Glossary

ACCRUED INTEREST

The amount of interest accumulated but not paid between the last payment date and the buy or sell date. When purchasing bonds on the secondary market, this is the interest the former owner earned but has not been paid. It will be added to the buy price of a bond and returned to the seller. The new buyer will receive a full interest payment on the next pay date. Preferreds also accrue interest, but trade “flat”, without the participants having to account for the accrued interest. Instead, preferreds have an ex-dividend date and the accrued interest is bundled into the price of the preferred. For example, a quarterly pay preferred that is going to go ex-dividend tomorrow will generally trade at a higher price today because the purchaser will receive three months worth of accrued interest. The next day the preferred will drop in price by the amount of the payment.

ACRONYM

A word or term made up from the initial letters of a name or parts of a series of words, such as “QUIDS” for Quarterly Income Debt Securities. Most of the preferred acronyms are Trademarked identifiers that represent certain types of hybrid preferred created by specific Wall Street firms.

ADJUSTABLE RATE

These are securities with a variable interest or dividend rate. Their rate is usually related to the yield of another security (treasury bills, notes, bonds) or to indexed lending rates such as the Prime or Libor. The amount they pay will rise or fall in concert with the rate or yield they are related to. Thus, these securities are ideal for principal protection when rates are rising.

ADR- AMERICAN DEPOSITORY RECEIPT

A share of stock that is issued by an American Bank which is backed by foreign securities on deposit.

ARREARAGE

This term refers to the past due dividends on cumulative preferred and preference stock. This obligation must be satisfied before preference and common stock dividends can be paid. Arrearage payments, when finally made, are to the current holders of the stock, not to holders of the stock when the dividends were missed.

BASIC POINT

The smallest measure used when quoting yields on bonds and preferred stocks. 100 basis points = 1%. Example: An increase of 60 basis points to a yield of 7.00% would make it 7.60%.

BELOW INVESTMENT GRADE

Below investment grade securities are rates below BBB- by Standard and Poor's and below Baa3 by Moody's. Below investment grade bonds are known as High Yield Bonds or less charitably as Junk Bonds. see RATINGS

CALL DATE

The first date an issuer can redeem a bond or preferred before maturity. In most cases, the issue can be called any time after this date at par value. The issuer, however, is not obligated to call the security.

CALL PRICE

The price at which a bond or preferred stock with a call provision will be redeemed at. In most cases this price will be the par value. Some securities have a call price schedule, which begins at a premium to par value then declines annually to eventually settle at the par value .

CALLS

Most bonds and preferreds have a clause, which permits the issuing company to redeem or retire all or part of the shares outstanding at defined prices for specific dates in the future. There are several types of call provisions:

Continuous Calls: - are the most common redemption plan in use by companies. This type of call allows the company to redeem their bonds and preferreds at anytime, usually with 30 days notice. Most bonds and preferreds have a schedule of annual redemption prices with beginning dates (Example: 6/1/91 @ $52, 6/1/92 @$51, etc.). In this example the issuer can redeem these shares at $52 anytime between 6/1/91 and 6/1/92 and at $51 anytime between 6/1/92 and 6/1/93.

Discrete calls: - will list specific days and prices the issue can be called. In some cases it may indicate that the issue can only be called on a dividend pay date.

Soft Calls: - If such a provision exists and the underlying stock of the convertible reaches a predetermined price for a set period of time, the bonds or preferreds become callable.

CLOSED-END MUTUAL FUND

These funds have a fixed number of shares, which are traded on the secondary markets similarly to stocks. The market price may exceed the net asset value per share, in which case it is considered at a premium . When the market price falls below the net asset value per share, it is at a discount . see MUTUAL FUNDS.

COLLAR

Bonds and preferreds (floaters, adjustables, etc.) with this feature have upper and lower limits within which the dividend rate can be reset. These limits are frequently referred to as the ceiling and floor.

