Investing Basics

Corporate Stocks and Bonds are ways to invest in individual public companies. Stock represents ownership, and its market value changes with earnings expectations, industry developments, and the general market environment. A bond represents a debt obligation of a company. The interest a bond pays may be constant, but its market price reacts to changes in the issuer’s financial prospects and the outlook for interest rates.

U.S. Treasury obligations are bonds or certificates with principal and interest secured by the “full faith and credit of the U.S. Government.” Market values fluctuate primarily based on expectations for inflation and interest rates.

Municipal (“Tax-Exempt”) Bonds represent the debt of states and municipalities, often incurred to finance capital projects. Interest generally is exempt from federal income tax. Municipal bond prices fluctuate with changes in interest rates, tax rates, or the issuer's creditworthiness.

Zero-Coupon Bonds are debt instruments that pay no current interest. Their stated yield to maturity is a function of the discounted purchase price, face amount, and maturity date. But for tax purposes, holders are deemed to have received interest each year. Since the reinvestment rate is locked in, market value may be more sensitive to interest rate changes.

Options are contracts giving the holder a right to buy or sell a specific amount of an underlying security at a stated price by a certain date. Option strategies range from conservative to highly speculative. You should understand the strategy as well as the risks and commission charges before trading options.

Mutual Funds are professionally managed investment companies offering a measure of diversification, liquidity, and flexibility few investors can achieve individually. A “family” of funds may cover a wide spectrum of securities, financial markets, and investment objectives. Mutual fund share prices reflect the value of the portfolio holdings, net of the fund’s internal fees and expenses, including payments to the fund’s advisor and transfer agent. Distribution costs may be covered by front-end or deferred sales charges and/or distribution and service fees. Such expenses are detailed in the prospectus. Despite the emphasis often placed on a fund’s track record, past performance is not an indication of future results.

Money Market Funds hold short-term debt instruments (taxable and tax-exempt) and offer a high degree of stability of principal. Dividends generally reflect very short-term interest rates. Money market funds typically do not offer deposit insurance protection.

Consolidated Cash Management offers an integrated approach to handling your “ready” assets and longer term investment positions. KMS employs specific money market funds with enhanced features including full-service checking and debit card linked to your brokerage account.

Certificates of Deposit from savings institutions around the country offer competitive rates and a range of maturities. Timely payment of principal and interest is federally insured, but premature redemption can incur interest penalties or secondary market risk.

Unit Investment Trusts are fixed portfolios of securities that are professionally selected but not actively traded during the life of the trust. Secondary markets are maintained in many trust units, but most are designed to be held for income and/or appreciation until maturity.

Variable Life Insurance and Annuities combine insurance benefits and securities investment elements. The term “variable” refers to those investment choices and the fact that their value and returns fluctuate. These vehicles offer long-term, tax-deferred growth potential and the ability to reallocate the investments without triggering taxable events. Variable contracts can involve a number of considerations and costs.

The use of MARGIN in a brokerage account is like any credit facility - valuable if used prudently consistent with your investment objectives and financial wherewithal. Extension of credit for buying and holding securities is subject to strict federal regulation. Holding investments on margin increases the potential for loss as well as gain. Please see “Use of Margin In Your Brokerage Account.”

Fixed Rate Insurance Products include deferred and immediate annuities, universal life, and single-premium life policies. Along with death benefit protection, the insurer may offer guaranteed crediting rates while providing security to your family. Life insurance can play an important role in prudent financial and estate planning.

Term Insurance is basic protection against financial loss due to the death of a primary breadwinner or employee. Term policies may be most appropriate when the objective is to establish significant protection for a relatively low current premium.

Real Estate Investment Trusts (REITs) are a common way to pool investor capital in diversified portfolios of real property (equity or debt). Shares of many REITs are listed on national exchanges and trade much like common stock. Income is taxed only at the shareholder level, so REITs may offer an attractive level of after-tax income as well as appreciation potential.

Direct Participation Products (public and private limited partnership offerings) invest directly in the operating profits, losses, and capital growth of a business venture or real assets. You should consider carefully the inherent risks of longer-term illiquidity, leverage, lack of diversification, and tax complexity.

 

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