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This document sets forth Citigroup Global Markets Inc. ("CGMI")'s material practices and procedures in conducting auctions of auction rate securities ("ARS"). To help the reader put these practices and procedures in context, the document begins with a generic description of the ARS market and features. The reader familiar with ARS may go directly to section B for a description of CGMI's role in auctions.
B. CGMI's Role
A. Overview of the Auction Rate Securities Market
ARS are municipal bonds, corporate bonds, and preferred stocks with interest rates or dividend yields that are periodically re-set through auctions, typically every 7, 14, 28, or 35 days. ARS are usually issued with stated intermediate to long-term maturities or in perpetuity; however, due to ARS's interest rate or dividend yield re-set feature, they are priced and traded as short-term instruments. ARS securities are typically of high-grade credit quality. Generally, ARS are callable at par on the auction date and/or any interest payment date at the option of the issuer. Interest is paid in the current period based on the interest rate determined in the prior auction period. From an issuer's perspective, ARS are an alternative to other variable rate financing vehicles. ARS were first developed in 1984, and the ARS market has grown to well over $200 billion. Institutions and individuals participate in the ARS market. Typically, the minimum investment in ARS is $25,000.
ARS are auctioned at par and the return on the investment to the investor and the cost of financing to the issuer between auction dates is determined by the interest rate or dividend yield set through the auctions. The interest rate or dividend yield is set through an auction (commonly referred to as a "Dutch" auction) in which bids with successively higher rates are accepted until all of the securities in the auction are sold. The final rate at which all of the securities are sold is the "clearing rate" that applies to all of the securities in the auction until the next auction. The clearing rate is the lowest rate bid sufficient to cover all of the securities for sale in the auction.
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Issuer's Role in Auction Process
The issuer of each ARS selects an auction agent, typically a commercial bank, (the "Auction Agent") to perform certain functions as discussed below.
The issuer of each ARS also selects one or more broker-dealers, to underwrite the offering and/or manage the auction process.
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Broker-Dealer's Role in Auction Process
Broker-dealers for ARS securities manage the auction process. Investors can only submit orders to buy, hold or sell ARS through the broker-dealers selected by the issuer of a specific ARS. Such broker-dealers, in turn, submit all orders to the Auction Agent by the time specified in the auction procedures.
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Types of Orders
The types of orders an investor can submit in an auction vary depending on whether the investor has already invested in that particular ARS (an "existing holder") or would like to make an investment in a new ARS (a "potential holder").
Existing holders may submit to a broker-dealer hold orders, hold order at a rate, bid orders or sell orders.
- Hold order - The par amount of the securities an existing holder wishes to continue to hold, regardless of the clearing rate.
- Hold order at a rate - The par amount of the securities an existing holder wishes to hold so long as the clearing rate is no lower than a specified rate. (If the clearing rate is lower than the specified rate, an existing holder would be obligated to sell the securities it holds. If the clearing rate is at the specified rate, an existing holder may receive the entire amount it wishes to have or only portion of that amount.)
- Bid order - The par amount of securities an existing holder wishes to buy as long as the clearing rate is no lower than a specified rate. (If the clearing rate is at the specified rate, an existing holder may receive the entire amount it wishes to have or only portion of that amount.)
- Sell order - The par amount of securities an existing holder wishes to sell irrespective of the clearing rate.
If an existing holder fails to place an order, the holder will be deemed to have elected to continue to hold its ARS regardless of the clearing rate.
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In contrast, potential holders may submit only a bid to buy securities at a specified rate. If the clearing rate is above the specified rate, a potential holder will receive securities. If the clearing rate is below the specified rate, a potential holder will not receive any securities. Finally, if the clearing rate is at the specified rate, a potential holder may receive all, some or none of the securities. Orders must be submitted to the broker-dealer by specified times. See "Deadlines" below.