CONTINUOUS CALLS

are the most common redemption plan in use by companies. This type of call allows the company to redeem their bonds and preferreds at anytime, usually with 30 days notice. Most bonds and preferreds have a schedule of annual redemption prices with beginning dates (Example: 6/1/91 @ $52, 6/1/92 @$51, etc.). In this example the issuer can redeem these shares at $52 anytime between 6/1/91 and 6/1/92 and at $51 anytime between 6/1/92 and 6/1/93. see CALLS

CONVERTIBLE

A bond or preferred that can be converted or exchanged into common stock, usually from the same company. Income Securities Advisor has created two Family’s of Preferreds: Mandatory – The security will automatically exchange into common stock on the maturity date. These preferreds are usually created and issued by a third party such as an investment banker or broker-dealer and usually have a variable conversion ratio based on the common stock price. Optional – The holder has the right to convert at any time. The issuer will often force conversion by calling the issue at par when the conversion value is greater than par,

Conversion Parity- The price at which a convertible bond or preferred must sell for it to equal the current market value of the common shares to be received upon conversion.

Conversion Premium - The value of the common stock one would receive if converted immediately compared to the current market price of the convertible. This number is usually expressed as a percent. For example if the security was convertible into common stock with a value of $885.96 (conversion value) and the current market price of the security was $1050.00 then the Premium would be $164.04. To get the conversion premium divide the premium $164.04 by the Market Price $1050.00 times 100. This would give a conversion premium of 15.62%.

Conversion Price- The dollar price at which convertible bonds, or preferred stock will be converted into common stock. The conversion price is established at the time of the issue of the convertible.

Conversion Rate- Same as Conversion Ratio.

Conversion Ratio- The number of shares into which each convertible bond or preferred can be converted. Example, if one convertible bond can be converted into 50 shares of common stock, then the conversion ratio is 50:01 or 50.0000. The conversion ratio is established at the time of issue of the convertible.

Conversion Value- The value of the number of shares into which a convertible security can be converted. Multiply the conversion ratio by the common stock price. Note: Sometimes referred to as conversion parity.

CORPORATE BONDS

IOU's of a corporation that usually requires the issuer to pay the holder an agreed upon interest rate for a set period of time, and to repay the IOU at maturity. Corporate Bonds are usually issued in $1000 denominations. The holder of a bond is a creditor of the corporation, not a part owner like a shareholder.

Secured Bonds are backed by collateral, which can be sold to satisfy the debt.

Debentures are non-collateralized bonds backed only by the full faith and credit of the company.

COUPON RATE

Annual interest in percent based on par value $1000.00. Example: 8.00%=$80.00

CUMULATIVE DIVIDEND

Almost all preferred stocks are designated cumulative, thus an issuer must declare and pay all current and unpaid past dividends (arrears) before they can pay common share dividends. An issuer can pay current dividends and still be in arrears from past dividends. Missed payments on non-cumulative issues are usually not covered. Note that the board of directors must declare dividends on preferreds each quarter. Hence, such dividends do not accrue and are not added to the purchase price, as with bonds.

CURRENT PRICE

The current price of the security. Prices posted on the Pricing Pages and on the Web Page are from the last business day of the month. The price of a Bond is traditionally shown at 10% of the par value($1000.00). Example: A bond trading at 98.5 is actually priced at $985.00.

CURRENT YIELD

The annual rate of return (stated as a percent) an investor will be paid on a specific bond or preferred based on the current price.

Bonds - To calculate current yield for bonds, divide the coupon rate by the number shown as current price and multiply by 100. Example: (9.60% coupon divided by 95 current price = 0.1010) multiplied by 100 = 10.10% current yield.
Preferreds - To calculate current yield for preferreds, you must first get the dividend (Issue) into dollars. To do this, divide the percent by 100 then multiply the results by the par value. Example: (8.25% / 100 = 0.0825) X $25.00 = $2.063. To complete the calculation for current yield, divide the dollar dividend by the current price of the security then multiply by 100. Example: ($2.063 / current price $24.00 = .0859) X 100 = 8.59% current yield. Note: some preferreds show dividends in dollars.

