recommendation: Hold until called. © Copyright 2010 Forbes/Lehmann Income Securities Investor
Current Recommendations Preferreds AT&T Corp, 6.75%; Series T; Par $25.00; Price $24.30; Current Yield 6.11%; Exchange NYSE; Rated A2/A; Call Anytime at $25.00; Yield to Call 45.33%; Pay Cycle 5/11; CUSIP 21988K297; Family Third Party Trust Preferreds; Acronym CBTCS; Symbol JZE (no preferred designation) This hybrid preferred is listed in the papers as Corporate Backed Trust Certificates Series 2004-2. The underlying security is an 8.00% senior note due 2031 issued by AT&T Corp (T). At&T is one of the leading worldwide providers of IP-based communications services to businesses. They have the nation’s fastest 3G network serving 85.1 million customers and the largest international coverage of any U.S. wireless carrier, offering the most phones in every major country. The company also has the largest Wi-Fi network in the U.S. and is the leader in the number of high speed Internet access subscribers. For the first quarter 2010, AT&T reported revenue of $30.65 billion and net income of $2.48 billion. Last year they reported first quarter revenue of $30.57 billion and net income of $3.13 billion. This preferred has a clause that calls for a 25 bases point coupon increase for each rating downgraded and a decrease of 25 bp for each increase by Moody’s or S&P. This is a good issue for low-risk investors. Buy up to $25.25. Nexen Inc, 7.35%; Par $25.00;Current Price $24.66; Current Yield 7.41%; Exchange NYSE; Rated Ba1/BB+; Call Anytime at $25.00; Yield to Call 38.88%; Pay Cycle 2b; CUSIP 65334H508; Family Pet Bonds; Acronym Subordinated Notes; Symbol NXY B (need preferred designation) Nexen (NXY), an independent Canadian-based global energy company, explores for, produces and markets crude oil and natural gas. Its primary exploration and development operations are in the UK North Sea, Gulf of Mexico, Western Canada (including Athabasca oil sands of Alberta),
Yemen, Columbia and offshore West Africa. About 41% of Nexen’s total annual production is derived from their UK North Sea Operations. The company’s year-end estimate of proved and probable reserves was more than 2.2 billion boe (barrels of oil equivalent), which represents a reserve life index of more than 20 years. Eighty five percent of Nexen’s total annual production is weighted to oil. First quarter 2010 revenue was $1.53 billion US dollars and net income was reported to be $177.9 million. For the same period in 2009, revenue was $1.06 billion and net income of $108.5 million. Quarterly cash flow from operations was $538 million. This issue is a good choice for medium-risk investors. Buy up to $25.25. Vornado Realty Trust, 6.625%; Series I; Par $25.00; Current price $21.51; Current Yield 7.68%; Exchange NYSE; Rated Baa3/BBB-; Call Anytime at $25.00; Yield to Call High; Pay Cycle 1b; CUSIP 929042877; Family Real Estate Investment Trust; Acronym REIT; Symbol VNO I (need preferred designation) Vornado Realty Trust (VNO), one of the largest owners and managers of real estate in the United States, is a fully integrated real estate investment trust. The company’s four major areas of operation include: 28 office properties in New York City; 81 office properties in Washington, DC and northern Virginia; 164 Retail Properties and 8 Merchandise Marts including the one in Chicago. Vornado total real estate owned or managed including partially-owned and joint ventures is over 100 million square feet including 16 million sq ft of Toys “R” Us properties. For first quarter 2010, revenue was $696.3 million, net income was $214.6 million and funds from operation (FFO) were $353.8 million. For the same period 2009, the reported numbers were; revenue $678.57 million, net income $140.1 million and FFO at $258.6 million. This issue should be considered for medium-risk portfolios. Buy up to $23.00.
Convertibles Citigroup Inc, 7.50%; (Preferred); Par $100.00; Current Price $112.99; Current Yield 6.53%; Exchange NYSE; Rated NR/NR; Mandatory Conversion to Common Stock 12/15/2012; Conversion Rate Variable; Common Stock Price $3.83; Premium 18.17%; Pay Cycle 3m; CUSIP 172967416; Family Mandatory;Acronym T-DECS; Symbol C H; (need preferred designation) This hybrid preferred is an Equity Security Unit consisting of a purchase contract and a 6.15% junior subordinated amortizing note maturing 12/15/2012. On December 15 2012 this issue will be mandatorily convert to 25.3968 shares of common stock if the common is at or above $3.94. If the common is at or below $3.15 the conversion rate will be 31.7460. Between the two common prices, holders will receive $100.00 worth of common. Quarterly distributions will consist of a return of principal and interest. Citigroup (C), a global financial services company has about 200 million customers in more than 140 countries. They offer have a wide range of products and services including consumer banking and credit, corporate and investment banking, securities brokerage and wealth management. First quarter 2010 total revenue was $31.71 billion and net income was reported to be $4.43 billion. Last year they posted quarterly total revenue at $32.18 billion and net income at $1.59 billion. Needless to say, Citigroup has had massive problems over the past two years but is now on a strong recovery track. This issuer is only for highrisk growth and income investors. Buy up to $120.00.
