<PAGE>
Exhibit (a)(2)
MFS MUNICIPAL INCOME TRUST
STATEMENT DATED DECEMBER 4, 2000
CREATING TWO SERIES OF
MUNICIPAL AUCTION RATE CUMULATIVE
PREFERRED SHARES ("STATEMENT")
WHEREAS the Board of Trustees of MFS Municipal Income Trust (the
"Trust") is expressly empowered pursuant to Section 6.1 of the Trust's
Declaration of Trust to authorize the issuance of shares of the Trust in one or
more classes and series, with such preferences, powers, restrictions,
limitations or qualifications as determined by the Board of Trustees and as set
forth in the resolution or resolutions providing for the issuance of such
preferred shares; and
WHEREAS the Board of Trustees has determined that it is in the best
interests of the Trust to issue one or more series of preferred shares of the
Trust.
NOW THEREFORE, the Board of Trustees does hereby authorize the issuance
of two series of preferred shares, without par value, liquidation preference
$25,000 per share plus an amount equal to accumulated but unpaid dividends
thereon (whether or not earned or declared), to be designated respectively:
Municipal Auction Rate Cumulative Preferred Shares, Series T and Municipal
Auction Rate Cumulative Preferred Shares, Series TH. The preferences, voting
powers, restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption, of the preferred shares are as follows:
PART I
DESIGNATION
SERIES T: A series of 2,800 preferred shares, without par value,
liquidation preference $25,000 per share plus accumulated but unpaid dividends,
if any, thereon (whether or not earned or declared), is hereby designated
"Municipal Auction Rate Cumulative Preferred Shares, Series T" and is referred
to below as "Series T Municipal Preferred." Each share of Series T Municipal
Preferred shall be issued on ________ __, ____; have an Applicable Rate for its
Initial Rate Period equal to [____]% per annum; have an initial Dividend Payment
Date of Wednesday, ________ __, ____; and have such other preferences,
limitations and relative voting and other rights, in addition to those required
by applicable law or set forth in the Trust's Declaration of Trust, as are set
forth in Part I and Part II of this Statement. Series T Municipal Preferred
shall constitute a separate series of Municipal Preferred of the Trust.
SERIES TH: A series of 2,800 preferred shares, without par value,
liquidation preference $25,000 per share plus accumulated but unpaid dividends,
if any, thereon (whether or not earned or declared), is hereby designated
"Municipal Auction Rate Cumulative Preferred Shares, Series TH" and is referred
to below as "Series TH Municipal Preferred." Each share of Series TH Municipal
Preferred shall be issued on ________ __, ____; have an Applicable Rate for its
Initial Rate Period equal to [____]% per annum; have an initial Dividend Payment
Date of Friday, ________ __, ____; and have such other preferences, limitations
and relative voting and other rights, in addition to those required by
applicable law or set forth in the Trust's Declaration of Trust, as are set
forth in Part I and Part II of this Statement. Series TH Municipal Preferred
shall constitute a separate series of Municipal Preferred of the Trust.
The Board of Trustees of the Trust may, in their discretion, authorize
the issuance of one or more additional series of Municipal Preferred and may, in
their discretion, increase the number of shares of any series of Municipal
Preferred so long as such issuance is permitted by paragraph 5 of this Part I of
this Statement.
1. DEFINITIONS. Unless the context or use indicates another or different meaning
or intent, in Part I and Part II of this Statement the following terms have the
following meanings, whether used in the singular or plural:
"'AA' Composite Commercial Paper Rate," on any date for any Rate Period
of shares of a series of Municipal Preferred, shall mean (i) (A) in the case of
any Minimum Rate Period or any Special Rate Period of fewer than 49 Rate Period
Days, the interest equivalent of the 30-day rate; provided, however, that if
such Rate Period is a Minimum Rate Period and the "AA" Composite Commercial
Paper Rate is being used to determine the Applicable Rate for shares of such
series when all of the Outstanding shares of such series are subject to
Submitted Hold Orders, then the interest equivalent of the seven-day rate, and
(B) in the case of any Special Rate Period of (1) 49 or more but fewer than 70
Rate Period Days, the interest equivalent of the 60-day rate; (2) 70 or more but
fewer than 85 Rate Period Days, the arithmetic average of the interest
equivalent of the 60-day and 90-day rates; (3) 85 or more but fewer than 99 Rate
Period Days, the interest equivalent of the 90-day rate; (4) 99 or more but
fewer than 120 Rate Period Days, the arithmetic average of the interest
equivalent of the 90-day and 120-day rates; (5) 120 or more but fewer than 141
Rate Period Days, the interest equivalent of the 120-day rate; (6) 141 or more
but fewer than 162 Rate Period Days, the arithmetic average of the interest
equivalent of the 120-day and 180-day rates; and (7) 162 or more but fewer than
183 Rate Period Days, the interest equivalent of the 180-day rate, in each case
on commercial paper placed on behalf of issuers whose corporate bonds are rated
"AA" by S&P or the equivalent of such rating by S&P or another rating agency, as
made available on a discount basis or otherwise by the Federal Reserve Bank of
New York for the Business Day next preceding such date; or (ii) in the event
that the Federal Reserve Bank of New York does not make available any such rate,
then the arithmetic average of such rates, as quoted on a discount basis or
otherwise, by the Commercial Paper Dealers to the Auction Agent for the close of
business on the Business Day next preceding such date. If any Commercial Paper
Dealer does not quote a rate required to determine the "AA" Composite Commercial
Paper Rate, the "AA" Composite Commercial Paper Rate shall be determined on the
basis of the quotation or quotations furnished by the remaining Commercial Paper
Dealer or Commercial Paper Dealers and any Substitute Commercial Paper Dealer or
Substitute Commercial Paper Dealers selected by the Trust to provide such rate
or rates not being supplied by any Commercial Paper Dealer or Commercial Paper
Dealers, as the case may be, or, if the Trust does not select any such
Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers, by
the remaining Commercial Paper Dealer or Commercial Paper Dealers. For purposes
of this definition, the "interest equivalent" of a rate stated on a discount
basis (a "discount rate") for commercial paper of a given days' maturity shall
be equal to the quotient (rounded upwards to the next higher one-thousandth
(.001) of 1% of (A) the discount rate divided by (B) the difference between (x)
1.00 and (y) a fraction the numerator of which shall be the product of the
discount rate times the number of days in which such commercial paper matures
and the denominator of which shall be 360.
"Accountant's Confirmation" shall have the meaning specified in
paragraph 7(c) of this Part I of this Statement.
"Affiliate" shall mean, for purposes of the definition of
"Outstanding," any Person known to the Auction Agent to be controlled by, in
control of or under common control with the Trust; provided, however, that no
Broker-Dealer controlled by, in control of or under common control with the
Trust shall be deemed to be an Affiliate nor shall any corporation or any Person
controlled by, in control of or under common control with such corporation, one
of the trustees, directors or executive officers of which is a trustee of the
Trust be deemed to be an Affiliate solely because such trustee, director or
executive officer is also a trustee of the Trust.
"Agent Member" shall mean a member of or participant in the Securities
Depository that will act on behalf of a Bidder.
"Anticipation Notes" shall mean Tax Anticipation Notes (TANs), Revenue
Anticipation Notes (RANs), Tax and Revenue Anticipation Notes (TRANs), Grant
Anticipation Notes (GANs) that are rated by S&P and Bond Anticipation Notes
(BANs).
"Applicable Rate" shall have the meaning specified in paragraph 2(e)(i)
of this Part I of this Statement.
"Auction" shall mean each periodic implementation of the Auction
Procedures.
"Auction Agency Agreement" shall mean the agreement between the Trust
and the Auction Agent which provides, among other things, that the Auction Agent
will follow the Auction Procedures for purposes of determining the Applicable
Rate for shares of a series of Municipal Preferred so long as the Applicable
Rate for shares of such series is to be based on the results of an Auction.
"Auction Agent" shall mean the entity appointed as such by a resolution
of the Board of Trustees in accordance with paragraph 6 of Part II of this
Statement.
"Auction Date," with respect to any Rate Period, shall mean the
Business Day next preceding the first day of such Rate Period.
"Auction Procedures" shall mean the procedures for conducting Auctions
set forth in Part II of this Statement.
"Available Municipal Preferred" shall have the meaning specified in
paragraph 3(a) of Part II of this Statement.
"Benchmark Rate" shall have the meaning specified in paragraph 3(c) of
Part II of this Statement.
"Beneficial Owner" with respect to shares of a series of Municipal
Preferred, means a customer of a Broker-Dealer who is listed on the records of
that Broker-Dealer (or, if applicable, the Auction Agent) as a holder of shares
of such series.
"Bid" and "Bids" shall have the respective meanings specified in
paragraph 1(a) of Part II of this Statement.
"Bidder" and "Bidders" shall have the respective meanings specified in
paragraph 1(a) of Part II of this Statement; provided, however, that neither the
Trust nor any affiliate thereof shall be permitted to be a Bidder in an Auction,
except that any Broker-Dealer that is an affiliate of the Trust may be a Bidder
in an Auction, but only if the Orders placed by such Broker-Dealer are not for
its own account.
"Board of Trustees" shall mean the Board of Trustees of the Trust or
any duly authorized committee thereof.
"Broker-Dealer" shall mean any broker-dealer, commercial bank or other
entity permitted by law to perform the functions required of a Broker-Dealer in
Part II of this Statement, that is a member of, or a participant in, the
Securities Depository or is an affiliate of such member or participant, has been
selected by the Trust and has entered into a Broker-Dealer Agreement that
remains effective.
"Broker-Dealer Agreement" shall mean an agreement between the Auction
Agent and a Broker-Dealer pursuant to which such Broker-Dealer agrees to follow
the procedures specified in Part II of this Statement.
"Business Day" shall mean a day on which the New York Stock Exchange is
open for trading, and which is neither a Saturday, Sunday nor any other day on
which banks in The City of New York, New York are authorized by law to close.
"By-laws" means the Amended and Restated By-laws of the Trust, as may
be further amended from time to time.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Commercial Paper Dealers" means [Lehman Commercial Paper Incorporated,
Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated] and
such other commercial paper dealer or dealers as the Trust may from time to time
appoint, or, in lieu of any thereof, their respective affiliates or successors.
"Common Shares" means the common shares of beneficial interest, without
par value, of the Trust.
"Cure Date" shall have the meaning specified in paragraph 11(b) of this
Part I of this Statement.
"Date of Original Issue" with respect to shares of a series of
Municipal Preferred, shall mean the date on which the Trust originally issued
such shares.
"Declaration" shall mean the Amended and Restated Declaration of Trust
dated November 6, 2000 of the Trust, on file with the Secretary of The
Commonwealth of Massachusetts and as hereafter restated or amended from time to
time.
"Deposit Securities" shall mean cash and Municipal Obligations rated at
least A-1+ or SP-1+ by S&P, except that, for purposes of subparagraph (a)(v) of
paragraph 11 of Part I of this Statement, such Municipal Obligations shall be
considered "Deposit Securities" only if they are also rated P-1, MIG-1 or VMIG-1
by Moody's.
"Discounted Value," as of any Valuation Date, shall mean, (i) with
respect to an S&P Eligible Asset, the quotient of the Market Value thereof
divided by the applicable S&P Discount Factor and (ii) (a) with respect to a
Moody's Eligible Asset that is not currently callable as of such Valuation Date
at the option of the issuer thereof, the quotient of the Market Value thereof
divided by the applicable Moody's Discount Factor, or (b) with respect to a
Moody's Eligible Asset that is currently callable as of such Valuation Date at
the option of the issuer thereof, the quotient of (1) the lesser of the Market
Value or call price thereof, including any call premium, divided by (2) the
applicable Moody's Discount Factor.
"Dividend Payment Date," with respect to shares of a series of
Municipal Preferred, shall mean any date on which dividends are payable on
shares of such series pursuant to the provisions of paragraph 2(d) of Part I of
this Statement.
"Dividend Period," with respect to shares of a series of Municipal
Preferred, shall mean the period from and including the Date of Original Issue
of shares of such series to but excluding the initial Dividend Payment Date for
shares of such series and any period thereafter from and including one Dividend
Payment Date for shares of such series to but excluding the next succeeding
Dividend Payment Date for shares of such series; provided, however, that the
Dividend Periods for each of Series T Municipal Preferred and Series TH
Municipal Preferred will never be co-extensive with the Dividend Period of the
other series of Municipal Preferred unless the Trust has received an opinion of
tax counsel that having such co-extensive periods will not affect the
deductibility, for federal income tax purposes, of dividends paid on the
different series of Municipal Preferred.
"Escrowed Bonds" means Municipal Obligations that (i) have been
determined to be legally defeased in accordance with S&P/Moody's legal
defeasance criteria, (ii) have been determined to be economically defeased in
accordance with S&P's economic defeasance criteria and assigned a rating of AAA
by S&P and a rating of Aaa by Moody's, (iii) are not rated by S&P but have been
determined to be legally defeased by Moody's or not rated by Moody's but have
been determined to be legally defeased by S&P, or (iv) have been determined to
be economically defeased by Moody's and assigned a rating no lower than the
rating that is Moody's equivalent of S&P's AAA rating or have been determined to
be economically defeased by S&P and assigned a rating no lower than the rating
that is S&P's equivalent of Moody's Aaa rating.
"Existing Holder," with respect to shares of a series of Municipal
Preferred, shall mean a Broker-Dealer (or any such other Person as may be
permitted by the Trust) that is listed on the records of the Auction Agent as a
holder of shares of such series.
"Failure to Deposit," with respect to shares of a series of Municipal
Preferred, shall mean a failure by the Trust to pay to the Auction Agent, not
later than 12:00 noon, New York City time, (A) on any Dividend Payment Date for
shares of such series, in funds available on such Dividend Payment Date in The
City of New York, New York, the full amount of any dividend (whether or not
earned or declared) to be paid on such Dividend Payment Date on any share of
such series or (B) on any redemption date in funds available on such redemption
date for shares of such series in The City of New York, New York, the Redemption
Price to be paid on such redemption date for any shares of such series after
notice of redemption is mailed pursuant to paragraph 11(c) of Part I of this
Statement; provided, however, that the foregoing clause (B) shall not apply to
the Trust's failure to pay the Redemption Price in respect of shares of
Municipal Preferred when the related Notice of Redemption provides that
redemption of such shares is subject to one or more conditions precedent and any
such condition precedent shall not have been satisfied at the time or times and
in the manner specified in such Notice of Redemption.
"Federal Tax Rate Increase" shall have the meaning specified in the
definition of "Moody's Volatility Factor."
"Gross-up Payment" in respect of any dividend means payment to a Holder
of shares of a series of Municipal Preferred of an amount which, giving effect
to the Taxable Allocations made with respect to such dividend, would cause such
Holder's after-tax returns (taking into account both the Taxable Allocations and
the Gross-up Payment) to be equal to the after-tax return the Holder would have
received if no such Taxable Allocations had occurred. Such Gross-up Payment
shall be calculated: (i) without consideration being given to the time value of
money; (ii) assuming that no Holder of shares of Municipal Preferred is subject
to the Federal alternative minimum tax with respect to dividends received from
the Trust; and (iii) assuming that each Holder of shares of Municipal Preferred
is taxable at the maximum marginal regular Federal individual income tax rate
applicable to ordinary income or net capital gain, as applicable, or the maximum
marginal regular Federal corporate income tax rate applicable to ordinary income
or net capital gain, as applicable, whichever is greater, in effect at the time
such Gross-up Payment is made.
"Holder," with respect to shares of a series of Municipal Preferred,
shall mean the Registered Holder of such shares as the same appears on the
record books of the Trust.
"Hold Order" and "Hold Orders" shall have the respective meanings
specified in paragraph 1(a) of Part II of this Statement.
"Independent Accountant" shall mean a nationally recognized accountant,
or firm of accountants, that is, with respect to the Trust, an independent
public accountant or firm of independent public accountants under the Securities
Act of 1933, as amended from time to time.
"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.
"Initial Rate Period," with respect to shares of a series of Municipal
Preferred, shall mean the period from and including the Date of Original Issue
for such series to but excluding the initial Dividend Payment Date for such
series.
"Interest Equivalent" shall mean 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 Floater" shall mean trust certificates or other instruments
evidencing interests in one or more municipal securities that qualify as S&P
Eligible Assets and Moody's Eligible Assets (and satisfy the issuer and size
requirements 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 or original issuance unless the floating rate instrument has only
one reset remaining until maturity.
"Kenny Index" shall have the meaning set forth under the definition of
"Taxable Equivalent of the Short-Term Municipal Bond Rate."
"Liquidation Preference," with respect to a given number of shares of
Municipal Preferred, means $25,000 times that number.
"Market Value" of any asset of the Trust means the market value thereof
determined by the Pricing Services. Market Value of any asset shall include any
interest accrued thereon. The Pricing Services will use current industry
standards to value portfolio securities. The Pricing Services may employ
electronic data processing techniques or a matrix system, or both, to determine
valuations. Futures contracts and options shall be valued at closing prices for
such instruments established by the exchange or board of trade on which they are
traded. Securities for which quotations are not readily available ("Internally
Priced Securities") shall be valued at fair value on a consistent basis using
methods determined in good faith by the Board of Trustees.
"Maximum Potential Gross-up Payment Liability," as of any Valuation
Date, shall mean the aggregate amount of Gross-up Payments that would be due if
the Trust were to make Taxable Allocations, with respect to any taxable year,
estimated based upon dividends paid and the amount of undistributed realized net
capital gains and other taxable income earned by the Trust, as of the end of the
calendar month immediately preceding such Valuation Date, and assuming such
Gross-up Payments are fully taxable.
"Maximum Rate," for shares of a series of Municipal Preferred on any
Auction Date for shares of such series, shall mean:
(i) in the case of any Auction Date which is not the Auction
Date immediately prior to the first day of any proposed Special Rate
Period designated by the Trust pursuant to paragraph 4 of Part I of
this Statement, the product of (A) the Reference Rate on such Auction
Date for the next Rate Period of shares of such series and (B) the Rate
Multiple on such Auction Date, unless shares of such series have or had
a Special Rate Period (other than a Special Rate Period of 28 Rate
Period Days or fewer) and an Auction at which Sufficient Clearing Bids
existed has not yet occurred for a Minimum Rate Period of shares of
such series after such Special Rate Period, in which case the higher
of:
(A) the dividend rate on shares of such series for
the then-ending Rate Period; and
(B) the product of (1) the higher of (x) the
Reference Rate on such Auction Date for a Rate Period equal in
length to the then-ending Rate Period of shares of such
series, if such then-ending Rate Period was 364 Rate Period
Days or fewer, or the Treasury Note Rate on such Auction Date
for a Rate Period equal in length to the then-ending Rate
Period of shares of such series, if such then-ending Rate
Period was more than 364 Rate Period Days, and (y) the
Reference Rate on such Auction Date for a Rate Period equal in
length to such Special Rate Period of shares of such series,
if such Special Rate Period was 364 Rate Period Days or fewer,
or the Treasury Note Rate on such Auction Date for a Rate
Period equal in length to such Special Rate Period, if such
Special Rate Period was more than 364 Rate Period Days and (2)
the Rate Multiple on such Auction Date; or
(ii) in the case of any Auction Date which is the Auction Date
immediately prior to the first day of any proposed Special Rate Period
designated by the Trust pursuant to paragraph 4 of Part I of this
Statement, the product of (A) the highest of (1) the Reference Rate on
such Auction Date for a Rate Period equal in length to the then-ending
Rate Period of shares of such series, if such then-ending Rate Period
was 364 Rate Period Days or fewer, or the Treasury Note Rate on such
Auction Date for a Rate Period equal in length to the then-ending Rate
Period of shares of such series, if such then-ending Rate Period was
more than 364 Rate Period Days, (2) the Reference Rate on such Auction
Date for the Special Rate Period for which the Auction is being held if
such Special Rate Period is 364 Rate Period Days or fewer or the
Treasury Note Rate on such Auction Date for the Special Rate Period for
which the Auction is being held if such Special Rate Period is more
than 364 Rate Period Days, and (3) the Reference Rate on such Auction
Date for Minimum Rate Periods and (B) the Rate Multiple on such Auction
Date.
