TOP WEBSITES FOR INCOME INVESTORS (KIPLINGERS)

KIPLINGER'S | March 2016

9 Top Free Sites for Income Investors

Five years ago, Kiplinger’s turned to longtime investment writer and in-house income guru Jeff Kosnett to launch a newsletter designed to steer income-starved readers to the best investments for dependable, spendable income. Today, Kiplinger’s Investing for Income continues to attract a growing army of satisfied readers.

How does Jeff uncover opportunities for his subscribers month after month? Of course, he spends a lot of time interviewing money managers and mutual fund masterminds, as well as the men and women who actually run real estate investment trusts (REITs) and master limited partnerships (MLPs). And he mines the Internet, searching for great ideas and studying the raw data to identify broad trends and profitable prospects. We asked Jeff to share with Kiplinger.com readers his favorite free sources for reasoned discussion and hard-to-find financial data. Bookmarking these sites will be a valuable step toward making you a more successful investor.

 

Closed-End Fund Center

Web address: www.cefa.com

Key data: Discounts and premiums to net asset value

Best for: Sorting and screening 629 closed-end funds

The keys to understanding any closed-end fund are data about current and historic discounts and premiums to net asset value, distribution rates, whether and how much the fund borrows (leverage), and total return on net asset value. This site offers all of that and more, plus the tools to sort and screen more than 30 varieties of funds in too many ways to count.

Kosnett Comment: CEFA’s tables show each fund’s distribution yield next to its income yield. The two won’t match, but they should be fairly close. If the income figure is low but the distribution is high, the fund is selling assets or issuing new shares to maintain the illusion of a fat yield. It could be headed for a distribution cut.

Eaton Vance Monthly Market Monitor

Web address: www.eatonvance.com

Key data: The numbers on all aspects of income investments

Best for: Total returns and average duration of bonds

This fund company’s site is loaded with free stuff. The best is the monthly monitor (accessible in the site’s Institutional Investors section): 40-plus pages of charts and tables about all aspects of stocks, bonds, bank-loan funds, commodities, industry sectors and more. All this — including total returns and average duration of more than 20 kinds of bonds — is nicely laid out on single pages.

Kosnett Comment: The page called “fixed income spread analysis” uses simple bar charts to show the current and past yield advantage of various categories, such as junk bonds or preferred stocks, over Treasuries. When the spread is unusually narrow, there’s more risk. When it’s wide, it’s usually a good time to invest.

FRED

Web address: www.stlouisfed.org

Key data: 382,000 statistical series from 82 sources

Best for: Financial data, graphs and charts from the government and everywhere else

If you want to see a trend in, say, inflation, growth, interest rates or stock-market returns for just about any period, you’ll find it here. This takes the place of any almanac, encyclopedia or reference book — and it’s updated daily. FRED is the acronym for Federal Reserve Economic Data and is the brainchild of the Federal Reserve Bank of St. Louis.

Kosnett Comment: You may go weeks or months without using this, and then you’ll refer to it several times in one sitting. It’s comforting to know that someone has gone to the effort of assembling all this info in one place.

SEE ALSO: 7 Promising Dividend Stocks Yielding 5% or More

FRED

Investing in Bonds

Web address: www.investinginbonds.com

Key data: Real-time market data on bond trading action and prices

Best for: Owners (or potential owners) of individual corporate and municipal bonds and anyone else who wants to see how bonds are priced and what they are yielding at any given time

Kosnett Comment:The Securities Industry and Financial Markets Association (SIFMA), the bond dealers’ trade association, runs the site and has a news feed as well. Some of the commentaries, though, are dated.

Robert W. Baird & Company

Web address: www.rwbaird.com

Key data: Relative yields of municipals and Treasuries

Best for: Analysis of taxable and tax-free bond markets

The managers of Baird Core Plus Bond fund and other excellent no-load income funds publish a combination of basics with just enough financial-market-speak to keep the pros happy with their Capital Markets Perspective. The insights live at Baird’s corporate site (address above) not the Baird Funds' consumer site. Offerings include both tax-free bond and taxable-bond commentaries. A recent subject is the tight supply of new bonds, which keeps prices high and yields low. There is also a colorful market commentary called, ahem, The Bull and Baird Blog.

Kosnett Comment: Baird’s municipal bond letter illustrates such basics as the ratio of tax-free bond yields to Treasury yields and the equivalent yield you need to earn on a taxable investment to net the same after-tax income.

Pimco

Web address: www.pimco.com

Key data: Outlooks and forecasts from the fixed-income behemoth (with $1.43 trillion under management) formerly known as the Pacific Investment Management Company

Best for: Investors who like to see commentaries and explanatory articles that put the market’s gyrations in perspective. For example, an article called “Emerging Markets Trying to Turn the Corner” makes the case for some, but not all, investments in those countries. The Pimco blog about the issues of the day is well-presented and with graphics.

Kosnett Comment: The departure of Bill Gross from Pimco changed this site from his soapbox to more of a team effort.

EMMA

Web address: www.emma.msrb.org

Key data: Muni bond trading details

Best for: Screening the tax-free bond universe for top yields

Electronic Municipal Market Access, from the Municipal Securities Rulemaking Board, shows every municipal bond trade, plus key background information about thousands of issuers. If you own tax-exempts, you can see a price graph for each bond based on months of trades, just as you can chart a stock or a fund. You can also screen the tax-free bond universe in detail. For example, when you search for all AA-rated Arizona water and sewer bonds due between 2024 and 2029, up pop the yields and other particulars.

Kosnett Comment: EMMA is easier to navigate if you know your bond’s CUSIP number.

REIT.com

Web address: www.reit.com

Key data: Historical returns and other performance information for real estate trusts going back to their invention in the 1960s.

Best for: Avid real estate investment trust fans and anyone who wants to see new offerings and news tidbits about the industry and its members. The site is run by the National Association of Real Estate Investment Trusts (NAREIT).

Kosnett Comment: It would be good if NAREIT would link to a resource that provides up to the minute data on the individual REITs’ net asset values and prices to book value. You need a brokerage link to that kind of research.

TCW

Web address: www.tcw.com

Key data: Monthly updates by sector, such as the High Yield and Mortgage Market updates. Find it all under Insights from TCW, a global asset management firm.

Best for: Bond fund investors, especially if you dabble in risky or unusual areas like junk bonds, mortgages and bank loans. There are also excellent forecasts and commentaries from the portfolio managers and analysts.

Kosnett Comment: This is some of the best perspective on individual bond-market segments and what’s driving them up or down.

Tax Free Municipal Bonds - What to Buy Now (Barrons)

Where to find good opportunities in munis

BY Jack Hough,

Barron's

Copyright © 2012 Dow Jones & Company, Inc. All Rights Reserved.

Barron's — 12/01/12

Municipal bonds are not the bargain they were two years ago, but there's still good value to be had, especially compared to U.S. Treasuries. Some do's and don'ts.

Taxes for high earners look likely to rise next year, but those who feel the urge to park money in tax-free municipal bonds should shop carefully.

Plenty of investors have had the same thought since Election Day. A popular exchange-traded fund of these bonds, iShares S&P AMT-Free Muni Bond, has gained 1.5% since then, and 5.2% year-to-date. That might sound like small potatoes, but as bond prices rise, yields fall, and a muni universe that was recently an obvious bargain is now an iffy one.
Compared with Treasury bonds, munis still look cheap—but so does nearly everything else that carries a rate of return. Triple-A general-obligation munis, backed by the taxing authority of the issuer, yield 1.74% at 10-year maturities, a bit more than the 10-year Treasury's 1.62%. Historically, muni yields have tended to be only 85% to 90% of Treasuries', with investors making up the difference in tax breaks, says Dan Heckman, a fixed-income strategist at U.S. Bank Wealth Management.

Demand for munis is dominated by retail investors who are easily scared off and slow to return. Indeed, yields got so juicy two years ago, after a prominent analyst warned of widespread defaults, that even investment funds focused on providing taxable income with corporate bonds were dipping into munis. The default crisis didn't materialize, and now munis have retuned to pre-scare levels.

The muni discount versus corporate bonds is gone, says Chun Wang, a portfolio manager at Leuthold Weeden Capital Management. Since 1979, munis have yielded a median of 1.15 times as much as corporates, once their yields are adjusted to taxable-bond equivalents based on 35% tax rates, according to Wang. As recently as the end of October the ratio was 1.25. Now, it's 1.10.

However, investors who have put off their muni shopping until now can still find good deals using a targeted approach. Here are some dos and don'ts:

Don't just create an evenly laddered muni portfolio, with bonds coming due every few years. Yields on the short issues are well below the rate of inflation, which will erode wealth over time. Instead, favor intermediate maturities where yields take relatively sharp jumps.

For example, many buyers ask their brokers for 10-year bonds; it's a nice round number. That creates a minor demand bubble there, says Matt Fabian, managing director of Municipal Market Advisors, a Concord, Mass., research service. Recently, 12-year, AAA-rated bonds yielded 2.20%, versus 1.48% for nine-year ones. Investors who buy the 12-year paper get the higher yields, plus an added benefit: As the bonds age three years, they may rise in price, so that their yields match those for nine-year issues. This "roll-down" effect works only if rates stay where they are.

Do delve into bonds rated a couple of notches below perfection. Defaults by municipalities are rare, relative to those by corporations, and the percentage of funds recovered by investors in the case of default is typically much higher. Look to A-rated bonds for good value from a risk/reward perspective, says Peter Hayes, head of the muni group at BlackRock. From 1970 through 2011, the default rate for these munis was just 0.04% over 10-year periods, versus 2.22% for comparably-rated corporate bonds, according to Moody's.

Don't buy all home-state bonds. A New Yorker who buys his state's bonds gets the federal tax break offered by most munis, plus a break on state taxes (and maybe even local ones if he lives and buys in New York City). But bonds from outside states bring the benefit of diversification.

