Pennsylvania municipal bonds are issued with or without the ‘full credit and faith’ of the State. General Obligation (GO) Pennsylvania bonds have full State backing; whereas Pennsylvania revenue bonds do not have the complete State backing. So, they offer less security.
Pennsylvania Municipal Bonds: Evolution
First issued in the 1880s, municipal bonds were intended for financing large-scale State projects. The issue of municipal bonds was overseen by a bond counsel, which was a group of specially trained attorneys.
About four decades later, the Congress exempted the interest on such bonds from federal taxes for attracting more investors; thereby increasing the responsibilities of the bond counsel. These municipal bonds were mostly traded through these private entities.
The State of Pennsylvania, in 1968, amended its constitution for broadening the control of local governments for issuing their own GO or General Obligation bonds. This reduced the need to rely on independent authorities for financing important State projects.
Pennsylvania Municipal Bonds Fund: Top Performers
Some top performing Pennsylvania mutual bond fund issuers are:
Franklin Templeton: The fund has an average credit quality of ‘A’ and an average duration of 6.7 years. This duration is a clear indication of the fund’s sensitivity to interest rate changes. Dividends on the Franklin Pennsylvania municipal bond funds are paid on a monthly basis. As of August 31, 2009, higher education, GO bonds and healthcare comprised the principal components of the fund.
MFS: As of September 30, 2009, the fund had net assets worth $124.8 million. MFS has an average credit rating of ‘A’ and average duration of 8.97 years. GO bonds, healthcare and university/college are principal investment areas of the fund, constituting 18.5%, 18.1% and 14.0% respectively.
Oppenheimer: This Pennsylvania bonds fund had an average credit quality of ‘BBB’ and an average duration of 10.7 years, as of September 30, 2009. Tobacco, healthcare, higher learning and single-family-housing are top investment categories of the fund, collectively comprising 52.2% of the fund.
Pennsylvania Bonds: Taxability
The Pennsylvania legislature does not tax individuals on municipal bonds that are issued in the State. However, those who reside in Pennsylvania enjoy no exemption from tax on the interest earned on municipal bonds of other states. On the other hand, Pennsylvania exempts corporates from tax on interest that is received from the municipal bonds of Pennsylvania and other states.