Auction Agent's Role in Auction Process
The Auction Agent's functions include collecting orders from all participating broker-dealers by the auction deadline, determining the amount of securities available for sale (the auction size less hold orders), and organizing the bids in ascending rate orders to determine the winning bid. If there are any orders placed into the auction at a specified rate, the Auction Agent accepts bids with the lowest rate above any applicable minimum rate and then successively higher rates up to the maximum applicable rate, until all sell orders and orders that are treated as sell orders are filled. Bids below any applicable minimum rate or above the applicable maximum rate are rejected.
After determining the clearing rate, the Auction Agent allocates the ARS available for sale to the participating broker-dealers based on the orders they submitted, as such orders are defined below, typically, in the following order of priorities:
- hold orders
- hold-at-rate and buy bids with a rate below the clearing rate
- hold-at-rate orders with a rate at the clearing rate
- and buy bids with a rate at the clearing rate
If there are multiple bids at the clearing rate, the Auction Agent will allocate securities among the bidders at such rate on a pro-rata basis. Existing holders are likely to receive preference over new bidders at the same rate. All accepted bids receive the same interest rate or dividend yields - the clearing rate.
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Notification of Clearing Rate
Once the clearing rate has been determined, the Auction Agent notifies the issuer's paying agent and the participating broker-dealer(s) of the clearing rate, which will be effective the business day following the auction or, in the case of daily auctions, the same day. If the issuer of the ARS had selected more than one firm to act as broker-dealer for the securities in the auction, the Auction Agent also notifies the participating broker-dealers whether each was a net seller or a net buyer of securities. The settlement of such purchase and sale transactions occurs on the business day following the auction unless the auction is occurring daily in which case the settlement is the same day.
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All Hold Auctions
If all existing holders determine to hold their ARS without specifying a minimum rate, the auction is called an "All Hold" auction and the new rate will be equal to the so-called "All Hold Rate" specified in the relevant offering documents. The All Hold Rate typically is based on a percentage of a reference rate, usually the London Interbank Offered Rate ("LIBOR"), the Securities Industry and Financial Market Association ("SIFMA") index, or an index of Treasury securities, which percentage usually produces a rate that is materially below a market rate.
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In the event the Auction Agent does not receive sufficient orders to purchase all the ARS being sold in the auction, the auction is said to have failed and the rate on the ARS is set at the maximum rate applicable to the specific securities being auctioned (the "Maximum Rate"). The Maximum Rate is often (a) determined by the application of a specified multiple to a reference rate, such as LIBOR, the SIFMA index or an index of Treasury securities, or (b) a specified fixed percentage rate. Holders are disadvantaged if there is a failed auction because they are not able to exit their positions through the auction and the Maximum Rate may not be sufficient to compensate the holders for the loss of liquidity and encourage the issuer to consider redeeming or restructuring the securities for failed auctions.
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Bidding By Issuers/Conduit Borrowers in ARS Auctions
Certain Municipal Issuers or Conduit Borrowers have determined to participate in the auction of their own auction rate securities pursuant to recent guidance from the U.S. Securities & Exchange Commission. These Issuers/Conduit Borrowers are required to provide a notice of their intent to participate in the auction and the interest rate and amounts that they will bid for and certain other detailed bidding information. This information will be available to you at www.dacbond.com.
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Partial Redemptions of ARS
When an ARS is subject to a partial call or redemption by the issuer, the issuer notifies the depository that carries broker dealer "street name" positions (generally the Depository Trust Company, or "DTC") of the number of units of the specific security the issuer will redeem. Depositories and brokerage firms are required by regulation to allocate partial redemptions through a fair and impartial process. Upon receipt of the issuer's notification, DTC determines the total units held by each firm and conducts an impartial, random number-based lottery to allocate the partial redemption among firms. Upon completion, DTC notifies its participant firms of the number of units allocated to them for redemption. It is important to understand that this lottery process is NOT designed to result in a pro rata allocation — it is a random allocation of the redemption across all the outstanding securities. In a partial redemption, it is possible that a participating firm will not receive any allocation for redemption in the depository's allocation process.
