TaxTax--Free IncomeFree IncomeThe Opportunity in Municipal BondThe Opportunity in Municipal Bond

ExchangeExchange--Traded FundsTraded Funds

Presented By: Presented By: H. Parker Evans, CFA, CFP, CMTH. Parker Evans, CFA, CFP, CMT

Managing Partner Managing Partner –– Successful Portfolios, LLCSuccessful Portfolios, LLC

• The interest paid on municipal bonds is generally exempt from Federal Income Tax.

• States, counties, cities and other municipalities issue municipal bonds to finance projects such as schools, roads and utilities.

• The default rate on investment grade municipal bonds is very low.

Toll collections are sometimes Toll collections are sometimes used to make interest used to make interest payments on municipal bonds.payments on municipal bonds.

Tax collections are another source for payments on some municipal bonds.

Data through 2007

There are hundreds of municipal There are hundreds of municipal bond Exchangebond Exchange--Traded Funds Traded Funds (ETFs) that pay monthly tax(ETFs) that pay monthly tax--free dividends to investors.free dividends to investors.

•• At Successful Portfolios we provide clients At Successful Portfolios we provide clients with expert investment advice on ETFs.with expert investment advice on ETFs.

•• We use the Bloomberg Professional We use the Bloomberg Professional Service to help manage client portfolios.Service to help manage client portfolios.

•• Two excellent free websites are Two excellent free websites are etfconnect.com and indexuniverse.com.etfconnect.com and indexuniverse.com.

Trading envelopes and moving averages help optimize trade entry.

Closed End ETFs generally have higher dividend yields than other ETFs.

Some ETFs are designed for price stability.

We like to see a low expense ratio.

To maximize portfolio opportunity, we continually track and analyze over 500 tax-free Municipal Bond ETFs.

The shape of the yield curve is an important input to our investment process.

Municipal bond yields vary by sector providing potential opportunity for active investors.

Higher tax rates make taxHigher tax rates make tax--free free bonds more valuable.bonds more valuable.

For an investor in a 35% marginal tax For an investor in a 35% marginal tax bracket, a 5% dividend on a municipal bond bracket, a 5% dividend on a municipal bond ETF has a taxable equivalent yield of 7.7%ETF has a taxable equivalent yield of 7.7%

Taxable Equivalent Yield = Tax Free Yield / (1 Taxable Equivalent Yield = Tax Free Yield / (1 –– Tax Rate)Tax Rate)