<PAGE> 1
AS FILED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION ON JULY 20, 1999
SECURITIES ACT FILE NO. 333-77261
INVESTMENT COMPANY ACT FILE NO. 811-4992
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
(Check appropriate box or boxes)
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
-----------
Post-Effective Amendment No. 1 [X]
-----------
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 12 [X]
---------------
COLONIAL MUNICIPAL INCOME TRUST
(Exact Name of Registrant as Specified in Charter)
One Financial Center, Boston, Massachusetts 02111
(Address of Principal Executive Offices)
(617) 426-3750
(Registrant's Telephone Number, including Area Code)
Name and Address of
Agent for Service Copies to
<TABLE>
<S> <C> <C>
William J. Ballou, Esq. John M. Loder, Esq. Gary Schpero, Esq.
Colonial Management Associates, Inc. Ropes & Gray Simpson Thacher & Bartlett
One Financial Center One International Place 425 Lexington Avenue
Boston, Massachusetts 02111-2621 Boston, Massachusetts 02110-2624 New York, New York 10017-3954
</TABLE>
Explanatory Note: This Amendment is filed solely for the purpose of filing
Exhibits (b) and (k)(5) under Rule 462(d) under the Securities Act of 1933.
<PAGE> 2
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(2) Exhibits
(a)(1) Agreement and Declaration of Trust (1)
(a)(2) Amendment No. 1 to Agreement and Declaration of
Trust (1)
(b) Form of Amended and Restated By-Laws
(c) Not applicable
(d)(1) Portions of the Agreement and Declaration of
Trust as amended, included as Exhibit (a)(1) and
(a)(2), and the Form of Amended and Restated
By-Laws of the Registrant, included as Exhibit
(b) (See Article III, Sections 1, 2, 4 and 5;
Article V; Article VIII, Section 4; and Article
IX, Sections 4 and 7 of the Agreement and
Declaration of Trust, as amended, and Sections
2-3, 4(c), 5, and 9-12 of Part I of Section 12.1
and Sections 1-5 and 7 of Part II of Section
12.1 of the Form of Amended and Restated
By-laws)
(d)(2) Form of specimen certificate for the municipal
auction rate cumulative preferred shares (3)
(e) Dividend Reinvestment Plan (2)
(f) Not applicable
(g) Management Agreement with Colonial Management
<PAGE> 3
Associates, Inc. (1)
(h) Form of Underwriting Agreement with Salomon
Smith Barney Inc. (4)
(i) Not applicable
(j)(1) Global Custody Agreement with The Chase
Manhattan Bank (incorporated herein by reference
to Item 24. Exhibit No. 8 to Post-Effective
Amendment No. 13 to the Registration Statement
of Liberty Funds Trust VI (formerly Colonial
Trust VI), Registration Nos. 33-45117 &
811-6529, filed with the Commission on or about
October 24, 1997)
(j)(2) Amendment No. 5 to Schedule A of Global Custody
Agreement with The Chase Manhattan Bank
(incorporated herein by reference to Item 23.
Exhibit (g)(1)(ii) to Post-Effective Amendment
No. 18 to the Registration Statement of Liberty
Variable Investment Trust, Registration Nos.
33-59216 & 811-7556, filed with the Commission
on or about June 1, 1999)
(k)(1) Form of Auction Agency Agreement (3)
(k)(2) Form of Broker-Dealer Agreement (3)
(k)(3) Registrar, Transfer Agency and Service Agreement
between the Registrant and State Street Bank and
Trust Company (2)
(k)(4)(i) Service Contract with Colonial Management
Associates, Inc. (2)
(k)(4)(ii) Amendment to Service Contract with Colonial
Management Associates, Inc. (2)
(k)(5) Form of Letter Agreement from the
Registrant to Standard & Poor's Ratings Services
(l) Opinion and consent of Ropes & Gray, counsel to
Registrant (3)
(m) Not applicable
(n) Consent of independent accountants (4)
(o) Not applicable
(p) Not applicable
(q) Not applicable
(r) Not applicable
- -------------------------------
A copy of the Power of Attorney for each of Robert J. Birnbaum, Tom Bleasdale,
John V. Carberry, Lora S. Collins, James E. Grinnell, Richard W. Lowry,
Salvatore Macera, William E. Mayer, James L. Moody, Jr., John J. Neuhauser,
Robert L. Sullivan and Anne-Lee Verville is incorporated herein by reference to
Post-Effective Amendment No. 50 to the Registration Statement of Colonial Trust
IV, Registration Nos. 2-62492 and 811-2865, filed with the Commission on or
about November 6, 1998.
(1) Incorporated by reference to the Registration Statement filed with
the Commission via EDGAR on or about April 28, 1999.
(2) Incorporated by reference to the Registration Statement filed with
the Commission via EDGAR on or about July 13, 1999.
(3) Incorporated by reference to the Registration Statement filed with
the Commission via EDGAR on or about July 15, 1999.
(4) Incorporated by reference to the Registration Statement filed with
the Commission via EDGAR on or about July 16, 1999.
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant has duly caused this
Amendment to the Registration Statement on Form N-2 to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Boston and the
Commonwealth of Massachusetts on the 19th day of July, 1999.
COLONIAL MUNICIPAL INCOME TRUST
By: /s/ STEPHEN E. GIBSON
-----------------------------
Stephen E. Gibson
President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement on Form N-2 has been signed below by the following persons in their
capacities as officers and Trustees of the Registrant.
SIGNATURES TITLE DATE
- ----------- ----- ----
/s/ STEPHEN E. GIBSON President (chief July 19, 1999
- -------------------------- executive officer)
Stephen E. Gibson
/s/ J. KEVIN CONNAUGHTON Controller and Chief July 19, 1999
- -------------------------- Accounting Officer
J. Kevin Connaughton
/s/ TIMOTHY J. JACOBY Treasurer and Chief July 19, 1999
- -------------------------- Financial Officer
Timothy J. Jacoby
<PAGE> 5
/s/ ROBERT J. BIRNBAUM*
- --------------------------- Trustee
Robert J. Birnbaum
/s/ TOM BLEASDALE*
- --------------------------- Trustee
Tom Bleasdale
/s/ JOHN V. CARBERRY*
- --------------------------- Trustee
John V. Carberry
/s/ LORA S. COLLINS*
- --------------------------- Trustee
Lora S. Collins
/s/ JAMES E. GRINNELL*
- --------------------------- Trustee
James E. Grinnell
/s/ RICHARD W. LOWRY*
- --------------------------- Trustee
Richard W. Lowry
/s/ SALVATORE MACERA*
- --------------------------- Trustee
Salvatore Macera
/s/ WILLIAM E. MAYER*
- --------------------------- Trustee
William E. Mayer
<PAGE> 6
/s/ JAMES L. MOODY, JR. *
- ----------------------- Trustee *WILLIAM J. BALLOU
James L. Moody, Jr. -------------------
William J. Ballou
Attorney-in-fact
July 19, 1999
/s/ JOHN J. NEUHAUSER*
- ----------------------- Trustee
John J. Neuhauser
/s/ THOMAS E. STITZEL*
- ----------------------- Trustee
Thomas E. Stitzel
/s/ ROBERT L. SULLIVAN*
- ----------------------- Trustee
Robert L. Sullivan
/s/ ANNE-LEE VERVILLE*
- ----------------------- Trustee
Anne-Lee Verville
<PAGE> 7
INDEX OF EXHIBITS
(b) Form of Amended and Restated By-Laws
(k)(5) Form of Letter Agreement from the Registrant to Standard &
Poor's Ratings Services
<PAGE> 1
Exhibit (b)
AMENDED AND RESTATED BY-LAWS
OF
COLONIAL MUNICIPAL INCOME TRUST
Article 1.
Agreement and Declaration of Trust and Principal Office
1.1. Agreement and Declaration of Trust. These By-Laws shall be subject
to the Agreement and Declaration of Trust, as from time to time in effect (the
"Declaration of Trust"), of Colonial Municipal Income Trust, a Massachusetts
business Trust established by the Declaration of Trust (the "Trust.")
1.2. Principal Office of the Trust. The principal office of the Trust
shall be located in Boston, Massachusetts.
Article 2.
Shareholders
2.1. Shareholders Meetings. The annual meeting of the shareholders of
the Trust shall be held between April 1 and April 30 in each year, beginning in
1988, on a date and at a time within that period set by the Trustees. A special
meeting of the shareholders of the Trust may be called at any time by the
Trustees, by the president or, if the Trustees and the president shall fail to
call any meeting of shareholders for a period of 30 days after written
application of one or more shareholder who hold at least 10% of all outstanding
shares of the Trust, the such shareholder may call such meeting. Each call of a
meeting shall state the place, date, hour and purposes of the meeting.
2.2. Place of Meetings. All meetings of the shareholders shall be held
at the principal office of the Trust, or, to the extent permitted by the
Declaration of Trust, at such other place within the United States as shall be
designated by the Trustees or the president of the Trust.
2.3. Notice of Meetings. A written notice of each meeting of
shareholders, stating the place, date and hour and the purposes of the meeting,
shall be given at least seven days before the meeting to each shareholder
entitled to vote thereat by leaving such notice with him or at his residence or
usual place of business or by mailing it, postage prepaid, and addressed to such
shareholder at his address as it appears in the records of the Trust. Such
notice shall be given by the secretary or an assistant secretary or by an
officer designated by the Trustees. No notice of any meeting of shareholders
need be given to a shareholder if a written waiver of notice, executed before or
after the meeting by such shareholder or his attorney thereunto duly authorized,
is filed with the records of the meeting.
<PAGE> 2
2.4. Ballots. No ballots shall be required for any election unless
requested by a shareholder present or represented at the meeting and entitled to
vote in the election.
Proxies. Shareholders entitled to vote may vote either in person or by proxy in
writing dated not more than six months before the meeting named therein, which
proxies shall be filed with the secretary or other person responsible to record
the proceedings of the meeting before being voted. Unless otherwise specifically
limited by their terms, such proxies shall entitle the holders thereof to vote
at any adjournment of such meeting but shall not be valid after the final
adjournment of such meeting. The placing of a shareholder's name on a proxy
pursuant to telephonic or electronically transmitted instructions obtained
pursuant to procedures reasonably designed to verify that such instruction have
been authorized by such shareholder shall constitute execution of such proxy by
or on behalf of such shareholder.
Article 3.