"Minimum Rate Period" shall mean any Rate Period consisting of 7 Rate
Period Days.
"Moody's" shall mean Moody's Investors Service, Inc., a Delaware
corporation, and its successors.
"Moody's Discount Factor" shall mean, for purposes of determining the
Discounted Value of any Moody's Eligible Asset, the percentage determined by
reference to the rating on such asset and the shortest Exposure Period set forth
opposite such rating that is the same length as or is longer than the Moody's
Exposure Period, in accordance with the table set forth below:
<TABLE>
<CAPTION>
Rating Category
---------------
Exposure Period Aaa* Aa* A* Baa* Other** (V)MIG-1*** SP-1+**** Unrated*****
--------------- ---- --- -- ---- ------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
7 weeks ........... 151% 159% 166% 173% 187% 136% 148% 225%
8 weeks or less but
greater than seven
weeks ............. 154 161 168 176 190 137 149 231
9 weeks or less but
greater than eight
weeks ............. 156 163 170 177 192 138 150 240
* Moody's rating.
** Municipal Obligations not rated by Moody's but rated BBB by S&P.
*** Municipal Obligations rated MIG-1 or VMIG-1, which do not mature or have a demand feature at par exercisable
in 30 days and which do not have a long-term rating.
**** Municipal Obligations not rated by Moody's but rated SP-1+ by S&P, which do not mature or have a demand feature
at par exercisable in 30 days and which do not have a long-term rating.
***** Municipal Obligations rated less than Baa3 by Moody's or less than BBB by S&P or not rated by Moody's or S&P.
</TABLE>
Notwithstanding the foregoing, (i) the Moody's Discount Factor for
short-term Municipal Obligations will be 115%, so long as such Municipal
Obligations are rated at least MIG-1, VMIG-1 or P-1 by Moody's and mature or
have a demand feature at par exercisable in 30 days or less or 125% so long as
such Municipal Obligations are rated at least A-1+/AA or SP-1+/AA by S&P and
mature or have a demand feature at par exercisable in 30 days or less and (ii)
no Moody's Discount Factor will be applied to cash or futures, options and
similar instruments (to the extent such securities are Moody's Eligible Assets);
provided, however, that for purposes of determining the Moody's Discount Factor
applicable to a Municipal Obligation, any Municipal Obligation (excluding any
short-term Municipal Obligation) not rated by Moody's but rated by S&P shall be
deemed to have a Moody's rating which is one full rating category lower than its
S&P rating.
"Moody's Eligible Asset" shall mean trade date cash, futures, options,
U.S. Government Securities (which are valued for the purposes of meeting the
Municipal Preferred Basic Maintenance Amount without application of any discount
factor), inverse floaters that are one time levered, and similar instruments or
a Municipal Obligation that (i) pays interest in cash, (ii) does not have its
Moody's rating, if applicable, suspended by Moody's, (iii) is part of an issue
of Municipal Obligations of at least $10,000,000 (including Escrowed Bonds that
are legally defeased), and (iv) is not subject to a covered call or a covered
put option written by the Trust. These eligible assets are valued or accounted
for on a trade date basis assuming normal settlement for the Municipal Market.
Municipal Obligations issued by any one issuer (excluding escrowed bonds) and
not rated by Moody's or rated lower than Baa3 by Moody's and not rated by S&P or
rated lower than BBB by S&P ("Unrated Moody's Municipal Obligations"), together
with any Municipal Obligations issued by the same issuer and rated BBB by S&P
may comprise no more than 4% of total Moody's Eligible Assets; such BBB-rated
Municipal Obligations and Unrated Moody's Municipal Obligations, if any,
together with any Municipal Obligations issued by the same issuer and rated Baa
by Moody's or A by S&P may comprise no more than 6% of total Moody's Eligible
Assets; such BBB, Baa and A rated Municipal Obligations and Unrated Moody's
Municipal Obligations, if any, together with any Municipal Obligations issued by
the same issuer and rated A by Moody's or AA by S&P, may comprise no more than
10% of total Moody's Eligible Assets; and such BBB, Baa, A and AA-rated
Municipal Obligations and Unrated Moody's Municipal Obligations, if any,
together with any Municipal Obligations issued by the same issuer and rated Aa
by Moody's or AAA by S&P, may comprise no more than 20% of total Moody's
Eligible Assets. For purposes of the foregoing sentence, any Municipal
Obligation backed by the guaranty, letter of credit or insurance issued by a
third party shall be deemed to be issued by such third party if the issuance of
such third-party credit is the sole determinant of the rating on such Municipal
Obligations. Municipal Obligations issued by issuers located within a single
state or territory (excluding escrowed bonds) and not rated by Moody's or rated
lower than Baa3 by Moody's and not rated by S&P or rated lower than BBB by S&P,
together with any Municipal Obligations issued by issuers located within the
same state or territory and rated BBB by S&P may comprise no more than 12% of
total Moody's Eligible Assets; such BBB-rated Municipal Obligations and Unrated
Moody's Municipal Obligations, if any, together with any Municipal Obligations
issued by issuers located within the same state or territory and rated Baa by
Moody's or A by S&P, may comprise no more than 20% of total Moody's Eligible
Assets; such BBB, Baa and A-rated Municipal Obligations and Unrated Moody's
Municipal Obligations, if any, together with any Municipal Obligations issued by
issuers located within the same state or territory and rated A by Moody's or AA
by S&P, may comprise no more than 40% of total Moody's Eligible Assets; and such
BBB, Baa, A and AA-rated Municipal Obligations and Unrated Moody's Municipal
Obligations, if any, together with any Municipal Obligations issued by issuers
located within the same state or territory and rated Aa by Moody's or AAA by
S&P, may comprise no more than 60% of total Moody's Eligible Assets. Municipal
Obligations which are not rated by Moody's or S&P may comprise no more than 40%
of the aggregate Market Value of Moody's Eligible Assets; provided, however,
that if the Market Value of such Municipal Obligations exceeds 40% of the
aggregate Market Value of Moody's Eligible Assets, a portion of such Municipal
Obligations (selected by the Trust) shall not be considered Moody's Eligible
Assets, so that the Market Value of such Municipal Obligations (excluding such
portion) does not exceed 40% of the aggregate Market Value of Moody's Eligible
Assets; provided, however, that no such unrated Municipal Obligation shall be
considered a Moody's Eligible Asset if such Municipal Obligation shall be in
"default", which term shall mean for purposes of this definition, either (a) the
nonpayment by the issuer of interest or principal when due or (b) the
notification of the Trust by the trustee under the underlying indenture or other
governing instrument for such Municipal Obligation that the issuer will fail to
pay when due principal or interest on such Municipal Obligation. For purposes of
applying the foregoing requirements, a Municipal Obligation shall be deemed to
be rated BBB by S&P if rated BBB-, BBB or BBB+ by S&P, and Municipal Obligations
rated MIG-1, VMIG-1 or P-1 or, if not rated by Moody's, rated A-1+/AA or
SP-1+/AA by S&P, shall be considered to have a long-term rating of A. When the
Trust sells a Municipal Obligation and agrees to repurchase such Municipal
Obligation at a future day, such Municipal Obligation shall be valued at its
Discounted Value for purposes of determining Moody's Eligible Assets, and the
amount of the repurchase price of such Municipal Obligation shall be included as
a liability for purposes of calculating the Municipal Preferred Basic
Maintenance Amount. When the Trust purchases a Moody's Eligible Asset and agrees
to sell it at a future date, such Eligible Asset shall be valued at the amount
of cash to be received by the Trust upon such future date, provided that the
counterparty to the transaction has a long-term debt rating of at least A2 and a
short-term debt rating of at least P1 from Moody's and the transaction has a
term of no more than 30 days; otherwise such Eligible Asset shall be valued at
the Discounted Value of such Eligible Asset. For purposes of determining the
aggregate Discounted Value of Moody's Eligible Assets, such aggregate amount
shall be reduced with respect to any futures contracts as set forth in paragraph
10(a) of this Part I.
Notwithstanding the foregoing, an asset will not be considered a
Moody's Eligible Asset to the extent it is (i) subject to any material lien,
mortgage, pledge, security interest or security agreement of any kind
(collectively, "Liens"), except for (a) Liens which are being contested in good
faith by appropriate proceedings and which Moody's has indicated to the Trust
will not affect the status of such asset as a Moody's Eligible Asset, (b) Liens
for taxes that are not then due and payable or that can be paid thereafter
without penalty, (c) Liens to secure payment for services rendered or cash
advanced to the Trust by [Massachusetts Financial Services Company], [The Chase
Manhattan Bank] or the Auction Agent and (d) Liens by virtue of any repurchase
agreement or futures contract; or (ii) deposited irrevocably for the payment of
any liabilities for purposes of determine the Municipal Preferred Basic
Maintenance Amount. In addition, an asset will not be considered a Moody's
Eligible Asset if it is an Internally Priced Security (as defined under "Market
Value").
"Moody's Exposure Period" shall mean the period commencing on a given
Valuation Date and ending 49 days thereafter.
"Moody's Volatility Factor" shall mean, as of any Valuation Date, (i)
in the case of any Minimum Rate Period, any Special Rate period of 28 Rate
Period Days or fewer, or any Special Rate Period of 57 Rate Period Days or more,
a multiplicative factor equal to 275%, except as otherwise provided in the last
sentence of this definition; (ii) in the case of any Special Rate Period of more
than 28 but fewer than 36 Rate Period Days, a multiplicative factor equal to
203%; (iii) in the case of any Special Rate Period of more than 35 but fewer
than 43 Rate Period Days, a multiplicative factor equal to 217%; (iv) in the
case of any Special Rate Period of more than 42 but fewer than 50 Rate Period
Days, a multiplicative factor equal to 226%; and (v) in the case of any Special
Rate Period of more than 49 but fewer than 57 Rate Period Days, a multiplicative
factor equal to 235%. If, as a result of the enactment of changes to the Code,
the greater of the maximum marginal Federal individual income tax rate
applicable to ordinary income and the maximum marginal Federal corporate income
tax rate applicable to ordinary income will increase, such increase being
rounded up to the next five percentage points (the "Federal Tax Rate Increase"),
until the effective date of such increase, the Moody's Volatility Factor in the
case of any Rate Period described in (i) above in this definition instead shall
be determined by reference to the following table:
Federal Volatility
Tax Rate Increase Factor
----------------- ------
5% 295%
10% 317%
15% 341%
20% 369%
25% 400%
30% 436%
35% 477%
40% 525%
"Municipal Obligations" shall mean "Municipal Obligations" as defined
in the Trust's registration statement on Form N-2 as filed with the Securities
and Exchange Commission on July 27, 2000 and November 28, 2000 (the
"Registration Statement").
"Municipal Preferred" shall mean the Municipal Auction Rate Cumulative
Preferred Shares, Series T and/or Series TH without par value, liquidation
preference $25,000 per share, of the Trust.
"Municipal Preferred Basic Maintenance Amount," as of any Valuation
Date, shall mean the dollar amount equal to the sum of (i) (A) the product of
the number of shares of Municipal Preferred outstanding on such date multiplied
by $25,000 (plus the product of the number of shares of any other series of
Preferred Shares outstanding on such date multiplied by the liquidation
preference of such shares), plus any redemption premium applicable to shares of
Municipal Preferred (or other Preferred Shares) then subject to redemption; (B)
the aggregate amount of dividends that will have accumulated at the respective
Applicable Rates (whether or not earned or declared) to (but not including) the
first respective Dividend Payment Dates for shares of Municipal Preferred
outstanding that follow such Valuation Date (plus the aggregate amount of
dividends, whether or not earned or declared, that will have accumulated in
respect of other outstanding Preferred Shares to, but not including, the first
respective dividend payment dates for such other shares that follow such
Valuation Date); (C) the aggregate amount of dividends that would accumulate on
shares of each series of Municipal Preferred outstanding from such first
respective Dividend Payment Date therefor through the 49th day after such
Valuation Date, at the Maximum Rate (calculated as if such Valuation Date were
the Auction Date for the Rate Period commencing on such Dividend Payment Date)
for a Minimum Rate Period of shares of such series to commence on such Dividend
Payment Date, assuming, solely for purposes of the foregoing, that if on such
Valuation Date the Trust shall have delivered a Notice of Special Rate Period to
the Auction Agent pursuant to paragraph 4(d)(i) of this Part I with respect to
shares of such series, such Maximum Rate shall be the higher of (a) the Maximum
Rate for the Special Rate Period of shares of such series to commence on such
Dividend Payment Date and (b) the Maximum Rate for a Minimum Rate Period of
shares of such series to commence on such Dividend Payment Date, multiplied by
the Volatility Factor applicable to a Minimum Rate Period, or, in the event the
Trust shall have delivered a Notice of Special Rate Period to the Auction Agent
pursuant to paragraph 4(d)(i) of this Part I with respect to shares of such
series designating a Special Rate Period consisting of 49 Rate Period Days or
more, the Volatility Factor applicable to a Special Rate Period of that length
(plus the aggregate amount of dividends that would accumulate at the maximum
dividend rate or rates on any other Preferred Shares outstanding from such
respective dividend payment dates through the 49th day after such Valuation
Date, as established by or pursuant to the respective statements establishing
and fixing the rights and preferences of such other Preferred Shares) (except
that (1) if such Valuation Date occurs at a time when a Failure to Deposit (or,
in the case of Preferred Shares other than Municipal Preferred, a failure
similar to a Failure to Deposit) has occurred that has not been cured, the
dividend for purposes of calculation would accumulate at the current dividend
rate then applicable to the shares in respect of which such failure has occurred
and (2) for those days during the period described in this subparagraph (C) in
respect of which the Applicable Rate in effect immediately prior to such
Dividend Payment Date will remain in effect (or, in the case of the Preferred
Shares other than Municipal Preferred, in respect of which the dividend rate or
rates in effect immediately prior to such respective dividend payment dates will
remain in effect), the dividend for purposes of calculation would accumulate at
such Applicable Rate (or other rate or rates, as the case may be) in respect of
those days); (D) the amount of anticipated expenses of the Trust for the 90 days
subsequent to such Valuation Date; (E) the amount of the Trust's Maximum
Potential Gross-up Payment Liability in respect of shares of Municipal Preferred
(and similar amounts payable in respect of other Preferred Shares pursuant to
provisions similar to those contained in paragraph 3 of Part I of this
Statement) as of such Valuation Date; and (F) any current liabilities as of such
Valuation Date to the extent not reflected in any of (i) (A) through (i)(E)
(including, without limitation, any payables for Municipal Obligations purchased
as of such Valuation Date and any liabilities incurred for the purpose of
clearing securities transactions) less (ii) the value (i.e., for purposes of
current Moody's guidelines, the face value of cash and short-term Municipal
Obligations rated MIG-1, VMIG-1 or P-1, provided in each case that such
securities mature on or prior to the date upon which any of (i) (A) through
(i)(F) become payable, otherwise the Moody's Discounted Value or for purposes of
current S&P guidelines, the face value of cash and short-term municipal
securities rated "A-1+" or "SP-1+" and mature or have a demand feature
exercisable in 30 days or less, provided in each case that such securities
mature on or prior to the date upon which any of (i)(A) through (i)(F) become
payable, otherwise S&P's Discounted Value) of any of the Trust's assets
irrevocably deposited by the Trust for the payment of any of (i) (A) through
(i)(F).
"Municipal Preferred Basic Maintenance Cure Date," with respect to the
failure by the Trust to satisfy the Municipal Preferred Basic Maintenance Amount
(as required by paragraph 7(a) of Part I of this Statement) as of a given
Valuation Date, shall mean the second Business Day following such Valuation
Date.
"Municipal Preferred Basic Maintenance Report" shall mean a report
signed by the President, Treasurer, Secretary, Assistant Treasurer or Assistant
Secretary of the Trust which sets forth, as of the related Valuation Date, the
assets of the Trust, the Market Value and the Discounted Value thereof (seriatim
and in aggregate), and the Municipal Preferred Basic Maintenance Amount.
"1940 Act" shall mean the Investment Company Act of 1940, as amended
from time to time.
"1940 Act Cure Date," with respect to the failure by the Trust to
maintain the 1940 Act Municipal Preferred Asset Coverage (as required by
paragraph 6 of this Part I of this Statement) as of the last Business Day of
each month, shall mean the last Business Day of the following month.
"1940 Act Municipal Preferred Asset Coverage" shall mean asset
coverage, as defined in Section 18(h) of the 1940 Act, of at least 200% with
respect to all outstanding senior securities of the Trust which are shares of
beneficial interest, including all outstanding shares of Municipal Preferred (or
such other asset coverage as may in the future be specified in or under the 1940
Act as the minimum asset coverage for senior securities which are shares or
stock of a closed-end investment company as a condition of declaring dividends
on its common shares or stock).
"Notice of Redemption" shall mean any notice with respect to the
redemption of shares of Municipal Preferred pursuant to paragraph 11(c) of this
Part I of this Statement.
"Notice of Special Rate Period" shall mean any notice with respect to a
Special Rate Period of shares of Municipal Preferred pursuant to paragraph
4(d)(i) of this Part I of this Statement.
"Order" and "Orders" shall have the respective meanings specified in
paragraph 1(a) of Part II of this Statement.
"Outstanding" shall mean, as of any Auction Date with respect to shares
of any series of Municipal Preferred, the number of shares of such series
theretofore issued by the Trust except, without duplication, (i) any shares of
such series theretofore canceled or delivered to the Auction Agent for
cancellation or redeemed by the Trust, (ii) any shares of such series as to
which the Trust or any Affiliate thereof shall be an Existing Holder and (iii)
any shares of such series represented by any certificate in lieu of which a new
certificate has been executed and delivered by the Trust.
"Persons" shall mean and include an individual, a partnership, a
corporation, a trust, an unincorporated association, a joint venture or other
entity or a government or any agency or political subdivision thereof.
"Pricing Services" shall mean those pricing services which are both
designated from time to time by the Board of Trustees and approved from time to
time for use by S&P (the pricing services approved for use by S&P as of the date
of this Statement are Bloomberg, Bridge Information Services, Interactive Data
Corporation, Merrill Lynch Securities Pricing Service, Standard and Poor's, JJ
Kenny (Municipal securities only) and CIBC Wood Gundy (Canadian government and
provincial securities only)).
"Potential Beneficial Owner," with respect to shares of a series of
Municipal Preferred, shall mean a customer of a Broker-Dealer that is not a
Beneficial Owner of shares of such series but that wishes to purchase shares of
such series, or that is a Beneficial Owner of shares of such series that wishes
to purchase additional shares of such series.
"Potential Holder," with respect to shares of a series of Municipal
Preferred, shall mean a Broker-Dealer (or any such other person as may be
permitted by the Trust) that is not an Existing Holder of shares of such series
or that is an Existing Holder of shares of such series that wishes to become the
Existing Holder of additional shares of such series.
"Preferred Shares" shall mean the preferred shares, without par value,
of the Trust, and includes the shares of Municipal Preferred.