CUSIP

(Committee on Uniform Securities Identification Procedure) This is a unique identifier assigned to a security. No two are alike. (Similar to an individuals Social Security number).

CYCLE

This coding indicates when a preferred pays its dividend.

1: Jan, Apr, Jul, and Oct

2: Feb, May, Aug, and Nov

3: Mar, Jun, Sep, Dec

M: Monthly

b: - beginning of the month

m: - middle of the month

e: - end of the month

x/x: - semiannual (Exp 5/11= May/November)

DEBENTURE

An unsecured bond whose holder has the claim of a general creditor on all assets that are not specifically pledged to secure other debt.

DEBT MATURITY

The date the underlying bond of a Trust Preferred or Third Party Trust Preferred matures. The preferred will expire on this date and return to the holder par value plus any accrued interest/dividend. PET Bonds will mature on this date and return to holder’s par value plus accrued interest.

DEFAULT

The failure of a borrower to pay interest or repay principal in a timely manner. For bond issuers, additional non-payment conditions constitutes an event of default are defined in a legal document called a "bond indenture.”

DEFERRAL OF DISTRIBUTIONS

This is when a preferred or underlying bond has a feature allowing the issuer to defer interest payments, under certain circumstances, for up to 5 years before it can be declared in default. This can be done only if the parent also suspends dividend payments on its common stock (Distribution on the preferreds will continue to accrue during any deferral period and investors must pay tax on the accrued, but unpaid interest. Dividends on the common and preferred stock cannot resume until all unpaid interest has been paid.)

DISCOUNT

The amount a bond or preferred trades below the face or par value of the security.

DISCRETE CALLS

will list specific days and prices the issue can be called. In some cases it may indicate that the issue can only be called on a dividend pay date. see CALLS

DIVIDEND

The money paid to shareholders. It is usually a fixed amount stated in dollars or a percent of par value. When the dividend amount is stated as a percent of par, the dollar value of the dividend is calculated by multiplying the percentage by the par value. (Example: Widget Co. $25.00 par with a 6.25% dividend) $25 .00 times .0625 = $1.5625. Sometimes a dividend can be Paid in Kind, (PIK) i.e. with common stock shares of the issuing company or additional preferred shares.

DRD (DIVIDENDS RECEIVED REDUCTION)

A tax advantage that allows certain corporations to deduct 70% of the dividends they receive from DRD eligible preferreds.

EQUITY LINKED SECURITIES (ELS)

A bond or preferred which is potentially convertible into shares of another company's security. The ELS typically pays interest or dividends and its price will move with the price of the linked security. Commodity Linked Securities- These hybrids are similar to Equity-linked, however, they are dependent on a commodity or Index.

EX-DIVIDEND DATE

Is the date on which a stock trades without the dividend. Investors purchasing stock on or after the ex dividend date will not receive the declared dividend. Opening price ex-dividend date is usually down an amount roughly equal to the dividend.

FACE VALUE

This is the principal amount of the bond, usually $1000.00. Commonly used synonymously with par value.

FAMILY

One reason preferreds remain a secret is that they are harder to understand than common stocks or even bonds. Hence, to feel comfortable with them you need to invest some serious time studying their features. To ease this process, we have broken up the preferred universe into nine logical groupings, which we have dubbed `families'. The members of each family have similar characteristics.

For the non-convertible preferreds we have created seven Families. We use the term “preferreds” instead of “preferred stock” because many of the securities are bonds or represent indirect ownership of a bond.

Foreign - These preferred stocks are issued by a foreign corporation in US dollars. The legal rights of the holder are dictated by the rules of the issuer’s country.

Partnerships - These preferred stocks are issued by a partnership’ has its distributions reported on an IRS K1 form. The tax treatment of payment on such preferreds may differ.

Perpetuals - These preferred stocks have no maturity date and have tax preference for corporate buyers i.e. DRD eligible.

