<PAGE> 1
1933 ACT FILE NO. 333-70725
1940 ACT FILE NO. 811-09141
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. 1 [X]
POST-EFFECTIVE AMENDMENT NO. [ ]
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 3 [X]
(CHECK APPROPRIATE BOX OR BOXES)
Eaton Vance Municipal Income Trust
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
24 Federal Street, Boston, Massachusetts 02110
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
(617) 482-8260
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
ALAN R. DYNNER
24 FEDERAL STREET, BOSTON, MASSACHUSETTS 02110
(NAME AND ADDRESS IF AGENT FOR SERVICE)
________________
COPY TO:
MARK P. GOSHKO, ESQ. THOMAS HALE, ESQ.
KIRKPATRICK & LOCKHART LLP SKADDEN, ARPS, SLATE, MEAGHER & FLOM
ONE INTERNATIONAL PLACE 333 WEST WACKER DRIVE
BOSTON, MASSACHUSETTS 02110 CHICAGO, IL 60606
Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of this Registration Statement.
If any securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, other than securities offered in connection with a dividend reinvestment
plan, check the following box. [ ]
<PAGE> 2
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES BEING OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE(1)((2)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Auction Preferred Shares 5,240 $25,000 $131,000,000 $36,418
- --------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Of which $278 has been previously paid.
<PAGE> 3
EATON VANCE MUNICIPAL INCOME TRUST
AUCTION PREFERRED SHARES
CROSS REFERENCE SHEET
ITEMS REQUIRED BY FORM N-2
--------------------------
<TABLE>
<CAPTION>
PART A
ITEM NO. ITEM CAPTION PROSPECTUS CAPTION
- -------- ------------ ------------------
<S> <C> <C>
1. ........... Outside Front Cover Front Cover Page
2. ........... Inside Front and Outside Back Cover Page Front and Back Cover Page; Underwriting
3. ........... Fee Table and Synopsis Not Applicable
4. ........... Financial Highlights Not Applicable
5. ........... Plan of Distribution Underwriting
6. ........... Selling Shareholders Not Applicable
7. ........... Use of Proceeds Use of Proceeds
8. ........... General Description of the Registrant Prospectus Summary; Management of the
Trust; The Trust; Investment
Objective, Policies and Risks; Description
of Capital Structure
9. ........... Management Management of the Trust; Shareholder Servicing
Agent, Custodian and Transfer Agent
10. .......... Capital Stock, Long-Term Debt, Description of APS; Distributions and Taxes;
and Other Securities Certain Provisions of the Declaration of Trust;
Description of Common Shares
11. .......... Defaults and Arrears on Senior Not Applicable
Securities
12. .......... Legal Proceedings Not Applicable
13. .......... Table of Contents of the Table of Contents of the
Statement of Additional Statement of Additional
Information Information
</TABLE>
<TABLE>
<CAPTION>
PART B STATEMENT OF
ITEM NO. ITEM CAPTION ADDITIONAL INFORMATION CAPTION
------------ --------------------------------
<S> <C> <C>
14............ Cover Page Cover Page
15............ Table of Contents Table of Contents
16............ General Information and History Not Applicable
17............ Investment Objective and Additional Investment Information and
Policies Restrictions
18............ Management Trustees and Officers;
Investment Advisory and
Other Services
19............ Control Persons and Principal Other Information
Holders of Securities
20............ Investment Advisory and Other Investment Advisory and Other
Services Services
21............ Brokerage Allocation and Other Portfolio Trading
Practices
22............ Tax Status Taxes
23............ Financial Statements Financial Statements
</TABLE>
<PAGE> 4
[EATON VANCE LOGO]
$131,000,000
EATON VANCE MUNICIPAL INCOME TRUST
2,620 SHARES SERIES A
2,620 SHARES SERIES B
AUCTION PREFERRED SHARES
LIQUIDATION PREFERENCE $25,000 PER SHARE
------------------------
Eaton Vance Municipal Income Trust (the "Trust") is a recently organized
closed-end fund. The Trust's investment objective is to provide current income
exempt from federal income tax. This income will be earned by investing
primarily in investment grade municipal securities. The Trust may also invest a
portion of its assets in higher risk, higher yielding municipal securities of
lesser quality. There is no assurance that the Trust will achieve its investment
objective. See "Investment Objective, Policies and Risks" beginning at page 11.
The Trust's investment adviser is Eaton Vance Management ("Eaton Vance" or
the "Adviser"). Eaton Vance manages 54 different municipal bond funds with
combined assets of over $8 billion.
Capitalized terms not defined on this cover page are defined in the
Glossary that appears at the end of this Prospectus.
<TABLE>
<CAPTION>
Per Share Sales load(2) Proceeds to Trust(1)
--------- ------------- --------------------
<S> <C> <C> <C>
Per Share...................... $25,000 $250 $24,750
TOTAL.......................... $131,000,000 $1,310,000 $129,690,000
</TABLE>
- ---------------
(1) Plus accumulated dividends, if any, from the Date of Original Issue.
(2) The Trust and the Adviser have agreed to indemnify the Underwriters against
certain liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
NEITHER THE SECURITIES AND EXCHANGE COMMISSION ("SEC") NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED
UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES
SALOMON SMITH BARNEY
A.G. EDWARDS & SONS, INC.
------------------------
THE DATE OF THIS PROSPECTUS IS MARCH 1, 1999
<PAGE> 5
(continued from the previous page)
The Broker-Dealers may maintain a secondary trading market in the Auction
Preferred Shares ("APS") outside of Auctions; however, they have no obligation
to do so, and there can be no assurance that a secondary market for the APS will
develop or, if it does develop, that it will provide holders with a liquid
trading market (i.e., trading will depend on the presence of willing buyers and
sellers and the trading price is subject to variables to be determined at the
time of the trade by the Broker-Dealers). The APS will not be registered on any
stock exchange or on any automated quotation system. An increase in the level of
interest rates, particularly during any Long Term Dividend Period, likely will
have an adverse effect on the secondary market price of the APS, and a selling
shareholder may sell APS between Auctions at a price per share of less than
$25,000.
The APS are offered by the Underwriters, subject to prior sale, when, as
and if issued by the Trust and accepted by the Underwriters, subject to approval
of certain legal matters by counsel for the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that one
certificate for each series of the APS will be delivered to the nominee of The
Depository Trust Company on or about March 4, 1999.
Dividends on the APS of the Trust offered hereby will be cumulative from
the Date of Original Issue and payable commencing on March , 1999 for Series A
APS and on March , 1999 for Series B APS (an "Initial Dividend Payment Date")
and, generally, on each succeeding Wednesday for Series A and each succeeding
Thursday for Series B, subject to certain exceptions.
The cash dividend rate (the "Applicable Rate") for the Initial Dividend
Period will be % per annum for Series A APS and % per annum for Series B
APS. The Applicable Rate on the APS for each Subsequent Dividend Period will be
determined pursuant to periodic auctions conducted in accordance with the
procedures described herein and in detail in Appendix D to the Statement of
Additional Information (an "Auction"). Except as otherwise provided herein, each
Subsequent Dividend Period for each series of APS will be a 7-Day Dividend
Period; provided, however, that prior to any Auction, the Trust may elect,
subject to certain limitations described herein, upon giving notice to holders
thereof, a Special Dividend Period. See "Description of APS--Dividends."
The Applicable Rate on the APS for each Subsequent Dividend Period will be
reset on the basis of Bids, Hold Orders and Sell Orders placed by Existing
Holders and Potential Holders in the Auction conducted on the Business Day
preceding the commencement of such Dividend Period. The Applicable Rate that
results from an Auction for any Dividend Period will not be greater than the
Maximum Applicable Rate (as defined herein). See "Description of APS--The
Auction--Orders by Beneficial Owners, Potential Beneficial Owners, Existing
Holders and Potential Holders."
The Trust is required to allocate net capital gains and other taxable
income, if any, proportionately among its Common Shares and the APS. The Trust
will give notice of the amount of any taxable income to be included in a
dividend on APS in the related Auction, as described herein, or, in limited
circumstances, include such income in a dividend on the APS without giving
advance notice thereof if it increases the dividend by an amount sufficient to
offset substantially the tax effect thereof. The amount of taxable income
allocable to the APS will depend upon the amount of such income realized by the
Trust and other factors but generally is not expected to be significant. See
"Taxes."
Each prospective purchaser should review carefully the detailed information
regarding the Auction Procedures which appears in this Prospectus and the
Statement of Additional Information and should note that (i) an Order
constitutes an irrevocable commitment to hold, purchase or sell APS based upon
the results of the related Auction, (ii) the Auctions will be conducted through
telephone communications, (iii) settlement for purchases and sales will be on
the Business Day following the Auction and (iv) ownership of APS will be
maintained in book-entry form by or through the Securities Depository. In
certain circumstances, holders of APS may be unable to sell their APS in an
Auction and thus may lack liquidity of investment. The APS only may be
transferred pursuant to a Bid or a Sell Order placed in an Auction through a
Broker-Dealer to the Auction Agent or in the secondary market, if any.
ii
<PAGE> 6
The APS are redeemable, in whole or in part, at the option of the Trust, on
any Dividend Payment Date (except during the Initial Dividend Period or a
Non-Call Period) at the Optional Redemption Price per share and will be subject
to mandatory redemption on dates fixed by the Board of Trustees, under certain
circumstances, at the Mandatory Redemption Price per share.
If the Trust fails to pay on any Dividend Payment Date (or within the
applicable grace period) the full amount of any dividend or the redemption price
of the APS called for redemption, the Applicable Rate will not be based on the
results of an Auction but instead will be equal to the Non-Payment Period Rate
until such failure to pay is cured. See "Description of APS--Dividends--Non-
Payment Period; Late Charge."
This Prospectus sets forth concisely information you should know before
investing in the APS. Please read and retain this Prospectus for future
reference. A Statement of Additional Information dated March 1, 1999, has been
filed with the SEC and can be obtained without charge by calling 1-800-225-6265
or by writing to the Trust. A table of contents to the Statement of Additional
Information is located at page 48 of this Prospectus. This Prospectus
incorporates by reference the entire Statement of Additional Information. The
Statement of Additional Information is available along with other Trust-related
materials at the SEC's internet web site (http://www.sec.gov). The Trust's
address is 24 Federal Street, Boston, Massachusetts 02110 and its telephone
number is 1-800-225-6265.
The APS do not represent a deposit or obligation of, and are not guaranteed
or endorsed by, any bank or other insured depository institution, and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................... 1
The Trust................................ 10
Use of Proceeds.......................... 10
Capitalization........................... 10
Portfolio Composition.................... 11
Investment Objective, Policies and
Risks.................................. 11
Description of APS....................... 21
Management of the Trust.................. 39
Taxes.................................... 40
Description of Capital Structure......... 42
Certain Provisions of the Declaration of Trust... 44
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Underwriting............................. 46
Shareholder Servicing Agent, Custodian
and Transfer Agent..................... 46
Legal Opinions........................... 47
Experts.................................. 47
Additional Information................... 48
Table of Contents for the Statement of
Additional Information................. 48
Trustees of the Trust.................... 49
Glossary................................. 50
</TABLE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS.
NEITHER THE TRUST NOR THE UNDERWRITERS HAVE AUTHORIZED ANY OTHER PERSON TO
PROVIDE YOU WITH DIFFERENT INFORMATION. IF ANYONE PROVIDES YOU WITH DIFFERENT OR
INCONSISTENT INFORMATION, YOU SHOULD NOT RELY ON IT. NEITHER THE TRUST NOR THE
UNDERWRITERS ARE MAKING AN OFFER TO SELL THESE SECURITIES IN ANY JURISDICTION
WHERE THE OFFER OR SALE IS NOT PERMITTED. YOU SHOULD ASSUME THAT THE INFORMATION
APPEARING IN THIS PROSPECTUS IS ACCURATE AS OF THE DATE ON THE FRONT COVER ONLY.
iii
<PAGE> 7
(This page intentionally left blank)
<PAGE> 8
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information included elsewhere in this Prospectus. Certain of the
capitalized terms used herein are defined in the Glossary that appears at the
end of this Prospectus.
THE TRUST..................... Eaton Vance Municipal Income Trust, Inc. (the
"Trust") is a recently organized closed-end
fund. The Trust was organized as a
Massachusetts business trust on December 10,
1998, and has registered under the Investment
Company Act of 1940, as amended (the "1940
Act"). The Trust's principal office is located
at 24 Federal Street, Boston, MA 02110, and its
telephone number is 1-800-225-6265.
The Trust commenced operations on January 29,
1999 upon the closing of an initial public
offering of its common shares of beneficial
interest, par value $0.01 per share (the
"Common Shares"). In connection with the
initial public offering of the Trust's Common
Shares, the underwriters were granted an option
to purchase additional shares to cover
over-allotments. The Trust is offering pursuant
to this Prospectus 2,620 preferred shares of
beneficial interest, par value $0.01 per share,
designated Series A Auction Preferred Shares
("Series A APS") and 2,620 preferred shares of
beneficial interest, par value $0.01 per share,
designated Series B Auction Preferred Shares
("Series B APS" and collectively with Series A
APS, the "APS"). See "The Trust."
INVESTMENT OBJECTIVE AND
POLICIES.................... The Trust's investment objective is to provide
current income exempt from regular federal
income tax. An investment in the APS of the
Trust may not be appropriate for all investors,
and there is no assurance that the Trust will
achieve its investment objective.
During normal market conditions substantially
all of the Trust's total assets (at least 80%)
will be invested in debt obligations issued by
or on behalf of states, territories and
possessions of the United States, and the
District of Columbia and their political
subdivisions, agencies or instrumentalities,
the interest on which is exempt from federal
income tax ("Municipal Obligations"). At least
65% of the Trust's total assets normally will
be invested in Municipal Obligations rated at
least investment grade at the time of
investment (which are those rated Baa or higher
by Moody's Investors Service, Inc. ("Moody's")
or BBB or higher by either Standard & Poor's
Ratings Group ("S&P") or by FitchIBCA
("Fitch")), or, if unrated, determined by Eaton
Vance Management ("Eaton Vance" or the
"Adviser") to be of at least investment grade
quality. From time to time, the Trust may hold
a significant number of Municipal Obligations
not rated by a nationally recognized
statistical rating organization ("Rating
Agency"). When the Trust invests in unrated
Municipal Obligations it may be more dependent
on Eaton Vance's research capabilities than
when it invests in rated Municipal Obligations.
PRINCIPAL INVESTMENT RISKS.... The Trust may invest up to 35% of its total
assets in Municipal Obligations rated below
investment grade (but not, with respect to
1
<PAGE> 9
more than 30% of the Trust's total assets,
lower than B by all Rating Agencies rating the
obligation) and unrated Municipal Obligations
considered to be of comparable quality by Eaton
Vance. Investment in Municipal Obligations of
below investment grade quality involves special
risks as compared with investment in higher
grade Municipal Obligations. These risks
include greater sensitivity to a general
economic downturn, greater market price
volatility and less secondary market trading.
Securities rated below investment grade are
commonly known as "junk bonds." Such securities
are regarded, on balance, as predominantly
speculative with respect to the issuer's
ability to pay interest and repay principal
owed.
INVESTMENT ADVISER AND
ADMINISTRATOR............... Eaton Vance, a wholly-owned subsidiary of Eaton
Vance Corp., is the Trust's investment adviser
and administrator. The Adviser manages 4
national municipal funds, 40 single state
municipal funds, 10 limited maturity municipal
funds and 1 money market municipal fund. See
"Investment Advisory and Management
Arrangements."
THE OFFERING.................. The Trust is offering an aggregate of 2,620
Series A APS and 2,620 Series B APS, each at a
purchase price of $25,000 per share plus
accumulated dividends, if any, from the Date of
Original Issue. The APS are being offered by a
group of underwriters (the "Underwriters") led
by PaineWebber Incorporated, Prudential
Securities, Salomon Smith Barney Inc. and A.G.
Edwards & Sons, Inc. See "Underwriting."
DIVIDENDS ON APS.............. The APS will be Preferred Shares of the Trust
that entitle their holders to receive cash
dividends at a rate per annum that may vary for
the successive Dividend Periods for such
shares. In general, except as described below,
each Dividend Period for each series of APS
subsequent to the Initial Dividend Period will
be seven days in length. The Applicable Rate
for a particular Dividend Period will be
determined by an Auction conducted on the
Business Day next preceding the start of such
Dividend Period.
Through their Broker-Dealers, Beneficial Owners
and Potential Beneficial Owners of APS may
participate in Auctions therefor, although,
except in the case of certain Special Dividend
Periods, Beneficial Owners desiring to continue
to hold all of their APS regardless of the
Applicable Rate resulting from Auctions need
not participate. For an explanation of Auctions
and the method of determining the Applicable
Rate, see "Description of APS--The Auction."
Except as described herein, investors in APS
will not receive certificates representing
ownership of their shares. Ownership of APS
will be maintained in book-entry form by the
Securities Depository or its nominee for the
account of the investor's Agent Member. The
investor's Agent Member, in turn, will maintain
records of such investor's beneficial ownership
of APS. Accordingly, references herein to an
investor's investment in or purchase,
2
<PAGE> 10
sale or ownership of APS are to purchases,
sales or ownership of those shares by
Beneficial Owners.
After the Initial Dividend Period, each
Subsequent Dividend period for each series of
APS will generally consist of seven days (a
"7-day Dividend Period"); provided, however,
that prior to any Auction, the Trust may elect,
subject to certain limitations described
herein, upon giving notice to holders thereof,
a Special Dividend Period for either or both
series. A Special Dividend Period is a Dividend
Period consisting of a specified number of days
(other than seven), evenly divisible by seven
and not fewer than seven nor more than 364 (a
"Short Term Dividend Period") or a Dividend
Period consisting of a specified period of one
whole year or more but not greater than five
years (a "Long Term Dividend Period").
Dividends on the APS offered hereby are
cumulative from the Date of Original Issue and
are payable when, as and if declared by the
Board of Trustees of the Trust, out of funds
legally available therefor, commencing on the
Initial Dividend Payment Date and, in the case
of Dividend Periods that are not Special
Dividend Periods, dividends will be payable
generally on each succeeding Wednesday for
Series A APS and on each succeeding Thursday
for Series B APS, subject to certain
exceptions.
Dividends for the APS will be paid through the
Securities Depository (The Depository Trust
Company or a successor securities depository)
on each Dividend Payment Date. The Securities
Depository's normal procedures provide for it
to distribute dividends in same-day funds to
Agent Members, who are in turn expected to
distribute such dividends to the person for
whom they are acting as agent in accordance
with the instructions of such person. See
"Description of APS -- Dividends."
For each Subsequent Dividend Period, the cash
dividend rate on each series of the APS will be
the Applicable Rate that the Auction Agent
(Bankers Trust Corporation ("Bankers Trust") or
any successor) advises the Trust has resulted
from an Auction. See "Description of
APS -- Dividends." The first Auction for each
series of the APS is scheduled to be held on
the ending date for the Initial Dividend Period
as set forth above.
The Amended By-Laws provide that until the
Trust gives a Request for Special Dividend
Period and the related Notice of Special
Dividend Period, only 7-Day Dividend Periods
will be applicable to each series of the APS.
While the Trust does not currently intend to
give a Request for Special Dividend Period with
respect to either series of the APS, it may so
elect in the future subject to, and on, the
conditions discussed under "Description of the
APS -- Dividends -- Notification of Dividend
Period."
A Special Dividend Period will not be effective
for a series of APS unless Sufficient Clearing
Bids exist at the Auction in respect of such
Special Dividend Period. If Sufficient Clearing
Bids do not exist at such Auction for the APS,
the Dividend Period commencing on the Business
Day succeeding such Auction will be a 7-Day
3
<PAGE> 11
Dividend Period, and the holders of the APS
outstanding prior to such Auction will be
required to continue to hold such shares for
such Dividend Period. In addition, the Trust
may not give a Notice of Special Dividend
Period with respect to the APS, or if the Trust
has given a Notice of Special Dividend Period
for the APS, the Trust will be required to give
a Notice of Revocation in respect thereof if
(i) either the 1940 Act APS Asset Coverage is
not satisfied or the Trust fails to maintain
S&P Eligible Assets with an aggregate
Discounted Value at least equal to the APS
Basic Maintenance Amount, in each case on each
of the two Valuation Dates immediately
preceding the Business Day prior to the related
Auction Date for the APS, (ii) sufficient funds
for the payment of dividends payable on the
immediately succeeding Dividend Payment Date
have not been irrevocably deposited with the
Auction Agent by the close of business on the
third Business Day preceding the related
Auction Date, or (iii) the Broker-Dealers have
given the Trust notice that it is not advisable
to hold an Auction in respect of a Special
Dividend Period. In such event, the next
succeeding Dividend Period will be a 7-Day
Dividend Period.
ADVANCE NOTICE OF ALLOCATION
OF TAXABLE INCOME; INCLUSION
OF TAXABLE INCOME IN
DIVIDENDS................... Dividends paid by the Trust, to the extent paid
from tax-exempt income earned on Municipal
Obligations, will be exempt from federal income
tax, though some or all of those dividends may
be a tax preference item for purposes of the
federal alternative minimum tax. However, the
Trust is required to allocate net capital gains
and other income subject to federal income tax,
if any, proportionately among the Trust's
Common Shares and APS. The Trust will notify
the Auction Agent of the amount of any net
capital gains or other income subject to
federal income tax ("taxable income") to be
included in any dividend on the APS prior to
the Auction establishing the Applicable Rate
for such dividend. The Auction Agent in turn
will notify each Broker-Dealer whenever it
receives any such notice from the Trust, and
each Broker-Dealer will notify its Beneficial
Owners and Potential Beneficial Owners, as
provided in its Broker-Dealer Agreement. In the
alternative, the Trust also may include such
taxable income in a dividend on the APS without
giving advance notice thereof if it increases
the dividend by an amount sufficient to offset
substantially the tax effect thereof. The
amount of taxable income allocable to the APS
will depend upon the amount of such income
realized by the Trust and other factors but
generally is not expected to be significant.
See "Taxes" and "Description of APS -- The
Auction -- Auction Date; Advance Notice of
Allocation of Taxable Income; Inclusion of
Taxable Income in Dividends."
ADDITIONAL DIVIDENDS.......... If the Trust retroactively allocates any net
capital gains or other taxable income to the
APS without having given advance notice thereof
as described above, the Trust will make certain
payments to holders of the APS to which such
allocation was made to offset substantially the
tax effect thereof. Such a retroactive
allocation
4
<PAGE> 12
may happen when such allocation is made as a
result of (i) the redemption of all or a
portion of the outstanding APS (ii) the
liquidation of the Trust or (iii) a debt
obligation believed to be a Municipal
Obligation unexpectedly turns out to be an
obligation subject to federal income tax. The
Trust does not expect to make payments to
holders of the APS to offset the tax effect of
any reallocation of net capital gains or other
taxable income. See "Description of
APS--Dividends--Additional Dividends" and
"Taxes."
DETERMINATION OF MAXIMUM
APPLICABLE RATES............ Except during a Non-Payment Period, the
Applicable Rate for any Dividend Period for the
APS will not be more than the Maximum
Applicable Rate applicable to such shares. The
Maximum Applicable Rate for each series of the
APS will depend on the credit rating assigned
to such shares and on the duration of the
Dividend Period. The Maximum Applicable Rate
will be the Applicable Percentage of the
Reference Rate. The Reference Rate is (i) with
respect to any 7-Day Dividend Period or any
Short Term Dividend Period having 28 or fewer
days, the higher of the applicable "AA"
Composite Commercial Paper Rate and the Taxable
Equivalent of the Short-Term Municipal
Obligation Rate, (ii) with respect to any Short
Term Dividend Period having more than 28 but
fewer than 183 days, the applicable "AA"
Composite Commercial Paper Rate, (iii) with
respect to any Short Term Dividend Period
having 183 or more but fewer than 364 days, the
applicable U.S. Treasury Bill Rate and (iv)
with respect to any Long Term Dividend Period,
the applicable U.S. Treasury Note Rate. The
Applicable Percentage will be determined based
on (i) the credit rating assigned on such date
to the APS by S&P (or, if S&P shall not make
such rating available, the equivalent of such
rating by a Substitute Rating Agency) and (ii)
whether the Trust has provided notification to
the Auction Agent prior to the Auction
establishing the Applicable Rate for any
dividend that net capital gains or other
taxable income will be included in such
dividend on the APS as follows:
<TABLE>
<CAPTION>
APPLICABLE APPLICABLE
PERCENTAGE OF PERCENTAGE OF
REFERENCE RATE -- REFERENCE RATE --
S&P CREDIT RATINGS NO NOTIFICATION NOTIFICATION
------------------ ------------------ ------------------
<S> <C> <C>
AA- or higher..... 110% 150%
A- to A+.......... 125 160
BBB- to BBB+...... 150 250
Below BBB-........ 200 275
</TABLE>
There is no minimum Applicable Rate in respect
of any Dividend Period.
The Applicable Rate for any Dividend Period
commencing during any Non-Payment Period, and
the rate used to calculate the late charge
described under "Description of
APS--Dividends--Non-Payment Period; Late
Charge," initially will be 200% of the
Reference Rate (or 275% of such rate if the
Trust has provided notification to the Auction
Agent prior to the Auction establishing
5
<PAGE> 13
the Applicable Rate for any dividend that net
capital gains or other taxable income will be
included in such dividend on APS).
AUCTION PROCEDURES............ Separate auctions will be conducted for each
series of APS. Unless otherwise permitted by
the Trust, Beneficial Owners and Potential
Beneficial Owners of APS may only participate
in Auctions through their Broker-Dealers.
Broker-Dealers will submit the Orders of their
respective customers who are Beneficial Owners
and Potential Beneficial Owners to the Auction
Agent, designating themselves as Existing
Holders in respect of shares subject to Orders
submitted or deemed submitted to them by
Beneficial Owners and as Potential Holders in
respect of shares subject to Orders submitted
to them by Potential Beneficial Owners. On or
prior to each Auction Date for the APS (the
Business Day next preceding the first day of
each Dividend Period), each Beneficial Owner
may submit Orders to its Broker-Dealer as
follows:
- Hold Order--indicating its desire to hold
the APS without regard to the Applicable
Rate for the next Dividend Period for such
shares.
- Bid--indicating its desire to hold the APS,
provided that the Applicable Rate for the
next Dividend Period for such shares is not
less than the rate per annum specified in
such Bid.
- Sell Order--indicating its desire to sell
the APS without regard to the Applicable
Rate for the next Dividend Period for such
shares.
A Beneficial Owner may submit different types
of Orders to its Broker-Dealer with respect to
the APS then held by such Beneficial Owner,
provided that the total number of APS covered
by such Orders does not exceed the number of
APS held by such Beneficial Owner. If, however,
a Beneficial Owner offers through its Broker-
Dealer to purchase additional APS in such
Auction, such Beneficial Owner, for purposes of
such offer to purchase additional shares, will
be treated as a Potential Beneficial Owner as
described below. Bids by Beneficial Owners
through their Broker-Dealers with rates per
annum higher than the Maximum Applicable Rate
will be treated as Sell Orders. A Hold Order
(in the case of an Auction relating to a
Dividend Period of 91 days or less) and a Sell
Order (in the case of an Auction relating to a
Special Dividend Period of longer than 91 days)
shall be deemed to have been submitted on
behalf of a Beneficial Owner if an Order with
respect to the APS then held by such Beneficial
Owner is not submitted on behalf of such
Beneficial Owner for any reason, including the
failure of a Broker-Dealer to submit such
Beneficial Owner's Order to the Auction Agent.
Potential Beneficial Owners of APS may submit
Bids through their Broker-Dealers in which they
offer to purchase APS, provided that the
Applicable Rate for the next Dividend Period
for such shares is not less than the rate per
annum specified in such Bid. A Bid by a
Potential Beneficial Owner with a rate per
annum higher than the Maximum Applicable Rate
will not be considered.
6
<PAGE> 14
Neither the Trust nor the Auction Agent will be
responsible for a Broker-Dealer's failure to
comply with any of the foregoing.
A Broker-Dealer also may hold APS for its own
account as a Beneficial Owner. A Broker-Dealer
thus may submit Orders to the Auction Agent as
a Beneficial Owner or a Potential Beneficial
Owner and therefore participate in an Auction
as an Existing Holder or Potential Holder on
behalf of both itself and its customers. An
Order placed with the Auction Agent by a
Broker-Dealer as an Existing Holder or a
Potential Holder as or on behalf of a
Beneficial Owner or a Potential Beneficial
Owner, as the case may be, will be treated in
the same manner as an Order placed with a
Broker-Dealer by a Beneficial Owner or a
Potential Beneficial Owner. Similarly, any
failure by a Broker-Dealer to submit to the
Auction Agent an Order in respect of any APS
held by it or its customers who are Beneficial
Owners will be treated in the same manner as a
Beneficial Owner's failure to submit to its
Broker-Dealer an Order in respect of APS held
by it, as described above. Inasmuch as a
Broker-Dealer participates in an Auction as an
Existing Holder or a Potential Holder only to
represent the interests of a Beneficial Owner
or Potential Beneficial Owner, whether it be a
customer or itself, all discussion herein
relating to the consequences of an Auction for
Existing Holders and Potential Holders also
applies to the underlying beneficial ownership
interests represented thereby.
If Sufficient Clearing Bids exist in an Auction
for a series of APS (that is, in general, the
number of APS subject to Bids by Potential
Holders with rates equal to or lower than the
Maximum Applicable Rate is at least equal to
the number of APS subject to Sell Orders by
Existing Holders), the Applicable Rate will be
the lowest rate per annum specified in the
Submitted Bids which, taking into account such
rate per annum and all lower rates per annum
bid by Existing Holders and Potential Holders,
would result in Existing Holders and Potential
Holders owning all of the APS available for
purchase in the Auction. If Sufficient Clearing
Bids do not exist, the Dividend Period next
following the Auction automatically will be a
7-Day Dividend Period and the Applicable Rate
will be the Maximum Applicable Rate, and in
such event, 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, APS subject to such Sell Orders. Thus, in
certain circumstances, Existing Holders and,
thus, the Beneficial Owners they represent may
not have liquidity of investment. If all
Existing Holders submit (or are deemed to have
submitted) Hold Orders in an Auction, the
Dividend Period next following the Auction
automatically shall be the same length as the
immediately preceding Dividend Period, and the
Applicable Rate will be 40% of the Reference
Rate (as defined under "Determination of
Maximum Applicable Rates" above) in effect on
the date of the Auction (or 60% of such rate if
the Trust has provided notification to the
Auction Agent prior to the Auction establishing
the Applicable Rate for any dividend that net
capital gains or other taxable income will be
included in such dividend on APS).
7
<PAGE> 15
The Auction Procedures include a pro rata
allocation of shares for purchase and sale,
which may result in an Existing Holder selling
or holding, or a Potential Holder purchasing, a
number of APS that is less than the number of
APS specified in its Order. To the extent the
allocation has this result, a Broker-Dealer
will be required to make appropriate pro rata
allocations among its customers and itself.
A Sell Order by an Existing Holder will
constitute an irrevocable offer to sell the APS
subject thereto, and a Bid placed by an
Existing Holder also will constitute an
irrevocable offer to sell the APS subject
thereto if the rate per annum specified in the
Bid is higher than the Applicable Rate
determined in the Auction, in each case at a
price per share equal to $25,000. A Bid placed
by a Potential Holder will constitute an
irrevocable offer to purchase the APS subject
thereto if the rate per annum specified in such
Bid is less than or equal to the Applicable
Rate determined in the Auction. Settlement of
purchases and sales will be made on the next
Business Day (also a Dividend Payment Date)
after the Auction Date through the Securities
Depository. Purchasers will make payment
through their Agent Members in same-day funds
to the Securities Depository against delivery
by book-entry to their Agent Members. The
Securities Depository will make payment to the
sellers' Agent Members in accordance with the
Securities Depository's normal procedures,
which now provide for payment in same-day
funds. See "Description of APS--The Auction."
ASSET MAINTENANCE............. Under the Amended By-Laws, the Trust must
maintain (i) S&P Eligible Assets having in the
aggregate a Discounted Value at least equal to
the APS Basic Maintenance Amount and (ii) 1940
Act APS Asset Coverage of at least 200%. See
"Description of APS--Asset Maintenance."
The Trust estimates that, based on the
composition of its portfolio at February 19,
1999, 1940 Act APS Asset Coverage with respect
to APS would be approximately 277% immediately
after the issuance of the APS offered hereby in
an amount representing approximately 36% of the
Trust's capital (including the capital
attributable to the APS).
The Discount Factors and guidelines for
calculating the Discounted Value of the Trust's
portfolio for purposes of determining whether
the APS Basic Maintenance Amount has been
satisfied have been established by S&P in
connection with the Trust's receipt of ratings
on the APS on their Date of Original Issue of
AAA from S&P. See "Investment Objective and
Policies--Rating Agency Guidelines."
MANDATORY REDEMPTION.......... If the APS Basic Maintenance Amount or the 1940
Act APS Asset Coverage is not maintained or
restored as specified herein, the APS will be
subject to mandatory redemption, out of funds
legally available therefor, at the Mandatory
Redemption Price of $25,000 per share plus an
amount equal to dividends thereon (whether or
not earned or declared) accumulated but unpaid
to the date fixed for redemption. In addition,
holders of APS may be
8
<PAGE> 16
entitled to receive Additional Dividends in the
event of redemption of such APS as described
herein. See "Description of
APS--Dividends--Additional Dividends." Any such
redemption will be limited to the minimum
number of APS necessary to restore the APS
Basic Maintenance Amount or the 1940 Act APS
Asset Coverage, as the case may be. The Trust's
ability to make such a mandatory redemption may
be restricted by the provisions of the
Investment Company Act of 1940, as amended (the
"1940 Act"). See "Description of
APS--Redemption--Mandatory Redemption."
OPTIONAL REDEMPTION........... The APS are redeemable at the option of the
Trust, as a whole or in part, on any Dividend
Payment Date (except during the Initial
Dividend Period or a Non-Call Period) at the
Optional Redemption Price of $25,000 per share,
plus an amount equal to dividends thereon
(whether or not earned or declared) accumulated
but unpaid to the date fixed for redemption
plus the premium, if any, resulting from the
designation of a Premium Call Period. See
"Description of APS--Redemption-- Optional
Redemption." In addition, holders of APS may be
entitled to receive Additional Dividends in the
event of redemption of such APS as described
herein. See "Description of
APS--Dividends--Additional Dividends."
LIQUIDATION PREFERENCE........ The liquidation preference of the APS will be
$25,000 per share, plus an amount equal to
accumulated but unpaid dividends (whether or
not earned or declared). See "Description of
APS--Liquidation Rights." In addition, holders
of APS may be entitled to receive Additional
Dividends in the event of the liquidation of
the Trust as provided herein. See "Description
of APS--Dividends--Additional Dividends."
RATING........................
It is a condition to their issuance that the
APS be issued with a credit quality rating of
AAA from S&P. The Trust may at some future time
seek to have the APS rated by an additional
Rating Agency. See "Investment Objective and
Policies--Rating Agency Guidelines."
VOTING RIGHTS................. The 1940 Act requires that the holders of APS
and any other Preferred Shares, voting as a
separate class, have the right to elect at
least two trustees at all times and to elect a
majority of the trustees at any time when two
years' dividends on the APS or any other
Preferred Shares are unpaid. The holders of APS
and any other Preferred Shares will vote as a
separate class on certain other matters as
required under the Trust's Agreement and
Declaration of Trust and the 1940 Act. See
"Description of APS--Voting Rights" and
"Description of Capital Stock--Certain
Provisions of the Declaration of Trust."
9
<PAGE> 17
THE TRUST
Eaton Vance Municipal Income Trust (the "Trust") is a closed-end fund. The
Trust was organized as a Massachusetts business trust on December 10, 1998, and
has registered under the Investment Company Act of 1940, as amended (the "1940
Act"). The Trust's principal office is located at 24 Federal Street, Boston, MA
02110, and its telephone number is 1-800-225-6265.
The Trust commenced operations on January 29, 1999 upon the closing of an
initial public offering of shares of its Common Shares. The proceeds of such
offering were approximately $209,680,000 after the payment of organizational and
offering expenses. In connection with the initial public offering of the Trust's
Common Shares, the underwriters were granted an option to purchase up to an
additional 2,100,000 Common Shares to cover over-allotments. On February 26,
1999, the underwriters purchased, at a price of $15.00 per Common Share, an
additional 1,500,000 Common Shares of the Trust pursuant to a partial exercise
of the over-allotment option (the "Over-allotment Common Shares").
Certain of the capitalized terms used in this Prospectus are defined in the
Glossary that appears at the end of this Prospectus.
USE OF PROCEEDS
The estimated net proceeds of this offering will be $129,590,000 after the
payment of offering expenses (not expected to exceed $100,000) and the sales
load. See "Underwriting."
The net proceeds of the offering will be invested in accordance with the
Trust's investment objective and policies during a period estimated not to
exceed three months from the offer and sale of such APS depending on market
conditions and the availability of appropriate securities. Pending such
investment, it is anticipated that the proceeds will be invested in short-term
tax-exempt securities. See "Investment Objective and Policies."
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Trust as
of February 19, 1999 as if the Over-allotment Common Shares were issued on that
date and as adjusted to give effect to the issuance of the APS offered hereby.
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED
------------ ------------
<S> <C> <C>
Shareholders' equity:
Preferred Shares, par value $0.01 per share (no shares
issued; 5,420 APS, as adjusted, at $25,000 per share
liquidation preference).............................. -- $131,000,000
Common Shares, par value, $0.01 per share (15,506,667
shares issued and outstanding)....................... $ 155,067 155,067
Capital in excess of par value attributable to Common
Stock..................................................... 231,979,933 231,979,933
Undistributed investment income -- net...................... 216,959 216,959
Accumulated realized gain (loss) -- net..................... 923 923
Unrealized appreciation on investments--net................. 288,166 288,166
------------ ------------
Net assets.................................................. $232,641,048 $363,641,048
============ ============
</TABLE>
10
<PAGE> 18
PORTFOLIO COMPOSITION
As of February 19, 1999, approximately 88.8% of the market value of the
Trust's portfolio was invested in long-term Municipal Obligations and
approximately none of the market value of the Trust's portfolio was invested in
short-term Municipal Obligations. The following table sets forth certain
information with respect to the composition of the Trust's investment portfolio
as of February 19, 1999.
<TABLE>
<CAPTION>
NUMBER OF VALUE
S&P* MOODY'S* ISSUES (IN THOUSANDS) PERCENT
- ---- -------- --------- -------------- -------
<S> <C> <C> <C> <C>
AAA Aaa 18 $129,179 50.6%
AA Aa1, Aa 6 52,855 20.7
A A1 1 10,405 4.1
BBB Baa1 3 13,364 5.2
BB Ba1 1 8,838 3.5
NR+ NR+ 6 11,988 4.7
Cash 28,580 11.2
Total 35 $255,209 100.0%
== ======== =====
</TABLE>
- ---------------
* Ratings: Using the higher of S&P's or Moody's ratings on the Trust's Municipal
Obligations. See "Schedule of Investments." S&P rating categories may be
modified further by a plus (+) or minus (-) in AA, A, BBB, BB, B and C
ratings. Moody's rating categories may be modified further by a 1, 2, or 3 in
Aa, A, Baa, Ba and B ratings.
+ Securities that are not rated by S&P or Moody's. Such Municipal Obligations
may be rated by nationally recognized statistical rating organizations other
than S&P or Moody's, or may not be rated by any such organization. With
respect to the percentage of the Trust's assets invested in such securities,
Eaton Vance Management ("Eaton Vance" or the "Adviser") believes that these
are of comparable quality to Municipal Obligations rated investment grade.
This determination is based on the Adviser's own internal evaluation and does
not necessarily reflect how such securities would be rated by S&P or Moody's
if either were to rate the securities.
INVESTMENT OBJECTIVE, POLICIES AND RISKS
INVESTMENT OBJECTIVE
The Trust's investment objective is to provide current income exempt from
regular federal income tax. This income will be earned by investing primarily in
investment grade Municipal Obligations. Securities will be purchased and sold in
an effort to maintain a competitive yield on the Common Shares and to enhance
return based upon the relative value of the securities available in the
marketplace. Investments are based on Eaton Vance's research and ongoing credit
analysis, the underlying materials for which are generally not available to
individual investors.
Eaton Vance seeks to find Municipal Obligations of high quality that have
been undervalued in the marketplace. Eaton Vance's research specialists examine
credit histories, revenue sources, total debt histories, capital structures and
other data. This research capability is important because many obligations in
which the Trust will invest will not be rated or listed on a national securities
exchange, and the amount of public information available about such securities
will be limited. The Trust intends to emphasize the research that is critical to
discovering value while avoiding undue credit risk. The Trust will attempt to
enhance performance opportunities by seeking to remain fully invested.
INVESTMENT POLICIES -- GENERAL COMPOSITION OF THE TRUST
During normal market conditions, substantially all of the Trust's total
assets (at least 80%) will be invested in debt obligations issued by or on
behalf of states, territories and possessions of the United States, and the
District of Columbia and their political subdivisions, agencies or
instrumentalities, the interest on which is exempt from federal income tax
("Municipal Obligations"). At least 65% of the Trust's total assets
11
<PAGE> 19
will normally be invested in Municipal Obligations rated at least investment
grade at the time of investment (which are those rated Baa or higher by Moody's
or BBB or higher by either S&P or by Fitch), or, if unrated, determined by Eaton
Vance to be of at least investment grade quality. From time to time, the Trust
may hold a significant amount of Municipal Obligations not rated by a nationally
recognized statistical rating organization ("Rating Agency"). When the Trust
invests in unrated Municipal Obligations, it may be more dependent on Eaton
Vance's research capabilities than when it invests in rated Municipal
Obligations.
The Trust may invest up to 35% of its total assets in Municipal Obligations
rated below investment grade (but not, with respect to more than 30% of the
Trust's total assets, lower than B by all Rating Agencies rating the obligation)
and unrated Municipal Obligations considered to be of comparable quality by
Eaton Vance. No such securities will be in default at the time of purchase.
Investment in Municipal Obligations of below investment grade quality involves
special risks as compared with investment in higher grade Municipal Obligations.
These risks include greater sensitivity to a general economic downturn, greater
market price volatility and less secondary market trading. Securities rated
below investment grade are commonly known as "junk bonds." Such securities are
regarded, on balance, as predominantly speculative with respect to the issuer's
ability to pay interest and repay principal owed. See "-- Additional Risk
Considerations." For a description of municipal obligation ratings, see Appendix
A to the Statement of Additional Information.
The foregoing credit quality policies apply only at the time a security is
purchased, and the Trust is not required to dispose of a security in the event
that a Rating Agency downgrades its assessment of the credit characteristics of
a particular issue. In determining whether to retain or sell such a security,
Eaton Vance may consider such factors as Eaton Vance's assessment of the credit
quality of the issuer of such security, the price at which such security could
be sold and the rating, if any, assigned to such security by other Rating
Agencies.
Municipal Obligations include bonds, notes and commercial paper issued by a
municipality for a wide variety of both public and private purposes, the
interest on which is, in the opinion of issuer's counsel (or on the basis of
other reliable authority), exempt from federal income tax. Public purpose
municipal obligations include general obligation and revenue bonds. General
obligation bonds are backed by the taxing power of the issuing municipality.
Revenue bonds are backed by the revenues of a project or facility, or from the
proceeds of a specific revenue source. Some revenue bonds are payable solely or
partly from funds which are subject to annual appropriations by a state's
legislature. Municipal notes include bond anticipation, tax anticipation and
revenue anticipation notes. Bond, tax and revenue anticipation notes are
short-term obligations that will be retired with the proceeds of an anticipated
bond issue, tax revenue or facility revenue, respectively.
Some of the securities in which the Trust may invest include so-called
"zero-coupon" bonds, whose values are subject to greater fluctuation in response
to changes in market interest rates than bonds that pay interest currently.
Zero-coupon bonds are issued at a significant discount from face value and pay
interest only at maturity rather than at intervals during the life of the
security. The Trust is required to take into account income from zero-coupon
bonds on a current basis, even though it does not receive that income currently
in cash, and the Trust is required to distribute substantially all of its income
for each taxable year. Thus, the Trust may have to sell other investments to
obtain cash needed to make income distributions.
The Trust may invest in residual interest municipal bonds whose interest
rates bear an inverse relationship to the interest rate on another security or
the value of an index ("inverse floaters"). An investment in inverse floaters
may involve greater risk than an investment in a fixed rate bond. Because
changes in the interest rate on the other security or index inversely affect the
residual interest paid on the inverse floater, the value of an inverse floater
is generally more volatile than that of a fixed rate bond. Inverse floaters have
interest rate adjustment formulas which generally reduce or, in the extreme,
eliminate the interest paid to the Trust when short-term interest rates rise,
and increase the interest paid to the Trust when short-term interest rates fall.
Inverse floaters have varying degrees of liquidity, and the market for these
securities is relatively new and volatile. These securities tend to underperform
the market for fixed-rate bonds in a rising interest rate environment, but tend
to outperform the market for fixed-rate bonds when interest rates decline.
Shifts in long-term interest rates may, however, alter this tendency. Although
volatile, inverse floaters typically offer the potential for yields exceeding
the yields available on fixed-rate bonds with comparable credit quality, coupon,
call provisions and maturity. These securities usually permit the investor to
12
<PAGE> 20
convert the floating-rate to a fixed-rate (normally adjusted downward), and this
optional conversion feature may provide a partial hedge against rising rates if
exercised at an opportune time. Although the Trust is not limited with respect
to its investment in residual interest municipal bonds, the Trust does not
intend initially to invest more than 10% of its assets in such bonds.
The Trust may purchase Municipal Obligations that are additionally secured
by insurance, bank credit agreements, or escrow accounts. The credit quality of
companies which provide such credit enhancements will affect the value of those
securities. Although the insurance feature reduces certain financial risks, the
premiums for insurance and the higher market price paid for insured obligations
may reduce the Trust's current yield. Insurance generally will be obtained from
insurers with a claims-paying ability rated Aaa by Moody's or AAA by S&P or
Fitch. The insurance feature does not guarantee the market value of the insured
obligations or the Trust's net asset value.
The Trust has adopted certain fundamental investment restrictions set forth
in the Statement of Additional Information which may not be changed without a
vote of holders of Common Shares and APS voting together as a single class.
Except for such restrictions and the 80% requirement set forth above, the
investment objective and policies of the Trust may be changed by the Board of
Trustees without action by holders of Common Shares and APS.
ADDITIONAL INVESTMENT PRACTICES
When-Issued Securities. The Trust may purchase securities on a
"when-issued" basis, which means that payment and delivery occur on a future
settlement date. The price and yield of such securities are generally fixed on
the date of commitment to purchase. However, the market value of the securities
may fluctuate prior to delivery and upon delivery the securities may be worth
more or less than the Trust agreed to pay for them. The Trust may be required to
maintain a segregated account of liquid assets equal to outstanding purchase
commitments. The Trust may also purchase instruments that give the Trust the
option to purchase a municipal obligation when and if issued.
Futures Transactions. The Trust may purchase and sell various kinds of
financial futures contracts and options thereon to seek to hedge against changes
in interest rates or as a substitute for the purchase of securities. For
example, futures contracts may sometimes be used to reduce the additional
long-term interest rate risk the Trust bears by holding residual interest bonds.
Futures contracts may be based on various debt securities and securities indices
(such as the Municipal Bond Index traded on the Chicago Board of Trade). Such
transactions involve a risk of loss or depreciation due to unanticipated adverse
changes in securities prices, which may exceed the Trust's initial investment in
these contracts. The Trust will only purchase or sell futures contracts or
related options in compliance with the rules of the Commodity Futures Trading
Commission. These transactions involve transaction costs. There can be no
assurance that the Eaton Vance's use of futures will be advantageous to the
Trust. Distributions by the Trust of any gains realized on the Trust's
transactions in futures and options on futures will be taxable. The rating
agency guidelines with respect to the APS limit the use of these transactions.
See "Investment Objective, Policies and Risks -- Rating Agency Guidelines."
Investment Company Securities. The Trust may purchase common shares of
closed-end investment companies that have a similar investment objective and
policies to the Trust. In addition to providing tax-exempt income, such
securities may provide capital appreciation. Such investments, which may also be
leveraged and subject to the same risks as the Trust, will not exceed 10% of
total assets, and no such company will be affiliated with Eaton Vance. These
companies bear fees and expenses that the Trust will incur indirectly.
ADDITIONAL RISK CONSIDERATIONS
Interest Rate and Market Risk. The prices of Municipal Obligations tend to
fall as interest rates rise. Securities that have longer maturities tend to
fluctuate more in price in response to changes in market interest rates. This
risk is usually greater among Municipal Obligations with longer maturities or
durations and when residual interest municipal bonds are held by the Trust.
Although the Trust has no policy governing the
13
<PAGE> 21
maturities or durations of its investments, the Trust expects that it will
invest in a portfolio of longer-term securities. This means that the Trust will
be subject to greater market risk (other things being equal) than a fund
investing solely in shorter-term securities. Market risk is often greater among
certain types of income securities, such as zero-coupon bonds, which do not make
regular interest payments. As interest rates change, these bonds often fluctuate
in price more than higher quality bonds that make regular interest payments.
Because the Trust may invest in these types of income securities, it may be
subject to greater market risk than a fund that invests only in current interest
paying securities.
The Trust may invest to a significant extent in residual interest municipal
bonds known as inverse floaters. Compared to similar fixed-rate municipal bonds,
the value of these bonds will fluctuate to a greater extent in response to
changes in prevailing long-term interest rates. Moreover, the income earned on
residual interest municipal bonds will fluctuate in response to changes in
prevailing short-term interest rates. Thus, when such bonds are held by the
Trust, an increase in short- or long-term market interest rates will adversely
affect the income received from such bonds.
Income Risk. The Trust's income is based primarily on the interest it
earns from its investments, which can vary widely over the short- and long-term.
If interest rates drop, the Trust's income available over time to make dividend
payments with respect to the APS could drop as well if the Trust purchases
securities with lower interest coupons. This risk is magnified when prevailing
short-term interest rates increase and the Trust holds residual interest
municipal bonds.
Call Risk. If interest rates fall, it is possible that issuers of callable
bonds with high interest coupons will "call" (or prepay) their bonds before
their maturity date. If a call were exercised by the issuer during a period of
declining interest rates, the Trust is likely to replace such called security
with a lower yielding security.
Credit Risk. Municipal debt obligations are subject to the risk of
non-payment of scheduled interest and/or principal. Such non-payment would
result in a reduction of income to the Trust and a reduction in the value of the
security experiencing non-payment. Securities rated below investment grade or
unrated securities of comparable quality ("lower quality securities") are
subject to the risk of an issuer's inability to meet principal and interest
payments on the obligations ("credit risk") and may also be subject to price
volatility due to such factors as interest rate sensitivity, market perception
of the creditworthiness of the issuer and general market liquidity ("market
risk"). The prices of lower quality securities are also more likely to react to
real or perceived developments affecting market and credit risk than are prices
of investment grade quality securities ("higher quality securities"), which
react primarily to movements in the general level of interest rates. The
investments in the Trust's portfolio will have speculative characteristics.
As indicated above, the Trust may invest up to 35% of its total assets in
Municipal Obligations rated below investment grade (but not, with respect to
more than 30% of its total assets, lower than B by all Rating Agencies rating
the obligation) and comparable unrated obligations. Such obligations are
commonly called "junk bonds" and will have speculative characteristics in
varying degrees. While such obligations may have some quality and protective
characteristics, these characteristics can be expected to be offset or
outweighed by uncertainties or major risk exposures to adverse conditions. Eaton
Vance seeks to minimize the risks of investing in below investment grade
securities through professional investment analysis, attention to current
developments in interest rates and economic conditions, and industry and
geographic diversification (if practicable). When the Trust invests in lower
rated or unrated Municipal Obligations, the achievement of the Trust's goals is
more dependent on the Eaton Vance's ability than would be the case if the Trust
were investing in Municipal Obligations in the higher rating categories. In
evaluating the credit quality of a particular issue, whether rated or unrated,
Eaton Vance will normally take into consideration, among other things, the
financial resources of the issuer (or, as appropriate, of the underlying source
of funds for debt service), its sensitivity to economic conditions and trends,
any operating history of and the community support for the facility financed by
the issue, the ability of the issuer's management and regulatory matters. Eaton
Vance will attempt to reduce the risks of investing in the lowest investment
grade, below investment grade and comparable unrated obligations through active
portfolio management, credit analysis and attention to current developments and
trends in the economy and the financial markets.
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<PAGE> 22
Increases in interest rates and changes in the economy may adversely affect
the ability of issuers of lower grade municipal securities to pay interest and
to repay principal, to meet projected financial goals and to obtain additional
financing. In the event that an issuer of securities held by the Trust
experiences difficulties in the timely payment of principal or interest and such
issuer seeks to restructure the terms of its borrowings, the Trust may incur
additional expenses and may determine to invest additional assets with respect
to such issuer or the project or projects to which the Trust's portfolio
securities relate. Further, the Trust may incur additional expenses to the
extent that it is required to seek recovery upon a default in the payment of
interest or the repayment of principal on its portfolio holdings, and the Trust
may be unable to obtain full recovery thereof.
To the extent that there is no established retail market for some of the
lower grade municipal securities in which the Trust may invest, trading in such
securities may be relatively inactive. The Adviser is responsible for
determining the net asset value of the Trust, subject to the supervision of the
Board of Trustees of the Trust. During periods of reduced market liquidity and
in the absence of readily available market quotations for lower grade municipal
securities held in the Trust's portfolio, the ability of the Adviser to value
the Trust's securities becomes more difficult and the Adviser's use of judgment
may play a greater role in the valuation of the Trust's securities due to the
reduced availability of reliable objective data. The effects of adverse
publicity and investor perceptions may be more pronounced for securities for
which no established retail market exists as compared with the effects on
securities for which such a market does exist. Further, the Trust may have more
difficulty selling such securities in a timely manner and at their stated value
than would be the case for securities for which an established retail market
does exist.
Municipal Obligations held by the Trust that are of below investment grade
quality but which, subsequent to the assignment of such rating, are backed by
escrow accounts containing U.S. Government obligations may be determined by
Eaton Vance to be of investment grade quality for purposes of the Trust's
investment policies. The Trust may retain in its portfolio an obligation that
declines in quality, including defaulted obligations, if such retention is
considered desirable by Eaton Vance. In the case of a defaulted obligation, the
Trust may incur additional expense seeking recovery of its investment.
Changes in the credit quality of the issuers of Municipal Obligations held
by the Trust will affect the principal value of (and possibly the income earned
on) such obligations. In addition, the value of such securities are affected by
changes in general economic conditions and business conditions affecting the
relevant economic sectors. Changes by Rating Agencies in their ratings of a
security and in the ability of the issuer to make payments of principal and
interest may also affect the value of the Trust's investments. The amount of
information about the financial condition of an issuer of Municipal Obligations
may not be as extensive as that made available by corporations whose securities
are publicly traded.
The Trust may invest in municipal leases, and participations in municipal
leases. The obligation of the issuer to meet its obligations under such leases
is often subject to the appropriation by the appropriate legislative body, on an
annual or other basis, of funds for the payment of the obligations. Investments
in municipal leases are thus subject to the risk that the legislative body will
not make the necessary appropriation and the issuer will not otherwise be
willing or able to meet its obligation.
Concentration. The Trust may invest 25% or more of its total assets in
Municipal Obligations of issuers located in the same state (or U.S. territory)
or in Municipal Obligations in the same economic sector, including without
limitation the following: lease rental obligations of state and local
authorities; obligations dependent on annual appropriations by a state's
legislature for payment; obligations of state and local housing finance
authorities, municipal utilities systems or public housing authorities;
obligations of hospitals or life care facilities; or industrial development or
pollution control bonds issued for electric utility systems, steel companies,
paper companies or other purposes. This may make the Trust more susceptible to
adverse economic, political, or regulatory occurrences affecting a particular
state or economic sector. For example, health care related issuers are
susceptible to Medicaid reimbursement policies, and national and state health
care legislation.
Liquidity Risk. At times, a substantial portion of the Trust's assets may
be invested in securities as to which the Trust, by itself or together with
other accounts managed by Eaton Vance and its affiliates, holds a
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<PAGE> 23
major portion of all of such securities. Under adverse market or economic
conditions or in the event of adverse changes in the financial condition of the
issuer, the Trust could find it more difficult to sell such securities when
Eaton Vance believes it advisable to do so or may be able to sell such
securities only at prices lower than if such securities were more widely held.
In such circumstances, it may also be more difficult to determine the fair value
of such securities for purposes of computing the Trust's net asset value.
The secondary market for some Municipal Obligations (including issues which
are privately placed with the Trust) is less liquid than that for taxable debt
obligations or other more widely traded Municipal Obligations. These include
residual interest municipal bonds. No established resale market exists for
certain of the Municipal Obligations in which the Trust may invest. The market
for obligations rated below investment grade is also likely to be less liquid
than the market for higher rated obligations. As a result, the Trust may be
unable to dispose of these Municipal Obligations at times when it would
otherwise wish to do so at the prices at which they are valued.
A secondary market may be subject to irregular trading activity, wide
bid/ask spreads and extended trade settlement periods. The Trust has no
limitation on the amount of its assets which may be invested in securities which
are not readily marketable or are subject to restrictions on resale. The risks
associated with illiquidity are particularly acute in situations where the
Trust's operations require cash, such as if the Trust tenders for its Common
Shares, and may result in the Trust borrowing to meet short-term cash
requirements.
Non-Diversification. The Trust has registered as a "non-diversified"
investment company under the 1940 Act so that, subject to its investment
restrictions and applicable federal income tax diversification requirements,
with respect to 50% of its total assets, it will be able to invest more than 5%
(but not more than 25%) of the value of its total assets in the obligations of
any single issuer. To the extent the Trust invests a relatively high percentage
of its assets in obligations of a limited number of issuers, the Trust will be
more susceptible than a more widely diversified investment company to any single
corporate, economic, political or regulatory occurrence.
Year 2000 Compliance. The Trust could be adversely affected if the
computer systems used by the Adviser and other service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. This is commonly known as the "Year 2000 Problem." Eaton Vance is
taking steps that it believes are reasonably designed to address the Year 2000
Problem with respect to computer systems that it uses and to obtain reasonable
assurances that comparable steps are being taken by the Trust's other major
service providers. At this time, there can be no assurance that these steps will
be sufficient to avoid any adverse impact to the Trust.
In addition, it is possible that the markets for municipal securities in
which the Trust invests may be detrimentally affected by computer failures
throughout the financial services industry beginning on or before January 1,
2000. Improperly functioning trading systems may result in settlement problems
and liquidity issues. In addition, corporate and governmental data processing
errors may result in production problems for individual issuers and overall
economic uncertainties. Earnings of individual issuers will be affected by
remediation costs, which may be substantial and may be reported inconsistently
in financial statements. Accordingly, the Trust's investments may be adversely
affected. The statements above are subject to the Year 2000 Information and
Readiness Disclosure Act, which may limit the legal rights regarding the use of
such statements in the case of a dispute.
RATING AGENCY GUIDELINES
The Trust intends that, so long as APS are outstanding, the composition of
its portfolio will reflect guidelines established by S&P in connection with the
Trust's receipt of a rating for such shares on or prior to their Date of
Original Issue of at least AAA from S&P. S&P, which is a Rating Agency, issues
ratings for various securities reflecting the perceived creditworthiness of such
securities. The guidelines described below have been developed by S&P in
connection with issuances of asset-backed and similar securities, including debt
obligations and variable rate Preferred Shares, generally on a case-by-case
basis through discussions with the issuers of these securities. The guidelines
are designed to ensure that assets underlying outstanding debt or Preferred
Shares will be varied sufficiently and will be of sufficient quality and amount
to justify investment
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<PAGE> 24
grade ratings. The guidelines do not have the force of law but have been adopted
by the Trust in order to satisfy current requirements necessary for S&P to issue
the above-described ratings for APS, which ratings generally are relied upon by
institutional investors in purchasing such securities. The guidelines provide a
set of tests for portfolio composition and asset coverage that supplement (and
in some cases are more restrictive than) the applicable requirements under the
1940 Act. See "Description of APS--Asset Maintenance."
The Trust intends to maintain a Discounted Value for its portfolio at least
equal to the APS Basic Maintenance Amount. S&P has established guidelines for
determining Discounted Value. To the extent any particular portfolio holding
does not satisfy these guidelines, all or a portion of such holding's value will
not be included in the calculation of Discounted Value of the Trust's portfolio
assets. The S&P guidelines do not impose any limitations on the percentage of
Trust assets that may be invested in holdings not eligible for inclusion in the
calculation of the Discounted Value of the Trust's portfolio.
Upon any failure to maintain the required aggregate Discounted Value, the
Trust will seek to alter the composition of its portfolio to retain a Discounted
Value at least equal to the APS Basic Maintenance Amount on or prior to the APS
Basic Maintenance Cure Date, thereby incurring additional transaction costs and
possible losses and/or gains on dispositions of portfolio securities. To the
extent any such failure is not cured in a timely manner, the APS will be subject
to mandatory redemption. See "Description of APS--Asset Maintenance" and
"Description of APS--Redemption." The APS Basic Maintenance Amount includes the
sum of (i) the aggregate liquidation value of APS then outstanding and (ii)
certain accrued and projected payment obligations of the Trust. See "Description
of APS--Asset Maintenance."
The Trust may, but is not required to, adopt any modifications to these
guidelines that hereafter may be established by S&P. Failure to adopt any such
modifications, however, may result in a change in the ratings described above or
a withdrawal of ratings altogether. In addition, any rating agency providing a
rating for the shares of APS, at any time, may change or withdraw any such
rating. As set forth in the Amended By-Laws, the Trust's Board of Trustees
("Board of Trustees"), without shareholder approval, may modify certain
definitions or restrictions that have been adopted by the Trust pursuant to the
rating agency guidelines, provided the Board of Trustees has obtained written
confirmation from S&P that any such change would not impair the ratings then
assigned by S&P to the APS.
As described by S&P, a Preferred Shares rating is an assessment of the
capacity and willingness of an issuer to pay Preferred Shares obligations. The
ratings on the APS are not recommendations to purchase, hold or sell APS,
inasmuch as the ratings do not comment as to market price or suitability for a
particular investor, nor do the rating agency guidelines described above address
the likelihood that a holder of APS will be able to sell such shares in an
Auction. The ratings are based on current information furnished to S&P by the
Trust and the Adviser and information obtained from other sources. The ratings
may be changed, suspended or withdrawn as a result of changes in, or the
unavailability of, such information. The Common Shares have not been rated by a
Rating Agency.
S&P AAA Rating Guidelines. The Discounted Value of the Trust's S&P
Eligible Assets is calculated on each Valuation Date. See "Description of
APS--Asset Maintenance--APS Basic Maintenance Amount." S&P Eligible Assets
include cash, Receivables for Municipal Obligations Sold (as defined below) and
Municipal Obligations eligible for consideration under S&P's current guidelines.
For purposes of calculating the Discounted Value of the Trust's portfolio under
current S&P guidelines, the fair market value of Municipal Obligations eligible
for consideration under such guidelines must be discounted by the applicable S&P
Discount Factor set forth in the table below. The Discounted Value of a
Municipal Obligation eligible for consideration under S&P guidelines is the fair
market value thereof divided by the S&P Discount Factor. The S&P Discount Factor
used to discount a particular Municipal Obligation will be determined by
reference to (a) the rating by S&P on such Municipal Obligation and (b) the S&P
Exposure Period. The S&P Exposure Period is the maximum period of time following
a Valuation Date, including the Valuation Date and the APS Basic Maintenance
Cure Date, that the Trust has to cure any failure to maintain, as of such
Valuation Date, a Discounted Value for its portfolio at least equal to the APS
Basic Maintenance Amount.
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<PAGE> 25
S&P Discount Factors applicable to Municipal Obligations for a range of S&P
Exposure Periods are set forth below:
<TABLE>
<CAPTION>
S&P DISCOUNT FACTORS RATING CATEGORY
---------------------------------------
EXPOSURE PERIOD AAA AA A BBB
--------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
45 Business Days...................................... 190% 195% 210% 250%
25 Business Days...................................... 170 175 190 230
10 Business Days...................................... 155 160 175 215
7 Business Days...................................... 150 155 170 210
3 Business Days...................................... 130 135 150 190
</TABLE>
Since the S&P Exposure Period currently applicable to the Trust is three
Business Days, the S&P Discount Factors currently applicable to Municipal
Obligations eligible for consideration under S&P guidelines will be determined
by reference to the factors set forth opposite the exposure period line entitled
"3 Business Days." Notwithstanding the foregoing, (i) the S&P Discount Factor
for short-term Municipal Obligations will be 115%, so long as such Municipal
Obligations are rated A-1+ or SP-1+ by S&P and mature or have a demand feature
exercisable in 30 days or less, or 125% if such Municipal Obligations are not
rated by S&P but are rated VMIG-1, P-1 or MIG-1 by Moody's; provided, however,
such short-term Municipal Obligations rated by Moody's but not rated by S&P
having a demand feature exercisable in 30 days or less must be backed by a
letter of credit, liquidity facility or guarantee from a bank or other financial
institution having a short-term rating of at least A-1+ from S&P; and further
provided that such short-term Municipal Obligations rated by Moody's but not
rated by S&P may comprise no more than 50% of short-term Municipal Obligations
that qualify as S&P Eligible Assets and (ii) no S&P Discount Factor will be
applied to cash or to Receivables for Municipal Obligations Sold. "Receivables
for Municipal Obligations Sold," for purposes of calculating S&P Eligible Assets
as of any Valuation Date, means the book value of Receivables for Municipal
Obligations Sold as of or prior to such Valuation Date if such receivables are
due within five Business Days of such Valuation Date. For purposes of the
foregoing, Anticipation Notes rated SP-1+ or, if not rated by S&P, rated VMIG-1
by Moody's, which do not mature or have a demand feature exercisable in 30 days
and which do not have a long-term rating, shall be considered to be short-term
Municipal Obligations.
The S&P guidelines require certain minimum issue size and geographical
diversification and impose other requirements for purposes of determining S&P
Eligible Assets. In order to be considered S&P Eligible Assets, Municipal
Obligations must:
(i) be interest bearing and pay interest at least semi-annually;
(ii) be payable with respect to principal and interest in U.S.
dollars;
(iii) be publicly rated BBB or higher by S&P or, except in the case of
Anticipation Notes that are grant anticipation notes or bond anticipation
notes, which must be rated by S&P to be included in S&P Eligible Assets, if
not rated by S&P but rated by Moody's, be rated at least A by Moody's
(provided that such Moody's-rated Municipal Obligations will be included in
S&P Eligible Assets only to the extent the fair market value of such
Municipal Obligations does not exceed 50% of the aggregate fair market
value of the S&P Eligible Assets. For purposes of determining the S&P
Discount Factors applicable to any such Moody's-rated Municipal
Obligations, such Municipal Obligations will be deemed to have an S&P
rating that is one full rating category lower than its Moody's rating);
(iv) not be subject to a covered call or covered put option written by
the Trust; and
(v) be part of an issue with an original issue size of at least $20
million or, if of an issue with an original issue size below $20 million
(but in no event below $10 million), be issued by an issuer with a total of
at least $50 million of securities outstanding.
Notwithstanding the foregoing:
(i) Municipal Obligations of any one issuer or guarantor (excluding
bond insurers) will be considered S&P Eligible Assets only to the extent
the fair market value of such obligations does not exceed 10% of the
aggregate fair market value of the S&P Eligible Assets, provided that 2% is
added to
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<PAGE> 26
the applicable S&P Discount Factor for every 1% by which the fair market
value of such Municipal Obligations exceeds 5% of the aggregate fair market
value of the S&P Eligible Assets; and
(ii) Municipal Obligations issued by issuers in any one state or
territory will be considered S&P Eligible Assets only to the extent the
fair market value of such Municipal Obligations does not exceed 20% of the
aggregate fair market value of S&P Eligible Assets.
Escrow bonds (defeased bonds) may comprise 100% of the Trust's S&P Eligible
Assets. Bonds that are legally defeased and secured by direct U.S. government
obligations are not required to meet any minimum issuance size requirement.
Bonds that are economically defeased or secured by other U.S. agency paper must
meet the minimum issuance size requirement for the Trust described above. Bonds
initially rated or rerated as an escrow bond by another Rating Agency are
limited to 50% of the Trusts S&P Eligible Assets, and carry one full rating
lower than the equivalent S&P rating for purposes of determining the applicable
discount factors. Bonds economically defeased and either initially rated or
rerated by S&P or another Rating Agency are assigned that same rating level as
its debt issuer, and will remain in its original industry category.
Residual interest bonds will qualify as S&P Eligible assets provided that
the ratio of aggregate dollar amount of floating rate instruments to inverse
floating rate instruments issued by the same issuer does not exceed a ratio of
one-to-one at their time of original issuance. Leveraged residual interest bonds
will not qualify as S&P Eligible Assets unless the leveraged bond has only one
reset remaining before its maturity.
The Trust may include Municipal Obligations as S&P Eligible Assets pursuant
to guidelines and restrictions to be established by S&P, provided that S&P
advises the Trust in writing that such action will not adversely affect its
then-current rating on the APS.
As discussed herein, the Trust may engage in options or futures
transactions. For so long as any APS are rated by S&P, the Trust will not
purchase or sell financial futures contracts, write, purchase or sell options on
financial futures contracts or write put options (except covered put options) or
call options (except covered call options) on portfolio securities unless it
receives written confirmation from S&P that engaging in such transactions will
not impair the ratings then assigned to the APS by S&P, except that the Trust
may purchase or sell financial futures contracts based on the Bond Buyer
Municipal Bond Index (the "Municipal Index") or United States Treasury Bonds or
Notes ("Treasury Bonds") and write, purchase or sell put and call options on
such contracts (collectively "S&P Hedging Transactions"), subject to the
following limitations:
(i) the Trust will not engage in any S&P Hedging Transaction based on
the Municipal Index (other than transactions that terminate a financial
futures contract or option held by the Trust by the Trust's taking an
opposite position thereto ("Closing Transactions")), that would cause the
Trust at the time of such transaction to own or have sold the least of (A)
more than 1,000 outstanding financial futures contracts based on the
Municipal Index, (B) outstanding financial futures contracts based on the
Municipal Index exceeding in number 25% of the quotient of the fair market
value of the Trust's total assets divided by $1,000 or (C) outstanding
financial futures contracts based on the Municipal Index exceeding in
number 10% of the average number of daily traded financial futures
contracts based on the Municipal Index in the 30 days preceding the time of
effecting such transaction as reported by The Wall Street Journal;
(ii) the Trust will not engage in any S&P Hedging Transaction based on
Treasury Bonds (other than Closing Transactions) that would cause the Trust
at the time of such transaction to own or have sold the lesser of (A)
outstanding financial futures contracts based on Treasury Bonds and on the
Municipal Index exceeding in number 25% of the quotient of the fair market
value of the Trust's total assets divided by $100,000 ($200,000 in the case
of the two-year United States Treasury Note) or (B) outstanding financial
futures contracts based on Treasury Bonds exceeding in number 10% of the
average number of daily traded financial futures contracts based on
Treasury Bonds in the 30 days preceding the time of effecting such
transaction as reported by The Wall Street Journal;
(iii) the Trust will engage in Closing Transactions to close out any
outstanding financial futures contract that the Trust owns or has sold or
any outstanding option thereon owned by the Trust in the event (A) the
Trust does not have S&P Eligible Assets with an aggregate Discounted Value
equal to or
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<PAGE> 27
greater than the APS Basic Maintenance Amount on two consecutive Valuation
Dates and (B) the Trust is required to pay Variation Margin on the second
such Valuation Date;
(iv) the Trust will engage in a Closing Transaction to close out any
outstanding financial futures contract or option thereon in the month prior
to the delivery month under the terms of such financial futures contract or
option thereon unless the Trust holds the securities deliverable under such
terms; and
(v) when the Trust writes a financial futures contract or an option
thereon, it will either maintain an amount of cash, cash equivalents or
high grade (rated A or better by S&P) fixed-income securities in a
segregated account with the Trust's custodian, so that the amount so
segregated plus the amount of Initial Margin and Variation Margin held in
the account of or on behalf of the Trust's broker with respect to such
financial futures contract or option equals the fair market value of the
financial futures contract or option, or, in the event the Trust writes a
financial futures contract or option thereon that requires delivery of an
underlying security, it shall hold such underlying security in its
portfolio.
