RICHARD LEHMANN is President of Income Securities Advisors, Inc. (ISA), and publishes the Forbes/Lehmann Income Securities Investor newsletter, as well as the ETF Investor Newsletter and Distressed Debt Securities Newsletter. He founded the Bond Investors Association (BIA) in 1983 as an information and advocacy organization for individual bondholders. ISA is the successor to BIA. Lehmann is also a columnist with Forbes magazine and has been actively involved in fixed income advising and bond defaults since 1976. He is also the portfolio manager of the Fallen Angels Income Fund (FAINX), a publicly traded no-load fund. Lehmann has taught finance and accounting in Miami and has spoken at numerous investment seminars. He holds an MBA from Columbia University, is a CPA, and an SEC-registered investment advisor. Visit www.incomesecurities.com for more information.

• Foreword xiiiPreface xvIntroduction xvii1 The Why and How of Fixed Income 1Why Consider Fixed Income 1Growth versus Income (Stocks versus Bonds) 1What Kind of Investor Are You? 4Investment Strategies 5Asset Allocation 5The Right Allocation for You 6Diversification 7Retirement Planning 11What’s Exciting about 6 Percent Returns? 14What You Need to Know about Risk and Uncertainty 17Subjective Risks 18Objective Risks 19Uncertainty 20Understanding Interest Rates: General Features 21Compound Interest 31When Interest Rates Rise 32Comparative Yields Explained 34What to Pay: Fair Value Pricing 38When to Sell 40Using Leverage and Margin 43Credit Ratings 43Below-Investment-Grade Ratings 46How to Read the Ratings 49Credit Ratings Drift: An Ongoing Problem 51The Federal Reserve Bank 52Security Dealers and Brokers 562 Information Sources and How to Use Them 59Investment Advice via the Media 59Prospectuses 60Misuse of the English Language 64Getting Railroaded by China 66When to Worry about the Accounting 69Financial Statements 71Balance Sheet 73Income Statement 75Statement of Cash Flows 76Shareholders’ Equity Statement 77Defining Earnings 78More Important than the Numbers 79Summary 803 Bonds 81Basic Features 81U.S. Treasuries 83Corporate Bonds 88Equipment Trust Certificates 90Direct Access Notes 90Junk Bonds 92Step-up and Pay-in-Kind Bonds 93Zero-Coupon Bonds 94Put Bonds 95Insured Municipal Bonds 96Lower Rated Muni Bonds 99Conduit Bonds 100Taxable Munis 100Unrated Munis 101Buying Municipal Bonds 103Municipal Bond Defaults 104Miscellaneous Topics 105The Bond Indenture and Trustee 105Call Provisions 106Put Provisions 109Money Market Accounts and Funds 110Certificates of Deposit 111Duration 111Questions to Ask When Buying a Corporate Bond 113Questions to Ask When Buying a Muni 1144 Preferreds and Hybrids 117General Features 117Hybrids: Bonds/Indirect Bonds 118Preferred Equity Traded (PET) Bonds 118Trust Preferreds 119Third-Party Trust Preferreds 120Foreign Preferreds 121Partnerships 121Perpetual Preferred Stock 122Buying Preferreds 1225 Convertibles and Adjustable-Rate Debt 127Convertible Bonds 127Convertible Preferreds 129Adjustable-Rate Debt 1326 Income Stocks 135Overview 135Canadian Energy and Royalty Trusts 136Other Canadian Trusts 138Real Estate Investment Trusts (REITS) 139Other Common Stocks 1407 Mutual Funds 143Overview 143Bond Funds 145Junk Bond Funds 147Municipal Bond Funds 148International Bond Funds 149Exchange-Traded Funds (ETFs) 149Closed-End Funds (CEFs) 152Closed-End Bond Funds 153Closed-End Preferred Funds 154Buy-Write Funds 1558 Securities and Other Investments to Avoid 157Unit Investment Trusts (UITs) 157Derivatives 158SEQUINS and ELKS 160PARRS 161Hedge Funds 162Commercial Paper, Bankers Acceptances, and Repos 164Collateralized Debt 1649 Other Topics of Interest 167Bankruptcy 167Endgame Strategies 173Tax Strategies 174Dividend Strategies 175Taxation and Mandatory Convertible Preferreds 176Tax Reporting 177Original Issue Discount 18010 Summing Up 183A Long-Term Strategy for Income Investing 183Appendix Internet Investment Information Sources 189Glossary 199Index 227

