MOR Investing — SUmmer 2010

One of the most difficult parts of being an investor in today’s markets is keeping to your financial plan when everyone else seems to be chasing a hot new idea and quick money. However, studies have shown that slow and steady wins the race, and staying true to the plan you and your Morgan Keegan financial advisor create is the best way to financial success. Also in this issue of MOR Investing, see how the strength and stability of Morgan Keegan continues to work for you.

On Your Best Investor Behavior

There is no denying it, investing can be an emotional activity. You feel euphoria when the markets are soaring, depression when the markets are plummeting and sometimes just plain anxiety when the markets are doing neither. Since the very early days of the stock markets, individual investors like you have been dealing with the temptation of jumping in and out of investments, forsaking an established investment plan only to chase the hot new idea or frantically sell when a stock’s or fund’s performance disappoints. However, what investors don’t realize is that in many cases, it is their own actions, and not the investments that they own, that are keeping them from achieving, let alone outperforming, market returns.

A 2009, the market research firm DALBAR conducted a survey called Quantitative Analysis of Investor Behavior*, which measured the effects of investor decisions to buy, sell and switch into and out of mutual funds. Although this study is specific to mutual fund investors, Morgan Keegan believes the underlying concepts of investor behavior can be applied to most types of investors.

Illustrated in the graph below, the study shows that, on average, individual investors underperform the broad markets in which they attempt to participate. Although individuals may hold outperforming investments, their tendency to buy at the top (when it “feels good to invest”) and sell at the bottom (when being invested “feels bad”) causes them to underperform the market. Furthermore, with the average holding period over the last twenty years for an equity mutual fund being 3.18 years, investors do not even give themselves the chance to participate in a full market cycle, which typically lasts five to seven years.

The graph below (or to the right, left, etc.) shows that over the last 20 calendar years, the average equity mutual fund investor only outperformed the S&P 500 eight years, or 40% of the time. To put it another way, this investor earned +1.87% over the past 20 years when compared to the S&P 500’s return of +8.35%.

When the average individual investor underperforms the broad market indices or even the average institutional investor, it is most likely due to common, and often avoidable, mistakes. Here are some ways to help you keep your investments in the proper perspective, and your emotions out of the decision-making process.

Avoid the temptation to predict next year’s winners
Because of changing economic conditions, wide investor sentiment and cyclical asset categories, the best-performing asset classes change from year to year. Morgan Keegan believes that it is not possible to consistently predict the next year’s best performing asset class. Therefore, it is important that investors not try to make predictions by moving from one asset class to another. Instead, investors need to develop a well-diversified portfolio with investments across all types of asset classes and to adhere to that portfolio mix.

Curb your unrealistic expectations
When times are good, many investors tend to forget the risks associated with owning investments. When investor optimism gets high, expectations of realistic returns can easily get distorted. Most investments will have their “day in the sun” and, conversely, each investment will eventually fall out of favor. The idea of investment cycles is important to understanding the degree to which different investments will outperform and underperform, and when. By understanding what to expect in positive and negative markets, you can keep your unrealistic expectations in check.

Eyes on the long-term prize
As the stock market goes up and down, it’s easy for investors to become too focused on day-to-day returns. Instead, investors should keep their focus on long-term investing goals and overall asset allocation strategy. When the stock market goes down and investment losses pile up, many investors are tempted to pull out of the market altogether. The key to understanding volatility is to maintain a long-term bias and allow time to work for your benefit.

Be patient: Staying invested works
In addition to having a long-term horizon, investors should also remain in the market and not try to time its ups and downs. The chart below clearly shows that trying to time the market is a loser’s game. This data (for illustrative purposes only), which was compiled for the 20-year period ending 12/31/2008, shows that had investors missed just 20 of the biggest days of the more than 5,000 trading days during this period, their average annual return would have decreased from 8% to nearly 1%. Furthermore, it is highly unlikely that any investor could have accurately predicted which of the 20 biggest days to be in the market. It’s best to be in the market for the duration to make sure you don’t miss out.

Hot stocks, global events, personal life changes, market reactions—they can all tempt you to step outside your stated financial plan to do something you feel is right. However, the temptation to get some quick relief from market volatility can really put a dent in your ultimate, long-term financial goals. Just keep in mind that you and your Morgan Keegan financial advisor have worked hard to devise a customized plan suited to your specific needs and your way of life. Before you make any decisions about your financial future, talk to your Morgan Keegan financial advisor first.

*DALBAR’s Quantitative Analysis of Investor Behavior uses data from the Investment Company Institute (ICI), Standard & Poor’s and Barclays Capital Index Products to compare mutual fund investor behavior with an appropriate set of benchmarks. Covering the period from January 1, 1989, through December 31, 2008, the study utilizes the net of aggregate mutual fund sales, redemptions and exchanges each month as a measure of investor behavior. These behaviors are then used to simulate the “average investor.” Based on this behavior, the analysis calculates “average investor return” on both a cumulative (total) and annualized basis. These results are compared to respective indices.

Average stock investor, average bond investor, and average asset allocation investor performance results are calculated using data supplied by the Investment Company Institute. Investor returns are represented by the change in total mutual fund assets after excluding sales, redemptions, and exchanges. This method of calculation captures realized and unrealized capital gains, dividends, interest, trading costs, sales charges, fees, expenses, and any other costs. After calculating investor returns in dollar terms, two percentages are calculated for the period examined: Total investor return rate and annualized investor return rate. Total return rate is determined by calculating the investor return dollars as a percentage of the net of the sales, redemptions, and exchanges for each period.

