Insured Municipals

If You are thinking about investing in municipal bonds, you may be worried that many states and localities are severely troubled by federal budget cutbacks and shrinking tax revenues. But there is a new way that you can invest in municipals and insure yourself against any losses from defaults.

You can profit from the oversize yields and still be able to sleep at night by investing in insured municipal bond funds or trusts. The portfolios of insured bond funds and trusts are backed by a number of private insurance companies, and all are rated AAA by the authoritative Standard & Poor's rating service. Though prices still fluctuate, the insurance guarantees investors full payment of interest and principal when due, and costs about $1.25 a year for every $ 1,000 you invest. This has the effect of reducing your annual yield from a fund or trust by only one eighth of 1%.

Insured trusts are sponsored by many brokerage firms. You can buy units through your broker, who will deduct a sales commission of roughly 5%. That means that if you put up $1,000, you get about $950 worth of bonds.

Merrill Lynch's Municipal Bond Fund Insured Portfolio is insured principally by AMBAC Indemnity Corporation and Bond Investors Guaranty Insurance Company. The fund offers an extra: you can write checks of $500 or more against your money.