CMA’S 8% PASSIVE FIXED INCOME PORTFOLIO ACCOUNT
The US stock market has been quite volatile for the past decade and CDs & Money Market Accounts are now paying less than 2% (One year CD rates on www.Bankrate.com are 1.5% and MMA from 0% to 1% as of 4/16/10). Savers and investors may be seeking an alternative to higher risk stock market investing and low CD rates. The CMA 8% Passive Fixed Income Portfolio Account is now offered to provide high current income for savings, retirement income, or as an alternative to “growth stock investing”.
WHAT IS THE 8% PASSIVE FIXED INCOME PORTFOLIO ACCOUNT?
This investment Portfolio, maintained as a separate account for each client, is designed for "long term investors" seeking high current income from dividends and interest over a long period of time such as retirement, or for long term savings for building wealth via re-investment of annual investment income. The Portfolio is structured to hold only exchange-traded common stocks and income securities inclusive of preferred stocks and corporate bonds of major companies across many industries.
All securities held in the client's portfolio trade on the New York Stock Exchange (NYSE) or other public exchange. The 8% income representation means that when the portfolio is purchased for a client account, the custodian states the anticipated "Estimated Annual Income" to be received from the investment holdings, as calculated from the past 12 month of income collections recorded from each security's income payment history. The "percent value" is determined by dividing the Estimated Annual Income by the Current Market Value of the portfolio holdings.
Up to a maximum 30% of total Portfolio assets will be in common equities that pay high dividend yields and have the "potential" for growth in share value and increasing dividend income over time. (Common stock values can have high fluctuations in share price values due to economic and financial market conditions.) The remaining 70% of Portfolio assets will be invested in corporate debt (bonds) securities, which are senior to common shares of the issuing company, and also investments in the preferred shares of publicly listed companies or their subsidiaries. These preferred and bond securities are senior to the issuing company’s common stock in their entitlements to a contractual redemption by the issuer at Par Value (Original Issued Price) and have a Senior Claim, ahead of common stock holders, on the income of the company for paying bond interest and preferred dividends. Corporate bonds and preferreds are termed "Fixed Income Securities". Security selection criteria for the Passive Fixed Income Portfolio Account may change from time to time based on market conditions and availability of high income securities.
WHICH ISSUERS MAKE UP THE SECURITIES OF THE PORTFOLIO?
Some of the current common equities used in common stock allocation of the Portfolio are the common stocks of: Frontier Communications, Pfizer, Bristol-Myers, Penn West Energy, Eli Lilly, Foot Locker, New York Bank, Deutsche Telecom, Pitney Bowes, New Zealand Telecom, plus many others.
Issuers of the corporate debt securities include: CBS Corp, Ford, Goodyear, ING, JC Penney, Royal Caribbean Cruises, Sprint, Valero Energy. Preferred share issuers include: Apartment Investment & Management, Cooper Tire, Dayton Power & Light, El Paso Energy, Hospitality Properties, Healthcare Properties. All issuers of Portfolio securities have been in business as a public company, or a subsidiary of a public company, for at least 5 years and others for many decades. Securities selections are diversified across more than 15 different industries.
HOW CAN AN INVESTOR UTILIZE THIS PORTFOLIO?
Investors should have "asset class" diversification. This means that their investment funds are put into different asset classes such as: growth stocks, high dividend stocks, income real estate securities, fixed income bonds and preferred shares, or near-cash money market. This Portfolio gives them a good choice, an alternative, to invest either a small, moderate or large percentage of their assets in a lower risk high income portfolio containing only 30% in common stocks, as compared to an all-stock portfolio.
HOW IS PORTFOLIO INCOME EARNED AND COLLECTED?
The custodian of each client's account is collecting all the dividends and interest payments that are paid out by securities’ issuers, and it is credited to each account either monthly, quarterly or semi-annually. Dividends on common stocks, preferred shares and REITs (Real Estate Investment Trusts) are usually paid quarterly, yet some pay monthly distributions to shareholders. On corporate bonds, the interest payments are paid semi-annually to the custodian, and are then credited to the account. Income is held in a "money fund account" within the portfolio's account, and that income can either be paid out to the client as it is earned and collected, or re-invested into more income investments of the portfolio to achieve long term compounded growth from re-investment of annual income.
WHAT ARE THE PORTFOLIO EXPENSE COST, MINIMUM SIZE AND MANAGEMENT STYLE?
This high income Portfolio account is offered in a $50,000 minimum account size. CMA charges a .90% annual Investment Advisory Management Fee for managing this Portfolio account. This fee is calculated on the account value as of the close of each calendar quarter and billed prorata on a quarterly basis to the account. Clients can direct our custodian, GreatBanc Trust Company, to make regular monthly, quarterly or annual distributions of Portfolio income to their checking accounts at their bank via ACH no-cost transfer deposits or receive checks in the mail. GBTC charges a custody fee of .25% of assets annually for accounting, and statement preparation & distribution. Transaction charges apply from the Trust Company at $4.25 for each buy or sell transaction. If income is not distributed to the client, it will be reinvested within the Portfolio. The Portfolio will be actively managed by CMA, where changes in holdings would be made at times at the discretion of CMA to maintain quality of issuers, high yields, and to replace any called or matured securities.
HOW IS THE PORTFOLIO ACCOUNT ESTABLISHED?
New clients would set up a new account by executing an Investment Advisory Agreement with CMA and new custody account documents with our custodian GreatBanc Trust Company( www.GreatBancTrust.com ). The client would then fund the new account with cash, and CMA will then buy all the required portfolio securities. Clients would then receive quarterly account statements from the custodian in paper format or electronically, at the client’s selection. The Custodian offers online access for viewing account holdings and activity for the account. All security holdings are held in custody at SEI Trust Company (Ticker: SEIC), a large public trust company.
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