Trustees
3.1. Committees and Advisory Board. The Trustees may appoint from their
number an executive committee and other committees. Except as the Trustees may
otherwise determine, any such committee may make rules for conduct of its
business. The Trustees may appoint an advisory board to consist of not less than
two nor more than five members. The members of the advisory board shall be
compensated in such manner as the Trustees may determine and shall confer with
and advise the Trustees regarding the investments and other affairs of the
Trust. Each member of the advisory board shall hold office until the first
meeting of the Trustees following the next meeting of the shareholders and until
his successor is elected and qualified, or until he sooner dies, resigns, is
removed, or becomes disqualified, or until the advisory board is sooner
abolished by the Trustees.
In addition, the Trustees may appoint a Dividend Committee of not less
than three persons, which shall be comprised of at least one Trustee of the
Trust.
No special compensation shall be payable to members of the Dividend
Committee. Each member of the Dividend Committee will hold office until the
successors are elected and qualified or until the member dies, resigns, is
removed, becomes disqualified or until the Committee is abolished by the
Trustees.
3.2. Regular Meetings. Regular meetings of the Trustees may be held
without call or notice at such places and at such times as the Trustees may from
time to time determine, provided that notice of the first regular meeting
following any such determination shall be given to absent Trustees.
3.3. Special Meetings. Special meeting of the Trustees may be held at
any time at any place designated in the call of the meeting, when called by the
president or the treasurer or by
-2-
<PAGE> 3
two or more Trustees, sufficient notice thereof being given to each Trustee by
the secretary or an assistant secretary or by the officer or one of the Trustees
calling the meeting.
3.4. Notice. It shall be sufficient notice to a Trustee to send notice
by mail at least forty-eight hours or by telegram at least twenty-four hours
before the meeting addressed to the Trustee at his or her usual or last known
business or residence address or to give notice to him or her in person or by
telephone at least twenty-four hours before the meeting. Notice of a meeting
need not be given to any Trustee if a written waiver of notice, executed by him
or her before or after the meeting, is filed with the records of the meeting, or
to any Trustee who attends the meeting without protesting prior thereto or at
its commencement the lack of notice to him or her. Neither notice of a meeting
nor a waiver of a notice need specify the purposes of the meeting.
3.5. Quorum. At any meeting of the Trustees one-third of the Trustees
then in office shall constitute a quorum; provided, however, a quorum shall not
be less than two. Any meeting may be adjourned from time to time by a majority
of the votes cast upon the question, whether or not a quorum is present, and the
meeting may be held as adjourned without further notice.
Article 4.
Officers and Agents
4.1. Enumeration; Qualification. The officers of the Trust shall be a
president, a treasurer, a secretary and such other officers, if any, as the
Trustees from time to time may in their discretion elect or appoint. The Trust
may also have such agents, if any, as the Trustees from time to time may in
their discretion appoint. Any officer may be but none need be a Trustee of
shareholder. Any two or more offices may be held by the same person.
4.2. Powers. Subject to the other provisions of these By-Laws, each
officer shall have, in addition to the duties and powers herein and in the
Declaration of Trust set forth, such duties and powers as are commonly incident
to his or her office as if the Trust were organized as a Massachusetts business
corporation and such other duties and powers as the Trustees may from time to
time designate, including without limitation the power to make purchases and
sales of portfolio securities of the Trust pursuant to recommendations of the
Trust's investment adviser in accordance with the policies and objective of the
Trust set forth in its prospectus and with such general or specific instructions
as the Trustees may from time to time have issued.
4.3. Election. The president, the treasurer and the secretary shall be
elected annually by the Trustees at their first meeting following the annual
meeting of the shareholders. Other elected officer are elected by the Trustees.
Assistant officers are appointed by the elected officers.
4.4. Tenure. The president, the treasurer and the secretary shall hold
office until their respective successors are chosen and qualified, or in each
case until he or she sooner dies,
-3-
<PAGE> 4
resigns, is removed or becomes disqualified. Each other officer shall hold
office at the pleasure of the Trustees. Each agent shall retain his or her
authority at the pleasure of the Trustees.
4.5. President and Vice Presidents. The president shall be the chief
executive officer of the Trust. The president shall preside at all meetings of
the shareholders and of the Trustees at which he or she is present, except as
otherwise voted by the Trustees. Any vice president shall have such duties and
powers as shall be designated from time to time by the Trustees.
4.6. Treasurer and Controller. The treasurer shall be the chief
financial officer of the Trust and subject to any arrangement made by the
Trustees with a bank or trust company or other organization as custodian or
transfer or shareholder services agent, shall be in charge of its valuable
papers and shall have such duties and powers as shall be designated from time to
time by the Trustees or by the president. Any assistant treasurer shall have
such duties and powers as shall be designated from time to time by the Trustees.
The Controller shall be the chief accounting officer of the Trust and
shall be in charge of its books of account and accounting records. The
Controller shall be responsible for preparation of financial statements of the
Trust and shall have such other duties and powers as may be designated from time
to time by the Trustees or the President.
4.7. Secretary and Assistant Secretaries. The secretary shall record
all proceedings of the shareholders and the Trustees in books to be kept
therefor, which books shall be kept at the principal office of the Trust. In the
absence of the secretary from any meeting of shareholders or Trustees, an
assistant secretary, or if there be none or he or she is absent, a temporary
clerk chosen at the meeting shall record the proceedings thereof in the
aforesaid books.
Article 5.
Resignations and Removals
Any Trustee, officer or advisory board member may resign at any time by
delivering his or her resignation in writing to the president, the treasurer or
the secretary or to a meeting of the Trustees. The Trustees may remove any
office elected by them with or without cause by the vote of a majority of the
Trustee then in office. Except to the extent provided in a written agreement
with the Trust, no Trustee, officer, or advisory board member resigning, and no
officer or advisory board member shall have any right to any compensation for
any period following his or her resignation or removal, or any right to damages
on account of such removal.
Article 6.
Vacancies
A vacancy in any office may be filled at any time. Each successor shall
hold office for the unexpired term, and in the case of the president, the
treasurer and the secretary, until his or
-4-
<PAGE> 5
her successor is chosen and qualified, or in each case until he or she sooner
dies, resigns, is removed or becomes disqualified.
Article 7.
Shares of Beneficial Interest
7.1. Share Certificates. Except as provided in Section 12.1, each
shareholder shall be entitled to a certificate stating the number of shares
owned by him or her, in such form as shall be prescribed from time to time by
the Trustees. Such certificate shall be signed by the president or a vice
president and by the treasurer or an assistant treasurer. Such signatures may be
facsimiles if the certificate is signed by a transfer agent or by a registrar,
other than a Trustee, officer or employee of the Trust. In case any officer who
has signed or whose facsimile signature has been placed on such certificate
shall have ceased to be such officer before such certificate is issued, it may
be issued by the Trustee with the same effect as if he or she were such officer
at the time of its issue.
In lieu of issuing certificates for shares, the Trustees or the
transfer agent may either issue receipts therefor or may keep accounts upon the
books of the Trust for the record holders of such shares, who shall in either
case be deemed, for all purposes hereunder, to be the holder of certificates for
such shares as if they had accepted such certificates and shall be held to have
expressly assented and agreed to the terms hereof.
7.2. Loss of Certificates. In the case of the alleged loss or
destruction or the mutilation of a share certificate, a duplicate certificate
may be issued in place thereof, upon such terms as the Trustees may prescribe.
7.3. Discontinuance of Issuance of Certificates. The Trustees may at
any time discontinue the issuance of share certificates and may, by written
notice to each shareholder, require the surrender of share certificates of the
Trust for cancellation. Such surrender and cancellation shall not affect the
ownership of shares in the Trust.
Article 8.
Record Date and Closing Transfer Books
The Trustees may fix in advance a time, which shall not be more than 60
days before the date of any meeting of shareholders or the date for the payment
of any dividend or making of any other distribution to shareholders, as the
record date for determining the shareholders having the right to notice and to
vote at such meeting and any adjournment thereof or the right to receive such
dividend or distribution, and in such case only shareholder of record on such
record date shall have such right, notwithstanding any transfer of shares on the
books of the Trust after the record date; or without fixing such record date the
Trustees may for any such purposes close the transfer books for all or any part
of such period.
-5-
<PAGE> 6
Article 9.
Seal
The seal of the Trust shall, subject to alteration by the Trustees,
consist of a flat-faced circular die with the word "Massachusetts" together with
the name of the Trust and the year of its organization, cut or engraved thereon;
but, unless otherwise required by the Trustees, the seal shall not be necessary
to be placed on, and its absence shall not impair the validity of, any document,
instrument or other paper executed and delivered by or on behalf of the Trust.
Article 10.
Execution of Papers
Except as the Trustees may generally or in particular cases authorize
the execution thereof in some other manner, all deeds, leases, transfers,
contracts, bonds, notes, checks, drafts and other obligations made, accepted or
endorsed by the Trust shall be signed, and all transfers of securities standing
in the name of the Trust shall be executed, by the president or by one of the
vice presidents or by the treasurer or by whomsoever else shall be designated
for that purpose by the vote of the Trustees and need not bear the seal of the
Trust.
Article 11.
Fiscal Year
Except as from time to time otherwise provided by the Trustees, the
fiscal year of the Trust shall end on November 30.
Article 12.
Shares of Beneficial Interest
The Trust has an unlimited number of common shares, without par value,
which may be issued from time to time by the Trustees of the Trust. The Trust
also has a class of 3,600 preferred shares, without par value, which may be
issued by the Trustees from time to time in one or more series and with such
designations, preferences and other rights, qualifications, limitations and
restrictions as are determined by the Board of Trustees or a duly authorized
committee thereof and set forth in this Article 12.
12.1. Statement Creating One Series of Municipal Auction Rate
Cumulative Preferred Shares.
There is one series of Municipal Auction Rate Cumulative Preferred
Shares.
-6-
<PAGE> 7
PART I
DESIGNATION
SERIES F: A series of 3,600 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 July __, 1999; have an Applicable Rate for its
Initial Rate Period equal to 3.30% per annum; have an initial Dividend Payment
Date of Monday, July 26, 1999; 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 Section 12.1. Series F Municipal Preferred shall constitute
a separate series of Municipal Preferred of the Trust. The Board of Trustees of
the Trust may, in their discretion, increase the number of shares of Municipal
Preferred authorized under these Bylaws to authorize the issuance of another
series of Municipal Preferred so long as such issuance is permitted by paragraph
5 of this Part I of this Section 12.1.
1. Definitions. Unless the context or use indicates another or
different meaning or intent, in Part I and Part II of this Section 12.1 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 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 rate "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
-7-
<PAGE> 8
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 Section 12.1.
"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 Section 12.1.
"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.
-8-
<PAGE> 9
"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
Section 12.1.
"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 Section 12.1.