© Copyright 2010 Forbes/Lehmann Income Securities Investor
Entertainment Properties Trust, 5.75%; Series C; (Preferred); Par $25.00; Current Price $17.30; Current Yield 8.54%; Exchange NYSE; Rated NR/ NR; Softcall 01/12 at $25.00; Conversion Rate 0.3504; Common Stock Price $38.92; Premium 26.29%; Pay Cycle 1m; CUSIP 29380T402; Family Opptional; Acronym REIT; Symbol EPR C (need preferred designation) Entertainment Properties (EPR), a real estate investment trust (REIT), is the largest owner of entertainment properties in North America. Its investments include 7.9 million square feet of buildings that house 96 megaplex movie theaters (1768 screens), 9 entertainment retail centers, 27 charter schools, as well as other destination recreational and specialty properties in both the US and Canada. The tenant list for their theaters includes AMC Theatres, Loews Cineplex, Wallace Theatres, Crown Theatres and Regal Entertainment. The Company also owns 10 metropolitan ski areas and has invested about $200 million in 8 vineyards and 10 wineries. Total revenues reported for the first quarter 2010 increased to $75.5 million compared to $66.7 million for the same period 2009. Net income increased substantially to $30.08million from $25.33 million and FFO (Funds From Operation) increased to $33.8 million. This aggressive REIT continues to expand and would make a good investment for high-risk growth and income investors. Buy up to $18.50. continued next page
July 2010 • 3
Current Recommendations Convertibles
continued
continued
New York Community Capital Trust V, 6.00%; (preferred); Par $50.00; Current Price $45.90; Current Yield 6.52%; Exchange NYSE; Rated Baa2/ BB-; Call Softcall at $50.00; Conversion Rate 2.4953; Common Stock Price $15.30; Premium 20.49%; Pay Cycle 2b; CUSIP 64944P307; Family Optional; Acronym BONUSES; Symbol NYB U; (need preferred designation) The issuer of this hybrid is a subsidiary of New York Community Bancorp Inc (NYB). This issue is made up of a debenture issued by the parent company and a warrant to purchase 2.4953 shares of common stock of NYB, a holding company for New York Community Bank and New York Commercial Bank. These banks offer a full range of products and services and originate multi-family, commercial real estate and construction mortages and loans. The two banks in NYB serve customers through a combined 280 banking offices in Metro New York, New Jersey, Florida, Ohio, Arizona, Long Island and Westchester County. They reported first quarter 2010 total revenue of $537.85 million versus $422.28 million for the same period in 2009. First quarter net income was $124.15 million, which compares to first quarter 2009 net income of $88.69 million. I like this issue for medium-risk growth and income portfolios. Buy up to $49.00.
Omnicare Capital Trust II 4.00% (preferred) Series B; Par $50.00; Current Price $35.60; Current Yield 5.64%; Exchange NYSE; Rated B2/B; Call Anytime at $50.00; Conversion Rate 1.2248; Common Stock Price $23.39; Premium 23.85%; Pay Cycle 3m; CUSIP 68214Q200; Family Optional; Acronym PIERS; Symbol OCR B (need preferred designation) Omnicare (OCR) is one of the largest providers of pharmacy and related services to the elderly. They service residents in long-term care facilities, chronic care and other similar settings for more than 1.4 million beds in 47 states, the District of Columbia and Canada. Omnicare is the largest provider of professional pharmacy and related consulting and data management services for skilled nursing, assisted living and other institutional healthcare providers as well as hospice and homecare patients. For the first quarter 2010, they reported total revenues of $1.524 billion, almost the same as the $1.542 billion posted in 2009. Net income for the quarter was $50.85 million, well above the $30.9 million reported in 2009. Cash flow from operations for the quarter was$118 million and free cash flow was $112.5 million. Omnicare is on the right path to continued growth and improved profitability. This issue would fit best in a high-risk growth and income portfolios. Buy up to $36.75.
Closed-End Funds Cohen & Steers Select Infrastructure Fund Inc, Current Price $12.68; Current Indicated Yield 7.57%; Exchange NYSE; Discount from Net Asset Value –16.89%; Pay Cycle 3e; Expense Ratio 1.48%; Leverage 40%; CUSIP 19248A109; Family Closed-End Fund; Symbol UTF (no preferred designation). This sector oriented closed-end fund’s objective is to achieve a high level of after-tax total return through investment in the utility securities. The fund emphasizes both current income, consisting primarily of taxadvantaged dividends and capital appreciation. Under normal market conditions, the fund will invest at least 80% of its managed assets in a portfolio of common stocks, preferred stocks and other equity securities issued by utility companies. American Tower Corp, SES SA, East Japan Railway Co, Vinci SA and Terna Rete Gas SpA are the largest of the 175 holdings in the funds portfolio. Electric Utilities make up 41% of the funds portfolio, 16% is in Gas Pipelines, 14% in telecommunications and the remainder is scattered in other types of companies. Forty nine percent of the portfolio is in US securities. Here is a conservative investment that would fit nicely into a growth and income medium to low-risk portfolio. Buy up to $13.50. Interest Rate Outlook 2008 to 3.25% at year end 2009 to 3.13% at mid-year 2010. Much of this decline is due to the high demand for tax free munis by individual investors in high tax states as well as generally, given the pending tax rate rises in 2011. The decline in muni yields is also influenced by the continued perception that munis are safe because they have always been so. This perception is due some re-evaluation. Municipalities have rarely faced the kind of budget pressures they are experiencing today because of the revenue declines resulting from the recession. Added to this is the retirement of government employed baby boomers, whose pension liabilities have gone mostly unfunded. 4 • July 2010
Gabelli Global Utility & Income Trust, Current Price $18.36; Current Indicated Yield 6.34%; Exchange NYSE Premium to Net Asset Value 2.08% Pay Cycle Monthly; Expense Ratio 1,55%; No Leverage; CUSIP36254L105; Family Closed-End Fund; Symbol GLU (no preferred designation). Gabelli Global Utility & Income Trust is a non-diversified, closed-end management investment company whose investment objective is to seek a consistent level of after-tax total return for its investors with an emphasis on tax-advantaged dividend income. The Fund will invests at least 80% of its assets in equity securities of domestic and foreign companies involved in the utilities industry and other industries that are expected to periodically pay dividends. At least 50% of the Fund’s assets will consist of companies involved to a substantial extent in the utilities industry. The top five of the 172 holdings in the Fund are NSTAR, DIRECTV, Southern Company, Integrys Energy Group and DPL Inc. Integrated Energy & Utilities (45%) and telecommunications (14%) are the leading sector in the Fund. Sixty one percent of the portfolio is in US securities. Here is another global conservative fund best suited for medium to low-risk total return portfolios. Buy up to $19.50. continued from page 1
This is an increase in current expenditures which is not discretionary and growing rapidly. It promises to create a budget crisis at the city and county level since these entities now face a cash expense they can no longer ignore. Warren Buffet, who rushed into the bond insurance business during the financial crisis has since backed away. He notes that in the coming budget crunch, municipalities will likely stiff insurers or bondholders before firing employees. Bankruptcy filings may also prove to be more palatable politically than cutting services. In any case, don’t think that past history is the best indication of what the future holds for municipal bonds. © Copyright 2010 Forbes/Lehmann Income Securities Investor