"Quarterly Valuation Date" shall mean the last Business Day of each
January, April, July and October of each year, commencing on January 31, 2001
with respect to Series T Municipal Preferred and Series TH Municipal Preferred.
"Rate Multiple," for shares of a series of Municipal Preferred on any
Auction Date for shares of such series, shall mean the percentage, determined as
set forth below (depending on whether the Trust has notified the Auction Agent
of its intent to allocate any net capital gain or other income taxable for
Federal income tax purposes to shares of such series prior to the Auction
establishing the Applicable Rate for shares of such series as provided in this
Statement), based on the prevailing rating of shares of such series in effect at
the close of business on the Business Day next preceding such Auction Date:
Applicable Applicable
Percentage- Percentage-
No Notification Notification
--------------- ------------
Prevailing Rating
"aa3"/AA- or higher.............. 110% 150%
"a3"/A-.......................... 125% 160%
"baa3"/BBB-...................... 150% 250%
"ba3"/BB-........................ 200% 275%
Below "ba3"/BB-.................. 250% 300%
For purposes of this definition, the "prevailing rating" of shares of a
series of Municipal Preferred shall be (i) "aa3"/AA- or higher if such shares
have a rating of "aa3" or better by Moody's and AA- or better by S&P or the
equivalent of such ratings by such agencies or a substitute rating agency or
substitute rating agencies selected as provided below, (ii) if not "aa3"/AA- or
higher, then "a3"/A- if such shares have a rating of "a3" or better by Moody's
and A- or better by S&P or the equivalent of such ratings by such agencies or a
substitute rating agency or substitute rating agencies selected as provided
below, (iii) if not "aa3"/AA- or higher or "a3"/A-, then "baa3"/BBB- if such
shares have a rating of "baa3" or better by Moody's and BBB- or better by S&P or
the equivalent of such ratings by such agencies or a substitute rating agency or
substitute rating agencies selected as provided below, (iv) if not "aa3"/AA- or
higher, "a3"/A- or "baa3"/BBB-, then "ba3"/BB- if such shares have a rating of
"ba3" or better by Moody's and BB- or better by S&P or the equivalent of such
ratings by such agencies or a substitute rating agency or substitute rating
agencies selected as provided below, and (v) if not "aa3"/AA- or higher,
"a3"/A-, "baa3"/BBB-, or "ba3"/BB-, then below "ba3"/BB-; provided, however,
that if such shares are rated by only one rating agency, the prevailing rating
will be determined without reference to the rating of any other rating agency.
The Trust shall take all reasonable action necessary to enable either S&P or
Moody's to provide a rating for shares of Municipal Preferred. If neither S&P
nor Moody's shall make such a rating available, Salomon Smith Barney Inc. or its
successor shall select at least one nationally recognized statistical rating
organization (as that term is used in the rules and regulations of the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended from time to time) to act as a substitute rating agency in respect of
shares of such series of Municipal Preferred, and the Trust shall take all
reasonable action to enable such rating agency to provide a rating for such
shares.
"Rate Period," with respect to shares of a series of Municipal
Preferred, shall mean the Initial Rate Period of shares of such series and any
Subsequent Rate Period, including any Special Rate Period, of shares of such
series.
"Rate Period Days," for any Rate Period or Dividend Period, means the
number of days that would constitute such Rate Period or Dividend Period but for
the application of paragraph 2(d) of Part I of this Statement or paragraph 4(b)
of Part I of this Statement.
"Redemption Price" shall mean the applicable redemption price specified
in paragraph 11(a) or (b) of Part I of this Statement.
"Reference Rate" shall mean (i) the higher of the Taxable Equivalent of
the Short-Term Municipal Bond Rate and the "AA" Composite Commercial Paper Rate
in the case of Minimum Rate Periods and Special Rate Periods of 28 Rate Period
Days or fewer; (ii) the "AA" Composite Commercial Paper Rate in the case of
Special Rate Periods of more than 28 Rate Period Days but fewer than 183 Rate
Period Days; and (iii) the Treasury Bill Rate in the case of Special Rate
Periods of more than 182 Rate Period Days but fewer than 365 Rate Period Days.
"Registration Statement" has the meaning specified in the definition of
"Municipal Obligations."
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., and its successors.
"S&P Discount Factor" shall mean, for purposes of determining the
Discounted Value of any S&P Eligible Asset, the percentage determined by
reference to the rating on such asset and the shortest S&P Exposure Period set
forth opposite such rating that is the same length as or is longer than the S&P
Exposure Period, in accordance with the table set forth below:
Rating Category
---------------
Exposure Period AAA* AA* A* BBB* Unrated** Zeros***
--------------- ---- --- -- ---- --------- --------
45 Business Days..... 190% 195% 210% 250% 220% 572%
25 Business Days..... 170 175 190 230 220 496
10 Business Days..... 155 160 175 215 220 426
7 Business Days.... 150 155 170 210 220 411
3 Business Days.... 130 135 150 190 220 388
--------------
* S&P rating.
** S&P Eligible Assets not rated by S&P or rated less than BBB by S&P and
not rated at least the equivalent of an "A" rating by another nationally
recognized credit rating agency.
*** Municipal Obligations which are not interest bearing or do not pay
interest at least semi-annually and that are rated AAA by S&P.
Notwithstanding the foregoing, (i) the S&P Discount Factor for
short-term Municipal Obligations will be 115%, so long as such Municipal
Obligations are rated A-1+ or SP-1+ by S&P and mature or have a demand feature
exercisable within 30 days or less, 120% if such Municipal Obligations are rated
A-1 or SP-1- by S&P and mature or have a demand feature exercisable within 30
days or less, or 125% if such Municipal Obligations are not rated by S&P but are
rated VMIG-1, P-1 or MIG-1 by Moody's; provided, however, that any such
Moody's-rated short-term Municipal Obligations which have demand features
exercisable within 30 days or less must be backed by a letter of credit,
liquidity facility or guarantee from a bank or other financial institution with
a short-term rating of at least A-1+ from S&P; (ii) no S&P Discount Factor will
be applied to cash; and (iii) except as set forth in clause (i) above, in the
case of any Municipal Obligation that is not rated by S&P or rated less than BBB
by S&P but qualifies as an S&P Eligible Asset pursuant to clause (iii) of that
definition, such Municipal Obligation will be deemed to have an S&P rating one
full rating category lower than the S&P rating category that is the equivalent
of the rating category in which such Municipal Obligation is placed by such
other nationally recognized credit rating agency. For purposes of the foregoing,
Anticipation Notes rated SP-1+ or, if not rated by S&P, rated MIG-1 or VMIG-1 by
Moody's, which do not mature or have a demand feature at par exercisable in 30
days and which do not have a long-term rating, shall be considered to be
short-term Municipal Obligations. In calculating the Discounted Value of the
Trust's portfolio (1) S&P's Discount Factors will be applied to futures and
Inverse Floaters and (2) a Discount Factor of 388% will be applied to Municipal
Obligations rated AAA by S&P which are not interest bearing or do not pay
interest at least semi-annually.
"S&P Eligible Asset" shall mean trade date cash (excluding any cash
irrevocably deposited by the Trust for the payment of any liabilities within the
meaning of Municipal Preferred Basic Maintenance Amount), futures, options,
Inverse Floaters, U.S. Government Securities (which are valued for the purposes
of meeting the Municipal Preferred Basic Maintenance Amount without application
of any discount factor) and similar instruments or a Municipal Obligation owned
by the Trust that (i) is interest bearing and pays interest at least
semi-annually (except as stated in number four (4) below); (ii) is payable with
respect to principal and interest in U.S. Dollars; (iii) in the case of
Anticipation Notes that are Grant Anticipation Notes or Bond Anticipation Notes
be rated by S&P; (iv) is not part of a private placement of Municipal
Obligations (except in the case of Inverse Floaters); (v) is part of an issue of
Municipal Obligations (excluding Escrowed Bonds that are legally defeased) 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; and (vi) is not subject to a covered call or covered put option
written by the Trust. These eligible assets are valued or accounted for on a
trade date basis assuming normal settlement for the Municipal Market. S&P
Eligible Assets shall not include Internally Priced Securities (as defined under
"Market Value"). Solely for purposes of this definition, the term "Municipal
Obligation" means any obligation the interest on which is exempt from regular
Federal income taxation and which is issued by any of the fifty United States,
the District of Columbia or any of the territories of the United States, their
subdivisions, counties, cities, towns, villages, school districts and agencies
(including authorities and special districts created by the states), and
federally sponsored agencies such as local housing authorities. Notwithstanding
the foregoing limitations:
(1) Municipal Obligations (excluding Escrowed Bonds) of any
one issuer or guarantor (excluding bond insurers) shall be considered
S&P Eligible Assets only to the extent the Market Value of such
Municipal Obligations does not exceed 10% of the aggregate Market Value
of S&P Eligible Assets, provided that 2% is added to the applicable S&P
Discount Factor for every 1% by which the Market Value of such
Municipal Obligations exceeds 5% of the aggregate Market Value of S&P
Eligible Assets, and provided that Municipal Obligations (excluding
Escrowed Bonds) not rated by S&P or rated less than BBB by S&P and not
rated at least A by another nationally recognized credit rating agency
of any one issuer or guarantor (excluding bond insurers) shall
constitute S&P Eligible Assets only to the extent the Market Value of
such Municipal Obligations does not exceed 5% of the aggregate Market
Value of S&P Eligible Assets;
(2) Municipal Obligations not rated at least BBB or not rated
by S&P and not rated at least A by another nationally recognized credit
rating agency shall be considered S&P Eligible Assets only to the
extent the Market Value of such Municipal Obligations does not exceed
50% of the aggregate Market Value of S&P Eligible Assets; provided,
however, that if the Market Value of such Municipal Obligations exceeds
50% of the aggregate Market Value of S&P Eligible Assets, a portion of
such Municipal Obligations (selected by the Trust) shall not be
considered S&P Eligible Assets, so that the Market Value of such
Municipal Obligations (excluding such portion) does not exceed 50% of
the aggregate Market Value of S&P Eligible Assets;
(3) Long-term Municipal Obligations (excluding Escrowed Bonds)
issued by issuers in any one state or territory shall be considered S&P
Eligible Assets only to the extent that the Market Value of such
Municipal Obligations does not exceed 25% of the aggregate Market Value
of S&P Eligible Assets; and
(4) Municipal Obligations which are not interest bearing or do
not pay interest at least semi-annually shall be considered S&P
Eligible Assets if rated AAA by S&P.
For purposes of determining the aggregate Discounted Value of S&P's
Eligible Assets, such aggregate amount shall be reduced with respect to any
futures contracts as set forth in paragraph 10(a) of this Part I.
"S&P Exposure Period" shall mean the period commencing on a given
Valuation Date and ending three business days thereafter.
"S&P Volatility Factor" shall mean, as of any Valuation Date, a
multiplicative factor equal to (i) 305% in the case of any Minimum Rate Period
or any Special Rate Period of 28 Rate Period Days or fewer; (ii) 268% in the
case of any Special Rate Period of more than 28 Rate Period Days but fewer than
183 Rate Period Days; and (iii) 204% in the case of any Special Rate Period of
more than 182 Rate Period Days.
"Securities Depository" shall mean The Depository Trust Company and its
successors and assigns or any other securities depository selected by the Trust
which agrees to follow the procedures required to be followed by such securities
depository in connection with shares of Municipal Preferred.
"Sell Order" and "Sell Orders" shall have the respective meanings
specified in paragraph 1(a) of Part II of this Statement.
"Special Rate Period," with respect to shares of a series of Municipal
Preferred, shall have the meaning specified in paragraph 4(a) of Part I of this
Statement.
"Special Redemption Provisions" shall have the meaning specified in
paragraph 11(a)(i) of Part I of this Statement.
"Submission Deadline" shall mean 1:30 P.M., New York City time, on any
Auction Date or such other time on any Auction Date by which Broker-Dealers are
required to submit Orders to the Auction Agent as specified by the Auction Agent
from time to time.
"Submitted Bid" and "Submitted Bids" shall have the respective meanings
specified in paragraph 3(a) of Part II of this Statement.
"Submitted Hold Order" and "Submitted Hold Orders" shall have the
respective meanings specified in paragraph 3(a) of Part II of this Statement.
"Submitted Order" and "Submitted Orders" shall have the respective
meanings specified in paragraph 3(a) of Part II of this Statement.
"Submitted Sell Order" and "Submitted Sell Orders" shall have the
respective meanings specified in paragraph 3(a) of Part II of this Statement.
"Subsequent Rate Period," with respect to shares of a series of
Municipal Preferred, shall mean the period from and including the first day
following the Initial Rate Period of shares of such series to but excluding the
next Dividend Payment Date for shares of such series and any period thereafter
from and including one Dividend Payment Date for shares of such series to but
excluding the next succeeding Dividend Payment Date for shares of such series;
provided, however, that if any Subsequent Rate Period is also a Special Rate
Period, such term shall mean the period commencing on the first day of such
Special Rate Period and ending on the last day of the last Dividend Period
thereof.
"Substitute Commercial Paper Dealer" shall mean [CS First Boston or
Morgan Stanley & Co. Incorporated] or their respective affiliates or successors,
if such entity is a commercial paper dealer; provided, however, that none of
such entities shall be a Commercial Paper Dealer.
"Substitute U.S. Government Securities Dealer" shall mean [CS First
Boston and Merrill Lynch, Pierce, Fenner & Smith Incorporated] or their
respective affiliates or successors, if such entity is a U.S. Government
securities dealer; provided, however, that none of such entities shall be a U.S.
Government Securities Dealer.
"Sufficient Clearing Bids" shall have the meaning specified in
paragraph 3(a) of Part II of this Statement.
"Taxable Allocation" shall have the meaning specified in paragraph 3 of
Part I of this Statement.
"Taxable Equivalent of the Short-Term Municipal Bond Rate," on any date
for any Minimum Rate Period or Special Rate Period of 28 Rate Period Days or
fewer, shall mean 90% of the quotient of (A) the per annum rate expressed on an
interest equivalent basis equal to the S&P Kenny 30 day High Grade Index or any
successor index (the "Kenny Index") (provided, however, that any such successor
index must be approved by Moody's (if Moody's is then rating the shares of
Municipal Preferred) and S&P (if S&P is then rating the shares of Municipal
Preferred)), 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
S&P J.J. Kenny Evaluation Services or any successor thereto, based upon 30-day
yield evaluations at par of short-term bonds the interest on which is excludable
for regular Federal income tax purposes under the Code, of "high grade"
component issuers selected by S&P J.J. Kenny Evaluation Services or any such
successor from time to time in its discretion, which component issuers shall
include, without limitation, issuers of general obligation bonds, but shall
exclude any bonds the interest on which constitutes an item of tax preference
under Section 57(a)(5) of the Code, or successor provisions, for purposes of the
"alternative minimum tax," divided by (B) 1.00 minus the maximum marginal
regular Federal individual income tax rate applicable to ordinary income or the
maximum marginal regular Federal corporate income tax rate applicable to
ordinary income (in each case expressed as a decimal), whichever is greater;
provided, however, that if the Kenny Index is not made so available by 8:30
A.M., New York City time, on such date by S&P J.J. Kenny Evaluation Services or
any successor, the Taxable Equivalent of the Short-Term Municipal Bond Rate
shall mean the quotient of (A) the per annum rate expressed on an interest
equivalent basis equal to the most recent Kenny Index so made available for any
preceding Business Day, divided by (B) 1.00 minus the maximum marginal regular
Federal individual income tax rate applicable to ordinary income or the maximum
marginal regular Federal corporate income tax rate applicable to ordinary income
(in each case expressed as a decimal), whichever is greater.
"Taxable Income" shall have the meaning specified in paragraph 3(c) of
Part II of this Statement.
"Treasury Bill" shall mean a direct obligation of the U.S. Government
having a maturity at the time of issuance of 364 days or less.
"Treasury Bill Rate," on any date for any Rate Period, shall mean (i)
the bond equivalent yield, calculated in accordance with prevailing industry
convention, of the rate on the most recently auctioned Treasury Bill with a
remaining maturity closest to the length of such Rate Period, as quoted in The
Wall Street Journal on such date for the Business Day next preceding such date;
or (ii) in the event that any such rate is not published in The Wall Street
Journal, then the bond equivalent yield, calculated in accordance with
prevailing industry convention, as calculated by reference to the arithmetic
average of the bid price quotations of the most recently auctioned Treasury Bill
with a remaining maturity closest to the length of such Rate Period, as
determined by bid price quotations as of the close of business on the Business
Day immediately preceding such date obtained from the U.S. Government Securities
Dealers to the Auction Agent.
"Treasury Note" shall mean a direct obligation of the U.S. Government
having a maturity at the time of issuance of five years or less but more than
364 days.
"Treasury Note Rate," on any date for any Rate Period, shall mean (i)
the yield on the most recently auctioned Treasury Note with a remaining maturity
closest to the length of such Rate Period, as quoted in The Wall Street Journal
on such date for the Business Day next preceding such date; or (ii) in the event
that any such rate is not published in The Wall Street Journal, then the yield
as calculated by reference to the arithmetic average of the bid price quotations
of the most recently auctioned Treasury Note with a remaining maturity closest
to the length of such Rate Period, as determined by bid price quotations as of
the close of business on the Business Day immediately preceding such date
obtained from the U.S. Government Securities Dealers to the Auction Agent. If
any U.S. Government Securities Dealer does not quote a rate required to
determine the Treasury Bill Rate of the Treasury Note Rate, the Treasury Bill
Rate or the Treasury Note Rate shall be determined on the basis of the quotation
or quotations furnished by the remaining U.S. Government Securities Dealer or
U.S. Government Securities Dealers and any Substitute U.S. Government Securities
Dealers selected by the Trust to provide such rate or rates not being supplied
by any U.S. Government Securities Dealer or U.S. Government Securities Dealers,
as the case may be, or, if the Trust does not select any such Substitute U.S.
Government Securities Dealer or Substitute U.S. Government Securities Dealers,
by the remaining U.S. Government Securities Dealer or U.S. Government Securities
Dealers.
"U.S. Government Securities " shall mean bonds or other debt
obligations issued by, or whose principal or interest payments are guaranteed
by, the U.S. government or one of its agencies or instrumentalities. U.S.
Government Securities also include interests in trust or other entities
representing interests in obligations that are issued or guaranteed by the U.S.
Government, its agencies, authorities or instrumentalities.
"U.S. Government Securities Dealer" shall mean [Lehman Government
Securities Incorporated, Goldman, Sachs & Co., Salomon Smith Barney Inc. and
Morgan Guaranty Trust Company of New York] or their respective affiliates or
successors, if such entity is a U.S. government securities dealer.
"Valuation Date" shall mean, for purposes of determining whether the
Trust is maintaining the Municipal Preferred Basic Maintenance Amount, each
Business Day.
"Variation Margin" means, in connection with an outstanding futures
contract owned or sold by the Trust, the amount of cash or securities paid to or
received from a broker (subsequent to the Initial Margin payment) from time to
time as the price of such futures contract fluctuates.
"Volatility Factor" shall mean, as of any Valuation Date, the greater
of the Moody's Volatility Factor and the S&P Volatility Factor.
"Voting Period" shall have the meaning specified in paragraph 5(b) of
this Part I of this Statement.
"Winning Bid Rate" shall have the meaning specified in paragraph 3(a)
of Part II of this Statement.
2. DIVIDENDS.
(a) RANKING. The shares of a series of Municipal Preferred shall rank
on a parity with each other, with shares of any other series of Municipal
Preferred and with shares of any other series of Preferred Shares as to the
payment of dividends by the Trust.