New Yorkers can put 70% or more in home-state bonds because of high taxes, decent state finances and a deep universe of local bond issuers to diversify among. California has weaker finances, but coastal cities are doing better than inland ones, and state taxes are headed to shockingly high levels, up to 13.3%. Buyers there should also favor in-state munis. Rhode Island and Connecticut, on the other hand, have weak economies and limited muni supply, so residents should limit their in-state buying to 40% or 50% of their portfolios.

Do shop for out-of-state bonds from states that don't have income taxes, like Texas, Florida, Nevada and Washington. They lack strong local demand, leaving yields a touch plumper.

Do keep fees low, but don't assume index mutual funds offer the best deals. The bonds they track tend to stay in high demand, while active fund managers can look for higher yields among less-popular issues. Fidelity Tax-Free Bond
gets a "gold" rating from Morningstar and ranks among the top 15% of peers for 10-year performance. Fund expenses are 0.25% of assets per year—the same as for the aforementioned iShares index exchange-traded fund.


Do seek help selecting individual bonds. Thanks to falling rates and a dearth of new issues, many bonds can be called away before maturity at lower prices than they currently sell for, which can trip up the uninitiated.

Above all, don't buy munis in hopes of scoring short-term gains when taxes rise. That's already priced in. Probably the only thing that will drive a big muni rally from here is if Congress trims the tax break on muni interest, while grandfathering in existing bonds. Barring that, buyers should expect to get their bond interest and not much more.

10 Ways to Invest Tax Free (Forbes)

10 Ways to Invest Tax Free (Forbes)

William Baldwin, Forbes Staff

Taxes|2/10/2011

For the moment, taxes on portfolios are modest. The federal rate is 15% on most dividends and on long-term capital gains. Come 2013, though, the rates shoot up.

Without a law change, the maximum federal tax on interest, dividends and short-term gains will go to 44.6%. That consists of a 39.6% stated rate, the 1.2% cost of a deduction clawback and a 3.8% surtax to pay for health care. The max for long gains will be 25% (but 23% for assets held for more than five years). Add state taxes to all of these.

What’s an investor to do? Take defensive measures. Here are ten ways to pocket investment income without paying tax on it.


Set up a kiddie Roth


Did your daughter earn $4,000 last summer that she needs for college? Were you going to leave her at least $4,000 in your will? Start your bequest now. Hand her $4,000 that she can use to fund a Roth IRA. Tell her not to touch it until she is 60.

She’ll get 40 years of tax-free compounding. (At 7% a year, this would turn $4,000 into $60,000.) You’ll get money out of your estate, probably saving on state inheritance taxes.

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Buy an MLP

Master limited partnerships that own energy assets like pipelines tend to pay pretty good dividends (in the neighborhood of 5%). Those dividends, at least initially, are largely sheltered by depreciation deductions. The quarterly cash, that is, is considered a nontaxable “return of capital.”

After a decade or two this tax shelter is exhausted, but if you die owning these shares your heirs get to start the process over with a new, higher tax basis.

Go Ugma

Use the Uniform Gift to Minors Act (a.k.a. Uniform Transfers to Minors Act) to set up a brokerage account for your son or daughter. The first $950 of annual income is free of tax; the next $950 is taxed in the kid’s low bracket.

The downside is that at age 18 Junior takes ownership and might not spend the money on college, as you intend. So fund the account modestly­—$30,000 is plenty—and concentrate the holdings on investments that (a) generate a lot of taxable income and (b) are compelling additions to the overall family portfolio. The idea is to make full use of that $1,900-a-year shelter while parting with a small amount of capital.

Here are several examples of investments that make sense in a diversified portfolio and that spew out a lot of ordinary income:

–exchange traded funds that hold a lot of Ginnie Maes and the like (MBB) or the whole bond market (BND).

–the ETF for junk bonds (JNK).

–high-yielding blue chips like Verizon, AT&T and Pfizer.

–preferred stocks.

Two cautions. (1) To avoid gift tax wrinkles, limit each year’s contribution to $26,000 per child ($13,000 if you are single). (2) Don’t set up Ugmas if you think your kid will qualify for college financial aid. Any assets in the kid’s name will be snatched by aid officers.

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Open a 529

A Section 529 plan lets you accumulate investment income tax free, provided the proceeds are used on schooling. Drawback: Sometimes stiff fees erase the income tax saving.

The account is likely to be a good idea where the costs are low (as in Utah) or there’s a break on state income tax for parents chipping money in (as in New York).

As with Ugmas, 529s are not a good idea for families likely to get tuition assistance.

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Own commercial real estate

As long as your building doesn’t have too much of a mortgage, depreciation deductions will make a good chunk of your rental income free of current income tax. There’s more on the economics of these deals here.

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Own muni bonds

Interest on the general obligations of state and local governments is free of federal income tax. In most states you also get a pass on state income tax for home-state bonds. Caution: Some states are in financial trouble. Check out the Forbes Moocher Ratio before buying.

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Give away stock profits

You put $3,000 into Netflix, wait at least a year, then give away the shares to charity when they’re worth $8,000. You get a deduction for the whole $8,000. Your $5,000 gain is never taxed.

Two other ways to shelter appreciated property from capital gain taxation: leave it in your estate, or give it to a low-bracket relative.

Bequeathed property benefits from a step-up, meaning that gains unrealized by an owner at the time of his death permanently escape income taxation.

Low bracket taxpayers (people who would be in a 25% or lower bracket if all their capital gain were taxed as ordinary income) get a free ride on long-term capital gains. But if the donee is a son or daughter 18 or younger (23 if in school), beware the kiddie tax, which applies to investment income over $1,900 a year.

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Capture losses

When the market is down, swap out of losing positions into similar but not identical ones. For example, you could exit an S&P 500 index fund and immediately buy the Vanguard Megacap Index Fund. In this fashion, you can run up a capital loss carryforward that will make future capital gains tax free. For more on loss harvesting, go here.

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Buy a safe


If your $400 investment saves you $45 a year in safe deposit box fees, you’ve got an 11% yield, tax free. The only exception on the tax side would be if you are one of those rare birds in a position to deduct miscellaneous items like the rental on a strongbox to hold your gold coins. Miscellaneous deductions are usable only to the extent they exceed 2% of your adjusted gross income; not many taxpayers get anywhere near this threshold.

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Be a cheapskate investor

Are you paying someone 1.5% a year to have your assets managed? Cut this cost in half by haggling. A dollar saved in this fashion is a dollar earned free of tax, unless you are claiming miscellaneous deductions, which is unlikely.


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This article is available online at:
http://www.forbes.com/sites/baldwin/2011/02/10/ten-ways-to-invest-tax-free/
America's Most Promising Companies

How to get 7% Income (Barrons)

Barron's Cover | MONDAY, NOVEMBER 21, 2011 How to Get Safe Annual Payouts of 7%
By KAREN HUBE |
Despite rock-bottom interest rates, you can still earn investment income of 7%-plus per year. How to keep money flowing during retirement.
Not so long ago, you could build a reliable portfolio of income-producing investments with just a few simple steps: Buy some Treasuries, some corporate bonds and some munis, and then watch the money roll in. That kind of investing is a long-lost luxury. Yields on core bond holdings have been slim for three years in a row. And while 10-year Treasury yields, at 2%, are higher than they were a year ago, you aren't going to do much better any time soon. The Federal Reserve says it is going to hold rates low until mid-2013. Bottom line: Traditional fixed-income portfolios don't work anymore, and "if retirement investors don't start thinking differently, they're going to run out of money," says Erin Botsford, CEO of the Botsford Group, a Frisco, Texas-based financial advisory firm.

Thinking differently, however, raises new challenges for retirement. Yields of 5% and 7% are attainable, but you have to look globally and across asset classes that may seem unfamiliar, such as emerging-market bonds, global infrastructure stocks, master limited partnerships and mortgage real-estate investment trusts.

The hunt for higher yields requires vigilance. Some risks are obvious: Greek sovereign debt, now yielding over 100%, clearly is no way to finance a leisurely retirement. But more often risk is difficult to spot.

Take the Pimco High Income closed-end fund (ticker: PHK). The fund not only has a highly regarded brand name and widely respected manager, Bill Gross, but also an enticing 11.7% yield.

"But if you look at funds not to buy, this is the poster child," says Maury Fertig, chief investment officer at Relative Value Partners in Northbrook, Ill., who points out that the fund trades at a 67% premium to its net asset value. Investors who buy into the fund are paying far too much for a yield that isn't guaranteed, he says.

Then there's the risk of inaction. If you stick with the traditional income investments, you will be losing money in inflation-adjusted terms.

The 10-year Treasury, with its 2% yield, is a clear loser with today's 3%-plus inflation. Ditto for certificates of deposit and money-market funds.

"You may be preserving your principal, but you aren't going to keep up with inflation," says Malcolm Makin, an advisor at Professional Planning Group in Westerly, R.I. For example, you have to lock your money up in a CD for five years just to get an average 1.5% pretax return. "That isn't going to seem so safe in retrospect at age 70 or 75, when your money has dried up," Makin says.

To increase yield and balance the risks, income portfolios must be cobbled together with a number of investments, ranging from Treasuries to junk bonds. Some—those with the highest credit risk or illiquidity, for example—should make up 2% or less of a portfolio. But even at those levels they can add income and help diversify your holdings.

Here are 11 choices with attractive yields. If you haven't looked at these kinds of investments before, now is an excellent time to start.


Closed-End Corporate-Bond Funds

Regular corporate-bond mutual funds can give you an edge over Treasuries, with yields around 3%, but you can get much more from closed-end bond funds, which trade like stocks.

"There are funds available at substantial discounts to net asset value, and the fact that these funds employ leverage, and their cost of borrowing is very low, can provide additional yield," says Relative Value's Fertig, who recommends these as a piece of a diversified income portfolio.




