Municipal Bonds

When a municipality such as a city or state borrows money, it may issue promissory notes, also called debt, for this money. These notes are called Municipal Bonds. The interest, which is usually paid on a semi-annual basis, is exempt from Federal income taxes and from state and local taxes where the issue originates. Municipal bonds issued for public purposes, such as roads and schools, or those issued on behalf of non-profit organizations, such as private hospitals and universities, are not affected by Alternative Minimum Tax (AMT). The Tax-Exempt Chart on the following page illustrates the reason why municipal bonds or municipal bond funds might be appropriate for your portfolio. This table shows the taxable yields which are equivalent to tax-exempt yields under current Federal tax laws at rates in effect at the time of this writing. Tax-exempt bond holders are required to report any tax-exempt interest they receive. Although it must be reported, it will not be federally taxed or taxed by the state of Maine if it is a Maine or Puerto Rico Municipal bond and not subject to AMT.