Seligman Select Municipal Fund strikes policy to invest heavily in insured or triple-A bonds

By Cristal Cody

Springdale, Ark., July 17 - Seligman Select Municipal Fund Inc. removed a requirement on Thursday to invest the majority of its assets in insured or triple-A rated municipal bonds because of the difficulty in finding the securities, Eileen Comerford, the fund's co-portfolio manager, told Prospect News.

"Because of the rarity now, the spreads to lower-rated bonds are widening, so we're getting less and less yields by buying those triple-A bonds," she said.

The downgrade in bond insurers caused the fund to change the requirement that it invest at least 80% of its assets in a portfolio of tax-exempt municipal obligations covered by an insurance policy or rated triple-A by Moody's Investors Service or Standard & Poor's.

Some municipal bonds are a natural triple-A, but those bonds made up less than 10% of sales last year, she said.

"Given the downgrade, there's really just FSA and Assured Guaranty that still has a triple-A by Moody's and S&P and both of them are smaller insurers than MBIA, Ambac and FGIC," Comerford said. "Even though they're increasing in terms of their participation, they don't insure enough bonds for us to have enough diversification in our portfolio."

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