© Copyright 2010 Forbes/Lehmann Income Securities Investor
1. Recommend: accumulate at or below this price. NA: not applicable.
5.91 5.66 6.44 7.75
3.40 4.07 6.57 2.80
Yield to Maturity %
10.06 9.29 8.90 7.58 7.06 10.51 7.59 8.48 6.13 6.31 6.80 6.28 8.59 10.35 6.42 8.86 8.66 8.08 7.92 8.90
52 Week High $ 16.91 16.78 17.98 14.84 9.60 9.45 17.25 12.87 23.00
52 Week High $ 36.11 25.13 11.78 21.81 8.40
52 Week High Date 03/25/2010 06/01/2009 03/31/2010 03/18/2010 03/10/2010
52 Week Low $ 11.73 16.06 5.30 9.07 3.55
52 Week Low $ 9.68 8.91 12.50 12.47 5.63 4.03 10.39 4.74 16.00
Any NC NC Any NC NC NC 10/10 04/11 NC Any 10/10 Any NC NC NC NC 06/12 11/13 NC
NC NC NC NC
Call Date
52 Week Currency Low Date 04/01/2009 USD 04/01/2009 USD 04/01/2009 USD 04/01/2009 USD 04/01/2009 USD
B BBB- NR B- BB+ BB B+ BB- BBB- CCC+ B+ BB+ BB CCC+ BBB B / BB- BB+ BBB- BBB-
A A- BBB+ BBB-
Ratings S&P
52 Week High Date 03/25/2010 12/14/2009 03/17/2010 10/20/2009 03/17/2010 03/25/2010 03/17/2010 01/28/2010 01/15/2010
B2 Ba1 NR Caa1 Ba3 Ba3 B1 Ba3 Ba2 B3 B1 Ba1 Baa3 Caa1 Ba2 B2 Ba3 Ba1 Ba1 Ba1
NR A3 A2 Baa3
Ratings Moody
Canadian Energy/Royalty Trusts
12 Mo Net Asset Premium Yield % Value $ Discount % 7.16 17.27 -8.57 7.57 15.22 -16.89 10.76 14.75 6.24 5.81 15.80 -11.71 9.40 8.68 -9.91 13.49 7.72 10.75 5.52 16.41 -7.13 18.15 10.15 6.01 5.06 17.06 6.21
CLOSED END FUNDS
10.42 8.96 8.47 7.76 7.22 9.39 8.38 8.25 7.61 7.48 6.89 6.38 8.51 7.27 6.24 8.33 8.26 7.12 7.90 8.55
BELOW INVESTMENT GRADE 023663AB3 48.00 032479AD9 83.67 071707AG8 84.15 103304BB6 99.93 14743RAB9 100.39 171870AK4 77.24 228255AH8 88.00 267482AC1 98.50 35671DAR6 108.44 428040BS7 101.95 45661TAB9 99.83 502413AU1 99.95 55263BAA9 97.25 552953AL5 92.83 574599BD7 98.14 74971XAC1 94.50 852060AD4 83.27 881609AT8 91.31 912920AG0 90.24 907834AB1 87.73
Indicated Tax Yield % 6.93 15% 9.36 15% 8.82 15% 9.02 15% 10.21 15%
03/01/2030 05/01/2031 08/01/2028 12/15/2012 01/15/2016 06/15/2023 12/15/2026 10/15/2015 04/01/2015 06/01/2012 12/15/2014 10/15/2015 12/01/2026 09/01/2012 10/03/2016 06/15/2017 11/15/2028 06/01/2017 11/15/2043 10/15/2026
Current Yield %
INVESTMENT GRADE
Current Price
020039AE3 118.48 278265AC7 114.79 46627NAA3 91.21 960402AQ8 111.30
Symbol Issuer CUSIP Current Price $ (BTE) Baytex Energy Trust 073176109 30.12 (ERF) Enerplus Resources 29274D604 21.68 (PGH) Pengrowth Energy Tr 706902509 9.18 (PWE) Penn West Energy Tr 707885109 19.29 (PVX) Provident Energy Tr 74386K104 6.88
Current Yield % 7.16 7.57 10.76 5.81 9.20 12.10 7.35 6.99 10.11
Amer & Foreign Power 5.00 Anadarko Finance Co. 7.50 Bausch & Lomb INC 7.13 Boyd Gaming Corp 7.75 Case Corporation 7.25 Cincinnati Bell Inc 7.25 Crown Cork & Seal 7.38 Dycom Industries Inc 8.13 Freeport-McMoRan Copper 8.25 Hertz Corp 7.63 Inergy Finance Corp 6.88 L-3 Comms Hldgs Corp 6.38 MBNA Capital Sec 8.28 MGM Mirage Inc 6.75 Masco Corp 6.13 Reliant Energy Inc 7.88 Sprint Capital Corp 6.88 Tesoro Corp 6.50 US West Comm 7.13 Union Pacific Resc 7.50
03/15/2016 10/02/2017 03/15/2035 08/01/2012
Symbol Issuer Current Price $ (AVK) Advent Claymore Conv Inc Fd 15.73 (UTF) Cohen & Steers Infracst Fd 12.68 (GGN) Gabelli Glbl Gold Nat Resc 15.61 (GCF) Glbl Inc & Currcy Strgy Inc 13.95 (MCN) Madison/Claymore Covd Call 7.83 (NCZ) Nich-Apple Conv & Inc Fd II 8.43 (NIE) Nich-Apple Eqty & Conv Inc 15.23 (PFL) PIMCO Income Stragy Fd 10.79 (STK) Seligman Premium Technology Gr 18.29
NY OTC NY OTC NY OTC NY OTC OTC OTC OTC OTC NY OTC OTC OTC OTC OTC OTC OTC
7.00 6.50 5.88 8.63
Alltel Corporation Eaton Vance Corp JP Morgan Chase C XV Westinghouse
OTC OTC OTC OTC
Coupon Maturity CUSIP Rate %
Exch Issuer
3.40 4.07 6.57 2.80
Yield to Worst %
55 88 89 101 102 83 94 100 Hold 103 100 101 100 95 100 97 86 94 93 91
Hold Hold 93 Hold
Recom mend
1
Recommend $ 32.65 23.30 11.00 21.25 8.70 1
Pay 1RecomPeriods mend $ M 17.25 M 13.50 M 17.80 3e 14.65 2e 9.40 M 10.00 3m 17.00 M 12.00 2m 19.00 Pay Country Periods Monthly Canada Monthly Canada Monthly Canada Monthly Canada Monthly Canada
52 Week Low Date 04/01/2009 04/01/2009 07/08/2009 07/20/2009 04/01/2009 04/01/2009 04/01/2009 04/01/2009 05/25/2010