Trust Preferreds - These preferreds are backed by a bond held in trust, hence, they represent a creditor claim rather than a share holder claim against the company.

Third Party Trust Preferreds - These are Trust Preferreds created by an investment banker or broker-dealer not the issuer of the underlying bond. They go by trade names such as CorTS, CABCO, SATURNS, PPLUS, etc.

PET (Preferred Equity Traded) Bonds - These are preferreds that are in fact bonds, usually $25 par and traded on the NYSE.

REIT- These are preferred stocks issued by a REIT (Real Estate Investment Trust).

Convertible preferreds have only two families, which may or may not have a bond as the underlying security:

Mandatory - The preferred will automatically exchange into common stock on the maturity date. These preferreds are usually created and issued by a third party such as an investment banker or broker-dealer and usually have a variable conversion ratio based on the common stock price.

Optional - These preferreds give the holder the right to convert into common stock at anytime. Note: the issuer will often force conversion by calling the issue at par when the conversion value is greater than par value.

FLAT TRADING

A bond traded without separate accrued interest. The price paid or received includes the accrued interest. Issuers in default and Income Bonds commonly trade flat.

FLOATING RATE SECURITIES (FLOATERS)

These are securities with a variable interest or dividend rate. Their rate is usually related to the yield of another security (treasury bills, notes, bonds) or to indexed lending rates such as the Prime or Libor. The amount they pay will rise or fall in concert with the rate or yield they are related to. Thus, these securities are ideal for principal protection when rates are rising.

FOREIGN

This “Family” of preferred securities is issued by foreign-based companies in US dollars. There are several types of securities in this “Family”. They are often issued as American Depository Receipts (ADR). ADR’s are also called American Depository Shares (ADS). Some of these preferreds are subject to foreign withholding taxes. Those issued by banks usually have non-cumulative dividends.

FUNDS FROM OPERATIONS (FFO)

FFO is the most commonly accepted and reported measure of a REIT's operating performance. It is equal to a REIT's net income, excluding gains or losses from sales of property, and adding back real estate depreciation. This alternative measure is preferable to traditional profit measures because REIT's are principally tax shelter vehicles and as such, are designed to minimize taxable income.

HIGH YIELD (JUNK BOND)

In some cases, the term "junk bonds" is used to refer to all high-yield bonds--i.e., those that are rated below investment grade or are not rated. In other cases, the term refers to the lower tiers of high-yield bonds in credit quality. Many of today's high-yield bonds, particularly those rated Ba by Moody's or BB by other rating agencies, are not considered "junk."

HYBRID PREFERREDS

Corporate securities that have characteristics similar to both preferred stock and corporate bonds. There is a multitude of structures and acronyms for these securities but several things are common for all of them - the issuer can deduct the payments from their taxes, Holders receive interest not dividends and they are very liquid since they trade as stocks on major exchanges. For further details look under the following families, PET Bonds, Trust Preferreds , and Third Party Trust Preferreds.

INCOME BOND

This type of bond pays interest only if the issuer has sufficient earnings. They are usually issued when a company is not sure of its earnings prospects.

INDENTURE

The formal agreement between bondholders and an issuer defining key elements of the bond or debenture such as maturity, amount issued, redemption rights and protective covenants. This information is shown in the prospectus.

INTEREST

The agreed upon payment a borrower pays a lender of the use of money. Bonds are defined in annual interest rates often referred to as coupon rate. To convert the percentage into dollars, multiply by 10. (9.60% X 10 = $96.00)

INTEREST RATE RISK

The price erosion of a fixed income security in a rising interest rate environment.

INVESTMENT GRADE

Bonds and Preferreds considered suitable for investors with principal protection as their primary goal. Income Securities rated Baa3 and above by Moody's and BBB- and above by Standard & Poor's, Fitch IBCA and Duff & Phelps are considered investment grade. see RATINGS

ISSUE

Many firms have multiple preferred issues thus it is imperative to correctly identify each issue. Each preferred is identified by the term issue that shows the annual dividend, usually in percent, and any special series identifier. (To convert percentage dividends into dollars, divide by 100, then multiply by the par value).