(b) CUMULATIVE CASH DIVIDENDS. The Holders of shares of Municipal
Preferred of any series shall be entitled to receive, when, as and if declared
by the Board of Trustees, out of funds legally available therefor in accordance
with the Declaration, this Statement and applicable law, cumulative cash
dividends at the Applicable Rate for shares of such series, determined as set
forth in subparagraph (e) of this paragraph 2, and no more (except to the extent
set forth in paragraph 3 of this Part I), payable on the Dividend Payment Dates
with respect to shares of such series determined pursuant to subparagraph (d) of
this paragraph 2. Holders of shares of Municipal Preferred shall not be entitled
to any dividend, whether payable in cash, property or shares, in excess of full
cumulative dividends, as herein provided, on shares of Municipal Preferred. No
interest, or sum of money in lieu of interest, shall be payable in respect of
any dividend payment or payments on shares of Municipal Preferred which may be
in arrears, and, except to the extent set forth in subparagraph (e)(i) of this
paragraph 2, no additional sum of money shall be payable in respect of any such
arrearage.
(c) DIVIDENDS CUMULATIVE FROM DATE OF ORIGINAL ISSUE. Dividends on
shares of Municipal Preferred of any series shall accumulate at the Applicable
Rate for shares of such series from the Date of Original Issue thereof.
(d) DIVIDEND PAYMENT DATES AND ADJUSTMENTS THEREOF. The Dividend
Payment Dates with respect to shares of a series of Municipal Preferred shall be
Wednesday, ________ __, ____ and each Wednesday thereafter with respect to
shares of Series T Municipal Preferred and Friday, ________ __, ____ and each
Friday thereafter with respect to shares of Series TH Municipal Preferred;
provided, however, that
(i) if the Wednesday or Friday, as the case may be, on which
dividends would otherwise be payable on shares of such series is not a
Business Day, then such dividends shall be payable on shares of such
series on the first Business Day that falls after such Wednesday or
Friday, as the case may be; and
(ii) notwithstanding the foregoing provisions of this
paragraph 2(d), the Trust in its discretion may establish the Dividend
Payment Dates in respect of any Special Rate Period of shares of a
series of Municipal Preferred consisting of more than 28 Rate Period
Days; provided, however, that such dates shall be set forth in the
Notice of Special Rate Period relating to such Special Rate Period, as
delivered to the Auction Agent, which Notice of Special Rate Period
shall be filed with the Secretary of the Trust; and further provided
that (1) any such Dividend Payment Date shall be a Business Day and (2)
the last Dividend Payment Date in respect of such Special Rate Period
shall be the Business Day immediately following the last day thereof,
as such last day is determined in accordance with subparagraph (b) of
paragraph 4 of Part I of this Statement.
(e) DIVIDEND RATES AND CALCULATION OF DIVIDENDS.
(i) DIVIDEND RATES. The dividend rate on shares of Municipal
Preferred of any series during the period from and after the Date of
Original Issue of shares of such series to and including the last day
of the Initial Rate Period of shares of such series shall be equal to
the rate per annum set forth with respect to shares of such series
under "Designation" in this Part I. For each Subsequent Rate Period of
shares of such series thereafter, the dividend rate on shares of such
series shall be equal to the rate per annum that results from an
Auction for shares of such series on the Auction Date next preceding
such Subsequent Rate Period; provided, however, that if:
(A) an Auction for any such Subsequent Rate Period is
not held for any reason other than as described below, the
dividend rate on shares of such series for such Subsequent
Rate Period will be the Maximum Rate for shares of such series
on the Auction Date therefor;
(B) any Failure to Deposit shall have occurred with
respect to shares of such series during any Rate Period
thereof (other than any Special Rate Period consisting of more
than 364 Rate Period Days or any Rate Period succeeding any
Special Rate Period consisting of more than 364 Rate Period
Days during which a Failure to Deposit occurred that has not
been cured), but, prior to 12:00 Noon, New York City time, on
the third Business Day next succeeding the date on which such
Failure to Deposit occurred, such Failure to Deposit shall
have been cured in accordance with subparagraph (f) of this
paragraph 2, no Auction will be held in respect of shares of
such series for the Subsequent Rate Period thereof and the
dividend rate for shares of such series for such Subsequent
Rate Period will be the Maximum Rate for shares of such series
on the Auction Date for such Subsequent Rate Period;
(C) any Failure to Deposit shall have occurred with
respect to shares of such series during any Rate Period
thereof (other than any Special Rate Period consisting of more
than 364 Rate Period Days or any Rate Period succeeding any
Special Rate Period consisting of more than 364 Rate Period
Days during which a Failure to Deposit occurred that has not
been cured), and, prior to 12:00 Noon, New York City time, on
the third Business Day next succeeding the date on which such
Failure to Deposit occurred, such Failure to Deposit shall not
have been cured in accordance with subparagraph (f) of this
paragraph 2, no Auction will be held in respect of shares of
such series for the first Subsequent Rate Period thereof
thereafter (or for any Rate Period thereof thereafter to and
including the Rate Period during which such Failure to Deposit
is cured in accordance with subparagraph (f) of this paragraph
2, no later than 12:00 Noon, New York City time, on the fourth
Business Day prior to the end of such Rate Period), and the
dividend rate for shares of such series for each such
Subsequent Rate Period shall be a rate per annum equal to the
Maximum Rate for shares of such series on the Auction Date for
such Subsequent Rate Period (but with the prevailing rating
for shares of such series, for purposes of determining such
Maximum Rate, being deemed to be "Below 'ba3'/BB-"); or
(D) any Failure to Deposit shall have occurred with
respect to shares of such series during a Special Rate Period
thereof consisting of more than 364 Rate Period Days, or
during any Rate Period thereof succeeding any Special Rate
Period consisting of more than 364 Rate Period Days during
which a Failure to Deposit occurred that has not been cured,
and, prior to 12:00 Noon, New York City time, on the fourth
Business Day preceding the Auction Date for the Rate Period
subsequent to such Rate Period, such Failure to Deposit shall
not have been cured in accordance with subparagraph (f) of
this paragraph 2, no Auction will be held in respect of shares
of such series for such Subsequent Rate Period (or for any
Rate Period thereof thereafter to and including the Rate
Period during which such Failure to Deposit is cured in
accordance with subparagraph (f) of this paragraph 2, no later
than 12:00 Noon, New York City time, on the fourth Business
Day prior to the end of such Rate Period), and the dividend
rate for shares of such series for each such Subsequent Rate
Period shall be a rate per annum equal to the Maximum Rate for
shares of such series on the Auction Date for such Subsequent
Rate Period (but with the prevailing rating for shares of such
series, for purposes of determining such Maximum Rate, being
deemed to be "Below 'ba3'/BB-") (the rate per annum of which
dividends are payable on shares of a series of Municipal
Preferred for any Rate Period thereof being herein referred to
as the "Applicable Rate" for shares of such series).
(ii) CALCULATION OF DIVIDENDS. The amount of dividends per
share payable on shares of a series of Municipal Preferred on any date
on which dividends shall be payable on shares of such series shall be
computed by multiplying the Applicable Rate for shares of such series
in effect for such Dividend Period or Dividend Periods or part thereof
for which dividends have not been paid by a fraction, the numerator of
which shall be the number of days in such Dividend Period or Dividend
Periods or part thereof and the denominator of which shall be 365 if
such Dividend Period consists of 7 Rate Period Days and 360 for all
other Dividend Periods, and applying the rate obtained against $25,000.
(f) CURING A FAILURE TO DEPOSIT. A Failure to Deposit with respect to
shares of a series of Municipal Preferred shall have been cured (if such Failure
to Deposit is not solely due to the willful failure of the Trust to make the
required payments to the Auction Agent) with respect to any Rate Period of
shares of such series if, within the respective time periods described in
subparagraph (e)(i) of this paragraph 2, the Trust shall have paid to the
Auction Agent (A) all accumulated and unpaid dividends on shares of such series
and (B) without duplication, the Redemption Price for shares, if any, of such
series for which Notice of Redemption has been mailed by the Trust pursuant to
paragraph 11(c) of Part I of this Statement; provided, however, that the
foregoing clause (B) shall not apply to the Trust's failure to pay the
Redemption Price in respect of shares of Municipal Preferred when the related
Redemption Notice provides that redemption of such shares is subject to one or
more conditions precedent and any such condition precedent shall not have been
satisfied at the time or times and in the manner specified in such Notice of
Redemption.
(g) DIVIDEND PAYMENTS BY TRUST TO AUCTION AGENT. The Trust shall pay to
the Auction Agent, not later than 12:00 Noon, New York City time, on each
Dividend Payment Date for shares of a series of Municipal Preferred, an
aggregate amount of federal funds or similar same-day funds in The City of New
York, New York, equal to the dividends to be paid to all Holders of shares of
such series on such Dividend Payment Date.
(h) AUCTION AGENT AS TRUSTEE OF DIVIDEND PAYMENTS BY TRUST. All moneys
paid to the Auction Agent for the payment of dividends shall be held in trust
for the payment of such dividends by the Auction Agent for the benefit of the
Holders specified in subparagraph (i) of this paragraph 2. Any moneys paid to
the Auction Agent in accordance with the foregoing but not applied by the
Auction Agent to the payment of dividends will, to the extent permitted by law,
be repaid to the Trust at the end of 90 days from the date on which such moneys
were so to have been applied.
(i) DIVIDENDS PAID TO HOLDERS. Each dividend on shares of Municipal
Preferred shall be paid on the Dividend Payment Date therefor to the Holders
thereof as their names appear on the record books of the Trust on the Business
Day next preceding such Dividend Payment Date.
(j) DIVIDENDS CREDITED AGAINST EARLIEST ACCUMULATED BUT UNPAID
DIVIDENDS. Any dividend payment made on shares of Municipal Preferred shall
first be credited against the earliest accumulated but unpaid dividends due with
respect to such shares. Dividends in arrears for any past Dividend Period may be
declared and paid at any time, without reference to any regular Dividend Payment
Date, to the Holders as their names appear on the record books of the Trust on
such date, not exceeding 15 days preceding the payment date thereof, as may be
fixed by the Board of Trustees.
(k) DIVIDENDS DESIGNATED AS EXEMPT-INTEREST DIVIDENDS. Dividends on
shares of Municipal Preferred shall be designated as exempt-interest dividends
up to the amount of tax-exempt income of the Trust, to the extent permitted by,
and for purposes of, Section 852 of the Code.
3. GROSS-UP PAYMENTS.
Holders of shares of Municipal Preferred shall be entitled to receive,
when, as and if declared by the Board of Trustees, out of funds legally
available therefor in accordance with the Declaration, this Statement and
applicable law, dividends in an amount equal to the aggregate Gross-up Payment
as follows:
(a) TAXABLE ALLOCATION WITHOUT NOTICE. If, in the case of any Minimum
Rate Period or any Special Rate Period of 28 Rate Period Days or fewer, or in
the case of any other Special Rate Period, the Trust allocates any net capital
gain or other income taxable for Federal income tax purposes to a dividend paid
on shares of Municipal Preferred without having given advance notice thereof to
the Auction Agent as provided in paragraph 5 of Part II of this Statement (such
allocation being referred to herein as a "Taxable Allocation") solely by reason
of the fact that such allocation is made retroactively as a result of the
redemption of all or a portion of the outstanding shares of Municipal Preferred
or the liquidation of the Trust, the Trust shall, prior to the end of the fiscal
year in which such dividend was paid or within 90 days (and generally within 60
days) after the end of the Trust's fiscal year for which a retroactive Taxable
Allocation is made, provide notice thereof to the Auction Agent and direct the
Trust's dividend disbursing agent to send such notice with a Gross-up Payment to
each Holder of such shares that was entitled to such dividend payment with
respect to the Municipal Preferred during such fiscal year at such Holder's
address as the same appears or last appeared on the record books of the Trust.
The Trust, within 30 days after such notice is given to the Auction Agent, will
pay to the Auction Agent (who then will distribute to such holders of Municipal
Preferred), out of funds legally available therefor, an amount equal to the
aggregate Gross-up Payment with respect to all retroactive Taxable Allocations
made to such holder during the fiscal year in question.
If the Trust does not give advance notice of the amount of taxable income to be
included in a dividend on shares of Municipal Preferred in the related Auction,
the Trust may include such taxable income in a dividend on shares of Municipal
Preferred if it increases the dividend by an additional amount calculated as if
such income were a retroactive Taxable Allocation and the additional amount was
a Gross-up Payment. See paragraph 5 of Part II of this Statement.
(b) NO GROSS-UP PAYMENTS IN THE EVENT OF A REALLOCATION. The Trust
shall not be required to make Gross-up Payments with respect to any net capital
gain or other taxable income determined by the Internal Revenue Service to be
allocable in a manner different from that allocated by the Trust.
4. DESIGNATION OF SPECIAL RATE PERIODS.
(a) LENGTH OF AND PRECONDITIONS FOR SPECIAL RATE PERIOD. The Trust, at
its option, may designate any succeeding Subsequent Rate Period of shares of a
series of Municipal Preferred as a Special Rate Period consisting of a specified
number of Rate Period Days evenly divisible by seven and not more than 1,820,
subject to adjustment as provided in subparagraph (b) of this paragraph 4. A
designation of a Special Rate Period shall be effective only if (A) notice
thereof shall have been given in accordance with subparagraphs (c) and (d)(i) of
this paragraph 4, (B) an Auction for shares of such series shall have been held
on the Auction Date immediately preceding the first day of such proposed Special
Rate Period and Sufficient Clearing Bids for shares of such series shall have
existed in such Auction, and (C) if any Notice of Redemption shall have been
mailed by the Trust pursuant to paragraph 11(c) of this Part I with respect to
any shares of such series, the Redemption Price with respect to such shares
shall have been deposited with the Auction Agent. In the event the Trust wishes
to designate any succeeding Subsequent Rate Period for shares of a series of
Municipal Preferred as a Special Rate Period consisting of more than 28 Rate
Period Days, the Trust shall notify S&P (if S&P is then rating such series) and
Moody's (if Moody's is then rating such series) in advance of the commencement
of such Subsequent Rate Period that the Trust wishes to designate such
Subsequent Rate Period as a Special Rate Period and shall provide S&P (if S&P is
then rating such series) and Moody's (if Moody's is then rating such series)
with such documents as either may request.
(b) ADJUSTMENT OF LENGTH OF SPECIAL RATE PERIOD. In the event the Trust
wishes to designate a Subsequent Rate Period as a Special Rate Period, but the
day following what would otherwise be the last day of such Special Rate Period
is not (a) a Wednesday that is a Business Day in the case of a series of
Municipal Preferred designated as "Series T Municipal Preferred" in this Part I,
or (b) a Friday that is a Business Day in the case of a series of Municipal
Preferred designated as "Series TH Municipal Preferred" in this Part I, then the
Trust shall designate such Subsequent Rate Period as a Special Rate Period
consisting of the period commencing on the first day following the end of the
immediately preceding Rate Period and ending (a) on the first Tuesday that is
followed by a Wednesday that is a Business Day proceeding what would otherwise
be such last day, in the case of Series T Municipal Preferred, or (b) on the
first Thursday that is followed by a Friday that is a Business Day proceeding
what would otherwise be such last day in the case of Series TH Municipal
Preferred.
(c) NOTICE OF PROPOSED SPECIAL RATE PERIOD. If the Trust proposes to
designate any succeeding Subsequent Rate Period of shares of a series of
Municipal Preferred as a Special Rate Period pursuant to subparagraph (a) of
this paragraph 4, not less than 20 (or such lesser number of days as may be
agreed to from time to time by the Auction Agent) nor more than 30 days prior to
the date the Trust proposes to designate as the first day of such Special Rate
Period (which shall be such day that would otherwise be the first day of a
Minimum Rate Period), notice shall be (i) published or caused to be published by
the Trust in a newspaper of general circulation to the financial community in
The City of New York, New York, which carries financial news, and (ii) mailed by
the Trust by first-class mail, postage prepaid, to the Holders of shares of such
series. Each such notice shall state (A) that the Trust may exercise its option
to designate a succeeding Subsequent Rate Period of shares of such series as a
Special Rate Period, specifying the first day thereof and (B) that the Trust
will, by 11:00 A.M., New York City time, on the second Business Day next
preceding such date (or by such later time or date, or both, as may be agreed to
by the Auction Agent) notify the Auction Agent of either (x) its determination,
subject to certain conditions, to exercise such option, in which case the Trust
shall specify the Special Rate Period designated, or (y) its determination not
to exercise such option.
(d) NOTICE OF SPECIAL RATE PERIOD. No later than 11:00 A.M., New York
City time, on the second Business Day next preceding the first day of any
proposed Special Rate Period of shares of a series of Municipal Preferred as to
which notice has been given as set forth in subparagraph (c) of this paragraph 4
(or such later time or date, or both, as may be agreed to by the Auction Agent),
the Trust shall deliver to the Auction Agent either:
(i) a notice ("Notice of Special Rate Period") stating (A)
that the Trust has determined to designate the next succeeding Rate
Period of shares of such series as a Special Rate Period, specifying
the same and the first day thereof, (B) the Auction Date immediately
prior to the first day of such Special Rate Period, (C) that such
Special Rate Period shall not commence if (1) an Auction for shares of
such series shall not be held on such Auction Date for any reason or
(2) an Auction for shares of such series shall be held on such Auction
Date but Sufficient Clearing Bids for shares of such series shall not
exist in such Auction, (D) the scheduled Dividend Payment Dates for
shares of such series during such Special Rate Period and (E) the
Special Redemption Provisions, if any, applicable to shares of such
series in respect of such Special Rate Period; such notice to be
accompanied by a Municipal Preferred Basic Maintenance Report showing
that, as of the third Business Day next preceding such proposed Special
Rate Period, Moody's Eligible Assets (if Moody's is then rating such
series) and S&P Eligible Assets (if S&P is then rating such series)
each have an aggregate Discounted Value at least equal to the Municipal
Preferred Basic Maintenance Amount as of such Business Day (assuming
for purposes of the foregoing calculation that (a) the Maximum Rate is
the Maximum Rate on such Business Day as if such Business Day were the
Auction Date for the proposed Special Rate Period, and (b) the Moody's
Discount Factors applicable to Moody's Eligible Assets are determined
by reference to the first Exposure Period longer than the Exposure
Period then applicable to the Trust, as described in the definition of
Moody's Discount Factor herein); or
(ii) a notice stating that the Trust has determined not to
exercise its option to designate a Special Rate Period of shares of
such series and that the next succeeding Rate Period of shares of such
series shall be a Minimum Rate Period.
(e) FAILURE TO DELIVER NOTICE OF SPECIAL RATE PERIOD. If the Trust
fails to deliver either of the notices described in subparagraphs (d)(i) or
(d)(ii) of this paragraph 4 (and, in the case of the notice described in
subparagraph (d)(i) of this paragraph 4, a Municipal Preferred Basic Maintenance
Report to the effect set forth in such subparagraph (if either Moody's or S&P is
then rating the series in question)) with respect to any designation of any
proposed Special Rate Period to the Auction Agent by 11:00 A.M., New York City
time, on the second Business Day next preceding the first day of such proposed
Special Rate Period (or by such later time or date, or both, as may be agreed to
by the Auction Agent), the Trust shall be deemed to have delivered a notice to
the Auction Agent with respect to such Special Rate Period to the effect set
forth in subparagraph (d)(ii) of this paragraph 4. In the event the Trust
delivers to the Auction Agent a notice described in subparagraph (d)(i) of this
paragraph 4, it shall file a copy of such notice with the Secretary of the
Trust, and the contents of such notice shall be binding on the Trust. In the
event the Trust delivers to the Auction Agent a notice described in subparagraph
(d)(ii) of this paragraph 4, the Trust will provide Moody's (if Moody's is then
rating the series in question) and S&P (if S&P is then rating the series in
question) a copy of such notice.
