Dow Jones 11115.32 -5.36 6:22 am PST, February 18, 2006  NASDAQ 2282.36 -12.27 For info, visit access.smallcapnetwork.com S & P 500 1287.24 -2.14 Change your subscription status here Russell 2000 730.94 -0.98 VOLUME 06: ISSUE 14  Feature: The Secret World of Municipal Bonds. At least it is to most investors. But for a bunch or reasons, including enhanced yield, tax efficiency and portfolio diversification, 'Muni' bonds could well make sense in your little world. As well, for those who want or need a better and more secure income stream, Muni's also bear investigation. As mentioned in our recent 'Build Your Own Index Linked CD' piece, Muni's could well be the risk-free component to that strategy. Muni's tend to have lower coupon than comparable treasuries due to their tax-exempt status. Don't let that fool you. That status can make the equivalent after tax yield very appealing. What are Municipal Bonds? Municipal bonds are debt securities issued by or on behalf of U.S. state and local governments, their agencies or authorities. These issuers sell bonds to fund either their general operations or specific projects, such as the construction of bridges or highways. For instance, a local water authority or school district might issue municipal bonds to help fund an expansion. Aside from the specific set of issuers-state and local governments-the defining characteristic of municipal bonds is their tax status. The interest income earned on most municipal bonds is exempt from federal income taxes. Interest payments are also generally exempt from state taxes if the owner of the bond resides within the state that issued the security, and the same rule applies to local taxes. The current Muni market exceeds $2 trillion and there are over 60,000 issuers. There are primarily two types: General Obligation Bonds (GO) which are secured by the issuers taxing power. Revenue Bonds, which are secured by the income from the underlying asset--say the tolls on a bridge or landing fees collected on an airport. The returns on tax-free Muni's are higher on an after tax basis than taxable Government Treasuries. This historical chart gives a sense of the relationship between AAA rated tax-free Muni's and Treasuries over the yield curve. Most Muni's are exempt from federal tax and usually state tax if issued and purchased in your state. The higher your tax bracket, the better the return. If your are in say a 28 percent federal tax bracket with 10 percent state taxes, the tax equivalent yield of a 3.6 percent tax-free Muni versus a taxable 4.5 percent Bond is 5.65. If you want to see more relationships and tax equivalent yields, Morningstar has a nifty calculator: http://screen.morningstar.com/BondCalc/BondCalculator_TaxEquivalent.html#BondCalculator. While each investor situation is different, a quick discussion with your accountant might prove useful in your tax/portfolio/income planning. When looking at Muni's, notice both the rating and whether the bond is insured against default. AAA rated bonds are best, but you can likely go down the food chain to BBB rated with fairly low risk of default. The lower you go, the higher the coupon or interest rate, but also the attendant risk of default. If you stray out of the 'A' rating category, make sure that the Muni has that default insurance in the event the issuer can't pay the interest and/or principal. The majority of Muni's (70 percent) are purchased by individuals and tend to be held to maturity. Therefore the volatility is lower and there are secondary markets to liquidate if necessary, although there is market risk as with any bond. If interest rates have moved up since you bought the Muni, you could take a capital hit, but most are purchased and held to maturity for security and tax-efficient income by those in higher tax brackets. Up the Ladder As with any bond purchase it is always best to 'ladder' maturities. This simply means that you might have a 2-year, a 5-year, a 7-year and a 10-year. That way, you always have bonds coming due to take advantage of higher rates, or longer maturity bonds in place to protect from lower rates upon maturity. While tax-free Muni's better serve those in the higher tax brackets, especially if they also offer state tax exemption, there may be a place for those unique vehicles for those of us in the lower echelons. Another alternative? Municipal Bond Funds, which are pretty self-explanatory. Have a look at http://www.Morningstar.com for listings, ratings and a myriad of offerings. And, give Muni's a thought when you're building that DIY index linked CD. Might be a very cool, tax efficient and profitable way to go.     We Value Your Feedback Got comments, questions or suggestions? Send 'em on over: Editor@smallcapnetwork.com If you wish to send a written request or inquiry, please send it to our physical address: TGR Group, LLC 4653 Carmel Mtn Rd Suite 308 #402  San Diego, CA 92130 Say g'night Carl... Appears Carl Icahn is through beating up on Time Warner. Apparently the 'green mailer, takeover, I can do it better than you' entrepreneur might have reached some sort of agreement with the Media Giant saving TWX from Carl and the boys taking it to the chop shop. As we've said, any spotlight that focuses management is good and in the medium to long run, Icahn's intrusion will likely serve shareholders well. Long-term investors should have a good look at this beaten down giant. P/E against 2007 projected earnings of $1.02 is a compelling 17 times. Icahn thinks the value is north of $25.   Good on ya, Bill and Melinda. Here's a different take on Microsoft. Buy it for its social conscience. Gates has stated that before he's done, he'll have given most of his now $45 billion plus stake in MSFT to charity. That rocks out loud. A few million to this school board or that Aids Charity means nothing to his lifestyle, but everything to those challenges. I'm impressed. And besides, with $35 billion in cash, no debt, Vista on the horizon and the fact that, hey, this is Microsoft, you should probably own some. We're doing some work on the company for a future piece and it looks like a substantial long-term winner to us. And that ain't charity... but it could be if y'all make a stack.   