107.50 10.06 NA 9.28 NA 8.90 101.29 6.85 NA 7.06 NA 10.51 NA 7.59 104.06 8.48 104.13 1.98 NA 6.31 103.44 6.75 103.19 6.24 104.14 8.59 NA 10.35 NA 6.42 NA 8.86 NA 8.66 103.25 8.08 102.74 7.92 NA 8.90
NA NA NA NA
Call Price
previously recommended
Corporate Bonds
July 2010 • 5
6 • July 2010
Exterran Holdings 4.75 Human Genome Scie 2.25 Liberty Media Cor 4.00 LifePoint Hospita 3.50 NII Holdings Inc 3.13 Trico Marine Svs 8.13 Bristow Group Inc 3.00
06/15/2014 10/15/2011 11/15/2029 05/15/2014 06/15/2012 02/01/2013 06/15/2038
AES Trust III Affiliated Mangrs Aspen Insur Hldgs Bank of America C Bunge Ltd Chesapeake Energy Cincinnati Bell I El Paso Egy Cptl Entertainment Pro Ford Motor Cptl T Health Care REIT Huntington Bancsh Keycorp Natl Healthcare C Newell Fncl Tr I Sovereign Capital United Rentals Tr Wells Fargo Compa
AES C OP AMGZO OP AHL OP BAC L OP BGEPF OP CHK D OP CBB B OP EP C OP EPR E OP F S OP HCN G OP HBANP OP KEY G OP NHC A OP NEFIO OP (SNCT OP URIRP OP WFC L OP
30225XAA1 129.94 444903AK1 158.81 530715AG6 51.75 53219LAH2 92.29 62913FAJ1 94.22 896106AW1 51.33 110394AC7 81.48
6.750% 5.100% 5.630% AH 7.250% L 4.875% 4.500% 6.750% B 4.750% 9.000% E 6.500% 7.500% G 8.500% A 7.750% A $0.800 A 5.250% 4.375% 6.500% 7.500% L
8.500% 6.250% 7.875% 8.375% 12.00% 11.50% 7.000% 6.000% 6.625%
3.24 4.38
NR Baa2
A- 31.7162 BBB 25.5076
3.13 2.55 2.82 72.50 4.88 4.50 3.38 2.38 2.25 0.00 1.88 85.00 7.75 0.80 2.63 2.16 3.25 75.00
6.38 3.13 3.94 4.19 6.00 5.75 3.50 15.00 3.31
NR NR B1 NR NA NR NR
BB NR BBB BD BB
026874115 9.61 039483201 36.10 053611307 39.90 302571609 49.60 391164803 58.78 478366602 185.01 524901303 28.53 58933Y204 250.00 76128Y201 42.32
66.13 8.63 9.75 8.44 10.17 2.88 12.27 6.00 7.83
Ba2/NR NR/BBB+ NR/BB+ NR/NR NR/NR Baa3/BB+ WR/BBBA2/A NR/NR
OI OI OI 15% OI 15% 15% OI OI OI OI 15% 15% 15% OI OI OI 15%
00808N202 43.35 00169X203 37.80 EP0179044 50.81 060505682 903.50 EP0237628 82.95 165167842 81.50 171871403 37.98 283678209 36.70 29380T600 25.70 345395206 39.75 42217K502 30.20 446150401 ***.** 493267405 95.51 635906209 12.65 651195307 35.00 846048205 30.75 91136H306 30.25 949746804 930.00
7.76 6.58 5.54 8.03 5.87 5.52 8.88 6.46 8.59 8.18 6.19 8.29 8.11 6.27 7.50 7.11 10.74 8.02
0.0987 1.0000 0.7680 0.7500 2.9800 4.8579 0.8881 9.0909 1.4306
B3/B 1.4216 NR/BB 0.3333 Ba1/BBB- 1.7077 Ba3/BB 20.0000 Ba1/BB 1.0846 NR/NR 2.2639 B3/CCC+ 1.4420 B2/B 1.2022 NR/NR 0.4512 B3/C 2.8249 NR/NR 0.7157 NR/NR 83.6680 Ba1/BB 7.0922 NR/NR 0.2420 WR/BB 0.9865 Baa3/BBB+ 1.7214 Caa2/CCC 1.2189 Ba1/A- 6.3814
OPTIONAL CONVERTIBLE PREFERREDS
OI OI OI OI OI OI OI 15% OI
MANDATORY CONVERTIBLE PREFERREDS
25.12 20.90 0.00 30.16 32.84 0.49 28.60
19.75 18.13 ****.** 58.47 239.47 1366.57 120.32
55.30 79.66
234.00 84.77 19.64 215.91 54.72 70.86 766.40 173.30 46.35 37.15 0.06 114.88 74.22 53.74 142.01 62.54 168.01 465.09
180.84 40.09 62.20 35.44 16.03 40.38 12.88 -20.43 31.94
9.13 61.38 24.87 14.30 49.43 21.07 3.04 11.17 38.92 10.26 42.17 5.59 7.73 34.00 14.66 10.99 9.26 25.79
34.67 25.77 32.03 48.83 17.00 27.13 28.46 34.56 22.42
Yield to Worst %
Any 50.00 Sft C 50.00 Sft C 50.00 01/13 Variable NC NA Sft C 100.00 Any 50.67 Any 50.48 04/13 25.00 Any 51.63 Any 25.00 NC NA NC NA 11/15 15.75 Any 50.79 Sft C 50.00 Any 51.30 NC NA
08/11* Variable 06/11* Variable 11/10* Variable 06/12* Variable 06/12* Variable 03/12* Variable 06/11* Variable 08/10* Variable 09/11* Variable
High NA NA NA NA NA High High NA High High NA NA 9.68 High NA High NA
NA NA NA NA NA NA NA NA NA
Yield to Call %
-2.93 -31.75 9.49 5.64 6.12 37.30 7.42 Call Price $
NA NA 100.00 NA NA NA 100.00
100.00 3.24 100.00 4.94
Call Price $
Call Date 2
NC NC Any NC NC NC 06/15
12/12 11/17
Premium Call Percent % Date
Conversion Premium Common Rate Percent % Price $
43.1951 64.3211 11.4743 19.3095 8.4517 71.4286 12.9307
Current Current Moody/S&P Price $ Yield % Ratings
3.26 -2.93 1.41 -31.75 7.73 9.49 3.78 5.64 3.30 6.12 15.68 37.31 3.66 4.09
BELOW INVESTMENT GRADE CONVERTIBLE BONDS
3.11 4.14
19.21 20.35
Conversion Common Rate Price $
1. Symbol: symbols in parentheses require no delimiters, all others require a preferred designation. z: zero-coupon bonds. 2. *maturity or mandatory conversion date. 3. Family: MD=Mandatory, OP=Optional 4. Tax: OI=Ordinary Income Rate, 15%=15% tax rate.
