NUO - Leveraged Municipal Bond Funds - Expect Dividend Growth

Introduction

Municipal bond funds are a popular choice for income investors, as their distributions are not taxed by the US government or by state governments when the bonds are issued by the home state of the taxpayer. Many of these funds employ leverage by selling variable-rate preferred securities to purchase more muni bonds. For example, a fund with 35% leverage and net assets of $100 million would sell $35 million of preferred securities and hold a bond portfolio of $135 million. This makes the fund’s distributions somewhat dependent on the spread between short- and long-term

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