Fertig likes AllianceBernstein Income fund (ACG), which specializes in investment-grade corporates, Treasuries and agency bonds—debt issued by the likes of Fannie Mae and Freddie Mac. The yield: 6%. "It's trading at a 10.7% discount to its net asset value," he points out.

BlackRock Credit Allocation Income Trust fund (BTZ) is another good prospect, trading at a 13% discount and with a yield of 7.7%. But it is a little more risky, with many AA-rated and BBB-rated bonds—still investment grade, but just barely.


Municipal Bonds

Municipal bonds offer a rare opportunity for investors because they yield more than their taxable-bond counterparts and provide tax breaks to boot. For individuals, leveraged closed-end muni funds are great choices. They are riskier because of their leverage, but that's limited by the Fed's pledge to keep rates low. With tax-free yields above 6%—and many muni funds selling at a discount to NAV—that's equivalent to a taxable yield over 9% for somebody in the 35% tax bracket. Two that look good are BlackRock Municipal Income Quality Trust (BAF), with a 6.3% yield, and Neuberger Berman Intermediate Municipal (NBH), yielding 5.6%. Those yields equate to 9.7% and 8.6%, respectively, for taxpayers in the top bracket.

Less risky, because it uses no leverage, is the Vanguard High Yield Tax Exempt fund (VWAHX), which yields 4.4%, equivalent to 6.8% for high earners.

High-Yield Bonds

Bonds that don't qualify as investment- grade—rated BB or lower—clearly come with more risk, "but you can pick up substantial yield if you look at BB ratings primarily," rather than lower-rated bonds, says Michael Persinski, managing director of U.S. Investment for Citi Private Bank. Yields on these issues are around 7.3%.

Investors have been flocking to high-yield, or junk, bonds lately because the difference between their yields and those of Treasuries widened significantly since April. The current spread is 7.2 percentage points. Valuations are still attractive, says Jamie Kramer, head of thematic advisory at J.P. Morgan. The market is pricing in default rates of around 8%, yet the current rate is 2%.

The best strategy for investing in junk bonds is through a fund or ETF, because they are broadly diversified and have low transaction costs. Eaton Vance Income Fund of Boston (EVIBX) yields 7.9%, and iShares iBoxx $ High Yield Corporate ETF (HYG) yields 7.5%


Emerging-Market Government Bonds

Compared with European sovereign debt, emerging-market government bonds look like safe bets. And with an average yield of 6%, they pay three times that of U.S. Treasuries. Once viewed as high risk, these bonds have become much sturdier amid the rapid growth of developing-world economies.

Emerging-market bond funds can minimize currency risk by using hedging strategies; or you can bet on currencies as well as yields. Funds with currency exposure can give added return when the dollar falls.

While emerging-market currencies are expected to strengthen over the long term, that is no steady trend. Lately, those currencies have declined about 20% relative to the dollar, making currency-exposed funds more volatile, says Michael Herbst, associate director of fund analysis at Morningstar. For currency diversification, he likes Pimco Emerging Local Bond (PELAX), yielding 6.8%. A solid fund that hedges currency risk is Fidelity New Markets Income (FNMIX), with a 5.4% yield.

If you want to leave it up to a manager whether or not to hedge currency risk, consider T. Rowe Price Emerging Markets Bond fund (PREMX), yielding 6.8%.

Dividend-Paying Stocks

Your grandfather may have scoffed at today's dividend yields, but don't pass them by. The average yield on Standard & Poor's 500 stocks that pay dividends, at 2.5%, is well below the historic average of 5.8%. But the last time the index had a higher yield than 10-year Treasuries was 1958. That means investors have an opportunity to capture capital appreciation as well as Treasury-beating yields. And payouts are likely to get stronger as the economy continues to recover, says Howard Silverblatt, senior index analyst at S&P.

By sector, telecom companies have the highest yields, at 6%, followed by utilities at 4.2% and health care at 3%.

For investors who like these yields but are concerned about the risk of investing in stocks, look for companies that have raised their dividends for the past 10 years and aren't straining to pay them, Silverblatt says.

He suggests making sure that companies' earnings are at least twice their payouts. Among those that make the cut: Chevron (CVX), which yields 3%; Johnson & Johnson (JNJ), 3.5%; and Northeast Utilities (NU), 3.2%.




Global Infrastructure Stocks

Companies that own and operate infrastructure such as sea ports, toll roads and utility lines not only are good for yield—expect about 5% from a basket of the stocks—but also tend to perform better than the market in downturns.

"These companies are rich on physical assets, and a lot of them have monopolies. For example, if a company builds a toll road, someone isn't going to build a toll road right next to it," says Mike Finnegan, chief investment officer of Principal Funds and manager of the Principal Global Diversified Income fund.

Among his funds' holdings are PPL (PPL), a utility with operations in the U.S. and Britain, and BCE (BCE), a Quebec-based telecom provider.


Master Limited Partnerships

Advisors like energy-related master limited partnerships not only for their solid dividend yields—often 6% or more—but because they are relatively stable investments and good for diversification.

MLPs are publicly traded limited partnerships. Because of their organizational structure, they don't pay corporate taxes and can pass much of their profits on to their investors. The safest bet is to stick with energy MLPs that own and operate oil and natural-gas pipelines, such as Kinder Morgan Energy Partners (KMP), yielding 6%, and Mark West Energy Partners (MWE), yielding 5.3%. These partnerships aren't closely correlated to stocks and aren't affected by the rise and fall in energy prices, because they collect fees for transporting oil and gas, no matter what happens to the prices.


REITs

Real-estate investment trusts have had strong returns in recent years, and right now they are paying respectable yields.

The apartment sector has been particularly strong, the result of millions of cash-strapped families deciding to rent instead of buy. David Campbell, a principal at Bingham Osborn & Scarborough in San Francisco, recommends two apartment REITs: Camden Properties Trust (CPT), yielding 3.3%, and AvalonBay Communities (AVB), yielding 2.9%.

Fidelity Real Estate Income fund (FRIFX), with a yield of 5.1%, and Vanguard REIT ETF (VNQ), 3.4%, each will give you a diversified basket of REITs.

But when it comes to income, mortgage REITs that invest in mortgage-backed securities issued by Fannie Mae and Freddie Mac may be your best bet. Since their portfolios are guaranteed by the federal government, there's very little credit risk. So the main risk is that the Fed raises interest rates, and it has told us that won't happen before 2013. Annaly Capital Management (NLY) is the biggest in the bunch, with $113 billion in assets and a whopping yield of 14.8%.


Equipment Leasing

When a company leases a piece of heavy equipment, such as an oil tanker or a railroad car, income investors stand to benefit.

Here's how: Independent firms buy up large quantities of leases with investors' pooled assets, "and then investors pick up the income stream from these leases," she says. Current yields are 7% to 8%.

Investors take on the risk of the leases, but Botsford thinks this risk is small.

"We're talking about low-tech equipment that doesn't get obsolete, and 20-year lease cycles," Botsford says. Companies leasing the equipment typically have long track records of making their lease payments. The default rate is minimal, and typically there are about 50 leases in an investment pool.

To participate you have to work through brokers or asset managers, whose firms ooften have access to specific pools, such as those managed by Icon Investments and Cyprus Financial.

The caveat: These lock up investors' money for five to seven years, so Botsford recommends keeping the allocation to about 2% of your portfolio.


Immediate Fixed Annuities

Major stock-market declines and wild volatility have increased the appeal of low-cost annuities. One of the most widely recommended types by advisors is the simplest kind: an immediate fixed annuity. You fund this annuity with a lump sum, and it immediately starts paying out a guaranteed income for life—or a term you specify.

Investors get a higher monthly payment than they could if they tried to create their own income stream from their investments. That's because of annuities' so-called "mortality credit," which is the benefit resulting from pooled assets of many investors. "Some investors are going to die early, and since the insurance company isn't going to have to make their payments, they use them to benefit those still living," says Steve Horan, head of private wealth at the CFA Institute.

With yields of 6% to 7%, a 65-year-old man in good health can turn a $200,000 annuity into monthly payments of $1,100 for life.


Longevity Insurance

If you knew you were going to live until, say, age 85, planning an income stream would be a lot easier. But what worries many retirees is their longevity risk—the chance that they will live a lot longer than they expect.

That's why insurers have recently come out with a new kind of annuity called longevity insurance. This is a kind of deferred annuity that you buy early on to secure an annuity stream five to 20 years down the line. At age 65, you can buy one to begin paying at age 85. "This fixes the time-horizon problem and makes planning a lot easier," Horan says. "These are cost efficient, and they transfer the longevity risk to the insurer," says Horan.

Solid longevity-insurance providers include New York Life Insurance and Metropolitan Life. Fees are embedded in the annuity calculation, but as with immediate fixed annuities, they are reasonable. Through NY Life, a 60-year-old healthy man who buys a $100,000 longevity insurance contract today can secure a $2,916-per-month annuity that begins at age 80 and pays out for life.

In all, our 11 investments offer solid income at a time when any income is hard to come by. In other words, yes, you can still retire comfortably.

.E-mail: editors@barrons.com

The Best and the Worst States for Muni Bonds (Barrons)

Barron's Cover | MONDAY, AUGUST 29, 2011
Good, Bad and Ugly
By JONATHAN R. LAING There's hope for states that accept structural change, but pain for those that won't. Are you listening, Illinois and California?



For most states, fiscal 2012 is shaping up as a brutal year. They've already had to close a collective gap of more than $100 billion between their projected revenues and previously budgeted expenses, mostly due to anemic sales taxes and personal and corporate-income levies. And all this comes after three years of large budget shortfalls, during which most of the low-hanging fruit in expenses had been plucked and rainy-day funds and other reserves had been plundered.

Likewise, just about all of the $165 billion in federal stimulus money that had helped to close state budget gaps since the 2008-09 financial crisis has been spent. Thus, the cuts for fiscal 2012, which for most states began last month, promise to be particularly painful, leading to employee layoffs and reduced human-services spending on programs such as Medicaid.