"Available Municipal Preferred" shall have the meaning specified in
paragraph 3(a) of Part II of this Section 12.1.
"Benchmark Rate" shall have the meaning specified in paragraph 3(c) of
Part II of this Section 12.1.
"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 Section 12.1.
"Bidder" and "Bidders" shall have the respective meanings specified in
paragraph 1(a) of Part II of this Section 12.1; 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 Section 12.1, 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 Section 12.1.
-9-
<PAGE> 10
"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 these Amended and Restated By-laws of the Trust.
"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 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 of paragraph 11(b) of
this Part I of this Section 12.1.
"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 Agreement and Declaration of Trust dated
January 22, 1987 of the Trust, as amended by Amendment No. 1 dated August 4,
1989 to the Agreement and Declaration of Trust of the Trust, both on file with
the Secretary of State of The Commonwealth of Massachusetts and as hereafter
restated or amended from time to time.
"Deposit Securities" shall mean cash and Municipal Obligations rated at
least A-1+ or SP-1+ by S&P, except that, for purposes of subparagraph (a)(v) of
paragraph 11 of Part I of this Section 12.1, 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.
-10-
<PAGE> 11
"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 Section 12.1.
"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.
"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
Section 12.1; provided, however, that the foregoing clause (B) shall not apply
to the Trust's failure to pay the Redemption Price in respect of shares of
Municipal Preferred when the related Notice of Redemption provides that
redemption of such shares is subject to one or more conditions precedent and any
such condition precedent shall not have been satisfied at the time or times and
in the manner specified in such Notice of Redemption.
"Federal Tax Rate Increase" shall have the meaning specified in the
definition of "Moody's Volatility Factor."
"Gross-up Payment" in respect of any dividend means payment to a Holder
of shares of a series of Municipal Preferred of an amount which, giving effect
to the Taxable Allocations made with respect to such dividend, would cause such
Holder's after-tax returns (taking into account both the Taxable Allocations and
the Gross-up Payment) to be equal to the after-tax
-11-
<PAGE> 12
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 Section 12.1.
"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
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."
-12-
<PAGE> 13
"Late Charge" shall have the meaning specified in paragraph 2(e)(i)(B)
of Part I of this Section 12.1.
"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
Section 12.1, 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:
-13-
<PAGE> 14
(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
Section 12.1, 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 Dates 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:
-14-
<PAGE> 15
Rating Category
<TABLE>
<CAPTION>
Exposure Period Aaa* Aa* A* Baa* Other** (V)MIG-1*** SP-1+**** Unrated*****
- --------------- ---- --- -- ---- ------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
7 weeks.............. 151% 159% 166% 173% 187% 136% 148% 225%
8 weeks or less but
greater than seven
weeks................ 154 161 168 176 190 137 149 231
9 weeks or less but
greater than eight
weeks................ 156 163 170 177 192 138 150 240
</TABLE>
* Moody's rating.
** Municipal Obligations not rated by Moody's but rated BBB by S&P.
*** Municipal Obligations rated MIG-1 or VMIG-1, which do not mature or
have a demand feature at par exercisable in 30 days and which do not
have a long-term rating.
**** Municipal Obligations not rated by Moody's 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
-15-
<PAGE> 16
Eligible Assets; such BBB-rated Municipal Obligations and Unrated Moody's
Municipal Obligations, if any, together with any Municipal Obligations issued by
the same issuer and rated Baa by Moody's or A by S&P may comprise no more than
6% of total Moody's Eligible Assets; such BBB, Baa and A-rated Municipal
Obligations and Unrated Moody's Municipal Obligations, if any, together with any
Municipal Obligations issued by the same issuer and rated A by Moody's or AA by
S&P, may comprise no more than 10% of total Moody's Eligible Assets; and such
BBB, Baa, A and AA-rated Municipal Obligations and Unrated Moody's Municipal
Obligations, if any, together with any Municipal Obligations issued by the same
issuer and rated Aa by Moody's or AAA by S&P, may comprise no more than 20% of
total Moody's Eligible Assets. For purposes of the foregoing sentence, any
Municipal Obligation backed by the guaranty, letter of credit or insurance
issued by a third party shall be deemed to be issued by such third party if the
issuance of such third-party credit is the sole determinant of the rating on
such Municipal Obligations. Municipal Obligations issued by issuers located
within a single state or territory 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
-16-
<PAGE> 17
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
P-1 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 Colonial Management Associates, Inc., The Chase Manhattan Bank or
the Auction Agent and (d) Liens by virtue of any repurchase agreement or futures
contract; or (ii) deposited irrevocably for the payment of any liabilities for
purposes of determine the Municipal Preferred Basic Maintenance Amount.
"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:
-17-
<PAGE> 18
<TABLE>
<CAPTION>
Federal Volatility
Tax Rate Increase Factor
----------------- ----------
<S> <C>
5% 295%
10% 317%
15% 341%
20% 369%
25% 400%
30% 436%
35% 477%
40% 525%
</TABLE>
"Municipal Obligations" shall mean "Municipal Obligations" as defined in
the Trust's registration statement on Form N-2 as filed with the Securities and
Exchange Commission on July 16, 1999 (the "Registration Statement").
"Municipal Preferred" shall mean Municipal Auction Rate Cumulative
Preferred Shares, without par value, liquidation preference $25,000 per share,
of the Trust.
"Municipal Preferred Basic Maintenance Amount," as of any Valuation
Date, shall mean the dollar amount equal to the sum of (i) (A) the product of
the number of shares of Municipal Preferred outstanding on such date multiplied
by $25,000 (plus the product of the number of shares of any other series of
Preferred Shares outstanding on such date multiplied by the liquidation
preference of such shares), plus any redemption premium applicable to shares of
Municipal Preferred (or other Preferred Shares) then subject to redemption; (B)
the aggregate amount of dividends that will have accumulated at the respective
Applicable Rates (whether or not earned or declared) to (but not including) the
first respective Dividend Payment Dates for shares of Municipal Preferred
outstanding that follow such Valuation Date (plus the aggregate amount of
dividends, whether or not earned or declared, that will have accumulated in
respect of other outstanding Preferred Shares to, but not including, the first
respective dividend payment dates for such other shares that follow such
Valuation Date); (C) the aggregate amount of dividends that would accumulate on
shares of each series of Municipal Preferred outstanding from such first
respective Dividend Payment Date therefor through the 49th day after such
Valuation Date, at the Maximum Rate (calculated as if such Valuation Date were
the Auction Date for the Rate Period commencing on such Dividend Payment Date)
for a Minimum Rate Period of shares of such series to commence on such Dividend
Payment Date, assuming, solely for purposes of the foregoing, that if on such
Valuation Date the Trust shall have delivered a Notice of Special Rate Period to
the Auction Agent pursuant to paragraph 4(d)(i) of this Part I with respect to
shares of such series, such Maximum Rate shall be the higher of (a) the Maximum
Rate for the Special Rate Period of shares of such series to commence on such
Dividend Payment Date and (b) the Maximum Rate for a Minimum Rate Period of
shares of such series to commence on such Dividend Payment Date, multiplied by
the Volatility Factor applicable to a Minimum Rate Period, or, in the event the
Trust shall have delivered a Notice of
-18-
<PAGE> 19
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 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 Section 12.1) 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 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 Section 12.1) as 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
-19-
<PAGE> 20
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 7 of this Part I of Section 12.1) 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 Section 12.1.
"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 Section 12.1.
"Order" and "Orders" shall have the respective meanings specified in
paragraph 1(a) of Part II of this Section 12.1.
"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.
"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.
-20-
<PAGE> 21
"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
February, May, August, and November of each year, commencing on August 31, 1999
with respect to 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:
<TABLE>
<CAPTION>
Prevailing Rating Percentage
----------------- ----------
<S> <C>
"aa3"/AA- or higher........................................ 110%
"a3"/A-.................................................... 125%
"baa3"/BBB-................................................ 150%
"ba3"/BB-.................................................. 200%
Below "ba3"/BB-............................................ 250%
</TABLE>
provided, however, that in the event the 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
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
-21-
<PAGE> 22
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 Section 12.1 or paragraph
4(b) of Part I of this Section 12.1.
"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 Section 12.1.
"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.
-22-
<PAGE> 23
"Registration Statement" has the meaning specified in the definition of
"Municipal Obligations."
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., and its successors.
"S&P Discount Factor" shall mean, for purposes of determining the
Discounted Value of any S&P Eligible Asset, the percentage determined by
reference to the rating on such asset and the shortest S&P Exposure Period set
forth opposite such rating that is the same length as or is longer than the S&P
Exposure Period, in accordance with the table set forth below:
<TABLE>
<CAPTION>
Rating Category
-----------------------------------
Exposure Period AAA* AA* A* BBB* Unrated**
- --------------- ---- --- -- ---- ---------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
- --------------
* 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
-23-
<PAGE> 24
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
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
-24-
<PAGE> 25
(selected by the Trust) shall not be considered S&P Eligible Assets, so
that the Market Value of such Municipal Obligations (excluding such
portion) does not exceed 50% of the aggregate Market Value of S&P
Eligible Assets;
(3) Long-term Municipal Obligations (excluding Escrowed Bonds)
issued by issuers in any one state or territory shall be considered S&P
Eligible Assets only to the extent that the Market Value of such
Municipal Obligations does not exceed 25% of the aggregate Market Value
of S&P Eligible Assets; and
(4) Municipal Obligations which are not interest bearing or do
not pay interest at least semi-annually shall be considered S&P Eligible
Assets if rated AAA by S&P.
For purposes of determining the aggregate Discounted Value of S&P's
Eligible Assets, such aggregate amount shall be reduced with respect to any
futures contracts as set forth in paragraph 10(a) of this Part I.
"S&P Exposure Period" shall mean the period commencing on a given
Valuation Date and ending three business days thereafter.
"S&P Volatility Factor" shall mean, as of any Valuation Date, a
multiplicative factor equal to (i) 305% in the case of any Minimum Rate Period
or any Special Rate Period of 28 Rate Period Days or fewer; (ii) 268% in the
case of any Special Rate Period of more than 28 Rate Period Days but fewer than
183 Rate Period Days; and (iii) 204% in the case of any Special Rate Period of
more than 182 Rate Period Days.
"Securities Depository" shall mean The Depository Trust Company and its
successors and assigns or any other securities depository selected by the Trust
which agrees to follow the procedures required to be followed by such securities
depository in connection with shares of Municipal Preferred.
"Sell Order" and "Sell Orders" shall have the respective meanings
specified in paragraph 1(a) of Part II of this Section 12.1.
"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
Section 12.1.