American Intl Gp Archer-Daniels-Mi Avery Dennison Co FPL Group Inc Great Plains Ener Johnson Controls Legg Mason Inc Merck & Co Inc Retail Ventures I
MD MD MD MD MD MD MD MD MD
AIG A ADM A AVY A NEEXU GXP F JCI Z (LMI) MRK B (RVIP
1
S&P Rating
INVESTMENT GRADE CONVERTIBLE BONDS
Symbol 3Family Issuer Issue % Div. $ 4Tax CUSIP
*** = 11.4743 Shs(S) & 0.5737 Shs(EQ)
OTC OTC OTC OTC OTC OTC OTC
2.95 3.88
OTC Intel Corp OTC Jefferies Group
Current Current Yield to Moody Price Yield % Maturity % Rating
12/15/2035 458140AD2 94.62 11/01/2029 472319AG7 93.26
Coupon Maturity CUSIP Rate %
Exch Issuer
Convertibles previously recommended
© Copyright 2010 Forbes/Lehmann Income Securities Investor
© Copyright 2010 Forbes/Lehmann Income Securities Investor
TPTP PB Perp REIT TPTP TPTP REIT Fg TPTP TPTP TPTP Perp TPTP TPTP TPTP
(PKM) NYS (AVF) NYS BAC H NYS BMR A NYS (KSK) NYS (PIY) NYS HCN F NYS (ISG) NYS (HJV) NYS (DKQ) NYS (XFH) NYS PFG B NYS (PJA) NYS (CWZ) NYS (JZK) NYS
3m 3m 1m 3m 6/12 3e 5/11 1/7 3m 4/10 2m 2m 1/7 1m 3b 3e 4/10 3b 1b 6/12
007924301 007924509 EP0168971 06739H511 22081C208 124857400 21988G122 73941X718 04623A205 740434659 369622519 38143Y665 21988G296 61750K208 EP0081752 74460D521 73941X593 EP0112524 879433878 740434667
INVESTMENT GRADE 15% 15% 15% 15% OI OI OI OI OI OI OI 15% OI OI 15% OI OI 15% OI OI
17.65 17.32 22.80 23.41 25.18 23.84 22.60 25.06 19.75 23.57 24.96 18.20 21.48 21.85 22.70 23.50 18.97 19.52 24.93 23.99
9.02 5.75 7.95 8.24 6.95 7.07 7.67 7.22 8.60 7.87 6.10 5.15 7.15 7.55 7.41 6.60 8.22 7.70 7.60 7.74
OI 2/8 740434832 23.19 8.55 OI 3M 026874859 19.03 10.06 15% 2b 060505765 24.99 8.19 OI 1m 09063H206 24.39 7.56 OI 5/11 22080Q208 21.74 8.51 OI 1b 740434881 24.24 8.65 OI 1m 42217K403 24.45 7.76 15% 1m 456837509 16.82 9.04 OI 3/9 80412E202 21.67 7.87 OI 1/7 80411E203 20.20 7.73 OI 4/10 21988G395 23.97 8.51 15% 3e 74251V300 22.61 7.17 OI 2/8 740434816 22.75 8.78 OI 4/10 21988G650 25.20 8.76 OI 5/11 21988K404 20.75 8.26
BELOW INVESTMENT GRADE
Price new $ Curr Yld % High 52wk $ Low 52wk $ 35.36 6.42 34.90 21.10 58.63 6.38 57.11 36.25 20.67 10.74 21.40 11.15 21.94 8.66 22.50 11.91
High 52dt 04/01/2010 01/27/2010 03/09/2010 06/28/2010
Low 52dt 04/07/2009 04/01/2009 04/01/2009 08/17/2009
Pay months Feb,May,Aug,Nov Feb,May,Aug,Nov Feb,May,Aug,Nov Feb,May,Aug,Nov
Exch. NYSE NYSE OTC NYSE
Ba1/BBBa2/BBB Ba3/BB NR/NR B2/CCC Ba2/BB Baa3/BB Ba1/BB Ba1/BB+ Ba1/BB+ Baa3/BB+ Baa3/BB B1/B+ Ba3/BBBa3/BB-
Baa2/BBB Baa2/BBB Baa3/BBB Baa3/A- A2/A Baa3/BBB- Baa3/BBB- A3/BBB+ A3/A+ Baa3/BBB- Aa2/AA+ Baa2/BBB A2/A+ Baa2/BBB Baa1/BBB+ Baa1/BBB Baa3/BBB Baa3/BBB+ Baa2/BBB- Baa3/BBB-
Current Current Moody/S&P Price $ Yield % Rating 15.01 97.00 42.55 10.51 6.16 9.71 161.27 56.91 666.57 99.35 17.72 408.33 490.25 17.72 159.81 90.01 48.42 402.50 8.84 80.83
02/27 12/62 NA NA 11/46 10/46 NA NA 03/97 01/32 10/97 NA 02/31 10/27 11/28
NA NA NA NA 12/95 03/56 11/23 01/31 12/01 04/28 11/20 NA 07/97 10/66 NA NA 04/29 NA 12/41 12/28 24.25 21.75 25.25 24.75 23.25 24.90 25.15 18.25 23.25 21.25 24.85 23.50 24.00 25.25 21.75
20.00 20.00 24.00 24.25 25.50 24.50 24.25 Hold 22.25 24.25 25.25 21.75 23.50 23.75 24.00 24.25 21.25 21.75 25.00 25.00
Paydate Recomm $ 02/04/2010 36.25 02/12/2010 59.75 02/12/2010 21.50 05/14/2010 22.35
25.00 155.90 25.00 20.33 25.00 8.72 25.00 9.01 25.00 668.84 25.00 89.48 25.00 32.59 25.00 89.71 25.00 16.63 25.00 1022.65 25.00 94.95 25.00 8.81 25.00 197.91 25.00 18.15 25.00 284.50
25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00
3 Call Yield to Debt RecomPrice $ Call % Maturity mend $
Ex Div Date 01/27/2010 01/29/2010 02/03/2010 05/05/2010
Any 12/12 05/13 01/12 Any Any Any 01/11 03/12 Any Any 06/15 Any Any Any
06/15 12/10 10/10 03/13 Any 03/12 Any Any Any Any Any Any Any 10/11 Any Any 4/11 Any Any Any
Call Date
1. Symbol: symbols in parentheses require no preferred designation, all others require a preferred designation. 2. Cycle: denotes dividend payment months. 1: Jan., Apr., Jul., Oct.; 2: Feb., May., Aug., Nov.; 3: Mar., Jun., Sep., Dec.; M: monthly; b: beginning of month; m: middle of month; e: end of month; two numbers, e.g., 5/11: semiannual pay. 3. Recommend: accumulate at or below this price. NR: not rated. NA: not applicable. 4. Family: Fg=foreign, PB=PET Bonds, TP= Trust Preferreds, TPTP= Third Party Trust Preferreds, PERP = Perpetual. pshp=partnership 5. Tax: OI=Ordinary Income Rate, 15%=15% tax rate.