Education will bear the brunt, as states are forced to trim their funding to public universities and K-through-12 school districts. The latter, particularly in low-income areas, will especially suffer from the lagged effect of the housing bust on a falling property-tax take.

Yet there's hope amid the gloom for many of the states, and for the $1.5 trillion state municipal-bond market. Tax revenue has begun to rise again, after falling cataclysmically for five straight quarters during the Great Recession.

In fact, state-tax revenue in fiscal 2011's first quarter was up 9.3%, on average, over the year-earlier figure, reports the respected Nelson A. Rockefeller Institute of Government at the State University of New York at Albany. This was the fifth straight quarterly improvement. To be sure, the revenue picture could darken if the U.S. economy double-dips. (The numbers in each category in the tables accompanying this article generally are based on the most recent and comprehensive data available, and so their dates don't all coincide. However, they do paint a good picture of each state's relative position against the others.)

And since the 2010 elections, new governors, mostly Republican, have come to the fore, unbeholden to the public-employee unions that have used political muscle to win cushy contracts and fat retiree pension and health benefits. The roster of new-breed, social-Darwinist figures includes the likes of Scott Walker of Wisconsin, John Kasich of Ohio, Rick Scott of Florida and Chris Christie of New Jersey, all following the successful path of two-term Indiana Gov. Mitch Daniels. Even prominent Democrat and New York Governor Andrew Cuomo, scion of a family steeped in Franklin Roosevelt's New Deal, has pushed state unions to accept contracts with a three-year wage freeze and five unpaid furlough days in the current fiscal year.

The governors want the unions to contribute more to their pension funds and health plans to ensure the systems' soundness. Controversially, Walker and Kasich even have tried to convince the unions to surrender or reduce their collective-bargaining rights. Moreover, many states are creating new tiers of public employees provided with much less munificent pension and health-care plans. Retirement ages are being boosted, automatic cost-of-living adjustments to pensions are being eliminated, pension vesting periods are being increased and shenanigans like income-spiking at the end of careers to fatten benefits are being banned. Such moves will do much to ameliorate a long-term pension and retiree health-benefit funding gap that The Pew Center on the States puts at $1.26 trillion.

At the same time, some states, including New York, are trying to cap and slow property-tax hikes. And while such governors as Walker, Christie and Scott are putting the axe to spending, they're also cutting taxes on corporations and the wealthy, with the aim of boosting employment and investment. Wisconsin even scaled back its earned-income tax credit for 152,000 working families ($518 for a family of five), to partially defray the cost of tax cuts for big earners. Trickle-up economics is in vogue in these states.

The process has been messy and, sometimes, noisy; witness the union demonstrations at the capitol building in Madison, Wis., in February. Yet the municipal-bond market has rallied sharply since late last year, when banking seer Meredith Whitney set off a panic by predicting that there would be as many as 100 major muni-bond defaults in calendar year 2011, totaling $100 billion or more, because of state and local financial problems. Through Aug. 12, a recent Bank of America Merrill Lynch report notes that defaults have been modest this year, at $757.8 million, or just 0.026% of total outstanding municipal debt. And most of the troubled issuers have been small ones that depend on revenue from special-assessment districts, housing developments and hospital complexes, not general tax revenues.

To Howard Cure, director of municipal research at Evercore Wealth Management in New York, it's "inconceivable" that any state will default on its general-obligation debt. According to Cure, the only risk that investors run in state debt, beyond the risk that could arise if interest rates jump, would come from credit downgrades or a change in market perceptions of a state's financial prospects, which could quickly push down prices of existing state bonds.

To help investors, the tables Barron's has compiled show how all 50 states rank, based on seven key financial and economic variables. The data were compiled by Janney Capital Markets and Evercore. The states are sorted by their Standard &Poor's credit ratings to make comparisons easier.

Our first statistic shows the amount of federal spending each state receives as a percentage of the state's gross domestic product. The source can be: defense or nondefense work; procurement contracts; grants; and salaries and wages paid to state residents by Uncle Sam. This reading is particularly timely, in that federal outlays face cuts for years to come, due to growing budget-deficit stringency.


Here, a couple of triple-A names -- Virginia and Maryland -- stick out. Federal spending accounts for 29.8% of Virginia's economy and 28.5% of Maryland's, far above the 19.7% that's the average in the U.S. Just think of all the federal employees who live in Arlington or Bethesda but work in Washington, or of the hordes who labor in the vast office parks outside the Beltway, filled with government consultants and federal contractors. The credit-rating firm Moody's has both states on "negative outlook" in the wake of the national-debt anxiety.

Medicaid as a percentage of total state spending is another key indicator. Nationally, the program, which provides health care for the poor, accounts for 21% of all state spending -- and will loom much larger if the Obama health reforms are upheld by the courts and fold in millions of currently uninsured into Medicaid, for which the federal government picks up about half the tab. Already, however, like Pac-Man, the program has ferociously eaten away at state financial resources due tomedical-cost inflation and rising enrollment.

Here, comparisons are difficult, because some states, like California (22%) and Illinois (33%), offer a far more extensive range of services than, say, Texas (8%). The Lone Star state also benefits because some members of its large Hispanic population are reluctant to sign up for government programs due to citizenship issues.

States with large urban underclasses also tend to have higher Medicaid rolls. That has swelled their spending -- New York's by 28%, Pennsylvania's by 28% and, of course, Illinois' (above). Not surprisingly, to curb the rise in Medicaid costs, states like New York are considering moving away from their current fee-for-service payment systems to managed care.

Tax-collection growth is where the rubber meets the road for most states. Many of the stars in this respect are benefiting from rising prices for oil, food and minerals. North Dakota had a 46% jump in first-quarter fiscal 2011 collections, boosted by exploitation of the gas- and oil-rich Bakken shale shelf. Alaska, with its tax take up by 16.7%, likewise benefited from higher oil prices.

Even some Rust Belt states -- Michigan (up 20.9%) and Ohio (up 22%) were helped, in part, by improved manufacturing. But, tax increases were the biggest factor in the improved revenue numbers. Illinois (up 13.7%) raised personal income and corporate levies at the beginning of calendar-year 2011. California, on the other hand, saw a package of emergency tax increases expire at the end of fiscal 2010, and thus realized a paltry 5.7% rise in tax receipts in fiscal 2011's first quarter, and there's little reason to believe that the situation has improved. So the no-longer-so-Golden State could face additional budget shortfalls in the current fiscal year.


Overall, however, tax-supported state debt as a percentage of state gross national product has hardly reached alarming levels. Even states like Connecticut and Hawaii, whose debt exceeds 10% of their gross domestic products, aren't basket cases. Both centralize more functions that local governments do elsewhere, so the figures are a bit deceiving.

The same doesn't hold true for the chronic underfunding problems of state public-employee pension plans. The public-employee pension funding gap accounts for around $660 billion of the aforementioned $1.26 trillion retiree-benefits shortfall tabulated by Pew. And unlike retiree health care, pension benefits are harder to fix.

Particularly shaky are states like Illinois, with only 51% of its pension obligations funded, and California, with 81%. Their dysfunctional state governments, allied with public-employee unions, are seemingly incapable of making needed reforms. Several times in recent years, Illinois has floated bond issues to make its pension contributions, only to find that it paid more in interest on them than it made on its investments.

The last two factors in our tables are the percentage of mortgages in foreclosure or seriously delinquent -- meaning 90 days in arrears -- as of fiscal 2011's first quarter, and the state's unemployment rate.

Florida, Nevada, Arizona and California still have big mortgage problems, stemming from the faux housing boom of the George W. Bush years. That encouraged local governments to wildly expand, using soaring property-tax revenue, and individuals to spend more, by taking out home-equity loans. When the boom ended, the spending did, too, and joblessness soared. Based on June numbers, the states with the worst jobless rates were Florida (10.6%), and Michigan and South Carolina (both 10.5%).

In sum, our tables should provide some clues for muni-bond investors puzzling out where to invest. But the most important factor isn't listed -- a state's willingness to embrace structural change. In that regard, Illinois and California bring up the rear.

.E-mail: editors@barrons.com

Copyright 2011 Dow Jones & Company, Inc. All Rights Reserved

States in Trouble (Daily Beast)

50 States in Debt

#1, Rhode Island
Debt 2009: $9.2 billion
Projected 2012 Budget Shortfall: $290 million
GDP 2009: $47.8 billion
Debt/GDP Ratio: 19.19%
Unfunded Pension Liabilities: $4.4 billion (39%)
Unfunded Health Care & Other Liabilities: $788 million (100%)

On the chopping block: Rhode Island’s judges and court workers are trudging along despite a lack of funds cutting paid work days per week and 53 positions that remain unfilled. “This is not a time for expensive initiatives and hefty new capital projects. It is a time to do the very best with the limited resources we have,” said Chief Justice Paul A. Suttell. The states court system has responded to budget shortfalls in part by disposing of cases on backlog.

#4, Illinois


Debt 2009: $57.0 billion
Projected 2012 Budget Shortfall: $15.0 billion
GDP 2009: $630.4 billion
Debt/GDP Ratio: 9.04%
Unfunded Pension Liabilities: $54.4 billion (46%)
Unfunded Health Care & Other Liabilities: $39.9 billion (100%)

On the chopping block: The state's mental-health services will lose $91 million in funding during the next fiscal year as a result of Illinois' extreme budget gap. Illinois Human Services chief Michelle Saddler has expressed her worry over the effect of the large cut, saying, "I'm concerned that we will see a real public-health crisis and real public-safety crisis with these cuts."




#6, New Jersey


Debt 2009: $56.9 billion
Projected 2012 Budget Shortfall: $10.5 billion
GDP 2009: $483 billion
Debt/GDP Ratio: 11.78%
Unfunded Pension Liabilities: $34.4 billion (27%)
Unfunded Health Care & Other Liabilities: $69 billion (100%)

On the chopping block: One of the biggest losers will likely be school districts, which are slated to have their funding decreased by $820 million. With $268 million coming in federal aid, 4,000 teachers may be able to keep their jobs. “Public opinion may well shift a bit when school is back in session, once parents start seeing the effects,” said Ben Dworkin of the Rebovich Institute for New Jersey Politics.