ISSUER

Any authorized legal entity including governments, agencies, and corporations that has the power to issue a security. Exceptions: Third Party Trust Preferreds - ISI shows the corporation who issued the underlying Bond; Mandatory convertible preferreds- ISI shows the corporation whose common stock an investor would receive.

JUNK BOND- (HIGH YIELD)

In some cases, the term "junk bonds" is used to refer to all high-yield bonds--i.e., those that are rated below investment grade or are not rated. In other cases, the term refers to the lower tiers of high-yield bonds in credit quality. Many of today's high-yield bonds, particularly those rated Ba by Moody's or BB by other rating agencies, are not considered "junk."

LIBOR (LONDON INTERBANK OFFERED RATE)

The rate banks charge each other for short-term Eurodollar loans. LIBOR is frequently used as the base for resetting rates on floating-rate securities.

MANDATORY

This “Family” of convertible preferreds will automatically convert to common stock on a specific date. Most issues have a variable conversion rate based on the common stock price it relates too. (Example: If the common stock of ABC corporation is at or above the Threshold Price ($46.93) the conversion ratio will be 0.8314. If the common is at or below the Reference Price ($34.81) the conversion ratio will be 1.1122. If the price is between the Threshold and Reference price, the investor will receive the par value of the preferred ($25.00) in common stock.) In most cases these securities are units, made up of a purchase contract and a bond or trust preferred. Most convertibles in this family are not callable before the mandatory conversion date and usually are not convertible by the holder. Convertible securities are very individual creatures and at times members of either family can have features of the other, intermarriage if you will.

MATURITY

The date a bond comes due. Principal and any accrued interest must be paid off.

MUTUAL FUNDS

Are pools of money that are managed by an investment company. They offer investors a variety of goals, depending on the fund and its investment charter. Some funds seek to generate income on a regular basis, others to preserve an investor's money or invest in growth stocks. Funds can impose a sales charge, or load, on investors when they buy or sell shares. Many funds these days are no load and impose no sales charge, but all have expense charges.

Closed-End Mutual Fund These funds have a fixed number of shares, which are traded on the secondary markets similarly to stocks. The market price may exceed the net asset value per share, in which case it is considered at a premium. When the market price falls below the net asset value per share, it is at discount .

Open End Mutual Fund. An investment fund that stands ready to sell new shares to the public and to redeem its outstanding shares on demand at a price equal to an appropriate share of the value of its portfolio, which is computed daily at the close of the market. This is typical of the majority of mutual funds.

NET ASSET VALUE

The market value of all the securities held in a mutual fund divided by the number of shares outstanding.

NON-CUMULATIVE PREFERRED

Missed dividends do not accrue. Omitted dividends are, as a rule, gone forever.

OPEN END MUTUAL FUND.

An investment fund that stands ready to sell new shares to the public and to redeem its outstanding shares on demand at a price equal to an appropriate share of the value of its portfolio, which is computed daily at the close of the market. This is typical of the majority of mutual funds.

OPTIONAL

This “Family” of convertible preferreds are normally convertible at any time by the holder at fixed conversion rates and typically are perpetual or with a long maturity. They are usually callable after five years. . Most convertibles in this family are convertible at the option of the holder into common stock at any time. Convertible securities are very individual creatures and at times members of either family can have features of the other, intermarriage if you will.

PAR

An abbreviated term for Par Value.

PAR VALUE

The face value of a security. For bonds, it’s the principal amount due at maturity. In the case of preferreds the issuing company sets this value. Par Value is often referred to as Liquidation Value.

PARITY- (CONVERSION)

The price at which a convertible bond or preferred must sell for it to equal the current market value of the common shares to be received upon conversion.

PARTICIPATING PREFERRED

These rarely seen preferred issue receive their regular stated dividend plus participate with common stockholders, under specific conditions, for additional distribution of earnings by the issuer.

