<PAGE> 1
As filed with the Securities and Exchange Commission on July 12, 1999
1933 Act File No. 333-80563
1940 Act File No. 811-09161
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
(CHECK APPROPRIATE BOXES)
[ ] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
x PRE-EFFECTIVE AMENDMENT NO. 2
[ ] POST-EFFECTIVE AMENDMENT NO.
AND/OR
x REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
x AMENDMENT NO. 7
NUVEEN CALIFORNIA DIVIDEND
ADVANTAGE MUNICIPAL FUND
Enter Name of Registrant as Specified in Charter
333 WEST WACKER DRIVE, CHICAGO, ILLINOIS 60606
Address of Principal Executive Offices (Number, Street, City, State and Zip
Code)
(312) 917-7700
Registrant's Telephone Number, including Area Code
GIFFORD R. ZIMMERMAN, ESQ.-VICE PRESIDENT AND SECRETARY
333 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60606
Name and Address (Number, Street, City, State and Zip code) of Agent for Service
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C> <C>
David A. Sturms, Esq. Thomas S. Harman, Esq. Thomas A. DeCapo, Esq.
Vedder Price Kaufman & Kammholz Morgan, Lewis & Bockius LLP Skadden, Arps, Slate,
222 N. LaSalle Street 1800 M Street, N.W. Meagher & Flom LLP
Chicago, IL 60601 Washington, D.C. 20036 One Beacon Street
Boston, MA 02108
</TABLE>
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after the
effective date of this Registration Statement
If any of the 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. [ ]
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
BEING OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TITLE OF SECURITIES BEING REGISTERED PER UNIT PRICE REGISTRATION FEE(1)
REGISTERED
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Auction Rate
Cumulative Preferred Shares
Series TH, F................. 7,000 shares $25,000 $175,000,000 $48,650*
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* $47,260 has been previously paid.
(1) Transmitted prior to filing.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATES AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
THE UNDERSIGNED REGISTRANT HEREBY UNDERTAKES THAT: (1) FOR PURPOSES OF
DETERMINING ANY LIABILITY UNDER THE SECURITIES ACT OF 1933, THE INFORMATION
OMITTED FROM THE FORM OF PROSPECTUS FILED AS PART OF THIS REGISTRATION STATEMENT
IN RELIANCE UPON RULE 430A AND CONTAINED IN A FORM OF PROSPECTUS FILED BY THE
REGISTRANT PURSUANT TO RULE 424(b)(1) OR (4) OR 497(h) UNDER THE SECURITIES ACT
SHALL BE DEEMED TO BE PART OF THIS REGISTRATION STATEMENT AS OF THE TIME IT WAS
DECLARED EFFECTIVE. (2) 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 THE INITIAL BONA FIDE OFFERING THEREOF.
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<PAGE> 2
The information in this Prospectus is not complete and may be changed. We may
not sell these securities until the Registration Statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 12, 1999
PROSPECTUS
$175,000,000
NUVEEN CALIFORNIA DIVIDEND ADVANTAGE MUNICIPAL FUND
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED SHARES ("MUNIPREFERRED(R)")
3,500 SHARES SERIES TH
3,500 SHARES SERIES F
LIQUIDATION PREFERENCE $25,000 PER SHARE
---------------------
Nuveen California Dividend Advantage Municipal Fund (the "Fund") is a
closed-end, diversified management investment company. The Fund's investment
objectives are to provide current income exempt from regular Federal and
California income tax and to enhance portfolio value relative to the municipal
bond market by investing in tax-exempt municipal bonds that the Fund's
investment adviser believes are underrated or undervalued or represent municipal
market sectors that are undervalued. The Fund will invest its net assets in a
diversified portfolio of municipal bonds that are exempt from regular Federal
and California income tax. Under normal market conditions, the Fund expects to
be fully invested in such tax-exempt municipal bonds. The Fund will invest at
least 80% of its net assets in investment grade quality municipal bonds.
Investment grade quality bonds are those rated by national rating agencies with
the four highest grades (Baa or BBB or better), or bonds that are unrated but
judged to be of comparable quality by the Fund's investment adviser. Bonds rated
below investment grade are regarded as having predominately speculative
characteristics with respect to capacity to pay interest and repay principal,
and are commonly referred to as junk bonds. No assurance can be given that the
Fund's investment objectives will be achieved. In addition, capital gains
distributions will be subject to capital gains taxes.
(continued on next page)
Neither the Securities and Exchange Commission ("SEC") nor any state
securities commission has approved or disapproved these securities or determined
if this prospectus is truthful or complete. Any representation to the contrary
is a criminal offense.
(R) Registered trademark of John Nuveen & Co. Incorporated
<TABLE>
<CAPTION>
PER SHARE TOTAL
---------------- ----------------
<S> <C> <C>
Public Offering Price $ 25,000 $ 175,000,000
---------------- ----------------
Sales Load $ $
---------------- ----------------
Proceeds to Fund (before expenses) $ $
================ ================
</TABLE>
Offering expenses payable by the Fund are estimated to be $ . The
Fund and Nuveen Advisory Corp. have agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as amended.
---------------------
The Underwriters are offering the shares of the MuniPreferred subject to
various conditions. It is expected that the shares of MuniPreferred will be
delivered to the Underwriters through the facilities of The Depository Trust
Company on or about , 1999.
---------------------
SALOMON SMITH BARNEY
A.G. EDWARDS & SONS, INC.
DEUTSCHE BANC ALEX. BROWN
GOLDMAN, SACHS & CO.
JOHN NUVEEN & CO. INCORPORATED
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS.
NEITHER THE FUND NOR THE UNDERWRITERS HAVE AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT INFORMATION. THE FUND IS NOT MAKING AN OFFER OF THESE SECURITIES IN
ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE
INFORMATION PROVIDED BY THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN
THE DATE ON THE FRONT OF THIS PROSPECTUS.
<PAGE> 3
(continued from previous page)
The Fund's principal office is located at 333 West Wacker Drive, Chicago,
Illinois 60606, and its telephone number is (312) 917-7700. Investors are
advised to read this Prospectus, which sets forth concisely the information
about the Fund that a prospective investor ought to know before investing, and
retain it for future reference. A Statement of Additional Information dated
, 1999 containing additional information regarding the Fund has been
filed with the Securities and Exchange Commission and is hereby incorporated by
reference in its entirety into this Prospectus. A copy of the Statement of
Additional Information, the table of contents of which appears on page 31 of
this Prospectus, may be obtained without charge by calling the Fund at (800)
257-8787. In addition, the Securities and Exchange Commission maintains a web
site (http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference, and other information filed electronically
with the Commission.
The Fund is offering 3,500 shares of Series TH MuniPreferred and 3,500
shares of Series F MuniPreferred. The shares are referred to in this Prospectus
as "MuniPreferred." The MuniPreferred have a liquidation preference of $25,000
per share, plus any accumulated, unpaid dividends. The MuniPreferred also has
priority over the Fund's common shares as to distribution of assets as described
in this Prospectus. The dividend rate for the initial dividend rate periods will
be % and % for MuniPreferred Series TH and Series F, respectively. The
initial rate period for each series of MuniPreferred is the period from the date
of issuance through: , 1999 for Series TH and
, 1999 for Series F. For subsequent rate periods,
MuniPreferred shares pay dividends based on a rate set at auction, usually held
weekly. Prospective purchasers should carefully review the auction procedures
described in the Prospectus and should note: (1) a buy order (called a "bid
order") or sell order is a commitment to buy or sell MuniPreferred shares based
on the results of an auction; (2) auctions will be conducted by telephone; and
(3) purchases and sales will be settled on the next business day after the
auction. MuniPreferred shares are not listed on an exchange. You may only buy or
sell MuniPreferred shares through an order placed at an auction with or through
a broker-dealer that has entered into an agreement with the auction agent and
the Fund, or in a secondary market maintained by certain broker-dealers. These
broker-dealers are not required to maintain this market, and it may not provide
you with liquidity.
Dividends on shares of MuniPreferred, to the extent payable from tax-exempt
income earned on the Fund's investments, will be exempt from regular Federal
income tax in the hands of owners of such shares. All or a portion of the Fund's
dividends may be subject to the Federal alternative minimum tax. The Fund is
required to allocate net capital gains and other taxable income, if any,
proportionately between common and preferred shares, based on the percentage of
total dividends distributed to each class for that year. The Fund, in the case
of the ordinary seven day rate periods or special rate periods of no more than
28 days, will give notice of the amount of any income taxable for federal income
tax purposed to be included in a dividend on share of MuniPreferred in advance
of the related auction and may give advance notice to MuniPreferred shareholders
during longer rate periods.
---------------------
<PAGE> 4
PROSPECTUS SUMMARY
The following information is qualified in its entirety by reference to the
more detailed information included elsewhere in this Prospectus and the Fund's
Statement Establishing and Fixing the Rights and Preferences of Municipal
Auction Rate Cumulative Preferred Shares (the "Statement") attached as Appendix
A to the Statement of Additional Information. Capitalized terms used but not
defined in this Prospectus shall have the meanings given to such terms in the
Statement.
THE FUND
Nuveen California Dividend Advantage Municipal Fund (the "Fund") is a
closed-end, diversified management investment company. See "The Fund." The
Fund's common shares, $.01 par value ("Common Shares"), are traded on the New
York Stock Exchange under the symbol "NAC." See "Description of Common Shares."
As of June 28, 1999, the Fund had 22,556,982 Common Shares outstanding and net
assets of $317,446,637.
INVESTMENT OBJECTIVES
The Fund's investment objectives are to provide current income exempt from
regular Federal and California income tax and enhance portfolio value relative
to the municipal bond market by investing in tax-exempt municipal bonds that the
Fund's investment adviser believes are underrated or undervalued or that
represent municipal markets that are undervalued. The Fund will invest its net
assets in a diversified portfolio of municipal bonds that are exempt from
regular Federal income tax. Under normal market conditions, the Fund expects to
be fully invested in such tax-exempt municipal bonds. The Fund will invest at
least 80% of its net assets in municipal bonds that at the time of investment
are investment grade quality. Investment grade quality bonds are bonds rated
within the four highest grades (Baa or BBB or better by Moody's Investor
Service, Inc. ("Moody's"), Standard & Poors Corporation ("S&P") or Fitch IBCA,
Inc. ("Fitch")), or bonds that are unrated but judged to be of comparable
quality by the Fund's investment adviser. The Fund may invest up to 20% of its
net assets in municipal bonds that, at the time of investment, are rated Ba/BB
or B by Moody's, S&P or Fitch or unrated but judged to be of comparable quality
by the Fund's investment adviser. Bonds of below investment grade quality are
regarded as having predominant speculative characteristics with respect to
capacity to pay interest and repay principal, and are commonly referred to as
junk bonds. The Fund cannot assure you that it will attain its investment
objectives. See "The Fund's Investments."
INVESTMENT ADVISER
Nuveen Advisory Corp. ("Nuveen Advisory" or the "Adviser") acts as the
Fund's investment adviser. The Adviser is a wholly-owned subsidiary of John
Nuveen & Co. Incorporated, an investment banking firm that has engaged in the
underwriting and distribution of tax-exempt securities throughout its history.
See "Management of the Fund" and "Underwriting."
THE OFFERING
The Fund is offering 3,500 shares of Series TH MuniPreferred and 3,500
shares of Series F MuniPreferred, each at a purchase price of $25,000 per share.
However, the offering of each series is independent of the offering of each
other series, and no offering is contingent upon the closing of any other
offering. Certain information presented in this Prospectus assumes that each
offering is made and effected as contemplated, but there can be no assurance
that this will be the case. Shares of MuniPreferred are being offered by the
Underwriters listed under "Underwriting." Except as otherwise described below,
the rights and preferences of each series of MuniPreferred are identical.
1
<PAGE> 5
RISK FACTORS SUMMARY
Risk is inherent in all investing. Therefore, before investing you should
consider certain risks carefully when you invest in the Fund. The primary risks
of investing in MuniPreferred shares are:
- if an auction fails you may not be able to sell some or all of your
shares;
- because of the nature of the market for MuniPreferred shares, you may
receive less than the price you paid for your shares if you sell them
outside of the auction, especially when market interest rates are rising;
- a rating agency could downgrade MuniPreferred shares, which could affect
liquidity;
- the Fund may be forced to redeem your shares to meet regulatory or rating
agency requirements or may voluntarily redeem your shares in certain
circumstances;
- in extraordinary circumstances the Fund may not earn sufficient income
from its investments to pay dividends;
- if long-term interest rates rise, the value of the Fund's investment
portfolio will decline, reducing the asset coverage for the MuniPreferred
shares; and
- if an issuer of a municipal bond in which the Fund invests defaults,
there may be a negative impact on the income and asset value of the Fund's
portfolio.
For additional general risks of investing in the Fund, see "Risk Factors" below.
TRADING MARKET
MuniPreferred shares are not listed on an exchange. Instead, you may buy or
sell MuniPreferred shares at an auction that normally is held weekly, by
submitting orders to a broker-dealer that has entered into an agreement with the
auction agent and the Fund (a "Broker-Dealer"), or to a broker-dealer that has
entered into a separate agreement with a Broker-Dealer. In addition to the
auctions, Broker-Dealers and other broker-dealers may maintain a secondary
trading market in MuniPreferred shares outside of auctions, but may discontinue
this activity at any time. There is no assurance that a secondary market will
provide shareholders with liquidity. You may transfer shares outside of auctions
only to or through a Broker-Dealer; or a broker-dealer that has entered into a
separate agreement with a Broker-Dealer.
The table below shows the first auction date for each Series of
MuniPreferred and the day on which each subsequent auction will normally be held
for each Series of MuniPreferred. The first auction date for each Series of
MuniPreferred will be the business day before the dividend payment date for the
initial rate period for each Series of MuniPreferred. The start date for
subsequent rate periods normally will be the business day following the dividend
payment date unless the then-current rate period is a special rate period, or
the day that normally would be the auction date or the first day of the
subsequent rate period is not a business day.
<TABLE>
<CAPTION>
SERIES FIRST AUCTION DATE* SUBSEQUENT AUCTION
------ ------------------- ------------------
<S> <C> <C>
TH......................................... Friday
F.......................................... Monday
</TABLE>
- ------------
* All dates are 1999.
DIVIDENDS AND RATE PERIODS
The table below shows the dividend rate for the initial rate period on each
Series of MuniPreferred offered in this Prospectus. For subsequent rate periods,
MuniPreferred shares will pay dividends based on a rate set at auctions,
normally held weekly. In most instances dividends are also paid weekly, on the
day following the end of the rate period. The rate set at auction will not
exceed the Maximum Rate. See "Description of MuniPreferred -- Dividends and
Dividend Periods -- General."
2
<PAGE> 6
The table below also shows for each Series of MuniPreferred the date from
which dividends on the MuniPreferred shares will accumulate at the initial rate,
the dividend payment date for the initial rate period and the day on which
dividends will normally be paid. If the day on which dividends otherwise would
be paid is not a business day, then your dividends will be paid on the first
business day that falls after that day.
Finally, the table below shows number of days of the initial rate period
for each Series of MuniPreferred. Subsequent rate periods generally will be
seven days. The dividend payment date for special rate periods of more than 28
days will be set out in the notice designating a special rate period. See
"Description of MuniPreferred -- Dividends and Dividend Periods -- Designation
of Special Rate Periods."
<TABLE>
<CAPTION>
DATE OF DIVIDEND PAYMENT SUBSEQUENT NUMBER OF
ACCUMULATION AT DATE FOR INITIAL DIVIDEND DAYS OF INITIAL
SERIES INITIAL DIVIDEND RATE INITIAL RATE* RATE PERIOD* PAYMENT DAY RATE PERIOD
------ --------------------- --------------- ---------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
TH................... % Friday
F.................... % Monday
</TABLE>
- ------------
* All dates are 1999.
TAXATION
Because under normal circumstances the Fund will invest substantially all
of its assets in municipal bonds that pay interest exempt from regular Federal
income tax, the income you receive will ordinarily be similarly exempt. Your
income may be subject to state and local taxes. All or a portion of the income
from these bonds will be subject to the Federal alternative minimum tax, so
MuniPreferred shares may not be a suitable investment if you are subject to this
tax or would become subject to such tax by investing in MuniPreferred shares.
Taxable income or gain earned by the Fund will be allocated proportionately to
holders of MuniPreferred shares and Common Shares, based on the percentage of
total dividends paid to each class for that year. Accordingly, certain specified
MuniPreferred dividends may be subject to income tax on income or gains
attributed to the Fund. The Fund intends to notify shareholders, before any
applicable auction for a rate period of 28 days or less, of the amount of any
taxable income and gain to be paid for the period relating to that auction. For
longer periods, the Fund may notify shareholders. In certain circumstances, the
Fund will make shareholders whole for taxes owing on dividends paid to
shareholders that include taxable income and gain. See "Tax Matters."
RATINGS
Shares of each series of MuniPreferred will be issued with a rating of
"Aaa" from Moody's Investors Service, Inc. ("Moody's") and "AAA" from Standard &
Poor's Corporation ("S&P"). Because the Fund is required to maintain at least
one of these ratings, it must own portfolio securities of a sufficient value and
with adequate credit quality to meet the rating agencies' guidelines. See
"Description of MuniPreferred -- Rating Agency Guidelines."
REDEMPTION
Although the Fund does not ordinarily redeem MuniPreferred shares, it may
be required to redeem shares if, for example, the Fund does not meet an asset
coverage ratio required by law or to correct a failure to meet a rating agency
guideline in a timely manner. The Fund voluntarily may redeem MuniPreferred
shares in certain conditions. See "Description of MuniPreferred -- Redemption"
and "Description of MuniPreferred -- Rating Agency Guidelines."
LIQUIDATION PREFERENCE
The liquidation preference of the shares of each series of MuniPreferred
will be $25,000 per share plus accumulated but unpaid dividends, if any,
thereon. See "Description of MuniPreferred -- Liquidation."
3
<PAGE> 7
VOTING RIGHTS
The holders of Preferred Shares, including MuniPreferred, 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 in the event two years' dividends on the
Preferred Shares are unpaid. In each case, the remaining trustees will be
elected by holders of shares of Common Shares and shares of Preferred Shares,
including MuniPreferred, voting together as a single class. The holders of
shares of Preferred Shares, including MuniPreferred, will vote as a separate
class or classes on certain other matters as required under the Declaration of
Trust, the Investment Company Act of 1940 (the "1940 Act") and Massachusetts
law. See "Description of MuniPreferred -- Voting Rights" and "Certain Provisions
in the Declaration of Trust."
FINANCIAL HIGHLIGHTS
(UNAUDITED)
Information contained in the table below under the headings "Per Share
Operating Performance" and "Ratios/Supplemental Data" shows the unaudited
operating performance of the Fund from the commencement of the Fund's operations
on May 25, 1999 until June 28, 1999. Since the Fund was recently organized and
commenced operations on May 25, 1999, the table covers less than five weeks of
operations, during which a substantial portion of the Fund's portfolio was held
in temporary investments pending investment in municipal bonds that meet the
Fund's investment objectives and policies. Accordingly, the information
presented may not provide a meaningful picture of the Fund's operating
performances.
<TABLE>
<S> <C>
Per Share Operating Performance:
Net Asset Value, Beginning of Period...................... $ 14.33
--------
Net Investment Income.................................. .04
Net Gains or Losses on Securities (Both Realized and
Unrealized)........................................... (.28)
--------
Total From Investment Operations.................. (.24)
--------
Organization and Offering Costs........................... (.02)
--------
Net Asset Value, End of Period............................ $ 14.07
========
Per Share Market Value, End of Period..................... $15.0625
Total Return on Net Asset Value........................... (1.81)%
Total Investment Return on Market Value................... .42%
Ratios/Supplemental Data:
Net Assets, End of Period (In Thousands).................. $317,447
Ratio of Expenses to Average Net Assets Before
Reimbursement.......................................... .70%*
Ratio of Net Investment Income to Average Net Assets
Before Reimbursement................................... 3.09%*
Ratio of Expenses to Average Net Assets After
Reimbursement.......................................... .40%*
Ratio of Net Investment Income to Average Net Assets After
Reimbursement.......................................... 3.39%*
Portfolio Turnover Rate................................... --%
</TABLE>
- ------------
* Annualized
4
<PAGE> 8
THE FUND
Nuveen California Dividend Advantage Municipal Fund (the "Fund") is a
recently organized closed-end, diversified management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"). The Fund was organized as a Massachusetts business trust on December 1,
1998 pursuant to a Declaration of Trust governed by the laws of the Commonwealth
of Massachusetts (the "Declaration"). On May 28, 1999, the Fund issued an
aggregate of 20,300,000 common shares of beneficial interest, par value $.01 per
share ("Common Shares"), pursuant to the initial public offering thereof and
commenced its operations. On May 28, 1999, June 18, 1999 and July 6, 1999, the
Fund issued an additional 1,500,000, 750,000 and 795,000 Common Shares,
respectively, in connection with the partial exercises by the Underwriters of
the over-allotment option. The Fund's Common Shares are traded on the New York
Stock Exchange (the "Exchange") under the symbol "NAC." The Fund's principal
office is located at 333 West Wacker Drive, Chicago, Illinois 60606, and its
telephone number is (800) 257-8787.
The following provides information about the Fund's outstanding shares as
of June 28, 1999:
<TABLE>
<CAPTION>
AMOUNT HELD BY THE
FUND OR FOR ITS
TITLE OF CLASS AMOUNT AUTHORIZED ACCOUNT AMOUNT OUTSTANDING
- -------------- ----------------- ------------------ ------------------
<S> <C> <C> <C>
Common.................................... Unlimited 0 22,556,982
MuniPreferred............................. Unlimited 0 0
Series TH............................... 10,000 0 0
Series F................................ 10,000 0 0
</TABLE>
USE OF PROCEEDS
The net proceeds of this offering will be approximately $172,991,850 after
payment of the sales load and estimated offering costs.
The net proceeds of the offering will be invested in accordance with the
Fund's investment objective and policies as stated below. It is presently
anticipated that the Fund will be able to invest substantially all of the net
proceeds in municipal bonds that meet that objective and these policies at or
shortly (within six to eight weeks) after the completion of the offering. To the
extent that all of the proceeds cannot be so invested, pending such investment,
they will be invested in: other open- or closed-end investment companies that
invest primarily in municipal bonds of the types in which the Fund may invest
directly; in high quality, short-term tax-exempt money market securities; or in
high quality municipal bonds with relatively low volatility (such as
pre-refunded and intermediate term securities). If necessary to invest fully the
net proceeds of the offerings immediately, the Fund may also purchase, as
temporary investments, short-term taxable investments of the type described in
the Statement of Additional Information under "Investment Objective and
Policies -- Portfolio Investments," the income on which is subject to regular
Federal income tax.
5
<PAGE> 9
CAPITALIZATION
(UNAUDITED)
The following table sets forth the capitalization of the Fund as of June
28, 1999, and as adjusted to give effect to the issuance of the shares of
MuniPreferred offered hereby.
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED
------------ ------------
<S> <C> <C>
Shareholders' Equity:
Preferred Shares, $25,000 stated value per share, at
liquidation value; unlimited shares authorized (no
shares issued; 7,000 shares issued, as adjusted,
respectively).......................................... $ -- $175,000,000
Common Shares, $.01 par value per share; unlimited shares
authorized, 22,556,982 shares outstanding*............. 225,570 225,570
Paid-in surplus........................................... 322,452,201 320,444,051
Balance of undistributed net investment income............ 931,234 931,234
Accumulated net realized gain (loss) from investment
transactions........................................... -- --
Net unrealized appreciation (depreciation) of
investments............................................ (6,162,368) (6,162,368)
------------ ------------
Net assets................................................ $317,446,637 $490,438,487
============ ============
</TABLE>
- ------------
* None of these outstanding shares are held by or for the account of the Fund.
PORTFOLIO COMPOSITION
As of June 28, 1999, approximately 95.95% of the market value of the Fund's
portfolio was invested in long-term municipal bonds and approximately 4.05% of
the market value of the Fund's portfolio was invested in short-term municipal
bonds. The following table sets forth certain information with respect to the
composition of the Fund's investment portfolio as of June 28, 1999.
<TABLE>
<CAPTION>
CREDIT RATING VALUE PERCENT
- --------------------- ------------ -------
<S> <C> <C>
Aaa/AAA* $199,769,435 59.98%
Aa/AA 22,799,825 6.85
A/A 37,440,540 11.24
Baa/BBB 42,160,170 12.65
Unrated 17,418,615 5.23
Short-term 13,500,000 4.05
------------ ------
TOTAL $333,088,585 100.00%
============ ======
</TABLE>
- ------------
* Includes securities that are backed by an escrow or trust containing
sufficient U.S. Government Securities to ensure the timely payment of
principal and interest.
6
<PAGE> 10
THE FUND'S INVESTMENTS
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objectives are:
- to provide current income exempt from regular Federal and California
income tax; and
- to enhance portfolio value relative to the municipal bond market by
investing in tax-exempt municipal bonds that Nuveen Advisory believes are
underrated or undervalued or that represent municipal market sectors that
are undervalued.
Underrated municipal bonds are those whose ratings do not, in Nuveen
Advisory's opinion, reflect their true creditworthiness. Undervalued municipal
bonds are bonds that, in Nuveen Advisory's opinion, are worth more than the
value assigned to them in the marketplace. Nuveen Advisory may at times believe
that bonds associated with a particular municipal market sector (for example,
electric utilities), or issued by a particular municipal issuer, are
undervalued. Nuveen Advisory may purchase such a bond for the Fund's portfolio
because it represents a market sector or issuer that Nuveen Advisory considers
undervalued, even if the value of the particular bond appears to be consistent
with the value of similar bonds. Municipal bonds of particular types (e.g.,
hospital bonds, industrial revenue bonds or bonds issued by a particular
municipal issuer) may be undervalued because there is a temporary excess of
supply in that market sector, or because of a general decline in the market
price of municipal bonds of the market sector for reasons that do not apply to
the particular municipal bonds that are considered undervalued. The Fund's
investment in underrated or undervalued municipal bonds will be based on Nuveen
Advisory's belief that their yield is higher than that available on bonds
bearing equivalent levels of interest rate risk, credit risk and other forms of
risk, and that their prices will ultimately rise (relative to the market) to
reflect their true value. The Fund attempts to increase its portfolio value
relative to the municipal bond market by prudent selection of municipal bonds
regardless of the direction the market may move. Any capital appreciation
realized by the Fund will generally result in the distribution of taxable
capital gains to holders of Common Shares.
The Fund will invest its net assets in a diversified portfolio of municipal
bonds that are exempt from regular Federal and California income tax. Under
normal market conditions, the Fund expects to be fully invested (at least 95% of
its assets) in such tax-exempt municipal bonds. The Fund will invest at least
80% of its net assets in investment grade quality municipal bonds. Investment
grade quality means that such bonds are rated, at the time of investment, within
the four highest grades (Baa or BBB or better by Moody's, S&P or Fitch) or are
unrated but judged to be of comparable quality by Nuveen Advisory. The Fund may
invest up to 20% of its net assets in municipal bonds that are rated, at the
time of investment, Ba/BB or B by Moody's, S&P or Fitch or that are unrated but
judged to be of comparable quality by Nuveen Advisory. Bonds of below investment
grade quality (Ba/BB or below) are commonly referred to as junk bonds. Bonds of
below investment grade quality are regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal.
The foregoing credit quality policies apply only at the time a security is
purchased, and the Fund 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,
Nuveen Advisory may consider such factors as Nuveen Advisory'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. A general description of Moody's, S&P's and Fitch's ratings of
municipal bonds is set forth in Appendix B to the Statement of Additional
Information. See "Municipal Bonds -- Special Considerations Relating to
California Municipal Bonds" below for a general description of the economic and
credit characteristics of municipal issuers in California. The Fund may also
invest in securities of other open- or closed-end investment companies that
invest primarily in municipal bonds of the types in which the Fund may invest
directly. See "-- Other Investment Companies" and "-- Initial Portfolio
Composition."
The Fund may purchase municipal bonds 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
7
<PAGE> 11
premiums for insurance and the higher market price paid for insured obligations
may reduce the Fund's income. 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 net asset value of the Common Shares.
Upon Nuveen Advisory's recommendation, during temporary defensive periods
and in order to keep the Fund's cash fully invested, including the period during
which the net proceeds of the offering are being invested, the Fund may invest
up to 100% of its net assets in short-term investments including high quality,
short-term securities that may be either tax-exempt or taxable. The Fund intends
to invest in taxable short-term investments only in the event that suitable
tax-exempt short-term investments are not available at reasonable prices and
yields. Investment in taxable short-term investments would result in a portion
of your dividends being subject to regular Federal income taxes. For more
information, see the Statement of Additional Information.
The Fund cannot change its investment objectives without the approval of
the holders of a "majority of the outstanding" Common Shares and MuniPreferred
Shares voting together as a single class, and of the holders of a "majority of
the outstanding" MuniPreferred Shares voting as a separate class. A "majority of
the outstanding," means (i) 67% or more of the shares present at a meeting, if
the holders of more than 50% of the shares are present or represented by proxy,
or (ii) more than 50% of the shares, whichever is less. See "Description of
MuniPreferred -- Voting Rights" for additional information with respect to the
voting rights of holders of MuniPreferred Shares.
If you are, or as a result of investment in the Fund would become, subject
to the Federal alternative minimum tax, the Fund may not be a suitable
investment for you because the Fund expects that a substantial portion of its
investments will pay interest that is taxable under the Federal alternative
minimum tax. Special rules apply to corporate holders. In addition, capital
gains distributions will be subject to capital gains taxes. See "Tax Matters."
MUNICIPAL BONDS
General. Municipal bonds are either general obligation or revenue bonds and
typically are issued to finance public projects (such as roads or public
buildings), to pay general operating expenses, or to refinance outstanding debt.
Municipal bonds may also be issued for private activities, such as housing,
medical and educational facility construction, or for privately owned industrial
development and pollution control projects. General obligation bonds are backed
by the full faith and credit, or taxing authority, of the issuer and may be
repaid from any revenue source; revenue bonds may be repaid only from the
revenues of a specific facility or source. The Fund also may purchase municipal
bonds that represent lease obligations. These carry special risks because the
issuer of the bonds may not be obligated to appropriate money annually to make
payments under the lease. In order to reduce this risk, the Fund will only
purchase municipal bonds representing lease obligations where Nuveen Advisory
believes the issuer has a strong incentive to continue making appropriations
until maturity.
The municipal bonds in which the Fund will invest are generally issued by
the State of California, a city in California, or a political subdivision of
such State or city, and pay interest that, in the opinion of bond counsel to the
issuer (or on the basis of other authority believed by Nuveen Advisory to be
reliable), is exempt from regular Federal and California income tax, although
the interest may be subject to the Federal alternative minimum tax. The Fund may
also invest in municipal bonds issued by United States territories (such as
Puerto Rico or Guam) that are exempt from regular federal and California income
tax.
The yields on municipal bonds are dependent on a variety of factors,
including prevailing interest rates and the condition of the general money
market and the municipal bond market, the size of a particular offering, the
maturity of the obligation and the rating of the issue. The market value of
municipal bonds will vary with changes in interest rate levels and as a result
of changing evaluations of the ability of their issuers to meet interest and
principal payments.
8
<PAGE> 12
The Fund will primarily invest in municipal bonds with long-term maturities
in order to maintain a weighted average maturity of 15-30 years, but the
weighted average maturity of obligations held by the Fund may be shortened,
depending on market conditions.
Special Considerations Relating to California Municipal Bonds. The
following information provides only a brief summary of the complex factors
affecting the financial situation in California (the "State") and is derived
from sources that are generally available to investors and is believed to be
accurate. It is based in part on information obtained from various State and
local agencies in California. Additional information regarding the factors
affecting the financial situation in California may be found in "Investment
Objective and Policies -- Factors Pertaining to California" in the Statement of
Additional Information. It should be noted that the creditworthiness of the
obligations issued by local California issuers may be unrelated to the
creditworthiness of obligations issued by the State of California, and that
there is no obligation on the part of the State to make payment on such local
obligations in the event of default.
Because the Fund primarily purchases municipal bonds issued by California
state and local government agencies, shareholders may be exposed to additional
risks. In particular, the performance of the Fund is susceptible to various
statutory, political and economic factors unique to California. Some of these
factors, including the State budget process, the State's economy, and voter
initiatives, may weaken or jeopardize the ability of California municipal bond
issuers to pay principal or interest on their bonds. As a result, the value of
the Fund's assets may fluctuate more widely in value than those of a fund
investing in municipal bonds from a number of different states.
California's economy is the largest among the 50 states and one of the
largest in the world. The State has a diversified economy with major sectors in
manufacturing, agriculture, services, tourism, international trade and
construction. The State has a population of over 34 million, which has been
growing at a 1-2% annual rate for several decades. Gross domestic product of
goods and services in the State exceeds $1 trillion. Personal income was
estimated at over $900 billion in 1998. Total employment is over 15 million.
In the early 1990's, the State suffered a severe recession, with the worst
economic, fiscal and budget conditions since the 1930's. Manufacturing
(particularly aerospace), construction and financial services were all severely
affected, with the bulk of the job losses in Southern California. The economy
started into recovery in 1994, and has been growing strongly since that time,
outpacing the national economy. While the international economic problems in
Asia and other areas since mid-1997 have hurt some sectors of the California
economy, such as manufacturing and agriculture, which traditionally export to
those nations, these effects have apparently been offset by increased exports in
Latin America and other nations, and strong activity in computer hardware and
software (fueled by "Year 2000" preparations) and construction, among other
areas. The California economy shows continued strength overall through 1999, but
projections are for slower growth in the year 2000 and beyond.
The State of California has received significant tax revenues in recent
years, deriving from the strong economy and stock market. General Fund revenues
are estimated at $57.9 billion in FY 1998-99 and $63.0 billion in FY 1999-00. A
large part of the State's annual budget is mandated by constitutional guarantees
(such as for education funding and debt service) and caseload requirements for
health and welfare programs. State General Obligation bonds are, as of May,
1999, rated "Aa3" by Moody's, "A+" by Standard & Poor's, and "AA-" by Fitch
IBCA.
Many local government agencies, particularly counties, continue to face
budget constraints due to limited taxing powers and mandated expenditures for
health, welfare and public safety, among other factors. California State and
local governments are limited in their ability to levy and raise property taxes
and other forms of taxes, fees or assessments, and in their ability to
appropriate their tax revenues, by a series of constitutional amendments enacted
by voter initiative since 1978. Individual local governments may also have local
initiatives which affect their fiscal flexibility.
For more information, about the State, see "Investment Objective and
Policies -- Factors Pertaining to California" in the Statement of Additional
Information.
9
<PAGE> 13
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may buy and sell municipal bonds on a when-issued or delayed
delivery basis, making payment or taking delivery at a later date, normally
within 15 to 45 days of the trade date. This type of transaction may involve an
element of risk because no interest accrues on the bonds prior to settlement
and, since bonds are subject to market fluctuations, the value of the bonds at
the time of delivery may be less (or more) than cost. A separate account of the
Fund will be established with its custodian consisting of cash, cash
equivalents, or liquid securities having a market value at all times at least
equal to the amount of the commitment.
OTHER INVESTMENT COMPANIES
The Fund may invest up to 10% of its net assets in securities of other
open- or closed-end investment companies that invest primarily in municipal
bonds of the types in which the Fund may invest directly. The Fund generally
expects to invest in other investment companies either during periods when it
has large amounts of uninvested cash, such as the period shortly after the Fund
receives the proceeds of the offering of its Common Shares or MuniPreferred
Shares, or during periods when there is a shortage of attractive, high-yielding
municipal bonds available in the market. As a shareholder in an investment
company, the Fund will bear its ratable share of that investment company's
expenses, and would remain subject to payment of the Fund's management, advisory
and administrative fees with respect to assets so invested. Common Shareholders
would therefore be subject to duplicative expenses to the extent the Fund
invests in other investment companies. Nuveen Advisory will take expenses into
account when evaluating the investment merits of an investment in the investment
company relative to available municipal bond investments. In addition, the
securities of other investment companies may also be leveraged and will
therefore be subject to the same leverage risks described herein. As described
in the Prospectus in the section entitled "Risks," the net asset value and
market value of leveraged shares will be more volatile and the yield to
shareholders will tend to fluctuate more than the yield generated by unleveraged
shares.
INITIAL PORTFOLIO COMPOSITION
If current market conditions persist, the Fund expects that approximately
85% of its initial portfolio will consist of investment grade quality municipal
bonds, rated as such at the time of investment, meaning that such bonds are
rated by national rating agencies within the four highest grades of the
investment grade category or are unrated but judged to be of comparable quality
by Nuveen Advisory (approximately 50% in Aaa/AAA; 15% in A; and 20% in Baa/BBB).
The Fund will generally select obligations which may not be redeemed at the
option of the issuer for approximately seven to nine years from the date of
purchase by the Fund. See the Statement of Additional Information under "Other
Investment Policies and Techniques -- Portfolio Trading and Turnover Rate."
Subject to market availability, the Fund would likely seek to invest
approximately 15% of its initial portfolio in municipal bonds that are, at the
time of investment, either rated below investment grade or that are unrated but
judged to be of comparable quality by Nuveen Advisory. See "-- Investment
Objectives and Policies."
INVESTMENT RESTRICTIONS
Except as described below, the Fund, as a fundamental policy, may not,
without the approval of the holders of a majority of the outstanding Common
Shares and Preferred Shares including shares of MuniPreferred, voting together
as a single class, and of the holders of a majority of the outstanding Preferred
Shares, including shares of MuniPreferred, voting as a separate class:
1. Issue senior securities, as defined in the Investment Company Act
of 1940, other than MuniPreferred shares, except to the extent permitted
under the Investment Company Act of 1940 and except as otherwise described
in the Prospectus;
2. Borrow money, except from banks for temporary or emergency purposes
or for repurchase of its shares, and then only in an amount not exceeding
one-third of the value of the Fund's total assets (including the amount
borrowed) less the Fund's liabilities (other than borrowings);
10
<PAGE> 14
3. Act as underwriter of another issuer's securities, except to the
extent that the Fund may be deemed to be an underwriter within the meaning
of the Securities Act of 1933 in connection with the purchase and sale of
portfolio securities;
4. Invest more than 25% of its total assets in securities of issuers
in any one industry; provided, however, that such limitation shall not
apply to municipal bonds other than those municipal bonds backed only by
the assets and revenues of non-governmental users;
5. Purchase or sell real estate, but this shall not prevent the Fund
from investing in municipal bonds secured by real estate or interests
therein or foreclosing upon and selling such security;
6. Purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments (but this shall not prevent
the Fund from purchasing or selling options, futures contracts, derivative
instruments or from investing in securities or other instruments backed by
physical commodities);
7. Make loans, other than by entering into repurchase agreements and
through the purchase of municipal bonds or short-term investments in
accordance with its investment objectives, policies and limitations;
8. Invest more than 5% of its total assets in securities of any one
issuer, except that this limitation shall not apply to bonds issued by the
United States Government, its agencies and instrumentalities or to the
investment of 25% of its total assets.
See "Investment Objective and Policies -- Investment Restrictions" in the
Statement of Additional Information for a description of additional fundamental
and non-fundamental policies of the Fund.
RISK FACTORS
Risk is inherent in all investing. Investing in any investment company
security involves risk, including the risk that you may receive little or no
return on your investment or even that you may lose part or all of your
investment. Therefore, before investing you should consider carefully the
following risks that you assume when you invest in MuniPreferred shares.
INTEREST RATE RISK
The Fund issues MuniPreferred shares, which pay dividends based on
short-term interest rates, and uses the proceeds to buy municipal bonds, which
pay interest based on long-term yields. Long-term municipal bond yields are
typically, although not always, higher than short-term interest rates. Both
long-term and short-term interest rates may fluctuate. If short-term interest
rates rise, MuniPreferred rates may rise so that the amount of dividends paid to
MuniPreferred shareholders exceeds the income from the portfolio securities
purchased with the proceeds from the sale of MuniPreferred shares. Because
income from the Fund's entire investment portfolio (not just the portion of the
portfolio purchased with the proceeds of the MuniPreferred share offering) is
available to pay MuniPreferred dividends, however, MuniPreferred dividend rates
would need to greatly exceed the Fund's net portfolio income before the Fund's
ability to pay MuniPreferred dividends would be jeopardized. If long-term rates
rise, the value of the Fund's investment portfolio will decline, reducing the
amount of assets serving as asset coverage for the MuniPreferred shares.
AUCTION RISK
You may not be able to sell your MuniPreferred shares at an auction if the
auction fails; that is, if there are more MuniPreferred shares offered for sale
than there are buyers for those shares. The Fund believes this event is
unlikely. Also, if you place hold orders (orders to retain MuniPreferred shares)
at an auction only at a specified rate, and that bid rate exceeds the rate set
at the auction, you will not retain your MuniPreferred shares. Finally, if you
buy shares or elect to retain shares without specifying a rate below which you
would not wish to continue to hold those shares, and the auction sets a
below-market rate, you may receive a lower rate
11
<PAGE> 15
of return on your shares than the market rate. See "Description of
MuniPreferred" and "The Auction -- Auction Procedures."
SECONDARY MARKET RISK
If you try to sell your MuniPreferred shares between auctions, you may not
be able to sell any or all of your shares, or you may not be able to sell them
for $25,000 per share or $25,000 per share plus accumulated dividends. If the
Fund has designated a special rate period (a rate period of more than 7 days),
changes in interest rates could affect the price you would receive if you sold
your shares in the secondary market. Broker-dealers that maintain a secondary
trading market for MuniPreferred shares are not required to maintain this
market, and the Fund is not required to redeem shares either if an auction or an
attempted secondary market sale fails because of a lack of buyers. MuniPreferred
shares are not registered on a stock exchange or the NASDAQ stock market. If you
sell your MuniPreferred shares to a broker-dealer between auctions, you may
receive less than the price you paid for them, especially when market interest
rates have risen since the last auction. Accrued MuniPreferred dividends,
however, should at least partially compensate for the increased market interest
rates.
RATINGS AND ASSET COVERAGE RISK
While Moody's and S&P assign ratings of "Aaa" or "AAA" to MuniPreferred
shares, the ratings do not eliminate or necessarily mitigate the risks of
investing in MuniPreferred shares. A rating agency could downgrade MuniPreferred
shares, which may make your shares less liquid at an auction or in the secondary
market, though probably with higher resulting dividend rates. If a rating agency
downgrades MuniPreferred shares, the Fund will alter its portfolio or redeem
MuniPreferred shares. The Fund may voluntarily redeem MuniPreferred shares under
certain circumstances. See "Description of MuniPreferred -- Asset Maintenance
and Rating Agency Guidelines" for a description of the asset maintenance tests
the Fund must meet.
INFLATION RISK
Inflation is the reduction in the purchasing power of money resulting from
the increase in the price of goods and services. Inflation risk is the risk that
the inflation adjusted (or "real") value of your MuniPreferred investment or the
income from that investment will be worth less in the future. As inflation
occurs, the real value of the MuniPreferred shares and distributions declines.
In an inflationary period, however, it is expected that, through the auction
process, MuniPreferred dividend rates would increase, tending to offset this
risk.
CREDIT RISK
Credit risk is the risk that an issuer of a municipal bond will become
unable to meet its obligation to make interest and principal payments. In
general, lower rated municipal bonds carry a greater degree of credit risk. If
rating agencies lower their ratings of municipal bonds in the Fund's portfolio,
the value of those bonds could decline, which could jeopardize the rating
agencies' ratings of the MuniPreferred. Because the primary source of income for
the Fund is the interest and principal payments on the municipal bonds in which
it invests, any default by an issuer of a municipal bond could have a negative
impact on the Fund's ability to pay dividends on the MuniPreferred shares and
could result in the redemption of some or all of the MuniPreferred shares. In
addition, the Fund may invest up to 20% of its net assets in municipal bonds
that are rated Ba/BB or B by Moody's, S&P or Fitch or that are unrated but
judged to be of comparable quality by Nuveen Advisory. Bonds rated Ba/BB or B
are regarded as having predominately speculative characteristics with respect to
capacity to pay interest and repay principal, and these bonds are commonly
referred to as "junk bonds." The prices of these bonds are more sensitive to
negative developments, such as a decline in the issuer's revenues or a general
economic downturn, than are the prices of higher grade securities.
CONCENTRATION IN CALIFORNIA ISSUERS
The Fund's policy of investing primarily in municipal obligations of
issuers located in California makes the Fund more susceptible to adverse
economic, political or regulatory occurrences affecting such issuers.
12
<PAGE> 16
INCOME RISK
The Fund'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 Fund's income available over time to make dividend payments with
respect to the MuniPreferred could drop as well if the Fund purchases securities
with lower interest coupons. This risk is magnified when prevailing short-term
interest rates increase and the Fund holds residual interest municipal bonds.
CALL RISK
If interest rates fall, it is possible that issuers of callable bonds with
higher 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 Fund is likely to replace such called security
with a lower yielding security.
YEAR 2000 RISK
Nuveen Advisory relies on computer systems to manage the Fund's
investments, process shareholder transactions, and maintain shareholder
accounts. Because of the way computers historically have stored dates, some of
these systems currently may not be able to process activity occurring in the
year 2000. Nuveen Advisory is working with the Fund's service providers to adapt
their systems to address this "Year 2000" issue. Although there can be no
absolute assurance, Nuveen Advisory and the Fund expect that the necessary work
will be completed on a timely basis. In addition, Year 2000 issues may affect
the ability of municipal issuers to meet their interest and principal payment
obligations to their bond holders, and may adversely affect the bonds' credit
ratings and values. It is generally conceded that municipal issuers may have
greater Year 2000 risks than other issuers. Nuveen Advisory is requesting
information from municipal issuers so that Nuveen Advisory can take the issuers'
Year 2000 readiness, if make available, into account in making investment
decisions. There can be no assurance that issuers will provide this information
to Nuveen Advisory, or that issuers will begin or complete the work necessary to
address any Year 2000 issues on a timely basis.
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS
The Board of Trustees is responsible for the management of the Fund,
including supervision of the duties performed by Nuveen Advisory. There are
seven trustees of the Fund, one of whom is an "interested person" (as defined in
the 1940 Act) and six of whom are not "interested persons." The names and
business addresses of the trustees and officers of the Fund and their principal
occupations and other affiliations during the past five years are set forth
under "Management of the Fund" in the Statement of Additional Information.
INVESTMENT ADVISER
Nuveen Advisory, 333 West Wacker Drive, Chicago, Illinois 60606, serves as
the investment adviser to the Fund. In this capacity, Nuveen Advisory is
responsible for the selection and on-going monitoring of the Fund's investment
portfolio, managing the Fund's business affairs and providing certain clerical,
bookkeeping and administrative services. Nuveen Advisory serves as investment
adviser to investment portfolios with more than $35 billion in assets under
management. See the Statement of Additional Information under "Management of the
Fund -- Investment Adviser."
Overall investment management strategy and operating policies for the Fund
are set by the Investment Management Committee of John Nuveen & Co. Incorporated
("Nuveen"), subject to the ultimate oversight and supervision of the Board of
Trustees. Nuveen Advisory places orders for the purchase and sale of portfolio
securities for the Fund. Consistent with Rule 10f-3 under the 1940 Act,
portfolio securities may be purchased from Nuveen or its affiliates. The
Investment Management Committee is comprised of several principal executive
officers and portfolio managers of Nuveen and Nuveen Advisory. Day to day
operations and execution of specific investment strategies is the responsibility
of Nuveen Advisory. Since May 25, 1999, the Fund's commencement of operations,
Nuveen Advisory has managed the Fund using a team of analysts and
13
<PAGE> 17
portfolio managers that focus on a specific group of funds. William M.
Fitzgerald has been the portfolio manager of the Fund and will provide daily
oversight for, and execution of, the Fund's investment activities. Mr.
Fitzgerald currently manages eleven closed-end municipal bond funds for Nuveen
Advisory with assets aggregating more than $.5 billion. He is a Chartered
Financial Analyst and a Vice President of Nuveen Advisory.
Nuveen Advisory is a wholly-owned subsidiary of Nuveen, 333 West Wacker
Drive, Chicago, Illinois 60606. Founded in 1898, Nuveen and its affiliates have
over $60 billion of net assets under management or surveillance. Nuveen is a
subsidiary of The John Nuveen Company which, in turn, is a majority-owned
subsidiary of The St. Paul Companies, Inc., a publicly-traded company which is
principally engaged in providing property-liability insurance through
subsidiaries.
INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an investment management agreement between Nuveen Advisory and
the Fund, the Fund has agreed to pay an annual management fee for the services
and facilities provided by Nuveen Advisory, payable on a monthly basis,
according to the following schedule:
<TABLE>
<CAPTION>
DAILY TOTAL NET ASSETS* MANAGEMENT FEE
----------------------- --------------
<S> <C>
For the first $125 million.................................. .6500%
For the next $125 million................................... .6375%
For the next $250 million................................... .6250%
For the next $500 million................................... .6125%
For the next $1 billion..................................... .6000%
For assets over $2 billion.................................. .5750%
</TABLE>
- ------------
* Including net assets attributable to MuniPreferred shares.
In addition to the fee of Nuveen Advisory, the Fund pays all other costs
and expenses of its operations, including compensation of its trustees (other
than those affiliated with Nuveen Advisory), custodian, transfer and dividend
disbursing expenses, legal fees, expenses of independent auditors, expenses of
repurchasing shares, expenses of preparing, printing and distributing
shareholder reports, notices, proxy statements and reports to governmental
agencies, and taxes, if any.
For the first ten years of the Fund's operation, Nuveen Advisory has agreed
to reimburse the Fund for fees and expenses in the amounts, and for the time
periods, set forth below:
<TABLE>
<CAPTION>
PERCENTAGE
REIMBURSED
(AS A
PERCENTAGE
OF AVERAGE
YEAR ENDING DAILY NET
JULY 31, ASSETS)
----------- ----------
<S> <C>
1999*................... .30%
2000.................... .30%
2001.................... .30%
2002.................... .30%
2003.................... .30%
2004.................... .30%
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE
REIMBURSED
(AS A
PERCENTAGE
OF AVERAGE
YEAR ENDING DAILY NET
JULY 31, ASSETS)
----------- ----------
<S> <C>
2005.................... .25%
2006.................... .20%
2007.................... .15%
2008.................... .10%
2009.................... .05%
</TABLE>
- ------------
* From the commencement of operations.
Nuveen Advisory has not agreed to reimburse the Fund for any portion of its
fees and expenses beyond July 31, 2009.
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<PAGE> 18
LEGAL PROCEEDINGS
A lawsuit brought in June, 1996 (Green et al. v. Nuveen Advisory Corp., et
al.) by certain individual common shareholders of six leveraged closed-end funds
sponsored by Nuveen is currently pending in federal district court. The
plaintiffs allege that the leveraged closed-end funds engaged in certain
practices that violated various provisions of the 1940 Act and common law. The
plaintiffs also alleged, among other things, breaches of fiduciary duty by the
funds' trustees and Nuveen Advisory and various misrepresentations and omissions
in prospectuses and shareholder reports relating to the use of leverage through
the issuance and periodic auctioning of preferred stock and the basis of the
calculation and payment of management fees to Nuveen Advisory and Nuveen.
Plaintiffs also filed a motion to certify defendant and plaintiff cases.
The defendants are vigorously defending the case and filed motions to
dismiss the entire lawsuit asserting that the claims are without merit and to
oppose certification of any classes. By opinion dated March 30, 1999, the court
granted most of the defendants' motion to dismiss and denied plaintiffs' motion
to certify defendant and plaintiff classes. The court dismissed all claims
against the funds, the funds' trustees and Nuveen. The court dismissed these
claims without prejudice (which means that the plaintiffs can re-file the claims
if they can correct the defect that led to the claim being dismissed) on the
ground that the claims should have been brought as derivative claims on behalf
of the funds. The only remaining claim is brought under Section 36(b) of the
1940 Act against Nuveen Advisory, and relates solely to advisory fees Nuveen
Advisory received from the six relevant funds. While the Fund cannot assure that
the litigation will be decided in Nuveen Advisory's favor, Nuveen Advisory
believes a decision, if any, against the defendants would have no material
effect on the Fund, its Common Shares or the ability of Nuveen Advisory to
perform its duties under the investment management agreement.
DESCRIPTION OF MUNIPREFERRED
The following is a brief description of the terms of the shares of
MuniPreferred. This description does not purport to be complete and is subject
to and qualified in its entirety by reference to the more detailed description
of the shares of MuniPreferred in the Fund's Statement Establishing and Fixing
the Rights and Preferences of Municipal Auction Rate Cumulative Preferred Shares
(the "Statement") attached as Appendix A to the Statement of Additional
Information.
GENERAL
The Fund's Declaration authorizes the issuance of an unlimited number of
preferred shares, par value $.01 per share, in one or more classes or series,
with rights as determined by the Board of Trustees without the approval of
common shareholders. The Statement currently authorizes the issuance of shares
of MuniPreferred as follows: Series TH -- 10,000 and Series F -- 10,000. All
shares of MuniPreferred 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).
The shares of MuniPreferred of each series will rank on parity with shares
of any other series of MuniPreferred, and with shares of any other series of
preferred shares of the Fund, as to the payment of dividends and the
distribution of assets upon liquidation. All shares of MuniPreferred carry one
vote per share on all matters on which such shares are entitled to be voted.
Shares of MuniPreferred are, when issued, fully paid and non-assessable and have
no preemptive, conversion or rights to cumulative voting.
DIVIDENDS AND DIVIDEND PERIODS
General. The initial Rate Period of shares of a series of MuniPreferred of
a particular series will be a period consisting of (a) days in the case
of Series TH and (b) days in the case of Series F. Any Subsequent Rate
Period of shares of a series of MuniPreferred will be a Minimum Rate Period (7
Rate Period Days), unless the Fund, subject to certain conditions, designates
such Subsequent Rate Period as a Special Rate Period. See "-- Designation of
Special Rate Periods" below.
15
<PAGE> 19
Dividends on shares of each series of MuniPreferred shall be payable, when,
as and if declared by the Board out of funds legally available therefor in
accordance with the Declaration, including the Statement, and applicable law, on
shares of (a) MuniPreferred, Series TH, on , and thereafter on each
Friday and (b) MuniPreferred, Series F, on , and thereafter on each
Monday provided, however, that (i) if the Monday or the Tuesday on which
dividends would otherwise be payable as set forth above is not a Business Day,
then such dividends shall be payable on such shares on the first Business Day
that falls after such Monday or Tuesday, as the case may be; (ii) if the
Wednesday, Thursday or Friday on which dividends would otherwise be payable as
set forth above is not a Business Day, then such dividends shall be payable on
such shares on the first Business Day that falls prior to such Wednesday,
Thursday or Friday, as the case may be; and (iii) the Fund may specify different
Dividend Payment Dates in respect of any Special Rate Period of more than 28
Rate Period Days.
The amount of dividends per share payable on shares of a series of
MuniPreferred on any date on which dividends shall be payable on shares of such
series shall be computed by multiplying the Applicable Rate for shares of such
series in effect for such Dividend Period or Dividend Periods or part thereof
for which dividends have not been paid by a fraction, the numerator of which
shall be the number of days in such Dividend Period or Dividend Periods or part
thereof and the denominator of which shall be 365 if such Dividend Period
consists of 7 Rate Period Days and 360 for all other Dividend Periods, and
applying the rate obtained against $25,000.
Dividends will be paid through the Securities Depository on each Dividend
Payment Date in accordance with its normal procedures, which currently provide
for it to distribute dividends in next-day funds to Agent Members, who in turn
are expected to distribute such dividend payments to the persons for whom they
are acting as agents. Each of the current Broker-Dealers, however, has indicated
to the Fund that such Broker-Dealer or the Agent Member designated by such
Broker-Dealer will make such dividend payments available in same-day funds on
each Dividend Payment Date to customers that use such Broker-Dealer or its
designee as Agent Member.
Dividends on shares of each series of MuniPreferred will accumulate from
the Date of Original Issue thereof. The dividend rate for shares of
MuniPreferred of a particular series for the initial Rate Period for such shares
shall be % and % per annum for Series TH and F, respectively. For each
Subsequent Rate Period of shares of MuniPreferred of a particular series, the
dividend rate for such shares will be the Applicable Rate for such shares that
the Auction Agent advises the Fund results from an Auction, except as provided
below. The Applicable Rate that results from an Auction for shares of any series
of MuniPreferred will not be greater than the Maximum Rate for shares of such
series, which is:
(a) in the case of any Auction Date which is not the Auction Date
immediately prior to the first day of any proposed Special Rate Period, the
product of (i) the Reference Rate on such Auction Date for the next Rate
Period of shares of such series and (ii) the Rate Multiple on such Auction
Date, unless shares of such series have or had a Special Rate Period (other
than a Special Rate Period of 28 Rate Period Days or fewer) and an Auction
at which Sufficient Clearing Bids existed has not yet occurred for a
Minimum Rate Period of shares of such series after such Special Rate
Period, in which case the higher of:
(A) the dividend rate on shares of such series for the then-ending
Rate Period; and
(B) the product of (x) the higher of (I) the Reference Rate on such
Auction Date for a Rate Period equal in length to the then-ending Rate
Period of shares of such series, if such then-ending Rate Period was 364
Rate Period Days or fewer, or the Treasury Note Rate on such Auction
Date for a Rate Period equal in length to the then-ending Rate Period of
shares of such series, if such then-ending Rate Period was more than 364
Rate Period Days, and (II) the Reference Rate on such Auction Date for a
Rate Period equal in length to such Special Rate Period of shares of
such series, if such Special Rate Period was 364 Rate Period Days or
fewer, or the Treasury Note Rate on such Auction Date for a Rate Period
equal in length to such Special Rate Period, if such Special Rate Period
was more than 364 Rate Period Days and (y) the Rate Multiple on such
Auction Date; or
16
<PAGE> 20
(b) in the case of any Auction Date which is the Auction Date
immediately prior to the first day of any proposed Special Rate Period, the
product of (i) the highest of (x) the Reference Rate on such Auction Date
for a Rate Period equal in length to the then-ending Rate Period of shares
of such series, if such then-ending Rate Period was 364 Rate Period Days or
fewer, or the Treasury Note Rate on such Auction Date for a Rate Period
equal in length to the then-ending Rate Period of shares of such series, if
such then-ending Rate Period was more than 364 Rate Period Days, (y) the
Reference Rate on such Auction Date for the Special Rate Period for which
the Auction is being held if such Special Rate Period is 364 Rate Period
Days or fewer or the Treasury Note Rate on such Auction Date for the
Special Rate Period for which the Auction is being held if such Special
Rate Period is more than 364 Rate Period Days, and (z) the Reference Rate
on such Auction Date for Minimum Rate Periods and (ii) the Rate Multiple on
such Auction Date.
If an Auction for any Subsequent Rate Period of shares of any series of
MuniPreferred is not held for any reason other than as described below, the
dividend rate on shares of such series for such Subsequent Rate Period will be
the Maximum Rate for shares of such series on the Auction Date for such
Subsequent Rate Period.
If the Fund fails to pay in a timely manner to the Auction Agent the full
amount of any dividend on, or the redemption price of, any shares of any series
of MuniPreferred during any Rate Period thereof (other than any Special Rate
Period of more than 364 Rate Period Days or any Rate Period succeeding any
Special Rate Period of more than 364 Rate Period Days during which such a
failure occurred that has not been cured), but, prior to 12:00 Noon on the third
Business Day next succeeding the date such failure occurred, such failure shall
have been cured and the Fund shall have paid a late charge, as described more
fully in the Statement, no Auction will be held in respect of shares of such
series for the first Subsequent Rate Period thereof thereafter and the dividend
rate for shares of such series for such Subsequent Rate Period will be the
Maximum Rate for shares of such series on the Auction Date for such Subsequent
Rate Period.
If the Fund fails to pay in a timely manner to the Auction Agent the full
amount of any dividend on, or the redemption price of, any shares of any series
of MuniPreferred during any Rate Period thereof (other than any Special Rate
Period of more than 364 Rate Period Days or any Rate Period succeeding any
Special Rate Period of more than 364 Rate Period Days during which such a
failure occurred that has not been cured), and, prior to 12:00 Noon on the third
Business Day next succeeding the date on which such failure occurred, such
failure shall not have been cured or the Fund shall not have paid a late charge,
as described more fully in the Statement, no Auction will be held in respect of
shares of such series for the first Subsequent Rate Period thereof thereafter
(or for any Rate Period thereof thereafter to and including the Rate Period
during which such failure is so cured and such late charge so paid) (such late
charge to be paid only in the event Moody's is rating such shares at the time
the Fund cures such failure), and the dividend rate for shares of such series
for each such Subsequent Rate Period shall be a rate per annum equal to the
Maximum Rate for shares of such series on the Auction Date for such Subsequent
Rate Period (but with the prevailing rating for shares of such series, for
purposes of determining such Maximum Rate, being deemed to be "Below
'ba3'/BB2").
If the Fund fails to pay in a timely manner to the Auction Agent the full
amount of any dividend on, or the redemption price of, any shares of any series
of MuniPreferred during a Special Rate Period thereof of more than 364 Rate
Period Days, or during any Rate Period thereof succeeding any Special Rate
Period of more than 364 Rate Period Days during which such a failure occurred
that has not been cured, and such failure shall not have been cured or the Fund
shall not have paid a late charge, as described more fully in the Statement, no
Auction will be held in respect of shares of such series for such Subsequent
Rate Period thereof (or for any Rate Period thereof thereafter to and including
the Rate Period during which such failure is so cured and such late charge so
paid) (such late charge to be paid only in the event Moody's is rating such
shares at the time the Fund cures such failure), and the dividend rate for
shares of such series for each such Subsequent Rate Period shall be a rate per
annum equal to the Maximum Rate for shares of such series on the Auction Date
for each such Subsequent Rate Period (but with the prevailing rating for shares
of such series, for purposes of determining such Maximum Rate, being deemed to
be "Below 'ba3'/BB2").
17
<PAGE> 21
A failure to pay dividends on or the redemption price of shares of any
series of MuniPreferred shall have been cured with respect to any Rate Period
thereof if, within the respective time periods described in the Statement, the
Fund shall have paid to the Auction Agent (a) all accumulated and unpaid
dividends on the shares of such series and (b) without duplication, the
redemption price for shares, if any, of such series for which notice of
redemption has been mailed by the Fund; provided, however, that the foregoing
clause (b) shall not apply to the Fund's failure to pay the redemption price in
respect of shares of MuniPreferred when the related notice of redemption
provides that redemption of such shares is subject to one or more conditions
precedent and any such condition precedent shall not have been satisfied at the
time or times and in the manner specified in such notice of redemption.
Gross-up Payments. Holders of shares of MuniPreferred are entitled to
receive, when, as and if declared by the Board, out of funds legally available
therefor in accordance with the Declaration of Trust, including the Statement,
and applicable law, dividends in an amount equal to the aggregate Gross-up
Payments in accordance with the following:
If, in the case of any Minimum Rate Period or any Special Rate Period of 28
Rate Period Days or fewer, the Fund allocates any net capital gains or other
income taxable for Federal income tax purposes to a dividend paid on shares of
MuniPreferred without having given advance notice thereof to the Auction Agent
as described below under "The Auction -- Auction Procedures" (a "Taxable
Allocation") solely by reason of the fact that such allocation is made
retroactively as a result of the redemption of all or a portion of the
outstanding shares of MuniPreferred or the liquidation of the Fund, the Fund
will, prior to the end of the calendar year in which such dividend was paid,
provide notice thereof to the Auction Agent and direct the Fund's dividend
disbursing agent to send such notice with a Gross-up Payment to each holder of
shares (initially Cede & Co., as nominee of the Securities Depository) that was
entitled to such dividend payment during such calendar year at such holder's
address as the same appears or last appeared on the stock books of the Fund.
If, in the case of any Special Rate Period of more than 28 Rate Period
Days, the Fund makes a Taxable Allocation to a dividend paid on shares of
MuniPreferred, the Fund shall, prior to the end of the calendar year in which
such dividend was paid, provide notice thereof to the Auction Agent and direct
the Fund's dividend disbursing agent to send such notice with a Gross-up Payment
to each holder of shares that was entitled to such dividend payment during such
calendar year at such holder's address as the same appears or last appeared on
the stock books of the Fund.
A "Gross-up Payment" means payment to a holder of shares of MuniPreferred
of an amount which, when taken together with the aggregate amount of Taxable
Allocations made to such holder to which such Gross-up Payment relates, would
cause such holder's dividends in dollars (after Federal income tax consequences)
from the aggregate of such Taxable Allocations and the related Gross-up Payment
to be equal to the dollar amount of the dividends which would have been received
by such holder if the amount of the aggregate Taxable Allocations would have
been excludable from the gross income of such holder. Such Gross-up Payment
shall be calculated: (a) without consideration being given to the time value of
money; (b) assuming that no holder of shares of MuniPreferred is subject to the
Federal alternative minimum tax with respect to dividends received from the
Fund; and (c) assuming that each Taxable Allocation and each Gross-up Payment
(except to the extent such Gross-up Payment is designated as an exempt-interest
dividend under Section 852(b)(5) of the Internal Revenue Code or successor
provisions) would be taxable in the hands of each holder of shares of
MuniPreferred at the maximum marginal combined regular Federal and California
personal income tax rate applicable to ordinary income (taking into account the
Federal tax deductibility of state and local taxes paid or incurred) or net
capital gains, as applicable, or the maximum marginal regular Federal corporate
income tax rate applicable to ordinary income or net capital gains, as
applicable, whichever is greater, in effect at the time such Gross-up Payment is
made.
Restrictions on Dividends and Other Distributions. Except as otherwise
described herein, for so long as any shares of MuniPreferred are outstanding,
the Fund may not declare, pay or set apart for payment any dividend or other
distribution (other than a dividend or distribution paid in, or in options,
warrants or rights to subscribe for or purchase, its shares of Common Shares) in
respect of its Common Shares or call for
18
<PAGE> 22
redemption, redeem, purchase or otherwise acquire for consideration any of
Common Shares (except by conversion into or exchange for shares of the Fund
ranking junior to the shares of MuniPreferred as to the payment of dividends and
the distribution of assets upon liquidation), unless (a) full cumulative
dividends on shares of each series of MuniPreferred through its most recently
ended Dividend Period shall have been paid or shall have been declared and
sufficient funds for the payment thereof deposited with the Auction Agent; (b)
the Fund shall have redeemed the full number of shares of MuniPreferred required
to be redeemed by any provision for mandatory redemption pertaining thereto; and
(c) immediately after such transaction the Discounted Value of the Fund's
portfolio would at least equal the MuniPreferred Basic Maintenance Amount in
accordance with guidelines of the rating agency or agencies then rating the
shares of MuniPreferred.
Except as set forth in the next sentence, no dividends shall be declared or
paid or set apart for payment on the shares of any class or series of Fund
shares ranking, as to the payment of dividends, on a parity with shares of
MuniPreferred for any period unless full cumulative dividends have been or
contemporaneously are declared and paid on the shares of each series of
MuniPreferred through its most recent Dividend Payment Date. When dividends are
not paid in full upon the shares of each series of MuniPreferred through its
most recent Dividend Payment Date or upon the shares of any other class or
series of shares ranking on a parity as to the payment of dividends with shares
of MuniPreferred through their most recent respective dividend payment dates,
all dividends declared upon shares of MuniPreferred and any such other class or
series of shares ranking on a parity as to the payment of dividends with shares
of MuniPreferred shall be declared pro rata so that the amount of dividends
declared per share on shares of MuniPreferred and such other class or series of
shares shall in all cases bear to each other the same ratio that accumulated
dividends per share on the shares of MuniPreferred and such other class or
series of shares bear to each other.
Designation of Special Rate Periods. The Fund, at its option, may
designate any succeeding Subsequent Rate Period of shares of a series of
MuniPreferred as a Special Rate Period consisting of a specified number of Rate
Period Days evenly divisible by seven and not more than 1,820 (approximately 5
years), subject to certain adjustments. A designation of a Special Rate Period
shall be effective only if, among other things, (a) the Fund shall have given
certain notices to the Auction Agent, (b) an Auction for shares of such series
shall have been held on the Auction Date immediately preceding the first day of
such proposed Special Rate Period and Sufficient Clearing Bids for shares of
such series shall have existed in such Auction and (c) if the Fund shall have
mailed a notice of redemption with respect to any shares of such series, the
redemption price with respect to such shares shall have been deposited with the
Auction Agent.
REDEMPTION
Mandatory Redemption. In the event the Fund does not timely cure a failure
to maintain (a) a Discounted Value of its portfolio equal to the MuniPreferred
Basic Maintenance Amount or (b) the 1940 Act MuniPreferred Asset Coverage, in
each case in accordance with the requirements of the rating agency or agencies
then rating the shares of MuniPreferred, shares of MuniPreferred will be subject
to mandatory redemption on a date specified by the Board out of funds legally
available therefor in accordance with the Declaration of Trust, including the
Statement, and applicable law, at the redemption price of $25,000 per share plus
an amount equal to accumulated but unpaid dividends thereon (whether or not
earned or declared) to (but not including) the date fixed for redemption. Any
such redemption will be limited to the number of shares of MuniPreferred
necessary to restore the required Discounted Value or the 1940 Act MuniPreferred
Asset Coverage, as the case may be.
Optional Redemption. Shares of MuniPreferred of each series are
redeemable, at the option of the Fund:
(a) as a whole or from time to time in part, on the second Business
Day preceding any Dividend Payment Date for shares of such series, out of
funds legally available therefor in accordance with the Declaration of
Trust, including the Statement, and applicable law, at the redemption price
of $25,000 per share plus an amount equal to accumulated but unpaid
dividends thereon (whether or not earned or declared) to (but not
including) the date fixed for redemption; provided, however, that (i)
shares of such series may not be redeemed in part if after such partial
redemption fewer than 500 shares of such series
19
<PAGE> 23
would remain outstanding; (ii) shares of a series of MuniPreferred are
redeemable by the Fund during the Initial Rate Period thereof only on the
second Business Day next preceding the last Dividend Payment Date for such
Initial Rate Period; and (iii) the notice establishing a Special Rate
Period of shares of such series, as delivered to the Auction Agent and
filed with the Secretary of the Fund, may provide that shares of such
series shall not be redeemable during the whole or any part of such Special
Rate Period (except as provided in clause (b) below) or shall be redeemable
during the whole or any part of such Special Rate Period only upon payment
of such redemption premium or premiums as shall be specified therein; and
(b) as a whole but not in part, out of funds legally available
therefor in accordance with the Declaration of Trust, including the
Statement, and applicable law, on the first day following any Dividend
Period thereof included in a Rate Period of more than 364 Rate Period Days
if, on the date of determination of the Applicable Rate for shares of such
series for such Rate Period, such Applicable Rate equaled or exceeded on
such date of determination the Treasury Note Rate for such Rate Period, at
a redemption price of $25,000 per share plus an amount equal to accumulated
but unpaid dividends thereon (whether or not earned or declared) to (but
not including) the date fixed for redemption.
Notwithstanding the foregoing, if any dividends on shares of a series of
MuniPreferred (whether or not earned or declared) are in arrears, no shares of
such series shall be redeemed unless all outstanding shares of such series are
simultaneously redeemed, and the Fund shall not purchase or otherwise acquire
any shares of such series; provided, however, that the foregoing shall not
prevent the purchase or acquisition of all outstanding shares of such series
pursuant to the successful completion of an otherwise lawful purchase or
exchange offer made on the same terms to, and accepted by, holders of all
outstanding shares of such series.
LIQUIDATION
Subject to the rights of holders of any series or class or classes of
shares ranking on a parity with shares of MuniPreferred with respect to the
distribution of assets upon liquidation of the Fund, upon a liquidation of the
Fund, whether voluntary or involuntary, the holders of shares of MuniPreferred
then outstanding will be entitled to receive and to be paid out of the assets of
the Fund available for distribution to its shareholders, before any payment or
distribution shall be made on the Common Shares, an amount equal to the
liquidation preference with respect to such shares ($25,000 per share), plus an
amount equal to all dividends thereon (whether or not earned or declared)
accumulated but unpaid to (but not including) the date of final distribution in
same-day funds, together with any applicable Gross-up Payments in connection
with the liquidation of the Fund. After the payment to the holders of shares of
MuniPreferred of the full preferential amounts provided for as described herein,
the holders of shares of MuniPreferred as such shall have no right or claim to
any of the remaining assets of the Fund.
Neither the sale of all or substantially all the property or business of
the Fund, nor the merger or consolidation of the Fund into or with any other
corporation nor the merger or consolidation of any other corporation into or
with the Fund, shall be a liquidation, whether voluntary or involuntary, for the
purposes of the foregoing paragraph.
RATING AGENCY GUIDELINES AND ASSET COVERAGE
The Fund is required under Moody's and S&P guidelines to maintain assets
having in the aggregate a Discounted Value at least equal to the MuniPreferred
Basic Maintenance Amount. Moody's and S&P have each established separate
guidelines for determining Discounted Value. To the extent any particular
portfolio holding does not satisfy the applicable rating agency's guidelines,
all or a portion of such holding's value will not be included in the calculation
of Discounted Value (as defined by such rating agency). The Moody's and S&P
guidelines do not impose any limitations on the percentage of the Fund's assets
that may be invested in holdings not eligible for inclusion in the calculation
of the Discounted Value of the Fund's portfolio. The amount of such assets
included in the portfolio at any time may vary depending upon the rating,
diversification and other characteristics of the eligible assets included in the
portfolio, although it is not anticipated that in the normal course of business
the value of such assets would exceed 20% of the Fund's total assets. The
MuniPreferred Basic Maintenance Amount includes the sum of (a) the aggregate
liquidation preference of
20
<PAGE> 24
shares of MuniPreferred then outstanding and (b) certain accrued and projected
payment obligations of the Fund.
The Fund is also required under rating agency guidelines to maintain, with
respect to shares of MuniPreferred, as of the last Business Day of each month in
which any such shares are outstanding, asset coverage of at least 200% with
respect to senior securities which are shares, including MuniPreferred (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 a
closed-end investment company as a condition of declaring dividends on its
common shares) ("1940 Act MuniPreferred Asset Coverage"). Based on the
composition of the portfolio of the Fund and market conditions as of June 28,
1999, 1940 Act MuniPreferred Asset Coverage with respect to shares of
MuniPreferred, assuming the issuance on the date thereof of all shares of
MuniPreferred offered hereby and giving effect to the deduction of sales load
and offering costs related thereto estimated at $2,008,150, would have been
computed as follows:
<TABLE>
<C> <C> <S> <C> <C>
Value of Fund assets less liabilities
not constituting senior securities $490,438,487
- ----------------------------------------------------------- = --------------- = 280%
Senior securities representing indebtedness plus $175,000,000
liquidation value of the shares of MuniPreferred
</TABLE>
In the event the Fund does not timely cure a failure to maintain (a) a
Discounted Value of its portfolio equal to the MuniPreferred Basic Maintenance
Amount or (b) the 1940 Act MuniPreferred Asset Coverage, in each case in
accordance with the requirements of the rating agency or agencies then rating
the shares of MuniPreferred, the Fund will be required to redeem shares of
MuniPreferred as described under "Redemption -- Mandatory Redemption" above.
The Fund may, but is not required to, adopt any modifications to the
guidelines that may hereafter be established by Moody's or 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 MuniPreferred may, at any time, change or
withdraw any such rating. The Board may, without shareholder approval, amend,
alter or repeal any or all of the definitions and related provisions which have
been adopted by the Fund pursuant to the rating agency guidelines in the event
the Fund receives written confirmation from Moody's or S&P, or both, as
appropriate, that any such amendment, alteration or repeal would not impair the
ratings then assigned by Moody's and S&P to shares of MuniPreferred.
As recently described by Moody's and S&P, a preferred stock rating is an
assessment of the capacity and willingness of an issuer to pay preferred stock
obligations. The ratings on the shares of MuniPreferred are not recommendations
to purchase, hold or sell those shares, inasmuch as the ratings do not comment
as to market price or suitability for a particular investor. The rating agency
guidelines described above also do not address the likelihood that an owner of
shares of MuniPreferred will be able to sell such shares in an Auction or
otherwise. The ratings are based on current information furnished to Moody's and
S&P by the Fund 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
nationally recognized statistical rating organization.
A rating agency's guidelines will apply to shares of MuniPreferred only so
long as such rating agency is rating such shares. The Fund will pay certain fees
to Moody's or S&P, or both, for rating shares of MuniPreferred.
VOTING RIGHTS
Except as otherwise provided in this Prospectus and in the Statement of
Additional Information or as otherwise required by law, holders of shares of
MuniPreferred will have equal voting rights with holders of Common Shares and
any Preferred Shares (one vote per share) and will vote together with holders of
Common Shares and any Preferred Shares as a single class.
In connection with the election of the Fund's trustees, holders of
outstanding Preferred Shares, including MuniPreferred, voting as a separate
class, are entitled to elect two of the Fund's trustees, and the remaining
21
<PAGE> 25
trustees are elected by holders of Common Shares and Preferred Shares, including
MuniPreferred, voting together as a single class. In addition, if at any time
dividends (whether or not earned or declared) on outstanding Preferred Shares,
including MuniPreferred, shall be due and unpaid in an amount equal to two full
years' dividends thereon, and sufficient cash or specified securities shall not
have been deposited with the Auction Agent for the payment of such dividends,
then, as the sole remedy of holders of outstanding Preferred Shares, including
MuniPreferred, the number of trustees constituting the Board shall be
automatically increased by the smallest number that, when added to the two
trustees elected exclusively by the holders of Preferred Shares, including
shares of MuniPreferred, as described above, would constitute a majority of the
Board 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
Preferred Shares, including shares of MuniPreferred, 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 will be in any event entitled
to elect, constitutes a majority of the total number of trustees of the Fund as
so increased. The terms of office of the persons who are trustees at the time of
that election will continue. If the Fund thereafter shall pay, or declare and
set apart for payment, in full, all dividends payable on all outstanding
Preferred Shares, including MuniPreferred, the voting rights stated in the
second preceding sentence shall cease, and the terms of office of all of the
additional trustees elected by the holders of Preferred Shares, including
MuniPreferred (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 Preferred Shares have the right to elect in any event), will terminate
automatically.
So long as any shares of MuniPreferred are outstanding, the Fund will not,
without the affirmative vote or consent of the holders of at least a majority of
the shares of MuniPreferred outstanding at the time (voting as a separate
class):
(a) authorize, create or issue any class or series of stock ranking
prior to or on a parity with shares of MuniPreferred with respect to the
payment of dividends or the distribution of assets upon liquidation, or
authorize, create or issue additional shares of any series of MuniPreferred
(except that, notwithstanding the foregoing, but subject to certain rating
agency approvals, the Board, without the vote or consent of the holders of
MuniPreferred, may from time to time authorize and create, and the Fund may
from time to time issue, additional shares of any series of MuniPreferred
or classes or series of Preferred Shares ranking on a parity with shares of
MuniPreferred with respect to the payment of dividends and the distribution
of assets upon liquidation; provided, however, that if Moody's or S&P is
not then rating the shares of MuniPreferred, the aggregate liquidation
preference of all Preferred Stock of the Fund outstanding after any such
issuance, exclusive of accumulated and unpaid dividends, may not exceed
$175,000,000 or
(b) amend, alter or repeal the provisions of the Declaration of Trust,
including the Statement, whether by merger, consolidation or otherwise, so
as to affect any preference, right or power of such shares of MuniPreferred
or the holders thereof;
provided, however, that (i) none of the actions permitted by the exception to
(a) above will be deemed to affect such preferences, rights or powers, (ii) a
division of a share of MuniPreferred will be deemed to affect such preferences,
rights or powers only if the terms of such division adversely affect the holders
of shares of MuniPreferred and (iii) the authorization, creation and issuance of
classes or series of stock ranking junior to shares of MuniPreferred with
respect to the payment of dividends and the distribution of assets upon
liquidation will be deemed to affect such preferences, rights or powers only if
Moody's or S&P is then rating shares of MuniPreferred and such issuance would,
at the time thereof, cause the Fund not to satisfy the 1940 Act MuniPreferred
Asset Coverage or the MuniPreferred Basic Maintenance Amount. So long as any
shares of MuniPreferred are outstanding, the Fund shall not, without the
affirmative vote or consent of the holders of at least 66 2/3% of the shares of
MuniPreferred outstanding at the time, voting as a separate class, file a
voluntary application for relief under Federal bankruptcy law or any similar
application under state law for so long as the Fund is solvent and does not
foresee becoming insolvent.
22
<PAGE> 26
If any action set forth above would adversely affect the rights of one or
more series (the "Affected Series") of MuniPreferred in a manner different from
any other series of MuniPreferred, the Fund will not approve any such action
without the affirmative vote or consent of the Holders of at least a majority of
the shares of each such Affected Series outstanding at the time, in person or by
proxy, either in writing or at a meeting (each such Affected Series voting as a
separate class). The Board may, without shareholder approval, amend, alter or
repeal any or all of the definitions and related provisions which have been
adopted by the Fund pursuant to the rating agency guidelines in the event the
Fund receives written confirmation from Moody's or S&P, or both, as appropriate,
that any such amendment, alteration or repeal would not impair the ratings then
assigned by Moody's and S&P to shares of MuniPreferred. Unless a higher
percentage is provided for in the Declaration of Trust (see "Certain Provisions
in the Declaration of Trust"), (A) the affirmative vote of the holders of at
least a majority of the Preferred Shares, including MuniPreferred, outstanding
at the time, voting as a separate class, shall be required to approve any
conversion of the Fund from a closed-end to an open-end investment company and
(B) the affirmative vote of the holders of a majority of the outstanding
Preferred Shares, including MuniPreferred, voting as a separate class, shall be
required to approve any plan of reorganization (as such term is used in the 1940
Act) adversely affecting such shares. The affirmative vote of the holders of a
majority of the outstanding Preferred Shares, including MuniPreferred, voting as
a separate class, shall be required to approve any action not described in the
preceding sentence requiring a vote of security holders of the Fund under
Section 13(a) of the 1940 Act.
The foregoing voting provisions will not apply with respect to shares of
MuniPreferred if, at or prior to the time when a vote is required, 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.
THE AUCTION
GENERAL
The Statement provides that, except as otherwise described herein, the
Applicable Rate for the shares of each series of MuniPreferred, including the
shares of New MuniPreferred to be issued in this offering, for each Rate Period
of shares of such series after the Initial Rate Period thereof shall be equal to
the rate per annum that the Auction Agent advises has resulted on the Business
Day preceding the first day of such Subsequent Rate Period (an "Auction Date")
from implementation of the auction procedures (the "Auction Procedures") set
forth in the Statement and summarized below, in which persons determine to hold
or offer to sell or, based on dividend rates bid by them, offer to purchase or
sell shares of such series. Each periodic implementation of the Auction
Procedures is referred to herein as an "Auction." See the Statement for a more
complete description of the Auction process.
Auction Agency Agreement. The Fund has entered into an Auction Agency
Agreement (the "Auction Agency Agreement") with the Auction Agent (currently,
Bankers Trust Company) which provides, among other things, that the Auction
Agent will follow the Auction Procedures for purposes of determining the
Applicable Rate for shares of each series of MuniPreferred so long as the
Applicable Rate for shares of such series is to be based on the results of an
Auction.
The Auction Agent may terminate the Auction Agency Agreement upon notice to
the Fund on a date no earlier than 45 days after such notice. If the Auction
Agent should resign, the Fund 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 Agency Agreement. The Fund may remove the Auction
Agent provided that prior to such removal the Fund shall have entered into such
an agreement with a successor Auction Agent.
Broker-Dealer Agreements. Each Auction requires the participation of one or
more Broker-Dealers. The Auction Agent has entered into agreements
(collectively, the "Broker-Dealer Agreements") with several Broker-Dealers
selected by the Fund, which provide for the participation of those
Broker-Dealers in Auctions for shares of MuniPreferred.