"Special Redemption Provisions" shall have the meaning specified in
paragraph 11(a)(i) of Part I of this Section 12.1.
"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.
-25-
<PAGE> 26
"Submitted Bid" and "Submitted Bids" shall have the respective meanings
specified in paragraph 3(a) of Part II of this Section 12.1.
"Submitted Hold Order" and "Submitted Hold Orders" shall have the
respective meanings specified in paragraph 3(a) of Part II of this Section 12.1.
"Submitted Order" and "Submitted Orders" shall have the respective
meanings specified in paragraph 3(a) of Part II of this Section 12.1.
"Submitted Sell Order" and "Submitted Sell Orders" shall have the
respective meanings specified in paragraph 3(a) of Part II of this Section 12.1.
"Subsequent Rate Period," with respect to shares of a series of
Municipal Preferred, shall mean the period from and including the first day
following the Initial Rate Period of shares of such series to but excluding the
next Dividend Payment Date for shares of such series and any period thereafter
from and including one Dividend Payment Date for shares of such series to but
excluding the next succeeding Dividend Payment Date for shares of such series;
provided, however, that if any Subsequent Rate Period is also a Special Rate
Period, such term shall mean the period commencing on the first day of such
Special Rate Period and ending on the last day of the last Dividend Period
thereof.
"Substitute Commercial Paper Dealer" shall mean CS First Boston or
Morgan Stanley & Co. Incorporated or their respective affiliates or successors,
if such entity is a commercial paper dealer; provided, however, that none of
such entities shall be a Commercial Paper Dealer.
"Substitute U.S. Government Securities Dealer" shall mean CS First
Boston and Merrill Lynch, Pierce, Fenner & Smith Incorporated or their
respective affiliates or successors, if such entity is a U.S. Government
securities dealer; provided, however, that none of such entities shall be a U.S.
Government Securities Dealer.
"Sufficient Clearing Bids" shall have the meaning specified in paragraph
3(a) of Part II of this Section 12.1.
"Taxable Allocation" shall have the meaning specified in paragraph 3 of
Part I of this Section 12.1.
"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
-26-
<PAGE> 27
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 Section 12.1.
"Treasury Bill" shall mean a direct obligation of the U.S. Government
having a maturity at the time of issuance of 364 days or less.
"Treasury Bill Rate," on any date for any Rate Period, shall mean (i)
the bond equivalent yield, calculated in accordance with prevailing industry
convention, of the rate on the most recently auctioned Treasury Bill with a
remaining maturity closest to the length of such Rate Period, as quoted in The
Wall Street Journal on such date for the Business Day next preceding such date;
or (ii) in the event that any such rate is not published in The Wall Street
Journal, then the bond equivalent yield, calculated in accordance with
prevailing industry convention, as calculated by reference to the arithmetic
average of the bid price quotations of the most recently auctioned Treasury Bill
with a remaining maturity closest to the length of such Rate Period, as
determined by bid price quotations as of the close of business on the Business
Day immediately preceding such date obtained from the U.S. Government Securities
Dealers to the Auction Agent.
"Treasury Note" shall mean a direct obligation of the U.S. Government
having a maturity at the time of issuance of five years or less but more than
364 days.
"Treasury Note Rate," on any date for any Rate Period, shall mean (i)
the yield on the most recently auctioned Treasury Note with a remaining maturity
closest to the length of such Rate Period, as quoted in The Wall Street Journal
on such date for the Business Day next preceding such date; or (ii) in the event
that any such rate is not published in The Wall Street
-27-
<PAGE> 28
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 Section 12.1.
"Winning Bid Rate" shall have the meaning specified in paragraph 3(a) of
Part II of this Section 12.1.
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.
-28-
<PAGE> 29
(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, these By-laws 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 Monday,
July 26, 1999 and each Monday thereafter with respect to shares of Series F
Municipal Preferred; provided, however, that
(i)(A) if the Monday on which dividends would otherwise be
payable is not a Business Day, then such dividends shall be payable on
such shares on the first Business Day that falls after such Monday; 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
this Part I.
(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
-29-
<PAGE> 30
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 such Subsequent Rate Period
will be the
-30-
<PAGE> 31
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
-31-
<PAGE> 32
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-") (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 Section 12.1 of the By-laws; 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.
-32-
<PAGE> 33
(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.
(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, these By-laws 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 Section of the
By-laws (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
-33-
<PAGE> 34
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.
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 Monday 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
-34-
<PAGE> 35
consisting of the period commencing on the first day following the end of the
immediately preceding Rate Period and ending on the first Sunday that is
followed by a Monday that is a Business Day preceding what would otherwise be
such last day, in the case of Series F Municipal Preferred.
(c) Notice of Proposed Special Rate Period. If the Trust proposes to
designate any succeeding Subsequent Rate Period of shares of a series of
Municipal Preferred as a Special Rate Period pursuant to subparagraph (a) of
this paragraph 4, not less than 20 (or such lesser number of days as may be
agreed to from time to time by the Auction Agent) nor more than 30 days prior to
the date the Trust proposes to designate as the first day of such Special Rate
Period (which shall be such day that would otherwise be the first day of a
Minimum Rate Period), notice shall be (i) published or caused to be published by
the Trust in a newspaper of general circulation to the financial community in
The City of New York, New York, which carries financial news, and (ii) mailed by
the Trust by first-class mail, postage prepaid, to the Holders of shares of such
series. Each such notice shall state (A) that the Trust may exercise its option
to designate a succeeding Subsequent Rate Period of shares of such series as a
Special Rate Period, specifying the first day thereof and (B) that the Trust
will, by 11:00 A.M., New York City time, on the second Business Day next
preceding such date (or by such later time or date, or both, as may be agreed to
by the Auction Agent) notify the Auction Agent of either (x) its determination,
subject to certain conditions, to exercise such option, in which case the Trust
shall specify the Special Rate Period designated, or (y) its determination not
to exercise such option.
(d) Notice of Special Rate Period. No later than 11:00 A.M., New York
City time, on the second Business Day next preceding the first day of any
proposed Special Rate Period of shares of a series of Municipal Preferred as to
which notice has been given as set forth in subparagraph (c) of this paragraph 4
(or such later time or date, or both, as may be agreed to by the Auction Agent),
the Trust shall deliver to the Auction Agent either:
(i) a notice ("Notice of Special Rate Period") stating (A) that
the Trust has determined to designate the next succeeding Rate Period of
shares of such series as a Special Rate Period, specifying the same and
the first day thereof, (B) the Auction Date immediately prior to the
first day of such Special Rate Period, (C) that such Special Rate Period
shall not commence if (1) an Auction for shares of such series shall not
be held on such Auction Date for any reason or (2) an Auction for shares
of such series shall be held on such Auction Date but Sufficient
Clearing Bids for shares of such series shall not exist in such Auction,
(D) the scheduled Dividend Payment Dates for shares of such series
during such Special Rate Period and (E) the Special Redemption
Provisions, if any, applicable to shares of such series in respect of
such Special Rate Period; such notice to be accompanied by a Municipal
Preferred Basic Maintenance Report showing that, as of the third
Business Day next preceding such proposed Special Rate Period, Moody's
Eligible Assets (if Moody's is then rating such series) and S&P Eligible
Assets (if S&P is then rating such series) each have an aggregate
Discounted Value at least equal to the Municipal Preferred Basic
Maintenance Amount as of such Business Day (assuming for
-35-
<PAGE> 36
purposes of the foregoing calculation that (a) the Maximum Rate is the
Maximum Rate on such Business Day as if such Business Day were the
Auction Date for the proposed Special Rate Period, and (b) the Moody's
Discount Factors applicable to Moody's Eligible Assets are determined by
reference to the first Exposure Period longer than the Exposure Period
then applicable to the Trust, as described in the definition of Moody's
Discount Factor herein); or
(ii) a notice stating that the Trust has determined not to
exercise its option to designate a Special Rate Period of shares of such
series and that the next succeeding Rate Period of shares of such series
shall be a Minimum Rate Period.
(e) Failure to Deliver Notice of Special Rate Period. If the Trust fails
to deliver either of the notices described in subparagraphs (d)(i) or (d)(ii) of
this paragraph 4 (and, in the case of the notice described in subparagraph
(d)(i) of this paragraph 4, a Municipal Preferred Basic Maintenance Report to
the effect set forth in such subparagraph (if either Moody's or S&P is then
rating the series in question)) with respect to any designation of any proposed
Special Rate Period to the Auction Agent by 11:00 A.M., New York City time, on
the second Business Day next preceding the first day of such proposed Special
Rate Period (or by such later time or date, or both, as may be agreed to by the
Auction Agent), the Trust shall be deemed to have delivered a notice to the
Auction Agent with respect to such Special Rate Period to the effect set forth
in subparagraph (d)(ii) of this paragraph 4. In the event the Trust delivers to
the Auction Agent a notice described in subparagraph (d)(i) of this paragraph 4,
it shall file a copy of such notice with the Secretary of the Trust, and the
contents of such notice shall be binding on the Trust. In the event the Trust
delivers to the Auction Agent a notice described in subparagraph (d)(ii) of this
paragraph 4, the Trust will provide Moody's (if Moody's is then rating the
series in question) and S&P (if S&P is then rating the series in question) a
copy of such notice.
5. Voting Rights.
(a) One Vote Per Share of Municipal Preferred. Except as otherwise
provided in the Declaration, this paragraph 5 or as otherwise required by law,
(i) each Holder of shares of Municipal Preferred shall be entitled to one vote
for each share of Municipal Preferred held by such Holder on each matter
submitted to a vote of shareholders of the Trust, and (ii) the holders of
outstanding Preferred Shares, including each share of Municipal Preferred, and
of Common Shares shall vote together as a single class; provided, however, that,
at any meeting of the shareholders of the Trust held for the election of
trustees, the holders of outstanding Preferred Shares, including Municipal
Preferred, represented in person or by proxy at said meeting, shall be entitled,
as a class, to the exclusion of the holders of all other securities and classes
of shares of beneficial interest of the Trust, to elect two trustees of the
Trust, each Preferred Share, including each share of Municipal Preferred,
entitling the holder thereof to one vote. Subject to subparagraph (b) of this
paragraph 5, the holders of outstanding Common Shares and Preferred Shares,
including Municipal Preferred, voting together as a single class, shall elect
the balance of the trustees.
-36-
<PAGE> 37
(b) Voting For Additional Trustees.