PARTNERSHIP

This “Family” of preferred securities are issued by a Partnership. There are a variety of partnership however the most common are; Limited Liability Companies (LLC) and Limited Partnerships (LP). In most cases a parent company establishes and becomes the general partner of these entities. In most cases these securities are structured like Trust Preferreds including the holder having an indirect ownership of a bond. These issues pay interest not dividends. Note: Investors receive an IRS Schedule K-1 rather that Form 1099. The K-1 is usually sent out much later than 1099s.

PAY CHAIN

The rating of securities is a subjective activity based on both qualitative and quantitative factors involving current business and economics situation of an industry an individual issues. Securities of an issuer may vary because of collateralization as well as status in the "pay chain"

Senior Secured Debt

Senior Unsecured Debt

Subordinated Debt

Trade creditors, Junior Subordinated Debt

Debt Secured Hybrid Preferreds

Preferred Stock

Preference Stock

Common Stock

Note: Commonly the preferred stock of an issuer will be rated one level below the issuer's debt. This is also related to the "Pay Chain". When comparing securities use either the bond ratings or the preferred ratings, to mix well give a disjointed view.

PAYMENT-IN-KIND SECURITIES (PIKS)

These securities normally pay dividends or interest in the form of additional securities. However, PIKs can also include securities with payment in common stock, cash, or even the securities of a different company. Because the payment options are so diverse the dividend amount is usually stated in cash so that a holder will know, for example, that he will receive $2.00 worth of securities.

PERPETUAL

This “Family” of security is a capital stock of a company that is senior to common equity but junior to all debt. Perpetual preferreds usually have a fixed cumulative dividend have no maturity, just like common stock. Most are callable sometime in the future and are DRD (Dividend Received Deduction) eligible for corporation or qualifying investors.

PET BONDS

(Preferred Equity Traded Bonds) This “Family” of preferreds are actually bonds. They are unique in that they are usually $25.00 Par and traded on the New York Stock Exchange. (The normal bond is $1000.00 par and trades over the counter). Pet Bonds are issued directly by a parent company. Pet Bonds pay interest, not dividends and can pay either a quarterly or semi-annual distribution.

PREFERENCE STOCK

Fall between preferred and common stock in their rights to dividends or liquidation payments. It is common for this stock to be rated lower than the preferred stock of a company by the credit agencies.

PREFERRED DESIGNATION

Many preferreds need a special designator attached to their symbol for identification. Brokerages and online quote systems use different designators thus it is important investors know the designator for the system they are using. Examples: Yahoo uses _ p to denote a preferred. CCJ is the symbol for Cameco Corp’s common stock and preferred stock. To get the preferred you must type CCJ_p. Household Capital Trust V symbol HI X should be typed HI_pX. ISI brackets preferred symbols that do not require a designator. Example: (DCX).

PREFERRED STOCK

The senior class of capital stock or equity of a company. A company must pay preferred stock dividends before they pay preference or common stock dividends. This stock also has priority over the other two in any liquidation distributions, such as bankruptcy. However, all forms of capital stocks, which make up the equity of a company, fall behind debt issues (bond, notes, etc.) and all other creditor claims in their right to payments of any sort. Although these equity issues represent part ownership in a company, they normally do not have voting rights.

PREMIUM

The amount that a bond or preferred is selling above face value (par). Examples: a $1000 bond trading at $1050 has a $50 premium; a $25.00 par preferred trading at $26.00, has a $1 premium.

PREMIUM (CONVERTIBLES)

The percent of Market Price the convertible bond is trading at above the value of the common stock a convertible bond could be converted into (Conversion Value). Example: Market Price $1050.00 minus Conversion Value (common stock price $20.25 multiplied by the conversion ratio 43.751 = $885.96). = $164.04. To convert the premium dollars into a percentage divide the premium $164.04 by the Market Price $1050.00 and multiply by 100 = 15.62% Premium.

