International Business Machines Corp. is offering a new tax-exempt municipal bond fund.
The IBM Municipal Bond Fund, launched in mid-April, is being marketed to IBM employees, retirees, and their families, but it is also open to the general public, said Norman Roos, program manager for IBM investments, with IBM Credit Corp.
IBM Credit is a wholly owned subsidiary of IBM.
In offering the new fund, IBM joins a small, but growing number of companies that have created mutual funds for their employees. For example, General Electric Co. has offered its Elfun funds to a limited group of employees for many years. In January, General Electric inaugurated six new funds, including a tax-exempt fund, which are available to all employees, retirees, and their families.
Unlike IBM, few other companies offer their funds to the general public, industry sources said.
IBM decided to launch the municipal bond fund because "it's what our customers wanted," Roos said, adding that an employee survey indicated an interest in tax-exempt investments.
IBM decided on a national municipal bond fund because there was not a large enough concentration of employees in any one state, Roos said.
The company estimated that up to 250,000 employees and retirees could be shareholders in the fund. So far, the municipal fund has about 250 shareholders, and information on the fund has been distributed to about 4,000 employees, Roos said.
In addition to the municipal bond fund, there are four other series of shares being offered by the company's IBM Mutual Funds unit. They are the IBM Large Company Index Fund, the IBM Small Company Index Fund, the IBM U.S. Treasury Index Fund, and the IBM Utility Index Fund.
IBM has no plans to launch additional municipal bond funds, Roos said.
IBM Investment Management Corp., a registered investment adviser and subsidiary of IBM Credit Corp., is the manager of the funds. Flagship Resources, a unit of Flagship Financial Inc., a Dayton-Ohio based mutual fund company, has been selected as the sub-adviser for the municipal bond fund.
As sub-adviser, Flagship is responsible for the day-to-day management of the municipal fund. Flagship was one of nine mutual fund managers that submitted proposals to manage the IBM fund, said Roos, who declined to name the other companies.
IBM initially capitalized the bond fund with $10 million. The fund now has assets of approximately $10 million, consisting entirely of investor cash.
Fund holdings will have intermediate-range maturities of seven to 12 years. Under normal market conditions, at least 95% of the fund's securities will be rated A or higher. No more than 5% of the bonds can be unrated. The fund also can invest a small portion of assets in short-term notes. and tax-exempt commercial paper. As much as 20% of the fund can be invested in alternative minimum tax bonds. The fund also may use municipal bond index futures contracts and options.
The fund does not assess sales charges or redemption fees, but will charge management fees of approximately 0.6% of the fund's average net assets. Fees are estimated at 66 per $1,000 investment during the first year. The minimum initial investment is $5,000.
Employees who opt for a payroll contribution plan do not have to make the $5,000 initial investment, but must designate at least $50 per month for the mutual fund. Roos said.
"If you don't have a minimum $5,000 to invest in municipals, you probably shouldn't be in municipals," Roos said of municipal fund's hefty minimum fee.
Most mutual funds generally require a minimum investment of less than $5,000, usually in the $1,000 range. Other mutual funds offered by IBM require a minimum investment of $2,500.
IBM also wanted to keep the management fee low and ensure that the fund's assets would be enough to cover all expenses of operating the fund, Roos said.