(i) Voting Period. During any period in which any one or more of
the conditions described in subparagraphs (A) or (B) of this
subparagraph (b)(i) shall exist (such period being referred to herein as
a "Voting Period"), the number of trustees constituting the Board of
Trustees shall be automatically increased by the smallest number that,
when added to the two trustees elected exclusively by the holders of
Preferred Shares, including shares of Municipal Preferred, would
constitute a majority of the Board of Trustees as so increased by such
smallest number; and the holders of Preferred Shares, including
Municipal Preferred, shall be entitled, voting as a class on a
one-vote-per-share basis (to the exclusion of the holders of all other
securities and classes of shares of beneficial interest of the Trust),
to elect such smallest number of additional trustees, together with the
two trustees that such holders are in any event entitled to elect. A
Voting Period shall commence:
(A) if at the close of business on any dividend payment
date accumulated dividends (whether or not earned or declared) on
any outstanding Preferred Share, including Municipal Preferred,
equal to at least two full years' dividends shall be due and
unpaid and sufficient cash or specified securities shall not have
been deposited with the Auction Agent for the payment of such
accumulated dividends; or
(B) if at any time holders of Preferred Shares are
entitled under the 1940 Act to elect a majority of the trustees
of the Trust.
Upon the termination of a Voting Period, the voting rights described in this
subparagraph (b)(i) shall cease, subject always, however, to the revesting of
such voting rights in the Holders upon the further occurrence of any of the
events described in this subparagraph (b)(i).
(ii) Notice of Special Meeting. As soon as practicable after the
accrual of any right of the holders of Preferred Shares to elect
additional trustees as described in subparagraph (b)(i) of this
paragraph 5, the Trust shall notify the Auction Agent and the Auction
Agent shall call a special meeting of such holders, by mailing a notice
of such special meeting to such holders, such meeting to be held not
less than 10 nor more than 20 days after the date of mailing of such
notice. If the Trust fails to send such notice to the Auction Agent or
if the Auction Agent does not call such a special meeting, it may be
called by any such holder on like notice. The record date for
determining the holders entitled to notice of and to vote at such
special meeting shall be the close of business on the fifth Business Day
preceding the day on which such notice is mailed. At any such special
meeting and at each meeting of holders of Preferred Shares held during a
Voting Period at which trustees are to be elected, such holders, voting
together as a class (to the exclusion of the holders of all other
securities and classes of shares of beneficial interest
-37-
<PAGE> 38
of the Trust), shall be entitled to elected the number of trustees
prescribed in subparagraph (b)(i) of this paragraph 5 on a
one-vote-per-share basis.
(iii) Terms of Office of Existing Trustees. The terms of office
of all persons who are trustees of the Trust at the time of a special
meeting of Holders and holders of other Preferred Shares to elect
trustees shall continue, notwithstanding the election at such meeting by
the Holders and such other holders of the number of trustees that they
are entitled to elect, and the persons so elected by the Holders and
such other holders, together with the two incumbent trustees elected by
the Holders and such other holders of Preferred Shares and the remaining
incumbent trustees elected by the Holders of the Common Shares and
Preferred Shares, shall constitute the duly elected trustees of the
Trust.
(iv) Terms of Office of Certain Trustees to Terminate Upon
Termination of Voting Period. Simultaneously with the termination of a
Voting Period, the term of office of the additional trustees elected by
the Holders and holders of other Preferred Shares pursuant to
subparagraph (b)(i) of this paragraph 5 shall terminate, the remaining
trustees shall constitute the trustees of the Trust and the voting
rights of the Holders and such other holders to elect additional
trustees pursuant to subparagraph (b)(i) of this paragraph 5 shall
cease, subject to the provisions of the last sentence of subparagraph
(b)(i) of this paragraph 5.
(c) Holders of Municipal Preferred To Vote on Certain Other Matters.
(i) Increases in Capitalization. So long as any shares of
Municipal Preferred are outstanding, the Trust shall not, without the
affirmative vote or consent of the Holders of at least a majority of the
shares of Municipal Preferred outstanding at the time, in person or by
proxy, either in writing or at a meeting, voting as a separate class:
(a) authorize, create or issue any class or series of shares ranking
prior to or on a parity with shares of Municipal Preferred with respect
to the payment of dividends or the distribution of assets upon
dissolution, liquidation or winding up of the affairs of the Trust, or
authorize, create or issue additional shares of any series of Municipal
Preferred (except that, notwithstanding the foregoing, but subject to
the provisions of paragraph 10(c) of this Part I, the Board of Trustees,
without the vote or consent of the Holders of Municipal Preferred, may
from time to time authorize and create, and the Trust may from time to
time issue, additional shares of any series of Municipal Preferred or
classes or series of Preferred Shares ranking on a parity with shares of
Municipal Preferred with respect to the payment of dividends and the
distribution of assets upon dissolution, liquidation or winding up of
the affairs of the Trust; provided, however, that if Moody's or S&P is
not then rating the shares of Municipal Preferred, the aggregate
liquidation preference of all Preferred Shares of the Trust outstanding
after any such issuance, exclusive of accumulated and unpaid dividends,
may not exceed $90,000,000) or (b) amend, alter or repeal the provisions
of the Declaration or the By-Laws, including this Section 12.1,
-38-
<PAGE> 39
whether by merger, consolidation or otherwise, so as to materially
affect any preference, right or power of such shares of Municipal
Preferred to 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 ore 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 these By-laws, (A) the affirmative vote of the
Holders of at least a majority of the Preferred Shares, including
Municipal Preferred, outstanding at the time, voting as a separate
class, shall be required to approve any conversion of the Trust from a
closed-end to an open-end investment company and (B) the affirmative
vote of the Holders of a "majority of the outstanding Preferred Shares,"
including Municipal Preferred, voting as a separate class, shall be
required to approve any plan of reorganization (as such term is used in
the 1940 Act) adversely affecting such shares. The affirmative vote of
the Holders of a "majority of the outstanding Preferred Shares,"
including Municipal Preferred, voting as a separate class, shall be
required to approve any action not described in the first sentence of
this paragraph 5(c)(ii) requiring a vote of security holders of the
Trust under Section 13(a) of the 1940 Act. For purposes of the
foregoing, "majority of the outstanding Preferred Shares" means (i) 67%
or more of such shares present at a meeting, if the Holders of more than
50% of such shares are present or represented by proxy, or (ii) more
than 50% of such shares, whichever is less. In the event a vote of
Holders of Municipal Preferred is required pursuant to the provisions of
Section 13(a) of the 1940 Act, the Trust shall, not later than ten
business Days prior to the date on which such vote is to be taken,
notify Moody's (if Moody's is then rating the shares of Municipal
-39-
<PAGE> 40
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) 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 Section 12.1 of the By-laws
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:
<TABLE>
<S> <C>
Deposit Securities Moody's Exposure Period
Discounted Value Moody's Volatility Factor
Escrowed Bonds 1940 Act Cure Date
Market Value 1940 Act Municipal Preferred Asset
Maximum Potential Gross-up Coverage
Payment Liability Other Issues
Municipal Preferred Basic Quarterly Valuation Date
Maintenance Amount Receivables for Municipal
Municipal Preferred Basic Obligations Sold
Maintenance Cure Date S&P Discount Factor
Municipal Preferred Basic S&P Eligible Asset
Maintenance Report S&P Exposure Period
Moody's Discount Factor S&P Volatility Factor
Moody's Eligible Asset Valuation Date
Volatility Factor
</TABLE>
(e) Voting Rights Set Forth Herein Are Sole Voting Rights. Unless
otherwise required by law, these By-laws or by the Declaration, the Holders of
shares of Municipal Preferred shall
-40-
<PAGE> 41
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 this Section
12.1, by the other provisions of these By-laws 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
-41-
<PAGE> 42
Date with respect to such Valuation Date, the Trust shall complete and deliver
to S&P (if S&P is then rating the shares of Municipal Preferred), Moody's (if
Moody's is then rating the shares of Municipal Preferred) and the Auction Agent
(if either S&P or Moody's is then rating the shares of Municipal Preferred) a
Municipal Preferred Basic Maintenance Report as of the date of such failure or
such Municipal Preferred Basic Maintenance Cure Date, as the case may be, which
will be deemed to have been delivered to the Auction Agent if the Auction Agent
receives a copy of telecopy, telex or other electronic transcription thereof and
on the same day the Trust mails to the Auction Agent for delivery on the next
Business Day the full Municipal Preferred Basic Maintenance Report.
The Trust shall also deliver a Municipal Preferred Basic Maintenance
Report to (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
-42-
<PAGE> 43
Valuation Date on which the Trust failed to satisfy the Municipal Preferred
Basic Maintenance Amount, and relating to the Municipal Preferred Basic
Maintenance Cure Date with respect to such failure to satisfy the Municipal
Preferred Basic Maintenance Amount, the Trust shall cause the Independent
Accountant to provide to S&P (if S&P is then rating the shares of Municipal
Preferred), Moody's (if Moody's is then rating the shares of Municipal
Preferred) and the Auction Agent (if either S&P or Moody's is then rating the
shares of Municipal Preferred) an Accountant's Confirmation as to such Municipal
Preferred Basic Maintenance Report.
(e) If any Accountant's Confirmation delivered pursuant to subparagraph
(c) or (d) of this paragraph 7 shows that an error was made in the Municipal
Preferred Basic Maintenance Report for a particular Valuation Date for which
such Accountant's Confirmation was required to be delivered, or shows that a
lower aggregate Discounted Value for the aggregate of all S&P Eligible Assets
(if S&P is then rating the shares of Municipal Preferred) or Moody's Eligible
Assets (if Moody's is then rating the shares of Municipal Preferred), as the
case may be, of the Trust was determined by the Independent Accountant, the
calculation or determination made by such Independent Accountant shall be final
and conclusive and shall be binding on the Trust, and the Trust shall
accordingly amend and deliver the Municipal Preferred Basic Maintenance Report
to S&P (if S&P is then rating the shares of Municipal Preferred), Moody's (if
Moody's is then rating the shares of Municipal Preferred) and the Auction Agent
(if either S&P or Moody's is then rating the shares of Municipal Preferred)
promptly following receipt by the Trust of such Accountant's Confirmation.
(f) On or before 5:00 p.m., New York City time, on the first Business
Day after the Date of Original Issue of any shares of Municipal Preferred, the
Trust shall complete and deliver to S&P (if S&P is then rating the shares of
Municipal Preferred) and Moody's (if Moody's is then rating the shares of
Municipal Preferred) a Municipal Preferred Basic Maintenance Report as of the
close of business on such Date of Original Issue. Within five Business Days of
such Date of Original Issue, the Trust shall cause the Independent Accountant to
confirm in writing to S&P (if S&P is then rating the shares of Municipal
Preferred) (i) the mathematical accuracy of the calculations reflected in such
Report and (ii) that the Discounted Value of S&P Eligible Assets reflected
thereon equals or exceeds the Municipal Preferred Basic Maintenance Amount
reflected thereon.
