Investing in Municipal Notes and Bonds

Thank you for your interest in investing in municipal notes and bonds (securities). Municipal securities issued by states, public authorities and municipalities are debt obligations. When you purchase them, you are lending money to that issuer who uses the proceeds to finance current operations or to pay for projects that are considered beneficial to the public good: schools, highways and bridges, hospitals and sewer systems, for example. 

In return for the use of your money, the issuer pays you interest and promises to return your principal at a predetermined future date. The interest income from municipal securities is generally exempt from federal income taxes and, in most cases, from state and local income taxation as well.1

Investing in Municipal Notes and Bonds

Notes and Bonds

Municipal securities consist primarily of notes (short-term issues), which mature in less than one year, and bonds (long-term issues), which have maturities of greater than one year. Notes are generally issued to finance current operations in anticipation of receiving revenue at a future date within a fiscal year. Bonds are usually sold to finance long-term capital projects, or to refinance previously issued higher interest rate debt.

  • General Obligation Bonds: Principal and interest are secured by the full faith and credit of the issuer; property (ad valorem) taxes can be levied without limit to satisfy debt service. General obligation bonds, like other securities, may be impacted by issuer credit events such as bankruptcy.
  • Revenue Bonds: Principal and interest are secured solely from revenue generated by the funded project, for example toll roads, bridges, and hospitals.

How to Invest in New Municipal Bond Issues

Municipal securities cannot be purchased directly from the issuing state or municipality. Instead, at issuance they must be purchased through a broker-dealer. To purchase municipal notes and bonds through Morgan Stanley, you will need to open a brokerage account with us. If you already have a Morgan Stanley account, please reach out to your Morgan Stanley Financial Advisor to discuss whether municipal securities are appropriate for you. If you do not have a Morgan Stanley account, please use one of the methods below to contact a Morgan Stanley Financial Advisor:

  • Branch Locator—Use the branch locator below to contact your nearest Morgan Stanley Financial Advisor, who will be pleased to assist with opening an account. Launch Branch Locator.
  • Telephone—Please call (800) 869-3326 to find your nearest branch.

New issue municipal securities can only be offered through an Official Statement, which contains information about the security type, interest rate, maturity date, use of proceeds and additional information. Please ask your Morgan Stanley Financial Advisor for a copy of the Official Statement.

This material has been prepared for informational purposes only and does not constitute a recommendation. This information does not constitute an offer to sell or a solicitation of an offer to buy these securities or to participate in any trading strategy. This information is subject to change and is superseded in its entirety by the information contained in the Official Statement. Investors are instructed to read the entire Official Statement to obtain information essential to making an informed investment decision. Bonds are subject to price change and availability. The appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives. Municipal securities may not be suitable for all investors.

The value of fixed income securities will fluctuate and, upon a sale, may be worth more or less than their original cost or maturity value. Bonds are subject to interest rate risk. When interest rates rise, bond prices fall; generally, the longer a bond's maturity, the more sensitive it is to this risk. Bonds may also be subject to call risk, which is the risk that the issuer will redeem the debt at its option, fully or partially, before the scheduled maturity date. The market value of debt instruments may fluctuate, and proceeds from sales prior to maturity may be more or less than the amount originally invested or the maturity value due to changes in market conditions or changes in the credit quality of the issuer.

Morgan Stanley Smith Barney LLC, its affiliates and Morgan Stanley Wealth Management Financial Advisors do not render advice on tax and tax accounting matters to clients. This material was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer under U.S. federal tax laws. You should always consult your own legal or tax advisor for information concerning your individual situation.