The Auction Agent after each Auction for shares of MuniPreferred will pay
to each Broker-Dealer, from funds provided by the Fund, a service charge at the
annual rate of 1/4 of 1% in the case of any Auction
23
<PAGE> 27
immediately preceding a Rate Period of less than one year, or a percentage
agreed to by the Fund and the Broker-Dealers in the case of any Auction
immediately preceding a Rate Period of one year or longer, of the purchase price
of shares of MuniPreferred placed by such Broker-Dealer at such Auction. For the
purposes of the preceding sentence, shares of MuniPreferred will be placed by a
Broker-Dealer if such shares were (a) the subject of Hold Orders deemed to have
been submitted to the Auction Agent by the Broker-Dealer and were acquired by
such Broker-Dealer for its own account or were acquired by such Broker-Dealer
for its customers who are Beneficial Owners or (b) the subject of an Order
submitted by such Broker-Dealer that is (i) a Submitted Bid of an Existing
Holder that resulted in such Existing Holder continuing to hold such shares as a
result of the Auction or (ii) a Submitted Bid of a Potential Holder that
resulted in such Potential Holder purchasing such shares as a result of the
Auction or (iii) a valid Hold Order.
The Fund may request the Auction Agent to terminate one or more
Broker-Dealer Agreements at any time, provided that at least one Broker-Dealer
Agreement is in effect after such termination.
AUCTION PROCEDURES
Prior to the Submission Deadline on each Auction Date for shares of a
series of MuniPreferred, each 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 such series (a "Beneficial Owner") may submit orders ("Orders")
with respect to shares of such series to that Broker-Dealer as follows:
- Hold Order -- indicating its desire to hold shares of such series without
regard to the Applicable Rate for shares of such series for the next Rate
Period thereof.
- Bid -- indicating its desire to sell shares of such series at $25,000 per
share if the Applicable Rate for shares of such series for the next Rate
Period thereof is less than the rate specified in such Bid (also known as
a hold-at-a-rate order).
- Sell Order -- indicating its desire to sell shares of such series at
$25,000 per share without regard to the Applicable Rate for shares of
such series for the next Rate Period thereof.
A Beneficial Owner may submit different types of Orders to its
Broker-Dealer with respect to shares of a series of MuniPreferred then held by
such Beneficial Owner. A Beneficial Owner of shares of such series that submits
a Bid with respect to shares of such series to its Broker-Dealer having a rate
higher than the Maximum Rate for shares of such series on the Auction Date
therefor will be treated as having submitted a Sell Order with respect to such
shares to its Broker-Dealer. A Beneficial Owner of shares of such series that
fails to submit an Order with respect to such shares to its Broker-Dealer will
be deemed to have submitted a Hold Order with respect to such shares of such
series to its Broker-Dealer; provided however, that if a Beneficial Owner of
shares of such series fails to submit an Order with respect to shares of such
series to its Broker-Dealer for an Auction relating to a Rate Period of more
than 28 Rate Period Days, such Beneficial Owner will be deemed to have submitted
a Sell Order with respect to such shares to its Broker-Dealer. A Sell Order
shall constitute an irrevocable offer to sell the shares of MuniPreferred
subject thereto. A Beneficial Owner that offers to become the Beneficial Owner
of additional shares of MuniPreferred is, for purposes of such offer, a
Potential Beneficial Owner as discussed below.
A customer of a Broker-Dealer that is not a Beneficial Owner of shares of a
series of MuniPreferred but that wishes to purchase shares of such series, or
that is a Beneficial Owner of shares of such series that wishes to purchase
additional shares of such series (in each case, a "Potential Beneficial Owner"),
may submit Bids to its Broker-Dealer in which it offers to purchase shares of
such series at $25,000 per share if the Applicable Rate for shares of such
series for the next Rate Period thereof is not less than the rate specified in
such Bid. A Bid placed by a Potential Beneficial Owner of shares of such series
specifying a rate higher than the Maximum Rate for shares of such series on the
Auction Date therefor will not be accepted.
The Broker-Dealers in turn will submit the Orders of their respective
customers who are Beneficial Owners and Potential Beneficial Owners to the
Auction Agent, designating themselves (unless otherwise permitted by the Fund)
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
24
<PAGE> 28
submitted to them by Potential Beneficial Owners. However, neither the Fund nor
the Auction Agent will be responsible for a Broker-Dealer's failure to comply
with the foregoing. Any Order placed with the Auction Agent by a Broker-Dealer
as or on behalf of an Existing Holder or a Potential Holder will be treated in
the same manner as an Order placed with a Broker-Dealer by a Beneficial Owner or
Potential Beneficial Owner. Similarly, any failure by a Broker-Dealer to submit
to the Auction Agent an Order in respect of any shares of MuniPreferred held by
it or 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 shares of MuniPreferred held by it. A Broker-Dealer may also submit Orders to
the Auction Agent for its own account as an Existing Holder or Potential Holder,
provided it is not an affiliate of the Fund.
If Sufficient Clearing Bids for shares of a series of MuniPreferred exist
(that is, the number of shares of such series subject to Bids submitted or
deemed submitted to the Auction Agent by Broker-Dealers as or on behalf of
Potential Holders with rates equal to or lower than the Maximum Rate for shares
of such series is at least equal to the number of shares of such series subject
to Sell Orders submitted or deemed submitted to the Auction Agent by
Broker-Dealers as or on behalf of Existing Holders), the Applicable Rate for
shares of such series for the next succeeding Rate Period thereof will be the
lowest rate specified in the Submitted Bids which, taking into account such rate
and all lower rates bid by Broker-Dealers as or on behalf of Existing Holders
and Potential Holders, would result in Existing Holders and Potential Holders
owning a the shares of such series available for purchase in the Auction. If
Sufficient Clearing Bids for shares of a series of MuniPreferred do not exist,
the Applicable Rate for shares of such series for the next succeeding Rate
Period thereof will be the Maximum Rate for shares of such series on the Auction
Date therefor. In such event, Beneficial Owners of shares of such series that
have submitted or are deemed to have submitted Sell Orders may not be able to
sell in such Auction all shares of such series subject to such Sell Orders. If
Broker-Dealers submit or are deemed to have submitted to the Auction Agent Hold
Orders with respect to all Existing Holders of shares of a series of
MuniPreferred, the Applicable Rate for shares of such series for the next
succeeding Rate Period thereof will be the All Hold Order Rate.
The Auction Procedures include a pro rata allocation of shares for purchase
and sale, which may result in an Existing Holder continuing to hold or selling,
or a Potential Holder purchasing, a number of shares of a series of
MuniPreferred that is fewer than the number of shares of such series specified
in its Order. To the extent the allocation procedures have that result,
Broker-Dealers that have designated themselves as Existing Holders or Potential
Holders in respect of customer Orders will be required to make appropriate pro
rata allocations among their respective customers.
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 to their respective 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 against delivery by their Agent Members in same-day
funds.
The Auctions for shares of MuniPreferred, Series TH and Series F will
normally be held every Thursday and Friday , respectively, and each Subsequent
Rate Period of shares of such series will normally begin on the following Friday
and Monday, respectively.
Whenever the Fund intends to include any net capital gains or other income
taxable for Federal income tax purposes in any dividend on shares of
MuniPreferred, the Fund shall, in the case of Minimum Rate Periods or Special
Rate Periods of 28 Rate Period Days or fewer, and may, in the case of any other
Special Rate Period, notify the Auction Agent of the amount to be so included
not later than the Dividend Payment Date next preceding the Auction Date on
which the Applicable Rate for such dividend is to be established. Whenever the
Auction Agent receives such notice from the Fund, it will be required in turn to
notify each Broker-Dealer, who, on or prior to such Auction Date, in accordance
with its Broker-Dealer Agreement, will be required to notify its customers who
are Beneficial Owners and Potential Beneficial Owners believed by it to be
interested in submitting an Order in the Auction to be held on such Auction
Date.
25
<PAGE> 29
SECONDARY MARKET TRADING AND TRANSFER OF MUNIPREFERRED
The Broker-Dealers are expected to maintain a secondary trading market in
shares of MuniPreferred outside of Auctions, but are not obligated to do so, and
may discontinue such activity at any time. There can be no assurance that such
secondary trading market in shares of MuniPreferred will provide owners with
liquidity of investment. The shares of MuniPreferred are not registered on any
stock exchange or on the Nasdaq Stock Market. Investors who purchase shares in
an Auction for a Special Rate Period should note that because the dividend rate
on such shares will be fixed for the length of such Rate Period, the value of
the shares may fluctuate in response to changes in interest rates, and may be
more or less than their original cost if sold on the open market in advance of
the next Auction therefor, depending upon market conditions.
A Beneficial Owner or an Existing Holder may sell, transfer or otherwise
dispose of shares of MuniPreferred only in whole shares and only (1) pursuant to
a Bid or Sell Order placed with the Auction Agent in accordance with the Auction
Procedures, (2) to a Broker-Dealer or (3) to such other persons as may be
permitted by the Fund; provided, however, that (a) a sale, transfer or other
disposition of shares of MuniPreferred from a customer of a Broker-Dealer who is
listed on the records of that Broker-Dealer as the holder of such shares to that
Broker-Dealer or another customer of that Broker-Dealer shall not be deemed to
be a sale, transfer or other disposition for purposes of the foregoing if such
Broker-Dealer remains the Existing Holder of the shares so sold, transferred or
disposed of immediately after such sale, transfer or disposition and (b) in the
case of all transfers other than pursuant to Auctions, the Broker-Dealer (or
other person, if permitted by the Fund) to whom such transfer is made shall
advise the Auction Agent of such transfer.
DESCRIPTION OF COMMON SHARES
In addition to the shares of MuniPreferred, the Declaration authorizes the
issuance of an unlimited number of Common Shares, par value $.01 per share. All
Common Shares have equal rights to the payment of dividends and the distribution
of assets upon liquidation. Common Shares are fully paid and, subject to matters
discussed in "Certain Provisions in the Declaration of Trust," non-assessable
when issued and have no preemptive, conversion rights or rights to cumulative
voting. So long as any shares of MuniPreferred are outstanding, the Fund is not
permitted to declare dividends on, make any distributions with respect to, or
purchase its Common Shares unless, at the time of such declaration, distribution
or purchase, as applicable (and after giving effect thereto), all accumulated
dividends on Preferred Shares have been paid.
CERTAIN PROVISIONS IN THE DECLARATION OF TRUST
Under Massachusetts law, shareholders could, under certain circumstances,
be held personally liable for the obligations of the Fund. However, the
Declaration contains an express disclaimer of shareholder liability for debts or
obligations of the Fund and requires that notice of such limited liability be
given in each agreement, obligation or instrument entered into or executed by
the Fund or the trustees. The Declaration further provides for indemnification
out of the assets and property of the Fund for all loss and expense of any
shareholder held personally liable of the obligations of the Fund. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Fund would be unable to meet
its obligations. The Fund believes that the likelihood of such circumstances is
very remote.
The Declaration includes provisions that could limit the ability of other
entities or persons to acquire control of the Fund or to convert the Fund to
open-end status. Specifically, the Declaration requires a vote by holders of at
least two-thirds of the Common Shares and MuniPreferred shares, voting together
as a single class, except as described below, to authorize (1) a conversion of
the Fund from a closed-end to an open-end investment company, (2) a merger or
consolidation of the Fund, or a series or class of the Fund, with any
corporation, association, trust or other organization or a reorganization or
recapitalization of the Fund, or a series or class of the Fund, (3) a sale,
lease or transfer of all or substantially all of the Fund's assets (other than
in the regular course of the Fund's investment activities), (4) in certain
circumstances, a termination of Fund, or a series or class of the Fund, or (5)
removal of trustees, and then only for cause, unless, with respect to (1)
through (4), such transaction has already been authorized by the affirmative
vote of two-thirds of the
26
<PAGE> 30
total number of trustees fixed in accordance with the Declaration or the
By-laws, in which case the affirmative vote of the holders of at least a
majority of the Fund's Common Shares and MuniPreferred shares outstanding at the
time, voting together as a single class, is required, provided, however, that
where only a particular class or series is affected (or, in the case of removing
a trustee, when the trustee has been elected by only one class), only the
required vote by the applicable class or series will be required. None of the
foregoing provisions may be amended except by the vote of at least two-thirds of
the Common Shares and MuniPreferred shares, voting together as a single class.
In the case of the conversion of the Fund to an open-end investment company, or
in the case of any of the foregoing transactions constituting a plan of
reorganization which adversely affects the holders of MuniPreferred shares, the
action in question will also require the affirmative vote of the holders of at
least two-thirds of the Fund's MuniPreferred shares outstanding at the time,
voting as a separate class, or, if such action has been authorized by the
affirmative vote of two-thirds of the total number of trustees fixed in
accordance with the Declaration or the By-laws, the affirmative vote of the
holders of at least a majority of the Fund's MuniPreferred shares outstanding at
the time, voting as a separate class. The votes required to approve the
conversion of the Fund from a closed-end to an open-end investment company or to
approve transactions constituting a plan of reorganization which adversely
affects the holders of MuniPreferred shares are higher than those required by
the 1940 Act. The Board of Trustees believes that the provisions of the
Declaration relating to such higher votes are in the best interest of the Fund
and its shareholders. See the Statement of Additional Information under "Certain
Provisions in the Declaration of Trust."
Reference should be made to the Declaration on file with the Securities and
Exchange Commission for the full text of these provisions.
REPURCHASE OF COMMON SHARES; CONVERSION TO OPEN-END FUND
The Fund is a closed-end investment company and as such its shareholders
will not have the right to cause the Fund to redeem their shares. Instead, the
Fund's Common Shares will trade in the open market at a price that will be a
function of several factors, including dividend levels (which are in turn
affected by expenses), net asset value, call protection, price, dividend
stability, relative demand for and supply of such shares in the market, general
market and economic conditions and other factors. Because shares of closed-end
investment companies may frequently trade at prices lower than net asset value,
the Fund's Board of Trustees has currently determined that, at least annually,
it will consider action that might be taken to reduce or eliminate any material
discount from net asset value in respect of Common Shares, which may include the
repurchase of such shares in the open market or in private transactions, the
making of a tender offer for such shares at net asset value, or the conversion
of the Fund to an open-end investment company. The Fund cannot assure you that
its Board of Trustees will decide to take any of these actions, or that share
repurchases or tender offers will actually reduce market discount.
If the Fund converted to an open-end company, it would be required to
redeem all MuniPreferred shares then outstanding (requiring in turn that it
liquidate a portion of its investment portfolio), and the Fund's Common Shares
would no longer be listed on the New York Stock Exchange. In contrast to a
closed-end investment company, shareholders of an open-end investment company
may require the company to redeem their shares at any time (except in certain
circumstances as authorized by or under the 1940 Act) at their net asset value,
less any redemption charge that is in effect at the time of redemption. See the
Statement of Additional Information under "Certain Provisions in the Declaration
of Trust" for a discussion of the voting requirements applicable to the
conversion of the Fund to an open-end company.
Before deciding whether to take any action if the Common Shares trade below
net asset value, the Board would consider all relevant factors, including the
extent and duration of the discount, the liquidity of the Fund's portfolio, the
impact of any action that might be taken on the Fund or its shareholders, and
market considerations. Based on these considerations, even if the Fund's shares
should trade at a discount, the Board of Trustees may determine that, in the
interest of the Fund and its shareholders, no action should be taken. See the
Statement of Additional Information under "Repurchase of Fund Shares; Conversion
to Open-End Fund" for a further discussion of possible action to reduce or
eliminate such discount to net asset value.
27
<PAGE> 31
TAX MATTERS
FEDERAL INCOME TAX MATTERS
The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), and
intends to distribute substantially all of its net income and gains to its
shareholders. Therefore, it is not expected that the Fund will be subject to any
Federal income tax. Substantially all of the Fund's dividends to the Common
Shareholders and MuniPreferred shareholders will qualify as "exempt-interest
dividends." A shareholder treats an exempt-interest dividend as interest on
state and local bonds exempt from regular Federal income tax. Some or all of an
exempt-interest dividend, however, may be subject to Federal alternative minimum
tax imposed on the shareholder. Different Federal alternative tax rules apply to
individuals and to corporations. In addition to exempt-interest dividends, the
Fund also may distribute to its shareholders amounts that are treated as
long-term capital gain or ordinary income. The Fund will allocate distributions
to shareholders that are treated as tax-exempt interest and as long-term capital
gain and ordinary income, if any, proportionately among the Common Shares and
MuniPreferred shares. The Fund intends to notify MuniPreferred shareholders in
advance if it will allocate to them income that is not exempt from regular
Federal income tax. In certain circumstances the Fund will make payments to
MuniPreferred shareholders to offset the tax effects of the taxable
distribution. See "Description of MuniPreferred -- Dividends and Dividend
Periods -- Gross-Up Payments." The sale or other disposition of Common Shares or
shares of MuniPreferred of the Fund will normally result in capital gain or loss
to shareholders. Present law taxes both long-term and short-term capital gains
of corporations at the rates applicable to ordinary income. For non-corporate
taxpayers, under current law short-term capital gains and ordinary income will
be taxed at a maximum rate of 39.6% while long-term capital gains will generally
be taxed at a maximum rate of 20%. Because of certain limitations on itemized
deductions and the deduction for personal exemptions applicable to higher income
taxpayers, the effective rate of tax may be higher in certain circumstances.
Losses realized by a shareholder on the sale or exchange of shares of the Fund
held for six months or less are disallowed to the extent of any distribution of
exempt-interest dividends received with respect to such shares, and, if not
disallowed, such losses are treated as long-term capital losses to the extent of
any distribution of long-term capital gain received with respect to such shares.
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 shares of the
Fund will be disallowed to the extent those shares of the Fund are replaced by
other shares within a period of 61 days beginning 30 days before and ending 30
days after the date of disposition of the original shares. In that event, the
basis of the replacement shares of the Fund will be adjusted to reflect the
disallowed loss. The Statement of Additional Information contains a more
detailed summary of the Federal tax rules that apply to the Fund and its
shareholders. Legislative, judicial or administrative action may change the tax
rules that apply to the Fund or its shareholders and any such change may be
retroactive. You should consult with your tax adviser about Federal income tax
matters.
CALIFORNIA TAX MATTERS
The Fund's regular monthly dividends will not be subject to California
personal income taxes to the extent they are paid out of income earned on
obligations that, when held by individuals, pay interest that is exempt from
taxation by California under California law (e.g., obligations of California and
its political subdivisions) or federal laws, so long as at the close of each
quarter of the Fund's taxable year at least 50 percent of the value of the
Fund's total assets consist of such obligations. The portion of the Fund's
monthly dividends that is attributable to income other than as described in the
preceding sentence will be subject to the California income taxes. The Fund
expects to earn no or only a minimal amount of such non-exempt income. If you
are otherwise subject to California personal income tax, you will be subject to
such taxes to the extent the Fund distributes any taxable income or realized
capital gains, or if you sell or exchange MuniPreferred shares and realize a
capital gain on the transaction.
Please refer to the Statement of Additional Information for more detailed
information. You are urged to consult your tax adviser.
28
<PAGE> 32
CUSTODIAN, TRANSFER AGENT, DIVIDEND
DISBURSING AGENT AND REDEMPTION AGENT
The custodian of the assets of the Fund is The Chase Manhattan Bank, 4 New
York Plaza, New York, NY 10004-2413. The Custodian performs custodial, fund
accounting and portfolio accounting services. The Fund's transfer, shareholder
services and dividend paying agent is Chase Global Funds Services Company, P.O.
Box 5186, Bowling Green Station, New York, NY 10275-0672 (regular mail) or 4 New
York Plaza, 6th Floor, New York, NY 10004 (for overnight courier). Bankers Trust
Company, 4 Albany Street, New York, New York 10006, a banking corporation
organized under the laws of New York, is the Auction Agent with respect to
shares of MuniPreferred and acts as transfer agent, registrar, dividend
disbursing agent, and redemption agent with respect to such shares.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement dated the
date hereof, each underwriter named below has severally agreed to purchase, and
the Fund has agreed to sell to such underwriter, the number of MuniPreferred
shares set forth opposite the name of such underwriter.
<TABLE>
<CAPTION>
NUMBER OF SHARES
-------------------
NAME SERIES TH SERIES F
---- --------- --------
<S> <C> <C>
Salomon Smith Barney Inc. ..............................
A.G. Edwards & Sons, Inc. ..............................
Deutsche Bank Securities Inc. ..........................
Goldman, Sachs & Co. ...................................
John Nuveen & Co. Incorporated..........................
PaineWebber Incorporated................................
Prudential Securities Incorporated......................
Total.........................................
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters to purchase the shares included in this offering are subject to the
approval of certain legal matters by counsel and to certain other conditions.
The underwriters are obligated to purchase all the MuniPreferred shares if they
purchase any of the shares.
The underwriters, for whom Salomon Smith Barney Inc. is acting as
representative, propose to offer some of the shares directly to the public at
the public offering price set forth on the cover page of this Prospectus and
some of the shares to certain dealers at the public offering price less a
concession not in excess of $
per share. The sales load the Fund will pay of $ per share is equal to
% of the initial offering price. The underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per share on sales to
certain other dealers. After the initial public offering, the underwriters may
change the public offering price and the concession. Investors must pay for any
MuniPreferred shares purchased in the initial public offering on or before
, 1999.
The Fund anticipates that the underwriters may from time to time act as
brokers or dealers in executing the Fund's portfolio transactions after they
have ceased to be underwriters. The underwriters are active underwriters of, and
dealers in, securities and act as market makes in a number of such securities,
and therefore can be expected to engage in portfolio transactions with the Fund,
John Nuveen & Co. Incorporated may engage in these transactions only in
compliance with the 1940 Act.
The Fund anticipates that the underwriters or one of their respective
affiliates may, from time to time, act in auctions as Broker-Dealers as set
forth under "The Auction."
John Nuveen & Co. Incorporated, one of the underwriters, is the parent
company of Nuveen Advisory.
The Fund and Nuveen Advisory have agreed to indemnify the underwriters
against certain liabilities, including liabilities arising under the 1933 Act,
or to contribute payments to the underwriters may be required to make for any of
those liabilities.
29
<PAGE> 33
LEGAL OPINIONS
Certain legal matters in connection with the shares of MuniPreferred
offered hereby will be passed upon for the Fund by Vedder, Price, Kaufman &
Kammholz, Chicago, Illinois, and for the Underwriters by Skadden, Arps, Slate,
Meagher & Flom LLP, Boston, Massachusetts. Vedder, Price, Kaufman & Kammholz
will rely as to certain matters of Massachusetts law on the opinion of Bingham
Dana, LLP, Boston, Massachusetts and as to certain matters of California law on
the opinion of Orrick, Herrington & Sutcliffe LLP, San Francisco, California.
AVAILABLE INFORMATION
The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934, the 1940 Act and are required to file reports, proxy
statements and other information with the SEC. These documents can be inspected
and copied for a fee at the SEC's public reference room, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's New York Regional Office, Seven World
Trade Center, New York, New York 10048 and Chicago Regional Office, Suite 1400,
Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois
60661-2511. Reports, proxy statements, and other information about the Funds can
be inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
This Prospectus does not contain all of the information in the Fund's
registration statement, including amendments, exhibits, and schedules.
Statements in this Prospectus about the contents of any contract or other
document are not necessarily complete and in each instance reference is made to
the copy of the contract or other document filed as an exhibit to the
registration statement, each such statement being qualified in all respects by
this reference.
Additional information about the Fund and MuniPreferred shares can be found
in the Fund's Registration Statement (including amendments, exhibits, and
schedules) on Form N-2 filed with the SEC. The SEC maintains a web site
(http://www.sec.gov) that contains each Fund's Registration Statement, other
documents incorporated by reference, and other information the Fund has filed
electronically with the Commission, including proxy statements and reports filed
under the Securities Exchange Act of 1934. Additional information may be found
on the Internet at http://www.nuveen.com.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Certain statements in this Prospectus constitute forward-looking
statements, which involve known and unknown risks, uncertainties and other
factors that may cause the actual results, levels of activity, performance or
achievements of the Fund to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, those listed
under "Risk Factors" and elsewhere in this Prospectus. As a result of the
foregoing and other factors, no assurance can be given as to the future results,
levels of activity or achievements, and neither the Fund nor any other person
assumes responsibility for the accuracy and completeness of such statements.
30
<PAGE> 34
TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies........................... S-1
Investment Policies and Techniques.......................... S-3
Other Investment Policies and Techniques.................... S-16
Management of the Fund...................................... S-18
Portfolio Transactions...................................... S-22
Net Asset Value............................................. S-23
Additional Information Concerning the Auctions for
MuniPreferred............................................. S-23
Certain Provisions in the Declaration of Trust.............. S-25
Repurchase of Common Shares; Conversion to Open-End Fund.... S-26
Tax Matters................................................. S-27
Certain Owners of Record.................................... S-31
Experts..................................................... S-32
Report of Independent Auditors.............................. F-1
Financial Statements........................................ F-2
Statement Establishing and Fixing the Rights and Preferences
of Municipal Auction Rate Cumulative Preferred Shares..... A-1
Ratings of Investments...................................... B-1
Hedging Strategies and Risks................................ C-1
</TABLE>
31
<PAGE> 35
APPENDIX A
TAXABLE EQUIVALENT YIELD TABLE
The taxable equivalent yield is the current yield you would need to earn on
a taxable investment in order to equal a stated tax-free yield on a municipal
investment. To assist you to more easily compare municipal investments like the
Fund with taxable alternative investments, the table below presents the taxable
equivalent yields for a range of hypothetical tax-free yields and tax rates:
TAXABLE EQUIVALENT OF TAX-FREE YIELDS
TAX FREE YIELD
<TABLE>
<CAPTION>
TAX RATE 4.00% 4.50% 5.00% 5.50% 6.00%
-------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
28.0%.......................................... 5.56% 6.25% 6.94% 7.64% 8.33%
31.0%.......................................... 5.80% 6.52% 7.25% 7.97% 8.70%
36.0%.......................................... 6.25% 7.03% 7.81% 8.59% 9.38%
39.6%.......................................... 6.62% 7.45% 8.28% 9.11% 9.93%
</TABLE>
CALIFORNIA
<TABLE>
<CAPTION>
FEDERAL STATE COMBINED
FEDERAL SINGLE TAX TAX TAX
RETURN BRACKET* FEDERAL JOINT RETURN BRACKET* RATE RATE** RATE**
- --------------- -------------------------------------- ------- ------ --------
<S> <C> <C> <C> <C>
$0-25,750 $0-43,050............................. 15.00% 6.00% 20.10%
25,751-62,450 43,051-104,050........................ 28.00% 9.30% 34.70%
62,450-130,250 104,051-158,550....................... 31.00% 9.30% 37.42%
130,251-283,150 158,551-283,150....................... 36.00% 9.30% 41.95%
Over 283,151 Over 283,151.......................... 39.60% 9.30% 45.22%
</TABLE>
- ------------
* The federal tax brackets shown are for 1999.
** The State Tax Rates used to determine the rates shown in the State Tax Rate
and Combined Tax Rate columns are those for 1998. The 1999 State Tax Rates
will be adjusted to take into account changes in the California Consumer
Price Index. These adjustments have not yet been released. Please note that
the table does not reflect (i) any federal or state limitations on the
amounts of allowable itemized deductions, phase-outs of personal or dependent
exemption credits or other allowable credits, (ii) any local taxes imposed,
or (iii) any taxes other than personal income taxes at 1999 rates and
brackets. The table assumes that federal taxable income is equal to state
income subject to tax, and in cases where more than one state rate falls
within a federal bracket, the highest state rate corresponding to the highest
income within that federal bracket is used. Persons whose taxable income is
less than the maximum amount shown in the applicable line of the applicable
Federal Bracket column may be taxable on incremental income at state and
combined tax rates that are lower than the rates shown in the State Tax Rate
and Combined Tax Rate column.
A-1
<PAGE> 36
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE FUND OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary................... 1
Financial Highlights................. 4
The Fund............................. 5
Use of Proceeds...................... 5
Capitalization....................... 6
Portfolio Composition................ 6
The Fund's Investments............... 7
Risk Factors......................... 11
Management of the Fund............... 13
Description of MuniPreferred......... 15
The Auction.......................... 23
Description of Common Shares......... 26
Certain Provisions in the Declaration
of Trust........................... 26
Repurchase of Common Shares;
Conversion to Open-End Fund........ 27
Tax Matters.......................... 28
Custodian, Transfer Agent, Dividend
Disbursing Agent and Redemption
Agent.............................. 29
Underwriting......................... 29
Legal Opinions....................... 30
Available Information................ 30
Special Note Regarding Forward
Looking Statements................. 30
Table of Contents for the Statement
of Additional Information.......... 31
Taxable Equivalent Yield Table....... A-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$175,000,000
NUVEEN
CALIFORNIA DIVIDEND
ADVANTAGE MUNICIPAL
FUND
MUNICIPAL AUCTION
RATE CUMULATIVE
PREFERRED SHARES
MUNIPREFERRED(R)
3,500 SHARES SERIES TH
3,500 SHARES SERIES F
------------
PROSPECTUS
------------
SALOMON SMITH BARNEY
A.G. EDWARDS & SONS, INC.
DEUTSCHE BANC ALEX. BROWN
GOLDMAN, SACHS & CO.
JOHN NUVEEN & CO. INCORPORATED
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES
, 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 37
The information in this Statement of Additional Information is not complete and
may be changed. We may not sell these securities until the Registration
Statement filed with the Securities and Exchange Commission is effective. This
Statement of Additional Information is not an offer to sell these securities and
is not soliciting an offer to buy these securities in any state where the offer
or sale is not permitted.
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION DATED JULY 12, 1999
NUVEEN CALIFORNIA DIVIDEND ADVANTAGE
MUNICIPAL FUND
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relating to this offering does
not constitute a prospectus, but should be read in conjunction with the
Prospectus relating thereto dated , 1999 (the "Prospectus"). This Statement of
Additional Information does not include all information that a prospective
investor should consider before purchasing shares of MuniPreferred in this
offering, and investors should obtain and read the Prospectus prior to
purchasing such shares. A copy of the Prospectus may be obtained without charge
by calling (800) 257-8787. Capitalized terms used but not defined in this
Statement of Additional Information have the meanings ascribed to them in the
Prospectus.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
Investment Objective and Policies...............................................................................S-1
Investment Policies and Techniques..............................................................................S-3
Other Investment Policies and Techniques.......................................................................S-16
Management of the Fund.........................................................................................S-18
Portfolio Transactions.........................................................................................S-22
Net Asset Value................................................................................................S-23
Additional Information Concerning the Auctions for MuniPreferred...............................................S-23
Certain Provisions in the Declaration of Trust.................................................................S-25
Repurchase of Common Shares; Conversion to Open-End Fund.......................................................S-26
Tax Matters....................................................................................................S-27
Certain Owners of Record.......................................................................................S-31
Experts ......................................................................................................S-32
Report of Independent Auditors..................................................................................F-1
Financial Statements............................................................................................F-2
Statement Establishing and Fixing the Rights and Preferences of Municipal Auction Rate
Cumulative Preferred Shares............................................................................A-1
Ratings of Investments..........................................................................................B-1
Hedging Strategies and Risks....................................................................................C-1
</TABLE>
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS , 1999.
<PAGE> 38
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide current income exempt
from regular Federal and California income tax and enhance portfolio value
relative to the municipal bond market by investing in tax-exempt municipal bonds
that Nuveen Advisory Corp. ("Nuveen Advisory") believes are underrated or
undervalued or that represent municipal market sectors that are undervalued.
Underrated municipal bonds are those whose ratings do not, in Nuveen Advisory's
opinion, reflect their true creditworthiness. Municipal bonds may be underrated
because of the time that has elapsed since their rating was assigned or
reviewed, or because of positive factors that may not have been fully taken into
account by rating agencies, or for other similar reasons. Undervalued municipal
bonds are bonds that, in Nuveen Advisory's opinion, are worth more than the
value assigned to them in the marketplace. Nuveen Advisory may at times believe
that bonds associated with a particular municipal market sector (for example,
electric utilities), or issued by a particular municipal issuer, are
undervalued. Nuveen Advisory may purchase such a bond for the Fund's portfolio
because it represents a market sector or issuer that Nuveen Advisory considers
undervalued, even if the value of the particular bond appears to be consistent
with the value of similar bonds. Municipal bonds of particular types or purposes
(e.g., hospital bonds, industrial revenue bonds or bonds issued by a particular
municipal issuer) may be undervalued because there is a temporary excess of
supply in that market sector, or because of a general decline in the market
price of municipal bonds of the market sector for reasons that do not apply to
the particular municipal bonds that are considered undervalued.
The Fund's investment in underrated or undervalued municipal bonds will
be based on Nuveen Advisory's belief that their yield is higher than that
available on bonds bearing equivalent levels of interest rate risk, credit risk
and other forms of risk, and that their prices will ultimately reflect their
true creditworthiness. The Fund attempts to increase its portfolio value
relative to the municipal bond market by prudent selection of municipal bonds,
regardless of which direction the market may move. Any capital appreciation
realized by the Fund will generally result in the distribution of taxable
capital gains to Common Shareholders and MuniPreferred shareholders. The Fund's
investment objectives are fundamental policies of the Fund.
The Fund has not established any limit on the percentage of its
portfolio that may be invested in municipal bonds subject to the alternative
minimum tax provisions of Federal tax law, and the Fund expects that a
substantial portion of the income it produces will be includable in alternative
minimum taxable income. MuniPreferred shares therefore would not ordinarily be a
suitable investment for investors who are subject to the Federal alternative
minimum tax or who would become subject to such tax by purchasing MuniPreferred
shares. The suitability of an investment in MuniPreferred shares will depend
upon a comparison of the after-tax yield likely to be provided from the Fund
with that from comparable tax-exempt investments not subject to the alternative
minimum tax, and from comparable fully taxable investments, in light of each
such investor's tax position. Special considerations apply to corporate
investors. See "Tax Matters."
INVESTMENT RESTRICTIONS
Except as described below, the Fund, as a fundamental policy, may not,
without the approval of the holders of a majority of the outstanding Common
Shares and MuniPreferred Shares voting together as a single class, and of the
holders of a majority of the outstanding MuniPreferred shares voting as a
separate class:
1. Issue senior securities, as defined in the Investment
Company Act of 1940, other than MuniPreferred shares, except to the
extent permitted under the Investment Company Act of 1940 and except
as otherwise described in the Prospectus;
2. Borrow money, except from banks for temporary or emergency
purposes or for repurchase of its shares, and then only in an amount
not exceeding one-third of the value of the Fund's total assets
(including the amount borrowed) less the Fund's liabilities (other than
borrowings);
3. Act as underwriter of another issuer's securities, except
to the extent that the Fund may be deemed to be an underwriter within
the meaning of the Securities Act of 1933 in connection with the
purchase and sale of portfolio securities;
S-1
<PAGE> 39
4. Invest more than 25% of its total assets in securities of
issuers in any one industry; provided, however, that such limitation
shall not apply to municipal bonds other than those municipal bonds
backed only by the assets and revenues of non-governmental users;
5. Purchase or sell real estate, but this shall not prevent
the Fund from investing in municipal bonds secured real estate or
interests therein or foreclosing upon and selling such security;
6. Purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments (but this shall
not prevent the Fund from purchasing or selling options, futures
contracts, derivative instruments or from investing in securities or
other instruments backed by physical commodities);
7. Make loans, other than by entering into repurchase
agreements and through the purchase of municipal bonds or short-term
investments in accordance with its investment objectives, policies and
limitations;
8. Invest more than 5% of its total assets in securities of
any one issuer, except that this limitation shall not apply to bonds
issued by the United States Government, its agencies and
instrumentalities or to the investment of 25% of its total assets.
For purposes of the foregoing, "majority of the outstanding," when used
with respect to particular shares of the Fund, means (i) 67% of more of the
shares present at a meeting, if the holders of more than 50% of the shares are
present or represented by proxy, or (ii) more than 50% of the shares, whichever
is less.
For the purpose of applying the limitation set forth in subparagraph
(8) above, an issuer shall be deemed the sole issuer of a security when its
assets and revenues are separate from other governmental entities and its
securities are backed only by its assets and revenues. Similarly, in the case of
a non-governmental issuer, such as an industrial corporation or a privately
owned or operated hospital, if the security is backed only by the assets and
revenues of the non-governmental issuer, then such non-governmental issuer would
be deemed to be the sole issuer. Where a security is also backed by the
enforceable obligation of a superior or unrelated governmental or other entity
(other than a bond insurer), it shall also be included in the computation of
securities owned that are issued by such governmental or other entity. Where a
security is guaranteed by a governmental entity or some other facility, such as
a bank guarantee or letter of credit, such a guarantee or letter of credit would
be considered a separate security and would be treated as an issue of such
government, other entity or bank. When a municipal bond is insured by bond
insurance, it shall not be considered a security that is issued or guaranteed by
the insurer; instead, the issuer of such municipal bond will be determined in
accordance with the principles set forth above. The foregoing restrictions do
not limit the percentage of the Fund's assets that may be invested in municipal
bonds insured by any given insurer.
Under the Investment Company Act of 1940, the Fund may invest only up
to 10% of its total assets in the aggregate in shares of other investment
companies and only up to 5% of its total assets in any one investment company,
provided the investment does not represent more than 3% of the voting stock of
the acquired investment company at the time such shares are purchased. As a
shareholder in any investment company, the Fund will bear its ratable share of
that investment company's expenses, and would remain subject to payment of the
Fund's management, advisory and administrative fees with respect to assets so
invested. Common Shareholders would therefore be subject to duplicative expenses
to the extent the Fund invests in other investment companies. In addition, the
securities of other investment companies may also be leveraged and will
therefore be subject to the same leverage risks described herein.
In addition to the foregoing fundamental investment policies, the Fund
is also subject to the following non-fundamental restrictions and policies,
which may be changed by the Board of Trustees. The Fund may not:
1. Sell securities short, unless the Fund owns or has the
right to obtain securities equivalent in kind and amount to the
securities sold at no added cost, and provided that transactions in
options, futures contracts, options on futures contracts, or other
derivative instruments are not deemed to constitute selling securities
short.
2. Purchase securities of open-end or closed-end investment
companies except in compliance with the Investment Company Act of 1940
or any exemptive relief obtained thereunder.
S-2
<PAGE> 40
3. Enter into futures contracts or related options or forward
contracts, if more than 30% of the Fund's net assets would be
represented by futures contracts or more than 5% of the Fund's net
assets would be committed to initial margin deposits and premiums on
futures contracts and related options.
4. Purchase securities when borrowings exceed 5% of its total
assets if and so long as MuniPreferred Shares are outstanding.
5. Purchase securities and companies for the purpose of
exercising control.
6. Invest in inverse floating rate securities (which are
securities that pay interest at rates that vary inversely with changes
in prevailing short-term tax-exempt interest rates and which represent
a leveraged investment in an underlying municipal bond).
The restrictions and other limitations set forth above will apply only
at the time of purchase of securities and will not be considered violated unless
an excess or deficiency occurs or exists immediately after and as a result of an
acquisition of securities.
The Fund has no intention to file a voluntary application for relief
under Federal bankruptcy law or any similar application under state law for so
long as the Fund is solvent and does not foresee becoming insolvent.
INVESTMENT POLICIES AND TECHNIQUES
The following information supplements the discussion of the Fund's
investment objectives, policies, and techniques that are described in the
Prospectus.
INVESTMENT IN MUNICIPAL BONDS
PORTFOLIO INVESTMENTS
The Fund will invest its net assets in a diversified portfolio of
municipal bonds that are exempt from regular Federal and California income tax.
Under normal market conditions, and except for the temporary investments
described below, the Fund expects to be fully invested (at least 95% of its
assets) in such tax-exempt municipal bonds. The Fund will invest at least 80% of
its net assets in investment grade quality municipal bonds rated as such at the
time of investment. Investment grade quality means that such bonds are rated
within the four highest grades (Baa or BBB or better) by Moody's, S&P or Fitch
or are unrated but judged to be of comparable quality by Nuveen Advisory. The
Fund may invest up to 20% of its net assets in municipal bonds that are, at the
time of investment, rated Ba/BB or B by Moody's, S&P or Fitch or that are
unrated but judged to be of comparable quality by Nuveen Advisory. Bonds of
below investment grade quality (Ba/BB or below) are commonly referred to as
"junk bonds." Issuers of bonds rated Ba/BB or B are regarded as having current
capacity to make principal and interest payments but are subject to business,
financial or economic conditions which could adversely affect such payment
capacity. The foregoing policies are fundamental policies of the Fund. Municipal
bonds rated Baa or BBB are considered "investment grade" securities; municipal
bonds rated Baa are considered medium grade obligations which lack outstanding
investment characteristics and have speculative characteristics, while municipal
bonds rated BBB are regarded as having adequate capacity to pay principal and
interest. Municipal bonds rated AAA in which the Fund may invest may have been
so rated on the basis of the existence of insurance guaranteeing the timely
payment, when due, of all principal and interest. Municipal bonds rated below
investment grade quality are obligations of issuers that are considered
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal according to the terms of the obligation and, therefore,
carry greater investment risk, including the possibility of issuer default and
bankruptcy and increased market price volatility. Municipal bonds rated below
investment grade tend to be less marketable than higher-quality bonds because
the market for them is less broad. The market for unrated municipal bonds is
even narrower. During periods of thin trading in these markets, the spread
between bid and asked prices is likely to increase significantly and the Fund
may have greater difficulty selling its portfolio securities. The Fund will be
more dependent on Nuveen Advisory's research and analysis when investing in
these securities.
S-3
<PAGE> 41
A general description of Moody's, S&P's and Fitch's ratings of
municipal bonds is set forth in Appendix B hereto. The ratings of Moody's, S&P
and Fitch represent their opinions as to the quality of the municipal bonds they
rate. It should be emphasized, however, that ratings are general and are not
absolute standards of quality. Consequently, municipal bonds 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.
The Fund will primarily invest in municipal bonds with long-term
maturities in order to maintain a weighted average maturity of 15-30 years, but
the average weighted maturity may be shortened from time to time depending on
market conditions. As a result, the Fund's portfolio at any given time may
include both long-term and intermediate-term municipal bonds. Moreover, during
temporary defensive periods (e.g., times when, in Nuveen Advisory's opinion,
temporary imbalances of supply and demand or other temporary dislocations in the
tax-exempt bond market adversely affect the price at which long-term or
intermediate-term municipal bonds are available), and in order to keep cash on
hand fully invested, including the period during which the net proceeds of the
offering are being invested, the Fund may invest any percentage of its assets in
short-term investments including high quality, short-term securities which may
be either tax-exempt or taxable and securities of other open or closed-end
investment companies that invest primarily in municipal bonds of the type in
which the Fund may invest directly. The Fund intends to invest in taxable
short-term investments only in the event that suitable tax-exempt temporary
investments are not available at reasonable prices and yields. Tax-exempt
temporary investments include various obligations issued by state and local
governmental issuers, such as tax-exempt notes (bond anticipation notes, tax
anticipation notes and revenue anticipation notes or other such municipal bonds
maturing in three years or less from the date of issuance) and municipal
commercial paper. The Fund will invest only in taxable temporary investments
which are U.S. Government securities or securities rated within the highest
grade by Moody's, S&P or Fitch, and which mature within one year from the date
of purchase or carry a variable or floating rate of interest. See Appendix A for
a general description of Moody's, S&P's and Fitch's ratings of securities in
such categories. Taxable temporary investments of the Fund may include
certificates of deposit issued by U.S. banks with assets of at least $1 billion,
or commercial paper or corporate notes, bonds or debentures with a remaining
maturity of one year or less, or repurchase agreements. See "Other Investment
Policies and Techniques--Repurchase Agreements." To the extent the Fund invests
in taxable investments, the Fund will not at such times be in a position to
achieve its investment objective of tax-exempt income.
The foregoing policies as to ratings of portfolio investments will
apply only at the time of the purchase of a security, and the Fund will not be
required to dispose of securities in the event Moody's, S&P or Fitch downgrades
its assessment of the credit characteristics of a particular issuer.
Nuveen Advisory seeks to enhance portfolio value relative to the
municipal bond market by investing in tax-exempt municipal bonds that it
believes are underrated or undervalued or that represent municipal market
sectors that are undervalued. Underrated municipal bonds are those whose ratings
do not, in Nuveen Advisory's opinion, reflect their true creditworthiness.
Undervalued municipal bonds are bonds that, in Nuveen Advisory's opinion, are
worth more than the value assigned to them in the marketplace. Nuveen Advisory
may at times believe that bonds associated with a particular municipal market
sector (for example, electric utilities), or issued by a particular municipal
issuer, are undervalued. Nuveen Advisory may purchase such a bond for the Fund's
portfolio because it represents a market sector or issuer that Nuveen Advisory
considers undervalued, even if the value of the particular bond is consistent
with the value of similar bonds. Municipal bonds of particular types or purposes
(e.g., hospital bonds, industrial revenue bonds or bonds issued by a particular
municipal issuer) may be undervalued because there is a temporary excess of
supply in that market sector, or because of a general decline in the market
price of municipal bonds of the market sector for reasons that do not apply to
the particular municipal bonds that are considered undervalued. The Fund's
investment in underrated or undervalued municipal bonds will be based on Nuveen
Advisory's belief that their yield is higher than that available on bonds
bearing equivalent levels of interest rate risk, credit risk and other forms of
risk, and that their prices will ultimately reflect their true value.
The Fund has not established any limit on the percentage of its
portfolio investments that may be invested in municipal bonds subject to the
Federal alternative minimum tax provisions of Federal tax law. The Fund expects
that a substantial portion of the current income it produces will be included in
alternative minimum taxable income. Special considerations apply to corporate
investors. See "Tax Matters."
S-4
<PAGE> 42
Also included within the general category of municipal bonds described
in the Prospectus are participations in lease obligations or installment
purchase contract obligations (hereinafter collectively called "Municipal Lease
Obligations") of municipal authorities or entities. Although a Municipal Lease
Obligation does not constitute a general obligation of the municipality for
which the municipality's taxing power is pledged, a Municipal Lease Obligation
is ordinarily backed by the municipality's covenant to budget for, appropriate
and make the payments due under the Municipal Lease Obligation. However, certain
Municipal Lease Obligations contain "non-appropriation" clauses which provide
that the municipality has no obligation to make lease or installment purchase
payments in future years unless money is appropriated for such purpose on a
yearly basis. In the case of a "non-appropriation" lease, the Fund's ability to
recover under the lease in the event of non-appropriation or default will be
limited solely to the repossession of the leased property, without recourse to
the general credit of the lessee, and disposition or releasing of the property
might provide difficult. In order to reduce this risk, the Fund will only
purchase Municipal Lease Obligations where Nuveen Advisory believes the issuer
has a strong incentive to continue making appropriations until maturity.
During temporary defensive periods and in order to keep the Fund's cash
fully invested, including the period during which the net proceeds of the
offering are being invested, the Fund may invest up to 100% of its net assets in
short-term investments including high quality, short-term securities that may be
either tax-exempt or taxable. To the extent the Fund invests in taxable
short-term investments, the Fund will not at such times be in a position to
achieve that portion of its investment objective of seeking current income
exempt from regular Federal income tax. For further information, see "Short-Term
Investments" below.
Obligations of issuers of municipal bonds are subject to the provisions
of bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Bankruptcy Reform Act of 1978. In addition, the
obligations of such issuers may become subject to the laws enacted in the future
by Congress, state legislatures or referenda extending the time for payment of
principal or interest, or both, or imposing other constraints upon enforcement
of such obligations or upon municipalities to levy taxes. There is also the
possibility that, as a result of legislation or other conditions, the power or
ability of any issuer to pay, when due, the principal of and interest on its
municipal bonds may be materially affected.
The Fund may also invest in securities of other open or closed-end
investment companies that invest primarily in municipal bonds of the type in
which the Fund may invest directly. The Fund will generally select obligations
which may not be redeemed at the option of the issuer for approximately seven to
nine years.
SHORT-TERM INVESTMENTS
SHORT-TERM TAXABLE FIXED INCOME SECURITIES
For temporary defensive purposes or to keep cash on hand fully
invested, the Fund may invest up to 100% of its total assets in cash equivalents
and short-term taxable fixed-income securities, although the Fund intends to
invest in taxable short-term investments only in the event that suitable
tax-exempt short-term investments are not available at reasonable prices and
yields. Short-term taxable fixed income investments are defined to include,
without limitation, the following:
(1) U.S. government securities, including bills, notes and
bonds differing as to maturity and rates of interest that are either
issued or guaranteed by the U.S. Treasury or by U.S. government
agencies or instrumentalities. U.S. government agency securities
include securities issued by (a) the Federal Housing Administration,
Farmers Home Administration, Export-Import Bank of the United States,
Small Business Administration, and the Government National Mortgage
Association, whose securities are supported by the full faith and
credit of the United States; (b) the Federal Home Loan Banks, Federal
Intermediate Credit Banks, and the Tennessee Valley Authority, whose
securities are supported by the right of the agency to borrow from the
U.S. Treasury; (c) the Federal National Mortgage Association, whose
securities are supported by the discretionary authority of the U.S.
government to purchase certain obligations of the agency or
instrumentality; and (d) the Student Loan Marketing Association, whose
securities are supported only by its credit. While the U.S. government
provides financial support to such U.S. government-sponsored agencies
or instrumentalities, no assurance can be given that it always will do
so since it is not so obligated by law. The U.S. government,
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its agencies, and instrumentalities do not guarantee the market value
of their securities. Consequently, the value of such securities may
fluctuate.
(2) Certificates of Deposit issued against funds deposited in
a bank or a savings and loan association. Such certificates are for a
definite period of time, earn a specified rate of return, and are
normally negotiable. The issuer of a certificate of deposit agrees to
pay the amount deposited plus interest to the bearer of the certificate
on the date specified thereon. Under current FDIC regulations, the
maximum insurance payable as to any one certificate of deposit is
$100,000; therefore, certificates of deposit purchased by the Fund may
not be fully insured.
(3) Repurchase agreements, which involve purchases of debt
securities. At the time the Fund purchases securities pursuant to a
repurchase agreement, it simultaneously agrees to resell and redeliver
such securities to the seller, who also simultaneously agrees to buy
back the securities at a fixed price and time. This assures a
predetermined yield for the Fund during its holding period, since the
resale price is always greater than the purchase price and reflects an
agreed-upon market rate. Such actions afford an opportunity for the
Fund to invest temporarily available cash. The Fund may enter into
repurchase agreements only with respect to obligations of the U.S.
government, its agencies or instrumentalities; certificates of deposit;
or bankers' acceptances in which the Fund may invest. Repurchase
agreements may be considered loans to the seller, collateralized by the
underlying securities. The risk to the Fund is limited to the ability
of the seller to pay the agreed-upon sum on the repurchase date; in the
event of default, the repurchase agreement provides that the Fund is
entitled to sell the underlying collateral. If the value of the
collateral declines after the agreement is entered into, and if the
seller defaults under a repurchase agreement when the value of the
underlying collateral is less than the repurchase price, the Fund could
incur a loss of both principal and interest. The investment adviser
monitors the value of the collateral at the time the action is entered
into and at all times during the term of the repurchase agreement. The
investment adviser does so in an effort to determine that the value of
the collateral always equals or exceeds the agreed-upon repurchase
prices to be paid to the Fund. If the seller were to be subject to a
Federal bankruptcy proceeding, the ability of the Fund to liquidate the
collateral could be delayed or impaired because of certain provisions
of the bankruptcy laws.
(4) Commercial paper, which consists of short-term unsecured
promissory notes, including variable rate master demand notes issued by
corporations to finance their current operations. Master demand notes
are direct lending arrangements between the Fund and a corporation.
There is no secondary market for such notes. However, they are
redeemable by the Fund at any time. The investment adviser will
consider the financial condition of the corporation (e.g., earning
power, cash flow, and other liquidity ratios) and will continuously
monitor the corporation's ability to meet all of its financial
obligations, because the Fund's liquidity might be impaired if the
corporation were unable to pay principal and interest on demand.
Investments in commercial paper will be limited to commercial paper
rated in the highest categories by a major rating agency and which
mature within one year of the date of purchase or carry a variable or
floating rate of interest.
SHORT-TERM TAX-EXEMPT FIXED INCOME SECURITIES
Short-term tax-exempt fixed-income securities are securities that are
exempt from regular Federal income tax and mature within three years or less
from the date of issuance. Short-term tax-exempt fixed income securities are
defined to include, without limitation, the following:
Bond Anticipation Notes ("BANs") are usually general obligations of
state and local governmental issuers which are sold to obtain interim financing
for projects that will eventually be funded through the sale of long-term debt
obligations or bonds. The ability of an issuer to meet its obligations on its
BANs is primarily dependent on the issuer's access to the long-term municipal
bond market and the likelihood that the proceeds of such bond sales will be used
to pay the principal and interest on the BANs.
Tax Anticipation Notes ("TANs") are issued by state and local
governments to finance the current operations of such governments. Repayment is
generally to be derived from specific future tax revenues. TANs are usually
general obligations of the issuer. A weakness in an issuer's capacity to raise
taxes due to, among other things, a decline in its
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tax base or a rise in delinquencies, could adversely affect the issuer's ability
to meet its obligations on outstanding TANs.
Revenue Anticipation Notes ("RANs") are issued by governments or
governmental bodies with the expectation that future revenues from a designated
source will be used to repay the notes. In general, they also constitute general
obligations of the issuer. A decline in the receipt of projected revenues, such
as anticipated revenues from another level of government, could adversely affect
an issuer's ability to meet its obligations on outstanding RANs. In addition,
the possibility that the revenues would, when received, be used to meet other
obligations could affect the ability of the issuer to pay the principal and
interest on RANs.
Construction Loan Notes are issued to provide construction financing
for specific projects. Frequently, these notes are redeemed with funds obtained
from the Federal Housing Administration.
Bank Notes are notes issued by local government bodies and agencies as
those described above to commercial banks as evidence of borrowings. The
purposes for which the notes are issued are varied but they are frequently
issued to meet short-term working capital or capital-project needs. These notes
may have risks similar to the risks associated with TANs and RANs.
Tax-Exempt Commercial Paper ("Municipal Paper") represents very
short-term unsecured, negotiable promissory notes, issued by states,
municipalities and their agencies. Payment of principal and interest on issues
of municipal paper may be made from various sources, to the extent the funds are
available therefrom. Maturities or municipal paper generally will be shorter
than the maturities of TANs, BANs or RANs. There is a limited secondary market
for issues of Municipal Paper.
Certain municipal bonds may carry variable or floating rates of
interest whereby the rate of interest is not fixed but varies with changes in
specified market rates or indices, such as a bank prime rate or a tax-exempt
money market indexes.
While the various types of notes described above as a group represent
the major portion of the tax-exempt note market, other types of notes are
available in the marketplace, and the Fund may invest in such other types of
notes to the extent permitted under its investment objectives, policies and
limitations. Such notes may be issued for different purposes and may be secured
differently from those mentioned above.
HEDGING STRATEGIES
The Fund may periodically engage in hedging transactions. Hedging is a
term used for various methods of seeking to preserve portfolio capital value of
offsetting price changes in one investment through making another investment
whose price should tend to move in the opposite direction. It may be desirable
and possible in various market environments to partially hedge the portfolio
against fluctuations in market value due to interest rate fluctuations by
investment in financial futures and index futures as well as related put and
call options on such instruments. Both parties entering into an index or
financial futures contract are required to post an initial deposit of 1% to 5%
of the total contract price. Typically, option holders enter into offsetting
closing transactions to enable settlement in cash rather than take delivery of
the position in the future of the underlying security. The Fund will only sell
covered futures contracts, which means that the Fund segregates assets equal to
the amount of the obligations.
These transactions present certain risks. In particular, the imperfect
correlation between price movements in the futures contract and price movements
in the securities being hedged creates the possibility that losses on the hedge
by the Fund may be greater than gains in the value of the securities in the
Fund's portfolio. In addition, futures and options markets may not be liquid in
all circumstances. As a result, in volatile markets, the Fund may not be able to
close out the transaction without incurring losses substantially greater than
the initial deposit. Finally, the potential deposit requirements in futures
contracts create an ongoing greater potential financial risk than do options
transactions, where the exposure is limited to the cost of the initial premium.
Losses due to hedging transactions will reduce yield. Net gains, if any, from
hedging and other portfolio transactions will be distributed as taxable
distributions to shareholders. The Fund will not make any investment (whether an
initial premium or deposit or a subsequent deposit) other than a necessary to
close a prior investment if, immediately after such investment, the sum of the
amount of its
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premiums and deposits would exceed 5% of the Fund's net assets. The Fund will
invest in these instruments only in markets believed by Nuveen Advisory to be
active and sufficiently liquid. Successful implementation of most hedging
strategies would generate taxable income, and the Fund has no present intention
to use these strategies. For further information regarding these investment
strategies and risks presented thereby, see Appendix C to this Statement of
Additional Information.
FACTORS PERTAINING TO CALIFORNIA
The following information provides only a brief summary of the complex
factors affecting the financial situation in California (the "State") and is
derived from sources that are generally available to investors and is believed
to be accurate. It is based in part on information obtained from various State
and local agencies in California. It should be noted that the creditworthiness
of obligations issued by local California issuers may be unrelated to the
creditworthiness of obligations issued by the State of California, and there is
no obligation on the part of the State to make payment on local government
obligations in the event of default or financial difficulty.
GENERAL
During the early 1990's, California experienced significant financial
difficulties, which reduced its credit standing, but the State's finances have
improved significantly since 1994, with ratings increases since 1996. The
ratings of certain related debt of other issuers for which California has an
outstanding lease purchase, guarantee or other contractual obligation (such as
for state-insured hospital bonds) are generally linked directly to California's
rating. Should the financial condition of California deteriorate again, its
credit ratings could be reduced, and the market value and marketability of all
outstanding notes and bonds issued by California, its public authorities or
local governments could be adversely affected.
ECONOMIC FACTORS
California's economy is the largest among the 50 states and one of the
largest in the world. The State's population of almost 34 million represents
over 12% of the total United States population and grew by 26% in the 1980s,
more than double the national rate. Population growth slowed to less than 1%
annually in 1994 and 1995, but rose to 1.8% in 1996 and 1.6% in 1997. During the
early 1990s, net population growth in the State was due to births and foreign
immigration, but in recent years, immigration from the other states has
increased.
Total personal income in the State, at an estimated $902 billion in
1998, accounts for almost 13% of all personal income in the nation. Total
employment is over 15 million, the majority of which is in the service, trade
and manufacturing sectors.
From mid-1990 to late 1993, the State suffered a recession with the
worst economic, fiscal and budget conditions since the 1930s. Construction,
manufacturing (especially aerospace), and financial services, among others, were
all severely affected, particularly in Southern California. Employment levels
stabilized by late 1993 and pre-recession job levels were reached in 1996.
Unemployment, while remaining higher than the national average, has come down
from its 10% recession peak to under 6% in early 1999. Economic indicators show
a steady and strong recovery underway in California since the start of 1994
particularly in high technology manufacturing and services, including computer
software, electronic manufacturing and motion picture/television production, and
other services, entertainment and tourism, and both residential and commercial
construction. International economic problems starting in 1997 had some
moderating impact on California's economy, but negative impacts, such as a sharp
drop in exports to Asia which have hurt the manufacturing and agricultural
sectors, have apparently been offset by increased exports to Latin American and
other nations, and a greater strength in services, computer software and
construction. Current forecasts predict continued strong growth of the State's
economy in 1999, with a slowdown predicted in 2000 and beyond. Any delay or
reversal of the recovery may create new shortfalls in State revenues.
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CONSTITUTIONAL LIMITATIONS ON TAXES, OTHER CHARGES AND APPROPRIATIONS
LIMITATION ON PROPERTY TAXES. Certain California municipal obligations
may be obligations of issuers which rely in whole or in part, directly or
indirectly, on ad valorem property taxes as a source of revenue. The taxing
powers of California local governments and districts are limited by Article
XIIIA of the California Constitution, enacted by the voters in 1978 and commonly
known as "Proposition 13." Briefly, Article XIIIA limits to 1% of full cash
value the rate of ad valorem property taxes on real property and generally
restricts the reassessment of property to 2% per year, except under new
construction or change of ownership (subject to a number of exemptions). Taxing
entities may, however, raise ad valorem taxes above the 1% limit to pay debt
service on voter-approved bonded indebtedness.
Under Article XIIIA, the basic 1% ad valorem tax levy is applied
against the assessed value of property as of the owner's date of acquisition (or
as of March 1, 1975, if acquired earlier), subject to certain adjustments. This
system has resulted in widely varying amounts of tax on similarly situated
properties. Several lawsuits have been filed challenging the acquisition-based
assessment system of Proposition 13, but it was upheld by the U.S. Supreme Court
in 1992.
Article XIIIA prohibits local governments from raising revenues through
ad valorem taxes above the 1% limit; it also requires voters of any governmental
unit to give two-thirds approval to levy any "special tax." Court decisions,
however, allowed a non-voter approved levy of "general taxes" which were not
dedicated to a specific use.
LIMITATIONS ON OTHER TAXES, FEES AND CHARGES. On November 5, 1996, the
voters of the State approved Proposition 218, called the "Right to Vote on Taxes
Act." Proposition 218 added Articles XIIIC and XIIID to the State Constitution,
which contain a number of provisions affecting the ability of local agencies to
levy and collect both existing and future taxes, assessments, fees and charges.
Article XIIIC requires that all new or increased local taxes be
submitted to the electorate before they become effective. Taxes for general
governmental purposes require a majority vote and taxes for specific purposes
require a two-thirds vote. Further, any general purpose tax which was imposed,
extended or increased without voter approval after December 31, 1994 must be
approved by a majority vote within two years.
Article XIIID contains several new provisions making it generally more
difficult for local agencies to levy and maintain "assessments" for municipal
services and programs. Article XIIID also contains several new provisions
affecting "fees" and "charges," defined for purposes of Article XIIID to mean
"any levy other than ad valorem tax, a special tax, or an assessment, imposed by
a [local government] upon a parcel or upon a person as an incident of property
ownership, including a user fee or charge for a property related service." All
new and existing property related fees and charges must conform to requirements
prohibiting, among other things, fees and charges which generate revenues
exceeding the funds required to provide the property related service or are used
for unrelated purposes. There are new notice, hearing and protest procedures for
levying or increasing property related fees and charges, and, except for fees or
charges for sewer, water and refuse collection services (or fees for electrical
and gas service, which are not treated as "property related" for purposes of
Article XIIID), no property related fee or charge may be imposed or increased
without majority approval by the property owners subject to the fee or charge
or, at the option of the local agency, two-thirds voter approval by the
electorate residing in the affected area.
In addition to the provisions described above, Article XIIIC removes
limitations on the initiative power in matters of local taxes, assessments, fees
and charges. Consequently, local voters could, by future initiative, repeal,
reduce or prohibit the future imposition or increase of any local tax,
assessment, fee or charge. It is unclear how this right of local initiative may
be used in cases where taxes or charges have been or will be specifically
pledged to secure debt issues.
The interpretation and application of Proposition 218 will ultimately
be determined by the courts with respect to a number of matters, and it is not
possible at this time to predict with certainty the outcome of such
determinations. Proposition 218 is generally viewed as restricting the fiscal
flexibility of local governments, and for this reason, some ratings of
California cities and counties have been, and others may be, reduced.
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APPROPRIATIONS LIMITS. The State and its local governments are subject
to an annual "appropriations limit" imposed by Article XIIIB of the California
Constitution, enacted by the voters in 1979 and significantly amended by
Propositions 98 and 111 in 1988 and 1990, respectively. Article XIIIB prohibits
the State or any covered local government from spending "appropriations subject
to limitation" in excess of the appropriations limit imposed. "Appropriations
subject to limitation" are authorizations to spend "proceeds of taxes," which
consist of tax revenues and certain other funds, including proceeds from
regulatory licenses, user charges or other fees, to the extent that such
proceeds exceed the cost of providing the product or service, but "proceeds of
taxes" exclude most State subventions to local governments. No limit is imposed
on appropriations of funds which are not "proceeds of taxes," such as reasonable
user charges or fees, and certain other non-tax funds, including bond proceeds.
Among the expenditures not included in the Article XIIIB appropriations
limit are (1) the debt service cost of bonds issued or authorized prior to
January 1, 1979, or subsequently authorized by the voters, (2) appropriations
arising from certain emergencies declared by the Governor, (3) appropriations
for certain capital outlay projects, (4) appropriations by the State of
post-1989 increases in gasoline taxes and vehicle weight fees, and (5)
appropriations made in certain cases of emergency.
The appropriations limit for each year is adjusted annually to reflect
changes in cost of living and population, and any transfers of service
responsibilities between government units. The definitions for such adjustments
were liberalized in 1990 to follow more closely growth in the State's economy.
"Excess" revenues are measured over a two-year cycle. Local governments
must return any excess to taxpayers by rate reductions. The State must refund
50% of any excess, with the other 50% paid to schools and community colleges.
With more liberal annual adjustment factors since 1988, and depressed revenues
since 1990 because of the recession, few governments are currently operating
near their spending limits, but this condition may change over time. Local
governments may by voter approval exceed their spending limits for up to four
years. During fiscal year 1986-87, State receipts from proceeds of taxes
exceeded its appropriations limit by $1.1 billion, which was returned to
taxpayers. Since that year, appropriations subject to limitation have been under
the State limit. State appropriations were $6.8 billion under the limit for
fiscal year 1998-99.
Because of the complex nature of Articles XIIIA, XIIIB, XIIIC and XIIID
of the California Constitution, the ambiguities and possible inconsistencies in
their terms, and the impossibility of predicting future appropriations or
changes in population and cost of living, and the probability of continuing
legal challenges, it is not currently possible to determine fully the impact of
these Articles on California municipal obligations or on the ability of the
State or local governments to pay debt service on such California municipal
obligations. It is not possible, at the present time, to predict the outcome of
any pending litigation with respect to the ultimate scope, impact or
constitutionality of these Articles or the impact of any such determinations
upon State agencies or local governments, or upon their ability to pay debt
service on their obligations. Further initiatives or legislative changes in laws
or the California Constitution may also affect the ability of the State or local
issuers to repay their obligations.
OBLIGATIONS OF THE STATE OF CALIFORNIA
Under the California Constitution, debt service on outstanding general
obligation bonds is the second charge to the General Fund after support of the
public school system and public institutions of higher education. As of May 1,
1999, the State had outstanding approximately $19.7 billion of long-term general
obligation bonds, plus $246 million of general obligation commercial paper which
will be refunded by long-term bonds in the future, and $6.6 billion of
lease-purchase debt supported by the State General Fund. The State also had
about $15.3 billion of authorized and unissued long-term general obligation
bonds and lease-purchase debt. In FY 1997-98, debt service on general obligation
bonds and lease purchase debt was approximately 4.4% of General Fund revenues.
RECENT FINANCIAL RESULTS
The principal sources of General Fund revenues in 1997-1998 were the
California personal income tax (51% of total revenues), the sales tax (32%),
bank and corporation taxes (11%), and the gross premium tax on insurance (2%).
The State maintains a Special Fund for Economic Uncertainties (the "SFEU"),
derived from General Fund revenues, as a reserve to meet cash needs of the
General Fund, but which is required to be replenished as soon as sufficient
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revenues are available. Year-end balances in the SFEU are included for financial
reporting purposes in the General Fund balance. Because of the recession and an
accumulated budget deficit, no reserve was budgeted in the SFEU from 1992-93 to
1995-96.
GENERAL. Throughout the 1980s, State spending increased rapidly as the
State population and economy also grew rapidly, including increased spending for
many assistance programs to local governments, which were constrained by
Proposition 13 and other laws. The largest State program is assistance to local
public school districts. In 1988, an initiative (Proposition 98) was enacted
which (subject to suspension by a two-thirds vote of the Legislature and the
Governor) guarantees local school districts and community college districts a
minimum share of State General Fund revenues (currently about 35%).
RECENT BUDGETS. As a result of the severe economic recession from
1990-94 and other factors, the State experienced substantial revenue shortfalls,
and greater than anticipated social service costs, in the early 1990s. The State
accumulated and sustained a budget deficit in the budget reserve, the SFEU,
approaching $2.8 billion at its peak at June 30, 1993. The Legislature and
Governor agreed on a number of different steps to respond to the adverse
financial conditions and produce Budget Acts in the years 1991-92 to 1994-95
(although not all of these actions were taken in each year):
- significant cuts in health and welfare program expenditures;
- transfers of program responsibilities and some funding sources
from the State to local governments, coupled with some reduction
in mandates on local government;
- transfer of about $3.6 billion in annual local property tax
revenues from cities, counties, redevelopment agencies and some
other districts to local school districts, thereby reducing State
fund for schools;
- reduction in growth of support for higher education programs,
coupled with increases in student fees;
- revenue increases (particularly in the 1992-93 Fiscal Year
budget), most of which were for a short duration;
- increase reliance on aid from the federal government to offset
the costs of incarcerating, educating and providing health and
welfare services to undocumented aliens (although these efforts
have produced much less federal aid than the State Administration
had requested); and
- various one-time adjustments and accounting changes (some of
which have been challenged in court and reversed).
A consequence of the accumulated budget deficits in the early 1990s,
together with other factors such as disbursement of funds to local school
districts "borrowed" from future fiscal years and hence not shown in the annual
budget, was to significantly reduce the State's cash resources available to pay
its ongoing obligations. The State's cash condition became so serious that from
late spring 1992 until 1995, the State had to rely on issuance of short-term
notes which matured in a subsequent fiscal year to finance its ongoing deficit,
and pay current obligations. For a two-month period in the summer of 1992,
pending adoption of the annual Budget Act, the State was forced to issue
registered warrants (IOUs) to some of its suppliers, employees and other
creditors. The last of these deficit notes was repaid in April, 1996.
The State's financial condition improved markedly during the 1995-1996,
1996-97 and 1997-98 fiscal years, with a combination of better than expected
revenues, slowdown in growth of social welfare programs, and continued spending
restraint based on the actions taken in earlier years. The State's cash position
also improved, and no external deficit borrowing has occurred over the end of
these three fiscal years.
The economy grew strongly during these fiscal years, and as a result,
the General Fund took in substantially greater tax revenues (around $2.2 billion
in 1995-96, $1.6 billion in 1996-97 and $2.1 billion in 1997-98) than were
initially planned when the budgets were enacted. These additional funds were
largely directed to school spending as
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mandated by Proposition 98, and to make up shortfalls from reduced federal
health and welfare aid in 1995-96 and 1996-97. The accumulated budget deficit
from the recession years was finally eliminated. The Department of Finance
estimates that the State's budget reserve (the SFEU) totaled about $400 million
as of June 30, 1997 and $1.8 billion at June 30, 1998.
FY 1997-98 BUDGET. In May 1997, the California Supreme Court ruled that
the State had acted illegally in 1993 and 1994 by using a deferral of payments
to the Public Employees Retirement Fund to help balance earlier budgets. In
response to this court decision, the Governor ordered an immediate repayment to
the Retirement Fund of about $1.235 billion, which was made in late July, 1997,
and substantially "used up" the then-expected additional General Fund revenues
for the fiscal year. The 1997-98 Budget Act provided another year of rapidly
increasing funding for K-14 public education. Support for higher education units
in the State also increased by about 6 percent. Because of the pension payment,
most other State programs were funded at levels consistent with prior years, and
several initiatives had to be dropped. The final results for FY 1997-98 showed
General Fund revenues and transfers of $54.7 billion and expenditures of $53.3
billion.
Part of the 1997-98 Budget Act was completion of the State welfare
reform legislation to implement the new federal law passed in 1996. The new
State program, called "CalWORKs," became effective January 1, 1998, and
emphasizes programs to bring aid recipients into the workforce. As required by
federal law, new time limits are placed on receipt of welfare aid.
FY 1998-99 BUDGET. The FY 1998-99 Budget Act was signed on August 21,
1998. After giving effect to line-item vetoes made by the Governor, the Budget
plan resulted in spending of about $57.3 billion for the General Fund and $14.7
billion for Special Funds. The Budget Act assumed General Fund revenues and
transfers in FY 1998-99 of $57.0 billion. After enactment of the Budget Act, the
Legislature passed a number of additional fiscal bills, which resulted in a net
increase of expenditures of about $250 million, but the Administration also
raised its estimate of revenues from the 1997-98 fiscal year. In total, the
Administration projected in September, 1998 that the balance in the SFEU at June
30, 1999 would be about $1.2 billion.
As has been the case in the last several years, spending on K-12
education increased significantly, by a total of $2.2 billion, with projected
per-pupil spending of $5,695, more than one-third higher than the per-pupil
spending during the last recession year of 1993-94.
Funding to support higher education was also increased significantly
(15% for the University of California and 14% for the California State
University system). The Budget included some increases in health and welfare
programs, including the first increase in the monthly welfare grant since levels
were cut during the recession.
One of the most important elements of the 1998-99 Budget Act was
agreement on substantial tax cuts. The largest of these is a phased-in cut in
the Vehicle License Fee (an annual tax on the value of cars registered in the
State, the "VLF"). Starting in 1999, the VLF is reduced by 25%. Under current
law, VLF funds are automatically transferred to cities and counties, so the new
legislation provides for the General Fund to make up the reductions. If State
General Fund revenues continue to grow above certain targeted levels in future
years, the cut could reach as much as 67.5% by the year 2003. The initial 25%
VLF cut will be offset by about $500 million in General Fund money in FY
1998-99, and $1 billion for future years. Other tax cuts in FY 1998-99 include
an increase in the dependent credit exemption for personal income tax filers,
restoration of a renter's tax credit for taxpayers, and a variety of business
tax relief measures. The total cost of these tax cuts is estimated at $1.4
billion for FY 1998-99.
The Administration released new projections for the balance of FY
1998-99 on May 14, 1999 as part of the May Revision of the Governor's Proposed
Budget for 1999-2000 (the "May Revision"). The May Revision revealed that the
State's economy was much stronger in late 1998 and into 1999 than the
Administration had thought when it made its first FY 1999-2000 Budget Proposal
in January 1999. As a result, the May Revision updates 1998-99 General Fund
revenues to be $57.9 billion, almost $1 billion above the original FY 1998-99
estimates, and over $1.6 billion above the Administration's January estimate.
Most of the increase is from personal income taxes, reflecting stronger wage
employment than previously estimated, and extraordinary growth in capital gain
realizations resulting from the stock market's rise. The May Revision projects
the SFEU will have a balance of almost $1.9 billion at June 30, 1999.
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<PAGE> 50
Although, as noted, the Administration projects a budget reserve in the
SFEU of about $1.9 billion on June 30, 1999, the General Fund balance on that
date also reflects $1.0 billion of "loans" which the General Fund made to local
schools in the recession years, representing cash outlays above the mandatory
minimum funding level. Settlement of litigation over these transactions in July
1996 calls for repayment of these loans over the period ending in 2001-02, about
equally split between outlays from the General Fund and from schools'
entitlements. The 1998-99 Budget Act contained a $300 million appropriation from
the General Fund toward this settlement.
FY 1999-2000 Budget. The newly elected Governor, Gray Davis, released
his proposed FY 1999-00 Budget in January 1999. It projected somewhat lower
General Fund revenues than in earlier projections, due to slower economic growth
which was expected in late 1998, but totaling an estimated $60.3 billion. The
May Revision has sharply increased the revenue estimates, by over $2.7 billion,
to a total of almost $63.0 billion, which would represent a 9% increase above FY
1998-99. Again, the greatest increase is expected in personal income taxes
(about 10% year-over-year increase), with more moderate increases in sales taxes
(6%) and corporate taxes (3%).
The 1999-00 Budget Act was signed on June 29, 1999, after the Governor
used his line-item veto power to reduce expenditures by about $581 million. The
final spending plan called for about $63.7 billion of General Fund expenditures,
$16.1 billion of Special Fund expenditures, and $1.5 billion in bond funded
expenditures. The Governor's final budget actions left the SFEU with an
estimated balance of $881 million at June 30, 2000, but the Governor also
reduced spending to set aside $300 million for future appropriation for either
employee pay raises or potential litigation costs. If not fully used, these
"set-aside" funds would increase the SFEU year-end balance.
The final Budget Act generally provided increased funding for a wide
range of programs. Education spending under Proposition 98 received the largest
increase (over $2.3 billion above 1998-99), with other significant increases for
higher education, health and welfare, natural resources and capital outlay. The
budget provides several hundred million dollars in direct new aid to cities and
counties. A proposal is being drafted to place a constitutional amendment on the
ballot in 2000 to provide more extensive, permanent fiscal relief for local
government.
The final spending plan includes several targeted tax cuts for
businesses, totaling under $150 million in annual cost. The plan also includes a
one-time, one-year additional cut of 10% in the Vehicle License Fee for calendar
year 2000. This cut will cost the General Fund about $500 million in each of
1999-00 and 2000-01 to make up lost funds for local governments. Under the 1998
law, the VLF cut to 35% would become permanent in the year 2001 if General Fund
revenues reach a certain specified level in 2000-01.
Although the State's strong economy is producing record revenues to the
State government, the State's budget continues to be under stress from mandated
spending on education, a rising prison population, and social needs of a growing
population with many immigrants. These factors which limit State spending growth
also put pressure on local governments. There can be no assurances that, if
economic conditions weaken, or other factors intercede, the State will not
experience budget gaps in the future.
BOND RATING
The ratings on California's long-term general obligation bonds were
reduced in the early 1990s from "AAA" levels which had existed prior to the
recession. After 1996, the three major rating agencies raised their ratings for
California's general obligation bonds, which as of May 1999 were assigned
ratings of "A+" from Standard & Poor's, "Aa3" from Moody's and "AA-" from Fitch.
There can be no assurance that such ratings will be maintained in the
future. It should be noted that the creditworthiness of obligations issued by
local California issuers may be unrelated to creditworthiness of obligations
issued by the State of California, and that there is no obligation on the part
of the State to make payment on such local obligations in the event of default.
LEGAL PROCEEDINGS
The State is involved in certain legal proceedings (described in the
State's recent financial statements) that, if decided against the State, may
require the State to make significant future expenditures or may substantially
impair revenues. Trial courts have recently entered tentative decisions or
injunctions which would overturn several parts of the State's recent budget
compromises. The matters covered by these lawsuits include reductions in welfare
payments and the use of certain cigarette tax funds for health costs. All of
these cases are subject to further proceedings and appeals, and if California
eventually loses, the final remedies may not have to be implemented in one year.
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<PAGE> 51
YEAR 2000 PREPARATIONS
The State and local governments, along with all other public and
private institutions in the nation, face a major challenge to ensure that their
computer systems, including microchips embedded into existing machinery, will
not fail prior to or at the January 1, 2000 date which may not be recognized
properly by software utilizing only to digits to identify a year. The new State
Administration has placed a very high priority on "Year 2000" remediation and
contingency planning. The State has a Department of Information Technology
("DOIT") which coordinates activities, provides technical assistance to State
agencies and local governments, and reports on the status of remediation efforts
by over 100 State departments and agencies.
DOIT has reported that, as of early 1999, 372 of 564 "mission critical"
systems in State government had been remediated (although final testing was
still going on in some cases). Of the balance, 54 were being retired and 138
were in process. DOIT does not report on all State agencies. In addition to
hardware and software changes, agencies are preparing business contingency plans
in case of computer problems at 1/1/2000, and are actively coordinating with
outside agencies, vendors, contractors and others with whom computer data is
shared. The State Treasurer and State Controller, responsible for State fiscal
controls and debt service payments, have reported they were fully remediated by
December 31, 1998 and are spending the 1999 year in testing and confirmation of
their systems.
The State has expended and plans to spend many hundreds of millions of
dollars on Year 2000 projects of all sorts, and has set aside several tens of
millions of dollars in contingency funds to support late-coming needs. There is
no survey of local government costs, or the overall status of their activities.
It is likely that larger government agencies are better prepared at this time
than smaller ones. Both the State and local governments are preparing emergency
plans for Year 2000 computer difficulties similar to their normal planning for
natural emergencies, such as floods or earthquakes.
OBLIGATIONS OF OTHER ISSUERS
OTHER ISSUERS OF CALIFORNIA MUNICIPAL OBLIGATIONS. There are a number
of State agencies, instrumentalities and political subdivisions of the State
that issue municipal obligations, some of which may be conduit revenue
obligations payable from payments from private borrowers. These entities are
subject to various economic risks and uncertainties, and the credit quality of
the securities issued by them may vary considerably from the credit quality of
obligations backed by the full faith and credit of the State.
STATE ASSISTANCE. Property tax revenues received by local governments
declined more than 50% following passage of Proposition 13. Subsequently, the
California Legislature enacted measures to provide for the redistribution of the
State's General Fund surplus to local agencies, the reallocation of certain
State revenues to local agencies and the assumption of certain governmental
functions by the State to assist municipal issuers to raise revenues. Total
local assistance from the State's General Fund was budgeted at approximately 75%
of General Fund expenditures in recent years, including the effect of
implementing reductions in certain aid programs. To reduce State General Fund
support for school districts, the 1992-93 and 1993-94 Budget Acts caused local
governments to transfer $3.9 billion of property tax revenues to school
districts, representing loss of the post-Proposition 13 "bailout" aid. Local
governments have in return received greater revenues and greater flexibility to
operate health and welfare programs. However, except for agreement in 1997 on a
new program for the State to substantially take over funding for local trial
courts (savings cities and counties some $400 million annually), there has been
no large-scale reversal of the property tax shift to help local government.
To the extent the State should be constrained by its Article XIIIB
appropriations limit, or its obligation to conform to Proposition 98, or other
fiscal considerations, the absolute level, or the rate of growth, of State
assistance to local governments may continue to be reduced. Any such reductions
in State aid could compound the serious fiscal constraints already experienced
by many local governments, particularly counties. Los Angeles County, the
largest in the State, was forced to make significant cuts in services and
personnel, particularly in the health care system, in order to balance its
budget in FY 1995-96 and FY 1996-97. Orange County, which emerged from Federal
Bankruptcy Court protection in June 1996, has significantly reduced county
services and personnel, and faces strict financial conditions following large
investment fund losses in 1994 which resulted in bankruptcy.
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Counties and cities may face further budgetary pressures as a result of
changes in welfare and public assistance programs, which were enacted in August
1997 in order to comply with the federal welfare reform law. Generally, counties
play a large role in the new system, and are given substantial flexibility to
develop and administer programs to bring aid recipients into the workforce.
Counties are also given financial incentives if either at the county or
statewide level, the "Welfare-to-Work" programs exceed minimum targets; counties
are also subject to financial penalties for failure to meet such targets.
Counties remain responsible to provide "general assistance" for able-bodied
indigents who are ineligible for other welfare programs. The long-term financial
impact of the new CalWORKs system on local governments is still unknown.
ASSESSMENT BONDS. California Municipal Obligations which are assessment
bonds may be adversely affected by a general decline in real estate values or a
slowdown in real estate sales activity. In many cases, such bonds are secured by
land which is undeveloped at the time of issuance but anticipated to be
developed within a few years after issuance. In the event of such reduction or
slowdown, such development may not occur or may be delayed, thereby increasing
the risk of a default on the bonds. Because the special assessments or taxes
securing these bonds are not the personal liability of the owners of the
property assessed, the lien on the property is the only security for the bonds.
Moreover, in most cases the issuer of these bonds is not required to make
payments on the bonds in the event of delinquency in the payment of assessments
or taxes, except from amounts, if any, in a reserve fund established for the
bonds.
CALIFORNIA LONG TERM LEASE OBLIGATIONS. Based on a series of court
decisions, certain long-term lease obligations, though typically payable from
the general fund of the State or a municipality, are not considered
"indebtedness" requiring voter approval. Such leases, however, are subject to
"abatement" in the event the facility being leased is unavailable for beneficial
use and occupancy by the municipality during the term of the lease. Abatement is
not a default, and there may be no remedies available to the holders of the
certificates evidencing the lease obligation in the event abatement occurs. The
most common cases of abatement are failure to complete construction of the
facility before the end of the period during which lease payments have been
capitalized and uninsured casualty losses to the facility (e.g., due to
earthquake). In the event abatement occurs with respect to a lease obligation,
lease payments may be interrupted (if all available insurance proceeds and
reserves are exhausted) and the certificates may not be paid when due. Although
litigation is brought from time to time which challenges the constitutionality
of such lease arrangements, the California Supreme Court issued a ruling in
August 1998 which reconfirmed the legality of these financing methods.
OTHER CONSIDERATIONS
The repayment of industrial development securities secured by real
property may be affected by California laws limiting foreclosure rights of
creditors. Securities backed by health care and hospital revenues may be
affected by changes in State regulations governing cost reimbursements to health
care providers under Medi-Cal (the State's Medicaid program), including risks
related to the policy of awarding exclusive contracts to certain hospitals.