(g) On or before 5:00 p.m., New York City time, on the third Business
Day after either (i) the Trust shall have redeemed Common 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.
-43-
<PAGE> 44
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
-44-
<PAGE> 45
Municipal Preferred as to the payment of dividends or the distribution of assets
upon dissolution, liquidation or winding up, or call for redemption, redeem,
purchase or otherwise acquire for consideration any Common Shares or any other
such junior shares (except by conversion into or exchange for shares of the
Trust ranking junior to the shares of Municipal Preferred as to the payment of
dividends and the distribution of assets upon dissolution, liquidation or
winding up), or any such parity shares (except by conversion into or exchange
for shares of the Trust ranking junior to or on a parity with Municipal
Preferred as to the payment of dividends and the distribution of assets upon
dissolution, liquidation or winding up), unless (i) full cumulative dividends on
shares of each series of Municipal Preferred through its most recently ended
Dividend Period shall have been paid or shall have been declared and sufficient
funds for the payment thereof deposited with the Auction Agent and (ii) the
Trust has redeemed the full number of shares of Municipal Preferred required to
be redeemed by any provision for mandatory redemption pertaining thereto, and
(B) the Trust shall not declare, pay or set apart for payment any dividend or
other distribution (other than a dividend or distribution paid in shares of, or
in options, warrants or rights to subscribe for or purchase, Common Shares or
other shares, if any, ranking junior to shares of Municipal Preferred as to the
payment of dividends and the distribution of assets upon dissolution,
liquidation or winding up) in respect of Common Shares or any other shares of
the Trust ranking junior to shares of Municipal Preferred as to the payment of
dividends or the distribution of assets upon dissolution, liquidation or winding
up, or call for redemption, redeem, purchase or otherwise acquire for
consideration any Common Shares or any other such junior shares (except by
conversion into or exchange for shares of the Trust ranking junior to shares of
Municipal Preferred as to the payment of dividends and the distribution of
assets upon dissolution, liquidation or winding up), unless immediately after
such transaction the Discounted Value of Moody's Eligible Assets (if Moody's is
then rating the shares of Municipal Preferred) and S&P Eligible Assets (if S&P
is then rating the shares of Municipal Preferred) would each at least equal the
Municipal Preferred Basic Maintenance Amount.
10. Rating Agency Restrictions.
For so long as any shares of Municipal Preferred are outstanding and
Moody's or S&P, or both, are rating such shares, the Trust will not, unless it
has received 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:
-45-
<PAGE> 46
(i) the Trust will not engage in any Hedging Transaction based on the
Municipal Index (other than transactions which terminate a futures contract
or option held by the Trust by the Trust's taking an opposite position
thereto ("Closing Transactions")), which would cause the Trust at the time
of such transaction to own or have sold the least of (A) more than 1,000
outstanding futures contracts based on the Municipal Index, (B) outstanding
futures contracts based on the Municipal Index exceeding in number 25% of
the quotient of the Market Value of the Trust's total assets divided by
$1,000 or (C) outstanding futures contracts based on the Municipal Index
exceeding in number 10% of the average number of daily open interest
futures contracts based on the Municipal Index in the 30 days preceding the
time of effecting such transaction as reported by The Wall Street Journal.
(ii) the Trust will not engage in any Hedging Transaction based on
Treasury Bonds (other than Closing Transactions) which would cause the
Trust at the time of such transaction to own or have sold the lesser of (A)
outstanding futures contracts based on Treasury Bonds exceeding in number
50% of the quotient of the Market Value of the Trust's total assets divided
by $100,000 ($200,000 in the case of the two-year United States Treasury
Note) or (B) outstanding futures contracts based on Treasury Bonds
exceeding in number 10% of the average number of daily traded futures
contracts based on Treasury Bonds in the 30 days preceding the time of
effecting such transaction as reported by The Wall Street Journal;
(iii) the Trust will engage in Closing Transactions to close out any
outstanding futures contract which the Trust owns or has sold or any
outstanding option thereon owned by the Trust in the event (A) the Trust
does not have S&P Eligible Assets or Moody's Eligible Assets, as the case
may be, with an aggregate Discounted Value equal to or greater than the
Municipal Preferred Basic Maintenance Amount on two consecutive Valuation
Dates and (B) the Trust is required to pay Variation Margin on the second
such Valuation Date;
(iv) the Trust will engage in a Closing Transaction to close out any
outstanding futures contract or option thereon in the month prior to the
delivery month under the terms of such futures contract or option thereon
unless the Trust holds the securities deliverable under such terms; and
(v) when the Trust writes a futures contract or option thereon, it
will either maintain an amount of cash, cash equivalents or high grade
(rated A or better by S&P or Moody's, as the case may be), fixed-income
securities in a segregated account with the Trust's custodian, so that the
amount so segregated plus the amount of Initial Margin and Variation Margin
held in the account of or on behalf of the Trust's broker with respect to
such futures contract or option equals the Market Value of the futures
contract or option, or, in the event the Trust writes a futures contract or
option thereon
-46-
<PAGE> 47
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 Section
12.1) and (ii) such borrowing (A) is privately arranged with a bank or other
person and is evidenced by a promissory note or other evidence of indebtedness
that is not intended to be publicly distributed or (B) is for "temporary
purposes," is evidenced by a promissory note or other evidence of indebtedness
and is an amount not exceeding 5 per centum of the value of the total assets of
the Trust at the time of the borrowing; for purposes of the foregoing,
"temporary purpose" means that the borrowing is to be repaid within sixty days
and is not to be extended or renewed;
(c) issue additional shares of any series of 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
-47-
<PAGE> 48
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").
(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
-48-
<PAGE> 49
whole but not in part, out of funds legally available therefor, on the
first day following any Dividend Period thereof included in a Rate
Period consisting of more than 364 Rate Period Days if, on the date of
determination of the Applicable Rate for shares of such series for such
Rate Period, such Applicable Rate equaled or exceeded on such date of
determination the Treasury Note Rate for such Rate Period, at a
redemption price per share equal to the sum of $25,000 plus an amount
equal to accumulated but unpaid dividends thereon (whether or not earned
or declared) to (but not including) to the date fixed for redemption.
(v) The Trust may not on any date mail a Notice of Redemption
pursuant to subparagraph (c) of this paragraph 11 in respect of a
redemption contemplated to be effected pursuant to this subparagraph (a)
unless on such date (a) the Trust has available Deposit Securities with
maturity or tender dates not later than the day preceding the applicable
redemption date and having a value not less than the amount (including
any applicable premium) due to Holders of shares of Municipal Preferred
by reason of the redemption of such shares on such redemption date and
(b) the Discounted Value of Moody's Eligible Assets (if Moody's is then
rating the shares of Municipal Preferred) and the Discounted Value of
S&P Eligible Assets (if S&P is then rating the shares of Municipal
Preferred) each at least equal the Municipal Preferred Basic Maintenance
Amount, and would at least equal the Municipal Preferred Basic
Maintenance Amount immediately subsequent to such redemption if such
redemption were to occur on such date. For purposes of determining in
clause (b) of the preceding sentence whether the Discounted Value of
Moody's Eligible Assets at least equals the Municipal Preferred Basic
Maintenance Amount, the Moody's Discount Factors applicable to Moody's
Eligible Assets shall be determined by reference to the first Exposure
Period longer than the Exposure Period then applicable to the Trust, as
described in the definition of Moody's Discount Factor herein.
(b) Mandatory Redemption. The Trust shall redeem, at a redemption price
equal to $25,000 per share plus accumulated but unpaid dividends thereon
(whether or not earned or declared) to (but not including) the date fixed by the
Board of Trustees for redemption, certain of the shares of Municipal Preferred,
if the Trust fails to have either Moody's Eligible Assets with a Discounted
Value, or S&P Eligible Assets with a Discounted Value, greater than or equal to
the Municipal Preferred Basic Maintenance Amount or fails to maintain the 1940
Act Municipal Preferred Asset Coverage, in accordance with the requirements of
the rating agency or agencies then rating the shares of Municipal Preferred, and
such failure is not cured on or before the Municipal Preferred Basic Maintenance
Cure Date or the 1940 Act Cure Date, as the case may be (the "Cure Date"). The
number of shares of Municipal Preferred to be redeemed shall be equal to the
lesser of (i) the minimum number of shares of Municipal Preferred, together with
all other Preferred Shares subject to redemption or retirement, the redemption
of which, if deemed to have occurred immediately prior to the opening of
business on the Cure Date, would have resulted in the Trust's having both
Moody's Eligible Assets with a Discounted Value, and S&P Eligible Assets with a
Discounted Value, greater than or equal to the Municipal Preferred Basic
-49-
<PAGE> 50
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, these By-laws and applicable law.
In determining the shares of Municipal Preferred required to be redeemed in
accordance with the foregoing, the Trust shall allocate the number required to
be redeemed to satisfy the Municipal Preferred Basic Maintenance Amount or the
1940 Act Municipal Preferred Asset Coverage, as the case may be, pro rata among
shares of Municipal Preferred and other Preferred Shares (and, then pro rata
among each series of Municipal Preferred) subject to redemption or retirement.
The Trust shall effect such redemption on the date fixed by the Trust therefor,
which date shall not be earlier than 20 days nor later than 40 days after such
Cure Date, except that if the Trust does not have funds legally available for
the redemption of all of the required number of shares of Municipal Preferred
and other Preferred Shares which are subject to redemption or retirement or the
Trust otherwise is unable to effect such redemption on or prior to 40 days after
such Cure Date, the Trust shall redeem those shares of Municipal Preferred and
other Preferred Shares which it was unable to redeem on the earliest practicable
date on which it is able to effect such redemption. If fewer than all of the
outstanding shares of a series of Municipal Preferred are to be redeemed
pursuant to this subparagraph (b), the number of shares of such series to be
redeemed shall be redeemed pro rata from the Holders of shares of such series in
proportion to the number of shares of such series held by such Holders.
