By Anthony C. Criscuolo, CFA, and Michael Faloon
November 7th, 2003

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Variable rate demand obligations (VRDOs) are an attractive alternative for tax sensitive investors seeking short term, tax-exempt income in a high quality and highly liquid instrument. In this overview, Anthony C. Criscuolo, Standish Mellon’s portfolio manager for tax sensitive strategies and Michael Faloon, our quantitative analyst for tax exempt bonds, outline the essentials of the market, including:

• VRDOs are issued at par and investors receive par plus accrued income to the next put date.
• VRDOs maintain a stable dollar value between put dates and are rated MIG-1, SP-1, based on credit support.
• The high quality nature of the market is evidenced by the fact that VRDOs are eligible for purchase by tax-exempt money market funds. Moreover, the sector has never experienced a default.

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The preceding information is based upon the analysis of historical performance of various asset classes and assumptions with respect to future economic conditions. Past performance is not an indication of future results. This information is not intended to provide specific advice, recommendations or projected returns of any particular Standish Mellon product.