Taxable Securities

U. S. Government Agency & Government-Sponsored Entity (GSE) Securities

Commonly purchased government agency securities are issued by the Federal National Mortgage Association, the Federal Home Loan Bank, the Federal Farm Credit Bank, the Federal Home Loan Mortgage Corporation and the Student Loan Marketing Association. These securities may be purchased with short or long maturities and can also be used in the liquidity portfolio if the stated maturity is five years or less.

Corporate Bonds

Corporate bonds are debt obligations that are issued by a corporation. The credit quality of a corporate bond can range from AAA (which is considered to be the highest investment grade) to non-rated junk bonds (which carry a high degree of credit risk). This risk can be incurred due to the seniority level of the debt, the financial health of the corporation itself, the outlook for the industry in which the corporation is based, as well as many other factors which should be carefully evaluated by the investor.

Investment Grade Corporate Bonds: Bonds that are considered eligible for bank investment. Such bonds are rated Baa or above by Moody’s and BBB or above by Standard & Poor's.

High Yield Corporate Bonds (Junk Bonds): Speculative bonds with a rating of Ba or below by Moody's or BB or lower by Standard & Poor's are issued by companies with questionable credit.

• Senior Debt - Senior Debt is debt that takes priority over other unsecured debt owed by the issuer. Senior debt takes precedence in the event the issuer goes bankrupt, and theoretically, it must be repaid before other creditors receive any payment.
• Subordinated Debt - Subordinated Debt is debt that ranks after other debt if a company should fall into receivership or be closed. Subordinated bonds usually have a lower credit rating than a corporation's Senior Debt.

FDIC Insured Certificates of Deposit (CDs) and CDARS®

Certificates of Deposit (CDs) A Certificate of Deposit (CD) is a short to medium term debt instrument issued by banks and other financial institutions. Depending upon the need for deposits, rates on these instruments can be very attractive in comparison to rates offered on other short-term investments of similar credit quality. In addition, the Federal Deposit Insurance Corporation (FDIC) currently insures these deposits for up to $250,000 per single depositor and $500,000 for joint depositors through December 31, 2013. At that time, the FDIC may return to the previous limit of $100,000 per single depositor and $200,000 for joint depositors. The $250,000 limit is permanent for IRAs and certain other retirement accounts. Keep in mind that in order to have interest as well as principal protected, it is important to reduce your par amount order by enough to cover the interest that would be earned during that period.

The negotiable CD market was instituted in the 1960s and has grown substantially since that time. Unlike traditional CDs which can only be purchased through the issuing bank or financial institution and carry a penalty if redeemed prior to maturity, negotiable CDs can be purchased through a broker and sold prior to maturity in a very active and liquid secondary market*. Instead of calling around to several institutions to find the best rate, your Coastal Securities representative can show negotiable CDs that are offered throughout the country to find the best rate and maturity (usually anywhere from 3 months to 10 years) to meet your specific investment needs. In addition, many of these CDs have the option to receive interest monthly as opposed to semi-annually or at maturity. Most negotiable CDs also come with a death-put feature which allows an individual to put the CDs back to the originating bank at par with no penalty in the event of the death of the CD holder. Purchasers of negotiable CDs receive a confirmation of the trade, the settlement occurs electronically through DTC and the CD is listed as a position on your brokerage statement.

*Although there is no penalty for early withdrawal, the investor is subject to market and interest-rate risk when they sell these CDs on the secondary market.

CDARS® Certificate of Deposit Account Registry Service CDARS was developed to enable larger investors to have access to up to $50 million in FDIC coverage. When you place a large deposit with a CDARS network member or eligible broker dealer such as Coastal Securities, Inc., CDARS places your funds into certificates of deposit issued by banks within their network. Using their proprietary deposit-matching engine, CDARS breaks your investment up into increments of less than the standard FDIC insurance maximum to ensure that both principal and interest are eligible under FDIC insurance coverage limits. On each order placed, you earn one rate of interest with one final maturity date and receive one statement from your financial institution. For these conveniences, you can expect to earn a lower rate of interest in any given maturity than if you had purchased individual CDs.

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