Bloomberg News

Fidelity Starts First Municipal-Bond Funds With Fixed End Dates

June 22, 2011

June 22 (Bloomberg) -- Fidelity Investments, the second- biggest U.S. mutual fund company, is starting four funds with defined liquidation dates that invest in municipal bonds, the first actively managed pools of this type.

The funds have defined end dates in 2015, 2017, 2019 and 2021, and will buy investment grade municipal bonds with maturities close to those dates, Mark Sommer, one of the portfolio managers, said in an interview yesterday.

Fidelity, based in Boston, is targeting investors who have purchased municipal-bond funds in the past and are seeking to invest over fixed periods, to meet obligations such as college tuition or retirement plans. The funds are designed to have declining interest-rate sensitivity, protecting investors from an increase in borrowing costs near the maturity date, Sommer said.

“If you were to buy a traditional bond fund, even for a shorter duration, and rates were to go up dramatically just on the eve of when you needed your money, the value of those bond funds would go down,” Sommer said. Fidelity’s new funds “will start out at longer durations and then gradually decline to somewhere near zero.”

States and municipalities have sold about half of the amount of securities this year compared with the same period in 2010, according to data compiled by Bloomberg.

--Editors: Christian Baumgaertel, Steven Crabill

To contact the reporter on this story: Laura Keeley in Boston at lkeeley1@bloomberg.net.

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net.


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