#23, New York


Debt 2009: $122.7 billion
Projected 2012 Budget Shortfall: $9.0 billion
GDP 2009: $1.1 trillion
Debt/GDP Ratio: 11.22%
Unfunded Pension Liabilities: $0
Unfunded Health Care & Other Liabilities: $56.3 billion (100%)

On the chopping block: With the threat of a shut down in Albany and the state’s finances verging on desperate, the state legislature finally passed a budget in early August. The state's public schools may also be nearing desperation, as the cuts proposed by Governor David Paterson include chopping $1.1 billion for state aid to schools.




#28, Nevada


Debt 2009: $4.4 billion
Projected 2012 Budget Shortfall: $1.5 billion
GDP 2009: $126.5 billion
Debt/GDP Ratio: 3.51%
Unfunded Pension Liabilities: $7.3 billion (24%)
Unfunded Health Care & Other Liabilities: $2.2 billion (100%)

On the chopping block: The Governor Guinn Millenium Scholarship program, which provides up to $10,000 toward college tuition for high school seniors, lost $12.6 million in funding last year as Nevada legislators closed the state's budget gap for the current fiscal cycle.





#40, Virginia


Debt 2009: $24.3 billion
Projected 2012 Budget Shortfall*: $2.3 billion
GDP 2009: $408.4 billion
Debt/GDP Ratio: 5.95%
Unfunded Pension Liabilities: $10.7 billion (16%)
Unfunded Health Care & Other Liabilities: $2.6 billion (66%)

On the chopping block: Health Care. New federal money will soften the blow of the loss of health coverage for low income Virginians, but the $293 million the state received is still $100 million less than lawmakers were banking on.

*Virginia operates with a 2-year budget.



#41, Florida

Debt 2009: $38.9 billion
Projected 2012 Budget Shortfall: $3.6 billion
GDP 2009: $737.0 billion
Debt/GDP Ratio: 5.28%
Unfunded Pension Liabilities: -$1.8 billion (-1%)
Unfunded Health Care & Other Liabilities: $3.1 billion (100%)

On the chopping block: The judicial system. Staff have been relieved, basic maintenance has been cut, programs for drug offenders have been reduced, and one Tampa courthouse is infested with vermin. All that hasn’t stopped the 1st District Court of Appeal in Tallahassee which is building a $48 million courthouse complete with 60-inch LCD flat screens for each judge.





#48, Texas


Debt 2009: $30.4 billion
Projected 2012 Budget Shortfall: $13.4 billion
GDP 2009: $1.1 trillion
Debt/GDP Ratio: 2.66%
Unfunded Pension Liabilities: $13.8 billion (9%)
Unfunded Health Care & Other Liabilities: $28.6 billion (98%)

On the chopping block: Texas has one of the better debt-to-gdp ratios at the moment, but its legislature is still having trouble coming up with the cash for the next two years of operating expenses. That could mean unpaid furloughs, salary freezes and four-day work weeks for state employees. "There's not any fat left," said Andy Homer of the Texas Public Employees Association. "This is cutting to the bone."



#50, Nebraska


Debt 2009: $2.5 billion
Projected 2012 Budget Shortfall: $314 million
GDP 2009: $86.4 billion
Debt/GDP Ratio: 2.91%
Unfunded Pension Liabilities: $755 million (8%)
Unfunded Health Care & Other Liabilities: n/a

On the chopping block: Students are going to have to pony up more money for tuition at all University of Nebraska campuses, according to a budget proposal released by president J.B. Milliken. With less money coming from the state, "I'm concerned about the investment in education," Milliken said.

What is going on with municipal bonds? The End of BABs (Build America Bonds) (from WSJ)

Muni Bonds Continue to Tumble
A Rush to Sell Build America Bonds Before They Are Gone.

By Romy Varghese and Kelly Nolan
Of DOW JONES NEWSWIRES

Prices of municipal bonds fell sharply for the second day Tuesday, driving yields on long-term bonds to the highest points in more than 18 months, as investors worried about the impact of the end of a federally subsidized borrowing program.

The yield on a closely watched index of high-grade, tax-exempt 30-year muni bonds rose to 4.84%, its highest level since March 2009, according to Thomson Reuters Municipal Market Data. The yield on 10-year bonds climbed to 3.24%, the highest since June 2009. Yields move inversely to prices.

.The market took a hit Monday as well, as the expiration of the Build America Bond program by the end of the year looked increasingly likely.

An extension of the program, which provides a 35% interest-rate subsidy from the federal government on taxable bonds issued by municipalities, on Monday wasn't included in legislation introduced in the U.S. Senate that continues Bush-era tax cuts.

Since the government started the BAB program in April 2009 as part of its economic stimulus, more than $165 billion of these bonds have been sold, accounting for about 22% of all new municipal debt, according to data from the U.S. Treasury Department.

Many municipal-bond market participants expect that, without BABs, state and local governments will issue more tax-exempt bonds next year and may overwhelm investor demand for that debt. This would force states and cities to raise their rates to attract buyers.

About $100 billion in long-term tax-exempt bonds would return to the market next year, estimated Robert Nelson, managing analyst at Municipal Market Data.

"With the loss of leveraged buyers of municipal bonds in 2008, there has been a dearth of demand for long maturity munis--this is where BABs came in and diverted this issuance to the taxable market," Nelson said. "Now without BABs the market is left to deal with the same supply/demand imbalance that plagued munis in 2008 and early 2009."

He added that long-term yields have generally returned to the same level seen at the outset of the Build America Bond program last year.

States with some of the lowest credit ratings have been especially battered by the recent muni-market turmoil.

The spreads on Illinois 10-year maturity general obligation bonds grew from 1.60 to 1.90 percentage points from Nov. 1 through Monday above a benchmark triple-A bond with the same maturity, according to Municipal Market Data.

Spreads on California general obligation bonds increased from 0.97 to 1.30 percentage points over the same time frame.

Meanwhile, municipal borrowers are plowing into the market with BAB deals in the last few market days of the year.

"We are hitting the market as quickly as we can because it's only going to get worse," said Harold Downs, treasurer of the Metropolitan Water Reclamation District of Greater Chicago.

Because of the market conditions, the water district is shrinking the size of its bond sale this week from $500 million to $280 million, he said. Most of the offering is BABs.

The Metropolitan Water District of Southern California is planning to sell $250 million in BABs this week, moving up part of a $450 million deal it had originally scheduled for the spring, said Brian Thomas, the water district's assistant general manager and chief financial officer.

"I think the market is still favorable if you look back over the last 10 years, but if you look compared to a month ago, it's a much more difficult market," Mr. Thomas said.

Higher yields may ultimately help stabilize the market by attracting buyers, said Dan Solender, director of municipal bond management at investment firm Lord Abbett in Jersey City.

And amid the volatility, some analysts are encouraging investors to buy municipal bonds from creditworthy issuers. Munis are now offering higher yields than U.S. Treasurys of comparable duration, which is the inverse of the usual relationship, noted Dan Loughran, senior portfolio manager at OppenheimerFunds. "Prices in the municipal bond market may continue to be volatile in the near term, but we believe relief is likely waiting in the wings once the New Year gets underway," he wrote in a report.

—Jeannette Neumann contributed to this article.
-By Romy Varghese, Dow Jones Newswires; 215-656-8263; romy.varghese@dowjones.com

Downgrade: Miami Municipal Bonds (Miami Herald)

Posted on Thu, Jun. 17, 2010
Standard & Poor's downgrades Miami bond rating by two notches
BY PATRICIA MAZZEI
pmazzei@MiamiHerald.com

A key agency has downgraded cash-strapped Miami's bond credit rating, a shift that will leave the public footing a higher bill for big-ticket projects, including parking garages for the new Marlins ballpark.
Standard & Poor's Ratings Services dropped two of the city's critical bond credit ratings by two notches, making it more expensive for Miami to borrow money at a time the city is scrambling to keep its budget afloat.
``That will have a significant impact on the cost of projects,'' said Tom Tew, a Miami securities attorney who has represented the city in the past. ``This is just another straw on the camel's back.''

Standard & Poor's lowered the rating for general obligation bonds -- usually backed by property taxes -- from A+ to A-, and the rating for bonds backed by other revenues from A to BBB+. The rating agency cited the city's climbing employee pension costs and unwillingness to raise taxes as reasons for its negative credit outlook.

``They have skepticism of the ability of the city to reduce expenses,'' City Manager Carlos Migoya said Thursday.

``I feel very confident that we'll be able to do that,'' he added -- possibly through employee union negotiations or layoffs.

The most immediate fallout: Funding for the city to build surface parking lots and four garages at the Marlins' new home in Little Havana.

Miami plans to float $104 million in bonds next month to finance the garages. Because of the lower bond rating, it will cost the city $15 million more to pay off those bonds over the next 30 years, the city manager estimated.

Migoya said that is about $15 million less than the garages would have cost over three decades if the city were building during boom times with higher construction prices.

The bonds will be paid off with money from a variety of sources, including a convention development tax generated by hotel sales and the average $10 the Marlins will pay the city to buy almost all of the parking spaces.

The manager said the credit downgrade should not delay construction. Work began this month after the city borrowed $3 million from a capital fund and received a $20 million bridge loan. The Marlins hope to begin play at the new ballpark on Opening Day in April 2012.

The rating downgrade is the latest dark financial cloud over the city.

Two months ago, another agency, Moody's Investors Service, shifted the city's credit outlook from a stable to a negative position, an indication that Miami's bond rating was poised to take a hit.

Miami leaders have had to raid the city's reserves to plug budget holes, including using $54 million from the rainy-day fund earlier this year to balance the 2009 budget.