RICHARD LEHMANN is President of Income Securities Advisors, Inc. (ISA), and publishes the Forbes/Lehmann Income Securities Investor newsletter, as well as the ETF Investor Newsletter and Distressed Debt Securities Newsletter. He founded the Bond Investors Association (BIA) in 1983 as an information and advocacy organization for individual bondholders. ISA is the successor to BIA. Lehmann is also a columnist with Forbes magazine and has been actively involved in fixed income advising and bond defaults since 1976. He is also the portfolio manager of the Fallen Angels Income Fund (FAINX), a publicly traded no-load fund. Lehmann has taught finance and accounting in Miami and has spoken at numerous investment seminars. He holds an MBA from Columbia University, is a CPA, and an SEC-registered investment advisor. Visit www.incomesecurities.com for more information.

• Foreword xiiiPreface xvIntroduction xvii1 The Why and How of Fixed Income 1Why Consider Fixed Income 1Growth versus Income (Stocks versus Bonds) 1What Kind of Investor Are You? 4Investment Strategies 5Asset Allocation 5The Right Allocation for You 6Diversification 7Retirement Planning 11What’s Exciting about 6 Percent Returns? 14What You Need to Know about Risk and Uncertainty 17Subjective Risks 18Objective Risks 19Uncertainty 20Understanding Interest Rates: General Features 21Compound Interest 31When Interest Rates Rise 32Comparative Yields Explained 34What to Pay: Fair Value Pricing 38When to Sell 40Using Leverage and Margin 43Credit Ratings 43Below-Investment-Grade Ratings 46How to Read the Ratings 49Credit Ratings Drift: An Ongoing Problem 51The Federal Reserve Bank 52Security Dealers and Brokers 562 Information Sources and How to Use Them 59Investment Advice via the Media 59Prospectuses 60Misuse of the English Language 64Getting Railroaded by China 66When to Worry about the Accounting 69Financial Statements 71Balance Sheet 73Income Statement 75Statement of Cash Flows 76Shareholders’ Equity Statement 77Defining Earnings 78More Important than the Numbers 79Summary 803 Bonds 81Basic Features 81U.S. Treasuries 83Corporate Bonds 88Equipment Trust Certificates 90Direct Access Notes 90Junk Bonds 92Step-up and Pay-in-Kind Bonds 93Zero-Coupon Bonds 94Put Bonds 95Insured Municipal Bonds 96Lower Rated Muni Bonds 99Conduit Bonds 100Taxable Munis 100Unrated Munis 101Buying Municipal Bonds 103Municipal Bond Defaults 104Miscellaneous Topics 105The Bond Indenture and Trustee 105Call Provisions 106Put Provisions 109Money Market Accounts and Funds 110Certificates of Deposit 111Duration 111Questions to Ask When Buying a Corporate Bond 113Questions to Ask When Buying a Muni 1144 Preferreds and Hybrids 117General Features 117Hybrids: Bonds/Indirect Bonds 118Preferred Equity Traded (PET) Bonds 118Trust Preferreds 119Third-Party Trust Preferreds 120Foreign Preferreds 121Partnerships 121Perpetual Preferred Stock 122Buying Preferreds 1225 Convertibles and Adjustable-Rate Debt 127Convertible Bonds 127Convertible Preferreds 129Adjustable-Rate Debt 1326 Income Stocks 135Overview 135Canadian Energy and Royalty Trusts 136Other Canadian Trusts 138Real Estate Investment Trusts (REITS) 139Other Common Stocks 1407 Mutual Funds 143Overview 143Bond Funds 145Junk Bond Funds 147Municipal Bond Funds 148International Bond Funds 149Exchange-Traded Funds (ETFs) 149Closed-End Funds (CEFs) 152Closed-End Bond Funds 153Closed-End Preferred Funds 154Buy-Write Funds 1558 Securities and Other Investments to Avoid 157Unit Investment Trusts (UITs) 157Derivatives 158SEQUINS and ELKS 160PARRS 161Hedge Funds 162Commercial Paper, Bankers Acceptances, and Repos 164Collateralized Debt 1649 Other Topics of Interest 167Bankruptcy 167Endgame Strategies 173Tax Strategies 174Dividend Strategies 175Taxation and Mandatory Convertible Preferreds 176Tax Reporting 177Original Issue Discount 18010 Summing Up 183A Long-Term Strategy for Income Investing 183Appendix Internet Investment Information Sources 189Glossary 199Index 227

