Recently, Fitch Ratings published a "Primer: CEF Variable-Rate Demand Preferred Shares," which is subtitled, "Closed-End Fund VRDPs Target Short-Term, Money Market Investors." Fitch writes, "Variable-rate demand preferred shares (VRDPs) issued by municipal closed-end funds (CEFs) are structured to appeal to short-term investors, particularly money market funds (MMFs).... VRDP issuance has increased in recent months, with outstandings growing to $8.7 billion at the end of September 2011. `Demand has been driven in part by MMFs' increased need for securities that satisfy new regulatory guidelines on weekly liquidity. As of August 2011, Fitch-rated municipal and prime MMFs held, on average, 2.7% and 0.1% of assets in VRDPs, respectively, although individual fund allocations ranged from 0%-10% of portfolio assets.... VRDPs typically benefit from unconditional liquidity support in the form of a seven-day put option to a highly rated financial institution. Provided it conforms with Fitch Ratings' overall MMF rating criteria, Fitch includes VRDPs in its calculations of an MMF's available weekly liquidity. VRDPs are backed by a diversified portfolio of municipal bonds. Because of the tax-exempt nature of underlying securities, dividends from VRDPs of municipal CEFs are deemed to be exempt from federal income tax and may be exempt from local income taxes if offered by single-state municipal CEFs."

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