Limitations on ad valorem property taxes may particularly affect "tax
allocation" bonds issued by California redevelopment agencies. Such bonds are
secured solely by the increase in assessed valuation of a redevelopment project
area after the start of redevelopment activity. In the event that assessed
values in the redevelopment project decline (e.g., because of a major natural
disaster such as an earthquake), the tax increment revenue may be insufficient
to make principal and interest payments on these bonds. Both Moody's and S&P
suspended ratings on California tax allocation bonds after the enactment of
Articles XIIIA and XIIIB, and only resumed such ratings on a selective basis.
Proposition 87, approved by California voters in 1988, requires that
all revenues produced by a tax rate increase go directly to the taxing entity
which increased such tax rate to repay that entity's general obligation
indebtedness. As a result, redevelopment agencies (which, typically, are the
issuers of tax allocation securities) no longer receive an increase in tax
increment when taxes on property in the project area are increased to repay
voter-approved bonded indebtedness.
The effect of these various constitutional and statutory changes upon
the ability of California municipal securities issuers to pay interest and
principal on their obligations remains unclear. Furthermore, other measures
affecting the taxing or spending authority of California or its political
subdivisions may be approved or enacted in the future. Legislation has been or
may be introduced which would modify existing taxes or other revenue-raising
measures
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<PAGE> 53
or which either would further limit or, alternatively, would increase the
abilities of state and local governments to impose new taxes or increase
existing taxes. It is not possible, at present, to predict the extent to which
any such legislation will be enacted. Nor is it possible, at present, to
determine the impact of any such legislation on California Municipal Obligations
in which the Fund may invest, future allocations of state revenues to local
governments or the abilities of state or local governments to pay the interest
on, or repay the principal of, such California Municipal Obligations.
Substantially all of California is within an active geologic region
subject to major seismic activity. Northern California in 1989 and Southern
California in 1994 experienced major earthquakes causing billions of dollars in
damages. The federal government provided more than $13 billion in aid for both
earthquakes, and neither event is expected to have any long-term negative
economic impact. Any California Municipal Obligation in the Fund could be
affected by an interruption of revenues because of damaged facilities, or,
consequently, income tax deductions for casualty losses or property tax
assessment reductions. Compensatory financial assistance could be constrained by
the inability of (i) an issuer to have obtained earthquake insurance coverage
rates; (ii) an insurer to perform on its contracts of insurance in the event of
widespread losses; or (iii) the federal or State government to appropriate
sufficient funds within their respective budget limitations.
OTHER INVESTMENT POLICIES AND TECHNIQUES
ILLIQUID SECURITIES
The Fund may invest in illiquid securities (i.e., securities that are
not readily marketable), including, but not limited to, restricted securities
(securities the disposition of which is restricted under the Federal securities
laws), securities that may only be resold pursuant to Rule 144A under the
Securities Act of 1933, as amended (the "Securities Act"); and repurchase
agreements with maturities in excess of seven days.
Restricted securities may be sold only in privately negotiated
transactions or in a public offering with respect to which a registration
statement is in effect under the Securities Act. Where registration is required,
the Fund may be obligated to pay all or part of the registration expenses and a
considerable period may elapse between the time of the decision to sell and the
time the Fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, the Fund might obtain a less favorable price than that which
prevailed when it decided to sell. Illiquid securities will be priced at a fair
value as determined in good faith by the Board of Trustees or its delegate.
PORTFOLIO TRADING AND TURNOVER RATE
Portfolio trading may be undertaken to accomplish the investment
objectives of the Fund in relation to actual and anticipated movements in
interest rates. In addition, a security may be sold and another of comparable
quality purchased at approximately the same time to take advantage of what
Nuveen Advisory believes to be a temporary price disparity between the two
securities. Temporary price disparities between two comparable securities may
result from supply and demand imbalances where, for example, a temporary
oversupply of certain bonds may cause a temporarily low price for such bonds, as
compared with other bonds of like quality and characteristics. The Fund may also
engage to a limited extent in short-term trading consistent with its investment
objectives. Securities may be sold in anticipation of a market decline (a rise
in interest rates) or purchased in anticipation of a market rise (a decline in
interest rates) and later sold, but the Fund will not engage in trading solely
to recognize a gain.
Subject to the foregoing, the Fund will attempt to achieve its
investment objectives by prudent selection of municipal bonds with a view to
holding them for investment. While there can be no assurance thereof, the Fund
anticipates that its annual portfolio turnover rate will generally not exceed
100%. However, the rate of turnover will not be a limiting factor when the Fund
deems it desirable to sell or purchase securities. Therefore, depending upon
market conditions, the annual portfolio turnover rate of the Fund may exceed
100% in particular years.
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<PAGE> 54
OTHER INVESTMENT COMPANIES
The Fund may invest in securities of other open or closed-end
investment companies that invest primarily in municipal bonds of the types in
which the Fund may invest directly. The Fund generally expects to invest in
other investment companies either during periods when it has large amounts of
uninvested cash, such as the period shortly after the Fund receives the proceeds
of the offering of its Common Shares or MuniPreferred Shares, or during periods
when there is a shortage of attractive, high-yielding municipal bonds available
in the market. As a shareholder in an investment company, the Fund will bear its
ratable share of that investment company's expenses and would remain subject to
payment of the Fund's management, advisory and administrative fees with respect
to assets so invested. Common Shareholders would therefore be subject to
duplicative expenses to the extent the Fund invests in other investment
companies. Nuveen Advisory will take expenses into account when evaluating the
investment merits of an investment in the investment company relative to
available municipal bond investments.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may buy and sell municipal bonds on a when-issued or delayed
delivery basis, making payment or taking delivery at a later date, normally
within 15-45 days of the trade date. On such transactions the payment obligation
and the interest rate are fixed at the time the buyer enters into the
commitment. Beginning on the date the Fund enters into a commitment to purchase
securities on a when-issued or delayed delivery basis, the Fund is required
under rules of the Securities and Exchange Commission to maintain in a separate
account liquid assets, consisting of cash, cash equivalents or liquid securities
having a market value at all times of at least equal to the amount of the
commitment. Income generated by any such assets which provide taxable income for
Federal income tax purposes is includable in the taxable income of the Fund and
will be distributed as taxable distributions to shareholders. The Fund may enter
into contracts to purchase municipal bonds on a forward basis (i.e., where
settlement will occur more than 60 days from the date of the transaction) only
to the extent that the Fund specifically collateralizes such obligations with a
security that is expected to be called or mature within sixty days before or
after the settlement date of the forward transaction. The commitment to purchase
securities on a when-issued, delayed delivery or forward basis may involve an
element of risk because no interest accrues on the bonds prior to settlement and
at the time of delivery the market value may be less than cost.
REPURCHASE AGREEMENTS
As temporary investments, the Fund may invest in repurchase agreements.
A repurchase agreement is a contractual agreement whereby the seller of
securities (U.S. Government securities or municipal bonds) agrees to repurchase
the same security at a specified price on a future date agreed upon by the
parties. The agreed-upon repurchase price determines the yield during the Fund's
holding period. Repurchase agreements are considered to be loans collateralized
by the underlying security that is the subject of the repurchase contract.
Income generated from transactions in repurchase agreements will be taxable. See
"Tax Matters" for information relating to the allocation of taxable income
between Common Shares and MuniPreferred Shares, if any. The Fund will only enter
into repurchase agreements with registered securities dealers or domestic banks
that, in the opinion of Nuveen Advisory, present minimal credit risk. The risk
to the Fund is limited to the ability of the issuer to pay the agreed-upon
repurchase price on the delivery dates; however, although the value of the
underlying collateral at the time the transaction is entered into always equals
or exceeds the agreed-upon repurchase price, if the value of the collateral
declines there is a risk of loss of both principal and interest. In the event of
default, the collateral may be sold but the Fund might incur a loss if the value
of the collateral declines, and might incur disposition costs or experience
delays in connection with liquidating the collateral. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization upon the collateral by the Fund may be delayed or limited. Nuveen
Advisory will monitor the value of the collateral at the time the transaction is
entered into and at all times subsequent during the term of the repurchase
agreement in an effort to determine that such value always equal or exceeds the
agreed-upon repurchase price. In the event the value of the collateral declines
below the repurchase price, Nuveen Advisory will demand additional collateral
from the issuer to increase the value of the collateral to at least that of the
repurchase price, including interest.
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<PAGE> 55
ZERO COUPON BONDS
The Fund may invest in zero coupon bonds. A zero coupon bond is a bond
that does not pay interest for its entire life. The market prices of zero coupon
bonds are affected to a greater extent by changes in prevailing levels of
interest rates and thereby tend to be more volatile in price than securities
that pay interest periodically. In addition, because the Fund accrues income
with respect to these securities prior to the receipt of such interest, it may
have to dispose of portfolio securities under disadvantageous circumstances in
order to obtain cash needed to pay income dividends in amounts necessary to
avoid unfavorable tax consequences.
MANAGEMENT OF THE FUND
TRUSTEES AND OFFICERS
The management of the Fund, including general supervision of the duties
performed for the Fund under the Management Agreement, is the responsibility of
Board of Trustees. The number of trustees of the Fund is currently set at seven,
one of whom is an "interested person" (as the term "interested persons" is
defined in the Investment Company Act of 1940) and six of whom are not
"interested persons." The names and business addresses of the trustees and
officers of the Fund and their principal occupations and other affiliations
during the past five years are set forth below, with those trustees who are
"interested persons" of the Fund indicated by an asterisk.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NAME, AGE AND ADDRESS WITH FUND PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
- --------------------- --------------------- --------------------------------------------
<S> <C> <C>
Timothy R. Schwertfeger*, 50 Chairman and Trustee Chairman since July 1, 1996 of The John Nuveen
333 West Wacker Drive Company, John Nuveen & Co. Incorporated,
Chicago, IL 60606 Nuveen Advisory Corp. and Nuveen Institutional
Advisory Corp.; prior thereto, Executive Vice
President and Director of The John Nuveen
Company, John Nuveen & Co. Incorporated,
Nuveen Advisory Corp. and Nuveen Institutional
Advisory Corp.; Chairman and Director (since
January 1997) of Nuveen Asset Management, Inc.;
Director (since 1996) of Institutional Capital
Corporation.
Robert P. Bremner, 58 Trustee Private Investor and Management Consultant.
3725 Huntington Street, N.W.
Washington, D.C. 20015
Lawrence H. Brown, 64 Trustee Retired (August 1989) as Senior Vice President of
201 Michigan Avenue The Northern Trust Company
Highwood, IL 60040
Anne E. Impellizzeri, 66 Trustee Executive Director of Manitoga (Center for Russel
5 Peter Cooper Road Wright's Design with Nature); formerly President
New York, NY 10010 and Chief Executive Officer of Blanton-Peale
Institute.
Peter R. Sawers, 66 Trustee Adjunct Professor of Business and Economics,
22 The Landmark University of Dubuque, Iowa; Adjunct Professor,
Northfield, IL 60093 Lake Forest Graduate School of Management, Lake
Forest, Illinois; Chartered Financial Analyst;
Certified Management Consultant.
</TABLE>
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<PAGE> 56
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NAME, AGE AND ADDRESS WITH FUND PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
- --------------------- --------------------- --------------------------------------------
<S> <C> <C>
William J. Schneider, 54 Trustee Senior partner and Chief Operating Officer,
4000 Miller-Valentine Court Miller-Valentine Partners, Vice President,
P.O. Box 744 Miller-Valentine Group (commercial real estate);
Dayton, OH 45401 Member Community Advisory Board, National City
Bank, Dayton, Ohio.
Judith M. Stockdale, 51 Trustee Executive Director, Gaylord and Dorothy
35 East Wacker Drive Donnelley Foundation (since 1994); prior thereto,
Suite 2600 Executive Director, Great Lakes Protection Fund
Chicago, IL 60601 (from 1990 to 1994).
Alan G. Berkshire, 38 Vice President and Vice President and General Counsel (since
333 West Wacker Drive Assistant Secretary September 1997) and Secretary (since May 1998)
Chicago, IL 60606 of The John Nuveen Company, John Nuveen & Co.
Incorporated, Nuveen Advisory Corp. and Nuveen
Institutional Advisory Corp., prior thereto, Partner
in the law firm of Kirkland & Ellis.
Peter H. D'Arrigo, 31 Vice President and Vice President of John Nuveen & Co. Incorporated
333 West Wacker Drive Treasurer (January 1999), prior thereto, Assistant Vice
Chicago, IL 60606 President (January 1997); formerly, Associate of
John Nuveen & Co. Incorporated; Chartered
Financial Analyst.
Michael S. Davern, 41 Vice President Vice President of Nuveen Advisory Corp. (since
333 West Wacker Drive January 1997); prior thereto, Vice President and
Chicago, IL 60606 Portfolio Manager of Flagship Financial.
Lorna C. Ferguson, 53 Vice President Vice President of John Nuveen & Co.
333 West Wacker Drive Incorporated; Vice President (since January 1998)
Chicago, IL 60606 of Nuveen Advisory Corp. and Nuveen
Institutional Advisory Corp.
William M. Fitzgerald, 35 Vice President Vice President of Nuveen Advisory Corp. (since
333 West Wacker Drive December 1995); Assistant Vice President of
Chicago, IL 60606 Nuveen Advisory Corp. (from September 1992 to
December 1995), prior thereto, Assistant
Portfolio Manager of Nuveen Advisory Corp.;
Chartered Financial Analyst.
Stephen D. Foy, 44 Vice President and Vice President of John Nuveen & Co.
333 West Wacker Drive Controller Incorporated; Certified Public Accountant.
Chicago, IL 60606
J. Thomas Futrell, 43 Vice President Vice President of Nuveen Advisory Corp.;
333 West Wacker Drive Chartered Financial Analyst.
Chicago, IL 60606
Richard A. Hubert, 36 Vice President Vice President of Nuveen Institutional Advisory
333 West Wacker Drive Corp. (since March 1998) and Nuveen Advisory
Chicago, IL 60606 Corp. (since January 1997); prior thereto, Vice
President and Portfolio Manager of Flagship
Financial.
</TABLE>
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<PAGE> 57
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NAME, AGE AND ADDRESS WITH FUND PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
- --------------------- --------------------- --------------------------------------------
<S> <C> <C>
Steven J. Krupa, 41 Vice President Vice President of Nuveen Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
Larry W. Martin, 47 Vice President and Vice President, Assistant Secretary and Assistant
333 West Wacker Drive Assistant Secretary General Counsel of John Nuveen & Co.
Chicago, IL 60606 Incorporated; Vice President and Assistant
Secretary of Nuveen Advisory Corp. and Nuveen
Institutional Advisory Corp.; Vice President and
Assistant Secretary (since January 1997) of Nuveen
Asset Management, Inc.; Assistant Secretary of
The John Nuveen Company.
Edward F. Neild, IV, 33 Vice President Vice President (since September 1996); previously
333 West Wacker Drive Assistant Vice President (since December 1993) of
Chicago, IL 60606 Nuveen Advisory Corp., Portfolio Manager prior
thereto; Vice President (since September 1996),
previously Assistant Vice President (since May
1995), of Nuveen Institutional Advisory Corp.,
Portfolio Manager prior thereto; Chartered
Financial Analyst.
Stephen S. Peterson, 41 Vice President Vice President (since September 1997), previously
333 West Wacker Drive Assistant Vice President (since September 1996) of
Chicago, IL 60606 Nuveen Advisory Corp., Portfolio Manager prior thereto;
Chartered Financial Analyst.
Stuart W. Rogers, 42 Vice President Vice President of John Nuveen & Co. Incorporated.
333 West Wacker Drive
Chicago, IL 60606
Thomas C. Spalding, Jr., 47 Vice President Vice President of Nuveen Advisory Corp. and
333 West Wacker Drive Nuveen Institutional Advisory Corp.; Chartered
Chicago, IL 60606 Financial Analyst.
William S. Swanson, 33 Vice President Vice President of John Nuveen & Co. Incorporated
333 West Wacker Drive (since October 1997), prior thereto, Assistant Vice
Chicago, IL 60606 President (since September 1996); formerly, Associate
of John Nuveen & Co. Incorporated); Chartered
Financial Analyst.
Gifford R. Zimmerman, 42 Vice President and Vice President, Assistant Secretary and Associate
333 West Wacker Drive Secretary General Counsel of John Nuveen & Co. Incorporated;
Chicago, IL 60606 Vice President and Assistant Secretary of Nuveen
Advisory Corp., Vice President and Assistant Secretary
of Nuveen Institutional Advisory Corp.; Assistant
Secretary, The John Nuveen Company (since May
1994); Chartered Financial Analyst.
</TABLE>
Peter R. Sawers and Timothy R. Schwertfeger serve as members of the
Executive Committee of the Board of Trustees. The Executive Committee, which
meets between regular meetings of the Board of Trustees, is authorized to
exercise all of the powers of the Board of Trustees.
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<PAGE> 58
Mr. Schwertfeger is also a director or trustee, as the case may be, of
100 Nuveen open-end and closed-end funds advised by Nuveen Advisory and Nuveen
Institutional Advisory Corp.
The other trustees of the Fund are directors or trustees, as the case
may be, of 36 open-end funds and 53 Nuveen closed-end funds advised by Nuveen
Advisory.
At the next annual meeting, holders of MuniPreferred Shares, voting as
a separate class, will elect two trustees and the remaining trustees shall be
elected by Common Shareholders and holders of MuniPreferred Shares, voting
together as a single class.
The following table sets forth compensation to be paid by the Fund
projected through the end of the Fund's first full fiscal year. The Fund has no
retirement or pension plans. The officers and trustees affiliated with Nuveen
serve without any compensation from the Fund.
<TABLE>
<CAPTION>
ESTIMATED AGGREGATE ESTIMATED TOTAL COMPENSATION
NAME OF TRUSTEE COMPENSATION FROM FUND* FROM FUND AND FUND COMPLEX**
--------------- ----------------------- ----------------------------
<S> <C> <C>
Robert P. Bremner $132 $68,000(1)
Lawrence H. Brown $143 $74,000
Anne E. Impellizzeri $132 $68,000(2)
Peter R. Sawers $132 $68,000(2)
William J. Schneider $132 $68,000(2)
Judith M. Stockdale $132 $68,000(3)
</TABLE>
- ------------------
* Based on the estimated compensation to be earned by the independent
trustees for the period from inception to the fiscal year ending 10/31/99
for services to the trust.
** Based on the estimated compensation paid to the trustees for the one year
period ending 12/31/99 for services to the open-end and closed-end funds
advised by Nuveen Advisory.
(1) Includes $7,871 in estimated deferred compensation.
(2) Includes $52,470 in estimated deferred compensation.
(3) Includes $13,118 in estimated deferred compensation.
The Fund has no employees. Its officers are compensated by Nuveen
Advisory or Nuveen.
INVESTMENT ADVISER
Nuveen Advisory acts as investment adviser to the Fund, with
responsibility for the overall management of the Fund. Its address is 333 West
Wacker Drive, Chicago, Illinois 60606. Nuveen Advisory is also responsible for
managing the Fund's business affairs and providing day-to-day administrative
services to the Fund. For additional information regarding the management
services performed by Nuveen Advisory, see "Management of the Fund" in the
Prospectus.
Nuveen Advisory is a wholly-owned subsidiary of Nuveen, which is also a
co-managing underwriter of the Fund's shares. Nuveen is sponsor of the Nuveen
Defined Portfolios, registered unit investment trusts, is the principal
underwriter for the Nuveen Mutual Funds, and has served as co-managing
underwriter for the shares of the Nuveen Exchange-Traded Funds. Over 1,300,000
individuals have invested to date in Nuveen's funds and trusts. Founded in 1898,
Nuveen brings over a century of expertise to the municipal bond market.
According to data from Strategic Insight, Nuveen is the leading sponsor of
exchange-traded municipal bond funds as measured by number of funds (57) and
fund assets under management ($26 billion). Overall, Nuveen and its affiliates
manage more than $55 billion in assets in a variety of products. Nuveen is a
subsidiary of The John Nuveen Company which, in turn, is approximately 78% owned
by The St. Paul Companies, Inc. ("St. Paul"). St. Paul is a publicly-traded
company located in St. Paul Minnesota, and is principally engaged in providing
property-liability insurance through subsidiaries.
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<PAGE> 59
Pursuant to an investment management agreement between Nuveen Advisory
and the Fund, the Fund has agreed to pay for the services and facilities
provided by Nuveen Advisory an annual management fee, payable on a monthly
basis, according to the following schedule:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET VALUE MANAGEMENT FEE
----------------------------- --------------
<S> <C>
For the first $125 million........ .6500%
For the next $125 million......... .6375%
For the next $250 million......... .6250%
For the next $500 million......... .6125%
For the next $1 billion........... .6000%
For assets over $2 billion........ .5750%
</TABLE>
All fees and expenses are accrued daily and deducted before payment of
dividends to investors. The investment management agreement has been approved by
a majority of the disinterested trustees of the Fund and the sole shareholder of
the Fund.
For the first ten years of the Fund's operation, Nuveen Advisory has
agreed to reduce the Fund's operating expenses by waiving the percentage of its
management fee set forth below:
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
REIMBURSED REIMBURSED
(as a percentage (as a percentage
YEAR ENDING of average daily YEAR ENDING of average daily
JULY 31 net assets) JULY 31 net assets)
---------- ---------- ---------- ----------
<S> <C> <C> <C>
1999 .30% 2005 .25%
2000 .30% 2006 .20%
2001 .30% 2007 .15%
2002 .30% 2008 .10%
2003 .30% 2009 .05%
2004 .30%
</TABLE>
- ------------------
* From the commencement of operations.
Reducing Fund expenses in this manner will tend to increase the amount
of income available for the Common Shareholders. Nuveen Advisory has not agreed
to reimburse the Fund for any portion of its fees and expenses beyond July 31,
2009.
PORTFOLIO TRANSACTIONS
Nuveen Advisory is responsible for decisions to buy and sell securities
for the Fund and for the placement of the Fund's securities business, the
negotiation of the prices to be paid for principal trades and the allocation of
its transactions among various dealer firms. Portfolio securities will normally
be purchased directly from an underwriter or in the over-the-counter market from
the principal dealers in such securities, unless it appears that a better price
or execution may be obtained through other means. Portfolio securities will not
be purchased from Nuveen or its affiliates except in compliance with the 1940
Act.
The Fund expects that substantially all portfolio transactions will be
effected on a principal (as opposed to an agency) basis and, accordingly, does
not expect to pay any brokerage commissions. Purchase from underwriters will
include a commission or concession paid by the issuer to the underwriter, and
purchases from dealers will include the spread between the bid and asked price.
It is the policy of Nuveen Advisory to seek the best execution under the
circumstances of each trade. Nuveen Advisory evaluates price as the primary
consideration, with the financial condition, reputation and responsiveness of
the dealer considered secondary in determining best execution. Given the best
execution obtainable, it will be Nuveen Advisory's practice to select dealers
which, in addition, furnish research information (primarily credit analysis of
issuers and general economic reports) and statistical and other services to
Nuveen Advisory. It is not possible to place a dollar value on information and
statistical and other services received
S-22
<PAGE> 60
from dealers. Since it is only supplementary to Nuveen Advisory's own research
efforts, the receipt of research information is not expected to reduce
significantly Nuveen Advisory's expenses. While Nuveen Advisory will be
primarily responsible for the placement of the business of the Fund, and
policies and practices of Nuveen Advisory in this regard must be consistent with
the foregoing and will, at all times, be subject to review by the Board of
Trustees of the Fund.
Nuveen Advisory may manage other investment accounts and investment
companies for other clients which have investment objectives similar to those of
the Fund. Subject to applicable laws and regulations, Nuveen Advisory seeks to
allocate portfolio transactions equitably whenever concurrent decisions are made
to purchase or sell securities by the Fund and another advisory account. In
making such allocations the main factors to be considered will be the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment and the size of
investment commitments generally held. While this procedure could have a
detrimental effect on the price or amount of the securities available to the
Fund from time to time, it is the opinion of the Board of Trustees that the
benefits available from Nuveen Advisory's organization will outweigh any
disadvantage that may arise from exposure to simultaneous transactions.
Under the 1940 Act, the Fund may not purchase portfolio securities from
any underwriting syndicate of which Nuveen is a member except under certain
limited conditions set forth in Rule 10f-3. The rule sets forth requirements
relating to, among other things, the terms of an issue of municipal bonds
purchased by the Fund, the amount of municipal bonds which may be purchased in
any one issue and the assets of the Fund that may be invested in a particular
issue. In addition, purchases of securities made pursuant to the terms of the
Rule must be approved at least quarterly by the Board of Trustees, including a
majority of the members thereof who are not interested persons of the Fund.
NET ASSET VALUE
The Fund's net asset value per share is determined as of the close of
trading (normally 4:00 p.m. eastern time) on each day the New York Stock
Exchange is open for business. Net asset value is calculated by taking the fair
value of the Fund's total assets, including interest or dividends accrued but
not yet collected, less all liabilities, and dividing by the total number of
shares outstanding. The result, rounded to the nearest cent, is the net asset
value per share.
In determining net asset value, expenses are accrued and applied daily
and securities and other assets for which market quotations are available are
valued at market value. The prices of municipal bonds are provided by a pricing
service and based on the mean between the bid and asked price. When price quotes
are not readily available (which is usually the case for municipal bonds), the
pricing service establishes a fair market value based on prices of comparable
municipal bonds. All valuations are subject to review by the Fund's Board of
Trustees or its delegate, Nuveen Advisory.
ADDITIONAL INFORMATION CONCERNING
THE AUCTIONS FOR MUNIPREFERRED
GENERAL
AUCTION AGENCY AGREEMENT. The Fund has entered into an Auction Agency
Agreement (the "Auction Agency Agreement") with the Auction Agent (currently,
Bankers Trust Company) which provides, among other things, that the Auction
Agent will follow the Auction Procedures for purposes of determining the
Applicable Rate for shares of each series of MuniPreferred so long as the
Applicable Rate for shares of such series is to be based on the results of an
Auction.
BROKER-DEALER AGREEMENTS. Each Auction requires the participation of
one or more Broker-Dealers. The Auction Agent has entered into agreements
(collectively, the "Broker-Dealer Agreements") with several Broker-Dealers
selected by the Fund, which provide for the participation of those
Broker-Dealers in Auctions for shares of MuniPreferred. See "Broker-Dealers"
below.
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<PAGE> 61
SECURITIES DEPOSITORY. The Depository Trust Company ("DTC") will act as
the Securities Depository for the Agent Members with respect to shares of each
series of MuniPreferred. One certificate for all of the shares of each series of
MuniPreferred will be registered in the name of Cede, as nominee of the
Securities Depository. Such certificate will bear a legend to the effect that
such certificate is issued subject to the provisions restricting transfers of
shares of MuniPreferred contained in the Statement. The Fund will also issue
stop-transfer instructions to the transfer agent for shares of each series of
MuniPreferred. Prior to the commencement of the right of holders of preferred
shares to elect a majority of the Fund's trustees, as described under
"Description of MuniPreferred -- Voting Rights" in the Prospectus, Cede will be
the holder of record of all shares of each series of MuniPreferred and owners of
such shares will not be entitled to receive certificates representing their
ownership interest in such shares.
DTC, a New York-chartered limited purpose trust company, performs
services for its participants (including the Agent Members), some of whom
(and/or their representatives) own DTC. DTC maintains lists of its participants
and will maintain the positions (ownership interests) held by each such
participant (the "Agent Member") in shares of MuniPreferred, whether for its own
account or as a nominee for another person.
CONCERNING THE AUCTION AGENT
The Auction Agent is acting as agent for the Fund 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
Agency Agreement and will not be liable any error of judgment made in good faith
unless the Auction Agent will have been negligent in ascertaining the pertinent
facts.
The Auction Agent may rely upon, as evidence of the identities of the
Existing Holders of shares of MuniPreferred, the Auction Agent's registry of
Existing Holders, the results of Auctions and notices from any Broker-Dealer (or
other Person, if permitted by the Fund) with respect to transfers described
under "The Auction -- Secondary Market Trading and Transfer of MuniPreferred" in
the Prospectus and notices from the Fund. The Auction Agent is not required to
accept any such notice for an Auction unless it is received by the Auction Agent
by 3:00 p.m., New York City time, on the Business Day preceding such Auction.
The Auction Agent may terminate the Auction Agency Agreement upon
notice to the Fund on a date no earlier than 45 days after such notice. If the
Auction Agent should resign, the Fund 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 Agency Agreement. The Fund may remove the Auction
Agent provided that prior to such removal the Fund shall have entered into such
an agreement with a successor Auction Agent.
BROKER-DEALERS
The Auction Agent after each Auction for shares of MuniPreferred will
pay to each Broker-Dealer, from funds provided by the Fund, a service charge at
the annual rate of 1/4 of 1% in the case of any Auction immediately preceding a
Rate Period of less than one year, or a percentage agreed to by the Fund and the
Broker-Dealers in the case of any Auction immediately preceding a Rate Period of
one year or longer, of the purchase price of shares of MuniPreferred placed by
such Broker-Dealer at such Auction. For the purposes of the preceding sentence,
shares of MuniPreferred will be placed by a Broker-Dealer if such shares were
(a) the subject of Hold Orders deemed to have been submitted to the Auction
Agent by the Broker-Dealer and were acquired by such Broker-Dealer for its own
account or were acquired by such Broker-Dealer for its customers who are
Beneficial Owners or (b) the subject of an Order submitted by such Broker-Dealer
that is (i) a Submitted Bid of an Existing Holder that resulted in such Existing
Holder continuing to hold such shares as a result of the Auction or (ii) a
Submitted Bid of a Potential Holder that resulted in such Potential Holder
purchasing such shares as a result of the Auction or (iii) a valid Hold Order.
The Fund may request the Auction Agent to terminate one or more
Broker-Dealer Agreements at any time, provided that at least one Broker-Dealer
Agreement is in effect after such termination.
The Broker-Dealer Agreement provides that a Broker-Dealer (other than
an affiliate of the Fund) may submit Orders in Auctions for its own account,
unless the Fund notifies all Broker-Dealers that they may no longer do so, in
S-24
<PAGE> 62
which case Broker-Dealers may continue to submit Hold Orders and Sell Orders for
their own accounts. Any Broker-Dealer that is an affiliate of the Fund may
submit Orders in Auctions, but only if such Orders are not for its own account.
If a Broker-Dealer submits an Order for its own account in any Auction, it might
have an advantage over other Bidders because it would have knowledge of all
Orders submitted by it in that Auction; such Broker-Dealer, however, would not
have knowledge of Orders submitted by other Broker-Dealers in that Auction.
CERTAIN PROVISIONS IN THE DECLARATION OF TRUST
Under the Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund.
However, the Declaration contains an express disclaimer of shareholder liability
for debts or obligations of the Fund and requires that notice of such limited
liability be given in each agreement, obligation or instrument entered into or
executed by the Fund or the trustees. The Declaration further provides for
indemnification out of the assets and property of the Fund for all loss and
expense of any shareholder held personally liable for the obligations of the
Fund. Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Fund would be
unable to meet its obligations. The Fund believes that the likelihood of such
circumstances is very remote.
The Declaration includes provisions that could limit the ability of
other entities or persons to acquire control of the Fund. Specifically, the
Declaration requires a vote by holders of at least two-thirds of the Common
Shares and MuniPreferred Shares, voting together as a single class, except as
described below, to authorize (1) a conversion of the Fund from a closed-end to
an open-end investment company, (2) a merger or consolidation of the Fund, or a
series or class of the Fund, with any corporation, association, trust or other
organization or a reorganization or recapitalization of the Fund, or a series or
class of the Fund, (3) a sale, lease or transfer of all or substantially all of
the Fund's assets (other than in the regular course of the Fund's investment
activities), (4) in certain circumstances, a termination of the Fund, or a
series or class of the Fund or (5) removal of trustees, and then only for cause,
unless, with respect to (1) through (4), such transaction has already been
authorized by the affirmative vote of two-thirds of the total number of trustees
fixed in accordance with the Declaration or the By-laws, in which case the
affirmative vote of the holders of at least a majority of the Fund's Common
Shares and MuniPreferred Shares outstanding at the time, voting together as a
single class, is required, provided, however, that where only a particular class
or series is affected (or, in the case of removing a trustee, when the trustee
has been elected by only one class), only the required vote by the applicable
class or series will be required. None of the foregoing provisions may be
amended except by the vote of at least two-thirds of the Common Shares and
MuniPreferred Shares, voting together as a single class. In the case of the
conversion of the Fund to an open-end investment company, or in the case of any
of the foregoing transactions constituting a plan of reorganization which
adversely affects the holders of MuniPreferred Shares, the action in question
will also require the affirmative vote of the holders of at least two-thirds of
the Fund's MuniPreferred Shares outstanding at the time, voting as a separate
class, or, if such action has been authorized by the affirmative vote of
two-thirds of the total number of trustees fixed in accordance with the
Declaration or the By-laws, the affirmative vote of the holders of at least a
majority of the Fund's MuniPreferred Shares outstanding at the time, voting as a
separate class. The votes required to approve the conversion of the Fund from a
closed-end to an open-end company or to approve transactions constituting a plan
of reorganization which investment adversely affects the holders of
MuniPreferred Shares are higher than those required by the 1940 Act. The Board
of Trustees believes that the provisions of the Declaration relating to such
higher votes are in the best interest of the Fund and its shareholders.
Reference should be made to the Declaration on file with the Securities
and Exchange Commission for the full text of these provisions.
The Declaration provides that the obligations of the Fund are not
binding upon the trustees of the Fund individually, but only upon the assets and
property of the Fund, and that the trustees shall not be liable for errors of
judgment or mistakes of fact or law. Nothing in the Declaration, however,
protects a trustee against any liability 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.
S-25
<PAGE> 63
REPURCHASE OF COMMON SHARES; CONVERSION TO OPEN-END FUND
The Fund is a closed-end investment company and as such its
shareholders will not have the right to cause the Fund to redeem their shares.
Instead, the Fund's Common Shares will trade in the open market at a price that
will be a function of several factors, including dividend levels (which are in
turn affected by expenses), net asset value, call protection, price, dividend
stability, relative demand for and supply of such shares in the market, general
market and economic conditions and other factors. Because shares of a closed-end
investment company may frequently trade at prices lower than net asset value,
the Fund's Board of Trustees has currently determined that, at least annually,
it will consider action that might be taken to reduce or eliminate any material
discount from net asset value in respect of Common Shares, which may include the
repurchase of such shares in the open market or in private transactions, the
making of a tender offer for such shares at net asset value, or the conversion
of the Fund to an open-end investment company. There can be no assurance,
however, that the Board of Trustees will decide to take any of the these
actions, or that share repurchases or tender offers, if undertaken, will reduce
market discount.
Notwithstanding the foregoing, at any time when the Fund's
MuniPreferred Shares are outstanding, the Fund may not purchase, redeem or
otherwise acquire any of its Common Shares unless (1) all accrued MuniPreferred
Shares dividends have been paid and (2) at the time of such purchase, redemption
or acquisition, the net asset value of the Fund's portfolio (determined after
deducting the acquisition price of the Common Shares) is at least 200% of the
liquidation value of the outstanding MuniPreferred Shares (expected to equal the
original purchase price per share plus any accrued and unpaid dividends
thereon). The staff of the Securities and Exchange Commission currently requires
that any tender offer made by a closed-end investment company for its shares
must be at a price equal to the net asset value of such shares on the close of
business on the last day of the tender offer. Any service fees incurred in
connection with any tender offer made by the Fund will be borne by the Fund and
will not reduce the stated consideration to be paid to tendering shareholders.
Subject to its investment limitations, the Fund may borrow to finance
the repurchase of shares or to make a tender offer. Interest on any borrowings
to finance share repurchase transactions or the accumulation of cash by the Fund
in anticipation of share repurchases or tenders will reduce the Fund's net
income. Any share repurchase, tender offer or borrowing that might be approved
by the Board of Trustees would have to comply with the Securities Exchange Act
of 1934, as amended, and the 1940 Act and the rules and regulations thereunder.
Although the decision to take action in response to a discount from net
asset value will be made by the Board at the time it considers such issue, it is
the Board's present policy, which may be changed by the Board, not to authorize
repurchases of Common Shares or a tender offer for such shares if (1) such
transactions, if consummated, would (a) result in the delisting of the Common
Shares from the New York Stock Exchange, or (b) impair the Fund's status as a
regulated investment company under the Code (which would make the Fund a taxable
entity, causing the Fund's income to be taxed at the corporate level in addition
to the taxation of shareholders who receive dividends from the Fund) or as a
registered closed-end investment company under the 1940 Act; (2) the Fund would
not be able to liquidate portfolio securities in an orderly manner and
consistent with the Fund's investment objectives and policies in order to
repurchase shares; or (3) there is, in the Board's judgment, any (a) material
legal action or proceeding instituted or threatened challenging such
transactions or otherwise materially adversely affecting the Fund, (b) general
suspension of or limitation on prices for trading securities on the New York
Stock Exchange, (c) declaration of a banking moratorium by Federal or state
authorities or any suspension of payment by United States banks in which the
Fund invests, (d) material limitation affecting the Fund or the issuers of its
portfolio securities by Federal or state authorities on the extension of credit
by lending institutions or on the exchange of foreign currency, (e) commencement
of war, armed hostilities or other international or national calamity directly
or indirectly involving the United States, or (f) other event or condition which
would have a material adverse effect (including any adverse tax effect) on the
Fund or its shareholders if shares were repurchased. The Board of Trustees may
in the future modify these conditions in light of experience.
Conversion to an open-end company would require the approval of the
holders of at least two-thirds of the Fund's Common Shares and MuniPreferred
Shares outstanding at the time, voting together as a single class, and of the
holders of at least two-thirds of the Fund's MuniPreferred Shares outstanding at
the time, voting as a separate class, provided, however, that such separate
class vote shall be a majority vote if the action in question has previously
been approved, adopted or authorized by the affirmative vote of two-thirds of
the total number of trustees fixed in accordance
S-26
<PAGE> 64
with the Declaration or By-laws. See the Prospectus under "Certain Provisions in
the Declaration of Trust" for a discussion of voting requirements applicable to
conversion of the Fund to an open-end company. If the Fund converted to an
open-end company, it would be required to redeem all MuniPreferred Shares then
outstanding, and the Fund's Common Shares would no longer be listed on the New
York Stock Exchange. Shareholders of an open-end investment company may require
the company to redeem their shares at any time (except in certain circumstances
as authorized by or under the 1940 Act) at their net asset value, less such
redemption charge, if any, as might be in effect at the time of redemption. In
order to avoid maintaining large cash positions or liquidating favorable
investments to meet redemptions, open-end companies typically engage in a
continuous offering of their shares. Open-end companies are thus subject to
periodic asset in-flows and out-flows that can complicate portfolio management.
The Board of Trustees may at any time propose conversion of the Fund to an
open-end company depending upon their judgment as to the advisability of such
action in light of circumstances then prevailing.
The repurchase by the Fund of its shares at prices below net asset
value will result in an increase in the net asset value of those shares that
remain outstanding. However, there can be no assurance that share repurchases or
tenders at or below net asset value will result in the Fund's shares trading at
a price equal to their net asset value. Nevertheless, the fact that the Fund's
shares may be the subject of repurchase or tender offers at net asset value from
time to time, or that the Fund may be converted to an open-end company, may
reduce any spread between market price and net asset value that might otherwise
exist.
In addition, a purchase by the Fund of its Common Shares will decrease
the Fund's total assets which would likely have the effect of increasing the
Fund's expense ratio. Any purchase by the Fund of its Common Shares at a time
when MuniPreferred Shares are outstanding will increase the leverage applicable
to the outstanding Common Shares then remaining.
Before deciding whether to take any action if the Common Shares trade
below net asset value, the Board would consider all relevant factors, including
the extent and duration of the discount, the liquidity of the Fund's portfolio,
the impact of any action that might be taken on the Fund or its shareholders and
market considerations. Based on these considerations, even if the Fund's shares
should trade at a discount, the Board of Trustees may determine that, in the
interest of the Fund and its shareholders, no action should be taken.
TAX MATTERS
FEDERAL INCOME TAX MATTERS
The following is based upon the advice of Vedder, Price, Kaufman &
Kammholz, counsel to the Fund.
The Fund intends to qualify under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"), as a regulated investment company and to
satisfy conditions which enable dividends on Common Shares or shares of
MuniPreferred which are attributable to interest on Municipal Obligations to be
exempt from Federal income tax in the hands of owners of such stock, subject to
the possible application of the alternative minimum tax.
To qualify under Subchapter M for tax treatment as a regulated
investment company, the Fund must, among other things: (a) distribute to its
shareholders at least 90% of the sum of (i) its investment company taxable
income (as that term is defined in the Code determined without regard to the
deduction for dividends paid) and (ii) its net tax-exempt income and (b)
diversify its holdings so that, at the end of each fiscal quarter of the Fund
(i) at least 50% of the market value of the Fund's assets is represented by
cash, cash items, U.S. government securities and securities of other regulated
investment companies, and other securities, with these other securities limited,
with respect to any one issuer, to an amount not greater in value than 5% of the
Fund's total assets, and to not more than 10% of the outstanding voting
securities of such issue, and (ii) not more than 25% of the market value of the
Fund's assets is invested in the securities of any one issuer (other than U.S.
government securities or securities of other regulated investment companies). In
meeting these requirements of Subchapter M of the Code, the Fund may be
restricted in the utilization of certain of the investment techniques described
under "Investment Objective and Policies" above. If in any year the Fund should
fail to qualify under Subchapter M for tax treatment as a regulated investment
company, the Fund would incur a regular Federal corporate income tax upon its
taxable income for that year, and distributions to its
S-27
<PAGE> 65
shareholders would be taxable to such holders as ordinary income to the extent
of the earnings and profits of the Fund. A regulated investment company that
fails to distribute, by the close of each calendar year, an amount equal to the
sum of 98% of its ordinary taxable income for such year and 98% of its capital
gain net income for the one year period ending October 31 in such year, plus any
shortfalls from the prior year's required distribution, is liable for a 4%
excise tax on the portion of the undistributed amount of such income that is
less than the required amount for such distributions. To avoid the imposition of
this excise tax, the Fund generally makes the required distributions of its
ordinary taxable income, if any, and its capital gain net income, to the extent
possible, by the close of each calendar year.
The Fund intends to qualify to pay "exempt-interest" dividends on its
Common Shares and shares of MuniPreferred as defined under the Code. Under the
Code, at the close of each quarter of its taxable year, if at least 50% of the
value of its total assets consists of municipal bonds, the Fund will be
qualified to pay exempt-interest dividends to its shareholders. Exempt-interest
dividends are dividends or any part thereof (other than a capital gain dividend)
paid by the Fund which are attributable to interest on municipal bonds and are
so designated by the Fund. Exempt-interest dividends will be exempt from Federal
income tax, subject to the possible application of the Federal alternative
minimum tax. Insurance proceeds received by the Fund under any insurance
policies in respect of scheduled interest payments on defaulted municipal bonds,
as described herein, will generally be excludable from Federal gross income
under Section 103(a) of the Code. In the case of non-appropriation by a
political subdivision, however, there can be no assurance that payments made by
the issuer representing interest on such "non-appropriation" municipal lease
obligations will be excludable from gross income for Federal income tax
purposes. See "Investment Policies and Techniques" above. Gains of the Fund that
are attributable to market discount on certain Municipal Obligations acquired
after April 30, 1993 are treated as ordinary income. Distributions to
shareholders by the Fund of net income received, if any, from taxable temporary
investments and net short-term capital gains, if any, realized by the Fund will
be taxable to its shareholders as ordinary income. Distributions by the Fund of
net capital gains (i.e., the excess of net long-term capital gain over net
short-term capital loss), if any, are taxable as long-term capital gain,
regardless of the length of time the shareholder has owned Common Shares or
shares of MuniPreferred of the Fund. The amount of taxable income allocable to
the Fund's shares of MuniPreferred will depend upon the amount of such income
realized by the Fund, but is not generally expected to be significant. Except
for dividends paid on shares of MuniPreferred which include an allocable portion
of any net capital gains or other taxable income, the Fund anticipates that all
other dividends paid on shares of its MuniPreferred will constitute
exempt-interest dividends for Federal income tax purposes. Distributions, if
any, in excess of the Fund's earnings and profits will first reduce its adjusted
tax basis of a shareholder's shares and, after that basis has been reduced to
zero will constitute capital gain to the shareholder (assuming the shares are
held as a capital asset). As long as the Fund qualifies as a regulated
investment company under the Code, no part of its distributions to shareholders
will qualify for the dividends-received deduction for corporations.
The Internal Revenue Service (the "IRS") requires that a regulated
investment company that has two or more classes of shares must designate to each
such class proportionate amounts of each type of its income for each tax year
based upon the percentage of total dividends distributed to each class for such
year. The Fund intends each year to allocate, to the fullest extent practicable,
net tax-exempt interest, net capital gains and other taxable income, if any,
between its Common Shares and shares of MuniPreferred in proportion to the total
dividends paid to each class with respect to such year. To the extent permitted
under applicable law, the Fund reserves the right to make special allocations of
income within a class, consistent with the objectives of the Fund. The Fund
will, in the case of a Minimum Rate Period or a Special Rate Period of 28 Rate
Period Days, and may, in the case of any other Special Rate Period, notify the
Auction Agent of the amount of any net capital gains or other income taxable for
Federal income tax purposes to be included in any dividend on shares of its
MuniPreferred prior to the Auction establishing the Applicable Rate for such
dividend. If, (a) in the case of any Minimum Rate Period or any Special Rate
Period of 28 Rate Period Days or fewer, the Fund allocates any net capital gains
or other income taxable for Federal income tax purposes to a dividend paid on
shares of MuniPreferred without having given advance notice thereof to the
Auction Agent as required by the Statement solely by reason of the fact that
such allocation is made retroactively as a result of the redemption of all or a
portion of the outstanding shares of its MuniPreferred or the liquidation of the
Fund or (b) in the case of any Special Rate Period of more than 28 Rate Period
Days, the Fund allocates any net capital gains or other taxable income for
Federal income tax purposes to shares of its MuniPreferred without having given
advance notice thereof as described above, the Fund will make certain payments
to owners of shares of its MuniPreferred to which such allocation was made to
offset the Federal income tax effect thereof as described under "Description of
MuniPreferred -- Dividends and Dividend Periods -- Gross-up Payments" in the
Prospectus.
In order for any distributions to owners of the Fund's shares of
MuniPreferred to be eligible to be treated as exempt-interest dividends, such
shares of MuniPreferred must be treated as stock for Federal income tax
purposes.
S-28
<PAGE> 66
If at any time when the Fund's shares of MuniPreferred are outstanding
the Fund fails to meet the MuniPreferred Basic Maintenance Amount or the 1940
Act MuniPreferred Asset Coverage, the Fund will be required to suspend
distributions to holders of its Common Shares until such maintenance amount or
asset coverage, as the case may be, is restored. See "Description of
MuniPreferred -- Dividends and Dividend Periods -- Restrictions on Dividends and
Other Distributions" in the Prospectus. This may prevent the Fund from
distributing at least 90% of its investment company taxable income and net
tax-exempt income, and may therefore jeopardize the Fund's qualification for
taxation as a regulated investment company or cause the Fund to incur a tax
liability or a non-deductible 4% excise tax on the undistributed taxable income
(including gain), or both. Upon failure to meet the MuniPreferred Basic
Maintenance Amount or the 1940 Act MuniPreferred Asset Coverage, the Fund will
be required to redeem its shares of MuniPreferred in order to maintain or
restore such maintenance amount or asset coverage and avoid the adverse
consequences to the Fund and its shareholders of failing to qualify as a
regulated investment company. There can be no assurance, however, that any such
redemption would achieve such objectives.
The Code provides that interest on indebtedness incurred or continued
to purchase or carry the Fund's shares to which exempt-interest dividends are
allocated is not deductible. Under rules used by the IRS for determining when
borrowed funds are considered used for the purpose of purchasing or carrying
particular assets, the purchase or ownership of shares may be considered to have
been made with borrowed funds even though such funds are not directly used for
the purchase or ownership of such shares.
The interest on private activity bonds in most instances is not
Federally tax-exempt to a person who is a "substantial user" of a facility
financed by such bonds or a "related person" of such "substantial user." As a
result, the Fund may not be an appropriate investment for shareholders who are
considered either a "substantial user" or a "related person" within the meaning
of the Code. In general, a "substantial user" of a facility includes a
"non-exempt person who regularly uses a part of such facility in his trade or
business." "Related persons" are in general defined to include persons among
whom there exists a relationship, either by family or business, which would
result in a disallowance of losses in transactions among them under various
provisions of the Code (or if they are members of the same controlled group of
corporations under the Code), including a partnership and each of its partners
(and certain members of their families), an S corporation and each of its
shareholders (and certain members of their families) and various combinations of
these and other relationships. The foregoing is not a complete description of
all of the provisions of the Code covering the definitions of "substantial user"
and "related person."
The Fund may, at its option, redeem shares of its MuniPreferred in
whole or in part, and is required to redeem shares of its MuniPreferred to the
extent required to maintain the MuniPreferred Basic Maintenance Amount and the
1940 Act MuniPreferred Asset Coverage. Gain or loss, if any, resulting from a
redemption of the shares of MuniPreferred will be taxed as gain or loss from the
sale or exchange of the shares of MuniPreferred under Section 302 of the Code
rather than as a dividend, but only if the redemption distribution (a) is deemed
not to be essentially equivalent to a dividend, (b) is in complete redemption of
an owner's interest in the Fund, (c) is substantially disproportionate with
respect to the owner, or (d) with respect to non-corporate owners, is in partial
liquidation of the Fund. For purposes of (a), (b) and (c) above, an owner's
common shares ownership of the Fund will be taken into account.
Nonresident alien individuals and certain foreign corporations and
other entities ("foreign investors") generally are subject to U.S. withholding
tax at the rate of 30% (or possibly a lower rate provided by an applicable tax
treaty) on distributions of taxable net investment income and net short-term
capital gains. To the extent received by foreign
S-29
<PAGE> 67
investors, exempt-interest dividends, distributions of net long-term capital
gains and gain from the sale or other disposition of the shares of
MuniPreferred generally are exempt from U.S. taxation. Different tax
consequences may result if the owner is engaged in a trade or business in the
United States or, in the case of an individual, is present in the United States
for more than 182 days during a taxable year.
Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in one of those months and paid during the following
January will be treated as having been distributed by the Fund (and received by
the shareholders) on December 31 of the year declared.
Certain of the Fund's investment practices are subject to special
provisions of the Code that, among other things, may defer the use of certain
deductions or losses of the Fund and affect the holding period of securities
held by the Fund and the character of the gains or losses realized by the Fund.
These provisions may also require the Fund to recognize income or gain without
receiving cash with which to make distributions in the amounts necessary to
satisfy the requirements for maintaining regulated investment company status
and for avoiding income and excise taxes. The Fund will monitor its
transactions and may make certain tax elections in order to mitigate the effect
of these rules and prevent disqualification of the Fund as a regulated
investment company.
The sale or other disposition of Common Shares or shares of
MuniPreferred of the Fund will normally result in capital gain or loss to
shareholders. Present law taxes both long-term and short-term capital gains of
corporations at the rates applicable to ordinary income. For non-corporate
taxpayers, however, under current law short-term capital gains and ordinary
income will be taxed at a maximum rate of 39.6% while long-term capital gains
generally will be taxed at a maximum rate of 20%. However, because of the
limitations on itemized deductions and the deduction for personal exemptions
applicable to higher income taxpayers, the effective rate of tax may be higher
in certain circumstances. Losses realized by a shareholder on the sale or
exchange of shares of the Fund held for six months or less are disallowed to the
extent of any distribution of exempt-interest dividends received with respect to
such shares, and, if not disallowed, such losses are treated as long-term
capital losses to the extent of any distribution of long-term capital gain
received with respect to such shares. 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 shares of the Fund will be disallowed to
the extent those shares of the Fund are replaced by other shares within a
period of 61 days beginning 30 days before and ending 30 days after the date of
disposition of the original shares. In that event, the basis of the
replacement shares of the Fund will be adjusted to reflect the disallowed loss.
Federal tax law imposes an alternative minimum tax with respect to both
corporations and individuals. Interest on certain Municipal Obligations, such as
bonds issued to make loans for housing purposes or to private entities (but not
to certain tax-exempt organizations such as universities and non-profit
hospitals) is included as an item of tax preference in determining the amount of
a taxpayer's alternative minimum taxable income. To the extent that the Fund
receives income from Municipal Obligations subject to the Federal alternative
minimum tax, a portion of the dividends paid by it, although otherwise exempt
from Federal income tax, will be taxable to its shareholders to the extent that
their tax liability is determined under the alternative minimum tax. The Fund
will annually supply a report indicating the percentage of the Fund's income
attributable to Municipal Obligations subject to the Federal alternative minimum
tax. In addition, for certain corporations, alternative minimum taxable income
is increased by 75% of the difference between an alternative measure of income
("adjusted current earnings") and the amount otherwise determined to be the
alternative minimum taxable income. Interest on all Municipal Obligations, and
therefore all distributions by the Fund that would otherwise be tax-exempt, is
included in calculating a corporation's adjusted current earnings. Certain small
corporations are not subject to the alternative minimum tax.
Tax-exempt income, including exempt-interest dividends paid by the
Fund, is taken into account in calculating the amount of social security and
railroad retirement benefits that may be subject to Federal income tax.
The Fund is required in certain circumstances to withhold 31% of
taxable dividends and certain other payments paid to non-corporate holders of
the Fund's shares who do not furnish to the Fund their correct taxpayer
identification number (in the case of individuals, their social security number)
and certain certifications, or who are otherwise subject to backup withholding.
The Code provides that every shareholder required to file a tax return
must include for information purposes on such return the amount of tax-exempt
interest received during the taxable year, including any exempt-interest
dividends received from the Fund.
S-30
<PAGE> 68
The value of Common Shares acquired pursuant to the Fund's Dividend
Reinvestment Plan will generally be excluded from gross income to the extent
that the cash amount reinvested would be excluded from gross income.
The foregoing is a general summary of the provisions of the Code and
regulations thereunder presently in effect as they directly govern the taxation
of the Fund and its shareholders. These provisions are subject to change by
legislative or administrative action, and any such change may be retroactive.
Moreover, the foregoing does not address many of the factors that may be
determinative of whether an investor will be liable for the alternative minimum
tax. Shareholders are advised to consult their own tax advisers for more
detailed information concerning the Federal income tax consequences of
purchasing, holding, and disposing of Fund shares.
STATE TAX MATTERS
The following is a general summary of certain provisions
of the applicable California tax law as presently in effect as it directly
governs the taxation of resident individual and corporate shareholders of the
Fund. This summary does not address the taxation of other shareholders nor does
it discuss any local taxes that may be applicable. These provisions are subject
to change by legislative or administrative action, and any such change may be
retroactive with respect to transactions of the Fund.
The following is based on the assumptions that the Fund will qualify
under Subchapter M of the Code as a regulated investment company, that it will
satisfy the conditions which will cause distributions of the Fund to qualify as
exempt-interest dividends to shareholders, and that it will distribute all
interest and dividends it receives to the shareholders.
The Fund will be subject to the California corporate franchise and
corporation income tax only if it has a sufficient nexus with California. If it
is subject to the California franchise or corporation income tax, the Fund does
not expect to pay a material amount of such tax.
If at the close of each quarter of the Fund's taxable year at least 50%
of the value of its total assets consists of obligations that, when held by
individuals, pay interest that is exempt from tax under California law, then
distributions by the Fund that are attributable to interest on any such
obligation will not be subject to the California personal income tax. All other
distributions, including distributions attributable to capital gains, will be
subject to the California personal income tax.
All distributions of the Fund to corporate shareholders, regardless of
source, will be subject to the California corporate franchise tax.
Gain on the sale, exchange, or other disposition of the MuniPreferred
shares will be subject to the California personal income and corporate franchise
tax.
MuniPreferred may be subject to the California estate tax if held by a
California decedent at the time of death.
Shareholders are advised to consult with their own tax advisers for
more detailed information concerning California tax matters.
CERTAIN OWNERS OF RECORD
As of July, 1, 1999, no person is known to the Fund to own of
record or beneficially five percent or more of the outstanding Common Shares or
MuniPreferred.
S-31
<PAGE> 69
EXPERTS
The Statement of Net Assets of the Fund as of May 21, 1999 appearing in
this Statement of Additional Information has been audited by Ernst & Young LLP,
Sears Tower, 233 South Wacker Drive, Chicago, Illinois 60606, 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. Ernst & Young audits and reports on the
Fund's annual financial statements, reviews certain regulatory reports and the
Fund's Federal income tax returns, and performs other professional accounting,
auditing, tax and advisory services when engaged to do so by the Fund.
S-32
<PAGE> 70
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholder
Nuveen California Dividend Advantage Municipal Fund
We have audited the accompanying statement of net assets of the Fund as of
May 21, 1999. This statement is the responsibility of the Fund's management.
Our responsibility is to express an opinion on this statement of net assets
based on our audit.
We conducted our audit in accordance with generally accepted accounting
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of net assets is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of net assets. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall statement of
net assets presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the statement of net assets referred to above presents fairly,
in all material respects, the financial position of the Fund at May 21, 1999,
in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
May 21, 1999
F-1
<PAGE> 71
NUVEEN CALIFORNIA DIVIDED ADVANTAGE MUNICIPAL FUND
STATEMENT OF NET ASSETS
May 21, 1999
<TABLE>
<S> <C>
ASSETS
Cash...................................................................... $100,021
--------
NET ASSETS.................................................................. $100,021
========
NET ASSETS REPRESENTS:
Cumulative preferred shares, $.01 par value; unlimited number
of share authorized, no shares outstanding............................ $ --
Common Shares, $.01 par value; unlimited number of shares
authorized, shares outstanding........................................ 70
Paid-in surplus......................................................... 99,951
--------
$100,021
========
Net asset value per Common Share outstanding ($100,021 divided by
6,982.238 Common Shares outstanding)...................................... $ 14.325
========
</TABLE>
- -----------
NOTES--
The Fund was organized as a Massachusetts business trust on December 1,
1998, and has been inactive since that date except for matters relating to its
organization and registration as a closed-end, diversified management
investment company under the Investment Company Act of 1940, as amended, and
the Securities Act of 1933, as amended, and the sale of 6,982.238 Common Shares
to Nuveen Advisory Corp. (the Adviser), the Fund's investment adviser. All
organization costs (approximately $10,000) and offering costs, limited to $0.02
per Common Share, incurred by the Fund in connection with the initial seeding
will be absorbed by Nuveen. All other offering costs relating to the Fund's
offering of Common Shares, limited to $0.02 per Common Share, will be reflected
as a reduction of net assets at the time of the public offering of Common
Shares. All offering costs (other than sales load) that exceed $0.02 per Common
Share will be absorbed by Nuveen.
The Fund is authorized by its Declaration of Trust to issue an unlimited number
of preferred shares having a par value of $.01 per share in one or more classes
or series, with dividend, liquidation preference and other rights as determined
by the Fund's Board of Trustees, by action of the Board of Trustees without the
approval of the Common Shareholders.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
Actual results may differ from those estimates.
F-2
<PAGE> 72
STATEMENT OF NET ASSETS(UNAUDITED)
June 28, 1999
<TABLE>
<S> <C>
ASSETS $ 319,588,585
Investments in municipal securities, at market value
Temporary investments in short-term municipal securities,
at amortized cost, which approximates market value 13,500,000
Cash 35,278,346
Interest receivable 4,457,285
Other assets 155,297
-------------
Total assets 372,979,513
-------------
LIABILITIES 55,059,718
Payable for investments purchased
Accrued expenses:
Management fees 6,878
Other 466,280
-------------
Total liabilities 55,532,876
-------------
Net assets $ 317,446,637
=============
Shares outstanding 22,556,982
=============
Net asset value per share outstanding (net assets
divided by shares outstanding) $ 14.07
=============
</TABLE>
F-3
<PAGE> 73
STATEMENT OF OPERATIONS (UNAUDITED)
For the Period May 26, 1999 (commencement of operations) through June 28, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME $ 1,041,519
--------------
EXPENSES
Management fees 174,580
Shareholder's servicing agent fees and expenses 1,451
Custodian's fees and expenses 4,151
Trustee's fees and expenses 211
Professional fees 1,706
Shareholders' reports - printing and mailing expenses 5,613
Stock exchange listing fees 2,127
Investor relations expense 1,753
Other expenses 519
--------------
Total expenses before expense reimbursement 192,111
Expense reimbursement (81,826)
--------------
Net expenses 110,285
--------------
Net investment income 931,234
--------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS
Net realized gain (loss) from investment transactions -
Net change in unrealized appreciation or depreciation of investment (6,162,368)
--------------
Net gain (loss) from investments (6,162,368)
--------------
Net increase (decrease) in net assets from operations $ (5,231,134)
==============
</TABLE>
F-4
<PAGE> 74
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
For the Period May 26, 1999 (commencement of operations) through June 28, 1999
<TABLE>
<S> <C>
OPERATIONS
Net investment income $ 931,234
Net realized gain (loss) from investment transactions --
Net change in unrealized appreciation or depreciation
of investments (6,162,368)
-------------
Net increase (decrease) in net assets from operations (5,231,134)
-------------
CAPITAL SHARE TRANSACTIONS
Net proceeds from sale of Common shares 322,577,750
-------------
Net increase in net assets 317,346,616
Net assets at beginning of period 100,021
-------------
Net assets at end of period $ 317,446,637
=============
Balance of undistributed net investment income at
end of period $ 931,234
=============
</TABLE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
The Fund covered in this report and its corresponding New York Stock Exchange
symbol is Nuveen California Dividend Advantage Municipal Fund (NAC)(the"Fund").
The Fund invests primarily in a diversified portfolio of municipal obligations
issued by state and local government authorities within the state of California.
The Fund is registered under the Investment Company Act of 1940 as a closed-end,
diversified management investment company.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements in accordance with generally
accepted accounting principles.
Securities Valuation
The prices of municipal bonds in the Fund's investment portfolio are provided
by a pricing service approved by the Fund's Board of Trustees. When price
quotes are not readily available (which is usually the case for municipal
securities), the pricing service establishes fair market value based on yields
or prices of municipal bonds of comparable quality, type of issue, coupon,
maturity and rating, indications of value from securities dealers and general
market conditions. Temporary investments in securities that have variable rate
and demand features qualifying them as short-term securities are valued at
amortized cost, which approximates market value.
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains and
losses from such transactions are determined on the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery
basis may have extended settlement periods. The securities so purchased are
subject to market fluctuation during this period. The Fund has instructed the
custodian to segregate assets in a separate account with a current value at
least equal to the amount of the when-issued and delayed delivery purchase
commitments. At June 28, 1999, the Fund had outstanding when-issued purchase
commitments of $22,664,726.
Investment Income
Interest income is determined on the basis of interest accrued, adjusted for
amortization of premiums and accretion of discounts on long-term debt
securities when required for federal income tax purposes.
Income Taxes
The Fund intends to comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
tax-exempt net investment income, in addition to any significant amounts of net
realized capital gains and/or market discount realized from investment
transactions. The Fund currently considers significant net realized capital
gains and/or market discount as amounts in excess of $.01 per Common share.
Furthermore, each Fund intends to satisfy conditions which will enable interest
from municipal securities, which is exempt from regular federal and California
state income taxes, to retain such tax-exempt status when distributed to
shareholders of the Fund. Net realized capital gain and market discount
distributions are subject to federal taxation.
Dividends and Distributions to Shareholders
Tax-exempt net investment income is declared as a dividend monthly and payment
is made or reinvestment is credited to shareholder accounts on the first
business day after month-end. Net realized capital gains and/or market
discount from investment transactions, if any, are distributed to shareholders
not less frequently than annually. Furthermore, capital gains are distributed
only to the extent they exceed available capital loss carryforwards.
Distributions to shareholders of tax-exempt net investment income, net realized
capital gains and/or market discount are recorded on the ex-dividend date. The
amount and timing of distributions are determined in accordance with federal
income tax regulations, which may differ from generally accepted accounting
principles. Accordingly, temporary over-distributions as a result of these
differences may occur and will be classified as either distributions in excess
of net investment income, distributions in excess of net realized gains and/or
distributions in excess of net ordinary taxable income from investment
transactions, where applicable.
Derivative Financial Instruments
The Fund may invest in transactions in certain derivative financial instruments
including futures, forward, swap and option contracts, and other financial
instruments with similar characteristics. Although the Fund is authorized to
invest in such financial instruments, and may do so in the future, it did not
make any such investments during the period May 26, 1999 (commencement of
operations) through June 28, 1999.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period. Actual results may differ
from those estimates.
Organization and Offering Costs
$451,000 of the organization and offering costs were incurred by the Fund in
connection with the offering of Common Shares. These costs were recorded as a
reduction of the proceeds from the sale of shares.
2. FUND SHARES
The Fund sold 22,550,000 Common shares during the period May 26, 1999
(commencement of operations) through June 28, 1999.
3. SECURITIES TRANSACTIONS
Purchases and sales (including maturities) of investments in long-term municipal
securities and temporary municipal securities for period May 26, 1999
(commencement of operations) through June 28, 1999, were as follows:
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Purchases:
Long-term municipal securities $325,748,948
Temporary municipal securities $120,270,000
Sales and Maturities:
Long-term municipal securities -
Temporary municipal securities $106,770,000
- --------------------------------------------------------------------------------
</TABLE>
At June 28, 1999, the identified cost of investments owned for federal income
tax purposes was the same as the cost for financial reporting purposes.
4. UNREALIZED APPRECIATION (DEPRECIATION)
Gross unrealized appreciation and gross unrealized depreciation of investments
at June 28, 1999, were as follows:
<TABLE>
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross unrealized:
appreciation $ 58,163
depreciation $(6,220,531)
- ------------------------------------------------------------------------------------------------------
Net unrealized appreciation $ 6,162,368
======================================================================================================
</TABLE>
5. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the Fund's investment management agreement with Nuveen Advisory Corp. (the
"Adviser"), a wholly owned subsidiary of The John Nuveen Company, the Fund pays
an annual management fee, payable monthly, at the rates set forth below, which
are based upon the average daily net asset value of the Fund as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET VALUE MANAGEMENT FEE
- -----------------------------------------------------------------------------------------------------
<S> <C>
For the First $125 million .6500 of 1%
For the next $125 million .6375 of 1
For the next $250 million .6250 of 1
For the next $500 million .6125 of 1
For the next $1 billion .6000 of 1
For net assets over $2 billion .5750 of 1
======================================================================================================
</TABLE>
The fee compensates the Adviser for overall investment advisory and
administrative services and general office facilities. The Fund pays no
compensation directly to those of its Trustees who are affiliated with the
Adviser or to their officers, all of whom receive remuneration for their
services to the Fund from the Adviser.
For the first ten years of the Fund's operation, the Adviser has agreed
to reimburse the Fund for fees and expenses in the amounts, and for the time
periods set forth below:
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
REIMBURSED REIMBURSED
(AS A PERCENTAGE (AS A PERCENTAGE
YEAR ENDING OF AVERAGE DAILY YEAR ENDING OF AVERAGE DAILY
JULY 31, NET ASSETS) JULY 31, NET ASSETS)
- ----------- ----------------- ------------ -----------------
<S> <C> <C> <C>
1999*........................ 0.30% 2005 ................ .25%
2000 ........................ 0.30% 2006 ................ .20%
2001 ........................ 0.30% 2007 ................ .15%
2002 ........................ 0.30% 2008 ................ .10%
2003 ........................ 0.30% 2009 ................ .05%
2004 ........................ 0.30%
</TABLE>
- ---------------
* From the commencement of operations.
The Adviser has not agreed to reimburse the Fund for any portion of its
fees and expenses beyond July 31, 2009.
6. COMPOSITION OF NET ASSETS
At June 28, 1999, net assets consisted of:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
<S> <C>
Common shares, $.01 per value per share $ 225,570
Paid-in surplus 322,452,201
Balance of undistributed net investment income 931,234
Accumulated net realized gain (loss) from investment transactions -
Net unrealized appreciation of investments (6,162,368)
- ------------------------------------------------------------------------------------------------------
Net assets $317,446,637
======================================================================================================
Authorized shares:
Common unlimited
Preferred unlimited
======================================================================================================
</TABLE>
F-5
<PAGE> 75
PORTFOLIO OF INVESTMENTS (Unaudited)
NUVEEN CALIFORNIA DIVIDEND ADVANTAGE MUNICIPAL FUND (NAC)
June 28, 1999
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
<S> <C> <C> <C>
HEALTH CARE - 2.6%
$ 8,400,000 CALIFORNIA HEALTH, KAISER PERMANENTE, SERIES 98B, 10/10 at 100 A $ 8,213,940
5.250%, 10/01/14 (Optional put 10/01/08)
HOUSING/MULTIFAMILY - 17.9%
7,700,000 CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY, 7/09 at 102 N/R 7,700,000
MULTIFAMILY HOUSING, EL SERENO CITY LIGHTS, 6.650%,
7/01/39 (Alternative Minimum Tax)
10,000,000 CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY, No Opt. Call BBB+ 10,000,000
MULTIFAMILY HOUSING, ARCHSTONE/LECLUB, SERIES 99G, 5.300%,
6/01/29 (DD) (Mandatory put 6/01/08)
15,000,000 CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY, 7/08 at 101 BBB 14,506,350
IRVINE APARTMENTS, SERIES 98A2, 4.900%, 5/15/25 (Mandatory
put 5/15/08)
4,810,000 CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY, 7/09 at 102 N/R 4,764,065
MULTIFAMILY HOUSING, CHERRY HILL VILLAGE, SERIES 99,
6.500%, 7/01/34
5,000,000 CONTRA COSTA COUNTY, MULTIFAMILY HOUSING, DELTA VIEW, 6/09 at 102 N/R 4,954,550
SERIES 99C, 6.750%, 12/01/30 (Alternative Minimum Tax)
15,000,000 SAN BERNARDINO COUNTY HOUSING, REDLANDS APARTMENTS, No Opt. Call A3 14,965,050
MULTIFAMILY HOUSING, 5.200%, 12/01/28 (Mandatory put
6/15/09)
HOUSING/SINGLE FAMILY - 3.5%
11,500,000 CALIFORNIA HOUSING FINANCE AGENCY, HOME MORTGAGE, 2/09 at 101 1/2 AAA 10,993,425
SERIES 98E2, 5.250%, 2/01/33 (Alternative Minimum Tax)
LONG-TERM CARE - 2.5%
</TABLE>
F-6
<PAGE> 76
<TABLE>
<S> <C> <C> <C>
$ 8,000,000 RIVERSIDE COUNTY PUBLIC FINANCING AUTHORITY, AIR 5/09 at 101 BBB- $ 7,932,080
FORCE VILLAGE WEST, 5.800%, 5/15/29 (WI)
TAX OBLIGATION/GENERAL - 4.4%
15,000,000 CALIFORNIA STATE GENERAL OBLIGATION, 5.000%, 8/01/29 8/09 at 101 AAA 14,037,750
TAX OBLIGATION/LIMITED - 25.9%
15,250,000 LOS ANGELES COUNTY PUBLIC WORKS, REGIONAL PARK/OPEN 10/07 at 101 AA 14,493,905
SPACE DISTRICT, SERIES 97A, 5.000%, 10/01/19
14,160,000 OAKLAND - STATE BUILDING AUTHORITY, STATE LEASE, 4/08 at 101 AAA 13,342,543
SERIES 98A, ELIHU M. HARRIS STATE OFFICE BUILDING,
5.000%, 4/01/23
13,290,000 JURUPA COMMUNITY SERVICE DISTRICT, SPECIAL TAX, 9/08 at 102 AAA 11,914,219
4.750%, 9/01/24 (Optional put 9/01/10)
5,500,000 LOS ANGELES COUNTY CERTIFICATES OF PARTICIPATION, 9/08 at 101 AAA 4,947,085
DISNEY PROJECT REFUNDING, 4.750%, 3/01/23
33,000,000 LOS ANGELES COUNTY METROPOLITAN TRANSPORATION AUTHORITY,
PROPOSITION C SALES TAX, SERIES 98A, 5.000%, 7/01/23 7/08 at 101 AAA 31,087,650
6,880,000 LOS ANGELES COUNTY METROPOLITAN TRANSPORATION AUTHORITY, 7/09 at 101 AAA 6,486,670
PROPOSITION A SALES TAX, SERIES 99C, 5.000%, 7/01/21
TRANSPORTATION - 8.0%
15,000,000 ALAMEDA CORRIDOR TRANSPORTATION, SENIOR LIEN, 5.000%, 10/09 at 101 AAA 14,035,200
10/01/29
11,995,000 SAN FRANCISCO INTERNATIONAL AIRPORT, SERIES 2ND-23B, 5/09 at 101 AAA 11,372,220
5.125%, 5/01/30
U.S. GUARANTEED - 1.7%
5,000,000 SAN FRANCISCO PUBLIC UTILITIES COMMISSION, WATER 11/01 at 102 Aaa 5,378,700
REVENUE, SERIES 91A, 6.500%, 11/01/17 (Pre-refunded
to 11/01/01)
</TABLE>
F-7
<PAGE> 77
<TABLE>
<S> <C> <C> <C>
UTILITIES - 18.5%
$ 10,000,000 NORTHERN CALIFORNIA POWER AGENCY, HYDROELECTRIC PROJECT 1, 7/08 at 101 AAA $ 9,368,500
SERIES 98A, 5.000%, 7/01/28
26,500,000 NORTHERN CALIFORNIA POWER AGENCY, HYDROELECTRIC PROJECT 1, 7/08 at 101 AAA 25,353,610
SERIES 98A, DEBT RESTRUCTURING PROGRAM, 5.200%, 7/01/32
10,500,000 PUERTO RICO ELECTRIC POWER AUTHORITY, SERIES 98DD, 5.000%, 7/08 at 101 1/2 BBB+ 9,721,740
7/01/28
15,000,000 SACRAMENTO MUNICIPAL ELECTRIC REVENUE, SERIES 99M REFUNDING, 7/04 at 101 A 14,261,550
5.250%, 7/01/28 (WI)
WATER AND SEWER - 15.7%
12,000,000 CARMICHAEL WATER DISTRICT, CERTIFICATES OF PARTICIPATION, 9/09 at 102 AAA 11,407,680
5.125%, 9/01/29
4,985,000 EAST BAY MUNICIPAL WASTEWATER SYSTEM, SUBORDINATE LIEN, 6/08 at 101 AAA 4,436,650
4.750%, 6/01/28
5,000,000 EAST BAY MUNICIPAL WASTEWATER SYSTEM, SUBORDINATE LIEN, 6/08 at 101 AAA 4,409,950
4.750%, 6/01/34
7,000,000 LOS ANGELES WASTEWATER SYSTEM, REVENUE BONDS, 1998 6/08 at 101 AAA 6,558,230
SERIES A, 5.000%, 6/01/28
9,000,000 METROPOLITAN WATER DISTRICT, SOUTHERN CALIFORNIA 1/08 at 101 AA 8,305,920
WATERWORKS REVENUE BONDS, 5.000%, 7/01/37
15,640,000 SAN DIEGO PUBLIC FINANCING AUTHORITY, SEWER REVENUE, 5/09 at 101 AAA 14,639,353
SERIES 99A, 5.000%, 5/15/29
- -----------------------------------------------------------------------------------------------------------------------------------
$336,110,000 Total Investments - (cost $325,750,953) - 100.7% 319,588,585
- -----------------------------------------------------------------------------------------------------------------------------------
- -------------------
Short-Term Investments - 4.2%
$ 3,500,000 CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY, A-1+ 3,500,000
S CERTIFICATES OF PARTICIPATION, ST. JOSEPH HEALTH
SYSTEM OBLIGATED GROUP, VARIABLE RATE DEMAND BONDS,
4.250%, 7/01/24+
10,000,000 VISTA CALIFORNIA TAX-FREE MONEY MARKET FUND 10,000,000
- -----------------------------------------------------------------------------------------------------------------------------------
$13,500,000 Total Short-Term Investments - (cost $13,500,000) - 4.2% 13,500,000
- -----------------------------------------------------------------------------------------------------------------------------------
- -------------------
</TABLE>
F-8
<PAGE> 78
<TABLE>
<S> <C>
Other Assets Less Liabilities - (4.9%) (15,641,948)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $317,446,637
=================================================================================================================================
</TABLE>
* Optional Call Provisions: Dates (month and year) and prices of the earliest
optional call or redemption. There may be other call provisions at varying
prices at later dates.
** Ratings: Using the higher of Standard & Poor's or Moody's rating.
N/R Investment is not rated.
(WI) Security purchased on a when-issued basis (note 1).
+ Security has a maturity of more than one year, but has variable rate and
demand features which qualify it as a short-term security. The rate
disclosed is that currently in effect. This rate changes periodically based
on market conditions or a specified market index.
See accompanying notes to financial statements.
F-9
<PAGE> 79
APPENDIX A
NUVEEN CALIFORNIA DIVIDEND ADVANTAGE MUNICIPAL FUND
STATEMENT ESTABLISHING AND FIXING THE RIGHTS
AND PREFERENCES OF
MUNICIPAL AUCTION RATE
CUMULATIVE PREFERRED SHARES ("MUNIPREFERRED")
A-1
<PAGE> 80
NUVEEN CALIFORNIA DIVIDEND ADVANTAGE MUNICIPAL FUND
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DEFINITIONS.....................................................................................................A-7
"AA" Composite Commercial Paper Rate...................................................................A-7
Accountant's Confirmation..............................................................................A-7
Affiliate..............................................................................................A-8
Agent Member...........................................................................................A-8
Anticipation Notes.....................................................................................A-8
Applicable Rate........................................................................................A-8
Auction................................................................................................A-8
Auction Agency Agreement...............................................................................A-8
Auction Agent..........................................................................................A-8
Auction Date...........................................................................................A-8
Auction Procedures.....................................................................................A-8
Available MuniPreferred................................................................................A-8
Benchmark Rate.........................................................................................A-8
Beneficial Owner.......................................................................................A-8
"Bid" and "Bids".......................................................................................A-8
"Bidder" and "Bidders".................................................................................A-8
Board of Trustees......................................................................................A-8
Broker-Dealer..........................................................................................A-8
Broker-Dealer Agreement................................................................................A-9
Business Day...........................................................................................A-9
Code...................................................................................................A-9
Commercial Paper Dealers...............................................................................A-9
Common Shares..........................................................................................A-9
Cure Date..............................................................................................A-9
Date of Original Issue.................................................................................A-9
Declaration............................................................................................A-9
Deposit Securities.....................................................................................A-9
Discounted Value.......................................................................................A-9
[Reserved].............................................................................................A-9
[Reserved].............................................................................................A-9
Dividend Payment Date..................................................................................A-9
Dividend Period........................................................................................A-9
Existing Holder........................................................................................A-9
Failure to Deposit....................................................................................A-10
Federal Tax Rate Increase.............................................................................A-10
Fund..................................................................................................A-10
Gross-up Payment......................................................................................A-10
Holder................................................................................................A-10
"Hold Order" and "Hold Orders"........................................................................A-10
Independent Accountant................................................................................A-10
Initial Rate Period...................................................................................A-10
Interest Equivalent...................................................................................A-10
Issue Type Category...................................................................................A-10
Kenny Index...........................................................................................A-10
Late Charge...........................................................................................A-10
Liquidation Preference................................................................................A-10
Market Value..........................................................................................A-10
</TABLE>
A-2
<PAGE> 81
<TABLE>
<S> <C>
Maximum Potential Gross-up Payment Liability..........................................................A-11
Maximum Rate..........................................................................................A-11
[Reserved]............................................................................................A-11
Minimum Rate Period...................................................................................A-11
Moody's...............................................................................................A-11
Moody's Discount Factor...............................................................................A-11
Moody's Eligible Asset................................................................................A-11
Moody's Exposure Period...............................................................................A-11
Moody's Volatility Factor.............................................................................A-12
MuniPreferred.........................................................................................A-12
MuniPreferred Basic Maintenance Amount................................................................A-12
MuniPreferred Basic Maintenance Cure Date.............................................................A-13
MuniPreferred Basic Maintenance Report................................................................A-13
Municipal Obligations.................................................................................A-13
1940 Act..............................................................................................A-13
1940 Act Cure Date....................................................................................A-13
1940 Act MuniPreferred Asset Coverage.................................................................A-13
Notice of Redemption..................................................................................A-13
Notice of Special Rate Period.........................................................................A-13
"Order" and "Orders"..................................................................................A-13
Original Issue Insurance..............................................................................A-13
Other Issues..........................................................................................A-13
Outstanding...........................................................................................A-14
Permanent Insurance...................................................................................A-14
Person................................................................................................A-14
Portfolio Insurance...................................................................................A-14
Potential Beneficial Owner............................................................................A-14
Potential Holder......................................................................................A-14
Preferred Shares......................................................................................A-14
Quarterly Valuation Date..............................................................................A-14
Rate Multiple.........................................................................................A-14
Rate Period...........................................................................................A-14
Rate Period Days......................................................................................A-14
Receivables for Municipal Obligations Sold............................................................A-14
Redemption Price......................................................................................A-14
Reference Rate........................................................................................A-15
Registration Statement................................................................................A-15
S&P...................................................................................................A-15
S&P Discount Factor...................................................................................A-15
S&P Eligible Asset....................................................................................A-15
S&P Exposure Period...................................................................................A-15
S&P Volatility Factor.................................................................................A-15
Secondary Market Insurance............................................................................A-15
Securities Depository.................................................................................A-15
"Sell Order" and "Sell Orders"........................................................................A-15
Special Rate Period...................................................................................A-15
Special Redemption Provisions.........................................................................A-15
Submission Deadline...................................................................................A-15
"Submitted Bid" and "Submitted Bids"..................................................................A-15
"Submitted Hold Order" and "Submitted Hold Orders"....................................................A-15
"Submitted Order" and "Submitted Orders"..............................................................A-15
"Submitted Sell Order" and "Submitted Sell Orders"....................................................A-15
Subsequent Rate Period................................................................................A-16
Substitute Commercial Paper Dealer....................................................................A-16
Substitute U.S. Government Securities Dealer..........................................................A-16
Sufficient Clearing Bids..............................................................................A-16
</TABLE>
A-3
<PAGE> 82
<TABLE>
<S> <C>
Taxable Allocation....................................................................................A-16
Taxable Income........................................................................................A-16
Taxable Equivalent of the Short-Term Municipal Bond Rate..............................................A-16
Treasury Bill.........................................................................................A-16
Treasury Bill Rate....................................................................................A-16
Treasury Note.........................................................................................A-17
Treasury Note Rate....................................................................................A-17
U.S. Government Securities Dealer.....................................................................A-17
Valuation Date........................................................................................A-17
Volatility Factor.....................................................................................A-17
Voting Period.........................................................................................A-17
Winning Bid Rate......................................................................................A-17
PART I ......................................................................................................A-18
1. Number of Authorized Shares..................................................................A-18
2. Dividends....................................................................................A-18
(a) Ranking...............................................................................A-18
(b) Cumulative Cash Dividends.............................................................A-18
(c) Dividends Cumulative From Date of Original Issue......................................A-18
(d) Dividend Payment Dates and Adjustment Thereof.........................................A-18
(e) Dividend Rates and Calculation of Dividends...........................................A-18
(i) Dividend Rates..................................................................A-18
(ii) Calculation of Dividends........................................................A-20
(f) Curing a Failure to Deposit...........................................................A-20
(g) Dividend Payments by Fund to Auction Agent............................................A-20
(h) Auction Agent as Trustee of Dividend Payments by Fund.................................A-20
(i) Dividends Paid to Holders.............................................................A-21
(j) Dividends Credited Against Earliest Accumulated But Unpaid Dividends..................A-21
(k) Dividends Designated as Exempt-Interest Dividends.....................................A-21
3. Gross-up Payments............................................................................A-21
(a) Minimum Rate Periods and Special Rate Periods of 28 Rate Period
Days or Fewer.........................................................................A-21
(b) Special Rate Periods of More Than 28 Rate Period Days.................................A-21
(c) No Gross-up Payments In the Event of a Reallocation...................................A-21
4. Designation of Special Rate Periods..........................................................A-21
(a) Length of and Preconditions for Special Rate Period...................................A-21
(b) Adjustment of Length of Special Rate Period...........................................A-22
(c) Notice of Proposed Special Rate Period................................................A-22
(d) Notice of Special Rate Period.........................................................A-22
(e) Failure to Deliver Notice of Special Rate Period......................................A-23
5. Voting Rights................................................................................A-23
(a) One Vote Per Share of MuniPreferred...................................................A-23
(b) Voting For Additional Trustees........................................................A-23
(i) Voting Period...................................................................A-23
(ii) Notice of Special Meeting.......................................................A-24
(iii) Terms of Office of Existing Trustees............................................A-24
(iv) Terms of Office of Certain Trustees to Terminate Upon
Termination of Voting Period....................................................A-24
(c) Holders of MuniPreferred To Vote On Certain Other Matters.............................A-24
(i) Increases in Capitalization.....................................................A-24
(ii) 1940 Act Matters................................................................A-25
(d) Board May Take Certain Actions Without Shareholder Approval...........................A-25
(e) Voting Rights Set Forth Herein Are Sole Voting Rights.................................A-26
(f) No Preemptive Rights or Cumulative Voting.............................................A-26
(g) Voting for Trustees Sole Remedy for Fund's Failure to Pay Dividends...................A-26
(h) Holders Entitled to Vote..............................................................A-26
</TABLE>
A-4
<PAGE> 83
<TABLE>
<S> <C> <C>
6. 1940 Act MuniPreferred Asset Coverage........................................................A-26
7. MuniPreferred Basic Maintenance Amount.......................................................A-26
8. [Reserved]...................................................................................A-28
9. Restrictions on Dividends and Other Distributions............................................A-28
(a) Dividends on Preferred Shares Other Than MuniPreferred................................A-28
(b) Dividends and Other Distributions With Respect to Common Shares
Under the 1940 Act....................................................................A-28
(c) Other Restrictions On Dividends and Other Distributions...............................A-28
10. Rating Agency Restrictions...................................................................A-29
11. Redemption...................................................................................A-29
(a) Optional Redemption...................................................................A-29
(b) Mandatory Redemption..................................................................A-30
(c) Notice of Redemption..................................................................A-31
(d) No Redemption Under Certain Circumstances.............................................A-31
(e) Absence of Funds Available for Redemption.............................................A-31
(f) Auction Agent as Trustee of Redemption Payments by Fund...............................A-31
(g) Shares for Which Notice of Redemption Has Been Given Are
No Longer Outstanding.................................................................A-31
(h) Compliance With Applicable Law........................................................A-32
(i) Only Whole Shares of MuniPreferred May Be Redeemed....................................A-32
12. Liquidation Rights...........................................................................A-32
(a) Ranking...............................................................................A-32
(b) Distributions Upon Liquidation........................................................A-32
(c) Pro Rata Distributions................................................................A-32
(d) Rights of Junior Shares...............................................................A-32
(e) Certain Events Not Constituting Liquidation...........................................A-33
13. Miscellaneous................................................................................A-33
(a) Amendment of Appendix A to Add Additional Series......................................A-33
(b) Appendix A Incorporated By Reference..................................................A-33
(c) No Fractional Shares..................................................................A-33
(d) Status of Shares of MuniPreferred Redeemed, Exchanged or Otherwise
Acquired by the Fund..................................................................A-33
(e) Board May Resolve Ambiguities.........................................................A-33
(f) Headings Not Determinative............................................................A-33
(g) Notices...............................................................................A-33
PART II ......................................................................................................A-34
1. Orders.......................................................................................A-34
2. Submission of Orders by Broker-Dealers to Auction Agent......................................A-35
3. Determination of Sufficient Clearing Bids, Winning Bid Rate and Applicable Rate..............A-37
4. Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and
Allocation of Shares.........................................................................A-38
5. Notification of Allocations..................................................................A-40
6. Auction Agent................................................................................A-40
7. Transfer of Shares of MuniPreferred..........................................................A-40
8. Global Certificate...........................................................................A-41
Appendix A.....................................................................................................A-42
Section 1. Designation As To Series..............................................................A-42
Section 2. Number of Authorized Shares Per Series................................................A-42
Section 3. Exceptions to Certain Definitions.....................................................A-42
Section 4. Certain Definitions...................................................................A-42
Section 5. Initial Rate Periods..................................................................A-47
Section 6. Date for Purposes of Paragraph (yyy) Contained Under the Heading "Definitions" in
this Statement........................................................................A-47
Section 7. Party Named for Purposes of the Definition of "Rate Multiple" in this Statement.......A-47
</TABLE>
A-5
<PAGE> 84
<TABLE>
<S> <C> <C>
Section 8. Additional Definitions................................................................A-47
Section 9. Dividend Payment Dates................................................................A-48
Section 10. Amount for Purposes of Subparagraph (c)(i) of Section 5 of Part I of
this Statement........................................................................A-48
Section 11. Redemption Provisions Applicable to Initial Rate Periods..............................A-48
Section 12. Applicable Rate for Purposes of Subparagraph (b)(iii) of Section 3 of
Part II of this Statement.............................................................A-48
Section 13. Certain Other Restrictions and Requirements...........................................A-48
</TABLE>
A-6
<PAGE> 85
NUVEEN CALIFORNIA DIVIDEND ADVANTAGE MUNICIPAL FUND, a Massachusetts
business trust (the "Fund"), certifies that:
First: Pursuant to authority expressly vested in the Board of Trustees
of the Fund by Article [IV] of the Fund's Declaration of Trust (which, as
hereafter restated or amended from time to time is, together with this
Statement, herein called the "Declaration"), the Board of Trustees has, by
resolution, authorized the issuance of shares of the Fund's authorized Preferred
Shares liquidation preference $25,000 per share, having such designation or
designations as to series as is set forth in Section 1 of Appendix A hereto and
such number of shares per such series as is set forth in Section 2 of Appendix A
hereto.
