Because of our continuing low interest rate market, there remains a constant quest higher rates than those currently paid by local financial institutions. Generally, the conversation goes something like this, ?I?d like to get a better return than a statement savings (fixed deposit) and I don?t want any risk.

In fact, I want this return to be guaranteed. Further enquiry usually elicits the avowal that the person is rather leery of investment markets.?

Last known, there was no guaranteed deposit insurance in Bermuda.

This is a well-known consumer protection mechanism of the United States (FDIC) Federal Deposit Insurance Corporation whose role is to preserve and promote public confidence in the US financial system by insuring deposits in banks and thrift institutions for up to $100,000, and by limiting the effect on the economy and the financial system when a bank or thrift institution fails.

Further, any rate of return above a prevailing statement savings rate is either going to involve some element of risk in investment markets, or will require that the funds be inaccessible (locked up) for a short to long time period.

Additionally, the safer and more liquid the currency is considered (i.e. US dollars) the lower the rate of interest compared to the home currency. Just the way the market works.

Then the conversation takes on more interesting tones.

By the way, the person will say ?I have a friend who can get me seven percent, eight percent, nine percent, 12 percent, no problem.? And it is not tied up in a street mortgage either. For those who have the time, you might want to read the Moneywise article of February 12, ?Are street mortgages worth it?? available on www.theroyalgazette.com, just type in martha myron and hit search to locate).

So, if it isn?t a street mortgage, what can return a legitimate gross return of seven percent, eight percent, nine percent, 12 percent that seems so readily accessible.

One answer (in legitimate investment circles) is preference shares. Issued by large global corporations, some recognisable names are Royal Bank of Scotland, AIG, etc.

Some investors purchased very high yielding bonds, such as those issued by the Government of Argentina, and Brazil, which promised to pay 12-13 percent.

Notice that I said gross rates? Are those the real rates of return? These shares are bought and sold in capital markets every day, thus owning them requires the following;

providing verifiable proof of residency, citizenship, and some financial solvency;

opening an investment account to custody the shares;

conversion (and stamp tax/ foreign currency exchange cost) from Bermuda to US dollars, the most common currency held;

a broker/salesperson to purchase them for you (some individuals can buy them online);

a choice of method to receive the dividends.

Preferences shares, like their name, have senior priority over the more common stock in order of dividend payments, which can be cumulative, as well as prior payment upon company liquidation. Rather more like bonds than stock (the type we generally think about, such as Microsoft which has the ability to increase in value almost into infinity), preferred shares generally trade around the $25 par value per share price.

In other words, preference shares never skyrocket in value the way a technology stock might. They also can be convertible (into common shares), have a short shelf life, callable in two, three, four years somewhat emulating their cousins the bonds with their maturity dates.

Very sensitive to market interest rates, preferred market values swing above and below the call rate of $25 per share, depending upon interest rate forces of the day.

Currently, preference shares paying dividends of six to eight percent are trading in the $26-$28.50 range. This means that if you buy today you will pay a premium above the call price.

Credit quality, always so very important, of preference shares tends somewhat lower (BBB) than triple AAA rated bond offerings generally issued by stable mature governments, although still within current investment grade ranges.

As with all securities that are issued as debt, the question is, will I get my principal back at the call date or maturity?

A six to eight percent dividend sounds great, but let?s compute a real rate of return (yield calculation).

Basing our purchase of 800 shares at a cost of $28 per share, callable in exactly three years at $25 per share, six percent dividend, securities registered in the United States.

Cost ? $22400 total, plus commission and settlement fees of $249 plus annual custody fee of $56 dollars, plus capital loss at call of $2,400, plus foreign withholding tax of 30 percent per year ( $480) on the dividend of $1,600 per year ? the real annual yield is around 4.5 to five percent, which is less than six percent.

Some, known as perpetual preferred shares may not be subject to withholding tax which would increase the yield somewhat but still not what is quoted. And these tend to be illiquid in some markets.

Obviously, the strategy should be not to buy unless the shares are priced a discount, less than call, i.e. $24? But, everyone wants the high dividend rate, thus price is driven up to a premium.

As for those Argentinean bonds. Issued in 1999, they paid that wonderful 13 percent interest rate for two years, then went into default in 2001.

Argentina announced they simply would not pay back the debt.

On February 23, 2005, more than 700,000 bondholders accepted a new Argentina bond issue at 30 cents on the dollar.

If you had invested $100,000 originally, it is now worth $30,000. High yields do mean high risk.

The message is, please don?t buy single securities if you can?t afford to set up a diversified portfolio.

You are better off in the long run purchasing a globally allocated professionally managed mutual fund, such as one that will pay you a decent income on a quarterly basis, and in US dollars.