5. VOTING RIGHTS.
(a) ONE VOTE PER SHARE OF MUNICIPAL PREFERRED. Except as otherwise
provided in the Declaration, this paragraph 5 or as otherwise required by law,
(i) each Holder of shares of Municipal Preferred shall be entitled to one vote
for each share of Municipal Preferred held by such Holder on each matter
submitted to a vote of shareholders of the Trust, and (ii) the holders of
outstanding Preferred Shares, including each share of Municipal Preferred, and
of Common Shares shall vote together as a single class; provided, however, that,
at any meeting of the shareholders of the Trust held for the election of
trustees, the holders of outstanding Preferred Shares, including Municipal
Preferred, represented in person or by proxy at said meeting, shall be entitled,
as a class, to the exclusion of the holders of all other securities and classes
of shares of beneficial interest of the Trust, to elect two trustees of the
Trust, each Preferred Share, including each share of Municipal Preferred,
entitling the holder thereof to one vote. Subject to subparagraph (b) of this
paragraph 5, the holders of outstanding Common Shares and Preferred Shares,
including Municipal Preferred, voting together as a single class, shall elect
the balance of the trustees.
(b) VOTING FOR ADDITIONAL TRUSTEES.
(i) VOTING PERIOD. During any period in which any one or more
of the conditions described in subparagraphs (A) or (B) of this
subparagraph (b)(i) shall exist (such period being referred to herein
as a "Voting Period"), the number of trustees constituting the Board of
Trustees shall be automatically increased by the smallest number that,
when added to the two trustees elected exclusively by the holders of
Preferred Shares, including shares of Municipal Preferred, would
constitute a majority of the Board of Trustees as so increased by such
smallest number; and the holders of Preferred Shares, including
Municipal Preferred, shall be entitled, voting as a class on a
one-vote-per-share basis (to the exclusion of the holders of all other
securities and classes of shares of beneficial interest of the Trust),
to elect such smallest number of additional trustees, together with the
two trustees that such holders are in any event entitled to elect. A
Voting Period shall commence:
(A) if at the close of business on any dividend
payment date accumulated dividends (whether or not earned or
declared) on any outstanding Preferred Share, including
Municipal Preferred, equal to at least two full years'
dividends shall be due and unpaid and sufficient cash or
specified securities shall not have been deposited with the
Auction Agent for the payment of such accumulated dividends;
or
(B) if at any time holders of Preferred Shares are
entitled under the 1940 Act to elect a majority of the
trustees of the Trust.
Upon the termination of a Voting Period, the voting rights described in this
subparagraph (b)(i) shall cease, subject always, however, to the revesting of
such voting rights in the Holders upon the further occurrence of any of the
events described in this subparagraph (b)(i).
(ii) NOTICE OF SPECIAL MEETING. As soon as practicable after
the accrual of any right of the holders of Preferred Shares to elect
additional trustees as described in subparagraph (b)(i) of this
paragraph 5, the Trust shall notify the Auction Agent and the Auction
Agent shall call a special meeting of such holders, by mailing a notice
of such special meeting to such holders, such meeting to be held not
less than 10 nor more than 20 days after the date of mailing of such
notice. If the Trust fails to send such notice to the Auction Agent or
if the Auction Agent does not call such a special meeting, it may be
called by any such holder on like notice. The record date for
determining the holders entitled to notice of and to vote at such
special meeting shall be the close of business on the fifth Business
Day preceding the day on which such notice is mailed. At any such
special meeting and at each meeting of holders of Preferred Shares held
during a Voting Period at which trustees are to be elected, such
holders, voting together as a class (to the exclusion of the holders of
all other securities and classes of shares of beneficial interest of
the Trust), shall be entitled to elect the number of trustees
prescribed in subparagraph (b)(i) of this paragraph 5 on a
one-vote-per-share basis.
(iii) TERMS OF OFFICE OF EXISTING TRUSTEES. The terms of
office of all persons who are trustees of the Trust at the time of a
special meeting of Holders and holders of other Preferred Shares to
elect trustees shall continue, notwithstanding the election at such
meeting by the Holders and such other holders of the number of trustees
that they are entitled to elect, and the persons so elected by the
Holders and such other holders, together with the two incumbent
trustees elected by the Holders and such other holders of Preferred
Shares and the remaining incumbent trustees elected by the Holders of
the Common Shares and Preferred Shares, shall constitute the duly
elected trustees of the Trust.
(iv) TERMS OF OFFICE OF CERTAIN TRUSTEES TO TERMINATE UPON
TERMINATION OF VOTING PERIOD. Simultaneously with the termination of a
Voting Period, the term of office of the additional trustees elected by
the Holders and holders of other Preferred Shares pursuant to
subparagraph (b)(i) of this paragraph 5 shall terminate, the remaining
trustees shall constitute the trustees of the Trust and the voting
rights of the Holders and such other holders to elect additional
trustees pursuant to subparagraph (b)(i) of this paragraph 5 shall
cease, subject to the provisions of the last sentence of subparagraph
(b)(i) of this paragraph 5.
(c) HOLDERS OF MUNICIPAL PREFERRED TO VOTE ON CERTAIN OTHER MATTERS.
(i) INCREASES IN CAPITALIZATION. So long as any shares of
Municipal Preferred are outstanding, the Trust shall not, without the
affirmative vote or consent of the Holders of at least a majority of
the shares of Municipal Preferred outstanding at the time, in person or
by proxy, either in writing or at a meeting, voting as a separate
class: (a) authorize, create or issue any class or series of shares
ranking prior to or on a parity with shares of Municipal Preferred with
respect to the payment of dividends or the distribution of assets upon
dissolution, liquidation or winding up of the affairs of the Trust, or
authorize, create or issue additional shares of any series of Municipal
Preferred (except that, notwithstanding the foregoing, but subject to
the provisions of paragraph 10(c) of this Part I, the Board of
Trustees, without the vote or consent of the Holders of Municipal
Preferred, may from time to time authorize and create, and the Trust
may from time to time issue, additional shares of any series of
Municipal Preferred or classes or series of Preferred Shares ranking on
a parity with shares of Municipal Preferred with respect to the payment
of dividends and the distribution of assets upon dissolution,
liquidation or winding up of the affairs of the Trust; provided,
however, that if Moody's or S&P is not then rating the shares of
Municipal Preferred, the aggregate liquidation preference of all
Preferred Shares of the Trust outstanding after any such issuance,
exclusive of accumulated and unpaid dividends, may not exceed
$140,000,000) or (b) amend, alter or repeal the provisions of the
Declaration, the By-laws, or this Statement, whether by merger,
consolidation or otherwise, so as to materially affect any preference,
right or power of such shares of Municipal Preferred or the Holders
thereof; provided, however, that (i) none of the actions permitted by
the exception to (a) above will be deemed to affect such preferences,
rights or powers, (ii) a division of a share of Municipal Preferred
will be deemed to affect such preferences, rights or powers only if the
terms of such division adversely affect the Holders of shares of
Municipal Preferred and (iii) the authorization, creation and issuance
of classes or series of shares ranking junior to shares of Municipal
Preferred with respect to the payment of dividends and the distribution
of assets upon dissolution, liquidation or winding up of the affairs of
the Trust, will be deemed to affect such preferences, rights or powers
only if Moody's or S&P is then rating shares of Municipal Preferred and
such issuance would, at the time thereof, cause the Trust not to
satisfy the 1940 Act Municipal Preferred Asset Coverage or the
Municipal Preferred Basic Maintenance Amount. So long as any shares of
Municipal Preferred are outstanding, the Trust shall not, without the
affirmative vote or consent of the Holders of at least 66 2/3% of the
shares of Municipal Preferred outstanding at the time, in person or by
proxy, either in writing or at a meeting, voting as a separate class,
file a voluntary application for relief under Federal bankruptcy law or
any similar application under state law for so long as the Trust is
solvent and does not foresee becoming insolvent. If any action set
forth above would adversely affect the rights of one or more series
(the "Affected Series") of Municipal Preferred in a manner different
from any other series of Municipal Preferred, the Trust will not
approve any such action without the affirmative vote or consent of the
Holders of at least a majority of the shares of each such Affected
Series outstanding at the time, in person or by proxy, either in
writing or at a meeting (each such Affected Series voting at a separate
class).
(ii) 1940 ACT MATTERS. Unless a higher percentage is provided
for in the Declaration or this Statement, (A) the affirmative vote of
the Holders of at least a majority of the Preferred Shares, including
Municipal Preferred, outstanding at the time, voting as a separate
class, shall be required to approve any conversion of the Trust from a
closed-end to an open-end investment company and (B) the affirmative
vote of the Holders of a "majority of the outstanding Preferred
Shares," including Municipal Preferred, voting as a separate class,
shall be required to approve any plan of reorganization (as such term
is used in the 1940 Act) adversely affecting such shares. The
affirmative vote of the Holders of a "majority of the outstanding
Preferred Shares," including Municipal Preferred, voting as a separate
class, shall be required to approve any action not described in the
first sentence of this paragraph 5(c)(ii) requiring a vote of security
holders of the Trust under Section 13(a) of the 1940 Act. For purposes
of the foregoing, "majority of the outstanding Preferred Shares" means
(i) 67% or more of such shares present at a meeting, if the Holders of
more than 50% of such shares are present or represented by proxy, or
(ii) more than 50% of such shares, whichever is less. In the event a
vote of Holders of Municipal Preferred is required pursuant to the
provisions of Section 13(a) of the 1940 Act, the Trust shall, not later
than ten Business Days prior to the date on which such vote is to be
taken, notify Moody's (if Moody's is then rating the shares of
Municipal Preferred) and S&P (if S&P is then rating the shares of
Municipal Preferred) that such vote is to be taken and the nature of
the action with respect to which such vote is to be taken. The Trust
shall, not later than ten Business Days after the date on which such
vote is taken, notify Moody's (if Moody's is then rating the shares of
Municipal Preferred) and S&P (if S&P is then rating the shares of
Municipal Preferred) of the results of such vote.
(d) BOARD MAY TAKE CERTAIN ACTIONS WITHOUT SHAREHOLDER APPROVAL. The
Board of Trustees, without the vote or consent of the shareholders of the Trust,
may from time to time amend, alter or repeal any or all of the definitions of
the terms listed below, or any provision of this Statement viewed by Moody's or
S&P as a predicate for any such definition, and any such amendment, alteration
or repeal will not be deemed to affect the preferences, rights or powers of
shares of Municipal Preferred or the Holders thereof; provided, however, that
the Board of Trustees receives written confirmation from Moody's (such
confirmation being required to be obtained only in the event Moody's is rating
the shares of Municipal Preferred and in no event being required to be obtained
in the case of the definitions of (x) Deposit Securities, Discounted Value, and
Other Issues as such terms apply to S&P Eligible Asset and (y) Pricing Services,
S&P Discount Factor, S&P Eligible Asset, S&P Exposure Period, S&P Volatility
Factor) and S&P (such confirmation being required to be obtained only in the
event S&P is rating the shares of Municipal Preferred and in no event being
required to be obtained in the case of the definitions of (x) Discounted Value,
and Other Issues as such terms apply to Moody's Eligible Asset, and (y) Moody's
Discount Factor, Moody's Eligible Asset, Moody's Exposure Period and Moody's
Volatility Factor) that any such amendment, alteration or repeal would not
impair the ratings then assigned by Moody's or S&P, as the case may be, to
shares of Municipal Preferred:
Deposit Securities Escrowed Bonds
Discounted Value Market Value
Maximum Potential Gross-up Payment Moody's Exposure Period
Liability Moody's Volatility Factor
Municipal Preferred Basic Maintenance 1940 Act Cure Date
Amount
Municipal Preferred Basic Maintenance 1940 Act Municipal Preferred
Cure Date Asset Coverage
Municipal Preferred Basic Maintenance Other Issues
Report Pricing Services
Moody's Discount Factor Quarterly Valuation Date
Moody's Eligible Asset
S&P Discount Factor
S&P Eligible Asset
S&P Exposure Period
S&P Volatility Factor
Valuation Date
Volatility Factor
(e) VOTING RIGHTS SET FORTH HEREIN ARE SOLE VOTING RIGHTS. Unless
otherwise required by law, the By-laws, this Statement or by the Declaration,
the Holders of shares of Municipal Preferred shall not have any relative rights
or preferences or other special rights other than those specifically set forth
herein.
(f) NO PREEMPTIVE RIGHTS OR CUMULATIVE VOTING. The Holders of shares of
Municipal Preferred shall have no preemptive rights or rights to cumulative
voting.
(g) VOTING FOR TRUSTEES SOLE REMEDY FOR TRUST'S FAILURE TO PAY
DIVIDENDS. In the event that the Trust fails to pay any dividends on the shares
of Municipal Preferred, the exclusive remedy of the Holders shall be the right
to vote for Trustees pursuant to the provisions of this paragraph 5.
(h) HOLDERS ENTITLED TO VOTE. For purposes of determining any rights of
the Holders to vote on any matter, whether such right is created by the By-laws,
this Statement, by the other provisions of this Statement or the Declaration, by
statute or otherwise, no Holder shall be entitled to vote any share of Municipal
Preferred and no share of Municipal Preferred shall be deemed to be
"outstanding" for the purpose of voting or determining the number of shares
required to constitute a quorum if, prior to or concurrently with the time of
determination of shares entitled to vote or shares deemed outstanding for quorum
purposes, as the case may be, the requisite Notice of Redemption with respect to
such shares shall have been mailed as provided in paragraph 11(c) of this Part I
and the Redemption Price for the redemption of such shares shall have been
deposited in trust with the Auction Agent for that purpose. No shares of
Municipal Preferred held by the Trust or any affiliate of the Trust (except for
shares held by a Broker-Dealer that is an affiliate of the Trust for the account
of its customers) shall have any voting rights or be deemed to be outstanding
for voting or other purposes.
6. 1940 ACT MUNICIPAL PREFERRED ASSET COVERAGE.
The Trust shall maintain, as of the last Business Day of each month in
which any share of Municipal Preferred is outstanding, the 1940 Act Municipal
Preferred Asset Coverage.
7. MUNICIPAL PREFERRED BASIC MAINTENANCE AMOUNT.
(a) So long as shares of Municipal Preferred are outstanding, the Trust
shall maintain, on each Valuation Date, and shall verify to its satisfaction
that it is maintaining on such Valuation Date, (i) S&P Eligible Assets having an
aggregate Discounted Value equal to or greater than the Municipal Preferred
Basic Maintenance Amount (if S&P is then rating the shares of Municipal
Preferred) and (ii) Moody's Eligible Assets having an aggregate Discounted Value
equal to or greater than the Municipal Preferred Basic Maintenance Amount (if
Moody's is then rating the shares of Municipal Preferred).
(b) On or before 5:00 P.M., New York City time, on the third Business
Day after a Valuation Date on which the Trust fails to satisfy the Municipal
Preferred Basic Maintenance Amount, and on the third Business Day after the
Municipal Preferred Basic Maintenance Cure Date with respect to such Valuation
Date, the Trust shall complete and deliver to S&P (if S&P is then rating the
shares of Municipal Preferred), Moody's (if Moody's is then rating the shares of
Municipal Preferred) and the Auction Agent (if either S&P or Moody's is then
rating the shares of Municipal Preferred) a Municipal Preferred Basic
Maintenance Report as of the date of such failure or such Municipal Preferred
Basic Maintenance Cure Date, as the case may be, which will be deemed to have
been delivered to the Auction Agent if the Auction Agent receives a copy of
telecopy, telex or other electronic transcription thereof and on the same day
the Trust mails to the Auction Agent for delivery on the next Business Day the
full Municipal Preferred Basic Maintenance Report.
The Trust shall also deliver a Municipal Preferred Basic Maintenance
Report to the Auction Agent, Moody's (if Moody's is then rating the shares of
Municipal Preferred) and S&P (if S&P is then rating the shares of Municipal
Preferred) as of any Quarterly Valuation Date, in each case on or before the
third Business Day after such day, and S&P, as of any biweekly Valuation Date,
in each case on or before the third Business Day after such day for the first
year. The Trust will also deliver a Municipal Preferred Basic Maintenance Report
to Moody's (if Moody's is then rating the shares of the Municipal Preferred) and
S&P (if S&P is then rating the shares of the Municipal Preferred) if and when
requested by S&P or Moody's for any Valuation Date, on or before the third
Business Day after such request. A failure by the Trust to deliver a Municipal
Preferred Basic Maintenance Report pursuant to the preceding sentence shall be
deemed to be delivery of a Municipal Preferred Basic Maintenance Report
indicating the Discounted Value for all assets of the Trust is less than the
Municipal Preferred Basic Maintenance Amount, as of the relevant Valuation Date.
(c) Within ten Business Days after the date of delivery of a Municipal
Preferred Basic Maintenance Report in accordance with subparagraph (b) of this
paragraph 7 relating to a Quarterly Valuation Date, the Trust shall cause the
Independent Accountant to confirm in writing to S&P (if S&P is then rating the
shares of Municipal Preferred), Moody's (if Moody's is then rating the shares of
Municipal Preferred) and the Auction Agent (if either S&P or Moody's is then
rating the shares of Municipal Preferred) (i) the mathematical accuracy of the
calculations reflected in such Report (and in any other Municipal Preferred
Basic Maintenance Report, randomly selected by the Independent Accountant, that
was delivered by the Trust during the quarter ending on such Quarterly Valuation
Date); (ii) that, in such Report (and in such randomly selected Report), the
Trust determined in accordance with this paragraph whether the Trust had, at
such Quarterly Valuation Date (and at the Valuation Date addressed in such
randomly-selected Report), S&P Eligible Assets (if S&P is then rating the shares
of Municipal Preferred) of an aggregate Discounted Value at least equal to the
Municipal Preferred Basic Maintenance Amount and Moody's Eligible Assets (if
Moody's is then rating the shares of Municipal Preferred) of an aggregate
Discounted Value at least equal to the Municipal Preferred Basic Maintenance
Amount (such confirmation being herein called the "Accountant's Confirmation");
(iii) the written or published price quotations used in such calculations
conform to such written or published price quotations; and (iv) the eligible
assets held in the issuer's portfolio conform to the definition of "S&P Eligible
Assets."
(d) Within ten Business Days after the date of delivery of a Municipal
Preferred Basic Maintenance Report in accordance with subparagraph (b) of this
paragraph 7 relating to any Valuation Date on which the Trust failed to satisfy
the Municipal Preferred Basic Maintenance Amount, and relating to the Municipal
Preferred Basic Maintenance Cure Date with respect to such failure to satisfy
the Municipal Preferred Basic Maintenance Amount, the Trust shall cause the
Independent Accountant to provide to S&P (if S&P is then rating the shares of
Municipal Preferred), Moody's (if Moody's is then rating the shares of Municipal
Preferred) and the Auction Agent (if either S&P or Moody's is then rating the
shares of Municipal Preferred) an Accountant's Confirmation as to such Municipal
Preferred 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 Municipal
Preferred Basic Maintenance Report for a particular Valuation Date for which
such Accountant's Confirmation was required to be delivered, or shows that a
lower aggregate Discounted Value for the aggregate of all S&P Eligible Assets
(if S&P is then rating the shares of Municipal Preferred) or Moody's Eligible
Assets (if Moody's is then rating the shares of Municipal Preferred), as the
case may be, of the Trust 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 Trust, and the Trust shall
accordingly amend and deliver the Municipal Preferred Basic Maintenance Report
to S&P (if S&P is then rating the shares of Municipal Preferred), Moody's (if
Moody's is then rating the shares of Municipal Preferred) and the Auction Agent
(if either S&P or Moody's is then rating the shares of Municipal Preferred)
promptly following receipt by the Trust of such Accountant's Confirmation.