For purposes of determining whether the Trust has S&P Eligible Assets with
a Discounted Value that equals or exceeds the APS Basic Maintenance Amount, the
Discounted Value of cash or securities held for the payment of Initial Margin or
Variation Margin shall be zero and the aggregate Discounted Value of S&P
Eligible Assets shall be reduced by an amount equal to (i) 30% of the aggregate
settlement value, as marked to market, of any outstanding financial futures
contracts based on the Municipal Index that are owned by the Trust plus (ii) 25%
of the aggregate settlement value, as marked to market, of any outstanding
financial futures contracts based on Treasury Bonds which contracts are owned by
the Trust.
For so long as the APS are rated by S&P, the Trust, unless it has received
written confirmation from S&P that such action would not impair the ratings then
assigned to the APS by S&P will not (i) borrow money except for the purpose of
clearing transactions in portfolio securities (which borrowings under any
circumstances shall be limited to the lesser of $10 million and an amount equal
to 5% of the fair market value of the Trust's assets at the time of such
borrowings and which borrowings shall be repaid within 60 days and not be
extended or renewed and shall not cause the aggregate Discounted Value of S&P
Eligible Assets to be less than the APS Basic Maintenance Amount), (ii) engage
in short sales of securities, (iii) lend any securities, (iv) issue any class or
series of stock ranking prior to or on a parity with the APS with respect to the
payment of dividends or the distribution of assets upon dissolution, liquidation
or winding up of the Trust, (v) reissue any APS previously purchased or redeemed
by the Trust, (vi) merge or consolidate into or with any other corporation or
entity, (vii) change the Trust's pricing service or (vii) engage in reverse
repurchase agreements.
For so long as the APS are rated by S&P, the Trust will not purchase or
sell financial futures contracts, write, purchase or sell options on financial
futures contracts or write put options (except covered put options) or call
options (except covered call options) on portfolio securities unless it receives
written confirmation from S&P that engaging in such transactions will not impair
the ratings then assigned to the APS by S&P, except that the Trust may engage in
S&P Hedging Transactions subject to the limitations described herein. See
"Investment Objective and Policies--Rating Agency Guidelines" and "--Options and
Futures Transactions."
RISKS OF INVESTING IN APS
There are a number of specific factors investors in the APS should
consider:
- The credit ratings of the APS could be reduced while an investor holds
the APS.
- Neither Broker-Dealers nor the Trust are obligated to purchase the APS
in an Auction or otherwise nor is the Trust required to redeem the APS
in the event of a failed Auction.
- If in an Auction for the APS Sufficient Clearing Bids do not exist, the
Applicable Rate will be the Maximum Applicable Rate, and in such event,
Beneficial Owners that have submitted Sell Orders will not be able to
sell in the Auction all, and may not be able to sell any, the APS
subject to such Sell Orders. Thus, under certain circumstances,
Beneficial Owners may not have liquidity of investment.
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<PAGE> 28
The Broker-Dealers may maintain a secondary trading market in the APS
outside of Auctions; however, they have no obligation to do so and there can be
no assurance that a secondary market for the APS will develop or, if it does
develop, that it will provide holders with a liquid trading market (i.e.,
trading will depend on the presence of willing buyers and sellers and the
trading price is subject to variables to be determined at the time of the trade
by the Broker-Dealers). The APS will not be registered on any stock exchange or
on any automated quotation system. An increase in the level of interest rates,
particularly during any Long Term Dividend Period, likely will have an adverse
effect on the secondary market price of the APS, and a selling shareholder may
sell APS between Auctions at a price per share of less than $25,000.
The Trust's Agreement and Declaration of Trust (the "Declaration of Trust")
includes provisions that could have the effect of limiting the ability of other
entities or persons to acquire control of the Trust or to change the composition
of its Board of Trustees. See "Description of Capital Stock-- Certain Provisions
of the Declaration of Trust."
DESCRIPTION OF APS
Each series of APS will be Preferred Shares that entitle their holders to
receive dividends when, as and if declared by the Board of Trustees, out of
funds legally available therefor, at a rate per annum that may vary for the
successive Dividend Periods for each such series. After the Initial Dividend
Period, each Subsequent Dividend Period for each series of APS generally will be
a 7-Day Dividend Period; provided, however, that prior to any Auction, the Trust
may elect, subject to certain limitations described herein, upon giving notice
to holders thereof, a Special Dividend Period. The Applicable Rate for a
particular Dividend Period for a series of APS will be determined by an Auction
conducted on the Business Day before the start of such Dividend Period.
Beneficial Owners and Potential Beneficial Owners of APS may participate in
Auctions therefor, although, except in the case of a Special Dividend Period,
Beneficial Owners desiring to continue to hold all of their APS regardless of
the Applicable Rate resulting from Auctions need not participate. For an
explanation of Auctions and the method of determining the Applicable Rate, see
"Description of APS--The Auction."
Except as otherwise required by law or unless there is no Securities
Depository, all outstanding APS of each series will be represented by one or
more certificates registered in the name of the nominee of the Securities
Depository (initially expected to be Cede & Co.), and no person acquiring APS
will be entitled to receive a certificate representing such shares. See Appendix
D to the Statement of Additional Information (Auction Procedures). As a result,
the nominee of the Securities Depository is expected to be the sole holder of
record of each series of APS. Accordingly, each purchaser of APS must rely on
(i) the procedures of the Securities Depository and, if such purchaser is not a
member of the Securities Depository, such purchaser's Agent Member, to receive
dividends, distributions and notices and to exercise voting rights (if and when
applicable) and (ii) the records of the Securities Depository and, if such
purchaser is not a member of the Securities Depository, such purchaser's Agent
Member, to evidence its beneficial ownership of the APS.
When issued and sold, the APS of each series will have a liquidation
preference of $25,000 per share plus an amount equal to accumulated but unpaid
dividends (whether or not earned or declared) and will be fully paid and
non-assessable. See "Description of APS--Liquidation Rights." The APS will not
be convertible into Common Shares or other shares of beneficial interest of the
Trust, and the holders thereof will have no preemptive rights. The APS will not
be subject to any sinking fund but will be subject to redemption at the option
of the Trust at the Optional Redemption Price on any Dividend Payment Date for
such series (except during the Initial Dividend Period and during a Non-Call
Period) and, in certain circumstances, will be subject to mandatory redemption
by the Trust at the Mandatory Redemption Price stated herein. See "Description
of APS--Redemption."
In addition to serving as the Auction Agent in connection with the Auction
Procedures described below, Bankers Trust Corporation ("Bankers Trust") will be
the transfer agent, registrar, dividend disbursing agent and redemption agent
for each series of APS. The Auction Agent, however, will serve merely as the
agent of the Trust, acting in accordance with the Trust's instructions, and will
not be responsible for any evaluation or verification of any matters certified
to it.
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<PAGE> 29
Except in an Auction, the Trust will have the right (to the extent
permitted by applicable law) to purchase or otherwise acquire any APS so long as
the Trust is current in the payment of dividends on APS and on any other shares
of beneficial interest of the Trust ranking on a parity with the APS with
respect to the payment of dividends or upon liquidation.
The following is a brief description of the terms of the APS. This
description does not purport to be complete and is subject to and qualified in
its entirety by reference to the Trust's Declaration of Trust and Amended
By-Laws, including the provisions thereof establishing the APS. The Trust's
Declaration of Trust and the form of Amended By-Laws establishing the terms of
the APS have been filed as exhibits to the Registration Statement of which this
Prospectus is a part.
THE AUCTION
General. Holders of the APS of each series will be entitled to receive
cumulative cash dividends on their shares when, as and if declared by the Board
of Trustees of the Trust, out of the funds legally available therefor, on the
Initial Dividend Payment Date with respect to the Initial Dividend Period for
each series and, thereafter, on each Dividend Payment Date with respect to a
Subsequent Dividend Period for each series (generally a period of seven days
subject to certain exceptions set forth under "Description of
APS--Dividends--General") at the rate per annum equal to the Applicable Rate for
each such Dividend Period.
The provisions of the Amended By-Laws establishing the terms of the APS
offered hereby will provide that the Applicable Rate for each Dividend Period
after the Initial Dividend Period for each series will be equal to the rate per
annum that the Auction Agent advises has resulted on the Business Day preceding
the first day of such Dividend Period due to implementation of the auction
procedures set forth in the Amended By-Laws (the "Auction Procedures") in which
persons determine to hold or offer to purchase or sell the APS. The Auction
Procedures are attached as Appendix D to the Statement of Additional
Information. Each periodic operation of such procedures with respect to the APS
is referred to hereinafter as an "Auction." If, however, the Trust should fail
to pay or duly provide for the full amount of any dividend on or the redemption
price of the APS called for redemption, the Applicable Rate for the APS will be
determined as set forth under "Description of APS--Dividends--Determination of
Dividend Rate."
Auction Agent Agreement. The Trust will enter into an agreement (the
"Auction Agent Agreement") with Bankers Trust (together with any successor bank
or trust company or other entity entering into a similar agreement with this
Trust, the "Auction Agent"), which provides, among other things, that the
Auction Agent will follow the Auction Procedures for the purpose of determining
the Applicable Rate for each series of APS. The Trust will pay the Auction Agent
compensation for its services under the Auction Agent Agreement.
The Auction Agent will act as agent for the Trust in connection with
Auctions. In the absence of bad faith or negligence on its part, the Auction
Agent will not be liable for any action taken, suffered or omitted, or for any
error of judgment made, by it in the performance of its duties under the Auction
Agent Agreement, and will not be liable for any error of judgment made in good
faith unless the Auction Agent shall have been negligent in ascertaining the
pertinent facts. Pursuant to the Auction Agent Agreement, the Trust is required
to indemnify the Auction Agent for certain losses and liabilities incurred by
the Auction Agent without negligence or bad faith on its part in connection with
the performance of its duties under such agreement.
The Auction Agent may terminate the Auction Agent Agreement upon notice to
the Trust, which termination may be no earlier than 60 days following delivery
of such notice. If the Auction Agent resigns, the Trust will use its best
efforts to enter into an agreement with a successor Auction Agent containing
substantially the same terms and conditions as the Auction Agent Agreement. The
Trust may terminate the Auction Agent Agreement, provided that prior to such
termination the Trust shall have entered into such an agreement with respect
thereto with a successor Auction Agent.
Broker-Dealer Agreements. The Auctions require the participation of one or
more broker-dealers. The Auction Agent will enter into agreements with
PaineWebber Incorporated, Prudential Securities, Salomon
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<PAGE> 30
Smith Barney Inc. and A.G. Edwards & Sons, Inc., and may enter into similar
agreements (collectively, the "Broker-Dealer Agreements") with one or more other
broker-dealers (collectively, the "Broker-Dealers") selected by the Trust, which
provide for the participation of such Broker-Dealers in Auctions. A Broker-
Dealer Agreement may be terminated by the Auction Agent or a Broker-Dealer on
five days' notice to the other party, provided that the Broker-Dealer Agreement
with PaineWebber Incorporated, Prudential Securities, Salomon Smith Barney Inc.
and A.G. Edwards & Sons, Inc. may not be terminated without the prior written
consent of the Trust, which consent may not be unreasonably withheld.
Securities Depository. The Depository Trust Company initially will act as
the Securities Depository for the Agent Members with respect to the APS. One or
more registered certificates for all of the shares of each series of APS
initially will be registered in the name of Cede & Co., as nominee of the
Securities Depository. The certificate will bear a legend to the effect that
such certificate is issued subject to the provisions restricting transfers of
the APS of the series to which it relates contained in the Amended By-Laws. Cede
& Co. initially will be the holder of record of all shares of APS, and
Beneficial Owners will not be entitled to receive certificates representing
their ownership interest in such shares. See Appendix D (Auction Procedures) to
the Statement of Additional Information. The Securities Depository will maintain
lists of its participants and will maintain the positions (ownership interests)
of the APS held by each Agent Member, whether as the Beneficial Owner thereof
for its own account or as nominee for the Beneficial Owner thereof. Payments
made by the Trust to holders of APS will be duly made by making payments to the
nominee of the Securities Depository.
Auction Procedures. The following is a brief summary of the procedures to
be used in conducting Auctions. This summary is qualified by reference to the
Auction procedures set forth in Appendix C to the Statement of Additional
Information. The Settlement Procedures to be used with respect to Auctions are
set forth in Appendix B to the Statement of Additional Information.
Auction Date; Advance Notice of Allocation of Taxable Income; Inclusion of
Taxable Income in Dividends. An Auction to determine the Applicable Rate for
the APS offered hereby for each Dividend Period for such shares (other than the
Initial Dividend Period therefor) will be held on the last Business Day
preceding the first day of such Dividend Period, which first day is also the
Dividend Payment Date for the preceding Dividend Period (the date of each
Auction being referred to herein as an "Auction Date"). The initial Auction Date
will be March , 1999 for Series A APS and March , 1999 for Series B APS.
Auctions for the APS for Dividend Periods after the Initial Dividend Period
normally will be held every Tuesday after the preceding Dividend Payment Date
for Series A APS and every such Thursday for Series B APS; and each subsequent
Dividend Period normally will begin on the following Wednesday for Series A APS
and on the following Thursday for Series B APS (also a Dividend Payment Date).
The Auction Date and the first day of the related Dividend Period for a series
of APS (both of which must be Business Days) need not be consecutive calendar
days. See "Description of APS--Dividends" for information concerning the
circumstances under which a Dividend Payment Date may fall on a date other than
the days specified above, which may affect the Auction Date.
Except as noted below, whenever the Trust intends to include any net
capital gain or other income subject to federal income tax in any dividend on
the APS, the Trust will notify the Auction Agent of the amount to be so included
at least five Business Days prior to the Auction Date on which the Applicable
Rate for such dividend is to be established. Whenever the Auction Agent receives
such notice from the Trust, in turn it will notify each Broker-Dealer, who, on
or prior to such Auction Date, in accordance with its Broker-Dealer Agreement,
will notify its customers who are Beneficial Owners and Potential Beneficial
Owners believed to be interested in submitting an Order in the Auction to be
held on such Auction Date. The Trust also may include such income in a dividend
on the APS without giving advance notice thereof if it increases the dividend by
an additional amount calculated as if such income were a Retroactive Taxable
Allocation and the additional amount were an Additional Dividend; provided that
the Trust will notify the Auction Agent of the additional amounts to be included
in such dividend at least five Business Days prior to the applicable Dividend
Payment Date. See "Description of APS--Dividends--Additional Dividends."
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<PAGE> 31
Orders by Beneficial Owners, Potential Beneficial Owners, Existing Holders
and Potential Holders. On or prior to each Auction Date for a series of APS:
(a) each Beneficial Owner may submit to its Broker-Dealer by telephone
a:
(i) Hold Order--indicating the number of outstanding APS, if any,
that such Beneficial Owner desires to continue to hold without regard to
the Applicable Rate for the next Dividend Period for such shares;
(ii) Bid--indicating the number of outstanding APS, if any, that
such Beneficial Owner desires to continue to hold, provided that the
Applicable Rate for the next Dividend Period for such shares is not less
than the rate per annum then specified by such Beneficial Owner; and/or
(iii) Sell Order--indicating the number of outstanding APS, if any,
that such Beneficial Owner offers to sell without regard to the
Applicable Rate for the next Dividend Period for such shares; and
(b) Broker-Dealers will contact customers who are Potential Beneficial
Owners of APS to determine whether such Potential Beneficial Owners desire
to submit Bids indicating the number of APS which they offer to purchase
provided that the Applicable Rate for the next Dividend Period for such
shares is not less than the rates per annum specified in such Bids.
The communication by a Beneficial Owner or Potential Beneficial Owner to a
Broker-Dealer and the communication by a Broker-Dealer, whether or not acting
for its own account, to the Auction Agent of the foregoing information is
hereinafter referred to as an "Order" and collectively as "Orders." A Beneficial
Owner or a Potential Beneficial Owner placing an Order, including a
Broker-Dealer acting in such capacity for its own account, is hereinafter
referred to as a "Bidder" and collectively as "Bidders." Any Order submitted by
a Beneficial Owner or a Potential Beneficial Owner to its Broker-Dealer, or by a
Broker-Dealer to the Auction Agent, prior to the Submission Deadline on any
Auction Date shall be irrevocable.
In an Auction, a Beneficial Owner may submit different types of Orders with
respect to APS then held by such Beneficial Owner, as well as Bids for
additional APS. For information concerning the priority given to different types
of Orders placed by Beneficial Owners, see "Submission of Orders by
Broker-Dealers to Auction Agent" below.
The Maximum Applicable Rate for a series of APS will be the Applicable
Percentage of the Reference Rate. The Auction Agent will round each applicable
Maximum Applicable Rate to the nearest one-thousandth (0.001) of one percent per
annum, with any such number ending in five ten-thousandths of one percent being
rounded upwards to the nearest one-thousandth (0.001) of one percent. The
Auction Agent will not round the applicable Reference Rate as part of its
calculation of the Maximum Applicable Rate.
The Maximum Applicable Rate for a series of APS will depend on the credit
rating or ratings assigned to such shares. The Applicable Percentage will be
determined based on (i) the credit rating assigned on such date to such shares
by S&P (or if S&P shall not make such rating available, the equivalent of such
rating by a Substitute Rating Agency), and (ii) whether the Trust has provided
notification to the Auction Agent prior to the Auction establishing the
Applicable Rate for any dividend that net capital gains or other taxable income
will be included in such dividend on the APS as follows:
<TABLE>
<CAPTION>
APPLICABLE APPLICABLE
PERCENTAGE OF PERCENTAGE OF
REFERENCE REFERENCE
RATE -- RATE --
S&P CREDIT RATINGS NO NOTIFICATION NOTIFICATION
------------------ --------------- -------------
<S> <C> <C>
AA- or higher......................................... 110% 150%
A- to A+.............................................. 125 160
BBB- to BBB+.......................................... 150 250
Below BBB-............................................ 200 275
</TABLE>
There is no minimum Applicable Rate in respect of any Dividend Period.
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<PAGE> 32
The Trust will take all reasonable action necessary to enable S&P to
provide a rating for each series of APS. If S&P shall not make such a rating
available, the Underwriters or their affiliates and successors, after
consultation with the Trust, will select another Rating Agency (a "Substitute
Rating Agency") to act as a Substitute Rating Agency.
Any Bid by a Beneficial Owner specifying a rate per annum higher than the
Maximum Applicable Rate will be treated as a Sell Order, and any Bid by a
Potential Beneficial Owner specifying a rate per annum higher than the Maximum
Applicable Rate will not be considered. See "Determination of Sufficient
Clearing Bids, Winning Bid Rate and Applicable Rate" and "Acceptance and
Rejection of Submitted Bids and Submitted Sell Orders and Allocation of Shares."
Neither the Trust nor the Auction Agent will be responsible for a
Broker-Dealer's failure to comply with the foregoing. A Broker-Dealer also may
hold APS in its own account as a Beneficial Owner. A Broker-Dealer thus may
submit Orders to the Auction Agent as a Beneficial Owner or a Potential
Beneficial Owner and therefore participate in an Auction as an Existing Holder
or Potential Holder on behalf of both itself and its customers. Any Order placed
with the Auction Agent by a Broker-Dealer as or on behalf of a Beneficial Owner
or a Potential Beneficial Owner will be treated in the same manner as an Order
placed with a Broker-Dealer by a Beneficial Owner or a Potential Beneficial
Owner. Similarly, any failure by a Broker-Dealer to submit to the Auction Agent
an Order in respect of any APS held by it or its customers who are Beneficial
Owners will be treated in the same manner as a Beneficial Owner's failure to
submit to its Broker-Dealer an Order in respect of APS held by it, as described
in the next paragraph. Inasmuch as a Broker-Dealer participates in an Auction as
an Existing Holder or a Potential Holder only to represent the interests of a
Beneficial Owner or Potential Beneficial Owner, whether it be its customers or
itself, all discussion herein relating to the consequences of an Auction for
Existing Holders and Potential Holders also applies to the underlying beneficial
ownership interests represented thereby. For information concerning the priority
given to different types of Orders placed by Existing Holders, see "Submission
of Orders by Broker-Dealers to Auction Agent." Each purchase or sale in an
Auction will be settled on the Business Day next succeeding the Auction Date at
a price per share equal to $25,000. See "Notification of Results; Settlement."
If one or more Orders covering in the aggregate all of the outstanding APS
held by a Beneficial Owner are not submitted to the Auction Agent prior to the
Submission Deadline, either because a Broker-Dealer failed to contact such
Beneficial Owner or otherwise, the Auction Agent shall deem a Hold Order (in the
case of an Auction relating to a Dividend Period of 91 days or less) and a Sell
Order (in the case of an Auction relating to a Special Dividend Period of longer
than 91 days) to have been submitted on behalf of such Beneficial Owner covering
the number of outstanding the APS held by such Beneficial Owner and not subject
to Orders submitted to the Auction Agent.
If all of the outstanding APS are subject to Submitted Hold Orders, the
Dividend Period next succeeding the Auction automatically shall be the same
length as the immediately preceding Dividend Period, and the Applicable Rate for
the next Dividend Period for all the APS will be 40% of the Reference Rate on
the date of the applicable Auction (or 60% of such rate if the Trust has
provided notification to the Auction Agent prior to the Auction establishing the
Applicable Rate for any dividend that net capital gains or other taxable income
will be included in such dividend on the APS).
For the purposes of an Auction, the APS for which the Trust shall have
given notice of redemption and deposited moneys therefor with the Auction Agent
in trust or segregated in an account at the Trust's custodian bank for the
benefit of the Auction Agent, as set forth under "Description of APS--
Redemption," will not be considered as outstanding and will not be included in
such Auction. Pursuant to the Amended By-Laws of the Trust, the Trust will be
prohibited from reissuing and its affiliates (other than the Underwriter) will
be prohibited from transferring (other than to the Trust) any APS they may
acquire. Neither the Trust nor any affiliate of the Trust (other than the
Underwriter) may submit an Order in any Auction, except that an affiliate of the
Trust that is a Broker-Dealer may submit an Order.
Submission of Orders by Broker-Dealers to Auction Agent. Prior to 1:00
p.m., New York City time, on each Auction Date, or such other time on the
Auction Date as may be specified by the Auction Agent (the "Submission
Deadline"), each Broker-Dealer will submit to the Auction Agent in writing all
Orders obtained
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<PAGE> 33
by it for the Auction for a series of APS to be conducted on such Auction Date,
designating itself (unless otherwise permitted by the Trust) as the Existing
Holder or Potential Holder in respect of the APS subject to such Orders. Any
Order submitted by a Beneficial Owner or a Potential Beneficial Owner to its
Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior to the
Submission Deadline on any Auction Date, shall be irrevocable.
If the rate per annum specified in any Bid contains more than three figures
to the right of the decimal point, the Auction Agent will round such rate per
annum up to the next highest one-thousandth (.001) of 1%. If one or more Orders
of an Existing Holder are submitted to the Auction Agent and such Orders cover
in the aggregate more than the number of outstanding shares of APS held by such
Existing Holder, such Orders will be considered valid in the following order of
priority:
(i) any Hold Order will be considered valid up to and including the
number of outstanding APS held by such Existing Holder, provided that if
more than one Hold Order is submitted by such Existing Holder and the
number of APS subject to such Hold Orders exceeds the number of outstanding
APS held by such Existing Holder, the number of APS subject to each of such
Hold Orders will be reduced pro rata so that such Hold Orders, in the
aggregate, will cover exactly the number of outstanding APS held by such
Existing Holder;
(ii) any Bids will be considered valid, in the ascending order of
their respective rates per annum if more than one Bid is submitted by such
Existing Holder, up to and including the excess of the number of
outstanding APS held by such Existing Holder over the number of outstanding
APS subject to any Hold Order referred to in clause (i) above (and if more
than one Bid submitted by such Existing Holder specifies the same rate per
annum and together they cover more than the remaining number of shares that
can be the subject of valid Bids after application of clause (i) above and
of the foregoing portion of this clause (ii) to any Bid or Bids specifying
a lower rate or rates per annum, the number of shares subject to each of
such Bids will be reduced pro rata so that such Bids, in the aggregate,
cover exactly such remaining number of outstanding shares); and the number
of outstanding shares, if any, subject to Bids not valid under this clause
(ii) shall be treated as the subject of a Bid by a Potential Holder; and
(iii) any Sell Order will be considered valid up to and including the
excess of the number of outstanding APS held by such Existing Holder over
the sum of the number of APS subject to Hold Orders referred to in clause
(i) above and the number of APS subject to valid Bids by such Existing
Holder referred to in clause (ii) above; provided that, if more than one
Sell Order is submitted by any Existing Holder and the number of APS
subject to such Sell Orders is greater than such excess, the number of APS
subject to each of such Sell Orders will be reduced pro rata so that such
Sell Orders, in the aggregate, will cover exactly the number of APS equal
to such excess.
If more than one Bid of any Potential Holder is submitted in any Auction,
each Bid submitted in such Auction will be considered a separate Bid with the
rate per annum and number of APS therein specified.
Determination of Sufficient Clearing Bids, Winning Bid Rate and Applicable
Rate. Not earlier than the Submission Deadline for each Auction, the Auction
Agent will assemble all Orders submitted or deemed submitted to it by the
Broker-Dealers (each such "Hold Order," "Bid" or "Sell Order" as submitted or
deemed submitted by a Broker-Dealer hereinafter being referred to as a
"Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order," as the
case may be, or as a "Submitted Order") and will determine the excess of the
number of outstanding APS over the number of outstanding APS subject to
Submitted Hold Orders (such excess being referred to as the "Available APS") and
whether Sufficient Clearing Bids have been made in such Auction. Sufficient
Clearing Bids will have been made if the number of outstanding APS that are the
subject of Submitted Bids of Potential Holders with rates per annum not higher
than the Maximum Applicable Rate equals or exceeds the number of outstanding
shares that are the subject of Submitted Sell Orders (including the number of
shares subject to Bids of Existing Holders specifying rates per annum higher
than the Maximum Applicable Rate). If Sufficient Clearing Bids have been made,
the Auction Agent will determine the lowest rate per annum specified in the
Submitted Bids (the "Winning Bid Rate") which would result in the number of
shares subject to Submitted Bids specifying such rate per annum or a lower rate
per annum being at least equal to the Available APS. If Sufficient Clearing Bids
have been
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<PAGE> 34
made, the Winning Bid Rate will be the Applicable Rate for the next Dividend
Period for the APS then outstanding. If Sufficient Clearing Bids have not been
made (other than because all outstanding APS are the subject of Submitted Hold
Orders), the Dividend Period next following the Auction automatically will be a
7-Day Dividend Period, and the Applicable Rate for such Dividend Period will be
equal to the Maximum Applicable Rate.
If Sufficient Clearing Bids have not been made, Beneficial Owners that have
Submitted Sell Orders will not be able to sell in the Auction all, and may not
be able to sell any, the APS subject to such Submitted Sell Orders. See
"Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and
Allocation of Shares." Thus, under some circumstances, Beneficial Owners may not
have liquidity of investment.
Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and
Allocation of Shares. Based on the determinations described under
"Determination of Sufficient Clearing Bids, Winning Bid Rate and Applicable
Rate" and subject to the discretion of the Auction Agent to round as described
below, Submitted Bids and Submitted Sell Orders will be accepted or rejected in
the order of priority set forth in the Auction Procedures with the result that
Existing Holders and Potential Holders of a series of APS will sell, continue to
hold and/or purchase APS as set forth below. Existing Holders that submit or are
deemed to have submitted Hold Orders will continue to hold the APS subject to
such Hold Orders.
If Sufficient Clearing Bids have been made:
(a) each Existing Holder that placed a Submitted Bid specifying a rate
per annum higher than the Winning Bid Rate or a Submitted Sell Order will
sell the outstanding APS subject to such Submitted Bid or Submitted Sell
Order;
(b) each Existing Holder that placed a Submitted Bid specifying a rate
per annum lower than the Winning Bid Rate will continue to hold the
outstanding APS subject to such Submitted Bid;
(c) each Potential Holder that placed a Submitted Bid specifying a
rate per annum lower than the Winning Bid Rate will purchase the number of
APS subject to such Submitted Bid;
(d) each Existing Holder that placed a Submitted Bid specifying a rate
per annum equal to the Winning Bid Rate will continue to hold the
outstanding shares of APS subject to such Submitted Bids, unless the number
of outstanding APS subject to all such Submitted Bids of Existing Holders
is greater than the excess of the Available APS over the number of APS
accounted for in clauses (b) and (c) above, in which event each Existing
Holder with such a Submitted Bid will sell a number of outstanding APS
determined on a pro rata basis based on the number of outstanding APS
subject to all such Submitted Bids of such Existing Holders; and
(e) each Potential Holder that placed a Submitted Bid specifying a
rate per annum equal to the Winning Bid Rate will purchase any Available
APS not accounted for in clause (b), (c) or (d) above on a pro rata basis
based on the APS subject to all such Submitted Bids of Potential Holders.
If Sufficient Clearing Bids have not been made (other than because all
outstanding APS are the subject of Submitted Hold Orders):
(a) each Existing Holder that placed a Submitted Bid specifying a rate
per annum equal to or lower than the Maximum Applicable Rate will continue
to hold the outstanding APS subject to such Submitted Bid;
(b) each Potential Holder that placed a Submitted Bid specifying a
rate per annum equal to or lower than the Maximum Applicable Rate will
purchase the number of APS subject to such Submitted Bid; and
(c) each Existing Holder that placed a Submitted Bid specifying a rate
per annum higher than the Maximum Applicable Rate or a Submitted Sell Order
will sell a number of outstanding APS determined on a pro rata basis based
on the outstanding APS subject to all such Submitted Bids and Submitted
Sell Orders. If as a result of the Auction Procedures described above any
Existing Holder would be entitled or required to sell, or any Potential
Holder would be entitled or required to purchase, a fraction of APS, the
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<PAGE> 35
Auction Agent, in such manner as, in its sole discretion, it shall
determine, will round up or down the number of APS being sold or purchased
on such Auction Date so that each share sold or purchased by each Existing
Holder or Potential Holder will be a whole APS. If any Potential Holder
would be entitled or required to purchase less than a whole APS, the
Auction Agent, in such manner as, in its sole discretion, it shall
determine, will allocate APS for purchase among Potential Holders so that
only whole APS are purchased by any such Potential Holder, even if such
allocation results in one or more of such Potential Holders not purchasing
any APS.
Notification of Results; Settlement. The Auction Agent will advise each
Broker-Dealer who submitted a Bid or Sell Order in an Auction whether such Bid
or Sell Order was accepted or rejected in whole or in part and of the Applicable
Rate for the next Dividend Period for the related APS by telephone at
approximately 3:00 p.m., New York City time, on the Auction Date for such
Auction. Each such Broker-Dealer that submitted an Order for the account of a
customer then will advise such customer whether such Bid or Sell Order was
accepted or rejected, will confirm purchases and sales with each customer
purchasing or selling APS as a result of the Auction and will advise each
customer purchasing or selling APS to give instructions to its Agent Member of
the Securities Depository to pay the purchase price against delivery of such
shares or to deliver such shares against payment therefor as appropriate. If a
customer selling APS as a result of an Auction shall fail to instruct its Agent
Member to deliver such shares, the Broker-Dealer that submitted such customer's
Bid or Sell Order will instruct such Agent Member to deliver such shares against
payment therefor. Each Broker-Dealer that submitted a Hold Order in an Auction
on behalf of a customer also will advise such customer of the Applicable Rate
for the next Dividend Period for the APS. The Auction Agent will record each
transfer of APS on the record book of Existing Holders to be maintained by the
Auction Agent.
In accordance with the Securities Depository's normal procedures, on the
day after each Auction Date, the transactions described above will be executed
through the Securities Depository, and the accounts of the respective Agent
Members at the Securities Depository will be debited and credited as necessary
to effect the purchases and sales of APS as determined in such Auction.
Purchasers will make payment through their Agent Members in same-day funds to
the Securities Depository against delivery through their Agent Members; the
Securities Depository will make payment in accordance with its normal
procedures, which now provide for payment in same-day funds. If the procedures
of the Securities Depository applicable to APS shall be changed to provide for
payment in next-day funds, then purchasers may be required to make payment in
next-day funds. If the certificates for the APS are not held by the Securities
Depository or its nominee, payment will be made in same-day funds to the Auction
Agent against delivery of such certificates.
If any Existing Holder selling APS in an Auction fails to deliver such
shares, the Broker-Dealer of any person that was to have purchased APS in such
Auction may deliver to such person a number of whole APS that is less than the
number of shares that otherwise was to be purchased by such person. In such
event, the number of APS to be so delivered will be determined by such
Broker-Dealer. Delivery of such lesser number of shares will constitute good
delivery. Each Broker-Dealer Agreement also will provide that neither the Trust
nor the Auction Agent will have responsibility or liability with respect to the
failure of a Potential Beneficial Owner, Beneficial Owner or their respective
Agent Members to deliver APS or to pay for APS purchased or sold pursuant to an
Auction or otherwise.
BROKER-DEALERS
The Auction Agent after each Auction will pay a service charge from funds
provided by the Trust to each Broker-Dealer on the basis of the purchase price
of APS placed by such Broker-Dealer at such Auction. The service charge (i) for
any 7-Day Dividend Period shall be payable at the annual rate of 0.25% of the
purchase price of the APS placed by such Broker-Dealer in any such Auction and
(ii) for any Special Dividend Period shall be determined by mutual consent of
the Trust and any such Broker-Dealer or Broker-Dealers and shall be based upon a
selling concession that would be applicable to an underwriting of fixed or
variable rate preferred shares with a similar final maturity or variable rate
dividend period, respectively, at the commencement of the Dividend Period with
respect to such Auction. For the purposes of the preceding sentence, the APS
will be placed by a Broker-Dealer if such shares were (i) the subject of Hold
Orders deemed to have been made by Beneficial Owners that were acquired by such
Beneficial Owners through such Broker-Dealer or
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<PAGE> 36
(ii) the subject of the following Orders submitted by such Broker-Dealer: (A) a
Submitted Bid of a Beneficial Owner that resulted in such Beneficial Owner
continuing to hold such shares as a result of the Auction, (B) a Submitted Bid
of a Potential Beneficial Owner that resulted in such Potential Beneficial Owner
purchasing such shares as a result of the Auction or (C) a Submitted Hold Order.
The Broker-Dealer Agreements provide that a Broker-Dealer may submit Orders
in Auctions for its own account, unless the Trust notifies all Broker-Dealers
that they no longer may do so; provided that Broker-Dealers may continue to
submit Hold Orders and Sell Orders. If a Broker-Dealer submits an Order for its
own account in any Auction of APS, it may have knowledge of Orders placed
through it in that Auction and therefore have an advantage over other Bidders,
but such Broker-Dealer would not have knowledge of Orders submitted by other
Broker-Dealers in that Auction.
The Broker-Dealers may maintain a secondary trading market in the APS
outside of Auctions; however, they have no obligation to do so and there can be
no assurance that a secondary market for the APS will develop or, if it does
develop, that it will provide holders with a liquid trading market (i.e.,
trading will depend on the presence of willing buyers and sellers and the
trading price is subject to variables to be determined at the time of the trade
by the Broker-Dealers). The APS will not be registered on any stock exchange or
on any automated quotation system. An increase in the level of interest rates,
particularly during any Long Term Dividend Period for a series of APS, likely
will have an adverse effect on the secondary market price of such APS, and a
selling shareholder may sell APS between Auctions at a price per share of less
than $25,000.
DIVIDENDS
General. The holders of APS of each series will be entitled to receive,
when, as and if declared by the Board of Trustees, out of funds legally
available therefor, cumulative cash dividends on their shares, at the Applicable
Rate determined as set forth below under "Determination of Dividend Rate,"
payable on the dates set forth below. Dividends on the APS so declared and
payable shall be paid (i) in preference to and in priority over any dividends so
declared and payable on the Common Shares, and (ii) to the extent permitted
under the Code and to the extent available, out of net tax-exempt income earned
on the Trust's investments. Dividends on the APS, to the extent that they are
derived from Municipal Obligations, generally will be exempt from federal income
tax, though some or all of those dividends may be a tax preference item for
purposes of the federal alternative federal minimum tax ("Preference Item"). See
"Taxes."
Dividends on each series of APS will accumulate from the date on which the
Trust originally issues the APS (the "Date of Original Issue") and will be
payable on the APS on the dates described below. Dividends on a series APS with
respect to the Initial Dividend Period shall be payable on the Initial Dividend
Payment Date for that series. Following the Initial Dividend Payment Date,
dividends on each series of APS will be payable, at the option of the Trust,
either (i) with respect to any 7-Day Dividend Period and any Short Term Dividend
Period of 35 or fewer days, on the day next succeeding the last day thereof or
(ii) with respect to any Short Term Dividend Period of more than 35 days and
with respect to any Long Term Dividend Period, monthly on the first Business Day
of each calendar month during such Short Term Dividend Period or Long Term
Dividend Period and on the day next succeeding the last day thereof (each such
date referred to in clause (i) or (ii) being referred to herein as a "Normal
Dividend Payment Date"), except that if such Normal Dividend Payment Date is not
a Business Day, the Dividend Payment Date shall be the first Business Day next
succeeding such Normal Dividend Payment Date. Although any particular Dividend
Payment Date may not occur on the originally scheduled date because of the
exceptions discussed above, the next succeeding Dividend Payment Date, subject
to such exceptions, will occur on the next following originally scheduled date.
If for any reason a Dividend Payment Date cannot be fixed as described above,
then the Board of Trustees shall fix the Dividend Payment Date. The Board of
Trustees by resolution prior to authorization of a dividend by the Board of
Trustees may change a Dividend Payment Date if such change does not adversely
affect the contract rights of the holders of shares of APS set forth in the
Charter. The Initial Dividend Period, 7-Day Dividend Periods and Special
Dividend Periods are hereinafter sometimes referred to as "Dividend Periods."
Each dividend payment date determined as provided above is hereinafter referred
to as a "Dividend Payment Date."
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<PAGE> 37
Prior to each Dividend Payment Date, the Trust is required to deposit with
the Auction Agent sufficient funds for the payment of declared dividends. The
Trust does not intend to establish any reserves for the payment of dividends.
Each dividend will be paid to the record holder of the APS, which holder is
expected to be the nominee of the Securities Depository. See "Description of
APS--The Auction--Securities Depository." The Securities Depository will credit
the accounts of the Agent Members of the Existing Holders in accordance with the
Securities Depository's normal procedures which provide for payment in same-day
funds. The Agent Member of an Existing Holder will be responsible for holding or
disbursing such payments on the applicable Dividend Payment Date to such
Existing Holder in accordance with the instructions of such Existing Holder.
Dividends in arrears for any past Dividend Period may be declared and paid at
any time, without reference to any regular Dividend Payment Date, to the nominee
of the Securities Depository. Any dividend payment made on the APS first shall
be credited against the earliest declared but unpaid dividends accumulated with
respect to such shares.
Holders of the APS will not be entitled to any dividends, whether payable
in cash, property or stock, in excess of full cumulative dividends except as
described under "Additional Dividends" and "Non-Payment Period; Late Charge"
below. No interest will be payable in respect of any dividend payment or
payments on the APS which may be in arrears.
The amount of cash dividends per share of APS of each series payable (if
declared) on the Initial Dividend Payment Date, each 7-Day Dividend Period and
each Dividend Payment Date of each Short Term Dividend Period shall be computed
by multiplying the Applicable Rate for such Dividend Period by a fraction, the
numerator of which will be the number of days in such Dividend Period or part
thereof that such share was outstanding and for which dividends are payable on
such Dividend Payment Date and the denominator of which will be 365, multiplying
the amount so obtained by $25,000, and rounding the amount so obtained to the
nearest cent. During any Long Term Dividend Period, the amount of cash dividends
per share of APS payable (if declared) on any Dividend Payment Date shall be
computed by multiplying the Applicable Rate for such Dividend Period by a
fraction, the numerator of which will be such number of days in such part of
such Dividend Period that such share was outstanding and for which dividends are
payable on such Dividend Payment Date and the denominator of which will be 360,
multiplying the amount so obtained by $25,000, and rounding the amount so
obtained to the nearest cent.
Notification of Dividend Period. With respect to each Dividend Period that
is a Special Dividend Period, the Trust, at its sole option and to the extent
permitted by law, by telephonic and written notice (a "Request for Special
Dividend Period") to the Auction Agent and to each Broker-Dealer, may request
that the next succeeding Dividend Period for a series of APS will be a number of
days (other than seven), evenly divisible by seven, and not fewer than seven nor
more than 364 in the case of a Short Term Dividend Period or one whole year or
more but not greater than five years in the case of a Long Term Dividend Period,
specified in such notice, provided that the Trust may not give a Request for
Special Dividend Period (and any such request shall be null and void) unless,
for any Auction occurring after the initial Auction, Sufficient Clearing Bids
were made in the last occurring Auction and unless full cumulative dividends,
any amounts due with respect to redemptions, and any Additional Dividends
payable prior to such date have been paid in full. Such Request for Special
Dividend Period, in the case of a Short Term Dividend Period, shall be given on
or prior to the second Business Day but not more than seven Business Days prior
to an Auction Date for the APS of that series and, in the case of a Long Term
Dividend Period, shall be given on or prior to the second Business Day but not
more than 28 days prior to an Auction Date for the APS of that series. Upon
receiving such Request for Special Dividend Period, the Broker-Dealers jointly
shall determine whether, given the factors set forth below, it is advisable that
the Trust issue a Notice of Special Dividend Period as contemplated by such
Request for Special Dividend Period and the Optional Redemption Price of the APS
of that series during such Special Dividend Period and the Specific Redemption
Provisions and shall give the Trust and the Auction Agent written notice (a
"Response") of such determination by no later than the second Business Day prior
to such Auction Date. In making such determination, the Broker-Dealers will
consider (i) existing short-term and long-term market rates and indices of such
short-term and long-term rates, (ii) existing market supply and demand for
short-term and long-term securities, (iii) existing yield curves for short-term
and long-term
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<PAGE> 38
securities comparable to the APS, (iv) industry and financial conditions which
may affect the APS of that series, (v) the investment objective of the Trust and
(vi) the Dividend Periods and dividend rates at which current and potential
beneficial holders of the APS would remain or become beneficial holders.
If the Broker-Dealers shall not give the Trust and the Auction Agent a
Response by such second Business Day or if the Response states that given the
factors set forth above it is not advisable that the Trust give a Notice of
Special Dividend Period for the APS of that series, the Trust may not give a
Notice of Special Dividend Period in respect of such Request for Special
Dividend Period. In the event the Response indicates that it is advisable that
the Trust give a Notice of Special Dividend Period for the APS of that series,
the Trust, by no later than the second Business Day prior to such Auction Date,
may give a notice (a "Notice of Special Dividend Period") to the Auction Agent,
the Securities Depository and each Broker-Dealer, which notice will specify (i)
the duration of the Special Dividend Period, (ii) the Optional Redemption Price,
if any, as specified in the related Response and (iii) the Specific Redemption
Provisions, if any, as specified in the related Response. The Trust also shall
provide a copy of such Notice of Special Dividend Period to S&P. The Trust shall
not give a Notice of Special Dividend Period, and, if such Notice of Special
Dividend Period shall have been given already, shall give telephonic and written
notice of its revocation (a "Notice of Revocation") to the Auction Agent, each
Broker-Dealer, and the Securities Depository on or prior to the Business Day
prior to the relevant Auction Date if (x) either the 1940 Act APS Asset Coverage
is not satisfied or the Trust shall fail to maintain S&P Eligible Assets with an
aggregate Discounted Value at least equal to the APS Basic Maintenance Amount,
on each of the two Valuation Dates immediately preceding the Business Day prior
to the relevant Auction Date on an actual basis and on a pro forma basis giving
effect to the proposed Special Dividend Period (using as a pro forma dividend
rate with respect to such Special Dividend Period the dividend rate which the
Broker-Dealers shall advise the Trust is an approximately equal rate for
securities similar to the APS with an equal dividend period), (y) sufficient
funds for the payment of dividends payable on the immediately succeeding
Dividend Payment Date have not been irrevocably deposited with the Auction Agent
by the close of business on the third Business Day preceding the related Auction
Date or (z) the Broker-Dealers jointly advise the Trust that, after
consideration of the factors listed above, they have concluded that it is
advisable to give a Notice of Revocation. The Trust also shall provide a copy of
such Notice of Revocation to S&P. If the Trust is prohibited from giving a
Notice of Special Dividend Period as a result of the factors enumerated in
clause (x), (y) or (z) above or if the Trust gives a Notice of Revocation with
respect to a Notice of Special Dividend Period, the next succeeding Dividend
Period for that series will be a 7-Day Dividend Period. In addition, in the
event Sufficient Clearing Bids are not made in any Auction or an Auction is not
held for any reason, the next succeeding Dividend Period will be a 7-Day
Dividend Period, and the Trust may not again give a Notice of Special Dividend
Period (and any such attempted notice shall be null and void) until Sufficient
Clearing Bids have been made in an Auction with respect to a 7-Day Dividend
Period.
Determination of Dividend Rate. The dividend rate on a series of APS
during the period from and including the Date of Original Issue for the APS to
but excluding the Initial Dividend Payment Date for that series of APS (the
"Initial Dividend Period") will be the rate per annum set forth on the inside
cover page hereof. Commencing on the Initial Dividend Payment Date for a series
of APS, the Applicable Rate on that series of APS for each Subsequent Dividend
Period, which Subsequent Dividend Period shall be a period commencing on and
including a Dividend Payment Date and ending on and including the calendar day
prior to the next Dividend Payment Date (or last Dividend Payment Date in a
Dividend Period if there is more than one Dividend Payment Date), shall be equal
to the rate per annum that results from the Auction with respect to such
Subsequent Dividend Period. The Initial Dividend Period and Subsequent Dividend
Period for each series of APS is referred to herein as a "Dividend Period." Cash
dividends shall be calculated as set forth above under "Dividends--General."
Non-Payment Period; Late Charge. A Non-Payment Period for a series of APS
will commence if the Trust fails to (i) declare, prior to the close of business
on the second Business Day preceding any Dividend Payment Date, for payment on
or (to the extent permitted as described below) within three Business Days after
such Dividend Payment Date to the persons who held such shares as of 12:00 noon,
New York City time, on the Business Day preceding such Dividend Payment Date,
the full amount of any dividend on the APS payable on such Dividend Payment Date
or (ii) deposit, irrevocably in trust, in same-day funds, with the
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<PAGE> 39
Auction Agent by 12:00 noon, New York City time, (A) on such Dividend Payment
Date the full amount of any cash dividend on such shares (if declared) payable
on such Dividend Payment Date or (B) on any redemption date for the APS called
for redemption, the Mandatory Redemption Price per share of such APS or, in the
case of an optional redemption, the Optional Redemption Price per share. Such
Non-Payment Period will consist of the period commencing on and including the
aforementioned Dividend Payment Date or redemption date, as the case may be, and
ending on and including the Business Day on which, by 12:00 noon, New York City
time, all unpaid cash dividends and unpaid redemption prices shall have been so
deposited or otherwise shall have been made available to the applicable holders
in same-day funds, provided that a Non-Payment Period for the APS will not end
unless the Trust shall have given at least five days' but no more than 30 days'
written notice of such deposit or availability to the Auction Agent, the
Securities Depository and all holders of the APS of such series. Notwithstanding
the foregoing, the failure by the Trust to deposit funds as provided for by
clauses (ii) (A) or (ii) (B) above within three Business Days after any Dividend
Payment Date or redemption date, as the case may be, in each case to the extent
contemplated below, shall not constitute a "Non-Payment Period." The Applicable
Rate for each Dividend Period for the APS of any series, commencing during a
Non-Payment Period, will be equal to the Non-Payment Period Rate; and each
Dividend Period commencing after the first day of, and during, a Non-Payment
Period shall be a 7-Day Dividend Period. Any dividend on the APS due on any
Dividend Payment Date for such shares (if, prior to the close of business on the
second Business Day preceding such Dividend Payment Date, the Trust has declared
such dividend payable on such Dividend Payment Date to the persons who held such
shares as of 12:00 noon, New York City time, on the Business Day preceding such
Dividend Payment Date) or redemption price with respect to such shares not paid
to such persons when due may be paid to such persons in the same form of funds
by 12:00 noon, New York City time, on any of the first three Business Days after
such Dividend Payment Date or due date, as the case may be, provided that such
amount is accompanied by a late charge calculated for such period of non-payment
at the Non-Payment Period Rate applied to the amount of such non-payment based
on the actual number of days comprising such period divided by 365. In the case
of a willful failure of the Trust to pay a dividend on a Dividend Payment Date
or to redeem any APS on the date set for such redemption, the preceding sentence
shall not apply and the Applicable Rate for the Dividend Period commencing
during the Non-Payment Period resulting from such failure shall be the
Non-Payment Period Rate. For the purposes of the foregoing, payment to a person
in same-day funds on any Business Day at any time will be considered equivalent
to payment to that person in New York Clearing House (next-day) funds at the
same time on the preceding Business Day, and any payment made after 12:00 noon,
New York City time, on any Business Day shall be considered to have been made
instead in the same form of funds and to the same person before 12:00 no on, New
York City time, on the next Business Day. The Non-Payment Period Rate initially
will be 200% of the applicable Reference Rate (or 275% of such rate if the Trust
has provided notification to the Auction Agent prior to the Auction establishing
the Applicable Rate for any dividend that net capital gains or other taxable
income will be included in such dividend on the APS), provided that the Board of
Trustees of the Trust shall have the authority to adjust, modify, alter or
change from time to time the initial Non-Payment Period Rate if the Board of
Trustees of the Trust determines and S&P (or any Substitute Rating Agency in
lieu of S&P in the event such party shall not rate the APS) advises the Trust in
writing that such adjustment, modification, alteration or change will not
adversely affect its then-current rating on the APS.
Restrictions on Dividends and Other Payments. Under the 1940 Act, the
Trust may not declare dividends or make other distributions on Common Shares or
purchase any such shares if, at the time of the declaration, distribution or
purchase, as applicable (and after giving effect thereto), asset coverage (as
defined in the 1940 Act) with respect to the outstanding APS would be less than
200% (or such other percentage as in the future may be required by law). The
Trust estimates that, based on the composition of its portfolio at February 19,
1999, asset coverage with respect to the APS would be approximately 277%
immediately after the issuance of the APS offered hereby. Under the Code, the
Trust must, among other things, distribute each year at least 90% of the sum of
its net tax-exempt income and investment company taxable income in order to
maintain its qualification for tax treatment as a regulated investment company.
The foregoing limitations on dividends, other distributions and purchases in
certain circumstances may impair the Trust's ability to
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<PAGE> 40
maintain such qualification. See "Taxes." Upon any failure to pay dividends on
the APS for two years or more, the holders of the APS will acquire certain
additional voting rights. See "Voting Rights" below.
For so long as any APS are outstanding, the Trust will not declare, pay or
set apart for payment any dividend or other distribution (other than a dividend
or distribution paid in shares of, or options, warrants or rights to subscribe
for or purchase, Common Shares or other stock, if any, ranking junior to the APS
as to dividends or upon liquidation) in respect of Common Shares or any other
stock of the Trust ranking junior to or on a parity with the APS as to dividends
or upon liquidation, or call for redemption, redeem, purchase or otherwise
acquire for consideration any Common Shares or shares of any other such junior
stock (except by conversion into or exchange for stock of the Trust ranking
junior to APS as to dividends and upon liquidation) or any such parity stock
(except by conversion into or exchange for stock of the Trust ranking junior to
or on a parity with APS as to dividends and upon liquidation), unless (A)
immediately after such transaction, the Trust would have S&P Eligible Assets
with an aggregate Discounted Value equal to or greater than the APS Basic
Maintenance Amount, and the 1940 Act APS Asset Coverage (see "Asset Maintenance"
and "Redemption" below) would be satisfied, (B) full cumulative dividends on the
APS due on or prior to the date of the transaction have been declared and paid
or shall have been declared and sufficient funds for the payment thereof
deposited with the Auction Agent, (C) any Additional Dividend required to be
paid on or before the date of such declaration or payment has been paid and (D)
the Trust has redeemed the full number of APS required to be redeemed by any
provision for mandatory redemption contained in the Amended By-Laws.
Additional Dividends. If the Trust retroactively allocates any net capital
gains or other taxable income to the APS without having given advance notice
thereof to the Auction Agent as described above under "The Auction--Auction
Date; Advance Notice of Allocation of Taxable Income; Inclusion of Taxable
Income in Dividends," the Trust, within 90 days (and generally within 60 days)
after the end of the Trust's fiscal year for which a Retroactive Taxable
Allocation is made, will provide notice thereof to the Auction Agent and to each
holder of APS (initially Cede & Co. as nominee of the Securities Depository)
during such fiscal year at such holder's address as the same appears or last
appeared on the stock books of the Trust. Such a retroactive allocation may
happen when such allocation is made as a result of (i) the redemption of all or
a portion of the outstanding APS, (ii) the liquidation of the Trust (the amount
of such allocation referred to herein as a "Retroactive Taxable Allocation") or
(iii) a debt obligation believed to be a Municipal Obligation unexpectedly turns
out to be an obligation subject to federal income tax. The Trust, within 30 days
after such notice is given to the Auction Agent, will pay to the Auction Agent
(who then will distribute to such holders of the APS), out of funds legally
available therefor, an amount equal to the aggregate Additional Dividend (as
defined below) with respect to all Retroactive Taxable Allocations made to such
holders during the fiscal year in question. See "Taxes."
An "Additional Dividend" means a payment to a present or former holder of
the APS of an amount that would cause (i) the dollar amount of such holder's
dividends received on the APS with respect to the fiscal year in question
(including the Additional Dividend) less the federal income tax attributable to
the aggregate of (x) the Retroactive Taxable Allocations made to such holder
with respect to the fiscal year in question and (y) the Additional Dividend (to
the extent taxable) to equal (ii) the dollar amount of such holder's dividends
received on the APS with respect to the fiscal year in question (excluding the
Additional Dividend) if there had been no Retroactive Taxable Allocations. An
Additional Dividend shall be calculated (i) without consideration being given to
the time value of money; (ii) assuming that none of the dividends received from
the Trust is a Preference Item; and (iii) assuming that each Retroactive Taxable
Allocation would be taxable to each holder of APS at the maximum marginal
federal income tax rate (including any surtax) applicable to the taxable
character of the distribution (i.e., ordinary income or net capital gain) in the
hands of an individual or a corporation, whichever is greater (disregarding the
effect of any state and local taxes and the phase out of, or provision limiting,
personal exemptions, itemized deductions, or the benefit of lower tax brackets).
Although the Trust generally intends to designate any Additional Dividend as an
"exempt-interest" dividend to the extent permitted by applicable law, it is
possible that all or a portion of any Additional Dividend will be taxable to the
recipient thereof. See "Taxes--Tax Treatment of Additional Dividends." The Trust
will not pay a further Additional Dividend with respect to any taxable portion
of an Additional Dividend.
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If the Trust does not give advance notice of the amount of taxable income
to be included in a dividend on the APS in the related Auction, as described
above under "The Auction--Auction Date; Advance Notice of Allocation of Taxable
Income; Inclusion of Taxable Income in Dividends," the Trust may include such
taxable income in a dividend on the APS if it increases the dividend by an
additional amount calculated as if such income were a Retroactive Taxable
Allocation and the additional amount were an Additional Dividend and notifies
the Auction Agent of such inclusion at least five days prior to the applicable
Dividend Payment Date.
ASSET MAINTENANCE
The Trust will be required to satisfy two separate asset maintenance
requirements under the terms of the Amended By-Laws. These requirements are
summarized below.
1940 Act APS Asset Coverage. The Trust will be required under the Amended
By-Laws to maintain, with respect to the APS, as of the last Business Day of
each month in which any APS are outstanding, asset coverage of at least 200%
with respect to senior securities which are beneficial interests in the Trust,
including the APS (or such other asset coverage as in the future may be
specified in or under the 1940 Act as the minimum asset coverage for senior
securities which are beneficial interests of a closed-end investment company as
a condition of paying dividends on its common stock) ("1940 Act APS Asset
Coverage"). If the Trust fails to maintain 1940 Act APS Asset Coverage and such
failure is not cured as of the last Business Day of the following month (the
"1940 Act Cure Date"), the Trust will be required under certain circumstances to
redeem certain of the APS. See "Redemption" below.
The 1940 Act APS Asset Coverage immediately following the issuance of APS
offered hereby (after giving effect to the deduction of the sales load and
offering expenses for the APS) computed using the Trust's net assets as of
February 19, 1999 and assuming the Over-allotment Common Shares and the APS had
been issued as of such date will be as follows:
<TABLE>
<C> <C> <S> <C> <C>
Value of Trust assets less liabilities not
constituting senior securities $362,231,048
- --------------------------------------------------- ------------
Senior securities representing indebtedness plus = $131,000,000 = 277%
liquidation value of the shares of APS
</TABLE>
APS Basic Maintenance Amount. So long as the APS are outstanding, the
Trust will be required under the Amended By-Laws to maintain as of each Business
Day (a "Valuation Date") S&P Eligible Assets and having in the aggregate a
Discounted Value at least equal to the APS Basic Maintenance Amount. If the
Trust fails to meet such requirement as of any Valuation Date and such failure
is not cured on or before the sixth Business Day after such Valuation Date (the
"APS Basic Maintenance Cure Date"), the Trust will be required in certain
circumstances to redeem certain of the APS. Upon any failure to maintain the
required Discounted Value, the Trust will use its best efforts to alter the
composition of its portfolio to retain a Discounted Value at least equal to the
APS Basic Maintenance Amount on or prior to the APS Basic Maintenance Cure Date.
See "Redemption."
The APS Basic Maintenance Amount as of any Valuation Date is defined as the
dollar amount equal to (i) the sum of (A) the product of the number of APS
outstanding on such Valuation Date multiplied by the sum of $25,000 and any
applicable redemption premium attributable to the designation of a Premium Call
Period; (B) the aggregate amount of cash dividends (whether or not earned or
declared) that will have accumulated for each APS outstanding to (but not
including) the end of the current Dividend Period that follows such Valuation
Date in the event the then-current Dividend Period will end within 49 calendar
days of such Valuation Date or through the 49th day after such Valuation Date in
the event the then-current Dividend Period for the APS will not end within 49
calendar days of such Valuation Date; (C) in the event the then-current Dividend
Period will end within 49 calendar days of such Valuation Date, the aggregate
amount of cash dividends that would accumulate at the Maximum Applicable Rate
applicable to a Dividend Period of 28 or fewer days on any APS outstanding from
the end of such Dividend Period through the 49th day after such Valuation Date,
multiplied by the S&P Volatility Factor determined from time to time by S&P
(except that if
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such Valuation Date occurs during a Non-Payment Period, the cash dividend for
purposes of calculation would accumulate at the then-current Non-Payment Period
Rate); (D) the amount of anticipated Trust expenses for the 90 days subsequent
to such Valuation Date; (E) the amount of the Trust's Maximum Potential
Additional Dividend Liability as of such Valuation Date; and (F) any current
liabilities as of such Valuation Date to the extent not reflected in any of (i)
(A) through (i) (E) (including, without limitation, and immediately upon
determination, any amounts due and payable by the Trust pursuant to repurchase
agreements, any amounts payable for Municipal Obligations purchased as of such
Valuation Date) less (ii) either (A) the Discounted Value of any Trust assets,
or (B) the face value of any of the Trust's assets if such assets mature prior
to or on the date of redemption of the APS or payment of a liability and are
either securities issued or guaranteed by the United States Government or
Deposit Securities, in both cases irrevocably deposited by the Trust for the
payment of the amount needed to redeem the APS subject to redemption or to
satisfy any of (i) (B) through (i) (F). For purposes of the foregoing, "Maximum
Potential Additional Dividend Liability," as of any Valuation Date, means the
aggregate amount of Additional Dividends that would be due if the Trust were to
make Retroactive Taxable Allocations, with respect to any fiscal year, estimated
based upon dividends paid and the amount of undistributed realized net capital
gains and other taxable income earned by the Trust, as of the end of the
calendar month immediately preceding such Valuation Date and assuming such
Additional Dividends are fully taxable.
The Discount Factors and guidelines for determining the market value of the
Trust's portfolio holdings have been based on criteria established in connection
with rating the APS. These factors include, but are not limited to, the
sensitivity of the market value of the relevant asset to changes in interest
rates, the liquidity and depth of the market for the relevant asset, the credit
quality of the relevant asset (for example, the lower the rating of a debt
obligation, the higher the related discount factor) and the frequency with which
the relevant asset is marked to market. In no event shall the Discounted Value
of any asset of the Trust exceed its unpaid principal balance or face amount as
of the date of calculation. The Discount Factor relating to any asset of the
Trust and the APS Basic Maintenance Amount, the assets eligible for inclusion in
the calculation of the Discounted Value of the Trust's portfolio and certain
definitions and methods of calculation relating thereto may be changed from time
to time by the Trust, without shareholder approval, but only in the event the
Trust receives written confirmation from S&P, and any Substitute Rating Agency
that any such changes would not impair the ratings then assigned to the APS by
S&P or any Substitute Rating Agency.
On or before the third Business Day after a Valuation Date on which the
Trust fails to maintain S&P Eligible Assets with an aggregate Discounted Value
equal to or greater than the APS Basic Maintenance Amount, the Trust is required
to deliver to the Auction Agent and S&P a report with respect to the calculation
of the APS Basic Maintenance Amount and the value of its portfolio holdings as
of the date of such failure (an "APS Basic Maintenance Report"). Additionally,
on or before the third Business Day after the first day of a Special Dividend
Period, the Trust will deliver an APS Basic Maintenance Report to S&P and the
Auction Agent. The Trust also will deliver an APS Basic Maintenance Report as of
the last Business Day of the last month of each fiscal quarter of the Trust on
or before the third Business Day after such day. Within ten Business Days after
delivery of such report relating to the last Business Day of the last month of
each fiscal quarter of the Trust, the Trust will deliver a letter prepared by
the Trust's independent accountants regarding the accuracy of the calculations
made by the Trust in its most recent APS Basic Maintenance Report. Also, on or
before 5:00 p.m., New York City time, on the first Business Day after Common
Shares are repurchased by the Trust, the Trust will complete and deliver to S&P
an APS Basic Maintenance Report as of the close of business on such date that
Common Shares is repurchased. If any such letter prepared by the Trust's
independent accountants shows that an error was made in the most recent APS
Basic Maintenance Report, the calculation or determination made by the Trust's
independent accountants will be conclusive and binding on the Trust.
REDEMPTION
Optional Redemption. To the extent permitted under the 1940 Act and under
Massachusetts law, upon giving a Notice of Redemption, as provided below, the
Trust, at its option, may redeem the APS, in whole or in part, out of funds
legally available therefor, at the Optional Redemption Price per share on any
Dividend
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Payment Date; provided that no APS may be redeemed at the option of the Trust
during (a) the Initial Dividend Period with respect to the APS or (b) a Non-Call
Period to which such share is subject. "Optional Redemption Price" means $25,000
per share of APS plus an amount equal to accumulated but unpaid dividends
(whether or not earned or declared) to the date fixed for redemption plus any
applicable redemption premium, if any, attributable to the designation of a
Premium Call Period. In addition, holders of APS may be entitled to receive
Additional Dividends in the event of redemption of such APS to the extent
provided herein. See "Description of APS--Dividends--Additional Dividends." The
Trust has the authority to redeem the APS for any reason and may redeem all or
part of the outstanding APS if it anticipates that the Trust's leveraged capital
structure will result in a lower rate of return to holders of Common Shares for
any significant period of time than that obtainable if the Common Shares were
unleveraged.
Mandatory Redemption. The Trust will be required to redeem, out of funds
legally available therefor, at the Mandatory Redemption Price per share, the APS
to the extent permitted under the 1940 Act and Massachusetts law, on a date
fixed by the Board of Trustees, if the Trust fails to maintain S&P Eligible
Assets with an aggregate Discounted Value equal to or greater than the APS Basic
Maintenance Amount or to satisfy the 1940 Act APS Asset Coverage and such
failure is not cured on or before the APS Basic Maintenance Cure Date or the
1940 Act Cure Date (herein collectively referred to as a "Cure Date"), as the
case may be. "Mandatory Redemption Price" for each series of APS means $25,000
per share plus an amount equal to accumulated but unpaid dividends (whether or
not earned or declared) to the date fixed for redemption. In addition, holders
of APS may be entitled to receive Additional Dividends in the event of
redemption of such APS to the extent provided herein. See "Description of
APS--Dividends--Additional Dividends." The number of APS to be redeemed will be
equal to the lesser of (a) the minimum number of APS the redemption of which, if
deemed to have occurred immediately prior to the opening of business on the Cure
Date, together with all other shares of the Preferred Shares subject to
redemption or retirement, would result in the Trust having S&P Eligible Assets
each with an aggregate Discounted Value equal to or greater than the APS Basic
Maintenance Amount or satisfaction of the 1940 Act APS Asset Coverage, as the
case may be, on such Cure Date (provided that, if there is no such minimum
number of shares the redemption of which would have such result, all APS then
outstanding will be redeemed), and (b) the maximum number of APS, together with
all other shares of Preferred Shares subject to redemption or retirement, that
can be redeemed out of funds expected to be legally available therefor on such
redemption date. In determining the number of APS required to be redeemed in
accordance with the foregoing, the Trust shall allocate the number required to
be redeemed which would result in the Trust having S&P Eligible Assets with an
aggregate Discounted Value equal to or greater than the APS Basic Maintenance
Amount or satisfaction of the 1940 Act APS Asset Coverage, as the case may be,
pro rata among APS and other Preferred Shares subject to redemption pursuant to
provisions similar to those set forth below; provided that, APS that may not be
redeemed at the option of the Trust due to the designation of a Non-Call Period
applicable to such shares (A) will be subject to mandatory redemption only to
the extent that other shares are not available to satisfy the number of shares
required to be redeemed and (B) will be selected for redemption in an ascending
order of outstanding number of days in the Non-Call Period (with shares with the
lowest number of days to be redeemed first) and by lot in the event of shares
having an equal number of days in such Non-Call Period. The Trust is required to
effect such a mandatory redemption not later than 35 days after such Cure Date,
except that if the Trust does not have funds legally available for the
redemption of all of the required number of APS which are subject to mandatory
redemption or the Trust otherwise is unable to effect such redemption on or
prior to 35 days after such Cure Date, the Trust will redeem those APS which it
was unable to redeem on the earliest practicable date on which it is able to
effect such redemption.
General. If the APS are to be redeemed, a notice of redemption will be
mailed to each record holder of such APS (initially Cede & Co. as nominee of the
Securities Depository) and to the Auction Agent not less than 17 nor more than
30 days prior to the date fixed for the redemption thereof. Each notice of
redemption will include a statement setting forth: (i) the redemption date, (ii)
the aggregate number of APS to be redeemed, (iii) the redemption price, (iv) the
place or places where APS are to be surrendered for payment of the redemption
price, (v) a statement that dividends on the shares to be redeemed will cease to
accumulate on such redemption date (except that holders may be entitled to
Additional Dividends) and (vi) the provision of the Amended By-Laws pursuant to
which such shares are being redeemed. The notice also will be published
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in The Wall Street Journal. No defect in the notice of redemption or in the
mailing or publication thereof will affect the validity of the redemption
proceedings, except as required by applicable law.
If less than all of the outstanding APS are to be redeemed, the shares to
be redeemed will be selected by lot or such other method as the Trust shall deem
fair and equitable, and the results thereof will be communicated to the Auction
Agent. The Auction Agent will give notice to the Securities Depository, whose
nominee will be the record holder of all APS, and the Securities Depository will
determine the number of shares to be redeemed from the account of the Agent
Member of each Existing Holder. Each Agent Member will determine the number of
shares to be redeemed from the account of each Existing Holder for which it acts
as agent. An Agent Member may select for redemption shares from the accounts of
some Existing Holders without selecting for redemption any shares from the
accounts of other Existing Holders. Notwithstanding the foregoing, if neither
the Securities Depository nor its nominee is the record holder of all of the APS
series, the particular shares to be redeemed shall be selected by the Trust by
lot or by such other method as the Trust shall deem fair and equitable.
If the Trust gives notice of redemption, and concurrently or thereafter
deposits in trust with the Auction Agent, or segregates in an account at the
Trust's custodian bank for the benefit of the Auction Agent, Deposit Securities
(with a right of substitution) having an aggregate Discounted Value (utilizing
an S&P Exposure Period of 3 Business Days) equal to the redemption payment for
the APS as to which notice of redemption has been given, with irrevocable
instructions and authority to pay the redemption price to the record holders
thereof, then upon the date of such deposit or, if no such deposit is made, upon
such date fixed for redemption (unless the Trust shall default in making payment
of the redemption price), all rights of the holders of such shares called for
redemption will cease and terminate, except the right of such holders to receive
the redemption price thereof and any Additional Dividends, but without interest,
and such shares no longer will be deemed to be outstanding. The Trust will be
entitled to receive, from time to time, the interest, if any, earned on such
Deposit Securities deposited with the Auction Agent, and the holders of any
shares so redeemed will have no claim to any such interest. Any funds so
deposited which are unclaimed at the end of one year from such redemption date
will be repaid, upon demand, to the Trust, after which the holders of the APS of
such series so called for redemption may look only to the Trust for payment
thereof.
So long as any APS are held of record by the nominee of the Securities
Depository (initially Cede & Co.), the redemption price for such shares will be
paid on the redemption date to the nominee of the Securities Depository. The
Securities Depository's normal procedures now provide for it to distribute the
amount of the redemption price to Agent Members who, in turn, are expected to
distribute such funds to the persons for whom they are acting as agent.
Notwithstanding the provisions for redemption described above, no APS shall
be subject to optional redemption (i) unless all dividends in arrears on the
outstanding APS, and all capital stock of the Trust ranking on a parity with the
APS with respect to the payment of dividends or upon liquidation, have been or
are being contemporaneously paid or declared and set aside for payment and (ii)
if redemption thereof would result in the Trust's failure to maintain S&P
Eligible Assets with an aggregate Discounted Value equal to or greater than the
APS Basic Maintenance Amount.
LIQUIDATION RIGHTS
Upon any liquidation, dissolution or winding up of the Trust, whether
voluntary or involuntary, the holders of APS of each series will be entitled to
receive, out of the assets of the Trust available for distribution to
shareholders, before any distribution or payment is made upon any Common Shares
or any other shares of beneficial interest of the Trust ranking junior in right
of payment upon liquidation of APS, $25,000 per share together with the amount
of any dividends accumulated but unpaid (whether or not earned or declared)
thereon to the date of distribution, and after such payment the holders of APS
will be entitled to no other payments except for any Additional Dividends. If
such assets of the Trust shall be insufficient to make the full liquidation
payment on outstanding APS and liquidation payments on any other outstanding
class or series of Preferred Shares of the Trust ranking on a parity with the
APS as to payment upon liquidation, then such assets will be distributed among
the holders of APS and the holders of shares of such other class or series
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ratably in proportion to the respective preferential amounts to which they are
entitled. After payment of the full amount of liquidation distribution to which
they are entitled, the holders of APS will not be entitled to any further
participation in any distribution of assets by the Trust except for any
Additional Dividends. A consolidation, merger or share exchange of the Trust
with or into any other entity or entities or a sale, whether for cash, shares of
stock, securities or properties, of all or substantially all or any part of the
assets of the Trust shall not be deemed or construed to be a liquidation,
dissolution or winding up of the Trust.
VOTING RIGHTS
Except as otherwise indicated in this Prospectus and except as otherwise
required by applicable law, holders of APS will be entitled to one vote per
share on each matter submitted to a vote of shareholders and will vote together
with holders of Common Shares and other Preferred Shares as a single class.