For customer accounts for which CGMI is an introducing broker-dealer and uses the services of Pershing LLC ("Pershing") as clearing broker to execute and clear transactions and to carry customer accounts, customers' ARS positions will actually be carried by Pershing, and Pershing will be the relevant DTC participating firm. For CGMI customer accounts that are carried and cleared at CGMI, CGMI is the relevant DTC participating firm. When an auction rate security is subject to a partial redemption, pursuant to NYSE Rule 402.30 each of Pershing and CGMI has procedures that are designed to treat customers fairly by allocating its participating firm call allotment to customers through an impartial lottery process.
Upon receipt of its allocation from the depository, each of Pershing and CGMI uses an automated, impartial, random number-based lottery approach similar to DTC's to determine which accounts, and the number of units in each account, will be redeemed. A particular account could be allocated a full, partial, or no redemption. Consistent with regulatory guidance, each of Pershing and CGMI has implemented a requirement that partial redemptions of ARS be fully allocated to client positions before employee or firm inventory holdings that it carries may be redeemed.
View a detailed description of Pershing's lottery allocation process.
View a detailed description and illustration of CGMI's random number-based lottery methodology.
Clients have the right to withdraw uncalled fully paid securities from their accounts at any time prior to a partial call, subject to any applicable margin, lending or lending-related agreements.
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ARS Settlement Information
In August 2008, CGMI announced agreements in principle with state and federal regulators under which it offered to purchase at par from individual investors and certain small institutions and charities (as defined by the terms of the settlements) the non-auctioning ARS they purchased from CGMI on or before February 12, 2008. With respect to institutional investors not covered by the offer to purchase provisions of the settlements and that had purchased ARS from CGMI on or before February 12, 2008, CGMI agreed to use its best efforts to provide opportunities to liquidate their Eligible ARS as defined by the settlement agreements. In addition, the settlement documents describe the reporting obligations of CGMI to these regulators regarding their ongoing efforts to provide liquidity solutions to institutional cients, as well as CGMI's obligations to reimburse certain refinancing or conversion fees to municipal issuer clients.
On December 11, 2008, the Securities and Exchange Commission ("SEC"), the New York Attorney General ("NYAG"), and the Texas State Securities Board ("TSSB") filed orders and assurances documenting these agreements in principle reached in August 2008.
Purchase of Eligible ARS
The settlements provide detailed information on the customers that were eligible to have CGMI purchase their ARS and the ARS that were eligible for purchase. The settlements also set forth a timetable for CGMI to provide notice to, and to offer to buyback ARS from, those eligible customers. Consistent with the settlement agreements, CGMI's offer to purchase ARS expired on June 12, 2009. If you did not receive notice of the offer to purchase your ARS, but believe that you may have been eligible to have ARS purchased by CGMI, please contact your advisor or call our toll-free customer assistance line at (866) 720-4802.
Please note: If the ARS you hold in your account at CGMI were purchased at another firm, you should contact that firm to determine whether that firm is offering to purchase your ARS.
Relief for Eligible Customers Who Sold Below Par
The settlement agreements also provide that eligible customers that sold the ARS that they purchased from CGMI for less than par between February 11, 2008 and December 11, 2008 may have been eligible to seek relief from CGMI for the difference between par and the price at which they sold their ARS, plus reasonable interest. CGMI made such payments to eligible customers that it identified. If you believe that you may have been eligible for such relief, but did not receive it, please contact your advisor or call our toll-free customer assistance line at (866) 720-4802.
Reimbursement for Loan-Related Expenses
CGMI also agreed to provide compensation to eligible customers who took out loans from CGMI after February 11, 2008 against their non-auctioning ARS purchased from CGMI, if the interest that they paid CGMI on ARS-backed loans exceeded the interest or dividends that they received on the ARS. CGMI made such payments to customers that it identified as eligible for this relief by March 31, 2009. If you believe that you may have been eligible for such relief, but did not receive it, please contact your advisor or call our toll-free customer assistance line at (866) 720-4805.
