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Auction rate securities are long-dated bonds or preferred securities for which the interest or dividend rate is set periodically through a bidding process, an “auction.” The auction is conducted by broker-dealers, which submit the results to a third party, the “auction agent,” for a determination of the applicable rate. The following are the material practices and procedures of �鶹��ý Jaffray & Co. (“�鶹��ý” or “we”) when we act as a broker-dealer for auction rate securities.

Definitions

Auction Failure Event: failure of the auction agent to receive bids lower than the maximum rate for the total amount of securities being auctioned.

Auction Period: the period for which the auction determines the interest rate on the securities that are the subject of the auction.

Auction Procedures: the procedures governing the conduct of an auction, usually set forth in the indenture or resolution covering the securities and summarized in the offering document for the issue or in supplemental disclosure documents.

Auction Rate: the rate of interest per annum determined as a result of the auction.

Bid: an order that is an offer to buy.

Bidder: a party that places a bid with �鶹��ý during an auction.

Maximum Rate: the maximum interest rate per annum on the securities, as provided in the offering document.

Minimum Rate: the minimum interest rate per annum on the securities, as provided in the offering document.

Order: an offer to buy or sell auction rate securities during an auction, or a submitted hold order.

Seller: a party that places an order with �鶹��ý during an auction that is an offer to sell auction rate securities.

Bidding by �鶹��ý for Its Own Account

�鶹��ý 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 �鶹��ý submits an order for its own account, it will have an advantage over other bidders because �鶹��ý will have knowledge of some or all of the other orders placed through �鶹��ý in that auction and, thus, can determine the rate and size of its order so as to ensure that its order is likely to be accepted in the auction by the auction agent and that the auction is likely to clear at a particular rate. For this reason, and because �鶹��ý is appointed and paid by the issuer of the securities to serve as a broker-dealer in the auction, the �鶹��ý interests in conducting an auction may differ from those of holders and potential holders of the securities who participate in auctions. See “auction dealer fees” below. �鶹��ý would not have knowledge of orders submitted to the auction agent by any other firm that is, or may in the future be, appointed by an issuer of auction rate securities to accept orders.

�鶹��ý may routinely place one or more bids in an auction for its own account to acquire the securities for its inventory, to prevent an auction failure event (which would result in the auction rate being set at the maximum rate) or an auction from clearing at a rate that �鶹��ý believes does not reflect the market for the securities. �鶹��ý 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, �鶹��ý may also bid outside or inside the range of rates that it posts in its price talk. See “price talk” below.

�鶹��ý also may routinely encourage bidding by others in auctions, including to prevent an auction failure event or an auction from clearing at a rate that �鶹��ý believes does not reflect the market for the securities. �鶹��ý may routinely encourage such bids even after obtaining knowledge of some or all of the other orders submitted through it.

Bids by �鶹��ý 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 �鶹��ý not bid or not encouraged others to bid and (ii) the allocation of securities being auctioned, including displacing some bidders who may have their bids rejected or receive fewer securities than they would have received if �鶹��ý 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 securities involves no significant liquidity or credit risk. �鶹��ý 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 �鶹��ý believes does not reflect the market for the securities. Investors should not assume that �鶹��ý will do so or that auction failure events will not occur. Investors should also be aware that bids by �鶹��ý or by those it may encourage to place bids may cause unfavorable auction rates to occur.

In any particular auction, if all outstanding securities are the subject of submitted hold orders, the auction rate until the next auction will be the minimum rate (such a situation is called an “all hold auction”). �鶹��ý is under no obligation to advise existing holders of the fact that an all hold auction is likely.

If �鶹��ý holds any securities for its own account on an auction date, �鶹��ý will submit a sell order into the auction with respect to such securities, which would prevent that auction from being an all hold auction. �鶹��ý may, but is not obligated to, submit bids for its own account in that same auction, as set forth above.

Auction Dealer Fees

�鶹��ý may share a portion of the auction dealer fees it receives from the issuer with other broker-dealers that submit orders through �鶹��ý that �鶹��ý successfully places in the auction. In general, auction dealers may share with �鶹��ý a portion of the fees they receive from an issuer when those dealers submit orders for �鶹��ý (on behalf of �鶹��ý or its customers) into auctions in which �鶹��ý does not serve as a dealer. Similarly, with respect to auctions for other auction rate securities for which �鶹��ý does not serve as a dealer, the other broker-dealers who serve as dealers in those auctions may share auction dealer fees with �鶹��ý for orders that �鶹��ý submits through those broker-dealers that those broker-dealers successfully place in those auctions.

