<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 6, 1999
SECURITIES ACT FILE NO. 333-82005
INVESTMENT COMPANY ACT FILE NO. 811-09313
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. 2 [X]
POST-EFFECTIVE AMENDMENT NO.
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 6 [X]
(Check appropriate box or boxes)
------------------------
MUNIHOLDINGS CALIFORNIA INSURED FUND V, INC.
(Exact Name of Registrant as Specified in Charter)
------------------------
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(Address of Principal Executive Offices)
(609) 282-2800
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
TERRY K. GLENN
MUNIHOLDINGS CALIFORNIA INSURED FUND V, INC.
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(Name and Address of Agent for Service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
MICHAEL J. HENNEWINKEL, ESQ. FRANK P. BRUNO, ESQ.
FUND ASSET MANAGEMENT, L.P. BROWN & WOOD LLP
P.O. BOX 9011 ONE WORLD TRADE CENTER
PRINCETON, NEW JERSEY 08543-9011 NEW YORK, NEW YORK 10048-0557
</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 are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. [X]
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<PAGE> 2
This Pre-Effective Amendment is being filed to re-file Exhibit (a)(2).
i
<PAGE> 3
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(1) Financial Statements
Independent Auditors' Report
Statement of Assets, Liabilities and Capital as of June 15, 1999
Schedule of Investments as of July 23, 1999 (unaudited)
Statement of Assets, Liabilities and Capital as of July 23, 1999
(unaudited)
(2) Exhibits:
<TABLE>
<CAPTION>
DESCRIPTION
-----------
<S> <C> <C>
(a)(1) -- Articles of Incorporation of the Registrant.(a)
(2) -- Form of Articles Supplementary creating the Series A AMPS.
(b) -- By-Laws of the Registrant.(a)
(c) -- Not applicable
-- Portions of the Articles of Incorporation, By-Laws and the
Articles Supplementary of the
(d)(1) -- Registrant defining the rights of holders of shares of the
Registrant.(b)
(2) -- Form of specimen certificate for the AMPS of the
Registrant.(c)
(e) -- Form of Automatic Dividend Reinvestment Plan.(d)
(f) -- Not applicable
(g) -- Form of Investment Advisory Agreement between the Registrant
and Fund Asset Management, L.P.(d)
(h)(1) -- Form of Purchase Agreement for the AMPS.(c)
(2) -- Merrill Lynch Standard Dealer Agreement.(d)
(i) -- Not applicable
(j) -- Form of Custodian Contract between the Registrant and State
Street Bank and Trust Company.(d)
(k)(1) -- Form of Transfer Agency, Dividend Disbursing Agency and
Shareholder Servicing Agency Agreement between the
Registrant and State Street Bank and Trust Company.(d)
(2) -- Form of Auction Agent Agreement between the Registrant and
IBJ Whitehall Bank & Trust Company.(c)
(3) -- Form of Broker-Dealer Agreement.(c)
(4) -- Form of Letter of Representations.(c)
(l) -- Opinion and Consent of Brown & Wood LLP, counsel to the
Registrant.(e)
(m) -- Not applicable
(n) -- Consent of Deloitte & Touche LLP, independent auditors for
the Registrant.(e)
(o) -- Not applicable
(p) -- Certificate of Fund Asset Management, L.P.(c)
(q) -- Not applicable
(r) -- Financial Data Schedule.(e)
</TABLE>
- ---------------
(a) Reference is made to the Registrant's registration statement on Form N-2,
File No. 333-77531 (the "Common Stock Registration Statement"), filed with
the Securities and Exchange Commission on April 30, 1999.
(b) Reference is made to Article V, Article VI (sections 2, 3, 4, 5 and 6),
Article VII, Article VIII, Article X, Article XI, Article XII and Article
XIII of the Registrant's Articles of Incorporation, previously filed as
Exhibit (a) to the Common Stock Registration Statement; and to Article II,
Article III (sections 1, 2, 3, 5 and 17), Article VI, Article VII, Article
XII, Article XIII and Article XIV of the Registrant's By-Laws, previously
filed as Exhibit (b) to the Common Stock Registration Statement. Reference
is also made to the Form of Articles Supplementary filed hereto as Exhibit
(a)(4).
(c) Previously filed with the original filing of this Registration Statement on
June 30, 1999.
C-1
<PAGE> 4
(d) Reference is made to Pre-Effective Amendment No. 1 to Registrant's Common
Stock Registration Statement filed with the Securities and Exchange
Commission on May 18, 1999.
(e) Previously filed with Pre-Effective Amendment No. 1 to the Registrant's
Registration Statement on July 28, 1999.
ITEM 25. MARKETING ARRANGEMENTS.
See Exhibit (h).
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement:
<TABLE>
<S> <C>
Registration fees........................................... $ 13,622
Printing.................................................... 54,000
Legal fees and expenses..................................... 35,000
Rating Agency fees.......................................... 35,000
Miscellaneous............................................... 2,378
--------
Total............................................. $140,000
========
</TABLE>
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
The information in the Prospectus under the captions "Investment Advisory
and Management Arrangements" and "Description of Capital Stock-Common Stock" and
in Note 1 to the Statement of Assets, Liabilities and Capital is incorporated
herein by reference.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF
RECORD HOLDERS
TITLE OF CLASS AT JULY 23, 1999
-------------- ----------------
<S> <C>
Common Stock, $.10 par value................................ 2
Preferred Stock, $.10 par value............................. 0
</TABLE>
ITEM 29. INDEMNIFICATION.
Section 2-418 of the General Corporation Law of the State of Maryland,
Article VI of the Registrant's Amended and Restated Articles of Incorporation,
filed as Exhibit (a)(2) to the Common Stock Registration Statement, Article VI
of the Registrant's By-Laws, filed as Exhibit (b) to the Common Stock
Registration Statement, and the Investment Advisory Agreement, filed as Exhibit
(g) to the Common Stock Registration Statement, provide for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "1933 Act"), may be provided to directors, officers and
controlling persons of the Registrant, pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in connection with any successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the 1933 Act and will be governed by the final adjudication of such
issue.
C-2
<PAGE> 5
Reference is made to Section 7 of the Purchase Agreement, a form of which
is filed as Exhibit (h)(1) hereto, for provisions relating to the
indemnification of the underwriter.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER.
Fund Asset Management, L.P. (the "Investment Adviser") acts as investment
adviser for the following open-end registered investment companies: CBA Money
Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal
Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund
Accumulation Program, Inc., Financial Institutions Series Trust, Merrill Lynch
Basic Value Fund, Inc., Merrill Lynch California Municipal Series Trust, Merrill
Lynch Corporate Bond Fund, Inc., Merrill Lynch Corporate High Yield Fund, Inc.,
Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch Federal Securities
Trust, Merrill Lynch Funds for Institutions Series, Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, Merrill Lynch Multi-State Municipal
Series Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch Phoenix
Fund, Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch World Income
Fund, Inc., and The Municipal Fund Accumulation Program, Inc., and for the
following closed-end registered investment companies: Apex Municipal Fund, Inc.,
Corporate High Yield Fund, Inc., Corporate High Yield Fund II, Inc., Corporate
High Yield Fund III, Inc., Debt Strategies Fund, Inc., Debt Strategies Fund II,
Inc., Debt Strategies Fund III, Inc., Income Opportunities Fund 1999, Inc.,
Income Opportunities Fund 2000, Inc., Merrill Lynch Municipal Strategy Fund,
Inc., MuniAssets Fund, Inc., MuniEnhanced Fund, Inc., MuniHoldings Fund, Inc.,
MuniHoldings Fund II, Inc., MuniHoldings California Insured Fund, Inc.,
MuniHoldings California Insured Fund II, Inc., MuniHoldings California Insured
Fund III, Inc., MuniHoldings California Insured Fund IV, Inc., MuniHoldings
California Insured Fund V, Inc., MuniHoldings Florida Insured Fund, MuniHoldings
Florida Insured Fund II, MuniHoldings Florida Insured Fund III, MuniHoldings
Florida Insured Fund IV, MuniHoldings Florida Insured Fund V, MuniHoldings
Insured Fund, Inc., MuniHoldings Insured Fund II, Inc., MuniHoldings Insured
Fund III, Inc., MuniHoldings Michigan Insured Fund, Inc., MuniHoldings New
Jersey Insured Fund, Inc., MuniHoldings New Jersey Insured Fund II, Inc.,
MuniHoldings New Jersey Insured Fund III, Inc., MuniHoldings New Jersey Insured
Fund IV, Inc., MuniHoldings New York Fund, Inc., MuniHoldings New York Insured
Fund, Inc., MuniHoldings New York Insured Fund II, Inc., MuniHoldings New York
Insured Fund III, Inc., MuniHoldings New York Insured Fund IV, Inc.,
MuniHoldings Pennsylvania Insured Fund, MuniInsured Fund, Inc., MuniVest Florida
Fund, MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest Michigan Insured
Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest Pennsylvania Insured Fund,
MuniYield Arizona Fund, Inc., MuniYield California Fund, Inc., MuniYield
California Insured Fund, Inc., MuniYield California Insured Fund II, Inc.,
MuniYield Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund, Inc.,
MuniYield Insured Fund, Inc., MuniYield Michigan Fund, Inc., MuniYield Michigan
Insured Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New Jersey
Insured Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield New York
Insured Fund II, Inc., MuniYield Pennsylvania Fund, MuniYield Quality Fund,
Inc., MuniYield Quality Fund II, Inc., Senior High Income Portfolio, Inc., and
Worldwide DollarVest Fund, Inc.
Merrill Lynch Asset Management, L.P. ("MLAM"), an affiliate of the
Investment Adviser, acts as the investment adviser for the following open-end
registered investment companies: Merrill Lynch Adjustable Rate Securities Fund,
Inc., Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Asset Builder
Program, Inc., Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income
Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill Lynch Convertible Fund,
Inc., Merrill Lynch Developing Capital Markets Fund, Inc., Merrill Lynch
Disciplined Equity Funds, Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch
EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch Global Bond
Fund for Investment and Retirement, Merrill Lynch Global Allocation Fund, Inc.,
Merrill Lynch Global Growth Fund, Inc., Merrill Lynch Global Holdings, Merrill
Lynch Global Resources Trust, Merrill Lynch Global SmallCap Fund, Inc., Merrill
Lynch Global Technology Fund, Inc., Merrill Lynch Global Utility Fund, Inc.,
Merrill Lynch Global Value Fund, Inc., Merrill Lynch Growth Fund, Merrill Lynch
Healthcare Fund, Inc., Merrill Lynch Intermediate Government Bond Fund, Merrill
Lynch International Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill
Lynch Middle East/Africa Fund, Inc., Merrill Lynch Municipal Series Trust,
Merrill Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets Trust, Merrill
Lynch Real Estate Fund, Inc.,
C-3
<PAGE> 6
Merrill Lynch Retirement Series Trust, Merrill Lynch Series Fund, Inc., Merrill
Lynch Short-Term Global Income Fund, Inc., Merrill Lynch Strategic Dividend
Fund, Merrill Lynch Technology Fund, Inc., Merrill Lynch U.S. Treasury Money
Fund, Merrill Lynch U.S.A. Government Reserves, Merrill Lynch Utility Income
Fund, Inc., Merrill Lynch Variable Series Funds, Inc. and Hotchkis and Wiley
Funds (advised by Hotchkis and Wiley, a division of MLAM); and for the following
closed-end registered investment companies: Merrill Lynch High Income Municipal
Bond Fund, Inc., Merrill Lynch Senior Floating Rate Fund, Inc., and Merrill
Lynch Senior Floating Rate Fund II, Inc. MLAM also acts as sub-adviser to
Merrill Lynch World Strategy Portfolio and Merrill Lynch Basic Equity Portfolio,
two investment portfolios of EQ Advisors Trust.
The address of each of these registered investment companies is P.O. Box
9011, Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch
Funds for Institutions Series and Merrill Lynch Intermediate Government Bond
Fund is One Financial Center, 23rd Floor, Boston, Massachusetts 02111-2665. The
address of the Investment Adviser, MLAM, Princeton Services, Inc. ("Princeton
Services") and Princeton Administrators, L.P. is also P.O. Box 9011, Princeton,
New Jersey 08543-9011. The address of Princeton Funds Distributor, Inc. ("PFD")
and of Merrill Lynch Funds Distributor ("MLFD") is P.O. Box 9081, Princeton, New
Jersey 08543-9081. The address of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and Merrill Lynch & Co., Inc. ("ML & Co.") is
World Financial Center, North Tower, 250 Vesey Street, New York, New York
10281-1201.
Set forth below is a list of each executive officer and partner of the
Investment Adviser indicating each business, profession, vocation or employment
of a substantial nature in which each such person or entity has been engaged for
the past two years for his or her or its own account or in the capacity of
director, officer, employee, partner or trustee. In addition, Mr. Glenn is
President and Mr. Burke is Treasurer of all or substantially all of the
investment companies described in the first two paragraphs of this Item 30 and
also hold the same positions with all or substantially all of the investment
companies advised by MLAM as they do with those advised by the Investment
Adviser. Messrs. Giordano, Doll and Monagle are directors or officers of one or
more of such companies.
<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
---- ---------------------------- ----------------------------------
<S> <C> <C>
ML & Co................................ Limited Partner Financial Services Holding
Company; Limited Partner of FAM
Princeton Services..................... General Partner General Partner of MLAM
Jeffrey M. Peek........................ President President of MLAM; President and
Director of Princeton Services;
Executive Vice President of ML &
Co.; Managing Director and Co-Head
of the Investment Banking Division
of Merrill Lynch in 1997
Terry K. Glenn......................... Executive Vice President Executive Vice President of MLAM;
Executive Vice President and
Director of Princeton Services;
President and Director of PFD;
Director of FDS; President of
Princeton Administrators, L.P.
Gregory A. Bundy....................... Managing Director and Chief Managing Director and Chief
Operating Officer Operating Officer of FAM; Managing
Director and Chief Operating
Officer of Princeton Services;
Co-CEO of Merrill Lynch Australia
from 1997 to 1999; Managing
Director of Merrill Lynch from
1992 to 1996.
</TABLE>
C-4
<PAGE> 7
<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
---- ---------------------------- ----------------------------------
<S> <C> <C>
Donald C. Burke........................ Senior Vice President and Senior Vice President, Treasurer
Treasurer and Director of Taxation of MLAM;
Senior Vice President and
Treasurer of Princeton Services;
Vice President of PFD; First Vice
President of MLAM from 1997 to
1999; Vice President of MLAM from
1996 to 1997
Michael G. Clark....................... Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services; Treasurer and Director
of PFD; First Vice President of
the Investment Adviser from 1997
to 1999; Vice President of the
Investment Adviser from 1996 to
1997
Robert C. Doll......................... Senior Vice President Senior Vice President of Princeton
Services; Chief Investment Officer
of Oppenheimer Funds, Inc. in 1999
and Executive Vice President
thereof from 1991 to 1999.
Linda L. Federici...................... Senior Vice President Senior Vice President of MLAM;
Senior Vice President of Princeton
Services
Vincent R. Giordano.................... Senior Vice President Senior Vice President of MLAM;
Senior Vice President of Princeton
Services
Michael J. Hennewinkel................. General Counsel and Senior Vice President, General
Secretary Counsel of MLAM; Senior Vice
President of the MLAM
International Group
Philip L. Kirstein..................... Senior Vice President Senior Vice President of MLAM;
Senior Vice President, General
Counsel, Director and Secretary of
Princeton Services
Ronald M. Kloss........................ Senior Vice President Senior Vice President of MLAM;
Senior Vice President of Princeton
Services
Debra W. Landsman-Yaros................ Senior Vice President Senior Vice President of MLAM;
Senior Vice President of Princeton
Services; Vice President of PFD
Joseph T. Monagle, Jr.................. Senior Vice President Senior Vice President of MLAM;
Senior Vice President of Princeton
Services Senior Vice President of
MLAM; Senior Vice President of
Princeton Services;
Brian A. Murdock....................... Senior Vice President Senior Vice President of MLAM;
Senior Vice President of Princeton
Services; Director of PFD
</TABLE>
C-5
<PAGE> 8
<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
---- ---------------------------- ----------------------------------
<S> <C> <C>
Gregory D. Upah........................ Senior Vice President Senior Vice President of MLAM;
Senior Vice President of Princeton
Services
</TABLE>
ITEM 31. LOCATION OF ACCOUNT AND RECORDS.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended, and the Rules
promulgated thereunder are maintained at the offices of the Registrant (800
Scudders Mill Road, Plainsboro, New Jersey 08536), its investment adviser (800
Scudders Mill Road, Plainsboro, New Jersey 08536), and its custodian and
transfer agent.
ITEM 32. MANAGEMENT SERVICES.
Not applicable.
ITEM 33. UNDERTAKINGS.
Registrant undertakes:
(1) For the purpose of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as a
part of a registration statement in reliance upon Rule 430A under the
Securities Act of 1933 and contained in the form of prospectus filed by the
Registrant pursuant to Rule 497(h) under the Securities Act of 1933 shall
be deemed to be part of the 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.
C-6
<PAGE> 9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Pre-Effective Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the Township of Plainsboro,
and State of New Jersey, on the 6(th) day of August, 1999.
MUNIHOLDINGS CALIFORNIA INSURED FUND V,
INC.
(Registrant)
By: /s/ TERRY K. GLENN
--------------------------------------
(Terry K. Glenn, President)
Each person whose signature appears below hereby authorizes Terry K. Glenn,
Donald C. Burke or William E. Zitelli, Jr., or any of them, as attorney-in-fact,
to sign on his or her behalf, individually and in each capacity stated below,
any amendment to this Registration Statement (including post-effective
amendments) and to file the same, with all exhibits thereto, with the Securities
and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following person in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ TERRY K. GLENN President (Principal Executive August 6, 1999
- --------------------------------------------------- Officer) and Director
(Terry K. Glenn)
/s/ DONALD C. BURKE Treasurer (Principal Financial August 6, 1999
- --------------------------------------------------- and Accounting Officer)
(Donald C. Burke)
/s/ RONALD W. FORBES Director August 6, 1999
- ---------------------------------------------------
(Ronald W. Forbes)
/s/ CYNTHIA A. MONTGOMERY Director August 6, 1999
- ---------------------------------------------------
(Cynthia A. Montgomery)
/s/ CHARLES C. REILLY Director August 6, 1999
- ---------------------------------------------------
(Charles C. Reilly)
/s/ KEVIN A. RYAN Director August 6, 1999
- ---------------------------------------------------
(Kevin A. Ryan)
/s/ RICHARD R. WEST Director August 6, 1999
- ---------------------------------------------------
(Richard R. West)
/s/ ARTHUR ZEIKEL Director August 6, 1999
- ---------------------------------------------------
(Arthur Zeikel)
</TABLE>
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<PAGE> 10
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S> <C>
(a)(2) -- Form of Articles Supplementary creating the Series A AMPS
</TABLE>
<PAGE> 1
MUNIHOLDINGS CALIFORNIA INSURED FUND V, INC.
