Tax-Free MM Funds manager just stupid or what?

I currently have a fidelity brokerage account. I buy only 7 day VRDO
non AMT from Fidelity and keep my reserve cash in Fidelity California
AMT Tax-Free Money Market Fund (FSPXX). I have noticed most of the time
the spread between the VRDO and this fund is about 10-15 bais points
over last year. But over the last 3 weeks this funds yeild have droped
from 2.88% to 2.52% while all the VRDO I have have went from 2.98% to
3.17%. I currently have 7 different VRDO all paying the same rate as
they all reset 12/14/05.

I know this fund holds 83% of there total assets in 7 day VRDO which
are not subject to AMT. The funny thing is I looked at there holdings
and many of the same VRDO they sold me are also held by this mutual
fund according to there own Prospectus & Reports which is accurate as
of 10-31-05.

So anyone understand why the yeild has fallen while the underlying
issues are paying a higher rate?

I noticed not only has this fund yeild fallen but so has Vangaurds and
many other Ca Tax-free funds. Is it possible over the last 30 days all
these fund managers thought the fed was not going to raise short term
rates and bought longer positions who yeild have not increased as fast
as 7 day paper?

Or is it possible they only charge there expenss ratio against Dec
dividends thus pushing the yeild lower?

If anyone knows or understands why please let me know.

Thank you

Re: Tax-Free MM Funds manager just stupid or what?

wrote:
> I noticed not only has this fund yeild fallen but so has Vangaurds and
> many other Ca Tax-free funds. Is it possible over the last 30 days all
> these fund managers thought the fed was not going to raise short term
> rates and bought longer positions who yeild have not increased as fast
> as 7 day paper?

> Or is it possible they only charge there expenss ratio against Dec
> dividends thus pushing the yeild lower?

I'm not a bond buyer, maybe someday. If in Jan/Feb your underlying
notes reach closer parity - that would put it in ER territory for this
time of year, although I don't like the defination. I'd think an ER
would fiscially be a constant throughout yearly distributions. Nor why
a manager's longer position would be to override shorter positive
returns you're seeing - there are their standings to consider while
better notes are available. Given the FED has raised rates for thirteen
consecutive times, why should managers have had a different scenario 30
days ago, than what only yesterday was announced. Easier for me to
see, than all the why's, is to go where the flow goes if you're pulling
better rates on individual notes.

Re: Tax-Free MM Funds manager just stupid or what?

VRDN are only sold in $100K lots from Fidelity. They also have T+3
seatlement. I keep some money liquid in this fund. I know buying bonds
and not paying an expenss ratio will always give me a higher yeild.
That was not the question I asked.

I have noticed all year long spread between the bonds I bought and this
fund has been 10-15 bais points. Over the last 3 weeks while my bonds
interest rates have increased this money market fund yeild has
decreased. The spread between bonds and Money market fund is now 65
bais points. All the bonds I hold are AAA + have insurance + letters of
credit + SBPA on them and have lowest yeild from the ones Fidelity
sells.

I know if I would buy lower credit quality bonds without all the extra
credit and liquidity support yeild would be 3.50%.

So what I dont understand why the yeild is going down on this fund.

Re: Tax-Free MM Funds manager just stupid or what?

wrote:
>
> VRDN are only sold in $100K lots from Fidelity. They also have T+3
> seatlement. I keep some money liquid in this fund. I know buying bonds
> and not paying an expenss ratio will always give me a higher yeild.
> That was not the question I asked.
>
> I have noticed all year long spread between the bonds I bought and this
> fund has been 10-15 bais points. Over the last 3 weeks while my bonds
> interest rates have increased this money market fund yeild has
> decreased. The spread between bonds and Money market fund is now 65
> bais points. All the bonds I hold are AAA + have insurance + letters of
> credit + SBPA on them and have lowest yeild from the ones Fidelity
> sells.
>
> I know if I would buy lower credit quality bonds without all the extra
> credit and liquidity support yeild would be 3.50%.
>
> So what I dont understand why the yeild is going down on this fund.

Fidelity's bond desk gave me the following information:

- They don't sell variable rate demand notes, but they sell "resets",
which Fidelity says are "similar". I've no idea what this means, but
this wasn't the only Fidelity rep to translate VRDNs into "resets".

- The best coupon rates for California securities (that's the state you
mentioned in your previous post) are currently around 2.8-3.1%,
depending on reset period (roughly a week to a month).

- New York is running almost 1/2% higher. (Which would still come out
ahead after subtracting California's 9.3% tax.)

- Minimum investment for the example securities I was given was
$25K-$50K (depending on which security we were talking about). Not
exactly pocket change, but still less than the $100K you were given.
You seem to be getting 10-20 extra basis points, but I can't tell
whether that's a week's difference in pricing, or because you are
looking at higher value securities.

Right now, Vanguard's Calif. MMF shows a yield of 2.94% (NY 2.96%),
while Fidelity's AMT-Free Calif. is showing 2.84% (NY 2.76%). That's
back to the spread you expected between the MMFs and these "resets".

All of which leaves your interesting question - why did the MMFs dip a
week ago? (And why still such a spread in NY?)

BTW, thanks for the post on VRDNs. They look like something worth
serious consideration.
--
Mark Freeland

Re: Tax-Free MM Funds manager just stupid or what?

Fidelity used to sell VRDN and VRDO up until about June 2005. If you
had any before they stoped selling them you can continue to hold them.
You can also sell or buy more into any VRDN or VRDO (Variable Rate
Demand Obligations which are Muni VRDN are corp that is what i was told
by Feditlity) you curretnly have with them in even $100K lots only. On
Dec 21 mine reset at 3.23% so the spread has narrowed over the last 2
weeks from 65 bais points to 39 bais points but it still remains higher
than what it used to be most of the year.

I have a felling they are charging a higher ER in Dec or reconsile
there ER in DEC thus pushing down the yeild. In this AMT free fund last
year they credited back about 30% of all the management fees according
to OCT yearly annual report so maybe as yeilds have come up they are
now charging the full ER.