2.00 1.93 2.05 1.85 1.85 2.09 1.91 1.53 1.75 1.56 2.05 1.63 2.00 2.22 1.75
1.58 1.00 1.81 1.94 1.75 1.75 1.75 1.81 1.72 1.89 1.53 0.94 1.56 1.65 1.69 1.56 1.58 1.52 1.90 1.85
CUSIP
MASTER LIMITED PARTNERSHIPS
Allmerica Fncl (PPLUS) 8.000% ALL American Intl Gp Inc 7.700% Bank of America Corp 8.200% BioMed Realty Trust Inc 7.375% A Ford Motor Co (CorTS) 7.400% Frontier Comm (PPLUS) 8.375% CZN Health Care REIT Inc 7.625% F ING Groep NV 6.125% J.C.Penney (SATURNS) 7.000% JCP May Dept Strs(SATURNS) 6.250% MAY Motorola Inc (CBTCS) 8.200% MOT Principal Financial Gro 6.518% Qwest Cptl Fndg (PPLUS) 8.000% QWS Royal Carib (CBTCS) 8.875% RCL Sprint Corp (CBTCS) 7.000% FON
Aegon NV 6.375% Aegon NV Flt 1 Axis Cptl Hldngs Ltd 7.250% A Barclays Bank PLC 7.750% 4 BellSouth Corp (CorTS) 7.000% II CBS Corp 6.750% CNA Fncl Corp (CBTCS) 7.000% CNA DaimlerChrysler (PPLUS) 7.250% DCN Financial Sec Assu Hldg 6.875% First Amer Corp (PPlus) 7.550% FAR General Elec Cptl Corp 6.100% Goldman Sachs Group Inc Flt A HSBC Hldgs PLC (CBTCS) 6.250% HSB Morgan St Cptl Tr VII 6.600% PartnerRe Ltd 6.750% C Public Storage Inc 6.250% Z R.R.Donnelley (PPLUS) 6.300% RRD RenaissanceRe Hldg Ltd 6.080% C Telephone & Data 7.600% UnumProvident (PPlus) 7.400% UPC
Symbol Issuer (EPD) Enterprise Prod Ptns LP (PAA) Plains All Amer Pipel LP (STON) Stonemor Partners LP (TOO) Teekay Offshore Ptns LP
Fg Fg Fg Fg TPTP PB TPTP TPTP PB TPTP PB Perp TPTP TP Fg REIT TPTP Fg PB TPTP
(AEH) NYS (AEB) NYS AXS A NYS BCS C NYS (KTBC) OTC (CPV) NYS (JZV) NYS (PYO) NYS AGO B NYS (PJS) NYS (GEC) NYS GS A NYS (JBJ) NYS (MSZ) NYS PRE C NYS PSA Z NYS (PYS) NYS RNR C NYS (TDA) NYS (PJR) NYS
1 Symbol Exch. 4Family Issuer Issue % Div. $ 5Tax 2Cycle
previously recommended
Preferreds
July 2010 • 7
Rating Changes and New Issuance Corporate Bond Rating Changes Issuer
New Agency Action Rating
ATP Oil & Gas Corp American Capital Ltd American Media Inc Anadarko Petroleum ArvinMeritor Inc Atlantic Broadband BP PLC Boyd Gaming Corp Brigham Exploration Brookstone Co Inc Church & Dwight Co Dollar General Corp Edgen Murray Ltd El Pollo Loco Inc Entergy Corp
S M S M S M M/S S M S M S M S M
FireKeepers Dev Auth Gardner Denver Inc General Maritime Cor Geokinetics Inc Great Atlantic & Pac Hercules Offshore Hornbeck Offshore Intuit Inc Laboratory Corp Local TV Finance LLC Michael Stores Inc Nash Finch Co Natl Semiconductor Neiman Marcus Inc Noranda Aluminum
- Alrt- - - + + - - + - Alrt+ + - - +
Issuer
CCC+ D Ba1 CCC B3 A2/A Caa1 Caa2 C B+ Caa2 B3 A3
Agency Action
Preferred Rating Changes Issuer
BP PLC
Entergy Corp
Great Atlantic & Pac PMA Capital Corp
B2 Ba2 CCC+ BCCCBB+ Baa1 Baa2 Caa2 Caa1 B3 BBBB2 CCC+
Agency Action
Packaging Dynamics Penhall Funding Co Phoenix Cos Inc/The Radio One Inc Southern Co Tenet Healthcare Cor Toys R US Inc Trico Marine Service Valassis Communicat Westlake Chemical
S M M S M M M/S S M M/S
+ - - Alrt+ Alrt- + Alrt+ - + +
New Rating
CCC+ Caa3 B1
Caa1 D Ba3 Ba2/BB+
+ : upgrade; - : downgrade; Alrt - : possible downgrade; Alrt + : possible upgrade
New Preferreds Issued in June
Rating
M
-
A2
Moody/S&P Par Ratings Value
M
+
A3
HSBC Holdings PLC HBCXF 8.000% 2 cv PPL Corp 9.500% US Bancorp USB A 7.189% A Zions Bancorporation ZB E 11.00% E
A3/A- NR/NR A3/BBB+ NR/B
M
CCC-
Alrt+
Phoenix Cos Inc/The
M
-
M
Alrt-
Tenet Healthcare Cor
M
+
Toys R US Inc
M/S
+ + + + + + + + + +
Issuer
Action
Southern Co
Agency
S
M M S S S S S M M M M M S M S
New Rating
B3
Issuer
Symbol Issue
25.00 50.00 1000.00 25.00
cv = convertible
Caa1
Alrt+
Q & A Section Q. I thought the preferred I bought had a yield of 8%, but my quote service reports a yield of only 2%, what’s going on? A. Sometimes a newly issued security will have a “short first coupon”, meaning the security was issued in August and has its
8 • July 2010
first payment in September. Instead of having three months of accrued dividends to pay out, it only has one. Quote services then multiply this payment by four and come up with the wrong yield. Many quote services and brokerages make this mistake.