The U.S. Securities and Exchange Commission continues to scrutinize whether the city hid its financial troubles from investors over the past three years, a review with potentially far-reaching budget implications.

Last week, city leaders discussed a controversial doomsday scenario: laying off more than 1,100 employees to fill a $100 million budget hole. Commissioners have sounded wary of raising taxes to cover the shortfall.

Against this backdrop, credit agencies are under pressure across the country to redo municipal bond ratings as home sales and property taxes -- local governments' main source of revenue -- tumble in the slumping economy.

Standard & Poor's noted Miami's historical difficulty with cutting expenses, and said cutbacks probably would not be enough without structural changes to labor contracts.

``The city's financial flexibility has been greatly reduced by growing fixed costs and limited tax-raising flexibility and willingness,'' the agency's report said, adding that the absence of ``considerable expenditure reductions could lead to further credit deterioration.''


Read more: http://www.miamiherald.com/2010/06/17/v-print/1687104/standard-poors-downgrades-miami.html#ixzz0rGPlYEtM

Which States are in the Worst Shape (FDIC)

FDIC State Profiles are a quarterly data sheet summation of banking and economic conditions in each state.

http://www.fdic.gov/bank/analytical/stateprofile/index.html

States in Trouble: Pension Obligations and Credit Ratings (Barrons)

Barron's Cover | MONDAY, MARCH 15, 2010
The $2 Trillion Hole
By JONATHAN R. LAING | MORE ARTICLES BY AUTHOR

Promised pensions benefits for public-sector employees represent a massive overhang that threatens the financial future of many cities and states.

Your State Tax: Municipal Bond Interest (The Bond Buyer)

Florida Dirt Bonds Default (Daily Business Review, Bloomberg)

"Florida community development district bonds defaulting faster than any U.S. tax-exempt debt"

Daily Business Review: News Item

Posted using ShareThis

Which States are in the Most Financial Trouble (CNN)

10 states face financial peril

Dropping tax revenue, rising unemployment and yawning budget gaps are wreaking havoc in states from Arizona to Wisconsin, a new report shows.

By Tami Luhby, CNNMoney.com senior writer
Last Updated: November 11, 2009: 3:42 PM ET

NEW YORK (CNNMoney.com) -- The same economic pressures that pushed California to the brink of insolvency are wreaking havoc on other states, a new report has found.

And how state officials deal with their fiscal problems could reverberate across the United States, according to the Pew Center on the States' analysis released Wednesday.

The 10 most troubled states are: Arizona, California, Florida, Illinois, Michigan, Nevada, New Jersey, Oregon, Rhode Island and Wisconsin.

Other states -- including Colorado, Georgia, Kentucky, New York and Hawaii -- were not far behind.

The list is based on several factors, including the loss of state revenue, size of budget gaps, unemployment and foreclosure rates, poor money management practices, and state laws governing the passage of budgets.

These troubles have forced these states -- as well as many others -- to raise taxes, lay off or furlough state workers and slash services. These actions can slow down the nation's recovery, especially since these 10 states account for one-third of the country's population and economic output.

"Decisions these states make as they try to navigate the recession will play a role in how quickly the entire nation recovers," said Susan Urahn, managing director of Pew Center on the States.

In a separate study released Wednesday, the Center on Budget and Policy Priorities found that states will likely have to make steep cuts in their fiscal 2011 budgets, which start next July 1 in most states. That's because the critical federal stimulus dollars will run out by the end of 2010.

These cuts could take nearly a percentage point off the national gross domestic product and cost the nation 900,000 jobs, the study found.

10 troubled states
Here's a summary of what Pew found is plaguing each of the states:

California: The Golden State's housing collapse -- and resulting unemployment surge -- has plagued the state's economy. The weakening economy prompted revenue to fall by nearly a sixth between the first quarters of 2008 and 2009. State lawmakers have limited ability to deal with California's massive budget gap due to several voter-imposed restrictions, including requirements that all budgets and tax increases pass the legislature by a two-thirds majority.

Arizona: The state depends heavily on a growing economy to bring in tax revenue, and lawmakers don't have a lot of leeway to address budget deficits thanks to voter-imposed spending constraints. Lawmakers relied on one-time fixes to balance its budget instead of making long-term changes.

Rhode Island: The Ocean State has among the highest unemployment rates in the nation and among the highest foreclosure rates in New England. High tax rates, big budget deficits and a lack of high tech jobs are hurting its chances to pull out of the doldrums. State government has a poor record of managing its finances

Michigan: The state never climbed out of the recession that started in 2001, and matters only became worse during the Great Recession. Two of the Big Three Detroit-based automakers went bankrupt in 2009, sending shockwaves through a state on track to lose a quarter of its jobs this decade. The recession accelerated drops in state revenue, and has left Michigan's government trying to deal with today's problems on a 1960s-sized budget.

Nevada: Nevada is one of the recession's big losers as its gaming-based economy suffered. Year-over-year revenue has fallen for two consecutive years, a record. But changing tax laws is tough because some are written into the state constitution.

Oregon: Oregon's leading industries, such as timber and computer-chip manufacturing, have been hit hard in the recession. Lawmakers have approved more than $1 billion in new taxes to keep it afloat. But voters in January will have the final say on another $733 million in new income taxes.

Florida: For the first time since World War II, Florida's population is shrinking -- bad news for an budget built on new residents flocking to the Sunshine State. Lawmakers raised $2 billion in new revenue this year, but could face a similar shortfall next year.

New Jersey: The Garden State, which has been plagued by years of fiscal mismanagement, spends more than it collects in revenue. The collapse of Wall Street, which supports about one-third of New Jersey's economy, has only made matters worse.

Illinois: Since the last recession earlier this decade, the state piled up huge backlogs of Medicaid bills and borrowed money to pay its pension obligations. The state's current budget still relies heavily on borrowing and paying bills late.

Wisconsin: Wisconsin has a long history of budget shortfalls. It also borrows frequently to cover operating expenses, among other measures. Unemployment is climbing as manufacturing, the state's largest sector, sputters.

More stimulus needed
The Center on Budget and Policy Priorities, a liberal research group, says the states need additional federal fiscal relief to avoid budget cuts that will hurt both the economy and people. State and local spending accounts for about one-eighth of the GDP.

Already, less than five months into fiscal 2010, several states are looking at additional budget cuts. Rhode Island announced Tuesday it is facing a revenue shortfall for the current fiscal year of $130.5 million. Gov. Donald Carcieri said the state must examine its aid to local governments, since it has already cut personnel and social service programs.

And in California, Gov. Arnold Schwarzenegger said Tuesday that his state is facing a budget gap of up to $7 billion. The state will likely announce across-the-board spending cuts in January.

"So we just have to hang in there, tighten our belts and live within our means," he said.

The center would like to see the federal government allocate another $50 billion, while economist Mark Zandi said about half of that would be needed. Congress should pass the additional aid now since states are currently crafting their fiscal 2011 budgets.

States received billions of dollars in funding from the Obama administration's $787 billion stimulus package, including $87 billion for Medicaid and $48.3 billion for maintaining education and other key services.

The stimulus funds plugged about 30% to 40% of the budget gaps states were facing, and created or saved more than 300,000 jobs, said Iris Lav, the center's senior adviser.

But the economic downturn is greater than administration officials expected when the Recovery Act was passed in February, Lav said. That's why more assistance is needed now.

Budget projections show that states could face deficits as large as $260 billion in 2011 and 2012 after stimulus funding is exhausted. State economies usually take up to two years longer to recover after the nation's fiscal health begins to improve.

New budget cuts and tax increases "will be a serious drag on the economy at just the wrong time," said Mark Zandi, chief economist at Moody's Economy.com.Without assistance, the economy could slide back into a recession, he said.

First Published: November 11, 2009: 1:00 PM ET







Find this article at:
http://money.cnn.com/2009/11/11/news/economy/states_economies

Demand for Build America Bonds (WSJ)

Investors Push to Extend BABs By ANDREW EDWARDS

The Build America Bond program isn't set to expire until the end of 2010, but portfolio managers and other investors in this new class of taxable municipal securities already are arguing to extend it. The reason: The bonds, known as BABs, have done their job. They have helped states, cities and other local government entities tap new capital markets and lower financing costs.

The credit crisis obliterated much of the demand for municipal debt. Money-market funds lost their appetite for variable-rate bonds, and funds that had borrowed heavily to invest in munis disappeared almost entirely.

Municipalities were forced to delay issuing new debt, or to offer unheard-of rates to attract enough individual investors to fund projects. BABs were meant to change that, and they did: New investors have come to the table and tens of billions of dollars in BABs have been issued.

"BABs are a much better foundation for the muni market," said Peter Coffin, president of Breckinridge Capital Advisors, which has $11 billion in municipal bonds under management. "It's a deeper source of demand."

The question is whether they are worth the long-term cost.

The most popular form of BABs pay higher interest rates than tax-exempt muni bonds and recoup 35% of the interest charge from the federal government. So, if a public university sells BABs with an interest rate of 5%, the university ends up paying only 3.25%, with Uncle Sam's subsidy effectively picking up the difference.

This makes BABs attractive to municipalities, which end up with an actual cost of capital even lower than on traditional tax-free muni bonds. The triple-A rated Virginia College Building Authority recently issued tax-free bonds due in 2027 at a par yield of 4.25%, said Ben Landers, head of taxable municipal-bond sales and trading at investment bank Morgan Keegan in Memphis, Tenn. Similar Virginia transportation BABs yield 5.72%, he said, but the actual cost to the state is 3.71%.

"If you're building something it makes sense to go BABs," Mr. Landers said.

However, that subsidy adds up. Assume that BABs yield an average of 5.95%, the average yield on Wells Fargo & Co.'s BAB index at the beginning of November, and that $48.3 billion of BABs have been issued this year. That means, year to date, the federal government has been put on the hook for $1 billion in yearly interest payments, a number that is only going to increase.