Second: The preferences, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption, of the shares
of each series of MuniPreferred described in Section 1 of Appendix A hereto are
as follows (each such series being referred to herein as a series of
MuniPreferred, and shares of all such series being referred to herein
individually as a share of MuniPreferred and collectively as shares of
MuniPreferred):
DEFINITIONS
Except as otherwise specifically provided in Section 3 of Appendix A
hereto, as used in Parts I and II of this Statement, the following terms shall
have the following meanings (with terms defined in the singular having
comparable meanings when used in the plural and vice versa), unless the context
otherwise requires:
(a) "AA" COMPOSITE COMMERCIAL PAPER RATE," on any date for any Rate
Period of shares of a series of MuniPreferred, shall mean (i) (A) in the case of
any Minimum Rate Period or any Special Rate Period of fewer than 49 Rate Period
Days, the interest equivalent of the 30-day rate; provided, however, that if
such Rate Period is a Minimum Rate Period and the "AA" Composite Commercial
Paper Rate is being used to determine the Applicable Rate for shares of such
series when all of the Outstanding shares of such series are subject to
Submitted Hold Orders, then the interest equivalent of the seven-day rate, and
(B) in the case of any Special Rate Period of (1) 49 or more but fewer than 70
Rate Period Days, the interest equivalent of the 60-day rate; (2) 70 or more but
fewer than 85 Rate Period Days, the arithmetic average of the interest
equivalent of the 60-day and 90-day rates; (3) 85 or more but fewer than 99 Rate
Period Days, the interest equivalent of the 90-day rate; (4) 99 or more but
fewer than 120 Rate Period Days, the arithmetic average of the interest
equivalent of the 90-day and 120-day rates; (5) 120 or more but fewer than 141
Rate Period Days, the interest equivalent of the 120-day rate; (6) 141 or more
but fewer than 162 Rate Period Days, the arithmetic average of the 120-day and
180-day rates; and (7) 162 or more but fewer than 183 Rate Period Days, the
interest equivalent of the 180-day rate, in each case on commercial paper placed
on behalf of issuers whose corporate bonds are rated "AA" by S&P or the
equivalent of such rating by S&P or another rating agency, as made available on
a discount basis or otherwise by the Federal Reserve Bank of New York for the
Business Day next preceding such date; or (ii) in the event that the Federal
Reserve Bank of New York does not make available any such rate, then the
arithmetic average of such rates, as quoted on a discount basis or otherwise, by
the Commercial Paper Dealers to the Auction Agent for the close of business on
the Business Day next preceding such date. If any Commercial Paper Dealer does
not quote a rate required to determine the "AA" Composite Commercial Paper Rate,
the "AA" Composite Commercial Paper Rate shall be determined on the basis of the
quotation or quotations furnished by the remaining Commercial Paper Dealer or
Commercial Paper Dealers and any Substitute Commercial Paper Dealer or
Substitute Commercial Paper Dealers selected by the Fund to provide such rate or
rates not being supplied by any Commercial Paper Dealer or Commercial Paper
Dealers, as the case may be, or, if the Fund does not select any such Substitute
Commercial Paper Dealer or Substitute Commercial Paper Dealers, by the remaining
Commercial Paper Dealer or Commercial Paper Dealers. For purposes of this
definition, the "interest equivalent" of a rate stated on a discount basis (a
"discount rate") for commercial paper of a given days' maturity shall be equal
to the quotient (rounded upwards to the next higher one-thousandth (.001) of 1%)
of (A) the discount rate divided by (B) the difference between (x) 1.00 and (y)
a fraction, the numerator of which shall be the product of the discount rate
times the number of days in which such commercial paper matures and the
denominator of which shall be 360.
(b) "ACCOUNTANT'S CONFIRMATION" shall have the meaning specified in
paragraph (c) of Section 7 of Part I of this Statement.
A-7
<PAGE> 86
(c) "AFFILIATE" shall mean, for purposes of the definition of
"Outstanding," any Person known to the Auction Agent to be controlled by, in
control of or under common control with the Fund; provided, however, that no
Broker-Dealer controlled by, in control of or under common control with the Fund
shall be deemed to be an Affiliate nor shall any corporation or any Person
controlled by, in control of or under common control with such corporation one
of the trustees, directors, or executive officers of which is a trustee of the
Fund be deemed to be an Affiliate solely because such trustee, director, or
executive officer is also a trustee of the Fund.
(d) "AGENT MEMBER" shall mean a member of or participant in the
Securities Depository that will act on behalf of a Bidder.
(e) "ANTICIPATION NOTES" shall mean Tax Anticipation Notes (TANs),
Revenue Anticipation Notes (RAN's), Tax and Revenue Anticipation Notes (TRANs),
Grant Anticipation Notes (GANs) that are rated by S&P and Bond Anticipation
Notes (BANs) that are rated by S&P.
(f) "APPLICABLE RATE" shall have the meaning specified in subparagraph
(e)(i) of Section 2 of Part I of this Statement.
(g) "AUCTION" shall mean each periodic implementation of the Auction
Procedures.
(h) "AUCTION AGENCY AGREEMENT" shall mean the agreement between the
Fund and the Auction Agent which provides, among other things, that the Auction
Agent will follow the Auction Procedures for purposes of determining the
Applicable Rate for shares of a series of MuniPreferred so long as the
Applicable Rate for shares of such series is to be based on the results of an
Auction.
(i) "AUCTION AGENT" shall mean the entity appointed as such by a
resolution of the Board of Trustees in accordance with Section 6 of Part II of
this Statement.
(j) "AUCTION DATE," with respect to any Rate Period, shall mean the
Business Day next preceding the first day of such Rate Period.
(k) "AUCTION PROCEDURES" shall mean the procedures for conducting
Auctions set forth in Part II of this Statement.
(l) "AVAILABLE MUNIPREFERRED" shall have the meaning specified in
paragraph (a) of Section 3 of Part II of this Statement.
(m) "BENCHMARK RATE" shall have the meaning specified in Section 12 of
Appendix A hereto.
(n) "BENEFICIAL OWNER," with respect to shares of a series of
MuniPreferred, 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 such series.
(o) "BID" and "BIDS" shall have the respective meanings specified in
paragraph (a) of Section 1 of Part II of this Statement.
(p) "BIDDER" and "BIDDERS" shall have the respective meanings specified
in paragraph (a) of Section 1 of Part II of this Statement; provided, however,
that neither the Fund nor any affiliate thereof shall be permitted to be a
Bidder in an Auction, except that any Broker-Dealer that is an affiliate of the
Fund may be a Bidder in an Auction, but only if the Orders placed by such
Broker-Dealer are not for its own account.
(q) "BOARD OF TRUSTEES" shall mean the Board of Trustees of the Fund or
any duly authorized committee thereof.
(r) "BROKER-DEALER" shall mean any broker-dealer, commercial bank or
other entity permitted by law to perform the functions required of a
Broker-Dealer in Part II of this Statement, that is a member of, or a
participant
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in, the Securities Depository or is an affiliate of such member or participant,
has been selected by the Fund and has entered into a Broker-Dealer Agreement
that remains effective.
(s) "BROKER-DEALER AGREEMENT" shall mean an agreement among the Fund,
the Auction Agent and a Broker-Dealer pursuant to which such Broker-Dealer
agrees to follow the procedures specified in Part II of this Statement.
(t) "BUSINESS DAY" shall mean a day on which the New York Stock
Exchange is open for trading and which is neither a Saturday, Sunday nor any
other day on which banks in The City of New York, New York, are authorized by
law to close.
(u) "CODE" means the Internal Revenue Code of 1986, as amended.
(v) "COMMERCIAL PAPER DEALERS" shall mean Lehman Commercial Paper
Incorporated, Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated or, in lieu of any thereof, their respective affiliates or
successors, if such entity is a commercial paper dealer.
(w) "COMMON SHARES" shall mean the common shares of beneficial
interest, par value $.01 per share, of the Fund.
(x) "CURE DATE" shall mean the MuniPreferred Basic Maintenance Cure
Date or the 1940 Act Cure Date, as the case may be.
(y) "DATE OF ORIGINAL ISSUE," with respect to shares of a series of
MuniPreferred, shall mean the date on which the Fund initially issued such
shares.
(z) "DECLARATION" shall have the meaning specified on the first page of
this Statement.
(aa) "DEPOSIT SECURITIES" shall mean cash and Municipal Obligations
rated at least A-l+ or SP-l+ by S&P, except that, for purposes of subparagraph
(a) (v) of Section 11 of Part I of this Statement, such Municipal Obligations
shall be considered "Deposit Securities" only if they are also rated P-1, MIG-1
or VMIG-1 by Moody's.
(bb) "DISCOUNTED VALUE," as of any Valuation Date, shall mean, (i) with
respect to an S&P Eligible Asset, the quotient of the Market Value thereof
divided by the applicable S&P Discount Factor and (ii)(a) with respect to a
Moody's Eligible Asset that is not currently callable as of such Valuation Date
at the option of the issuer thereof, the quotient of the Market Value thereof
divided by the applicable Moody's Discount Factor, or (b) with respect to a
Moody's Eligible Asset that is currently callable as of such Valuation Date at
the option of the issuer thereof, the quotient of (1) the lesser of the Market
Value or call price thereof, including any call premium, divided by (2) the
applicable Moody's Discount Factor.
(cc) [RESERVED]
(dd) [RESERVED]
(ee) "DIVIDEND PAYMENT DATE," with respect to shares of a series of
MuniPreferred, shall mean any date on which dividends are payable on shares of
such series pursuant to the provisions of paragraph (d) of Section 2 of Part I
of this Statement.
(ff) "DIVIDEND PERIOD," with respect to shares of a series of
MuniPreferred, shall mean the period from and including the Date of Original
Issue of shares of such series to but excluding the initial Dividend Payment
Date for shares of such series and any period thereafter from and including one
Dividend Payment Date for shares of such series to but excluding the next
succeeding Dividend Payment Date for shares of such series.
(gg) "EXISTING HOLDER," with respect to shares of a series of
MuniPreferred, shall mean a Broker-Dealer (or any such other Person as may be
permitted by the Fund) that is listed on the records of the Auction Agent as a
holder of shares of such series.
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<PAGE> 88
(hh) "FAILURE TO DEPOSIT," with respect to shares of a series of
MuniPreferred, shall mean a failure by the Fund to pay to the Auction Agent, not
later than 12:00 noon, New York City time, (A) on the Business Day next
preceding any Dividend Payment Date for shares of such series, in funds
available on such Dividend Payment Date in The City of New York, New York, the
full amount of any dividend (whether or not earned or declared) to be paid on
such Dividend Payment Date on any share of such series or (B) on the Business
Day next preceding any redemption date in funds available on such redemption
date for shares of such series in The City of New York, New York, the Redemption
Price to be paid on such redemption date for any share of such series after
notice of redemption is mailed pursuant to paragraph (c) of Section 11 of Part I
of this Statement; provided, however, that the foregoing clause (B) shall not
apply to the Fund's failure to pay the Redemption Price in respect of shares of
MuniPreferred when the related Notice of Redemption provides that redemption of
such shares is subject to one or more conditions precedent and any such
condition precedent shall not have been satisfied at the time or times and in
the manner specified in such Notice of Redemption.
(ii) "FEDERAL TAX RATE INCREASE" shall have the meaning specified in
the definition of "Moody's Volatility Factor."
(jj) "FUND" shall mean the entity named on the first page of this
Statement, which is the issuer of the shares of MuniPreferred.
(kk) "GROSS-UP PAYMENT" shall have the meaning specified in Section 4
of Appendix A hereto.
(ll) "HOLDER," with respect to shares of a series of MuniPreferred,
shall mean the registered holder of such shares as the same appears on the
record books of the Fund.
(mm) "HOLD ORDER" and "HOLD ORDERS" shall have the respective meanings
specified in paragraph (a) of Section 1 of Part II of this Statement.
(nn) "INDEPENDENT ACCOUNTANT" shall mean a nationally recognized
accountant, or firm of accountants, that is with respect to the Fund an
independent public accountant or firm of independent public accountants under
the Securities Act of 1933, as amended from time to time.
(oo) "INITIAL RATE PERIOD," with respect to shares of a series of
MuniPreferred, shall have the meaning specified with respect to shares of such
series in Section 5 of Appendix A hereto.
(pp) "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.
(qq) "ISSUE TYPE CATEGORY," if defined in Section 4 of Appendix A
hereto, shall have the meaning specified in that section.
(rr) "KENNY INDEX" shall have the meaning specified in the definition
of "Taxable Equivalent of the Short-Term Municipal Bond Rate."
(ss) "LATE CHARGE" shall have the meaning specified in subparagraph (e)
(1) (B) of Section 2 of Part I of this Statement.
(tt) "LIQUIDATION PREFERENCE," with respect to a given number of shares
of MuniPreferred, means $25,000 times that number.
(uu) "MARKET VALUE" of any asset of the Fund shall mean the market
value thereof determined by the pricing service designated from time to time by
the Board of Trustees. Market Value of any asset shall include any interest
accrued thereon. The pricing service values portfolio securities at the mean
between the quoted bid and asked price or the yield equivalent when quotations
are readily available. Securities for which quotations are not readily available
are valued at fair value as determined by the pricing service using methods
which include consideration of: yields or prices of municipal bonds of
comparable quality, type of issue, coupon, maturity and rating; indications as
to
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<PAGE> 89
value from dealers; and general market conditions. The pricing service may
employ electronic data processing techniques or a matrix system, or both, to
determine valuations.
(vv) "MAXIMUM POTENTIAL GROSS-UP PAYMENT LIABILITY," as of any
Valuation Date, shall mean the aggregate amount of Gross-up Payments that would
be due if the Fund were to make Taxable Allocations, with respect to any taxable
year, estimated based upon dividends paid and the amount of undistributed
realized net capital gains and other taxable income earned by the Fund, as of
the end of the calendar month immediately preceding such Valuation Date, and
assuming such Gross-up Payments are fully taxable.
(ww) "MAXIMUM RATE," for shares of a series of MuniPreferred on any
Auction Date for shares of such series, shall mean:
(i) in the case of any Auction Date which is not the Auction
Date immediately prior to the first day of any proposed Special Rate
Period designated by the Fund pursuant to Section 4 of Part I of this
Statement, the product of (A) the Reference Rate on such Auction Date
for the next Rate Period of shares of such series and (B) the Rate
Multiple on such Auction Date, unless shares of such series have or had
a Special Rate Period (other than a Special Rate Period of 28 Rate
Period Days or fewer) and an Auction at which Sufficient Clearing Bids
existed has not yet occurred for a Minimum Rate Period of shares of
such series after such Special Rate Period, in which case the higher
of:
(A) the dividend rate on shares of such series for
the then-ending Rate Period; and
(B) the product of (1) the higher of (x) the
Reference Rate on such Auction Date for a Rate Period equal in
length to the then-ending Rate Period of shares of such
series, if such then-ending Rate Period was 364 Rate Period
Days or fewer, or the Treasury Note Rate on such Auction Date
for a Rate Period equal in length to the then-ending Rate
Period of shares of such series, if such then-ending Rate
Period was more than 364 Rate Period Days, and (y) the
Reference Rate on such Auction Date for a Rate Period equal in
length to such Special Rate Period of shares of such series,
if such Special Rate Period was 364 Rate Period Days or fewer,
or the Treasury Note Rate on such Auction Date for a Rate
Period equal in length to such Special Rate Period, if such
Special Rate Period was more than 364 Rate Period Days and (2)
the Rate Multiple on such Auction Date; or
(ii) in the case of any Auction Date which is the Auction Date
immediately prior to the first day of any proposed Special Rate Period
designated by the Fund pursuant to Section 4 of Part I of this
Statement, the product of (A) the highest of (1) the Reference Rate on
such Auction Date for a Rate Period equal in length to the then-ending
Rate Period of shares of such series, if such then-ending Rate Period
was 364 Rate Period Days or fewer, or the Treasury Note Rate on such
Auction Date for a Rate Period equal in length to the then-ending Rate
Period of shares of such series, if such then-ending Rate Period was
more than 364 Rate Period Days, (2) the Reference Rate on such Auction
Date for the Special Rate Period for which the Auction is being held if
such Special Rate Period is 364 Rate Period Days or fewer or the
Treasury Note Rate on such Auction Date for the Special Rate Period for
which the Auction is being held if such Special Rate Period is more
than 364 Rate Period Days, and (3) the Reference Rate on such Auction
Date for Minimum Rate Periods and (B) the Rate Multiple on such Auction
Date.
(xx) [RESERVED]
(yy) "MINIMUM RATE PERIOD" shall mean any Rate Period consisting of 7
Rate Period Days.
(zz) "MOODY'S" shall mean Moody's Investors Service, Inc., a Delaware
corporation, and its successors.
(aaa) "MOODY'S DISCOUNT FACTOR" shall have the meaning specified in
Section 4 of Appendix A hereto.
(bbb) "MOODY'S ELIGIBLE ASSET" shall have the meaning specified in
Section 4 of Appendix A hereto.
(ccc) "MOODY'S EXPOSURE PERIOD" shall mean the period commencing on a
given Valuation Date and ending 56 days thereafter.
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<PAGE> 90
(ddd) "MOODY'S VOLATILITY FACTOR" shall mean, as of any Valuation Date,
(i) in the case of any Minimum Rate Period, any Special Rate Period of 28 Rate
Period Days or fewer, or any Special Rate Period of 57 Rate Period Days or more,
a multiplicative factor equal to 275%, except as otherwise provided in the last
sentence of this definition; (ii) in the case of any Special Rate Period of more
than 28 but fewer than 36 Rate Period Days, a multiplicative factor equal to
203%; (iii) in the case of any Special Rate Period of more than 35 but fewer
than 43 Rate Period Days, a multiplicative factor equal to 217%; (iv) in the
case of any Special Rate Period of more than 42 but fewer than 50 Rate Period
Days, a multiplicative factor equal to 226%; and (v) in the case of any Special
Rate Period of more than 49 but fewer than 57 Rate Period Days, a multiplicative
factor equal to 235%. If, as a result of the enactment of changes to the Code,
the greater of the maximum marginal Federal individual income tax rate
applicable to ordinary income and the maximum marginal Federal corporate income
tax rate applicable to ordinary income will increase, such increase being
rounded up to the next five percentage points (the "Federal Tax Rate Increase"),
until the effective date of such increase, the Moody's Volatility Factor in the
case of any Rate Period described in (i) above in this definition instead shall
be determined by reference to the following table:
<TABLE>
<CAPTION>
FEDERAL TAX RATE INCREASE VOLATILITY FACTOR
------------------------- -----------------
<S> <C>
5% 295%
10% 317%
15% 341%
20% 369%
25% 400%
30% 436%
35% 477%
40% 525%
</TABLE>
(eee) "MUNIPREFERRED" shall have the meaning set forth on the first
page of this Statement.
(fff) "MUNIPREFERRED BASIC MAINTENANCE AMOUNT," as of any Valuation
Date, shall mean the dollar amount equal to the sum of (i)(A) the product of the
number of shares of MuniPreferred outstanding on such date multiplied by $25,000
(plus the product of the number of shares of any other series of Preferred
Shares outstanding on such date multiplied by the liquidation preference of such
shares), plus any redemption premium applicable to shares of MuniPreferred (or
other Preferred Shares) then subject to redemption; (B) the aggregate amount of
dividends that will have accumulated at the respective Applicable Rates (whether
or not earned or declared) to (but not including) the first respective Dividend
Payment Dates for shares of MuniPreferred outstanding that follow such Valuation
Date (plus the aggregate amount of dividends, whether or not earned or declared,
that will have accumulated in respect of other outstanding Preferred Shares to,
but not including, the first respective dividend payment dates for such other
shares that follow such Valuation Date); (C) the aggregate amount of dividends
that would accumulate on shares of each series of MuniPreferred outstanding from
such first respective Dividend Payment Date therefor through the 56th day after
such Valuation Date, at the Maximum Rate (calculated as if such Valuation Date
were the Auction Date for the Rate Period commencing on such Dividend Payment
Date) for a Minimum Rate Period of shares of such series to commence on such
Dividend Payment Date, assuming, solely for purposes of the foregoing, that if
on such Valuation Date the Fund shall have delivered a Notice of Special Rate
Period to the Auction Agent pursuant to Section 4(d)(i) of this Part I with
respect to shares of such series, such Maximum Rate shall be the higher of (a)
the Maximum Rate for the Special Rate Period of shares of such series to
commence on such Dividend Payment Date and (b) the Maximum Rate for a Minimum
Rate Period of shares of such series to commence on such Dividend Payment Date,
multiplied by the Volatility Factor applicable to a Minimum Rate Period, or, in
the event the Fund shall have delivered a Notice of Special Rate Period to the
Auction Agent pursuant to Section 4(d)(i) of this Part I with respect to shares
of such series designating a Special Rate Period consisting of 56 Rate Period
Days or more, the Volatility Factor applicable to a Special Rate Period of that
length (plus the aggregate amount of dividends that would accumulate at the
maximum dividend rate or rates on any other Preferred Shares outstanding from
such respective dividend payment dates through the 56th day after such Valuation
Date, as established by or pursuant to the respective statements establishing
and fixing the rights and preferences of such other Preferred Shares) (except
that (1) if such Valuation Date occurs at a time when a Failure to Deposit (or,
in the case of Preferred Shares other than MuniPreferred, a failure similar to a
Failure to Deposit) has occurred that has not been cured, the dividend for
purposes of calculation would accumulate at the current dividend rate then
applicable to the shares in respect of which such failure has occurred and (2)
for those days during the period
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<PAGE> 91
described in this subparagraph (C) in respect of which the Applicable Rate in
effect immediately prior to such Dividend Payment Date will remain in effect
(or, in the case of Preferred Shares other than MuniPreferred, in respect of
which the dividend rate or rates in effect immediately prior to such respective
dividend payment dates will remain in effect), the dividend for purposes of
calculation would accumulate at such Applicable Rate (or other rate or rates, as
the case may be) in respect of those days); (D) the amount of anticipated
expenses of the Fund for the 90 days subsequent to such Valuation Date; (E) the
amount of the Fund's Maximum Potential Gross-up Payment Liability in respect of
shares of MuniPreferred (and similar amounts payable in respect of other
Preferred Shares pursuant to provisions similar to those contained in Section 3
of Part I of this Statement) 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, any payables for Municipal
Obligations purchased as of such Valuation Date and any liabilities incurred for
the purpose of clearing securities transactions) less (ii) the value (i.e., for
purposes of current Moody's guidelines, the face value of cash, short-term
Municipal Obligations rated MIG-1, VMIG-1 or P-1, and short-term securities that
are the direct obligation of the U.S. government, provided in each case that
such securities mature on or prior to the date upon which any of (i)(A) through
(i)(F) become payable, otherwise the Moody's Discounted Value) (i.e., for the
purposes of the current S&P guidelines, the face value of cash, short-term
Municipal Obligations rated SP-1 or A-1 or Municipal Obligations rated A,
provided in each case that such securities mature on or prior to the date upon
which any of the (i)(A) through (i)(F) become payable, otherwise the S&P's
Discounted Value) of any of the Fund's assets irrevocably deposited by the Fund
for the payment of any of (i)(A) through (i)(F).
(ggg) "MUNIPREFERRED BASIC MAINTENANCE CURE DATE," with respect to the
failure by the Fund to satisfy the MuniPreferred Basic Maintenance Amount (as
required by paragraph (a) of Section 7 of Part I of this Statement) as of a
given Valuation Date, shall mean the seventh Business Day following such
Valuation Date.
(hhh) "MUNIPREFERRED BASIC MAINTENANCE REPORT" shall mean a report
signed by the President, Treasurer or any Senior Vice President or Vice
President of the Fund which sets forth, as of the related Valuation Date, the
assets of the Fund, the Market Value and the Discounted Value thereof (seriatim
and in aggregate), and the MuniPreferred Basic Maintenance Amount.
(iii) "MUNICIPAL OBLIGATIONS" shall mean debt obligations issued by
states, cities and local authorities, and certain possessions and territories of
the United States, to obtain funds for various public purposes, including the
construction and maintenance of such public facilities as airports, bridges,
highways, housing, hospitals, mass transportation, schools, streets and water
and sewer works. Other public purposes for which Municipal Obligations may be
issued include the refinancing of outstanding obligations and the obtaining of
funds for general operating expenses and for loans to other public institutions
and facilities. In addition, certain industrial development, private activity
and pollution control bonds may be included within the term Municipal
Obligations if the interest paid thereon qualifies as exempt from regular
Federal income tax. The two principal classifications of Municipal Obligations
are "general obligation" and "revenue" bonds. General obligation bonds are
secured by the issuer's pledge of its full faith, credit and taxing power for
the payment of principal and interest. Revenue bonds (e.g., industrial
development bonds) are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise or other specific revenue source. Also included within the
general category of Municipal Obligations are participations in lease
obligations or installment purchase contract obligations of municipal
authorities or entities. The Fund will invest its net assets in a diversified
portfolio of municipal bonds that are exempt from regular Federal and California
income tax. Under normal market conditions, the Fund expects to be fully
invested (at least 95% of its assets) in such tax-exempt municipal bonds.
(jjj) "1940 ACT" shall mean the Investment Company Act of 1940, as
amended from time to time.
(kkk) "1940 ACT CURE DATE," with respect to the failure by the Fund to
maintain the 1940 Act MuniPreferred Asset Coverage (as required by Section 6 of
Part I of this Statement) as of the last Business Day of each month, shall mean
the last Business Day of the following month.
(lll) "1940 ACT MUNIPREFERRED ASSET COVERAGE" shall mean 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 Fund which are shares of
beneficial interest, including all outstanding shares of MuniPreferred (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 or stock of
a closed-end investment company as a condition of declaring dividends on its
common shares or stock).
(mmm) "NOTICE OF REDEMPTION" shall mean any notice with respect to the
redemption of shares of MuniPreferred pursuant to paragraph (c) of Section 11 of
Part I of this Statement.
(nnn) "NOTICE OF SPECIAL RATE PERIOD" shall mean any notice with
respect to a Special Rate Period of shares of MuniPreferred pursuant to
subparagraph (d)(i) of Section 4 of Part I of this Statement.
(ooo) "ORDER" and "ORDERS" shall have the respective meanings specified
in paragraph (a) of Section 1 of Part II of this Statement.
(ppp) "ORIGINAL ISSUE INSURANCE," if defined in Section 4 of Appendix A
hereto, shall have the meaning specified in that section.
(qqq) "OTHER ISSUES," if defined in Section 4 of Appendix A hereto,
shall have the meaning specified in that section.
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<PAGE> 92
(rrr) "OUTSTANDING" shall mean, as of any Auction Date with respect to
shares of a series of MuniPreferred, the number of shares of such series
theretofore issued by the Fund except, without duplication, (i) any shares of
such series theretofore cancelled or delivered to the Auction Agent for
cancellation or redeemed by the Fund, (ii) any shares of such series as to which
the Fund or any Affiliate thereof shall be an Existing Holder and (iii) any
shares of such series represented by any certificate in lieu of which a new
certificate has been executed and delivered by the Fund.
(sss) "PERMANENT INSURANCE," if defined in Section 4 of Appendix A
hereto, shall have the meaning specified in that section.
(ttt) "PERSON" shall mean and include an individual, a partnership, a
corporation, a trust, an unincorporated association, a joint venture or other
entity or a government or any agency or political subdivision thereof.
(uuu) "PORTFOLIO INSURANCE," if defined in Section 4 of Appendix A
hereto, shall have the meaning specified in that section.
(vvv) "POTENTIAL BENEFICIAL OWNER," with respect to shares of a series
of MuniPreferred, shall mean a customer of a Broker-Dealer that is not a
Beneficial Owner of shares of such series but that wishes to purchase shares of
such series, or that is a Beneficial Owner of shares of such series that wishes
to purchase additional shares of such series.
(www) "POTENTIAL HOLDER," with respect to shares of a series of
MuniPreferred, shall mean a Broker-Dealer (or any such other person as may be
permitted by the Fund) that is not an Existing Holder of shares of such series
or that is an Existing Holder of shares of such series that wishes to become the
Existing Holder of additional shares of such series.
(xxx) "PREFERRED SHARES" shall mean the preferred shares of the Fund,
and includes the shares of MuniPreferred.
(yyy) "QUARTERLY VALUATION DATE" shall mean the last Business Day of
each February, May, August and November of each year, commencing on the date set
forth in Section 6 of Appendix A hereto.
(zzz) "RATE MULTIPLE" shall have the meaning specified in Section 4 of
Appendix A hereto.
(aaaa) "RATE PERIOD," with respect to shares of a series of
MuniPreferred, shall mean the Initial Rate Period, and any Transitional Rate
Period, of shares of such series and any Subsequent Rate Period, including any
Special Rate Period, of shares of such series.
(bbbb) "RATE PERIOD DAYS," for any Rate Period or Dividend Period,
means the number of days that would constitute such Rate Period or Dividend
Period but for the application of paragraph (d) of Section 2 of Part I of this
Statement or paragraph (b) of Section 4 of Part I of this Statement.
(cccc) "RECEIVABLES FOR MUNICIPAL OBLIGATIONS SOLD" shall mean (A) for
purposes of calculation of Moody's Eligible Assets as of any Valuation Date, no
more than the aggregate of the following: (i) 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, and if the
trades which generated such receivables are (x) settled through clearing house
firms with respect to which the Fund has received prior written authorization
from Moody's or (y) with counterparties having a Moody's long-term debt rating
of at least Baa3; and (ii) the Moody's Discounted Value of Municipal Obligations
sold as of or prior to such Valuation Date which generated receivables, if such
receivables are due within five business days of such Valuation Date but do not
comply with either of the conditions specified in (i) above, and (B) for
purposes of calculation of S&P Eligible Assets as of any Valuation Date, 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.
(dddd) "REDEMPTION PRICE" shall mean the applicable redemption price
specified in paragraph (a) or (b) of Section 11 of Part I of this Statement.
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<PAGE> 93
(eeee) "REFERENCE RATE" shall mean (i) the higher of the Taxable
Equivalent of the Short-Term Municipal Bond Rate and the "AA" Composite
Commercial Paper Rate in the case of Minimum Rate Periods and Special Rate
Periods of 28 Rate Period Days or fewer, (ii) the "AA" Composite Commercial
Paper Rate in the case of Special Rate Periods of more than 28 Rate Period Days
but fewer than 183 Rate Period Days; and (iii) the Treasury Bill Rate in the
case of Special Rate Periods of more than 182 Rate Period Days but fewer than
365 Rate Period Days.
(ffff) "REGISTRATION STATEMENT" has the meaning specified in the
definition of "Municipal Obligations."
(gggg) "S&P" shall mean Standard & Poor's Corporation, a New York
corporation, and its successors.
(hhhh) "S&P DISCOUNT FACTOR" shall have the meaning specified in
Section 4 of Appendix A hereto.
(iiii) "S&P ELIGIBLE ASSET" shall have the meaning specified in Section
4 of Appendix A hereto.
(jjjj) "S&P EXPOSURE PERIOD" shall mean the maximum period of time
following a Valuation Date that the Fund has under this Statement to cure any
failure to maintain, as of such Valuation Date, the Discounted Value for its
portfolio at least equal to the MuniPreferred Basic Maintenance Amount (as
described in paragraph (a) of Section 7 of Part I of this Statement).
(kkkk) "S&P VOLATILITY FACTOR" shall mean, as of any Valuation Date, a
multiplicative factor equal to (i) 305% in the case of any Minimum Rate Period
or any Special Rate Period of 28 Rate Period Days or fewer, (ii) 268% in the
case of any Special Rate Period of more than 28 Rate Period Days but fewer than
183 Rate Period Days; and (iii) 204% in the case of any Special Rate Period of
more than 182 Rate Period Days.
(llll) "SECONDARY MARKET INSURANCE," if defined in Section 4 of
Appendix A hereto, shall have the meaning specified in that section.
(mmmm) "SECURITIES DEPOSITORY" shall mean The Depository Trust Company
and its successors and assigns or any other securities depository selected by
the Fund which agrees to follow the procedures required to be followed by such
securities depository in connection with shares of MuniPreferred.
(nnnn) "SELL ORDER" and "SELL ORDERS" shall have the respective
meanings specified in paragraph (a) of Section 1 of Part II of this Statement.
(oooo) "SPECIAL RATE PERIOD," with respect to shares of a series of
MuniPreferred, shall have the meaning specified in paragraph (a) of Section 4 of
Part I of this Statement.
(pppp) "SPECIAL REDEMPTION PROVISIONS" shall have the meaning specified
in subparagraph (a)(i) of Section 11 of Part I of this Statement.
(qqqq) "SUBMISSION DEADLINE" shall mean 1:30 P.M., New York City time,
on any Auction Date or such other time on any Auction Date by which
Broker-Dealers are required to submit Orders to the Auction Agent as specified
by the Auction Agent from time to time.
(rrrr) "SUBMITTED BID" and "SUBMITTED BIDS" shall have the respective
meanings specified in paragraph (a) of Section 3 of Part II of this Statement.
(ssss) "SUBMITTED HOLD ORDER" and "SUBMITTED HOLD ORDERS" shall have
the respective meanings specified in paragraph (a) of Section 3 of Part II of
this Statement.
(tttt) "SUBMITTED ORDER" and "SUBMITTED ORDERS" shall have the
respective meanings specified in paragraph (a) of Section 3 of Part II of this
Statement.
(uuuu) "SUBMITTED SELL ORDER" and "SUBMITTED SELL ORDERS" shall have
the respective meanings specified in paragraph (a) of Section 3 of Part II of
this Statement.
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(vvvv) "SUBSEQUENT RATE PERIOD," with respect to shares of a series of
MuniPreferred, shall mean the period from and including the first day following
the Initial Rate Period of shares of such series to but excluding the next
Dividend Payment Date for shares of such series and any period thereafter from
and including one Dividend Payment Date for shares of such series to but
excluding the next succeeding Dividend Payment Date for shares of such series;
provided, however, that if any Subsequent Rate Period is also a Special Rate
Period, such term shall mean the period commencing on the first day of such
Special Rate Period and ending on the last day of the last Dividend Period
thereof.
(wwww) "SUBSTITUTE COMMERCIAL PAPER DEALER" shall mean The First Boston
Company or Morgan Stanley & Co. Incorporated or their respective affiliates or
successors, if such entity is a commercial paper dealer; provided, however, that
none of such entities shall be a Commercial Paper Dealer.
(xxxx) "SUBSTITUTE U.S. GOVERNMENT SECURITIES DEALER" shall mean The
First Boston Company and Merrill Lynch, Pierce, Fenner & Smith Incorporated or
their respective affiliates or successors, if such entity is a U.S. Government
securities dealer; provided, however, that none of such entities shall be a U.S.
Government Securities Dealer.
(yyyy) "SUFFICIENT CLEARING BIDS" shall have the meaning specified in
paragraph (a) of Section 3 of Part II of this Statement.
(zzzz) "TAXABLE ALLOCATION" shall have the meaning specified in Section
3 of Part I of this Statement.
(aaaaa) "TAXABLE INCOME" shall have the meaning specified in Section 12
of Appendix A hereto.
(bbbbb) "TAXABLE EQUIVALENT OF THE SHORT-TERM MUNICIPAL BOND RATE," on
any date for any Minimum Rate Period or Special Rate Period of 28 Rate Period
Days or fewer, shall mean 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 or any successor index (the "Kenny Index") (provided, however, that
any such successor index must be approved by Moody's (if Moody's is then rating
the shares of MuniPreferred) and S&P (if S&P is then rating the shares of
MuniPreferred)), 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 S&P Evaluation Services or any successor thereto, based upon 30-day
yield evaluations at par of short-term bonds the interest on which is excludable
for regular Federal income tax purposes under the Code of "high grade" component
issuers selected by Kenny S&P Evaluation Services 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 maximum marginal regular Federal individual
income tax rate applicable to ordinary income or the maximum marginal regular
Federal corporate income tax rate applicable to ordinary income (in each case
expressed as a decimal), whichever is greater; 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 S&P Evaluation Services 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 maximum marginal regular Federal individual income tax rate
applicable to ordinary income or the maximum marginal regular Federal corporate
income tax rate applicable to ordinary income (in each case expressed as a
decimal), whichever is greater.
(ccccc) "TREASURY BILL" shall mean a direct obligation of the U.S.
Government having a maturity at the time of issuance of 364 days or less.
(ddddd) "TREASURY BILL RATE," on any date for any Rate Period, shall
mean (i) the bond equivalent yield, calculated in accordance with prevailing
industry convention, of the rate on the most recently auctioned Treasury Bill
with a remaining maturity closest to the length of such Rate Period, as quoted
in The Wall Street Journal on such date for the Business Day next preceding such
date; or (ii) in the event that any such rate is not published in The Wall
Street Journal, then the bond equivalent yield, calculated in accordance with
prevailing industry convention, as calculated by reference to the arithmetic
average of the bid price quotations of the most recently auctioned Treasury Bill
with a remaining maturity closest to the length of such Rate Period, as
determined by bid price quotations as of the close of
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business on the Business Day immediately preceding such date obtained from the
U.S. Government Securities Dealers to the Auction Agent.
(eeeee) "TREASURY NOTE" shall mean a direct obligation of the U.S.
Government having a maturity at the time of issuance of five years or less but
more than 364 days.
(fffff) "TREASURY NOTE RATE," on any date for any Rate Period, shall
mean (i) the yield on the most recently auctioned Treasury Note with a remaining
maturity closest to the length of such Rate Period, as quoted in The Wall Street
Journal on such date for the Business Day next preceding such date; or (ii) in
the event that any such rate is not published in The Wall Street Journal, then
the yield as calculated by reference to the arithmetic average of the bid price
quotations of the most recently auctioned Treasury Note with a remaining
maturity closest to the length of such Rate Period, as determined by bid price
quotations as of the close of business on the Business Day immediately preceding
such date obtained from the U.S. Government Securities Dealers to the Auction
Agent. If any U.S. Government Securities Dealer does not quote a rate required
to determine the Treasury Bill Rate or the Treasury Note Rate, the Treasury Bill
Rate or the Treasury Note Rate shall be determined on the basis of the quotation
or quotations furnished by the remaining U.S. Government Securities Dealer or
U.S. Government Securities Dealers and any Substitute U.S. Government Securities
Dealers selected by the Fund to provide such rate or rates not being supplied by
any U.S. Government Securities Dealer or U.S. Government Securities Dealers, as
the case may be, or, if the Fund does not select any such Substitute U.S.
Government Securities Dealer or Substitute U.S. Government Securities Dealers,
by the remaining U.S. Government Securities Dealer or U.S. Government Securities
Dealers.
(ggggg) "U.S. GOVERNMENT SECURITIES DEALER" shall mean Lehman
Government Securities Incorporated, Goldman, Sachs & Co., Salomon Brothers Inc
and Morgan Guaranty Trust Company of New York or their respective affiliates or
successors, if such entity is a U.S. Government securities dealer.
(hhhhh) "VALUATION DATE" shall mean, for purposes of determining
whether the Fund is maintaining the MuniPreferred Basic Maintenance Amount, each
Business Day.
(iiiii) "VOLATILITY FACTOR" shall mean, as of any Valuation Date, the
greater of the Moody's Volatility Factor and the S&P Volatility Factor.
(jjjjj) "VOTING PERIOD" shall have the meaning specified in paragraph
(b) of Section 5 of Part I of this Statement.
(kkkkk) "WINNING BID RATE" shall have the meaning specified in
paragraph (a) of Section 3 of Part II of this Statement.
Any additional definitions specifically set forth in Section 8 of
Appendix A hereto shall be incorporated herein and made part hereof by reference
thereto.
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PART I
1. NUMBER OF AUTHORIZED SHARES.
The number of authorized shares constituting a series of MuniPreferred
shall be as set forth with respect to such series in Section 2 of Appendix A
hereto.
2. DIVIDENDS.
(a) RANKING. The shares of a series of MuniPreferred shall rank on a
parity with each other, with shares of any other series of MuniPreferred and
with shares of any other series of Preferred Shares as to the payment of
dividends by the Fund.
(b) CUMULATIVE CASH DIVIDENDS. The Holders of shares of MuniPreferred
of any series shall be entitled to receive, when, as and if declared by the
Board of Trustees, out of funds legally available therefor in accordance with
the Declaration and applicable law, cumulative cash dividends at the Applicable
Rate for shares of such series, determined as set forth in paragraph (e) of this
Section 2, and no more (except to the extent set forth in Section 3 of this Part
I), payable on the Dividend Payment Dates with respect to shares of such series
determined pursuant to paragraph (d) of this Section 2. Holders of shares of
MuniPreferred shall not be entitled to any dividend, whether payable in cash,
property or shares, in excess of full cumulative dividends, as herein provided,
on shares of MuniPreferred. No interest, or sum of money in lieu of interest,
shall be payable in respect of any dividend payment or payments on shares of
MuniPreferred which may be in arrears, and, except to the extent set forth in
subparagraph (e)(i) of this Section 2, no additional sum of money shall be
payable in respect of any such arrearage.
(c) DIVIDENDS CUMULATIVE FROM DATE OF ORIGINAL ISSUE. Dividends on
shares of MuniPreferred of any series shall accumulate at the Applicable Rate
for shares of such series from the Date of Original Issue thereof.
(d) DIVIDEND PAYMENT DATES AND ADJUSTMENT THEREOF. The Dividend Payment
Dates with respect to shares of a series of MuniPreferred shall be as set forth
with respect to shares of such series in Section 9 of Appendix A hereto;
provided, however, that:
(i) (A) in the case of a series of MuniPreferred designated as
"Series F MuniPreferred" or "Series M MuniPreferred" in Section 1 of
Appendix A hereto, if the Monday or Tuesday, as the case may be, on
which dividends would otherwise be payable on shares of such series is
not a Business Day, then such dividends shall be payable on such shares
on the first Business Day that falls after such Monday or Tuesday, as
the case may be, and (B) in the case of a series of MuniPreferred
designated as "Series T MuniPreferred," "Series W MuniPreferred" or
"Series TH MuniPreferred" in Section 1 of Appendix A hereto, if the
Wednesday, Thursday or Friday, as the case may be, on which dividends
would otherwise be payable on shares of such series is not a Business
Day, then such dividends shall be payable on such shares on the first
Business Day that falls prior to such Wednesday, Thursday or Friday, as
the case may be; and
(ii) notwithstanding Section 9 of Appendix A hereto, the Fund
in its discretion may establish the Dividend Payment Dates in respect
of any Special Rate Period of shares of a series of MuniPreferred
consisting of more than 28 Rate Period Days; provided, however, that
such dates shall be set forth in the Notice of Special Rate Period
relating to such Special Rate Period, as delivered to the Auction
Agent, which Notice of Special Rate Period shall be filed with the
Secretary of the Fund; and further provided that (1) any such Dividend
Payment Date shall be a Business Day and (2) the last Dividend Payment
Date in respect of such Special Rate Period shall be the Business Day
immediately following the last day thereof, as such last day is
determined in accordance with paragraph (b) of Section 4 of this Part
I.
(e) DIVIDEND RATES AND CALCULATION OF DIVIDENDS.
(i) DIVIDEND RATES. The dividend rate on shares of
MuniPreferred of any series during the period from and after the Date
of Original Issue of shares of such series to and including the last
day of the Initial Rate Period of shares of such series shall be equal
to the rate per annum set forth with respect to shares of such series
under "Designation" in Section 1 of Appendix A hereto. For each
Subsequent Rate Period of
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shares of such series thereafter, the dividend rate on shares of such
series shall be equal to the rate per annum that results from an
Auction for shares of such series on the Auction Date next preceding
such Subsequent Rate Period; provided, however, that if:
(A) an Auction for any such Subsequent Rate Period is
not held for any reason other than as described below, the
dividend rate on shares of such series for such Subsequent
Rate Period will be the Maximum Rate for shares of such series
on the Auction Date therefor;
(B) any Failure to Deposit shall have occurred with
respect to shares of such series during any Rate Period
thereof (other than any Special Rate Period consisting of more
than 364 Rate Period Days or any Rate Period succeeding any
Special Rate Period consisting of more than 364 Rate Period
Days during which a Failure to Deposit occurred that has not
been cured), but, prior to 12:00 Noon, New York City time, on
the third Business Day next succeeding the date on which such
Failure to Deposit occurred, such Failure to Deposit shall
have been cured in accordance with paragraph (f) of this
Section 2 and the Fund shall have paid to the Auction Agent a
late charge ("Late Charge") equal to the sum of (1) if such
Failure to Deposit consisted of the failure timely to pay to
the Auction Agent the full amount of dividends with respect to
any Dividend Period of the shares of such series, an amount
computed by multiplying (x) 200% of the Reference Rate for the
Rate Period during which such Failure to Deposit occurs on the
Dividend Payment Date for such Dividend Period by (y) a
fraction, the numerator of which shall be the number of days
for which such Failure to Deposit has not been cured in
accordance with paragraph (f) of this Section 2 (including the
day such Failure to Deposit occurs and excluding the day such
Failure to Deposit is cured) and the denominator of which
shall be 360, and applying the rate obtained against the
aggregate Liquidation Preference of the outstanding shares of
such series and (2) if such Failure to Deposit consisted of
the failure timely to pay to the Auction Agent the Redemption
Price of the shares, if any, of such series for which Notice
of Redemption has been mailed by the Fund pursuant to
paragraph (c) of Section 11 of this Part I, an amount computed
by multiplying (x) 200% of the Reference Rate for the Rate
Period during which such Failure to Deposit occurs on the
redemption date by (y) a fraction, the numerator of which
shall be the number of days for which such Failure to Deposit
is not cured in accordance with paragraph (f) of this Section
2 (including the day such Failure to Deposit occurs and
excluding the day such Failure to Deposit is cured) and the
denominator of which shall be 360, and applying the rate
obtained against the aggregate Liquidation Preference of the
outstanding shares of such series to be redeemed, no Auction
will be held in respect of shares of such series for the
Subsequent Rate Period thereof and the dividend rate for
shares of such series for such Subsequent Rate Period will be
the Maximum Rate for shares of such series on the Auction Date
for such Subsequent Rate Period;
(C) any Failure to Deposit shall have occurred with
respect to shares of such series during any Rate Period
thereof (other than any Special Rate Period consisting of more
than 364 Rate Period Days or any Rate Period succeeding any
Special Rate Period consisting of more than 364 Rate Period
Days during which a Failure to Deposit occurred that has not
been cured), and, prior to 12:00 Noon, New York City time, on
the third Business Day next succeeding the date on which such
Failure to Deposit occurred, such Failure to Deposit shall not
have been cured in accordance with paragraph (f) of this
Section 2 or the Fund shall not have paid the applicable Late
Charge to the Auction Agent, no Auction will be held in
respect of shares of such series for the first Subsequent Rate
Period thereof thereafter (or for any Rate Period thereof
thereafter to and including the Rate Period during which (1)
such Failure to Deposit is cured in accordance with paragraph
(f) of this Section 2 and (2) the Fund pays the applicable
Late Charge to the Auction Agent (the condition set forth in
this clause (2) to apply only in the event Moody's is rating
such shares at the time the Fund cures such Failure to
Deposit), in each case no later than 12:00 Noon, New York City
time, on the fourth Business Day prior to the end of such Rate
Period), and the dividend rate for shares of such series for
each Subsequent Rate Period shall be a rate per annum equal to
the Maximum Rate for shares of such series on the Auction Date
for such Subsequent Rate Period (but with the prevailing
rating for shares of such series, for purposes of determining
such Maximum Rate, being deemed to be "Below "ba3"/BB2"); or
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(D) any Failure to Deposit shall have occurred with
respect to shares of such series during a Special Rate Period
thereof consisting of more than 364 Rate Period Days, or
during any Rate Period thereof succeeding any Special Rate
Period consisting of more than 364 Rate Period Days during
which a Failure to Deposit occurred that has not been cured,
and, prior to 12:00 Noon, New York City time, on the fourth
Business Day preceding the Auction Date for the Rate Period
subsequent to such Rate Period, such Failure to Deposit shall
not have been cured in accordance with paragraph (f) of this
Section 2 or, in the event Moody's is then rating such shares,
the Fund shall not have paid the applicable Late Charge to the
Auction Agent (such Late Charge, for purposes of this
subparagraph (D), to be calculated by using, as the Reference
Rate, the Reference Rate applicable to a Rate Period (x)
consisting of more than 182 Rate Period Days but fewer than
365 Rate Period Days and (y) commencing on the date on which
the Rate Period during which Failure to Deposit occurs
commenced), no Auction will be held in respect of shares of
such series for such Subsequent Rate Period (or for any Rate
Period thereof thereafter to and including the Rate Period
during which (1) such Failure to Deposit is cured in
accordance with paragraph (f) of this Section 2 and (2) the
Fund pays the applicable Late Charge to the Auction Agent (the
condition set forth in this clause (2) to apply only in the
event Moody's is rating such shares at the time the Fund cures
such Failure to Deposit), in each case no later than 12:00
Noon, New York City time, on the fourth Business Day prior to
the end of such Rate Period), and the dividend rate for shares
of such series for each such Subsequent Rate Period shall be a
rate per annum equal to the Maximum Rate for shares of such
series on the Auction Date for such Subsequent Rate Period
(but with the prevailing rating for shares of such series, for
purposes of determining such Maximum Rate, being deemed to be
"Below "ba3"/BB2") (the rate per annum at which dividends are
payable on shares of a series of MuniPreferred for any Rate
Period thereof being herein referred to as the "Applicable
Rate" for shares of such series).
(ii) CALCULATION OF DIVIDENDS. The amount of dividends per
share payable on shares of a series of MuniPreferred on any date on
which dividends shall be payable on shares of such series shall be
computed by multiplying the Applicable Rate for shares of such series
in effect for such Dividend Period or Dividend Periods or part thereof
for which dividends have not been paid by a fraction, the numerator of
which shall be the number of days in such Dividend Period or Dividend
Periods or part thereof and the denominator of which shall be 365 if
such Dividend Period consists of 7 Rate Period Days and 360 for all
other Dividend Periods, and applying the rate obtained against $25,000.
(f) CURING A FAILURE TO DEPOSIT. A Failure to Deposit with respect to
shares of a series of MuniPreferred shall have been cured (if such Failure to
Deposit is not solely due to the willful failure of the Fund to make the
required payment to the Auction Agent) with respect to any Rate Period of shares
of such series if, within the respective time periods described in subparagraph
(e)(i) of this Section 2, the Fund shall have paid to the Auction Agent (A) all
accumulated and unpaid dividends on shares of such series and (B) without
duplication, the Redemption Price for shares, if any, of such series for which
Notice of Redemption has been mailed by the Fund pursuant to paragraph (c) of
Section 11 of Part I of this Statement; provided, however, that the foregoing
clause (B) shall not apply to the Fund's failure to pay the Redemption Price in
respect of shares of MuniPreferred when the related Redemption Notice provides
that redemption of such shares is subject to one or more conditions precedent
and any such condition precedent shall not have been satisfied at the time or
times and in the manner specified in such Notice of Redemption.
(g) DIVIDEND PAYMENTS BY FUND TO AUCTION AGENT. The Fund shall pay to
the Auction Agent, not later than 12:00 Noon, New York City time, on the
Business Day next preceding each Dividend Payment Date for shares of a series of
MuniPreferred, an aggregate amount of funds available on the next Business Day
in The City of New York, New York, equal to the dividends to be paid to all
Holders of shares of such series on such Dividend Payment Date.
(h) AUCTION AGENT AS TRUSTEE OF DIVIDEND PAYMENTS BY FUND. All moneys
paid to the Auction Agent for the payment of dividends (or for the payment of
any Late Charge) shall be held in trust for the payment of such dividends (and
any such Late Charge) by the Auction Agent for the benefit of the Holders
specified in paragraph (i) of this Section 2. Any moneys paid to the Auction
Agent in accordance with the foregoing but not applied by the Auction Agent to
the payment of dividends (and any such Late Charge) will, to the extent
permitted by law, be repaid to the Fund at the end of 90 days from the date on
which such moneys were so to have been applied.
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(i) DIVIDENDS PAID TO HOLDERS. Each dividend on shares of MuniPreferred
shall be paid on the Dividend Payment Date therefor to the Holders thereof as
their names appear on the record books of the Fund on the Business Day next
preceding such Dividend Payment Date.
(j) DIVIDENDS CREDITED AGAINST EARLIEST ACCUMULATED BUT UNPAID
DIVIDENDS. Any dividend payment made on shares of MuniPreferred shall first be
credited against the earliest accumulated but unpaid dividends due with respect
to such shares. 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 their names appear on the record books of the Fund on
such date, not exceeding 15 days preceding the payment date thereof, as may be
fixed by the Board of Trustees.
(k) DIVIDENDS DESIGNATED AS EXEMPT-INTEREST DIVIDENDS. Dividends on
shares of MuniPreferred shall be designated as exempt-interest dividends up to
the amount of tax-exempt income of the Fund, to the extent permitted by, and for
purposes of, Section 852 of the Code.
3. GROSS-UP PAYMENTS.
Holders of shares of MuniPreferred shall be entitled to receive, when,
as and if declared by the Board of Trustees, out of funds legally available
therefor, dividends in an amount equal to the aggregate Gross-up Payments as
follows:
(a) MINIMUM RATE PERIODS AND SPECIAL RATE PERIODS OF 28 RATE PERIOD
DAYS OR FEWER. If, in the case of any Minimum Rate Period or any Special Rate
Period of 28 Rate Period Days or fewer, the Fund allocates any net capital gains
or other income taxable for Federal income tax purposes to a dividend paid on
shares of MuniPreferred without having given advance notice thereof to the
Auction Agent as provided in Section 5 of Part II of this Statement (such
allocation being referred to herein as a "Taxable Allocation") solely by reason
of the fact that such allocation is made retroactively as a result of the
redemption of all or a portion of the outstanding shares of MuniPreferred or the
liquidation of the Fund, the Fund shall, prior to the end of the calendar year
in which such dividend was paid, provide notice thereof to the Auction Agent and
direct the Fund's dividend disbursing agent to send such notice with a Gross-up
Payment to each Holder of such shares that was entitled to such dividend payment
during such calendar year at such Holder's address as the same appears or last
appeared on the record books of the Fund.
(b) SPECIAL RATE PERIODS OF MORE THAN 28 RATE PERIOD DAYS. If, in the
case of any Special Rate Period of more than 28 Rate Period Days, the Fund makes
a Taxable Allocation to a dividend paid on shares of MuniPreferred, the Fund
shall, prior to the end of the calendar year in which such dividend was paid,
provide notice thereof to the Auction Agent and direct the Fund's dividend
disbursing agent to send such notice with a Gross-up Payment to each Holder of
shares that was entitled to such dividend payment during such calendar year at
such Holder's address as the same appears or last appeared on the record books
of the Fund.
(c) NO GROSS-UP PAYMENTS IN THE EVENT OF A REALLOCATION. The Fund shall
not be required to make Gross-up Payments with respect to any net capital gains
or other taxable income determined by the Internal Revenue Service to be
allocable in a manner different from that allocated by the Fund.
4. DESIGNATION OF SPECIAL RATE PERIODS.
(a) LENGTH OF AND PRECONDITIONS FOR SPECIAL RATE PERIOD. The Fund, at
its option, may designate any succeeding Subsequent Rate Period of shares of a
series of MuniPreferred as a Special Rate Period consisting of a specified
number of Rate Period Days evenly divisible by seven and not more than 1,820,
subject to adjustment as provided in paragraph (b) of this Section 4. A
designation of a Special Rate Period shall be effective only if (A) notice
thereof shall have been given in accordance with paragraph (c) and subparagraph
(d)(i) of this Section 4, (B) an Auction for shares of such series shall have
been held on the Auction Date immediately preceding the first day of such
proposed Special Rate Period and Sufficient Clearing Bids for shares of such
series shall have existed in such Auction, and (C) if any Notice of Redemption
shall have been mailed by the Fund pursuant to paragraph (c) of Section 11 of
this Part I with respect to any shares of such series, the Redemption Price with
respect to such shares shall have been deposited with the Auction Agent. In the
event the Fund wishes to designate any succeeding Subsequent Rate Period for
shares of a series of MuniPreferred as a Special Rate Period consisting of more
than 28 Rate Period Days, the Fund shall notify S&P (if S&P is then rating such
series) and Moody's (if Moody's is then rating such series) in advance of the
commencement
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of such Subsequent Rate Period that the Fund wishes to designate such Subsequent
Rate Period as a Special Rate Period and shall provide S&P (if S&P is then
rating such series) and Moody's (if Moody's is then rating such series) with
such documents as either may request.
(b) ADJUSTMENT OF LENGTH OF SPECIAL RATE PERIOD. In the event the Fund
wishes to designate a Subsequent Rate Period as a Special Rate Period, but the
day following what would otherwise be the last day of such Special Rate Period
is not (a) a Tuesday that is a Business Day in the case of a series of
MuniPreferred designated as "Series M MuniPreferred" in Section 1 of Appendix A
hereto, (b) a Wednesday that is a Business Day in the case of a series of
MuniPreferred designated as "Series T MuniPreferred" in Section 1 of Appendix A
hereto, (c) a Thursday that is a Business Day in the case of a series of
MuniPreferred designated as "Series W MuniPreferred" in Section 1 of Appendix A
hereto, (d) a Friday that is a Business Day in the case of a series of
MuniPreferred designated as "Series TH MuniPreferred" in Section 1 of Appendix A
hereto, or (e) a Monday that is a Business Day in the case of a series of
MuniPreferred designated as "Series F MuniPreferred" in Section 1 of Appendix A
hereto, then the Fund shall designate such Subsequent Rate Period as a Special
Rate Period consisting of the period commencing on the first day following the
end of the immediately preceding Rate Period and ending (a) on the first Monday
that is followed by a Tuesday that is a Business Day preceding what would
otherwise be such last day, in the case of Series M MuniPreferred, (b) on the
first Tuesday that is followed by a Wednesday that is a Business Day preceding
what would otherwise be such last day, in the case of Series T MuniPreferred,
(c) on the first Wednesday that is followed by a Thursday that is a Business Day
preceding what would otherwise be such last day, in the case of Series W
MuniPreferred, (d) on the first Thursday that is followed by a Friday that is a
Business Day preceding what would otherwise be such last day, in the case of
Series TH MuniPreferred, and (e) on the first Sunday that is followed by a
Monday that is a Business Day preceding what would otherwise be such last day,
in the case of Series F MuniPreferred.
(c) NOTICE OF PROPOSED SPECIAL RATE PERIOD. If the Fund proposes to
designate any succeeding Subsequent Rate Period of shares of a series of
MuniPreferred as a Special Rate Period pursuant to paragraph (a) of this Section
4, not less than 20 (or such lesser number of days as may be agreed to from time
to time by the Auction Agent) nor more than 30 days prior to the date the Fund
proposes to designate as the first day of such Special Rate Period (which shall
be such day that would otherwise be the first day of a Minimum Rate Period),
notice shall be (i) published or caused to be published by the Fund in a
newspaper of general circulation to the financial community in The City of New
York, New York, which carries financial news, and (ii) mailed by the Fund by
first-class mail, postage prepaid, to the Holders of shares of such series. Each
such notice shall state (A) that the Fund may exercise its option to designate a
succeeding Subsequent Rate Period of shares of such series as a Special Rate
Period, specifying the first day thereof and (B) that the Fund will, by 11:00
A.M., New York City time, on the second Business Day next preceding such date
(or by such later time or date, or both, as may be agreed to by the Auction
Agent) notify the Auction Agent of either (x) its determination, subject to
certain conditions, to exercise such option, in which case the Fund shall
specify the Special Rate Period designated, or (y) its determination not to
exercise such option.
(d) NOTICE OF SPECIAL RATE PERIOD. No later than 11:00 A.M., New York
City time, on the second Business Day next preceding the first day of any
proposed Special Rate Period of shares of a series of MuniPreferred as to which
notice has been given as set forth in paragraph (c) of this Section 4 (or such
later time or date, or both, as may be agreed to by the Auction Agent), the Fund
shall deliver to the Auction Agent either:
(i) a notice ("Notice of Special Rate Period") stating (A)
that the Fund has determined to designate the next succeeding Rate
Period of shares of such series as a Special Rate Period, specifying
the same and the first day thereof, (B) the Auction Date immediately
prior to the first day of such Special Rate Period, (C) that such
Special Rate Period shall not commence if (1) an Auction for shares of
such series shall not be held on such Auction Date for any reason or
(2) an Auction for shares of such series shall be held on such Auction
Date but Sufficient Clearing Bids for shares of such series shall not
exist in such Auction, (D) the scheduled Dividend Payment Dates for
shares of such series during such Special Rate Period and (E) the
Special Redemption Provisions, if any, applicable to shares of such
series in respect of such Special Rate Period, such notice to be
accompanied by a MuniPreferred Basic Maintenance Report showing that,
as of the third Business Day next preceding such proposed Special Rate
Period, Moody's Eligible Assets (if Moody's is then rating such series)
and S&P Eligible Assets (if S&P is then rating such series) each have
an aggregate Discounted Value at least equal to the MuniPreferred Basic
Maintenance Amount as of such Business Day (assuming for purposes of
the foregoing calculation that (a) the Maximum Rate is the Maximum Rate
on such Business Day as if such Business Day were the Auction Date for
the proposed Special Rate Period, and (b) the
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<PAGE> 101
Moody's Discount Factors applicable to Moody's Eligible Assets are
determined by reference to the first Exposure Period longer than the
Exposure Period then applicable to the Fund, as described in the
definition of Moody's Discount Factor herein); or
(ii) a notice stating that the Fund has determined not to
exercise its option to designate a Special Rate Period of shares of
such series and that the next succeeding Rate Period of shares of such
series shall be a Minimum Rate Period.
(e) FAILURE TO DELIVER NOTICE OF SPECIAL RATE PERIOD. If the Fund fails
to deliver either of the notices described in subparagraphs (d)(i) or (d)(ii) of
this Section 4 (and, in the case of the notice described in subparagraph (d)(i)
of this Section 4, a MuniPreferred Basic Maintenance Report to the effect set
forth in such subparagraph (if either Moody's or S&P is then rating the series
in question)) with respect to any designation of any proposed Special Rate
Period to the Auction Agent by 11:00 A.M., New York City time, on the second
Business Day next preceding the first day of such proposed Special Rate Period
(or by such later time or date, or both, as may be agreed to by the Auction
Agent), the Fund shall be deemed to have delivered a notice to the Auction Agent
with respect to such Special Rate Period to the effect set forth in subparagraph
(d)(ii) of this Section 4. In the event the Fund delivers to the Auction Agent a
notice described in subparagraph (d)(i) of this Section 4, it shall file a copy
of such notice with the Secretary of the Fund, and the contents of such notice
shall be binding on the Fund. In the event the Fund delivers to the Auction
Agent a notice described in subparagraph (d)(ii) of this Section 4, the Fund
will provide Moody's (if Moody's is then rating the series in question) and S&P
(if S&P is then rating the series in question) a copy of such notice.
5. VOTING RIGHTS.
(a) ONE VOTE PER SHARE OF MUNIPREFERRED. Except as otherwise provided
in the Declaration or as otherwise required by law, (i) each Holder of shares of
MuniPreferred shall be entitled to one vote for each share of MuniPreferred held
by such Holder on each matter submitted to a vote of shareholders of the Fund,
and (ii) the holders of outstanding Preferred Shares, including each share of
MuniPreferred, and of Common Shares shall vote together as a single class;
provided, however, that, at any meeting of the shareholders of the Fund held for
the election of trustees, the holders of outstanding Preferred Shares, including
MuniPreferred, represented in person or by proxy at said meeting, shall be
entitled, as a class, to the exclusion of the holders of all other securities
and classes of shares of beneficial interest of the Fund, to elect two trustees
of the Fund, each Preferred Share, including each share of MuniPreferred,
entitling the holder thereof to one vote. Subject to paragraph (b) of this
Section 5, the holders of outstanding Common Shares and Preferred Shares,
including MuniPreferred, voting together as a single class, shall elect the
balance of the trustees.
(b) VOTING FOR ADDITIONAL TRUSTEES.
(i) VOTING PERIOD. During any period in which any one or more
of the conditions described in subparagraphs (A) or (B) of this
subparagraph (b)(i) 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 trustees elected exclusively by the holders of
Preferred Shares, including shares of MuniPreferred, would constitute a
majority of the Board of Trustees as so increased by such smallest
number; and the holders of Preferred Shares, including MuniPreferred,
shall be entitled, voting as a class on a one-vote-per-share basis (to
the exclusion of the holders of all other securities and classes of
shares of beneficial interest of the Fund), 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:
(A) if at the close of business on any dividend
payment date accumulated dividends (whether or not earned or
declared) on any outstanding Preferred Share, including
MuniPreferred, 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
(B) if at any time holders of Preferred Shares are
entitled under the 1940 Act to elect a majority of the
trustees of the Fund.
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<PAGE> 102
Upon the termination of a Voting Period, the voting rights
described in this subparagraph (b)(i) shall cease, subject always,
however, to the revesting of such voting rights in the Holders upon the
further occurrence of any of the events described in this subparagraph
(b)(i).
(ii) NOTICE OF SPECIAL MEETING. As soon as practicable after
the accrual of any right of the holders of Preferred Shares to elect
additional trustees as described in subparagraph (b)(i) of this Section
5, the Fund shall notify the Auction Agent and the Auction Agent shall
call a special meeting of such holders, by mailing 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 Fund fails to send such notice to the Auction Agent or if the
Auction Agent 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 of holders of Preferred Shares held during a Voting Period at
which trustees are to be elected, 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 Fund), shall be
entitled to elect the number of trustees prescribed in subparagraph
(b)(i) of this Section 5 on a one-vote-per-share basis.
(iii) TERMS OF OFFICE OF EXISTING TRUSTEES. The terms of
office of all persons who are trustees of the Fund 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 Fund.
(iv) TERMS OF OFFICE OF CERTAIN TRUSTEES TO TERMINATE UPON
TERMINATION OF VOTING PERIOD. Simultaneously with the termination of a
Voting Period, the terms of office of the additional trustees elected
by the Holders and holders of other Preferred Shares pursuant to
subparagraph (b)(i) of this Section 5 shall terminate, the remaining
trustees shall constitute the trustees of the Fund and the voting
rights of the Holders and such other holders to elect additional
trustees pursuant to subparagraph (b)(i) of this Section 5 shall cease,
subject to the provisions of the last sentence of subparagraph (b)(i)
of this Section 5.
(c) HOLDERS OF MUNIPREFERRED TO VOTE ON CERTAIN OTHER MATTERS.
(i) INCREASES IN CAPITALIZATION. So long as any shares of
MuniPreferred are outstanding, the Fund shall not, without the
affirmative vote or consent of the Holders of at least a majority of
the shares of MuniPreferred outstanding at the time, in person or by
proxy, either in writing or at a meeting, voting as a separate class:
(a) authorize, create or issue any class or series of shares ranking
prior to or on a parity with shares of MuniPreferred with respect to
the payment of dividends or the distribution of assets upon
dissolution, liquidation or winding up of the affairs of the Fund, or
authorize, create or issue additional shares of any series of
MuniPreferred (except that, notwithstanding the foregoing, but subject
to the provisions of paragraph (c) of Section 10 of this Part I, the
Board of Trustees, without the vote or consent of the Holders of
MuniPreferred, may from time to time authorize and create, and the Fund
may from time to time issue, additional shares of any series of
MuniPreferred or classes or series of Preferred Shares ranking on a
parity with shares of MuniPreferred with respect to the payment of
dividends and the distribution of assets upon dissolution, liquidation
or winding up of the affairs of the Fund; provided, however, that if
Moody's or S&P is not then rating the shares of MuniPreferred, the
aggregate liquidation preference of all Preferred Shares of the Fund
outstanding after any such issuance, exclusive of accumulated and
unpaid dividends, may not exceed the amount set forth in Section 10 of
Appendix A hereto) or (b) amend, alter or repeal the provisions of the
Declaration, or this Statement, whether by merger, consolidation or
otherwise, so as to affect any preference, right or power of such
shares of MuniPreferred or the Holders thereof; provided, however, that
(i) none of the actions permitted by the exception to (a) above will be
deemed to affect such preferences, rights or powers, (ii) a division of
a share of MuniPreferred will be deemed to affect such preferences,
rights or powers only if the terms of such division adversely affect
the Holders of shares of MuniPreferred and (iii) the authorization,
creation and issuance of classes or series of shares ranking junior to
shares of MuniPreferred with respect to the payment of dividends and
the distribution of assets upon dissolution, liquidation or winding up
of the
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<PAGE> 103
affairs of the Fund, will be deemed to affect such preferences, rights
or powers only if Moody's or S&P is then rating shares of MuniPreferred
and such issuance would, at the time thereof, cause the Fund not to
satisfy the 1940 Act MuniPreferred Asset Coverage or the MuniPreferred
Basic Maintenance Amount. So long as any shares of MuniPreferred are
outstanding, the Fund shall not, without the affirmative vote or
consent of the Holders of at least 66 2/3% of the shares of
MuniPreferred outstanding at the time, in person or by proxy, either in
writing or at a meeting, voting as a separate class, file a voluntary
application for relief under Federal bankruptcy law or any similar
application under state law for so long as the Fund is solvent and does
not foresee becoming insolvent. If any action set forth above would
adversely affect the rights of one or more series (the "Affected
Series") of MuniPreferred in a manner different from any other series
of MuniPreferred, the Fund will not approve any such action without the
affirmative vote or consent of the Holders of at least a majority of
the shares of each such Affected Series outstanding at the time, in
person or by proxy, either in writing or at a meeting (each such
Affected Series voting as a separate class).
(ii) 1940 ACT MATTERS. Unless a higher percentage is provided
for in the Declaration, (A) the affirmative vote of the Holders of at
least a majority of the Preferred Shares, including MuniPreferred,
outstanding at the time, voting as a separate class, shall be required
to approve any conversion of the Fund from a closed-end to an open-end
investment company and (B) the affirmative vote of the Holders of a
"majority of the outstanding Preferred Shares," including
MuniPreferred, voting as a separate class, shall be required to approve
any plan of reorganization (as such term is used in the 1940 Act)
adversely affecting such shares. The affirmative vote of the Holders of
a "majority of the outstanding Preferred Shares," including
MuniPreferred, voting as a separate class, shall be required to approve
any action not described in the first sentence of this Section 5(c)(ii)
requiring a vote of security holders of the Fund under Section 13(a) of
the 1940 Act. For purposes of the foregoing, "majority of the
outstanding Preferred Shares" means (i) 67% or more of such shares
present at a meeting, if the Holders of more than 50% of such shares
are present or represented by proxy, or (ii) more than 50% of such
shares, whichever is less. In the event a vote of Holders of
MuniPreferred is required pursuant to the provisions of Section 13(a)
of the 1940 Act, the Fund shall, not later than ten Business Days prior
to the date on which such vote is to be taken, notify Moody's (if
Moody's is then rating the shares of MuniPreferred) and S&P (if S&P is
then rating the shares of MuniPreferred) that such vote is to be taken
and the nature of the action with respect to which such vote is to be
taken. The Fund shall, not later than ten Business Days after the date
on which such vote is taken, notify Moody's (if Moody's is then rating
the shares of MuniPreferred) of the results of such vote.
(d) BOARD MAY TAKE CERTAIN ACTIONS WITHOUT SHAREHOLDER APPROVAL. The
Board of Trustees, without the vote or consent of the shareholders of the Fund,
may from time to time amend, alter or repeal any or all of the definitions of
the terms listed below, or any provision of this Statement viewed by Moody's or
S&P as a predicate for any such definition, and any such amendment, alteration
or repeal will not be deemed to affect the preferences, rights or powers of
shares of MuniPreferred or the Holders thereof; provided, however, that the
Board of Trustees receives written confirmation from Moody's (such confirmation
being required to be obtained only in the event Moody's is rating the shares of
MuniPreferred and in no event being required to be obtained in the case of the
definitions of (x) Deposit Securities, Discounted Value, Receivables for
Municipal Obligations Sold, Issue Type Category and Other Issues as such terms
apply to S&P Eligible Assets and (y) S&P Discount Factor, S&P Eligible Asset,
S&P Exposure Period and S&P Volatility Factor) and S&P (such confirmation being
required to be obtained only in the event S&P is rating the shares of
MuniPreferred and in no event being required to be obtained in the case of the
definitions of (x) Discounted Value, Receivables for Municipal Obligations Sold,
Issue Type Category and Other Issues as such terms apply to Moody's Eligible
Assets, and (y) Moody's Discount Factor, Moody's Eligible Asset, Moody's
Exposure Period and Moody's Volatility Factor) that any such amendment,
alteration or repeal would not impair the ratings then assigned by Moody's or
S&P, as the case may be, to shares of MuniPreferred:
<TABLE>
<S> <C>
Deposit Securities Moody's Volatility Factor
Discounted Value 1940 Act Cure Date
Escrowed Bonds 1940 Act MuniPreferred Asset Coverage
Issue Type Category Other Issues
Market Value Quarterly Valuation Date
Maximum Potential Gross-up Payment Liability Receivables for Municipal Obligations Sold
MuniPreferred Basic Maintenance Amount S&P Discount Factor
MuniPreferred Basic Maintenance Cure Date S&P Eligible Asset
</TABLE>
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<PAGE> 104
<TABLE>
<S> <C>
MuniPreferred Basic Maintenance Report S&P Exposure Period
Moody's Discount Factor S&P Volatility Factor
Moody's Eligible Asset Valuation Date
Moody's Exposure Period Volatility Factor
</TABLE>
(e) VOTING RIGHTS SET FORTH HEREIN ARE SOLE VOTING RIGHTS. Unless
otherwise required by law, the Holders of shares of MuniPreferred shall not have
any relative rights or preferences or other special rights other than those
specifically set forth herein.
(f) NO PREEMPTIVE RIGHTS OR CUMULATIVE VOTING. The Holders of shares of
MuniPreferred shall have no preemptive rights or rights to cumulative voting.
(g) VOTING FOR TRUSTEES SOLE REMEDY FOR FUND'S FAILURE TO PAY
DIVIDENDS. In the event that the Fund fails to pay any dividends on the shares
of MuniPreferred, the exclusive remedy of the Holders shall be the right to vote
for trustees pursuant to the provisions of this Section 5.
(h) HOLDERS ENTITLED TO VOTE. For purposes of determining any rights of
the Holders to vote on any matter, whether such right is created by this
Statement, by the other provisions of the Declaration, by statute or otherwise,
no Holder shall be entitled to vote any share of MuniPreferred and no share of
MuniPreferred shall be deemed to be "outstanding" for the purpose of voting or
determining the number of shares required to constitute a quorum if, prior to or
concurrently with the time of determination of shares entitled to vote or shares
deemed outstanding for quorum purposes, as the case may be, the requisite Notice
of Redemption with respect to such shares shall have been mailed as provided in
paragraph (c) of Section 11 of this Part I and the Redemption Price for the
redemption of such shares shall have been deposited in trust with the Auction
Agent for that purpose. No share of MuniPreferred held by the Fund or any
affiliate of the Fund (except for shares held by a Broker-Dealer that is an
affiliate of the Fund for the account of its customers) shall have any voting
rights or be deemed to be outstanding for voting or other purposes.
6. 1940 ACT MUNIPREFERRED ASSET COVERAGE.
The Fund shall maintain, as of the last Business Day of each month in
which any share of MuniPreferred is outstanding, the 1940 Act MuniPreferred
Asset Coverage.
7. MUNIPREFERRED BASIC MAINTENANCE AMOUNT.
(a) So long as shares of MuniPreferred are outstanding, the Fund shall
maintain, on each Valuation Date, and shall verify to its satisfaction that it
is maintaining on such Valuation Date, (i) S&P Eligible Assets having an
aggregate Discounted Value equal to or greater than the MuniPreferred Basic
Maintenance Amount (if S&P is then rating the shares of MuniPreferred) and (ii)
Moody's Eligible Assets having an aggregate Discounted Value equal to or greater
than the MuniPreferred Basic Maintenance Amount (if Moody's is then rating the
shares of MuniPreferred).
(b) On or before 5:00 P.M., New York City time, on the third Business
Day after a Valuation Date on which the Fund fails to satisfy the MuniPreferred
Basic Maintenance Amount, and on the third Business Day after the MuniPreferred
Basic Maintenance Cure Date with respect to such Valuation Date, the Fund shall
complete and deliver to S&P (if S&P is then rating the shares of MuniPreferred),
Moody's (if Moody's is then rating the shares of MuniPreferred) and the Auction
Agent (if either S&P or Moody's is then rating the shares of MuniPreferred) a
MuniPreferred Basic Maintenance Report as of the date of such failure or such
MuniPreferred Basic Maintenance Cure Date, as the case may be, 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 Fund mails to the Auction Agent for delivery on the next Business
Day the full MuniPreferred Basic Maintenance Report. The Fund shall also deliver
a MuniPreferred Basic Maintenance Report to (i) the Auction Agent (if either
Moody's or S&P is then rating the shares of MuniPreferred) as of (A) the
fifteenth day of each month (or, if such day is not a Business Day, the next
succeeding Business Day) and (B) the last Business Day of each month, (ii)
Moody's (if Moody's is then rating the shares of MuniPreferred) and S&P (if S&P
is then rating the shares of MuniPreferred) as of any Quarterly Valuation Date,
in each case on or before the third Business Day after such day, and (iii) S&P,
if and when requested for any Valuation Date, on or before the third Business
Day after such request. A failure by the Fund to deliver a MuniPreferred Basic
Maintenance Report pursuant to the preceding sentence shall be deemed to be
delivery of a MuniPreferred Basic
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<PAGE> 105
Maintenance Report indicating the Discounted Value for all assets of the Fund is
less than the MuniPreferred Basic Maintenance Amount, as of the relevant
Valuation Date.