Special Arbitration Procedures
Eligible customers who believe they have suffered consequential damages caused by their inability to access funds consisting of ARS purchased from CGMI on or before February 13, 2008 may participate in a special arbitration procedure, conducted under the auspices of the Financial Industry Regulatory Authority ("FINRA"). A description of certain rules and requirements for these special arbitrations are set forth in the settlement agreements with the SEC, the NYAG, and the Texas State Securities Board (See Links to Settlement Agreements below). There are also Special Arbitration Procedures in settlement agreements with other states, which may vary in certain respects from those in the Settlement Agreements linked below. For the processes available under those state settlements, please contact the appropriate state representative. Additional information on the special arbitration process is also available at the FINRA's website www.finra.org/arbitrationmediation/P117440
With regard to institutional investors not covered by the offer to purchase provisions of the settlements, CGMI agreed to work with issuers and other interested parties, including regulatory and governmental entities, to facilitate such parties providing liquidity solutions for these investors. In doing so, CGMI has undertaken to use its best efforts to facilitate issuer redemptions and/or to resolve its institutional investors' liquidity concerns through resecuritizations and other means.
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Links to Settlement Agreements
New York Attorney General Assurance of Discontinuance
Texas State Securities Board Consent
For information about Settlement Agreements reached with individual States, please contact the appropriate representative.
Important Announcement Regarding UBS Buyback of Auction Rate Securities
On March 4, 2010, the Texas State Securities Board announced the settlement with UBS of a multi-state task force investigation concerning auction rate securities (ARS). The terms of the settlement are set forth in a Consent Order, which is available on the Texas State Securities Board's website.
Customers who believe they are covered by the Consent Order or have questions regarding the terms of the Consent Order are encouraged to immediately contact UBS about their auction rate securities holdings. Information on how to participate in the buyback can be obtained from UBS.
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B. CGMI's Role in Auctions
Bidding by CGMI
CGMI is permitted, but not obligated, to submit orders in auctions for its own account either as a bidder or a seller and routinely does so in the auction rate securities market in its sole discretion. If CGMI submits an order for its own account, it would have an advantage over other bidders because CGMI would have knowledge of some or all of the other orders placed through CGMI in that auction and, thus, could determine the rate and size of its order so as to ensure that its order is likely to be accepted in the auction and that the auction is likely to clear at a particular rate. For this reason, and because CGMI is appointed and paid by the relevant issuer to serve as a broker-dealer in the auction, CGMI's interests in conducting an auction may differ from those of existing holders and potential holders who participate in auctions. See "Auction Dealer Fees." CGMI would not have knowledge of orders submitted to the Auction Agent by any other firm that is, or may in the future be, appointed to accept orders pursuant to a broker-dealer agreement.
Where CGMI is the only broker-dealer selected by the issuer in an auction, CGMI would be the only broker-dealer that submits orders to the auction agent in that auction. As a result, in such circumstances, CGMI could discern the clearing rate before the orders are submitted to the auction agent and set the clearing rate with its order.
Bidding with Knowledge
CGMI may routinely place one or more bids in an auction for its own account to acquire ARS for its inventory, to prevent a failed auction (i.e., an event where there are insufficient clearing bids which would result in the auction rate being set at the Maximum Rate) or an auction from clearing at a rate that CGMI believes does not reflect the market for the particular ARS being auctioned. CGMI may place such bids even after obtaining knowledge of some or all of the other orders submitted through it. When bidding for its own account, CGMI may also bid outside or inside the range of rates that it posts in its Price Talk. See "Price Talk."
Bidding to Prevent Failed Auctions or to Prevent ARS from Clearing at Rate Different than Market Rate
CGMI also may routinely encourage bidding by others in auctions, including to prevent a failed auction or to prevent an auction from clearing at a rate that CGMI believes does not reflect the market for the particular ARS being auctioned. CGMI may routinely encourage such bids even after obtaining knowledge of some or all of the other orders submitted through it.