In connection with the election of the Trust's trustees, holders of the APS
and any other Preferred Shares, voting as a separate class, shall be entitled at
all times to elect two of the Trust's trustees, and the remaining trustees will
be elected by holders of Common Shares and APS and any other Preferred Shares,
voting together as a single class. In addition, if at any time dividends on
outstanding APS shall be unpaid in an amount equal to at least two full years'
dividends thereon or if at any time holders of any shares of Preferred Shares
are entitled, together with the holders of APS, to elect a majority of the
trustees of the Trust under the 1940 Act, then the number of trustees
constituting the Board of Trustees automatically shall be increased by the
smallest number that, when added to the two trustees elected exclusively by the
holders of APS and any other Preferred Shares as described above, would
constitute a majority of the Board of Trustees as so increased by such smallest
number, and at a special meeting of shareholders which will be called and held
as soon as practicable, and at all subsequent meetings at which trustees are to
be elected, the holders of the APS and any other Preferred Shares, voting as a
separate class, will be entitled to elect the smallest number of additional
trustees that, together with the two trustees which such holders in any event
will be entitled to elect, constitutes a majority of the total number of
trustees of the Trust as so increased. The terms of office of the persons who
are trustees at the time of that election will continue. If the Trust thereafter
shall pay, or declare and set apart for payment in full, all dividends payable
on all outstanding APS and any other Preferred Shares for all past Dividend
Periods, the additional voting rights of the holders of APS and any other
Preferred Shares as described above shall cease, and the terms of office of all
of the additional trustees elected by the holders of APS and any other Preferred
Shares (but not of the trustees with respect to whose election the holders of
Common Shares were entitled to vote or the two trustees the holders of APS and
any other Preferred Shares have the right to elect in any event) will terminate
automatically.
The affirmative vote of a majority of the votes entitled to be cast by
holders of outstanding APS and any other Preferred Shares, voting as a separate
class, will be required to (i) authorize, create or issue any class or series of
stock ranking prior to the APS or any other series of Preferred Shares with
respect to the payment of dividends or the distribution of assets on
liquidation; provided, however, that no vote is required to authorize the
issuance of another class of Preferred Shares which are substantially identical
in all respects to the APS or (ii) amend, alter or repeal the provisions of the
Declaration of Trust or the Amended By-Laws, whether by merger, consolidation or
otherwise, so as to adversely affect any of the contract rights expressly set
forth in the Declaration of Trust or the Amended By-Laws of holders of APS or
any other Preferred Shares. To the extent permitted under the 1940 Act, in the
event shares of more than one series of APS are outstanding, the Trust shall not
approve any of the actions set forth in clause (i) or (ii) which adversely
affects the contract rights expressly set forth in the Declaration of Trust or
the Amended By-Laws of a holder of shares of a series of APS differently than
those of a holder of shares of any other series of APS without the affirmative
vote of at least a majority of votes entitled to be cast by holders of the APS
of each series adversely affected and outstanding at such time (each such
adversely affected series voting separately as a class). The Board of Trustees,
however, without shareholder approval, may amend, alter or repeal any or all of
the various rating agency guidelines described herein in the event the Trust
receives confirmation from the rating agencies that any such amendment,
alteration or repeal would not impair the ratings then assigned to the APS.
Unless a higher percentage is provided for under "Description of Capital
Stock--Certain Provisions in the Declaration of Trust," the affirmative vote of
a majority of the votes entitled to be cast by holders of outstanding APS and
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any other Preferred Shares, voting as a separate class, will be required to
approve any plan of reorganization (including bankruptcy proceedings) adversely
affecting such shares or any action requiring a vote of security holders under
Section 13(a) of the 1940 Act including, among other things, changes in the
Trust's investment objective or changes in the investment restrictions described
as fundamental policies under "Investment Objective and Policies." The class
vote of holders of APS and any other Preferred Shares described above in each
case will be in addition to a separate vote of the requisite percentage of
Common Shares and APS and any other Preferred Shares, voting together as a
single class, necessary to authorize the action in question.
The foregoing voting provisions will not apply to the APS if, at or prior
to the time when the act with respect to which such vote otherwise would be
required shall be effected, such shares shall have been (i) redeemed or (ii)
called for redemption and sufficient funds shall have been deposited in trust to
effect such redemption.
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES
The management of the Trust, including general supervision of the duties
performed by the Adviser under the Investment Advisory Agreement, is the
responsibility of the Trust's Board of Trustees under the laws of The
Commonwealth of Massachusetts.
THE ADVISER
Eaton Vance Management acts as the Trust's investment adviser under an
Investment Advisory Agreement ("Advisory Agreement"). The Adviser's principal
office is located at 24 Federal Street, Boston, MA 02110. Eaton Vance, its
affiliates and predecessor companies have been managing assets of individuals
and institutions since 1924 and of investment companies since 1931. Eaton Vance
(or its affiliates) currently serves as the investment adviser to investment
companies and various individual and institutional clients with combined assets
under management of over $34 billion, of which approximately $32 billion is in
investment companies. Eaton Vance is a wholly-owned subsidiary of Eaton Vance
Corp., a publicly held holding company which through its subsidiaries and
affiliates engages primarily in investment management, administration and
marketing activities.
Eaton Vance employs 24 personnel in its municipal obligations department,
including six portfolio managers, two traders and eleven credit analysts. Eaton
Vance was one of the first advisory firms to manage a registered municipal
obligations investment company, and has done so continuously since 1978. Eaton
Vance currently manages 4 national municipal investment companies, 40 single
state municipal investment companies, 10 limited maturity municipal investment
companies and 1 money market municipal investment company, with assets of over
$8 billion.
Under the general supervision of the Trust's Board of Trustees, the Adviser
will carry out the investment and reinvestment of the assets of the Trust, will
furnish continuously an investment program with respect to the Trust, will
determine which securities should be purchased, sold or exchanged, and will
implement such determinations. The Adviser will furnish to the Trust investment
advice and office facilities, equipment and personnel for servicing the
investments of the Trust. The Adviser will compensate all Trustees and officers
of the Trust who are members of the Adviser's organization and who render
investment services to the Trust, and will also compensate all other Adviser
personnel who provide research and investment services to the Trust. In return
for these services, facilities and payments, the Trust has agreed to pay the
Adviser as compensation under the Advisory Agreement a fee in the amount of .70%
of the average weekly gross assets of the Trust. Gross assets of the Trust shall
be calculated by deducting accrued liabilities of the Trust not including the
amount of any Preferred Shares outstanding.
Thomas M. Metzold is the portfolio manager of the Trust and is responsible
for day-to-day management of the Trust's investments. Mr. Metzold has been an
employee of Eaton Vance since 1987 and a Vice President of Eaton Vance since
1991. Mr. Metzold, a Chartered Financial Analyst, is a member of the Boston
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Security Analysts Society, the Association for Investment Management & Research,
the Boston Municipal Analysts Forum, and the National Federation of Municipal
Analysts. He currently manages four municipal bond investment companies with
combined assets of over $3 billion.
The Trust and the Adviser have adopted Codes of Ethics relating to personal
securities transactions. The Codes permit Adviser personnel to invest in
securities (including securities that may be purchased or held by the Trust) for
their own accounts, subject to certain pre-clearance, reporting and other
restrictions and procedures contained in such Codes.
The Trust has engaged Eaton Vance to act as its administrator under an
Administration Agreement (the "Administration Agreement"). Under the
Administration Agreement, Eaton Vance is responsible for managing the business
affairs of the Trust, subject to the supervision of the Trust's Board of
Trustees. Eaton Vance will furnish to the Trust all office facilities, equipment
and personnel for administering the affairs of the Trust. Eaton Vance's
administrative services include recordkeeping, preparation and filing of
documents required to comply with federal and state securities laws, supervising
the activities of the Trust's custodian and transfer agent, providing assistance
in connection with the Trustees' and shareholders' meetings, providing service
in connection with any repurchase offers and other administrative services
necessary to conduct the Trust's business. In return for these services,
facilities and payments, the Trust is authorized to pay Eaton Vance as
compensation under the Administration Agreement a fee in the amount of .20% of
the average weekly gross assets of the Trust.
Eaton Vance has agreed to bear all ordinary and organizational expenses of
the Trust that exceed 5% of average weekly net assets (taking into account the
deduction of any Preferred Shares and related expenses) for the first year of
operations. In return for this arrangement, the Trust will reimburse Eaton Vance
over the first year of operations for organizational expenses of the Trust borne
by Eaton Vance at the onset of operations.
TAXES
GENERAL
The Trust intends to elect and to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Code. As long as the
Trust so qualifies, in any taxable year in which it distributes at least 90% of
the sum of its investment company taxable income (consisting generally of
taxable net investment income, net short-term capital gain and net realized
gains from certain hedging transactions) and its net tax-exempt income (see
below), the Trust (but not its shareholders) will not be subject to federal
income tax to the extent that it distributes its investment company taxable
income and net capital gain (the excess of net long-term capital gain over net
short-term capital loss). The Trust intends to distribute substantially all of
such income and gain each year.
The APS will constitute stock of the Trust and distributions with respect
to APS (other than distributions in redemption of APS that are treated as
exchanges of stock under Section 302(b) of the Code) thus will constitute
dividends to the extent of the Trust's current and accumulated earnings and
profits as calculated for federal income tax purposes. It is possible, however,
that the Internal Revenue Service (the "IRS"), might take a contrary position,
asserting, for example, that the APS constitute debt of the Trust. If this
position were upheld, the discussion of the treatment of distributions below
would not apply. Instead, distributions by the Trust to holders of APS would
constitute interest, whether or not they exceeded the earnings and profits of
the Trust, would be included in full in the income of the recipient and would be
taxed as ordinary income. Kirkpatrick & Lockhart LLP, counsel to the Trust,
believes that such a position, if asserted by the IRS, would be unlikely to
prevail if the issue were properly litigated.
Each dividend distribution ordinarily will constitute income exempt from
federal income tax (i.e., qualify as an "exempt-interest" dividend, which is
excludable from the shareholder's gross income). A portion of dividends
attributable to interest on certain Municipal Obligations, however, may be a
Preference Item. Furthermore, exempt-interest dividends are included in
determining what portion, if any, of a person's social
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security and railroad retirement benefits will be includible in gross income
subject to federal income tax. Distributions of any taxable net investment
income and net short-term capital gain will be taxable as ordinary income.
Finally, distributions of the Trust's net capital gain, if any, will be taxable
to shareholders as long-term capital gains, regardless of the length of time
they held their shares. Distributions, if any, in excess of the Trust's earnings
and profits will first reduce the adjusted tax basis of a holder's shares and,
after that basis has been reduced to zero, will constitute capital gains to the
shareholder (assuming the shares are held as a capital asset).
Dividends and other distributions declared by the Trust in October,
November or December of any year and payable to shareholders of record on a date
in any of those months will be deemed to have been paid by the Trust and
received by the shareholders on December 31 of that year if the distributions
are paid by the Trust during the following January. Accordingly, those
distributions will be taxed to shareholders for the year in which that December
31 falls.
The Trust will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year. The IRS has taken
the position that if a RIC has more than one class of shares, it may designate
distributions made to each class in any year as consisting of no more than that
class's proportionate share of particular types of income for that year,
including tax-exempt interest and net long-term capital gain. A class's
proportionate share of a particular type of income for a year is determined
according to the percentage of total dividends paid by the RIC during that year
that was paid to the class. Thus, the Trust is required to allocate a portion of
its net capital gains and other taxable income to the APS. The Trust generally
will notify the Auction Agent of the amount of any net capital gain and other
taxable income to be included in any dividend on the APS prior to the Auction
establishing the Applicable Rate for that dividend. Except for the portion of
any dividend that it informs the Auction Agent will be treated as net capital
gain or other taxable income, the Trust anticipates that the dividends paid on
the APS will constitute exempt-interest dividends. The amount of net capital
gains and ordinary income allocable to the APS (the "taxable distribution") will
depend upon the amount of such gains and income realized by the Trust and the
total dividends paid by the Trust on its Common Shares and the APS during a
taxable year, but taxable distributions generally are not expected to be
significant. The tax treatment of Additional Dividends also may affect the
Trust's calculation of each class's allocable share of capital gains and other
taxable income. See "Tax Treatment of Additional Dividends."
Although the matter is not free from doubt, due to the absence of direct
regulatory or judicial authority, in the opinion of Kirkpatrick & Lockhart LLP,
counsel to the Trust, under current law the manner in which the Trust intends to
allocate items of tax-exempt income, net capital gain, and other taxable income,
if any, among the Trust's Common Shares and the APS will be respected for
federal income tax purposes. It is possible that the IRS could disagree with
counsel's opinion and attempt to reallocate the Trust's net capital gain or
other taxable income. In the event of such a reallocation, some of the dividends
identified by the Trust as exempt-interest dividends to holders of APS may be
recharacterized as additional net capital gain or other taxable income. In the
event of such recharacterization, however, the Trust would not be required to
make payments to such shareholders to offset the tax effect of such
reallocation. Kirkpatrick & Lockhart LLP has advised the Trust that, in its
opinion, if the IRS were to challenge in court the Trust's allocations of income
and gain and the issue were properly litigated, the IRS would be unlikely to
prevail. A holder should be aware, however, that the opinion of Kirkpatrick &
Lockhart LLP represents only its best legal judgment and is not binding on the
IRS or the courts.
Interest on indebtedness incurred or continued by a shareholder to purchase
or carry APS is not deductible for federal income tax purposes to the extent
that interest relates to exempt-interest dividends received from the Trust.
If at any time when APS are outstanding the Trust does not meet the asset
coverage requirements of the 1940 Act, the Trust will be required to suspend
distributions to holders of Common Shares until the asset coverage is restored.
See "Description of APS--Restrictions on Dividends and Other Payments." Such a
suspension may prevent the Trust from distributing at least 90% of its net
income, and may, therefore, jeopardize the Trust's qualification for taxation as
a RIC. Upon any failure to meet the asset coverage
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requirements of the 1940 Act, the Trust, in its sole discretion, may redeem APS
in order to maintain or restore the requisite asset coverage and avoid the
adverse consequences to the Trust and its shareholders of failing to qualify for
treatment as a RIC. See "Description of APS--Redemption." There can be no
assurance, however, that any such action would achieve that objective.
Certain of the Trust's investment practices are subject to special Code
provisions that, among other things, may defer the use of certain losses of the
Trust and affect the holding period of securities held by the Trust and the
character of the gains or losses realized by the Trust. These provisions may
also require the Trust to recognize income or gain without receiving cash with
which to make distributions in the amounts necessary to satisfy the requirements
for maintaining RIC status and for avoiding income and excise taxes. The Trust
will monitor its transactions and may make certain tax elections in order to
mitigate the effect of these rules and prevent disqualification of the Trust as
a RIC.
TAX TREATMENT OF ADDITIONAL DIVIDENDS
If the Trust makes a Retroactive Taxable Allocation, it will pay Additional
Dividends to holders of APS who are subject to the Retroactive Taxable
Allocation. See "Description of APS--Dividends--Additional Dividends." The
federal income tax consequences of Additional Dividends under existing law are
uncertain. An Additional Dividend generally will be designated by the Trust as
an exempt-interest dividend except to the extent net capital gain or other
taxable income is allocated thereto as described above.
SALES OF APS
The sale of APS (including transfers in connection with a redemption or
repurchase of APS) will be a taxable transaction for federal income tax
purposes. A selling shareholder generally will recognize gain or loss equal to
the difference between the holder's adjusted tax basis in the APS and the amount
received. If the APS are held as a capital asset, the gain or loss will be a
capital loss and will be long-term if the APS have been held for more than one
year. Any loss realized on a disposition of APS held for six months or less will
be disallowed to the extent of any exempt-interest dividends received with
respect to those APS, and any such loss that is not disallowed will be treated
as a long-term, rather than a short-term, capital loss to the extent of any
capital gain distributions received with respect to those APS. A shareholder's
holding period is suspended for any periods during which the shareholder's risk
of loss is diminished as a result of holding one or more other positions in
substantially similar or related property, or through certain options or short
sales. Any loss realized on a sale or exchange of APS will be disallowed to the
extent those APS are replaced by other APS within a period of 61 days beginning
30 days before and ending 30 days after the date of disposition of the original
APS. In that event, the basis of the replacement APS will be adjusted to reflect
the disallowed loss.
BACKUP WITHHOLDING
The Trust is required to withhold 31% of all taxable dividends, capital
gain dividends and repurchase proceeds payable to any individuals and certain
other non-corporate shareholders who do not provide the Trust with a correct
taxpayer identification number. Withholding at that rate from taxable dividends
and capital gain distributions is also required for such shareholders who
otherwise are subject to backup withholding.
------------------------------
The foregoing briefly summarizes some of the important federal income tax
consequences of investing in the APS, reflects the federal tax law, as of the
date of this Prospectus, and does not address special tax rules applicable to
certain types of investors, such as corporate and foreign investors. Other
federal, state or local tax considerations may apply to a particular investor,
including state alternative minimum tax. Investors should consult their tax
advisers.
DESCRIPTION OF CAPITAL STRUCTURE
The Trust is an unincorporated business trust established under the laws of
the Commonwealth of Massachusetts by an Agreement and Declaration of Trust dated
December 10, 1998 (the "Declaration of Trust"). The Declaration of Trust
provides that the Trustees of the Trust may authorize separate classes of
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<PAGE> 50
shares of beneficial interest. The Trustees have authorized an unlimited number
of shares of beneficial interest stock, par value $0.01 per share, all of which
shares were initially classified as Common Shares. The Declaration of Trust also
authorizes the issuance of an unlimited number of shares of beneficial interest
with preference rights, including Preferred Shares, having a par value of $0.01
per share, in one or more series, with rights as determined by the Board of
Trustees, by action of the Board of Trustees without the approval of the
Shareholders. For a description of the APS, see "Description of APS." The
following table shows the amount of (i) shares authorized, (ii) shares held by
the Trust for its own account and (iii) shares outstanding, for each class of
authorized securities of the Trust as of March 1, 1999.
<TABLE>
<CAPTION>
AMOUNT
OUTSTANDING
(EXCLUSIVE OF
AMOUNT HELD BY AMOUNT HELD BY
TRUST FOR ITS OWN TRUST FOR ITS OWN
TITLE OF CLASS AMOUNT AUTHORIZED ACCOUNT ACCOUNT)
-------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Common Shares................................. Unlimited -0- 15,506,667
Auction Preferred Shares
Series A................................. 2,620 -0- -0-
Series B................................. 2,620 -0- -0-
</TABLE>
Holders of Common Shares are entitled to share equally in dividends
declared by the Board of Trustees payable to holders of Common Shares and in the
net assets of the Trust available for distribution to holders of Common Shares
after payment of the preferential amounts payable to holders of any outstanding
Preferred Shares. Neither holders of Common Shares nor holders of Preferred
Shares have pre-emptive or conversion rights and Common Shares are not
redeemable. Upon liquidation of the Trust, after paying or adequately providing
for the payment of all liabilities of the Trust and the liquidation preference
with respect to any outstanding preferred shares, and upon receipt of such
releases, indemnities and refunding agreements as they deem necessary for their
protection, the Trustees may distribute the remaining assets of the Trust among
the holders of the Shares. The Declaration of Trust provides that Shareholders
are not liable for any liabilities of the Trust, requires inclusion of a clause
to that effect in every agreement entered into by the Trust and indemnifies
shareholders against any such liability. Although shareholders of an
unincorporated business trust established under Massachusetts law, in certain
limited circumstances, may be held personally liable for the obligations of the
Trust as though they were general partners, the provisions of the Declaration of
Trust described in the foregoing sentence make the likelihood of such personal
liability remote.
Holders of Common Shares are entitled to one vote for each share held and
will vote with the holders of any outstanding APS or other Preferred Shares on
each matter submitted to a vote of holders of Common Shares, except as described
under "Description of APS--Voting Rights."
Shareholders are entitled to one vote for each share held. The Common
Shares, APS and any other Preferred Shares do not have cumulative voting rights,
which means that the holders of more than 50% of the shares of Common Shares,
APS and any other Preferred Shares voting for the election of Trustees can elect
all of the Trustees standing for election by such holders, and, in such event,
the holders of the remaining shares of Common Shares, APS and any other
Preferred Shares will not be able to elect any of such Trustees.
So long as any APS or any other Preferred Shares are outstanding, holders
of Common Shares will not be entitled to receive any dividends of or other
distributions from the Trust, unless at the time of such declaration, (1) all
accrued dividends on preferred shares or accrued interest on borrowings has been
paid and (2) the value of the Trust's total assets (determined after deducting
the amount of such dividend or other distribution), less all liabilities and
indebtedness of the Trust not represented by senior securities, is at least 300%
of the aggregate amount of such securities representing indebtedness and at
least 200% of the aggregate amount of securities representing indebtedness plus
the aggregate liquidation value of the outstanding preferred shares (expected to
equal the aggregate original purchase price of the outstanding preferred shares
plus redemption premium, if any, together with any accrued and unpaid dividends
thereon, whether or not earned or declared and on a cumulative basis). In
addition to the requirements of the 1940 Act, the Trust is required to comply
with other asset coverage requirements as a condition of the Trust obtaining a
rating of the
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<PAGE> 51
preferred shares from a Rating Agency. These requirements include an asset
coverage test more stringent than under the 1940 Act. See "Description of
APS--Restrictions on Dividends and Other Payments."
The Trust will send unaudited reports at least semi-annually and audited
financial statements annually to all of its shareholders.
The shares of Common Shares commenced trading on the NYSE on January 27,
1999. At February 19, 1999, the net asset value per share of Common Shares was
$15.01, and the closing price per share of Common Shares on the NYSE was $15.00.
PREFERRED SHARES
Under the 1940 Act, the Trust is permitted to have outstanding more than
one series of Preferred Shares as long as no single series has priority over
another series as to the distribution of assets of the Trust or the payment of
dividends. Neither holders of Common Shares nor holders of Preferred Shares have
pre-emptive rights to purchase any APS or any other Preferred Shares that might
be issued. It is anticipated that the net asset value per share of the APS will
equal its original purchase price per share plus accumulated dividends per
share.
CERTAIN PROVISIONS OF THE DECLARATION OF TRUST
Anti-Takeover Provisions in the Declaration of Trust. The Declaration of
Trust includes provisions that could have the effect of limiting the ability of
other entities or persons to acquire control of the Trust or to change the
composition of its Board of Trustees, and could have the effect of depriving
holders of Common Shares of an opportunity to sell their Common Shares at a
premium over prevailing market prices by discouraging a third party from seeking
to obtain control of the Trust. These provisions may have the effect of
discouraging attempts to acquire control of the Trust, which attempts could have
the effect of increasing the expenses of the Trust and interfering with the
normal operation of the Trust. The Board of Trustees is divided into three
classes, with the term of one class expiring at each annual meeting of holders
of Common Shares and Preferred Shares. At each annual meeting, one class of
Trustees is elected to a three-year term. This provision could delay for up to
two years the replacement of a majority of the Board of Trustees. A Trustee may
be removed from office only for cause by a written instrument signed by the
remaining Trustees or by a vote of the holders of at least two-thirds of the
class of shares of the Trust that elected such Trustee and is entitled to vote
on the matter.
In addition, the Declaration of Trust requires the favorable vote of the
holders of at least 75% of the outstanding shares of each class of the Trust,
voting as a class, then entitled to vote to approve, adopt or authorize certain
transactions with 5%-or-greater holders of a class of shares and their
associates, unless the Board of Trustees shall by resolution have approved a
memorandum of understanding with such holders, in which case normal voting
requirements would be in effect. For purposes of these provisions, a
5%-or-greater holder of a class of shares (a "Principal Shareholder") refers to
any person who, whether directly or indirectly and whether alone or together
with its affiliates and associates, beneficially owns 5%-or-more of the
outstanding shares of any class of beneficial interest of the Trust. The
transactions subject to these special approval requirements are: (i) the merger
or consolidation of the Trust or any subsidiary of the Trust with or into any
Principal Shareholder; (ii) the issuance of any securities of the Trust to any
Principal Shareholder for cash; (iii) the sale, lease or exchange of all or any
substantial part of the assets of the Trust to any Principal Shareholder (except
assets having an aggregate fair market value of less than $1,000,000,
aggregating for the purpose of such computation all assets sold, leased or
exchanged in any series of similar transactions within a twelve-month period);
or (iv) the sale, lease or exchange to the Trust or any subsidiary thereof, in
exchange for securities of the Trust, of any assets of any Principal Shareholder
(except assets having an aggregate fair market value of less than $1,000,000,
aggregating for the purposes of such computation all assets sold, leased or
exchanged in any series of similar transactions within a twelve-month period).
The Board of Trustees has determined that provisions with respect to the
Board and the 75% voting requirements described above, which voting requirements
are greater than the minimum requirements under
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<PAGE> 52
Massachusetts law or the 1940 Act, are in the best interest of holders of Common
Shares and Preferred Shares generally. Reference should be made to the
Declaration of Trust on file with the SEC for the full text of these provisions.
Conversion to Open-End Fund. The Trust may be converted to an open-end
investment company at any time if approved by the lesser of (i) 2/3 or more of
the Trust's then outstanding Common Shares and Preferred Shares (if any), each
voting separately as a class, or (ii) more than 50% of the then outstanding
Shares and Preferred Shares (if any), voting separately as a class if such
conversion is recommended by at least 75% of the Trustees then in office. If
approved in the foregoing manner, conversion of the Trust could not occur until
90 days after the Shareholders' meeting at which such conversion was approved
and would also require at least 30 days' prior notice to all Shareholders. The
composition of the Trust's portfolio likely would prohibit the Trust from
complying with regulations of the SEC applicable to open-end investment
companies. Accordingly, conversion likely would require significant changes in
the Trust's investment policies and liquidation of a substantial portion of its
relatively illiquid portfolio. Conversion of the Trust to an open-end investment
company also would require the redemption of any outstanding Preferred Shares
and could require the repayment of borrowings. The Board of Trustees believes,
however, that the closed-end structure is desirable, given the Trust's
investment objective and policies. Investors should assume, therefore, that it
is unlikely that the Board of Trustees would vote to convert the Trust to an
open-end investment company.
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<PAGE> 53
UNDERWRITING
The underwriters named below (the "Underwriters"), acting through
PaineWebber Incorporated, 1285 Avenue of the Americas, New York, New York 10019,
as lead representative, and Prudential Securities Incorporated, Salomon Smith
Barney Inc. and A.G. Edwards & Sons, Inc., as their representatives (together
with PaineWebber Incorporated, the "Representatives"), have severally agreed,
subject to the terms and conditions of the Underwriting Agreement with the Trust
and Eaton Vance (the "Underwriting Agreement"), to purchase from the Trust the
number of shares set forth opposite the respective names. The Underwriters are
committed to purchase all of such Shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES OF SHARES OF
UNDERWRITER SERIES A APS SERIES B APS
----------- ------------ ------------
<S> <C> <C>
PaineWebber Incorporated...................................
Prudential Securities Incorporated.........................
Salomon Smith Barney Inc. .................................
A.G. Edwards & Sons, Inc. .................................
-------- --------
Total.................................................
======== ========
</TABLE>
The Underwriters have advised the Trust that they propose initially to
offer the APS to the public at the public offering price set forth on the cover
page of this Prospectus, and to certain dealers at such price less a concession
not in excess of $ per share. The Underwriters may allow, and such dealers
may reallow, a discount not in excess of $ per share to other dealers. After
the initial public offering, the public offering price, concession and discount
may be changed. Investors must pay for any APS purchased in the initial public
offering on or before March , 1999.
The Underwriters will act in Auctions as a Broker-Dealer as set forth under
"Description of APS--The Auction--General--Broker-Dealer Agreements" and will be
entitled to fees for services as a Broker-Dealer as set forth under "Description
of APS--Broker-Dealers." The Underwriters also may provide information to be
used in ascertaining the Reference Rate.
The Trust anticipates that the Underwriters from time to time may act as
dealers in connection with the execution of the Trust's portfolio transactions.
See "Investment Restrictions" and "Portfolio Transactions."
The Trust and the Adviser have agreed to indemnify the Underwriters against
certain liabilities including liabilities under the Securities Act of 1933, as
amended.
As described below under "Shareholder Servicing Agent, Custodian and
Transfer Agency," PaineWebber Incorporated will provide shareholder services to
the Trust pursuant to a Shareholder Servicing Agreement with Eaton Vance. Eaton
Vance will pay a monthly fee for such services on an annual basis equal to .10%
of the average weekly gross assets of the Trust.
SHAREHOLDER SERVICING AGENT, CUSTODIAN AND TRANSFER AGENT
Pursuant to a Shareholder Servicing Agreement between PaineWebber
Incorporated (the "Shareholder Servicing Agent") and Eaton Vance, the
Shareholder Servicing Agent will (i) undertake to make public information
pertaining to the Trust on an ongoing basis and to communicate holders of Common
Shares and prospective investors in Common Shares the Trust's features and
benefits (including periodic seminars or conference calls, responses to
questions from current or prospective shareholders and specific shareholder
contact where appropriate); (ii) make available to investors and prospective
investors in Common Shares market price, net asset value, yield and other
information regarding the Trust, if reasonably obtainable, for the purpose of
maintaining the visibility of the Trust in the investor community; (iii) at the
request of Eaton Vance, provide certain economic research and statistical
information and reports, if reasonably obtainable, on behalf of the Trust, and
consult with representatives and Trustees of the Trust in connection therewith.
For these services, Eaton Vance will pay the Shareholder Servicing Agent a fee
equal on an annual basis to .10% of the Trust's average weekly gross assets,
payable in arrears at the end of each calendar month. Under the terms
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<PAGE> 54
of the Shareholder Servicing Agreement, the Shareholder Servicing Agent is
relieved from liability to Eaton Vance for any act or omission in the course of
its performances under the Shareholder Servicing Agreement in the absence of
gross negligence or willful misconduct by the Shareholder Servicing Agent. The
Shareholder Servicing Agreement will continue for an initial term of two years
and thereafter for successive one-year periods unless terminated by either party
upon 60 days written notice.
Investors Bank & Trust Company, 200 Clarendon Street, Boston, MA 02116 is
the custodian of the Trust and will maintain custody of the securities and cash
of the Trust. IBT maintains the Trust's general ledger and computes net asset
value per share at least weekly. IBT also attends to details in connection with
the sale, exchange, substitution, transfer and other dealings with the Trust's
investments, and receives and disburses all funds. IBT also assists in
preparation of shareholder reports and the electronic filing of such reports
with the SEC.
First Data Investor Services Group, P.O. Box 5123, Westborough, MA
01581-5123 is the transfer agent and dividend disbursing agent of the Trust.
LEGAL OPINIONS
It is expected that certain legal matters in connection with the APS
offered hereby will be passed upon for the Trust by Kirkpatrick & Lockhart LLP,
and for the Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP and its
affiliated entities.
EXPERTS
The statement of assets, liabilities and capital of the Trust as of January
21, 1999 included in this Prospectus and the Registration Statement has been
audited by Deloitte & Touche LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and is included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing. The selection of independent auditors is subject to ratification by
shareholders of the Trust.
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<PAGE> 55
ADDITIONAL INFORMATION
The Trust is subject to the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act and in accordance therewith is required to
file reports, proxy statements and other information with the Commission. Any
such reports, proxy statements and other information can be inspected and copied
at the public reference facilities of the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following
regional offices of the Commission: Regional Office, at Seven World Trade
Center, 61 Suite 1300, New York, New York 10048; Pacific Regional Office, at
5670 Wilshire Boulevard, 11th Floor, Los Angeles, California 90036; and Midwest
Regional Office, at Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Copies of such materials can be obtained
from the public reference section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web site
at http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants, including the Trust, that file
electronically with the Commission. Reports, proxy statements and other
information concerning the Trust can also be inspected at the offices of the New
York Stock Exchange, 20 Broad Street, New York, New York 10005.
Additional information regarding the Trust and the APS is contained in the
Registration Statement on Form N-2, including amendments, exhibits and schedules
thereto, relating to such shares filed by the Trust with the SEC in Washington,
D.C. This Prospectus does not contain all of the information set forth in the
Registration Statement, including any amendments, exhibits and schedules
thereto. For further information with respect to the Trust and the APS offered
hereby, reference is made to the Registration Statement. Statements contained in
this Prospectus as to the contents of any contract or other document referred to
are not necessarily complete and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. A copy of the Registration Statement may be inspected without charge
at the SEC's principal office in Washington, D.C., and copies of all or any part
thereof may be obtained from the SEC upon the payment of certain fees prescribed
by the SEC.
TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<S> <C>
Additional Investment Information and Restrictions.......... B-2
Trustees and Officers....................................... B-7
Investment Advisory and Other Services...................... B-10
Portfolio Trading........................................... B-11
Taxes....................................................... B-13
Other Information........................................... B-15
Auditors.................................................... B-15
Financial Statements........................................ B-16
Independent Auditors' Report................................ B-17
Unaudited Portfolios of Investments Owned................... B-19
Appendix A: Ratings of Municipal Obligations................ B-21
Appendix B: Tax Equivalent Yield Table...................... B-27
Appendix C: Settlement Procedures........................... B-28
Appendix D: Auction Procedures.............................. B-31
</TABLE>
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<PAGE> 56
TRUSTEES OF THE TRUST
JESSICA M. BIBLIOWICZ
President and Chief Operating Officer of John A. Levin & Co.
DONALD R. DWIGHT
President of Dwight Partners, Inc.
JAMES B. HAWKES
Chairman, President and Chief Executive Officer of Eaton Vance Corp.
SAMUEL L. HAYES, III*
Jacob H. Schiff Professor of Investment Banking Emeritus, Harvard University
Graduate School of Business Administration
NORTON H. REAMER*
Chairman and Chief Executive Officer of United Asset Management Corporation
LYNN A. STOUT
Professor of Law, Georgetown University Law Center
JACK L. TREYNOR
Investment Adviser and Consultant
* Trustees to be elected by holders of Preferred Shares
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<PAGE> 57
GLOSSARY
"AA" (AA) Composite Commercial Paper Rate," on any Valuation Date, means
(i) the Interest Equivalent of the rate on commercial paper placed on behalf of
issuers whose corporate bonds are rated "AA" by S&P or "Aa" by Moody's or the
equivalent of such rating by another nationally recognized statistical rating
organization, as such rate is made available on a discount basis or otherwise by
the Federal Reserve Bank of New York for the Business Day immediately preceding
such date, or (ii) in the event that the Federal Reserve Bank of New York does
not make available such a rate, then the arithmetic average of the Interest
Equivalent of the rate on commercial paper placed on behalf of such issuers, as
quoted on a discount basis or otherwise by PaineWebber Incorporated or its
successors that are Commercial Paper Dealers, to the Auction Agent for the close
of business on the Business Day immediately preceding such date. If one of the
Commercial Paper Dealers does not quote a rate required to determine the "AA"
Composite Commercial Paper Rate, the "AA" Composite Commercial Paper Rate will
be determined on the basis of the quotation or quotations furnished by any
Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers
selected by the Trust to provide such rate or rates not being supplied by the
Commercial Paper Dealer. If the number of Dividend Period days shall be (i) 7 or
more but fewer than 49 days, such rate shall be the Interest Equivalent of the
30-day rate on such commercial paper; (ii) 49 or more but fewer than 70 days,
such rate shall be the Interest Equivalent of the 60-day rate on such commercial
paper; (iii) 70 or more days but fewer than 85 days, such rate shall be the
arithmetic average of the Interest Equivalent of the 60-day and 90-day rates on
such commercial paper; (iv) 85 or more days but fewer than 99 days, such rate
shall be the Interest Equivalent of the 90-day rate on such commercial paper;
(v) 99 or more days but fewer than 120 days, such rate shall be the arithmetic
average of the Interest Equivalent of the 90-day and 120-day rates on such
commercial paper; (vi) 120 or more days but fewer than 141 days, such rate shall
be the Interest Equivalent of the 120-day rate on such commercial paper; (vii)
141 or more days but fewer than 162 days, such rate shall be the arithmetic
average of the Interest Equivalent of the 120-day and 180-day rates on such
commercial paper; and (viii) 162 or more days but fewer than 183 days, such rate
shall be the Interest Equivalent of the 180-day rate on such commercial paper.
"Additional Dividend" has the meaning set forth on page 33 of this
Prospectus.
"Adviser" means Eaton Vance Management.
"Agent Member" means the member of the Securities Depository that will act
on behalf of a Beneficial Owner of one or more APS or on behalf of a Potential
Beneficial Owner.
"Amended By-Laws" means the By-laws of the Trust as amended February 22,
1999, specifying the powers, preferences and rights of the APS.
"APS" means the Auction Preferred Shares with a par value of $0.01 per
share and a liquidation preference of $25,000 per share plus an amount equal to
accumulated but unpaid dividends thereon (whether or not earned or declared), of
the Trust.
"APS Basic Maintenance Amount" has the meaning set forth on page 34 of this
Prospectus.
"APS Basic Maintenance Cure Date" has the meaning set forth on page 34 of
this Prospectus.
"APS Basic Maintenance Report" has the meaning set forth on page 35 of this
Prospectus.
"Anticipation Notes" means the following Municipal Obligations: revenue
anticipation notes, tax anticipation notes, tax and revenue anticipation notes,
grant anticipation notes and bond anticipation notes.
"Applicable Percentage" has the meaning set forth on page 24 of this
Prospectus.
"Applicable Rate" means the rate per annum at which cash dividends are
payable on APS for any Dividend Period.
"Auction" means a periodic operation of the Auction Procedures.
"Auction Agent" means Bankers Trust Corporation unless and until another
commercial bank, trust company or other financial institution appointed by a
resolution of the Board of Trustees of the Trust or a duly
50
<PAGE> 58
authorized committee thereof enters into an agreement with the Trust to follow
the Auction Procedures for the purpose of determining the Applicable Rate and to
act as transfer agent, registrar, dividend disbursing agent and redemption agent
for the APS.
"Auction Agent Agreement" means the agreement entered into between the
Trust and the Auction Agent which provides, among other things, that the Auction
Agent will follow the Auction Procedures for the purpose of determining the
Applicable Rate.
"Auction Date" has the meaning set forth on page 23 of this Prospectus.
"Auction Procedures" means the procedures for conducting Auctions set forth
in Appendix D to the Statement of Additional Information.
"Available APS" has the meaning specified in Paragraph 10(d)(i) of the
Auction Procedures.
"Beneficial Owner" means a customer of a Broker-Dealer who is listed on the
records of that Broker-Dealer (or if applicable, the Auction Agent) as a holder
of APS or a Broker-Dealer that holds APS for its own account.
"Bid" has the meaning specified in Subsection 10(b)(i) of the Auction
Procedures.
"Bidder" has the meaning specified in Subsection 10(b)(i) of the Auction
Procedures.
"Board of Trustees" or "Board" means the Board of Trustees of the Trust.
"Broker-Dealer" means any broker-dealer, or other entity permitted by law
to perform the functions required of a Broker-Dealer in the Auction Procedures,
that has been selected by the Trust and has entered into a Broker-Dealer
Agreement with the Auction Agent that remains effective.
"Broker-Dealer Agreement" means an agreement entered into between the
Auction Agent and a Broker-Dealer, including PaineWebber Incorporated,
Prudential Securities Incorporated, Salomon Smith Barney Inc. and A.G. Edwards &
Sons, Inc., pursuant to which such Broker-Dealer agrees to follow the Auction
Procedures.
"Business Day" means a day on which the New York Stock Exchange is open for
trading and which is not a Saturday, Sunday or other day on which banks in New
York City are authorized or obligated by law to close.
"Cede" means Cede & Co., the nominee of DTC, and in whose name the shares
of APS initially will be registered.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commercial Paper Dealers" means PaineWebber Incorporated and such other
commercial paper dealer or dealers as the Trust from time to time may appoint
or, in lieu thereof, their respective affiliates and successors.
"Common Shares" means the Common Shares, par value $0.01 per share, of the
Trust.
"Date of Original Issue" means, with respect to each APS, the date on which
such share first is issued by the Trust.
"Declaration of Trust" means the Agreement and Declaration of Trust of the
Trust dated December 10, 1998.
"Deposit Securities" means cash and Municipal Obligations rated at least A2
(having a remaining maturity of 12 months or less), P-1, VMIG-1 or MIG-1 by
Moody's or A (having a remaining maturity of 12 months or less), A-1+ or SP-1+
by S&P.
"Discount Factor" means a S&P Discount Factor.
"Discounted Value" of any asset of the Trust means with respect to an S&P
Eligible Asset, the quotient of the market value thereof divided by the
applicable S&P Discount Factor.
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<PAGE> 59
"Dividend Payment Date" has the meaning set forth on page 29 of this
Prospectus.
"Dividend Periods" has the meaning set forth on page 29 of this Prospectus.
"DTC" means The Depository Trust Company.
"Eligible Assets" means S&P Eligible Assets.
"Existing Holder" means a Broker-Dealer or any such other person as may be
permitted by the Trust that is listed as the holder of record of APS in the
records of the Auction Agent.
"Fitch" means Fitch IBCA or its successors.
"Hold Order" has the meaning specified in Subsection 10(b)(i) of the
Auction Procedures.
"IBT" means Investors Bank & Trust Company, the custodian of the Trust's
assets.
"Initial Dividend Payment Date" has the meaning set forth on page ii of
this Prospectus.
"Initial Dividend Period" means, with respect to the APS, the period from
and including the Date of Original Issue to but excluding the Initial Dividend
Payment Date of the APS.
"Initial Margin" means the amount of cash or securities deposited with a
broker as a margin payment at the time of purchase or sale of a financial
futures contract.
"Interest Equivalent" means a yield on a 360-day basis of a discount basis
security which is equal to the yield on an equivalent interest-bearing security.
"IRS" means the United States Internal Revenue Service.
"Long Term Dividend Period" has the meaning set forth on page 3 of this
Prospectus.
"Mandatory Redemption Price" has the meaning set forth on page 36 of this
Prospectus.
"Marginal Tax Rate" means the maximum marginal federal individual income
tax rate applicable to an individual's or a corporation's ordinary income,
whichever is greater.
"Maximum Applicable Rate" has the meaning specified under "Description of
APS--The Auction--Orders by Beneficial Owners, Potential Beneficial Owners,
Existing Holders and Potential Holders" in the Prospectus.
"Maximum Potential Additional Dividend Liability" has the meaning set forth
on page 36 of this Prospectus.
"Moody's" means Moody's Investors Service, Inc. or its successors.
"Municipal Obligations" has the meaning set forth on page 11 of this
Prospectus.
"Municipal Index" has the meaning set forth on page 19 of this Prospectus.
"1940 Act" means the Investment Company Act of 1940, as amended from time
to time.
"1940 Act APS Asset Coverage" has the meaning set forth on page 34 of this
Prospectus.
"1940 Act Cure Date" has the meaning set forth on page 34 of this
Prospectus.
"Non-Call Period" has the meaning set forth under "Specific Redemption
Provisions" below.
"Non-Payment Period" has the meaning set forth on page 31 of this
Prospectus.
"Non-Payment Period Rate" has the meaning set forth on page 32 of this
Prospectus.
"Notice of Revocation" has the meaning set forth on page 31 of this
Prospectus.
"Notice of Special Dividend Period" has the meaning set forth on page 31 of
this Prospectus.
"Optional Redemption Price" has the meaning set forth on page 36 of this
Prospectus.
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<PAGE> 60
"Order" has the meaning specified in Subsection 10(b)(i) of the Auction
Procedures.
"Potential Beneficial Owner" means a customer of a Broker-Dealer or a
Broker-Dealer that is not a Beneficial Owner of APS but that wishes to purchase
such shares, or that is a Beneficial Owner that wishes to purchase additional
shares of APS.
"Potential Holder" means any Broker-Dealer or any such other person as may
be permitted by the Trust, including any Existing Holder, who may be interested
in acquiring APS (or, in the case of an Existing Holder, additional APS).
"Preference Item" has the meaning set forth on page 29 of this Prospectus.
"Preferred Shares" means preferred shares of beneficial interest, par value
$.01 per share, of the Trust.
"Premium Call Period" has the meaning set forth under "Specific Redemption
Provisions" below.
"Receivables For Municipal Obligations Sold," has the meaning set forth on
page 18 of this Prospectus.
"Reference Rate" means: (i) with respect to a Dividend Period or a Short
Term Dividend Period having 28 or fewer days, the higher of the applicable "AA"
Composite Commercial Paper Rate and the Taxable Equivalent of the Short Term
Municipal Obligation Rate, (ii) with respect to any Short Term Dividend Period,
having more than 28 but fewer than 183 days, the applicable "AA" Composite
Commercial Paper Rate, (iii) with respect to any Short Term Dividend Period
having 183 or more but fewer than 364 days, the applicable U.S. Treasury Bill
Rate and (iv) with respect to any Long Term Dividend Period, the applicable U.S.
Treasury Note Rate.
"Request for Special Dividend Period" has the meaning set forth on page 30
of this Prospectus.
"Response" has the meaning set forth on page 30 of this Prospectus.
"Retroactive Taxable Allocation" has the meaning set forth on page 33 of
this Prospectus.
"S&P" means Standard & Poor's, a division of The McGraw-Hill Companies,
Inc., or its successors.
"S&P Discount Factor" has the meaning set forth on page 17 of this
Prospectus.
"S&P Eligible Assets" has the meaning set forth on page 18 of this
Prospectus.
"S&P Exposure Period" means the maximum period of time following a
Valuation Date, including the Valuation Date and the APS Basic Maintenance Cure
Date, that the Trust has under the Amended By-Laws to cure any failure to
maintain, as of such Valuation Date, a Discounted Value for its portfolio at
least equal to the APS Basic Maintenance Amount.
"S&P Hedging Transactions" has the meaning set forth on page 19 of this
Prospectus.
"S&P Volatility Factor" means 277% or such other potential dividend rate
increase factor as S&P advises the Trust in writing is applicable.
"Securities Depository" means The Depository Trust Company and its
successors and assigns or any successor securities depository selected by the
Trust that agrees to follow the procedures required to be followed by such
securities depository in connection with the APS.
"Sell Order" has the meaning specified in Subsection 10(b)(i) of the
Auction Procedures.
"7-Day Dividend Period" means a Dividend Period consisting of seven days.
"Short Term Dividend Period" has the meaning set forth on page 3 of this
Prospectus.
"Special Dividend Period" has the meaning set forth on page 3 of this
Prospectus.
"Specific Redemption Provisions" means, with respect to a Special Dividend
Period, either, or any combination of, (i) a period (a "Non-Call Period")
determined by the Board of Trustees of the Trust, after consultation with the
Auction Agent and the Broker-Dealers, during which the APS subject to such
Dividend Period shall not be subject to redemption at the option of the Trust
and (ii) a period (a "Premium Call
53
<PAGE> 61
Period"), consisting of a number of whole years and determined by the Board of
Trustees of the Trust, after consultation with the Auction Agent and the
Broker-Dealers, during each year of which the APS subject to such Dividend
Period shall be redeemable at the Trust's option at a price per share equal to
$25,000 plus accumulated but unpaid dividends plus a premium expressed as a
percentage of $25,000, as determined by the Board of Trustees of the Trust after
consultation with the Auction Agent and the Broker-Dealers.
"Submission Deadline" has the meaning specified in Subsection 10(a)(x) of
the Auction Procedures.
"Submitted Bid" has the meaning specified in Subsection 10(d)(i) of the
Auction Procedures.
"Submitted Hold Order" has the meaning specified in Subsection 10(d)(i) of
the Auction Procedures.
"Submitted Order" has the meaning specified in Subsection 10(d)(i) of the
Auction Procedures.
"Submitted Sell Order" has the meaning specified in Subsection 10(d)(i) of
the Auction Procedures.
"Subsequent Dividend Period" means each Dividend Period after the Initial
Dividend Period.
"Substitute Rating Agency" and "Substitute Rating Agencies" shall mean a
nationally recognized statistical rating organization or two nationally
recognized statistical rating organizations, respectively, selected by
PaineWebber Incorporated, or its respective affiliates and successors, after
consultation with the Trust, to act as a substitute rating agency or substitute
rating agencies, as the case may be, to determine the credit ratings of the APS.
"Sufficient Clearing Bids" has the meaning specified in Subsection 10(d)(i)
of the Auction Procedures.
"Taxable Equivalent of the Short-Term Municipal Obligations Rate" on any
date means 90% of the quotient of (A) the per annum rate expressed on an
interest equivalent basis equal to the Kenny S&P 30 day High Grade Index (the
"Kenny Index"), or any successor index made available for the Business Day
immediately preceding such date but in any event not later than 8:30 A.M., New
York City time, on such date by Kenny Information Systems Inc. or any successor
thereto, based upon 30-day yield evaluations at par of bonds the interest on
which is excludable for federal income tax purposes under the Code of "high
grade" component issuers selected by Kenny Information Systems Inc. or any such
successor from time to time in its discretion, which component issuers shall
include, without limitation, issuers of general obligation bonds but shall
exclude any bonds the interest on which constitutes a Preference Item, divided
by (B) 1.00 minus the Marginal Tax Rate (expressed as a decimal); provided,
however, that if the Kenny Index is not made so available by 8:30 A.M., New York
City time, on such date by Kenny Information Systems Inc. or any successor, the
Taxable Equivalent of the Short-Term Municipal Obligations Rate shall mean the
quotient of (A) the per annum rate expressed on an interest equivalent basis
equal to the most recent Kenny Index so made available for any preceding
Business Day, divided by (B) 1.00 minus the marginal tax rate noted above
(expressed as a decimal). The Trust may not utilize a successor index to the
Kenny Index unless S&P provides the Trust with written confirmation that the use
of such successor index will not adversely affect the then-current S&P rating of
the APS.
"Treasury Bonds" has the meaning set forth on page 19 of this Prospectus.
"Trust" means Eaton Vance Municipal Income Trust, a Massachusetts business
trust that that is the issuer of the APS.
"U.S. Treasury Bill Rate" on any date means (i) the Interest Equivalent of
the rate on the actively traded Treasury Bill with a maturity most nearly
comparable to the length of the related Dividend Period, as such rate is made
available on a discount basis or otherwise by the Federal Reserve Bank of New
York in its Composite 3:30 P.M. Quotations for U.S. Government Securities report
for such Business Day, or (ii) if such yield as so calculated is not available,
the Alternate Treasury Bill Rate on such date. "Alternate Treasury Bill Rate" on
any date means the Interest Equivalent of the yield as calculated by reference
to the arithmetic average of the bid price quotations of the actively traded
Treasury Bill with a maturity most nearly comparable to the length of the
related Dividend Period, as determined by bid price quotations as of any time on
the Business Day immediately preceding such date, obtained from at least three
recognized primary U.S. Government securities dealers selected by the Auction
Agent.
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<PAGE> 62
"U.S. Treasury Note Rate" on any date means (i) the yield as calculated by
reference to the bid price quotation of the actively traded, current coupon
Treasury Note with a maturity most nearly comparable to the length of the
related Dividend Period, as such bid price quotation is published on the
Business Day immediately preceding such date by the Federal Reserve Bank of New
York in its Composite 3:30 P.M. Quotations for U.S. Government Securities report
for such Business Day, or (ii) if such yield as so calculated is not available,
the Alternate Treasury Note Rate on such date. "Alternate Treasury Note Rate" on
any date means the yield as calculated by reference to the arithmetic average of
the bid price quotations of the actively traded, current coupon Treasury Note
with a maturity most nearly comparable to the length of the related Dividend
Period, as determined by the bid price quotations as of any time on the Business
Day immediately preceding such date, obtained from at least three recognized
primary U.S. Government securities dealers selected by the Auction Agent.
"Valuation Date" has the meaning set forth on page 34 of this Prospectus.
"Variation Margin" means, in connection with an outstanding financial
futures contract owned or sold by the Trust, the amount of cash or securities
paid to or received from a broker (subsequent to the Initial Margin payment)
from time to time as the price of such financial futures contract fluctuates.
"Winning Bid Rate" has the meaning specified in Subsection 10(d)(i) of the
Auction Procedures.
55
<PAGE> 63
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EATON VANCE
MUNICIPAL INCOME TRUST
2,620 SHARES SERIES A
2,620 SHARES SERIES B
AUCTION PREFERRED SHARES
LIQUIDATION PREFERENCE $25,000 PER SHARE
[EATON VANCE LOGO]
----------------------
PROSPECTUS
----------------------
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES
SALOMON SMITH BARNEY
A.G. EDWARDS & SONS, INC.
------------------------
MARCH 1, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 64
STATEMENT OF
ADDITIONAL INFORMATION
MARCH 1, 1999
EATON VANCE MUNICIPAL INCOME TRUST
24 FEDERAL STREET
BOSTON, MASSACHUSETTS 02110
(800) 225-6265
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Investment Information and Restrictions.......... B-2
Trustees and Officers....................................... B-7
Investment Advisory and Other Services...................... B-10
Portfolio Trading........................................... B-11
Taxes....................................................... B-13
Other Information........................................... B-15
Auditors.................................................... B-15
Financial Statements........................................ B-16
Independent Auditors' Report................................ B-18
Unaudited Portfolio of Investments Owned.................... B-19
Appendix A: Ratings of Municipal Bonds...................... B-21
Appendix B: Tax Equivalent Yield Table...................... B-27
Appendix C: Settlement Procedures........................... B-28
Appendix D: Auction Procedures.............................. B-31
</TABLE>
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THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY THE PROSPECTUS OF EATON VANCE MUNICIPAL INCOME TRUST (THE
"TRUST") DATED MARCH 1, 1999 AS SUPPLEMENTED FROM TIME TO TIME, WHICH IS
INCORPORATED HEREIN BY REFERENCE. THIS STATEMENT OF ADDITIONAL INFORMATION
SHOULD BE READ IN CONJUNCTION WITH SUCH PROSPECTUS, A COPY OF WHICH MAY BE
OBTAINED WITHOUT CHARGE BY CONTACTING YOUR FINANCIAL INTERMEDIARY OR CALLING THE
TRUST AT 1-800-225-6265.
<PAGE> 65
Capitalized terms used in this Statement of Additional Information and not
otherwise defined herein have the meanings given them in the Trust's Prospectus.
ADDITIONAL INVESTMENT INFORMATION AND RESTRICTIONS
Municipal Obligations. Municipal Obligations are issued to obtain funds
for various public and private purposes. Municipal Obligations include long-term
obligations, which are often called municipal bonds, as well as tax-exempt
commercial paper, project notes and municipal notes such as tax, revenue and
bond anticipation notes of short maturity, generally less than three years.
Market rates of interest available with respect to Municipal Obligations may be
lower than those available with respect to taxable securities, although such
differences may be partially or wholly offset by the effects of federal income
tax on income derived from taxable securities. While most municipal bonds pay a
fixed rate of interest semi-annually in cash, some bonds pay no periodic cash
interest but instead make a single payment at maturity representing both
principal and interest. Municipal Obligations may be issued or subsequently
offered with interest coupons materially greater or less than those then
prevailing, with price adjustments reflecting such deviation.
In general, there are three categories of Municipal Obligations the
interest on which is exempt from federal income tax and is not a tax preference
item for purposes of the federal alternative minimum tax ("AMT") ("Preference
Items"): (i) certain "public purpose" obligations (whenever issued), which
include obligations issued directly by state and local governments or their
agencies to fulfill essential governmental functions; (ii) certain obligations
issued before August 8, 1986 for the benefit of non-governmental persons or
entities; and (iii) certain "private activity bonds" issued after August 7,
1986, which include "qualified Section 501(c)(3) bonds" or refundings of certain
obligations included in the second category. Interest on obligations in the last
category is exempt from federal income tax but is treated as a Preference Item
that could subject the recipient to, or increase the recipient's liability for,
the AMT. For corporate shareholders, the Trust's distributions derived from
interest on all Municipal Obligations (whenever issued) is included in "adjusted
current earnings" for purposes of the AMT (to the extent not already included in
alternative minimum taxable income as income attributable to private activity
bonds). In assessing the federal income tax treatment of interest on any such
obligation, the Trust will rely on an opinion of the issuer's counsel (when
available) obtained by the issuer or other reliable authority and will not
undertake any independent verification thereof.
The two principal classifications of municipal bonds are "general
obligation" and "revenue" bonds. Issuers of general obligation bonds include
states, counties, cities, towns and regional districts. The proceeds of these
obligations are used to fund a wide range of public projects including the
construction or improvement of schools, highways and roads, water and sewer
systems and a variety of other public purposes. The basic security of general
obligation bonds is the issuer's pledge of its faith, credit, and taxing power
for the payment of principal and interest. The taxes that can be levied for the
payment of debt service may be limited or unlimited as to rate and amount.
Revenue bonds are generally secured by the net revenues derived from a
particular facility or group of facilities or, in some cases, from the proceeds
of a special excise or other specific revenue source. Revenue bonds have been
issued to fund a wide variety of capital projects including: electric, gas,
water, sewer and solid waste disposal systems; highways, bridges and tunnels;
port, airport and parking facilities; transportation systems; housing
facilities, colleges and universities and hospitals. Although the principal
security behind these bonds varies widely, many provide additional security in
the form of a debt service reserve fund whose monies may be used to make
principal and interest payments on the issuer's obligations. Housing finance
authorities have a wide range of security including partially or fully insured,
rent subsidized and/or collateralized mortgages, and/or the net revenues from
housing or other public projects. In addition to a debt service reserve fund,
some authorities provide further security in the form of a state's ability
(without legal obligation) to make up deficiencies in the debt service reserve
fund. Lease rental revenue bonds issued by a state or local authority for
capital projects are normally secured by annual lease rental payments from the
state or locality to the authority sufficient to cover debt service on the
authority's obligations. Such payments are usually subject to annual
appropriations by the state or locality. Industrial development and pollution
control
B-2
<PAGE> 66
bonds, although nominally issued by municipal authorities, are in most cases
revenue bonds and are generally not secured by the taxing power of the
municipality, but are usually secured by the revenues derived by the authority
from payments of the industrial user or users. The Trust may on occasion acquire
revenue bonds which carry warrants or similar rights covering equity securities.
Such warrants or rights may be held indefinitely, but if exercised, the Trust
anticipates that it would, under normal circumstances, dispose of any equity
securities so acquired within a reasonable period of time.
The obligations of any person or entity to pay the principal of and
interest on a Municipal Obligation are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Act, and laws, if any, which may be enacted by
Congress or state legislatures extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement of such
obligations. There is also the possibility that as a result of litigation or
other conditions the power or ability of any person or entity to pay when due
principal of and interest on a Municipal Obligation may be materially affected.
There have been recent instances of defaults and bankruptcies involving
Municipal Obligations which were not foreseen by the financial and investment
communities. The Trust will take whatever action it considers appropriate in the
event of anticipated financial difficulties, default or bankruptcy of either the
issuer of any Municipal Obligation or of the underlying source of funds for debt
service. Such action may include retaining the services of various persons or
firms (including affiliates of the Adviser) to evaluate or protect any real
estate, facilities or other assets securing any such obligation or acquired by
the Trust as a result of any such event, and the Trust may also manage (or
engage other persons to manage) or otherwise deal with any real estate,
facilities or other assets so acquired. The Trust anticipates that real estate
consulting and management services may be required with respect to properties
securing various Municipal Obligations in its portfolio or subsequently acquired
by the Trust. The Trust will incur additional expenditures in taking protective
action with respect to portfolio obligations in default and assets securing such
obligations. To enforce its rights in the event of a default in the payment of
interest or repayment of principal, or both, the Trust may take possession of
and manage the assets or have a receiver appointed to collect and disburse
pledged revenues securing the issuer's obligations on such securities, which may
increase the operating expenses and adversely affect the net asset value of the
Trust. Any income derived from the ownership of operation of such assets may not
be tax-exempt. In addition, the Trust's intention to qualify as a "regulated
investment company" ("RIC") under the Code may limit the extent to which the
Trust may exercise its rights by taking possession of such assets, because as a
RIC the Trust is subject to certain limitations on its investments and on the
nature of its income. See "Taxes".
The yields on Municipal Obligations are dependent on a variety of factors,
including purposes of issue and source of funds for repayment, general money
market conditions, general conditions of the municipal bond market, size of a
particular offering, maturity of the obligation and rating of the issue. The
ratings of Moody's, S&P and Fitch represent their opinions as to the quality of
the Municipal Obligations which they undertake to rate. It should be emphasized,
however, that ratings are based on judgment and are not absolute standards of
quality. Consequently, Municipal Obligations with the same maturity, coupon and
rating may have different yields while obligations of the same maturity and
coupon with different ratings may have the same yield. In addition, the market
price of Municipal Obligations will normally fluctuate with changes in interest
rates, and therefore the net asset value of the Trust will be affected by such
changes.
State Concentration. The Trust may invest 25% or more of its total assets
in Municipal Obligations of issuers located in the same state. When the Trust
does so, it will be sensitive to factors affecting that state, such as changes
in the economy, decreases in tax collection or the tax base, legislation which
limits taxes and changes in issuer credit ratings.
Economic Sector Concentration. The Trust may invest 25% or more of its
total assets in Municipal Obligations of issuers in the same economic sector.
There could be economic, business or political developments which might affect
all Municipal Obligations in a particular economic sector. In particular,
investments in the industrial revenue bonds listed above might involve (without
limitation) the following risks.
Hospital bond ratings are often based on feasibility studies which contain
projections of expenses, revenues and occupancy levels. Among the influences
affecting a hospital's gross receipts and net income
B-3
<PAGE> 67
available to service its debt are demand for hospital services, the ability of
the hospital to provide the services required, management capabilities, economic
developments in the service area, efforts by insurers and government agencies to
limit rates and expenses, confidence in the hospital, service area economic
developments, competition, availability and expense of malpractice insurance,
Medicaid and Medicare funding and possible federal legislation limiting the
rates of increase of hospital charges.
Electric utilities face problems in financing large construction programs
in an inflationary period, cost increases and delay occasioned by safety and
environmental considerations (particularly with respect to nuclear facilities),
difficulty in obtaining fuel at reasonable prices and in achieving timely and
adequate rate relief from regulatory commissions, effects of energy conservation
and limitations on the capacity of the capital market to absorb utility debt.
Bonds to finance life care facilities are normally secured only by the
revenues of each facility and not by state or local government tax payments,
they are subject to a wide variety of risks. Primarily, the projects must
maintain adequate occupancy levels to be able to provide revenues sufficient to
meet debt service payments. Moreover, since a portion of housing, medical care
and other services may be financed by an initial deposit, it is important that
the facility maintain adequate financial reserves to secure estimated actuarial
liabilities. The ability of management to accurately forecast inflationary cost
pressures is an important factor in this process. The facilities may also be
affected adversely by regulatory cost restrictions applied to health care
delivery in general, particularly state regulations or changes in Medicare and
Medicaid payments or qualifications, or restrictions imposed by medical
insurance companies. They may also face competition from alternative health care
or conventional housing facilities in the private or public sector.
Municipal Leases. The Trust may invest in municipal leases and
participations therein, which arrangements frequently involve special risks.
Municipal leases are obligations in the form of a lease or installment purchase
arrangement which is issued by state or local governments to acquire equipment
and facilities. Interest income from such obligations is generally exempt from
local and state taxes in the state of issuance. "Participations" in such leases
are undivided interests in a portion of the total obligation. Participations
entitle their holders to receive a pro rata share of all payments under the
lease. The obligation of the issuer to meet its obligations under such leases is
often subject to the appropriation by the appropriate legislative body, on an
annual or other basis, of funds for the payment of the obligations. Investments
in municipal leases are thus subject to the risk that the legislative body will
not make the necessary appropriation and the issuer will not otherwise be
willing or able to meet its obligation. Certain municipal lease obligations are
illiquid.
When-Issued Securities. New issues of Municipal Obligations are sometimes
offered on a "when-issued" basis, that is, delivery and payment for the
securities normally take place within a specified number of days after the date
of the Trust's commitment and are subject to certain conditions such as the
issuance of satisfactory legal opinions. The Trust may also purchase securities
on a when-issued basis pursuant to refunding contracts in connection with the
refinancing of an issuer's outstanding indebtedness. Refunding contracts
generally require the issuer to sell and the Trust to buy such securities on a
settlement date that could be several months or several years in the future. The
Trust may also purchase instruments that give the Trust the option to purchase a
Municipal Obligation when and if issued.
The Trust will make commitments to purchase when-issued securities only
with the intention of actually acquiring the securities, but may sell such
securities before the settlement date if it is deemed advisable as a matter of
investment strategy. The payment obligation and the interest rate that will be
received on the securities are fixed at the time the Trust enters into the
purchase commitment. When the Trust commits to purchase a security on a
when-issued basis it records the transaction and reflects the value of the
security in determining its net asset value. Securities purchased on a
when-issued basis and the securities held by the Trust are subject to changes in
value based upon the perception of the creditworthiness of the issuer and
changes in the level of interest rates (i.e. appreciation when interest rates
decline and depreciation when interest rates rise). Therefore, to the extent
that the Trust remains substantially fully invested at the same time that it has
purchased securities on a when-issued basis, there will be greater fluctuations
in the Trust's net asset value than if it set aside cash to pay for when-issued
securities.
B-4
<PAGE> 68
Redemption, Demand and Put Features and Put Options. Issuers of Municipal
Obligations reserve the right to call (redeem) the bond. If an issuer redeems
securities held by the Trust during a time of declining interest rates, the
Trust may not be able to reinvest the proceeds in securities providing the same
investment return as the securities redeemed. Also, some bonds may have "put" or
"demand" features that allow early redemption by the bondholder. Longer term
fixed-rate bonds may give the holder a right to request redemption at certain
times (often annually after the lapse of an intermediate term). These bonds are
more defensive than conventional long term bonds because they may protect to
some degree against a rise in interest rates.
Liquidity and Protective Put Options. The Trust may also enter into a
separate agreement with the seller of a security or some other person granting
the Trust the right to put the security to the seller thereof or the other
person at an agreed upon price. Such agreements are subject to the risk of
default by the other party, although the Trust intends to limit this type of
transaction to institutions (such as banks or securities dealers) which the
Adviser believes present minimal credit risks. The Trust would engage in this
type of transaction to facilitate portfolio liquidity or (if the seller so
agrees) to hedge against rising interest rates. There is no assurance that this
kind of put option will be available to the Trust or that selling institutions
will be willing to permit the Trust to exercise a put to hedge against rising
interest rates. The Trust does not expect to assign any value to any separate
put option which may be acquired to facilitate portfolio liquidity, inasmuch as
the value (if any) of the put will be reflected in the value assigned to the
associated security; any put acquired for hedging purposes would be valued in
good faith under methods or procedures established by the Trustees of the Trust
after consideration of all relevant factors, including its expiration date, the
price volatility of the associated security, the difference between the market
price of the associated security and the exercise price of the put, the
creditworthiness of the issuer of the put and the market prices of comparable
put options. Interest income generated by certain bonds having put or demand
features may be taxable.
Illiquid Obligations. At times, a substantial portion of the Trust's
assets may be invested in securities as to which the Trust, by itself or
together with other accounts managed by the Adviser and its affiliates, holds a
major portion or all of such securities. Under adverse market or economic
conditions or in the event of adverse changes in the financial condition of the
issuer, the Trust could find it more difficult to sell such securities when the
Adviser believes it advisable to do so or may be able to sell such securities
only at prices lower than if such securities were more widely held. Under such
circumstances, it may also be more difficult to determine the fair value of such
securities for purposes of computing the Trust's net asset value.
The secondary market for some Municipal Obligations issued within a state
(including issues which are privately placed with the Trust) is less liquid than
that for taxable debt obligations or other more widely traded Municipal
Obligations. No established resale market exists for certain of the Municipal
Obligations in which the Trust may invest. The market for obligations rated
below investment grade is also likely to be less liquid than the market for
higher rated obligations. As a result, the Trust may be unable to dispose of
these Municipal Obligations at times when it would otherwise wish to do so at
the prices at which they are valued.
Futures Contracts and Options on Futures Contracts. A change in the level
of interest rates may affect the value of the securities held by the Trust (or
of securities that the Trust expects to purchase). To hedge against changes in
rates or as a substitute for the purchase of securities, the Trust may enter
into (i) futures contracts for the purchase or sale of debt securities and (ii)
futures contracts on securities indices. All futures contracts entered into by
the Trust are traded on exchanges or boards of trade that are licensed and
regulated by the Commodity Futures Trading Commission ("CFTC") and must be
executed through a futures commission merchant or brokerage firm which is a
member of the relevant exchange. The Trust may purchase and write call and put
options on futures contracts which are traded on a U.S. or foreign exchange or
board of trade. The Trust will be required, in connection with transactions in
futures contracts and the writing of options on futures, to make margin
deposits, which will be held by the Trust's custodian for the benefit of the
futures commission merchant through whom the Trust engages in such futures and
options transactions.
Some futures contracts and options thereon may become illiquid under
adverse market conditions. In addition, during periods of market volatility, a
commodity exchange may suspend or limit transactions in an exchange-traded
instrument, which may make the instrument temporarily illiquid and difficult to
price.
B-5
<PAGE> 69
Commodity exchanges may also establish daily limits on the amount that the price
of a futures contract or futures option can vary from the previous day's
settlement price. Once the daily limit is reached, no trades may be made that
day at a price beyond the limit. This may prevent the Trust from closing out
positions and limiting its losses.
The Trust will engage in futures and related options transactions for bona
fide hedging purposes or non-hedging purposes as defined in or permitted by CFTC
regulations. The Trust will determine that the price fluctuations in the futures
contracts and options on futures used for hedging purposes are substantially
related to price fluctuations in securities held by the Trust or which it
expects to purchase. The Trust will engage in transactions in futures and
related options contracts only to the extent such transactions are consistent
with the requirements of the Code for maintaining its qualification as a RIC for
federal income tax purposes.
Investment Restrictions. The following investment restrictions of the
Trust are designated as fundamental policies and as such cannot be changed
without the approval of the holders of a majority of the Trust's outstanding
voting securities, which as used in this Statement of Additional Information
means the lesser of (a) 67% of the shares of the Trust present or represented by
proxy at a meeting if the holders of more than 50% of the outstanding shares are
present or represented at the meeting or (b) more than 50% of outstanding shares
of the Trust. As a matter of fundamental policy, the Trust may not:
(1) Borrow money, except as permitted by the 1940 Act;
(2) Issue senior securities, as defined in the 1940 Act, other than
(i) preferred shares which immediately after issuance will have asset
coverage of at least 200%, (ii) indebtedness which immediately after
issuance will have asset coverage of at least 300%, or (iii) the borrowings
permitted by investment restriction (1) above;
(3) Purchase securities on margin (but the Trust may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of securities). The purchase of investment assets with the proceeds
of a permitted borrowing or securities offering will not be deemed to be
the purchase of securities on margin;
(4) Underwrite securities issued by other persons, except insofar as
it may technically be deemed to be an underwriter under the Securities Act
of 1933 in selling or disposing of a portfolio investment;
(5) Make loans to other persons, except by (a) the acquisition of loan
interests, debt securities and other obligations in which the Trust is
authorized to invest in accordance with its investment objective and
policies, (b) entering into repurchase agreements, and (c) lending its
portfolio securities;
(6) Purchase or sell real estate, although it may purchase and sell
securities which are secured by interests in real estate and securities of
issuers which invest or deal in real estate. The Trust reserves the freedom
of action to hold and to sell real estate acquired as a result of the
ownership of securities; or
(7) Purchase or sell physical commodities or contracts for the
purchase or sale of physical commodities. Physical commodities do not
include futures contracts with respect to securities, securities indices or
other financial instruments.
(8) Invest more than 25% of its total assets in securities of issuers
in any one industry.*
- ---------------
* Securities of the U.S. Government, its agencies, or instrumentalities, and
securities, including Municipal Obligations, backed by the credit of a
governmental entity are not considered to represent industries. However,
Municipal Obligations backed only by the assets and revenues of non-governmental
users may for this purpose be deemed to be issued by such non-governmental
users. Thus, the 25% limitation would apply to such obligations. As discussed
previously in this section and in the Prospectus, it is nonetheless possible
that the Trust may invest more than 25% of its total assets in a broader
economic sector of the market for Municipal Obligations, such as revenue
obligations of hospitals and other health care facilities or electrical utility
revenue obligations. The Trust reserves the right to invest more than 25% of its
assets in industrial development bonds and private activity securities.
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For purposes of the Trust's investment restrictions, the determination of
the "issuer" of a Municipal Obligation that is not a general obligation bond
will be made by the Adviser on the basis of the characteristics of the
obligation and other relevant factors, the most significant of which is the
source of funds committed to meeting interest and principal payments of such
obligation.