(c) Within ten Business Days after the date of delivery of a
MuniPreferred Basic Maintenance Report in accordance with paragraph (b) of this
Section 7 relating to a Quarterly Valuation Date, the Fund shall cause the
Independent Accountant to confirm in writing to S&P (if S&P is then rating the
shares of MuniPreferred), Moody's (if Moody's is then rating the shares of
MuniPreferred) and the Auction Agent (if either S&P or Moody's is then rating
the shares of MuniPreferred) (i) the mathematical accuracy of the calculations
reflected in such Report (and in any other MuniPreferred Basic Maintenance
Report, randomly selected by the Independent Accountant, that was delivered by
the Fund during the quarter ending on such Quarterly Valuation Date), (ii) that,
in such Report (and in such randomly selected Report), the Fund determined in
accordance with this Statement whether the Fund had, at such Quarterly Valuation
Date (and at the Valuation Date addressed in such randomly-selected Report), S&P
Eligible Assets (if S&P is then rating the shares of MuniPreferred) of an
aggregate Discounted Value at least equal to the MuniPreferred Basic Maintenance
Amount and Moody's Eligible Assets (if Moody's is then rating the shares of
MuniPreferred) of an aggregate Discounted Value at least equal to the
MuniPreferred Basic Maintenance Amount (such confirmation being herein called
the "Accountant's Confirmation"), (iii) that, in such Report (and in such
randomly selected Report), the Fund determined whether the Fund had, at such
Quarterly Valuation Date (and at the Valuation Date addressed in such randomly
selected Report) in accordance with this Statement, S&P Eligible Assets of an
aggregate Discounted Value at least equal to the MuniPreferred Basic
Maintenance Amount and Moody's Eligible Assets of an aggregate Discounted Value
at least equal to the MuniPreferred 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 Fund's assets to the Fund for purposes
of valuing securities in the Fund'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 Fund 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 and S&P, that the Fund has satisfied the requirements of
Section 13 of this Statement (such confirmation is herein called the
"Accountant's Confirmation").
(d) Within ten Business Days after the date of delivery of a
MuniPreferred Basic Maintenance Report in accordance with paragraph (b) of this
Section 7 relating to any Valuation Date on which the Fund failed to satisfy the
MuniPreferred Basic Maintenance Amount, and relating to the MuniPreferred Basic
Maintenance Cure Date with respect to such failure to satisfy the MuniPreferred
Basic Maintenance Amount, the Fund shall cause the Independent Accountant to
provide to S&P (if S&P is then rating the shares of MuniPreferred), Moody's (if
Moody's is then rating the shares of MuniPreferred) and the Auction Agent (if
either S&P or Moody's is then rating the shares of MuniPreferred) an
Accountant's Confirmation as to such MuniPreferred Basic Maintenance Report.
(e) If any Accountant's Confirmation delivered pursuant to paragraph
(c) or (d) of this Section 7 shows that an error was made in the MuniPreferred
Basic Maintenance Report for a particular Valuation Date for which such
Accountant's Confirmation was required to be delivered, or shows that a lower
aggregate Discounted Value for the aggregate of all S&P Eligible Assets (if S&P
is then rating the shares of MuniPreferred) or Moody's Eligible Assets (if
Moody's is then rating the shares of MuniPreferred), as the case may be, of the
Fund was determined by the Independent Accountant, the calculation or
determination made by such Independent Accountant shall be final and conclusive
and shall be binding on the Fund, and the Fund shall accordingly amend and
deliver the MuniPreferred Basic Maintenance Report to S&P (if S&P is then rating
the shares of MuniPreferred), Moody's (if Moody's is then rating the shares of
MuniPreferred) and the Auction Agent (if either S&P or Moody's is then rating
the shares of MuniPreferred) promptly following receipt by the Fund 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 any shares of MuniPreferred, the Fund
shall complete and deliver to S&P (if S&P is then rating the shares of
MuniPreferred) and Moody's (if Moody's is then rating the shares of
MuniPreferred) a MuniPreferred 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 Fund shall cause the Independent Accountant to confirm in
writing to S&P (if S&P is then rating the shares of MuniPreferred) (i) the
mathematical accuracy of the calculations reflected in such Report and (ii) that
the Discounted Value of S&P Eligible Assets reflected thereon equals or exceeds
the MuniPreferred Basic Maintenance Amount reflected thereon.
(g) On or before 5:00 p.m., New York City time, on the third Business
Day after either (i) the Fund shall have redeemed Common Shares or (ii) the
ratio of the Discounted Value of S&P Eligible Assets or the Discounted Value of
Moody's Eligible Assets to the MuniPreferred Basic Maintenance Amount is less
than or equal to 105%, the Fund shall complete and deliver to S&P (if S&P is
then rating the shares of MuniPreferred) or Moody's (if Moody's is then rating
the shares of MuniPreferred), as the case may be, a MuniPreferred Basic
Maintenance Report as of the date of either such event or (iii) whenever
requested by Moody's and S&P.
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<PAGE> 106
8. [RESERVED]
9. RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS.
(a) DIVIDENDS ON PREFERRED SHARES OTHER THAN MUNIPREFERRED. Except as
set forth in the next sentence, no dividends shall be declared or paid or set
apart for payment on the shares of any class or series of shares of beneficial
interest of the Fund ranking, as to the payment of dividends, on a parity with
shares of MuniPreferred for any period unless full cumulative dividends have
been or contemporaneously are declared and paid on the shares of each series of
MuniPreferred through its most recent Dividend Payment Date. When dividends are
not paid in full upon the shares of each series of MuniPreferred through its
most recent Dividend Payment Date or upon the shares of any other class or
series of shares of beneficial interest of the Fund ranking on a parity as to
the payment of dividends with shares of MuniPreferred through their most recent
respective dividend payment dates, all dividends declared upon shares of
MuniPreferred and any other such class or series of shares of beneficial
interest ranking on a parity as to the payment of dividends with shares of
MuniPreferred shall be declared pro rata so that the amount of dividends
declared per share on shares of MuniPreferred and such other class or series of
shares of beneficial interest shall in all cases bear to each other the same
ratio that accumulated dividends per share on the shares of MuniPreferred and
such other class or series of shares of beneficial interest bear to each other
(for purposes of this sentence, the amount of dividends declared per share of
MuniPreferred shall be based on the Applicable Rate for such share for the
Dividend Periods during which dividends were not paid in full).
(b) DIVIDENDS AND OTHER DISTRIBUTIONS WITH RESPECT TO COMMON SHARES
UNDER THE 1940 ACT. The Board of Trustees shall not declare any dividend (except
a dividend payable in Common Shares), or declare any other distribution, upon
the Common Shares, or purchase Common Shares, unless in every such case the
Preferred Shares have, at the time of any such declaration or purchase, an asset
coverage (as defined in and determined pursuant to the 1940 Act) of at least
200% (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 or stock of a closed-end investment company as a condition of declaring
dividends on its common shares or stock) after deducting the amount of such
dividend, distribution or purchase price, as the case may be.
(c) OTHER RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS. For so
long as any share of MuniPreferred is outstanding, and except as set forth in
paragraph (a) of this Section 9 and paragraph (c) of Section 12 of this Part I,
(A) the Fund 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
in options, warrants or rights to subscribe for or purchase, Common Shares or
other shares, if any, ranking junior to the shares of MuniPreferred as to the
payment of dividends and the distribution of assets upon dissolution,
liquidation or winding up) in respect of the Common Shares or any other shares
of the Fund ranking junior to or on a parity with the shares of MuniPreferred as
to the payment of dividends or the distribution of assets upon dissolution,
liquidation or winding up, or call for redemption, redeem, purchase or otherwise
acquire for consideration any Common Shares or any other such junior shares
(except by conversion into or exchange for shares of the Fund ranking junior to
the shares of MuniPreferred as to the payment of dividends and the distribution
of assets upon dissolution, liquidation or winding up), or any such parity
shares (except by conversion into or exchange for shares of the Fund ranking
junior to or on a parity with MuniPreferred as to the payment of dividends and
the distribution of assets upon dissolution, liquidation or winding up), unless
(i) full cumulative dividends on shares of each series of MuniPreferred through
its most recently ended Dividend Period shall have been paid or shall have been
declared and sufficient funds for the payment thereof deposited with the Auction
Agent and (ii) the Fund has redeemed the full number of shares of MuniPreferred
required to be redeemed by any provision for mandatory redemption pertaining
thereto, and (B) the Fund 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 in options, warrants or rights to subscribe for or purchase,
Common Shares or other shares, if any, ranking junior to shares of MuniPreferred
as to the payment of dividends and the distribution of assets upon dissolution,
liquidation or winding up) in respect of Common Shares or any other shares of
the Fund ranking junior to shares of MuniPreferred as to the payment of
dividends or the distribution of assets upon dissolution, liquidation or winding
up, or call for redemption, redeem, purchase or otherwise acquire for
consideration any Common Shares or any other such junior shares (except by
conversion into or exchange for shares of the Fund ranking junior to shares of
MuniPreferred as to the payment of dividends and the distribution of assets upon
dissolution, liquidation or winding up), unless immediately after such
transaction the Discounted Value of Moody's Eligible Assets (if Moody's is then
rating the shares of MuniPreferred) and S&P Eligible Assets (if S&P is then
rating the shares of MuniPreferred) would each at least equal the MuniPreferred
Basic Maintenance Amount.
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10. RATING AGENCY RESTRICTIONS.
For so long as any shares of MuniPreferred are outstanding and Moody's
or S&P, or both, are rating such shares, the Fund will not, unless it has
received written confirmation from Moody's or S&P, or both, as appropriate, that
any such action would not impair the ratings then assigned by such rating agency
to such shares, engage in any one or more of the following transactions:
(a) buy or sell futures or write put or call options;
(b) borrow money, except that the Fund may, without obtaining the
written confirmation described above, borrow money for the purpose of clearing
securities transactions if (i) the MuniPreferred Basic Maintenance Amount would
continue to be satisfied after giving effect to such borrowing and (ii) such
borrowing (A) is privately arranged with a bank or other person and is evidenced
by a promissory note or other evidence of indebtedness that is not intended to
be publicly distributed or (B) is for "temporary purposes," is evidenced by a
promissory note or other evidence of indebtedness and is in an amount not
exceeding 5 per centum of the value of the total assets of the Fund at the time
of the borrowing; for purposes of the foregoing, "temporary purpose" means that
the borrowing is to be repaid within sixty days and is not to be extended or
renewed;
(c) issue additional shares of any series of MuniPreferred or any class
or series of shares ranking prior to or on a parity with shares of MuniPreferred
with respect to the payment of dividends or the distribution of assets upon
dissolution, liquidation or winding up of the Fund, or reissue any shares of
MuniPreferred previously purchased or redeemed by the Fund;
(d) engage in any short sales of securities;
(e) lend securities;
(f) merge or consolidate into or with any other corporation;
(g) change the pricing service (currently J.J. Kenny) referred to in
the definition of Market Value; or
(h) enter into reverse repurchase agreements.
11. REDEMPTION.
(a) OPTIONAL REDEMPTION.
(i) Subject to the provisions of subparagraph (v) of this
paragraph (a), shares of MuniPreferred of any series may be redeemed,
at the option of the Fund, as a whole or from time to time in part, on
the second Business Day preceding any Dividend Payment Date for shares
of such series, out of funds legally available therefor, at a
redemption price per share equal to the sum of $25,000 plus an amount
equal to accumulated but unpaid dividends thereon (whether or not
earned or declared) to (but not including) the date fixed for
redemption; provided, however, that (1) shares of a series of
MuniPreferred may not be redeemed in part if after such partial
redemption fewer than 500 shares of such series remain outstanding; (2)
unless otherwise provided in Section 11 of Appendix A hereto, shares of
a series of MuniPreferred are redeemable by the Fund during the Initial
Rate Period thereof only on the second Business Day next preceding the
last Dividend Payment Date for such Initial Rate Period; and (3)
subject to subparagraph (ii) of this paragraph (a), the Notice of
Special Rate Period relating to a Special Rate Period of shares of a
series of MuniPreferred, as delivered to the Auction Agent and filed
with the Secretary of the Fund, may provide that shares of such series
shall not be redeemable during the whole or any part of such Special
Rate Period (except as provided in subparagraph (iv) of this paragraph
(a)) or shall be redeemable during the whole or any part of such
Special Rate Period only upon payment of such redemption premium or
premiums as shall be specified therein ("Special Redemption
Provisions").
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(ii) A Notice of Special Rate Period relating to shares of a
series of MuniPreferred for a Special Rate Period thereof may contain
Special Redemption Provisions only if the Fund's Board of Trustees,
after consultation with the Broker-Dealer or Broker-Dealers for such
Special Rate Period of shares of such series, determines that such
Special Redemption Provisions are in the best interest of the Fund.
(iii) If fewer than all of the outstanding shares of a series
of MuniPreferred are to be redeemed pursuant to subparagraph (i) of
this paragraph (a), the number of shares of such series to be redeemed
shall be determined by the Board of Trustees, and such shares shall be
redeemed pro rata from the Holders of shares of such series in
proportion to the number of shares of such series held by such Holders.
(iv) Subject to the provisions of subparagraph (v) of this
paragraph (a), shares of any series of MuniPreferred may be redeemed,
at the option of the Fund, as a whole but not in part, out of funds
legally available therefor, on the first day following any Dividend
Period thereof included in a Rate Period consisting of more than 364
Rate Period Days if, on the date of determination of the Applicable
Rate for shares of such series for such Rate Period, such Applicable
Rate equalled or exceeded on such date of determination the Treasury
Note Rate for such Rate Period, at a redemption price per share equal
to the sum of $25,000 plus an amount equal to accumulated but unpaid
dividends thereon (whether or not earned or declared) to (but not
including) the date fixed for redemption.
(v) The Fund may not on any date mail a Notice of Redemption
pursuant to paragraph (c) of this Section 11 in respect of a redemption
contemplated to be effected pursuant to this paragraph (a) unless on
such date (a) the Fund 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 (including
any applicable premium) due to Holders of shares of MuniPreferred by
reason of the redemption of such shares on such redemption date and (b)
the Discounted Value of Moody's Eligible Assets (if Moody's is then
rating the shares of MuniPreferred) and the Discounted Value of S&P
Eligible Assets (if S&P is then rating the shares of MuniPreferred)
each at least equal the MuniPreferred Basic Maintenance Amount, and
would at least equal the MuniPreferred Basic Maintenance Amount
immediately subsequent to such redemption if such redemption were to
occur on such date. For purposes of determining in clause (b) of the
preceding sentence whether the Discounted Value of Moody's Eligible
Assets at least equals the MuniPreferred Basic Maintenance Amount, the
Moody's Discount Factors applicable to Moody's Eligible Assets shall be
determined by reference to the first Exposure Period longer than the
Exposure Period then applicable to the Fund, as described in the
definition of Moody's Discount Factor herein.
(b) MANDATORY REDEMPTION. The Fund shall redeem, at a redemption price
equal to $25,000 per share plus accumulated but unpaid dividends thereon
(whether or not earned or declared) to (but not including) the date fixed by the
Board of Trustees for redemption, certain of the shares of MuniPreferred, if the
Fund fails to have either Moody's Eligible Assets with a Discounted Value or S&P
Eligible Assets with a Discounted Value greater than or equal to the
MuniPreferred Basic Maintenance Amount or fails to maintain the 1940 Act
MuniPreferred Asset Coverage, in accordance with the requirements of the rating
agency or agencies then rating the shares of MuniPreferred, and such failure is
not cured on or before the MuniPreferred Basic Maintenance Cure Date or the 1940
Act Cure Date, as the case may be. The number of shares of MuniPreferred to be
redeemed shall be equal to the lesser of (i) the minimum number of shares of
MuniPreferred, together with all other Preferred Shares subject to redemption or
retirement, the redemption of which, if deemed to have occurred immediately
prior to the opening of business on the Cure Date, would have resulted in the
Fund's having both Moody's Eligible Assets with a Discounted Value and S&P
Eligible Assets with a Discounted Value greater than or equal to the
MuniPreferred Basic Maintenance Amount or maintaining the 1940 Act MuniPreferred
Asset Coverage, as the case may be, on such Cure Date (provided, however, that
if there is no such minimum number of shares of MuniPreferred and other
Preferred Shares the redemption or retirement of which would have had such
result, all shares of MuniPreferred and Preferred Shares then outstanding shall
be redeemed), and (ii) the maximum number of shares of MuniPreferred, together
with all other Preferred Shares subject to redemption or retirement, that can be
redeemed out of funds expected to be legally available therefor in accordance
with the Declaration and applicable law. In determining the shares of
MuniPreferred required to be redeemed in accordance with the foregoing, the Fund
shall allocate the number required to be redeemed to satisfy the MuniPreferred
Basic Maintenance Amount or the 1940 Act MuniPreferred Asset Coverage, as the
case may be, pro rata among shares of MuniPreferred and other Preferred Shares
(and, then, pro rata among each series of MuniPreferred) subject to redemption
or retirement. The Fund shall effect such redemption on the date fixed by the
Fund therefor, which date
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shall not be earlier than 20 days nor later than 40 days after such Cure Date,
except that if the Fund does not have funds legally available for the redemption
of all of the required number of shares of MuniPreferred and other Preferred
Shares which are subject to redemption or retirement or the Fund otherwise is
unable to effect such redemption on or prior to 40 days after such Cure Date,
the Fund shall redeem those shares of MuniPreferred and other Preferred Shares
which it was unable to redeem on the earliest practicable date on which it is
able to effect such redemption. If fewer than all of the outstanding shares of a
series of MuniPreferred are to be redeemed pursuant to this paragraph (b), the
number of shares of such series to be redeemed shall be redeemed pro rata from
the Holders of shares of such series in proportion to the number of shares of
such series held by such Holders.
(c) NOTICE OF REDEMPTION. If the Fund shall determine or be required to
redeem shares of a series of MuniPreferred pursuant to paragraph (a) or (b) of
this Section 11, it shall mail a Notice of Redemption with respect to such
redemption by first class mail, postage prepaid, to each Holder of the shares of
such series to be redeemed, at such Holder's address as the same appears on the
record books of the Fund on the record date established by the Board of
Trustees. Such Notice of Redemption shall be so mailed not less than 20 nor more
than 45 days prior to the date fixed for redemption. Each such Notice of
Redemption shall state: (i) the redemption date; (ii) the number of shares of
MuniPreferred to be redeemed and the series thereof; (iii) the CUSIP number for
shares of such series; (iv) the Redemption Price; (v) the place or places where
the certificate(s) for such shares (properly endorsed or assigned for transfer,
if the Board of Trustees shall so require and the Notice of Redemption shall so
state) are to be surrendered for payment of the Redemption Price; (vi) that
dividends on the shares to be redeemed will cease to accumulate on such
redemption date; and (vii) the provisions of this Section 11 under which such
redemption is made. If fewer than all shares of a series of MuniPreferred held
by any Holder are to be redeemed, the Notice of Redemption mailed to such Holder
shall also specify the number of shares of such series to be redeemed from such
Holder. The Fund may provide in any Notice of Redemption relating to a
redemption contemplated to be effected pursuant to paragraph (a) of this Section
11 that such redemption is subject to one or more conditions precedent and that
the Fund shall not be required to effect such redemption unless each such
condition shall have been satisfied at the time or times and in the manner
specified in such Notice of Redemption.
(d) NO REDEMPTION UNDER CERTAIN CIRCUMSTANCES. Notwithstanding the
provisions of paragraphs (a) or (b) of this Section 11, if any dividends on
shares of a series of MuniPreferred (whether or not earned or declared) are in
arrears, no shares of such series shall be redeemed unless all outstanding
shares of such series are simultaneously redeemed, and the Fund shall not
purchase or otherwise acquire any shares of such series; provided, however, that
the foregoing shall not prevent the purchase or acquisition of all outstanding
shares of such series pursuant to the successful completion of an otherwise
lawful purchase or exchange offer made on the same terms to, and accepted by,
Holders of all outstanding shares of such series.
(e) ABSENCE OF FUNDS AVAILABLE FOR REDEMPTION. To the extent that any
redemption for which Notice of Redemption has been mailed is not made by reason
of the absence of legally available funds therefor in accordance with the
Declaration and applicable law, such redemption shall be made as soon as
practicable to the extent such funds become available. Failure to redeem shares
of MuniPreferred shall be deemed to exist at any time after the date specified
for redemption in a Notice of Redemption when the Fund shall have failed, for
any reason whatsoever, to deposit in trust with the Auction Agent the Redemption
Price with respect to any shares for which such Notice of Redemption has been
mailed; provided, however, that the foregoing shall not apply in the case of the
Fund's failure to deposit in trust with the Auction Agent the Redemption Price
with respect to any shares where (1) the Notice of Redemption relating to such
redemption provided that such redemption was subject to one or more conditions
precedent and (2) any such condition precedent shall not have been satisfied at
the time or times and in the manner specified in such Notice of Redemption.
Notwithstanding the fact that the Fund may not have redeemed shares of
MuniPreferred for which a Notice of Redemption has been mailed, dividends may be
declared and paid on shares of MuniPreferred and shall include those shares of
MuniPreferred for which a Notice of Redemption has been mailed.
(f) AUCTION AGENT AS TRUSTEE OF REDEMPTION PAYMENTS BY FUND. All moneys
paid to the Auction Agent for payment of the Redemption Price of shares of
MuniPreferred called for redemption shall be held in trust by the Auction Agent
for the benefit of Holders of shares so to be redeemed.
(g) SHARES FOR WHICH NOTICE OF REDEMPTION HAS BEEN GIVEN ARE NO LONGER
OUTSTANDING. Provided a Notice of Redemption has been mailed pursuant to
paragraph (c) of this Section 11, upon the deposit with the Auction Agent (on
the Business Day next preceding the date fixed for redemption thereby, in funds
available on the next
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Business Day in The City of New York, New York) of funds sufficient to redeem
the shares of MuniPreferred that are the subject of such notice, dividends on
such shares shall cease to accumulate and such shares shall no longer be deemed
to be outstanding for any purpose, and all rights of the Holders of the shares
so called for redemption shall cease and terminate, except the right of such
Holders to receive the Redemption Price, but without any interest or other
additional amount, except as provided in subparagraph (e)(i) of Section 2 of
this Part I and in Section 3 of this Part I. Upon surrender in accordance with
the Notice of Redemption of the certificates for any shares so redeemed
(properly endorsed or assigned for transfer, if the Board of Trustees shall so
require and the Notice of Redemption shall so state), the Redemption Price shall
be paid by the Auction Agent to the Holders of shares of MuniPreferred subject
to redemption. In the case that fewer than all of the shares represented by any
such certificate are redeemed, a new certificate shall be issued, representing
the unredeemed shares, without cost to the Holder thereof. The Fund shall be
entitled to receive from the Auction Agent, promptly after the date fixed for
redemption, any cash deposited with the Auction Agent in excess of (i) the
aggregate Redemption Price of the shares of MuniPreferred called for redemption
on such date and (ii) all other amounts to which Holders of shares of
MuniPreferred called for redemption may be entitled. Any funds so deposited that
are unclaimed at the end of 90 days from such redemption date shall, to the
extent permitted by law, be repaid to the Fund, after which time the Holders of
shares of MuniPreferred so called for redemption may look only to the Fund for
payment of the Redemption Price and all other amounts to which they may be
entitled. The Fund shall be entitled to receive, from time to time after the
date fixed for redemption, any interest on the funds so deposited.
(h) COMPLIANCE WITH APPLICABLE LAW. In effecting any redemption
pursuant to this Section 11, the Fund shall use its best efforts to comply with
all applicable conditions precedent to effecting such redemption under the 1940
Act and any applicable Massachusetts law, but shall effect no redemption except
in accordance with the 1940 Act and any applicable Massachusetts law.
(i) ONLY WHOLE SHARES OF MUNIPREFERRED MAY BE REDEEMED. In the case of
any redemption pursuant to this Section 11, only whole shares of MuniPreferred
shall be redeemed, and in the event that any provision of the Declaration would
require redemption of a fractional share, the Auction Agent shall be authorized
to round up so that only whole shares are redeemed.
12. LIQUIDATION RIGHTS.
(a) RANKING. The shares of a series of MuniPreferred shall rank on a
parity with each other, with shares of any other series of MuniPreferred and
with shares of any other series of Preferred Shares as to the distribution of
assets upon dissolution, liquidation or winding up of the affairs of the Fund.
(b) DISTRIBUTIONS UPON LIQUIDATION. Upon the dissolution, liquidation
or winding up of the affairs of the Fund, whether voluntary or involuntary, the
Holders of shares of MuniPreferred then outstanding shall be entitled to receive
and to be paid out of the assets of the Fund available for distribution to its
shareholders, before any payment or distribution shall be made on the Common
Shares or on any other class of shares of the Fund ranking junior to the
MuniPreferred upon dissolution, liquidation or winding up, an amount equal to
the Liquidation Preference with respect to such shares plus an amount equal to
all dividends thereon (whether or not earned or declared) accumulated but unpaid
to (but not including) the date of final distribution in same day funds,
together with any payments required to be made pursuant to Section 3 of this
Part I in connection with the liquidation of the Fund. After the payment to the
Holders of the shares of MuniPreferred of the full preferential amounts provided
for in this paragraph (b), the Holders of MuniPreferred as such shall have no
right or claim to any of the remaining assets of the Fund.
(c) PRO RATA DISTRIBUTIONS. In the event the assets of the Fund
available for distribution to the Holders of shares of MuniPreferred upon any
dissolution, liquidation, or winding up of the affairs of the Fund, whether
voluntary or involuntary, shall be insufficient to pay in full all amounts to
which such Holders are entitled pursuant to paragraph (b) of this Section 12, no
such distribution shall be made on account of any shares of any other class or
series of Preferred Shares ranking on a parity with the shares of MuniPreferred
with respect to the distribution of assets upon such dissolution, liquidation or
winding up unless proportionate distributive amounts shall be paid on account of
the shares of MuniPreferred, ratably, in proportion to the full distributable
amounts for which holders of all such parity shares are respectively entitled
upon such dissolution, liquidation or winding up.
(d) RIGHTS OF JUNIOR SHARES. Subject to the rights of the holders of
shares of any series or class or classes of shares ranking on a parity with the
shares of MuniPreferred with respect to the distribution of assets upon
dissolution,
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liquidation or winding up of the affairs of the Fund, after payment shall have
been made in full to the Holders of the shares of MuniPreferred as provided in
paragraph (b) of this Section 12, but not prior thereto, any other series or
class or classes of shares ranking junior to the shares of MuniPreferred with
respect to the distribution of assets upon dissolution, liquidation or winding
up of the affairs of the Fund shall, subject to the respective terms and
provisions (if any) applying thereto, be entitled to receive any and all assets
remaining to be paid or distributed, and the Holders of the shares of
MuniPreferred shall not be entitled to share therein.
(e) CERTAIN EVENTS NOT CONSTITUTING LIQUIDATION. Neither the sale of
all or substantially all the property or business of the Fund, nor the merger or
consolidation of the Fund into or with any Massachusetts business trust or
corporation nor the merger or consolidation of any Massachusetts business trust
or corporation into or with the Fund shall be a dissolution, liquidation or
winding up, whether voluntary or involuntary, for the purposes of this Section
12.
13. MISCELLANEOUS.
(a) AMENDMENT OF APPENDIX A TO ADD ADDITIONAL SERIES. Subject to the
provisions of paragraph (c) of Section 10 of this Part I, the Board of Trustees
may, by resolution duly adopted, without shareholder approval (except as
otherwise provided by this Statement or required by applicable law), amend
Appendix A hereto to (1) reflect any amendments hereto which the Board of
Trustees is entitled to adopt pursuant to the terms of this Statement without
shareholder approval or (2) add additional series of MuniPreferred or additional
shares of a series of MuniPreferred (and terms relating thereto) to the series
and shares of MuniPreferred theretofore described thereon. Each such additional
series and all such additional shares shall be governed by the terms of this
Statement.
(b) APPENDIX A INCORPORATED BY REFERENCE. Appendix A hereto is
incorporated in and made a part of this Statement by reference thereto.
(c) NO FRACTIONAL SHARES. No fractional shares of MuniPreferred shall
be issued.
(d) STATUS OF SHARES OF MUNIPREFERRED REDEEMED, EXCHANGED OR OTHERWISE
ACQUIRED BY THE FUND. Shares of MuniPreferred which are redeemed, exchanged or
otherwise acquired by the Fund shall return to the status of authorized and
unissued Preferred Shares without designation as to series.
(e) BOARD MAY RESOLVE AMBIGUITIES. To the extent permitted by
applicable law, the Board of Trustees may interpret or adjust the provisions of
this Statement to resolve any inconsistency or ambiguity or to remedy any formal
defect, and may amend this Statement with respect to any series of MuniPreferred
prior to the issuance of shares of such series.
(f) HEADINGS NOT DETERMINATIVE. The headings contained in this
Statement are for convenience of reference only and shall not affect the meaning
or interpretation of this Statement.
(g) NOTICES. All notices or communications, unless otherwise specified
in the By-Laws of the Fund or this Statement, shall be sufficiently given if in
writing and delivered in person or mailed by first-class mail, postage prepaid.
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PART II
1. ORDERS.
(a) Prior to the Submission Deadline on each Auction Date for shares of
a series of MuniPreferred:
(i) each Beneficial Owner of shares of such series may submit
to its Broker-Dealer by telephone or otherwise information as to:
(A) the number of Outstanding shares, if any, of such
series held by such Beneficial Owner which such Beneficial
Owner desires to continue to hold without regard to the
Applicable Rate for shares of such series for the next
succeeding Rate Period of such shares;
(B) the number of Outstanding shares, if any, of such
series held by such Beneficial Owner which such Beneficial
Owner offers to sell if the Applicable Rate for shares of such
series for the next succeeding Rate Period of shares of such
series shall be less than the rate per annum specified by such
Beneficial Owner; and/or
(C) the number of Outstanding shares, if any, of such
series held by such Beneficial Owner which such Beneficial
Owner offers to sell without regard to the Applicable Rate for
shares of such series for the next succeeding Rate Period of
shares of such series;
and
(ii) one or more Broker-Dealers, using lists of Potential
Beneficial Owners, shall in good faith for the purpose of conducting a
competitive Auction in a commercially reasonable manner, contact
Potential Beneficial Owners (by telephone or otherwise), including
Persons that are not Beneficial Owners, on such lists to determine the
number of shares, if any, of such series which each such Potential
Beneficial Owner offers to purchase if the Applicable Rate for shares
of such series for the next succeeding Rate Period of shares of such
series 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 by a Broker-Dealer to the
Auction Agent, of information referred to in clause (i) (A), (i), (B), (i), (C)
or (ii) of this paragraph (a) is hereinafter referred to as an "Order" and
collectively as "Orders" and each Beneficial Owner and each Potential Beneficial
Owner placing an Order with a Broker-Dealer, and such Broker-Dealer placing an
Order with the Auction Agent, is hereinafter referred to as a "Bidder" and
collectively as "Bidders"; an Order containing the information referred to in
clause (i)(A) of this paragraph (a) is hereinafter referred to as a "Hold Order"
and collectively as "Hold Orders"; an Order containing the information referred
to in clause (i)(B) or (ii) of this paragraph (a) is hereinafter referred to as
a "Bid" and collectively as "Bids"; and an Order containing the information
referred to in clause (i)(C) of this paragraph (a) is hereinafter referred to as
a "Sell Order" and collectively as "Sell Orders."
(b) (i) A Bid by a Beneficial Owner or an Existing Holder of shares of
a series of MuniPreferred subject to an Auction on any Auction Date
shall constitute an irrevocable offer to sell:
(A) the number of Outstanding shares of such series
specified in such Bid if the Applicable Rate for shares of
such series determined on such Auction Date shall be less than
the rate specified therein;
(B) such number or a lesser number of Outstanding
shares of such series to be determined as set forth in clause
(iv) of paragraph (a) of Section 4 of this Part II if the
Applicable Rate for shares of such series determined on such
Auction Date shall be equal to the rate specified therein; or
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(C) the number of Outstanding shares of such series
specified in such Bid if the rate specified therein shall be
higher than the Maximum Rate for shares of such series, or
such number or a lesser number of Outstanding shares of such
series to be determined as set forth in clause (iii) of
paragraph (b) of Section 4 of this Part II if the rate
specified therein shall be higher than the Maximum Rate for
shares of such series and Sufficient Clearing Bids for shares
of such series do not exist.
(ii) A Sell Order by a Beneficial Owner or an Existing Holder
of shares of a series of MuniPreferred subject to an Auction on any
Auction Date shall constitute an irrevocable offer to sell:
(A) the number of Outstanding shares of such series
specified in such Sell Order; or
(B) such number or a lesser number of Outstanding
shares of such series as set forth in clause (iii) of
paragraph (b) of Section 4 of this Part II if Sufficient
Clearing Bids for shares of such series do not exist;
provided, however, that a Broker-Dealer that is an Existing Holder with respect
to shares of a series of MuniPreferred shall not be liable to any Person for
failing to sell such shares pursuant to a Sell Order described in the proviso to
paragraph (c) of Section 2 of this Part II if (1) such shares were transferred
by the Beneficial Owner thereof without compliance by such Beneficial Owner or
its transferee Broker-Dealer (or other transferee person, if permitted by the
Fund) with the provisions of Section 7 of this Part II or (2) such Broker-Dealer
has informed the Auction Agent pursuant to the terms of its Broker-Dealer
Agreement that, according to such Broker-Dealer's records, such Broker-Dealer
believes it is not the Existing Holder of such shares.
(iii) A Bid by a Potential Beneficial Holder or a Potential
Holder of shares of a series of MuniPreferred subject to an Auction on
any Auction Date shall constitute an irrevocable offer to purchase:
(A) the number of Outstanding shares of such series
specified in such Bid if the Applicable Rate for shares of
such series determined on such Auction Date shall be higher
than the rate specified therein; or
(B) such number or a lesser number of Outstanding
shares of such series as set forth in clause (v) of paragraph
(a) of Section 4 of this Part II if the Applicable Rate for
shares of such series determined on such Auction Date shall be
equal to the rate specified therein.
(c) No Order for any number of shares of MuniPreferred other than whole
shares shall be valid.
2. SUBMISSION OF ORDERS BY BROKER-DEALERS TO AUCTION AGENT.
(a) Each Broker-Dealer shall submit in writing to the Auction Agent
prior to the Submission Deadline on each Auction Date all Orders for shares of
MuniPreferred of a series subject to an Auction on such Auction Date obtained by
such Broker-Dealer, designating itself (unless otherwise permitted by the Fund)
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
shall specify with respect to each Order for such shares:
(i) the name of the Bidder placing such Order (which shall be
the Broker-Dealer unless otherwise permitted by the Fund);
(ii) the aggregate number of shares of such series that are
the subject of such Order;
(iii) to the extent that such Bidder is an Existing Holder of
shares of such series:
(A) the number of shares, if any, of such series
subject to any Hold Order of such Existing Holder;
(B) the number of shares, if any, of such series
subject to any Bid of such Existing Holder and the rate
specified in such Bid; and
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(C) the number of shares, if any, of such series
subject to any Sell Order of such Existing Holder; and
(iv) to the extent such Bidder is a Potential Holder of shares
of such series, the rate and number of shares of such series specified
in such Potential Holder's Bid.
(b) If any rate 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%.
(c) If an Order or Orders covering all of the Outstanding shares of
MuniPreferred of a series held by any Existing Holder is not submitted to the
Auction Agent prior to the Submission Deadline, the Auction Agent shall deem a
Hold Order to have been submitted by or on behalf of such Existing Holder
covering the number of Outstanding shares of such series held by such Existing
Holder and not subject to Orders submitted to the Auction Agent; provided,
however, that if an Order or Orders covering all of the Outstanding shares of
such series held by any Existing Holder is not submitted to the Auction Agent
prior to the Submission Deadline for an Auction relating to a Special Rate
Period consisting of more than 28 Rate Period Days, the Auction Agent shall deem
a Sell Order to have been submitted by or on behalf of such Existing Holder
covering the number of outstanding shares of such series held by such Existing
Holder and not subject to Orders submitted to the Auction Agent.
(d) If one or more Orders of an Existing Holder is submitted to the
Auction Agent covering in the aggregate more than the number of Outstanding
shares of MuniPreferred of a series subject to an Auction held by such Existing
Holder, such Orders shall be considered valid in the following order of
priority:
(i) all Hold Orders for shares of such series shall be
considered valid, but only up to and including in the aggregate the
number of Outstanding shares of such series held by such Existing
Holder, and if the number of shares of such series subject to such Hold
Orders exceeds the number of Outstanding shares of such series held by
such Existing Holder, the number of shares subject to each such Hold
Order shall be reduced pro rata to cover the number of Outstanding
shares of such series held by such Existing Holder;
(ii) (A) any Bid for shares of such series shall be considered
valid up to and including the excess of the number of
Outstanding shares of such series held by such Existing Holder
over the number of shares of such series subject to any Hold
Orders referred to in clause (i) above;
(B) subject to subclause (A), if more than one Bid of an
Existing Holder for shares of such series is submitted to the
Auction Agent with the same rate and the number of Outstanding
shares of such series subject to such Bids is greater than
such excess, such Bids shall be considered valid up to and
including the amount of such excess, and the number of shares
of such series subject to each Bid with the same rate shall be
reduced pro rata to cover the number of shares of such series
equal to such excess;
(C) subject to subclauses (A) and (B), if more than one
Bid of an Existing Holder for shares of such series is
submitted to the Auction Agent with different rates, such Bids
shall be considered valid in the ascending order of their
respective rates up to and including the amount of such
excess; and
(D) in any such event, the number, if any, of such
Outstanding shares of such series subject to any portion of
Bids considered not valid in whole or in part under this
clause (ii) shall be treated as the subject of a Bid for
shares of such series by or on behalf of a Potential Holder at
the rate therein specified; and
(iii) all Sell Orders for shares of such series shall be
considered valid up to and including the excess of the number of
Outstanding shares of such series held by such Existing Holder over the
sum of shares of such series subject to valid Hold Orders referred to
in clause (i) above and valid Bids referred to in clause (ii) above.
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(e) If more than one Bid for one or more shares of a series of
MuniPreferred is submitted to the Auction Agent by or on behalf of any Potential
Holder, each such Bid submitted shall be a separate Bid with the rate and number
of shares therein specified.
(f) 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.
3. DETERMINATION OF SUFFICIENT CLEARING BIDS, WINNING BID RATE AND
APPLICABLE RATE.
(a) Not earlier than the Submission Deadline on each Auction Date for
shares of a series of MuniPreferred, the Auction Agent shall assemble all valid
Orders submitted or deemed submitted to it by the Broker- Dealers in respect of
shares of such series (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 collectively as "Submitted Hold Orders," "Submitted
Bids" or "Submitted Sell Orders," as the case may be, or as "Submitted Orders")
and shall determine for such series:
(i) the excess of the number of Outstanding shares of such
series over the number of Outstanding shares of such series subject to
Submitted Hold Orders (such excess being hereinafter referred to as the
"Available MuniPreferred" of such series);
(ii)from the Submitted Orders for shares of such series
whether:
(A) the number of Outstanding shares of such series
subject to Submitted Bids of Potential Holders specifying one
or more rates equal to or lower than the Maximum Rate for
shares of such series;
exceeds or is equal to the sum of:
(B) the number of Outstanding shares of such series
subject to Submitted Bids of Existing Holders specifying one or
more rates higher than the Maximum Rate for shares of such
series; and
(C) the number of Outstanding shares of such series
subject to Submitted Sell Orders
(in the event such excess or such equality exists (other than because
the number of shares of such series in subclauses (B) and (C) above is
zero because all of the Outstanding shares of such series are subject
to Submitted Hold Orders), such Submitted Bids in subclause (A) above
being hereinafter referred to collectively as "Sufficient Clearing
Bids" for shares of such series); and
(iii) if Sufficient Clearing Bids for shares of such series
exist, the lowest rate specified in such Submitted Bids (the "Winning
Bid Rate" for shares of such series) which if:
(A) (I) each such Submitted Bid of Existing Holders
specifying such lowest rate and (II) all other such Submitted
Bids of Existing Holders specifying lower rates were rejected,
thus entitling such Existing Holders to continue to hold the
shares of such series that are subject to such Submitted Bids;
and
(B) (I) each such Submitted Bid of Potential Holders
specifying such lowest rate and (II) all other such Submitted
Bids of Potential Holders specifying lower rates were
accepted;
would result in such Existing Holders described in subclause (A) above
continuing to hold an aggregate number of Outstanding shares of such
series which, when added to the number of Outstanding shares of such
series to be purchased by such Potential Holders described in subclause
(B) above, would equal not less than the Available MuniPreferred of
such series.
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(b) Promptly after the Auction Agent has made the determinations
pursuant to paragraph (a) of this Section 3, the Auction Agent shall advise the
Fund of the Maximum Rate for shares of the series of MuniPreferred for which an
Auction is being held on the Auction Date and, based on such determination, the
Applicable Rate for shares of such series for the next succeeding Rate Period
thereof as follows:
(i) if Sufficient Clearing Bids for shares of such series
exist, that the Applicable Rate for all shares of such series for the
next succeeding Rate Period thereof shall be equal to the Winning Bid
Rate for shares of such series so determined;
(ii) if Sufficient Clearing Bids for shares of such series do
not exist (other than because all of the Outstanding shares of such
series are subject to Submitted Hold Orders), that the Applicable Rate
for all shares of such series for the next succeeding Rate Period
thereof shall be equal to the Maximum Rate for shares of such series;
or
(iii) if all of the Outstanding shares of such series are
subject to Submitted Hold Orders, that the Applicable Rate for all
shares of such series for the next succeeding Rate Period thereof shall
be as set forth in Section 12 of Appendix A hereto.
4. ACCEPTANCE AND REJECTION OF SUBMITTED BIDS AND SUBMITTED SELL ORDERS
AND ALLOCATION OF SHARES.
Existing Holders shall continue to hold the shares of MuniPreferred
that are subject to Submitted Hold Orders, and, based on the determinations made
pursuant to paragraph (a) of Section 3 of this Part II, the Submitted Bids and
Submitted Sell Orders shall be accepted or rejected by the Auction Agent and the
Auction Agent shall take such other action as set forth below:
(a) If Sufficient Clearing Bids for shares of a series of MuniPreferred
have been made, all Submitted Sell Orders with respect to shares of such series
shall be accepted and, subject to the provisions of paragraphs (d) and (e) of
this Section 4, Submitted Bids with respect to shares of such series shall be
accepted or rejected as follows in the following order of priority and all other
Submitted Bids with respect to shares of such series shall be rejected:
(i) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is higher than the Winning Bid Rate for shares
of such series shall be accepted, thus requiring each such Existing
Holder to sell the shares of MuniPreferred subject to such Submitted
Bids;
(ii) Existing Holders' Submitted Bids for shares of such
series specifying any rate that is lower than the Winning Bid Rate for
shares of such series shall be rejected, thus entitling each such
Existing Holder to continue to hold the shares of MuniPreferred subject
to such Submitted Bids;
(iii) Potential Holders' Submitted Bids for shares of such
series specifying any rate that is lower than the Winning Bid Rate for
shares of such series shall be accepted;
(iv) each Existing Holder's Submitted Bid for shares of such
series specifying a rate that is equal to the Winning Bid Rate for
shares of such series shall be rejected, thus entitling such Existing
Holder to continue to hold the shares of MuniPreferred subject to such
Submitted Bid, unless the number of Outstanding shares of MuniPreferred
subject to all such Submitted Bids shall be greater than the number of
shares of MuniPreferred ("remaining shares") in the excess of the
Available MuniPreferred of such series over the number of shares of
MuniPreferred subject to Submitted Bids described in clauses (ii) and
(iii) of this paragraph (a), in which event such Submitted Bid of such
Existing Holder shall be rejected in part, and such Existing Holder
shall be entitled to continue to hold shares of MuniPreferred subject
to such Submitted Bid, but only in an amount equal to the number of
shares of MuniPreferred of such series obtained by multiplying the
number of remaining shares by a fraction, the numerator of which shall
be the number of Outstanding shares of MuniPreferred held by such
Existing Holder subject to such Submitted Bid and the denominator of
which shall be the aggregate number of Outstanding shares of
MuniPreferred subject to such Submitted Bids made by all such Existing
Holders that specified a rate equal to the Winning Bid Rate for shares
of such series; and
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(v) each Potential Holder's Submitted Bid for shares of such
series specifying a rate that is equal to the Winning Bid Rate for
shares of such series shall be accepted but only in an amount equal to
the number of shares of such series obtained by multiplying the number
of shares in the excess of the Available MuniPreferred of such series
over the number of shares of MuniPreferred subject to Submitted Bids
described in clauses (ii) through (iv) of this paragraph (a) by a
fraction, the numerator of which shall be the number of Outstanding
shares of MuniPreferred subject to such Submitted Bid and the
denominator of which shall be the aggregate number of Outstanding
shares of MuniPreferred subject to such Submitted Bids made by all such
Potential Holders that specified a rate equal to the Winning Bid Rate
for shares of such series.
(b) If Sufficient Clearing Bids for shares of a series of MuniPreferred
have not been made (other than because all of the Outstanding shares of such
series are subject to Submitted Hold Orders), subject to the provisions of
paragraph (d) of this Section 4, Submitted Orders for shares of such series
shall be accepted or rejected as follows in the following order of priority and
all other Submitted Bids for shares of such series shall be rejected:
(i) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is equal to or lower than the Maximum Rate for
shares of such series shall be rejected, thus entitling such Existing
Holders to continue to hold the shares of MuniPreferred subject to such
Submitted Bids;
(ii) Potential Holders' Submitted Bids for shares of such
series specifying any rate that is equal to or lower than the Maximum
Rate for shares of such series shall be accepted; and
(iii) Each Existing Holder's Submitted Bid for shares of such
series specifying any rate that is higher than the Maximum Rate for
shares of such series and the Submitted Sell Orders for shares of such
series of each Existing Holder shall be accepted, thus entitling each
Existing Holder that submitted or on whose behalf was submitted any
such Submitted Bid or Submitted Sell Order to sell the shares of such
series subject to such Submitted Bid or Submitted Sell Order, but in
both cases only in an amount equal to the number of shares of such
series obtained by multiplying the number of shares of such series
subject to Submitted Bids described in clause (ii) of this paragraph
(b) by a fraction, the numerator of which shall be the number of
Outstanding shares of such series held by such Existing Holder subject
to such Submitted Bid or Submitted Sell Order and the denominator of
which shall be the aggregate number of Outstanding shares of such
series subject to all such Submitted Bids and Submitted Sell Orders.
(c) If all of the Outstanding shares of a series of MuniPreferred are
subject to Submitted Hold Orders, all Submitted Bids for shares of such series
shall be rejected.
(d) If, as a result of the procedures described in clause (iv) or (v)
of paragraph (a) or clause (iii) of paragraph (b) of this Section 4, 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 a series of
MuniPreferred on any Auction Date, the Auction Agent shall, in such manner as it
shall determine in its sole discretion, round up or down the number of shares of
MuniPreferred of such series to be purchased or sold by any Existing Holder or
Potential Holder on such Auction Date as a result of such procedures so that the
number of shares so purchased or sold by each Existing Holder or Potential
Holder on such Auction Date shall be whole shares of MuniPreferred.
(e) If, as a result of the procedures described in clause (v) of
paragraph (a) of this Section 4, any Potential Holder would be entitled or
required to purchase less than a whole share of a series of MuniPreferred on any
Auction Date, the Auction Agent shall, in such manner as it shall determine in
its sole discretion, allocate shares of MuniPreferred of such series for
purchase among Potential Holders so that only whole shares of MuniPreferred of
such series are purchased on such Auction Date as a result of such procedures by
any Potential Holder, even if such allocation results in one or more Potential
Holders not purchasing shares of MuniPreferred of such series on such Auction
Date.
(f) Based on the results of each Auction for shares of a series of
MuniPreferred, the Auction Agent shall determine the aggregate number of shares
of such series to be purchased and the aggregate number of shares of such series
to be sold by Potential Holders and Existing Holders and, with respect to each
Potential Holder and Existing Holder, to the extent that such aggregate number
of shares to be purchased and such aggregate number of shares to be sold differ,
determine to which other Potential Holder(s) or Existing Holder(s) they shall
deliver, or from which other Potential Holder(s) or Existing Holder(s) they
shall receive, as the case may be, shares of MuniPreferred of such series.
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Notwithstanding any provision of the Auction Procedures or the Settlement
Procedures to the contrary, in the event an Existing Holder or Beneficial Owner
of shares of a series of MuniPreferred with respect to whom a Broker-Dealer
submitted a Bid to the Auction Agent for such shares that was accepted in whole
or in part, or submitted or is deemed to have submitted a Sell Order for such
shares that was accepted in whole or in part, fails to instruct its Agent Member
to deliver such shares against payment therefor, partial deliveries of shares of
MuniPreferred that have been made in respect of Potential Holders' or Potential
Beneficial Owners' Submitted Bids for shares of such series that have been
accepted in whole or in part shall constitute good delivery to such Potential
Holders and Potential Beneficial Owners.
(g) Neither the Fund nor the Auction Agent nor any affiliate of either
shall have any responsibility or liability with respect to the failure of an
Existing Holder, a Potential Holder, a Beneficial Owner, a Potential Beneficial
Owner or its respective Agent Member to deliver shares of MuniPreferred of any
series or to pay for shares of MuniPreferred of any series sold or purchased
pursuant to the Auction Procedures or otherwise.
5. NOTIFICATION OF ALLOCATIONS.
Whenever the Fund intends to include any net capital gains or other
income taxable for Federal income tax purposes in any dividend on shares of
MuniPreferred, the Fund shall, in the case of a Minimum Rate Period or a Special
Rate Period of 28 Rate Period Days or fewer, and may, in the case of any other
Special Rate Period, notify the Auction Agent of the amount to be so included
not later than the Dividend Payment Date next preceding the Auction Date on
which the Applicable Rate for such dividend is to be established. Whenever the
Auction Agent receives such notice from the Fund, it will be required in turn to
notify each Broker-Dealer, who, on or prior to such Auction Date, in accordance
with its Broker-Dealer Agreement, will be required to notify its Beneficial
Owners and Potential Beneficial Owners of shares of MuniPreferred believed by it
to be interested in submitting an Order in the Auction to be held on such
Auction Date.
6. AUCTION AGENT.
For so long as any shares of MuniPreferred are outstanding, the Auction
Agent, duly appointed by the Fund to so act, shall be in each case a commercial
bank, trust company or other financial institution independent of the Fund and
its affiliates (which however, may engage or have engaged in business
transactions with the Fund or its affiliates) and at no time shall the Fund or
any of its affiliates act as the Auction Agent in connection with the Auction
Procedures. If the Auction Agent resigns or for any reason its appointment is
terminated during any period that any shares of MuniPreferred are outstanding,
the Board of Trustees shall use its best efforts promptly thereafter to appoint
another qualified commercial bank, trust company or financial institution to act
as the Auction Agent. The Auction Agent's registry of Existing Holders of shares
of a series of MuniPreferred shall be conclusive and binding on the Broker-
Dealers. A Broker-Dealer may inquire of the Auction Agent between 3:00 p.m. on
the Business Day preceding an Auction for shares of a series of MuniPreferred
and 9:30 a.m. on the Auction Date for such Auction to ascertain the number of
shares of such series in respect of which the Auction Agent has determined such
Broker-Dealer to be an Existing Holder. If such Broker-Dealer believes it is the
Existing Holder of fewer shares of such series than specified by the Auction
Agent in response to such Broker-Dealer's inquiry, such Broker-Dealer may so
inform the Auction Agent of that belief. Such Broker-Dealer shall not, in its
capacity as Existing Holder of shares of such series, submit Orders in such
Auction in respect of shares of such series covering in the aggregate more than
the number of shares of such series specified by the Auction Agent in response
to such Broker-Dealer's inquiry.
7. TRANSFER OF SHARES OF MUNIPREFERRED.
Unless otherwise permitted by the Fund, a Beneficial Owner or an
Existing Holder may sell, transfer or otherwise dispose of shares of
MuniPreferred only in whole shares and only pursuant to a Bid or Sell Order
placed with the Auction Agent in accordance with the procedures described in
this Part II or to a Broker-Dealer, provided, however, that (a) a sale, transfer
or other disposition of shares of MuniPreferred from a customer of a
Broker-Dealer who is listed on the records of that Broker-Dealer as the holder
of such shares to that Broker-Dealer or another customer of that Broker-Dealer
shall not be deemed to be a sale, transfer or other disposition for purposes of
this Section 7 if such Broker-Dealer remains the Existing Holder of the shares
so sold, transferred or disposed of immediately after such sale, transfer or
disposition and (b) in the case of a transfers other than pursuant to Auctions,
the Broker-Dealer (or other Person, if permitted by the Fund) to whom such
transfer is made shall advise the Auction Agent of such transfer.
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8. GLOBAL CERTIFICATE.
Prior to the commencement of a Voting Period, (i) all of the shares of
a series of MuniPreferred outstanding from time to time shall be represented by
one global certificate registered in the name of the Securities Depository or
its nominee and (ii) no registration of transfer of shares of a series of
MuniPreferred shall be made on the books of the Fund to any Person other than
the Securities Depository or its nominee.
IN WITNESS WHEREOF, NUVEEN CALIFORNIA DIVIDEND ADVANTAGE MUNICIPAL
FUND, has caused these presents to be signed on _______________, 1999 in its
name and on its behalf by its Vice President and attested by its Assistant
Secretary. The Fund's Declaration of Trust is on file with the Secretary of
State of the Commonwealth of Massachusetts, and the said officers of the Fund
have executed this Statement as officers and not individually, and the
obligations and rights set forth in this Statement are not binding upon any such
officers, or the trustees or shareholders of the Fund, individually, but are
binding only upon the assets and property of the Fund.
NUVEEN CALIFORNIA DIVIDEND
ADVANTAGE MUNICIPAL FUND
By:
-------------------------
Gifford R. Zimmerman
Vice President
ATTEST:
----------------------------------
Larry W. Martin
Assistant Secretary
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NUVEEN CALIFORNIA DIVIDEND ADVANTAGE MUNICIPAL FUND
APPENDIX A
SECTION 1. DESIGNATION AS TO SERIES.
SERIES TH: A series of 10,000 Preferred Shares, par value $.01 per
share, liquidation preference $25,000 per share, is hereby designated "Municipal
Auction Rate Cumulative Preferred Shares, Series TH." Each share of Series TH
MuniPreferred shall, for purposes hereof, be deemed to have a Date of Original
Issue of ______ __, 1999; have an Applicable Rate for its Initial Rate Period
equal to ____% per annum; have an initial Dividend Payment Date of ______ __,
1999; and have such other preferences, limitations and relative voting rights,
in addition to those required by applicable law or set forth in the Declaration
of Trust applicable to Preferred Shares of the Fund, as set forth in Part I and
Part II of this Statement. Any shares of Series TH MuniPreferred issued after
the effective date of this Statement shall be issued on the first day of a Rate
Period of the then outstanding shares of Series TH MuniPreferred, shall have,
for such Rate Period, an Applicable Rate equal to the Applicable Rate for shares
of such series established in the first Auction for shares of such series
preceding the date of such issuance; and shall have such other preferences,
limitations and relative voting rights, in addition to those required by
applicable law or set forth in the Declaration of Trust applicable to Preferred
Shares of the Fund, as set forth in Part I and Part II of this Statement. The
Series TH MuniPreferred shall constitute a separate series of Preferred Shares
of the Fund, and each share of Series TH MuniPreferred shall be identical except
as provided in Section 11 of Part I of this Statement.
SERIES F: A series of 10,000 Preferred Shares, par value $.01 per
share, liquidation preference $25,000 per share, is hereby designated "Municipal
Auction Rate Cumulative Preferred Shares, Series F." Each share of Series F
MuniPreferred shall, for purposes hereof, be deemed to have a Date of Original
Issue of ______ __, 1999; have an Applicable Rate for its Initial Rate Period
equal to ____% per annum; have an initial Dividend Payment Date of ______ __,
1999; and have such other preferences, limitations and relative voting rights,
in addition to those required by applicable law or set forth in the Declaration
of Trust applicable to Preferred Shares of the Fund, as set forth in Part I and
Part II of this Statement. Any shares of Series F MuniPreferred issued after the
effective date of this Statement shall be issued on the first day of a Rate
Period of the then outstanding shares of Series F MuniPreferred; shall have, for
such Rate Period, an Applicable Rate equal to the Applicable Rate for shares of
such series established in the first Auction for shares of such series preceding
the date of such issuance; and shall have such other preferences, limitations
and relative voting rights, in addition to those required by applicable law or
set forth in the Declaration of Trust applicable to Preferred Shares of the
Fund, as set forth in Part I and Part II of this Statement. The Series F
MuniPreferred shall constitute a separate series of Preferred Shares of the
Fund, and each share of Series F MuniPreferred shall be identical except as
provided in Section 11 of Part I of this Statement.
SECTION 2. NUMBER OF AUTHORIZED SHARES PER SERIES.
The number of authorized shares constituting Series TH MuniPreferred is
10,000 and Series F MuniPreferred is 10,000.
SECTION 3. EXCEPTIONS TO CERTAIN DEFINITIONS.
Notwithstanding the definitions contained under the heading
"Definitions" in this Statement, the following terms shall have the following
meanings for purposes of this Statement:
Not applicable.
SECTION 4. CERTAIN DEFINITIONS.
For purposes of this Statement, the following terms shall have the
following meanings (with terms defined in the singular having comparable
meanings when used in the plural and vice versa), unless the context otherwise
requires:
"ESCROWED BONDS" shall mean Municipal Obligations that (i)
have been determined to be legally defeased in accordance with S&P's
legal defeasance criteria, (ii) have been determined to be economically
defeased in accordance with S&P's economic defeasance criteria and
assigned a rating of AAA by S&P,
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(iii) are not rated by S&P but have been determined to be legally
defeased by Moody's or (iv) have been determined to be economically
defeased by Moody's and assigned a rating no lower than the rating that
is Moody's equivalent of S&P's AAA rating. In the event that a defeased
obligation which is an S&P Eligible Asset does not meet the criteria of
an Escrowed Bond, such Municipal Obligation will be deemed to remain in
the Issue Type Category into which it fell prior to such defeasance.
"GROSS-UP PAYMENT" means payment to a Holder of shares of
MuniPreferred of an amount which, when taken together with the
aggregate amount of Taxable Allocations made to such Holder to which
such Gross-up Payment relates, would cause such Holder's dividends in
dollars (after Federal and California income tax consequences) from the
aggregate of such Taxable Allocations and the related Gross-up Payment
to be equal to the dollar amount of the dividends which would have been
received by such Holder if the amount of such aggregate Taxable
Allocations would have been excludable from the gross income of such
Holder. Such Gross-up Payment shall be calculated (i) without
consideration being given to the time value of money; (ii) assuming
that no Holder of shares of MuniPreferred is subject to the Federal
alternative minimum tax with respect to dividends received from the
Fund; and (iii) assuming that each Taxable Allocation and each Gross-
up Payment (except to the extent such Gross-up Payment is designated as
an exempt-interest dividend under Section 852(b)(5) of the Code or
successor provisions) would be taxable in the hands of each Holder of
shares of MuniPreferred at the maximum marginal combined regular
Federal and California personal income tax rate applicable to ordinary
income (taking into account the Federal tax deductibility of state
taxes paid or incurred) or net capital gains, as applicable, or the
maximum marginal regular Federal corporate income tax rate applicable
to ordinary income or net capital gains, as applicable, whichever is
greater, in effect at the time such Gross-up Payment is made.
"INVERSE FLOATER" shall mean trust certificates or other
instruments evidencing interests in one or more Municipal Obligations
that qualify as S&P Eligible Assets, the interest rates on which are
adjusted at short term intervals on a basis that is inverse to the
simultaneous readjustment of the interest rates on corresponding
floating rate trust certificates or other instruments issued by the
same issuer, provided that the ratio of the aggregate dollar amount of
floating rate instruments to inverse floating rate instruments issued
by the same issuer does not exceed one to one at their time of original
issuance unless the floating instruments have only one reset remaining
until maturity.
"ISSUE TYPE CATEGORY" shall mean, with respect to a Municipal
Obligation acquired by the Fund, (A) for purposes of calculating
Moody's Eligible Assets as of any Valuation Date, one of the following
categories into which such Municipal Obligation falls based upon a good
faith determination by the Fund: health care issues (including issues
related to teaching and non-teaching hospitals, public or private);
housing issues (including issues related to single- and multi-family
housing projects); educational facilities issues (including issues
related to public and private schools); student loan issues; resource
recovery issues; transportation issues (including issues related to
mass transit, airports and highways); industrial development bond
issues (including issues related to pollution control facilities);
utility issues (including issues related to the provision of gas,
water, sewers and electricity); general obligation issues; lease
obligations (including certificates of participation); escrowed bonds;
and other issues ("Other Issues") not falling within one of the
aforementioned categories; and (B) for purposes of calculating S&P
Eligible Assets as of any Valuation Date, one of the following
categories into which such Municipal Obligation falls based upon a good
faith determination by the Fund: health care issues (including issues
related to teaching and non-teaching hospitals, public or private);
housing issues (including issues related to single- and multi-family
housing projects); educational facilities issues (including issues
related to public and private schools); student loan issues;
transportation issues (including issues related to mass transit,
airports and highways); industrial development bond issues (including
issues related to pollution control facilities); public power utilities
issues (including issues related to the provision of electricity,
either singly or in combination with the provision of other utilities,
and issues related only to the provision of gas); water and sewer
utilities issues (including issues related to the provision of water
and sewers as well as combination utilities not falling within the
public power utilities category); special utilities issues (including
issues related to resource recovery, solid waste and irrigation as well
as other utility issues not falling within the public power and water
and sewer utilities categories); general obligation issues; lease
obligations (including certificates of participation); Escrowed Bonds;
and other issues ("Other Issues") not falling within one of the
aforementioned categories. The general obligation issue category
includes any issuer that is directly or indirectly guaranteed by the
State of California or its political subdivisions. Utility issuers are
included in the general obligation issue category if the issuer is
directly or indirectly guaranteed by the State of California or its
political subdivisions. Municipal Obligations in the utility issuer
category will be classified within one of the three following
sub-categories: (i) electric, gas and combination issues (if the
combination issue includes an electric issue); (ii) water and sewer
utilities and combination issues (if the combination issues does not
include an electric issue); and (iii) irrigation, resource recovery,
solid waste and other utilities, provided that Municipal Obligations
included in this sub category (iii) must be rated by S&P in order to be
included in S&P Eligible Assets. Municipal Obligations in the
transportation issue category will be classified within one of the two
following sub-categories: (i) streets and highways, toll roads, bridges
and tunnels, airports and multi-purpose port authorities (multiple
revenue streams generated by toll roads, airports, real estate,
bridges); (ii) mass transit, parking seaports and others.
"MOODY'S DISCOUNT FACTOR" shall mean, for purposes of
determining the Discounted Value of any Moody's Eligible Asset, the
percentage determined by reference to the rating on such asset and the
shortest Exposure Period set forth opposite such rating that is the
same length as or is longer than the Moody's Exposure Period, in
accordance with the table set forth below:
A-43
<PAGE> 122
<TABLE>
<CAPTION>
RATING CATEGORY
--------------------------------------------------------------------------------------
EXPOSURE PERIOD AAA* AA* A* BAA* OTHER** (V)MIG-1*** SP-1+*** UNRATED*****
- --------------- -------- ----- ------- -------- ------------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
7 weeks.............................. 151% 159% 166% 173% 187% 136% 148% 225%
8 weeks or less but greater than
seven weeks......................... 154 161 168 176 190 137 149 231
9 weeks or less but greater than
eight weeks......................... 156 163 170 177 192 138 150 240
</TABLE>
- ------------------
* Moody's rating.
** Municipal Obligations not rated by Moody's but rated BBB by S&P.
*** Municipal Obligations rated MIG-1 or VMIG-1, which do not mature or have a
demand feature at par exercisable in 30 days and which do not have a
long-term rating.
**** Municipal Obligations not rated by Moody's, rated SP-1+ by S&P, which do
not mature or have a demand feature at par exercisable in 30 days and
which do not have a long-term rating.
***** Municipal Obligations rated less than Baa3 by Moody's or less than BBB by
S&P or not rated by Moody's or S&P.
Notwithstanding the foregoing, (i) the Moody's Discount Factor for
short-term Municipal Obligations will be 115%, so long as such Municipal
Obligations are rated at least MIG-1, VMIG-l or P-1 by Moody's and mature or
have a demand feature at par exercisable in 30 days or less or 125% as long as
such Municipal Obligations are rated at least A-1+/AA or SP-1+/AA by S&P and
mature or have a demand feature at par exercisable in 30 days or less and (ii)
no Moody's Discount Factor will be applied to cash or to Receivables for
Municipal Obligations Sold.
"MOODY'S ELIGIBLE ASSET" shall mean cash, Receivables for
Municipal Obligations Sold or a Municipal Obligation that (i) pays
interest in cash, (ii) does not have its Moody's rating, as
applicable, suspended by Moody's, and (iii) is part of an issue of
Municipal Obligations of at least $10,000,000. Except for general
obligation bonds, Municipal Obligations issued by any one issuer and
rated BBB or lower by S&P, Ba or B by Moody's or not rated by S&P and
Moody's ("Other Securities") may comprise no more than 4% of total
Moody's Eligible Assets; such other securities, if any, together with
any Municipal Obligations issued by the same issuer and rated Baa by
Moody's or A by S&P, may comprise no more than 6% of total Moody's
Eligible Assets; such other securities, Baa and A-rated Municipal
Obligations, if any, together with any Municipal Obligations issued by
the same issuer and rated A by Moody's or AA by S&P, may comprise no
more than 10% of total Moody's Eligible Assets; and such other
securities, Baa, A and AA-rated Municipal Obligations, if any, together
with any Municipal Obligations issued by the same issuer and rated Aa
by Moody's or AAA by S&P, may comprise no more than 20% of total
Moody's Eligible Assets. For purposes of the foregoing sentence, any
Municipal Obligation backed by the guaranty, letter of credit or
insurance issued by a third party shall be deemed to be issued by such
third party if the issuance of such third party credit is the sole
determinant of the rating on such Municipal Obligation. Other
securities falling within a particular Issue Type Category may comprise
no more than 12% of total Moody's Eligible Assets; such other
securities, if any, together with any Municipal Obligations falling
within a particular Issue Type Category and rated Baa by Moody's or A
by S&P, may comprise no more than 20% of total Moody's Eligible Assets;
such other securities, Baa and A-rated Municipal Obligations, if any,
together with any Municipal Obligations falling within a particular
Issue Type Category and rated A by Moody's or AA by S&P, may comprise
no more than 40% of total Moody's Eligible Assets; and such other
securities, Baa, A and AA-rated Municipal Obligations, if any, together
with any Municipal Obligations falling within a particular Issue Type
Category and rated Aa by Moody's or AAA by S&P, may comprise no more
than 60% of total Moody's Eligible Assets. For purposes of this
definition, a Municipal Obligation shall be deemed to be rated BBB by
S&P if rated BBB or BBB+ by S&P. Notwithstanding any other provision of
this definition, (A) in the case of general obligation Municipal
Obligations only, other securities issued by issuers located within any
one county may comprise no more than 4% of Moody's Eligible Assets;
such other securities, if any, together with any Municipal Obligations
issued by issuers located within the same county and rated Baa by
Moody's or A by S&P, may comprise no more than 6% of Moody's Eligible
Assets; such other securities, Baa and A-rated Municipal Obligations,
if any, together with any Municipal Obligations issued by issuers
located within the same county and rated A by Moody's or AA by S&P, may
comprise no more than 10% of Moody's Eligible Assets; and such other
securities, Baa, A and AA-rated
A-44
<PAGE> 123
Municipal Obligations, if any, together with any Municipal Obligations
issued by issuers located within the same county and rated Aa by
Moody's or AAA by S&P, may comprise no more than 20% of Moody's
Eligible Assets; and (B) in no event may (i) student loan Municipal
Obligations comprise more than 10% of Moody's Eligible Assets; (ii)
resource recovery Municipal Obligations comprise more than 10% of
Moody's Eligible Assets; and (iii) Other Issues comprise more than 10%
of Moody's Eligible Assets. For purposes of applying the foregoing
requirements, a Municipal Obligation rated BBB- by S&P shall not be
considered to be rated BBB by S&P, Moody's Eligible Assets shall be
calculated without including cash, and Municipal Obligations rated
MIG-1, VMIG-1 or P-1 or, if not rated by Moody's, rated A-1+/AA or
SP-1+/AA by S&P, shall be considered to have a long-term rating of A.
When the Fund sells a Municipal Obligation and agrees to repurchase
such Municipal Obligation at a future date, such Municipal Obligation
shall be valued at its Discounted Value for purposes of determining
Moody's Eligible Assets, and the amount of the repurchase price of such
Municipal Obligation shall be included as a liability for purposes of
calculating the MuniPreferred Basic Maintenance Amount. When the Fund
purchases a Moody's Eligible Asset and agrees to sell it at a future
date, such Eligible Asset shall be valued at the amount of cash to be
received by the Fund upon such future date, provided that the
counterparty to the transaction has a long-term debt rating of at least
A2 from Moody's and the transaction has a term of no more than 30 days,
otherwise such Eligible Asset shall be valued at the Discounted Value
of such Eligible Asset.
Notwithstanding the foregoing, an asset will not be considered a
Moody's Eligible Asset to the extent it is (i) subject to any material lien,
mortgage, pledge, security interest or security agreement of any kind
(collectively, "Liens"), except for (a) Liens which are being contested in good
faith by appropriate proceedings and which Moody's has indicated to the Fund
will not affect the status of such asset as a Moody's Eligible Asset, (b) Liens
for taxes that are not then due and payable or that can be paid thereafter
without penalty, (c) Liens to secure payment for services rendered or cash
advanced to the Fund by Nuveen Advisory Corp., Chase Manhattan Bank or the
Auction Agent and (d) Liens by virtue of any repurchase agreement; or (iii)
deposited irrevocably for the payment of any liabilities for purposes of
determining the MuniPreferred Basic Maintenance Amount.
"OTHER ISSUES" shall have the respective meanings specified in
the definition of "Issue Type Category."
"RATE MULTIPLE," for shares of a series of MuniPreferred on
any Auction Date for shares of such series, shall mean the percentage,
determined as set forth below, based on the prevailing rating of shares
of such series in effect at the close of business on the Business Day
next preceding such Auction Date:
<TABLE>
<CAPTION>
PREVAILING RATING PERCENTAGE
----------------- ----------
<S> <C>
"aa3"/AA--or higher........ 110%
"a3"/A--.................... 125%
"baa3"/BBB--................ 150%
"ba3"/BB--.................. 200%
Below "ba3"/BB--........... 250%
</TABLE>
provided, however, that in the event the Fund has notified the Auction Agent of
its intent to allocate income taxable for Federal income tax purposes to shares
of such series prior to the Auction establishing the Applicable Rate for shares
of such series, the applicable percentage in the foregoing table shall be
divided by the quantity 1 minus the maximum marginal combined regular Federal
and California personal income tax rate applicable to ordinary income
(taking into account the Federal income tax deductibility of state taxes paid or
incurred) or the maximum marginal regular Federal corporate income tax rate
applicable to ordinary income, whichever is greater.
For purposes of this definition, the "prevailing rating" of shares of a
series of MuniPreferred shall be (i) "aa3"/AA-- or higher if such shares have a
rating of "aa3" or better by Moody's and AA-- or better by S&P or the equivalent
of such ratings by such agencies or a substitute rating agency or substitute
rating agencies selected as provided below, (ii) if not "aa3"/AA-- or higher,
then "a3"/A-- if such shares have a rating of "a3" or better by Moody's and A--
or better by S&P or the equivalent of such ratings by such agencies or a
substitute rating agency or substitute rating agencies selected as provided
below, (iii) if not "aa3"/AA-- or higher or "a3"/A--, then "baa3"/BBB-- if such
shares have a rating of "baa3" or better by Moody's and BBB-- or better by S&P
or the equivalent of such
A-45
<PAGE> 124
ratings by such agencies or a substitute rating agency or substitute rating
agencies selected as provided below, (iv) if not "aa3"/AA-- or higher, "a3"/A--
or "baa3"/BBB--, then "ba3"/BB-- if such shares have a rating of "ba3" or better
by Moody's and BB-- or better by S&P or the equivalent of such ratings by such
agencies or a substitute rating agency or substitute rating agencies selected as
provided below, and (v) if not "aa3"/AA-- or higher, "a3"/A--, "baa3"/BBB--, or
"ba3"/BB--, then Below "ba3"/BB--; provided, however, that if such shares are
rated by only one rating agency, the prevailing rating will be determined
without reference to the rating of any other rating agency. The Fund shall take
all reasonable action necessary to enable either S&P or Moody's to provide a
rating for shares of MuniPreferred. If neither S&P nor Moody's shall make such a
rating available, the party set forth in Section 7 of Appendix A or its
successor shall select at least one nationally recognized statistical rating
organization (as that term is used in the rules and regulations of the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended from time to time) to act as a substitute rating agency in respect of
shares of the series of MuniPreferred set forth opposite such party's name in
Section 7 of Appendix A and the Fund shall take all reasonable action to enable
such rating agency to provide a rating for such shares.
"S&P DISCOUNT FACTOR" shall mean, for purposes of determining
the Discounted Value of any S&P Eligible Asset, the percentage
determined by reference to the rating on such asset and the shortest
Exposure Period set forth opposite such rating that is the same length
as or is longer than the S&P Exposure Period, in accordance with the
table set forth below:
<TABLE>
<CAPTION>
RATING CATEGORY
--------------------------------
EXPOSURE PERIOD AAA* AA* A* BBB*
- --------------- ---- --- --- ----
<S> <C> <C> <C> <C>
45 Business Days........... 200% 205% 220% 260%
25 Business Days........... 180 185 200 240
10 Business Days........... 165 170 185 225
7 Business Days............ 160 165 180 220
3 Business Days............ 140 145 160 200
</TABLE>
- ------------------
* 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 within 30 days or less, or 120% 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 120% 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 equivalent to A-1+ or SP-1+ by another nationally recognized
statistical rating organization, on a case by case basis; provided, however,
that any such non-S&P rated short-term Municipal Obligations which have demand
features exercisable within 30 days or less must be backed by a letter of
credit, liquidity facility or guarantee from a bank or other financial
institution with a short-term rating of at least A-1+ from S&P; and further
provided that such non-S&P rated short-term Municipal Obligations may comprise
no more than 50% of short-term Municipal Obligations that qualify as S&P
Eligible Assets; provided, however, that Municipal Obligations not rated by S&P
but rated equivalent to BBB or lower by another nationally recognized
statistical rating organization rated BB by S&P or non-rated (such Municipal
Obligations are hereinafter referred to as "High Yield Securities") may
comprise no more than 20% of the short-term Municipal Obligations that qualify
as S&P Eligible Assets, (ii) the S&P Discount Factor for Receivables for
Municipal Obligations Sold that are due in more than five Business Days from
such Valuation Date will be the S&P Discount Factor applicable to the Municipal
Obligations sold, (iii) no S&P Discount Factor will be applied to cash or to
Receivables for Municipal Obligations Sold if such receivables are due within
five Business Days of such Valuation Date, and (iv) except as set forth in
clause (i) above, in the case of any Municipal Obligation that is not rated by
S&P but qualifies as an S&P Eligible Asset pursuant to clause (iii) of that
definition, such Municipal Obligation will be deemed to have an S&P rating one
full rating category lower than the S&P rating category that is the equivalent
of the rating category in which such Municipal Obligation is placed by a
nationally recognized statistical rating organization. "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. The Fund may adopt S&P
Discount Factors for Municipal Obligations other than Municipal Obligations
provided that S&P advises the Fund in writing that such action will not
adversely affect its then current rating on the MuniPreferred. For purposes of
the foregoing, Anticipation Notes rated SP- 1+ or, if not rated by S&P, rated
equivalent to A-1+ or SP-1+ by another nationally recognized rating agency, on a
case by case basis, which do not mature or have a demand feature at par
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" shall mean cash (excluding any cash
irrevocably deposited by the Fund for the payment of any liabilities
within the meaning of MuniPreferred Basic Maintenance Amount),
Receivables for Municipal Obligations Sold or a Municipal Obligation
owned by the Fund that (i) is interest bearing and pays interest at
least semi-annually; (ii) is payable with respect to principal and
interest in U.S. Dollars; (iii) is publicly rated BBB or higher by S&P
or, if not rated by S&P but rated equivalent or higher to an A by
another nationally recognized credit rating agency, on a case by case
basis; (iv) is not subject to a covered call or covered put option
written by the Fund; (v) except for Inverse Floaters, is not part of a
private placement of Municipal Obligations; and (vi) except for Inverse
Floaters, 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
A-46
<PAGE> 125
issued by an issuer with a total of at least $50 million of securities
outstanding. Special utilities issues that are not rated by S&P shall
not comprise S&P Eligible Assets. Solely for purposes of this
definition, the term "Municipal Obligation" means any obligation the
interest on which is exempt from regular Federal income taxation and
which is issued by any of the fifty United States, the District of
Columbia or any of the territories of the United States, their
subdivisions, counties, cities, towns, villages, school districts and
agencies (including authorities and special districts created by the
states), and federally sponsored agencies such as local housing
authorities. Notwithstanding the foregoing limitations:
(1) Municipal Obligations (excluding Escrowed Bonds and High
Yield Securities) of any one issuer or guarantor (excluding bond
insurers) shall 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 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 S&P Eligible Assets. High Yield Securities
of any one issuer shall be considered S&P Eligible Assets only to the
extent the Market Value of such Municipal Obligations does not exceed
5% of the aggregate Market Value of S&P Eligible Assets;
(2) Municipal Obligations (excluding Escrowed Bonds and High
Yield Securities) of any one Issue Type Category shall be considered
S&P Eligible Assets only to the extent the Market Value of such
Municipal Obligations does not exceed 25% of the aggregate Market
Value of S&P Eligible Assets; PROVIDED, HOWEVER, that Municipal
Obligations falling within the utility Issue Type Category will be
broken down into three sub-categories and such Municipal Obligations
will be considered S&P Eligible Assets to the extent the Market Value
of such Municipal Obligations in each such sub-category does not
exceed 25% of the aggregate Market Value of S&P Eligible Assets per
each sub-category provided that the total utility Issue Type Category
does not exceed 60% of the Aggregate Market Value of S&P Eligible
Assets; provided, however, that Municipal Obligations falling within
the transportation Issue Type Category will be broken down into two
sub-categories and such Municipal Obligations will be considered S&P
Eligible Assets to the extent the Market Value of such Municipal
Obligations in both sub-categories combined does not exceed 40% of
the aggregate Market Value of S&P Eligible Assets (exposure to
transportation sub-category (i) described in the definition of Issue
Type Category is limited to 25% of the aggregate Market Value of S&P
Eligible Assets, provided, however, exposure to transportation
sub-category (ii) described above can exceed the 25% limit to the
extent that exposure to transportation sub-category (i) is reduced,
for a total exposure up to and not exceeding 40% of the aggregate
Market Value of S&P Eligible Assets for the transportation Issue Type
Category); and provided, however, that general obligation issues will
be considered S&P Eligible Assets only to the extent the Market Value
of such general obligation issues does not exceed 50% of the
aggregate Market Value of S&P Eligible Assets;
(3) Municipal Obligations not rated by S&P shall be
considered S&P Eligible Assets only to the extent the Market Value of
such Municipal Obligations, (including short-term Municipal
Obligations) does not exceed 50% of the aggregate Market Value of S&P
Eligible Assets; PROVIDED, HOWEVER, that High Yield Securities shall
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; and
(4) Non-California long-term Municipal Obligations shall 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.
SECTION 5. INITIAL RATE PERIODS.
The Initial Rate Period for shares of Series TH MuniPreferred shall be
the period from and including the Date of Original Issue thereof to but
excluding ______ __, 1999.
The Initial Rate Period for shares of Series F MuniPreferred shall be
the period from and including the Date of Original Issue thereof to but
excluding ______ __, 1999.
SECTION 6. DATE FOR PURPOSES OF PARAGRAPH (yyy) CONTAINED UNDER THE HEADING
"DEFINITIONS" IN THIS STATEMENT.
______ __, 1999.
SECTION 7. PARTY NAMED FOR PURPOSES OF THE DEFINITION OF "RATE MULTIPLE" IN THIS
STATEMENT.
<TABLE>
<CAPTION>
PARTY: SERIES OF MUNIPREFERRED
- ------ -----------------------
<S> <C>
Series TH
Series F
</TABLE>
SECTION 8. ADDITIONAL DEFINITIONS.
"CALIFORNIA MUNICIPAL OBLIGATION" shall mean "California Municipal
Obligation" as defined in the Fund's Registration Statement.
A-47
<PAGE> 126
SECTION 9. DIVIDEND PAYMENT DATES.
Except as otherwise provided in paragraph (d) of Section 2 of Part I of
this Statement, dividends shall be payable on shares of:
Series TH MuniPreferred, for the Initial Rate Period on
_________, ______ __, 1999, and on each _________ thereafter; and
Series F MuniPreferred, for the Initial Rate Period on
_________, ______ __, 1999, and on each _________ thereafter.
SECTION 10. AMOUNT FOR PURPOSES OF SUBPARAGRAPH (c)(i) OF SECTION 5 OF PART I OF
THIS STATEMENT.
$__________.
SECTION 11. REDEMPTION PROVISIONS APPLICABLE TO INITIAL RATE PERIODS.
Not applicable.
SECTION 12. APPLICABLE RATE FOR PURPOSES OF SUBPARAGRAPH (b)(iii) OF SECTION 3
OF PART II OF THIS STATEMENT.
For purposes of subparagraph (b)(iii) of Section 3 of Part II of this
Statement, the Applicable Rate for shares of such series for the next succeeding
Rate Period of shares of such series shall be equal to the lesser of the Kenny
Index (if such Rate Period consists of fewer than 183 Rate Period Days) or the
product of (A) (I) the "AA" Composite Commercial Paper Rate on such Auction Date
for such Rate Period, if such Rate Period consists of fewer than 183 Rate Period
Days; (II) the Treasury Bill Rate on such Auction Date for such Rate Period, if
such Rate Period consists of more than 182 but fewer than 365 Rate Period Days;
or (III) the Treasury Note Rate on such Auction Date for such Rate Period, if
such Rate Period is more than 364 Rate Period Days (the rate described in the
foregoing clause (A)(I), (II) or (III), as applicable, being referred to herein
as the "Benchmark Rate") and (B) 1 minus the maximum marginal combined regular
Federal and California personal income tax rate applicable to ordinary income
(taking into account the Federal income tax deductibility of state taxes paid or
incurred) or the maximum marginal regular Federal corporate income tax rate
applicable to ordinary income, whichever is greater; provided, however, that if
the Fund has notified the Auction Agent of its intent to allocate to shares of
such series in such Rate Period any net capital gains or other income taxable
for Federal income tax purposes ("Taxable Income"), the Applicable Rate for
shares of such series for such Rate Period will be (i) if the Taxable Yield Rate
(as defined below) is greater than the Benchmark Rate, then the Benchmark Rate,
or (ii) if the Taxable Yield Rate is less than or equal to the Benchmark Rate,
then the rate equal to the sum of (x) the lesser of the Kenny Index (if such
Rate Period consists of fewer than 183 Rate Period Days) or the product of the
Benchmark Rate multiplied by the factor set forth in the preceding clause (B)
and (y) the product of the maximum marginal combined regular Federal and
California personal tax rate applicable to ordinary income (taking into account
the Federal income tax deductibility of state taxes paid or incurred) or the
maximum marginal regular Federal corporate income tax applicable to ordinary
income, whichever is greater, multiplied by the Taxable Yield Rate. For purposes
of the foregoing, Taxable Yield Rate means the rate determined by (a) dividing
the amount of Taxable Income available for distribution per such share of
MuniPreferred by the number of days in the Dividend Period in respect of which
such Taxable Income is contemplated to be distributed, (b) multiplying the
amount determined in (a) above by 365 (in the case of a Dividend Period of 7
Rate Period Days) or 360 (in the case of any other Dividend Period), and (c)
dividing the amount determined in (b) above by $25,000.
SECTION 13. CERTAIN OTHER RESTRICTIONS AND REQUIREMENTS.
(a) For so long as any MuniPreferred are rated by S&P, the Fund 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 MuniPreferred by S&P, except that the
Fund 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 Transaction"), subject to the following
limitations:
(i) the Fund 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 Fund by the Fund's taking an opposite
position thereto ("Closing Transactions")), which would cause the Fund 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 Fund'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 Fund will not engage in any S&P Hedging Transaction based
on Treasury Bonds (other than Closing Transactions) which would cause the
Fund at the time of such transaction to own or have sold the lesser of (A)
outstanding futures contracts based on Treasury Bonds exceeding in number
50% of the quotient of the Market Value of the Fund'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 Fund will engage in Closing Transactions to close out
any outstanding futures contract which the Fund owns or has sold or any
outstanding option thereon owned by the Fund in the event (A) the Fund does
not have S&P Eligible Assets with an aggregate Discounted Value equal to or
greater than the MuniPreferred Basic Maintenance Amount on two consecutive
Valuation Dates and (B) the Fund is required to pay Variation Margin on the
second such Valuation Date;
(iv) the Fund 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 Fund holds the securities deliverable under such terms; and
(v) when the Fund 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 Fund'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 Fund'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
Fund 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 Fund has S&P Eligible Assets with a
Discounted Value that equals or exceeds the MuniPreferred 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 Fund 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 Fund.
