the difference between the interest generated by the
bonds and the auction rate and any applicable fees.
Moreover, inverse floater holders bear the risk
of receiving no interest if the auction rate and the
fees claim the entire interest paid by the bonds for
the auction period. The highest maximum auction
rate should be clearly set forth in the custody or
trust agreement.
While auction floaters are purchased as a hedge
against rising short-term interest rates, inverse
floaters are purchased as a hedge against decreasing
interest rates. In the event that interest rates turn
against them, holders of either class of receipts may
purchase the other class of receipts in the open
market and link them together to receive the under-
lying bond interest rate, less applicable program
fees. Auction floater/inverse floater programs may
also give the inverse floater holders the right to pur-
chase auction floater receipts at par through a
mandatory tender. The purchase price for tendered
auction receipts is deposited with the custodian at
the time that notice is given or paid in immediately
available funds on the tender date. If an inverse
floater holder fails to pay the purchase price on the
tender date, the mandatory tender is canceled thus
a dual rating is not warranted.■Secondary Market Derivative Productshttp://www.standardandpoors.com 229