The Trust has adopted the following nonfundamental investment policy, which
may be changed by its Trustees without approval of the Trust's shareholders. As
a matter of nonfundamental policy, the Trust may not make short sales of
securities or maintain a short position, unless at all times when a short
position is open it either owns an equal amount of such securities or owns
securities convertible into or exchangeable, without payment of any further
consideration, for securities of the same issue as, and equal in amount to, the
securities sold short.
Upon Board of Trustee approval the Trust may invest more than 10% of its
total assets in one or more other management investment companies (or may invest
in affiliated investment companies) to the extent permitted by the 1940 Act and
rules thereunder.
Whenever an investment policy or investment restriction set forth in the
Prospectus or this Statement of Additional Information states a maximum
percentage of assets that may be invested in any security or other asset or
describes a policy regarding quality standards, such percentage limitation or
standard shall be determined immediately after and as a result of the Trust's
acquisition of such security or asset. Accordingly, any later increase or
decrease resulting from a change in values, assets or other circumstances will
not compel the Trust to dispose of such security or other asset. Notwithstanding
the foregoing, the Trust must always be in compliance with the borrowing
policies set forth above.
TRUSTEES AND OFFICERS
The Trust's Trustees and officers are listed below. Except as indicated,
each individual has held the office shown or other offices in the same company
for the last five years. Unless otherwise noted, the business address of each
Trustee and officer is 24 Federal Street, Boston, Massachusetts 02110. Those
Trustees who are "interested persons" of the Trust as defined in the 1940 Act by
virtue of their affiliation with Eaton Vance, BMR, EVC or EV, are indicated by
an asterisk(*).
JESSICA M. BIBLIOWICZ (38), TRUSTEE (1)
President and Chief Operating Officer of John A. Levin & Co. (a registered
investment advisor) (since July 1997) and a Director of Baker, Fentress &
Company which owns John A. Levin & Co. (since July 1997). Formerly Executive
Vice President of Smith Barney Mutual Funds (from July 1994 to June 1997).
Trustee of various investment companies managed by Eaton Vance or BMR since
October 30, 1998.
Address: One Rockefeller Plaza, New York, New York 10020
DONALD R. DWIGHT (67), TRUSTEE (1)
President of Dwight Partners, Inc. (a corporate relations and communications
company). Trustee of various investment companies managed by Eaton Vance or BMR.
Address: Clover Mill Lane, Lyme, New Hampshire 03768
JAMES B. HAWKES (57), VICE PRESIDENT AND TRUSTEE* (2)
Chairman, President and Chief Executive Officer of Eaton Vance, BMR and their
corporate parent and trustee (EVC and EV). Director of EVC and EV. Trustee and
officer of various investment companies managed by Eaton Vance or BMR.
SAMUEL L. HAYES, III (63), TRUSTEE (2)(4)
Jacob H. Schiff Professor of Investment Banking Emeritus, Harvard University
Graduate School of Business Administration. Trustee of Kobrick-Cendant
Investment Trust (mutual funds). Trustee of various investment companies managed
by Eaton Vance or BMR.
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Address: 345 Nahatan Road, Westwood, Massachusetts 02090
NORTON H. REAMER (63), TRUSTEE (3)(4)
Chairman of the Board and Chief Executive Officer, United Asset Management
Corporation (a holding company owning institutional investment management
firms); Chairman, President and Director of UAM Funds (mutual funds). Trustee of
various investment companies managed by Eaton Vance or BMR.
Address: One International Place, Boston, Massachusetts 02110
LYNN A. STOUT (41), TRUSTEE (3)
Professor of Law, Georgetown University Law Center. Elected Trustee October 30,
1998. Trustee of various investment companies managed by Eaton Vance or BMR
since October 30, 1998.
Address: 600 New Jersey, NW, Washington, DC 20001.
JACK L. TREYNOR (68), TRUSTEE (3)
Investment Adviser and Consultant. Trustee of various investment companies
managed by Eaton Vance or BMR.
Address: 504 Via Almar, Palos Verdes Estates, California 90274
THOMAS J. FETTER (55), PRESIDENT
Vice President of Eaton Vance and BMR. Officer of various investment companies
managed by Eaton Vance or BMR.
ROBERT B. MACINTOSH (42), VICE PRESIDENT
Vice President of Eaton Vance and BMR. Officer of various investment companies
managed by Eaton Vance or BMR.
THOMAS M. METZOLD (40), VICE PRESIDENT
Vice President of Eaton Vance and BMR. Officer of various investment companies
managed by Eaton Vance or BMR.
JAMES L. O'CONNOR (53), TREASURER
Vice President of Eaton Vance and BMR. Officer of various investment companies
managed by Eaton Vance or BMR.
ALAN R. DYNNER (58), SECRETARY
Vice President and Chief Legal Officer of Eaton Vance, BMR, EVC and EV since
November 1, 1996. Previously, he was a Partner of the law firm of Kirkpatrick &
Lockhart LLP, New York and Washington, D.C., and was Executive Vice President of
Neuberger & Berman Management, Inc., a mutual fund management company. Officer
of various investment companies managed by Eaton Vance or BMR.
JANET E. SANDERS (62), ASSISTANT TREASURER AND ASSISTANT SECRETARY
Vice President of Eaton Vance and BMR. Officer of various investment companies
managed by Eaton Vance or BMR.
A. JOHN MURPHY (35), ASSISTANT SECRETARY
Vice President of Eaton Vance and BMR. Officer of various investment companies
managed by Eaton Vance or BMR.
ERIC G. WOODBURY (41), ASSISTANT SECRETARY
Vice President of Eaton Vance and BMR. Officer of various investment companies
managed by Eaton Vance or BMR.
- ---------------
(1) Class I Trustee whose term expires in 1999.
(2) Class II Trustee whose term expires in 2000.
(3) Class III Trustee whose term expires in 2001.
(4) Trustee to be elected exclusively by holders of Preferred Shares as
described in the Prospectus.
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Messrs. Hayes (Chairman), Dwight and Reamer and Ms. Stout are members of
the Special Committee of the Board of Trustees of the Trust. The purpose of the
Special Committee is to consider, evaluate and make recommendations to the full
Board of Trustees concerning (i) all contractual arrangements with service
providers to the Trust, including investment advisory, administrative, transfer
agency, custodial and fund accounting and distribution services, and (ii) all
other matters in which Eaton Vance or its affiliates has any actual or potential
conflict of interest with the Trust or its shareholders.
The Nominating Committee of the Board of Trustees of the Trust is comprised
of all Trustees who are not "interested persons" as that term is defined under
the 1940 Act ("noninterested Trustees"). The purpose of the Committee is to
recommend to the Board nominees for the position of noninterested Trustee and to
assure that at least a majority of the Board of Trustees is independent of Eaton
Vance and its affiliates.
Messrs. Treynor (Chairman) and Dwight and Ms. Bibliowicz are members of the
Audit Committee of the Board of Trustees of the Trust. The Audit Committee's
functions include making recommendations to the Trustees regarding the selection
of the independent certified public accountants, and reviewing matters relative
to trading and brokerage policies and practices, accounting and auditing
practices and procedures, accounting records, internal accounting controls, and
the functions performed by the custodian, transfer agent and dividend disbursing
agent of the Trust.
Trustees of the Trust who are not affiliated with the Adviser may elect to
defer receipt of all or a percentage of their annual fees in accordance with the
terms of a Trustees Deferred Compensation Plan (the "Trustees' Plan"). Under the
Trustees' Plan, an eligible Trustee may elect to have his deferred fees invested
by the Trust in the shares of one or more funds in the Eaton Vance Family of
Funds, and the amount paid to the Trustees under the Trustees' Plan will be
determined based upon the performance of such investments. Deferral of Trustees'
fees in accordance with the Trustees' Plan will have a negligible effect on the
Trust's assets, liabilities, and net income per share, and will not obligate the
Trust to retain the services of any Trustee or obligate the Trust to pay any
particular level of compensation to the Trustee. The Trust does not have a
retirement plan for its Trustees.
The fees and expenses of the noninterested Trustees of the Trust are paid
by the Trust. (The Trustees of the Trust who are members of the Eaton Vance
organization receive no compensation from the Trust.) During the year ended
December 31, 1998, the noninterested Trustees of the Trust earned the
compensation set forth below in their capacities as Trustees from the funds in
the Eaton Vance fund complex(1). It is estimated that the noninterested Trustees
will receive from the Trust the amounts set forth below for the fiscal year
ending November 30, 1999.
<TABLE>
<CAPTION>
ESTIMATED TOTAL COMPENSATION
COMPENSATION FROM TRUST AND
NAME FROM TRUST FUND COMPLEX
- ---- ------------ ------------------
<S> <C> <C>
Jessica M. Bibliowicz................................ $385 N/A
Donald R. Dwight..................................... 385 $156,250(2)
Samuel L. Hayes, III................................. 381 166,250(3)
Norton H. Reamer..................................... 374 156,250
Lynn A. Stout........................................ 385 N/A
Jack L. Treynor...................................... 422 165,000
</TABLE>
- ---------------
(1) As of January 1, 1999 the Eaton Vance fund complex consists of 143
registered investment companies or series thereof.
(2) Includes $56,250 of deferred compensation.
(3) Includes $41,563 of deferred compensation.
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INVESTMENT ADVISORY AND OTHER SERVICES
Eaton Vance, its affiliates and its predecessor companies have been
managing assets of individuals and institutions since 1924 and of investment
companies since 1931. They maintain a large staff of experienced fixed-income
and equity investment professionals to service the needs of their clients. The
fixed-income division focuses on all kinds of taxable investment-grade and
high-yield securities, tax-exempt investment-grade and high-yield securities,
and U.S. Government securities. The equity division covers stocks ranging from
blue chip to emerging growth companies. Eaton Vance and its affiliates act as
adviser to a family of mutual funds, and individual and various institutional
accounts, including corporations, hospitals, retirement plans, universities,
foundations and trusts.
The Trust will be responsible for all of its costs and expenses not
expressly stated to be payable by Eaton Vance under the Advisory Agreement or
Administration Agreement. Such costs and expenses to be borne by the Trust
include, without limitation: custody and transfer agency fees and expenses,
including those incurred for determining net asset value and keeping accounting
books and records; expenses of pricing and valuation services; the cost of share
certificates; membership dues in investment company organizations; expenses of
acquiring, holding and disposing of securities and other investments; fees and
expenses of registering under the securities laws, stock exchange listing fees
and governmental fees; rating agency fees and preferred share remarketing
expenses; expenses of reports to shareholders, proxy statements and other
expenses of shareholders' meetings; insurance premiums; printing and mailing
expenses; interest, taxes and corporate fees; legal and accounting expenses;
compensation and expenses of Trustees not affiliated with Eaton Vance; expenses
of conducting repurchase offers for the purpose of repurchasing Trust shares;
and investment advisory and administration fees. The Trust will also bear
expenses incurred in connection with any litigation in which the Trust is a
party and any legal obligation to indemnify its officers and Trustees with
respect thereto, to the extent not covered by insurance.
The Advisory Agreement with the Adviser continues in effect to February 28,
2000 and from year to year so long as such continuance is approved at least
annually (i) by the vote of a majority of the noninterested Trustees of the
Trust or of the Adviser cast in person at a meeting specifically called for the
purpose of voting on such approval and (ii) by the Board of Trustees of the
Trust or by vote of a majority of the outstanding interests of the Trust. The
Trust's Administration Agreement continues in effect from year to year so long
as such continuance is approved at least annually by the vote of a majority of
the Trust's Trustees. Each agreement may be terminated at any time without
penalty on sixty (60) days' written notice by the Trustees of the Trust or Eaton
Vance, as applicable, or by vote of the majority of the outstanding shares of
the Trust. Each agreement will terminate automatically in the event of its
assignment. Each agreement provides that, in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of its obligations or duties
to the Trust under such agreements on the part of Eaton Vance, Eaton Vance shall
not be liable to the Trust for any loss incurred, to the extent not covered by
insurance.
BMR and Eaton Vance are business trusts organized under Massachusetts law.
Eaton Vance, Inc. ("EV") serves as trustee of BMR and Eaton Vance. BMR, Eaton
Vance and EV are wholly-owned subsidiaries of Eaton Vance Corporation ("EVC"), a
Maryland corporation and publicly-held holding company. EVC through its
subsidiaries and affiliates engages primarily in investment management,
administration and marketing activities. The Directors of EVC are James B.
Hawkes, Benjamin A. Rowland, Jr., John G.L. Cabot, John M. Nelson, Vincent M.
O'Reilly and Ralph Z. Sorenson. All of the issued and outstanding shares of
Eaton Vance are owned by EVC. All of the issued and outstanding shares of BMR
are owned by Eaton Vance. All shares of the outstanding Voting Common Stock of
EVC are deposited in a Voting Trust, the Voting Trustees of which are Messrs.
Hawkes, Rowland, and Alan R. Dynner, Thomas E. Faust, Jr., Thomas J. Fetter,
Duncan Richardson, William M. Steul and Wharton P. Whitaker. The Voting Trustees
have unrestricted voting rights for the election of Directors of EVC. All of the
outstanding voting trust receipts issued under said Voting Trust are owned by
certain of the officers of BMR and Eaton Vance who are also officers, or
officers and Directors of EVC and EV. As indicated under "Trustees and
Officers", all of the officers of the Trust (as well as Mr. Hawkes who is also a
Trustee) hold positions in the Eaton Vance organization.
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EVC and its affiliates and their officers and employees from time to time
have transactions with various banks, including the custodian of the Trust, IBT.
It is Eaton Vance's opinion that the terms and conditions of such transactions
were not and will not be influenced by existing or potential custodial or other
relationships between the Trust and such banks.
PORTFOLIO TRADING
Decisions concerning the execution of portfolio security transactions,
including the selection of the market and the executing firm, are made by the
Adviser. The Adviser is also responsible for the execution of transactions for
all other accounts managed by it. The Adviser places the portfolio security
transactions of the Trust and of all other accounts managed by it for execution
with many firms. The Adviser uses its best efforts to obtain execution of
portfolio security transactions at prices which are advantageous to the Trust
and at reasonably competitive spreads or (when a disclosed commission is being
charged) at reasonably competitive commission rates. In seeking such execution,
the Adviser will use its best judgment in evaluating the terms of a transaction,
and will give consideration to various relevant factors, including without
limitation the full range and quality of the executing firm's services, the
value of the brokerage and research services provided, the responsiveness of the
firm to the Adviser, the size and type of the transaction, the nature and
character of the market for the security, the confidentiality, speed and
certainty of effective execution required for the transaction, the general
execution and operational capabilities of the executing firm, the reputation,
reliability, experience and financial condition of the firm, the value and
quality of the services rendered by the firm in this and other transactions, and
the reasonableness of the spread or commission, if any. Municipal Obligations,
including state obligations, purchased and sold by the Trust are generally
traded in the over-the-counter market on a net basis (i.e., without commission)
through broker-dealers and banks acting for their own account rather than as
brokers, or otherwise involve transactions directly with the issuer of such
obligations. Such firms attempt to profit from such transactions by buying at
the bid price and selling at the higher asked price of the market for such
obligations, and the difference between the bid and asked price is customarily
referred to as the spread. The Trust may also purchase Municipal Obligations
from underwriters, and dealers in fixed price offerings, the cost of which may
include undisclosed fees and concessions to the underwriters. On occasion it may
be necessary or appropriate to purchase or sell a security through a broker on
an agency basis, in which case the Trust will incur a brokerage commission.
Although spreads or commissions on portfolio security transactions will, in the
judgment of the Adviser, be reasonable in relation to the value of the services
provided, spreads or commissions exceeding those which another firm might charge
may be paid to firms who were selected to execute transactions on behalf of the
Trust and the Adviser's other clients for providing brokerage and research
services to the Adviser.
As authorized in Section 28(e) of the Securities Exchange Act of 1934, a
broker or dealer who executes a portfolio transaction on behalf of the Trust may
receive a commission which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if the
Adviser determines in good faith that such compensation was reasonable in
relation to the value of the brokerage and research services provided. This
determination may be made on the basis of that particular transaction or on the
basis of overall responsibilities which the Adviser and its affiliates have for
accounts over which they exercise investment discretion. In making any such
determination, the Adviser will not attempt to place a specific dollar value on
the brokerage and research services provided or to determine what portion of the
commission should be related to such services. Brokerage and research services
may include advice as to the value of securities, the advisability of investing
in, purchasing, or selling securities, and the availability of securities or
purchasers or sellers of securities; furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts; effecting securities transactions and
performing functions incidental thereto (such as clearance and settlement); and
the "Research Services" referred to in the next paragraph.
It is a common practice of the investment advisory industry and of the
Advisers of investment companies, institutions and other investors to receive
research, analytical, statistical and quotation services, data, information and
other services, products and materials which assist such advisers in the
performance of their investment responsibilities ("Research Services") from
broker-dealer firms which execute portfolio transac-
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tions for the clients of such advisers and from third parties with which such
broker-dealers have arrangements. Consistent with this practice, the Adviser
receives Research Services from many broker-dealer firms with which the Adviser
places the Trust's transactions and from third parties with which these
broker-dealers have arrangements. These Research Services include such matters
as general economic, political, business and market information, industry and
company reviews, evaluations of securities and portfolio strategies and
transactions, proxy voting data and analysis services, technical analysis of
various aspects of the securities market, recommendations as to the purchase and
sale of securities and other portfolio transactions, financial, industry and
trade publications, news and information services, pricing and quotation
equipment and services, and research oriented computer hardware, software, data
bases and services. Any particular Research Service obtained through a
broker-dealer may be used by the Adviser in connection with client accounts
other than those accounts which pay commissions to such broker-dealer. Any such
Research Service may be broadly useful and of value to the Adviser in rendering
investment advisory services to all or a significant portion of its clients, or
may be relevant and useful for the management of only one client's account or of
a few clients' accounts, or may be useful for the management of merely a segment
of certain clients' accounts, regardless of whether any such account or accounts
paid commissions to the broker-dealer through which such Research Service was
obtained. The advisory fee paid by the Trust is not reduced because the Adviser
receives such Research Services. The Adviser evaluates the nature and quality of
the various Research Services obtained through broker-dealer firms and attempts
to allocate sufficient portfolio security transactions to such firms to ensure
the continued receipt of Research Services which the Adviser believes are useful
or of value to it in rendering investment advisory services to its clients.
The Trust and the Adviser may also receive Research Services from
underwriters and dealers in fixed-price offerings, which Research Services are
reviewed and evaluated by the Adviser in connection with its investment
responsibilities. The investment companies sponsored by the Adviser or BMR may
allocate trades in such offerings to acquire information relating to the
performance, fees and expenses of such companies and other mutual funds, which
information is used by the Trustees of such companies to fulfill their
responsibility to oversee the quality of the services provided by various
entities, including the Adviser, to such companies. Such companies may also pay
cash for such information.
Subject to the requirement that the Adviser shall use its best efforts to
seek and execute portfolio security transactions at advantageous prices and at
reasonably competitive spreads or commission rates, the Adviser is authorized to
consider as a factor in the selection of any broker-dealer firm with whom
portfolio orders may be placed the fact that such firm has sold or is selling
shares of the Trust or of other investment companies sponsored by the Adviser.
This policy is not inconsistent with a rule of the National Association of
Securities Dealers, Inc. ("NASD"), which rule provides that no firm which is a
member of the NASD shall favor or disfavor the distribution of shares of any
particular investment company or group of investment companies on the basis of
brokerage commissions received or expected by such firm from any source.
Municipal Obligations considered as investments for the Trust may also be
appropriate for other investment accounts managed by the Adviser or its
affiliates. Whenever decisions are made to buy or sell securities by the Trust
and one or more of such other accounts simultaneously, the Adviser will allocate
the security transactions (including "hot" issues) in a manner which it believes
to be equitable under the circumstances. As a result of such allocations, there
may be instances where the Trust will not participate in a transaction that is
allocated among other accounts. If an aggregated order cannot be filled
completely, allocations will generally be made on a pro rata basis. An order may
not be allocated on a pro rata basis where, for example: (i) consideration is
given to portfolio managers who have been instrumental in developing or
negotiating a particular investment; (ii) consideration is given to an account
with specialized investment policies that coincide with the particulars of a
specific investment; (iii) pro rata allocation would result in odd-lot or de
minimis amounts being allocated to a portfolio or other client; or (iv) where
the Adviser reasonably determines that departure from a pro rata allocation is
advisable. While these aggregation and allocation policies could have a
detrimental effect on the price or amount of the securities available to the
Trust from time to time, it is the opinion of the Trustees of the Trust that the
benefits from the Adviser's organization outweigh any disadvantage that may
arise from exposure to simultaneous transactions.
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TAXES
The Trust has elected to be, and intends to qualify for treatment each
year, as a RIC under the Code. Accordingly, the Trust intends to satisfy certain
requirements relating to sources of its income and diversification of its assets
and to distribute substantially all of its net investment income (including tax-
exempt income) and net capital gains in accordance with the timing requirements
imposed by the Code, so as to maintain its RIC status. By doing so, the Trust
will avoid any federal income tax on any income and gains it distributes to its
shareholders. If the Trust failed to qualify for treatment as a RIC for any
taxable year, it would be taxed on the full amount of its taxable income for
that year without being able to deduct the distributions it makes to its
shareholders and the shareholders would treat all distributions, including those
that otherwise would qualify as "exempt-interest dividends" (described below),
as dividends (that is, ordinary income) to the extent of the Trusts' earnings
and profits.
To avoid incurring a federal excise tax obligation, the Trust must
distribute (or be deemed to have distributed) each calendar year (i) at least
98% of its ordinary income (not including tax-exempt income) for that year, (ii)
at least 98% of its capital gain net income (which is the excess of its realized
capital gains over its realized capital losses), generally computed on the basis
of the one-year period ending on November 30 of that year, after reduction by
any available capital loss carryforwards and (iii) 100% of certain other
amounts. Under current law, provided that the Trust qualifies as a RIC, it
should not be liable for any income, corporate excise or franchise tax in the
Commonwealth of Massachusetts.
The Trust's investment in zero coupon and certain other securities will
cause it to realize income prior to the receipt of cash payments with respect to
these securities. The Trust may be required to liquidate securities that it
might otherwise have continued to hold in order to generate cash to enable it to
distribute that income to its shareholders and thereby remain qualified for
treatment as a RIC and avoid imposition of the excise tax described above.
Investments in lower-rated or unrated securities may present special tax
issues for the Trust to the extent that the issuers of these securities default
on their obligations pertaining thereto. The federal tax law is not entirely
clear regarding the consequences of the Trust's taking certain positions in
connection with ownership of distressed securities. For example, there is
uncertainty regarding: (i) when the Trust may or must cease to accrue interest,
original issue discount or market discount on these securities; (ii) when and to
what extent deductions may be taken for bad debts or worthless securities; (iii)
how payments received on obligations in default should be allocated between
principal and income; and (iv) whether exchanges of debt obligations in a
workout context are taxable.
Distributions by the Trust of net tax-exempt interest income that are
properly designated as "exempt-interest dividends" may be treated by
shareholders as interest excludable from gross income under Section 103(a) of
the Code. For the Trust to be able to pay exempt-interest dividends, the Trust
must, and the Trust intends to, satisfy the requirement that, at the close of
each quarter of its taxable year, at least 50% of the value of its total assets
consists of obligations the interest on which is exempt from federal income tax
under Section 103(a). The portion of exempt-interest dividends attributable to
interest on certain Municipal Obligations is treated as a Preference Item.
Shareholders are required to report tax-exempt-interest dividends on their
federal income tax returns.
The Trust will designate distributions made to holders of Common Shares and
to holders of Preferred Shares, including the APS, in accordance with each
class's proportionate share of each item of Trust income (such as tax-exempt
interest, net capital gains and other taxable income).
A portion of the exempt-interest dividends paid by the Trust will not be
tax-exempt to any shareholder who is a "substantial user" of the facilities
financed by tax-exempt obligations held by the Trust or "related persons" of
such substantial users.
Any recognized gain or other income attributable to market discount on
long-term tax-exempt Municipal Obligations (i.e., obligations with a term of
more than one year) purchased other than, in general, at their original issue,
is taxable as ordinary income. Such an obligation is generally treated as
acquired at a market discount if purchased after its original issue at a price
less than (i) the stated principal amount payable at
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maturity, in the case of an obligation that does not have original issue
discount, or (ii) in the case of an obligation that does have original issue
discount, the sum of the issue price and any original issue discount that
accrued before the obligation was purchased, subject to a de minimis exclusion.
From time to time proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on certain types of Municipal Obligations, and it can be expected that
similar proposals may be introduced in the future. If any such proposals were
enacted, the availability of Municipal Obligations for investment by the Trust
and the value of the securities it held may be affected.
The Trust may realize some capital gains (and/or losses) as a result of
market transactions, including sales of portfolio securities and rights to
when-issued securities and options and futures transactions. The Trust may also
realize taxable income from certain short-term taxable obligations, securities
loans, a portion of discount with respect to certain stripped Municipal
Obligations or their stripped coupons, and certain realized gains or income
attributable to accrued market discount. Any distributions by the Trust of those
capital gains or taxable income would be taxable to its shareholders. However,
it is expected that those amounts, if any, would normally be insubstantial in
relation to the tax-exempt interest earned by the Trust. Certain distributions
declared in October, November or December and paid the following January may be
taxed to shareholders as if received on December 31 of the year in which they
are declared.
The Trust's transactions in options and futures contracts will be subject
to special tax rules that may affect the amount, timing and character of
distributions to its shareholders. For example, certain positions held by the
Trust on the last business day of each taxable year will be "marked to market"
(i.e., treated as if closed out on that day), and any resulting gain or loss (in
addition to gain or loss from actual dispositions of such positions) will
generally be treated as 60% long-term and 40% short-term capital gain or loss.
Certain positions held by the Trust that substantially diminish the Trust's risk
of loss with respect to other positions in its portfolio may constitute
"straddles," which are subject to tax rules that may cause deferral of Trust
losses, adjustments in the holding period of portfolio securities and conversion
of short-term capital losses into long-term capital losses. The Trust may have
to limit its activities in options and futures contracts to enable it to
maintain its RIC status.
On a sale or exchange of APS, the holder will recognize taxable gain or
loss equal to the difference between the holder's adjusted basis for the APS and
the amount realized. Any such gain or loss will be treated as capital gain or
loss if the APS are capital assets in the holder's hands and as long-term
capital gain or loss if the APS are held for more than one year. Any loss
realized on the sale or exchange of APS held by a Shareholder for six months or
less will be disallowed to the extent the shareholder has received exempt-
interest dividends with respect to those APS, and any such loss that exceeds the
disallowed amount will be treated as a long-term capital loss to the extent of
any distribution of net capital gain with respect to those APS. In addition, a
loss realized on a sale of APS will be disallowed to the extent the Shareholder
acquires other APS within the period beginning 30 days before, and ending 30
days after, the sale.
Taxable dividends (including capital gain dividends) payable by the Trust
to individuals and certain other non-corporate shareholders who have not
provided the Trust with their correct taxpayer identification number ("TIN") and
certain certifications required by the Internal Revenue Service ("IRS"), as well
as shareholders with respect to whom the Trust has received certain
notifications from the IRS, are subject to "backup" withholding of federal
income tax at a rate of 31%. An individual's TIN is generally his or her social
security number.
Investments in APS is not appropriate for non-U.S. investors or as a
retirement plan investment.
State and Local Taxes. The exemption of interest income for federal income
tax purposes does not necessarily result in exemption under the income or other
tax laws of any state or local taxing authority. Shareholders of the Trust may
be exempt from state and local taxes on distributions of tax-exempt interest
income derived from obligations of the state and/or municipalities of the state
in which they are resident, but taxable generally on income derived from
obligations of other jurisdictions. The Trust will report annually to
B-14
<PAGE> 78
shareholders the percentages representing the proportionate ratio of its net
tax-exempt income earned in each state.
The foregoing discussion does not address the special tax rules applicable
to certain classes of investors, such as insurance companies and financial
institutions. Shareholders should consult their own tax advisers with respect to
special tax rules that may apply in their particular situations, as well as the
state or local tax consequences of investing in the Trust.
OTHER INFORMATION
The Trust is an organization of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, Shareholders of such a trust may, in
certain circumstances, be held personally liable as partners for the obligations
of the trust. The Declaration of Trust contains an express disclaimer of
Shareholder liability in connection with the Trust property or the acts,
obligations or affairs of the Trust. The Declaration of Trust also provides for
indemnification out of the Trust property of any Shareholder held personally
liable for the claims and liabilities to which a Shareholder may become subject
by reason of being or having been a Shareholder. Thus, the risk of a
Shareholder's incurring financial loss on account of Shareholder liability is
limited to circumstances in which the Trust itself is unable to meet its
obligations. The Trust believes the risk of any holder of APS incurring any
liability for the obligations of the Trust is remote.
The Declaration of Trust provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law; but nothing in the Declaration of
Trust protects a Trustee against any liability to the Trust or its shareholders
to which he would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in the
conduct of his office. Voting rights are not cumulative, which means that the
holders of more than 50% of the shares voting for the election of Trustees can
elect 100% of the Trustees and, in such event, the holders of the remaining less
than 50% of the shares voting on the matter will not be able to elect any
Trustees.
The Declaration of Trust provides that no person shall serve as a Trustee
of the Trust if shareholders holding two-thirds of the outstanding shares have
removed him from that office either by a written declaration filed with the
Trust's custodian or by votes cast at a meeting called for that purpose. The
Declaration of Trust further provides that the Trustees of the Trust shall
promptly call a meeting of the shareholders for the purpose of voting upon a
question of removal of any such Trustee or Trustees when requested in writing so
to do by the record holders of not less than 10% of the outstanding shares.
The Trust's Prospectus and this Statement of Additional Information do not
contain all of the information set forth in the Registration Statement that the
Trust has filed with the SEC. The complete Registration Statement may be
obtained from the SEC upon payment of the fee prescribed by its Rules and
Regulations.
AUDITORS
Deloitte & Touche LLP, Boston, Massachusetts, are the independent
accountants for the Trust, providing audit services, tax return preparation, and
assistance and consultation with respect to the preparation of filings with the
SEC.
B-15
<PAGE> 79
EATON VANCE MUNICIPAL INCOME TRUST
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 21, 1999
<TABLE>
<S> <C>
ASSETS:
Cash................................................... $100,000
Deferred initial offering expenses..................... $100,000
Receivable from Investment Adviser for expenses subject
to expense reimbursement plan......................... $ 24,411
Receivable from Investment Adviser for expenses assumed
by Investment Adviser................................. $ 589
--------
Total assets...................................... $225,000
LIABILITIES:
Initial offering expenses accrued...................... $100,000
Accrued expenses....................................... $ 25,000
--------
Total liabilities................................. $125,000
--------
Net assets applicable to 6,666.67 common shares of
beneficial interest issued and outstanding................ $100,000
--------
NET ASSET VALUE AND OFFERING PRICE PER SHARE................ $ 15.00
========
</TABLE>
NOTE TO FINANCIAL STATEMENT
Eaton Vance Municipal Income Trust was formed under an Agreement and
Declaration of Trust dated December 10, 1998 and has been inactive since that
date except for matters relating to its organization and registration as an
investment company under the Investment Company Act of 1940 and the sale of
6,666.67 shares of its beneficial interest to Eaton Vance Management, the Fund's
administrator. The initial offering expenses, including federal and state
registration and qualification fees, will be deducted from net proceeds, and
will not exceed $0.03 per share, as Eaton Vance Management or an affiliate will
pay any such expenses in excess of $0.03 per share. The initial offering
expenses reflected above assume the initial sale of 3,333,333.33 shares.
B-16
<PAGE> 80
EATON VANCE MUNICIPAL INCOME TRUST
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM THE DATE OF ORGANIZATION
DECEMBER 10, 1998 TO JANUARY 21, 1999
<TABLE>
<S> <C>
INCOME:..................................................... $ 0
--------
EXPENSES:
Organization expenses.................................. $ 25,000
--------
Total Expenses.................................... $ 25,000
--------
Preliminary reduction of expenses reimbursement plan........ $(24,411)
--------
Assumption of expenses by Investment Adviser................ (589)
Net expenses................................................ $ 0
--------
Net investment loss......................................... $ 0
--------
</TABLE>
NOTE OF FINANCIAL STATEMENT
Eaton Vance Management, the Trust's administrator, has agreed to bear all
ordinary and organizational expenses of the Trust that exceed 5% of average
weekly net assets (taking into account the deduction of any preferred shares and
related expenses) for the first fiscal year of operations. In return for this
arrangement, the Trust will reimburse Eaton Vance over the first year of
operations for organizational expenses of the Trust initially borne by the
administrator. In addition, for the period from the date of organization,
December 10, 1998, to January 21, 1999, Eaton Vance has agreed to voluntarily
assume any expenses not covered by the expense reimbursement plan.
B-17
<PAGE> 81
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholder of
Eaton Vance Municipal Income Trust:
We have audited the accompanying statement of assets and liabilities of
Eaton Vance Municipal Income Trust (the "Fund") as of January 21, 1999 and the
related statement of operations for the period from the date of organization,
December 10, 1999 to January 21, 1999. These financial statements are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements referred to above presents
fairly, in all material respects, the financial position of Eaton Vance
Municipal Income Trust as of January 21, 1999, and the results of its operations
for the stated period, in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Boston, Massachusetts
January 22, 1999
B-18
<PAGE> 82
MUNICIPAL INCOME TRUST
UNAUDITED PORTFOLIO OF INVESTMENTS OWNED
(AS OF FEBRUARY 19, 1999)
<TABLE>
<CAPTION>
CUSIP SECURITY TITLE RATE
----- -------------- ----
<S> <C> <C>
EDUCATION
649837M73 N.Y. State Dormitory Auth. -- N.Y. &
Presbyterian Hospital........................... 4.75%
840555CA2 South Texas Higher Education Authority.......... 3.00%
ELECTRIC
011908BE9 Alaska Industrial Development &
Export -- Snettisham............................ 5.38%
720175PT9 Piedmont SC Municipal Power Agency Electric
Revenue......................................... 2.10%
GAS
18681NAA5 Cliff House PA Trust Certificates............... 6.63%
GENERAL OBLIGATIONS
167501XC4 Chicago IL Board of Education................... 0.00%
35571LAB4 Frederick County MD Special Obligation.......... 6.63%
57585KAZ1 MA State Health & Educational Authority......... 7.65%
649668RM4 New York City NY Government Obligation.......... 5.00%
HEALTH
45200L5A0 Illinois Health Authority -- Alexian Brothers
Health System................................... 5.13%
45200L5R3 Illinois Health Authority -- Alexian Brothers
Health System................................... 5.00%
566820HW9 Maricopa County AZ IDA -- Mayo Foundation....... 7.28%
INDUSTRIAL
71781EAX3 Philadelphia PA Transportation Center School Bld
Corp............................................ 5.13%
MISCELLANEOUS
413893AH1 Harris County TX -- Houston Sports Authority.... 5.00%
451913AH0 Illinois Development Finance Authority -- United
Community & Housing.............................
490296GS3 Kent County MI Airport Facility Revenue......... 5.00%
544712MR0 Los Angeles County CA Metropolitan Trans.
Authority....................................... 6.51%
57420RAC6 Maryland State Energy Financing
Administration.................................. 7.40%
60635RXL6 MO Health & Educational Facilities -- BJC Health
System.......................................... 5.00%
659154H35 North East TX Independent School District....... 4.50%
67756AKC5 Ohio State Higher Educational
Commission -- Oberlin College................... 5.00%
87638LAH3 Tarrant County TX Health Facilities............. 10.25%
924160N91 VT Educational & Health Buildings -- Middlebury
College......................................... 5.00%
944314JJ3 Wayne Charter County MI Airport Revenue......... 7.35%
947648CB5 Weber County UT Hospital -- IHC Health
Service......................................... 5.00%
<CAPTION>
% OF
SHARES/ NET
CUSIP SECURITY TITLE MATURITY PRINCIPAL MARKET VALUE ASSETS
----- -------------- -------- --------- ------------ ------
<S> <C> <C> <C> <C>
EDUCATION
649837M73 N.Y. State Dormitory Auth. -- N.Y. &
Presbyterian Hospital........................... 08/01/2027 $ 6,750,000 $ 6,440,985.00 3.06%
840555CA2 South Texas Higher Education Authority.......... 12/01/2003 5,500,000 5,500,000.00 2.62%
--------------- -------
11,940,985.00 5.68%
--------------- -------
ELECTRIC
011908BE9 Alaska Industrial Development &
Export -- Snettisham............................ 01/01/2034 10,000,000 10,095,500.00 4.80%
720175PT9 Piedmont SC Municipal Power Agency Electric
Revenue......................................... 01/01/2022 8,800,000 8,800,000.00 4.19%
--------------- -------
18,895,500.00 8.99%
--------------- -------
GAS
18681NAA5 Cliff House PA Trust Certificates............... 06/01/2027 2,000,000 2,000,000.00 0.96%
--------------- -------
GENERAL OBLIGATIONS
167501XC4 Chicago IL Board of Education................... 12/01/2027 20,000,000 4,418,800.00 2.10%
35571LAB4 Frederick County MD Special Obligation.......... 07/01/2025 2,330,000 2,384,988.00 1.13%
57585KAZ1 MA State Health & Educational Authority......... 10/01/2027 3,000,000 2,999,670.00 1.43%
649668RM4 New York City NY Government Obligation.......... 08/01/2022 10,500,000 10,378,305.00 4.94%
--------------- -------
20,181,763.00 9.60%
--------------- -------
HEALTH
45200L5A0 Illinois Health Authority -- Alexian Brothers
Health System................................... 01/01/2028 4,000,000 3,940,440.00 1.87%
45200L5R3 Illinois Health Authority -- Alexian Brothers
Health System................................... 01/01/2025 6,000,000 5,842,500.00 2.78%
566820HW9 Maricopa County AZ IDA -- Mayo Foundation....... 11/15/2037 3,750,000 3,768,300.00 1.79%
--------------- -------
13,551,240.00 6.44%
--------------- -------
INDUSTRIAL
71781EAX3 Philadelphia PA Transportation Center School Bld
Corp............................................ 07/01/2028 10,000,000 9,879,600.00 4.71%
--------------- -------
MISCELLANEOUS
413893AH1 Harris County TX -- Houston Sports Authority.... 11/15/2028 7,105,000 7,001,622.25 3.33%
451913AH0 Illinois Development Finance Authority -- United
Community & Housing............................. 07/15/2025 35,000,000 8,385,650.00 3.99%
490296GS3 Kent County MI Airport Facility Revenue......... 01/01/2025 8,000,000 7,938,160.00 3.78%
544712MR0 Los Angeles County CA Metropolitan Trans.
Authority....................................... 07/01/2028 5,000,000 4,616,700.00 2.20%
57420RAC6 Maryland State Energy Financing
Administration.................................. 09/01/2019 2,100,000 2,229,297.00 1.06%
60635RXL6 MO Health & Educational Facilities -- BJC Health
System.......................................... 05/15/2038 10,100,000 9,657,014.00 4.59%
659154H35 North East TX Independent School District....... 10/01/2028 10,000,000 9,180,600.00 4.37%
67756AKC5 Ohio State Higher Educational
Commission -- Oberlin College................... 10/01/2029 10,000,000 9,883,500.00 4.70%
87638LAH3 Tarrant County TX Health Facilities............. 09/01/2019 2,000,000 2,089,240.00 0.99%
924160N91 VT Educational & Health Buildings -- Middlebury
College......................................... 11/01/2038 10,000,000 9,705,600.00 4.62%
944314JJ3 Wayne Charter County MI Airport Revenue......... 12/01/2028 5,575,000 5,254,716.25 2.50%
947648CB5 Weber County UT Hospital -- IHC Health
Service......................................... 08/15/2030 10,000,000 9,669,200.00 4.60%
</TABLE>
B-19
<PAGE> 83
<TABLE>
<CAPTION>
CUSIP SECURITY TITLE RATE
----- -------------- ----
<S> <C> <C>
976595CK2 Wisconsin Center District Tax Revenue........... 5.25%
MULTIPLE UTILITIES
10727XCN6 Brentwood CA Infrastructure Financing
Authority....................................... 5.63%
PUBLIC FACILITIES
155048BB6 Central Puget Sound WA Transportation
Authority....................................... 4.75%
167590DN5 Chicago IL O'Hare International
Airport -- United Airlines...................... 5.35%
799049FX4 San Mateo County CA Joint Power Authority....... 7.63%
TRANSPORTATION
011842GM7 Alaska State International Airports Revenues.... 5.00%
6460383C1 NJ State Office of Public Finance............... 4.50%
592596UV0 NY Metropolitan Transportation Authority........ 5.25%
WATER AND SEWER
106213CR0 Brazos River TX -- Texas Utilities Electric
Co.............................................. 5.55%
438701AM6 Honolulu HI City & County Waste Water System.... 5.00%
576049RU6 MA State Water Resource Authority............... 2.15%
Total Investments.......................................
Other Assets, Less Liabilities..........................
Net Assets..............................................
<CAPTION>
% OF
SHARES/ NET
CUSIP SECURITY TITLE MATURITY PRINCIPAL MARKET VALUE ASSETS
----- -------------- -------- --------- ------------ ------
<S> <C> <C> <C> <C>
976595CK2 Wisconsin Center District Tax Revenue........... 12/15/2027 $10,000,000 $ 10,560,500.00 5.02%
--------------- -------
96,171,799.50 45.75%
--------------- -------
MULTIPLE UTILITIES
10727XCN6 Brentwood CA Infrastructure Financing
Authority....................................... 09/02/2029 2,100,000 2,066,820.00 0.99%
--------------- -------
PUBLIC FACILITIES
155048BB6 Central Puget Sound WA Transportation
Authority....................................... 02/01/2028 10,000,000 9,480,400.00 4.51%
167590DN5 Chicago IL O'Hare International
Airport -- United Airlines...................... 09/01/2016 8,800,000 8,814,784.00 4.19%
799049FX4 San Mateo County CA Joint Power Authority....... 07/15/2029 5,000,000 4,953,000.00 2.36%
--------------- -------
23,248,184.00 11.06%
--------------- -------
TRANSPORTATION
011842GM7 Alaska State International Airports Revenues.... 10/01/2024 8,460,000 8,215,675.20 3.91%
6460383C1 NJ State Office of Public Finance............... 02/01/2019 10,250,000, 9,775,527.50 4.65%
592596UV0 NY Metropolitan Transportation Authority........ 07/01/2028 4,455,000 4,498,391.70 2.14%
--------------- -------
22,489,594.40 10.70%
--------------- -------
WATER AND SEWER
106213CR0 Brazos River TX -- Texas Utilities Electric
Co.............................................. 06/01/2030 6,250,000 6,251,625.00 2.97%
438701AM6 Honolulu HI City & County Waste Water System.... 07/01/2023 9,000,000 8,918,100.00 4.24%
576049RU6 MA State Water Resource Authority............... 08/01/2028 10,000,000 10,000,000.00 4.76%
--------------- -------
25,169,725.00 11.97%
--------------- -------
Total Investments............................... 245,595,210.90 116.85%
--------------- -------
Other Assets, Less Liabilities.................. (35,409,163.10) (16.85)%
--------------- -------
Net Assets...................................... 210,186,047.80 100.00%
=============== =======
</TABLE>
B-20
<PAGE> 84
APPENDIX A
RATINGS OF MUNICIPAL BONDS
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.
("MOODY'S") MUNICIPAL BOND RATINGS
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payment and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note -- Those bonds in the Aa, A, Baa, Ba and B categories which Moody's
believes possess the strongest credit attributes within those categories are
designated by the symbols Aa1, A1, Baa1, Ba1 and B1.
Short-term Notes -- The four ratings of Moody's for short-term notes are
MIG 1/VMIG1, MIG 2/ VMIG2, MIG 3/VMIG3 and MIG 4/VMIG4; MIG 1/VMIG1 denotes
"best quality . . . strong protection by established cash flows"; MIG 2/VMIG2
denotes "high quality" with ample margins of protection; MIG 3/ VMIG3 notes are
of "favorable quality . . . but . . . lacking the undeniable strength of the
preceding grades"; MIG 4/VMIG4 notes are of "adequate quality . . . [p]rotection
commonly regarded as required of an investment security is present . . . there
is specific risk."
B-21
<PAGE> 85
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative repayment ability of
rated issuers:
Issuers rated Prime-1 (or related supporting institutions) have a superior
ability for repayment of short-term promissory obligations. Prime-1 repayment
ability will often be evidenced by the following characteristics: leading market
positions in well established industries; high rates of return on Trusts
employed; conservative capitalization structure with moderate reliance on debt
and ample asset protection; broad margins in earning coverage of fixed financial
charges and high internal cash generation; and well established access to a
range of financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
ability for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of short-term promissory obligations. The effect of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
DESCRIPTION OF STANDARD & POOR'S, A DIVISION OF THE MCGRAW-HILL
COMPANIES, INC. ("STANDARD & POOR'S"), MUNICIPAL DEBT RATINGS
A Standard & Poor's issue credit rating is a current opinion of the
creditworthiness of an obligor with respect to a specific financial obligation,
a specific class of financial obligations, or a specific financial program. It
takes into consideration the creditworthiness of guarantors, insurers or other
forms of credit enhancement on the obligation.
The issue credit rating is not a recommendation to purchase, sell or hold a
financial obligation, inasmuch as it does not comment as to market price or
suitability for a particular investor.
The ratings are based on current information furnished by the obligors or
obtained by Standard & Poor's from other sources it considers reliable. Standard
& Poor's does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended or withdrawn as a result of changes in, or unavailability of, such
information, or based on other circumstances.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of payment-capacity and willingness of the obligor to meet
its financial commitment on an obligation in accordance with the terms of
obligation;
II. Nature of and provisions of the obligation; and
III. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA -- Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA -- Debt rated "AA" differs from the highest rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
B-22
<PAGE> 86
A -- Debt rated "A" is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher-rated
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is still strong.
BBB -- Debt rated "BBB" exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment to the
obligation.
BB, B, CCC, CC and C -- Debt rated "BB," "B," "CCC," "CC" and "C" is
regarded as having significant speculative characteristics. "BB" indicates the
least degree of speculation and "C" the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
may be outweighed by large uncertainties or major exposures to adverse
conditions.
D -- Debt rated "D" is in payment default. The "D" rating category is used
when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The "D" rating also will be
used upon the filing of a bankruptcy petition or the taking of a similar action
if payments on an obligation are jeopardized.
Plus (+) or Minus (-)-- The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
DESCRIPTION OF STANDARD & POOR'S SHORT-TERM ISSUE RATINGS
A Standard & Poor's note rating is a current assessment of the likelihood
of timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into several categories, ranging from "A-1" for the
highest-quality obligations to "D" for the lowest. These categories are as
follows:
A-1-- This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2 -- Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3 -- Issues carrying this designation have an adequate capacity for
timely payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B -- Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C -- This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D -- Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period.
A Commercial Paper rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained by Standard & Poor's from other sources it
considers reliable. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information.
DESCRIPTION OF STANDARD & POOR'S SHORT-TERM ISSUE CREDIT RATINGS
A Standard & Poor's note rating reflects the liquidity factors and market
access risks unique to notes. Notes due in three years or less will likely
receive a note rating. Notes maturing beyond three years will most likely
receive a long-term debt rating. The following criteria will be used in making
that assessment.
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<PAGE> 87
-- Amortization schedule (the larger the final maturity relative to other
maturities, the more likely it will be treated as a note).
-- Source of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1 -- Strong capacity to pay principal and interest. An issue determined
to possess a very strong capacity to pay debt service is given a plus "+"
designation.
SP-2 -- Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3 -- Speculative capacity to pay principal and interest.
DESCRIPTION OF FITCH IBCA, INC. ("FITCH") INVESTMENT GRADE BOND RATINGS
Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The rating
represents Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt in a timely manner.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be provided by
insurance policies or financial guarantees unless otherwise indicated.
Bonds carrying the same rating are of similar but not necessarily identical
credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell, or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature or taxability of
payments made in respect of any security.
Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated "F-1+."
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory-credit
quality. The obligor's ability to pay interest and repay principal is considered
to be adequate. Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds, and therefore
impair timely payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher ratings.
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<PAGE> 88
Plus (+) or Minus (-) -- Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the "AAA" category.
NR -- Indicates that Fitch does not rate the specific issue.
Conditional -- A conditional rating is premised on the successful
completion of a project or the occurrence of a specific event.
Suspended -- A rating is suspended when Fitch deems the amount of
information available from the issuer to be inadequate for rating purposes.
Withdrawn -- A rating will be withdrawn when an issue matures or is called
or refinanced and, at Fitch's discretion, when an issuer fails to furnish proper
and timely information.
FitchAlert -- Ratings are placed on FitchAlert to notify investors of an
occurrence that is likely to result in a rating change and the likely direction
of such change. These are designated as "Positive," indicating a potential
upgrade, "Negative," for potential downgrade, or "Evolving," where ratings may
be raised or lowered. FitchAlert is relatively short-term, and should be
resolved within 12 months.
Ratings Outlook: An outlook is used to describe the most likely direction
of any rating change over the intermediate term. It is described as "Positive"
or "Negative." The absence of a designation indicates a stable outlook.
DESCRIPTION OF FITCH'S SPECULATIVE GRADE BOND RATINGS
Fitch speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
("BB" to "C") represent Fitch's assessment of the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating ("DDD" to "D") is an
assessment of the ultimate recovery value through reorganization or liquidation.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength.
Bonds that have the rating are of similar but not necessarily identical
credit quality since rating categories cannot fully reflect the differences in
degrees of credit risk.
BB -- Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements.
B -- Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC -- Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC -- Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C -- Bonds are in imminent default in payment of interest or principal.
DDD and DD -- Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of their
D ultimate recovery value in liquidation or reor-
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<PAGE> 89
ganization of the obligor. "DDD" represents the highest potential for recovery
on these bonds, and "D" represents the lowest potential for recovery.
Plus (+) or Minus (-) -- Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the "DDD," "DD," or "D" categories.
DESCRIPTION OF FITCH'S SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
Fitch short-term ratings are as follows:
F-1+ -- Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely payment.
F-1 -- Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+."
F-2 -- Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the margin of safety is
not as great as for issues assigned "F-1+" and "F-1" ratings.
F-3 -- Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely payment is
adequate; however, near-term adverse changes could cause these securities to be
rated below in investment grade.
F-S -- Weak Credit Quality. Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for timely payment and
are vulnerable to near-term adverse changes in financial and economic
conditions.
D -- Default. Issues assigned this rating are in actual or imminent
payment default.
LOC -- The symbol "LOC" indicates that the rating is based on a letter of
credit issued by a commercial bank.
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APPENDIX B
TAX EQUIVALENT YIELD TABLE
The table below gives the approximate yield a taxable security must earn at
various income brackets to produce after-tax yields equivalent to those of
tax-exempt bonds yielding from 4% to 6% under the regular federal income tax law
and tax rates applicable to individuals for 1999.
<TABLE>
<CAPTION>
A FEDERAL TAX EXEMPT YIELD OF:
(TAXABLE INCOME*) MARGINAL
- ---------------------------------------- INCOME --4%------4.5%------5%------5.5%------6%--
SINGLE RETURN JOINT RETURN TAX BRACKET IS EQUIVALENT TO A FULLY TAXABLE YIELD OF:
------------- ------------ ----------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Up to $25,750 Up to $43,050 15.00% 4.71% 5.29% 5.88% 6.47% 7.06%
$25,751 - $62,450 $43,051 - $104,050 28.00 5.56 6.25 6.94 7.64 8.33
$62,451 - $130,250 $104,051 - $158,550 31.00 5.80 6.52 7.25 7.97 8.70
$130,251 - $283,150 $158,551 - $283,150 36.00 6.25 7.03 7.81 8.59 9.38
Over $283,150 Over $283,150 39.60 6.62 7.45 8.28 9.11 9.93
</TABLE>
- ---------------
* Net amount subject to federal personal income tax after deductions and
exemptions.
The above indicated federal income tax brackets do not take into account
the effect of a reduction in the deductibility of itemized deductions for
individual taxpayers with adjusted gross income in excess of $126,600. The tax
brackets also do not show the effects of phaseout of personal exemptions for
single filers with adjusted gross income in excess of $126,600 and joint filers
with adjusted gross income in excess of $189,950. The effective tax brackets and
equivalent taxable yields of those taxpayers will be higher than those indicated
above.
Yields shown are for illustration purposes only and are not meant to
represent the Trust's actual yield. No assurance can be given that the Trust
will achieve any specific tax-exempt yield. While it is expected that the Trust
will invest principally in obligations the interest from which is exempt from
the regular federal income tax, other income received by the Trust may be
taxable. The table does not take into account state or local taxes, if any,
payable on Trust distributions. It should also be noted that the interest earned
on certain "private activity bonds", while exempt from the regular federal
income tax, is treated as a tax preference item which could subject the
recipient to the AMT. The illustrations assume that the AMT is not applicable
and do not take into account any tax credits that may be available.
The information set forth above is as of the date of this Statement of
Additional Information. Subsequent tax law changes could result in prospective
or retroactive changes in the tax brackets, tax rates, and tax-equivalent yields
set forth above. Investors should consult their tax adviser for additional
information.
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APPENDIX C
SETTLEMENT PROCEDURES
The following summary of Settlement Procedures sets forth the procedures
expected to be followed in connection with the settlement of each Auction and
will be incorporated by reference in the Auction Agent Agreement and each
Broker-Dealer Agreement. Nothing contained in this Appendix B constitutes a
representation by the Trust that in each Auction each party referred to herein
actually will perform the procedures described herein to be performed by such
party. Capitalized terms used herein shall have the respective meanings
specified in the glossary of this Prospectus or Appendix C hereto, as the case
may be.
(a) On each Auction Date, the Auction Agent shall notify by telephone or
through the Auction Agent's Processing System the Broker-Dealers that
participated in the Auction held on such Auction Date and submitted an Order on
behalf of any Beneficial Owner or Potential Beneficial Owner of:
(i) the Applicable Rate fixed for the next succeeding Dividend Period;
(ii) whether Sufficient Clearing Bids existed for the determination of
the Applicable Rate;
(iii) if such Broker-Dealer (a "Seller's Broker-Dealer") submitted a
Bid or a Sell Order on behalf of a Beneficial Owner, the number of shares,
if any, of APS to be sold by such Beneficial Owner;
(iv) if such Broker-Dealer (a "Buyer's Broker-Dealer") submitted a Bid
on behalf of a Potential Beneficial Owner, the number of shares, if any, of
APS to be purchased by such Potential Beneficial Owner;
(v) if the aggregate number of shares of APS to be sold by all
Beneficial Owners on whose behalf such Broker-Dealer submitted a Bid or a
Sell Order exceeds the aggregate number of shares of APS to be purchased by
all Potential Beneficial Owners on whose behalf such Broker-Dealer
submitted a Bid, the name or names of one or more Buyer's Broker-Dealers
(and the name of the Agent Member, if any, of each such Buyer's
Broker-Dealer) acting for one or more purchasers of such excess number of
shares of APS and the number of such shares to be purchased from one or
more Beneficial Owners on whose behalf such Broker-Dealer acted by one or
more Potential Beneficial Owners on whose behalf each of such Buyer's
Broker-Dealers acted;
(vi) if the aggregate number of shares of APS to be purchased by all
Potential Beneficial Owners on whose behalf such Broker-Dealer submitted a
Bid exceeds the aggregate number of shares of APS to be sold by all
Beneficial Owners on whose behalf such Broker-Dealer submitted a Bid or a
Sell Order, the name or names of one or more Seller's Broker-Dealers (and
the name of the Agent Member, if any, of each such Seller's Broker-Dealer)
acting for one or more sellers of such excess number of shares of APS and
the number of such shares to be sold to one or more Potential Beneficial
Owners on whose behalf such Broker-Dealer acted by one or more Beneficial
Owners on whose behalf each of such Seller's Broker-Dealers acted; and
(vii) the Auction Date of the next succeeding Auction with respect to
the APS.
(b) On each Auction Date, each Broker-Dealer that submitted an Order on
behalf of any Beneficial Owner or Potential Beneficial Owner shall:
(i) in the case of a Broker-Dealer that is a Buyer's Broker-Dealer,
instruct each Potential Beneficial Owner on whose behalf such Broker-Dealer
submitted a Bid that was accepted, in whole or in part, to instruct such
Potential Beneficial Owner's Agent Member to pay to such Broker-Dealer (or
its Agent Member) through the Securities Depository the amount necessary to
purchase the number of shares of APS to be purchased pursuant to such Bid
against receipt of such shares and advise such Potential Beneficial Owner
of the Applicable Rate for the next succeeding Dividend Period;
(ii) in the case of a Broker-Dealer that is a Seller's Broker-Dealer,
instruct each Beneficial Owner on whose behalf such Broker-Dealer submitted
a Sell Order that was accepted, in whole or in part, or a Bid that was
accepted, in whole or in part, to instruct such Beneficial Owner's Agent
Member to deliver
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<PAGE> 92
to such Broker-Dealer (or its Agent Member) through the Securities
Depository the number of shares of APS to be sold pursuant to such Order
against payment therefor and advise any such Beneficial Owner that will
continue to hold shares of APS of the Applicable Rate for the next
succeeding Dividend Period;
(iii) advise each Beneficial Owner on whose behalf such Broker-Dealer
submitted a Hold Order of the Applicable Rate for the next succeeding
Dividend Period;
(iv) advise each Beneficial Owner on whose behalf such Broker-Dealer
submitted an Order of the Auction Date for the next succeeding Auction; and
(v) advise each Potential Beneficial Owner on whose behalf such
Broker-Dealer submitted a Bid that was accepted, in whole or in part, of
the Auction Date for the next succeeding Auction.
(c) On the basis of the information provided to it pursuant to (a) above,
each Broker-Dealer that submitted a Bid or a Sell Order on behalf of a Potential
Beneficial Owner or a Beneficial Owner shall, in such manner and at such time or
times as in its sole discretion it may determine, allocate any Trusts received
by it pursuant to (b)(i) above and any shares of APS received by it pursuant to
(b)(ii) above among the Potential Beneficial Owners, if any, on whose behalf
such Broker-Dealer submitted Bids, the Beneficial Owners, if any, on whose
behalf such Broker-Dealer submitted Bids that were accepted or Sell Orders, and
any Broker-Dealer or Broker-Dealers identified to it by the Auction Agent
pursuant to (a)(v) or (a)(vi) above.
(d) On each Auction Date:
(i) each Potential Beneficial Owner and Beneficial Owner shall
instruct its Agent Member as provided in (b)(i) or (ii) above, as the case
may be;
(ii) each Seller's Broker-Dealer which is not an Agent Member of the
Securities Depository shall instruct its Agent Member to (A) pay through
the Securities Depository to the Agent Member of the Beneficial Owner
delivering shares to such Broker-Dealer pursuant to (b)(ii) above the
amount necessary to purchase such shares against receipt of such shares,
and (B) deliver such shares through the Securities Depository to a Buyer's
Broker-Dealer (or its Agent Member) identified to such Seller's
Broker-Dealer pursuant to (a)(v) above against payment therefor; and
(iii) each Buyer's Broker-Dealer which is not an Agent Member of the
Securities Depository shall instruct its Agent Member to (A) pay through
the Securities Depository to a Seller's Broker-Dealer (or its Agent Member)
identified pursuant to (a)(vi) above the amount necessary to purchase the
shares to be purchased pursuant to (b)(i) above against receipt of such
shares, and (B) deliver such shares through the Securities Depository to
the Agent Member of the purchaser thereof against payment therefor.
(e) On the day after the Auction Date:
(i) each Bidder's Agent Member referred to in (d)(i) above shall
instruct the Securities Depository to execute the transactions described in
(b)(i) or (ii) above, and the Securities Depository shall execute such
transactions;
(ii) each Seller's Broker-Dealer or its Agent Member shall instruct
the Securities Depository to execute the transactions described in (d)(ii)
above, and the Securities Depository shall execute such transactions; and
(iii) each Buyer's Broker-Dealer or its Agent Member shall instruct
the Securities Depository to execute the transactions described in (d)(iii)
above, and the Securities Depository shall execute such transactions.
(f) If a Beneficial Owner selling shares of APS in an Auction fails to
deliver such shares (by authorized book-entry), a Broker-Dealer may deliver to
the Potential Beneficial Owner on behalf of which it submitted a Bid that was
accepted a number of whole shares of APS that is less than the number of shares
that otherwise was to be purchased by such Potential Beneficial Owner. In such
event, the number of shares of APS to be so delivered shall be determined solely
by such Broker-Dealer. Delivery of such lesser number of shares shall
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<PAGE> 93
constitute good delivery. Notwithstanding the foregoing terms of this paragraph
(f), any delivery or non-delivery of shares which shall represent any departure
from the results of an Auction, as determined by the Auction Agent, shall be of
no effect unless and until the Auction Agent shall have been notified of such
delivery or non-delivery in accordance with the provisions of the Auction Agent
Agreement and the Broker-Dealer Agreements.
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<PAGE> 94
APPENDIX D
AUCTION PROCEDURES
The following procedures will be set forth in provisions of the Amended
By-Laws relating to the APS, and will be incorporated by reference in the
Auction Agent Agreement and each Broker-Dealer Agreement. The terms not defined
below are defined in the forepart of this Prospectus. Nothing contained in this
Appendix C constitutes a representation by the Trust that in each Auction each
party referred to herein actually will perform the procedures described herein
to be performed by such party.
PARAGRAPH 10(a) CERTAIN DEFINITIONS.
As used in this Paragraph 10, the following terms shall have the following
meanings, unless the context otherwise requires:
(i) "APS" shall mean the shares of APS being auctioned pursuant to
this Paragraph 10.
(ii) "Auction Date" shall mean the first Business Day preceding the
first day of a Dividend Period.
(iii) "Available APS" shall have the meaning specified in Paragraph
10(d)(i) below.
(iv) "Bid" shall have the meaning specified in Paragraph 10(b)(i)
below.
(v) "Bidder" shall have the meaning specified in Paragraph 10(b)(i)
below.
(vi) "Hold Order" shall have the meaning specified in Paragraph
10(b)(i) below.
(vii) "Maximum Applicable Rate" for any Dividend Period will be the
Applicable Percentage of the Reference Rate. The Applicable Percentage will
be determined based on (i) the credit rating assigned on such date to such
shares by S&P (or if S&P shall not make such rating available, the
equivalent of such rating by a Substitute Rating Agency), and (ii) whether
the Trust has provided modification to the Auction Agent prior to the
Auction establishing the Applicable Rate for any dividend that net capital
gains or other taxable income will be included in such dividend on APS as
follows:
<TABLE>
<CAPTION>
APPLICABLE APPLICABLE
PERCENTAGE OF PERCENTAGE OF
CREDIT RATINGS REFERENCE RATE -- REFERENCE RATE --
- -------------- NO NOTIFICATION NOTIFICATION
S&P ----------------- -----------------
<S> <C> <C>
AA- or Higher 110% 150%
A- to A+ 125% 160%
BBB- to BBB+ 150% 250%
Below BBB- 200% 275%
</TABLE>
The Trust shall take all reasonable action necessary to enable S&P to
provide a rating for the APS. If S&P shall not make such a rating
available, Painewebber Incorporated or its affiliates and successors, after
consultation with the Trust, shall select a nationally recognized
statistical rating organization to act as a Substitute Rating Agency.
(viii) "Order" shall have the meaning specified in Paragraph 10(b)(i)
below.
(ix) "Sell Order" shall have the meaning specified in Paragraph
10(b)(i) below.
(x) "Submission Deadline" shall mean 1:00 p.m., New York City time, on
any Auction Date or such other time on any Auction Date as may be specified
by the Auction Agent from time to time as the time by which each
Broker-Dealer must submit to the Auction Agent in writing all Orders
obtained by it for the Auction to be conducted on such Auction Date.
(xi) "Submitted Bid" shall have the meaning specified in Paragraph
10(d)(i) below.
(xii) "Submitted Hold Order" shall have the meaning specified in
Paragraph 10(d)(i) below.
(xiii) "Submitted Order" shall have the meaning specified in Paragraph
10(d)(i) below.
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<PAGE> 95
(xiv) "Submitted Sell Order" shall have the meaning specified in
Paragraph 10(d)(i) below.
(xv) "Sufficient Clearing Bids" shall have the meaning specified in
Paragraph 10(d)(i) below.
(xvi) "Winning Bid Rate" shall have the meaning specified in Paragraph
10(d)(i) below.
PARAGRAPH 10(b) ORDERS BY BENEFICIAL OWNERS, POTENTIAL BENEFICIAL OWNERS,
EXISTING HOLDERS AND POTENTIAL HOLDERS.
(i) Unless otherwise permitted by the Trust, Beneficial Owners and
Potential Beneficial Owners may only participate in Auctions through their
Broker-Dealers. Broker-Dealers will submit the Orders of their respective
customers who are Beneficial Owners and Potential Beneficial Owners to the
Auction Agent, designating themselves as Existing Holders in respect of shares
subject to Orders submitted or deemed submitted to them by Beneficial Owners and
as Potential Holders in respect of shares subject to Orders submitted to them by
Potential Beneficial Owners. A Broker-Dealer may also hold APS in its own
account as a Beneficial Owner. A Broker-Dealer may thus submit Orders to the
Auction Agent as a Beneficial Owner or a Potential Beneficial Owner and
therefore participate in an Auction as an Existing Holder or Potential Holder on
behalf of both itself and its customers. On or prior to the Submission Deadline
on each Auction Date:
(A) each Beneficial Owner may submit to its Broker-Dealer information
as to:
(1) the number of outstanding APS, if any, held by such Beneficial
Owner which such Beneficial Owner desires to continue to hold without
regard to the Applicable Rate for the next succeeding Dividend Period;
(2) the number of outstanding APS, if any, held by such Beneficial
Owner which such Beneficial Owner desires to continue to hold, provided
that the Applicable Rate for the next succeeding Dividend Period shall
not be less than the rate per annum specified by such Beneficial Owner,
and/or
(3) the number of outstanding APS, if any, held by such Beneficial
Owner which such Beneficial Owner offers to sell without regard to the
Applicable Rate for the next succeeding Dividend Period; and
(B) each Broker-Dealer, using a list of Potential Beneficial Owners
that shall be maintained in good faith for the purpose of conducting a
competitive Auction, shall contact Potential Beneficial Owners, including
Persons that are not Beneficial Owners, on such list to determine the
number of outstanding APS, if any, which each such Potential Beneficial
Owner offers to purchase, provided that the Applicable Rate for the next
succeeding Dividend Period shall not be less than the rate per annum
specified by such Potential Beneficial Owner.
For the purposes hereof, the communication by a Beneficial Owner or
Potential Beneficial Owner to a Broker-Dealer, or the communication by a
Broker-Dealer acting for its own account to the Auction Agent, of information
referred to in clause (A) or (B) of this Paragraph 10(b)(i) is hereinafter
referred to as an "Order" and each Beneficial Owner and each Potential
Beneficial Owner placing an Order, including a Broker-Dealer acting in such
capacity for its own account, is hereinafter referred to as a "Bidder"; an Order
containing the information referred to in clause (A)(1) of this Paragraph
10(b)(i) is hereinafter referred to as a "Hold Order"; an Order containing the
information referred to in clause (A)(2) or (B) of this Paragraph 10(b)(i) is
hereinafter referred to as a "Bid"; and an Order containing the information
referred to in clause (A)(3) of this Paragraph 10(b)(i) is hereinafter referred
to as a "Sell Order." Inasmuch as a Broker-Dealer participates in an Auction as
an Existing Holder or a Potential Holder only to represent the interests of a
Beneficial Owner or Potential Beneficial Owner, whether it be its customers or
itself, all discussion herein relating to the consequences of an Auction for
Existing Holders and Potential Holders also applies to the underlying beneficial
ownership interests represented.
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<PAGE> 96
(ii)(A) A Bid by an Existing Holder shall constitute an irrevocable offer
to sell:
(1) the number of outstanding APS specified in such Bid if the
Applicable Rate determined on such Auction Date shall be less than the rate
per annum specified in such Bid; or
(2) such number or a lesser number of outstanding APS to be determined
as set forth in Paragraph 10(e)(i)(D) if the Applicable Rate determined on
such Auction Date shall be equal to the rate per annum specified therein;
or
(3) a lesser number of outstanding APS to be determined as set forth
in Paragraph 10(e)(ii)(C) if such specified rate per annum shall be higher
than the Maximum Applicable Rate and Sufficient Clearing Bids do not exist.
(B) A Sell Order by an Existing Holder shall constitute an irrevocable
offer to sell:
(1) the number of outstanding APS specified in such Sell Order, or
(2) such number or a lesser number of outstanding APS to be determined
as set forth in Paragraph 10(e)(ii)(C) if Sufficient Clearing Bids do not
exist.
(C) A Bid by a Potential Holder shall constitute an irrevocable offer to
purchase:
(1) the number of outstanding APS specified in such Bid if the
Applicable Rate determined on such Auction Date shall be higher than the
rate per annum specified in such Bid; or
(2) such number or a lesser number of outstanding APS to be determined
as set forth in Paragraph 10(e)(i)(E) if the Applicable Rate determined on
such Auction Date shall be equal to the rate per annum specified therein.
PARAGRAPH 10(c) SUBMISSION OF ORDERS BY BROKER-DEALERS TO AUCTION AGENT.
(i) Each Broker-Dealer shall submit in writing or through the Auction
Agent's Auction Processing System to the Auction Agent prior to the Submission
Deadline on each Auction Date all Orders obtained by such Broker-Dealer,
designating itself (unless otherwise permitted by the Trust) as an Existing
Holder in respect of shares subject to Orders submitted or deemed submitted to
it by Beneficial Owners and as a Potential Holder in respect of shares subject
to Orders submitted to it by Potential Beneficial Owners, and specifying with
respect to each Order:
(A) the name of the Bidder placing such Order (which shall be the
Broker-Dealer unless otherwise permitted by the Trust);
(B) the aggregate number of outstanding APS that are the subject of
such Order;
(C) to the extent that such Bidder is an Existing Holder
(1) the number of outstanding APS, if any, subject to any Hold
Order placed by such Existing Holder;
(2) the number of outstanding APS, if any, subject to any Bid
placed by such Existing Holder and the rate per annum specified in such
Bid; and
(3) the number of outstanding APS, if any, subject to any Sell
Order placed by such Existing Holder; and
(D) to the extent such Bidder is a Potential Holder, the rate per
annum specified in such Potential Holder's Bid.
(ii) If any rate per annum specified in any Bid contains more than three
figures to the right of the decimal point, the Auction Agent shall round such
rate up to the next highest one-thousandth (.001) of 1%.
(iii) If an Order or Orders covering all of the outstanding APS held by an
Existing Holder are not submitted to the Auction Agent prior to the Submission
Deadline, the Auction Agent shall deem a Hold
B-33
<PAGE> 97
Order (in the case of an Auction relating to a Dividend Period which is not a
Special Dividend Period) and a Sell Order (in the case of an Auction relating to
a Special Dividend Period) to have been submitted on behalf of such Existing
Holder covering the number of outstanding APS held by such Existing Holder and
not subject to Orders submitted to the Auction Agent.
(iv) If one or more Orders on behalf of an Existing Holder covering in the
aggregate more than the number of outstanding APS held by such Existing Holder
are submitted to the Auction Agent, such Orders shall be considered valid as
follows and in the following order of priority:
(A) any Hold Order submitted on behalf of such Existing Holder shall
be considered valid up to and including the number of outstanding APS held
by such Existing Holder; provided that if more than one Hold Order is
submitted on behalf of such Existing Holder and the number of APS subject
to such Hold Orders exceeds the number of outstanding APS held by such
Existing Holder, the number of APS subject to each of such Hold Orders
shall be reduced pro rata so that such Hold Orders, in the aggregate, cover
exactly the number of outstanding APS held by such Existing Holder;
(B) any Bids submitted on behalf of such Existing Holder shall be
considered valid, in the ascending order of their respective rates per
annum if more than one Bid is submitted on behalf of such Existing Holder,
up to and including the excess of the number of outstanding APS held by
such Existing Holder over the number of shares of APS subject to any Hold
Order referred to in Paragraph 10(c)(iv)(A) above (and if more than one Bid
submitted on behalf of such Existing Holder specifies the same rate per
annum and together they cover more than the remaining number of shares that
can be the subject of valid Bids after application of Paragraph
10(c)(iv)(A) above and of the foregoing portion of this Paragraph
10(c)(iv)(B) to any Bid or Bids specifying a lower rate or rates per annum,
the number of shares subject to each of such Bids shall be reduced pro rata
so that such Bids, in the aggregate, cover exactly such remaining number of
shares); and the number of shares, if any, subject to Bids not valid under
this Paragraph 10(c)(iv)(B) shall be treated as the subject of a Bid by a
Potential Holder; and
(C) any Sell Order shall be considered valid up to and including the
excess of the number of outstanding APS held by such Existing Holder over
the number of APS subject to Hold Orders referred to in Paragraph
10(c)(iv)(A) and Bids referred to in Paragraph 10(c)(iv)(B); provided that
if more than one Sell Order is submitted on behalf of any Existing Holder
and the number of APS subject to such Sell Orders is greater than such
excess, the number of APS subject to each of such Sell Orders shall be
reduced pro rata so that such Sell Orders, in the aggregate, cover exactly
the number of APS equal to such excess.