(f) On or before 5:00 p.m., New York City time, on the first Business
Day after the Date of Original Issue of any shares of Municipal Preferred, the
Trust shall complete and deliver to S&P (if S&P is then rating the shares of
Municipal Preferred) and Moody's (if Moody's is then rating the shares of
Municipal Preferred) a Municipal Preferred 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 Trust shall cause the Independent Accountant to
confirm in writing to S&P (if S&P is then rating the shares of Municipal
Preferred) (i) the mathematical accuracy of the calculations reflected in such
Report and (ii) that the Discounted Value of S&P Eligible Assets reflected
thereon equals or exceeds the Municipal Preferred Basic Maintenance Amount
reflected thereon.
(g) On or before 5:00 p.m., New York City time, on the third Business
Day after either (i) the Trust shall have redeemed Common or Preferred Shares or
(ii) the ratio of the Discounted Value of S&P Eligible Assets or the Discounted
Value of Moody's Eligible Assets to the Municipal Preferred Basic Maintenance
Amount is less than or equal to 110%, the Trust shall complete and deliver to
S&P (if S&P is then rating the shares of Municipal Preferred) or Moody's (if
Moody's is then rating the shares of Municipal Preferred), as the case may be, a
Municipal Preferred Basic Maintenance Report as of the date of either such
event.
8. [RESERVED].
9. RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS.
(a) DIVIDENDS ON PREFERRED SHARES OTHER THAN MUNICIPAL PREFERRED.
Except as set forth in the next sentence, no dividends shall be declared or paid
or set apart for payment on the shares of any class or series of shares of
beneficial interest of the Trust ranking, as to the payment of dividends, on a
parity with shares of Municipal Preferred for any period unless full cumulative
dividends have been or contemporaneously are declared and paid on the shares of
each series of Municipal Preferred through its most recent Dividend Payment
Date. When dividends are not paid in full upon the shares of each series of
Municipal Preferred through its most recent Dividend Payment Date or upon the
shares of any other class or series of shares of beneficial interest of the
Trust ranking on a parity as to the payment of dividends with shares of
Municipal Preferred through their most recent respective dividend payment dates,
all dividends declared upon shares of Municipal Preferred and any other such
class or series of shares of beneficial interest ranking on a parity as to the
payment of dividends with shares of Municipal Preferred shall be declared pro
rata so that the amount of dividends declared per share on shares of Municipal
Preferred and such other class or series of shares of beneficial interest shall
in all cases bear to each other the same ratio that accumulated dividends per
share on the shares of Municipal Preferred and such other class or series of
shares of beneficial interest bear to each other (for purposes of this sentence,
the amount of dividends declared per share of Municipal Preferred shall be based
on the Applicable Rate for such shares for the Dividend Periods during which
dividends were not paid in full).
(b) DIVIDENDS AND OTHER DISTRIBUTIONS WITH RESPECT TO COMMON SHARES
UNDER THE 1940 ACT. The Board of Trustees shall not declare any dividend (except
a dividend payable in Common Shares), or declare any other distribution, upon
the Common Shares, or purchase Common Shares, unless in every such case the
Preferred Shares have, at the time of any such declaration or purchase, an asset
coverage (as defined in and determined pursuant to the 1940 Act) of at least
200% (or such other asset coverage as may in the future be specified in or under
the 1940 Act as the minimum asset coverage for senior securities which are
shares or stock of a closed-end investment company as a condition of declaring
dividends on its common shares or stock) after deducting the amount of such
dividend, distribution or purchase price, as the case may be.
(c) OTHER RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS. For so
long as any share of Municipal Preferred is outstanding, and except as set forth
in subparagraph (a) of this paragraph 9 and paragraph 12(c) of this Part I, (A)
the Trust shall not declare, pay or set apart for payment any dividend or other
distribution (other than a dividend or distribution paid in shares of, or in
options, warrants or rights to subscribe for or purchase, Common Shares or other
shares, if any, ranking junior to the shares of Municipal Preferred as to the
payment of dividends and the distribution of assets upon dissolution,
liquidation or winding up) in respect of the Common Shares or any other shares
of the Trust ranking junior to or on a parity with the shares of Municipal
Preferred as to the payment of dividends or the distribution of assets upon
dissolution, liquidation or winding up, or call for redemption, redeem, purchase
or otherwise acquire for consideration any Common Shares or any other such
junior shares (except by conversion into or exchange for shares of the Trust
ranking junior to the shares of Municipal Preferred as to the payment of
dividends and the distribution of assets upon dissolution, liquidation or
winding up), or any such parity shares (except by conversion into or exchange
for shares of the Trust ranking junior to or on a parity with Municipal
Preferred as to the payment of dividends and the distribution of assets upon
dissolution, liquidation or winding up), unless (i) full cumulative dividends on
shares of each series of Municipal Preferred through its most recently ended
Dividend Period shall have been paid or shall have been declared and sufficient
funds for the payment thereof deposited with the Auction Agent and (ii) the
Trust has redeemed the full number of shares of Municipal Preferred required to
be redeemed by any provision for mandatory redemption pertaining thereto, and
(B) the Trust shall not declare, pay or set apart for payment any dividend or
other distribution (other than a dividend or distribution paid in shares of, or
in options, warrants or rights to subscribe for or purchase, Common Shares or
other shares, if any, ranking junior to shares of Municipal Preferred as to the
payment of dividends and the distribution of assets upon dissolution,
liquidation or winding up) in respect of Common Shares or any other shares of
the Trust ranking junior to shares of Municipal Preferred as to the payment of
dividends or the distribution of assets upon dissolution, liquidation or winding
up, or call for redemption, redeem, purchase or otherwise acquire for
consideration any Common Shares or any other such junior shares (except by
conversion into or exchange for shares of the Trust ranking junior to shares of
Municipal Preferred as to the payment of dividends and the distribution of
assets upon dissolution, liquidation or winding up), unless immediately after
such transaction the Discounted Value of Moody's Eligible Assets (if Moody's is
then rating the shares of Municipal Preferred) and S&P Eligible Assets (if S&P
is then rating the shares of Municipal Preferred) would each at least equal the
Municipal Preferred Basic Maintenance Amount.
10. RATING AGENCY RESTRICTIONS.
For so long as any shares of Municipal Preferred are outstanding and
Moody's or S&P, or both, are rating such shares, the Trust will not, unless it
has received confirmation from Moody's or S&P, or both, as appropriate, that any
such action would not impair the ratings then assigned by such rating agency to
such shares, engage in any one or more of the following transactions:
(a) 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 except that the
Trust may purchase or sell futures contracts based on the Bond Buyer Municipal
Bond Index (the "Municipal Index") or United States Treasury Bonds or Notes
("Treasury Bonds") and write, purchase or sell put and call options on such
contracts (collectively, "Hedging Transactions"), subject to the following
limitations:
(i) the Trust will not engage in any Hedging Transaction based
on the Municipal Index (other than transactions which terminate a
futures contract or option held by the Trust by the Trust's taking an
opposite position thereto ("Closing Transactions")), which would cause
the Trust at the time of such transaction to own or have sold the least
of (A) more than 1,000 outstanding futures contracts based on the
Municipal Index, (B) outstanding futures contracts based on the
Municipal Index exceeding in number 25% of the quotient of the Market
Value of the Trust's total assets divided by $1,000 or (C) outstanding
futures contracts based on the Municipal Index exceeding in number 10%
of the average number of daily open interest futures contracts based on
the Municipal Index in the 30 days preceding the time of effecting such
transaction as reported by The Wall Street Journal;
(ii) the Trust will not engage in any Hedging Transaction
based on Treasury Bonds (other than Closing Transactions) which would
cause the Trust at the time of such transaction to own or have sold the
lesser of (A) outstanding futures contracts based on Treasury Bonds
exceeding in number 50% of the quotient of the Market Value of the
Trust's total assets divided by $100,000 ($200,000 in the case of the
two-year United States Treasury Note) or (B) outstanding futures
contracts based on Treasury Bonds exceeding in number 10% of the
average number of daily traded futures contracts based on Treasury
Bonds in the 30 days preceding the time of effecting such transaction
as reported by The Wall Street Journal;
(iii) the Trust will engage in Closing Transactions to close
out any outstanding futures contract which the Trust owns or has sold
or any outstanding option thereon owned by the Trust in the event (A)
the Trust does not have S&P Eligible Assets or Moody's Eligible Assets,
as the case may be, with an aggregate Discounted Value equal to or
greater than the Municipal Preferred Basic Maintenance Amount on two
consecutive Valuation Dates and (B) the Trust is required to pay
Variation Margin on the second such Valuation Date;
(iv) the Trust will engage in a Closing Transaction to close
out any outstanding futures contract or option thereon in the month
prior to the delivery month under the terms of such futures contract or
option thereon unless the Trust holds the securities deliverable under
such terms; and
(v) when the Trust writes a futures contract or option
thereon, it will either maintain an amount of cash, cash equivalents or
high grade (rated A or better by S&P or Moody's, as the case may be),
fixed-income securities in a segregated account with the Trust's
custodian, so that the amount so segregated plus the amount of Initial
Margin and Variation Margin held in the account of or on behalf of the
Trust's broker with respect to such futures contract or option equals
the Market Value of the futures contract or option, or, in the event
the Trust writes a futures contract or option thereon which requires
delivery of an underlying security, it shall hold such underlying
security in its portfolio.
For purposes of determining whether the Trust has S&P Eligible Assets
or Moody's Eligible Assets, as the case may be, Initial and Variation Margin
will not constitute eligible assets. Segregated Securities will constitute
eligible assets, discounted at the factor equal to the exposure period.
(b) borrow money, except that the Trust may, without obtaining the
written confirmation described above, borrow money for the purpose of clearing
securities transactions if (i) the Municipal Preferred Basic Maintenance Amount
would continue to be satisfied after giving effect to such borrowing (which
shall mean, for purposes of the calculation of the Municipal Preferred Basic
Maintenance Amount, adding the amount of the liability for such borrowing to the
calculation of the Municipal Preferred Basic Maintenance Amount under
subparagraph (F) under the definition of that term in Part I of this Statement)
and (ii) such borrowing (A) is privately arranged with a bank or other person
and is evidenced by a promissory note or other evidence of indebtedness that is
not intended to be publicly distributed or (B) is for "temporary purposes," is
evidenced by a promissory note or other evidence of indebtedness and is an
amount not exceeding 5 per centum of the value of the total assets of the Trust
at the time of the borrowing; for purposes of the foregoing, "temporary
purposes" means that the borrowing is to be repaid within sixty days and is not
to be extended or renewed;
(c) issue additional shares of any series of Municipal Preferred or any
class or series of shares ranking prior to or on a parity with shares of
Municipal Preferred with respect to the payment of dividends or the distribution
of assets upon dissolution, liquidation or winding up of the Trust, or reissue
any shares of Municipal Preferred previously purchased or redeemed by the Trust;
(d) engage in any short sales of securities;
(e) lend securities;
(f) merge or consolidate into or with any corporation;
(g) change the Trust's primary Pricing Services; or
(h) enter into reverse repurchase agreements.
11. REDEMPTION.
(a) OPTIONAL REDEMPTION.
(i) Subject to the provisions of subparagraph (v) of this
subparagraph (a), shares of Municipal Preferred of any series may be
redeemed, at the option of the Trust, as a whole or from time to time
in part, on the second Business Day preceding any Dividend Payment Date
for shares of such series, out of funds legally available therefor, at
a redemption price per share equal to the sum of $25,000 plus an amount
equal to accumulated but unpaid dividends thereon (whether or not
earned or declared) to (but not including) the date fixed for
redemption; provided, however, that (1) shares of a series of Municipal
Preferred may not be redeemed in part if after such partial redemption
fewer than 500 shares of such series remain outstanding; (2) unless
otherwise provided herein, shares of a series of Municipal Preferred
are redeemable by the Trust during the Initial Rate Period thereof only
on the second Business Day next preceding the last Dividend Payment
Date for such Initial Rate Period; and (3) subject to subparagraph (ii)
of this paragraph, (a) the Notice of Special Rate Period relating to a
Special Rate Period of shares of a series of Municipal Preferred, as
delivered to the Auction Agent and filed with the Secretary of the
Trust, may provide that shares of such series shall not be redeemable
during the whole or any part of such Special Rate Period (except as
provided in subparagraph (iv) of this subparagraph (a)) or shall be
redeemable during the whole or any part of such Special Rate Period
only upon payment of such redemption premium or premiums as shall be
specified therein ("Special Redemption Provisions").
(ii) A Notice of Special Rate Period relating to shares of a
series of Municipal Preferred for a Special Rate Period thereof may
contain Special Redemption Provisions only if the Trust's Board of
Trustees, after consultation with the Broker-Dealer or Broker-Dealers
for such Special Rate Period of shares of such series, determines that
such Special Redemption Provisions are in the best interest of the
Trust.
(iii) If fewer than all of the outstanding shares of a series
of Municipal Preferred are to be redeemed pursuant to subparagraph (i)
of this subparagraph (a), the number of shares of such series to be
redeemed shall be determined by the Board of Trustees, and such shares
shall be redeemed pro rata from the Holders of shares of such series in
proportion to the number of shares of such series held by such Holders.
(iv) Subject to the provisions of subparagraph (v) of this
subparagraph (a), shares of any series of Municipal Preferred may be
redeemed, at the option of the Trust, as a whole but not in part, out
of funds legally available therefor, on the first day following any
Dividend Period thereof included in a Rate Period consisting of more
than 364 Rate Period Days if, on the date of determination of the
Applicable Rate for shares of such series for such Rate Period, such
Applicable Rate equaled or exceeded on such date of determination the
Treasury Note Rate for such Rate Period, at a redemption price per
share equal to the sum of $25,000 plus an amount equal to accumulated
but unpaid dividends thereon (whether or not earned or declared) to
(but not including) to the date fixed for redemption.
(v) The Trust may not on any date mail a Notice of Redemption
pursuant to subparagraph (c) of this paragraph 11 in respect of a
redemption contemplated to be effected pursuant to this subparagraph
(a) unless on such date (a) the Trust has available Deposit Securities
with maturity or tender dates not later than the day preceding the
applicable redemption date and having a value not less than the amount
(including any applicable premium) due to Holders of shares of
Municipal Preferred by reason of the redemption of such shares on such
redemption date and (b) the Discounted Value of Moody's Eligible Assets
(if Moody's is then rating the shares of Municipal Preferred) and the
Discounted Value of S&P Eligible Assets (if S&P is then rating the
shares of Municipal Preferred) each at least equal the Municipal
Preferred Basic Maintenance Amount, and would at least equal the
Municipal Preferred Basic Maintenance Amount immediately subsequent to
such redemption if such redemption were to occur on such date. For
purposes of determining in clause (b) of the preceding sentence whether
the Discounted Value of Moody's Eligible Assets at least equals the
Municipal Preferred Basic Maintenance Amount, the Moody's Discount
Factors applicable to Moody's Eligible Assets shall be determined by
reference to the first Exposure Period longer than the Exposure Period
then applicable to the Trust, as described in the definition of Moody's
Discount Factor herein.
(b) MANDATORY REDEMPTION. The Trust shall redeem, at a redemption price
equal to $25,000 per share plus accumulated but unpaid dividends thereon
(whether or not earned or declared) to (but not including) the date fixed by the
Board of Trustees for redemption, certain of the shares of Municipal Preferred,
if the Trust fails to have either Moody's Eligible Assets with a Discounted
Value, or S&P Eligible Assets with a Discounted Value, greater than or equal to
the Municipal Preferred Basic Maintenance Amount or fails to maintain the 1940
Act Municipal Preferred Asset Coverage, in accordance with the requirements of
the rating agency or agencies then rating the shares of Municipal Preferred, and
such failure is not cured on or before the Municipal Preferred Basic Maintenance
Cure Date or the 1940 Act Cure Date, as the case may be (the "Cure Date"). The
number of shares of Municipal Preferred to be redeemed shall be equal to the
lesser of (i) the minimum number of shares of Municipal Preferred, together with
all other Preferred Shares subject to redemption or retirement, the redemption
of which, if deemed to have occurred immediately prior to the opening of
business on the Cure Date, would have resulted in the Trust's having both
Moody's Eligible Assets with a Discounted Value, and S&P Eligible Assets with a
Discounted Value, greater than or equal to the Municipal Preferred Basic
Maintenance Amount or maintaining the 1940 Act Municipal Preferred Asset
Coverage, as the case may be, on such Cure Date (provided, however, that if
there is no such minimum number of shares of Municipal Preferred and other
Preferred Shares the redemption or retirement of which would have had such
result, all shares of Municipal Preferred and Preferred Shares then outstanding
shall be redeemed), and (ii) the maximum number of shares of Municipal
Preferred, together with all other Preferred Shares subject to redemption or
retirement, that can be redeemed out of funds expected to be legally available
therefor in accordance with the Declaration, the By-laws, this Statement and
applicable law. In determining the shares of Municipal Preferred required to be
redeemed in accordance with the foregoing, the Trust shall allocate the number
required to be redeemed to satisfy the Municipal Preferred Basic Maintenance
Amount or the 1940 Act Municipal Preferred Asset Coverage, as the case may be,
pro rata among shares of Municipal Preferred and other Preferred Shares (and,
then pro rata among each series of Municipal Preferred) subject to redemption or
retirement. The Trust shall effect such redemption on the date fixed by the
Trust therefor, which date shall not be earlier than 20 days nor later than 40
days after such Cure Date, except that if the Trust does not have funds legally
available for the redemption of all of the required number of shares of
Municipal Preferred and other Preferred Shares which are subject to redemption
or retirement or the Trust otherwise is unable to effect such redemption on or
prior to 40 days after such Cure Date, the Trust shall redeem those shares of
Municipal Preferred and other Preferred Shares which it was unable to redeem on
the earliest practicable date on which it is able to effect such redemption. If
fewer than all of the outstanding shares of a series of Municipal Preferred are
to be redeemed pursuant to this subparagraph (b), the number of shares of such
series to be redeemed shall be redeemed pro rata from the Holders of shares of
such series in proportion to the number of shares of such series held by such
Holders.
(c) NOTICE OF REDEMPTION. If the Trust shall determine or be required
to redeem shares of a series of Municipal Preferred pursuant to subparagraph (a)
or (b) of this paragraph 11, it shall mail a Notice of Redemption with respect
to such redemption by first class mail, postage prepaid, to each Holder of the
shares of such series to be redeemed, at such Holder's address as the same
appears on the record books of the Trust on the record date established by the
Board of Trustees. Such Notice of Redemption shall be so mailed not less than 20
nor more than 45 days prior to the date fixed for redemption. Each such Notice
of Redemption shall state: (i) the redemption date; (ii) the number of shares of
Municipal Preferred to be redeemed and the series thereof; (iii) the CUSIP
number for shares of such series; (iv) the Redemption Price; (v) the place or
places where the certificate(s) for such shares (properly endorsed or assigned
for transfer, if the Board of Trustees shall so require and the Notice of
Redemption shall so state) are to be surrendered for payment of the Redemption
Price; (vi) that dividends on the shares to be redeemed will cease to accumulate
on such redemption date; and (vii) the provisions of this paragraph 11 under
which such redemption is made. If fewer than all shares of a series of Municipal
Preferred held by any Holder are to be redeemed, the Notice of Redemption mailed
to such Holder shall also specify the number of shares of such series to be
redeemed from such Holder. The Trust may provide in any Notice of Redemption
relating to an optional redemption contemplated to be effected pursuant to
subparagraph (a) of this paragraph 11 that such redemption is subject to one or
more conditions precedent and that the Trust shall not be required to make such
redemption unless each such condition shall have been satisfied at the time or
times and in the manner specified in such Notice of Redemption.
