Smart Muni Moves

Do your homework before investing in munis:

• Before buying GOs, research the state, city or county that's issuing the bond. Pay particular attention to population rates and other measures of the region's tax base, as well as any legal limits on taxation authority.



• Before buying a revenue bond, ask your broker to give you the bond's debt service coverage ratio, which is the net operating income divided by total debt service. Highly-rated bonds tend to have a ratio greater than two.



• With all munis, check to see if the rating has gone up, down, or remained stable.



• Do the tax math (or ask your broker) to make sure you are really better off buying a muni; you may be better off with a lower-risk Treasury bond.



• Weigh factors such as liquidity, maturity length, callability and transaction costs in your decision-making.

Muni Bond Risk Report Card Credit and default risk can vary greatly from bond to bond. Insured bonds help offset this risk. Call risk exists, not just for investors who buy bonds at issue, but also for those who may have paid a premium for the bond in the secondary market, where it was priced as if it would not be called. Should such a premium-priced bond in fact be called, its value would drop. Interest rate risk: If interest rates rise, the value of a municipal on the secondary market will likely fall. Liquidity risk: Some munis are more liquid than others.

Municipal Securities Snapshot Issuer States, cities, counties and other governmental entities Minimum Investment Generally $5,000 Interest Payment Fixed, floating/variable and zero-coupon; interest is paid semiannually for fixed-coupon security. How to Buy/Sell Through a broker Bond Interest Rate Determined at origination, varies by bond Price Information SIFMA: http://www.investinginbonds.com Web site for More Info http://www.msrb.org