(b) For so long as any MuniPreferred are rated by Moody's, the Fund will
not buy or sell futures contracts, write, purchase or sell call options on
futures contracts or purchase put options on futures contracts or write call
options (except covered call options) on portfolio securities unless it receives
written confirmation from Moody's that engaging in such transactions would not
impair the ratings then assigned to the MuniPreferred by Moody's, except that
the Fund may purchase or sell exchange-traded futures contracts based on the
Municipal Index or Treasury Bonds and purchase, write or sell exchange-traded
put options on such futures contracts and purchase, write or sell
exchange-traded call options on such futures contracts (collectively, "Moody's
Hedging Transactions"), subject to the following limitations:
(i) the Fund will not engage in any Moody's Hedging Transaction
based on the Municipal Index (other than Closing Transactions) which would
cause the Fund at the time of such transaction to own or have sold (A)
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 or (B) outstanding
futures contracts based on the Municipal Index having a Market Value
exceeding 50% of the Market Value of all Municipal Bonds constituting
Moody's Eligible Assets owned by the Fund (other than Moody's Eligible
Assets already subject to a Moody's Hedging Transaction);
(ii) the Fund will not engage in any Moody's Hedging Transaction based on
Treasury Bonds (other than Closing Transactions) which would cause the Fund
at the time of such transaction to own or have sold (A) outstanding futures
contracts based on Treasury Bonds having an aggregate Market Value
exceeding 20% of the aggregate Market Value of Moody's Eligible Assets
owned by the Fund and rated Aa by Moody's (or, if not rated by Moody's but
rated by S&P, rated AAA by S&P) or (B) outstanding futures contracts based
on Treasury Bonds having an aggregate Market Value exceeding 40% of the
aggregate Market Value of all Municipal Bonds constituting Moody's Eligible
Assets owned by the Fund (other than Moody's Eligible Assets already
subject to a Moody's Hedging Transaction) and rated Baa or A by Moody's
(or, if not rated by Moody's but rated by S&P, rated A or AA by S&P) (for
purpose of the foregoing clauses (i) and (ii), the Fund shall be deemed to
own the number of futures contracts that underlie any outstanding options
written by the Fund);
(iii) the Fund will engage in Closing Transactions to close out any
outstanding futures contract based on the Municipal Index if the amount of
open interest in the Municipal Index as reported by The Wall Street
Journal is less than 5,000;
(iv) the Fund will engage in a Closing Transaction to close out any
outstanding futures contract by no later than the fifth Business Day of
the month in which such contract expires and will engage in a Closing
Transaction to close out any outstanding option on a futures contract by
no later than the first Business Day of the month in which such option
expires;
(v) the Fund will engage in Moody's Hedging Transactions only with
respect to futures contracts or options thereon having the next settlement
date or the settlement date immediately thereafter;
(vi) the Fund will not engage in options and futures transactions for
leveraging or speculative purposes and will not write any call options or
sell any futures contracts for the purpose of hedging the anticipated
purchase of an asset prior to completion of such purchase; and
(vii) the Fund will not enter into an option of futures transaction
unless, after giving effect thereto, the Fund would continue to have
Moody's Eligible Assets with an aggregate Discounted Value equal to or
greater than the MuniPreferred Basic Maintenance Amount.
For purposes of determining whether the Fund has Moody's Eligible Assets
with an aggregate Discounted Value that equals or exceeds the MuniPreferred
Basic Maintenance Amount, the Discounted Value of Moody's Eligible Assets which
the Fund is obligated to deliver or receive pursuant to an outstanding futures
contract or option shall be as follows: (i) assets subject to call options
written by the Fund which are either exchange-traded and "readily reversible"
or which expire within 49 days after the date as of which such valuation is
made shall be valued at the lesser of (a) Discounted Value and (b) the exercise
price of the call option written by the Fund; (ii) assets subject to call
options written by the Fund not meeting the requirements of clause (i) of this
sentence shall have no value; (iii) assets subject to put options written by
the Fund shall be valued at the lesser of (A) the exercise price and (B) the
Discounted Value of the subject security; (iv) futures contracts shall be
valued at the lesser of (A) settlement price and (B) the Discounted Value of
the subject security, provided that, if a contract matures within 49 days after
the date as of which such valuation is made, where the Fund is the seller the
contract may be valued at the settlement price and where the Fund is the buyer
the contract may be valued at the Discounted Value of the subject securities;
and (v) where delivery may be made to the Fund with any security of a class of
securities, the Fund shall assume that it will take delivery of the security
with the lowest Discounted Value.
For purposes of determining whether the Fund has Moody's Eligible Assets
with an aggregate Discounted Value that equals or exceeds the MuniPreferred
Basic Maintenance Amount, the following amounts shall be subtracted from the
aggregate Discounted Value of the Moody's Eligible Assets held by the Fund:
(i) 10% of the exercise price of a written call option; (ii) the exercise price
of any written put option; (iii) where the Fund is the seller under a futures
contract, 10% of the settlement price of the futures contract; (iv) where the
Fund is the purchaser under a futures contract, the settlement price of assets
purchased under such futures contract; (v) the settlement price of the
underlying futures contract if the Fund writes put options on a futures
contract; and (vi) 105% of the Market Value of the underlying futures
contracts if the Fund writes call options on a futures contract and does not
own the underlying contract.
(c) For so long as any MuniPreferred are rated by Moody's, the Fund will
not enter into any contract to purchase securities for a fixed price at a
future date beyond customary settlement time (other than such contracts that
constitute Moody's Hedging Transactions that are permitted under Section 13(b)
of this Statement), except that the Fund may enter into such contracts to
purchase newly-issued securities on the date such securities are issued
("Forward Commitments"), subject to the following limitation:
(i) the Fund will maintain in a segregated account with its custodian
cash, cash equivalents or short-term, fixed-income securities rated P-1,
MTG-1 or VMIG-1 by Moody's and maturing prior to the date of the Forward
Commitment with a Market Value that equals or exceeds the amount of the
Fund's obligations under any Forward Commitments to which it is from time
to time a party or long-term fixed income securities with a Discounted
Value that equals or exceeds the amount of the Fund's obligations under
any Forward Commitment to which it is from time to time a party; and
(ii) the Fund will not enter into a Forward Commitment unless, after
giving effect thereto, the Fund would continue to have Moody's Eligible
Assets with an aggregate Discounted Value equal to or greater than the
MuniPreferred Maintenance Amount.
For purposes of determining whether the Fund has Moody's Eligible Assets
with an aggregate Discounted Value that equals or exceeds the MuniPreferred
Basic Maintenance Amount, the Discounted Value of all Forward Commitments to
which the Fund is a party and of all securities deliverable to the Fund pursuant
to such Forward Commitments shall be zero.
A-48
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APPENDIX B
RATINGS OF INVESTMENTS
Standard & Poor's Corporation--A brief description of the applicable
Standard & Poor's Corporation ("S&P") rating symbols and their meanings (as
published by S&P) follows:
LONG TERM DEBT
An S&P corporate or municipal debt rating is a current assessment of
the creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The debt rating is not a recommendation to purchase, sell, or hold a
security, 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 issuer or
obtained by S&P from other sources it considers reliable. S&P 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:
1. Likelihood of default--capacity and willingness of the obligor
as to the timely payment of interest and repayment of
principal in accordance with the terms of the obligation;
2. Nature of and provisions of the obligation;
3. 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.
INVESTMENT GRADE
AAA Debt rated "AAA" has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.
AA Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only
in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
SPECULATIVE GRADE RATING
Debt rated "BB", "B", "CCC", "CC" and "C" is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. "BB" indicates the least degree of speculation and
"C" the highest. While such debt will likely have some quality and protective
characteristics these are outweighed by major uncertainties or major exposures
to adverse conditions.
B-1
<PAGE> 128
BB Debt rated "BB" has less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to inadequate capacity to
meet timely interest and principal payments. The "BB" rating
category is also used for debt subordinated to senior debt
that is assigned an actual or implied "BBB--" rating.
B Debt rated "B" has a greater vulnerability to default but
currently has the capacity to meet interest payments and
principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay
interest and repay principal.
The "B" rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied "BB" or "BB--" rating.
CCC Debt rated "CCC" has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and
repayment of principal. In the event of adverse business,
financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal.
The "CCC" rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied "B" or "B--" rating.
CC The rating "CC" typically is applied to debt subordinated to
senior debt that is assigned an actual or implied "CCC" debt
rating.
C The rating "C" typically is applied to debt subordinated to
senior debt which is assigned an actual or implied "CCC--"
debt rating. The "C" rating may be used to cover a situation
where a bankruptcy petition has been filed, but debt service
payments are continued.
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 S&P 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 if debt service
payments 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.
The 'c' subscript is used to provide additional information to
investors that the bank may terminate its obligation to purchase tendered bonds
if the long-term credit rating of the issuer is below an investment-grade level
and/or the issuer's bonds are deemed taxable.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project financed by the debt being rated and indicates that payment of debt
service requirements is largely or entirely dependent upon the successful and
timely completion of the project. This rating, however, while addressing credit
quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise judgment with respect to such likelihood and risk.
* Continuance of the rating is contingent upon S&P's receipt of an
executed copy of the escrow agreement or closing documentation
confirming investments and cash flow.
B-2
<PAGE> 129
B-3 The 'r' highlights derivative, hybrid, and certain other
obligations that Standard & Poor's believes may experience
high volatility or high variability in expected returns as a
result of noncredit risks. Examples of such obligations are
securities with principal or interest return indexed to
equities, commodities, or currencies; certain swaps and
options; and interest-only and principal-only mortgage
securities. The absence of an 'r' symbol should not be taken
as an indication that an obligation will exhibit no volatility
or variability in total return.
NR Indicates no rating has been requested, that there is
insufficient information on which to base a rating, or that
S&P does not rate a particular type of obligation as a matter
of policy.
MUNICIPAL NOTES
An S&P note rating reflects the liquidity concerns and market access
risks unique to notes. Notes due in 3 years or less will likely receive a note
rating. Notes maturing beyond 3 years will most likely receive a long-term debt
rating. The following criteria will be used in making that assessment:
-- 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 Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
SP-3 Speculative capacity to pay principal and interest.
A note rating is not a recommendation to purchase, sell, or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P 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.
COMMERCIAL PAPER
An S&P commercial paper 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 adequate capacity for
timely payment. They are, however, somewhat 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 S&P believes that such payments will be
made during such grace period.
B-3
<PAGE> 130
A commercial rating is not a recommendation to purchase, sell, or hold
a security inasmuch as it does not comment as to market price or suitability for
a particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P 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.
Moody's Investors Service Inc.--A brief description of the applicable
Moody's Investors Service, Inc. ("Moody's") rating symbols and their meanings
(as published by Moody's) follows:
MUNICIPAL BONDS
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 payments 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.
Con(...) Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of
projects under construction, (b) earnings of projects
unseasoned in operation experience, (c) rentals which begin
B-4
<PAGE> 131
when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating
denotes probable credit stature upon completion of
construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic
rating category from Aa to B in the public finance sectors. The
modifier 1 indicates that the issuer is in the higher end of its letter
rating category; the modifier 2 indicates a mid-range ranking; the
modifier 3 indicates that the issuer is in the lower end of the letter
ranking category.
SHORT-TERM LOANS
MIG 1/VMIG 1 This designation denotes best quality. There is
present strong protection by established cash flows,
superior liquidity support or demonstrated broadbased
access to the market for refinancing.
MIG 2/VMIG 2 This designation denotes high quality. Margins of
protection are ample although not so large as in the
preceding group.
MIG 3/VMIG 3 This designation denotes favorable quality. All
security elements are accounted for but there is
lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to
be less well-established.
MIG 4/VMIG 4 This designation denotes adequate quality. Protection
commonly regarded as required of an investment
security is present and although not distinctly or
predominantly speculative, there is specific risk.
S.G. This designation denotes speculative quality. Debt
instruments in this category lack margins of
protection.
COMMERCIAL PAPER
Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
-- Leading market posit-ions in well-established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structures with moderate
reliance on debt and ample asset protection.
-- Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
-- 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 capacity 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, will 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 related supporting institutions) have an
acceptable capacity 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 the
requirement for relatively high financial leverage. Adequate alternate
liquidity is maintained.
B-5
<PAGE> 132
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
Fitch IBCA, Inc.--A brief description of the applicable Fitch IBCA,
Inc. ("Fitch") ratings symbols and meanings (as published by Fitch) follows:
LONG-TERM CREDIT RATINGS
Investment Grade
AAA Highest credit quality. 'AAA' ratings denote the lowest
expectation of credit risk. They are assigned only in case of
exceptionally strong capacity for timely payment of financial
commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events.
AA Very high credit quality. 'AA' ratings denote a very low
expectation of credit risk. They indicate very strong capacity
for timely payment of financial commitments. This capacity is
not significantly vulnerable to foreseeable events.
A High credit quality. 'A' ratings denote a low expectation of
credit risk. The capacity for timely payment of financial
commitments is considered strong. This capacity may,
nevertheless, be more vulnerable to changes in circumstances
or in economic conditions than is the case for higher ratings.
BBB Good credit quality. 'BBB' ratings indicate that there is
currently a low expectation of credit risk. The capacity for
timely payment of financial commitments is considered
adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity. This is
the lowest investment-grade category.
Speculative Grade
BB Speculative. 'BB' ratings indicate that there is
a possibility of credit risk developing,
particularly as the result of adverse economic
change over time; however, business or financial
alternatives may be available to allow financial
commitments to be met. securities rated in this
category are not investment grade.
B Highly speculative. 'B' ratings indicate that
significant credit risk is present, but a limited
margin of safety remains. Financial commitments
are currently being met; however, capacity for
continued payment is contingent upon a sustained,
favorable business and economic environment.
CCC, CC, C High default risk. Default is a real possibility.
Capacity for meeting financial commitments is
solely reliant upon sustained, favorable business
or economic developments. A 'CC' rating indicates
that default of some kind appears probable. 'C'
ratings signal imminent default.
DDD, DD, and D Default. The ratings of obligations in this
category are based on their prospects or
achieving partial or full recovery in a
reorganization or liquidation of the obligor.
While expected recovery values are highly
speculative and cannot be estimated with any
precision, the following serve as general
guidelines. 'DDD' obligations have the highest
potential for recovery, around 90%-100% of
outstanding amounts and accrued interest. 'DD'
indicates potential recoveries in the range of
50%-90%, and 'D' the lowest recovery potential,
i.e., below 50%.
Entities rated in this category have defaulted on
some or all of their obligations. Entities rated
'DDD' have the highest prospect for resumption of
performance or continued operation with or
without a formal reorganization process. Entities
rated 'DD' and 'D' are generally undergoing a
formal reorganization or liquidation process;
those rated 'DD' are likely to satisfy a higher
portion of their outstanding obligations, while
entities rated 'D' have a poor prospect for
repaying all obligations.
B-6
<PAGE> 133
SHORT-TERM CREDIT RATINGS
A short-term rating has a time horizon of less than 12 months for most
obligations, or up to three years for U.S. public finance securities, and thus
places greater emphasis on the liquidity necessary to meet financial commitments
in a timely manner.
Fl Highest credit quality. Indicates the strongest capacity for
timely payment of financial commitments; may have an added "+"
to denote any exceptionally strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely
payment of financial commitments, but the margin of safety is
not as great as in the case of the higher ratings.
F3 Fair credit quality. The capacity for timely payment of
financial commitments is adequate; however, near-term adverse
changes could result In a reduction to non-investment grade.
B Speculative. Minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes
in financial and economic conditions. C High default risk.
Default is a real possibility. Capacity for meeting financial
commitments is solely reliant upon a sustained, favorable
business and economic environment.
D Default. Denotes actual or imminent payment default.
Notes:
"+" or "-" may be appended to a rating to denote relative status within
major rating categories. such suffixes are not added to the 'AAA' long-term
rating category, to categories below 'CCC', or to short-term ratings other than
'F1'.
'NRI' indicates that Fitch IBCA does not rate the issuer or issue in
question.
'Withdrawn': A rating is withdrawn when Fitch IBCA deems the amount of
information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.
Rating Alert: Ratings are placed on RatingAlert to notify investors
that there is a reasonable probability of a rating change and the likely
direction of such change. These are designated as "Positive", indicating a
potential upgrade, "Negative", for a potential downgrade, or "Evolving", if
ratings may be raised, lowered or maintained. RatingAlert is typically resolved
over a relatively short period.
B-7
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APPENDIX C
HEDGING STRATEGIES AND RISKS
Set forth below is additional information regarding the various
defensive hedging techniques.
FUTURES AND INDEX TRANSACTIONS
Financial Futures
A financial future is an agreement between two parties to buy and sell
a security for a set price on a future date. They have been designed by boards
of trade which have been designated "contracts markets" by the Commodity Futures
Trading Commission (" CFTC").
The purchase of financial futures is for the purpose of hedging a
Fund's existing or anticipated holdings of long-term debt securities. When a
Fund purchases a financial future, it deposits in cash or securities an "initial
margin" of between 1% and 5% of the contract amount. Thereafter, the Fund's
account is either credited or debited on a daily basis in correlation with the
fluctuation in price of the underlying future or other requirements imposed by
the exchange in order to maintain an orderly market. The Fund must make
additional payments to cover debits to its account and has the right to withdraw
credits in excess of the liquidity, the Fund may close out its position at any
time prior to expiration of the financial future by taking an opposite position.
At closing a final determination of debits and credits is made, additional cash
is paid by or to the Fund to settle the final determination and the Fund
realizes a loss or gain depending on whether on a net basis it made or received
such payments.
The sale of financial futures is for the purpose of hedging a Fund's
existing or anticipated holdings of long-term debt securities. For example, if a
Fund owns long-term bonds and interest rates were expected to increase, it might
sell financial futures. If interest rates did increase, the value of long-term
bonds in the Fund's portfolio would decline, but the value of the Fund's
financial futures would be expected to increase at approximately the same mate
thereby keeping the net asset value of the Fund from declining as much as it
otherwise would have.
Among the risks associated with the use of financial futures by the
Funds as a hedging device, perhaps the most significant is the imperfect
correlation between movements in the price of the financial futures and
movements in the price of the debt securities which are the subject of the
hedge.
Thus, if the price of the financial future moves less or more than the
price of the securities which are the subject of the hedge, the hedge will not
be fully effective. To compensate for this imperfect correlation, the Fund may
enter into financial futures in a greater dollar amount than the dollar amount
of the securities being hedged if the historical volatility of the prices of
such securities has been greater than the historical volatility of the financial
futures. Conversely, the Fund may enter into fewer financial futures if the
historical volatility of the price of the securities being hedged is less than
the historical volatility of the financial futures.
The market prices of financial futures may also be affected by factors
other than interest rates. One of these factors is the possibility that rapid
changes in the volume of closing transactions, whether due to volatile markets
or movements by speculators, would temporarily distort the normal relationship
between the markets in the financial future and the chosen debt securities. In
these circumstances as well as in periods of rapid and large price movements.
The Fund might find it difficult or impossible to close out a particular
transaction.
OPTIONS ON FINANCIAL FUTURES
The Fund may also purchase put or call options on financial futures
which are traded on a U.S. Exchange or board of trade and enter into closing
transactions with respect to such options to terminate an existing position.
Currently, options can be purchased with respect to financial futures on U.S.
Treasury Bonds on The Chicago Board of Trade. The purchase of put options on
financial futures is analogous to the purchase of put options by a Fund on its
portfolio securities to hedge against the risk of rising interest rates. As with
options on debt securities, the holder of an option may terminate his position
by selling an option of the same Fund. There is no guarantee that such closing
transactions can be effected.
C-1
<PAGE> 135
INDEX CONTRACTS
INDEX FUTURES
A tax-exempt bond index which assigns relative values to the tax-exempt
bonds included in the index is traded on the Chicago Board of Trade. The index
fluctuates with changes in the market values of all tax-exempt bonds included
rather than a single bond. An index future is a bilateral agreement pursuant to
which two parties agree to take or make delivery of an amount of cash-rather
than any security-equal to specified dollar amount times the difference between
the index value at the close of the last trading day of the contract and the
price at which the index future was originally written. Thus, an index future is
similar to traditional financial futures except that settlement is made in cash.
INDEX OPTIONS
The Fund may also purchase put or call options on U.S. Government or
tax-exempt bond index futures and enter into closing transactions with respect
to Such options to terminate an existing position. Options on index futures are
similar to options on debt instruments except that an option on an index future
gives the purchaser the right, in return for the premium paid, to assume a
position in an index contract rather than an underlying security at a specified
exercise price at any time during the period of the option. Upon exercise of the
option, the delivery of the futures position by the writer of the option to the
holder of the option will be accompanied by delivery of the accumulated balance
of the writer's futures margin account which represents the amount by which the
market price of the index futures contract, at exercise, is less than the
exercise price of the option on the index future.
Bond index futures and options transactions would be subject to risks
similar to transactions in financial futures and options thereon as described
above. No series will enter into transactions in index or financial futures or
related options unless and until, in the Adviser's opinion, the market for such
instruments has developed sufficiently.
C-2
<PAGE> 136
PART C - OTHER INFORMATION
Item 24: Financial Statements and Exhibits
1. Financial Statements:
Statement of Net Assets, May 21, 1999 (audited)
Statement of Net Assets, June 28, 1999 (unaudited)
Statement of Operations from May 26, 1999 (commencement of
operations) to June 28, 1999 (unaudited)
Statement of Changes in Net Assets from May 26, 1999
(commencement of operations) to June 28,
1999(unaudited)
Portfolio of Investments, June 28, 1999 (unaudited)
2. Exhibits:
a.1 Agreement and Declaration of Trust dated December 1, 1998.(1)
a.2 Certificate of Amendment to Declaration of Trust dated April 9, 1999.(2)
b. By-laws of Registrant.(1)
c. None.
d. None.
e. Dividend Investment Plan.(3)
f. None.
g. Form of Investment Management Agreement between Registrant and Nuveen
Advisory Corp.(2)
h. Form of Underwriting Agreement.*
i. Deferred Compensation Plan for Non-Employee Trustees.(2)
j. Form of Exchange Traded Fund Custody Agreement between Registrant and
The Chase Manhattan Bank.(2)
k.1 Form of Shareholder Transfer Agency Agreement between Registrant and
Chase Global Funds Services Company.(2)
k.2 Form of Expense Reimbursement Agreement between Registrant and Nuveen
Advisory Corp.(2)
k.3 Form of Auction Agency Agreement between the Registrant and Bankers
Trust Company as to the Registrant's MuniPreferred Shares. *
k.4 Form of Broker-Dealer Agreement as to the Registrant's MuniPreferred
Shares.*
k.5 Form of DTC Representations Letter as to the Registrant's MuniPreferred
Shares.*
l.1 Opinion and consent of Vedder, Price, Kaufman & Kammholz.*
l.2 Opinion and consent of Bingham Dana LLP.*
1.3 Consent of Orrick, Herrington & Sutcliffe LLP.*
1.4 Form of Tax Opinion of Vedder, Price, Kaufman & Kammholz
m. None.
n. Consent of Ernst & Young LLP.*
o. None.
p. Subscription Agreement of Nuveen Advisory Corp. dated April 12, 1999.(4)
q. None.
r. None.
s. Powers of Attorney.(2)
- ------------------
*Filed herewith.
(1) Incorporated herein by reference to the initial Registrant's
Registration Statement on Form N-2, File No. 333-69035, filed on
December 16, 1998.
(2) Incorporated herein by reference to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-2, File No. 333-69035,
filed on April 16, 1999.
(3) Incorporated herein by reference to Pre-Effective Amendment No. 3 to
Registrant's Registration Statement on Form N-2, File No. 333-69035,
filed on May 25, 1999.
(4) Incorporated hereby by reference to Post-Effective Amendment No. 1 to
Registrant's Registration Statement filed on Form N-2, File No.
333-69035, filed on May 26, 1999.
Part C-1
<PAGE> 137
Item 25: Marketing Arrangements
See Sections 2 and 3 of the Underwriting Agreement filed as Exhibit h
to this Registration Statement.
Item 26: Other Expenses of Issuance and Distribution
Securities and Exchange Commission fees $ 48,650
Printing and engraving expenses 95,000
Legal fees 50,000
Accounting expenses 7,000
Ratings Agency Fees 50,000
Miscellaneous expenses 7,500
-------
Total 258,150
Item 27: Persons Controlled by or under Common Control with Registrant
Not applicable.
Item 28: Number of Holders of Securities
At July 1, 1999
Title of Class Number of Record Holders
Common Shares, $.01 par value 4
Item 29: Indemnification
Section 4 of Article XII of the Registrant's Declaration of Trust
provides as follows:
Subject to the exceptions and limitations contained in this Section 4,
every person who is, or has been, a Trustee, officer, employee or agent
of the Trust, including persons who serve at the request of the Trust
as directors, trustees, officers, employees or agents of another
organization in which the Trust has an interest as a shareholder,
creditor or otherwise (hereinafter referred to as a "Covered Person"),
shall be indemnified by the Trust to the fullest extent permitted by
law against liability and against all expenses reasonably incurred or
paid by him in connection with any claim, action, suit or proceeding in
which he becomes involved as a party or otherwise by virtue of his
being or having been such a Trustee, director, officer, employee or
agent and against amounts paid or incurred by him in settlement
thereof.
No indemnification shall be provided hereunder to a Covered Person:
(a) against any liability to the Trust or its Shareholders by
reason of a final adjudication by the court or other body
before which the proceeding was brought that he engaged in
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office;
(b) with respect to any matter as to which he shall have been
finally adjudicated not to have acted in good faith in the
reasonable belief that his action was in the best interests of
the Trust; or (c) in the event of a settlement or other
disposition not involving a final adjudication (as provided in
paragraph (a) or (b)) and resulting in a payment by a Covered
Person, unless there has been either a determination that such
Covered Person did not engage in willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office by the court or other
body approving the settlement or other disposition or a
reasonable determination, based on a review of readily
available facts (as opposed to a full trial-type inquiry),
that he did not engage in such conduct: (i) by a vote of a
majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees then
in office act on the matter); or (ii) by written opinion of
independent legal counsel.
Part C-2
<PAGE> 138
The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any other
rights to which any Covered Person may now or hereafter be entitled, shall
continue as to a person who has ceased to be such a Covered Person and shall
inure to the benefit of the heirs, executors and administrators of such a
person. Nothing contained herein shall affect any rights to indemnification to
which Trust personnel other than Covered Persons may be entitled by contract or
otherwise under law.
Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding subject to a claim for indemnification under this
Section 4 shall be advanced by the Trust prior to final disposition thereof upon
receipt of an undertaking by or on behalf of the recipient to repay such amount
if it is ultimately determined that he is not entitled to indemnification under
this Section 4, provided that either:
(a) such undertaking is secured by a surety bond or some other
appropriate security or the Trust shall be insured against
losses arising out of any such advances; or
(b) a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees
then in office act on the matter) or independent legal counsel
in a written opinion shall determine, based upon a review of
the readily available facts (as opposed to a full trial- type
inquiry), that there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Section 4, a "Disinterested Trustee" is one (x) who is
not an Interested Person of the Trust (including, as such Disinterested Trustee,
anyone who has been exempted from being an Interested Person by any rule,
regulation or order of the Commission), and (y) against whom none of such
actions, suits or other proceedings or another action, suit or other proceeding
on the same or similar grounds is then or has been pending.
As used in this Section 4, the words "claim," "action," "suit" or
"proceeding" shall apply to all claims, actions, suits, proceedings (civil,
criminal, administrative or other, including appeals), actual or threatened; and
the words "liability" and "expenses" shall include without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement, fines, penalties
and other liabilities.
The trustees and officers of the Registrant are covered by Investment
Trust Errors and Omission policies in the aggregate amount of $20,000,000 (with
a maximum deductible of $500,000) against liability and expenses of claims of
wrongful acts arising out of their position with the Registrant, except for
matters which involve willful acts, bad faith, gross negligence and willful
disregard of duty (i.e., where the insured did not act in good faith for a
purpose he or she reasonably believed to be in the best interest of Registrant
or where he or she had reasonable cause to believe this conduct was unlawful).
Section 8 of the Underwriting Agreement filed as Exhibit h to this
Registration Statement provides for each of the parties thereto, including the
Registrant and the Underwriters, to indemnify the others, their trustees,
directors, certain of their officers, trustees, directors and persons who
control them against certain liabilities in connection with the offering
described herein, including liabilities under the federal securities laws.
Item 30: Business and Other Connections of Investment Adviser
Nuveen Advisory Corp. serves as investment adviser to the following
open-end management type investment companies: Nuveen Flagship Multistate Trust
I, Nuveen Flagship Multistate II, Nuveen Flagship Multistate Trust III, Nuveen
Flagship Multistate Trust IV, Nuveen Flagship Municipal Trust, Nuveen California
Tax Free Fund, Inc., Nuveen Tax-Free Money Market Fund, Inc., Nuveen Tax-Exempt
Money Market Fund, Inc., Nuveen Tax-Free Reserves, Inc. and Nuveen Taxable Funds
Inc., Nuveen Advisory Corp. also serves as investment adviser to the following
closed-end management type investment companies other than the Registrant:
Nuveen Municipal Value Fund, Inc., Nuveen California Municipal Value Fund, Inc.,
Nuveen New York Municipal Value Fund, Inc., Nuveen Municipal Income Fund, Inc.,
Nuveen Premium Income Municipal Fund, Inc., Nuveen Performance Plus Municipal
Fund, Inc., Nuveen
Part C-3
<PAGE> 139
California Performance Plus Municipal Fund, Inc., Nuveen New York Performance
Plus Municipal Fund, Inc., Nuveen Municipal Advantage Fund, Inc., Nuveen
Municipal Market Opportunity Fund, Inc., Nuveen California Municipal Market
Opportunity Fund, Inc., Nuveen New York Municipal Market Opportunity Fund, Inc.,
Nuveen Investment Quality Municipal Fund, Inc., Nuveen California Investment
Quality Municipal Fund, Inc., Nuveen New York Investment Quality Municipal Fund,
Inc., Nuveen Insured Quality Municipal Fund, Inc., Nuveen Florida Investment
Quality Municipal Fund, Nuveen New Jersey Investment Quality Municipal Fund,
Inc., Nuveen Pennsylvania Investment Quality Municipal Fund, Nuveen Select
Quality Municipal Fund, Inc., Nuveen California Select Quality Municipal Fund,
Inc., Nuveen New York Select Quality Municipal Fund, Inc., Nuveen Quality Income
Municipal Fund, Inc., Nuveen Insured Municipal Opportunity Fund, Inc., Nuveen
Florida Quality Income Municipal Fund, Nuveen Michigan Quality Income Municipal
Fund, Inc., Nuveen Ohio Quality Income Municipal Fund, Inc., Nuveen Texas
Quality Income Municipal Fund, Nuveen California Quality Income Municipal Fund,
Inc., Nuveen New York Quality Income Municipal Fund, Inc., Nuveen Premier
Municipal Income Fund, Inc., Nuveen Premier Insured Municipal Income Fund, Inc.,
Nuveen Insured California Premium Income Municipal Fund, Inc., Nuveen Insured
New York Premium Income Municipal Fund, Inc., Nuveen Premium Income Municipal
Fund 2, Inc., Nuveen Select Maturities Municipal Fund, Nuveen Arizona Premium
Income Municipal Fund, Inc., Nuveen Insured Florida Premium Income Municipal
Fund, Nuveen Michigan Premium Income Municipal Fund, Inc., Nuveen New Jersey
Premium Income Municipal Fund, Inc., Nuveen Premium Income Municipal Fund 4,
Inc., Nuveen Insured California Premium Income Municipal Fund 2, Inc., Nuveen
Insured New York Premium Income Municipal Fund 2, Nuveen New Jersey Premium
Income Municipal Fund 2, Nuveen Pennsylvania Premium Income Municipal Fund 2,
Nuveen Maryland Premium Income Municipal Fund, Nuveen Massachusetts Premium
Income Municipal Fund, Nuveen Virginia Premium Income Municipal Fund, Nuveen
Washington Premium Income Municipal Fund, Nuveen Connecticut Premium Income
Municipal Fund, Nuveen Georgia Premium Income Municipal Fund, Nuveen Missouri
Premium Income Municipal Fund, Nuveen North Carolina Premium Income Municipal
Fund, Nuveen California Premium Income Municipal Fund, Nuveen Insured Premium
Income Municipal Fund 2, Nuveen New York Municipal Advantage Fund and Nuveen
California Municipal Advantage Fund. Nuveen Advisory Corp. has no other clients
or business at the present time. For a description of other business,
profession, vocation or employment of a substantial nature in which any director
or officer of the investment adviser has engaged during the last two years for
his account or in the capacity of director, officer, employee, partner or
trustee, see the descriptions under "Management of the Fund" in Part A of this
Registration Statement.
Item 31: Location of Accounts and Records
Nuveen Advisory Corp., 333 West Wacker Drive, Chicago, Illinois 60606,
maintains the Declaration of Trust, By-Laws, minutes of trustees and
shareholders meetings and contracts of the Registrant and all Advisory material
of the investment adviser.
The Chase Manhattan Bank, 4 New York Plaza, New York, New York
10004-2413 maintains all general and subsidiary ledgers, journals, trial
balances, records of all portfolio purchases and sales, and all other required
records not maintained by Nuveen Advisory Corp. or Chase Global Funds Services
Company.
Chase Global Funds Services Company, P.O. Box 5186, Bowling Green
Station, New York, NY 10275-0672 (regular mail) or 4 New York Plaza, 6th Floor,
New York, NY 10004, maintains all the required records in its capacity as
transfer and dividend paying agent for the Registrant.
Item 32: Management Services
Not applicable.
Item 33: Undertakings
1. Registrant undertakes to suspend the offering of its shares until it
amends its prospectus if (1) 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
(2) the net asset value increases to an amount greater than its net proceeds as
stated in the prospectus.
Part C-4
<PAGE> 140
2. Not applicable.
3. Not applicable.
4. Not applicable.
5. The Registrant undertakes that:
a. For purposes 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 under Rule 497(h) under the
Securities Act of 1933 shall be deemed to be part of the
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 the securities at that time shall
be deemed to be the 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, any Statement of Additional
Information.
Part C-5
<PAGE> 141
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 this City of Chicago, and State of Illinois, on the 12th day of
July, 1999.
NUVEEN CALIFORNIA DIVIDEND ADVANTAGE
MUNICIPAL FUND
/s/ Gifford R. Zimmerman
----------------------------------------
Gifford R. Zimmerman
Vice President and Secretary
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 date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Stephen D. Foy Vice President and Controller (Principal July 12, 1999
- ----------------------------- Financial and Accounting Officer)
Stephen D. Foy
- ----------------------------- Chairman of the Board and Trustee July 12, 1999
Timothy R. Schwertfeger (Principal Executive Officer)
- ----------------------------- Trustee July 12, 1999
Robert P. Bremner
- ----------------------------- Trustee July 12, 1999
Lawrence H. Brown
- ----------------------------- Trustee July 12, 1999
Anne E. Impellizzeri
- ----------------------------- Trustee July 12, 1999
Peter R. Sawers
- ----------------------------- Trustee July 12, 1999
William J. Schneider
- ----------------------------- Trustee July 12, 1999
Judith M. Stockdale
</TABLE>
By: /s/ Gifford R. Zimmerman
---------------------------------
Gifford R. Zimmerman
Attorney-in Fact
Original powers of attorney authorizing Alan G. Berkshire and Gifford
R. Zimmerman, among others, to execute this Registration Statement, and
Amendments thereto, for each of the trustees of Registrant on whose behalf this
Registration Statement is filed, have been executed and previously filed as an
exhibit.
Part C-6
<PAGE> 142
INDEX TO EXHIBITS
h. Form of Underwriting Agreement.
k.3 Form of Auction Agency Agreement between the Registrant and Bankers
Trust Company as to the Registrant's MuniPreferred Shares.
k.4 Form of Broker-Dealer Agreement as to the Registrant's MuniPreferred
Shares.
k.5 Form of DTC Representations Letter as to the Registrant's MuniPreferred
Shares.
1.1 Opinion and consent of Vedder, Price, Kaufman & Kammholz.
1.2 Opinion and consent of Bingham Dana LLP.
1.3 Consent of Orrick, Herrington & Sutcliffe LLP.
1.4 Form of Tax Opinion of Vedder, Price, Kaufman & Kammholz
n. Consent of Ernst & Young LLP.
Part C-7
<PAGE> 1
EXHIBIT n
Municipal Auction Rate Cumulative Preferred Shares
NUVEEN CALIFORNIA DIVIDEND ADVANTAGE MUNICIPAL FUND
3,400 Shares, Series TH
3,400 Shares, Series F
Liquidation Preference $25,000 Per Share
UNDERWRITING AGREEMENT
July 12, 1999
SALOMON SMITH BARNEY INC.
c/o Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
Nuveen California Dividend Advantage Municipal Fund, a Massachusetts
business trust (the "Fund"), proposes, upon the terms and conditions set forth
herein, to issue and sell an aggregate of 3,400 shares of its Municipal Auction
Rate Cumulative Preferred Shares, Series TH and 3,400 of its Municipal Auction
Rate Cumulative Preferred Shares, Series F (collectively, the "MuniPreferred"),
each with a par value of $0.01 per share, with a liquidation preference of
$25,000 per share (the shares of MuniPreferred to be sold hereby are referred to
herein, collectively, as the "Shares"). The Shares will be authorized by, and
subject to the terms and conditions of, the Statement Establishing and Fixing
the Rights and Preferences of Municipal Auction Rate Cumulative Preferred Shares
(the "Statement") in the form filed as an exhibit to the registration statement
referred to in Section 1 of this agreement. Nuveen Advisory Corp., a Delaware
corporation (the "Adviser"), is the Fund's investment adviser. This is to
confirm the agreement concerning the purchase of the Shares from the Fund by
Salomon Smith Barney Inc. (the "Representative") and Salomon Smith Barney Inc.,
A.G. Edwards & Sons, Inc., Deutsche Bank Securities Inc., Goldman, Sachs & Co.,
John Nuveen & Co. Incorporated, PaineWebber Incorporated and Prudential
Securities Incorporated (each an "Underwriter," and together with the
Representative, the "Underwriters"). The Representative has been duly authorized
by each of the Underwriters to execute this Underwriting
<PAGE> 2
Agreement (the "Agreement") on behalf of such Underwriters and has been duly
authorized to act hereunder on behalf of each of the Underwriters.
The Fund has entered into an investment management agreement with the
Adviser, an exchange traded fund custody agreement with United States Trust
Company of New York, a fund accounting agreement with United States Trust
Company of New York and an auction agency agreement, including the Basic Terms
in respect thereof, with Bankers Trust Company.
Such agreements are hereinafter referred to as the "Investment
Management Agreement," the "Custodian Agreement," the "Fund Accounting
Agreement" and the "Auction Agency Agreement," respectively. Collectively, the
Investment Management Agreement, the Custodian Agreement, the Fund Accounting
Agreement and the Auction Agency Agreement are hereinafter referred to as the
"Fund Agreements."
1. REGISTRATION STATEMENT AND PROSPECTUS. The Fund has prepared, in
conformity with the provisions of the Securities Act of 1933, as
amended (the "1933 Act"), the Investment Company Act of 1940, as
amended (the "1940 Act"), and the rules and regulations of the
Securities and Exchange Commission (the "Commission"), promulgated
under the 1933 Act (the "1933 Act Rules and Regulations") and the 1940
Act (the "1940 Act Rules and Regulations" and, together with the 1933
Act Rules and Regulations, the "Rules and Regulations"), a registration
statement on Form N-2 under the 1933 Act and the 1940 Act (the
"registration statement"), including a prospectus relating to the
Shares, and has filed the registration statement and prospectus in
accordance with the 1933 Act and the 1940 Act. The Fund also has filed
a notification of registration of the Fund as an investment company
under the 1940 Act on Form N-8A (the "1940 Act Notification"). The term
"Registration Statement" as used in this Agreement means the
registration statement (including all financial schedules and
exhibits), as amended at the time it becomes effective under the 1933
Act, or, if the registration statement became effective under the 1933
Act prior to the execution of this Agreement, as amended or
supplemented at the time it became effective, prior to the execution of
this Agreement. If it is contemplated, at the time this Agreement is
executed, that a post-effective amendment to the registration statement
will be filed under the 1933 Act and must be declared effective before
the offering of the Shares may commence, the term "Registration
Statement" as used in this Agreement means the registration statement
as amended by said post-effective amendment. If the Fund has filed an
abbreviated registration statement to register an additional amount of
Shares pursuant to Rule 462(b) under the 1933 Act (the "Rule 462
Registration Statement"), then any reference herein to the term
"Registration Statement" shall include such Rule 462 Registration
Statement. The term "Prospectus"
2
<PAGE> 3
as used in this Agreement means the prospectus and statement of
additional information in the forms included in the Registration
Statement or, if the prospectus and statement of additional information
included in the Registration Statement omit information in reliance on
Rule 430A under the 1933 Act Rules and Regulations and such information
is included in a prospectus and statement of additional information
filed with the Commission pursuant to Rule 497 under the 1933 Act, the
term "Prospectus" as used in this Agreement means the prospectus and
statement of additional information in the forms included in the
Registration Statement as supplemented by the addition of the
information contained in the prospectus filed with the Commission
pursuant to Rule 497. The term "Prepricing Prospectus" as used in this
Agreement means the prospectus and statement of additional information
subject to completion in the forms included in the registration
statement at the time of filing of pre-effective amendment no. 1 to the
registration statement under the 1933 Act with the Commission on June
__, 1999, and as such prospectus and statement of additional
information shall have been amended from time to time prior to the date
of the Prospectus, together with any other prospectus and statement of
additional information relating to the Fund other than the Prospectus
approved in writing by or directly or indirectly prepared by the Fund
or the Adviser; it being understood that the definition of Prepricing
Prospectus above shall not include any Prepricing Prospectus prepared
by the Underwriters unless approved in writing by the Fund or Adviser.
The terms "Registration Statement," "Prospectus" and "Prepricing
Prospectus" shall also include any financial statements incorporated by
reference therein. The Fund has furnished the Underwriters with copies
of such Registration Statement, each amendment to such Registration
Statement filed with the Commission and each Prepricing Prospectus.
2. AGREEMENTS TO SELL AND PURCHASE. The Fund hereby agrees, subject to all
the terms and conditions set forth herein, to issue and sell to the
Underwriters, and, upon the basis of the representations, warranties
and agreements of the Fund and the Adviser herein contained and subject
to all the terms and conditions set forth herein, the Underwriters
agree to purchase from the Fund, at a purchase price of $_______ per
Share, the number of shares of MuniPreferred set forth opposite the
names of the Underwriters in Schedule I hereto.
3. TERMS OF PUBLIC OFFERING. The Fund and the Adviser have been advised by
the Underwriters that the Underwriters propose to make a public
offering of the Shares as soon after the Registration Statement and
this Agreement have become effective as in the Underwriters' judgment
is advisable and initially to offer the Shares upon the terms set forth
in the Prospectus.
3
<PAGE> 4
4. DELIVERY OF THE SHARES AND PAYMENT THEREFOR. Delivery to the
Underwriters of and payment for the Shares shall be made at the office
of Vedder, Price, Kaufman & Kammholz, at 8:30 A.M., central standard
time, on July 16, 1999 (the "Closing Date"). The place of closing for
the Shares and the Closing Date may be varied by agreement between the
Representative and the Fund.
A certificate or certificates for the Shares shall be registered in
such names and in such denominations as the Underwriters shall request
prior to 9:30 A.M., New York City time, on the second business day
preceding the Closing Date. Such certificate or certificates shall be
made available to the Underwriters in New York City for inspection not
later than 9:30 A.M., New York City time, on the business day next
preceding the Closing Date. The certificate or certificates evidencing
the Shares shall be delivered to the Underwriters on the Closing Date,
through the facilities of The Depository Trust Company, against payment
of the purchase price therefor in immediately available funds.
5. AGREEMENTS OF THE FUND AND THE ADVISER. The Fund and the Adviser,
jointly and severally, agree with the Underwriters as follows:
1. If, at the time this Agreement is executed and delivered, it
is necessary for the Registration Statement or a
post-effective amendment thereto to be declared effective
under the 1933 Act before the offering of the Shares may
commence, the Fund will endeavor to cause the Registration
Statement or such post-effective amendment to become effective
under the 1933 Act as soon as possible and will advise the
Underwriters promptly and, if requested by the Underwriters,
will confirm such advice in writing when the Registration
Statement or such post-effective amendment has become
effective.
2. The Fund will advise the Underwriters promptly and, if
requested by the Underwriters, will confirm such advice in
writing: (i) of any request made by the Commission for
amendment of or a supplement to the Registration Statement,
any Prepricing Prospectus or the Prospectus (or any amendment
or supplement to any of the foregoing) or for additional
information, (ii) of the issuance by the Commission, the
National Association of Securities Dealers, Inc. (the "NASD"),
any state securities commission, any national securities
exchange, any arbitrator, any court or any other governmental,
regulatory, self-regulatory or administrative agency or any
official of any order suspending the effectiveness of the
Registration Statement, prohibiting or suspending the use of
the Prospectus or any
4
<PAGE> 5
Prepricing Prospectus, or any sales material (as hereinafter
defined), of any notice pursuant to Section 8(e) of the 1940
Act, of the suspension of qualification of the Shares for
offering or sale in any jurisdiction, or the initiation or
contemplated initiation of any proceeding for any such
purposes, (iii) of receipt by the Fund, the Adviser, any
affiliate of the Fund or the Adviser or any representative or
attorney of the Fund or the Adviser of any other material
communication from the Commission, the NASD, any state
securities commission, any national securities exchange, any
arbitrator, any court or any other governmental, regulatory,
self-regulatory or administrative agency or any official
relating to the Fund (if such communication relating to the
Fund is received by such person within three years after the
date of this Agreement), the Registration Statement, the 1940
Act Notification, the Prospectus, any Prepricing Prospectus,
any sales material (as herein defined) (or any amendment or
supplement to any of the foregoing) or this Agreement or any
of the Fund Agreements and (iv) within the period of time
referred to in paragraph (f) below, of any material adverse
change in the condition (financial or other), business,
prospects, properties, net assets or results of operations of
the Fund or the Adviser or of the happening of any other event
which makes any statement of a material fact made in the
Registration Statement or the Prospectus or any sales material
(as herein defined) (or any amendment or supplement to any of
the foregoing) untrue or which requires the making of any
additions to or changes in the Registration Statement or the
Prospectus, or any Prepricing Prospectus or any sales material
(as herein defined) (or any amendment or supplement to any of
the foregoing) in order to state a material fact required by
the 1933 Act, the 1940 Act or the Rules and Regulations to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading or of the necessity to amend or
supplement the Registration Statement, the Prospectus, or any
Prepricing Prospectus or any sales material (as herein
defined) (or any amendment or supplement to any of the
foregoing) to comply with the 1933 Act, the 1940 Act, the
Rules and Regulations or any other law or order of any court
or regulatory body. If at any time the Commission, the NASD,
any state securities commission, any national securities
exchange, any arbitrator, any court or any other governmental,
regulatory, self-regulatory or administrative agency or any
official shall issue any order suspending the effectiveness of
the Registration Statement, prohibiting or suspending the use
of the Prospectus or any sales material (as herein defined)
(or any amendment or supplement to any of the foregoing) or
suspending the qualification of the Shares for offering
5
<PAGE> 6
or sale in any jurisdiction, the Fund will make every
reasonable effort to obtain the withdrawal of such order at
the earliest possible time.
3. The Fund will furnish to the Underwriters, without charge,
three signed copies of the Registration Statement as
originally filed with the Commission and of each amendment
thereto, including financial statements and all exhibits
thereto, and will also furnish to the Underwriters, without
charge, such number of conformed copies of the Registration
Statement as originally filed and of each amendment thereto,
but without exhibits, as the Underwriters may request.
4. The Fund will not (i) file any amendment to the Registration
Statement or make any amendment or supplement to the
Prospectus, or any sales material (as herein defined), of
which the Underwriters shall not previously have been advised
or to which the Underwriters shall reasonably object after
being so advised or (ii) so long as, in the opinion of counsel
for the Underwriters, a Prospectus is required by the 1933 Act
to be delivered in connection with sales by the Underwriters
or any dealer, file any information, documents or reports
pursuant to the Securities Exchange Act of 1934, as amended
(the "1934 Act") or the 1940 Act, without delivering a copy of
such information, documents or reports to the Underwriters
prior to or concurrently with such filing.
5. Prior to the execution and delivery of this Agreement, the
Fund has delivered to the Underwriters, without charge, in
such quantities as the Underwriters have requested, copies of
each form of the Prepricing Prospectus. The Fund consents to
the use, in accordance with the provisions of the 1933 Act and
with the state securities or blue sky laws of the
jurisdictions in which the Shares are offered by the
Underwriters and by dealers, prior to the date of the
Prospectus, of each Prepricing Prospectus so furnished by the
Fund.
6. As soon after the execution and delivery of this Agreement as
possible and thereafter from time to time for such period as
in the opinion of counsel for the Underwriters a prospectus is
required by the 1933 Act to be delivered in connection with
sales by the Underwriters or any dealer, the Fund will
expeditiously deliver to the Underwriters and each dealer,
without charge, as many copies of the Prospectus (and of any
amendment or supplement thereto) as the Underwriters may
request. The Fund consents to the use of the Prospectus (and
of any amendment or supplement thereto) in accordance with the
provisions of the 1933 Act and with the state
6
<PAGE> 7
securities or blue sky laws of the jurisdictions in which the
Shares are offered by the Underwriters and by all dealers to
whom Shares may be sold, both in connection with the offering
and sale of the Shares and for such period of time thereafter
as the Prospectus is required by the 1933 Act to be delivered
in connection with sales by the Underwriters or any dealer. If
during such period of time any event shall occur that in the
judgment of the Fund or in the opinion of counsel for the
Underwriters is required to be set forth in the Registration
Statement or the Prospectus (as then amended or supplemented)
or should be set forth therein in order to make the statements
therein, in the light of the circumstances under which they
were made, not misleading, or if it is necessary to supplement
or amend the Registration Statement or the Prospectus to
comply with the 1933 Act, the 1940 Act, the Rules and
Regulations or any other federal law, rule or regulation, or
any state securities or blue sky disclosure laws, rules or
regulations, the Fund will forthwith prepare and, subject to
the provisions of paragraph (d) above, promptly file with the
Commission an appropriate supplement or amendment thereto, and
will expeditiously furnish to the Underwriters and dealers,
without charge, a reasonable number of copies thereof. In the
event that the Fund and the Representative agree that the
Registration Statement or the Prospectus should be amended or
supplemented, the Fund, if requested by the Representative,
will promptly issue a press release announcing or disclosing
the matters to be covered by the proposed amendment or
supplement.
7. The Fund will make generally available to its security holders
an earnings statement, which need not be audited, covering a
twelve-month period ending not later than 15 months after the
effective date of the Registration Statement as soon as
practicable after the end of such period, which earnings
statement shall satisfy the provisions of Section 11(a) of the
1933 Act and Rule 158 of the 1933 Act Rules and Regulations.
8. The Fund will comply with the undertaking set forth in
paragraph 6 of Item 33 of Part C of the Registration
Statement.
9. During the period of five years hereafter, the Fund will
furnish to the Underwriters (i) as soon as available, a copy
of each report of the Fund mailed to stockholders or filed
with the Commission or furnished to the New York Stock
Exchange (the "NYSE") other than reports on Form N-SAR, and
(ii) from time to time such other information concerning the
Fund as the Underwriters may reasonably request.
7
<PAGE> 8
10. The Fund will apply the net proceeds from the sale of the
Shares substantially in accordance with the description set
forth in the Prospectus and in such a manner as to comply with
the investment objectives, policies and restrictions of the
Fund as described in the Prospectus.
11. The Fund will timely file the requisite copies of the
Prospectus with the Commission pursuant to Rule 497(c) or Rule
497(h) of the 1933 Act Rules and Regulations, whichever is
applicable or, if applicable, will timely file the
certification permitted by Rule 497(j) of the 1933 Act Rules
and Regulations and will advise the Representative of the time
and manner of such filing.
12. Except as provided in this Agreement, the Fund will not sell,
contract to sell, or otherwise dispose of any senior
securities (as defined in the 1940 Act) of the Fund, or grant
any options or warrants to purchase senior securities of the
Fund, for a period of 120 days after the date of the
Prospectus, without the prior written consent of the
Representative.
13. Except as stated in this Agreement and in the Prepricing
Prospectus and Prospectus, neither the Fund nor the Adviser
has taken, nor will it take, directly or indirectly, any
action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price
of any securities issued by the Fund to facilitate the sale or
resale of the Shares.
14. The Fund will use its best efforts to cause the MuniPreferred,
prior to the Closing Date, to be assigned a rating of 'aaa' by
Moody's Investors Service, Inc. ("Moody's) and AAA by Standard
& Poor's Rating Group ("S&P" and, together with Moody's, the
"Rating Agencies").
15. The Fund and the Adviser will use their best efforts to
perform all of the agreements required of them and discharge
all conditions to closing as set forth in this Agreement.
6. REPRESENTATIONS AND WARRANTIES OF THE FUND AND THE ADVISER. The Fund
and the Adviser, jointly and severally, represent and warrant to the
Underwriters that:
1. Each Prepricing Prospectus included as part of the
Registration Statement as originally filed or as part of any
amendment or supplement thereto, or filed pursuant to Rule 497
of the 1933
8
<PAGE> 9
Act Rules and Regulations, complied when so filed in all
material respects with the provisions of the 1933 Act, the
1940 Act and the Rules and Regulations. The Commission has not
issued any order preventing or suspending the use of any
Prepricing Prospectus.
2. The Registration Statement in the form in which it became or
becomes effective and also in such form as it may be when any
post-effective amendment thereto shall become effective and
the Prospectus and any supplement or amendment thereto when
filed with the Commission under Rule 497 of the 1933 Act Rules
and Regulations and the 1940 Act Notification when originally
filed with the Commission and any amendment or supplement
thereto when filed with the Commission, complied or will
comply in all material respects with the provisions of the
1933 Act, the 1940 Act and the Rules and Regulations and did
not or will not at any such times contain an untrue statement
of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements
therein not misleading, except that this representation and
warranty does not apply to statements in or omissions from the
Registration Statement or the Prospectus made in reliance upon
and in conformity with information relating to the
Underwriters furnished to the Fund in writing by or on behalf
of the Underwriters expressly for use therein.
3. All the outstanding shares of the Fund have been duly
authorized and validly issued, are fully paid and
nonassessable and are free of any preemptive or similar
rights; the Shares have been duly authorized and, when issued
and delivered to the Underwriters against payment therefor in
accordance with the terms hereof, will be validly issued,
fully paid and nonassessable and free of any preemptive or
similar rights and will conform to the description thereof in
the Registration Statement and the Prospectus (and any
amendment or supplement to either of them); and the capital
stock of the Fund conforms to the description thereof in the
Registration Statement and the Prospectus (and any amendment
or supplement to either of them).
4. The Fund has been duly organized and is validly existing as a
business trust under the laws of the Commonwealth of
Massachusetts, has full power and authority to own, lease and
operate its properties and to conduct its business as
described in the Registration Statement and the Prospectus
(and any amendment or supplement to either of them), and is
duly registered and qualified to conduct its business and is
in good standing in each jurisdiction or place where the
nature of its properties or the conduct of its
9
<PAGE> 10
business requires such registration or qualification; and the
Fund has no subsidiaries.
5. There are no legal or governmental proceedings pending or, to
the knowledge of the Fund, threatened, against the Fund, or to
which the Fund or any of its properties is subject, that are
required to be described in the Registration Statement or the
Prospectus (and any amendment or supplement to either of
them), but are not described as required, and there are no
agreements, contracts, indentures, leases or other instruments
that are required to be described in the Registration
Statement or the Prospectus (and any amendment or supplement
to either of them), or to be filed as an exhibit to the
Registration Statement that are not described or filed as
required by the 1933 Act, the 1940 Act or the Rules and
Regulations.
6. The Fund is not in violation of its Declaration of Trust (the
"Declaration of Trust"), the Statement or by-laws (the
"By-Laws"), or other organizational documents (together, the
"Organizational Documents") of the Fund or of any law,
ordinance, administrative or governmental rule or regulation
of any decree of the Commission, the NASD, any state
securities commission, any national securities exchange, any
arbitrator, any court or governmental agency, body or official
having jurisdiction over the Fund, or in default in any
material respect in the performance of any obligation,
agreement or condition contained in any bond, debenture, note
or any other evidence of indebtedness or in any material
agreement, indenture, lease or other instrument to which the
Fund is a party or by which it or any of its properties may be
bound.
7. Neither the issuance and sale of the Shares, the execution,
delivery or performance of this Agreement or any of the Fund
Agreements by the Fund, nor the consummation by the Fund of
the transactions contemplated hereby or thereby (A) requires
any consent, approval, authorization or other order of or
registration or filing with, the Commission, the NASD, any
state securities commission, any national securities exchange,
any arbitrator, any court, regulatory body, administrative
agency or other governmental body, agency or official (except
such as may have been obtained prior to the date hereof and
such as may be required for compliance with the state
securities or blue sky laws of various jurisdictions which
have been or will be effected in accordance with this
Agreement) or conflicts or will conflict with or constitutes
or will constitute a breach of,
10
<PAGE> 11
or a default under, the Organizational Documents of the Fund
or (B) conflicts or will conflict with or constitutes or will
constitute a breach of, or a default under, any agreement,
indenture, lease or other instrument to which the Fund is a
party or by which it or any of its properties may be bound, or
violates or will violate any statute, law, regulation or
judgment, injunction, order or decree applicable to the Fund
or any of its properties, or will result in the creation or
imposition of any lien, charge or encumbrance upon any
property or assets of the Fund pursuant to the terms of any
agreement or instrument to which it is a party or by which it
may be bound or to which any of its property or assets is
subject. The Fund is not subject to any order of any court or
of any arbitrator, governmental authority or administrative
agency.
8. The accountants, Ernst & Young, who have certified or shall
certify the financial statements included or incorporated by
reference in the Registration Statement and the Prospectus (or
any amendment or supplement to either of them), are
independent public accountants as required by the 1933 Act,
the 1940 Act and the Rules and Regulations.
9. The financial statements, together with related schedules and
notes, included or incorporated by reference in the
Registration Statement and the Prospectus (and any amendment
or supplement to either of them), present fairly the financial
position, results of operations and changes in financial
position of the Fund on the basis stated or incorporated by
reference in the Registration Statement at the respective
dates or for the respective periods to which they apply; such
statements and related schedules and notes have been prepared
in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, except
as disclosed therein; and the other financial and statistical
information and data included in the Registration Statement
and the Prospectus (and any amendment or supplement to either
of them), are accurately presented and prepared on a basis
consistent with such financial statements and the books and
records of the Fund.
10. The Fund, subject to the Registration Statement having been
declared effective and the filing of the Prospectus pursuant
to Rule 497 under the 1933 Act Rules and Regulations, has
taken all required action under the 1933 Act, the 1940 Act and
the Rules and Regulations to make the public offering and
consummate the sale of the Shares as contemplated by this
Agreement.
11. The execution and delivery of, and the performance by the Fund
of its obligations under, this Agreement and the Fund
Agreements have been
11
<PAGE> 12
duly and validly authorized by the Fund, and this Agreement
and the Fund Agreements have been duly executed and delivered
by the Fund and constitute the valid and legally binding
agreements of the Fund, enforceable against the Fund in
accordance with their terms, except as rights to indemnity and
contribution hereunder and thereunder may be limited by
federal or state securities laws.
12. Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement to either of them),
subsequent to the respective dates as of which such
information is given in the Registration Statement and the
Prospectus (or any amendment or supplement to either of them),
the Fund has not incurred any liability or obligation, direct
or contingent, or entered into any transaction, not in the
ordinary course of business, that is material to the Fund, and
there has not been any change in the capital stock, or
material increase in the short-term debt or long-term debt, of
the Fund, or any material adverse change, or any development
involving or which may reasonably be expected to involve, a
prospective material adverse change, in the condition
(financial or other), business, prospects, properties, net
assets or results of operations of the Fund, whether or not
arising in the ordinary course of business.
13. The Fund has filed all tax returns required to be filed, which
returns are complete and correct in all material respects, and
the Fund is not in material default in the payment of any
taxes which were payable pursuant to said returns or any
assessments with respect thereto.
14. The Fund is registered under the 1940 Act as a closed-end
diversified management investment company, and the 1940 Act
Notification has been duly filed with the Commission and, at
the time of filing thereof and any amendment or supplement
thereto, conformed in all material respects with all
applicable provisions of the 1940 Act and the Rules and
Regulations. The Fund is, and at all times through the
completion of the transactions contemplated hereby, will be,
in compliance in all material respects with the terms and
conditions of the 1933 Act and the 1940 Act. No person is
serving or acting as an officer, director or investment
adviser of the Fund except in accordance with the provisions
of the 1940 Act and the Rules and Regulations and the
Investment Advisers Act of 1940, as amended (the "Advisers
Act"), and the rules and regulations of the Commission
promulgated under the Advisers Act (the "Advisers Act Rules
and Regulations").
12
<PAGE> 13
15. As required by Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), the Fund is currently in
compliance with the requirements to qualify as a regulated
investment company under the Code.
16. The Fund's common shares are duly listed on the New York Stock
Exchange.
17. The Fund has not distributed and, prior to the later to occur
of (i) the Closing Date and (ii) completion of the
distribution of the Shares, will not distribute any offering
material in connection with the offering and sale of the
Shares other than the Registration Statement, the Prepricing
Prospectus, the Prospectus or other materials, if any,
permitted by the 1933 Act, the 1940 Act or the Rules and
Regulations.
18. No holder of any security of the Fund has any right to require
registration of shares of beneficial interest, shares of
MuniPreferred or any other security of the Fund because of the
filing of the Registration Statement or consummation of the
transactions contemplated by this Agreement.
19. The conduct by the Fund of its business (as described in the
Prospectus) does not require it to be the owner, possessor or
licensee of any patents, patent licenses, trademarks, service
marks or trade names which it does not own, possess or
license.
20. Except as stated in this Agreement and in the Prospectus (and
any amendment or supplement thereto), the Fund has not taken,
nor will it take, directly or indirectly, any action designed
to or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any securities
issued by the Fund to facilitate the sale or resale of the
Shares, and the Fund is not aware of any such action taken or
to be taken by any affiliates of the Fund.
21. The Fund has filed in a timely manner each document or report
required to be filed by it pursuant to the 1940 Act, the 1940
Act Rules and Regulations, the 1934 Act and the rules and
regulations of the Commission promulgated thereunder (the
"1934 Act Rules and Regulations"); each such document or
report at the time it was filed conformed to the requirements
of the 1934 Act and the 1934 Act Rules and Regulations; and
none of such documents or reports contained an untrue
statement of any material fact or omitted to state any
material
13
<PAGE> 14
fact required to be stated therein or necessary to make the
statements therein not misleading.
22. All advertising, sales literature or other promotional
material (including "prospectus wrappers," "broker kits,"
"road show slides" and "road show scripts"), whether in
printed or electronic form, authorized in writing by or
prepared by the Fund or the Adviser for use in connection with
the offering and sale of the Shares (collectively, "sales
material") complied and comply in all material respects with
the applicable requirements of the 1933 Act, the 1940 Act, the
Rules and Regulations and the rules and interpretations of the
NASD and no such sales material contained or contains an
untrue statement of a material fact or omitted or omits to
state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
23. This Agreement and each of the Fund Agreements is not
inconsistent in any material respect with any applicable
provision of the 1940 Act, the 1940 Act Rules and Regulations,
the Advisers Act and the Advisers Act Rules and Regulations.
24. The Fund has implemented a comprehensive, detailed program to
analyze and address the risk that its computer hardware and
software may be unable to recognize and properly execute
date-sensitive functions involving certain dates prior to and
any dates after December 31, 1999 (the "Year 2000 Problem")
and has determined that its computer hardware and software are
and will be able to process all date information prior to and
after December 31, 1999 without any errors, aborts, delays or
other interruptions in operations associated with the Year
2000 Problem; and the Fund believes, after due inquiry, that
each supplier, vendor, customer or financial service
organization used by the Fund has remedied or will remedy on a
timely basis the Year 2000 Problem, except to the extent that
a failure to remedy by any such supplier, vendor, customer or
financial service organization would not have a material
adverse effect on the Fund. The Fund is in compliance with the
Commission's staff legal bulletin No. 5 dated January 12, 1998
related to Year 2000 compliance, as amended to date.
7. REPRESENTATIONS AND WARRANTIES OF THE ADVISER. The Adviser represents
and warrants to the Underwriters as follows:
14
<PAGE> 15
1. The Adviser is a corporation duly incorporated and validly
existing in good standing under the laws of the State of
Delaware, with full corporate power and authority to own,
lease and operate its properties and to conduct its business
as described in the Registration Statement and the Prospectus
(and any amendment or supplement to either of them), and is
duly registered and qualified to conduct its business and is
in good standing in each jurisdiction or place where the
nature of its properties or the conduct of its business
requires such registration or qualification.
2. The Adviser is duly registered with the Commission as an
investment adviser under the Advisers Act and is not
prohibited by the Advisers Act, the Advisers Act Rules and
Regulations, the 1940 Act or the 1940 Act Rules and
Regulations from acting under the Investment Management
Agreement for the Fund as contemplated by the Prospectus (or
any amendment or supplement thereto). There does not exist any
proceeding or any facts or circumstances the existence of
which could lead to any proceeding which might adversely
affect the registration of the Adviser with the Commission.
3. There are no legal or governmental proceedings pending or, to
the knowledge of the Adviser, threatened against the Adviser,
or to which the Adviser or any of its properties is subject,
that are required to be described in the Registration
Statement or the Prospectus (or any amendment or supplement to
either of them), but are not described as required or that may
reasonably be expected to involve a prospective material
adverse change, in the condition (financial or other),
business, prospects, properties, assets or results of
operations of the Adviser or on the ability of the Adviser to
perform its obligations under this Agreement and the
Investment Management Agreement.
4. The Adviser is not in violation of its corporate charter or
by-laws, or other organizational documents, in default under
any agreement, indenture or instrument or in breach or
violation of any judgment, decree, order, rule or regulation
of any court or governmental or self-regulatory agency or
body.
5. Neither the execution, delivery or performance of this
Agreement or the Investment Management Agreement by the
Adviser, nor the consummation by the Adviser of the
transactions contemplated hereby or thereby (A) requires the
Adviser to obtain any consent, approval, authorization or
other order of or registration or filing with, the Commission,
the NASD, any state securities commission, any national
securities exchange, any arbitrator,
15
<PAGE> 16
any court, regulatory body, administrative agency or other
governmental body, agency or official or conflicts or will
conflict with or constitutes or will constitute a breach of or
a default under, the corporate charter or by-laws, or other
organizational documents, of the Adviser or (B) conflicts or
will conflict with or constitutes or will constitute a breach
of or a default under, any agreement, indenture, lease or
other instrument to which the Adviser is a party or by which
it or any of its properties may be bound, or violates or will
violate any statute, law, regulation or filing or judgment,
injunction, order or decree applicable to the Adviser or any
of its properties or will result in the creation or imposition
of any lien, charge or encumbrance upon any property or assets
of the Adviser pursuant to the terms of any agreement or
instrument to which it is a party or by which it may be bound
or to which any of the property or assets of the Adviser is
subject. The Adviser is not subject to any order of any court
or of any arbitrator, governmental authority or administrative
agency.
6. The execution and delivery of, and the performance by the
Adviser of its obligations under, this Agreement and the
Investment Management Agreement have been duly and validly
authorized by the Adviser, and this Agreement and the
Investment Management Agreement have been duly executed and
delivered by the Adviser and each constitutes the valid and
legally binding agreement of the Adviser, enforceable against
the Adviser in accordance with its terms.
7. The Adviser has the financial resources available to it
necessary for the performance of its services and obligations
as contemplated in the Prospectus (or any amendment or
supplement thereto) and under this Agreement and the
Investment Management Agreement.
8. The description of the Adviser in the Registration Statement
and the Prospectus (and any amendment or supplement thereto)
complied and comply in all material respects with the
provisions the 1933 Act, the 1940 Act, the Advisers Act, the
Rules and Regulations and the Advisers Act Rules and
Regulations and did not and will not contain an untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading.
9. Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement to either of them),
subsequent to the respective dates as of which such
information is given in the Registration
16
<PAGE> 17
Statement and the Prospectus (or any amendment or supplement
to either of them), the Adviser has not incurred any liability
or obligation, direct or contingent, or entered into any
transaction, not in the ordinary course of business, that is
material to the Adviser or the Fund and that is required to be
disclosed in the Registration Statement or the Prospectus and
there has not been any material adverse change, or any
development involving or which may reasonably be expected to
involve, a prospective material adverse change, in the
condition (financial or other), business, prospects,
properties, assets or results of operations of the Adviser,
whether or not arising in the ordinary course of business, or
which, in each case, could have a material adverse effect on
the ability of the Adviser to perform its obligations under
this Agreement and the Investment Management Agreement.
10. In the event that the Fund or the Adviser makes available any
promotional 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
Adviser will install and maintain pre-qualification and
password-protection or similar procedures which are reasonably
designed to effectively prohibit access to such promotional
materials by persons other than qualified broker-dealers and
registered representatives thereof.
8. INDEMNIFICATION AND CONTRIBUTION.
1. The Fund and the Adviser, jointly and severally, agree to
indemnify and hold harmless each of the Underwriters and each
person, if any, who controls the Underwriters within the
meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act from and against any and all losses, claims, damages,
liabilities and expenses (including reasonable costs of
investigation), joint or several, arising out of or based upon
any untrue statement or alleged untrue statement of a material
fact contained in any Prepricing Prospectus or in the
Registration Statement or in any sales material or the
Prospectus or in any amendment or supplement thereto, or
arising out of or based upon any omission or alleged omission
to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or
expenses arise out of or are based upon any untrue statement
or omission or alleged untrue statement or omission which has
been made therein or omitted therefrom in reliance upon and in
conformity with the information relating to the Underwriters
furnished in writing to the Fund by or on behalf of the
Underwriters expressly for use
17
<PAGE> 18
in connection therewith; provided, however, that the
indemnification contained in this paragraph (a) with respect
to any Prepricing Prospectus shall not inure to the benefit of
the Underwriters (or to the benefit of any person controlling
the Underwriters) on account of any such loss, claim, damage,
liability or expense arising from the sale of the Shares by
the Underwriters to any person if a copy of the Prospectus
shall not have been delivered or sent to such person within
the time required by the 1933 Act and the 1933 Act Rules and
Regulations, and the untrue statement or alleged untrue
statement or omission or alleged omission of a material fact
contained in such Prepricing Prospectus was corrected in the
Prospectus, provided that the Fund has delivered the
Prospectus to the Underwriters in requisite quantity on a
timely basis to permit such delivery or sending. The foregoing
indemnity agreement shall be in addition to any liability
which the Fund or the Adviser may otherwise have.
2. If any action, suit or proceeding shall be brought against the
Underwriters or any person controlling any Underwriter in
respect of which indemnity may be sought against the Fund or
the Adviser, the Underwriters or such controlling person shall
promptly notify the Fund or the Adviser, and the Fund or the
Adviser shall assume the defense thereof, including the
employment of counsel and payment of all fees and expenses.
The Underwriters or any such controlling person shall have the
right to employ separate counsel in any such action, suit or
proceeding and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of
the Underwriters or such controlling person unless (i) the
Fund or the Adviser has agreed in writing to pay such fees and
expenses, (ii) the Fund and the Adviser have failed to assume
the defense and employ counsel, or (iii) the named parties to
any such action, suit or proceeding (including any impleaded
parties) include both the Underwriters or such controlling
person and the Fund or the Adviser and the Underwriters or
such controlling person shall have been advised by its counsel
that representation of such indemnified party and the Fund or
the Adviser by the same counsel would be inappropriate under
applicable standards of professional conduct (whether or not
such representation by the same counsel has been proposed) due
to actual or potential differing interests between them (in
which case the Fund and the Adviser shall not have the right
to assume the defense of such action, suit or proceeding on
behalf of the Underwriters or such controlling person). It is
understood, however, that the Fund and the Adviser shall, in
connection with any one such action, suit or proceeding or
separate but substantially similar or related actions, suits
or proceedings in the same jurisdiction arising out of the
18
<PAGE> 19
same general allegations or circumstances, be liable for the
reasonable fees and expenses of only one separate firm of
attorneys (in addition to any local counsel) at any time for
the Underwriters and controlling persons not having actual or
potential differing interests with you or among themselves,
which firm shall be designated in writing by the
Representative, and that all such fees and expenses shall be
reimbursed as they are incurred. The Fund and the Adviser
shall not be liable for any settlement of any such action,
suit or proceeding effected without its written consent, but
if settled with such written consent, or if there be a final
judgment for the plaintiff in any such action, suit or
proceeding, the Fund and the Adviser agree to indemnify and
hold harmless the Underwriters, to the extent provided in the
preceding paragraph, and any such controlling person from and
against any loss, claim, damage, liability or expense by
reason of such settlement or judgment.
3. The Underwriters agree, severally and not jointly, to
indemnify and hold harmless the Fund and the Adviser, their
directors, any officers who sign the Registration Statement,
and any person who controls the Fund or the Adviser within the
meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act, to the same extent as the foregoing indemnity from
the Fund and the Adviser to the Underwriters, but only with
respect to information relating to the Underwriters furnished
in writing by or on behalf of the Underwriters expressly for
use in the Registration Statement, the Prospectus or any
Prepricing Prospectus, or any amendment or supplement thereto.
If any action, suit or proceeding shall be brought against the
Fund or the Adviser, any of their directors, any such officer,
or any such controlling person based on the Registration
Statement, the Prospectus or any Prepricing Prospectus, or any
amendment or supplement thereto, and in respect of which
indemnity may be sought against the Underwriters pursuant to
this paragraph (c), the Underwriters shall have the rights and
duties given to the Fund and the Adviser by paragraph (b)
above (except that if the Fund or the Adviser shall have
assumed the defense thereof the Underwriters shall not be
required to do so, but may employ separate counsel therein and
participate in the defense thereof, but the fees and expenses
of such counsel shall be at the Underwriters' expense), and
the Fund and the Adviser, their directors, any such officer,
and any such controlling person shall have the rights and
duties given to the Underwriters by paragraph (b) above. The
foregoing indemnity agreement shall be in addition to any
liability which the Underwriters may otherwise have.
19
<PAGE> 20
4. If the indemnification provided for in this Section 8 is
unavailable to an indemnified party under paragraphs (a) or
(c) hereof in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then an
indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages,
liabilities or expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the
Fund and the Adviser on the one hand (treated jointly for this
purpose as one person) and the Underwriters on the other hand
from the offering of the Shares, or (ii) if the allocation
provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only
the relative benefits referred to in clause (i) above but also
the relative fault of the Fund and the Adviser on the one hand
(treated jointly for this purpose as one person) and the
Underwriters on the other in connection with the statements or
omissions that resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by
the Fund and the Adviser on the one hand (treated jointly for
this purpose as one person) and the Underwriters on the other
shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses)
received by the Fund bear to the total sales load received by
the Underwriters, in each case as set forth in the table on
the cover page of the Prospectus. The relative fault of the
Fund and the Adviser on the one hand (treated jointly for this
purpose as one person) and the Underwriters on the other hand
shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material
fact relates to information supplied by the Fund and the
Adviser on the one hand (treated jointly for this purpose as
one person) or by the Underwriters on the other hand and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
5. The Fund, the Adviser and the Underwriters agree that it would
not be just and equitable if contribution pursuant to this
Section 8 were determined by a pro rata allocation or by any
other method of allocation (even if the Underwriters were
treated as one entity for such purpose) that does not take
account of the equitable considerations referred to in
paragraph (d) above. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages,
liabilities and expenses referred to in paragraph (d) above
shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred
by such
20
<PAGE> 21
indemnified party in connection with investigating any claim
or defending any such action, suit or proceeding.
Notwithstanding the provisions of this Section 8, the
Underwriters shall not be required to contribute any amount in
excess of the amount by which the total price of the Shares
underwritten by it and distributed to the public exceeds the
amount of any damages which the Underwriters have otherwise
been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to
contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section 8 are several in
proportion to the respective number of Shares set forth
opposite their names in Schedule I and not joint.
6. No indemnifying party shall, without the prior written consent
of the indemnified party, effect any settlement of any pending
or threatened action, suit or proceeding in respect of which
any indemnified party is or could have been a party and
indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional
release of such indemnified party from all liability on claims
that are the subject matter of such action, suit or
proceeding.
7. Any losses, claims, damages, liabilities or expenses for which
an indemnified party is entitled to indemnification or
contribution under this Section 8 shall be paid by the
indemnifying party to the indemnified party as such losses,
claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this
Section 8 and the representations and warranties of the Fund
and the Adviser set forth in this Agreement shall remain
operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of the Underwriters or any
person controlling the Underwriters, the Fund, the Adviser,
their directors or officers, or any person controlling the
Fund or the Adviser, (ii) acceptance of any Shares and payment
therefor hereunder, and (iii) any termination of this
Agreement. A successor to the Underwriters or any person
controlling any Underwriter, or to the Fund, the Adviser,
their directors or officers, or any person controlling the
Fund or the Adviser, shall be entitled to the benefits of the
indemnity, contribution, and reimbursement agreements
contained in this Section 8.
9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligation of the
Underwriters to purchase the Shares hereunder are subject to the
following conditions:
21
<PAGE> 22
1. If, at the time this Agreement is executed and delivered, it
is necessary for the Registration Statement or a
post-effective amendment thereto to be declared effective
before the offering of the Shares may commence, the
Registration Statement or such post-effective amendment shall
have become effective not later than 5:30 P.M., New York City
time, on the date hereof, or at such later date and time as
shall be consented to in writing by the Underwriters, and all
filings, if any, required by Rules 497 and 430A under the 1933
Act and the 1933 Act Rules and Regulations shall have been
timely made; no stop order suspending the effectiveness of the
Registration Statement or order pursuant to Section 8(e) of
the 1940 Act shall have been issued and no proceeding for
those purposes shall have been instituted or, to the knowledge
of the Fund, the Adviser or the Underwriters, threatened by
the Commission, and any request of the Commission for
additional information (to be included in the registration
statement or the prospectus or otherwise) shall have been
complied with to the Underwriters' satisfaction.
2. Subsequent to the effective date of this Agreement, there
shall not have occurred (i) any change or any development
involving a prospective change in or affecting the condition
(financial or other), business, prospects, properties, net
assets, or results of operations of the Fund or the Adviser
not contemplated by the Prospectus, which in the Underwriters'
opinion would materially, adversely affect the market for the
Shares, or (ii) any event or development relating to or
involving the Fund or the Adviser or any officer or director
of the Fund or the Adviser which makes any statement made in
the Prospectus untrue or which, in the opinion of the Fund and
its counsel or the Underwriters and their counsel, requires
the making of any addition to or change in the Prospectus in
order to state a material fact required by the 1933 Act, the
1940 Act or the Rules and Regulations or any other law to be
stated therein or necessary in order to make the statements
therein not misleading, if amending or supplementing the
Prospectus to reflect such event or development would, in the
Underwriters' opinion, materially adversely affect the market
for the Shares.
3. The Fund shall have furnished to the Representative a report
showing compliance with the asset coverage requirements of the
1940 Act and a Basic Maintenance Report (as defined in the
Statement), each dated the Closing Date and in form and
substance satisfactory to the Representative. Each such report
may use portfolio holdings and valuations as of the close of
business of any day not more than six business days preceding
the
22
<PAGE> 23
Closing Date, provided, however, that the Fund represents in
such report that its total net assets as of the Closing Date
have not declined by 5% or more from such valuation date.
4. Vedder, Price, Kaufman & Kammholz, counsel to the Fund, shall
have furnished to the Representative on the Closing Date their
opinion addressed to the Underwriters and dated the Closing
Date, to the effect that:
1. The Fund has been duly organized and is validly
existing as a business trust under the laws of the
Commonwealth of Massachusetts, with full power and
authority to own, lease and operate its properties
and to conduct its business as described in the
Registration Statement and the Prospectus (and any
amendment or supplement to either of them), and is
duly registered and qualified to conduct its business
and is in good standing in each jurisdiction or place
where the nature of its properties or the conduct of
its business requires such registration or
qualification;
2. The Fund has no subsidiaries;
3. All of the outstanding shares of the Fund have been
duly authorized and validly issued, are fully paid
and nonassessable (except that as set forth in the
Registration Statement, shareholders of a
Massachusetts business trust may in certain
circumstances be held liable for its obligations),
and are free of any preemptive or similar rights;
4. The Shares have been duly authorized and, when issued
and delivered to the Underwriters against payment
therefor in accordance with the terms of the
Underwriting Agreement, will be validly issued, fully
paid and nonassessable (except that as set forth in
the Registration Statement, shareholders of a
Massachusetts business trust may in certain
circumstances be held liable for its obligations),
and free of any preemptive or similar rights. Except
as set forth in the Declaration of Trust and the
Statement, there are no restrictions upon the
transfer of any Shares pursuant to the Declaration of
Trust or By-Laws of the Fund or any agreement or
other outstanding instrument known to such counsel;
and the certificate evidencing the Shares complies
with all formal requirements of Massachusetts law;
23
<PAGE> 24
5. The Shares conform in all material respects to the
description thereof in the Registration Statement and
the Prospectus (and any amendment or supplement to
either of them) and the capital stock of the Fund
(including the MuniPreferred and any other
outstanding series of preferred stock) conforms in
all material respects to the description thereof in
the Registration Statement and the Prospectus (and
any amendment or supplement to either of them); and
the authorized and outstanding shares of the Fund are
as set forth in the Prospectus;
6. The Registration Statement is effective under the
1933 Act and the 1940 Act; any required filing of the
Prospectus pursuant to Rule 497 of the Rules and
Regulations has been made within the time periods
required by Rule 497; to the best of such counsel's
knowledge, no stop-order suspending the effectiveness
of the Registration Statement or order pursuant to
Section 8(e) of the 1940 Act has been issued and no
proceeding for any such purpose has been instituted
or is pending or threatened by the Commission;
7. The 1940 Act Notification, the Registration Statement
and the Prospectus and each amendment or supplement
to the Registration Statement and the Prospectus as
of their respective or issue dates (except that no
opinion need be expressed as to the financial
statements or other financial data contained therein)
complied as to form in all material respects with the
requirements of the 1933 Act, the 1940 Act and the
Rules and Regulations;
8. The statements made in the Prospectus under the
captions "The Auction" and "Description of
MuniPreferred", insofar as they purport to summarize
the provisions of the Statement or other documents or
agreements specifically referred to therein,
constitute accurate summaries of the terms of any
such documents;
9. The statements made in the Prospectus under the
caption "Prospectus Summary-Taxation" and both
captions entitled "Tax Matters", insofar as they
constitute matters of law or legal conclusions, have
been reviewed by such counsel and constitute accurate
statements of any such matters of law or legal
conclusions, and fairly present the information
called for with respect thereto by Form N-2;
24
<PAGE> 25
10. To the best of such counsel's knowledge, there are no
legal or governmental proceedings pending or
threatened against the Fund, or to which the Fund or
any of its properties is subject, that are required
to be described in the Registration Statement or the
Prospectus (and any amendment or supplement to either
of them), but are not described as required;
11. To the best of such counsel's knowledge, there are no
agreements, contracts, indentures, leases or other
instruments that are required to be described in the
Registration Statement or the Prospectus (and any
amendment or supplement to either of them), or to be
filed as an exhibit to the Registration Statement
that are not described or filed as required by the
1933 Act, the 1940 Act or the Rules and Regulations;
12. To the best of such counsel's knowledge, the Fund is
not in violation of its Declaration of Trust, the
Statement or its By-Laws, or other organizational
documents of the Fund or of any law, ordinance,
administrative or governmental rule or regulation, of
any decree of the Commission, the NASD, any state
securities commission, any national securities
exchange, any arbitrator, any court or governmental
agency, body or official having jurisdiction over the
Fund, or in default in any material respect in the
performance of any obligation, agreement or condition
contained in any bond, debenture, note or any other
evidence of indebtedness or in any material
agreement, indenture, lease or other instrument to
which the Fund is a party or by which it or any of
its properties may be bound;
13. The Underwriting Agreement and the Fund Agreements
have each been duly and validly authorized, executed
and delivered by the Fund, each complies with all
applicable provisions of the 1940 Act and each
constitutes the valid and legally binding agreement
of the Fund, enforceable against the Fund in
accordance with its terms, except as rights to
indemnity and contribution under the Underwriting
Agreement and the Fund Agreements may be limited by
federal or state securities laws, subject as to
enforcement to bankruptcy, insolvency, reorganization
and other laws of general applicability relating to
or affecting creditors' rights and to general equity
principles;
25
<PAGE> 26
14. The Fund is registered under the 1940 Act as a
closed-end diversified management investment company;
the provisions of the Declaration of Trust, Statement
and By-Laws of the Fund and the investment policies
and restrictions described in the Prospectus under
the caption "Prospectus Summary-Investment
Objectives", "The Fund", "Risk Factors", "The Fund's
Investments", " Investment Objectives and Policies"
and "Other Investment Policies and Techniques" comply
with the requirements of the 1940 Act;
15. To the best of such counsel's knowledge, no person is
serving or acting as an officer, director or
investment adviser of the Fund except in accordance
with the provisions of the 1940 Act and the 1940 Act
Rules and Regulations and the Investment Advisers Act
and the Advisers Act Rules and Regulations.
