Before the Tax Reform Act of 1986, interest paid on municipal bonds was exempt from federal income tax and state and local income tax within the issuing state. The terms municipal and tax-exempt were synonymous. However, the Act separated municipal bonds into two broad groups--public purpose bonds and private purpose bonds. Public purpose bonds are tax-exempt and may be issued without limitations. Private purpose bonds are taxable unless specifically exempted. The difference between public and private purpose bonds is based on the percentage in which the bonds benefit private parties.

See: Debt; Debt Security; Interest; Private Purpose Bond; Tax Exempt Security; Triple Tax Exempt

Municipal Bond Insurance
Insurance policies that protect investors if a municipal bond should default--the bonds will be purchased from investors at par. The insurance may either be purchased by the issuer or the investor. Two major insurers of municipal bonds are the Ambac Indemnity Corporation and the Municipal Bond Insurance Association (MBIA). Insured municipal bonds usually have the highest ratings. Subsequently, the bond's marketability increases, which lowers the cost to their issuers. However, the yield on an insured bond is usually lower than similarly rated uninsured bonds--the cost of the insurance is passed on to the investor. To obtain the extra degree of safety, many investors do not care if the yields are slightly lower.

See: Insured Bonds; Municipal Bond; Par; Rating; Yield

Municipal Bond Insurance Association (MBIA)
See: Municipal Bond Insurance

Municipal Securities Rulemaking Board (MSRB)
A self-regulatory organization of the municipal securities industry that was created in 1975 under an amendment to the Securities Exchange Act of 1934. Its primary responsibility is to develop rules and regulations to govern the activities of municipal securities dealers, and to provide arbitration facilities to broker-dealers and bank dealers in municipal securities.

See: Arbitration; Broker-Dealer; Securities Exchange Act of 1934

Munifacts
The newswire service for the municipal bond industry. It provides information on both new issues and secondary market offerings.

See: Municipal Bond; New Issue; Secondary Distribution; Secondary Market

Mutilated Securities
A certificate that is torn or defaced in such a manner that the name of the issuer or other necessary details cannot be identified. If such a certificate is delivered to make settlement of a sell transaction, it is difficult to effect the transfer of title. It is up to the seller (seller's broker) to take corrective action--getting the transfer agent to guarantee the buyer's rights of ownership.

See: Certificate; Transfer; Transfer Agent

Mutual Fund
An open-end investment company that offers the investor the benefits of portfolio diversification (provides greater safety and reduced volatility), and professional management. The shares are redeemable on demand at their net asset value. The fund invests the pooled assets into various investment vehicles including stocks, bonds, options, commodities and money market securities. How the fund invests is determined by the fund's objectives. The mutual fund's prospectus details this type of information plus information on any fees, the management company and other relevant data.

See: Breakpoint; Diversification; Investment Company; Letter Of Intent; Money Market; Net Asset Value; Open End Management Company; Portfolio; Prospectus; Redemption; Risk; Volatility

Mutual Fund "Family"
A group of mutual funds supervised by the same investment company. Funds can be moved easily from one type of fund to another if conditions (market or personal) dictate a change. As a rule, investors may apply purchases in all funds (within the family) toward sales charge breakpoints.