Articles Supplementary creating one series of
Auction Market Preferred Stock(R) ("AMPS(R)")
MUNIHOLDINGS CALIFORNIA INSURED FUND V, INC., a Maryland corporation
having its principal Maryland office in the City of Baltimore (the
"Corporation"), certifies to the State Department of Assessments and Taxation of
Maryland that:
FIRST: Pursuant to authority expressly vested in the Board of Directors
of the Corporation by article fifth of its Charter, the Board of Directors has
reclassified 1,960 authorized and unissued shares of common stock of the
Corporation as preferred stock of the Corporation and has authorized the
issuance of one series of preferred stock, par value $.10 per share, liquidation
preference $25,000 per share plus an amount equal to accumulated but unpaid
dividends (whether or not earned or declared) thereon, to be designated Auction
Market Preferred Stock, Series A.
SECOND: The preferences, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption, of the shares
of such series of preferred stock are as follows:
- ---------------------
(R) Registered trademark of Merrill Lynch & Co., Inc.
<PAGE> 2
DESIGNATION
A series of 1,960 shares of preferred stock, par value $.10 per share,
liquidation preference $25,000 per share plus an amount equal to accumulated but
unpaid dividends (whether or not earned or declared) thereon, is hereby
designated "Auction Market Preferred Stock, Series A." Each share of Auction
Market Preferred Stock, Series A (sometimes referred to herein as "AMPS") shall
be issued on a date to be determined by the Board of Directors of the
Corporation or pursuant to their delegated authority; have an Initial Dividend
Rate and an Initial Dividend Payment Date as shall be determined in advance of
the issuance thereof by the Board of Directors of the Corporation or pursuant to
their delegated authority; and have such other preferences, voting powers,
limitations as to dividends, qualifications and terms and conditions of
redemption as are set forth in these Articles Supplementary. The Auction Market
Preferred Stock, Series A shall constitute a separate series of preferred stock
of the Corporation, and each share of Auction Market Preferred Stock, Series A
shall be identical.
1. Definitions. (a) Unless the context or use indicates another or
different meaning or intent, in these Articles Supplementary the following terms
have the following meanings, whether used in the singular or plural:
"'AA' Composite Commercial Paper Rate," on any date of
determination, means (i) the Interest Equivalent of the rate on commercial paper
placed on behalf of issuers whose corporate bonds are rated "AA" by S&P or "Aa"
by Moody's or the equivalent of such rating by another nationally recognized
rating agency, as such rate is made available on a discount basis or otherwise
by the Federal Reserve Bank of New York for the Business Day immediately
preceding such date, or (ii) in the event that the Federal Reserve Bank of New
York does not
2
<PAGE> 3
make available such a rate, then the arithmetic average of the Interest
Equivalent of the rate on commercial paper placed on behalf of such issuers, as
quoted on a discount basis or otherwise by Merrill Lynch, Pierce, Fenner & Smith
Incorporated or its successors that are Commercial Paper Dealers, to the Auction
Agent for the close of business on the Business Day immediately preceding such
date. If one of the Commercial Paper Dealers does not quote a rate required to
determine the "AA" Composite Commercial Paper Rate, the "AA" Composite
Commercial Paper Rate will be determined on the basis of the quotation or
quotations furnished by any Substitute Commercial Paper Dealer or Substitute
Commercial Paper Dealers selected by the Corporation to provide such rate or
rates not being supplied by the Commercial Paper Dealer. If the number of
Dividend Period days shall be (i) 7 or more but fewer than 49 days, such rate
shall be the Interest Equivalent of the 30-day rate on such commercial paper;
(ii) 49 or more but fewer than 70 days, such rate shall be the Interest
Equivalent of the 60-day rate on such commercial paper; (iii) 70 or more days
but fewer than 85 days, such rate shall be the arithmetic average of the
Interest Equivalent on the 60-day and 90-day rates on such commercial paper;
(iv) 85 or more days but fewer than 99 days, such rate shall be the Interest
Equivalent of the 90-day rate on such commercial paper; (v) 99 or more days but
fewer than 120 days, such rate shall be the arithmetic average of the Interest
Equivalent of the 90-day and 120-day rates on such commercial paper; (vi) 120 or
more days but fewer than 141 days, such rate shall be the Interest Equivalent of
the 120-day rate on such commercial paper; (vii) 141 or more days but fewer than
162 days, such rate shall be the arithmetic average of the Interest Equivalent
of the 120-day and 180-day rates on such commercial paper; and (viii) 162 or
more days but fewer than 183 days, such rate shall be the Interest Equivalent of
the 180-day rate on such commercial paper.
3
<PAGE> 4
"Accountant's Confirmation" has the meaning set forth in paragraph 7(c)
of these Articles Supplementary.
"Additional Dividend" has the meaning set forth in paragraph 2(e) of
these Articles Supplementary.
"Adviser" means the Corporation's investment adviser which initially
shall be Fund Asset Management, L.P.
"Affiliate" means any Person, other than Merrill Lynch, Pierce, Fenner
& Smith Incorporated or its successors, known to the Auction Agent to be
controlled by, in control of, or under common control with, the Corporation.
"Agent Member" means a member of the Securities Depository that will
act on behalf of a Beneficial Owner of one or more shares of AMPS or a Potential
Beneficial Owner.
"AMPS" means the Auction Market Preferred Stock, Series A.
"AMPS Basic Maintenance Amount," as of any Valuation Date, means the
dollar amount equal to (i) the sum of (A) the product of the number of shares of
AMPS and Other AMPS Outstanding on such Valuation Date multiplied by the sum of
(a) $25,000 and (b) any applicable redemption premium attributable to the
designation of a Premium Call Period; (B) the aggregate amount of cash dividends
(whether or not earned or declared) that will have accumulated for each share of
AMPS and Other AMPS Outstanding, in each case, to (but not including) the end of
the current Dividend Period that follows such Valuation Date in the event the
then current Dividend Period will end within 49 calendar days of such Valuation
Date or
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<PAGE> 5
through the 49th day after such Valuation Date in the event the then current
Dividend Period will not end within 49 calendar days of such Valuation Date; (C)
in the event the then current Dividend Period will end within 49 calendar days
of such Valuation Date, the aggregate amount of cash dividends that would
accumulate at the Maximum Applicable Rate applicable to a Dividend Period of 28
or fewer days on any shares of AMPS and Other AMPS Outstanding from the end of
such Dividend Period through the 49th day after such Valuation Date, multiplied
by the larger of the Moody's Volatility Factor and the S&P Volatility Factor,
determined from time to time by Moody's and S&P, respectively (except that if
such Valuation Date occurs during a Non-Payment Period, the cash dividend for
purposes of calculation would accumulate at the then current Non-Payment Period
Rate); (D) the amount of anticipated expenses of the Corporation for the 90 days
subsequent to such Valuation Date (including any premiums payable with respect
to a Policy); (E) the amount of the Corporation's Maximum Potential Additional
Dividend Liability as of such Valuation Date; and (F) any current liabilities as
of such Valuation Date to the extent not reflected in any of (i)(A) through
(i)(E) (including, without limitation, and immediately upon determination, any
amounts due and payable by the Corporation pursuant to repurchase agreements and
any amounts payable for California Municipal Bonds or Municipal Bonds purchased
as of such Valuation Date) less (ii) either (A) the Discounted Value of any of
the Corporation's assets, or (B) the face value of any of the Corporation's
assets if such assets mature prior to or on the date of redemption of AMPS or
payment of a liability and are either securities issued or guaranteed by the
United States Government or Deposit Securities, in both cases irrevocably
deposited by the Corporation for the payment of the amount needed to redeem
shares of AMPS subject to redemption or to satisfy any of (i)(B) through (i)(F).
For Moody's and S&P, the Corporation shall include as a liability an amount
calculated semi-annually equal to
5
<PAGE> 6
150% of the estimated cost of obtaining other insurance guaranteeing the timely
payment of interest on a Moody's Eligible Asset or S&P Eligible Asset and
principal thereof to maturity with respect to Moody's Eligible Assets and S&P
Eligible Assets that (i) are covered by a Policy which provides the Corporation
with the option to obtain such other insurance and (ii) are discounted by a
Moody's Discount Factor or a S&P Discount Factor, as the case may be, determined
by reference to the insurance claims-paying ability rating of the issuer of such
Policy.
"AMPS Basic Maintenance Cure Date," with respect to the failure by the
Corporation to satisfy the AMPS Basic Maintenance Amount (as required by
paragraph 7(a) of these Articles Supplementary) as of a given Valuation Date,
means the sixth Business Day following such Valuation Date.
"AMPS Basic Maintenance Report" means a report signed by any of the
President, Treasurer, any Senior Vice President or any Vice President of the
Corporation which sets forth, as of the related Valuation Date, the assets of
the Corporation, the Market Value and the Discounted Value thereof (seriatim and
in aggregate), and the AMPS Basic Maintenance Amount.
"Anticipation Notes" shall mean the following California Municipal
Bonds: revenue anticipation notes, tax anticipation notes, tax and revenue
anticipation notes, grant anticipation notes and bond anticipation notes.
"Applicable Percentage" has the meaning set forth in paragraph
10(a)(vii) of these Articles Supplementary.
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<PAGE> 7
"Applicable Rate" means the rate per annum at which cash dividends are
payable on the AMPS or Other AMPS, as the case may be, for any Dividend Period.
"Auction" means a periodic operation of the Auction Procedures.
"Auction Agent" means IBJ Whitehall Bank & Trust Company unless and
until another commercial bank, trust company or other financial institution
appointed by a resolution of the Board of Directors of the Corporation or a duly
authorized committee thereof enters into an agreement with the Corporation to
follow the Auction Procedures for the purpose of determining the Applicable Rate
and to act as transfer agent, registrar, dividend disbursing agent and
redemption agent for the AMPS and Other AMPS.
"Auction Procedures" means the procedures for conducting Auctions set
forth in paragraph 10 of these Articles Supplementary.
"Beneficial Owner" means a customer of a Broker-Dealer who is listed on
the records of that Broker-Dealer (or, if applicable, the Auction Agent) as a
holder of shares of AMPS or a Broker-Dealer that holds AMPS for its own account.
"Broker-Dealer" means any broker-dealer, or other entity permitted by
law to perform the functions required of a Broker-Dealer in paragraph 10 of
these Articles Supplementary, that has been selected by the Corporation and has
entered into a Broker-Dealer Agreement with the Auction Agent that remains
effective.
7
<PAGE> 8
"Broker-Dealer Agreement" means an agreement between the Auction Agent
and a Broker-Dealer pursuant to which such Broker-Dealer agrees to follow the
procedures specified in paragraph 10 of these Articles Supplementary.
"Business Day" means a day on which the New York Stock Exchange, Inc.
is open for trading and which is not a Saturday, Sunday or other day on which
banks in The City of New York are authorized or obligated by law to close.
"California Municipal Bonds" means Municipal Bonds issued by or on
behalf of the State of California, its political subdivisions, agencies and
instrumentalities and by other qualifying issuers that pay interest which, in
the opinion of bond counsel to the issuer, is exempt from Federal and California
income taxes, and includes Inverse Floaters.
"Charter" means the Articles of Incorporation, as amended and
supplemented (including these Articles Supplementary), of the Corporation on
file in the State Department of Assessments and Taxation of Maryland.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commercial Paper Dealers" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated and such other commercial paper dealer or dealers as the
Corporation may from time to time appoint, or, in lieu of any thereof, their
respective affiliates or successors.
"Common Stock" means the common stock, par value $.10 per share, of the
Corporation.
"Corporation" means MuniHoldings California Insured Fund V, Inc., a
Maryland corporation.
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<PAGE> 9
"Date of Original Issue" means, with respect to any share of AMPS or
Other AMPS, the date on which the Corporation originally issues such share.
"Deposit Securities" means cash and California Municipal Bonds and
Municipal Bonds rated at least A2 (having a remaining maturity of 12 months or
less), P-1, VMIG-1 or MIG-1 by Moody's or A (having a remaining maturity of 12
months or less), A-1+ or SP-1+ by S&P.
"Discounted Value" means (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) with respect to a Moody's Eligible Asset, the lower of par and
the quotient of the Market Value thereof divided by the applicable Moody's
Discount Factor.
"Dividend Payment Date," with respect to AMPS, has the meaning set
forth in paragraph 2(b)(i) of these Articles Supplementary and, with respect to
Other AMPS, has the equivalent meaning.
"Dividend Period" means the Initial Dividend Period, any 7-Day Dividend
Period and any Special Dividend Period.
"Existing Holder" means a Broker-Dealer or any such other Person as may
be permitted by the Corporation that is listed as the holder of record of shares
of AMPS in the Stock Books.
"Fitch" means Fitch IBCA, Inc. or its successors.
"Forward Commitment" has the meaning set forth in paragraph 8(c) of
these Articles Supplementary.
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<PAGE> 10
"Holder" means a Person identified as a holder of record of shares of
AMPS in the Stock Register.
"Independent Accountant" means a nationally recognized accountant, or
firm of accountants, that is, with respect to the Corporation, an independent
public accountant or firm of independent public accountants under the Securities
Act of 1933, as amended.
"Initial Dividend Payment Date" means the Initial Dividend Payment Date
as determined by the Board of Directors of the Corporation with respect to the
AMPS or Other AMPS, as the case may be.
"Initial Dividend Period," with respect to the AMPS, has the meaning
set forth in paragraph 2(c)(i) of these Articles Supplementary and, with respect
to Other AMPS, has the equivalent meaning.
"Initial Dividend Rate," with respect to the AMPS, means the rate per
annum applicable to the Initial Dividend Period for the AMPS and, with respect
to Other AMPS, has the equivalent meaning.
"Initial Margin" means the amount of cash or securities deposited with
a broker as a margin payment at the time of purchase or sale of a futures
contract.
"Interest Equivalent" means a yield on a 360-day basis of a discount
basis security which is equal to the yield on an equivalent interest-bearing
security.
"Inverse Floaters" means trust certificates or other instruments
evidencing interests in one or more California Municipal Bonds that qualify as
S&P Eligible Assets (and are not part of
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<PAGE> 11
a private placement of California Municipal Bonds and satisfy the issuer and
original issue size requirements of clause (vi) of the definition of 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 rate instruments have only one reset remaining
until maturity.
"Long Term Dividend Period" means a Special Dividend Period consisting
of a specified period of one whole year or more but not greater than five years.
"Mandatory Redemption Price" means $25,000 per share of AMPS plus an
amount equal to accumulated but unpaid dividends (whether or not earned or
declared) to the date fixed for redemption and excluding Additional Dividends.
"Marginal Tax Rate" means the maximum marginal regular Federal
individual income tax rate applicable to ordinary income or the maximum marginal
regular Federal corporate income tax rate, whichever is greater.
"Market Value" of any asset of the Corporation shall be the market
value thereof determined by the Pricing Service. Market Value of any asset shall
include any interest accrued thereon. The Pricing Service shall value portfolio
securities at the quoted bid prices or the mean between the quoted bid and asked
price or the yield equivalent when quotations are not readily available.
Securities for which quotations are not readily available shall be valued at
fair value
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<PAGE> 12
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 value from dealers; and general
market conditions. The Pricing Service may employ electronic data processing
techniques and/or a matrix system to determine valuations. In the event the
Pricing Service is unable to value a security, the security shall be valued at
the lower of two dealer bids obtained by the Corporation from dealers who are
members of the National Association of Securities Dealers, Inc. and who make a
market in the security, at least one of which shall be in writing. Futures
contracts and options are valued at closing prices for such instruments
established by the exchange or board of trade on which they are traded, or if
market quotations are not readily available, are valued at fair value on a
consistent basis using methods determined in good faith by the Board of
Directors.
"Maximum Applicable Rate," with respect to AMPS, has the meaning set
forth in paragraph 10(a)(vii) of these Articles Supplementary and, with respect
to Other AMPS, has the equivalent meaning.
"Maximum Potential Additional Dividend Liability," as of any Valuation
Date, means the aggregate amount of Additional Dividends that would be due if
the Corporation were to make Retroactive Taxable Allocations, with respect to
any fiscal year, estimated based upon dividends paid and the amount of
undistributed realized net capital gains and other taxable income earned by the
Corporation, as of the end of the calendar month immediately preceding such
Valuation Date and assuming such Additional Dividends are fully taxable.
"Moody's" means Moody's Investors Service, Inc. or its successors.
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<PAGE> 13
"Moody's Discount Factor" means, for purposes of determining the
Discounted Value of any California Municipal Bond or Municipal Bond which
constitutes a Moody's Eligible Asset, the percentage determined by reference to
(a)(i) the rating by Moody's or S&P on such Bond or (ii) in the event the
Moody's Eligible Asset is insured under a Policy and the terms of the Policy
permit the Corporation, at its option, to obtain other insurance guaranteeing
the timely payment of interest on such Moody's Eligible Asset and principal
thereof to maturity, the Moody's insurance claims-paying ability rating of the
issuer of the Policy or (iii) in the event the Moody's Eligible Asset is insured
under an insurance policy which guarantees the timely payment of interest on
such Moody's Eligible Asset and principal thereof to maturity, the Moody's
insurance claims-paying ability rating of the issuer of the insurance policy
(provided that for purposes of clauses (ii) and (iii) if the insurance
claims-paying ability of an issuer of a Policy or insurance policy is not rated
by Moody's but is rated by S&P, such issuer shall be deemed to have a Moody's
insurance claims-paying ability rating which is two full categories lower than
the S&P insurance claims-paying ability rating) and (b) the Moody's Exposure
Period, in accordance with the table set forth below:
<TABLE>
<CAPTION>
Rating Category
---------------
Moody's Exposure Period Aaa(1) Aa(1) A(1) Baa(1) Other(2) VMIG-1(3) SP-1+(3)
----------------------- ------ ----- ---- ------ -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
7 weeks or less............... 151% 159% 168% 202% 229% 136% 148%
8 weeks or less but
greater than seven weeks...... 154 164 173 205 235 137 149
9 weeks or less but
greater than eight weeks...... 158 169 179 209 242 138 150
</TABLE>
(1) Moody's rating.