RICHARD LEHMANN is President of Income Securities Advisors, Inc. (ISA), and publishes the Forbes/Lehmann Income Securities Investor newsletter, as well as the ETF Investor Newsletter and Distressed Debt Securities Newsletter. He founded the Bond Investors Association (BIA) in 1983 as an information and advocacy organization for individual bondholders. ISA is the successor to BIA. Lehmann is also a columnist with Forbes magazine and has been actively involved in fixed income advising and bond defaults since 1976. He is also the portfolio manager of the Fallen Angels Income Fund (FAINX), a publicly traded no-load fund. Lehmann has taught finance and accounting in Miami and has spoken at numerous investment seminars. He holds an MBA from Columbia University, is a CPA, and an SEC-registered investment advisor. Visit www.incomesecurities.com for more information.

• Foreword xiiiPreface xvIntroduction xvii1 The Why and How of Fixed Income 1Why Consider Fixed Income 1Growth versus Income (Stocks versus Bonds) 1What Kind of Investor Are You? 4Investment Strategies 5Asset Allocation 5The Right Allocation for You 6Diversification 7Retirement Planning 11What’s Exciting about 6 Percent Returns? 14What You Need to Know about Risk and Uncertainty 17Subjective Risks 18Objective Risks 19Uncertainty 20Understanding Interest Rates: General Features 21Compound Interest 31When Interest Rates Rise 32Comparative Yields Explained 34What to Pay: Fair Value Pricing 38When to Sell 40Using Leverage and Margin 43Credit Ratings 43Below-Investment-Grade Ratings 46How to Read the Ratings 49Credit Ratings Drift: An Ongoing Problem 51The Federal Reserve Bank 52Security Dealers and Brokers 562 Information Sources and How to Use Them 59Investment Advice via the Media 59Prospectuses 60Misuse of the English Language 64Getting Railroaded by China 66When to Worry about the Accounting 69Financial Statements 71Balance Sheet 73Income Statement 75Statement of Cash Flows 76Shareholders’ Equity Statement 77Defining Earnings 78More Important than the Numbers 79Summary 803 Bonds 81Basic Features 81U.S. Treasuries 83Corporate Bonds 88Equipment Trust Certificates 90Direct Access Notes 90Junk Bonds 92Step-up and Pay-in-Kind Bonds 93Zero-Coupon Bonds 94Put Bonds 95Insured Municipal Bonds 96Lower Rated Muni Bonds 99Conduit Bonds 100Taxable Munis 100Unrated Munis 101Buying Municipal Bonds 103Municipal Bond Defaults 104Miscellaneous Topics 105The Bond Indenture and Trustee 105Call Provisions 106Put Provisions 109Money Market Accounts and Funds 110Certificates of Deposit 111Duration 111Questions to Ask When Buying a Corporate Bond 113Questions to Ask When Buying a Muni 1144 Preferreds and Hybrids 117General Features 117Hybrids: Bonds/Indirect Bonds 118Preferred Equity Traded (PET) Bonds 118Trust Preferreds 119Third-Party Trust Preferreds 120Foreign Preferreds 121Partnerships 121Perpetual Preferred Stock 122Buying Preferreds 1225 Convertibles and Adjustable-Rate Debt 127Convertible Bonds 127Convertible Preferreds 129Adjustable-Rate Debt 1326 Income Stocks 135Overview 135Canadian Energy and Royalty Trusts 136Other Canadian Trusts 138Real Estate Investment Trusts (REITS) 139Other Common Stocks 1407 Mutual Funds 143Overview 143Bond Funds 145Junk Bond Funds 147Municipal Bond Funds 148International Bond Funds 149Exchange-Traded Funds (ETFs) 149Closed-End Funds (CEFs) 152Closed-End Bond Funds 153Closed-End Preferred Funds 154Buy-Write Funds 1558 Securities and Other Investments to Avoid 157Unit Investment Trusts (UITs) 157Derivatives 158SEQUINS and ELKS 160PARRS 161Hedge Funds 162Commercial Paper, Bankers Acceptances, and Repos 164Collateralized Debt 1649 Other Topics of Interest 167Bankruptcy 167Endgame Strategies 173Tax Strategies 174Dividend Strategies 175Taxation and Mandatory Convertible Preferreds 176Tax Reporting 177Original Issue Discount 18010 Summing Up 183A Long-Term Strategy for Income Investing 183Appendix Internet Investment Information Sources 189Glossary 199Index 227