© Copyright 2010 Forbes/Lehmann Income Securities Investor
MODEL Portfolios Fo r Inve s to r s S eeking Steady Mont hly Income
Low-risk Portfolio This investment-grade portfolio comprises securities with ratings of BBB or better. It will be the lowest yielding, but also the most secure. Capital appreciation is not a goal. Principal protection is primary. Symbol Issuer Coupon Series (KTBC) BellSouth Corp (CorTS) 7.000 (XVG) Boeing Corp (CBTCS) 6.050 (CRP) Credit Suisse Guernsey 7.900 (PYO) DaimlerChrysler (PPLUS 7.250 (GGN) Gabelli Glbl Gold Nat NA (GEC) General Elec Cptl Corp 6.100 (MSZ) Morgan St Cptl Tr VII 6.600 (PFL) PIMCO Income Stratg Fd NA PSA Z Public Storage Inc 6.250 RNR C RenaissanceRe Hldg Ltd 6.080 Summary Statistics Monthly Payout Average: Current yield on portfolio: Inception Value: (1/1/10) Last month’s value: Current value of portfolio Current value + year to date income: Year to Date Total Return
Medium-risk Portfolio Some of the securities are rated below BBB. Capital appreciation is not a goal in this portfolio, but rather high current income. Safety of principal and yield are given equal weight.
Price Qty Rpt Date 25.18 400 05/10 25.17 400 01/10 25.40 400 10/09 25.06 400 09/08 15.61 300 12/09 24.96 500 11/08 21.85 500 01/10 10.79 1000 08/09 23.50 500 12/09 19.52 600 11/09
Symbol Issuer Coupon Series (AEH) Aegon NV 6.375 (JZV) CNA Fncl Corp (CBTCS) 7.000 (PJS) First Amer Corp (PPlus 7.550 (GGN) Gabelli Glbl Gold Nat NA (MCN) Madison/Claymore Covd NA (XFH) Motorola Inc (CBTCS) 8.200 PFG B Principal Financial Gr 6.518 (PYS) R.R.Donnelley (PPLUS) 6.300 (JSM) SLM Corp 6.000 (TDA) Telephone & Data Syste 7.600
$613 7.17% $101,364 $102,098 $102,664 $106,342 4.91%
Summary Statistics Monthly Payout Average: Current yield on portfolio: Inception Value: (1/1/10) Last month’s value: Current value of portfolio Current value + year to date income: Year to Date Total Return
Price 17.65 22.60 23.57 15.61 7.83 23.97 22.61 18.97 16.82 24.93
Qty 600 500 600 500 1000 500 500 600 600 400
Rpt Date 02/10 02/10 01/10 12/09 11/09 01/10 12/09 02/10 01/10 06/09
$753 8.49% $102,410 $106,927 $106,403 $110,920 8.31%
Fo r Inve s to r s Seeking Income and Grow t h
High-risk Portfolio These securities are all below investment grade, and some are not rated. High current income is the primary goal, but capital appreciation can also be expected. Safety of principal is secondary to yield. Symbol Issuer Coupon Series Price (PKM) Allmerica Fncl (PPLUS) 8.000 23.19 BAC H Bank of America Corp 8.200 24.99 BMR A BioMed Realty Trust In 7.375 24.39 ENDTF EnerVest Divfd Incm Tr NA 13.30 (ERF) Enerplus Resources Fd NA 21.68 (PIY) Frontier Comm (PPLUS) 8.375 24.24 (XKK) Goodyear Tire (CBTCS) 8.000 9.42 (DKQ) May Dept Strs(SATURNS) 6.250 20.20 (CWZ) Royal Carib (CBTCS) 8.875 25.20 (JZK) Sprint Corp (CBTCS) 7.000 20.75 Summary Statistics Monthly Payout Average: Current yield on portfolio: Inception Value: (1/1/10) Last month’s value: Current value of portfolio Current value + year to date income: Year to Date Total Return
Qty 500 400 500 800 400 500 1000 600 400 600
$778 8.55% $102,501 $107,599 $109,288 $113,956 11.18%
Rpt Date 12/09 08/09 12/09 04/10 02/09 01/10 01/10 12/09 02/09 01/10
Multi-driver Portfolio The Multiple Driver Portfolio includes diverse income generating sources (drivers). Symbol Issuer Coupon Series AES C AES Trust III 6.750 AMGZO Affiliated Mangrs Grp 5.100 ADM A Archer-Daniels-Midland 6.250 (UTF) Cohen & Steers Infrstru NA ENDTF EnerVest Divfd Incm Tr NA (GGN) Gabelli Glbl Gold Nat NA GXP F Great Plains Energy In 12.000 HCN F Health Care REIT Inc 7.625 (NCZ) Nichol-Appel Conv & In NA (PVX) Provident Energy Tr NA
Price Qty Rpt Date 43.35 200 10/09 37.80 300 01/10 36.10 300 04/09 12.68 700 07/10 13.30 700 04/10 15.61 600 12/09 58.78 200 06/09 24.45 500 08/08 8.43 1000 08/05 7.71 700 04/10
Summary Statistics Monthly Payout Average: Current yield on portfolio: Inception Value: (1/1/10) Last month’s value: Current value of portfolio Current value + year to date income: Year to Date Total Return
$711 8.88% $103,412 $98,336 $96,200 $100,466 -2.85%
Symbol: symbols in parentheses require no preferred designation, all others require a preferred designation. *15% Taxable Dividend © Copyright 2010 Forbes/Lehmann Income Securities Investor
July 2010 • 9
Interest Rates Mid-Year Update
Comparative Current Yields Security Type
Yields 6/30/10
Net Change Net Change Spread Spread Month Y.T.D. 12/31/09 6/30/10
U.S. TREASURIES & EURO BENCHMARKS Ten Year 2.94 -35 -90 Inflation Indexed 1.09 -18 -33 -242 -185 Ten Year Euro(1) 2.57 -9 -81 -46 -37 Euro Spot Rate 1.224 -57 -1458 Corporate Bonds2 AAA 2.98 -27 -72 -14 4 A 4.14 -28 -47 77 120 BBB 4.94 -23 -55 165 200 BB 7.46 -28 -21 383 452 B 8.92 -24 24 484 598 CCC 12.69 -9 30 855 975 Preferred Stocks3 AA & A 6.44 BBB 7.69 BB 8.18 B 8.73
0 43 -3 10
-21 -20 -92 -47
281 405 526 536
350 475 524 579
