Taxing times for tax-exempts.Municipal bond funds' performance hurt by rate increases For municipal bond funds Municipal Bond Fund A mutual fund that invests in municipal bonds, operating either as an investment trust or as an open-end fund. Notes: Because the bonds are local government issues, they usually help to maximize tax-exempt income. , this year has been trying indeed. Like other fixed-income securities Fixed-income securities Investments that have specific interest rates, such as bonds. , tax-exempt portfolios are suffering through one of the worst bear markets for bonds since 1993. Rising interest rates are the main culprit, as some fund managers holding longer-term debt turned in less-than-stellar performances. The numbers aren't too pretty. National municipal long-term bond funds had an average cumulative total return of negative 3% for the nine months ending September 30, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. Chicago mutual fund research firm Morningstar. The top five municipal bond funds all had negative returns for the period as well, but still outshined their peers on the bottom rungs. Portfolio managers who had the foresight (graphics, tool) Foresight - A software product from Nu Thena providing graphical modelling tools for high level system design and simulation. to shorten the maturities of their funds have done better than their peers, says Eric Jacobson Eric Jacobson is a puppeteer and Muppet performer, who has been the primary replacement puppeteer for Frank Oz's characters since 2001. Jacobson initially started playing Bert in 1997, but officially joined the cast as Bert, Cookie Monster, and additional Muppets in 2000. , senior analyst with Morningstar. Some of the other strategies muni muni See municipal bond. bond portfolio managers used to beat the competition included selling lower-rated securities, then purchasing higher-rated bonds, and buying bonds cheaper when there'd been a glut glut pronounced as rut, slut Vox populi An excess of a service or skilled labor in a particular area. See Physician glut. in certain sectors. For James Welch
Welch Welch , William Henry 1850-1934. American pathologist and bacteriologist who discovered the bacteria that causes gas gangrene. explains that he began to change the composition of his portfolio more than a year ago. One catalyst: in the fall of 1998, the Fed lowered interest rates to avert a global financial crisis despite the fact there was evidence of too much strength in the domestic economy. "At that time, it was a perfect opportunity to realize great sales in bonds," he says. He reduced the number of lower-quality bonds--those rated triple-B or lower, for example--and increased the amount of triple-A insured bonds Insured bond A municipal bond backed both by the credit of the municipal issuer and by commercial insurance policies. insured bond A municipal debt obligation for which interest and principal are guaranteed by a private insurance company. in his portfolio. The highest rating for bonds is triple-A, and more than 50% of new municipal issues carry insurance to protect investors from a default or interruption in interest payments on the bonds. Welch's strategy helped the fund record a cumulative total return of-0.99%, higher than the average for national municipal portfolios and landing it in first place, according to Morningstar. In addition, the 12-month yield on the fund through September 30 was 5.36%, higher than the average yield of 4.96% in the category. At least one fund, the $68 million Great Plains Tax-Free Bond Fund, benefited from the unusual makeup makeup In the performing arts, material used by actors for cosmetic purposes and to help create the characters they play. Not needed in Greek and Roman theatre because of the use of masks, makeup was used in the religious plays of medieval Europe, in which the angels' faces of its