Price Talk

Before the start of an auction, �鶹��ý may, in its discretion, make available to existing and potential holders of the securities its 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 guarantee, and existing and potential holders are free to use it or ignore it.

If �鶹��ý provides price talk, �鶹��ý will make the price talk available to all existing and potential holders of the securities. �鶹��ý 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. �鶹��ý will make such changes available to all existing and potential holders that were given the original price talk.

All-or-Nothing Bids Prohibited

Auction procedures normally require the pro rata allocation of securities where there are not sufficient sell orders to fill all bids at the clearing rate. Thus, unless auction procedures provide otherwise, �鶹��ý 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 pro rata allocation.

No Assurances Regarding Auction Outcomes

�鶹��ý provides no assurance as to the outcome of any auction. Nor does �鶹��ý provide any assurance that any bid will be accepted or that the auction will clear at a rate that a bidder considers acceptable. Bids may be rejected or may be only partially filled, and the rate on any securities purchased or retained may be lower than the bidder expected.

Deadlines/Auction Periods

Each particular auction has a specific time deadline by which all bids must be submitted by �鶹��ý to the auction agent. 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, �鶹��ý imposes an earlier deadline—called the “internal submission deadline”—by which bidders must submit bids to �鶹��ý. The internal submission deadline is subject to change by �鶹��ý. �鶹��ý may allow for correction of clerical errors after the internal submission deadline and prior to the submission deadline. �鶹��ý may submit bids for its own account at any time until the auction submission deadline. Some auction agents may allow for the correction of clerical errors on a case-by-case basis in their sole discretion for a specified period of time after the auction submission deadline.

For some securities, the auction procedures provide that during any auction period, the issuer of the securities may change the length of the next auction period. In auctions that are subject to the changed auction period, �鶹��ý may place a bid to buy the securities that may effectively place an upper limit on the rate that can be set at the auction at a rate that is below the maximum rate. �鶹��ý may negotiate a separate fee from the issuer of the securities in such circumstances.

Existing Holder’s Ability to Resell Auction Rate Securities May Be Limited

Existing holders will be able to sell all of the securities in an auction that are the subject of submitted sell orders only if there are bidders willing to purchase all those securities 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 securities subject to such submitted sell orders. As discussed above (see “Bidding by �鶹��ý for Its Own Account,” �鶹��ý 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 �鶹��ý bidding in the auction for its own account or encouraging others to bid. Therefore, auction failure events are possible, especially if the issuer’s credit were to deteriorate, a market disruption were to occur or if, for any reason, �鶹��ý were unable or unwilling to bid.

Between auctions, there can be no assurance that a secondary market for the securities will develop, or, if it does develop, that it will provide existing holders the ability to resell the securities in the secondary market on the terms or at the times desired by an existing holder.

�鶹��ý may, in its own discretion, decide to buy or sell the securities in the secondary market for its own account to or from investors at any time and at any price, including at prices equivalent to, below or above the par value of the securities. �鶹��ý is not, however, obligated to make a market in the securities and may discontinue trading in the securities 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 the securities will depend on various factors affecting the market for the securities, including news relating to the issuer, the attractiveness of alternative investments, the perceived risk of owning the securities (whether related to credit, liquidity or any other risk), the tax or accounting treatment accorded the securities (including recent clarification of U.S. generally accepted accounting principles as they apply to the accounting treatment of auction rate securities), reactions of market participants to regulatory actions or press reports, financial reporting cycles and market conditions generally. Demand for the securities may change without warning, and declines in demand may be short lived or continue for longer periods.

Resignation of the Auction Agent or �鶹��ý

The duties of the auction agent are contained in a contract (the “auction agent agreement”) among the auction agent, the broker-dealer and the issuer of the securities. The auction agent agreement normally provides that the auction agent may resign from its duties by giving a certain number of days notice and may 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 normally provides that �鶹��ý may resign upon a certain number of days notice or immediately, in certain circumstances, and may 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 securities will be determined in another manner, which may or may not be as favorable to investors.