(c) Notice of Redemption. If the Trust shall determine or be required to
redeem shares of a series of Municipal Preferred pursuant to subparagraph (a) or
(b) of this paragraph 11, it shall mail a Notice of Redemption with respect to
such redemption by first class mail, postage prepaid, to each Holder of the
shares of such series to be redeemed, at such Holder's address as the same
appears on the record books of the Trust on the record date established by the
Board of Trustees. Such Notice of Redemption shall be so mailed not less than 20
nor more than 45 days prior to the date fixed for redemption. Each such Notice
of Redemption shall state: (i) the redemption date; (ii) the number of shares of
Municipal Preferred to be redeemed and the series thereof; (iii) the CUSIP
number for shares of such series; (iv) the Redemption Price; (v) the place or
places where the certificate(s) for such shares (properly endorsed or assigned
for transfer, if the Board of Trustees shall so require and the Notice of
Redemption shall so state) are to be surrendered for payment of the Redemption
Price; (vi) that dividends on the shares to be redeemed will cease to accumulate
on such redemption date; and (vii) the provisions of this paragraph 11 under
which such redemption is made. If fewer than all shares of a series of Municipal
Preferred held by any Holder are to be redeemed, the Notice of Redemption mailed
to such Holder shall also specify the number of shares of such series to be
redeemed from such Holder. The Trust may provide in any Notice of Redemption
relating to an optional redemption contemplated to be effected pursuant to
subparagraph (a) of this paragraph 11 that such redemption is subject to one or
more conditions precedent and that the Trust shall not be required such
redemption unless each such
-50-
<PAGE> 51
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, these By-laws 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 and
terminate, except the right of such Holders to receive the Redemption Price, but
without any interest or other additional amount, except as
-51-
<PAGE> 52
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 (property 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 or these By-laws would require redemption of a fractional
shares, 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
-52-
<PAGE> 53
not earned or declared) accumulated but unpaid to (but not including) the date
of final distributions in same-day funds, together with any payments required to
be made pursuant to paragraph 3 of this Part I in connection with the
liquidation of the Trust. After the payment to the Holders of the shares of
Municipal Preferred of the full preferential amounts provided for in this
subparagraph (b), the holders of Municipal Preferred as such shall have no right
or claim to any of the remaining assets of the Trust.
(c) Pro Rata Distributions. In the event the assets of the Trust
available for distribution to the Holders of shares of Municipal Preferred upon
any dissolution, liquidation, or winding up of the affairs of the Trust, whether
voluntary or involuntary, shall be insufficient to pay in full all amounts to
which such Holders are entitled pursuant to subparagraph (b) of this paragraph
12, no such distribution shall be made on account of any shares of any other
class or series of Preferred Shares ranking on a parity with the shares of
Municipal Preferred with respect to the distribution of assets upon such
dissolution, liquidation or winding up unless proportionate distributive amounts
shall be paid on account of the shares of Municipal Preferred, ratably, in
proportion to the full distributable amounts for which holders of all such
parity shares are respectively entitled upon such dissolution, liquidation or
winding up.
(d) Rights of Junior Shares. Subject to the rights of the holders of
shares of any series or class or classes of shares ranking on a parity with the
shares of Municipal Preferred with respect to the distribution of assets upon
dissolution, liquidation or winding up of the affairs of the Trust, after
payment shall have been made in full to the Holders of the shares of Municipal
Preferred as provided in subparagraph (b) of this paragraph 12, but not prior
thereto, any other series or class or classes of shares ranking junior to the
shares of Municipal Preferred with respect to the distribution of assets upon
dissolution, liquidation or winding up of the affairs of the Trust shall,
subject to the respective terms and provisions (if any) applying thereto, be
entitled to receive any and all assets remaining to be paid or distributed, and
the Holders of the shares of Municipal Preferred shall not be entitled to share
therein.
(e) Certain Events Not Constituting Liquidation. Neither the sale of all
or substantially all of the property or business of the Trust, nor the merger or
consolidation of the Trust into or with any Massachusetts business trust or
corporation nor the merger or consolidation of any Massachusetts business trust
or corporation 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 Section 12.1 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 Section 12.1 or required by applicable law), amend
Section 12.1 to (1) reflect any amendment hereto which the Board of Trustees is
entitled to adopt pursuant to the terms of this Section 12.1 without
-53-
<PAGE> 54
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 Section 12.1.
(b) [Reserved]
(c) No Fractional Shares. No fractional shares of Municipal Preferred
shall be issued.
(d) Status of Shares of Municipal Preferred Redeemed, Exchanged or
Otherwise Acquired by the Trust. Shares of Municipal Preferred which are
redeemed, exchanged or otherwise acquired by the Trust shall return to the
status of authorized and unissued Preferred Shares without designation as to
series.
(e) Board May Resolve Ambiguities. To the extent permitted by applicable
law, the Board of Trustees may interpret or adjust the provisions of this
Section 12.1 to resolve any inconsistency or ambiguity or to remedy any formal
defect, and may amend this Section 12.1 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 Section
12.1 are for convenience of reference only and shall not affect the meaning or
interpretation of this Section 12.1.
(g) Notices. All notices or communications, unless otherwise specified
in the By-Laws of the Trust or this Section 12.1, 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 Owners
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;
-54-
<PAGE> 55
(B) the number of Outstanding shares, if any, of such
series held by such Beneficial Owner which such Beneficial Owner
offers to sell if the Applicable Rate for shares of such series
for the next succeeding Rate Period of shares of such series
shall be less than the rate per annum specified by such
Beneficial Owner; and/or
(C) the number of Outstanding shares, if any, of such
series held by such Beneficial Owner which such Beneficial Owner
offers to sell without regard to the Applicable Rate for shares
of such series for the next succeeding Rate Period of shares of
such series;
and
(ii) one or more Broker-Dealers, using lists of Potential
Beneficial Owners, shall in good faith for the purpose of conducting a
competitive Auction in a commercially reasonable manner, contact
Potential Beneficial Owners (by telephone or otherwise), including
Persons that are not Beneficial Owners, on such lists to determine the
number of shares, if any, of such series which each such Potential
Beneficial Owner offers to purchase if the Applicable Rate for shares of
such series for the next succeeding Rate Period of shares of such series
shall not be less than the rate per annum specified by such Potential
Beneficial Owner.
For purposes hereof, the communication by a Beneficial Owner or Potential
Beneficial Owner to a Broker-Dealer, or by a Broker-Dealer to the Auction Agent,
of information referred to in clause (i)(a), (i)(B), (i)(C), or (ii) of this
subparagraph (a) is hereinafter referred to as an "Order" and collectively as
"Orders" and each Beneficial Owner and each Potential Beneficial Owner placing
an Order with a Broker-Dealer, and such Broker-Dealer placing an Order with the
Auction Agent, is hereinafter referred to as a "Bidder" and collectively as
"Bidders"; an Order containing the information referred to in clause (i)(A) of
this subparagraph (a) is hereinafter referred to as a "Hold Order" and
collectively as "Hold Orders"; an Order containing the information referred to
in clause (i)(B) or (ii) of this subparagraph (a) is hereinafter referred to as
a "Bid" and collectively as "Bids"; and an Order containing the information
referred to in clause (i)(C) of this subparagraph (a) is hereinafter referred to
as a "Sell Order" and collectively as "Sell Orders."
(b) (i) A Bid by a Beneficial Owner or an Existing Holder of shares of a
series of Municipal Preferred subject to an Auction on any Auction Date shall
constitute an irrevocable offer to sell:
(A) the number of Outstanding shares of such series
specified in such Bid if the Applicable Rate for shares of such
series determined on such Auction Date shall be less than the
rate specified therein;
-55-
<PAGE> 56
(B) such number or a lesser number of Outstanding shares
of such series to be determined as set forth in paragraph
4(a)(iv) of this Part II if the Applicable Rate for shares of
such series determined on such Auction Date shall be equal to the
rate specified therein; or
(C) the number of Outstanding shares of such series
specified in such Bid if the rate specified therein shall be
higher than the Maximum Rate for shares of such series, or such
number or a lesser number of Outstanding shares of such series to
be determined as set forth in paragraph 4(b)(iii) of this Part II
if the rate specified therein shall be higher than the Maximum
Rate for shares of such series and Sufficient Clearing Bids for
shares of such series do not exist.
(ii) A Sell Order by a Beneficial Owner or an Existing Holder of
shares of a series of Municipal Preferred subject to an Auction on any
Auction Date shall constitute an irrevocable offer to sell:
(A) the number of Outstanding shares of such series
specified in such Sell Order; or
(B) such number or a lesser number of Outstanding shares
of such series as set forth in paragraph 4(b)(iii) of this Part
II if Sufficient Clearing Bids for shares of such series do not
exist;
provided, however, that a Broker-Dealer that is an Existing Holder with
respect to shares of a series of Municipal Preferred shall not be liable
to any Person for failing to sell such shares pursuant to a Sell Order
described in the proviso to paragraph 2(c) of this Part II if (1) such
shares were transferred by the Beneficial Owner thereof without
compliance by such Beneficial Owner or its transferee Broker-Dealer (or
other transferee person, if permitted by the Trust) with the provisions
of paragraph 7 of this Part II or (2) such Broker-Dealer has informed
the Auction Agent pursuant to the terms of its Broker-Dealer Agreement
that, according to such Broker-Dealer's records, such Broker-Dealer
believes it is not the Existing Holder of such shares.
(iii) A Bid by a Potential Beneficial Holder or a Potential
Holder of shares of a series of Municipal Preferred subject to an
Auction on any Auction Date shall constitute an irrevocable offer to
purchase:
(A) the number of Outstanding shares of such series
specified in such Bid if the Applicable Rate for shares of such
series determined on such Auction Date shall be higher than the
rate specified therein; or
(B) such number or a lesser number of Outstanding shares
of such series as set forth in paragraph 4(a)(v) of this Part II
if the Applicable Rate for shares of
-56-
<PAGE> 57
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
(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
-57-
<PAGE> 58
on behalf of such Existing Holder covering the number of Outstanding shares of
such series held by such Existing Holder and not subject to Orders submitted to
the Auction Agent; provided, however, that if an Order or Orders covering all of
the Outstanding shares of such series held by any Existing Holder is not
submitted to the Auction Agent prior to the Submission Deadline for an Auction
relating to a Special Rate Period consisting of more than 28 Rate Period Days,
the Auction Agent shall deem a Sell Order to have been submitted by or on behalf
of such Existing Holder covering the number of outstanding shares of such series
held by such Existing Holder and not subject to Orders submitted to the Auction
Agent.