Bidding by CGMI After February 2008 Fails
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As a result of substantial market dislocation that commenced in the second half of 2007, the ARS market started to experience a vast number of fails in February 2008. Holders of ARS that continue to successfully auction should keep in mind that some or all of those auctions may be succeeding only because CGMI is bidding for its own account. CGMI has no obligation to continue to bid and may discontinue such bidding at any future auction, which could result in such auction failing.
Consequences of Bidding by CGMI
Bids by CGMI or by those it may encourage to place bids are likely to affect (i) the auction rate — including preventing the auction rate from being set at the Maximum Rate or otherwise causing bidders to receive a higher or lower rate than they might have received had CGMI not bid or not encouraged others to bid and (ii) the allocation of ARS being auctioned — including displacing some bidders who may have their bids rejected or receive fewer ARS than they would have received if CGMI had not bid or encouraged others to bid. Because of these practices, the fact that an auction clears successfully does not mean that an investment in the ARS involves no significant liquidity or credit risk. CGMI is not obligated to continue to place such bids or encourage other bidders to do so in any particular auction to prevent an auction from failing or clearing at a rate CGMI believes does not reflect the market for the securities. Investors should not assume that CGMI will do so or that failed auctions and unfavorable auction rates will not occur. Investors should also be aware that bids by CGMI or by those it may encourage to place bids may cause lower auction rates to occur.
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Information on the Likelihood of an All-Hold Auction
In any particular auction, if all outstanding ARS are the subject of submitted hold orders, the auction rate for the next succeeding auction period will be the so-called "All Hold Rate", as set forth in the document for the ARS in question (such a situation is called an "All Hold Auction"). When an All Hold Auction is likely, CGMI may, but is not obligated to, advise its customers who are existing holders of that fact, which might facilitate the submission of bids by existing holders that would avoid the occurrence of an All Hold Auction. If CGMI decides to inform its customers who are existing holders of the likelihood of an All Hold Auction, it will make that information available to all such holders at the same time.
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ARS Held by CGMI
If CGMI holds any ARS in its accounts on auction date, CGMI may or may not submit a sell order into the auction with respect to such ARS. If neither CGMI nor any other holder submits a sell order, each existing holder will be deemed to have submitted a hold order and the new rate will be the "All Hold Rate". CGMI may, but is not obligated to, submit bids for its own account in that same auction, as set forth above.
CGMI and its affiliates may hold substantial positions in certain failed ARS. Holders of failed ARS should keep in mind that auctions for failed ARS continue to be held. To the extent that neither CGMI nor any other holder submits a sell order in any auction, including in any auction that had previously resulted in a Maximum Rate or other fail rate, the new rate will be the "All Hold Rate" and not the Maximum Rate or other fail rate. In determining whether to submit or not to submit a sell order for failed ARS, existing holders should not assume that CGMI or its affiliates will submit a sell order into any auction.
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Auction Dealer Fees
For many auction rate securities, CGMI has been appointed by the issuer of the securities to serve as a dealer in the auction and is paid by the issuer for its services. CGMI is typically appointed to serve as a dealer in the auctions pursuant to an agreement between the issuer and CGMI. That agreement provides that CGMI will receive from the issuer auction dealer fees based on the principal amount of the securities placed through CGMI. As a result, CGMI's interests in conducting auctions may differ from those of investors who participate in auctions.
CGMI may share a portion of the auction dealer fees it receives from the issuer with other broker-dealers that submit orders through CGMI, for those orders that CGMI successfully places in the auctions. Similarly, with respect to auctions for other auction rate securities for which CGMI does not serve as a dealer, the other broker-dealers who serve as dealers in those auctions may share auction dealer fees with CGMI for orders that CGMI submits through those broker-dealers that those broker-dealers successfully place in those auctions.