Advocates of BABs said that much of that figure is likely to come back in the form of federal taxes. They said these bonds potentially could end up costing the government less than the tax-free alternative if, and it is a big if, the taxable securities don't end up largely overseas or in the hands of nonprofit groups, pension funds and other institutions that aren't taxable to begin with.

Right now, those institutions shun lower-yielding munis because they don't benefit from the tax exemption on interest. They also are the major source of new demand for BABs.

"We really don't have a group of investor that can't buy BABs," Mr. Landers said. "For tax-free bonds, it's a very finite group of people."

BAB supporters argue that it is a more-efficient subsidy. The increased demand eventually will drive down yields, and the savings will be passed on to taxpayers. This is in contrast to the tax-free bonds, where the full benefits, they said, were never priced in.

Public advocates worry that the increased ease in raising capital could be an invitation to spend the easy money less wisely.

"It's an awful lot of money that's being put into the market without more transparency," said Michael Lakosky, at New York University's Institute for Public Knowledge.

Write to Andrew Edwards at andrew.edwards@dowjones.com

Do Tax-Free Bonds Make Sense for You ? Depends on Income (from investinginbonds.com)

TAXABLE EQUIVALENT YIELD FOR MUNICIPAL BONDS 2009 FEDERAL TAX BRACKETS

Municipal Bond Default ( Bloomberg )

Subprime Finds New Victim as Muni Defaults Triple: Joe Mysak


Commentary by Joe Mysak



May 30 (Bloomberg) -- The amount of municipal bonds that have defaulted this year is already more than triple what it was for all of 2007.

And who could doubt there's more bad news on the way?

So far this year, $736 million in municipal bonds have defaulted. That doesn't necessarily mean they didn't pay investors; they may have just drawn down reserves. That's what happens just before they stop making payments to bondholders.

During all of 2007, only $226 million in municipal bonds defaulted, according to the May edition of the ``Distressed Debt Securities'' newsletter, published in Miami Lakes, Florida.

That $736 million is nowhere near the record for municipal bond defaults, to be sure. The record year, if you're counting, was 1991, when almost $5 billion went bust. That's still small potatoes compared with what happens over in the corporate-bond market, where $36.6 billion blew up in 2006, and almost $24 billion in 2007.

But wait a minute: Municipal bonds never default, do they? Or at least this is how they are perceived by individual investors, right?

We're probably going to see a lot more munis default this year and in the years to come, because of the subprime crisis and maybe, just maybe, because of the high price of a barrel of oil.

New Residents

The hangover from the collapse in real-estate prices is going to be a boom in so-called dirt-bond defaults.

These are bonds sold by municipalities to build the infrastructure for housing developments, and are backed by the taxes paid by all the new residents who are going to move in. If no residents move in, or too few do, the bonds aren't repaid.

Of the 30 bond issues that have defaulted so far this year, more than half are from issuers in two of the states that have figured prominently in all tales of the housing bust: 10 in Florida and seven in California.

Consider the $50 million in special assessment bonds sold by the Monterra Community Development District in Broward County, Florida, for example. On May 7, the district disclosed that it had tapped its $1,279,200 reserve fund for $1,211,727.11.

You can just stop right there and know that this story is bound to be a sad one.

These particular bonds were sold by the district in 2006 in a limited offering. The bonds were unrated, and sold in minimum denominations of $100,000. The bonds carried a 5.125 percent coupon due in 2014, and were priced to yield 5.198 percent.

Remember Colorado
The Monterra development is located in Cooper City, which is about 20 miles north of Miami and has a population of almost 30,000. Of the 10 Florida bonds that defaulted this year, all were sold by community development districts, and all within the last four years.

The big jump we are going to see in the number of such municipal bond defaults this year won't be limited to Florida and California, but will include all those places where the high tide of real-estate mania has now receded.

This isn't an uncommon phenomenon after housing busts. In the past, the damage was usually confined to certain states where the boom was craziest, such as Colorado in the 1980s.

More bondholders are going to be affected this time around because the housing collapse is more national rather than regional or isolated, and because of the relatively recent development of so many ``exurbs,'' as chronicled, for example, by New York Times columnist David Brooks in his 2004 book, ``On Paradise Drive.''

Three-Hour Commutes

These are the suburbs beyond the suburbs, where Americans have moved to enjoy the good life, commute (usually) be damned. Not too long ago, the newspapers seemed to be filled with stories about people who gladly commuted two and even three hours each way for affordable real estate. Most people knew actual examples of such hearty souls. I wonder how much gasoline at $4-plus a gallon will dent the growth, and tax base, of such communities.

It's not just the price of gasoline that is going to make the nation's many far-flung communities less attractive. On May 28, Bloomberg carried a story detailing how the increase in the price of jet fuel was causing airlines to curtail service throughout the country.

Maybe we'll have to reconsider this whole flight-from-the- coasts idea that got such attention a few years ago.

(Joe Mysak is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: Joe Mysak in New York at jmysakjr@bloomberg.net

Last Updated: May 30, 2008 00:01 EDT

Slow & Steady Starting to Look Good - Municipal Bonds (from NY Times)

May 21, 2009
More Investors, Chastened by Stock Losses, Settle for Municipal Bonds
By PAUL SULLIVAN
THE historic lure of most municipal bonds has been their tax-free returns. But the recession and the rash of corporate troubles have widened their appeal to investors wary of the stock market who want to settle for a steady if unspectacular return.

Municipal bonds are still the terrain of high earners, who like their safety and higher tax-adjusted return than Treasury bonds. But increasingly average retail investors have been buying them to fill out their bond allocations. “Our average account has increased their asset allocation in fixed income to 52 percent and most of that is in munis,” said Robert Everett, director of fixed income at the Boston Private Bank and Trust Company. He said that was an increase of 15 percentage points from last year.

Even though the major stock markets have risen in the last month, uncertainty about the rally abounds. Suddenly, the return on a municipal bond of 6 to 7 percent, including the tax exemption, seems great.

The other draw has been safety. Historically, the default rate on investment-grade munis is less than a quarter of a percent, compared with almost 2 percent for corporate bonds. And the difference in yield between United States Treasuries and munis has recently been as much as 2.5 percent.

Given the pressure on city and state coffers, the default rate is likely to rise closer to 1 percent. But that is far lower than the yields on munis suggests, said George Strickland, a managing director at Thornburg Investment Management of Santa Fe, N.M. “The market thinks 20 percent of investment grade issuers will default in the next 10 years,” he said. “The major muni issuers are doing well.”

Being selective with munis is key. The first risk investors need to understand is the difference between general obligation and revenue bonds. General obligation bonds are sold to finance the daily operations of a municipality. Legally, that entity is obligated to do whatever it needs — from cutting services to raising taxes — to make its bond payments.

A revenue bond is sold to finance particular projects like hospitals, utilities and stadiums. The receipts from such projects are used to make the bond payments, and many investors have started to wonder how these will hold up.
“Stay away from revenue bonds, backed by projects like a parking lot at a university,” warned Gregg S. Fisher, chief investment officer of Gerstein Fisher, an investment advisory firm in New York. “If cars stop showing up, then you could have trouble getting your money.”

Hospital bonds also need to be evaluated carefully. “Community hospitals with A and BBB ratings are feeling the pinch because people without insurance go to them and can’t pay,” said Ronald J. Sanchez, director of fixed income strategies at Fiduciary Trust, a unit of Franklin Templeton Investments. “You need to avoid certain segments with greater risk.”

This points to another issue: liquidity. Roughly $360 billion of new bonds are sold annually. New York and California are the benchmark issuers and their bonds are traded often. But there are scores of municipalities that sell bonds that buyers may have to hold for their duration because of illiquid markets.

Munis are traded in an over-the-counter fashion, which means finding a price quote, let alone a buyer, can be difficult at times. Although small investors make up a good part of this market, the Securities and Exchange Commission has no role in its regulation.

But for those aware of the risk, there are investing opportunities. During the first quarter, few municipalities sold bonds because they were waiting to see what the stimulus plan would bring them. Now, cities and states are making up for lost time.

Several portfolio managers advise that shorter-dated munis are safer. “The longer the duration the more volatility,” said Mr. Strickland, who likes the two- to three-year range.

Diversification is also being pushed for munis. Historically investors have concentrated on bonds from their state to get the full tax deduction. But owning bonds from other states could give them a greater return, as in the case of California, where a fiscal crisis has pushed up yields.

The recession has brought about new securities, known as Build America Bonds, to help ailing municipalities raise money. They allow municipalities to sell taxable bonds for capital projects while receiving a rebate from the federal government for a portion of their borrowing costs. The program is meant to attract institutional investors who typically do not buy munis. But they could also suit a retail investor who wants to put them in a taxable retirement account.

Highest Yield (from Kiplinger Magazine)

Where to Find Top Yields
From safe municipal bonds to risky closed-end bond funds, just about everything is on sale.

By Jeffrey R. Kosnett

From Kiplinger's Personal Finance magazine, June 2009

It's been an excruciating year for income hogs, their favorite investments obliterated by the recession and the credit crunch. Since September, high-yielding standbys such as real estate investment trusts, master limited partnerships, business-development companies, and oil-and-gas royalty trusts have lost 50% or more. Junk bonds and emerging-markets debt have improved of late, but they've still sustained double-digit losses.
From calamity, however, springs opportunity. Many income securities are now tantalizingly cheap. Moreover, issuers of high-yielding stocks and bonds are sure to benefit from reflation -- the stimulation of global economies through massive government spending and rock-bottom interest rates. Reflation, which implies higher inflation, will hurt low-yielding Treasury bonds, but it should boost the profits of energy producers, real estate operators and highly leveraged companies that need to raise prices to prosper.


The bear market in most income investments has resulted in lower cash payouts, too. With virtually all segments of the real estate sector suffering, dozens of REITs have cut their distributions, and many are paying dividends mainly in stock. Energy trusts have trimmed their disbursements because of low prices for oil, natural gas and other products. Led by financials, hundreds of companies have cut or suspended dividends on their common stock this year.

