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Update - July 16, 2008 - While many auction rate security instruments have been retired, returning principal to investors, these instruments are now viewed as highly inappropriate for non-institutional investors. The ARS market has experienced severe difficulty, making front-page news on the Wall Street Journal. Many investors have been unable to liquidate their positions, and yields are highly volatile. Until the market sees greater stabilization and transparency, we recommend staying away from Auction Rate Securities.

The United States Treasury currently offers a special kind of security, called a Treasury Inflation-Protected Security (TIPS), whose principal amount is adjusted for inflation. The Treasury Department regularly auctions TIPS with 5-year, 10-year and 20-year maturity. The Treasury introduced these instruments in 1997, based on the premise that the issuance of TIPS would reduce interest costs to the Treasury over the long term and would increase the different types of investors that buy their debt instruments. Although TIPS do bear a significant risk of loss and are therefore no a cash equivalent, they have been very popular among certain classes of investors looking to hedge their interest rate and inflation exposure.

Taxable and Private Activity Municipal bonds are munis which are not totally tax-exempt.

Pre-refunded municipal bonds offer short-term investors the ability to take advantage of the tax advantages of municipal bonds while gaining higher tax equivalent yields and avoiding some of the risks of downgrade or even default that municipal bonds inherently carry.

Open-ended tax-free money market funds are generally composed of pools of municipal bonds and produce income that is exempt from federal tax, and exempt at the state and local tax levels to residents of the issuing state of the underlying bonds.

Municipal Bonds are known to be tax advanaged vehicles for investing money, but that tax advantage sometimes does not extend to individuals subject to the Alternative Minimum Tax (AMT).

Municipal Bond ETFs offer another way to invest in the muni market besides purchasing the bonds outright or investing in a municipal bond fund.

Closed-ended tax-free municipal bonds funds are generally composed of pools of municipal bonds and produce income that is exempt from federal tax, and exempt at the state and local tax levels to residents of the issuing state of the underlying bonds.