features and benefits:

Tax-exempt Municipal bonds are among the most popular types of investments available today, and with good reason. They offer a wide range of benefits, including:

• Attractive current income free from federal and, in some cases, state and local taxes. Investors should always consult a tax professional regarding their individual tax situation
• High degree of safety with regard to payment of interest and repayment of principal. Many Municipal bonds are backed by insurance which guarantees timely payment of both interest and principal in the unlikely event that an issuer defaults. The yields of a non-insured bond, however, may often be higher than insured bonds
• Predictable stream of income
• Diversity - Wide range of choices to fit in with your investment objectives with regard to investment quality, maturity, choice of issuer, type of bond and geographical location
• Marketability/liquidity in the event you must sell before maturity

Ricks:

• Municipal bonds are subject to: Interest rate, call, and credit risk
• Tax-exempt interest generated by municipal bonds is usually more beneficial the higher your tax bracket, so municipal bonds may not be appropriate for investors in all tax brackets. If you are subject to the federal alternative minimum tax (AMT), the interest income generated by certain municipal bonds (mainly private activity bonds) is subject to it. You may set your search criteria to exclude municipal bonds subject to the AMT. Municipal bonds are usually not appropriate holdings for tax-advantaged accounts such as IRAs and other retirement accounts. As always, you should consult with your tax advisor for advice about your specific situation

Tax-exempt vs. Taxable Municipal Bonds:

• Tax-exempt Muni Bonds: consist of both long- and short-term issues. Short-term securities, often called notes, typically mature in a year or less, while long-term securities, commonly known as bonds, typically mature in more than a year. Short-term notes are used by an issuer to raise money in anticipation of future revenues such as taxes, state or federal aid payments, and bond proceeds, and to cover irregular cash flows, meet unanticipated deficits and raise immediate capital for projects until long-term financing can be arranged. Bonds are usually sold to finance capital projects over the longer term. The two basic types of municipal securities are:
• General obligation bonds - Principal and interest are secured by the “full faith and credit” of the issuer and usually supported by either the issuer’s unlimited or limited taxing power. General obligation bonds are also voter-approved
• Revenue bonds - Principal and interest are secured by revenues derived from tolls, charges or rents paid by users of the facility built with the proceeds of the bond issue. Public projects financed by revenue bonds include toll roads, bridges, airports, water and sewage treatment facilities, hospitals and housing for the poor. Many of these bonds are issued by special authorities created for the purpose.
• Taxable Muni Bonds: Taxable municipal bonds exist because the federal government will not subsidize the financing of certain activities which do not provide a significant benefit to the public at large. Investor-led housing, local sports facilities, refunding of a refunded issue and borrowing to replenish a municipality’s underfunded pension plan are just four types of bond issues that are federally taxable. Taxable municipals offer yields more comparable to those of other taxable sectors, such as corporates or agencies, than to those of other municipals. The growth of the taxable municipal market in recent years has been astounding. In the last five years alone, over $90 billion in taxable municipals have been issued.

Taxes: For full information regarding the tax consequences of Municipal bonds, investors should consult their tax advisor.

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