The Case for Tax Free Income

  • Uncertainties with respect to pending tax legislation and proposed Federal tax rate increases highlight the need for strategies to reduce investment taxable obligations.
  • A portfolio of diversified, actively managed municipal bonds can not only provide tax-free income but also generate returns better than low-yielding U.S. Treasuries and some corporate bonds.
  • Additionally, the credit quality of muni bonds has improved as local governments shore up their finances.
  • Tax equivalent yields increase with the investor’s Federal Income Tax Bracket.

Municipal Bond Risks of Default?

The main deterrent to default is that issuers of muni bonds cannot just go out of business and liquidate themselves. Large issuers of municipal bonds depend on those bonds to fund critical continuing operations and capital budgets. A default that would shut off access to capital markets is simply not an option.

Issuers of municipal bonds set aside very clear sources of revenue for debt service. For most issuers, debt service is paid off over long periods of time (as long as 30 years); in addition, debt service constitutes a relatively small portion of total expenditures (4% to 8%).

Only 26 states allow municipalities to file for bankruptcy. Moreover, municipal bankruptcy is a very complex process.

Default rates among issuers of municipal bonds are extremely low—about one-third of 1%.

Investment Objective

The portfolio seeks a high level of State and Federal tax-free interest and dividend income.

 Key Features

  • Minimum Investment $15,000
  • Diversified Short, Intermediate, High Yield and Long Term Municipal Bond Funds
  • No Transaction Fees/Sales Loads
  • Annual Rebalancing