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Before the start of an auction, CGMI may, in its discretion, make available to its customers who are existing holders and potential holders CGMI's good faith judgment of the range of likely clearing rates for the auction based on market and other information. This is known as "Price Talk." Price Talk is not a guaranty, and existing holders and potential holders are free to use it or ignore it. CGMI may occasionally update and change the Price Talk based on changes in issuer credit quality or macroeconomic factors that are likely to result in a change in interest rate levels, such as an announcement by the Federal Reserve Board of a change in the Federal Funds rate or an announcement by the Bureau of Labor Statistics of unemployment numbers. CGMI will make such changes available to its customers who are existing holders and potential holders that were given the original Price Talk.
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"All-or Nothing" Bids and Market Orders
CGMI does not accept "all-or-nothing" bids (i.e., bids whereby the bidder proposes to reject an allocation smaller than the entire quantity bid) or any other type of bid that allows the bidder to avoid auction procedures that require the pro rata allocation of securities where there are not sufficient sell orders to fill all bids at the clearing rate. CGMI also does not accept market order bids. Potential holders may submit buy orders at specified rates only.
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No Assurances Regarding Auction Outcomes
CGMI provides no assurance as to the outcome of any auction, nor does CGMI provide any assurance that any bid will be sucessful, in whole or in part, or that the auction will clear at a rate that a bidder considers acceptable. Bids may be rejected or may be only partially filled, or not filled at all, and the rate on any ARS purchased or retained in the auction may be lower than market rates for similar investments.
CGMI will not agree before an auction to buy ARS from or sell ARS to a customer after the auction.
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Each particular auction has a formal time deadline by which all bids must be submitted by CGMI to the Auction Agent, typically 12:30 p.m. or 1:00 p.m., New York time, on a regular trading day and 11:30 a.m., New York time, on any day in which TBMA has recommended an early market close. This deadline is called the "Submission Deadline." To provide sufficient time to process and submit customer bids to the Auction Agent before the Submission Deadline, CGMI imposes an earlier deadline for all ARS — called the "Internal Submission Deadline" — by which bidders must submit bids to CGMI, currently 12:00 p.m., New York time, on a regular trading day and 10:30 a.m., New York time, on any day in which TBMA has recommended an early market close. The Internal Submission Deadline is subject to change by CGMI. CGMI may allow for correction of clerical errors after the Internal Submission Deadline and prior to the Submission Deadline. CGMI may submit bids for its own account at any time until the Auction Submission Deadline. Some auction agents allow for the correction of clerical errors for a specified period of time after the Auction Submission Deadline.
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Existing Holder's Ability to Resell Auction Rate Securities May Be Limited
Existing holders will be able to sell the ARS in an auction only if there are bidders willing to purchase all the ARS offered for sale in the auction. If sufficient clearing bids have not been made, existing holders that have submitted sell orders will not be able to sell in the auction all, and may not be able to sell any, of the ARS subject to such submitted sell orders. As discussed above (see "Bidding By CGMI"), CGMI may submit a bid in an auction to keep it from failing, but it is not obligated to do so. There may not always be enough bidders to prevent an auction from failing in the absence of CGMI bidding in the auction for its own account. Therefore, failed auctions are possible, especially if the issuer's credit were to deteriorate, if a market disruption were to occur or if, for any reason, CGMI were unable or unwilling to bid.
Between auctions, there can be no assurance that a secondary market for the ARS will develop or, if it does develop, that it will provide existing holders the ability to resell the ARS in the secondary market on the terms or at the times desired by an existing holder. CGMI may, in its own discretion, decide to buy or sell the ARS in the secondary market for its own account at any time and at any price, including at prices equivalent to, below, or above the par value of the ARS. However, CGMI is not obligated to make a market in the ARS, and may discontinue trading in the ARS without notice for any reason at any time. Existing holders who resell between auctions may receive less than par value, depending on market conditions.
