• Securities that state governments, local governments, or U.S territories issue
• the municipality uses the money it borrows from investors to fund and support projects such as roads, sewer systems, hospitals, ect
• NOTE: one of the most tested subjects on the series 7

• Fund non revenue producing facilites
• fund schools, libraries, police departments, fire stations, ect
• They are backed by the full faith and credit (taxing power) of the municipality
• The people living in the municipality back them
• They require voter approval
• becuase it is the taxes of the people living in the municipality that back the bonds, those same people have the right to vote on the project

• because they are backed by taxes rather than sales of goods and services, they have different components to look at when analyzing the safety of the issue
• dealing with debt
• bringing in taxes, fees, and fines

• how the municipality deals with debt influences the safety of the GO bond
• first look at the issuers name and try to find previous issues and find out whether it was able to pay off the debt in a timely manner
• You also want to look at the current debt

• Includes the debt that the municipality owes directly plus the portion of the overlapping debt that the municipality is repsonsible for

• the debt that the municipality obtained on its own
• comes from both GO bonds and short-term municipal notes
• revenue bonds are not included in the net direct debt because they are self supporting

• occurs when several authorities in a geographic area have the ability to tax the same residents
• to determine the debt per capita (per person), take the debt (overall, direct, and overlapping) and divide it by the number of people in the municipality.
• For investors the lower the debt per capita the better (safer investment)

• these are the driving force behind paying investors for their GO bonds
• Property taxes, sales taxes, traffic fines, and licensing fees put money in the municipal coffers and eventually in investors hands

1. Property Values
2. Population
3. Tax Base
4. Sales Per Capita
5. Traffic Fines and Licensing Fees

• the highest source of backing for GO bonds
• people investing in municipal bonds would like for property values to be high
• the higher the assesed value, the more taxes collected and the easier it'll be for the municipallity to pay off its debts
• Tip: if you have to find this value on the test always use the assesed value, not the market value.
• Also, these taxes are based on mills, or thousanths of a dollar so 1 mill = $.001

• the more people who live in a municipality and pay taxes to bank the bond issue the better
• population trend is also important
• investors want to see people moving into a municipality and not out of it

• comprised of the number of people living in the municipality, the assesed property values, and how much the average person makes
• Larger tax bases are ideal

• because sales taxes support GO bonds, the amount of sales per captia is important
• The higher the better for investors

• the money collected from these things is used directly to pay off the municipalities debt

• Municipal GO bonds are backed by the huge taxing power of the municipality, so Go bonds usually have higher ratings and lower yields than revenue bonds

• are issued to fund municipal facilities that'll generate enough income to support the bonds
• they raise money through certain untilities, toll roads, airports, hospitals, student loans, ect
• They do not need voter approval
• they require a feasibility study (the study is issued to make sure that it "makes sense")

• can be issued by a municipality to finance the construction of a facility for a corporation that moves into the municipality
• these are backed by lease payments made by a corporation
• are considered the riskiest municipal bonds
• the credit rating of these bonds is derived from the credit rating of the corporation

• As with any investment, you should check out the specifics of the revenue bond
• Check things such as call features

• Rate Covenant
• Maintenance Covenant
• Insurance Covenant

• Promises that the municipality will charge sufficient fees to people using the facility to be able to pay expenses and the deb service (principle and interest on the bonds)

• Promises that the municipality will adequetly take care of the facility and any equipment so the facility continues to earn revenue

• Promises that the municipality will adequetly insure the facility

• says that if a municipality is going to issuer more bonds backed by the same project, it must prove that the revenues will be sufficient to cover all the bonds
• the indeture on the bond may say that it is open-ended or closed-ended
• If it is open-ended additional bonds will have equal claims on assets
• its its closed-ended, any other bonds issued are lower ranked to the original issue

• States that if a facility is destroyed due to a catstrophic event such as a flood, hurrican, ect, the municipality will use the insurace that it purchased to call the bonds and pay back bondholders

• relates only to revenue bonds
• tells you what a municipality does with the money collected from the revenue-producing facility that's backing the bonds

1. operation and maintenance
2. debt service
3. debt service reserve
4. reserve maintenace fund
5. renewal and replacement fund
6. surplus fund

• the first that the municipality pays with the revenues it receives
• if the municipality doesnt adequetly maintain the facility and pay its employees, it'll cease to run

• this is the principal and interest on the bonds
• second item to be paid with revenues

• money that the municipality puts aside to pay one year's debt service
• 3rd to be paid with revenues

• helps supplement the gerneal maintenance fund
• 4th to be paid with revenues

• used for renewal projects (updating and modernizing) and replacement of equipment
• 5th to be paid with revenues

• can be used for several purposes, such as redeeming bonds, paying for improvements, and so on
• last thing to be paid with revenues

• an indication of the ability of a municipal issuer to meet debt service payments on its bonds
• the higher the ratio the more likely the issuer will be able to meet interest and principal payments on time

= net or gross revenues ÷ principal + interest

• If the question doesnt specifically ask for gross revenues or net revenues, you can assume net because that more the common way that a municipality pays off its debt

• are secured by one or more taxes other than ad valorem (property) taxes
• Can be backed by sales taxes on fuel, tobacco, alcohol, ect

• issued to fund the construction of sidewalks, streets, sewers, and so on
• backed by taxes only on the properties that benefit from the improvements

• are a combination of revenue and GO bonds
• these bonds are issued to fund revenue-devloping facilities (toll bridges, water and sewer facilites, ect)
• if revenues arnt enough to pay off the debt, then tax revenues make up the deficiency

