Government-Sponsored Enterprises

Description
Government-sponsored enterprises (also known as agency bonds) are bonds issued by government-sponsored enterprises, such as Fannie Mae, Freddie Mac, Federal Home Loan Bank, and by wholly owned government corporations such as the Tennessee Valley Authority (TVA). When you invest in a bond, the issuer pays you interest on the number of bonds you purchase. At a stated date in the future (maturity date), the issuer returns your principal to you. The maturity dates typically range from one to 40 years.

Objective
To provide regular interest payments over the life of the bond.

Suitability
These bonds are well suited for safety-conscious, income-oriented investors.

Product Features

• Regular Income - These issues pay a fixed rate of interest, usually semi-annually, quarterly, or monthly.
• Call Protection - Under certain circumstances, such as a period of lower interest rates, the issuer may have the right to pay the bonds off (i.e. to "call them") prior to the actual maturity date. However, most issuers provide the investor some time period before early pay off in the form of call protection.
• Liquidity - Bonds may be sold on any business day at their current market value, which may be more, less, or equal to the initial amount invested.
• Taxation - Interest and capital gains earned is fully federally taxable unless held in a qualified retirement plan. Bonds from some issuers are exempt from state and local income taxes.
• Growth of Principal - Investors typically do not purchase agency bonds for growth. They are considered income investments.
• Principal & Interest Guarantee - Each issuer is responsible for paying interest and returning principal to its bondholders. The issuer's financial strength will determine whether they have the ability to make these payments. Agency bonds are NOT backed by the U.S. Government.
• Interest Rate Risk - Certain events in the interest rate environment can occur that may cause the value of the bond to drop in price. Longer-term bonds are typically more price sensitive to interest rate changes than shorter-term bonds.
• Minimum Purchase - Agency bonds have a minimum purchase of $5,000 with $1,000 increments thereafter.
  

For more information on government-sponsored enterprises, please contact your local financial advisor.