16. Neither the issuance and sale of the Shares, the
execution, delivery or performance of the
Underwriting Agreement or any of the Fund Agreements
by the Fund, nor the consummation by the Fund of the
transactions contemplated in the Underwriting
Agreement or any of the Fund Agreements (A) requires
any consent, approval, authorization, or other order
of or registration or filing with, the Commission,
the NASD, any state securities commission, any
national securities exchange, any arbitrator, any
court, regulatory body, administrative agency or
governmental body, agency or official (except such as
may have been obtained prior to the date hereof and
such as may be required for compliance with the state
securities or blue sky laws of various jurisdictions
in accordance with the Underwriting Agreement) or
conflicts or will conflict with or constitutes or
will constitute a breach of, or a default under, the
Organizational Documents of the Fund or (B) conflicts
or will conflict with or constitutes or will
constitute a breach of, or a default under, any
agreement, indenture, lease or other instrument to
which the Fund is a party or by which it or any of
its properties may be bound, or violates or will
violate any statute, law, regulation or judgment,
injunction, order or decree applicable to the Fund or
any of its properties, or will result in the creation
or imposition of any lien, charge or encumbrance upon
any property or assets of the Fund pursuant to the
terms of any agreement or instrument to which it is a
party or by which it may be bound or to which any of
its property or assets is subject. The Fund is not
subject to any
26
<PAGE> 27
order of any court or of any arbitrator, governmental
authority or administrative agency;
17. No holder of any security of the Fund has any right
to require registration of shares of common stock,
shares of MuniPreferred or any other security of the
Fund because of the filing of the Registration
Statement or consummation of the transactions
contemplated by the Underwriting Agreement; and
18. Such counsel shall also state that they have
participated in conferences with officers and
employees of the Fund, representatives of the
independent accountants for the Fund, Massachusetts
counsel to the Fund, the Underwriters and counsel for
the Underwriters at which the contents of the
Registration Statement and the Prospectus and related
matters were discussed and, although they are not
passing upon, and do not assume any responsibility
for, the accuracy, completeness or fairness of the
statements contained in the Registration Statement or
the Prospectus, except to the limited extent
otherwise covered by paragraphs (v), (vii), (viii),
(ix) and (xiv), and have made no independent check or
verification thereof, and on the basis of the
foregoing, no facts have come to their attention that
would have led them to believe that the Registration
Statement or any amendment or supplement thereto, at
the time it became effective, contained an untrue
statement of a material fact or omitted to state any
material fact required to be stated therein or
necessary to make the statements contained therein
not misleading or that the Prospectus or any
amendment or supplement thereto, as of its issue date
and as of the Closing Date, contained or contains an
untrue statement of a material fact or omitted or
omits to state a material fact required to be stated
therein or necessary to make the statements contained
therein, in light of the circumstances under which
they were made, not misleading, except that they
express no belief with respect to the financial
statements, schedules and other financial information
and statistical data included therein or excluded
therefrom or the exhibits to the Registration
Statement, including the information under the
caption "Taxable Equivalent Yield Table" in Appendix
A to the Prospectus.
Such opinion shall also contain a statement that such
counsel has no reason to believe that the 1940 Act
Notification contains any untrue statement of a
material fact or omits to state any material
27
<PAGE> 28
fact required to be stated therein or necessary in
order to make the statements therein not misleading.
In giving such opinion, Vedder, Price, Kaufman &
Kammholz may rely on the opinion of Bingham Dana LLP
as to matters of Massachusetts law, provided that
Vedder, Price, Kaufman & Kammholz furnish a copy
thereof to the Underwriters and state that such
opinion is satisfactory in substance and form and
that the Underwriters and counsel for the
Underwriters are entitled to rely thereon.
5. Gifford Zimmerman, Esq., Vice President and Secretary of the
Adviser, shall have furnished to the Representative on the
Closing Date his opinion addressed to the Underwriters and
dated the Closing Date, to the effect that:
1. The Adviser has been duly organized and is validly
existing and in good standing as a corporation under
the laws of the State of Delaware, with full
corporate power and authority to own, lease and
operate its properties and to conduct its business as
described in the Registration Statement and the
Prospectus (and any amendment or supplement to either
of them), and is duly registered and qualified to
conduct its business and is in good standing in each
jurisdiction or place where the nature of its
properties or the conduct of its business requires
such registration or qualification;
2. The Adviser is duly registered and in good standing
with the Commission as an investment adviser under
the Advisers Act and is not prohibited by the
Advisers Act, the Advisers Act Rules and Regulations,
the 1940 Act or the 1940 Act Rules and Regulations
from acting under the Investment Management Agreement
for the Fund as contemplated by the Prospectus (or
any amendment or supplement thereto); there does not
exist any proceeding or any facts or circumstances
the existence of which could lead to any proceeding
which might adversely affect the registration of the
Adviser with the Commission;
3. To the best of such counsel's knowledge, there are no
legal or governmental proceedings pending or
threatened against the Adviser, or to which the
Adviser or any of its properties is subject, that are
required to be described in the Registration
Statement or
28
<PAGE> 29
the Prospectus (or any amendment or supplement to
either of them), but are not described as required or
that may reasonably be expected to involve a
prospective material adverse change, in the condition
(financial or other), business, prospects,
properties, assets or results of operations of the
Adviser or on the ability of the Adviser to perform
its obligations under the Underwriting Agreement and
the Investment Management Agreement;
4. To the best of such counsel's knowledge, the Adviser
is not in violation of its corporate charter or
by-laws, or other organizational documents, nor is
the Adviser in default under any agreement, indenture
or instrument or in breach or violation of any
judgment, decree, order, rule or regulation of any
court or governmental or self-regulatory agency or
body;
5. The Underwriting Agreement and the Investment
Management Agreement have each been duly and validly
authorized, executed and delivered by the Adviser,
each complies with all applicable provisions of the
1940 Act and the Advisers Act and the 1940 Act Rules
and Regulations and the Advisers Act Rules and
Regulations and each constitutes the valid and
legally binding agreement of the Adviser, enforceable
against the Adviser in accordance with its terms,
subject as to enforcement to bankruptcy, insolvency,
reorganization and other laws of general
applicability relating to or affecting creditors'
rights and to general equity principles;
6. The description of the Adviser in the Registration
Statement and the Prospectus (and any amendment or
supplement thereto) complied and comply in all
material respects with the provisions of the 1933
Act, the 1940 Act, the Advisers Act, the Rules and
Regulations and the Advisers Act Rules and
Regulations and did not and will not contain an
untrue statement of a material fact or omit to state
a material fact required to be stated therein or
necessary to make the statements therein, in light of
the circumstances under which they were made, not
misleading;
7. Except as disclosed in the Registration Statement and
the Prospectus (or any amendment or supplement to
either of them), subsequent to the respective dates
as of which such information is given in the
Registration Statement and the Prospectus (or any
amendment or supplement to either of them), the
Adviser has not incurred
29
<PAGE> 30
any liability or obligation, direct or contingent, or
entered into any transaction, not in the ordinary
course of business, that is material to the Adviser
or the Fund and that is required to be disclosed in
the Registration Statement or the Prospectus and
there has not been any material adverse change, or
any development involving or which may reasonably be
expected to involve, a prospective material adverse
change, in the condition (financial or other),
business, prospects, properties, assets or results of
operations of the Adviser, whether or not arising in
the ordinary course of business, or which, in each
case, could have a material adverse effect on the
ability of the Adviser to perform its obligations
under the Underwriting Agreement and the Investment
Management Agreement; and
8. Neither the execution, delivery or performance of the
Underwriting Agreement or the Investment Management
Agreement by the Adviser, nor the consummation by the
Adviser of the transactions contemplated in the
Underwriting Agreement or the Investment Management
Agreement (A) requires the Adviser to obtain any
consent, approval, authorization or other order of or
registration or filing with, the Commission, the
NASD, any state securities commission, any national
securities exchange, any arbitrator, any court,
regulatory body, administrative agency or other
governmental body, agency or official or conflicts or
will conflict with or constitutes or will constitute
a breach of or a default under, the corporate charter
or by-laws, or other organizational documents, of the
Adviser or (B) conflicts or will conflict with or
constitutes or will constitute a breach of or a
default under, any agreement, indenture, lease or
other instrument to which the Adviser is a party or
by which it or any of its properties may be bound, or
violates or will violate any statute, law, regulation
or filing or judgment, injunction, order or decree
applicable to the Adviser or any of its properties or
will result in the creation or imposition of any
lien, charge or encumbrance upon any property or
assets of the Adviser pursuant to the terms of any
agreement or instrument to which it is a party or by
which it may be bound or to which any of the property
or assets of the Adviser is subject. The Adviser is
not subject to any order of any court or of any
arbitrator, governmental authority or administrative
agency.
6. The Representative shall have received on the Closing Date an
opinion of Orrick, Herrington & Sutcliffe LLP, special
California counsel to the
30
<PAGE> 31
Fund, in form and substance satisfactory to counsel for the
Underwriters, to the effect that the statements made in the
Prospectus under the captions "Tax Matters -- California Tax
Matters" and "The Fund's Investments -- Municipal Bonds --
Special Considerations Relating to California Municipal Bonds"
and the statements made in the Statement of Additional
Information under the captions "Tax Matters -- State Tax
Matters" and "Factors Pertaining to California," insofar as
they constitute matters of law or legal conclusions,
constitute accurate statements of any such matters of law or
legal conclusions, and fairly present the information called
for with respect thereto by Form N-2 as of Closing Date. Such
counsel shall also have furnished to the Underwriters a
statement, addressed to the Underwriters, dated as of the
Closing Date, to the effect that such counsel has participated
in the preparation of, and has had discussions with
representatives of the Fund concerning, the statements set
forth in the Registration Statement and the Prospectus under
the captions "Tax Matters -- California Tax Matters" and "The
Fund's Investments -- Municipal Bonds -- Special
Considerations Relating to California Municipal Bonds" and the
statements made in the Statement of Additional Information
under the captions "Tax Matters -- State Tax Matters" and
"Factors Pertaining to California," and that based upon the
foregoing, no facts have come to the attention of such counsel
which would lead them to believe that the statements contained
in the Registration Statement under such captions, as of the
effective date, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein
not misleading or that the statements contained in the
Prospectus under such captions at the Closing Date contain any
untrue statement of a material fact or omit to state any
material fact required to be stated therein, in light of the
circumstances under which they were made, not misleading.
7. The Representative shall have received on the Closing Date an
opinion of Skadden, Arps, Slate, Meagher & Flom LLP, counsel
for the Underwriters, dated the Closing Date and addressed to
the Underwriters, with respect to such matters as the
Underwriters may reasonably request.
8. The Fund shall have furnished to the Representative on the
Closing Date a certificate, dated the Closing Date, of its
President or a Vice President and its Controller or Treasurer
stating that:
1. The representations, warranties and agreements of the
Fund in Section 6 hereof are true and correct as of
the Closing Date; the
31
<PAGE> 32
Fund has complied with all its agreements contained
herein; and the conditions set forth in Section 9(a)
have been fulfilled; and
2. They have carefully examined the Registration
Statement and the Prospectus and, in their opinion,
(A) as of the date of its effectiveness (or the most
recent post-effective amendment thereto), the
Registration Statement did not include any untrue
statement of a material fact and did not omit to
state a material fact required to be stated therein
or necessary to make the statements therein not
misleading and on such Closing Date, the Prospectus
did not include any untrue statement of a material
fact and did not omit to state any material fact
required to be stated therein or necessary to make
the statements therein, in light of the circumstances
under which they were made, not misleading, and (B)
since the date of effectiveness of the Registration
Statement (or the most recent post-effective
amendment thereto), no event has occurred which
should have been set forth in a supplement to or
amendment of the Prospectus which has not been set
forth in such a supplement or amendment.
9. The Adviser shall have furnished to the Representative on the
Closing Date a certificate, dated the Closing Date, of its
Chairman of the Board, President or a Vice President and its
Controller or Treasurer stating that:
1. The representations, warranties and agreements of the
Adviser in Sections 6 and 7 hereof are true and
correct as of such Closing Date and the Adviser has
complied with all its agreements contained herein;
and
2. They have carefully examined the Registration
Statement and the Prospectus and, in their opinion,
(A) as of the date of its effectiveness (or the most
recent post-effective amendment thereto), the
Registration Statement did not include any untrue
statement of a material fact and did not omit to
state any material fact required to be stated therein
or necessary to make the statements therein not
misleading and on such Closing Date, the Prospectus
did not include any untrue statement of a material
fact and did not omit to state a material fact
required to be stated therein or necessary to make
the statements therein, in light of the circumstances
under which they were made, not misleading, and (B)
since the date of its effectiveness, (or the most
recent post-effective amendment
32
<PAGE> 33
thereto) the Registration Statement, no event has
occurred which should have been set forth in a
supplement to or amendment of the Prospectus which
has not been set forth in such a supplement or
amendment.
10. The Representative shall have received letters addressed to
the Underwriters, and dated the date hereof and the Closing
Date from Ernst & Young, independent certified public
accountants, substantially in the forms heretofore approved by
the Representative.
11. Subsequent to the date of effectiveness of the Registration
Statement (or the most recent post-effective amendment
thereto), there shall not have occurred any change, or any
development involving a prospective change, in or affecting
particularly the business or financial affairs of the Fund or
the Adviser which, in the opinion of the Underwriters, would
materially and adversely affect the market for the Shares.
12. (i) No order suspending the effectiveness of the Registration
Statement or prohibiting or suspending the use of the
Prospectus (or any amendment or supplement thereto) or any
Prepricing Prospectus or any sales material shall have been
issued and no proceedings for such purpose or for the purpose
of commencing an enforcement action against the Fund, the
Adviser or, with respect to the transactions contemplated by
the Prospectus (or any amendment or supplement thereto) and
this Agreement, the Underwriters, may be pending before or, to
the knowledge of the Fund, the Adviser or the Underwriters or
in the reasonable view of counsel to the Underwriters, shall
be threatened or contemplated by the Commission at or prior to
the Closing Date and that any request for additional
information on the part of the Commission (to be included in
the Registration Statement, the Prospectus or otherwise) be
complied with to the satisfaction of the Underwriters; (ii)
there shall not have been any change in the capital stock of
the Fund nor any material increase in the short-term or
long-term debt of the Fund (other than in the ordinary course
of business) from that set forth or contemplated in the
Registration Statement or the Prospectus (or any amendment or
supplement thereto); (iii) there shall not have been,
subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus (or any
amendment or supplement thereto), except as may otherwise be
stated in the Registration Statement and Prospectus (or any
amendment or supplement thereto), any material adverse change
in the condition (financial or other), business, prospects,
properties, net assets or results of operations of the Fund or
the
33
<PAGE> 34
Adviser; (iv) the Fund shall not have any liabilities or
obligations, direct or contingent (whether or not in the
ordinary course of business), that are material to the Fund,
other than those reflected in the Registration Statement or
the Prospectus (or any amendment or supplement to either of
them); and (v) all the representations and warranties of the
Fund and the Adviser contained in this Agreement shall be true
and correct on and as of the date hereof and on and as of the
Closing Date as if made on and as of the Closing Date.
13. Neither the Fund nor the Adviser shall have failed at or prior
to the Closing Date to have performed or complied in all
material respects with any of its agreements herein contained
and required to be performed or complied with by it hereunder
at or prior to the Closing Date.
14. The Fund shall have delivered and the Underwriters shall have
received evidence satisfactory to the Representative that the
shares of MuniPreferred are rated 'aaa' by Moody's and AAA by
S&P as of the Closing Date, and there shall not have been
given any notice of any intended or potential downgrading, or
of any review for a potential downgrading, in the rating
accorded to any outstanding shares of the Fund by any Rating
Agency.
15. The Fund and the Adviser shall have furnished or caused to be
furnished to the Underwriters such further certificates and
documents as the Representative shall have reasonably
requested.
16. The issuance of the Shares will not impair the rating for any
outstanding shares of the Fund.
All such opinions, certificates, letters and other documents
will be in compliance with the provisions hereof only if they
are satisfactory in form and substance to the Representative
and the Underwriters' counsel.
Any certificate or document signed by any officer of the Fund
or the Adviser and delivered to the Underwriters, or to
counsel for the Underwriters, shall be deemed a representation
and warranty by the Fund or the Adviser to the Underwriters as
to the statements made therein.
10. EXPENSES. The Fund agrees to pay the costs incident to the
authorization, issuance, sale and delivery of the Shares to be sold by
the Fund to the Underwriters and any taxes payable in that connection;
the costs incident to the preparation,
34
<PAGE> 35
printing and filing under the 1933 Act and 1940 Act of the Registration
Statement and any amendments and exhibits thereto; the costs of
preparing, printing and distributing the Registration Statement as
originally filed and each amendment and any post-effective amendment
thereto (including exhibits), any Prepricing Prospectus, the Prospectus
and any amendment or supplement to the Prospectus; the costs of
printing this Agreement and distributing the terms of agreements
relating to the organization of any underwriting syndicate by mail,
telex or other means of communication; the fees paid to Rating Agencies
in connection with the rating of the Shares; the fees and expenses of
qualifying the Shares under the securities laws of the several
jurisdictions as provided in this Section and of preparing and printing
a blue sky survey (including related fees and expenses of counsel to
the Underwriters); the fees and expenses of the Auction Agent as set
forth in the Auction Agency Agreement; and all other costs and expenses
incident to the performance of the obligations of the Fund under this
Agreement; provided that (i) the Fund, the Adviser and each Underwriter
shall pay its own costs and expenses in attending any information
meeting relating to the Fund, (ii) each Underwriter shall pay the costs
and expenses of any sales material prepared by it in connection with
the public offering of the Shares, (iii) the Underwriters shall pay the
costs and expenses of any "tombstone" advertisements, and (iv) except
as provided in this Section and in Section 5 hereof, the Underwriters
shall pay their own costs and expenses, including the fees and expenses
of their counsel and any transfer taxes on the Shares which they may
sell.
If notice shall have been given pursuant to Paragraph 12 terminating
the Underwriters' obligations hereunder, or if the sale of the Shares
provided for herein is not consummated because of any failure, refusal
or inability on the part of the Fund or Adviser to perform any
agreement on its part to be performed or if the Underwriters shall
decline to purchase the Shares for any reason permitted under this
Agreement, the Fund shall reimburse the Underwriters for the fees and
expenses of their counsel and for such other out-of-pocket expenses as
shall have been incurred by them in connection with this Agreement and
the proposed purchase of the Shares, and upon demand the Fund shall pay
the full amount thereof to the Underwriters; it being understood that
the Fund shall not in any event be liable to any of the Underwriters
for damages on account of loss of anticipated profits from the sale by
them of the Shares. If the Fund fails to reimburse the Underwriters for
such fees and expenses, the Adviser shall upon demand, pay the full
amount thereof to the Underwriters.
11. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become effective: (i)
upon the execution and delivery hereof by the parties hereto; or (ii)
if, at the time this Agreement is executed and delivered, it is
necessary for the Registration Statement
35
<PAGE> 36
or a post-effective amendment thereto to be declared effective before
the offering of the Shares may commence, when notification of the
effectiveness of the Registration Statement or such post- effective
amendment has been released by the Commission. Until such time as this
Agreement shall have become effective, it may be terminated by the
Fund, by notifying the Underwriters, or by the Underwriters, by
notifying the Fund.
If either of the Underwriters shall fail or refuse to purchase Shares
which it is obligated to purchase hereunder on the Closing Date, and
the aggregate number of Shares which such defaulting Underwriter is
obligated but fails or refuses to purchase is not more than one-tenth
of the aggregate number of Shares which the Underwriters are obligated
to purchase on the Closing Date, the non-defaulting Underwriter shall
be obligated to purchase the Shares which such defaulting Underwriter
is obligated, but fails or refuses, to purchase. If either of the
Underwriters shall fail or refuse to purchase Shares which it is
obligated to purchase on the Closing Date and the number of Shares with
respect to which such default occurs is more than one-tenth of the
aggregate number of Shares which the Underwriters are obligated to
purchase on the Closing Date and arrangements satisfactory to the
Representative and the Fund for the purchase of such Shares by the
non-defaulting Underwriter or other party or parties approved by you
and the Fund are not made within 36 hours after such default, this
Agreement will terminate without liability on the part of the
non-defaulting Underwriter or the Fund. In any such case which does not
result in termination of this Agreement, either the Representative or
the Fund shall have the right to postpone the Closing Date, but in no
event for longer than seven days, in order that the required changes,
if any, in the Registration Statement and the Prospectus or any other
documents or arrangements may be effected. Any action taken under this
paragraph shall not relieve the defaulting Underwriter from liability
in respect of any such default of any such Underwriter under this
Agreement. The term "Underwriter" as used in this Agreement includes,
for all purposes of this Agreement, any party not listed in Schedule I
hereto who, with your approval and the approval of the Fund, purchases
Shares which a defaulting Underwriter is obligated, but fails or
refuses, to purchase.
Any notice under this Section 11 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
12. TERMINATION OF AGREEMENT. This Agreement shall be subject to
termination in the Representative's absolute discretion, without
liability on the part of the Underwriters to the Fund or the Adviser,
by notice to the Fund or the Adviser, if prior to the Closing Date (i)
trading in securities generally on the New York Stock
36
<PAGE> 37
Exchange, the American Stock Exchange or the Nasdaq National Market
shall have been suspended or materially limited, (ii) a general
moratorium on commercial banking activities in New York shall have been
declared by either federal or state authorities, or (iii) there shall
have occurred any outbreak or escalation of hostilities or other
international or domestic calamity, crisis or change in political,
financial or economic conditions, the effect of which on the financial
markets of the United States is to make it, in the Representative's
judgment, impracticable or inadvisable to commence or continue the
offering of the Shares at the offering price to the public set forth on
the cover page of the Prospectus or to enforce contracts for the resale
of the Shares by the Underwriters. Notice of such termination may be
given to the Fund by telegram, telecopy or telephone and shall be
subsequently confirmed by letter.
13. INFORMATION FURNISHED BY THE UNDERWRITERS. The statements set forth in
the first and second paragraphs under the caption "Underwriting" in any
Prepricing Prospectus and in the Prospectus, constitute the only
information furnished by or on behalf of the Underwriters as such
information is referred to in Sections 6(b) and 8 hereof.
14. MISCELLANEOUS. Except as otherwise provided in Sections 5, 11 and 12
hereof, notice given pursuant to any provision of this Agreement shall
be in writing and shall be delivered (i) if to the Fund or the Adviser,
at the office of the Fund at 333 West Wacker Drive, Chicago, IL 60606,
Attention: Gifford R. Zimmerman, Vice President and Secretary; or (ii)
if to the Underwriters, to Salomon Smith Barney Inc, 388 Greenwich
Street, New York, New York 10013, Attention: Manager, Investment
Banking Division.
This Agreement has been and is made solely for the benefit of the
Underwriters, the Fund, the Adviser, their directors and officers, and
the other controlling persons referred to in Section 8 hereof and their
respective successors and assigns, to the extent provided herein, and
no other person shall acquire or have any right under or by virtue of
this Agreement. Neither the term "successor" nor the term "successors
and assigns" as used in this Agreement shall include a purchaser from
the Underwriters of any of the Shares in his status as such purchaser.
15. APPLICABLE LAW; COUNTERPARTS. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not
37
<PAGE> 38
become effective unless at least one counterpart hereof shall have been
executed and delivered on behalf of each party hereto.
38
<PAGE> 39
Please confirm that the foregoing correctly sets forth the agreement
among the Fund, the Adviser and the Underwriters.
Very truly yours,
NUVEEN CALIFORNIA DIVIDEND
ADVANTAGE MUNICIPAL FUND
By:
--------------------------
Name:
Title:
NUVEEN ADVISORY CORP.
By:
--------------------------
Name:
Title:
The foregoing Agreement is hereby
confirmed and accepted as of the date
first above written.
SALOMON SMITH BARNEY INC.
By:
----------------------------------
Name:
Title:
For itself and the other Underwriters
named in Schedule I to the foregoing
Agreement
39
<PAGE> 40
SCHEDULE I
NUVEEN CALIFORNIA DIVIDEND ADVANTAGE MUNICIPAL FUND
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Salomon Smith Barney Inc.................................
</TABLE>
40
<PAGE> 1
Exhibit k.3
NUVEEN AUCTION AGENCY AGREEMENT
Basic Terms for Acting as Auction Agent
November 1, 1993
These basic terms ("Basic Terms") set forth the general terms
and conditions pursuant to which a bank or trust company identified in a Request
and Acceptance Letter will act as auction agent (an "Auction Agent") for
Municipal Auction Rate Cumulative Preferred Stock or Shares issued by an
investment company registered under the Investment Company Act of 1940, as
amended, as further identified by such Request and Acceptance Letter (a "Fund"),
for which Nuveen Advisory Corp. is the investment adviser.
- --------------------------------------------------------------------------------
The Fund proposes to issue shares of MuniPreferred(R) pursuant
to its Articles of Incorporation or Declaration of Trust, as amended or
supplemented by the Statement. The Fund desires that the Auction Agent perform
certain duties in connection with the MuniPreferred upon the terms and subject
to the conditions of the Agreement.
1. Definitions and Rules of Construction.
1.1 Terms Defined By Reference to Statement.
Capitalized terms not defined herein shall have the respective
meanings specified in the Statement.
1.2 Terms Defined Herein.
As used herein and in the Settlement Procedures, the following
terms shall have the following meanings, unless the context otherwise requires:
(a) "Agent Member" of any Person shall mean the member of, or
participant in, the Securities Depository that will act on behalf of a
Bidder.
(b) "Agreement" shall mean the Basic Terms, together with the
Request and Acceptance Letter relating to one or more series of
MuniPreferred.
(c) "Auction" shall have the meaning specified in Section 2.1
hereof.
(d) "Auction Procedures" shall mean the auction procedures
constituting Part II of the form of Statement as of the filing thereof.
<PAGE> 2
(e) "Authorized Officer" of the Auction Agent shall mean each
Senior Vice President, Vice President, Assistant Vice President,
Assistant Treasurer and Assistant Secretary of the Auction Agent
assigned to its Corporate Trust and Agency Group and every other
officer or employee of the Auction Agent designated as an "Authorized
Officer" for purposes hereof in a communication to the Fund.
(f) "Broker-Dealer Agreement" shall mean each agreement among
the Fund, the Auction Agent and a Broker-Dealer substantially in the
form attached hereto as Exhibit A.
(g) "Fund Officer" shall mean the Chairman of the Board of
Directors or Board of Trustees, as the case may be, each Vice Chairman
of the Board of Directors or Board of Trustees (whether or not
designated by a number or word or words added before or after the title
"Vice Chairman"), 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 Vice
President, each Assistant Secretary and each Assistant Treasurer of the
Fund and every other officer or employee of the Fund designated as a
"Fund Officer" for purposes hereof in a notice to the Auction Agent.
(h) "MuniPreferred" shall mean the preferred stock or shares,
par value $.01 per share, of the Fund designated as its "Municipal
Auction Rate Cumulative Preferred Stock" or "Municipal Auction Rate
Cumulative Preferred Shares" and bearing such further designation as to
series as the Board of Directors or Board of Trustees, as the case may
be, of the Fund or any committee thereof shall specify; as set forth in
the Request and Acceptance Letter.
(i) "Request and Acceptance Letter" shall mean the letter from
the Fund to the Auction Agent pursuant to which the Fund appoints the
Auction Agent and the Auction Agent accepts its appointment as auction
agent for the MuniPreferred.
(j) "Settlement Procedures" shall mean the Settlement
Procedures attached hereto as Exhibit B.
(k) "Statement" shall mean the Statement Establishing and
Fixing the Rights and Preferences of, and authorizing the issuance of,
one or more series of Municipal Auction Rate Cumulative Preferred Stock
or Municipal Auction Rate Cumulative Preferred Shares, as filed by the
Fund with the office of the Secretary of State or other officer of the
state where the Fund was incorporated or organized, a copy of which is
attached to the Request and Acceptance Letter, as the same may be
amended, supplemented or modified from time to time.
2
<PAGE> 3
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 the
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 the
Agreement nor shall they affect its meaning, construction or effect.
(c) The words "hereof", "herein", "hereto" and other words of
similar import refer to the Agreement as a whole.
(d) All references herein to a particular time of day shall be
to New York City time.
2. The Auction.
2.1 Purpose; Incorporation by Reference of Auction Procedures and
Settlement Procedures.
(a) The Statement for each series of MuniPreferred will
provide that the Applicable Rate for such series for each Subsequent Rate Period
thereof shall, except under certain conditions, be the rate per annum that a
bank or trust company appointed by the Fund advises results from implementation
of the Auction Procedures for such series. The Board of Directors or Board of
Trustees, as the case may be, of the Fund has adopted a resolution appointing
the Auction Agent as auction agent for purposes of the Auction Procedures for
each series of MuniPreferred. The Auction Agent accepts such appointment and
agrees to follow the procedures set forth in this Section 2 and the Auction
Procedures for the purpose of determining the Applicable Rate for each series of
MuniPreferred for each Subsequent Rate Period thereof for which the Applicable
Rate is to be determined by an Auction. Each periodic implementation 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 hereof to the same extent as if such
provisions were fully set forth herein.
2.2 Preparation for Each Auction; Maintenance of Registry of
Beneficial Owners.
(a) Not later than seven days prior to the first Auction Date
for the first series of MuniPreferred subject to an Auction, the Fund shall
provide the Auction Agent with a list of
3
<PAGE> 4
the Broker-Dealers. Not later than seven days prior to any Auction Date for any
series of MuniPreferred for which any change in such list of Broker-Dealers is
to be effective, the Fund will notify the Auction Agent in writing of such
change and, if any such change involves the addition of a Broker-Dealer to such
list, shall cause to be delivered to the Auction Agent for execution by the
Auction Agent a Broker-Dealer Agreement signed by such Broker-Dealer; provided,
however, that if the Fund proposes to designate any Special Rate Period of any
series of MuniPreferred pursuant to Section 4 of Part I of the Statement, not
later than 11:00 A.M. on the Business Day next preceding the Auction next
preceding the first day of such Rate Period or by such later time or date, or
both, as may be agreed to by the Auction Agent, the Fund shall provide the
Auction Agent with a list of the Broker-Dealers for such series and a manually
signed copy of each Broker-Dealer Agreement or a new Schedule A to a
Broker-Dealer Agreement (which Schedule A shall replace and supersede any
previous Schedule A to such Broker-Dealer Agreement) with each Broker-Dealer for
such series. The Auction Agent and the Fund 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 any Auction Date for any series of
MuniPreferred shall be changed after the Auction Agent shall have given the
notice referred to in clause (vi) of paragraph (a) of the Settlement Procedures,
or after the notice referred to in Section 2.5(a) hereof, if applicable, the
Auction Agent, by such means as the Auction Agent deems practicable, shall give
notice of such change to the Broker-Dealers for such series 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) (i) The Auction Agent shall maintain a registry of the
beneficial owners of the shares of MuniPreferred of each series who shall
constitute Existing Holders of shares of MuniPreferred of such series for
purposes of Auctions and shall indicate thereon the identity of the respective
Broker-Dealer of each Existing Holder, if any, on whose behalf such
Broker-Dealer submitted the most recent Order in any Auction which resulted in
such Existing Holder continuing to hold or purchasing shares of MuniPreferred of
such series. The Auction Agent shall keep such registry current and accurate.
The Fund shall provide or cause to be provided to the Auction Agent at or prior
to the Date of Original Issue of the shares of MuniPreferred of each series a
list of the initial Existing Holders of the shares of each such series of
MuniPreferred, the number of shares purchased by each such Existing Holder and
the respective Broker-Dealer of each such Existing Holder or the affiliate
thereof through which each such Existing Holder purchased such shares. The
Auction Agent shall advise the Fund in writing whenever the number of Existing
Holders is 500 or more. The Auction Agent may rely upon, as conclusive evidence
of the identities of the Existing Holders of shares of MuniPreferred of any
series (A) such list, (B) the results of Auctions, (C) notices from any
Broker-Dealer as described in the first sentence of Section 2.2(c)(iii) hereof
and (D) the results of any procedures approved by the Fund that have been
devised for the purpose of determining the identities of Existing Holders in
situations where shares of MuniPreferred may have been transferred without
compliance with any restriction on the transfer thereof set forth in the Auction
Procedures.
4
<PAGE> 5
(ii) In the event of any partial redemption of any
series of MuniPreferred, the Auction Agent shall, at least two Business Days
prior to the next Auction for such series, request each Broker-Dealer to provide
the Auction Agent with a list of Persons who such Broker-Dealer believes should
remain Existing Holders after such redemption based upon inquiries of those
Persons such Broker-Dealer believes are Beneficial Owners as a result of the
most recent Auction and with respect to each such Person, the number of shares
of MuniPreferred of such series such Broker-Dealer believes are owned by such
Person after such redemption. In the absence of receiving any such information
from any Broker-Dealer, the Auction Agent may continue to treat the Persons
listed in its registry of Existing Holders as the beneficial owner of the number
of shares of MuniPreferred of such series shown in such registry.
(iii) The Auction Agent shall be required to register
a transfer of shares of MuniPreferred of any series from an Existing Holder of
such shares of MuniPreferred only if such transfer is to another Existing
Holder, or other Person if permitted by the Fund, and only if such transfer is
made (A) pursuant to an Auction, (B) the Auction Agent has been notified in
writing (I) in a notice substantially in the form of Exhibit C to the
Broker-Dealer Agreements by a Broker-Dealer of such transfer or (II) in a notice
substantially in the form of Exhibit D to the Broker-Dealer Agreements by the
Broker-Dealer of any Existing Holder, or other Person if permitted by the Fund,
that purchased or sold such shares of MuniPreferred in an Auction of the failure
of such shares of MuniPreferred to be transferred as a result of such Auction or
(C) pursuant to procedures approved by the Fund that have been devised for the
purpose of determining the identities of Existing Holders in situations where
shares of MuniPreferred may have been transferred without compliance with any
restriction on the transfer thereof set forth in the Auction Procedures. The
Auction Agent is not required to accept any such notice for an Auction unless it
is received by the Auction Agent by 3:00 P.M. on the Business Day preceding such
Auction.
(d) The Auction Agent may request the Broker-Dealers, as set
forth in the Broker-Dealer Agreements, to provide the Auction Agent with a list
of Persons who such Broker-Dealer believes should be Existing Holders based upon
inquiries of those Persons such Broker-Dealer believes are Beneficial Owners as
a result of the most recent Auction and with respect to each such Person, the
number of shares of such series of MuniPreferred such Broker-Dealer believes to
be owned by such Person. The Auction Agent shall keep confidential such registry
of Existing Holders and shall not disclose the identities of the Existing
Holders of such shares of MuniPreferred to any Person other than the Fund and
the Broker-Dealer that provided such information.
2.3 Information Concerning Rates.
(a) The Rate Multiple on the date of the Agreement is set
forth in the Request and Acceptance Letter. If there is any change in the credit
rating of MuniPreferred by either of the rating agencies (or substitute or
successor rating agencies) referred to in the definition of "Rate Multiple"
resulting in any change in the Rate Multiple for MuniPreferred after the date of
the
5
<PAGE> 6
Request and Acceptance Letter, the Fund shall notify the Auction Agent in
writing of such change in the Rate Multiple prior to 12:00 Noon on the Business
Day prior to the next Auction Date for any series of MuniPreferred succeeding
such change. If the Fund designates all or a portion of any dividend on shares
of any series of MuniPreferred to consist of net capital gains or other income
taxable for Federal income tax purposes, it will indicate, in its notice in the
form of Exhibit I hereto to the Auction Agent pursuant to Section 2.6 hereof,
the Rate Multiple for such series to be in effect for the Auction Date on which
the dividend rate for such dividend is to be fixed. In determining the Maximum
Rate for any series of MuniPreferred on any Auction Date as set forth in Section
2.3(b)(i) hereof, the Auction Agent shall be entitled to rely on the last Rate
Multiple for MuniPreferred of which it has most recently received notice from
the Fund (or, in the absence of such notice, the percentage set forth in the
Request and Acceptance Letter), except that if the Fund shall have notified the
Auction Agent of a Rate Multiple to be in effect for an Auction Date in
accordance with the preceding sentence, the Rate Multiple in effect for the next
succeeding Auction Date of any series of MuniPreferred shall be, unless the Fund
notifies the Auction Agent of a change in the Rate Multiple for such succeeding
Auction Date pursuant to this Section 2.3(a), the Rate Multiple that was in
effect on the first preceding Auction Date for MuniPreferred with respect to
which the dividend, the rate for which was fixed on such Auction Date, did not
include any net capital gains or other income taxable for Federal income tax
purposes.
(b) (i) On each Auction Date for any series of MuniPreferred,
the Auction Agent shall determine the Maximum Rate for such series. The Maximum
Rate for any series of MuniPreferred on any Auction Date shall be:
(A) in the case of any Auction Date which is not the Auction
Date immediately prior to the first day of any proposed Special Rate
Period designated by the Fund pursuant to Section 4 of Part I of the
Statement, the product of (1) the Reference Rate on such Auction Date
for the next Rate Period of such series and (2) the Rate Multiple on
such Auction Date, unless such series has or had a Special Rate Period
(other than a Special Rate Period of 28 Rate Period Days or fewer) and
an Auction at which Sufficient Clearing Bids existed has not yet
occurred for a Minimum Rate Period of such series after such Special
Rate Period, in which case the higher of:
(1) the dividend rate on shares of such series for
the then-ending Rate Period; and
(2) the product of (x) the higher of (I) the
Reference Rate on such Auction Date for a Rate Period equal in
length to the then-ending Rate Period of such series, if such
then ending Rate Period was 364 Rate Period Days or fewer, or
the Treasury Note Rate on such Auction Date for a Rate Period
equal in length to the then-ending Rate Period of such series,
if such then ending Rate Period was more than 364 Rate Period
Days, and (II) the Reference Rate on such Auction Date for a
Rate Period equal in length to such Special Rate Period of
such series, if such
6
<PAGE> 7
Special Rate Period was 364 Rate Period Days or fewer, or the
Treasury Note Rate on such Auction Date for a Rate Period
equal in length to such Special Rate Period, if such Special
Rate Period was more than 364 Rate Period Days and (y) the
Rate Multiple on such Auction Date; or
(B) in the case of any Auction Date which is the Auction Date
immediately prior to the first day of any proposed Special Rate Period
designated by the Fund pursuant to Section 4 of Part I of the
Statement, the product of (1) the highest of (x) the Reference Rate on
such Auction Date for a Rate-Period equal in length to the then-ending
Rate Period of such series, if such then-ending Rate Period was 364
Rate Period Days or fewer, or the Treasury Note Rate on such Auction
Date for a Rate Period equal in length to the then-ending Rate Period
of such Rate Period, if such then-ending Rate Period was more than 364
Rate Period Days, (y) the Reference Rate on such Auction Date for the
Special Rate Period for which the Auction is being held if such Special
Rate Period is 364 Rate Period Days or fewer or the Treasury Note Rate
on such Auction Date for the Special Rate Period for which the Auction
is being held if such Special Rate Period is more than 364 Rate Period
Days, and (z) the Reference Rate on such Auction Date for Minimum Rate
Periods and (2) the Rate Multiple on such Auction Date.
Not later than 9:30 A.M. on each Auction Date the Auction Agent shall notify the
Fund and the Broker-Dealers of the Maximum Rate so determined and the "AA"
Composite Commercial Paper Rate(s), the Taxable Equivalent of the Short-Term
Municipal Bond Rate(s), Treasury Note Rate(s) and Treasury Bill Rate(s), as the
case may be, used to make such determination.
(ii) From and after a Failure to Deposit by the Fund
during any Rate Period of any series of MuniPreferred, until such failure is
cured and a Late Charge (as defined in paragraph (a) of Section 2.7), is paid,
in accordance with subparagraph (e)(i) of Section 2 of Part I of the Statement,
on the first day of each Rate Period of such series the Auction Agent shall
determine the Treasury Note Rate for such Rate Period of more than 364 Rate
Period Days and the Reference Rate for Rate Periods of 364 Rate Period Days or
fewer. Not later than 9:30 A.M. on each such first day, the Auction Agent shall
notify the Fund of the applicable Reference Rate and Treasury Note Rate.
(iii) If any "AA" Composite Commercial Paper Rate,
Taxable Equivalent of the Short-Term Municipal Bond Rate, Treasury Note Rate or
Treasury Bill Rate, as the case may be, is not quoted on an interest or bond
equivalent, as the case may be, basis, the Auction Agent shall convert the
quoted rate to the interest or bond equivalent thereof as set forth in the
definition of such rate in the Statement if the rate obtained by the Auction
Agent is quoted on a discount basis, or if such rate is quoted on a basis other
than an interest or bond equivalent or discount basis the Auction Agent shall
convert the quoted rate to an interest or bond equivalent rate after
consultation with the Fund as to the method of such conversion.
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<PAGE> 8
(iv) If any "AA" Composite Commercial Paper 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
such "AA" Composite Commercial Paper Rate, the Auction Agent shall immediately
notify the Fund so that the Fund 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 Fund shall promptly advise the Auction Agent of
any such selection.
(v) If any Treasury Note Rate or Treasury Bill Rate
is to be based on rates supplied by U.S. Government Securities Dealers and one
or more of the U.S. Government Securities Dealers shall not provide a quotation
for the determination of such Treasury Rate, the Auction Agent shall immediately
notify the Fund so that the Fund can determine whether to select a Substitute
U.S. Government Securities Dealer or Substitute U.S. Government Securities
Dealers to provide the quotation or quotations not being supplied by any U.S.
Government Securities Dealer or U.S. Government Securities Dealers. The Fund
shall promptly advise the Auction Agent of any such selection.
(c) The maximum marginal tax rate referred to in the
definition of "Rate Multiple" in the Statement is referred to in this Agreement
as the "Highest Marginal Rate." The Highest Marginal Rate on the date of the
Agreement is set forth in the Request and Acceptance Letter. If there is any
change in the Highest Marginal Rate, the Fund shall notify the Auction Agent in
writing of such change prior to 12:00 Noon on the Business Day prior to the next
Auction Date for MuniPreferred succeeding such change. In determining the
Maximum Rate for any series of MuniPreferred on any Auction Date, the Auction
Agent shall be entitled to rely on the Highest Marginal Rate of which it has
most recently received notice from the Fund (or, in the absence of such notice,
the percentage set forth in the Request and Acceptance Letter).
2.4 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 Fund, which consent shall not be unreasonably withheld.
The Auction Agent shall give written notice of any such change to each
Broker-Dealer. Such notice shall be given prior to the close of business on the
Business Day next preceding the first Auction Date on which any such change
shall be effective.
<TABLE>
<CAPTION>
Time Event
- ---- -----
<S> <C>
By 9:30 A.M. Auction Agent advises the
Fund and Broker-Dealers of the
applicable Maximum Rate and the
Reference Rate(s) and Treasury Note
Rate(s), as the case may be, used in
determining such Maximum Rate as set
forth in Section 2.3(b)(i) hereof.
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
Time Event
- ---- -----
<S> <C>
9:30 A.M. - 1:30 P.M. Auction Agent assembles information communicated
to it by Broker-Dealers as provided in Section 2(a) of
the Auction Procedures. Submission Deadline is
1:30 P.M.
Not earlier than 1:30 P.M. Auction Agent makes determinations pursuant to
Section 3(a) of the Auction Procedures.
By approximately 3:00 P.M. Auction Agent advises Fund of results of Auction as
provided in Section 3(b) of the Auction Procedures.
Submitted Bids and Submitted Sell Orders are
accepted and rejected and shares of MuniPreferred
allocated as provided in Section 4 of the Auction
Procedures. Auction Agent gives notice of Auction
results as set forth in paragraph(a) of the Settlement
Procedures.
</TABLE>
The Auction Agent shall follow the notification procedures set forth in
paragraph (a) of the Settlement Procedures.
2.5 Designation of Special Rate Period.
(a) The Statement will provide that, subject to the Fund's
option to designate a Special Rate Period as referred to in paragraph (b) of
this Section 2.5, (i) each Rate Period of any series of MuniPreferred will be a
Minimum Rate Period (a duration of seven days, subject to certain exceptions)
and (ii) each Rate Period following a Rate Period of any series of MuniPreferred
that is other than a Minimum Rate Period will be a Minimum Rate Period. Not less
than 10 nor more than 20 days prior to the last day of any such Rate Period that
is not a Minimum Rate Period, (i) the Fund shall deliver to the Auction Agent a
notice of the Auction Date of the next succeeding Auction for such series in the
form of Exhibit C hereto and (ii) the Auction Agent shall deliver such notice by
first-class mail, postage prepaid, to each Existing Holder of shares of such
series at the address set forth for such Existing Holder in the records of the
Auction Agent and to the Broker-Dealers for such series as promptly as
practicable after its receipt of such notice from the Fund.
(b) Pursuant to the Statement, the Fund may, at its option,
designate a Special Rate Period for any series of MuniPreferred in the manner
described in Section 4 of Part I of the Statement.
(i) If the Board of Directors or Board of Trustees,
as the case may be, proposes to designate any succeeding Subsequent
Rate Period of any series of
9
<PAGE> 10
MuniPreferred as a Special Rate Period, (A) the Fund shall deliver to
the Auction Agent a notice of such proposed Special Rate Period in the
form of Exhibit D hereto not less than 20 (or such lesser number of
days as may be agreed to from time to time by the Auction Agent) nor
more than 30 days prior to the first day of such proposed Special Rate
Period and (B) the Auction Agent on behalf of the Fund shall deliver
such notice by first-class mail, postage prepaid, to each Existing
Holder of shares of such series of MuniPreferred at the address set
forth for such Existing Holder in the records of the Auction Agent and
to the Broker-Dealers for such series as promptly as practicable after
its receipt of such notice from the Fund.
(ii) If the Board of Directors or Board of Trustees,
as the case may be, determines to designate such succeeding Subsequent
Rate Period as a Special Rate Period, (A) the Fund shall deliver to the
Auction Agent a notice of such determination in the form of Exhibit E
hereto not later than 11:00 A.M. on the second Business Day next
preceding the first day of such proposed Special Rate Period (or such
later time or date, or both, as may be agreed to by the Auction Agent)
and (B) the Auction Agent shall deliver such notice to the
Broker-Dealers for such series not later than 3:00 P.M. on such second
Business Day (or, if the Auction Agent has agreed to a later time or
date, as promptly as practicable thereafter).
(iii) If the Fund shall deliver to the Auction Agent
a notice not later than 11:00 A.M. on the second Business Day next
preceding the first day of such proposed Special Rate Period (or such
later time or date, or both, as may be agreed to by the Auction Agent)
stating that the Fund has determined not to exercise its option to
designate such succeeding Subsequent Rate Period as a Special Rate
Period, in the form of Exhibit F hereto, or shall fail to timely
deliver either such notice or a notice in the form of Exhibit E hereto,
the Auction Agent shall deliver a notice in the form of Exhibit F
hereto to the Broker-Dealers for such series not later than 3:00 P.M.
on such second Business Day (or, if the Auction Agent has agreed to a
later time or date, as promptly as practicable thereafter).
Such change in the length of any Rate Period shall not occur if (1) an Auction
for shares of such series shall not be held on such Auction Date for any reason
or (2) an Auction for shares of such series shall be held on such Auction Date
but Sufficient Clearing Bids for shares of such series shall not exist in such
Auction.
2.6 Allocation of Taxable Income.
The Fund shall, in the case of a Minimum Rate Period or a
Special Rate Period of 28 Rate Period Days or fewer, and may, in the case of any
other Special Rate Period, designate all or a portion of any dividend on shares
of any series of MuniPreferred to consist of net capital gains or other income
taxable for Federal income tax purposes by delivering to the Auction Agent a
notice in the form of Exhibit I hereto of such designation not later than the
Dividend Payment
10
<PAGE> 11
Date for such series next preceding the Auction Date on which the dividend rate
for such dividend is to be fixed. The Auction Agent will deliver such notice to
the Broker-Dealers for such series on the Business Day following its receipt of
such notice from the Fund. Within two Business Days after any Auction Date
involving the allocation of income taxable for Federal income tax purposes, the
Auction Agent shall notify each Broker-Dealer for the related series as to the
dollar amount per share of such taxable income and income exempt from Federal
income taxation included in the related dividend.
2.7 Failure to Deposit.
(a) If:
(i) any Failure to Deposit shall have occurred with
respect to shares of MuniPreferred during any Rate Period thereof
(other than any Special Rate Period of more than 364 Rate Period Days
or any Rate Period succeeding any Special Rate Period of more than 364
Rate Period Days during which a Failure to Deposit occurred that has
not been cured), but, prior to 12:00 Noon, New York City time, on the
third Business Day next succeeding the date on which such Failure to
Deposit occurred, such Failure to Deposit shall have been cured in
accordance with Section 2.7(c) hereof and the Fund shall have paid to
the Auction Agent a late charge (a "Late Charge") equal to the sum of
(1) if such Failure to Deposit consisted of the failure timely to pay
to the Auction Agent the full amount of dividends with respect to any
Dividend Period on such shares, an amount computed by multiplying (x)
200% of the Reference Rate for the Rate Period during which such
Failure to Deposit occurs on the Dividend Payment Date for such
Dividend Period by (y) a fraction, the numerator of which shall be the
number of days for which such Failure to Deposit has not been cured in
accordance with Section 2.7(c) hereof (including the day such Failure
to Deposit occurs and excluding the day such Failure to Deposit is
cured) and the denominator of which shall be 360, and applying the rate
obtained against the aggregate liquidation preference of the
outstanding shares of MuniPreferred and (2) if such Failure to Deposit
consisted of the failure timely to pay to the Auction Agent the
Redemption Price of the shares of MuniPreferred, if any, for which
Notice of Redemption has been given by the Fund, an amount computed by
multiplying (x) 200% of the Reference Rate for the Rate Period during
which such Failure to Deposit occurs on the redemption date by (y) a
fraction, the numerator of which shall be the number of days for which
such Failure to Deposit is not cured in accordance with Section 2.7(c)
hereof (including the day such Failure to Deposit occurs and excluding
the day such Failure to Deposit is cured) and the denominator of which
shall be 360, and applying the rate obtained against the aggregate
liquidation preference of the outstanding shares of MuniPreferred to
the redeemed,
then the Auction Agent shall deliver a notice in the form of Exhibit G hereto by
first-class mail, postage prepaid, to the Broker-Dealers for such series not
later than one Business Day after its receipt of the payment from the Fund
curing such Failure to Deposit and such Late Charge.
11
<PAGE> 12
(b) If:
(i) any Failure to Deposit shall have occurred with
respect to shares of MuniPreferred during any Rate Period thereof
(other than any Special Rate Period of more than 364 Rate Period Days
or any Rate Period succeeding any Special Rate Period of more than 364
Rate Period Days during which a Failure to Deposit occurred but has not
been cured), and, prior to 12:00 Noon, New York City time, on the third
Business Day next succeeding the date on which such Failure to Deposit
occurred, such Failure to Deposit shall not have been cured in
accordance with Section 2.7(c) hereof or the Fund shall not have paid
the applicable Late Charge to the Auction Agent; or
(ii) any Failure to Deposit shall have occurred with
respect to shares of MuniPreferred during a Special Rate Period thereof
of more than 364 Rate Period Days, or during any Rate Period thereof
succeeding any Special Rate Period of more than 364 Rate Period Days
during which a Failure to Deposit occurred that has not been cured,
and, prior to 12:00 noon, New York City time, on the fourth Business
Day preceding the Auction Date for the Rate Period subsequent to such
Rate Period, such Failure to Deposit shall not have been cured in
accordance with Section 2.7(c) hereof or the Fund shall not have paid
the applicable Late Charge to the Auction Agent in accordance with
Section 2(e)(i)(D) of the Statement (such Late Charge, for purposes of
this clause (b)(iii) of this Section 2.7, to be calculated by using, as
the Reference Rate, the Reference Rate applicable to a Rate Period (x)
consisting of more than 182 Rate Period Days and (y) commencing on the
date on which the Rate Period during which Failure to Deposit occurs
commenced);
then the Auction Agent shall deliver a notice in the form of Exhibit H hereto to
the Broker-Dealers for such series not later than one Business Day after the
receipt of the payment from the Fund curing such Failure to Deposit and such
Late Charge.
(c) A Failure to Deposit with respect to shares of
MuniPreferred shall have been cured (if such Failure to Deposit is not solely
due to the willful failure to the Fund to make the required payment to the
Auction Agent) with respect to any Rate Period if, within the respective time
periods described immediately above, the Fund shall have paid to the Auction
Agent (i) all accumulated and unpaid dividends on the shares of MuniPreferred
and (ii) without duplication, the Redemption Price for the shares of
MuniPreferred, if any, for which Notice of Redemption has been mailed; provided,
however, that the foregoing clause (ii) shall not apply to the Fund's failure to
pay the Redemption Price in respect of shares of MuniPreferred when the related
Redemption Notice provides that redemption of such shares is subject to one or
more conditions precedent and each such condition precedent shall not have been
satisfied at the time or times and in the manner specified in such Notice of
Redemption.
12
<PAGE> 13
2.8 Broker-Dealers.
(a) Not later than 12:00 Noon on each Auction Date for any
series of MuniPreferred, the Fund shall pay to the Auction Agent an amount in
cash equal to the aggregate fees payable to the Broker-Dealers for such series
pursuant to Section 2.8 of the Broker-Dealer Agreements for such series. The
Auction Agent shall apply such moneys as set forth in Section 2.8 of each such
Broker-Dealer Agreement.
(b) The Fund shall obtain the consent of the Auction Agent
prior to selecting any Person to act as a Broker-Dealer, which consent shall not
be unreasonably withheld.
(c) The Auction Agent shall terminate any Broker-Dealer
Agreement as set forth therein if so directed by the Fund, provided that at
least one Broker-Dealer Agreement would be in effect for each series of
MuniPreferred after such termination.
(d) Subject to the Auction Agent's having consented to the
selection of the relevant Broker-Dealer pursuant to Section 2.8(b) hereof, the
Auction Agent shall from time to time enter into such Broker-Dealer Agreements
with one or more Broker-Dealers as the Fund shall request, and shall enter into
such schedules to any such Broker-Dealer Agreements as the Fund shall request,
which schedules, among other things, shall set forth the series of MuniPreferred
to which such Broker-Dealer Agreement relates.
2.9 Ownership of Shares of MuniPreferred.
The Fund shall notify the Auction Agent if the Fund or any
affiliate of the Fund acquires any shares of MuniPreferred of any series.
Neither the Fund nor any affiliate of the Fund shall submit any Order in any
Auction for MuniPreferred, except as set forth in the next sentence. Any
Broker-Dealer that is an affiliate of the Fund may submit Orders in Auctions,
but only if such Orders are not for its own account. For purposes of this
Section 2.9, a Broker-Dealer shall not be deemed to be an affiliate of the Fund
solely because one or more of the directors or executive officers of such
Broker-Dealer or of any Person controlled by, in control of or under common
control with such Broker-Dealer is also a director of the Fund. The Auction
Agent shall have no duty or liability with respect to enforcement of this
Section 2.9.
2.10 Access to and Maintenance of Auction Records.
The Auction Agent shall, upon the receipt of prior written
notice from the Fund, afford to the Fund access at reasonable times during
normal business hours to all books, records, documents and other information
concerning the conduct and results of Auctions. The Auction Agent shall maintain
records relating to any Auction for a period of six years after such Auction,
and such records shall, in reasonable detail, accurately and fairly reflect the
actions taken by the Auction Agent hereunder.
13
<PAGE> 14
3. The Auction Agent as Dividend and Redemption Price Disbursing Agent.
The Auction Agent, as dividend and redemption price disbursing
agent, shall pay to the Holders of shares of MuniPreferred of any series (i) on
each Dividend Payment Date for such series, dividends on the shares of
MuniPreferred of such series, (ii) on any date fixed for redemption of shares of
MuniPreferred of any series, the Redemption Price of any shares of such series
called for redemption and (iii) any Late Charge related to any payment of
dividends or Redemption Price, in each case after receipt of the necessary funds
from the Fund with which to pay such dividends, Redemption Price or Late Charge.
The amount of dividends for any Rate Period for any series of MuniPreferred to
be paid by the Auction Agent to the Holders of such shares of such series will
be determined by the Fund as set forth in Section 2 of Part I of the Statement
with respect to such series. The Redemption Price of any shares to be paid by
the Auction Agent to the Holders will be determined by the Fund as set forth in
Section 11 of Part I of the Statement with respect to such series. The Fund
shall notify the Auction Agent in writing of a decision to redeem shares of any
series of MuniPreferred at least five days prior to the date a notice of
redemption is required to be mailed to the Holders of the shares to be redeemed
by paragraph (c) of Section 11 of Part I of the Statement. Such notice by the
Fund to the Auction Agent shall contain the information required by paragraph
(c) of Section 11 of Part I of the Statement to be stated in the notice of
redemption required to be mailed by the Fund to such Holders.
4. The Auction Agent as Transfer Agent and Registrar.
4.1 Issue of Stock or Shares Certificates.
Upon the Date of Original Issue of each series of
MuniPreferred, one or more certificates representing all of the shares of such
series issued on such date shall be issued by the Fund and, at the request of
the Fund, registered in the name of Cede & Co. and countersigned by the Auction
Agent.
4.2 Registration of Transfer of Shares.
Shares of each series of MuniPreferred shall be registered
solely in the name of the Securities Depository or its nominee.
4.3 Removal of Legend on Restricted Shares.
All requests for removal of legends on shares of MuniPreferred
of any series indicating restrictions on transfer shall be accompanied by an
opinion of counsel stating that such legends may be removed and such shares
freely transferred, such opinion to be delivered under
14
<PAGE> 15
cover of a letter from a Fund Officer authorizing the Auction Agent to remove
the legend on the basis of said opinion.
4.4 Lost Stock or Share Certificates.
The Auction 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
Fund and the Auction Agent, subject at all times to provisions of law, the
By-Laws of the Fund governing such matters and resolutions adopted by the Fund
with respect to lost securities. The Auction Agent may issue new certificates in
exchange for and upon the cancellation of mutilated certificates. Any request by
the Fund to the Auction 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
Fund to the Auction Agent that such issuance will comply with such provisions of
law and the By-Laws and resolutions of the Fund.
4.5 Disposition of Cancelled Certificates; Record Retention.
The Auction Agent shall retain all stock or share certificates
which have been cancelled in transfer or exchange and all accompanying
documentation in accordance with applicable rules and regulations of the
Securities and Exchange Commission for two calendar years. Upon the expiration
of this two-year period, the Auction Agent shall deliver to the Fund the
cancelled certificates and accompanying documentation. The Fund shall also
undertake to furnish to the Securities and Exchange Commission and to the Board
of Governors of the Federal Reserve System, upon demand, at either the 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
Fund without the concurrence of the Auction Agent.
4.6 Stock or Record Books.
For so long as the Auction Agent is acting as the transfer
agent for any series of MuniPreferred pursuant to the Agreement, it shall
maintain a stock or record book containing a list of the Holders of the shares
of MuniPreferred of each such series. In case of any request or demand for the
inspection of the stock or record books of the Fund or any other books in the
possession of the Auction Agent, the Auction Agent will notify the Fund and
secure instructions as to permitting or refusing such inspection. The Auction
Agent reserves the right, however, to exhibit the stock or record books or other
books to any Person in case it is advised by its counsel that its failure to do
so would be unlawful.
4.7 Return of Funds.
Any funds deposited with the Auction Agent hereunder by the
Fund for any reason, including but not limited to redemption of shares of
MuniPreferred of any series, that remain
15
<PAGE> 16
unpaid after ninety days shall be repaid to the Fund upon the written request of
the Fund, together with interest, if any, earned thereon.
5. Representations and Warranties of the Fund.
The Fund represents and warrants to the Auction Agent that:
(a) the Fund is a duly incorporated and existing corporation
or a duly organized and existing business trust in good standing under
the laws of the State of its incorporation or organization and has full
corporate power or all requisite power to execute and deliver the
Agreement and to authorize, create and issue the shares of
MuniPreferred of each series and the shares of MuniPreferred of each
series when issued, will be duly authorized, validly issued, fully paid
and nonassessable;
(b) the Agreement has been duly and validly authorized,
executed and delivered by the Fund and constitutes the legal, valid and
binding obligation of the Fund;
(c) the form of the certificate evidencing the shares of
MuniPreferred of each series complies or will comply with all
applicable laws of the State of its incorporation or organization;
(d) when issued, the shares of MuniPreferred of each series
will have been duly registered under the Securities Act of 1933, as
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 the Agreement or will
have been required in connection with the issuance of the shares of
MuniPreferred of each series;
(e) the execution and delivery of the Agreement and the
issuance and delivery of the shares of MuniPreferred of each series 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
Articles of Incorporation or Declaration of Trust (as amended by one or
more Statements) or the By-Laws of the Fund, any law or regulation, any
order or decree of any court or public authority having jurisdiction,
or any mortgage, indenture, contract, agreement or undertaking to which
the Fund is a party or by which it is bound the effect of which
conflict, violation, default or breach would be material to the Fund or
the Fund and its subsidiaries taken as a whole; and
(f) no taxes are payable upon or in respect of the execution
of the Agreement or the issuance of the shares of MuniPreferred of any
series.
16
<PAGE> 17
6. The Auction Agent.
6.1 Duties and Responsibilities.
(a) The Auction Agent is acting solely as agent for the Fund
hereunder and owes no fiduciary duties to any Person, other than the Fund, by
reason of the Agreement.
(b) The Auction Agent undertakes to perform such duties and
only such duties as are specifically set forth in the Agreement, and no implied
covenants or obligations shall be read into the 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 or
for any error of judgment made by it in the performance of its duties under the
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
the pertinent facts.
6.2 Rights of the Auction Agent.
(a) The Auction Agent may rely and shall be protected in
acting or refraining from acting upon any communication authorized hereby and
upon any written instruction, notice, request, direction, consent, report,
certificate, share certificate or other instrument, paper or document believed
in good faith 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 Fund or by a
Broker-Dealer. The Auction Agent may record telephone communications with the
Fund or with the Broker-Dealers or both.
(b) The Auction Agent may consult with counsel of its 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.
(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 and shall
not be responsible for any misconduct or negligence on the part of any agent or
attorney appointed by it with due care hereunder.
6.3 Auction Agent's Disclaimer.
The Auction Agent makes no representation as to the validity
or adequacy of the Agreement, the Broker-Dealer Agreements or the shares of
MuniPreferred of any series except that the Auction Agent hereby represents that
the Agreement has been duly authorized, executed
17
<PAGE> 18
and delivered by the Auction Agent and constitutes a legal and binding
obligation of the Auction Agent.
6.4 Compensation, Expenses and Indemnification.
(a) The Fund shall pay the Auction Agent from time to time
reasonable compensation for all services rendered by it under the Agreement and
the Broker-Dealer Agreements.
(b) The Fund shall reimburse the Auction Agent upon its
request for all reasonable out-of-pocket expenses, disbursements and advances
incurred or made by the Auction Agent in accordance with any provision of the
Agreement and the Broker-Dealer Agreements (including the reasonable
compensation and the expenses and disbursements of its agents and counsel),
except any expense or disbursement attributable to its negligence or bad faith.
(c) The Fund 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 the
Agreement and the Broker-Dealer Agreements, including the costs and expenses of
defending itself against any such claim or liability in connection with its
exercise or performance of any of its duties hereunder and thereunder.
7. Miscellaneous.
7.1 Term of Agreement.
(a) The term of the Agreement is unlimited unless it shall be
terminated as provided in this Section 7.1. The Fund may terminate the Agreement
at any time by so notifying the Auction Agent, provided that the Fund has
entered into an agreement in substantially the form of the Agreement with a
successor Auction Agent. The Auction Agent may terminate the Agreement upon
written notice to the Fund on the date specified in such notice, which date
shall be no earlier than 45 days after the date of delivery of such notice.
(b) Except as otherwise provided in this paragraph (b), the
respective rights and duties of the Fund and the Auction Agent under the
Agreement with respect to any series of MuniPreferred shall cease upon
termination of the Agreement with respect to such series. The Fund's
representations, warranties, covenants and obligations to the Auction Agent
under Sections 5 and 6.4 hereof shall survive the termination of the Agreement
with respect to any series of MuniPreferred. Upon termination of the Agreement
with respect to any series of MuniPreferred, the Auction Agent shall, at the
Fund's request, promptly deliver to the Fund copies of all books and records
maintained by it with respect to MuniPreferred in connection with its duties
hereunder.
18
<PAGE> 19
7.2 Communications.
Except for (i) communications authorized to be by telephone
pursuant to the 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, addressed to it, at its address or telecopy number set forth below:
If to the Fund, [Name of Fund]
333 West Wacker Drive
Chicago, Illinois 60606
Attention: Richard J. Franke,
Chairman of the Board
Telecopier No.: (312) 917-7942
Telephone No.: (312) 917-7700
If to the Auction Agent, to the
address or telecopy number set forth
in the Request and Acceptance
Letter,
or such other address or telecopy number as such party may hereafter 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 Fund by a Fund Officer and on
behalf of the Auction Agent by telephone (confirmed by telecopy or in writing)
by an Authorized Officer.
7.3 Entire Agreement.
The Agreement contains the entire agreement between the
parties relating to, and superseding any prior agreement between the parties
relating to, the subject matter hereof, and there are no other representations,
endorsements, promises, agreements or understandings, oral, written or implied,
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 Fund, the Auction Agent and their respective successors and
assigns, any benefit of any legal or equitable right, remedy or claim hereunder.
19
<PAGE> 20
7.5 Amendment; Waiver.
(a) The Agreement shall not be deemed or construed to be
modified, amended, rescinded, cancelled 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 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.
The Agreement shall be binding upon, inure to the benefit of,
and be enforceable by, the respective successors and assigns of each of the Fund
and the Auction Agent.
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 Governing Law.
The Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
If the Fund is a Massachusetts business trust, the following
provision is deemed to be included in the Basic Terms:
7.9 Declaration of Trust.
The Fund's Declaration is on file with the Secretary of State
of the Commonwealth of Massachusetts. This Agreement has been executed on behalf
of the Fund by the Vice President and Treasurer of the Fund acting in such
capacity and not individually, and the obligations of the Fund set forth in this
Agreement are not binding upon any of the Fund's trustees, officers or
shareholders individually, but are binding only upon the assets and property of
the Fund.
20
<PAGE> 21
EXHIBIT A
FORM OF
BROKER-DEALER AGREEMENT
<PAGE> 22
EXHIBIT B
SETTLEMENT PROCEDURES
<PAGE> 23
EXHIBIT C
[NAME OF FUND]
NOTICE OF AUCTION DATE FOR
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK [SHARES]
("MuniPreferred(R)")
NOTICE IS HEREBY GIVEN that the Auction Date of the next
Auction for Series ___ of the Fund's MuniPreferred is scheduled to be
_______________, 19___ and the next Dividend Payment Date for Series ___ of the
Fund's MuniPreferred will be __________________, 19___.
[A Failure to Deposit in respect of the Series ___
MuniPreferred currently exists. If, prior to 12:00 noon, New York City time, on
the fourth Business Day preceding the next scheduled Auction Date of the Series
____ MuniPreferred, such Failure to Deposit is not cured or the applicable Late
Charge is not paid, the next Auction will not be held. Notice of the next
Auction for the Series ___ MuniPreferred will be delivered when such Failure to
Deposit is cured and the applicable Late Charge is paid.(1)]
[NAME OF FUND]
- --------
(1) Include this language if a Failure to Deposit exists.
<PAGE> 24
EXHIBIT D
[NAME OF FUND]
NOTICE OF PROPOSED CHANGE OF
LENGTH OF RATE PERIOD OF
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK [SHARES]
("MuniPreferred(R)")
[Name of Fund] (the "Fund") may exercise its option to
designate the Rate Period of its Series ____ MuniPreferred commencing [the first
day of the Special Rate Period] as a Special Rate Period.
By 11:00 A.M. on the second Business Day preceding the first
day of such proposed Special Rate Period, the Fund will notify
___________________ of either (a) its determination to exercise such option,
designating the length of such Special Rate Period for such series or (b) its
determination not to exercise such option.
[NAME OF FUND]
Dated: ___________________, 19___
<PAGE> 25
EXHIBIT E
[NAME OF FUND]
NOTICE OF CHANGE OF LENGTH OF RATE PERIOD
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK [SHARES]
("MuniPreferred(R)")
NOTICE IS HEREBY GIVEN that [NAME OF FUND] (the "Fund") has
determined to designate the Rate Period of its Series ____ MuniPreferred
commencing on [the first day of the Special Rate Period] as a Special Rate
Period.
The Special Rate Period will be __________ [Rate Period Days].
The Auction Date for the Special Rate Period is [the Business
Day next preceding the first day of such Special Rate Period].
As a result of the Special Rate Period designation, the amount
of dividends payable on Series ____ MuniPreferred during the Special Rate Period
will be based on a 360-day year.
The Special Rate Period shall not commence if (a) an Auction
for shares of MuniPreferred shall not be held on such Auction Date for any
reason or (b) an Auction for shares of MuniPreferred shall be held on such
Auction Date but Sufficient Clearing Bids for such shares shall not exist in
such Auction.
The scheduled Dividend Payment Dates for such series of
MuniPreferred during such Special Rate Period will be _________________________.
[Special Redemption Provisions, if any]
Attached hereto is a MuniPreferred Basic Maintenance Report
showing that, as of the third Business Day next preceding such proposed Special
Rate Period, Moody's Eligible Assets (if Moody's is rating such shares of
MuniPreferred) and S&P Eligible Assets (if S&P is rating such shares of
MuniPreferred) each have an aggregate Discounted Value at least equal to the
MuniPreferred Basic Maintenance Amount as of such Business Day (assuming for
purposes of the foregoing calculation that (i) the Maximum Rate is the Maximum
Rate on such Business Day as if such Business Day were the Auction Date for the
proposed Special Rate Period, and (ii) the Moody's Discount Factors applicable
to Moody's Eligible Assets are determined by reference to
<PAGE> 26
the first Moody's Exposure Period longer than the Moody's Exposure Period then
applicable to the Fund.)
[NAME OF FUND]
Dated: _____________, 19____
E-2
<PAGE> 27
EXHIBIT F
[NAME OF FUND]
NOTICE OF DETERMINATION NOT TO CHANGE
LENGTH OF RATE PERIOD OF
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK [SHARES]
("MuniPreferred(R)")
NOTICE IS HEREBY GIVEN that [NAME OF FUND] (the "Fund") has
determined not to exercise its option to designate a Special Rate Period of its
Series ___ MuniPreferred and the next succeeding Rate Period of such series will
be a Minimum Rate Period of ____ Rate Period Days.
[NAME OF FUND]
Dated: _______________, 19____
<PAGE> 28
EXHIBIT G
[NAME OF FUND]
NOTICE OF CURE OF
FAILURE TO DEPOSIT ON
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK [SHARES]
("MuniPreferred(R)")
NOTICE IS HEREBY GIVEN that [NAME OF FUND] (the "Fund") has
cured its Failure to Deposit and paid the applicable Late Charge with respect to
its Series ___ MuniPreferred. The dividend rate on the shares of Series ___
MuniPreferred for the current Dividend Period is _____________% per annum, the
Dividend Payment Date for the current Dividend Period is scheduled to be
_______________, 19___ and the next Auction Date is scheduled to be
_______________, 19___.
[NAME OF FUND]
Dated: ________________, 19___
<PAGE> 29
EXHIBIT H
[NAME OF FUND]
NOTICE OF CURE OF
FAILURE TO DEPOSIT ON
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK [SHARES]
("MuniPreferred(R)")
NOTICE IS HEREBY GIVEN that [NAME OF FUND] (the "Fund") has
cured its Failure to Deposit and paid the applicable Late Charge with respect to
its Series ____ MuniPreferred. The next Auction Date for the Series ____
MuniPreferred is scheduled to be on _________________, 19___.
[NAME OF FUND]
Dated: _________________, 19____
<PAGE> 30
EXHIBIT I
[NAME OF FUND]
NOTICE OF
[CAPITAL GAINS] [AND] [TAXABLE ORDINARY INCOME](1)
DIVIDEND FOR
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK [SHARES]
("MuniPreferred(R)")
NOTICE IS HEREBY GIVEN that the amount of the dividend payable on
________________, 19____ for Series ____ of the Fund's MuniPreferred will be
determined by the Auction to be held on _______________, 19___. Up to [$ A ](2)
[$ B ](3) per share of the dividend payable on such date as determined by such
Auction will consist of [capital gains](2) [ordinary income taxable for Federal
income tax purposes](3). If the dividend amount payable on such date as
determined by such Auction is less than [$ A ](2) [$ B ](3) per share, the
entire amount of the dividend will consist of [capital gains](2) [ordinary
income taxable for Federal income tax purposes](3). [To the extent such dividend
amount exceeds [$ A ] per share, any excess up to [$ B ] per share will consist
of ordinary income taxable for Federal income tax purposes.](4) Accordingly, the
aforementioned composition of the dividend payable on _______________, 19___
should be considered in determining Orders to be submitted with respect to the
Auction to be held on ________________, 19__. The Rate Multiple in effect for
such Auction will be ____%.
[NAME OF FUND]
- --------
(1) Include language with respect to capital gains, taxable ordinary
income or both, depending on the character of the designation to be made with
respect to the dividend(s).
(2) Include bracketed material if a portion of the dividend will be
designated capital gains.
(3) Include bracketed material if a portion of the dividend will be
designated ordinary income taxable for Federal income tax purposes and no
portion of the dividend will be designated capital gains.
(4) Include bracketed material if a portion of the dividend will be
designated capital gains and a portion will be designated ordinary income
taxable for Federal income tax purposes.
<PAGE> 31
(Footnotes continued)
A = the maximum amount of capital gains allocated to such series of
MuniPreferred to be included in such dividend, divided by the number of
shares of MuniPreferred.
B = the maximum amount of ordinary income taxable for Federal income tax
purposes allocated to such series of MuniPreferred to be included in
such dividend, divided by the number of shares in such series.
I-2
<PAGE> 1
Exhibit K.4
NUVEEN BROKER-DEALER AGREEMENT
Basic Terms for Acting as a Broker-Dealer
December 14, 1993
These basic terms ("Basic Terms") set forth the general terms
and conditions pursuant to which a broker-dealer identified in an Acceptance
Letter (together with its successors and assigns, a "BD") will act as a
broker-dealer for Municipal Auction Rate Cumulative Preferred Stock or Shares
issued by investment companies, now or hereafter organized, registered under the
Investment Company Act of 1940, as amended, as further identified by the Request
Letters (the "Funds"), for which Nuveen Advisory Corp. (the "Adviser") is the
investment adviser.
Each Fund has issued or may issue shares of MuniPreferred(R),
pursuant to its Articles of Incorporation or Declaration of Trust, as amended or
supplemented by the Statement of such Fund. A bank or trust company specified in
the Request Letter will act as the auction agent (the "Auction Agent") of such
Fund pursuant to authority granted it in the Auction Agency Agreement.
The Statement of each Fund will provide that, for each
Subsequent Rate Period of any series of MuniPreferred of such Fund then
outstanding, the Applicable Rate for such series for such Subsequent Rate Period
shall, except under certain conditions, be the rate per annum that the Auction
Agent of such Fund advises results from implementation of the Auction Procedures
for such series. The Board of Directors or Board of Trustees, as the case may
be, of each Fund will adopt a resolution appointing the Auction Agent as auction
agent for purposes of the Auction Procedures for each series of MuniPreferred of
such Fund.
The Auction Procedures of each Fund will require the
participation of one or more Broker-Dealers for each series of MuniPreferred of
such Fund. BD will act as a Broker-Dealer for each series of MuniPreferred of
each Fund identified in a Request Letter.
1. Definitions and Rules of Construction.
1.1. Terms Defined by Reference to Statement.
Capitalized terms not defined herein shall have the respective
meanings specified in the Statement of the relevant Fund.
<PAGE> 2
1.2. Terms Defined Herein.
As used herein and in the Settlement Procedures, the following
terms shall have the following meanings, unless the context otherwise requires:
(a) "Acceptance Letter" shall mean the letter from Adviser to
BD pursuant to which the Adviser appoints BD as a Broker Dealer for
each series of MuniPreferred issued by any Fund that has executed a
Request Letter.
(b) "Agreement", with respect to any Fund, shall mean the
Basic Terms, together with the Acceptance Letter and the Request Letter
relating to one or more series of MuniPreferred of such Fund and any
other substantially similar agreement among such Fund, the Adviser, any
Auction Agent for such Fund and/or BD.
(c) "Auction" shall have the meaning specified in Section 2.1
hereof.
(d) "Auction Agency Agreement", with respect to any Fund,
shall mean the Auction Agency Agreement between such Fund and the
Auction Agent relating to one or more series of MuniPreferred of such
Fund.
(e) "Auction Procedures", with respect to any Fund, shall mean
the auction procedures constituting Part II of the form of Statement of
such Fund as of the filing thereof.
(f) "Authorized Officer" of an Auction Agent shall mean each
Senior Vice President, Vice President, Assistant Vice President,
Assistant Treasurer and Assistant Secretary of such Auction Agent
assigned to its Corporate Trust and Agency Group and every other
officer or employee of such Auction Agent designated as an "Authorized
Officer" for purposes of the Agreement in a communication to BD.
(g) "BD Officer" shall mean each officer or employee of BD
designated as a "BD Officer" for purposes of the Agreement in a
communication to any Auction Agent.
(h) "MuniPreferred" shall mean the preferred stock or shares,
par value $.01 per share, of any Fund designated as its "Municipal
Auction Rate Cumulative Preferred Stock" or "Municipal Auction Rate
Cumulative Preferred Shares" and bearing such further designation as to
series as the Board of Directors or Board of Trustees, as the case may
be, of such Fund or any committee thereof shall specify, as set forth
in a Request Letter.
2
<PAGE> 3
(i) "Request Letter", with respect to any Fund, shall mean the
letter from such Fund to the Adviser and the Auction Agent for such
Fund pursuant to which such Fund appoints BD as a Broker-Dealer for
each series of MuniPreferred of such Fund.
(j) "Settlement Procedures" shall mean the Settlement
Procedures attached hereto as Exhibit A.
(k) "Statement", with respect to any Fund, shall mean the
Statement Establishing and Fixing the Rights and Preferences of, and
authorizing the issuance of, one or more series of Municipal Auction
Rate Cumulative Preferred Stock or Municipal Auction Rate Cumulative
Preferred Shares, as filed by such Fund with the office of the
Secretary of State or other officer of the state where such Fund was
incorporated or organized, a copy of which will be attached to the
Request Letter of such Fund.
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 each
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 such
Agreement nor shall they affect its meaning, construction or effect.
(c) The words "hereof", "herein", "hereto", and other words of
similar import refer to such Agreement as a whole.
(d) All references herein to a particular time of day shall be
to New York City time.
2. The Auction.
2.1. Purpose; Incorporation by Reference of Auction
Procedures and Settlement Procedures.
(a) The provisions of the Auction Procedures of any Fund will
be followed by the Auction Agent of such Fund for the purpose of determining the
Applicable Rate for any Subsequent Rate Period of any series of MuniPreferred of
such Fund for which the Applicable
3
<PAGE> 4
Rate is to be determined by an Auction. 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 hereof to the same extent as if such
provisions were fully set forth herein.
(c) BD agrees to act as, and assumes the obligations of, and
limitations and restrictions placed upon, a Broker-Dealer under each Agreement
for each series of MuniPreferred. BD understands that other Persons meeting the
requirements specified in the definition of "Broker-Dealer" contained in the
Auction Procedures may execute Agreements and participate as Broker-Dealers in
Auctions.
2.2. Preparation for Each Auction.
(a) Not later than 9:30 A.M. on each Auction Date for any
series of MuniPreferred, the Auction Agent for such series shall advise the
Broker-Dealers for such series by telephone of the Maximum Rate therefor and the
Reference Rate(s) and Treasury Note Rate(s), as the case may be, used in
determining such Maximum Rate.
(b) In the event that any Auction Date for any series of
MuniPreferred shall be changed after the Auction Agent for such series has given
the notice referred to in clause (vi) of paragraph (a) of the Settlement
Procedures, or after the notice referred to in Section 2.5(a) hereof, if
applicable, such Auction Agent, by such means as such Auction Agent deems
practicable, shall give notice of such change to BD, if it is a Broker-Dealer
for such series, 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) For purposes of maintaining its list of Existing Holders,
the Auction Agent for any series of MuniPreferred from time to time may request
any Broker-Dealer to provide such Auction Agent with a list of Persons who such
Broker-Dealer believes should be Existing Holders based upon inquiries of those
Persons such Broker-Dealer believes are Beneficial Owners as a result of the
most recent Auction and with respect to each such Person, the number of shares
of such series of MuniPreferred such Broker-Dealer believes are owned by such
Person. BD shall comply with any such request relating to a series of
MuniPreferred in respect of which BD was named a Broker-Dealer, and the Auction
Agent shall keep confidential any such information so provided by BD and shall
not disclose any information so provided by BD to any Person other than the Fund
and BD.
(d) BD agrees to maintain a list of customers relating to a
series of MuniPreferred and to use its best efforts, subject to existing laws
and regulations, to contact the customers on such list whom BD believes may be
interested in participating in the Auction on each Auction Date, as a Potential
Holder or a Potential Beneficial Owner, for the purposes set forth in
4
<PAGE> 5
the Auction Procedures. Nothing herein shall require BD to submit an Order for
any customer in any Auction.
(e) The Auction Agent's registry of Existing Holders of shares
of a series of MuniPreferred shall be conclusive and binding on BD. BD may
inquire of the Auction Agent between 3:00 P.M. on the Business Day preceding an
Auction for shares of a series of MuniPreferred and 9:30 A.M. on the Auction
Date for such Auction to ascertain the number of shares of such series in
respect of which the Auction Agent has determined BD to be an Existing Holder.
If BD believes it is the Existing Holder of fewer shares of such series than
specified by the Auction Agent in response to BD's inquiry, BD may so inform the
Auction Agent of that belief. BD shall not, in its capacity as Existing Holder
of shares of such series, submit Orders in such Auction in respect of shares of
such series covering in the aggregate more than the number of shares of such
series specified by the Auction Agent in response to BD's inquiry.