(v) If more than one Bid is submitted on behalf of any Potential Holder,
each Bid submitted shall be a separate Bid with the rate per annum and number of
APS therein specified.
(vi) Any Order submitted by a Beneficial Owner or a Potential Beneficial
Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior to
the Submission Deadline on any Auction Date shall be irrevocable.
PARAGRAPH 10(d) DETERMINATION OF SUFFICIENT CLEARING BIDS, WINNING BID RATE AND
APPLICABLE RATE.
(i) Not earlier than the Submission Deadline on each Auction Date, the
Auction Agent shall assemble all Orders submitted or deemed submitted to it by
the Broker-Dealers (each such Order as submitted or deemed submitted by a
Broker-Dealer being hereinafter referred to individually as a "Submitted Hold
Order," a "Submitted Bid" or a "Submitted Sell Order," as the case may be, or as
a "Submitted Order") and shall determine:
(A) the excess of the total number of outstanding APS over the number
of outstanding APS that are the subject of Submitted Hold Orders (such
excess being hereinafter referred to as the "Available APS");
B-34
<PAGE> 98
(B) from the Submitted Orders whether the number of outstanding APS
that are the subject of Submitted Bids by Potential Holders specifying one
or more rates per annum equal to or lower than the Maximum Applicable Rate
exceeds or is equal to the sum of:
(1) the number of outstanding APS that are the subject of Submitted
Bids by Existing Holders specifying one or more rates per annum higher
than the Maximum Applicable Rate, and
(2) the number of outstanding APS that are subject to Submitted
Sell Orders (if such excess or such equality exists (other than because
the number of outstanding APS in clauses (1) and (2) above are each zero
because all of the outstanding APS are the subject of Submitted Hold
Orders), such Submitted Bids by Potential Holders hereinafter being
referred to collectively as "Sufficient Clearing Bids"); and
(C) if Sufficient Clearing Bids exist, the lowest rate per annum
specified in the Submitted Bids (the "Winning Bid Rate") that if:
(1) each Submitted Bid from Existing Holders specifying the Winning
Bid Rate and all other submitted Bids from Existing Holders specifying
lower rates per annum were rejected, thus entitling such Existing
Holders to continue to hold the shares of APS that are the subject of
such Submitted Bids, and
(2) each Submitted Bid from Potential Holders specifying the
Winning Bid Rate and all other Submitted Bids from Potential Holders
specifying lower rates per annum were accepted, thus entitling the
Potential Holders to purchase the APS that are the subject of such
Submitted Bids, would result in the number of shares subject to all
Submitted Bids specifying the Winning Bid Rate or a lower rate per annum
being at least equal to the Available APS.
(ii) Promptly after the Auction Agent has made the determinations pursuant
to Paragraph 10(d)(i), the Auction Agent shall advise the Trust of the Maximum
Applicable Rate and, based on such determinations, the Applicable Rate for the
next succeeding Dividend Period as follows:
(A) if Sufficient Clearing Bids exist, that the Applicable Rate for
the next succeeding Dividend Period shall be equal to the Winning Bid Rate;
(B) if Sufficient Clearing Bids do not exist (other than because all
of the outstanding APS are the subject of Submitted Hold Orders), that the
Applicable Rate for the next succeeding Dividend Period shall be equal to
the Maximum Applicable Rate; or
(C) if all of the outstanding APS are the subject of Submitted Hold
Orders, that the Dividend Period next succeeding the Auction automatically
shall be the same length as the immediately preceding Dividend Period and
the Applicable Rate for the next succeeding Dividend Period shall be equal
to 59% of the Reference Rate (or 90% of such rate if the Trust has provided
notification to the Auction Agent prior to the Auction establishing the
Applicable Rate for any dividend that net capital gains or other taxable
income will be included in such dividend on APS) on the date of the
Auction.
PARAGRAPH 10(e) ACCEPTANCE AND REJECTION OF SUBMITTED BIDS AND SUBMITTED SELL
ORDERS AND ALLOCATION OF SHARES.
Based on the determinations made pursuant to Paragraph 10(d)(i), the
Submitted Bids and Submitted Sell Orders shall be accepted or rejected and the
Auction Agent shall take such other action as set forth below:
(i) If Sufficient Clearing Bids have been made, subject to the
provisions of Paragraph 10(e)(iii) and Paragraph 10(e)(iv), Submitted Bids
and Submitted Sell Orders shall be accepted or rejected in the following
order of priority and all other Submitted Bids shall be rejected:
(A) the Submitted Sell Orders of Existing Holders shall be accepted
and the Submitted Bid of each of the Existing Holders specifying any
rate per annum that is higher than the Winning Bid Rate
B-35
<PAGE> 99
shall be accepted, thus requiring each such Existing Holder to sell the
outstanding shares of APS that are the subject of such Submitted Sell
Order or Submitted Bid;
(B) the Submitted Bid of each of the Existing Holder specifying any
rate per annum that is lower than the Winning Bid Rate shall be
rejected, thus entitling each such Existing Holder to continue to hold
the outstanding APS that are the subject of such Submitted Bid;
(C) the Submitted Bid of each of the Potential Holders specifying
any rate per annum that is lower than the Winning Bid Rate shall be
accepted;
(D) the Submitted Bid of each of the Existing Holders specifying a
rate per annum that is equal to the Winning Bid Rate shall be rejected,
thus entitling each such Existing Holder to continue to hold the
outstanding APS that are the subject of such Submitted Bid, unless the
number of outstanding shares of APS subject to all such Submitted Bids
shall be greater than the number of outstanding APS ("Remaining Shares")
equal to the excess of the Available APS over the number of outstanding
APS subject to Submitted Bids described in Paragraph 10(e)(i)(B) and
Paragraph 10(e)(i)(C), in which event the Submitted Bids of each such
Existing Holder shall be accepted, and each such Existing Holder shall
be required to sell outstanding shares of APS, but only in an amount
equal to the difference between (1) the number of outstanding APS then
held by such Existing Holder subject to such Submitted Bid and (2) the
number of APS obtained by multiplying (x) the number of Remaining Shares
by (y) a fraction the numerator of which shall be the number of
outstanding APS held by such Existing Holder subject to such Submitted
Bid and the denominator of which shall be the sum of the numbers of
outstanding APS subject to such Submitted Bids made by all such Existing
Holders that specified a rate per annum equal to the Winning Bid Rate;
and
(E) the Submitted Bid of each of the Potential Holders specifying a
rate per annum that is equal to the Winning Bid Rate shall be accepted
but only in an amount equal to the number of outstanding APS obtained by
multiplying (x) the difference between the Available APS and the number
of outstanding APS subject to Submitted Bids described in Paragraph
10(e)(i)(B), Paragraph 10(e)(i)(C) and Paragraph 10(e)(i)(D) by (y) a
fraction the numerator of which shall be the number of outstanding APS
subject to such Submitted Bid and the denominator of which shall be the
sum of the number of outstanding APS subject to such Submitted Bids made
by all such Potential Holders that specified rates per annum equal to
the Winning Bid Rate.
(ii) If Sufficient Clearing Bids have not been made (other than
because all of the outstanding APS are subject to Submitted Hold Orders),
subject to the provisions of Paragraph 10(e)(iii), Submitted Orders shall
be accepted or rejected as follows in the following order of priority and
all other Submitted Bids shall be rejected:
(A) the Submitted Bid of each Existing Holder specifying any rate
per annum that is equal to or lower than the Maximum Applicable Rate
shall be rejected, thus entitling such Existing Holder to continue to
hold the outstanding APS that are the subject of such Submitted Bid;
(B) the Submitted Bid of each Potential Holder specifying any rate
per annum that is equal to or lower than the Maximum Applicable Rate
shall be accepted, thus requiring such Potential Holder to purchase the
outstanding APS that are the subject of such Submitted Bid; and
(C) the Submitted Bids of each Existing Holder specifying any rate
per annum that is higher than the Maximum Applicable Rate shall be
accepted and the Submitted Sell Orders of each Existing Holder shall be
accepted, in both cases only in an amount equal to the difference
between (1) the number of outstanding APS then held by such Existing
Holder subject to such Submitted Bid or Submitted Sell Order and (2) the
number of APS obtained by multiplying (x) the difference between the
Available APS and the aggregate number of outstanding APS subject to
Submitted Bids described in Paragraph 10(e)(ii)(A) and Paragraph
10(e)(ii)(B) by (y) a fraction the numerator of which shall be the
number of outstanding APS held by such Existing Holder subject to
B-36
<PAGE> 100
such Submitted Bid or Submitted Sell Order and the denominator of which
shall be the number of outstanding APS subject to all such Submitted
Bids and Submitted Sell Orders.
(iii) If, as a result of the procedures described in Paragraph
10(e)(i) or Paragraph 10(e)(ii), any Existing Holder would be entitled or
required to sell, or any Potential Holder would be entitled or required to
purchase, a fraction of a APS on any Auction Date, the Auction Agent shall,
in such manner as in its sole discretion it shall determine, round up or
down the number of APS to be purchased or sold by any Existing Holder or
Potential Holder on such Auction Date so that each outstanding APS
purchased or sold by each Existing Holder or Potential Holder on such
Auction Date shall be a whole APS.
(iv) If, as a result of the procedures described in Paragraph
10(e)(i), any Potential Holder would be entitled or required to purchase
less than a whole share of APS on any Auction Date, the Auction Agent, in
such manner as in its sole discretion it shall determine, shall allocate
APS for purchase among Potential Holders so that only whole shares of APS
are purchased on such Auction Date by any Potential Holder, even if such
allocation results in one or more of such Potential Holders not purchasing
any APS on such Auction Date.
(v) Based on the results of each Auction, the Auction Agent shall
determine, with respect to each Broker-Dealer that submitted Bids or Sell
Orders on behalf of Existing Holders or Potential Holders, the aggregate
number of the outstanding APS to be purchased and the aggregate number of
outstanding APS to be sold by such Potential Holders and Existing Holders
and, to the extent that such aggregate number of outstanding shares to be
purchased and such aggregate number of outstanding shares to be sold
differ, the Auction Agent shall determine to which other Broker-Dealer or
Broker-Dealers acting for one or more purchasers such Broker-Dealer shall
deliver, or from which other Broker-Dealer or Broker-Dealers acting for one
or more sellers such Broker-Dealer shall receive, as the case may be,
outstanding APS.
PARAGRAPH 10(f) MISCELLANEOUS.
The Trust may interpret the provisions of this Paragraph 10 to resolve any
inconsistency or ambiguity, remedy any formal defect or make any other change or
modification that does not substantially adversely affect the rights of
Beneficial Owners of APS. A Beneficial Owner or an Existing Holder (A) may sell,
transfer or otherwise dispose of APS only pursuant to a Bid or Sell Order in
accordance with the procedures described in this Paragraph 10 or to or through a
Broker-Dealer, provided that in the case of all transfers other than pursuant to
Auctions such Beneficial Owner or Existing Holder, its Broker-Dealer, if
applicable, or its Agent Member advises the Auction Agent of such transfer and
(B) except as otherwise required by law, shall have the ownership of the APS
held by it maintained in book entry form by the Securities Depository in the
account of its Agent Member, which in turn will maintain records of such
Beneficial Owner's beneficial ownership. Neither the Trust nor any Affiliate
shall submit an Order in any Auction. Any Beneficial Owner that is an Affiliate
shall not sell, transfer or otherwise dispose of APS to any Person other than
the Trust. All of the outstanding APS of a Series shall be represented by a
single certificate registered in the name of the nominee of the Securities
Depository unless otherwise required by law or unless there is no Securities
Depository. If there is no Securities Depository, at the Trust's option and upon
its receipt of such documents as it deems appropriate, any APS may be registered
in the Stock Register in the name of the Beneficial Owner thereof and such
Beneficial Owner thereupon will be entitled to receive certificates therefor and
required to deliver certificates thereof or upon transfer or exchange thereof.
B-37
<PAGE> 101
EATON VANCE MUNICIPAL INCOME TRUST
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1998
- --------------------------------------------------------------------------------
INVESTMENT ADVISER AND ADMINISTRATOR
Eaton Vance Management
24 Federal Street
Boston, MA 02110
CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, MA 02116
INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP
125 Summer Street
Boston, MA 02110
<PAGE> 102
EATON VANCE MUNICIPAL INCOME TRUST
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) FINANCIAL STATEMENTS:
INCLUDED IN PART A: Not Applicable
INCLUDED IN PART B:
Statement of Assets and Liabilities as of January 21, 1999
Statement of Operations for the period from the date of
organization,
December 10, 1998, to January 21, 1999
Independent Auditors' Report
(2) EXHIBITS:
(a) Agreement and Declaration of Trust dated December 10, 1998 is
incorporated herein by reference to the Registrant's Initial
Registration Statement on Form N-2 (File No. 811-09141) as to the
Registrant's common shares of beneficial interest ("Common
Shares") filed with the Securities and Exchange Commission (the
"Commission") on December 11, 1998 (the "Initial Common Shares
Registration Statement").
(b) (1) By-Laws are incorporated herein by reference to the
Registrant's Initial Common Shares Registration Statement.
(2) Amendment No. 1 to the By-Laws filed herewith.
(c) Not applicable.
(d) (1) Specimen Certificate representing the Registrant's Common
Shares is incorporated herein by reference to Pre-effective
Amendment No. 1 to the Registrant's Common Shares Registration
Statement filed with the Commission on January 26, 1999
("Pre-Effective Amendment No. 1 to the Common Shares Registration
Statement").
(2) Specimen Certificate representing the Registrant's Auction
Preferred Shares of beneficial interest ("Auction Preferred
Shares") filed herewith.
(e) Dividend Reinvestment Plan with respect to Common Shares is
incorporated herein by reference to Pre-Effective Amendment No. 1
to the Common Shares Registration Statement.
(f) Not applicable.
(g) Investment Advisory Agreement dated December 21, 1998 is
incorporated by reference to Pre-Effective Amendment No. 1 to the
Common Shares Registration Statement.
(h) (1) Purchase Agreement as to the Registrant's Auction Preferred
Shares filed herewith.
<PAGE> 103
(2) Master Agreement Among Underwriters as to the Registrant's
Common Shares is incorporated by reference to Pre-Effective
Amendment No. 1 to the Common Shares Registration Statement.
(3) Master Selected Dealers as to the Registrant's Common Shares
is incorporated by reference to Pre-Effective Amendment No. 1 to
the Common Shares Registration Statement.
(4) Underwriting Agreement dated January 26, 1999 as to the
Registrant's Common Shares is incorporated by reference to
Pre-Effective Amendment No. 1 to the Common Shares Registration
Statement.
(i) The Commission has granted the Registrant an exemptive order that
permits the Registrant to enter into deferred compensation
arrangements with its independent Trustees. See In the Matter of
Capital Exchange Fund, Inc., Release No. IC-20671 (November 1,
1994).
(j) Custodian Agreement dated December 21, 1998 is incorporated by
reference to Pre-Effective Amendment No. 1 to the Common Shares
Registration Statement.
(k) (1) Auction Agency Agreement between the Registrant and Bankers
Trust Co. as to the Registrant's Auction Preferred Shares filed
herewith.
(2) Broker-Dealer Agreement as to the Registrant's Auction
Preferred Shares filed herewith.
(3) DTC Representations Letter as to the Registrant's Auction
Preferred Shares filed herewith.
(4) Transfer Agency and Services Agreement dated December 21, 1998
is incorporated by reference to Pre-Effective Amendment No. 1 to
the Common Shares Registration Statement.
(5) Administration Agreement dated December 21, 1998 with respect
to Common Shares is incorporated by reference to Pre-Effective
Amendment No. 1 to the Common Shares Registration Statement.
(6) Shareholder Servicing Agreement dated January 29, 1999 with
respect to Common Shares is incorporated by reference to
Pre-Effective Amendment No. 1 to the Common Shares Registration
Statement.
(l) (1) Opinion of Counsel as to the Registrant's Common Shares is
incorporated by reference to Pre-Effective Amendment No. 1 to the
Common Shares Registration Statement.
(2) Opinion and Consent of Counsel as to the Registrant's Auction
Preferred Shares filed herewith.
(m) Not applicable.
(n) (1) Consent of Independent Auditors' filed herewith.
(o) Not applicable.
(p) Letter Agreement with Eaton Vance Management dated January 21,
1999 is incorporated by reference to Pre-Effective Amendment No. 1
to the Common Shares Registration Statement.
(q) Not applicable.
2
<PAGE> 104
(r) Financial Data Schedule filed herewith.
(s) (1) Power of Attorney dated December 21, 1998 is incorporated by
reference to Pre-Effective Amendment No. 1 to the Common Shares
Registration Statement.
(2) Power of Attorney dated January 5, 1999 is incorporated by
reference to Pre-Effective Amendment No. 1 to the Common Shares
Registration Statement.
(3) Power of Attorney dated January 15, 1999 filed herewith.
ITEM 25. MARKETING ARRANGEMENTS
See the Purchase Agreement to be filed as Exhibit (h).
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the approximate expenses incurred in
connection with the offerings of Registrant (some of which will be borne by the
Investment Adviser):
<TABLE>
<S> <C>
Registration fees............................................ $ 22,240
National Association of Securities Dealers, Inc. Fees........ $ 8,500
Printing (other than stock certificates)..................... $ 30,000
Engraving and printing stock certificates.................... $ 10,000
Legal fees and expenses...................................... $ 10,000
----------
Total...................................................... $ 80,740
==========
</TABLE>
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
None.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
Auction Preferred Shares of beneficial interest, 0
par value $.01 per share as of
February 16, 1999
Common Shares of beneficial interest, 7,213
par value $.01 per share as of
February 16, 1999
ITEM 29. INDEMNIFICATION
The Registrant's By-Laws and the Underwriting Agreement incorporated
herein, and Amendment No. 1 to the By-Laws and the Purchase Agreement filed
herein contain provisions limiting the liability, and providing for
indemnification of the Trustees and officers under certain circumstances.
Registrant's Trustees and officers are insured under a standard investment
company errors and omissions insurance policy covering loss incurred by reason
of negligent errors and omissions committed in their capacities as such.
3
<PAGE> 105
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
the Registrant and the Adviser and any underwriter to the foregoing provisions
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in such Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a trustee, officer, or
controlling person or the Registrant and the Underwriters in connection with the
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such trustee, officer or controlling person or the Distributor in
connection with the Common Shares being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in such Act and
will be governed by the final adjudication of such issue.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
Reference is made to: (i) the information set forth under the caption
"Investment Advisory and Other Services" in the Statement of Additional
Information; (ii) the Eaton Vance Corp. 10-K filed under the Securities Exchange
Act of 1934 (File No. 1-8100); and (iii) the Form ADV of Eaton Vance Management
(File No. 801-15930) filed with the Commission, all of which are incorporated
herein by reference.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
All applicable accounts, books and documents required to be maintained by
the Registrant by Section 31(a) of the Investment Company Act of 1940 and the
Rules promulgated thereunder are in the possession and custody of the
Registrant's custodian, Investors Bank & Trust Company, 200 Clarendon Street,
Boston, MA 02116, and its transfer agent, First Data Investor Services Group,
4400 Computer Drive, Westborough, MA 01581-5120, with the exception of certain
corporate documents and portfolio trading documents which are in the possession
and custody of Eaton Vance Management, 24 Federal Street, Boston, MA 02110.
Registrant is informed that all applicable accounts, books and documents
required to be maintained by registered investment advisers are in the custody
and possession of Eaton Vance Management.
ITEM 32. MANAGEMENT SERVICES
None.
ITEM 33. UNDERTAKINGS
(1) Registrant undertakes to suspend offering of its Auction Preferred
Shares until it amends its prospectus if (a) subsequent to the
effective date of its Registration Statement, the net asset value
declines more than 10 percent from its net asset value as of the
effective date of the Registration Statement, or (b) the net asset
value increases to an amount greater than its net proceeds as stated
in the prospectus.
(2) Not applicable
(3) Not applicable
4
<PAGE> 106
(4) Not applicable
(5) (a) For purpose of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as
part of a registration statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the Registrant pursuant
to Rule 497(h) under the Securities Act of 1933, shall be deemed to
be part of this Registration Statement as of the time it was declared
effective.
(b) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be initial bona fide
offering thereof.
(6) The registrant undertakes to send by first class mail or other means
designed to ensure equally prompt delivery, within two business days
of receipt of a written or oral request, its Statement of Additional
Information.
5
<PAGE> 107
NOTICE
A copy of the Agreement and Declaration of Trust of Eaton Vance
Municipal Income Trust is on file with the Secretary of State of the
Commonwealth of Massachusetts and notice is hereby given that this instrument is
executed on behalf of the Registrant by an officer of the Registrant as an
officer and not individually and that the obligations of or arising out of this
instrument are not binding upon any of the Trustees, officers or shareholders
individually, but are binding only upon the assets and property of the
Registrant.
6
<PAGE> 108
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boston and Commonwealth of Massachusetts, on the 1st
day of March, 1999.
EATON VANCE MUNICIPAL INCOME TRUST
By: /s/ Thomas J. Fetter*
--------------------------------------
Thomas J. Fetter, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
President (Principal Executive
/s/ Thomas J. Fetter* Officer) March 1, 1999
- ------------------------------------
Thomas J. Fetter
Treasurer (Principal
/s/ James L. O'Connor* Financial and Accounting March 1, 1999
- ------------------------------------ Officer)
James L. O'Connor
/s/ James B. Hawkes* Vice President and Trustee March 1, 1999
- ------------------------------------
James B. Hawkes
/s/ Jessica L. Bibliowicz* Trustee March 1, 1999
- ------------------------------------
Jessica L. Bibliowicz
/s/ Donald R. Dwight* Trustee March 1, 1999
- ------------------------------------
Donald R. Dwight
/s/ Samuel L. Hayes III* Trustee March 1, 1999
- ------------------------------------
Samuel L. Hayes
/s/ Norton H. Reamer* Trustee March 1, 1999
- ------------------------------------
Norton H. Reamer
/s/ Lynn A. Stout* Trustee March 1, 1999
- ------------------------------------
Lynn A. Stout
/s/ Jack L. Treynor* Trustee March 1, 1999
- ------------------------------------
Jack L. Treynor
*By: /s/ Alan R. Dynner
- ------------------------------------
Alan R. Dynner (as attorney-in-fact)
</TABLE>
7
<PAGE> 109
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- -------- -----------
<S> <C>
(b)(2) Amendment No. 1 to By-Laws
(d)(2) Specimen Certificate representing Registrant's Auction Preferred Shares
(h)(1) Purchase Agreement as to Registrant's Auction Preferred Shares
(k)(1) Auction Agent Agreement
(k)(2) Broker-Dealer Agreement
(k)(3) DTC Representation Letter
(l)(2) Opinion of Kirkpatrick & Lockhart LLP
(n)(1) Consent of Independent Auditor
(s)(3) Power of Attorney
(27) Financial Data Schedule
</TABLE>
8
<PAGE> 1
EATON VANCE MUNICIPAL INCOME TRUST
Amendment No. 1 to By-laws - Statement
creating two series of
Auction Preferred Shares
WHEREAS, Section 5.1 of Article VI of the Agreement and Declaration of
Trust dated December 10, 1998 of Eaton Vance Municipal Income Trust (the
"Declaration of Trust"), a copy of which is on file in the office of the
Secretary of State of The Commonwealth of Massachusetts, provides that the
Trustees may, without shareholder approval, authorize one or more classes of
shares (which classes may be divided into two or more series), shares of each
such class or series having such preferences, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption, as the Trustees may determine and as shall be set forth in the
By-laws; and
WHEREAS, pursuant to authority expressly vested in the Trustees of the
Trust by Section 5.1 of Article VI of the Declaration of Trust, the Trustees
have authorized, in addition to that Trust's common shares, a class of 5,240
preferred shares which are now to be issued divided into one series of 2,620
shares and one series of 2,620 shares of its authorized preferred shares,
without par value, liquidation preference $25,000 per share plus accumulated but
unpaid dividends thereon, if any (whether or not earned or declared), plus the
premium, if any, resulting from the designation of a Premium Call Period,
designated respectively Auction Preferred Shares, Series A and Auction Preferred
Shares, Series B.
NOW, THEREFORE, the By-laws of Eaton Vance Municipal Income Trust are
hereby amended as follows:
1. ARTICLES VII through XIII shall be redesignated as ARTICLES
VIII through XIV and all affected cross references therein
hereby are amended accordingly.
2. A new ARTICLE VII shall be added as follows:
<PAGE> 2
ARTICLE VII
STATEMENT CREATING A SERIES OF AUCTION PREFERRED SHARES
DESIGNATION
Auction Preferred Shares, Series A: 2,620 shares of beneficial interest
of Preferred Shares, par value $.01 per share, liquidation preference $25,000
per share plus an amount equal to accumulated but unpaid dividends (whether or
not earned or declared) thereon, is hereby designated "Auction Preferred Shares,
Series A." Each share of Auction Preferred Shares, Series A (sometimes referred
to herein as "Series A APS") may be issued on a date to be determined by the
Board of Trustees of the Trust or pursuant to their delegated authority; have an
Initial Dividend Rate and an Initial Dividend Payment Date as shall be
determined in advance of the issuance thereof by the Board of Trustee of the
Trust or pursuant to their delegated authority; and have such other preferences,
voting powers, limitations as to dividends, qualifications and terms and
conditions of redemption as are set forth in these Amended By-Laws. The Series
APS shall constitute a separate series of Preferred Shares of the Trust, and
each share of Series A APS shall be identical.
Auction Preferred Shares, Series B: 2,620 shares of beneficial interest
of Preferred Shares, par value $.01 per share, liquidation preference $25,000
per share plus an amount equal to accumulated but unpaid dividends (whether or
not earned or declared) thereon, is hereby designated "Auction Preferred Shares,
Series B." Each share of Auction Preferred Shares, Series B (sometimes referred
to herein as "Series B APS") may be issued on a date to be determined by the
Board of Trustees of the Trust or pursuant to their delegated authority; have an
Initial Dividend Rate and an Initial Dividend Payment Date as shall be
determined in advance of the issuance thereof by the Board of Trustee of the
Trust or pursuant to their delegated authority; and have such other preferences,
voting powers, limitations as to dividends, qualifications and terms and
conditions of redemption as are set forth in these Amended By-Laws. The Series B
APS shall constitute a separate series of Preferred Shares of the Trust, and
each share of Series B APS shall be identical. The Series A APS and the Series B
APS are sometimes collectively referred to herein as the "APS."
1. DEFINITIONS. (a) Unless the context or use indicates another or
different meaning or intent, in these Amended By-Laws the following terms have
the following meanings, whether used in the singular or plural:
"'AA' Composite Commercial Paper Rate," on any date of determination,
means (i) the Interest Equivalent of the rate on commercial paper placed on
behalf of issuers whose corporate bonds are rated "AA" by S&P or "Aa" by Moody's
or the equivalent of such rating by another nationally recognized rating agency,
as such rate is made available on a discount basis or otherwise by the Federal
Reserve Bank of New York for the Business Day immediately preceding such date,
or (ii) in the event that the Federal Reserve Bank of New York does not make
available such a rate, then the arithmetic average of the Interest Equivalent of
the rate on commercial paper placed on behalf of such issuers, as quoted on a
discount basis or otherwise by Merrill Lynch, Pierce, Fenner & Smith
Incorporated or its successors that are Commercial Paper Dealers, to the Auction
Agent for the close of business on the Business Day immediately preceding such
date. If one of the Commercial Paper Dealers does not quote a rate required to
determine the "AA" Composite Commercial Paper Rate, the "AA" Composite
Commercial Paper Rate will be determined on the basis of the quotation or
quotations furnished by any Substitute Commercial Paper Dealer or Substitute
Commercial Paper Dealers selected by the Trust to provide such rate or rates not
being supplied by the Commercial Paper Dealer. If the number of Dividend Period
days shall be (i) 7 or more but fewer than 49 days, such rate shall be the
Interest Equivalent of the 30-day rate on such commercial paper; (ii) 49 or more
but fewer than 70 days, such rate shall be the Interest Equivalent of the 60-day
rate on such commercial paper; (iii) 70 or more days but fewer than 85 days,
such rate shall be the arithmetic average of the Interest Equivalent on the
60-day and 90-day rates on such commercial paper; (iv) 85 or more days but fewer
than 99 days, such rate shall be the Interest Equivalent of the 90-day rate on
such commercial paper; (v) 99 or more days but fewer than 120 days, such rate
shall be the arithmetic average of the Interest Equivalent of the 90-day and
120-day rates on such commercial paper; (vi) 120 or more days but fewer than 141
days, such rate shall be the Interest Equivalent of the 120-day rate on such
<PAGE> 3
commercial paper; (vii) 141 or more days but fewer than 162 days, such rate
shall be the arithmetic average of the Interest Equivalent of the 120-day and
180-day rates on such commercial paper; and (viii) 162 or more days but fewer
than 183 days, such rate shall be the Interest Equivalent of the 180-day rate on
such commercial paper.
"Accountant's Confirmation" has the meaning set forth in paragraph 7(c)
of these Amended By-Laws.
"Additional Dividend" has the meaning set forth in paragraph 2(e) of
these Amended By-Laws.
"Adviser" means the Trust's investment adviser which initially shall be
Eaton Vance Management.
"Affiliate" means any Person, other than PaineWebber Incorporated or
its successors, known to the Auction Agent to be controlled by, in control of,
or under common control with, the Trust.
"Agent Member" means a member of the Securities Depository that will
act on behalf of a Beneficial Owner of one or more shares of APS or a Potential
Beneficial Owner.
"Amended By-Laws" means the By-Laws of the Trust, as amended by this
Statement creating the APS and as may otherwise be amended from time-to-time.
"APS" means, as the case may be, the Auction Preferred Shares.
"APS Basic Maintenance Amount," as of any Valuation Date, means the
dollar amount equal to (i) the sum of (A) the product of the number of shares of
APS and Other APS Outstanding on such Valuation Date multiplied by the sum of
(a) $25,000 and (b) any applicable redemption premium attributable to the
designation of a Premium Call Period; (B) the aggregate amount of cash dividends
(whether or not earned or declared) that will have accumulated for each share of
APS and Other APS Outstanding, in each case, to (but not including) the end of
the current Dividend Period for each series of APS that follows such Valuation
Date in the event the then current Dividend Period will end within 49 calendar
days of such Valuation Date or through the 49th day after such Valuation Date in
the event the then current Dividend Period for each series of APS will not end
within 49 calendar days of such Valuation Date; (C) in the event the then
current Dividend Period will end within 49 calendar days of such Valuation Date,
the aggregate amount of cash dividends that would accumulate at the Maximum
Applicable Rate applicable to a Dividend Period of 28 or fewer days on any
shares of APS and Other APS Outstanding from the end of such Dividend Period
through the 49th day after such Valuation Date, multiplied by the larger of the
Moody's Volatility Factor and the S&P Volatility Factor, determined from time to
time by Moody's and S&P, respectively (except that if such Valuation Date occurs
during a Non-Payment Period, the cash dividend for purposes of calculation would
accumulate at the then current Non-Payment Period Rate); (D) the amount of
anticipated expenses of the Trust for the 90 days subsequent to such Valuation
Date (including any premiums payable with respect to a Policy); (E) the amount
of the Trust's Maximum Potential Additional Dividend Liability as of such
Valuation Date; and (F) any current liabilities as of such Valuation Date to the
extent not reflected in any of (i)(A) through (i)(E) (including, without
limitation, and immediately upon determination, any amounts due and 5 payable by
the Trust pursuant to repurchase agreements and any amounts payable for
Municipal Obligations purchased as of such Valuation Date) less (ii) either (A)
the Discounted Value of any of the Trust's assets, or (B) the face value of any
of the Trust's assets if such assets mature prior to or on the date of
redemption of APS or payment of a liability and are either securities issued or
guaranteed by the United States Government or Deposit Securities, in both cases
irrevocably deposited by the Trust for the payment of the amount needed to
redeem shares of APS subject to redemption or to satisfy any of (i)(B) through
(i)(F).
"APS Basic Maintenance Cure Date," with respect to the failure by the
Trust to satisfy the APS Basic Maintenance Amount (as required by paragraph 7(a)
of these Amended By-Laws) as of a given Valuation Date, means the sixth Business
Day following such Valuation Date.
"APS Basic Maintenance Report" means a report signed by any of the
President, Treasurer, any Senior Vice President or any Vice President of the
Trust which sets forth, as of the related Valuation Date, the assets of the
3
<PAGE> 4
Trust, the Market Value and the Discounted Value thereof (seriatim and in
aggregate), and the APS Basic Maintenance Amount.
"Anticipation Notes" shall mean the following Municipal Obligations:
revenue anticipation notes, tax anticipation notes, tax and revenue anticipation
notes, grant anticipation notes and bond anticipation notes.
"Applicable Percentage" has the meaning set forth in paragraph
10(a)(vii) of these Amended By-Laws.
"Applicable Rate" means the rate per annum at which cash dividends are
payable on the APS or Other APS, as the case may be, for any Dividend Period.
"Auction" means a periodic operation of the Auction Procedures.
"Auction Agent" means Bankers Trust Corporation unless and until
another commercial bank, trust company or other financial institution appointed
by a resolution of the Board of Trustees of the Trust or a duly authorized
committee thereof enters into an agreement with the Trust to follow the Auction
Procedures for the purpose of determining the Applicable Rate and to act as
transfer agent, registrar, dividend disbursing agent and redemption agent for
the APS and Other APS.
"Auction Procedures" means the procedures for conducting Auctions set
forth in paragraph 10 of this Article VII, Section 2 of these Amended By-Laws.
"Beneficial Owner" means a customer of a Broker-Dealer who is listed on
the records of that Broker-Dealer (or, if applicable, the Auction Agent) as a
holder of shares of APS or a Broker-Dealer that holds APS for its own account.
"Broker-Dealer" means any broker-dealer, or other entity permitted by
law to perform the functions required of a Broker-Dealer in paragraph 10 of this
Article VII, Section 2 of these Amended By-Laws, that has been selected by the
Trust and has entered into a Broker-Dealer Agreement with the Auction Agent that
remains effective.
"Broker-Dealer Agreement" means an agreement between the Auction Agent
and a Broker-Dealer pursuant to which such Broker-Dealer agrees to follow the
procedures specified in paragraph 10 of this Article VII, Section 2 of these
Amended By-Laws.
"Business Day" means a day on which the New York Stock Exchange, Inc.
is open for trading and which is not a Saturday, Sunday or other day on which
banks in The City of New York are authorized or obligated by law to close.
"Declaration of Trust" means the Agreement and Declaration of Trust,
as amended and supplemented (including these Amended By-Laws), of the Trust.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commercial Paper Dealers" means PaineWebber Incorporated and such
other commercial paper dealer or dealers as the Trust may from time to time
appoint, or, in lieu of any thereof, their respective affiliates or successors.
"Common Shares" means the shares of beneficial interest designated as
common shares, par value $.01 per share, of the Trust.
"Trust" means Eaton Vance Municipal Income Trust, a Massachusetts
business trust.
"Date of Original Issue" means, with respect to any share of APS or
Other APS, the date on which the Trust originally issues such share.
4
<PAGE> 5
"Deposit Securities" means cash and Municipal Obligations rated at
least A2 (having a remaining maturity of 12 months or less), P-1, VMIG-1 or
MIG-1 by Moody's or A (having a remaining maturity of 12 months or less), A-1+
or SP-1+ by S&P.
"Discounted Value" means the quotient of the Market Value thereof
divided by the applicable S&P Discount Factor.
"Dividend Payment Date," with respect to APS, has the meaning set forth
in paragraph 2(b)(i) of these Amended By-Laws and, with respect to Other APS,
has the equivalent meaning.
"Dividend Period" means the Initial Dividend Period, any 7-Day Dividend
Period and any Special Dividend Period.
"Existing Holder" means a Broker-Dealer or any such other Person as may
be permitted by the Trust that is listed as the holder of record of shares of
APS in the Share Books.
"Forward Commitment" has the meaning set forth in paragraph 8(c) of
this Article VII, Section 2 of these Amended By-Laws.
"Holder" means a Person identified as a holder of record of shares of
APS in the Share Register.
"Independent Accountant" means a nationally recognized accountant, or
firm of accountants, that is, with respect to the Trust, an independent public
accountant or firm of independent public accountants under the Securities Act of
1933, as amended.
"Initial Dividend Payment Date" means the Initial Dividend Payment Date
as determined by the Board of Trustees of the Trust with respect to each series
of APS or Other APS, as the case may be.
"Initial Dividend Period" has the meaning set forth in paragraph
2(c)(i) of this Article VII, Section 2 of these Amended By-Laws and, with
respect to Other APS, has the equivalent meaning.
"Initial Dividend Rate" means the rate per annum applicable to the
Initial Dividend Period for such series of APS and, with respect to Other APS,
has the equivalent meaning.
"Initial Margin" means the amount of cash or securities deposited with
a broker as a margin payment at the time of purchase or sale of a futures
contract.
"Interest Equivalent" means a yield on a 360-day basis of a discount
basis security which is equal to the yield on an equivalent interest-bearing
security.
"Long Term Dividend Period" means a Special Dividend Period consisting
of a specified period of one whole year or more but not greater than five years.
"Mandatory Redemption Price" means $25,000 per share of APS plus an
amount equal to accumulated but unpaid dividends (whether or not earned or
declared) to the date fixed for redemption and excluding Additional Dividends.
"Marginal Tax Rate" means the maximum marginal regular Federal
individual income tax rate applicable to ordinary income or the maximum marginal
regular Federal corporate income tax rate, whichever is greater.
"Market Value" of any asset of the Trust shall be the market value
thereof determined by the Pricing Service. Market Value of any asset shall
include any interest accrued thereon. The Pricing Service shall value portfolio
securities at the quoted bid prices or the mean between the quoted bid and asked
price or the yield
5
<PAGE> 6
equivalent when quotations are not readily available. Securities for which
quotations are not readily available shall be valued at fair value as determined
by the Pricing Service using methods which include consideration of: yields or
prices of municipal obligations of comparable quality, type of issue, coupon,
maturity and rating; indications as to value from dealers; and general market
conditions. The Pricing Service may employ electronic data processing techniques
and/or a matrix system to determine valuations. In the event the Pricing Service
is unable to value a security, the security shall be valued at the lower of two
dealer bids obtained by the Trust from dealers who are members of the National
Association of Securities Dealers, Inc. and who make a market in the security,
at least one of which shall be in writing. Futures contracts and options are
valued at closing prices for such instruments established by the exchange or
board of trade on which they are traded, or if market quotations are not readily
available, are valued at fair value on a consistent basis using methods
determined in good faith by the Board of Trustees.
"Maximum Applicable Rate," with respect to APS, has the meaning set
forth in paragraph 10(a)(vii) of this Article VII, Section 2 of these Amended
By-Laws and, with respect to Other APS, has the equivalent meaning.
"Maximum Potential Additional Dividend Liability," as of any Valuation
Date, means the aggregate amount of Additional Dividends that would be due if
the Trust were to make Retroactive Taxable Allocations, with respect to any
fiscal year, estimated based upon dividends paid and the amount of undistributed
realized net capital gains and other taxable income earned by the Trust, as of
the end of the calendar month immediately preceding such Valuation Date and
assuming such Additional Dividends are fully taxable.
"Moody's" means Moody's Investors Service, Inc. or its successors.
"Municipal Obligations" means "Municipal Obligations" as defined in the
Trust's Registration Statement on Form N-2 (File No. 333-70725) relating to the
APS on file with the Securities and Exchange Commission, as such Registration
Statement may be amended from time to time, as well as short-term municipal
obligations.
"Municipal Index" has the meaning set forth in paragraph 8(a) of this
Article VII, Section 2 of these Amended By-Laws.
"1940 Act" means the Investment Company Act of 1940, as amended from
time to time.
"1940 Act APS Asset Coverage" means asset coverage, as defined in
section 18(h) of the 1940 Act, of at least 200% with respect to all outstanding
senior securities of the Trust which are shares of beneficial interest,
including all outstanding shares of APS and Other APS (or such other asset
coverage as may in the future be specified in or under the 1940 Act as the
minimum asset coverage for senior securities which are shares of beneficial
interest of a closed-end investment company as a condition of paying dividends
on its Common Shares).
"1940 Act Cure Date," with respect to the failure by the Trust to
maintain the 1940 Act APS Asset Coverage (as required by paragraph 6 of these
Amended By-Laws) as of the last Business Day of each month, means the last
Business Day of the following month.
"Non-Call Period" has the meaning set forth under the definition of
"Specific Redemption Provisions".
"Non-Payment Period" means any period commencing on and including the
day on which the Trust shall fail to (i) declare, prior to the close of business
on the second Business Day preceding any Dividend Payment Date, for payment on
or (to the extent permitted by paragraph 2(c)(i) of this Article VII, Section 2
of these Amended By-Laws) within three Business Days after such Dividend Payment
Date to the Holders as of 12:00 noon, New York City time, on the Business Day
preceding such Dividend Payment Date, the full amount of any dividend on shares
of APS payable on such Dividend Payment Date or (ii) deposit, irrevocably in
trust, in same-day funds, with the Auction Agent by 12:00 noon, New York City
time, (A) on such Dividend Payment Date the full amount of any cash dividend on
such shares payable (if declared) on such Dividend Payment Date or (B) on any
redemption date for any shares of APS called for redemption, the Mandatory
Redemption Price per share of such APS or, in the case of an optional
redemption, the Optional Redemption Price per share, and ending on and including
the Business Day
6
<PAGE> 7
on which, by 12:00 noon, New York City time, all unpaid cash dividends and
unpaid redemption prices shall have been so deposited or shall have otherwise
been made available to Holders in same-day funds; provided that, a Non-Payment
Period shall not end unless the Trust shall have given at least five days' but
no more than 30 days' written notice of such deposit or availability to the
Auction Agent, all Existing Holders (at their addresses appearing in the Share
Books) and the Securities Depository. Notwithstanding the foregoing, the failure
by the Trust to deposit funds as provided for by clauses (ii)(A) or (ii)(B)
above within three Business Days after any Dividend Payment Date or redemption
date, as the case may be, in each case to the extent contemplated by paragraph
2(c)(i) of these Amended By-Laws, shall not constitute a "Non-Payment Period."
"Non-Payment Period Rate" means, initially, 200% of the applicable
Reference Rate (or 275% of such rate if the Trust has provided notification to
the Auction Agent prior to the Auction establishing the Applicable Rate for any
dividend pursuant to paragraph 2(f) hereof that net capital gains or other
taxable income will be included in such dividend on shares of APS), provided
that the Board of Trustees of the Trust shall have the authority to adjust,
modify, alter or change from time to time the initial Non-Payment Period Rate if
the Board of Trustees of the Trust determines and S&P (and any Substitute Rating
Agency in lieu of S&P in the event such party shall not rate the APS) advise the
Trust in writing that such adjustment, modification, alteration or change will
not adversely affect its then current ratings on the APS.
"Normal Dividend Payment Date" has the meaning set forth in paragraph
2(b)(i) of Article VII, Section 2 of these Amended By-Laws.
"Notice of Redemption" means any notice with respect to the redemption
of shares of APS pursuant to paragraph 4 of Article VII, Section 2 of these
Amended By-Laws.
"Notice of Revocation" has the meaning set forth in paragraph 2(c)(iii)
of Article VII, Section 2 of these Amended By-Laws.
"Notice of Special Dividend Period" has the meaning set forth in
paragraph 2(c)(iii) of Article VII, Section 2 of these Amended By-Laws.
"Optional Redemption Price" means $25,000 per share plus an amount
equal to accumulated but unpaid dividends (whether or not earned or declared) to
the date fixed for redemption and excluding Additional Dividends plus any
applicable redemption premium attributable to the designation of a Premium Call
Period.
"Other APS" means the auction rate Preferred Shares of the Trust,
other than the APS.
"Outstanding" means, as of any date (i) with respect to APS, shares of
APS therefor issued by the Trust except, without duplication, (A) any shares of
APS theretofore canceled or delivered to the Auction Agent for cancellation, or
redeemed by the 18 Trust, or as to which a Notice of Redemption shall have been
given and Deposit Securities shall have been deposited in trust or segregated by
the Trust pursuant to paragraph 4(c) and (B) any shares of APS as to which the
Trust or any Affiliate thereof shall be a Beneficial Owner, provided that shares
of APS held by an Affiliate shall be deemed outstanding for purposes of
calculating the APS Basic Maintenance Amount and (ii) with respect to shares of
other Preferred Shares, has the equivalent meaning.
" "Parity Shares" means the APS and each other outstanding series of
Preferred Shares the holders of which, together with the holders of the APS,
shall be entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in proportion to the
full respective preferential amounts to which they are entitled, without
preference or priority one over the other.
"Person" means and includes an individual, a partnership, a Trust, a
trust, an unincorporated association, a joint venture or other entity or a
government or any agency or political subdivision thereof.
"Policy" means an insurance policy purchased by the Trust which
guarantees the payment of principal and interest on specified Municipal
Obligations during the period in which such Municipal Obligations are owned by
the
7
<PAGE> 8
Trust; provided, however, that, as long as the APS are rated by S&P, the
Trust will not obtain any Policy unless S&P advises the Trust in writing that
the purchase of such Policy will not adversely affect its then-current rating on
the APS.
"Potential Beneficial Owner" means a customer of a Broker-Dealer or a
Broker-Dealer that is not a Beneficial Owner of shares of APS but that wishes to
purchase such shares, or that is a Beneficial Owner that wishes to purchase
additional shares of APS.
"Potential Holder" means any Broker-Dealer or any such other Person as
may be permitted by the Trust, including any Existing Holder, who may be
interested in acquiring shares of APS (or, in the case of an Existing Holder,
additional shares of APS).
"Preferred Shares" means the preferred shares of beneficial interest,
par value $.01 per share, of the Trust, and includes APS and Other APS.
"Premium Call Period" has the meaning set forth under the definition of
"Specific Redemption Provisions".
"Pricing Service" means Standard & Poor's/J.J. kenny or any pricing
service designated by the Board of Trustees of the Trust provided the Trust
obtains written assurance from S&P that such designation will not impair the
rating then assigned by S&P to the APS.
"Quarterly Valuation Date" means the last Business Day of the last
month of each fiscal quarter of the Trust in each fiscal year of the Trust,
commencing March 31, 1999.
"Receivables for Municipal Obligations Sold" has the meaning set forth
under the definition of S&P Discount Factor.
"Reference Rate" means: (i) with respect to a Dividend Period or a
Short Term Dividend Period having 28 or fewer days, the higher of the applicable
"AA" Composite Commercial Paper Rate and the Taxable Equivalent of the
Short-Term Municipal Bond Rate, (ii) with respect to any Short Term Dividend
Period having more than 28 but fewer than 183 days, the applicable "AA"
Composite Commercial Paper Rate, (iii) with respect to any Short Term Dividend
Period having 183 or more but fewer than 364 days, the applicable U.S. Treasury
Bill Rate and (iv) with respect to any Long Term Dividend Period, the applicable
U.S. Treasury Note Rate.
"Request for Special Dividend Period" has the meaning set forth in
paragraph 2(c)(iii) of Article VII, Section 2 of these Amended By-Laws.
"Response" has the meaning set forth in paragraph 2(c)(iii) of Article
VII, Section 2 of these Amended By-Laws.
"Retroactive Taxable Allocation" has the meaning set forth in paragraph
2(e) of Article VII, Section 2 of these Amended By-Laws.
"Right" has the meaning set forth in paragraph 2(e) of Article VII,
Section 2 of these Amended By-Laws and, with respect to Other APS, has the
equivalent meaning.
"S&P" means Standard & Poor's, a division of The McGraw-Hill Companies,
Inc., or its successors.
"S&P Discount Factor" means, for purposes of determining the Discounted
Value of any Municipal Bond which constitutes an S&P Eligible Asset, the
percentage determined by reference to (a)(i) the rating by S&P or Moody's on
such Bond or (ii) in the event the Municipal Bond is insured under a Policy and
the terms of the Policy permit the Trust, at its option, to obtain other
permanent insurance guaranteeing the timely payment of interest on such
Municipal Bond and principal thereof to maturity, the S&P insurance
claims-paying ability rating of the issuer
8
<PAGE> 9
of the Policy or (iii) in the event the Municipal Bond is insured under an
insurance policy which guarantees the timely payment of interest on such
Municipal Bond and principal thereof to maturity, the S&P insurance
claims-paying ability rating of the issuer of the insurance policy and (b) the
S&P Exposure Period, in accordance with the tables set forth below:
Rating Category
---------------
S&P Exposure Period AAA* AA* A* BBB*
- ------------------- ---- --- -- ----
40 Business Days 190% 195% 210% 250%
22 Business Days 170% 175% 190% 230%
10 Business Days 155% 160% 175% 215%
7 Business Days 150% 155% 170% 210%
3 Business Days 130% 135% 150% 190%
* S&P rating
Notwithstanding the foregoing, (i) the S&P Discount Factor for
short-term Municipal Obligations will be 115%, so long as such Municipal
Obligations are rated A-1+ or SP-1+ by S&P and mature or have a demand feature
exercisable in 30 days or less, or 125% if such Municipal Obligations are not
rated by S&P but are rated VMIG-1, P-1 or MIG-1 by Moody's; provided, however,
such short-term Municipal Obligations rated by Moody's but not rated by S&P
having a demand feature exercisable in 30 days or less must be backed by a
letter of credit, liquidity facility or guarantee from a bank or other financial
institution having a short-term rating of at least A-1+ from S&P; and further
provided that such short-term Municipal Obligations rated by Moody's but not
rated by S&P may comprise no more than 50% of short-term Municipal Obligations
that qualify as S&P Eligible Assets and (ii) no S&P Discount Factor will be
applied to cash or to Receivables for Municipal Obligations Sold. "Receivables
for Municipal Obligations Sold," for purposes of calculating S&P Eligible Assets
as of any Valuation Date, means the book value of receivables for Municipal
Obligations sold as of or prior to such Valuation Date if such receivables are
due within five Business Days of such Valuation Date. For purposes of the
foregoing, Anticipation Notes rated SP-1+ or, if not rated by S&P, rated VMIG-1
by Moody's, which do not mature or have a demand feature exercisable in 30 days
and which do not have a long-term rating, shall be considered to be short-term
Municipal Obligations.
"S&P Eligible Asset" means cash, Receivables for Municipal Obligations
Sold or a Municipal Bond that (i) is issued by any of the 50 states, the
territories and their subdivisions, counties, cities, towns, villages, and
school districts, agencies, such as authorities and special districts created by
the states, and certain federally sponsored agencies such as local housing
authorities (payments made on these bonds are exempt from regular federal income
taxes and are generally exempt from state and local taxes in the state of
issuance), (ii) is interest bearing and pays interest at least semi-annually;
(iii) is payable with respect to principal and interest in United States
Dollars; (iv) is publicly rated BBB or higher by S&P or, except in the case of
Anticipation Notes that are grant anticipation notes or bond anticipation notes
which must be rated by S&P to be included in S&P Eligible Assets, if not rated
by S&P but rated by Moody's, is rated at least A by Moody's (provided that such
Moody's-rated Municipal Obligations will be included in S&P Eligible Assets only
to the extent the Market Value of such Municipal Obligations does not exceed 50%
of the aggregate Market Value of the S&P Eligible Assets; and further provided
that, for purposes of determining the S&P Discount Factor applicable to any such
Moody's-rated Municipal Bond, such Municipal Bond will be deemed to have an S&P
rating which is one full rating category lower than its Moody's rating); (v) is
not subject to a covered call or covered put option written by the Trust; and
(vi) is part of an issue of Municipal Obligations with an original issue size of
at least $20 million or, if of an issue with an original issue size below $20
million (but in no event below $10 million), is issued by an issuer with a total
of at least $50 million of securities outstanding.
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Notwithstanding the foregoing:
(1) Municipal Obligations of any one issuer or guarantor (excluding
bond insurers) will be considered S&P Eligible Assets only to the extent the
Market Value of such Municipal Obligations does not exceed 10% of the aggregate
Market Value of the S&P Eligible Assets, provided that 2% is added to the
applicable S&P Discount Factor for every 1% by which the Market Value of such
Municipal Obligations exceeds 5% of the aggregate Market Value of the S&P
Eligible Assets; and
(2) Municipal Obligations issued by issuers in any one state or
territory will be considered S&P Eligible Assets only to the extent the Market
Value of such Municipal Obligations does not exceed 20% of the aggregate Market
Value of S&P Eligible Assets.
"S&P Exposure Period" means the maximum period of time following a
Valuation Date, including the Valuation Date and the APS Basic Maintenance Cure
Date, that the Trust has under these Amended By-Laws to cure any failure to
maintain, as of such Valuation Date, the Discounted Value for its portfolio at
least equal to the APS Basic Maintenance Amount (as described in paragraph 7(a)
of Article VII, Section 2 of these Amended By-Laws).
"S&P Hedging Transactions" has the meaning set forth in paragraph 8(a)
of Article VII, Section 2 of these Amended By-Laws.
"S&P Volatility Factor" means 277% or such other potential dividend
rate increase factor as S&P advises the Trust in writing is applicable.
"Securities Depository" means The Depository Trust Company or any
successor company or other entities elected by the Trust as securities
depository for the shares of APS that agrees to follow the procedures required
to be followed by such securities depository in connection with the shares of
APS.
"Service" means the United States Internal Revenue Service.
"Series A APS" means the Auction Preferred Shares, Series A.
"Series B APS" means the Auction Preferred Shares, Series B.
"7-Day Dividend Period" means a Dividend Period consisting of seven
days.
"Short Term Dividend Period" means a Special Dividend Period consisting
of a specified number of days (other than seven), evenly divisible by seven and
not fewer than seven nor more than 364.
"Special Dividend Period" means a Dividend Period consisting of (i) a
specified number of days (other than seven), evenly divisible by seven and not
fewer than seven nor more than 364 or (ii) a specified period of one whole year
or more but not greater than five years (in each case subject to adjustment as
provided in paragraph 2(b)(i)).
"Specific Redemption Provisions" means, with respect to a Special
Dividend Period either, or any combination of, (i) a period (a "Non-Call
Period") determined by the Board of Trustees of the Trust, after consultation
with the Auction Agent and the Broker-Dealers, during which the shares of APS
subject to such Dividend Period shall not be subject to redemption at the option
of the Trust and (ii) a period (a "Premium Call Period"), consisting of a number
of whole years and determined by the Board of Trustees of the Trust, after
consultation with the Auction Agent and the Broker-Dealers, during each year of
which the shares of APS subject to such Dividend Period shall be redeemable at
the Trust's option at a price per share equal to $25,000 plus accumulated but
unpaid dividends plus a premium expressed as a percentage of $25,000, as
determined by the Board of Trustees of the Trust after consultation with the
Auction Agent and the Broker-Dealers.
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<PAGE> 11
"Share Books" means the books maintained by the Auction Agent setting
forth at all times a current list, as determined by the Auction Agent, of
Existing Holders of the APS.
"Share Register" means the register of Holders maintained on behalf of
the Trust by the Auction Agent in its capacity as transfer agent and registrar
for the APS.
"Subsequent Dividend Period," with respect to APS, has the meaning set
forth in paragraph 2(c)(i) of Article VII, Section 2 of these Amended By-Laws
and, with respect to Other APS, has the equivalent meaning.
"Substitute Commercial Paper Dealers" means such Substitute Commercial
Paper Dealer or Dealers as the Trust may from time to time appoint or, in lieu
of any thereof, their respective affiliates or successors.
"Substitute Rating Agency" and "Substitute Rating Agencies" mean a
nationally recognized statistical rating organization or two nationally
recognized statistical rating organizations, respectively, selected by
PaineWebber Incorporated or its affiliates and successors, after consultation
with the Trust, to act as the substitute rating agency or substitute rating
agencies, as the case may be, to determine the credit ratings of the shares of
APS.
"Taxable Equivalent of the Short-Term Municipal Bond Rate" on any date
means 90% of the quotient of (A) the per annum rate expressed on an interest
equivalent basis equal to the Kenny S&P 30 day High Grade Index (the "Kenny
Index") or any successor index, made available for the Business Day immediately
preceding such date but in any event not later than 8:30 A.M., New York City
time, on such date by Kenny Information Systems Inc. or any successor thereto,
based upon 30-day yield evaluations at par of bonds the interest on which is
excludable for regular Federal income tax purposes under the Code of "high
grade" component issuers selected by Kenny Information Systems Inc. or any such
successor from time to time in its discretion, which component issuers shall
include, without limitation, issuers of general obligation bonds but shall
exclude any bonds the interest on which constitutes an item of tax preference
under Section 57(a)(5) of the Code, or successor provisions, for purposes of the
"alternative minimum tax," divided by (B) 1.00 minus the Marginal Tax Rate
(expressed as a decimal); provided, however, that if the Kenny Index is not made
so available by 8:30 A.M., New York City time, on such date by Kenny Information
Systems Inc. or any successor, the Taxable Equivalent of the Short-Term
Municipal Bond Rate shall mean the quotient of (A) the per annum rate expressed
on an interest equivalent basis equal to the most recent Kenny Index so made
available for any preceding Business Day, divided by (B) 1.00 minus the Marginal
Tax Rate (expressed as a decimal). The Trust may not utilize a successor index
to the Kenny Index unless S&P provides the Trust with written confirmation that
the use of such successor index will not adversely affect the then-current S&P
rating of the APS.
"Treasury Bonds" has the meaning set forth in paragraph 8(a) of Article
VII, Section 2 of these Amended By-Laws.
"U.S. Treasury Bill Rate" on any date means (i) the Interest Equivalent
of the rate on the actively traded Treasury Bill with a maturity most nearly
comparable to the length of the related Dividend Period, as such rate is made
available on a discount basis or otherwise by the Federal Reserve Bank of New
York in its Composite 3:30 P.M. Quotations for U.S. Government Securities report
for such Business Day, or (ii) if such yield as so calculated is not available,
the Alternate Treasury Bill Rate on such date. "Alternate Treasury Bill Rate" on
any date means the Interest Equivalent of the yield as calculated by reference
to the arithmetic average of the bid price quotations of the actively traded
Treasury Bill with a maturity most nearly comparable to the length of the
related Dividend Period, as determined by bid price quotations as of any time on
the Business Day immediately preceding such date, obtained from at least three
recognized primary U.S. Government securities dealers selected by the Auction
Agent. 27 "U.S. Treasury Note Rate" on any date means (i) the yield as
calculated by reference to the bid price quotation of the actively traded,
current coupon Treasury Note with a maturity most nearly comparable to the
length of the related Dividend Period, as such bid price quotation is published
on the Business Day immediately preceding such date by the Federal Reserve Bank
of New York in its Composite 3:30 P.M. Quotations for U.S. Government Securities
report for such Business Day, or (ii) if such yield as so calculated is not
available, the Alternate Treasury Note Rate on such date. "Alternate Treasury
Note Rate" on any date means the yield as calculated by reference to the
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<PAGE> 12
arithmetic average of the bid price quotations of the actively traded, current
coupon Treasury Note with a maturity most nearly comparable to the length of the
related Dividend Period, as determined by the bid price quotations as of any
time on the Business Day immediately preceding such date, obtained from at least
three recognized primary U.S. Government securities dealers selected by the
Auction Agent.
"Valuation Date" means, for purposes of determining whether the Trust
is maintaining the APS Basic Maintenance Amount, each Business Day commencing
with the Date of Original Issue.
"Variation Margin" means, in connection with an outstanding futures
contract owned or sold by the Trust, the amount of cash or securities paid to or
received from a broker (subsequent to the Initial Margin payment) from time to
time as the price of such futures contract fluctuates.
(b) The foregoing definitions of Accountant's Confirmation, APS Basic
Maintenance Amount, APS Basic Maintenance Cure Date, APS Basic Maintenance
Report, Deposit Securities, Discounted Value, Independent Accountant, Initial
Margin, Market Value, Maximum Potential Additional Dividend Liability, S&P
Discount Factor, S&P Eligible Asset, S&P Exposure Period, S&P Hedging
Transactions, S&P Volatility Factor, Valuation Date and Variation Margin have
been determined by the Board of Trustees of the Trust in order to obtain a AAA
rating from S&P on the APS on their Date of Original Issue; and the Board of
Trustees of the Trust shall have the authority, without shareholder approval, to
amend, alter or repeal from time to time the foregoing definitions and the
restrictions and guidelines set forth thereunder if S&P or any Substitute Rating
Agency advises the Trust in writing that such amendment, alteration or repeal
will not adversely affect its then current rating on the APS.
2. DIVIDENDS. (a) The Holders of a particular series of APS shall be
entitled to receive, when, as and if declared by the Board of Trustees of the
Trust, out of funds legally available therefor, cumulative dividends each
consisting of (i) cash at the Applicable Rate, (ii) a Right to receive cash as
set forth in paragraph 2(e) below, and (iii) any additional amounts as set forth
in paragraph 2(f) below, and no more, payable on the respective dates set forth
below. Dividends on the shares of each series of APS so declared and payable
shall be paid (i) in preference to and in priority over any dividends declared
and payable on the Common Shares, and (ii) to the extent permitted under the
Code and to the extent available, out of net tax-exempt income earned on the
Trust's investments. To the extent permitted under the Code, dividends on shares
of APS will be designated as exempt-interest dividends. For the purposes of this
section, the term "net tax-exempt income" shall exclude capital gains of the
Trust.
(b) (i) Cash dividends on shares of each series of APS shall accumulate
from the Date of Original Issue and shall be payable, when, as and if declared
by the Board of Trustees, out of funds legally available therefor, commencing on
the Initial Dividend Payment Date. Following the Initial Dividend Payment Date
for a series of APS, dividends on that series of APS will be payable, at the
option of the Trust, either (i) with respect to any 7-Day Dividend Period and
any Short Term Dividend Period of 35 or fewer days, on the day next succeeding
the last day thereof, or (ii) with respect to any Short Term Dividend Period of
more than 35 days and with respect to any Long Term Dividend Period, monthly on
the first Business Day of each calendar month during such Short Term Dividend
Period or Long Term Dividend Period and on the day next succeeding the last day
thereof (each such date referred to in clause (i) or (ii) being herein referred
to as a "Normal Dividend Payment Date"), except that if such Normal Dividend
Payment Date is not a Business Day, then the Dividend Payment Date shall be the
first Business Day next succeeding such Normal Dividend Payment Date. Although
any particular Dividend Payment Date may not occur on the originally scheduled
date because of the exception discussed above, the next succeeding Dividend
Payment Date, subject to such exception, will occur on the next following
originally scheduled date. If for any reason a Dividend Payment Date cannot be
fixed as described above, then the Board of Trustees shall fix the Dividend
Payment Date. The Board of Trustees by resolution prior to authorization of a
dividend by the Board of Trustees may change a Dividend Payment Date if such
change does not adversely affect the contract rights of the Holders of shares of
APS set forth in the Declaration of Trust or the Amended By-Laws. The Initial
Dividend Period, 7-Day Dividend Periods and Special Dividend Periods with
respect to a series of APS are hereinafter sometimes referred to as Dividend
Periods. Each dividend payment date determined as provided above is hereinafter
referred to as a "Dividend Payment Date."
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(ii) Each dividend shall be paid to the Holders as they appear in the
Stock Register as of 12:00 noon, New York City time, on the Business Day
preceding the Dividend Payment Date. Dividends in arrears for any past Dividend
Period may be declared and paid at any time, without reference to any regular
Dividend Payment Date, to the Holders as they appear on the Stock Register on a
date, not exceeding 15 days prior to the payment date therefor, as may be fixed
by the Board of Trustees of the Trust. (c) (i) During the period from and
including the Date of Original Issue to but excluding the Initial Dividend
Payment Date for each series of APS (the "Initial Dividend Period"), the
Applicable Rate shall be the Initial Dividend Rate. Commencing on the Initial
Dividend Payment Date for each series of APS, the Applicable Rate for each
subsequent dividend period (hereinafter referred to as a "Subsequent Dividend
Period"), which Subsequent Dividend Period shall commence on and include a
Dividend Payment Date and shall end on and include the calendar day prior to the
next Dividend Payment Date (or last Dividend Payment Date in a Dividend Period
if there is more than one Dividend Payment Date), shall be equal to the rate per
annum that results from implementation of the Auction Procedures.
The Applicable Rate for each Dividend Period commencing during a
Non-Payment Period shall be equal to the Non-Payment Period Rate; and each
Dividend Period, commencing after the first day of, and during, a Non-Payment
Period shall be a 7-Day Dividend Period in the case of each series of APS.
Except in the case of the willful failure of the Trust to pay a dividend on a
Dividend Payment Date or to redeem any shares of APS on the date set for such
redemption, any amount of any dividend due on any Dividend Payment Date (if,
prior to the close of business on the second Business Day preceding such
Dividend Payment Date, the Trust has declared such dividend payable on such
Dividend Payment Date to the Holders of such shares of APS as of 12:00 noon, New
York City time, on the Business Day preceding such Dividend Payment Date) or
redemption price with respect to any shares of APS not paid to such Holders when
due may be paid to such Holders in the same form of funds by 12:00 noon, New
York City time, on any of the first three Business Days after such Dividend
Payment Date or due date, as the case may be, provided that, such amount is
accompanied by a late charge calculated for such period of non-payment at the
Non-Payment Period Rate applied to the amount of such non-payment based on the
actual number of days comprising such period divided by 365. In the case of a
willful failure of the Trust to pay a dividend on a Dividend Payment Date or to
redeem any shares of APS on the date set for such redemption, the preceding
sentence shall not apply and the Applicable Rate for the Dividend Period
commencing during the Non-Payment Period resulting from such failure shall be
the Non-Payment Period Rate. For the purposes of the foregoing, payment to a
person in same-day funds on any Business Day at any time shall be considered
equivalent to payment to such person in New York Clearing House (next-day) funds
at the same time on the preceding Business Day, and any payment made after 12:00
noon, New York City time, on any Business Day shall be considered to have been
made instead in the same form of funds and to the same person before 12:00 noon,
New York City time, on the next Business Day. (ii) The amount of cash dividends
per share of any series of APS payable (if declared) on the Initial Dividend
Payment Date, each 7-Day Dividend Period and each Dividend Payment Date of each
Short Term Dividend Period shall be computed by multiplying the Applicable Rate
for such Dividend Period by a fraction, the numerator of which will be the
number of days in such Dividend Period or part thereof that such share was
outstanding and the denominator of which will be 365, multiplying the amount so
obtained by $25,000, and rounding the amount so obtained to the nearest cent.
During any Long Term Dividend Period, the amount of cash dividends per share of
a series of APS payable (if declared) on any Dividend Payment Date shall be
computed by multiplying the Applicable Rate for such Dividend Period by a
fraction, the numerator of which will be such number of days in such part of
such Dividend Period that such share was outstanding and for which dividends are
payable on such Dividend Payment Date and the denominator of which will be 360,
multiplying the amount so obtained by $25,000, and rounding the amount so
obtained to the nearest cent.
(iii) With respect to each Dividend Period that is a Special Dividend
Period, the Trust may, at its sole option and to the extent permitted by law, by
telephonic and written notice (a "Request for Special Dividend Period") to the
Auction Agent and to each Broker-Dealer, request that the next succeeding
Dividend Period for a series of APS be a number of days (other than seven),
evenly divisible by seven and not fewer than seven nor more than 364 in the case
of a Short Term Dividend Period or one whole year or more but not greater than
five years in the case of a Long Term Dividend Period, specified in such notice,
provided that the Trust may not give a Request for Special Dividend Period of
greater than 28 days (and any such request shall be null and void) unless, for
any Auction occurring after the initial Auction, Sufficient Clearing Bids were
made in the last occurring Auction and unless full cumulative dividends, any
amounts due with respect to redemption's, and any Additional Dividends
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payable prior to such date have been paid in full. Such Request for Special
Dividend Period, in the case of a Short Term Dividend Period, shall be given on
or prior to the second Business Day but not more than seven Business Days prior
to an Auction Date for a series of APS and, in the case of a Long Term Dividend
Period, shall be given on or prior to the second Business Day but not more than
28 days prior to an Auction Date for a series of APS. Upon receiving such
Request for Special Dividend Period, the Broker-Dealer(s) shall jointly
determine whether, given the factors set forth below, it is advisable that the
Trust issue a Notice of Special Dividend Period for the series of APS as
contemplated by such Request for Special Dividend Period and the Optional
Redemption Price of the APS during such Special Dividend Period and the Specific
Redemption Provisions and shall give the Trust and the Auction Agent written
notice (a "Response") of such determination by no later than the second Business
Day prior to such Auction Date. In making such determination the
Broker-Dealer(s) will consider (1) existing short-term and long-term market
rates and indices of such short-term and long-term rates, (2) existing market
supply and demand for short-term and long-term securities, (3) existing yield
curves for short-term and long-term securities comparable to the APS, (4)
industry and financial conditions which may affect the APS, (5) the investment
objective of the Trust, and (6) the Dividend Periods and dividend rates at which
current and potential beneficial holders of the APS would remain or become
beneficial holders. If the Broker-Dealer(s) shall not give the Trust and the
Auction Agent a Response by such second Business Day or if the Response states
that given the factors set forth above it is not advisable that the Trust give a
Notice of Special Dividend Period for the series of APS, the Trust may not give
a Notice of Special Dividend Period in respect of such Request for Special
Dividend Period. In the event the Response indicates that it is advisable that
the Trust give a Notice of Special Dividend Period for the series of APS, the
Trust may by no later than the second Business Day prior to such Auction Date
give a notice (a "Notice of Special Dividend Period") to the Auction Agent, the
Securities Depository and each Broker-Dealer which notice will specify (i) the
duration of the Special Dividend Period, (ii) the Optional Redemption Price as
specified in the related Response and (iii) the Specific Redemption Provisions,
if any, as specified in the related Response. The Trust also shall provide a
copy of such Notice of Special Dividend Period to Moody's and S&P. The Trust
shall not give a Notice of Special Dividend Period and, if the Trust has given a
Notice of Special Dividend Period, the Trust is required to give telephonic and
written notice of its revocation (a "Notice of Revocation") to the Auction
Agent, each Broker-Dealer, and the Securities Depository on or prior to the
Business Day prior to the relevant Auction Date if (x) either the 1940 Act APS
Asset Coverage is not satisfied or the Trust shall fail to maintain S&P Eligible
Assets with an aggregate Discounted Value at least equal to the APS Basic
Maintenance Amount, on each of the two Valuation Dates immediately preceding the
Business Day prior to the relevant Auction Date on an actual basis and on a pro
forma basis giving effect to the proposed Special Dividend Period (using as a
pro forma dividend rate with respect to such Special Dividend Period the
dividend rate which the Broker-Dealers shall advise the Trust is an
approximately equal rate for securities similar to the APS with an equal
dividend period), (y) sufficient funds for the payment of dividends payable on
the immediately succeeding Dividend Payment Date have not been irrevocably
deposited with the Auction Agent by the close of business on the third Business
Day preceding the related Auction Date or (z) the Broker-Dealer(s) jointly
advise the Trust that after consideration of the factors listed above they have
concluded that it is advisable to give a Notice of Revocation. The Trust also
shall provide a copy of such Notice of Revocation to S&P. If the Trust is
prohibited from giving a Notice of Special Dividend Period as a result of any of
the factors enumerated in clause (x), (y) or (z) above or if the Trust gives a
Notice of Revocation with respect to a Notice of Special Dividend Period for any
series of APS, the next succeeding Dividend Period will be a 7-Day Dividend
Period. In 35 addition, in the event Sufficient Clearing Bids are not made in
the applicable Auction or such Auction is not held for any reason, such next
succeeding Dividend Period will be a 7-Day Dividend Period and the Trust may not
again give a Notice of Special Dividend Period for the APS (and any such
attempted notice shall be null and void) until Sufficient Clearing Bids have
been made in an Auction with respect to a 7-Day Dividend Period.