The ability to resell any ARS will depend on various factors affecting the market for the ARS, including news relating to the specific issuer of the ARS, the attractiveness of alternative investments, the perceived risk of owning the specific ARS (whether related to credit, liquidity or any other risk), the tax or accounting treatment accorded ARS generally (including recent clarification of U.S. generally accepted accounting principles as they apply to the accounting treatment of ARS), reactions of market participants to regulatory actions or press reports, financial reporting cycles and market conditions generally. Demand for the ARS may change without warning, and declines in demand may be short-lived or continue for longer periods.
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Secondary Market in ARS
From time to time, CGMI may, but is not obligated, to buy and sell ARS in secondary market. Due to the current absence of a deep or liquid secondary market for ARS, the pricing of such securities is difficult and uncertain. As a result, until such a secondary market develops, dealers may be more inclined to bid at significant discounts to par to justify the risk associated with making such a market, and the spread between dealer bid and offer prices is expected to remain wide. Moreover, the pricing of ARS may vary significantly from dealer to dealer or third-party valuation providers.
In addition to the considerations set forth above under the heading "Existing Holder's Ability to Resell Auction Rate Securities May Be Limited", an existing holder considering selling an ARS in the secondary market at a discount to par should balance its need for liquidity with foregoing the possibility of selling at a higher price in the future. For example, (i) the issuer may redeem the ARS, in whole or in part, at par; or (ii) the issuer or third party may conduct a tender offer for the ARS for a price higher than the current secondary market price; or (iii) the secondary market pricing for ARS may improve over time. Conversely, secondary market prices may deteriorate further. There can be no assurance as to the future pricing of ARS. For additional information, see Auction Rate Securities: What Happens When Auctions Fail (FINRA Investor Alert available at http://www.finra.org/Investors/ProtectYourself/InvestorAlerts/Bonds/P038207).
A potential holder purchasing ARS in the secondary market from CGMI should consider whether CGMI is a designated broker-dealer for the ARS being purchased. If CGMI is not a designated broker-dealer for that ARS, the potential holder will not be able to submit any orders into the auction for that ARS through CGMI.
Holders of ARS transacting in the secondary market should note that orders submitted into the auction are irrevocable after the Internal Submission Deadline on the day of the auction. Should the holder sell the ARS in the secondary market between the time of the Internal Submission Deadline and the time the auction results are announced, the holder takes the risk of not having sufficient ARS to deliver to the secondary market purchaser should the sell order in the auction be filled. CGMI reserves the right to impose restrictions on the submission of sell orders by its ARS holders on the day of an auction for any ARS for which it is a designated broker-dealer.
The information on secondary market trading is being provided for information purposes only and does not constitute an offer or solicitation to purchase or sell any ARS. Holders and potential holders of ARS should obtain advice based on their own individual circumstances from their own tax, financial, legal and other advisors before making an investment decision, and only make such decisions on the basis of the investor's own objectives, experience and resources. CGMI from time to time may engage in corporate finance or other investment banking activities involving issuers of ARS and may occasionally possess nonpublic information about such issuers in connection with such activities. Under applicable laws and regulations, the secondary market trading desk of CGMI is not permitted to engage in such activities or to have access to such information.
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Resignation of the Auction Agent Under the Auction Agent Agreement or CGMI Under the Broker-Dealer Agreement Could Impact the Ability to Hold Auctions
The Auction Agent agreement typically provides that the Auction Agent may resign from its duties as Auction Agent by giving at least 45 days notice to the issuer and others and does not require, as a condition to the effectiveness of such resignation, that a replacement Auction Agent be in place if its fee has not been paid. The broker-dealer agreement typically provides that CGMI and any other broker-dealer thereunder may resign upon 30 days notice or immediately, in certain circumstances, and does not require, as a condition to the effectiveness of such resignation, that a replacement broker-dealer be in place. For any auction period during which there is no duly appointed Auction Agent, or during which there is no duly appointed broker-dealer, it will not be possible to hold auctions, with the result that the interest rate on the ARS will be determined as described in the relevant documents.