The equity market and the systematic equity investor are represented by the S&P 500, an unmanaged index of common stock. The bond market and the systematic bond investor are represented by the Barclays Aggregate Bond Index. Inflation is represented by the Consumer Price Index. Data supplied by Barclays Global Investors and Standard & Poor’s. Indexes do not take into account the fees and expenses associated with investing, and individuals cannot invest directly in any index. Past performance cannot guarantee future results.

	Morgan Keegan’s Award-Winning Research In May, ten Morgan Keegan equity research analysts were ranked among the best analysts in the U.S. by The Financial Times / StarMine and the Wall Street Journal. The Financial Times and StarMine named our Simon Leopold the top earnings estimator in the nation in their most recent annual survey. In total, seven Morgan Keegan equity analysts were recognized among the top three stock pickers and earnings estimators in their respective industry sectors. As a result, Morgan Keegan was the third Most Productive Broker in the 2010 Financial Times / StarMine survey. This year’s honored analysts are:
	Simon Leopold, Communications Equipment analyst – #1 earnings estimator in the nation across all industries #1 earnings estimator, Communications Equipment category
	Chaz Jones, Maritime Shipping and Transportation Equipment analyst— #1 earnings estimator in the Road & Rail category
Jamie Stockton, CFA, Healthcare Information Technology analyst— #1 stock picker, Health Care Technology category #3 earnings estimator, Health Care Technology category
Bob Derrington, Restaurants analyst— #3 earnings estimator, Restaurants category
Brian Freed, CFA, Enterprise Storage & Security and Internet Security & Infrastructure analyst— #3 earnings estimator, Software category
Keith Johnson, Industrial Manufacturing analyst— #3 stock picker, Building Products category
Brian Ruttenbur, Security, Safety & Defense analyst— #3 earnings estimator, Electronic Equipment & Instruments category

And for the 16th time in 18 years, the Wall Street Journal recognized Morgan Keegan analysts for their stock picking ability in their 2010 Best on the Street Analyst Survey. From a universe of more than 7,500 analysts at more than 530 firms, the Morgan Keegan analysts ranked among the best stock pickers in their respective industries are:

Paul Bonenfant, Communications Components analyst— Ranked 3rd in the Telecommunications Equipment category
Harsh Kumar, Semiconductors analyst— Ranked 3rd in the Semiconductors category
Destin Tompkins, CFA, Restaurants analyst— Ranked 4th in the Restaurants category

Morgan Keegan’s 22 equity research analysts provide research coverage on over 300 companies from ten industry sectors: consumer services, energy, financial services, healthcare, industrial distribution/construction, real estate, security, safety & defense, special situations, technology and transportation. As a Morgan Keegan account holder, you have access to their insight and expertise through Client Access. Ask your Morgan Keegan financial advisor how you can benefit from our award-winning research.

The Strength and Stability of Morgan Keegan

Morgan Keegan’s business model, with its unwavering focus on our clients and a commitment to excellence in all facets of our business, is vastly different from the Wall Street investment banks. The vision of our founders, created more than 40 years ago, continues to guide our firm today.

• Morgan Keegan is a Main Street firm with deep roots in the communities we serve. We focus first and foremost on the needs of our clients, who are our neighbors, friends, families and communities.
• Unlike the Wall Street firms that have relied on leverage for profits, Morgan Keegan has always taken an extremely conservative stance toward leverage. We have no long-term debt, and our limited use of short-term borrowing equates to a leverage ratio of 1 to 1.
• Morgan Keegan has a healthy balance sheet with more than $3 billion in assets, $950 million in equity capital, and more than $400 million of excess net capital above regulatory requirements. Our semi-annual Statement of Financial Condition is available for review here.
• Our clients’ assets are held in segregated accounts and are protected by the Securities Investor Protection Corporation (SIPC) and additional coverage of up to $124.5 million provided through Lloyd’s of London.
• Morgan Keegan has a 41-year track record as a strong, stable business during both up and down economic cycles. This level of consistent success has allowed us to be a dependable partner to our clients, particularly during the challenging economic times of the past several years.
• Morgan Keegan is a subsidiary of Regions Financial Corporation, one of the nation’s largest financial services providers with more than $137 billion in assets.
• Our financial advisors, branch managers, sales assistants and team of supporting professionals are well-trained, knowledgeable and prepared to help you navigate through any financial need.

We understand that you have your choice of financial services companies, and we thank you for choosing Morgan Keegan as your partner in investing.

Important Messages for Account Holders

Margin Accounts
Securities purchased on margin are the firm’s collateral for the loan to you. If the securities in your account decline in value, so does the value of the collateral supporting your loan. As a result, Morgan Keegan can take action, such as issue a margin call and/or sell securities or other assets in any of your accounts held with Morgan Keegan, in order to maintain the required equity in the account. It is important that you fully understand the risks involved in trading securities on margin. These risks include the following:

• You can lose more funds than you deposit in the margin account.
• The firm can force the sale of securities or other assets in your account(s).
• The firm can sell your securities or other assets without contacting you.
• You are not entitled to choose which securities or other assets in your account(s) are liquidated or sold to meet a margin call.
• The firm can increase its “house” maintenance margin requirements at any time and is not required to provide you advance written notice.
• You are not entitled to an extension of time on a margin call.

Margin Interest Rates
The annual rate of interest charged for the margin loan will vary based upon the amount of the debit balance and the current prime interest rate as outlined below. For a more detailed explanation of credit terms and interest rate calculations effective September 1, 2009, please refer to the Morgan Keegan new Account Client Agreement and Disclosure Statement (Exhibits B and C), a copy of which may be viewed online here. You may also request a printed copy from your financial advisor or by calling customer service at 800.290.2358.