PROSPECTUS

This is the official selling circular which must be given to purchasers of new bonds or preferreds registered with the Securities and Exchange Commission (SEC). The prospectus contains details of the security. Included are financial details of the issuer as well as management overview, history, experience, competition and prospects. A preliminary version of this document is called a Red Herring.

PUT BONDS

A bond that gives the holder the right to require the issuer to purchase the bonds at a set price, usually par, at some date prior to maturity.

RATE OF RETURN

For bonds or preferred see Current Yield.

RATINGS

Ratings are based on an evaluation of an issuer’s strength to meet its credit obligations. Credit Risk concerns both the financial and moral obligations that an issuer of securities will meet its payments as promised.

Investment Grade
Moody'sS&P
Highest Credit QualityAaaAAA
Minimal Risk of Meeting Financial Obligations
Very High Credit QualityAaAAA
Little Risk of Meeting Financial Obligations
Highest Credit QualityAA
Low Risk of Meeting Financial Obligations
Medium Credit Quality Adequate
Quality for Meeting Financial ObligationsBaaBBB

Below Investment Grade
Moody'sS&P
Speculative Credit QualityBaBB
Very Thin Coverage of Meeting Financial Obligations
Highly Speculative Credit QualityBB
Questionable Coverage of Meeting Financial Obligations
Vulnerable to defaultCaaCCC
Must have improved conditions to meet Financial Obligations
Highly Vulnerable to defaultCaCC
Most Likely will not Meet Financial Obligations
Lowest QualityCC
Avoid could be in Default Arrearage
In Default ArrearageCD
Ratings Modifiers1,2,3+/

REDEMPTION

The repayment of a security at or before it's maturity date. Redemption values are commonly at par and in some cases can be in the form of another security.

REIT

Real Estate Investment Trust (REIT) This “Family” of preferreds is issued by a special purpose corporation or trust that raises capital from investors to acquire or provide financing for all forms of income-producing real estate. These properties include shopping centers, hotels, office buildings, apartment complexes, health facilities, industrial properties and more. Generally. a REIT does not pay corporate income tax if it distributes at least 90% of its taxable income to shareholders. To qualify for this tax treatment, at least 75% of gross income must come from rents of real property or interest income from mortgages on real property. Some of the preferreds have a clause, which requires the REIT to pay the higher of, the fixed minimum dividend or the common stock dividend.

RESET

Refers to the next scheduled date for a possible adjustment of the payout rate of a floating rate or adjustable rate security. Adjustments are calculated based on a defined index for the specific security.

RISK

In the context of income securities, risk refers primarily to loss of principal or income because the company was unable to meet its obligations. This is also known as credit risk and does not refer to other risks associated with income securities such as changes in interest rates or market risk. For our purposes the Low Risk category usually consists of investment grade securities, Medium Risk has a mixture of investment grade and high non-investment grade securities and High Risk are usually below investment grade securities.

SINKING FUND

Money accumulated on a regular basis in a separate custodial account that is used to redeem bonds or preferreds. Some bonds or preferreds have a mandatory retirement clause, which requires the issuer to retire a set number of securities each year for a set time frame. The securities can be purchased in the open market or selected by lot. The redemption date can be a specific date or extend over a full year.

SOFT CALL

A provision that can be attached to a convertible bond or preferred stock. If such a provision exists and the underlying stock of the convertible reaches a predetermined price for a set period of time, the bonds or preferreds become callable.

STEP SECURITIES (UP/DOWN)

These securities have a specific schedule for changing the interest or dividend rate. Commonly called Step-up/down notes or preferred.

SYMBOL

The letter code to identify a security on the exchange on which it trades. For Preferreds, Symbols not in parentheses require a Preferred Designation. These designations vary by system and Web pages. Note: Often called Ticker or Stock Symbol.

TENDER OFFER

An issuer of a bond or preferred offers to buy back a specific security at a set price and for a set time period. Holders of the security are not obligated to accept the tender offer.