2.3. Auction Schedule; Method of Submission of Orders.
(a) Each Fund and the Auction Agent for such Fund shall
conduct Auctions for MuniPreferred in accordance with the schedule set forth
below. Such schedule with respect to any series of MuniPreferred of any Fund may
be changed by the Auction Agent for such series with the consent of such Fund,
which consent shall not be unreasonably withheld. Such Auction Agent shall give
written notice of any such change to each Broker-Dealer of such series. Such
notice shall be given prior to the close of business on the Business Day next
preceding the first Auction Date on which such change shall be effective.
<TABLE>
<CAPTION>
Time Event
---- -----
<S> <C>
By 9:30 A.M. Auction Agent for such series advises such
Fund and the Broker-Dealers for such series
of the applicable Maximum Rate and the
Reference Rate(s) and Treasury Note Rate(s),
as the case may be, used in determining such
Maximum Rate as set forth in Section 2.2(a)
hereof.
9:30 A.M. - 1:30 P.M. Auction Agent assembles information
communicated to it by Broker-Dealers as
provided in Section 2(a) of the Auction
Procedures of such Fund. Submission Deadline
is 1:30 P.M.
Not earlier than 1:30 P.M. Auction Agent makes determinations pursuant
to Section 3(a) of the Auction Procedures of
such Fund.
</TABLE>
5
<PAGE> 6
<TABLE>
<CAPTION>
Time Event
---- -----
<S> <C>
By approximately 3:00 P.M. Auction Agent advises Fund of results of
Auction as provided in Section 3(b) of the
Auction Procedures of such Fund.
Submitted Bids and Submitted Sell Orders are
accepted and rejected and shares of such
series of MuniPreferred allocated as
provided in Section 4 of the Auction
Procedures of such Fund.
Auction Agent gives notice of Auction
results as set forth in Section 2.4(a)
hereof.
</TABLE>
(b) BD shall submit Orders to the appropriate Auction Agent in
writing substantially in the form attached hereto as Exhibit B. BD shall submit
a separate Order to such Auction Agent for each Potential Holder or Existing
Holder with respect to whom BD is submitting an Order and shall not otherwise
net or aggregate such Orders prior to their submission to such Auction Agent.
(c) BD shall deliver to the appropriate Auction Agent (i) a
written notice in substantially the form attached hereto as Exhibit C of
transfers of shares of MuniPreferred to BD from 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 any shares of MuniPreferred to
be transferred to or by any Person that purchased or sold shares of
MuniPreferred through BD pursuant to an Auction. Such Auction Agent is not
required to accept any such notice described in clause (i) for an Auction unless
it is received by the Auction Agent by 3:00 P.M. on the Business Day preceding
such Auction.
(d) BD and other Broker-Dealers may submit Orders in Auctions
for their own accounts (including Orders for their own accounts where the Order
is placed beneficially for a customer) unless the relevant Fund shall have
notified BD and all other Broker-Dealers that they may no longer do so, in which
case Broker-Dealers may continue to submit Hold Orders and Sell Orders for their
own accounts.
(e) BD agrees to handle its customers' orders in accordance
with its duties under applicable securities laws and rules.
(f) To the extent that pursuant to Section 4 of the Auction
Procedures of any Fund, BD continues to hold, sells, or purchases a number of
shares that is fewer than the number of shares in an Order submitted by BD to
the Auction Agent in which BD designated itself as an
6
<PAGE> 7
Existing Holder or Potential Holder in respect of customer Orders, BD shall make
appropriate pro rata allocations among its customers for which it submitted
Orders of similar tenor. If as a result of such allocations, any Beneficial
Owner would be entitled or required to sell, or any Potential Beneficial Owner
would be entitled or required to purchase, a fraction of a share of
MuniPreferred on any Auction Date, BD shall, in such manner as it shall
determine in its sole discretion, round up or down the number of shares of
MuniPreferred to be purchased or sold on such Auction Date by any Beneficial
Owner or Potential Beneficial Owner on whose behalf BD submitted an Order so
that the number of shares so purchased or sold by each such Beneficial Owner or
Potential Beneficial Owner on such Auction Date shall be whole shares of
MuniPreferred.
2.4. Notices.
(a) On each Auction Date for any series of MuniPreferred, the
Auction Agent for such series shall notify BD, if BD is a Broker-Dealer of such
series, by telephone of the results of the Auction as set forth in paragraph (a)
of the Settlement Procedures. By approximately 11:30 A.M. on the Business Day
next succeeding such Auction Date, the relevant Auction Agent shall confirm to
BD in writing the disposition of all Orders submitted by BD in such Auction.
(b) BD shall notify each Existing Holder, Potential Holder,
Beneficial Owner or Potential Beneficial Owner of shares of MuniPreferred with
respect to whom 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.
2.5. Designation of Special Rate Period.
(a) If any Fund delivers to its Auction Agent a notice of the
Auction Date for any series of MuniPreferred of such Fund for a Rate Period
thereof that next succeeds a Rate Period that is not a Minimum Rate Period in
the form of Exhibit C to the Auction Agency Agreement, and BD is a Broker-Dealer
of such series, the Auction Agent shall deliver such notice to BD as promptly as
practicable after its receipt of such notice from such Fund.
(b) If the Board of Directors or Board of Trustees, as the
case may be, of any Fund proposes to designate any succeeding Subsequent Rate
Period of any series of MuniPreferred of such Fund as a Special Rate Period and
such Fund delivers to its Auction Agent a notice of such proposed Special Rate
Period in the form of Exhibit D to the Auction Agency Agreement, and BD is a
Broker-Dealer for such series, such Auction Agent shall deliver such notice to
BD as promptly as practicable after its receipt of such notice from the Fund.
(c) If the Board of Directors or Board of Trustees, as the
case may be, of any Fund determines to designate such succeeding Subsequent Rate
Period as a Special Rate Period, and such Fund delivers to its Auction Agent a
notice of such Special Rate Period in the form of Exhibit E to the Auction
Agency Agreement not later than 11:00 A.M. on the second Business Day next
preceding the first day of such Rate Period (or by such later time or date, or
both, as
7
<PAGE> 8
may be agreed to by such Auction Agent), and BD is a Broker-Dealer for such
series, such Auction Agent shall deliver such notice to BD not later than 3:00
P.M. on such second Business Day (or, if such Auction Agent has agreed to a
later time or date, as promptly as practicable thereafter).
(d) If any Fund shall deliver to its Auction Agent a notice
not later than 11:00 A.M. on the second Business Day next preceding the first
day of any Rate Period (or by such later time or date, or both, as may be agreed
to by such Auction Agent) stating that such Fund has determined not to exercise
its option to designate such succeeding Subsequent Rate Period as a Special Rate
Period, in the form of Exhibit F to the Auction Agency Agreement, or shall fail
to timely deliver either such notice or a notice in the form of Exhibit E to the
Auction Agency Agreement, and BD is a Broker-Dealer for such series, such
Auction Agent shall deliver a notice in the form of Exhibit F to the Auction
Agency Agreement to BD not later than 3:00 P.M. on such second Business Day (or,
if such Auction Agent has agreed to a later time or date, as promptly as
practicable thereafter).
2.6. Allocation of Taxable Income.
If any Fund delivers to its Auction Agent a notice in the form
of Exhibit I to the Auction Agency Agreement designating all or a portion of any
dividend on shares of any series of MuniPreferred of such Fund to consist of net
capital gains or other income taxable for Federal income tax purposes, and BD is
a Broker-Dealer for such series, such Auction Agent shall deliver such notice to
BD on the Business Day following its receipt of such notice from such Fund. On
or prior to the Auction Date referred to in such notice, BD will contact each of
its customers that is a Beneficial Owner of shares of such series of
MuniPreferred or a Potential Beneficial Owner of shares of such series of
MuniPreferred interested in submitting an Order in the Auction to be held on
such Auction Date, and BD will notify such Beneficial Owners and Potential
Beneficial Owners of the contents of such notice. BD will be deemed to have
notified such Beneficial Owners and Potential Beneficial Owners if, for each of
them, (i) BD makes a reasonable effort to contact such Beneficial Owner or
Potential Beneficial Owner by telephone, and (ii) upon failing to contact such
Beneficial Owner or Potential Beneficial Owner by telephone BD mails written
notification to such Beneficial Owner or Potential Beneficial Owner at the
mailing address indicated in the account records of BD.
The Auction Agent for any series of MuniPreferred shall be
required to notify BD if it is a Broker-Dealer for such series within two
Business Days after each Auction of such series that involves an allocation of
income taxable for Federal income tax purposes as to the dollar amount per share
of such taxable income and income exempt from Federal income taxation included
in the related dividend.
8
<PAGE> 9
2.7. Failure to Deposit.
(a) If:
(i) any Failure to Deposit shall have occurred with
respect to shares of any series of MuniPreferred of any Fund during any
Rate Period thereof (other than any Special Rate Period of more than
364 Rate Period Days or any Rate Period succeeding any Special Rate
Period of more than 364 Rate Period Days during which a Failure to
Deposit occurred that has not been cured), but, prior to 12:00 Noon,
New York City time, on the third Business Day next succeeding the date
on which such Failure to Deposit occurred, such Failure to Deposit
shall have been cured in accordance with Section 2.7 of the Auction
Agency Agreement and such Fund shall have paid to the Auction Agent for
such series the applicable Late Charge as described in Section 2.7 of
the Auction Agency Agreement,
then, if BD is a Broker-Dealer for such series, such Auction Agent shall deliver
a notice in the form of Exhibit G to the Auction Agency Agreement by first-class
mail, postage prepaid, to BD not later than one Business Day after its receipt
of the payment from such Fund curing such Failure to Deposit and such Late
Charge.
(b) If:
(i) any Failure to Deposit shall have occurred with
respect to shares of any series of MuniPreferred of any Fund during any
Rate Period thereof (other than any Special Rate Period of more than
364 Rate Period Days or any Rate Period succeeding any Special Rate
Period of more than 364 Rate Period Days during which a Failure to
Deposit occurred but has not been cured), and, prior to 12:00 Noon, New
York City time, on the third Business Day next succeeding the date on
which such Failure to Deposit occurred, such Failure to Deposit shall
not have been cured as described in Section 2.7 of the Auction Agency
Agreement or such Fund shall not have paid to the Auction Agent for
such series the applicable Late Charge described in Section 2.7 of the
Auction Agency Agreement; or
(ii) any Failure to Deposit shall have occurred with
respect to shares of any series of MuniPreferred of any Fund during a
Special Rate Period thereof of more than 364 Rate Period Days, or
during any Rate Period thereof succeeding any Special Rate Period of
more than 364 Rate Period Days during which a Failure to Deposit
occurred that has not been cured, and, prior to 12:00 noon, New York
City time, on the fourth Business Day preceding the Auction Date for
the Rate Period subsequent to such Rate Period, such Failure to Deposit
shall not have been cured as described in Section 2.7 of the Auction
Agency Agreement or such Fund shall not have paid to the Auction Agent
for such series the applicable Late Charge described in Section 2.7 of
the Auction Agency Agreement;
9
<PAGE> 10
then such Auction Agent shall deliver a notice in the form of Exhibit H to the
Auction Agency Agreement to the Broker-Dealers for such series not later than
one Business Day after the receipt of the payment from such Fund curing such
Failure to Deposit and such Late Charge.
2.8. Service Charge to be Paid to BD.
On the Business Day next succeeding each Auction Date for any
series of MuniPreferred specified in, or on Schedule A to, the Request Letter of
any Fund, the Auction Agent for such series shall pay to BD from moneys received
from such Fund an amount equal to the product of (a) (i) in the case of any
Auction Date immediately preceding a Rate Period of such series consisting of
364 Rate Period Days or fewer, 1/4 of 1%, or (ii) in the case of any Auction
Date immediately preceding a Rate Period of such series consisting of more than
364 Rate Period Days, such percentage as may be agreed upon by such Fund and BD
with respect to such Rate Period, times (b) a fraction, the numerator of which
is the number of Rate Period Days in the Rate Period therefor beginning on such
Business Day and the denominator of which is 365 if such Rate Period consists of
7 Rate Period Days and 360 for all other Rate Periods, times (c) $50,000 times
(d) the sum of (i) the aggregate number of shares of such series placed by BD in
such Auction that were (A) the subject of Submitted Bids of Existing Holders
submitted by BD and continued to be held as a result of such submission and (B)
the subject of Submitted Bids of Potential Holders submitted by BD and purchased
as a result of such submission plus (ii) the aggregate number of shares of such
series subject to valid Hold Orders (determined in accordance with paragraph (d)
of Section 2 of the Auction Procedures) submitted to the Auction Agent by BD
plus (iii) the number of shares of MuniPreferred deemed to be subject to Hold
Orders of Existing Holders pursuant to paragraph (c) of Section 2 of the Auction
Procedures of such Fund that were acquired by BD for its own account or were
acquired by BD for its customers who are Beneficial Owners.
For purposes of subclause (d)(iii) of the foregoing paragraph,
if any Existing Holder or Beneficial Owner who acquired shares of any series of
MuniPreferred 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.
2.9. Settlement.
(a) If any Existing Holder or Beneficial Owner with respect to
whom BD has submitted a Bid or Sell Order for shares of MuniPreferred of any
series that was accepted in whole or in part fails to instruct its Agent Member
to deliver the shares of MuniPreferred subject to such Bid or Sell Order against
payment therefor, BD, if it knows the identity of such Agent Member, shall
instruct such Agent Member to deliver such shares against payment therefor and,
if such Agent Member fails to comply with such instructions, BD may deliver to
the Potential Holder or Potential Beneficial Owner with respect to whom BD
submitted a Bid for shares of MuniPreferred of such series that was accepted in
whole or in part a number of shares of MuniPreferred of such
10
<PAGE> 11
series that is less than the number of shares of MuniPreferred of such series
specified in such Bid to be purchased by such Potential Holder or Potential
Beneficial Owner.
(b) Neither the Auction Agent nor the Fund shall have any
responsibility or liability with respect to the failure of an Existing Holder,
Beneficial Owner, Potential Holder or Potential Beneficial Owner or its
respective Agent Member to deliver shares of MuniPreferred of any series or to
pay for shares of MuniPreferred of any series sold or purchased pursuant to the
Auction Procedures or otherwise.
(c) Notwithstanding any provision of the Auction Procedures or
the Settlement Procedures to the contrary, in the event BD is an Existing Holder
with respect to shares of a series of MuniPreferred and the Auction Procedures
provide that BD shall be deemed to have submitted a Sell Order in an Auction
with respect to such shares if BD fails to submit an Order in that Auction with
respect to such shares, BD shall have no liability to any Person for failing to
sell such shares pursuant to such a deemed Sell Order if (i) such shares were
transferred by the beneficial owner thereof without notification of such
transfer in compliance with the Auction Procedures or (ii) BD has indicated to
the Auction Agent pursuant to Section 2.2(e) of this Agreement that, according
BD's records, BD is not the Existing Holder of such shares.
(d) Notwithstanding any provision of the Auction Procedures or
the Settlement Procedures to the contrary, in the event an Existing Holder or
Beneficial Owner of shares of a series of MuniPreferred with respect to whom a
Broker-Dealer submitted a Bid to the Auction Agent for such shares that was
accepted in whole or in part, or submitted or is deemed to have submitted a Sell
Order for such shares that was accepted in whole or in part, fails to instruct
its Agent Member to deliver such shares against payment therefor, partial
deliveries of shares of MuniPreferred that have been made in respect of
Potential Holders' or Potential Beneficial Owners' Submitted Bids for shares of
such series that have been accepted in whole or in part shall constitute good
delivery to such Potential Holders and Potential Beneficial Owners.
(e) Notwithstanding the foregoing terms of this Section, any
delivery or non-delivery of shares of MuniPreferred of any series which
represents any departure from the results of an Auction for shares of such
series, as determined by the Auction Agent, shall be of no effect for purposes
of the registry of Existing Holders maintained by the Auction Agent pursuant to
the Auction Agency Agreement unless and until the Auction Agent shall have been
notified of such delivery or non-delivery.
(f) The Auction Agent shall have no duty or liability with
respect to enforcement of this Section 2.9.
11
<PAGE> 12
3. The Auction Agent.
3.1. Duties and Responsibilities.
(a) Each Auction Agent is acting solely as agent for the Funds
with whom such Auction Agent has entered into Request Letters and owes no
fiduciary duties to any other Person, other than such Funds, by reason of the
Agreements to which such Auction Agent is a party.
(b) Each Auction Agent undertakes to perform such duties and
only such duties as are specifically set forth in the Agreements to which it is
a party, and no implied covenants or obligations shall be read into such
Agreements against such Auction Agent.
(c) In the absence of bad faith or negligence on its part,
each Auction Agent shall 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 Agreements to which it is a party. Each Auction Agent shall not be
liable for any error of judgment made in good faith unless such Auction Agent
shall have been negligent in ascertaining the pertinent facts.
3.2. Rights of the Auction Agents.
(a) Each Auction Agent may rely and shall be protected in
acting or refraining from acting upon any communication authorized hereby and
upon any written instruction, notice, request, direction, consent, report,
certificate, share certificate or other instrument, paper or document believed
in good faith by it to be genuine. Each Auction Agent shall not be liable for
acting upon any telephone communication authorized by the Agreements to which it
is a party that such Auction Agent believes in good faith to have been given by
the appropriate Fund, by the Adviser or by a Broker-Dealer. Each Auction Agent
may record telephone communications with the Broker-Dealers.
(b) Each Auction Agent may consult with counsel of its 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.
(c) Each 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.
3.3. Auction Agents' Disclaimers.
Each Auction Agent makes no representation as to the validity
or adequacy of the Agreements to which it is a party, the Auction Agency
Agreements to which it is a party or the shares of MuniPreferred of any series.
12
<PAGE> 13
4. Miscellaneous.
4.1. Termination.
Any party to any Agreement may terminate such Agreement at any
time on five days' notice to the other parties to such Agreement, provided that
the Fund party to such Agreement shall not terminate the Agreement unless at
least one Broker-Dealer Agreement would be in effect for each series of
MuniPreferred of such Fund after such termination. Each Agreement shall
automatically terminate with respect to any series of MuniPreferred with respect
to which the relevant Auction Agency Agreement has terminated.
4.2. Participant in Securities Depository; Payment of
Dividends in Same-Day Funds.
(a) BD is, and shall remain for the term of the Agreements, a
member of, or 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
MuniPreferred available in same-day funds on each Dividend Payment Date to
customers that use BD or affiliate as Agent Member.
4.3. Communications.
Except for (i) communications authorized to be by telephone by
the Agreement of any Fund or the Auction Procedures of such Fund 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
under such Agreement shall be in writing (including telecopy or similar writing)
and shall be given to such party, addressed to it, at its address or telecopy
number set forth below:
If to a Fund, [Name of Fund]
addressed: 333 West Wacker Drive
Chicago, Illinois 60606
Attention: Richard J. Franke,
Chairman of the Board
Telecopier No.: (312) 917-7942
Telephone No.: (312) 917-7700
If to the Adviser, Nuveen Advisory Corp.
addressed: 333 West Wacker Drive
Chicago, Illinois 60606
Attention: Richard J. Franke,
Chairman of the Board
13
<PAGE> 14
If to BD, to the
address or telecopy number
as set forth in the Acceptance
Letter,
If to an Auction
Agent, to the address
or telecopy number as set
forth in the Request Letter,
or such other address or telecopy number as such party may hereafter specify for
such purpose by notice to the other parties. 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
an Auction Agent by an Authorized Officer of such Auction Agent.
BD may record telephone communications with any Auction Agent.
4.4. Entire Agreement.
Each Agreement contains the entire agreement among the parties
thereto relating to the subject matter thereof, and there are no other
representations, endorsements, promises, agreements or understandings, oral,
written or implied, among the parties thereto relating to the subject matter
thereof. Each Agreement supersedes any prior agreement to which BD was a party
in respect of any Fund.
4.5. Benefits.
Nothing in any Agreement, express or implied, shall give to
any person, other than the Fund party to such Agreement, the Adviser, the
Auction Agent party to such Agreement and BD and their respective successors and
assigns, any benefit or any legal or equitable right, remedy or claim under such
Agreement.
4.6. Amendment; Waiver.
(a) Each 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 any party to any Agreement to exercise any
right or remedy thereunder in the event of a breach thereof by any other party
shall not constitute a waiver of any such right or remedy with respect to any
subsequent breach.
14
<PAGE> 15
4.7. Successors and Assigns.
Each Agreement shall be binding upon, inure to the benefit of,
and be enforceable by, the respective successors and assigns of the Fund party
to such Agreement, the Adviser, the Auction Agent party to such Agreement and
BD.
4.8. 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.
4.9. GOVERNING LAW.
EACH AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
4.10. Declaration of Trust.
The Declaration of each Fund that is a Massachusetts business
trust is on file with the Secretary of State of the Commonwealth of
Massachusetts. Each Agreement to which a Fund that is a Massachusetts business
trust is a party has been executed on behalf of such Fund by the Vice President
and Treasurer of such Fund acting in such capacity and not individually, and the
obligations of such Fund set forth in such Agreement are not binding upon any of
such Fund's trustees, officers or shareholders individually, but are binding
only upon the assets and property of such Fund.
15
<PAGE> 16
EXHIBIT A
SETTLEMENT PROCEDURES
<PAGE> 17
EXHIBIT B
[Name of Fund]
$_____ Municipal Auction Rate Cumulative Preferred
Stock [Shares], Series ____
$_____ Municipal Auction Rate Cumulative Preferred
Stock [Shares], Series ____
AUCTION DATE: _____________
ISSUE: ___________________ SERIES: _________
THE UNDERSIGNED Broker-Dealer SUBMITS THE FOLLOWING ORDERS ON BEHALF OF THE
BIDDER(S) LISTED BELOW:
================================================================================
ORDERS BY EXISTING HOLDERS- NUMBER OF SHARES OF MUNIPREFERRED
<TABLE>
<CAPTION>
EXISTING HOLDER HOLD BID/RATE SELL
<S> <C> <C> <C>
1._________________________ ________ _________/________ _______
2._________________________ ________ _________/________ _______
3._________________________ ________ _________/________ _______
4._________________________ ________ _________/________ _______
5._________________________ ________ _________/________ _______
6._________________________ ________ _________/________ _______
7._________________________ ________ _________/________ _______
8._________________________ ________ _________/________ _______
9._________________________ ________ _________/________ _______
10.________________________ ________ _________/________ _______
</TABLE>
================================================================================
ORDERS BY POTENTIAL HOLDERS- NUMBER OF SHARES OF MUNIPREFERRED
<TABLE>
<CAPTION>
POTENTIAL HOLDER BID/RATE
<S> <C>
1._____________________________ _________/________
2._____________________________ _________/________
3._____________________________ _________/________
4._____________________________ _________/________
5._____________________________ _________/________
6._____________________________ _________/________
7._____________________________ _________/________
8._____________________________ _________/________
9._____________________________ _________/________
10.____________________________ _________/________
11.____________________________ _________/________
12.____________________________ _________/________
13.____________________________ _________/________
14.____________________________ _________/________
15.____________________________ _________/________
</TABLE>
NOTES:
1. If one or more Orders covering in the aggregate more than the number of
outstanding shares of MuniPreferred held by any Existing Holder are
submitted, such Orders shall be considered valid in the order of
priority set forth in the Auction Procedures.
2. A Hold Order or Sell Order may be placed only by an Existing Holder
covering a number of shares of MuniPreferred not greater than the
number of shares of MuniPreferred currently held by such Existing
Holder.
3. Potential Holders may make Bids only, each of which must specify a
rate. If more than one Bid is submitted on behalf of any Potential
Holder, each Bid submitted shall be a separate Bid with the rate
specified.
4. Bids may contain no more than three figures to the right of the decimal
point (.001 of 1%).
================================================================================
<PAGE> 18
================================================================================
[AUCTION AGENT] AUCTION BID FORM NAME OF Broker-Dealer:___________________
AUTHORIZED
Submit to: SIGNATURE:_______________________________
TOTAL NUMBER OF ORDERS ON THIS BID FORM:
================================================================================
<PAGE> 19
EXHIBIT C
(To be used only for transfers made to a
Broker-Dealer other than pursuant to an Auction)
[NAME OF FUND]
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK [SHARES],
SERIES ___
TRANSFER FORM
We are the Broker-Dealer to whom the Existing Holder or Beneficial Owner named
below transferred shares of the above series of MuniPreferred other than
pursuant to an Auction. We hereby notify you that such Existing Holder or
Beneficial Owner has transferred ______ shares of the above series of Muni-
Preferred to us.
------------------------------------------
(Name of Existing Holder or
Beneficial Owner)
------------------------------------------
(Name of Broker-Dealer)
By:
---------------------------------------
Printed Name:
Title:
<PAGE> 20
EXHIBIT D
(To be used only for failures to deliver shares of
MuniPreferred sold pursuant to an Auction)
[NAME OF FUND]
MUNICIPAL AUCTION RATE CUMULATIVE PREFERRED STOCK [SHARES],
SERIES ____
NOTICE OF A FAILURE TO DELIVER
Complete either I or II
I. We are a Broker-Dealer for ________________ (the "Purchaser"), which
purchased _______ shares of the above series of MuniPreferred in the
Auction held on _____ from the seller of such shares.
II. We are a Broker-Dealer for ____________ (the "Seller"), which sold
________ shares of the above series of MuniPreferred in the Auction
held on ______ to the purchaser of such shares.
We hereby notify you that (check one) --
o the Seller failed to deliver such shares of MuniPreferred to
the Purchaser
o the Purchaser failed to make payment to the Seller upon
delivery of such shares of MuniPreferred
Name:
-----------------------------------
(Name of Broker-Dealer)
By:
-----------------------------------
Printed Name:
Title:
<PAGE> 21
[Form of Broker-Dealer Acceptance Letter]
Nuveen Advisory Corp.
December ___, 1993
[Broker-Dealer]
[Address]
Ladies and Gentlemen:
Reference is made to (a) the Broker-Dealer Agreements executed
by the Funds (as hereinafter defined) listed on Exhibit A hereto, Bankers Trust
Company and various broker-dealers, copies of which will be made available to
you upon request by Bankers Trust Company (the "Broker-Dealer Agreements") and
(b) the Nuveen Broker-Dealer Agreement-Basic Terms for Acting as a Broker-Dealer
dated December 14, 1993, receipt of which is hereby acknowledged by you (the
"Basic Terms"). For purposes of this letter ("Acceptance Letter"), (a) "Fund"
shall mean any closed-end investment company registered under the Investment
Company Act of 1940, as amended, for which Nuveen Advisory Corp. acts as
investment adviser; (b) except as otherwise provided below, the terms of each
Broker-Dealer Agreement shall be incorporated herein by reference, and you shall
be considered BD for all purposes thereof, as if you were the Broker-Dealer
signatory thereto in the place of the actual Broker-Dealer signatory thereto;
and (c) the Basic Terms are incorporated herein by reference, you shall be
considered BD for all purposes thereof, Bankers Trust Company shall be
considered the Auction Agent for all purposes thereof, and each Fund not listed
on Exhibit A hereto shall be considered a Fund for all purposes thereof.
We hereby request that you act as a Broker-Dealer for the
Money Market Cumulative Preferred Stock ("MMP") of each series, and the
Municipal Auction Rate Cumulative Preferred Stock or Shares ("MPS" or
"MuniPreferred") of each series, of each Fund that executes a letter,
substantially in the form attached hereto as Exhibit B or Exhibit C, as
appropriate, appointing you as a Broker-Dealer ("Request Letter"). You hereby
(a) accept such appointment as a Broker-Dealer for each series of MMP, MPS or
MuniPreferred of each Fund identified in a Request Letter and (b) agree to act
as BD in accordance with (1) the terms of the Broker-Dealer Agreement relating
to such Fund, in the case of any Fund listed on Exhibit A hereto or (2) the
Basic Terms, in the case of any other Fund; provided, however, that:
2
<PAGE> 22
(1) for purposes of any such Broker-Dealer Agreement or the
Basic Terms, and notwithstanding any provision of any Broker-Dealer Agreement to
the contrary, your address, telecopy number and telephone number for
communications pursuant to such Broker-Dealer Agreement or the Basic Terms shall
be as follows:
----------------------------------
----------------------------------
----------------------------------
----------------------------------
and the address, telecopy number and telephone number of the Auction Agent for
communications pursuant to such Broker-Dealer or the Basic Terms shall be as
follows:
----------------------------------
----------------------------------
----------------------------------
----------------------------------
(2) notwithstanding any provision of a Broker-Dealer Agreement
to the contrary, except as otherwise set forth herein, your appointment as
Broker-Dealer extends to each series of MMP, MPS or MuniPreferred issued by the
Fund to which such Broker-Dealer Agreement relates.
(3) the text of Section 2.9 of each Broker-Dealer Agreement
shall be deleted and the following shall be deemed to be inserted in its place:
(a) If any Existing Holder with respect to whom BD has
submitted a Bid or Sell Order for shares of MMP, MPS or MuniPreferred
of any series that was accepted in whole or in part fails to instruct
its Agent Member to deliver the shares of MMP, MPS or MuniPreferred
subject to such Bid or Sell Order against payment therefor, BD, if it
knows the identity of such Agent Member, shall instruct such Agent
Member to deliver such shares against payment therefor and, if such
Agent Member fails to comply with such instructions, BD may deliver to
the Potential Holder with respect to whom BD submitted a Bid for shares
of MMP, MPS or MuniPreferred of such series that was accepted in whole
or in part a number of shares of MMP, MPS or MuniPreferred of such
series that is less
3
<PAGE> 23
than the number of shares of MMP, MPS, or MuniPreferred of such series
specified in such Bid to be purchased by such Potential Holder.
(b) Neither the Auction Agent nor the Fund shall have any
responsibility or liability with respect to the failure of an Existing
Holder or a Potential Holder or its respective Agent Member to deliver
shares of MMP, MPS or MuniPreferred of any series or to pay for shares
of MMP, MPS or MuniPreferred of any series sold or purchased pursuant
to the Auction Procedures or otherwise.
(c) Notwithstanding any provision of the Auction Procedures or
the Settlement Procedures to the contrary, in the event BD is an
Existing Holder with respect to shares of a series of MMP, MPS or
MuniPreferred and the Auction Procedures provide that BD shall be
deemed to have submitted a Sell Order in an Auction with respect to
such shares if BD fails to submit in Order in that Auction with respect
to such shares, BD shall have no liability to any Person for failing to
sell such shares pursuant to such a deemed Sell Order if (i) such
shares were transferred by the beneficial owner thereof without
notification of such transfer in compliance with the Auction Procedures
or (ii) BD has informed the Auction Agent pursuant to Section 2.2(g) of
this Agreement that, according to BD's records, BD believes it is not
the Existing Holder of such shares.
(d) Notwithstanding any provision of the Auction Procedures or
the Settlement Procedures to the contrary, in the event an Existing
Holder of shares of a series of MMP, MPS or MuniPreferred with respect
to whom a Broker-Dealer submitted a Bid to the Auction Agent for such
shares that was accepted in whole or in part, or submitted or is deemed
to have submitted a Sell Order for such shares that was accepted in
whole or in part, fails to instruct its Agent Member to deliver such
shares against payment therefor, partial deliveries of shares of MMP,
MPS or MuniPreferred that have been made in respect of Potential
Holders' Submitted Bids for shares of such series that have been
accepted in whole or in part shall constitute good delivery to such
Potential Holders.
(e) Notwithstanding the foregoing terms of this Section, any
delivery or non-delivery of shares of MMP, MPS or MuniPreferred of any
series which represents any departure from the results of an Auction
for shares of such series, as determined by the Auction Agent, shall be
of no effect for purposes of the registry of Existing Holders
maintained by the Auction Agent pursuant to the Auction Agency
Agreement unless and until the Auction Agent shall have been notified
of such delivery or non-delivery.
(f) The Auction Agent shall have no duty or liability with
respect to enforcement of this Section 2.9.
(4) a new Section 2.2(g) shall be added to each
Broker-Dealer Agreement, to read as follows:
4
<PAGE> 24
(g) The Auction Agent's registry of Existing Holders of shares
of a series of MMP, MPS or MuniPreferred shall be conclusive and
binding on BD. BD may inquire of the Auction Agent between 3:00 P.M. on
the Business Day preceding an Auction for shares of a series of MMP,
MPS or MuniPreferred and 9:30 A.M. on the Auction Date for such Auction
to ascertain the number of shares of such series in respect of which
the Auction Agent has determined BD to be an Existing Holder. If BD
believes it is the Existing Holder of fewer shares of such series than
specified by the Auction Agent in response to BD's inquiry, BD may so
inform the Auction Agent of that belief. BD shall not, in its capacity
as Existing Holder of shares of such series, submit Orders in such
Auction in respect of shares of such series covering in the aggregate
more than the number of shares of such series specified by the Auction
Agent in response to BD's inquiry.
(5) a new sentence shall be added to the end of Section 2.2(d)
of each Broker-Dealer Agreement, to read as follows:
Nothing contained herein shall require BD to submit an Order for any
customer in any Auction.
You hereby acknowledge that, notwithstanding any provision of
any Broker-Dealer Agreement or the Basic Terms to the contrary, the Fund may (a)
upon five business days' notice to the Auction Agent and you, amend, alter or
repeal any of the provisions contained in any Broker-Dealer Agreement or the
Basic Terms, it being understood and agreed that you shall be deemed to have
accepted any such amendment, alteration or repeal if, after the expiration of
such five business day period, you submit an Order to the Auction Agent in
respect of the shares of MMP, MPS, MuniPreferred of the Fund or Funds to which
such amendment, alteration or repeal relates, and (b) upon two business days'
notice to the Auction Agent and you, exclude you from participating as a
Broker-Dealer in any particular Auction for any particular series of MMP, MPS or
MuniPreferred.
This Acceptance Letter shall be deemed to form part of each
Broker-Dealer Agreement and the Basic Terms.
Capitalized terms not defined in this Acceptance Letter shall
have the meanings ascribed to them in the relevant Broker-Dealer Agreement or
the Basic Terms, as the case may be.
5
<PAGE> 25
If the foregoing terms are acceptable to you, please so
indicate in the space provided below. This Acceptance Letter may be executed in
any number of counterparts, each of which shall be an original, but all of which
shall constitute one and the same instrument.
NUVEEN ADVISORY CORP.
By:
------------------------------------
Name: H. William Stabenow
Title: Vice President and Treasurer
Accepted by and Agreed to as of
the date first written above:
[Broker-Dealer]
By:
----------------------------------
Name:
Title:
6
<PAGE> 26
EXHIBIT A TO ACCEPTANCE LETTER
Nuveen Performance Plus Municipal Fund, Inc.
Nuveen Municipal Advantage Fund, Inc.
Nuveen Investment Quality Municipal Fund, Inc.
Nuveen Insured Quality Municipal Fund, Inc.
Nuveen Select Quality Municipal Fund, Inc.
Nuveen Quality Income Municipal Fund, Inc.
Nuveen Insured Municipal Opportunity Fund, Inc.
Nuveen California Performance Plus Municipal Fund, Inc.
Nuveen California Municipal Market Opportunity Fund, Inc.
Nuveen California Investment Quality Municipal Fund, Inc.
Nuveen California Select Quality Municipal Fund, Inc.
Nuveen California Quality Income Municipal Fund, Inc.
Nuveen Florida Investment Quality Municipal Fund
Nuveen Florida Quality Income Municipal Fund
Nuveen Michigan Quality Income Municipal Fund, Inc.
Nuveen New Jersey Quality Income Municipal Fund, Inc.
Nuveen New York Performance Plus Municipal Fund, Inc.
Nuveen New York Municipal Market Opportunity Fund, Inc.
Nuveen New York Investment Quality Municipal Fund, Inc.
Nuveen New York Select Quality Municipal Fund, Inc.
Nuveen New York Quality Income Municipal Fund, Inc.
Nuveen Ohio Quality Income Municipal Fund, Inc.
<PAGE> 27
EXHIBIT B TO ACCEPTANCE LETTER
[Form of Request Letter]
______________ ____, 1993
FROM: All investment companies registered under the Investment
Company Act of 1940, as amended, for which Nuveen Advisory
Corp. acts as investment adviser and whose registration
statements relating to shares of Money Market Cumulative
Preferred Stock or Municipal Auction Rate Cumulative Preferred
Stock or Shares have been declared effective by the Securities
and Exchange Commission on or prior to the date hereof.
TO: Nuveen Advisory Corp.
Bankers Trust Company
Ladies and Gentlemen:
Reference is made to (a) the respective Broker-Dealer
Agreements, previously executed by the Funds (as hereinafter defined) listed on
Exhibit A hereto, various Broker-Dealers and Bankers Trust Company (the
"Broker-Dealer Agreements"); (b) the respective Auction Agency Agreements
previously executed by the Funds listed on Exhibit A hereto and Bankers Trust
Company (the "Auction Agency Agreements"); (c) the Nuveen Broker-Dealer
Agreement -- Basic Terms for Acting as a Broker-Dealer dated December 14, 1993,
receipt of which is hereby acknowledged by you (the "Broker-Dealer Basic
Terms"); and (d) the Nuveen Auction Agency Agreement -- Basic Terms for Acting
as Auction Agent dated November 1, 1993, receipt of which is hereby acknowledged
by you (the "Auction Agency Basic Terms"). For purposes of this letter ("Request
Letter"), (a) "Fund" shall mean any closed-end investment company registered
under the Investment Company Act of 1940, as amended, for which Nuveen Advisory
Corp. acts as investment adviser; (b) except as otherwise provided below, the
terms of each Broker-Dealer Agreement shall be incorporated herein by reference,
and each Broker-Dealer listed on Exhibit B hereto shall be considered BD for all
purposes thereof, as if such Broker-Dealer were the Broker-Dealer signatory
thereto in the place of the actual Broker-Dealer signatory thereto; (c) the
Broker-Dealer Basic Terms are incorporated herein by reference, each
Broker-Dealer listed on Exhibit B hereto shall be considered BD for all purposes
thereof, Bankers Trust Company shall be considered the Auction Agent for all
purposes thereof, and each Fund referred to on Exhibit C hereto shall be
considered a Fund for all purposes thereof; (d) except as otherwise provided
below, the terms of each Auction Agency Agreement shall be incorporated herein
by reference, and each Broker-Dealer listed on Exhibit B shall be considered a
Broker-Dealer for all purposes thereof; and (e) the Auction Agency Basic Terms
are incorporated herein by reference, Bankers
<PAGE> 28
Trust Company shall be considered the Auction Agent for all purposes thereof,
and each Fund referred to on Exhibit C hereto shall be considered a Fund for all
purposes thereof.
We hereby appoint the Broker-Dealers listed on Exhibit B
hereto as Broker-Dealers for the Money Market Cumulative Preferred Stock ("MMP")
or Municipal Auction Rate Cumulative Preferred Stock or Shares ("MPS" or
"MuniPreferred") of each series of each Fund listed on Exhibit A hereto or
referred to on Exhibit C hereto. Each such Broker-Dealer will act as BD in
respect of such series in accordance with (1) the terms of the Broker-Dealer
Agreement relating to such Fund, in the case of any Fund listed on Exhibit A
hereto, except as otherwise set forth in an Acceptance Letter relating to such
Broker-Dealer from Nuveen Advisory Corp., to such Broker-Dealer or (2) the
Broker-Dealer Basic Terms, in the case of any Fund referred to on Exhibit C
hereto; provided, however, that for purposes of any such Broker-Dealer Agreement
or the Broker-Dealer Basic Terms, and notwithstanding any provision of any
Broker-Dealer Agreement to the contrary, Bankers Trust Company's address,
telecopy number and telephone number for communications pursuant to such
Broker-Dealer Agreement or the Broker-Dealer Basic Terms shall be as follows:
---------------------------------
---------------------------------
---------------------------------
---------------------------------
Bankers Trust Company agrees to act as Auction Agent with
respect to shares of each series of MMP, MPS or MuniPreferred of each Fund
listed on Exhibit A or referred to on Exhibit C hereto in accordance with (1)
the terms of the Auction Agency Agreement relating to the MMP, MPS or
MuniPreferred of such Fund, in the case of any Fund listed on Exhibit A hereto
or (2) the Auction Agency Basic Terms, in the case of any Fund referred to on
Exhibit C hereto; provided, however, that Section 2.2(c)(i) of each Auction
Agency Agreement shall be amended to read as follows:
(c)(i) The Auction Agent shall maintain a registry of the
beneficial owners of the shares of MMP, MPS or MuniPreferred who shall
constitute Existing Holders of shares of MMP, MPS or MuniPreferred for
purposes of Auctions and shall indicate thereon the identity of the
respective Broker-Dealer of each Existing Holder, if any, on whose
behalf such Broker-Dealer submitted the most recent Order in any
Auction which resulted in such Existing Holder continuing to hold or
purchasing shares of MMP, MPS or MuniPreferred. The Auction Agent shall
keep such registry current and accurate. The Fund shall provide or
cause to be provided to the Auction Agent at or prior to the Date of
Original Issue of the shares of MMP, MPS or MuniPreferred a list of the
initial Existing Holders of the shares of MMP, MPS or MuniPreferred,
the number of shares purchased by each such
2
<PAGE> 29
Existing Holder and the respective Broker-Dealer of each such Existing
Holder or the affiliate thereof through which each such Existing Holder
purchased such shares. The Auction Agent shall advise the Fund in
writing whenever the number of Existing Holders is 500 or more. The
Auction Agent may rely upon, as conclusive evidence of the identities
of the Existing Holders of shares of MMP, MPS or MuniPreferred (A) such
list, (B) the results of Auctions, (C) notices from any Existing
Holder, the Agent Member of any Existing Holder or the Broker-Dealer of
any Existing Holder as described in the first sentence of Section
2.2(c)(iii) hereof and (D) the results of any procedures approved by
the Fund that have been devised for the purpose of determining the
identities of Existing Holders in situations where shares of MMP, MPS
or MuniPreferred may have been transferred without compliance with any
restrictions on the transfer thereof set forth in the Auction
Procedures.
This Request Letter shall be deemed to form part of each
Auction Agency Agreement and the Auction Agency Basic Terms.
Capitalized terms not defined in this Request Letter shall
have the meanings ascribed to them in the relevant Broker-Dealer Agreement,
Broker-Dealer Basic Terms, Auction Agency Agreement or Auction Agency Basic
Terms, as the case may be.
3
<PAGE> 30
If the foregoing terms are acceptable to you, please so
indicate in the space provided below. This Request Letter may be executed in any
number of counterparts, each of which shall be an original, but all of which
shall constitute one and the same instrument.
All investment companies registered under
the Investment Company Act of 1940, as
amended, for which Nuveen Advisory Corp.
acts as investment adviser and whose
registration statements relating to shares
of Money Market Cumulative Preferred Stock
or Municipal Auction Rate Cumulative
Preferred Stock or Shares have been declared
effective by the Securities and Exchange
Commission on or prior to the date hereof.
By:
---------------------------------------
Name: H. William Stabenow
Title: Vice President and
Treasurer of each Fund
Accepted and Agreed to as of
the date first written above:
NUVEEN ADVISORY CORP. BANKERS TRUST COMPANY
By: By:
------------------------------ ---------------------------------------
Name: H. William Stabenow Name: Sandra Becker Whalen
Title: Vice President and Title: Assistant Treasurer
Treasurer
cc: [Broker-Dealers]
4
<PAGE> 31
EXHIBIT A TO REQUEST LETTER
(List of Funds)
Nuveen Performance Plus Municipal Fund, Inc.
Nuveen Municipal Advantage Fund, Inc.
Nuveen Investment Quality Municipal Fund, Inc.
Nuveen Insured Quality Municipal Fund, Inc.
Nuveen Select Quality Municipal Fund, Inc.
Nuveen Quality Income Municipal Fund, Inc.
Nuveen Insured Municipal Opportunity Fund, Inc.
Nuveen California Performance Plus Municipal Fund, Inc.
Nuveen California Municipal Market Opportunity Fund, Inc.
Nuveen California Investment Quality Municipal Fund, Inc.
Nuveen California Select Quality Municipal Fund, Inc.
Nuveen California Quality Income Municipal Fund, Inc.
Nuveen Florida Investment Quality Municipal Fund
Nuveen Florida Quality Income Municipal Fund
Nuveen Michigan Quality Income Municipal Fund, Inc.
Nuveen New Jersey Quality Income Municipal Fund, Inc.
Nuveen New York Performance Plus Municipal Fund, Inc.
Nuveen New York Municipal Market Opportunity Fund, Inc.
Nuveen New York Investment Quality Municipal Fund, Inc.
Nuveen New York Select Quality Municipal Fund, Inc.
Nuveen New York Quality Income Municipal Fund, Inc.
Nuveen Ohio Quality Income Municipal Fund, Inc.
<PAGE> 32
EXHIBIT B TO REQUEST LETTER
[LIST OF BROKER-DEALERS]
<PAGE> 33
EXHIBIT C TO REQUEST LETTER
Each Fund not listed on Exhibit A whose registration statement
relating to shares of MMP, MPS or MuniPreferred has been declared effective by
the Securities and Exchange Commission on or prior to the date of the Request
Letter to which this Exhibit C is attached.
<PAGE> 34
EXHIBIT C TO ACCEPTANCE LETTER
[Form of Request Letter]
[Name(s) of Fund(s)]
_____________ ____, 1993
Ladies and Gentlemen:
Reference is made to (a) the Nuveen Broker-Dealer Agreement --
Basic Terms for Acting as a Broker-Dealer dated December 14, 1993, receipt of
which is hereby acknowledged by you (the "Broker-Dealer Basic Terms") and (b)
the Nuveen Auction Agency Agreement -- Basic Terms for Acting as Auction Agent
dated November 1, 1993, receipt of which is hereby acknowledged by you (the
"Auction Agency Basic Terms"). For purposes of this letter ("Request Letter"),
(a) "Fund" shall mean each undersigned closed-end investment company registered
under the Investment Company Act of 1940, as amended, for which Nuveen Advisory
Corp. acts as investment adviser; (b) the Broker-Dealer Basic Terms are
incorporated herein by reference, each Broker-Dealer listed on Exhibit A hereto
shall be considered BD for all purposes thereof, Bankers Trust Company shall be
considered the Auction Agent for all purposes thereof, and each Fund shall be
considered a Fund for all purposes thereof; and (c) the Auction Agency Basic
Terms are incorporated herein by reference, Bankers Trust Company shall be
considered the Auction Agent for all purposes thereof, and each Fund shall be
considered a Fund for all purposes thereof.
Each Fund hereby appoints the Broker-Dealers listed on Exhibit
A hereto as Broker-Dealers for each series of Money Market Cumulative Preferred
Stock ("MMP") or Municipal Auction Rate Cumulative Preferred Stock or Shares
("MPS" or "MuniPreferred") of such Fund. Each such Broker-Dealer will act as BD
in respect of each such series in accordance with the Broker-Dealer Basic Terms;
provided, however, that for purposes of the Broker-Dealer Basic Terms, Bankers
Trust Company's address, telecopy number and telephone number for communications
pursuant to the Broker-Dealer Basic Terms shall be as follows:
------------------------------
------------------------------
------------------------------
------------------------------
<PAGE> 35
Bankers Trust Company agrees to act as Auction Agent with
respect to shares of each series of MMP, MPS or MuniPreferred of each Fund in
accordance with the Auction Agency Basic Terms.
This Request Letter shall be deemed to form part of the
Auction Agency Basic Terms.
Capitalized terms not defined in this Request Letter shall
have the meanings ascribed to them in the Broker-Dealer Basic Terms or Auction
Agency Basic Terms, as the case may be.
If the foregoing terms are acceptable to you, please so
indicate in the space provided below. This Request Letter may be executed in any
number of counterparts, each of which shall be an original, but all of which
shall constitute one and the same instrument.
[NAME(S) OF FUND(S)]
By:
---------------------------
Name: H. William Stabenow
Title: Vice President and
Treasurer of each Fund
Accepted and Agreed to as of the date first
written above:
NUVEEN ADVISORY CORP. BANKERS TRUST COMPANY
By: By:
-------------------------- ---------------------------
Name: H. William Stabenow Name: Sandra Becker Whalen
Title: Vice President and Title: Assistant Treasurer
Treasurer
cc: [Broker-Dealers listed on Exhibit A]
2
<PAGE> 36
EXHIBIT A TO REQUEST LETTER
[LIST OF BROKER-DEALERS]
<PAGE> 1
EXHIBIT K.5
LETTER OF REPRESENTATIONS
[To be Completed by Issuer and Trust Company]
Nuveen California Dividend Advantage Fund, Inc.
------------------------------------------------------
[Name of Issuer]
Bankers Trust Company
----------------------------
[Name of Trust Company]
July 16, 1999
---------------
[Date]
Attention: General Counsel's Office
The Depository Trust Company
55 Water Street, 49th Floor
New York, NY 10041-0099
Re: 3,400 Shares of Municipal Auction Rate Cumulative Preferred
Shares, Series TH, par value $.01 per share of Nuveen Municipal
Advantage Fund, Inc., CUSIP No.
------------------------------------------------------------------
[Issue Description, including CUSIP number]
Ladies and Gentlemen:
This letter sets forth our understanding with respect to certain
matters relating to the above-referenced issue (the "Securities"). Trust Company
will act as transfer agent, registrar, dividend disbursing agent, and redemption
agent with respect to the Securities. The Securities will be issued pursuant to
a prospectus, private placement memorandum, or other such document authorizing
the issuance of the Securities dated July 16, 1999 (the "Document"). Salmon
Smith ["Underwriter"] Barney Inc. is distributing the Securities through The
Depository Trust Company ("DTC").
To induce DTC to accept the Securities as eligible for deposit at DTC,
and to act in accordance with its Rules with respect to the Securities, Issuer
and Trust Company make the following representations to DTC:
<PAGE> 2
1. Prior to closing on the Securities on ______________, 199_, there
shall be deposited with DTC one Security certificate registered in the name of
DTC's nominee, Cede & Co., which represents the total number of Securities
issued. Said certificate shall remain in DTC's custody as provided in the
Document. If, however, the aggregate principal amount of the Securities exceeds
$200 million, one certificate will be issued with respect to each $200 million
of principal amount and an additional certificate will be issued with respect to
any remaining principal amount. Each Security certificate shall bear the
following legend:
Unless this certificate is presented by an authorized
representative of The Depository Trust Company, a New York corporation
("DTC"), to Issuer or its agent for registration of transfer, exchange,
or payment, and any certificate issued is registered in the name of
Cede & Co. or in such other name as is requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or to such
other entity as is requested by an authorized representative of DTC),
ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR
TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede
& Co., has an interest herein.
2. Issuer: (a) understands that DTC has no obligation to, and will not,
communicate to its Participants or to any person having an interest in the
Securities any information contained in the Security certificate(s); and (b)
acknowledges that neither DTC's Participants nor any person having an interest
in the Securities shall be deemed to have notice of the provisions of the
Security certificate(s) by virtue of submission of such certificate(s) to DTC.
3. In the event of any solicitation of consents from or voting by
holders of the Securities, Issuer shall establish a record date for such
purposes (with no provision for revocation of consents or votes by subsequent
holders) and shall send notice of such record date to DTC not less than 15
calendar days in advance of such record date. Notices to DTC pursuant to this
Paragraph by telecopy shall be sent to DTC's Reorganization Department at (212)
709-6896 or (212) 709-6897, and receipt of such notices shall be confirmed by
telephoning (212) 709-6870. Notices to DTC pursuant to this Paragraph by mail or
by any other means shall be sent to DTC's Reorganization Department as indicated
in Paragraph 5.
4. In the event of a full or partial redemption of the outstanding
Securities, Issuer or Trust Company shall send a notice to DTC specifying: (a)
the number of Securities to be redeemed; and (b) the date such notice is to be
distributed to Security holders or published (the "Publication Date"). Such
notice shall be sent to DTC by a secure means (e.g., legible telecopy,
registered or certified mail, overnight 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 or, if possible, two business days before
the Publication Date. Issuer or Trust Company shall forward such notice either
in a separate secure transmission for each CUSIP number or in a secure
transmission for multiple CUSIP numbers (if applicable) which includes a
manifest or list of each CUSIP number submitted in that transmission. (The party
sending such notice shall have a method to verify subsequently the use of such
means and the timeliness of such notice.) The Publication Date shall be not less
than 30 days nor more than 60 days prior to the redemption date. Notices to DTC
pursuant to this Paragraph by telecopy shall be sent to DTC's Call Notification
Department at (516) 227-4039 or (516) 227-4190.
2
<PAGE> 3
If the party sending the notice does not receive a telecopy receipt from DTC
confirming that the notice has been received, such party shall telephone (516)
227-4070. Notices to DTC pursuant to this Paragraph by mail or by any other
means shall be sent to:
Manager; Call Notification Department
The Depository Trust Company
711 Stewart Avenue
Garden City, NY 11530-4719
5. In the event of an invitation to tender the Securities (including
mandatory tenders, exchanges, and capital changes), notice by Issuer or Trust
Company to Security holders specifying the terms of the tender and the
Publication Date of such notice shall be sent to DTC by a secure means in the
manner set forth in the preceding Paragraph. Notices to DTC pursuant to this
paragraph and notices of other corporate actions by telecopy shall be sent to
DTC's Reorganization Department at (212) 709-1093 or (212) 709-1094, and receipt
of such notices shall be confirmed by telephoning (212) 709-6884. Notices to DTC
pursuant to the above by mail or by any other means shall be sent to:
Manager; Reorganization Department
Reorganization Window
The Depository Trust Company
7 Hanover Square, 23rd Floor
New York, NY 10004-2695
6. All notices and payment advices sent to DTC shall contain the CUSIP
number of the Securities (listed on Schedule A hereto) and the accompanying
description of such Security, which, as of the date of this letter is "Municipal
Auction Rate Cumulative Preferred Share, Series TH."
7. The Document indicates that the dividend rate for the Securities may
vary from time to time. Absent other existing arrangements with DTC, Issuer or
Trust Company shall give DTC notice of each such change in the dividend rate, on
the same day that the new rate is determined, by telephoning the Supervisor of
DTC's Dividend Announcement Section at (212) 709-1270, or by telecopy sent to
(212) 709-1723. Such verbal or telecopy notice shall be followed by prompt
written confirmation sent by a secure means in the manner set forth in Paragraph
4 to:
Manager; Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square; 22nd Floor
New York, NY 10004-2695
8. The document indicates that each purchaser of Securities must sign a
purchaser's letter which contains provisions restricting transfer of the
Securities purchased. Issuer and Trust Company acknowledge that as long as Cede
& Co. is the sole record owner of the Securities, Cede & Co. shall be entitled
to all voting rights applicable to the Securities and to receive the full
3
<PAGE> 4
amount of all dividends, liquidation proceeds, and redemption proceeds payable
with respect to the Securities, even if the credits of Securities to the DTC
accounts of any DTC Participant (AParticipant@) result from transfers or
failures to transfer in violation of the provisions of the purchaser's letter.
Issuer and Trust Company acknowledge that DTC shall treat any Participant having
Securities credited to its DTC accounts as entitled to the full benefits of
ownership of such Securities. Without limiting the generality of the preceding
sentence, Issuer and Trust Company acknowledge that DTC shall treat any
Participant having Securities credited to its DTC accounts as entitled to
receive dividends, distributions, and voting rights, if any, in respect of
Securities and, subject to Paragraphs 12 and 13, to receive certificates
evidencing Securities if such certificates are to be issued in accordance with
Issuer's certificate of incorporation. (The treatment by DTC of the effects of
the crediting by it of Securities to the accounts of Participants described in
the preceding two sentences shall not affect the rights of Issuer, participants
in auctions relating to the Securities, purchasers, sellers, or holders of
Securities against any Participant.) DTC shall not have any responsibility to
ascertain whether any transfer of Securities is made in accordance with the
provisions of the purchaser's letter.
9. Issuer or Trust Company shall provide a written notice of dividend
payment and distribution information to a standard announcement service
subscribed to by DTC as soon as the information is available. In the unlikely
event that no such service exists, Issuer or Trust Company shall provide this
information directly to DTC electronically, as previously arranged by Issuer or
Trust Company and DTC, as soon as the information is available. If electronic
transmission has not been arranged, absent any other arrangements between Issuer
or Trust Company and DTC, such information should be sent by telecopy to DTC's
Dividend Department at (212) 709-1723 or (212) 709-1686, and receipt of such
notices shall be confirmed by telephoning (212) 709-1270. Notices to DTC
pursuant to the above by mail or by any other means shall be addressed as
follows:
Manager; Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square; 22nd Floor
New York, NY 10004-2695
10. Issuer or Trust Company shall provide CUSIP-level detail for
dividend payments and distributions to DTC no later than noon (Eastern Time) on
the payment date.
11. Dividend payments and distributions shall be received by Cede &
Co., as nominee of DTC, or its registered assigns in same-day funds no later
than 2:30 p.m. (Eastern Time) on each payment date. Absent any other
arrangements between Issuer or Trust Company and DTC, such funds shall be wired
as follows:
The Chase Manhattan Bank
ABA # 021 000 021
For credit to a/c Cede & Co.
c/o The Depository Trust Company
Dividend Deposit Account # 066-026776
4
<PAGE> 5
12. Redemption payments shall be received by Cede & Co., as nominee of
DTC, or its registered assigns in same-day funds no later than 2:30 p.m.
(Eastern Time) on the payment date. Absent any other arrangements between Issuer
or Trust Company and DTC, such funds shall be wired as follows:
The Chase Manhattan Bank
ABA # 021 000 021
For credit to a/c Cede & Co.
c/o The Depository Trust Company
Reorganization Deposit Account # 066-027306
13. Reorganization payments and CUSIP-level detail resulting from
corporate actions (such as tender offers, remarketings, or mergers) shall be
received by Cede & Co., as nominee of DTC, or its registered assigns in same-day
funds no later than 2:30 p.m. (Eastern Time) on the first payment date. Absent
any other arrangements between Issuer or Trust Company and DTC, such funds shall
be wired as follows:
The Chase Manhattan Bank
ABA # 021 000 021
For credit to a/c Cede & Co.
c/o The Depository Trust Company
Reorganization Deposit Account # 066-027608
14. DTC may direct Issuer or Trust Company to use any other number or
address as the number or address to which notices, payments of dividends,
distributions, or redemption proceeds may be sent.
15. In the event of a redemption acceleration, or any similar
transaction (e.g., tender made and accepted in response to Issuer's or Trust
Company's invitation) necessitating a reduction in the number of Securities
outstanding, or an advance refunding of part of the Securities outstanding DTC,
in its discretion: (a) may request Issuer or Trust Company to issue and
authenticate a new Security certificate; or (b) may make an appropriate notation
on the Security certificate indicating the date and amount of such reduction in
the number of Securities outstanding, except in the case of final redemption, in
which case the certificate will be presented to Issuer or Trust Company prior to
payment, if required.
16. In the event that Issuer determines that beneficial owners of
Securities shall be able to obtain certificated Securities, Issuer or Trust
Company shall notify DTC of the availability of certificates. In such event,
Issuer or Trust Company shall issue, transfer, and exchange certificates in
appropriate amounts, as required by DTC and others.
17. DTC may discontinue providing its services as securities depository
with respect to the Securities at any time by giving reasonable notice to Issuer
or Trust Company (at which time DTC will confirm with Issuer or Trust Company
the aggregate principal amount of Securities outstanding). Under such
circumstances, at DTC's request Issuer and Trust Company shall
5
<PAGE> 6
cooperate fully with DTC by taking appropriate action to make available one or
more separate certificates evidencing Securities to any DTC Participant having
Securities credited to its DTC accounts.
18. Issuer hereby authorizes DTC to provide to Trust Company security
position listings of Participants with respect to the Securities from time to
time at the request of Trust Company. Issuer also authorizes DTC, in the event
of a partial redemption of Securities, to provide Trust Company, upon request,
with the names of those Participants whose positions in Securities have been
selected for redemption by DTC. DTC will use its best efforts to notify Trust
Company of those Participants whose positions in Securities have been selected
for redemption by DTC. Issuer authorizes and instructs Trust Company to provide
DTC with such signatures, examples of signatures, and authorizations to act as
may be deemed necessary or appropriate by DTC to permit DTC to discharge its
obligations to its Participants and appropriate regulatory authorities. Such
requests for security position listings shall be sent to DTC's Reorganization
Department in the manner set forth in Paragraph 5.
This authorization, unless revoked by Issuer, shall continue with
respect to the Securities while any Securities are on deposit at DTC, until and
unless Trust Company shall no longer be acting. In such event, Issuer shall
provide DTC with similar evidence, satisfactory to DTC, of the authorization of
any successor thereto so to act.
19. Nothing herein shall be deemed to require Trust Company to advance
funds on behalf of Issuer.
20. This Letter of Representations may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original,
but all such counterparts together constitute but one and the same instrument.
21. This Letter of Representations is governed by, and shall be
construed in accordance with, the laws of the State of New York.
22. The following riders, attached hereto, are hereby incorporated into
this Letter of Representations:
6
<PAGE> 7
<TABLE>
<CAPTION>
Notes: Very truly yours,
- -----
<S> <C>
A. If there is a Trust Company (as defined in this
Letter of Representations), Trust Company as well as
Issuer must sign this Letter. If there is no Trust
Company, in signing this Letter Issuer itself undertakes
to perform all of the obligations set forth herein. Nuveen Municipal Advantage Fund, Inc.
--------------------------------------------
(Issuer)
B. Schedule B contains statements that DTC believes
accurately describe DTC, the method of effecting
book-entry transfers of securities distributed through By:
DTC, and certain related matters. -----------------------------------------
(Authorized Officer's Signature)
Bankers Trust Company
--------------------------------------------
(Trust Company)
By:
-----------------------------------------
(Authorized Officer's Signature)
</TABLE>
Received and Accepted:
THE DEPOSITORY TRUST COMPANY
By:
--------------------------------
cc: Underwriter
Underwriter's Counsel
7
<PAGE> 8
SCHEDULE A
Municipal Action Rate Cumulative Preferred Share, Series TH,
par value $.01 per share of Nuveen Municipal Advantage Fund, Inc.
(Describe Issue)
<TABLE>
<CAPTION>
CUSIP Number Share Total Value ($ Amount)
- ------------ ----------- ----------------
<S> <C> <C>
3,400
</TABLE>
<PAGE> 9
SCHEDULE B
SAMPLE OFFERING DOCUMENT LANGUAGE
DESCRIBING BOOK-ENTRY-ONLY ISSUANCE
(Prepared by DTCCbracketed material may be applicable only to certain issues)
1. The Depository Trust Company ("DTC"), New York, NY, will act as
securities depository for the securities (the "Securities"). The Securities will
be issued as fully-registered securities registered in the name of Cede & Co.
(DTC's partnership nominee). One fully-registered Security certificate will be
issued for [each issue of] the Securities, [each] in the aggregate principal
amount of such issue, and will be deposited with DTC. [If, however, the
aggregate principal amount of [any] issue exceeds $200 million, one certificate
will be issued with respect to each $200 million of principal amount and an
additional certificate will be issued with respect to any remaining principal
amount of such issue.]
2. DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934. DTC hold securities that its participants ("Participants") deposit
with DTC. DTC also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates. Direct
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations, and certain other organizations. DTC is owned by a number
of its Direct Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. Access to the DTC system is also available to others such as
securities brokers and dealers, banks, and trust companies that clear through or
maintain a custodial relationship with a Direct Participant, either directly or
indirectly ("Indirect Participants"). The Rules applicable to DTC and its
Participants are on file with the Securities and Exchange Commission.
3. Purchases of Securities under the DTC system must be made by or
through Direct Participants, which will receive a credit for the Securities on
DTC's records. The ownership interest of each actual purchaser of each Security
("Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants= records. Beneficial Owners will not receive written confirmation
from DTC of their purchase, but Beneficial Owners are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Direct or Indirect Participant through
which the Beneficial Owner entered into the transaction. Transfers of ownership
interests in the Securities are to be accomplished by entries made on the books
of Participants acting on behalf of Beneficial Owners. Beneficial Owners will
not receive certificates representing their ownership interests in Securities,
except in the event that use of the book-entry system for the Securities is
discontinued.
<PAGE> 10
4. To facilitate subsequent transfers, all Securities deposited by
Participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. The deposit of Securities with DTC and their registration in the name
of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of
the actual Beneficial Owners of the Securities; DTC's records reflect only the
identity of the Direct Participants to whose accounts such Securities are
credited, which may or may not be the Beneficial Owners. The Participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
5. Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
6. Redemption notices shall be sent to DTC. If less than all of the
Securities within an issue are being redeemed, DTC's practice is to determine by
lot the amount of the interest of each Direct Participant in such issue to be
redeemed.]
7. Neither DTC nor Cede & Co. will consent or vote with respect to
Securities. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as
soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s
consenting or voting rights to those Direct Participants to whose accounts the
Securities are credited on the record date (identified in a listing attached to
the Omnibus Proxy).
8. Redemption proceeds, distributions and dividend payments on the
Securities will be made to Cede & Co., as nominee of DTC. DTC's practice is to
credit Direct Participants= accounts, upon DTC's receipt of payment and
corresponding detail information from Issuer or Trust Company on payable date in
accordance with their respective holdings shown on DTC's records. Payments by
Participants to Beneficial Owners will be governed by standing instructions and
customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of such Participant and not of DTC, Trust Company, or Issuer,
subject to any statutory or regulatory requirements as may be in effect from
time to time. Payment of redemption proceeds, distributions and dividends to
Cede & Co. is the responsibility of Issuer or Trust Company, disbursement of
such payments to Direct Participants shall be the responsibility of DTC, and
disbursement of such payments to the Beneficial Owners shall be the
responsibility of Direct and Indirect Participants.
[9. A Beneficial Owner shall give notice to elect to have its
Securities purchased or tendered, through its Participant, to Trust Company [or
Tender/Remarketing Agent], and shall effect delivery of such Securities by
causing the Direct Participant to transfer the Participant's interest in the
Securities, on DTC's records, to Trust Company [or Tender/Remarketing Agent].
The requirement for physical delivery of Securities in connection with an
optional tender or a mandatory purchase will be deemed satisfied when the
ownership rights in the Securities are transferred by Direct Participants on
DTC's records and followed by a book-entry credit of tendered Securities to
Trustee's [or Tender/Remarketing Agent's] DTC account.]
B-2
<PAGE> 11
10. DTC may discontinue providing its services as securities depository
with respect to the Securities at any time by giving reasonable notice to Issuer
or Trust Company. Under such circumstances, in the event that a successor
securities depository is not obtained, Security certificates are required to be
printed and delivered.
11. Issuer may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that event,
Security certificates will be printed and delivered.
12. The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that Issuer believes to be reliable, but
Issuer takes no responsibility for the accuracy thereof.
The current address for Paragraph 9 is the same as that listed above, for
Paragraph 7.
The following additional text relates to Paragraph 10 of the Letter of
Representations:
Such information shall be conveyed by automated notification. If the
circumstances prevent the funds being paid to Cede & Co., as nominee of DTC, by
2:30 p.m. ET from equaling the dollar amount associated with detail payments by
12:00 noon ET, Issuer or Agent must provide CUSIP-level reconciliation to DTC no
later than 2:30 p.m. ET.
Reconciliation may be provided by automated means or in written format.
The following additional text relates to Paragraph 11 of the Letter of
Representations:
Issuer must remit free funds to Agent by 1:00 p.m. ET on each payment date, or
at such earlier time as required by Agent to guarantee timely credit to the
Dividend Deposit Account of Cede & Co.
The following additional text related to Paragraph 12 of the Letter of
Representations:
Issuer must remit free funds to Agent by 1:00 p.m. ET on each payment date, or
at such earlier time as required by Agent to guarantee timely credit to the
Redemption Deposit Account of Cede & Co. Issuer or Agent shall deliver
CUSIP-level detail regarding such payments to DTC no later than 2:30 p.m. ET on
each payment date.
The following additional text relates to Paragraph 13 of the Letter of
Representations:
Issuer must remit free funds to Agent by 1:00 p.m. ET on each payment date, or
at such earlier time as required by Agent to guarantee timely credit to the
Reorganization Deposit Account of Cede & Co. Issuer or Agent shall deliver
CUSIP-level detail regarding such payments to DTC no later than 2:30 p.m. ET on
each payment date.
B-3
<PAGE> 12
Rider Amending DTC Letter of Representations - BEO Auction-Rate/Money Market
Preferred/and Remarketed Preferred Securities
DTC's Reorganization and Dividend Departments have relocated to 55 Water Street.
Following are revisions to the Letter of Representations including current
addresses, telephone numbers, and telecopy numbers.
Paragraph 3 of the Letter of Representations:
Old Telecopier Numbers: Current Telecopier Numbers:
(212) 709-6896 and (212) 709-6897 (212) 855-5181 and (212) 855-5182
The confirmation number (formerly (212) 709-6870) is now (212) 855-5202.
Paragraph 5 of the Letter of Representations:
Old Telecopier Numbers: Current Telecopier Number:
(212) 709-1093 and (212) 709-1094 (212) 855-5278
The confirmation number (formerly (212) 709-6884) is now (212) 855-5280.
The current address is: Manager; Reorganization Department
Reorganization Window
The Depository Trust Company
55 Water Street, 50th Floor
New York, NY 10041-0099
Paragraph 7 of the Letter of Representations:
Old Telecopier Number: Current Telecopier Number:
(212) 709-1723 (212) 855-4555
The confirmation number (formerly (212) 709-1270) is now (212) 855-4550.
The current address is: Manager; Announcements
Dividend Department
The Depository Trust Company
55 Water Street, 25th Floor
New York, NY 10041-0099
Paragraph 9 of the Letter of Representations:
Old Telecopier Numbers: Current Telecopier Numbers:
(212) 709-1723 and (212) 709-1686 (212) 855-4555 and (212) 855-4556
<PAGE> 13
The confirmation number (formerly (212) 709-1270) is now (212) 855-4550.
The current address for Paragraph 9 is the same as that listed above, for
Paragraph 7.
The following additional text relates to Paragraph 10 of the Letter of
Representations:
Such information shall be conveyed by automated notification. If the
circumstances prevent the funds being paid to Cede & Co., as nominee of DTC, by
2:30 p.m. ET from equaling the dollar amount associated with detail payments by
12:00 noon ET, Issuer or Agent must provide CUSIP-level reconciliation to DTC no
later than 2:30 p.m. ET. Reconciliation may be provided by automated means or in
written format.
The following additional text relates to Paragraph 11 of the Letter of
Representations:
Issuer must remit free funds to Agent by 1:00 p.m. ET on each payment date, or
at such earlier time as required by Agent to guarantee timely credit to the
Dividend Deposit Account of Cede & Co.
The following additional text relates to Paragraph 12 of the Letter of
Representations:
Issuer must remit free funds to Agent by 1:00 p.m. ET on each payment date, or
at such earlier time as required by Agent to guarantee timely credit to the
Redemption Deposit Account of Cede & Co. Issuer or Agent shall deliver
CUSIP-level detail regarding such payments to DTC no later than 2:30 p.m. ET on
each payment date.
The following additional text relates to Paragraph 13 of the Letter of
Representations:
Issuer must remit free funds to Agent by 1:00 p.m. ET on each payment date, or
at such earlier time as required by Agent to guarantee timely credit to the
Reorganization Deposit Account of Cede & Co. Issuer or Agent shall deliver
CUSIP-level detail regarding such payments to DTC no later than 2:30 p.m. ET on
each payment date.
2
<PAGE> 1
EXHIBIT 1.1
July 9, 1999
Nuveen California Dividend Advantage Municipal Fund
333 West Wacker Drive
Chicago, Illinois 60606
Re: Nuveen California Dividend Advantage Municipal Fund
Municipal Auction Rate Cumulative Preferred
Shares to be Issued Pursuant to the Underwriting Agreement
(File No. 333-80563)
Ladies and Gentlemen:
We are acting as counsel to Nuveen California Dividend Advantage
Municipal Fund, a Massachusetts business trust (the "Trust"), in connection with
the Trust's filing of a registration statement on Form N-2 (the "Registration
Statement") with the Securities and Exchange Commission covering the
registration, authorization and proposed issuance of up to 3,400 shares of its
Municipal Auction Rate Cumulative Preferred Shares ("MuniPreferred"), Series TH,
liquidation preference of $25,000 per share ("Series TH Shares"), 3,400 shares
of MuniPreferred, Series F, liquidation preference of $25,000 per share ("Series
F Shares") (the Series TH Shares and Series F Shares are referred to
collectively as the "Shares"). In that capacity, we have examined such corporate
records, certificates and other documents, and have made such other factual and
legal investigations as we have deemed necessary and appropriate for the
purposes of this opinion. Insofar as this opinion pertains to matters governed
by the laws of the Commonwealth of Massachusetts, we are relying with your
consent, upon the opinion of Bingham Dana LLP dated July 9, 1999, which opinion
is satisfactory in substance and form to us.
We have assumed that the Registration Statement, the Underwriting
Agreement and the Statement Establishing and Fixing the Rights and Preferences
of Municipal Auction Rate Cumulative Preferred Shares (the "Statement") will be
duly completed, executed and delivered and in accordance with the resolutions of
the Trustees attached to a certificate of the Secretary of the Fund, certifying
as to, and attaching copies of, the Fund's Declaration of Trust ("Declaration"),
Statement, By-Laws, and certain resolutions adopted by the Trustees of the Fund
and that the Statement will be duly filed with the Office of the Secretary of
State of Massachusetts.
Based upon the foregoing, it is our opinion that:
(1) The Trust is duly organized and existing under the Fund's
Declaration and the laws of the Commonwealth of Massachusetts
as a voluntary association with shares of beneficial interest
commonly referred to as a "Massachusetts business trust."
(2) The Shares, when issued and sold in accordance with the
Trust's Declaration of Trust, Statement and By-Laws and for
the consideration described in the Underwriting Agreement,
will be legally issued, fully paid and non-assessable,
<PAGE> 2
Vedder, Price, Kaufman & Kammholz
July 9, 1999
Page 2
except that, as set forth in the Registration Statement,
shareholders of the Trust may under certain circumstances be
held personally liable for its obligations.
We hereby consent to the filing of this opinion as Exhibit 1.1 to the
Registration Statement and to the reference to us under the caption "Legal
Opinions" in the prospectus contained in the Registration Statement.
Very truly yours,
/s/ VEDDER, PRICE, KAUFMAN & KAMMHOLZ
MLW
DAS
<PAGE> 1
Exhibit 1.2
July 9, 1999
Vedder Price Kaufman & Kammholz
222 N. LaSalle Street
Chicago, Illinois 60601
RE: Nuveen California Dividend Advantage Municipal Fund
Ladies and Gentlemen:
We have acted as special Massachusetts counsel to Nuveen California
Dividend Advantage Municipal Fund, a Massachusetts business trust (the "Fund"),
in connection with the Fund's Registration Statement on Form N-2 filed with the
Securities and Exchange Commission (the "Commission") on June 11, 1999 (the
"Initial Filing") as such Registration Statement is proposed to be amended by
Pre-Effective Amendment No. 1 thereto to be filed with the Commission on or
about July 9, 1999 (as proposed to be amended, the "Registration Statement")
with respect to 3,400 Shares Series TH of the Fund's Municipal Auction Rate
Cumulative Preferred Shares, Liquidation Preference $25,000 per share (the
"Series TH Shares") and 3,400 Shares Series F of the Fund's Municipal Auction
Rate Cumulative Preferred Shares, liquidation preference $25,000 per share (the
"Series F Shares") (the Series TH Shares and the Series F Shares referred to
collectively as the "Shares"). You have requested that we deliver this opinion
to you, as special counsel to the Fund, for use by you in connection with your
opinion to the Fund with respect to the Shares.
In connection with the furnishing of this opinion, we have examined the
following documents:
(a) a certificate dated a recent date of the Secretary of State of the
Commonwealth of Massachusetts as to the existence of the Fund;
(b) copies, certified by the Secretary of State of the Commonwealth of
Massachusetts, of the Fund's Declaration of Trust and of all amendments thereto
(the "Declaration") on file in the office of the Secretary of State;
(c) a draft of the Fund's Statement Establishing and Fixing the Rights
and Preferences of Municipal Auction Rate Cumulative Preferred Shares
<PAGE> 2
Vedder Price Kaufman & Kammholz
July 9, 1999
Page 2
attached as Appendix A to the Statement of Additional Information included in
the draft of the Amendment referred to in (f) below (the "Statement");
(d) a certificate of the Secretary of the Fund, certifying as to, and
attaching copies of, the Fund's Declaration, Statement, By-Laws, and certain
resolutions adopted by the Trustees of the Fund;
(e) a conformed copy of the Initial Filing;
(f) a printer's proof, which we received from the printer on July 7,
1999 of Pre-Effective Amendment No. 1 to the Initial Filing to be filed with the
Securities and Exchange Commission (the "Amendment"); and
(g) a draft dated June 28, 1999 of the Underwriting Agreement to be
entered into by the Fund and Salomon Smith Barney Inc., as representative of the
several underwriters named therein providing for the purchase and sale of the
Shares (the "Underwriting Agreement").
In such examination, we have assumed the genuineness of all signatures,
the conformity to the originals of all of the documents reviewed by us as
copies, the authenticity and completeness of all original documents reviewed by
us in original or copy form and the legal competence of each individual
executing any document.
We have assumed that the Amendment, the Underwriting Agreement and the
Statement will be duly completed, executed and delivered in substantially the
forms of the printer's proof and drafts referred to above and in accordance with
the resolutions of the Trustees attached to the certificate referred to in (d)
above, and that the Statement will be duly filed with the Office of the
Secretary of State of Massachusetts.
This opinion is based entirely on our review of the documents listed
above and such investigation of law as we have deemed necessary or appropriate.
We have made no other review or investigation of any kind whatsoever, and we
have assumed, without independent inquiry, the accuracy of the information set
forth in such documents.
This opinion is limited solely to the laws of the Commonwealth of
Massachusetts as applied by courts located in such Commonwealth, except that we
express no opinion as to any Massachusetts securities law.
<PAGE> 3
Vedder Price Kaufman & Kammholz
July 9, 1999
Page 3
We understand that all of the foregoing assumptions and limitations are
acceptable to you.
Based upon and subject to the foregoing, please be advised that it is
our opinion that:
1. The Fund is duly organized and existing under the Fund's Declaration
and the laws of the Commonwealth of Massachusetts as a voluntary association
with transferable shares of beneficial interest commonly referred to as a
"Massachusetts business trust."
2. The Shares, when issued and sold in accordance with the Fund's
Declaration, Statement and By-Laws and for the consideration described in the
Underwriting Agreement, will be legally issued, fully paid and non-assessable,
except that, as set forth in the Registration Statement, shareholders of the
Fund may under certain circumstances be held personally liable for its
obligations.
We hereby consent to your reliance on this opinion in connection with
your opinion to the Fund with respect to the Shares, to the reliance by the Fund
on this opinion, to the reference to our name in the Registration Statement and
in the prospectus forming a part thereof under the heading "Legal Opinions" and
to the filing of this opinion as an exhibit to the Registration Statement.
Very truly yours,
Bingham Dana LLP
<PAGE> 1
EXHIBIT 1.3
[ORRICK, HERRINGTON & SUTCLIFFE LLP LETTERHEAD]
July 8, 1999
Nuveen California Dividend Advantage
Municipal Fund, Inc
333 West Wacker Drive
Chicago, Illinois 60606
Ladies and Gentlemen:
We have acted as special California counsel to Nuveen California Dividend
Advantage Municipal Fund, Inc. (the "Registrant"), in connection with the
preparation and filing with the Securities and Exchange Commission (the
"Commission") of the Registration Statement on Form N-2, registration number
333-80563, filed by the Registrants with the Commission (the "Registration
Statement") for the registration under the Securities Act of 1933, as amended,
(the "Act") of 3400 of its Municipal Auction Rate Cumulative Preferred Shares,
Series TH, and 3400 of its Municipal Auction Rate Cumulative Preferred Shares,
Series F (the "Shares").
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the use of our name wherever appearing in the
Registration Statement and the Prospectus contained therein. In giving such
consent, we do not consider that we are "experts," within the meaning of the
term as used in the Act or the rules and regulations of the Commission issued
thereunder, with respect to any part of the Registration Statement, including
this letter as an exhibit or otherwise.
Very truly yours,
Orrick, Herrington & Sutcliffe LLP
By: /s/ Ken Whyburn
<PAGE> 1
EXHIBIT L.4
[Form of Tax Opinion]
__________, 1999
Nuveen California Dividend Advantage Municipal Fund
333 West Wacker Drive
Chicago, Illinois 60606
Ladies and Gentlemen:
You have asked us to provide our opinion that the manner in which Nuveen
California Dividend Advantage Municipal Fund, a Massachusetts business trust
(the "Fund"), intends to allocate items of tax exempt income, net capital gain
and other taxable income, if any, between common shares and Municipal Auction
Rate Cumulative Preferred Shares ("MuniPreferred") Series TH and F, will be
respected for federal income tax purposes.
In connection with this opinion, we have examined portions of the Form N-2
including the Prospectus, Statement of Additional Information, and the Statement
Establishing and Fixing the Rights and Preferences of the Municipal Auction Rate
Cumulative Preferred Shares relating to Series TH and F of the Fund, as filed by
the Fund with the Securities and Exchange Commission on ___________, 1999, and
such other documents and materials as we have deemed necessary or appropriate in
order to enable us to render our opinion.
In providing our opinion, we have assumed that (1) the Fund will be operated as
a regulated investment company under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), and in the manner described in the documents
comprising the Form N-2 referred to above, (2) distributions to the holders of
the Fund's common shares and MuniPreferred shares shall be in accordance with
the descriptions set forth in the Form N-2 (the "Methodology"), and (3) the
Fund's common shares and each class of its MuniPreferred shares will be treated
as a separate class of shares under Massachusetts law. We have also relied upon
certain representations you have made to us concerning the Fund's MuniPreferred
shares and the Methodology in a letter dated _________, 1999.
This opinion is based upon the Code, United States Treasury regulations,
judicial decisions and administrative rulings and pronouncements of the Internal
Revenue Service (the "Service"), all as in effect on the date hereof. There can
be no assurances that future legislative or administrative changes, court
decisions or Service interpretations will not significantly modify the
statements or opinions expressed herein.
<PAGE> 2
VEDDER PRICE
Nuveen California Dividend Advantage Municipal Fund
[DATE]
Page 2
Revenue Ruling 89-81, 1989-1 C.B. 226, sets forth the position of the Service
that if a regulated investment company has two or more classes of shares and it
designates the dividends that it pays on one class as consisting of more than
that class proportionate share of a particular type of income, the designations
are not effective for federal tax purposes to the extent that they exceed the
class proportionate share of that type of income.
The description of the Fund's method of making distributions to its shareholders
of net tax exempt interest, net capital gain and other taxable income as set
forth in the Form N-2 provides that to the fullest extent practicable, such
types of income will be allocated between its common shares and MuniPreferred
shares in proportion to the total dividends paid to each class for that year.
The detailed description in the Methodology referred to above is designed to
accomplish the Fund's proportionate distribution plan.
Based on the foregoing discussion and assumptions, and on your letter containing
representations concerning the MuniPreferred shares and the Methodology, it is
our opinion that the manner in which the Fund intends to allocate items of
tax-exempt income, net capital gain and other income, if any, between common
shares and MuniPreferred shares, Series TH and F, will be respected for federal
income tax purposes. It should be noted, however, that we are aware of no legal
precedent directly on point and, therefore, the Service could disagree with our
opinion. We believe that if the Service challenged the Fund's allocations under
Revenue Ruling 89-81, the Fund should prevail.
Our opinion is limited to those federal income tax issues specifically
considered herein and is addressed to and are only for the benefit of the Fund.
Although the discussion herein is based upon our best interpretation of existing
sources of law and expresses what we believe a court would properly conclude if
presented with these issues, no assurance can be given that such interpretations
would be followed if they were to become the subject of judicial or
administrative proceedings.
Very truly yours,
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
<PAGE> 1
Exhibit n
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Financial Highlights"
and "Experts" and to the use of our report dated May 21, 1999 in the
Registration Statement (Form N-2) and related Prospectus and Statement of
Additional Information of the Nuveen California Dividend Advantage Municipal
Fund filed with the Securities and Exchange Commission in this Registration
Statement under the Securities Act of 1933 (Registration No. 333-80563) and in
this Amendment No. 7 to the Registration Statement under the Investment Company
Act of 1940 (Registration No. 811-09161).
/s/ Ernst & Young LLP
-----------------------------
ERNST & YOUNG LLP
Chicago, Illinois
July 9, 1999