(d) (i) Holders shall not be entitled to any dividends, whether payable
in cash, property or stock, in excess of full cumulative dividends and
applicable late charges, as herein provided, on the shares of APS (except for
Additional Dividends as provided in paragraph 2(e) hereof and additional
payments as provided in paragraph 2(f) hereof). Except for the late charge
payable pursuant to paragraph 2(c)(i) hereof, no interest, or sum of money in
lieu of interest, shall be payable in respect of any dividend payment on the
shares of APS that may be in arrears.
(ii) For so long as any share of APS is Outstanding, the Trust shall
not declare, pay or set apart for payment any dividend or other distribution
(other than a dividend or distribution paid in shares of, or options, warrants
or
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rights to subscribe for or purchase, Common Shares or other shares of beneficial
interest, if any, ranking junior to the shares of APS as to dividends or upon
liquidation) in respect of the Common Shares or any other shares of beneficial
interest of the Trust ranking junior to or on a parity with the shares of APS as
to dividends or upon liquidation, or call for redemption, redeem, purchase or
otherwise acquire for consideration any shares of the Common Shares or any other
such junior shares (except by conversion into or exchange for shares of the
Trust ranking junior to the shares of APS as to dividends and upon liquidation)
or any other such Parity Shares (except by conversion into or exchange for stock
of the Trust ranking junior to or on a parity with the shares of APS as to
dividends and upon liquidation), unless (A) immediately after such transaction,
the Trust shall have S&P Eligible Assets with an aggregate Discounted Value
equal to or greater than the APS Basic Maintenance Amount and the Trust shall
maintain the 1940 Act APS Asset Coverage, (B) full cumulative dividends on
shares of APS and shares of Other APS due on or prior to the date of the
transaction have been declared and paid or shall have been declared and
sufficient funds for the payment thereof deposited with the Auction Agent, (C)
any Additional Dividend required to be paid under paragraph 2(e) below on or
before the date of such declaration or payment has been paid and (D) the Trust
has redeemed the full number of shares of APS required to be redeemed by any
provision for mandatory redemption contained herein.
(e) Each dividend shall consist of (i) cash at the Applicable Rate,
(ii) an uncertificated right (a "Right") to receive an Additional Dividend (as
defined below), and (iii) any additional amounts as set forth in paragraph 2(f)
below. Each Right shall thereafter be independent of the share or shares of APS
on which the dividend was paid. The Trust shall cause to be maintained a record
of each Right received by the respective Holders. A Right may not be transferred
other than by operation of law. If the Trust retroactively allocates any net
capital gains or other income subject to regular Federal income taxes to shares
of APS without having given advance notice thereof to the Auction Agent as
described in paragraph 2(f) hereof solely by reason of the fact that such
allocation is made as a result of the redemption of all or a portion of the
outstanding shares of APS or the liquidation of the Trust (the amount of such
allocation referred to herein as a "Retroactive Taxable Allocation"), the Trust
will, within 90 days (and generally within 60 days) after the end of the Trust's
fiscal year for which a Retroactive Taxable Allocation is made, provide notice
thereof to the Auction Agent and to each holder of a Right applicable to such
shares of APS (initially as nominee of The Depository Trust Company) during such
fiscal year at such holder's address as the same appears or last appeared on the
Stock Books of the Trust. The Trust will, within 30 days after such notice is
given to the Auction Agent, pay to the Auction Agent (who will then distribute
to such holders of Rights), out of funds legally available therefor, an amount
equal to the aggregate Additional Dividend with respect to all Retroactive
Taxable Allocations made to such holders during the fiscal year in question.
An "Additional Dividend" means payment to a present or former holder of
shares of APS of an amount which, when taken together with the aggregate amount
of Retroactive Taxable Allocations made to such holder with respect to the
fiscal year in question, would cause such holder's dividends in dollars (after
Federal income tax consequences) from the aggregate of both the Retroactive
Taxable Allocations and the Additional Dividend to be equal to the dollar amount
of the dividends which would have been received by such holder if the amount of
the aggregate Retroactive Taxable Allocations would have been excludable from
the gross income of such holder. Such Additional Dividend shall be calculated
(i) without consideration being given to the time value of money; (ii) assuming
that no holder of shares of APS is subject to the Federal alternative minimum
tax with respect to dividends received from the Trust; and (iii) assuming that
each Retroactive Taxable Allocation would be taxable in the hands of each holder
of shares of APS at the greater of: (x) the maximum marginal regular Federal
individual income tax rate applicable to ordinary income or capital gains
depending on the taxable character of the distribution (including any surtax);
or (y) the maximum marginal regular Federal corporate income tax rate applicable
to ordinary income or capital gains depending on the taxable character of the
distribution (disregarding in both (x) and (y) the effect of any state or local
taxes and the phase out of, or provision limiting, personal exemptions, itemized
deductions, or the benefit of lower tax brackets).
(f) Except as provided below, whenever the Trust intends to include any
net capital gains or other income subject to regular Federal income taxes in any
dividend on shares of APS, the Trust will notify the Auction Agent of the amount
to be so included at least five Business Days prior to the Auction Date on which
the Applicable Rate for such dividend is to be established. The Trust may also
include such income in a dividend on shares of a series of APS without giving
advance notice thereof if it increases the dividend by an additional amount
calculated as if such
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income was a Retroactive Taxable Allocation and the additional amount was an
Additional Dividend, provided that the Trust will notify the Auction Agent of
the additional amounts to be included in such dividend at least five Business
Days prior to the applicable Dividend Payment Date.
(g) No fractional shares of APS shall be issued.
3. LIQUIDATION RIGHTS. Upon any liquidation, dissolution or winding up
of the Trust, whether voluntary or involuntary, the Holders shall be entitled to
receive, out of the assets of the Trust available for distribution to
shareholders, before any distribution or payment is made upon any Common Shares
or any other shares of beneficial interest ranking junior in right of payment
upon liquidation to the APS, the sum of $25,000 per share plus accumulated but
unpaid dividends (whether or not earned or declared) thereon to the date of
distribution, and after such payment the Holders will be entitled to no other
payments other than Additional Dividends as provided in paragraph 2(e) hereof.
If upon any liquidation, dissolution or winding up of the Trust, the amounts
payable with respect to the APS and any other Outstanding class or series of
Preferred Shares of the Trust ranking on a parity with the APS as to payment
upon liquidation are not paid in full, the Holders and the holders of such other
class or series will share ratably in any such distribution of assets in
proportion to the respective preferential amounts to which they are entitled.
After payment of the full amount of the liquidating distribution to which they
are entitled, the Holders will not be entitled to any further participation in
any distribution of assets by the Trust except for any Additional Dividends. A
consolidation, merger or statutory share exchange of the Trust with or into any
other Trust or entity or a sale, whether for cash, shares of stock, securities
or properties, of all or substantially all or any part of the assets of the
Trust shall not be deemed or construed to be a liquidation, dissolution or
winding up of the Trust.
4. REDEMPTION. (a) Shares of APS shall be redeemable by the Trust as
provided below:
(i) To the extent permitted under the 1940 Act and
Massachusetts law, upon giving a Notice of Redemption, the Trust at its
option may redeem shares of any series of APS, in whole or in part, out
of funds legally available therefor, at the Optional Redemption Price
per share, on any Dividend Payment Date; provided that no share of APS
may be redeemed at the option of the Trust during (A) the Initial
Dividend Period with respect to a series of shares or (B) a Non-Call
Period to which such share is subject. In addition, holders of APS
which are redeemed shall be entitled to receive Additional Dividends to
the extent provided herein. The Trust may not give a Notice of
Redemption relating to an optional redemption as described in this
paragraph 4(a)(i) unless, at the time of giving such Notice of
Redemption, the Trust has available Deposit Securities with maturity or
tender dates not later than the day preceding the applicable redemption
date and having a value not less than the amount due to Holders by
reason of the redemption of their shares of APS on such redemption
date.
(ii) The Trust shall redeem, out of funds legally available
therefor, at the Mandatory Redemption Price per share, shares of APS to
the extent permitted under the 1940 Act and Massachusetts law, on a
date fixed by the Board of Trustees, if the Trust fails to maintain S&P
Eligible Assets with an aggregate Discounted Value equal to or greater
than the APS Basic Maintenance Amount as provided in paragraph 7(a) or
to satisfy the 1940 Act APS Asset Coverage as provided in paragraph 6
and such failure is not cured on or before the APS Basic Maintenance
Cure Date or the 1940 Act Cure Date (herein collectively referred to as
a "Cure Date"), as the case may be. In addition, holders of APS so
redeemed shall be entitled to receive Additional Dividends to the
extent provided herein. The number of shares of APS to be redeemed
shall be equal to the lesser of (i) the minimum number of shares of APS
the redemption of which, if deemed to have occurred immediately prior
to the opening of business on the Cure Date, together with all shares
of other Preferred Shares subject to redemption or retirement, would
result in the Trust having S&P Eligible Assets with an aggregate
Discounted Value equal to or greater than the APS Basic Maintenance
Amount or satisfaction of the 1940 Act APS Asset Coverage, as the case
may be, on such Cure Date (provided that, if there is no such minimum
number of shares of APS and shares of other Preferred Shares the
redemption of which would have such result, all shares of APS and
shares of other Preferred Shares then Outstanding shall be redeemed),
and (ii) the maximum number of shares of APS, together with all shares
of other Preferred Shares subject to redemption or retirement, that can
be redeemed
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out of funds expected to be legally available therefor on such
redemption date. In determining the number of shares of APS required to
be redeemed in accordance with the foregoing, the Trust shall allocate
the number required to be redeemed which would result in the Trust
having S&P Eligible Assets with an aggregate Discounted Value equal to
or greater than the APS Basic Maintenance Amount or satisfaction of the
1940 Act APS Asset Coverage, as the case may be, pro rata among shares
of APS of all series, Other APS and other Preferred Shares subject to
redemption pursuant to provisions similar to those contained in this
paragraph 4(a)(ii); provided that, shares of APS which may not be
redeemed at the option of the Trust due to the designation of a
Non-Call Period applicable to such shares (A) will be subject to
mandatory redemption only to the extent that other shares are not
available to satisfy the number of shares required to be redeemed and
(B) will be selected for redemption in an ascending order of
outstanding number of days in the Non-Call Period (with shares with the
lowest number of days to be redeemed first) and by lot in the event of
shares having an equal number of days in such Non-Call Period. The
Trust shall effect such redemption on a Business Day which is not later
than 35 days after such Cure Date, except that if the Trust does not
have funds legally available for the redemption of all of the required
number of shares of APS and shares of other Preferred Shares which are
subject to mandatory redemption or the Trust otherwise is unable to
effect such redemption on or prior to 35 days after such Cure Date, the
Trust shall redeem those shares of APS which it is unable to redeem on
the earliest practicable date on which it is able to effect such
redemption out of funds legally available therefor.
(b) Notwithstanding any other provision of this paragraph 4, no shares
of APS may be redeemed pursuant to paragraph 4(a)(i) of Article VII, Section 2
of these Amended By-Laws (i) unless all dividends in arrears on all remaining
outstanding shares of Parity Shares shall have been or are being
contemporaneously paid or declared and set apart for payment and (ii) if
redemption thereof would result in the Trust's failure to maintain S&P Eligible
Assets with an aggregate Discounted Value equal to or greater than the APS Basic
Maintenance Amount. In the event that less than all the outstanding shares of a
series of APS are to be redeemed and there is more than one Holder, the shares
of that series of APS to be redeemed shall be selected by lot or such other
method as the Trust shall deem fair and equitable.
(c) Whenever shares of APS are to be redeemed, the Trust, not less than
17 nor more than 30 days prior to the date fixed for redemption, shall mail a
notice ("Notice of Redemption") by first-class mail, postage prepaid, to each
Holder of shares of APS to be redeemed and to the Auction Agent. The Trust shall
cause the Notice of Redemption to also be published in the eastern and national
editions of The Wall Street Journal. The Notice of Redemption shall set forth
(i) the redemption date, (ii) the amount of the redemption price, (iii) the
aggregate number of shares of APS of such series to be redeemed, (iv) the place
or places where shares of APS of such series are to be surrendered for payment
of the redemption price, (v) a statement that dividends on the shares to be
redeemed shall cease to accumulate on such redemption date (except that holders
may be entitled to Additional Dividends) and (vi) the provision of these Amended
By-Laws pursuant to which such shares are being redeemed. No defect in the
Notice of Redemption or in the mailing or publication thereof shall affect the
validity of the redemption proceedings, except as required by applicable law.
If the Notice of Redemption shall have been given as aforesaid and,
concurrently or thereafter, the Trust shall have deposited in trust with the
Auction Agent, or segregated in an account at the Trust's custodian bank for the
benefit of the Auction Agent, Deposit Securities (with a right of substitution)
having an aggregate Discounted Value (utilizing in the case of S&P an S&P
Exposure Period of 22 Business Days) equal to the redemption payment for the
shares of APS as to which such Notice of Redemption has been given with
irrevocable instructions and authority to pay the redemption price to the
Holders of such shares, then upon the date of such deposit or, if no such
deposit is made, then upon such date fixed for redemption (unless the Trust
shall default in making the redemption payment), all rights of the Holders of
such shares as shareholders of the Trust by reason of the ownership of such
shares will cease and terminate (except their right to receive the redemption
price in respect thereof and any Additional Dividends, but without interest),
and such shares shall no longer be deemed outstanding. The Trust shall be
entitled to receive, from time to time, from the Auction Agent the interest, if
any, on such Deposit Securities deposited with it and the Holders of any shares
so redeemed shall have no claim to any of such interest. In case the Holder of
any shares so called for redemption shall not claim the redemption payment for
his shares within one year after the date of redemption, the Auction Agent
shall, upon demand, pay over to the Trust such amount remaining
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on deposit and the Auction Agent shall thereupon be relieved of all
responsibility to the Holder of such shares called for redemption and such
Holder thereafter shall look only to the Trust for the redemption payment.
5. VOTING RIGHTS. (a) General. Except as otherwise provided in the
Declaration of Trust or Amended By-Laws, each Holder of shares of APS shall be
entitled to one vote for each share held on each matter submitted to a vote of
shareholders of the Trust, and the holders of outstanding shares of Preferred
Shares, including APS, and of shares of Common Shares shall vote together as a
single class; provided that, at any meeting of the shareholders of the Trust
held for the election of trustees, the holders of outstanding shares of
Preferred Shares, including APS, shall be entitled, as a class, to the exclusion
of the holders of all other securities and classes of capital stock of the
Trust, to elect two trustees of the Trust. Subject to paragraph 5(b) hereof, the
holders of outstanding shares of capital stock of the Trust, including the
holders of outstanding shares of Preferred Shares, including APS, voting as a
single class, shall elect the balance of the trustees.
(b) Right to Elect Majority of Board of Trustees. During any period in
which any one or more of the conditions described below shall exist (such period
being referred to herein as a "Voting Period"), the number of trustees
constituting the Board of Trustees shall be automatically increased by the
smallest number that, when added to the two directors elected exclusively by the
holders of shares of Preferred Shares, would constitute a majority of the Board
of Trustees as so increased by such smallest number; and the holders of shares
of Preferred Shares shall be entitled, voting separately as one class (to the
exclusion of the holders of all other securities and classes of shares of
beneficial interest of the Trust), to elect such smallest number of additional
trustees, together with the two trustees that such holders are in any event
entitled to elect. A Voting Period shall commence:
(i) if at any time accumulated dividends (whether or not
earned or declared, and whether or not funds are then legally available
in an amount sufficient therefor) on the outstanding shares of APS
equal to at least two full years' dividends shall be due and unpaid and
sufficient cash or specified securities shall not have been deposited
with the Auction Agent for the payment of such accumulated dividends;
or
(ii) if at any time holders of any other shares of Preferred
Shares are entitled to elect a majority of the trustees of the Trust
under the 1940 Act. Upon the termination of a Voting Period, the voting
rights described in this paragraph 5(b) shall cease, subject always,
however, to the reverting of such voting rights in the Holders upon the
further occurrence of any of the events described in this paragraph
5(b)
(c) Right to Vote with Respect to Certain Other Matters. So long as any
shares of APS are outstanding, the Trust shall not, without the affirmative vote
of the holders of a majority of the shares of Preferred Shares Outstanding at
the time, voting separately as one class: (i) authorize, create or issue any
class or series of shares of beneficial interest ranking prior to the APS or any
other series of Preferred Shares with respect to payment of dividends or the
distribution of assets on liquidation, or (ii) amend, alter or repeal the
provisions of the Declaration of Trust, whether by merger, consolidation or
otherwise, so as to adversely affect any of the contract rights expressly set
forth in the Declaration of Trust of holders of shares of APS or any other
Preferred Shares. To the extent permitted under the 1940 Act, in the event
shares of more than one series of APS are outstanding, the Trust shall not
approve any of the actions set forth in clause (i) or (ii) which adversely
affects the contract rights expressly set forth in the Declaration of Trust of a
Holder of shares of a series of APS differently than those of a Holder of shares
of any other series of APS without the affirmative vote of the holders of at
least a majority of the shares of APS of each series adversely affected and
outstanding at such time (each such adversely affected series voting separately
as a class). The Trust shall notify S&P ten Business Days prior to any such vote
described in clause (i) or (ii). Unless a higher percentage is provided for
under the Declaration of Trust, the affirmative vote of the holders of a
majority of the outstanding shares of Preferred Shares, including APS, voting
together as a single class, will be required to approve any plan of
reorganization (including bankruptcy proceedings) adversely affecting such
shares or any action requiring a vote of security holders under Section 13(a) of
the 1940 Act. The class vote of holders of shares of Preferred Shares, including
APS, described above will in each case be in addition to a separate vote of the
requisite percentage of shares of Common Shares and shares of Preferred Shares,
including APS, voting together as a single class necessary to authorize the
action in question.
(d) Voting Procedures.
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(i) As soon as practicable after the accrual of any right of the
holders of shares of Preferred Shares to elect additional trustees as described
in paragraph 5(b) above, the Trust shall call a special meeting of such holders
and instruct the Auction Agent to mail a notice of such special meeting to such
holders, such meeting to be held not less than 10 nor more than 20 days after
the date of mailing of such notice. If the Trust fails to send such notice to
the Auction Agent or if the Trust does not call such a special meeting, it may
be called by any such holder on like notice. The record date for determining the
holders entitled to notice of and to vote at such special meeting shall be the
close of business on the fifth Business Day preceding the day on which such
notice is mailed. At any such special meeting and at each meeting held during a
Voting Period, such Holders, voting together as a class (to the exclusion of the
holders of all other securities and classes of shares of beneficial interest of
the Trust), shall be entitled to elect the number of directors prescribed in
paragraph 5(b) above. At any such meeting or adjournment thereof in the absence
of a quorum, a majority of such holders present in person or by proxy shall have
the power to adjourn the meeting without notice, other than by an announcement
at the meeting, to a date not more than 120 days after the original record date.
(ii) For purposes of determining any rights of the Holders to vote on
any matter or the number of shares required to constitute a quorum, whether such
right is created by these Amended By-Laws, by the other provisions of the
Declaration of Trust, by statute or otherwise, a share of APS which is not
Outstanding shall not be counted.
(iii) The terms of office of all persons who are trustees of the Trust
at the time of a special meeting of Holders and holders of other Preferred
Shares to elect trustees shall continue, notwithstanding the election at such
meeting by the Holders and such other holders of the number of trustees that
they are entitled to elect, and the persons so elected by the Holders and such
other holders, together with the two incumbent trustees elected by the Holders
and such other holders of Preferred Shares and the remaining incumbent trustees
elected by the holders of the Common Shares and Preferred Shares, shall
constitute the duly elected trustees of the Trust.
(iv) Simultaneously with the expiration of a Voting Period, the terms
of office of the additional trustees elected by the Holders and holders of other
Preferred Shares pursuant to paragraph 5(b) above shall terminate, the remaining
trustees shall constitute the trustees of the Trust and the voting rights of the
Holders and such other holders to elect additional trustees pursuant to
paragraph 5(b) above shall cease, subject to the provisions of the last sentence
of paragraph 5(b).
(e) Exclusive Remedy. Unless otherwise required by law, the Holders of
shares of APS shall not have any rights or preferences other than those
specifically set forth herein. The Holders of shares of APS shall have no
preemptive rights or rights to cumulative voting. In the event that the Trust
fails to pay any dividends on the shares of APS, the exclusive remedy of the
Holders shall be the right to vote for trustees pursuant to the provisions of
this paragraph 5.
(f) Notification to S&P and Moody's. In the event a vote of Holders of
APS is required pursuant to the provisions of Section 13(a) of the 1940 Act, the
Trust shall, not later than ten Business Days prior to the date on which such
vote is to be taken, notify S&P that such vote is to be taken and the nature of
the action with respect to which such vote is to be taken and, not later than
ten Business Days after the date on which such vote is taken, notify S&P of the
result of such vote.
6. 1940 ACT APS ASSET COVERAGE. The Trust shall maintain, as of the
last Business Day of each month in which any share of APS is outstanding, the
1940 Act APS Asset Coverage.
7. APS BASIC MAINTENANCE AMOUNT. (a) The Trust shall maintain, on each
Valuation Date, and shall verify to its satisfaction that it is maintaining on
such Valuation Date S&P Eligible Assets having an aggregate Discounted Value
equal to or greater than the APS Basic Maintenance Amount. Upon any failure to
maintain the required Discounted Value, the Trust will use its best efforts to
alter the composition of its portfolio to retain a Discounted Value at least
equal to the APS Basic Maintenance Amount on or prior to the APS Basic
Maintenance Cure Date.
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(b) On or before 5:00 p.m., New York City time, on the third Business
Day after a Valuation Date on which the Trust fails to satisfy the APS Basic
Maintenance Amount, the Trust shall complete and deliver to the Auction Agent,
and S&P, a complete APS Basic Maintenance Report as of the date of such failure,
which will be deemed to have been delivered to the Auction Agent if the Auction
Agent receives a copy or telecopy, telex or other electronic transcription
thereof and on the same day the Trust mails to the Auction Agent for delivery on
the next Business Day the complete APS Basic Maintenance Report. The Trust will
deliver an APS Basic Maintenance Report to the Auction Agent and S&P, on or
before 5:00 p.m., New York City time, on the third Business Day after a
Valuation Date on which the Trust cures its failure to maintain S&P Eligible
Assets, with an aggregate Discounted Value equal to or greater than the APS
Basic Maintenance Amount or on which the Trust fails to maintain S&P Eligible
Assets, with an aggregate Discounted Value which exceeds the APS Basic
Maintenance Amount by 5% or more. The Trust will also deliver an APS Basic
Maintenance Report to the Auction Agent and S&P as of each Quarterly Valuation
Date on or before the third Business Day after such date. Additionally, on or
before 5:00 p.m., New York City time, on the third Business Day after the first
day of a Special Dividend Period, the Trust will deliver an APS Basic
Maintenance Report to S&P and the Auction Agent. The Trust shall also provide
S&P with an APS Basic Maintenance Report when specifically requested by S&P. A
failure by the Trust to deliver an APS Basic Maintenance Report under this
paragraph 7(b) shall be deemed to be delivery of an APS Basic Maintenance Report
indicating the Discounted Value for S&P Eligible Assets of the Trust is less
than the APS Basic Maintenance Amount, as of the relevant Valuation Date.
(c) Within ten Business Days after the date of delivery of an APS Basic
Maintenance Report in accordance with paragraph 7(b) above relating to a
Quarterly Valuation 50 Date, the Independent Accountant will confirm in writing
to the Auction Agent and S&P (i) the mathematical accuracy of the calculations
reflected in such Report (and in any other APS Basic Maintenance Report,
randomly selected by the Independent Accountant, that was delivered by the Trust
during the quarter ending on such Quarterly Valuation Date), (ii) that, in such
Report (and in such randomly selected Report), the Trust correctly determined
the assets of the Trust which constitute S&P Eligible Assets at such Quarterly
Valuation Date in accordance with these Amended By-Laws, (iii) that, in such
Report (and in such randomly selected Report), the Trust determined whether the
Trust had, at such Quarterly Valuation Date (and at the Valuation Date addressed
in such randomly selected Report) in accordance with these Amended By-Laws, S&P
Eligible Assets of an aggregate Discounted Value at least equal to the APS Basic
Maintenance Amount, (iv) with respect to the S&P ratings on Municipal
Obligations, the issuer name, issue size and coupon rate listed in such Report,
that the Independent Accountant has requested that S&P verify such information
and the Independent Accountant shall provide a listing in its letter of any
differences, (v) with respect to the Moody's ratings on Municipal Obligations,
the issuer name, issue size and coupon rate listed in such Report, that such
information has been verified by Moody's (in the event such information is not
verified by Moody's, the Independent Accountant will inquire of Moody's what
such information is, and provide a listing in its letter of any differences),
(vi) with respect to the bid or mean price (or such alternative permissible
factor used in calculating the Market Value) provided by the custodian of the
Trust's assets to the Trust for purposes of valuing securities in the Trust's
portfolio, the Independent Accountant has traced the price used in such Report
to the bid or mean price listed in such Report as provided to the Trust and
verified that such information agrees (in the event such information does not
agree, the Independent Accountant will provide a listing in its letter of such
differences) and (vii) with respect to such confirmation to Moody's, that the
Trust has satisfied the requirements of paragraph 8(b) of these Amended By-Laws
(such confirmation is herein called the "Accountant's Confirmation").
(d) Within ten Business Days after the date of delivery to the Auction
Agent and S&P of an APS Basic Maintenance Report in accordance with paragraph
7(b) above relating to any Valuation Date on which the Trust failed to maintain
S&P Eligible Assets with an aggregate Discounted Value equal to or greater than
the APS Basic Maintenance Amount, and relating to the APS Basic Maintenance Cure
Date with respect to such failure, the Independent Accountant will provide to
the Auction Agent and S&P an Accountant's Confirmation as to such APS Basic
Maintenance Report.
(e) If any Accountant's Confirmation delivered pursuant to subparagraph
(c) or (d) of this paragraph 7 shows that an error was made in the APS Basic
Maintenance Report for a particular Valuation Date for which such Accountant's
Confirmation as required to be delivered, or shows that a lower aggregate
Discounted Value for the aggregate of all S&P Eligible Assets of the Trust was
determined by the Independent Accountant, the calculation or
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determination made by such Independent Accountant shall be final and conclusive
and shall be binding on the Trust, and the Trust shall accordingly amend and
deliver the APS Basic Maintenance Report to the Auction Agent and S&P promptly
following receipt by the Trust of such Accountant's Confirmation.
(f) On or before 5:00 p.m., New York City time, on the first Business
Day after the Date of Original Issue of the shares of APS, the Trust will
complete and deliver to S&P an APS Basic Maintenance Report as of the close of
business on such Date of Original Issue. Within five Business Days of such Date
of Original Issue, the Independent Accountant will confirm in writing to S&P (i)
the mathematical accuracy of the calculations reflected in such Report and (ii)
that the aggregate Discounted Value of S&P Eligible Assets reflected thereon
equals or exceeds the APS Basic Maintenance Amount reflected thereon. Also, on
or before 5:00 p.m., New York City time, on the first Business Day after shares
of Common Shares are repurchased by the Trust, the Trust will complete and
deliver to S&P an APS Basic Maintenance Report as of the close of business on
such date that Common Shares is repurchased.
8. CERTAIN OTHER RESTRICTIONS AND REQUIREMENTS.
(a) For so long as any shares of APS are rated by S&P, the Trust will
not purchase or sell futures contracts, write, purchase or sell options on
futures contracts or write put options (except covered put options) or call
options (except covered call options) on portfolio securities unless it receives
written confirmation from S&P that engaging in such transactions will not impair
the ratings then assigned to the shares of APS by S&P, except that the Trust may
purchase or sell futures contracts based on the Bond Buyer Municipal Bond Index
(the "Municipal Index") or United States Treasury Bonds or Notes ("Treasury
Bonds") and write, purchase or sell put and call options on such contracts
(collectively, "S&P Hedging Transactions"), subject to the following
limitations:
(i) the Trust will not engage in any S&P Hedging Transaction based on
the Municipal Index (other than transactions which terminate a futures contract
or option held by the Trust by the Trust's taking an opposite position thereto
("Closing Transactions")), which would cause the Trust at the time of such
transaction to own or have sold the least of (A) more than 1,000 outstanding
futures contracts based on the Municipal Index, (B) outstanding futures
contracts based on the Municipal Index exceeding in number 25% of the quotient
of the Market Value of the Trust's total assets divided by $1,000 or (C)
outstanding futures contracts based on the Municipal Index exceeding in number
10% of the average number of daily traded futures contracts based on the
Municipal Index in the 30 days preceding the time of effecting such transaction
as reported by The Wall Street Journal;
(ii) the Trust will not engage in any S&P Hedging Transaction based on
Treasury Bonds (other than Closing Transactions) which would cause the Trust at
the time of such transaction to own or have sold the lesser of (A) outstanding
futures contracts based on Treasury Bonds and on the Municipal Index exceeding
in number 25% of the quotient of the Market Value of the Trust's total assets
divided by $100,000 ($200,000 in the case of the two-year United States Treasury
Note) or (B) outstanding futures contracts based on Treasury Bonds exceeding in
number 10% of the average number of daily traded futures contracts based on
Treasury Bonds in the 30 days preceding the time of effecting such transaction
as reported by The Wall Street Journal;
(iii) the Trust will engage in Closing Transactions to close out any
outstanding futures contract which the Trust owns or has sold or any outstanding
option thereon owned by the Trust in the event (A) the Trust does not have S&P
Eligible Assets with an aggregate Discounted Value equal to or greater than the
APS Basic Maintenance Amount on two consecutive Valuation Dates and (B) the
Trust is required to pay Variation Margin on the second such Valuation Date;
(iv) the Trust will engage in a Closing Transaction to close out any
outstanding futures contract or option thereon in the month prior to the
delivery month under the terms of such futures contract or option thereon unless
the Trust holds the securities deliverable under such terms; and
(v) when the Trust writes a futures contract or option thereon, it will
either maintain an amount of cash, cash equivalents or high grade (rated A or
better by S&P), fixed-income securities in a segregated account with the Trust's
custodian, so that the amount so segregated plus the amount of Initial Margin
and Variation Margin held in
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the account of or on behalf of the Trust's broker with respect to such futures
contract or option equals the Market Value of the futures contract or option,
or, in the event the Trust writes a futures contract or option thereon which
requires delivery of an underlying security, it shall hold such underlying
security in its portfolio.
For purposes of determining whether the Trust has S&P Eligible Assets
with a Discounted Value that equals or exceeds the APS Basic Maintenance Amount,
the Discounted Value of cash or securities held for the payment of Initial
Margin or Variation Margin shall be zero and the aggregate Discounted Value of
S&P Eligible Assets shall be reduced by an amount equal to (i) 30% of the
aggregate settlement value, as marked to market, of any outstanding futures
contracts based on the Municipal Index which are owned by the Trust plus (ii)
25% of the aggregate settlement value, as marked to market, of any outstanding
futures contracts based on Treasury Bonds which contracts are owned by the
Trust.
(d) For so long as shares of APS are rated by S&P, the Trust will not,
unless it has received written confirmation from S&P that such action would not
impair the rating then assigned to shares of APS by S&P (i) borrow money except
for the purpose of clearing transactions in portfolio securities (which
borrowings shall under any circumstances be limited to the lesser of $10 million
and an amount equal to 5% of the Market Value of the Trust's assets at the time
of such borrowings and which borrowings shall be repaid within 60 days and not
be extended or renewed and shall not cause the aggregate Discounted Value of S&P
Eligible Assets to be less than the APS Basic Maintenance Amount), (ii) engage
in short sales of securities, (iii) lend any securities, (iv) issue any class or
series of stock ranking prior to or on a parity with the APS with respect to the
payment of dividends or the distribution of assets upon dissolution, liquidation
or winding up of the Trust, (v) reissue any APS previously purchased or redeemed
by the Trust, (vi) merge or consolidate into or with any other Trust or entity,
(vii) change the Pricing Service or (viii) engage in reverse repurchase
agreements.
9. NOTICE. All notices or communications, unless otherwise specified in
the Amended By-Laws of the Trust or these Amended By-Laws, shall be sufficiently
given if in writing and delivered in person or mailed by first-class mail,
postage prepaid. Notice shall be deemed given on the earlier of the date
received or the date seven days after which such notice is mailed.
10. AUCTION PROCEDURES. (a) Certain definitions. As used in this
paragraph 10, the following terms shall have the following meanings, unless the
context otherwise requires:
(i) "APS" means the shares of APS being auctioned pursuant to this
paragraph 10.
(ii) "Auction Date" means the first Business Day preceding the first
day of a Dividend Period.
(iii) "Available APS" has the meaning specified in paragraph 10(d)(i)
below.
(iv) "Bid" has the meaning specified in paragraph 10(b)(i) below.
(v) "Bidder" has the meaning specified in paragraph 10(b)(i) below.
(vi) "Hold Order" has the meaning specified in paragraph 10(b)(i)
below.
(vii) "Maximum Applicable Rate" for any Dividend Period will be the
Applicable Percentage of the Reference Rate. The Applicable Percentage will be
determined based on (i) the credit rating assigned on such date to such shares
by S&P (or if S&P shall not make such rating available, the equivalent of such
rating by a Substitute Rating Agency) and (ii) whether the Trust has provided
notification to the Auction Agent prior to the Auction establishing the
Applicable Rate for any dividend pursuant to paragraph 2(f) hereof that net
capital gains or other taxable income will be included in such dividend on
shares of APS as follows:
Percentage of Percentage of
Credit Ratings Reference Reference
Rate Rate
22
<PAGE> 23
S&P No Notification No Notification
AA- or higher 110% 150%
A- to A+ 125% 160%
BBB- to BBB+ 200% 275%
The Trust shall take all reasonable action necessary to enable S&P to
provide a rating for each series of APS. If S&P shall not make such a rating
available, PaineWebber Incorporated or its affiliates and successors, after
consultation with the Trust, shall select a nationally recognized statistical
rating organization to act as a Substitute Rating Agency.
(viii) "Order" has the meaning specified in paragraph 10(b)(i) below.
(ix) "Sell Order" has the meaning specified in paragraph 10(b)(i)
below.
(x) "Submission Deadline" means 1:00 P.M., New York City time, on any
Auction Date or such other time on any Auction Date as may be specified by the
Auction Agent from time to time as the time by which each Broker-Dealer must
submit to the Auction Agent in writing all Orders obtained by it for the Auction
to be conducted on such Auction Date.
(xi) "Submitted Bid" has the meaning specified in paragraph 10(d)(i)
below.
(xii) "Submitted Hold Order" has the meaning specified in paragraph
10(d)(i) below.
(xiii) "Submitted Order" has the meaning specified in paragraph
10(d)(i) below.
(xiv) "Submitted Sell Order" has the meaning specified in paragraph
10(d)(i) below.
(xv) "Sufficient Clearing Bids" has the meaning specified in paragraph
10(d)(i) below. (xvi) "Winning Bid Rate" has the meaning specified in paragraph
10(d)(i) below.
(b) Orders by Beneficial Owners, Potential Beneficial Owners, Existing
Holders and Potential Holders.
(i) Unless otherwise permitted by the Trust, Beneficial Owners and
Potential Beneficial Owners may only participate in Auctions through their
Broker-Dealers. Broker-Dealers will submit the Orders of their respective
customers who are Beneficial Owners and Potential Beneficial Owners to the
Auction Agent, designating themselves as Existing Holders in respect of shares
subject to Orders submitted or deemed submitted to them by Beneficial Owners and
as Potential Holders in respect of shares subject to Orders submitted to them by
Potential Beneficial Owners. A Broker-Dealer may also hold shares of APS in its
own account as a Beneficial Owner. A Broker-Dealer may thus submit Orders to the
Auction Agent as a Beneficial Owner or a Potential Beneficial Owner and
therefore participate in an Auction as an Existing Holder or Potential Holder on
behalf of both itself and its customers. On or prior to the Submission Deadline
on each Auction Date:
A. each Beneficial Owner may submit to its Broker-Dealer information as
to:
(1) the number of Outstanding shares, if any, of APS held by
such Beneficial Owner which such Beneficial Owner desires to continue
to hold without regard to the Applicable Rate for the next succeeding
Dividend Period;
(2) the number of Outstanding shares, if any, of APS held by
such Beneficial Owner which such Beneficial Owner desires to continue
to hold, provided that the Applicable Rate for the next succeeding
Dividend Period shall not be less than the rate per annum specified by
such Beneficial Owner; and/or
23
<PAGE> 24
(3) the number of Outstanding shares, if any, of APS held by
such Beneficial Owner which such Beneficial Owner offers to sell
without regard to the Applicable Rate for the next succeeding Dividend
Period; and
(B) each Broker-Dealer, using a list of Potential Beneficial Owners
that shall be maintained in good faith for the purpose of conducting a
competitive Auction, shall contact Potential Beneficial Owners, including
Persons that are not Beneficial Owners, on such list to determine the number of
Outstanding shares, if any, of APS which each such Potential Beneficial Owner
offers to purchase, provided that the Applicable Rate for the next succeeding
Dividend Period shall not be less than the rate per annum specified by such
Potential Beneficial Owner.
For the purposes hereof, the communication by a Beneficial Owner or
Potential Beneficial Owner to a Broker-Dealer, or the communication by a
Broker-Dealer acting for its own account to the Auction Agent, of information
referred to in clause (A) or (B) of this paragraph 10(b)(i) is hereinafter
referred to as an "Order" and each Beneficial Owner and each Potential
Beneficial Owner placing an Order, including a Broker-Dealer acting in such
capacity for its own account, is hereinafter referred to as a "Bidder"; an Order
containing the information referred to in clause (A)(1) of this paragraph
10(b)(i) is hereinafter referred to as a "Hold Order"; an Order containing the
information referred to in clause (A)(2) or (B) of this paragraph 10(b)(i) is
hereinafter referred to as a "Bid"; and an Order containing the information
referred to in clause (A)(3) of this paragraph 10(b)(i) is hereinafter referred
to as a "Sell Order". Inasmuch as a Broker-Dealer participates in an Auction as
an Existing Holder or a Potential Holder only to represent the interests of a
Beneficial Owner or Potential Beneficial Owner, whether it be its customers or
itself, all discussion herein relating to the consequences of an Auction for
Existing Holders and Potential Holders also applies to the underlying beneficial
ownership interests represented.
(ii) (A) A Bid by an Existing Holder shall constitute an irrevocable
offer to sell:
(1) the number of Outstanding shares of APS specified in such Bid if
the Applicable Rate determined on such Auction Date shall be less
than the rate per annum specified in such Bid; or (1) such number
or a lesser number of Outstanding shares of APS to be determined
as set forth in paragraph 10(e)(i)(D) if the Applicable Rate
determined on such Auction Date shall be equal to the rate per
annum specified therein; or
(2) a lesser number of Outstanding shares of APS to be determined as
set forth in paragraph 10(e)(ii)(C) if such specified rate per
annum shall be higher than the Maximum Applicable Rate and
Sufficient Clearing Bids do not exist.
(B) A Sell Order by an Existing Holder shall constitute an irrevocable
offer to sell:
(1) the number of Outstanding shares of APS specified in such
Sell Order; or
(2) such number or a lesser number of Outstanding shares of
APS to be determined as set forth in paragraph 10(e)(ii)(C) if
Sufficient Clearing Bids do not exist.
(C) A Bid by a Potential Holder shall constitute an irrevocable offer
to purchase:
(1) the number of Outstanding shares of APS specified in such
Bid if the Applicable Rate determined on such Auction Date shall be
higher than the rate per annum specified in such Bid; or
(2) such number or a lesser number of Outstanding shares of
APS to be determined as set forth in paragraph 10(e)(i)(E) if the
Applicable Rate determined on such Auction Date shall be equal to the
rate per annum specified therein.
(c) Submission of Orders by Broker-Dealers to Auction Agent
24
<PAGE> 25
(i) Each Broker-Dealer shall submit in writing or through the
Auction Agent's Auction Processing System to the Auction Agent prior to
the Submission Deadline on each Auction Date all Orders obtained by
such Broker-Dealer, designating itself (unless otherwise permitted by
the Trust) as an Existing Holder in respect of shares subject to Orders
submitted or deemed submitted to it by Beneficial Owners and as a
Potential Holder in respect of shares subject to Orders submitted to it
by Potential Beneficial Owners, and specifying with respect to each
Order:
(A) the name of the Bidder placing such Order (which shall be
the Broker-Dealer unless otherwise permitted by the Trust);
(B) the aggregate number of Outstanding shares of APS that are
the subject of such Order;
(C) to the extent that such Bidder is an Existing Holder:
(1)the number of Outstanding shares, if any, of APS
subject to any Hold Order placed by such Existing
Holder;
(2)the number of Outstanding shares, if any, of APS
subject to any Bid placed by such Existing Holder
and the rate per annum specified in such Bid; and
(3)the number of Outstanding shares, if any, of APS
subject to any Sell Order placed by such Existing
Holder; and
(D) to the extent such Bidder is a Potential Holder, the rate
per annum specified in such Potential Holder's Bid.
(ii) If any rate per annum specified in any Bid contains more than
three figures to the right of the decimal point, the Auction Agent shall round
such rate up to the next highest one-thousandth (.001) of 1%.
(iii) If an Order or Orders covering all of the Outstanding shares of
APS held by an Existing Holder are not submitted to the Auction Agent prior to
the Submission Deadline, the Auction Agent shall deem a Hold Order (in the case
of an Auction relating to a Dividend Period which is not a Special Dividend
Period) and a Sell Order (in the case of an Auction relating to a Special
Dividend Period) to have been submitted on behalf of such Existing Holder
covering the number of Outstanding shares of APS held by such Existing Holder
and not subject to Orders submitted to the Auction Agent.
(iv) If one or more Orders on behalf of an Existing Holder covering in
the aggregate more than the number of Outstanding shares of APS held by such
Existing Holder are submitted to the Auction Agent, such Order shall be
considered valid as follows and in the following order of priority:
(A) any Hold Order submitted on behalf of such Existing Holder
shall be considered valid up to and including the number of Outstanding
shares of APS held by such Existing Holder; provided that if more than
one Hold Order is submitted on behalf of such Existing Holder and the
number of shares of APS subject to such Hold Orders exceeds the number
of Outstanding shares of APS held by such Existing Holder, the number
of shares of APS subject to each of such Hold Orders shall be reduced
pro rata so that such Hold Orders, in the aggregate, will cover exactly
the number of Outstanding shares of APS held by such Existing Holder;
(B) any Bids submitted on behalf of such Existing Holder shall
be considered valid, in the ascending order of their respective rates
per annum if more than one Bid is submitted on behalf of such Existing
Holder, up to and including the excess of the number of Outstanding
shares of APS held by such Existing Holder over the number of shares of
APS subject to any Hold Order referred to in paragraph 10(c)(iv)(A)
above (and if more than one Bid submitted on behalf of such Existing
Holder specifies the same rate per annum and together they cover more
than the remaining number of shares that can be the
25
<PAGE> 26
subject of valid Bids after application of paragraph 10(c)(iv)(A) above
and of the foregoing portion of this paragraph 10(c)(iv)(B) to any Bid
or Bids specifying a lower rate or rates per annum, the number of
shares subject to each of such Bids shall be reduced pro rata so that
such Bids, in the aggregate, cover exactly such remaining number of
shares); and the number of shares, if any, subject to Bids not valid
under this paragraph 10(c)(iv)(B) shall be treated as the subject of a
Bid by a Potential Holder; and
(C) any Sell Order shall be considered valid up to and
including the excess of the number of Outstanding shares of APS held by
such Existing Holder over the number of shares of APS subject to Hold
Orders referred to in paragraph 10(c)(iv)(A) and Bids referred to in
paragraph 10(c)(iv)(B); provided that if more than one Sell Order is
submitted on behalf of any Existing Holder and the number of shares of
APS subject to such Sell Orders is greater than such excess, the number
of shares of APS subject to each of such Sell Orders shall be reduced
pro rata so that such Sell Orders, in the aggregate, cover exactly the
number of shares of APS equal to such excess.
(v) If more than one Bid is submitted on behalf of any Potential
Holder, each Bid submitted shall be a separate Bid with the rate per annum and
number of shares of APS therein specified.
(vi) Any Order submitted by a Beneficial Owner as a Potential
Beneficial Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction
Agent, prior to the Submission Deadline on any Auction Date shall be
irrevocable.
(d) Determination of Sufficient Clearing Bids, Winning Bid Rate and
Applicable Rate.
(i) Not earlier than the Submission Deadline on each Auction Date, the
Auction Agent shall assemble all Orders submitted or deemed submitted to it by
the Broker-Dealers (each such Order as submitted or deemed submitted by a
Broker-Dealer being hereinafter referred to individually as a "Submitted Hold
Order", a "Submitted Bid" or a "Submitted Sell Order", as the case may be, or as
a "Submitted Order") and shall determine:
(A) the excess of the total number of Outstanding shares of
APS over the number of Outstanding shares of APS that are the subject
of Submitted Hold Orders (such excess being hereinafter referred to as
the "Available APS");
(B) from the Submitted Orders whether the number of
Outstanding shares of APS that are the subject of Submitted Bids by
Potential Holders specifying one or more rates per annum equal to or
lower than the Maximum Applicable Rate exceeds or is equal to the sum
of:
(1) the number of Outstanding shares of APS that are the
subject of Submitted Bids by Existing Holders specifying one
or more rates per annum higher than the Maximum Applicable
Rate, and
(2) the number of Outstanding shares of APS that are subject
to Submitted Sell Orders (if such excess or such equality
exists (other than because the number of Outstanding shares of
APS in clause (1) above and this clause (2) are each zero
because all of the Outstanding shares of APS are the subject
of Submitted Hold Orders), such Submitted Bids by Potential
Holders being hereinafter referred to collectively as
"Sufficient Clearing Bids"); and
(C) if Sufficient Clearing Bids exist, the lowest rate per annum
specified in the Submitted Bids (the "Winning Bid Rate") that if:
(1) each Submitted Bid from Existing Holders specifying the
Winning Bid Rate and all other Submitted Bids from Existing Holders
specifying lower rates per annum were rejected, thus entitling such
Existing Holders to continue to hold the shares of APS that are the
subject of such Submitted Bids, and
(2) each Submitted Bid from Potential Holders specifying the
Winning Bid Rate and all other Submitted Bids from Potential Holders
specifying lower rates per annum were accepted, thus entitling the
26
<PAGE> 27
Potential Holders to purchase the shares of APS that are the subject of
such Submitted Bids, would result in the number of shares subject to
all Submitted Bids specifying the Winning Bid Rate or a lower rate per
annum being at least equal to the Available APS.
(ii) Promptly after the Auction Agent has made the
determinations pursuant to paragraph 10(d)(i), the Auction Agent shall
advise the Trust of the Maximum Applicable Rate and, based on such
determinations, the Applicable Rate for the next succeeding Dividend
Period as follows:
(A) if Sufficient Clearing Bids exist, that the Applicable
Rate for the next succeeding Dividend Period shall be
equal to the Winning Bid Rate;
(B) if Sufficient Clearing Bids do not exist (other than
because all of the Outstanding shares of APS are the
subject of Submitted Hold Orders), that the Applicable
Rate for the next succeeding Dividend Period shall be
equal to the Maximum Applicable Rate; or
(C) if all of the Outstanding shares of APS are the subject of
Submitted Hold Orders, that the Dividend Period next
succeeding the Auction shall automatically be the same
length as the immediately preceding Dividend Period and
the Applicable Rate for the next succeeding Dividend
Period shall be equal to 40% of the Reference Rate (or 60%
of such rate if the Trust has provided notification to the
Auction Agent prior to the Auction establishing the
Applicable Rate for any dividend pursuant to paragraph
2(f) hereof that net capital gains or other taxable income
will be included in such dividend on shares of APS) on the
date of the Auction.
(e) Acceptance and Rejection of Submitted Bids and Submitted
Sell Orders and Allocation of Shares. Based on the determinations made
pursuant to paragraph 10(d)(i), the Submitted Bids and Submitted Sell
Orders shall be accepted or rejected and the Auction Agent shall take
such other action as set forth below:
(i) If Sufficient Clearing Bids have been made, subject to the
provisions of paragraph 10(e)(iii) and paragraph 10(e)(iv), Submitted Bids and
Submitted Sell Orders shall be accepted or rejected in the following order of
priority and all other Submitted Bids shall be rejected:
(A) the Submitted Sell Orders of Existing Holders shall be
accepted and the Submitted Bid of each of the Existing Holders
specifying any rate per annum that is higher than the Winning Bid Rate
shall be accepted, thus requiring each such Existing Holder to sell the
Outstanding shares of APS that are the subject of such Submitted Sell
Order or Submitted Bid;
(B) the Submitted Bid of each of the Existing Holders
specifying any rate per annum that is lower than the Winning Bid Rate
shall be rejected, thus entitling each such Existing Holder to continue
to hold the Outstanding shares of APS that are the subject of such
Submitted Bid;
(C) the Submitted Bid of each of the Potential Holders
specifying any rate per annum that is lower than the Winning Bid Rate
shall be accepted;
(D) the Submitted Bid of each of the Existing Holders
specifying a rate per annum that is equal to the Winning Bid Rate shall
be rejected, thus entitling each such Existing Holder to continue to
hold the Outstanding shares of APS that are the subject of such
Submitted Bid, unless the number of Outstanding shares of APS subject
to all such Submitted Bids shall be greater than the number of
Outstanding shares of APS ("Remaining Shares") equal to the excess of
the Available APS over the number of Outstanding shares of APS subject
to Submitted Bids described in paragraph 10(e)(i)(B) and paragraph
10(e)(i)(C), in which event the Submitted Bids of each such Existing
Holder shall be accepted, and each such Existing Holder shall be
required to sell Outstanding shares of APS, but only in an amount equal
to the difference between (1) the number of Outstanding shares of APS
then held by such Existing Holder subject to such
27
<PAGE> 28
Submitted Bid and (2) the number of shares of APS obtained by
multiplying (x) the number of Remaining Shares by (y) a fraction the
numerator of which shall be the number of Outstanding shares of APS
held by such Existing Holder subject to such Submitted Bid and the
denominator of which shall be the sum of the number of Outstanding
shares of APS subject to such Submitted Bids made by all such Existing
Holders that specified a rate per annum equal to the Winning Bid Rate;
and
(E) the Submitted Bid of each of the Potential Holders
specifying a rate per annum that is equal to the Winning Bid Rate shall
be accepted but only in an amount equal to the number of Outstanding
shares of APS obtained by multiplying (x) the difference between the
Available APS and the number of Outstanding shares of APS subject to
Submitted Bids described in paragraph 10(e)(i)(B), paragraph
10(e)(i)(C) and paragraph 10(e)(i)(D) by (y) a fraction the numerator
of which shall be the number of Outstanding shares of APS subject to
such Submitted Bid and the denominator of which shall be the sum of the
number of Outstanding shares of APS subject to such 74 Submitted Bids
made by all such Potential Holders that specified rates per annum equal
to the Winning Bid Rate.
(ii) If Sufficient Clearing Bids have not been made (other than because
all of the Outstanding shares of APS are subject to Submitted Hold Orders),
subject to the provisions of paragraph 10(e)(iii), Submitted Orders shall be
accepted or rejected as follows in the following order of priority and all other
Submitted Bids shall be rejected:
(A) the Submitted Bid of each Existing Holder specifying any
rate per annum that is equal to or lower than the Maximum Applicable
Rate shall be rejected, thus entitling such Existing Holder to continue
to hold the Outstanding shares of APS that are the subject of such
Submitted Bid;
(B) the Submitted Bid of each Potential Holder specifying any
rate per annum that is equal to or lower than the Maximum Applicable
Rate shall be accepted, thus requiring such Potential Holder to
purchase the Outstanding shares of APS that are the subject of such
Submitted Bid; and
(C) the Submitted Bids of each Existing Holder specifying any
rate per annum that is higher than the Maximum Applicable Rate shall be
accepted and the Submitted Sell Orders of each Existing Holder shall be
accepted, in both cases only in an amount equal to the difference
between (1) the number of Outstanding shares of APS then held by such
Existing Holder subject to such Submitted Bid or Submitted Sell Order
and (2) the number of shares of APS obtained by multiplying (x) the
difference between the Available APS and the aggregate number of
Outstanding shares of APS subject to Submitted Bids described in
paragraph 10(e)(ii)(A) and paragraph 10(e)(ii)(B) by (y) a fraction the
numerator of which shall be the number of Outstanding shares of APS
held by such Existing Holder subject to such Submitted Bid or Submitted
Sell Order and the denominator of which shall be the number of
Outstanding shares of APS subject to all such Submitted Bids and
Submitted Sell Orders.
(iii) If, as a result of the procedures described in paragraph 10(e)(i)
or paragraph 10(e)(ii), any Existing Holder would be entitled or required to
sell, or any Potential Holder would be entitled or required to purchase, a
fraction of a share of APS on any Auction Date, the Auction Agent shall, in such
manner as in its sole discretion it shall determine, round up or down the number
of shares of APS to be purchased or sold by any Existing Holder or Potential
Holder on such Auction Date so that each Outstanding share of APS purchased or
sold by each Existing Holder or Potential Holder on such Auction Date shall be a
whole share of APS.
(iv) If, as a result of the procedures described in paragraph 10(e)(i),
any Potential Holder would be entitled or required to purchase less than a whole
share of APS on any Auction Date, the Auction Agent shall, in such manner as in
its sole discretion it shall determine, allocate shares of APS for purchase
among Potential Holders so that only whole shares of APS are purchased on such
Auction Date by any Potential Holder, even if such allocation results in one or
more of such Potential Holders not purchasing any shares of APS on such Auction
Date.
(v) Based on the results of each Auction, the Auction Agent shall
determine, with respect to each Broker-Dealer that submitted Bids or Sell Orders
on behalf of Existing Holders or Potential Holders, the aggregate number
28
<PAGE> 29
of Outstanding shares of APS to be purchased and the aggregate number of the
Outstanding shares of APS to be sold by such Potential Holders and Existing
Holders and, to the extent that such aggregate number of Outstanding shares to
be purchased and such aggregate number of Outstanding shares to be sold differ,
the Auction Agent shall determine to which other Broker-Dealer or Broker-Dealers
acting for one or more purchasers such Broker-Dealer shall deliver, or from
which other Broker-Dealer or Broker-Dealers acting for one or more sellers such
Broker-Dealer shall receive, as the case may be, Outstanding shares of APS
(f) Miscellaneous. The Trust may interpret the provisions of this
paragraph 10 to resolve any inconsistency or ambiguity, remedy any formal defect
or make any other change or modification that does not substantially adversely
affect the rights of Beneficial Owners of APS. A Beneficial Owner or an Existing
Holder (A) may sell, transfer or otherwise dispose of shares of APS only
pursuant to a Bid or Sell Order in accordance with the procedures described in
this paragraph 10 or to or through a Broker-Dealer, provided that in the case of
all transfers other than pursuant to Auctions such Beneficial Owner or Existing
Holder, its Broker-Dealer, if applicable, or its Agent Member advises the
Auction Agent of such transfer and (B) except as otherwise required by law,
shall have the ownership of the shares of APS held by it maintained in book
entry form by the Securities Depository in the account of its Agent Member,
which in turn will maintain records of such Beneficial Owner's beneficial
ownership. Neither the Trust nor any Affiliate shall submit an Order in any
Auction. Any Beneficial Owner that is an Affiliate shall not sell, transfer or
otherwise dispose of shares of APS to any Person other than the Trust. All of
the Outstanding shares of APS of a series shall be represented by a single
certificate registered in the name of the nominee of the Securities Depository
unless otherwise required by law or unless there is no Securities Depository. If
there is no Securities Depository, at the Trust's option and upon its receipt of
such documents as it deems appropriate, any shares of APS may be registered in
the Stock Register in the name of the Beneficial Owner thereof and such
Beneficial Owner thereupon will be entitled to receive 77 certificates therefor
and required to deliver certificates therefor upon transfer or exchange thereof.
11. SECURITIES DEPOSITORY; STOCK CERTIFICATES. (a) If there is a
Securities Depository, one certificate for all of the shares of APS of each
series shall be issued to the Securities Depository and registered in the name
of the Securities Depository or its nominee. Additional certificates may be
issued as necessary to represent shares of APS. All such certificates shall bear
a legend to the effect that such certificates are issued subject to the
provisions restricting the transfer of shares of APS contained in these Amended
By-Laws. Unless the Trust shall have elected, during a Non-Payment Period, to
waive this requirement, the Trust will also issue stop-transfer instructions to
the Auction Agent for the shares of APS. Except as provided in paragraph
(b) below, the Securities Depository or its nominee will be the Holder,
and no Beneficial Owner shall receive certificates representing its ownership
interest in such shares. (b) If the Applicable Rate applicable to all shares of
APS of a series shall be the Non-Payment Period Rate or there is no Securities
Depository, the Trust may at its option issue one or more new certificates with
respect to such shares (without the legend referred to in paragraph 11(a))
registered in the names of the Beneficial Owners or their nominees and rescind
the stop-transfer instructions referred to in paragraph 11(a) with respect to
such shares.
29
<PAGE> 1
Exhibit (d)(2)
CERTIFICATE NUMBER OF
NUMBER SHARES
1 2,620
- ---------- ---------
EATON VANCE MUNICIPAL INCOME TRUST
Organized Under the Laws of The Commonwealth of Massachusetts
Auction Preferred Shares - Class A
$.01 Par Value Per Share
$25,000 Liquidation Preference Per Share
Cusip No.
This certifies that is the owner of fully paid and
non-assessable shares of Auction Preferred Shares - Class A, $.01 par value per
share, $25,000 liquidation preference per share, of Eaton Vance Municipal Income
Trust (the "Trust") transferable only on the books of the Trust by the holder
thereof in person or by duly authorized Attorney upon surrender of this
Certificate properly endorsed. This Certificate is not valid unless
countersigned by the transfer agent and registrar.
A statement in full, of all the designations, preferences,
qualifications, limitations, restrictions and special or relative rights of the
shares of each class authorized to be issued, will be furnished by the Trust to
any shareholders upon request and without charge.
IN WITNESS WHEREOF, the Trust has caused this Certificate to be signed
by its duly authorized officers and its Seal to be hereunto affixed this
day of A.D. 1999.
BANKERS TRUST COMPANY EATON VANCE MUNICIPAL INCOME TRUST
As Transfer Agent and Registrar
By: By:
---------------------------------- ----------------------------------
Authorized Signature President
Attest:
--------------------------------
Secretary
<PAGE> 2
FOR VALUE RECEIVED, ____________________________ hereby sells, assigns
and transfers unto _____________________________ Shares represented by this
Certificate, and do hereby irrevocably constitute and appoint
____________________________________ Attorney to transfer the said Shares on the
books of the within named Trust with full power of substitution in the premises.
Dated ______________________________, ________________
In presence of
_________________________________ _______________________________________
Shares of Auction Preferred Shares evidenced
by this Certificate may be sold, transferred,
or otherwise disposed of only pursuant to the
provisions of the Trust's Agreement and
Declaration of Trust, as amended, a copy of
which may be at the office of the Secretary of
the Commonwealth of Massachusetts.
The Trust will furnish to any shareholder,
upon request and without charge, a full
statement of the designations, preferences,
limitations and relative rights of the shares
of each class of series of capital stock of
the Trust authorized to be issued, so far as
they have been determined, and the authority
of the Board of Trustees to determine the
relative rights and preferences of subsequent
classes or series. Any such request should be
addressed to the Secretary of the Trust.
<PAGE> 3
CERTIFICATE NUMBER OF
NUMBER SHARES
1 2,620
- ---------- ---------
EATON VANCE MUNICIPAL INCOME TRUST
Organized Under the Laws of The Commonwealth of Massachusetts
Auction Preferred Shares - Class B
$.01 Par Value Per Share
$25,000 Liquidation Preference Per Share
Cusip No.
This certifies that is the owner of fully paid and
non-assessable shares of Auction Preferred Shares - Class B, $.01 par value per
share, $25,000 liquidation preference per share, of Eaton Vance Municipal Income
Trust (the "Trust") transferable only on the books of the Trust by the holder
thereof in person or by duly authorized Attorney upon surrender of this
Certificate properly endorsed. This Certificate is not valid unless
countersigned by the transfer agent and registrar.
A statement in full, of all the designations, preferences,
qualifications, limitations, restrictions and special or relative rights of the
shares of each class authorized to be issued, will be furnished by the Trust to
any shareholders upon request and without charge.
IN WITNESS WHEREOF, the Trust has caused this Certificate to be signed by
its duly authorized officers and its Seal to be hereunto affixed this
day of A.D. 1999.
BANKERS TRUST COMPANY EATON VANCE MUNICIPAL INCOME TRUST
As Transfer Agent and Registrar
By: By:
---------------------------------- ----------------------------------
Authorized Signature President
Attest:
--------------------------------
Secretary
<PAGE> 4
FOR VALUE RECEIVED, ____________________________ hereby sells, assigns
and transfers unto _____________________________ Shares represented by this
Certificate, and do hereby irrevocably constitute and appoint
____________________________________ Attorney to transfer the said Shares on the
books of the within named Trust with full power of substitution in the premises.
Dated ______________________________, ________________
In presence of
_________________________________ _______________________________________
Shares of Auction Preferred Shares evidenced
by this Certificate may be sold, transferred,
or otherwise disposed of only pursuant to the
provisions of the Trust's Agreement and
Declaration of Trust, as amended, a copy of
which may be at the office of the Secretary of
the Commonwealth of Massachusetts.
The Trust will furnish to any shareholder,
upon request and without charge, a full
statement of the designations, preferences,
limitations and relative rights of the shares
of each class of series of capital stock of
the Trust authorized to be issued, so far as
they have been determined, and the authority
of the Board of Trustees to determine the
relative rights and preferences of subsequent
classes or series. Any such request should be
addressed to the Secretary of the Trust.
<PAGE> 1
Exhibit (h)(4)
EATON VANCE MUNICIPAL INCOME TRUST
2,620 SERIES A AUCTION PREFERRED SHARES
2,620 SERIES B AUCTION PREFERRED SHARES
UNDERWRITING AGREEMENT
March 1, 1999
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SALOMON SMITH BARNEY INC.
A.G. EDWARDS & SONS, INC.
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
Eaton Vance Municipal Income Trust, a Massachusetts business trust (the
"Trust"), proposes to issue and sell to the underwriters named in Schedule 1
hereto (the "Underwriters"), an aggregate of 2,620 preferred shares of
beneficial interest, par value $0.01 per share, designated Series A Auction
Preferred Shares of the Trust and 2,620 preferred shares of beneficial interest,
par value $0.01 per share, designated Series B Auction Preferred Shares of the
the Trust, each with a liquidation preference of $25,000 per share
(collectively, the "APS").
Eaton Vance Management, a Massachusetts business trust ("Eaton
Vance" or the "Investment Adviser"), will act as the Trust's investment adviser
pursuant to an Investment Advisory Agreement by and between the Trust and the
Investment Adviser, dated as of December 21, 1998 (the "Investment Advisory
Agreement"). The Trust has engaged Eaton Vance to act as its administrator
pursuant to an Administration Agreement, dated as of December 21, 1998.
Investors Bank & Trust Company ("IBT") will act as the custodian (the
"Custodian") of the Trust's cash and portfolio assets pursuant to a Custody
Agreement, effective as of December 21, 1998 (the "Custody Agreement"). First
Data Investor Services Group will act as the Trust's transfer agent and dividend
disbursing agent (the "Transfer Agent") pursuant to a transfer agency agreement,
dated as of December 21, 1998 (the "Transfer Agency Agreement").
<PAGE> 2
Banker's Trust Corporation will act as the Trust's auction agent (the "Auction
Agent") pursuant to an Auction Agency Agreement, dated as of March 4, 1999 (the
"Auction Agency Agreement"). The Trust has entered into a Letter Agreement,
dated as of March 4, 1999 with the Depository Trust Company (the "DTC
Agreement"). In addition, Eaton Vance has retained PaineWebber Incorporated,
which is also one of the Underwriters, to serve as the Trust's Shareholder
Servicing Agent pursuant to a shareholder servicing agreement (the "Shareholder
Servicing Agreement"), dated as of January 29, 1999.
The Trust and the Investment Adviser each hereby confirms as follows
their agreements with the Underwriters.
1. Sale and Purchase; Compensation
(a) The Trust will issue and sell to each Underwriter, and each
Underwriter will purchase from the Trust, the number of each series of APS set
forth opposite such Underwriter's name in Schedule 1 hereto, at the purchase
price per share of $24,750.
(b) The obligations of the Underwriters under this Underwriting
Agreement are several and not joint and are undertaken on the basis of the
representations and are subject to the conditions set forth in this Underwriting
Agreement.
2. Payment and Delivery. Delivery by the Trust of the APS (the "APS
Closing") to the Underwriters against payment of the purchase price by wire
transfer of Federal Funds or similar same day funds to the Trust for the APS,
will take place at the offices of PaineWebber Incorporated (the "Managing
Representative"), 1285 Avenue of the Americas, New York, New York or such other
location as is agreed upon by the parties hereto, or through the facilities of
the Depository Trust Company or another mutually agreeable facility, at 9:00
a.m., New York City time, on the third business day following the date of this
Underwriting Agreement, or at such time on such other date, not later than ten
business days after the date of this Underwriting Agreement, as may be agreed
upon by the Trust and the Managing Representative (the "APS Closing Date").
A certificate in definitive form representing each series of the APS to
be purchased by the Underwriters registered in the name of Cede & Co., as
nominee for the Depository Trust Company, shall be delivered by or on behalf of
the Trust to DTC for the account of the Underwriters.
2
<PAGE> 3
3. Registration Statement and Prospectus; Public Offering. The Trust has
filed with the Securities and Exchange Commission (the "Commission"), pursuant
to the Securities Act of 1933, as amended (the "Securities Act"), the Investment
Company Act of 1940, as amended (the "Investment Company Act"), and the
published rules and regulations adopted by the Commission under the Securities
Act (the "Securities Act Rules") and the Investment Company Act (the "Investment
Company Act Rules"), a Notification of Registration on Form N-8A (the
"Notification") pursuant to Section 8 of the Investment Company Act and a
registration statement on Form N-2 (File Nos. 333-70725 and 811-09141) relating
to the APS (the "registration statement"), including a preliminary prospectus
(including any preliminary statement of additional information), and such
amendments to such registration statement as may have been required to the date
of this Underwriting Agreement. The preliminary prospectus (including any
preliminary statement of additional information) is to be used in connection
with the offering and sale of the APS. The term "Preliminary Prospectus" as used
herein means any preliminary prospectus (including any preliminary statement of
additional information) included at any time as a part of the registration
statement and any preliminary prospectus (including any preliminary statement of
additional information) omitted therefrom pursuant to the Securities Act Rules.
The Trust has furnished the Managing Representative copies of such
registration statement, each amendment to such registration statement filed by
the Trust with the Commission and the Preliminary Prospectus filed by the Trust
with the Commission or used by the Trust. If the registration statement has not
become effective, a further amendment (the "Final Amendment") to such
registration statement, including the forms of final prospectus (including any
final statement of additional information), necessary to permit such
registration statement to become effective will promptly be filed by the Trust
with the Commission. If such registration statement has become effective and any
prospectus (including any statement of additional information) contained therein
omits certain information at the time of effectiveness pursuant to Rule 430A of
the Securities Act Rules, a final prospectus (the "Rule 430A Prospectus")
containing such omitted information will be filed by the Trust with the
Commission in accordance with Rule 497(h) of the Securities Act Rules. The
registration statement as amended at the time it becomes or became effective
(the "Effective Date"), including financial statements and all exhibits, and any
information deemed to be included by Rule 430A, is called the "Registration
Statement." The term "Prospectus" means the prospectus (including any statement
of additional information) in the form in which it is first filed with the
Commission pursuant to Rule 497(b), (h) or (j) of the Securities Act Rules, as
the case may be.
3
<PAGE> 4
The Trust and the Investment Adviser understand that the Underwriters
propose to make a public offering of the APS, as described in the Prospectus, as
soon after the Effective Date (or, if later, after the date this Underwriting
Agreement is signed) as the Managing Representative deems advisable. The Trust
confirms that the Underwriters and dealers have been authorized to distribute
the Preliminary Prospectus relating to the APS included in the initial filing of
the registration statement and are authorized to distribute the Prospectus and
any amendments or supplements thereto.
4. Representations.
(a) Each of the Trust and the Investment Adviser jointly and
severally represents to each Underwriter as follows:
(i) On (A) the Effective Date and the date on which the
Prospectus is first filed with the Commission pursuant to Rule 497(b), (h)
or (j) of the Securities Act Rules, as the case may be, (B) the date on
which any post-effective amendment to the Registration Statement (except any
post-effective amendment which is filed with the Commission after the later
of (x) one year from the date of this Underwriting Agreement or (y) the date
on which the distribution of the APS is completed) became or becomes
effective or any amendment or supplement to the Prospectus was or is filed
with the Commission and (C) the APS Closing Date, the Registration
Statement, the Prospectus and any such amendment or supplement thereto and
the Notification complied or will comply in all material respects with the
requirements of the Securities Act, the Investment Company Act, the
Securities Act Rules and the Investment Company Act Rules, as the case may
be. On the Effective Date and on the date that any post-effective amendment
to the Registration Statement (except any post-effective amendment which is
filed with the Commission after the later of (x) one year from the date of
this Underwriting Agreement or (y) the date on which the distribution of the
APS is completed) became or becomes effective, neither the Registration
Statement nor any such amendment did or will contain any untrue statement of
4
<PAGE> 5
a material fact or omit to state a material fact required to be stated in it
or necessary to make the statements in it not misleading. At the Effective
Date and, if applicable, the date the Prospectus or any amendment or
supplement to the Prospectus was or is filed with the Commission and at the
APS Closing Date, the Prospectus did not or will not, as the case may be,
contain any untrue statement of a material fact or omit to state a material
fact required to be stated in it or necessary to make the statements in it,
in light of the circumstances under which they were made, not misleading.
The foregoing representations in this Section 4(a)(i) do not apply to
statements or omissions relating to the Underwriters made in reliance on and
in conformity with information furnished in writing to the Trust by the
Underwriters expressly for use in the Registration Statement, the
Prospectus, or any amendments or supplements thereto, as described in
Section 7(f) hereof.
(ii) The Trust has been duly formed and is validly
existing as a business trust under the laws of The Commonwealth of
Massachusetts; the Agreement and Declaration of Trust of the Trust, as
amended through the date hereof (the "Declaration of Trust"), and the
Amended Bylaws of the Trust, adopted in connection with the issuance of the
APS and as amended through the date hereof (the "Amended Bylaws"), confer
upon the Trust full power and authority to conduct all the activities
conducted by it, to own or lease all assets owned or leased by it and to
conduct its business as described in the Registration Statement and
Prospectus; the Trust is duly licensed and qualified to do business and in
good standing in each jurisdiction in which its ownership or leasing of
property or its conducting of business requires such qualification, except
where the failure to be so qualified or be in good standing would not have a
material adverse effect on the Trust; and the Trust owns, possesses or has
obtained and currently maintains all governmental licenses, permits,
consents, orders, approvals and other authorizations, whether foreign or
domestic, necessary to carry on its business as contemplated in the
Prospectus. The Trust has no subsidiaries.
(iii) The capitalization of the Trust is as set forth in
the Registration Statement and the Prospectus. The common shares of
beneficial interest of the Trust, par value $.01 per share (the "Common
Shares"), and the APS conform in all material respects to the description of
them in the Prospectus. All the outstanding Common Shares have been duly
authorized and are validly issued, fully paid and nonassessable (except as
described in the Registration Statement). The APS to be issued and delivered
to and paid for by the Underwriters in accordance with this Underwriting
Agreement against payment therefor as provided by this Underwriting
Agreement have been duly authorized
5
<PAGE> 6
and when issued and delivered to the Underwriters will have been validly
issued and will be fully paid and nonassessable (except as described in
the Registration Statement). No person is entitled to any preemptive or
other similar rights in connection with the issuance of the APS.