(2) California Municipal Bonds and Municipal Bonds not rated by Moody's but
rated BBB or BBB+ by S&P.
(3) California Municipal Bonds and Municipal Bonds rated MIG-1, VMIG-1 or
P-1 or, if not rated by Moody's, rated SP-1+ or A-1+ by S&P which do
not mature or have a demand feature at par exercisable within the
Moody's Exposure Period and which do not have a long-term rating. For
the purposes of the definition of Moody's Eligible Assets, these
securities will have an assumed rating of "A" by Moody's.
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<PAGE> 14
; provided, however, in the event a Moody's Discount Factor applicable to a
Moody's Eligible Asset is determined by reference to an insurance claims-paying
ability rating in accordance with clause (a)(ii) or (a)(iii), such Moody's
Discount Factor shall be increased by an amount equal to 50% of the difference
between (a) the percentage set forth in the foregoing table under the applicable
rating category and (b) the percentage set forth in the foregoing table under
the rating category which is one category lower than the applicable rating
category.
Notwithstanding the foregoing, (i) a 102% Moody's Discount Factor will
be applied to short-term California Municipal Bonds and short-term Municipal
Bonds, so long as such California Municipal Bonds and Municipal Bonds are rated
at least MIG-1, VMIG-1 or P-1 by Moody's and mature or have a demand feature at
par exercisable within the Moody's Exposure Period, and the Moody's Discount
Factor for such Bonds will be 125% if such Bonds are not rated by Moody's but
are rated A-1+ or SP-1+ or AA by S&P and mature or have a demand feature at par
exercisable within the Moody's Exposure Period, and (ii) no Moody's Discount
Factor will be applied to cash or to Receivables for California Municipal Bonds
or Municipal Bonds Sold. "Receivables for California Municipal Bonds or
Municipal Bonds Sold," for purposes of calculating Moody's Eligible Assets as of
any Valuation Date, means no more than the aggregate of the following: (i) the
book value of receivables for California Municipal Bonds or Municipal Bonds 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 Corporation 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 California Municipal
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<PAGE> 15
Bonds or Municipal Bonds 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 conditions (x) or (y) of
the preceding clause (i).
"Moody's Eligible Asset" means cash, Receivables for California
Municipal Bonds or Municipal Bonds Sold, a California Municipal Bond or a
Municipal Bond that (i) pays interest in cash, (ii) is publicly rated Baa or
higher by Moody's or, if not rated by Moody's but rated by S&P, is rated at
least BBB by S&P (provided that, for purposes of determining the Moody's
Discount Factor applicable to any such S&P-rated California Municipal Bond or
S&P-rated Municipal Bond, such California Municipal Bond or Municipal Bond
(excluding any short-term California Municipal Bond or Municipal Bond) will be
deemed to have a Moody's rating which is one full rating category lower than its
S&P rating), (iii) does not have its Moody's rating suspended by Moody's; and
(iv) is part of an issue of California Municipal Bonds or Municipal Bonds of at
least $10,000,000. In addition, California Municipal Bonds and Municipal Bonds
in the Corporation's portfolio must be within the following diversification
requirements in order to be included within Moody's Eligible Assets:
<TABLE>
<CAPTION>
Minimum Maximum Maximum Maximum Maximum
Issue Size Underlying Issue Type County State or Territory
($ Millions) Obligor (%)(1) Concentration(%)(1)(3) Concentration(%)(1)(4) Concentration (1)(5)
------------ -------------- ---------------------- ---------------------- -------------------
Rating
- ------
<S> <C> <C> <C> <C> <C>
Aaa........ 10 100 100 100 100
Aa......... 10 20 60 60 60
A.......... 10 10 40 40 40
Baa........ 10 6 20 20 20
Other(2)... 10 4 12 12 12
</TABLE>
(1) The referenced percentages represent maximum cumulative totals for the
related rating category and each lower rating category.
(2) California Municipal Bonds and Municipal Bonds not rated by Moody's but
rated BBB or BBB+ by S&P.
(3) Does not apply to general obligation bonds.
(4) Applicable to general obligation bonds only.
(5) Does not apply to California Municipal Bonds. Territorial bonds (other
than those issued by Puerto Rico and counted collectively) are each
limited to 10% of Moody's Eligible Assets. For diversification
purposes, Puerto Rico will be treated as a state.
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<PAGE> 16
For purposes of the maximum underlying obligor requirement described above, any
California Municipal Bond or Municipal Bond backed by the guaranty, letter of
credit or insurance issued by a third party will 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 Bond. For purposes of the issue type concentration
requirement described above, California Municipal Bonds and Municipal Bonds will
be classified within one of the following categories: health care issues
(teaching and non-teaching hospitals, public and private), housing issues
(single- and multi-family), educational facilities issues (public and private
schools), student loan issues, resource recovery issues, transportation issues
(mass transit, airport and highway bonds), industrial revenue/pollution control
bond issues, utility issues (including water, sewer and electricity), general
obligation issues, lease obligations/certificates of participation, escrowed
bonds and other issues ("Other Issues") not falling within one of the
aforementioned categories (includes special obligations to crossover, excise and
sales tax revenue, recreation revenue, special assessment and telephone revenue
bonds). In no event shall (a) more than 10% of Moody's Eligible Assets consist
of student loan issues, (b) more than 10% of Moody's Eligible Assets consist of
resource recovery issues or (c) more than 10% of Moody's Eligible Assets consist
of Other Issues.
When the Corporation sells a California Municipal Bond or Municipal
Bond and agrees to repurchase it at a future date, the Discounted Value of such
Bond will constitute a Moody's Eligible Asset and the amount the Corporation is
required to pay upon repurchase of such Bond will count as a liability for
purposes of calculating the AMPS Basic Maintenance Amount. For so long as the
AMPS are rated by Moody's, the Corporation will not enter into any such reverse
repurchase agreements unless it has received written confirmation from Moody's
that such
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<PAGE> 17
transactions would not impair the ratings then assigned the AMPS by Moody's.
When the Corporation purchases a California Municipal Bond or Municipal Bond and
agrees to sell it at a future date to another party, cash receivable by the
Corporation thereby will constitute a Moody's Eligible Asset if the long-term
debt of such other party is rated at least A2 by Moody's and such agreement has
a term of 30 days or less; otherwise the Discounted Value of such Bond will
constitute a Moody's Eligible Asset.
Notwithstanding the foregoing, an asset will not be considered a
Moody's Eligible Asset if it is (i) held in a margin account, (ii) subject to
any material lien, mortgage, pledge, security interest or security agreement of
any kind, (iii) held for the purchase of a security pursuant to a Forward
Commitment or (iv) irrevocably deposited by the Corporation for the payment of
dividends or redemption.
"Moody's Exposure Period" means a period that is the same length or
longer than the number of days used in calculating the cash dividend component
of the AMPS Basic Maintenance Amount and shall initially be the period
commencing on and including a given Valuation Date and ending 48 days
thereafter.
"Moody's Hedging Transactions" has the meaning set forth in paragraph
8(b) of these Articles Supplementary.
"Moody's Volatility Factor" means 272% as long as there has been no
increase enacted to the Marginal Tax Rate. If such an increase is enacted but
not yet implemented, the Moody's Volatility Factor shall be as follows:
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<PAGE> 18
<TABLE>
<CAPTION>
% Change in Marginal Moody's Volatility
Tax Rate Factor
-------- ------
<S> <C>
< or = 5% 292%
>5% but < or =10% 313%
>10% but < or =15% 338%
>15% but < or =20% 364%
>20% but < or =25% 396%
>25% but < or =30% 432%
>30% but < or =35% 472%
>35% but < or =40% 520%
</TABLE>
Notwithstanding the foregoing, the Moody's Volatility Factor may mean such other
potential dividend rate increase factor as Moody's advises the Corporation in
writing is applicable.
"Municipal Bonds" means "Municipal Bonds" as defined in the
Corporation's Registration Statement on Form N-2 (File No. 333-82005) relating
to the AMPS on file with the Securities and Exchange Commission, as such
Registration Statement may be amended from time to time, as well as short-term
municipal obligations and Inverse Floaters.
"Municipal Index" has the meaning set forth in paragraph 8(a) of these
Articles Supplementary.
"1940 Act" means the Investment Company Act of 1940, as amended from
time to time.
"1940 Act AMPS Asset Coverage" means asset coverage, as defined in
section 18(h) of the 1940 Act, of at least 200% with respect to all outstanding
senior securities of the Corporation which are stock, including all outstanding
shares of AMPS and Other AMPS (or such other asset coverage as may in the future
be specified in or under the 1940 Act as the minimum asset
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<PAGE> 19
coverage for senior securities which are stock of a closed-end investment
company as a condition of paying dividends on its common stock).
"1940 Act Cure Date," with respect to the failure by the Corporation to
maintain the 1940 Act AMPS Asset Coverage (as required by paragraph 6 of these
Articles Supplementary) as of the last Business Day of each month, means the
last Business Day of the following month.
"Non-Call Period" has the meaning set forth under the definition of
"Specific Redemption Provisions".
"Non-Payment Period" means, with respect to the AMPS, any period
commencing on and including the day on which the Corporation shall fail to (i)
declare, prior to the close of business on the second Business Day preceding any
Dividend Payment Date, for payment on or (to the extent permitted by paragraph
2(c)(i) of these Articles Supplementary) within three Business Days after such
Dividend Payment Date to the Holders as of 12:00 noon, New York City time, on
the Business Day preceding such Dividend Payment Date, the full amount of any
dividend on shares of AMPS payable on such Dividend Payment Date or (ii)
deposit, irrevocably in trust, in same-day funds, with the Auction Agent by
12:00 noon, New York City time, (A) on such Dividend Payment Date the full
amount of any cash dividend on such shares payable (if declared) on such
Dividend Payment Date or (B) on any redemption date for any shares of AMPS
called for redemption, the Mandatory Redemption Price per share of such AMPS or,
in the case of an optional redemption, the Optional Redemption Price per share,
and ending on and including the Business Day on which, by 12:00 noon, New York
City time, all unpaid cash dividends and unpaid redemption prices shall have
been so deposited or shall have otherwise
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<PAGE> 20
been made available to Holders in same-day funds; provided that, a Non-Payment
Period shall not end unless the Corporation shall have given at least five days'
but no more than 30 days' written notice of such deposit or availability to the
Auction Agent, all Existing Holders (at their addresses appearing in the Stock
Books) and the Securities Depository. Notwithstanding the foregoing, the failure
by the Corporation to deposit funds as provided for by clauses (ii)(A) or
(ii)(B) above within three Business Days after any Dividend Payment Date or
redemption date, as the case may be, in each case to the extent contemplated by
paragraph 2(c)(i) of these Articles Supplementary, shall not constitute a
"Non-Payment Period."
"Non-Payment Period Rate" means, initially, 200% of the applicable
Reference Rate (or 275% of such rate if the Corporation has provided
notification to the Auction Agent prior to the Auction establishing the
Applicable Rate for any dividend pursuant to paragraph 2(f) hereof that net
capital gains or other taxable income will be included in such dividend on
shares of AMPS), provided that the Board of Directors of the Corporation shall
have the authority to adjust, modify, alter or change from time to time the
initial Non-Payment Period Rate if the Board of Directors of the Corporation
determines and Moody's and S&P (and any Substitute Rating Agency in lieu of
Moody's or S&P in the event either of such parties shall not rate the AMPS)
advise the Corporation in writing that such adjustment, modification, alteration
or change will not adversely affect their then-current ratings on the AMPS.
"Normal Dividend Payment Date" has the meaning set forth in paragraph
2(b)(i) of these Articles Supplementary.
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<PAGE> 21
"Notice of Redemption" means any notice with respect to the redemption
of shares of AMPS pursuant to paragraph 4 of these Articles Supplementary.
"Notice of Revocation" has the meaning set forth in paragraph 2(c)(iii)
of these Articles Supplementary.
"Notice of Special Dividend Period" has the meaning set forth in
paragraph 2(c)(iii) of these Articles Supplementary.
"Optional Redemption Price" means $25,000 per share plus an amount
equal to accumulated but unpaid dividends (whether or not earned or declared) to
the date fixed for redemption and excluding Additional Dividends plus any
applicable redemption premium attributable to the designation of a Premium Call
Period.
"Other AMPS" means the auction rate preferred stock of the Corporation,
other than the AMPS.
"Outstanding" means, as of any date (i) with respect to AMPS, shares of
AMPS theretofore issued by the Corporation except, without duplication, (A) any
shares of AMPS theretofore cancelled or delivered to the Auction Agent for
cancellation, or redeemed by the Corporation, or as to which a Notice of
Redemption shall have been given and Deposit Securities shall have been
deposited in trust or segregated by the Corporation pursuant to paragraph 4(c)
and (B) any shares of AMPS as to which the Corporation or any Affiliate thereof
shall be a Beneficial Owner, provided that shares of AMPS held by an Affiliate
shall be deemed
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<PAGE> 22
outstanding for purposes of calculating the AMPS Basic Maintenance Amount and
(ii) with respect to shares of other Preferred Stock, has the equivalent
meaning.
"Parity Stock" means the AMPS and each other outstanding series of
Preferred Stock the holders of which, together with the holders of the AMPS,
shall be entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in proportion to the
full respective preferential amounts to which they are entitled, without
preference or priority one over the other.
"Person" means and includes an individual, a partnership, a
corporation, a trust, an unincorporated association, a joint venture or other
entity or a government or any agency or political subdivision thereof.
"Policy" means an insurance policy purchased by the Corporation which
guarantees the payment of principal and interest on specified California
Municipal Bonds or Municipal Bonds during the period in which such California
Municipal Bonds or Municipal Bonds are owned by the Corporation; provided,
however, that, as long as the AMPS are rated by Moody's and S&P, the Corporation
will not obtain any Policy unless Moody's and S&P advise the Corporation in
writing that the purchase of such Policy will not adversely affect their
then-current rating on the AMPS.
"Potential Beneficial Owner" means a customer of a Broker-Dealer or a
Broker-Dealer that is not a Beneficial Owner of shares of AMPS but that wishes
to purchase such shares, or that is a Beneficial Owner that wishes to purchase
additional shares of AMPS.
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<PAGE> 23
"Potential Holder" means any Broker-Dealer or any such other Person as
may be permitted by the Corporation, including any Existing Holder, who may be
interested in acquiring shares of AMPS (or, in the case of an Existing Holder,
additional shares of AMPS).
"Preferred Stock" means the preferred stock, par value $.10 per share,
of the Corporation, and includes AMPS and Other AMPS.
"Premium Call Period" has the meaning set forth under the definition of
"Specific Redemption Provisions."
"Pricing Service" means J.J. Kenny or any pricing service designated by
the Board of Directors of the Corporation provided the Corporation obtains
written assurance from S&P and Moody's that such designation will not impair the
rating then assigned by S&P and Moody's to the AMPS.
"Quarterly Valuation Date" means the twenty-fifth day of the last month
of each fiscal quarter of the Corporation (or, if such day is not a Business
Day, the next succeeding Business Day) in each fiscal year of the Corporation,
commencing November 25, 1999.
"Receivables for California Municipal Bonds Sold" has the meaning set
forth under the definition of S&P Discount Factor.
"Receivables for California Municipal Bonds or Municipal Bonds Sold"
has the meaning set forth under the definition of Moody's Discount Factor.
"Reference Rate" means: (i) with respect to a Dividend Period or a
Short Term Dividend Period having 28 or fewer days, the higher of the applicable
"AA" Composite Commercial Paper
23
<PAGE> 24
Rate and the Taxable Equivalent of the Short-Term Municipal Bond Rate, (ii) with
respect to any Short Term Dividend Period having more than 28 but fewer than 183
days, the applicable "AA" Composite Commercial Paper Rate, (iii) with respect to
any Short Term Dividend Period having 183 or more but fewer than 364 days, the
applicable U.S. Treasury Bill Rate and (iv) with respect to any Long Term
Dividend Period, the applicable U.S. Treasury Note Rate.
"Request for Special Dividend Period" has the meaning set forth in
paragraph 2(c)(iii) of these Articles Supplementary.
"Response" has the meaning set forth in paragraph 2(c)(iii) of these
Articles Supplementary.
"Retroactive Taxable Allocation" has the meaning set forth in paragraph
2(e) of these Articles Supplementary.
"Right," with respect to the AMPS, has the meaning set forth in
paragraph 2(e) of these Articles Supplementary and, with respect to Other AMPS,
has the equivalent meaning.
"S&P" means Standard & Poor's, a division of The McGraw Hill Companies,
Inc. or its successors.
"S&P Discount Factor" means, for purposes of determining the Discounted
Value of any California Municipal Bond which constitutes an S&P Eligible Asset,
the percentage determined by reference to (a)(i) the rating by S&P, Moody's or
Fitch on such Bond or (ii) in the event the California Municipal Bond is insured
under a Policy and the terms of the Policy permit the Corporation, at its
option, to obtain other permanent insurance guaranteeing the timely payment
24
<PAGE> 25
of interest on such California Municipal Bond and principal thereof to maturity,
the S&P insurance claims-paying ability rating of the issuer of the Policy or
(iii) in the event the California Municipal Bond is insured under an insurance
policy which guarantees the timely payment of interest on such California
Municipal Bond and principal thereof to maturity, the S&P insurance
claims-paying ability rating of the issuer of the insurance policy and (b) the
S&P Exposure Period, in accordance with the tables set forth below:
For California Municipal Bonds:
<TABLE>
<CAPTION>
Rating Category
S&P 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 California Municipal Bonds will be 115%, so long as such California
Municipal Bonds 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 California
Municipal Bonds 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 California Municipal Bonds are
not rated by S&P but are rated VMIG-1, P-1 or MIG-1 by Moody's or F-1+ by Fitch;
provided, however, such short-term California Municipal Bonds rated by Moody's
or Fitch but not rated by S&P having a demand feature exercisable in 30 days or
less must be backed by a letter of credit, liquidity facility or guarantee from
a bank or other financial institution having a short-term rating of at least
A-1+ from S&P; and further provided that such short-term California Municipal
25
<PAGE> 26
Bonds rated by Moody's or Fitch but not rated by S&P may comprise no more than
50% of short-term California Municipal Bonds that qualify as S&P Eligible
Assets, (ii) the S&P Discount Factor for Receivables for California Municipal
Bonds Sold that are due in more than five Business Days from such Valuation Date
will be the S&P Discount Factor applicable to the California Municipal Bonds
sold, and (iii) no S&P Discount Factor will be applied to cash or to Receivables
for California Municipal Bonds Sold if such receivables are due within five
Business Days of such Valuation Date. "Receivables for California Municipal
Bonds Sold," for purposes of calculating S&P Eligible Assets as of any Valuation
Date, means the book value of receivables for California Municipal Bonds sold as
of or prior to such Valuation Date. The Corporation may adopt S&P Discount
Factors for Municipal Bonds other than California Municipal Bonds provided that
S&P advises the Corporation in writing that such action will not adversely
affect its then current rating on the AMPS. For purposes of the foregoing,
Anticipation Notes rated SP-1 or, if not rated by S&P, rated VMIG-1 by Moody's
or F-1+ by Fitch, which do not mature or have a demand feature exercisable in 30
days and which do not have a long-term rating, shall be considered to be
short-term California Municipal Bonds.
