* Interest on out-of-state bonds and dividends paid by national funds may be subject to state and local taxes. Income may also be subject to the Alternative Minimum Tax.

Taxable Income Strategies

Taxable income strategies include taxable corporate and government bond funds, convertible bond funds, preferred securities funds, and senior loan funds. These strategies invest in income-generating securities that may offer high potential income levels, diversification potential, or both for income-oriented investors. These funds offer credit profiles ranging from US government guaranteed to investment grade to high yield or unrated debt, as well as various maturity ranges. They also offer exposure to various portions of the issuer’s capital structure, ranging from senior secured loans down to unsecured junior debt to preferred securities and preferred stock.

Agency bonds, while not backed by the US Government, are issued by US government agencies rather than the Treasury and also have varying maturities.

Corporate bonds are issued by corporations to finance ongoing business activities, and typically carry ratings from one or more nationally recognized ratings agency. High yield bonds have lower credit ratings or are unrated. This means they are subject to a greater risk of default than investment-grade securities.

Convertible bonds offer the opportunity to convert a bond into the issuer’s stock, giving the investor higher appreciation potential if that stock value increases, but with potentially lower coupon payments when compared to non-convertible bonds with similar credit and maturity features. In some market environments, convertible bonds carry potential risks and advantages similar to bonds, and in others their risks and benefits are more similar to equities.

Preferred securities are usually junior liabilities of an issuer, pay fixed or adjustable rate dividends, have a “preference” over common stock in the payment of dividends and the liquidation of a company’s assets, and often are issued for a finite term. They are not bonds but often have bond-like characteristics like credit ratings and call features. Because they are below bonds in the issuer’s capital structure, they have historically paid higher yields than bonds from the same issuer, while carrying higher risk in the event of that issuer’s default.

Senior loans are commercial loans senior to other loans and debt in a company’s capital structure. Floating rate senior loans have an interest rate that resets periodically, are usually secured by specific collateral, and are often rated below investment grade. Like high yield bonds, this means they are subject to a greater risk of default than investment-grade securities. However, in the event of liquidation, investors in these types of loans are given the highest priority for repayment – before holders of preferred and common stock and subordinated bondholders.

All fixed income bonds carry interest rate risk and credit risk.

US Equity Funds