NOT FOR NOVICES

September 16, 2008
Michael Sheehan

Physician's Money Digest, March15 2003, Volume 10, Issue 5

Caution:

How does 10% on your moneysound? Closed-end bond funds thatinvest in a basket of tax-exemptmunicipal bonds have recently postedyields of around 6%, the equivalentof almost a 10% taxable gain ifyou're in the top tax bracket.Closed-end bonds pump up yieldsby leveraging their assets, borrowingshort-term bonds at low interestrates, and then buying long-termsecurities with a higher rate. Theproblem, the experts say, is that aneconomic comeback could raiseinterest rates, pushing up the cost ofborrowing while deflating the valueof the long-term bonds in the fund'sportfolio. You can learn more aboutthese funds at the Closed-EndFund Association's Web site (www.cefa.com). Closed-endfunds are complex, and investing inanything you don't fully understandis risky business.