"S&P Eligible Asset" means cash, Receivables for California Municipal
Bonds Sold or a California Municipal Bond that (i) is interest bearing and pays
interest at least semi-annually; (ii) is payable with respect to principal and
interest in United States Dollars; (iii) is publicly rated BBB or higher by S&P
or, except in the case of Anticipation Notes that are grant anticipation notes
or bond anticipation notes which must be rated by S&P to be included in S&P
Eligible Assets, if not rated by S&P but rated by Moody's or Fitch, is rated at
least A by Moody's or Fitch (provided that such Moody's-rated or Fitch-rated
California Municipal Bonds will be
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<PAGE> 27
included in S&P Eligible Assets only to the extent the Market Value of such
California Municipal Bonds does not exceed 50% of the aggregate Market Value of
the S&P Eligible Assets; and further provided that, for purposes of determining
the S&P Discount Factor applicable to any such Moody's-rated or Fitch-rated
California Municipal Bond, such California Municipal Bond will be deemed to have
an S&P rating which is one full rating category lower than its Moody's rating or
Fitch rating); (iv) is not subject to a covered call or covered put option
written by the Corporation; (v) except for Inverse Floaters, is not part of a
private placement of California Municipal Bonds; and (vi) except for Inverse
Floaters, is part of an issue of California Municipal Bonds with an original
issue size of at least $20 million or, if of an issue with an original issue
size below $20 million (but in no event below $10 million), is issued by an
issuer with a total of at least $50 million of securities outstanding.
Notwithstanding the foregoing:
(1) California Municipal Bonds of any one issuer or guarantor
(excluding bond insurers) will be considered S&P Eligible Assets only to the
extent the Market Value of such California Municipal Bonds does not exceed 10%
of the aggregate Market Value of the S&P Eligible Assets, provided that 2% is
added to the applicable S&P Discount Factor for every 1% by which the Market
Value of such California Municipal Bonds exceeds 5% of the aggregate Market
Value of the S&P Eligible Assets;
(2) California Municipal Bonds of any one issue type category
(as described below) will be considered S&P Eligible Assets only to the extent
the Market Value of such Bonds does not exceed 25% of the aggregate Market Value
of S&P Eligible Assets, except that California Municipal Bonds falling within
the utility issue type category will be broken down into three sub-categories
(as described below) and such California Municipal Bonds will be
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<PAGE> 28
considered S&P Eligible Assets to the extent the Market Value of such Bonds in
each such sub-category does not exceed 25% of the aggregate Market Value of S&P
Eligible Assets and the Market Value of such Bonds in all three sub-categories
combined does not exceed 60% of the aggregate Market Value of S&P Eligible
Assets, except that California Municipal Bonds falling within the transportation
issue type category will be broken down into two sub-categories (as described
below) and such California Municipal Bonds will be considered S&P Eligible
Assets to the extent the Market Value of such Bonds in both sub-categories
combined (as described below) does not exceed 40% of the aggregate Market Value
of S&P Eligible Assets and except that California Municipal Bonds falling within
the general obligation issue type category will be considered S&P Eligible
Assets to the extent the Market Value of such Bonds does not exceed 50% of the
aggregate Market Value of S&P Eligible Assets. For purposes of the issue type
category requirement described above, California Municipal Bonds will be
classified within one of the following categories: health care issues, housing
issues, educational facilities issues, student loan issues, transportation
issues, industrial development bond issues, utility issues, general obligation
issues, lease obligations, escrowed bonds and other issues not falling within
one of the aforementioned categories. The general obligation issue type 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 type category if the issuer is directly or indirectly
guaranteed by the State of California or its political subdivisions. For
purposes of the issue type category requirement described above, California
Municipal Bonds in the utility issue type 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 issue does not
28
<PAGE> 29
include an electric issue), and (iii) irrigation, resource recovery, solid waste
and other utilities, provided that California Municipal Bonds included in this
sub-category (iii) must be rated by S&P in order to be included in S&P Eligible
Assets. For purposes of the issue type category requirement described above,
California Municipal Bonds in the transportation issue type 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, however,
exposure to transportation sub-category (i) in the preceding sentence is limited
to 25% of the aggregate Market Value of S&P Eligible Assets, provided, however,
exposure to transportation sub-category (ii) in the preceding sentence can
exceed the 25% limit to the extent that exposure to transportation sub-category
(ii) 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
(3) California Municipal Bonds which are escrow bonds or defeased bonds
may compose up to 100% of the aggregate Market Value of S&P Eligible Assets if
such Bonds initially are assigned a rating by S&P in accordance with S&P's legal
defeasance criteria or rerated by S&P as economic defeased escrow bonds and
assigned an AAA rating. California Municipal Bonds may be rated as escrow bonds
by another nationally recognized rating agency or rerated as an escrow bond and
assigned the equivalent of an S&P AAA rating, provided that such equivalent
rated Bonds are limited to 50% of the aggregate Market Value of S&P Eligible
Assets and are deemed to have an AA S&P rating for purposes of determining the
S&P Discount Factor applicable to such California Municipal Bonds. The
limitations on California Municipal Bonds of any one issuer in clause (1) above
is not applicable to escrow bonds, however,
29
<PAGE> 30
economically defeased bonds that are either initially rate or rerated by S&P or
another nationally recognized rating agency and assigned the same rating level
as the issuer of the Bonds will remain in its original issue type category set
forth in clause (2) above. California Municipal Bonds that are legally defeased
and secured by securities issued or guaranteed by the United States Government
are not required to meet the minimum issuance size requirement set forth above.
The Corporation may include Municipal Bonds other than California
Municipal Bonds as S&P Eligible Assets pursuant to guidelines and restrictions
to be established by S&P provided that S&P advises the Corporation in writing
that such action will not adversely affect its then current rating on the AMPS.
"S&P Exposure Period" means the maximum period of time following a
Valuation Date, including the Valuation Date and the AMPS Basic Maintenance Cure
Date, that the Corporation has under these Articles Supplementary to cure any
failure to maintain, as of such Valuation Date, the Discounted Value for its
portfolio at least equal to the AMPS Basic Maintenance Amount (as described in
paragraph 7(a) of these Articles Supplementary).
"S&P Hedging Transactions" has the meaning set forth in paragraph 8(a)
of these Articles Supplementary.
"S&P Volatility Factor" means 277% or such other potential dividend
rate increase factor as S&P advises the Corporation in writing is applicable.
30
<PAGE> 31
"Securities Depository" means The Depository Trust Company or any
successor company or other entities elected by the Corporation as securities
depository for the shares of AMPS that agrees to follow the procedures required
to be followed by such securities depository in connection with the shares of
AMPS.
"Service" means the United States Internal Revenue Service.
"7-Day Dividend Period" means a Dividend Period consisting of seven
days.
"Short Term Dividend Period" means a Special Dividend Period consisting
of a specified number of days (other than seven) evenly divisible by seven and
not fewer than seven nor more than 364.
"Special Dividend Period" means a Dividend Period consisting of (i) a
specified number of days (other than seven), evenly divisible by seven and not
fewer than seven nor more than 364 or (ii) a specified period of one whole year
or more but not greater than five years (in each case subject to adjustment as
provided in paragraph 2(b)(i)).
"Specific Redemption Provisions" means, with respect to a Special
Dividend Period either, or any combination of, (i) a period (a "Non-Call
Period") determined by the Board of Directors of the Corporation, after
consultation with the Auction Agent and the Broker-Dealers, during which the
shares of AMPS subject to such Dividend Period shall not be subject to
redemption at the option of the Corporation and (ii) a period (a "Premium Call
Period"), consisting of a number of whole years and determined by the Board of
Directors of the Corporation, after consultation with the Auction Agent and the
Broker-Dealers, during each year
31
<PAGE> 32
of which the shares of AMPS subject to such Dividend Period shall be redeemable
at the Corporation's option at a price per share equal to $25,000 plus
accumulated but unpaid dividends plus a premium expressed as a percentage of
$25,000, as determined by the Board of Directors of the Corporation after
consultation with the Auction Agent and the Broker-Dealers.
"Stock Books" means the books maintained by the Auction Agent setting
forth at all times a current list, as determined by the Auction Agent, of
Existing Holders of the AMPS.
"Stock Register" means the register of Holders maintained on behalf of
the Corporation by the Auction Agent in its capacity as transfer agent and
registrar for the AMPS.
"Subsequent Dividend Period," with respect to AMPS, has the meaning set
forth in paragraph 2(c)(i) of these Articles Supplementary and, with respect to
Other AMPS, has the equivalent meaning.
"Substitute Commercial Paper Dealers" means such Substitute Commercial
Paper Dealer or Dealers as the Corporation may from time to time appoint or, in
lieu of any thereof, their respective affiliates or successors.
"Substitute Rating Agency" and "Substitute Rating Agencies" mean a
nationally recognized statistical rating organization or two nationally
recognized statistical rating organizations, respectively, selected by Merrill
Lynch, Pierce, Fenner & Smith Incorporated or its affiliates and successors,
after consultation with the Corporation, to act as the substitute rating agency
or substitute rating agencies, as the case may be, to determine the credit
ratings of the shares of AMPS.
32
<PAGE> 33
"Taxable Equivalent of the Short-Term Municipal Bond Rate" on any date
means 90% of the quotient of (A) the per annum rate expressed on an interest
equivalent basis equal to the Kenny S&P 30-day High Grade Index (the "Kenny
Index") or any successor index, made available for the Business Day immediately
preceding such date but in any event not later than 8:30 A.M., New York City
time, on such date by Kenny Information Systems Inc. or any successor thereto,
based upon 30-day yield evaluations at par of bonds the interest on which is
excludable for regular Federal income tax purposes under the Code of "high
grade" component issuers selected by Kenny Information Systems Inc. or any such
successor from time to time in its discretion, which component issuers shall
include, without limitation, issuers of general obligation bonds but shall
exclude any bonds the interest on which constitutes an item of tax preference
under Section 57(a)(5) of the Code, or successor provisions, for purposes of the
"alternative minimum tax," divided by (B) 1.00 minus the Marginal Tax Rate
(expressed as a decimal); provided, however, that if the Kenny Index is not made
so available by 8:30 A.M., New York City time, on such date by Kenny Information
Systems Inc. or any successor, the Taxable Equivalent of the Short-Term
Municipal Bond Rate shall mean the quotient of (A) the per annum rate expressed
on an interest equivalent basis equal to the most recent Kenny Index so made
available for any preceding Business Day, divided by (B) 1.00 minus the Marginal
Tax Rate (expressed as a decimal). The Corporation may not utilize a successor
index to the Kenny Index unless Moody's and S&P provide the Corporation with
written confirmation that the use of such successor index will not adversely
affect the then-current respective Moody's and S&P ratings of the AMPS.
33
<PAGE> 34
"Treasury Bonds" has the meaning set forth in paragraph 8(a) of these
Articles Supplementary.
"U.S. Treasury Bill Rate" on any date means (i) the Interest Equivalent
of the rate on the actively traded Treasury Bill with a maturity most nearly
comparable to the length of the related Dividend Period, as such rate is made
available on a discount basis or otherwise by the Federal Reserve Bank of New
York in its Composite 3:30 P.M. Quotations for U.S. Government Securities report
for such Business Day, or (ii) if such yield as so calculated is not available,
the Alternate Treasury Bill Rate on such date. "Alternate Treasury Bill Rate" on
any date means the Interest Equivalent of the yield as calculated by reference
to the arithmetic average of the bid price quotations of the actively traded
Treasury Bill with a maturity most nearly comparable to the length of the
related Dividend Period, as determined by bid price quotations as of any time on
the Business Day immediately preceding such date, obtained from at least three
recognized primary U.S. Government securities dealers selected by the Auction
Agent.
"U.S. Treasury Note Rate" on any date means (i) the yield as calculated
by reference to the bid price quotation of the actively traded, current coupon
Treasury Note with a maturity most nearly comparable to the length of the
related Dividend Period, as such bid price quotation is published on the
Business Day immediately preceding such date by the Federal Reserve Bank of New
York in its Composite 3:30 P.M. Quotations for U.S. Government Securities report
for such Business Day, or (ii) if such yield as so calculated is not available,
the Alternate Treasury Note Rate on such date. "Alternate Treasury Note Rate" on
any date means the yield as calculated by reference to the arithmetic average of
the bid price quotations of the actively traded, current coupon Treasury Note
with a maturity most nearly comparable to the length of the related
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<PAGE> 35
Dividend Period, as determined by the bid price quotations as of any time on the
Business Day immediately preceding such date, obtained from at least three
recognized primary U.S. Government securities dealers selected by the Auction
Agent.
"Valuation Date" means, for purposes of determining whether the
Corporation is maintaining the AMPS Basic Maintenance Amount, each Business Day
commencing with the Date of Original Issue.
"Variation Margin" means, in connection with an outstanding futures
contract owned or sold by the Corporation, the amount of cash or securities paid
to or received from a broker (subsequent to the Initial Margin payment) from
time to time as the price of such futures contract fluctuates.
(b) The foregoing definitions of Accountant's Confirmation, AMPS Basic
Maintenance Amount, AMPS Basic Maintenance Cure Date, AMPS Basic Maintenance
Report, Deposit Securities, Discounted Value, Independent Accountant, Initial
Margin, Inverse Floaters, Market Value, Maximum Potential Additional Dividend
Liability, Moody's Discount Factor, Moody's Eligible Asset, Moody's Exposure
Period, Moody's Hedging Transactions, Moody's Volatility Factor, S&P Discount
Factor, S&P Eligible Asset, S&P Exposure Period, S&P Hedging Transactions, S&P
Volatility Factor, Valuation Date and Variation Margin have been determined by
the Board of Directors of the Corporation in order to obtain a "aaa" rating from
Moody's and a AAA rating from S&P on the AMPS on their Date of Original Issue;
and the Board of Directors of the Corporation shall have the authority, without
shareholder approval, to amend, alter or repeal from time to time the foregoing
definitions and the restrictions and
35
<PAGE> 36
guidelines set forth thereunder if Moody's and S&P or any Substitute Rating
Agency advises the Corporation in writing that such amendment, alteration or
repeal will not adversely affect their then current ratings on the AMPS.
2. Dividends. (a) The Holders shall be entitled to receive, when, as
and if declared by the Board of Directors of the Corporation, out of funds
legally available therefor, cumulative dividends each consisting of (i) cash at
the Applicable Rate, (ii) a Right to receive cash as set forth in paragraph 2(e)
below, and (iii) any additional amounts as set forth in paragraph 2(f) below,
and no more, payable on the respective dates set forth below. Dividends on the
shares of AMPS so declared and payable shall be paid (i) in preference to and in
priority over any dividends declared and payable on the Common Stock, and (ii)
to the extent permitted under the Code and to the extent available, out of net
tax-exempt income earned on the Corporation's investments. To the extent
permitted under the Code, dividends on shares of AMPS will be designated as
exempt-interest dividends. For the purposes of this section, the term "net
tax-exempt income" shall exclude capital gains of the Corporation.
(b) (i) Cash dividends on shares of AMPS shall accumulate from the Date
of Original Issue and shall be payable, when, as and if declared by the Board of
Directors, out of funds legally available therefor, commencing on the Initial
Dividend Payment Date with respect to the AMPS. Following the Initial Dividend
Payment Date for the AMPS, dividends on each series of AMPS will be payable, at
the option of the Corporation, either (i) with respect to any 7-Day Dividend
Period and any Short Term Dividend Period of 35 or fewer days, on the day next
succeeding the last day thereof or (ii) with respect to any Short Term Dividend
Period of more than 35 days and with respect to any Long Term Dividend Period,
monthly on the first Business
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<PAGE> 37
Day of each calendar month during such Short Term Dividend Period or Long Term
Dividend Period and on the day next succeeding the last day thereof (each such
date referred to in clause (i) or (ii) being herein referred to as a "Normal
Dividend Payment Date"), except that if such Normal Dividend Payment Date is not
a Business Day, then the Dividend Payment Date shall be the first Business Day
next succeeding such Normal Dividend Payment Date. Although any particular
Dividend Payment Date may not occur on the originally scheduled date because of
the exceptions discussed above, the next succeeding Dividend Payment Date,
subject to such exceptions, will occur on the next following originally
scheduled date. If for any reason a Dividend Payment Date cannot be fixed as
described above, then the Board of Directors shall fix the Dividend Payment
Date. The Board of Directors by resolution prior to authorization of a dividend
by the Board of Directors may change a Dividend Payment Date if such change does
not adversely affect the contract rights of the Holders of shares of AMPS set
forth in the Charter. The Initial Dividend Period, 7-Day Dividend Periods and
Special Dividend Periods are hereinafter sometimes referred to as Dividend
Periods. Each dividend payment date determined as provided above is hereinafter
referred to as a "Dividend Payment Date."
(ii) Each dividend shall be paid to the Holders as they appear
in the Stock Register as of 12:00 noon, New York City time, on the Business Day
preceding the Dividend Payment Date. Dividends in arrears for any past Dividend
Period may be declared and paid at any time, without reference to any regular
Dividend Payment Date, to the Holders as they appear on the Stock Register on a
date, not exceeding 15 days prior to the payment date therefor, as may be fixed
by the Board of Directors of the Corporation.
