(NAPSA)—Investors continue to demonstrate concern about ongoing volatility in the equity market. In many cases, equity shareholders have received large taxablecapital gains distributions after last year’s negative returns, compounding the pain. What's an investor to do? Remember municipal bond funds? While muni bond returns will never rival the highs of equities, munis are generally viewed as less volatile, more conservative investments across different market environments. The Lehman Muni Bond Index was up 13.28% in 2000, versus the S&P 500 Index which was down 9.10% for the year. The Lehman Muni Bond Index was up 2.2% in 2001,versus the S&P 500 Index which was down 4.37% as of May 31, 2001. Ironically, while volatility in the equity market over the recent pastis prompting investors to consider whether other options might makesense for them,the very fact thatthe bull market wasso strong for so longis, in andofitself, a compelling reason to examine the allocation of your portfolio. The decade-plus run ofstrong equity returns in many cases skewed the mix of individual portfolios, dramatically increasing the portion dedicated to equities. The percentage you may haveallocated years back to fixed-income funds may now be much less than what you had intended, with capital appreciation having driven up your exposure to stocks. Thus, your overall risk levels might be far greater than the last time you balancedyourportfolio. span has madeit clear that the Federal Reserve Board’s bias will be to continue to cut rates to ward off a recession, in Mr. Maclntosh’s opinion. “With layoffs occurring in manykey industries and businesses highly reluctant to invest in new plants and equipment, further rate reductions are very likely,” heobserved. While muniyields may appear miniscule comparedto the eye-popping equity returns of the recent past, remember that munis offer tax-exempt yields—in other words, a portionisn’t going to the governmentin the form of taxes. For investors in the top federal tax bracket, a seemingly small 4.5 percent annualtax-exemptyield on a national municipal bond fund actually translates into a taxable equivalent yield of 7.45 percent. That means an investor would For example, a typical asset allocation put together at the end of 1993 might have been 55% equities, 35% bonds, and 10% cash. If that portfolio had not since been “tweaked,” on average, the asset allocation would now be far more weighted toward equities—somewhere in the magnitude of 70%, with now only approximately 22% have to earn 7.45 percent in taxweightedin bonds. “Asset allocation is extremely able income on an equity fund, in important now,” stated Robert order to derive the sameafter-tax MacIntosh, vice president and benefit as earning a tax-free 4.5 portfolio manager of 12 municipal percent. For single-state municipal bond funds at Eaton Vance. “The bond fund investors, that return market is driven by fear and can be even greater because the greed. At the bottom of markets income from in-state muni bond like October 1998, people don’t fundsis usually exemptfrom state want to touch stocks. Give me andoftenlocal taxes. Eaton Vance, a leader in taxshelter, so to speak. At the high end,it’s a wonderful party and managed investing, offers the let’s enjoy it. That’s the precise most single-state municipal bond reason asset allocation makes funds of any mutual fund prosense. The current environment vider. Eaton Vance municipal represents a classic opportunity bondfunds are actively managed, for investorsto fine-tunea portfo- with the managers keeping a close lio and add potential value over eye on thelevelofcapital gains. In fact, Eaton Vance municipal the next 18 months.” Munisare also an asset class funds paid out very little in capithat thrives in an environmentof tal gains and have an impressive low interest rates, and Mr. Green- recordof taxefficiency.