Credit-market chaos wreaked havoc with the recommendations in our previous "yieldfest" (see Earn 8% or More, July 2008). Our best picks, emerging-markets bond funds such as Fidelity New Markets Income and Pimco Emerging Markets Bond, dropped about 10% over the past year through April 9. Pipeline stocks, such as Kinder Morgan Energy, also held up reasonably well. But we had our share of disasters. For example, First Industrial Realty Trust cratered by nearly 90%, while Genco Shipping & Trading dived 73%.

As the economy begins to improve, the rest of this year and 2010 will be much more rewarding for income seekers. From the safest to the riskiest, we offer our best bets for big cash returns over the coming year (of course, you should keep money that you'll need soon in supersafe instruments, such as money-market funds and bank accounts).

Municipal bonds
The recession is putting pressure on state and local coffers, so why feel good about the prospects for municipal debt? Munis, which rarely default, are yielding far more than comparable Treasury securities. This state of affairs is an anomaly because interest from munis is generally free of federal income taxes. And because munis offer such generous yields, they should hold up far better than Treasuries when the economy and inflation pick up. Still, to be on the safe side, we recommend avoiding tax-free bonds with maturities greater than ten years. At ten years, you can still find 4% to 4.5%, tax-free. That's the equivalent of 6% or so from a taxable bond. Ten-year Treasuries, by contrast, yielded 2.9% in mid April.

Like most other sectors of the bond market, munis suffered last year, but confidence in them has improved. Despite California's budget disaster, the state sold $6.5 billion of general-obligation bonds in March, the third-largest muni issue ever. These A-rated bonds have already gained value. In mid April, a California GO maturing in 2019 with a coupon of 5.5% sold at $1,050 for each $1,000 of face value to yield 4.7% to maturity. For a Californian in the top income-tax bracket, that's like getting 8% from a taxable bond. And for the highest earners living elsewhere, it's the equivalent of 7.2% from a taxable bond.

Some discount brokers, such as Fidelity and Charles Schwab, offer scores of good-quality tax-exempt bonds supported by taxes or the revenues from water bills, highway tolls and the like. In mid April, a representative ten-year, double-A-rated, noncallable water-system bond, such as an Orlando utilities commission issue, yielded 4.8% to maturity. If you prefer a fund, Baird Intermediate Muni (symbol BMBSX) was the top medium-maturity muni fund in both 2007 and 2008. Other standouts include Fidelity Intermediate Municipal Income (FLTMX), a member of the Kiplinger 25, and Schwab Tax-Free (SWNTX).

Ironclad mortgages
Toxic mortgages are the match that lit the financial firestorm, but you can't blame government-guaranteed loans from the Veterans Administration or the Federal Housing Administration. The VA foreclosure rate is 1.7%, compared with 13.7% for adjustable-rate subprime loans.

The best way to own these loans is through a Ginnie Mae fund. Backed by the full faith and credit of the federal government, the Government National Mortgage Association guarantees packages of FHA and VA debt bundled together by private lending institutions. From the perspective of timely repayment of principal and interest, Ginnie Maes are just as safe as Treasuries but deliver significantly more yield. And although mortgage rates have fallen, many GNMA funds still own lots of older, higher-paying loans. For example, almost 40% of the loans in Vanguard GNMA (VFIIX) carry yields of more than 6%.

Vanguard's fund and other low-cost Ginnie Mae funds, such as Payden GNMA (PYGNX) and Fidelity Ginnie Mae (FGMNX), still yield about 5%. GNMA yields should decline by half a percentage point by the end of 2009 because lower mortgage rates encourage more borrowers to refinance. But these securities will generate higher cash flows after mortgage rates, like other long-term rates, start to turn up later this year.

Bank-loan funds
These funds hold slices of adjustable-rate loans and lines of credit that banks extend to companies with junk credit ratings of single-B or double-B. Adviser Mark Gleason, of Wescap Management Group, in Burbank, Cal., aptly calls a bank-loan fund "a hybrid between a junk-bond fund and a money-market fund." The bank funds currently yield 4.5% to 6%, which is far short of junk's double-digit yields. But their loans are safer because their terms are short, their interest rates float with changes in short-term rates, and they are ahead of bonds on the repayment pecking order should the borrower default. However, like stocks and junk bonds, bank loans gain value prior to or in the early stages of an economic recovery. Year-to-date through April 9, bank-loan funds returned an average of 11.1%, tops among bond-fund categories.

By contrast, in the three-month period that ended last November, the average bank-loan fund lost 29% as the credit crunch and selling by hedge funds slashed the value of bank debt. But defaults didn't get out of hand, so funds such as Fidelity Floating-Rate High Income (FFRHX) and the closed-end PIMCO Floating Rate Strategy (PFN) kept up decent monthly distributions even as their share prices dropped. These payouts are sliding because short-term interest rates are near zero, but bank-loan funds still offer better yields than short-term-bond funds. Gleason sees annual total returns of 9% to 11% through 2012.

Triple-B corporate bonds
This is the sweet spot in taxable bonds. In 2008, the gap between yields of a basket of triple-B-rated bonds and Treasuries exploded from two percentage points to six and a half. In mid April, the gap was almost five points, which is attractive when you consider that bonds rated triple-B are still considered investment-grade. Moreover, the category harbors a bunch of recession-hit companies that traditionally have carried single-A ratings. Today's triple-B roster includes Altria, Burlington Northern, Johnson Controls, Kraft Foods, Black & Decker, Sunoco and XTO Energy. All will thrive in better times.

For safety's sake, choose bonds from across several industries. Noncallable bonds are nice, but as rates rise, you won't see many redeemed early anyway. In mid April, an Altria bond maturing in 2018 and carrying a 9.7% interest coupon was priced to yield 8% to maturity. Bank and insurance bonds offer high yields because financial issuers are riskier than industrials, despite government efforts to keep them afloat without nationalizing them.

Pipelines
Energy prices will rise as industry expands and people drive more. So you can buy energy-income investments at sale prices and hold on for what should be higher future dividends. If you think oil prices will zoom or if you just want to hedge against inflation, buy BP Prudhoe Bay (BPT), a royalty trust that passes through cash from the sale of crude oil. BPT crashed last summer and has cut dividends two times since, but it's back to $68 from a low of $50, and it yields 6%.



If you don't want to gamble on energy prices, pipelines and storage facilities are the ticket. Their dividends depend on the amount, not the price, of the products that move through these systems. Energy Transfer Partners (ETP), Kinder Morgan Energy Partners (KMP) and Magellan Midstream Partners (MMP) all have long histories of delivering dividends reliably, and they currently yield from 8.8% to 9.2%. Because these firms are set up as master limited partnerships, they'll send you a Form K-1 at tax time, rather than a Form 1099, and that could mean extra work filling out your returns.

Preferred stocks
It wasn't just common stocks that went on a tear after bottoming on March 9. Preferred stocks, which act a lot more like bonds than stocks, also rallied strongly. From March 9 through April 9, iShares U.S. Preferred Stock Index (PFF), an exchange-traded fund, rocketed 66%, although it remains 45% below its 12-month high. Tom Taylor, of Thoma Capital Management, in Towson, Md., notes that a preferred stock from Bank of America (BAC.H) yields 14% to maturity in 2013 and cannot be called or exchanged. The stock surged from $5 to $15 between February 19 and April 9. But its face value is $25, so it can still go higher.

Preferreds, despite the reassuring name, are not risk-free. Issuers can cut or suspend preferred dividends, as a handful of REITs have done during the financial crisis. And if a company files for bankruptcy, bondholders take precedence over preferred investors. You can spread your risk with a fund that focuses on preferreds. John Hancock Preferred Income (HPI), a closed-end fund, owns far fewer financials than does the iShares ETF. At its April 9 close of $12, the fund traded at a 4% premium to its net asset value and yielded 15%. It would be better if the fund traded at a discount to NAV, but the modest premium is acceptable.

Junk corporate bonds
Let's face it: Recessions are not good for junk bonds and their issuers. Junk-rated companies are young, troubled, highly leveraged, or some combination of the three. So it's not surprising that they suffer when sales sink and questions about their ability to service their debt mount.

But the current recession has been less discriminating than most. Previous junk-bond routs involved "bad companies with bad balance sheets," says Mark Durbiano, a manager at Federated Investors who has seen the good, the bad and the ugly during a 25-year career investing in high-yield bonds. This time, he says, investors pummeled bonds of essentially good companies, such as First Data and SunGard, whose high debt loads earn them junk ratings. The average junk bond recently yielded 18%, a near-record 15 percentage points more than Treasury bonds.

But now, with signs that the economy is thawing and bargain hunters nibbling, things are starting to look up. The average junk-bond fund, which lost 26% last year, returned 6% in 2009 through April 9. The indexes -- but not the whole sector -- will take a temporary hit if General Motors, a huge junk-bond issuer, defaults. But the three primary junk ETFs -- SPDR Barclays Capital (JNK), iShares iBoxx $ High Yield (HYG) and PowerShares High Yield (PHB) -- hold few or no GM bonds (but plenty of health and technology issues). Each yields 10% or higher.

Wild closed-ends
We've saved our lottery tickets for last. Scott Leonard, of Trovena, an advisory firm in Redondo Beach, Cal., seeks out income-oriented closed-end funds in struggling but improving sectors that are leveraged, selling at big discounts to NAV. Dozens qualify. Consider, for example, Cohen & Steers REIT and Utility Income (RTU). At its April 9 close of $5.28, the fund sold at a whopping 25% discount to NAV and yielded a similarly massive 26%. Or look at BlackRock California Municipal Income Trust II (BCL). At a price of $10.18, it traded at a 19% discount to NAV and yielded 6% tax-free. Don't put more than 5% of your income assets into these kinds of funds because when they're bad, they're really, really bad.



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