(d) If one or more Orders of an Existing Holder is submitted to the
Auction Agent covering in the aggregate more than the number of Outstanding
shares of Municipal Preferred of a series subject to an Auction held by such
Existing Holder, such Orders shall be considered valid in the following order of
priority:
(i) all Hold Orders for shares of such series shall be considered
valid, but only up to and including in the aggregate the number of
Outstanding shares of such series held by such Existing Holder, and if
the number of shares of such series subject to such Hold Orders exceeds
the number of Outstanding shares of such series held by such Existing
Holder, the number of shares subject to each such Hold Order shall be
reduced pro rata to cover the number of Outstanding shares of such
series held by such Existing Holder;
(ii) (A) any Bid for shares of such series shall be considered
valid up to and including the excess of the number of Outstanding
shares of such series held by such Existing Holder over the
number of shares of such series subject to any Hold Orders
referred to in clause (i) above;
(B) subject to subclause (A), if more than one Bid of an
Existing Holder for shares of such series is submitted to the
Auction Agent with the same rate and the number of Outstanding
shares of such series subject to such Bids is greater than such
excess, such Bids shall be considered valid up to and including
the amount of such excess, and the number of shares of such
series subject to each Bid with the same rate shall be reduced
pro rata to cover the number of shares of such series equal to
such excess;
(C) subject to subclauses (A) and (B), if more than one
Bid of an Existing Holder for shares of such series is submitted
to the Auction Agent with different rates, such Bids shall be
considered valid in the ascending order of their respective rates
up to and including the amount of such excess; and
(D) in any such event, the number, if any, of such
Outstanding shares of such series subject to any portion of Bids
considered not valid in whole or in part under this clause (ii)
shall be treated as the subject of a Bid for shares of such
series by or on behalf of a Potential Holder at the rate therein
specified; and
-58-
<PAGE> 59
(iii) all Sell Orders for shares of such series shall be
considered valid up to and including the excess of the number of
Outstanding shares of such series held by such Existing Holder over the
sum of shares of such series subject to valid Hold Orders referred to in
clause (i) above and valid Bids referred to in clause (ii) above.
(e) If more than one Bid for one or more shares of a series of Municipal
Preferred is submitted to the Auction Agent by or on behalf of any Potential
Holder, each such Bid submitted shall be a separate Bid with the rate and number
of shares therein specified.
(f) Any Order submitted by a Beneficial Owner or a Potential Beneficial
Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior to
the Submission Deadline on any Auction Date, shall be irrevocable.
3. Determination of Sufficient Clearing Bids, Winning Bid Rate and
Applicable Rate.
(a) Not earlier than the Submission Deadline on each Auction Date for
shares of a series of Municipal Preferred, the Auction Agent shall assemble all
valid Orders submitted or deemed submitted to it by the Broker-Dealers in
respect of shares of such series (each such Order as submitted or deemed
submitted by a Broker-Dealer being hereinafter referred to individually as a
"Submitted Hold Order," a "Submitted Bid" or a "Submitted Sell Order," as the
case may be, or as a "Submitted Order," and collectively as "Submitted Hold
Orders," "Submitted Bids" or "Submitted Sell Orders," as the case may be, or as
"Submitted Orders") and shall determine for such series:
(i) the excess of the number of Outstanding shares of such series
over the number of Outstanding shares of such series subject to
Submitted Hold Orders (such excess being hereinafter referred to as the
"Available Municipal Preferred" of such series);
(ii) from the Submitted Orders for shares of such series whether:
(A) the number of Outstanding shares of such series
subject to Submitted Bids of Potential Holders specifying one or
more rates equal to or lower than the Maximum Rate for shares of
such series;
exceeds or is equal to the sum of:
(B) the number of Outstanding shares of such series
subject to Submitted Bids of Existing Holders specifying one or
more rates higher than the Maximum Rate for shares of such
series; and
(C) the number of Outstanding shares of such series
subject to Submitted Sell Orders
-59-
<PAGE> 60
(in the event such excess or such equality exists (other than
because the number of shares of such series in subclauses (B) and
(C) above is zero because all of the Outstanding shares of such
series are subject to Submitted Hold Orders), such Submitted Bids
in subclause (A) above being hereinafter referred to collectively
as "Sufficient Clearing Bids" for shares of such series); and
(iii) if Sufficient Clearing Bids for shares of such series
exist, the lowest rate specified in such Submitted Bids (the "Winning
Bid Rate" for shares of such series) which if:
(A) (I) each such Submitted Bid of Existing Holders
specifying such lowest rate and (II) all other such Submitted
Bids of Existing Holders specifying lower rates were rejected,
thus entitling such Existing Holders to continue to hold the
shares of such series that are subject to such Submitted Bids;
and
(B) (I) each such Submitted Bid of Potential Holders
specifying such lowest rate and (II) all other such Submitted
Bids of Potential Holders specifying lower rates were accepted;
would result in such Existing Holders described in subclause (A) above
continuing to hold an aggregate number of Outstanding shares of such
series which, when added to the number of Outstanding shares of such
series to be purchased by such Potential Holders described in subclause
(B) above, would equal not less than the Available Municipal Preferred
of such series.
(b) Promptly after the Auction Agent has made the determinations
pursuant to subparagraph (a) of this paragraph 3, the Auction Agent shall advise
the Trust of the Maximum Rate for shares of the series of Municipal Preferred
for which an Auction is being held on the Auction Date and, based on such
determination, the Applicable Rate for shares of such series for the next
succeeding Rate Period thereof as follows:
(i) if Sufficient Clearing Bids for shares of such series exist,
that the Applicable Rate for all shares of such series for the next
succeeding Rate Period thereof shall be equal to the Winning Bid Rate
for shares of such series so determined;
(ii) if Sufficient Clearing Bids for shares of such series do not
exist (other than because all of the Outstanding shares of such series
are subject to Submitted Hold Orders), that the Applicable Rate for all
shares of such series for the next succeeding Rate Period thereof shall
be equal to the Maximum Rate for shares of such series; or
(iii) if all of the Outstanding shares of such series are subject
to Submitted Hold Orders, that the Applicable Rate for all shares of
such series for the next succeeding Rate Period thereof shall be as set
forth in subparagraph (c) of this paragraph 3.
-60-
<PAGE> 61
(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:
-61-
<PAGE> 62
(i) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is higher than the Winning Bid Rate for shares
of such series shall be accepted, thus requiring each such Existing
Holder to sell the shares of Municipal Preferred subject to such
Submitted Bids;
(ii) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is lower than the Winning Bid Rate for shares
of such series shall be rejected, thus entitling each such Existing
Holder to continue to hold the shares of Municipal Preferred subject to
such Submitted Bids;
(iii) Potential Holders' Submitted Bids for shares of such series
specifying any rate that is lower than the Winning Bid Rate for shares
of such series shall be accepted;
(iv) 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.
-62-
<PAGE> 63
(b) If Sufficient Clearing Bids for shares of a series of Municipal
Preferred have not been made (other than because all of the Outstanding shares
of such series are subject to Submitted Hold Orders), subject to the provisions
of subparagraph (d) of this paragraph 4, Submitted Orders for shares of such
series shall be accepted or rejected as follows in the following order of
priority and all other Submitted Bids for shares of such series shall be
rejected:
(i) Existing Holders' Submitted Bids for shares of such series
specifying any rate that is equal to or lower than the Maximum Rate for
shares of such series shall be rejected, thus entitling such Existing
Holders to continue to hold the shares of Municipal Preferred subject to
such Submitted Bids;
(ii) Potential Holders' Submitted Bids for shares of such series
specifying any rate that is equal to or lower than the Maximum Rate for
shares of such series shall be accepted; and
(iii) 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.
-63-
<PAGE> 64
(e) If, as a result of the procedures described in clause (v) of
paragraph (a) of this paragraph 4, any Potential Holder would be entitled or
required to purchase less than a whole share of series of Municipal Preferred on
any Auction Date, the Auction Agent shall, in such manner as it shall determine
in its sole discretion, allocate shares of Municipal Preferred of such series
for purchase among Potential Holders so that only whole shares of Municipal
Preferred of such series are purchased on such Auction Date as a result of such
procedures by any Potential Holder, even if such allocation results in one or
more Potential Holders not purchasing shares of Municipal Preferred of such
series on such Auction Date.
(f) Based on the results of each Auction for shares of a series of
Municipal Preferred, the Auction Agent shall determine the aggregate number of
shares of such series to be purchased and the aggregate number of shares of such
series to be sold by Potential Holders and Existing Holders and, with respect to
each Potential Holder and Existing Holder, to the extent that such aggregate
number of shares to be purchased and such aggregate number of shares to be sold
differ, determine to which other Potential Holder(s) or Existing Holder(s) they
shall deliver, or from which other Potential Holder(s) or Existing Holder(s)
they shall receive, as the case may be, shares of Municipal Preferred of such
series. Notwithstanding any provision of the Auction Procedures or the
Settlement Procedures to the contrary, in the event an Existing Holder or
Beneficial Owner of shares of a series of Municipal Preferred with respect to
whom a Broker-Dealer submitted a Bid to the Auction Agent for such shares that
was accepted in whole or in part, or submitted or is deemed to have submitted a
Sell Order for such shares that was accepted in whole or in part, fails to
instruct its Agent Member to deliver such shares against payment therefor,
partial deliveries of shares of Municipal Preferred that have been made in
respect of Potential Holders' or Potential Beneficial Owners' Submitted Bids for
shares of such series that have been accepted in whole or in part shall
constitute good delivery to such Potential Holders and Potential Beneficial
Owners.
(g) Neither the Trust nor the Auction Agent nor any affiliate of either
shall have any responsibility or liability with respect to the failure of an
Existing Holder, a Potential Holder, a Benefit 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
-64-
<PAGE> 65
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 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.
-65-
<PAGE> 66
Article 13.
Amendments
Except as otherwise expressly stated herein, these By-Laws may be
amended or repealed, in whole or in part, by a majority of the Trustees then in
office at any meeting of the Trustees, or by one or more writings signed by such
a majority.
<PAGE> 1
COLONIAL MUNICIPAL INCOME TRUST
July __, 1999
Standard & Poor's Ratings Services
25 Broadway
New York, New York 10004
Ladies and Gentlemen:
This letter agreement will confirm that Colonial Municipal Income Trust
(the "Trust"), in connection with the Trust's issuance of 3,600 Municipal
Auction Rate Cumulative Preferred Shares, Series F (the "Shares") on July __,
1999, hereby represents to Standard & Poor's Ratings Services ("Standard &
Poor's") that, for so long as Standard & Poor's is rating the Shares, in
calculating the Discounted Value of the Trust's portfolio, (1) Standard & Poor's
Discount Factors will be applied to futures and Inverse Floaters and (2) a
Standard & Poor's Discount Factor of 388% will be applied to Municipal
Obligations rated AAA by Standard & Poor's which are not interest bearing or do
not pay interest at least semi-annually.
Capitalized terms used herein and not defined shall have the meanings
given to such terms in the By-Laws.
COLONIAL MUNICIPAL INCOME TRUST
By: ____________________________
Name:
Title:
