Exhibit (a)(2)
MFS MUNICIPAL INCOME TRUST
STATEMENT DATED _________ __, 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 W and Municipal
Auction Rate Cumulative Preferred Shares, Series F. 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 W: A series of ______ 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 W" and is referred
to below as "Series W Municipal Preferred." Each share of Series W 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 W Municipal Preferred
shall constitute a separate series of Municipal Preferred of the Trust.
SERIES F: A series of ______ 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 F" and is referred
to below as "Series F Municipal Preferred." Each share of Series F 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 F Municipal Preferred
shall constitute a separate series of Municipal Preferred of the Trust.
<PAGE>
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.
<PAGE>
"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.
<PAGE>
"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 among the Trust, 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 ________ __, 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 SP1+ by S&P, except that, for purposes of subparagraph (a)(v) of
<PAGE>
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 W Municipal Preferred and Series F
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'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, (iii) are not
rated by S&P but have been determined to be legally defeased by Moody's, or
(iv) have been determined to be economically defeased by Moody's and assigned a
rating no lower than the rating that is Moody's equivalent of S&P's AAA rating.
"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 the Business Day next
preceding any Dividend Payment Date for shares of such series, in funds
available on such Dividend Payment Date in The City of New York, New York, the
full amount of any dividend (whether or not earned or declared) to be paid on
such Dividend Payment Date on any share of such series or (B) on the Business
Day next preceding any redemption date in funds available on such redemption
date for shares of such series in The City of New York, New York, the
Redemption Price to be paid on such redemption date for any 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
<PAGE>
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 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
<PAGE>
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."
"Late Charge" shall have the meaning specified in paragraph 2(e)(i)(B) of
Part I of this Statement.
"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 service designated from time to time by the Board of
Trustees. Market Value of any asset shall include any interest accrued thereon.
The pricing service will use current industry standards to value portfolio
securities. The pricing service may employ electronic data processing
techniques or a matrix system, or both, to determine valuations. Securities for
which quotations are not readily available shall be valued at fair value as
determined by the pricing service using methods which include consideration of
yields or prices of municipal bonds of comparable quality, type of issue,
coupon, maturity and rating; indications as to value from dealers; and general
market conditions. In the event the pricing service is unable to value a
security, the security shall be valued at the lower of two dealer bids obtained
by the Trust from dealers who are nationally recognized members of the National
Association of Securities Dealers, Inc. who are independent of the investment
advisor to the Trust and make a market in the security, at least one of which
shall be in writing. Futures contracts and options are valued at closing prices
for such instruments established by the exchange or board of trade on which
they are traded, or if market quotations are not readily available, are valued
at fair value on a consistent basis using methods determined in good faith by
the 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:
<PAGE>
(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:
Rating Category
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Exposure Period Aaa* Aa* A* Baa* Other** (V)MIG-1** SP-1+**** Unrated*****
7 weeks............. 151% 159% 166% 173% 187% 136% 148% 225%
8 weeks or less but
greater than seven 154 161 168 176 190 137 149 231
weeks...............
<PAGE>
9 weeks or less but
greater than eight
weeks............... 156 163 170 177 192 138 150 240
</TABLE>
* Moody's rating.
** Municipal Obligations not rated by Moody's but rated BBB by S&P.
*** Municipal Obligations rated MIG-1 or VMIG-1, which do not mature or
have a demand feature at par exercisable in 30 days and which do not
have a long-term rating.
**** Municipal Obligations not rated by Moody's 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.
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 to Receivables for
Municipal Obligations Sold 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 cash, Receivables for Municipal
Obligations Sold, futures, options and similar instruments (other than Inverse
Floaters and index warrants) 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, and (iv) is not subject to a covered call or a covered put option
written by the Trust. Municipal Obligations issued by any one issuer 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") may
comprise no more than 4% of total Moody's Eligible Assets; such Unrated Moody's
Municipal Obligations, if any, 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
<PAGE>
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 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 may comprise no more than 12% of total Moody's Eligible Assets;
such Unrated Moody's Municipal Obligations, if any, 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, Moody's
Eligible Assets shall be calculated without including cash, and Municipal
Obligations rated MIG-1, VMIG-1 or P-1 or, if not rated by Moody's, rated
A-1+/Aa or SP-1+/AA by S&P, shall be considered to have a long-term rating of
A. When the 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
<PAGE>
or futures contract; or (ii) deposited irrevocably for the payment of any
liabilities for purposes of determine the Municipal Preferred Basic Maintenance
Amount.
"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 ________ __, 2000 (the "Registration Statement").
"Municipal Preferred" shall mean the Municipal Auction Rate Cumulative
Preferred Shares, Series W and/or Series F 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
<PAGE>
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, short-term
Municipal Obligations rated MIG-1, VMIG-1 or P-1, and short-term securities
that are the direct obligation of the U.S. government, provided in each case
that such securities mature on or prior to the date upon which any of (i) (A)
through (i)(F) become payable, otherwise the Moody's Discounted Value or for
purposes of current S&P guides, the face value of cash, short-term municipal
securities rated "A-1+" or "SP-1+" and mature or have a demand feature
exercisable in 30 days or less, and short-term securities that are the direct
obligation of the U.S. government, provided in each case that such securities
mature on or prior to the date upon which any of (i)(A) through (i)(F) become
<PAGE>
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, Controller, Secretary or any Senior Vice President
or Vice President 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.
<PAGE>
"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
[________, ________ and ________] of each year, commencing on ________ __,
____with respect to Series W Municipal Preferred and Series F 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, 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:
Prevailing Rating Percentage
"aa3"/AA- or higher............................. 110%
"a3"/A-......................................... 125%
"baa3"/BBB-..................................... 150%
"ba3"/BB-....................................... 200%
Below "ba3"/BB-................................. 250%
provided, however, that in the event the Trust has notified the Auction Agent
of its intent to allocate income taxable for Federal income tax purposes to
shares of such series prior to the Auction establishing the Applicable Rate for
shares of such series, the applicable percentage in the foregoing table shall
be divided by the quantity 1 minus the maximum marginal 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.
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
<PAGE>
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.
"Receivables for Municipal Obligations Sold" shall mean (A) for purposes
of calculating Moody's Eligible Assets as of any Valuation Date, no more than
the aggregate of the following: (i) the book value of receivables for Municipal
Obligations sold as of or prior to such Valuation Date if such receivables are
due within five business days of such Valuation Date, and if the trades which
generated such receivables are (x) settled through clearing house firms with
respect to which the Trust has received prior written authorization from
Moody's or (y) with counterparties having a Moody's long-term debt rating of at
least Baa3; and (ii) the Moody's Discounted Value of Municipal Obligations sold
as of or prior to such Valuation Date which generated receivables, if such
receivables are due within five business days of such Valuation Date but do not
comply with either of the conditions specified in (i) above, and (B) for
purposes of calculating S&P Eligible Assets as of any Valuation Date, the book
value of receivables for Municipal Obligations sold as of or prior to such
Valuation Date if such receivables are due within five business days of such
Valuation Date.
"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."
<PAGE>
"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:
<PAGE>
Rating Category
Exposure Period AAA* AA* A* BBB* Unrated**
45 Business Days............................ 190% 195% 210% 250% 220%
25 Business Days............................ 170 175 190 230 220
10 Business Days............................ 155 160 175 215 220
7 Business Days........................... 150 155 170 210 220
3 Business Days........................... 130 135 150 190 220
--------------
* 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.
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; and further provided that such Moody's-rated
short-term Municipal Obligations may comprise no more than 50% of short-term
Municipal Obligations that qualify as S&P Eligible Assets; (ii) no S&P Discount
Factor will be applied to cash, futures, options, Inverse Floaters and similar
instruments or to Receivables for Municipal Obligations Sold; and (iii) except
as set forth in clause (i) above, in the case of any Municipal Obligation that
is not rated by S&P but qualifies as an S&P Eligible Asset pursuant to clause
(iii) of that definition, such Municipal Obligation will be deemed to have an
S&P rating one full rating category lower than the S&P rating category that is
the equivalent of the rating category in which such Municipal Obligation is
placed by 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.
"S&P Eligible Asset" shall mean cash (excluding any cash irrevocably
deposited by the Trust for the payment of any liabilities within the meaning of
Municipal Preferred Basic Maintenance Amount), Receivables for Municipal
Obligations Sold, futures, options, Inverse Floaters and similar instruments or
a Municipal Obligation owned by the Trust that (i) is interest bearing and pays
interest at least semi-annually; (ii) is payable with respect to principal and
interest in U.S. Dollars; (iii) is publicly rated BBB or higher by S&P or,
except in the case of Anticipation Notes that are Grant Anticipation Notes or
Bond Anticipation Notes which must be rated by S&P to be included in S&P
Eligible Assets, if not rated by S&P but rated by another nationally recognized
credit rating agency, is rated at least A by such agency; (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 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.
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
<PAGE>
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 or 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.
<PAGE>
"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.
<PAGE>
"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
<PAGE>
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 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.
<PAGE>
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 W Municipal Preferred and Friday, ________ __, ____ and each
Friday thereafter with respect to shares of Series F 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.
<PAGE>
(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 and the Trust shall have paid to the Auction
Agent a late charge ("Late Charge") equal to the sum of (1) if such
Failure to Deposit consisted of the failure timely to pay to the
Auction Agent the full amount of dividends with respect to any
Dividend Period of the shares of such series, an amount computed by
multiplying (x) 200% of the Reference Rate for the Rate Period
during which such Failure to Deposit occurs on the Dividend Payment
Date for such Dividend Period by (y) a fraction, the numerator of
which shall be the number of days for which such Failure to Deposit
has not been cured in accordance with subparagraph (f) of this
paragraph 2 (including the day such Failure to Deposit occurs and
excluding the day such Failure to Deposit is cured) and the
denominator of which shall be 360, and applying the rate obtained
against the aggregate Liquidation Preference of the outstanding
shares of such series and (2) if such Failure to Deposit consisted
of the failure timely to pay to the Auction Agent the Redemption
Price of the shares, if any, of such series for which Notice of
Redemption has been mailed by the Trust pursuant to paragraph 11(c)
of this Part I, an amount computed by multiplying (x) 200% of the
Reference Rate for the Rate Period during which such Failure to
Deposit occurs on the redemption date by (y) a fraction, the
numerator of which shall be the number of days for which such
Failure to Deposit is not cured in accordance with subparagraph (f)
of this paragraph 2 (including the day such Failure to Deposit
occurs and excluding the day such Failure to Deposit is cured) and
the denominator of which shall be 360, and applying the rate
obtained against the aggregate Liquidation Preference of the
outstanding shares of such series to be redeemed, no Auction will
be held in respect of shares of such series for the Subsequent Rate
Period thereof and the dividend rate for shares of such series for
<PAGE>
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 or the Trust shall not have paid the
applicable Late Charge to the Auction Agent, no Auction will be
held in respect of shares of such series for the first Subsequent
Rate Period thereof thereafter (or for any Rate Period thereof
thereafter to and including the Rate Period during which (1) such
Failure to Deposit is cured in accordance with subparagraph (f) of
this paragraph 2 and (2) the Trust pays the applicable Late Charge
to the Auction Agent (the condition set forth in this clause (2) to
apply only in the event Moody's is rating such shares at the time
the Trust cures such Failure to Deposit), in each case no later
than 12:00 Noon, New York City time, on the fourth Business Day
prior to the end of such Rate Period), and the dividend rate for
shares of such series for each such Subsequent Rate Period shall be
a rate per annum equal to the Maximum Rate for shares of such
series on the Auction Date for such Subsequent Rate Period (but
with the prevailing rating for shares of such series, for purposes
of determining such Maximum Rate, being deemed to be "Below
'ba3'/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 or, in the event Moody's is
then rating such shares, the Trust shall not have paid the
applicable Late Charge to the Auction Agent (such Late Charge, for
purposes of this subparagraph (D), to be calculated by using, as
the Reference Rate, the Reference Rate applicable to a Rate Period
(x) consisting of more than 182 Rate Period Days but fewer than 365
Rate Period Days and (y) commencing on the date on which the Rate
Period during which Failure to Deposit occurs commenced), no
Auction will be held in respect of shares of such series for such
Subsequent Rate Period (or for any Rate Period thereof thereafter
to and including the Rate Period during which (1) such Failure to
Deposit is cured in accordance with subparagraph (f) of this
paragraph 2 and (2) the Trust pays the applicable Late Charge to
the Auction Agent (the condition set forth in this clause (2) to
apply only in the event Moody's is rating such shares at the time
the Trust cures such Failure to Deposit), in each case no later
than 12:00 Noon, New York City time, on the fourth Business Day
prior to the end of such Rate Period), and the dividend rate for
shares of such series for each such Subsequent Rate Period shall be
a rate per annum equal to the Maximum Rate for shares of such
series on the Auction Date for such Subsequent Rate Period (but
with the prevailing rating for shares of such series, for purposes
<PAGE>
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 the
Business Day next preceding each Dividend Payment Date for shares of a series
of Municipal Preferred, an aggregate amount of funds available on the next
Business Day in The City of New York, New York, equal to the dividends to be
paid to all Holders of shares of such series on such Dividend Payment Date.
(h) AUCTION AGENT AS TRUSTEE OF DIVIDEND PAYMENTS BY TRUST. All moneys
paid to the Auction Agent for the payment of dividends (or for the payment of
any Late Charge) shall be held in trust for the payment of such dividends (and
any such Late Charge) by the Auction Agent for the benefit of the Holders
specified in 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 (and any such Late Charge) 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.
<PAGE>
(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 Payments
as follows:
(a) MINIMUM RATE PERIODS AND SPECIAL RATE PERIODS OF 28 RATE PERIOD DAYS
OR FEWER. If, in the case of any Minimum Rate Period or any Special Rate Period
of 28 Rate Period Days or fewer, the 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
calendar year in which such dividend was paid, 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 during such calendar year at such Holder's address as
the same appears or last appeared on the record books of the Trust.