(iv) The Trust is duly registered with the Commission
under the Investment Company Act as a non-diversified, closed-end
management investment company, and, subject to the filing of the Final
Amendment, if not already filed, all action under the Securities Act, the
Investment Company Act, the Securities Act Rules and the Investment
Company Act Rules, as the case may be, necessary to make the public
offering and consummate the sale of the APS as provided in this
Underwriting Agreement has or will have been taken by the Trust.
(v) The Trust has full power and authority to enter into
each of this Underwriting Agreement, the Investment Advisory Agreement,
the Administration Agreement, the Custody Agreement, the Transfer Agency
Agreement, the Auction Agency Agreement and the DTC Agreement
(collectively, the "Trust Agreements") and to perform all of the terms
and provisions hereof and thereof to be carried out by it and (A) each
Trust Agreement has been duly and validly authorized, executed and
delivered by or on behalf of the Trust, (B) each Trust Agreement does not
violate in any material respect any of the applicable provisions of the
Investment Company Act, the Investment Advisers Act of 1940 (the
"Advisers Act"), the Investment Company Act Rules and the rules and
regulations adopted by the Commission under the Advisers Act (the
"Advisers Act Rules"), as the case may be, and (C) assuming due
authorization, execution and delivery by the other parties thereto, each
Trust Agreement constitutes the legal, valid and binding obligation of
the Trust enforceable in accordance with its terms, (1) subject, as to
enforcement, to applicable bankruptcy, insolvency and similar laws
affecting creditors' rights generally and to general equitable principles
(regardless of whether enforcement is sought in a proceeding in equity or
at law) and (2) except as rights to indemnity thereunder may be limited
by federal or state securities laws.
6
<PAGE> 7
(vi) None of (A) the execution and delivery by the Trust
of the Trust Agreements, (B) the issue and sale by the Trust of the APS
as contemplated by this Underwriting Agreement and (C) the performance by
the Trust of its obligations under any of the Trust Agreements or
consummation by the Trust of the other transactions contemplated by the
Trust Agreements conflicts with or will conflict with, or results or will
result in a breach of, the Agreement and Declaration of Trust of the
Trust, dated as of December 10, 1998 (the "Declaration of Trust") or the
Bylaws of the Trust, as amended through the date hereof, establishing the
powers, preferences and rights of the APS (the "Amended Bylaws") or any
agreement or instrument to which the Trust is a party or by which the
Trust is bound, or any law, rule or regulation, or order of any court,
governmental instrumentality, securities exchange or association or
arbitrator, whether foreign or domestic, applicable to the Trust, other
than state securities or "blue sky" laws applicable in connection with
the purchase and distribution of the APS by the Underwriters pursuant to
this Underwriting Agreement.
(vii) The Trust is not currently in breach of, or in
default under, any written agreement or instrument to which it is a party
or by which it or its property is bound or affected.
(viii) No person has any right to the registration of any
securities of the Trust because of the filing of the registration
statement.
(ix) No consent, approval, authorization or order of any
court or governmental agency or body or securities exchange or
association, whether foreign or domestic, is required by the Trust for
the consummation by the Trust of the transactions to be performed by the
Trust or the performance by the Trust of all the terms and provisions to
be performed by or on behalf of it in each case as contemplated in the
Trust Agreements, except such as (A) have been obtained under the
Securities Act, the Investment Company Act, the Advisers Act, the
Securities Act Rules, the Investment Company Act Rules, and the Advisers
Act Rules, and (B) may be required by the New York Stock Exchange or
under state securities or "blue sky" laws, in connection with the
purchase and distribution of the APS by the Underwriters pursuant to this
Underwriting Agreement.
7
<PAGE> 8
(x) Deloitte & Touche LLP, whose report appears in the
Prospectus, are independent public accountants with respect to the Trust
as required by the Securities Act, the Investment Company Act, the
Securities Act Rules and the Investment Company Act Rules.
(xi) The financial statements included in the
Registration Statement and the Prospectus present fairly in all material
respects, in accordance with generally accepted accounting principles in
the United States applied on a consistent basis, the financial condition
of the Trust at the dates and for the periods indicated.
(xii) The Trust will maintain a system of internal
accounting controls sufficient to provide reasonable assurances that (A)
transactions are executed in accordance with management's general or
specific authorization; (B) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets;
(C) access to assets is permitted only in accordance with management's
general or specific authorization; and (D) the recorded accountability
for assets is compared with existing assets through an asset
reconciliation procedure or otherwise at reasonable intervals and
appropriate action is taken with respect to any differences.
(xiii) Other than as set forth in the Prospectus,
subsequent to the date of the unaudited financial statements in the
Registration Statement and Prospectus, (A) the Trust has not incurred any
liabilities or obligations, direct or contingent (whether or not in the
ordinary course of business), or entered into any transactions, not in
the ordinary course of business, that are material to the Trust, (B)
there has not been any material change in the Common Shares or any
material adverse change, or any development involving a prospective
material adverse change, in or affecting the general affairs, management,
financial position, shareholders' equity or results of operations of the
Trust, that might materially and adversely affect the property or assets
thereof, (C) there has been no dividend or distribution paid or declared
in respect of any class of the Trust's shares of beneficial interest, and
(D) the Trust has not incurred any debt or issued any senior security;
8
<PAGE> 9
(xiv) There is no action, suit or proceeding before or by
any court, commission, regulatory body, administrative agency or other
governmental agency or body, foreign or domestic, now pending, or, to the
knowledge of the Trust, threatened against or affecting the Trust, which
(A) might result in any material adverse change in the condition,
financial or otherwise, business affairs or business prospects of the
Trust or might materially adversely affect the properties or assets of
the Trust or (B) is of a character required to be described in the
Registration Statement or the Prospectus; and there are no contracts,
franchises or other documents that are of a character required to be
described in, or that are required to be filed as exhibits to, the
Registration Statement that have not been described or filed as required.
(xv) The Trust intends to direct the investment of the
proceeds of the offering of the APS in such a manner as to comply with
the requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code").
(xvi) The Common Shares are listed on the New York Stock
Exchange.
(xvii) The APS have been, or prior to the APS Closing
Date will be, assigned a rating of "AAA" by Standard & Poor's Ratings
Group ("Standard & Poor's").
(xviii) All advertisements and other sales literature
(collectively, "sales materials") authorized in writing or prepared by
the Trust for use in connection with the public offering of the APS
complied and comply with the requirements of the Securities Act, the
Securities Act Rules and the rules and interpretations of the NASD and no
such sales materials contained or contain any untrue statement of a
material fact or omitted or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein
not misleading in light of the circumstances in which they were made,
including the Securities Act and the Securities Act Rules.
(b) The Investment Adviser represents to each Underwriter as
follows:
9
<PAGE> 10
(i) The Investment Adviser has been duly formed, is
validly existing as a business trust under the laws of The Commonwealth
of Massachusetts with full power and authority to conduct all of the
activities conducted by it, to own or lease all of the assets owned or
leased by it and to conduct its business as described in the Registration
Statement and Prospectus, and the Investment Adviser is duly licensed and
qualified to do business and in good standing in each jurisdiction in
which it is required to be so qualified, except to the extent that
failure to be so qualified or be in good standing would not have a
material adverse affect on the Investment Adviser; and the Investment
Adviser owns, possesses or has obtained and currently maintains all
governmental licenses, permits, consents, orders, approvals and other
authorizations, whether foreign or domestic, necessary to carry on its
business as contemplated in the Registration Statement and the
Prospectus.
(ii) The Investment Adviser is (A) duly registered as an
investment adviser under the Advisers Act and (B) not prohibited by the
Advisers Act, the Investment Company Act, the Advisers Act Rules or the
Investment Company Act Rules from acting as the investment adviser for
the Trust as contemplated by the Investment Advisory Agreement, the
Registration Statement and the Prospectus.
(iii) The Investment Adviser has full power and authority
to enter into each of this Underwriting Agreement, the Investment
Advisory Agreement, the Administration Agreement and the Shareholder
Servicing Agreement (collectively, this Underwriting Agreement, the
Investment Advisory Agreement, the Administration Agreement and the
Shareholder Servicing Agreement being referred to as the "Investment
Adviser Agreements") and to carry out all the terms and provisions hereof
and thereof to be carried out by it; and each Investment Adviser
Agreement has been duly and validly authorized, executed and delivered by
the Investment Adviser; none of the Investment Adviser Agreements violate
in any material respect any of the applicable provisions of the
Investment Company Act, the Advisers Act, the Investment Company Act
Rules and the Advisers Act Rules; and assuming due authorization,
execution and delivery by the other parties thereto, each Investment
Adviser Agreement constitutes a legal, valid and binding obligation of
the Investment Adviser, enforceable in accordance with its terms, (1)
subject, as to enforcement, to applicable
10
<PAGE> 11
bankruptcy, insolvency and similar laws affecting creditors' rights
generally and to general equitable principles (regardless of whether
enforcement is sought in a proceeding in equity or at law) and (2) except
as rights to indemnity thereunder may be limited by federal or state
securities laws.
(iv) Neither (A) the execution and delivery by the
Investment Adviser of any Investment Adviser Agreement by the Investment
Adviser nor (B) the consummation by the Investment Adviser of the
transactions contemplated by, or the performance of its obligations under
any Investment Adviser Agreement conflicts or will conflict with, or
results or will result in a breach of, the Agreement and Declaration of
Trust or Bylaws of the Investment Adviser or any agreement or instrument
to which the Investment Adviser is a party or by which the Investment
Adviser is bound, or any law, rule or regulation, or order of any court,
governmental instrumentality, securities exchange or association or
arbitrator, whether foreign or domestic, applicable to the Investment
Adviser.
(v) No consent, approval, authorization or order of any
court, governmental agency or body or securities exchange or association,
whether foreign or domestic, is required for the consummation of the
transactions contemplated in, or the performance by the Investment
Adviser of its obligations under, any Investment Adviser Agreement, as
the case may be, except such as (A) have been obtained under the
Investment Company Act, the Advisers Act, the Securities Act, the
Investment Company Act Rules, the Advisers Act Rules and the Securities
Act Rules, and (B) may be required under state securities or "blue sky"
laws, in connection with the purchase and distribution of the APS by the
Underwriters pursuant to this Underwriting Agreement.
(vi) The description of the Investment Adviser and its
business, and the statements attributable to the Investment Adviser, in
the Registration Statement and the Prospectus complies with the
requirements of the Securities Act, the Investment Company Act, the
Securities Act Rules and the Investment Company Act Rules and do not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein not misleading.
11
<PAGE> 12
(vii) There is no action, suit or proceeding before or by
any court, commission, regulatory body, administrative agency or other
governmental agency or body, foreign or domestic, now pending or, to the
knowledge of the Investment Adviser, threatened against or affecting the
Investment Adviser of a nature required to be disclosed in the
Registration Statement or Prospectus or that might reasonably be expected
to result in any material adverse change in the condition, financial or
otherwise, business affairs or business prospects of the Investment
Adviser or the ability of the Investment Adviser to fulfill its
respective obligations under any Investment Adviser Agreement.
(viii) In the event that the Trust or the Investment
Adviser makes available any promotional materials (other than the sales
materials) intended for use only by qualified broker-dealers and
registered representatives thereof by means of an Internet web site or
similar electronic means, the Investment Adviser will install and
maintain pre-qualification and password-protection or similar procedures
which will effectively prohibit access to such promotional materials by
persons other than qualified broker-dealers and registered
representatives thereof.
5. Agreements of the Parties.
(a) If the registration statement relating to the APS has
not yet become effective, the Trust will promptly file the Final Amendment, if
not previously filed, with the Commission, and will use its best efforts to
cause such registration statement to become effective and, as soon as the Trust
is advised, will advise the Representative when the Registration Statement or
any amendment thereto has become effective. If the Registration Statement has
become effective and the Prospectus contained therein omits certain information
at the time of effectiveness pursuant to Rule 430A of the Securities Act Rules,
the Trust will file a 430A Prospectus pursuant to Rule 497(h) of the Securities
Act Rules as promptly as practicable, but no later than the second business day
following the earlier of the date of the determination of the offering price of
the APS or the date the Prospectus is first used after the Effective Date. If
the Registration Statement has become effective and the Prospectus contained
therein does not so omit such information, the Trust will file a Prospectus
pursuant to Rule 497(b) or (j) of the Securities Act Rules as promptly as
practicable, but no later than the fifth business day following the date of the
later of the Effective Date or the commencement of the public offering of the
APS after the Effective Date. In either case, the Trust will
12
<PAGE> 13
provide the Managing Representative satisfactory evidence of the filing. The
Trust will not file with the Commission any Prospectus or any other amendment
(except any post-effective amendment which is filed with the Commission after
the later of (x) one year from the date of this Underwriting Agreement or (y)
the date on which distribution of the APS is completed) or supplement to the
Registration Statement or the Prospectus unless a copy has first been submitted
to the Managing Representative a reasonable time before its filing and the
Managing Representative has not objected to it in writing within a reasonable
time after receiving the copy.
(b) For the period of three years from the date hereof, the
Trust will advise the Managing Representative promptly (1) of the issuance by
the Commission of any order in respect of the Trust or the Investment Adviser
which relates to the Trust, or which relates to any material arrangements or
proposed material arrangements involving the Trust or the Investment Adviser,
(2) of the initiation or threatening of any proceedings for, or receipt by the
Trust of any notice with respect to, the suspension of the qualification of the
APS for sale in any jurisdiction or the issuance of any order by the Commission
suspending the effectiveness of the Registration Statement, (3) of receipt by
the Trust, or any representative or attorney of the Trust, of any other
communication from the Commission relating in any material way to the Trust, the
Registration Statement, the Notification, any Preliminary Prospectus, the
Prospectus or to the transactions contemplated by this Underwriting Agreement
and (4) the issuance by any court, regulatory body, administrative agency or
other governmental agency or body, whether foreign or domestic, of any order,
ruling or decree, or the threat to initiate any proceedings with respect
thereto, regarding the Trust, which relates in any material way to the Trust or
any material arrangements or proposed material arrangements involving the Trust.
The Trust will make every reasonable effort to prevent the issuance of any order
suspending the effectiveness of the Registration Statement and, if any such
order is issued, to obtain its lifting as soon as possible.
(c) If not delivered prior to the date of this Underwriting
Agreement, the Trust will deliver to the Managing Representative, without
charge, a signed copy of the registration statement and the Notification and of
any amendments (except any post-effective amendment which is filed with the
Commission after the later of (x) one year from the date of this Underwriting
Agreement or (y) the date on which the distribution of the APS is completed) to
either the Registration Statement or the Notification (including all exhibits
filed with any such document) and as many conformed copies of the registration
statement and any amendments thereto (except any post-effective amendment which
is filed with the Commission after the later of (x) one year from the date of
this Underwriting Agreement or (y) the date on which the
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<PAGE> 14
distribution of the APS is completed) (excluding exhibits) as the Managing
Representative may reasonably request.
(d) During such period as a prospectus is required by law
to be delivered by an underwriter or a dealer, the Trust will deliver, without
charge, to the Underwriters and any dealers, at such office or offices as the
Underwriters may designate, as many copies of the Prospectus as the Underwriters
may reasonably request, and, if any event occurs during such period as a result
of which it is necessary to amend or supplement the Prospectus, in order to make
the statements therein, in light of the circumstances existing when such
Prospectus is delivered to a purchaser of APS, not misleading in any material
respect, or if during such period it is necessary to amend or supplement the
Prospectus to comply with the Securities Act, the Investment Company Act, the
Securities Act Rules or the Investment Company Act Rules, the Trust promptly
will prepare, submit to the Managing Representative, file with the Commission
and deliver, without charge, to the Underwriters and to dealers (whose names and
addresses the Managing Representative will furnish to the Trust) to whom APS may
have been sold by the Underwriters, and to other dealers on request, amendments
or supplements to the Prospectus so that the statements in such Prospectus, as
so amended or supplemented, will not, in light of the circumstances existing
when such Prospectus is delivered to a purchaser, be misleading in any material
respect and will comply with the Securities Act, the Investment Company Act, the
Securities Act Rules and the Investment Company Act Rules. Delivery by the
Underwriters of any such amendments or supplements to the Prospectus will not
constitute a waiver of any of the conditions in Section 6 hereof.
(e) The Trust will make generally available to holders of
the Trust's securities, as soon as practicable but in no event later than the
last day of the 18th full calendar month following the calendar quarter in which
the Effective Date falls, an earnings statement, if applicable, satisfying the
provisions of Section 11(a) of the Securities Act and, at the option of the
Trust, Rule 158 of the Securities Act Rules.
(f) The Trust will take such actions as the Managing
Representative reasonably requests in order to qualify the APS for offer and
sale under the securities or "blue sky" laws of such jurisdictions as the
Underwriters reasonably designate; provided that the Trust shall not be required
in connection therewith or as a condition thereof to qualify as a foreign
corporation or to execute a general consent to service of process in any
jurisdiction.
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<PAGE> 15
(g) The Trust will pay or cause to be paid the following:
(i) the fees, disbursements and expenses of the Trust's counsel and accountants
in connection with the registration of the APS and all other expenses in
connection with the preparation, printing and filing of the Registration
Statement, any Preliminary Prospectus and the Prospectus and amendments and
supplements thereto and the mailing and delivering of copies thereof to the
Underwriters and dealers; (ii) the cost of printing or reproducing this
Underwriting Agreement and any other documents in connection with the offering,
purchase, sale and delivery of the APS (including advertising expenses of the
Underwriters, if any); (iii) the cost of preparing share certificates; (iv) the
expenses (including, but not limited to, travel, hotels and other
accommodations) incurred by the Trust's or the Investment Adviser's directors,
officers, employees and other personnel in connection with meetings held with
registered brokers in connection with the offering of the APS, the preparing to
market and the marketing of the APS; (v) any fees charged by securities rating
services for rating the APS; (vi) the fees and expenses of the Depository Trust
Company and its nominee, the Custodian and the Auction Agent; and (vii) all
other costs and expenses incident to the performance of its obligations
hereunder which are not otherwise specifically provided for. It is understood,
however, that, except as provided in this Section 5 and Section 7 hereof, the
Underwriters will pay all of their own costs and expenses, including the fees of
their counsel and stock transfer taxes, if any, on resale of any of the APS by
them, except any advertising expenses connected with any offers they may make.
(h) If the transactions contemplated by this Underwriting
Agreement are not consummated, except as otherwise provided herein, no party
will be under any liability to any other party, except that (1) if this
Underwriting Agreement is terminated by (x) the Trust or the Investment Adviser
pursuant to any of the provisions hereof (otherwise than pursuant to Section 8
hereof) or (y) by the Underwriters because of any inability, failure or refusal
on the part of the Trust or the Investment Adviser to comply with any material
terms or because any of the conditions in Section 6 are not satisfied, Eaton
Vance or an affiliate and the Trust, jointly and severally, will reimburse the
Underwriters for all out-of-pocket expenses (including the reasonable fees,
disbursements and other charges of their counsel) reasonably incurred by them in
connection with the proposed purchase and sale of the APS and (2) no Underwriter
who has failed or refused to purchase the APS agreed to be purchased by it under
this Underwriting Agreement, in breach of its obligations pursuant to this
Underwriting Agreement, will be relieved of liability to the Trust and the
Investment Adviser and the other Underwriters for damages occasioned by its
default.
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<PAGE> 16
(i) Without the prior written consent of the Managing
Representative, the Trust will not offer, sell or register with the Commission,
or announce an offering of, any equity securities of the Trust, within 180 days
after the Effective Date, except for the APS as described in the Prospectus and
any issuances of Common Shares pursuant to the dividend reinvestment plan
established by the Trust.
(j) The Trust will direct the investment of the net
proceeds of the offering of the APS in such a manner as to comply with the
investment objective and policies of the Trust as described in the Prospectus.
(k) No later than the APS Closing Date, the Underwriters
will provide, and will cause any selling group member to whom they have sold APS
to provide, the Auction Agent with a list of the record names of the persons to
whom they have sold APS, the number of APS sold to each such person, and the
number of APS they are holding as of the APS Closing Date; provided that in lieu
of thereof, an Underwriter may provide the Auction Agent with a list indicating
itself as the sole holder of all the APS sold by such Underwriter.
6. Conditions of the Underwriters' Obligations. The obligations of
the Underwriters to purchase the APS are subject to the accuracy on the date of
this Underwriting Agreement, and on the APS Closing Date, of the representations
of the Trust and the Investment Adviser in this Underwriting Agreement, to the
accuracy and completeness of all statements made by the Trust or the Investment
Adviser or any of their respective officers in any certificate delivered to the
Managing Representative or its counsel pursuant to this Underwriting Agreement,
to performance by the Trust and the Investment Adviser of their respective
obligations under this Underwriting Agreement and to each of the following
additional conditions:
(a) The registration statement must have become effective
by 5:30 p.m., New York City time, on the date of this Underwriting Agreement or
such later date and time as the Managing Representative consents to in writing.
The Prospectus must have been filed in accordance with Rule 497(b), (h) or (j),
as the case may be, of the Securities Act Rules.
(b) No order suspending the effectiveness of the
Registration Statement may be in effect and no proceedings for such purpose may
be pending before or, to the knowledge of counsel to the Underwriters,
threatened by the Commission, and any requests for additional information on the
part of the Commission (to be included
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<PAGE> 17
in the Registration Statement or the Prospectus or otherwise) must be complied
with or waived to the reasonable satisfaction of the Managing Representative.
(c) Since the dates as of which information is given in the
Registration Statement and the Prospectus, (1) there must not have been any
material change in the Common Shares, the APS or the liabilities of the Trust
except as set forth in or contemplated by the Prospectus; (2) there must not
have been any material adverse change in the general affairs, prospects,
management, business, financial condition or results of operations of the Trust
or the Investment Adviser whether or not arising from transactions in the
ordinary course of business as set forth in or contemplated by the Prospectus;
(3) the Trust must not have sustained any material loss or interference with its
business from any court or from legislative or other governmental action, order
or decree, whether foreign or domestic, or from any other occurrence not
described in the Registration Statement and Prospectus; and (4) there must not
have occurred any event that makes untrue or incorrect in any material respect
any statement or information contained in the Registration Statement or
Prospectus or that is not reflected in the Registration Statement or Prospectus
but should be reflected therein in order to make the statements or information
therein (in the case of the Prospectus, in light of the circumstances in which
they were made) not misleading in any material respect; if, in the judgment of
the Managing Representative, any such development referred to in clause (1),
(2), (3) or (4) of this paragraph (c) makes it impracticable or inadvisable to
consummate the sale and delivery of the APS pursuant to this Underwriting
Agreement by the Underwriters, at the initial public offering price of the APS.
(d) The Managing Representative must have received on the
APS Closing Date a certificate, dated such date, of the President or a
Vice-President and the chief financial or accounting officer of each of the
Trust and the Investment Adviser certifying that (1) the signers have carefully
examined the Registration Statement, the Prospectus, and this Underwriting
Agreement, (2) the representations of the Trust (with respect to the
certificates from such Trust officers) and the representations of the Investment
Adviser (with respect to the certificates from such officers of the Investment
Adviser) in this Underwriting Agreement are accurate on and as of the date of
the certificate, (3) there has not been any material adverse change in the
general affairs, prospects, management, business, financial condition or results
of operations of the Trust (with respect to the certificates from such Trust
officers) or the Investment Adviser (with respect to the certificates from such
officers of the Investment Adviser), which change would materially and adversely
affect the ability of the Trust or the Investment Adviser, as the case may be,
to fulfill its obligations under this Underwriting Agreement or the Investment
Advisory Agreement, whether or not arising from
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<PAGE> 18
transactions in the ordinary course of business, (4) with respect to the Trust
only, to the knowledge of such officers after reasonable investigation, no order
suspending the effectiveness of the Registration Statement, prohibiting the sale
of any of the APS or otherwise having a material adverse effect on the Trust has
been issued and no proceedings for any such purpose are pending before or
threatened by the Commission or any other regulatory body, whether foreign or
domestic, (5) to the knowledge of the officers of the Investment Adviser, after
reasonable investigation, no order having a material adverse effect on the
ability of the Investment Adviser to fulfill its obligations under this
Underwriting Agreement or the Investment Advisory Agreement, as the case may be,
has been issued and no proceedings for any such purpose are pending before or
threatened by the Commission or any other regulatory body, whether foreign or
domestic, and (6) each of the Trust (with respect to the certificates from such
Trust officers) and the Investment Adviser (with respect to the certificates
from such officers of the Investment Adviser) has performed all of its
respective agreements that this Underwriting Agreement requires it to perform by
the APS Closing Date (to the extent not waived in writing by the Managing
Representative).
(e) The Underwriters must receive on the APS Closing Date
the opinions dated such date substantially in the form of Annexes A and B to
this Underwriting Agreement from the counsel identified in each such Annex.
(f) The Underwriters must receive on the APS Closing Date
from Skadden, Arps, Slate, Meagher & Flom LLP and its affiliated entities, their
counsel, an opinion dated such date with respect to the Trust, the APS, the
Registration Statement and the Prospectus, this Underwriting Agreement and the
proceedings taken in connection with the sale and delivery of the APS. Such
opinion and proceedings shall fulfill the requirements of this Section 6(f) only
if such opinion and proceedings are satisfactory in all respects to the Managing
Representative. The Trust and the Investment Adviser must have furnished to such
counsel such documents as counsel may reasonably request for the purpose of
enabling them to render such opinion.
(g) The Underwriters must receive on the date this
Underwriting Agreement is signed and delivered by the Underwriters a signed
letter, dated such date, substantially in the form of Annex C to this
Underwriting Agreement from the firm of accountants designated in such Annex.
The Underwriters also must receive on the APS Closing Date a signed letter from
such accountants, dated as of such date, confirming on the basis of a review in
accordance with the procedures set forth in their earlier letter that nothing
has come to their attention during the period from a date not more than five
business days before the date of this Underwriting Agreement, specified in the
letter, to
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<PAGE> 19
a date not more than five business days before such date, that would require any
change in their letter referred to in the foregoing sentence.
(h) The APS shall have been accorded a rating of "AAA" by
Standard & Poor's and a letter to such effect, dated the APS Closing Date, shall
have been delivered to the Managing Representative.
(i) As of the APS Closing Date and assuming the receipt of
the net proceeds from the sale of the APS, the 1940 Act Asset Coverage and the
APS Basic Maintenance Amount (each as defined in the Prospectus) each will be
met.
All opinions, letters, evidence and certificates mentioned
above or elsewhere in this Underwriting Agreement will comply only if they are
in form and scope reasonably satisfactory to counsel for the Underwriters,
provided that any such documents, forms of which are annexed hereto, shall be
deemed satisfactory to such counsel if substantially in such form.
7. Indemnification and Contribution.
(a) Each of the Trust and the Investment Adviser, jointly
and severally, will indemnify and hold harmless each Underwriter, the directors,
officers, employees and agents of such Underwriter and each person, if any, who
controls such Underwriter within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act from and against any and all losses, claims,
liabilities, expenses and damages (including, but not limited to, any and all
investigative, legal and other expenses reasonably incurred in connection with,
and any and all amounts paid in settlement of, any action, suit or proceeding
between any of the indemnified parties and any indemnifying parties or between
any indemnified party and any third party, or otherwise, or any claim asserted),
to which such Underwriter or any such person, or any of them, may become subject
under the Securities Act, the Exchange Act, the Investment Company Act, the
Advisers Act or other federal or state statutory law or regulation, at common
law or otherwise, whether foreign or domestic, insofar as such losses, claims,
liabilities, expenses or damages arise out of or are based on (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, the Preliminary Prospectus, the Prospectus, the sales
materials, or any amendment or supplement to the Registration Statement, the
Preliminary Prospectus, the Prospectus, the sales materials or in any documents
filed under the Exchange Act and deemed to be incorporated by reference into the
Registration Statement, the Preliminary Prospectus, the Prospectus, or in any
application or other document
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<PAGE> 20
executed by or on behalf of the Trust or based on written information furnished
by or on behalf of the Trust filed in any jurisdiction in order to qualify the
APS under the securities laws thereof or filed with the Commission, (ii) the
omission or alleged omission to state, in any or all such documents, a material
fact required to be stated therein or necessary to make the statements therein
not misleading or (iii) any act or failure to act or any alleged act or failure
to act by such Underwriter in connection with, or relating in any manner to, the
APS or the offering contemplated hereby, and which is included as part of or
referred to in any loss, claim, liability, expense or damage arising out of or
based upon matters covered by clause (i) or (ii) above (provided, however, that
neither the Trust nor the Investment Adviser shall be liable under this clause
(iii) to the extent it is finally judicially determined by a court of competent
jurisdiction that such loss, claim, liability, expense or damage resulted
directly from any such acts or failures to act undertaken or omitted to be taken
by such Underwriter through its gross negligence, bad faith or willful
misconduct); provided that neither the Trust nor the Investment Adviser will be
liable to the extent that such losses, claims, liabilities, expenses or damages
are based on an untrue statement or omission or alleged untrue statement or
omission made in reliance on and in conformity with information relating to any
Underwriter furnished in writing to the Trust by such Underwriter expressly for
inclusion in the Registration Statement, the Preliminary Prospectus or the
Prospectus. This indemnity agreement will be in addition to any liability that
the Trust or the Investment Adviser might otherwise have.
(b) Each Underwriter will indemnify and hold harmless the
Trust and the Investment Adviser, each person, if any, who controls the Trust or
the Investment Adviser within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, each trustee of the Trust and each officer of
the Trust who signs the Registration Statement to the same extent as the
foregoing indemnity from the Trust or the Investment Adviser to the Underwriter,
but only insofar as losses, claims, liabilities, expenses or damages arise out
of or are based on any untrue statement or omission or alleged untrue statement
or omission made in reliance on and in conformity with information relating to
such Underwriter furnished in writing to the Trust by such Underwriter expressly
for use in the Registration Statement, the Preliminary Prospectus or Prospectus.
This indemnity will be in addition to any liability that such Underwriter might
otherwise have; provided, however, that in no case shall such Underwriter be
liable or responsible for any amount in excess of the fees and commissions
received by the Underwriter.
(c) Any party that proposes to assert the right to be
indemnified under this Section 7 will, promptly after receipt of notice of
commencement of any
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action against such party in respect of which a claim is to be made against an
indemnifying party or parties under this Section 7, notify each such
indemnifying party of the commencement of such action, enclosing a copy of all
papers served, but the omission to so notify such indemnifying party will not
relieve it from any liability that it may have to any indemnified party under
the foregoing provision of this Section 7 unless, and only to the extent that,
such omission results in the forfeiture of substantive rights or defenses by the
indemnifying party. If any such action is brought against any indemnified party
and it notifies the indemnifying party of its commencement, the indemnifying
party will be entitled to participate in and, to the extent that it elects by
delivering written notice to the indemnified party promptly after receiving
notice of the commencement of the action from the indemnified party, jointly
with any other indemnifying party similarly notified, to assume the defense of
the action, with counsel reasonably satisfactory to the indemnified party, and
after notice from the indemnifying party to the indemnified party of its
election to assume the defense, the indemnifying party will not be liable to the
indemnified party for any legal or other expenses except as provided below and
except for the reasonable costs of investigation subsequently incurred by the
indemnified party in connection with the defense. The indemnified party will
have the right to employ its own counsel in any such action, but the fees,
disbursements and other charges of such counsel will be at the expense of such
indemnified party unless (1) the employment of counsel by the indemnified party
has been authorized in writing by the indemnifying party, (2) the indemnified
party has reasonably concluded (based on the advice of counsel) that there may
be legal defenses available to it or other indemnified parties that are
different from or in addition to those available to the indemnifying party (3) a
conflict or potential conflict exists (based on advice of counsel to the
indemnified party) between the indemnified party and the indemnifying party (in
which case the indemnifying party will not have the right to direct the defense
of such action on behalf of the indemnified party) or (4) the indemnifying party
has not in fact employed counsel reasonably satisfactory to the indemnified
party to assume the defense of such action within a reasonable time after
receiving notice of the commencement of the action, in each of which cases the
reasonable fees disbursements and other charges of counsel will be at the
expense of the indemnifying party or parties. Subject to the requirements of
Investment Company Act Release No. 11330, all such fees, disbursements and other
charges will be reimbursed by the indemnifying party promptly as they are
incurred. It is understood that the indemnifying party or parties shall not, in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the reasonable fees, disbursements and other charges of more than
one separate firm admitted to practice in such jurisdiction at any one time for
all such indemnified party or parties. An indemnifying party will not be liable
for any settlement of any action or claim effected without its written
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<PAGE> 22
consent (which consent will not be unreasonably withheld). No
indemnifying party shall, without the prior written consent of each indemnified
party, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action or proceeding relating to the matters
contemplated by this Section 7 (whether or not any indemnified party is a party
thereto), unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising or
that may arise out of such claim, action or proceeding.
(d) In order to provide for just and equitable contribution
in circumstances in which the indemnification provided for in this Section 7 is
applicable but for any reason is held to be unavailable from the Trust, the
Investment Adviser or the Underwriters, the Trust, the Investment Adviser and
the Underwriters will contribute to the total losses, claims, liabilities,
expenses and damages (including any investigative, legal and other expenses
reasonably incurred in connection with, and any amount paid in settlement of,
any action, suit or proceeding or any claim asserted, but after deducting any
contribution received by the Trust and the Investment Adviser from persons other
than the Underwriter, such as persons who control the Trust or the Investment
Adviser within the meaning of the Securities Act or the Exchange Act, officers
of the Trust who signed the Registration Statement and directors of the Trust,
who may also be liable for contribution) to which the Trust, the Investment
Adviser and the Underwriters may be subject in such proportion as shall be
appropriate to reflect the relative benefits received by the Trust and the
Investment Adviser on the one hand and the Underwriters on the other. The
relative benefits received by the Trust and the Investment Adviser (treated
jointly for this purpose as one person) on the one hand and the Underwriters on
the other hand shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the Trust
bear to the total fees and commissions received by the Underwriters. If, but
only if, the allocation provided by the foregoing sentence is not permitted by
applicable law, the allocation of contribution shall be made in such proportion
as is appropriate to reflect not only such relative benefits referred to in the
foregoing sentence but also the relative fault of the Trust and the Investment
Adviser (treated jointly for this purpose as one person) on the one hand and the
Underwriters on the other hand in connection with respect to the statements or
omissions or alleged statements or omissions that resulted in the losses,
claims, liabilities, expenses or damages (including any investigative, legal or
other expenses reasonably incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted), as well as
any other relevant equitable considerations appropriate in the circumstances.
Such relative fault of the parties shall be determined by reference to whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to
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<PAGE> 23
information supplied by the Trust, the Investment Adviser or the Underwriters,
the intent of the parties and their relative knowledge, access to information
and opportunity to correct or prevent such statement or omission and any other
equitable considerations appropriate in the circumstances. The Trust, the
Investment Adviser and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 7(d) were to be determined
by pro rata allocation or by any other method of allocation which does not take
into account the equitable considerations referred to herein. The amount paid or
payable by an indemnified party as a result of the loss, claim, liability,
expense or damage, or action in respect thereof, referred to above in this
Section 7(d) shall be deemed to include, for purposes of this Section 7(d) any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding any other provisions of this Section 7(d), the Underwriters
shall not be required to contribute any amount in excess of the fees and
commissions received by them and no person found guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 7(d), any person who
controls a party to this Underwriting Agreement within the meaning of the
Securities Act will have the same rights to contribution as that party, and each
trustee of the Trust and each officer of the Trust who signed the Registration
Statement will have the same rights to contribution as the Trust, subject in
each case to the provisions hereof. Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action against such
party in respect of which a claim for contribution may be made under this
Section 7(d), notify such party or parties from whom contribution may be sought,
but the omission so to notify will not relieve the party or parties from whom
contribution may be sought from any other obligation it or they may have under
this Section 7(d). No party will be liable for contribution with respect to any
action or claim settled without its written consent (which consent shall not be
unreasonably withheld). The Underwriters' obligations to contribute pursuant to
this Section 7 are several in proportion to the respective number of APS set
forth opposite their names in Schedule 1 (or such number of APS as determined
pursuant to Section 9 hereof) and not joint.
(e) Notwithstanding any other provisions in this Section 7,
no party shall be entitled to indemnification or contribution under this
Underwriting Agreement against any loss, claim, liability, expense or damage
arising by reason of such person's willful misfeasance, bad faith or gross
negligence in the performance of its duties hereunder, or by reason of such
person's reckless disregard of such person's obligations and duties hereunder.
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(f) The Trust and the Investment Adviser acknowledge that
the statements with respect to (1) the public offering of the APS as set forth
on the cover page of and (2) the statements relating to selling concessions and
reallowances of selling concessions under the caption "Underwriting" in the
Prospectus constitute the only information furnished in writing to the Trust by
the Underwriters expressly for use in such document. The Underwriters severally
confirm that these statements are correct in all material respects and were so
furnished by or on behalf of the Underwriters severally for use in the
Prospectus.
8. Termination. This Underwriting Agreement may be terminated by
the Managing Representative by notifying the Trust at any time:
(a) before the later of the effectiveness of the
Registration Statement and the time when any of the APS are first generally
offered pursuant to this Underwriting Agreement by the Managing Representative
to dealers by letter or telegram;
(b) at or before the APS Closing Date if, in the sole
judgment of the Managing Representative, payment for and delivery of any APS is
rendered impracticable or inadvisable because (1) trading in the APS or the
Common Shares of the Trust is suspended by the Commission or trading in the
Common Shares is suspended by the principal exchange that lists the Common
Shares, (2) trading in securities generally on the New York Stock Exchange or
the Nasdaq Stock Market shall have been suspended or limited or minimum or
maximum prices shall have been generally established on such exchange or
over-the-counter market, or, (3) additional material governmental restrictions,
not in force on the date of this Underwriting Agreement, have been imposed upon
trading in securities or trading has been suspended on any U.S. securities
exchange, (4) a general banking moratorium has been established by U.S. federal
or New York authorities or (5) any material adverse change in the financial or
securities markets in the United States or in political, financial or economic
conditions in the United States or any outbreak or material escalation of
hostilities or declaration by the United States of a national emergency or war
or other calamity or crisis shall have occurred the effect of any of which is
such as to make it, in the sole judgement of the Managing Representative,
impracticable or inadvisable to market the APS on the terms and in the manner
contemplated by the Prospectus; or
(c) at or before the APS Closing Date, if any of the
conditions specified in Section 6 have not been fulfilled when and as required
by this Underwriting Agreement.
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<PAGE> 25
9. Substitution of Underwriters. If one or more of the
Underwriters fails (other than for a reason sufficient to justify the
termination of this Underwriting Agreement) to purchase on the APS Closing Date
the APS agreed to be purchased on such date by such Underwriter or Underwriters,
the Managing Representative may find one or more substitute underwriters to
purchase such APS or make such other arrangements as the Managing Representative
deems advisable, or one or more of the remaining Underwriters may agree to
purchase such APS in such proportions as may be approved by the Managing
Representative, in each case upon the terms set forth in this Underwriting
Agreement. If no such arrangements have been made within 36 hours after such
date, and
(a) the number of APS to be purchased by the defaulting
Underwriters on such date does not exceed 10% of the APS that the Underwriters
are obligated to purchase on the APS Closing Date, each of the nondefaulting
Underwriters will be obligated to purchase such APS on the terms set forth in
this Underwriting Agreement in proportion to their respective obligations under
this Underwriting Agreement, or
(b) the number of APS to be purchased by the defaulting
Underwriters on the APS Closing Date exceeds 10% of the APS to be purchased by
all the Underwriters on the APS Closing Date, the Trust will be entitled to an
additional period of 24 hours within which to find one or more substitute
underwriters reasonably satisfactory to the Managing Representative to purchase
such APS on the terms set forth in this Underwriting Agreement.
In any such case, either the Managing Representative or the Trust
will have the right to postpone the APS Closing Date for not more than five
business days in order that necessary changes and arrangements (including any
necessary amendments or supplements to the Registration Statement or the
Prospectus) may be effected by the Managing Representative and the Trust. If the
number of APS to be purchased on the APS Closing Date by such defaulting
Underwriter or Underwriters exceeds 10% of the APS that the Underwriters are
obligated to purchase on such date, and none of the nondefaulting Underwriters
or the Trust makes arrangements pursuant to this Section within the period
stated for the purchase of the APS that the defaulting Underwriters agreed to
purchase, this Underwriting Agreement will terminate without liability on the
part of any nondefaulting Underwriter, the Trust or the Investment Adviser,
except as provided in Sections 5(g) and 7 hereof. This Section 9 will not affect
the liability of any defaulting Underwriter to the Trust or the nondefaulting
Underwriters arising out of
25
<PAGE> 26
such default. A substitute underwriter will become an Underwriter for all
purposes of this Underwriting Agreement.
10. Miscellaneous.
(a) The reimbursement, indemnification and contribution
agreements in Sections 5(g) and 7 hereof and the representations of the Trust,
the Investment Adviser and the Underwriters in this Underwriting Agreement will
remain in full force and effect regardless of any termination of this
Underwriting Agreement. The reimbursement, indemnification and contribution
agreements in Sections 5(g) and 7 hereof and the representations and agreements
of the Trust, the Investment Adviser and the Underwriters in this Underwriting
Agreement shall survive the APS Closing Date and shall remain in full force and
effect regardless of any investigation made by or on behalf of any Underwriter,
the Trust, the Investment Adviser or any controlling person and delivery of and
payment for the APS.
(b) This Underwriting Agreement is for the benefit of the
Underwriters, the Trust, the Investment Adviser and their successors and
assigns, and, to the extent expressed in this Underwriting Agreement, for the
benefit of persons controlling any of the Underwriters, the Trust, the
Investment Adviser and directors and officers of the Trust and the Investment
Adviser, and their respective successors and assigns, and no other person,
partnership, association or corporation will acquire or have any right under or
by virtue of this Underwriting Agreement. The term "successors and assigns" does
not include any purchaser of the APS from any Underwriter merely because of such
purchase.
(c) All notices and communications under this Underwriting
Agreement will be in writing, effective only on receipt and mailed or delivered,
by messenger, facsimile transmission or otherwise, to the Underwriters in care
of PaineWebber Incorporated, Attn: Financial Institutions Group, 1285 Avenue of
the Americas, New York, New York 10019, to the Trust or the Investment Adviser
at 24 Federal Street, Boston, MA 02110, Attn: Chief Legal Officer.
(d) This Underwriting Agreement may be signed in multiple
counterparts that taken as a whole constitute one agreement.
(e) This Underwriting Agreement will be governed by and
construed in accordance with the laws of the State of New York without reference
to choice of law principles thereof.
26
<PAGE> 27
(f) A copy of the Agreement and Declaration of Trust of
each of the Trust and the Investment Adviser is on file with the Secretary of
State of The Commonwealth of Massachusetts, and notice hereby is given that this
Underwriting Agreement is executed on behalf of the respective Trustees of the
Trust and the Investment Adviser as Trustees and not individually and that the
obligations or arising out of this Underwriting Agreement are not binding upon
any of the Trustees or beneficiaries individually but are binding only upon the
respective assets and properties of the Trust and the Investment Adviser.
27
<PAGE> 28
Please confirm that the foregoing correctly sets forth the
agreement between us.
Very truly yours,
Eaton Vance Municipal Income Trust
By:
-----------------------------------
Name:
Title:
Eaton Vance Management
By:
-----------------------------------
Name:
Title:
Confirmed:
PaineWebber Incorporated
Prudential Securities Incorporated
Salomon Smith Barney Inc.
A.G. Edwards & Sons, Inc.
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
By: PaineWebber Incorporated
By:
--------------------------------
Name:
Title:
Acting on behalf of itself
and the Underwriters
named in Schedule 1
<PAGE> 29
SCHEDULE 1
NAME NUMBER OF APS TO BE PURCHASED
PaineWebber Incorporated
Prudential Securities Incorporated
Salomon Smith Barney Inc.
A.G. Edwards & Sons, Inc.
<PAGE> 30
ANNEX A
FORM OF OPINION OF
KIRKPATRICK & LOCKHART LLP REGARDING THE TRUST
1. The Registration Statement and all post-effective amendments, if
any, are effective under the Securities Act and no stop order with respect
thereto has been issued and no proceeding for that purpose has been instituted
or, to the best of our knowledge, is threatened by the Commission. Any filing of
the Prospectus or any supplements thereto required under Rule 497 of the
Securities Act Rules prior to the date hereof have been made in the manner and
within the time required by such rule.
2. The Trust has been duly formed and is validly existing as a
Massachusetts business trust under the laws of The Commonwealth of
Massachusetts, with full power and authority to conduct all the activities
conducted by it, to own or lease all assets owned (or to be owned) or leased (or
to be leased) by it and to conduct its business as described in the Registration
Statement and Prospectus, and the Trust is duly licensed and qualified to do
business and in good standing in each jurisdiction in which its ownership or
leasing of property or its conducting of business requires such qualification,
and the Trust owns, possesses or has obtained and currently maintains all
governmental licenses, permits, consents, orders, approvals and other
authorizations, whether foreign or domestic, necessary to carry on its business
as contemplated in the Prospectus. The Trust has no subsidiaries.
3. The capitalization of the Trust is as set forth in the Registration
Statement and the Prospectus. The Common Shares and the APS conform in all
respects to the description of them in the Prospectus. All the outstanding
Common Shares have been duly authorized and are validly issued, fully paid and
nonassessable. The APS to be issued and delivered to and paid for by the
Underwriters in accordance with the Underwriting Agreement against payment
therefor as provided by the Underwriting Agreement have been duly authorized and
when issued and delivered to the Underwriters will have been validly issued and
will be fully paid and nonassessable (except as described in the Registration
Statement). No person is entitled to any preemptive or other similar rights in
connection with the issuance of the APS.
4. The Trust is duly registered with the Commission under the
Investment Company Act as a non-diversified, closed-end management investment
company and all action under the Securities Act, the Investment Company Act, the
Securities Act Rules and the Investment Company Act Rules, as the case may be,
necessary to make the public offering and consummate the sale of the APS as
provided in the Underwriting Agreement has or will have been taken by the Trust.
<PAGE> 31
5. The Trust has full power and authority to enter into each of the
Underwriting Agreement, the Investment Advisory Agreement, the Custody Agreement
and the Transfer Agency Agreement, the Auction Agency Agreement and the DTC
Agreement (collectively, the "Trust Agreements") and to perform all of the terms
and provisions thereof to be carried out by it and (A) each Trust Agreement has
been duly and validly authorized, executed and delivered by the Trust, (B) each
Trust Agreement complies in all material respects with all applicable provisions
of the Investment Company Act, the Advisers Act , the Investment Company Act
Rules and the Advisers Act Rules, as the case may be, and (C) assuming due
authorization, execution and delivery by the other parties thereto, each Trust
Agreement constitutes the legal, valid and binding obligation of the Trust
enforceable in accordance with its terms, (1) subject, as to enforcement, to
applicable bankruptcy, insolvency and similar laws affecting creditors' rights
generally and to general equitable principles (regardless of whether enforcement
is sought in a proceeding in equity or at law) and (2) as rights to indemnity
thereunder may be limited by federal or state securities laws.
6. None of (A) the execution and delivery by the Trust of the Trust
Agreements, (B) the issue and sale by the Trust of the APS as contemplated by
the Underwriting Agreement and (C) the performance by the Trust of its
obligations under the Trust Agreements or consummation by the Trust of the other
transactions contemplated by the Trust Agreements conflicts with or will
conflict with, or results or will result in a breach of, the Declaration of
Trust or the Amended Bylaws of the Trust or any agreement or instrument to which
the Trust is a party or by which the Trust is bound, or any law, rule or
regulation, or order of any court, governmental instrumentality, securities
exchange or association or arbitrator, whether foreign or domestic, applicable
to the Trust, except that we express no opinion as to the securities or "blue
sky" laws applicable in connection with the purchase and distribution of the APS
by the Underwriters pursuant to the Underwriting Agreement.
7. The Trust is not currently in breach of, or in default under, any
written agreement or instrument to which it is a party or by which it or its
property is bound or affected.
8. No consent, approval, authorization or order of any court or
governmental agency or body or securities exchange or association, whether
foreign or domestic, is required by the Trust for the consummation by the Trust
of the transactions to be performed by the Trust or the performance by the Trust
of all the terms and provisions to be performed by or on behalf of it in each
case as contemplated in the Trust Agreements, except such as (A) have been
obtained under the Securities Act, the Investment Company Act, the Advisers Act,
the Securities Act Rules, the Investment Company Act Rules and the Advisers Act
Rules and (B) may be required by the New York Stock Exchange or under state
securities or "blue sky" laws in connection with the purchase and distribution
of the APS by the Underwriters pursuant to the Underwriting Agreement.
A-2
<PAGE> 32
9. There is no action, suit or proceeding before or by any court,
commission, regulatory body, administrative agency or other governmental agency
or body, foreign or domestic, now pending or, to our knowledge, threatened
against or affecting the Trust, which is required to be disclosed in the
Prospectus that is not disclosed in the Prospectus, and there are no contracts,
franchises or other documents that are of a character required to be described
in, or that are required to be filed as exhibits to, the Registration Statement
that have not been described or filed as required.
10. The Common Shares are listed on the New York Stock Exchange.
11. The Trust does not require any tax or other rulings to enable it to
qualify as a regulated investment company under Subchapter M of the Code.
12. Each of the sections in the Prospectus entitled "Taxes" and the
section in the Statement of Additional Information entitled "Taxes" is a fair
summary of the principal United States federal income tax rules currently in
effect applicable to the Trust and to the purchase, ownership and disposition of
the APS.
13. The Registration Statement (except the financial statements and
schedules and other financial data included therein as to which we express no
view), at the time it became effective, and the Prospectus (except as
aforesaid), as of the date thereof, complied as to form in all material respects
to the requirements of the Securities Act, the Investment Company Act and the
rules and regulations of the Commission thereunder.
In rendering our opinion, we have relied, as to factual matters, upon
the attached written certificates and statements of officers of the Trust.
In connection with the registration of the APS, we have advised the
Trust as to the requirements of the Securities Act, the Investment Company Act
and the applicable rules and regulations of the Commission thereunder and have
rendered other legal advice and assistance to the Trust in the course of its
preparation of the Registration Statement and the Prospectus. Rendering such
assistance involved, among other things, discussions and inquiries concerning
various legal and related subjects and reviews of certain corporate records,
documents and proceedings. We also participated in conferences with
representatives of the Trust and its accountants at which the contents of the
Registration Statement and Prospectus and related matters were discussed. With
your permission, we have not undertaken, except as otherwise indicated herein,
to determine independently, and do not assume any responsibility for, the
accuracy, completeness or fairness of the statements in the Registration
Statement or Prospectus. On the basis of the information which was developed in
the course of the performance of the services referred to above, no information
has come to our attention that would lead us to believe that the Registration
Statement, at the time it became effective, contained any untrue statement
A-3
<PAGE> 33
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, or that the
Prospectus, as of its date and as of the date hereof, contained or contains an
untrue statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading or that any amendment
or supplement to the Prospectus, as of its respective date, and as of the date
hereof, contained any untrue statement of a material fact or omitted or omits to
state a material fact necessary in order to make the statements in the
Prospectus, in the light of the circumstances under which they were made, not
misleading (except the financial statements, schedules and other financial data
included therein, as to which we express no view).
A-4
<PAGE> 34
ANNEX B
FORM OF OPINION OF INTERNAL COUNSEL
REGARDING EATON VANCE MANAGEMENT
1. Eaton Vance has been duly formed and is validly existing as a
Massachusetts business trust under the laws of its jurisdiction of incorporation
with full power and authority to conduct all of the activities conducted by it,
to own or lease all of the assets owned or leased by it and to conduct its
business as described in the Registration Statement and Prospectus, and Eaton
Vance is duly licensed and qualified and in good standing in each other
jurisdiction in which it is required to be so qualified and Eaton Vance owns,
possesses or has obtained and currently maintains all governmental licenses,
permits, consents, orders, approvals and other authorizations, whether foreign
or domestic, necessary for Eaton Vance to carry on its business as contemplated
in the Registration Statement and the Prospectus.
2. Eaton Vance is duly registered as an investment adviser under the
Advisers Act and is not prohibited by the Advisers Act, the Investment Company
Act, the Advisers Act Rules or the Investment Company Act Rules from acting as
investment adviser for the Trust as contemplated by the Investment Advisory
Agreement, the Registration Statement and the Prospectus.
3. Eaton Vance has full power and authority to enter into each of the
Underwriting Agreement, the Investment Advisory Agreement, the Administration
Agreement and the Shareholder Servicing Agreement (collectively, the "Eaton
Vance Agreements") and to carry out all the terms and provisions thereof to be
carried out by it, and each such agreement has been duly and validly authorized,
executed and delivered by Eaton Vance; each Eaton Vance Agreement complies in
all material respects with all provisions of the Investment Company Act, the
Advisers Act, the Investment Company Act Rules and the Advisers Act Rules; and
assuming due authorization, execution and delivery by the other parties thereto,
each Eaton Vance Agreement constitutes a legal, valid and binding obligation of
Eaton Vance, enforceable in accordance with its terms, (1) subject, as to
enforcement, to applicable bankruptcy, insolvency and similar laws affecting
creditors' rights generally and to general equitable principles (regardless of
whether enforcement is sought in a proceeding in equity or at law) and (2) as
rights to indemnity thereunder may be limited by federal or state securities
laws.
4. Neither (A) the execution and delivery by Eaton Vance of any Eaton
Vance Agreement nor (B) the consummation by Eaton Vance of the transactions
contemplated by, or the performance of its obligations under any Eaton Vance
Agreement conflicts or will conflict with, or results or will result in a breach
of, the Agreement and
B-1
<PAGE> 35
Declaration of Trust or Bylaws of Eaton Vance or any agreement or instrument to
which Eaton Vance is a party or by which Eaton Vance is bound, or any law, rule
or regulation, or order of any court, governmental instrumentality, securities
exchange or association or arbitrator, whether foreign or domestic, applicable
to Eaton Vance.
5. No consent, approval, authorization or order of any court,
governmental agency or body or securities exchange or association, whether
foreign or domestic, is required for the consummation of the transactions
contemplated in, or the performance by Eaton Vance of its obligations under, any
Eaton Vance Agreement, except such as have been obtained under the Investment
Company Act, the Advisers Act, the Securities Act, the Investment Company Act
Rules, the Advisers Act Rules and the Securities Act Rules.
6. The description of Eaton Vance and its business, and the statements
attributable to Eaton Vance, in the Registration Statement and the Prospectus
complies with the requirements of the Securities Act, the Investment Company
Act, the Securities Act Rules and the Investment Company Act Rules and do not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein not misleading.
7. There is no action, suit or proceeding before or by any court,
commission, regulatory body, administrative agency or other governmental agency
or body, foreign or domestic, now pending or, to our knowledge, threatened
against or affecting Eaton Vance of a nature required to be disclosed in the
Registration Statement or Prospectus or that might reasonably result in any
material adverse change in the condition, financial or otherwise, business
affairs or business prospects of Eaton Vance or the ability of Eaton Vance to
fulfill its respective obligations under any Eaton Vance Agreement.
8. The Registration Statement (except the financial statements and
schedules and other financial data included therein as to which we express no
view), at the time it became effective, and the Prospectus (except as
aforesaid), as of the date thereof, appeared on their face to be appropriately
responsive in all material respects to the requirements of the Securities Act,
the Investment Company Act and the rules and regulations of the Commission
thereunder.
In rendering my opinion, I have relied, as to factual matters, upon the
attached written certificates and statements of officers of Eaton Vance.
In connection with the registration of the APS, I have advised Eaton
Vance as to the requirements of the Securities Act, the Investment Company Act
and the applicable rules and regulations of the Commission thereunder and have
rendered other legal advice and assistance to Eaton Vance in the course of the
preparation of the
B-2
<PAGE> 36
Registration Statement and the Prospectus. Rendering such assistance involved,
among other things, discussions and inquiries concerning various legal and
related subjects and reviews of certain corporate records, documents and
proceedings. I also participated in conferences with representatives of the
Trust and its accountants and Eaton Vance at which the contents of the
Registration Statement and Prospectus and related matters were discussed. With
your permission, I have not undertaken, except as otherwise indicated herein, to
determine independently, and do not assume any responsibility for, the accuracy,
completeness or fairness of the statements in the Registration Statement or
Prospectus. On the basis of the information which was developed in the course of
the performance of the services referred to above, no information has come to my
attention that would lead me to believe that the Registration Statement, at the
time it became effective, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or that the Prospectus, as of its
date and as of the date hereof, contained or contains an untrue statement of a
material fact or omitted or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading or that any amendment or supplement to the Prospectus,
as of its respective date, and as of the date hereof, contained any untrue
statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements in the Prospectus, in the light of the
circumstances under which they were made, not misleading (except the financial
statements, schedules and other financial data included therein, as to which I
express no view).
B-3
<PAGE> 37
ANNEX D
FORM OF ACCOUNTANT'S LETTER
March , 1999
The Board of Trustees of
Eaton Vance Municipal Income Trust
24 Federal Street
Boston, Massachusetts 02110
PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
as Managing Representative of the Underwriters
Ladies and Gentlemen:
We have audited the statement of assets and liabilities of Eaton Vance
California Municipal Income Trust (the "Trust") as of February 19, 1999 included
in the Registration Statement on Form N-2 filed by the Trust under the
Securities Act of 1933 (the "Act") (File No. 333-70725) and under the Investment
Company Act of 1940 (the "1940 Act") (File No. 811-09141); such statement and
our report with respect to such statement are included in the Registration
Statement.
In connection with the Registration Statement:
1. We are independent public accountants with respect to the Trust
within the meaning of the Act and the applicable rules and regulations
thereunder.
2. In our opinion, the statement of assets and liabilities included in
the Registration Statement and audited by us complies as to form in all
respects with the applicable accounting requirements of the Act, the
1940 Act and the respective rules and regulations thereunder.
3. We have not audited any financial statements of the Trust as of any
date or for any period subsequent to January 21, 1999, although have
conducted an audit of the statement of assets and liabilities as of
January 21, 1999. Therefore, we are unable to and do no express out
opinion on the unaudited statement of assets and liabilities as of
February 19, 1999, and the unaudited statements of operations, changes
in net assets and the
C-1
<PAGE> 38
unaudited condensed financial information for the period from January
21, 1999 to February 19, 1999 or on any other financial statements or
condensed financial information for any period subsequent to January
21, 1999.
4. For purposes of this letter we have read the minutes of all meetings
of the shareholders, the Board of Trustees and all Committees of the
Board of Trustees of the Trust as set forth in the minute books at the
offices of the Trust, officials of the Trust having advised us that the
minutes of all such meetings through March ___, 1999, were set forth
therein. We have carried out other procedures to March, 1999 as
follows:
(a) With respect to the period from January 21, 1999 to
February 19, 1999, we have:
(i) Read the unaudited statement of assets and
liabilities as of February 19, 1999, and the unaudited statements of
operations, changes in net assets and the unaudited condensed financial
information for the period from January 21, 1999 to February 19, 1999;
and
(ii) Made inquiries of certain officials of the Trust
who have responsibility for financial and accounting matters regarding
(1) whether the unaudited financial statements and unaudited financial
information referred to in 4(a)(i) comply in form in all material
respects with the applicable accounting requirements of the Act and the
1940 Act and the related published rules and regulations and (2) whether
those unaudited financial statements and unaudited condensed financial
information are in conformity with generally accepted accounting
principles.
The foregoing procedures do not constitute an audit made in accordance with
generally accepted auditing standards. Also, they would not necessarily reveal
matters of significance with respect to the comments in the following paragraph.
Accordingly, we make no representations as to the sufficiency of the foregoing
procedures for your purposes.
5. Nothing came to our attention as a result of the foregoing
procedures, however, that caused us to believe that (1) the unaudited
financial statements and unaudited condensed financial information
described in 4(a)(i) do not comply in form in all material respects
with the applicable accounting requirements of the Act and the 1940 Act
and the related published rules and regulations and (2) the unaudited
financial statements
C-2
<PAGE> 39
and unaudited condensed financial information are not in conformity
with generally accepted accounting principles.
6. Trust officials have advised us that no financial statements as of
any date subsequent to February 19, 1999, are available. We have made
inquiries of certain officials of the Trust who have responsibility for
financial and accounting matters regarding whether there was any change
at March ___, 1999, in the capital shares or net assets of the Trust as
compared with amounts shown in the February 19, 1999 statement of
assets and liabilities included in the Registration Statement, except
for changes that the Registration Statement discloses have occurred or
may occur. On the basis of our inquiries and our reading of the minutes
as described in Paragraph 3, nothing came to our attention that caused
us to believe that there were any such changes.
7. For the purposes of this letter, we have also read the following and
performed the procedures referenced below, set forth in the
Registration Statement under the headings indicated:
(a) Cover Page. We have verified the mathematical accuracy of
the dollar amounts listed with respect to the Trust under the headings "Sales
load" and "Proceeds to Trust."
(b) "Prospectus Summary - Asset Maintenance." We have verified
the accuracy of the approximate percentage of the Trust's capital attributable
to the preferred shares of beneficial interest, par value $0.01 per share, of
the Trust (the "APS").
(c) "The Trusts." We have verified the accuracy of the dollar
amount of the proceeds of the initial public offering of the Trust's common
shares of beneficial interest, par value $0.01 per share (the "Common Shares")
after the payment of organizational and offering expenses and the number of
additional Common Shares that the underwriters were given an option to purchase
to cover over-allotments.
(d) "Use of Proceeds." We have verified the accuracy of the
net proceeds of the offering of the APS of the Trust after payment of offering
expenses and the sales load.
(e) "Capitalization." We have verified accuracy of unaudited
capitalization of the Trust as of February 19, 1999 (as if the over-allotment
Common Shares of the Trust were issued on such date) and as adjusted to give
effect to the issuance of the APS is asset forth under such heading.
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<PAGE> 40
(f) "Portfolio Composition." We have verified that the number
of issues, market value and percentage of total market value, by rating
category, which were invested in long-term and intermediate-term municipal
obligations by the Trust as of February 19, 1999, was as set forth under such
heading.
(g) "Description of the APS - Dividends - Restrictions on
Dividends and Other Payments." We have verified the accuracy of the approximate
asset coverage percentage set forth on the first paragraph under such heading.
(h) "Description of the APS - Asset Maintenance - 1940 Act
Asset Coverage." We have confirmed the accuracy of the dollar amounts and
percentages set forth with respect to the Trust in the table under such heading.
(i) "Description of Capital Structure." We have verified the
accuracy of the numbers of authorized Common Shares and Auction Preferred Shares
and the numbers of outstanding Common Shares and Auction Preferred Shares
outstanding (exclusive of shares held by the Trust for its own account).
(j) "Description of Capital Structure." We have verified the
accuracy of the net asset value per share and the closing price per share for
the Common Shares of the Trust as of February 19, 1999.
(k) "Statement of Additional Information - Appendix B: Tax
Equivalent Yield Tables." Based on the percentages set forth in the tax
equivalent yield table with respect to the Trust, we have verified the
mathematical accuracy of the percentages under the columns labeled "is
equivalent to a fully taxable yield of" set forth in such table.
This letter is solely for the information of the addressees and to
assist the underwriters in conducting and documenting their investigation of the
affairs of the Trust in connection with the offering of the securities covered
by the Registration Statement, and is not to be used, circulated, quoted or
otherwise referred to within or without the underwriting group for any other
purpose, including but not limited to the registration, purchase or sale of
securities, nor is it to be filed with or referred to in whole or in part in the
Registration Statement or any other document, except that reference may be made
to it in the underwriting agreement or in any list of closing documents
pertaining to the offering of the securities covered by the Registration
Statement.
Very truly yours,
DELOITTE & TOUCHE LLP
C-4
<PAGE> 1
Exhibit (k)1)
AUCTION AGENT AGREEMENT
between
EATON VANCE MUNICIPAL INCOME TRUST
and
BANKERS TRUST COMPANY
Dated as of March 4, 1999
Relating to
AUCTION PREFERRED SHARES
Series A and Series B
of
EATON VANCE MUNICIPAL INCOME TRUST
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
I. DEFINITIONS AND RULES OF CONSTRUCTION...................................................... 1
1.1 Terms Defined by Reference to the Amended By-laws............................ 1
1.2 Terms Defined Herein......................................................... 1
1.3 Rules of Construction........................................................ 3
II. THE AUCTION............................................................................... 3
2.1 Purpose; Incorporation by Reference of Auction Procedures
and Settlement Procedures. .................................................. 3
2.2 Preparation for Each Auction; Maintenance of Registry of
Existing Holders ............................................................ 4
2.3 Auction Schedule............................................................. 8
2.4 Notice of Auction Results.................................................... 9
2.5 Broker-Dealers............................................................... 9
2.6 Ownership of Shares of APS and Submission of Bids by
the Trust and its Affiliates ................................................ 10
2.7 Access to and Maintenance of Auction Records................................. 10
III. THE AUCTION AGENT AS PAYING AGENT........................................................ 11
3.1 The Paying Agent............................................................. 11
3.2 The Trust's Notices to the Paying Agent...................................... 11
3.3 The Trust to Provide Funds for Dividends, Redemptions
and Additional Dividends .................................................... 12
3.4 Disbursing Dividends, Redemption Price and Additional
Dividends ................................................................... 12
IV. THE PAYING AGENT AS TRANSFER AGENT AND REGISTRAR.......................................... 13
4.1 Original Issue of Stock Certificates......................................... 13
4.2 Registration of Transfer or Exchange of Shares............................... 13
4.3 Removal of Legend............................................................ 14
4.4 Lost, Stolen or Destroyed Stock Certificates................................. 14
4.5 Disposition of Canceled Certificates; Record Retention....................... 14
4.6 Stock Register............................................................... 15
4.7 Return of Funds.............................................................. 15
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
V. REPRESENTATIONS AND WARRANTIES............................................................. 16
5.1 Representations and Warranties of the Trust.................................. 16
5.2 Representations and Warranties of the Auction Agent.......................... 17
VI. THE AUCTION AGENT......................................................................... 17
6.1 Duties and Responsibilities.................................................. 17
6.2 Rights of the Auction Agent.................................................. 18
6.3 Auction Agent's Disclaimer................................................... 18
6.4 Compensation, Expenses and Indemnification................................... 18
VII. MISCELLANEOUS............................................................................ 19
7.1 Term of Agreement............................................................ 19
7.2 Communications............................................................... 20
7.3 Entire Agreement............................................................. 21
7.4 Benefits..................................................................... 21
7.5 Amendment; Waiver............................................................ 21
7.6 Successors and Assigns....................................................... 21
7.7 Severability................................................................. 22
7.8 Execution in Counterparts.................................................... 22
7.9 Governing Law................................................................ 22
7.10 Limitation of Liability...................................................... 22
</TABLE>
ii
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THIS AUCTION AGENT AGREEMENT, dated as of March 4, 1999, is between
EATON VANCE MUNICIPAL INCOME TRUST, a Massachusetts business trust (the
"Trust"), and BANKERS TRUST COMPANY, a New York banking corporation.
The Trust proposes to issue 2,620 preferred shares of beneficial
interest, par value $.01 per share, liquidation preference $25,000 per share,
designated Series A Auction Preferred Shares and 2,620 preferred shares of
beneficial interest, par value $.01 per share, designated Series B Auction
Preferred Shares (collectively with the Series A Auction Preferred Shares, the
"APS"), pursuant to the Trust's Amended By-laws (as defined below). The Trust
desires that Bankers Trust Company perform certain duties as agent in connection
with each Auction of shares of APS (in such capacity, the "Auction Agent"), and
as the transfer agent, registrar, dividend disbursing agent and redemption agent
with respect to the shares of APS (in such capacity, the "Paying Agent"), upon
the terms and conditions of this Agreement, and the Trust hereby appoints
Bankers Trust Company as said Auction Agent and Paying Agent in accordance with
those terms and conditions (hereinafter generally referred to as the "Auction
Agent," except in Sections 3 and 4 below).
A separate Auction (as defined below) will be conducted for each series
of APS. The Trust desires that Bankers Trust Company perform certain duties as
agent in connection with each Auction of shares of APS (in such capacity, the
"Auction Agent"), and as the transfer agent, registrar, dividend disbursing
agent and redemption agent with respect to the shares of APS (in such capacity,
the "Paying Agent"), upon the terms and conditions of this Agreement, and the
Trust hereby appoints Bankers Trust Company as said Auction Agent and Paying
Agent in accordance with those terms and conditions (hereinafter generally
referred to as the "Auction Agent," except in Sections 3 and 4 below).
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the Trust and the Auction Agent agree as follows:
1. DEFINITIONS AND RULES OF CONSTRUCTION.
1.1 Terms Defined by Reference to the Amended By-laws.
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Capitalized terms not defined herein shall have the respective meanings
specified in the Amended By-laws.
1.2 Terms Defined Herein.
As used herein and in the Settlement Procedures (as defined below), the
following terms shall have the following meanings, unless the context otherwise
requires:
(a) "Affiliate" shall mean any Person made known to the Auction Agent
to be controlled by, in control of, or under common control with, the Trust or
its successors.
(b) "Agent Member" of any Person shall mean such Person's agent member
of the Securities Depository that will act on behalf of a Bidder.
(c) "Amended By-laws" shall mean the Amended By-laws of the Trust,
establishing the powers, preferences and rights of the APS, as amended to the
date hereof.
(d) "Auction" shall have the meaning specified in Section 2.1 hereof.
(e) "Auction Procedures" shall mean the Auction Procedures that are set
forth in Section 10 of Article VII of the Amended By-laws.
(f) "Authorized Officer" shall mean each Senior Vice President, Vice
President, Assistant Vice President, Trust Officer, and Assistant Secretary and
Assistant Treasurer of the Auction Agent and every other officer or employee of
the Auction Agent designated as an "Authorized Officer" for purposes hereof in a
communication to the Trust.
(g) "Broker-Dealer Agreement" shall mean each agreement between the
Auction Agent and a Broker-Dealer substantially in the form attached hereto as
Exhibit A.
(h) "Holder" shall be a holder of record of one or more shares of APS,
listed as such in the stock register maintained by the Paying Agent pursuant to
Section 4.6 hereof.
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(i) "Settlement Procedures" shall mean the Settlement Procedures
attached as Exhibit A to the Broker-Dealer Agreement.
(j) "Trust Officer" shall mean the Chairman and Chief Executive
Officer, the President, each Vice President (whether or not designated by a
number or word or words added before or after the title "Vice President"), the
Secretary, the Treasurer, each Assistant Secretary and each Assistant Treasurer
of the Trust and every other officer or employee of the Trust designated as a
"Trust Officer" for purposes hereof in a notice from the Trust to the Auction
Agent.
1.3 Rules of Construction.
Unless the context or use indicates another or different meaning or
intent, the following rules shall apply to the construction of this Agreement:
(a) Words importing the singular number shall include the plural number
and vice versa.
(b) The captions and headings herein are solely for convenience of
reference and shall not constitute a part of this Agreement nor shall they
affect its meaning, construction or effect.
(c) The words "hereof," "herein," "hereto," and other words of similar
import refer to this Agreement as a whole.
(d) All references herein to a particular time of day shall be to New
York City time.
II. THE AUCTION.
2.1 Purpose; Incorporation by Reference of Auction Procedures and
Settlement Procedures.
(a) The Amended By-laws provide that the Applicable Rate on shares of
each series of APS, as the case may be, for each Dividend Period therefor after
the Initial Dividend Period shall be the rate per annum that a commercial bank,
trust company or other financial institution appointed by the Trust advises
results from implementation of the Auction Procedures. The Board of Trustees of
the Trust has adopted a resolution appointing Bankers Trust Company as Auction
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Agent for purposes of the Auction Procedures. The Auction Agent hereby accepts
such appointment and agrees that, on each Auction Date, it shall follow the
procedures set forth in this Section 2 and the Auction Procedures for the
purpose of determining the Applicable Rate for the APS for the next Dividend
Period therefor. Each periodic operation of such procedures is hereinafter
referred to as an "Auction."
(b) All of the provisions contained in the Auction Procedures and in
the Settlement Procedures are incorporated herein by reference in their entirety
and shall be deemed to be a part hereof to the same extent as if such provisions
were set forth fully herein.