Qualified dividend income (QDI) PFDs4 — Yields — Invstmt.Grade 5.73 -1 -38 135% 166% Below Inv.Grade 6.49 14 -88 163% 188% Municipal Bonds5 AAA 3.13 A 4.14 BBB 4.74
9 11 15
-12 -5 -7
— Yields — 85% 106% 109% 141% 125% 161%
Rate for ten-year German government bonds. Per Merrill Lynch. 3 Per the Income Securities Advisor Index. 4 Eligible for 15% tax rate. Yields shown at after tax % of US Treasuries rate. 5 Per Bloomberg. Yields shown at after tax % of US Treasuries rate. 1 2
EXPLANATION OF INTEREST RATE TABLE The monthly table displays Current Yields for ten-year maturities of various debt instruments compared to the benchmark ten-year Treasuries. Note that preferred stocks often have no maturity or are callable in less than ten years. The Net Change for the month- and year-to-date shows the change in basis points (100 basis points equals 1% in yield). A change in the U.S. Treasury rate is considered a change in the risk-free interest rate. The changes for the other securities reflect this same change plus whatever other risks investors perceive at the time. The change in Spreads represents the difference between risk-free ten-year U.S. Treasuries and each security. A widening of spreads means an increased concern about credit quality. A sudden widening of spreads is considered a flight to quality. Spreads identify which securities are out of line with historical relationships and represent buying opportunities. Since Municipal Bonds are tax exempt, their yields should be looked at in terms of their percentage of Treasury yields. Thus, if a muni yields 87% of Treasuries, it means it should be considered by anyone whose incremental tax rate is higher than the reciprocal of that number, or 13%. Hence, the higher the yield percentage, the lower your incremental tax needs to be, to make munis attractive or to look at them another way, more of their income is retained after taxes. 10 • July 2010
continued from page 1
you tax something the less of it you get’ is running into opposition by the Obama administration which is more concerned with ‘fairness’. Taxation should be about raising the maximum amount of revenue for the government in the least economically disruptive way. Fairness should be addressed on the spending side of the ledger. To mix the two politicizes revenue raising and invites special interests to corrupt the taxation process with social engineering thereby doing greater harm to the economy. Individual investors have still to be heard from since they are expected to take profits on their holdings before year-end to avoid higher tax rates. Such individuals may well opt to sit on the cash proceeds from such tax sales until the outlook clarifies. This will only add to short term market weakness. Despite the fact that Congress seems to be playing a losing hand, they seem unlikely to change course before the November elections. Should the Democrats lose control of the House of Representatives, we can expect a major market rally since a stalemated Congress would be a welcome relief for the markets. This may be short lived, however, since a lame duck Congress may well try to finish their agenda before leaving office (think carbon tax or a VAT). In short, equities don’t look promising between now and November and don’t look all that great for next year. A healthy position in cash and gold still look like safe bets.
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for menu of services. Copyright 2010 by Forbes Inc. and Income Securities Advisor Inc. Forbes/Lehmann Income Securities Investor (ISI) provides information, pricing, recommendations and investment ideas on bonds and preferred stocks. Current and past recommendations are available to subscribers at www. incomesecurities.com. ISI does not guarantee that these securities will produce profits or that they will equal past performance. Although all content is derived from data believed to be reliable, accuracy cannot be guaranteed. Principals, employees and advisory clients of Income Securities Advisors, Inc. and Forbes, Inc. may be holders of securities recommended in ISI. Forbes/Lehmann Income Securities Investor is an independent, authoritative source of information on corporate bonds and preferred stocks. ISI is not a dealer in bonds or other securities, nor are its principals engaged in such activities. ISI’s publisher, Richard Lehmann, is an SEC registered investment advisor specializing in income securities. For information on research or advisory services call (305) 557-1832 or e-mail [email protected]. Richard Lehmann also publishes the Distressed Debt Securities Newsletter and the ETF Investor Newsletter. Publisher: Richard Lehmann Forbes Newsletter Group Editor: Jack Colombo Editor: Matthew Schifrin Senior Analyst: George W. Weinfurtner Senior Editor: John Dobosz Subscriber Services: Tara Luckett
© Copyright 2010 Forbes/Lehmann Income Securities Investor