portfolio, according to Robert A. Campbell, certified See certification. financial advisor, vice president and portfolio manager of the fund, sponsored by First Commerce Bancshares This article is about the bank headquartered in Kansas City, Missouri. For other uses, see Commerce Bank. Commerce Bancshares (NASDAQ: CBSH) is a Kansas City, Missouri based bank with branches in Kansas, Missouri, Illinois, and Oklahoma. in Lincoln, Nebraska The City of Lincoln is the capital and the second most populous city of the U.S. state of Nebraska. Lincoln is also the county seat of Lancaster County and the home of the University of Nebraska. . Although classified as a national municipal bond fund, the portfolio is actually an intermediate fund, with an average maturity of about 8.8 years. Also, as much as 60% of the fund is invested in Nebraska credits, says Campbell. "We cater to a Nebraska clientele," he explains. "Because of the limited issuance [in Nebraska bonds] and the need for prudence, we've decided to stay in the national market," since it's in the best interests of the fund's shareholders. Campbell also notes that his fund is income-oriented. In other words Adv. 1. in other words - otherwise stated; "in other words, we are broke" put differently , he looks for issues with higher coupons--the interest paid to investors on bonds. And he focuses on income rather than total return because his shareholders prefer a tax shelter tax shelter: see tax exemption. from federal capital gains taxes. As a result, Campbell's fund returned -1.08%, and had a 12-month yield of 4.30%, placing third, according to Morningstar. TOP 5 NATIONAL MUNICIPAL BOND FUNDS
Yr.-to-Date 1-Year
Total Return Total Return
New England Municipal Income A -0.99% -0.87%
(NEFTX)
MFS Municipal High-Income A -1.03 -0.90
(MMHYX)
Great Plains Tax-Free Bond -1.08 -0.45
(GPTFX)
PaineWebber Mun. High-Income A -1.16 -0.90
(PMHAX)
Franklin Federal Tax-Free Income A -1.39 -0.77
(FKTIX)
National Man. Bond Fund Averages -3.00 -2.85
5-Year 12-Month
Total Return Yield
New England Municipal Income A 6.21% 5.36%
(NEFTX)
MFS Municipal High-Income A 6.07 6.16
(MMHYX)
Great Plains Tax-Free Bond N/A 4.30
(GPTFX)
PaineWebber Mun. High-Income A 6.61 5.24
(PMHAX)
Franklin Federal Tax-Free Income A 6.28 5.68
(FKTIX)
National Man. Bond Fund Averages 6.02 4.96
Minimum
Toll-Free Initial
Numbers Investment
New England Municipal Income A 800-225-7670 2,500
(NEFTX)
MFS Municipal High-Income A 888-637-2929 1,000
(MMHYX)
Great Plains Tax-Free Bond 800-568-8257 1,000
(GPTFX)
PaineWebber Mun. High-Income A 800-647-1568 1,000
(PMHAX)
Franklin Federal Tax-Free Income A 800-342-5236 1,000
(FKTIX)
National Man. Bond Fund Averages
(*) Ranked by cumulative total return as of 91/30/99. Source: Morningstar Inc. (www.limited) BOTTOM 5 NATIONAL MUNICIPAL BOND FUNDS
Yr.-to-Date 1-Year
Total Return(*) Total Return
Smith Barney Managed Municipals A -5.11% -5.11%
(SHMMX)
MainStay Tax-Free Bond A -5.25 -5.43
(MTBAX)
Federated Municipal Securities A -5.30 -5.33
(LMSFX)
Principal Preservation Tax-Exempt -5.70 -6.31
(PPTEX)
Eaton Vance Municipal Bond A -5.99 -5.90
(ETMSX)
National Mun. Bond Fund Averages -3.00 -2.85
5-Year 12-Month
Total Return Yield
Smith Barney Managed Municipals A- 6.44% 5.07%
(SHMMX)
MainStay Tax-Free Bond A N/A 5.01
(MTBAX)
Federated Municipal Securities A 4.21 5.15
(LMSFX)
Principal Preservation Tax-Exempt 6.26 4.07
(PPTEX)
Eaton Vance Municipal Bond A N/A 5.71
(ETMSX)
National Mun. Bond Fund Averages 6.02 4.96
Toll-Free Initial
Numbers Investment
Smith Barney Managed Municipals A- 800-461-2010 $1,000
(SHMMX)
MainStay Tax-Free Bond A 800-624-6782 500
(MTBAX)
Federated Municipal Securities A 800-341-7400 1,600
(LMSFX)
Principal Preservation Tax-Exempt 800-826-4800 1,000
(PPTEX)
Eaton Vance Municipal Bond A 800-226-6285 1,000
(ETMSX)
National Mun. Bond Fund Averages
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