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<PAGE> 38
(c) (i) During the period from and including the Date of Original Issue
to but excluding the Initial Dividend Payment Date for the AMPS (the "Initial
Dividend Period"), the Applicable Rate shall be the Initial Dividend Rate.
Commencing on the Initial Dividend Payment Date, the Applicable Rate for each
subsequent dividend period (hereinafter referred to as a "Subsequent Dividend
Period"), which Subsequent Dividend Period shall commence on and include a
Dividend Payment Date and shall end on and include the calendar day prior to the
next Dividend Payment Date (or last Dividend Payment Date in a Dividend Period
if there is more than one Dividend Payment Date), shall be equal to the rate per
annum that results from implementation of the Auction Procedures.
The Applicable Rate for each Dividend Period commencing during a
Non-Payment Period shall be equal to the Non-Payment Period Rate; and each
Dividend Period, commencing after the first day of, and during, a Non-Payment
Period shall be a 7-Day Dividend Period. Except in the case of the willful
failure of the Corporation to pay a dividend on a Dividend Payment Date or to
redeem any shares of AMPS on the date set for such redemption, any amount of any
dividend due on any Dividend Payment Date (if, prior to the close of business on
the second Business Day preceding such Dividend Payment Date, the Corporation
has declared such dividend payable on such Dividend Payment Date to the Holders
of such shares of AMPS as of 12:00 noon, New York City time, on the Business Day
preceding such Dividend Payment Date) or redemption price with respect to any
shares of AMPS not paid to such Holders when due may be paid to such Holders in
the same form of funds by 12:00 noon, New York City time, on any of the first
three Business Days after such Dividend Payment Date or due date, as the case
may be, provided that, such amount is accompanied by a late charge calculated
for such period of
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<PAGE> 39
non-payment at the Non-Payment Period Rate applied to the amount of such
non-payment based on the actual number of days comprising such period divided by
365. In the case of a willful failure of the Corporation to pay a dividend on a
Dividend Payment Date or to redeem any shares of AMPS on the date set for such
redemption, the preceding sentence shall not apply and the Applicable Rate for
the Dividend Period commencing during the Non-Payment Period resulting from such
failure shall be the Non-Payment Period Rate. For the purposes of the foregoing,
payment to a person in same-day funds on any Business Day at any time shall be
considered equivalent to payment to such person in New York Clearing House
(next-day) funds at the same time on the preceding Business Day, and any payment
made after 12:00 noon, New York City time, on any Business Day shall be
considered to have been made instead in the same form of funds and to the same
person before 12:00 noon, New York City time, on the next Business Day.
(ii) The amount of cash dividends per share of AMPS payable
(if declared) on the Initial Dividend Payment Date, each 7-Day Dividend Period
and each Dividend Payment Date of each Short Term Dividend Period shall be
computed by multiplying the Applicable Rate for such Dividend Period by a
fraction, the numerator of which will be the number of days in such Dividend
Period or part thereof that such share was outstanding and the denominator of
which will be 365, multiplying the amount so obtained by $25,000, and rounding
the amount so obtained to the nearest cent. During any Long Term Dividend
Period, the amount of cash dividends per share of AMPS payable (if declared) on
any Dividend Payment Date shall be computed by multiplying the Applicable Rate
for such Dividend Period by a fraction, the numerator of which will be such
number of days in such part of such Dividend Period that such share was
outstanding and for which dividends are payable on such Dividend Payment Date
and
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<PAGE> 40
the denominator of which will be 360, multiplying the amount so obtained by
$25,000, and rounding the amount so obtained to the nearest cent.
(iii) With respect to each Dividend Period that is a Special
Dividend Period, the Corporation may, at its sole option and to the extent
permitted by law, by telephonic and written notice (a "Request for Special
Dividend Period") to the Auction Agent and to each Broker-Dealer, request that
the next succeeding Dividend Period for the AMPS be a number of days (other than
seven), evenly divisible by seven, and not fewer than seven nor more than 364 in
the case of a Short Term Dividend Period or one whole year or more but not
greater than five years in the case of a Long Term Dividend Period, specified in
such notice, provided that the Corporation may not give a Request for Special
Dividend Period of greater than 28 days (and any such request shall be null and
void) unless, for any Auction occurring after the initial Auction, Sufficient
Clearing Bids were made in the last occurring Auction and unless full cumulative
dividends, any amounts due with respect to redemptions, and any Additional
Dividends payable prior to such date have been paid in full. Such Request for
Special Dividend Period, in the case of a Short Term Dividend Period, shall be
given on or prior to the second Business Day but not more than seven Business
Days prior to an Auction Date for the AMPS and, in the case of a Long Term
Dividend Period, shall be given on or prior to the second Business Day but not
more than 28 days prior to an Auction Date for the AMPS. Upon receiving such
Request for Special Dividend Period, the Broker-Dealer(s) shall jointly
determine whether, given the factors set forth below, it is advisable that the
Corporation issue a Notice of Special Dividend Period for the series of AMPS as
contemplated by such Request for Special Dividend Period and the Optional
Redemption Price of the AMPS during such Special Dividend Period
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and the Specific Redemption Provisions and shall give the Corporation and the
Auction Agent written notice (a "Response") of such determination by no later
than the second Business Day prior to such Auction Date. In making such
determination the Broker-Dealer(s) will consider (1) existing short-term and
long-term market rates and indices of such short-term and long-term rates, (2)
existing market supply and demand for short-term and long-term securities, (3)
existing yield curves for short-term and long-term securities comparable to the
AMPS, (4) industry and financial conditions which may affect the AMPS, (5) the
investment objective of the Corporation, and (6) the Dividend Periods and
dividend rates at which current and potential beneficial holders of the AMPS
would remain or become beneficial holders. If the Broker-Dealer(s) shall not
give the Corporation and the Auction Agent a Response by such second Business
Day or if the Response states that given the factors set forth above it is not
advisable that the Corporation give a Notice of Special Dividend Period for the
AMPS, the Corporation may not give a Notice of Special Dividend Period in
respect of such Request for Special Dividend Period. In the event the Response
indicates that it is advisable that the Corporation give a Notice of Special
Dividend Period for the AMPS, the Corporation may by no later than the second
Business Day prior to such Auction Date give a notice (a "Notice of Special
Dividend Period") to the Auction Agent, the Securities Depository and each
Broker-Dealer which notice will specify (i) the duration of the Special Dividend
Period, (ii) the Optional Redemption Price as specified in the related Response
and (iii) the Specific Redemption Provisions, if any, as specified in the
related Response. The Corporation also shall provide a copy of such Notice of
Special Dividend Period to Moody's and S&P. The Corporation shall not give a
Notice of Special Dividend Period and, if the Corporation has given a Notice of
Special Dividend Period, the Corporation is required to give telephonic and
written notice of its
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revocation (a "Notice of Revocation") to the Auction Agent, each Broker-Dealer,
and the Securities Depository on or prior to the Business Day prior to the
relevant Auction Date if (x) either the 1940 Act AMPS Asset Coverage is not
satisfied or the Corporation shall fail to maintain S&P Eligible Assets and
Moody's Eligible Assets each with an aggregate Discounted Value at least equal
to the AMPS Basic Maintenance Amount, in each case on each of the two Valuation
Dates immediately preceding the Business Day prior to the relevant Auction Date
on an actual basis and on a pro forma basis giving effect to the proposed
Special Dividend Period (using as a pro forma dividend rate with respect to such
Special Dividend Period the dividend rate which the Broker-Dealers shall advise
the Corporation is an approximately equal rate for securities similar to the
AMPS with an equal dividend period), provided that, in calculating the aggregate
Discounted Value of Moody's Eligible Assets for this purpose, the Moody's
Exposure Period shall be deemed to be one week longer, (y) sufficient funds for
the payment of dividends payable on the immediately succeeding Dividend Payment
Date have not been irrevocably deposited with the Auction Agent by the close of
business on the third Business Day preceding the related Auction Date or (z) the
Broker-Dealer(s) jointly advise the Corporation that after consideration of the
factors listed above they have concluded that it is advisable to give a Notice
of Revocation. The Corporation also shall provide a copy of such Notice of
Revocation to Moody's and S&P. If the Corporation is prohibited from giving a
Notice of Special Dividend Period as a result of any of the factors enumerated
in clause (x), (y) or (z) above or if the Corporation gives a Notice of
Revocation with respect to a Notice of Special Dividend Period for the AMPS, the
next succeeding Dividend Period will be a 7-Day Dividend Period. In addition, in
the event Sufficient Clearing Bids are not made in the applicable Auction or
such Auction is not held for any reason, such next succeeding Dividend Period
will be a 7-Day Dividend Period
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<PAGE> 43
and the Corporation may not again give a Notice of Special Dividend Period for
the AMPS (and any such attempted notice shall be null and void) until Sufficient
Clearing Bids have been made in an Auction with respect to a 7-Day Dividend
Period.
(d) (i) Holders shall not be entitled to any dividends, whether payable
in cash, property or stock, in excess of full cumulative dividends and
applicable late charges, as herein provided, on the shares of AMPS (except for
Additional Dividends as provided in paragraph 2(e) hereof and additional
payments as provided in paragraph 2(f) hereof). Except for the late charge
payable pursuant to paragraph 2(c)(i) hereof, no interest, or sum of money in
lieu of interest, shall be payable in respect of any dividend payment on the
shares of AMPS that may be in arrears.
(ii) For so long as any share of AMPS is Outstanding, the
Corporation shall not declare, pay or set apart for payment any dividend or
other distribution (other than a dividend or distribution paid in shares of, or
options, warrants or rights to subscribe for or purchase, Common Stock or other
stock, if any, ranking junior to the shares of AMPS as to dividends or upon
liquidation) in respect of the Common Stock or any other stock of the
Corporation ranking junior to or on a parity with the shares of AMPS as to
dividends or upon liquidation, or call for redemption, redeem, purchase or
otherwise acquire for consideration any shares of the Common Stock or any other
such junior stock (except by conversion into or exchange for stock of the
Corporation ranking junior to the shares of AMPS as to dividends and upon
liquidation) or any other such Parity Stock (except by conversion into or
exchange for stock of the Corporation ranking junior to or on a parity with the
shares of AMPS as to dividends and upon liquidation), unless (A) immediately
after such transaction, the Corporation shall have S&P Eligible Assets
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<PAGE> 44
and Moody's Eligible Assets each with an aggregate Discounted Value equal to or
greater than the AMPS Basic Maintenance Amount and the Corporation shall
maintain the 1940 Act AMPS Asset Coverage, (B) full cumulative dividends on
shares of AMPS and shares of Other AMPS due on or prior to the date of the
transaction have been declared and paid or shall have been declared and
sufficient funds for the payment thereof deposited with the Auction Agent, (C)
any Additional Dividend required to be paid under paragraph 2(e) below on or
before the date of such declaration or payment has been paid and (D) the
Corporation has redeemed the full number of shares of AMPS required to be
redeemed by any provision for mandatory redemption contained herein.
(e) Each dividend shall consist of (i) cash at the Applicable Rate,
(ii) an uncertificated right (a "Right") to receive an Additional Dividend (as
defined below), and (iii) any additional amounts as set forth in paragraph 2(f)
below. Each Right shall thereafter be independent of the share or shares of AMPS
on which the dividend was paid. The Corporation shall cause to be maintained a
record of each Right received by the respective Holders. A Right may not be
transferred other than by operation of law. If the Corporation retroactively
allocates any net capital gains or other income subject to regular Federal
income taxes to shares of AMPS without having given advance notice thereof to
the Auction Agent as described in paragraph 2(f) hereof solely by reason of the
fact that such allocation is made as a result of the redemption of all or a
portion of the outstanding shares of AMPS or the liquidation of the Corporation
(the amount of such allocation referred to herein as a "Retroactive Taxable
Allocation"), the Corporation will, within 90 days (and generally within 60
days) after the end of the Corporation's fiscal year for which a Retroactive
Taxable Allocation is made, provide notice thereof to the Auction Agent and
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<PAGE> 45
to each holder of a Right applicable to such shares of AMPS (initially Cede &
Co. as nominee of The Depository Trust Company) during such fiscal year at such
holder's address as the same appears or last appeared on the Stock Books of the
Corporation. The Corporation will, within 30 days after such notice is given to
the Auction Agent, pay to the Auction Agent (who will then distribute to such
holders of Rights), out of funds legally available therefor, an amount equal to
the aggregate Additional Dividend with respect to all Retroactive Taxable
Allocations made to such holders during the fiscal year in question.
An "Additional Dividend" means payment to a present or former holder of
shares of AMPS of an amount which, when taken together with the aggregate amount
of Retroactive Taxable Allocations made to such holder with respect to the
fiscal year in question, would cause such holder's dividends in dollars (after
Federal and California income tax consequences) from the aggregate of both the
Retroactive Taxable Allocations and the Additional Dividend to be equal to the
dollar amount of the dividends which would have been received by such holder if
the amount of the aggregate Retroactive Taxable Allocations would have been
excludable from the gross income of such holder. Such Additional Dividend shall
be calculated (i) without consideration being given to the time value of money;
(ii) assuming that no holder of shares of AMPS is subject to the Federal
alternative minimum tax with respect to dividends received from the Corporation;
and (iii) assuming that each Retroactive Taxable Allocation would be taxable in
the hands of each holder of shares of AMPS at the greater of: (x) the maximum
combined marginal regular Federal and California individual income tax rate
applicable to ordinary income or capital gains depending on the taxable
character of the distribution (including any surtax); or (y) the maximum
combined marginal regular Federal and California corporate income tax rate
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<PAGE> 46
applicable to ordinary income or capital gains depending on the taxable
character of the distribution (taking into account in both (x) and (y) the
Federal income tax deductibility of state taxes paid or incurred but not any
phase out of, or provision limiting, personal exemptions, itemized deductions,
or the benefit of lower tax brackets and assuming the taxability of Federally
tax-exempt dividends for corporations for California state income tax purposes).
(f) Except as provided below, whenever the Corporation intends to
include any net capital gains or other income subject to regular Federal income
taxes in any dividend on shares of AMPS, the Corporation will notify the Auction
Agent of the amount to be so included at least five Business Days prior to the
Auction Date on which the Applicable Rate for such dividend is to be
established. The Corporation may also include such income in a dividend on
shares of AMPS without giving advance notice thereof if it increases the
dividend by an additional amount calculated as if such income was a Retroactive
Taxable Allocation and the additional amount was an Additional Dividend,
provided that the Corporation will notify the Auction Agent of the additional
amounts to be included in such dividend at least five Business Days prior to the
applicable Dividend Payment Date.
(g) No fractional shares of AMPS shall be issued.
3. Liquidation Rights. Upon any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, the Holders shall be
entitled to receive, out of the assets of the Corporation available for
distribution to shareholders, before any distribution or payment is made upon
any Common Stock or any other capital stock ranking junior in right of payment
upon liquidation to the AMPS, the sum of $25,000 per share plus accumulated but
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<PAGE> 47
unpaid dividends (whether or not earned or declared) thereon to the date of
distribution, and after such payment the Holders will be entitled to no other
payments other than Additional Dividends as provided in paragraph 2(e) hereof.
If upon any liquidation, dissolution or winding up of the Corporation, the
amounts payable with respect to the AMPS and any other Outstanding class or
series of Preferred Stock of the Corporation ranking on a parity with the AMPS
as to payment upon liquidation are not paid in full, the Holders and the holders
of such other class or series will share ratably in any such distribution of
assets in proportion to the respective preferential amounts to which they are
entitled. After payment of the full amount of the liquidating distribution to
which they are entitled, the Holders will not be entitled to any further
participation in any distribution of assets by the Corporation except for any
Additional Dividends. A consolidation, merger or statutory share exchange of the
Corporation with or into any other corporation or entity or a sale, whether for
cash, shares of stock, securities or properties, of all or substantially all or
any part of the assets of the Corporation shall not be deemed or construed to be
a liquidation, dissolution or winding up of the Corporation.
4. Redemption. (a) Shares of AMPS shall be redeemable by the
Corporation as provided below:
(i) To the extent permitted under the 1940 Act and Maryland
law, upon giving a Notice of Redemption, the Corporation at its option may
redeem shares of AMPS, in whole or in part, out of funds legally available
therefor, at the Optional Redemption Price per share, on any Dividend Payment
Date; provided that no share of AMPS may be redeemed at the option of the
Corporation during (A) the Initial Dividend Period with respect to such share or
(B) a Non-Call Period to which such share is subject. In addition, holders of
AMPS which are
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redeemed shall be entitled to receive Additional Dividends to the extent
provided herein. The Corporation may not give a Notice of Redemption relating to
an optional redemption as described in this paragraph 4(a)(i) unless, at the
time of giving such Notice of Redemption, the Corporation has available Deposit
Securities with maturity or tender dates not later than the day preceding the
applicable redemption date and having a value not less than the amount due to
Holders by reason of the redemption of their shares of AMPS on such redemption
date.
(ii) The Corporation shall redeem, out of funds legally
available therefor, at the Mandatory Redemption Price per share, shares of AMPS
to the extent permitted under the 1940 Act and Maryland law, on a date fixed by
the Board of Directors, if the Corporation fails to maintain S&P Eligible Assets
and Moody's Eligible Assets each with an aggregate Discounted Value equal to or
greater than the AMPS Basic Maintenance Amount as provided in paragraph 7(a) or
to satisfy the 1940 Act AMPS Asset Coverage as provided in paragraph 6 and such
failure is not cured on or before the AMPS Basic Maintenance Cure Date or the
1940 Act Cure Date (herein collectively referred to as a "Cure Date"), as the
case may be. In addition, holders of AMPS so redeemed shall be entitled to
receive Additional Dividends to the extent provided herein. The number of shares
of AMPS to be redeemed shall be equal to the lesser of (i) the minimum number of
shares of AMPS the redemption of which, if deemed to have occurred immediately
prior to the opening of business on the Cure Date, together with all shares of
other Preferred Stock subject to redemption or retirement, would result in the
Corporation having S&P Eligible Assets and Moody's Eligible Assets each with an
aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance
Amount or satisfaction of the 1940 Act AMPS Asset Coverage, as the case may be,
on such Cure Date (provided that, if there is no such
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<PAGE> 49
minimum number of shares of AMPS and shares of other Preferred Stock the
redemption of which would have such result, all shares of AMPS and shares of
other Preferred Stock then Outstanding shall be redeemed), and (ii) the maximum
number of shares of AMPS, together with all shares of other Preferred Stock
subject to redemption or retirement, that can be redeemed out of funds expected
to be legally available therefor on such redemption date. In determining the
number of shares of AMPS required to be redeemed in accordance with the
foregoing, the Corporation shall allocate the number required to be redeemed
which would result in the Corporation having S&P Eligible Assets and Moody's
Eligible Assets each with an aggregate Discounted Value equal to or greater than
the AMPS Basic Maintenance Amount or satisfaction of the 1940 Act AMPS Asset
Coverage, as the case may be, pro rata among shares of AMPS of all series, Other
AMPS and other Preferred Stock subject to redemption pursuant to provisions
similar to those contained in this paragraph 4(a)(ii); provided that, shares of
AMPS which may not be redeemed at the option of the Corporation due to the
designation of a Non-Call Period applicable to such shares (A) will be subject
to mandatory redemption only to the extent that other shares are not available
to satisfy the number of shares required to be redeemed and (B) will be selected
for redemption in an ascending order of outstanding number of days in the
Non-Call Period (with shares with the lowest number of days to be redeemed
first) and by lot in the event of shares having an equal number of days in such
Non-Call Period. The Corporation shall effect such redemption on a Business Day
which is not later than 35 days after such Cure Date, except that if the
Corporation does not have funds legally available for the redemption of all of
the required number of shares of AMPS and shares of other Preferred Stock which
are subject to mandatory redemption or the Corporation otherwise is unable to
effect such redemption on or prior to 35 days after such Cure Date, the
Corporation shall redeem those shares of AMPS which
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it is unable to redeem on the earliest practicable date on which it is able to
effect such redemption out of funds legally available therefor.
