The increasing cost of insurance coverage has forced Vanguard to drop a requirement on six of its municipal bond funds that mandates them to invest a minimum percentage of assets in insured municipal bond issues. As a result, the firm is changing the funds names, dropping the word "insured" out of the funds monikers.
The decision was based on the decreasing number of municipal bonds being issued with insurance coverage as well as "the rising cost of this insurance," the company said. While the move will have no impact on the funds investment objectives of providing tax-free income, it will increase the funds risk, "However, the funds will continue to adhere to Vanguards high standards of credit quality, investing no less than 75% of assets in high-grade municipal bonds, and a maximum of 5% of assets in lower-rated or unrated securities," the company said.
By dropping the requirement, the funds will be able to invest in a wider array of municipal bond issues, which should have a favorable impact on the performance and investment diversity of the products, the company said.
The change will take affect in late March and the company plans to notify shareholders of the move in the funds upcoming shareholder reports.
The funds affected by the change include: the California Long-Term Tax-Exempt Fund, the California Insured Intermediate-Term Tax-Exempt Fund, the Florida Insured Long-Term Tax-Exempt Fund, the New Jersey Insured Long-Term Tax-Exempt Fund, the New York Insured Long-Term Tax-Exempt Fund and the Pennsylvania Insured Long-Term Tax-Exempt Fund.