THIRD PARTY TRUST PREFERREDS

This "Family" is similar to Trust Preferreds except they are issued by a third party. An underwriter/depositor, usually a large brokerage firm, will buy bonds of a particular company, deposit them into a Trust they establish who in turn will issue the $25.00 par value (Certificates) preferreds.

These preferreds are sometimes given acronyms such as CorTS, CABCOS, CBTCS, SATURNS and PPLUS. The acronyms are the “brand names” of the underwriter or affiliate, and does not relate to the company that issued the underlying bond. The securities are sometimes hard to discern since they often are titled by the name of the Trust such as Structured Products or Lehman- ABS. Sometimes, but not always, the title is followed by a series such as Lehman MOT A-1, which offers a hint that this Trust Preferred is based on a Motorola bond. ISI Newsletter shows these securities under the name of the underlying bond issuer.

Some of these issues have a deferrable interest clause. This means the underlying bond has a feature allowing the issuer to defer interest payments for up to 5 years. During any deferral period the interest accrues and is taxable for the holder.

TRADING FLAT

A bond that trades with no accrued interest such as a bond in default or an Income Bond. Most bonds trade with accrued interest, meaning the buyer pays the seller the market price of the bond plus the accrued interest from the last payment date.

TRUST PREFERREDS

This "Family" of hybrid preferreds has characteristics of both bonds and preferred stocks, but is essentially a bond. They are issued by a business trust, which is established by a parent company (Example ABC Corp sets up ABC Capital Trust). The Trust will issue the $25.00 par value hybrid preferred and lend the proceeds to its parent by purchasing a long- term (usually 30 year) subordinated bond.

When the Trust receives interest payments on the bond, they pass them directly to the preferred stockholder as monthly, quarterly or semi-annual distributions. Trust Preferred shareholders get paid before regular preferred and common stock shareholders.

Many Trust Preferreds have a deferrable interest clause. This means the underlying bond has a feature allowing the issuer to defer interest payments for up to 5 years. Distribution on the Trust Preferreds will continue to accrue during any deferral period and investors must pay tax on the accrued, but unpaid interest.

VARIABLE CONVERSION RATE

The conversion rate of these convertibles depends on the price of the common stock. Typically, the higher the common stock price the lower the conversion rate and vice versa.

VARIABLE RATE

These are securities with a variable interest or dividend rate. Their rate is usually related to the yield of another security (treasury bills, notes, bonds) or to indexed lending rates such as the Prime or Libor. The amount they pay will rise or fall in concert with the rate or yield they are related to. Thus, these securities are ideal for principal protection when rates are rising.

YIELD

Return on an investor's capital investment, expressed as an annual percentage rate.

Current Yield - The annual rate of return (stated as a percent) an investor will be paid on a specific bond or preferred based on the current price.

Bonds - To calculate current yield for bonds, divide the coupon rate by the number shown as current price and multiply by 100. (Example: (9.60% coupon divided by 95 current price = 0.1010) multiplied by 100 = 10.10% current yield.

Preferreds - To calculate current yield for preferreds, you must first get the dividend (Issue) into dollars. To do this, divide the percent by 100 then multiply the results by the par value. Example: (8.25% / 100 = 0.0825) X $25.00 = $2.063. To complete the calculation for current yield, divide the dollar dividend by the current price of the security then multiply by 100. Example: ($2.063 / current price $24.00 = .0859) X 100 = 8.59% current yield. Note: some preferreds show dividends in dollars.

Yield to Call - The average annual return you would receive to the first call date. This includes any discount or premium to the stated call price.

Yield to Maturity - The average annual return you would receive to maturity date. This includes any discount or premium to the stated par value or face value.

Yield to Worst - The lower of; yield to call or yield to maturity. The worst combination of all the possible call dates, maturity dates and call or maturity prices.

ZERO COUPON BONDS

A bond sold at deep discount from its face (par) value that pays no interest until it matures at face value. Although no payments are made, holders of these bonds must pay taxes on the annual accrued interest. These securities are ideal for non-taxable accounts (IRA's).