(b) Notwithstanding any other provision of this paragraph 4, no shares
of AMPS may be redeemed pursuant to paragraph 4(a)(i) of these Articles
Supplementary (i) unless all dividends in arrears on all remaining outstanding
shares of Parity Stock shall have been or are being contemporaneously paid or
declared and set apart for payment and (ii) if redemption thereof would result
in the Corporation's failure to maintain Moody's Eligible Assets or S&P Eligible
Assets with an aggregate Discounted Value equal to or greater than the AMPS
Basic Maintenance Amount. In the event that less than all the outstanding shares
of AMPS are to be redeemed and there is more than one Holder, the shares of that
series of AMPS to be redeemed shall be selected by lot or such other method as
the Corporation shall deem fair and equitable.
(c) Whenever shares of AMPS are to be redeemed, the Corporation, not
less than 17 nor more than 60 days prior to the date fixed for redemption, shall
mail a notice ("Notice of Redemption") by first-class mail, postage prepaid, to
each Holder of shares of AMPS to be redeemed and to the Auction Agent. The
Corporation shall cause the Notice of Redemption to also be published in the
eastern and national editions of The Wall Street Journal. The Notice of
Redemption shall set forth (i) the redemption date, (ii) the amount of the
redemption price, (iii) the aggregate number of shares of AMPS to be redeemed,
(iv) the place or places where shares of AMPS are to be surrendered for payment
of the redemption price, (v) a statement that dividends on the shares to be
redeemed shall cease to accumulate on such redemption date (except that holders
may be entitled to Additional Dividends) and (vi) the provision of these
Articles Supplementary pursuant to which such shares are being redeemed. No
defect in the
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Notice of Redemption or in the mailing or publication thereof shall affect the
validity of the redemption proceedings, except as required by applicable law.
If the Notice of Redemption shall have been given as aforesaid and,
concurrently or thereafter, the Corporation shall have deposited in trust with
the Auction Agent, or segregated in an account at the Corporation's custodian
bank for the benefit of the Auction Agent, Deposit Securities (with a right of
substitution) having an aggregate Discounted Value (utilizing in the case of S&P
an S&P Exposure Period of 22 Business Days) equal to the redemption payment for
the shares of AMPS as to which such Notice of Redemption has been given with
irrevocable instructions and authority to pay the redemption price to the
Holders of such shares, then upon the date of such deposit or, if no such
deposit is made, then upon such date fixed for redemption (unless the
Corporation shall default in making the redemption payment), all rights of the
Holders of such shares as shareholders of the Corporation by reason of the
ownership of such shares will cease and terminate (except their right to receive
the redemption price in respect thereof and any Additional Dividends, but
without interest), and such shares shall no longer be deemed outstanding. The
Corporation shall be entitled to receive, from time to time, from the Auction
Agent the interest, if any, on such Deposit Securities deposited with it and the
Holders of any shares so redeemed shall have no claim to any of such interest.
In case the Holder of any shares so called for redemption shall not claim the
redemption payment for his shares within one year after the date of redemption,
the Auction Agent shall, upon demand, pay over to the Corporation such amount
remaining on deposit and the Auction Agent shall thereupon be relieved of all
responsibility to the Holder of such shares called for redemption and such
Holder thereafter shall look only to the Corporation for the redemption payment.
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5. Voting Rights. (a) General. Except as otherwise provided in the
Charter or By-Laws, each Holder of shares of AMPS shall be entitled to one vote
for each share held on each matter submitted to a vote of shareholders of the
Corporation, and the holders of outstanding shares of Preferred Stock, including
AMPS, and of shares of Common Stock shall vote together as a single class;
provided that, at any meeting of the shareholders of the Corporation held for
the election of directors, the holders of outstanding shares of Preferred Stock,
including AMPS, shall be entitled, as a class, to the exclusion of the holders
of all other securities and classes of capital stock of the Corporation, to
elect two directors of the Corporation. Subject to paragraph 5(b) hereof, the
holders of outstanding shares of capital stock of the Corporation, including the
holders of outstanding shares of Preferred Stock, including AMPS, voting as a
single class, shall elect the balance of the directors.
(b) Right to Elect Majority of Board of Directors. During any period in
which any one or more of the conditions described below shall exist (such period
being referred to herein as a "Voting Period"), the number of directors
constituting the Board of Directors shall be automatically increased by the
smallest number that, when added to the two directors elected exclusively by the
holders of shares of Preferred Stock, would constitute a majority of the Board
of Directors as so increased by such smallest number; and the holders of shares
of Preferred Stock shall be entitled, voting separately as one class (to the
exclusion of the holders of all other securities and classes of capital stock of
the Corporation), to elect such smallest number of additional directors,
together with the two directors that such holders are in any event entitled to
elect. A Voting Period shall commence:
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(i) if at any time accumulated dividends (whether or not
earned or declared, and whether or not funds are then legally available in an
amount sufficient therefor) on the outstanding shares of AMPS equal to at least
two full years' dividends shall be due and unpaid and sufficient cash or
specified securities shall not have been deposited with the Auction Agent for
the payment of such accumulated dividends; or
(ii) if at any time holders of any other shares of Preferred
Stock are entitled to elect a majority of the directors of the Corporation under
the 1940 Act.
Upon the termination of a Voting Period, the voting rights described in
this paragraph 5(b) shall cease, subject always, however, to the reverting of
such voting rights in the Holders upon the further occurrence of any of the
events described in this paragraph 5(b).
(c) Right to Vote with Respect to Certain Other Matters. So long as any
shares of AMPS are outstanding, the Corporation shall not, without the
affirmative vote of the holders of a majority of the shares of Preferred Stock
Outstanding at the time, voting separately as one class: (i) authorize, create
or issue any class or series of stock ranking prior to the AMPS or any other
series of Preferred Stock with respect to payment of dividends or the
distribution of assets on liquidation, or (ii) amend, alter or repeal the
provisions of the Charter, whether by merger, consolidation or otherwise, so as
to adversely affect any of the contract rights expressly set forth in the
Charter of holders of shares of AMPS or any other Preferred Stock. To the extent
permitted under the 1940 Act, in the event shares of more than one series of
AMPS are outstanding, the Corporation shall not approve any of the actions set
forth in clause (i) or (ii) which adversely affects the contract rights
expressly set forth in the Charter of a Holder of shares
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of a series of AMPS differently than those of a Holder of shares of any other
series of AMPS without the affirmative vote of the holders of at least a
majority of the shares of AMPS of each series adversely affected and outstanding
at such time (each such adversely affected series voting separately as a class).
The Corporation shall notify Moody's and S&P ten Business Days prior to any such
vote described in clause (i) or (ii). Unless a higher percentage is provided for
under the Charter, the affirmative vote of the holders of a majority of the
outstanding shares of Preferred Stock, including AMPS, voting together as a
single class, will be required to approve any plan of reorganization (including
bankruptcy proceedings) adversely affecting such shares or any action requiring
a vote of security holders under Section 13(a) of the 1940 Act. The class vote
of holders of shares of Preferred Stock, including AMPS, described above will in
each case be in addition to a separate vote of the requisite percentage of
shares of Common Stock and shares of Preferred Stock, including AMPS, voting
together as a single class necessary to authorize the action in question.
(d) Voting Procedures.
(i) As soon as practicable after the accrual of any right of
the holders of shares of Preferred Stock to elect additional directors as
described in paragraph 5(b) above, the Corporation shall call a special meeting
of such holders and instruct the Auction Agent to mail a notice of such special
meeting to such holders, such meeting to be held not less than 10 nor more than
20 days after the date of mailing of such notice. If the Corporation fails to
send such notice to the Auction Agent or if the Corporation 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
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preceding the day on which such notice is mailed. At any such special meeting
and at each meeting held during a Voting Period, such Holders, voting together
as a class (to the exclusion of the holders of all other securities and classes
of capital stock of the Corporation), shall be entitled to elect the number of
directors prescribed in paragraph 5(b) above. At any such meeting or adjournment
thereof in the absence of a quorum, a majority of such holders present in person
or by proxy shall have the power to adjourn the meeting without notice, other
than by an announcement at the meeting, to a date not more than 120 days after
the original record date.
(ii) For purposes of determining any rights of the Holders to
vote on any matter or the number of shares required to constitute a quorum,
whether such right is created by these Articles Supplementary, by the other
provisions of the Charter, by statute or otherwise, a share of AMPS which is not
Outstanding shall not be counted.
(iii) The terms of office of all persons who are directors of
the Corporation at the time of a special meeting of Holders and holders of other
Preferred Stock to elect directors shall continue, notwithstanding the election
at such meeting by the Holders and such other holders of the number of directors
that they are entitled to elect, and the persons so elected by the Holders and
such other holders, together with the two incumbent directors elected by the
Holders and such other holders of Preferred Stock and the remaining incumbent
directors elected by the holders of the Common Stock and Preferred Stock, shall
constitute the duly elected directors of the Corporation.
(iv) Simultaneously with the expiration of a Voting Period,
the terms of office of the additional directors elected by the Holders and
holders of other Preferred Stock pursuant to
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paragraph 5(b) above shall terminate, the remaining directors shall constitute
the directors of the Corporation and the voting rights of the Holders and such
other holders to elect additional directors pursuant to paragraph 5(b) above
shall cease, subject to the provisions of the last sentence of paragraph 5(b).
(e) Exclusive Remedy. Unless otherwise required by law, the Holders of
shares of AMPS shall not have any rights or preferences other than those
specifically set forth herein. The Holders of shares of AMPS shall have no
preemptive rights or rights to cumulative voting. In the event that the
Corporation fails to pay any dividends on the shares of AMPS, the exclusive
remedy of the Holders shall be the right to vote for directors pursuant to the
provisions of this paragraph 5.
(f) Notification to S&P and Moody's. In the event a vote of Holders of
AMPS is required pursuant to the provisions of Section 13(a) of the 1940 Act,
the Corporation shall, not later than ten Business Days prior to the date on
which such vote is to be taken, notify S&P and Moody's that such vote is to be
taken and the nature of the action with respect to which such vote is to be
taken and, not later than ten Business Days after the date on which such vote is
taken, notify S&P and Moody's of the result of such vote.
6. 1940 Act AMPS Asset Coverage. The Corporation shall maintain, as of
the last Business Day of each month in which any share of AMPS is outstanding,
the 1940 Act AMPS Asset Coverage.
7. AMPS Basic Maintenance Amount. (a) The Corporation shall maintain,
on each Valuation Date, and shall verify to its satisfaction that it is
maintaining on such Valuation Date,
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(i) S&P Eligible Assets having an aggregate Discounted Value equal to or greater
than the AMPS Basic Maintenance Amount and (ii) Moody's Eligible Assets having
an aggregate Discounted Value equal to or greater than the AMPS Basic
Maintenance Amount. Upon any failure to maintain the required Discounted Value,
the Corporation will use its best efforts to alter the composition of its
portfolio to reattain a Discounted Value at least equal to the AMPS Basic
Maintenance Amount on or prior to the AMPS Basic Maintenance Cure Date.
(b) On or before 5:00 p.m., New York City time, on the third Business
Day after a Valuation Date on which the Corporation fails to satisfy the AMPS
Basic Maintenance Amount, the Corporation shall complete and deliver to the
Auction Agent, and Moody's and S&P, as the case may be, a complete AMPS Basic
Maintenance Report as of the date of such failure, which will be deemed to have
been delivered to the Auction Agent if the Auction Agent receives a copy or
telecopy, telex or other electronic transcription thereof and on the same day
the Corporation mails to the Auction Agent for delivery on the next Business Day
the complete AMPS Basic Maintenance Report. The Corporation will deliver an AMPS
Basic Maintenance Report to the Auction Agent and Moody's and S&P, as the case
may be, on or before 5:00 p.m., New York City time, on the third Business Day
after a Valuation Date on which the Corporation cures its failure to maintain
Moody's Eligible Assets or S&P Eligible Assets, as the case may be, with an
aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance
Amount or on which the Corporation fails to maintain Moody's Eligible Assets or
S&P Eligible Assets, as the case may be, with an aggregate Discounted Value
which exceeds the AMPS Basic Maintenance Amount by 5% or more. The Corporation
will also deliver an AMPS Basic Maintenance Report to the Auction Agent, Moody's
and S&P as of each Quarterly Valuation
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<PAGE> 58
Date on or before the third Business Day after such date. Additionally, on or
before 5:00 p.m., New York City time, on the third Business Day after the first
day of a Special Dividend Period, the Corporation will deliver an AMPS Basic
Maintenance Report to S&P and the Auction Agent. The Corporation shall also
provide Moody's and S&P with an AMPS Basic Maintenance Report when specifically
requested by either Moody's or S&P. A failure by the Corporation to deliver an
AMPS Basic Maintenance Report under this paragraph 7(b) shall be deemed to be
delivery of an AMPS Basic Maintenance Report indicating the Discounted Value for
S&P Eligible Assets and Moody's Eligible Assets of the Corporation is less than
the AMPS Basic Maintenance Amount, as of the relevant Valuation Date.
(c) Within ten Business Days after the date of delivery of an AMPS
Basic Maintenance Report in accordance with paragraph 7(b) above relating to a
Quarterly Valuation Date, the Independent Accountant will confirm in writing to
the Auction Agent, S&P and Moody's (i) the mathematical accuracy of the
calculations reflected in such Report (and in any other AMPS Basic Maintenance
Report, randomly selected by the Independent Accountant, that was delivered by
the Corporation during the quarter ending on such Quarterly Valuation Date),
(ii) that, in such Report (and in such randomly selected Report), the
Corporation correctly determined the assets of the Corporation which constitute
S&P Eligible Assets or Moody's Eligible Assets, as the case may be, at such
Quarterly Valuation Date in accordance with these Articles Supplementary, (iii)
that, in such Report (and in such randomly selected Report), the Corporation
determined whether the Corporation had, at such Quarterly Valuation Date (and at
the Valuation Date addressed in such randomly selected Report) in accordance
with these Articles Supplementary, S&P Eligible Assets of an aggregate
Discounted Value at least equal to
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<PAGE> 59
the AMPS Basic Maintenance Amount and Moody's Eligible Assets of an aggregate
Discounted Value at least equal to the AMPS Basic Maintenance Amount, (iv) with
respect to the S&P ratings on California Municipal Bonds or Municipal Bonds, 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 California Municipal Bonds or
Municipal Bonds, 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 Corporation's assets to the Corporation for purposes of valuing
securities in the Corporation'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 Corporation and verified that such information agrees (in the
event such information does not agree, the Independent Accountant will provide a
listing in its letter of such differences) and (vii) with respect to such
confirmation to Moody's, that the Corporation has satisfied the requirements of
paragraph 8(b) of these Articles Supplementary (such confirmation is herein
called the "Accountant's Confirmation").
(d) Within ten Business Days after the date of delivery to the Auction
Agent, S&P and Moody's of an AMPS Basic Maintenance Report in accordance with
paragraph 7(b) above relating to any Valuation Date on which the Corporation
failed to maintain S&P Eligible Assets with an aggregate Discounted Value and
Moody's Eligible Assets with an aggregate Discounted
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<PAGE> 60
Value equal to or greater than the AMPS Basic Maintenance Amount, and relating
to the AMPS Basic Maintenance Cure Date with respect to such failure, the
Independent Accountant will provide to the Auction Agent, S&P and Moody's an
Accountant's Confirmation as to such AMPS Basic Maintenance Report.
(e) If any Accountant's Confirmation delivered pursuant to subparagraph
(c) or (d) of this paragraph 7 shows that an error was made in the AMPS Basic
Maintenance Report for a particular Valuation Date for which such Accountant's
Confirmation as required to be delivered, or shows that a lower aggregate
Discounted Value for the aggregate of all S&P Eligible Assets or Moody's
Eligible Assets, as the case may be, of the Corporation 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
Corporation, and the Corporation shall accordingly amend and deliver the AMPS
Basic Maintenance Report to the Auction Agent, S&P and Moody's promptly
following receipt by the Corporation of such Accountant's Confirmation.
(f) On or before 5:00 p.m., New York City time, on the first Business
Day after the Date of Original Issue of the shares of AMPS, the Corporation will
complete and deliver to S&P and Moody's an AMPS Basic Maintenance Report as of
the close of business on such Date of Original Issue. Within five Business Days
of such Date of Original Issue, the Independent Accountant will confirm in
writing to S&P and Moody's (i) the mathematical accuracy of the calculations
reflected in such Report and (ii) that the aggregate Discounted Value of S&P
Eligible Assets and the aggregate Discounted Value of Moody's Eligible Assets
reflected thereon equals or exceeds the AMPS Basic Maintenance Amount reflected
thereon. Also, on or before 5:00 p.m., New York City time, on the first Business
Day after shares of Common Stock are
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<PAGE> 61
repurchased by the Corporation, the Corporation will complete and deliver to S&P
and Moody's an AMPS Basic Maintenance Report as of the close of business on such
date that Common Stock is repurchased.