(d) NO REDEMPTION UNDER CERTAIN CIRCUMSTANCES. Notwithstanding the
provisions of subparagraphs (a) or (b) of this paragraph 11, if any dividends on
shares of a series of Municipal Preferred (whether or not earned or declared)
are in arrears, no shares of such series shall be redeemed unless all
outstanding shares of such series are simultaneously redeemed, and the Trust
shall not purchase or otherwise acquire any shares of such series; provided,
however, that the foregoing shall not prevent the purchase or acquisition of all
outstanding shares of such series pursuant to the successful completion of an
otherwise lawful purchase or exchange offer made on the same terms to, and
accepted by, Holders of all outstanding shares of such series.
(e) ABSENCE OF FUNDS AVAILABLE FOR REDEMPTION. To the extent that any
redemption for which Notice of Redemption has been mailed is not made by reason
of the absence of legally available funds therefor in accordance with the
Declaration, the By-laws, this Statement and applicable law, such redemption
shall be made as soon as practicable to the extent such funds become available.
Failure to redeem shares of Municipal Preferred shall be deemed to exist at any
time after the date specified for redemption in a Notice of Redemption when the
Trust shall have failed, for any reason whatsoever, to deposit in trust with the
Auction Agent the Redemption Price with respect to any shares of which such
Notice of Redemption has been mailed; provided, however, that the foregoing
shall not apply in the case of the Trust's failure to deposit in trust with the
Auction Agent the Redemption Price with respect to any shares where (1) the
Notice of Redemption relating to such redemption provided that such redemption
was subject to one or more conditions precedent and (2) any such condition
precedent shall not have been satisfied at the time or times and in the manner
specified in such Notice of Redemption. Notwithstanding the fact that the Trust
may not have redeemed shares of Municipal Preferred for which a Notice of
Redemption has been mailed, dividends may be declared and paid on shares of
Municipal Preferred and shall include those shares of Municipal Preferred for
which a Notice of Redemption has been mailed.
(f) AUCTION AGENT AS TRUSTEE OF REDEMPTION PAYMENTS BY TRUST. All
moneys paid to the Auction Agent for payment of the Redemption Price of shares
of Municipal Preferred called for redemption shall be held in trust by the
Auction Agent for the benefit of Holders of shares so to be redeemed.
(g) SHARES FOR WHICH NOTICE OF REDEMPTION HAS BEEN GIVEN ARE NO LONGER
OUTSTANDING. Provided a Notice of Redemption has been mailed pursuant to
subparagraph (c) of this paragraph 11, upon the deposit with the Auction Agent
(by noon on the Business Day fixed for redemption thereby, in funds available on
that Business Day in The City of New York, New York) of funds sufficient to
redeem the shares of Municipal Preferred that are the subject of such notice,
dividends on such shares shall cease to accumulate and such shares shall no
longer be deemed to be outstanding for any purpose, and all rights of the
Holders of the shares so called for redemption shall cease and terminate, except
the right of such Holders to receive the Redemption Price, but without any
interest or other additional amount, except as provided in paragraphs 2(e)(i)
and 3 of this Part I. Upon surrender in accordance with the Notice of Redemption
of the certificates for any shares so redeemed (properly endorsed or assigned
for transfer, if the Board of Trustees shall so require and the Notice of
Redemption shall so state), the Redemption Price shall be paid by the Auction
Agent to the Holders of shares of Municipal Preferred subject to redemption. In
the case that fewer than all of the shares represented by any such certificate
are redeemed, a new certificate shall be issued, representing the unredeemed
shares, without cost to the Holder thereof. The Trust shall be entitled to
receive from the Auction Agent, promptly after the date fixed for redemption,
any cash deposited with the Auction Agent in excess of (i) the aggregate
Redemption Price of the shares of Municipal Preferred called for redemption on
such date and (ii) all other amounts to which Holders of shares of Municipal
Preferred called for redemption may be entitled. Any funds so deposited that are
unclaimed at the end of 90 days from such redemption date shall, to the extent
permitted by law, be repaid to the Trust, after which time the Holders of shares
of Municipal Preferred so called for redemption may look only to the Trust for
payment of the Redemption Price and all other amounts to which they may be
entitled. The Trust shall be entitled to receive, from time to time after the
date fixed for redemption, any interest on the funds so deposited.
(h) COMPLIANCE WITH APPLICABLE LAW. In effecting any redemption
pursuant to this paragraph 11, the Trust shall use its best efforts to comply
with all applicable conditions precedent to effecting such redemption under the
1940 Act and any applicable Massachusetts law, but shall effect no redemption
except in accordance with the 1940 Act and any applicable Massachusetts law.
(i) ONLY WHOLE SHARES OF MUNICIPAL PREFERRED MAY BE REDEEMED. In the
case of any redemption pursuant to this paragraph 11, only whole shares of
Municipal Preferred shall be redeemed, and in the event that any provision of
the Declaration, the By-laws or this Statement would require redemption of a
fractional share, the Auction Agent shall be authorized to round up so that only
whole shares are redeemed.
12. LIQUIDATION RIGHTS.
(a) RANKING. The shares of a series of Municipal Preferred shall rank
on a parity with each other, with shares of any other series of Municipal
Preferred and with shares of any other series of Preferred Shares as to the
distribution of assets upon dissolution, liquidation or winding up of the
affairs of the Trust.
(b) DISTRIBUTIONS UPON LIQUIDATION. Upon the dissolution, liquidation
or winding up of the affairs of the Trust, whether voluntary or involuntary, the
Holders of shares of Municipal Preferred then outstanding shall be entitled to
receive and to be paid out of the assets of the Trust available for distribution
to its shareholders, before any payment or distribution shall be made on the
Common Shares or on any other class of shares of the Trust ranking junior to the
Municipal Preferred upon dissolution, liquidation or winding up, an amount equal
to the Liquidation Preference with respect to such shares plus an amount equal
to all dividends thereon (whether or not earned or declared) accumulated but
unpaid to (but not including) the date of final distributions in same-day funds,
together with any payments required to be made pursuant to paragraph 3 of this
Part I in connection with the liquidation of the Trust. After the payment to the
Holders of the shares of Municipal Preferred of the full preferential amounts
provided for in this subparagraph (b), the holders of Municipal Preferred as
such shall have no right or claim to any of the remaining assets of the Trust.
(c) PRO RATA DISTRIBUTIONS. In the event the assets of the Trust
available for distribution to the Holders of shares of Municipal Preferred upon
any dissolution, liquidation, or winding up of the affairs of the Trust, whether
voluntary or involuntary, shall be insufficient to pay in full all amounts to
which such Holders are entitled pursuant to subparagraph (b) of this paragraph
12, no such distribution shall be made on account of any shares of any other
class or series of Preferred Shares ranking on a parity with the shares of
Municipal Preferred with respect to the distribution of assets upon such
dissolution, liquidation or winding up unless proportionate distributive amounts
shall be paid on account of the shares of Municipal Preferred, ratably, in
proportion to the full distributable amounts for which holders of all such
parity shares are respectively entitled upon such dissolution, liquidation or
winding up.
(d) RIGHTS OF JUNIOR SHARES. Subject to the rights of the holders of
shares of any series or class or classes of shares ranking on a parity with the
shares of Municipal Preferred with respect to the distribution of assets upon
dissolution, liquidation or winding up of the affairs of the Trust, after
payment shall have been made in full to the Holders of the shares of Municipal
Preferred as provided in subparagraph (b) of this paragraph 12, but not prior
thereto, any other series or class or classes of shares ranking junior to the
shares of Municipal Preferred with respect to the distribution of assets upon
dissolution, liquidation or winding up of the affairs of the Trust shall,
subject to the respective terms and provisions (if any) applying thereto, be
entitled to receive any and all assets remaining to be paid or distributed, and
the Holders of the shares of Municipal Preferred shall not be entitled to share
therein.
(e) CERTAIN EVENTS NOT CONSTITUTING LIQUIDATION. Neither the sale of
all or substantially all of the property or business of the Trust, nor the
merger or consolidation of the Trust into or with any trust, corporation or
other entity nor the merger or consolidation of any trust, corporation or other
entity into or with the Trust shall be a dissolution, liquidation or winding up,
whether voluntary or involuntary, for the purposes of this paragraph 12.
13. MISCELLANEOUS.
(a) AMENDMENT OF THIS STATEMENT TO ADD ADDITIONAL SERIES. Subject to the
provisions of subparagraph (c) of paragraph 10 of this Part I, the Board of
Trustees may, by resolution duly adopted, without shareholder approval (except
as otherwise provided by this Statement or required by applicable law), amend
this Statement to (1) reflect any amendment hereto which the Board of Trustees
is entitled to adopt pursuant to the terms of this Statement without shareholder
approval or (2) add additional series of Municipal Preferred or additional
shares of a series of Municipal Preferred (and terms relating thereto) to the
series and shares of Municipal Preferred theretofore described thereon. Each
such additional series and all such additional shares shall be governed by the
terms of this Statement.
(b) [RESERVED]
(c) NO FRACTIONAL SHARES. No fractional shares of Municipal Preferred
shall be issued.
(d) STATUS OF SHARES OF MUNICIPAL PREFERRED REDEEMED, EXCHANGED OR
OTHERWISE ACQUIRED BY THE TRUST. Shares of Municipal Preferred which are
redeemed, exchanged or otherwise acquired by the Trust shall return to the
status of authorized and unissued Preferred Shares without designation as to
series.
(e) BOARD MAY RESOLVE AMBIGUITIES. To the extent permitted by
applicable law, the Board of Trustees may interpret, adjust or amend the
provisions of this Statement to resolve any inconsistency or ambiguity or to
remedy any formal defect, and may amend this Statement with respect to any
series of Municipal Preferred prior to this issuance of shares of such series.
(f) HEADINGS NOT DETERMINATIVE. The headings contained in this
Statement are for convenience of reference only and shall not affect the meaning
or interpretation of this Statement.
(g) NOTICES. All notices or communications, unless otherwise specified
in this Statement, shall be sufficiently given if in writing and delivered in
person or mailed by first-class mail, postage prepaid.
PART II
AUCTION PROCEDURES
1. ORDERS.
(a) Prior to the Submission Deadline on each Auction Date for shares of
a series of Municipal Preferred:
(i) each Beneficial Owner of shares of such series may submit
to its Broker-Dealer by telephone or otherwise information as to:
(A) the number of Outstanding shares, if any, of such
series held by such Beneficial Owner which such Beneficial
Owner desires to continue to hold without regard to the
Applicable Rate for shares of such series for the next
succeeding Rate Period of such shares;
(B) the number of Outstanding shares, if any, of such
series held by such Beneficial Owner which such Beneficial
Owner offers to sell if the Applicable Rate for shares of such
series for the next succeeding Rate Period of shares of such
series shall be less than the rate per annum specified by such
Beneficial Owner; and/or
(C) the number of Outstanding shares, if any, of such
series held by such Beneficial Owner which such Beneficial
Owner offers to sell without regard to the Applicable Rate for
shares of such series for the next succeeding Rate Period of
shares of such series; and
(ii) one or more Broker-Dealers, using lists of Potential
Beneficial Owners, shall in good faith for the purpose of conducting a
competitive Auction in a commercially reasonable manner, contact
Potential Beneficial Owners (by telephone or otherwise), including
Persons that are not Beneficial Owners, on such lists to determine the
number of shares, if any, of such series which each such Potential
Beneficial Owner offers to purchase if the Applicable Rate for shares
of such series for the next succeeding Rate Period of shares of such
series shall not be less than the rate per annum specified by such
Potential Beneficial Owner.
For purposes hereof, the communication by a Beneficial Owner or Potential
Beneficial Owner to a Broker-Dealer, or by a Broker-Dealer to the Auction Agent,
of information referred to in clause (i)(A), (i)(B), (i)(C), or (ii) of this
subparagraph (a) is hereinafter referred to as an "Order" and collectively as
"Orders" and each Beneficial Owner and each Potential Beneficial Owner placing
an Order with a Broker-Dealer, and such Broker-Dealer placing an Order with the
Auction Agent, is hereinafter referred to as a "Bidder" and collectively as
"Bidders"; an Order containing the information referred to in clause (i)(A) of
this subparagraph (a) is hereinafter referred to as a "Hold Order" and
collectively as "Hold Orders"; an Order containing the information referred to
in clause (i)(B) or (ii) of this subparagraph (a) is hereinafter referred to as
a "Bid" and collectively as "Bids"; and an Order containing the information
referred to in clause (i)(C) of this subparagraph (a) is hereinafter referred to
as a "Sell Order" and collectively as "Sell Orders."
(b) (i) A Bid by a Beneficial Owner or an Existing Holder of
shares of a series of Municipal Preferred subject to an Auction on any Auction
Date shall constitute an irrevocable offer to sell:
(A) the number of Outstanding shares of such series
specified in such Bid if the Applicable Rate for shares of
such series determined on such Auction Date shall be less than
the rate specified therein;
(B) such number or a lesser number of Outstanding
shares of such series to be determined as set forth in
paragraph 4(a)(iv) of this Part II if the Applicable Rate for
shares of such series determined on such Auction Date shall be
equal to the rate specified therein; or
(C) the number of Outstanding shares of such series
specified in such Bid if the rate specified therein shall be
higher than the Maximum Rate for shares of such series, or
such number or a lesser number of Outstanding shares of such
series to be determined as set forth in paragraph 4(b)(iii) of
this Part II if the rate specified therein shall be higher
than the Maximum Rate for shares of such series and Sufficient
Clearing Bids for shares of such series do not exist.
(ii) A Sell Order by a Beneficial Owner or an Existing Holder
of shares of a series of Municipal Preferred subject to an Auction on
any Auction Date shall constitute an irrevocable offer to sell:
(A) the number of Outstanding shares of such series
specified in such Sell Order; or
(B) such number or a lesser number of Outstanding
shares of such series as set forth in paragraph 4(b)(iii) of
this Part II if Sufficient Clearing Bids for shares of such
series do not exist;
provided, however, that a Broker-Dealer that is an Existing Holder with
respect to shares of a series of Municipal Preferred shall not be
liable to any Person for failing to sell such shares pursuant to a Sell
Order described in the proviso to paragraph 2(c) of this Part II if (1)
such shares were transferred by the Beneficial Owner thereof without
compliance by such Beneficial Owner or its transferee Broker-Dealer (or
other transferee person, if permitted by the Trust) with the provisions
of paragraph 7 of this Part II or (2) such Broker-Dealer has informed
the Auction Agent pursuant to the terms of its Broker-Dealer Agreement
that, according to such Broker-Dealer's records, such Broker-Dealer
believes it is not the Existing Holder of such shares.
(iii) A Bid by a Potential Beneficial Holder or a Potential
Holder of shares of a series of Municipal Preferred subject to an
Auction on any Auction Date shall constitute an irrevocable offer to
purchase:
(A) the number of Outstanding shares of such series
specified in such Bid if the Applicable Rate for shares of
such series determined on such Auction Date shall be higher
than the rate specified therein; or
(B) such number or a lesser number of Outstanding
shares of such series as set forth in paragraph 4(a)(v) of
this Part II if the Applicable Rate for shares of such series
determined on such Auction Date shall be equal to the rate
specified therein.
(c) No Order for any number of shares of Municipal Preferred other than
whole shares shall be valid.
2. SUBMISSION OF ORDERS BY BROKER-DEALERS TO AUCTION AGENT.
(a) Each Broker-Dealer shall submit in writing or over the internet to
the Auction Agent prior to the Submission Deadline on each Auction Date all
Orders for shares of Municipal Preferred of a series subject to an Auction on
such Auction Date obtained by such Broker-Dealer, designating itself (unless
otherwise permitted by the Trust) as an Existing Holder in respect of shares
subject to Orders submitted or deemed submitted to it by Beneficial Owners and
as a Potential Holder in respect of shares subject to Orders submitted to it by
Potential Beneficial Owners, and shall specify with respect to each Order for
such shares:
(i) the name of the Bidder placing such Order (which shall
be the Broker-Dealer unless otherwise permitted by the Trust);
(ii) the aggregate number of shares of such series that are
the subject of such Order;
(iii) to the extent that such Bidder is an Existing Holder of
shares of such series:
(A) the number of shares, if any, of such series
subject to any Hold Order of such Existing Holder;
(B) the number of shares, if any, of such series
subject to any Bid of such Existing Holder and the rate
specified in such Bid; and
(C) the number of shares, if any, of such series
subject to any Sell Order of such Existing Holder; and
(iv) to the extent such Bidder is a Potential Holder of shares
of such series, the rate and number of shares of such series specified
in such Potential Holder's Bid.
(b) If any rate specified in any Bid contains more than three figures
to the right of the decimal point, the Auction Agent shall round such rate up to
the next highest one thousandth (.001) of 1%.
(c) If an Order or Orders covering all of the Outstanding shares of
Municipal Preferred of a series held by any Existing Holder is not submitted to
the Auction Agent prior to the Submission Deadline, the Auction Agent shall deem
a Hold Order to have been submitted by or on behalf of such Existing Holder
covering the number of Outstanding shares of such series held by such Existing
Holder and not subject to Orders submitted to the Auction Agent; provided,
however, that if an Order or Orders covering all of the Outstanding shares of
such series held by any Existing Holder is not submitted to the Auction Agent
prior to the Submission Deadline for an Auction relating to a Special Rate
Period consisting of more than 28 Rate Period Days, the Auction Agent shall deem
a Sell Order to have been submitted by or on behalf of such Existing Holder
covering the number of outstanding shares of such series held by such Existing
Holder and not subject to Orders submitted to the Auction Agent.
(d) If one or more Orders of an Existing Holder is submitted to the
Auction Agent covering in the aggregate more than the number of Outstanding
shares of Municipal Preferred of a series subject to an Auction held by such
Existing Holder, such Orders shall be considered valid in the following order of
priority:
(i) all Hold Orders for shares of such series shall be
considered valid, but only up to and including in the aggregate the
number of Outstanding shares of such series held by such Existing
Holder, and if the number of shares of such series subject to such Hold
Orders exceeds the number of Outstanding shares of such series held by
such Existing Holder, the number of shares subject to each such Hold
Order shall be reduced pro rata to cover the number of Outstanding
shares of such series held by such Existing Holder;
(ii) (A) any Bid for shares of such series shall be considered
valid up to and including the excess of the number of
Outstanding shares of such series held by such Existing Holder
over the number of shares of such series subject to any Hold
Orders referred to in clause (i) above;
(B) subject to subclause (A), if more than one Bid of
an Existing Holder for shares of such series is submitted to
the Auction Agent with the same rate and the number of
Outstanding shares of such series subject to such Bids is
greater than such excess, such Bids shall be considered valid
up to and including the amount of such excess, and the number
of shares of such series subject to each Bid with the same
rate shall be reduced pro rata to cover the number of shares
of such series equal to such excess;
(C) subject to subclauses (A) and (B), if more than
one Bid of an Existing Holder for shares of such series is
submitted to the Auction Agent with different rates, such Bids
shall be considered valid in the ascending order of their
respective rates up to and including the amount of such
excess; and
(D) in any such event, the number, if any, of such
Outstanding shares of such series subject to any portion of
Bids considered not valid in whole or in part under this
clause (ii) shall be treated as the subject of a Bid for
shares of such series by or on behalf of a Potential Holder at
the rate therein specified; and
(iii) all Sell Orders for shares of such series shall be
considered valid up to and including the excess of the number of
Outstanding shares of such series held by such Existing Holder over the
sum of shares of such series subject to valid Hold Orders referred to
in clause (i) above and valid Bids referred to in clause (ii) above.
