All about Bonds - Tax-Exempt Reset Securities

Tax-Exempt Reset Securities

Investors seeking competitive after-tax short-term returns may be interested in tax-exempt reset securities, such as Tax-Exempt Auction Rate Preferred Securities (ARPS), Municipal Auction Rate Securities (MARS) and Variable Rate Demand Bonds (VRDBs).

ARPS and MARS have par values of $25,000, $50,000 or $100,000 per share, while VRDBs are typically traded in multiples of $100,000.

All of these high quality tax-exempt securities may be suitable for meeting the short-term investment needs of individuals and businesses.

ARPS

ARPS are issued by municipal bond funds as preferred securities and are priced in a modified Dutch auction process.

They provide a high level of liquidity and typically have high credit ratings and attractive yields.

ARPS mature every 7 or 28 days, when principal can be returned or rolled over.

Dividends are paid weekly for 7-day issues or monthly for 28-day issues.

MARS

MARS are issued by individual municipal entities and are also priced in a Dutch auction process.

MARS have a variety of reset dates available, ranging from daily to quarterly.

MARS provide high liquidity and offer high credit quality and competitive yields.

VRDBs

VRDBs have a set nominal long-term maturity, as well as a coupon that is adjusted weekly.

Their high degree of liquidity is made possible by a put feature that allows investors to sell (“put”) the bonds at any time at par.

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