(g) For so long as shares of AMPS are rated by Moody's, in managing the
Corporation's portfolio, the Adviser will not alter the composition of the
Corporation's portfolio if, in the reasonable belief of the Adviser, the effect
of any such alteration would be to cause the Corporation to have Moody's
Eligible Assets with an aggregate Discounted Value, as of the immediately
preceding Valuation Date, less than the AMPS Basic Maintenance Amount as of such
Valuation Date; provided, however, that in the event that, as of the immediately
preceding Valuation Date, the aggregate Discounted Value of Moody's Eligible
Assets exceeded the AMPS Basic Maintenance Amount by five percent or less, the
Adviser will not alter the composition of the Corporation's portfolio in a
manner reasonably expected to reduce the aggregate Discounted Value of Moody's
Eligible Assets unless the Corporation shall have confirmed that, after giving
effect to such alteration, the aggregate Discounted Value of Moody's Eligible
Assets would exceed the AMPS Basic Maintenance Amount.
8. Certain Other Restrictions and Requirements.
(a) For so long as any shares of AMPS are rated by S&P, the Corporation
will not purchase or sell futures contracts, write, purchase or sell options on
futures contracts or write put options (except covered put options) or call
options (except covered call options) on portfolio securities unless it receives
written confirmation from S&P that engaging in such transactions will not impair
the ratings then assigned to the shares of AMPS by S&P, except that the
Corporation may purchase or sell futures contracts based on the Bond Buyer
Municipal Bond
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<PAGE> 62
Index (the "Municipal Index") or United States Treasury Bonds or Notes
("Treasury Bonds") and write, purchase or sell put and call options on such
contracts (collectively, "S&P Hedging Transactions"), subject to the following
limitations:
(i) the Corporation 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 Corporation by the
Corporation's taking an opposite position thereto ("Closing Transactions")),
which would cause the Corporation 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 Corporation'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 Corporation will not engage in any S&P Hedging
Transaction based on Treasury Bonds (other than Closing Transactions) which
would cause the Corporation 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 Corporation'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;
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<PAGE> 63
(iii) the Corporation will engage in Closing Transactions to
close out any outstanding futures contract which the Corporation owns or has
sold or any outstanding option thereon owned by the Corporation in the event (A)
the Corporation does not have S&P Eligible Assets with an aggregate Discounted
Value equal to or greater than the AMPS Basic Maintenance Amount on two
consecutive Valuation Dates and (B) the Corporation is required to pay Variation
Margin on the second such Valuation Date;
(iv) the Corporation 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 Corporation holds the securities deliverable under such terms; and
(v) when the Corporation 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 Corporation'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 Corporation'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 Corporation 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 Corporation has S&P Eligible
Assets with a Discounted Value that equals or exceeds the AMPS Basic Maintenance
Amount, the Discounted Value of cash or securities held for the payment of
Initial Margin or Variation Margin shall be
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<PAGE> 64
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 Corporation 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 Corporation.
(b) For so long as any shares of AMPS are rated by Moody's, the
Corporation 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 shares of AMPS by Moody's,
except that the Corporation 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 Corporation will not engage in any Moody's Hedging
Transaction based on the Municipal Index (other than Closing Transactions) which
would cause the Corporation 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
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<PAGE> 65
Municipal Bonds constituting Moody's Eligible Assets owned by the Corporation
(other than Moody's Eligible Assets already subject to a Moody's Hedging
Transaction);
(ii) the Corporation will not engage in any Moody's Hedging
Transaction based on Treasury Bonds (other than Closing Transactions) which
would cause the Corporation 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 Corporation 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 Corporation (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 purposes of
the foregoing clauses (i) and (ii), the Corporation shall be deemed to own the
number of futures contracts that underlie any outstanding options written by the
Corporation);
(iii) the Corporation 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 Corporation 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
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<PAGE> 66
a futures contract by no later than the first Business Day of the month in which
such option expires;
(v) the Corporation 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 Corporation 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 Corporation will not enter into an option or futures
transaction unless, after giving effect thereto, the Corporation would continue
to have Moody's Eligible Assets with an aggregate Discounted Value equal to or
greater than the AMPS Basic Maintenance Amount.
For purposes of determining whether the Corporation has Moody's
Eligible Assets with an aggregate Discounted Value that equals or exceeds the
AMPS Basic Maintenance Amount, the Discounted Value of Moody's Eligible Assets
which the Corporation 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 Corporation 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 Corporation; (ii)
assets subject to call options written by the Corporation not meeting the
requirements of clause (i) of this sentence shall have no value; (iii) assets
subject to
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put options written by the Corporation 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 Corporation is the seller the contract may be valued at the settlement price
and where the Corporation 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 Corporation with any security of a class of securities, the Corporation
shall assume that it will take delivery of the security with the lowest
Discounted Value.
For purposes of determining whether the Corporation has Moody's
Eligible Assets with an aggregate Discounted Value that equals or exceeds the
AMPS Basic Maintenance Amount, the following amounts shall be subtracted from
the aggregate Discounted Value of the Moody's Eligible Assets held by the
Corporation: (i) 10% of the exercise price of a written call option; (ii) the
exercise price of any written put option; (iii) where the Corporation is the
seller under a futures contract, 10% of the settlement price of the futures
contract; (iv) where the Corporation 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 Corporation writes
put options on a futures contract; and (vi) 105% of the Market Value of the
underlying futures contracts if the Corporation writes call options on a futures
contract and does not own the underlying contract.
(c) For so long as any shares of AMPS are rated by Moody's, the
Corporation will not enter into any contract to purchase securities for a fixed
price at a future date beyond
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<PAGE> 68
customary settlement time (other than such contracts that constitute Moody's
Hedging Transactions that are permitted under paragraph 8(b) of these Articles
Supplementary), except that the Corporation may enter into such contracts to
purchase newly-issued securities on the date such securities are issued
("Forward Commitments"), subject to the following limitations:
(i) the Corporation will maintain in a segregated account with
its custodian cash, cash equivalents or short-term, fixed-income securities
rated P-1, MIG-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
Corporation'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 Corporation's obligations under any
Forward Commitment to which it is from time to time a party; and
(ii) the Corporation will not enter into a Forward Commitment
unless, after giving effect thereto, the Corporation would continue to
have Moody's Eligible Assets with an aggregate Discounted Value equal
to or greater than the AMPS Basic Maintenance Amount.
(d) For purposes of determining whether the Corporation has Moody's
Eligible Assets with an aggregate Discounted Value that equals or exceeds the
AMPS Basic Maintenance Amount, the Discounted Value of all Forward Commitments
to which the Corporation is a party and of all securities deliverable to the
Corporation pursuant to such Forward Commitments shall be zero.
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<PAGE> 69
(d) For so long as AMPS are rated by S&P or Moody's, the Corporation
will not, unless it has received written confirmation from S&P and/or Moody's,
as the case may be, that such action would not impair the ratings then assigned
to AMPS by S&P and/or Moody's, as the case may be, (i) borrow money except for
the purpose of clearing transactions in portfolio securities (which borrowings
shall under any circumstances be limited to the lesser of $10 million and an
amount equal to 5% of the Market Value of the Corporation's assets at the time
of such borrowings and which borrowings shall be repaid within 60 days and not
be extended or renewed and shall not cause the aggregate Discounted Value of
Moody's Eligible Assets and S&P Eligible Assets to be less than the AMPS Basic
Maintenance Amount), (ii) engage in short sales of securities, (iii) lend any
securities, (iv) issue any class or series of shares ranking prior to or on a
parity with the AMPS with respect to the payment of dividends or the
distribution of assets upon dissolution, liquidation or winding up of the
Corporation, (v) reissue any AMPS previously purchased or redeemed by the
Corporation, (vi) merge or consolidate into or with any other corporation or
entity, (vii) change the Pricing Service or (viii) engage in reverse repurchase
agreements.
(e) For so long as AMPS are rated by Moody's, the Corporation agrees to
provide Moody's with the following, unless the Corporation has received written
confirmation from Moody's that the provision of such information is no longer
required and that the current rating then assigned to the AMPS by Moody's would
not be impaired: a notification letter at least 30 days prior to any material
change in the Charter; a copy of the AMPS Basic Maintenance Report prepared by
the Corporation in accordance with this Articles Supplementary; and a notice
upon the occurrence of any of the following events: (i) any failure by the
Corporation to declare or
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pay any dividends on the AMPS or successfully remarket the AMPS; (ii) any
mandatory or optional redemption of the AMPS effected by the Corporation; (iii)
any assumption of control of the Board of Directors of the Corporation by the
holders of the AMPS; (iv) a general unavailability of dealer quotes on the
assets of the Corporation; (v) any material auditor discrepancies on valuations;
(vi) the dividend rate on the AMPS equals or exceeds 95% of the Aaa Composite
Commercial Paper Rate; (vii) the occurrence of any Special Dividend Period;
(viii) any change in the Maximum Applicable Rate or the Reference Rate; (ix) the
acquisition by any person of beneficial ownership of more than 5% of the
Corporation's voting stocks (inclusive of Common Stock and Preferred Stock); (x)
the occurrence of any change in Internal Revenue Service rules with respect to
the payment of Additional Dividends; (xi) any change in the Pricing Service
employed by the Corporation; (xii) any change in the Investment Adviser; (xiii)
any increase of greater than 40% to the maximum marginal Federal income tax rate
applicable to individuals or corporations; and (xiv) the maximum marginal
Federal income tax rate applicable to individuals or corporations is increased
to a rate in excess of 50%.
9. Notice. All notices or communications, unless otherwise specified in
the By-Laws of the Corporation or these Articles Supplementary, shall be
sufficiently given if in writing and delivered in person or mailed by
first-class mail, postage prepaid. Notice shall be deemed given on the earlier
of the date received or the date seven days after which such notice is mailed.
10. Auction Procedures. (a) Certain definitions. As used in this
paragraph 10, the following terms shall have the following meanings, unless the
context otherwise requires:
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(i) "AMPS" means the shares of AMPS being auctioned pursuant
to this paragraph 10.
(ii) "Auction Date" means the first Business Day preceding the
first day of a Dividend Period.
(iii) "Available AMPS" has the meaning specified in paragraph
10(d)(i) below.
(iv) "Bid" has the meaning specified in paragraph 10(b)(i)
below.
(v) "Bidder" has the meaning specified in paragraph 10(b)(i)
below.
(vi) "Hold Order" has the meaning specified in paragraph
10(b)(i) below.
(vii) "Maximum Applicable Rate" for any Dividend Period will
be the Applicable Percentage of the Reference Rate. The Applicable Percentage
will be determined based on (i) the lower of the credit rating or ratings
assigned on such date to such shares by Moody's and S&P (or if Moody's or S&P or
both shall not make such rating available, the equivalent of either or both of
such ratings by a Substitute Rating Agency or two Substitute Rating Agencies or,
in the event that only one such rating shall be available, such rating) and (ii)
whether the Corporation has provided notification to the Auction Agent prior to
the Auction establishing the Applicable Rate for any dividend pursuant to
paragraph 2(f) hereof that net capital gains or other taxable income will be
included in such dividend on shares of AMPS as follows:
<TABLE>
<CAPTION>
Credit Ratings Applicable Percentage Applicable Percentage
- ----------------------------------- of Reference Rate - of Reference Rate -
Moody's S&P No Notification Notification
- ------- --- --------------- ------------
<S> <C> <C> <C>
</TABLE>
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<PAGE> 72
<TABLE>
<S> <C> <C> <C>
"aa3" or higher AA- or higher 110% 150%
"a3" to "a1" A- to A+ 125% 160%
"baa3" to "baa1" BBB- to BBB+ 150% 250%
Below "baa3" Below BBB- 200% 275%
</TABLE>
The Corporation shall take all reasonable action necessary to enable
S&P and Moody's to provide a rating for the AMPS. If either S&P or Moody's shall
not make such a rating available, or neither S&P nor Moody's shall make such a
rating available, Merrill Lynch, Pierce, Fenner & Smith Incorporated or its
affiliates and successors, after consultation with the Corporation, shall select
a nationally recognized statistical rating organization or two nationally
recognized statistical rating organizations to act as a Substitute Rating Agency
or Substitute Rating Agencies, as the case may be.
(viii) "Order" has the meaning specified in paragraph 10(b)(i)
below.
(ix) "Sell Order" has the meaning specified in paragraph
10(b)(i) below.
(x) "Submission Deadline" means 1:00 P.M., New York City time,
on any Auction Date or such other time on any Auction Date as may be specified
by the Auction Agent from time to time as the time by which each Broker-Dealer
must submit to the Auction Agent in writing all Orders obtained by it for the
Auction to be conducted on such Auction Date.
(xi) "Submitted Bid" has the meaning specified in paragraph
10(d)(i) below.
(xii) "Submitted Hold Order" has the meaning specified in
paragraph 10(d)(i) below.
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(xiii) "Submitted Order" has the meaning specified in
paragraph 10(d)(i) below.
(xiv) "Submitted Sell Order" has the meaning specified in
paragraph 10(d)(i) below.
(xv) "Sufficient Clearing Bids" has the meaning specified in
paragraph 10(d)(i) below.
(xvi) "Winning Bid Rate" has the meaning specified in
paragraph 10(d)(i) below.
(b) Orders by Beneficial Owners, Potential Beneficial Owners, Existing
Holders and Potential Holders.
(i) Unless otherwise permitted by the Corporation, Beneficial
Owners and Potential Beneficial Owners may only participate in Auctions through
their Broker-Dealers. Broker-Dealers will submit the Orders of their respective
customers who are Beneficial Owners and Potential Beneficial Owners to the
Auction Agent, designating themselves as Existing Holders in respect of shares
subject to Orders submitted or deemed submitted to them by Beneficial Owners and
as Potential Holders in respect of shares subject to Orders submitted to them by
Potential Beneficial Owners. A Broker-Dealer may also hold shares of AMPS in its
own account as a Beneficial Owner. A Broker-Dealer may thus submit Orders to the
Auction Agent as a Beneficial Owner or a Potential Beneficial Owner and
therefore participate in an Auction as an Existing Holder or Potential Holder on
behalf of both itself and its customers. On or prior to the Submission Deadline
on each Auction Date:
(A) each Beneficial Owner may submit to its Broker-Dealer
information as to:
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(1) the number of Outstanding shares, if any, of AMPS
held by such Beneficial Owner which such Beneficial Owner
desires to continue to hold without regard to the Applicable
Rate for the next succeeding Dividend Period;
(2) the number of Outstanding shares, if any, of AMPS
held by such Beneficial Owner which such Beneficial Owner
desires to continue to hold, provided that the Applicable Rate
for the next succeeding Dividend Period shall not be less than
the rate per annum specified by such Beneficial Owner; and/or
(3) the number of Outstanding shares, if any, of AMPS
held by such Beneficial Owner which such Beneficial Owner
offers to sell without regard to the Applicable Rate for the
next succeeding Dividend Period; and
(B) each Broker-Dealer, using a list of Potential Beneficial
Owners that shall be maintained in good faith for the purpose
of conducting a competitive Auction, shall contact Potential
Beneficial Owners, including Persons that are not Beneficial
Owners, on such list to determine the number of Outstanding
shares, if any, of AMPS which each such Potential Beneficial
Owner offers to purchase, provided that the Applicable Rate
for the next succeeding Dividend Period shall not be less than
the rate per annum specified by such Potential Beneficial
Owner.
For the purposes hereof, the communication by a Beneficial Owner or
Potential Beneficial Owner to a Broker-Dealer, or the communication by a
Broker-Dealer acting for its own account to the Auction Agent, of information
referred to in clause (A) or (B) of this paragraph 10(b)(i) is hereinafter
referred to as an "Order" and each Beneficial Owner and each
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Potential Beneficial Owner placing an Order, including a Broker-Dealer acting in
such capacity for its own account, is hereinafter referred to as a "Bidder"; an
Order containing the information referred to in clause (A)(1) of this paragraph
10(b)(i) is hereinafter referred to as a "Hold Order"; an Order containing the
information referred to in clause (A)(2) or (B) of this paragraph 10(b)(i) is
hereinafter referred to as a "Bid"; and an Order containing the information
referred to in clause (A)(3) of this paragraph 10(b)(i) is hereinafter referred
to as a "Sell Order". Inasmuch as a Broker-Dealer participates in an Auction as
an Existing Holder or a Potential Holder only to represent the interests of a
Beneficial Owner or Potential Beneficial Owner, whether it be its customers or
itself, all discussion herein relating to the consequences of an Auction for
Existing Holders and Potential Holders also applies to the underlying beneficial
ownership interests represented.
(ii) (A) A Bid by an Existing Holder shall constitute an
irrevocable offer to sell:
(1) the number of Outstanding shares of AMPS specified in such
Bid if the Applicable Rate determined on such Auction Date
shall be less than the rate per annum specified in such Bid;
or
(2) such number or a lesser number of Outstanding shares of
AMPS to be determined as set forth in paragraph 10(e)(i)(D) if
the Applicable Rate determined on such Auction Date shall be
equal to the rate per annum specified therein; or
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(3) a lesser number of Outstanding shares of AMPS to be
determined as set forth in paragraph 10(e)(ii)(C) if such
specified rate per annum shall be higher than the Maximum
Applicable Rate and Sufficient Clearing Bids do not exist.
(B) A Sell Order by an Existing Holder shall constitute an
irrevocable offer to sell:
(1) the number of Outstanding shares of AMPS
specified in such Sell Order; or
(2) such number or a lesser number of Outstanding
shares of AMPS to be determined as set forth in paragraph
10(e)(ii)(C) if Sufficient Clearing Bids do not exist.
(C) A Bid by a Potential Holder shall constitute an
irrevocable offer to purchase:
(1) the number of Outstanding shares of AMPS
specified in such Bid if the Applicable Rate determined on
such Auction Date shall be higher than the rate per annum
specified in such Bid; or
(2) such number or a lesser number of Outstanding
shares of AMPS to be determined as set forth in paragraph
10(e)(i)(E) if the Applicable Rate determined on such Auction
Date shall be equal to the rate per annum specified therein.
(c) Submission of Orders by Broker-Dealers to Auction Agent.
