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Municipal Bond Forum

FMSbonds, Inc.’s Municipal Bond Forum is an exclusive opportunity for investors to submit questions and comments on the bond market or to respond to one of our articles.

To participate, just send us an e-mail. Be sure to include your name or initials and your state of residence. Posted e-mails may be edited for length and clarity. If you prefer a private response, please note that in your e-mail. Responses are provided by James A. Klotz, president and co-founder of FMSbonds, Inc., a municipal bond specialist for more than 35 years, and other members of the firm as noted.

Postings are listed by date. If you have any questions, please call us at 1-800-367-2663 or e-mail us.

On Big Brother Expands Reach(Cont’d):

Feb 28, 2007

Mr. Klotz answered one question about the “Big Brother Expands Reach” article in the Bond Investors’ Forum, but his response has raised another question for me. Here is the last paragraph from Mr. Klotz’s answer: “Incidentally, there is a method to this madness. Although the interest is not taxable, certain levels of tax-free income can reduce other benefits you receive, such as Social Security.” My question is: How can I determine if the amount of tax-free interest I earn is at a level that will reduce other benefits?

T.O., Maryland

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GM vs. Ford

Feb 28, 2007

Do you see a difference between GM and Ford bonds in terms of company viability?

M.M., New Hampshire

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On Big Brother Expands Reach

Jan 24, 2007

Regarding your article on financial institutions now being required to report bondholders’ tax-exempt interest to the IRS: What’s the reasoning behind this move? If the interest isn’t taxable, this doesn’t make sense to me. Can we withhold this information on our tax forms, since providing it appears to serve no purpose?

A., Massachusetts

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On Hidden Gems in the Muni Market (Cont’d):

Jan 24, 2007

I evaluate bonds based on yield to maturity. But on rare occasions, I’m faced with a conundrum: If a bond has an early call (2010) but the agency offers 102 or 101 to make the prospect of the lower yield to call less threatening, I ask myself, “Why would they pay more to retire the issue if, by waiting a year or two, they can retire it at a lower cost?” My answer is, it doesn’t make sense to pay premiums to retire bonds. Am I wrong?

S.O., California

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On GM Steals Spotlight at Auto Show

Jan 24, 2007

The problem with GM and Ford is not with the cars, but with the quality of service after the purchase. They are too focused on making a profit for the shareholders. They should put the customer first. GM can’t even sell a Toyota as a Chevy Prizm because everyone can still remember the bad service of the 1970s.

You are really going out on a limb! I called on these buffoons for years and they never got the message. The most mismanaged company I ever called on in my 30-plus years in industrial chemical sales. Now I’m retired and they’re still trying to get their act together. When I spoke to GM CEO Rick Wagoner back in the 80’s, all they wanted was the supplier to cut their prices to make up for their inept ability to run a company. They will go the way of the horse and buggy!

M.N., Hawaii    G.C., New Hampshire

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On Kentucky Court Says State Can’t Tax Interest on Out-of-State Bonds

Jan 24, 2007

What is the latest on the Kentucky case? I now live in Wyoming, a state with no income tax. If I understand correctly, if the Kentucky case is won, I, as an older retired person, could relocate to Minnesota to be closer to the Mayo clinic and would not have to purchase Minnesota bonds. I could keep what I have now and obtain a higher yield than on Minnesota municipal bonds, or maybe even relocate to Vermont, a state that just does not have municipal bonds. When do you think this case will be settled?

S.M., Wyoming

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Would a flat tax affect munis?

Nov 30, 2006

Recently one of your brokers recommended a muni-bond that matures in 2037. I wondered what would happen to its core value and the relative value of the interest it paid if, by some outside chance, there were meaningful tax reform (like a flat tax) during that period. I was told that the idea of such a thing happening was laughable. It may be far fetched, but impossible? I don’t think so.

R.E., Michigan

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Tobacco bonds fueling NAV rise

Nov 30, 2006

I own two high-yield, tax-exempt muni funds with Oppenheimer (no load) and Vanguard. I have these for yield, but have noticed that the Oppenheimer fund chart shows a steady growth in NAV while Vanguard fund is flat (which is what I would expect). Why would such a fund have a growth curve in NAV?

F.B., North Carolina

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On “Hidden Gems in the Muni Market” cont’d #2

Nov 27, 2006

Thank you for your reply. It was very easy to understand and I fully agree. After correcting my original analysis, I calculated that the impact of having to pay state taxes on the premium bond reduced its effective return by only 0.04% compared to a par bond. I’ve been on the verge of buying and selling muni bonds with your company, but since the commissions for bonds are typically imbedded with the purchase price (unlike buying stocks), it is difficult for me to calculate how much I actually pay going through a brokerage firm. How do your commissions for buying and selling muni bonds compare with others?

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