2.2 Preparation for Each Auction; Maintenance of Registry of Existing
Holders.
(a) Pursuant to Section 2.5 hereof, the Trust shall not designate any
Person to act as a Broker-Dealer without the prior written approval of the
Auction Agent (which approval shall not be withheld unreasonably). As of the
date hereof, the Trust shall provide the Auction Agent with a list of the
Broker-Dealers previously approved by the Auction Agent and shall cause to be
delivered to the Auction Agent for execution by the Auction Agent a
Broker-Dealer Agreement signed by each such Broker-Dealer. The Auction Agent
shall keep such list current and accurate and shall indicate thereon, or on a
separate list, the identity of each Existing Holder, if any, whose most recent
Order was submitted by a Broker-Dealer on such list and resulted in such
Existing Holder continuing to hold or purchasing shares of APS. Not later than
five Business Days prior to any Auction Date for which any change in such list
of Broker-Dealers is to be effective, the Trust shall notify the Auction Agent
in writing of such change and, if any such change is the addition of a
Broker-Dealer to such list, the Trust shall cause to be delivered to the Auction
Agent for execution by the Auction Agent a Broker-Dealer Agreement signed by
such Broker-Dealer. The Auction Agent shall have entered into a Broker-Dealer
Agreement with each Broker-Dealer prior to the participation of any such
Broker-Dealer in any Auction.
(b) In the event that the Auction Date for any Auction shall be changed
after the Auction Agent shall have given the notice referred to in clause (vii)
of Paragraph (a) of the Settlement Procedures, the Auction Agent, by such means
as the Auction Agent deems practicable, shall give notice of such change to the
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Broker-Dealers not later than the earlier of 9:15 A.M. on the new Auction Date
or 9:15 A.M. on the old Auction Date.
(c) The provisions contained in Section 2 of Article VII of the Amended
By-laws concerning Special Dividend Periods and the notification of a Special
Dividend Period will be followed by the Trust and, to the extent applicable, the
Auction Agent, and the provisions contained therein are incorporated herein by
reference in their entirety and shall be deemed to be a part of this Agreement
to the same extent as if such provisions were set forth fully herein.
(d) (i) Except as otherwise provided in Sections 2(e) and 2(f) of
Article VII of the Amended By-laws, whenever the Trust intends to include any
net capital gains or other income subject to regular Federal income tax in any
dividend on shares of APS, the Trust will notify the Auction Agent of the amount
to be so included at least five Business Days prior to the Auction Date on which
the Applicable Rate for such dividend is to be established. Whenever the Auction
Agent receives such notice from the Trust, in turn it will notify each
Broker-Dealer, who, on or prior to such Auction Date, in accordance with its
Broker-Dealer Agreement, will notify its Beneficial Owners and Potential
Beneficial Owners believed to be interested in submitting an Order in the
Auction to be held on such Auction Date. Whenever the Trust includes any
additional amounts in a dividend as provided in Section 2(e) of Article VII of
the Amended By-laws, the Trust will notify the Auction Agent of such additional
amounts to be so included in such dividend at least five Business Days prior to
the applicable Dividend Payment Date. Whenever the Auction Agent receives such
notice from the Trust, in turn it will notify the Securities Depository and each
Broker-Dealer, who, on or prior to the applicable Dividend Payment Date, in
accordance with its Broker-Dealer Agreement, will notify its Beneficial Owners.
(ii) If the Trust makes a Retroactive Taxable Allocation, the
Trust, within 90 days (and generally within 60 days) after the end of its fiscal
year for which a Retroactive Taxable Allocation is made, will provide notice
thereof to the Auction Agent and to each Holder (initially the Securities
Depository) during such fiscal year at such Holder's address as the same appears
or last appeared on the stock books of the Trust. The Trust, within 30 days
after such notice is given to the Auction Agent, will pay to the Auction Agent
(who then will distribute to such Holders), out of funds legally available
therefor, a cash amount equal to the
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aggregate Additional Dividend with respect to all Retroactive Taxable
Allocations made to such Holders during the fiscal year in question.
(e) (i) On each Auction Date, the Auction Agent shall determine the
Reference Rate and the Maximum Applicable Rate. If the Reference Rate is not
quoted on an interest basis but is quoted on a discount basis, the Auction Agent
shall convert the quoted rate to an Interest Equivalent, as set forth in Section
1 of the Amended By-laws; or, if the rate obtained by the Auction Agent is not
quoted on an interest or discount basis, the Auction Agent shall convert the
quoted rate to an interest rate after consultation with the Trust as to the
method of such conversion. Not later than 9:30 A.M. on each Auction Date, the
Auction Agent shall notify the Trust and the Broker-Dealers of the Reference
Rate so determined and of the Maximum Applicable Rate.
(ii) If the Reference Rate is the applicable "AA" Composite
Commercial Paper Rate and such rate is to be based on rates supplied by
Commercial Paper Dealers and one or more of the Commercial Paper Dealers shall
not provide a quotation for the determination of the applicable "AA" Composite
Commercial Paper Rate, the Auction Agent immediately shall notify the Trust so
that the Trust can determine whether to select a Substitute Commercial Paper
Dealer or Substitute Commercial Paper Dealers to provide the quotation or
quotations not being supplied by any Commercial Paper Dealer or Commercial Paper
Dealers. The Trust promptly shall advise the Auction Agent of any such
selection. If the Trust does not select any such Substitute Commercial Paper
Dealer or Substitute Commercial Paper Dealers, then the rates shall be supplied
by the remaining Commercial Paper Dealer or Commercial Paper Dealers.
(iii) If, after the date of this Agreement, there is any change in
the prevailing rating of APS by Standard & Poor's Ratings Group (or substitute
or successor rating agencies), thereby resulting in any change in the
corresponding applicable percentage for the APS, as set forth in the definition
of Maximum Application Rate (the "Percentage"), the Trust shall notify the
Auction Agent in writing of such change in the Percentage prior to 9:00 A.M. on
the Auction Date for APS next succeeding such change. The Percentage for the APS
on the date of this Agreement is 110%. The Auction Agent shall be entitled to
rely on the last Percentage of which it has received notice from the Trust (or,
in the absence of such notice, the Percentage set forth in the preceding
sentence) in determining the Maximum Applicable Rate as set forth in Section
2.2(e)(i) hereof.
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(f) (i) The Auction Agent shall maintain a current registry of the
Existing Holders of the shares of each series of APS for purposes of each
Auction. The Trust shall use its best efforts to provide or cause to be provided
to the Auction Agent within ten Business Days following the date of the Closing
a list of the initial Existing Holders of each series of APS, and the
Broker-Dealer of each such Existing Holder through which such Existing Holder
purchased such shares. The Auction Agent may rely upon, as evidence of the
identities of the Existing Holders, such list, the results of each Auction and
notices from any Existing Holder, the Agent Member of any Existing Holder or the
Broker-Dealer of any Existing Holder with respect to such Existing Holder's
transfer of any shares of APS to another Person.
(ii) In the event of any partial redemption of any series of APS,
upon notice by the Trust to the Auction Agent of such partial redemption, the
Auction Agent promptly shall request the Securities Depository to notify the
Auction Agent of the identities of the Agent Members (and the respective numbers
of shares) from the accounts of which shares have been called for redemption and
the person or department at such Agent Member to contact regarding such
redemption, and at least two Business Days prior to the Auction preceding the
date of redemption with respect to shares of the series being partially
redeemed, the Auction Agent shall request each Agent Member so identified to
disclose to the Auction Agent (upon selection by such Agent Member of the
Existing Holders whose shares are to be redeemed) the number of shares of such
series of APS of each such Existing Holder, if any, to be redeemed by the Trust,
provided that the Auction Agent has been furnished with the name and telephone
number of a person or department at such Agent Member from which it is to
request such information. In the absence of receiving any such information with
respect to an Existing Holder, from such Existing Holder's Agent Member or
otherwise, the Auction Agent may continue to treat such Existing Holder as
having ownership of the number of shares of the series of APS shown in the
Auction Agent's registry of Existing Holders.
(iii) The Auction Agent shall register a transfer of the ownership
of shares of a series of APS from an Existing Holder to another Existing Holder,
or to another Person if permitted by the Trust, only if (A) such transfer is
made pursuant to an Auction or (B) if such transfer is made other than pursuant
to an Auction, the Auction Agent has been notified of such transfer in writing
in a notice substantially in the form of Exhibit C to the Broker-Dealer
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Agreements, by such Existing Holder or by the Agent Member of such Existing
Holder. The Auction Agent is not required to accept any notice of transfer
delivered for an Auction unless it is received by the Auction Agent by 3:00 P.M.
on the Business Day next preceding the applicable Auction Date. The Auction
Agent shall rescind a transfer made on the registry of the Existing Holders of
any shares of APS if the Auction Agent has been notified in writing, in a notice
substantially in the form of Exhibit D to the Broker-Dealer Agreement, by the
Agent Member or the Broker-Dealer of any Person that (i) purchased any shares of
APS and the seller failed to deliver such shares or (ii) sold any shares of APS
and the purchaser failed to make payment to such Person upon delivery to the
purchaser of such shares.
(g) The Auction Agent may request that the Broker Dealers, as set forth
in Section 3.2(c) of the Broker-Dealer Agreements, provide the Auction Agent
with a list of their respective customers that such Broker-Dealers believe are
Beneficial Owners of shares of APS. The Auction Agent shall keep confidential
any such information and shall not disclose any such information so provided to
any Person other than the relevant Broker-Dealer and the Trust, provided that
the Auction Agent reserves the right to disclose any such information if it is
advised by its counsel that its failure to do so would be unlawful.
2.3 Auction Schedule.
The Auction Agent shall conduct Auctions in accordance with the
schedule set forth below. Such schedule may be changed by the Auction Agent with
the consent of the Trust, which consent shall not be withheld unreasonably. The
Auction Agent shall give notice of any such change to each Broker-Dealer. Such
notice shall be received prior to the first Auction Date on which any such
change shall be effective.
Time Event
---- -----
By 9:30 A.M. Auction Agent advises the Trust and the
Broker-Dealers of the Reference Rate and the
Maximum Applicable Rate as set forth in Section
2.2(e)(i) hereof.
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9:30 A.M. - 1:00 P.M. Auction Agent assembles information communicated
to it by Broker-Dealers as provided in Section
10(d)(i) of Article VII of the Amended By-laws.
Submission deadline is 1:00 P.M.
Not earlier than Auction Agent makes determinations pursuant to
1:00 P.M. Section 10(d)(i) of Article VII of the Amended
By-laws.
By approximately Auction Agent advises the Trust of the results of
3:00 P.M. the Auction as provided in Section 10(d)(ii) of
Article VII of the Amended By-laws.
Submitted Bids and Submitted Sell Orders are
accepted and rejected in whole or in part and
shares of APS allocated as provided in Section
10(e) of Article VII of the Amended By-laws.
Auction Agent gives notice of the Auction results
as set forth in Section 2.4 hereof.
2.4 Notice of Auction Results.
On each Auction Date, the Auction Agent shall notify Broker-Dealers of
the results of the Auction held on such date by telephone or through the Auction
Agent's Auction Processing System as set forth in Paragraph (a) of the
Settlement Procedures.
2.5 Broker-Dealers.
(a) Not later than 12:00 noon on each Auction Date, the Trust shall pay
to the Auction Agent in Federal Funds or similar same-day funds an amount in
cash equal to (i) in the case of any Auction Date immediately preceding a 7-Day
Dividend Period, the product of (A) a fraction the numerator of which is the
number of days in such Dividend Period (calculated by counting the first day of
such Dividend Period but excluding the last day thereof) and the denominator of
which is 360, times (B) 1/4 of 1%, times (C) $25,000 times (D) the sum of the
aggregate number of outstanding shares of APS for which the Auction is conducted
and (ii) in the case of any Special Dividend Period, the amount determined by
mutual consent of the Trust and the Broker-Dealers pursuant to
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Section 3.5 of the Broker-Dealer Agreements. The Auction Agent shall apply such
moneys as set forth in Section 3.5 of the Broker-Dealer Agreements and shall
thereafter remit to the Trust any remaining funds paid to the Auction Agent
pursuant to this Section 2.5(a).
(b) The Trust shall not designate any Person to act as a Broker-
Dealer, or permit a Existing Holder or a Potential Beneficial Owner to
participate in Auctions through any Person other than a Broker-Dealer, without
the prior written approval of the Auction Agent, which approval shall not be
withheld unreasonably. The Trust may designate an Affiliate or PaineWebber
Incorporated to act as a Broker-Dealer.
(c) The Auction Agent shall terminate any Broker-Dealer Agreement as
set forth therein if so directed by the Trust.
(d) Subject to Section 2.5(b) hereof, the Auction Agent from time to
time shall enter into such Broker-Dealer Agreements as the Trust shall request.
(e) The Auction Agent shall maintain a list of Broker-Dealers.
2.6 Ownership of Shares of APS and Submission of Bids by the Trust and its
Affiliates.
Neither the Trust nor any Affiliate of the Trust may submit any Sell
Order or Bid, directly or indirectly, in any Auction, except that an Affiliate
of the Trust that is a Broker-Dealer may submit a Sell Order or Bid on behalf of
a Beneficial Owner or a Potential Beneficial Owner. The Trust shall notify the
Auction Agent if the Trust or, to the best of the Trust's knowledge, any
Affiliate of the Trust becomes a Beneficial Owner of any shares of APS. Any
shares of APS redeemed, purchased or otherwise acquired (i) by the Trust shall
not be reissued, except in accordance with the requirements of the Securities
Act of 1933, as amended, or (ii) by its Affiliates shall not be transferred
(other than to the Trust). The Auction Agent shall have no duty or liability
with respect to enforcement of this Section 2.6.
2.7 Access to and Maintenance of Auction Records.
The Auction Agent shall afford to the Trust, its agents, independent
public accountants and counsel, access at reasonable times during normal
business hours
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to review and make extracts or copies (at the Trust's sole cost and expense) of
all books, records, documents and other information concerning the conduct and
results of Auctions, provided that any such agent, accountant or counsel shall
furnish the Auction Agent with a letter from the Trust requesting that the
Auction Agent afford such person access. The Auction Agent shall maintain
records relating to any Auction for a period of two years after such Auction
(unless requested by the Trust to maintain such records for such longer period
not in excess of four years, then for such longer period), and such records, in
reasonable detail, shall accurately and fairly reflect the actions taken by the
Auction Agent hereunder. The Trust agrees to keep confidential any information
regarding the customers of any Broker-Dealer received from the Auction Agent in
connection with this Agreement or any Auction, and shall not disclose such
information or permit the disclosure of such information without the prior
written consent of the applicable Broker-Dealer to anyone except such agent,
accountant or counsel engaged to audit or review the results of Auctions as
permitted by this Section 2.7, provided that the Trust reserves the right to
disclose any such information if it is advised by its counsel that its failure
to do so would (i) be unlawful or (ii) expose it to liability, unless the
Broker-Dealer shall have offered indemnification satisfactory to the Trust. Any
such agent, accountant or counsel, before having access to such information,
shall agree to keep such information confidential and not to disclose such
information or permit disclosure of such information without the prior written
consent of the applicable Broker-Dealer, provided that such agent, accountant or
counsel may reserve the right to disclose any such information if it is advised
by its counsel that its failure to do so would (i) be unlawful or (ii) expose it
to liability, unless the Broker-Dealer shall have offered indemnification
satisfactory to such agent, accountant or counsel.
III. THE AUCTION AGENT AS PAYING AGENT.
3.1 The Paying Agent.
The Board of Trustees of the Trust has adopted a resolution appointing
Bankers Trust Company as transfer agent, registrar, dividend disbursing agent
and redemption agent for the Trust in connection with any shares of APS (in such
capacity, the "Paying Agent"). The Paying Agent hereby accepts such appointment
and agrees to act in accordance with its standard procedures and the provisions
of the Amended By-laws which are specified herein with respect to the shares of
APS and as set forth in this Section 3.
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3.2 The Trust's Notices to the Paying Agent.
Whenever any shares of APS are to be redeemed, the Trust promptly shall
deliver to the Paying Agent a Notice of Redemption, which will be mailed by the
Trust to each Holder at least five Business Days prior to the date such Notice
of Redemption is required to be mailed pursuant to the Amended By-laws. The
Paying Agent shall have no responsibility to confirm or verify the accuracy of
any such Notice.
3.3 The Trust to Provide Funds for Dividends,Redemptions and Additional
Dividends.
(a) Not later than noon on each Dividend Payment Date, the Trust shall
deposit with the Paying Agent an aggregate amount of Federal Funds or similar
same-day funds equal to the declared dividends to be paid to Holders on such
Dividend Payment Date, and shall give the Paying Agent irrevocable instructions
to apply such funds to the payment of such dividends on such Dividend Payment
Date.
(b) If the Trust shall give a Notice of Redemption, then by noon of the
date fixed for redemption, the Trust shall deposit in trust with the Paying
Agent an aggregate amount of Federal Funds or similar same-day funds sufficient
to redeem such shares of APS called for redemption and shall give the Paying
Agent irrevocable instructions and authority to pay the redemption price to the
Holders of shares of APS called for redemption upon surrender of the certificate
or certificates therefor.
(c) If the Trust provides notice to the Auction Agent of a Retroactive
Taxable Allocation, the Trust, within 30 days after such notice is given and by
noon of the date fixed for payment of an Additional Dividend, shall deposit in
trust with the Paying Agent an aggregate amount of Federal Funds or similar
same-day funds equal to such Additional Dividend and shall give the Paying Agent
irrevocable instructions and authority to pay the Additional Dividend to Holders
(or former Holders) entitled thereto.
3.4 Disbursing Dividends, Redemption Price and Additional Dividends.
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After receipt of the Federal Funds or similar same-day funds and
instructions from the Trust described in Sections 3.3(a), (b) and (c) above, the
Paying Agent shall pay to the Holders (or former Holders) entitled thereto (i)
on each corresponding Dividend Payment Date, dividends on the shares of APS,
(ii) on any date fixed for redemption, the redemption price of any shares of APS
called for redemption and (iii) on the date fixed for payment of an Additional
Dividend, such Additional Dividend. The amount of dividends for any Dividend
Period to be paid by the Paying Agent to Holders will be determined by the Trust
as set forth in Section 2 of the Amended By-laws. The redemption price to be
paid by the Paying Agent to the Holders of any shares of APS called for
redemption will be determined as set forth in Section 4 of the Amended By-laws.
The amount of Additional Dividends to be paid by the Paying Agent in the event
of a Retroactive Taxable Allocation to Holders will be determined by the Trust
pursuant to Section 2(e) of the Amended By-laws. The Trust shall notify the
Paying Agent in writing of a decision to redeem any shares of APS on or prior to
the date specified in Section 3.2 above, and such notice by the Trust to the
Paying Agent shall contain the information required to be stated in a Notice of
Redemption required to be mailed by the Trust to such Holders. The Paying Agent
shall have no duty to determine the redemption price and may rely on the amount
thereof set forth in a Notice of Redemption.
IV. THE PAYING AGENT AS TRANSFER AGENT AND REGISTRAR.
4.1 Original Issue of Stock Certificates.
On the Date of Original Issue for any share of APS, one certificate for
each series, if any, of APS shall be issued by the Trust and registered in the
name of Cede & Co., as nominee of the Securities Depository, and countersigned
by the Paying Agent. The Trust will give the Auction Agent prior written notice
and instruction as to the issuance and redemption of APS.
4.2 Registration of Transfer or Exchange of Shares.
Except as provided in this Section 4.2, the shares of each series of
APS shall be registered solely in the name of the Securities Depository or its
nominee. If the Securities Depository shall give notice of its intention to
resign as such, and if the Trust shall not have selected a substitute Securities
Depository acceptable to the Paying Agent prior to such resignation, then upon
such resignation, the shares of each series of APS, at the Trust's request, may
be registered for transfer or
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exchange, and new certificates thereupon shall be issued in the name of the
designated transferee or transferees, upon surrender of the old certificate in
form deemed by the Paying Agent properly endorsed for transfer with (a) all
necessary endorsers' signatures guaranteed in such manner and form as the Paying
Agent may require by a guarantor reasonably believed by the Paying Agent to be
responsible, (b) such assurances as the Paying Agent shall deem necessary or
appropriate to evidence the genuineness and effectiveness of each necessary
endorsement and (c) satisfactory evidence of compliance with all applicable laws
relating to the collection of taxes in connection with any registration of
transfer or exchange or funds necessary for the payment of such taxes. If the
certificate or certificates for shares of APS are not held by the Securities
Depository or its nominee, payments upon transfer of shares in an Auction shall
be made in Federal Funds or similar same-day funds to the Auction Agent against
delivery of certificates therefor.
4.3 Removal of Legend.
Any request for removal of a legend indicating a restriction on
transfer from a certificate evidencing shares of APS shall be accompanied by an
opinion of counsel stating that such legend may be removed and such shares may
be transferred free of the restriction described in such legend, said opinion to
be delivered under cover of a letter from a Company Officer authorizing the
Paying Agent to remove the legend on the basis of said opinion.
4.4 Lost, Stolen or Destroyed Stock Certificates.
The Paying Agent shall issue and register replacement certificates for
certificates represented to have been lost, stolen or destroyed, upon the
fulfillment of such requirements as shall be deemed appropriate by the Trust and
by the Paying Agent, subject at all times to provisions of law, the Amended
By-Laws of the Trust governing such matters and resolutions adopted by the Trust
with respect to lost, stolen or destroyed securities. The Paying Agent may issue
new certificates in exchange for and upon the cancellation of mutilated
certificates. Any request by the Trust to the Paying Agent to issue a
replacement or new certificate pursuant to this Section 4.4 shall be deemed to
be a representation and warranty by the Trust to the Paying Agent that such
issuance will comply with provisions of applicable law and the By-Laws and
resolutions of the Trust.
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4.5 Disposition of Canceled Certificates;Record Retention.
The Paying Agent shall retain stock certificates which have been
canceled in transfer or in exchange and accompanying documentation in accordance
with applicable rules and regulations of the Securities and Exchange Commission
for two calendar years from the date of such cancellation. The Paying Agent,
upon written request by the Trust, shall afford to the Trust, its agents and
counsel access at reasonable times during normal business hours to review and
make extracts or copies (at the Trust's sole cost and expense) of such
certificates and accompanying documentation. Upon request by the Trust at any
time after the expiration of this two-year period, the Paying Agent shall
deliver to the Trust the canceled certificates and accompanying documentation.
The Trust, at its expense, shall retain such records for a minimum additional
period of four calendar years from the date of delivery of the records to the
Trust and shall make such records available during this period at any time, or
from time to time, for reasonable periodic, special, or other examinations by
representatives of the Securities and Exchange Commission. The Trust also shall
undertake to furnish to the Securities and Exchange Commission, upon demand,
either at their principal office or at any regional office, complete, correct
and current hard copies of any and all such records. Thereafter, such records
shall not be destroyed by the Trust without the approval of the Paying Agent,
which approval shall not be withheld unreasonably, but will be safely stored for
possible future reference.
4.6 Stock Register.
The Paying Agent shall maintain the stock register, which shall contain
a list of the Holders, the number of shares held by each Holder and the address
of each Holder. The Paying Agent shall record in the stock register any change
of address of a Holder upon notice by such Holder. In case of any written
request or demand for the inspection of the stock register or any other books of
the Trust in the possession of the Paying Agent, the Paying Agent will notify
the Trust and secure instructions as to permitting or refusing such inspection.
The Paying Agent reserves the right, however, to exhibit the stock register or
other records to any person in case it is advised by its counsel that its
failure to do so would (i) be unlawful or (ii) expose it to liability, unless
the Trust shall have offered indemnification satisfactory to the Paying Agent.
4.7 Return of Funds.
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Any funds deposited with the Paying Agent by the Trust for any reason
under this Agreement, including for the payment of dividends or the redemption
of shares of any series of APS, that remain with the Paying Agent after 12
months shall be repaid to the Trust upon written request by the Trust.
V. REPRESENTATIONS AND WARRANTIES.
5.1 Representations and Warranties of the Trust.
The Trust represents and warrants to the Auction Agent that:
(i) the Trust is duly organized and is validly existing as a
business trust in good standing under the laws of The Commonwealth of
Massachusetts, and has full power to execute and deliver this Agreement and to
authorize, create and issue the shares of APS;
(ii) the Trust is registered with the Securities and Exchange
Commission under the Investment Company Act of 1940, as amended, as a
closed-end, non-diversified, management investment company;
(iii) this Agreement has been duly and validly authorized,
executed and delivered by the Trust and constitutes the legal, valid and binding
obligation of the Trust, enforceable against the Trust in accordance with its
terms, subject as to such enforceability to bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or affecting
creditors' rights and to general equitable principles;
(iv) the forms of the certificates evidencing the shares of each
series of APS comply with all applicable laws of The Commonwealth of
Massachusetts;
(v) the shares of each series of APS have been duly and validly
authorized by the Trust and, upon completion of the initial sale of the shares
of such series of APS and receipt of payment therefor, will be validly issued,
fully paid and nonassessable;
(vi) at the time of the offering of the shares of each series of
APS, the shares offered will be registered under the Securities Act of 1933, as
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<PAGE> 20
amended, and no further action by or before any governmental body or authority
of the United States or of any state thereof is required in connection with the
execution and delivery of this Agreement or will be required in connection with
the issuance of the shares of APS, except such action as required by applicable
state securities laws, all of which action will have been taken;
(vii) the execution and delivery of this Agreement and the
issuance and delivery of the shares of each series of APS do not and will not
conflict with, violate, or result in a breach of, the terms, conditions or
provisions of, or constitute a default under, the Declaration of Trust or the
Amended By-Laws of the Trust, any law or regulation applicable to the Trust, any
order or decree of any court or public authority having jurisdiction over the
Trust, or any mortgage, indenture, contract, agreement or undertaking to which
the Trust is a party or by which it is bound; and
(viii) no taxes are payable upon or in respect of the execution
of this Agreement or will be payable upon or in respect of the issuance of the
shares of each series of APS.
5.2 Representations and Warranties of the Auction Agent.
The Auction Agent represents and warrants to the Trust that the Auction
Agent is duly organized and is validly existing as a banking corporation in good
standing under the laws of the State of New York, and has the corporate power to
enter into and perform its obligations under this Agreement.
VI. THE AUCTION AGENT.
6.1 Duties and Responsibilities.
(a) The Auction Agent is acting solely as agent for the Trust hereunder
and owes no fiduciary duties to any Person except as provided by this Agreement.
(b) The Auction Agent undertakes to perform such duties and only such
duties as are set forth specifically in this Agreement, and no implied covenants
or obligations shall be read into this Agreement against the Auction Agent.
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<PAGE> 21
(c) In the absence of bad faith or negligence on its part, the Auction
Agent shall not be liable for any action taken, suffered or omitted by it or for
any error of judgment made by it in the performance of its duties under this
Agreement. The Auction Agent shall not be liable for any error of judgment made
in good faith unless the Auction Agent shall have been negligent in ascertaining
(or failing to ascertain) the pertinent facts.
6.2 Rights of the Auction Agent.
(a) The Auction Agent may rely upon, and shall be protected in acting
or refraining from acting upon, any communication authorized hereby and any
written instruction, notice, request, direction, consent, report, certificate,
share certificate or other instrument, paper or document reasonably believed by
it to be genuine. The Auction Agent shall not be liable for acting upon any
telephone communication authorized hereby which the Auction Agent believes in
good faith to have been given by the Trust or by a Broker-Dealer. The Auction
Agent may record telephone communications with the Trust or with the
Broker-Dealers or with both.
(b) The Auction Agent may consult with counsel of its choice, and the
written advice of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon.
(c) The Auction Agent shall not be required to advance, expend or risk
its own funds or otherwise incur or become exposed to financial liability in the
performance of its duties hereunder. The Auction Agent shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed in writing with the Trust.
(d) The Auction Agent may perform its duties and exercise its rights
hereunder either directly or by or through agents or attorneys.
6.3 Auction Agent's Disclaimer.
The Auction Agent makes no representation as to the validity or the
adequacy of this Agreement, the Broker-Dealer Agreements or the APS.
6.4 Compensation, Expenses and Indemnification.
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<PAGE> 22
(a) The Trust shall pay to the Auction Agent from time to time
reasonable compensation for all services rendered by it under this Agreement and
under the Broker-Dealer Agreements as shall be set forth in a separate writing
signed by the Trust and the Auction Agent, subject to adjustments if the APS no
longer are held of record by the Securities Depository or its nominee or if
there shall be such other change as shall increase materially the Auction
Agent's obligations hereunder or under the Broker-Dealer Agreements.
(b) The Trust shall reimburse the Auction Agent upon its request for
all reasonable expenses, disbursements and advances incurred or made by the
Auction Agent in accordance with any provision of this Agreement and of the
Broker-Dealer Agreements (including the reasonable compensation, expenses and
disbursements of its agents and counsel), except any expense, disbursement or
advance attributable to its negligence or bad faith.
(c) The Trust shall indemnify the Auction Agent for, and hold it
harmless against, any loss, liability or expense incurred without negligence or
bad faith on its part arising out of or in connection with its agency under this
Agreement and under the Broker-Dealer Agreements, including the costs and
expenses of defending itself against any claim of liability in connection with
its exercise or performance of any of its duties hereunder and thereunder,
except such as may result from its negligence or bad faith.
VII. MISCELLANEOUS.
7.1 Term of Agreement.
(a) The term of this Agreement is unlimited unless it shall be
terminated as provided in this Section 7.1. The Trust may terminate this
Agreement at any time by so notifying the Auction Agent, provided that if any
APS remain outstanding the Trust shall have entered into an agreement in
substantially the form of this Agreement with a successor auction agent. The
Auction Agent may terminate this Agreement upon prior notice to the Trust on the
date specified in such notice, which date shall be no earlier than 60 days after
delivery of such notice. If the Auction Agent resigns while any shares of APS
remain outstanding, the Trust shall use its best efforts to enter into an
agreement with a successor auction agent containing substantially the same terms
and conditions as this Agreement.
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(b) Except as otherwise provided in this Section 7.1(b), the respective
rights and duties of the Trust and the Auction Agent under this Agreement shall
cease upon termination of this Agreement. The Trust's representations,
warranties, covenants and obligations to the Auction Agent under Sections 5 and
6.4 hereof shall survive the termination hereof. Upon termination of this
Agreement, the Auction Agent shall (i) resign as Auction Agent under the
Broker-Dealer Agreements, (ii) at the Trust's request, deliver promptly to the
Trust copies of all books and records maintained by it in connection with its
duties hereunder, and (iii) at the request of the Trust, transfer promptly to
the Trust or to any successor auction agent any funds deposited by the Trust
with the Auction Agent (whether in its capacity as Auction Agent or as Paying
Agent) pursuant to this Agreement which have not been distributed previously by
the Auction Agent in accordance with this Agreement.
7.2 Communications.
Except for (i) communications authorized to be made by telephone
pursuant to this Agreement or the Auction Procedures and (ii) communications in
connection with Auctions (other than those expressly required to be in writing),
all notices, requests and other communications to any party hereunder shall be
in writing (including telecopy or similar writing) and shall be given to such
party at its address or telecopier number set forth below:
If to the Trust, Eaton Vance Municipal Income Trust
addressed to: 24 Federal Street [before May 1, 1999]
Boston, MA 02110
255 State Street [after May 1, 1999]
Boston, MA 02109
Attention: Treasurer
Telephone No.: (617) 482-8260
If to the Auction Agent, Bankers Trust Company
addressed to: Corporate Trust and Agency Group
Four Albany Street
New York, NY 10006
Attention: Auction Rate Securities
Telecopier No.: (212) 250-6215
Telephone No.: (212) 250-6850
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<PAGE> 24
or such other address or telecopier number as such party hereafter may specify
for such purpose by notice to the other party. Each such notice, request or
communication shall be effective when delivered at the address specified herein.
Communications shall be given on behalf of the Trust by a Trust Officer and on
behalf of the Auction Agent by an Authorized Officer.
7.3 Entire Agreement.
This Agreement contains the entire agreement between the parties
relating to the subject matter hereof, and there are no other representations,
endorsements, promises, agreements or understandings, oral, written or inferred,
between the parties relating to the subject matter hereof, except for agreements
relating to the compensation of the Auction Agent.
7.4 Benefits.
Nothing herein, express or implied, shall give to any Person, other
than the Trust, the Auction Agent and their respective successors and assigns,
any benefit of any legal or equitable right, remedy or claim hereunder.
7.5 Amendment; Waiver.
(a) This Agreement shall not be deemed or construed to be modified,
amended, rescinded, canceled or waived, in whole or in part, except by a written
instrument signed by a duly authorized representative of the party to be
charged. The Trust shall notify the Auction Agent of any change in the Amended
By-laws prior to the effective date of any such change. If any such change in
the Amended By-laws materially increases the Auction Agent's obligations
hereunder, the Trust shall obtain the written consent to the Auction Agent prior
to the effective date of such change.
(b) Failure of either party hereto to exercise any right or remedy
hereunder in the event of a breach hereof by the other party shall not
constitute a waiver of any such right or remedy with respect to any subsequent
breach.
7.6 Successors and Assigns.
This Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the respective successors and permitted assigns of each of the
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Trust and the Auction Agent. This Agreement may not be assigned by either party
hereto absent the prior written consent of the other party, which consent shall
not be withheld unreasonably.
7.7 Severability.
If any clause, provision or section hereof shall be ruled invalid or
unenforceable by any court of competent jurisdiction, the invalidity or
unenforceability of such clause, provision or section shall not affect any of
the remaining clauses, provisions or sections hereof.
7.8 Execution in Counterparts.
This Agreement may be executed in several counterparts, each of which
shall be an original and all of which shall constitute but one and the same
instrument.
7.9 Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York applicable to agreements made and to be
performed in said state.
7.10 Limitation of Liability.
The names "Eaton Vance Municipal Income Trust" and "Trustees of the
Eaton Vance Municipal Income Trust" refer, respectively, to the Trust and the
Trustees of the Trust, as trustees but not individually or personally, acting
from time to time under the Trust's Agreement and Declaration of Trust dated
December 10, 1998, as amended, which is hereby referred to and a copy of which
is on file at the office of the Secretary of The Commonwealth of Massachusetts
and the principal office of the Trust. The obligations of "Eaton Vance Municipal
Income Trust" entered into in the name or on behalf thereof by any of the
Trustees, representatives or agents of the Trust are made not individually, but
in such capacities, and are not binding upon any of the Trustees, officers,
holders of shares of beneficial interest of the Trust or representatives of the
Trustees personally, but bind only the Trust assets, and all persons dealing
with the Trust must look solely to the Trust property for the enforcement of any
claims against the Trust.
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<PAGE> 26
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the date first above written.
EATON VANCE MUNICIPAL INCOME TRUST
By:
-----------------------------------
Title:
BANKERS TRUST COMPANY
By:
-----------------------------------
Title:
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<PAGE> 1
Exhibit (k)(2)
BROKER-DEALER AGREEMENT
between
BANKERS TRUST COMPANY
and
[NAME OF BROKER-DEALER]
Dated as of March 4, 1999
Relating to
AUCTION PREFERRED SHARES
Series A and Series B
of
EATON VANCE MUNICIPAL INCOME TRUST
<PAGE> 2
BROKER-DEALER AGREEMENT dated as of March 4, 1999, between BANKERS
TRUST COMPANY, a New York banking corporation (the "Auction Agent") (not in its
individual capacity, but solely as agent of Eaton Vance Municipal Income Trust,
a Massachusetts business trust (the "Trust"), pursuant to authority granted to
it in the Auction Agency Agreement dated as of March 4, 1999, between the Trust
and the Auction Agent (the "Auction Agency Agreement")) and [NAME OF
BROKER-DEALER] (together with its successors and assigns, "BD").
The Trust proposes to issue 2,620 preferred shares of beneficial
interest, par value $.01 per share, liquidation preference $25,000 per share,
designated Series A Auction Preferred Shares and 2,620 preferred shares of
beneficial interest, par value $.01 per share, designated Series B Auction
Preferred Shares (collectively with the Series A Auction Preferred Shares, the
"APS"), pursuant to the Trust's Amended By-laws (as defined below).
The Trust's Amended By-laws provide that the dividend rate on each
series of APS for each Dividend Period therefor after the Initial Dividend
Period shall be the Applicable Rate therefor, which in each case, in general
shall be the rate per annum that a commercial bank, trust company or other
financial institution appointed by the Company advises results from
implementation of the Auction Procedures (as defined below). The Board of
Trustees of the Trust has adopted a resolution appointing Bankers Trust Company
as Auction Agent for purposes of the Auction Procedures, and pursuant to Section
2.5 of the Auction Agency Agreement, the Trust has requested and directed the
Auction Agent to execute and deliver this Agreement.
The Auction Procedures require the participation of one or more
Broker-Dealers.
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<PAGE> 3
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the Auction Agent and BD agree as follows:
I. DEFINITIONS AND RULES OF CONSTRUCTION.
1.1. Terms Defined by Reference to the Amended By-laws.
Capitalized terms not defined herein shall have the respective meanings
specified in the Amended By-laws of the Trust.
1.2. Terms Defined Herein. As used herein and in the Settlement Procedures
(as defined below), the following terms shall have the following meanings,
unless the context otherwise requires:
(a) "Amended By-laws" shall mean the By-laws of the Trust, as amended
through the date hereof, establishing the powers, preferences and rights of the
APS.
(b) "Auction" shall have the meaning specified in Section 3.1 hereof.
(c) "Auction Procedures" shall mean the Auction Procedures that are
set forth in Section 10 of Article VII of the Amended By-laws.
(d) "Authorized Officer" shall mean each Senior Vice President, Vice
President, Assistant Vice President, Trust Officer, Assistant Secretary and
Assistant Treasurer of the Auction Agent and every other officer or employee of
the Auction Agent designated as an "Authorized Officer" for purposes of this
Agreement in a communication to BD.
(e) "BD Officer" shall mean each officer or employee of BD designated
as a "BD Officer" for purposes of this Agreement in a communication to the
Auction Agent.
(f) "Broker-Dealer Agreement" shall mean this Agreement and any
substantially similar agreement between the Auction Agent and a Broker-Dealer.
(g) "Settlement Procedures" shall mean the Settlement Procedures
attached hereto as Exhibit A.
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<PAGE> 4
1.3. Rules of Construction. Unless the context or use indicates another
or different meaning or intent, the following rules shall apply to the
construction of this Agreement:
(a) Words importing the singular number shall include the plural number
and vice versa.
(b) The captions and headings herein are solely for convenience of
reference and shall not constitute a part of this Agreement, nor shall they
affect its meaning, construction or effect.
(c) The words "hereof," "herein," "hereto," and other words of similar
import refer to this Agreement as a whole.
(d) All references herein to a particular time of day shall be to New
York City time.
II. NOTIFICATION OF DIVIDEND PERIOD AND ADVANCE NOTICE OF ALLOCATION OF TAXABLE
INCOME.
2.1. The provisions contained in paragraph 2 of Article VII of the Amended
By-laws concerning the notification of a Special Dividend Period will be
followed by the Auction Agent and BD, and the provisions contained therein are
incorporated herein by reference in their entirety and shall be deemed to be a
part of this Agreement to the same extent as if such provisions were set forth
fully herein.
2.2. Except as otherwise provided in paragraph 2 of Article VII of the
Amended By-laws, whenever the Trust intends to include any net capital gains or
other income subject to regular Federal income tax in any dividend on shares of
any series of APS, the Trust will notify the Auction Agent of the amount to be
so included at least five Business Days prior to the Auction Date on which the
Applicable Rate for such dividend is to be established. Whenever the Auction
Agent receives such notice from the Trust, in turn it will notify BD, who, on or
prior to such Auction Date, will notify its Beneficial Owners and Potential
Beneficial Owners believed to be interested in submitting an Order in the
Auction to be held on such Auction Date. Whenever the Trust intends to include
any additional amounts in a dividend as provided in paragraph 2 of Article VII
of the Amended By-laws, the Trust will notify the Auction Agent of such
additional amounts to be so included in such dividend at
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<PAGE> 5
least five Business Days prior to the applicable Dividend Payment Date. Whenever
the Auction Agent receives such notice from the Trust, in turn it will notify
the Securities Depository and BD, who, on or prior to the applicable Dividend
Payment Date, will notify its Beneficial Owners.
III. THE AUCTION.
3.1. Purpose; Incorporation by Reference of Auction Procedures and
Settlement Procedures.
(a) On each Auction Date, the provisions of the Auction Procedures will
be followed by the Auction Agent for the purpose of determining the Applicable
Rate for each series of APS, for the next Dividend Period therefor. Each
periodic operation of such procedures is hereinafter referred to as an
"Auction."
(b) All of the provisions contained in the Auction Procedures and the
Settlement Procedures are incorporated herein by reference in their entirety and
shall be deemed to be a part of this Agreement to the same extent as if such
provisions were set forth fully herein.
(c) BD agrees to act as, and assumes the obligations of and limitations
and restrictions placed upon, a Broker-Dealer under this Agreement. BD
understands that other Persons meeting the requirements specified in the
definition of "Broker-Dealer" contained in Paragraph 10 of Article VII of the
Amended By-laws may execute a Broker-Dealer Agreement and participate as
Broker-Dealers in Auctions.
(d) BD and other Broker-Dealers may participate in Auctions for their
own accounts. However, the Trust, by notice to BD and all other Broker Dealers,
may prohibit all Broker-Dealers from submitting Bids in Auctions for their own
accounts, provided that Broker-Dealers may continue to submit Hold Orders and
Sell Orders.
3.2. Preparation for Each Auction.
(a) Not later than 9:30 A.M. on each Auction Date for the APS, the
Auction Agent shall advise BD by telephone of the Reference Rate and the Maximum
Applicable Rate in effect on such Auction Date.
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<PAGE> 6
(b) In the event that the Auction Date for any Auction shall be changed
after the Auction Agent has given the notice referred to in of the
Settlement Procedures, the Auction Agent, by such means as the Auction Agent
deems practicable, shall give notice of such change to BD not later than the
earlier of 9:15 A.M. on the new Auction Date or 9:15 A.M. on the old Auction
Date. Thereafter, BD promptly shall notify customers of BD that BD believes are
Beneficial Owners of shares of APS of such change in the Auction Date.
(c) The Auction Agent from time to time may request BD to provide it
with a list of the respective customers BD believes are Beneficial Owners of
shares of each series of APS. BD shall comply with any such request, and the
Auction Agent shall keep confidential any such information, including
information received as to the identity of Bidders in any Auction, and shall not
disclose any such information so provided to any Person other than the Trust;
and such information shall not be used by the Auction Agent or its officers,
employees, agents or representatives for any purpose other than such purposes as
are described herein. The Auction Agent shall transmit any list of customers BD
believes are Beneficial Owners of shares of each series of APS and information
related thereto only to its officers, employees, agents or representatives who
need to know such information for the purposes of acting in accordance with this
Agreement, and the Auction Agent shall prevent the transmission of such
information to others and shall cause its officers, employees, agents and
representatives to abide by the foregoing confidentiality restrictions;
provided, however, that the Auction Agent shall have no responsibility or
liability for the actions of any of its officers, employees, agents or
representatives after they have left the employ of the Auction Agent.
3.3. Auction Schedule; Method of Submission of Orders.
(a) The Trust and the Auction Agent shall conduct Auctions for
each series of APS in accordance with the schedule set forth below. Such
schedule may be changed at any time by the Auction Agent with the consent of the
Trust, which consent shall not be withheld unreasonably. The Auction Agent shall
give notice of any such change to BD. Such notice shall be received prior to the
first Auction Date on which any such change shall be effective.
Time Event
By 9:30 A.M. Auction Agent advises the Trust and
Broker-Dealers of the Reference
Rate and the Maximum
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<PAGE> 7
Applicable Rate as set forth in
Section 3.2(a) hereof.
9:30 A.M. - 1:30 P.M. Auction Agent assembles information
communicated to it by
Broker-Dealers as provided in
Section 10(d)(i) of Article VII of
the Amended By-laws. Submission
Deadline is 1:00 P.M.
Not earlier than 1:30 P.M. Auction Agent makes
determinations pursuant to Section
10(d)(i) of Article VII of the
Amended By-laws.
By approximately 3:00 P.M. Auction Agent advises the
Trust of the results of the Auction
as provided in Section 10(d)(ii) of
Article VII of the Amended By-laws.
Submitted Bids and Submitted Sell
Orders are accepted and rejected in
whole or in part and shares of APS
are allocated as provided in
Section 10(e) of Article VII of the
Amended By-laws. Auction Agent
gives notice of the Auction results
as set forth in Section 3.4(a)
hereof.
(b) BD agrees to maintain a list of Potential Beneficial Owners
and to contact the Potential Beneficial Owners on such list on or prior to each
Auction Date for the purposes set forth in Section 10 of Article VII of the
Amended By-laws.
(c) BD shall submit Orders to the Auction Agent in writing in
substantially the form attached hereto as Exhibit B. BD shall submit separate
Orders to the Auction Agent for each Potential Beneficial Owner or Beneficial
Owner on whose behalf BD is submitting an Order and shall not net or aggregate
the Orders of
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<PAGE> 8
Potential Beneficial Owners or Beneficial Owners on whose behalf BD is
submitting Orders.
(d) BD shall deliver to the Auction Agent (i) a written notice,
substantially in the form attached hereto as Exhibit C, of transfers of shares
of any series of APS, made through BD by an Existing Holder to another Person
other than pursuant to an Auction, and (ii) a written notice, substantially in
the form attached hereto as Exhibit D, of the failure of shares of any series of
any series of APS to be transferred to or by any Person that purchased or sold
shares of any series of APS through BD pursuant to an Auction. The Auction Agent
is not required to accept any notice delivered pursuant to the terms of the
foregoing sentence with respect to an Auction unless it is received by the
Auction Agent by 3:00 P.M. on the Business Day next preceding the applicable
Auction Date.
3.4. Notice of Auction Results.
(a) On each Auction Date, the Auction Agent shall notify BD by
telephone as set forth in paragraph (a) of the Settlement Procedures. On the
Business Day next succeeding such Auction Date, the Auction Agent shall notify
BD in writing of the disposition of all Orders submitted by BD in the Auction
held on such Auction Date.
(b) BD shall notify each Beneficial Owner, Potential Beneficial
Owner, Existing Holder or Potential Holder on whose behalf BD has submitted an
Order as set forth in paragraph (b) of the Settlement Procedures, and take such
other action as is required of BD pursuant to the Settlement Procedures.
If any Beneficial Owner or Existing Holder selling shares of
APS in an Auction fails to deliver such shares, the BD of any Person that was to
have purchased shares of such series of APS in such Auction may deliver to such
Person a number of whole shares of such series of APS that is less than the
number of shares that otherwise was to be purchased by such Person. In such
event, the number of shares of such series of APS to be so delivered shall be
determined by such BD. Delivery of such lesser number of shares shall constitute
good delivery. Upon the occurrence of any such failure to deliver shares, such
BD shall deliver to the Auction Agent the notice required by Section 3.3(d)(ii)
hereof. Notwithstanding the foregoing terms of this Section 3.4(b), any delivery
or non-delivery of shares of any series of APS which represents any departure
from the results of an Auction, as determined
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<PAGE> 9
by the Auction Agent, shall be of no effect unless and until the Auction Agent
shall have been notified of such delivery or non-delivery in accordance with the
terms of Section 3.3(d) hereof. The Auction Agent shall have no duty or
liability with respect to enforcement of this Section 3.4(b).
3.5. Service Charge to Be Paid to BD.
On the Business Day next succeeding each Auction Date, the
Auction Agent shall pay to BD from moneys received from the Trust an amount
equal to: (a) in the case of any Auction Date immediately preceding a Dividend
Period of 7 days or less, the product of (i) a fraction the numerator of which
is the number of days in such Dividend Period (calculated by counting the first
day of such Dividend Period but excluding the last day thereof) and the
denominator of which is 360, times (ii) 1/4 of 1%, times (iii) $25,000, times
(iv) the sum of (A) the aggregate number of APS placed by BD in the applicable
Auction that were (x) the subject of a Submitted Bid of a Beneficial Owner
submitted by BD and continued to be held as a result of such submission and (y)
the subject of a Submitted Bid of a Potential Beneficial Owner submitted by BD
and were purchased as a result of such submission plus (B) the aggregate number
of APS subject to valid Hold Orders (determined in accordance with Section 10 of
Article VII of the Amended By-laws) submitted to the Auction Agent by BD plus
(C) the number of APS deemed to be subject to Hold Orders by Beneficial Owners
pursuant to Section 10 of Article VII of the Amended By-laws that were acquired
by such Beneficial Owners through BD; and (b) in the case of any Auction Date
immediately preceding a Special Dividend Period, that amount as mutually agreed
upon by the Trust and BD, based on the selling concession that would be
applicable to an underwriting of fixed or variable rate preferred shares with a
similar final maturity or variable rate dividend period, at the commencement of
such Special Dividend Period.
For purposes of subclause (a)(iv)(C) of the foregoing sentence, if any
Beneficial Owner who acquired shares of any series of APS through BD transfers
those shares to another Person other than pursuant to an Auction, then the
Broker-Dealer for the shares so transferred shall continue to be BD, provided,
however, that if the transfer was effected by, or if the transferee is, a
Broker-Dealer other than BD, then such Broker-Dealer shall be the Broker-Dealer
for such shares.
9
<PAGE> 10
IV. THE AUCTION AGENT.
4.1. Duties and Responsibilities.
(a) The Auction Agent is acting solely as agent for the Trust
hereunder and owes no fiduciary duties to any other Person by reason of this
Agreement.
(b) The Auction Agent undertakes to perform such duties and
only such duties as are set forth specifically in this Agreement, and no implied
covenants or obligations shall be read into this Agreement against the Auction
Agent.
(c) In the absence of bad faith or negligence on its part, the
Auction Agent shall not be liable for any action taken, suffered or omitted by
it, or for any error of judgment made by it in the performance of its duties
under this Agreement. The Auction Agent shall not be liable for any error of
judgment made in good faith unless the Auction Agent shall have been negligent
in ascertaining (or failing to ascertain) the pertinent facts.
4.2. Rights of the Auction Agent.
(a) The Auction Agent may rely upon, and shall be protected in
acting or refraining from acting upon, any communication authorized by this
Agreement and any written instruction, notice, request, direction, consent,
report, certificate, share certificate or other instrument, paper or document
believed by it to be genuine. The Auction Agent shall not be liable for acting
upon any telephone communication authorized by this Agreement which the Auction
Agent believes in good faith to have been given by the Trust or by BD. The
Auction Agent may record telephone communications with BD.
(b) The Auction Agent may consult with counsel of its own
choice, and the advice of such counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon.
10
<PAGE> 11
(c) The Auction Agent shall not be required to advance, expend
or risk its own funds or otherwise incur or become exposed to financial
liability in the performance of its duties hereunder.
(d) The Auction Agent may perform its duties and exercise its
rights hereunder either directly or by or through agents or attorneys.
4.3. Auction Agent's Disclaimer. The Auction Agent makes no
representation as to the validity or adequacy of this Agreement or the APS.
V. MISCELLANEOUS.
5.1. Termination. Any party may terminate this Agreement at any time
upon five days' prior written notice to the other party; provided, however, that
if BD is PaineWebber Incorporated, Prudential Securities Incorporated, Salomon
Smith Barney Inc. or A.G. Edwards & Sons, Inc., neither BD nor the Auction Agent
may terminate this Agreement without first obtaining the prior written consent
of the Trust to such termination, which consent shall not be withheld
unreasonably.
5.2. Participant in Securities Depository; Payment of Dividends in
Same-Day Funds.
(a) BD is, and shall remain for the term of this Agreement, a
member of, or a participant in, the Securities Depository (or an affiliate of
such a member or participant).
(b) BD represents that it (or if BD does not act as Agent
Member, one of its affiliates) shall make all dividend payments on the APS
available in same-day funds on each Dividend Payment Date to customers that use
BD (or its affiliate) as Agent Member.
5.3. Agent Member. At the date hereof, BD is a participant of the
Securities Depository.
5.4. Communications. Except for (i) communications authorized to be
made by telephone pursuant to this Agreement or the Auction Procedures and (ii)
communications in connection with the Auctions (other than those expressly
required to be in writing), all notices, requests and other communications to
any party hereunder
11
<PAGE> 12
shall be in writing (including telecopy or similar writing) and shall be given
to such party at its address or telecopier number set forth below:
If to BD, ___________________________________
addressed to:
___________________________________
___________________________________
Attention: ____________________
Telecopier No.: ___________________
Telephone No.: ___________________
If to the Auction Bankers Trust Company
Agent, addressed to: Corporate Trust and Agency Group
Four Albany Street
New York, NY 10006
Attention: Auction Rate Securities
Telecopier No.: (212) 250-6215
Telephone No.: (212) 250-6850
or such other address or telecopier number as such party hereafter may specify
for such purpose by notice to the other party. Each such notice, request or
communication shall be effective when delivered at the address specified herein.
Communications shall be given on behalf of BD by a BD Officer and on behalf of
the Auction Agent by an Authorized Officer. BD may record telephone
communications with the Auction Agent.
5.5. Entire Agreement. This Agreement contains the entire agreement between
the parties relating to the subject matter hereof, and there are no other
representations, endorsements, promises, agreements or understandings, oral,
written or inferred, between the parties relating to the subject matter hereof.
5.6. Benefits. Nothing in this Agreement, express or implied, shall give to
any person, other than the Trust, the Auction Agent and BD and their respective
successors and assigns, any benefit of any legal or equitable right, remedy or
claim under this Agreement.
12
<PAGE> 13
5.7. Amendment; Waiver.
(a) This Agreement shall not be deemed or construed to be
modified, amended, rescinded, canceled or waived, in whole or in part, except by
a written instrument signed by a duly authorized representative of the party to
be charged.
(b) Failure of either party to this Agreement to exercise any
right or remedy hereunder in the event of a breach of this Agreement by the
other party shall not constitute a waiver of any such right or remedy with
respect to any subsequent breach.
5.8. Successors and Assigns. This Agreement shall be binding upon, inure to
the benefit of, and be enforceable by, the respective successors and permitted
assigns of each of BD and the Auction Agent. This Agreement may not be assigned
by either party hereto absent the prior written consent of the other party;
provided, however, that this Agreement may be assigned by the Auction Agent to a
successor Auction Agent selected by the Trust without the consent of BD.
5.9. Severability. If any clause, provision or section of this Agreement
shall be ruled invalid or unenforceable by any court of competent jurisdiction,
the invalidity or unenforceability of such clause, provision or section shall
not affect any remaining clause, provision or section hereof.
5.10. Execution in Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
5.11. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements made
and to be performed in said state.
13
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the date first above written.
BANKERS TRUST COMPANY
By:
------------------------
Title:
[NAME OF BROKER-DEALER]
By:
------------------------
Title:
14
<PAGE> 15
EXHIBIT A
SETTLEMENT PROCEDURES
[Included as Appendix C to the Statement of Additional Information of the Trust]
15
<PAGE> 16
EXHIBIT B
BANKERS TRUST COMPANY
AUCTION BID FORM
Submit To: Bankers Trust Company Issue: Eaton Vance Municipal
Corporate Trust and Agency Group Income Trust
Four Albany Street
New York, NY 10006
Attention: Auction Rate Securities
Telecopier No.: (212) 250-6215
Telephone No.: (212) 250-6850
The undersigned Broker-Dealer submits the following Order on behalf of the
Bidder listed below:
Name of Bidder: ________________________
BENEFICIAL OWNER
Shares now held _______________ HOLD _____________
BID at rate of _____________
SELL _____________
POTENTIAL BENEFICIAL OWNER
# of shares bid _____________
BID at rate of _____________ Notes:
(1) If submitting more than one Bid for one Bidder, use additional Auction Bid
Forms.
(2) If one or more Bids covering in the aggregate more than the number of
outstanding shares held by any Beneficial Owner are submitted, such bid shall be
considered valid in the order of priority set forth in the Auction Procedures on
the above issue.
16
<PAGE> 17
(3) A Hold or Sell Order may be placed only by a Beneficial Owner covering a
number of shares not greater than the number of shares currently held.
(4) Potential Beneficial Owners may make only Bids, each of which must specify a
rate. If more than one Bid is submitted on behalf of any Potential Beneficial
Owner, each Bid submitted shall be a separate Bid with the rate specified.
(5) Bids may contain no more than three figures to the right of the decimal
point (.001 of 1%). Fractions will not be accepted.
NAME OF BROKER-DEALER ________________________
Authorized Signature ________________________
17
<PAGE> 18
EXHIBIT C
(Note: To be used only for transfers made
other than pursuant to an Auction)
TRANSFER FORM
Re: Eaton Vance Municipal Income Trust
Auction Preferred Shares,
Series [A or B]
We are (check one):
[ ] the Existing Holder named below;
[ ] the Broker-Dealer for such Existing Holder; or
[ ] the Agent Member for such Existing Holder.
We hereby notify you that such Beneficial Owner has transferred _____ APS
to ______________.
__________________________
(Name of Existing Holder)
__________________________
(Name of Broker-Dealer)
__________________________
(Name of Agent Member)
By: _________________________
Printed Name:
Title:
18
<PAGE> 19
EXHIBIT D
(Note: To be used only for failures to deliver
APS sold pursuant to an Auction)
NOTICE OF A FAILURE TO DELIVER
Complete either I or II
I. We are a Broker-Dealer for ____________________ (the "Purchaser"),
which purchased _____ shares of APS, Series [A or B], of Eaton Vance Municipal
Income Trust in the Auction held on ____________________ from the seller of such
shares.
II. We are a Broker-Dealer for _____________________ (the "Seller"),
which sold ____ shares of APS, Series [A or B], of Eaton Vance Municipal Income
Trust, in the Auction held on ______________ to the Purchaser of such shares.
We hereby notify you that (check one):
_______ the Seller failed to deliver such shares to the Purchaser
_______ the Purchaser failed to make payment to the Seller upon
delivery of such shares
Name: _______________________
(Name of Broker-Dealer)
By: _______________________
Printed Name:
Title:
19
<PAGE> 1
Form of
EATON VANCE MUNICIPAL INCOME TRUST
24 Federal Street
Boston, Massachusetts 02110
March __, 1999
The Depository Trust Company
55 Water Street
49th Floor
New York, New York 10041
Attention: General Counsel's Office
Dear Sirs:
The purpose of this letter is to set out certain matters relating to
the issuance by Eaton Vance Municipal Income Trust (the "Issuer") of ______
shares of its Auction Preferred Shares, Series A, without par value (the "APS").
In accordance with the Auction Agent Agreement dated as of March ____,
1999 between the Issuer and Bankers Trust Company, Bankers Trust Company will
act as auction agent, transfer agent, registrar, dividend disbursing agent and
redemption agent with respect to the APS (the "Auction Agent").
Pursuant to an Underwriting Agreement dated March ____, 1999, by and
among the Issuer, Eaton Vance Management and PaineWebber Incorporated,
Prudential Securities Incorporated, Salomon Smith Barney Inc. and A.G. Edwards
& Sons, Inc. (the "Underwriters"), the Underwriters have agreed to purchase, at
the purchase price per share set forth in Section 2 of the Underwriting
Agreement, and the Issuer has agreed to issue, _____shares of the APS. The APS
have been registered under the Securities Act of 1933. The Issuer has prepared
and filed with the Securities and Exchange Commission a Registration Statement
on Form N-2 (Reg. Nos. 333-70725 and 811-09141) concerning the issuance of the
APS which includes a prospectus for the APS (the "Prospectus") describing, among
other things, the role of The Depository Trust Company ("DTC") as Securities
Depository. Attached is a copy of the Prospectus. Capitalized terms not defined
herein shall have the respective meanings set forth in the Prospectus.
To induce DTC to accept the APS as eligible for deposit at DTC and to
act in accordance with its rules with respect to the APS, the Issuer and the
Auction Agent make the following representations to DTC:
<PAGE> 2
1. As of the Date of the Original Issue, which is scheduled for March
_____, 1999, the Issuer will cause the Underwriters to deposit with DTC one
certificate for the APS (the "APS Certificate"), registered in the name of DTC's
nominee, Cede & Co., which represents the total number of APS to be issued, and
the APS Certificate shall remain in DTC's custody except as provided below.
2. The Issuer's Bylaws, as amended (the "Bylaws"), provide for the
solicitation of consents from and voting by holders of the APS under certain
circumstances. The Issuer shall establish a record date for such purposes and
the Issuer shall give DTC notice of such record date not less than 15 calendar
days in advance of such record date.
3. In the event of a full or partial redemption of any outstanding APS,
the Issuer shall give DTC notice of such event not less than 30 days, nor more
than 45 days prior to the redemption date.
4. In the event of a partial redemption of the APS, the Issuer or the
Auction Agent shall send DTC a notice specifying the number of shares of APS to
be redeemed and the date such notice is to be mailed to holders or published
(the "Publication Date"). Such notice shall be sent to DTC by a secure means
(e.g., legible facsimile transmission, registered or certified mail, overnight
express delivery) in a timely manner designed to assure that such notice is in
DTC's possession no later than the close of business on the business day before
the Publication Date. (The Issuer or the Auction Agent sending such notice shall
have a method to verify subsequently the use of such means and timeliness of the
notice). In the event of a partial redemption, the Publication Date shall not be
less than 30 days, nor more than 45 days prior to the redemption date.
5. The Bylaws provide that the dividend rate for shares of the APS may
vary from time to time based upon the results of the Auctions for the APS
described in the Prospectus. The Auction Agent or the Issuer shall give DTC
telephonic notice (a) of each such change in the dividend rate on each Auction
Date after such new rate for the APS is determined and (b) on each dividend
payment date for the APS, the date of the next scheduled dividend payment date
for the APS. Such telephonic notice shall be directed to the Supervisor of the
Dividend Announcement Section (Telephone No. (212) 709-1270) and shall be
followed by prompt written confirmation, forwarded by hand delivery (with
receipt), to:
Manager, Announcement, Dividend Department
The Depository Trust Company
7 Hanover Square, 22nd Floor
New York, New York 10004
6. The Bylaws provide that, in the event of the occurrence of certain
contingencies specified therein, the Issuer may adjust the number of days in
Dividend Periods for the APS. If the Issuer determines to make such an
adjustment for the APS, the Issuer shall give DTC notice of such change at least
10 calendar days prior to commencement of the Dividend Period
2
<PAGE> 3
preceding the first Dividend Period for which such change is to be effective.
Such notice shall be in writing and shall e forwarded by secure means to the
address set forth in paragraph 5 hereof.
7. As described in the Prospectus, each purchaser of the APS must have
signed and delivered to the Auction Agent, a Master Purchaser's Letter which
contains provisions restricting the transfer of the APS purchased. The Issuer
and the Auction Agent acknowledge that for so long as Cede & Co. is the sole
record owner of the APS, it shall be entitled to exercise all voting rights
applicable to the APS and to receive the full amount of all dividends and
liquidation and redemption proceeds payable with respect to the APS. The Issuer
and the Auction Agent acknowledge that DTC shall treat any member of, or
participant in, DTC (a "DTC Participant") having any shares of the APS credited
to its DTC account as entitled to the full benefits of ownership of such shares
of the APS even if the crediting of such shares of the APS to the DTC account of
such DTC Participant results from any transfer or failure to transfer in
violation of the provisions of the Master Purchaser's Letter. Without limiting
the generality of the preceding sentence, the Issuer and the Auction Agent
acknowledge that DTC shall treat any DTC Participant having any shares of the
APS credited to its DTC account as entitled to receive dividends and liquidation
and redemption proceeds and to exercise voting rights, if any, in respect to
such shares of the APS. (The treatment by DTC of the effects of the crediting by
it of shares of the APS to the accounts of DTC Participants described in the
preceding two sentences shall not affect any rights the Issuer, participants in
Auctions, or purchasers, sellers or holders of the APS may have against any DTC
Participants.) DTC shall have no responsibility to ascertain that any transfer
of shares of the APS is made in accordance with the provisions of the Master
Purchaser's Letter.
8. All notices and payments addressed or sent to DTC with respect to
the APS shall contain the CUSIP number set forth in the APS Certificate or any
new APS Certificate, as the case may be.
9. Except as provided in paragraphs 5 and 6 hereof, notices to DTC
shall be in writing and shall be forwarded by hand delivery (with receipt) to:
Manager, Reorganization Department
Reorganization Window
The Depository Trust Company
7 Hanover Square, 23rd Floor
New York, New York 10004
Notice to DTC by facsimile transmission
shall be sent to (212) 709-1093 or
(212) 709-1094 (confirmation number (212) 709-6884)
10. Dividend payments for the APS shall be received by Cede & Co., as
nominee of DTC, or its registered assigns in same-day funds ("Fed Funds") on
each dividend payment date or additional dividend payment date. Dividend
payments shall be made payable to the order of "Cede & Co." and shall be
delivered to:
3
<PAGE> 4
Manager, Cash Receipts, Dividends
The Depository Trust Company
7 Hanover Square, 24th Floor
New York, New York 10004
or by such other means as shall be agreed upon by DTC and the Issuer.
11. Redemption payments for the APS shall be made in same day funds by
the Auction Agent in the manner set forth in the SDFS Paying Agent Operating
Procedures (a copy of which previously has been furnished to the Auction Agent).
12. DTC may direct the Auction Agent to use any other address or
department of DTC as the address or department to which payments of dividends,
liquidation or redemption proceeds or notices may be delivered. If requested,
DTC will provide such instructions in writing.
13. In the event of a redemption which effects a reduction in the
number of shares of the APS outstanding, DTC shall direct the Auction Agent to
issue and countersign a new APS Certificate representing the remaining
outstanding shares of the APS, which shall be deposited promptly with DTC in
exchange for the certificate previously representing the outstanding APS.
14. In the event that the Issuer determines that the beneficial owners
of the APS shall obtain certificates representing the ownership of shares of the
APS, the Issuer or the Auction Agent shall notify DTC of the availability of
such certificates, and shall issue, transfer and exchange certificates for the
APS as required in appropriate amounts as indicated by DTC and others. Whenever
DTC requests the Issuer or the Auction Agent to do so, the Issuer and the
Auction Agent will cooperate with DTC in taking appropriate action, at the
Issuer's option, (a) to select and arrange for another securities depository to
maintain custody of the APS Certificate, (b) to make available certificates
representing the APS to Holders, if applicable, or (c) to redeem the APS in
accordance with the Bylaws.
15. The Issuer hereby authorizes DTC to provide to the Auction Agent
position listings of its DTC Participants with respect to the APS from time to
time at the request of the Auction Agent, and also authorizes DTC, in the event
of a partial redemption of the APS, to provide the Auction Agent, upon request,
with the names of those DTC Participants whose shares of the APS are selected
for redemption by DTC. The Issuer authorizes the Auction Agent to provide DTC
with such signatures, exemplars of signatures and authorizations to act as may
be deemed necessary by DTC to permit DTC to discharge its obligations to its DTC
Participants and appropriate regulatory authorities.
16. Nothing herein shall be deemed to require the Auction Agent to
advance funds on behalf of the issuer.
17. This letter may be executed in several counterparts, each of which
shall be an original and all of which shall constitute but one and the same
instrument.
4
<PAGE> 5
NOTICE
A copy of the Agreement and Declaration of Trust of the Issuer is on
file with the Secretary of State of The Commonwealth of Massachusetts, and
notice is hereby given that this instrument is executed on behalf of the Issuer
by an officer of the Issuer as such officer and not individually and the
obligations of or arising out of this instrument are not binding upon any of the
Trustees, officers, or shareholders individually but are binding only upon the
assets and property of the Issuer.
Very truly yours,
EATON VANCE MUNICIPAL INCOME TRUST,
as Issuer
By:________________________________
Authorized Officer
BANKERS TRUST COMPANY,
as Auction Agent
By:____________________________________
Authorized Officer
Received and accepted
THE DEPOSITORY TRUST COMPANY
By:_______________________________
Authorized Officer
cc: PaineWebber Incorporated
Prudiential Securities Incorporated
Salomon Smith Barney Inc.
A.G. Edwards & Sons, Inc.
5
<PAGE> 1
KIRKPATRICK & LOCKHART LLP
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110
(617) 261-3100
MARK P. GOSHKO
(617) 261-3163
[email protected]
March 1, 1999
Eaton Vance Municipal Income Trust
24 Federal Street
Boston, MA 02110
Dear Sirs:
This opinion is furnished in connection with the registration by Eaton
Vance Municipal Income Trust, a business trust organized under the laws of the
Commonwealth of Massachusetts ("Fund"), of 2,260 Series A, Auction Preferred
Shares and 2,260 Series B, Auction Preferred Shares of beneficial interest, par
value $.01 per share ("Shares") liquidation preference $25,000 per share plus
accumulated but unpaid dividends, if any, under the Securities Act of 1933, as
amended, pursuant to a registration statement on Form N-2 (File No. 333-70725),
as amended ("Registration Statement"), in the amounts set forth under "Amount
Being Registered" on the facing page of the Registration Statement.
As counsel for the Fund, we are familiar with the proceedings taken by
it in connection with the authorization, issuance and sale of the Shares. In
addition, we have examined and are familiar with the Agreement and Declaration
of Trust of the Fund, the By-Laws of the Fund, as amended, and such other
documents as we have deemed relevant to the matters referred to in this opinion.
Based upon the foregoing, we are of the opinion that the Shares, upon
issuance and sale in the manner referred to in the Registration Statement, will
be legally issued, fully paid and non-assessable (except as described in the
Registration Statement) shares of beneficial interest of the Fund.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Prospectus constituting
a part thereof.
Very truly yours,
/s/ Kirkpatrick & Lockhart
------------------------------
Kirkpatrick & Lockhart LLP
<PAGE> 1
EXHIBIT (n)(1)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in the Registration Statement on Form N-2 of Eaton Vance
Municipal Income Trust relating to its auction preferred shares of beneficial
interest of our report, dated January 22, 1999, appearing in the Statement of
Additional Information, which is part of this Registration Statement.
We also consent to the reference to us under the headings "Experts" in the
Prospectus, which is part of such Registration Statement and "Auditors" in such
Statement of Additional Information.
Deloitte & Touche LLP
- -------------------
Deloitte & Touche LLP
Boston, Massachusetts
March 1, 1999
<PAGE> 1
EXHIBIT (s)
POWER OF ATTORNEY
We, the undersigned officers and Trustees of Eaton Vance Municipal Income
Trust, a Massachusetts business trust, do hereby severally constitute and
appoint Alan R. Dynner, James B. Hawkes and Eric G. Woodbury, or any of them, to
be true, sufficient and lawful attorneys, or attorney for each of us, to sign
for each of us, in the name of each of us in the capacities indicated below, the
Registration Statement and any and all amendments (including post-effective
amendments) to the Registration Statement on Form N-2 filed by Eaton Vance
Municipal Income Trust with the Securities and Exchange Commission in respect of
preferred shares and other documents and papers relating thereto.
IN WITNESS WHEREOF we have hereunto set our hands on the dates set opposite
our respective signatures.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Thomas J. Fetter President and Principal January 15, 1999
- ----------------------------------------- Executive Officer
Thomas J. Fetter
/s/ James L. O'Connor Treasurer and Principal Financial January 15, 1999
- ----------------------------------------- and Accounting Officer
James L. O'Connor
/s/ Jessica M. Bibliowicz Trustee January 15, 1999
- -----------------------------------------
Jessica M. Bibliowicz
/s/ Donald R. Dwight Trustee January 15, 1999
- -----------------------------------------
Donald R. Dwight
/s/ James B. Hawkes Trustee January 15, 1999
- -----------------------------------------
James B. Hawkes
/s/ Samuel L. Hayes, III Trustee January 15,1999
- -----------------------------------------
Samuel L. Hayes, III
/s/ Norton H. Reamer Trustee January 15, 1999
- -----------------------------------------
Norton H. Reamer
/s/ Lynn A. Stout Trustee January 15, 1999
- -----------------------------------------
Lynn A. Stout
/s/ Jack L. Treynor Trustee January 15, 1999
- -----------------------------------------
Jack L. Treynor
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-END> JAN-21-1999
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 50
<ASSETS-OTHER> 100
<OTHER-ITEMS-ASSETS> 600
<TOTAL-ASSETS> 750
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 650
<TOTAL-LIABILITIES> 650
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100
<SHARES-COMMON-STOCK> 7
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 100
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 100
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 50
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.00
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
