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Short-Term Notes to Be Sold by State

September 28, 2004|From Times Staff Reports and Reuters

California this week plans to sell $6 billion of so-called revenue anticipation notes, short-term IOUs used to help the state meet financial obligations while awaiting future tax payments.

Individual investors were given Monday and today to place orders for up to $3 billion of the notes.

Banc of America Securities, the lead underwriter for the deal, said the $3 billion in securities would pay an annualized tax-free yield of 1.6% to 1.65%.

The interest paid on municipal securities is exempt from federal and state income tax, so the true yield is higher than the stated yield, and depends on an investor's tax bracket.

The notes are to be sold in increments of $5,000 and are set to mature June 30, 2005.

On Wednesday, institutional investors will be permitted to bid for any of the notes that individuals don't purchase, and an additional $3-billion set of notes that will include $1 billion of floating-rate securities.

Short-term municipal notes often are popular with individual investors as an alternative to money market mutual funds and other "cash" accounts.

The average annualized yield on tax-exempt money market mutual funds nationwide was 0.78% as of last week, according to data firm IMoneyNet Inc. in Westborough, Mass.

Credit rating firm Moody's Investors Service last week said it rated the California notes MIG 1, the firm's highest grade.

Moody's said the rating reflected "a moderately strong state liquidity position projected at June 30, 2005," and "the current positive trend of the state economy," among other factors.

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