• also called new housing authority (NHA) bonds
• are issued by local housing authorities to build and imporve low-income housing
• are backed by U.S government subsidiaries and if the issuer cant pay off the debt, then the U.S government makes up any shortfalls
• Are the safest of all municipal bonds

• issued by a municipality but backed by the pledge from the state government to pay off the debt if the muni cant
• they need legislative approval to be issued
• states have a moral obligation but not a legal obligation to pay off the debt
• These are considered safe

• are issued when municipalities need short-term (interim) financing, municipal notes come into play
• bring money into the municipality until other revenues are received
• have maturities of one year or less

• provide financing for current operations in anticiaption of future taxes that the municipality will collect

• provide financing for current opertaions in anticipation of future revenues that the municipality will collect

• are a combination of TANs and RANs

• provide interim financing for the municipality while its waiting for long-term bonds to be issued

• provide interim financing for the construction of multifamily apartment buildings

• provide interim financing for the building of subsidized housing of low-income families

• AON (all or none) is an order qualifier (fill an entire order at a specific price or not at all) or type of underwriting; It is not a municipal note, no matter how much it looks like one

• from best to worst
• Moody's: MIG1, MIG2, MIG 3
• Standard & Poor's: SP-1, SP-2, SP-3
• Fitch: F-1, F-2, F-3

• municipal bonds have the lowest yields of all bonds
• because municipal bonds have a tax advantage that U.S government bonds dont have: the interest received on municipal bonds is federally tax free

• Tells you what the interest rate of a municipal bond would be if it weren't federally tax free

TEY= municipal yield ÷ 100% - investors tax bracket

• because the investors tax bracket comes into play with municipal bonds, they are better suited for investors in higher tax brackets

• the yield of a taxable bond after paying taxes
• once you have this yield you can compare it to a municipal bond to help determine the best investment for your customers

MEY = municipal yield x (100% - investors tax bracket)

• bonds that U.S territories (and federal districts) issue are tripple tax-free (the interest is not taxed on the federal, state, or local level)
• Puerto Rico
• Guam
• U.S Virgin Islands
• American Samoa
• Washington D.C.
• additionally, in most cases if you buy a municipal bond in your own state, the itnerest will be tripple tax-free

• The tax advantage on municipal bonds applies only to the interest received
• if investors sell municipal bonds for more than they paid for them, the investors have to pay taxes on the capital gains

• a new registered representative can't engage in any municipal securities business with the public for their first 90 days in the industry
• they may deal with dealers, and they may NOT recieve any commisions during this time
• This 90 days applys only to municipal bonds, you can still receive commissions from selling other types of securities

• alll confirmations of trades must be sent or given to customers at or before the completion of the transaction (settlement date)
• municipal securities settle regular way in three business days after the trade

• the broker-dealers name, address, and phone #
• the capacity of the trade (whether the firm acted as broker or dealer)
• the dollar amount of the commission
• the customers name
• any bond particulars, such as issuers name, interest rate, maturity, ect
• committee on Uniform Securities Identification Procedures (CUISP) identification number
• bond yield and dollar price
• any accrued interest
• the registartion form
• whether the bonds have been called or pre-refunded
• any unusual facts about the security

• all brokerage firms have to keep all advertising for a  minimum of 3 years
• all advertising must be approved by a principle (manager) that the Municipal Securities Rulemaking Board (MSRB) requires, the ensure that all advertising is accurate and true

• A regulating body that creates rules and policies for investment firms and banks in the issuing and sale of municipal bonds, notes and other municipal securities by states, cities and counties. Activities regulated by the MSRB include the underwriting, trading and selling of municipal securities financing public projects.

• municipal securities dealers cant give gifts to customers valued at more than $100 per year
• business expenses are exempt from this rule
• TIP! : if you get a question on the series 7 about gifts just remember that business expenses are exempt.  These include airline tickets (for the customer to meet you), hotel expenses (for customers lodging to meet you), business meals, and so on.

• all commissions, markups, and markdowns must be fair and reasonable, and policies cant discriminate among cusomters
• the rules items that firms must consider are:
• the market value of the securities at the time of the trade
• the total dollar amount of the transaction
• the difficulty of the trade
• the fact that you and the firm that you work for are entitled to make a profit

• published monday thru friday and is a newspaper about municipal issues
• the following statistics and information is included in it:
• the visible supply
• the placement ratio
• official notice of sale

The visible supply

• the total dollar amount of municipal bonds expected to reach the market within the next 30 days

• the percentage of new issues this week as compared to new issues offered for sale the previous week

• municipalities looking to accept underwriting bids for new issues of municipal bonds publish the official notice
• includes:
• when and where bids can be submitted
• the total amount of the sale
• amount of the good faith deposit
• the type of bond being offered (GO or Revenue)
• Methods for calculating cost
• the taxes backing the issue

• because GO bonds are backed by taxes paid by people living in the municipality, issuers are more likely to take bids by underwriters for GO bonds than for revenue bonds
• the winning bis has the lowest net interest cost to the issuer (the lowest interest rate and/or highest purchase price

• the bond buyers index
• the eleven-bond index
• the revenue bond index
• the municipal bond index

• also called the 20-bond index
• measures the average yield of 20 municipal bonds with 20 years of maturity
• all these bonds have a rating of A or better

• the average of 11 bonds from the 20 bond index with a rating of AA or better

• the average yield of 25 revenue bonds with 30 years of maturity rated A or better

• the average dollar pricde of 40 highly traded GO and revenue bonds with an average maturity of 20 years with a rating of A or better

• a wire service provided by subscription to the Bond Buyer
• it provides general information about proposed municipal securities, prices, and general information relevant to the municipal bond market