(e) If more than one Bid for one or more shares of a series of
Municipal Preferred is submitted to the Auction Agent by or on behalf of any
Potential Holder, each such Bid submitted shall be a separate Bid with the rate
and number of shares therein specified.
(f) Any Order submitted by a Beneficial Owner or a Potential Beneficial
Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior to
the Submission Deadline on any Auction Date, shall be irrevocable.
3. DETERMINATION OF SUFFICIENT CLEARING BIDS, WINNING BID RATE AND
APPLICABLE RATE.
(a) Not earlier than the Submission Deadline on each Auction Date for
shares of a series of Municipal Preferred, the Auction Agent shall assemble all
valid Orders submitted or deemed submitted to it by the Broker-Dealers in
respect of shares of such series (each such Order as submitted or deemed
submitted by a Broker-Dealer being hereinafter referred to individually as a
"Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order," as the
case may be, or as a "Submitted Order," and collectively as "Submitted Hold
Orders," "Submitted Bids" or "Submitted Sell Orders," as the case may be, or as
"Submitted Orders") and shall determine for such series:
(i) the excess of the number of Outstanding shares of such
series over the number of Outstanding shares of such series subject to
Submitted Hold Orders (such excess being hereinafter referred to as the
"Available Municipal Preferred" of such series);
(ii) from the Submitted Orders for shares of such series
whether:
(A) the number of Outstanding shares of such series
subject to Submitted Bids of Potential Holders specifying one
or more rates equal to or lower than the Maximum Rate for
shares of such series;
exceeds or is equal to the sum of:
(B) the number of Outstanding shares of such series
subject to Submitted Bids of Existing Holders specifying one
or more rates higher than the Maximum Rate for shares of such
series; and
(C) the number of Outstanding shares of such series
subject to Submitted Sell Orders
(in the event such excess or such equality exists (other than
because the number of shares of such series in subclauses (B)
and (C) above is zero because all of the Outstanding shares of
such series are subject to Submitted Hold Orders), such
Submitted Bids in subclause (A) above being hereinafter
referred to collectively as "Sufficient Clearing Bids" for
shares of such series); and
(iii) if Sufficient Clearing Bids for shares of such series
exist, the lowest rate specified in such Submitted Bids (the "Winning
Bid Rate" for shares of such series) which if:
(A) (I) each such Submitted Bid of Existing Holders
specifying such lowest rate and (II) all other such Submitted
Bids of Existing Holders specifying lower rates were rejected,
thus entitling such Existing Holders to continue to hold the
shares of such series that are subject to such Submitted Bids;
and
(B) (I) each such Submitted Bid of Potential Holders
specifying such lowest rate and (II) all other such Submitted
Bids of Potential Holders specifying lower rates were
accepted;
would result in such Existing Holders described in subclause (A) above
continuing to hold an aggregate number of Outstanding shares of such
series which, when added to the number of Outstanding shares of such
series to be purchased by such Potential Holders described in subclause
(B) above, would equal not less than the Available Municipal Preferred
of such series.
(b) Promptly after the Auction Agent has made the determinations
pursuant to subparagraph (a) of this paragraph 3, the Auction Agent shall advise
the Trust of the Maximum Rate for shares of the series of Municipal Preferred
for which an Auction is being held on the Auction Date and, based on such
determination, the Applicable Rate for shares of such series for the next
succeeding Rate Period thereof as follows:
(i) if Sufficient Clearing Bids for shares of such series
exist, that the Applicable Rate for all shares of such series for the
next succeeding Rate Period thereof shall be equal to the Winning Bid
Rate for shares of such series so determined;
(ii) if Sufficient Clearing Bids for shares of such series do
not exist (other than because all of the Outstanding shares of such
series are subject to Submitted Hold Orders), that the Applicable Rate
for all shares of such series for the next succeeding Rate Period
thereof shall be equal to the Maximum Rate for shares of such series;
or
(iii) if all of the Outstanding shares of such series are
subject to Submitted Hold Orders, that the Applicable Rate for all
shares of such series for the next succeeding Rate Period thereof shall
be as set forth in subparagraph (c) of this paragraph 3.
(c) For purposes of subparagraph (b)(iii) of this paragraph 3, the
Applicable Rate for shares of such series for the next succeeding Rate Period of
shares of such series shall be equal to the lesser of the Kenny Index (if such
Rate Period consists of fewer than 183 Rate Period Days) or the product of (A)
(I) the "AA" Composite Commercial Paper Rate on such Auction Date for such Rate
Period, if such Rate Period consists of fewer than 183 Rate Period Days; (II)
the Treasury Bill Rate on such Auction Date for such Rate Period, if such Rate
Period consists of more than 182 but fewer than 365 Rate Period Days; or (III)
the Treasury Note Rate on such Auction Date for such Rate Period, if such Rate
Period is more than 364 Rate Period Days (the rate described in the foregoing
clause (A)(I), (II) or (III), as applicable, being referred to herein as the
"Benchmark Rate") and (B) 1 minus the maximum marginal regular Federal
individual income tax rate applicable to ordinary income or the maximum marginal
regular Federal corporate income tax rate applicable to ordinary income,
whichever is greater; provided, however, that if the Trust has notified the
Auction Agent of its intent to allocate to shares of such series in such Rate
Period any net capital gains or other income taxable for Federal income tax
purposes ("Taxable Income"), the Applicable Rate for shares of such series for
such Rate Period will be (i) if the Taxable Yield Rate (as defined below) is
greater than the Benchmark Rate, then the Benchmark Rate, or (ii) if the Taxable
Yield Rate is less than or equal to the Benchmark Rate, then the rate equal to
the sum of (x) the lesser of the Kenny Index (if such Rate Period consists of
fewer than 183 Rate Period Days) or the product of the Benchmark Rate multiplied
by the factor set forth in the preceding clause (B) and (y) the product of the
maximum marginal regular Federal individual income tax rate applicable to
ordinary income or the maximum marginal regular Federal corporate income tax
applicable to ordinary income, whichever is greater, multiplied by the Taxable
Yield Rate. For purposes of the foregoing, "Taxable Yield Rate" means the rate
determined by (a) dividing the amount of Taxable Income available for
distribution per such share of Municipal Preferred by the number of days in the
Dividend Period in respect of which such Taxable Income is contemplated to be
distributed, (b) multiplying the amount determined in (a) above by 365 (in the
case of a Dividend Period of 7 Rate Period Days) or 360 (in the case of any
other Dividend Period), and (c) dividing the amount determined in (b) above by
$25,000.
4. ACCEPTANCE AND REJECTION OF SUBMITTED BIDS AND SUBMITTED SELL
ORDERS AND ALLOCATION OF SHARES. Existing Holders shall continue to hold the
shares of Municipal Preferred that are subject to Submitted Hold Orders, and,
based on the determinations made pursuant to subparagraph (a) of paragraph 3 of
this Part II, the Submitted Bids and Submitted Sell Orders shall be accepted or
rejected by the Auction Agent and the Auction Agent shall take such other action
as set forth below:
(a) If Sufficient Clearing Bids for shares of a series of Municipal
Preferred have been made, all Submitted Sell Orders with respect to shares of
such series shall be accepted and, subject to the provisions of subparagraphs
(d) and (e) of this paragraph 4, Submitted Bids with respect to shares of such
series shall be accepted or rejected as follows in the following order of
priority and all other Submitted Bids with respect to shares of such series
shall be rejected:
(i) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is higher than the Winning Bid Rate for shares
of such series shall be accepted, thus requiring each such Existing
Holder to sell the shares of Municipal Preferred subject to such
Submitted Bids;
(ii) Existing Holders' Submitted Bids for shares of such
series specifying any rate that is lower than the Winning Bid Rate for
shares of such series shall be rejected, thus entitling each such
Existing Holder to continue to hold the shares of Municipal Preferred
subject to such Submitted Bids;
(iii) Potential Holders' Submitted Bids for shares of such
series specifying any rate that is lower than the Winning Bid Rate for
shares of such series shall be accepted;
(iv) Existing Holders' Submitted Bids for shares of such
series specifying a rate that is equal to the Winning Bid Rate for
shares of such series shall be rejected, thus entitling such Existing
Holder to continue to hold the share of Municipal Preferred subject to
such Submitted Bid, unless the number of Outstanding shares of
Municipal Preferred subject to all such Submitted Bids shall be greater
than the number of shares of Municipal Preferred ("remaining shares")
in the excess of the Available Municipal Preferred of such series over
the number of shares of Municipal Preferred subject to Submitted Bids
described in clauses (ii) and (iii) of this subparagraph (a), in which
event such Submitted Bid of such Existing Holder shall be rejected in
part, and such Existing Holder shall be entitled to continue to hold
shares of Municipal Preferred subject to such Submitted Bid, but only
in an amount equal to the number of shares of Municipal Preferred of
such series obtained by multiplying the number of remaining shares by a
fraction, the numerator of which shall be the number of Outstanding
shares of Municipal Preferred held by such Existing Holder subject to
such Submitted Bid and the denominator of which shall be the aggregate
number of Outstanding shares of Municipal Preferred subject to such
Submitted Bids made by all such Existing Holders that specified a rate
equal to the Winning Bid Rate for shares of such series; and
(v) Potential Holder's Submitted Bids for shares of such
series specifying a rate that is equal to the Winning Bid Rate of
Shares of such series shall be accepted but only in an amount equal to
the number of shares of such series obtained by multiplying the number
of shares in the excess of the Available Municipal Preferred of such
series over the number of shares of Municipal Preferred subject to
Submitted Bids described in clauses (ii) through (iv) of this
subparagraph (a) by a fraction, the numerator of which shall be the
number of Outstanding shares of Municipal Preferred subject to such
Submitted Bids and the denominator of which shall be the aggregate
number of Outstanding shares of Municipal Preferred subject to such
Submitted Bids made by all such Potential Holders that specified a rate
equal to the Winning Bid Rate for shares of such series.
(b) If Sufficient Clearing Bids for shares of a series of Municipal
Preferred have not been made (other than because all of the Outstanding shares
of such series are subject to Submitted Hold Orders), subject to the provisions
of subparagraph (d) of this paragraph 4, Submitted Orders for shares of such
series shall be accepted or rejected as follows in the following order of
priority and all other Submitted Bids for shares of such series shall be
rejected:
(i) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is equal to or lower than the Maximum Rate for
shares of such series shall be rejected, thus entitling such Existing
Holders to continue to hold the shares of Municipal Preferred subject
to such Submitted Bids;
(ii) Potential Holders' Submitted Bids for shares of such
series specifying any rate that is equal to or lower than the Maximum
Rate for shares of such series shall be accepted; and
(iii) Existing Holder's Submitted Bids for shares of such
series specifying any rate that is higher than the Maximum Rate for
shares of such series and the Submitted Sell Orders for shares of such
series of each Existing Holder shall be accepted, thus entitling each
Existing Holder that submitted or on whose behalf was submitted any
such Submitted Bid or Submitted Sell Order to sell the shares of such
series subject to such Submitted Bid or Submitted Sell Order, but in
both cases only in an amount equal to the number of shares of such
series obtained by multiplying the number of shares of such series
subject to Submitted Bids described in clause (ii) of this subparagraph
(b) by a fraction, the numerator of which shall be the number of
Outstanding shares of such series held by such Existing Holder subject
to such Submitted Bid or Submitted Sell Order and the denominator of
which shall be the aggregate number of Outstanding shares of such
series subject to all such Submitted Bids and Submitted Sell Orders.
(c) If all of the Outstanding shares of a series of Municipal Preferred
are subject to Submitted Hold Orders, all Submitted Bids for shares of such
series shall be rejected.
(d) If, as a result of the procedures described in clause (iv) or (v)
of subparagraph (a) or clause (iii) of subparagraph (b) of this paragraph 4, any
Existing Holder would be entitled or required to sell, or any Potential Holder
would be entitled or required to purchase, a fraction of a share of a series of
Municipal Preferred on any Auction Date, the Auction Agent shall, in such manner
as it shall determine in its sole discretion, round up or down the number of
shares of Municipal Preferred of such series to be purchased or sold by any
Existing Holder or Potential Holder on such Auction Date as a result of such
procedures so that the number of shares so purchased or sold by each Existing
Holder or Potential Holder on such Auction Date shall be whole shares of
Municipal Preferred.
(e) If, as a result of the procedures described in clause (v) of
paragraph (a) of this paragraph 4, any Potential Holder would be entitled or
required to purchase less than a whole share of series of Municipal Preferred on
any Auction Date, the Auction Agent shall, in such manner as it shall determine
in its sole discretion, allocate shares of Municipal Preferred of such series
for purchase among Potential Holders so that only whole shares of Municipal
Preferred of such series are purchased on such Auction Date as a result of such
procedures by any Potential Holder, even if such allocation results in one or
more Potential Holders not purchasing shares of Municipal Preferred of such
series on such Auction Date.
(f) Based on the results of each Auction for shares of a series of
Municipal Preferred, the Auction Agent shall determine the aggregate number of
shares of such series to be purchased and the aggregate number of shares of such
series to be sold by Potential Holders and Existing Holders and, with respect to
each Potential Holder and Existing Holder, to the extent that such aggregate
number of shares to be purchased and such aggregate number of shares to be sold
differ, determine to which other Potential Holder(s) or Existing Holder(s) they
shall deliver, or from which other Potential Holder(s) or Existing Holder(s)
they shall receive, as the case may be, shares of Municipal Preferred of such
series. Notwithstanding any provision of the Auction Procedures or the
Settlement Procedures to the contrary, in the event an Existing Holder or
Beneficial Owner of shares of a series of Municipal Preferred with respect to
whom a Broker-Dealer submitted a Bid to the Auction Agent for such shares that
was accepted in whole or in part, or submitted or is deemed to have submitted a
Sell Order for such shares that was accepted in whole or in part, fails to
instruct its Agent Member to deliver such shares against payment therefor,
partial deliveries of shares of Municipal Preferred that have been made in
respect of Potential Holders' or Potential Beneficial Owners' Submitted Bids for
shares of such series that have been accepted in whole or in part shall
constitute good delivery to such Potential Holders and Potential Beneficial
Owners.
(g) Neither the Trust nor the Auction Agent nor any affiliate of either
shall have any responsibility or liability with respect to the failure of an
Existing Holder, a Potential Holder, a Beneficial Owner, a Potential Beneficial
Owner or its respective Agent Member to deliver shares of Municipal Preferred of
any series or to pay for shares of Municipal Preferred of any series sold or
purchased pursuant to the Auction Procedures or otherwise.
5. NOTIFICATION OF ALLOCATIONS. Except as noted below, whenever the
Trust intends to include any net capital gain or other income taxable for
Federal income tax purposes in any dividend on shares of Municipal Preferred,
the Trust shall, in the case of a Minimum Rate Period or a Special Rate Period
of 28 Rate Period Days or fewer, and may, in the case of any other Special Rate
Period, notify the Auction Agent of the amount to be so included not later than
the Dividend Payment Date next preceding the Auction Date on which the
Applicable Rate for such dividend is to be established. Whenever the Auction
Agent receives such notice from the Trust, it will be required in turn to notify
each Broker-Dealer, who, on or prior to such Auction Date, in accordance with
its Broker-Dealer Agreement, will be required to notify its Beneficial Owners
and Potential Beneficial Owners of shares of Municipal Preferred believed by it
to be interested in submitting an Order in the Auction to be held on such
Auction Date. The Trust may also include such net capital gain or other income
taxable for federal income tax purposes in a dividend on shares of Municipal
Preferred without giving advance notice if the dividend is increased by a
Gross-up Payment. The Trust must 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.
6. AUCTION AGENT. For so long as any shares of Municipal Preferred are
outstanding, the Auction Agent, duly appointed by the Trust to so act, shall be
in each case a commercial bank, trust company or other financial institution
independent of the Trust and its affiliates (which however, may engage or have
engaged in business transactions with the Trust or its affiliates) and at no
time shall the Trust or any of its affiliates act as the Auction Agent in
connection with the Auction Procedures. If the Auction Agent resigns or for any
reason its appointment is terminated during any period that any shares of
Municipal Preferred are outstanding, the Board of Trustees shall use its best
efforts promptly thereafter to appoint another qualified commercial bank, trust
company or financial institution to act as the Auction Agent. The Auction
Agent's registry of Existing Holders of shares of a series of Municipal
Preferred shall be conclusive and binding on the Broker-Dealers. A Broker-Dealer
may inquire of the Auction Agent between 3:00 p.m. on the Business Day preceding
an Auction for shares of a series of Municipal Preferred and 9:30 a.m. on the
Auction Date for such Auction to ascertain the number of shares of a series in
respect of which the Auction Agent has determined such Broker-Dealer to be an
Existing Holder. If such Broker-Dealer believes it is the Existing Holder of
fewer shares of such series than specified by the Auction Agent in response to
such Broker-Dealer's inquiry, such Broker-Dealer may so inform the Auction Agent
of that belief. Such Broker-Dealer shall not, in its capacity as Existing Holder
of shares of such series, submit Orders in such Auction in respect of shares of
such series covering in the aggregate more than the number of shares of such
series specified by the Auction Agent in response to such Broker-Dealer's
inquiry.
7. TRANSFER OF SHARES OF MUNICIPAL PREFERRED. Unless otherwise
permitted by the Trust, a Beneficial Owner or an Existing Holder may sell,
transfer or otherwise dispose of shares of Municipal Preferred only in whole
shares and only pursuant to a Bid or Sell Order placed with the Auction Agent in
accordance with the procedures described in this Part II or to a Broker-Dealer;
provided, however, that (a) a sale, transfer or other disposition of shares of
Municipal Preferred from a customer of a Broker-Dealer who is listed on the
records of that Broker-Dealer as the holder of such shares to that Broker-Dealer
or another customer of that Broker-Dealer shall not be deemed to be a sale,
transfer or other disposition for purposes of this paragraph 7 if such
Broker-Dealer remains the Existing Holder of the shares so sold, transferred or
disposed of immediately after such sale, transfer or disposition and (b) in the
case of all transfers other than pursuant to Auctions, the Broker-Dealer (or
other Person, if permitted by the Trust) to whom such transfer is made shall
advise the Auction Agent of such transfer.
8. GLOBAL CERTIFICATE. Prior to the commencement of a Voting Period,
(i) all of the shares of a series of Municipal Preferred outstanding from time
to time shall be represented by one global certificate registered in the name of
the Securities Depository or its nominee and (ii) no registration of transfer of
shares of a series of Municipal Preferred shall be made on the books of the
Trust to any Person other than the Securities Depository or its nominee.
<PAGE>
MFS MUNICIPAL INCOME TRUST
CERTIFICATE
The undersigned hereby certifies that he is the Assistant Clerk and
Assistant Secretary of MFS Municipal Income Trust, a business trust organized
and existing under the laws of The Commonwealth of Massachusetts (the "Trust"),
that annexed hereto is the Statement creating two series of municipal auction
rate cumulative preferred shares, dated December 4, 2000, and establishing the
powers, qualifications, rights and preferences of the Municipal Auction Rate
Cumulative Preferred Shares, Series T and Series TH of the Trust, which
Statement has been adopted by the Board of Trustees of the Trust in a manner
provided in the Trust's Declaration of Trust.
Dated this ___ day of December, 2000.
James R. Bordewick, Jr.
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Assistant Clerk and Assistant Secretary