(b) SPECIAL RATE PERIODS OF MORE THAN 28 RATE PERIOD DAYS. If, in the case
of any Special Rate Period of more than 28 Rate Period Days, the Trust makes a
Taxable Allocation to a dividend paid on shares of Municipal Preferred, the
Trust shall, prior to the end of the calendar year in which such dividend was
paid, provide notice thereof to the Auction Agent and direct the Trust's
dividend disbursing agent to send such notice with a Gross-up Payment to each
Holder of shares that was entitled to such dividend payment during such
calendar year at such Holder's address as the same appears or last appeared on
the record books of the Trust.
(c) 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.
<PAGE>
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 W 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 F 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 W 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 F 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,
<PAGE>
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
<PAGE>
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).
<PAGE>
(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
<PAGE>
(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 $[__________]) 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
<PAGE>
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, Receivables for
Municipal Obligations Sold and Other Issues as such terms apply to S&P Eligible
Asset and (y) 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, Receivables for Municipal Obligations Sold 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 Moody's Exposure Period
Payment Liability Moody's Volatility Factor
Municipal Preferred Basic 1940 Act Cure Date
Maintenance Amount
Municipal Preferred Basic 1940 Act Municipal Preferred
Maintenance Cure Date Asset Coverage
Municipal Preferred Basic Other Issues
Maintenance Report Quarterly Valuation Date
Moody's Discount Factor Receivables for Municipal
Moody's Eligible Asset Obligations Sold
S&P Discount Factor
S&P Eligible Asset
S&P Exposure Period
S&P Volatility Factor
Valuation Date
Volatility Factor
<PAGE>
(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
<PAGE>
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 (i) the Auction Agent (if either Moody's or S&P is then rating the
shares of Municipal Preferred) as of (A) the fifteenth day of each month (or,
if such day is not a Business Day, the next succeeding Business Day) and (B)
the last Business Day of each month, (ii) Moody's (if Moody's is then rating
the shares of 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 (iii) S&P, if and when
requested for any Valuation Date, on or before the third Business Day after
such request. A failure by the 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) and (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").
(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
<PAGE>
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 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 105%, 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.
<PAGE>
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
<PAGE>
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 written confirmation from Moody's or S&P, or both, as appropriate,
that any such action would not impair the ratings then assigned by such rating
agency to such shares, engage in any one or more of the following transactions:
(a) 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;
<PAGE>
(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, with a Discounted Value that
equals or exceeds the Municipal Preferred Basic Maintenance Amount, the
Discounted Value of cash or securities held for the payment of Initial Margin
or Variation Margin shall be zero and the aggregate Discounted Value of S&P
Eligible Assets or Moody's Eligible Assets, as the case may be, shall be
reduced by an amount equal to (I) 30% of the aggregate settlement value, as
marked to market, of any outstanding futures contracts based on the Municipal
Index which are owned by the Trust plus (II) 25% of the aggregate settlement
value, as marked to market, of any outstanding futures contracts based on
Treasury Bonds which contracts are owned by the Trust;
(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
<PAGE>
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 pricing service (currently both Muller Data Corporation and
Standard & Poor's J.J. Kenny Evaluation Services are used by the Trust)
referred to in the definition of Market Value to a pricing service other than
Muller Data Corporation or Standard & Poor's J.J. Kenny Evaluation 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").
<PAGE>
(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
<PAGE>
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
<PAGE>
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
(on the Business Day next preceding the date fixed for redemption thereby, in
funds available on the next 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
<PAGE>
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.
<PAGE>
(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
<PAGE>
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
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
<PAGE>
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) 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;
<PAGE>
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 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
<PAGE>
(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;
<PAGE>
(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:
<PAGE>
(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
<PAGE>
(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
<PAGE>
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) each Existing Holders' Submitted Bid for shares of such series
specifying a rate that is equal to the Winning Bid Rate for shares of
such series shall be rejected, thus entitling such Existing Holder to
continue to hold the 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) each Potential Holder's Submitted Bid 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:
<PAGE>
(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) Each Existing Holder's Submitted Bid for shares of such
series specifying any rate that is higher than the Maximum Rate for
shares of such series and the Submitted Sell Orders for shares of such
series of each Existing Holder shall be accepted, thus entitling each
Existing Holder that submitted or on whose behalf was submitted any such
Submitted Bid or Submitted Sell Order to sell the shares of such series
subject to such Submitted Bid or Submitted Sell Order, but in both cases
only in an amount equal to the number of shares of such series obtained
by multiplying the number of shares of such series subject to Submitted
Bids described in clause (ii) of this 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
<PAGE>
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. 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.
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
<PAGE>
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 [s]he is the __________ 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 ________ __, 2000, and establishing the powers, qualifications,
rights and preferences of the Municipal Auction Rate Cumulative Preferred
Shares, Series W and Series F 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 ________, 2000.
[Name of Officer]
[Title]