Lucent price. 'sup? Like an idling Hummer, Lucent continues to be stuck in a tight trading range--currently at the low end around $2.85. Projected earnings for next year are around 18-20 cents a share, which throws of a p/e of just under 16. Seems cheap to me, but given that it is frequently the trading volume leader, it just can't get out of its own way. Does LU management have work to do to return to past glory? Sure. Should risk-oriented investors buy some stock here? Probably. At the very least even a whiff of good news could drive it up by a $1 or so. Not for the faint of heart though. Mainly just a good trader at this point. Subscribe Information is power and timely information is profitable. Become informed and profit from SmallCapDigest Profiles and Trading Alerts by becoming a Preferred Member today. There is no cost associated with your email subscription. Add your email address below and make sure to check your email inbox and confirm your opt-in request to start receiving the SmallCapDigest Email Newsletter on a regular basis. To ensure newsletter delivery, you can add any additional email addresses you may have to the SmallCapDigest Member List. Receiving the SmallCapDigest Newsletter in multiple locations is the best way of making sure you don't miss the next investing or trading opportunity! For web based email addresses, the SmallCapDigest recommends @yahoo.com or @aol.com for timely and reliable email newsletter delivery. Subscribe Here Note: Your email address will be kept strictly confidential, and will not be shared with any other entity for any purpose at any time. If you no longer wish to receive the SmallCapDigest, simply follow the instructions located at the bottom of every SmallCapDigest Newsletter Edition. Unsubscribe Here D I S C L A I M E R: The SmallCap Digest is an independent electronic publication committed to providing our readers with factual information on selected  publicly traded companies. SmallCap Digest is not a licensed investment professional or broker-dealer. All companies are chosen on the basis of certain financial analysis and other pertinent criteria with a view toward  maximizing the upside potential for investors while minimizing the downside risk, whenever possible.  Moreover, as detailed below, this publication accepts compensation from third party consultants and/or companies which it features for the publication and circulation of the SmallCap Digest or representation on SmallCapNetwork.net.  Likewise, this newsletter is owned by TGR Group, LLC.  To the degrees enumerated herein,  this newsletter should not be regarded as an independent publication. Visit Here to view our compensation on every company we have ever covered, or visit the following web address:  http://access.smallcapnetwork.com/compensation_disclosure.html for our full compensation disclosure and http://access.smallcapnetwork.com/short_term_alerts.html for Trading Alerts compensation and disclosure. All statements and expressions are the sole  opinions of the editors and are subject to change without notice. A profile, description, or other mention of a company in the newsletter is neither an offer nor solicitation to buy or sell any securities  mentioned. While we believe all sources of information to be factual and reliable, in no way do we represent or guarantee the accuracy thereof, nor the statements made herein. From time to time TGR Group LLC sells shares in the open market it receives as compensation for coverage of client companies. Since the shares are received as compensation for services as previously disclosed, and not for investment purposes, the editors do not view the sale of the shares as contradictory to any advice delivered in the content. This should be viewed as a conflict of interest by shareholders or prospective shareholders of the client companies. The editor, members of the editor's family, and/or entities with  which the editor is affiliated aside from TGR Group LLC itself, are forbidden by company policy to own, buy, sell or otherwise trade stock for their own benefit in the companies who appear in the publication unless specifically disclosed in the newsletter. The profiles, critiques, and other editorial content of the SmallCap Digest and SmallCapNetwork.net may contain statements that appear forward as it relates to the expected capabilities of the companies mentioned herein. Some of the companies featured in the SmallCap Digest Newsletter pay an ESP (Electronic Service Provider) fee of $2,500 per month to an affiliated Technology Company for electronic delivery of this newsletter and other web related technology services. THE READER SHOULD VERIFY ALL CLAIMS AND DO THEIR OWN DUE DILIGENCE BEFORE INVESTING IN ANY SECURITIES MENTIONED. INVESTING IN  SECURITIES IS SPECULATIVE AND CARRIES A HIGH DEGREE OF RISK. THE INFORMATION FOUND IN THIS PROFILE IS PROTECTED BY THE COPYRIGHT LAWS OF THE UNITED STATES AND MAY NOT BE COPIED, OR REPRODUCED IN ANY WAY WITHOUT THE EXPRESSED, WRITTEN  CONSENT OF THE EDITORS OF SMALLCAPNETWORK.NET. We encourage our readers to invest carefully and read the investor information available at the web sites of  the Securities and Exchange Commission ("SEC") at http://www.sec.gov and/or the National Association of Securities Dealers ("NASD") at http://www.nasd.com. We also strongly recommend that you read the SEC advisory to investors concerning Internet Stock Fraud, which can be found at  http://www.sec.gov/consumer/cyberfr.htm . Readers can review all public filings by companies at the SEC's EDGAR page. The NASD has published information on how to invest carefully at its web site.