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(i) Each Broker-Dealer shall submit in writing or through the
Auction Agent's Auction Processing System to the Auction Agent prior to the
Submission Deadline on each Auction Date all Orders obtained by such
Broker-Dealer, designating itself (unless otherwise permitted by the
Corporation) as an Existing Holder in respect of shares subject to Orders
submitted or deemed submitted to it by Beneficial Owners and as a Potential
Holder in respect of shares subject to Orders submitted to it by Potential
Beneficial Owners, and specifying with respect to each Order:
(A) the name of the Bidder placing such Order (which shall be
the Broker-Dealer unless otherwise permitted by the
Corporation);
(B) the aggregate number of Outstanding shares of AMPS that
are the subject of such Order;
(C) to the extent that such Bidder is an Existing Holder:
(1) the number of Outstanding shares, if any, of AMPS
subject to any Hold Order placed by such Existing Holder;
(2) the number of Outstanding shares, if any, of AMPS
subject to any Bid placed by such Existing Holder and the rate
per annum specified in such Bid; and
(3) the number of Outstanding shares, if any, of AMPS
subject to any Sell Order placed by such Existing Holder; and
(D) to the extent such Bidder is a Potential Holder, the rate
per annum specified in such Potential Holder's Bid.
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(ii) If any rate per annum specified in any Bid contains more
than three figures to the right of the decimal point, the Auction Agent shall
round such rate up to the next highest one-thousandth (.001) of 1%.
(iii) If an Order or Orders covering all of the Outstanding
shares of AMPS held by an Existing Holder are not submitted to the Auction Agent
prior to the Submission Deadline, the Auction Agent shall deem a Hold Order (in
the case of an Auction relating to a Dividend Period which is not a Special
Dividend Period of 28 days or more) and a Sell Order (in the case of an Auction
relating to a Special Dividend Period of 28 days or more) to have been submitted
on behalf of such Existing Holder covering the number of Outstanding shares of
AMPS held by such Existing Holder and not subject to Orders submitted to the
Auction Agent.
(iv) If one or more Orders on behalf of an Existing Holder
covering in the aggregate more than the number of Outstanding shares of AMPS
held by such Existing Holder are submitted to the Auction Agent, such Order
shall be considered valid as follows and in the following order of priority:
(A) any Hold Order submitted on behalf of such Existing Holder
shall be considered valid up to and including the number of
Outstanding shares of AMPS held by such Existing Holder;
provided that if more than one Hold Order is submitted on
behalf of such Existing Holder and the number of shares of
AMPS subject to such Hold Orders exceeds the number of
Outstanding shares of AMPS held by such Existing Holder, the
number of shares of AMPS subject to each of such Hold Orders
shall be reduced pro rata so that such Hold Orders, in the
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<PAGE> 79
aggregate, will cover exactly the number of Outstanding shares
of AMPS held by such Existing Holder;
(B) any Bids submitted on behalf of such Existing Holder shall
be considered valid, in the ascending order of their
respective rates per annum if more than one Bid is submitted
on behalf of such Existing Holder, up to and including the
excess of the number of Outstanding shares of AMPS held by
such Existing Holder over the number of shares of AMPS subject
to any Hold Order referred to in paragraph 10(c)(iv)(A) above
(and if more than one Bid submitted on behalf of such Existing
Holder specifies the same rate per annum and together they
cover more than the remaining number of shares that can be the
subject of valid Bids after application of paragraph
10(c)(iv)(A) above and of the foregoing portion of this
paragraph 10(c)(iv)(B) to any Bid or Bids specifying a lower
rate or rates per annum, the number of shares subject to each
of such Bids shall be reduced pro rata so that such Bids, in
the aggregate, cover exactly such remaining number of shares);
and the number of shares, if any, subject to Bids not valid
under this paragraph 10(c)(iv)(B) shall be treated as the
subject of a Bid by a Potential Holder; and
(C) any Sell Order shall be considered valid up to and
including the excess of the number of Outstanding shares of
AMPS held by such Existing Holder over the number of shares of
AMPS subject to Hold Orders referred to in paragraph
10(c)(iv)(A) and Bids referred to in paragraph 10(c)(iv)(B);
provided that if more than one Sell Order is submitted on
behalf of any Existing Holder and the number
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<PAGE> 80
of shares of AMPS subject to such Sell Orders is greater than
such excess, the number of shares of AMPS subject to each of
such Sell Orders shall be reduced pro rata so that such Sell
Orders, in the aggregate, cover exactly the number of shares
of AMPS equal to such excess.
(v) If more than one Bid is submitted on behalf of any
Potential Holder, each Bid submitted shall be a separate Bid with the rate per
annum and number of shares of AMPS therein specified.
(vi) Any Order submitted by a Beneficial Owner as a Potential
Beneficial Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction
Agent, prior to the Submission Deadline on any Auction Date shall be
irrevocable.
(d) Determination of Sufficient Clearing Bids, Winning Bid Rate and
Applicable Rate.
(i) Not earlier than the Submission Deadline on each Auction
Date, the Auction Agent shall assemble all Orders submitted or deemed submitted
to it by the Broker-Dealers (each such Order as submitted or deemed submitted by
a Broker-Dealer being hereinafter referred to individually as a "Submitted Hold
Order", a "Submitted Bid" or a "Submitted Sell Order", as the case may be, or as
a "Submitted Order") and shall determine:
(A) the excess of the total number of Outstanding shares of
AMPS over the number of Outstanding shares of AMPS that are
the subject of Submitted Hold Orders (such excess being
hereinafter referred to as the "Available AMPS");
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<PAGE> 81
(B) from the Submitted Orders whether the number of
Outstanding shares of AMPS that are the subject of Submitted
Bids by Potential Holders specifying one or more rates per
annum equal to or lower than the Maximum Applicable Rate
exceeds or is equal to the sum of:
(1) the number of Outstanding shares of AMPS that are
the subject of Submitted Bids by Existing Holders specifying
one or more rates per annum higher than the Maximum Applicable
Rate, and
(2) the number of Outstanding shares of AMPS that are
subject to Submitted Sell Orders (if such excess or such
equality exists (other than because the number of Outstanding
shares of AMPS in clause (1) above and this clause (2) are
each zero because all of the Outstanding shares of AMPS are
the subject of Submitted Hold Orders), such Submitted Bids by
Potential Holders being hereinafter referred to collectively
as "Sufficient Clearing Bids"); and
(C) if Sufficient Clearing Bids exist, the lowest rate per
annum specified in the Submitted Bids (the "Winning Bid Rate")
that if:
(1) each Submitted Bid from Existing Holders
specifying the Winning Bid Rate and all other Submitted Bids
from Existing Holders specifying lower rates per annum were
rejected, thus entitling such Existing Holders to continue to
hold the shares of AMPS that are the subject of such Submitted
Bids, and
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<PAGE> 82
(2) each Submitted Bid from Potential Holders
specifying the Winning Bid Rate and all other Submitted Bids
from Potential Holders specifying lower rates per annum were
accepted, thus entitling the Potential Holders to purchase the
shares of AMPS that are the subject of such Submitted Bids,
would result in the number of shares subject to all Submitted
Bids specifying the Winning Bid Rate or a lower rate per annum
being at least equal to the Available AMPS.
(ii) Promptly after the Auction Agent has made the
determinations pursuant to paragraph 10(d)(i), the Auction Agent shall advise
the Corporation of the Maximum Applicable Rate and, based on such
determinations, the Applicable Rate for the next succeeding Dividend Period as
follows:
(A) if Sufficient Clearing Bids exist, that the Applicable
Rate for the next succeeding Dividend Period shall be equal to
the Winning Bid Rate;
(B) if Sufficient Clearing Bids do not exist (other than
because all of the Outstanding shares of AMPS are the subject
of Submitted Hold Orders), that the Applicable Rate for the
next succeeding Dividend Period shall be equal to the Maximum
Applicable Rate; or
(C) if all of the Outstanding shares of AMPS are the subject
of Submitted Hold Orders, that the Dividend Period next
succeeding the Auction shall automatically be the same length
as the immediately preceding Dividend Period and the
Applicable Rate for the next succeeding Dividend Period shall
be equal to 40% of the Reference Rate (or 60% of such rate if
the Corporation has provided
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<PAGE> 83
notification to the Auction Agent prior to the Auction
establishing the Applicable Rate for any dividend pursuant to
paragraph 2(f) hereof that net capital gains or other taxable
income will be included in such dividend on shares of AMPS) on
the date of the Auction.
(e) Acceptance and Rejection of Submitted Bids and Submitted Sell
Orders and Allocation of Shares. Based on the determinations made pursuant to
paragraph 10(d)(i), the Submitted Bids and Submitted Sell Orders shall be
accepted or rejected and the Auction Agent shall take such other action as set
forth below:
(i) If Sufficient Clearing Bids have been made, subject to the
provisions of paragraph 10(e)(iii) and paragraph 10(e)(iv), Submitted Bids and
Submitted Sell Orders shall be accepted or rejected in the following order of
priority and all other Submitted Bids shall be rejected:
(A) the Submitted Sell Orders of Existing Holders shall be
accepted and the Submitted Bid of each of the Existing Holders
specifying any rate per annum that is higher than the Winning
Bid Rate shall be accepted, thus requiring each such Existing
Holder to sell the Outstanding shares of AMPS that are the
subject of such Submitted Sell Order or Submitted Bid;
(B) the Submitted Bid of each of the Existing Holders
specifying any rate per annum that is lower than the Winning
Bid Rate shall be rejected, thus entitling each such Existing
Holder to continue to hold the Outstanding shares of AMPS that
are the subject of such Submitted Bid;
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<PAGE> 84
(C) the Submitted Bid of each of the Potential Holders
specifying any rate per annum that is lower than the Winning
Bid Rate shall be accepted;
(D) the Submitted Bid of each of the Existing Holders
specifying a rate per annum that is equal to the Winning Bid
Rate shall be rejected, thus entitling each such Existing
Holder to continue to hold the Outstanding shares of AMPS that
are the subject of such Submitted Bid, unless the number of
Outstanding shares of AMPS subject to all such Submitted Bids
shall be greater than the number of Outstanding shares of AMPS
("Remaining Shares") equal to the excess of the Available AMPS
over the number of Outstanding shares of AMPS subject to
Submitted Bids described in paragraph 10(e)(i)(B) and
paragraph 10(e)(i)(C), in which event the Submitted Bids of
each such Existing Holder shall be accepted, and each such
Existing Holder shall be required to sell Outstanding shares
of AMPS, but only in an amount equal to the difference between
(1) the number of Outstanding shares of AMPS then held by such
Existing Holder subject to such Submitted Bid and (2) the
number of shares of AMPS obtained by multiplying (x) the
number of Remaining Shares by (y) a fraction the numerator of
which shall be the number of Outstanding shares of AMPS held
by such Existing Holder subject to such Submitted Bid and the
denominator of which shall be the sum of the number of
Outstanding shares of AMPS subject to such Submitted Bids made
by all such Existing Holders that specified a rate per annum
equal to the Winning Bid Rate; and
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(E) the Submitted Bid of each of the Potential Holders
specifying a rate per annum that is equal to the Winning Bid
Rate shall be accepted but only in an amount equal to the
number of Outstanding shares of AMPS obtained by multiplying
(x) the difference between the Available AMPS and the number
of Outstanding shares of AMPS subject to Submitted Bids
described in paragraph 10(e)(i)(B), paragraph 10(e)(i)(C) and
paragraph 10(e)(i)(D) by (y) a fraction the numerator of which
shall be the number of Outstanding shares of AMPS subject to
such Submitted Bid and the denominator of which shall be the
sum of the number of Outstanding shares of AMPS subject to
such Submitted Bids made by all such Potential Holders that
specified rates per annum equal to the Winning Bid Rate.
(ii) If Sufficient Clearing Bids have not been made (other
than because all of the Outstanding shares of AMPS are subject to Submitted Hold
Orders), subject to the provisions of paragraph 10(e)(iii), Submitted Orders
shall be accepted or rejected as follows in the following order of priority and
all other Submitted Bids shall be rejected:
(A) the Submitted Bid of each Existing Holder specifying any
rate per annum that is equal to or lower than the Maximum
Applicable Rate shall be rejected, thus entitling such
Existing Holder to continue to hold the Outstanding shares of
AMPS that are the subject of such Submitted Bid;
(B) the Submitted Bid of each Potential Holder specifying any
rate per annum that is equal to or lower than the Maximum
Applicable Rate shall be accepted,
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<PAGE> 86
thus requiring such Potential Holder to purchase the
Outstanding shares of AMPS that are the subject of such
Submitted Bid; and
(C) the Submitted Bids of each Existing Holder specifying any
rate per annum that is higher than the Maximum Applicable Rate
shall be accepted and the Submitted Sell Orders of each
Existing Holder shall be accepted, in both cases only in an
amount equal to the difference between (1) the number of
Outstanding shares of AMPS then held by such Existing Holder
subject to such Submitted Bid or Submitted Sell Order and (2)
the number of shares of AMPS obtained by multiplying (x) the
difference between the Available AMPS and the aggregate number
of Outstanding shares of AMPS subject to Submitted Bids
described in paragraph 10(e)(ii)(A) and paragraph 10(e)(ii)(B)
by (y) a fraction the numerator of which shall be the number
of Outstanding shares of AMPS held by such Existing Holder
subject to such Submitted Bid or Submitted Sell Order and the
denominator of which shall be the number of Outstanding shares
of AMPS subject to all such Submitted Bids and Submitted Sell
Orders.
(iii) If, as a result of the procedures described in paragraph
10(e)(i) or paragraph 10(e)(ii), any Existing Holder would be entitled or
required to sell, or any Potential Holder would be entitled or required to
purchase, a fraction of a share of AMPS on any Auction Date, the Auction Agent
shall, in such manner as in its sole discretion it shall determine, round up or
down the number of shares of AMPS to be purchased or sold by any Existing Holder
or Potential Holder on such Auction Date so that each Outstanding share of AMPS
purchased or sold by each Existing Holder or Potential Holder on such Auction
Date shall be a whole share of AMPS.
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(iv) If, as a result of the procedures described in paragraph
10(e)(i), any Potential Holder would be entitled or required to purchase less
than a whole share of AMPS on any Auction Date, the Auction Agent shall, in such
manner as in its sole discretion it shall determine, allocate shares of AMPS for
purchase among Potential Holders so that only whole shares of AMPS are purchased
on such Auction Date by any Potential Holder, even if such allocation results in
one or more of such Potential Holders not purchasing any shares of AMPS on such
Auction Date.
(v) Based on the results of each Auction, the Auction Agent
shall determine, with respect to each Broker-Dealer that submitted Bids or Sell
Orders on behalf of Existing Holders or Potential Holders, the aggregate number
of Outstanding shares of AMPS to be purchased and the aggregate number of the
Outstanding shares of AMPS to be sold by such Potential Holders and Existing
Holders and, to the extent that such aggregate number of Outstanding shares to
be purchased and such aggregate number of Outstanding shares to be sold differ,
the Auction Agent shall determine to which other Broker-Dealer or Broker-Dealers
acting for one or more purchasers such Broker-Dealer shall deliver, or from
which other Broker-Dealer or Broker-Dealers acting for one or more sellers such
Broker-Dealer shall receive, as the case may be, Outstanding shares of AMPS.
(f) Miscellaneous. The Corporation may interpret the provisions of this
paragraph 10 to resolve any inconsistency or ambiguity, remedy any formal defect
or make any other change or modification that does not substantially adversely
affect the rights of Beneficial Owners of AMPS. A Beneficial Owner or an
Existing Holder (A) may sell, transfer or otherwise dispose of shares of AMPS
only pursuant to a Bid or Sell Order in accordance with the procedures
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described in this paragraph 10 or to or through a Broker-Dealer, provided that
in the case of all transfers other than pursuant to Auctions such Beneficial
Owner or Existing Holder, its Broker-Dealer, if applicable, or its Agent Member
advises the Auction Agent of such transfer and (B) except as otherwise required
by law, shall have the ownership of the shares of AMPS held by it maintained in
book entry form by the Securities Depository in the account of its Agent Member,
which in turn will maintain records of such Beneficial Owner's beneficial
ownership. Neither the Corporation nor any Affiliate shall submit an Order in
any Auction. Any Beneficial Owner that is an Affiliate shall not sell, transfer
or otherwise dispose of shares of AMPS to any Person other than the Corporation.
All of the Outstanding shares of AMPS shall be represented by a single
certificate registered in the name of the nominee of the Securities Depository
unless otherwise required by law or unless there is no Securities Depository. If
there is no Securities Depository, at the Corporation's option and upon its
receipt of such documents as it deems appropriate, any shares of AMPS may be
registered in the Stock Register in the name of the Beneficial Owner thereof and
such Beneficial Owner thereupon will be entitled to receive certificates
therefor and required to deliver certificates therefor upon transfer or exchange
thereof.
11. Securities Depository; Stock Certificates. (a) If there is a
Securities Depository, one certificate for all of the shares of AMPS of each
series shall be issued to the Securities Depository and registered in the name
of the Securities Depository or its nominee. Additional certificates may be
issued as necessary to represent shares of AMPS. All such certificates shall
bear a legend to the effect that such certificates are issued subject to the
provisions restricting the transfer of shares of AMPS contained in these
Articles Supplementary. Unless the Corporation
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shall have elected, during a Non-Payment Period, to waive this requirement, the
Corporation will also issue stop-transfer instructions to the Auction Agent for
the shares of AMPS. Except as provided in paragraph (b) below, the Securities
Depository or its nominee will be the Holder, and no Beneficial Owner shall
receive certificates representing its ownership interest in such shares.
(b) If the Applicable Rate applicable to all shares of AMPS of a series
shall be the Non-Payment Period Rate or there is no Securities Depository, the
Corporation may at its option issue one or more new certificates with respect to
such shares (without the legend referred to in paragraph 11(a)) registered in
the names of the Beneficial Owners or their nominees and rescind the
stop-transfer instructions referred to in paragraph 11(a) with respect to such
shares.
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IN WITNESS WHEREOF, MUNIHOLDINGS CALIFORNIA INSURED FUND V, INC. has
caused these presents to be signed in its name and on its behalf by a duly
authorized officer, and attested by its Secretary, and the said officers of the
Corporation further acknowledge said instrument to be the corporate act of the
Corporation, and state under penalties of perjury that to the best of their
knowledge, information and belief the matters and facts herein set forth with
respect to approval are true in all material respects, all on August , 1999.
MUNIHOLDINGS CALIFORNIA INSURED
FUND V, INC.
By
----------------------------
Vice President
Attest:
- ---------------------------
William E. Zitelli, Jr.
Secretary
90
